Table of Contents

As filed with the Securities and Exchange Commission on January 29, 2010

Registration No. 333-                

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

Tesla Motors, Inc.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   3711   91-2197729

(State or other jurisdiction of

incorporation or organization)

 

(Primary Standard Industrial

Classification Code Number)

 

(I.R.S. Employer

Identification Number)

3500 Deer Creek Road

Palo Alto, California 94304

(650) 413-4000

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

Elon Musk

Chief Executive Officer

Tesla Motors, Inc.

3500 Deer Creek Road

Palo Alto, California 94304

(650) 413-4000

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Larry W. Sonsini

David J. Segre

Mark B. Baudler

Wilson Sonsini Goodrich & Rosati, P.C.

650 Page Mill Road

Palo Alto, California 94304

(650) 493-9300

  

Kevin P. Kennedy

Simpson Thacher & Bartlett LLP

2550 Hanover Street

Palo Alto, California 94304

(650) 251-5000

 

 

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

 

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box.   ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer      ¨    Accelerated filer   ¨
Non-accelerated filer      x   (Do not check if a smaller reporting company)    Smaller reporting company   ¨

 

 

CALCULATION OF REGISTRATION FEE

 

 
Title of Each Class of Securities to be Registered  

Proposed Maximum
Aggregate Offering

Price(1)(2)

 

Amount of
Registration

Fee

Common Stock, $0.001 par value

  $100,000,000   $7,130
 
 
(1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457 under the Securities Act of 1933, as amended.
(2) Includes shares the underwriters have the option to purchase to cover over-allotments, if any.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission acting pursuant to said Section 8(a) may determine.

 

 

 

 


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION, DATED JANUARY 29, 2010

             Shares

LOGO

Common Stock

 

 

This is an initial public offering of shares of common stock of Tesla Motors, Inc.

Tesla Motors is offering             of the shares to be sold in the offering. The selling stockholders identified in this prospectus are offering an additional              shares. Tesla Motors will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders.

Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price per share will be between $             and $            .

Application has been made for listing on the              under the symbol “    ”.

See the section entitled “ Risk Factors ” on page 13 to read about factors you should consider before buying shares of the common stock.

 

 

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 

     Per Share    Total

Initial public offering price

   $                 $             

Underwriting discount

   $      $  

Proceeds, before expenses, to Tesla Motors

   $      $  

Proceeds, before expenses, to the selling stockholders

   $      $  

 

 

To the extent that the underwriters sell more than             shares of common stock, the underwriters have the option to purchase up to an additional              shares from Tesla Motors and              shares from the selling stockholders at the initial public offering price less the underwriting discount.

 

 

The underwriters expect to deliver the shares against payment in New York, New York on                     , 2010.

 

Goldman, Sachs & Co.   Morgan Stanley   J.P. Morgan   Deutsche Bank Securities

 

 

Prospectus dated                      , 2010


Table of Contents

LOGO


Table of Contents

LOGO


Table of Contents

LOGO


Table of Contents

TABLE OF CONTENTS

 

     Page

Prospectus Summary

   1

The Offering

   8

Summary Consolidated Financial Data

   10

Risk Factors

   13

Special Note Regarding Forward Looking Statements

   52

Market, Industry and Other Data

   52

Use of Proceeds

   53

Dividend Policy

   54

Capitalization

   55

Dilution

   57

Selected Consolidated Financial Data

   59

Management’s Discussion and Analysis of Financial Condition and Results of Operations

   61

Business

   89

Management

   122

Executive Compensation

   129

Certain Relationships and Related Party Transactions

   150

Principal and Selling Stockholders

   156

Description of Capital Stock

   159

Shares Eligible for Future Sale

   164

Material United States Tax Considerations for Non-United States Holders

   166

Underwriting

   169

Legal Matters

   173

Experts

   173

Where You Can Find Additional Information

   173

Index to Consolidated Financial Statements

   F-1

 

 

You should rely only on the information contained in this prospectus and in any free writing prospectus. We, the underwriters and the selling stockholders have not authorized anyone to provide you with information different from that contained in this prospectus. We, the underwriters and the selling stockholders are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock.

Neither we, the selling stockholders, nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside of the United States.

 

i


Table of Contents

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. You should read the following summary together with the more detailed information appearing in this prospectus, including “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors,” “Business” and our consolidated financial statements and related notes before deciding whether to purchase shares of our capital stock. Unless the context otherwise requires, the terms “Tesla Motors,” “Tesla,” “the Company,” “we,” “us” and “our” in this prospectus refer to Tesla Motors, Inc., and its subsidiaries and “Tesla store” means Tesla retail locations as well as Tesla galleries where we show potential customers our vehicles but do not consummate sales.

Overview

We design, manufacture and sell high-performance fully electric vehicles and advanced electric vehicle powertrain components. We have intentionally departed from the traditional automotive industry model by both exclusively focusing on electric powertrain technology and owning our vehicle sales and service network. We are the first and currently only company to commercially produce a federally-compliant highway-capable electric vehicle, the Tesla Roadster, which combines a market-leading range on a single charge with attractive design, driving performance and zero tailpipe emissions. Introducing the Tesla Roadster required us to develop a proprietary electric powertrain that incorporates four key components—an advanced battery pack, power electronics module, high-efficiency motor and extensive control software. We believe our core intellectual property contained within our electric powertrain will form the foundation for our planned future vehicles. Since our team combines the innovation and speed to market characteristics of Silicon Valley firms with the experience of leading automotive companies, we believe that we will be able to rapidly and cost effectively introduce additional vehicles, such as our planned Tesla Model S sedan, and stay at the forefront of the electric automobile industry.

We operate in a fundamentally different manner and structure than traditional automobile manufacturers to pursue what we believe is a historic opportunity – to create an integrated company which successfully commercializes electric vehicles without compromising on range, performance or styling. In addition to designing and manufacturing our vehicles, we sell and service them through our own sales and service network. This is different from the incumbent automobile companies in the United States who typically franchise their sales and service. We believe our approach will enable us to operate more cost effectively, provide a better experience for our customers and incorporate customer feedback more quickly into our product development and manufacturing processes. We are continuing to expand our distribution network globally and currently operate a total of 10 Tesla stores in North America and Europe.

The Tesla Roadster, our first vehicle, showcases our technology and illustrates our leadership in electric vehicle innovation. Introduced in 2008, the Tesla Roadster can accelerate from zero to 60 miles per hour in 3.9 seconds, but produces zero tailpipe emissions. The Tesla Roadster has a battery pack capable of storing approximately 53 kilowatt-hours of usable energy, almost double the energy of any other commercially available electric vehicle battery pack. The Tesla Roadster has a range of 236 miles on a single charge, as determined by an independent third party using the United States Environmental Protection Agency’s, or EPA’s, combined two-cycle city/highway test. Recently, the EPA announced its intention to develop and establish new energy efficiency testing methodologies for electric vehicles, which we believe could result in a significant decrease to the advertised ranges of all electric vehicles, including ours. The Tesla Roadster reportedly set a new world distance record of 313 miles for a production electric car in a rally across Australia as part of the 2009 Global Green Challenge. To date, our customers have driven their Tesla Roadsters an estimated 3.0 million miles.

 

 

1


Table of Contents

As of December 31, 2009 we had sold 937 Tesla Roadsters to customers in 18 countries. In July 2009, less than one year after the date of the commercial introduction of the Tesla Roadster, we introduced a new Roadster model, the Tesla Roadster 2, with improved electric powertrain performance and interior styling, and lower production costs. At the same time we introduced the Roadster Sport, which accelerates from zero to 60 miles per hour in 3.7 seconds. We delivered our first right-hand drive version of the Tesla Roadster in January 2010, which we believe further demonstrates our ability to rapidly launch new products.

We intend to continue to develop our electric powertrain technology and introduce additional vehicles, such as our planned Model S sedan. We are designing the Model S to be a four door, five passenger premium sedan that offers exceptional performance, functionality and attractive styling with zero tailpipe emissions at a compelling cost of ownership. We are designing the Model S to include a third row with two rear-facing child seats, subject to applicable safety regulations and requirements, allowing us to offer a seven passenger sedan. The drivable early prototype of the Model S was revealed to the public in March 2009 and despite a limited marketing effort, as of December 31, 2009, we had received approximately 2,000 customer reservations with a minimum refundable payment of $5,000.

The Model S, which is planned to compete in the premium sedan market, is intended to have a significantly broader customer base than the Tesla Roadster. We currently intend to begin volume production of the Model S in 2012 with a target annual production of up to approximately 20,000 cars per year. We currently anticipate introducing the base Model S at an effective price of $49,900 in the United States, assuming and after giving effect to the continuation of a currently available United States federal tax credit of $7,500 for the purchase of alternative fuel vehicles. Even without this tax credit, we believe the Model S will be competitive from a pricing perspective with other premium sedans.

In order to meet customer range expectations, we are designing the planned Model S to offer a variety of range options from 160 miles to 300 miles on a single charge, as projected using the EPA’s combined two-cycle city/highway test. The EPA has announced its intention to develop and establish new energy efficiency testing methodologies for electric vehicles, which we believe could result in a significant decrease to the advertised ranges of all electric vehicles, including ours. The Model S is being designed to be charged at home, but we are also planning to offer the capability to fast charge the vehicle in as little as forty-five minutes at commercial charging stations that we anticipate may be available in the future. The Model S battery pack is also being designed with the capability of being rapidly swapped out at specialized commercial battery pack exchange facilities that we anticipate may be available in the future.

We are designing the Model S to have an adaptable platform architecture and common electric powertrain in order to allow us to efficiently create other electric vehicles, which may include a sport utility vehicle, commercial van or a coupe. By developing our future vehicles from this common platform, we believe we can reduce their development time, and therefore reduce the required additional capital investment. Our long-term goal is to offer consumers a full range of electric vehicles, including a product line at a lower price point than the planned Model S.

We have developed a purpose-built electric powertrain to deliver the performance objectives of the Tesla Roadster and our planned future vehicles. The battery pack has been designed to use high volume lithium-ion battery cells and allows for flexibility with respect to specific lithium-ion chemistry and battery cell manufacturers. This enables us to leverage the significant investments being made globally by the battery industry to improve battery cell performance and lower cost. Harnessing the energy of a large number of lithium-ion battery cells into an electric vehicle required us to develop sophisticated battery cooling, power, safety and management systems. Delivering the instant power and torque of electric technology also required us to develop a proprietary alternating current 3-phase induction motor and its associated power electronics. In addition, we developed extensive software systems to manage the overall efficiency, safety and controls of the

 

 

2


Table of Contents

Tesla Roadster and our planned future vehicles. These technology innovations have resulted in an extensive intellectual property portfolio. By utilizing a combination of standard components and innovative technology, we believe we have engineered what is currently the lowest cost battery pack when measured as a function of cost per kilowatt-hour.

Our electric powertrain is modular and compact, with fewer moving parts than an internal combustion engine, which we believe will enable us to easily adapt the technology to a variety of vehicle applications. We have developed a relationship with Daimler AG, or Daimler, since March 2008 to apply our technology in a battery pack and charger for Daimler’s Smart fortwo electric vehicle. We have been selected by Daimler to supply it with up to 1,000 battery packs and chargers to support a trial of the Smart fortwo electric vehicle in five European cities. We began shipping the first of these battery packs and chargers in November 2009 and started to recognize revenue for these sales in the quarter ended December 31, 2009. We intend to expand our electric powertrain production facility in Palo Alto, California to develop and market powertrain components to Daimler and other automobile manufacturers.

We have entered into a $465.0 million long-term loan under the United States Department of Energy’s Advanced Technology Vehicles Manufacturing Incentive Program which will be used to finance the development of a planned integrated manufacturing facility for the Model S as well as our electric powertrain production facility. We also have been granted up to approximately $31 million in tax incentives by the California Alternative Energy and Advanced Transportation Financing Authority. We believe these loans and incentives will help accelerate the time to volume production for both the planned Model S and our electric powertrain business. In addition, we believe these loans and incentives provide us significant long-term financing that should enable us to focus more of our resources on the execution of our business plans.

We were incorporated in 2003 and began selling the Tesla Roadster in 2008. As of December 31, 2009 we had 514 employees worldwide.

Since inception through September 30, 2009, we have generated $108.2 million in revenue. As of September 30, 2009, we had an accumulated deficit of $236.4 million and had experienced net losses of $30.0 million for the year ended December 31, 2006, $78.2 million for the year ended December 31, 2007, $82.8 million for the year ended December 31, 2008, and $31.5 million for the nine months ended September 30, 2009.

Industry Overview

We believe incumbent automobile manufacturers are at a crossroads and face significant industry-wide challenges. The reliance on the gasoline-powered internal combustion engine as the principal automobile powertrain technology has raised environmental concerns, created dependence among industrialized and developing nations on oil largely imported from foreign nations and exposed consumers to volatile fuel prices. In addition, we believe the legacy investments made by incumbent automobile manufacturers in manufacturing and technology related to the internal combustion engine have to date inhibited rapid innovation in alternative fuel powertrain technologies.

We believe that shifting consumer preferences together with increasing government regulation and incentives will result in significant growth in the market for electric vehicles. We believe many consumers are increasingly willing to consider buying electric-based vehicles due to the environmental, economic and national security consequences of using gasoline-powered vehicles, as demonstrated by the increased sales of hybrid electric vehicles in recent years. We also believe government regulations and incentives are accelerating the growth of the electric vehicle market. Many governments in countries throughout the world are regulating vehicle emissions and fuel economy standards and offering incentives to consumers to purchase more energy efficient vehicles. According to Frost & Sullivan, a business research and consulting firm, the market for electric-

 

 

3


Table of Contents

based vehicles, which includes electric vehicles, hybrid electric vehicles, and plug-in hybrid electric vehicles, is expected to grow to approximately 10.6 million units worldwide, or approximately 14% of new vehicles sold by 2015 from approximately 1.75 million units or 3% of new vehicles sold in 2008.

We believe incumbent automobile manufacturers face significant challenges that will continue to inhibit their ability to capitalize fully on the electric vehicle opportunity, including:

 

   

Dependence on the Internal Combustion Engine . We believe many incumbent automobile manufacturers have to date failed to aggressively pursue alternative fuel vehicle programs because of their continued need to invest in internal combustion engine technologies that support their existing revenue base and core competencies.

 

   

Limited Electric Powertrain Expertise . To date, many incumbent automobile manufacturers have pursued multiple alternative fuel programs and, in doing so, have outsourced key components of alternative fuel powertrain development. By exploring a diverse range of alternative fuel programs while simultaneously continuing to invest in the internal combustion engine, we believe incumbent automobile manufacturers have diluted their efforts to build competencies in a specific alternative fuel powertrain technology such as electric powertrains.

 

   

Profitability Pressures and Reduced Operating Flexibility . Many incumbent automobile manufacturers have recently faced deteriorating margins and liquidity, which we believe has significantly reduced their operating flexibility and their ability to invest in alternative fuel programs that they may not view as their core business .

 

   

Long and Expensive New Product Development Process . New product launches by incumbent automobile manufacturers from development to production are often lengthy and require significant capital investments.

Despite the automobile industry’s challenges, incumbent automobile manufacturers have attempted over time to respond to shifting consumer desires and government mandates by incorporating elements of electric propulsion into their vehicles by introducing hybrid powertrains. Although hybrid electric vehicles address some of the concerns associated with the historical reliance on the internal combustion engine, we believe they are a transitional technology between internal combustion engine vehicles and fully electric vehicles. The increased complexity and weight of the dual powertrain system inherent in hybrid and plug-in hybrid electric vehicles forces engineering compromises which result in a less energy efficient vehicle and generally limits performance. Consequently, these hybrid vehicles do not realize the full benefits of electric propulsion, and still consume gasoline and produce emissions. While incumbent automobile manufacturers may recognize the benefits of electric propulsion, we believe that due to technology limitations and their relatively limited expertise in battery, software, and electric powertrain technologies, incumbent automobile manufacturers have to date been unable to design and offer a commercially successful electric vehicle that offers compelling range, vehicle design and performance at an affordable cost.

Our Solution

We design, manufacture and sell high-performance fully electric vehicles and advanced electric vehicle powertrain components through our highly differentiated business model. We intend to leverage our proprietary electric powertrain system developed for the Tesla Roadster to form the basis for our planned Model S sedan. We believe our combination of engineering and management expertise from Silicon Valley and the automotive industry, together with our operational structure, will help us to rapidly innovate and to cost efficiently introduce new vehicles and technologies. By owning our sales and service network, we believe we can offer a compelling customer experience while achieving operating efficiencies and capturing sales and service revenues that incumbent automobile manufacturers do not receive in the traditional franchised dealer model. We also plan to

 

 

4


Table of Contents

leverage our electric powertrain technology to develop and sell powertrain components to other manufacturers, such as the battery packs and chargers we have recently begun to sell to Daimler.

We believe our proprietary electric powertrain system will enable us to design and develop zero emission vehicles that overcome the design, styling, and performance issues that have historically limited broad consumer adoption of electric vehicles. As a result, we believe customers of our vehicles will enjoy many benefits, including:

 

   

Long Range and Recharging Flexibility . The Tesla Roadster has been designed to provide range capabilities significantly in excess of any current and prior generation electric vehicles. We are designing our planned Model S to offer a variety of intermediate range options as well as a range option extending beyond that of the Tesla Roadster. In addition, the Tesla Roadster incorporates our proprietary on-board charging system, permitting recharging from almost any available electrical outlet, and we are designing the Model S to offer fast charging capability from higher power electrical outlets.

 

   

Energy Efficiency and Cost of Ownership . We believe our Tesla Roadster offers and our planned Model S will offer consumers an attractive cost of ownership when compared to similar internal combustion engine or hybrid electric vehicles. By using a single powertrain and customizing the systems within the electric powertrain and the rest of the vehicle, our vehicles are more energy efficient, and therefore less expensive to operate, than currently available hybrid or internal combustion engine vehicles.

 

   

High-Performance Without Compromised Design or Functionality . With the Tesla Roadster, we believe we have been able to successfully overcome the design and performance tradeoff issues that encumbered earlier electric vehicle designs. We believe the Tesla Roadster offers our customers an unparalleled driving experience with instantaneous and sustained acceleration through an extended range of speed. We intend to apply such advancements to our future vehicles.

Our Competitive Strengths

We believe the following strengths position us well to capitalize on the expected growth in the electric vehicle market:

 

   

Singular Focus and Leadership in Electric Powertrain Technology . We are focused exclusively on developing our electric vehicles and electric powertrain technology to achieve a compelling combination of range and performance in our vehicles. We intend to use our electric powertrain expertise to innovate rapidly and sustain technological and time to market advantages over incumbent automobile manufacturers.

 

   

Combination of Expertise from Silicon Valley and the Traditional Automotive Industry . Our roots in Silicon Valley have enabled us to recruit engineers with strong skills in electrical engineering, software and controls, which we have complemented with significant automotive expertise in vehicle engineering and manufacturing from other members or our team.

 

   

Proprietary Systems Integration of Vehicle and Electric Powertrain . We believe that our ability to combine our electric powertrain expertise with our vehicle engineering expertise provides a broad capability in electric vehicle design and systems integration.

 

   

Rapid Customer Focused Product Development . We have designed our product development process to rapidly react to data collected from our vehicles and the direct interaction with our customers at our company-owned stores, which we believe will enable us to rapidly introduce new vehicles and features.

 

   

Ownership of Sales and Service Network . We intend for our distribution and service network to offer a compelling customer experience while achieving operating efficiencies and capturing sales and service

 

 

5


Table of Contents
 

revenues incumbent automobile manufacturers do not generally receive in the traditional franchised distribution and service network model.

 

   

Brand Leadership . We believe the Tesla brand is well recognized in our target market and is associated with high performance, long range electric vehicles, despite limited marketing spending to date. In November 2009, Advertising Age provided testament to our brand strength by selecting Tesla as one of “America’s hottest brands” in a special report highlighting the year’s 50 top brands.

 

   

Substantial Funding in Place to Accelerate Growth . We believe our $465.0 million loan facility agreement under the United States Department of Energy’s Advanced Technology Vehicles Manufacturing Incentive Program provides significant long-term financing that will enable us to focus on executing our business plans.

 

   

Capital Efficiency . We believe our rapid product development process, our modular and adaptable powertrain, our plan to design and manufacture multiple product types on a singular platform, and our ability to hold lower inventory levels while still meeting customer demand will help reduce the capital required to reach operating efficiencies. This approach is designed with the aim of allowing us to achieve profitability at relatively low volumes and create a viable long-term business.

Our Strategy

We intend to be a leading global manufacturer and direct seller of electric vehicles and electric vehicle technologies. Key elements of our strategy include:

 

   

Successfully Launch the Model S . We believe the successful launch of the planned Model S is critical to our ability to capitalize on the electric vehicle market opportunity. We are currently executing a detailed plan to finish the design, engineering and component sourcing for the Model S and to build out the manufacturing facility and obtain the equipment to support its production with the goal of commercial introduction of the Model S in 2012.

 

   

Use a Common Platform to Introduce New Models . We intend to design the Model S with an adaptable platform architecture and common electric powertrain, to provide us the flexibility to use the Model S platform to cost efficiently launch new electric vehicle models subsequent to the start of production of the Model S.

 

   

Develop Integrated Engineering and Manufacturing Capabilities . We intend to develop a substantially-integrated electric vehicle manufacturing facility, allowing our design, vehicle engineering, and manufacturing teams to work alongside one another to streamline the feedback loop for rapid product enhancements and quality improvements.

 

   

Continue to Focus on Technological Advancement and Cost Improvement . We intend to continue to further develop our proprietary electric powertrain system, specifically its range capabilities, while continuing to reduce its manufacturing cost.

 

   

Expand our Company-Owned Sales and Service Network . As of December 31, 2009, we had opened 10 Tesla owned stores in the United States and Europe, and we plan to nearly double the number of Tesla stores opened by the end of 2010, with a goal of establishing approximately 50 stores globally within the next several years in connection with the planned Model S rollout.

 

   

Leverage Industry Advancements in Battery Cells . We intend to leverage the substantial investments being made globally by battery cell manufacturers, as we have designed our powertrain technology to permit flexibility with respect to battery cell chemistry, form factor and vendor.

 

   

Build and Leverage Strategic Relationships. We intend to establish and develop strategic relationships with industry leaders to launch our planned electric vehicles and sell our electric vehicle powertrain components.

 

 

6


Table of Contents

Risks Affecting Us

Our business is subject to a number of risks and uncertainties that you should understand before making an investment decision. These risks are discussed more fully in the section entitled “Risk Factors” following this prospectus summary. These include:

 

   

our limited operating history makes evaluating our business and future prospects difficult, and may increase the risk of your investment;

 

   

we have a history of losses and we expect significant increases in our costs and expenses to result in continuing losses for at least the foreseeable future;

 

   

our future growth is dependent upon consumers’ willingness to adopt electric vehicles;

 

   

we are dependent upon our ability to fully draw down on our loan facility from the United States Department of Energy, which may restrict our ability to conduct our business;

 

   

our distribution model is different from the predominant current distribution model for automobile manufacturers, which makes evaluating our business, operating results and future prospects difficult;

 

   

we are almost entirely dependent upon revenue generated from the sale of our electric vehicles, specifically the Tesla Roadster, in the near term, and our future success will be dependent upon our ability to design and achieve market acceptance of new vehicle models, and specifically the Model S;

 

   

we anticipate that we will experience a decrease in revenues and increase in losses prior to the launch of the Model S;

 

   

our production model for the non-powertrain portion of the Model S is unproven, still evolving and is very different from the non-powertrain portion of the production model for the Tesla Roadster; and

 

   

we may experience significant delays in the design, manufacture, launch and financing of the Model S.

Corporate Information

We are headquartered in Palo Alto, California. Our principal executive offices are located at 3500 Deer Creek Road, Palo Alto, California 94304, and our telephone number at this location is (650) 413-4000. Our website address is www.teslamotors.com. Information contained on our website is not incorporated by reference into this prospectus and you should not consider information on our website to be part of this prospectus. We were incorporated in 2003.

The “Tesla Motors” design logo, “Tesla Motors,” “Tesla Roadster,” “Model S” and other trademarks or service marks of Tesla Motors appearing in this prospectus are the property of Tesla Motors. When used herein, the term “Tesla store” means Tesla retail locations as well as Tesla galleries where we show potential customers our vehicles but do not consummate sales. This prospectus contains additional trade names, trademarks and service marks of other companies. We do not intend our use or display of other companies’ tradenames, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.

 

 

7


Table of Contents

THE OFFERING

 

Common stock we are offering

             shares

 

Common stock offered by the selling stockholders

             shares

 

Common stock to be outstanding after this offering

             shares

 

Use of proceeds

We may use a portion of the net proceeds from this offering to fund planned capital expenditures, working capital and other general corporate purposes. Under our loan facility with the United States Department of Energy, which we refer to herein as our DOE Loan Facility, we have agreed to spend up to $33 million plus any cost overruns we may encounter in developing our anticipated powertrain and Model S manufacturing facilities. In addition to this obligation, we have agreed to set aside 50% of the net proceeds from this offering to fund a separate, dedicated account under our DOE Loan Facility to fund project costs for our anticipated powertrain and Model S manufacturing facilities that would otherwise have been funded through advances made under the DOE Loan Facility, which funds will be reimbursed by the DOE once they have been used in full. We currently anticipate making aggregate capital expenditures of between $100 million and $125 million during the year ended December 31, 2010. See “Use of Proceeds.”

 

Directed share program

The underwriters have reserved for sale, at the initial public offering price, up to              shares of our common stock being offered for sale to business associates, employees and friends and family members of our employees and Tesla customers who have received delivery of a Tesla Roadster from Tesla. The number of shares available for sale to the general public in this offering will be reduced to the extent these persons purchase reserved shares. Any reserved shares not purchased will be offered by the underwriters to the general public on the same terms as the other shares.

 

Proposed              symbol

“            ”

The number of shares of common stock that will be outstanding after this offering is based on the              shares outstanding as of September 30, 2009 and excludes:

 

   

10,627,629 shares of common stock issuable upon the exercise of options outstanding at September 30, 2009 at a weighted average exercise price of $0.74 per share;

 

   

25,881,673 shares of common stock issuable upon exercise of options granted after September 30, 2009 at a weighted average exercise price of $2.20 per share;

 

   

9,255,035 shares of common stock issuable upon the exercise of a warrant granted to the DOE in connection with the closing of our DOE Loan Facility on January 20, 2010, at an exercise price of $2.5124 per share; and

 

   

40,042,380 shares of common stock reserved for future issuance under our stock-based compensation plans, consisting of 35,042,380 shares of common stock reserved for issuance under our 2010 Equity Incentive Plan and 5,000,000 shares of common stock reserved for issuance under our 2010 Employee

 

 

8


Table of Contents
 

Stock Purchase Plan and shares that become available under the 2010 Equity Incentive Plan and 2010 Employee Stock Purchase Plan pursuant to provisions thereof that automatically increase the share reserves under the plans each year, as more fully described in “Management—Employee Benefit Plans.” The 2010 Equity Incentive Plan and the 2010 Employee Stock Purchase Plan will become effective on the date of this offering.

Unless otherwise indicated, all information in this prospectus assumes:

 

   

the automatic conversion of all outstanding shares of our preferred stock into an aggregate of 210,680,690 shares of common stock effective immediately prior to the closing of this offering;

 

   

a              for              stock split of our outstanding capital stock that was effected in                     , 2010;

 

   

the issuance of              shares of common stock upon the net exercise of convertible preferred stock warrants that would otherwise expire upon the completion of this offering at an assumed initial public offering price of $             per share;

 

   

the filing of our amended and restated certificate of incorporation upon the completion of this offering; and

 

   

no exercise by the underwriters of their right to purchase up to an additional              shares of common stock from us and the selling stockholders.

 

 

9


Table of Contents

SUMMARY CONSOLIDATED FINANCIAL DATA

The following summary consolidated financial data for the years ended December 31, 2006, 2007 and 2008 are derived from our audited consolidated financial statements that are included elsewhere in this prospectus. The summary unaudited consolidated financial data for the nine months ended September 30, 2008 and 2009 and as of September 30, 2009 are derived from our unaudited consolidated financial statements for such periods and dates, which are included elsewhere in this prospectus. The unaudited consolidated financial statements were prepared on a basis consistent with our audited consolidated financial statements and include, in the opinion of management, all adjustments necessary for the fair presentation of the financial information contained in those statements. The historical results presented below are not necessarily indicative of financial results to be achieved in future periods.

Prospective investors should read these summary consolidated financial data together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus.

 

    Years Ended December 31,     Nine Months Ended September 30,  
    2006     2007     2008             2008                     2009          
    (in thousands, except for share and per share data)  

Consolidated Statements of Operations Data:

         

Automotive sales (including zero emission vehicle credit sales of $3,458, $495 and $7,645, for the periods ended December 31, 2008, September 30, 2008 and 2009, respectively)

  $ —        $ 73      $ 14,742      $ 580      $ 93,358   

Cost of sales(1)

    —          9        15,883        19        85,604   
                                       

Gross profit (loss)

    —          64        (1,141     561        7,754   

Operating expenses(1):

         

Research and development (net of development compensation of $17,170 for the period ended September 30, 2009)

    24,995        62,753        53,714        41,888        11,139   

Selling, general and administrative

    5,436        17,244        23,649        13,953        25,587   
                                       

Total operating expenses

    30,431        79,997        77,363        55,841        36,726   

Loss from operations

    (30,431     (79,933     (78,504     (55,280     (28,972

Interest income

    938        1,749        529        486        97   

Interest expense

    (423     —          (3,747     (2,648     (2,506

Other income (expense), net(2)

    59        137        (963     231        (320
                                       

Loss before income taxes

    (29,857     (78,047     (82,685     (57,211     (31,701

Provision (benefit) for income taxes

    100        110        97        73        (203
                                       

Net loss

  $ (29,957   $ (78,157   $ (82,782   $ (57,284   $ (31,498

Net loss per share of common stock, basic and diluted(3)

  $ (3.39   $ (7.56   $ (4.15   $ (2.88   $ (1.51
                                       

Shares used in computing net loss per share of common stock, basic and diluted(3)

    8,824,264        10,331,420        19,929,512        19,872,823        20,928,840   
                                       

Pro forma net loss per share of common stock, basic and diluted(2)(4) (unaudited)

      $          $     
                     

Shares used in computing the pro forma net loss per share of common stock, basic and diluted(2)(4) (unaudited)

         
                     

 

 

10


Table of Contents

 

(1) Includes stock-based compensation expense as follows:

 

     Years Ended December 31,    Nine Months Ended September 30,
         2006            2007            2008                2008                    2009        
    

(in thousands)

Cost of sales

   $ —      $ —      $ 26    $ 16    $ 54

Research and development

     17      95      125      82      193

Selling, general and administrative

     6      103      286      124      202
                                  

Total

   $     23    $   198    $ 437    $ 222    $ 449
                                  

 

(2) In January 2010, we issued a warrant to the DOE in connection with the closing of the DOE Loan Facility to purchase shares of our Series E convertible preferred stock. This convertible preferred stock warrant will become a warrant to purchase shares of our common stock upon the closing of this offering. Beginning on December 15, 2018 and until December 14, 2022, the shares subject to purchase under the warrant will become exercisable in quarterly amounts depending on the average outstanding balance of the DOE Loan Facility during the prior quarter. Since the number of shares of common stock ultimately issuable under the warrant will vary, this warrant will be carried at its estimated fair value with changes in fair value reflected in other income (expense), net, until its expiration or exercise. Potential common shares issuable upon exercise of the DOE warrant will be excluded from the calculation of diluted net loss per share of common stock until such time as we generate a net profit in a given period.
(3) Our basic net loss per share of common stock is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period. The diluted net loss per share of common stock is computed by dividing the net loss by the weighted-average number of common shares, excluding common shares subject to repurchase, and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of stock options to purchase common stock and warrants to purchase convertible preferred stock (using the treasury stock method) and the conversion of our convertible preferred stock and convertible notes payable (using the if-converted method). For purposes of all these calculations, potential common shares have been excluded from the calculation of diluted net loss per share of common stock as their effect is antidilutive since we generated a net loss in each period.
(4) Pro forma basic and diluted net loss per share of common stock has been computed to give effect to the conversion of the convertible preferred stock into common stock. Also, the numerator in the pro forma basic and diluted net loss per share calculation has been adjusted to remove gains and losses resulting from remeasurements of the convertible preferred stock warrant liability as it is assumed that these warrants will be exercised immediately prior to a qualifying initial public offering and will no longer require periodic revaluation.

 

 

11


Table of Contents

Our consolidated balance sheet data as of September 30, 2009 is presented:

 

   

on an actual basis;

 

   

on a pro forma basis to give effect to (i) the conversion of all outstanding shares of our convertible preferred stock into 210,680,690 shares of our common stock, (ii) the issuance of             shares of our common stock upon the assumed net exercise of convertible preferred stock warrants that would otherwise expire upon the completion of this offering at an assumed initial public offering price of $             per share, which is the mid-point of the range set forth on the cover page of this prospectus and (iii) the initial funds borrowed under our DOE Loan Facility in              2010 of $            ; and

 

   

on a pro forma as adjusted basis to give effect to the pro forma adjustments as well as the sale of             shares of common stock by us in this offering at an assumed initial public offering price of $             per share, which is the mid-point of the range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

 

     As of September 30, 2009
     Actual     Pro
Forma
   Pro Forma As
Adjusted(1)
    

(Unaudited)

(in thousands)

Consolidated Balance Sheet Data:

       

Cash and cash equivalents

   $ 106,547        

Restricted cash(2)

     3,580        

Property and equipment, net

     19,473        

Working capital

     70,951        

Total assets

     155,916        

Convertible preferred stock warrant liability

     1,010        

Capital lease obligations, less current portion

     711        

Long-term debt, less current portion(3)

     —          

Convertible preferred stock

     319,225        

Total stockholders’ deficit

     (230,645     

 

(1) Each $1.00 increase or decrease in the assumed initial public offering price of $             per share, the midpoint of the range reflected on the cover page of this prospectus, would increase or decrease, as applicable, our cash and cash equivalents, working capital, total assets and total stockholders’ equity (deficit) by approximately $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
(2) The restricted cash represents security deposits related to lease agreements, equipment financing, as well as security held by a vendor as part of the vendor’s standard credit policies. On a pro forma basis, the restricted cash also represents the portion of the proceeds from this offering that we are required to hold in a separate dedicated account pursuant to our DOE Loan Facility to fund certain costs of our powertrain and Model S manufacturing facility projects.
(3) On January 20, 2010, we entered into a loan agreement with the United States Federal Financing Bank, or the FFB, and the DOE, pursuant to the Advanced Technology Vehicles Manufacturing Incentive Program, or the ATVM Program. Under such facility, the FFB has made available to us two multi-draw term loan facilities in an aggregate principal amount of up to $465.0 million. Up to an aggregate principal amount of $101.2 million will be made available under the first term loan facility to finance up to 80% of the costs eligible for funding under the ATVM Program for the build out of a facility to design and manufacture lithium-ion battery packs, electric motors and electric components. Up to an aggregate principal amount of $363.9 million will be made available under the second term loan facility to finance up to 80% of the costs eligible for funding under the ATVM Program for the development of, and to build out the manufacturing facility for the Model S sedan. See the section titled “Business—Governmental Programs, Incentives and Regulations—United States Department of Energy Loans” below for additional information.

 

 

12


Table of Contents

RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the following risks and all other information contained in this prospectus, including our consolidated financial statements and the related notes, before investing in our common stock. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, also may become important factors that may adversely affect us and our prospects materially. If any of the following risks materialize, our business, prospects, financial condition and operating results could be materially harmed. In such case, the price of our common stock could decline, and you may lose some or all of your investment.

Risks Related to Our Business and Industry

Our limited operating history makes evaluating our business and future prospects difficult, and may increase the risk of your investment.

You must consider the risks and difficulties we face as an early stage company with limited operating history. If we do not successfully address these risks, our business, prospects, operating results and financial condition will be materially and adversely harmed. We were formed in July 2003. We began delivering our first performance electric vehicle, the Tesla Roadster, in early 2008, and as of December 31, 2009 we had only sold 937 production vehicles to customers, almost all of which were sold in the United States and Europe. Our revenues were approximately $14.7 million for the year ended December 31, 2008 and approximately $93.4 million for the nine months ended September 30, 2009. We have a very limited operating history on which investors can base an evaluation of our business, operating results and prospects. To date we have derived our revenues principally from sales of the Tesla Roadster and related sales of zero emission vehicle credits, and to a lesser extent on products and services related to electric powertrain sales. We intend in the longer term to derive substantial revenues from the sales of our planned Model S sedan electric vehicle which is at an early stage of development and which we do not expect to be in production until 2012. We have no operating history with respect to the Model S electric vehicle and have only recently begun the component procurement process for the Model S, which limits our ability to accurately forecast the cost of the vehicle. In addition, we have not yet completed the site selection process for the location of our manufacturing facility to produce such vehicles, finalized the design or completed our engineering, manufacturing or component supply plans for the Model S. In addition, to date our powertrain sales and powertrain research and development compensation have been exclusively generated under arrangements with Daimler AG, or Daimler, for the development and sale of a battery pack and a charger for Daimler’s Smart fortwo electric vehicle. Blackstar Investco LLC, or Blackstar, an affiliate of Daimler, holds more than 5% of our outstanding capital stock. Other than our arrangement with Daimler, we have not entered into a development or sales agreement for our electric powertrain business. There are no assurances that we will be able to secure future business with Daimler.

It is difficult to predict our future revenues and appropriately budget for our expenses, and we have limited insight into trends that may emerge and affect our business. In the event that actual results differ from our estimates or we adjust our estimates in future periods, our operating results and financial position could be materially affected.

In addition, our revenues to date have included amounts we receive from selling zero emission vehicle, or ZEV, credits to other automobile manufacturers, pursuant to certain state regulations. We have entered into an agreement with an automobile manufacturer for the sale of the ZEV credits that we earn from the sale of vehicles that we manufactured between January 1, 2009 and December 31, 2009, and we have until June 30, 2010 to sell these ZEV credits under the agreement. We are currently negotiating to extend this agreement for vehicles manufactured in 2010 and 2011. As of December 31, 2009, we had sold credits for 340 vehicles under this agreement and for the year ended December 31, 2008 and the nine months ended September 30, 2009, we recognized revenue from the sale of ZEV credits of $3.5 million and $7.6 million, respectively. We may not be

 

13


Table of Contents

able to enter into another agreement to sell these credits on equivalent terms and if this occurs, our financial results will be harmed.

We have a history of losses and we expect significant increases in our costs and expenses to result in continuing losses for at least the foreseeable future.

We incurred a net loss of approximately $31.5 million for the nine months ended September 30, 2009 and have incurred net losses of approximately $236.4 million from our inception through September 30, 2009. We have had net losses in each quarter since our inception. We believe that we will continue to incur operating and net losses until at least the time we begin significant deliveries of the Model S, which is not expected to occur until 2012, or possibly later. Even if we are able to successfully develop the Model S, there can be no assurance that it will be commercially successful. If we are to ever achieve profitability it will be dependent upon the successful development and successful commercial introduction and acceptance of automobiles such as the Model S, which may not occur.

We expect the rate at which we will incur losses to increase significantly in future periods from current levels as we:

 

   

design, develop and manufacture our planned Model S;

 

   

design, develop and manufacture components of our electric powertrain;

 

   

develop and equip manufacturing facilities to produce our Model S;

 

   

build up inventories of parts and components for our Model S;

 

   

develop and equip manufacturing facilities to produce our electric powertrain components;

 

   

open new Tesla stores;

 

   

expand our design, development, maintenance and repair capabilities;

 

   

increase our sales and marketing activities; and

 

   

increase our general and administrative functions to support our growing operations.

Because we will incur the costs and expenses from these efforts before we receive any incremental revenues with respect thereto, our losses in future periods will be significantly greater than the losses we would incur if we developed our business more slowly. In addition, we may find that these efforts are more expensive than we currently anticipate or that these efforts may not result in increases in our revenues, which would further increase our losses.

In addition, as of December 31, 2007, 2008 and September 30, 2009, we had recorded a full valuation allowance on our United States net deferred tax assets as at this point we believe it is more likely than not that we will not achieve profitability and accordingly be able to use our deferred tax assets in the foreseeable future. In addition, we have not yet determined whether this offering would constitute an ownership change resulting in limitations on our ability to use our net operating loss and tax credit carry-forwards. If an ownership change is deemed to have occurred as a result of this offering, utilization of these assets could be significantly reduced.

Our future growth is dependent upon consumers’ willingness to adopt electric vehicles.

Our growth is highly dependent upon the adoption by consumers of, and we are subject to an elevated risk of any reduced demand for, alternative fuel vehicles, generally, and electric vehicles in particular. If consumers do not adopt electric vehicles, our business, prospects, financial condition and operating results will be harmed. The market for alternative fuel vehicles is relatively new, rapidly evolving, characterized by rapidly changing technologies, price competition, additional competitors, evolving government regulation and industry standards,

 

14


Table of Contents

frequent new vehicle announcements and changing consumer demands and behaviors. Factors that may influence the adoption of alternative fuel vehicles, and specifically electric vehicles, include:

 

   

perceptions about electric vehicle quality, safety (in particular with respect to lithium-ion battery packs), design, performance and cost, especially if adverse events or accidents occur that are linked to the quality or safety of electric vehicles;

 

   

the limited range over which electric vehicles may be driven on a single battery charge;

 

   

the decline of an electric vehicle’s range resulting from deterioration over time in the battery’s ability to hold a charge;

 

   

concerns about electric grid capacity and reliability, which could derail our past and present efforts to promote electric vehicles as a practical solution to vehicles which require gasoline;

 

   

the availability of alternative fuel vehicles, including plug-in hybrid electric vehicles;

 

   

improvements in the fuel economy of the internal combustion engine;

 

   

the availability of service for electric vehicles;

 

   

consumers’ desire and ability to purchase a luxury automobile or one that is perceived as exclusive;

 

   

the environmental consciousness of consumers;

 

   

volatility in the cost of oil and gasoline;

 

   

consumers’ perceptions of the dependency of the United States on oil from unstable or hostile countries, and government regulations and economic incentives promoting fuel efficiency and alternate forms of energy;

 

   

access to charging stations, standardization of electric vehicle charging systems and consumers’ perceptions about convenience and cost to charge an electric vehicle;

 

   

the availability of tax and other governmental incentives to purchase and operate electric vehicles or future regulation requiring increased use of nonpolluting vehicles;

 

   

perceptions about and the actual cost of alternative fuel; and

 

   

macroeconomic factors.

In addition, recent reports have suggested the potential for extreme temperatures to affect the range or performance of electric vehicles. For example, certain recent reports have suggested that electric vehicles operated in colder temperatures may experience a reduced overall range as batteries may lose the ability to hold a charge more rapidly in cold weather. If such reports gain widespread acceptance, our ability to market and sell our vehicles may be adversely impacted.

Additionally, we may become subject to regulations that may require us to alter the design of our vehicles, which could negatively impact consumer interest in our vehicles. For example, our electric vehicles make less noise than internal combustion vehicles. We are aware of advocacy groups, such as U.S. National Federation of the Blind, which are lobbying for regulations to require electric vehicle manufacturers to adopt minimum sound standards. We believe the relative quiet of our vehicles is one of its appealing aspects and any requirement to change this aspect may negatively affect consumer interest in our vehicles.

The influence of any of the factors described above may cause current or potential customers not to purchase our electric vehicles, which would seriously harm our business, operating results, financial condition and prospects.

 

15


Table of Contents

The range of our electric vehicles on a single charge declines over time which may negatively influence potential customers’ decisions whether to purchase our vehicles.

The range of our electric vehicles on a single charge declines principally as a function of usage, time, and charging patterns. For example, a customer’s use of their Tesla vehicle as well as the frequency with which they charge the battery of their Tesla vehicle can result in additional deterioration of the battery’s ability to hold a charge. We currently expect that our battery pack will retain approximately 60-65% of its ability to hold its initial charge after approximately 100,000 miles or 7 years, which will result in a decrease to the vehicle’s initial range. Such battery deterioration and the related decrease in range may negatively influence potential customer decisions whether to purchase our vehicles, which may harm our ability to market and sell our vehicles.

The operation of our vehicles is different from internal combustion engine vehicles and may be unfamiliar to customers.

We have designed our vehicles to minimize inconvenience and inadvertent driver damage to the powertrain. In certain instances, these protections may cause the vehicle to behave in ways that are unfamiliar to drivers of internal combustion vehicles. For example, we employ regenerative braking to recharge the battery in most modes of vehicle operation. Our customers may become accustomed to using this regenerative braking instead of the wheel brakes to slow the vehicle. However, when the vehicle is at maximum charge, the regenerative braking is not needed and is not employed. Accordingly, our customers may have difficulty shifting between different methods of braking. In addition, we use safety mechanisms to limit motor torque when the powertrain system reaches elevated temperatures. In such instances, the vehicle’s acceleration and speed will decrease. Finally, if the driver permits the battery to substantially deplete its charge, the vehicle will progressively limit motor torque and speed to preserve the charge that remains. The vehicle will lose speed and ultimately coast to a stop. Despite several warnings about an imminent loss of charge, the ultimate loss of speed may be unexpected. There can be no assurance that our customers will operate the vehicles properly, especially in these situations. Any accidents resulting from such failure to operate our vehicles properly could harm our brand and reputation, result in adverse publicity and product liability claims, and have a negative affect on our business, prospects, financial condition and operating results. In addition, if consumers dislike these features, they may choose not to buy additional cars from us which could also harm our business.

Developments in alternative technologies or improvements in the internal combustion engine may materially adversely affect the demand for our electric vehicles.

Significant developments in alternative technologies, such as advanced diesel, ethanol, fuel cells or compressed natural gas, or improvements in the fuel economy of the internal combustion engine, may materially and adversely affect our business and prospects in ways we cannot anticipate. Any failure by us to develop new or enhanced technologies or processes, or to react to changes in existing technologies, could materially delay our development and introduction of new and enhanced electric vehicles, which could result in the loss of competitiveness of our vehicles, decreased revenue and a loss of market share to competitors.

If we are unable to keep up with advances in electric vehicle technology, we may suffer a decline in our competitive position.

We may be unable to keep up with changes in electric vehicle technology and, as a result, may suffer a decline in our competitive position. Any failure to keep up with advances in electric vehicle technology would result in a decline in our competitive position which would materially and adversely affect our business, prospects, operating results and financial condition. Our research and development efforts may not be sufficient to adapt to changes in, or create the necessary technology, independently. As technologies change, we plan to upgrade or adapt our vehicles and introduce new models in order to continue to provide vehicles with the latest technology, in particular battery cell technology. However, our vehicles may not compete effectively with alternative vehicles if we are not able to source and integrate the latest technology into our vehicles. For example, we do not manufacture battery cells which makes us dependent upon other suppliers of battery cell technology for our battery packs.

 

16


Table of Contents

We are dependent upon our ability to fully draw down on our loan facility from the United States Department of Energy, which may restrict our ability to conduct our business.

Our plan for manufacturing the Model S and for developing our electric powertrain facility depends on our ability to fully draw down on our loan facility from the United States Department of Energy, or the DOE, under the DOE’s Advanced Technology Vehicles Manufacturing Incentive Program, or ATVM Program. We have entered into a loan facility with the Federal Financing Bank, or the FFB, that is guaranteed by the DOE and which we refer to as the DOE Loan Facility. Our DOE Loan Facility provides for a $465.0 million loan facility under the DOE’s ATVM Program to help finance the continued development of the Model S, including the planned build out and operation of a manufacturing facility, and to finance the planned build out and operation of our electric powertrain manufacturing facility. We cannot, however, access all of these funds at once, but only over a period of up to three years through periodic draws as eligible costs are incurred. Our ability to draw down these funds under the DOE Loan Facility is conditioned upon several draw conditions. For the Model S manufacturing facility project, the draw conditions include our achievement of progress milestones relating to the design and development of the Model S and the planned Model S manufacturing facility, including an environmental assessment of such facility approved by the DOE and the completion of the National Environmental Policy Act process. For the electric powertrain manufacturing facility, the draw conditions include our achievement of progress milestones relating to the development of the powertrain manufacturing facility and the successful development of commercial arrangements with third parties for the supply of powertrain components. Additionally, the DOE Loan Facility will require us to comply with certain operating covenants and will place additional restrictions on our ability to operate our business. We are unaccustomed to managing our business with such restrictions and others that are associated with a significant credit agreement. If we are unable to draw down the anticipated funds under the DOE Loan Facility, or our ability to make such draw downs is delayed, we may need to obtain additional or alternative financing to operate our Model S and electric powertrain manufacturing facilities to the extent our cash on hand is insufficient. Any failure to obtain the DOE funds or secure other alternative funding could materially and adversely affect our business and prospects. Such additional or alternative financing may not be available on attractive terms, if at all, and could be more costly for us to obtain. As a result, our plans for building our Model S and electric powertrain manufacturing plants could be significantly delayed which would adversely affect our business, prospects, financial condition and operating results.

Our DOE Loan Facility documents contain customary covenants that include, among others, a requirement that the project be conducted in accordance with the business plan for such project, compliance with all requirements of the ATVM Program, and limitations on our and our subsidiaries’ ability to incur indebtedness, incur liens, make investments or loans, enter into mergers or acquisitions, dispose of assets, pay dividends or make distributions on capital stock, prepay indebtedness, pay management, advisory or similar fees to affiliates, enter into certain affiliate transactions, enter into new lines of business, and enter into certain restrictive agreements. These restrictions may limit our ability to operate our business and may cause us to take actions or prevent us from taking actions we believe are necessary from a competitive standpoint or that we otherwise believe are necessary to grow our business.

Our distribution model is different from the predominant current distribution model for automobile manufacturers, which makes evaluating our business, operating results and future prospects difficult.

Our distribution model is not common in the automobile industry today, particularly in the United States. We plan to continue to sell our performance electric vehicles over the internet and in company-owned Tesla stores. This model of vehicle distribution is relatively new and unproven, especially in the United States, and subjects us to substantial risk as it requires, in the aggregate, a significant expenditure and provides for slower expansion of our distribution and sales systems than may be possible by utilizing a more traditional dealer franchise system. For example, we will not be able to utilize long established sales channels developed through a franchise system to increase our sales volume, which may harm our business, prospects, financials condition and operating results. Moreover, we will be competing with companies with well established distribution channels.

 

17


Table of Contents

As of December 31, 2009, we had opened 10 Tesla owned stores in the United States and Europe, 8 of which have been open for less than one year. We have only limited experience distributing and selling our performance vehicles through our Tesla stores. As of December 31, 2009 we had only sold 937 Tesla Roadsters to customers, primarily in the United States and Europe. Our success will depend in large part on our ability to effectively develop our own sales channels and marketing strategies. Implementing our business model is subject to numerous significant challenges, including obtaining permits and approvals from local and state authorities, and we may not be successful in addressing these challenges.

You must consider our business and prospects in light of the risks, uncertainties and difficulties we encounter as we implement our business model. For instance, we will need to persuade customers, suppliers and regulators of the validity and sustainability of our business model. We cannot be certain that we will be able to do so, or to successfully address the risks, uncertainties and difficulties that our business strategy faces. Any failure to successfully address any of the risks, uncertainties and difficulties related to our business model would have a material adverse effect on our business and prospects.

We may face regulatory limitations on our ability to sell vehicles directly or over the internet which could materially and adversely affect our ability to sell our electric vehicles.

We sell our vehicles from our Tesla stores as well as over the internet. We may not be able to sell our vehicles through this sales model in each state in the United States as many states have laws that may be interpreted to prohibit internet sales by manufacturers to residents of the state or to impose other limitations on this sales model, including laws that prohibit manufacturers from selling vehicles directly to consumers without the use of an independent dealership or without a physical presence in the state. For example, the state of Texas prohibits a manufacturer from being licensed as a dealer or to act in the capacity of a dealer, which would prohibit us from operating a store in the state of Texas and may restrict our ability to sell vehicles to Texas residents over the internet from out of state altogether without altering our sales model. The state of Kansas provides that a manufacturer cannot deliver a vehicle to a Kansas resident except through a dealer licensed to do business in the state of Kansas, which may be interpreted to require us to open a store in the state of Kansas in order to sell vehicles to Kansas residents. In some states where we have opened a “gallery,” which is a location where potential customers can view our vehicles but is not a full retail location, it is possible that a state regulator could take the position that activities at our gallery constitute an unlicensed motor vehicle dealership and thereby violates applicable manufacturer-dealer laws. For example, the state of Colorado required us to obtain dealer and manufacturer licenses in the state in order to operate our gallery in Colorado. In addition, some states have requirements that service facilities be available with respect to vehicles sold in the state, which may be interpreted to also require that service facilities be available with respect to vehicles sold over the internet to residents of the state thereby limiting our ability to sell vehicles in states where we do not maintain service facilities.

The foregoing examples of state laws governing the sale of motor vehicles are just some of the regulations we will face as we sell our vehicles. In many states, the application of state motor vehicle laws to our specific sales model is largely untested under state motor vehicle industry laws, particularly with respect to sales over the internet, and would be determined by a fact specific analysis of numerous factors, including whether we have a physical presence or employees in the applicable state, whether we advertise or conduct other activities in the applicable state, how the sale transaction is structured, the volume of sales into the state, and whether the state in question prohibits manufacturers from acting as dealers. As a result of the fact specific and untested nature of these issues, and the fact that applying these laws intended for the traditional automobile distribution model to our sales model allows for some interpretation and discretion by the regulators, the manner in which the applicable authorities will apply their state laws to our distribution model is unknown. Such laws, as well as other laws governing the motor vehicle industry, may subject us to potential inquiries and investigations from state motor vehicle regulators who may question whether our sales model complies with applicable state motor vehicle industry laws and who may require us to change our sales model or may prohibit our ability to sell our vehicles to residents in such states.

 

18


Table of Contents

To date, we are registered as both a motor vehicle manufacturer and dealer in California, Colorado, Florida, Illinois and Washington and we are licensed as a motor vehicle dealer in the state of New York. We have not yet sought formal clarification of our ability to sell our vehicles in any other states.

Furthermore, while we have performed an analysis of the principal laws in the European Union relating to our distribution model and believe we comply with such laws, we have not performed a complete analysis in all foreign jurisdictions in which we may sell vehicles. Accordingly, there may be laws in jurisdictions we have not yet entered or laws we are unaware of in jurisdictions we have entered that may restrict our vehicle reservation practices or other business practices. Even for those jurisdictions we have analyzed, the laws in this area can be complex, difficult to interpret and may change over time.

We are almost entirely dependent upon revenue generated from the sale of our electric vehicles, specifically the Tesla Roadster, in the near term, and our future success will be dependent upon our ability to design and achieve market acceptance of new vehicle models, and specifically the Model S.

We currently generate substantially all of our revenue from the sale of our Tesla Roadsters and the sale of the related zero emission vehicle credits. We began production of our Tesla Roadster only in 2008, and our second planned vehicle, our Model S, is not expected to be in production until 2012, requires significant investment prior to commercial introduction, and may never be successfully developed or commercially successful. There can be no assurance that we will be able to design future models of performance electric vehicles that will meet the expectations of our customers or that our future models, including the Model S, will become commercially viable. In particular, it is common in the automotive industry for the production vehicle to have a styling and design different from that of the concept vehicle, which may happen with the Model S. We believe the design of the early prototype Model S is one of the key reasons why we have received approximately 2,000 reservations for the vehicle as of December 31, 2009. To the extent that we are not able to build the production Model S to the expectations created by the early prototype, customers may cancel their reservations and our future sales could be harmed. Additionally, historically, automobile customers have come to expect new and improved vehicle models to be introduced frequently. In order to meet these expectations, we may in the future be required to introduce on a regular basis new vehicle models as well as enhanced versions of existing vehicle models. As technologies change in the future for automobiles in general and performance electric vehicles specifically, we will be expected to upgrade or adapt our vehicles and introduce new models in order to continue to provide vehicles with the latest technology. To date we have limited experience simultaneously designing, testing, manufacturing and selling our electric vehicles.

We anticipate that we will experience a decrease in revenues and increase in losses prior to the launch of the Model S.

Prior to the launch of our Model S, we anticipate our automotive sales may decline, potentially significantly as we do not plan to sell our current generation Tesla Roadster after 2011 due to planned tooling changes at a supplier for the Tesla Roadster, and we do not currently plan to begin selling our next generation Tesla Roadster until at least one year after the launch of the Model S, which is not expected to be in production until 2012. Furthermore, except for our arrangements with Daimler, we do not currently have any significant arrangements in place with third parties for the development or purchase of components in our electric powertrain business. There are no assurances that we will be able to secure future business with Daimler as it has indicated its intent to produce all of its lithium-ion batteries by 2012 as part of a joint venture with Evonik Industries AG. As a result, we anticipate that we will generate limited, if any, revenue from selling electric vehicles after 2011 until the launch of our Model S. The launch of our Model S could be delayed for a number of reasons and any such delays may be significant and would extend the period in which we would generate limited, if any, revenues from sales of our electric vehicles. The expected decrease in revenues for the periods prior to the launch of the Model S may be significant and could materially and adversely affect our business, prospects, operating results and financial condition and our ability to fund operating losses could seriously constrain our growth.

 

19


Table of Contents

A large amount of our Tesla Roadster sales revenue in 2009 was due to the fulfillment of orders from reservations taken in prior years.

As of December 31, 2009 we had sold 937 Tesla Roadsters to customers, almost all of which were sold in the United States and Europe, of which a large number were reserved by customers in prior years. Of these Tesla Roadsters, we delivered and recognized revenue on 324 in the quarter ended September 30, 2009 as we made a significant effort to increase our production capacity in order to accelerate deliveries to customers. As a result, our revenues in the quarter ended September 30, 2009 were significantly higher than in prior quarters. Additionally, to date many of our Tesla Roadster sales have been made to persons who had pre-existing relationships with our management team or who are affluent individuals with a strong interest in owning a novel product. It may be difficult to attract high numbers of new Tesla Roadster customers who do not have pre-existing relationships with us or who are attracted to buy the Tesla Roadster after its initial novelty phase. We may not have a significant wait list of orders for our Tesla Roadster in the future, and we may not be able to maintain or increase our vehicle sales revenue in future quarters. This may be the case even though we will make significant investments to expand our network of Tesla stores and sales personnel. Furthermore, potential customers may decide to defer purchasing the Tesla Roadster in anticipation of our planned next generation Tesla Roadster or Model S.

We have received only a limited number of current reservations for Tesla Roadsters and Model S sedans, all of which are subject to cancellation.

As of December 31, 2009, we had unfilled reservations for approximately 220 Tesla Roadsters and approximately 2,000 Model S sedans, all of which are subject to cancellation by the customer up until delivery of the vehicle. All of our reservations are refundable, subject to a cancellation fee and we have had a significant number of customers who submitted reservations for the Tesla Roadster or the Model S cancel those reservations. Our customers have historically cancelled, and may cancel, their reservations for many reasons, including the customer’s inability to fund the purchase, the customer’s decision to forego the purchase during the economic downturn, the customer’s lack of confidence in our long-term viability and our ability to deliver the promised vehicle, the customer’s concern over the ultimate price of the vehicle, including the price of its options, or the potentially long wait from the time a reservation is made until the time the vehicle is delivered. In addition, given the long lead times that we have historically experienced between customer reservation and delivery on the Tesla Roadster and that we expect to experience on the Model S, there is a heightened risk that customers that have made reservations may not ultimately take delivery on vehicles due to potential changes in customer preferences, competitive developments and other factors. For example, when we delayed the introduction of the original Tesla Roadster in fall 2007, we experienced a significant number of customers that cancelled their reservations and requested the return of their reservation payment. If we encounter delays in the introduction of the Model S, we believe that a significant number of our customers could cancel their reservations. As a result, no assurance can be made that reservations will not be cancelled and will ultimately result in the final purchase, delivery, and sale of the vehicle. Such cancellations could harm our financial condition, business, prospects and operating results.

If we are unable to design, develop, market and sell new electric vehicles and services that address additional market opportunities, our business, prospects and operating results will suffer.

We may not be able to successfully develop new electric vehicles and services, address new market segments or develop a significantly broader customer base. To date, we have focused our business on the sale of high-performance electric vehicles and have targeted relatively affluent consumers. We will need to address additional markets and expand our customer demographic in order to further grow our business. In particular, we intend the Model S to appeal to the customers of premium sedans, which is a much larger and different demographic from that of the Tesla Roadster. Successfully offering a vehicle in this vehicle class requires delivering a vehicle with a higher standard of fit and finish in the interior and exterior than currently exists in the Tesla Roadster, at a price that is competitive with other premium sedans. We have not completed the design, component sourcing or manufacturing process for the Model S, so it is difficult to forecast its eventual cost,

 

20


Table of Contents

manufacturability or quality. Therefore, there can be no assurance that we will be able to deliver a vehicle that is ultimately competitive in the premium sedan class. Our failure to address additional market opportunities would harm our business, financial condition, operating results and prospects.

Our production model for the non-powertrain portion of the Model S is unproven, still evolving and is very different from the non-powertrain portion of the production model for the Tesla Roadster.

Our future business depends in large part on our ability to execute on our plans to develop, manufacture, market and sell our planned Model S electric vehicle. To date our revenues have been principally derived from the sales of our Tesla Roadster. The Tesla Roadster has only been produced in low volume quantities and the body is assembled by Lotus Cars Limited, or Lotus, in the United Kingdom, with the final assembly by us at our facility in Menlo Park, California for sales destined in the United States. We plan to manufacture the Model S in higher volumes than our present production capabilities in our planned manufacturing facility. As a result, the non-powertrain portion of the production model for the Model S will be substantially different and significantly more complex than the non-powertrain portion of the production model for the Tesla Roadster. In addition, we plan to introduce a number of new manufacturing technologies and techniques, such as a new painting process and aluminum spot welding systems, which have not been widely adopted in the automotive industry. Our Model S production model will require significant investments of cash and management resources and we may experience unexpected delays or difficulties that could postpone our ability to launch or achieve full manufacturing capacity for the Model S, which could have a material adverse effect on our business, prospects, operating results and financial condition.

Our production model for the Model S is based on many key assumptions, which may turn out to be incorrect, including:

 

   

that we will be able to identify and secure an appropriate facility for the manufacturing of our Model S;

 

   

that we will be able to secure the funding necessary to build out and equip the manufacturing facilities in a timely manner, including meeting milestones and other conditions necessary to draw down funds under our loan facility with the DOE;

 

   

that we will able to develop and equip the manufacturing facilities for the Model S without exceeding our projected costs and on our projected timeline;

 

   

that the equipment we select will be able to accurately manufacture the vehicle within specified design tolerances;

 

   

that our computer aided design process can reduce the product development time by accurately predicting the performance of our vehicle for passing relevant safety standards, including standards that can only be met through expensive crash testing;

 

   

that we will be able to obtain the necessary permits and approvals, including those under the California Environmental Quality Act and the National Environmental Policy Act, as well as building and air quality permits, to comply with local zoning, environmental and similar regulations to operate our manufacturing facilities and our business on our projected timeline;

 

   

that we will be able to engage suppliers for the necessary components on terms and conditions acceptable to us and that we will be able to obtain components on a timely basis and in the necessary quantities;

 

   

that we will be able to deliver final component designs to our suppliers in a timely manner;

 

   

that we will be able to attract, recruit, hire and train skilled employees, including employees on the production line, to operate our Model S manufacturing facility;

 

   

that we will be able to maintain high quality controls as we transition to an in-house manufacturing process; and

 

   

that we will not experience any significant delays or disruptions in our supply chain.

 

21


Table of Contents

If one or more of the foregoing assumptions turns out to be incorrect, our ability to successfully launch the Model S on time and on budget if at all, and our business prospects, operating results and financial condition may be materially and adversely impacted.

We have no experience to date in high volume manufacturing of our electric vehicles. We do not know whether we will be able to develop efficient, automated, low-cost manufacturing capability and processes, and reliable sources of component supply, that will enable us to meet the quality, price, engineering, design and production standards, as well as the production volumes required to successfully mass market the Model S. Even if we are successful in developing our high volume manufacturing capability and processes and reliable sources of component supply, we do not know whether we will be able to do so in a manner that avoids significant delays and cost overruns, including as a result of factors beyond our control such as problems with suppliers and vendors, or in time to meet our vehicle commercialization schedules or to satisfy the requirements of customers. Any failure to develop such manufacturing processes and capabilities within our projected costs and timelines could have a material adverse effect on our business, prospects, operating results and financial condition.

We may experience significant delays in the design, manufacture, launch and financing of the Model S which could harm our business and prospects.

Any delay in the financing, design, manufacture and launch of the Model S could materially damage our brand, business, prospects, financial condition and operating results. Automobile manufacturers often experience delays in the design, manufacture and commercial release of new vehicle models. We experienced significant delays in launching the Tesla Roadster. We initially announced that we would begin delivering the Tesla Roadster in June 2007, but due to various design and production delays, we did not physically deliver our first Tesla Roadster until February 2008, and we only achieved higher production of this vehicle in the quarter ended December 31, 2008. These delays resulted in additional costs and adverse publicity for our business. We may experience similar delays in launching the Model S, and any such delays could be significant.

We have not selected a facility in which to manufacture and assemble our Model S although we intend to begin production of the Model S in 2012. In addition, final designs for the Model S and the site selection and plans for the build out of the planned manufacturing facility are still in process, and various aspects of the Model S component procurement and manufacturing plans have not yet been determined. We are currently evaluating, qualifying and selecting our suppliers for the planned production of the Model S. However, we may not be able to engage suppliers for the remaining components in a timely manner, at an acceptable price or in the necessary quantities. In addition, we will also need to do extensive testing to ensure that the Model S is in compliance with applicable NHTSA safety regulations and EPA regulations prior to beginning mass production and delivery of the vehicles. Our plan to begin production of the Model S by 2012 is dependent upon the timely availability of funds, upon our finalizing the related design, engineering, component procurement, testing, build out, and manufacturing plans in a timely manner and upon our ability to execute these plans within the current timeline.

We intend to fund the build out of this manufacturing facility using existing cash, cash from this offering and cash obtained through the DOE Loan Facility. Our ability to draw down these funds under the DOE Loan Facility is conditioned upon several draw conditions. These draw conditions include our achievement of progress milestones relating to the design and development of the Model S and the planned Model S manufacturing facility, including completion of an environmental assessment of such facility approved by the DOE and the completion of the National Environmental Policy Act process. If we are unable to draw down the anticipated funds under the DOE Loan Facility on the timeline that we anticipate, our plans for building our Model S and electric powertrain manufacturing plants could be significantly delayed which would adversely affect our business, prospects, financial condition and operating results.

We face significant barriers in our attempt to produce our Model S, and if we cannot successfully overcome those barriers our business will be negatively impacted.

We face significant barriers as we attempt to produce our first mass produced vehicle, our Model S. We currently have a drivable early prototype of the Model S, but do not have a full production intent prototype, a

 

22


Table of Contents

final design, a manufacturing facility or a manufacturing process. The automobile industry has traditionally been characterized by significant barriers to entry, including large capital requirements, investment costs of designing and manufacturing vehicles, long lead times to bring vehicles to market from the concept and design stage, the need for specialized design and development expertise, regulatory requirements and establishing a brand name and image and the need to establish sales and service locations. As a manufacturer and seller of only electric vehicles, we face a variety of added challenges to entry that a traditional automobile manufacturer would not encounter including additional costs of developing and producing an electric powertrain that has comparable performance to a traditional gasoline engine in terms of range and power, inexperience with servicing electric vehicles, regulations associated with the transport of lithium-ion batteries and unproven high-volume customer demand for fully electric vehicles. In addition, while we are designing the Model S to have the capability to swap out its battery pack, there are no specialized facilities today to perform such swapping. While we may offer this service in the future at our stores, no assurance can be provided that we will do so, or that any other third party will offer such services. We must successfully overcome these barriers as we move from producing the low volume Tesla Roadster to the Model S which we plan to produce at much higher volumes. If we are not able to overcome these barriers, our business, prospects, operating results and financial condition will be negatively impacted and our ability to grow our business will be harmed.

Any changes to the Federal Trade Commission’s electric vehicle range testing procedure or the United States Environmental Protection Agency’s energy consumption regulations for electric vehicles could result in a reduction to the advertised range of our vehicles which could negatively impact our sales and harm our business.

The Federal Trade Commission, or FTC, requires us to calculate and display the range of our electric vehicles on a label we affix to the vehicle’s window. The FTC specifies that we follow testing requirements set forth by the Society of Automotive Engineers, or SAE, which further requires that we test using the United States Environmental Protection Agency’s, or EPA’s, combined city and highway testing cycles. The EPA recently announced that it would develop and establish new energy efficiency testing methodologies for electric vehicles. Based on initial indications from the EPA, we believe it is likely that the EPA will modify its testing cycles in a manner that, when applied to our vehicles, could reduce the advertised range of our vehicles by up to 30% as compared to the combined two-cycle test currently applicable to our vehicles. However, there can be no assurance that the modified EPA testing cycles will not result in a greater reduction. To the extent that the FTC adopts these procedures in place of the current procedures from the SAE, this could impair our ability to advertise the Tesla Roadster as a vehicle that is capable of going in excess of 200 miles. Moreover, such changes could impair our ability to deliver the Model S with the initially advertised range, which could result in the cancellation of a number of the approximately 2,000 reservations that have been placed for the Model S. Although the real life customer experience of the range of our electric vehicles will not change due to the changes in the FTC or EPA standards, the reduction in the advertised range could negatively impact our sales and harm our business.

We have no experience with using common platforms in the design and manufacture of our vehicles.

If we are unable to effectively leverage the benefits of using an adaptable platform architecture, our business prospects, operating results and financial condition would be adversely affected. We intend to design the Model S with an adaptable platform architecture and common electric powertrain so that we can use the platform of the Model S to create future electric vehicles. We have no experience with using common platforms in the design and manufacture of our vehicles and the design of the Model S is not complete. We may make changes to the design of the Model S that may make it more difficult to use the Model S platform for future vehicles. There are no assurances that we will be able to use the Model S platform to bring future vehicle models to market faster or more inexpensively by leveraging use of this common platform or that there will be sufficient customer demand for additional vehicle variants of this platform.

 

23


Table of Contents

If we are unable to reduce and adequately control the costs associated with operating our business, including our costs of manufacturing, sales and materials, our business, financial condition, operating results and prospects will suffer.

If we are unable to reduce and/or maintain a sufficiently low level of costs for designing, manufacturing, marketing, selling and distributing and servicing our electric vehicles relative to their selling prices, our operating results, gross margins, business and prospects could be materially and adversely impacted. We have made, and will be required to continue to make, significant investments for the design, manufacture and sales of our electric vehicles. When we first began delivering our Tesla Roadster in early 2008, our marginal costs of producing the Tesla Roadster exceeded our revenue from selling those vehicles. Revenue from the sales of our Tesla Roadster as well as from zero emission vehicle, or ZEV, credits did not exceed costs of sales related to our Tesla Roadster, until the nine months ended September 30, 2009. There can be no assurances that our costs of producing and delivering the Model S will be less than the revenue we generate from sales at the time of the Model S launch or that we will ever achieve a positive gross margin on sales of the Model S.

We incur significant costs related to procuring the raw materials required to manufacture our high-performance electric cars, assembling vehicles and compensating our personnel. We will also incur substantial costs in constructing and building out our Model S and powertrain manufacturing facilities, each of which could potentially face cost overruns or delays in construction. Additionally, in the future we may be required to incur substantial marketing costs and expenses to promote our vehicles, including through the use of traditional media such as television, radio and print, even though our marketing expenses to date have been relatively limited. If we are unable to keep our operating costs aligned with the level of revenues we generate, our operating results, business and prospects will be harmed. Many of the factors that impact our operating costs are beyond our control. For example, the costs of our raw materials and components, such as lithium-ion battery cells or carbon fiber body panels used in our vehicles, could increase due to shortages as global demand for these products increases. Indeed, if the popularity of electric vehicles exceeds current expectations without significant expansion in battery cell production capacity and advancements in battery cell technology, shortages could occur which would result in increased materials costs to us.

The automotive market is highly competitive, and we may not be successful in competing in this industry. We currently face competition from established competitors and expect to face competition from others in the future.

The worldwide automotive market, particularly for alternative fuel vehicles, is highly competitive today and we expect it will become even more so in the future. As of December 31, 2009, no other mass produced performance highway capable electric vehicles were being sold in the United States or Europe. However, we expect competitors to enter these markets within the next several years with some entering as early as the end of 2010 and as they do so we expect that we will experience significant competition. With respect to our Tesla Roadster, we currently face strong competition from established automobile manufacturers, including manufacturers of high-performance vehicles, such as Porsche and Ferrari. In addition, upon the launch of our Model S sedan, we will face competition from existing and future automobile manufacturers in the extremely competitive luxury sedan market, including Audi, BMW, Lexus and Mercedes.

Many established and new automobile manufacturers have entered or have announced plans to enter the alternative fuel vehicle market. For example, Nissan has announced that it is developing the Nissan Leaf, a fully electric vehicle, which it plans to bring to market in late 2010. BYD Auto has also announced plans to bring an electric vehicle into the United States market in 2010, and Ford has announced that it plans to introduce an electric vehicle in 2011. In addition, General Motors, Toyota, Ford, and Honda are each selling hybrid vehicles, and certain of these manufacturers have announced plug-in versions of their hybrid vehicles. For example, General Motors has announced that it is developing the Chevrolet Volt, which is a plug-in hybrid vehicle that operates purely on electric power for a limited number of miles, at which time an internal combustion engine engages to recharge the battery. General Motors announced that it plans to begin selling the Chevrolet Volt in 2010.

 

24


Table of Contents

Moreover, it has been reported that Daimler, Lexus, Audi, Renault, Mitsubishi and Subaru are also developing electric vehicles. Several new start-ups have also announced plans to enter the market for performance electric vehicles, although none of these have yet come to market. Finally, electric vehicles have already been brought to market in China and other foreign countries and we expect a number of those manufacturers to enter the United States market as well.

Most of our current and potential competitors have significantly greater financial, manufacturing, marketing and other resources than we do and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of their products. Virtually all of our competitors have more extensive customer bases and broader customer and industry relationships than we do. In addition, almost all of these companies have longer operating histories and greater name recognition than we do. Our competitors may be in a stronger position to respond quickly to new technologies and may be able to design, develop, market and sell their products more effectively.

Furthermore, certain large manufacturers offer financing and leasing options on their vehicles and also have the ability to market vehicles at a substantial discount, provided that the vehicles are financed through their affiliated financing company. We do not currently offer discounts or leasing options on our vehicles, which may put our vehicles at a competitive disadvantage. While we have recently arranged for financing options on our vehicles in the United States through a third-party lender, we do not provide direct financing for the purchase of the Tesla Roadster to our customers, unlike most of our competitors.

We expect competition in our industry to intensify in the future in light of increased demand for alternative fuel vehicles, continuing globalization and consolidation in the worldwide automotive industry. Factors affecting competition include product quality and features, innovation and development time, pricing, reliability, safety, fuel economy, customer service and financing terms. Increased competition may lead to lower vehicle unit sales and increased inventory, which may result in a further downward price pressure and adversely affect our business, financial condition, operating results and prospects. Our ability to successfully compete in our industry will be fundamental to our future success in existing and new markets and our market share. There can be no assurances that we will be able to compete successfully in our markets. If our competitors introduce new cars or services that compete with or surpass the quality, price or performance of our cars or services, we may be unable to satisfy existing customers or attract new customers at the prices and levels that would allow us to generate attractive rates of return on our investment. Increased competition could result in price reductions and revenue shortfalls, loss of customers and loss of market share, which could harm our business, prospects, financial condition and operating results.

Demand in the automobile industry is highly volatile.

Volatility of demand in the automobile industry may materially and adversely affect our business, prospects, operating results and financial condition. The markets in which we currently compete and plan to compete in the future have been subject to considerable volatility in demand in recent periods. For example, according to automotive industry sources, sales of passenger vehicles in North America during the quarter ended December 31, 2008 were over 30% lower than those during the same period in the prior year. Demand for automobile sales depends to a large extent on general, economic, political and social conditions in a given market and the introduction of new vehicles and technologies. As a new automobile manufacturer and low volume producer, we have less financial resources than more established automobile manufacturers to withstand changes in the market and disruptions in demand. As our business grows, economic conditions and trends in other countries and regions where we sell our electric vehicles will impact our business, prospects and operating results as well. Demand for our electric vehicles may also be affected by factors directly impacting automobile price or the cost of purchasing and operating automobiles such as sales and financing incentives, prices of raw materials and parts and components, cost of fuel and governmental regulations, including tariffs, import regulation and other taxes. Volatility in demand may lead to lower vehicle unit sales and increased inventory, which may result in further downward price pressure and adversely affect our business, prospects, financial condition and

 

25


Table of Contents

operating results. These effects may have a more pronounced impact on our business given our relatively smaller scale and financial resources as compared to many incumbent automobile manufacturers.

Difficult economic conditions may affect consumer purchases of luxury items, such as our performance electric vehicles.

Over the last 18 months, the deterioration in the global financial markets and continually challenging condition of the macroeconomic environment has negatively impacted consumer spending and we believe has adversely affected the sales of our Tesla Roadster. The automobile industry in particular was severely impacted by the poor economic conditions and several vehicle manufacturing companies, including General Motors and Chrysler, were forced to file for bankruptcy. Sales of new automobiles generally have dropped during this recessionary period. Sales of high-end and luxury consumer products, such as our performance electric vehicles, depend in part on discretionary consumer spending and are even more exposed to adverse changes in general economic conditions. Discretionary consumer spending also is affected by other factors, including changes in tax rates and tax credits, interest rates and the availability and terms of consumer credit.

If the current difficult economic conditions continue or worsen, we may experience a decline in the demand for our Tesla Roadster or reservations for our Model S, either of which could harm our business, prospects and operating results. Accordingly, any events that have a negative effect on the United States economy or on foreign economies or that negatively affect consumer confidence in the economy, including disruptions in credit and stock markets, and actual or perceived economic slowdowns, may harm our business, prospects and operating results.

Our financial results may vary significantly from period-to-period due to the seasonality of our business and fluctuations in our operating costs.

Our operating results may vary significantly from period-to-period due to many factors, including seasonal factors that may have an effect on the demand for our electric vehicles. Demand for new cars in the automobile industry in general, and for high-performance sports vehicles such as the Tesla Roadster in particular, typically decline over the winter season, while sales are generally higher as compared to the winter season during the spring and summer months. We expect sales of the Tesla Roadster to fluctuate on a seasonal basis with increased sales during the spring and summer months in our second and third fiscal quarters relative to our fourth and first fiscal quarters. We note that, in general, automotive sales tend to decline over the winter season and we anticipate that our sales of the Model S and other models we introduce may have similar seasonality. However, our limited operations history makes it difficult for us to judge the exact nature or extent of the seasonality of our business. Also, any unusually severe weather conditions in some markets may impact demand for our vehicles. Our operating results could also suffer if we do not achieve revenue consistent with our expectations for this seasonal demand because many of our expenses are based on anticipated levels of annual revenue.

We also expect our period-to-period operating results to vary based on our operating costs which we anticipate will increase significantly in future periods as we, among other things, design, develop and manufacture our planned Model S and electric powertrain components, build and equip new manufacturing facilities to produce the Model S and electric powertrain components, open new Tesla stores with maintenance and repair capabilities, incur costs for warranty repairs or product recalls, if any, increase our sales and marketing activities, and increase our general and administrative functions to support our growing operations.

As a result of these factors, we believe that quarter-to-quarter comparisons of our operating results are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of future performance. Moreover, our operating results may not meet expectations of equity research analysts or investors. If this occurs, the trading price of our common stock could fall substantially either suddenly or over time.

 

26


Table of Contents

Marketplace confidence in our liquidity and long-term business prospects is important for building and maintaining our business.

If we are unable to establish and maintain confidence about our liquidity and business prospects among consumers and within our industry, then our financial condition, operating results and business prospects may suffer. Our vehicles are highly technical products that require maintenance and support. If we were to cease or cut back operations, even years from now, buyers of our vehicles from years earlier might have much more difficulty in maintaining their vehicles and obtaining satisfactory support. As a result, consumers may be less likely to purchase our vehicles now if they are not convinced that our business will succeed or that our operations will continue for many years. Similarly, suppliers and other third parties will be less likely to invest time and resources in developing business relationships with us if they are not convinced that our business will succeed. For example, during the economic downturn of 2008, we had difficulty raising the necessary funding for our operations, and, as a result, in the quarter ended December 31, 2008 we had to lay off approximately 60 employees and curtail our expansion plans. In addition, during this period a number of customers canceled their previously placed reservations. If we are required to take similar actions in the future, such actions may result in negative perceptions regarding our liquidity and long-term business prospects.

Accordingly, in order to build and maintain our business, we must maintain confidence among customers, suppliers and other parties in our liquidity and long-term business prospects. In contrast to some more established auto makers, we believe that, in our case, the task of maintaining such confidence may be particularly complicated by factors such as the following:

 

   

our limited operating history;

 

   

our limited revenues and lack of profitability to date;

 

   

unfamiliarity with or uncertainty about the Tesla Roadster and the Model S;

 

   

uncertainty about the long-term marketplace acceptance of alternative fuel vehicles, or electric vehicles specifically;

 

   

the prospect that we will need ongoing infusions of external capital to fund our planned operations;

 

   

the size of our expansion plans in comparison to our existing capital base and scope and history of operations; and

 

   

the prospect or actual emergence of direct, sustained competitive pressure from more established auto makers, which may be more likely if our initial efforts are perceived to be commercially successful.

Many of these factors are largely outside our control, and any negative perceptions about our liquidity or long-term business prospects, even if exaggerated or unfounded, would likely harm our business and make it more difficult to raise additional funds when needed.

We may need to raise additional funds and these funds may not be available to us when we need them. If we cannot raise additional funds when we need them, our operations and prospects could be negatively affected.

The design, manufacture, sale and servicing of automobiles is a capital intensive business. Since inception through the nine months ended September 30, 2009, we have incurred net losses of approximately $236.4 million and have used approximately $173.8 million of cash in operations and while recognizing only approximately $108.2 million in revenue. As of September 30, 2009, we had $106.5 million in cash and cash equivalents. We expect that the proceeds of this offering and the DOE Loan Facility, together with our anticipated cash from operating activities and cash on hand, will be sufficient to fund our operations for the next 24 months. However, if there are delays in the launch of the Model S, if we are unable to draw down the anticipated funds under the DOE Loan Facility, or if the costs in building our Model S and powertrain manufacturing facilities exceed our expectations or if we incur any significant unplanned expenses, we may need to raise additional funds through

 

27


Table of Contents

the issuance of equity, equity-related or debt securities or through obtaining credit from government or financial institutions. This capital will be necessary to fund our ongoing operations, continue research, development and design efforts, expand our network of Tesla stores and services centers, improve infrastructure, and introduce new vehicles. We cannot be certain that additional funds will be available to us on favorable terms when required, or at all. If we cannot raise additional funds when we need them, our operations and prospects could be negatively affected. For example, during the economic downturn of 2008, we had difficulty raising the necessary funding for our operations and, as a result, in the quarter ended December 31, 2008 we had to lay off approximately 60 employees and curtail our expansion plans. Additionally, under our DOE Loan Facility, we face restrictions on our ability to incur additional indebtedness, and in the future may need to obtain a waiver from the DOE in order to do so. We may not be able to obtain such waiver from the DOE which may harm our business. Future issuance of equity or equity-related securities will dilute the ownership interest of existing stockholders and our issuance of debt securities could increase the risk or perceived risk of our company.

If our vehicles fail to perform as expected, our ability to develop, market and sell our electric vehicles could be harmed.

Our vehicles may contain defects in design and manufacture that may cause them not to perform as expected or that may require repair. For example, our vehicles use a substantial amount of software code to operate. Software products are inherently complex and often contain defects and errors when first introduced. While we have performed extensive internal testing, we currently have a very limited frame of reference by which to evaluate the performance of our Tesla Roadster in the hands of our customers and currently have no frame of reference by which to evaluate the performance of our Tesla Roadster after several years of customer driving. We have no frame of reference by which to evaluate our Model S upon which our business prospects depend. There can be no assurance that we will be able to detect and fix any defects in the vehicles prior to their sale to consumers. We previously experienced a product recall in May 2009 after we determined that a condition caused by insufficient torquing of the rear inner hub flange bolt existed in some of our Tesla Roadsters, as a result of a missed process during the manufacture of the Tesla Roadster “glider,” which is the partially assembled Tesla Roadster that does not contain our electric powertrain. We may experience additional recalls in the future, which could adversely affect our brand in our target markets and could adversely affect our business, prospects and results of operations. Our electric vehicles, including the Tesla Roadster and Model S, may not perform consistent with customers’ expectations or consistent with other vehicles currently available. For example, our electric vehicles may not have the durability or longevity of current vehicles, and may not be as easy to repair as other vehicles currently on the market. Any product defects or any other failure of our performance electric vehicles to perform as expected could harm our reputation and result in adverse publicity, lost revenue, delivery delays, product recalls, product liability claims, harm to our brand and reputation, and significant warranty and other expenses, and could have a material adverse impact on our business, financial condition, operating results and prospects.

We have very limited experience servicing our vehicles and we are using a different service model from the one typically used in the industry. If we are unable to address the service requirements of our existing and future customers our business will be materially and adversely affected.

If we are unable to successfully address the service requirements of our existing and future customers our business and prospects will be materially and adversely affected. In addition, we anticipate the level and quality of the service we provide our Tesla Roadster customers will have a direct impact on the success of the Model S and our future vehicles. If we are unable to satisfactorily service our Tesla Roadsters customers, our ability to generate customer loyalty, grow our business and sell additional Tesla Roadsters as well as Model S sedans could be impaired.

We have very limited experience servicing our vehicles. As of December 31, 2009 we had sold only 937 Tesla Roadsters to customers, primarily in the United States and Europe. We do not plan to begin production of any Model S vehicles until 2012, and do not have any experience servicing these cars as they do not exist

 

28


Table of Contents

currently. Servicing electric vehicles is different than servicing vehicles with internal combustion engines and requires specialized skills, including high voltage training and servicing techniques.

We plan to service our performance electric vehicles through our company-owned Tesla stores and through our mobile service technicians known as the Tesla Rangers. As of December 31, 2009, we had opened 10 Tesla owned stores that are equipped to actively service our performance electric vehicles, 8 of which have been open for less than one year, and to date we have only limited experience servicing our performance vehicles through our Tesla stores. We will need to open additional Tesla stores with service capabilities, as well as hire and train significant numbers of new employees to staff these centers and act as Tesla Rangers, in order to successfully maintain our fleet of delivered performance electric vehicles. We only implemented our Tesla Rangers program in October 2009 and have limited experience in deploying them to service our customers’ vehicles. There can be no assurance that these service arrangements or our limited experience servicing our vehicles will adequately address the service requirements of our customers to their satisfaction, or that we will have sufficient resources to meet these service requirement in a timely manner as the volume of vehicles we are able to deliver annually increases.

We do not expect to be able to open Tesla stores in all the geographic areas in which our existing and potential customers may reside. In order to address the service needs of customers that are not in geographical proximity to our service centers, we plan to either transport those vehicles to the nearest Tesla store for servicing or deploy our mobile Tesla Rangers to service the vehicles at the customer’s location. These special arrangements may be expensive and we may not be able to recoup the costs of providing these services to our customers. In addition, a number of potential customers may choose not to purchase our vehicles because of the lack of a more widespread service network. If we do not adequately address our customers’ service needs, our brand and reputation will be adversely affected, which in turn, could have a material and adverse impact on our business, financial condition, operating results and prospects.

Traditional automobile manufacturers do not provide maintenance and repair services directly. Consumers must rather service their vehicles through franchised dealerships or through third party maintenance service providers. We do not have any such arrangements with third party service providers and it is unclear when or even whether such third party service providers will be able to acquire the expertise to service our vehicles. At this point, we anticipate that we will be providing substantially all of the service for our vehicles for the foreseeable future. As our vehicles are placed in more locations, we may encounter negative reactions from our consumers who are frustrated that they cannot use local service stations to the same extent as they have with their conventional automobiles and this frustration may result in negative publicity and reduced sales, thereby harming our business and prospects.

In addition, the motor vehicle industry laws in many states require that service facilities be available with respect to vehicles physically sold from locations in the state. Whether these laws would also require that service facilities be available with respect to vehicles sold over the internet to consumers in a state in which we have no physical presence is uncertain. While we believe our Tesla Ranger program and our practice of shipping customers’ vehicles to our nearest Tesla store for service would satisfy regulators in these circumstances, without seeking formal regulatory guidance, there are no assurances that regulators will not attempt to require that we provide physical service facilities in their states. If issues arise in connection with these laws, certain aspects of Tesla’s service program would need to be restructured to comply with state law, which may harm our business.

We may not succeed in continuing to establish, maintain and strengthen the Tesla brand, which would materially and adversely affect customer acceptance of our vehicles and components and our business, revenues and prospects.

Our business and prospects are heavily dependent on our ability to develop, maintain and strengthen the Tesla brand. Any failure to develop, maintain and strengthen our brand may materially and adversely affect our ability to sell the Tesla Roadster and planned electric vehicles, including the Model S, and sell our electric

 

29


Table of Contents

powertrain components. If we do not continue to establish, maintain and strengthen our brand, we may lose the opportunity to build a critical mass of customers. Promoting and positioning our brand will likely depend significantly on our ability to provide high quality electric cars and maintenance and repair services, and we have very limited experience in these areas. In addition, we expect that our ability to develop, maintain and strengthen the Tesla brand will also depend heavily on the success of our marketing efforts. To date, we have limited experience with marketing activities as we have relied primarily on the internet, word of mouth and attendance at industry trade shows to promote our brand. To further promote our brand, we may be required to change our marketing practices, which could result in substantially increased advertising expenses, including the need to use traditional media such as television, radio and print. The automobile industry is intensely competitive, and we may not be successful in building, maintaining and strengthening our brand. Many of our current and potential competitors, particularly automobile manufacturers headquartered in Detroit, Japan and the European Union, have greater name recognition, broader customer relationships and substantially greater marketing resources than we do. If we do not develop and maintain a strong brand, our business, prospects, financial condition and operating results will be materially and adversely impacted.

We are in the process of transitioning our motor manufacturing and battery pack assembly process for the Tesla Roadster and any difficulties we encounter during this transition could materially and adversely affect our business.

We are in the process of transitioning our motor manufacturing and battery pack assembly processes for the Tesla Roadster and may experience unexpected delays or difficulties in executing this transition. We historically have used facilities in Taiwan to assemble the motors for the Tesla Roadster and facilities in San Carlos, California to assemble the battery pack for the Tesla Roadster. These operations are transitioning to our new facility in Palo Alto, California, and we believe our facility relocation will be complete in the first half of 2010. We may experience issues that disrupt the production of these components as we migrate our production processes to our Palo Alto facility. Additionally, our lease agreement for the Menlo Park facility where the powertrain is assembled in the glider of the Tesla Roadster permits the landlord to terminate the lease without cause with six months’ notice. Any such termination could require us to relocate our Menlo Park operations to another facility although we believe such relocation could be accomplished in a relatively short period of time. Any difficulties we encounter while we transition our manufacturing operations in-house could materially and adversely affect our ability to manufacture and deliver our Tesla Roadsters to customers.

We are dependent upon our relationship with Lotus for the manufacturing of the Tesla Roadster.

In July 2005, we entered into a supply agreement with Lotus pursuant to which Lotus agreed to assist with the design and manufacture of our Tesla Roadster. Although we complete the final assembly of our Tesla Roadster in our Menlo Park facility for vehicles destined for the United States market, currently we are dependent upon Lotus to complete the initial portion of the assembly process of the Tesla Roadster for us in Hethel, England and we expect to be so until we discontinue sales of our current generation Tesla Roadster. We currently do not intend to sell our current generation Tesla Roadster after 2011 to accommodate planned tooling changes. We anticipate that our next generation Tesla Roadster, which we only plan to launch after we begin production of the Model S, will be manufactured in our own facilities.

Pursuant to the supply agreement with Lotus, we are obligated to purchase a minimum of 1,700 partially assembled or fully assembled vehicles over the three year term of the agreement, which will expire in March 2011. The partially assembled vehicles do not contain our electric powertrain and are referred to as “gliders.” If we are unable to meet this volume requirement, we are still responsible for payment to Lotus of the lesser of (i) the sum of Lotus’ actual incurred costs and an agreed upon profit margin per vehicle up to the minimum volume requirement or (ii) £5,400,000. As of December 31, 2009, we had purchased approximately 1,000 vehicles or gliders under this agreement. We do not currently have a supply agreement with Lotus for the supply of Tesla Roadster vehicles or gliders beyond the 1,700 minimum referenced above. We may be unable to enter into a new supply agreement or extend our existing supply agreement with Lotus on terms and conditions

 

30


Table of Contents

acceptable to us. In such event, we may be required to contract with another third party to replace Lotus which would entail redesign of the Tesla Roadster chassis, adjustments to our supply chain and establishment of a light manufacturing facility. The expense and time required to complete this transition, and to assure that the vehicles and gliders manufactured at that facility comply with all relevant regulatory requirements, may turn out to be higher than anticipated. Entry into any such contract with another third party might also require us to agree to terms with Lotus on which Lotus would license certain intellectual property rights necessary for the manufacture of the Tesla Roadster to such third party. There can be no assurance that we will be able to find a third party to complete partial manufacture of the Tesla Roadster on terms acceptable to us, if at all and, in addition, there can be no assurance that we will be able to enter into an intellectual property rights license with Lotus on terms acceptable to us. Additionally, because we are dependent upon our relationship with Lotus for the manufacturing of the Tesla Roadster, our business depends on Lotus continuing to operate as a viable and solvent entity and to continue to produce the Tesla Roadster vehicles and gliders pursuant to our supply agreement. Any delay or discontinuance by Lotus of delivery of the Tesla Roadster vehicles and gliders or failure by Lotus to produce the vehicles and gliders in accordance with quality standards would have a material adverse effect on our business, prospects, operating results and financial condition.

We are dependent on our suppliers, a significant number of which are single or limited source suppliers, and the inability of these suppliers to continue to deliver, or their refusal to deliver, necessary components of our vehicles at prices and volumes acceptable to us would have a material adverse effect on our business, prospects and operating results.

The Tesla Roadster uses over 2,000 purchased parts which we source from over 150 suppliers, many of whom are currently single source suppliers for these components. Our supply base is located globally, with about 30% of our suppliers located in North America, 40% in Europe and 30% in Asia. While we obtain components from multiple sources whenever possible, similar to other automobile manufacturers, many of the components used in our vehicles must be custom made for us. We refer to these component suppliers as our single source suppliers. In addition, Lotus is the only manufacturer for certain components, such as the chassis of our Tesla Roadster, and we refer to it as a sole source supplier.

This supply chain exposes us to multiple potential sources of delivery failure or component shortages for the Tesla Roadster and the planned Model S. We are currently evaluating, qualifying and selecting our suppliers for the planned production of the Model S and we intend to establish dual suppliers for several key components of the Model S, although we expect that a number of components for the Model S will be single sourced. To date we have not qualified alternative sources for most of the single sourced components used in our vehicles and we generally do not maintain long-term agreements with our single source and sole source suppliers. While we believe that we may be able to establish alternate supply relationships and can obtain replacement components, we may be unable to do so in the short term or at all at prices that are favorable to us. In addition, replacing our sole source components may require us to reengineer our vehicles, which could be time consuming and costly. We have in the past experienced source disruptions in our supply chains which have caused delays in our production process and we may experience additional delays in the future.

Changes in business conditions, wars, governmental changes, and other factors beyond our control or which we do not presently anticipate, could also affect our suppliers’ ability to deliver components to us on a timely basis. Furthermore, if we experience significant increased demand, or need to replace our existing suppliers, there can be no assurance that additional supplies of component parts will be available when required on terms that are acceptable to us, or at all, or that any supplier would allocate sufficient supplies to us in order to meet our requirements or fill our orders in a timely manner. In the past, we have replaced certain suppliers because of their failure to provide components that met our quality control standards. The loss of any single or limited source supplier or the disruption in the supply of components from these suppliers could lead to delays in vehicle deliveries to our customers, which could hurt our relationships with our customers and also materially adversely affect our business, prospects and operating results.

 

31


Table of Contents

Changes in our supply chain have resulted in the past, and may result in the future, in increased cost and delay. For example, a change in our supplier for our carbon fiber body panels contributed to the delay in our ability to ramp our production of the Tesla Roadster. A failure by our suppliers to provide the components necessary to manufacture our performance electric vehicles could prevent us from fulfilling customer orders in a timely fashion which could result in negative publicity, damage our brand and have a material adverse effect on our business, prospects and operating results. In addition, since we have no fixed pricing arrangements with any of our component suppliers other than Lotus, our component suppliers could increase their prices with little or no notice to us, which could harm our financial condition and operating results if we are unable to pass such price increases along to our customers.

Increases in costs, disruption of supply or shortage of raw materials, in particular lithium-ion cells, could harm our business.

We may experience increases in the cost or a sustained interruption in the supply or shortage of raw materials. Any such an increase or supply interruption could materially negatively impact our business, prospects, financial condition and operating results. We use various raw materials in our business including aluminum, steel, carbon fiber, non-ferrous metals such as copper, as well as cobalt. The prices for these raw materials fluctuate depending on market conditions and global demand for these materials and could adversely affect our business and operating results. For instance, we are exposed to multiple risks relating to price fluctuations for lithium-ion cells. These risks include:

 

   

the inability or unwillingness of current battery manufacturers to build or operate battery cell manufacturing plants to supply the numbers of lithium-ion cells required to support the growth of the electric or plug-in hybrid vehicle industry as demand for such cells increases;

 

   

disruption in the supply of cells due to quality issues or recalls by the battery cell manufacturers; and

 

   

an increase in the cost of raw materials, such as cobalt, used in lithium-ion cells.

Our business is dependent on the continued supply of battery cells for our vehicles. While we believe several sources of the battery cell we have selected for the Tesla Roadster are available, we have fully qualified only one supplier for these cells. Any disruption is the supply of battery cells from such vendor could temporarily disrupt production of the Tesla Roadster until such time as a different supplier is fully qualified. Moreover, battery cell manufacturers may choose to refuse to supply electric vehicle manufacturers to the extent they determine that the vehicles are not sufficiently safe. Furthermore, current fluctuations or shortages in petroleum and other economic conditions may cause us to experience significant increases in freight charges and raw material costs. Substantial increases in the prices for our raw materials increase our operating costs, and could reduce our margins if we cannot recoup the increased costs through increased electric vehicle prices. There can be no assurance that we will be able to recoup increasing costs of raw materials by increasing vehicle prices. We have also already announced an estimated price for the base model of our planned Model S. Although we have indicated that final pricing for the Model S will not be known until 2011 at the earliest, an increase in the announced price in response to increased raw material costs could be viewed negatively by our customers, result in cancellations of Model S reservations and could adversely affect our brand, image, business, prospects and operating results.

We are currently expanding and improving our information technology systems. If these implementations are not successful, our business and operations could be disrupted and our operating results could be harmed.

We are currently expanding and improving our information technology systems to assist us in the management of our business. In particular, our production of the Model S will necessitate the improvement, design and development of more expanded supply chain systems to support our operations as well as production and shop floor management. The implementation of new software management platforms and the addition of

 

32


Table of Contents

these platforms at new locations require significant management time, support and cost. Moreover, there are inherent risks associated with developing, improving and expanding our core systems, including supply chain disruptions that may affect our ability to obtain supplies when needed or to deliver vehicles to our Tesla stores and customers. We cannot be sure that these expanded systems will be fully or effectively implemented on a timely basis, if at all. If we do not successfully implement this project, our operations may be disrupted and our operating results could be harmed. In addition, the new systems may not operate as we expect them to, and we may be required to expend significant resources to correct problems or find alternative sources for performing these functions.

If our vehicle owners customize our vehicles or change the charging infrastructure with aftermarket products, the vehicle may not operate properly which could harm our business.

Automobile enthusiasts may seek to “hack” our vehicles to modify its performance which could compromise vehicle safety systems. Also, we are aware of customers who have customized their vehicles with after-market parts that may compromise driver safety. For example, some customers have installed seats that elevate the driver such that airbag and other safety systems could be compromised. Other customers have changed wheels and tires, while others have installed large speaker systems that may impact the electrical systems of the vehicle. We have not tested, nor do we endorse such changes or products. In addition, customer use of improper external cabling or unsafe charging outlets can expose our customer to injury from high voltage electricity. Such unauthorized modifications could reduce the safety of our vehicles and any injuries resulting from such modifications could result in adverse publicity which would negatively affect our brand and harm our business, prospects, financial condition and operating results.

The success of our business depends on attracting and retaining a large number of customers. If we are unable to do so, we will not be able to achieve profitability.

Our success depends on attracting a large number of potential customers to purchase our electric vehicles. As of December 31, 2009 we had sold 937 Tesla Roadsters to customers, almost all of which were sold in the United States and Europe, and had accepted reservations for approximately 2,000 Model S sedans. If our existing and prospective customers do not perceive our vehicles and services to be of sufficiently high value and quality, and appealing in aesthetics or performance, or if the final production version of the Model S is not sufficiently similar to the drivable design prototype, we may not be able to retain our current customers or attract new customers, and our business and prospects, operating results and financial condition would suffer as a result. In addition, because our performance electric vehicles to date have been sold largely through word of mouth marketing efforts, we may be required to incur significantly higher and more sustained advertising and promotional expenditures than we have previously incurred to attract customers, and use more traditional advertising techniques. In addition, if we engage in traditional advertising, we may face review by consumer protection enforcement agencies and may incur significant expenses to ensure that our advertising claims are fully supported. To date we have limited experience selling our electric vehicles and we may not be successful in attracting and retaining a large number of customers. For example, over half of our current sales team has less than one year of experience in selling our performance electric vehicles. If for any of these reasons we are not able to attract and maintain customers, our business, prospects, operating results and financial condition would be materially harmed.

Regulators could review our practice of taking reservation payments and, if the practice is deemed to violate applicable law, we could be required to pay penalties or refund the reservation payments that we have received for vehicles that are not immediately available for delivery, to stop accepting additional reservation payments, to restructure certain aspects of our reservation program, and potentially to suspend or revoke our licenses to manufacture and sell our vehicles.

To reserve a production slot, we require our customers to pay reservation payments, which may be used towards the purchase price for our vehicles in advance of delivery of the vehicle. Our reservation payments are

 

33


Table of Contents

used by us to fund, in part, our working capital requirements and help us to align production with demand. For our 2010 model year Tesla Roadsters, our current reservations policy requires the payment of an initial $9,900, €9,900 or £8,500 reservation payment, depending on the location of the customer. Approximately three months prior to production, we require the customer to make full payment of the balance owed on the vehicle to lock in a production slot. For the Model S, we require an initial reservation payment of at least $5,000. Until the customer locks in a production slot, reservation payments are refundable, less certain cancellation fees. As of September 30, 2009, we had collected reservation payments for undelivered Tesla Roadsters in an aggregate amount of $9.3 million and reservation payments for Model S sedans in an aggregate amount of $15.2 million. At this time, we do not plan to hold reservation payments separately or in an escrow or trust fund or pay any interest on reservation payments except to the extent applicable laws require us to do so. We generally use these funds for working capital and other general corporate purposes.

California laws, and potentially the laws of other states, restrict the ability of licensed auto dealers to advertise or take deposits for vehicles before the vehicles are available to the dealer from the manufacturer. In November 2007, we became aware that the New Motor Vehicle Board of the California Department of Transportation has considered whether our reservation policies and advertising comply with the California Vehicle Code. To date, we have not received any communications on this topic from the New Motor Vehicle Board or the Department of Motor Vehicles, or DMV, which has the power to enforce these laws. There can be no assurance that the DMV will not take the position that our vehicle reservation or advertising practices violate the law. We expect that if the DMV determines that we may have violated the law, it would initially discuss its concerns with us and request voluntary compliance. If we are ultimately found to be in violation of California law, we might be precluded from taking reservation payments, and the DMV could take other actions against us, including levying fines and requiring us to refund reservation payments. Resolution of any inquiry may also involve restructuring certain aspects of the reservation program. In addition, California is currently the only jurisdiction in which we have licenses to both manufacture and sell our vehicles so any limitation imposed on our operations in California would be particularly damaging to our business. The DMV also has the power to suspend licenses to manufacture and sell vehicles in California, following a hearing on the merits, which it has typically exercised in cases of significant or repeat violations and/or a refusal to comply with DMV directions.

Certain states may have specific laws which apply to dealers, or manufacturers selling directly to consumers, or both. For example, the state of Washington requires that reservation payments or other payments received from residents in the state of Washington must be placed in a segregated account until delivery of the vehicle, which account must be unencumbered by any liens from creditors of the dealer and may not be used by the dealer. Consequently, we established a segregated account for reservation payments in the state of Washington in January 2010. There can be no assurance that other state or foreign jurisdictions will not require similar segregation of reservation payments received from customers. Our inability to access these funds for working capital purposes could harm our liquidity.

Furthermore, while we have performed an analysis of the principal laws in the European Union relating to our distribution model and believe we comply with such laws, we have not performed a complete analysis in all foreign jurisdictions in which we may sell vehicles. Accordingly, there may be laws in jurisdictions we have not yet entered or laws we are unaware of in jurisdictions we have entered that may restrict our vehicle reservation practices or other business practices. Even for those jurisdictions we have analyzed, the laws in this area can be complex, difficult to interpret and may change over time.

If our vehicle reservation or advertising practices or other business practices were found to violate the laws of a jurisdiction, we may face exposure under those laws and our business and prospects would be adversely affected. For example, if we are required to return reservation payment amounts, we may need to raise additional funds to make such payments. There can be no assurance that such funding would be available on a timely basis on commercially reasonable terms, if at all. If a court were to find that our reservation agreement or advertising does not comply with state laws, we may face exposure under those laws which may include exposure under consumer protection statutes such as those that deal with unfair competition and false advertising. Moreover,

 

34


Table of Contents

reductions in our cash as a result of redemptions or an inability to take reservation payments could also make it more difficult for us to obtain additional financing. The prospect of reductions in cash, even if unrealized, may also make it more difficult to obtain financing.

Our plan to expand our network of Tesla stores will require significant cash investments and management resources and may not meet our expectations with respect to additional sales of our electric vehicles. In addition, we may not be able to open stores in certain states.

Our plan to expand our network of Tesla stores will require significant cash investments and management resources and may not meet our expectations with respect to additional sales of our electric vehicles. This planned global expansion of Tesla stores may not have the desired effect of increasing sales and expanding our brand presence to the degree we are anticipating. Furthermore there can be no assurances that we will be able to construct additional storefronts on the budget or timeline we have established. We will also need to ensure we are in compliance with any regulatory requirements applicable to the sale of our vehicles in those jurisdictions, which could take considerable time and expense. If we experience any delays in expanding our network of Tesla stores, this could lead to a decrease in sales of our vehicles and could negatively impact our business, prospects, financial condition and operating results. As of December 31, 2009, we had opened 10 Tesla stores in major metropolitan areas throughout the United States and Europe. We plan to nearly double the number of Tesla stores opened by the end of 2010, with a goal of establishing approximately 50 stores globally within the next several years in connection with the planned Model S rollout. However, we may not be able to expand our network at such rate and our planned expansion of our network of Tesla stores will require significant cash investment and management resources, as well as efficiency in the execution of establishing these storefronts and in hiring and training the necessary employees to effectively sell our vehicles.

Furthermore, certain states and foreign jurisdictions may have permit requirements, franchise dealer laws or similar laws or regulations that may preclude or restrict our ability to open stores or sell vehicles out of such states and jurisdictions. Any such prohibition or restriction may lead to decreased sales in such jurisdictions, which could harm our business and operating results.

We face risks associated with our international operations, including unfavorable regulatory, political, tax and labor conditions, which could harm our business.

We face risks associated with our international operations, including possible unfavorable regulatory, political, tax and labor conditions, which could harm our business. We currently have international operations and subsidiaries in the United Kingdom, Canada, Monaco, Germany and Taiwan that are subject to the legal, political, regulatory and social requirements and economic conditions in these jurisdictions. Additionally, as part of our growth strategy, we intend to expand our sales, maintenance and repair services internationally. However, we have limited experience to date selling and servicing our vehicles internationally and such expansion would require us to make significant expenditures, including the hiring of local employees and establishing facilities, in advance of generating any revenue. We are subject to a number of risks associated with international business activities that may increase our costs, impact our ability to sell our electric vehicles and require significant management attention. These risks include:

 

   

conforming our vehicles to various international regulatory requirements where our vehicles are sold, or homologation;

 

   

difficulty in staffing and managing foreign operations;

 

   

difficulties attracting customers in new jurisdictions;

 

   

foreign government taxes, regulations and permit requirements, including foreign taxes that we may not be able to offset against taxes imposed upon us in the United States, and foreign tax and other laws limiting our ability to repatriate funds to the United States;

 

35


Table of Contents
   

fluctuations in foreign currency exchange rates and interest rates, including risks related to any interest rate swap or other hedging activities we undertake;

 

   

our ability to enforce our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as do the United States, Japan and European countries, which increases the risk of unauthorized, and uncompensated, use of our technology;

 

   

United States and foreign government trade restrictions, tariffs and price or exchange controls;

 

   

foreign labor laws, regulations and restrictions;

 

   

preferences of foreign nations for domestically produced vehicles;

 

   

changes in diplomatic and trade relationships;

 

   

political instability, natural disasters, war or events of terrorism; and

 

   

the strength of international economies.

We also face the risk that costs denominated in foreign currencies will increase if such foreign currencies strengthen quickly and significantly against the dollar. A portion of our costs and expenses for the nine months ended September 30, 2009 were denominated in foreign currencies such as the British Pound and the euro. This is primarily due to the contract with Lotus in the United Kingdom to assemble the Tesla Roadster vehicles and gliders and other parts sourced in Europe. If the value of the United States dollar continues to depreciate against the British pound and the Euro, our costs as measured in United States dollars will correspondingly increase and our operating results will be adversely affected. In addition, our battery cell purchases from Asian suppliers are subject to currency risk. Although our present contracts are United States dollar based, if the United States dollar depreciates significantly against the local currency it could cause our Asian suppliers to significantly raise their prices, which could harm our financial results.

If we fail to successfully address these risks, our business, prospects, operating results and financial condition could be harmed.

The unavailability, reduction or elimination of government and economic incentives could have a material adverse effect on our business, financial condition, operating results and prospects.

Any reduction, elimination or discriminatory application of government subsidies and economic incentives because of policy changes, the reduced need for such subsidies and incentives due to the perceived success of the electric vehicle, fiscal tightening or other reasons may result in the diminished competitiveness of the alternative fuel vehicle industry generally or our electric vehicles in particular. This could materially and adversely affect the growth of the alternative fuel automobile markets and our business, prospects, financial condition and operating results.

Our growth depends in part on the availability and amounts of government subsidies and economic incentives for alternative fuel vehicles generally and performance electric vehicles specifically. For example, in December 2009, we finalized an arrangement with the California Alternative Energy and Advanced Transportation Financing Authority that will result in an exemption from California state sales and use taxes for up to $320 million of manufacturing equipment. To the extent all of this equipment is purchased and would otherwise be subject to California state sales and use tax, we believe this incentive would result in tax savings by us of up to approximately $31 million over a three year period starting in December 2009. This exemption is only available for equipment that would otherwise be subject to California sales and use taxes and that would be used only for the following three purposes: to establish our production facility for the Model S sedan, to upgrade our Palo Alto powertrain production facility, and to expand our current Tesla Roadster assembly operations at our Menlo Park facility. If we fail to meet these conditions, we would be unable to take full advantage of this tax incentive and our financial position could be harmed.

 

36


Table of Contents

In addition, certain regulations that encourage sales of electric cars could be reduced, eliminated or applied in a way that creates an adverse effect against our vehicles, either currently or at any time in the future. For example, while the federal and state governments have from time to time enacted tax credits and other incentives for the purchase of alternative fuel cars, our competitors have more experience and greater resources in working with legislators than we do, and so there is no guarantee that our vehicles would be eligible for tax credits or other incentives provided to alternative fuel vehicles in the future. This would put our vehicles at a competitive disadvantage. As another example, government disincentives have been enacted in Europe for gas-powered vehicles, which discourage the use of such vehicles and allow us to set a higher sales price for the Tesla Roadster in Europe. In the event that such disincentives are reduced or eliminated, sales of electric vehicles, including our Tesla Roadster, could be adversely affected. Furthermore, low volume manufacturers are exempt from certain regulatory requirements in the United States and the European Union. This provides us with an advantage over high volume manufacturers that must comply with such regulations. Once we reach a certain threshold number of sales in each of the United States and the European Union, we will no longer be able to take advantage of such exemptions in the respective jurisdictions, which could lead us to incur additional design and manufacturing expense. We do not anticipate that we will be able to take advantage of these exemptions with respect to the Model S which we plan to produce at significantly higher volumes than the Tesla Roadster.

If we are unable to grow our sales of electric vehicle components to original equipment manufacturers, our financial results may suffer.

We may have trouble attracting and retaining powertrain customers which could adversely affect our business prospects and results. Daimler is currently the sole customer of our electric powertrain business. In May 2009, we formalized a development agreement with Daimler as a result of which we performed specified research and development services. In addition, we have been selected by Daimler to supply it with up to 1,000 battery packs and chargers to support a trial of the Smart fortwo electric drive in five European cities. We began shipping the first of these battery packs and chargers in November 2009 and started to recognize revenue for these sales in the quarter ended December 31, 2009. There is no guarantee that we will be able to secure future business with Daimler as it has indicated its intent to produce all of its lithium-ion batteries by 2012 as part of a joint venture with Evonik Industries AG. If Daimler goes through with this, we are likely to lose the only customer in our powertrain business. Other than our agreement with Daimler, we have no significant development or sales agreements in place to drive our electric powertrain revenues. Even if we do develop such relationships, there is no assurance that we can adequately pursue such opportunities simultaneously with the execution of our plans for our vehicles.

Our relationship with Daimler is subject to various risks which could adversely affect our business and future prospects.

Daimler has agreed to purchase components of our electric powertrain to support a trial of the Smart fortwo electric drive in five European cities. In addition, we are negotiating agreements for Daimler to provide us with access to various parts, automotive support and engineering for the Model S and regarding various other areas of strategic cooperation with Daimler although there are no assurances that we will be able to enter into any such agreements. However, our relationship with Daimler poses various risks to us including:

 

   

potential delays in launching the Model S if we lose Daimler’s automotive support and are unable to find an alternative in a timely manner;

 

   

potential loss of access to various parts that we are incorporating into our Model S design; and

 

   

potential loss of business and adverse publicity to our brand image if there are defects or other problems discovered with our electric powertrain components that Daimler has incorporated into their vehicles.

 

37


Table of Contents

The occurrence of any of the foregoing could adversely affect our business, prospects and operating results.

In addition, our exclusivity and intellectual property agreement, or EIP Agreement, with Daimler North America Corporation, or DNAC, an affiliate of Daimler provides that, if a Daimler competitor offers to enter into a competitive strategic transaction with us, we are required to give DNAC notice of such offer and DNAC will have a specified period of time in which to notify us whether it wishes to enter into such transaction with us on the same terms as offered by the third party. Because we will be able to enter into such a transaction with a third party only if DNAC declines to do so, this may decrease the likelihood that we will receive offers from third parties to enter into strategic arrangements in the future.

We may not be able to identify adequate strategic relationship opportunities, or form strategic relationships, in the future.

Strategic business relationships will be an important factor in the growth and success of our business. For example, our strategic relationship with Daimler has provided us with various benefits. However, there are no assurances that we will be able to identify or secure suitable business relationship opportunities in the future or our competitors may capitalize on such opportunities before we do. Our strategic relationship with Daimler involved Blackstar, an affiliate of Daimler, making a significant equity investment in us as well as a representative from Daimler, Dr. Herbert Kohler, joining our Board. We may not be able to offer similar benefits to other companies that we would like to establish and maintain strategic relationships with which could impair our ability to establish such relationships. Moreover, identifying such opportunities could demand substantial management time and resources, and negotiating and financing relationships involves significant costs and uncertainties. If we are unable to successfully source and execute on strategic relationship opportunities in the future, our overall growth could be impaired, and our operating results could be adversely affected.

If we fail to manage future growth effectively, we may not be able to market and sell our vehicles successfully.

Any failure to manage our growth effectively could materially and adversely affect our business, prospects, operating results and financial condition. We have recently expanded our operations significantly, increasing our total number of employees from 279 as of December 31, 2007 to 514 as of December 31, 2009 and further significant expansion will be required, especially in connection with the planned establishment of our Model S production facility, our electric powertrain manufacturing facility, the expansion of our network of Tesla stores and services centers, our mobile Tesla Rangers program and requirements of being a public company. Our future operating results depend to a large extent on our ability to manage this expansion and growth successfully. Risks that we face in undertaking this expansion include:

 

   

training new personnel;

 

   

forecasting production and revenue;

 

   

controlling expenses and investments in anticipation of expanded operations;

 

   

establishing or expanding design, manufacturing, sales and service facilities;

 

   

implementing and enhancing administrative infrastructure, systems and processes;

 

   

addressing new markets; and

 

   

expanding international operations.

We intend to continue to hire a significant number of additional personnel, including design and manufacturing personnel and service technicians for our performance electric vehicles. Because our high-performance vehicles are based on a different technology platform than traditional internal combustion engines, individuals with sufficient training in performance electric vehicles may not be available to hire, and we will

 

38


Table of Contents

need to expend significant time and expense training the employees we do hire. Competition for individuals with experience designing, manufacturing and servicing electric vehicles is intense, and we may not be able to attract, assimilate, train or retain additional highly qualified personnel in the future. The failure to attract, integrate, train, motivate and retain these additional employees could seriously harm our business and prospects.

If we are unable to attract and retain key employees and hire qualified management, technical and vehicle engineering personnel, our ability to compete could be harmed.

The loss of the services of any of our key employees could disrupt our operations, delay the development and introduction of our vehicles and services, and negatively impact our business, prospects and operating results. In particular, we are highly dependent on the services of Elon Musk, our Chief Executive Officer, Product Architect and Chairman of our Board of Directors, and JB Straubel, our Chief Technical Officer. None of our key employees is bound by an employment agreement for any specific term. There can be no assurance that we will be able to successfully attract and retain senior leadership necessary to grow our business. Our future success depends upon our ability to attract and retain our executive officers and other key technology, sales, marketing and support personnel and any failure to do so could adversely impact our business, prospects, financial condition and operating results. We have in the past and may in the future experience difficulty in retaining members of our senior management team. In addition, we do not have “key person” life insurance policies covering any of our officers or other key employees. There is increasing competition for talented individuals with the specialized knowledge of electric vehicles and this competition affects both our ability to retain key employees and hire new ones.

We are highly dependent on the services of Elon Musk, our Chief Executive Officer.

We are highly dependent on the services of Elon Musk, our Chief Executive Officer, Product Architect, Chairman of our Board of Directors and largest stockholder. Although Mr. Musk spends significant time with Tesla and is highly active in our management, he does not devote his full time and attention to Tesla. Mr. Musk also currently serves as Chief Executive Officer and Chief Technical Officer of Space Exploration Technologies, a developer and manufacturer of space launch vehicles, and Chairman of SolarCity, a solar equipment installation company.

In addition, our financing agreements with Blackstar contain certain covenants relating to Mr. Musk’s employment as our Chief Executive Officer. These covenants provide that if Mr. Musk is not serving as our Chief Executive Officer at any time until the later of December 31, 2012 or the launch of the Model S, Mr. Musk shall promptly propose a successor Chief Executive Officer and Dr. Kohler, or his successor, must consent to any appointment of such person by our Board of Directors. If Mr. Musk departs as our Chief Executive Officer prior to December 31, 2010, for reasons other than his death or disability, and Dr. Kohler, or his successor, has not consented to the appointment of a new Chief Executive Officer, Daimler has the right to terminate any or all of its strategic collaboration agreements with us. Furthermore, if at any time during the period from January 1, 2011 through December 31, 2012, Mr. Musk is not serving as either our Chief Executive Officer or Chairman of our Board of Directors for reasons other than his death or disability, and Dr. Kohler, or his successor, has not consented to the appointment of a new Chief Executive Officer or if during such period Mr. Musk renders services to, or invests in, any other automotive OEM other than us, Daimler has the right to terminate any or all of its strategic collaboration agreements with us. If this were to occur, our business would be harmed.

Furthermore, our DOE Loan Facility provides that we will be in default under the facility in the event Mr. Musk and certain of his affiliates fail to own, at any time prior to one year after we complete the project relating to the Model S, at least 65% of the capital stock held by Mr. Musk and such affiliates as of the date of the DOE Loan Facility.

 

39


Table of Contents

Many members of our management team are new to the company or to the automobile industry, and execution of our business plan and development strategy could be seriously harmed if integration of our management team into our company is not successful.

Our business could be seriously harmed if integration of our management team into our company is not successful. We expect that it will take time for our new management team to integrate into our company and it is too early to predict whether this integration will be successful. We have recently experienced significant changes in our management team and expect to continue to experience significant growth in our management team. Our senior management team has only limited experience working together as a group. Specifically, two of the five members of our senior management team have joined us within the last two years. For example, Deepak Ahuja, our Chief Financial Officer, joined us in July 2008, and Gilbert Passin, our Vice President of Manufacturing, joined us in January 2010. This lack of long-term experience working together may impact the team’s ability to collectively quickly and efficiently respond to problems and effectively manage our business. Although we are taking steps to add senior management personnel that have significant automotive experience, many of the members of our current senior management team have limited or no prior experience in the automobile or electric vehicle industries.

We are subject to various environmental laws and regulations that could impose substantial costs upon us and cause delays in building our manufacturing facilities.

As an automobile manufacturer, we and our operations, both in the United States and abroad, are subject to national, state, provincial and/or local environmental laws and regulations, including laws relating to the use, handling, storage, disposal and human exposure to hazardous materials. Environmental laws and regulations can be complex and we expect that our business and operations will be affected by other new environmental and health and safety laws which may require us to change our operations, which could have a material adverse effect on our business. These laws can give rise to liability for administrative oversight costs, cleanup costs, property damage, bodily injury and fines and penalties. Capital and operating expenses needed to comply with environmental laws and regulations can be significant, and violations may result in substantial fines and penalties, third party damages, suspension of production or a cessation of our operations. In addition, ensuring we are in compliance with applicable environmental laws in connection with our planned Model S manufacturing facility and our planned electric powertrain manufacturing facility in Palo Alto, California, such as the California Environmental Quality Act, could require significant time and management and financial resources and could cause delays in our ability to build out, equip and operate these facilities, which would adversely impact our business, prospects, financial condition and operating results. Our DOE Loan Facility conditions the availability of the full amount of the loans on meeting certain environmental requirements relating to the sites on which our Model S manufacturing facility and our electric powertrain facility are located, including the National Environmental Policy Act and any environmental issues with respect to these sites could limit or delay our ability to draw down the full amount of the loans under our DOE Loan Facility.

In addition, environmental laws and regulations, such as the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, in the United States can impose liability for the full amount of damages without regard to comparative fault for the investigation and cleanup of contaminated soil and ground water, for building contamination and impacts to human health and for damages to natural resources. Contamination at properties formerly owned or operated by us, as well as at properties we will own and operate, and properties to which hazardous substances were sent by us, may result in liability for us under environmental laws and regulations. The costs of complying with environmental laws and regulations and any claims concerning noncompliance, or liability with respect to contamination in the future could, have a material adverse effect on our financial condition or operating results.

We may not be able to obtain, or to agree on acceptable terms and conditions for, all or a significant portion of the government grants, loans and other incentives for which we have applied and may in the future apply. As a result, our business and prospects may be adversely affected.

We have applied for federal and state grants, loans and tax incentives under government programs designed to stimulate the economy and support the production of electric vehicles and related technologies. We anticipate

 

40


Table of Contents

that in the future there will be new opportunities for us to apply for grants, loans and other incentives from the United States, state and foreign governments. Our ability to obtain funds or incentives from government sources is subject to the availability of funds under applicable government programs and approval of our applications to participate in such programs. The application process for these funds and other incentives is and will be highly competitive. We cannot assure you that we will be successful in obtaining any of these additional grants, loans and other incentives. If we are not successful in obtaining any of these additional incentives and we are unable to find alternative sources of funding to meet our planned capital needs, our business and prospects could be adversely affected.

Our business may be adversely affected by union activities.

Although none of our employees are currently represented by a labor union, it is common throughout the automobile industry generally for many employees at automobile companies to belong to a union, which can result in higher employee costs and increased risk of work stoppages. As we expand our business to include full in-house manufacturing of our vehicles, as is planned for the Model S, there can be no assurances that our employees will not join or form a labor union or that we will not be required to become a union signatory. We are also directly or indirectly dependent upon companies with unionized work forces, such as parts suppliers and trucking and freight companies, and work stoppages or strikes organized by such unions could have a material adverse impact on our business, financial condition or operating results. For example, certain employees at the sea freight companies through which we ship our Tesla Roadster gliders to the United States after assembly in England may be represented by unions, as may be employees at certain of our suppliers. If a work stoppage occurs, it could delay the manufacture and sale of our performance electric vehicles and have a material adverse effect on our business, operating results or financial condition.

We are subject to substantial regulation, which is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm our business and operating results.

Our performance electric vehicles, the sale of motor vehicles in general and the electronic components used in our vehicles are subject to substantial regulation under international, federal, state, and local laws. We have incurred, and expect to incur in the future, significant costs in complying with these regulations. For example, the Clean Air Act requires that we obtain a Certificate of Conformity issued by the EPA and a California Executive Order issued by the California Air Resources Board with respect to emissions for our vehicles. We received a Certificate of Conformity for sales of our Tesla Roadsters in 2008, but did not receive a Certificate of Conformity for sales of the Tesla Roadster in 2009 until December 21, 2009. In January 2010, we and the EPA entered into an Administrative Settlement Agreement and Audit Policy Determination in which we agreed to pay a civil administrative penalty in the sum of $275,000 for failing to obtain a Certificate of Conformity for sales of our vehicles in 2009 prior to December 21, 2009.

Regulations related to the electric vehicle industry and alternative energy are currently evolving and we face risks associated with changes to these regulations such as:

 

   

the imposition of a carbon tax or the introduction of a cap-and-trade system on electric utilities could increase the cost of electricity;

 

   

the increase of subsidies for corn and ethanol production could reduce the operating cost of vehicles that use ethanol or a combination of ethanol and gasoline;

 

   

changes to the regulations governing the assembly and transportation of lithium-ion batteries, such as the UN Recommendations of the Safe Transport of Dangerous Goods Model Regulations or regulations adopted by the U.S. Pipeline and Hazardous Materials Safety Administration, or PHMSA, could increase the cost of lithium-ion batteries;

 

   

the amendment or rescission of the federal law mandating increased fuel economy in the United States, referred to as the “Corporate Average Fuel Economy” or “CAFE” standards could reduce new business opportunities for our powertrain business;

 

41


Table of Contents
   

increased sensitivity by regulators to the needs of established automobile manufacturers with large employment bases, high fixed costs and business models based on the internal combustion engine could lead them to pass regulations that could reduce the compliance costs of such established manufacturers or mitigate the effects of government efforts to promote alternative fuel vehicles; and

 

   

changes to regulations governing exporting of our products could increase our costs incurred to deliver products outside the United States or force us to charge a higher price for our vehicles in such jurisdictions.

To the extent the laws change, some or all of our vehicles may not comply with applicable international, federal, state or local laws, which would have an adverse effect on our business. Compliance with changing regulations could be burdensome, time consuming, and expensive. To the extent compliance with new regulations is cost prohibitive, our business, prospects, financial condition and operating results will be adversely affected.

We retain certain personal information about our customers and may be subject to various privacy and consumer protection laws.

We use our vehicles’ electronic systems to log information about each vehicle’s use in order to aid us in vehicle diagnostics, repair and maintenance, as well as to help us collect data regarding our customers’ charge time, battery usage, mileage and efficiency habits. Our customers may object to the use of this data, which may harm our business. Possession and use of our customers’ personal information in conducting our business may subject us to legislative and regulatory burdens in the United States and foreign jurisdictions that could require notification of data breach, restrict our use of such personal information and hinder our ability to acquire new customers or market to existing customers. We may incur significant expenses to comply with privacy, consumer protection and security standards and protocols imposed by law, regulation, industry standards or contractual obligations. If third parties improperly obtain and use the personal information of our customers, we may be required to expend significant resources to resolve these problems. A major breach of our network security and systems could have serious negative consequences for our businesses and future prospects, including possible fines, penalties and damages, reduced customer demand for our vehicles, and harm to our reputation and brand.

Our vehicles make use of lithium-ion battery cells, which on rare occasions have been observed to catch fire or vent smoke and flame.

The battery pack in the Tesla Roadster makes use of lithium-ion cells, which have been used for years in laptops and cell phones. We also currently intend to make use of lithium-ion cells in the battery pack for the Model S and any future vehicles we may produce. On rare occasions, lithium-ion cells can rapidly release the energy they contain by venting smoke and flames in a manner that can ignite nearby materials. Highly publicized incidents of laptop computers and cell phones bursting into flames have focused consumer attention on the safety of these cells. The events have also raised questions about the suitability of these lithium-ion cells for automotive applications. To address these questions and concerns, a number of cell manufacturers are pursuing alternative lithium-ion battery cell chemistries to improve safety. We have designed our battery pack to passively contain any single cell’s release of energy without spreading to neighboring cells and we are not aware of any such incident in our customers’ vehicles. We have tested the batteries and subjected them to damaging treatments such as baking, overcharging, crushing or puncturing to assess our battery pack’s response to deliberate and sometimes destructive abuse. However, we have delivered only a limited number of Tesla Roadsters to customers and have limited field experience with our vehicles. Accordingly, there can be no assurance that a field failure of our battery packs will not occur, which could damage the vehicle or lead to personal injury or death and may subject us to lawsuits. In addition, we store a significant number of lithium-ion cells at our manufacturing facility. Any mishandling of battery cells may cause disruption to the operation of our facilities. While we have implemented safety procedures related to the handling of the cells, there can be no assurance that a safety issue or fire related to the cells would not disrupt our operations. Such damage or injury would likely lead to adverse

 

42


Table of Contents

publicity and potentially a safety recall. Moreover, any failure of a competitor’s electric vehicle, especially those that use a high volume of commodity cells similar to the Tesla Roadster, may cause indirect adverse publicity for us. Such adverse publicity would negatively affect our brand and harm our business, prospects, financial condition and operating results.

We may become subject to product liability claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims.

We may become subject to product liability claims, which could harm our business, prospects, operating results and financial condition. The automobile industry experiences significant product liability claims and we face inherent risk of exposure to claims in the event our vehicles do not perform as expected or malfunction resulting in personal injury or death. Our risks in this area are particularly pronounced given the limited number of vehicles delivered to date and limited field experience of those vehicles. A successful product liability claim against us could require us to pay a substantial monetary award. Moreover, a product liability claim could generate substantial negative publicity about our vehicles and business and inhibit or prevent commercialization of other future vehicle candidates which would have material adverse effect on our brand, business, prospects and operating results. We maintain product liability insurance for all our vehicles with annual limits of approximately $21 million on a claims made basis, but we cannot assure that our insurance will be sufficient to cover all potential product liability claims. Any lawsuit seeking significant monetary damages either in excess of our coverage, or outside of our coverage, may have a material adverse effect on our reputation, business and financial condition. We may not be able to secure additional product liability insurance coverage on commercially acceptable terms or at reasonable costs when needed, particularly if we do face liability for our products and are forced to make a claim under our policy.

In connection with the development and sale of our planned Model S, we will need to comply with various additional safety regulations and requirements that were not applicable to the sales of our Tesla Roadsters, with which it may be expensive or difficult to comply. For example, we will need to pass certain frontal impact tests for the Model S, which are required for sales exceeding certain annual volumes outside the United States. We performed such a test on the Tesla Roadster based on European Union testing standards in connection with sales exceeding certain volume thresholds in Australia and Japan, and two criteria were not met in the test. We may experience difficulties in meeting all the criteria for this test or similar tests for our planned Model S, which may delay our ability to sell the Model S in high volumes in certain jurisdictions.

We may be compelled to undertake product recalls.

Any product recall in the future may result in adverse publicity, damage our brand and adversely affect our business, prospects, operating results and financial condition. In April 2009, we determined that a condition caused by insufficient torquing of the rear inner hub flange bolt existed in some of our Tesla Roadsters, as a result of a missed process during manufacture of the Tesla Roadster glider. Based on our internal investigation results and in coordination with NHTSA, we initiated a product recall in May 2009. The May 2009 recall resulted in approximately 346 Tesla Roadsters needing to be serviced. In the future, we may at various times, voluntarily or involuntarily, initiate a recall if any of our vehicles or electric powertrain components prove to be defective. Such recalls, voluntary or involuntary, involve significant expense and diversion of management attention and other resources, which would adversely affect our brand image in our target markets and could adversely affect our business and results of operations.

Our warranty reserves may be insufficient to cover future warranty claims which could adversely affect our financial performance.

If our warranty reserves are inadequate to cover future warranty claims on our vehicles, our business, prospects, financial condition and operating results could be materially and adversely affected. We provide a three year or 36,000 mile New Vehicle Limited Warranty with every Tesla Roadster, which we extended to four

 

43


Table of Contents

years or 50,000 miles for the purchasers of our 2008 Tesla Roadster. In addition, customers have the opportunity to purchase an Extended Service Plan for the period after the end of the New Vehicle Limited Warranty to cover additional services for an additional three years or 36,000 miles, whichever comes first. The New Vehicle Limited Warranty is similar to other vehicle manufacturers’ warranty programs and is intended to cover all parts and labor to repair defects in material or workmanship in the body, chassis, suspension, interior, electronic systems, battery, powertrain and brake system. We record and adjust warranty reserves based on changes in estimated costs and actual warranty costs. However, because we only began delivering our first Tesla Roadster in early 2008, we have extremely limited operating experience with our vehicles, and therefore little experience with warranty claims for these vehicles or with estimating warranty reserves. Since we began initiating sales of our vehicles, we have increased our warranty reserves based on our actual warranty claim experience over the past 12 months and we may be required to undertake further such increases in the future. As of September 30, 2009, we had warranty reserves of $4.3 million. We could in the future become subject to a significant and unexpected warranty expense. There can be no assurances that our existing warranty reserves will be sufficient to cover all claims or that our limited experience with warranty claims will adequately address the needs of our customers to their satisfaction.

We may need to defend ourselves against patent or trademark infringement claims, which may be time-consuming and would cause us to incur substantial costs.

Companies, organizations or individuals, including our competitors, may hold or obtain patents, trademarks or other proprietary rights that would prevent, limit or interfere with our ability to make, use, develop or sell our vehicles or components, which could make it more difficult for us to operate our business. From time to time, we may receive inquiries from holders of patents or trademarks inquiring whether we infringe their proprietary rights. Companies holding patents or other intellectual property rights relating to battery packs, electric motors or electronic power management systems may bring suits alleging infringement of such rights or otherwise asserting their rights and seeking licenses. In addition, if we are determined to have infringed upon a third party’s intellectual property rights, we may be required to do one or more of the following:

 

   

cease selling, incorporating or using vehicles that incorporate the challenged intellectual property;

 

   

pay substantial damages;

 

   

obtain a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms or at all; or

 

   

redesign our vehicles.

In the event of a successful claim of infringement against us and our failure or inability to obtain a license to the infringed technology, our business, prospects, operating results and financial condition could be adversely affected. In addition, any litigation or claims, whether or not valid, could result in substantial costs and diversion of resources and management attention.

We also license patents and other intellectual property from third parties, and we may face claims that our use of this in-licensed technology infringes the rights of others. In that case, we may seek indemnification from our licensors under our license contracts with them. However, our rights to indemnification may be unavailable or insufficient to cover our costs and losses, depending on our use of the technology, whether we choose to retain control over conduct of the litigation, and other factors.

Our business will be adversely affected if we are unable to protect our intellectual property rights from unauthorized use or infringement by third parties.

Any failure to protect our proprietary rights adequately could result in our competitors offering similar products, potentially resulting in the loss of some of our competitive advantage and a decrease in our revenue which would adversely affect our business, prospects, financial condition and operating results. Our success

 

44


Table of Contents

depends, at least in part, on our ability to protect our core technology and intellectual property. To accomplish this, we rely on a combination of patents, patent applications, trade secrets, including know-how, employee and third party nondisclosure agreements, copyright laws, trademarks, intellectual property licenses and other contractual rights to establish and protect our proprietary rights in our technology. As of December 31, 2009, we had 8 issued patents and 89 pending patent applications with the United States Patent and Trademark Office as well as numerous foreign patent applications in a broad range of areas related to our powertrain. We have also received from third parties patent licenses related to manufacturing our vehicles.

The protection provided by the patent laws is and will be important to our future opportunities. However, such patents and agreements and various other measures we take to protect our intellectual property from use by others may not be effective for various reasons, including the following:

 

   

our pending patent applications may not result in the issuance of patents;

 

   

our patents, if issued, may not be broad enough to protect our proprietary rights;

 

   

the patents we have been granted may be challenged, invalidated or circumvented because of the pre-existence of similar patented or unpatented intellectual property rights or for other reasons;

 

   

the costs associated with enforcing patents, confidentiality and invention agreements or other intellectual property rights may make aggressive enforcement impracticable;

 

   

current and future competitors may independently develop similar technology, duplicate our vehicles or design new vehicles in a way that circumvents our patents; and

 

   

our in-licensed patents may be invalidated or the holders of these patents may seek to breach our license arrangements.

Existing trademark and trade secret laws and confidentiality agreements afford only limited protection. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States, and policing the unauthorized use of our intellectual property is difficult.

Our patent applications may not result in issued patents, which may have a material adverse effect on our ability to prevent others from commercially exploiting products similar to ours.

We cannot be certain that we are the first creator of inventions covered by pending patent applications or the first to file patent applications on these inventions, nor can we be certain that our pending patent applications will result in issued patents or that any of our issued patents will afford protection against a competitor. In addition, patent applications filed in foreign countries are subject to laws, rules and procedures that differ from those of the United States, and thus we cannot be certain that foreign patent applications related to issued U.S. patents will be issued. Furthermore, if these patent applications issue, some foreign countries provide significantly less effective patent enforcement than in the United States.

The status of patents involves complex legal and factual questions and the breadth of claims allowed is uncertain. As a result, we cannot be certain that the patent applications that we file will result in patents being issued, or that our patents and any patents that may be issued to us in the near future will afford protection against competitors with similar technology. In addition, patents issued to us may be infringed upon or designed around by others and others may obtain patents that we need to license or design around, either of which would increase costs and may adversely affect our business, prospects and operating results.

Two of our trademark applications in the European Union remain subject to four outstanding opposition proceedings.

We currently sell and market our vehicles in the European Union under the Tesla trademark. We have two trademark applications in the European Union for the Tesla trademark. These are subject to outstanding opposition proceedings brought by two prior owners of trademarks consisting of the word Tesla. If we cannot

 

45


Table of Contents

resolve the oppositions and thereby secure registered rights in the European Union, this will reduce our ability to challenge third party users of the Tesla trademark and dilute the value of the mark as our exclusive brand name in the European Union. In addition, there is a risk that these prior rights owners could in the future take action to challenge our use of the Tesla mark in the European Union. This would have a severe impact on our position in the European Union and may inhibit our ability to use the Tesla mark in the European Union. If we were prevented from using the Tesla trademark in the European Union, we would need to expend significant additional financial and marketing resources on establishing an alternative brand identity in these markets.

Our facilities or operations could be damaged or adversely affected as a result of disasters or unpredictable events.

Our corporate headquarters and planned manufacturing facilities are located in California, a region known for seismic activity. If major disasters such as earthquakes, fires, floods, hurricanes, wars, terrorist attacks, computer viruses, pandemics or other events occur, or our information system or communications network breaks down or operates improperly, our facilities may be seriously damaged, or we may have to stop or delay production and shipment of our products. In addition, our lease for our Deer Creek Facility permits the landlord to terminate the lease following a casualty event if the needed repairs are in excess of certain thresholds and we do not agree to pay for any uninsured amounts. We may incur expenses relating to such damages, which could have a material adverse impact on our business, operating results and financial condition.

In the past material weaknesses in our internal control over financial reporting have been identified. If we fail to remediate any material weaknesses and maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could adversely affect our business, operating results, and financial condition.

In connection with the audit of our consolidated financial statements for the year ended and as of December 31, 2007, our independent registered public accounting firm identified two control deficiencies that represented material weaknesses in our internal control over financial reporting for the year ended and as of December 31, 2007. In connection with the audit of our consolidated financial statements for the year ended and as of December 31, 2008, our independent registered public accounting firm did not identify any material weaknesses in our internal control over financial reporting for the year ended and as of December 31, 2008. Our failure to implement and maintain effective internal controls in our business could have a material adverse effect on our business, financial condition, results of operations and stock price. A material weakness is a deficiency or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The material weaknesses in our internal control over financial reporting as of December 31, 2007, which resulted in audit adjustments, were as follows:

 

   

We did not maintain adequate controls to ensure the accuracy, completeness and safeguarding of spreadsheets used in our financial reporting process. Specifically, we maintained many supporting financial schedules on a manual and non-integrated spreadsheet basis, which increased the risk of compiling inaccurate or incomplete information.

 

   

We did not maintain effective controls over cut-off procedures for expenses. Specifically, we did not have formal cut-off procedures in place to ensure the timely and accurate recording of accruals.

We have taken steps to remediate our material weaknesses. However, there are no assurances that the measures we have taken to remediate these internal control weaknesses were completely effective or that similar weaknesses will not recur. Our remediation efforts for the material weaknesses in our internal control over financial reporting in 2007 have included:

 

   

an increased level of spreadsheet maintenance and review, as well as continuing exploration of automation opportunities;

 

46


Table of Contents
   

expanded cross-functional involvement and input into period end expense accruals, as well as process improvements in the procure-to-pay cycle and analytics in establishing certain cost center accruals; and

 

   

increased reporting capabilities from our financial and enterprise resource planning systems to monitor and track financial reporting.

Additionally, as part of our on-going efforts to improve our financial accounting organization and processes, we have hired several senior accounting personnel in the United States.

We plan to continue to assess our internal controls and procedures and intend to take further action as necessary or appropriate to address any other matters we identify.

Because of these material weaknesses, there is heightened risk that a material misstatement of our financial statements relating to the years ended and as of December 31, 2007 was not prevented or detected. While no material weaknesses were identified during the course of our audit for the year ended December 31, 2008, we cannot assure you that these or other similar issues will not arise in future periods.

To date, the audit of our consolidated financial statements by our independent registered public accounting firm has included a consideration of internal control over financial reporting as a basis of designing their audit procedures, but not for the purpose of expressing an opinion on the effectiveness of our internal controls over financial reporting. If such an evaluation had been performed or when we are required to perform such an evaluation, additional material weaknesses and other control deficiencies may have been or may be identified. Ensuring that we have adequate internal financial and accounting controls and procedures in place to help produce accurate financial statements on a timely basis is a costly and time-consuming effort that needs to be evaluated frequently. We will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies relating to internal controls, which could materially adversely affect our operating results.

If our suppliers fail to use ethical business practices and comply with applicable laws and regulations, our brand image could be harmed due to negative publicity.

Our core values, which include developing the highest quality electric vehicles while operating with integrity, are an important component of our brand image, which makes our reputation particularly sensitive to allegations of unethical business practices. We do not control our independent suppliers or their business practices. Accordingly, we cannot guarantee their compliance with ethical business practices, such as environmental responsibility, fair wage practices, and compliance with child labor laws, among others. A lack of demonstrated compliance could lead us to seek alternative suppliers, which could increase our costs and result in delayed delivery of our products, product shortages or other disruptions of our operations.

Violation of labor or other laws by our suppliers or the divergence of an independent supplier’s labor or other practices from those generally accepted as ethical in the United States or other markets in which we do business could also attract negative publicity for us and our brand. This could diminish the value of our brand image and reduce demand for our performance electric vehicles if, as a result of such violation, we were to attract negative publicity. If we, or other manufacturers in our industry, encounter similar problems in the future, it could harm our brand image, business, prospects and operating results.

Risks Related to this Offering and Ownership of our Common Stock

We will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could adversely affect our operating results.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company, including costs associated with public company reporting and corporate governance

 

47


Table of Contents

requirements. These requirements include compliance with Section 404 and other provisions of the Sarbanes-Oxley Act, as well as rules implemented by the Securities and Exchange Commission, or SEC, and the                     . In addition, our management team will also have to adapt to the requirements of being a public company. We expect complying with these rules and regulations will substantially increase our legal and financial compliance costs and to make some activities more time-consuming and costly.

The increased costs associated with operating as a public company will decrease our net income or increase our net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products or services. Additionally, if these requirements divert our management’s attention from other business concerns, they could have a material adverse effect on our business, financial condition and operating results.

As a public company, we also expect that it may be more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as our executive officers.

Concentration of ownership among our existing executive officers, directors and their affiliates may prevent new investors from influencing significant corporate decisions.

Upon completion of this offering, our executive officers, directors and their affiliates will beneficially own, in the aggregate, approximately     % of our outstanding shares of common stock. In particular, Elon Musk, our Chief Executive Officer, Product Architect and Chairman of our Board of Directors, will beneficially own approximately     % of our outstanding shares of common stock upon completion of this offering. As a result, these stockholders will be able to exercise a significant level of control over all matters requiring stockholder approval, including the election of directors, amendment of our certificate of incorporation and approval of significant corporate transactions. This control could have the effect of delaying or preventing a change of control of our company or changes in management and will make the approval of certain transactions difficult or impossible without the support of these stockholders.

As a result of becoming a public company, we will be obligated to develop and maintain proper and effective internal control over financial reporting. We may not complete our analysis of our internal control over financial reporting in a timely manner, or these internal controls may not be determined to be effective, which may adversely affect investor confidence in our company and, as a result, the value of our common stock.

We will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for the first fiscal year beginning after the effective date of this offering. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting, as well as a statement that our auditors have issued an attestation report on effectiveness of our internal controls.

We are in the very early stages of the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404. We may not be able to remediate future material weaknesses, or to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective. If we are unable to assert that our internal control over financial reporting is effective, or if our auditors are unable to express an opinion on the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would have a material adverse effect on the price of our common stock.

 

48


Table of Contents

An active, liquid and orderly trading market for our common stock may not develop, the price of our stock may be volatile, and you could lose all or part of your investment.

Prior to this offering, there has been no public market for shares of our common stock. The initial public offering price of our common stock will be determined through negotiation with the underwriters. This price will not necessarily reflect the price at which investors in the market will be willing to buy and sell our shares of common stock following this offering. In addition, the trading price of our common stock following this offering is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control.

In addition, the stock market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may seriously affect the market price of companies’ stock, including ours, regardless of actual operating performance. These fluctuations may be even more pronounced in the trading market for our stock shortly following this offering. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.

A total of                     , or     %, of our total outstanding shares after the offering are restricted from immediate resale, but may be sold on a stock exchange in the near future. The large number of shares eligible for public sale or subject to rights requiring us to register them for public sale could depress the market price of our common stock.

The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market after this offering, and the perception that these sales could occur may also depress the market price of our common stock. Based on shares outstanding as of December 31, 2009, we will have              shares of common stock outstanding after this offering. Of these shares, the common stock sold in this offering will be freely tradable in the United States, except for any shares purchased by our “affiliates” as defined in Rule 144 under the Securities Act of 1933. The holders of              shares of outstanding common stock have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any of their common stock during the 180-day period beginning on the date of this prospectus, except with the prior written consent of Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated and J.P. Morgan Securities Inc. After the expiration of the 180-day restricted period, these shares may be sold in the public market in the United States, subject to prior registration in the United States, if required, or reliance upon an exemption from U.S. registration, including, in the case of shares held by affiliates or control persons, compliance with the volume restrictions of Rule 144.

 

Number of Shares and % of

Total Outstanding

  

Date Available for Sale into Public Markets

                        , or     %            

   Immediately after this offering.

                        , or     %            

   180 days after the date of this prospectus due to contractual obligations and lock-up agreements between the holders of these shares and the underwriters. However, the underwriters can waive the provisions of these lock-up agreements and allow these stockholders to sell their shares at any time, provided their respective one-year holding periods under Rule 144 have expired.

                        , or     %            

   From time to time after the date 180 days after the date of this prospectus upon expiration of their respective one-year holding periods in the U.S.

Upon completion of this offering, stockholders owning an aggregate of              shares (including              convertible shares) will be entitled, under contracts providing for registration rights, to require us to register shares of our common stock owned by them for public sale in the United States. In addition, we intend to file a registration statement to register the approximately              shares reserved for future issuance under our equity

 

49


Table of Contents

compensation plans. Upon effectiveness of that registration statement, subject to the satisfaction of applicable exercise periods and, in certain cases, lock-up agreements with the representatives of the underwriters referred to above, the shares of common stock issued upon exercise of outstanding options will be available for immediate resale in the United States in the open market.

Sales of our common stock as restrictions end or pursuant to registration rights may make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. These sales also could cause our stock price to fall and make it more difficult for you to sell shares of our common stock.

Anti-takeover provisions contained in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.

Our certificate of incorporation, bylaws and Delaware law contain provisions which could have the effect of rendering more difficult, delaying or preventing an acquisition deemed undesirable by our board of directors. Our corporate governance documents include provisions:

 

   

creating a classified board of directors whose members serve staggered three-year terms;

 

   

authorizing “blank check” preferred stock, which could be issued by the board without stockholder approval and may contain voting, liquidation, dividend and other rights superior to our common stock;

 

   

limiting the liability of, and providing indemnification to, our directors and officers;

 

   

limiting the ability of our stockholders to call and bring business before special meetings;

 

   

requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors;

 

   

controlling the procedures for the conduct and scheduling of board and stockholder meetings; and

 

   

providing the board of directors with the express power to postpone previously scheduled annual meetings and to cancel previously scheduled special meetings.

These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.

As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation law, which prevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without approval of the holders of substantially all of our outstanding common stock.

Any provision of our certificate of incorporation or bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

Our current agreements with Blackstar, an affiliate of Daimler, contain certain restrictions that decrease the likelihood that potential acquirers would make a bid to acquire us.

Our financing agreements with Blackstar, an affiliate of Daimler, include certain restrictions that decrease the likelihood that potential acquirers would make a bid to acquire us, including giving Blackstar a right of notice on any acquisition proposal we receive for which we determine to engage in further discussions with a potential acquiror or otherwise pursue. Blackstar then has a right, within a specified time period, to submit a competing acquisition proposal. In addition, Elon Musk, our Chief Executive Officer, Product Architect, Chairman and largest stockholder, has agreed that he will not transfer any shares of our capital stock beneficially owned by him to any automobile original equipment manufacturer, other than Daimler, without Blackstar’s consent. Mr. Musk

 

50


Table of Contents

has further agreed not to vote any shares of our capital stock beneficially owned by him in favor of a deemed liquidation transaction to which any automobile original equipment manufacturer, other than Daimler, is a party without Blackstar’s consent. These provisions could delay or prevent hostile takeovers and changes in control of us, which could cause our stock price or trading volume to fall.

Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.

The anticipated initial public offering price of our common stock is substantially higher than the net tangible book value per share of our outstanding common stock immediately after this offering. Therefore, if you purchase our common stock in this offering, you will incur immediate dilution of $             in the net tangible book value per share from the price you paid. In addition, following this offering, purchasers in the offering will have contributed     % of the total consideration paid by our stockholders to purchase shares of common stock, in exchange for acquiring approximately     % of our total outstanding shares as of September 30, 2009 after giving effect to this offering. The exercise of outstanding stock options will result in further dilution.

If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, our stock price would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Our management will have broad discretion over the use of the proceeds we receive in this offering and might not apply the proceeds in ways that increase the value of your investment.

Our management will have broad discretion over the use of our net proceeds from this offering, and you will be relying on the judgment of our management regarding the application of these proceeds. Our management might not apply our net proceeds in ways that ultimately increase the value of your investment. We expect to use 50% of the net proceeds from this offering, up to a maximum of $100 million, to fund an equity proceeds account as required by our DOE Loan Facility with the remainder being used for general corporate purposes, including working capital and capital expenditures, which may in the future include investments in, or acquisitions of, complementary businesses, services or technologies. Our management might not be able to yield a significant return, if any, on any investment of these net proceeds. You will not have the opportunity to influence our decisions on how to use our net proceeds from this offering.

After the completion of this offering, we do not expect to declare any dividends in the foreseeable future.

After the completion of this offering, we do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable future. Consequently, investors may need to rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not purchase our common stock.

 

51


Table of Contents

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

This prospectus, including the sections entitled “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business” contains forward-looking statements. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations and financial position, business strategy and plans and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar expressions are intended to identify forward looking statements. We have based these forward looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short term and long-term business operations and objectives, and financial needs. These forward looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations.

You should read this prospectus and the documents that we reference in this prospectus and have filed with the SEC as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

MARKET, INDUSTRY AND OTHER DATA

Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations and market position, market opportunity and market size, is based on information from various sources, on assumptions that we have made that are based on those data and other similar sources and on our knowledge of the markets for our services. These data involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We have not independently verified any third party information and cannot assure you of its accuracy or completeness. While we believe the market position, market opportunity and market size information included in this prospectus is generally reliable, such information is inherently imprecise. In addition, projections, assumptions and estimates of our future performance and the future performance of the industry in which we operate is necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

 

52


Table of Contents

USE OF PROCEEDS

We estimate that our net proceeds from the sale of the shares of common stock that we are offering will be approximately $             million, assuming an initial public offering price of $             per share, which is the mid-point of the range reflected on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses that we must pay. Each $1.00 increase or decrease in the assumed initial public offering price of $             per share, which is the midpoint of the range reflected on the cover page of this prospectus, would increase or decrease, as applicable, our cash and cash equivalents, working capital, total assets and total stockholders’ equity (deficit) by approximately $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters’ option to purchase additional shares in this offering is exercised in full, we estimate that our net proceeds will be approximately $            .

We will not receive any proceeds from the sale of shares of common stock by the selling stockholders, including any shares of common stock sold by the selling stockholders in connection with the underwriters exercise of their option to purchase additional shares of common stock, although we will bear the costs, other than underwriting discounts and commissions, associated with the sale of these shares. The selling stockholders may include certain of our executive officers and members of our board of directors or entities affiliated with or controlled by them.

We may use a portion of the net proceeds from this offering to fund planned capital expenditures, working capital and other general corporate purposes. We currently anticipate making aggregate capital expenditures of between $100 million and $125 million during the year ended December 31, 2010. Such amounts include the $33 million of our anticipated powertrain and Model S manufacturing facility projects that will not be funded by advances under our loan facility with the United States Department of Energy, or DOE Loan Facility. We expect to use a portion of this offering to fund such amount. We may also use a portion of the net proceeds to potentially expand our current business through acquisitions of complementary businesses, products or technologies. However, we do not have agreements or commitments for any specific acquisitions at this time. We may find it necessary or advisable to use the net proceeds for other purposes, and subject to our obligations under our DOE Loan Facility, we will have broad discretion in the application of the net proceeds.

We have agreed to set aside 50% of the net proceeds from this offering, up to a maximum of $100 million, to fund a separate, dedicated account under our DOE Loan Facility. We will use amounts deposited into this account to pre-fund certain costs of our powertrain and Model S manufacturing facility projects, which would have otherwise been funded through advances made under the DOE Loan Facility, as well as to fund any cost overruns for these projects. These amounts are in addition to our obligation to fund $33 million of our anticipated powertrain and Model S manufacturing facility projects that will not be funded by advances under our DOE Loan Facility. Once the funds deposited into this dedicated account have been used in full, the pre-funded costs will be reimbursed to us through true-up advances under our DOE Loan Facility.

Pending use of the proceeds as described above, we intend to invest the proceeds in highly liquid cash equivalents that are permitted under our DOE Loan Facility or United States government securities.

Some of the other principal purposes of this offering are to create a public market for our common stock and increase our visibility in the marketplace. A public market for our common stock will facilitate future access to public equity markets and enhance our ability to use our common stock as a means of attracting and retaining key employees and as consideration for acquisitions. Depending on the future demand for our products and the pace at which we expand our manufacturing capacity, we may seek to raise additional capital to fund our manufacturing expansion.

 

53


Table of Contents

DIVIDEND POLICY

We have never declared or paid cash dividends on our common or preferred stock. We currently do not anticipate paying any cash dividends in the foreseeable future. Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to applicable laws and compliance with certain covenants under our loan facility with the United States Department of Energy, which restrict or limit our ability to pay dividends, and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our board of directors may deem relevant.

 

54


Table of Contents

CAPITALIZATION

The following table sets forth our capitalization as of September 30, 2009:

 

   

on an actual basis;

 

   

on a pro forma basis to give effect to (i) the conversion of all outstanding shares of our preferred stock into 210,680,690 shares of common stock immediately prior to the closing of this offering, (ii) the issuance of              shares of common stock upon the assumed net exercise of convertible preferred stock warrants that would otherwise expire upon the completion of this offering at an assumed initial public offering price of $             per share, (iii) the effectiveness of our amended and restated certificate of incorporation in Delaware immediately prior to the completion of this offering and (iv) the initial funds borrowed under our loan facility from the United States Department of Energy, or DOE Loan Facility in              2010 of $            ; and

 

   

on a pro forma as adjusted basis to give effect to the pro forma adjustments and the sale of             shares of common stock by us in this offering at an assumed initial public offering price of $             per share, the mid-point of the range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

The pro forma as adjusted information set forth in the table below is illustrative only and will adjust based on the actual initial public offering price and other terms of this offering determined at pricing.

You should read this table together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.

 

     As of September 30, 2009  
       Actual         Pro Forma       Pro Forma
  As Adjusted  
 
     (Unaudited)  
     (in thousands, except share and per share data)  

Cash and cash equivalents

   $ 106,547      $ 106,547      $     
                        

Restricted cash

     3,580        3,580     
                        

Convertible preferred stock warrant liability

     1,010        —          —     

Capital lease obligations, less current portion

     711        711        711   

Long-term debt, less current portion

     —         

Convertible preferred stock, par value $0.001; 213,006,077 shares authorized, 208,917,237 shares issued and outstanding, actual; no shares authorized, issued and outstanding pro forma and pro forma as adjusted

     319,225        —          —     

Stockholders’ equity (deficit):

      

Preferred Stock, par value $0.001; no shares authorized, issued and outstanding, actual;             shares authorized, no shares issued and outstanding, pro forma and pro forma as adjusted

     —          —          —     

Common stock, par value $0.001; 270,000,000 shares authorized; 21,323,176 shares issued and outstanding, actual;             shares authorized pro forma and pro form as adjusted,             shares issued and outstanding, pro forma;              shares issued and outstanding, pro forma as adjusted

     21        232     

Additional paid-in capital

     5,746        325,770     

Accumulated deficit

     (236,412     (236,412     (236,412
                        

Total stockholders’ equity (deficit)

     (230,645     89,590     
                        

Total capitalization

   $ 90,301      $ 90,301      $                
                        

 

55


Table of Contents

The number of shares of common stock set forth in the table above excludes:

 

   

10,627,629 shares of common stock issuable upon the exercise of options outstanding at September 30, 2009 at a weighted average exercise price of $0.74 per share;

 

   

25,881,673 shares of common stock issuable upon exercise of options granted after September 30, 2009 at a weighted average exercise price of $2.20 per share;

 

   

9,255,035 shares of common stock issuable upon the exercise of a warrant granted to the DOE in connection with the closing of our DOE Loan Facility on January 20, 2010, at an exercise price of $2.5124 per share; and

 

   

40,042,380 shares of common stock reserved for future issuance under our stock-based compensation plans, consisting of 35,042,380 shares of common stock reserved for issuance under our 2010 Equity Incentive Plan and 5,000,000 shares of common stock reserved for issuance under our 2010 Employee Stock Purchase Plan and shares that become available under the 2010 Equity Incentive Plan and 2010 Employee Stock Purchase Plan pursuant to provisions thereof that automatically increase the share reserves under the plans each year, as more fully described in “Management—Employee Benefit Plans.” The 2010 Equity Incentive Plan and the 2010 Employee Stock Purchase Plan will become effective on the date of this offering.

 

56


Table of Contents

DILUTION

As of September 30, 2009, we had a negative net tangible book value of approximately $             million or $             per share of common stock, based upon             shares of common stock outstanding on such date. Our pro forma net tangible book value as of September 30, 2009 was $             million, or $             per share of common stock. Pro forma net tangible book value per share represents the amount of our total tangible assets reduced by the amount of our total liabilities and divided by the total number of shares of common stock outstanding, including shares of common stock issued upon the conversion of all outstanding shares of our preferred stock effective immediately prior to the closing of this offering and the issuance of shares of common stock upon the assumed net exercise of warrants that would otherwise expire upon the completion of this offering at an assumed initial public offering price of $             per share. The increase in the net tangible book value per share attributable to the conversion of our preferred stock and the net exercise of the warrants will, accordingly, be $             per share.

Dilution in pro forma net tangible book value per share to new investors in this offering represents the difference between the amount per share paid by purchasers of             shares of common stock in this offering and the pro forma net tangible book value per             share of common stock immediately after the completion of this offering. After giving effect to the sale of the shares of common stock offered by us in this offering at an assumed initial public offering price of $             per share, the mid-point of the range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of September 30, 2009 would have been $             million, or $             per share of common stock. This represents an immediate increase in pro forma net tangible book value of $             per share to existing stockholders and an immediate dilution of $             per share to new investors in our common stock. The following table illustrates this dilution on a per share basis.

 

Assumed initial public offering price per share

   $             

Pro forma net tangible book value per share as of September 30, 2009, before giving effect to this offering

   $  

Increase in pro forma net tangible book value per share attributed to new investors purchasing shares in this offering

   $  
      

Pro forma as adjusted net tangible book value per share after giving effect to this offering

   $  
      

Dilution per share to new investors in this offering

   $  
      

A $1.00 increase or decrease in the assumed initial public offering price of $             per share would increase or decrease our pro forma as adjusted net tangible book value per share after this offering by $             per share and the dilution in pro forma as adjusted net tangible book value to new investors by $             per share, assuming the number of shares offered by us, as set forth on the cover of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.

If the underwriters exercise their option to purchase additional shares of our common stock in full, based on an assumed initial public offering price of $             per share, the pro forma as adjusted net tangible book value per share after this offering would be $             per share, and the dilution in pro forma net tangible book value per share to new investors in this offering would be $             per share.

 

57


Table of Contents

The following table summarizes, on a pro forma as adjusted basis as of September 30, 2009 and after giving effect to (i) the issuance of              shares of common stock upon the net exercise of convertible preferred stock warrants that would otherwise expire upon the completion of this offering and (ii) the offering, in each case based on an assumed initial public offering price of $             per share, the differences between existing stockholders and new investors with respect to the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid:

 

     Shares Purchased     Total Consideration     Average Price
Per Share
     Number    Percent     Amount
(in thousands)
   Percent    

Existing stockholders

             $                        $             

New public investors

            
                          

Total

      100.0   $                 100.0  
                          

A $1.00 increase or decrease in the assumed initial public offering price of $             per share would increase or decrease, respectively, total consideration paid by new investors and total consideration paid by all stockholders by approximately $             million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.

If the underwriters exercise their over-allotment option in full, our existing stockholders would own     % and our new investors would own     % of the total number of shares of our common stock outstanding upon the closing of this offering.

As of September 30, 2009, there were options outstanding to purchase a total of 10,627,629 shares of common stock at a weighted average exercise price of $0.74 per share. To the extent outstanding options are exercised, there will be further dilution to new investors. For a description of our equity plans, see the section titled “Management—Employee Benefit Plans.”

 

58


Table of Contents

SELECTED CONSOLIDATED FINANCIAL DATA

The consolidated statements of operations data for the fiscal years ended December 31, 2006, 2007, and 2008 and balance sheet data as of December 31, 2007 and 2008 are derived from our audited consolidated financial statements that are included elsewhere in this prospectus. The consolidated statements of operations data for the fiscal years ended December 31, 2004 and 2005 and balance sheet data as of December 31, 2004, 2005 and 2006, are derived from audited consolidated financial statements not included in this prospectus. The consolidated statements of operations data for the nine months ended September 30, 2008 and 2009 and balance sheet data as of September 30, 2009 are derived from our unaudited consolidated financial statements that are included elsewhere in this prospectus. The unaudited consolidated financial statements were prepared on a basis consistent with our audited consolidated financial statements and include, in the opinion of management, all adjustments necessary for the fair presentation of the financial information contained in those statements. The historical results presented below are not necessarily indicative of financial results to be achieved in future periods.

The following selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus.

 

    Years Ended December 31,     Nine Months Ended
September 30,
 
    2004     2005     2006     2007     2008     2008     2009  
    (in thousands, except per share data)  

Consolidated Statements of Operations Data:

             

Automotive sales (including zero emission vehicle credit sales of $3,458, $495 and $7,645, for the periods ended December 31, 2008, September 30, 2008 and 2009, respectively)

  $ —        $ —        $ —        $ 73      $ 14,742      $ 580      $ 93,358   

Cost of sales(1)

    —          —          —          9        15,883        19        85,604   
                                                       

Gross profit (loss)

    —          —          —          64        (1,141     561        7,754   

Operating expenses(1):

             

Research and development (net of development compensation of $17,170 for the period ended September 30, 2009)

    1,661        10,009        24,995        62,753        53,714        41,888        11,139   

Selling, general and administrative

    765        1,820        5,436        17,244        23,649        13,953        25,587   
                                                       

Total operating expenses

    2,426        11,829        30,431        79,997        77,363        55,841        36,726   

Loss from operations

    (2,426     (11,829     (30,431     (79,933     (78,504     (55,280     (28,972

Interest income

    31        224        938        1,749        529        486        97   

Interest expense

    —          —          (423     —          (3,747     (2,648     (2,506

Other income (expense), net(2)

    —          —          59        137        (963     231        (320
                                                       

Loss before income taxes

    (2,395     (11,605     (29,857     (78,047     (82,685     (57,211     (31,701

Provision (benefit) for income taxes

    —          —          100        110        97        73        (203
                                                       

Net loss

  $ (2,395   $ (11,605   $ (29,957   $ (78,157   $ (82,782   $ (57,284   $ (31,498
                                                       

Net loss per share of common stock, basic and diluted(3)

  $ (0.30   $ (1.33   $ (3.39   $ (7.56   $ (4.15   $ (2.88   $ (1.51
                                                       

Shares used in computing net loss per share of common stock, basic and diluted(3)

    8,025,401        8,705,994        8,824,264        10,331,420        19,929,512        19,872,823        20,928,840   
                                                       

Pro forma net loss per share of common stock, basic and diluted(2)(4) (unaudited)

          $          $     
                         

Shares used in computing the pro forma net loss per share of common stock, basic and diluted(2)(4) (unaudited)

             
                         

 

59


Table of Contents

 

(1) Includes stock-based compensation expense as follows:

 

     Years Ended December 31,    Nine Months
Ended
September 30,
     2004    2005    2006    2007    2008    2008    2009

Cost of sales

   $ —      $ —      $ —      $ —      $ 26    $ 16    $ 54

Research and development

     —        —        17      95      125      82      193

Selling, general and administrative

     —        —        6      103      286      124      202
                                                

Total

   $ —      $ —      $ 23    $ 198    $ 437    $ 222    $ 449
                                                

 

(2) In January 2010, we issued a warrant to the DOE in connection with the closing of the DOE Loan Facility to purchase shares of our Series E convertible preferred stock. This convertible preferred stock warrant will become a warrant to purchase shares of our common stock upon the closing of this offering. Beginning on December 15, 2018 and until December 14, 2022, the shares subject to purchase under the warrant will become exercisable in quarterly amounts depending on the average outstanding balance of the DOE Loan Facility during the prior quarter. Since the number of shares of common stock ultimately issuable under the warrant will vary, this warrant will be carried at its estimated fair value with changes in fair value reflected in other income (expense), net, until its expiration or exercise. Potential common shares issuable upon exercise of the DOE warrant will be excluded from the calculation of diluted net loss per share of common stock until such time as we generate a net profit in a given period.
(3) Our basic net loss per share of common stock is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period. The diluted net loss per share of common stock is computed by dividing the net loss by the weighted-average number of common shares, excluding common shares subject to repurchase, and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of stock options to purchase common stock and warrants to purchase convertible preferred stock (using the treasury stock method) and the conversion of our convertible preferred stock and convertible notes payable (using the if-converted method). For purposes of these calculations, potential common shares have been excluded from the calculation of diluted net loss per share of common stock as their effect is antidilutive since we generated a net loss in each period.
(4) Pro forma basic and diluted net loss per share of common stock has been computed to give effect to the conversion of the convertible preferred stock into common stock. Also, the numerator in the pro forma basic and diluted net loss per share calculation has been adjusted to remove gains and losses resulting from remeasurements of the convertible preferred stock warrant liability as it is assumed that these warrants will be exercised immediately prior to a qualifying initial public offering and will no longer require periodic revaluation.

 

    As of December 31,     As of
September 30,
2009
 
    2004     2005     2006     2007     2008    

Consolidated Balance Sheet Data:

           

Cash and cash equivalents

  $ 4,977      $ 5,827      $ 35,401      $ 17,211      $ 9,277      $ 106,547   

Property and equipment, net

    142        1,622        7,512        11,998        18,793        19,473   

Working capital (deficit)

    4,830        4,587        8,458        (28,988     (56,508     70,951   

Total assets

    5,244        7,856        44,466        34,837        51,699        155,916   

Convertible preferred stock warranty liability

    —          —          227        191        2,074        1,010   

Capital lease obligations, less current portion

    —          —          —          18        888        711   

Convertible preferred stock

    7,485        20,384        60,173        101,178        101,178        319,225   

Total stockholders’ deficit

    (2,395     (13,995     (43,923     (117,846     (199,714     (230,645

 

60


Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read together with the consolidated financial statements and related notes that are included elsewhere in this prospectus. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this prospectus.

Overview

We design, manufacture and sell high-performance fully electric vehicles and advanced electric vehicle powertrain components. In addition to designing and manufacturing our vehicles, we sell and service them through our own sales and service network.

We were incorporated in Delaware in 2003 and introduced our first vehicle, the Tesla Roadster, in early 2008. In July 2009, we introduced a new Roadster model, the Tesla Roadster 2, and its higher performance option package Roadster Sport. As of December 31, 2009, we had sold 937 Tesla Roadsters to customers in 18 countries. We are developing our planned Model S sedan which we currently expect to introduce in 2012.

We market and sell our vehicles directly to consumers via the phone and internet, in-person at our corporate events and through our network of Tesla stores. We opened our first store in Los Angeles, California, in May 2008 and as of December 31, 2009, we operated a total of 10 Tesla stores in North America and Europe.

We have entered, and intend to enter, into development and commercial agreements with other manufacturers for the development and sale of electric powertrain components. From inception through September 30, 2009, our powertrain development activities related exclusively to an agreement entered into in May 2009 with Daimler AG, or Daimler, for the development of a battery pack and charger for Daimler’s Smart fortwo electric drive. We have been selected by Daimler to supply it with up to 1,000 battery packs and chargers to support a trial of the Smart fortwo electric drive in five European cities. We began shipping the first of these battery packs and chargers in November 2009 and started to recognize revenue for these sales in the quarter ended December 31, 2009.

Since inception through September 30, 2009, we have recognized $108.2 million in revenue. As of September 30, 2009, we had an accumulated deficit of $236.4 million. We experienced net losses of $30.0 million for the year ended December 31, 2006, $78.2 million for the year ended December 31, 2007, $82.8 million for the year ended December 31, 2008, and $31.5 million for the nine months ended September 30, 2009.

Basis of Presentation

Automotive Sales

We recognize automotive sales revenue from sales of the Tesla Roadster, including vehicle options and accessories, vehicle service and sales of zero emission vehicle, or ZEV, credits. We did not recognize any revenue from sales of the Tesla Roadster, vehicle options, accessories or destination charges until the quarter ended December 31, 2008. To date, most of our revenues have been generated through sales in the United States. Our international sales commenced with the launch of the Tesla Roadster in Europe in July 2009. We had no revenues from sales outside of the United States prior to the third quarter of 2009 and revenue from sales outside of the United States represented 14% of our total automotive sales revenue for the nine months ended September 30, 2009. As we continue to expand into new markets, we expect our international revenues to increase in aggregate

 

61


Table of Contents

dollar amounts and as a percentage of total revenues in future periods. We manage our business as a single geographic segment. While revenue related to servicing vehicles has been insignificant to date, we expect such revenues to increase in future periods as we sell more vehicles and as vehicle warranties begin to expire.

Starting in July 2006, we began taking reservations and collecting reservation payments from customers who wished to purchase a Tesla Roadster and we received a significant number of reservations prior to initiation of volume production of the Tesla Roadster in October 2008. Since that time, we have fulfilled a significant number of these reservations and a significant level of the automotive sales we recognized during the nine months ended September 30, 2009 came from fulfilling reservations placed prior to 2009. Beginning with the quarter ended December 31, 2009, we expect sales of the Tesla Roadster in each future quarter to more closely approximate orders placed in such future quarter than has been the case in prior periods.

As of December 31, 2008, we had deferred $3.6 million in revenue related to certain vehicles that had been delivered but as to which we had unfulfilled obligations related to powertrain upgrades. Although these vehicles performed to a level adequate for most driving conditions, we had promised our customers an upgrade of the powertrain. As a result, we deferred all revenue recognition of these Tesla Roadsters that we had delivered in 2008 until they were retrofitted with the new powertrain. We performed these upgrades and accordingly recognized the revenue for these vehicles beginning in the quarter ended December 31, 2008 and concluding in the quarter ended September 30, 2009.

As of September 30, 2009, we had deferred $3.4 million in revenue related to sales of Tesla Roadsters that had been shipped, but had not been delivered to the customer as of the end of the period and the sale of certain vehicle options that had not yet been delivered. The majority of these deferred revenues were recognized as automotive sales during the quarter ended December 31, 2009. We expect our deferred revenues to fluctuate in future periods depending on the number of automobiles that have been shipped but have not been delivered to the customers by the end of the period.

We do not plan to sell our current generation Tesla Roadster after 2011 due to planned tooling changes at a supplier for the Tesla Roadster, and we do not currently plan to begin selling our next generation Tesla Roadster until at least one year after the launch of the Model S which is not expected to be in production until 2012. As a result, we anticipate that we may generate limited, if any, revenue from selling electric vehicles after 2011 until the launch of the planned Model S. The launch of our Model S could be delayed for a number of reasons and any such delays may be significant and would extend the period in which we would generate limited, if any, revenues from sales of our electric vehicles.

Under California’s Low-Emission Vehicle Regulations, and similar laws in other states, vehicle manufacturers are required to ensure that a portion of the vehicles delivered for sale in that state during each model year are zero emission vehicles. Currently, the states of California, Connecticut, Maine, Maryland, Massachusetts, New Jersey, New Mexico, New York, Oregon, Rhode Island and Vermont have such laws in effect. These laws provide that a manufacturer of zero emission vehicles may earn credits, referred to as ZEV credits, and may sell excess credits to other manufacturers who apply such credits to comply with these regulatory requirements. As a manufacturer solely of zero emission vehicles, we have earned ZEV credits on vehicles sold in such states, and we expect to continue to earn these credits in the future.

We enter into contracts with third parties to sell ZEV credits generated from the sale of our Tesla Roadsters. We did not recognize revenue from sales of ZEV credits until June 2008. For the year ended December 31, 2008 and the nine months ended September 30, 2009, we earned revenue from the sale of ZEV credits of $3.5 million and $7.6 million, respectively. As sales of the Tesla Roadster increased during the nine months ended September 30, 2009, the ZEV credits we earned also increased.

We have entered into two contracts for the sale of ZEV credits. Our current agreement provides for the sale of the ZEV credits that we earn from the sale of vehicles that we manufactured between January 1, 2009 and

 

62


Table of Contents

December 31, 2009, and we have until June 30, 2010 to sell these credits under the agreement. We are currently negotiating to extend this agreement for vehicles manufactured in 2010 and 2011. As of December 31, 2009, we had sold credits for 340 vehicles under this agreement. We previously had an agreement with a different purchaser for our ZEV credits earned during the year ended December 31, 2008.

Our ZEV credit sales will depend on the status of future regulation in states in which we sell our vehicles and our ability to maintain a contract or portfolio of contracts that allow us to continue to sell ZEV credits. To the extent that we have a contract in place for selling the credits, we expect sales of ZEV credits to generally correlate with our vehicle sales, although there is a processing time lag of generally less than four to five weeks between the recognition of revenue from the sale of a vehicle and the recognition of revenue from the sale of the ZEV credit earned on that vehicle.

Powertrain Sales

We intend to sell electric vehicle powertrain components to other manufacturers, although we have not recognized any revenues from powertrain sales through September 30, 2009.

We have been selected by Daimler to supply it with up to 1,000 battery packs and chargers to support a trial of the Smart fortwo electric drive in five European cities. We began shipping the first of these battery packs and chargers in November 2009 and started to recognize revenue for these sales in the quarter ended December 31, 2009. We intend to grow our powertrain sales revenue over time by establishing additional commercial arrangements with Daimler and other automobile manufacturers.

Cost of Sales and Gross Profit

Cost of sales includes direct parts, material and labor costs, manufacturing overhead, including amortized tooling costs, royalty fees, shipping and logistic costs and reserves for estimated warranty expenses. Cost of sales also includes adjustments to warranty expense and charges to write down the carrying value of our inventory when it exceeds its estimated net realizable value and to provide for obsolete and on-hand inventory in excess of forecasted demand. We also recognize charges through cost of sales to provide for non-cancellable purchase orders for inventory deemed to be obsolete or in excess of net realizable value. Costs related to sales of powertrain components which we began to deliver to Daimler during the quarter ended December 31, 2009, are included within costs of sales.

We define our gross profit as our automotive sales and powertrain sales less our cost of sales and our gross margin as our gross profit expressed as a percentage of automotive sales and powertrain sales.

Research and Development Expenses

Research and development expenses consist primarily of personnel costs for our teams in engineering and research, supply chain, quality, manufacturing engineering and manufacturing test organizations, prototyping expense, contract and professional services and amortized equipment expense. We have invested heavily in research and development for the Tesla Roadster and to a lesser extent to date, for the Model S. We have also invested in critical components of our electric powertrain technology including the battery system, power electronics module, motor, charging system, software and gearbox. We expense research and development costs as incurred.

Prior to our recognition of any revenue from sales of the Tesla Roadster beginning in the quarter ended December 31, 2008, expenses related to excess and obsolete inventory and certain other manufacturing production costs were charged to research and development expenses. Since we began recognizing revenue from the production and sale of the Tesla Roadster, we have recorded these costs as cost of sales.

 

63


Table of Contents

Since the commercial launch of the Tesla Roadster, our investment in related research and development has decreased significantly. We are, however, in the process of significantly increasing our research and development efforts for the Model S, which will result in a significant increase in our research and development expenses in both aggregate dollar amounts and as a percentage of our revenues in future periods.

We have entered, and intend to enter, into development and sales agreements with manufacturers for the development and sale of electric powertrain components. Compensation received from these manufacturers to fund our development activities are recognized as an offset against our related research and development expenses. From inception through September 30, 2009, our powertrain development activities have been under a development arrangement entered into in the year ended December 31, 2008, which was formalized in an agreement entered into with Daimler in May 2009 for the development of a battery pack and charger for Daimler’s Smart fortwo electric drive.

We began receiving payments under this development arrangement with Daimler in the year ended December 31, 2008 to compensate us for the cost of our development activities in such year. We deferred recognition for these payments received in advance of the execution of the final agreement because a number of significant contractual terms were not in place prior to that time. Upon entering into the final agreement in May 2009, we began recognizing the deferred development compensation as an offset to our research and development expenses in an amount of $14.5 million on a straight-line basis. This amount was recognized over the expected life of the agreement, beginning in May 2009 and continuing through November 2009. Payments that we received upon the achievement of development milestones subsequent to contract execution in May 2009, were recognized upon achievement and acceptance of the respective milestones. The milestone payments contemplated in the agreement were commensurate with the effort involved to overcome the technological challenges of achieving the milestones. All amounts received under this development agreement are being recognized as an offset to our research and development expenses in the consolidated statement of operations. As of September 30, 2009, we had deferred development compensation in the amount of $4.2 million related to the development agreement and have received another $1.9 million from milestone payments related to development efforts performed after this date. As of December 31, 2009, all development work related to the development agreement had been completed, and we expect that the full $23.2 million under the development agreement will be recognized in the quarter ended December 31, 2009.

As of December 31, 2009, we had 191 employees working in research and development.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of personnel and facilities costs related to our Tesla stores, marketing, sales, executive, finance, human resources, litigation settlements, information technology and legal organizations, as well as fees for professional and contract services.

We expect selling, general and administrative expenses to increase both in aggregate dollar amounts and as a percentage of revenue in future periods as we continue to grow and expand our operations, increase our sales and marketing team to handle our expanding customer base and market presence, and as we transition to becoming a public company. We also expect an increase in our selling, general and administrative expenses as a result of our planned increase in the number of Tesla stores. As of December 31, 2009, we had opened 10 Tesla stores in the United States and Europe. We plan to nearly double the number of Tesla stores opened by the end of 2010, with a goal of establishing approximately 50 stores globally within the next several years.

As of December 31, 2009, we had 181 employees working in selling, general and administrative functions.

 

64


Table of Contents

Interest Income

Interest income consists of interest earned on cash balances and short-term investments. We have historically invested our available cash balances in money market funds, short-term United States Treasury obligations and commercial paper.

Interest Expense

Interest expense consists of interest on outstanding convertible debt and other borrowings. In future periods, we expect our interest expense to also include interest on our borrowings under our loan facility from the United States Department of Energy, or DOE Loan Facility. As a result, we expect interest expense to increase significantly in aggregate dollar amounts and, prior to the launch of the Model S, as a percentage of revenues.

Other Income (Expense), Net

Other income (expense), net consists primarily of the change in the fair value of our convertible preferred stock warrants liability and transaction gains and losses on our foreign currency-denominated assets and liabilities. We expect our transaction gains and losses will vary depending upon movements in the underlying exchange rates. We also expect the charges resulting from the change in the fair value of our convertible preferred stock warrant liability to be eliminated following this offering as a result of our expectation that the warrants currently outstanding to purchase 650,882 shares of our Series C convertible preferred stock and 866,091 shares of our Series E convertible preferred stock will either be exercised or expire upon the completion of this offering, at which time the convertible preferred stock warrant liability will no longer exist. However, in January 2010, we issued a warrant to the DOE in connection with the closing of the DOE Loan Facility to purchase up to 9,255,035 shares of our Series E convertible preferred stock. This preferred stock warrant will become a warrant to purchase up to 9,255,035 shares of our common stock upon the closing of this offering. Beginning on December 15, 2018 and until December 14, 2022, the shares subject to purchase under the warrant will become exercisable in quarterly amounts depending on the average outstanding balance of the DOE Loan Facility during the prior quarter. Since the number of shares of common stock ultimately issuable under the warrant will vary, this warrant will be carried at its estimated fair value with changes in fair value reflected in other income (expense), net, until its expiration or exercise.

Provision for Income Taxes

We are subject to income taxes in the countries where we sell our products. Historically, we have primarily been subject to taxation in the United States because we have sold the majority of our products to customers in the United States. We anticipate that in the future as we expand our sale of products to customers outside the United States, we would become subject to taxation based on the foreign statutory rates in the countries where these sales took place and our effective tax rate could fluctuate accordingly.

Income taxes are computed using the asset and liability method, under which deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

We believe that based on the available information, it is more likely than not that our deferred tax assets will not be realized, and accordingly we have taken a full valuation allowance against all of our United States deferred tax assets. As of December 31, 2008, we had approximately $183 million of federal and $161 million of California operating loss carry-forwards available to offset future taxable income which expire in varying amounts beginning in 2024 for federal and 2019 for state purposes if unused. Additionally, we had research and development tax credits of approximately $3.9 million and $3.7 million for federal and state income tax purposes, respectively. If not utilized, the federal research and development carry-forwards will expire in various

 

65


Table of Contents

amounts beginning in 2019. However, the state credits can be carried forward indefinitely. Federal and state laws impose substantial restrictions on the utilization of net operating loss and tax credit carry-forwards in the event of an “ownership change,” as defined in Section 382 of the Internal Revenue Code. We have determined that ownership changes occurred in 2004 and 2006 due to significant stock transactions. Currently, we do not expect the utilization of our net operating loss and tax credit carry-forwards to be materially affected as no significant limitations are expected to be placed on these carry-forwards as a result of our previous ownership changes. We have not yet, however, determined whether this offering would constitute an ownership change resulting in limitations on our ability to use our net operating loss and tax credit carry-forwards. If an ownership change is deemed to have occurred as a result of this offering, utilization of these assets could be significantly reduced.

Internal Control Over Financial Reporting

In connection with the audit of our financial statements for the year ended December 31, 2007, our independent registered public accounting firm had identified material weaknesses in our internal controls. A material weakness is a deficiency or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses in our internal control over financial reporting for the year ended and as of December 31, 2007 were as follows:

 

   

We did not maintain adequate controls to ensure the accuracy, completeness and safeguarding of spreadsheets used in our financial reporting process. Specifically, we maintained many supporting financial schedules on a manual and non-integrated spreadsheet basis, which increased the risk of compiling inaccurate or incomplete information.

 

   

We did not maintain effective controls over cut-off procedures for expenses. Specifically, we did not have formal cut-off procedures in place to ensure the timely and accurate recording of accruals.

Our remediation efforts for these material weaknesses have included:

 

   

an increased level of spreadsheet maintenance and review, as well as continuing exploration of automation opportunities;

 

   

expanded cross-functional involvement and input into period end expense accruals, as well as process improvements in the procure-to-pay cycle and analytics in establishing certain cost center accruals; and

 

   

increased reporting capabilities from our financial and enterprise resource planning systems to monitor and track financial reporting.

We plan to continue to assess our internal controls and procedures and intend to take further action as necessary or appropriate to address any other matters we identify.

No material weaknesses were identified in connection with the audit of our financial statements for the year ended December 31, 2008.

To date, the audit of our consolidated financial statements by our independent registered public accounting firm has included a consideration of internal control over financial reporting as a basis of designing their audit procedures, but not for the purpose of expressing an opinion on the effectiveness of our internal controls over financial reporting. If such an evaluation had been performed or when we are required to perform such an evaluation, additional material weaknesses and other control deficiencies may have been or may be identified.

 

66


Table of Contents

Critical Accounting Policies and Estimates

Our consolidated financial statements included elsewhere in this prospectus are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. We base our estimates on historical experience, as appropriate, and on various other assumptions that we believe to be reasonable under the circumstances. Changes in the accounting estimates are reasonably likely to occur from period to period. Accordingly, actual results could differ significantly from the estimates made by our management. We evaluate our estimates and assumptions on an ongoing basis. To the extent that there are material differences between these estimates and actual results, our future financial statement presentation, financial condition, results of operations and cash flows will be affected. We believe that the following critical accounting policies involve a greater degree of judgment and complexity than our other accounting policies. Accordingly, these are the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations.

Automotive Sales

We recognize automotive sales revenue from sales of the Tesla Roadster, including vehicle options, accessories and destination charges, vehicle service and sales of zero emission vehicle, or ZEV, credits. We recognize revenue when (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred and there are no uncertainties regarding customer acceptance; (iii) fees are fixed or determinable; and (iv) collection is reasonably assured.

Automotive sales consist primarily of revenue earned from the sale of vehicles. Sales or other amounts collected in advance of meeting all of the revenue recognition criteria are not recognized in the consolidated statements of operations and are instead recorded as deferred revenue on our consolidated balance sheets. While we have recently arranged for financing options on our vehicles in the United States through a third-party lender, we do not provide direct financing for the purchase of the Tesla Roadster to our customers and we are therefore generally paid in full by the customer at the time of purchase.

Automotive sales also consist of revenue earned from the sales of vehicle options, accessories and destination charges. While these sales may take place separately from a vehicle sale, they are often part of one vehicle sale agreement resulting in multiple element arrangements. Contract interpretation is sometimes required to determine the appropriate accounting for recognition of our revenue, including whether the deliverables specified in the multiple element arrangement should be treated as separate units of accounting, and, if so, how the price should be allocated among the elements, when to recognize revenue for each element, and the period over which revenue should be recognized. We are also required to evaluate whether a delivered item has value on a stand-alone basis prior to delivery of the remaining items by determining whether we have made separate sales of such items or whether the undelivered items are essential to the functionality of the delivered items. Further, we assess whether we know the fair value of the undelivered items, determined by reference to stand-alone sales of such items.

To date, we have been able to establish the fair value for each of the deliverables within the multiple element arrangements because we sell each of the vehicles, vehicle accessories and options separately, outside of any multiple element arrangements. As each of these items has stand alone value to the customer, revenue from sales of vehicle accessories and options are recognized when those specific items are delivered to the customer. Increased complexity to our sales agreements or changes in our judgments and estimates regarding application of these revenue recognition guidelines could result in a change in the timing or amount of revenue recognized in future periods.

Powertrain Development

We began receiving payments under a development arrangement with Daimler in the year ended December 31, 2008 to compensate us for the cost of our development activities. We deferred recognition for these payments received in advance of the execution of the final agreement because a number of significant

 

67


Table of Contents

contractual terms were not in place prior to that time. Upon entering into the final agreement in May 2009, we began recognizing the deferred development compensation as an offset to our research and development expenses on a straight-line basis. This amount was recognized over the expected life of the agreement, beginning in May 2009 and continuing through November 2009. Payments that we received upon the achievement of development milestones subsequent to contract execution in May 2009 were recognized upon achievement and acceptance of the respective milestones. All amounts received under this development agreement are being recognized as an offset to our research and development expenses in the consolidated statement of operations.

Inventory Valuation

We value our inventories at the lower of cost or market. Cost is computed using standard cost, which approximates actual cost on a first-in, first-out basis. We record inventory write-downs for estimated obsolescence or unmarketable inventories based upon assumptions about future demand forecasts. If our inventory on hand is in excess of our future demand forecast, the excess amounts are written off.

We also review inventory to determine whether its carrying value exceeds the net amount realizable upon the ultimate sale of the inventory. This requires us to determine the estimated selling price of our vehicles less the estimated cost to convert inventory on hand into a finished product.

Prior to commencement of sales of the Tesla Roadster in the quarter ended December 31, 2008, we recorded inventory write-downs as a component of research and development expenses. Upon commercial introduction of the Tesla Roadster, we recorded these write-downs as a component of cost of sales. Once inventory is written-down, a new, lower-cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis. During the year ended December 31, 2007, we recorded write-downs of $0.8 million to research and development expenses. During the year ended December 31, 2008, we recorded write-downs of $3.7 million to research and development expenses and $0.6 million to cost of sales. During the nine months ended September 30, 2009, we recorded write-downs of $2.5 million to cost of sales.

The inventory amounts are based on our current estimates of demand, selling prices and production costs. Should our estimates of future selling prices or production costs change, material changes to these reserves may be required. Further, a small change in our estimates may result in a material charge to our reported financial results.

Adverse Purchase Commitments

To the extent future inventory purchases under non-cancellable purchase orders or agreements are for excess or obsolete parts or the related inventory is deemed to be in excess of its net realizable value, we record a provision for adverse purchase commitments. The charges recorded prior to commencement of recognition of automotive sales of the Tesla Roadster in the quarter ended December 31, 2008, were recorded as research and development expenses. Once we began recognizing revenue from vehicle sales, we began recording these charges as a component of cost of sales. During the year ended December 31, 2007, we recorded charges of $1.5 million to research and development expenses. During the year ended December 31, 2008, we recorded charges of $1.0 million to research and development expenses and $0.4 million to cost of sales. During the nine months ended September 30, 2009, we recorded charges of $0.8 million to cost of sales.

The amounts we record are based on our current estimates of demand, selling prices and production costs. Should our estimates of future selling prices or production costs change, material changes to these reserves may be required. Further, a small change in our estimates may result in a material charge to our reported financial results.

 

68


Table of Contents

Warranties

We accrue warranty reserves at the time a vehicle is delivered to a customer. Warranty reserves include management’s best estimate of the projected costs to repair or to replace any items under warranty, based on actual warranty experience as it becomes available and other known factors that may impact our evaluation of historical data. We review our reserves at least quarterly to ensure that our accruals are adequate in meeting expected future warranty obligations, and we will adjust our estimates as needed. Initial warranty data can be limited early in the launch of a new vehicle and accordingly, the adjustments that we record may be material. As of December 31, 2008 and September 30, 2009, we had $0.9 million and $4.3 million in warranty reserves, respectively. Adjustments to warranty reserves are recorded in cost of sales.

It is likely that as we sell additional Tesla Roadsters we will acquire additional information on the projected costs to repair or to replace items under warranty and may need to make additional adjustments. Further, a small change in our warranty estimates may result in a material charge to our reported financial results.

We began selling powertrain components and recognizing such sales during the quarter ended December 31, 2009. As a result, we began accruing warranty reserves for these products. As with our warranty reserves for automotive sales, we intend to review our powertrain warranty reserves at least quarterly to ensure that our accruals are adequate in meeting expected future warranty obligations, and will adjust our estimates as needed.

Valuation of Stock-Based Awards, Common Stock and Warrants

Stock-Based Compensation

Prior to January 1, 2006, we accounted for our stock options granted to employees using the intrinsic value method. The intrinsic value method requires a company to recognize compensation expense for stock options granted to employees based on any differences between the exercise price of the stock options granted and the fair value of the underlying common stock. Under the intrinsic value method, any compensation cost relating to stock options was recorded on the date of the grant in stockholders’ equity as deferred compensation and was thereafter amortized to expense over the vesting period of the grant. We generally did not recognize stock-based compensation for stock options granted to our employees prior to January 1, 2006 as we granted stock options with an exercise price equal to the fair value of the underlying common stock.

Effective January 1, 2006, we adopted the fair value method of accounting for our stock options granted to employees which requires us to measure the cost of employee services received in exchange for the stock options, based on the grant date fair value of the award. The fair value of the awards is estimated using the Black-Scholes option-pricing model. The resulting cost is recognized over the period during which an employee is required to provide service in exchange for the award, usually the vesting period which is generally four years.

We adopted the fair value method using the prospective transition method as we used the minimum value method for the previously required pro forma disclosures. The prospective transition method requires us to continue to apply the intrinsic value method in future periods to equity awards outstanding as of January 1, 2006. Under the prospective transition method, any compensation costs that will be recognized from January 1, 2006 will include only: (a) compensation cost for all stock-based awards granted prior to, but not yet vested as of December 31, 2005, based on the intrinsic value method; and (b) compensation cost for all stock-based awards granted or modified subsequent to December 31, 2005, net of estimated forfeitures, based on fair value. We amortize the fair value of our stock-based compensation for the equity awards granted after January 1, 2006 on a straight-line basis, which we believe better reflects the level of service to be provided by our employees over the vesting period of the awards. In accordance with the prospective transition method, results for prior periods were not restated.

 

69


Table of Contents

Beginning on January 1, 2006, the fair value of each new employee option awarded was estimated on the grant date for the periods below using the Black-Scholes option-pricing model with the following weighted-average assumptions.

 

     2006     2007     2008     Nine Months
Ended
September 30,
2009
 
                       (Unaudited)  

Risk-free interest rate

   4.8   4.4   2.2   2.2

Expected term (in years)

   4.6      4.6      4.6      4.6   

Expected volatility

   54   52   53   64

Dividend yield

   0   0   0   0

If in the future we determine that another method for calculating the fair value of our stock options is more reasonable, or if another method for calculating the above input assumptions is prescribed by authoritative guidance, the fair value calculated for our employee stock options could change significantly.

The Black-Scholes option-pricing model requires inputs such as the risk-free interest rate, expected term and expected volatility. Further, the forfeiture rate also affects the amount of aggregate compensation. These inputs are subjective and generally require significant judgment.

The risk-free interest rate that we use is based on the United States Treasury yield in effect at the time of grant for zero coupon United States Treasury notes with maturities approximating each grant’s expected life. Given our limited history with employee grants, we use the “simplified” method in estimating the expected term for our employee grants. The “simplified” method, as permitted by the SEC, is calculated as the average of the time-to-vesting and the contractual life of the options.

Our expected volatility is derived from the historical volatilities of several unrelated public companies within industries related to our business, including the automotive OEM, automotive retail, automotive parts and battery technology industries, because we have no trading history on our common stock. When making the selections of our peer companies within industries related to our business to be used in the volatility calculation, we also considered the stage of development, size and financial leverage of potential comparable companies. Our historical volatility is weighted based on certain qualitative factors and combined to produce a single volatility factor. We estimate our forfeiture rate based on an analysis of our actual forfeitures and will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover behavior and other factors. Quarterly changes in the estimated forfeiture rate can have a significant effect on reported stock-based compensation expense, as the cumulative effect of adjusting the rate for all expense amortization is recognized in the period the forfeiture estimate is changed. If a revised forfeiture rate is higher than the previously estimated forfeiture rate, an adjustment is made that will result in a decrease to the stock-based compensation expense recognized in the consolidated financial statements. If a revised forfeiture rate is lower than the previously estimated forfeiture rate, an adjustment is made that will result in an increase to the stock-based compensation expense recognized in the consolidated financial statements. The effect of forfeiture adjustments during 2006, 2007 and 2008 and the nine months ended September 30, 2009 was insignificant.

As we accumulate additional employee option data over time and as we incorporate market data related to our common stock, we may calculate significantly different volatilities, expected lives and forfeiture rates, which could materially impact the valuation of our stock-based awards and the stock-based compensation expense that we will recognize in future periods. Stock-based compensation expense is recorded in our cost of sales, research and development expenses, and selling, general and administrative expenses.

We recorded stock-based compensation of $0.4 million during both the year ended December 31, 2008 and the nine months ended September 30, 2009. As of December 31, 2008 and September 30, 2009, we had $1.0

 

70


Table of Contents

million and $2.1 million of unrecognized stock-based compensation costs, respectively, which is expected to be recognized over an average period of 3.2 and 3.0 years, respectively and of which we expect to amortize $0.5 million during the year ending December 31, 2010. In future periods, our stock-based compensation expense is expected to increase materially as a result of our existing unrecognized stock-based compensation and as we issue additional stock-based awards to continue to attract and retain employees and nonemployee directors.

We account for stock options issued to nonemployees also based on their estimated fair value determined using the Black-Scholes option-pricing model. However, the fair value of the equity awards granted to nonemployees is re-measured as the awards vest, and the resulting increase in value, if any, is recognized as expense during the period the related services are rendered.

Common Stock Valuation

We have historically granted stock options with exercise prices equal to the fair value of our common stock as determined at the date of grant by our Board of Directors. Because there has been no public market for our common stock, our Board of Directors has determined the fair value of our common stock by considering a number of objective and subjective factors, including the following:

 

   

our sales of preferred stock to unrelated third parties;

 

   

our operating and financial performance;

 

   

the lack of liquidity of our capital stock;

 

   

trends in our industry;

 

   

arm’s length, third-party sales of our stock; and

 

   

contemporaneous valuations performed by an unrelated third-party.

There is inherent uncertainty in these estimates and if we had made different assumptions than those used, the amount of our stock-based compensation expense, net loss and net loss per share amounts could have been significantly different. The following table summarizes, by grant date, the number of stock options granted since January 1, 2008 and the associated per share exercise price, which equaled the fair value of our common stock for each of these grants.

 

Grant Date

   Number of
Options
Granted
   Exercise
Price and
Fair Value
per Share of
Common
Stock

June 4, 2008

   2,287,000    $ 0.90

July 8, 2008

   835,000      0.90

September 3, 2008

   600,500      0.90

October 29, 2008

   615,500      0.90

March 2, 2009

   644,500      0.90

April 13, 2009

   3,017,800      0.90

April 22, 2009

   315,600      0.90

August 4, 2009

   969,300      0.98

October 21, 2009

   1,772,000      2.05

December 4, 2009

   23,932,673      2.21

December 16, 2009

   177,000      2.21

Included in the December 4, 2009 awards, were 20,135,920 stock options granted to our Chief Executive Officer comprised of two grants. In recognition of his and our company’s achievements and to create incentives for future success, the Board of Directors approved an option grant representing 4% of our fully-diluted share

 

71


Table of Contents

base as of December 4, 2009, or 10,067,960 stock options, with  1 / 4 th of the shares vesting immediately, and  1 / 48 th of the shares scheduled to vest each month over the subsequent three years, assuming continued employment through each vesting date. In addition, to create incentives for the attainment of clear performance objectives around a key element of our current business plan—the successful launch and commercialization of the Model S—the Board of Directors approved additional options totaling an additional 4% of our fully-diluted shares as of December 4, 2009, with a vesting schedule based entirely on the attainment of performance objectives as follows, assuming Mr. Musk’s continued service to us through each vesting date:

 

   

 1 / 4 th of the shares subject to the option are scheduled to vest upon the successful completion of the Model S Engineering Prototype;

 

   

 1 / 4 th of the shares subject to the option are scheduled to vest upon the successful completion of the Model S Vehicle Prototype;

 

   

 1 / 4 th of the shares subject to the option are scheduled to vest upon the completion of the first Model S Production Vehicle; and

 

   

 1 / 4 th of the shares subject to the option are scheduled to vest upon the completion of 10,000 th Model S Production Vehicle.

If Mr. Musk does not meet one or more of the above milestones prior to the fourth anniversary of the date of grant, he will forfeit his right to the unvested portion of the grant.

Our Board of Directors has performed valuations of our common stock for purposes of granting stock options in a manner consistent with the methods outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation . The enterprise value input of our common stock valuations were derived either using fundamental analysis (income and market approaches) or based on a recent round of financing (option pricing approach). The income approach estimates the enterprise value of the company by discounting the expected future cash flows of the company to present value. We have applied discount rates that reflect the risks associated with our cash flow projections and have used venture capital rates of return for companies at a similar stage of development as us, as a proxy for our cost of capital. Our discounted cash flow calculations are sensitive to highly subjective assumptions that we were required to make at each valuation date relating to appropriate discount rates for various components of our business. For example, the discount rates used to value the cash flow projections from the Model S business factored in the low cost debt we expected to raise from the U.S. Department of Energy.

 

Valuation Date

   Range of
Discount Rates
 

December 31, 2007

   30.0 – 40.0

May 15, 2008

   30.0 – 40.0

December 31, 2008

   30.0 – 40.0

February 28, 2009

   30.0 – 40.0

May 11, 2009

   16.2 – 34.8

August 1, 2009

   16.2 – 34.8

October 15, 2009

   12.4 – 27.1

November 27, 2009

   12.4 – 27.1

Our projected cash flows have been primarily derived from our Tesla Roadster, Model S and powertrain revenue streams. These cash flow projections take into account the fact that we have been selling the Tesla Roadster since 2008, that we began selling powertrain components in the quarter ended December 31, 2009 and our anticipation of Model S production in 2012.

Under the market approach, the total enterprise value of the company is estimated by comparing our business to similar businesses whose securities are actively traded in public markets, or businesses that are

 

72


Table of Contents

involved in a public or private transaction. Prior transactions in our stock are also considered as part of the market approach methodology. We have selected revenue valuation multiples derived from trading multiples of public companies that participate in the automotive OEM, automotive retail, and automotive parts and battery technology industries. These valuation multiples were then applied to the equivalent financial metric of our business, giving consideration to differences between our company and similar companies for such factors as company size and growth prospects.

For those reports that relied on the fundamental analysis, we prepared a financial forecast to be used in the computation of the enterprise value for both the market approach and the income approach. The financial forecasts took into account our past experience and future expectations. The risks associated with achieving these forecasts were assessed in selecting the appropriate discount rate. As discussed below, there is inherent uncertainty in these estimates. Second, we allocated the resulting equity value among the securities that comprise our capital structure using the Option-Pricing Method. The aggregate value of the common stock derived from the Option-Pricing Method was then divided by the number of common shares outstanding to arrive at the per share common value. For those reports that relied on the recent round of financing, we back-solved for the total equity value such that the value of the instrument sold in the recent round as calculated by the option pricing model is consistent with the observed transaction price.

Our Board of Directors has considered the valuations derived from the approaches above, the probability and timing of completing an initial public offering, as well as other qualitative factors in arriving at our common stock valuations, including the following:

 

   

significant operating losses for the years ended December 31, 2006, 2007 and 2008;

 

   

flat revenue growth trends in the second, third and fourth quarters of 2008 as a result of global macroeconomic uncertainty;

 

   

the absence of a significant initial public offering market throughout 2008 and continuing through the second quarter of 2009; and

 

   

other market developments that influence forecasted revenue.

Valuations that we have performed require significant use of estimates and assumptions, If different estimates and assumptions had been used, our common stock valuations could be significantly different and related stock-based compensation expense may be materially impacted.

Warrants

We have accounted for our freestanding warrants to purchase shares of our convertible preferred stock as liabilities at fair value upon issuance. We have recorded the warrants as liabilities because the underlying shares of convertible preferred stock were contingently redeemable and, therefore, may have obligated us to transfer assets at some point in the future. The warrants were subject to re-measurement to fair value at each balance sheet date and any change in fair value was recognized as a component of other income (expense), net on the consolidated statements of operations. We estimated the fair value of these warrants at the respective balance sheet dates using a Black-Scholes option-pricing model which used several assumptions that are subject to significant management judgment as is the case for stock-based compensation as discussed above. Upon the completion of this offering, we expect that the convertible preferred stock warrants currently outstanding will either be exercised or become warrants to purchase shares of our common stock. Accordingly, at that time we expect that the convertible preferred stock warrant liability will no longer exist. However, in January 2010, we issued a warrant to the DOE in connection with the closing of the DOE Loan Facility to purchase shares of our Series E convertible preferred stock. This convertible preferred stock warrant will become a warrant to purchase shares of our common stock upon the closing of this offering. Beginning on December 15, 2018 and until December 14, 2022, the shares subject to purchase under the warrant will become exercisable in quarterly amounts depending on the average outstanding balance of the DOE Loan Facility during the prior quarter. Since the number of shares of common stock ultimately issuable under the warrant will vary, this warrant will be carried at its estimated fair value with changes in fair value reflected in other income (expense), net, until its expiration or exercise.

 

73


Table of Contents

Income Taxes

We record our provision for (benefit from) income taxes in our consolidated statements of operations by estimating our taxes in each of the jurisdictions in which we operate. We estimate our actual current tax exposure together with assessing temporary differences arising from differing treatment of items recognized for financial reporting versus tax return purposes. These differences result in deferred tax assets, which are included in our consolidated balance sheets. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in our consolidated statements of operations become deductible expenses under applicable income tax laws, or loss or credit carryforwards are utilized. Valuation allowances are recorded when necessary to reduce deferred tax assets to the amount expected to be realized.

Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We make these estimates and judgments about our future taxable income that are based on assumptions that are consistent with our future plans. As of December 31, 2007, 2008 and September 30, 2009, we had recorded a full valuation allowance on our U.S. net deferred tax assets because we expect that it is more likely than not that our deferred tax assets will not be realized in the foreseeable future. Should the actual amounts differ from our estimates, the amount of our valuation allowance could be materially impacted.

Furthermore, significant judgment is required in evaluating our tax positions. In the ordinary course of business, there are many transactions and calculations for which the ultimate tax settlement is uncertain. As a result, we recognize the effect of this uncertainty on our tax attributes, such as net operating losses, based on our estimates of the eventual outcome. These effects are recognized when, despite our belief that our tax return positions are supportable, we believe that it is more likely than not that those positions may not be fully sustained upon review by tax authorities. We are required to file income tax returns in the United States and various foreign jurisdictions, which requires us to interpret the applicable tax laws and regulations in effect in such jurisdictions. Such returns are subject to audit by the various federal, state and foreign taxing authorities, who may disagree with respect to our tax positions. We believe that our accounting consideration is adequate for all open audit years based on our assessment of many factors, including past experience and interpretations of tax law. We review and update our estimates in light of changing facts and circumstances, such as the closing of a tax audit, the lapse of a statute of limitations or a material change in estimate. To the extent that the final tax outcome of these matters differs from our expectations, such differences may impact income tax expense in the period in which such determination is made. The eventual impact on our income tax expense depends in part if we still have a valuation allowance recorded against our deferred tax assets in the period that such determination is made.

 

74


Table of Contents

Results of Operations

The following table sets forth our historical operating results as of the periods indicated:

 

     Years Ended December 31,     Nine Months Ended
September 30,
 
     2006     2007     2008     2008     2009  
           (Unaudited)  
     (in thousands, except per share data)  

Consolidated Statements of Operations Data:

          

Automotive sales (including zero emission vehicle credit sales of $3,458, $495 and $7,645, for the periods ended December 31, 2008, September 30, 2008 and 2009, respectively)

   $ —        $ 73      $ 14,742      $ 580      $ 93,358   

Cost of sales

     —          9        15,883        19        85,604   
                                        

Gross profit (loss)

     —          64        (1,141     561        7,754   

Operating expenses:

          

Research and development (net of development compensation of $17,170 for the period ended September 30, 2009)

     24,995        62,753        53,714        41,888        11,139   

Selling, general and administrative

     5,436        17,244        23,649        13,953        25,587   
                                        

Total operating expenses

     30,431        79,997        77,363        55,841        36,726   

Loss from operations

     (30,431     (79,933     (78,504     (55,280     (28,972

Interest income

     938        1,749        529        486        97   

Interest expense

     (423     —          (3,747     (2,648     (2,506

Other income (expense), net

     59        137        (963     231        (320
                                        

Loss before income taxes

     (29,857     (78,047     (82,685     (57,211     (31,701

Provision (benefit) for income taxes

     100        110        97        73        (203
                                        

Net loss

   $ (29,957   $ (78,157   $ (82,782   $ (57,284   $ (31,498
                                        

Comparison of the Nine Month Periods Ended September 30, 2008 and 2009

Automotive Sales

To date, most of our revenues have been generated through sales in the United States. We had no revenues from sales outside of the United States prior to the third quarter of 2009 and revenue from sales outside of the United States represented 14% of our total revenues for the nine months ended September 30, 2009. Our international sales commenced with the launch of the Tesla Roadster in Europe in July 2009.

Automotive sales during the nine months ended September 30, 2008 in the amount of $0.6 million were derived primarily from the sale of ZEV credits. ZEV credit sales increased from $0.5 million during the nine months ended September 30, 2008 to $7.6 million during the nine months ended September 30, 2009. Although we did not recognize revenue from the sale of Tesla Roadsters during the nine months ended September 30, 2008, we generated ZEV credits from the delivery of vehicles during such period which we sold to a third party automobile manufacturer. As sales of the Tesla Roadster increased during the nine month period ended September 30, 2009, sales of ZEV credits also increased.

Substantially all of the increase in automotive sales to $93.4 million for the nine months ended September 30, 2009 was due to sales of the Tesla Roadster. During the nine month period ended September 30, 2009, we recognized revenue related to the sale of 706 Tesla Roadsters. A significant portion of the revenue recognized during this period came from fulfilling reservations placed prior to 2009.

 

75


Table of Contents

As of September 30, 2009, we had deferred revenue from automotive sales in the amount of $3.4 million compared to $4.1 million as of December 31, 2008. Deferred revenue as of September 30, 2009 was mostly derived from Tesla Roadster sales where vehicles had been shipped, but had not been delivered to the customer as of the end of the period. During the nine months ended September 30, 2008, we delivered 32 Tesla Roadsters to customers for which we had unfulfilled obligations related to powertrain upgrades. Although these vehicles performed to a level adequate for most driving conditions, we had promised our customers an upgrade of the powertrain. As a result, we deferred all revenue recognition of these Tesla Roadsters that we had delivered in 2008 until they were retrofitted with the new powertrain. We performed these upgrades and accordingly recognized the revenue for these vehicles beginning in the quarter ended December 31, 2008 and concluding in the quarter ended September 30, 2009.

Cost of Sales and Gross Profit

Cost of sales increased from $19,000 during the nine months ended September 30, 2008 to $85.6 million during the nine months ended September 30, 2009. Substantially all of the cost of sales during the nine months ended September 30, 2008 consisted of cost related to sales of Tesla-branded merchandise. Substantially all of the cost of sales during the nine months ended September 30, 2009 was due to the costs related to the sales of the Tesla Roadster from which we began to recognize revenue during the quarter ended December 31, 2008. This significant increase in cost of sales was due to the corresponding increase in our automotive sales on a period over period basis. Due to the model changeover from the Tesla Roadster to the Tesla Roadster 2 as well as significant part changes implemented to improve the design and reduce per unit costs, we recorded charges to cost of sales in the amount of $0.7 million for excess and obsolete inventory during the nine months ended September 30, 2009.

For the nine months ended September 30, 2008, we generated a gross profit of $0.6 million. Substantially all of the gross profit was generated by the sale of ZEV credits during the nine months ended September 30, 2008. During this period, we had minimal cost of sales as we were not yet recognizing revenue from the sale of Tesla Roadsters. For the nine months ended September 30, 2009 we recognized gross profit of $7.8 million and a gross margin of 8.3%.

Research and Development Expenses

Research and development expenses decreased from $41.9 million during the nine months ended September 30, 2008 to $11.1 million during the nine months ended September 30, 2009. The $30.7 million decrease in research and development expenses was a result of development compensation we recognized from Daimler in the amount of $17.1 million which offset $17.1 million of research and development expenses during the nine months ended September 30, 2009, as well as a net decrease in research and development expenses of $13.6 million. The $13.6 million decrease in research and development expenses during the nine months ended September 30, 2009 consisted primarily of a $10.0 million decrease resulting from the allocation of various manufacturing-related costs to inventory and cost of sales once we transitioned into commercial production, a $4.2 million decrease in charges related to excess and obsolescence, adverse purchase commitments and materials and tooling expense due both to the classification of production-related costs in cost of sales as well as lower engineering and development activity, a $2.5 million decrease in consulting and other professional services following the substantial completion of development of the Tesla Roadster, partially offset by a $2.7 million increase in employee compensation expenses associated with higher headcount for the nine months ended September 30, 2009.

We began receiving payments under a development arrangement with Daimler in the year ended December 31, 2008 to compensate us for the cost of our development activities. We deferred recognition for these payments received in advance of the execution of the final agreement because a number of significant contractual terms were not in place prior to that time. Upon entering into the final agreement in May 2009, we began recognizing, as an offset to our research and development expenses, the deferred development compensation of $14.5 million on a straight-line basis. This amount was recognized over the expected life of the

 

76


Table of Contents

agreement, beginning in May 2009 and continuing through November 2009. Payments that we received upon the achievement of development milestones subsequent to contract execution in May 2009, were recognized, as an offset to our research and development expenses, upon achievement and acceptance of the respective milestones.

We did not recognize any development compensation from Daimler during the nine months ended September 30, 2008.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased from $14.0 million during the nine months ended September 30, 2008 to $25.6 million during the nine months ended September 30, 2009. The $11.6 million increase in our selling, general and administrative expenses during the nine month period ended September 30, 2009 consisted primarily of a $4.9 million increase in employee compensation expenses, including a $3.0 million increase related to higher sales and marketing headcount to support our opening of additional stores in the United States and Europe, a $2.2 million increase in costs principally related to events showcasing the Model S, a $2.2 million increase in office information technology and facilities costs to support the growth of our business, and a $1.5 million increase in legal services and legal settlements and accounting and other consulting services to support our growth.

Interest Income

Interest income decreased from $0.5 million during the nine months ended September 30, 2008 to $0.1 million during the nine months ended September 30, 2009. The $0.4 million decrease in our interest income during the nine month period ended September 30, 2009 was a result of our receiving higher returns on our cash and short-term investment balances during the nine months ended September 30, 2008, partially offset by higher average balances during the nine months ended September 30, 2009.

Interest Expense

Interest expense decreased from $2.6 million during the nine months ended September 30, 2008 to $2.5 million during the nine months ended September 30, 2009. Interest expense for both periods was related to our convertible notes which converted into shares of our Series E convertible preferred stock in May 2009.

Other Income (Expense), Net

Other income (expense), net which consisted of income during the nine months ended September 30, 2008 in the amount of $0.2 million decreased by $0.5 million to an expense in the amount of $0.3 million for the nine months ended September 30, 2009. This change was a result of a $0.9 million increase in the fair value of the outstanding convertible preferred stock warrants during the nine months ended September 30, 2008 compared to a $0.4 million increase during the nine months ended September 30, 2009.

Provision (Benefit) for Income Taxes

Our provision for income taxes increased from a provision of $73,000 during the nine months ended September 30, 2008 to a benefit for income taxes in the amount of $0.2 million during the nine months ended September 30, 2009 as a result of recognition of research and development credits during the nine months ended September 30, 2009 from our foreign operations.

Comparison of the Years Ended December 31, 2007 and 2008

Automotive Sales

During the years ended December 31, 2007 and 2008, all of our automotive sales were from shipments to locations within the United States. Automotive sales during the year ended December 31, 2007 consisted entirely

 

77


Table of Contents

of sales of Tesla-branded merchandise as we did not recognize any revenue from the sales of our Tesla Roadster. We did not recognize revenue from sales of ZEV credits in the year ended December 31, 2007 as we had not yet earned any credits through deliveries of the Tesla Roadster. As we began delivering the Tesla Roadster to customers during the year ended December 31, 2008, we also began selling ZEV credits associated with these deliveries. For the year ended December 31, 2008, we earned $3.5 million from the sale of ZEV credits. Substantially all of the increase in automotive sales to $14.7 million during the year ended December 31, 2008 was due to sales of the Tesla Roadster for which we began to recognize revenue in the quarter ended December 31, 2008. Almost all of the revenue recognized during this period, came from fulfilling reservations placed in prior periods.

As of December 31, 2008, we had deferred $3.6 million in revenue related to certain vehicles that had been delivered but as to which we had unfulfilled obligations related to powertrain upgrades. Although these vehicles performed to a level adequate for most driving conditions, we had promised our customers an upgrade of the powertrain. As a result, we deferred all revenue recognition of these Tesla Roadsters that we had delivered in 2008 until they were retrofitted with the new powertrain. We performed these upgrades and accordingly recognized the revenue for these vehicles beginning in the quarter ended December 31, 2008 and concluding in the quarter ended September 30, 2009. We had no deferred revenue as of December 31, 2007.

Cost of Sales and Gross Profit (Loss)

Cost of sales increased from $9,000 during the year ended December 31, 2007 to $15.9 million during the year ended December 31, 2008. All of the cost of sales during the year ended December 31, 2007 consisted of cost related to sales of Tesla-branded merchandise. Substantially all of the cost of sales for the year ended December 31, 2008 was due to the costs related to the sales of the Tesla Roadster which commenced during the quarter ended December 31, 2008.

During the year ended December 31, 2008, we had a gross loss of $1.1 million due to the lower pricing for our initial vehicles, the high materials and manufacturing costs associated with our first generation Tesla Roadster and limited economies of scale from low vehicle production volumes. During the year ended December 31, 2007, we had a gross profit of $64,000 from sales of our Tesla branded merchandise.

Research and Development Expenses

Research and development expenses decreased from $62.8 million during the year ended December 31, 2007 to $53.7 million during the year ended December 31, 2008. The $9.0 million decrease in our research and development expenses was due to a $10.2 million decrease in development-related contract services expenses due primarily to the significant contractor and other resources required in 2007 to drive completion of Tesla Roadster development, a $4.4 million decrease in professional services driven by significant engineering activities on the powertrain and vehicle to facilitate the start of production, partially offset by a $3.7 million increase in tooling and material expenses, including costs related to obsolete inventory and adverse purchase commitments, and a $2.8 million increase in office expenses and allocated information technology and facilities costs to support our research and development activities.

Prior to the commercialization of the Tesla Roadster, expenses related to excess and obsolete inventory and certain other costs were charged to research and development expenses. Once we began recognizing revenue from the production and sales of the Tesla Roadster in the quarter ended December 31, 2008, we began recording these costs in cost of sales.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased from $17.2 million during the year ended December 31, 2007 to $23.6 million during the year ended December 31, 2008. The $6.4 million increase in our

 

78


Table of Contents

selling, general and administrative expenses during the year ended December 31, 2008 consisted primarily of a $3.6 million increase in legal services and legal settlements and, accounting and other consulting services, a $1.3 million increase associated with higher head count expenses and a $1.0 million increase in marketing expenses to support our growth.

Interest Income

Interest income decreased from $1.7 million during the year ended December 31, 2007 to $0.5 million during the year ended December 31, 2008. The $1.2 million decrease in our interest income during the year ended December 31, 2008 was a result of our receiving lower interest rates on invested cash during the year ended December 31, 2008 when compared to the year ended December 31, 2007, as well as higher average cash balances during the year ended December 31, 2007.

Interest Expense

Interest expense increased to $3.7 million during the year ended December 31, 2008 compared to no interest expense recognized during the year ended December 31, 2007. Interest expense during the year ended December 31, 2008 was primarily a result of interest on our outstanding convertible notes issued early in the year and which remained outstanding throughout the remainder of the year.

Other Income (Expense), Net

Other income (expense), net during the year ended December 31, 2007 in the amount of $0.1 million changed by $1.1 million to an expense of $1.0 million for the year ended December 31, 2008. A majority of this change was a result of a $2.8 million increase in the fair value of the outstanding convertible preferred stock warrants during the year ended December 31, 2008 compared to a small decrease during the year ended December 31, 2007. This expense for the year ended December 31, 2008 was partially offset, among other things, by a $1.2 million gain on the cancellation of warrants in connection with the issuance and conversion of certain convertible notes in that period.

Provision for Income Taxes

Our provision for income taxes was $0.1 million during both years ended December 31, 2007 and 2008. In both periods, these expenses related primarily to foreign income taxes.

Comparison of the Years Ended December 31, 2006 and 2007

Automotive Sales

We recorded our first revenue during the year ended December 31, 2007 which was derived entirely from the online sale of Tesla-branded merchandise after the launch of our Tesla online store in December 2007.

Cost of Sales

Cost of sales of $9,000 during the year ended December 31, 2007 related to online merchandise sales. We had no cost of sales in the year ended December 31, 2006.

Research and Development Expenses

Research and development expenses increased from $25.0 million during the year ended December 31, 2006 to $62.8 million during the year ended December 31, 2007. The $37.8 million increase in our research and development expenses during the year ended December 31, 2007 was due primarily to increases in professional

 

79


Table of Contents

services and contract labor fees of $15.4 million as we employed several consulting firms and numerous contractors to assist in and accelerate our research and development efforts, an increase in research and development employees as we continued to build our core team of electric vehicle scientists and engineers, resulting in an increase in employee compensation expenses of $12.5 million, and an increase of $3.0 million in tooling and material expenses associated with changing vendors for the body panels of the Tesla Roadster as well as write-downs of inventories and charges related to adverse purchase commitments.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased from $5.4 million during the year ended December 31, 2006 to $17.2 million during the year ended December 31, 2007. The $11.8 million increase in our selling, general and administrative expenses during the year ended December 31, 2007 was primarily due to a $4.4 million increase in legal, accounting, information technology and other professional fees and expenses, an increase in employee compensation expenses in the amount of $3.2 million, including an increase of $2.1 million related to increased sales and marketing personnel, a $1.3 million increase in depreciation primarily related to increased office furniture and equipment and computer equipment and software, and a $0.8 million increase in contract services fees.

Interest Income

Interest income increased from $0.9 million during the year ended December 31, 2006 to $1.7 million during the year ended December 31, 2007. The $0.8 million increase in our interest income during the year ended December 31, 2007 was a result of our receiving higher returns on our cash equivalent and investment balances during the year.

Interest Expense

Interest expense decreased from $0.4 million during the year ended December 31, 2006 compared to no interest expense recognized during the year ended December 31, 2007. Interest expense during the year ended December 31, 2006 was primarily a result of convertible notes issued in March 2006, which converted to convertible preferred stock in June 2006.

Other Income (Expense), Net

Other income (expense), net was $0.1 million during both years ended December 31, 2006 and 2007.

Provision for Income Taxes

Our provision for income taxes was $0.1 million during both years ended December 31, 2006 and 2007.

Liquidity and Capital Resources

As of September 30, 2009, our principal sources of liquidity were our cash and cash equivalents in the amount of $106.5 million which are invested in money market funds. Our primary source of cash historically has been proceeds from the sales of convertible preferred stock, sales of convertible notes, refundable reservation payments from customers for the Tesla Roadster and more recently from sales of the Tesla Roadster, our compensation for electric powertrain development and refundable reservation payments for our Model S. Through September 30, 2009, we had raised an aggregate of $319.2 million from sales of convertible preferred stock and convertible note financings. Since inception through the nine months ended September 30, 2009, we had accumulated net operating losses of $236.4 million.

On January 20, 2010, we entered into our DOE Loan Facility for $465.0 million to support the expansion of our manufacturing operations. Up to an aggregate principal amount of $101.2 million will be made available

 

80


Table of Contents

under the first term loan facility to finance up to 80% of the costs eligible for funding for the build out of a facility to design and manufacture lithium-ion battery packs, electric motors and electric components, or the Powertrain facility. Up to an aggregate principal amount of $363.9 million will be made available under the second term loan facility to finance up to 80% of the costs eligible for funding for the development of, and to build out the manufacturing facility for, our Model S sedan, or the Model S facility. Under the DOE Loan facility, we are responsible for the remaining 20% of the costs eligible for funding under the ATVM Program for the projects as well as any cost overruns for each project. The costs paid by us to date for the Powertrain facility and the Model S facility will be applied towards our obligation to contribute 20% of the eligible project costs, and the DOE’s funding of future eligible costs will be adjusted to take this into account. Our remaining obligations for these projects are budgeted to be an aggregate of $33 million, plus any cost overruns for the projects.

Our ability to draw down funds under the DOE Loan Facility is conditioned upon several draw conditions. For the Powertrain facility, the draw conditions include our achievement of progress milestones relating to the development of the powertrain manufacturing facility and the successful development of commercial arrangements with third parties for the supply of powertrain components. For the Model S facility, the draw conditions include our achievement of progress milestones relating to the design and development of the Model S and the planned Model S manufacturing facility, including an environmental assessment of such facility approved by the DOE. Certain advances will be subject to additional conditions to drawdown related to the site on which the applicable project is located.

Advances under the DOE Loan Facility accrue interest at a per annum rate determined by the Secretary of the Treasury as of the date of the advance and will be based on the Treasury yield curve and the scheduled principal installments for such advance. Interest on advances under the DOE Loan Facility is payable quarterly in arrears.

Under the DOE Loan Facility, we have committed to pay all costs and expenses incurred to complete the projects being financed in excess of amounts funded under the loan facility. We will be required to maintain, at all times, available cash and cash equivalents of at least 105% of the amounts required to fund such commitment, after taking into account current cash flows and cash on hand, including cash on hand raised in this offering, and reasonable projections of future generation of net cash from operations, losses and expenditures. Loans may be requested under the facilities until January 22, 2013, and we have committed to complete the projects being financed prior to such date. On the closing date, we paid a facility fee to the DOE in the amount of $0.5 million. We intend to receive the first drawdown under each facility starting in the first quarter of 2010.

The DOE Loan Facility documents contain customary covenants that include, among others, a requirement that the projects be conducted in accordance with the business plan for such project, compliance with all requirements of the ATVM Program, and limitations on our and our subsidiaries’ ability to incur indebtedness, incur liens, make investments or loans, enter into mergers or acquisitions, dispose of assets, pay dividends or make distributions on capital stock, pay indebtedness, pay management, advisory or similar fees to affiliates, enter into certain affiliate transactions, enter into new lines of business, and enter into certain restrictive agreements, in each case subject to customary exceptions. The DOE Loan Facility documents also contain financial covenants requiring us to maintain a minimum ratio of current assets to current liabilities, and (i) through December 15, 2012, a minimum cash balance, and (ii) after December 15, 2012, a maximum leverage ratio, a minimum interest coverage ratio, a minimum fixed charge coverage ratio, a limit on capital expenditures and, after March 31, 2014, a maximum ratio of total liabilities to shareholder equity.

Under the DOE Loan Facility, we are required to fund a debt service reserve account on or before December 31, 2012, in an amount equal to all principal and interest that will come due on the advances on the next two payment dates. Once we have deposited such two payments, we will not be required to further fund such debt service reserve account. We have also agreed that, in connection with the sale of our common stock in this offering, at least 75% of the net offering proceeds will be received by us and, in connection with the sale of

 

81


Table of Contents

our stock in any other follow-on equity offering, at least 50% of the net offering proceeds will be received by us. Offering proceeds may not be used to pay bonuses or other compensation to officers, directors, employees or consultants in excess of the amounts contemplated by our business plan approved by the DOE.

In addition to our obligation to fund a portion of the project costs as described above, we have agreed to set aside 50% of the net proceeds from this offering and any subsequent offerings of stock occurring before the completion of the projects, up to an aggregate of $100 million, to fund a separate, dedicated account under our DOE Loan Facility. We will use amounts deposited into this dedicated account to fund project costs of the Powertrain facility and the Model S facility which would have otherwise been funded through advances made under the DOE Loan Facility such that, while there are funds available in the dedicated account, for each dollar of project costs advanced under the DOE Loan Facility, one dollar of project costs that would otherwise have been funded under the DOE Loan Facility will be funded from the dedicated account. The dedicated account can also be used by us to fund any cost overruns for these projects. Once the funds deposited into this dedicated account have been used in full, we will be reimbursed by the drawdown of additional funds for amounts paid from this account, and we will be required to deposit a portion of these reimbursements into the dedicated account in an amount equal to up to 30% of the remaining project costs for the applicable project. These amounts will similarly be used to fund project costs and cost overruns and will similarly be eligible for reimbursement by the drawdown of additional funds once used in full.

We expect that the proceeds of this offering and the loans under the DOE Loan Facility, together with our anticipated cash from operating activities and cash on hand, will be sufficient to fund our operations for the next 24 months. In order to fund our operations beyond that time, we may need to raise additional funds through the issuance of equity, equity-related or debt securities or through obtaining credit from government or financial institutions. This capital will be necessary to fund our ongoing operations, continue research, development and design efforts, establish sales and service branches, improve infrastructure such as expanded battery assembly facilities, and introduce new vehicles such as the Model S. We cannot be certain that additional funds will be available to us on favorable terms when required, or at all.

Capital Expenditures

During the years ended December 31, 2006, 2007 and 2008, we used $6.5 million, $9.8 million and $9.6 million in cash, respectively, to fund capital expenditures. During the nine months ended September 30, 2008 and 2009, we used $9.5 million and $5.7 million in cash, respectively, to fund capital expenditures. We currently anticipate making aggregate capital expenditures of between $100 million and $125 million during the year ending December 31, 2010, primarily related to the development of the Model S.

 

     Years Ended December 31,     Nine Months Ended
September 30,
 
     2006     2007     2008     2008     2009  
                       (Unaudited)  
     (in thousands)  

Net cash used in operating activities

   $ (3,428   $ (53,469   $ (52,412   $ (30,058   $ (51,818

Net cash used in investing activities

     (6,805     (9,762     (10,590     (9,446     (8,045

Net cash provided by financing activities

     39,807        45,041        55,068        40,316        157,133   

Cash Flows from Operating Activities

We continue to experience negative cash flows from operations as we expand our business and build our infrastructure both in the United States and internationally. Our cash flows from operating activities are significantly affected by our cash investments to support the growth of our business in areas such as research and development and selling, general and administrative. Our operating cash flows are also affected by our working capital needs to support growth and fluctuations in inventory, personnel related expenditures, accounts payable and other current assets and liabilities.

 

82


Table of Contents

A component of our cash flows from operations has been our receipt of refundable reservation payments from our customers. Refundable reservation payments consist of reservation and membership payments that allow potential customers to hold a reservation for the future purchase of a Tesla Roadster or Model S. In the United States, we accept reservations for our Tesla Roadster with a $9,900 reservation payment and for the Model S with a minimum $5,000 reservation payment. In the United States, approximately three months prior to production of a Tesla Roadster, we require the customer to make full payment of the balance owed on the vehicle to lock in a production slot. These fees are used by us to fund, in part, our working capital requirements and help us to align production with demand. Our current reservation agreement for the Tesla Roadster provides that prior to locking in the production slot for the Tesla Roadster, reservation payments are refundable, less a cancellation fee of $250. After locking in the production slot, the reservation payments are not refundable. For the Model S, our current reservation agreements provide for a $50 cancellation fee until the customer selects options. Upon selection of options, the customer will make an additional reservation payment, following which the cancellation fee becomes $10,000. Reservation payments for a vehicle are recorded as a current liability when received. No later than upon the delivery of a vehicle, the reservation payments collected on a customer’s account are applied against the total purchase price of the vehicle. Refundable reservation payments are expected to fluctuate as the number of reservation holders on the Tesla Roadster reservation list decreases, while the number of reservation holders on the Model S reservation list increases.

Net cash used in operating activities was $30.1 million and $51.8 million during the nine months ended September 30, 2008 and 2009. The largest component of our cash used during both periods was the $57.3 million net loss incurred in the nine months ended September 30, 2008, which included non-cash charges of $2.9 million related to depreciation and amortization and $2.5 million related to interest on convertible notes, and the $31.5 million net loss incurred in the nine months ended September 30, 2009, which included non-cash charges of $5.0 million related to depreciation and amortization and $2.7 million related to interest on convertible notes, and a non-cash gain of $1.5 million from the extinguishment of convertible notes and warrants during the nine months ended September 30, 2009. Cash used in operating activities period over period was also impacted by a $20.8 million increase in refundable reservation payments held by us as of September 30, 2008 compared to a $23.2 million decrease in refundable reservation payments held by us as of September 30, 2009. The decrease in the refundable reservation payments was due to the launch of the Tesla Roadster during the nine months ended September 30, 2008. This is because we began delivering the Tesla Roadster to customers and applying the related reservation payments to the respective customers’ purchase cost. Also, additional fluctuations in our cash flows from operating activities resulted from multiple changes in other working capital accounts including a $3.3 million increase in deferred revenue, a $0.6 million increase in deferred development compensation and a $11.5 million increase in inventory during the nine months ended September 30, 2008 compared to a $6.0 million decrease in deferred development compensation, and only a $3.0 million increase in inventory during the nine months ended September 30, 2009. The decrease in deferred development compensation was mostly the result of the amortization of this deferred development compensation through the consolidated statement of operations during the nine months ended September 30, 2009, partially offset by the payments received under the development arrangement with Daimler during the period. The larger increase in inventory reflected our build up of inventory in 2008 in anticipation of the commercial introduction of the Tesla Roadster.

Net cash used in operating activities was $53.5 million and $52.4 million during the years ended December 31, 2007 and 2008. The largest component of our cash used during both years, was the $78.2 million net loss incurred during the year ended December 31, 2007, which included non-cash charges of $2.9 million related to depreciation and amortization and a $2.4 million loss on abandonment of certain fixed assets, and the $82.8 million net loss incurred during the year ended December 31, 2008, which included non-cash charges of $4.2 million related to depreciation and amortization, $3.7 million related to interest on convertible notes and $2.8 million related to the fair value change in our convertible preferred stock warrant liability. The fluctuations in cash flows from operating activities as a result of changes in working capital accounts included a $15.2 million increase in refundable reservation payments received, a $8.1 million increase in accounts payable and accrued liabilities, and a $2.1 million increase in inventory during the year ended December 31, 2007 compared to a $10.7 million increase in refundable reservation payments received, a $10.2 million increase in deferred

 

83


Table of Contents

development compensation, a $11.4 million increase in accounts payable and accrued liabilities and a $4.1 million increase in deferred revenue, partially offset by a $14.5 million increase in inventory during the year ended December 31, 2008. The increase in refundable reservation payments during the year ended December 31, 2008 was lower than the increase in the prior year as we began delivering the Tesla Roadster to customers and applying the related reservation payments to the respective customers’ purchase cost. The increase in deferred development compensation is mostly the result of collections under the development agreement with Daimler prior to December 31, 2008 which were deferred entirely until we entered into a final agreement in May 2009 compared to no such agreements or collections during the year ended December 31, 2007. The higher increase in accounts payable and accrued liabilities during the year ended December 31, 2008 compared to the prior year was due to the growth in our business. The larger increase in inventory during the year ended December 31, 2008 reflected our build up of inventory in anticipation of the commercial introduction of the Tesla Roadster.

Net cash used in operating activities was $3.4 million and $53.5 million during the years ended December 31, 2006 and 2007. The $50.0 million increase in net cash used in operating activities was primarily attributable to the $30.0 million net loss incurred during the year ended December 31, 2006, which included non-cash charges of $0.6 million related to depreciation and amortization and $0.4 million related to interest on convertible notes, and the $78.2 million net loss incurred during the year ended December 31, 2007, which included non-cash charges of $2.9 million related to depreciation and amortization and a $2.4 million loss on abandonment of certain fixed assets. The fluctuations in cash flows from operating activities as a result of changes in working capital accounts included a $4.4 million increase in accrued liabilities and accounts payable and a $22.1 million increase in refundable reservation payments received and no changes to inventory during the year ended December 31, 2006 compared to a $8.1 million increase in accrued liabilities and accounts payable, a $15.2 million increase in refundable reservation payments received and a $2.1 million increase in inventory during the year ended December 31, 2007. The increase in accrued liabilities and accounts payable was a result of changes in the scope of our operations.

Cash Flows from Investing Activities

We continue to experience negative cash flows from investing activities as we expand our business and build our infrastructure both in the United States and internationally. Cash flows from investing activities primarily relate to capital expenditures to support our growth in operations as well as restricted cash that we must maintain in relation to lease agreements, equipment financing, and certain vendor credit policies.

Net cash used in investing activities was $9.4 million and $8.0 million during the nine months ended September 30, 2008 and 2009. The uses of cash for investing activities during the nine months ended September 30, 2008 were substantially all related to purchases of capital equipment while uses during the nine months ended September 30, 2009 consisted of $5.7 million as a result of purchases of capital equipment and $2.4 million related to increases in restricted cash primarily relating to standard credit policies required by our online payment vendors.

Net cash used in investing activities was $9.8 million and $10.6 million during the years ended December 31, 2007 and 2008. There was only a small decrease in the amount of $0.2 million in cash used for purchases of capital equipment during the year ended December 31, 2008 when compared to the year ended December 31, 2007, however, restricted cash increased by $1.0 million during the year ended December 31, 2008 compared to a $40,000 decrease during the year ended December 31, 2007.

Net cash used in investing activities was $6.8 million and $9.8 million during the years ended December 31, 2006 and 2007. The year over year increase was due to a $3.3 million increase in cash used for purchases of capital equipment during the year ended December 31, 2007 when compared to the year ended December 31, 2006, however, restricted cash increased by $0.3 million during the year ended December 31, 2006 compared to a $40,000 decrease during the year ended December 31, 2007.

 

84


Table of Contents

Net cash used in investing activities is expected to increase substantially as we build out and tool our Model S manufacturing facility, and our powertrain manufacturing facility in Palo Alto, California. We expect our capital expenditures to be between $100 million and $125 million in the year ending December 31, 2010.

Cash Flows from Financing Activities

We have financed our operations primarily with proceeds from issuances of convertible preferred stock and convertible notes, which provided us with aggregate net proceeds of $296.8 million on a cumulative basis for the years ended December 31, 2006, 2007, 2008 and the nine months ended September 30, 2009.

Cash provided by financing activities increased by $116.8 million from the nine months ended September 30, 2008 compared to the nine months ended September 30, 2009 due to the issuance of $82.4 million in Series F convertible preferred stock and $49.4 million in Series E convertible preferred stock during the nine months ended September 30, 2009, and the issuance of convertible promissory notes in the amount of approximately $40.3 million during the nine months ended September 30, 2008 compared to $25.5 million during the nine months ended September 30, 2009.

Cash provided by financing activities increased by $10.0 million from the year ended December 31, 2007 compared to the year ended December 31, 2008. The increase was due almost entirely to the difference between the $54.8 million raised through the issuance of convertible notes during the year ended December 31, 2008 and the $44.9 million raised through the issuance of the Series D convertible preferred stock during the year ended December 31, 2007.

Cash provided by financing activities increased by $5.2 million from the year ended December 31, 2006 compared to the year ended December 31, 2007. The increase was due mostly to the difference between the $44.9 million raised through the issuance of the Series D convertible preferred stock during the year ended December 31, 2007 and the $36.8 million raised through the issuance of the Series C convertible preferred stock and the $3.0 million raised through the issuance of convertible notes during the year ended December 31, 2006.

Contractual Obligations

The following table sets forth, as of December 31, 2008, certain significant cash obligations that will affect our future liquidity (in thousands):

 

     Year ended December 31,
     Total    2009    2010    2011    2012    2013    2014 and
thereafter

Operating lease obligations

   $ 5,607    $ 1,575    $ 974    $ 608    $ 562    $ 488    $ 1,400

Capital lease obligations

     1,317      387      270      242      218      200      —  

Purchase obligations(1)

     56,900      39,700      17,200      —        —        —        —  

Long-term debt(2)

     54,528      —        54,528      —        —        —        —  
                                                

Total contractual obligations

   $ 118,352    $ 41,662    $ 72,972    $ 850    $ 780    $ 688    $ 1,400
                                                

 

(1) Obligations include agreements or purchase orders to purchase goods or services that are enforceable, legally binding and where the significant terms are specified. Where a minimum purchase obligation is stipulated, as in the case of our supply agreement with Lotus Cars Limited, the amounts included in the table reflect the minimum purchase amounts based on the December 31, 2008 exchange rate for the British Pound. Purchase obligations that are cancelable without significant penalty, are not included in the table.
(2)

Long-term debt includes the outstanding convertible notes payable that are due on December 31, 2010 unless earlier converted according to the terms of the respective notes agreements. In February and March 2009, the Company issued additional convertible notes in the amounts of $25.5 million. These convertible notes accrued interest at a rate of 10% per annum. In May 2009, we converted these notes, including

 

85


Table of Contents
 

accrued interest of $6.1 million, into shares of convertible preferred stock. As of September 30, 2009, the Company had no convertible notes outstanding. The convertible note issuances that occurred during the nine months ended September 30, 2009 and the conversion of all outstanding convertible notes during the same period are not reflected in the table above.

As of December 31, 2008 and September 30, 2009, the Company held refundable reservation payments of $48.0 million and $24.8 million from potential customers, respectively, which are not reflected in the table above. In order to convert the refundable reservation payment into revenue, the Company will need to sell vehicles to these customers. Amounts related to the DOE Loan Facility are not reflected in the table above.

Off-Balance Sheet Arrangements

During the periods presented, we did not have relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Impact of Inflation

We believe that inflation has not had a material impact on our results of operations for the years ended December 31, 2006, 2007 or 2008 or the nine months ended September 30, 2009. There can be no assurance that future inflation will not have an adverse impact on our operating results and financial condition.

Disclosure about Market Risk

Foreign Currency Risk

A portion of our costs and expenses for the nine months ended September 30, 2009 were denominated in foreign currencies such as the British Pound and the Euro. This is primarily due to the contract with Lotus Cars Limited, or Lotus, in the United Kingdom to manufacture the Tesla Roadster vehicles and gliders and other parts sourced in Europe. Our international sales and marketing operations incur expense denominated in foreign currencies. This cost exposure is partially offset by our recent growth in sales in Europe, specifically the United Kingdom, with the launch of the Tesla Roadster in Europe in the quarter ended September 30, 2009 since payments for these vehicles are in Euros or British pounds. This provides a partial natural hedge to our cost exposure in Europe which can vary depending on our sales in Europe. Our battery cell purchases from Asian suppliers are also subject to currency risk. Although our present contracts are United States dollar based, if the United States dollar continues to depreciate significantly against the local currency, it could cause our Asian suppliers to significantly raise their prices, which could harm our financial results. To date, the foreign currency effect on our cash and cash equivalents has not been significant.

Interest Rate Risk

We had cash and cash equivalents totaling $106.5 million as of September 30, 2009. These amounts were invested in money market funds. The cash and cash equivalents are held for working capital purposes. We do not enter into investments for trading or speculative purposes. We believe that we do not have any material exposure to changes in the fair value as a result of changes in interest rates due to the short term nature of our cash equivalents. Declines in interest rates, however, would reduce future investment income.

As of September 30, 2009, we did not have any debt or notes outstanding in which fluctuations in the interest rates would impact us as even our capital lease obligations are fixed rate instruments and are not subject to fluctuations in interest rates. There were convertible notes outstanding as of December 31, 2008, however, these convertible notes were converted into shares of convertible preferred stock in May 2009. We also expect to

 

86


Table of Contents

receive proceeds from loans under our DOE Loan Facility which will bear interest at a per annum rate determined by the Secretary of the Treasury as of the date of the loan, based on the Treasury yield curve and the scheduled principal installments for such loan.

Segment Information

We have determined that we operate in one reporting segment which is the design, manufacturing and sales of electric vehicles.

Waitlist and Reservations

Potential customers may reserve slots in our production schedule by entering into a reservation agreement and paying a refundable reservation payment. If the prospective customer decides to purchase a vehicle, the reservation payment can be used toward the purchase of a vehicle. We consider the reservation list as an indication of potential demand rather than a product backlog for pending vehicle sales, as customers on the customer reservation list have not made firm commitments to order and take deliveries of vehicles and may cancel such reservations at any time.

Starting in July 2006, we began taking reservations and collecting reservation payments from customers interested in purchasing a Tesla Roadster and we received a significant number of reservations prior to initiation of volume production of the Tesla Roadster in October 2008. Since that time, we have fulfilled a significant number of these reservations and a significant level of the automotive sales we recognized during the nine months ended September 30, 2009 came from fulfilling reservations placed prior to 2009. Beginning with the quarter ended December 31, 2009, we expect sales of the Tesla Roadster in each future quarter to more closely approximate orders placed in such future quarter than has been the case in prior periods.

As of December 31, 2009, we had accepted approximately 2,000 refundable reservations for the Model S sedans.

Seasonality

We expect sales of the Tesla Roadster to fluctuate on a seasonal basis with increased sales during the spring and summer months in our second and third fiscal quarters relative to our fourth and first fiscal quarters. However our limited operations history makes it difficult for us to judge the exact nature or extent of the seasonality of our business. We note that in general automotive sales tend to decline over the winter season and we anticipate that our sales of the Model S and other models we introduce may be similarly impacted. We do not expect our powertrain sales to be impacted to a significant extent by seasonality.

Recent Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board, or FASB, issued the FASB Accounting Standards Codification, or ASC, which identifies the ASC as the authoritative source of generally accepted accounting principles in the United States. Rules and interpretive releases of the SEC under federal securities laws are also sources of authoritative GAAP for SEC registrants. We adopted the provisions of the authoritative accounting guidance for the interim reporting period ended September 30, 2009. The adoption of the accounting standard did not have a material impact on our consolidated financial statements.

In September 2006, the FASB issued a new accounting standard which defines fair value, establishes a framework for measuring fair value and requires additional disclosures about fair value measurements. In February 2008, the FASB delayed the effective date of the standard until the first quarter of 2009 for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis. The standard does not require any new fair value

 

87


Table of Contents

measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. In April 2009, the FASB issued further guidance for estimating fair value when the level of market activity for an asset or liability has significantly decreased, which is effective for interim and annual periods ending after June 15, 2009. The adoption of the accounting standard did not have a material impact on our consolidated financial statements.

In March 2008, the FASB issued a new accounting standard related to disclosures about derivative instruments and hedging activities. This standard is intended to improve financial reporting by requiring transparency about the location and amounts of derivative instruments in an entity’s financial statements; clarifies the accounting for derivative instruments and related hedged items; and how derivative instruments and related hedged items affect its financial position, financial performance and cash flows. This standard is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The adoption of the accounting standard did not have a material impact on our consolidated financial statements.

In May 2008, the FASB issued a new accounting standard which requires the recognition of both the liability and equity components of convertible debt instruments with cash settlement features. Under the standard, the debt component is required to be recognized at the fair value of a similar instrument that does not have an associated equity component. The equity component is recognized as the difference between the proceeds from the issuance of the convertible debt instrument and the fair value of the straight debt liability. The separation of the equity component creates a debt discount which is required to be accreted over the expected life of the debt. Retrospective application to all periods presented is required. This standard is effective for us beginning in the first quarter of 2009. The adoption of the accounting standard did not have a material impact on our consolidated financial statements.

In June 2008, the FASB issued a new accounting standard for determining whether instruments granted in share-based payment transactions are considered participating securities for the purposes of calculating earnings per share. The standard clarified that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common stockholders, and therefore, are considered participating securities. The two-class method of computing basic and diluted earnings per share would have to be applied. This standard is effective for fiscal years beginning after December 31, 2008. The adoption of the accounting standard did not have a material impact on our consolidated financial statements.

In May 2009, the FASB issued a new accounting standard which establishes the general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The standard, which includes a new requirement to disclose the date through which an entity has evaluated subsequent events, is effective for interim or annual periods ending after June 15, 2009. The adoption of the accounting standard did not have a material impact on our consolidated financial statements.

In October 2009, the FASB issued an accounting standard update which requires companies to allocate revenue in multiple-element arrangements based on an element’s estimated selling price if vendor-specific or other third-party evidence of value is not available. The guidance is effective beginning January 1, 2011 with early application permitted. We are currently evaluating both the timing and the impact of the standard on our consolidated financial statements.

 

88


Table of Contents

BUSINESS

Industry Overview

We believe that more than 100 years after the invention of the internal combustion engine, incumbent automobile manufacturers are at a crossroads and face significant industry-wide challenges. The reliance on the gasoline-powered internal combustion engine as the principal automobile powertrain technology has raised environmental concerns, created dependence among industrialized and developing nations on oil largely imported from foreign nations and exposed consumers to volatile fuel prices. In addition, we believe the legacy investments made by incumbent automobile manufacturers in manufacturing and technology related to the internal combustion engine have to date inhibited rapid innovation in alternative fuel powertrain technologies. We believe these challenges offer an historic opportunity for companies with innovative electric powertrain technologies and that are unencumbered with legacy investments in the internal combustion engine to lead the next technological era of the automotive industry.

Growth in Demand for Electric Vehicles

We believe that the electrification of the automobile powertrain system is the most important innovation in modern automotive history. Electric propulsion offers the potential for improved performance and efficiency, and helps address many concerns related to the use of the internal combustion engine. We believe many consumers are increasingly willing to consider buying electric-based vehicles due to the environmental, economic and national security consequences of using gasoline-powered vehicles. As a result, we believe the market for electric vehicles is poised for significant growth as consumers continue to shift their preferences strongly toward more fuel efficient and lower emission vehicles.

We also believe government regulations and incentives are accelerating the growth of the electric vehicle market. Many governments in countries throughout the world are regulating vehicle emissions and fuel economy standards and offering incentives to consumers to purchase more energy efficient vehicles. For example, in 2009, the United States government enacted a $2.4 billion electric vehicle stimulus package with the goal of putting one million electric drive vehicles on the road by 2015. The United States government also recently increased fuel economy standards and offers consumer tax credits of up to $7,500 for the purchase of alternative fuel vehicles. In Europe, the European Union recently passed stricter vehicle emissions standards, several countries have instituted direct subsidies and significant tax exemptions for electric vehicles, and some cities exempt electric vehicles from congestion charges. In Asia, the Chinese government offers subsidies of up to approximately $8,800 per electric vehicle.

We believe shifting consumer preferences together with government regulation and incentives will result in significant growth in the market for electric vehicles. According to Frost & Sullivan, a business research and consulting firm, the market for electric-based vehicles, which includes electric vehicles, hybrid electric vehicles, and plug-in hybrid electric vehicles, is expected to grow to approximately 10.6 million units worldwide, or approximately 14% of new vehicles sold by 2015 from approximately 1.75 million units or 3% of new vehicles sold in 2008.

Incumbent Automobile Manufacturers Face Significant Challenges as They Pursue the Electric Vehicle Opportunity

We believe incumbent automobile manufacturers face significant challenges that will continue to inhibit their ability to capitalize on the electric vehicle opportunity. These challenges include:

 

   

Dependence on the Internal Combustion Engine . We believe many incumbent automobile manufacturers to date have failed to aggressively pursue alternative fuel vehicle programs because of their continued need to invest in internal combustion engine technologies that support their existing revenue base and core competencies. We believe incumbent automobile manufacturers have to date addressed shifting consumer preferences and stricter regulatory emissions and energy efficiency

 

89


Table of Contents
 

standards primarily by making incremental improvements to the internal combustion engine rather than by investing heavily in alternative fuel powertrain technologies. We believe incumbent automobile manufacturers will continue to focus on the internal combustion engine for the foreseeable future.

 

   

Limited Electric Powertrain Expertise . To date, incumbent automobile manufacturers have pursued multiple alternative fuel programs, including hydrogen fuel cell, hybrid and electric powertrain technologies. We believe that exploring such a diverse range of programs while simultaneously continuing to invest in the internal combustion engine has diluted their efforts to commercially develop a specific alternative fuel powertrain technology. In addition, in many instances they have outsourced critical components of the alternative fuel powertrain and vehicle system design to third parties. As a result, we believe incumbent automobile manufacturers currently have relatively limited electric powertrain expertise, especially with respect to sophisticated battery cooling, power, safety and management systems.

 

   

Profitability Pressures and Reduced Operating Flexibility . Many incumbent automobile manufacturers have recently faced deteriorating margins and liquidity, which we believe has significantly reduced their operating flexibility. Falling demand for internal combustion engine vehicles in recent periods, excess industry capacity, and shifting customer preferences toward smaller, more fuel efficient vehicles have reduced the gross margins and profitability at many incumbent automobile manufacturers. The resulting decline in profits at many incumbent automobile manufacturers has constrained their liquid capital resources. Moreover, incumbent automobile manufacturers generally rely on dealer franchises for sales and service, which requires them to share profits from vehicle sales, parts, and services. We believe these financial constraints of many incumbent automobile manufacturers will continue to limit their ability to invest in programs that they may not view as their core business.

 

   

Long and Expensive New Product Development Process . New product launches by incumbent automobile manufacturers from development to production are often lengthy and require significant capital investments. We believe the development process for an electric vehicle program could be particularly difficult for incumbent automobile manufacturers given their need to develop an entirely new powertrain and the sophisticated battery cooling, power, safety and management systems necessary to support such a program. For example, the development of the Toyota Prius and its hybrid powertrain took an estimated $1 billion and over four years and the continuing development of the Chevrolet Volt hybrid has been estimated to cost $750 million.

Challenges That Have Limited Consumers’ Adoption of Electric Vehicles

Despite the automobile industry’s challenges, incumbent automobile manufacturers have attempted over time to respond to shifting consumer desires and government mandates by incorporating limited elements of electric propulsion into their vehicles. However, we believe that due to their traditional focus on supporting and extending their existing internal combustion engine vehicle programs and their relatively limited electric powertrain expertise, incumbent automobile manufacturers have to date been unable to design and offer a commercially successful electric vehicle. Many challenges have slowed electric vehicle adoption to date, including:

 

   

Compromised Vehicle Design and Performance at a High Cost . Electric vehicles have historically incorporated battery cell chemistries such as lead acid, nickel cadmium, or nickel metal hydride that are expensive, bulky, and heavy per energy unit delivered, or per kilowatt-hour. We believe these cost, size, and weight constraints have restricted vehicle design, performance, functionality, and engineering, and have reduced the market appeal of these vehicles. For example, the size and efficiency constraints of General Motors’ EV1 battery limited the model to two seats and unconventional styling. Given these limitations, relatively few electric vehicles have been produced by the incumbent automobile manufacturers to date, and those that have been introduced are generally heavy and uneconomical, which we believe has restricted their appeal.

 

90


Table of Contents
   

Limited Vehicle Driving Range and Inconvenient Recharging Technology . To date, incumbent automobile manufacturers have been unable to commercially produce an electric vehicle with a claimed range in excess of 140 miles, and most vehicles introduced by incumbent automobile manufacturers have had effective ranges of 100 miles or less. Moreover, the absence of flexible charging capabilities onboard these vehicles has necessitated custom charging infrastructures or considerable recharging times, or both. We believe inconvenient charging options combined with range limitations have exacerbated consumers’ concerns with electric vehicles running out of power and the impracticalities of recharging these vehicles. We believe this “range anxiety” has undermined consumers’ views on the convenience and utility of electric vehicles and has significantly impacted demand for such vehicles.

Transitioning to Electric Vehicles

Incumbent automobile manufacturers have generally avoided introducing electric vehicles, focusing instead on incorporating electric propulsion into their vehicles through hybrid electric product lines. Although hybrid electric vehicles address some of the concerns associated with the historical reliance on the internal combustion engine, we believe they are a transitional technology between internal combustion engine vehicles and fully electric vehicles. The increased complexity and weight of the dual powertrain system inherent in hybrid and plug-in hybrid electric vehicles result in a less energy efficient vehicle, and as a result, these vehicles do not realize the full benefits of electric propulsion. Hybrid electric vehicles also require gasoline to run and produce emissions. Consequently, many hybrid electric vehicles have mile per gallon ratings that are only somewhat better than their internal combustion engine counterparts, while generally having limited performance. We believe that despite their limitations, the increasing popularity of hybrid electric vehicles demonstrates consumers’ desire for vehicles that can offer a solution to the concerns associated with the historical reliance on the internal combustion engine.

We believe incumbent automobile manufacturers have focused on hybrid electric vehicles in part because battery technology had not historically advanced to the point where it could provide consumers with an electric vehicle that has compelling range and performance. However, lithium-ion battery cells have improved in the last several years to provide higher energy density, or more energy per kilogram, at a lower cost per energy unit than competing battery cell chemistries. As a result, we believe that lithium-ion battery chemistry has now progressed to the point where it offers the opportunity to store enough energy to provide an electric vehicle with sufficient range and performance in many vehicle types to attract significant numbers of customers. Although storage characteristics of lithium-ion battery cell chemistries have improved, harnessing this energy into an electric vehicle requires an automobile manufacturer to develop sophisticated battery cooling, power, safety and management systems that have not been the focus of incumbent automobile manufacturers. Consequently, to date incumbent automobile manufacturers have not commercially mass produced vehicles with electric powertrain technology.

As a result of the focus by the incumbent automobile manufacturers on the internal combustion engine, the financial pressures they face and the technical hurdles to developing an electric vehicle program, we believe there is currently a significant opportunity for a new entrant that has an innovative electric powertrain technology and a business model unencumbered by the legacy challenges facing incumbent automobile manufacturers to be a leader in the global electric vehicle market.

Our Solution

We design, manufacture and sell high-performance fully electric vehicles and advanced electric vehicle powertrain components. We own our sales and service network and have operationally structured our business in a manner that we believe will enable us to rapidly develop and launch advanced electric vehicles and technologies. We believe our vehicles and operational structure differentiates us from incumbent automobile manufacturers.

 

91


Table of Contents

We are the first and currently only company to commercially produce a federally-compliant electric vehicle, the Tesla Roadster, which achieves a market-leading range on a single charge combined with attractive design, driving performance and zero tailpipe emissions. We have accomplished this in our Tesla Roadster, a vehicle that offers impressive acceleration and performance without producing any tailpipe emissions. The foundation of our business is our proprietary electric vehicle powertrain system that has enabled us to produce the Tesla Roadster and will also form the basis for our Model S sedan which is currently scheduled to begin production in 2012. In addition, we are expanding the sale of our electric powertrain components to other automotive manufacturers as evidenced by the start of the sale of our battery packs and chargers to Daimler AG, or Daimler, beginning in November 2009.

We sell and service our Tesla Roadster though our company-owned sales and service network, and intend to do the same for our planned future vehicles. We believe the feedback and data we collect from our sales and service operations, combined with our product design based on common platforms and software based controls of our powertrain, will enable us to rapidly and cost effectively introduce and improve our products. We believe that this approach provides us with a competitive advantage as compared to incumbent automobile manufacturers.

Our first vehicle, the Tesla Roadster, can accelerate from zero to 60 miles per hour in 3.9 seconds and has a maximum speed of approximately 120 miles per hour. The recently introduced Roadster Sport version can accelerate from zero to 60 miles per hour in 3.7 seconds. The Tesla Roadster has a range of 236 miles on a single charge, as determined by an independent third party using the United States Environmental Protection Agency’s, or EPA’s, combined two-cycle city/highway test. Recently, the EPA announced its intention to develop and establish new energy efficiency testing methodologies for electric vehicles, which we believe could result in a significant decrease to the advertised ranges of all electric vehicles, including ours. The Tesla Roadster has a range that is almost double that of any other commercially released electric vehicle and reportedly set a new world distance record of 313 miles for a production electric car in a rally across Australia as part of the 2009 Global Green Challenge. The current effective price of the base configuration of the Tesla Roadster is $101,500 in the United States, assuming and after giving effect to the continuation of a currently available United States federal tax credit of $7,500 for the purchase of alternative fuel vehicles. The Tesla Roadster is currently in production, and as of December 31, 2009, we had sold 937 Tesla Roadsters to customers in 18 countries, almost all of which were sold in the United States and Europe. As of December 31, 2009, our customers had driven the Tesla Roadster for an estimated 3.0 million miles. We have developed extensive software systems to manage the overall efficiency, safety and controls within our vehicles. Additionally, we have met battery shipping and testing protocols of the United Nations, United States Department of Transportation and other government agencies, allowing us to ship the Tesla Roadster to a number of countries throughout the world.

We announced our second electric vehicle, the Model S, with the public reveal of a drivable early prototype in March 2009. We currently plan to begin production of the Model S in 2012. We are designing a highly functional, four-door sedan which seats five adults and has attractive styling. As a fully electric vehicle, the Model S will produce zero tailpipe emissions while accelerating from zero to 60 miles per hour in a targeted time of under 6 seconds. We currently anticipate introducing the base Model S at an effective price of $49,900 in the United States, assuming and after giving effect to the continuation of a United States federal tax credit of $7,500 for the purchase of alternative fuel vehicles. Even without the tax credit, we believe the base list price will be competitive from a pricing perspective with other premium sedans. We are designing the Model S to offer a variety of range options from 160 miles to 300 miles on a single charge, as projected using the EPA’s combined two-cycle city/highway test. The EPA has announced its intention to develop and establish new energy efficiency testing methodologies for electric vehicles, which we believe could result in a significant decrease to the advertised ranges of all electric vehicles, including ours. We also plan to offer the capability to fast charge in as little as forty-five minutes at commercial charging stations that we anticipate may be available in the future and to rapidly swap out its battery pack at a specialized commercial battery exchange facility to complement its range capabilities. We believe that the Model S will demonstrate our ability to produce increasingly affordable electric vehicles that offer long range capabilities and uncompromised performance, energy efficiency, convenience and design.

 

92


Table of Contents

We are designing the Model S for a significantly broader customer base than the Tesla Roadster. Accordingly, we currently intend to target an annual production rate of up to approximately 20,000 cars per year. The drivable early prototype of the Model S was revealed to the public in March 2009 and as of December 31, 2009, approximately 2,000 customers reserved and paid a refundable reservation payment of at least $5,000 for the purchase of the Model S. We have entered into our loan facility from the United States Department of Energy, or DOE Loan Facility, for a $465.0 million loan, $363.9 million of which is intended for the continued development of the Model S and the build out of our planned Model S manufacturing facility.

 

LOGO    LOGO
Tesla Roadster    Tesla Model S

The electric powertrain we developed for the Tesla Roadster has provided the foundational technology for our planned Model S and for electric powertrain components that we have begun selling to Daimler. Our electric powertrain consists of only three physical components: our modular battery pack, our power electronics module and our motor. This component design contains far fewer moving parts than a gasoline powertrain. These features enable us to adapt it for a variety of vehicle applications. The Tesla Roadster electric powertrain will be the basis of the Model S powertrain, with design enhancements. Similarly, using the existing Tesla Roadster battery pack, we have worked with Daimler since June 2008 to develop a battery pack and charging system for an initial trial of the Smart fortwo electric drive vehicle pilot program in five European cities. We intend to expand this business by developing and selling additional powertrain components to Daimler and other third party OEMs, and have secured $101.2 million of an aggregate $465.0 million from our DOE Loan Facility to fund the infrastructure for this business. We believe that our development efforts in our powertrain business will enable us to advance our technology and rapidly and cost effectively develop vehicles.

Our battery pack and electric powertrain system has enabled us to deliver market-leading range capability on the Tesla Roadster at what we believe is a compelling battery cost per kilowatt-hour. The battery pack of the Tesla Roadster uses commercially available lithium-ion battery cells and contains 53 kilowatt-hours of usable energy, almost double the energy of any other commercially available electric vehicle battery pack, thereby significantly increasing its range capability. Designing an electric powertrain and a vehicle to exploit its energy efficiency has required extensive safety testing and innovation in battery packs, motors, powertrain systems and vehicle engineering. Our proprietary technology includes cooling systems, safety systems, battery engineering for vibration and environmental durability, customized motor design, and the software and electronics management systems necessary to manage battery and vehicle performance under demanding real-life driving conditions. These technology innovations have resulted in an extensive intellectual property portfolio.

We are designing our vehicles to enable the cost effective development of our future vehicles. First, our battery pack is based on commodity battery cells placed in modules that we believe will form the basis of later generations of our battery packs, such as those we are developing for the Model S and the Smart fortwo electric drive. Second, we use upgradeable software extensively for managing vehicle performance and the driver experience. Finally, we are designing a common platform architecture for the Model S, which compactly positions the battery pack, motor and other elements of our powertrain within the frame of the vehicle. We

 

93


Table of Contents

believe this architecture will form the basis of several future vehicles and enable us to efficiently and cost-effectively launch new vehicle models in the future.

Our design capabilities and the technical advancements of our powertrain system have enabled us to design and develop zero tailpipe emission vehicles that we believe overcome the design, styling, and performance issues that we believe have historically limited broad consumer adoption of electric vehicles. As a result, we believe our Tesla Roadster customers enjoy, and Model S customers will enjoy, several benefits, including:

 

   

Long Range and Recharging Flexibility . The range of the Tesla Roadster is almost double the range of any other commercially available electric vehicle. We are designing the Model S to offer an even greater range option. In addition, the Tesla Roadster incorporates our proprietary on-board charging system, permitting recharging from almost any available electrical outlet, and we are designing the Model S to offer fast charging capability from higher power electrical outlets. We believe the long range and charging flexibility of our vehicles will help reduce consumer anxiety over range, alleviate the need for expensive, large-scale charging infrastructure, and differentiate our vehicles as compared to our competitors’ currently announced electric vehicle product offerings.

 

   

Energy Efficiency and Cost of Ownership . We believe our Tesla Roadster offers and our planned Model S will offer consumers an attractive cost of ownership when compared to similar internal combustion engine or hybrid electric vehicles. Using only a single electric powertrain enables us to create a lighter, more energy efficient vehicle that is mechanically simpler than currently available hybrid or internal combustion engine vehicles. For example, assuming a 236 mile range of the Tesla Roadster, an average electricity cost of 11.0 cents per kilowatt-hour and an average gasoline price of $2.61 per gallon, which were the average electricity cost and gasoline price in the United States, respectively, as of December 31, 2009, the cost per mile to fuel the Tesla Roadster is approximately 75% less than the cost to fuel the 2009 Porsche 911 Carrera, which has an EPA mileage rating of 18 miles per gallon city and 25 miles per gallon highway. Furthermore, we expect our electric vehicles will have lower relative maintenance costs than hybrid, plug-in hybrid, or internal combustion engine vehicles due to fewer moving parts and the absence of certain components, including oil, oil filters, spark plugs, and engine valves. Additionally, government incentives that are currently available can reduce the cost of ownership even further.

 

   

High-Performance Without Compromised Design or Functionality . We believe we have been able to successfully overcome the design and performance tradeoff issues that encumbered most early electric vehicle designs. We believe the Tesla Roadster delivers an unparalleled driving experience with instantaneous and sustained acceleration through an extended range of speed. In addition, our planned Model S is being designed to seat five adults, provide best in class storage in the trunk and hood while offering design and performance comparable to, or better than, other premium sedans.

Our Competitive Strengths

We believe the following combination of capabilities and features of our business model distinguish us from our competitors and position us well to capitalize on the expected growth in the electric vehicle market:

 

   

Singular Focus and Leadership in Electric Powertrain Technology . With the introduction of the Tesla Roadster, we believe we demonstrated that performance, range, and efficiency can be achieved at an attractive energy cost per mile without compromising vehicle styling and the overall driving experience. We have spent over five years developing and optimizing our proprietary electric powertrain technology and its interaction with vehicle systems to achieve this compelling combination of range and performance. We have expertise in electrical engineering, thermal management, battery system design, battery cell testing and evaluation and electric vehicle safety and durability, as well as in the software systems and controls that govern the entire electric powertrain system. We are focused

 

94


Table of Contents
 

exclusively on developing our electric powertrain technology and, unlike many incumbent automobile manufacturers, we do not have to allocate financial and operational resources to support legacy investments in the internal combustion engine.

 

   

Combination of Expertise from Silicon Valley and the Traditional Automotive Industry . Our roots in Silicon Valley have enabled us to recruit engineers with strong skills in electrical engineering, software, and controls, and are further complemented by other members of our team with significant automotive expertise in vehicle engineering and manufacturing. Accordingly, we believe our team of engineers and managers combines the culture of innovation, rapid product development and flexible processes of leading technology companies with the operational experience of leading automotive companies.

 

   

Proprietary Systems Integration of Vehicle and Electric Powertrain . The commercial production of a highway capable, fully electric vehicle that meets consumers’ range and performance expectations required substantial design, engineering, and integration work on almost every system of our Tesla Roadster. We designed several vehicle systems, including the body, chassis, heating and cooling, low voltage electrics, power electronics, and software specifically for our Tesla Roadster. For example, controlling and managing the components of our powertrain to make driving an electric vehicle feel intuitive and responsive to driver demands required substantial software development. As a result, we believe we have developed significant vehicle engineering and integration expertise. Our ability to combine expertise in electric powertrain and vehicle engineering provides a broad capability in electric vehicle design and systems integration.

 

   

Rapid Customer Focused Product Development . We have designed our vehicles and business to quickly capture customer feedback and channel it to product development. We have also designed our product development process to use such data and customer feedback to rapidly introduce new features and designs. Our vehicles log usability data as soon as a customer begins driving, and we collect and supplement it with feedback from our company-owned sales and service operations. Since the performance of our electric powertrain is governed by control software, we believe we can quickly fine-tune our vehicles in response to this data. For example, within nine months of the Tesla Roadster’s commercial introduction, we launched a much improved Tesla Roadster 2, as well as a higher performance variant, the Tesla Roadster Sport.

 

   

Ownership of Sales and Service Network . We believe that by owning our own sales and service network we can offer a compelling customer experience while achieving operating efficiencies and capturing sales and service revenues incumbent automobile manufacturers do not enjoy in the traditional franchised distribution and service model. We believe we will also be able to better control costs of inventory, manage warranty service and pricing, maintain and strengthen the Tesla brand, and obtain rapid customer feedback. Further, we believe we will avoid the conflict of interest in the traditional dealership structure inherent to most incumbent automobile manufacturers where the sale of warranty parts and repairs by a dealer are a key source of revenue and profit for the dealer but often are an expense for the vehicle manufacturer. Our Tesla stores do not carry large vehicle inventories and, as a result, do not require corresponding large floor spaces. As a result, we believe we can efficiently and cost-effectively build out our sales and service network.

 

   

Brand Leadership . As the first company to commercially produce a high-performance, highway-capable fully electric vehicle, we have received substantial media attention. We believe the Tesla brand is well recognized in our target market, despite limited marketing spending by us to date. An independent third-party study completed in 2008 of over 4,000 consumers indicated that the average consumer would be more likely to buy an electric vehicle from Tesla than any other brand but Toyota/Lexus. Since that time, we believe the presence of more Tesla Roadsters on the road and increasing media attention has further strengthened the Tesla brand. In November 2009, Advertising Age provided further testament to our brand strength by selecting us as one of “America’s hottest brands” in a special report highlighting the year’s 50 top brands. We believe the strength of the Tesla brand value will

 

95


Table of Contents
 

result in strong consumer interest and loyalty, strong positioning as a premium electric vehicle and reduced competitive pricing pressure.

 

   

Substantial Funding in Place to Accelerate Growth . We have entered into our DOE Loan Facility for a $465.0 million loan and we have been granted up to approximately $31 million in tax incentives by the California Alternative Energy and Advanced Transportation Financing Authority. We believe these loans and incentives will help accelerate the time to volume production for both the Model S and our electric powertrain business. In addition, we believe these loans and incentives provide us long-term financing that should enable us to focus more of our resources on the execution of our business plans.

 

   

Capital Efficiency . We believe our rapid product development process, our modular and adaptable powertrain, our plan to design and manufacture multiple product types on a singular platform, and our ability to hold lower inventory levels while still meeting customer demand will help reduce the capital required to reach operating efficiencies. This approach is designed with the aim of allowing us to achieve profitability at relatively low volumes and create a viable long-term business.

Our Strategy

We intend to be a leading global manufacturer and direct seller of electric vehicles and electric vehicle technologies. Key elements of our strategy include:

 

   

Successful Launch of the Model S . We believe the successful launch of the Model S is critical to our ability to capitalize on the expanding electric vehicle market opportunity. We are currently executing a detailed plan to finish the design and engineering of, and component sourcing for, the Model S and to develop the manufacturing facility and equipment to support its production. Our plan reflects a combination of what we believe are best practices from multiple industries and our experience from developing, manufacturing and marketing the Tesla Roadster. We are using advanced computer-aided design and crash simulations and concurrently engineering multiple vehicle systems which we anticipate will help speed development and enhance the safety of the Model S. Additionally, we believe our continued development of the Tesla Roadster for multiple international markets and the expansion of our retail presence in select countries around the globe will help us successfully certify, sell and distribute the Model S in these markets.

 

   

Use a Common Platform to Introduce New Models . We intend to design the Model S with an adaptable platform architecture and common electric powertrain that we can use to create future electric vehicle models, such as a sport utility vehicle, a cargo van or a coupe. We believe this strategy will enable us to introduce future models faster and in a more capital efficient manner than incumbent automobile manufacturers have been able to achieve in introducing traditional internal combustion vehicles.

 

   

Develop Integrated Engineering and Manufacturing Capabilities . We intend to identify a site to locate a substantially integrated electric vehicle manufacturing facility to manufacture components that are critical to our intellectual property and production of the Model S. We intend for our design, vehicle engineering, and manufacturing teams to work alongside one another in an effort to accelerate the Model S development. We also intend to design flexibility into our manufacturing facility so that we can produce multiple vehicle models on the Model S platform at high volumes on the same line. We believe that owning and operating integrated engineering and manufacturing facilities will enable us to maintain high quality control standards, and achieve cost efficiencies in our operations. In addition to developing our vehicle manufacturing facility, we are in the process of expanding our electric powertrain manufacturing facility in Palo Alto, California, which will focus on the design and manufacture of lithium-ion battery packs, electric motors and components both for our vehicles and for our original equipment manufacturer customers.

 

   

Continue to Focus on Technological Advancement and Cost Improvement . We have been able to achieve technological and design improvements in the production of the Tesla Roadster while simultaneously reducing manufacturing costs. We intend to continue to invest in technological

 

96


Table of Contents
 

innovation to further advance our proprietary electric powertrain system and the safety, reliability, range capabilities and functionality of our vehicles.

 

   

Expand our Company-Owned Sales and Service Network . As of December 31, 2009, we had opened 10 Tesla owned stores in the United States and Europe, located in Boulder, Chicago, Los Angeles, Menlo Park, Miami, New York, Seattle, London, Monaco and Munich. We plan to nearly double the number of Tesla stores opened by the end of 2010, with a goal of establishing approximately 50 stores globally within the next several years in connection with the planned Model S rollout. In addition, we intend to grow the Tesla Rangers mobile service program, which will enable our service technicians to travel to and service our customers’ vehicles in more geographic areas throughout the United States.

 

   

Leverage Industry Advancements in Battery Cells . We intend to leverage the substantial battery cell investments and advancements being made globally by battery cell manufacturers to continue to improve the cost per kilowatt-hour of our battery pack. To this end, we have designed our powertrain technology to permit flexibility with respect to battery cell chemistry, form factor and vendor. We believe our ability to change battery cell chemistries and vendors to benefit from improvements in battery cell technologies while retaining our existing investments in battery pack management, software, electronics, testing and vehicle packaging will enable us to quickly deploy advances in battery cells into our products and leverage the most current battery cell technology.

 

   

Build and Leverage Strategic Relationships . We intend to seek and develop strategic relationships with industry leaders to launch our electric vehicles and sell our electric vehicle powertrain components. For example, we collaborated with Daimler on the production of the battery pack for their Smart fortwo electric vehicle pilot program. We are also establishing strategic relationships with battery cell vendors who are leaders in the industry for advanced chemistries, high volume production and low cost manufacturing. We believe these and similar potential strategic relationships will enable us to efficiently expand our business while leveraging the expertise and knowledge of the automotive and related industries.

Our Vehicles and Products

We currently design, manufacture and sell the Tesla Roadster, our first production vehicle. We are designing our second vehicle, the Model S, and currently plan to begin production of the Model S in 2012. We intend to design the Model S with an adaptable platform architecture and common electric powertrain so that we can use the platform of the Model S to create future electric vehicles targeting additional segments of the passenger vehicle market.

The Tesla Roadster

Our first vehicle, the Tesla Roadster, is the first high-performance electric sports car and the only highway-capable electric vehicle available in the United States today. The two-seat, convertible Tesla Roadster has a combination of range, style, performance and energy efficiency that we believe is unmatched in the market today. As of December 31, 2009, we had sold 937 Tesla Roadsters to customers in 18 countries, almost all of which were sold to customers in North America and Europe, 107 of which were sold in the year ended December 31, 2008. As of December 31, 2009, our customers had driven the Tesla Roadster for an estimated 3.0 million miles. The Tesla Roadster complies with, or is exempt from, all applicable vehicle safety standards in the United States, the European Union as well as select other countries. Additionally, we have met battery shipping and testing protocols of the United Nations, United States Department of Transportation and other government agencies, allowing us to ship the Tesla Roadster to a number of countries throughout the world.

The current effective price of the base configuration of the Tesla Roadster is $101,500 in the United States, assuming and after giving effect to the continuation of a currently available United States federal tax credit of $7,500 for the purchase of alternative fuel vehicles. The Tesla Roadster offers performance characteristics that

 

97


Table of Contents

we believe are among the best in the industry. It can accelerate from zero to 60 miles per hour in 3.9 seconds and has a maximum speed of approximately 120 miles per hour. We believe the Tesla Roadster’s lightweight and proprietary electric powertrain provides significant performance advantages over traditional internal combustion engine-powered sports cars. Specifically, the electric powertrain that delivers peak torque (in excess of 200 foot pounds) at extremely low revolutions per minute, or rpm, and remains near peak through 7,000 rpm of the 13,000 rpm range enables the Tesla Roadster to achieve its high levels of acceleration. With such a long and flat torque curve, we believe the Tesla Roadster delivers a compelling driving experience with instantaneous and sustained acceleration through an extended range of speed.

The Tesla Roadster combines this performance with high energy efficiency. The Tesla Roadster has a battery pack capable of storing approximately 53 kilowatt-hours of usable energy, almost double the energy of any other commercially available electric vehicle battery pack and has a range of 236 miles on a single charge, as determined by an independent third party using the United States Environmental Protection Agency’s, or EPA’s, combined two-cycle city/highway test. Recently, the EPA announced its intention to introduce and establish new energy efficiency testing methodologies for electric vehicles, which we believe could result in a significant decrease to the advertised ranges of all electric vehicles, including ours. The Tesla Roadster reportedly set a new world distance record of 313 miles for a production electric car in a rally across Australia as part of the 2009 Global Green Challenge. Assuming a 236 mile range of the Tesla Roadster and an electricity cost of 11.0 cents per kilowatt-hour, which was the average residential electricity cost in the United States as of December 31, 2009, the energy cost of powering the Tesla Roadster is approximately 3.4 cents per mile. In comparison, assuming an average gasoline price of $2.61 per gallon, which was the average price per gallon in the United States as of December 31, 2009, the 2010 Toyota Prius has a fuel cost of approximately 5.2 cents per mile and the 2009 Porsche 911 Carrera has a fuel cost of approximately 12.3 cents per mile. We believe these energy cost differences would be greater in Europe where gasoline prices can be almost three times higher than in the United States.

We have continued to rapidly develop the Tesla Roadster since its introduction. In June 2009, nine months after its commercial introduction, we launched the 2010 Tesla Roadster, known as the Tesla Roadster 2, as well as a high-performance variant, the Tesla Roadster Sport. As compared to the original Tesla Roadster, the Tesla Roadster 2 delivered a higher quality interior, a new push-button gear selector, improved heating and cooling performance, a more powerful electric powertrain, and improved noise reduction. New optional features were also added including clear coat carbon fiber trim for the exterior and interior, an adjustable suspension and improved vehicle data connectivity via a GSM module. In addition to making these enhancements, we simultaneously reduced our manufacturing costs significantly by making a number of modifications, including redesigning our power electronics module and switching to certain commodity components in our manufacturing process. The Tesla Roadster Sport offers a higher performance powertrain which improves acceleration from 0 to 60 miles per hour from 3.9 seconds to 3.7 seconds, adjustable suspension and performance tires and forged wheels, all without compromising the efficiency of the Tesla Roadster electric powertrain. The current effective price of the base configuration of the Tesla Roadster is $101,500 in the United States and the current effective price of the base configuration of the Tesla Roadster Sport is $121,000 in the United States, in each case assuming and after giving effect to the continuation of a currently available United States federal tax credit of $7,500 for the purchase of alternative fuel vehicles. We delivered our first right-hand drive version of the Tesla Roadster in January 2010, enabling the eventual introduction of the Tesla Roadster into new key markets such as Japan, Hong Kong, and Australia. We also believe the right-hand drive version will allow us to further penetrate certain existing markets such as the United Kingdom.

The Tesla Model S

Our planned second vehicle, the Model S, is currently expected to begin production in 2012. We intend to leverage the electric powertrain of the Tesla Roadster to create a four-door, five adult passenger sedan that produces zero tailpipe emissions while accelerating from zero to 60 miles per hour in a targeted time of under 6 seconds. The drivable early prototype of the Model S was revealed to the public in March 2009 and as of December 31, 2009, we had received approximately 2,000 customer reservations with a minimum refundable

 

98


Table of Contents

payment of $5,000. We intend to make the Model S available with three range variants – 160 miles, 230 miles, and 300 miles, on a single charge, as projected using the EPA’s combined city/highway test cycles – to allow customers to purchase an electric vehicle that best matches their personal driving needs. We are designing the Model S to include a third row with two rear-facing child seats, subject to applicable safety regulations and requirements, allowing us to offer a seven passenger sedan. The EPA has announced its intention to develop and establish new energy efficiency testing methodologies for electric vehicles, which we believe could result in a significant decrease to the advertised ranges of all electric vehicles, including ours.

To complement its range capabilities, we also plan to offer the Model S with a package of recharging options, including the capability to fast charge in as little as forty-five minutes at commercial charging stations that we anticipate may be available in the future. This feature would offer consumers a rapid and convenient way to recharge their vehicles. In addition, we are designing the Model S to incorporate a modular battery pack in the floor of the vehicle, enabling it to be rapidly swapped out at a specialized commercial battery exchange facility. We are designing the Model S to offer a compelling combination of functionality, convenience and styling without compromising performance and energy efficiency. With the battery pack in the floor of the vehicle and the motor and gearbox in line with the rear axle, we are designing the Model S to provide best in class storage space of approximately 26 cubic feet, including storage under both the tailgate and the hood. By way of comparison, this storage space exceeds the approximately 14 cubic feet of storage available in the 2009 BMW 5 Series sedan and the approximately 21 cubic feet of storage available in the 2009 Lincoln Town Car. We are also planning to equip the Model S with premium luxury features, including a 17” touch screen driver interface, advanced wireless connectivity, and driver customization of the infotainment and climate control systems of the vehicle. We believe the intended combination of performance, styling, convenience and energy efficiency of the Model S will help position it as a compelling alternative to other vehicles in the luxury and performance segments.

We currently anticipate introducing the base Model S at an effective price of $49,900 in the United States, assuming and after giving effect to the continuation of a United States federal tax credit of $7,500 for the purchase of alternative fuel vehicles. Even without the tax credit, we believe the base list price will be competitive with other premium sedans. We have not finalized pricing for the 230 or 300 mile range variants of the Model S.

We are designing the Model S to provide a lower cost of ownership as compared to other vehicles in its class. We consider the purchase price, cost of fuel, and the cost of maintenance over a six year ownership period in this calculation. We assume comparable residual values, warranties, insurance costs and promotions and assume that currently available consumer incentives are still available at the time of a Model S purchase. In addition to the competitive pricing of the Model S relative to other premium sedans, we estimate that customers of electric vehicles will enjoy lower fuel costs. For example, assuming an average of 12,000 miles driven per year, an average electricity cost of 11.0 cents per kilowatt-hour and an average gasoline price of $2.61 per gallon over the full ownership of the vehicle, which were the average electricity cost and gasoline price in the United States, respectively, as of December 31, 2009, and based on our estimate of the energy efficiency of the Model S, we estimate that our planned Model S could have approximately $1,300 per year less in fuel costs than a comparable premium internal combustion engine sedan. Furthermore, we expect the planned Model S will have a lower maintenance costs than comparable premium internal combustion engine sedans due to fewer moving parts and the absence of certain components, including oil, oil filters, spark plugs, and engine valves.

Future Vehicle Roadmap Based on Model S Platform

We intend to design the Model S with an adaptable platform architecture and common electric powertrain so that we can use the platform of the Model S to create future electric vehicle models, such as a sport utility vehicle, a cargo van or a coupe. In particular, by designing our electric powertrain within the chassis to accommodate different vehicle body styles, we believe that we can save significant time in future vehicle development. In addition, we believe our strategy of using commercially available battery cells will enable us to leverage improvements in cell chemistries and rapidly introduce models of our Tesla Roadster and planned

 

99


Table of Contents

vehicles with different range options. Our design of the Model S, however, is not complete and we may make changes to the design of the Model S, including changes that may make it more difficult to use the Model S platform for future vehicles.

Powertrain Development and Sales

In May 2009, we entered into a development agreement with Daimler under which we performed specified research and development services for the development of a battery pack and charger for Daimler’s Smart fortwo electric drive. All development work related to the development agreement had been completed as of December 31, 2009. We have been selected by Daimler to supply it with up to 1,000 battery packs and chargers to support a trial of the Smart fortwo electric drive in five European cities. We began shipping the first of these battery packs and chargers in November 2009 and started to recognize revenue for these sales in the quarter ended December 31, 2009.

We intend to develop our electric powertrain component and systems business and have secured a $101.2 million loan under our DOE Loan Facility for the expansion of our engineering and production capability for this business in our Palo Alto facility. We anticipate our new facility will enable us to provide research and development services, including cell and component testing and prototyping, as well as produce powertrain components for sales to third parties. We also intend to centralize production of the battery pack and the motor for the Tesla Roadster at this facility so that we can efficiently share further powertrain innovations among the components for our vehicles as well as those of our customers.

Technology

We believe the core competency of our company and our core intellectual property is contained within our electric powertrain. This powertrain is fundamentally composed of four major elements: a modular battery pack, a power electronics module, a motor and the control software which enables the components to operate as a system. We designed each of these major elements for our Tesla Roadster and plan to use much of this technology in the Model S and our future electric vehicles. Our powertrain and battery pack have a modular design, enabling future generations of electric vehicles to incorporate a significant amount of this technology. Further, our powertrain is very compact and contains far fewer moving parts than the internal combustion powertrain. These features enable us to adapt it for a variety of applications, including our future vehicles and any powertrain components we build for other manufacturers.

From time to time, we intend to enter into development arrangements with other automobile manufacturers for electric powertrain development activities. From inception through September 30, 2009, our powertrain development activities have been exclusively pursuant to a development arrangement entered into in the year ended December 31, 2008 which was formalized pursuant to an agreement entered into in May 2009 with Daimler related to the development of a battery pack and charger for Daimler’s Smart fortwo electric drive. All amounts received under this development agreement are being recognized as an offset to research and development expenses in the consolidated statement of operations. In the fiscal years ended December 31, 2006, 2007 and 2008 and the nine months ended September 30, 2009, our research and development expenses were $25.0 million, $62.8 million, $53.7 million and $11.1 million, respectively after such offsets. As of December 31, 2009 all development work related to the development agreement had been completed and we expect that the full $23.2 million under the development agreement will be recognized in the quarter ended December 31, 2009.

As of December 31, 2009, we had 120 employees in our research and development department.

Battery Pack

We have designed our battery pack to have a life of over 100,000 miles. In addition, we have designed the battery pack to be modular so that it can be used in more than one vehicle. For example, the Tesla Roadster

 

100


Table of Contents

battery pack contains 6,831 lithium-ion cells, each similar to the 6 to 12 cells (made by third party lithium-ion cell providers) found in many standard laptop computers. The cells, in turn, are housed in 11 modules. The battery pack contains 53 kilowatt-hours of usable energy, almost double the energy of any other commercially available electric vehicle battery pack, thereby significantly increasing vehicle range capability. Designing an electric powertrain and a vehicle to exploit its energy efficiency has required extensive safety testing and innovation in battery packs, motors, powertrain systems and vehicle engineering. Our proprietary technology includes cooling systems, safety systems, battery engineering for vibration and environmental durability, robotic manufacturing processes, customized motor design, and the software and electronics management systems necessary to manage battery and vehicle performance under demanding real-life driving conditions. We have significant experience and expertise in the safety and management systems needed to work with lithium-ion cells in the demanding automotive environment. We believe these advancements have enabled us to produce a battery pack at a low cost per kilowatt-hour. As of December 31, 2009, our customers had driven the Tesla Roadster for an estimated 3.0 million miles.

We believe one of our core competencies is the design of our complete battery pack system. We have designed our battery pack system to permit flexibility with respect to battery cell chemistry, form factor and vendor that we adopt for battery cell supply. We maintain an internal battery cell testing lab and an extensive performance database of the many available lithium-ion cell vendors and chemistry types. We intend to incorporate the battery cells that provide the best value and performance possible into our battery packs, and we expect this to continue over time as battery cells continue to improve in energy storage capacity, longevity, power delivery and cost. We believe this flexibility will enable us to continue to evaluate new battery cells as they become commercially viable, and thereby optimize battery pack system performance and cost for our current and future vehicles. We believe our ability to change battery cell chemistries and vendors while retaining our existing investments in software, electronics, testing and vehicle packaging, will enable us to quickly deploy various battery cells into our products and leverage the latest advancements in battery cell technology.

The range of our electric vehicles on a single charge declines principally as a function of usage, time and charging patterns. For example, a customer’s use of their Tesla vehicle as well as the frequency with which they charge the battery of their Tesla vehicle can result in additional deterioration of the battery’s ability to hold a charge. We currently expect that our battery pack will retain approximately 60-65% of its ability to hold its initial charge after approximately 100,000 miles or 7 years, which will result in a decrease to the vehicle’s initial range.

To date, we have tested hundreds of battery cells of different chemistries, form factors and designs. Based on this evaluation, we are presently using lithium-ion battery cells based on the 18650 form factor in the Tesla Roadster. These battery cells are commercially available in large quantities. We currently intend to use the same battery cell form factor in the Model S.

Power Electronics Module

The power electronics module, or PEM, has two primary functions, the control of torque generation in the motor while driving and the control of energy delivery back into the battery pack while charging. Since our powertrains today use alternating current 3-phase induction motors, we need to create alternating current and voltage from the direct current that the battery provides. The PEM performs this function both when charging and discharging the battery.

Inside of the PEM are two distinct areas, the power section or “engine room” and the command and control section. We believe we have made significant innovations in each area. We have designed the command and control section to use a high-performance digital signal processor which runs some of the most complicated and detailed software in the vehicle.

We believe another significant innovation in our PEM is our ability to combine the battery charger into the same unit as the motor controller. This is not simply putting two separate systems into the same box as is the case

 

101


Table of Contents

with some other powertrains. Instead, we have reconfigured the same hardware and have used software to accomplish this reconfiguration. By combining these functions we are able to carry a high-power charger onboard the vehicle with no significant extra cost or weight. This enables us to use any available source of power to charge our vehicle. Our vehicles can recharge on any electrical outlet from a common outlet of 15 amps and 120 volts all the way up to a high power outlet of 70 amps and 240 volts, which provides optimal recharging.

Since the Tesla Roadster charger system is built into the vehicle, it is possible to charge the vehicle using a variety of power outlets. Charging the Tesla Roadster battery pack to full capacity will take approximately 9 hours using a 240 volt, 30 amp outlet that is widely available in many homes in the United States for electric appliances. A high power connection capable of 240 volts and 70 amps reduces this charging time to about 4.5 hours. Such a connection can be installed in many homes with the assistance of a qualified electrician. For additional flexibility, the Tesla Roadster battery pack can also be charged with a 120 volt, 15 amp connection. Using this lower power output, the Tesla Roadster battery pack can be charged to full capacity in about 42 hours. This flexibility in charging provides customers with additional mobility, while also allowing them to conveniently charge the vehicle overnight at home.

For the Model S, we plan to offer a fast charge option that will enable the vehicle to charge from higher amperage, higher voltage commercial charging stations that we anticipate may be available in the future.

Motor

Our powertrains currently use custom designed 3-phase induction motors. We believe we have made several important innovations in our motor design that minimize mass while still providing high power and efficiency. Our motors incorporate a proprietary fabricated copper rotor design. Our motors also include optimized winding patterns that allow for easy manufacture and fit in as much copper as possible to reduce resistance and energy losses.

We also use high-quality bearings and precision balancing on the rotor and shaft to enable the spin of the motor up to 13,000 revolutions per minute, or rpm, in normal operation. Combining this very high rpm rating with an instantaneous stall torque of over 200 foot pounds gives a broad torque-speed map that allows a single speed gearbox to deliver high vehicle performance.

Control Software

The performance and safety systems of the Tesla Roadster and its battery required the development of sophisticated control software. There are numerous processors in the Tesla Roadster to control these functions, and we write custom firmware for many of these processors. The flow of electricity between the battery pack and the motor must be tightly controlled in order to deliver the performance and behavior expected in the vehicle. For example, software algorithms enable the vehicle to mimic the “creep” feeling which drivers expect from an internal combustion engine vehicle without having to apply pressure on the accelerator. Similar algorithms control traction, vehicle stability and the sustained acceleration and regenerative braking of the vehicle. Drivers use the information systems in the Tesla Roadster to optimize performance and charging modes and times. Software also is used extensively to monitor the charge state of each of the cells of the battery pack and to manage all of its safety systems.

We plan to leverage our investment in software for the development of the Model S. In addition to the vehicle control software, we also intend to develop software for the infotainment system of the Model S.

Vehicle Design and Engineering

In addition to the design and development of the powertrain, we have created significant in-house capabilities in the design and engineering of electric vehicles and electric vehicle components and systems. We

 

102


Table of Contents

design and engineer bodies, chassis, interiors, heating and cooling and low voltage electrical systems in house and to a lesser extent in conjunction with our suppliers. We are building core competencies in computer aided design and crash test simulations which we expect to reduce the product development time of new models.

Several traditional automotive subsystems required substantial redesign and custom optimization to integrate with the powertrain of an electric vehicle. For example, the heating, ventilation, and air conditioning, or HVAC, system was redesigned to integrate with the battery thermal management system and to operate without the energy generated from an internal combustion engine. In addition, low voltage electric systems which power features such as the radio, power windows, and heated seats also needed to be designed specifically for use in an electric vehicle. We have developed expertise in integrating these components with the high-voltage power source in the vehicle and in designing components that significantly reduce their load on the vehicle battery pack, thereby maximizing the available range of the vehicle.

Additionally, our team has expertise in lightweight materials, a very important characteristic for electric vehicles given the impact of mass on range. The Tesla Roadster is built with an internally-designed carbon fiber body which provides a balance of strength and mass. We intend to build the Model S with a lightweight aluminum body and have been designing the body and chassis with a variety of materials and production methods that will help optimize the weight of the vehicle.

We intend to develop a substantially-integrated electric vehicle manufacturing facility to manufacture components that are critical to our intellectual property and quality of the Model S. We intend for our vehicle design, engineering, and manufacturing teams to work alongside one another in an effort to accelerate the Model S development. We believe the co-location of our vehicle design, engineering and manufacturing teams will help accelerate the development of new products and allow for faster introduction of product changes.

As of December 31, 2009, we had 71 employees in our vehicle design and engineering department.

Sales and Marketing

Target Market

We believe the size of the relevant markets for Tesla vehicles is a function of both the market for electric-based vehicles and the market for the traditional segments targeted by our vehicles. Specifically, we believe our Tesla Roadster and planned Model S may appeal to some consumers because the vehicle offers functionality and performance relative to the traditional class of vehicle desired by the consumer, such as the premium sports vehicle market for the Tesla Roadster or the premium sedan market for the Model S. However, we also believe our Tesla Roadster and planned Model S may appeal to consumers who are environmentally and politically conscious or who are interested in the technological and economic benefits of electric vehicles.

The Tesla Roadster

We believe the Tesla Roadster competes in the premium sport vehicle market against selected premium roadsters and coupes. According to CSM Worldwide, the Porsche 911, the Chevrolet Corvette, the Jaguar XK and the Mercedes SL and SLK together represent approximately 97,000 vehicle sales in North America and Europe in 2008. The base list prices for 2009 models in the premium roadsters and coupes market ranged from approximately $47,000 for the Mercedes SLK to $140,700 for the 911 Turbo Cabriolet in the United States.

The Tesla Model S

We believe the combination of functionality, performance, style, energy efficiency and overall cost of ownership of the planned Model S will draw buyers from several market segments, including the lower, medium and upper premium sedan classes. According to CSM Worldwide, the Audi A3, A4, A6 and A8, the BMW 3, 5

 

103


Table of Contents

and 7 series, the Lexus IS, ES, GS and LS, the Volvo S40, S60, S80, V50, and V70/XC70 and the Mercedes C, CLS, E and S Class together represent approximately 2.1 million vehicle sales in the United States and Europe in 2008. The base list prices for 2009 models in the premium sedan and equivalents market ranged from approximately $29,000 for the Volvo S40 to $96,000 for the Audi S8 (the high-performance version of the Audi A8) in the United States.

Company-Owned Sales

We market and sell cars directly to consumers. Until we opened our first store in Los Angeles, California in May 2008, all of our sales of the Tesla Roadster were conducted via the phone and internet, or in-person at our headquarters and corporate events. Increasingly, sales are being made through our network of Tesla stores. Our Tesla stores are highly visible, premium outlets in major metropolitan markets that combine retail sales and service. As of December 31, 2009, we had opened 10 Tesla owned stores in the United States and Europe, located in Boulder, Chicago, Los Angeles, Menlo Park, Miami, New York, Seattle, London, Monaco and Munich. We plan to nearly double the number of Tesla stores opened by the end of 2010, with a goal of establishing approximately 50 stores globally within the next several years in connection with the planned Model S rollout.

In 2009, the average cost of building out our stores was approximately $500,000 per store. Going forward, we generally expect the build out cost of opening new stores to range from approximately $500,000 to $1 million per store. Since we plan to maintain only limited inventory at our stores, we do not require large floor spaces. We believe our Tesla store operating costs are low relative to traditional dealers as a result of our small store footprint, low head count and limited inventories. As a result, we believe we can efficiently and cost-effectively build out our sales and service network.

Our Tesla stores offer several benefits to our customers. The integrated design of our Tesla stores and service centers showcases our vehicles and permits customers and potential customers to have an unobstructed view of Tesla vehicles being serviced. Our customers deal directly with our own Tesla-employed sales and service staff, creating what we believe is a differentiated buying experience from the buying experience consumers have with franchised automobile dealers and service centers.

Reservations

We typically carry very limited inventory of our vehicles at our Tesla stores. While some customers purchase their vehicles from this inventory, most of our Tesla Roadster customers choose to select the options and customize the appearance of their vehicle. Potential customers may reserve slots in our production schedule for their vehicle by entering into a reservation agreement and paying a refundable reservation payment. Reservation payments are used by us to fund, in part, our working capital requirements and help us to align production with demand. If the prospective customer decides to purchase a vehicle, the reservation payment can be used toward the purchase of a vehicle. In the United States, we accept reservations for our Tesla Roadster with a $9,900 reservation payment and for the Model S with a minimum $5,000 reservation payment. In the United States, approximately three months prior to production of a Tesla Roadster, we require the customer to make full payment of the balance owed on the vehicle to lock in a production slot. Our current reservation agreements for the Tesla Roadster provides that prior to locking in the production slot for the Tesla Roadster, reservation payments are refundable, less a cancellation fee of $250. After locking in the production slot, the reservation payments are not refundable. For the Model S, our current reservation agreements provide for a $50 cancellation fee until the customer selects options. Upon selection of options, the customer will make an additional reservation payment, following which the cancellation fee becomes $10,000. The drivable early prototype of the Model S was revealed to the public in March 2009 and as of December 31, 2009, we had received approximately 2,000 customer reservations for the vehicle. As of September 30, 2009, we had an aggregate of $24.8 million in refundable reservation payments for the Tesla Roadster and the Model S.

 

104


Table of Contents

Marketing

Our principal marketing goals are to:

 

   

generate demand for our vehicles and drive leads to our sales teams;

 

   

build long-term brand awareness and manage corporate reputation;

 

   

manage our existing customer base to create loyalty and customer referrals; and

 

   

enable customer input into the product development process.

As the first and currently only company to commercially produce a federally-compliant, fully electric vehicle that achieves market-leading range on one charge, we have been able to generate significant media coverage of our company and our vehicles, and we believe we will continue to do so. To date, media coverage and word-of-mouth have been the primary drivers of our sales leads and have helped us achieve sales without traditional advertising and at relatively low marketing costs. We also use traditional means of advertising including product placement in a variety of media outlets and pay-per-click advertisements on websites and applications relevant to our target demographics.

The strength of our brand has been highlighted by independent authorities. An independent third-party study completed in 2008 of over 4,000 consumers indicated that the average consumer would be more likely to buy an electric vehicle from Tesla than any other brand but Toyota/Lexus. Since that time, we believe the presence of more Tesla Roadsters on the road and increasing media attention has further strengthened the Tesla brand. In November 2009, Advertising Age provided further testament to our brand strength by selecting us as one of “America’s hottest brands” in a special report highlighting the year’s 50 top brands.

Our marketing efforts include events where our vehicles are displayed and demonstrated. These events range from widely attended public events, such as the Detroit, Los Angeles, and Frankfurt auto shows, to smaller events oriented towards sales, such as private drive events.

As of December 31, 2009, we had 83 employees in our sales and marketing department.

Company-Owned Service and Warranty

Service

Service of our electric vehicles takes place at most of our Tesla stores. In addition, in the United States, we are able to provide service coverage to our customers who do not live in close proximity to our stores through our mobile service technicians known as the Tesla Rangers. We charge customers $1 per mile for our Tesla Rangers technicians’ return trip from the location of the customer’s vehicle to the nearest Tesla store.

Tesla owners can upload data from their vehicle and send it to us on a memory stick or via an on-board GSM system, allowing us to diagnose and remedy many problems before ever looking at the vehicle. When maintenance or service is required, a customer can schedule service by contacting one of our regional Tesla stores. Our Tesla Rangers can perform an array of procedures at a remote location, from annual inspections and firmware upgrades to full replacement of a power electronics module and other mechanical and electrical components. If service is more extensive and requires a vehicle lift, we can coordinate shipping of vehicles to and from the nearest Tesla store.

We believe that our company-owned service enables our technicians to work closely with our engineers and research and development teams in Silicon Valley to identify problems, find solutions, and incorporate improvements faster than incumbent automobile manufacturers.

As of December 31, 2009, we had 35 employees in our service department.

 

105


Table of Contents

New Vehicle Limited Warranty Policy

We provide a three year or 36,000 mile New Vehicle Limited Warranty with every Tesla Roadster, which we extended to four years or 50,000 miles for the purchasers of our 2008 Tesla Roadster. Customers have the opportunity to purchase an Extended Service Plan for the period after the end of the New Vehicle Limited Warranty to cover additional services for an additional three years or 36,000 miles, whichever comes first. The New Vehicle Limited Warranty is similar to other vehicle manufacturer’s warranty programs and is intended to cover all parts and labor to repair defects in material or workmanship in the body, chassis, suspension, interior, electronic systems, battery, powertrain and brake system. Exceptions to the New Vehicle Limited Warranty include wear items such as tires, brake pads and rotors, paint wear and tear, interior wear and tear, and battery performance.

Battery Replacement Option

While battery failure due to defects in material or workmanship is included in the New Vehicle Limited Warranty, battery performance, specifically its ability to store electricity over time, is not covered in either the New Vehicle Limited Warranty or the Extended Service Plan. However, within three months of purchasing their vehicle, customers may purchase a one time option to replace the battery pack at any time after the expiration of the New Vehicle Limited Warranty but before the tenth anniversary of the purchase date of the vehicle. For customers that select this option, we agree to replace the original battery of the vehicle with a replacement battery which will store at least 53 kilowatt-hours of usable energy. Charges in addition to the option purchase price apply if the customer exercises the battery replacement option prior to the seventh anniversary of the purchase date of the vehicle. The customer is entitled to a partial refund of the option purchase price if the option is not elected by the eighth anniversary of the purchase date of the vehicle.

Manufacturing

Vehicle Assembly

We currently use a multi-site manufacturing process for production of the Tesla Roadster and plan to transition to a substantially integrated site for production of the Model S and future vehicles. The initial body and chassis assembly processes for our Tesla Roadster occur at a Lotus Cars Limited, or Lotus, facility in Hethel, England where our staff works closely with Lotus. For vehicles destined for the United States or Asian markets, we ship the rolling chassis, which does not contain our electric powertrain and which we call a glider, to our final assembly facility in Menlo Park, California. At our Menlo Park location, we install the full electric vehicle powertrain and perform a pre-delivery inspection prior to shipping the Tesla Roadster to customers. For European deliveries, the full vehicle is assembled on-line at the Lotus facility and pre-delivery inspection occurs at a nearby Tesla facility in Wymondham, England. Pursuant to the supply agreement with Lotus, we are obligated to purchase a minimum of 1,700 vehicles or gliders over the three year term of the agreement, which will expire in March 2011. We do not currently have a supply agreement with Lotus for the supply of Tesla Roadster vehicles or gliders beyond the 1,700 minimum referenced above. As of December 31, 2009, we had purchased approximately 1,000 vehicles or gliders under this agreement.

We intend to develop a substantially-integrated electric vehicle manufacturing facility to manufacture components that are critical to our intellectual property and quality of the Model S, including body assembly, paint operations, battery pack manufacturing, final vehicle assembly and end-of-line testing. Certain major component systems, such as interior console and seats, will be purchased from suppliers. We currently intend to target an annual production rate at this facility for the Model S of up to approximately 20,000 cars per year. We believe that we will be able to increase the annual production capacity of this plant beyond this amount through additional capital spending as well as by changing operating patterns and adding additional shifts.

 

106


Table of Contents

Powertrain Component Manufacturing

We manufacture several components of our electric powertrain and the batteries and chargers that we have started to sell to Daimler.

 

   

Motor . Our copper-rotor alternating current induction motors have historically been manufactured at our Taiwanese subsidiary. We have operated our own manufacturing facility in part to protect the proprietary technology we developed for our motor. We are presently transitioning this operation to our new corporate headquarters in Palo Alto, California. We expect to complete this transition in the first half of 2010.

 

   

Battery Packs . We currently assemble the Tesla Roadster and Daimler Smart fortwo electric drive batteries at our facilities in San Carlos, California. These operations are also transitioning to our Palo Alto facility where we plan to produce batteries and chargers for additional technology sales customers. We expect to complete this transition in the first half of 2010.

 

   

Power Electronics Module . Our power electronics module, or PEM, is manufactured based on our design by a contract manufacturer located in Taiwan.

We intend to develop our electric powertrain component and systems business and have secured a $101.2 million loan under our DOE Loan Facility for the expansion of our engineering and production capability for this business in our Palo Alto facility.

Supply Chain

The Tesla Roadster uses over 2,000 purchased parts which we source from over 150 suppliers, many of whom are currently our single source suppliers for these components. Our supply base is located globally, with about 30% of our suppliers located in North America, 40% in Europe and the remaining 30% in Asia. We have developed close relationships with several key suppliers particularly in the procurement of cells and certain electric powertrain components. While we obtain components from multiple sources whenever possible, similar to other automobile manufacturers, many of the components used in our vehicles must be custom made for us. We refer to these component suppliers as our single source suppliers. In addition, Lotus is the only manufacturer for certain components, such as the rolling chassis of our Tesla Roadster, and we refer to it as a sole source supplier. To date, we have not qualified alternative sources for most of the single sourced components used in our vehicles and we generally do not maintain long-term agreements with our single source or sole source suppliers. For example, while several sources of the battery cell we have selected for the Tesla Roadster are available, we have fully qualified only one supplier for these cells. Any disruption in the supply of battery cells from such vendor could temporarily disrupt production of the Tesla Roadster until such time as a different supplier is fully qualified and there can be no assurance that we would be able to successfully retain alternative suppliers on a timely basis. Moreover, battery cell manufactures may choose to refuse to supply electric vehicle manufacturers to the extent they determine that the vehicles are not sufficiently safe.

While we believe that we may be able to establish alternate supply relationships and can obtain or engineer replacement components, we may be unable to do so in the short term or at all at prices or costs that are favorable to us. We are currently evaluating, qualifying and selecting our suppliers for the planned production of the Model S and we intend to establish dual suppliers for several key components of the Model S, although we expect that a number of components for the Model S will be single sourced. In addition, we have entered into a letter of intent with Mercedes-Benz USA, LLC, an affiliate of Daimler, whereby it will provide us access to its parts catalogue. We contemplate using such parts in the Model S during its development phase and ultimately in its production. We intend to negotiate an agreement to finalize this arrangement.

We use various raw materials in our business including aluminum, steel, carbon fiber, non-ferrous metals such as copper, as well as cobalt. The prices for these raw materials fluctuate depending on market conditions and global demand for these materials. We believe that we have adequate supplies or sources of availability of the raw materials necessary to meet our manufacturing and supply requirements. There are always risks and uncertainties, however, with respect to the supply of raw materials that could impact their availability in sufficient quantities or reasonable prices to meet our needs.

 

107


Table of Contents

We have implemented enterprise resource planning and management software to automate our procurement and inventory processes and integrate them with our financial accounting. We plan additional investment in our management systems to support further growth in our operations.

Quality Control

Our quality control efforts are divided between product quality and supplier quality, both of which are focused on designing and producing products and processes with high levels of reliability. Our product quality engineers work with our engineering team and our suppliers to help ensure that the product designs meet functional specifications and durability requirements. Our supplier quality engineers work with our suppliers to insure that their processes and systems are capable of delivering the parts we need at the required quality level, on time, and on budget. Our quality systems engineers create and manage our systems, such as configuration management and corrective action systems, to help ensure product developers, supplier chain managers, and production controllers have the product information they need.

As of December 31, 2009, we had 142 employees in our manufacturing department.

Customers and Selected Relationships

We currently sell our cars primarily to individual customers. We have strategic or commercial relationships with Daimler and Lotus, as well as with various battery cell providers. We intend to expand our business by developing and selling additional powertrain components to Daimler and other third party OEMs, and have secured a $101.2 million loan under our DOE Loan Facility to fund the infrastructure for this business.

Daimler AG

Beginning in 2008, we commenced efforts on a powertrain development arrangement with Daimler. In May 2009, we entered into a development agreement with Daimler under which we have performed specified research and development services for the development of a battery pack and charger for Daimler’s Smart fortwo electric drive. All development work related to the development agreement had been completed as of December 31, 2009. We have been selected by Daimler to supply it with up to 1,000 battery packs and chargers from us to support a trial of the Smart fortwo electric drive in several cities in Europe and the United States. We began shipping the first sets of these battery packs and chargers in November 2009 and started to recognize revenue for these sales in the quarter ended December 31, 2009.

In addition to the development agreement described above, we have entered into an exclusivity and intellectual property agreement, or EIP Agreement, with Daimler North America Corporation, or DNAC, an affiliate of Daimler, in which we agreed to begin negotiating in good faith to enter into further agreements within certain strategic cooperation areas, including technology collaboration in various electric powertrain areas, automotive engineering support, joint electric vehicle development efforts and access to component parts for Tesla designed products. Under this EIP Agreement, we agreed that, until November 11, 2009, we would not negotiate or enter into any agreements with other parties that would be competitive with the arrangements contemplated for these strategic cooperation areas, unless the results of such arrangement would be marketed solely under the Tesla brand. As of that date, we had not executed any further agreements with Daimler in the areas of strategic cooperation.

The EIP Agreement provides that ending on the earlier of May 11, 2014 or three years following consummation of our initial public offering, if the company receives an offer from a strategic competitor of Daimler to enter into an agreement for development of a non-Tesla branded vehicle or an integrated electric powertrain system, DNAC would be given the right of first refusal to enter into such agreement with the company instead of, and on the same terms offered by, the third party.

 

108


Table of Contents

The EIP Agreement also provides that if we execute a strategic cooperation agreement with DNAC to jointly engineer an electric vehicle, then additional exclusivities would apply until the earlier of May 11, 2014 or three years following consummation of our initial public offering, provided a minimum annual volume of sales is achieved. The EIP Agreement provides that none of the restrictions set out in that agreement, or in any strategic agreement, would limit us from developing technology with any third party for use in a Tesla-branded product or service or related to the Tesla Roadster or Model S, engaging in any transaction with a company that is not a Daimler competitor, or supplying components for electric powertrains that are designed by third parties.

The EIP Agreement also provides that if the parties enter into the strategic agreements or further agreements, those agreements will allocate intellectual property rights according to certain principles outlined in the EIP Agreement. In addition, until the earlier of May 11, 2014 or three years following consummation of our initial public offering, before licensing intellectual property generated outside the scope of any strategic cooperation area to a Daimler competitor, we would first have to offer DNAC the right to license the intellectual property on a non-exclusive, royalty-bearing basis, or on an exclusive basis in the automotive field; and if DNAC requests the latter, we must negotiate such a license in good faith. If no agreement is reached, however, we would be free to license the technology to the Daimler competitor, and DNAC could take a non-exclusive license.

Both we and Daimler have the right to terminate the EIP Agreement in the event the other party undergoes, or executes an agreement to undergo, a change of control. Any strategic cooperation agreements entered into between us and Daimler prior to termination will not be affected by such termination.

To date, with the exception of the development agreement for the Smart for two electric drive, the strategic agreements described in the EIP Agreement have not been entered into, and there can be no assurance that the parties will ever enter into such agreements. Even if we were to enter into such agreements, the parties may negotiate and agree to terms that are different to those set forth in the EIP Agreement and outlined above. Such different or new terms may be more or less favorable to us.

In addition to these agreements, Blackstar lnvestco LLC, or Blackstar, an affiliate of Daimler, held approximately         % of our capital stock outstanding as of December 31, 2009, based on             shares of common stock outstanding at December 31, 2009, after giving effect to the conversion of all outstanding shares of our preferred stock into common stock effective immediately prior to the closing of this offering and the issuance of             shares of common stock upon the assumed net exercise of warrants that expire upon the completion of this offering at an assumed initial public offering price of $             per share, and Blackstar’s representative, Dr. Herbert Kohler, serves as a member of our Board of Directors.

Lotus Cars Limited

Lotus currently provides us with assembly and other manufacturing services. Although we complete the final assembly of our Tesla Roadster, the initial body and chassis assembly processes occur at a Lotus facility in Hethel, England where our staff works closely with Lotus. For vehicles destined for the United States or Asian market, we ship the glider to our final assembly facility in Menlo Park, California. For European deliveries, the full vehicle is assembled on-line at the Lotus facility and pre-delivery inspection occurs at a Tesla facility in Wymondham, England. Pursuant to the supply agreement with Lotus, we are obligated to purchase a minimum of 1,700 vehicles or gliders over the three year term of the agreement, which will expire in March 2011. We do not currently have a supply agreement with Lotus for the supply of Tesla Roadster vehicles or gliders beyond the 1,700 minimum referenced above. If we are unable to meet this volume requirement, we are still responsible for payment to Lotus of the lesser of the sum of the actual costs incurred and an agreed upon profit margin per vehicle up to the minimum volume requirement or £5,400,000. As of December 31, 2009, we had purchased approximately 1,000 vehicles or gliders under this agreement.

 

109


Table of Contents

Governmental Programs, Incentives and Regulations

United States Department of Energy Loans

On January 20, 2010, we entered into a loan facility with the Federal Financing Bank, or FFB, and the United States Department of Energy, or DOE, under the DOE’s Advanced Technology Vehicles Manufacturing Incentive Program, as set forth in Section 136 of the Energy Independence and Security Act of 2007, or ATVM Program. We refer to such loan facility as the DOE Loan Facility. Under the DOE Loan Facility, FFB has made available to us two multi-draw term loan facilities in an aggregate principal amount of up to $465.0 million and the DOE has agreed to reimburse FFB for any liabilities, losses, costs or expenses incurred by FFB with respect to the term loan facilities. Up to an aggregate principal amount of $101.2 million will be made available under the first term loan facility to finance up to 80% of the costs eligible for funding under the ATVM Program for the powertrain engineering and the build-out of a facility to design and manufacture lithium-ion battery packs, electric motors and electric components, or the Powertrain Facility. Up to an aggregate principal amount of $363.9 million will be made available under the second term loan facility to finance up to 80% of the costs eligible for funding under the ATVM Program for the development of, and to build out the manufacturing facility for, our Model S sedan, or the Model S Facility. Under the DOE Loan Facility, we are responsible for the remaining 20% of the costs eligible for funding under the ATVM Program for the projects as well as any cost overruns for each project. The costs paid by us to date for the Powertrain Facility and the Model S Facility will be applied towards our obligation to contribute 20% of the eligible project costs, and the DOE’s funding of future eligible costs will be adjusted to take this into account. Our remaining obligations for these projects are budgeted to be an aggregate of $33 million, plus any cost overruns for the projects.

Our ability to draw down funds under the DOE Loan Facility is conditioned upon several draw conditions. For the Powertrain Facility, the draw conditions include our achievement of progress milestones relating to the development of the powertrain manufacturing facility and the successful development of commercial arrangements with third parties for the supply of powertrain components. For the Model S Facility, the draw conditions include our achievement of progress milestones relating to the design and development of the Model S and the planned Model S manufacturing facility, including an environmental assessment of such facility approved by the DOE and completion of the National Environmental Policy Act process. Certain advances will be subject to additional conditions to drawdown related to the site on which the applicable project is located.

We will be required to maintain, at all times, available cash and cash equivalents of at least 105% of the amounts required to fund such commitment, after taking into account current cash flows and cash on hand, including cash on hand amounts raised in this offering, and reasonable projections of future generation of net cash from operations, losses and expenditures.

Loans may be requested under the facilities until January 22, 2013, and we have committed to complete the projects being financed prior to such date. On the closing date, we paid a facility fee to the DOE in the amount of $0.5 million. We intend to receive the first drawdown under each facility starting in the first quarter of 2010. We plan to make an initial request for eligible project costs under both projects that we have incurred from December 15, 2008 through September 30, 2009.

Advances under the DOE Loan Facility accrue interest at a per annum rate determined by the Secretary of the Treasury as of the date of the advance, and will be based on the Treasury yield curve and the scheduled principal installments for such advance. Interest on advances under the DOE Loan Facility is payable quarterly in arrears. Advances under the Powertrain Facility are repayable in 28 equal quarterly installments commencing on December 15, 2012 (or, for advances made after such date, in 26 equal quarterly installments commencing on June 15, 2013). All outstanding amounts under the Powertrain Facility will be due and payable on the maturity date of September 15, 2019. Advances under the Model S Facility are repayable in 40 equal quarterly installments commencing on December 15, 2012 (or, for advances made after such date, in 38 equal quarterly installments commencing on June 15, 2013). All outstanding amounts under the Model S Facility will be due and payable on the maturity date of September 15, 2022. Advances under the loan facilities may be voluntarily prepaid at any time at a

 

110


Table of Contents

price determined based on interest rates at the time of prepayment for loans made from the Secretary of the Treasury to FFB for obligations with an identical payment schedule to the advance being prepaid, which could result in the advance being prepaid at a discount, at par or at a premium. The loan facilities are subject to mandatory prepayment with net cash proceeds received from certain dispositions, loss events with respect to property and other extraordinary receipts.

All obligations under the DOE Loan Facility are secured by substantially all of our property. All of our existing and future domestic subsidiaries will also be required to guaranty our obligations under the DOE Loan Facility. Our existing and future foreign subsidiaries may, under certain circumstances, be required to guaranty our obligations under the loan facility. Any such guarantees by existing and future subsidiaries will be secured by substantially all of the property of such subsidiaries.

The DOE Loan Facility documents contain customary covenants that include, among others, a requirement that the projects be conducted in accordance with the business plan for such project; compliance with all requirements of the ATVM Program; and limitations on our and our subsidiaries’ ability to incur indebtedness, incur liens, make investments or loans, enter into mergers or acquisitions, dispose of assets, pay dividends or make distributions on capital stock, pay indebtedness, pay management, advisory or similar fees to affiliates, enter into certain affiliate transactions, enter into new lines of business, and enter into certain restrictive agreements, in each case subject to customary exceptions.

The DOE Loan Facility documents also contain financial covenants requiring us to maintain a minimum ratio of current assets to current liabilities, and (i) through December 15, 2012, a minimum cash balance, and (ii) after December 15, 2012, a maximum leverage ratio, a minimum interest coverage ratio, a minimum fixed charge coverage ratio, a limit on capital expenditures and, after March 31, 2014, a maximum ratio of total liabilities to shareholder equity. Under the DOE Loan Facility, we are required to fund a debt service reserve account on or before December 31, 2012, in an amount equal to all principal and interest that will come due on the advances on the next two payment dates. Once we have deposited such two payments, we will not be required to further fund such debt service reserve account. We have also agreed that, in connection with the sale of our common stock in this offering, at least 75% of the net offering proceeds will be received by us and, in connection with the sale of our stock in any other follow-on equity offering, at least 50% of the net offering proceeds will be received by us. Offering proceeds may not be used to pay bonuses or other compensation to officers, directors, employees or consultants in excess of the amounts contemplated by our business plan approved by the DOE.

In addition to our obligation to fund a portion of the project costs as described above, we have agreed to set aside 50% of the net proceeds from this offering and any subsequent offerings of stock occurring before the completion of the projects up to an aggregate of $100 million, to fund a separate, dedicated account under our DOE Loan Facility. We will use amounts deposited into this dedicated account to fund project costs of the Powertrain Facility and the Model S Facility which would have otherwise been funded through advances made under the DOE Loan Facility such that, while there are funds available in the dedicated account, for each dollar of project costs advanced under the DOE Loan Facility, one dollar of project costs that would otherwise have been funded under the DOE Loan Facility will be funded from the dedicated account. The dedicated account can also be used by us to fund any cost overruns for these projects. Once the funds deposited into this dedicated account have been used in full, we will be reimbursed by the drawdown of additional funds for amounts paid from this account, and we will be required to deposit a portion of these reimbursements into the dedicated account in an amount equal to up to 30% of the remaining project costs for the applicable project. These amounts will similarly be used to fund project costs and cost overruns and will similarly be eligible for reimbursement by the drawdown of additional funds once used in full.

The DOE Loan Facility documents contain customary events of default, subject in some cases to customary cure periods for certain defaults. Events of default include, among others, non-payment defaults, inaccuracy of representations and warranties, covenant defaults, defaults under or termination of our leases for the projects, a default in the event of a change of control, including a failure of Elon Musk, our Chief Executive Officer,

 

111


Table of Contents

Product Architect and Chairman, and certain of his affiliates, at any time prior to one year after we complete the project relating to the Model S Facility, to own at least 65% of capital stock held by Mr. Musk and such affiliates as of the date of the DOE Loan Facility, cross-defaults to certain other material indebtedness, failure to timely complete the projects, material judgment defaults, bankruptcy and insolvency defaults and force majeure events with respect to the projects. The occurrence of an event of default could result in an acceleration of all obligations under the DOE Loan Facility documents, an obligation by us and any guarantor to repay all obligations in full, and the exercise of remedies by the DOE or their agent. Our failure to make a timely payment could result in an increase to the applicable interest rate.

In connection with the DOE Loan Facility, we have also issued the DOE a warrant to purchase up to 9,255,035 shares of our Series E Preferred Stock. Beginning on December 15, 2018 and until December 14, 2022, the shares subject to purchase under the warrant will become exercisable in quarterly amounts depending on the average outstanding balance of the loan during the prior quarter. The warrant may be exercised until December 15, 2023. If we prepay the DOE Loan Facility in full prior to December 15, 2018, no shares will be exercisable under the warrant, except in the case of an event of default, which could accelerate the vesting.

California Alternative Energy and Advanced Transportation Financing Authority Tax Incentives

In December 2009, we finalized an arrangement with the California Alternative Energy and Advanced Transportation Financing Authority that will result in an exemption from California state sales and use taxes for up to $320 million of manufacturing equipment. To the extent all of this equipment is purchased and would otherwise be subject to California state sales and use tax, we believe this incentive would result in tax savings by us of up to approximately $31 million over a three year period starting in December 2009. The equipment purchases may be used only for three purposes: (i) to establish our production facility for the Model S sedan in California, (ii) to upgrade our Palo Alto powertrain production facility, and (iii) to expand our current Tesla Roadster assembly operations at our Menlo Park facility.

California Air Resources Board’s Zero Emissions Vehicle Program

In connection with the delivery and placement into service of our zero emission vehicles in a number of states, we have earned and will continue to earn tradable credits that can be sold. Under California’s Low-Emission Vehicle Regulations, and similar laws in other states, vehicle manufacturers are required to ensure that a portion of the vehicles delivered for sale in that state during each model year are zero emission vehicles. Currently, the states of California, Connecticut, Maine, Maryland, Massachusetts, New Jersey, New Mexico, New York, Oregon, Rhode Island and Vermont have such laws in effect. These laws provide that a manufacturer of zero emission vehicles may earn credits, referred to as ZEV credits, and may sell excess credits to other manufacturers who apply such credits to comply with these regulatory requirements. As a manufacturer solely of zero emission vehicles, we earn ZEV credits on each vehicle sold in such states and have entered into agreements with other automobile manufacturers to sell the ZEV credits that we earn.

We have entered into two contracts for the sale of ZEV credits. For the year ended December 31, 2008 and the nine months ended September 30, 2009, we earned revenue from the sale of ZEV credits of $3.5 million and $7.6 million, respectively. Our current agreement provides for the sale of the ZEV credits that we earn from the sale of vehicles that we manufactured between January 1, 2009 and December 31, 2009, and we have until June 30, 2010 to sell these ZEV credits under the agreement. We are currently negotiating to extend this agreement for vehicles manufactured in 2010 and 2011. As of December 31, 2009, we had sold credits for 340 vehicles under this agreement. We previously had an agreement with a different buyer for our ZEV credits earned during the year ended December 31, 2008.

 

112


Table of Contents

Federal and State Incentives in the United States

As of December 31, 2009, incentives in the United States include:

United States Federal Tax Credits

The Qualified Plug-In Electric Drive Motor Vehicle Tax Credit program instituted by the United States federal government provides a tax credit of up to $7,500 for the purchase of new qualified plug-in electric drive motor vehicles. This credit applies to the first 200,000 vehicles sold per manufacturer. Purchasers of the Tesla Roadster are currently eligible for a tax credit under this program of $7,500. To the extent such program is still in effect when the Model S is available for purchase, we expect purchasers of the Model S to also be eligible for a $7,500 tax credit under this program. In addition, the Alternative Fuel Infrastructure Tax Credit provides for tax credits for businesses up to 50% of the cost of installing alternative fueling equipment, not to exceed $50,000. Consumers who purchase residential fueling equipment but are not eligible to depreciate such equipment may receive a tax credit of up to $2,000. The program includes electricity as an alternative fuel and potentially can be used by Tesla customers to offset the cost of their home charging systems and by businesses to offset the costs of installing electric vehicle charging stations. These credits will expire on December 31, 2010.

State Incentives

A number of states and municipalities in the United States, as well as certain private enterprises, offer incentive programs to encourage the adoption of alternative fuel vehicles, including tax exemptions, tax credits, exemptions, and special privileges. For example, New Jersey and Washington exempt the purchase of electric vehicles from state sales tax. Other states, including Colorado, Oregon, Georgia and Oklahoma, provide for substantial state tax credits for the purchase of electric vehicles. In California several utilities offer reduced electricity rates for the purpose of charging electric vehicles. As of December 1, 2009, the Sacramento Municipal Utility District, for example, offered an off-peak discount of approximately 50% off of the regular residential electricity rate for electricity used to charge electric vehicles. Similar programs exist with Southern California Edison and other utility companies. Municipalities in California also offer parking incentives for electric vehicles which include free or reduced fee parking in major metropolitan areas.

CAFE Standards and Credits

In 2009, the United States federal government proposed a new national program to raise and accelerate the current Corporate Average Fuel Economy, or CAFE, standards and to establish new national greenhouse gas emissions standards under the Clean Air Act. Under the new CAFE proposal, manufacturers’ passenger vehicle fleets must achieve a combined average fuel economy standard of 34.1 mpg by 2016, a significant increase over current standards. Financial penalties exist for non-compliance. The proposed new CAFE standards will also advance the fuel economy target levels four years earlier than required under previous law, which required average fuel economy of 35 mpg by 2020. Furthermore, this new program will allow automakers the flexibility to earn CAFE credits by exceeding the standard in a given model year, and they can either apply those credits to shortfalls in future years or trade them to another automaker. The Obama administration suggested in November 2009 that automakers be given CAFE credits that would let low and zero emission vehicles count for up to two cars when annual fleet fuel efficiency averages are calculated. The National Highway Traffic Safety Administration, or NHTSA, and the Environmental Protection Agency, or EPA, are jointly developing final rules to implement the new CAFE standards. In 2009, NHTSA adopted regulations that permit the transfer and trading of CAFE credits earned from vehicles with model years later than 2010.

 

113


Table of Contents

Incentives in Europe

As of December 31, 2009, incentives in Europe include:

E.U. Emissions Regulations

We believe Europe has a regulatory environment that is generally conducive to the development, production and sale of small, alternative fuel vehicles. Through emission legislation, tax incentives and direct subsidies, the European Union is taking a progressive stance in reducing carbon emissions and increasing demand for electric vehicles. In 2007, The European Commission instituted regulations targeting average new vehicle emissions of approximately 19% below 2007 levels. These regulations begin in 2012 and will affect 65% of new vehicle sales and phase in to 100% by 2015. The penalties imposed by this legislation on manufacturers that exceed target levels will rise over time, from €20 per vehicle in 2012 to €95 per vehicle in 2015.

Consumer Incentives

In addition to a favorable regulatory environment, European countries have announced attractive combinations of subsidies and tax incentives. For example, the United Kingdom has announced a plan for up to £5,000 in support of electric vehicles and France has proposed €5,000 in direct subsidies for electric vehicle purchases through 2012. Additionally, a number of European countries are shifting their registration tax regime to a carbon dioxide-based system which typically reduces or eliminates annual registration taxes for electric vehicles due to their zero emissions profile. Certain European countries such as Norway have also adopted significant tax incentives for individuals to purchase electric vehicles. For example, in Norway, an owner of a vehicle similar to the Tesla Roadster in terms of performance but powered by an internal combustion engine would be required to pay a one-time registration tax, while an owner of a electric vehicle such as the Tesla Roadster would not be required to pay such registration tax.

Regulation—Vehicle Safety and Testing

Our vehicles are subject to, and the Tesla Roadster complies with, or is exempt from, numerous regulatory requirements established by the National Highway Traffic Safety Administration, or the NHTSA, including all applicable United States federal motor vehicle safety standards, or the FMVSS. As a manufacturer we must self-certify that a vehicle meets or is exempt from all applicable FMVSSs, as well as the NHTSA bumper standard, before the vehicle can be imported into or sold in the United States.

There are numerous FMVSSs that apply to our vehicles. Examples of these requirements include:

 

   

Crash-worthiness requirements —including applicable and appropriate level of vehicle structure and occupant protection in frontal, side and interior impacts including through use of equipment such as seat belts and airbags which must satisfy applicable requirements;

 

   

Crash avoidance requirements —including appropriate steering, braking, electronic stability control, and equipment requirements, such as, headlamps, tail lamps, and other required lamps, all of which must conform to various photometric and performance requirements;

 

   

Electric vehicle requirements —limitations on electrolyte spillage, battery retention, and avoidance of electric shock following specified crash tests;

 

   

Windshield defrosting and defogging —defined zones of the windshield must be cleared within a specified timeframe; and

 

   

Rearview mirror requirements —rearward areas that must be visible to the driver via the mirrors.

Several FMVSS regulations that NHTSA has promulgated or amended recently contain phase-in provisions requiring increasing percentages of a manufacturer’s vehicles to comply over a period of several model years.

 

114


Table of Contents

Those FMVSSs generally allow low volume manufacturers (those who manufacture fewer than 5,000 vehicles annually for sale in the United States) and limited line manufacturers (those who sell three or fewer vehicle lines in the United States) to defer compliance until the end of the phase-in period. We currently qualify as both a low volume manufacturer and a limited line manufacturer, and as a result, we are currently exempt from certain requirements, such as some new advanced airbag requirements, the advanced side impact requirements, and certain electronic stability control requirements, until the end of the applicable phase-in periods. In addition, we have applied for, and have been granted, an exemption from certain other advanced air bag requirements, which applies to Tesla Roadsters manufactured through January 28, 2011. We intend to request an extension of such exemption for Tesla Roadsters manufactured after such date. Under U.S. law, we are required to certify compliance with all applicable federal motor vehicle safety standards and we have done so with respect to each vehicle we have offered for sale in the U.S. Based on testing, engineering analysis, and other information, we have certified that the Tesla Roadster complies or is exempt from all applicable NHTSA standards by affixing a certification label to each Tesla Roadster sold.

We are also required to comply with other NHTSA requirements of federal laws administered by NHTSA, including the Corporate Average Fuel Economy standards, consumer information labeling requirements, early warning reporting requirements regarding warranty claims, field reports, death and injury reports and foreign recalls, and owner’s manual requirements.

Our vehicles sold in Europe are subject to European Union safety testing regulations. Many of those regulations, referred to as European Union Whole Vehicle Type Approval, or WVTA, are different from the federal motor vehicle safety standards applicable in the United States and may require redesign and/or retesting. Our Tesla Roadsters are currently approved for sale on a limited basis in the European Union via the Small Series WVTA, which permits the manufacture and sale in the European Union of no more than 1,000 vehicles per year. We plan to keep European sales of our Tesla Roadsters at less than 1,000 vehicles per year, and have no plans to commence testing our Tesla Roadsters for the WVTA to assure compliance with the European Union requirements to permit unlimited sales. Similarly, Australia and Japan have additional testing regulations applicable to high volume manufacturers. We also plan to keep Australian and Japanese sales of our Tesla Roadsters at a low volume, and have no plans to comply with the Australian and Japanese requirements to permit high volume sales in these jurisdictions. In connection with the planned introduction of the Tesla Roadster in Australia and Japan, we conducted a frontal impact test based on European Union testing standards on the Tesla Roadster in November 2009, which is required for sales exceeding certain annual volumes outside the United States. While the Tesla Roadster met most of the criteria for occupant protection and all criteria for high voltage safety in the front impact crash test, there were two criteria that were not met in the test. Based on our analysis of additional compliance options in Australia and Japan, we believe such an outcome should not limit our ability to sell the Tesla Roadster in Australia below certain annual volumes or, subject to compliance with certain Japanese import rules, have a material impact on our ability to sell Tesla Roadsters in Japan.

The Federal Trade Commission, or FTC, requires us to calculate and display the range of our electric vehicles on a label we affix to the vehicle’s window. The FTC specifies that we follow testing requirements set forth by the Society of Automotive Engineers, or SAE, which further requires that we test using the United States Environmental Protection Agency’s, or EPA’s combined city and highway testing cycles. The EPA announced in November 2009 that it would develop and establish new energy efficiency testing methodologies for electric vehicles. Based on initial indications from the EPA, we believe it is likely that the EPA will modify its testing cycles in a manner that, when applied to our vehicles, could reduce the advertised range of our vehicles by up to 30% as compared to the combined two-cycle test currently applicable to our vehicles. However, there can be no assurance that the modified EPA testing cycles will not result in a greater reduction. To the extent that the FTC adopts these procedures in place of the current procedures from the SAE, this could impair our ability to advertise the Tesla Roadster as a vehicle that is capable of going in excess of 200 miles. Moreover, such changes could impair our ability to deliver the Model S with the initially advertised range, which could result in the cancellation of a number of the approximately 2,000 reservations that have been placed for the Model S.

 

115


Table of Contents

Although the real life customer experience of the range of our electric vehicles will not change due to the changes in the FTC or EPA standards, the reduction in the advertised range could negatively impact our sales and harm our business.

The Automobile Information and Disclosure Act requires manufacturers of motor vehicles to disclose certain information regarding the manufacturer’s suggested retail price, optional equipment and pricing. In addition, the Act allows inclusion of city and highway fuel economy ratings, as determined by EPA, as well as crash test ratings as determined by the National Highway Traffic Safety Administration if such tests are conducted. As a manufacturer of only electric vehicles, compliance with the EPA labeling requirements on fuel economy is currently optional for us.

Regulation—EPA Emissions & Certificate of Conformity

The Clean Air Act requires that we obtain a Certificate of Conformity issued by the EPA and a California Executive Order issued by the California Air Resources Board, or CARB, with respect to emissions for our vehicles. The Certificate of Conformity is required for vehicles sold in states covered by the Clean Air Act’s standards and the Executive Order is required for vehicles sold in states that have sought and received a waiver from the EPA to utilize California standards. The California standards for emissions control for certain regulated pollutants for new vehicles and engines sold in California are set by CARB. States that have adopted the California standards as approved by EPA also recognize the Executive Order for sales of vehicles.

Manufacturers who sell vehicles in states covered by federal requirements under the Clean Air Act without a Certificate of Conformity may be subject to penalties of up to $37,500 per violation and be required to recall and remedy any vehicles sold with emissions in excess of Clean Air Act standards. We received a Certificate of Conformity for sales of our Tesla Roadsters in 2008, but did not receive a Certificate of Conformity for sales of the Tesla Roadster in 2009 until December 21, 2009. This Certificate of Conformity covered sales of Tesla Roadsters from December 21, 2009 through December 31, 2009.

The EPA’s Self-Audit Policy allows companies to self-report violations of federal environmental laws and thereby mitigate potential penalties. We reported the failure to obtain a Certificate of Conformity for 2009 to the EPA on December 20, 2009. In January 2010, we and the EPA entered into an Administrative Settlement Agreement and Audit Policy Determination in which we agreed to pay a civil administrative penalty in the sum of $275,000. The EPA agreed to treat any 2009 Tesla Roadsters sold prior to December 21, 2009 as if they were covered by a valid Certificate of Conformity based on our agreement to treat these vehicles as if they had been certified when sold for emissions and emissions warranty purposes. Prior to obtaining the Certificate of Conformity on December 21, 2009, we sold 637 vehicles in 2009 in states where such a certificate is required for such sales. The EPA has closed the matter and we have been notified that it considers the violations resolved as of January 2010. All Tesla Roadsters we sold prior to obtaining the Certificate of Conformity in 2009 are now considered lawfully sold for purposes of the Clean Air Act with no impediments to further registration, use or subsequent sale. We received a Certificate of Conformity for the sales of model year 2010 Tesla Roadsters on December 31, 2009.

Regulation—Battery Safety and Testing

Our battery pack conforms with mandatory regulations that govern transport of “dangerous goods,” which includes lithium-ion batteries, that may present a risk in transportation. The governing regulations, which are issued by the Pipeline and Hazardous Materials Safety Administration, or PHMSA, are based on the UN Recommendations on the Safe Transport of Dangerous Goods Model Regulations, and related UN Manual Tests and Criteria. The regulations vary by mode of transportation when these items are shipped such as by ocean vessel, rail, truck, or by air.

 

116


Table of Contents

We have completed the applicable transportation tests for our prototype and production battery packs demonstrating our compliance with the UN Manual of Tests and Criteria, including:

 

   

Altitude simulation —simulating air transport;

 

   

Thermal cycling —assessing cell and battery seal integrity;

 

   

Vibration —simulating vibration during transport;

 

   

Shock —simulating possible impacts during transport;

 

   

External short circuit —simulating an external short circuit; and

 

   

Overcharge —evaluating the ability of a rechargeable battery to withstand overcharging (this test was performed on the battery pack we provided for Daimler’s Smart fortwo vehicle but was not performed on the battery pack for the Tesla Roadster).

The cells in our battery packs are composed mainly of lithium metal oxides. The cells do not contain any lead, mercury, cadmium, or other hazardous materials, heavy metals, or any toxic materials.

In addition, our battery packs include packaging for the lithium-ion cells. This packaging includes trace amounts of various hazardous chemicals whose use, storage and disposal is regulated under federal law.

Automobile Manufacturer and Dealer Regulation

State law regulates the manufacture, distribution and sale of automobiles, and generally requires motor vehicle manufacturers and dealers to be licensed. We are registered as both a motor vehicle manufacturer and dealer in the states of California, Colorado, Florida, Illinois and Washington, and we are licensed as a motor vehicle dealer in the state of New York.

To the extent possible, we plan to secure dealer licenses and engage in activities as a motor vehicle dealer in other states as appropriate and necessary as we open additional Tesla stores. Some states, such as Texas, do not permit automobile manufacturers to be licensed as dealers or to act in the capacity of a dealer. To sell vehicles to residents of states where we are not licensed as a dealer, to the extent permitted by local law, both the actual sale and all activities related to the sale would generally have to occur out of state. In this scenario, it is possible that activities related to marketing, advertising, taking orders, taking reservations and reservation payments, and delivering vehicles could be viewed by a state as conducting unlicensed activities in the state or otherwise violating the state’s motor vehicle industry laws. Regulators in these states may require us to hold and meet the requirements of appropriate dealer or other licenses and, in states in which manufacturers are prohibited from acting as dealers, may otherwise prohibit or impact our planned activities.

In jurisdictions where we do not have a Tesla store, a customer may try to purchase our vehicles over the internet. However, some states, such as Kansas, have laws providing that a manufacturer cannot deliver a vehicle to a resident of such state except through a dealer licensed to do business in that state which may be interpreted to require us to open a store in the state of Kansas in order to sell vehicles to Kansas residents. Such laws may be interpreted to require us to open a store in such state before we sell vehicles to residents of such states. In some states where we have opened a viewing “gallery” that is not a full retail location, it is possible that a state regulator could take the position that activities at our gallery constitute an unlicensed motor vehicle dealership and thereby violates applicable manufacturer-dealer laws. For example, the state of Colorado required us to obtain dealer and manufacturer licenses in the state in order to operate our gallery in Colorado. Although we would prefer that a state regulator address any concerns of this nature by discussing such concerns with us and requesting voluntary compliance, a state could also take action against us, including levying fines or requiring that we refrain from certain activities at that location. In addition, some states have requirements that service facilities be available with respect to vehicles sold in the state, which may be interpreted to also require that service facilities be available with respect to vehicles sold over the internet to residents of the state thereby limiting our ability to sell vehicles in states where we do not maintain service facilities.

 

117


Table of Contents

The foregoing examples of state laws governing the sale of motor vehicles are just some of the regulations we will face as we sell our vehicles. In many states, the application of state motor vehicle laws to our specific sales model is largely without precedent, particularly with respect to sales over the internet, and would be determined by a fact specific analysis of numerous factors, including whether we have a physical presence or employees in the applicable state, whether we advertise or conduct other activities in the applicable state, how the sale transaction is structured, the volume of sales into the state, and whether the state in question prohibits manufacturers from acting as dealers. As a result of the fact specific and untested nature of these issues, and the fact that applying these laws intended for the traditional automobile distribution model to our sales model allows for some interpretation and discretion by the regulators, state legal prohibitions may prevent us from selling to consumers in such state.

California laws, and potentially the laws of other states, restrict the ability of licensed dealers to advertise or take deposits for vehicles before they are available. In November 2007, we became aware that the New Motor Vehicle Board of the California Department of Transportation has considered whether our reservation and advertising policies comply with these laws. To date, we have not received any communications on this topic from the New Motor Vehicle Board or the Department of Motor Vehicles, or DMV, which has the power to enforce these laws. There can be no assurance that the DMV will not take the position that our vehicle reservation or advertising practices violate the law. We expect that if the DMV determines that we may have violated the law, it would initially discuss its concerns with us and request voluntary compliance. If we are ultimately found to be in violation of California law, we might be precluded from taking reservation payments, and the DMV could take other actions against us, including levying fines and requiring us to refund reservation payments. Resolution of any inquiry may also involve restructuring certain aspects of the reservation program. The DMV also has the power to suspend licenses to manufacture and sell vehicles in California, following a hearing on the merits, which it has typically exercised only in cases of significant or repeat violations and/or a refusal to comply with DMV directions.

Certain states may have specific laws which apply to dealers, or manufacturers selling directly to consumers, or both. For example, the state of Washington requires that reservation payments or other payment received from residents in the state of Washington must be placed in a segregated account until delivery of the vehicle, which account must be unencumbered by any liens from creditors of the dealer and may not be used by the dealer. Consequently, we established a segregated account for reservation payments in the state of Washington in January 2010. There can be no assurance that other state or foreign jurisdictions will not require similar segregation of reservation payment received from customers. Our inability to access these funds for working capital purposes could harm our liquidity.

Furthermore, while we have performed an analysis of the principal laws in the European Union relating to our distribution model and believe we comply with such laws, we have not performed a complete analysis in all foreign jurisdictions in which we may sell vehicles. Accordingly, there may be laws in jurisdictions we have not yet entered or laws we are unaware of in jurisdictions we have entered that may restrict our vehicle reservation practices or other business practices. Even for those jurisdictions we have analyzed, the laws in this area can be complex, difficult to interpret and may change over time.

In addition to licensing laws, specific laws and regulations in each of the states (and their interpretation by regulators) may limit or determine how we sell, market, advertise, and otherwise solicit sales, take orders, take reservations and reservation payments, deliver, and service vehicles for consumers and engage in other activities in that state. While we have performed an analysis of laws in certain jurisdictions in which we have Tesla stores, we have not performed a complete analysis in all jurisdictions in which we may sell vehicles. Accordingly, there may be laws in jurisdictions we have not yet entered that may restrict our vehicle reservation practices or other business practices.

 

118


Table of Contents

Competition

Competition in the automotive industry is intense and evolving. We believe the impact of new regulatory requirements for occupant safety and vehicle emissions, technological advances in powertrain and consumer electronics components, and shifting customer needs and expectations are causing the industry to evolve in the direction of electric-based vehicles. We believe the primary competitive factors in our markets are:

 

   

technological innovation;

 

   

product quality and safety;

 

   

service options;

 

   

product performance;

 

   

design and styling;

 

   

product price; and

 

   

manufacturing efficiency.

We believe that our vehicles compete in both the market based on their traditional segment classification as well as the market based on their propulsion technology. Within the electric-based vehicle segment, there are three primary means of powertrain electrification which will differentiate various competitors in this market:

 

   

Electric Vehicles are vehicles powered completely by a single on-board energy storage system (battery pack or fuel cell) which is refueled directly from an electricity source. Both the Tesla Roadster and the Model S are examples of electric vehicles.

 

   

Plug-in Hybrid Vehicles are vehicles powered by both a battery pack with an electric motor and an internal combustion engine which can be refueled both with traditional petroleum fuels for the engine and electricity for the battery pack. The internal combustion engine can either work in parallel with the electric motor to power the wheels, such as in a parallel plug-in hybrid vehicle, or be used only to recharge the battery, such as in a series plug-in hybrid vehicle like the Chevrolet Volt.

 

   

Hybrid Electric Vehicles are vehicles powered by both a battery pack with an electric motor and an internal combustion engine but which can only be refueled with traditional petroleum fuels as the battery pack is charged via regenerative braking, such as used in a hybrid electric vehicle like the Toyota Prius.

The worldwide automotive market, particularly for alternative fuel vehicles, is highly competitive today and we expect it will become even more so in the future. As of December 31, 2009, no mass produced performance highway-capable electric vehicles were being sold in the United States or Europe. However, we expect competitors to enter these markets within the next several years, with some entering as early as the end of 2010, and as they do so, we expect that we will experience significant competition. With respect to our Tesla Roadster, we currently face strong competition from established automobile manufacturers, including manufacturers of high-performance vehicles, such as Porsche and Ferrari. In addition, upon the launch of our Model S sedan, we will face competition from existing and future automobile manufacturers in the extremely competitive luxury sedan market, including Audi, BMW, Lexus and Mercedes.

Many established and new automobile manufacturers have entered or have announced plans to enter the alternative fuel vehicle market. For example, Nissan has announced that it is developing the Nissan Leaf, a fully electric vehicle, which it plans to bring to market in late 2010. BYD Auto has also announced plans to bring an electric vehicle into United States market in 2010 and Ford has announced that it plans to introduce an electric vehicle in 2011. In addition, General Motors, Toyota, Ford, and Honda are each selling hybrid vehicles, and certain of these manufacturers have announced plug-in versions of their hybrid vehicles. For example, General Motors has announced that it is developing the Chevrolet Volt, which is a plug-in hybrid vehicle that operates

 

119


Table of Contents

purely on electric power for a limited number of miles, at which time an internal combustion engine engages to recharge the battery. General Motors announced that it plans to begin selling the Chevrolet Volt in 2010.

Moreover, it has been reported that Daimler, Lexus, Audi, Renault, Mitsubishi and Subaru are also developing electric vehicles. Several new start-ups have also announced plans to enter the market for performance electric vehicles, although none of these have yet come to market. Finally, electric vehicles have already been brought to market in China and other foreign countries and we expect a number of those manufacturers to enter the United States market as well.

Most of our current and potential competitors have significantly greater financial, technical, manufacturing, marketing and other resources than we do and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of their products. Virtually all of our competitors have more extensive customer bases and broader customer and industry relationships than we do. In addition, almost all of these companies have longer operating histories and greater name recognition than we do. Our competitors may be in a stronger position to respond quickly to new technologies and may be able to design, develop, market and sell their products more effectively. We believe our exclusive focus on electric vehicles and electric vehicle components, as well as our history of vehicle development and production, are the basis on which we can compete in the global automotive market in spite of the challenges posed by our competition.

Intellectual Property

Our success depends, at least in part, on our ability to protect our core technology and intellectual property. To accomplish this, we rely on a combination of patents, patent applications, trade secrets, including know-how, employee and third party nondisclosure agreements, copyright laws, trademarks, intellectual property licenses and other contractual rights to establish and protect our proprietary rights in our technology. As of December 31, 2009 we have 8 issued patents and 89 pending patent applications with the United States Patent and Trademark Office as well as numerous foreign patent application filings in a broad range of areas related to our powertrain. Our issued patents start expiring in 2026. We intend to continue to file additional patent applications with respect to our technology. We do not know whether any of our pending patent applications will result in the issuance of patents or whether the examination process will require us to narrow our claims. Even if granted, there can be no assurance that these pending patent applications will provide us with protection.

Employees

As of December 31, 2009, we had 514 employees consisting of 142 in manufacturing, 120 in research and development, 83 in sales and marketing, 71 in vehicle design and engineering, 35 in service and 63 in general and administration. Of all of our employees, 340 are located at our San Carlos, California facility, 49 are located at our Los Angeles facility and 35 are located at our United Kingdom facility. None of our employees are currently represented by labor unions or are covered by a collective bargaining agreement with respect to their employment. To date we have not experienced any work stoppages, and we consider our relationship with our employees to be good.

 

120


Table of Contents

Facilities

We do not own any of our facilities. The following table sets forth the location, approximate size and primary use of our leased facilities:

 

Location(1)

   Approximate Size
(Building) in
Square Feet
  

Primary Use

   Lease Expiration
Date

Palo Alto, California

   350,000    Administration, engineering services and manufacturing services    January 2016

San Carlos, California

   28,080    Administration, engineering services and manufacturing services    July 2010

Menlo Park, California

   19,100    Vehicle sales and repair services, vehicle assembly    July 2012(2)

West Los Angeles, California

   10,000    Vehicle sales and repair services    August 2016

Hawthorne, California

   12,843    Administration and design services    —  (3)

Hethel, United Kingdom

   6,500    Administration, engineering services and manufacturing services    —  (4)

 

(1) We also lease a number of facilities for our retail locations around the world, most of which are 5,000 square feet or smaller, and we are leasing building space at Lotus’ facilities in the United Kingdom for administration, engineering and manufacturing services.
(2) The landlord of our Menlo Park lease can terminate the lease at its option on six months’ notice.
(3) Our Hawthorne, California facility is subject to a month-to-month arrangement.
(4) We do not have a written lease for this arrangement and the arrangement is on a month-to-month basis.

We are currently transitioning our headquarters and powertrain production operations from northern California to a combined corporate headquarters and production facility in Palo Alto, California. We have a lease with Stanford University for 350,000 square feet which expires in January 2016 and we believe our facility relocation will be complete in the first half of 2010. This location will also serve as our production facility for the electric vehicle components we utilize in the Tesla Roadster and for our powertrain component and systems business.

We anticipate that the build out of both our Palo Alto facility and our planned Model S manufacturing facility will be partially-financed by our DOE Loan Facility.

We currently intend to add new facilities or expand our existing facilities as we add employees and expand our production organization. We believe that suitable additional or alternative space will be available in the future on commercially reasonable terms to accommodate our foreseeable future expansion.

Legal Proceedings

From time to time, we are subject to various legal proceedings that arise from the normal course of business activities. In addition, from time to time, third parties may assert intellectual property infringement claims against us in the form of letters and other forms of communication. If an unfavorable ruling were to occur, there exists the possibility of a material adverse impact on our results of operations, prospects, cash flows, financial position and brand.

 

121


Table of Contents

MANAGEMENT

Executive Officers and Directors

The following table sets forth information about our executive officers and directors as of January 1, 2010:

 

Name

   Age   

Position

Elon Musk

   38    Chief Executive Officer, Product Architect and Chairman

Deepak Ahuja

   46    Chief Financial Officer

Jeffrey B. Straubel

   33    Chief Technology Officer

John Walker

   47    Vice President, North America Sales & Marketing

Gilbert Passin

   49   

Vice President, Manufacturing

H.E. Ahmed Saif Al Darmaki

   37    Director

Brad W. Buss(1)(2)(3)

   45    Director

Ira Ehrenpreis(2)(3)

   40    Director

Antonio J. Gracias(1)(2)

   39    Director

Stephen T. Jurvetson(1)

   42    Director

Herbert Kohler

   57    Director

Kimbal Musk

   37    Director

 

(1) Member of our Audit Committee.
(2) Member of our Compensation Committee.
(3) Member of our Nominating and Governance Committee.

Elon Musk has served as our Product Architect since May 2008, our Chief Executive Officer since October 2008 and as Chairman of our board of directors since April 2004. Mr. Musk has also served as Chief Executive Officer, Chief Technology Officer and Chairman of Space Exploration Corporation, a company which is developing and launching advanced rockets for satellite and eventually human transportation, since May 2002, and as Chairman of SolarCity, a solar installation company, since July 2006. Prior to joining Space Exploration Corporation, Mr. Musk co-founded PayPal, an electronic payment system, which was acquired by eBay in October 2002, and Zip2 Corporation, a provider of Internet enterprise software and services, which was acquired by Compaq in March 1999. Mr. Musk holds a B.A. in physics at the University of Pennsylvania, and a B.S. in business from the Wharton School of the University of Pennsylvania.

Deepak Ahuja has served our Chief Financial Officer since July 2008. Prior to joining us, Mr. Ahuja served in various positions at Ford Motor Company from August 1993 to July 2008, most recently as the Vehicle Line Controller of Small Cars Product Development from July 2006 to July 2008, and as Chief Financial Officer for Ford of Southern Africa from February 2003 to June 2006. Mr. Ahuja also served as the Chief Financial Officer for Auto Alliance International, a joint venture between Ford and Mazda, from September 2000 to February 2003. Mr. Ahuja holds an M.S.I.A. (which was subsequently redesignated as an M.B.A.) from Carnegie Mellon University, a M.S. in materials engineering from Northwestern University and a Bachelors degree in ceramic engineering from Banaras Hindu University in India.

Jeffrey B. Straubel has served as our Chief Technology Officer since May 2005 and previously served as our Principal Engineer, Drive Systems from March 2004 to May 2005. Prior to joining us, Mr. Straubel was the Chief Technical Officer and co-founder of Volacom Inc., an aerospace firm which designed a specialized high-altitude electric aircraft platform, from 2002 to 2004. Mr. Straubel holds a B.S. in energy systems engineering from Stanford University and a M.S. in engineering, with an emphasis on power electronics, microprocessor control and energy conversion, from Stanford University.

 

122


Table of Contents

John Walker has served as our Vice President, North America Sales & Marketing since August 2009. Prior to joining us, Mr. Walker served in various sales and marketing positions at Audi, a German luxury car maker, from August 1999 to August 2009 most recently as general manager sales operations for Audi of America and previously as director of sales for Audi Canada and general manager of sales for Audi Australia. Mr. Walker holds a B.S. in economics and industrial psychology from Rhodes University.

Gilbert Passin has served as our Vice President, Manufacturing since January 2010. Prior to joining us, Mr. Passin served in various positions at Toyota Motor Engineering & Manufacturing North America, an automobile manufacturer, from 2005 to January 2010 most recently as a General Manager of Production Engineering for West Coast and previously as a Vice President of Manufacturing, running both large scale production of the Corolla and Matrix models as well as production of the prestigious Lexus RX350 at the Toyota Motor Manufacturing Canada Cambridge plant. Mr. Passin also served as a Vice President and General Manager of Volvo Trucks North America at the New River Valley Plant, an automobile manufacturer, from 2002 to 2005 as well as Vice President and General Manager of Mack Trucks Inc. at the Winnsboro Assembly Facility from 2000 to 2002. Mr. Passin holds a National Engineering Degree from Ecole Centrale de Paris.

H.E. Ahmed Saif Al Darmaki has been a member of our Board of Directors since September 2009. Since September 1999, Mr. Al Darmaki has been Planning & Development Director of Abu Dhabi Water and Electricity Authority, which manages the generation, transmission and distribution of water and electricity in the Emirate of Abu Dhabi. Mr. Al Darmaki holds a B.S. in business administration and finance from United Arab Emirates University and an M.B.A. from the Zayed University.

Brad W. Buss has been a member of our Board of Directors since November 2009. Since August 2005, Mr. Buss has been Executive Vice President of Finance and Administration and Chief Financial Officer of Cypress Semiconductor Corporation, a semiconductor design and manufacturing company. Prior to joining Cypress, Mr. Buss served as Vice President of Finance at Altera Corp., a semiconductor design and manufacturing company, from March 2000 to March 2001 and from October 2001 to August 2005. From March 2001 to October 2001, Mr. Buss served as the Chief Financial Officer of Zaffire, Inc., a developer and manufacturer of optical networking equipment. Mr. Buss holds a B.S. in economics from McMaster University and an honors business administration degree, majoring in finance and accounting, from the University of Windsor.

Ira Ehrenpreis has been a member of our Board of Directors since May 2007. Mr. Ehrenpreis has been with Technology Partners, a private equity firm, since 1996. He is presently a managing member of the firm and leads the Technology Partners’ Cleantech practice. In the venture capital community, he serves on the Board of the National Venture Capital Association and the Western Association of Venture Capitalists and is the Co-Chairman of both the VCNetwork and the Young Venture Capital Association, two organizations comprising more than 1,000 venture capitalists. In the cleantech sector, he has served on several industry boards, including the American Council on Renewable Energy and the Cleantech Venture Network (Past Chairman of Advisory Board), and has been the Chairman of the Clean-Tech Investor Summit in 2005, 2006, 2007, 2008, 2009 and 2010. Mr. Ehrenpreis holds a B.A. from the University of California, Los Angeles and a J.D. and M.B.A. from Stanford University.

Antonio J. Gracias has been a member of our Board of Directors since May 2007. Since January 2003, Mr. Gracias has been Chief Executive Officer of Valor Management Corp., a venture capital firm. Mr. Gracias holds a joint B.S. and M.S. degree in international finance and economics from the Georgetown University School of Foreign Service and a J.D. from the University of Chicago Law School.

Stephen T. Jurvetson has been a member of our Board of Directors since June 2009. Since July 1995, Mr. Jurvetson has been a Managing Director of Draper Fisher Jurvetson, a venture capital firm. Mr. Jurvetson holds B.S. and M.S. degrees in electrical engineering from Stanford University and an M.B.A. from the Stanford Business School.

 

123


Table of Contents

Herbert Kohler has been a member of our Board of Directors since May 2009. Since 1976, Dr. Kohler has served in various positions at Daimler AG, or Daimler, an automobile manufacturer, most recently as Vice President of Group Research & Advanced Engineering e-drive & Future Mobility and Chief Environmental Officer since April 2009. In August 2006, Dr. Kohler was appointed head of Daimler’s Group Research & Advanced Engineering Vehicle and Powertrain. From October 2000 to August 2006, Dr. Kohler served as vice president for Daimler’s Body and Powertrain Research. Dr. Kohler holds a Diploma and Ph.D. in engineering from Stuttgart University.

Kimbal Musk has been a member of our Board of Directors since April 2004. Since June 2006, Mr. Musk has been Chief Executive Officer of OneRiot, Inc., an internet software company based in Boulder, Colorado. Since January 2004, Mr. Musk has been the owner of The Kitchen, a USA Today Top Ten restaurant. In November 1995, Mr. Musk co-founded Zip2 Corporation, a provider of enterprise software and services, which was acquired by Compaq in March 1999. Mr. Musk holds a B.Comm. in business from Queen’s University and is a graduate of The French Culinary Institute in New York City.

Our executive officers are appointed by our board of directors and serve until their successors have been duly elected and qualified. Elon Musk, our Chief Executive Officer, Product Architect and Chairman, and Kimbal Musk, one of our directors, are brothers. There are no other family relationships among any of our directors or executive officers.

Codes of Ethics

We expect our board of directors to adopt a Code of Business Conduct and Ethics that will apply to all of our employees, officers, and directors, including our chief executive officer, chief financial officer and other principal executive and senior financial officers.

Board of Directors

Our board of directors currently consists of eight members. Our bylaws permit our board of directors to establish by resolution the authorized number of directors, and eleven directors are currently authorized.

As of the closing of this offering, our amended and restated certificate of incorporation and amended and restated bylaws will provide for a classified board of directors consisting of three classes of directors, each serving staggered three-year terms, as follows:

 

   

the Class I directors will be Elon Musk, Stephen T. Jurvetson, and Herbert Kohler, and their terms will expire at the annual meeting of stockholders to be held in 2011;

 

   

the Class II directors will be H.E. Ahmed Saif Al Darmaki, Antonio J. Gracias, and Kimbal Musk, and their terms will expire at the annual meeting of stockholders to be held in 2012; and

 

   

the Class III directors will be Brad W. Buss and Ira Ehrenpreis, and their terms will expire at the annual meeting of stockholders to be held in 2013.

Upon expiration of the term of a class of directors, directors for that class will be elected for three-year terms at the annual meeting of stockholders in the year in which that term expires. Each director’s term continues until the election and qualification of his successor, or his earlier death, resignation or removal. Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. This classification of our board of directors may have the effect of delaying or preventing changes in control of our company.

 

124


Table of Contents

Director Independence

Upon the completion of this offering, our common stock will be listed on            . Under the rules of           , independent directors must comprise a majority of a listed company’s board of directors within a specified period of the completion of this offering. In addition, the rules of             require that, subject to specified exceptions, each member of a listed company’s audit, compensation and nominating and governance committees be independent. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended. Under the rules of            , a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

In order to be considered to be independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the board of directors, or any other board committee: (1) accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries.

In December 2009, our board of directors undertook a review of its composition, the composition of its committees and the independence of each director. Based upon information requested from and provided by each director concerning his background, employment and affiliations, including family relationships, our board of directors has determined that none of Messrs. Al Darmaki, Buss, Ehrenpreis, Gracias and Jurvetson, representing five of our eight directors, has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is “independent” as that term is defined under the rules of             . Our board of directors also determined that Messrs. Buss, Gracias and Jurvetson, who comprise our audit committee, Messrs. Buss, Ehrenpreis and Gracias who comprise our compensation committee, and Messrs. Buss and Ehrenpreis, who comprise our nominating and governance committee, satisfy the independence standards for those committees established by applicable SEC rules and the rules of             . In making this determination, our board of directors considered the relationships that each non-employee director has with our company and all other facts and circumstances our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director.

Committees of the Board of Directors

Our board of directors has established an audit committee, a compensation committee and a nominating and governance committee, each of which will have the composition and responsibilities described below.

Audit Committee

Our audit committee is comprised of Messrs. Buss, Gracias and Jurvetson each of whom is a non-employee member of our board of directors. Mr. Buss is the chairperson of our audit committee, is our audit committee financial expert, as that term is defined under the SEC rules implementing Section 407 of the Sarbanes-Oxley Act of 2002 and possesses financial sophistication as defined in under the rules of             . Our audit committee is responsible for, among other things:

 

   

reviewing and approving the selection of our independent auditors, and approving the audit and non-audit services to be performed by our independent auditors;

 

   

monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters;

 

   

reviewing the adequacy and effectiveness of our internal control policies and procedures;

 

125


Table of Contents
   

discussing the scope and results of the audit with the independent auditors and reviewing with management and the independent auditors our interim and year-end operating results; and

 

   

preparing the audit committee report that the SEC requires in our annual proxy statement.

Compensation Committee

Our compensation committee is currently comprised of Messrs. Buss, Ehrenpreis and Gracias. Mr. Ehrenpreis is the chairperson of our compensation committee. The compensation committee is responsible for, among other things:

 

   

overseeing our compensation policies, plans and benefit programs;

 

   

reviewing and approving for our executive officers: the annual base salary, the annual incentive bonus, including the specific goals and amount, equity compensation, employment agreements, severance arrangements and change in control arrangements, and any other benefits, compensations or arrangements;

 

   

preparing the compensation committee report that the SEC requires to be included in our annual proxy statement; and

 

   

administrating our equity compensation plans.

Nominating and Governance Committee

Our nominating and governance committee is comprised of Messrs. Buss and Ehrenpreis. The nominating and governance committee is responsible for, among other things:

 

   

assisting our board of directors in identifying prospective director nominees and recommending nominees for each annual meeting of stockholders to the board of directors;

 

   

reviewing developments in corporate governance practices and developing and recommending governance principles applicable to our board of directors;

 

   

reviewing the succession planning for our executive officers;

 

   

overseeing the evaluation of our board of directors and management; and

 

   

recommending members for each board committee to our board of directors.

Director Compensation

Our directors do not currently receive any cash compensation for their services as directors or as board committee members. In connection with their election to our board of directors, certain of our non-employee directors were granted options to purchase shares of our common stock as follows:

 

Name

  Date of
Grant
  Number of
Shares
Underlying
Option
  Exercise
Price ($)
  Vesting Start
Date(1)
  Option
Awards ($)(2)
  Total ($)(3)

H.E. Ahmed Saif Al Darmaki

  12/4/2009   100,000   2.21   8/31/2009   140,260   140,260

Brad W. Buss

  12/4/2009   100,000   2.21   11/8/2009   140,260   140,260

Ira Ehrenpreis(4)

  6/6/2007   100,000   0.60   5/9/2007   26,192   26,192

Antonio J. Gracias(5)

  6/6/2007   100,000   0.60   5/9/2007   26,192   26,192

Stephen T. Jurvetson

  12/4/2009   100,000   2.21   6/25/2009   140,260   140,260

Herbert Kohler(6)

  12/4/2009   100,000   2.21   5/11/2009   140,260   140,260

 

126


Table of Contents

 

(1)

These options vest as to  1 / 4 th of the shares subject to the option on the one-year anniversary of the vesting commencement date, and  1 / 48 th of the shares subject to the option per month for the subsequent three years, subject to the directors’ continued service through each vesting date.

(2) The amounts in this column represent the aggregate grant date fair value of the option awards computed in accordance with FASB Topic ASC 718. These amounts do not correspond to the actual value that will be recognized by the directors. The assumptions used in the valuation of these awards are consistent with the valuation methodologies specified in the notes to our consolidated financial statements.
(3) Our directors did not receive any compensation in fiscal 2009 other than these options.
(4) Option subsequently transferred to TP Management VIII, LLC.
(5) Option subsequently transferred to Valor Equity Management, LLC.
(6) Option subsequently transferred to Daimler North America Corporation.

As discussed below, the compensation committee has retained Compensia, Inc., or Compensia, a compensation advisory firm, to provide recommendation on director compensation following this offering based on an analysis of market data compiled from certain public technology companies, including the following:

 

•    3Com Corporation

•    3PAR Inc.

•    A123 Systems, Inc.

•    Ancestry.com Inc.

•    ArcSight, Inc.

•    Atheros Communications, Inc.

•    Atmel Corporation

•    AVX Corporation

•    Brocade Communications Systems, Inc.

•    Cadence Design Systems, Inc.

•    Cavium Networks, Inc.

•    Compellent Technologies, Inc.

•    Constant Contact, Inc.

•    Cypress Semiconductor Corporation

•    Data Domain, Inc.

•    Fortinet, Inc.

•    IAC/InterActiveCorp

•    Informatica Corporation

•    Intellon Corporation

•    Intersil Corporation

•    JDS Uniphase Corporation

•    Limelight Networks, Inc.

•    LogMeIn, Inc.

•    MICROS Systems, Inc.

  

•    Monster Worldwide, Inc.

•    Netezza Corporation

•    NetSuite Inc.

•    Novellus Systems, Inc.

•    Omniture, Inc.

•    Opentable, Inc.

•    Palm, Inc.

•    PMC-Sierra, Inc.

•    Polycom, Inc.

•    Rambus Inc.

•    Riverbed Technology, Inc.

•    Rosetta Stone Inc.

•    Silicon Laboratories Inc.

•    Sirius XM Radio Inc.

•    Skyworks Solutions, Inc.

•    Solarwinds, Inc.

•    Sourcefire, Inc.

•    SuccessFactors, Inc.

•    SunPower Corporation

•    Synopsys, Inc.

•    TechTarget, Inc.

•    Tellabs, Inc.

•    Teradyne, Inc.

Based on the recommendation of Compensia, our compensation committee has adopted an outside director compensation policy that will become applicable to all of our non-employee directors effective upon the completion of this offering. This policy provides that each such non-employee director will receive the following compensation for board services:

 

   

an annual cash retainer for general service of $20,000;

 

   

no cash awards for attendance of general board meetings;

 

   

an annual cash retainer for serving on the audit committee of $7,500 per member, for serving on the compensation committee of $5,000 per member, and for serving on the nominating and corporate governance committee of $5,000 per member;

 

127


Table of Contents
   

an additional annual cash retainer for serving as the chairman of the audit committee of $15,000, for serving as the chairman of the compensation committee of $10,000 and for serving as the chairman of the nominating and governance committee of $7,500;

 

   

upon first joining the board, an automatic initial grant of a stock option to purchase 100,000 shares of our common stock vesting  1 / 4 th on the one year anniversary of the vesting commencement date and  1 / 48 th per month thereafter for the next three years, subject to continued service through each vesting date; and

 

   

each year shortly following the annual meeting an automatic annual grant of a stock option to purchase 50,000 shares of our common stock vesting on the earlier of (i) the one year anniversary of the vesting commencement date or (ii) the day prior to the next annual meeting, subject to continued service through the vesting date.

If, following a change of control, a director is terminated, all options granted to the director pursuant to the compensation policy shall fully vest and become immediately exercisable.

Compensation Committee Interlocks and Insider Participation

None of the members of our compensation committee is an officer or employee of our company. None of our executive officers currently serves, or in the past year has served, as a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of any entity that has one or more executive officers serving on our compensation committee.

 

128


Table of Contents

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

The following discussion and analysis of compensation arrangements of our named executive officers for 2009 and 2010 should be read together with the compensation tables and related disclosures set forth below. This discussion contains forward-looking statements that are based on our current considerations, expectations, and determinations regarding future compensation programs. The actual amount and form of compensation and the compensation programs that we adopt may differ materially from current or planned programs as summarized in this discussion.

Compensation Philosophy—Introduction

We design, manufacture and sell high-performance electric vehicles and advanced electric vehicle powertrain components. To achieve these goals, we designed, and intend to modify as necessary, our compensation and benefits program and philosophy, to attract, retain and incentivize talented, deeply qualified, and committed executive officers that share our philosophy and desire to work toward these goals. We believe compensation incentives for such executive officers should promote the success of our company and motivate them to pursue corporate objectives, and above all should be structured so as to reward clear, easily measured performance goals that closely align the executive officers’ incentives with the long-term interests of stockholders. To fulfill these goals, we are currently undertaking a comprehensive review and evaluation of all of our compensation programs, which we expect will continue throughout 2010.

In recent years, we have successfully navigated a wide variety of difficult operational and financial challenges and undergone several periods of rapid change that have directly affected the compensation structure of our executive team. The compensation offered to our senior executive officers has varied significantly as a result of these historical circumstances. Therefore, we will, as part of our evaluation of our compensation programs, seek to harmonize the compensation structures of senior executive officers and other employees to conform to our overall compensation philosophy.

Our current compensation programs reflect our startup origins in that they consist primarily of salary and stock options for senior executive officers. Consistent with our historical compensation philosophy, we do not currently provide our senior executive officers or other employees with any form of a cash bonus program, or, except as noted below, any severance provisions providing for continued salary or other benefits upon termination of an executive officer’s employment with us or other equity-based compensation, other than option grants. In certain limited cases, we have granted an executive up to 12 months vesting acceleration of certain stock options in the event of a termination of employment following a change of control. As a special dispensation to offset the risk to him associated with his relocation to California from Michigan and our strong desire to retain his talent and expertise, we also provided Deepak Ahuja, our Chief Financial Officer, the right to receive severance if he was terminated within the first 12 months of his employment. To date, we have not formally benchmarked our compensation program against any group of peer companies.

Beginning in the fourth quarter of 2009, we, primarily under the leadership of the Compensation Committee of our board of directors, began a comprehensive review of Chief Executive Officer, or CEO, compensation, director compensation, and executive compensation. The Compensation Committee retained Compensia, Inc., or Compensia, a compensation advisory firm, to provide data and consultation to the Compensation Committee in developing a systematic set of recommendations for CEO, director, and executive compensation. The Compensation Committee, currently consisting of Messrs. Buss (who joined the Committee in November 2009), Ehrenpreis, and Gracias, initially reviewed and made recommendations to the full Board on CEO and director compensation as described below, and in collaboration with the CEO has begun a comprehensive review of executive compensation, to be continued and completed in 2010. We anticipate increasing the flexibility and elements of our compensation structure, while striving to maintain transparency, simplicity, and a clear pay for performance orientation.

 

129


Table of Contents

Additionally, as our needs evolve, we intend to continue to evaluate our philosophy and compensation programs as circumstances require, and at a minimum, we will review executive compensation annually. We anticipate making new equity awards and adjustments to the components of our executive compensation program in connection with our yearly compensation review, which will be based, in part, upon the market analysis performed by Compensia that may include benchmarking against a peer group of companies to be determined in the future and the recommendations to the Compensation Committee by our Chief Executive Officer.

Role of the Compensation Committee in Setting Executive Compensation

The Compensation Committee has overall responsibility for recommending to our Board of Directors the compensation of our Chief Executive Officer and determining the compensation of our other executive officers. Members of the Compensation Committee are appointed by the Board of Directors. Currently, the Compensation Committee consists of three members of the Board, Messrs. Buss, Ehrenpreis, and Gracias, none of whom are executive officers of the Company, and Messrs. Buss, Ehrenpreis and Gracias each qualify as (i) an “independent director” under the             listing standards, and (ii) an “outside director” under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). See the section entitled “Management—Committees of the Board of Directors—Compensation Committee.”

Role of Compensation Consultant

The Compensation Committee has the authority to engage the services of outside consultants to assist it making decisions regarding the establishment of the Company’s compensation programs and philosophy. The Compensation Committee retained Compensia as its compensation consultant in 2009 to advise the Compensation Committee in matters related to CEO compensation and director compensation. The Compensation Committee has begun, but not yet completed, its analysis of executive officer compensation for 2010, which may include recommendation from Compensia or another outside consultant. As of this filing, Compensia has assisted the Compensation Committee in determining appropriate equity grants to our CEO and non-employee director compensation.

Role of Executive Officers in Compensation Decisions

For executive officers other than our Chief Executive Officer, the Compensation Committee has historically sought and considered input from our Chief Executive Officer regarding such executive officers’ responsibilities, performance and compensation. Specifically, our Chief Executive Officer recommends base salary increases and equity award levels that are used throughout our compensation plans, and advises the Compensation Committee regarding the compensation program’s ability to attract, retain and motivate executive talent. These recommendations reflect compensation levels that our Chief Executive Officer believes are qualitatively commensurate with an executive officer’s individual qualifications, experience, responsibility level, functional role, knowledge, skills, and individual performance, as well as our company’s performance. Our Compensation Committee considers our Chief Executive Officer’s recommendations, but may adjust up or down as it determines in its discretion, and approves the specific compensation for all the executive officers. Our Compensation Committee also relies on the experience of our directors affiliated with venture capital firms, which have representatives on the boards of numerous private companies, in determining and approving the specific compensation amounts. All such compensation determinations are largely discretionary.

Our Compensation Committee meets in executive session, and our Chief Executive Officer does not attend Compensation Committee discussions where recommendations are made regarding his compensation. He also abstains from voting in sessions of the Board of Directors where the Board of Directors acts on the Compensation Committee’s recommendations regarding his compensation.

Chief Executive Officer Compensation

In developing compensation recommendations for the Chief Executive Officer, the Compensation Committee has sought both to appropriately reward the Chief Executive Officer’s previous and current contributions and to

 

130


Table of Contents

create incentives for the Chief Executive Officer to continue to contribute significantly to successful results in the future. Our Chief Executive Officer, Elon Musk, has been working for an annual base salary of $33,280, during his tenure as our Chief Executive Officer in order to help us preserve our cash balances. Prior to December 2009, Mr. Musk also did not receive any equity compensation for his services. In addition to serving as the Chief Executive Officer since October 2008, Mr. Musk has contributed significantly and actively to us since our earliest days in April 2004 by recruiting executives and engineers, contributing to the Tesla Roadster’s engineering and design, raising capital for us and bringing investors to us, and raising public awareness of the Company. Further, Mr. Musk has served, and continues to serve, as our Chief Product Architect.

As part of its review, the Compensation Committee requested summary data from Compensia concerning ranges of compensatory equity ownership levels as a percentage of the company by Chief Executive Officers who have played a significant role in the founding and early stage growth of technology companies. This review included an assessment of founder ownership data in late-stage, pre-IPO companies of similar size and capital to us and founder ownership data of a broad sampling of technology companies at the time of the IPO. The data presented to the Compensation Committee by Compensia analyzed the total beneficial ownership of founder CEOs immediately prior to the IPO. It was noted that the vast majority of these CEOs acquired their equity through compensatory equity grants as opposed to preferred stock acquired via investment.

Based on its judgment, a review of competitive market ownership data, and its view that compensation should be tied to clear, measurable performance goals that would best align Mr. Musk with stockholder interests, the Compensation Committee recommended, and the Board adopted in December 2009, a compensation approach for Mr. Musk, which provides compensation primarily through stock options designed to promote long-term stockholder interests.

Among the accomplishments achieved during Mr. Musk’s involvement with us that the Compensation Committee felt deserved recognition, the Compensation Committee considered our successful launch of the Tesla Roadster in 2008, the extension of sales to Europe in 2009, our early success in building a well-recognized worldwide brand, and our success in fundraising during the 2008-2009 time period, when despite difficult external conditions, we raised equity financing and entered into the DOE Loan Facility, together totaling more than $500 million.

In recognition of these achievements and to create incentives for future success, the Compensation Committee recommended, and the Board of Directors approved a grant to Mr. Musk of 10,067,960 options to purchase shares of our common stock at an exercise price of $2.21 per share representing 4% of our fully-diluted share base as of December 4, 2009, with  1 / 4 th of the shares subject to the option vesting immediately, and  1 / 48 th of the shares subject to the option scheduled to vest each month thereafter over the next three years, assuming Mr. Musk’s continued service to us through each vesting date.

In addition, to create incentives for the attainment of clear performance objectives around a key element of our current business plan—the successful launch and commercialization of the Model S—the Compensation Committee recommended and the Board of Directors approved on December 4, 2009, an additional grant to Mr. Musk of 10,067,960 options to purchase shares of our common stock at an exercise price of $2.21 per share totaling an additional 4% of our fully-diluted shares as of December 4, 2009, with a vesting schedule based entirely on the attainment of performance objectives as follows, assuming Mr. Musk’s continued service to us through each vesting date:

 

   

 1 / 4 th of the shares subject to the option are scheduled to vest upon the successful completion of the Model S Engineering Prototype;

 

   

 1 / 4 th of the shares subject to the option are scheduled to vest upon the successful completion of the Model S Vehicle Prototype;

 

   

 1 / 4 th of the shares subject to the option are scheduled to vest upon the completion of the first Model S Production Vehicle; and

 

131


Table of Contents
   

 1 / 4 th of the shares subject to the option are scheduled to vest upon the completion of 10,000 th Model S Production Vehicle.

The milestones for this option award were designed to reward Mr. Musk for company-based performance goals that align Mr. Musk’s compensation with the long-term interests of stockholders and the United States Department of Energy. The milestones were set at levels that are attainable and critical to our success. If Mr. Musk does not meet one or more of the above milestones prior to the fourth anniversary of the date of grant he will forfeit his right to the unvested portion of the option.

Executive Officer Compensation

Historically, our Chief Executive Officer has made recommendations to our Board of Directors and Compensation Committee regarding compensation for other executive officers and our Board and Compensation Committee have generally adopted the Chief Executive Officer’s recommendations.

As indicated above, our Compensation Committee has begun to develop an overall set of compensation recommendations for our executive officers. However, the process is ongoing and is expected to be completed during calendar year 2010. Goals of the review include:

 

   

Establishing a compensation program structure to attract and retain the most highly qualified executive officers.

 

   

Developing compensation guiding principles, including a comparative peer group and targeted market positioning for different compensation elements.

 

   

Harmonizing salary, equity awards, and other compensation benefits for executive officers hired under significantly different circumstances.

 

   

Continuing to align executive officer compensation, both in individual cases and as a team, to the long-term interests of stockholders.

 

   

Developing a flexibility that permits the accommodation of appropriate individual circumstances.

 

   

Emphasizing clear, easily-measured performance goals to help align executive officer compensation with the long-term interests of stockholders.

 

132


Table of Contents

In the third quarter of 2009, we completed performance reviews for our employees and executive officers, and in some cases as a result of these reviews, executive officers received additional stock option grants. The grants were recommended in the third quarter, and granted in the fourth quarter. Additionally, in the fourth quarter of 2009, based on recommendations from our CEO to the Compensation Committee, the Compensation Committee reviewed certain officers’ overall contribution and recommended additional equity option grants as a first step in modifying Executive Officer compensation—especially those with longer tenures with us—consistent with the goals above. The following table sets forth the stock option grants we made to our named executive officers in the third and fourth quarters of 2009:

 

Name

  Date of
Grant
  Number of
Shares
Underlying
Option
  Exercise
Price ($)
  Vesting Start
Date
 

Vesting Schedule(1)

Elon Musk

  12/4/2009   10,067,960   2.21   12/4/2009    1 / 4 th vested immediately upon grant,  1 / 48 th  per month over the subsequent three years
  12/4/2009   10,067,960   2.21   —     Vesting upon the achievement of milestones as described above

Deepak Ahuja

  12/4/2009   162,501   2.21   8/16/2009    1 / 48 th per month

Jeffrey B. Straubel

  12/4/2009   351,250   2.21   8/16/2009    1 / 48 th per month

John Walker

  10/21/2009   250,000   2.05   8/17/2009    1 / 4 th vested immediately on vesting start date,  1 / 48 th per month over the subsequent three years

Jon Sobel(2)

  10/21/2009   400,000   2.05   9/28/2009    1 / 4 th one year after the vesting start date,  1 / 48 th per month over the subsequent three years

 

(1) In each case, vesting remains subject to continued service through each vesting date.
(2) Mr. Sobel resigned as our General Counsel in December 2009.

The review of executive compensation is ongoing, and the Compensation Committee, Chief Executive Officer, and Board of Directors anticipate additional modifications in 2010 as a result of aligning executive compensation with the goals described above.

Elements of Compensation

Our current executive compensation program, which was set by our Compensation Committee, consists of the following components:

 

   

base salary;

 

   

equity-based incentives;

 

   

severance and change of control benefits; and

 

   

other benefits.

We combine these elements in order to formulate compensation packages that provide competitive pay, reward achievement of financial, operational and strategic objectives and align the interests of our named executive officers and other senior personnel with those of our stockholders.

 

133


Table of Contents

Base Salary

We provide base salary to our named executive officers and other employees to compensate them for services rendered on a day-to-day basis during the fiscal year. The following table sets forth information regarding the base salary for fiscal year 2009 and 2010 for our named executive officers:

 

Named Executive Officer

   Fiscal 2009 Base
Salary ($)
    Fiscal 2010 Base
Salary ($)

Elon Musk(1)

   33,280      33,280

Deepak Ahuja

   275,000 (2)    300,000

Jeffrey B. Straubel

   185,000 (3)    205,000

John Walker

   250,000      250,000

Michael Donoughe(4)

   325,000      —  

Jon Sobel(5)

   300,000      —  

 

(1) Mr. Musk’s salary is based on the minimum wage requirements for executive officers in the State of California and he is subject to income taxes based on such base salary. Mr. Musk, however, currently only accepts $1 per year for his services. Under California law, Mr. Musk is entitled to the portion of the base salary that he does not receive each year.
(2) Mr. Ahuja’s base salary was increased from $275,000 to $300,000 effective August 1, 2009.
(3) Mr. Straubel’s base salary was increased from $185,000 to $205,000 effective August 1, 2009.
(4) Mr. Donoughe resigned as our Executive Vice President, Vehicle Engineering and Manufacturing in September 2009, although he remained employed on a leave of absence basis through December 31, 2009.
(5) Mr. Sobel resigned as our General Counsel in December 2009.

Prior to this offering, our Chief Executive Officer has been responsible for setting other executives’ base salaries and our Board of Directors has been responsible for setting the CEO’s base salary. Base salaries for certain of our executive officers were increased during 2009 to award them for individual past performance.

Equity-based incentives

Our equity award program is the primary vehicle for offering long-term incentives to our named executive officers. Our equity-based incentives have historically been granted in the form of options to purchase shares of our common stock, including the grant of options at the commencement of employment for the majority of our current named executive officers. We believe that equity grants align the interests of our named executive officers with our stockholders, provide our named executive officers with incentives linked to long-term performance and create an ownership culture. In addition, the vesting feature of our equity grants contributes to executive retention because this feature provides an incentive to our named executive officers to remain in our employ during the vesting period. To date, we have not had an established set of criteria for granting equity awards; instead the Compensation Committee exercised its judgment and discretion, in consultation with our CEO, and considered, among other things, the role and responsibility of the named executive officer, competitive factors, the amount of stock-based equity compensation already held by the named executive officer, and the cash-based compensation received by the named executive officer to determine its recommendations for equity awards, which it then provided to our Board of Directors for approval.

We do not have, nor do we plan to establish, any program, plan, or practice to time stock option grants in coordination with releasing material non-public information.

Severance and Change of Control Benefits

We entered into offer letters and other agreements that require specific payments and benefits to be provided to our named executive officers in the event of termination of employment in connection with a change of control. See “Executive Compensation—Compensation Discussion and Analysis—Potential Payments Upon Change of Control.”

 

134


Table of Contents

Bonus

We currently do not provide any cash-based bonus awards to our named executive officers.

Perks

We generally do not provide any additional perquisites to our named executive officers except in certain limited circumstances. For example, we entered into a relocation agreement with Deepak Ahuja, our Chief Financial Officer, to reimburse him for certain relocation expenses. See “Executive Compensation—Offer Letters and Change of Control Agreements.” Additionally we agreed to reimburse John Walker, our Vice President, North America Sales & Marketing, for temporary living expenses for a six-month period from August 17, 2009 through February 17, 2010, up to a maximum with $4,000 per month for temporary housing and incidental expenses, including a full gross up for any tax liability incurred with respect to the reimbursements.

Benefits

We provide the following benefits to our named executive officers on the same basis provided to all of our employees:

 

   

health, dental and vision insurance;

 

   

life insurance and accidental death and dismemberment insurance;

 

   

a 401(k) plan;

 

   

employee assistance plan;

 

   

short-and long-term disability;

 

   

medical and dependent care flexible spending account; and

 

   

a health savings account.

Tax Considerations

We have not provided any executive officer or director with a gross-up or other reimbursement for tax amounts the executive might pay pursuant to Section 280G or Section 409A of the Code. Section 280G and related Code sections provide that executive officers, directors who hold significant stockholder interests and certain other service providers could be subject to significant additional taxes if they receive payments or benefits in connection with a change in control of us that exceeds certain limits, and that we or our successor could lose a deduction on the amounts subject to the additional tax. Section 409A also imposes additional significant taxes on the individual in the event that an executive officer, director or service provider receives “deferred compensation” that does not meet the requirements of Section 409A.

Because of the limitations of Internal Revenue Code Section 162(m), we generally receive a federal income tax deduction for compensation paid to our chief executive officer and to certain other highly compensated officers only if the compensation is less than $1,000,000 per person during any fiscal year or is “performance- based” under Code Section 162(m). In addition to salary and bonus compensation, upon the exercise of stock options that are not treated as incentive stock options, the excess of the current market price over the option price, or option spread, is treated as compensation and accordingly, in any year, such exercise may cause an officer’s total compensation to exceed $1,000,000. Option spread compensation from options that meet certain requirements will not be subject to the $1,000,000 cap on deductibility, and in the past we have granted options that we believe met those requirements. Additionally, under a special Code Section 162(m) exception, any compensation paid pursuant to a compensation plan in existence before the effective date of this public offering will not be subject to the $1,000,000 limitation until the earliest of: (i) the expiration of the compensation plan, (ii) a material modification of the compensation plan (as determined under Code Section 162(m), (iii) the issuance of all the employer stock and other compensation allocated under the compensation plan, or (iv) the first

 

135


Table of Contents

meeting of stockholders at which directors are elected after the close of the third calendar year following the year in which the public offering occurs. While the Compensation Committee cannot predict how the deductibility limit may impact our compensation program in future years, the Compensation Committee intends to maintain an approach to executive compensation that strongly links pay to performance. In addition, while the Compensation Committee has not adopted a formal policy regarding tax deductibility of compensation paid to our named executive officers, the Compensation Committee intends to consider tax deductibility under Code Section 162(m) as a factor in compensation decisions.

Summary Compensation Table

The following table provides information regarding the compensation of our principal executive officer, principal financial officer, and each of the next three most highly compensated executive officers during our year ended December 31, 2009. We refer to these executive officers as our “named executive officers.”

 

Name and Principal Position

  Year   Salary ($)     Option
Awards ($)(1)
  All Other
Compensation ($)
    Total ($)

Elon Musk

Chief Executive Officer

  2009   33,280      23,893,283   206,245 (2)    24,132,808

Deepak Ahuja

Chief Financial Officer

  2009   287,200      225,178   156,344 (3)    668,722

Jeffrey B. Straubel

Chief Technology Officer

  2009   192,922      540,832   —        733,754

John Walker

Vice President, North America Sales & Marketing

  2009   106,650 (4)    272,725   14,900 (5)    394,275

Michael Donoughe(6)

Former Executive Vice President, Vehicle Engineering and Manufacturing

  2009   325,000      70,332   —        395,332

Jon Sobel(7)

Former General Counsel

  2009   88,558
  
  436,360
  —  
  
  524,918

 

(1) The amounts in this column represent the aggregate grant date fair value of the option awards computed in accordance with FASB Topic ASC 718. See Note 10 of Notes to Consolidated Financial Statements for a discussion of assumptions made in determining the grant date fair value and compensation expense of our stock options.
(2) Includes reimbursement for filing fees in the amount of $125,000 paid by Mr. Musk on behalf of the Elon Musk Revocable Trust dated July 22, 2003 in connection with a filing made under the Hart Scott-Rodino Antitrust Improvements Act of 1976, as amended, as a result of the acquisition of additional shares of our voting securities by the Elon Musk Trust as part of our Series E preferred stock financing plus an additional tax gross-up amount of $81,245.
(3) Includes reimbursement for relocation expenses in the amount of $70,789 and reimbursement for temporary housing expenses in the amount of $85,554.
(4) Mr. Walker joined us as our Vice President, North America Sales & Marketing in August 2009 and received a prorated base salary based on an annual salary of $250,000. Amount includes sales commissions paid to Mr. Walker in the amount of $12,900.
(5) Includes reimbursement for temporary housing and incidental expenses in the amount of $14,900.
(6) Mr. Donoughe resigned as our Executive Vice President, Vehicle Engineering and Manufacturing in September 2009, although he remained employed on a leave of absence basis through December 31, 2009.
(7) Mr. Sobel joined us as our General Counsel in August 2009 and resigned in December 2009 and received a prorated base salary based on an annual based salary of $300,000.

 

136


Table of Contents

Grants of Plan-Based Awards in Fiscal 2009

The following table provides information regarding grants of plan-based awards to each of our named executive officers during the year ended December 31, 2009.

Grants of Plan-Based Awards

For Year Ended December 31, 2009

 

Name

   Grant Date(1)    All Other Option
Awards: Number of
Securities

Underlying Options (#)
   Exercise or Base
Price of Option
Awards ($/Sh)
   Grant Date Fair
Value of Option
Awards ($)(2)

Elon Musk

   12/4/2009    20,135,920    2.21    23,893,283

Deepak Ahuja

   12/4/2009    162,501    2.21    190,012
   4/13/2009    87,499    0.90    35,166

Jeffrey B. Straubel

   12/4/2009    351,250    2.21    410,717
   4/13/2009    323,750    0.90    130,115

John Walker

   10/21/2009    250,000    2.05    272,725

Michael Donoughe(3)

   4/13/2009    174,999    0.90    70,332

Jon Sobel(4)

   10/21/2009    400,000    2.05    436,360

 

(1) The vesting schedule applicable to each award is set forth below in the section entitled “Outstanding Equity Awards at Fiscal Year-End 2009”.
(2) Reflects the grant date fair value of each award computed in accordance with FASB ASC Topic 718. These amounts do not correspond to the actual value that will be recognized by the named executive officers. The assumptions used in the valuation of these awards are consistent with the valuation methodologies specified in the notes to our consolidated financial statements.
(3) Mr. Donoughe resigned as our Executive Vice President, Vehicle Engineering and Manufacturing in September 2009, although he remained employed on a leave of absence basis through December 31, 2009.
(4) Mr. Sobel resigned as our General Counsel in December 2009.

 

137


Table of Contents

Outstanding Equity Awards at Fiscal Year-End 2009

The following table presents certain information concerning outstanding equity awards held by each of our named executive officers at December 31, 2009.

 

     Option Awards

Name

   Grant Date     Number of
Securities
Underlying
Unexercised
Options
Exercisable (#)
   Number of
Securities
Underlying
Unexercised
Options
Unexercisable (#)
   Option Exercise
Price Per Share ($)
   Option
Expiration
Date

Elon Musk

   12/4/2009 (1)    2,516,990    7,550,970    2.21    12/3/2016
   12/4/2009 (2)    —      10,067,960    2.21    12/3/2016

Deepak Ahuja

   12/4/2009 (3)    13,541    148,960    2.21    12/3/2016
   4/13/2009 (4)    14,583    72,916    0.90    4/12/2016
   9/3/2008 (5)    88,540    161,460    0.90    9/2/2015

Jeffrey B. Straubel

   12/4/2009 (6)    29,270    321,980    2.21    12/3/2016
   4/13/2009 (7)    53,958    269,792    0.90    4/12/2016
   6/4/2008 (8)    39,583    60,417    0.90    6/3/2015
   11/9/2007 (9)    134,375    15,625    0.70    11/8/2014
   5/31/2006 (10)    447,917    52,083    0.12    5/30/2013
   5/27/2005      25,000    —      0.074    5/26/2012
   5/27/2004      150,000    —      0.05    5/26/2011

John Walker

   10/21/2009 (11)    —      250,000    2.05    10/20/2016

Michael Donoughe

   4/13/2009 (12)    7,292    145,833    0.90    4/12/2016
   7/8/2008 (13)    142,362    —      0.90    7/7/2015

Jon Sobel

   10/21/2009 (14)    —      400,000    2.05    10/20/2016

 

(1)

 1 / 4 th of the total number of shares subject to the option became vested and exercisable on the grant date and the remaining shares subject to the option vest at a rate of  1 / 48 th of the total number of shares subject to the option each month thereafter, subject to Mr. Musk’s continued service to us on each such vesting date.

(2)

 1 / 4 th of the total number of shares subject to the option will vest upon completion of the Model S engineering prototype as determined by our board of directors,  1 / 4 th of the total number of shares subject to the option will vest upon completion of the Model S vehicle prototype as determined by our board of directors,  1 / 4 th of the total number of shares subject to the option subject to the option will vest upon the first production of the Model S vehicle as determined by our board of directors and  1 / 4 th of the total number of shares subject to the option will vest upon completion of production of the 10,000th Model S vehicle as determined by our board of directors, in each case subject to Mr. Musk’s continued to service to us on each such vesting date and the completion of the objective within the four-year period following the vesting commencement date.

(3)

 1 / 48 th of the total number of shares subject to the option shall vest monthly starting August 16, 2009, subject to Mr. Ahuja’s continued service to us on each such vesting date.

(4)

 1 / 48 th of the total number of shares subject to the option shall vest monthly starting April 13, 2009, subject to Mr. Ahuja’s continued service to us on each such vesting date.

(5)

 1 / 4 th of the total number of shares subject to the option become vested and exercisable on July 31, 2009 and the remaining shares subject to the option vest at a rate of  1 / 48 th of the total number of shares subject to the option each month thereafter, subject to Mr. Ahuja’s continued service to us on each such vesting date.

(6)

 1 / 48 th of the total number of shares subject to the option shall vest monthly starting August 16, 2009, subject to Mr. Straubel’s continued service to us on each such vesting date.

(7)

 1 / 48 th of the total number of shares subject to the option shall vest monthly starting April 13, 2009, subject to Mr. Straubel’s continued service to us on each such vesting date.

(8)

 1 / 48 th of the total number of share subject to the option shall vest monthly starting May 7, 2008, subject to Mr. Straubel’s continued service to us on each such vesting date.

 

138


Table of Contents
(9)

 1 / 48 th of the total number of share subject to the option shall vest monthly starting May 31, 2006, subject to Mr. Straubel’s continued service to us on each such vesting date.

(10)

 1 / 4 th of the total number of shares subject to the option became vested and exercisable on May 31, 2007 and the remaining shares subject to the option vest at a rate of  1 / 48 th of the total number of shares subject to the option each month thereafter, subject to Mr. Straubel’s continued service to us on each such vesting date.

(11)

 1 / 4 th of the total number of shares subject to the option will become vested and exercisable on August 17, 2010 and the remaining shares subject to the option vest at a rate of  1 / 48 th of the total number of shares subject to the option each month thereafter, subject to Mr. Walker’s continued service to us on each such vesting date.

(12)

 1 / 48 th of the total number of shares subject to the option shall vest monthly starting April 13, 2009, subject to Mr. Donoughe’s continued service to us on each such vesting date. Mr. Donoughe’s employment with us terminated on December 31, 2009.

(13)

 1 / 4 th of the total number of shares subject to the option became vested and exercisable on July 8, 2009 and the remaining shares subject to the option vest at a rate of  1 / 48 th of the total number of shares subject to the option each month thereafter, subject to Mr. Donoughe’s continued service to us on each such vesting date. Mr. Donoughe’s employment with us terminated on December 31, 2009.

(14) Mr. Sobel resigned as our General Counsel in December 2009. None of the shares subject to the option were vested as of his termination date.

Option Exercises and Stock Vested in Fiscal 2009

The following table sets forth information regarding options exercised by our named executive officers during fiscal year ended December 31, 2009.

 

Name

   Number of Shares
Acquired on
Exercise (#)
   Value
Realized on
Exercise ($)
 

Elon Musk

   —      —     

Deepak Ahuja

   —      —     

Jeffrey B. Straubel

   —      —     

John Walker

   —      —     

Michael Donoughe

   56,596    65,085 (1) 

John Walker

   —      —     

 

(1) The aggregate dollar amount realized upon the exercise of the option represents the amount by which (x) the aggregate market price of the shares of our common stock for which Mr. Donoughe exercised the option on October 27, 2009, the date of exercise, as calculated using a per share fair market value of $2.05, which is based on the most recent independent appraisal completed prior to the date of exercise exceeds (y) the aggregate exercise price of the option, as calculated using a per share exercise price of $0.90.

Pension Benefits & Nonqualified Deferred Compensation

We do not provide a pension plan for our employees and none of our named executive officers participated in a nonqualified deferred compensation plan during the fiscal year ended December 31, 2009.

Offer Letters and Change of Control Arrangements

Elon Musk

We entered into an offer letter agreement with Elon Musk, our Chief Executive Officer, on October 13, 2009. The offer letter agreement has no specific term and constitutes at-will employment. Mr. Musk’s current annual base salary is $33,280.

 

139


Table of Contents

Deepak Ahuja

We entered into an offer letter agreement with Deepak Ahuja, our Chief Financial Officer, on June 13, 2008. The offer letter agreement has no specific term and constitutes at-will employment. Mr. Ahuja’s current annual base salary is $300,000. In addition, Mr. Ahuja received options to purchase 250,000 shares of our common stock at an exercise price per share of $0.90, which was equal to the fair market value of our common stock on the date the options were granted as determined by our board of directors. The offer letter agreement provides for 12 months of additional vesting of these options in the event Mr. Ahuja is terminated without cause within one year following a change in control of us. The offer letter agreement also provides that if we terminated Mr. Ahuja without cause within 12 months of his employment start date we would continue to pay Mr. Ahuja his salary until the earlier of his commencing suitable employment with another firm or six months from the date of his termination.

On October 31, 2008, we entered into a relocation agreement with Mr. Ahuja, which superseded the offer letter agreement with respect to all relocation benefits provided under the offer letter agreement. The relocation agreement provided for the reimbursement of up to $5,000 per month for rent payments for a residence for Mr. Ahuja and his family for one year. This reimbursement benefit was extended by amendment through December 31, 2009. The relocation agreement provided for the reimbursement of any sales commissions and closing costs for the sale of Mr. Ahuja’s residence in Michigan, not in excess of $70,000, provided that if Mr. Ahuja voluntarily terminated his employment with us at any time within 18 months of his employment start date then Mr. Ahuja would repay all such reimbursements related to the sale of his residence. The relocation agreement further provided for the reimbursement of reasonable costs of transporting Mr. Ahuja’s goods and personal effects and up to two cars, subject to the specific terms of the relocation agreement.

Jeffrey B. Straubel

We entered into an offer letter agreement with Jeffrey B. Straubel, our Chief Technology Officer, on May 6, 2004. The offer letter agreement has no specific term and constitutes at-will employment. Mr. Straubel’s current annual base salary is $205,000. In addition, Mr. Straubel received options to purchase 150,000 shares of our common stock at an exercise price per share of $0.05, which was equal to the fair market value on the date the options were granted as determined by our board of directors.

John Walker

We entered into an offer letter agreement with John Walker, our Vice President, United States Sales and Marketing, on August 17, 2009. The offer letter agreement has no specific term and constitutes at-will employment. Mr. Walker’s current annual base salary is $250,000 and he receives a bonus of $100 for each Tesla Roadster sold in North America. Mr. Walker is also eligible for other bonuses, as we may from time to time determine to award in our discretion. In addition, Mr. Walker received an option to purchase 250,000 shares of our common stock at an exercise price per share of $2.05, which was equal to the fair market value of our common stock on the date the option was granted. Further, the offer letter agreement, as modified by a separate Relocation Agreement, provides for the reimbursement of temporary living and incidental expenses until Mr. Walker relocates his family to California of up to $4,000 per month for a maximum of six months. In addition, Mr. Walker will receive a full gross up for any additional taxes Mr. Walker incurs with respect to such reimbursement.

Gilbert Passin

We entered into an offer letter agreement with Gilbert Passin, our Vice President, Manufacturing, in January 2010. The offer letter agreement has no specific term and constitutes at-will employment. Mr. Passin’s current annual base salary is $250,000. Mr. Passin is eligible for bonuses, as we may from time to time determine to award in our discretion. Subject to approval of our board of directors, Mr. Passin will receive an option to

 

140


Table of Contents

purchase 200,000 shares of our common stock at an exercise price per share equal to the fair market value of our common stock on the date the option is granted. Further, the offer letter agreement provides for a relocation package, including reimbursement of rental expenses incurred by Mr. Passin for a reasonable temporary apartment in Southern California for up to two years and reasonable travel costs from the Bay Area to Southern California related to the performance of services for the Company. The offer letter agreement also provides for reimbursement of all reasonable costs incurred in selling Mr. Passin’s current home, including legal and real estate selling costs, all of Mr. Passin’s costs with regard to packing, shipping and transport of Mr. Passin’s personal items to Southern California, and any actual legal, commission and incidental costs incurred in connection with buying a new home in Southern California.

Michael Donoughe

Mr. Donoughe ceased to be our Executive Vice President of Vehicle Engineering and Manufacturing in September 2009 although he remained employed on a leave of absence basis through December 31, 2009. He is no longer an employee of Tesla and, therefore, is not entitled to any benefits under his agreement with us following his termination of employment.

Jon Sobel

Mr. Sobel ceased to be our General Counsel in December 2009. He is not entitled to any benefits under his agreement with us following his termination of employment and he did not acquire any vested rights in the option granted as contemplated under his agreement.

Potential Payments Upon Change of Control

We entered into agreements that require specific payments and benefits to be provided to our named executive officers in the event of termination of employment in connection with a change of control. The description and tables that follow describe the payments and benefits which are owed by us to each of our named executive officers upon termination, excluding Mr. Sobel because his employment terminated prior to the end of fiscal 2009. The terms “Cause” and “Change of Control” have the meanings set forth in the relevant agreements.

Elon Musk

Assuming Mr. Musk’s employment terminated on December 31, 2009, by virtue of the agreements mentioned above, he would not be entitled to any benefits upon such termination.

Deepak Ahuja

Assuming Mr. Ahuja’s employment terminated on December 31, 2009, by virtue of the agreements mentioned above, he would be entitled to benefits with the value set forth in the table below:

 

Termination of Employment

 

Compensation and Benefits

   Termination
Without Cause not
in Connection with a
Change of Control
   Termination
Without Cause
After Change of
Control
 

Salary

   $     —      $                

Equity Acceleration

     —           (1) 

Health Care Benefits

     —        —     

 

(1)

As of December 31, 2009, 62,500 shares of common stock subject to Mr. Ahuja’s options would accelerate if he were terminated without Cause in connection with a Change of Control within a 12-month period after such Change of Control. The amount indicated in the table is calculated as the spread value of the options

 

141


Table of Contents
 

subject to accelerated vesting on December 31, 2009, but assuming a price per share of $            , which is the mid-point range in this offering, or 62,500 multiplied by $            .

Jeffrey B. Straubel

Assuming Mr. Straubel’s employment terminated on December 31, 2009, by virtue of the agreements mentioned above, he would not be entitled to any benefits upon such termination.

John Walker

Assuming Mr. Walker’s employment terminated on December 31, 2009, by virtue of the agreements mentioned above, he would not be entitled to benefits upon such termination.

Michael Donoughe

Mr. Donoughe’s employment terminated on December 31, 2009, thus he no longer has any rights that could be triggered upon, or in connection with, a change of control.

Employee Benefit Plans

2003 Equity Incentive Plan

Our board of directors adopted, and our stockholders approved our 2003 Equity Incentive Plan, or the 2003 Plan, in July 2003 and became effective upon approval by our stockholders. The 2003 Equity Incentive Plan was amended in December 2009. The purposes of the 2003 Plan are to secure and retain the services of persons eligible to receive awards under the 2003 Plan and to provide incentives for such persons to exert maximum efforts towards our success. Our 2003 Plan provides for the grant of incentive stock options to our employees and any of our parent and subsidiary corporations’ employees, and for the grant of nonstatutory stock options, stock bonuses and restricted stock to our employees, directors and consultants and our parent and subsidiary corporations’ employees and consultants. We will not grant any additional awards under our 2003 Plan following this offering and will instead grant awards under our 2009 Equity Incentive Plan. However, the 2003 Plan will continue to govern the terms and conditions of the outstanding awards previously granted thereunder.

Stock Subject to the Plan . The maximum aggregate number of shares that may be issued under the 2003 Plan is 42,238,740 shares of our common stock. As of December 31, 2009, options to purchase 34,723,477 shares of our common stock were outstanding and 3,042,380 shares were available for future grant under the 2003 Plan.

If a stock option or other stock award expires or otherwise terminates without having been exercised in full, the unpurchased shares subject to such awards will become available for future grant or sale under the 2003 Plan, unless the plan has terminated.

Plan Administration . Our Board, or a committee that it appoints, administers the 2003 Plan. Subject to the provisions of our 2003 Plan, the administrator has the authority to determine the eligibility for awards and the terms, conditions and restrictions, including vesting terms, applicable to grants made under the 2003 Plan. The administrator also has the authority, subject to the terms of the 2003 Plan, to construe and interpret the 2003 Plan and awards, to amend outstanding awards and to establish, and amend and revoke rules and regulations it considers appropriate for the administration and interpretation of the 2003 Plan.

Stock Options . The administrator may grant incentive and/or nonstatutory stock options under our 2003 Plan; provided that incentive stock options are only granted to employees. The exercise price of incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, or Code, must equal at least 100% of the fair market value of our common stock on the date of grant and the exercise price of

 

142


Table of Contents

nonstatutory stock options may not be less than 85% of the fair market value of our common stock on the date of grant. The term of an option may not exceed ten years. Provided, however, that an incentive stock option held by a participant who owns more than 10% of the total combined voting power of all classes of our stock, or of certain of our parent or subsidiary corporations, may not have a term in excess of five years and must have an exercise price of at least 110% of the fair market value of our common stock on the grant date. The administrator will determine the methods of payment of the exercise price of an option, which may include cash, shares or other property acceptable to the plan administrator. Subject to the provisions of our 2003 Plan, the administrator determines the remaining terms of the options (e.g., vesting). After a participant’s termination of service, the participant may exercise his or her option, to the extent vested as of the date of termination, for a period of thirty days (or six months in the case of termination due to death or disability) following such termination, or such longer period of time specified in the individual option agreement. However, in no event may an option be exercised later than the expiration of its term.

Restricted Stock . Restricted stock awards are grants of rights to purchase our common stock that are subject to various restrictions, including restrictions on transferability and forfeiture provisions. After the administrator determines that it will offer restricted stock, it will advise the purchaser of the terms, conditions, and restrictions related to the grant, including the number of shares that the purchaser is entitled to purchase, the price to be paid, which generally may not be less than 85% of the fair market value of our common stock on the date of grant, and the vesting schedule applicable to the award. A purchaser accepts the offer by execution of a restricted stock purchase agreement in the form determined by the administrator, which will set forth all the terms of the award.

Transferability of Awards . Our 2003 Plan generally does not allow for awards to be transferred in any manner other than by will or the laws of descent or distribution and may be exercised, during the lifetime of the participant, only by the participant; provided, however, Non-Employee Directors (as defined in the 2003 Plan) may freely transfer Nonstatutory Stock Options (as defined in the 2003 Plan) to either (i) their venture capital funds or (ii) their employers (or an affiliate, within the meaning of 424(e) or (f) of the Code, of a Non-Employee Director’s employer).

Certain Adjustments . If any change is made in our common stock subject to the 2003 Plan, or subject to any award thereunder, without the receipt of consideration by us, such as through a merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by us, appropriate adjustments will be made in the number and class of shares that may be delivered under the plan and/or the number, class and price of shares covered by each outstanding award and the numerical share limits contained in the plan. In the event of our dissolution or liquidation, all outstanding awards will terminate immediately prior to the consummation of such proposed transaction.

Corporate Transaction . In the event of (i) a sale, lease or other disposition of all or substantially all of our assets, (ii) a merger or consolidation in which we are not the surviving corporation or (iii) a reverse merger in which we are the surviving corporation but the shares of common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise (individually, a “Corporate Transaction”), then any outstanding awards shall be assumed or substituted for by the surviving or acquiring corporation. If the surviving corporation or acquiring corporation refuses to assume or substitute for such awards, then with respect to awards held by participants whose continuous service has not terminated, the vesting of such awards (and, if applicable, the time during which such awards may be exercised) shall be accelerated in full, and the awards shall terminate if not exercised, if applicable, at or prior to the Corporate Transaction. With respect to any other awards outstanding under the plan, such awards shall terminate if not exercised, if applicable, prior to the Corporate Transaction.

Plan Termination and Amendment . Our board of directors may at any time amend, suspend or terminate the 2003 Plan, provided such action does not impair the existing rights of any participant. Our 2003 Plan will automatically terminate in 2013, unless we terminate it sooner.

 

143


Table of Contents

2010 Equity Incentive Plan

Our board of directors has adopted, and we expect our stockholders will approve our 2010 Equity Incentive Plan, or the 2010 Plan, prior to the completion of this offering. Subject to stockholder approval, the 2010 Plan is effective upon its adoption by our board of directors, but is not expected to be utilized until after the completion of this offering. Our 2010 Plan provides for the grant of incentive stock options, within the meaning of Code Section 422, to our employees and any of our parent and subsidiary corporations’ employees, and for the grant of nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance units and performance shares to our employees, directors and consultants and our parent and subsidiary corporations’ employees and consultants.

Authorized Shares . The maximum aggregate number of shares that may be issued under the 2010 Plan is 32,000,000 shares of our common stock, plus (i) any shares that as of the completion of this offering, have been reserved but not issued pursuant to any awards granted under our 2003 Equity Incentive Plan and are not subject to any awards granted thereunder, and (ii) any shares subject to stock options or similar awards granted under the 2003 Equity Incentive Plan that expire or otherwise terminate without having been exercised in full and unvested shares issued pursuant to awards granted under the 2003 Equity Incentive Plan that are forfeited to or repurchased by us, with the maximum number of shares to be added to the 2010 Plan pursuant to clauses (i) and (ii) above equal to 35,042,380 shares as of December 31, 2009. In addition, the number of shares available for issuance under the 2010 Plan will be annually increased on the first day of each of our fiscal years beginning with the 2011 fiscal year, by an amount equal to the least of:

 

   

16,000,000 shares;

 

   

4% of the outstanding shares of our common stock as of the last day of our immediately preceding fiscal year; or

 

   

such other amount as our board of directors may determine.

Shares issued pursuant to awards under the 2010 Plan that we repurchase or that are forfeited, as well as shares used to pay the exercise price of an award or to satisfy the tax withholding obligations related to an award, will become available for future grant under the 2010 Plan. In addition, to the extent that an award is paid out in cash rather than shares, such cash payment will not reduce the number of shares available for issuance under the 2010 Plan.

Plan Administration . The 2010 Plan will be administered by our board of directors which, at its discretion or as legally required, may delegate such administration to our compensation committee and/or one or more additional committees. In the case of awards intended to qualify as “performance-based compensation” within the meaning of Code Section 162(m), the committee will consist of two or more “outside directors” within the meaning of Code Section 162(m).

Subject to the provisions of our 2010 Plan, the administrator has the power to determine the terms of awards, including the recipients, the exercise price, if any, the number of shares subject to each award, the fair market value of a share of our common stock, the vesting schedule applicable to the awards, together with any vesting acceleration, and the form of consideration, if any, payable upon exercise of the award and the terms of the award agreement for use under the 2010 Plan. The administrator also has the authority, subject to the terms of the 2010 Plan, to amend existing awards to reduce or increase their exercise price, to allow participants the opportunity to transfer outstanding awards to a financial institution or other person or entity selected by the administrator, to institute an exchange program by which outstanding awards may be surrendered in exchange for awards that may have different exercise prices and terms, to prescribe rules and to construe and interpret the 2010 Plan and awards granted thereunder.

Stock Options . The administrator may grant incentive and/or nonstatutory stock options under our 2010 Plan; provided that incentive stock options are only granted to employees. The exercise price of such options

 

144


Table of Contents

must equal at least the fair market value of our common stock on the date of grant. The term of an option may not exceed ten years. Provided, however, that an incentive stock option held by a participant who owns more than 10% of the total combined voting power of all classes of our stock, or of certain of our parent or subsidiary corporations, may not have a term in excess of five years and must have an exercise price of at least 110% of the fair market value of our common stock on the grant date. The administrator will determine the methods of payment of the exercise price of an option, which may include cash, shares or other property acceptable to the plan administrator. Subject to the provisions of our 2010 Plan, the administrator determines the remaining terms of the options (e.g., vesting). After the termination of service of an employee, director or consultant, the participant may exercise his or her option, to the extent vested as of such date of termination, for the period of time stated in his or her option agreement. Generally, if termination is due to death or disability, the option will remain exercisable for twelve months. In all other cases, the option will generally remain exercisable for three months following the termination of service. However, in no event may an option be exercised later than the expiration of its term.

Stock Appreciation Rights . Stock appreciation rights may be granted under our 2010 Plan. Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of our common stock between the exercise date and the date of grant. Subject to the provisions of our 2010 Plan, the administrator determines the terms of stock appreciation rights, including when such rights vest and become exercisable and whether to settle such awards in cash or with shares of our common stock, or a combination thereof, except that the per share exercise price for the shares to be issued pursuant to the exercise of a stock appreciation right will be no less than 100% of the fair market value per share on the date of grant. The specific terms will be set forth in an award agreement.

Restricted Stock . Restricted stock may be granted under our 2010 Plan. Restricted stock awards are grants of shares of our common stock that are subject to various restrictions, including restrictions on transferability and forfeiture provisions. Shares of restricted stock will vest and the restrictions on such shares will lapse, in accordance with terms and conditions established by the administrator. Such terms may include, among other things, vesting upon the achievement of specific performance goals determined by the administrator and/or continued service to us. The administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed. Recipients of restricted stock awards generally will have voting and dividend rights with respect to such shares upon grant without regard to vesting, unless the administrator provides otherwise. Shares of restricted stock that do not vest for any reason will be forfeited by the recipient and will revert to us. The specific terms will be set forth in an award agreement.

Restricted Stock Units . Restricted stock units may be granted under our 2010 Plan. Each restricted stock unit granted is a bookkeeping entry representing an amount equal to the fair market value of one share of our common stock. The administrator determines the terms and conditions of restricted stock units including the vesting criteria, which may include achievement of specified performance criteria or continued service to us, and the form and timing of payment. The administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed. The administrator determines in its sole discretion whether an award will be settled in stock, cash or a combination of both. The specific terms will be set forth in an award agreement.

Performance Units/Performance Shares . Performance units and performance shares may be granted under our 2010 Plan. Performance units and performance shares are awards that will result in a payment to a participant only if performance goals established by the administrator are achieved or the awards otherwise vest. The administrator will establish organizational or individual performance goals in its discretion, which, depending on the extent to which they are met, will determine the number and/or the value of performance units and performance shares to be paid out to participants. After the grant of a performance unit or performance share, the administrator, in its sole discretion, may reduce or waive any performance objectives or other vesting provisions for such performance units or performance shares. Performance units shall have an initial dollar value established by the administrator prior to the grant date. Performance shares shall have an initial value equal to the fair market value of our common stock on the grant date. The administrator, in its sole discretion, may pay earned

 

145


Table of Contents

performance units or performance shares in the form of cash, in shares or in some combination thereof. The specific terms will be set forth in an award agreement.

Automatic Director Grants . Our 2010 Plan also provides for the automatic grant of nonstatutory stock options to our non-employee directors. Each non-employee director initially appointed to the board of directors after the completion of this offering will automatically receive an option to purchase 100,000 shares upon such appointment (excluding an employee director who ceases to be an employee but remains a director). This initial award will vest as to 25% of the shares subject to the option on the one year anniversary of the vesting commencement date and  1 / 48 th of the shares subject to the option each month thereafter over the next three years, provided he or she continues to serve as a director through each relevant vesting date. In addition, beginning in fiscal year 2011, non-employee directors will automatically receive a subsequent option to purchase 50,000 shares shortly after each date of our annual meeting of stockholders. These subsequent awards will vest as to 100% of shares subject to the award on the earlier of (1) the one year anniversary of the vesting commencement date or (2) the day prior to the next annual meeting of stockholders; provided he or she continues to serve as a director through the relevant vesting date. All awards granted under the automatic grant provisions will have a term of seven years or such earlier expiration date specified in the applicable award agreement, an exercise price equal to the fair market value on the date of grant and will be freely transferable to the non-employee directors’ venture capital funds or employers (or an affiliate, within the meaning of Section 424(e) or (f) of the Code, of a non-employee director’s employer). The administrator may change the number, type and terms of future automatic awards granted to our non-employee director under the 2010 Plan. Additionally, non-employee directors are eligible to receive discretionary grants.

Transferability of Awards . Unless the administrator provides otherwise, our 2010 Plan generally does not allow for the transfer of awards and only the recipient of an option or stock appreciation right may exercise such an award during his or her lifetime.

Certain Adjustments . In the event of certain changes in our capitalization, to prevent diminution or enlargement of the benefits or potential benefits available under the 2010 Plan, the administrator will make adjustments to one or more of the number and class of shares that may be delivered under the plan and/or the number, class and price of shares covered by each outstanding award and the numerical share limits contained in the plan. In the event of our proposed liquidation or dissolution, the administrator will notify participants as soon as practicable and all awards will terminate immediately prior to the consummation of such proposed transaction.

Merger or Change in Control . Our 2010 Plan provides that in the event of a merger or change in control, as defined under the 2010 Plan, each outstanding award will be treated as the administrator determines, except that if a successor corporation or its parent or subsidiary does not assume or substitute an equivalent award for any outstanding award, then such award will fully vest, all restrictions on such award will lapse, all performance goals or other vesting criteria applicable to such award will be deemed achieved at 100% of target levels and such award will become fully exercisable, if applicable, for a specified period prior to the transaction. The award will then terminate upon the expiration of the specified period of time. If the service of an outside director is terminated on or following a change of control, other than pursuant to a voluntary resignation, his or her options, restricted stock units and stock appreciation rights, if any, will vest fully and become immediately exercisable, all restrictions on his or her restricted stock will lapse, and all performance goals or other vesting requirements for his or her performance shares and units will be deemed achieved at 100% of target levels, and all other terms and conditions met.

Plan Amendment, Termination . Our board of directors has the authority to amend, suspend or terminate the 2010 Plan provided such action does not impair the existing rights of any participant. Our 2010 Plan will automatically terminate in 2020, unless we terminate it sooner.

 

146


Table of Contents

2010 Employee Stock Purchase Plan

Concurrently with this offering, we are establishing our 2010 Employee Stock Purchase Plan, or the ESPP. Our board of directors has adopted, and we expect our stockholders to approve, the ESPP prior to the completion of this offering. Our executive officers and all of our other employees will be allowed to participate in our ESPP.

A total of 5,000,000 shares of our common stock will be made available for sale under our ESPP. In addition, our ESPP provides for annual increases in the number of shares available for issuance under the ESPP on the first day of each fiscal year beginning with the 2011 fiscal year, equal to the least of:

 

   

3,000,000 shares;

 

   

1% of the outstanding shares of our common stock on the first day of such fiscal year; or

 

   

such other amount as may be determined by the administrator.

Our board of directors or its committee has full and exclusive authority to interpret the terms of the ESPP and determine eligibility.

All of our employees are eligible to participate if they are customarily employed by us or any participating subsidiary for at least 20 hours per week and more than five months in any calendar year. However, an employee may not be granted rights to purchase stock under our ESPP if such employee:

 

   

immediately after the grant would own stock possessing 5% or more of the total combined voting power or value of all classes of our capital stock; or

 

   

holds rights to purchase stock under all of our employee stock purchase plans that would accrue at a rate that exceeds $25,000 worth of our stock for each calendar year.

Our ESPP is intended to qualify under Section 423 of the Code, and provides for consecutive, non-overlapping six-month offering periods. The offering periods generally start on the first trading day on or after May 20 and November 20 of each year, except for the first such offering period which will commence on the first trading day on or after the effective date of this offering and will end on November 22, 2010. The administrator may, in its discretion, modify the terms of future offering periods.

Our ESPP permits participants to purchase common stock through payroll deductions of up to 15% of their eligible compensation, which includes a participant’s regular and recurring straight time gross earnings, payments for overtime and shift premium, exclusive of payments for incentive compensation, bonuses and other similar compensation. A participant may purchase a maximum of 500 shares of common stock during each six-month offering period.

Amounts deducted and accumulated by the participant are used to purchase shares of our common stock at the end of each six-month offering period. The purchase price of the shares will be 85% of the lower of the fair market value of our common stock on the first trading day of the offering period or on the last day of the offering period. Participants may end their participation at any time during an offering period, and will be paid their accrued payroll deductions that have not yet been used to purchase shares of common stock. Participation ends automatically upon termination of employment with us.

A participant may not transfer rights granted under the ESPP other than by will, the laws of descent and distribution or as otherwise provided under the ESPP.

In the event of our merger or change of control, as defined under the ESPP, a successor corporation may assume or substitute each outstanding purchase right. If the successor corporation refuses to assume or substitute for the outstanding purchase rights, the offering period then in progress will be shortened, and a new exercise date will be set. The plan administrator will notify each participant in writing that the exercise date has been

 

147


Table of Contents

changed and that the participant’s option will be exercised automatically on the new exercise date unless the participant has already withdrawn from the offering period.

Our ESPP will automatically terminate in 2020, unless we terminate it sooner. In addition, our board of directors has the authority to amend, suspend or terminate our ESPP, except that, subject to certain exceptions described in the ESPP, no such action may adversely affect any outstanding rights to purchase stock under our ESPP.

401(k) Plan

We maintain a tax-qualified 401(k) retirement plan for all employees who satisfy certain eligibility requirements, including requirements relating to age and length of service. Under our 401(k) plan, employees may elect to defer up to 90% of their eligible compensation subject to applicable annual Internal Revenue Code limits. We currently do not match any contributions made by our employees, including executives. We intend for the 401(k) plan to qualify under Section 401(a) and 501(a) of the Code so that contributions by employees to the 401(k) plan, and income earned on those contributions, are not taxable to employees until withdrawn from the 401(k) plan.

Other

In addition to the United States, we currently have employees located in the United Kingdom, Canada, Monaco, Germany and Taiwan. In addition to providing statutorily mandated benefit programs in each country, we contribute to private plans for health, pension and insurance benefits in the countries where those contributions are customarily provided to employees.

Limitation on Liability and Indemnification Matters

Our amended and restated certificate of incorporation and our amended and restated bylaws, which will be in effect upon the completion of this offering, contain provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for:

 

   

any breach of the director’s duty of loyalty to us or our stockholders;

 

   

any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

 

   

unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or

 

   

any transaction from which the director derived an improper personal benefit.

Our amended and restated certificate of incorporation and amended and restated bylaws to be in effect upon the completion of this offering provide that we are required to indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law. Our amended and restated bylaws also provide that we are obligated to advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in that capacity regardless of whether we would otherwise be permitted to indemnify him or her under the provisions of Delaware law. We have entered and expect to continue to enter into agreements to indemnify our directors, executive officers and other employees as determined by our board of directors. With specified exceptions, these agreements provide for indemnification for related expenses including, among other things, attorneys’ fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding. We believe that these certificate of incorporation and bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. We also maintain directors’ and officers’ liability insurance.

 

148


Table of Contents

The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against our directors and officers for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. At present, there is no pending litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.

 

149


Table of Contents

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

In addition to the director and executive officer compensation arrangements discussed above under “Executive Compensation,” the following is a description of transactions since January 1, 2007, to which we have been a party in which the amount involved exceeded or will exceed $120,000 and in which any of our directors, executive officers, beneficial holders of more than 5% of our capital stock, or entities affiliated with them, had or will have a direct or indirect material interest.

Equity Financings

Series D Preferred Stock Financing

In May 2007, we sold an aggregate of 18,440,449 shares of Series D Preferred Stock at a per share purchase price of $2.4403 pursuant to a stock purchase agreement. Purchasers of the Series D Preferred Stock include the Elon Musk Revocable Trust dated July 22, 2003, or the Trust, which is controlled by Elon Musk, who is our chief executive officer and the chairman of our board of directors and holds more than 5% of our outstanding capital stock, Martin Eberhard and Marc Tarpenning, each of whom is a former officer and director, Valor Equity Partners, L.P., or Valor, which holds more than 5% of our outstanding capital stock and whose representative, Antonio Gracias, is a member of our board of directors, and VantagePoint Venture Partners, or VantagePoint, which holds more than 5% of our outstanding capital stock and whose managing partner, Jim Marver, is a former member of our board of directors, and Technology Partners Fund VIII, LP, or Technology Partners, whose general partner, Ira Ehrenpreis, is a member of our board of directors. The following table summarizes purchases of Series D Preferred Stock by the above-listed investors:

 

Name of Stockholder

   Number of
Series D
Shares

Elon Musk Revocable Trust dated July 22, 2003

   4,097,877

Martin Eberhard

   4,097

Marc Tarpenning

   4,097

Technology Partners Fund VIII, L.P.

   3,829,481

Valor Equity Partners, L.P.

   1,229,363

VantagePoint Venture Partners(1)

   3,343,253

 

(1) Affiliates of VantagePoint holding our securities whose shares are aggregated for purposes of reporting share ownership information include VPVP CleanTech Holdings 2004, L.L.C., VantagePoint Venture Partners IV Principals Fund, L.P., and VantagePoint CleanTech Partners, L.P.

 

150


Table of Contents

Series E Preferred Stock Financing

In May 2009, we sold an aggregate of 19,901,290 shares of Series E Preferred Stock at a per share purchase price of $2.5124 pursuant to a stock purchase agreement, we issued 1,949,028 shares of Series E Preferred Stock pursuant to the conversion of previously issued convertible promissory notes at a conversion price of $2.5124 per share and we issued 80,926,461 shares of Series E Preferred Stock pursuant to the conversion of previously issued convertible promissory notes at a conversion price of $1.005 per share, which represented a 60% discount to the price paid by the other investors in the financing, as described more fully below. Purchasers of the Series E Preferred Stock included the Trust, Valor, Technology Partners, VantagePoint, Jasper Holdings LLC, which is controlled by Kimbal Musk, a member of our board of directors, Westly Capital Partners, whose representative Steven Westly is a former member of our board of directors, and Blackstar Investco LLC, or Blackstar, which holds more than 5% of our outstanding capital stock, is an affiliate of Daimler AG, or Daimler, and whose representative, Herbert Kohler, is an employee of Daimler and a member of our board of directors. The following table summarizes purchases of Series E Preferred Stock by the above-listed investors:

 

Name of Stockholder

   Number of
Series E
Shares

Elon Musk Revocable Trust dated July 22, 2003

   40,825,647

Valor Equity Partners, L.P.(1)

   9,614,808

Technology Partners Fund VIII, L.P.

   4,343,392

VantagePoint Venture Partners(2)

   896,110

Jasper Holdings LLC

   594,857

Westly Capital Partners, L.P.

   5,145,532

Blackstar Investco LLC

   19,901,290

 

(1) Affiliates of Valor holding our securities whose shares are aggregated for purposes of reporting share ownership information include Valor VC, LLC and VEP Tesla Holdings LLC.
(2) Affiliates of VantagePoint holding our securities whose shares are aggregated for purposes of reporting share ownership information include VPVP CleanTech Holdings 2004, L.L.C., VantagePoint Venture Partners IV Principals Fund, L.P., and VantagePoint CleanTech Partners, L.P.

Series F Preferred Stock Financing

In August 2009, we sold an aggregate of 27,785,263 shares of Series F Preferred Stock at a per share purchase price of $2.9692 pursuant to a stock purchase agreement. Purchasers of the Series F Preferred Stock include Blackstar and Al Wahada Capital Investment LLC, which holds more than 5% of our outstanding capital stock and whose representative, H.E. Ahmed Saif Al Darmaki, is a member of our board of directors. The following table summarizes purchases of Series F Preferred Stock by the above-listed investors:

 

Name of Stockholder

   Number of
Series F
Shares

Al Wahada Capital Investment LLC

   21,891,419

Blackstar Investco LLC

   2,525,933

Bridge Debt Financings

February 2008 Bridge Debt Financing

In February 2008 and March 2008 we entered into a Secured Note and Warrant Purchase Agreement with certain of our stockholders pursuant to which we issued senior secured convertible promissory notes and warrants in an aggregate principal amount of $40,167,530. The promissory notes were secured by substantially all our personal property, including intellectual property, and accrued interest at the rate of 10% per annum. Certain of

 

151


Table of Contents

the notes and warrants were exchanged for a new form of note in connection with our December 2008 bridge debt financing which is described below. The notes which were not exchanged were converted into 1,949,028 shares of Series E Preferred Stock at $2.5124 per share. The warrants which were not exchanged became exercisable for an aggregate of 866,091 shares of Series E Preferred Stock at an exercise price of $2.5124 per share. Purchasers of the notes who participated in the exchange offer include the Trust, Valor, Technology Partners and Westly Capital Partners. Purchasers of the notes who did not participate in the exchange offer include VantagePoint. The following table summarizes the original note investment amounts and outstanding warrant obligations to such investors under the February 2008 bridge debt financing:

 

Name of Stockholder

   Aggregate Note
Principal
Amount
   Warrant
Shares

Elon Musk Revocable Trust dated July 22, 2003

   $ 18,026,074    —  

Valor Equity Partners, L.P.(1)

   $ 7,185,248    —  

Technology Partners Fund VIII, L.P.

   $ 1,568,346    —  

Westly Capital Partners, L.P.

   $ 399,180    —  

VantagePoint Venture Partners(2)

   $ 1,995,902    398,025

 

(1) Affiliates of Valor holding our securities whose shares are aggregated for purposes of reporting share ownership information include Valor VC, LLC and VEP Tesla Holdings LLC.
(2) Affiliates of VantagePoint holding our securities whose shares are aggregated for purposes of reporting share ownership information include VPVP CleanTech Holdings 2004, L.L.C., VantagePoint Venture Partners IV Principals Fund, L.P., and VantagePoint CleanTech Partners, L.P.

December 2008 Bridge Debt Financing

In December 2008, February 2009 and March 2009 we entered into a Secured Note Purchase Agreement with certain of our stockholders pursuant to which we issued senior secured convertible promissory notes in an aggregate principal amount of $40,000,000. The promissory notes were secured by substantially all our personal property, including intellectual property, and accrued interest at the rate of 10% per annum. Stockholders who participated for their pro rata share were entitled to exchange their existing notes and warrants from the February 2008 bridge debt financing for the new form of note issued in this financing. Pursuant to their terms, the notes were converted into 80,926,461 shares of Series E preferred stock at $1.0050 per share, which represented a 60% discount to the price paid by the other investors in the Series E financing. Purchasers of the notes include the Trust, Valor, Technology Partners, Jasper Holdings LLC and Westly Capital Partners. The following table summarizes the original note investment amounts of such investors under the December 2008 bridge debt financing:

 

Name of Stockholder

   Aggregate Note
Principal
Amount

Elon Musk Revocable Trust dated July 22, 2003

   $ 20,356,974

Valor Equity Partners, L.P.(1)

   $ 1,500,000

Technology Partners Fund VIII, L.P.

   $ 2,500,000

Jasper Holdings LLC

   $ 290,611

Westly Capital Partners, L.P.

   $ 4,600,000

 

(1) Affiliates of Valor holding our securities whose shares are aggregated for purposes of reporting share ownership information include Valor VC, LLC and VEP Tesla Holdings LLC.

 

152


Table of Contents

Daimler Agreements

Financing Agreements

In connection with our Series E preferred stock financing in May 2009, we entered into certain agreements with Daimler, Daimler North America Corporation, or DNAC, and Blackstar. Herbert Kohler, a member of our board of directors, is a Vice President of Blackstar and Daimler.

We entered into a side agreement with Blackstar pursuant to which we are obligated to give Blackstar notice of any proposal we receive relating to an acquisition of us for which we determine to engage in discussions with a potential acquiror or otherwise pursue. The notice shall include the material terms and conditions of such proposal and the identity of the proposed acquiror. The agreement further provides that Blackstar may, within a specified time period, submit a competing acquisition proposal. Blackstar’s rights under this agreement are not transferable except to Daimler or a controlled affiliate of Daimler. This agreement will terminate on December 31, 2011 or earlier upon the occurrence of certain other events including an acquisition of us or certain changes in our relationship with Daimler and Blackstar.

Elon Musk, our Chief Executive Officer and Chairman of our board of directors, entered into a letter agreement with Blackstar pursuant to which Mr. Musk has agreed not to transfer any shares of our capital stock beneficially owned by him to any automobile original equipment manufacturer, other than Daimler, without Blackstar’s consent. Mr. Musk has further agreed not to vote any shares of our capital stock beneficially owned by him in favor of a deemed liquidation transaction to which any automobile original equipment manufacturer, other than Daimler, is a party without Blackstar’s consent. This agreement will terminate on December 31, 2011 or earlier upon the occurrence of certain other events including an acquisition of us or certain changes in our relationship with Daimler and Blackstar.

In addition, we have granted certain covenants to Daimler as part of our investors’ rights agreement. These covenants provide that if Mr. Musk is not serving as our Chief Executive Officer at any time until the later of December 31, 2012 or the launch of the Model S, Mr. Musk shall promptly propose a successor Chief Executive Officer and Dr. Kohler, or his successor, must consent to any appointment of such person by our Board of Directors. If Mr. Musk departs as our Chief Executive Officer prior to December 31, 2010, for reasons other than his death or disability, and Dr. Kohler, or his successor, has not consented to the appointment of a new Chief Executive Officer, Daimler has the right to terminate any or all of its strategic collaboration agreements with us. Furthermore, if at any time during the period from January 1, 2011 through December 31, 2012, Mr. Musk is not serving as either our Chief Executive Officer or Chairman of our Board of Directors for reasons other than his death or disability, and Dr. Kohler, or his successor, has not consented to the appointment of a new Chief Executive Officer or if during such period Mr. Musk renders services to, or invests in, any other automotive OEM other than us, Daimler has the right to terminate any or all of its strategic collaboration agreements with us.

Strategic Agreements

We have entered into two agreements with Daimler and DNAC. On May 1, 2009, we and Daimler entered into a strategic agreement titled “SMART 451 ED Predevelopment Contract” under which we agreed to develop and supply battery systems to Daimler for use in a “Smart EV Project.” Subsequently, on May 11, 2009, in connection with our Series E Preferred Stock financing transaction in which Blackstar purchased shares of our Series E Preferred Stock as described above, we and DNAC entered into the EIP Agreement. Under the EIP Agreement, we and DNAC agreed to begin the process of negotiating, in good faith, to enter into further agreements regarding areas of strategic cooperation, or the Strategic Agreements. In particular, the parties agreed to negotiate in good faith to enter into up to four additional agreements covering among other areas, strategic cooperation, the joint development of technology, and the supply of electric vehicle components to each other. As of November 30, 2009, we and Daimler (or any Daimler affiliate) have not yet entered into these agreements.

In addition to providing an exclusivity period for negotiation of the Strategic Agreements, the EIP Agreement specified certain terms that the parties would agree to include in those agreements. In particular we

 

153


Table of Contents

agreed that certain of the Strategic Agreements would include exclusivity provisions which would limit us from entering into competitive arrangements with other automotive companies, however we would not be subject to any restrictions with respect to our Tesla Roaster and Model S vehicles. Further, if a third party offers to enter into a competitive transaction with us, we are required to give DNAC notice of such offer. If DNAC declines to enter into such transaction on the same terms as offered by the third party, then we would be free to enter into the competitive transaction with the third party, subject to certain limitations. The EIP Agreement also provides for the allocation of each party’s right to patent, copyright and other intellectual property rights in the event we do enter into any of the Strategic Agreements and places limitations on Daimler’s and our rights to license this intellectual property to competitors.

Other Transactions

In the ordinary course of business, we enter into offer letters and employment agreements with our executive officers. In addition, certain of our directors, officers, and persons affiliated with our significant stockholders, including Elon Musk, Kimbal Musk, Mr. Gracias, and persons affiliated with Valor Equity Partners and VantagePoint Venture Partners, have purchased or placed a reservation to purchase a Tesla Roadster. These transactions were arms length transactions and are on the same terms as other customers who reserved vehicles.

In connection with an offer letter dated November 10, 2006 to Darryl Siry, our former Vice President of Sales, Marketing and Service, we loaned Mr. Siry $40,000 at an interest rate of five percent (5%) per annum pursuant to an employee loan agreement, dated December 1, 2006. The loan was used to relocate his residence. The loan was forgiven on December 2, 2007, pursuant to the terms of the agreement after Mr. Siry completed employment services to us through December 1, 2007.

We have an informal arrangement with Space Exploration Technologies Corporation, or SpaceX, for the use of building space and information technology services in the facilities of SpaceX in Hawthorne, California. In August 2009, we began paying for the use of such facilities on a per square foot basis and for the information technology services. Monthly payments for such facilities and services amount to approximately $11,000 per month. In addition, SpaceX has from time to time in the past paid for facilities and services expenses on our behalf, for which we subsequently reimbursed SpaceX. Elon Musk, our Chief Executive Officer, Product Architect and Chairman, is also the Chief Executive Officer and a significant stockholder of SpaceX. Steve Jurvetson and Kimbal Musk, two members of our board of directors, are also members of the board of directors of SpaceX. We reimbursed SpaceX for an aggregate of $90,000 for this use during 2008 and $179,000 for this use during 2009.

From time to time, Elon Musk uses his private airplane for Tesla business travel. Beginning in the second quarter of 2009, we agreed to pay for certain third-party operation expenses incurred in connection with the use of Mr. Musk’s private plane for business travel. These operation expenses include fuel charges, landing fees and other related expenses. Through December 31, 2009, we paid approximately $175,000 for such expenses. Prior to the second quarter of 2009, Mr. Musk paid for such business travel expenses without reimbursement.

Investors’ Rights Agreement

We have entered into an investors’ rights agreement with certain holders of our common stock and preferred stock that provides for certain rights relating to the registration of their shares of common stock, including those issued upon conversion of their preferred stock. See “Description of Capital Stock—Registration Rights” below for additional information. In addition, our investors’ rights agreement contains certain covenants relating to Elon Musk’s employment as our Chief Executive Officer, as described under “Daimler Agreements—Financing Agreements” above.

 

154


Table of Contents

Offer Letters

We have entered into offer letters and other agreements containing compensation, termination and change of control provisions, among others, with certain of our executive officers as described under the caption “Executive Compensation—Offer Letters and Change of Control Arrangements” above.

Indemnification Agreements

We have also entered into indemnification agreements with each of our directors and officers. The indemnification agreements and our certificate of incorporation and bylaws require us to indemnify our directors and officers to the fullest extent permitted by Delaware law. See “Executive Compensation—Limitation on Liability and Indemnification Matters.”

Policies and Procedures for Related Party Transactions

As provided by our audit committee charter to be effective upon completion of this offering, our audit committee is responsible for reviewing and approving in advance any related party transaction. Prior to the creation of our audit committee, our full board of directors reviewed related party transactions.

Director Independence

For a discussion of the independence of our directors, please see “Management—Director Independence” above.

 

155


Table of Contents

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information with respect to the beneficial ownership of our common stock at December 31, 2009, as adjusted to reflect the sale of common stock offered by us in this offering, for:

 

   

each person, or group of affiliated persons, who we know beneficially owns more than 5% of our outstanding shares of common stock;

 

   

each of our directors;

 

   

each of our named executive officers; and

 

   

all of our current directors and executive officers as a group; and

 

   

all selling stockholders.

We have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws.

Applicable percentage ownership is based on             shares of common stock outstanding at December 31, 2009, after giving effect to the conversion of all outstanding shares of our preferred stock into common stock effective immediately prior to the closing of this offering and the issuance of             shares of common stock upon the assumed net exercise of warrants that expire upon the completion of this offering at an assumed initial public offering price of $             per share. For purposes of the table below, we have assumed that             shares of common stock will be outstanding upon completion of this offering. In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed to be outstanding all shares of common stock subject to options or other convertible securities held by that person or entity that are currently exercisable or exercisable within 60 days of December 31, 2009. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Beneficial ownership representing less than 1% is denoted below with an asterisk (*).

The table below excludes 9,255,035 shares of common stock issuable upon the exercise of a warrant granted to the DOE in connection with the closing of our DOE Loan Facility.

 

156


Table of Contents

Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Tesla Motors, Inc., 3500 Deer Creek Road, Palo Alto, California 94304.

 

    Shares
Beneficially Owned
          Shares
Beneficially Owned
  Percentage of Shares
Beneficially Owned

Beneficial Owner Name

  Prior to
the
Offering
  Shares
Being
Offered
  Shares
Subject
To Over-
allotment
Option
  After
the
Offering
  After the
Offering
(Over-
allotment
Option
Exercised
in Full)**
  Prior to
the
Offering
  After
the
Offering
  After the
Offering
(Over-
allotment
Option
Exercised
in Full)**

5% Stockholders:

               

Elon Musk(1)

               

Blackstar Investco LLC(2)

  22,427,223              

Al Wahada Capital Investment LLC(3)

  21,891,419              

Entities affiliated with VantagePoint Venture Partners(4)

               

Entities affiliated with Valor Equity Partners(5)

  14,725,794              

Executive Officers and Directors:

               

Elon Musk(1)

               

Deepak Ahuja(6)

  137,497              

Jeffrey B. Straubel(7)

  1,012,034              

John Walker

  0              

Gilbert Passin

  0              

Michael Donoughe(8)

  206,250              

Jon Sobel(9)

  0              

H.E. Ahmed Saif Al Darmaki(3)

  21,891,419              

Brad W. Buss

  0              

Ira Ehrenpreis(10)

  8,241,623              

Antonio J. Gracias(5)

  14,725,794              

Stephen T. Jurvetson(11)

  8,294,614              

Herbert Kohler(2)

  22,427,223              

Kimbal Musk(12)

  1,235,397              

All current executive officers and directors as a group (12 persons)(13)

               

 

 *   Represents beneficial ownership of less than 1%.
** If the underwriters do not exercise their option to purchase additional shares in full, then the shares to be sold by each selling stockholder will be reduced pro rata according to the portion of the over-allotment option that is not exercised.
(1) Includes (i) 81,067,755 shares held of record by the Elon Musk Revocable Trust dated July 22, 2003; (ii) 2,936,488 shares issuable to Mr. Musk upon exercise of options exercisable within 60 days after December 31, 2009; and (iii)             shares issuable upon the assumed net exercise of warrants held by the Elon Musk Revocable Trust that expire upon the completion of this offering at an assumed initial public offering price of $             per share.
(2) Dr. Kohler is vice president of Blackstar Investco LLC, or Blackstar, which is 60% owned by Daimler North America Corporation, or DNAC, and 40% owned by Aabar Blackstar Holdings GmbH. DNAC is an direct, wholly owned subsidiary of Daimler AG, and Aabar Blackstar Holdings GmbH is a direct, wholly owned subsidiary of Aabar Investments PJSC. Dr. Kohler disclaims beneficial ownership of shares held by Blackstar, except to the extent of his pecuniary interest therein. The address for this entity is c/o Daimler North America Corporation, One Mercedes Drive, Montvale, NJ 07645.
(3)

Mr. Al Darmaki is Planning & Development Director of Abu Dhabi Water and Electricity Authority, or ADWEA, which is a national organization wholly owned by the Abu Dhabi Government, and Al Wahada Capital Investment LLC is a wholly owned affiliate of ADWEA. Mr. Darmaki disclaims beneficial ownership of shares held by this entity,

 

157


Table of Contents
 

except to the extent of his pecuniary interest therein. The address for this entity is 7th Floor, ADWEA Building, 6th Street, Abu Dhabi, United Arab Emirates.

(4) Includes (i) 15,617,259 shares held of record by VPVP CleanTech Holdings 2004, L.L.C.; (ii) 5,230,280 shares held of record by VantagePoint CleanTech Partners, L.P.; (iii) 51,707 shares held of record by VantagePoint Venture Partners IV Principals Fund, L.P.; (iv) 17,500 shares held of record by VantagePoint Venture Associates IV, L.P.; (v)             shares issuable upon the assumed net exercise of warrants held by VPVP CleanTech Holdings 2004, L.L.C. that expire upon the completion of this offering at an assumed initial public offering price of $             per share; (vi)             shares issuable upon the assumed net exercise of warrants held by VantagePoint CleanTech Partners, L.P. that expire upon the completion of this offering at an assumed initial public offering price of $             per share; and (vii)             shares issuable upon the assumed net exercise of warrants held by VantagePoint Venture Partners IV Principals Fund, L.P. that expire upon the completion of this offering at an assumed initial public offering price of $             per share. Alan E. Salzman, J. Stephan Delozalek and James D. Marver are managing members of one or more of the entities, or general partners of the entities, that directly or indirectly hold such shares, and as such, may be deemed to have voting and investment power with respect to shares held by one or more of these entities. Each of these individuals disclaim beneficial ownership with respect to such shares except to the extent of their pecuniary interest therein. The address for these entities and individuals is 1001 Bayhill Drive, Suite 300, San Bruno, CA 94066.
(5) Includes (i) 8,270,643 shares held of record by VEP Tesla Holdings LLC (“VEP”); (ii) 5,977,346 shares held of record by Valor Equity Partners, L.P. (“VEP I”); (iii) 409,055 shares held of record by Valor VC LLC (“VC”); and (iv) 68,750 shares issuable to Valor Equity Partners IV, L.P. upon exercise of options exercisable within 60 days after December 31, 2009. VEP and VEP I are advised directly and/or indirectly by Valor Management Corp., which may be deemed to be the beneficial owner of the shares held of record by VEP and VEP I. Valor Management Corp. disclaims beneficial ownership of any shares held of record by VEP and VEP I pursuant to the rules under the Securities Exchange Act of 1934, as amended. Mr. Gracias is a shareholder and a director of Valor Management Corp. and the managing member of VC, and may be deemed to be the beneficial owner of shares held of record by VEP, VEP I, and VC (the “Valor Entities”). Mr. Gracias disclaims beneficial ownership of any shares held of record by the Valor Entities, except, in each case, to the extent of his pecuniary interest therein. The address for the Valor Entities and Mr. Gracias is 200 South Michigan Avenue, Suite 1020, Chicago, IL 60604.
(6) Includes 137,497 shares issuable upon exercise of options exercisable within 60 days after December 31, 2009.
(7) Includes 939,478 shares issuable upon exercise of options exercisable within 60 days after December 31, 2009.
(8) Includes 149,654 shares issuable upon exercise of options exercisable before January 31, 2010. Mr. Donoughe resigned as our Executive Vice President, Vehicle Engineering and Manufacturing in September 2009.
(9) Mr. Sobel resigned as our General Counsel in December 2009.
(10) Includes (i) 8,172,873 shares held of record by Technology Partners Fund VIII, L.P.; and (ii) 68,750 shares issuable to TP Management VIII, LLC upon exercise of options exercisable within 60 days after December 31, 2009. Ira Ehrenpreis, James Glasheen, Sheila Mutter and Roger J. Quy are managing members of the general partner of the entity that directly hold such shares, and as such, they may be deemed to have voting and investment power with respect to such shares. These individuals disclaim beneficial ownership with respect to such shares except to the extent of their pecuniary interest therein. The address for these entities is 550 University Avenue, Palo Alto, CA 94301.
(11) Includes (i) 5,202,629 shares held of record by Draper Fisher Jurvetson Fund VIII, L.P. (“Fund VIII”); (ii) 462,454 shares held of record by Draper Associates, L.P., (iii) 2,325,878 shares held of record by Draper Fisher Jurvetson Growth Fund 2006, L.P. (“Growth Fund”); (iv) 115,612 shares held of record by Draper Fisher Jurvetson Partners VIII, LLC (“Partners VIII”); and (v) 188,041 shares held of record by Draper Fisher Jurvetson Partners Growth Fund 2006, LLC (“Growth Partners Fund”). Timothy C. Draper, John H.N. Fisher and Steven T. Jurvetson are managing directors of the general partner entities of Fund VIII and also managing members of Partners VIII, that directly hold shares and as such, they may be deemed to have voting and investment power with respect to such shares. These individuals disclaim beneficial ownership with respect to such shares except to the extent of their pecuniary interest therein. The investing and voting power of the shares held by Draper Associates, L.P. is controlled by its general partner, Draper Associates, Inc. which is controlled by its president and majority shareholder, Timothy C. Draper, John H.N. Fisher, Mark W. Bailey and Barry Schuler are managing directors of the general partner entities of Growth Fund that directly hold shares and as such, they may be deemed to have voting and investment power with respect to such shares. Timothy C. Draper, John H.N. Fisher, Steven T. Jurvetson, Mark W. Bailey and Barry Schuler are managing members of Growth Partners Fund that directly hold shares and as such, they may be deemed to have voting and investment power with respect to such shares. These individuals disclaim beneficial ownership with respect to such shares except to the extent of their pecuniary interest therein. The address for all the entities above is 2882 Sand Hill Road, Suite 150, Menlo Park, CA 94025.
(12) Includes 1,235,397 shares held of record by Jasper Holdings LLC, which is owned by Mr. Musk and his spouse.
(13) Includes (i) 4,150,963 shares issuable upon exercise of options held by our current executive officers and directors exercisable within 60 days after December 31, 2009 and (ii)             shares issuable upon the assumed net exercise of warrants held by our current executive officers and directors that expire upon the completion of this offering at an assumed initial public offering price of $             per share.

 

158


Table of Contents

DESCRIPTION OF CAPITAL STOCK

General

The following is a summary of our capital stock and certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws, as they will be in effect upon the closing of this offering. This summary does not purport to be complete and is qualified in its entirety by the provisions of our amended and restated certificate of incorporation and amended and restated bylaws, copies of which have been filed as exhibits to the registration statement of which this prospectus is a part.

Immediately following the closing of this offering, our authorized capital stock will consist of 2,100,000,000 shares, with a par value of $0.001 per share, of which:

 

   

2,000,000,000 shares are designated as common stock; and

 

   

100,000,000 shares are designated as preferred stock.

As of December 31, 2009, we had outstanding             shares of common stock, held of record by 260 stockholders, and no shares of preferred stock, assuming the automatic conversion of all outstanding shares of our preferred stock into common stock immediately prior to the closing of this offering and the issuance of             shares of common stock upon the assumed net exercise of warrants that expire upon the completion of this offering at an assumed initial public offering price of $             per share. In addition, as of December 31, 2009, we also had outstanding options to acquire 34,923,477 shares of common stock.

Common Stock

The holders of common stock are entitled to one vote per share on all matters submitted to a vote of our stockholders and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of common stock entitled to vote in any election of directors may elect all of the directors standing for election. Subject to preferences that may be applicable to any preferred stock outstanding at the time, the holders of outstanding shares of common stock are entitled to receive ratably any dividends declared by our board of directors out of assets legally available. See the section entitled “Dividend Policy.” Upon our liquidation, dissolution or winding up, holders of our common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preference of any then outstanding shares of preferred stock. Holders of common stock have no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are, and all shares of common stock to be outstanding upon completion of this offering will be, fully paid and nonassessable.

Preferred Stock

After the closing of this offering, no shares of preferred stock will be outstanding. Pursuant to our amended and restated certificate of incorporation, our board of directors will have the authority, without further action by our stockholders, to issue from time to time up to 100,000,000 shares of preferred stock in one or more series. Our board of directors may designate the rights, preferences, privileges and restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preference, sinking fund terms and the number of shares constituting any series or the designation of any series. The issuance of preferred stock could have the effect of restricting dividends on our common stock, diluting the voting power of our common stock, impairing the liquidation rights of our common stock or delaying deterring or preventing a change in control. Such issuance could have the effect of decreasing the market price of the common stock. The issuance of preferred stock or even the ability to issue preferred stock could also have the effect of delaying, deterring or preventing a change in control. We currently have no plans to issue any shares of preferred stock.

 

159


Table of Contents

Warrants

At December 31, 2009, we had warrants outstanding to purchase 1,549,540 shares of our common stock, assuming the automatic conversion of our preferred stock into common stock, at exercise prices ranging from $1.135 to $2.5124 per share. Upon the completion of this offering, all of these warrants will expire if not exercised. Each warrant contains provisions for the adjustment of the exercise price and the number of shares issuable upon exercise in the event of stock dividends, stock splits, reorganizations, and reclassifications, consolidations and the like.

In connection with our loan facility from the United States Department of Energy, or DOE Loan Facility, we have issued the DOE a warrant to purchase up to 9,255,035 shares of our common stock, assuming the automatic conversion of our preferred stock into common stock, at an exercise price of $2.5124 per share. The shares subject to the warrant will vest and become exercisable beginning on December 15, 2018 in quarterly amounts through December 14, 2022 proportionately based on the average outstanding balance of the loan during the prior quarter. If we prepay our DOE Loan Facility in full or in part, the total amount of shares exercisable under the warrant will be proportionately reduced. If not exercised, this warrant will expire after December 15, 2023. Upon an event of default either arising from a change of control or any other event of default that is not cured after a certain period, the warrant will vest with respect to all unvested shares then remaining under the warrant. Prior to December 15, 2018, the warrant is transferable by the DOE only to other federal agencies of the United States government. After December 15, 2018, the warrant is transferable to any other person or entity. The warrant contains provisions for the adjustment of the exercise price and the number of shares issuable upon exercise in the event of stock dividends, stock splits, reorganizations, and reclassifications, consolidations and the like.

Registration Rights

Stockholder Registration Rights

Following this offering’s completion, the holders of an aggregate of             shares of our common stock, or their permitted transferees, are entitled to rights with respect to the registration of these shares under the Securities Act. These rights are provided under the terms of an investors’ rights agreement between us and the holders of these shares, and include demand registration rights, short-form registration rights and piggyback registration rights. All fees, costs and expenses of underwritten registrations will be borne by us and all selling expenses, including underwriting discounts and selling commissions, will be borne by the holders of the shares being registered.

The registration rights terminate with respect to the registration rights of an individual holder after the date that is five years following such time when the holder can sell all of the holder’s shares in any three month period under Rule 144 or another similar exemption under the Securities Act, unless such holder holds at least 2% of our voting stock.

Demand Registration Rights . The holders of an aggregate of             shares of our common stock, or their permitted transferees, are entitled to demand registration rights. Under the terms of the investors’ rights agreement, we will be required, at our expense, upon the written request of holders of a majority of these shares, to use our best efforts to register all or a portion of these shares for public resale. We are required to effect only two registrations pursuant to this provision of the investors’ rights agreement. In addition, we are required to effect up to two separate registrations upon the written request of Blackstar Investco LLC, or Blackstar. We are not required to effect a demand registration prior to 6 months after the effective date of this registration statement.

Short-Form Registration Rights . The holders of an aggregate of             shares of our common stock, or their permitted transferees, are also entitled to short-form registration rights. If we are eligible to file a registration statement on Form S-3, these holders have the right, upon written request from either the holders of at least 20% of these shares to us, or Blackstar, to have such shares registered by us at our expense if the proposed aggregate

 

160


Table of Contents

offering price of the shares to be registered by the holders requesting registration, net of underwriting discounts and commissions, is at least $1,000,000, subject to certain exceptions.

Piggyback Registration Rights . The holders of an aggregate of             shares of our common stock, or their permitted transferees, are entitled to piggyback registration rights. If we register any of our securities either for our own account or for the account of other security holders, after the completion of this offering the holders of these shares are entitled to include their shares in the registration at our expense. The underwriters of any underwritten offering have the right to limit the number of shares registered by these holders for marketing reasons, subject to certain limitations.

DOE Registration Rights

In connection our DOE Loan Facility, we have also granted certain registration rights to the DOE related to the shares exercisable upon the warrant issued to the DOE described above. These registration rights will only become effective if the DOE elects to exercise all or a portion of the shares subject to the warrant.

Demand Registration Rights. Under the terms of this agreement, the DOE is entitled to demand two registrations of our common stock. If the DOE initiates a demand registration pursuant to this provision, we will be required to use best efforts to register all or a portion of these shares for public resale. We are not required to effect a demand registration prior to 180 days after the completion of this offering.

Short-Form Registration Rights . The DOE is entitled to short-form registration rights. If we are eligible to file a registration statement on Form S-3, the DOE has the right, upon written request, to have such shares registered by us at our expense if the proposed aggregate offering price of the shares to be registered by the holders requesting registration, net of underwriting discounts and commissions, is at least $1,000,000, subject to certain exceptions.

Piggyback Registration Rights . The DOE is entitled to piggyback registration rights. If we register any of our securities either for our own account or for the account of other security holders, the DOE is entitled to include its shares in the registration. The underwriters of any underwritten offering have the right to limit the number of shares registered by the DOE for marketing reasons, subject to certain limitations.

Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and Bylaws

Our amended and restated certificate of incorporation and our amended and restated bylaws, which will be in effect upon the closing of this offering, contain certain provisions that could have the effect of delaying, deterring or preventing another party from acquiring control of us. These provisions and certain provisions of Delaware law, which are summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed, in part, to encourage persons seeking to acquire control of us to negotiate first with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate more favorable terms with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us.

Undesignated Preferred Stock . As discussed above, our board of directors has the ability to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of us. These and other provisions may have the effect of deterring hostile takeovers or delaying changes in control or management of our company.

Limits on Ability of Stockholders to Act by Written Consent or Call a Special Meeting . Our amended and restated certificate of incorporation provides that our stockholders may not act by written consent, which may lengthen the amount of time required to take stockholder actions. As a result, a holder controlling a majority of our capital stock would not be able to amend our bylaws or remove directors without holding a meeting of our stockholders called in accordance with our bylaws.

 

161


Table of Contents

In addition, our amended and restated bylaws provide that special meetings of the stockholders may be called only by the chairperson of the board, the chief executive officer or our board of directors. Stockholders may not call a special meeting, which may delay the ability of our stockholders to force consideration of a proposal or for holders controlling a majority of our capital stock to take any action, including the removal of directors.

Requirements for Advance Notification of Stockholder Nominations and Proposals . Our amended and restated bylaws establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of our board of directors or a committee of our board of directors. These provisions may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed. These provisions may also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company.

Board Classification . Our board of directors is divided into three classes, one class of which is elected each year by our stockholders. The directors in each class will serve for a three-year term. For more information on the classified board, see “Management—Board of Directors.” A third party may be discouraged from making a tender offer or otherwise attempting to obtain control of us as it is it more difficult and time-consuming for stockholders to replace a majority of the directors on a classified board.

No Cumulative Voting . Our amended and restated certificate of incorporation and amended and restated bylaws do not permit cumulative voting in the election of directors. Cumulative voting allows a stockholder to vote a portion or all of its shares for one or more candidates for seats on the board of directors. Without cumulative voting, a minority stockholder may not be able to gain as many seats on our board of directors as the stockholder would be able to gain if cumulative voting were permitted. The absence of cumulative voting makes it more difficult for a minority stockholder to gain a seat on our board of directors to influence our board’s decision regarding a takeover.

Amendment of Charter Provisions . The amendment of the above provisions of our amended and restated certificate of incorporation requires approval by holders of at least two-thirds of our outstanding capital stock entitled to vote generally in the election of directors.

Delaware Anti-Takeover Statute . We are subject to the provisions of Section 203 of the Delaware General Corporation Law regulating corporate takeovers. In general, Section 203 prohibits a publicly held Delaware corporation from engaging, under certain circumstances, in a business combination with an interested stockholder for a period of three years following the date the person became an interested stockholder unless:

 

   

prior to the date of the transaction, our board of directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;

 

   

upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, calculated as provided under Section 203; or

 

   

at or subsequent to the date of the transaction, the business combination is approved by our board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder.

Generally, a business combination includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. An interested stockholder is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporation’s outstanding voting stock. We expect the existence of this provision to have an anti-takeover effect with respect to transactions our board of directors does not approve in advance. We also

 

162


Table of Contents

anticipate that Section 203 may also discourage attempts that might result in a premium over the market price for the shares of common stock held by stockholders.

The provisions of Delaware law and the provisions of our amended and restated certificate of incorporation and amended and restated bylaws, as amended upon the closing of this offering, could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they might also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions might also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders might otherwise deem to be in their best interests.

Transfer Agent and Registrar

Upon the closing of this offering, the transfer agent and registrar for our common stock will be ComputerShare Trust Company, N.A. The transfer agent’s address is 250 Royall Street, Canton, Massachusetts 02021, and its telephone number is (800) 662-7232.

Listing

We have applied to have our common stock listed on the             under the symbol “            .”

 

163


Table of Contents

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no public market for shares of our common stock. Future sales of substantial amounts of shares of our common stock, including shares issued upon the exercise of outstanding options, in the public market after this offering, or the possibility of these sales occurring, could adversely affect the prevailing market price for our common stock from time to time or impair our ability to raise equity capital in the future.

Upon the closing of this offering, a total of              shares of common stock will be outstanding, assuming the automatic conversion of all outstanding shares of preferred stock into shares of common stock upon the completion of this offering and the issuance of              shares of common stock upon the assumed net exercise of warrants that would otherwise expire upon the completion of this offering at an assumed initial public offering price of $             per share. Of these shares, all              shares of common stock sold in this offering by us and the selling stockholders, plus any shares sold upon exercise of the underwriters’ over-allotment option, will be freely tradable in the public market without restriction or further registration under the Securities Act, unless these shares are held by “affiliates,” as that term is defined in Rule 144 under the Securities Act.

The remaining shares of common stock will be “restricted securities,” as that term is defined in Rule 144 under the Securities Act. These restricted securities are eligible for public sale only if they are registered under the Securities Act or if they qualify for an exemption from registration under Rules 144 or 701 under the Securities Act, which are summarized below.

Subject to the lock-up agreements described below and the provisions of Rules 144 and 701 under the Securities Act, these restricted securities will be available for sale in the public market as follows:

 

Date

   Number of
Shares

On the date of this prospectus

  

Between 90 and 180 days (subject to extension) after the date of this prospectus

  

At various times beginning more than 180 days (subject to extension) after the date of this prospectus

  

In addition, of the 34,923,477 shares of our common stock that were subject to stock options outstanding as of December 31, 2009, options to purchase 6,743,578 shares of common stock were vested as of December 31, 2009 and will be eligible for sale 180 days following the effective date of this offering, subject to extension as described in the section entitled “Underwriters.”

Rule 144

In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell such shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then such person is entitled to sell such shares without complying with any of the requirements of Rule 144.

In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell upon expiration of the lock-up agreements described above, within any three-month period beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:

 

   

1% of the number of shares of common stock then outstanding, which will equal approximately              shares immediately after this offering; or

 

   

the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.

 

164


Table of Contents

Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.

Rule 701

Rule 701 generally allows a stockholder who purchased shares of our common stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation, or notice provisions of Rule 144. Rule 701 also permits affiliates of our company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required to wait until 90 days after the date of this prospectus before selling such shares pursuant to Rule 701.

As of December 31, 2009, 3,452,254 shares of our outstanding common stock had been issued in reliance on Rule 701 as a result of exercises of stock options. These shares will be eligible for resale in reliance on this rule upon expiration of the lockup agreements described above.

Lock-Up Agreements

We, the selling stockholders, all of our directors and officers and the other holders of shares of common stock and holders of securities exercisable for or convertible into our common stock outstanding immediately prior to this offering have agreed that, without the prior written consent of each of Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated and J.P. Morgan Securities Inc. on behalf of the underwriters, we and they will not, during the period ending 180 days after the date of this prospectus:

 

   

offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale or otherwise dispose of any shares of our common stock, options or warrants to purchase shares of our common stock or securities convertible into, exchangeable for or that represent the right to receive shares of our common stock; or

 

   

engage in any other transaction which is designed to or which reasonably could be expected to lead to or result in a sale or disposition of shares of our common stock;

whether any transaction described above is to be settled by delivery of shares of our common stock or such other securities, in cash or otherwise. This agreement is subject to certain exceptions, and is also subject to extension for up to an additional 34 days, as set forth in the section entitled “Underwriters.”

Registration Rights

Upon completion of this offering, the holders of             shares of common stock or their transferees will be entitled to various rights with respect to the registration of these shares under the Securities Act. In addition, the DOE will be entitled to various rights with respect to the registration of the shares of common stock issuable upon exercise of the warrant we have issued the DOE in connection with the DOE Loan Facility. Registration of these shares under the Securities Act would result in these shares becoming fully tradable without restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by affiliates. See “Description of Capital Stock–Registration Rights” for additional information. Shares covered by a registration statement will be eligible for sales in the public market upon the expiration or release from the terms of the lock up agreement.

Registration Statements

We intend to file a registration statement on Form S-8 under the Securities Act following this offering to register all of the shares of common stock issued or reserved for issuance under our stock option plans. We expect to file this registration statement as soon as practicable after this offering. Shares covered by this registration statement will be eligible for sale in the public market, upon the expiration or release from the terms of the lock-up agreements, and subject to vesting of such shares.

 

165


Table of Contents

MATERIAL UNITED STATES TAX CONSIDERATIONS

FOR NON-UNITED STATES HOLDERS

The following is a summary of the material United States federal income tax and estate tax consequences of the ownership and disposition of our common stock to non-United States holders, but does not purport to be a complete analysis of all the potential tax considerations relating thereto. This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended, or the Code, Treasury regulations promulgated thereunder, administrative rulings and judicial decisions, all as of the date hereof. These authorities may be changed, possibly retroactively, so as to result in United States federal income tax or estate tax consequences different from those set forth below. We have not sought any ruling from the Internal Revenue Service, or the IRS, with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS will agree with such statements and conclusions.

This summary also does not address the tax considerations arising under the laws of any United States state or local or any non-United States jurisdiction or under United States federal gift and estate tax laws, except to the limited extent below. In addition, this discussion does not address tax considerations applicable to an investor’s particular circumstances or to investors that may be subject to special tax rules, including, without limitation:

 

   

banks, insurance companies or other financial institutions;

 

   

persons subject to the alternative minimum tax;

 

   

tax-exempt organizations;

 

   

dealers in securities or currencies;

 

   

traders in securities that elect to use a mark-to-market method of accounting for their securities holdings;

 

   

persons that own, or are deemed to own, more than five percent of our capital stock (except to the extent specifically set forth below);

 

   

certain former citizens or long-term residents of the United States;

 

   

persons who hold our common stock as a position in a hedging transaction, “straddle,” “conversion transaction” or other risk reduction transaction;

 

   

persons who do not hold our common stock as a capital asset within the meaning of Section 1221 of the Code (generally, for investment purposes); or

 

   

persons deemed to sell our common stock under the constructive sale provisions of the Code.

In addition, if a partnership or entity classified as a partnership for United States federal income tax purposes holds our common stock, the tax treatment of a partner generally will depend on the status of the partner and upon the activities of the partnership. Accordingly, partnerships that hold our common stock, and partners in such partnerships, should consult their tax advisors.

You are urged to consult your tax advisor with respect to the application of the United States federal income tax laws to your particular situation, as well as any tax consequences of the purchase, ownership and disposition of our common stock arising under the United States federal estate or gift tax rules or under the laws of any United States state or local or any non-United States or other taxing jurisdiction or under any applicable tax treaty.

Non-United States Holder Defined

For purposes of this discussion, you are a non-United States holder if you are any holder other than:

 

   

an individual citizen or resident of the United States;

 

166


Table of Contents
   

a corporation or other entity taxable as a corporation created or organized in the United States or under the laws of the United States, any State thereof or the District of Columbia;

 

   

an estate whose income is subject to United States federal income tax regardless of its source; or

 

   

a trust (x) whose administration is subject to the primary supervision of a United States court and which has one or more United States persons who have the authority to control all substantial decisions of the trust or (y) which has made an election to be treated as a United States person.

Distributions

If we make distributions on our common stock, those payments will constitute dividends for United States tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under United States federal income tax principles. To the extent those distributions exceed both our current and our accumulated earnings and profits, they will constitute a return of capital and will first reduce your basis in our common stock, but not below zero, and then will be treated as gain from the sale of stock.

Any dividend paid to you generally will be subject to United States withholding tax either at a rate of 30% of the gross amount of the dividend or such lower rate as may be specified by an applicable income tax treaty. In order to receive a reduced treaty rate, you must provide us with an IRS Form W-8BEN or other appropriate version of IRS Form W-8 certifying qualification for the reduced rate.

Dividends received by you that are effectively connected with your conduct of a United States trade or business generally are exempt from such withholding tax. In order to obtain this exemption, you must provide us with an IRS Form W-8ECI or other applicable IRS Form W-8 properly certifying such exemption. Such effectively connected dividends, although not subject to withholding tax, are taxed at the same graduated rates applicable to United States persons, net of certain deductions and credits, subject to an applicable income tax treaty providing otherwise. In addition, if you are a corporate non-United States holder, dividends you receive that are effectively connected with your conduct of a United States trade or business may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable income tax treaty.

If you are eligible for a reduced rate of withholding tax pursuant to a tax treaty, you may be able to obtain a refund of any excess amounts currently withheld if you file an appropriate claim for refund with the IRS.

Gain on Sale or Other Disposition of Common Stock

You generally will not be required to pay United States federal income tax on any gain realized upon the sale or other disposition of our common stock unless:

 

   

the gain is effectively connected with your conduct of a United States trade or business (and, if an income tax treaty applies, the gain is attributable to a permanent establishment maintained by you in the United States), in which case you will be required to pay tax on the net gain derived from the sale under regular graduated United States federal income tax rates, and for a non-United States holder that is a corporation, such non-United States holder may be subject to the branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty;

 

   

you are an individual who is present in the United States for a period or periods aggregating 183 days or more during the calendar year in which the sale or disposition occurs and certain other conditions are met, in which case you will be required to pay a flat 30% tax on the gain derived from the sale, which tax may be offset by United States source capital losses (even though you are not considered a resident of the United States) (subject to applicable income tax or other treaties); or

 

   

our common stock constitutes a United States real property interest by reason of our status as a “United States real property holding corporation” for United States federal income tax purposes, a USRPHC, at any time within the shorter of the five-year period preceding the disposition or your holding period for

 

167


Table of Contents
 

our common stock. We believe that we are not currently and will not become a USRPHC. However, because the determination of whether we are a USRPHC depends on the fair market value of our United States real property relative to the fair market value of our other business assets, there can be no assurance that we will not become a USRPHC in the future. Even if we become a USRPHC, however, as long as our common stock is regularly traded on an established securities market, such common stock will be treated as United States real property interests only if you actually or constructively hold more than five percent of such regularly traded common stock at any time during the applicable period that is specified in the Code.

United States Federal Estate Tax

Our common stock held (or treated as held) by an individual non-United States holder at the time of death will be included in such holder’s gross estate for United States federal estate tax purposes, unless an applicable estate tax treaty provides otherwise, and therefore may be subject to United States federal estate tax.

Backup Withholding and Information Reporting

Generally, we must report annually to the IRS the amount of dividends paid to you, your name and address, and the amount of tax withheld, if any. A similar report will be sent to you. Pursuant to applicable income tax treaties or other agreements, the IRS may make these reports available to tax authorities in your country of residence.

Payments of dividends or of proceeds on the disposition of stock made to you may be subject to additional information reporting and backup withholding at a current rate of 28% unless you establish an exemption, for example by properly certifying your non-United States status on a Form W-8BEN or another appropriate version of IRS Form W-8. Notwithstanding the foregoing, backup withholding and information reporting may apply if either we or our paying agent has actual knowledge, or reason to know, that you are a United States person.

Backup withholding is not an additional tax; rather, the United States income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund or credit may generally be obtained from the IRS, provided that the required information is furnished to the IRS in a timely manner.

The preceding discussion of United States federal tax considerations is for general information only. It is not tax advice. Each prospective investor should consult its own tax advisor regarding the particular United States federal, state and local and non-United States tax consequences of purchasing, holding and disposing of our common stock, including the consequences of any proposed change in applicable laws.

 

168


Table of Contents

UNDERWRITING

We, the selling stockholders and the underwriters named below have entered into an underwriting agreement with respect to the shares being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares indicated in the following table. Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated, J.P. Morgan Securities Inc. and Deutsche Bank Securities Inc. are the joint book-running managers and representatives of the underwriters.

 

Underwriters

   Number
of Shares

Goldman, Sachs & Co.

  

Morgan Stanley & Co. Incorporated.

  

J.P. Morgan Securities Inc.

  

Deutsche Bank Securities Inc.

  
    

Total

  
    

The underwriters are committed to take and pay for all of the shares being offered, if any are taken, other than the shares covered by the option described below unless and until this option is exercised.

If the underwriters sell more shares than the total number set forth in the table above, the underwriters have an option to buy up to an additional              shares from us and the selling stockholders to cover such sales. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.

The following tables show the per share and total underwriting discounts and commissions to be paid to the underwriters by us and the selling stockholders. Such amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase              additional shares.

 

Paid by Us

     No Exercise    Full Exercise

Per Share

   $                 $             

Total

   $                 $             

 

Paid by the Selling Stockholders

     No Exercise    Full Exercise

Per Share

   $                 $             

Total

   $                 $             

Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $             per share from the initial public offering price. If all the shares are not sold at the initial public offering price, the representatives may change the offering price and the other selling terms.

We, our officers and directors, and holders of substantially all of the outstanding shares of our common stock including the selling stockholders, have agreed with the underwriters, subject to certain exceptions, not to offer, sell, contract to sell, pledge, grant any option to purchase, make any short sale or otherwise dispose of any shares of common stock, options or warrants to purchase shares of common stock or securities convertible into, exchangeable for or that represent the right to receive shares of common stock, whether now owned or hereafter acquired, during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of each of Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated and J.P. Morgan Securities Inc. This agreement does not apply to any existing equity incentive plans, securities issued upon the exercise of options or upon the exercise, conversion or exchange of exercisable,

 

169


Table of Contents

convertible or exchangeable securities outstanding as of the date hereof, issuances of securities in connection with mergers or acquisitions we may make in an aggregate amount not to exceed 5% of our fully diluted outstanding stock as of the date hereof and other customary exceptions.

The 180-day restricted period described in the preceding paragraph will be automatically extended if: (1) during the last 17 days of the 180-day restricted period we issue an earnings release or announces material news or a material event; or (2) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 15-day period beginning on the last day of the 180-day period, in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the announcement of the material news or material event.

Prior to the offering, there has been no public market for our common stock. The initial public offering price has been negotiated among us and the representatives. Among the factors to be considered in determining the initial public offering price of the shares, in addition to prevailing market conditions, will be our historical performance, estimates of the business potential and earnings prospects of us, an assessment of our management and the consideration of the above factors in relation to market valuation of companies in related businesses.

We intend to file an application to list our common stock on the              under the symbol “            .”

At our request, the underwriters have reserved for sale at the initial public offering price up to             shares of common stock offered for sale to business associates, employees and friends and family members of our employees and Tesla customers who have received delivery of a Tesla Roadster from Tesla. The number of shares of common stock available for sale to the general public will be reduced to the extent that such persons purchase such reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered hereby. Other than the underwriting discount described on the front cover of this prospectus, the underwriters will not be entitled to any commission with respect to shares of common stock sold pursuant to the directed share program.

In connection with the offering, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. “Covered” short sales are sales made in an amount not greater than the underwriters’ option to purchase additional shares from us and the selling stockholders in the offering. The underwriters may close out any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase additional shares pursuant to the option granted to them. “Naked” short sales are any sales in excess of such option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of common stock made by the underwriters in the open market prior to the completion of the offering.

The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representative has repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.

Purchases to cover a short position and stabilizing transactions, as well as other purchases by the underwriters for their own accounts, may have the effect of preventing or retarding a decline in the market price of our stock, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of our common stock. As a result, the price of our common stock may be higher than the price that

 

170


Table of Contents

otherwise might exist in the open market. If these activities are commenced, they may be discontinued at any time. These transactions may be effected on the , in the over-the-counter market or otherwise.

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive, each of which is referred to as a Relevant Member State, each underwriter has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State, referred to as the Relevant Implementation Date, it has not made and will not make an offer of shares to the public in that Relevant Member State prior to the publication of a prospectus in relation to the shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of shares to the public in that Relevant Member State at any time:

 

   

to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;

 

   

to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000; and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts;

 

   

to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the representatives for any such offer; or

 

   

in any other circumstances which do not require the publication by the Issuer of a prospectus pursuant to Article 3 of the Prospectus Directive.

For the purposes of this provision, the expression an “offer of shares to the public” in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State and the expression Prospectus Directive means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

Each underwriter has represented and agreed that:

 

   

it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of the shares in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer; and

 

   

it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares in, from or otherwise involving the United Kingdom.

The shares may not be offered or sold by means of any document other than (1) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or (2) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (3) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.

 

171


Table of Contents

This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (1) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, (2) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the Securities and Futures Act or (3) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the Securities and Futures Act.

Where the shares are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest in that trust shall not be transferable for six months after that corporation or that trust has acquired the shares under Section 275 except: (1) to an institutional investor under Section 274 of the Securities and Futures Act or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the Securities and Futures Act; (2) where no consideration is given for the transfer; or (3) by operation of law.

The securities have not been and will not be registered under the Securities and Exchange Law of Japan (the Securities and Exchange Law) and each underwriter has agreed that it will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Securities and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.

The underwriters do not expect sales to discretionary accounts to exceed five percent of the total number of shares offered.

We and the selling stockholders estimate that the total expenses of the offering payable by us, excluding underwriting discounts and commissions, will be approximately $            .

We and the selling stockholders have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act of 1933.

The underwriters and their respective affiliates are full service financial institutions engaged in various activities, including securities trading, commercial and investment banking, financial advisory, investment management, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for the issuer, for which they received or will receive customary fees and expenses.

In the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve securities and instruments of the issuer.

 

172


Table of Contents

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed upon for us by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California. Simpson Thacher & Bartlett LLP, Palo Alto, California, is acting as counsel to the underwriters.

EXPERTS

The consolidated financial statements as of December 31, 2007 and 2008 and for each of the three years in the period ended December 31, 2008 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement or the exhibits and schedules filed therewith. For further information about us and the common stock offered hereby, we refer you to the registration statement and the exhibits and schedules filed thereto. Statements contained in this prospectus regarding the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and each such statement is qualified in all respects by reference to the full text of such contract or other document filed as an exhibit to the registration statement. Following this offering, we will be required to file periodic reports, proxy statements, and other information with the SEC pursuant to the Securities Exchange Act of 1934. You may read and copy this information at the Public Reference Room of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that site is www.sec.gov.

 

173


Table of Contents

TESLA MOTORS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

     Page

Report of Independent Registered Public Accounting Firm

   F-2

Financial Statements

  

Consolidated Balance Sheets as of December 31, 2007, 2008 and September 30, 2009 (unaudited)

   F-3

Consolidated Statements of Operations for the years ended December  31, 2006, 2007, 2008 and the nine month periods ended September 30, 2008 (unaudited) and 2009 (unaudited)

   F-4

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit for the years ended December 31, 2006, 2007, 2008 and the nine month period ended September 30, 2009 (unaudited)

   F-5

Consolidated Statements of Cash Flows for the years ended December  31, 2006, 2007, 2008 and the nine month periods ended September 30, 2008 (unaudited) and 2009 (unaudited)

   F-6

Notes to Consolidated Financial Statements

   F-7

 

F-1


Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Tesla Motors, Inc.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of convertible preferred stock and stockholders’ deficit and of cash flows present fairly, in all material respects, the financial position of Tesla Motors, Inc. and its subsidiaries at December 31, 2008 and December 31, 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/    PricewaterhouseCoopers LLP

January 29, 2010

San Jose, California

 

F-2


Table of Contents

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

 

     December 31,
2007
    December 31,
2008
    September 30,
2009
    Pro Forma
Stockholders’
Equity as of
September 30,
2009
 
                 (Unaudited)  

Assets

        

Current assets:

        

Cash and cash equivalents

   $ 17,211      $ 9,277      $ 106,547     

Accounts receivable, net

     59        3,320        1,386     

Inventory

     2,108        16,650        19,653     

Prepaid expenses and other current assets

     2,930        2,180        4,364     
                          

Total current assets

     22,308        31,427        131,950     

Property and equipment, net

     11,998        18,793        19,473     

Restricted cash

     260        1,220        3,580     

Other assets

     271        259        913     
                          

Total assets

   $ 34,837      $ 51,699      $ 155,916     
                          

Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit)

        

Current liabilities

        

Accounts payable

   $ 5,369      $ 14,184      $ 17,357     

Accrued liabilities

     8,512        11,145        11,066     

Deferred development compensation

     —          10,173        4,150     

Deferred revenue

     —          4,073        3,371     

Capital lease obligations, current portion

     80        341        243     

Refundable reservation payments

     37,335        48,019        24,812     

Total current liabilities

     51,296        87,935        60,999     

Convertible preferred stock warrant liability

     191        2,074        1,010      $ —     

Capital lease obligations, less current portion

     18        888        711     

Convertible notes payable

     —          54,528        —       

Deferred revenue, less current portion

     —          —          1,028     

Other long-term liabilities

     —          4,810        3,588     
                          

Total liabilities

     51,505        150,235        67,336     
                          

Commitments and contingencies (Notes 5 and 15)

        

Convertible preferred stock; $0.001 par value; 213,006,077 shares authorized

        

Series A Convertible Preferred Stock; 7,213,000 shares issued and outstanding actual, zero shares authorized, issued and outstanding pro forma (unaudited) (Liquidation value: $3,556)

     3,549        3,549        3,549        —     

Series B Convertible Preferred Stock; 17,459,456 shares issued and outstanding actual, zero shares authorized, issued and outstanding pro forma (unaudited) (Liquidation value: $12,920)

     12,899        12,899        12,899        —     

Series C Convertible Preferred Stock; 35,242,290 shares issued and outstanding actual, zero shares authorized, issued and outstanding pro forma (unaudited) (Liquidation value: $40,000)

     39,789        39,789        39,789        —     

Series D Convertible Preferred Stock; 18,440,449 shares issued and outstanding actual, zero shares authorized, issued and outstanding pro forma (unaudited) (Liquidation value: $45,000)

     44,941        44,941        44,941        —     

Series E Convertible Preferred Stock; 102,776,779 shares issued and outstanding actual, zero shares authorized, issued and outstanding pro forma (unaudited) (Liquidation value: $258,175)

     —          —          135,669        —     

Series F Convertible Preferred Stock; 27,785,263 shares issued and outstanding actual, zero shares authorized, issued and outstanding pro forma (unaudited) (Liquidation value: $82,500)

     —          —          82,378        —     
                                

Total convertible preferred stock

     101,178        101,178        319,225        —     
                                

Stockholders’ equity (deficit)

        

Common stock; $0.001 par value; 270,000,000 shares authorized; 18,055,060, 21,031,532 and 21,323,176 shares issued and outstanding as of December 31, 2007, 2008 and September 30, 2009 (unaudited);              shares authorized,              shares issued and outstanding pro forma (unaudited)

     18        21        21        232   

Additional paid-in capital

     4,268        5,179        5,746        325,770   

Accumulated deficit

     (122,132     (204,914     (236,412     (236,412
                                

Total stockholders’ equity (deficit)

     (117,846     (199,714     (230,645     89,590   
                                

Total liabilities, convertible preferred stock and stockholders’ equity (deficit)

   $ 34,837      $ 51,699      $ 155,916     
                          

The accompanying notes are an integral part of these consolidated financial statements.

 

F-3


Table of Contents

Consolidated Statements of Operations

(In thousands, except per share data)

 

    Years Ended December 31,     Nine Months Ended
September 30,
 
    2006     2007     2008     2008     2009  
                      (Unaudited)  

Automotive sales (including zero emission vehicle credit sales of $3,458, $495 and $7,645, for the periods ended December 31, 2008, September 30, 2008 and 2009, respectively) (Note 2)

  $ —        $ 73      $ 14,742      $ 580      $ 93,358   

Cost of sales

    —          9        15,883        19        85,604   
                                       

Gross profit (loss)

    —          64        (1,141     561        7,754   

Operating expenses

         

Research and development (net of development compensation of $17,170 for the period ended September 30, 2009) (Note 2)

    24,995        62,753        53,714        41,888        11,139   

Selling, general and administrative

    5,436        17,244        23,649        13,953        25,587   
                                       

Total operating expenses

    30,431        79,997        77,363        55,841        36,726   

Loss from operations

    (30,431     (79,933     (78,504     (55,280     (28,972

Interest income

    938        1,749        529        486        97   

Interest expense

    (423     —          (3,747     (2,648     (2,506

Other income (expense), net

    59        137        (963     231        (320
                                       

Loss before income taxes

    (29,857     (78,047     (82,685     (57,211     (31,701

Provision for (benefit from) income taxes

    100        110        97        73        (203
                                       

Net loss

  $ (29,957   $ (78,157   $ (82,782   $ (57,284   $ (31,498
                                       

Net loss per share of common stock, basic and diluted

  $ (3.39   $ (7.56   $ (4.15   $ (2.88   $ (1.51
                                       

Shares used in computing net loss per share of common stock, basic and diluted

    8,824,264        10,331,420        19,929,512        19,872,823        20,928,840   
                                       

Pro forma net loss per share of common stock, basic and diluted (unaudited)

      $          $     
                     

Shares used in computing pro forma net loss per share of common stock, basic and diluted (unaudited)

         
                     

The accompanying notes are an integral part of these consolidated financial statements.

 

F-4


Table of Contents

Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit

(In thousands, except share and per share amounts)

 

    Convertible Preferred
Stock
          Common Stock   Additional
Paid-In

Capital
  Accumulated
Deficit
    Total
Stockholders’

Deficit
 
    Shares     Amount           Shares   Amount      

Balance as of December 31, 2005

  32,672,456      $ 20,384          8,925,000   $ 9   $ 14   $ (14,018   $ (13,995

Issuance of Series C convertible preferred stock in June 2006 (inclusive of conversion of note payable) at $1.14 per share, net of issuance cost of $211

  35,242,290        39,789          —       —       —       —          —     

Issuance of common stock upon exercise of stock options

  —          —            81,957     —       6     —          6   

Stock-based compensation

  —          —            —       —       23     —          23   

Net loss

  —          —            —       —       —       (29,957     (29,957
                                                 

Balance as of December 31, 2006

  67,914,746        60,173          9,006,957     9     43     (43,975     (43,923

Issuance of Series D convertible preferred stock in May 2007 at $2.44 per share, net of issuance cost of $59

  18,440,449        44,941          —       —       —       —          —     

Conversion of Series A convertible preferred stock into shares of common stock

  (8,000,000     (3,936       8,000,000     8     3,928     —          3,936   

Issuance of common stock upon exercise of stock options

  —          —            1,048,103     1     99     —          100   

Stock-based compensation

  —          —            —       —       198     —          198   

Net loss

  —          —            —       —       —       (78,157     (78,157
                                                 

Balance as of December 31, 2007

  78,355,195        101,178          18,055,060     18     4,268     (122,132     (117,846

Issuance of common stock upon exercise of stock options

  —          —            2,946,472     3     453     —          456   

Issuance of common stock to consultant

  —          —            30,000     —       21     —          21   

Stock-based compensation

  —          —            —       —       437     —          437   

Net loss

  —          —            —       —       —       (82,782     (82,782
                                                 

Balance as of December 31, 2008

  78,355,195        101,178          21,031,532     21     5,179     (204,914     (199,714

Issuance of Series E convertible preferred stock in May 2009 (inclusive of conversion of note payable) at $2.51 per share, net of issuance cost of $556 (unaudited)

  102,776,779        135,669          —       —       —       —          —     

Issuance of Series F convertible preferred stock in August 2009 at $2.97 per share, net of issuance cost of $122 (unaudited)

  27,785,263        82,378          —       —       —       —          —     

Issuance of common stock upon exercise of stock options (unaudited)

  —          —            291,644     —       118     —          118   

Stock-based compensation (unaudited)

  —          —            —       —       449     —          449   

Net loss (unaudited)

  —          —            —       —       —       (31,498     (31,498
                                                 

Balance as of September 30, 2009 (unaudited)

  208,917,237      $ 319,225          21,323,176   $ 21   $ 5,746   $ (236,412   $ (230,645
                                                 

The accompanying notes are an integral part of these consolidated financial statements.

 

F-5


Table of Contents

Consolidated Statements of Cash Flows

(In thousands)

 

    Years Ended December 31,     Nine Months Ended September 30,  
        2006             2007             2008             2008             2009      
                      (Unaudited)  

Cash flows from operating activities

         

Net loss

  $ (29,957   $ (78,157   $ (82,782   $ (57,284   $ (31,498

Adjustments to reconcile net loss to net cash used in operating activities:

         

Depreciation and amortization

    615        2,895        4,157        2,863        5,005   

Change in fair value of convertible preferred stock warrant liability

    (196     (36     2,800        932        404   

Gain on extinguishment of convertible notes and warrants

    —          —          (1,245     —          (1,468

Stock-based compensation

    23        198        437        218        449   

Loss on abandonment of fixed assets

    —          2,421        —          —          —     

Interest on convertible notes

    411        —          3,692        2,541        2,686   

Changes in operating assets and liabilities

         

Accounts receivable

    —          (59     (3,261     (186     1,934   

Inventory

    —          (2,108     (14,542     (11,537     (3,003

Prepaid expenses and other current assets

    (819     (1,884     750        795        (2,184

Other assets

    (27     (64     12        12        (654

Accounts payable

    2,242        523        8,815        5,394        3,173   

Accrued liabilities

    2,175        7,572        2,633        846        (79

Other long-term liabilities

    —          —          1,192        656        2,321   

Deferred development compensation

    —          —          10,173        649        (6,023

Deferred revenue

    —          —          4,073        3,278        326   

Refundable reservation payments

    22,105        15,230        10,684        20,765        (23,207
                                       

Net cash used in operating activities

    (3,428     (53,469     (52,412     (30,058     (51,818
                                       

Cash flows from investing activities

         

Purchases of property and equipment excluding capital leases

    (6,505     (9,802     (9,630     (9,486     (5,685

Decrease (increase) in restricted cash

    (300     40        (960     40        (2,360
                                       

Net cash used in investing activities

    (6,805     (9,762     (10,590     (9,446     (8,045
                                       

Cash flows from financing activities

         

Proceeds from issuance of Series F convertible preferred stock, net of issuance costs of $122

    —          —          —          —          82,378   

Proceeds from issuance of Series E convertible preferred stock, net of issuance costs of $556

    —          —          —          —          49,444   

Proceeds from issuance of Series D convertible preferred stock, net of issuance costs of $59

    —          44,941        —          —          —     

Proceeds from issuance of Series C convertible preferred stock, net of issuance costs of $211

    36,801        —          —          —          —     

Principal payments on capital leases and other debt

    —          —          (191     (118     (275

Proceeds from issuance of convertible notes and warrants

    3,000        —          54,782        40,250        25,468   

Proceeds from issuance of common stock to consultant

    —          —          21        21        —     

Proceeds from exercise of stock options

    6        100        456        163        118   
                                       

Net cash provided by financing activities

    39,807        45,041        55,068        40,316        157,133   
                                       

Net increase (decrease) in cash and cash equivalents

    29,574        (18,190     (7,934     812        97,270   

Cash and cash equivalents at beginning of period

    5,827        35,401        17,211        17,211        9,277   
                                       

Cash and cash equivalents at end of period

  $ 35,401      $ 17,211      $ 9,277      $ 18,023      $ 106,547   
                                       

Supplemental Disclosures

         

Interest paid

    —          9        41        39        46   

Income taxes paid

    —          —          —          —          112   

Supplemental noncash investing and financing activities

         

Conversion of promissory notes to Series E convertible preferred stock

    —          —          —          —          86,225   

Conversion of promissory notes to Series C convertible preferred stock

    2,988        —          —          —          —     

Conversion of Series A convertible preferred stock to common stock

    —          3,936        —          —          —     

Exchange of convertible notes payable

    —          —          16,751        —          19,073   

Property and equipment acquired under capital lease

    —          —          1,322        294     

 

—  

  

The accompanying notes are an integral part of these consolidated financial statements.

 

F-6


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

1. Overview of the Company

Tesla Motors, Inc. (“Tesla”, “we,” “us” or “our”) was incorporated in the state of Delaware on July 1, 2003. We are engaged in the design, manufacturing and sales of high-performance electric vehicles.

Since inception, we have incurred significant losses and have used approximately $173.8 million of cash in operations through September 30, 2009 (unaudited). As of September 30, 2009, we had approximately $106.5 million (unaudited) in cash and cash equivalents. We are currently selling the Tesla Roadster automobile and are developing the Model S sedan, which we believe will ultimately lead to profitable operations and positive cash flows. To the extent we do not meet our planned sales volumes or future product releases or our existing cash and cash equivalents balances are insufficient to fund our future activities, we will need to raise additional funds. We cannot be certain that additional financing, if and when needed, will be available at terms satisfactory to us, or at all. These consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

On January 20, 2010, we entered into a loan agreement with the United States Federal Financing Bank and United States Department of Energy (“DOE”), pursuant to the Advanced Technology Vehicles Manufacturing Incentive Program, authorizing the commitment from the DOE to arrange loans for up to $465.0 million.

The information within these consolidated financial statements that is dated subsequent to December 31, 2008 has not been audited, except for Note 16, Subsequent Events.

2. Summary of Significant Accounting Policies

Basis of Consolidation

The consolidated financial statements include the accounts of Tesla and its wholly owned subsidiaries located in the United Kingdom, Taiwan, Canada and Germany. All significant inter-company transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements, and reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Unaudited Interim Financial Statements

The accompanying interim consolidated balance sheet as of September 30, 2009, the interim consolidated statements of operations and cash flows for the nine months ended September 30, 2008 and 2009 and the interim consolidated statements of convertible preferred stock and stockholders’ deficit for the nine months ended September 30, 2009 are unaudited. The unaudited interim consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly our financial position as of September 30, 2009 and our results of operations and cash flows for the nine months ended September 30, 2008 and 2009. The financial data and the other financial information disclosed in these notes to the consolidated financial statements related to the nine month periods are unaudited. The results of operations for the nine months ended September 30, 2009 are not necessarily indicative of the results to be expected for the year ended December 31, 2009 or for any other future year or interim period.

 

F-7


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

Unaudited Pro Forma Stockholders’ Equity

The pro forma stockholders’ equity presents our stockholders’ equity as though all of the convertible preferred stock outstanding automatically converted into shares of common stock on a 1 for 1 basis, except for the Series C convertible preferred stock which is convertible on a 1 for 1.05 basis (see Note 6), upon completion of a qualifying initial public offering. In addition, the pro forma stockholders’ equity assumes that the Company’s convertible preferred stock warrants will be exercised immediately prior to a qualifying initial public offering and will no longer require periodic revaluation.

Fair Value of Financial Instruments

The carrying values of our cash and cash equivalents, and deposits approximate their fair value due to their short-term nature. As a basis for determining the fair value of certain of our assets and liabilities, we established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows: (Level I) observable inputs such as quoted prices in active markets; (Level II) inputs other than the quoted prices in active markets that are observable either directly or indirectly; and (Level III) unobservable inputs in which there is little or no market data which requires us to develop our own assumptions. This hierarchy requires us to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. Our financial assets that are measured at fair value on a recurring basis consist only of cash equivalents. Our liabilities that are measured at fair value on a recurring basis consist of the convertible preferred stock warrant liability.

All of our cash equivalents, which are comprised primarily of money market funds, are classified within Level I of the fair value hierarchy because they are valued using quoted market prices, market prices for similar securities, or alternative pricing sources with reasonable levels of price transparency. We do not have any Level II instruments, or instruments valued based on other observable inputs. Our convertible preferred stock warrant liability is classified within Level III of the fair value hierarchy.

As of December 31, 2008 and September 30, 2009, the fair value hierarchy for our financial assets and financial liabilities that are carried at fair value was as follows (in thousands):

 

    December 31, 2008   September 30, 2009
                    (Unaudited)
    Fair Value   Level I   Level II   Level III   Fair Value   Level I   Level II   Level III

Money market funds

  $ 6,045   $ 6,045   $ —     $ —     $ 62,365   $ 62,365   $ —     $ —  

Convertible preferred stock warrant liability

    2,074     —       —       2,074     1,010     —       —       1,010

The changes in the value of the convertible preferred stock warrant liability were as follows (in thousands):

 

     2007     2008     September 30,
2009
 
                 (Unaudited)  

Fair value as of January 1

   $ 227      $ 191      $ 2,074   

Issuances, settlements and extinguishments

     —          (917     (1,468

Change in fair value

     (36     2,800        404   
                        

Fair value as of December 31, 2007, 2008 and September 30, 2009

   $ 191      $ 2,074      $ 1,010   
                        

The valuation of the convertible preferred stock warrants is discussed in Note 8.

 

F-8


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

Revenue Recognition

We recognize revenues from sales of the Tesla Roadster, including vehicle options and accessories, vehicle service and sales of zero emission vehicle (“ZEV”) credits. We recognize revenue when: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred and there are no uncertainties regarding customer acceptance; (iii) fees are fixed or determinable; and (iv) collection is reasonably assured.

Automotive Sales

Automotive sales consist primarily of revenue earned from the sales of the Tesla Roadster, vehicle service, and vehicle options, accessories and destination charges. Sales or other amounts collected in advance of meeting all of the revenue recognition criteria are not recognized in the consolidated statements of operations and are instead recorded as deferred revenue on the consolidated balance sheets. While we have recently arranged for financing options on our vehicles in the United States through a third-party lender, we do not provide direct financing for the purchase of the Tesla Roadster to our customers, unlike most of our competitors.

In regards to the sale of Tesla Roadsters, revenue is generally recognized upon delivery of the vehicle. Concurrent with a purchase order for a Roadster, customers must remit a refundable reservation payment (see Note 4). Prior to scheduled delivery, the customer selects from a list of separately priced options. At this time, the previously paid reservation payment is credited against the final purchase price of the vehicle and the customer is required to remit the remaining balance due. These amounts are recorded as deferred revenue until the time the vehicle is delivered. In a limited number of circumstances, we may deliver a vehicle to a customer without all of the options ordered by the customer if the options do not limit the functionality of the vehicle. This may happen, for example, in an instance where the customer orders an additional hard top which is not ready at the time the vehicle is delivered. In such cases, we will continue to defer the related revenue based on the undelivered item’s fair value, as evidenced by the contractual price of the option in stand-alone transactions.

We began delivery of the Tesla Roadster in 2008. During 2008, many of the vehicles delivered were due powertrain upgrades. Although these vehicles performed to a level adequate for most driving conditions, we had promised our customers an upgrade of the powertrain. As a result, we deferred all revenue recognition of these Tesla Roadsters that we had delivered in 2008 until they were retrofitted with the new powertrain.

While sales of vehicle options and accessories may take place separately from a vehicle sale, they are often part of one vehicle sales agreement resulting in multiple element arrangements. We are able to establish the fair value for each of the deliverables within the multiple element arrangements because we sell each of the vehicles, vehicle accessories and options separately, outside of any multiple element arrangements. As each of these items has stand alone value to the customer, revenue from sales of vehicle accessories and options are recognized when those specific items are delivered to the customer.

We record revenue for destination charges billed to our customers. Revenue from destination charges totaled approximately $0.1 million and $1.7 million for the year ended December 31, 2008 and the nine months ended September 30, 2009. The related costs are recorded in cost of sales.

Zero Emission Vehicle Credit Sales

California and certain other states have laws in place requiring vehicle manufacturers to ensure that a portion of the vehicles delivered for sale in that state during each model year are zero emission vehicles. These laws provide that a manufacturer of zero emission vehicles may earn credits, referred to as ZEV credits, and may sell excess credits to other manufacturers who apply such credits to comply with these regulatory requirements.

 

F-9


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

As a manufacturer solely of zero emission vehicles, we have earned ZEV credits on vehicles sold in such states, and we expect to continue to earn these credits in the future. Since our only commercial vehicle is electric, we do not receive any benefit from the generation of ZEV credits, and accordingly look to sell them to other vehicle manufacturers. In order to facilitate the sale of these credits, we enter into contractual agreements with third parties requiring them to purchase our ZEV credits at pre-determined prices. We recognize revenue on the sale of these credits at the time legal title to the credits is transferred to the purchasing party by the governmental agency issuing the credits.

Powertrain Development Compensation

In May 2009, we entered into an agreement with Daimler AG (“Daimler”) related to the development of a battery pack and charger for Daimler’s Smart fortwo electric drive. We began development efforts in the year ended December 31, 2008 and began receiving payments to compensate us for the cost of our development activities prior to entering into the formal agreement in May 2009. We received aggregate payments in the amount of $10.2 million during 2008 for our services; however, we deferred recognition for these payments received in advance of the execution of the final agreement because a number of significant contractual terms were not in place prior to that time. Upon entering into the final agreement in May 2009, we had received and deferred an aggregate of $14.5 million under the agreement. Under the terms of the final agreement, Daimler was to pay us an additional $8.7 million subject to successful completion and acceptance of certain development milestones.

We are recognizing the $14.5 million paid in advance of the execution of the final agreement as deferred development compensation on a straight-line basis. This amount was recognized over the expected life of the agreement, beginning in May 2009 and continuing through November 2009. Payments received upon the achievement of development milestones subsequent to the execution of the final agreement in May 2009 are recognized, as an offset to our research and development expenses, upon achievement and acceptance of the respective milestones. Amounts received under this agreement are being recognized as an offset to research and development expenses, as we are performing development activities on behalf of Daimler and we are being compensated for the cost of these activities.

As of September 30, 2009, we had collected approximately $21.3 million under the development agreement, of which $17.1 million was recognized during the nine months then ended, and $4.2 million remained in deferred development compensation. As of December 31, 2009, all development work related to the development agreement had been completed, and we expect that the full $23.2 million under the development agreement will be recognized in the quarter ended as of December 31, 2009.

Freestanding Preferred Stock Warrants

We account for freestanding warrants to purchase shares of our convertible preferred stock as liabilities on the consolidated balance sheets at fair value upon issuance. The convertible preferred stock warrants are recorded as liabilities because the underlying shares of convertible preferred stock are contingently redeemable which therefore, may obligate us to transfer assets at some point in the future (see Note 6). The warrants are subject to remeasurement to fair value at each balance sheet date and any change in fair value is recognized as a component of other income (expense), net, on the consolidated statements of operations. We will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of the warrants, the completion of a deemed liquidation event, conversion of convertible preferred stock into common stock, or until the convertible preferred stock can no longer trigger a deemed liquidation event. At that time, the convertible preferred stock warrant liability will be reclassified to convertible preferred stock or additional paid-in capital, as applicable.

 

F-10


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

Cash and Cash Equivalents

All highly liquid investments with an original or remaining maturity of three months or less at the date of purchase are considered to be cash equivalents. We currently deposit excess cash primarily in money market funds.

Restricted Cash and Deposits

We maintain certain cash amounts restricted as to withdrawal or use. We maintained a balance of approximately $0.3 million, $1.2 million, and $3.6 million as of December 31, 2007, 2008 and September 30, 2009, respectively. The restricted cash represents security deposits related to lease agreements, equipment financing, as well as security held by a vendor as part of the vendor’s standard credit policies.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable primarily include amounts related to the performance of powertrain development services as of December 31, 2007, from the performance of powertrain development services and sales of ZEV credits as of December 31, 2008, and from sales of ZEV credits and vehicle sales as of September 30, 2009. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us, we provide an allowance against amounts receivable to reduce the net recognized receivable to the amount it reasonably believes will be collected. As of December 31, 2007, 2008 and September 30, 2009, we have determined that it does not require an allowance for doubtful accounts.

Concentration of Risk

Financial instruments that potentially subject us to a concentration of credit risk consist of cash, cash equivalents and accounts receivable. Our cash and cash equivalents are primarily invested in money market funds with high credit quality financial institutions in the United States. At times, these deposits and securities may be in excess of insured limits. To date, we have not experienced any losses on our deposits of cash and cash equivalents. In 2008, our accounts receivable were derived primarily from the performance of powertrain development services and the sale of ZEV credits. In the nine months ended September 30, 2009, our accounts receivable were derived from vehicle sales and the sale of ZEV credits. The accounts receivable balances related to powertrain development services are derived from activities performed for one customer and represented 48% and 0% of accounts receivable as of December 31, 2008 and September 30, 2009, respectively. The accounts receivable balances related to the ZEV credits are derived from sales primarily to one customer who represented 51% of accounts receivable as of December 31, 2008 and another customer who represented 61% of accounts receivable as of September 30, 2009. Additionally, we had a related party accounts receivable which represented 19% of our accounts receivable as of September 30, 2009 (see Note 14). We perform credit evaluations of our customers’ financial condition and, generally, require no collateral.

A number of components that meet our manufacturing requirements are available only from single source suppliers. For example, Lotus is the only manufacturer for certain components, such as the chassis of our Tesla Roadster. In other instances, although there may be multiple suppliers available, many of the components used in our vehicles must be custom made for us. If these single source suppliers fail to satisfy our requirements on a timely basis at competitive prices, we could suffer manufacturing delays, a possible loss of revenues, or incur higher cost of sales, any of which could adversely affect our operating results.

 

F-11


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

Inventories and Inventory Valuation

Inventories are stated at the lower of cost or market. Cost is computed using standard cost, which approximates actual cost on a first-in, first-out basis. We record inventory write-downs based on reviews for excess and obsolescence determined primarily by future demand forecasts. We also adjust the carrying value of our inventories when we believe that the net realizable value is less than the carrying value. These write-downs are measured as the difference between the cost of the inventory, including estimated costs to complete, and estimated selling prices. The provisions recorded prior to commencement of sales of the Roadster automobile were recorded as a charge to research and development expenses. Upon the commercial introduction of the Tesla Roadster, charges were recorded as a component of cost of sales. Once inventory is written down, a new, lower-cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

Adverse Purchase Commitments

To the extent future inventory purchases under non-cancellable purchase orders are for excess or obsolete parts or the related inventory is deemed to be in excess of its net realizable value, we record a provision for adverse purchase commitments. The charges recorded prior to commencement of sales of the Roadster automobile in the fourth quarter of 2008 were recorded as research and development expenses. Upon commencement of sales, charges were recorded as a component of cost of sales. During the year ended December 31, 2007, we recorded charges of $1.5 million to research and development expenses. During the year ended December 31, 2008, we recorded charges of $1.0 million to research and development expenses and $0.4 million to cost of sales. During the nine months ended September 30, 2009, we recorded charges of $0.8 million to cost of sales.

Property and Equipment

Property and equipment are recognized at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets as follows:

 

Computer equipment and software

   3 years

Office furniture and equipment

   3 to 7 years

Tooling

   5 years

Leasehold improvements

   5 years

Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the term of the related lease. Upon retirement or sale, the cost and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reflected in operations. Maintenance and repair expenditures are expensed as incurred, while major improvements that increase functionality of the asset are capitalized and depreciated ratably to expense over the identified useful life.

Long-lived Assets

We evaluate our long-lived assets for indicators of possible impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Impairment exists if the carrying amounts of such assets exceed the estimates of future net undiscounted cash flows expected to be generated by such assets. Should impairment exist, the impairment loss would be measured based on the excess carrying value of the asset over the asset’s estimated fair value. As of September 30, 2009, we have not recorded any impairment losses on our long-lived assets.

 

F-12


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

Research and Development Costs

Research and development costs are expensed as incurred. Research and development expenses consist primarily of payroll and benefits of those employees engaged in research, design and development activities, costs related to design tools, license expenses related to intellectual property, supplies and services, depreciation and other occupancy costs.

Income Taxes

Income taxes are computed using the asset and liability method, under which deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Stock-based Compensation

Prior to January 1, 2006, we accounted for employee stock-based compensation under an intrinsic value method which required compensation expense for an option to be based on the difference, if any, on the date of the grant, between the fair value of a company’s common stock and the exercise price of the option. Accordingly, no compensation expense was recognized if the exercise price of the option is equal to the fair value of the underlying common stock. Employee stock-based compensation determined under the intrinsic value method was recognized using the multiple option method over the option vesting period.

Effective January 1, 2006, we adopted the fair value method of accounting for stock options granted to employees which requires the recognition of compensation expense for costs related to all share-based payments, including stock options. The fair value method requires companies to estimate the fair value of share-based payment awards on the grant date using an option pricing model. We adopted the fair value method using the prospective method which requires nonpublic entities that used the minimum value method for either pro forma or financial statement recognition purposes to apply the fair value method to option grants issued on and after the date of adoption. For options that have not yet vested but were granted prior to the adoption of the fair value method, we continue to recognize compensation expense under the intrinsic value method. In addition, we continue to amortize any stock-based compensation from options granted prior to January 1, 2006 utilizing an accelerated amortization schedule, while amortizing the stock-based compensation from options granted or modified after January 1, 2006 on a straight-line basis over the service period.

We have elected to use the “with and without” approach in determining the order in which tax attributes are utilized. As a result, we will only recognize a tax benefit from stock-based awards in additional paid-in capital if an incremental tax benefit is realized after all other tax attributes currently available to us have been utilized. In addition, we have elected to account for the indirect effects of stock-based awards on other tax attributes, such as the research tax credit, through our statement of operations.

We account for equity instruments issued to non-employees based on the fair value of the awards. The fair value of the awards granted to non-employees is re-measured as the awards vest and the resulting change in fair value, if any, is recognized in the consolidated statement of operations during the period the related services are rendered.

 

F-13


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

Foreign Currency Translation

For each of our foreign operations, the functional currency is the U.S. Dollar. For these foreign operations, monetary assets and liabilities denominated in non U.S. currencies are re-measured to U.S. Dollars using current exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities denominated in non-U.S. currencies are maintained at historical U.S. Dollar exchange rates. Revenues and expenses are re-measured at average U.S. Dollar monthly rates.

Foreign currency transaction gains and losses are a result of the effect of exchange rate changes on transactions denominated in currencies other than the functional currency. Transaction gains and losses are recognized in other income (expense), net in the consolidated statements of operations and have not been significant for any periods presented.

Comprehensive Loss

Comprehensive loss includes all changes in equity (net assets) during a period from non-owner sources. Through September 30, 2009, there are no components of comprehensive loss which are not included in net loss; therefore, a separate statement of comprehensive loss has not been presented.

We do not have any foreign currency translation adjustments as a component of other comprehensive loss through September 30, 2009, as the functional currency of all our foreign subsidiaries is the U.S. Dollar.

Warranties

We provide a warranty on all vehicle sales, and we accrue warranty reserves at the time a vehicle is delivered to a customer. Warranty reserves include management’s best estimate of the projected costs to repair or to replace any items under warranty, based on actual warranty experience as it becomes available and other known factors that may impact our evaluation of historical data. We review our reserves at least quarterly to ensure that our accruals are adequate in meeting expected future warranty obligations, and we will adjust our estimates as needed. Warranty expense is recorded as a component of cost of sales in the consolidated statements of operations. The portion of the warranty provision which is expected to be incurred within 12 months from the balance sheet date is classified as current, while the remaining amount is classified as long-term liabilities.

We began recording warranty reserves with the commencement of Tesla Roadster sales in 2008. Initially, Tesla Roadsters were sold with a warranty of four years or 50,000 miles. More recently, Tesla Roadsters have been sold with a warranty of three years or 36,000 miles. Accrued warranty activities summarized for 2008 and the nine months ended September 30, 2009 are as follows (in thousands):

 

     2008    September 30,
2009
 
          (Unaudited)  

Accrued warranty—beginning of period

   $ —      $ 858   

Warranty costs incurred

     —        (813

Provision for warranty

     858      4,245   
               

Accrued warranty—end of period

   $ 858    $ 4,290   
               

 

F-14


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

Net Loss per Share of Common Stock

Our basic net loss per share of common stock is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period. The weighted-average number of shares of common stock used to calculate our basic net loss per share of common stock excludes those shares subject to repurchase related to stock options that were exercised prior to vesting as these shares are not deemed to be issued for accounting purposes until they vest. The diluted net loss per share of common stock is computed by dividing the net loss using the weighted-average number of common shares, excluding common stock subject to repurchase, and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of common stock subject to repurchase and stock options to purchase common stock and warrants to purchase convertible preferred stock (using the treasury stock method) and the conversion of our convertible preferred stock and convertible notes payable (using the if-converted method).

The following table presents the potential common shares outstanding that were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been antidilutive:

 

    2006   2007   2008   Nine months
ended
September 30,
2008
  Nine months
ended
September 30,
2009
                (Unaudited)

Convertible preferred stock

  69,678,199   80,118,648   80,118,648   80,118,648   210,680,690

Stock options to purchase common stock

  6,614,585   12,839,150   8,587,900   12,427,126   10,427,629

Common stock subject to repurchase

  81,458   920,748   277,322   390,180   178,943

Convertible preferred stock warrants

  683,449   683,449   5,491,058   8,930,363   1,549,540

Convertible notes payable

  —     —     40,725,862   16,462,103   —  

Pro forma basic and diluted net loss per share of common stock has been computed to give effect to the assumed conversion of the convertible preferred stock into common stock. Also, the numerator in the pro forma basic and diluted net loss per share calculation has been adjusted to remove gains and losses resulting from re-measurements of the outstanding convertible preferred stock warrant liability as it is assumed that these warrants will be exercised immediately prior to a qualifying initial public offering and will no longer require periodic revaluation.

 

F-15


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

The following table sets forth the computation of our pro forma basic and diluted net loss per share of common stock (in thousands, except for share amounts):

 

     2008     Nine months
ended
September 30,
2009
 
           (Unaudited)  

Net loss

   $ (82,782   $ (31,498

Change in fair value of convertible preferred stock warrant liability

     2,800        404   
                

Net loss used in computing pro forma net loss per share of common stock, basic and diluted

   $ (79,982   $ (31,094
                

Shares used in computing net loss per share of common stock, basic and diluted

     19,929,512        20,928,840   

Pro forma adjustments to reflect assumed conversion of convertible preferred stock including preferred stock issuable upon net settlement of convertible preferred stock warrants

    
                

Shares used in computing pro forma net loss per share of common stock, basic and diluted

    

Pro forma net loss per share of common stock, basic and diluted

   $                   $                
                

Recent Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (“FASB”) issued the FASB Accounting Standards Codification (“ASC”) which identifies the ASC as the authoritative source of generally accepted accounting principles (“GAAP”) in the United States. Rules and interpretive releases of the SEC under federal securities laws are also sources of authoritative GAAP for SEC registrants. We adopted the provisions of the authoritative accounting guidance for the interim reporting period ended September 30, 2009. The adoption of the accounting standard did not have a material impact on our consolidated financial statements.

In September 2006, the FASB issued a new accounting standard which defines fair value, establishes a framework for measuring fair value and requires additional disclosures about fair value measurements. In February 2008, the FASB delayed the effective date of the standard until the first quarter of 2009 for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis. The standard does not require any new fair value measurements but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. In April 2009, the FASB issued further guidance for estimating fair value when the level of market activity for an asset or liability has significantly decreased, which is effective for interim and annual periods ending after June 15, 2009. The adoption of the accounting standard did not have a material impact on our consolidated financial statements.

In March 2008, the FASB issued a new accounting standard related to disclosures about derivative instruments and hedging activities. This standard is intended to improve financial reporting by requiring transparency about the location and amounts of derivative instruments in an entity’s financial statements; clarifies the accounting for derivative instruments and related hedged items; and how derivative instruments and related hedged items affect its financial position, financial performance and cash flows. This standard is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The adoption of the accounting standard did not have a material impact on our consolidated financial statements.

 

F-16


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

In May 2008, the FASB issued a new accounting standard which requires the recognition of both the liability and equity components of convertible debt instruments with cash settlement features. Under the standard, the debt component is required to be recognized at the fair value of a similar instrument that does not have an associated equity component. The equity component is recognized as the difference between the proceeds from the issuance of the convertible debt instrument and the fair value of the straight debt liability. The separation of the equity component creates a debt discount which is required to be accreted over the expected life of the debt. Retrospective application to all periods presented is required. This standard is effective for us beginning in the first quarter of 2009. The adoption of the accounting standard did not have a material impact on our consolidated financial statements.

In June 2008, the FASB issued a new accounting standard for determining whether instruments granted in share-based payment transactions are considered participating securities for the purposes of calculating earnings per share. The standard clarified that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common stockholders, and therefore, are considered participating securities. The two-class method of computing basic and diluted earnings per share would have to be applied. This standard is effective for fiscal years beginning after December 31, 2008. The adoption of the accounting standard did not have a material impact on our consolidated financial statements.

In May 2009, the FASB issued a new accounting standard which establishes the general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The standard, which includes a new requirement to disclose the date through which an entity has evaluated subsequent events, is effective for interim or annual periods ending after June 15, 2009. The adoption of the accounting standard did not have a material impact on our consolidated financial statements.

In October 2009, the FASB issued an accounting standard update which requires companies to allocate revenue in multiple-element arrangements based on an element’s estimated selling price if vendor-specific or other third-party evidence of value is not available. The guidance is effective beginning January 1, 2011 with early application permitted. We are currently evaluating both the timing and the impact of the standard on our consolidated financial statements.

3. Balance Sheet Components

As of December 31, 2007, 2008 and September 30, 2009, our inventory consisted of the following components (in thousands):

 

       December 31,
2007
   December 31,
2008
   September 30,
2009
               (Unaudited)

Inventory

        

Raw material

   $ 2,008    $ 4,760    $ 12,182

Work in process

     100      4,372      3,616

Finished goods

     —        7,518      3,855
                    
   $ 2,108    $ 16,650    $ 19,653
                    

During 2007, 2008 and the nine months ended September 30, 2009, we wrote down inventory as a result of excess and obsolete inventories held during these periods; when we believed that the net realizable value of

 

F-17


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

inventories held during these periods was less than the carrying value; and as a result of physical inventory counts. During 2007, we recorded write-downs of $0.8 million research and development expenses. During 2008, we recorded write-downs of $3.7 million to research and development expenses and $0.6 million to cost of sales. During the nine months ended September 30, 2009, we recorded write-downs of $2.5 million to cost of sales.

As of December 31, 2007, 2008 and September 30, 2009, our property and equipment consisted of the following components (in thousands):

 

       December 31,
2007
    December 31,
2008
    September 30,
2009
 
                 (Unaudited)  

Property and Equipment, net

      

Computer equipment and software

   $ 4,764      $ 5,476      $ 4,893   

Office furniture and equipment

     3,255        4,682        6,075   

Tooling

     5,384        11,580        14,630   

Leasehold improvements

     1,793        3,881        4,594   

Construction in progress

     —          —          420   
                        
     15,196        25,619        30,612   

Less: Accumulated depreciation and amortization

     (3,198     (6,826     (11,139
                        
   $ 11,998      $ 18,793      $ 19,473   
                        

Depreciation and amortization expense during 2006, 2007, 2008 and the nine months ended September 30, 2008 and 2009 was $0.6 million, $2.9 million, $4.2 million, $2.9 million and $5.0 million, respectively. Total property and equipment assets under capital lease at December 31, 2007, December 31, 2008, and September 30, 2009, were $0.2 million, $0.5 million and $0.5 million, respectively. Accumulated depreciation related to assets under capital lease as of these dates were $36,000, $0.1 million and $0.2 million, respectively.

As of December 31, 2007, 2008 and September 30, 2009, our accrued liabilities consisted of the following (in thousands):

 

       December 31,
2007
   December 31,
2008
   September 30,
2009
               (Unaudited)

Accrued Liabilities

        

Provision for adverse purchase commitments

   $ 1,544    $ 2,173    $ 802

Research and development

     1,236      1,972      674

Tooling and other fixed assets

     —        1,234      495

Inventory

     —        1,201      1,467

Payroll and related

     1,156      1,063      1,630

Professional services

     2,255      515      1,046

Income tax payable

     153      205      138

Accrued warranty

     —        —        1,411

Taxes payable

     —        1,598      1,855

Others

     2,168      1,184      1,548
                    
   $ 8,512    $ 11,145    $ 11,066
                    

 

F-18


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

As of December 31, 2007, 2008 and September 30, 2009, our other long-term liabilities consisted of the following (in thousands):

 

       December 31,
2007
   December 31,
2008
   September 30,
2009
               (Unaudited)

Other Long-Term Liabilities

        

Accrued warranty, long-term

   $ —      $ 858    $ 2,879

Interest on notes payable

     —        3,618      —  

Deferred rent liability

     —        334      709
                    
   $ —      $ 4,810    $ 3,588
                    

4. Refundable Reservation Payments

During 2007, 2008 and the nine months ended September 30, 2009, we received refundable reservation payments from our customers for purposes of securing their vehicle production slot. Before scheduled delivery, the customer must select from a list of separately priced options. At this time, the previously paid reservation payment is credited against the final purchase price of the vehicle and the customer is required to remit the remaining balance due. These amounts are recorded as current liabilities until the time the vehicle is delivered. Our current reservation agreement for the Tesla Roadster provides that prior to locking in the production slot for the Tesla Roadster, reservation payments are refundable, less a cancellation fee of $250. After locking in the production slot, the reservation payments are not refundable. For the Model S, our current reservation agreements provide for a $50 cancellation fee until the customer selects options. Upon selection of options, the customer will make an additional reservation payment, following which the cancellation fee becomes $10,000. Amounts received by us as refundable reservation payments are not restricted as to their use by us. Upon delivery of the vehicle, the related reservation payments are recognized in automotive sales as part of the respective vehicle sale. As of December 31, 2007, 2008 and September 30, 2009, refundable reservation payments in the amount of $37.3 million, $48.0 million and $24.8 million, respectively, were recorded as current liabilities on the consolidated balance sheets.

5. License Agreement

In May 2004, we entered into a license agreement with AC Propulsion, Inc. (“ACP”) and obtained a nonexclusive, nontransferable, perpetual license to ACP’s patented and proprietary designs, techniques and methods that relate to electric vehicle propulsion and integration.

As consideration under the license agreement, we paid a license fee of $0.5 million which was recorded in research and development expenses as technological feasibility of the product had not been established. We also agreed to purchase parts and services from ACP totaling a minimum of $0.2 million over a two-year period. As of September 30, 2009, we had met the minimum purchase requirements.

In addition, ACP will be paid a royalty on all vehicle sales through December 31, 2014. The royalty will equal 0.25% of the vehicle’s manufacturer suggested retail price for every qualifying vehicle sold. We have the right to pay a lump sum equal to $5.0 million, minus royalties paid to date, in lieu of all future royalties at any time. During 2006, 2007, 2008 and the nine months ended September 30, 2008 and 2009, we recorded royalty expenses of $0, $0, $28,000, $0 and $0.1 million, respectively, which were recorded in cost of sales.

 

F-19


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

6. Convertible Preferred Stock

The following table summarizes information related to our convertible preferred stock at September 30, 2009:

 

     Par Value    Share Price    Authorized    Issued and
Outstanding
   Liquidation
Preference
   Proceeds, Net  
     (Unaudited)  
     (In thousands except share and per share amounts)  

Series A

   $ 0.001    $ 0.493    7,213,000    7,213,000    $ 3,556    $ 3,549

Series B

     0.001      0.740    17,459,456    17,459,456      12,920      12,899   

Series C

     0.001      1.135    35,893,172    35,242,290      40,000      39,789   

Series D

     0.001      2.440    18,440,449    18,440,449      45,000      44,941   

Series E

     0.001      2.512    104,000,000    102,776,779      258,175      135,669   

Series F

     0.001      2.969    30,000,000    27,785,263      82,500      82,378   
                               

Total

         213,006,077    208,917,237    $ 442,151    $ 319,225   
                               

 

* Net of $3.9 million conversion of Series A convertible preferred stock to common stock.

In May 2006 and June 2006, we completed financing totaling $40.0 million through the issuance of 35,242,290 shares of Series C convertible preferred stock at $1.135 per share. In connection with this financing, we converted warrants issued with the March 2006 convertible notes payable (see Note 7) to warrants to purchase 650,882 shares of Series C convertible preferred stock (see Note 8). The warrants are exercisable at $1.135 per share on or before the earlier of March 30, 2011 or an initial public offering.

In May 2007, we completed financing totaling $45.0 million through the issuance of 18,440,449 shares of Series D convertible preferred stock at $2.440 per share.

In November 2007, 8,000,000 shares of Series A convertible preferred stock valued at $0.493 per share were converted into common stock at the ratio of 1:1.

In May 2009, we completed a financing in which $50.0 million of proceeds were received for 19,901,290 shares of Series E convertible preferred stock at a price per share of $2.512. In connection with this financing, $58.2 million of principal and accrued interest on convertible notes outstanding as of December 31, 2008 and principal and accrued interest on subsequently issued convertible notes in the amount of $28.0 million were converted into 82,875,489 shares of Series E convertible preferred stock and warrants to purchase 866,091 shares of Series E convertible preferred stock at an exercise price of $2.512 per share (see Notes 7 and 8).

In August 2009, we completed a financing totaling approximately $82.5 million through the issuance of 27,785,263 shares of Series F convertible preferred stock at $2.969 per share.

Convertible Preferred Stock Terms

Our certificate of incorporation, which includes the terms for all series of our convertible preferred stock, was last amended January 15, 2010. The discussion below reflects the terms of the convertible preferred stock as set forth in the most recent amendment.

 

F-20


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

Ranking

The convertible preferred stock ranks senior to all common stock. The Series F convertible preferred stock is the most senior series of preferred stock followed in order of preference by the Series E, D, C, B and A convertible preferred stock.

Dividends

The holders of all series of the convertible preferred stock are entitled to receive non-cumulative dividends at the per annum rate of 6% of the original issue price of such stock in the order of their preference, when and if declared by the Board of Directors. No dividends on the convertible preferred stock or common stock have been declared by the Board of Directors from inception through September 30, 2009.

Voting Rights

For all voting matters other than for the Board of Directors, the holders of each series of convertible preferred stock vote equally with shares of common stock on an as-converted basis. The authorized size of the Board of Directors is set at 11 members. Of these members, three members are elected by the holders of the Series A and Series B, voting together as a single class; one member is elected by the holders of the Series C; two members are elected by the holders of the Series D; one member is elected by the holders of the Series F; three members are elected by the holders of the common stock; and one member is elected by the holders of the common stock and convertible preferred stock voting together as a single class.

Optional Conversion

Each share of convertible preferred stock may be converted, at the option of the holder, at any time into common stock as is determined by dividing the applicable original issue price by the conversion price as adjusted for certain dilutive issuances, splits and combinations.

The following table summarizes the original issuance price and the applicable conversion price of all series of convertible preferred stock, as adjusted for certain dilutive issuances:

 

     Original
Issuance
Price
   Conversion
Price

Series A

   $ 0.493    $ 0.493

Series B

     0.740      0.740

Series C

     1.135      1.081

Series D

     2.440      2.440

Series E

     2.512      2.512

Series F

     2.969      2.969

Each of our Series A, B, D, E and F convertible preferred stock will convert on a 1 for 1 basis into common stock while the Series C convertible preferred stock will convert on a 1 for 1.05 basis.

Mandatory Conversion

All outstanding shares of convertible preferred stock will be automatically converted into common stock at the then effective conversion price upon the earlier of (a) the sale of our Common Stock in a firm commitment

 

F-21


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

underwritten public offering pursuant to a registration statement under the Securities Act of 1933 in which we receive aggregate net cash proceeds of no less than $50.0 million and with a pre-public offering market capitalization of at least $250.0 million and (b) the date specified by written consent or agreement of the holders of at least two-thirds of the then outstanding shares of convertible preferred stock voting together as a single class on an as-converted basis.

Liquidation

Upon any voluntary or involuntary liquidation, dissolution or winding up of Tesla, the holders of all series of the convertible preferred stock are entitled to the payment of the following liquidation preferences, plus any accrued dividends:

 

     Liquidation
Preference

Series A

   $ 0.493

Series B

     0.740

Series C

     1.135

Series D

     2.440

Series E

     2.512

Series F

     2.969

With respect to the payment of the liquidation preference amounts described above, a liquidation, dissolution or winding up of Tesla shall be deemed to occur if we: (i) sell, convey, or otherwise dispose of all or substantially all of our property or business or merge with or into or consolidate with any other corporation, company or entity; or (ii) effect a transaction in which fifty percent or more of the voting power of Tesla is disposed of or converted into securities of another corporation, company or entity.

In the event of a deemed liquidation, dissolution or winding up of Tesla, the holders of all series of the convertible preferred stock are entitled to receive an amount equal to all declared but unpaid dividends for preferred stock, prior and in preference to any distribution of assets or surplus funds of Tesla to any holders of the common stock. If the assets and funds legally available for distribution among the holders of preferred stock are insufficient to permit payment in full to each holder of the convertible preferred stock, then the entire assets and funds of Tesla legally available for distribution shall be distributed to the holders of Series F, then ratably to the holders of Series E, then ratably to the holders of the Series D, then ratably to the holder of Series C, then ratably to the holders of Series B, and then ratably to the holders of Series A. After payment of the full liquidation preference to the holders of the convertible preferred stock, the remaining assets of Tesla shall be ratably distributed to the holders of common stock and convertible preferred stock on an as-if-converted basis. These liquidity features cause our convertible preferred stock to be classified as mezzanine capital rather than as a component of stockholders’ deficit.

Redemption

The convertible preferred stock is not redeemable by us or at the option of the preferred stockholders.

7. Convertible Notes Payable

As of December 31, 2008, we had $54.5 million of convertible notes payable outstanding. We had no convertible notes payable outstanding as of September 30, 2009.

 

F-22


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

March 2006 Convertible Notes Payable Facility

In March 2006, we entered into an agreement with certain lenders under which we were entitled to draw up to $5.0 million in exchange for warrants and secured convertible notes payable. We received $3.0 million for the issuance of the notes and warrants in March 2006. The notes were interest bearing at 8% per annum, were secured by a first priority security interest in all our personal property and were convertible into securities issuable in the next round of financing at the per share price of such financing. Upon the closing of the Series C convertible preferred stock financing in June 2006, the principal amount and accrued interest of the notes totaling $3.0 million was converted into 2,632,627 shares of Series C convertible preferred stock at a conversion price of $1.135 per share. Simultaneously with the Series C financing, warrants for the purchase of 650,822 shares of Series C convertible preferred stock were issued to the note holders. The warrants have an exercise price of $1.135 and expire on the earlier of March 30, 2011 or an initial public offering. The fair value of the warrants upon issuance in the amount of $0.4 million was initially recorded as a discount to the carrying value of the notes payable to be amortized over the draw down period. However, our right to draw down the remaining $2.0 million under the agreement expired upon the closing of the Series C convertible preferred stock financing in June 2006 and, therefore, the remaining discount was amortized through interest expense at that time. As such, we recognized additional interest expense in the amount of $0.4 million during 2006 related to these convertible notes payable.

February 2008 Convertible Notes Payable Facility

In February 2008, we received proceeds of $40.3 million through the issuance of convertible notes payable and warrants. These convertible notes payable were secured by all of our personal and intellectual property, and accrued interest at a rate of 10% per annum. The principal and related interest was due and payable on December 31, 2010, unless earlier converted into shares of our convertible preferred stock. The convertible notes payable were convertible at the election of the note holder into either the securities issuable in a subsequent round of financing at the per share price of such financing, or into Series D convertible preferred stock at a per share price of $2.44.

In connection with the February 2008 convertible notes payable, we issued warrants to purchase shares of either Series D convertible preferred stock at a price of $2.44 per share, which amounted to warrants to purchase 8,246,914 shares of Series D convertible preferred stock, or the securities issuable in a subsequent round of financing at the per share price of such securities. The warrants are exercisable, on or before the earlier of December 31, 2010 or an initial public offering. The warrants were recorded as a discount to the carrying value of the convertible notes in the amount of $0.2 million to be amortized to interest expense over the repayment period.

December 2008 Convertible Notes Payable Facility

In December 2008, we received proceeds of $14.5 million through the issuance of additional convertible notes payable. These convertible notes payable were secured by all of our personal and intellectual property and accrued interest at a rate of 10% per annum. The principal and related interest was due and payable on December 31, 2010, unless earlier converted into our convertible preferred stock upon the closing of a subsequent round of financing. The conversion price of these convertible notes was equal to 40% of the price of the shares sold in the subsequent round of financing.

Investors who participated in the February 2008 convertible note offering were eligible to exchange the convertible notes and warrants purchased in February 2008 for December 2008 convertible notes if certain conditions were met. Under these terms, the February 2008 convertible note holders exchanged $16.8 million of

 

F-23


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

February 2008 convertible notes and warrants for $16.8 million of December 2008 convertible notes upon the initial closing in December 2008.

As of December 31, 2008, we had outstanding convertible notes under the February 2008 convertible note facility in the amount of $23.4 million and had accrued interest on the February 2008 convertible notes in the amount of $3.5 million. Also as of December 31, 2008, we had outstanding convertible notes under the December 2008 convertible note facility in the amount of $31.3 million and had accrued interest on the December 2008 convertible notes in the amount of $28,000. During 2008 and the nine months ended September 30, 2008, we recognized $76,000 and $54,000, respectively, as interest expense as a result of the amortization of the debt discount. The carrying value for all of our convertible notes outstanding as of December 31, 2008 in the amount of $54.7 million was reduced by the remaining debt discount in the amount of $0.2 million on the consolidated balance sheet.

In February and March 2009, we received additional proceeds of $25.5 million through the issuance of additional convertible notes payable under the December 2008 convertible notes payable facility. In addition, the February 2008 convertible note holders exchanged another $19.1 million of February 2008 convertible notes and warrants for $19.1 million of December 2008 convertible notes during these subsequent closings in February and March 2009. The convertible notes issued in February and March 2009 contained the same terms as the convertible notes payable issued in December 2008.

In May 2009, we completed a qualified financing in which $50.0 million of proceeds was received for the purchase of 19,901,290 shares of Series E convertible preferred stock at a price of $2.51 per share. In connection with this financing, the principal amount of all of our convertible notes outstanding in the amount of $80.2 million, consisting of the remaining outstanding February 2008 convertible notes that carried a principal balance of $4.3 million and the outstanding December 2008 convertible notes carrying a principal balance of $75.9 million, and accrued interest from these convertible notes in the amount of $6.1 million was converted into 82,875,489 shares of Series E convertible preferred stock and warrants to purchase 866,091 shares of Series E convertible preferred stock at an exercise price of $2.51 per share. Therefore, there were no convertible notes outstanding as of September 30, 2009. In addition, the remaining debt discount related to the warrants issued with the February 2008 convertible notes was eliminated through interest expense at the time of the conversion and, therefore, we recognized interest expense in the amount of $172,000 related to these warrants during the nine months ended September 30, 2009.

8. Convertible Preferred Stock Warrants

In March 2006, we issued warrants to purchase 650,882 shares of Series C convertible preferred stock in conjunction with the issuance of the March 2006 convertible notes payable (see Note 7). The warrants have an exercise price of $1.135 per share and expire on the earlier of March 30, 2011 or an initial public offering. We calculated the fair value of the warrants on the date of issue using the Black-Scholes option pricing model with the following assumptions: volatility of 62.5%, expected term of five years, risk-free interest rate of 4.8% and dividend yield of 0%. We recorded the issuance date fair value of the warrants in the amount of $0.4 million as warrant liability on the consolidated balance sheet to be marked to fair value each reporting period. As of December 31, 2007, 2008 and September 30, 2009, the fair value of warrants to purchase shares of the Series C convertible preferred stock in the amount of $0.2 million, $0.3 million and $0.5 million, respectively, was included within the convertible preferred stock warrant liability on the consolidated balance sheet. We recognized gains from the change in the fair value of the Series C warrants in the amounts of $0.2 million and $36,000 during 2006 and 2007 and charges in the amounts of $0.1 million and $0.2 million during 2008 and the

 

F-24


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

nine months ended September 30, 2009 through other income (expense), net on the consolidated statements of operations.

In February 2008, we issued warrants with the February 2008 convertible notes payable (see Note 7). The warrants allowed for the purchase of shares of either Series D convertible preferred stock at a price of $2.44 per share, which amounted to warrants to purchase 8,246,914 shares of Series D convertible preferred stock, or the securities issuable in a subsequent round of financing at the per share price of such securities. The warrants expire on the earlier of December 31, 2010 or a qualified initial public offering. These warrants also allow for net settlement at the option of the holder. We calculated the fair value of the warrants on the date of issue under the assumption that the warrants would be exercisable for Series D convertible preferred stock using the Black-Scholes option pricing model with the following assumptions: volatility of 60%, expected term of 0.7 years, risk-free interest rate of 2.0% and dividend yield of 0%. We recorded the issuance date fair value of the warrants in the amount of $0.3 million as a liability on the consolidated balance sheet.

On December 24, 2008, warrants to purchase 3,439,305 of the shares of Series D convertible preferred stock were extinguished as a result of the election of certain holders of the February 2008 convertible notes to exchange their notes and warrants for December 2008 convertible notes (see Note 7). On the date of the exchange, we recognized a gain in the amount of $1.3 million through other income (expense), net for the extinguishment of these warrants. As of December 31, 2008, the fair value of the remaining warrants to purchase 4,807,609 shares of Series D convertible preferred stock in the amount of $1.7 million was included within the convertible preferred stock warrant liability on the consolidated balance sheet.

During the nine months ended September 30, 2009, warrants to purchase an additional 3,967,152 shares of Series D convertible preferred stock were extinguished as a result of the election of certain remaining holders of the February 2008 convertible notes as part of an exchange of their notes and warrants for December 2008 convertible notes. On the date of the exchange, we recognized a gain in the amount of $1.5 million through other income (expense), net for the extinguishment of these warrants.

In May 2009, we completed our Series E financing in which $50.0 million of proceeds was received for the purchase of 19,901,290 shares of Series E convertible preferred stock at a price of $2.51 per share. In connection with this financing, the remaining holders of the February 2008 notes and warrants converted their notes into shares of Series E convertible preferred stock and warrants to purchase 866,091 shares of Series E convertible preferred stock.

As of September 30, 2009, the fair value of warrants to purchase 866,091 shares of the Series E convertible preferred stock in the amount of $0.5 million was included within the convertible preferred stock warrant liability on the consolidated balance sheet. We recognized a charge for the change in the fair value of the Series E warrants in the amount of $0.2 million during the nine months ended September 30, 2009 through other income (expense), net on the consolidated statement of operations.

As of December 31, 2007, 2008 and September 30, 2009, there were total outstanding warrants to purchase 650,882 shares of Series C, 5,458,491 shares of Series C and D, and 1,516,973 shares of Series C and E, respectively, of our convertible preferred stock that had a weighted average exercise price of $1.14, $2.28 and $1.92 per share, respectively.

9. Common Stock

As of September 30, 2009, we were authorized to issue 483,006,077 shares of capital stock with a par value of $0.001 per share. The authorized shares consist of 270,000,000 shares of common stock and 213,006,077 shares of convertible preferred stock.

 

F-25


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

In November 2007, the chairman of our Board of Directors converted 8,000,000 shares of Series A convertible preferred stock to 8,000,000 shares of common stock.

Early Exercise of Employee Options

Stock options granted under our stock option plan provide certain employee option holders the right to elect to exercise unvested options in exchange for shares of restricted common stock. Unvested shares, in the amounts of 920,748, 277,322 and 178,943 as of December 31, 2007, 2008 and September 30, 2009, respectively, were subject to a repurchase right held by us at the original issuance price in the event the optionees’ employment is terminated either voluntarily or involuntarily. For exercises of employee options, this right generally lapses as to  1 / 4 th of the shares subject to the option on the first anniversary of the vesting start date and as to  1 / 48 th of the shares monthly thereafter. These repurchase terms are considered to be a forfeiture provision and do not result in variable accounting. The restricted shares issued upon early exercise of stock options are legally issued and outstanding and have been reflected in stockholders’ (deficit). However, these restricted shares are only deemed outstanding for basic earnings per share computation purposes upon the respective repurchase rights lapsing. We treat cash received from employees for the exercise of unvested options as a refundable deposit shown as a liability in its consolidated balance sheets. As of December 31, 2007, 2008 and September 30, 2009, we included cash received for early exercise of options of $0.2 million, $64,000 and $49,000, respectively, in accrued liabilities. Amounts from accrued liabilities are transferred into common stock and additional paid-in capital as the shares vest.

10. Equity Incentive Plans

In July 2003, we adopted the 2003 Equity Incentive Plan (the “Plan”). The Plan provides for the granting of stock options and stock purchase rights to employees, directors and consultants of Tesla. Options granted under the Plan may be either incentive options or nonqualified stock options. Incentive stock options (“ISO”) may be granted only to our employees including officers and directors. Nonqualified stock options (“NSO”) and stock purchase rights may be granted to our employees and consultants. As of December 31, 2008, there were 17,138,740 shares of common stock reserved for issuance under the Plan.

Options under the Plan may be granted at prices no less than 85% of the estimated fair value of the shares on the date of grant as determined by the Board of Directors, provided, however, that (i) the exercise price of an ISO and NSO shall not be less than 100% or 85% of the estimated fair value of the shares on the date of grant, respectively, and (ii) the exercise price of an ISO and NSO granted to a 10% shareholder shall not be less than 110% of the estimated fair value of the shares on the date of grant, respectively. The fair value of the shares is determined by the Board of Directors on the date of grants and the stock options generally have a contractual life of 7 years. Options become exercisable at the rate of no less than 20% per year over five years from the date of grants, except for options granted to officers, directors and consultants which typically become exercisable at the rate of no less than 25% after one year and vest monthly thereafter for the next 36 months.

In October 2008, we modified the vesting of 1,530,169 stock options granted during 2007 and 2008 such that the first year of vesting was on a monthly basis. This transaction was accounted for as a modification and did not have a material impact on our consolidated balance sheet, statements of operations or cash flows.

 

F-26


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

The following table summarizes option activity under the Plan:

 

           Outstanding Options
     Shares
Available for
Grant
    Number of
Options
    Weighted
Average
Exercise Price

Balance, December 31, 2005

   1,453,500      4,021,500      $ 0.06

Additional options reserved

   5,138,740      —          —  

Granted

   (2,986,500   2,986,500        0.15

Exercised

   —        (163,415     0.09

Canceled

   230,000      (230,000     0.10
              

Balance, December 31, 2006

   3,835,740      6,614,585        0.11

Additional options reserved

   6,500,000      —          —  

Repurchased restricted stock

   70,000      —          0.24

Granted

   (9,571,625   9,571,625        0.55

Exercised

   —        (1,957,392     0.15

Canceled

   1,389,668      (1,389,668     0.32
              

Balance, December 31, 2007

   2,223,783      12,839,150        0.41

Repurchased restricted stock

   375,276      —          0.22

Granted

   (4,338,000   4,338,000        0.90

Exercised

   —        (2,200,981     0.12

Canceled

   6,388,269      (6,388,269     0.54
              

Balance, December 31, 2008

   4,649,328      8,587,900        0.63

Repurchased restricted stock (unaudited)

   14,511      —          0.44

Granted (unaudited)

   (4,947,200   4,947,200        0.92

Exercised (unaudited)

   —        (306,175     0.36

Canceled (unaudited)

   2,801,296      (2,801,296     0.73
              

Balance, September 30, 2009 (unaudited)

   2,517,935      10,427,629        0.75
              

Additional information regarding our stock options outstanding and exercisable as of December 31, 2008 is summarized below:

 

    Options Outstanding at December 31, 2008   Options Exercisable at December 31, 2008

Range of Exercise Price

  Number   Weighted
Average
Remaining
Contractual Life
(in years)
  Weighted
Average
Exercise Price
  Number   Weighted
Average
Remaining
Contractual Life
(in years)
  Weighted
Average
Exercise Price

$0.05 - $0.90

  8,587,900   5.91   $ 0.63   7,259,850   5.82   $ 0.58

Additional information regarding our stock options outstanding and exercisable as of September 30, 2009 is summarized below (unaudited):

 

    Options Outstanding at September 30, 2009   Options Exercisable at September 30, 2009

Range of Exercise Price

  Number   Weighted
Average
Remaining
Contractual Life
(in years)
  Weighted
Average
Exercise Price
  Number   Weighted
Average
Remaining
Contractual Life
(in years)
  Weighted
Average
Exercise Price

$0.05 - $0.98

  10,427,629   5.21   $ 0.75   5,482,563   5.17   $ 0.60

 

F-27


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

The aggregate intrinsic value represents the total pretax intrinsic value (i.e., the difference between our common stock price and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options. The aggregate intrinsic value of options outstanding as of December 31, 2008 and September 30, 2009 was $1.8 million and $2.4 million, respectively. The intrinsic value of options exercisable was $1.3 million and $2.1 million, and the intrinsic value of options vested and expected to vest was $1.7 million and $2.3 million as of December 31, 2008 and September 30, 2009, respectively. The total intrinsic value of options exercised was $7,000, $0.2 million, $1.4 million, $0.2 million for 2006, 2007, 2008 and the nine months ended September 30, 2009, respectively.

Fair Value Adoption

We adopted the fair value method on January 1, 2006 in recognizing stock-based compensation expense. Under the fair value method, we estimated the fair value of each option award on the grant date using the Black-Scholes option pricing model and the weighted average assumptions noted in the following table.

 

     2006     2007     2008     Nine Months
Ended
September 30,
2009
 
                       (Unaudited)  

Risk-free interest rate

   4.8   4.4   2.2   2.2

Expected term (in years)

   4.6      4.6      4.6      4.6   

Expected volatility

   54   52   53   64

Dividend yield

   0   0   0   0

We based expected volatility on the historical volatility of a peer group of publicly traded entities over a period equal to the expected terms of the options as we did not have a sufficient trading history to use the volatility of its own common stock. The expected term of options represents the period that our options are expected to be outstanding. Given the limited history to accurately estimate the expected terms of options granted to the various employee groups, we used the “simplified” method as provided by the Securities and Exchange Commission. We qualify for the use of the “simplified” method because the stock options granted during 2006, 2007 and 2008 and the nine months ended September 30, 2009 are considered to be “plain vanilla”. The “simplified” method is calculated as the average of the time-to-vesting and the contractual life of the options. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury Constant Maturity rate as of the date of grant.

The fair value of the shares of common stock underlying the stock options has historically been determined by the Board of Directors. Because there has been no public market for our common stock, the Board of Directors has determined fair value of the common stock at the time of each grant of options by considering a number of objective and subjective factors including valuation of comparable companies, sales of convertible preferred stock to unrelated third parties, operating and financial performance, the lack of liquidity of capital stock, and trends in the broader automobile industry. We have not granted stock options with an exercise price that is less than the fair value of the underlying common stock as determined at the time of grant by our Board of Directors, with input from management. The fair market value of the underlying common stock shall be determined by the Board of Directors until such time as our common stock is listed on an established stock exchange or national market system.

 

F-28


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

Information regarding our stock option grants during 2008 and the nine months ended September 30, 2009, including the grant date; the number of stock options issued with each grant; and the exercise price, which equals the grant date fair value of the underlying common stock for each grant of stock options, is summarized as follows:

 

Grant Date

   Number of
Options
Granted
   Exercise Price
and Fair Value
per Share of
Common Stock

June 4, 2008

   2,287,000    $ 0.90

July 8, 2008

   835,000      0.90

September 3, 2008

   600,500      0.90

October 29, 2008

   615,500      0.90

March 2, 2009 (unaudited)

   644,500      0.90

April 13, 2009 (unaudited)

   3,017,800      0.90

April 22, 2009 (unaudited)

   315,600      0.90

August 4, 2009 (unaudited)

   969,300      0.98

We calculated employee stock-based compensation expense for 2006, 2007, 2008 and the nine months ended September 30, 2009 based on awards ultimately expected to vest as reduced for estimated forfeitures. The fair value method requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We estimate our forfeiture rate based on an analysis of its actual forfeitures and will continue to evaluate the adequacy of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover behavior, and other factors. The impact from a forfeiture rate adjustment will be recognized in full in the period of adjustment, and if the actual number of future forfeitures differs from that estimated by us, we may be required to record adjustments to stock-based compensation expense in future periods. For 2008 and the nine months ended September 30, 2009, we estimated our forfeiture rates to be 21% and 15%, respectively.

Each of the inputs discussed above is subjective and generally requires significant management and director judgment to determine.

The following table summarizes the consolidated stock-based compensation expense by line items in the consolidated statement of operations (in thousands):

 

     2006    2007    2008    Nine Months
Ended
September 30,
2009
                    (Unaudited)

Cost of sales

   $ —      $ —      $ 26    $ 54

Research and development

     17      95      125      193

Selling, general and administrative

     6      103      286      202
                           

Total

   $ 23    $ 198    $ 437    $ 449
                           

We realized no income tax benefit from stock option exercises in each of the periods presented due to recurring losses and valuation allowances. As required, we present excess tax benefits from the exercise of stock options, if any, as financing cash flows rather than operating cash flows.

 

F-29


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

As of December 31, 2007, 2008 and September 30, 2009, we had $1.1 million, $1.0 million, and $2.1 million, respectively, of total unrecognized compensation expense, net of estimated forfeitures, that will be recognized over a weighted-average period of 3.2, 3.2 and 3.0 years, respectively.

Non-employee Stock Options

During 2006, 2007, 2008 and the nine months ended September 30, 2009, we granted options to purchase 20,000, 1,610,000, 110,000 and 15,000 shares of common stock, respectively, to non-employees at exercise prices ranging from $0.10 to $0.98 per share. Included within these grants was 0, 850,000, 100,000 and 0 shares that were granted outside of the Plan during 2006, 2007, 2008 and the nine months ended September 30, 2009, respectively, at exercise prices ranging from $0.60 to $0.90 per share.

We determined the estimated fair value of non-employee options using the Black-Scholes option pricing model and the following weighted average assumptions for 2006, 2007, 2008 and the nine months ended September 30, 2009:

 

     2006     2007     2008     Nine Months
Ended
September 30,
2009
 
                       (Unaudited)  

Risk-free interest rate

   4.4   4.4   4.1   2.6

Contractual term (in years)

   7      7 - 10      7 - 10      7   

Expected volatility

   63   55   53   64

Dividend yield

   0   0   0   0

Stock-based compensation expense related to options granted to non-employees was $6,000, $60,000, $44,000 and $37,000 for 2006, 2007, 2008 and the nine months ended September 30, 2009, respectively.

As of December 31, 2007, 2008 and September 30, 2009, we had 700,000, 360,000 and 375,000 non-employee stock options outstanding, respectively. These non-employee options outstanding had weighted average exercise prices of $0.47, $0.43 and $0.45 per share and weighted average remaining contractual terms of 8.2, 7.6 and 6.7 years as of December 31, 2007, 2008 and September 30, 2009, respectively. Included within the non-employee stock options outstanding as of December 31, 2007, 2008 and September 30, 2009 were 200,000 stock options that were granted outside of the Plan. The non-employee options outstanding that were not within the Plan had a weighted average exercise price of $0.60 as of each period end and weighted average contractual terms of 9.4, 8.4 and 7.7 years as of December 31, 2007, 2008 and September 2009, respectively.

11. Income Taxes

No provision for U.S. income taxes has been made, net of the valuation allowance, due to cumulative losses since the commencement of operations.

A provision for income taxes of $0.1 million, $0.1 million and $0.1 million has been recognized for 2006, 2007 and 2008, respectively, and a benefit from income taxes of $0.2 million has been recognized for the nine months ended September 30, 2009 related to our subsidiaries located in the United Kingdom and Taiwan.

 

F-30


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

Our net loss before provision for income taxes for 2006, 2007, 2008 and the nine months ended September 30, 2009 is as follows (in thousands):

 

     2006    2007    2008     Nine Months
Ended
September 30,
2009
 
                     (Unaudited)  

Domestic

   $ 29,421    $ 74,566    $ 82,963      $ 32,590   

International

     436      3,481      (278     (889
                              

Loss before provision for income taxes

   $ 29,857    $ 78,047    $ 82,685      $ 31,701   
                              

The components of the provision for income taxes for 2006, 2007, 2008 and the nine months ended September 30, 2009 are as follows (in thousands):

 

     2006    2007    2008     Nine Months
Ended
September 30,
2009
 
                     (Unaudited)  

Current:

          

Federal

   $ —      $ —      $ —        $ —     

State

     1      1      1        3   

Foreign

     99      109      181        21   
                              

Total current

     100      110      182        24   
                              

Deferred:

          

Federal

     —        —        —          —     

State

     —        —        —          —     

Foreign

     —        —        (85     (227
                              

Total deferred

     —        —        (85     (227
                              

Total provision for (benefit from) income taxes

   $ 100    $ 110    $ 97      $ (203
                              

Deferred tax assets (liabilities) as of December 31, 2007, 2008 and September 30, 2009 consist of the following (in thousands):

 

     December 31,
2007
    December 31,
2008
    September 30,
2009
 
                 (Unaudited)  

Deferred tax assets :

      

Net operating loss carry-forwards

   $ 45,056      $ 71,435      $ 85,790   

Research and development credits

     3,973        6,328        8,201   

Depreciation and amortization

     432        —          —     

Deferred revenue

     —          4,207        151   

Inventory and warranty reserves

     2,016        1,529        2,717   

Accruals and others

     353        999        982   
                        

Total deferred tax assets

     51,830        84,498        97,841   

Valuation allowance

     (51,830     (84,067     (97,462
                        

Deferred tax liabilities :

      

Undistributed earnings of foreign subsidiaries

     —          —          (87

Depreciation and amortization

     —          (342     (87
                        

Net deferred tax assets

   $ —        $ 89      $ 205   
                        

 

F-31


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

Reconciliation of statutory federal income taxes to our effective taxes for 2006, 2007, 2008 and the nine months ended September 30, 2009 is as follows:

 

     2006     2007     2008     Nine Months
Ended
September 30,
2009
 
                       (Unaudited)  

Tax at statutory federal rate

   $ (10,151   $ (26,536   $ (28,113   $ (10,854

State tax—net of federal benefit

     (1,585     (4,165     (4,252     (1,619

Nondeductible expenses

     6        50        211        45   

Foreign income rate differential

     —          —          2        (340

U.S. tax credits

     (1,150     (3,632     (3,763     (1,513

Prior period adjustment

     —          —          5,789        2,905   

Other

     —          —          —          —     

Change in valuation allowance

     12,980        34,393        30,223        11,173   
                                

Provision for income taxes

   $ 100      $ 110      $ 97      $ (203
                                

Management believes that based on the available information, it is more likely than not that the deferred tax assets will not be realized, such that a full valuation allowance is required against all U.S. deferred tax assets.

As of December 31, 2008, we had approximately $183 million of federal and $161 million of California operating loss carry-forwards available to offset future taxable income which expire in varying amounts beginning in 2024 for federal and 2019 for state if unused. Additionally, we have research and development tax credits of approximately $3.9 million and $3.7 million for federal and state income tax purposes, respectively. If not utilized, the federal carry-forwards will expire in various amounts beginning in 2019, and the state credits can be carried forward indefinitely.

As of December 31, 2008, we also have approximately $0.4 million of operating loss carry-forwards available to offset future taxable income in the United Kingdom which can be carried forward indefinitely.

Federal and state laws impose substantial restrictions on the utilization of net operating loss and tax credit carry-forwards in the event of an “ownership change,” as defined in Section 382 of the Internal Revenue Code. We have determined that ownership changes occurred in 2004 and 2006 due to significant stock transactions. The utilization of the net operating loss and tax credit carry-forwards will not be materially impacted as no significant limitation will be placed on these carry-forwards.

Uncertain Tax Positions

Effective January 1, 2007, we adopted new accounting guidance related to the recognition, measurement and presentation of uncertain tax positions. As a result, we recorded net unrecognized tax benefits of $11.5 million with an offset to the deferred tax assets with a full valuation allowance.

 

F-32


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

The aggregate changes in the balance of our gross unrecognized tax benefits during 2007, 2008 and the nine months ended September 30, 2009 were as follows (in thousands):

 

January 1, 2007

   $  11,549

Increases in balances related to tax provisions taken during current period

     2,931
      

December 31, 2007

     14,480

Increases in balances related to tax provisions taken during current period

     575
      

December 31, 2008

     15,055

Increases in balances related to tax provisions taken during current period (Unaudited)

     450
      

September 30, 2009 (Unaudited)

   $ 15,505
      

Accrued interest and penalties related to unrecognized tax benefits are classified as income tax expense and was zero. As of September 30, 2009, unrecognized tax benefits of $15.5 million, if recognized, would not affect our effective tax rate as the tax benefits would increase a deferred tax asset which is currently fully offset with a full valuation allowance. We do not anticipate that the amount of existing unrecognized tax benefits will significantly increase or decrease within the next 12 months. We file income tax returns in the United States, California, various states, the United Kingdom and other foreign jurisdictions. Tax years 2006 to 2008 remain subject to examination for federal purposes, and tax years 2005 to 2008 remain subject to examination for California purposes. All net operating losses and tax credits generated to date are subject to adjustment for U.S. federal and California purposes. Tax years 2005 to 2008 remain open for examination in other U.S. state and foreign jurisdictions.

12. Information about Geographic Areas

We have determined that we operate in one reporting segment which is the design, manufacturing and sales of electric vehicles.

Revenue by geography is based on the billing address of the customer. The following tables set forth revenue and long-lived assets by geographic area (in thousands):

Revenue

 

     2006    2007    2008    Nine months
ended
September 30,
2008
   Nine months
ended
September 30,
2009
                    (Unaudited)

Americas

   $ —      $ 73    $ 14,742    $ 580    $ 80,477

Europe

     —        —        —        —        12,881
                                  
   $ —      $ 73    $ 14,742    $ 580    $ 93,358
                                  

Long-lived Assets

 

     December 31,
2007
   December 31,
2008
   September 30,
2009
               (Unaudited)

United States

   $ 11,475    $ 18,375    $ 18,566

International

     523      418      907
                    

Total

   $ 11,998    $ 18,793    $ 19,473
                    

 

F-33


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

13. Employee Benefit Plans

We sponsor a 401(k) defined contribution plan covering all employees. Contributions made by us are determined annually by the Board of Directors. There were no contributions made by us to the plan from inception through September 30, 2009.

14. Related Party Transactions

In December 2006, we issued a promissory note of $40,000 to an executive. The note accrued interest at 5% per annum. The note together with accrued interest of $2,000 was forgiven in December 2007 and was recognized in the consolidated statement of operations as a component of sales and marketing expenses.

Our Chief Executive Officer acquired two Tesla Roadsters during the nine months ended September 30, 2009. Because the vehicles were delivered just prior to period end but were not paid for until after the period end, we had outstanding accounts receivable related to the sale of these vehicles in the amount of $0.3 million as of September 30, 2009. This outstanding balance was paid in its entirety during the fourth quarter of the year ended December 31, 2009.

During 2007, 2008 and the nine months ended September 30, 2009, SpaceX, a related party, paid for certain of our facility and service costs for which we would subsequently reimburse SpaceX for all such payments. SpaceX is a related party as a result of the ability of our Chief Executive Officer to influence both organizations through ownership interest and Board of Director representation in both. Total fees paid to SpaceX during 2007, 2008 and the nine months ended September 30, 2008 and 2009 were $0, $300, $300 and $0.1 million, respectively. As of December 31, 2007, 2008 and September 30, 2009, accrued amounts payable to SpaceX were $300, $0 and $0.1 million, respectively.

We are providing development services for an affiliate of a significant stockholder. In May 2009, we sold 19,901,290 shares of Series E convertible preferred stock to Blackstar Investco LLC, an affiliate of Daimler, for aggregate proceeds of $50.0 million. Also in May 2009, we and Daimler formalized a development arrangement under which we were performing powertrain development activities since 2008. During 2008 and the nine months ended September 30, 2009, we received payments from Daimler in the amount of $10.2 million and $11.1 million, respectively. As of December 31, 2008, there was an amount receivable of $1.6 million from Daimler. There was no receivable or payable balance outstanding with Daimler as of September 30, 2009.

15. Commitments

Operating Lease

We lease office space under non-cancelable operating leases with various expiration dates through August 2016. Rent expense for 2006, 2007, 2008 and the nine months ended September 30, 2008 and 2009 was $0.7 million, $2.2 million, $1.5 million, $1.0 million and $1.9 million, respectively.

Capital Lease

We have entered into various agreements to lease equipment under capital leases over terms between 12 and 60 months. The equipment under the leases are collateral for the lease obligations and are included within property and equipment, net on the consolidated balance sheet in the categories computer equipment and software and office furniture and equipment.

 

F-34


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

Future minimum commitments for leases as of December 31, 2008 are as follows (unaudited; in thousands):

 

     Operating
Leases
   Capital
Leases

2009

   $ 1,575    $ 387

2010

     974      270

2011

     608      242

2012

     562      218

2013

     488      200

2014 and thereafter

     1,400      —  
             

Total minimum lease payments

   $ 5,607      1,317
         

Less: Amounts representing interest not yet incurred

        88
         

Present value of capital lease obligations

        1,229

Less: Current portion

        341
         

Long-term portion of capital lease obligations

      $ 888
         

Future minimum commitments for leases as of September 30, 2009 are as follows (in thousands):

 

     Operating
Leases
   Capital
Leases

2009

   $ 595    $ 71

2010

     1,781      276

2011

     3,273      244

2012

     3,356      220

2013

     3,407      219

2014 and thereafter

     7,676      —  
             

Total minimum lease payments

   $ 20,088      1,030
         

Less: Amounts representing interest not yet incurred

        76
         

Present value of capital lease obligations

        954

Less: Current portion

        243
         

Long-term portion of capital lease obligations

      $ 711
         

Non-cancellable inventory and service related purchase commitments outstanding as of September 30, 2009 amounted to $10.5 million and will be settled over the ensuing 26 months. In addition, pursuant to a supply agreement with Lotus Cars Limited, we are required to purchase a minimum of 1,700 partially assembled vehicles or gliders over the three year term of the agreement regardless of whether we are able to market and distribute the Tesla Roadster. Based on the foreign exchange rate for the British pound as of September 30, 2009 and the most recent price per vehicle, the estimated obligation for the remaining purchase minimum is approximately $20 million which will primarily occur in 2010.

As of December 31, 2008 and September 30, 2009, we were in possession of refundable reservation payments in the amount of $48.0 million and $24.8 million, respectively, from subscribers (see Note 4).

 

F-35


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

16. Subsequent Events

On January 20, 2010, we entered into a loan agreement with the United States Federal Financing Bank (“FFB”), and the DOE, pursuant to the Advanced Technology Vehicles Manufacturing Incentive Program (“ATVM”) (the “DOE Loan Facility”). Under the DOE Loan Facility, up to an aggregate principal amount of $101.2 million will be made available under the first term loan facility to finance up to 80% of the costs eligible for funding for the build out of a facility to design and manufacture lithium-ion battery packs, electric motors and electric components, or the Powertrain facility. Up to an aggregate principal amount of $363.9 million will be made available under the second term loan facility to finance up to 80% of the costs eligible for funding for the development of, and to build out the manufacturing facility for, our Model S sedan, or the Model S facility. Under the DOE Loan Facility, we are responsible for the remaining 20% of the costs eligible for funding under the ATVM Program for the projects as well as any cost overruns for each project. The costs paid by us to date for the Powertrain facility and the Model S facility will be applied towards our obligation to contribute 20% of the eligible project costs, and the DOE’s funding of future eligible costs will be adjusted to take this into account. Our remaining obligations for these projects are estimated to be an aggregate of $33 million, plus any cost overruns for the projects.

Our ability to draw down funds under the DOE Loan Facility is conditioned upon several draw conditions. For the Powertrain facility, the draw conditions include our achievement of progress milestones relating to the development of the powertrain manufacturing facility and the successful development of commercial arrangements with third parties for the supply of powertrain components. For the Model S facility, the draw conditions include our achievement of progress milestones relating to the design and development of the Model S and the planned Model S manufacturing facility, including an environmental assessment of such facility approved by the DOE. Certain advances will be subject to additional conditions to draw-down related to the site on which the applicable project is located.

Advances under the DOE Loan Facility accrue interest at a per annum rate determined by the Secretary of the Treasury as of the date of the advance and will be based on the Treasury yield curve and the scheduled principal installments for such advance. Interest on advances under the DOE Loan Facility is payable quarterly in arrears.

Under the DOE Loan Facility, we have committed to pay all costs and expenses incurred to complete the projects being financed in excess of amounts funded under the loan facility. We will be required to maintain, at all times, available cash and cash equivalents of at least 105% of the amounts required to fund this excess over our financing commitment, after taking into account current cash flows and cash on hand, and reasonable projections of future generation of net cash from operations, losses and expenditures. Loans may be requested under the facilities until January 22, 2013, and we have committed to complete the projects being financed prior to such date. On the closing date, we paid a facility fee to the DOE in the amount of $0.5 million. We intend to receive the first draw-down under each facility starting in the first quarter of 2010.

The DOE Loan Facility documents contain customary covenants that include, among others, a requirement that the projects be conducted in accordance with the business plan for such project, compliance with all requirements of the ATVM Program, and limitations on our and our subsidiaries’ ability to incur indebtedness, incur liens, make investments or loans, enter into mergers or acquisitions, dispose of assets, pay dividends or make distributions on capital stock, pay indebtedness, pay management, advisory or similar fees to affiliates, enter into certain affiliate transactions, enter into new lines of business, and enter into certain restrictive agreements, in each case subject to customary exceptions. The DOE Loan Facility documents also contain financial covenants requiring us to maintain a minimum ratio of current assets to current liabilities, and

 

F-36


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

(i) through December 15, 2012, a minimum cash balance, and (ii) after December 15, 2012, a maximum leverage ratio, a minimum interest coverage ratio, a minimum fixed charge coverage ratio, a limit on capital expenditures and, after March 31, 2014, a maximum ratio of total liabilities to shareholder equity.

Under the DOE Loan Facility, we are required to fund a debt service reserve account on or before December 31, 2012, in an amount equal to all principal and interest that will come due on the advances on the next two payment dates. Once we have deposited such two payments, we will not be required to further fund such debt service reserve account. We have also agreed that, in connection with the sale of our common stock in an initial public offering, at least 75% of the net offering proceeds will be received by us and, in connection with the sale of our stock in any other follow-on equity offering, at least 50% of the net offering proceeds will be received by us. Additionally, we are restricted in our ability to pay bonuses or other compensation to officers, directors, employees or consultants.

In addition to our obligation to fund a portion of the project costs as described above, we have agreed to set aside 50% of the net proceeds from an initial public offering and any subsequent offerings of stock occurring before the completion of the projects, up to an aggregate of $100 million, to fund a separate, dedicated account under our DOE Loan Facility. We will use amounts deposited into this dedicated account to fund project costs of the Powertrain Facility and the Model S Facility which would have otherwise been funded through advances made under the DOE Loan Facility such that, while there are funds available in the dedicated account, for each dollar of project costs advanced under the DOE Loan Facility, one dollar of project costs that would otherwise have been funded under the DOE Loan Facility will be funded from the dedicated account. The dedicated account can also be used by us to fund any cost overruns for these projects. Once the funds deposited into this dedicated account have been used in full, we will be reimbursed by the drawdown of additional funds for amounts paid from this account, and we will be required to deposit a portion of these reimbursements into the dedicated account in an amount equal to up to 30% of the remaining project costs for the applicable project. These amounts will similarly be used to fund project costs and cost overruns and will similarly be eligible for reimbursement by the drawdown of additional funds once used in full.

In connection with the DOE Loan Facility, we have also issued the DOE a warrant to purchase up to 9,255,035 shares of our Series E Preferred Stock. Beginning on December 15, 2018 and until December 14, 2022, the shares subject to purchase under the warrant will vest and become exercisable in quarterly amounts depending on the average outstanding balance of the loan during the prior quarter. The warrant may be exercised until December 15, 2023. If we prepay the DOE Loan Facility in part or in full, the total amount of shares exercisable under the warrant will be reduced. Since the number of shares of common stock ultimately issuable under the warrants will vary, this warrant will be carried at its estimated fair value with changes in fair value reflected in other income (expense), net, until its expiration or exercise.

In October 2009, we increased the number of shares reserved for issuance under the Equity Incentive Plan from 17,138,740 shares to 22,138,740 shares of common stock. In December 2009, we increased the number of shares reserved for issuance under the Equity Incentive Plan from 22,138,740 shares to 42,238,740 shares of common stock.

 

F-37


Table of Contents

Tesla Motors, Inc.

Notes to Consolidated Financial Statements

(continued)

 

In December 2009, 20,135,920 stock options were granted to our Chief Executive Officer comprised of two grants. In recognition of his and our company’s achievements and to create incentives for future success, the Board of Directors approved, an option grant representing 4% of our fully-diluted share base as of December 4, 2009, or 10,067,960 stock options, with  1 / 4 th of the shares vesting immediately, and  1 / 48 th of the shares scheduled to vest each month over the subsequent three years, assuming continued employment through each vesting date. In addition, to create incentives for the attainment of clear performance objectives around a key element of our current business plan—the successful launch and commercialization of the Model S—the Board of Directors approved additional options totaling an additional 4% of our fully-diluted shares as of December 4, 2009, or 10,067,960 stock options, with  1 / 4 th of the shares to vest based entirely on the attainment of each of four performance milestones, assuming continued employment through each vesting date. If Mr. Musk does not meet one or more of the above milestones prior to the fourth anniversary of the date of grant, he will forfeit his right to the unvested portion of the grant.

In December 2009, the Board of Directors authorized the filing of a registration statement with the Securities and Exchange Commission for an initial public offering of our common stock.

We have evaluated subsequent events from October 1, 2009 through January 29, 2010, the date of the filing of the financial statements.

 

F-38


Table of Contents

LOGO


Table of Contents

 

 

Shares

Tesla Motors, Inc.

Common Stock

 

 

LOGO

 

 

 

Goldman, Sachs & Co.   Morgan Stanley   J.P. Morgan   Deutsche Bank Securities

 

 

Through and including             , 2010 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

 

 

 


Table of Contents

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

 

Item 13. Other Expenses of Issuance and Distribution.

The following table sets forth all expenses to be paid by the registrant, other than estimated underwriting discounts and commissions, in connection with this offering. All amounts shown are estimates except for the SEC registration fee, the Financial Industry Regulatory Authority, or FINRA, filing fee and the             listing fee.

 

SEC registration fee

   $ 7,130

FINRA filing fee

     10,500

            listing fee

  

Printing and engraving

  

Legal fees and expenses

  

Accounting fees and expenses

  

Blue sky fees and expenses (including related legal fees)

  

Transfer agent and registrar fees

  

Miscellaneous expenses

  

Total

   $  

 

Item 14. Indemnification of Directors and Officers.

Section 145 of the Delaware General Corporation Law authorizes a corporation’s board of directors to grant, and authorizes a court to award, indemnity to officers, directors and other corporate agents.

As permitted by Section 102(b)(7) of the Delaware General Corporation Law, the registrant’s certificate of incorporation to be in effect upon the closing of this offering includes provisions that eliminate the personal liability of its directors for monetary damages for breach of their fiduciary duty as directors. To the extent Section 102(b)(7) is interpreted, or the Delaware General Corporation Law is amended, to allow similar protections for officers of a corporation, such provisions of the registrant’s certificate of incorporation shall also extend to those persons.

In addition, as permitted by Section 145 of the Delaware General Corporation Law, the bylaws of the registrant to be effective upon completion of this offering provide that:

 

   

The registrant shall indemnify its directors and officers for serving the registrant in those capacities or for serving other business enterprises at the registrant’s request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful.

 

   

The registrant may, in its discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law.

 

   

The registrant is required to advance expenses, as incurred, to its directors and officers in connection with defending a proceeding, except that such director or officer shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification.

 

   

The registrant will not be obligated pursuant to the bylaws to indemnify a person with respect to proceedings initiated by that person, except with respect to proceedings authorized by the registrant’s board of directors or brought to enforce a right to indemnification.

 

   

The rights conferred in the bylaws are not exclusive, and the registrant is authorized to enter into indemnification agreements with its directors, officers, employees and agents and to obtain insurance to indemnify such persons.

 

II-1


Table of Contents
   

The registrant may not retroactively amend the bylaw provisions to reduce its indemnification obligations to directors, officers, employees and agents.

The registrant’s policy is to enter into separate indemnification agreements with each of its directors and officers that provide the maximum indemnity allowed to directors and executive officers by Section 145 of the Delaware General Corporation Law and also provides for certain additional procedural protections. The registrant also maintains directors and officers insurance to insure such persons against certain liabilities.

These indemnification provisions and the indemnification agreements entered into between the registrant and its officers and directors may be sufficiently broad to permit indemnification of the registrant’s officers and directors for liabilities (including reimbursement of expenses incurred) arising under the Securities Act of 1933.

The underwriting agreement filed as Exhibit 1.1 to this registration statement provides for indemnification by the underwriters of the registrant and its officers and directors for certain liabilities arising under the Securities Act of 1933 and otherwise.

 

Item 15. Recent Sales of Unregistered Securities.

Since January 1, 2006, we have issued unregistered securities to a limited number of persons, as described below.

 

1. Sales of Convertible Promissory Notes and Preferred Stock

 

   

In March 2006, the registrant issued and sold convertible promissory notes to a total of 4 investors for an aggregate principal amount of $2,955,000.

 

   

In May 2006 and June 2006, the registrant issued and sold an aggregate of 35,242,290 shares of the registrant’s Series C preferred stock to a total of 32 accredited investors at $1.135 per share, for aggregate proceeds of $39,999,999. This aggregate purchase price was comprised of (i) conversion of indebtedness of the registrant and interest accrued thereupon, the value of which conversion was $2,988,031 and (ii) cash payments to the registrant, which totaled $37,011,968.

 

   

In May 2007, the registrant issued and sold an aggregate of 18,440,449 shares of the registrant’s Series D preferred stock to a total of 29 accredited investors at $2.4403 per share, for aggregate proceeds of $45,000,227.

 

   

In February 2008 and March 2008, the registrant issued and sold convertible promissory notes to a total of 42 investors for an aggregate principal amount of $40,167,530.

 

   

In December 2008, February 2009 and March 2009, the registrant issued and sold convertible promissory notes to a total of 37 investors for an aggregate principal amount of $40,000,000.

 

   

In May 2009, the registrant issued and sold an aggregate of 19,901,290 shares of the registrant’s Series E preferred stock to an accredited investor at $2.5124 per share for aggregate cash proceeds of $50,000,001.

 

   

In May 2009, the registrant issued and sold (i) an aggregate of 1,949,028 shares of the registrant’s Series E preferred stock to a total of 19 accredited investors at $2.5124 per share for an aggregate purchase price comprised solely of conversion of indebtedness of the registrant and interest accrued thereupon, and (ii) an aggregate of 80,926,461 shares of the registrant’s Series E preferred stock to a total of 42 accredited investors at $1.005 per share for an aggregate purchase price comprised solely of conversion of indebtedness of the registrant and interest accrued thereupon, the aggregate value of such conversions was $86,224,670.

 

   

In August 2009, the registrant issued and sold an aggregate of 27,785,263 shares of the registrant’s Series F preferred stock to a total of 3 accredited investors at $2.9692 per share, for aggregate proceeds of $82,500,002.

 

II-2


Table of Contents
2. Warrants

 

   

In March 2006, the registrant issued warrants to purchase an aggregate of 650,882 shares of the registrant’s Series C preferred stock to 4 accredited investors at an exercise price of $1.135 per share.

 

   

In February 2008, the registrant issued warrants to purchase an aggregate of 866,091 shares of the registrant’s Series E preferred stock to 19 accredited investors at an exercise price of $2.5124 per share.

 

   

In January 2010, the registrant issued a warrant to purchase an aggregate of 9,255,035 shares of the registrant’s Series E preferred stock to one investor at an exercise price of $2.1524 per share.

 

3. Options and Common Stock Issuances

 

   

From January 1, 2006 through December 31, 2009, the registrant granted to its employees, consultants and other service providers options to purchase an aggregate of 48,847,498 shares of common stock at prices ranging from $0.10 to $2.21 per share for an aggregate purchase price of $71,804,684.

 

   

From January 1, 2006 through December 31, 2009, the registrant issued and sold an aggregate of 5,107,670 shares of common stock upon the exercise of options issued to certain employees, consultants and other service providers at exercise prices ranging from $0.05 to $0.90 per share, for an aggregate consideration of $958,968.

 

   

In December 2009, the registrant issued and sold an aggregate of 250,000 shares of the registrant’s common stock to an accredited investor at $0.60 per share, for aggregate proceeds of $150,000.

None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering, and the registrant believes the transactions were exempt from the registration requirements of the Securities Act of 1933 in reliance on Section 4(2) thereof, and the rules and regulations promulgated thereunder, or Rule 701 thereunder, as transactions by an issuer not involving a public offering or transactions pursuant to compensatory benefit plans and contracts relating to compensation as provided under such Rule 701. The recipients of securities in such transactions represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the share certificates and instruments issued in such transactions. All recipients of securities pursuant to Items 1 and 2 above were accredited or sophisticated and either received adequate information about the registrant or had access, through their relationships with the registrant, to such information.

 

Item 16. Exhibits and Financial Statement Schedules.

(a) Exhibits. The following exhibits are included herein or incorporated herein by reference:

 

Exhibit
Number

  

Description

  1.1*    Form of Underwriting Agreement
  3.1    Form of Amended and Restated Certificate of Incorporation of the Registrant, to be in effect upon the closing of this offering
  3.2    Form of Amended and Restated Bylaws of the Registrant, to be in effect upon the closing of this offering
  4.1*    Specimen common stock certificate of the Registrant
  4.2    Fifth Amended and Restated Investors’ Rights Agreement, dated as of August 31, 2009, between Registrant and certain holders of the Registrant’s capital stock named therein.
  4.3*    Registration Rights Agreement between the United States Department of Energy and the Registrant dated as of January 20, 2010.
  5.1*    Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation

 

II-3


Table of Contents

Exhibit
Number

  

Description

10.1    Form of Indemnification Agreement between the Registrant and its directors and officers
10.2    2003 Equity Incentive Plan
10.2A    Amendment to 2003 Equity Incentive Plan, effective as of December 16, 2009
10.2B    Amendment to 2003 Equity Incentive Plan, effective as of January 25, 2010
10.3    Form of Stock Option Agreement under 2003 Equity Incentive Plan
10.4*    2010 Equity Incentive Plan
10.5*    Form of Stock Option Agreement under 2010 Equity Incentive Plan
10.6*    Form of Restricted Stock Unit Award Agreement under 2010 Equity Incentive Plan
10.7*    2010 Employee Stock Purchase Plan
10.8*    Form of Purchase Agreement under 2010 Employee Stock Purchase Plan
10.9    Offer Letter between the Registrant and Elon Musk dated October 13, 2008
10.10    Offer Letter between the Registrant and Deepak Ahuja dated June 13, 2008, and amended June 4, 2009
10.11    Relocation Agreement between the Registrant and Deepak Ahuja effective October 31, 2008 and amended June 4, 2009
10.12    Offer Letter between the Registrant and Jeffrey B. Straubel dated May 6, 2004
10.13    Offer Letter between the Registrant and Michael F. Donoughe dated June 4, 2008, and amended December 10, 2008
10.14    Offer Letter between the Registrant and John Walker dated August 17, 2009
10.15    Relocation Agreement between the Registrant and John Walker dated January 26, 2010
10.16    Offer Letter between the Registrant and Jon Sobel dated August 30, 2009
10.17    Offer Letter between the Registrant and Gilbert Passin dated January 1, 2010
10.18    Commercial Single-Tenant Lease between the Registrant and Russell A. and Deborah B. Margiotta, Trustees of the Margiotta Family Trust UTA May 26, 1981 dated June 7, 2005
10.19    Commercial Single-Tenant Lease between the Registrant and James R. Hull dated August 16, 2006
10.20    Commercial Lease between the Registrant and The Board of Trustees of The Leland Stanford Jr. University dated July 25, 2007
10.21    License Agreement between the Registrant and MS Kearny Northrop Avenue, LLC dated July 23, 2009
10.22    Commercial Lease between the Registrant and The Board of Trustees of The Leland Stanford Jr. University dated August 6, 2009
10.23†    Supply Agreement for Products and Services between Lotus Cars Limited and the Registrant dated July 11, 2005
10.23A†    Amendment No. 1 to Supply Agreement between Lotus Cars Limited and the Registrant dated August 4, 2009
10.24†    Supply Agreement between supplier one and the Registrant dated September 1, 2006
10.25†    Supply Agreement between supplier two and the Registrant dated September 1, 2006
10.26†    Supply Agreement between supplier three and the Registrant dated September 1, 2006
10.27†    Supply Agreement by and among Sanyo Electric Co. Ltd. Mobile Energy Company, Sanyo Energy (USA) Corporation and the Registrant dated February 1, 2007
10.27A†    Amendment No. 1 to Supply Agreement by and among Sanyo Electric Co. Ltd. Mobile Energy Company and Sanyo Energy (USA) Corporation and the Registrant effective as of February 1, 2007

 

II-4


Table of Contents

Exhibit
Number

  

Description

10.28†    Supply Agreement by and between supplier four and the Registrant dated February 12, 2007
10.29†    Supply Agreement between supplier five and the Registrant dated April 19, 2007
10.30†    Supply Agreement between supplier six and the Registrant dated April 13, 2007
10.31†    Modification to Terms and Conditions between BorgWarner TorqTransfer Systems Inc. and the Registrant dated September 22, 2008
10.32*    ZEV Credits Agreement between an automobile manufacturer and the Registrant dated February 12, 2009
10.32A*    Addendum to ZEV Credits Agreement between an automobile manufacturer and the Registrant dated February 20, 2009
10.33†    Supply Agreement by and among Panasonic Industrial Company, Panasonic Corporation, acting through Energy Company, and the Registrant dated July 21, 2009
10.34†    Exclusivity and Intellectual Property Agreement between Daimler North America Corporation and the Registrant dated May 11, 2009
10.35    Side Agreement between the Registrant and Blackstar Investco LLC dated May 11, 2009
10.36    Letter Agreement between the Elon Musk Revocable Trust dated July 22, 2003 and Blackstar Investco LLC, dated May 11, 2009
10.37*    Loan Arrangement and Reimbursement Agreement between the United States Department of Energy and the Registrant dated as of January 20, 2010
10.38*    Warrant to Purchase Shares of Preferred Stock issued by the Registrant to the United States Department of Energy dated January 20, 2010
10.39*    Note Purchase Agreement by and among the Federal Financing Bank, the Registrant and the Secretary of Energy dated as of January 20, 2010
10.40*    Future Advance Promissory Note made by the Registrant in favor of the Federal Financing Bank dated as of January 20, 2010
10.41*    Future Advance Promissory Note made by the Registrant in favor of the Federal Financing Bank dated as of January 20, 2010
10.42*    Pledge and Security Agreement made by the Registrant and the Grantors party thereto in favor of Midland Loan Services, Inc. dated as of January 20, 2010
10.43*    Guarantee made by the Guarantors party thereto in favor of the United States Department of Energy, the Federal Financing Bank and the holders of the notes described therein dated as of January 20, 2010
21.1    List of subsidiaries of the Registrant
23.1    Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm
23.2*    Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibit 5.1)
24.1    Power of Attorney (see page II-7 to this registration statement on Form S-1)

 

* To be filed by amendment.
Portions of this exhibit have been omitted pending a determination by the Securities and Exchange Commission as to whether these portions should be granted confidential treatment.

 

Item 17. Undertakings.

The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

 

II-5


Table of Contents

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act of 1933, each post effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

II-6


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Palo Alto, California, on the 29th day of January, 2010.

 

TESLA MOTORS, INC.
By:   / S /    E LON M USK        
  Elon Musk
  Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Elon Musk and Deepak Ahuja and each of them, as his true and lawful attorney in fact and agent with full power of substitution, for him in any and all capacities, to sign any and all amendments to this registration statement (including post effective amendments or any abbreviated or subsequent registration statement and any amendments thereto filed pursuant to Rule 462(b) and any supplement to any prospectus included in this registration statement or any such amendment or any abbreviated or subsequent registration statement filed pursuant to Rule 462(b)), and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney in fact, proxy and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney in fact, proxy and agent, or his substitute, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

 

Signature

  

Title

 

Date

/ S /    E LON M USK        

Elon Musk

  

Chief Executive Officer and Director

(Principal Executive Officer)

 

January 29, 2010

/ S /    D EEPAK A HUJA        

Deepak Ahuja

  

Chief Financial Officer

(Principal Accounting and Financial Officer)

 

January 29, 2010

/ S /    H.E. A HMED S AIF A L D ARMAKI        

H.E. Ahmed Saif Al Darmaki

   Director  

January 29, 2010

/ S /    B RAD W. B USS        

Brad W. Buss

   Director  

January 29, 2010

/ S /    I RA E HRENPREIS        

Ira Ehrenpreis

   Director  

January 29, 2010

/ S /    A NTONIO J. G RACIAS        

Antonio J. Gracias

   Director  

January 29, 2010

 

II-7


Table of Contents

Signature

  

Title

 

Date

/ S /    S TEPHEN T. J URVETSON        

Stephen T. Jurvetson

   Director  

January 29, 2010

/ S /    H ERBERT K OHLER        

Herbert Kohler

   Director  

January 29, 2010

/ S /    K IMBAL M USK        

Kimbal Musk

   Director  

January 29, 2010

 

II-8


Table of Contents

EXHIBIT INDEX

 

Exhibit
Number

  

Description

  1.1*    Form of Underwriting Agreement
  3.1    Form of Amended and Restated Certificate of Incorporation of the Registrant, to be in effect upon the closing of this offering
  3.2    Form of Amended and Restated Bylaws of the Registrant, to be in effect upon the closing of this offering
  4.1*    Specimen common stock certificate of the Registrant
  4.2    Fifth Amended and Restated Investors’ Rights Agreement, dated as of August 31, 2009, between Registrant and certain holders of the Registrant’s capital stock named therein.
  4.3*    Registration Rights Agreement between the United States Department of Energy and the Registrant dated as of January 20, 2010.
  5.1*    Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
10.1    Form of Indemnification Agreement between the Registrant and its directors and officers
10.2    2003 Equity Incentive Plan
10.2A    Amendment to 2003 Equity Incentive Plan, effective as of December 16, 2009
10.2B    Amendment to 2003 Equity Incentive Plan, effective as of January 25, 2010
10.3    Form of Stock Option Agreement under 2003 Equity Incentive Plan
10.4*    2010 Equity Incentive Plan
10.5*    Form of Stock Option Agreement under 2010 Equity Incentive Plan
10.6*    Form of Restricted Stock Unit Award Agreement under 2010 Equity Incentive Plan
10.7*    2010 Employee Stock Purchase Plan
10.8*    Form of Purchase Agreement under 2010 Employee Stock Purchase Plan
10.9    Offer Letter between the Registrant and Elon Musk dated October 13, 2008
10.10    Offer Letter between the Registrant and Deepak Ahuja dated June 13, 2008, and amended June 4, 2009
10.11    Relocation Agreement between the Registrant and Deepak Ahuja effective October 31, 2008 and amended June 4, 2009
10.12    Offer Letter between the Registrant and Jeffrey B. Straubel dated May 6, 2004
10.13    Offer Letter between the Registrant and Michael F. Donoughe dated June 4, 2008, and amended December 10, 2008
10.14    Offer Letter between the Registrant and John Walker dated August 17, 2009
10.15    Relocation Agreement between the Registrant and John Walker dated January 26, 2010
10.16    Offer Letter between the Registrant and Jon Sobel dated August 30, 2009
10.17    Offer Letter between the Registrant and Gilbert Passin dated January 1, 2010
10.18    Commercial Single-Tenant Lease between the Registrant and Russell A. and Deborah B. Margiotta, Trustees of the Margiotta Family Trust UTA May 26, 1981 dated June 7, 2005
10.19    Commercial Single-Tenant Lease between the Registrant and James R. Hull dated August 16, 2006
10.20    Commercial Lease between the Registrant and The Board of Trustees of The Leland Stanford Jr. University dated July 25, 2007
10.21    License Agreement between the Registrant and MS Kearny Northrop Avenue, LLC dated July 23, 2009
10.22    Commercial Lease between the Registrant and The Board of Trustees of The Leland Stanford Jr. University dated August 6, 2009


Table of Contents

Exhibit
Number

  

Description

10.23†    Supply Agreement for Products and Services between Lotus Cars Limited and the Registrant dated July 11, 2005
10.23A†    Amendment No. 1 to Supply Agreement between Lotus Cars Limited and the Registrant dated August 4, 2009
10.24†    Supply Agreement between supplier one and the Registrant dated September 1, 2006
10.25†    Supply Agreement between supplier two and the Registrant dated September 1, 2006
10.26†    Supply Agreement between supplier three and the Registrant dated September 1, 2006
10.27†    Supply Agreement by and among Sanyo Electric Co. Ltd. Mobile Energy Company, Sanyo Energy (USA) Corporation and the Registrant dated February 1, 2007
10.27A†    Amendment No. 1 to Supply Agreement by and among Sanyo Electric Co. Ltd. Mobile Energy Company and Sanyo Energy (USA) Corporation and the Registrant effective as of February 1, 2007
10.28†    Supply Agreement by and between supplier four and the Registrant dated February 12, 2007
10.29†    Supply Agreement between supplier five and the Registrant dated April 19, 2007
10.30†    Supply Agreement between supplier six and the Registrant dated April 13, 2007
10.31†    Modification to Terms and Conditions between BorgWarner TorqTransfer Systems Inc. and the Registrant dated September 22, 2008
10.32*    ZEV Credits Agreement between an automobile manufacturer and the Registrant dated February 12, 2009
10.32A*    Addendum to ZEV Credits Agreement between an automobile manufacturer and the Registrant dated February 20, 2009
10.33†    Supply Agreement by and among Panasonic Industrial Company, Panasonic Corporation, acting through Energy Company, and the Registrant dated July 21, 2009
10.34†    Exclusivity and Intellectual Property Agreement between Daimler North America Corporation and the Registrant dated May 11, 2009
10.35    Side Agreement between the Registrant and Blackstar Investco LLC dated May 11, 2009
10.36    Letter Agreement between the Elon Musk Revocable Trust dated July 22, 2003 and Blackstar Investco LLC, dated May 11, 2009
10.37*    Loan Arrangement and Reimbursement Agreement between the United States Department of Energy and the Registrant dated as of January 20, 2010
10.38*    Warrant to Purchase Shares of Preferred Stock issued by the Registrant to the United States Department of Energy dated January 20, 2010
10.39*    Note Purchase Agreement by and among the Federal Financing Bank, the Registrant and the Secretary of Energy dated as of January 20, 2010
10.40*    Future Advance Promissory Note made by the Registrant in favor of the Federal Financing Bank dated as of January 20, 2010
10.41*    Future Advance Promissory Note made by the Registrant in favor of the Federal Financing Bank dated as of January 20, 2010
10.42*    Pledge and Security Agreement made by the Registrant and the Grantors party thereto in favor of Midland Loan Services, Inc. dated as of January 20, 2010
10.43*    Guarantee made by the Guarantors party thereto in favor of the United States Department of Energy, the Federal Financing Bank and the holders of the notes described therein dated as of January 20, 2010
21.1    List of subsidiaries of the Registrant
23.1    Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm


Table of Contents

Exhibit
Number

  

Description

23.2*    Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included in Exhibit 5.1)
24.1    Power of Attorney (see page II-7 to this registration statement on Form S-1)

 

* To be filed by amendment.
Portions of this exhibit have been omitted pending a determination by the Securities and Exchange Commission as to whether these portions should be granted confidential treatment.

Exhibit 3.1

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

OF

TESLA MOTORS, INC.

a Delaware corporation

Tesla Motors, Inc., a corporation organized and existing under the laws of the State of Delaware (the “ Corporation ”), hereby certifies as follows:

A. The name of the Corporation is Tesla Motors, Inc. The Corporation’s original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on July 1, 2003.

B. This Amended and Restated Certificate of Incorporation was duly adopted in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware (the “ DGCL ”), and restates, integrates and further amends the provisions of the Corporation’s Sixth Amended and Restated Certificate of Incorporation, and has been duly approved by the written consent of the stockholders of the corporation in accordance with Section 228 of the DGCL.

C. The text of the Sixth Amended and Restated Certificate of Incorporation of this Corporation is hereby amended and restated to read in its entirety as follows:

ARTICLE I

The name of the corporation is Tesla Motors, Inc.

ARTICLE II

The address of the Corporation’s registered office in the State of Delaware is 1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company.

ARTICLE III

The nature of the business or purposes to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the DGCL.

ARTICLE IV

4.1 Authorized Capital Stock . The total number of shares of all classes of capital stock which the corporation is authorized to issue is 2,100,000,000 shares, consisting of 2,000,000,000 shares of Common Stock, par value $0.001 per share (the “ Common Stock ”), and 100,000,000 shares of Preferred Stock, par value $0.001 per share (the “ Preferred Stock ”).


4.2 Increase or Decrease in Authorized Capital Stock . The number of authorized shares of Preferred Stock or Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority in voting power of the stock of the corporation entitled to vote generally in the election of directors, irrespective of the provisions of Section 242(b)(2) of the DGCL (or any successor provision thereto), voting together as a single class, without a separate vote of the holders of the class or classes the number of authorized shares of which are being increased or decreased, unless a vote by any holders of one or more series of Preferred Stock is required by the express terms of any series of Preferred Stock as provided for or fixed pursuant to the provisions of Section 4.4 of this Article IV.

4.3 Common Stock .

(a) The holders of shares of Common Stock shall be entitled to one vote for each such share on each matter properly submitted to the stockholders on which the holders of shares of Common Stock are entitled to vote. Except as otherwise required by law or this certificate of incorporation (this “ Certificate of Incorporation ” which term, as used herein, shall mean the certificate of incorporation of the corporation, as amended from time to time, including the terms of any certificate of designations of any series of Preferred Stock), and subject to the rights of the holders of Preferred Stock, at any annual or special meeting of the stockholders the holders of shares of Common Stock shall have the right to vote for the election of directors and on all other matters properly submitted to a vote of the stockholders; provided, however, that, except as otherwise required by law, holders of Common Stock shall not be entitled to vote on any amendment to this Certificate of Incorporation that relates solely to the terms, number of shares, powers, designations, preferences, or relative participating, optional or other special rights (including, without limitation, voting rights), or to qualifications, limitations or restrictions thereon, of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one more other such series, to vote thereon pursuant to this Certificate of Incorporation (including, without limitation, by any certificate of designations relating to any series of Preferred Stock) or pursuant to the DGCL.

(b) Subject to the rights of the holders of Preferred Stock, the holders of shares of Common Stock shall be entitled to receive such dividends and other distributions (payable in cash, property or capital stock of the corporation) when, as and if declared thereon by the Board of Directors from time to time out of any assets or funds of the corporation legally available therefor and shall share equally on a per share basis in such dividends and distributions.

(c) In the event of any voluntary or involuntary liquidation, dissolution or winding-up of the corporation, after payment or provision for payment of the debts and other liabilities of the corporation, and subject to the rights of the holders of Preferred Stock in respect thereof, the holders of shares of Common Stock shall be entitled to receive all the remaining assets of the corporation available for distribution to its stockholders, ratably in proportion to the number of shares of Common Stock held by them.

 

-2-


4.4 Preferred Stock .

(a) The Preferred Stock may be issued from time to time in one or more series pursuant to a resolution or resolutions providing for such issue duly adopted by the Board of Directors (authority to do so being hereby expressly vested in the Board of Directors). The Board of Directors is further authorized, subject to limitations prescribed by law, to fix by resolution or resolutions and to set forth in a certification of designations filed pursuant to the DGCL the powers, designations, preferences and relative, participation, optional or other rights, if any, and the qualifications, limitations or restrictions thereof, if any, of any wholly unissued series of Preferred Stock, including without limitation dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), redemption price or prices, and liquidation preferences of any such series, and the number of shares constituting any such series and the designation thereof, or any of the foregoing.

(b) The Board of Directors is further authorized to increase (but not above the total number of authorized shares of the class) or decrease (but not below the number of shares of any such series then outstanding) the number of shares of any series, the number of which was fixed by it, subsequent to the issuance of shares of such series then outstanding, subject to the powers, preferences and rights, and the qualifications, limitations and restrictions thereof stated in the Certificate of Incorporation or the resolution of the Board of Directors originally fixing the number of shares of such series. If the number of shares of any series is so decreased, then the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.

ARTICLE V

5.1 General Powers . The business and affairs of the corporation shall be managed by or under the direction of the Board of Directors.

5.2 Number of Directors; Election; Term .

(a) Subject to the rights of holders of any series of Preferred Stock with respect to the election of directors, the number of directors that constitutes the entire Board of Directors of the corporation shall be fixed solely by resolution of the Board of Directors.

(b) Subject to the rights of holders of any series of Preferred Stock with respect to the election of directors, effective upon the closing date (the “ Effective Date ”) of the initial sale of shares of common stock in the corporation’s initial public offering pursuant to an effective registration statement filed under the Securities Act of 1933, as amended, the directors of the corporation shall be divided into three classes as nearly equal in size as is practicable, hereby designated Class I, Class II and Class III. The initial assignment of members of the Board of Directors to each such class shall be made by the Board of Directors. The term of office of the initial Class I directors shall expire at the first regularly-scheduled annual meeting of the stockholders following the Effective Date, the term of office of the initial Class II directors shall expire at the second annual meeting of the stockholders following the Effective Date and the term of office of the initial Class III directors shall expire at the third annual meeting of the stockholders following the Effective Date. At each annual meeting of stockholders, commencing with the first regularly-scheduled annual meeting of stockholders following the Effective Date, each of the successors

 

-3-


elected to replace the directors of a Class whose term shall have expired at such annual meeting shall be elected to hold office until the third annual meeting next succeeding his or her election and until his or her respective successor shall have been duly elected and qualified. Subject to the rights of holders of any series of Preferred Stock with respect to the election of directors, if the number of directors that constitutes the Board of Directors is changed, any newly created directorships or decrease in directorships shall be so apportioned by the Board of Directors among the classes as to make all classes as nearly equal in number as is practicable, provided that no decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

(c) Notwithstanding the foregoing provisions of this Section 5.2, and subject to the rights of holders of any series of Preferred Stock with respect to the election of directors, each director shall serve until his or her successor is duly elected and qualified or until his or her earlier death, resignation, or removal.

(d) Elections of directors need not be by written ballot unless the Bylaws of the corporation shall so provide.

5.3 Removal . Subject to the rights of holders of any series of Preferred Stock with respect to the election of directors, a director may be removed from office by the stockholders of the corporation only for cause.

5.4 Vacancies and Newly Created Directorships . Subject to the rights of holders of any series of Preferred Stock with respect to the election of directors, and except as otherwise provided in the DGCL, vacancies occurring on the Board of Directors for any reason and newly created directorships resulting from an increase in the authorized number of directors may be filled only by vote of a majority of the remaining members of the Board of Directors, although less than a quorum, or by a sole remaining director, at any meeting of the Board of Directors. A person so elected by the Board of Directors to fill a vacancy or newly created directorship shall hold office until the next election of the class for which such director shall have been assigned by the Board of Directors and until his or her successor shall be duly elected and qualified.

ARTICLE VI

In furtherance and not in limitation of the powers conferred by statute, the Board of Directors of the corporation is expressly authorized to adopt, amend or repeal the Bylaws of the corporation.

ARTICLE VII

7.1 No Action by Written Consent of Stockholders . Except as otherwise expressly provided by the terms of any series of Preferred Stock permitting the holders of such series of Preferred Stock to act by written consent, any action required or permitted to be taken by stockholders of the corporation must be effected at a duly called annual or special meeting of the stockholders and may not be effected by written consent in lieu of a meeting.

7.2 Special Meetings . Except as otherwise expressly provided by the terms of any series of Preferred Stock permitting the holders of such series of Preferred Stock to call a special

 

-4-


meeting of the holders of such series, special meetings of stockholders of the corporation may be called only by the Board of Directors, the chairperson of the Board of Directors, the chief executive officer or the president (in the absence of a chief executive officer), and the ability of the stockholders to call a special meeting is hereby specifically denied. The Board of Directors may cancel, postpone or reschedule any previously scheduled special meeting at any time, before or after the notice for such meeting has been sent to the stockholders.

7.3 Advance Notice . Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the corporation shall be given in the manner provided in the Bylaws of the corporation.

ARTICLE VIII

8.1 Limitation of Personal Liability . To the fullest extent permitted by the DGCL, as it presently exists or may hereafter be amended from time to time, a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended. Any repeal or amendment of this Section 8.1 by the stockholders of the corporation or by changes in law, or the adoption of any other provision of this Certificate of Incorporation inconsistent with this Section 8.1 will, unless otherwise required by law, be prospective only (except to the extent such amendment or change in law permits the corporation to further limit or eliminate the liability of directors) and shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or amendment or adoption of such inconsistent provision with respect to acts or omissions occurring prior to such repeal or amendment or adoption of such inconsistent provision.

8.2 Indemnification . To the fullest extent permitted by the DGCL, as it presently exists or may hereafter be amended from time to time, the corporation is also authorized to provide indemnification of (and advancement of expenses to) its directors, officers and agents of the corporation (and any other persons to which the DGCL permits the corporation to provide indemnification) through bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise.

ARTICLE IX

The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation (including any rights, preferences or other designations of Preferred Stock), in the manner now or hereafter prescribed by this Certificate of Incorporation and the DGCL; and all rights, preferences and privileges herein conferred upon stockholders by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the right reserved in this Article IX. Notwithstanding any other provision of this Certificate of Incorporation, and in addition to any other vote that may be required by law or the terms of any series of Preferred Stock, the affirmative vote of the holders of at least 66  2 / 3 % of the voting power of all then outstanding shares of capital stock of the corporation entitled to vote

 

-5-


generally in the election of directors, voting together as a single class, shall be required to amend, alter or repeal, or adopt any provision as part of this Certificate of Incorporation inconsistent with the purpose and intent of, Article V, Article VI, Article VII or this Article IX (including, without limitation, any such Article as renumbered as a result of any amendment, alteration, change, repeal or adoption of any other Article).

 

-6-


IN WITNESS WHEREOF, Tesla Motors, Inc. has caused this Amended and Restated Certificate of Incorporation to be signed by a duly authorized officer of the Corporation on this                      day of              , 20      .

 

By:

 

 

  Elon Musk
  Chief Executive Officer

 

-7-

Exhibit 3.2

 

AMENDED AND RESTATED BYLAWS OF

TESLA MOTORS, INC.

(initially adopted on July 17, 2003)

(as amended and restated on December 16, 2009 and effective as of the

closing of the corporation’s initial public offering)

 

 


TABLE OF CONTENTS

 

       Page

ARTICLE I — CORPORATE OFFICES

   1

1.1

   REGISTERED OFFICE    1

1.2

   OTHER OFFICES    1

ARTICLE II — MEETINGS OF STOCKHOLDERS

   1

2.1

   PLACE OF MEETINGS    1

2.2

   ANNUAL MEETING    1

2.3

   SPECIAL MEETING    1

2.4

   ADVANCE NOTICE PROCEDURES    2

2.5

   NOTICE OF STOCKHOLDERS’ MEETINGS    6

2.6

   QUORUM    6

2.7

   ADJOURNED MEETING; NOTICE    6

2.8

   CONDUCT OF BUSINESS    6

2.9

   VOTING    7

2.10

   STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING    7

2.11

   RECORD DATES    7

2.12

   PROXIES    8

2.13

   LIST OF STOCKHOLDERS ENTITLED TO VOTE    8

2.14

   INSPECTORS OF ELECTION    9

ARTICLE III — DIRECTORS

   9

3.1

   POWERS    9

3.2

   NUMBER OF DIRECTORS    9

3.3

   ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS    9

3.4

   RESIGNATION AND VACANCIES    10

3.5

   PLACE OF MEETINGS; MEETINGS BY TELEPHONE    10

3.6

   REGULAR MEETINGS    10

3.7

   SPECIAL MEETINGS; NOTICE    11

3.8

   QUORUM; VOTING    11

3.9

   BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING    11

3.10

   FEES AND COMPENSATION OF DIRECTORS    12

3.11

   REMOVAL OF DIRECTORS    12

ARTICLE IV — COMMITTEES

   12

4.1

   COMMITTEES OF DIRECTORS    12

4.2

   COMMITTEE MINUTES    12

4.3

   MEETINGS AND ACTION OF COMMITTEES    12

4.4

   SUBCOMMITTEES    13

ARTICLE V — OFFICERS

   13

5.1

   OFFICERS    13

5.2

   APPOINTMENT OF OFFICERS    14

5.3

   SUBORDINATE OFFICERS    14

 

-i-


TABLE OF CONTENTS

(continued)

 

          Page

5.4

   REMOVAL AND RESIGNATION OF OFFICERS    14

5.5

   VACANCIES IN OFFICES    14

5.6

   REPRESENTATION OF SHARES OF OTHER CORPORATIONS    14

5.7

   AUTHORITY AND DUTIES OF OFFICERS    15

5.8

   THE CHAIRPERSON OF THE BOARD    15

5.9

   THE VICE CHAIRPERSON OF THE BOARD    15

5.10

   THE CHIEF EXECUTIVE OFFICER    15

5.11

   THE PRESIDENT    15

5.12

   THE VICE PRESIDENTS AND ASSISTANT VICE PRESIDENTS    15

5.13

   THE SECRETARY AND ASSISTANT SECRETARIES    16

5.14

   THE CHIEF FINANCIAL OFFICER AND ASSISTANT TREASURERS    16

ARTICLE VI — STOCK

   16

6.1

   STOCK CERTIFICATES; PARTLY PAID SHARES    16

6.2

   SPECIAL DESIGNATION ON CERTIFICATES    17

6.3

   LOST, STOLEN OR DESTROYED CERTIFICATES    17

6.4

   DIVIDENDS    17

6.5

   TRANSFER OF STOCK    18

6.6

   STOCK TRANSFER AGREEMENTS    18

6.7

   REGISTERED STOCKHOLDERS    18

ARTICLE VII — MANNER OF GIVING NOTICE AND WAIVER

   18

7.1

   NOTICE OF STOCKHOLDERS’ MEETINGS    18

7.2

   NOTICE BY ELECTRONIC TRANSMISSION    19

7.3

   NOTICE TO STOCKHOLDERS SHARING AN ADDRESS    19

7.4

   NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL    20

7.5

   WAIVER OF NOTICE    20

ARTICLE VIII — INDEMNIFICATION

   20

8.1

   INDEMNIFICATION OF DIRECTORS AND OFFICERS IN THIRD PARTY PROCEEDINGS    20

8.2

   INDEMNIFICATION OF DIRECTORS AND OFFICERS IN ACTIONS BY OR IN THE RIGHT OF THE CORPORATION    21

8.3

   SUCCESSFUL DEFENSE    21

8.4

   INDEMNIFICATION OF OTHERS    21

8.5

   ADVANCED PAYMENT OF EXPENSES    21

8.6

   LIMITATION ON INDEMNIFICATION    22

8.7

   DETERMINATION; CLAIM    22

8.8

   NON-EXCLUSIVITY OF RIGHTS    23

8.9

   INSURANCE    23

8.10

   SURVIVAL    23

8.11

   EFFECT OF REPEAL OR MODIFICATION    23

8.12

   CERTAIN DEFINITIONS    23

 

-ii-


TABLE OF CONTENTS

(continued)

 

          Page

ARTICLE IX — GENERAL MATTERS

   24

9.1

   EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS    24

9.2

   FISCAL YEAR    24

9.3

   SEAL    24

9.4

   CONSTRUCTION; DEFINITIONS    24

ARTICLE X — AMENDMENTS

   24

 

-iii-


AMENDED AND RESTATED BYLAWS OF TESLA MOTORS, INC.

 

 

ARTICLE I — CORPORATE OFFICES

1.1 REGISTERED OFFICE

The registered office of Tesla Motors, Inc. shall be fixed in the corporation’s certificate of incorporation. References in these bylaws to the certificate of incorporation shall mean the certificate of incorporation of the corporation, as amended from time to time, including the terms of any certificate of designations of any series of Preferred Stock.

1.2 OTHER OFFICES

The corporation’s board of directors may at any time establish other offices at any place or places where the corporation is qualified to do business.

ARTICLE II — MEETINGS OF STOCKHOLDERS

2.1 PLACE OF MEETINGS

Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the board of directors. The board of directors may, in its sole discretion, determine that a meeting of stockholders shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211(a)(2) of the General Corporation Law of the State of Delaware (the “ DGCL ”). In the absence of any such designation or determination, stockholders’ meetings shall be held at the corporation’s principal executive office.

2.2 ANNUAL MEETING

The annual meeting of stockholders shall be held on such date, at such time, and at such place (if any) within or without the State of Delaware as shall be designated from time to time by the board of directors and stated in the corporation’s notice of the meeting. At the annual meeting, directors shall be elected and any other proper business may be transacted.

2.3 SPECIAL MEETING

(i) A special meeting of the stockholders, other than those required by statute, may be called at any time only by (A) the board of directors, (B) the chairperson of the board of directors, (C) the chief executive officer or (D) the president (in the absence of a chief executive officer). A special meeting of the stockholders may not be called by any other person or persons. The board of directors may cancel, postpone or reschedule any previously scheduled special meeting at any time, before or after the notice for such meeting has been sent to the stockholders.


(ii) The notice of a special meeting shall include the purpose for which the meeting is called. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting by or at the direction of the board of directors, the chairperson of the board of directors, the chief executive officer or the president (in the absence of a chief executive officer). Nothing contained in this Section 2.3(ii) shall be construed as limiting, fixing or affecting the time when a meeting of stockholders called by action of the board of directors may be held.

2.4 ADVANCE NOTICE PROCEDURES

(i) Advance Notice of Stockholder Business. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be brought: (A) pursuant to the corporation’s proxy materials with respect to such meeting, (B) by or at the direction of the board of directors, or (C) by a stockholder of the corporation who (1) is a stockholder of record at the time of the giving of the notice required by this Section 2.4(i) and on the record date for the determination of stockholders entitled to vote at the annual meeting and (2) has timely complied in proper written form with the notice procedures set forth in this Section 2.4(i). In addition, for business to be properly brought before an annual meeting by a stockholder, such business must be a proper matter for stockholder action pursuant to these bylaws and applicable law. Except for proposals properly made in accordance with Rule 14a-8 under the Securities and Exchange Act of 1934, and the rules and regulations thereunder (as so amended and inclusive of such rules and regulations), and included in the notice of meeting given by or at the direction of the board of directors, for the avoidance of doubt, clause (C) above shall be the exclusive means for a stockholder to bring business before an annual meeting of stockholders.

(a) To comply with clause (C) of Section 2.4(i) above, a stockholder’s notice must set forth all information required under this Section 2.4(i) and must be timely received by the secretary of the corporation. To be timely, a stockholder’s notice must be received by the secretary at the principal executive offices of the corporation not later than the 45th day nor earlier than the 75th day before the one-year anniversary of the date on which the corporation first mailed its proxy materials or a notice of availability of proxy materials (whichever is earlier) for the preceding year’s annual meeting; provided , however , that in the event that no annual meeting was held in the previous year or if the date of the annual meeting is advanced by more than 30 days prior to or delayed by more than 60 days after the one-year anniversary of the date of the previous year’s annual meeting, then, for notice by the stockholder to be timely, it must be so received by the secretary not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of (i) the 90th day prior to such annual meeting, or (ii) the tenth day following the day on which Public Announcement (as defined below) of the date of such annual meeting is first made. In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period for the giving of a stockholder’s notice as described in this Section 2.4(i)(a). “ Public Announcement ” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended, or any successor thereto (the “ 1934 Act ”).

(b) To be in proper written form, a stockholder’s notice to the secretary must set forth as to each matter of business the stockholder intends to bring before the annual meeting: (1) a brief description of the business intended to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (2) the name and address, as they appear on the corporation’s books, of the

 

-2-


stockholder proposing such business and any Stockholder Associated Person (as defined below), (3) the class and number of shares of the corporation that are held of record or are beneficially owned by the stockholder or any Stockholder Associated Person and any derivative positions held or beneficially held by the stockholder or any Stockholder Associated Person, (4) whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of such stockholder or any Stockholder Associated Person with respect to any securities of the corporation, and a description of any other agreement, arrangement or understanding (including any short position or any borrowing or lending of shares), the effect or intent of which is to mitigate loss to, or to manage the risk or benefit from share price changes for, or to increase or decrease the voting power of, such stockholder or any Stockholder Associated Person with respect to any securities of the corporation, (5) any material interest of the stockholder or a Stockholder Associated Person in such business, and (6) a statement whether either such stockholder or any Stockholder Associated Person will deliver a proxy statement and form of proxy to holders of at least the percentage of the corporation’s voting shares required under applicable law to carry the proposal (such information provided and statements made as required by clauses (1) through (6), a “ Business Solicitation Statement ”). In addition, to be in proper written form, a stockholder’s notice to the secretary must be supplemented not later than ten days following the record date for notice of the meeting to disclose the information contained in clauses (3) and (4) above as of the record date for notice of the meeting. For purposes of this Section 2.4, a “ Stockholder Associated Person ” of any stockholder shall mean (i) any person controlling, directly or indirectly, or acting in concert with, such stockholder, (ii) any beneficial owner of shares of stock of the corporation owned of record or beneficially by such stockholder and on whose behalf the proposal or nomination, as the case may be, is being made, or (iii) any person controlling, controlled by or under common control with such person referred to in the preceding clauses (i) and (ii).

(c) Without exception, no business shall be conducted at any annual meeting except in accordance with the provisions set forth in this Section 2.4(i) and, if applicable, Section 2.4(ii). In addition, business proposed to be brought by a stockholder may not be brought before the annual meeting if such stockholder or a Stockholder Associated Person, as applicable, takes action contrary to the representations made in the Business Solicitation Statement applicable to such business or if the Business Solicitation Statement applicable to such business contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein not misleading. The chairperson of the annual meeting shall, if the facts warrant, determine and declare at the annual meeting that business was not properly brought before the annual meeting and in accordance with the provisions of this Section 2.4(i), and, if the chairperson should so determine, he or she shall so declare at the annual meeting that any such business not properly brought before the annual meeting shall not be conducted.

(ii) Advance Notice of Director Nominations at Annual Meetings. Notwithstanding anything in these bylaws to the contrary, only persons who are nominated in accordance with the procedures set forth in this Section 2.4(ii) shall be eligible for election or re-election as directors at an annual meeting of stockholders. Nominations of persons for election or re-election to the board of directors of the corporation shall be made at an annual meeting of stockholders only (A) by or at the direction of the board of directors or (B) by a stockholder of the corporation who (1) was a stockholder of record at the time of the giving of the notice required by this Section 2.4(ii) and on the record date for the determination of stockholders entitled to vote at the annual meeting and (2) has complied with the notice procedures set forth in this Section 2.4(ii). In addition to any other applicable requirements, for a nomination to be made by a stockholder, the stockholder must have given timely notice thereof in proper written form to the secretary of the corporation.

 

-3-


(a) To comply with clause (B) of Section 2.4(ii) above, a nomination to be made by a stockholder must set forth all information required under this Section 2.4(ii) and must be received by the secretary of the corporation at the principal executive offices of the corporation at the time set forth in, and in accordance with, the final three sentences of Section 2.4(i)(a) above.

(b) To be in proper written form, such stockholder’s notice to the secretary must set forth:

(1) as to each person (a “ nominee ”) whom the stockholder proposes to nominate for election or re-election as a director: (A) the name, age, business address and residence address of the nominee, (B) the principal occupation or employment of the nominee, (C) the class and number of shares of the corporation that are held of record or are beneficially owned by the nominee and any derivative positions held or beneficially held by the nominee, (D) whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of the nominee with respect to any securities of the corporation, and a description of any other agreement, arrangement or understanding (including any short position or any borrowing or lending of shares), the effect or intent of which is to mitigate loss to, or to manage the risk or benefit of share price changes for, or to increase or decrease the voting power of the nominee, (E) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder, (F) a written statement executed by the nominee acknowledging that as a director of the corporation, the nominee will owe a fiduciary duty under Delaware law with respect to the corporation and its stockholders, and (G) any other information relating to the nominee that would be required to be disclosed about such nominee if proxies were being solicited for the election or re-election of the nominee as a director, or that is otherwise required, in each case pursuant to Regulation 14A under the 1934 Act (including without limitation the nominee’s written consent to being named in the proxy statement, if any, as a nominee and to serving as a director if elected or re-elected, as the case may be); and

(2) as to such stockholder giving notice, (A) the information required to be provided pursuant to clauses (2) through (5) of Section 2.4(i)(b) above, and the supplement referenced in the second sentence of Section 2.4(i)(b) above (except that the references to “business” in such clauses shall instead refer to nominations of directors for purposes of this paragraph), and (B) a statement whether either such stockholder or Stockholder Associated Person will deliver a proxy statement and form of proxy to holders of a number of the corporation’s voting shares reasonably believed by such stockholder or Stockholder Associated Person to be necessary to elect or re-elect such nominee(s) (such information provided and statements made as required by clauses (A) and (B) above, a “ Nominee Solicitation Statement ”).

(c) At the request of the board of directors, any person nominated by a stockholder for election or re-election as a director must furnish to the secretary of the corporation (1) that information required to be set forth in the stockholder’s notice of nomination of such person as a director as of a date subsequent to the date on which the notice of such person’s nomination was given and (2) such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as an independent director or audit committee financial expert of the corporation under applicable law, securities exchange rule or regulation, or any publicly-disclosed corporate governance guideline or committee charter of the corporation and (3) that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of such nominee; in the absence of the furnishing of such information if requested, such stockholder’s nomination shall not be considered in proper form pursuant to this Section 2.4(ii).

 

-4-


(d) Without exception, no person shall be eligible for election or re-election as a director of the corporation at an annual meeting of stockholders unless nominated in accordance with the provisions set forth in this Section 2.4(ii). In addition, a nominee shall not be eligible for election or re-election if a stockholder or Stockholder Associated Person, as applicable, takes action contrary to the representations made in the Nominee Solicitation Statement applicable to such nominee or if the Nominee Solicitation Statement applicable to such nominee contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein not misleading. The chairperson of the annual meeting shall, if the facts warrant, determine and declare at the annual meeting that a nomination was not made in accordance with the provisions prescribed by these bylaws, and if the chairperson should so determine, he or she shall so declare at the annual meeting, and the defective nomination shall be disregarded.

(iii) Advance Notice of Director Nominations for Special Meetings.

(a) For a special meeting of stockholders at which directors are to be elected or re-elected, nominations of persons for election or re-election to the board of directors shall be made only (1) by or at the direction of the board of directors or (2) by any stockholder of the corporation who (A) is a stockholder of record at the time of the giving of the notice required by this Section 2.4(iii) and on the record date for the determination of stockholders entitled to vote at the special meeting and (B) delivers a timely written notice of the nomination to the secretary of the corporation that includes the information set forth in Sections 2.4(ii)(b) and (ii)(c) above. To be timely, such notice must be received by the secretary at the principal executive offices of the corporation not later than the close of business on the later of the 90th day prior to such special meeting or the tenth day following the day on which Public Announcement is first made of the date of the special meeting and of the nominees proposed by the board of directors to be elected or re-elected at such meeting. A person shall not be eligible for election or re-election as a director at a special meeting unless the person is nominated (i) by or at the direction of the board of directors or (ii) by a stockholder in accordance with the notice procedures set forth in this Section 2.4(iii). In addition, a nominee shall not be eligible for election or re-election if a stockholder or Stockholder Associated Person, as applicable, takes action contrary to the representations made in the Nominee Solicitation Statement applicable to such nominee or if the Nominee Solicitation Statement applicable to such nominee contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein not misleading.

(b) The chairperson of the special meeting shall, if the facts warrant, determine and declare at the meeting that a nomination or business was not made in accordance with the procedures prescribed by these bylaws, and if the chairperson should so determine, he or she shall so declare at the meeting, and the defective nomination or business shall be disregarded.

(iv) Other Requirements and Rights. In addition to the foregoing provisions of this Section 2.4, a stockholder must also comply with all applicable requirements of state law and of the 1934 Act and the rules and regulations thereunder with respect to the matters set forth in this Section 2.4. Nothing in this Section 2.4 shall be deemed to affect any rights of:

(a) a stockholder to request inclusion of proposals in the corporation’s proxy statement pursuant to Rule 14a-8 (or any successor provision) under the 1934 Act; or

(b) the corporation to omit a proposal from the corporation’s proxy statement pursuant to Rule 14a-8 (or any successor provision) under the 1934 Act.

 

-5-


2.5 NOTICE OF STOCKHOLDERS’ MEETINGS

Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting, the record date for determining the stockholders entitled to vote at the meeting, if such date is different from the record date for determining stockholders entitled to notice of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Except as otherwise provided in the DGCL, the certificate of incorporation or these bylaws, the written notice of any meeting of stockholders shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting as of the record date for determining the stockholders entitled to notice of the meeting.

2.6 QUORUM

The holders of a majority of the stock issued and outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of the stockholders. Where a separate vote by a class or series or classes or series is required, a majority of the outstanding shares of such class or series or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter, except as otherwise provided by law, the certificate of incorporation or these bylaws

If a quorum is not present or represented at any meeting of the stockholders, then either (i) the chairperson of the meeting, or (ii) the stockholders entitled to vote at the meeting, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed.

2.7 ADJOURNED MEETING; NOTICE

When a meeting is adjourned to another time or place, unless these bylaws otherwise require, notice need not be given of the adjourned meeting if the time, place, if any, thereof, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. If after the adjournment a new record date for stockholders entitled to vote is fixed for the adjourned meeting, the board of directors shall fix a new record date for notice of such adjourned meeting in accordance with Section 213(a) of the DGCL and Section 2.11of these bylaws, and shall give notice of the adjourned meeting to each stockholder of record entitled to vote at such adjourned meeting as of the record date fixed for notice of such adjourned meeting.

2.8 CONDUCT OF BUSINESS

The chairperson of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of business. The chairperson of any meeting of stockholders shall be designated by the board of directors; in the absence of such designation, the chairperson of the board, if any, the chief executive officer (in the absence of the chairperson) or the president (in the absence of the chairperson of the board and the chief executive officer), or in their absence any other executive officer of the corporation, shall serve as chairperson of the stockholder meeting.

 

-6-


2.9 VOTING

The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these bylaws, subject to Section 217 (relating to voting rights of fiduciaries, pledgors and joint owners of stock) and Section 218 (relating to voting trusts and other voting agreements) of the DGCL.

Except as may be otherwise provided in the certificate of incorporation or these bylaws, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder.

Except as otherwise required by law, the certificate of incorporation or these bylaws, in all matters other than the election of directors, the affirmative vote of a majority of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Except as otherwise required by law, the certificate of incorporation or these bylaws, directors shall be elected by a plurality of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Where a separate vote by a class or series or classes or series is required, in all matters other than the election of directors, the affirmative vote of the majority of shares of such class or series or classes or series present in person or represented by proxy at the meeting shall be the act of such class or series or classes or series, except as otherwise provided by law, the certificate of incorporation or these bylaws.

2.10 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING

Subject to the rights of the holders of the shares of any series of Preferred Stock or any other class of stock or series thereof that have been expressly granted the right to take action by written consent, any action required or permitted to be taken by the stockholders of the corporation must be effected at a duly called annual or special meeting of stockholders of the corporation and may not be effected by any consent in writing by such stockholders.

2.11 RECORD DATES

In order that the corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors and which record date shall not be more than 60 nor less than 10 days before the date of such meeting. If the board of directors so fixes a date, such date shall also be the record date for determining the stockholders entitled to vote at such meeting unless the board of directors determines, at the time it fixes such record date, that a later date on or before the date of the meeting shall be the date for making such determination.

If no record date is fixed by the board of directors, the record date for determining stockholders entitled to notice of and to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.

 

-7-


A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for determination of stockholders entitled to vote at the adjourned meeting, and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance with the provisions of Section 213 of the DGCL and this Section 2.11 at the adjourned meeting.

In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto.

2.12 PROXIES

Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212 of the DGCL. A written proxy may be in the form of a telegram, cablegram, or other means of electronic transmission which sets forth or is submitted with information from which it can be determined that the telegram, cablegram, or other means of electronic transmission was authorized by the person.

2.13 LIST OF STOCKHOLDERS ENTITLED TO VOTE

The officer who has charge of the stock ledger of the corporation shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting; provided, however, if the record date for determining the stockholders entitled to vote is less than 10 days before the meeting date, the list shall reflect the stockholders entitled to vote as of the tenth day before the meeting date. The stockholder list shall be arranged in alphabetical order and show the address of each stockholder and the number of shares registered in the name of each stockholder. The corporation shall not be required to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder for any purpose germane to the meeting for a period of at least 10 days prior to the meeting (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the corporation’s principal place of business. In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be examined by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting. Such list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them.

 

-8-


2.14 INSPECTORS OF ELECTION

Before any meeting of stockholders, the board of directors shall appoint an inspector or inspectors of election to act at the meeting or its adjournment. The number of inspectors shall be either one (1) or three (3). If any person appointed as inspector fails to appear or fails or refuses to act, then the chairperson of the meeting may, and upon the request of any stockholder or a stockholder’s proxy shall, appoint a person to fill that vacancy.

Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath to execute faithfully the duties of inspector with strict impartiality and according to the best of his or her ability. The inspector or inspectors so appointed and designated shall (i) ascertain the number of shares of capital stock of the corporation outstanding and the voting power of each share, (ii) determine the shares of capital stock of the corporation represented at the meeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period a record of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of the number of shares of capital stock of the corporation represented at the meeting and such inspector or inspectors’ count of all votes and ballots.

In determining the validity and counting of proxies and ballots cast at any meeting of stockholders of the corporation, the inspector or inspectors may consider such information as is permitted by applicable law. If there are three (3) inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all.

ARTICLE III — DIRECTORS

3.1 POWERS

The business and affairs of the corporation shall be managed by or under the direction of the board of directors, except as may be otherwise provided in the DGCL or the certificate of incorporation.

3.2 NUMBER OF DIRECTORS

The board of directors shall consist of one or more members, each of whom shall be a natural person. Unless the certificate of incorporation fixes the number of directors, the number of directors shall be determined from time to time solely by resolution of the board of directors. No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires.

3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS

Except as provided in Section 3.4 of these bylaws, each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until such director’s successor is elected and qualified or until such director’s earlier death, resignation or removal. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws. The certificate of incorporation or these bylaws may prescribe other qualifications for directors.

 

-9-


3.4 RESIGNATION AND VACANCIES

Any director may resign at any time upon notice given in writing or by electronic transmission to the corporation; provided, however , that if such notice is given by electronic transmission, such electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the director. A resignation is effective when the resignation is delivered unless the resignation specifies a later effective date or an effective date determined upon the happening of an event or events. Acceptance of such resignation shall not be necessary to make it effective. A resignation which is conditioned upon the director failing to receive a specified vote for reelection as a director may provide that it is irrevocable. Unless otherwise provided in the certificate of incorporation or these bylaws, when one or more directors resign from the board of directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective.

Unless otherwise provided in the certificate of incorporation or these bylaws, vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class shall be filled only by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. If the directors are divided into classes, a person so elected by the directors then in office to fill a vacancy or newly created directorship shall hold office until the next election of the class for which such director shall have been chosen and until his or her successor shall have been duly elected and qualified.

If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board of directors (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least 10% of the voting stock at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the DGCL as far as applicable.

3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE

The board of directors may hold meetings, both regular and special, either within or outside the State of Delaware.

Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.

3.6 REGULAR MEETINGS

Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board of directors.

 

-10-


3.7 SPECIAL MEETINGS; NOTICE

Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairperson of the board of directors, the chief executive officer, the president, the secretary or a majority of the authorized number of directors, at such times and places as he or she or they shall designate.

Notice of the time and place of special meetings shall be:

(i) delivered personally by hand, by courier or by telephone;

(ii) sent by United States first-class mail, postage prepaid;

(iii) sent by facsimile; or

(iv) sent by electronic mail,

directed to each director at that director’s address, telephone number, facsimile number or electronic mail address, as the case may be, as shown on the corporation’s records.

If the notice is (i) delivered personally by hand, by courier or by telephone, (ii) sent by facsimile or (iii) sent by electronic mail, it shall be delivered or sent at least 24 hours before the time of the holding of the meeting. If the notice is sent by United States mail, it shall be deposited in the United States mail at least four days before the time of the holding of the meeting. Any oral notice may be communicated to the director. The notice need not specify the place of the meeting (if the meeting is to be held at the corporation’s principal executive office) nor the purpose of the meeting.

3.8 QUORUM; VOTING

At all meetings of the board of directors, a majority of the total authorized number of directors shall constitute a quorum for the transaction of business. If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.

The vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the board of directors, except as may be otherwise specifically provided by statute, the certificate of incorporation or these bylaws.

If the certificate of incorporation provides that one or more directors shall have more or less than one vote per director on any matter, every reference in these bylaws to a majority or other proportion of the directors shall refer to a majority or other proportion of the votes of the directors.

3.9 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING

Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without

 

-11-


a meeting if all members of the board of directors or committee, as the case may be, consent thereto in writing or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the board of directors or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

3.10 FEES AND COMPENSATION OF DIRECTORS

Unless otherwise restricted by the certificate of incorporation or these bylaws, the board of directors shall have the authority to fix the compensation of directors.

3.11 REMOVAL OF DIRECTORS

A director may be removed from office by the stockholders of the corporation only for cause.

No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director’s term of office.

ARTICLE IV — COMMITTEES

4.1 COMMITTEES OF DIRECTORS

The board of directors may designate one or more committees, each committee to consist of one or more of the directors of the corporation. The board of directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors or in these bylaws, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) approve or adopt, or recommend to the stockholders, any action or matter (other than the election or removal of directors) expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopt, amend or repeal any bylaw of the corporation.

4.2 COMMITTEE MINUTES

Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required.

4.3 MEETINGS AND ACTION OF COMMITTEES

Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of:

(i) Section 3.5 (place of meetings and meetings by telephone);

 

-12-


(ii) Section 3.6 (regular meetings);

(iii) Section 3.7 (special meetings; notice);

(iv) Section 3.8 (quorum; voting);

(v) Section 3.9 (action without a meeting); and

(vi) Section 7.5 (waiver of notice)

with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the board of directors and its members. However :

(i) the time of regular meetings of committees may be determined by resolution of the committee;

(ii) special meetings of committees may also be called by resolution of the committee; and

(iii) notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws.

Any provision in the certificate of incorporation providing that one or more directors shall have more or less than one vote per director on any matter shall apply to voting in any committee or subcommittee, unless otherwise provided in the certificate of incorporation or these bylaws.

4.4 SUBCOMMITTEES

Unless otherwise provided in the certificate of incorporation, these bylaws or the resolutions of the board of directors designating the committee, a committee may create one or more subcommittees, each subcommittee to consist of one or more members of the committee, and delegate to a subcommittee any or all of the powers and authority of the committee.

ARTICLE V — OFFICERS

5.1 OFFICERS

The officers of the corporation shall be a president and a secretary. The corporation may also have, at the discretion of the board of directors, a chairperson of the board of directors, a vice chairperson of the board of directors, a chief executive officer, a chief financial officer or treasurer, one or more vice presidents, one or more assistant vice presidents, one or more assistant treasurers, one or more assistant secretaries, and any such other officers as may be appointed in accordance with the provisions of these bylaws. Any number of offices may be held by the same person.

 

-13-


5.2 APPOINTMENT OF OFFICERS

The board of directors shall appoint the officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 of these bylaws, subject to the rights, if any, of an officer under any contract of employment. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in this Section 5 for the regular election to such office.

5.3 SUBORDINATE OFFICERS

The board of directors may appoint, or empower the chief executive officer or, in the absence of a chief executive officer, the president, to appoint, such other officers and agents as the business of the corporation may require. Each of such officers and agents shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine.

5.4 REMOVAL AND RESIGNATION OF OFFICERS

Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the board of directors at any regular or special meeting of the board of directors or, except in the case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors.

Any officer may resign at any time by giving written or electronic notice to the corporation; provided, however , that if such notice is given by electronic transmission, such electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the officer. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice. Unless otherwise specified in the notice of resignation, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.

5.5 VACANCIES IN OFFICES

Any vacancy occurring in any office of the corporation shall be filled by the board of directors or as provided in Section 5.3.

5.6 REPRESENTATION OF SHARES OF OTHER CORPORATIONS

The chairperson of the board of directors, the president, any vice president, the treasurer, the secretary or assistant secretary of this corporation, or any other person authorized by the board of directors or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.

 

-14-


5.7 AUTHORITY AND DUTIES OF OFFICERS

All officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the board of directors and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the board of directors.

5.8 THE CHAIRPERSON OF THE BOARD

The chairperson of the board shall have the powers and duties customarily and usually associated with the office of the chairperson of the board. The chairperson of the board shall preside at meetings of the stockholders and of the board of directors.

5.9 THE VICE CHAIRPERSON OF THE BOARD

The vice chairperson of the board shall have the powers and duties customarily and usually associated with the office of the vice chairperson of the board. In the case of absence or disability of the chairperson of the board, the vice chairperson of the board shall perform the duties and exercise the powers of the chairperson of the board.

5.10 THE CHIEF EXECUTIVE OFFICER

The chief executive officer shall have, subject to the supervision, direction and control of the board of directors, ultimate authority for decisions relating to the supervision, direction and management of the affairs and the business of the corporation customarily and usually associated with the position of chief executive officer, including, without limitation, all powers necessary to direct and control the organizational and reporting relationships within the corporation. If at any time the office of the chairperson and vice chairperson of the board shall not be filled, or in the event of the temporary absence or disability of the chairperson of the board and the vice chairperson of the board, the chief executive officer shall perform the duties and exercise the powers of the chairperson of the board unless otherwise determined by the board of directors.

5.11 THE PRESIDENT

The president shall have, subject to the supervision, direction and control of the board of directors, the general powers and duties of supervision, direction and management of the affairs and business of the corporation customarily and usually associated with the position of president. The president shall have such powers and perform such duties as may from time to time be assigned to him or her by the board of directors, the chairperson of the board or the chief executive officer. In the event of the absence or disability of the chief executive officer, the president shall perform the duties and exercise the powers of the chief executive officer unless otherwise determined by the board of directors.

5.12 THE VICE PRESIDENTS AND ASSISTANT VICE PRESIDENTS

Each vice president and assistant vice president shall have such powers and perform such duties as may from time to time be assigned to him or her by the board of directors, the chairperson of the board, the chief executive officer or the president.

 

-15-


5.13 THE SECRETARY AND ASSISTANT SECRETARIES

(i) The secretary shall attend meetings of the board of directors and meetings of the stockholders and record all votes and minutes of all such proceedings in a book or books kept for such purpose. The secretary shall have all such further powers and duties as are customarily and usually associated with the position of secretary or as may from time to time be assigned to him or her by the board of directors, the chairperson of the board, the chief executive officer or the president.

(ii) Each assistant secretary shall have such powers and perform such duties as may from time to time be assigned to him or her by the board of directors, the chairperson of the board, the chief executive officer, the president or the secretary. In the event of the absence, inability or refusal to act of the secretary, the assistant secretary (or if there shall be more than one, the assistant secretaries in the order determined by the board of directors) shall perform the duties and exercise the powers of the secretary.

5.14 THE CHIEF FINANCIAL OFFICER AND ASSISTANT TREASURERS

(i) The chief financial officer shall be the treasurer of the corporation. The chief financial officer shall have custody of the corporation’s funds and securities, shall be responsible for maintaining the corporation’s accounting records and statements, shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation, and shall deposit or cause to be deposited moneys or other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. The chief financial officer shall also maintain adequate records of all assets, liabilities and transactions of the corporation and shall assure that adequate audits thereof are currently and regularly made. The chief financial officer shall have all such further powers and duties as are customarily and usually associated with the position of chief financial officer, or as may from time to time be assigned to him or her by the board of directors, the chairperson, the chief executive officer or the president.

(ii) Each assistant treasurer shall have such powers and perform such duties as may from time to time be assigned to him or her by the board of directors, the chief executive officer, the president or the chief financial officer. In the event of the absence, inability or refusal to act of the chief financial officer, the assistant treasurer (or if there shall be more than one, the assistant treasurers in the order determined by the board of directors) shall perform the duties and exercise the powers of the chief financial officer.

ARTICLE VI — STOCK

6.1 STOCK CERTIFICATES; PARTLY PAID SHARES

The shares of the corporation shall be represented by certificates, provided that the board of directors may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Every holder of stock represented by certificates shall be entitled to have a certificate signed by, or in the name of the corporation by the chairperson of the board of directors or vice-chairperson of the board of directors, or the president or a vice-president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be

 

-16-


such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. The corporation shall not have power to issue a certificate in bearer form.

The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly-paid shares, or upon the books and records of the corporation in the case of uncertificated partly-paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully-paid shares, the corporation shall declare a dividend upon partly-paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.

6.2 SPECIAL DESIGNATION ON CERTIFICATES

If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however , that, except as otherwise provided in Section 202 of the DGCL, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to this section 6.2 or Sections 156, 202(a) or 218(a) of the DGCL or with respect to this section 6.2 a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Except as otherwise expressly provided by law, the rights and obligations of the holders of uncertificated stock and the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical.

6.3 LOST, STOLEN OR DESTROYED CERTIFICATES

Except as provided in this Section 6.3, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.

6.4 DIVIDENDS

The board of directors, subject to any restrictions contained in the certificate of incorporation or applicable law, may declare and pay dividends upon the shares of the corporation’s capital stock. Dividends may be paid in cash, in property, or in shares of the corporation’s capital stock, subject to the provisions of the certificate of incorporation.

 

-17-


The board of directors may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies.

6.5 TRANSFER OF STOCK

Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by an attorney duly authorized, and, if such stock is certificated, upon the surrender of a certificate or certificates for a like number of shares, properly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer; provided, however, that such succession, assignment or authority to transfer is not prohibited by the certificate of incorporation, these bylaws, applicable law or contract.

6.6 STOCK TRANSFER AGREEMENTS

The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.

6.7 REGISTERED STOCKHOLDERS

The corporation:

(i) shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner;

(ii) shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares; and

(iii) shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

ARTICLE VII — MANNER OF GIVING NOTICE AND WAIVER

7.1 NOTICE OF STOCKHOLDERS’ MEETINGS

Notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the corporation’s records. An affidavit of the secretary or an assistant secretary of the corporation or of the transfer agent or other agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

 

-18-


7.2 NOTICE BY ELECTRONIC TRANSMISSION

Without limiting the manner by which notice otherwise may be given effectively to stockholders pursuant to the DGCL, the certificate of incorporation or these bylaws, any notice to stockholders given by the corporation under any provision of the DGCL, the certificate of incorporation or these bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the corporation. Any such consent shall be deemed revoked if:

(i) the corporation is unable to deliver by electronic transmission two consecutive notices given by the corporation in accordance with such consent; and

(ii) such inability becomes known to the secretary or an assistant secretary of the corporation or to the transfer agent, or other person responsible for the giving of notice.

However, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action.

Any notice given pursuant to the preceding paragraph shall be deemed given:

 

  (i) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice;

 

  (ii) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice;

 

  (iii) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and

 

  (iv) if by any other form of electronic transmission, when directed to the stockholder.

An affidavit of the secretary or an assistant secretary or of the transfer agent or other agent of the corporation that the notice has been given by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

An “ electronic transmission ” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved, and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.

7.3 NOTICE TO STOCKHOLDERS SHARING AN ADDRESS

Except as otherwise prohibited under the DGCL, without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the corporation under the provisions of the DGCL, the certificate of incorporation or these bylaws shall be effective if given by a single written notice to stockholders who share an address if consented to by the stockholders at that address to whom such notice is given. Any such consent shall be revocable by the stockholder by written notice to the corporation. Any

 

-19-


stockholder who fails to object in writing to the corporation, within 60 days of having been given written notice by the corporation of its intention to send the single notice, shall be deemed to have consented to receiving such single written notice.

7.4 NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL

Whenever notice is required to be given, under the DGCL, the certificate of incorporation or these bylaws, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under the DGCL, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.

7.5 WAIVER OF NOTICE

Whenever notice is required to be given to stockholders, directors or other persons under any provision of the DGCL, the certificate of incorporation or these bylaws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders or the board of directors, as the case may be, need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the certificate of incorporation or these bylaws.

ARTICLE VIII — INDEMNIFICATION

8.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS IN THIRD PARTY PROCEEDINGS

Subject to the other provisions of this Article VIII, the corporation shall indemnify, to the fullest extent permitted by the DGCL, as now or hereinafter in effect, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a “ Proceeding ”) (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director of the corporation or an officer of the corporation, or while a director of the corporation or officer of the corporation is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such Proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. The termination of any Proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person’s conduct was unlawful.

 

-20-


8.2 INDEMNIFICATION OF DIRECTORS AND OFFICERS IN ACTIONS BY OR IN THE RIGHT OF THE CORPORATION

Subject to the other provisions of this Article VIII, the corporation shall indemnify, to the fullest extent permitted by the DGCL, as now or hereinafter in effect, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the corporation, or while a director or officer of the corporation is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

8.3 SUCCESSFUL DEFENSE

To the extent that a present or former director or officer of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described in Section 8.1 or Section 8.2, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith.

8.4 INDEMNIFICATION OF OTHERS

Subject to the other provisions of this Article VIII, the corporation shall have power to indemnify its employees and its agents to the extent not prohibited by the DGCL or other applicable law. The board of directors shall have the power to delegate the determination of whether employees or agents shall be indemnified to such person or persons as the board of determines.

8.5 ADVANCED PAYMENT OF EXPENSES

Expenses (including attorneys’ fees) incurred by an officer or director of the corporation in defending any Proceeding shall be paid by the corporation in advance of the final disposition of such Proceeding upon receipt of a written request therefor (together with documentation reasonably evidencing such expenses) and an undertaking by or on behalf of the person to repay such amounts if it shall ultimately be determined that the person is not entitled to be indemnified under this Article VIII or the DGCL. Such expenses (including attorneys’ fees) incurred by former directors and officers or other employees and agents may be so paid upon such terms and conditions, if any, as the corporation deems reasonably appropriate and shall be subject to the corporation’s expense guidelines. The right to advancement of expenses shall not apply to any claim for which indemnity is excluded pursuant to these bylaws, but shall apply to any Proceeding referenced in Section 8.6(ii) or 8.6(iii) prior to a determination that the person is not entitled to be indemnified by the corporation.

 

-21-


8.6 LIMITATION ON INDEMNIFICATION

Subject to the requirements in Section 8.3 and the DGCL, the corporation shall not be obligated to indemnify any person pursuant to this Article VIII in connection with any Proceeding (or any part of any Proceeding):

(i) for which payment has actually been made to or on behalf of such person under any statute, insurance policy, indemnity provision, vote or otherwise, except with respect to any excess beyond the amount paid;

(ii) for an accounting or disgorgement of profits pursuant to Section 16(b) of the 1934 Act, or similar provisions of federal, state or local statutory law or common law, if such person is held liable therefor (including pursuant to any settlement arrangements);

(iii) for any reimbursement of the corporation by such person of any bonus or other incentive-based or equity-based compensation or of any profits realized by such person from the sale of securities of the corporation, as required in each case under the 1934 Act (including any such reimbursements that arise from an accounting restatement of the corporation pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the “ Sarbanes-Oxley Act ”), or the payment to the corporation of profits arising from the purchase and sale by such person of securities in violation of Section 306 of the Sarbanes-Oxley Act), if such person is held liable therefor (including pursuant to any settlement arrangements);

(iv) initiated by such person against the corporation or its directors, officers, employees, agents or other indemnitees, unless (a) the board of directors authorized the Proceeding (or the relevant part of the Proceeding) prior to its initiation, (b) the corporation provides the indemnification, in its sole discretion, pursuant to the powers vested in the corporation under applicable law, (c) otherwise required to be made under Section 8.7 or (d) otherwise required by applicable law; or

(v) if prohibited by applicable law; provided, however , that if any provision or provisions of this Article VIII shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (1) the validity, legality and enforceability of the remaining provisions of this Article VIII (including, without limitation, each portion of any paragraph or clause containing any such provision held to be invalid, illegal or unenforceable, that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (2) to the fullest extent possible, the provisions of this Article VIII (including, without limitation, each such portion of any paragraph or clause containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforcebable.

8.7 DETERMINATION; CLAIM

If a claim for indemnification or advancement of expenses under this Article VIII is not paid in full within 90 days after receipt by the corporation of the written request therefor, the claimant shall be entitled to an adjudication by a court of competent jurisdiction of his or her entitlement to such indemnification or advancement of expenses. The corporation shall indemnify such person against any and all expenses that are incurred by such person in connection with any action for indemnification or advancement of expenses from the corporation under this Article VIII, to the extent such person is successful in such action, and to the extent not prohibited by law. In any such suit, the corporation shall, to the fullest extent not prohibited by law, have the burden of proving that the claimant is not entitled to the requested indemnification or advancement of expenses.

 

-22-


8.8 NON-EXCLUSIVITY OF RIGHTS

The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the certificate of incorporation or any statute, bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advancement of expenses, to the fullest extent not prohibited by the DGCL or other applicable law.

8.9 INSURANCE

The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the corporation would have the power to indemnify such person against such liability under the provisions of the DGCL.

8.10 SURVIVAL

The rights to indemnification and advancement of expenses conferred by this Article VIII shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

8.11 EFFECT OF REPEAL OR MODIFICATION

Any amendment, alteration or repeal of this Article VIII shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to such amendment, alteration or repeal.

8.12 CERTAIN DEFINITIONS

For purposes of this Article VIII, references to the “ corporation ” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article VIII, references to “ other enterprises ” shall include employee benefit plans; references to “ fines ” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “ serving at the request of the corporation ” shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “ not opposed to the best interests of the corporation ” as referred to in this Article VIII.

 

-23-


ARTICLE IX — GENERAL MATTERS

9.1 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS

Except as otherwise provided by law, the certificate of incorporation or these bylaws, the board of directors may authorize any officer or officers, or agent or agents, to enter into any contract or execute any document or instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

9.2 FISCAL YEAR

The fiscal year of the corporation shall be fixed by resolution of the board of directors and may be changed by the board of directors.

9.3 SEAL

The corporation may adopt a corporate seal, which shall be adopted and which may be altered by the board of directors. The corporation may use the corporate seal by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.

9.4 CONSTRUCTION; DEFINITIONS

Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the DGCL shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term “ person ” includes both an entity and a natural person.

ARTICLE X — AMENDMENTS

These bylaws may be adopted, amended or repealed by the stockholders entitled to vote; provided, however , that the affirmative vote of the holders of at least 66 2/3% of the total voting power of outstanding voting securities, voting together as a single class, shall be required for the stockholders of the corporation to alter, amend or repeal, or adopt any bylaw inconsistent with, the following provisions of these bylaws: Article II, Sections 3.1, 3.2, 3.4 and 3.11 of Article III, Article VIII and this Article X (including, without limitation, any such Article or Section as renumbered as a result of any amendment, alteration, change, repeal, or adoption of any other Bylaw). The board of directors shall also have the power to adopt, amend or repeal bylaws; provided, however , that a bylaw amendment adopted by stockholders which specifies the votes that shall be necessary for the election of directors shall not be further amended or repealed by the board of directors.

 

-24-


TESLA MOTORS, INC.

CERTIFICATE OF AMENDMENT OF BYLAWS

 

 

The undersigned hereby certifies that he or she is the duly elected, qualified, and acting Secretary or Assistant Secretary of TESLA MOTORS, INC., a Delaware corporation and that the foregoing bylaws, comprising      pages, were amended and restated on December 16, 2009 by the corporation’s board of directors.

IN WITNESS WHEREOF, the undersigned has hereunto set his or her hand this      day of                      , 20    .

 

 

Secretary

Exhibit 4.2

TESLA MOTORS, INC.

FIFTH AMENDED AND RESTATED

INVESTORS’ RIGHTS AGREEMENT


TESLA MOTORS, INC.

FIFTH AMENDED AND RESTATED

INVESTORS’ RIGHTS AGREEMENT

This Fifth Amended and Restated Investors’ Rights Agreement (the “ Agreement ”) is made as of the 31st day of August, 2009, by and among Tesla Motors, Inc., a Delaware corporation (the “ Company ”), the Series A stockholders listed on Exhibit A hereto (the “ Series A Stockholders ”), the Series B stockholders listed on Exhibit B hereto (the “ Series B Stockholders ”), the Series C stockholders listed on Exhibit C hereto (the “ Series C Stockholders ”), the Series D stockholders listed on Exhibit D hereto (the “ Series D Stockholders ”), the Series E stockholders listed on Exhibit E hereto (the “ Series E Stockholders ”) and the Series F stockholders listed on Exhibit F hereto (the “ Series F Stockholders ”).

RECITALS

A. The Company, the Series A Stockholders, the Series B Stockholders, the Series C Stockholders, the Series D Stockholders, and the Series E Stockholders previously entered into a Fourth Amended and Restated Investors’ Rights Agreement dated May 11, 2009 (the “ Prior Agreement ”), and such parties now wish to amend and restate the Prior Agreement in its entirety, and replace it with this Agreement which shall heretofore constitute the entire agreement of the parties with respect to the specific subject matter hereof, and supersede in its entirety the Prior Agreement, and all other agreements or understandings between or among the parties hereto with respect to such specific subject matter.

B. The Company and the Series F Stockholders have entered into a Series F Preferred Stock Purchase Agreement (the “ Purchase Agreement ”) of even date herewith pursuant to which the Company desires to sell to such Series F Stockholders and such Series F Stockholders desire to purchase from the Company shares of the Company’s Series F Preferred Stock. A condition to such Series F Stockholder’s obligations under the Purchase Agreement is that the Company, the Series A Stockholders, the Series B Stockholders, the Series C Stockholders, the Series D Stockholders and the Series E Stockholders amend and restate the Prior Agreement and enter into this Agreement, which shall supersede the Prior Agreement in all respects in order to provide the Series A Stockholders, the Series B Stockholders, the Series C Stockholders, the Series D Stockholders, the Series E Stockholders, and the Series F Stockholders with (i) certain rights to register shares of the Company’s Common Stock issuable upon conversion of the Preferred Stock held by the Series A Stockholders, the Series B Stockholders, the Series C Stockholders, the Series D Stockholders, the Series E Stockholders, and the Series F Stockholders, (ii) certain rights to receive or inspect information pertaining to the Company, and (iii) a right of first offer with respect to certain issuances by the Company of its securities, and to provide the Series F Stockholders certain other consent and information rights. The Company, the Series A Stockholders, the Series B Stockholders, the Series C


Stockholders, the Series D Stockholders and the Series E Stockholders each desire to induce the Series F Stockholders to purchase shares of Series F Preferred Stock pursuant to the Purchase Agreement by agreeing to the terms and conditions set forth herein. The Company and the Series F Stockholders are also entering into other Transaction Agreements (as defined in the Purchase Agreement) pursuant to which such parties shall be entitled to certain rights and subject to certain obligations as set forth in such agreements.

C. Certain Series E Stockholders who purchased promissory notes of the Company pursuant to that certain Secured Note and Warrant Purchase Agreement, dated as of February 14, 2008, or that certain Secured Note Purchase Agreement, dated as of December 24, 2008 (each, a “ Converting Noteholder ”), are not already parties to the Prior Agreement. The Company shall use its commercially reasonable efforts to make such Converting Noteholders become parties to this Agreement by signing and delivering to the Company a counterpart signature page to this Agreement.

AGREEMENT

The parties hereby agree as follows:

1. Registration Rights . The Company, the Series A Stockholders, the Series B Stockholders, the Series C Stockholders, the Series D Stockholders, the Series E Stockholders, and the Series F Stockholders covenant and agree as follows:

1.1 Definitions . For purposes of this Agreement:

(a) The terms “ register ,” “ registered ,” and “ registration ” refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act of 1933, as amended (the “ Securities Act ”), and the declaration or ordering of effectiveness of such registration statement or document;

(b) The term “ Registrable Securities ” means (i) the shares of Common Stock issuable or issued upon conversion of the Series A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock, the Series E Preferred Stock, and the Series F Preferred Stock, (ii) shares of Common Stock issuable upon conversion of the Series E Preferred Stock issued or issuable upon the conversion of warrants issued pursuant to that Secured Note and Warrant Purchase Agreement dated February 14, 2008, as amended, and (iii) any other shares of Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, the shares listed in (i), (ii) or (iii); provided , however , that the foregoing definition shall exclude in all cases any Registrable Securities sold by a person in a transaction in which his or her rights under this Agreement are not assigned. Notwithstanding the foregoing, Common Stock or other securities shall only be treated as Registrable Securities if and so long as they have not been sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction;

 

-2-


(c) The number of shares of “ Registrable Securities then outstanding ” shall be determined by the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which are, Registrable Securities;

(d) The term “ Holder ” means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.12 of this Agreement;

(e) The term “ Form S-3 ” means such form under the Securities Act as in effect on the date hereof or any successor form under the Securities Act that permits incorporation by reference of the Company’s subsequent public filings under the Securities Exchange Act of 1934;

(f) The term “ SEC ” means the Securities and Exchange Commission; and

(g) The term “ Qualified IPO ” means completion of a firm commitment underwritten public offering by the Company of shares of its Common Stock pursuant to a registration statement on Form S-1 under the Securities Act, in which the pre-public offering market capitalization of the Company is at least $250,000,000 (as determined by multiplying all outstanding common stock of the Company immediately prior to the public offering (assuming full conversion of any securities convertible into common stock of the Company) by the price per share offered to the public as of the closing of the public offering) and which results in aggregate cash proceeds to the Company of at least $50,000,000 (net of underwriting discounts and commissions);

(h) The term “ Founder ” means holders of the Company’s Registrable Securities listed on Exhibit G .

(i) For purposes of this Agreement, “ Disability ” shall mean that Elon Musk, at the time notice is given, is unable to substantially perform his duties as the Company’s Chief Executive Officer or Chairman of the Board, as applicable, for a period of not less than four (4) consecutive months as the result of his incapacity due to physical or mental illness.

1.2 Request for Registration .

(a) If the Company shall receive at any time after the earlier of (i) May 11, 2012, or (ii) six (6) months after the effective date of the first registration statement for a public offering of securities of the Company (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or an SEC Rule 145 transaction), a written request from the Holders of a majority of the Registrable Securities then outstanding that the Company file a registration statement under the Securities Act covering the registration of Registrable Securities with an anticipated aggregate offering price of at least $10,000,000, then the Company shall, within ten (10) business days of the receipt thereof, give written notice of such request to all Holders and shall, subject to

 

-3-


the limitations of subsection 1.2(b), use its best efforts to effect as soon as practicable, and in any event within sixty (60) days of the receipt of such request, the registration under the Securities Act of all Registrable Securities which the Holders request to be registered within twenty (20) business days of the mailing of such notice by the Company in accordance with Section 5.3; provided , however , Blackstar Investco LLC, a Delaware limited liability company (“ Newco ”) may on its own request that the Company file a registration statement pursuant to this Section 1.2(a).

(b) If the Holders initiating the registration request hereunder (“ Initiating Holders ”) intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 1.2 and the Company shall include such information in the written notice referred to in subsection 1.2(a). The underwriter will be selected by a majority in interest of the Initiating Holders and shall be reasonably acceptable to the Company. In such event, the right of any Holder to include his Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in subsection 1.5(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting; provided , however , any representations and warranties to be made by such Holder in a proposed distribution are limited to (i) representations and warranties related to authority, ownership and the ability to convey title to such Holder’s Registrable Securities, including but not limited to representations and warranties that the Holder holds all right, title and interest in and to the Registrable Securities such Holder purports to hold, free and clear of all liens and encumbrances other than liens and encumbrances arising under this Agreement or any other Transaction Agreement (as defined in the Purchase Agreement) or state or federal securities laws, (ii) the obligations of the Holder in connection with the transaction have been duly authorized, if applicable, (iii) the documents to be entered into by the Holder have been duly executed by the Holder and delivered and are enforceable against the Holder in accordance with their respective terms subject to the limitations in clauses (i), (ii) and (iii) in Section 2.4 of the Purchase Agreement, and (iv) except as disclosed, neither the execution and delivery by such Holder of documents to be entered into in connection with the transaction, nor the performance of such Holder’s obligations thereunder, will cause a breach or violation of the terms of any agreement, law or judgment, order or decree of any court or governmental agency to which such Holder is bound by or subject to. Notwithstanding any other provision of this Section 1.2, if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders thereof, including the Initiating Holders, as follows: (x) while any “market stand-off” provisions related to the Company’s initial public offering remain effect, in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each Holder and (y) at all other times, first to cover all Registrable Securities which Newco and Al Wahda Capital Investment LLC (“ Al Wahda ”)

 

-4-


requested to be registered (up to the limitation advised by the underwriter) in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by Newco and Al Wahda and second (to the extent that the limitation advised by the underwriter has not been reached) in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each Holder (other than Newco and Al Wahda); provided, however, that in the event where the registration is initiated by Newco pursuant to Section 1.2(e), then the number of shares of Registrable Securities that may be included in the underwriting shall be allocated first to cover all Registrable Securities which Newco requested to be registered (up to the limitation advised by the underwriter) and second (to the extent that the limitation advised by the underwriter has not been reached) in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each Holder (other than Newco); provided further , however , in each case that the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting.

(c) Notwithstanding the foregoing, if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 1.2, a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer such filing for a period of not more than sixty (60) business days after receipt of the request of the Initiating Holders; provided , however , that the Company may not utilize this right more than once in any twenty-four (24) month period and provided further that the Company shall not register any securities for the account of itself or any other stockholder during such sixty (60) business day period (other than a registration relating solely to the sale of securities of participants in a Company stock plan, a registration relating to a corporate reorganization or transaction under Rule 145 of the Securities Act, a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities, or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered).

(d) In addition, the Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 1.2:

(i) After the Company has effected two (2) registrations pursuant to this Section 1.2 and such registration has been declared or ordered effective;

(ii) During the period starting with the date sixty (60) days prior to the Company’s good faith estimate of the date of filing of, and ending on a date one hundred eighty (180) days after the effective date of, a registration subject to Section 1.3 hereof; provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; or

 

-5-


(iii) If the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 1.4 below.

(e) Notwithstanding the foregoing, Newco shall be entitled to separately initiate two (2) registrations (any such registration shall count only to the extent it has been declared or ordered effective) pursuant to the proviso in the last sentence of Section 1.2(a) (subject to the other conditions of Section 1.2, other than Section 1.2(d)(i)).

1.3 Company Registration . If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its stock under the Securities Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan or a transaction covered by Rule 145 under the Securities Act, a registration in which the only stock being registered is Common Stock issuable upon conversion of debt securities which are also being registered, or any registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within twenty (20) business days after mailing of such notice by the Company in accordance with Section 5.3, the Company shall, subject to the provisions of Section 1.8, cause to be registered under the Securities Act all of the Registrable Securities that each such Holder has requested to be registered.

1.4 Form S-3 Registration . In case the Company shall receive from any Holder or Holders of not less than twenty percent (20%) of the Registrable Securities then outstanding a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will:

(a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and

(b) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder’s or the Investor’s Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) business days after receipt of such written notice from the Company; provided , however , that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 1.4: (i) if Form S-3 is not available for such offering by such Holders; (ii) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters’ discounts or commissions) of less than $1,000,000; (iii) if the Company shall furnish to the Holders a certificate signed by the President of the Company stating that in the good faith judgment of the

 

-6-


Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than sixty (60) days after receipt of the request of the Holder or Holders under this Section 1.4; provided , however , that the Company shall not utilize this right more than once in any twenty-four (24) month period and provided further that the Company shall not register any securities for the account of itself or any other stockholder during such sixty (60) day period (other than a registration relating solely to the sale of securities of participants in a Company stock plan, a registration relating to a corporate reorganization or transaction under Rule 145 of the Securities Act, a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities, or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered); or (iv) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance.

(c) Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. Registrations effected pursuant to this Section 1.4 shall not be counted as demands for registration or registrations effected pursuant to Sections 1.2 or 1.3, respectively.

(d) Notwithstanding the foregoing, Newco shall be entitled to separately initiate request that the Company effect a registration on Form S-3 pursuant to this Section 1.4 (subject to the other conditions of such section).

1.5 Obligations of the Company . Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:

(a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to three hundred sixty five (365) days.

(b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement.

(c) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them.

 

-7-


(d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions.

(e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement; provided , however , any representations and warranties to be made by such Holder in a underwritten public offering are limited to those set forth in Section 1.2(b).

(f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; provided , however , the Holder may reasonably request the Company to prepare a supplement or post effective amendment to such registration statement and prospectus in order to correct such misstatement or omission.

(g) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed, including preparing necessary listing applications and providing any information reasonably requested by such securities exchange in connection therewith.

(h) Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration.

(i) Use its best efforts to furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 1, on the date that the registration statement with respect to such securities becomes effective and on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 1, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion (dated the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 1, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective), of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter, dated as of each of such applicable dates, from the

 

-8-


independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities.

(j) Permit any Holder (along with such Holder’s underwriters, attorneys and accountants) to participate in the preparation of such registration statement and to require the insertion therein of material, furnished to the Company in writing, which in the reasonable judgment of such Holder and its counsel and counsel for the Company should be included.

(k) Cause senior representatives of the Company to participate in any “road show” or “road shows” reasonably requested by any underwriter of an underwritten or “best efforts” offering of any Registrable Securities.

(l) Promptly make available for inspection by the selling Holders, any underwriter(s) participating in any disposition pursuant to such registration statement, and any attorney or accountant or other agent retained by any such underwriter or selected by the selling Holders, all financial and other records, pertinent corporate documents, and properties of the Company, and cause the Company’s officers, directors, employees, and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant, or agent, in each case, as necessary or advisable to verify the accuracy of the information in such registration statement and to conduct appropriate due diligence in connection therewith.

1.6 Furnish Information . It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder’s Registrable Securities. The Company shall have no obligation with respect to any registration requested pursuant to Section 1.2 or Section 1.4 of this Agreement if, as a result of the application of the preceding sentence, the number of shares or the anticipated aggregate offering price of the Registrable Securities to be included in the registration does not equal or exceed the number of shares or the anticipated aggregate offering price required to originally trigger the Company’s obligation to initiate such registration as specified in subsection 1.2(a) or subsection 1.4(b)(2), whichever is applicable.

1.7 Expenses of Registration .

(a) Demand Registration . All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Section 1.2, including (without limitation) all registration, filing and qualification fees, printers’ and accounting fees, fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one counsel for the selling Holders selected by them (it being agreed that if Newco initiates the registration demand then Newco shall select such

 

-9-


counsel) with the approval of the Company, which approval shall not be unreasonably withheld, shall be borne by the Company; provided , however , that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses; provided , however , that if Newco does not request withdrawal of the registration request, then Newco shall not bear any portion of such expenses and shall not forfeit its right to one demand registration pursuant to Section 1.2(e), and the other Holders shall bear these expenses), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 1.2; provided further, however, that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness following disclosure by the Company of such material adverse change, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to Section 1.2.

(b) Company Registration . All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications of Registrable Securities pursuant to Section 1.3 for each Holder (which right may be assigned as provided in Section 1.12), including (without limitation) all registration, filing, and qualification fees, printers’ and accounting fees, fees and disbursements of counsel for the Company and the reasonable fees and disbursements of one counsel for the selling Holder or Holders selected by them with the approval of the Company, which approval shall not be unreasonably withheld, shall be borne by the Company.

(c) Registration on Form S-3 . All expenses other than underwriting discounts and commissions incurred in connection with a registration requested pursuant to Section 1.4, including (without limitation) all registration, filing, qualification, printers’ and accounting fees and the reasonable fees and disbursements of one counsel for the selling Holder or Holders selected by them (it being agreed that if Newco initiates the registration demand then Newco shall select such counsel) with the approval of the Company, which approval shall not be unreasonably withheld, and counsel for the Company, shall be borne by the Company.

1.8 Underwriting Requirements . In connection with any offering involving an underwriting of shares of the Company’s capital stock, the Company shall not be required under Section 1.3 to include any of the Holders’ securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters), and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned in the same manner as provided in Section 1.2(b) or in such other

 

-10-


proportions as shall mutually be agreed to by all such selling stockholders) but in no event shall (i) the amount of securities of the selling Holders included in the offering be reduced below thirty percent (30%) of the total amount of securities included in such offering, unless such offering is the initial public offering of the Company’s securities, in which case, the selling stockholders may be excluded if the underwriters make the determination described above and no other stockholder’s securities are included or (ii) any securities held by a Founder be included if any securities held by any selling Holder are excluded. For purposes of the preceding parenthetical concerning apportionment, for any selling stockholder which is a holder of Registrable Securities and which is a partnership or corporation, the partners, retired partners and stockholders of such holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single “ selling stockholder ,” and any pro-rata reduction with respect to such “selling stockholder” shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such “selling stockholder,” as defined in this sentence.

1.9 Delay of Registration . No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1.

1.10 Indemnification . In the event any Registrable Securities are included in a registration statement under this Section 1:

(a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), and each officer, director, partner or member of any of the foregoing against any expenses, judgments, losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such expenses, judgments, losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a “ Violation ”): (i) any untrue statement or alleged untrue statement of a material fact contained or incorporated by reference in any prospectus, offering circular or other document (including any related registration statement, notification or the like) incident to any such registration, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law; and the Company will pay to each such Holder, underwriter or controlling person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such expenses, judgments, loss, claim, damage, liability, or action; provided , however , that, so long as the Company is defending in good faith against any such loss, claim, damage, liability or action, the indemnity agreement contained in this subsection 1.10(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be

 

-11-


unreasonably withheld), nor shall the Company be liable to any Holder, underwriter or controlling person for any such expense, judgment, loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, underwriter or controlling person.

(b) To the extent permitted by law, each selling Holder will, severally but not jointly, indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any expenses, judgments, losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Securities Act, the Exchange Act or other federal or state law, insofar as such expenses, judgments, losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 1.10(b), in connection with investigating or defending any such expense, judgment, loss, claim, damage, liability, or action; provided , however , that the indemnity agreement contained in this subsection 1.10(b) shall not apply to amounts paid in settlement of any such expense, judgment, loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided , that in no event shall any indemnity under this subsection 1.10(b) exceed the net proceeds from the offering received by such Holder, except in the case of fraud by such Holder.

(c) Promptly after receipt by an indemnified party under this Section 1.10 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.10, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided , however , that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the reasonable fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall, to the extent of any such prejudice, relieve such indemnifying party of any liability to the indemnified party under this Section 1.10, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.10.

 

-12-


(d) If the indemnification provided for in this Section 1.10 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations; provided , that in no event shall any contribution by a Holder, when combined with any amounts paid by such Holder pursuant to subsection 1.10 (b) exceed the net proceeds from the offering received by such Holder, except in the case of fraud by such Holder. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission.

(e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control with respect to the Company and such underwriters.

(f) The obligations of the Company and Holders under this Section 1.10 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise.

1.11 Reports Under Securities Exchange Act of 1934 . With a view to making available to the Holders the benefits of Rule 144 promulgated under the Securities Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to:

(a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after ninety (90) days after the effective date of the first registration statement filed by the Company for the offering of its securities to the general public so long as the Company remains subject to the periodic reporting requirements under Sections 13 or 15(d) of the Exchange Act;

(b) take such action, including the voluntary registration of its Common Stock under Section 12 of the Exchange Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the first registration statement filed by the Company for the offering of its securities to the general public is declared effective;

 

-13-


(c) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and

(d) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company), the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form.

1.12 Assignment of Registration Rights . The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be assigned, in whole or in part (but only with all related obligations), by a Holder to (i) a transferee or assignee of at least 250,000 shares of such securities (subject to adjustment for stock splits, stock dividends, reclassification, combinations, dilutive issuances, deemed issuances or the like), (ii) a transferee or assignee of all of such Registrable Securities held by such transferring Holder, if less than 250,000 shares (subject to adjustment for stock splits, stock dividends, reclassification, combinations, dilutive issuances, deemed issuances or the like), (iii) a partner, member, Affiliate (as defined in the Purchase Agreement) or Affiliate (as defined in the Purchase Agreement) of a member of the transferring Holder, (iv) a transferee or assignee who is a Holder’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law (such a relation, a Holder’s “ Immediate Family Member ”, which term shall include adoptive relationships), or (v) a transferee or assignee that is a trust for the benefit of an individual Holder or such Holder’s Immediate Family Member, provided the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; provided , further , that such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Securities Act; and provided , further , that the rights of Newco pursuant to Sections 1.2(e) and 1.4(d) may not be assigned, either in whole or in part, except to Daimler AG (“ Daimler ”), an Affiliate (as defined in the Purchase Agreement) of Daimler, a member of Newco or an Affiliate of a member of Newco, or upon the written consent of the Company. For the purposes of determining the number of shares of Registrable Securities held by a transferee or assignee, the holdings of transferees and assignees of (x) a partnership who are partners or retired partners of such partnership or (y) a limited liability company who are members or retired members of such limited liability company (including Immediate Family Members of such partners or members who acquire Registrable Securities by gift, will or intestate succession) or Affiliates (as defined in the Purchase Agreement) of such members or retired members shall be aggregated together and with the partnership or limited liability company; provided that all assignees and transferees who would not qualify individually for assignment of registration rights shall have a single attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under Section 1.

 

-14-


1.13 Limitations on Subsequent Registration Rights . From and after the date of this Agreement, except with respect to the registration rights to be granted to the U.S. Department of Energy (the “ DOE ”) in connection with the Common Stock issuable upon conversion of the Series E Preferred Stock issuable upon exercise of the warrants to be issued to the DOE pursuant to the Conditional Commitment Letter by and between the Company and the DOE dated June 23, 2009 (the “ DOE Registration Rights ”), the Company shall not, without the prior written consent of the Holders of a majority of the outstanding Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder (a) to include such securities in any registration filed under Section 1.2 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of his securities will not reduce the amount of the Registrable Securities of the Holders which is included or (b) to make a demand registration which could result in such registration statement being declared effective prior to the earlier of either of the dates set forth in subsection 1.2(a) or within one hundred twenty (120) days of the effective date of any registration effected pursuant to Section 1.2; provided, however, that notwithstanding the foregoing, the Holders hereby agree to take such actions as are necessary to grant the DOE Registration Rights on the terms and conditions set forth in the Conditional Commitment Letter.

1.14 “Market Stand-Off” Agreement .

(a) Market-Standoff Period; Agreement . In connection with the initial public offering of the Company’s securities and upon request of the Company or the underwriters managing such offering of the Company’s securities, each Holder agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company, however or whenever acquired (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time not to exceed one hundred eighty (180) days (or such other period as may be requested by the Company or an underwriter to accommodate regulatory restrictions on (i) the publication or other distribution of research reports and (ii) analyst recommendations and opinions, including, but not limited to, the restrictions contained in NASD Rule 2711(f)(4) or NYSE Rule 472(f)(4), or any successor provisions or amendments thereto) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the Company’s initial public offering. The foregoing provisions of this Section 1.14(a) shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement, and shall only be applicable to the Holders if all officers, directors and greater than one percent (1%) stockholders of the Company enter into similar agreements. The underwriters in connection with the public offering of the Company’s securities are intended third-party beneficiaries of this Section 1.14(a) and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto.

(b) Stop-Transfer Instructions . In order to enforce the foregoing covenants, the Company may impose stop-transfer instructions with respect to the securities of each Holder (and the securities of every other person subject to the restrictions in Section 1.14(a)).

 

-15-


(c) Transferees Bound . Each Holder agrees that he, she or it will not transfer securities of the Company unless each transferee agrees in writing to be bound by all of the provisions of this Section 1.14.

1.15 Termination of Registration Rights . No Holder shall be entitled to exercise any right provided for in this Section 1 (other than Section 1.10) after the date that is five (5) years following such time as Rule 144 (but not Rule 144A) or another similar exemption under the Securities Act is first available for the sale of all of such Holder’s shares during a three (3) month period without registration, except if such Holder holds at least two percent (2%) of the outstanding voting stock of the Company.

2. Covenants of the Company .

2.1 Delivery of Financial Statements . The Company shall deliver to each Major Investor, as defined in Section 2.4 below:

(a) as soon as practicable, but in any event within one hundred and twenty (120) days after the end of each fiscal year of the Company, a consolidated income statement for such fiscal year, a consolidated balance sheet of the Company and consolidated statement of stockholder’s equity as of the end of such year, and a consolidated statement of cash flows for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with United States generally accepted accounting principles (“ GAAP ”), and audited and certified by an independent public accounting firm of nationally recognized standing selected by the Company;

(b) as soon as practicable, but in any event within forty five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, a consolidated unaudited profit or loss statement, a consolidated statement of cash flows for such fiscal quarter and a consolidated unaudited balance sheet as of the end of such fiscal quarter; and

(c) as soon as practicable, but in any event within sixty (60) days after the end of each fiscal year, a budget and business plan for the next fiscal year, prepared on a monthly basis.

2.2 Inspection . The Company shall permit each Major Investor, as defined in Section 2.4 below, at such Major Investor’s expense, to visit and inspect the Company’s properties, to examine its books of account and records and to discuss the Company’s affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Major Investor; provided , however , that, other than to Newco, the Company shall not be obligated pursuant to this Section 2.2 to provide access to any Major Investor to any information which it reasonably considers to be a trade secret or similar confidential information.

2.3 Confidentiality .

(a) Each Holder other than Newco acknowledges that the information received by it pursuant to this Agreement may be confidential and for its use only, and it will not use such confidential information in violation of the Exchange Act or disclose or disseminate

 

-16-


such information to any other person (other than its or its Affiliates’ (as defined in the Purchase Agreement) employees, consultants or agents having a need to know the contents of such information and who are subject to confidentiality obligations similar to this provision, and its auditors, attorneys and other professional advisors, in each case if the advisor is subject to a confidentiality obligation similar to this provision or a legally enforceable code of professional conduct requiring confidential treatment of the Holder’s information), except (x) in connection with the exercise of rights under this Agreement, or (y) if disclosure is required by law, regulations or court order, provided that the Holder provides Company prompt notice of such required disclosure unless otherwise required by law or legal process. These limitations will not apply to such confidential information if the information (i) was in the Holder’s possession prior to its being furnished to Holder under this Agreement; (ii) is now, or hereafter becomes, through no act or failure to act on the part of the Holder, known to the public; (iii) is rightfully obtained by the Holder from a third party, without the Holder’s knowledge of a breach of any obligation to Company; or (iv) is independently developed by Holder without use of or reference to the confidential information. Notwithstanding any other provision in this Agreement to the contrary, the Company agrees that each Holder which is an institutional venture capital investor and its Affiliates may use, but not disclose, such confidential information retained in the unaided memories of persons who have had proper access to the confidential information in the course of its relationships with current or future commercial partners, and in evaluating, making or managing existing or future investments or investment relationships.

(b) The Company and Newco agree that the subject matter of the Confidentiality Agreement dated February 6, 2009 (the “ Confidentiality Agreement ”) shall also be deemed to include the transactions contemplated by the Series E Preferred Stock Purchase Agreement dated May 11, 2009 (the “Series E Purchase Agreement”) and the Stockholder Agreements (as defined in the Series E Purchase Agreement), any information received by Newco pursuant to such agreements (the “ Newco Confidential Information ”) and any information received by the Company pursuant to such agreements (the “ Company Confidential Information ”), in each case, without regard to the expiration date referenced in Section 10 of the Confidentiality Agreement; provided , however , that such Newco Confidential Information and Company Confidential Information may be used by Newco or the Company, respectively, for those purposes that directly are related to and necessary to its status as a party under this Agreement and the Stockholder Agreements.

2.4 Right of First Offer . Subject to the terms and conditions specified in this Section 2.4, the Company hereby grants to each Major Investor (as hereinafter defined) a right of first offer with respect to future sales by the Company of its Shares (as hereinafter defined). For purposes of this Section 2.4, a “ Major Investor ” shall mean any person who holds at least 1,000,000 shares of the Series A Preferred Stock, 1,000,000 shares of the Series B Preferred Stock, 1,000,000 shares of the Series C Preferred Stock, 1,000,000 shares of the Series D Preferred Stock, 1,000,000 shares of Series E Preferred Stock, 1,000,000 shares of Series F Preferred Stock (or the Common Stock issued upon conversion thereof) issued pursuant to the Purchase Agreement, Series A Stock Purchase Agreement, the Series B Stock Purchase Agreement, the Series C Stock Purchase Agreement, the Series D Stock Purchase Agreement, or the Series E Purchase Agreement (subject, in each case, to adjustment for stock splits, stock dividends, reclassifications, combinations, dilutive issuances, deemed issuances or the like). For

 

-17-


purposes of this Section 2.4, a Major Investor includes any partners, members and Affiliates (as defined in the Purchase Agreement) of a Major Investor and Affiliates of a member of a Major Investor. A Major Investor who chooses to exercise the right of first offer may designate as purchasers under such right itself, or its partners, members and Affiliates (as defined in the Purchase Agreement) and its members’ Affiliates in such proportions as it deems appropriate.

Each time the Company proposes to offer any shares of, or securities convertible into or exercisable for any shares of, any class of its capital stock (“ Shares ”), the Company shall first make an offering of such Shares to each Major Investor in accordance with the following provisions:

(a) The Company shall deliver a notice by certified mail (“ Notice ”) to the Major Investors stating (i) its bona fide intention to offer such Shares, (ii) the number of such Shares to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such Shares.

(b) Within thirty (30) business days after delivery of the Notice, the Major Investor may elect to purchase or obtain, at the price and on the terms specified in the Notice, up to that portion of such Shares which equals the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion and exercise of all convertible or exercisable securities then held, by such Major Investor bears to the total number of shares of Common Stock then outstanding (assuming full conversion and exercise of all convertible or exercisable securities). Such purchase shall be completed at the same closing as that of any third party purchasers or at an additional closing thereunder. The Company shall promptly, in writing, inform each Major Investor that purchases all the shares available to it (each, a “ Fully-Exercising Investor ”) of any other Major Investor’s failure to do likewise. During the ten (10) business day period commencing after receipt of such information, each Fully-Exercising Investor shall be entitled to obtain that portion of the Shares for which Major Investors were entitled to subscribe but which were not subscribed for by the Major Investors that is equal to the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion and exercise of all convertible or exercisable securities then held, by such Fully-Exercising Investor bears to the total number of shares of Common Stock then outstanding (assuming full conversion and exercise of all convertible or exercisable securities).

(c) The Company may, during the forty-five (45) business day period following the expiration of the period provided in subsection 2.4(b) hereof, offer the remaining unsubscribed portion of the Shares to any person or persons at a price not less than, and upon terms no more favorable to the offeree than those specified in the Notice. If the Company does not enter into an agreement for the sale of the Shares within such period, or if such agreement is not consummated within sixty (60) business days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Shares shall not be offered unless first reoffered to the Major Investors in accordance herewith.

(d) The right of first offer in this paragraph 2.4 shall not be applicable (i) to the issuance or sale of Common Stock (or options therefor) to employees, consultants and directors, pursuant to plans or agreements approved by the Board of Directors for the primary

 

-18-


purpose of soliciting or retaining their services, (ii) to or after consummation of a Qualified IPO, (iii) to the issuance of securities pursuant to the conversion or exercise of convertible or exercisable securities, (iv) to stock splits, stock dividends or like transactions, (v) to the issuance of securities that, with unanimous approval of the Board of Directors of the Company, are not offered to any existing stockholder of the Company or (vi) to the issuance or sale of the Series F Preferred Stock under the Purchase Agreement. In addition to the foregoing, the right of first offer in this paragraph 2.4 shall not be applicable with respect to any Major Investor and any subsequent securities issuance, if (i) at the time of such subsequent securities issuance, the Major Investor is not an “accredited investor,” as that term is then defined in Rule 501(a) under the Securities Act, and (ii) such subsequent securities issuance is otherwise being offered only to accredited investors.

2.5 Confidential Information and Invention Assignment Agreements . The Company shall require all employees and consultants with access to confidential information to execute and deliver a Confidential Information and Invention Assignment Agreement in substantially the form approved by the Company’s Board of Directors.

2.6 Employee Agreements . Unless otherwise approved by the Board of Directors of the Company, all future employees of the Company who shall purchase, or receive options to purchase, shares of the Company’s Common Stock following the date hereof shall be required to execute stock purchase or option agreements providing for (i) for option grants issued to new employees in connection with joining the Company, vesting of shares over a four-year period with the first twenty-five percent (25%) of such shares vesting following twelve (12) months of continued employment or services, and the remaining shares vesting in equal monthly installments over the following thirty-six (36) months thereafter and (ii) a one hundred eighty (180) day lockup period in connection with the Company’s initial public offering. The Company shall retain a right of first refusal on transfers until the Company’s initial public offering and the right to repurchase unvested shares at cost.

2.7 Directors and Officers Insurance . Unless otherwise unanimously approved by the Company’s Board of Directors, the Company shall purchase and maintain Directors and Officers Insurance of not less than $15,000,000. Following the first firm commitment underwritten public offering by the Company of shares of its common stock pursuant to an effective registration statement under the Securities Act, the Board of Directors shall review the coverage amount of the Directors and Officers Insurance then in effect and make a good faith determination as to the appropriate amount of such insurance policy.

2.8 Termination of Covenants .

(a) The covenants set forth in Sections 2.1 through 2.8 shall terminate as to each Holder and be of no further force or effect upon the consummation of a Qualified IPO.

(b) The covenants set forth in Sections 2.1 and 2.2 shall terminate as to each Holder and be of no further force or effect when the Company first becomes subject to the periodic reporting requirements of Sections 13 or 15(d) of the Exchange Act, if this occurs earlier than a Qualified IPO.

 

-19-


3. Additional Covenants .

3.1 Matters Related to Elon Musk .

(a) Chief Executive Officer . In the event Elon Musk is no longer serving as the Company’s Chief Executive Officer at any time during the period from the date of this Agreement until the later of December 31, 2012 or the launch of the Company’s Model S sedan, then the Elon Musk Revocable Trust dated July 22, 2003 shall cause Elon Musk to promptly propose a successor Chief Executive Officer (or, in the case of impossibility of performance by Elon Musk, the Elon Musk Revocable Trust dated July 22, 2003 shall promptly make such a proposal) (and the consent of the Newco Director (as defined in the Voting Agreement (as defined in the Purchase Agreement)) to such appointment of a new Chief Executive Officer may not be unreasonably withheld from and after January 1, 2011).

(b) Termination Rights .

(i) In the event that at any time during the period from the date of this Agreement until December 31, 2010, Elon Musk is not serving as the Company’s Chief Executive Officer, other than due to death or Disability, Newco (or Daimler or a Controlled Affiliate of Daimler (as defined in the Series E Purchase Agreement)) shall have the right, within thirty (30) days of the date the Company provides Newco written notice that Mr. Musk’s services as the Company’s Chief Executive Officer has ended (which notice the Company shall promptly provide to Newco), by notice to the Company, to terminate any of the Strategic Agreements (as defined in the Purchase Agreement) without any further liability or obligation, effective as of the date such notice is delivered to the Company, it being agreed that any rights under such terminated agreement(s) that have vested prior to such termination shall survive such termination solely to the extent vested prior to such termination; provided , however , that Newco (or Daimler or any Controlled Affiliate of Daimler) may not so terminate any Strategic Agreement (as defined in the Purchase Agreement) if the Newco Director (as defined in the Voting Agreement (as defined in the Purchase Agreement)) approves the appointment of the new Chief Executive Officer in accordance with Section 3.1(a) hereof (and the consent of the Newco Director to such appointment of a new Chief Executive Officer may be unreasonably withheld).

(ii) In the event that at any time during the period from January 1, 2011 until December 31, 2012, Elon Musk is not serving as the Company’s Chief Executive Officer or Chairman of the Board of Directors, in each case other than due to death or Disability, Newco (or Daimler or a Controlled Affiliate of Daimler) shall have the right, within thirty (30) days of the date the Company provides Newco written notice that Mr. Musk’s services as the Company’s Chief Executive Officer or Chairman, as applicable, has ended (which notice the Company shall promptly provide to Newco), by notice to the Company, to terminate any of the Strategic Agreements (as defined in the Series E Purchase Agreement) without any further liability or obligation, effective as of the date such notice is delivered to the Company, it being agreed that any rights under such terminated agreement(s) that have vested prior to such termination shall survive such termination solely to the extent vested prior to such termination; provided , however , that Newco (or Daimler or any Controlled Affiliate of Daimler) may not so terminate any Strategic Agreement (as defined in the Series E Purchase Agreement) if (A) the

 

-20-


Newco Director (as defined in the Voting Agreement (as defined in the Purchase Agreement)) approves the appointment of the new Chief Executive Officer in accordance with Section 3.1(a) hereof (which consent may not be unreasonably withheld) and (B) Elon Musk does not (1) render material services to (for example, as an employee, consultant, director, officer, principal, agent, member, owner, partner, operator, trustee, or manager) any other business, business unit or organization anywhere where the Company or its subsidiaries then do business, which is an automotive original equipment manufacturer other than Daimler or the Company or (2) invest in an automotive original equipment manufacturer other than Daimler or the Company; provided, however, that the foregoing will be deemed not to have occurred solely by reason of Elon Musk having aggregate beneficial ownership of less than 2% of the capital stock of another automotive original equipment manufacturer other than Daimler or the Company.

(c) Chairman of the Board . In the event Mr. Musk is no longer serving as the Company’s Chief Executive Officer after December 31, 2010, Mr. Musk shall continue to serve as Chairman of the Board of Directors, provide strategic guidance to the Company and serve as a spokesman of the Company through the later of December 31, 2012 or the launch of the Company’s Model S sedan.

3.2 Required Approvals .

(a) The Company shall not take (and shall cause its Affiliates (as defined in the Purchase Agreement) not to take) any of the following actions without the prior consent of Newco:

(i) authorize or issue, or obligate itself to issue, to any automotive original equipment manufacturer any other security of the Company, including any other security convertible into or exercisable for any security of the Company, having a preference over, or being on a parity with, the Series E Preferred Stock with respect to voting, dividends, conversion, redemption or upon liquidation;

(ii) amend or change (by reclassification, merger or otherwise) the last sentence of Article IV, Section 5(b) of the Company’s Sixth Amended and Restated Certificate of Incorporation;

(iii) redeem, purchase or otherwise acquire (or pay into or set funds aside for a sinking fund for such purpose) any share or shares of Preferred Stock or Common Stock or other security of the Company; provided , however , that this restriction shall not apply to: the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for the Company or any subsidiary pursuant to agreements under which the Company has the option to repurchase such shares at no greater than cost upon the occurrence of certain events, such as the termination of employment, or through the exercise of any right of first refusal; or

(iv) effect any material change in the nature of the Company’s business.

 

-21-


Notwithstanding the foregoing, Newco’s consent shall not, solely with respect to clauses (i) and (iii) of this Section 3.2(a), be required in connection with any Deemed Liquidation (as defined in the Purchase Agreement) if the proceeds payable to the Company’s stockholders in connection with such Deemed Liquidation are distributed in a manner consistent with the provisions set forth in Article IV, Sections 2(a)-(b) of the Company’s Sixth Amended and Restated Certificate of Incorporation, as may be further amended from time to time.

3.3 Compliance with Law . The Company shall comply with the United States Foreign Corrupt Practices Act, other United States anti-corruption Laws (as defined in the Purchase Agreement) and non-United States anti-corruption Laws, without regard to their jurisdictional limitations (the “ Anti-Corruption Laws ”) and will not take any actions that would result in a violation of the Anti-Corruption Laws, and will use commercially reasonable efforts to comply with United States and non-United States export control Laws. The Company shall not offer, pay, give, promise or authorize the payment or giving of anything of value directly or indirectly to any Government Official (as defined in the Purchase Agreement), in violation of such aforementioned laws. The Company shall not transfer money or other things of value with the purpose or effect of (a) commercial bribery, or (b) acceptance of or acquiescence in extortion, kickbacks or other unlawful or improper means of obtaining business in violation of such aforementioned laws. If any of the Company’s Related Persons (as defined in the Purchase Agreement) becomes a Government Official, the Company will promptly notify the Purchaser, and the parties will consult in good faith to address concerns under the FCPA (as defined in the Purchase Agreement) and use commercially reasonable efforts to resolve such concerns to the satisfaction of the parties and cooperate in good faith to avoid any violation of the FCPA. The Company will implement internal processes as it reasonably deems necessary and appropriate to ensure compliance with such aforementioned laws.

3.4 Technical Cooperation Provision .

(A) Subject to Section 3.4(B) below, the Company shall reasonably cooperate with Newco in conducting investigations of the Company’s and its subsidiaries’ technology, including but not limited to providing access to relevant Company and its subsidiaries pending patent application files and to relevant technical descriptions and drawings of the current commercial embodiments of the following systems: (a) the configuration of the energy storage system; (b) the thermal and electric management of the energy storage system; (c) the electric motor and related cooling system; and (d) the charging system for the energy storage system.

(B) All such investigations (and the Company’s obligation to cooperate therewith) shall only be conducted in a manner that (i) preserves attorney-client and other privileges of the respective parties (as determined by the relevant party in its reasonable judgment), (ii) does not disclose any proprietary or confidential information of the Company to any employee of Newco, Daimler or their Affiliates, or any of their respective employees or consultants who provide technical consulting, except and only to the extent necessary to convey the parameters of the investigation or describe the results thereof, and (iii) does not otherwise unreasonably disrupt the Company’s business or operations as determined in the Company’s reasonable judgment. All information disclosed by the Company to Newco and its employees or consultants with respect the foregoing investigations may be used only for conducting such investigations.

 

-22-


(C) Subject to Section 3.4(B) above, Newco and Controlled Affiliates of Daimler (as defined in the Series E Purchase Agreement) may use the conclusions of such studies solely for the purposes of structuring and conducting the Strategic Agreements (as defined in the Series E Purchase Agreement) or any other product development or distribution arrangement between any of them and Company; provided , however, and without limiting the forgoing, neither Newco nor any Controlled Affiliates of Daimler shall use either the conclusions of such studies nor the underlying information disclosed by Company to them as provided in Section 3.4(A) above, for the purposes of (i) conducting their respective businesses independent of the Company, (ii) filing or prosecuting any of their patents, or (iii) asserting any patents against Company or its Affiliates or with respect to any of Company’s or its Affiliates’ products.

3.5 Special Newco Notice .

(a) Newco shall provide the Company prompt written notice if (a) the representation set forth in Section 3.10 of the Series E Purchase Agreement is no longer true and accurate or (b) Daimler (or a Controlled Affiliate of Daimler) no longer holds 20% or more of the equity interests of Newco.

(b) Newco shall give notice to the Company of any new proposed members of Newco (other than the Identified Financial Investor (as defined in the Series E Purchase Agreement), Daimler, any Controlled Affiliate of Daimler (as defined in the Series E Purchase Agreement) or any Affiliate controlled (as defined in the Purchase Agreement) by the Identified Financial Investor) and no Person (as defined in the Purchase Agreement) (other than the Identified Financial Investor, Daimler, any Controlled Affiliate of Daimler or any Affiliate controlled by the Identified Financial Investor) shall become a member of Newco without the Company’s prior consent (which consent shall not be unreasonably withheld (provided, however, that the parties agree that granting a proposed new member (other than the Identified Financial Investor, Daimler, any Controlled Affiliate of Daimler or any Affiliate controlled by the Identified Financial Investor) rights with respect to any votes, consents, waivers or amendments with respect to the capital stock of the Company that Newco holds or may hold and the rights granted to Newco under or in connection with the Transaction Agreements may be the basis for a reasonable objection by the Company)).

(c) (A) Newco shall not grant to the Identified Financial Investor, without the prior consent of the Company (which consent shall not be unreasonably withheld) any rights which would permit the Identified Financial Investor to force Newco to affirmatively exercise Newco’s rights under (i) the Series E Purchase Agreement, (ii) the Letter Agreement (as defined in the Series E Purchase Agreement), (iii) the Side Agreement (as defined in the Series E Purchase Agreement), (iv) Sections 1.1(e), 4.2 (solely with respect to the third and fourth sentences thereof) or 4.3 (solely with respect to clause (b) of the second sentence thereof) of the Voting Agreement (as defined in the Purchase Agreement), (v) Sections 4.1 (solely with respect to the second sentence thereof) or 4.2 (solely with respect to clause (x) of the second sentence thereof) of the Right of First Refusal Agreement (as defined in the Purchase Agreement),

 

-23-


(vi) Sections 1.1(i), 1.2(a) (solely with respect to the last proviso thereof), 1.2(e), 1.4(d), 1.8, 2.2 (solely with respect to the proviso thereof), 2.3(b), 2.8, 3, the second sentence of Section 5.1, Section 5.2 (solely with respect to clause (a) of the proviso thereof) or Section 5.9 of this Agreement or (vii) a Deemed Liquidation transaction (as defined in the Purchase Agreement), in each case, under circumstances where Daimler or a Controlled Affiliated of Daimler would otherwise not desire to exercise such rights.

(B) Newco shall not grant to the Identified Financial Investor, without the prior consent of the Company (which consent shall not be unreasonably withheld) any rights which would require the Identified Financial Investor’s consent or waiver for Newco to exercise its rights under (i) the Series E Purchase Agreement, (ii) the Letter Agreement, (iii) the Side Agreement, (iv) Section 4.2 (solely with respect to the third and fourth sentences thereof) of the Voting Agreement (as defined in the Purchase Agreement), (v) Section 4.1 (solely with respect to the second sentence thereof) of the Right of First Refusal Agreement (as defined in the Purchase Agreement) or (vi) Sections 1.1(i), 3 (other than Section 3.2), the second sentence of Section 5.1 or Section 5.2 (solely with respect to clause (a) of the proviso thereof as they apply to Section 3 (other than Section 3.2) of this Agreement) of this Agreement.

(C) Newco shall not grant to the Identified Financial Investor, without the prior consent of the Company (which consent shall not be unreasonably withheld), any other rights with respect to any votes, consents, waivers or amendments that Newco holds or may hold under the provisions of the Transaction Agreements specified in clauses (i)-(vii) of subsection (A) above or clauses (i)-(vi) of subsection (B) above; provided , however that, notwithstanding anything in this Agreement to contrary, Newco shall be permitted (without any required consent of the Company) to grant to the Identified Financial Investor rights which would require the Identified Financial Investor’s consent or waiver for Newco to exercise its rights under any or all of the following: (i) Sections 1.1(e) and 4.3 (solely with respect to clause (b) of the second sentence thereof) of the Voting Agreement (as defined in the Purchase Agreement), (ii) Section 4.2 (solely with respect to clause (x) of the second sentence thereof) of the Right of First Refusal Agreement (as defined in the Purchase Agreement), (iii) Sections 1.2(a) (solely with respect to the last proviso thereof), 1.2(e), 1.4(d), 1.8, 2.2 (solely with respect to the proviso thereof), 2.3(b), 2.8, 3.2, Section 5.2 (solely with respect to clause (a) of the proviso thereof as they apply to Section 3.2) and Section 5.9 of this Agreement and (iv) a Deemed Liquidation transaction (as defined in the Purchase Agreement). For the avoidance of doubt, Newco shall not, by virtue of this Section 3.5, be prohibited from granting the Identified Financial Investor any rights with respect to any votes, consents, waivers or amendments that Newco holds or may hold under any other provisions of this Agreement, the Voting Agreement and the Right of First Refusal Agreement.

(d) Newco shall give the Company notice of any rights with respect to votes, consents, waivers or amendments with respect to the capital stock of the Company that Newco holds or may hold and the rights granted to Newco under or in connection with the Transaction Agreements that Newco grants to any of its members (other than to Daimler or any Controlled Affiliate of Daimler (as defined in the Series E Purchase Agreement)). The Company may only exercise any rights it may have with respect to an actual or alleged breach by Newco of Section 3.5(c) if it shall have given notice to Newco of such actual or alleged breach within 10

 

-24-


business days after Newco has delivered the notice referred to in the previous sentence (it being agreed that if the Company shall not deliver such notice within such 10 business days, the rights granted to members of Newco described in the notice referred to in the first sentence of this clause (d) shall be deemed to have been consented to by the Company). Upon receipt by Newco of such notice from the Company, Newco shall have 20 business days to cure any such breach, it being agreed that Newco shall be deemed to not be in such breach if it shall have cured such breach within such 20 business days.

3.6 Benefit; Assignment of Rights . The provisions of Section 3 shall be solely for the benefit of Newco, Daimler or a Controlled Affiliate of Daimler and may not be assigned, either in whole or in part, except to any of the foregoing, or upon written consent of the Company. The provisions of Section 3.5 shall be solely for the benefit of the Company and may not be assigned, either in whole or in part, except with the written consent of Newco.

3.7 Termination of Covenants .

(a) The covenants set forth in Section 3.1 hereof shall terminate and be of no further force or effect upon the earliest to occur of: (i) the consummation of a merger or consolidation of the Company with or into another corporation for cash consideration or stock that is publicly traded on a national securities exchange or a combination of cash consideration or such publicly traded stock in which the holders of capital stock of the Company immediately prior to such merger or consolidation do not continue to hold at least 50% of the voting power of the capital stock of the Company or the surviving or acquiring corporation, (ii) a sale of all or substantially all of the Company’s assets in which such assets are sold solely for cash consideration or stock that is publicly traded on a national securities exchange or a combination of cash consideration or such publicly traded stock, (iii) such time as Newco together with Daimler AG (“ Daimler ”) or any Controlled Affiliate of Daimler no longer hold at least 9,950,000 shares of Common Stock of the Company (including any shares of Common Stock of the Company issuable or issued upon the conversion of the Series E Preferred Stock of the Company and as equitably adjusted for any stock dividends, combinations, splits, recapitalizations, dilutive issuances, deemed issuances and the like), (iv) none of the Strategic Agreements (as defined in the Purchase Agreement) are in full force and effect or (v) such time as (A) the representation set forth in Section 3.10 of the Series E Purchase Agreement is no longer true and accurate in all material respects, (B) Daimler (or a Controlled Affiliate of Daimler) no longer holds 20% or more of the equity interests of Newco or (C) Newco is in breach in any material respect of Section 3.5 hereof (it being agreed that Newco shall be deemed to not be in such breach if (1) Newco notifies the Company of such breach within 10 business days of such breach and (2) Newco cures such breach within 20 business days after delivery of such notice).

(b) The covenants set forth in Section 3.2, 3.3 and 3.5 hereof shall terminate and be of no further force or effect upon the earliest to occur of: (i) the consummation of a Qualified IPO or (ii) any of the events set forth in Section 3.7(a)(i)-(v) above.

 

-25-


4. Additional Covenants .

4.1 Al Wahda Covenant . Al Wahda hereby acknowledges and agrees that the Abu Dhabi Water & Electricity Authority shall not be permitted, directly or indirectly, to transfer any of its equity interests in Al Wahda to any other party without the prior written consent of the Company. Al Wahda further acknowledges that is shall not issue any additional shares or equity interests to any Person without the prior consent of the Company.

4.2 Termination of Covenants . The covenants set forth in Section 4.1 hereof shall terminate and be of no further force or effect upon the earliest to occur of: (i) the consummation of a merger or consolidation of the Company with or into another corporation for cash consideration or stock that is publicly traded on a national securities exchange or a combination of cash consideration or such publicly traded stock in which the holders of capital stock of the Company immediately prior to such merger or consolidation do not continue to hold at least 50% of the voting power of the capital stock of the Company or the surviving or acquiring corporation, (ii) a sale of all or substantially all of the Company’s assets, (iii) such time as the original holders of Series F Preferred Stock hold less than 10,000,000 shares of Common Stock of the Company (including any shares of Common Stock issuable or issued upon the conversion of the Series F Preferred Stock of the Company and as equitably adjusted for any stock dividends, combinations, splits, recapitalizations, dilutive issuances, deemed issuances and the like), or (iv) the consummation of a Qualified IPO.

5. Miscellaneous .

5.1 Successors and Assigns . Except as otherwise provided herein, this Agreement and the rights and obligations of the parties hereunder shall inure to the benefit of, and be binding upon, the parties’ respective successors, assigns and legal representatives. Except to the extent otherwise expressly provided herein, Newco may assign its rights, interests and obligations hereunder, in whole or in part, to a partner, member, Affiliate (as defined in the Purchase Agreement) of Newco or Affiliate (as defined in the Purchase Agreement) of a member of Newco or any other Person (as defined in the Purchase Agreement).

5.2 Amendments and Waivers . Any term of this Agreement may be amended or waived only with the written consent of the Company and the holders of at least two-thirds of the Registrable Securities then outstanding; provided , however , that (a) any amendment to or waiver of Sections 1.1(i), 1.2(a) (solely with respect to the last proviso thereof), 1.2(e), 1.4(d), 1.8, 1.12 (solely with respect to the third proviso of the first sentence thereof), 2.2 (solely with respect to the proviso thereof), 2.3(a) (solely with respect to the exception with respect to Newco in the first sentence thereof), 2.3(b), 2.8, 3, the second sentence of Section 5.1, this proviso of Section 5.2, Sections 5.5, 5.6 or 5.9 shall require the written consent of Newco, (b) any amendment to or waiver of Section 4 shall require the written consent of Al Wahda and (c) any amendment or waiver hereof that by its express terms adversely affects a Holder in a manner different than any other Holder shall require the written consent of such Holder. Any Converting Noteholder may become a party to this Agreement by signing and delivering a counterpart signature page to this Agreement without any amendment of this Agreement pursuant to this paragraph or any consent or approval of any other party hereto. Any amendment or waiver

 

-26-


effected in accordance with this paragraph shall be binding upon each party to the Agreement, whether or not such party has signed such amendment or waiver, each future holder of all such Registrable Securities, and the Company.

5.3 Notices . Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or by overnight courier or sent by fax, or five (5) business days (in the case of intra-United States notices) and ten (10) business days (in the case of international notices) after being deposited in the U.S. or other Government Authority (as defined in the Purchase Agreement) mail, as certified or registered mail, with postage prepaid, addressed to the party to be notified at such party’s address as set forth on the exhibits hereto or as subsequently modified by written notice.

5.4 Severability . To the fullest extent that they may effectively do so under applicable Law (as defined in the Purchase Agreement), the parties hereby waive any provision of Law which renders any provision of this Agreement invalid, illegal or unenforceable in any respect. If one or more provisions of this Agreement are held to be invalid, illegal or unenforceable under applicable Law, the parties agree to promptly renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision within thirty (30) business days, then (a) if such provision is rendered or held invalid, illegal or unenforceable in a jurisdiction only as to a particular Person or Persons or under any particular circumstance or circumstances, such provision shall be ineffective, but only in such jurisdiction and only with respect to such particular Person or Persons or under such particular circumstance or circumstances, as the case may be, (b) without limitation of clause (a), such provision shall in any event be ineffective only as to such jurisdiction and only to the extent of such invalidity, illegality or unenforceability, and such invalidity, illegality or unenforceability in such jurisdiction shall not render invalid, illegal or unenforceable such provision in any other jurisdiction and (c) without limitation of clause (a) or (b), such ineffectiveness shall not render invalid, illegal or unenforceable this Agreement or any of the remaining provisions hereof.

5.5 Governing Law . This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law.

5.6 Submission to Jurisdiction; Waiver of Jury Trial . Each party to this Agreement hereby irrevocably and unconditionally:

(a) agrees that any suit, action or proceeding instituted against him, her or it by any other party with respect to this Agreement or any other Transaction Agreement (as defined in the Purchase Agreement) may be instituted, and that any suit, action or proceeding by him, her or it against any other party with respect to this Agreement or any other Transaction Agreement shall be instituted, only in the courts of the State of Delaware, located in the County of New Castle (and appellate courts therefrom), (ii) consents and submits, for himself, herself or itself and his, her or its property, to the jurisdiction of such courts for the purpose of any such suit, action or proceeding instituted against him, her or it by the other and (iii) agrees that a final

 

-27-


judgment in any such suit, action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law (as defined in the Purchase Agreement);

(b) (i) waives any objection that he, she or it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any other Transaction Agreement brought in any court specified in Section 4.6(a), (ii) waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum and (iii) agrees not to plead or claim either of the foregoing;

(c) WAIVES ANY RIGHT HE, SHE OR IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER TRANSACTION AGREEMENT AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY; and

(d) to the extent he, she or it has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to himself, herself or itself or his, her or its property, hereby irrevocably waives such immunity in respect of his, her or its obligations with respect to this Agreement and the other Transaction Agreements.

5.7 Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

5.8 Titles and Subtitles . The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

5.9 Aggregation of Stock . All shares of the Preferred Stock held or acquired by partners, members, Affiliates (as defined in the Purchase Agreement) and Affiliates (as defined in the Purchase Agreement) of members shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.

5.10 Delays or Omissions . No delay or omission to exercise any right, power or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.

 

-28-


5.11 Expenses . Each party hereto shall pay all costs and expenses that he, she or it incurs with respect to the negotiation, execution, delivery and performance of this Agreement.

5.12 Entire Agreement . This Agreement, any other Transaction Agreement (as defined in the Purchase Agreement) and any exhibits hereto or thereto (and, in the case of Newco and the Elon Musk Revocable Trust dated July 22, 2003, the Letter Agreement, dated May 11, 2009 between such parties and in the case of Newco and the Company, the Side Agreement, dated May 11, 2009, between such parties), constitute the full and entire understanding and agreement between the parties with regard to the subject matter hereof and no party shall be liable or bound to any other in any manner by any oral or written representations, warranties, covenants and agreements except as specifically set forth herein and therein. Each party expressly represents and warrants that, with regard to the subject matter hereof, he, she or it is not relying on any oral or written representations, warranties, covenants or agreements outside of this Agreement or any other Transaction Agreement (as defined in the Purchase Agreement) (or, in the case of Newco and the Elon Musk Revocable Trust dated July 22, 2003, the Letter Agreement, dated May 11, 2009 between such parties or in the case of Newco and the Company, the Side Agreement, dated May 11, 2009, between such parties).

5.13 Termination of Prior Agreement . Upon the effectiveness of this Agreement, the Prior Agreement shall terminate and be of no further force and effect, and shall be superseded and replaced in its entirety by this Agreement.

[Signature Page Follows]

 

-29-


The parties have executed this Fifth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

COMPANY:

T ESLA M OTORS , I NC .

By:

 

/s/ Elon Musk

 

Elon Musk,

 

Chief Executive Officer

Address:

 

1050 Bing Street

 

San Carlos, CA 94070


The parties have executed this Fifth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

HOLDERS:

B LACKSTAR I NVESTCO LLC

By:

 

/s/ Ruben Simmons, Jr.

 

Ruben Simmons, Jr.,

 

President

By:

 

/s/ Karl-Wilhelm Kaufmann

 

Karl-Wilhelm Kaufmann,

 

Treasurer

Address:

 

Blackstar Investco LLC

 

c/o Daimler North America Corporation

 

One Mercedes Drive

 

Montvale, NJ 07645

With a copy to:

 

Daimler AG

 

Epplestr. 225

 

70546 Stuttgart

With a copy to:

 

Hughes Hubbard & Reed LLP

 

One Battery Park Plaza

 

New York, NY 10004


The parties have executed this Fifth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

HOLDERS:

A L W AHDA C APITAL I NVESTMENT LLC

By:

 

/s/ H.E. Ahmed Saif Al Darmaki

 

H. E. Ahmed Saif Al Darmaki,

 

General Manager

Address:

 

Al Wahda Capital Investment LLC

 

7th Floor, ADWEA Building

 

6th Street

 

Abu Dhabi

 

United Arab Emirates


The parties have executed this Fifth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

HOLDERS:

FCP H OLDINGS L IMITED

By:

 

/s/ Michael Obermayer

 

Michael Obermayer,

 

Director

Address:

 

FCP Holdings Limited

155, Archiepiskopou Makariou III Avenue

PROTEAS HOUSE, 5th Floor

P.C. 3026, Limassol

Cyprus

Or:

 
 

FCP Holdings Limited

P.O. Box 58159

3731

Cyprus


The parties have executed this Fifth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

HOLDERS:

D RAPER F ISHER J URVETSON F UND VIII, L.P.

By:

 

/s/ John Fisher

Name:

 

John Fisher

Title:

 

Managing Director

D RAPER F ISHER J URVETSON P ARTNERS VIII, LLC

By:

 

/s/ John Fisher

Name:

 

John Fisher

Title:

 

Managing Member

D RAPER A SSOCIATES , L.P.

By:

 

/s/ Timothy C. Draper

Name:

 

Timothy C. Draper

Title:

 

General Partner


The parties have executed this Fifth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

HOLDERS:

D RAPER  F ISHER  J URVETSON  G ROWTH  F UND  2006, L.P.

By:

 

Draper Fisher Jurvetson Growth Fund 2006 Partners, L.P.

Its:

 

General Partner

By:

 

DFJ Growth Fund 2006, Ltd.

Its:

 

General Partner

By:

 

/s/ Mark W. Bailey

 

Mark W. Bailey,

 

Director

D RAPER F ISHER J URVETSON P ARTNERS G ROWTH

F UND 2006, LLC

By:

 

/s/ Mark W. Bailey

 

Mark W. Bailey,

 

Authorized Member


The parties have executed this Fifth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

HOLDERS:

E LON M USK R EVOCABLE T RUST DATED

J ULY 22, 2003

By:

 

/s/ Elon Musk

 

Elon Musk,

 

Trustee


The parties have executed this Fifth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

HOLDERS:

T ECHNOLOGY P ARTNERS F UND VIII, LP

By:

 

TP Management VIII, LLC

By:

 

/s/ Ira Ehrenpreis

Name:

 

Ira Ehrenpreis

Title:

 

Managing Member


The parties have executed this Fifth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

HOLDERS:

V ALOR E QUITY P ARTNERS , LP

By:

 

Valor Equity Management, LLC

Its:

 

General Partner

By:

 

Valor Management Corp.

Its:

 

Managing Member

By:

 

/s/ Antonion J. Gracias

 

Antonio J. Gracias,

 

Chief Executive Officer

V ALOR VC, LLC

By:

 

/s/ Antonio J. Gracias

 

Antonio J. Gracias,

 

Managing Member

VEP T ESLA H OLDINGS , LLC

By:

 

/s/ Antonio J. Gracias

 

Antonio J. Gracias,

 

Chief Executive Officer


The parties have executed this Fifth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

HOLDERS:

V ANTAGE P OINT V ENTURE P ARTNERS IV (Q), L.P.

By:

 

VantagePoint Venture Associates IV, LLC

Its:

 

General Partner

By:

 

/s/ J. Stephan Dolezalek

Title:

 

Authorized Signatory

V ANTAGE P OINT V ENTURE P ARTNERS IV, L.P.

By:

 

VantagePoint Venture Associates IV, LLC

Its:

 

General Partner

By:

 

/s/ J. Stephan Dolezalek

Title:

 

Authorized Signatory


The parties have executed this Fifth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

HOLDERS:

V ANTAGE P OINT V ENTURE P ARTNERS IV P RINCIPALS F UND , L.P.

By:

 

VantagePoint Venture Associates IV, LLC

Its:

 

General Partner

By:

 

/s/ J. Stephan Dolezalek

Title:

 

Authorized Signatory

V ANTAGE P OINT C LEAN T ECH P ARTNERS , L.P.

By:

 

VantagePoint CleanTech Associates

Its:

 

General Partner

By:

 

/s/ J. Stephan Dolezalek

Title:

 

Authorized Signatory


The parties have executed this Fifth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

HOLDERS:

J ASPER H OLDINGS , LLC

By:

 

/s/ Kimbal Musk

Name:

 

 

Title:

 

 


The parties have executed this Fifth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

HOLDERS:

/s/ Marc Tarpenning

Marc Tarpenning


The parties have executed this Fifth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

HOLDERS:

W ESTLY C APITAL P ARTNERS , L.P.

By:

 

/s/ Steve Westly

 

Steve Westly,

 

Managing Partner


The parties have executed this Fifth Amended and Restated Investors’ Rights Agreement as of the date first above written.

 

HOLDERS:

/s/ Craig W. Harding

Craig W. Harding


EXHIBIT A

SERIES A STOCKHOLDERS

Name

Elon Musk Revocable Trust dated July 22, 2003

Martin Eberhard

Marc Tarpenning

SDL Ventures, LLC

Ian Wright

Rob Ferber

The Severo M. Ornstein and Laura E. Gould 1987 Trust

Yoler-LeNail Living Trust

Bill and Karen Moggridge

Rainer & Susan Eberhard

Eric & Cheryl Eberhard

Nancy Eilerts

Carolyn Howk

Doug Klein

Tom and Tristan Colson

Compass Venture Partners II, L.P.


EXHIBIT B

SERIES B STOCKHOLDERS

Name

Elon Musk Revocable Trust dated July 22, 2003

Martin Eberhard

Kimbal Musk

Marc Tarpenning

Valor Equity Partners L.P.

Compass Venture Partners II, LP

Jeffrey B Straubel

Malcolm Smith

Thomas E. Colson

Douglas H. Klein

TVEST, LLC


EXHIBIT C

SERIES C STOCKHOLDERS

Name

Elon Musk Revocable Trust dated July 22, 2003

VantagePoint Venture Partners IV (Q), L.P.

VantagePoint Venture Partners IV, L.P.

VantagePoint Venture Partners IV Principals Fund, L.P.

VantagePoint CleanTech Partners, L.P.

Amphitheatre LLC

Chris Byrne

Compass Venture Partners II, L.P.

Draper Fisher Jurvetson Fund VIII, L.P.

Draper Fisher Jurvetson Partners VIII, LLC

Draper Associates, L.P.

The Dale Djerassi Revocable Trust

Michael Dubilier

Martin Eberhard

Gemini Consulting, LLC

Valor VC, LLC

Valor Equity Partners L.P.

Bay Area Equity Fund I, L.P.

Kite Hill Capital LLC

GREG KOURI LIVING TRUST, dated February 2, 2006

Joseph William Lee Trust dated 10/11/2000

Garcia, LLC

Tao, LLC

Tyrone Farrar Pike Separate Property Trust

Lyndon Rive

Peter Rive

Pacific Sequoia Holding LLC

Jeffrey B. Straubel

Marc Tarpenning

The Mark B. Templeton Revocable Trust

The Vertical Fund II, L.P.

Mineral Acquisition Partners, Inc.


EXHIBIT D

SERIES D STOCKHOLDERS

Name

Bay Area Equity Fund I, L.P.

Riverwood Capital LLC

Richard Yie Chen and Lucy Leong Chen Trust

Compass Venture Partners II, L.P.

Draper Fisher Jurvetson Partners VIII, LLC

Draper Fisher Jurvetson Fund VIII, L.P

Draper Associates, L.P.

Martin Eberhard

H. Perry Fell

Kenneth Roger Jacobs and Margaret Laseck-Jacobs,

TTEES of the 2002 Jacobs Family Trust, UDT October 30, 2002

Jon Mittelhauser

Elon Musk Revocable Trust Dated July 22, 2003

Tom O’Leary

Konstantin Othmer

Pacific Sequoia Holdings LLC

Samuel G. Perry

Ryan Scott

The Skoll Foundation

The Skoll Fund

TAO, L.L.C.

Marc Tarpenning

Technology Partners Fund VIII, LP

Valor Equity Partners, L.P.

VantagePoint CleanTech Partners, L.P.

VantagePoint Venture Partners IV (Q), L.P.

VantagePoint Venture Partners IV Principals Fund, L.P.

VantagePoint Venture Partners IV, L.P.

John Weiser

Yoler-LeNail Living Trust

 


EXHIBIT E

SERIES E STOCKHOLDERS

Blackstar Investco LLC

Elon Musk Revocable Trust dated July 22, 2003

VEP Tesla Holdings LLC

Draper Associates L.P.

Draper Fisher Jurvetson Fund VIII, LP

Draper Fisher Jurvetson Partners VIII, LLC

Draper Fisher Jurvetson Growth Fund 2006, L.P.

Draper Fisher Jurvetson Partners Growth Fund 2006, L.P.

Westly Capital Partners, L.P.

Bay Area Equity Fund I, L.P.

Technology Partners Fund VIII, LP

Pacific Sequoia Holdings LLC

TAO, L.L.C.

Valor Equity Partners L.P.

Jennifer Krach

Rod Wormer and Barbara Karplus

Jasper Holdings LLC

Social Concepts, Inc.

Joseph William Lee Trust

John Weiser

Amphitheatre LLC

Kite Hill Capital LLC

Ryan Scott

Richard Contreras

Volta Capital Group LLC

Valor VC, LLC

Greg Kouri Trust

Keith Kambies

Compass Technology Partners LP

Yoler-LeNail Living Trust

Craig W. Harding

Steven Alan Jove

The Skoll Foundation

The Skoll Fund

Samuel G. Perry

Franz von Holzhausen

John A. Porcella III and Lisa R. Porcella

Diarmuid O’Connell

Michael Taylor

Brian Boggs

Dustin Grace

Jeff Weintraub

Scott A Brenneman

Ernest Villanueva

VantagePoint Venture Partners IV, L.P.

Ze’ev Drori

Bigwood Capital LLC

Resolute Partners, LP

K&E Investment Partners, L.P.-2006 DIF

Michael Dubilier

The Vertical Fund II, LP


Kouri Group, LLC

Aaron Platshon

Jon Mittelhauser

Christopher L. Kaufman Trust

VP Company Investments 2008, LLC

Weilin Chang


EXHIBIT F

SERIES F STOCKHOLDERS

Name

Al Wahda Capital Investment LLC

Blackstar Investco LLC

FCP Holdings Limited


EXHIBIT G

FOUNDERS

Martin Eberhard

Marc Tarpenning

Exhibit 10.1

TESLA MOTORS, INC.

INDEMNIFICATION AGREEMENT

THIS AGREEMENT is entered into, effective as of                      , 20      by and between Tesla Motors, Inc., a Delaware corporation (the “ Company ”), and              (“ Indemnitee ”).

WHEREAS, it is essential to the Company to retain and attract as directors and officers the most capable persons available;

WHEREAS, Indemnitee is a director and/or officer of the Company;

WHEREAS, both the Company and Indemnitee recognize the increased risk of litigation and other claims currently being asserted against directors and officers of corporations;

WHEREAS, the Certificate of Incorporation permits and Bylaws of the Company require the Company to indemnify and advance expenses to its directors and officers to the fullest extent permitted under Delaware law, and the Indemnitee has been serving and continues to serve as a director and/or officer of the Company in part in reliance on the Company’s Certificate of Incorporation and Bylaws;

WHEREAS, in recognition of Indemnitee’s need for substantial protection against personal liability in order to enhance the Indemnitee’s continued and effective service to the Company and, specific contractual assurance that the protection promised by the Certificate of Incorporation and Bylaws will be available to Indemnitee (regardless of, among other things, any amendment to or revocation of the Certificate of Incorporation and Bylaws or any change in the composition of the Company’s Board of Directors or acquisition transaction relating to the Company), and in order to induce Indemnitee to provide effective services to the Company as a director and/or officer, the Company wishes to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the fullest extent (whether partial or complete) permitted under Delaware law and as set forth in this Agreement, and, to the extent insurance is maintained which includes Indemnitee as a covered party, to provide for the continued coverage of Indemnitee under the Company’s directors’ and officers’ liability insurance policies; and

WHEREAS, Indemnitee is a representative of                      and/or certain of its affiliates (collectively, the “Fund Indemnitors”) and may have certain rights to indemnification, advancement of expenses and/or insurance provided by or with respect to the Fund Indemnitors, which Indemnitee, the Company and the Fund Indemnitors intend to be secondary to the primary obligation of the Company to indemnify Indemnitee as provided herein, with the Company’s acknowledgement of and agreement to the foregoing being a material condition to Indemnitee’s willingness to serve as a director of the Company.


NOW, THEREFORE, in consideration of the above premises and of Indemnitee continuing to serve the Company directly or, at its request, with another enterprise, and intending to be legally bound hereby, the parties agree as follows:

1. Certain Definitions .

(a) “ Board ” shall mean the Board of Directors of the Company.

(b) “ Change in Control ” shall be deemed to have occurred if (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”)), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting power represented by the Company’s then outstanding Voting Securities, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other entity, other than a merger or consolidation that would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company (in one transaction or a series of transactions) of all or substantially all of the Company’s assets.

(c) “ Expenses ” shall mean any expense, liability, or loss, including attorneys’ fees, judgments, fines, ERISA excise taxes and penalties, amounts paid or to be paid in settlement, any interest, assessments, or other charges imposed thereon, any federal, state, local, or foreign taxes imposed as a result of the actual or deemed receipt of any payments under this Agreement, and all other costs and obligations, paid or incurred in connection with investigating, defending, being a witness in, participating in (including on appeal), or preparing for any of the foregoing in, any Proceeding relating to any Indemnifiable Event.

(d) “ Indemnifiable Event ” shall mean any event or occurrence that takes place either prior to or after the execution of this Agreement, related to the fact that Indemnitee is or was a director or officer of the Company, or while a director or officer is or was serving at the request of the Company as a director, officer, employee, trustee, agent, or fiduciary of a subsidiary of the Company or of any other foreign or domestic corporation, partnership, joint venture, employee benefit plan, trust, or other enterprise, or was a director, officer, employee, or agent of a foreign or domestic corporation that was a predecessor corporation of the Company or of another enterprise at the request of such predecessor corporation, or related to anything done or not done by Indemnitee in any such capacity, whether or not the basis of the Proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent of the Company, as described above.

 

-2-


(e) “ Independent Counsel ” shall mean counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld), and who has not otherwise performed services for the Company or the Indemnitee (other than in connection with indemnification matters) within the last three years.

(f) “ Proceeding ” shall mean any threatened, pending, or completed action, suit, or proceeding or any alternative dispute resolution mechanism (including an action by or in the right of the Company), or any inquiry, hearing, or investigation, whether conducted by the Company or any other party, that Indemnitee in good faith believes might lead to the institution of any such action, suit, or proceeding, whether civil, criminal, administrative, investigative, or other.

(g) “ Voting Securities ” shall mean any securities of the Company that vote generally in the election of directors.

2. Agreement to Indemnify .

(a) General Agreement. In the event Indemnitee was, is, or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, a Proceeding by reason of (or arising in part out of) an Indemnifiable Event, the Company shall indemnify Indemnitee from and against any and all Expenses to the fullest extent permitted by law, as the same exists or may hereafter be amended or interpreted. The parties hereto intend that this Agreement shall provide for indemnification in excess of that expressly permitted by statute, including, without limitation, any indemnification provided by the Company’s Certificate of Incorporation, its Bylaws, vote of its stockholders or disinterested directors, or applicable law. The only limitation that shall exist upon the Company’s obligations pursuant to this Section 2 shall be that the Company shall not be obligated to make any payment to Indemnitee that is finally determined by a court of competent jurisdiction in a final judgment, not subject to appeal, to be unlawful.

(b) Initiation of Proceeding . Notwithstanding anything in this Agreement to the contrary, Indemnitee shall not be entitled to indemnification pursuant to this Agreement in connection with any Proceeding or part thereof initiated by Indemnitee against the Company or any director or officer of the Company unless (i) the Company has joined in or the Board has consented to the initiation of such Proceeding or part thereof; (ii) the Proceeding or part thereof is one to enforce indemnification rights under Section 4; or (iii) the Proceeding or part thereof is instituted after a Change in Control (other than a Change in Control approved by a majority of the directors on the Board who were directors immediately prior to such Change in Control) and Independent Counsel has approved its initiation.

(c) Expense Advances . If so requested by Indemnitee, the Company shall advance (within thirty business days of such request) any and all Expenses incurred by Indemnitee (an “Expense Advance”). The Indemnitee shall qualify for such Expense Advances upon the execution and delivery to the Company of this Agreement which shall constitute an undertaking

 

-3-


providing that the Indemnitee undertakes to repay such Expense Advances if and to the extent that it is ultimately determined by a court of competent jurisdiction in a final judgment, not subject to appeal, that Indemnitee is not entitled to be indemnified by the Company. Until it is so finally determined by the court that Indemnitee is not entitled indemnification, Indemnitee shall not be required to repay such Expense Advances to the Company and Indemnitee shall continue to receive Expense Advances pursuant to this Section 2(c). Indemnitee’s obligation to reimburse the Company for Expense Advances shall be unsecured and no interest shall be charged thereon. To the extent permissible under third party policies, the Company agrees that invoices for Expense Advances shall be billed in the name of and be payable directly by the Company.

(d) Mandatory Indemnification . Notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any Proceeding relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter therein, Indemnitee shall be indemnified against all Expenses incurred in connection therewith.

(e) Partial Indemnification . If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. Attorneys’ fees and expenses shall not be prorated but shall be deemed to apply to the portion of indemnification to which Indemnitee is entitled.

(f) Prohibited Indemnification . No indemnification pursuant to this Agreement shall be paid by the Company on account of any Proceeding in which judgment is rendered against Indemnitee for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Exchange Act, or similar provisions of any federal, state, or local laws.

3. Indemnification Process and Appeal .

(a) Indemnification Payment . Indemnitee shall be entitled to indemnification of Expenses, and shall receive payment thereof, from the Company in accordance with this Agreement as soon as practicable after Indemnitee has made written demand on the Company for indemnification, unless indemnification of such Expenses is prohibited under Section 2(f) of this Agreement.

(b) Suit to Enforce Rights . If Indemnitee has not received full advancement within thirty (30) days or full indemnification within ninety (90) days after making a demand in accordance with Section 3(a), Indemnitee shall have the right to enforce its indemnification rights under this Agreement by commencing litigation in the Court of Chancery of the State of Delaware seeking an initial determination by the court or challenging any determination by the Company or any aspect thereof. The Company hereby consents to service of process and to appear in any such proceeding. The remedy provided for in this Section 3 shall be in addition to any other remedies available to Indemnitee at law or in equity. The Company shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 3(b) that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate that the Company is bound by all the provisions of this Agreement.

 

-4-


(c) Defense to Indemnification, Burden of Proof, and Presumptions . It shall be a defense to any action brought by Indemnitee against the Company to enforce this Agreement (other than an action brought to enforce a claim for Expenses incurred in defending a Proceeding in advance of its final disposition) that it is not permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed. In connection with any such action to whether Indemnitee is entitled to be indemnified hereunder, the burden of proving such a defense or determination shall be on the Company to establish by clear and convincing evidence that Indemnitee is not so entitled to indemnification. It is the parties’ intention that if Indemnitee commences legal proceedings to secure a judicial determination that Indemnitee should be indemnified under this Agreement or applicable law, the question of Indemnitee’s right to indemnification shall be for the court to decide, as a de novo trial on the merits.

(d) To the maximum extent permitted by applicable law in making a determination with respect to entitlement to indemnification (or advancement of expenses) hereunder, the Company shall presume that Indemnitee is entitled to indemnification (or advancement of expenses) under this Agreement if Indemnitee has submitted a request for advancement under Section 2(c) of this Agreement for indemnification in accordance with Section 3(a) of this Agreement, and the Company shall have the burden of proof to overcome that assumption by clear and convincing evidence in connection with the making of any determination contrary to that presumption.

(e) The Company acknowledges that a settlement or other disposition of a Proceeding short of final judgment may constitute success by Indemnitee if it permits a party to avoid expense, delay, distraction, disruption and uncertainty. In the event that any Proceeding to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such Proceeding without payment of money or other consideration) it shall be presumed (unless there is clear and convincing evidence to the contrary) that Indemnitee has been successful on the merits or otherwise in such Proceeding. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion, by clear and convincing evidence.

4. Indemnification for Expenses Incurred in Enforcing Rights . The Company shall indemnify Indemnitee against any and all Expenses that are incurred by Indemnitee in connection with any action brought by Indemnitee for

(a) indemnification or advance payment of Expenses by the Company under this Agreement or any other agreement or under applicable law or the Company’s Certificate of Incorporation or Bylaws now or hereafter in effect relating to indemnification for Indemnifiable Events, and/or

(b) recovery under directors’ and officers’ liability insurance policies maintained by the Company, but only in the event that Indemnitee ultimately is determined to be entitled to such indemnification or insurance recovery, as the case may be.

In addition, the Company shall, if so requested by Indemnitee, advance the foregoing Expenses to Indemnitee, subject to and in accordance with Section 2(c).

 

-5-


5. Notification and Defense of Proceeding .

(a) Notice . Promptly after receipt by Indemnitee of notice of the commencement of any Proceeding, Indemnitee shall, if a claim in respect thereof is to be made against the Company under this Agreement, notify the Company of the commencement thereof; but the omission so to notify the Company will not relieve the Company from any liability that it may have to Indemnitee, except as provided in Section 5(c).

(b) Defense . With respect to any Proceeding as to which Indemnitee notifies the Company of the commencement thereof, the Company will be entitled to participate in the Proceeding at its own expense and except as otherwise provided below, to the extent the Company so wishes, it may assume the defense thereof with counsel reasonably satisfactory to Indemnitee. After notice from the Company to Indemnitee of its election to assume the defense of any Proceeding, the Company shall not be liable to Indemnitee under this Agreement or otherwise for any Expenses subsequently incurred by Indemnitee in connection with the defense of such Proceeding other than reasonable costs of investigation, transition costs associated with the Company’s assumption of the defense, or as otherwise provided below. Indemnitee shall have the right to employ legal counsel in such Proceeding, but all Expenses related thereto incurred after notice from the Company of its assumption of the defense shall be at Indemnitee’s expense unless: (i) the employment of legal counsel by Indemnitee has been authorized by the Company, (ii) Indemnitee has reasonably determined that there may be a conflict of interest between Indemnitee and the Company in the defense of the Proceeding, (iii) after a Change in Control (other than a Change in Control approved by a majority of the directors on the Board who were directors immediately prior to such Change in Control), the employment of counsel by Indemnitee that has been approved by Independent Counsel, or (iv) the Company shall not in fact have employed counsel to assume the defense of such Proceeding, in each of which cases all Expenses of the Proceeding shall be borne by the Company. The Company shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Company or as to which Indemnitee shall have made the determination provided for in (ii), (iii) and (iv) above.

(c) Settlement of Claims . The Company shall not be liable to indemnify Indemnitee under this Agreement or otherwise for any amounts paid in settlement of any Proceeding effected without the Company’s written consent, such consent not to be unreasonably withheld; provided, however, that if a Change in Control has occurred (other than a Change in Control approved by a majority of the directors on the Board who were directors immediately prior to such Change in Control), the Company shall be liable for indemnification of Indemnitee for amounts paid in settlement if the Independent Counsel has approved the settlement. The Company shall not settle any Proceeding in any manner that would impose any penalty or limitation on Indemnitee without Indemnitee’s prior written consent. The Company shall promptly notify Indemnitee once the Company has received an offer or intends to make an offer to settle any such Proceeding and the Company shall provide Indemnitee as much time as reasonably practicable to consider such offer; provided, however Indemnitee shall have no less than three (3) business days to consider the offer. The Company shall not be liable to indemnify the Indemnitee under this Agreement with regard to any judicial award if the Company was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such action; the Company’s liability hereunder shall not be excused if participation in the Proceeding by the Company was barred by this Agreement.

 

-6-


6. Non-Exclusivity . Except with regard to the Company’s primary obligations, as set forth in Section 10 hereof, the rights of Indemnitee hereunder shall be in addition to any other rights Indemnitee may have under the Company’s Certificate of Incorporation, Bylaws, applicable law, or otherwise; provided, however, that this Agreement shall supersede any prior indemnification agreement between the Company and the Indemnitee. To the extent that a change in applicable law (whether by statute or judicial decision) permits greater indemnification than would be afforded currently under the Company’s Certificate of Incorporation, Bylaws, applicable law, or this Agreement, it is the intent of the parties that Indemnitee enjoy by this Agreement the greater benefits so afforded by such change without any further action by the parties hereto.

7. Liability Insurance .

(a) The Company hereby covenants and agrees that, so long as the Indemnitee shall continue to serve as an agent of the Company and thereafter so long as the Indemnitee shall be subject to any possible proceeding by reason of the fact that the Indemnitee was an agent of the Company, the Company, subject to Section 7(b), shall use reasonable efforts to obtain and maintain in full force and effect directors’ and officers’ liability insurance (“ D&O Insurance ”) in reasonable amounts from established and reputable insurers and Indemnitee shall be a covered party under such insurance to the maximum extent of the coverage available for any director or officer of the Company.

(b) Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain D&O Insurance if the Company determines in good faith that such insurance is not reasonably available, the premium costs for such insurance are disproportionate to the amount of coverage provided, or the coverage is reduced by exclusions so as to provide an insufficient benefit.

8. Amendment of this Agreement . No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be binding unless in the form of a writing signed by the party against whom enforcement of the waiver is sought, and no such waiver shall operate as a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver. Except as specifically provided herein, no failure to exercise or any delay in exercising any right or remedy hereunder shall constitute a waiver thereof.

9. Subrogation . Except with regard to the Company’s primary obligations, as set forth in Section 10 hereof, in the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights.

10. No Duplication of Payments . The Company shall not be liable under this Agreement to make any payment in connection with any claim made against Indemnitee to the extent Indemnitee has otherwise received payment (under any insurance policy, Bylaw, or otherwise) of the amounts otherwise indemnifiable hereunder; provided, however, that (a) the Company hereby agrees that its obligations to Indemnitee under this Agreement or any other agreement or undertaking to

 

-7-


provide advancement, indemnification or both to Indemnitee are primary, and any obligation of the Fund Indemnitors to provide advancement or indemnification for the any Expenses, judgments, fines and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such Expenses, judgments, fines and amounts paid in settlement) incurred by Indemnitee are secondary, and (b) if the Fund Indemnitors pays or causes to be paid, for any reason, any amounts otherwise indemnifiable hereunder or under any other indemnification agreement with Indemnitee (whether pursuant to the Bylaws or Certificate or another contract), then (i) the Fund Indemnitors shall be fully subrogated to all rights of Indemnitee with respect to such payment and (ii) the Company shall fully indemnify, reimburse and hold harmless the Fund Indemnitors for all such payments actually made by the Fund Indemnitors. In addition, the Company hereby unconditionally and irrevocably waives, relinquishes, releases, and covenants and agrees not to exercise, any rights that the Company may now have or hereafter acquires against the Fund Indemnitors or Indemnitee that arise from or relate to contribution, subrogation or any other recovery of any kind under this Agreement or any other indemnification agreement (whether pursuant to the Bylaws or Certificate or another contract). The Company and Indemnitee hereby agree that this Section 10 shall be deemed exclusive and shall be deemed to modify, amend and clarify any right to indemnification or advancement provided to Indemnitee under any other contract, agreement or document with the Company.

11. Binding Effect . This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation, or otherwise to all or substantially all of the business and/or assets of the Company), assigns, spouses, heirs, and personal and legal representatives. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity pertaining to an Indemnifiable Event even though he may have ceased to serve in such capacity at the time of any Proceeding.

12. Severability . If any provision (or portion thereof) of this Agreement shall be held by a court of competent jurisdiction to be invalid, void, or otherwise unenforceable, the remaining provisions shall remain enforceable to the fullest extent permitted by law. Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of this Agreement containing any provision held to be invalid, void, or otherwise unenforceable, that is not itself invalid, void, or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, void, or unenforceable.

13. Third-Party Beneficiary . The Fund Indemnitors and Independent Counsel are express third-party beneficiaries of this Agreement, and may specifically enforce the Company’s obligations hereunder (including, but not limited to, the obligations specified in Section 10 hereof) as though a party hereunder.

14. Governing Law . This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in such State without giving effect to its principles of conflicts of laws.

 

-8-


15. Consent to Jurisdiction . The Company and Indemnitee hereby irrevocably (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the “ Chancery Court ”), (ii) consent to submit to the exclusive jurisdiction of the Chancery Court for purposes of any action or proceeding arising out of or in connection with this Agreement, and (iii) waive any objection to the venue of any such action or proceeding in the Chancery Court.

16. Notices . All notices, demands and other communications required or permitted hereunder shall be made in writing and shall be deemed to have been duly given if delivered by hand, against receipt or mailed, postage prepaid, certified or registered mail, return receipt requested and addressed to the Company at:

      Tesla Motors, Inc.

      1050 Bing Street

      San Carlos, California 94070

      Attention: Chief Executive Officer

and to Indemnitee at the address set forth below Indemnitee’s signature hereto. Notice of change of address shall be effective only when given in accordance with this Section. All notices complying with this Section shall be deemed to have been received on the date of hand delivery or on the third business day after mailing.

17. Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

* * * * *

 

-9-


IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the day specified above.

 

TESLA MOTORS, INC.

a Delaware corporation

By:

 

 

Name:

 

 

Title:

 

 

INDEMNITEE,

an individual

 

Indemnitee

 

Address:

 

 

 

 

-10-

Exhibit 10.2

TESLA MOTORS, INC.

2003 EQUITY INCENTIVE PLAN

Adopted July 17, 2003

Approved By Stockholders July 17, 2003

Termination Date: July 17, 2013

 

  1. P URPOSES .

(a) Eligible Stock Award Recipients . The persons eligible to receive Stock Awards are the Employees, Directors and Consultants of the Company and its Affiliates.

(b) Available Stock Awards . The purpose of the Plan is to provide a means by which eligible recipients of Stock Awards may be given an opportunity to benefit from increases in value of the Common Stock through the granting of the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses, and (iv) rights to acquire restricted stock.

(c) General Purpose . The Company, by means of the Plan, seeks to retain the services of the group of persons eligible to receive Stock Awards, to secure and retain the services of new members of this group and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates.

 

  2. D EFINITIONS .

(a) Affiliate ” means any parent corporation or subsidiary corporation of the Company, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code.

(b) Board ” means the Board of Directors of the Company.

(c) Code ” means the Internal Revenue Code of 1986, as amended.

(d) Committee ” means a committee of one or more members of the Board appointed by the Board in accordance with subsection 3(c).

(e) Common Stock ” means the common stock of the Company.

(f) Company ” means Tesla Motors, Inc., a Delaware corporation.

(g) Consultant ” means any person, including an advisor, (i) engaged by the Company or an Affiliate to render consulting or advisory services and who is compensated for such services; or (ii) who is a member of the Board of Directors of an Affiliate. However, the term “Consultant” shall not include either Directors who are not compensated by the Company for their services as Directors or Directors who are merely paid a director’s fee by the Company for their services as Directors.


(h) Continuous Service ” means that the Participant’s service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. The Participant’s Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s Continuous Service. For example, a change in status from an Employee of the Company to a Consultant of an Affiliate or a Director will not constitute an interruption of Continuous Service. The Board or the chief executive officer of the Company, in that party’s sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal leave.

(i) Covered Employee ” means the chief executive officer and the four (4) other highest compensated officers of the Company for whom total compensation is required to be reported to stockholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code.

(j) Director ” means a member of the Board of Directors of the Company.

(k) Disability ” means (i) before the Listing Date, the inability of a person, in the opinion of a qualified physician acceptable to the Company, to perform the major duties of that person’s position with the Company or an Affiliate of the Company because of the sickness or injury of the person; and (ii) after the Listing Date, the permanent and total disability of a person within the meaning of Section 22(e)(3) of the Code.

(l) Employee ” means any person employed by the Company or an Affiliate. Mere service as a Director or payment of a director’s fee by the Company or an Affiliate shall not be sufficient to constitute “employment” by the Company or an Affiliate.

(m) Exchange Act ” means the Securities Exchange Act of 1934, as amended.

(n) Fair Market Value ” means, as of any date, the value of the Common Stock determined as follows:

(i) If the Common Stock is listed on any established stock exchange or traded on the Nasdaq National Market or the Nasdaq Smallcap Market, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the Common Stock) on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable.

(ii) In the absence of such markets for the Common Stock, the Fair Market Value shall be determined in good faith by the Board.

 

-2-


(iii) Prior to the Listing Date, the value of the Common Stock shall be determined in a manner consistent with applicable law.

(o) Incentive Stock Option ” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

(p) Listing Date ” means the first date upon which any security of the Company is listed (or approved for listing) upon notice of issuance on any securities exchange or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system if such securities exchange or interdealer quotation system has been certified in accordance with applicable state law.

(q) Non-Employee Director ” means a Director who either (i) is not a current Employee or Officer of the Company or its parent or a subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or a subsidiary for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act (“Regulation S-K”)), does not possess an interest in any other transaction as to which disclosure would be required under Item 404(a) of Regulation S-K and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K, or (ii) is otherwise considered a “non-employee director” for purposes of Rule 16b-3.

(r) Nonstatutory Stock Option ” means an Option not intended to qualify as an Incentive Stock Option.

(s) Officer ” means (i) before the Listing Date, any person designated by the Company as an officer; and (ii) on and after the Listing Date, a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

(t) Option ” means an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant to the Plan.

(u) Option Agreement ” means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan.

(v) Optionholder ” means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.

(w) Outside Director ” means a Director who either (i) is not a current employee of the Company or an “affiliated corporation” (within the meaning of Treasury Regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an “affiliated corporation” receiving compensation for prior services (other than benefits under a tax-qualified pension plan), was not an officer of the Company or an “affiliated corporation” at any time and is not currently receiving direct or indirect remuneration from the Company or an “affiliated corporation” for services in any capacity other than as a Director; or (ii) is otherwise considered an “outside director” for purposes of Section 162(m) of the Code.

 

-3-


(x) Participant ” means a person to whom a Stock Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Stock Award.

(y) Plan ” means this Tesla Motors, Inc. 2003 Equity Incentive Plan.

(z) Rule 16b-3 ” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time.

(aa) Securities Act ” means the Securities Act of 1933, as amended.

(bb) Stock Award ” means any right granted under the Plan, including an Option, a stock bonus and a right to acquire restricted stock.

(cc) Stock Award Agreement ” means a written agreement between the Company and a holder of a Stock Award evidencing the terms and conditions of an individual Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan.

(dd) Ten Percent Stockholder ” means a person who owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates.

 

  3. A DMINISTRATION .

(a) Administration by Board . The Board shall administer the Plan unless and until the Board delegates administration to a Committee, as provided in subsection 3(c).

(b) Powers of Board . The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan:

(i) To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; what type or combination of types of Stock Award shall be granted; the provisions of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to receive Common Stock pursuant to a Stock Award; and the number of shares of Common Stock with respect to which a Stock Award shall be granted to each such person.

(ii) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective.

(iii) To amend the Plan or a Stock Award as provided in Section 12.

 

-4-


(iv) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company which are not in conflict with the provisions of the Plan.

(c) Delegation to Committee .

(i) General . The Board may delegate administration of the Plan to a Committee or Committees of one (1) or more members of the Board, and the term “Committee” shall apply to any person or persons to whom such authority has been delegated. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan.

(ii) Committee Composition when Common Stock is Publicly Traded . At such time as the Common Stock is publicly traded, in the discretion of the Board, a Committee may consist solely of two or more Outside Directors, in accordance with Section 162(m) of the Code, and/or solely of two or more Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such authority, the Board or the Committee may (1) delegate to a committee of one or more members of the Board who are not Outside Directors the authority to grant Stock Awards to eligible persons who are either (a) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Stock Award or (b) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code and/or) (2) delegate to a committee of one or more members of the Board who are not Non-Employee Directors the authority to grant Stock Awards to eligible persons who are not then subject to Section 16 of the Exchange Act.

(d) Effect of Board’s Decision . All determinations, interpretations and constructions made by the Board in good faith shall not be subject to review by any person and shall be final, binding and conclusive on all persons.

 

  4. S HARES S UBJECT TO THE P LAN .

(a) Share Reserve . Subject to the provisions of Section 11 relating to adjustments upon changes in Common Stock, the Common Stock that may be issued pursuant to Stock Awards shall not exceed in the aggregate Forty Two Million Two Hundred Thirty Eight Thousand Seven Hundred Forty (42,238,740) shares of Common Stock.

(b) Reversion of Shares to the Share Reserve . If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the shares of Common Stock not acquired under such Stock Award shall revert to and again become available for issuance under the Plan.

 

-5-


(c) Source of Shares . The shares of Common Stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise.

 

  5. E LIGIBILITY .

(a) Eligibility for Specific Stock Awards . Incentive Stock Options may be granted only to Employees. Stock Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants.

(b) Ten Percent Stockholders .

(i) A Ten Percent Stockholder shall not be granted an Incentive Stock Option unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock at the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant.

(ii) Prior to the Listing Date, a Ten Percent Stockholder shall not be granted a Nonstatutory Stock Option unless the exercise price of such Option is at least (i) one hundred ten percent (110%) of the Fair Market Value of the Common Stock at the date of grant or (ii) such lower percentage of the Fair Market Value of the Common Stock at the date of grant as is permitted by applicable state law at the time of the grant of the Option.

(iii) Prior to the Listing Date, a Ten Percent Stockholder shall not be granted a restricted stock award unless the purchase price of the restricted stock is at least (i) one hundred percent (100%) of the Fair Market Value of the Common Stock at the date of grant or (ii) such lower percentage of the Fair Market Value of the Common Stock at the date of grant as is permitted by applicable state law at the time of the grant of the restricted stock award.

(c) Section 162(m) Limitation . Subject to the provisions of Section 11 relating to adjustments upon changes in the shares of Common Stock, no Employee shall be eligible to be granted Options covering more than Two Hundred Fifty Thousand (250,000) shares of Common Stock during any calendar year. This subsection 5(c) shall not apply prior to the Listing Date and, following the Listing Date, this subsection 5(c) shall not apply until (i) the earliest of: (1) the first material modification of the Plan (including any increase in the number of shares of Common Stock reserved for issuance under the Plan in accordance with Section 4); (2) the issuance of all of the shares of Common Stock reserved for issuance under the Plan; (3) the expiration of the Plan; or (4) the first meeting of stockholders at which Directors are to be elected that occurs after the close of the third calendar year following the calendar year in which occurred the first registration of an equity security under Section 12 of the Exchange Act; or (ii) such other date required by Section 162(m) of the Code and the rules and regulations promulgated thereunder.

(d) Consultants .

(i) Prior to the Listing Date, a Consultant shall not be eligible for the grant of a Stock Award if, at the time of grant, either the offer or the sale of the Company’s securities to such Consultant is not exempt under Rule 701 of the Securities Act (“ Rule 701 ”) because of the nature of the services that the Consultant is providing to the Company, or because the Consultant is

 

-6-


not a natural person, or as otherwise provided by Rule 701, unless the Company determines that such grant need not comply with the requirements of Rule 701 and will satisfy another exemption under the Securities Act as well as comply with the securities laws of all other relevant jurisdictions.

(ii) From and after the Listing Date, a Consultant shall not be eligible for the grant of a Stock Award if, at the time of grant, a Form S-8 Registration Statement under the Securities Act (“ Form S-8 ”) is not available to register either the offer or the sale of the Company’s securities to such Consultant because of the nature of the services that the Consultant is providing to the Company, or because the Consultant is not a natural person, or as otherwise provided by the rules governing the use of Form S-8, unless the Company determines both (i) that such grant (A) shall be registered in another manner under the Securities Act ( e.g. , on a Form S-3 Registration Statement) or (B) does not require registration under the Securities Act in order to comply with the requirements of the Securities Act, if applicable, and (ii) that such grant complies with the securities laws of all other relevant jurisdictions.

(iii) Rule 701 and Form S-8 generally are available to consultants and advisors only if (i) they are natural persons; (ii) they provide bona fide services to the issuer, its parents, its majority-owned subsidiaries or majority-owned subsidiaries of the issuer’s parent; and (iii) the services are not in connection with the offer or sale of securities in a capital-raising transaction, and do not directly or indirectly promote or maintain a market for the issuer’s securities.

 

  6. O PTION P ROVISIONS .

Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates will be issued for shares of Common Stock purchased on exercise of each type of Option. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions:

(a) Term . Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, no Option granted prior to the Listing Date shall be exercisable after the expiration of ten (10) years from the date it was granted, and no Incentive Stock Option granted on or after the Listing Date shall be exercisable after the expiration of ten (10) years from the date it was granted.

(b) Exercise Price of an Incentive Stock Option . Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Incentive Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code.

 

-7-


(c) Exercise Price of a Nonstatutory Stock Option . Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of each Nonstatutory Stock Option granted prior to the Listing Date shall be not less than eighty-five percent (85%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted. The exercise price of each Nonstatutory Stock Option granted on or after the Listing Date shall be not less than eighty-five percent (85%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code.

(d) Consideration . The purchase price of Common Stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised or (ii) at the discretion of the Board at the time of the grant of the Option (or subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the Company of other Common Stock, (2) according to a deferred payment or other similar arrangement with the Optionholder or (3) in any other form of legal consideration that may be acceptable to the Board. Unless otherwise specifically provided in the Option, the purchase price of Common Stock acquired pursuant to an Option that is paid by delivery to the Company of other Common Stock acquired, directly or indirectly from the Company, shall be paid only by shares of the Common Stock of the Company that have been held for more than six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes). At any time that the Company is incorporated in Delaware, payment of the Common Stock’s “par value,” as defined in the Delaware General Corporation Law, shall not be made by deferred payment.

In the case of any deferred payment arrangement, interest shall be compounded at least annually and shall be charged at the market rate of interest necessary to avoid a charge to earnings for financial accounting purposes.

(e) Transferability of an Incentive Stock Option . An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option.

(f) Transferability of a Nonstatutory Stock Option . A Nonstatutory Stock Option granted prior to the Listing Date shall not be transferable except by will or by the laws of descent and distribution and, to the extent provided in the Option Agreement, to such further extent as permitted by applicable state law at the time of the grant of the Option, and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. A Nonstatutory Stock Option granted on or after the Listing Date shall be transferable to the extent provided in the Option Agreement. If the Nonstatutory Stock Option does not provide for transferability, then the Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option.

 

-8-


(g) Vesting Generally . The total number of shares of Common Stock subject to an Option may, but need not, vest and therefore become exercisable in periodic installments that may, but need not, be equal. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options may vary. The provisions of this subsection 6(g) are subject to any Option provisions governing the minimum number of shares of Common Stock as to which an Option may be exercised.

(h) Minimum Vesting Prior to the Listing Date . Notwithstanding the foregoing subsection 6(g), to the extent that the following restrictions on vesting are required by Section 260.140.41(f) of Title 10 of the California Code of Regulations at the time of the grant of the Option, then:

(i) Options granted prior to the Listing Date to an Employee who is not an Officer, Director or Consultant shall provide for vesting of the total number of shares of Common Stock at a rate of at least twenty percent (20%) per year over five (5) years from the date the Option was granted, subject to reasonable conditions such as continued employment; and

(ii) Options granted prior to the Listing Date to Officers, Directors or Consultants may be made fully exercisable, subject to reasonable conditions such as continued employment, at any time or during any period established by the Company.

(i) Termination of Continuous Service . In the event an Optionholder’s Continuous Service terminates (other than upon the Optionholder’s death or Disability), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination) but only within such period of time ending on the earlier of (i) the date thirty (30) days following the termination of the Optionholder’s Continuous Service (or such longer or shorter period specified in the Option Agreement, which period shall not be less than thirty (30) days for Options granted prior to the Listing Date unless such termination is for cause); or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate.

(j) Extension of Termination Date . An Optionholder’s Option Agreement may also provide that if the exercise of the Option following the termination of the Optionholder’s Continuous Service (other than upon the Optionholder’s death or Disability) would be prohibited at any time solely because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in subsection 6(a) or (ii) the expiration of a period of thirty (30) days after the termination of the Optionholder’s Continuous Service during which the exercise of the Option would not be in violation of such registration requirements.

(k) Disability of Optionholder . In the event that an Optionholder’s Continuous Service terminates as a result of the Optionholder’s Disability, the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination), but only within such period of time ending on the earlier of (i) the date six (6) months

 

-9-


following such termination (or such longer or shorter period specified in the Option Agreement, which period shall not be less than six (6) months for Options granted prior to the Listing Date); or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified herein, the Option shall terminate.

(l) Death of Optionholder . In the event (i) an Optionholder’s Continuous Service terminates as a result of the Optionholder’s death or (ii) the Optionholder dies within the period (if any) specified in the Option Agreement after the termination of the Optionholder’s Continuous Service for a reason other than death, then the Option may be exercised (to the extent the Optionholder was entitled to exercise such Option as of the date of death) by the Optionholder’s estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the option upon the Optionholder’s death pursuant to subsection 6(e) or 6(f), but only within the period ending on the earlier of (1) the date six (6) months following the date of death (or such longer or shorter period specified in the Option Agreement, which period shall not be less than six (6) months for Options granted prior to the Listing Date); or (2) the expiration of the term of such Option as set forth in the Option Agreement. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate.

(m) Early Exercise . The Option may, but need not, include a provision whereby the Optionholder may elect at any time before the Optionholder’s Continuous Service terminates to exercise the Option as to any part or all of the shares of Common Stock subject to the Option prior to the full vesting of the Option. Subject to the “Repurchase Limitation” in subsection 10(h), any unvested shares of Common Stock so purchased may be subject to a repurchase option in favor of the Company or to any other restriction the Board determines to be appropriate.

(n) Right of Repurchase . Subject to the “Repurchase Limitation” in subsection 10(h), the Option may, but need not, include a provision whereby the Company may elect, prior to the Listing Date, to repurchase all or any part of the vested shares of Common Stock acquired by the Optionholder pursuant to the exercise of the Option.

(o) Right of First Refusal . The Option may, but need not, include a provision whereby the Company may elect, prior to the Listing Date, to exercise a right of first refusal following receipt of notice from the Optionholder of the intent to transfer all or any part of the shares of Common Stock received upon the exercise of the Option. Except as expressly provided in this subsection 6(o), such right of first refusal shall otherwise comply with any applicable provisions of the Bylaws of the Company.

 

  7. P ROVISIONS OF S TOCK A WARDS OTHER THAN O PTIONS .

(a) Stock Bonus Awards . Each stock bonus agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of stock bonus agreements may change from time to time, and the terms and conditions of separate stock bonus agreements need not be identical, but each stock bonus agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:

(i) Consideration . A stock bonus may be awarded in consideration for past services actually rendered to the Company or an Affiliate for its benefit.

 

-10-


(ii) Vesting . Subject to the “Repurchase Limitation” in subsection 10(h), shares of Common Stock awarded under the stock bonus agreement may, but need not, be subject to a share repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Board.

(iii) Termination of Participant’s Continuous Service . Subject to the “Repurchase Limitation” in subsection 10(h), in the event a Participant’s Continuous Service terminates, the Company may reacquire any or all of the shares of Common Stock held by the Participant which have not vested as of the date of termination under the terms of the stock bonus agreement.

(iv) Transferability . For a stock bonus award made before the Listing Date, rights to acquire shares of Common Stock under the stock bonus agreement shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Participant only by the Participant. For a stock bonus award made on or after the Listing Date, rights to acquire shares of Common Stock under the stock bonus agreement shall be transferable by the Participant only upon such terms and conditions as are set forth in the stock bonus agreement, as the Board shall determine in its discretion, so long as Common Stock awarded under the stock bonus agreement remains subject to the terms of the stock bonus agreement.

(b) Restricted Stock Awards . Each restricted stock purchase agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of the restricted stock purchase agreements may change from time to time, and the terms and conditions of separate restricted stock purchase agreements need not be identical, but each restricted stock purchase agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:

(i) Purchase Price . Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, the purchase price under each restricted stock purchase agreement shall be such amount as the Board shall determine and designate in such restricted stock purchase agreement. For restricted stock awards made prior to the Listing Date, the purchase price shall not be less than eighty-five percent (85%) of the Common Stock’s Fair Market Value on the date such award is made or at the time the purchase is consummated. For restricted stock awards made on or after the Listing Date, the purchase price shall not be less than eighty-five percent (85%) of the Common Stock’s Fair Market Value on the date such award is made or at the time the purchase is consummated.

(ii) Consideration . The purchase price of Common Stock acquired pursuant to the restricted stock purchase agreement shall be paid either: (i) in cash at the time of purchase; (ii) at the discretion of the Board, according to a deferred payment or other similar arrangement with the Participant; or (iii) in any other form of legal consideration that may be acceptable to the Board in its discretion; provided, however, that at any time that the Company is incorporated in Delaware, then payment of the Common Stock’s “par value,” as defined in the Delaware General Corporation Law, shall not be made by deferred payment.

 

-11-


(iii) Vesting . Subject to the “Repurchase Limitation” in subsection 10(h), shares of Common Stock acquired under the restricted stock purchase agreement may, but need not, be subject to a share repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Board.

(iv) Termination of Participant’s Continuous Service . Subject to the “Repurchase Limitation” in subsection 10(h), in the event a Participant’s Continuous Service terminates, the Company may repurchase or otherwise reacquire any or all of the shares of Common Stock held by the Participant, which have not vested as of the date of termination under the terms of the restricted stock purchase agreement.

(v) Transferability . For a restricted stock award made before the Listing Date, rights to acquire shares of Common Stock under the restricted stock purchase agreement shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Participant only by the Participant. For a restricted stock award made on or after the Listing Date, rights to acquire shares of Common Stock under the restricted stock purchase agreement shall be transferable by the Participant only upon such terms and conditions as are set forth in the restricted stock purchase agreement, as the Board shall determine in its discretion, so long as Common Stock awarded under the restricted stock purchase agreement remains subject to the terms of the restricted stock purchase agreement.

 

  8. C OVENANTS OF THE C OMPANY .

(a) Availability of Shares . During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Stock Awards.

(b) Securities Law Compliance . The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Stock Awards and to issue and sell shares of Common Stock upon exercise of the Stock Awards; provided, however, that this undertaking shall not require the Company to register under the Securities Act the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell Common Stock upon exercise of such Stock Awards unless and until such authority is obtained.

 

  9. U SE OF P ROCEEDS FROM S TOCK .

Proceeds from the sale of Common Stock pursuant to Stock Awards shall constitute general funds of the Company.

 

-12-


  10. M ISCELLANEOUS .

(a) Acceleration of Exercisability and Vesting . The Board shall have the power to accelerate the time at which a Stock Award may first be exercised or the time during which a Stock Award or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest.

(b) Stockholder Rights . No Participant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to such Stock Award unless and until such Participant has satisfied all requirements for exercise of the Stock Award pursuant to its terms.

(c) No Employment or other Service Rights . Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Stock Award was granted or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant pursuant to the terms of such Consultant’s agreement with the Company or an Affiliate, or (iii) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be.

(d) Incentive Stock Option $100,000 Limitation . To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options.

(e) Investment Assurances . The Company may require a Participant, as a condition of exercising or acquiring Common Stock under any Stock Award, (i) to give written assurances satisfactory to the Company as to the Participant’s knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award; and (ii) to give written assurances satisfactory to the Company stating that the Participant is acquiring Common Stock subject to the Stock Award for the Participant’s own account and not with any present intention of selling or otherwise distributing the Common Stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (1) the issuance of the shares of Common Stock upon the exercise or acquisition of Common Stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act or (2) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Common Stock.

 

-13-


(f) Withholding Obligations . To the extent provided by the terms of a Stock Award Agreement, the Participant may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of Common Stock under a Stock Award by any of the following means (in addition to the Company’s right to withhold from any compensation paid to the Participant by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold shares of Common Stock from the shares of Common Stock otherwise issuable to the Participant as a result of the exercise or acquisition of Common Stock under the Stock Award, provided, however, that no shares of Common Stock are withheld with a value exceeding the minimum amount of tax required to be withheld by law; or (iii) delivering to the Company owned and unencumbered shares of Common Stock.

(g) Information Obligation . Prior to the Listing Date, to the extent required by applicable state law, the Company shall deliver financial statements to Participants at least annually. This subsection 10(g) shall not apply to key Employees whose duties in connection with the Company assure them access to equivalent information.

(h) Repurchase Limitation . The terms of any repurchase option shall be specified in the Stock Award and may be either at Fair Market Value at the time of repurchase or at not less than the original purchase price. To the extent required by applicable state law at the time a Stock Award is made, any repurchase option contained in a Stock Award granted prior to the Listing Date to a person who is not an Officer, Director or Consultant shall be upon the terms described below:

(i) Fair Market Value . If the repurchase option gives the Company the right to repurchase the shares of Common Stock upon termination of employment at not less than the Fair Market Value of the shares of Common Stock to be purchased on the date of termination of Continuous Service, then (i) the right to repurchase shall be exercised for cash or cancellation of purchase money indebtedness for the shares of Common Stock within ninety (90) days of termination of Continuous Service (or in the case of shares of Common Stock issued upon exercise of Stock Awards after such date of termination, within ninety (90) days after the date of the exercise) or such longer period as may be agreed to by the Company and the Participant (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the Code regarding “qualified small business stock”); and (ii) the right terminates when the shares of Common Stock become publicly traded.

(ii) Original Purchase Price . If the repurchase option gives the Company the right to repurchase the shares of Common Stock upon termination of Continuous Service at the original purchase price, then (i) the right to repurchase at the original purchase price shall lapse at the rate of at least twenty percent (20%) of the shares of Common Stock per year over five (5) years from the date the Stock Award is granted (without respect to the date the Stock Award was exercised or became exercisable) and (ii) the right to repurchase shall be exercised for cash or cancellation of purchase money indebtedness for the shares of Common Stock within ninety (90) days of termination of Continuous Service (or in the case of shares of Common Stock issued upon

 

-14-


exercise of Options after such date of termination, within ninety (90) days after the date of the exercise) or such longer period as may be agreed to by the Company and the Participant (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the Code regarding “qualified small business stock”).

 

  11. A DJUSTMENTS UPON C HANGES IN S TOCK .

(a) Capitalization Adjustments . If any change is made in the Common Stock subject to the Plan, or subject to any Stock Award, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted in the class(es) and maximum number of securities subject to the Plan pursuant to subsection 4(a) and the maximum number of securities subject to award to any person pursuant to subsection 5(c), and the outstanding Stock Awards will be appropriately adjusted in the class(es) and number of securities and price per share of Common Stock subject to such outstanding Stock Awards. The Board shall make such adjustments, and its determination shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a transaction “without receipt of consideration” by the Company.)

(b) Dissolution or Liquidation . In the event of a dissolution or liquidation of the Company, then all outstanding Stock Awards shall terminate immediately prior to such event.

(c) Asset Sale, Merger, Consolidation or Reverse Merger . In the event of (i) a sale, lease or other disposition of all or substantially all of the assets of the Company, (ii) a merger or consolidation in which the Company is not the surviving corporation or (iii) a reverse merger in which the Company is the surviving corporation but the shares of Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise (individually, a “Corporate Transaction”), then any surviving corporation or acquiring corporation shall assume any Stock Awards outstanding under the Plan or shall substitute similar stock awards (including an award to acquire the same consideration paid to the stockholders in the Corporate Transaction) for those outstanding under the Plan. In the event any surviving corporation or acquiring corporation refuses to assume such Stock Awards or to substitute similar stock awards for those outstanding under the Plan, then with respect to Stock Awards held by Participants whose Continuous Service has not terminated, the vesting of such Stock Awards (and, if applicable, the time during which such Stock Awards may be exercised) shall be accelerated in full, and the Stock Awards shall terminate if not exercised (if applicable) at or prior to the Corporate Transaction. With respect to any other Stock Awards outstanding under the Plan, such Stock Awards shall terminate if not exercised (if applicable) prior to the Corporate Transaction.

 

  12. A MENDMENT OF THE P LAN AND S TOCK A WARDS .

(a) Amendment of Plan . The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 11 relating to adjustments upon changes in Common Stock, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or securities exchange listing requirements.

 

-15-


(b) Stockholder Approval . The Board may, in its sole discretion, submit any other amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers.

(c) Contemplated Amendments . It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith.

(d) No Impairment of Rights . Rights under any Stock Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the Participant and (ii) the Participant consents in writing.

(e) Amendment of Stock Awards . The Board at any time, and from time to time, may amend the terms of any one or more Stock Awards; provided, however, that the rights under any Stock Award shall not be impaired by any such amendment unless (i) the Company requests the consent of the Participant and (ii) the Participant consents in writing.

 

  13. T ERMINATION OR S USPENSION OF THE P LAN .

(a) Plan Term . The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on the day before the tenth (10th) anniversary of the date the Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated.

(b) No Impairment of Rights . Suspension or termination of the Plan shall not impair rights and obligations under any Stock Award granted while the Plan is in effect except with the written consent of the Participant.

 

  14. E FFECTIVE D ATE OF P LAN .

The Plan shall become effective as determined by the Board, but no Stock Award shall be exercised (or, in the case of a stock bonus, shall be granted) unless and until the Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board.

 

  15. C HOICE OF L AW .

The law of the State of California shall govern all questions concerning the construction, validity and interpretation of this Plan, without regard to such state’s conflict of laws rules.

 

-16-

Exhibit 10.2A

AMENDMENT TO THE

TESLA MOTORS, INC.

2003 EQUITY INCENTIVE PLAN

Tesla Motors, Inc. (the “ Company ”), having adopted the Tesla Motors, Inc. 2003 Equity Incentive Plan (the “ 2003 Plan ”), hereby amends the 2003 Plan as follows, effective as of December 16, 2009:

1. Section 2 of the 2003 Plan is hereby amended to add the following definition of “Exchange Program” as a new subsection (n) and the existing subsections (n) through (dd) are redefined as (o) through (ee), respectively:

(n) Exchange Program ” means a program under which (i) outstanding Stock Awards are surrendered or cancelled in exchange for Stock Awards of the same type (which may have higher or lower exercise prices and different terms), awards of a different type, and/or cash, (ii) Participants would have the opportunity to transfer any outstanding Stock Awards to a financial institution or other person or entity selected by the Board, and/or (iii) the exercise price of an outstanding Stock Award is reduced. The Board will determine the terms and conditions of any Exchange Program in its sole discretion.”

2. Section 3(b) of the 2003 Plan is hereby amended to add the following power for the Company’s board of directors:

“(v) To determine the terms and conditions of any, and to institute any Exchange Program.”

3. Section 4(b) of the 2003 Plan is hereby amended to account for shares subject to stock awards that are surrendered pursuant to an Exchange Program and replaced in its entirety to read as follows:

(b) Reversion of Shares to the Share Reserve . If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, or is surrendered pursuant to an Exchange Program, the shares of Common Stock not acquired under such Stock Award shall revert to and again become available for issuance under the Plan.”

IN WITNESS WHEREOF, the Company, by its duly authorized officer, has executed this Amendment to the 2003 Plan on the date indicated below.

 

    Tesla Motors, Inc.

Dated: December 16, 2009

    By  

/s/ Craig W. Harding

    Title:   Secretary

Exhibit 10.2B

AMENDMENT TO THE

TESLA MOTORS, INC.

2003 EQUITY INCENTIVE PLAN

Tesla Motors, Inc. (the “ Company ”), having adopted the Tesla Motors, Inc. 2003 Equity Incentive Plan (the “ 2003 Plan ”), hereby amends the 2003 Plan as follows, effective as of January 25, 2010:

1.    Section 6(f) of the 2003 Plan is hereby amended to add the following new sentence to the end thereof:

“Notwithstanding anything in the Plan to the contrary, Non-Employee Directors may freely transfer Nonstatutory Stock Options to either (i) their venture capital funds or (ii) their employers (or an affiliate, within the meaning of Section 424(e) and (f) of the Code, of a Non-Employee Director’s employer).”

IN WITNESS WHEREOF , the Company, by its duly authorized officer, has executed this Amendment to the 2003 Plan on the date indicated below.

 

   

Tesla Motors, Inc.

Dated: January 26, 2010

   

By

 

/s/ Elon Musk

   

Title

 

Chief Executive Officer

     

Exhibit 10.3

TESLA MOTORS, INC.

STOCK OPTION GRANT NOTICE

2003 EQUITY INCENTIVE PLAN

Tesla Motors, Inc. (the Company ), pursuant to its 2003 Equity Incentive Plan (the Plan ), hereby grants to Optionholder an option to purchase the number of shares of the Company’s Common Stock set forth below. This option is subject to all of the terms and conditions as set forth herein and in the Stock Option Agreement, the Plan and the Notice of Exercise, all of which are attached hereto or incorporated herein in their entirety.

 

Optionholder:

     

Date of Grant:

     

Vesting Commencement Date:

     

Number of Shares Subject to Option:

     

Exercise Price (Per Share):

     

Total Exercise Price:

     

Expiration Date:

     

Type of Grant:

 

¨ Incentive Stock Option 1

 

¨ Nonstatutory Stock Option

Exercise Schedule:

 

Same as Vesting Schedule.

 

Vesting Schedule:

     
     
     
     

Payment:

 

By one or a combination of the following items (described in the Stock Option Agreement):

 
 

By cash or check

Pursuant to a Regulation T Program if the Shares are publicly traded

By delivery of already-owned shares if the Shares are publicly traded

By any other form of consideration approved by the Company’s Board of Directors

Additional Terms/Acknowledgements: The undersigned Optionholder acknowledges receipt of, and understands and agrees to, this Grant Notice, the Stock Option Agreement and the Plan. Optionholder further acknowledges that as of the Date of Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the entire understanding between Optionholder and the Company regarding the acquisition of stock in the Company and supersede all prior oral and written agreements on that subject with the exception of (i) options previously granted and delivered to Optionholder under the Plan, and (ii) the following agreements only:

 

O THER A GREEMENTS :

       
     

 

T ESLA M OTORS I NC .:

   

O PTIONHOLDER :

By:

             
  Signature       Signature

Title:

       

Date:

   

Date:

         

ATTACHMENTS: STOCK OPTION AGREEMENT AND NOTICE OF EXERCISE

 

 

1

If this is an incentive stock option, it (plus your other outstanding incentive stock options) cannot be first exercisable for more than $100,000 in any calendar year. Any excess over $100,000 is a nonstatutory option.


TESLA MOTORS, INC.

2003 EQUITY INCENTIVE PLAN

STOCK OPTION AGREEMENT

(INCENTIVE STOCK OPTION OR NONSTATUTORY STOCK OPTION)

Pursuant to your Stock Option Grant Notice ( Grant Notice ) and this Stock Option Agreement, Tesla Motors, Inc. (the Company ) has granted you an option under its 2003 Equity Incentive Plan (the Plan ) to purchase the number of shares of the Company’s Common Stock indicated in your Grant Notice at the exercise price indicated in your Grant Notice. Defined terms not explicitly defined in this Stock Option Agreement but defined in the Plan shall have the same definitions as in the Plan.

The details of your option are as follows:

1. V ESTING . Subject to the limitations contained herein, your option will vest as provided in your Grant Notice, provided that vesting will cease upon the termination of your Continuous Service.

2. N UMBER OF S HARES AND E XERCISE P RICE . The number of shares of Common Stock subject to your option and your exercise price per share referenced in your Grant Notice may be adjusted from time to time for Capitalization Adjustments, as provided in the Plan.

3. E XERCISE PRIOR TO V ESTING (“ E ARLY E XERCISE ) . If permitted in your Grant Notice ( i.e. , the Exercise Schedule indicates that Early Exercise of your option is permitted) and subject to the provisions of your option, you may elect at any time that is both (i) during the period of your Continuous Service and (ii) during the term of your option, to exercise all or part of your option, including the nonvested portion of your option; provided, however, that:

(a) a partial exercise of your option shall be deemed to cover first vested shares of Common Stock and then the earliest vesting installment of unvested shares of Common Stock;

(b) any shares of Common Stock so purchased from installments that have not vested as of the date of exercise shall be subject to the purchase option in favor of the Company as described in the Company’s form of Early Exercise Stock Purchase Agreement;

(c) you shall enter into the Company’s form of Early Exercise Stock Purchase Agreement with a vesting schedule that will result in the same vesting as if no early exercise had occurred; and

(d) if your option is an incentive stock option, then, as provided in the Plan, to the extent that the aggregate Fair Market Value (determined at the time of grant) of the shares of Common Stock with respect to which your option plus all other incentive stock options you hold are exercisable for the first time by you during any calendar year (under all plans of the Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), your option(s) or portions thereof that exceed such limit (according to the order in which they were granted) shall be treated as nonstatutory stock options.

 

1.


4. M ETHOD OF P AYMENT . Payment of the exercise price is due in full upon exercise of all or any part of your option. You may elect to make payment of the exercise price in cash or by check or in any other manner permitted by your Grant Notice , which may include one or more of the following:

(a) In the Company’s sole discretion at the time your option is exercised and provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal , pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds.

(i) Provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal , by delivery of already-owned shares of Common Stock either that you have held for the period required to avoid a charge to the Company’s reported earnings (generally six months) or that you did not acquire, directly or indirectly from the Company, that are owned free and clear of any liens, claims, encumbrances or security interests, and that are valued at Fair Market Value on the date of exercise. Delivery for these purposes, in the sole discretion of the Company at the time you exercise your option, shall include delivery to the Company of your attestation of ownership of such shares of Common Stock in a form approved by the Company. Notwithstanding the foregoing, you may not exercise your option by tender to the Company of Common Stock to the extent such tender would violate the provisions of any law, regulation or agreement restricting the redemption of the Company’s stock.

5. W HOLE S HARES . You may exercise your option only for whole shares of Common Stock.

6. S ECURITIES L AW C OMPLIANCE . Notwithstanding anything to the contrary contained herein, you may not exercise your option unless the shares of Common Stock issuable upon such exercise are then registered under the Securities Act or, if such shares of Common Stock are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. The exercise of your option must also comply with other applicable laws and regulations governing your option, and you may not exercise your option if the Company determines that such exercise would not be in material compliance with such laws and regulations.

 

2.


7. T ERM . You may not exercise your option before the commencement of its term or after its term expires. The term of your option commences on the Date of Grant and expires upon the earliest of the following:

(a) thirty (30) days after the termination of your Continuous Service for any reason other than your Disability or death, provided that if during any part of such thirty (30) day period your option is not exercisable solely because of the condition set forth in the preceding paragraph relating to Securities Law Compliance , your option shall not expire until the earlier of the Expiration Date or until it shall have been exercisable for an aggregate period of thirty (30) days after the termination of your Continuous Service;

(b) six (6) months after the termination of your Continuous Service due to your Disability;

(c) six (6) months after your death if you die either during your Continuous Service or within thirty (30) days after your Continuous Service terminates;

(d) the Expiration Date indicated in your Grant Notice; or

(e) the day before the seventh (7th) anniversary of the Date of Grant.

If your option is an incentive stock option, note that, to obtain the federal income tax advantages associated with an incentive stock option , the Code requires that at all times beginning on the date of grant of your option and ending on the day three (3) months before the date of your option’s exercise, you must be an employee of the Company or an Affiliate, except in the event of your death or Disability. The Company has provided for extended exercisability of your option under certain circumstances for your benefit but cannot guarantee that your option will necessarily be treated as an incentive stock option if you continue to provide services to the Company or an Affiliate as a Consultant or Director after your employment terminates or if you otherwise exercise your option more than three (3) months after the date your employment terminates.

8. E XERCISE .

(a) You may exercise the vested portion of your option (and the unvested portion of your option if your Grant Notice so permits) during its term by delivering a Notice of Exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require.

(b) By exercising your option you agree that, as a condition to any exercise of your option, the Company may require you to enter into an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of your option, (2) the lapse of any substantial risk of forfeiture to which the shares of Common Stock are subject at the time of exercise, or (3) the disposition of shares of Common Stock acquired upon such exercise.

(c) If your option is an incentive stock option, by exercising your option you agree that you will notify the Company in writing within fifteen (15) days after the date of any disposition of any of the shares of the Common Stock issued upon exercise of your option that occurs within two (2) years after the date of your option grant or within one (1) year after such shares of Common Stock are transferred upon exercise of your option.

 

3.


(d) By exercising your option, you agree that the Company (or a representative of the underwriter(s)) may, in connection with the first underwritten registration of the offering of any securities of the Company under the Securities Act, require that you not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Common Stock or other securities of the Company held by you, for a period of time specified by the underwriter(s) (not to exceed one hundred eighty (180) days) following the effective date of the registration statement of the Company filed under the Securities Act. You further agree to execute and deliver such other agreements as may be reasonably requested by the Company and/or the underwriter(s) that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to your shares of Common Stock until the end of such period. The underwriters of the Company’s stock are intended third party beneficiaries of this Section 8(d) and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto.

9. T RANSFERABILITY . Your option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to exercise your option.

10. R IGHT OF F IRST R EFUSAL . Shares of Common Stock that you acquire upon exercise of your option are subject to any right of first refusal that may be described in the Company’s bylaws in effect at such time the Company elects to exercise its right. The Company’s right of first refusal shall expire on the Listing Date.

11. R IGHT OF R EPURCHASE . To the extent provided in the Company’s bylaws as amended from time to time, the Company shall have the right to repurchase all or any part of the shares of Common Stock you acquire pursuant to the exercise of your option.

12. O PTION NOT A S ERVICE C ONTRACT . Your option is not an employment or service contract, and nothing in your option shall be deemed to create, in any way whatsoever, any obligation on your part to continue in the employ of the Company or an Affiliate, or of the Company or an Affiliate to continue your employment. In addition, nothing in your option shall obligate the Company or an Affiliate, their respective stockholders, Boards of Directors, Officers or Employees to continue any relationship that you might have as a Director or Consultant for the Company or an Affiliate.

13. W ITHHOLDING O BLIGATIONS .

(a) At the time you exercise your option, in whole or in part, or at any time thereafter as requested by the Company, you hereby authorize withholding from payroll and any other amounts payable to you, and otherwise agree to make adequate provision for (including by means of a cashless exercise pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or an Affiliate, if any, which arise in connection with your option.

 

4.


(b) Upon your request and subject to approval by the Company, in its sole discretion, and compliance with any applicable conditions or restrictions of law, the Company may withhold from fully vested shares of Common Stock otherwise issuable to you upon the exercise of your option a number of whole shares of Common Stock having a Fair Market Value, determined by the Company as of the date of exercise, not in excess of the minimum amount of tax required to be withheld by law. If the date of determination of any tax withholding obligation is deferred to a date later than the date of exercise of your option, share withholding pursuant to the preceding sentence shall not be permitted unless you make a proper and timely election under Section 83(b) of the Code, covering the aggregate number of shares of Common Stock acquired upon such exercise with respect to which such determination is otherwise deferred, to accelerate the determination of such tax withholding obligation to the date of exercise of your option. Notwithstanding the filing of such election, shares of Common Stock shall be withheld solely from fully vested shares of Common Stock determined as of the date of exercise of your option that are otherwise issuable to you upon such exercise. Any adverse consequences to you arising in connection with such share withholding procedure shall be your sole responsibility.

(c) You may not exercise your option unless the tax withholding obligations of the Company and/or any Affiliate are satisfied. Accordingly, you may not be able to exercise your option when desired even though your option is vested, and the Company shall have no obligation to issue a certificate for such shares of Common Stock or release such shares of Common Stock from any escrow provided for herein.

14. N OTICES . Any notices provided for in your option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by mail by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company.

15. G OVERNING P LAN D OCUMENT . Your option is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your option, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of your option and those of the Plan, the provisions of the Plan shall control.

16. E XERCISE PRIOR TO V ESTING (“ E ARLY E XERCISE ”) . If permitted in your Grant Notice ( i.e. , the Exercise Schedule indicates that Early Exercise of your option is permitted) and subject to the provisions of your option, you may elect at any time that is both (i) during the period of your Continuous Service and (ii) during the term of your option, to exercise all or part of your option, including the nonvested portion of your option; provided, however, that:

(a) a partial exercise of your option shall be deemed to cover first vested shares of Common Stock and then the earliest vesting installment of unvested shares of Common Stock;

 

5.


(b) any shares of Common Stock so purchased from installments that have not vested as of the date of exercise shall be subject to the purchase option in favor of the Company as described in the Company’s form of Early Exercise Stock Purchase Agreement; and

(c) you shall enter into the Company’s form of Early Exercise Stock Purchase Agreement with a vesting schedule that will result in the same vesting as if no early exercise had occurred.

17. ISO E XERCISE L IMITATION .

(a) The aggregate Fair Market Value of the shares of Common Stock with respect to which you may exercise your option for the first time during any calendar year, when added to the aggregate Fair Market Value of the shares of Common Stock subject to any other options designated as Incentive Stock Options and granted to you under any stock option plan of the Company or an Affiliate prior to the Date of Grant with respect to which such options are exercisable for the first time during the same calendar year, shall not exceed $100,000 (the ISO Exercise Limitation ) unless applicable law requires that your option be exercisable sooner. 2

(b) Notwithstanding the provisions of paragraph 4(a), if the ISO Exercise Limitation would prevent you from exercising your option as to vested shares, then the ISO Exercise Limitation shall terminate as to such vested shares as such shares vest, and you may exercise your option as to such vested shares. Upon such termination of the ISO Exercise Limitation, your option shall be deemed a Nonstatutory Stock Option to the extent of the number of vested shares of Common Stock subject to your option that would otherwise exceed the ISO Exercise Limitation.

(c) The ISO Exercise Limitation shall terminate, and you may fully exercise your option, as to all shares of Common Stock subject to your option for which your option would have been exercisable in the absence of the ISO Exercise Limitation upon the earlier of the following events:

(i) the date of termination of your Continuous Service,

(ii) the day immediately prior to the effective date of a Corporate Transaction described in subsection 11(c) the Plan in which your option is not assumed or substituted for as provided in the Plan, or

(iii) the day that is ten (10) days prior to the Expiration Date of your option.

 

 

2

For purposes of this provision, your options designated as Incentive Stock Options shall be taken into account in the order in which they were granted to you, and the Fair Market Value of shares of Common Stock shall be determined as of the time the option with respect to such shares of Common Stock is granted. If Section 422 of the Code is amended to provide for a different limitation from that set forth in this provision, the ISO Exercise Limitation shall be deemed amended effective as of the date required or permitted by such amendment to the Code.

 

6.


Upon such termination of the ISO Exercise Limitation, your option shall be deemed a Nonstatutory Stock Option to the extent of the number of shares of Common Stock subject to your option that would otherwise then exceed the ISO Exercise Limitation.

18. T RANSFERABILITY .

(a) If your option is an incentive stock option, your option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to exercise your option.

(b) If your option is a nonstatutory stock option, your option is not transferable, except (i) by will or by the laws of descent and distribution; (ii) with the prior written approval of the Company, by instrument to an inter vivos or testamentary trust, in a form accepted by the Company, in which the option is to be passed to beneficiaries upon the death of the trustor (settlor); and (iii) with the prior written approval of the Company, by gift, in a form accepted by the Company, to your immediate family as that term is defined in 17 C.F.R. 240.16a-1(e). The term immediate family is defined in 17 C.F.R. 240.16a-1(e) to mean any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and includes adoptive relationships. Your option is exercisable during your life only by you or a transferee satisfying the above-stated conditions. The right of a transferee to exercise the transferred portion of your option after termination of your Continuous Service shall terminate in accordance with your right to exercise your option as specified in your option. In the event that your Continuous Service terminates due to your death, your transferee will be treated as a person who acquired the right to exercise your option by bequest or inheritance. In addition to the foregoing, the Company may require, as a condition of the transfer of your option to a trust or by gift, that your transferee enter into an option transfer agreement provided by, or acceptable to, the Company. The terms of your option shall be binding upon your transferees, executors, administrators, heirs, successors, and assigns. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to exercise your option.

[S IGNATURE P AGE F OLLOWS ]

 

7.


I N W ITNESS W HEREOF , the parties have executed this Agreement as of the date first above written.

 

T ESLA M OTORS , I NC .

   

“OPTIONEE”

By:

           
        (Signature)

Its:

         
        (Type or print name)

S IGNATURE P AGE TO S TOCK O PTION A GREEMENT

Exhibit 10.9

LOGO

October 13, 2008

Elon Musk

 

  Re: Offer of Employment with Tesla Motors

Dear Elon:

Tesla Motors, Inc. is pleased to offer you the position of Chief Executive Officer. As CEO, you will perform the duties customarily associated with this position, and the duties of the office of CEO as described in Section 28(c) of the Bylaws of Tesla Motors. You will also remain on the Board of Directors of Tesla.

Your salary will be $33,280 per year, subject to standard payroll deductions and withholdings. As an exempt employee, you will not be entitled to overtime. You will be eligible for vacation and sick leave according to Tesla's standard policy. You will also be eligible to receive all other benefits Tesla may provide to its employees (e.g., health and dental insurance coverage) after your enrollment on October 31, 2008. Of course, Tesla reserves the right to modify your compensation and benefits from time to time, as it deems necessary.

By accepting this offer, you represent and warrant that your employment with Tesla will not violate any agreements, obligations or understandings that you may have with any third party or prior employer. We want to emphasize that we do not wish you to bring any confidential or proprietary materials of any former employer which would violate any obligations you may have to any former employer. You agree not to make any unauthorized disclosure to Tesla or use on behalf of Tesla any confidential information belonging to any of your former employers (except in accordance with agreements between Tesla and any such former employer). You also warrant that you do not possess any property containing a third party's confidential and proprietary information. Of course, during your employment with Tesla, you may make use of information generally known and used by persons with training and experience comparable to your own, and information which is common knowledge in the industry or is otherwise legally available in the public domain.

As a Tesla employee, you will be expected to abide by all Tesla policies and procedures, and, as a condition of your employment, you will sign and comply with Tesla's standard confidentiality agreement which prohibits unauthorized use or disclosure of Tesla confidential information or the confidential information of Tesla's clients.

You may terminate your employment with Tesla at any time and for any reason whatsoever simply by notifying Tesla. Likewise, Tesla may terminate your employment at any time and for any reason whatsoever, with or without cause or advance notice. This at-will employment relationship cannot be changed except by a writing authorized on behalf of an officer of Tesla.

 

www.teslamotors.com

 

LOGO

  1050 Bing Street San Carlos CA 94070 tel 650.413.4000 fax 650.413.4099

© 2007 Tesla Motors Inc. Proprietary and Confidential


LOGO

To ensure the rapid and economical resolution of disputes that may arise in connection with your employment with Tesla, you and Tesla agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to your employment, or the termination of your employment, will be resolved, to the fullest extent permitted by law per Attachment A.

This letter agreement constitutes the complete, final and exclusive embodiment of the entire agreement between you and Tesla with respect to the terms and conditions of your employment, and it supersedes any other agreements or promises made to you by anyone, whether oral or written. This Agreement cannot be changed, amended, or modified except in a written agreement signed by an officer of Tesla. This letter agreement shall be construed and interpreted in accordance with the laws of the State of California.

As required by immigration law, this offer of employment is conditioned upon satisfactory proof of your right to work in the United States.

If you choose to accept our offer under the terms described above, please indicate your acceptance by signing below and returning it to me prior to October 17, 2008, at which time this offer will expire. The effective date of your employment will be October 13, 2008.

We look forward to your favorable reply and to a productive and enjoyable work relationship.

 

Very truly yours,

Tesla Motors, Inc.

/s/ Craig W. Harding

Craig W. Harding

General Counsel & Secretary

 

Accepted by:   /s/ Elon Musk
  Elon Musk

 

Date:       Nov 7 2008
 

 

www.teslamotors.com

 

LOGO

  1050 Bing Street San Carlos CA 94070 tel 650.413.4000 fax 650.413.4099

© 2007 Tesla Motors Inc. Proprietary and Confidential


LOGO

ARBITRATION AGREEMENT

To ensure the rapid and economical resolution of disputes that may arise in connection with your employment with Tesla, you and Tesla agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to your employment, or the termination of your employment, will be resolved, to the fullest extent permitted by law by final, binding and confidential arbitration in San Francisco, California conducted by the Judicial Arbitration and Mediation Services/Endispute, Inc. (“JAMS”), or its successors, under the then current rules of JAMS for employment disputes; provided that:

 

  a. The arbitrator shall have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and

 

  b. The arbitrator shall issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award; and

 

  c. Both you and Tesla shall be entitled to all rights and remedies that you or Tesla would be entitled to pursue in a court of law; and

 

  d. Tesla shall pay all fees in excess of those which would be required if the dispute was decided in a court of law.

Nothing in this Agreement is intended to prevent either you or Tesla from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Notwithstanding the foregoing, you and Tesla each have the right to resolve any issue or dispute arising under the Proprietary Information and Inventions Agreement by Court action instead of arbitration.

Arbitrable claims do not include, and this Agreement does not apply to or otherwise restrict, administrative claims you may bring before any government agency where, as a matter of law, the parties may not restrict your ability to file such claims (including the Equal Employment Opportunity Commission and the National Labor Relations Board). Otherwise, it is agreed that arbitration shall be the exclusive remedy for administrative claims.

 

www.teslamotors.com

 

LOGO

  1050 Bing Street San Carlos CA 94070 tel 650.413.4000 fax 650.413.4099

© 2007 Tesla Motors Inc. Proprietary and Confidential

Exhibit 10.10

June 13, 2008

Deepak Ahuja

Re: Offer of Employment with Tesla Motors

Dear Deepak:

Pursuant to the verbal agreement you made with Ze’ev Drori on June 7, Tesla Motors, Inc. is pleased to offer you the position of Chief Financial Officer on the terms set forth below.

As Chief Financial Officer you will perform the duties customarily associated with this position, including responsibility for all financial affairs at Tesla. You will report to Ze’ev Drori, President and CEO of Tesla. You will be located at Tesla’s headquarters offices in San Carlos, California.

Your salary will be $275,000 per year, subject to standard payroll deductions and withholdings. As an exempt employee, you will not be entitled to overtime. You will be eligible for paid time off according to Tesla’s standard policy. You will also be eligible to receive all other benefits Tesla may provide to its employees ( e.g. , health and dental insurance coverage) and your enrollment in health care insurance plans will commence on August 1, 2008.

Subject to your joining the Company on or before July 31, Tesla’s Board of Directors will grant you a stock option to purchase an aggregate of 250,000 shares of Tesla’s common stock pursuant to Tesla’s Equity Incentive Plan. The exercise price of the stock options will be determined by the Board of Directors; the option exercise price is currently $0.90 per share. Your stock options will vest commencing upon your first day of employment. One fourth of options vest one year after the vesting commencement date, and 1/48th of the options vest monthly thereafter over the following three years.

In the event of a merger, consolidation, sale of assets or other change of control of Tesla and should you be terminated without cause within one year after such event, you will be entitled to 12 months of additional vesting of such options. Other than the foregoing, there shall be no accelerated vesting in any event.

With respect to relocation, Tesla will provide the following:

 

 

 

Reimbursement for up to one year of rent payments (not to exceed $5,000 per month) for a reasonable residence for you and your family;

 

 

 

Reimbursement for any sales commissions and closing costs for sale of your current residence in Michigan, not to exceed $70,000; provided however that in the event you voluntarily terminate your employment with Tesla at any time within 18 months of commencement of employment, then you will repay such amounts to Tesla;


 

 

Reimbursement for the reasonable costs of transporting household goods and personal effects and up to two cars for you, including packing and unpacking of all goods and insurance for the full value while in transit, provided you obtain at least three estimates for moving services and consult with Tesla before selecting one;

 

 

 

Reimbursement for a travel and living expenses (including reasonable hotel accommodations) for trip of up to one week for you and your family to the San Francisco Bay Area prior to commencement of employment for the purposes of finding a new residence; and

 

 

 

Reimbursement for reasonable hotel expenses for up to 10 days for you and for you and your family for the period of time the household goods and personal effects are in transit.

Further, in the event Tesla terminates your employment without cause within 12 months of commencement of employment, then Tesla will continue to pay you salary until the earlier to occur of date you commence suitable employment or a similar arrangement with another firm; or six months from the termination of your employment.

By accepting this offer, you represent and warrant that your employment with Tesla will not violate any agreements, obligations or understandings that you may have with any third party or prior employer. We want to emphasize that we do not wish you to bring any confidential or proprietary materials of any former employer which would violate any obligations you may have to your former employer. You further represent and warrant that you have read, understand, and accept the terms of your Stock Option Agreement, in particular, the vesting schedule of the shares of Tesla’s Common Stock thereof. You agree not to make any unauthorized disclosure to Tesla or use on behalf of Tesla any confidential information belonging to any of your former employers (except in accordance with agreements between Tesla and any such former employer). You also warrant that you do not possess any property containing a third party’s confidential and proprietary information. Of course, during your employment with Tesla, you may make use of information generally known and used by persons with training and experience comparable to your own, and information which is common knowledge in the industry or is otherwise legally available in the public domain.

As a Tesla employee, you will be expected to abide by all Tesla policies and procedures, and, as a condition of your employment, you will sign and comply with Tesla’s standard confidentiality agreement which prohibits unauthorized use or disclosure of Tesla confidential information or the confidential information of Tesla’s clients.

You may terminate your employment with Tesla at any time and for any reason whatsoever simply by notifying Tesla. Likewise, Tesla may terminate your employment at any time and for any reason whatsoever, with or without cause or advance notice. This at-will employment relationship cannot be changed except by a writing authorized on behalf of an officer of Tesla.

 

-2-


To ensure the rapid and economical resolution of disputes that may arise in connection with your employment with Tesla, you and Tesla agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to your employment, or the termination of your employment, will be resolved, to the fullest extent permitted by law per Attachment A.

This letter agreement constitutes the complete, final and exclusive embodiment of the entire agreement between you and Tesla with respect to the terms and conditions of your employment, and it supersedes any other agreements or promises made to you by anyone, whether oral or written. This Agreement cannot be changed, amended, or modified except in a written agreement signed by an officer of Tesla. This letter agreement shall be construed and interpreted in accordance with the laws of the State of California.

If you choose to accept our offer under the terms described above, please indicate your acceptance, by signing below and returning it to me prior to June 16, 2008 at which time this offer will expire. The effective date of your employment will be on or prior to July 31, 2008.

We look forward to your favorable reply and to a productive and enjoyable work relationship.

 

     

Very truly yours,

     

Tesla Motors, Inc.

     

/s/ Craig W. Harding

     

Craig W. Harding

     

General Counsel and Secretary

Accepted by:

 

/s/ Deepak Ahuja

   
 

Deepak Ahuja

   

Date: 06/14/08

   

 

-3-


Attachment A

ARBITRATION AGREEMENT

To ensure the rapid and economical resolution of disputes that may arise in connection with your employment with Tesla, you and Tesla agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to your employment, or the termination of your employment, will be resolved, to the fullest extent permitted by law by final, binding and confidential arbitration in San Francisco, California conducted by the Judicial Arbitration and Mediation Services/Endispute, Inc. (“JAMS”), or its successors, under the then current rules of JAMS for employment disputes; provided that:

a. The arbitrator shall have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and

b. The arbitrator shall issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award; and

c. Both you and Tesla shall be entitled to all rights and remedies that you or Tesla would be entitled to pursue in a court of law; and

d. Tesla shall pay all fees in excess of those which would be required if the dispute was decided in a court of law.

Nothing in this Agreement is intended to prevent either you or Tesla from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Notwithstanding the foregoing, you and Tesla each have the right to resolve any issue or dispute arising under the Proprietary Information and Inventions Agreement by Court action instead of arbitration.

Arbitrable claims do not include, and this Agreement does not apply to or otherwise restrict, administrative claims you may bring before any government agency where, as a matter of law, the parties may not restrict your ability to file such claims (including the Equal Employment Opportunity Commission and the National Labor Relations Board). Otherwise, it is agreed that arbitration shall be the exclusive remedy for administrative claims.


June 4, 2009

Deepak Ahuja

Re: Amendment to Offer of Employment

Dear Deepak:

Pursuant to our discussion, this letter specifies changes that Tesla Motors will make to the original Offer Letter of Employment dated June 13, 2009.

Paragraph six, bullet one is changed to read as follows:

“Reimbursement for the period ending December 31, 2009 for rent payments (not to exceed $5,000 per month) for a reasonable residence for you and your family.”

All other terms shall remain in effect.

 

     

Very truly yours,

     

Tesla Motors, Inc.

     

/s/ Craig W. Harding

     

Craig W. Harding

     

General Counsel and Secretary

cc: Zack Smoll

     

/s/ Deepak Ahuja

     

Deepak Ahuja

     

Date: 6/4/09

   

Exhibit 10.11

TESLA MOTORS, INC.

RELOCATION AGREEMENT

This Relocation Agreement (“Agreement”) is entered into as of October 31, 2008 (“Effective Date”), by Deepak Ahuja and Tesla Motors, Inc.

PURPOSE

On June 14, 2008, Ahuja entered into at-will employment with Tesla pursuant to an offer letter dated June 13, 2008 (the “Offer Letter”) for employment commencing July 31, 2008 (the “Employment Commencement Date”). Tesla requires Ahuja to relocate from his current residence to Tesla headquarters offices in San Carlos, California (“Primary Work Location”), to perform the duties customarily associated with his position as Chief Financial Officer. Ahuja’s Primary Work Location will be a location that is at least 50 miles from his current residence.

The Parties agree that this Agreement supersedes the Offer Letter with respect to the relocation benefits provided in the Offer Letter to bring the relocation benefits into compliance with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and the final regulations and other guidance promulgated thereunder (collectively “Section 409A”).

The Parties agree as follows:

AGREEMENT

1. Rental Payments . Tesla will reimburse Abuja for rental payments up to $5,000 per month for a residence for Ahuja and Ahuja’s family for a period not to exceed one (1) year from the Employment Commencement Date. Subject to the foregoing, Tesla agrees to reimburse Ahuja for the amount stipulated in Ahuja’s lease, which has been provided to Tesla, split equally between the two paychecks in the month for the month in which Ahuja makes his monthly rental payment, in accordance with its normal payroll procedures. Tesla will “gross up” Ahuja monthly rental reimbursements, such that Ahuja receives the amount stipulated in the lease on an after-tax basis.

2. Costs for Sale of Current Residence . Tesla will reimburse Ahuja for any sales commissions and closing costs associated with the sale of his current residence in Michigan, not in excess of $70,000 (“Sale Costs”), provided however, that in the event Ahuja voluntarily terminates his employment with Teals at any time within 18 months of commencement of employment, then he will repay the Sale Costs to Tesla. Ahuja will submit a written reimbursement request and all supporting invoices and documentation within 30 days of incurring such Sale Costs. Provided all conditions for reimbursement have been met, Tesla will reimburse Ahuja for the Sale Costs on the first payroll date in calendar year 2009.


3. Moving Costs . Tesla will reimburse Ahuja for the reasonable costs of transporting Ahuja’s household goods and personal effects and up to two cars, including packing and unpacking of all goods and insurance for the full value while in transit (“Moving Costs”), provided that Ahuja obtains at least three (3) estimates for moving services and consults with Tesla before selecting a company to provide such services. Tesla will reimburse Ahuja within a reasonable time after receiving his written reimbursement request and all supporting invoices and documentation; provided however, that to the extent such supporting invoices and documentation; provided however, that to the extent such reimbursements are taxable to Ahuja under the Code, Tesla will reimburse Ahuja for his moving costs on or before December 31, 2008.

4. Code Section 409A . The Parties agree to work together in good faith to consider either (i) amendments to the Agreement; or (ii) revisions to the Agreement with respect to the reimbursement payments to be provided hereunder, which are necessary or appropriate to avoid imposition of any additional tax or income recognition under Section 409A prior to the actual payment to Ahuja. It is intended that the reimbursements under this Agreement comply with Section 409A. In no event will Tesla reimburse Ahuja for any taxes that may be imposed on him as a result of Section 409A.

5. Entire Agreement . This Agreement constitutes the entire agreement of the Parties and supersedes in its entirety all prior representations, understandings, undertakings or agreements (whether oral or written and whether expressed or implied) of the Parties with respect to the subject matter hereof, including, without limitation, the Offer Letter. The invalidity or unenforceability of any provision or provisions of this Agreement will not affect the validity or enforceability of any other provision hereof, which will remain in full force and effect.

6. Waiver . No provision of this Agreement will be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by Ahuja and by an authorized officer of Tesla (other than Ahuja).

7. Choice of Law . This Agreement will be governed by the laws of the State of California (with the exception of its conflict of laws provisions).

8. Withholding . Tesla will withhold applicable income and employment taxes on any payment made pursuant to this Agreement to the extent Tesla has an obligation to withhold on such payment.

The Parties have executed this Agreement on the respective dates set forth below.

 

TESLA MOTORS, INC.

   

Deepak Ahuja

By:

 

/s/ Elon Musk

   

/s/ Deepak Ahuja

Title:

 

CEO

   

Date:

 

Nov 7, 2008

   

Date: Nov 12, 2008

 

-2-


June 4, 2009

Deepak Ahuja

Re: Amendment to Relocation Agreement

Dear Deepak:

Pursuant to our discussion, this letter specifies changes that Tesla Motors will make to the Relocation Agreement dated October 31, 2008.

The first sentence of section One of the agreement concerning rental payments, will be changed to read as follows:

“Tesla will reimburse Ahuja for rental payments up to $5,000 per month for a residence for Ahuja and Ahuja’s family through December 31, 2009.”

All other terms shall remain in effect.

 

     

Very truly yours,

     

Tesla Motors, Inc.

     

/s/ Craig W. Harding

     

Craig W. Harding

     

General Counsel and Secretary

cc: Zack Smoll

   

/s/ Deepak Ahuja

   

Deepak Ahuja

   

Date: 6/4/09

   

Exhibit 10.12

Tesla Motors Inc.

845 Oak Grove Ave., Suite #204

Menlo Park, CA 94025

May 6, 2004

JB Straubel

 

 

R E :

O FFER OF E MPLOYMENT WITH T ESLA M OTORS , I NC .

Dear JB,

Tesla Motors, Inc., a Delaware corporation (the “Company”), is pleased to offer you the position of Principal Engineer, Drive Systems on the terms set forth below.

In this role, you will perform the duties customarily associated with this position, including specifically responsibility for the Power Electronics Unit and motor in the Tesla Roadster, and you will report to Ian Wright.

Your salary will be ninety five thousand dollars ($95,000) per year for a forty (40) hour work week, subject to standard payroll deductions and withholdings. As an exempt employee, you will not be entitled to overtime. You will be eligible for vacation and sick leave according to the Company’s standard policy. You will also be eligible to receive all other benefits the Company may provide to its employees (e.g., health, vision and dental insurance coverage) after your enrollment in August, 2004. The Company may consider you for bonuses, although the amount of such bonuses, if any, and the criteria for determining the award of such bonuses, if any, shall be in the sole discretion of the Company. Of course, the Company reserves the right to modify your compensation and benefits from time to time, as it deems necessary.

Subject to the approval of the Company’s Board of Directors, you will be granted a stock option to purchase an aggregate of 150,000 shares of the Company’s Common Stock pursuant to the Company’s Equity Incentive Plan then in effect. Your stock options will vest in accordance with the Tesla Motors Equity Incentive Plan of 2003 commencing upon your first day of employment.

By accepting this offer, you represent and warrant that your employment with the Company will not violate any agreements, obligations or understandings that you may have with any third party or prior employer. You further represent and warrant that you have read, understand, and accept the terms of your Stock Option Agreement, in particular, the vesting schedule of the shares of the Company’s Common Stock thereof. You agree not to make any unauthorized disclosure to the Company or use on behalf of the Company any confidential information belonging to any of your former employers (except in accordance with agreements between the Company and any such former employer). You also warrant that you do not possess any property containing a third party’s confidential and proprietary information. Of course, during your employment with the Company, you may make use of information generally known and used by persons with training and experience comparable to your own, and information which is common knowledge in the industry or is otherwise legally available in the public domain.


JB Straubel

Page 2

As a Company employee, you will be expected to abide by all Company policies and procedures, and sign and comply with the Company’s standard confidentiality agreement which prohibits unauthorized use or disclosure of Company confidential information or the confidential information of the Company’s clients.

You may terminate your employment with the Company at any time and for any reason whatsoever simply by notifying the Company. Likewise, the Company may terminate your employment at any time and for any reason whatsoever, with or without cause or advance notice. This at-will employment relationship cannot be changed except by a writing authorized on behalf of an officer of the Company.

To ensure the rapid and economical resolution of disputes that may arise in connection with your employment with the Company, you and the Company agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to your employment, or the termination of your employment, will be resolved, to the fullest extent permitted by law, by final, binding and confidential arbitration in San Francisco, California conducted by the Judicial Arbitration and Mediation Services/Endispute, Inc. (“JAMS”), or its successors, under the then current rules of JAMS for employment disputes; provided that the arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award. Both you and the Company shall be entitled to all rights and remedies that you or the Company would be entitled to pursue in a court of law. The Company shall pay all fees in excess of those which would be required if the dispute was decided in a court of law. Nothing in this Agreement is intended to prevent either you or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Notwithstanding the foregoing, you and the Company each have the right to resolve any issue or dispute arising under the Proprietary Information and Inventions Agreement by Court action instead of arbitration.

This letter agreement constitutes the complete, final and exclusive embodiment of the entire agreement between you and the Company with respect to the terms and conditions of your employment, and it supersedes any other agreements or promises made to you by anyone, whether oral or written. This Agreement cannot be changed, amended, or modified except in a written agreement signed by an officer of the Company. This letter agreement shall be construed and interpreted in accordance with the laws of the State of California.

As required by immigration law, this offer of employment is subject to satisfactory proof of your right to work in the United States.


JB Straubel

Page 3

If you choose to accept our offer under the terms described above, please indicate your acceptance, by signing below and returning it to me. The effective date of your employment will be May 17, 2004.

We look forward to your favorable reply and to a productive and enjoyable work relationship.

 

Very truly yours,

TESLA MOTORS, INC.

/s/ Ian Wright

Ian Wright

Vice President, Vehicle Development

 

Accepted by:

 

/s/ JB Straubel

 

Name:

Date: 05/07/04

Exhibit 10.13

June 4, 2008

Michael F. Donoughe

 

 

Re:

Offer of Employment with Tesla Motors

Dear Mike:

Tesla Motors, Inc. is pleased to offer you the position of Executive Vice President, Manufacturing on the terms set forth below.

As Executive Vice President, Manufacturing, you will perform the duties customarily associated with this position, including vehicle production, product engineering, testing, supply chain, and quality assurance. You will report to Ze’ev Drori, President and CEO of Tesla. You will be located at Tesla’s headquarters offices in San Carlos, California. Your duties, responsibilities, job title, and work location may be changed at any time by Tesla.

Your salary will be $325,000 per year, subject to standard payroll deductions and withholdings. As an exempt employee, you will not be entitled to overtime. You will be eligible for sick leave according to Tesla’s standard policy. You will also be eligible to receive all other benefits Tesla may provide to its employees (e.g., health and dental insurance coverage) and your enrollment in health care insurance plans will commence on August 1, 2008. Tesla also agrees that you will be eligible for four weeks paid time off.

Subject to your joining the Company on or before July 8, Tesla’s Board of Directors will grant you a stock option to purchase an aggregate of 500,000 shares of Tesla’s common stock pursuant to Tesla’s Equity Incentive Plan. The exercise price of the stock options will be determined by the Board of Directors; however we expect the option exercise price to be $0.90 per share. Your stock options will vest commencing upon your first day of employment. One fourth of shares vest one year after the vesting commencement date, and 1/48th of the shares vest monthly thereafter over the following three years.

In the event your former employer Chrysler LLC determines that work at Tesla constitutes working at a competitor and thereby elects to terminate ongoing severance payments to you arising from prior employment, Tesla will assume payment of the severance payments previously paid by Chrysler, up to a maximum of $170,000.

By accepting this offer, you represent and warrant that your employment with Tesla will not violate any agreements, obligations or understandings that you may have with any third party or prior employer. We want to emphasize that we do not wish you to bring any confidential or proprietary materials of any former employer which would violate any obligations you may have to your former employer. You further represent and warrant that you have read, understand, and accept the terms of your Stock Option Agreement, in particular, the vesting schedule of the shares of Tesla’s Common Stock thereof. You agree not to make any unauthorized disclosure to Tesla or use on behalf of Tesla any confidential information belonging to any of your former employers (except


in accordance with agreements between Tesla and any such former employer). You also warrant that you do not possess any property containing a third party’s confidential and proprietary information. Of course, during your employment with Tesla, you may make use of information generally known and used by persons with training and experience comparable to your own, and information which is common knowledge in the industry or is otherwise legally available in the public domain.

As a Tesla employee, you will be expected to abide by all Tesla policies and procedures, and, as a condition of your employment, you will sign and comply with Tesla’s standard confidentiality agreement which prohibits unauthorized use or disclosure of Tesla confidential information or the confidential information of Tesla’s clients.

You will use all reasonable efforts to establish your principal residence in the San Francisco Bay Area within three months after you have accepted this offer, but in no event will you establish such principal residence later than six months from the date of this letter agreement. Tesla will pay or reimburse you for all expenses reasonably incurred by you in connection with the relocation of your residence and your family to the San Francisco Bay Area including for example, the cost of packing and moving household goods, and traveling expenses. Tesla will also pay or reimburse you for reasonable living expenses at a suitable nearby hotel for a three week period following the commencement of your employment.

You may terminate your employment with Tesla at any time and for any reason whatsoever simply by notifying Tesla. Likewise, Tesla may terminate your employment at any time and for any reason whatsoever, with or without cause or advance notice. This at-will employment relationship cannot be changed except by a writing authorized on behalf of an officer of Tesla.

To ensure the rapid and economical resolution of disputes that may arise in connection with your employment with Tesla, you and Tesla agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to your employment, or the termination of your employment, will be resolved, to the fullest extent permitted by law per Attachment A.

This letter agreement constitutes the complete, final and exclusive embodiment of the entire agreement between you and Tesla with respect to the terms and conditions of your employment, and it supersedes any other agreements or promises made to you by anyone, whether oral or written. This Agreement cannot be changed, amended, or modified except in a written agreement signed by an officer of Tesla. This letter agreement shall be construed and interpreted in accordance with the laws of the State of California.


If you choose to accept our offer under the terms described above, please indicate your acceptance, by signing below and returning it to me prior to June 9, 2008 at which time this offer will expire. The effective date of your employment will be July 8, 2008.

We look forward to your favorable reply and to a productive and enjoyable work relationship.

 

Very truly yours,

Tesla Motors, Inc.

/s/ Craig W. Harding

Craig W. Harding

General Counsel and Secretary

 

Accepted by:

 

/s/ Michael Donoughe

 

Michael Donoughe

Date: June 6, 2008


ARBITRATION AGREEMENT

To ensure the rapid and economical resolution of disputes that may arise in connection with your employment with Tesla, you and Tesla agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to your employment, or the termination of your employment, will be resolved, to the fullest extent permitted by law by final, binding and confidential arbitration in San Francisco, California conducted by the Judicial Arbitration and Mediation Services/Endispute, Inc. (“JAMS”), or its successors, under the then current rules of JAMS for employment disputes; provided that:

 

 

a.

The arbitrator shall have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and

 

 

b.

The arbitrator shall issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award; and

 

 

c.

Both you and Tesla shall be entitled to all rights and remedies that you or Tesla would be entitled to pursue in a court of law; and

 

 

d.

Tesla shall pay all fees in excess of those which would be required if the dispute was decided in a court of law.

Nothing in this Agreement is intended to prevent either you or Tesla from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Notwithstanding the foregoing, you and Tesla each have the right to resolve any issue or dispute arising under the Proprietary Information and Inventions Agreement by Court action instead of arbitration.

Arbitrable claims do not include, and this Agreement does not apply to or otherwise restrict, administrative claims you may bring before any government agency where, as a matter of law, the parties may not restrict your ability to file such claims (including the Equal Employment Opportunity Commission and the National Labor Relations Board). Otherwise, it is agreed that arbitration shall be the exclusive remedy for administrative claims.


December 10, 2008

Michael F. Donoughe

Re: Amendment to Option Grants

Dear Mike:

Pursuant to approval of the Board of Directors of Tesla Motors, Inc. on December 10, 2008, this letter amends the two stock option grants dated July 8, 2008 (and described in the offer of employment to you dated June 4, 2008) as follows:

In the event of a merger, consolidation, sale of assets or other change of control of Tesla and should you either (i) be terminated without cause within one year after such event or (ii) suffer a material change in your responsibilities, you will be entitled to 12 months of additional vesting of such options.

Other than the foregoing, there shall be no accelerated vesting in any event.

Very truly yours,

Testa Motors, Inc.

/s/ Craig W. Harding

Craig W. Harding

General Counsel and Secretary

cc: Lorrine Flores

 

Accepted by:

 

/s/ Michael Donoughe

 

Michael Donoughe

Date: December 12, 2008

TESLA MOTORS, INC. 1050 Bing Street, San Carlos, CA 94070 650.413.4000 TEL 650.413.4099 FAX www.teslamotors.com

Exhibit 10.14

John Walker

 

  Re: Offer of Employment with Tesla Motors

Dear John:

Tesla Motors, Inc. is pleased to offer you the position of Vice President, U.S Sales and Marketing on the terms set forth below.

As Vice President, U.S Sales and Marketing, you will perform the duties customarily associated with this position. You will report to Elon Musk, Chairman and CEO. Your duties, responsibilities, job title, and work location may be changed at any time by Tesla.

Your salary will be $250,000 per year, subject to standard payroll deductions and withholdings. You will also be eligible to receive a Bonus of $100 per Tesla Roadster sold in North America. As an exempt employee, you will not be entitled to overtime. You will be eligible for vacation and sick leave according to Tesla’s standard policy. You will also be eligible to receive all other benefits Tesla may provide to its employees (e.g., health and dental insurance coverage) after your enrollment on September 1, 2009. Tesla may consider you for bonuses, although the amount of such bonuses, if any, and the criteria for determining the award of such bonuses, if any, shall be in the sole discretion of Tesla. Of course, Tesla reserves the right to modify your compensation and benefits from time to time, as it deems necessary.

Subject to the approval of Tesla’s Board of Directors, you will be granted a stock option to purchase an aggregate of 250,000 shares of Tesla’s Common Stock pursuant to Tesla’s Equity Incentive Plan then in effect. Your stock options will vest commencing upon your first day of employment (1/4th of the shares vest one year after the Vesting Commencement Date, and 1/48th of the shares vest monthly thereafter over the next three years).

We will also provide a relocation package to cover moving costs for you and your family (see attached document). In addition we will reimburse you for your travel and lodging expenses until you can move your family out to California. This will be to the amount of $4,000 per month for a maximum of six months, a total of $24,000 in aggregate.

By accepting this offer, you represent and warrant that your employment with Tesla will not violate any agreements, obligations or understandings that you may have with any third party or prior employer. We want to emphasize that we do not wish you to bring any confidential or proprietary materials of any former employer which would violate any obligations you may have to your former employer. You further represent and warrant that you have read, understand, and accept the terms of your Stock Option Agreement, in particular, the vesting schedule of the shares of Tesla’s Common Stock thereof. You agree not to make any unauthorized disclosure to Tesla or use on behalf of Tesla any confidential information belonging to any of your former employers (except in accordance with agreements between Tesla and any such former employer). You also warrant that you do not possess any property containing a third party’s confidential and proprietary information.


Of course, during your employment with Tesla, you may make use of information generally known and used by persons with training and experience comparable to your own, and information which is common knowledge in the industry or is otherwise legally available in the public domain.

As a Tesla employee, you will be expected to abide by all Tesla policies and procedures, and, as a condition of your employment, you will sign and comply with Tesla’s standard confidentiality agreement which prohibits unauthorized use or disclosure of Tesla confidential information or the confidential information of Tesla’s clients.

You may terminate your employment with Tesla at any time and for any reason whatsoever simply by notifying Tesla. Likewise, Tesla may terminate your employment at any time and for any reason whatsoever, with or without cause or advance notice. This at-will employment relationship cannot be changed except by a writing authorized on behalf of an officer of Tesla.

To ensure the rapid and economical resolution of disputes that may arise in connection with your employment with Tesla, you and Tesla agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to your employment, or the termination of your employment, will be resolved, to the fullest extent permitted by law per Attachment A.

This letter agreement constitutes the complete, final and exclusive embodiment of the entire agreement between you and Tesla with respect to the terms and conditions of your employment, and it supersedes any other agreements or promises made to you by anyone, whether oral or written. This Agreement cannot be changed, amended, or modified except in a written agreement signed by an officer of Tesla. This letter agreement shall be construed and interpreted in accordance with the laws of the State of California.

This offer of employment is contingent upon the following:

 

   

Your ability to provide and maintain the proper and necessary documentation required for you and Tesla to comply with all applicable United States immigration laws and regulations. Please be prepared on your first day of employment to show specific documentation to certify your legal right to work in the United States. Note, we are assisting you in this regard with your visa, work and residence application.

 

   

Your execution (signature) of the Tesla Employee Agreement which protects the intellectual property and confidential information of Tesla, and prohibits the unauthorized use of the intellectual property and confidential information of any other company.

 

   

The satisfactory review and/or verification of background information, including, but not limited to, prior employment, reference checks, education, Department of Motor Vehicles, Social Security, and criminal records.

If you choose to accept our offer under the terms described above, please indicate your acceptance, by signing below and returning it to me prior to August 3, 2009 at which time this offer will expire. The effective date of your employment will be August 17, 2009.

 

-2-


We look forward to your favorable reply and to a productive and enjoyable work relationship.

 

Very truly yours,
Tesla Motors, Inc.
/s/ Elon Musk

Elon Musk

Chairman of the Board and CEO

 

Accepted by:   /s/ John Walker

Date: 08/17/2009

 

-3-


ARBITRATION AGREEMENT

To ensure the rapid and economical resolution of disputes that may arise in connection with your employment with Tesla, you and Tesla agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to your employment, or the termination of your employment, will be resolved, to the fullest extent permitted by law by final, binding and confidential arbitration in San Francisco, California conducted by the Judicial Arbitration and Mediation Services/Endispute, Inc. (“JAMS”), or its successors, under the then current rules of JAMS for employment disputes; provided that:

 

  a. The arbitrator shall have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and

 

  b. The arbitrator shall issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award; and

 

  c. Both you and Tesla shall be entitled to all rights and remedies that you or Tesla would be entitled to pursue in a court of law; and

 

  d. Tesla shall pay all fees in excess of those which would be required if the dispute was decided in a court of law.

Nothing in this Agreement is intended to prevent either you or Tesla from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Notwithstanding the foregoing, you and Tesla each have the right to resolve any issue or dispute arising under the Proprietary Information and Inventions Agreement by Court action instead of arbitration.

Arbitrable claims do not include, and this Agreement does not apply to or otherwise restrict, administrative claims you may bring before any government agency where, as a matter of law, the parties may not restrict your ability to file such claims (including the Equal Employment Opportunity Commission and the National Labor Relations Board). Otherwise, it is agreed that arbitration shall be the exclusive remedy for administrative claims.

Tesla Motors Relocation Program

Tesla offers a competitive relocation package which can be utilized over a 24 month period. The benefit highlights are described below:

*Temporary Housing Expenses

Temporary housing is covered up to $10,000. We strongly recommend that candidates compare local rates with hotels and temporary housing such as furnished apartments and suites. Good judgment should be exercised when selecting temporary housing, and the associated costs associated with the property and services. This benefit only applies when you are physically relocating to the new job location.


*Relocation Fees (physical household move)

Benefits for transporting furnishings and personal belongings within your current household is covered up to $15,000. The benefit may also be utilized to move automobiles and sports utility vehicles, up to the maximum allocation stated above. Please obtain 3 quotes if possible; a minimum of 2 is required. Tesla can issue a purchase order for the moving service.

*Closing Cost Support

Tesla will cover up to a maximum of $10,000 for invoiced expenses of fees incurred in selling your primary residence. Covered fees are limited to items that are contained within your closing costs, but may included commissions, realtor expenses, and legal costs incurred with the sale of your primary residence.

*Area Overview & Visits to Family

Tesla understands that relocations can be stressful. The company provides up to $5,000 for you and your family to visit the new area to become familiar with the local housing market, available schooling, and to get a better feel for the area you will be residing in. The monies are meant to provide you an opportunity to get an area overview, generally before the physical move takes place. In addition, during the Temporary Housing period outlined above, these funds may also be utilized to visit family members from your original State of Origin (such as Michigan). This time off is subject to your available vacation time, and requires management approval.

*Spousal Job Support Assistance

A benefit of up to $5,000 will be paid to provide your spouse assistance with a local career counseling and job assistance office. This benefit may be used to obtain resume services, personal coaching, job networking seminars, and other general career services.

Please consult with Human Resources on the administration of these programs. Above items may be expensed, as in accordance with local laws and rules pertaining to acceptable expensable items. Lump sum payments may be issued also; subject to required withholding amounts set by state and federal law. Conflicts or disagreements in the administration of the program will be reviewed by Tesla’s HR and legal groups. Employees who depart the company prior to one year of service after receiving relocation benefits are subject to a pro-rated repayment schedule.

Exhibit 10.15

TESLA MOTORS, INC.

RELOCATION AGREEMENT

This Relocation Agreement (“ Agreement ”) is entered into effective as of August 17, 2009 (the “ Effective Date ”), by and between John Walker (“ Executive ”) and Tesla Motors, Inc. (“ Tesla Motors ” or the “ Company ”) (jointly referred to as the “ Parties ” or individually referred to as a “ Party ”).

RECITALS

WHEREAS , on August 17, 2009 (the “ Employment Commencement Date ”), Executive entered into at-will employment with the Company pursuant to an offer letter dated August 17, 2009 (the “ Offer Letter ”);

WHEREAS, the Company requires Executive to relocate from his current residence to be closer to the Company headquarters offices in San Carlos, California (“ Primary Work Location ”), to perform the duties customarily associated with his position as Vice President, U.S. Sales and Service;

WHEREAS, Executive’s Primary Work Location will be a location that is at least fifty (50) miles from his current residence; and

WHEREAS , the Parties agree to enter into this Agreement to supersede the terms of the Offer Letter with respect to the relocation benefits provided under the Offer Letter to be consistent with the oral agreement between the Parties effective as of the Employment commencement Date.

NOW, THEREFORE , in consideration of the mutual promises made herein, the Parties hereby agree as follows:

COVENANTS

1. Rental Payments . The Company will arrange for an apartment in San Francisco, California metropolitan area for the use of Executive and Executive’s family, and pay, on Executive’s behalf, the rental payments for such apartment (the “ Rental Payments ”), up to a maximum of $2,900 per month, for a period not to exceed six (6) months from the Employment Commencement Date (the “ Temporary Living Period ”).

2. Living Expenses . The Company will reimburse Executive for the actual reasonable costs of travel, food and incidental expenses (“ Living Expenses ”) incurred by Executive and Executive’s family, up to a maximum of $1,100 per month during the Temporary Living Period, for an aggregate maximum total of $6,600. The Company advanced Executive $3,300 for Living Expenses on August 17, 2009 at the beginning of the Temporary Living Period. The remaining $3,300 will be paid to Executive within a reasonable time following the anticipated conclusion of the


Temporary Living Period on February 17, 2010, subject to a written reimbursement request from Executive with supporting invoices and documentation of the actual Living Expenses incurred by Executive during the Temporary Living Period.

3. Gross-Up Payment . Following the payment of Executive’s taxes for tax years 2009 and 2010, the Parties shall work together to determine the amount of additional tax liability that Executive incurred as a result of the inclusion of the Rental Payments and the reimbursement for any Living Expenses into Executive’s income for such tax years (with respect to each tax year, the “ Additional Tax Liability ”). As soon as practicable after such determination, but in no event later than December 31, 2010 for tax year 2009 and December 31, 2011 for tax year 2010, the Company shall provide Executive with an additional payment to “gross up” Executive for the Additional Tax Liability so that on an after-tax basis Executive receives an amount equal to the Additional Tax Liability for the applicable tax year (with respect to each tax year, the “ Gross-Up Payment ”). For purposes of calculating the Gross-Up Payment, the Company shall use the highest federal marginal rate, supplemental California withholding rate and Medicare withholding rate, in each case applicable to Executive for the tax year for which the Gross-Up Payment is being calculated. For example, if the total income inclusion pursuant to this Agreement in tax year 2009 is $16,350, which results in an Additional Tax Liability of $7,480 for tax year 2009, the Company would make a Gross-Up Payment for tax year 2009 of $13,788, based on using 35% for the highest federal marginal rate, 9.3% for the California supplemental withholding rate and 1.45% for the Medicare withholding rate.

4. Code Section 409A . It is intended that the reimbursements under this Agreement comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended and the final regulations and other guidance promulgated thereunder (collectively “ Section 409A ”) such that no payment hereunder will result in the imposition of additional tax or penalties to Executive under Section 409A. Any ambiguities hereunder will be construed to comply with Section 409A. In no event will the Company reimburse Executive for any taxes that may be imposed on him as a result of Section 409A.

5. Entire Agreement . This Agreement constitutes the entire agreement of the Parties and supersedes in its entirety all prior representations, understandings, undertakings or agreements (whether oral or written and whether expressed or implied) of the Parties with respect to the subject matter hereof, including, without limitation, the Offer Letter. The invalidity or unenforceability of any provision or provisions of this Agreement will not affect the validity or enforceability of any other provision hereof, which will remain in full force and effect.

6. Waiver . No provision of this Agreement will be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by Executive and by an authorized officer of the Company (other than Executive).

7. Choice of Law . This Agreement will be governed by the laws of the State of California (with the exception of its conflict of laws provisions).

8. Withholding . The Company will withhold applicable income and employment taxes on any payment made pursuant to this Agreement to the extent the Company has an obligation to withhold on such payment.

 

-2-


IN WITNESS WHEREOF , the Parties have executed this Agreement on the respective dates set forth below.

 

TESLA MOTORS, INC.         John Walker
By:   

/s/ Craig W. Harding

       

/s/ John Walker

Title:   

Legal Counsel

          
Date:   

1/26/10

        Date:   

1/26/2010

 

-3-

Exhibit 10.16

August 30, 2009

Jon Sobel

Re: Offer of Employment with Tesla Motors

Dear Jon:

Tesla Motors, Inc. is pleased to offer you the position of General Counsel and Secretary on the terms set forth below.

As General Counsel and Secretary, you will perform the duties customarily associated with these positions, including (a) primary responsibility for the selection of Tesla’s outside legal advisors and (b) attendance at all board of directors meetings (other than Executive Sessions) and documentation and support of corporate governance matters. You will report to Elon Musk, Chief Executive Officer. Your duties, responsibilities, job title, and work location may be changed at any time by Tesla.

Your salary will be $300,000 per year, subject to standard payroll deductions and withholdings. As an exempt employee, you will not be entitled to overtime. You will be eligible for vacation and sick leave according to Tesla’s standard policy. You will also be eligible to receive all other benefits Tesla may provide to its employees (e.g., health and dental insurance coverage) after your enrollment on a date to be determined. Tesla may consider you for bonuses, although the amount of such bonuses, if any, and the criteria for determining the award of such bonuses, if any, shall be in the sole discretion of Tesla. Of course, Tesla reserves the right to modify your compensation and benefits from time to time, as it deems necessary.

Subject to the approval of Tesla’s Board of Directors, you will be granted a stock option to purchase an aggregate of 400,000 shares of Tesla’s Common Stock pursuant to Tesla’s Equity Incentive Plan then in effect. Your stock options will vest commencing upon your first day of employment (1/4th of the shares vest one year after the Vesting Commencement Date, and 1/48th of the shares vest monthly thereafter over the next three years).

You will also have change in control protections substantially similar to Deepak Ahuja’s.

By accepting this offer, you represent and warrant that your employment with Tesla will not violate any agreements, obligations or understandings that you may have with any third party or prior employer. We want to emphasize that we do not wish you to bring any confidential or proprietary materials of any former employer which would violate any obligations you may have to your former employer. You further represent and warrant that you have read, understand, and accept the terms of your Stock Option Agreement, in particular, the vesting schedule of the shares of Tesla’s Common Stock thereof. You agree not to make any unauthorized disclosure to Tesla or use on


behalf of Tesla any confidential information belonging to any of your former employers (except in accordance with agreements between Tesla and any such former employer). You also warrant that you do not possess any property containing a third party’s confidential and proprietary information. Of course, during your employment with Tesla, you may make use of information generally known and used by persons with training and experience comparable to your own, and information which is common knowledge in the industry or is otherwise legally available in the public domain.

As a Tesla employee, you will be expected to abide by all Tesla policies and procedures, and, as a condition of your employment, you will sign and comply with Tesla’s standard confidentiality agreement which prohibits unauthorized use or disclosure of Tesla confidential information or the confidential information of Tesla’s clients.

You may terminate your employment with Tesla at any time and for any reason whatsoever simply by notifying Tesla. Likewise, Tesla may terminate your employment at any time and for any reason whatsoever, with or without cause or advance notice. This at-will employment relationship cannot be changed except by a writing authorized on behalf of an officer of Tesla.

To ensure the rapid and economical resolution of disputes that may arise in connection with your employment with Tesla, you and Tesla agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to your employment, or the termination of your employment, will be resolved, to the fullest extent permitted by law per Attachment A.

This letter agreement constitutes the complete, final and exclusive embodiment of the entire agreement between you and Tesla with respect to the terms and conditions of your employment, and it supersedes any other agreements or promises made to you by anyone, whether oral or written. This Agreement cannot be changed, amended, or modified except in a written agreement signed by an officer of Tesla. This letter agreement shall be construed and interpreted in accordance with the laws of the State of California.

This offer of employment is contingent upon the following:

 

   

Your ability to provide and maintain the proper and necessary documentation required for you and Tesla to comply with all applicable United States immigration laws and regulations. Please be prepared on your first day of employment to show specific documentation to certify your legal right to work in the United States.

 

   

Your execution (signature) of the Tesla Employee Agreement which protects the intellectual property and confidential information of Tesla, and prohibits the unauthorized use of the intellectual property and confidential information of any other company.

 

   

The satisfactory review and/or verification of background information, including, but not limited to, prior employment, reference checks, education, Department of Motor Vehicles, Social Security, and criminal records.

The effective date of your employment is to be September 28, 2009.

 

-2-


We look forward to your favorable reply and to a productive and enjoyable work relationship.

 

Very truly yours,

Tesla Motors, Inc.

/s/ Elon Musk

Elon Musk

Chairman of the Board and CEO

 

Accepted by:  

/s/Jon Sobel

Date: 8/30/09

 

-3-


ARBITRATION AGREEMENT

To ensure the rapid and economical resolution of disputes that may arise in connection with your employment with Tesla, you and Tesla agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to your employment, or the termination of your employment, will be resolved, to the fullest extent permitted by law by final, binding and confidential arbitration in San Francisco, California conducted by the Judicial Arbitration and Mediation Services/Endispute, Inc. (“JAMS”), or its successors, under the then current rules of JAMS for employment disputes; provided that:

 

  a. The arbitrator shall have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and

 

  b. The arbitrator shall issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award; and

 

  c. Both you and Tesla shall be entitled to all rights and remedies that you or Tesla would be entitled to pursue in a court of law; and

 

  d. Tesla shall pay all fees in excess of those which would be required if the dispute was decided in a court of law.

Nothing in this Agreement is intended to prevent either you or Tesla from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Notwithstanding the foregoing, you and Tesla each have the right to resolve any issue or dispute arising under the Proprietary Information and Inventions Agreement by Court action instead of arbitration.

Arbitrable claims do not include, and this Agreement does not apply to or otherwise restrict, administrative claims you may bring before any government agency where, as a matter of law, the parties may not restrict your ability to file such claims (including the Equal Employment Opportunity Commission and the National Labor Relations Board). Otherwise, it is agreed that arbitration shall be the exclusive remedy for administrative claims.

Tesla Motors Relocation Program

Tesla offers a competitive relocation package which can be utilized over a 24 month period. The benefit highlights are described below:

*Temporary Housing Expenses

Temporary housing is covered up to $10,000. We strongly recommend that candidates compare local rates with hotels and temporary housing such as furnished apartments and suites. Good judgment should be exercised when selecting temporary housing, and the associated costs associated with the property and services. This benefit only applies when you are physically relocating to the new job location.


*Relocation Fees (physical household move)

Benefits for transporting furnishings and personal belongings within your current household is covered up to $15,000. The benefit may also be utilized to move automobiles and sports utility vehicles, up to the maximum allocation stated above. Please obtain 3 quotes if possible; a minimum of 2 is required. Tesla can issue a purchase order for the moving service.

*Closing Cost Support

Tesla will cover up to a maximum of $10,000 for invoiced expenses of fees incurred in selling your primary residence. Covered fees are limited to items that are contained within your closing costs, but may included commissions, realtor expenses, and legal costs incurred with the sale of your primary residence.

*Area Overview & Visits to Family

Tesla understands that relocations can be stressful. The company provides up to $5,000 for you and your family to visit the new area to become familiar with the local housing market, available schooling, and to get a better feel for the area you will be residing in. The monies are meant to provide you an opportunity to get an area overview, generally before the physical move takes place. In addition, during the Temporary Housing period outlined above, these funds may also be utilized to visit family members from your original State of Origin (such as Michigan). This time off is subject to your available vacation time, and requires management approval.

*Spousal Job Support Assistance

A benefit of up to $5,000 will be paid to provide your spouse assistance with a local career counseling and job assistance office. This benefit may be used to obtain resume services, personal coaching, job networking seminars, and other general career services.

Please consult with Human Resources on the administration of these programs. Above items may be expensed, as in accordance with local laws and rules pertaining to acceptable expensable items. Lump sum payments may be issued also; subject to required withholding amounts set by state and federal law. Conflicts or disagreements in the administration of the program will be reviewed by Tesla’s HR and legal groups. Employees who depart the company prior to one year of service after receiving relocation benefits are subject to a pro-rated repayment schedule.

Exhibit 10.17

January 1, 2010

Gilbert Passin

Dear Gilbert:

Tesla Motors, Inc. is excited to extend you an offer for the position of Vice President of Manufacturing on the terms set forth below.

In this role you will perform the duties customarily associated with this position. You will report to Elon Musk, Chairman and CEO. Your duties, responsibilities, job title, and work location may be changed at any time by Tesla. We are pleased to have you join the Tesla team.

Your salary will be $250,000 per year, subject to standard payroll deductions and withholdings. As an exempt employee, you will not be entitled to overtime. You will be eligible for vacation and sick leave according to Tesla’s standard policy. You will also be eligible to receive all other benefits Tesla may provide to its employees (e.g., health and dental insurance coverage) after your enrollment on February 1, 2010. Tesla may consider you for bonuses, although the amount of such bonuses, if any, and the criteria for determining the award of such bonuses, if any, shall be in the sole discretion of Tesla. Of course, Tesla reserves the right to modify your compensation and benefits from time to time, as it deems necessary. The effective date of your employment will be February 1, 2010.

Tesla Motors, Inc. offers a competitive benefits package described below.

Stock Options : Subject to the approval of Tesla’s Board of Directors, you will be granted a stock option to purchase an aggregate of 200,000 shares of Tesla’s Common Stock pursuant to Tesla’s Equity Incentive Plan then in effect. Your stock options will vest commencing upon your first day of employment (1/4th of the shares vest one year after the Vesting Commencement Date, and 1/48th of the shares vest monthly thereafter over the next three years).

401K Program : You will be eligible to sign up for Tesla’s 401K program after your first pay check. Our 401K program is administered by Fidelity Investments.

Vacation Program : Tesla offers Regular full-time employees and part-time employees who work 20 hours per week are eligible for PTO immediately and will accrue PTO at 1.25 days per month (for a total of 15 days per calendar year).

By accepting this offer, you represent and warrant that your employment with Tesla will not violate any agreements, obligations or understandings that you may have with any third party or


prior employer. We want to emphasize that we do not wish you to bring any confidential or proprietary materials of any former employer which would violate any obligations you may have to your former employer. You further represent and warrant that you have read, understand, and accept the terms of your Stock Option Agreement, in particular, the vesting schedule of the shares of Tesla’s Common Stock thereof. You agree not to make any unauthorized disclosure to Tesla or use on behalf of Tesla any confidential information belonging to any of your former employers (except in accordance with agreements between Tesla and any such former employer). You also warrant that you do not possess any property containing a third party’s confidential and proprietary information. Of course, during your employment with Tesla, you may make use of information generally known and used by persons with training and experience comparable to your own, and information which is common knowledge in the industry or is otherwise legally available in the public domain.

As a Tesla employee, you will be expected to abide by all Tesla policies and procedures, and, as a condition of your employment, you will sign and comply with Tesla’s standard confidentiality agreement which prohibits unauthorized use or disclosure of Tesla confidential information or the confidential information of Tesla’s clients.

You may terminate your employment with Tesla at any time and for any reason whatsoever simply by notifying Tesla. Likewise, Tesla may terminate your employment at any time and for any reason whatsoever, with or without cause or advance notice. This at-will employment relationship cannot be changed except by a writing authorized on behalf of an officer of Tesla.

To ensure the rapid and economical resolution of disputes that may arise in connection with your employment with Tesla, you and Tesla agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to your employment, or the termination of your employment, will be resolved, to the fullest extent permitted by law per Attachment A

This letter agreement constitutes the complete, final and exclusive embodiment of the entire agreement between you and Tesla with respect to the terms and conditions of your employment, and it supersedes any other agreements or promises made to you by anyone, whether oral or written. This Agreement cannot be changed, amended, or modified except in a written agreement signed by an officer of Tesla. This letter agreement shall be construed and interpreted in accordance with the laws of the State of California.

This offer of employment is contingent upon the following:

 

   

Your ability to provide and maintain the proper and necessary documentation required for you and Tesla to comply with all applicable United States immigration laws and regulations. Please be prepared on your first day of employment to show specific documentation to certify your legal right to work in the United States.

 

   

Your execution (signature) of the Tesla Employee Agreement which protects the intellectual property and confidential information of Tesla, and prohibits the unauthorized use of the intellectual property and confidential information of any other company.

 

-2-


   

The satisfactory review and/or verification of background information, including, but not limited to, prior employment, reference checks, education, Department of Motor Vehicles, Social Security, and criminal records.

If you choose to accept our offer under the terms described above, please indicate your acceptance, by signing below and returning it to me prior to January 3, 2010 at which time this offer will expire.

We look forward to your favorable reply and to a productive and enjoyable work relationship.

 

Very truly yours,

Tesla Motors, Inc.

/s/ Elon Musk

Elon Musk

Chairman of the Board and CEO

 

Accepted by:  

/s/ Gilbert Passin

Date:  

1/1/2010

 

-3-


ARBITRATION AGREEMENT

To ensure the rapid and economical resolution of disputes that may arise in connection with your employment with Tesla, you and Tesla agree that any and all disputes, claims, or causes of action, in law or equity, arising from or relating to your employment, or the termination of your employment, will be resolved, to the fullest extent permitted by law by final, binding and confidential arbitration in San Francisco, California conducted by the Judicial Arbitration and Mediation Services/Endispute, Inc. (“JAMS”), or its successors, under the then current rules of JAMS for employment disputes; provided that:

 

  a. The arbitrator shall have the full authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and

 

  b. The arbitration shall insure a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award; and

 

  c. Both you and Tesla shall be entitled to all rights and remedies that you or Tesla would be entitled to pursue in a court of law; and

 

  d. Tesla shall pay all fees in excess of those which would be required if the dispute was decided in a court of law.

Nothing in this Agreement is intended to prevent either your or Tesla from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. Notwithstanding the foregoing, you and Tesla each have the right to resolve any issue or dispute arising under the Proprietary Information and Inventions Agreement by Court action instead of arbitration.

Arbitrable claims do not include, and this Agreement does not apply to or otherwise restrict, administrative claims you may bring before any government agency where, as a matter of law, the parties may not restrict your ability to file such claims (including the Equal Employment Opportunity Commission and the National Labor Relations Board). Otherwise, it is agreed that arbitration shall be the exclusive remedy for administrative claims.


Dear Gilbert:

Please find below the details of your relocation package from Pleasanton to Southern California.

We will pay for two years temporary living in Southern California in a reasonable one bedroom apartment. We will also allow you to expense your travel costs from the Bay Area to Southern California.

With regard to selling your current home in Pleasanton, we will allow you to expense all reasonable costs incurred in respect of both legal and real estate selling costs.

You can also expense all your costs in regard to packing, shipping and transport of your goods from Pleasanton to Southern California.

We will also allow you to expense any actual costs incurred in buying a new home in Southern California.

You will be expected to submit your expenses or approval. The relocation package above is open for two years from the start of your employment.

 

Very truly yours,

Tesla Motors, Inc.

/s/ Elon Musk

Elon Musk

Chairman of the Board and CEO

 

Accepted by:  

/s/ Gilbert Passin

Date:  

1/1/2010

Exhibit 10.18

LOGO AIR COMMERCIAL REAL ESTATE ASSOCIATION

STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE – NET

(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)

 

1.

Basic Provisions (“Basic Provisions”).

1.1         Parties : This Lease (“ Lease ”), dated for reference purposes only June 7, 2005 is made by and between Russell A. and Deborah B. Margiotta, Trustees of the Margiotta Family Trust UTA May 26, 1981 (“Lessor”) and Tesla Motors, Inc., a Delaware corporation (“Lessee”), (collectively the “ Parties ,” or individually a “ Party ”).

1.2         Premises : That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, and commonly known as 1050 Bing Street, San Carlos located in the County of San Mateo , State of California , and generally described as (describe briefly the nature of the property and, if applicable, the “Project”, if the property is located within a Project)

approximately 28,080 square feet of industrial space, APN: 046 223 120 (“ Premises ”). (See also Paragraph 2)

 

 

1.3         Term : 5 years and 1/2 months (“ Original Term ”) commencing See Addendum (“ Commencement Date ”) and ending Five (5) years from Commencement Date (“ Expiration Date ”). (See also Paragraph 3)

1.4         Early Possession :                                                                     (“ Early Possession Date ”). (See also Paragraphs 3.2 and 3.3)

1.5         Base Rent : $ 23,868.00 per month (“ Base Rent ”), payable on the first day of each month commencing August 1, 2005 . (See also Paragraph 4)

x If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted.

1.6         Base Rent and Other Monies Paid Upon Execution :

 

 

    (a)

Base Rent : $ 11,934.00 for the period July 15, 2005 through July 31, 2005

                                                                                                                                                                                                                            .

 

    (b)

Security Deposit : $ 30,000.00 (“ Security Deposit ”). (See also Paragraph 5)

 

 

    (c)

Association Fees : $ -   for the period                                         

 

 

    (d)

Other : $ -   for                                                                              

                                                                                                                                                                                                                            .

 

    (e)

Total Due Upon Execution of this Lease : $ 41,934.00 .

1.7         Agreed Use : Research, Development, sales, service, training, distribution, production, general office use, storage and other legally permitted uses for electric vehicles and related products.                                                                  . (See also Paragraph 6)

1.8        Insuring Party : Lessor is the “Insuring Party” unless otherwise stated herein. (See also Paragraph 8)

1.9        Real Estate Brokers : (See also Paragraph 15)

    (a) Representation : The following real estate brokers (the “ Brokers ”) and brokerage relationships exist in this transaction (check applicable boxes):

 

¨

     

represents Lessor exclusively (“ Lessor’s Broker ”);

¨

     

represents Lessee exclusively (“ Lessee’s Broker ”); or

x

 

Cornish & Carey Commercial

 

represents both Lessor and Lessee (“ Dual Agency ”).

    (b) Payment to Brokers : Upon execution and delivery of this Lease by both Parties, Lessor shall pay to the Broker the fee agreed to in their separate written agreement (or if there is no such agreement, the sum of              or              % of the total Base Rent) for the brokerage services rendered by the Brokers.

1.10        Guarantor . The obligations of the Lessee under this Lease are to be guaranteed by None (“ Guarantor ”). (See also Paragraph 37)

1.11        Attachments . Attached hereto are the following, all of which constitute a part of this Lease:

x    an Addendum consisting of Paragraphs 51 through 56 ;

¨    a plot plan depicting the Premises;

¨    a current set of the Rules and Regulations;

¨    a Work Letter;

¨    other (specify):

 

 

 

 

 

 

   PAGE 1 OF 20  

ME

 

    

RM/DM

INITIALS

    

INITIALS


2. Premises .

2.1 Letting . Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating Rent, is an approximation which the Parties agree is reasonable and any payments based thereon are not subject to revision whether or not the actual size is more or less. Note: Lessee is advised to verify the actual size prior to executing this Lease .

2.2 Condition . Lessor shall deliver the Premises to Lessee broom clean and free of debris on the Commencement Date or the Early Possession Date, whichever first occurs (“ Start Date ”), and, so long as the required service contracts described in Paragraph 7.1(b) below are obtained by Lessee and in effect within thirty days following the Start Date, warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems (“ HVAC ”), loading doors, sump pumps, if any, and all other such elements in the Premises, other than those Constructed by Lessee, shall be in good operating condition on said date and that the structural elements of the roof, bearing walls and foundation of any buildings on the Premises (the “ Building ”) shall be free of material defects. If a non-compliance with said warranty exists as of the Start Date, or if one of such systems or elements should malfunction or fail within the appropriate warranty period, Lessor shall, as Lessor’s sole obligation with respect to such matter, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, malfunction or failure, rectify same at Lessor’s expense. The warranty periods shall be as follows: (i) 6 months as to the HVAC systems, and (ii) 30 days as to the remaining systems and other elements of the Building. If Lessee does not give Lessor the required notice within the appropriate warranty period, correction of any such non-compliance, malfunction or failure shall be the obligation of Lessee at Lessee’s sole cost and expense.

2.3 Compliance . Lessor warrants that the improvements on the Premises comply with the building codes, applicable laws, covenants or restrictions of record, regulations, and ordinances (“ Applicable Requirements ”) that were in effect at the time that each improvement, or portion thereof, was constructed. Said warranty does not apply to the use to which Lessee will put the Premises, modifications which may be required by the Americans with Disabilities Act or any similar laws as a result of Lessee’s use (see Paragraph 50), or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for determining whether or not the Applicable Requirements, and especially the zoning, are appropriate for Lessee’s intended use, and acknowledges that past uses of the Premises may no longer be allowed . If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor’s expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within 6 months following the Start Date, correction of that non-compliance shall be the obligation of Lessee at Lessee’s sole cost and expense. If the Applicable Requirements are hereafter changed so as to require during the term of this Lease the construction of an addition to or an alteration of the Premises and/or Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Unit, Premises and/or Building (“ Capital Expenditure ”), Lessor and Lessee shall allocate the cost of such work as follows:

(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however that if such Capital Expenditure is required during the last 2 years of this Lease and the cost thereof exceeds 6 months’ Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within 10 days after receipt of Lessee’s termination notice that Lessor has elected to pay the difference between the actual cost thereof and an amount equal to 6 months’ Base Rent. If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least 90 days thereafter. Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure.

(b) If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor and Lessee shall allocate the obligation to pay for such costs pursuant to the provisions of Paragraph 7.1(d); provided, however, that if such Capital Expenditure is required during the last 2 years of this Lease or if Lessor reasonably determines that it is not economically feasible to pay its share thereof, Lessor shall have the option to terminate this Lease upon 90 days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within 10 days after receipt of Lessor’s termination notice that Lessee will pay for such Capital Expenditure. If Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with interest, from Rent until Lessor’s share of such costs have been fully paid. If Lessee is unable to finance Lessor’s share, or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right to terminate this Lease upon 30 days written notice to Lessor.

(c) Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected, and new Applicable Requirements. If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall either: (i) Immediately cease such changed use or intensity of use and/or take such other steps as may be necessary to eliminate the requirement for such Capital Expenditure, or (ii) complete such Capital Expenditure at its own expense. Lessee shall not, however, have any right to terminate this Lease.

2.4 Acknowledgements . Lessee acknowledges that (a) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical, HVAC end fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements and the Americans with Disabilities Act), and their suitability

 

 

   PAGE 2 OF 20  

ME

 

    

RM/DM

INITIALS

    

INITIALS


for Lessee’s intended use, (b) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to its occupancy of the Premises, and (c) neither Lessor, Lessor’s agents, nor Brokers have made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease. In addition, Lessor acknowledges that (i) Brokers have made no representations, promises or warranties concerning Lessee’s ability to honor the Lease or suitability to occupy the Premises, and (ii) it is Lessor’s sole responsibility to investigate the financial capability and/or suitability of all proposed tenants.

2.5 Lessee as Prior Owner/Occupant . The warranties made by Lessor in Paragraph 2 shall be of no force or effect if immediately prior to the Start Date Lessee was the owner or occupant of the Premises. In such event, Lessee shall be responsible for any necessary corrective work.

3. Term .

3.1 Term . The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3.

3.2 Early Possession . If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease (including but not limited to the obligations to pay Real Property Taxes and insurance premiums and to maintain the Premises) shall, however, be in effect during such period. Any such early possession shall not affect the Expiration Date.

3.3 Delay In Possession . Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date. If, despite said efforts, Lessor is unable to deliver possession by such date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease. Lessee shall not, however, be obligated to pay Rent or perform its other obligations until Lessor delivers possession of the Premises and any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts or omissions of Lessee. If possession is not delivered within 60 days after the Commencement Date, Lessee may, at its option, by notice in writing within 10 days after the end of such 60 day period, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder. If such written notice is not received by Lessor within said 10 day period, Lessee’s right to cancel shall terminate. If possession of the Premises is not delivered within 120 days after the Commencement Date, this Lease shall terminate unless other agreements are reached between Lessor and Lessee, in writing.

3.4 Lessee Compliance . Lessor shall not be required to deliver possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Start Date, including the payment of Rent, notwithstanding Lessor’s election to withhold possession pending receipt of such evidence of insurance. Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied.

4. Rent .

4.1 Rent Defined . All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent (“ Rent ”).

4.2 Payment . Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States on or before the day on which it is due, without offset or deduction (except as specifically permitted in this Lease). Rent for any period during the term hereof which is for less than one full calendar month shall be prorated based upon the actual number of days of said month. Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing. Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor’s rights to the balance of such Rent, regardless of Lessor’s endorsement of any check so stating. In the event that any check, draft, or other instrument of payment given by Lessee to Lessor is dishonored for any reason, Lessee agrees to pay to Lessor the sum of $25 In addition to any Late Charge and Lessor, at its option, may require all future payments to be made by Lessee to be by cashier’s check. Payments will be applied first to accrued late charges and attorney’s fees, second to accrued interest, then to Base Rent and Operating Expense increase, and any remaining amount to any other outstanding charges or costs.

4.3 [Omitted.]

5. Security Deposit . Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee’s faithful performance of its obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of the Security Deposit, Lessee shall within 10 days after written request therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. If the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional moneys with Lessor so that the total amount of the Security Deposit shall at all times bear the same proportion to the increased Base Rent as the initial Security Deposit bore to the initial Base Rent. Should the Agreed Use be amended to accommodate a material change In the business of Lessee or to accommodate a sublessee or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessor’s reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof. If a change in control of Lessee occurs during this Lease and following such change the financial condition of Lessee is, In Lessor’s

 

 

   PAGE 3 OF 20  

ME

 

    

RM/DM

INITIALS

    

INITIALS


reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on such change in financial condition. Lessor shall not be required to keep the Security Deposit separate from its general accounts. Within 14 days after the expiration or termination of this Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent, and otherwise within 30 days after the Premises have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit not used or applied by Lessor. No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease.

6. Use .

6.1 Use . Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs occupants of or causes damage to neighboring premises or properties. Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the improvements on the Premises or the mechanical or electrical systems therein, and/or is not significantly more burdensome to the Premises. If Lessor elects to withhold consent, Lessor shall within 7 days after such request give written notification of same, which notice shall include an explanation of Lessor’s objections to the change In the Agreed Use.

6.2 Hazardous Substances .

(a) Reportable Uses Require Consent . The term “ Hazardous Substance ” as used in this Lease shall mean any product, substance, or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessee’s expense) with all Applicable Requirements. “ Reportable Use ” shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or (iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used to the normal course of the Agreed Use, ordinary office supplies (copier toner, liquid paper, glue, etc.) and common household cleaning materials, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before Lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security Deposit.

(b) Duty to Inform Lessor . If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance.

(c) Lessee Remediation . Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee’s expense, comply with all Applicable Requirements and take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought onto the Premises during the term of this Lease, by or for Lessee, or any third party.

(d) Lessee indemnification . Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalties, and attorneys’ and consultants’ fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, or any third party (provided, however, that Lessee shall have no liability under this Lease with respect to underground migration of any Hazardous Substance under the Premises from adjacent properties not caused or contributed to by Lessee). Lessee’s obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement.

(e) Lessor indemnification . Lessor and its successors and assigns shelf indemnify, defend, reimburse and hold Lessee, its employees and lenders, harmless from and against any and all environmental damages, including the cost of remediation, which result from Hazardous Substances which existed on the Premises prior to Lessee’s occupancy or which are caused by the gross negligence or willful misconduct of Lessor, its agents or employees. Lessor’s obligations, as and when required by the Applicable Requirements, shall include, but not be limited to, the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease.

 

 

   PAGE 4 OF 20  

ME

 

    

RM/DM

INITIALS

    

INITIALS


(f) Investigations and Remediations . Lessor shall retain the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to Lessee’s occupancy, unless such remediation measure is required as a result of Lessee’s use (including “Alterations”, as defined In paragraph 7.3(a) below) of the Premises, in which event Lessee shall be responsible for such payment. Lessee shall cooperate fully in any such activities at the request of Lessor, including allowing Lessor and Lessor’s agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor’s investigative and remedial responsibilities.

(g) Lessor Termination Option . If a Hazardous Substance Condition (see Paragraph 9.1(e)) occurs during the term of this Lease, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by the Applicable Requirements and this Lease shall continue in full force and effect, but subject to Lessor’s rights under Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor’s option, either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor’s expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to remediate such condition exceeds 12 times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee, within 30 days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of Lessor’s desire to terminate this Lease as of the date 60 days following the date of such notice. In the event Lessor elects to give a termination notice, Lessee may, within 10 days thereafter, give written notice to Lessor of Lessee’s commitment to pay the amount by which the cost of the remediation of such Hazardous Substance Condition exceeds an amount equal to 12 times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days following such commitment. In such event, this Lease shall continue in full force and effect, and Lessor shall proceed to make such remediation as soon as reasonably possible after the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the time provided, this Lease shall terminate as of the date specified in Lessor’s notice of termination.

6.3 Lessee’s Compliance with Applicable Requirements . Except as otherwise provided in this Lease, Lessee shall, at Lessee’s sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor’s engineers and/or consultants which relate in any manner to the such Requirements, without regard to whether such Requirements are now in effect or become effective after the Start Date Lessee shall, within 10 days after receipt of Lessor’s written request, provide Lessor with copies of all permits and other documents, and other information evidencing Lessee’s compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents Involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements.

6.4 Inspection; Compliance . Lessor and Lessor’s “Lender” (as defined In Paragraph 30) and consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable notice, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease. The cost of any such inspections shall be paid by Lessor, unless a violation of Applicable Requirements, or a Hazardous Substance Condition (see paragraph 9.1) is found to exist or be imminent or the inspection is requested or ordered by a governmental authority. In such case, Lessee shall upon request reimburse Lessor for the cost of such inspection, so long as such inspection is reasonably related to the violation or contamination. In addition, Lessee shall provide copies of all relevant material safety data sheets (MSDS) to Lessor within 10 days of the receipt of a written request therefor.

7. Maintenance; Repairs, Utility Installations; Trade Fixtures and Alterations .

7.1 Lessee’s Obligations .

(a) In General . Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee’s Compliance with Applicable Requirements), 7.2 (Lessor’s Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee’s sole expense, keep the Premises, Utility Installations (intended for Lessee’s exclusive use, no matter where located), and Alterations in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee’s use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, HVAC equipment, electrical, lighting facilities, boilers, pressure vessels, fire protection system, fixtures, walls (interior and exterior), foundations, ceilings, roofs, roof drainage systems, floors, windows, doors, plate glass, skylights, landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways located in, on, or adjacent to the Premises. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below. Lessee’s obligations shall include restorations, replacements or renewals when necessary to keep the Premises and at improvements thereon or a part thereof in good order, condition and state of repair. Lessee shall, during the term of this Lease, keep the exterior appearance of the Building in a first-class condition (including, e.g. graffiti removal) consistent with the exterior appearance of other similar facilities of comparable age and size in the vicinity, including, when necessary, the exterior repainting of the Building.

(b) Service Contracts . Lessee shall, at Lessee’s sole expense, procure and maintain contracts, with copies to Lessor in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, if any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler, and pressure vessels, (iii) fire extinguishing systems, including fire alarm and/or smoke detection, (iv) landscaping and irrigation systems, (v) roof covering

 

 

   PAGE 5 OF 20  

ME

 

    

RM/DM

INITIALS

    

INITIALS


and drains, (vi) clarifiers (vii) basic utility feed to the perimeter of the Building, and (viii) any other equipment, if reasonably required by Lessor. However, Lessor reserves the right, upon notice to Lessee, to procure and maintain any or all of such service contracts, and if Lessor so elects, Lessee shall reimburse Lessor, upon demand, for the cost thereof.

(c) Failure to Perform . If Lessee fails to perform Lessee’s obligations under this Paragraph 7.1, Lessor may enter upon the Premises after 10 days’ prior written notice to Lessee (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Lessee’s behalf, and put the Premises in good order, condition and repair, and Lessee shall promptly pay to Lessor a sum equal to 115% of the cost thereof.

(d) Replacement . Subject to Lessee’s indemnification of Lessor as set forth in Paragraph 6.7 below, and without relieving Lessee of liability resulting from Lessee’s failure to exercise and perform good maintenance practices, if an item described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such item, then such item shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease, on the date on which Base Rent is due, an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is one, and the denominator of which is 144 (le, 1/144th of the cost per month). Lessee shall pay interest on the unamortized balance at a rate that is commercially reasonable in the judgment of Lessor’s accountants. Lessee may, however, prepay its obligation at any time.

7.2 Lessor’s Obligations . Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14 (Condemnation), it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, or the equipment therein, all of which obligations are intended to be that of the Lessee. It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises, and they expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease.

7.3 Utility Installations; Trade Fixtures; Alterations .

(a) Definitions . The term “ Utility Installations ” refers to all floor and window coverings, air and/or vacuum lines, power panels, electrical distribution, security and fire protection systems, communication cabling, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises. The term “ Trade Fixtures ” shall mean Lessee’s machinery and equipment that can be removed without doing material damage to the Premises. The term “ Alterations ” shall mean any modification of the Improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion. “ Lessee Owned Alterations and/or Utility Installations ” are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).

(b) Consent . Lessee shall not make any Alterations or Utility Installations to the Premises without Lessor’s prior written consent. Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, will not affect the electrical, plumbing, HVAC, and/or life safety systems, and the cumulative cost thereof during this Lease as extended does not exceed a sum equal to 3 month’s Base Rent in the aggregate or a sum equal to one month’s Base Rent in any one year. Notwithstanding the foregoing, Lessee shall not make or permit any roof penetrations and/or install anything on the roof without the prior written approval of Lessor. Lessor may, as a precondition to granting such approval, require Lessee to utilize a contractor chosen and/or approved by Lessor. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. Consent shall be deemed conditioned upon Lessee’s: (i) acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements In a prompt and expeditious manner. Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications. For work which costs an amount in excess of one month’s Base Rent, Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal to 150% of the estimated cost of such Alteration or Utility Installation and/or upon Lessee posting an additional Security Deposit with Lessor.

(c) Liens; Bonds . Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic’s or materialmen’s lien against the Premises or any interest therein. Lessee shall give Lessor not less than 10 days notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to 150% of the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same. If Lessor elects to participate in any such action, Lessee shall pay Lessor’s attorneys’ fees and costs.

7.4 Ownership; Removal; Surrender; and Restoration .

(a) Ownership . Subject to Lessor’s right to require removal or elect ownership as hereinafter provided, all Alterations and Utility installations made by Lessee shall be the property of Lessee, but considered a part of the Premises. Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this Lease, become the properly of Lessor and be surrendered by Lessee with the Premises.

(b) Removal . By delivery to Lessee of written notice from Lessor not earlier than 90 and not later than 30 days prior to the end of the term of this Lease, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of this Lease. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent.

 

 

   PAGE 6 OF 20  

ME

 

    

RM/DM

INITIALS

    

INITIALS


(c) Surrender; Restoration . Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear excepted. “Ordinary wear and tear” shall not include any damage or deterioration that would have been prevented by good maintenance practice. Notwithstanding the foregoing, if this Lease is for 12 months or less, then Lessee shall surrender the Premises In the same condition as delivered to Lessee on the Start Date with NO allowance for ordinary wear and tear. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee. Lessee shall completely remove from the Premises any and all Hazardous Substances brought onto the Premises by or for Lessee, or any third party (except Hazardous Substances which were deposited via underground migration from areas outside of the Premises, or if applicable, the Project) even if such removal would require Lessee to perform or pay for work that exceeds statutory requirements. Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee. Any personal property of Lessee not removed on or before the Expiration Date or any earlier termination date shall be deemed to have been abandoned by Lessee and may be disposed of or retained by Lessor as Lessor may desire. The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below.

8. Insurance; Indemnity .

8.1 Payment For Insurance . Lessee shall pay for all Insurance required under Paragraph 8 except to the extent of the cost attributable to liability insurance carried by Lessor under Paragraph 8.2(b) in excess of $2,000,000 per occurrence. Premiums for policy periods commencing prior to or extending beyond the Lease term shall be prorated to correspond to the Lease term. Payment shall be made by Lessee to Lessor within 10 days following receipt of an invoice.

8.2 Liability Insurance .

(a) Carried by Lessee . Lessee shall obtain and keep in force a Commercial General Liability policy of insurance protecting Lessee and Lessor as an additional insured against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an annual aggregate of not less than $2,000,000, an “Additional Insured-Managers or Lessors of Premises Endorsement” and contain the “Amendment of the Pollution Exclusion Endorsement” for damage caused by heat, smoke or fumes from a hostile fire. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an “insured contract” for the performance of Lessee’s indemnity obligations under this Lease. The limits of said Insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only.

(b) Carried by Lessor . Lessor shall maintain liability insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein.

8.3 Property Insurance - Building, Improvements and Rental Value .

(a) Building and Improvements . The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor, with loss payable to Lessor, any ground-lessor, and to any Lender insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lender, but in no event more than the commercially reasonable and available insurable value thereof. If Lessor is the Insuring Party, however, Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee’s personal property shall be insured by Lessee under Paragraph 8.4 rather than by Lessor. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase In the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located.

(b) Rental Value . The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss of the Base Rent for one year with an extended period of indemnity for an additional 180 days (“Rental Value Insurance”). Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next 12 month period. Lessee shall be liable for any deductible amount in the event of such loss.

(c) Adjacent Premises . If the Premises are part of a larger building, or of a group of buildings owned by Lessor which are adjacent to the Premises, the Lessee shall pay for any increase in the premiums for the property insurance of such building or buildings if said increase is caused by Lessee’s acts, omissions, use or occupancy of the Premises.

8.4 Lessee’s Property; Business Interruption insurance .

(a) Property Damage . Lessee shall obtain and maintain insurance coverage on all of Lessee’s personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such Insurance shall be full replacement cost

 

 

   PAGE 7 OF 20  

ME

 

    

RM/DM

INITIALS

    

INITIALS


coverage with a deductible of not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations. Lessee shall provide Lessor with written evidence that such insurance is in force.

(b) Business Interruption . Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly Insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils.

(c) No Representation of Adequate Coverage . Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee’s property, business operations or obligations under this Lease.

8.5 Insurance Policies . Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a “General Policyholders Rating” of at least B+, V, as set forth in the most current issue of “Best’s Insurance Guide”, or such other rating as may be required by a Lender. Lessee shall not do or permit to be done anything which invalidates the required Insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies of such Insurance or certificates evidencing the existence and amounts of the required insurance. No such policy shall be cancelable or subject to modification except after 30 days prior written notice to Lessor. Lessee shall, at least 30 days prior to the expiration of such policies, furnish Lessor with evidence of renewals or “Insurance binders” evidencing renewal thereof, or Lessor may order such Insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If either Party shall fall to procure and maintain the Insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same.

8.6 Waiver of Subrogation . Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein. The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto. The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby.

8.7 Indemnity . Except for Lessor’s gross negligence or willful misconduct, Lessee shall Indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor’s master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys’ and consultants’ fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee’s expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be defended or indemnified.

8.8 Exemption of Lessor from Liability . Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee’s employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor nor from the failure of Lessor to enforce the provisions of any other lease in the Project. Notwithstanding Lessor’s negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee’s business or for any loss of income or profit therefrom.

8.9 Failure to Provide Insurance . Lessee acknowledges that any failure on its part to obtain or maintain the insurance required herein will expose Lessor to risks and potentially cause Lessor to incur costs not contemplated by this Lease, the extent of which will be extremely difficult to ascertain. Accordingly, for any month or portion thereof that Lessee does not maintain the required insurance and/or does not provide Lessor with the required binders or certificates evidencing the existence of the required insurance, the Base Rent shall be automatically increased, without any requirement for notice to Lessee, by an amount equal to 10% of the then existing Base Rent or $100, whichever is greater. The parties agree that such increase in Base Rent represents fair and reasonable compensation for the additional risk/ costs that Lessor will incur by reason of Lessee’s failure to maintain the required insurance. Such increase in Base Rent shall in no event constitute a waiver of Lessee’s Default or Breach with respect to the failure to maintain such insurance, prevent the exercise of any of the other rights and remedies granted hereunder, nor relieve Lessee of its obligation to maintain the insurance specified in this Lease.

9. Damage or Destruction .

9.1 Definitions .

(a) “ Premises Partial Damage ” shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in 6 months or less from the date of the damage or destruction. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

(b) “ Premises Total Destruction ” shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in 6 months or less from the date of the damage or destruction. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

 

 

   PAGE 8 OF 20  

ME

 

    

RM/DM

INITIALS

    

INITIALS


(c) “ Insured Loss ” shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved.

(d) “ Replacement Cost ” shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation.

(e) “ Hazardous Substance Condition ” shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises which requires repair, remediation, or restoration.

9.2 Partial Damage - Insured Loss . If a Premises Partial Damage that is an insured Loss occurs, then Lessor shall, at Lessor’s expense, repair such damage (but not Lessee’s Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor’s election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds (except as to the deductible which is Lessee’s responsibility) as and when required to complete said repairs. In the event, however, such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within 10 days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said 10 day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within 10 days thereafter to: (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect, or (ii) have this Lease terminate 30 days thereafter. Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party.

9.3 Partial Damage - Uninsured Loss . If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee’s expense), Lessor may either: (i) repair such damage as soon as reasonably possible at Lessor’s expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within 30 days after receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall be effective 60 days following the date of such notice. In the event Lessor elects to terminate this Lease, Lessee shall have the right within 10 days after receipt of the termination notice to give written notice to Lessor of Lessee’s commitment to pay for the repair of such damage without reimbursement from Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days after making such commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available. If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice.

9.4 Total Destruction . Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate 60 days following such Destruction. If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the tight to recover Lessor’s damages from Lessee, except as provided in Paragraph 8,6.

9.5 Damage Near End of Term . If at any time during the last 6 months of this Lease there is damage for which the cost to repair exceeds one month’s Base Rent, whether or not an Insured Loss, Lessor may terminate this Lease effective 60 days following the date of occurrence of such damage by giving a written termination notice to Lessee within 30 days after the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is 10 days after Lessee’s receipt of Lessor’s written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor’s commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee’s option shall be extinguished.

9.6 Abatement of Rent; Lessee’s Remedies .

(a) Abatement . In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee’s use of the Premises is Impaired, but not to exceed the proceeds received from the Rental Value insurance. All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein.

(b) Remedies . If Lessor shall be obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within 90 days after such obligation shall accrue, Lessee may, at any time

 

 

   PAGE 9 OF 20  

ME

 

    

RM/DM

INITIALS

    

INITIALS


prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee’s election to terminate this Lease on a date not less than 60 days following the giving of such notice. If Lessee gives such notice and such repair or restoration is not commenced within 30 days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced within such 30 days, this Lease shall continue in full force and effect. “Commence” shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs.

9.7 Termination; Advance Payments . Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee’s Security Deposit as has not been, or is not then required to be, used by Lessor.

9.8 Waive Statutes . Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of the Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith.

10. Real Property Taxes .

10.1 Definition . As used herein, the term “Real Property Taxes” shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes); improvement bond; and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Premises or the Project, Lessor’s right to other income therefrom, and/or Lessor’s business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Building address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Premises are located. Real Property Taxes shall also include any tax, fee, levy, assessment or charge, or any increase therein; (i) imposed by reason of events occurring during the term of this Lease, including but not limited to, a change in the ownership of the Premises, and (ii) levied or assessed on machinery or equipment provided by Lessor to Lessee pursuant to this Lease.

10.2 Payment of Taxes . In addition to Base Rent, Lessee shall pay to Lessor an amount equal to the Real Property Tax installment due at least 20 days prior to the applicable delinquency date. If any such installment shall cover any period of time prior to or after the expiration or termination of this Lease, Lessee’s share of such installment shall be prorated. In the event Lessee incurs a late charge on any Rent payment, Lessor may estimate the current Real Property Taxes, and require that such taxes be paid in advance to Lessor by Lessee monthly in advance with the payment of the Base Rent. Such monthly payments shall be an amount equal to the amount of the estimated installment of taxes divided by the number of months remaining before the month in which said installment becomes delinquent. When the actual amount of the applicable tax bill is known, the amount of such equal monthly advance payments shall be adjusted as required to provide the funds needed to pay the applicable taxes. If the amount collected by Lessor is insufficient to pay such Real Property Taxes when due, Lessee shall pay Lessor, upon demand, such additional sum as is necessary. Advance payments may be intermingled with other moneys of Lessor and shall not bear interest in the event of a Breach by Lessee in the performance of its obligations under this Lease, then any such advance payments may be treated by Lessor as an additional Security Deposit.

10.3 Joint Assessment . If the Premises are not separately assessed, Lessee’s liability shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be conclusively determined by Lessor from the respective valuations assigned in the assessor’s work sheets or such other information as may be reasonably available.

10.4 Personal Property Taxes . Lessee shall pay, prior to delinquency, all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee. When possible, Lessee shall cause its Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee’s said property shall be assessed with Lessor’s real property, Lessee shall pay Lessor the taxes attributable to Lessee’s property within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee’s property.

11. Utilities and Services . Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered or billed to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor, of all charges jointly metered or billed. There shall be no abatement of rent and Lessor shall not be liable in any respect whatsoever for the inadequacy, stoppage, interruption or discontinuance of any utility or service due to riot, strike, labor dispute, breakdown, accident, repair or other cause beyond Lessor’s reasonable control or in cooperation with governmental request or directions.

12. Assignment and Subletting .

12.1 Lessor’s Consent Required .

(a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, “assign or assignment”) or sublet all or any part of Lessee’s interest in this Lease or in the Premises without Lessor’s prior written consent.

(b) Unless Lessee is a corporation and its stock is publicly traded on a national stock exchange, a change in the control of Lessee shall constitute an assignment requiring consent. The transfer, on a cumulative basis, of 25% or more of the voting control of Lessee shall constitute a change in control for this purpose.

(c) The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease

 

 

   PAGE 10 OF 20  

ME

 

    

RM/DM

INITIALS

    

INITIALS


or Lessee’s assets occurs, which results or will result in a reduction of the Net Worth of Lessee by an amount greater than 25% of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to which Lessor may withhold its consent. “Net Worth of Lessee” shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles.

(d) An assignment or subletting without consent shall, at Lessor’s option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either; (i) terminate this Lease, or (ii) upon 30 days written notice, increase the monthly Base Rent to 110% of the Base Rent then in effect. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to 110% of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to 110% of the scheduled adjusted rent.

(e) Lessee’s remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief.

12.2 Terms and Conditions Applicable to Assignment and Subletting .

(a) Regardless of Lessor’s consent, no assignment or subletting shall: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee.

(b) Lessor may accept Rent or performance of Lessee’s obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessor’s right to exercise its remedies for Lessee’s Default or Breach.

(c) Lessor’s consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting.

(d) In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee’s obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor’s remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor.

(e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor’s determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a fee of $500 $1,000.00 as consideration for Lessor’s considering and processing said request Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested. (See also Paragraph 36)

(f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing.

(g) Lessor’s consent to any assignment or subletting shall not transfer to the assignee or sublessee any Option granted to the original Lessee by this Lease unless such transfer is specifically consented to by Lessor in writing. (See Paragraph 39.2)

12.3 Additional Terms and Conditions Applicable to Subletting . The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:

(a) Lessee hereby assigns and transfers to Lessor all of Lessee’s interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee’s obligations under this Lease; provided, however, that until a Breach shall occur in the performance of Lessee’s obligations, Lessee may collect said Rent in the event that the amount collected by Lessor exceeds Lessee’s obligations any such excess shall be refunded to Lessee. Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee’s obligations to such sublessee. Lessee hereby Irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee’s obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease, Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary.

(b) In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor.

(c) Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor.

(d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor’s prior written consent.

 

 

   PAGE 11 OF 20  

ME

 

    

RM/DM

INITIALS

    

INITIALS


(e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee.

13. Default; Breach; Remedies .

13.1 Default; Breach . A “Default” is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or Rules and Regulations under this Lease. A “Breach” is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period;

(a) The abandonment of the Premises; or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism.

(b) The failure of Lessee to make any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of 3 business days following written notice to Lessee.

(c) The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts, (iii) the recission of an unauthorized assignment or subletting, (iv) an Estoppel Certificate, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 42, (viii) material safety data sheets (MSDS), or (ix) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of 10 days following written notice to Lessee.

(d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof, other than those described in subparagraphs 13.1(a), (b) or (c), above, where such Default continues for a period of 30 days after written notice; provided, however, that if the nature of Lessee’s Default is such that more than 30 days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said 30 day period and thereafter diligently prosecutes such cure to completion.

(e) The occurrence of any of the following events: (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a “debtor” as defined in 11 U.S.C. 5101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where such seizure is not discharged within 30 days; provided, however, in the event that any provision of this subparagraph (e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions.

(f) The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false.

(g) If the performance of Lessee’s obligations under this Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor’s liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a Guarantor’s becoming insolvent or the subject of a bankruptcy filing, (iv) a Guarantor’s refusal to honor the guaranty, or (v) a Guarantor’s breach of its guaranty obligation on an anticipatory basis, and Lessee’s failure, within 60 days following written notice of any such event, to provide written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease.

13.2 Remedies . If Lessee fails to perform any of its affirmative duties or obligations, within 10 days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee’s behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. Lessee shall pay to Lessor an amount equal to 115% of the costs and expenses incurred by Lessor in such performance upon receipt of an invoice therefor. In the event of a Breach Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach:

(a) Terminate Lessee’s right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such event Lessor shall be entitled to recover from Lessee; (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of resetting, including necessary renovation and alteration of the Premises, reasonable attorneys’ fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent efforts by Lessor to mitigate damages caused by Lessee’s Breach of this Lease shall not waive Lessor’s right to recover damages under

 

 

   PAGE 12 OF 20  

ME

 

    

RM/DM

INITIALS

    

INITIALS


Paragraph 12. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1. In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute.

(b) Continue the Lease and Lessee’s right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to reasonable limitations. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor’s interests, shall not constitute a termination of the Lessee’s right to possession.

(c) Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located. The expiration or termination of this Lease and/or the termination of Lessee’s right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee’s occupancy of the Premises.

13.3 Inducement Recapture . Any agreement for free or abated rent or other charges, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee’s entering into this Lease, all of which concessions are hereinafter referred to as “Inducement Provisions,” shall be deemed conditioned upon Lessee’s full and faithful performance of all of the terms, covenants and conditions of this Lease. Upon Breach of this Lease by Lessee, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this paragraph shall not be deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor at the time of such acceptance.

13.4 Late Charges . Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent shall not be received by Lessor within 5 days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall immediately pay to Lessor a one-time late charge equal to 10% of each such overdue amount or $100, whichever is greater. The Parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee’s Default or Breach with respect to such overdue amount, nor prevent the exercise of any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for 3 consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor’s option, become due and payable quarterly in advance.

13.5 Interest . Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due as to scheduled payments (such as Base Rent) or within 30 days following the date on which it was due for non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the 31st day after it was due as to non-scheduled payments. The Interest (“Interest”) charged shall be computed at the rate of 10% per annum but shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential late charge provided for in Paragraph 13.4.

13.6 Breach by Lessor .

(a) Notice of Breach . Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph, a reasonable time shall in no event be less than 30 days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor’s obligation is such that more than 30 days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such 30 day period and thereafter diligently pursued to completion.

(b) Performance by Lessee on Behalf of Lessor . In the event that neither Lessor nor Lender cures said breach within 30 days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion, then Lessee may elect to cure said breach at Lessee’s expense and offset from Rent the actual and reasonable cost to perform such cure, provided however, that such offset shall not exceed an amount equal to the greater of one month’s Base Rent or the Security Deposit, reserving Lessee’s right to seek reimbursement from Lessor. Lessee shall document the cost of said cure and supply said documentation to Lessor.

14. Condemnation . If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively “Condemnation”), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than 10% of the Building, or more than 25% of that portion of the Premises not occupied by any building, is taken by Condemnation, Lessee may, at Lessee’s option, to be exercised in writing within 10 days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within 10 days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the

 

 

   PAGE 13 OF 20  

ME

 

    

RM/DM

INITIALS

    

INITIALS


reduction in utility of the Premises caused by such Condemnation. Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation for Lessee’s relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph. All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefor. In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation.

15. Brokerage Fees .

15.1 [omitted.]

15.2 Assumption of Obligations . Any buyer or transferee of Lessor’s interest in this Lease shall be deemed to have assumed Lessor’s obligation hereunder. Brokers shall be third party beneficiaries of the provisions of Paragraphs 1.9, 15, 22 and 31. If Lessor falls to pay to Brokers any amounts due as and for brokerage fees pertaining to this Lease when due, then such amounts shall accrue interest. In addition, if Lessor fails to pay any amounts to Lessee’s Broker when due, Lessee’s Broker may send written notice to Lessor and Lessee of such failure and if Lessor fails to pay such amounts within 10 days after said notice, Lessee shall pay said monies to its Broker and offset such amounts against Rent. In addition, Lessee’s Broker shall be deemed to be a third party beneficiary of any commission agreement entered into by and/or between Lessor and Lessor’s Broker for the limited purpose of collecting any brokerage fee owed.

15.3 Representations and Indemnities of Broker Relationships . Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any) in connection with this Lease, and that no one other than said named Brokers is entitled to any commission or finder’s fee in connection herewith, Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expanses, attorneys’ fees reasonably incurred with respect thereto.

16. Estoppel Certificates .

(a) Each Party (as “Responding Party”) shall within 10 days after written notice from the other Party (the “Requesting Party”) execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current “Estoppel Certificate” form published by the AIR Commercial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party.

(b) if the Responding Party shall fail to execute or deliver the Estoppel Certificate within such 10 day period, the Requesting Party may execute an Estoppel Certificate stating that (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Party’s performance, and (iii) if Lessor is the Requesting Party, not more than one month’s rent has been paid in advance. Prospective purchasers and encumbrancers may rely upon the Requesting Party’s Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate.

(c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including but not limited to Lessee’s financial statements for the past 3 years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth.

17. Definition of Lessor . The term “Lessor” as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, If this is a sublease, of the Lessee’s interest in the prior lease. In the event of a transfer of Lessor’s title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined.

18. Severability . The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.

19. Days . Unless otherwise specifically indicated to the contrary, the word “days” as used in this Lease shall mean and refer to calendar days.

20. Limitation on Liability . The obliges is of Lessor under this Lease shall not constitute personal obligations of Lessor or its partners, members, directors, officers or shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against Lessor’s partners, members, directors, officers or shareholders, or any of their personal assets for such satisfaction.

 

 

   PAGE 14 OF 20  

ME

 

    

RM/DM

INITIALS

    

INITIALS


21. Time of Essence . Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.

22. No Prior or Other Agreements; Broker Disclaimer . This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the use, nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. The liability (including court costs and attorneys’ fees), of any Broker with respect to negotiation, execution, delivery or performance by either Lessor or Lessee under this Lease or any amendment or modification hereto shall be limited to an amount up to the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker’s liability shall not be applicable to any gross negligence or willful misconduct of such Broker.

23. Notices .

23.1 Notice Requirements . All notices required or permitted by this Lease or applicable law shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mall or U.S. Postal Service Express Mall, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party’s signature on this Lease shall be that Party’s address for delivery or mailing of notices. Either Party may by written notice to the other specify a different address for notice, except that upon Lessee’s taking possession of the Premises, the Premises shall constitute Lessee’s address for notice. A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing.

23.2 Date of Notice . Any notice sent by registered or certified mall, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mall the notice shall be deemed given 48 hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantee next day delivery shall be deemed given 24 hours after delivery of the same to the Postal Service or courier. Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt (confirmation report from fax machine is sufficient), provided a copy is also delivered via delivery or malt If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day.

24. Waivers . No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessor’s consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor’s consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment.

25. Disclosures Regarding The Nature of a Real Estate Agency Relationship.

(a) When entering into a discussion with a real estate agent regarding a real estate transaction, a Lessor or Lessee should from the outset understand what type of agency relationship or representation it has with the agent or agents in the transaction Lessor and Lessee acknowledge being advised by the Brokers in this transaction, as follows:

(i) Lessor’s Agent . A Lessor’s agent under a listing agreement with the Lessor acts as the agent for the Lessor only. A Lessor’s agent or subagent has the following affirmative obligations: To the Lessor : a. fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessor. To the Lessee and the Lessor : A diligent exercise of reasonable skills and care in performance of the agent’s duties. b. A duty of honest and fair dealing and good faith. c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

(ii) Lessee’s Agent . An agent can agree to act as agent for the Lessee only. In these situations, the agent is not the Lessor’s agent, even If by agreement the agent may receive compensation for services rendered, either in full or in part from the Lessor. An agent acting only for a Lessee has the following affirmative obligations: To the Lessee : A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessee. To the Lessee and the Lessor : a. Diligent exercise of reasonable skills and care in performance of the agents duties. b. A duty of honest and fair dealing and good faith. c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

(iii) Agent Representing Both Lessor and Lessee . A real estate agent, either acting directly or through one or more associate licenses, can legally be the agent of both the Lessor and the Lessee in a

 

 

   PAGE 15 OF 20  

ME

 

    

RM/DM

INITIALS

    

INITIALS


transaction, but only with the knowledge and consent of both the Lessor and the Lessee. In a dual agency situation, the agent has the following affirmative obligations to both the Lessor and the Lessee: a. A fiduciary duty of utmost care, integrity, honesty and loyalty in the dealings with either Lessor or the Lessee. b. Other duties to the Lessor and the Lessee as stated above in subparagraphs (i) or (ii). In representing both Lessor and Lessee, the agent may not without the express permission of the respective Party, disclose to the other Party that the Lessor will accept rent in an amount less than that indicated in the listing or that the Lessee is willing to pay a higher rent than that offered. The above duties of the agent in a real estate transaction do not relieve a Lessor or Lessee from the responsibility to protect their own Interests. Lessor and Lessee should carefully read all agreements to assure that they adequately express their understanding of the transaction. A real estate agent is a person qualified to advise about real estate. If legal or tax advice is desired, consult a competent professional,

(b) Brokers have no responsibility with respect to any default or breach hereof by either Party. The liability (including court costs and attorneys’ fees), of any Broker with respect to any breach of duty, error or omission relating to this Lease shall not exceed the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker’s liability shall not be applicable to any gross negligence or willful misconduct of such Broker,

(c) Lessor and Lessee agree to identify to Brokers as “Confidential” any communication or Information given Brokers that is considered by such Party to be confidential.

26. No Right To Holdover . Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease. In the event that Lessee holds over, then the Base Rent shall be increased to 150% of the Base Rent applicable immediately preceding the expiration or termination. Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee.

27. Cumulative Remedies . No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.

28. Covenants and Conditions; Construction of Agreement . All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. In construing this Lease, all headings and titles are for the convenience of the Parties only and shall not be considered a part of this Lease. Whenever required by the context, the singular shall include the plural and vice versa. This Lease shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both Parties had prepared it.

29. Binding Effect; Choice of Law . This Lease shall be binding upon the Parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located.

30. Subordination; Attornment; Non-Disturbance .

30.1 Subordination . This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, “Security Device”), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof. Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as “Lender”) shall have no liability or obligation to perform any of the obligations of Lessor under this Lease Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof.

30.2 Attornment . In the event that Lessor transfers title to the Premises, or the Premises are acquired by another upon the foreclosure or termination of a Security Device to which this Lease is subordinated (i) Lessee shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to such new owner, and upon request, enter into a new lease, containing all of the terms and provisions of this Lease, with such new owner for the remainder of the term hereof, or, at the election of such new owner, this Lease shall automatically become a new Lease between Lessee and such new owner, upon all of the terms and conditions hereof, for the remainder of the term hereof, and (ii) Lessor shall thereafter be relieved of any further obligations hereunder and such new owner shall assume all of Lessor’s obligations hereunder, except that such new owner shall not (a) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership; (b) be subject to any offsets or defenses which Lessee might have against any prior lessor, (c) be bound by prepayment of more than one month’s rent, or (d) be liable for the return of any security deposit paid to any prior lessor.

30.3 Non-Disturbance . With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee’s subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a “Non-Disturbance Agreement”) from the Lender which Non-Disturbance Agreement provides that Lessee’s possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. Further, within 60 days after the execution of this Lease, Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises. In the event that Lessor is unable to provide the Non-Disturbance Agreement within said 60 days, then Lessee may, at Lessee’s option, directly contact Lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement.

30.4 Self-Executing . The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein.

 

 

   PAGE 16 OF 20  

ME

 

    

RM/DM

INITIALS

    

INITIALS


31. Attorneys’ Fees . If any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys’ fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or Judgment. The term, “Prevailing. Party” shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys’ fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys’ fees reasonably incurred. In addition, Lessor shall be entitled to attorneys’ fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach ($200 is a reasonable minimum per occurrence for such services and consultation).

32. Lessor’s Access; Showing Premises; Repairs . Lessor and Lessor’s agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable prior notice for the purpose of showing the same to prospective purchasers, lenders, or tenants, and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary or desirable and the erecting, using and maintaining of utilities, services, pipes and conduits through the Premises and/or other premises as long as there is no material adverse effect to Lessee’s use of the Premises. All such activities shall be without abatement of rent or liability to Lessee.

33. Auctions . Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor’s prior written consent. Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction.

34. Signs . Lessor may place on the Premises ordinary “For Sale” signs at any time and ordinary “For Lease” signs during the last 6 months of the term hereof. Except for ordinary “for sublease” signs, Lessee shall not place any sign upon the Premises without Lessor’s prior written consent. All signs must comply with all Applicable Requirements.

35. Termination; Merger . Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies. Lessor’s failure within 10 days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor’s election to have such event constitute the termination of such interest.

36. Consents . Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessors actual reasonable costs and expenses (including but not limited to architects’, attorneys’, engineers’ and other consultants’ fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefor. Lessor’s consent to any act, assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. The failure to specify herein any particular condition to Lessor’s consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within 10 business days following such request.

37. Guarantor .

37.1 Execution . The Guarantors, if any, shall each execute a guaranty in the form most recently published by the AIR Commercial Real Estate Association, and each such Guarantor shall have the same obligations as Lessee under this Lease.

37.2 Default . It shall constitute a Default of the Lessee If any Guarantor falls or refuses, upon request to provide: (a) evidence of the execution of the guaranty, including the authority of the party signing on Guarantor’s behalf to obligate Guarantor, and in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, (b) current financial statements, (c) an Estoppel Certificate, or (d) written confirmation that the guaranty is still in effect.

38. Quiet Possession . Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee’s part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof.

39. Options . If Lessee is granted an Option, as defined below, then the following provisions shall apply:

39.1 Definition . “Option” shall mean: (a) the right to extend the term of or renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase or the right of first refusal to purchase the Premises or other property of Lessor.

39.2 Options Personal To Original Lessee . Any Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and, if requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting.

 

 

   PAGE 17 OF 20  

ME

 

    

RM/DM

INITIALS

    

INITIALS


39.3 Multiple Options . In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised.

39.4 Effect of Default on Options .

(a) Lessee shall have no right to exercise an Option: (1) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee), (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been given 3 or more notices of separate Default, whether or not the Defaults are cured, during the 12 month period Immediately preceding the exercise of the Option.

(b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee’s inability to exercise an Option because of the provisions of Paragraph 39.4(a).

(c) An Option shall terminate and be of no further force or effect, notwithstanding Lessee’s due and timely exercise of the Option, it after such exercise and prior to the commencement of the extended term or completion of the purchase, (i) Lessee fails to pay Rent for a period of 30 days after such Rent becomes due (without any necessity of Lessor to give notice thereof), or (ii) if Lessee commits a Breach of this Lease.

40. Multiple Buildings . If the Premises are a part of a group of buildings controlled by Lessor, Lessee agrees that it will abide by and conform to at reasonable rules and regulations which Lessor may make from time to time for the management, safety, and care of said properties, including the care and cleanliness of the grounds and including the parking, loading and unloading of vehicles, and to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform. Lessee also agrees to pay its fair share of common expenses incurred in connection with such rules and regulations.

41. Security Measures . Lessee hereby acknowledges that the Rent payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties.

42. Reservations . Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions.

43. Performance Under Protest . If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment ‘‘under protest” and such payment shell not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay.

44. Authority; Multiple Parties; Execution .

(a) If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. Each party shall, within 30 days after request, deliver to the other party satisfactory evidence of such authority.

(b) If this Lease is executed by more than one person or entity as “Lessee”, each such person or entity shall be jointly and severally liable hereunder. It is agreed that any one of the named Lessees shall be empowered to execute any amendment to this Lease, or other document ancillary thereto and bind all of the named Lessees, and Lessor may rely on the same as if all of the named Lessees had executed such document.

(c) This Lease may be executed by the Parties in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

45. Conflict . Any conflict between the printed provisions of this Lease and typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.

46. Offer . Preparation of this Lease by either Party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party. This Lease is not intended to be binding until executed and delivered by all Parties hereto.

48. [omitted.]

 

 

   PAGE 18 OF 20  

ME

 

    

RM/DM

INITIALS

    

INITIALS


49. Mediation and Arbitration of Disputes . An Addendum requiring the Mediation and/or the Arbitration of all disputes between the Parties and/or Brokers arising out of this Lease ¨ is x is not attached to this Lease.

50. Americans with Disabilities Act . Since compliance with the Americans with Disabilities Act (ADA) is dependent upon Lessee’s specific use of the Premises, Lessor makes no warranty or representation as to whether or not the Premises comply with ADA or any similar legislation. In the event that Lessee’s use of the Premises requires modifications or additions to the Premises in order to be in ADA compliance, Lessee agrees to make any such necessary modifications and/or additions at Lessee’s expense.

LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.

ATTENTION : NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AIR COMMERCIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:

1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE SUITABILITY OF THE PREMISES FOR LESSEES INTENDED USE.

 

 

   PAGE 19 OF 20  

ME

 

    

RM/DM

INITIALS

    

INITIALS


WARNING : IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES IS LOCATED.

The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.

 

Executed at:

 

1050 Com. St., San Carlos

 

Executed at:

 

1050 Commercial St., San Carlos

On:

 

06-08-05

 

On:

 

 

By LESSOR :

 

By LESSOR :

Russell A. and Deborah B. Margiotta,

 

Tesla Motors, Inc., a Delaware corporation

Trustees of The Margiotta Family Trust UTA

 

 

May 26, 1981

 

 

By:

 

/s/ Russell A. Margiotta, Trustee

 

By:

 

 

Name Printed:

 

Russell A. Margiotta

 

Name Printed:

 

Martin Eberhard

Title:

 

Trustee

 

Title:

 

CEO

By:

 

/s/ Deborah B. Margiotta, Trustee

 

By:

 

 

Name Printed:

 

Deborah B. Margiotta

 

Name Printed:

 

 

Title:

 

Trustee

 

Title:

 

 

Address:

 

225 Laning Drive

 

Address:

 

1050 Commercial St.

Woodside, CA 94062

 

San Carlos, CA

Telephone:

 

(415) 640-0400

 

Telephone:

 

(650) 913-4001

Facsimile:

 

(650) 851-3647

 

Facsimile:

 

(650) 412-4099

Federal ID No.

 

 

 

Federal ID No.

 

91-219-7729

 

BROKER :

 

BROKER :

Cornish & Carey Commercial

 

None

 

 

 

Attn:

 

Michelle Margiotta, Jay Leslie

 

Attn:

 

 

Title:

 

Sales Associate

 

Title:

 

 

Attn: Jay Leslie, Vice Presiden

 

 

Address:

 

901 Mariners Island Blvd., Suite 125

 

Address:

 

 

San Mateo, CA 94404

 

 

Telephone:

 

(650) 341-5800

 

Telephone:

 

 

Facsimile:

 

(650) 341-7024

 

Facsimile:

 

 

Federal ID No.

 

 

 

Federal ID No.

 

 

NOTE: These forms are often modified to meet the changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: AIR COMMERCIAL REAL ESTATE ASSOCIATION, 700 S. Flower Street, Suite 600, Los Angeles, California 90017. (213) 687-8777. Fax No. (213) 687-8616.

© Copyright 2001 – By AIR Commercial Real Estate Association. All rights reserved.

No part of these works may be reproduced in any form without permission in writing.

 

 

   PAGE 20 OF 20  

ME

 

    

RM/DM

INITIALS

    

INITIALS


CORNISH & CAREY COMMERCIAL

LOGO

ONCOR INTERNATIONAL

 

 

DISCLOSURE REQUIREMENTS

 

 

Lessor: Russell A. and Deborah B. Margiotta,

 

Subject Property: 1050 Bing Street

Trustees of The Margiotta Family Trust UTA

 

San Carlos, CA 94070

May 26, 1981

 

 

Lessee: Tesla Motors, Inc., a Delaware corporation

 

Date: June 7, 2005

Various laws, regulations and policies require us to disclose the following information:

1. Alquist-Priolo Notification; Alquist-Priolo Special Earthquake Studies Zone Act : The property described above is or may be situated in a “Special Study Zone” as designated under the Alquist-Priolo Special Studies Zone Act, Sections 2621-2630, inclusive, of the California Public Resources Code; and, as such, the construction or development on the property of any structure for human occupancy may be subject to the findings of a geologic report prepared by a geologist registered in the State of California, unless such report is waived by the city or county under the terms of that act. No representations on the subject are made by Lessor or by Cornish & Carey Commercial, or its agents or employees, and the Lessee should make his/her/its own inquiry or investigation.

2. Notification re: National Flood Insurance Program :

The property is or may be located in a Special Flood Hazard Area on United States Department of Housing and Urban Development (H.U.D.) “Special Flood Zone Area Maps.” Federal law requires that, as a condition of obtaining federally related financing on most properties located in “flood zones,” banks, savings and loan associations, and some insurance lenders require flood insurance be carried where the property, real or personal, is security for a loan. This requirement is mandated by the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973. Cities or counties may have adopted building or zoning restrictions, or other measures which could affect the value of the property. Lessee should contact the city or county in which the property is located to determine any such restrictions. The extent of coverage available in this area and the cost of this coverage may vary, and for further information, Lessee should consult a lender or insurance carrier.

3. Hazardous Wastes of Substances and Underground Storage Tanks :

Comprehensive federal and state laws and regulations have been enacted in the past several years in an effort to control the -use, storage, handling, clean-up, removal and disposal of hazardous wastes or substances. Sonic of these laws and regulations (such as, for example, the Comprehensive Environmental Response Compensation and Liability Act [CERCLA]) provide for broad liability on the part of owners, tenants or other users of the property for clean-up costs and damages regardless of fault. Other laws and regulations set standards for the handling of asbestos, and establish requirements for the use, modification, abandonment, and closure of underground storage tanks.

It is not practical or possible to list all such laws and regulations in this notice. Therefore, building owners and tenants are urged to consult legal counsel to determine their respective rights and liabilities with respect to the issues described in this notice, as well as all other aspects of the proposed transaction. If hazardous wastes or substances have been, or are going to be used, stored, handled or disposed of on the property, or if the property has or may have underground storage tanks, it is essential that legal and technical advice be obtained to determine, among other things, the nature of permits and approvals which have been obtained or may be required; the estimated costs and expenses associated with the use, storage, handling, clean-up, disposal or removal of hazardous wastes or substances; and the nature and extent of contractual provisions necessary or desirable in this transaction. Broker recommends expert assistance and site investigation to determine past uses of the property, which may provide valuable information as to the likelihood of hazardous wastes or substances, or underground storage tanks, being on the property.

Lessor agrees to disclose to Broker and to Lessee any and all information which he/she/it has regarding present and future zoning and environmental matters affecting the property and regarding the condition of the property, including, but not limited to structural, mechanical and soils conditions, the presence and location of asbestos, PCB transformers, other toxic, hazardous or contaminated substances, and underground storage tanks, in, on, or about the property.

Broker has conducted no investigation regarding the subject matter hereof, except as may be contained in separate written document signed by Broker. Broker makes no representations concerning the existence or nonexistence of hazardous wastes or substances, or underground storage tanks, in, on, or about the property. Lessee should contact a professional, such as a civil engineer, industrial hygienist or other persons with experience in these matters, to advise on these matters.


CORNISH & CAREY COMMERCIAL

LOGO

ONCOR INTERNATIONAL

 

 

DISCLOSURE REQUIREMENTS

 

 

The term “hazardous wastes or substances” is used herein in its very broadest sense and includes, but is not limited to, petroleum based products, paints and solvents, lead, cyanide, DDT, printing inks, acids, pesticides, ammonium compounds, asbestos, PCBs and other chemical products. Hazardous wastes or substances and underground storage tanks may be present on all types of real property. This notice is intended to apply to any transaction involving any type of real property, whether improved or unimproved.

4. The Americans With Disabilities Act :

Please be advised that an owner or tenant of real property may be subject to the Americans With Disabilities Act (“ADA”). The act requires owners and tenants of “public accommodations” to remove barriers to access by disabled persons and provide auxiliary aids and services for hearing, vision or speech impaired persons. You are advised to consult your attorney with respect to the application of this act to the property. Cornish & Carey Commercial cannot give you legal advice on this act or its requirements.

5. Broker Disclosure :

The parties hereby expressly acknowledges that Broker has made no independent determination or investigation regarding, but not limited to, the following: present or future use of the property; environmental matters affecting the property; the condition of the property, including, but not limited to structural, mechanical and soils conditions, as well as issues surrounding hazardous wastes or substances as set out above; violations of the Occupational Safety and Health Act or any other federal, state, county or municipal laws, ordinances, or statutes; measurements of land and/or buildings. Lessee agrees to make its own investigation and determination regarding such items.

6. Broker Representation (Dual Agency) :

Lessor and Lessee acknowledge that Broker is the agent of both Lessor and Lessee. Lessor and Lessee hereby consent to such dual representation and waive any possible conflict of interest arising out of such dual agency. A dual agency is obligated to disclose to both parties all material facts or confidential information that could affect Lessor’s or Lessee’s decision to enter into the transaction, Broker, however, will not disclose to Lessee the price that Lessor is willing to accept, nor to Lessor the price that Lessee is willing to pay, without the express permission of the other party.

Receipt of a copy of this notice and agreement is hereby acknowledged.

 

 

901 MARINERS ISLAND BOULEVARD, SUITE 125, SAN MATEO, CA 94404 • (650) 341 5800 FAX (650) 341 7024

 


CORNISH & CAREY COMMERCIAL

LOGO

ONCOR INTERNATIONAL

 

 

DISCLOSURE REQUIREMENTS

 

 

Agreed and Accepted:

Lessor: RUSSELL A. AND DEBORAH B. MARGIOTTA, TRUSTEES OF THE MARGIOTTA FAMILY TRUST UTA MAY 26, 1981

 

By:

 

/s/ Russell A. Margiotta, Trustee

    

Date:

 

6-8-05

 

Russell A. Margiotta, Trustee

      

By:

 

/s/ Deborah B. Margiotta, Trustee

    

Date:

 

6/12/05

 

Deborah B. Margiotta, Trustee

      

Lessee: TESLA MOTORS, INC A DELAWARE CORPORATION

 

By:

 

/s/ Martin Eberhard

    

Date:

 

8 June 2005

CONSULT YOUR ADVISORS: NO REPRESENTATION OR RECOMMENDATION IS MADE BY CORNISH & CAREY COMMERCIAL OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL EFFECT, INTERPRETATION, OR ECONOMIC CONSEQUENCES OF THE NATIONAL FLOOD INSURANCE PROGRAM AND RELATED LEGISLATION, NOR OF OTHER LEGISLATION REFERRED TO HEREIN. THESE ARE QUESTIONS THAT YOU SHOULD ADDRESS WITH YOUR CONSULTANTS AND ADVISORS.

 

 

901 MARINERS ISLAND BOULEVARD, SUITE 125, SAN MATEO, CA 94404 • (650) 341 5800 FAX (650) 341 7024

 


CORNISH & CAREY COMMERCIAL

LOGO

ONCOR INTERNATIONAL

 

 

LEASE ADDENDUM

 

ADDENDUM TO THE LEASE DATED JUNE 7, 2005, BY AND BETWEEN RUSSELL A. AND DEBORAH B. MARGIOTTA, TRUSTEES OF THE MARGIOTTA FAMILY TRUST UTA MAY 26, 1981, LESSOR, AND TESLA MOTORS, INC., A DELAWARE CORPORATION, LESSEE, FOR THOSE PREMISES LOCATED AT 1050 BING STREET, SAN CARLOS, CALIFORNIA.

51. Compliance With Americans With Disabilities Act :

Lessee shall be responsible for the installation and cost of any and all improvements, alterations or other work required on or to the Premises or to any other portion of the property and/or building of which the Premises are a part, required or reasonably necessary because of:

 

 

a.

the use to which the Premises or any portion thereof is put;

 

 

b.

the use by a sublessee by reason of assignment or sublease; or

 

 

c.

both, including any improvements, alterations or other work required under the Americans With Disabilities Act of 1990. Compliance with the provisions of this Paragraph shall be a condition of Lessor granting its consent to any assignment or lease of all or a portion of this Lease and the Premises described in this Lease.

Cornish & Carey Commercial snakes no representation or warranty with respect to compliance or noncompliance of the facility or any contemplated use with ADA requirements. We recommend that you consult your attorney to determine if this act applies to you and if so the requirements that must be met. The applicability of the Act is a legal issue and we cannot give you legal advice on such matters.

52. Toxic Contamination Disclosure :

Lessor and Lessee acknowledge that they have been advised that numerous federal, state, and/or local laws, ordinances and regulations (hereinafter referred to as the “Laws”) affect the existence and removal, storage, disposal, leakage of and contamination by materials designated as hazardous or toxic (hereinafter referred to as the “Toxics”). Many materials, some utilized in everyday business activities and property maintenance, are designated as hazardous or toxic.

Some of the Laws require that Toxics be removed or cleaned up by landowners, future landowners or former landowners without regard to whether the party required to pay for “clean up” caused the contamination, owned the property at the time the contamination occurred or even knew about the contamination. Some items, such as asbestos or PCBs, which were legal when installed, now are classified as Toxics, and are subject to removal requirements. Civil lawsuits for damages resulting from Toxics may be filed by third parties in certain circumstances.

Cornish & Carey Commercial has recommended, and hereby recommends, that each of the parties have competent professional environmental specialists review the Property and make recommended test so that a reasonably informed assessment of these matters can be made by each of the parties. Lessor and Lessee acknowledge that neither Cornish & Carey Commercial nor its agents or salespersons, have been retained to investigate or arrange investigation by others, and have not made any recommendations or representations with regard to the presence or absence of Toxics on, in or beneath the Property. Lessor and Lessee agree that they will rely only on persons who are experts in this field and will obtain such expert advice so each of them will be as fully informed as possible with regards to Toxics in entering into this Agreement.

53. Lessor Improvements :

Lessor, at Lessor’s sole cost and expense, shall improve the premises as follows prior to commencement of the lease:

 

 

a.

Install carpet in the office;

 

 

b.

Install a wall in front of the restroom. Exact specifications to be determined and agreed upon between Lessor and Lessee;

 

 

c.

Install walls, sidelights, and doors on the two currently open offices. Exact specifications to be determined and agreed upon between Lessor and Lessee;

 

 

d.

Install a stove in the kitchen; and

 

 

    

ME

 

    

RM/DM

INITIALS

    

INITIALS


CORNISH & CAREY COMMERCIAL

LOGO

ONCOR INTERNATIONAL

 

 

DISCLOSURE REQUIREMENTS

 

 

 

e.

Install a dishwasher in the kitchen, to be no less that 160-degrees on the sanitization cycle (collectively, “Lessor’s Improvements”.

Lessee shall reasonably agree upon dimensions and exact specifications within three business days of written request by Lessor.

54. Lessee Improvements :

Lessee may further improve the Premises in accordance with the following terms and conditions:

 

 

a.

Lessor has agreed to facilitate Lessee’s Improvements (as hereinafter defined), at no cost to Lessee, by providing to Lessee a draftsperson to convert Lessee’s space plan into drawings to submit the regulatory agencies with jurisdiction, submit such drawings to the regulatory agencies, to obtain bids for Lessee’s Improvements from contractors with whom Lessor has previously worked and generally oversee the work of such contractors. If Lessee does not accept the bids of such contractors, Lessor shall not oversee the work of any other contractors. Lessee shall directly contract with the draftsperson and any contractors or other persons constructing Lessee’s Improvements and shall pay all costs associated with the construction of Lessee’s Improvements, including, without limitation, the fees of the draftsperson, permit fees and construction costs.

 

 

b.

“Lessee’s Improvements” shall mean the work and improvements to be performed by Lessee as shown on the drawings developed pursuant to subparagraph “a” above, which shall be subject to Lessor’s approval, which shall not be unreasonably withheld or delayed. Lessee shall deliver to Lessor within three (3) business days after mutual execution of this Lease the Lessee’s space plan and any other information that the draftsperson requires to prepare the drawings to submit to the regulatory agencies.

 

 

c.

Lessee acknowledges that the draftsperson is not a licensed architect and that Lessee is free to use a licensed architect. Lessee also acknowledges that Lessor is not a licensed architect or general contractor and is facilitating Lessee’s Improvements solely as an accommodation to Lessee and Lessee’s recourse relating to Lessee’s Improvements shall be to the persons engaged by Lessee.

Lessee shall obtain occupancy of the building upon substantial completion of tenant improvements.

55. Rent Schedule :

Rent shall be increased by 4% (four percent) annually, commencing on the first anniversary of the lease.

 

Months

   Monthly Rent

1-12

   $ 23,868.00

13 — 24

   $ 24,822.72

25 — 36

   $ 25,815.63

37 — 48

   $ 26,848.25

49 — 60

   $ 27,922.18

 

 

901 MARINERS ISLAND BOULEVARD, SUITE 125, SAN MATEO, CA 94404 • (650) 341 5800 FAX (650) 341 7024

 


CORNISH & CAREY COMMERCIAL

LOGO

ONCOR INTERNATIONAL

 

 

DISCLOSURE REQUIREMENTS

 

 

56. Contingency

This lease is contingent upon Lessor’s review of Lessee’s financials.

Lessor: RUSSELL A. AND DEBORAH B. MARGIOTTA, TRUSTEES OF THE MARGIOTTA FAMILY TRUST UTA MAY 26, 1981

 

By:

 

/s/ Russell A. Margiotta, Trustee

    

Date:

 

06-08-05

 

Russell A. Margiotta, Trustee

      

By:

 

/s/ Deborah A. Margiotta, Trustee

    

Date:

 

06/12/05

 

Deborah A. Margiotta, Trustee

      

Lessee: TESLA MOTORS, INC A DELAWARE CORPORATION

 

By:

 

/s/ Martin Eberhard

    

Date:

 

8 June 2005

 

 

901 MARINERS ISLAND BOULEVARD, SUITE 125, SAN MATEO, CA 94404 • (650) 341 5800 FAX (650) 341 7024

 

Exhibit 10.19

LOGO

LOGO   AIR COMMERCIAL REAL ESTATE ASSOCIATION

STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE – NET

(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)

1. Basic Provisions (“Basic Provisions”).

1.1 Parties: This Lease (“ Lease ”), dated for reference purposes only August 16, 2006 , is made by and between James R. Hull

                                                                                                                                                                                                     (“ Lessor ”)

and Tesla Motors, Inc.                                                                                                                                                                                      

                                                                                                                                                                                                          (“ Lessee ”),

(collectively the “ Parties ,” or individually a “ Party ”).

1.2 Premises: That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, and commonly known as 11159 & 11163 Santa Monica Boulevard; 1635-1/2 Pontius Avenue , located in the County of Los Angeles , State of California , and generally described as (describe briefly the nature of the property and, if applicable, the “ Project ”, if the property is located within a Project) three buildings totaling 10,000 s.f. as follows: 11159 Santa Monica – 4,500 s.f. ground floor showroom with 1,500 s.f. 2nd floor office/living space; 11163 Santa Monica Blvd. - 3,000 s.f. ground floor showroom; 1635-1/2 Pontius Ave. - 1,000 s.f. of parking / warehouse structure plus 10 exclusive car parking with 5 additional at 1635-1/2 Pontius Avenue (“ Premises ”). (See also Paragraph 2)

1.3 Term: ten (10) years and                      months (“ Original Term ”) commencing August 15, 2006 on 11159 Santa Monica Boulevard (“ Commencement Date ”) and ending August 15, 2016 (“ Expiration Date ”). (See also Paragraph 3)

1.4 Early Possession: same as 1.3 (“ Early Possession Date ”). (See also Paragraphs 3.2 and 3.3)

1.5 Base Rent: $30,000.00 per month (“ Base Rent ”), payable on the first (1st) day of each month commencing See Addendum                                                                                                                                                                                                         .

                                                                                                                                                                                    . (See also Paragraph 4)

x If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted.

1.6 Base Rent and Other Monies Paid Upon Execution:

(a) Base Rent: $25,500.00 for the period September 1 - 30, 2006; $5,000 for August 16 - 31, 2006                       

                                                                                                                                                                                                                            .

(b) Security Deposit: $60,000.00 (“ Security Deposit ”). (See also Paragraph 5)

 

     PAGE 1 OF 19    JRH
        MT
INITIALS       INITIALS

 

©2001 – AIR COMMERCIAL REAL ESTATE ASSOCIATION

   FORM STN-8-5/05E


(c) Association Fees: $N/A for the period                                                                                                                                     

(d) Other: $N/A for                                                                                                                                                                       .

                                                                                                                                                                                                                            

(e) Total Due Upon Execution of this Lease: $85,500 plus $5,000 for August 16 - 31, 2006 (Totaling $90,500) .

1.7 Agreed Use: automobile display room; automobile sales; automobile storage garage; automotive repair                                 

                                                                                                                                                                                      . (See also Paragraph 6)

1.8 Insuring Party: Lessor is the “ Insuring Party ” unless otherwise stated herein. (See also Paragraph 8)

1.9 Real Estate Brokers: (See also Paragraph 15)

(a) Representation: The following real estate brokers (the “ Brokers ”) and brokerage relationships exist in this transaction (check applicable boxes):

¨                                                                                                    represents Lessor exclusively (“ Lessor’s Broker ”);

¨                                                                                                    represents Lessee exclusively (“ Lessee’s Broker ”); or

x Coldwell Banker Commercial WESTMAC                            represents both Lessor and Lessee (“ Dual Agency ”).

(b) Payment to Brokers: Upon execution and delivery of this Lease by both Parties, Lessor shall pay to the Broker the fee agreed to in their separate written agreement (or if there is no such agreement, the sum of          or          % per separate agreement (attached) of the total Base Rent) for the brokerage services rendered by the Brokers.

1.10 Guarantor . The obligations of the Lessee under this Lease are to be guaranteed by N/A (“ Guarantor ”). (See also Paragraph 37)

1.11 Attachments . Attached hereto are the following, all of which constitute a part of this Lease:

x an Addendum consisting of Paragraphs 51 through 64;

x a plot plan depicting the Premises;

x a current set of the Rules and Regulations;

¨ a Work Letter;

x other (specify): Letter of Credit; Mediation Arbitration Agreement                                                                                                         

                                                                                                                                                                                                                            

                                                                                                                                                                                                                            .

2. Premises.

2.1 Letting . Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating Rent, is an approximation which the Parties agree is reasonable and any payments based thereon are not subject to revision whether or not the actual size is more or less. Note: Lessee is advised to verify the actual size prior to executing this Lease.

        2.2 Condition . Lessor shall deliver the Premises to Lessee broom clean and free of debris on the Commencement Date or the Early Possession Date, whichever first occurs (“ Start Date ”), and, so long as the require service contracts described in Paragraph 7.1(b) below are obtained by Lessee and in effect within thirty days following the Start Date, warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems (“ HVAC ”), loading doors, sump pumps, if any, and all other such elements in the Premises, other than those constructed by Lessee, shall be in good operating condition on said date, that the structural elements of the roof, bearing walls and foundation of any buildings on the Premises (the “ Building ”) shall be free of material defects, and that the Premises do not contain hazardous levels of any mold or fungi defined as toxic under applicable state or federal law. If a non-compliance with said warranty exists as of the Start Date, or if one of such systems or elements should malfunction or fail within the appropriate warranty period, Lessor shall, as Lessor’s sole obligation with respect to such matter, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, malfunction or failure, rectify same at Lessor’s expense. The warranty periods shall be as follows: (i) 6 months as to the HVAC systems, and (ii) 30 days as to the remaining systems and other elements of the Building. If Lessee does not give Lessor the required notice within the appropriate warranty period, correction of any such non-compliance, malfunction or failure shall be the obligation of Lessee at Lessee’s sole cost and expense.

2.3 Compliance . Lessor warrants that to the best of its knowledge the improvements on the Premise comply with the building codes, applicable laws, covenants or restrictions of record, regulations, and ordinances (“ Applicable Requirements ”) that were in effect at the time that each improvement, or portion thereof, was constructed. Said warranty does not apply to the use to which Lessee will put the Premises, modifications which may be required by the Americans with Disabilities Act or any similar laws as a result of Lessee’s use (see Paragraph 50), or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for

 

     PAGE 2 OF 19    JRH
        MT
INITIALS       INITIALS

 

©2001 – AIR COMMERCIAL REAL ESTATE ASSOCIATION

   FORM STN-8-5/05E


determining whether or not the Applicable Requirements, and especially the zoning, are appropriate for Lessee’s intended use, and acknowledges that past uses of the Premises may no longer be allowed. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor’s expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within 6 months following the Start Date, correction of that non-compliance shall be the obligation of Lessee at Lessee’s sole cost and expense. If the Applicable Requirements are hereafter changed so as to require during the term of this Lease the construction of an addition to or an alteration of the Premises and/or Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Unit, Premises and/or Building (“ Capital Expenditure ”), Lessor and Lessee shall allocate the cost of such work as follows:

(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however that if such Capital Expenditure is required during the last 2 years of this Lease and the cost thereof exceeds 6 months’ Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within 10 days after receipt of Lessee’s termination notice that Lessor has elected to pay the difference between the actual cost thereof and an amount equal to 6 months’ Base Rent. If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least 90 days thereafter. Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure.

(b) If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor and Lessee shall allocate the obligation to pay for such costs pursuant to the provisions of Paragraph 7.1(d); provided, however, that if such Capital Expenditure is required during the last 2 years of this Lease or if Lessor reasonably determines that it is not economically feasible to pay its share thereof, Lessor shall have the option to terminate this Lease upon 90 days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within 10 days after receipt of Lessor’s termination notice that Lessee will pay for such Capital Expenditure. If Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with Interest, from Rent until Lessor’s share of such costs have been fully paid. If Lessee is unable to finance Lessor’s share, or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right to terminate this Lease upon 30 days written notice to Lessor.

(c) Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected, and new Applicable Requirements. If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall either: (i) immediately cease such changed use or intensity of use and/or take such other steps as may be necessary to eliminate the requirement for such Capital Expenditure, or (ii) complete such Capital Expenditure at its own expense. Lessee shall not, however, have any right to terminate this Lease.

2.4 Acknowledgements . Lessee acknowledges that: (a) it has been advised by Lessor and/or Broker to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements and the Americans with Disabilities Act), and their suitability for Lessee’s intended use, (b) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to its occupancy of the Premises, and (c) neither Lessor, Lessor’s agents, nor Brokers have made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease. In addition, Lessor acknowledges that: (i) Brokers have made no representations, promises or warranties concerning Lessee’s ability to honor the Lease or suitability to occupy the Premises, and (ii) it is Lessor’s sole responsibility to investigate the financial capability and/or suitability of all proposed tenants.

2.5 Lessee as Prior Owner/Occupant . The warranties made by Lessor in Paragraph 2 shall be of no force or effect if immediately prior to the Start Date Lessee was the owner or occupant of the Premises. In such event, Lessee shall be responsible for any necessary corrective work.

3. Term.

3.1 Term . The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3.

3.2 Early Possession . If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease (including but not limited to the obligations to pay Real Property Taxes and insurance premiums and to maintain the Premises) shall be in effect during such period. Any such early possession shall not affect the Expiration Date.

3.3 Delay In Possession . Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date. If, despite said efforts, Lessor is unable to deliver possession by such date, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease. Lessee shall not, however, be obligated to pay Rent or perform its other obligations until Lessor delivers possession of the Premises and any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts or omissions of Lessee. If possession is not delivered within 60 days after the Commencement Date, Lessee may, at its option, by notice in writing within 10 days after the end of such 60 day period, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder. If such written notice is not received by Lessor within said 10 day period, Lessee’s right to cancel shall terminate. If possession of the Premises is not delivered within 120 days after the Commencement Date, this Lease shall terminate unless other agreements are reached between Lessor and Lessee, in writing.

3.4 Lessee Compliance . Lessor shall not be required to deliver possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Start Date, including the payment of Rent, notwithstanding Lessor’s election to withhold possession pending receipt of such evidence of insurance. Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied.

 

     PAGE 3 OF 19    JRH
        MT
INITIALS       INITIALS

 

©2001 – AIR COMMERCIAL REAL ESTATE ASSOCIATION

   FORM STN-8-5/05E


4. Rent.

4.1 Rent Defined . All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent (“Rent”).

4.2 Payment . Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States, without offset or deduction (except as specifically permitted in this Lease), on or before the day on which it is due. All monetary amounts shall be rounded to the nearest whole dollar. In the event that any invoice prepared by Lessor is inaccurate such inaccuracy shall not constitute a waiver and Lessee shall be obligated to pay the amount set forth in this Lease. Rent for any period during the term hereof which is for less than one full calendar month shall be prorated based upon the actual number of days of said month. Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing. Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor’s rights to the balance of such Rent, regardless of Lessor’s endorsement of any check so stating. In the event that any check, draft, or other instrument of payment given by Lessee to Lessor is dishonored for any reason, Lessee agrees to pay to Lessor the sum of $25 in addition to any Late Charge and Lessor, at its option, may require all future Rent be paid by cashier’s check. Payments will be applied first to accrued late charges and attorney’s fees, second to accrued interest, then to Base Rent and Common Area Operating Expenses, and any remaining amount to any other outstanding charges or costs.

43. [omitted.]

5. Security Deposit . Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee’s faithful performance of its obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of the Security Deposit, Lessee shall within 10 days after written request therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. Should the Agreed Use be amended to accommodate a material change in the business of Lessee or to accommodate a sublessee or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessor’s reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof. If a change in control of Lessee occurs during this Lease and following such change the financial condition of Lessee is, in Lessor’s reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on such change in financial condition. Lessor shall not be required to keep the Security Deposit separate from its general accounts. Within 14 days after the expiration or termination of this Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent, and otherwise within 30 days after the Premises have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit not used or applied by Lessor. No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease. The second month security deposit in the amount of $30,000 shall be held in an interest bearing account at four percent (4%) per year payable by Lessor to Lessee in months 37 and 73. The remaining security deposit shall not bear interest or be held in trust.

6. Use.

6.1 Use . Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal us which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs occupants of or causes damage to neighboring premises or properties. Other than guide, signal and seeing eye dogs, Lessee shall not keep or allow in the Premises any pets, animals, birds, fish, or reptiles. Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the improvements on the Premises or the mechanical or electrical systems therein, and/or is not significantly more burdensome to the Premises. If Lessor elects to withhold consent, Lessor shall within 7 days after such request give written notification of same, which notice shall include an explanation of Lessor’s objections to the change in the Agreed Use.

6.2 Hazardous Substances .

                (a) Reportable Uses Require Consent . The term “ Hazardous Substance ” as used in this Lease shall mean any product, substance, or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessee’s expense) with all Applicable Requirements. “ Reportable Use ” shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or (iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use, ordinary office supplies (copier toner, liquid paper, glue, etc.) and common household cleaning materials, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition, Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before Lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security Deposit.

 

     PAGE 4 OF 19    JRH
        MT
INITIALS       INITIALS

 

©2001 – AIR COMMERCIAL REAL ESTATE ASSOCIATION

   FORM STN-8-5/05E


(b) Duty to Inform Lessor . If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance.

(c) Lessee Remediation . Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee’s expense, comply with all Applicable Requirements and take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought onto the Premises during the term of this Lease, by or for Lessee, or any third party.

(d) Lessee Indemnification . Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalties, and attorneys’ and consultants’ fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, or any third party (provided, however, that Lessee shall have no liability under this Lease with respect to underground migration of any Hazardous Substance under the Premises from adjacent properties not caused or contributed to by Lessee). Lessee’s obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement.

(e) Lessor Indemnification . Lessor and its successors and assigns shall indemnify, defend, reimburse and hold Lessee, its employees and lenders, harmless from and against any and all environmental damages, including the cost of remediation, which result from Hazardous Substances which existed on the Premises prior to Lessee’s occupancy or which are caused by the gross negligence or willful misconduct of Lessor, its agents or employees. Lessor’s obligations, as and when required by the Applicable Requirements, shall include, but not be limited to, the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease.

(f) Investigations and Remediations . Lessor shall retain the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to Lessee’s occupancy, unless such remediation measure is required as a result of Lessee’s use (including “Alterations”, as defined in paragraph 7.3(a) below) of the Premises, in which event Lessee shall be responsible for such payment. Lessee shall cooperate fully in any such activities at the request of Lessor, including allowing Lessor and Lessor’s agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor’s investigative and remedial responsibilities.

(g) Lessor Termination Option . If a Hazardous Substance Condition (see Paragraph 9.1(e)) occurs during the term of this Lease, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by the Applicable Requirements and this Lease shall continue in full force and effect, but subject to Lessor’s rights under Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor’s option, either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor’s expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to remediate such condition exceeds 12 times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee, within 30 days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of Lessor’s desire to terminate this Lease as of the date 60 days following the date of such notice. In the event Lessor elects to give a termination notice, Lessee may, within 10 days thereafter, give written notice to Lessor of Lessee’s commitment to pay the amount by which the cost of the remediation of such Hazardous Substance Condition exceeds an amount equal to 12 times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days following such commitment. In such event, this Lease shall continue in full force and effect, and Lessor shall proceed to make such remediation as soon as reasonably possible after the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the time provided, this Lease shall terminate as of the date specified in Lessor’s notice of termination.

        6.3 Lessee’s Compliance with Applicable Requirements . Except as otherwise provided in this Lease, Lessee shall, at Lessee’s sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor’s engineers and/or consultants which relate in any manner to the such Requirements, without regard to whether such Requirements are now in effect or become effective after the Start Date. Lessee shall, within 10 days after receipt of Lessor’s written request, provide Lessor with copies of all permits and other documents, and other information evidencing Lessee’s compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements. Likewise, Lessee shall immediately give written notice to Lessor of: (i) any water damage to the Premises and any suspected seepage, pooling, dampness or other condition conducive to the production of mold; or (ii) any mustiness or other odors that might indicate the presence of mold in the Premises.

6.4 Inspection; Compliance . Lessor and Lessor’s “ Lender ” (as defined in Paragraph 30) and consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable notice, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease. The cost of any such inspections shall be paid by Lessor, unless a violation of Applicable Requirements, or a Hazardous Substance Condition (see paragraph 9.1) is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority. In such case, Lessee shall upon request reimburse Lessor for the cost of such inspection, so long as such inspection is reasonably related to the violation or contamination. In addition, Lessee shall provide copies of all relevant material safety data sheets (MSDS) to Lessor within 10 days of the receipt of a written request therefor.

 

     PAGE 5 OF 19    JRH
        MT
INITIALS       INITIALS

 

©2001 – AIR COMMERCIAL REAL ESTATE ASSOCIATION

   FORM STN-8-5/05E


7. Maintenance; Repairs, Utility Installations; Trade Fixtures and Alterations.

7.1 Lessee’s Obligations .

(a) In General . Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee’s Compliance with Applicable Requirements), 7.2 (Lessor’s Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee’s sole expense, keep the Premises, Utility Installations (intended for Lessee’s exclusive use, no matter where located), and Alterations in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee’s use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, HVAC equipment, electrical, lighting facilities, boilers, pressure vessels, fire protection system, fixtures, walls (interior and exterior), foundations, ceilings, roofs, roof drainage systems, floors, windows, doors, plate glass, skylights, landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways located in, on, or adjacent to the Premises. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below. Lessee’s obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. Lessee shall, during the term of this Lease, keep the exterior appearance of the Building in a first-class condition (including, e.g. graffiti removal) consistent with the exterior appearance of other similar facilities of comparable age and size in the vicinity, including, when necessary, the exterior repainting of the Building.

(b) Service Contracts . Lessee shall, at Lessee’s sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, if any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler, and pressure vessels, (iii) fire extinguishing systems, including fire alarm and/or smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and drains, (vi) clarifiers (vii) basic utility feed to the perimeter of the Building, and (viii) any other equipment, if reasonably required by Lessor. However, Lessor reserves the right, upon notice to Lessee, to procure and maintain any or all of such service contracts, and Lessee shall reimburse Lessor, upon demand, for the cost thereof.

(c) Failure to Perform . If Lessee fails to perform Lessee’s obligations under this Paragraph 7.1, Lessor may enter upon the Premises after 10 days’ prior written notice to Lessee (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Lessee’s behalf, and put the Premises in good order, condition and repair, and Lessee shall promptly pay to Lessor a sum equal to 115% of the cost thereof.

(d) Replacement . Subject to Lessee’s indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessee’s failure to exercise and perform good maintenance practices, if an item described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such item, then such item shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease, on the date on which Base Rent is due, an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is one, and the denominator of which is 144 (ie. 1/144th of the cost per month). Lessee shall pay interest on the unamortized balance but may prepay its obligation at any time.

7.2 Lessor’s Obligations . Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14 (Condemnation), it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, or the equipment therein, all of which obligations are intended to be that of the Lessee. It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises, and they expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease.

7.3 Utility Installations; Trade Fixtures; Alterations .

(a) Definitions . The term “ Utility Installations ” refers to all floor and window coverings, air and/or vacuum lines, power panels, electrical distribution, security and fire protection systems, communication cabling, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises. The term “ Trade Fixtures ” shall mean Lessee’s machinery and equipment that can be removed without doing material damage to the Premises. The term “ Alterations ” shall mean any modification of the improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion. “ Lessee Owned Alterations and/or Utility Installations ” are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).

                (b) Consent . Lessee shall not make any Alterations or Utility Installations to the Premises without Lessor’s prior written consent. Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, will not affect the electrical, plumbing, HVAC, and/or life safety systems, and the cumulative cost thereof during this Lease as extended does not exceed a sum equal to 3 month’s Base Rent in the aggregate or a sum equal to one month’s Base Rent in any one year. Notwithstanding the foregoing, Lessee shall not make or permit any roof penetrations and/or install anything on the roof without the prior written approval of Lessor. Lessor may, as a precondition to granting such approval, require Lessee to utilize a contractor chosen and/or approved by Lessor. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. Consent shall be deemed conditioned upon Lessee’s: (i) acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner. Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications. For work which costs an amount in excess of one month’s Base Rent, Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal to 150% of the estimated cost of such Alteration or Utility Installation and/or upon Lessee’s posting an additional Security Deposit with Lessor.

(c) Liens; Bonds . Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic’s or materialmen’s lien against the Premises or any interest therein. Lessee shall give Lessor not less than 10 days notice prior to the commencement of any work in, on or about the

 

     PAGE 6 OF 19    JRH
        MT
INITIALS       INITIALS

 

©2001 – AIR COMMERCIAL REAL ESTATE ASSOCIATION

   FORM STN-8-5/05E


Premises, and Lessor shall have the right to post notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to 150% of the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same. If Lessor elects to participate in any such action, Lessee shall pay Lessor’s attorneys’ fees and costs.

7.4 Ownership; Removal; Surrender; and Restoration .

(a) Ownership . Subject to Lessor’s right to require removal or elect ownership as hereinafter provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises. Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises.

(b) Removal . By delivery to Lessee of written notice from Lessor not earlier than 90 and not later than 30 days prior to the end of the term of this Lease, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of this Lease. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent.

(c) Surrender; Restoration . Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear excepted. “Ordinary wear and tear” shall not include any damage or deterioration that would have been prevented by good maintenance practice. Notwithstanding the foregoing, if this Lease is for 12 months or less, then Lessee shall surrender the Premises in the same condition as delivered to Lessee on the Start Date with NO allowance for ordinary wear and tear. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee. Lessee shall completely remove from the Premises any and all Hazardous Substances brought onto the Premises by or for Lessee, or any third party (except Hazardous Substances which were deposited via underground migration from areas outside of the Premises, or if applicable, the Premises) even if such removal would require Lessee to perform or pay for work that exceeds statutory requirements. Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee. Any personal property of Lessee not removed on or before the Expiration Date or any earlier termination date shall be deemed to have been abandoned by Lessee and may be disposed of or retained by Lessor as Lessor may desire. The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below.

8. Insurance; Indemnity.

8.1 Payment For Insurance . Lessee shall pay for all insurance required under Paragraph 8 except to the extent of the cost attributable to liability insurance carried by Lessor under Paragraph 8.2(b) in excess of $2,000,000 per occurrence. Premiums for policy periods commencing prior to or extending beyond the Lease term shall be prorated to correspond to the Lease term. Payment shall be made by Lessee to Lessor within 10 days following receipt of an invoice.

8.2 Liability Insurance .

(a) Carried by Lessee . Lessee shall obtain and keep in force a Commercial General Liability policy of insurance protecting Lessee and Lessor as an additional insured against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an annual aggregate of not less than $2,000,000. Lessee shall add Lessor as an additional insured by means of an endorsement at least as broad as the Insurance Service Organization’s “Additional Insured-Managers or Lessors of Premises” Endorsement and coverage shall also be extended to include damage caused by heat, smoke or fumes from a hostile fire. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an “ insured contract ” for the performance of Lessee’s indemnity obligations under this Lease. The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. Lessee shall provide an endorsement on its liability policy(ies) which provides that its insurance shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only.

(b) Carried by Lessor . Lessor shall maintain liability insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein.

8.3 Property Insurance - Building, Improvements and Rental Value .

(a) Building and Improvements . The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor, with loss payable to Lessor, any ground-lessor, and to any Lender insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full insurable replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lender, but in no event more than the commercially reasonable and available insurable value thereof. If Lessor is the Insuring Party, however, Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee’s personal property shall be insured by Lessee under Paragraph 8.4 rather than by Lessor. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage unless required by a Lender), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible amount in the event of an Insured Loss.

 

     PAGE 7 OF 19    JRH
        MT
INITIALS       INITIALS

 

©2001 – AIR COMMERCIAL REAL ESTATE ASSOCIATION

   FORM STN-8-5/05E


(b) Rental Value . The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one year with an extended period of indemnity for an additional 180 days (“Rental Value insurance”). Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next 12 month period. Lessee shall be liable for any deductible amount in the event of such loss.

(c) Adjacent Premises . If the Premises are part of a larger building, or of a group of buildings owned by Lessor which are adjacent to the Premises, the Lessee shall pay for any increase in the premiums for the property insurance of such building or buildings if said increase is caused by Lessee’s acts, omissions, use or occupancy of the Premises.

8.4 Lessee’s Property; Business Interruption Insurance .

(a) Property Damage . Lessee shall obtain and maintain insurance coverage on all of Lessee’s personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations. Lessee shall provide Lessor with written evidence that such insurance is in force.

(b) Business Interruption . Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils.

(c) No Representation of Adequate Coverage . Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee’s property, business operations or obligations under this Lease.

8.5 Insurance Policies . Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a “General Policyholders Rating” of at least A-, VI, as set forth in the most current issue of “Best’s Insurance Guide”, or such other rating as may be required by a Lender. Lessee shall not do or permit to be done anything which invalidates the required insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of the required insurance. No such policy shall be cancelable or subject to modification except after 30 days prior written notice to Lessor. Lessee shall, at least 10 days prior to the expiration of such policies, furnish Lessor with evidence of renewals or “insurance binders” evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same.

8.6 Waiver of Subrogation . Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein. The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto. The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby.

8.7 Indemnity . Except for Lessor’s gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor’s master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys’ and consultants’ fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee’s expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be defended or indemnified.

8.8 Exemption of Lessor and its Agents from Liability . Notwithstanding the negligence or breach of this Lease by Lessor or its agents, neither Lessor nor its agents shall be liable under any circumstances for: (i) injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee’s employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, indoor air quality, the presence of mold or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places, (ii) any damages arising from any act or neglect of any other tenant of Lessor or from the failure of Lessor or its agents to enforce the provisions of any other lease in the Project, or (iii) injury to Lessee’s business or for any loss of income or profit therefrom. Instead, it is intended that Lessee’s sole recourse in the event of such damages or injury be to file a claim on the insurance policy(ies) that Lessee is required to maintain pursuant to the provisions of paragraph 8.

8.9 Failure to Provide Insurance . Lessee acknowledges that any failure on its part to obtain or maintain the insurance required herein will expose Lessor to risks and potentially cause Lessor to incur costs not contemplated by this Lease, the extent of which will be extremely difficult to ascertain. Accordingly, for any month or portion thereof that Lessee does not maintain the required insurance and/or does not provide Lessor with the required binders or certificates evidencing the existence of the required insurance, the Base Rent shall be automatically increased, without any requirement for notice to Lessee, by an amount equal to 10% of the then existing Base Rent or $100, whichever is greater. The parties agree that such increase in Base Rent represents fair and reasonable compensation for the additional risk/costs that Lessor will incur by reason of Lessee’s failure to maintain the required insurance. Such increase in Base Rent shall in no event constitute a waiver of Lessee’s Default or Breach with respect to the failure to maintain such insurance, prevent the exercise of any of the other rights and remedies granted hereunder, nor relieve Lessee of its obligation to maintain the insurance specified in this Lease.

 

     PAGE 8 OF 19    JRH
        MT
INITIALS       INITIALS

 

©2001 – AIR COMMERCIAL REAL ESTATE ASSOCIATION

   FORM STN-8-5/05E


9. Damage or Destruction.

9.1 Definitions .

(a) “ Premises Partial Damage ” shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in 6 months or less from the date of the damage or destruction. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total. Notwithstanding the foregoing, Premises Partial Damage shall not include damage to windows, doors, and/or other similar items which Lessee has the responsibility to repair or replace pursuant to the provisions of Paragraph 7.1.

(b) “ Premises Total Destruction ” shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in 6 months or less from the date of the damage or destruction. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.

(c) “ Insured Loss ” shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved.

(d) “ Replacement Cost ” shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation.

(e) “ Hazardous Substance Condition ” shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises which requires repair, remediation, or restoration.

9.2 Partial Damage - Insured Loss . If a Premises Partial Damage that is an Insured Loss occurs, the Lessor shall, at Lessor’s expense, repair such damage (but not Lessee’s Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor’s election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds (except as to the deductible which is Lessee’s responsibility) as and when required to complete said repairs. In the event, however, such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within 10 days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said 10 day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within 10 days thereafter to: (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect, or (ii) have this Lease terminate 30 days thereafter. Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party.

9.3 Partial Damage - Uninsured Loss . If a Premises Partial Damage that is not an Insured Los occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee’s expense), Lessor may either: (i) repair such damage as soon as reasonably possible at Lessor’s expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within 30 days after receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall be effective 60 days following the date of such notice. In the event Lessor elects to terminate this Lease, Lessee shall have the right within 10 days after receipt of the termination notice to give written notice to Lessor of Lessee’s commitment to pay for the repair of such damage without reimbursement from Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days after making such commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available. If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice.

9.4 Total Destruction . Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate 60 days following such Destruction. If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor’s damages from Lessee, except as provided in Paragraph 8.6.

9.5 Damage Near End of Term . If at any time during the last 6 months of this Lease there is damage for which the cost to repair exceeds one month’s Base Rent, whether or not an Insured Loss, Lessor may terminate this Lease effective 60 days following the date of occurrence of such damage by giving a written termination notice to Lessee within 30 days after the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is 10 days after Lessee’s receipt of Lessor’s written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor’s commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee’s option shall be extinguished.

 

     PAGE 9 OF 19    JRH
        MT
INITIALS       INITIALS

 

©2001 – AIR COMMERCIAL REAL ESTATE ASSOCIATION

   FORM STN-8-5/05E


9.6 Abatement of Rent; Lessee’s Remedies .

(a) Abatement . In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee’s use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value insurance. All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein.

(b) Remedies . If Lessor shall be obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within 90 days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee’s election to terminate this Lease on a date not less than 60 days following the giving of such notice. If Lessee gives such notice and such repair or restoration is not commenced within 30 days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced within such 30 days, this Lease shall continue in full force and effect. “Commence” shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs.

9.7 Termination; Advance Payments . Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee’s Security Deposit as has not been, or is not then required to be, used by Lessor.

9.8 Waive Statutes . Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith.

10. Real Property Taxes.

10.1 Definition . As used herein, the term “Real Property Taxes” shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes); improvement bond; and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Premises or the Project, Lessor’s right to other income therefrom, and/or Lessor’s business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Building address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Premises are located. Real Property Taxes shall also include any tax, fee, levy, assessment or charge, or any increase therein: (i) imposed by reason of events occurring during the term of this Lease, including but not limited to, a change in the ownership of the Premises, and (ii) levied or assessed on machinery or equipment provided by Lessor to Lessee pursuant to this Lease.

10.2 Payment of Taxes . In addition to Base Rent, Lessee shall pay to Lessor an amount equal to the Real Property Tax installment due at least 20 days prior to the applicable delinquency date. If any such installment shall cover any period of time prior to or after the expiration or termination of this Lease, Lessee’s share of such installment shall be prorated. In the event Lessee incurs a late charge on any Rent payment, Lessor may estimate the current Real Property Taxes, and require that such taxes be paid in advance to Lessor by Lessee monthly in advance with the payment of the Base Rent. Such monthly payments shall be an amount equal to the amount of the estimated installment of taxes divided by the number of months remaining before the month in which said installment becomes delinquent. When the actual amount of the applicable tax bill is known, the amount of such equal monthly advance payments shall be adjusted as required to provide the funds needed to pay the applicable taxes. If the amount collected by Lessor is insufficient to pay such Real Property Taxes when due, Lessee shall pay Lessor, upon demand, such additional sum as is necessary. Advance payments may be intermingled with other moneys of Lessor and shall not bear interest. In the event of a Breach by Lessee in the performance of its obligations under this Lease, then any such advance payments may be treated by Lessor as an additional Security Deposit.

10.3 Joint Assessment . If the Premises are not separately assessed, Lessee’s liability shall be a equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be conclusively determined by Lessor from the respective valuations assigned in the assessor’s work sheets or such other information as may be reasonably available.

10.4 Personal Property Taxes . Lessee shall pay, prior to delinquency, all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee. When possible, Lessee shall cause its Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee’s said property shall be assessed with Lessor’s real property, Lessee shall pay Lessor the taxes attributable to Lessee’s property within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee’s property.

11. Utilities and Services . Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered or billed to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor, of all charges jointly metered or billed. There shall be no abatement of rent and Lessor shall not be liable in any respect whatsoever for the inadequacy, stoppage, interruption or discontinuance of any utility or service due to riot, strike, labor dispute, breakdown, accident, repair or other cause beyond Lessor’s reasonable control or in cooperation with governmental request or directions.

12. Assignment and Subletting.

12.1 Lessor’s Consent Required .

(a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, “ assign or assignment ”) or sublet all or any part of Lessee’s interest in this Lease or in the Premises without Lessor’s prior written consent which shall not be unreasonable withheld.

(b) Unless Lessee is a corporation and its stock is publicly traded on a national stock exchange, a change in the control of Lessee shall constitute an assignment requiring consent. The transfer, on a cumulative basis, of 50% 25% or more of the voting control of Lessee shall constitute a change in control for this purpose.

 

     PAGE 10 OF 19    JRH
        MT
INITIALS       INITIALS

 

©2001 – AIR COMMERCIAL REAL ESTATE ASSOCIATION

   FORM STN-8-5/05E


(c) The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee’s assets occurs, which results or will result in a reduction of the Net Worth of Lessee by an amount greater than 25% of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to which Lessor may withhold its consent. “ Net Worth of Lessee ” shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles.

(d) An assignment or subletting without consent shall, at Lessor’s option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon 30 days written notice, increase the monthly Base Rent to 110% of the Base Rent then in effect. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to 110% of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to 110% of the scheduled adjusted rent.

(e) Lessee’s remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief.

(f) Lessor may reasonably withhold consent to a proposed assignment or subletting if Lessee is in Default at the time consent is requested.

(g) Notwithstanding the foregoing, allowing a diminimus portion of the Premises, ie. 20 square feet or less, to be used by a third party vendor in connection with the installation of a vending machine or payphone shall not constitute a subletting.

12.2 Terms and Conditions Applicable to Assignment and Subletting .

(a) Regardless of Lessor’s consent, no assignment or subletting shall: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee.

(b) Lessor may accept Rent or performance of Lessee’s obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessor’s right to exercise its remedies for Lessee’s Default or Breach.

(c) Lessor’s consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting.

(d) In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee’s obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor’s remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor.

(e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor’s determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a fee of $500 as consideration for Lessor’s considering and processing said request. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested. (See also Paragraph 36)

(f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment, entering into such sublease, or entering into possession of the Premises or any portion thereof, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing.

(g) Lessor’s consent to any assignment or subletting shall not transfer to the assignee or sublessee any Option granted to the original Lessee by this Lease unless such transfer is specifically consented to by Lessor in writing. (See Paragraph 39.2)

12.3 Additional Terms and Conditions Applicable to Subletting . The following terms and condition shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:

(a) Lessee hereby assigns and transfers to Lessor all of Lessee’s interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee’s obligations under this Lease; provided, however, that until a Breach shall occur in the performance of Lessee’s obligations, Lessee may collect said Rent. In the event that the amount collected by Lessor exceeds Lessee’s then outstanding obligations any such excess shall be refunded to Lessee. Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee’s obligations to such sublessee. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee’s obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease. Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary.

(b) In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor.

(c) Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor.

 

     PAGE 11 OF 19    JRH
        MT
INITIALS       INITIALS

 

©2001 – AIR COMMERCIAL REAL ESTATE ASSOCIATION

   FORM STN-8-5/05E


(d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor’s prior written consent.

(e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee.

13. Default; Breach; Remedies.

13.1 Default; Breach . A “ Default ” is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or Rules and Regulations under this Lease. A “ Breach ” is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period:

(a) The abandonment of the Premises; or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism.

(b) The failure of Lessee to make any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of 3 business days following written notice to Lessee.

(c) The commission of waste, act or acts constituting public or private nuisance, and/or an illegal activity on the Premises by Lessee, where such actions continue for a period of 3 business days following written notice to Lessee.

(d) The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) an Estoppel Certificate, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 42, (viii) material safety data sheets (MSDS), or (ix) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of 10 days following written notice to Lessee.

(e) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof, other than those described in subparagraphs 13.1(a), (b), (c) or (d), above, where such Default continues for a period of 30 days after written notice; provided, however, that if the nature of Lessee’s Default is such that more than 30 days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said 30 day period and thereafter diligently prosecutes such cure to completion.

(f) The occurrence of any of the following events: (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a “ debtor ” as defined in 11 U.S.C. §101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, where such seizure is not discharged within 30 days; provided, however, in the event that any provision of this subparagraph is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions.

(g) The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false.

(h) If the performance of Lessee’s obligations under this Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor’s liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a Guarantor’s becoming insolvent or the subject of a bankruptcy filing, (iv) a Guarantor’s refusal to honor the guaranty, or (v) a Guarantor’s breach of its guaranty obligation on an anticipatory basis, and Lessee’s failure, within 60 days following written notice of any such event, to provide written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease.

13.2 Remedies . If Lessee fails to perform any of its affirmative duties or obligations, within 10 days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee’s behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. Lessee shall pay to Lessor an amount equal to 115% of the costs and expenses incurred by Lessor in such performance upon receipt of an invoice therefor. In the event of a Breach, Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach:

                (a) Terminate Lessee’s right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys’ fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent. Efforts by Lessor to mitigate damages caused by Lessee’s Breach of this Lease shall not waive Lessor’s right to recover damages under Paragraph 12. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required

 

     PAGE 12 OF 19    JRH
        MT
INITIALS       INITIALS

 

©2001 – AIR COMMERCIAL REAL ESTATE ASSOCIATION

   FORM STN-8-5/05E


under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1. In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute.

(b) Continue the Lease and Lessee’s right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to reasonable limitations. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor’s interests, shall not constitute a termination of the Lessee’s right to possession.

(c) Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located. The expiration or termination of this Lease and/or the termination of Lessee’s right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee’s occupancy of the Premises.

13.3 *As long as the letter of credit is valid, Paragraph 13.3 shall be deleted.

13.4 Late Charges . Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent shall not be received by Lessor within 5 days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall immediately pay to Lessor a one-time late charge equal to 10% of each such overdue amount or $100, whichever is greater. The Parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee’s Default or Breach with respect to such overdue amount, nor prevent the exercise of any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for 3 consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor’s option, become due and payable quarterly in advance.

13.5 Interest . Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due as to scheduled payments (such as Base Rent) or within 30 days following the date on which it was due for non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the 31st day after it was due as to non-scheduled payments. The interest (“Interest”) charged shall be computed at the rate of 10% per annum but shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential late charge provided for in Paragraph 13.4.

13.6 Breach by Lessor .

(a) Notice of Breach . Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph, a reasonable time shall in no event be less than 30 days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor’s obligation is such that more than 30 days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such 30 day period and thereafter diligently pursued to completion.

(b) Performance by Lessee on Behalf of Lessor . In the event that neither Lessor nor Lender cures said breach within 30 days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion, then Lessee may elect to cure said breach at Lessee’s expense and offset from Rent the actual and reasonable cost to perform such cure, provided, however, that such offset shall not exceed an amount equal to the greater of one month’s Base Rent or the Security Deposit, reserving Lessee’s right to seek reimbursement from Lessor for any such expense in excess of such offset. Lessee shall document the cost of said cure and supply said documentation to Lessor.

14. Condemnation . If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively “Condemnation”), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than 10% of the Building, or more than 25% of that portion of the Premises not occupied by any building, is taken by Condemnation, Lessee may, at Lessee’s option, to be exercised in writing within 10 days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within 10 days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation. Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation for Lessee’s relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph. All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefor. In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation.

 

     PAGE 13 OF 19    JRH
        MT
INITIALS       INITIALS

 

©2001 – AIR COMMERCIAL REAL ESTATE ASSOCIATION

   FORM STN-8-5/05E


15. Brokerage Fees .

15.1 [omitted.]

15.2 Assumption of Obligations . Any buyer or transferee of Lessor’s interest in this Lease shall be deemed to have assumed Lessor’s obligation hereunder. Brokers shall be third party beneficiaries of the provisions of Paragraphs 1.9, 15, 22 and 31. If Lessor fails to pay to Brokers any amounts due as and for brokerage fees pertaining to this Lease when due, then such amounts shall accrue Interest. In addition, if Lessor fails to pay any amounts to Lessee’s Broker when due, Lessee’s Broker may send written notice to Lessor and Lessee of such failure and if Lessor fails to pay such amounts within 10 days after said notice, Lessee shall pay said monies to its Broker and offset such amounts against Rent. In addition, Lessee’s Broker shall be deemed to be a third party beneficiary of any commission agreement entered into by and/or between Lessor and Lessor’s Broker for the limited purpose of collecting any brokerage fee owed.

15.3 Representations and Indemnities of Broker Relationships . Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any) in connection with this Lease, and that no one other than said named Brokers is entitled to any commission or finder’s fee in connection herewith. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys’ fees reasonably incurred with respect thereto.

16. Estoppel Certificates .

(a) Each Party (as “ Responding Party ”) shall within 10 days after written notice from the other Party (the “ Requesting Party ”) execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current “ Estoppel Certificate ” form published by the AIR Commercial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party.

(b) If the Responding Party shall fail to execute or deliver the Estoppel Certificate within such 10 day period, the Requesting Party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Party’s performance, and (iii) if Lessor is the Requesting Party, not more than one month’s rent has been paid in advance. Prospective purchasers and encumbrancers may rely upon the Requesting Party’s Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate.

(c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including but not limited to Lessee’s financial statements for the past 3 years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth.

17. Definition of Lessor . The term “ Lessor ” as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee’s interest in the prior lease. In the event of a transfer of Lessor’s title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined.

18. Severability . The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.

19. Days . Unless otherwise specifically indicated to the contrary, the word “days” as used in this Lease shall mea and refer to calendar days.

20. Limitation on Liability . The obligations of Lessor under this Lease shall not constitute personal obligations of Lessor or its partners, members, directors, officers or shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against Lessor’s partners, members, directors, officers or shareholders, or any of their personal assets for such satisfaction.

21. Time of Essence . Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.

22. No Prior or Other Agreements; Broker Disclaimer . This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the use, nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. The liability (including court costs and attorneys’ fees), of any Broker with respect to negotiation, execution, delivery or performance by either Lessor or Lessee under this Lease or any amendment or modification hereto shall be limited to an amount up to the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker’s liability shall not be applicable to any gross negligence or willful misconduct of such Broker.

 

     PAGE 14 OF 19    JRH
        MT
INITIALS       INITIALS

 

©2001 – AIR COMMERCIAL REAL ESTATE ASSOCIATION

   FORM STN-8-5/05E


23. Notices .

23.1 Notice Requirements . All notices required or permitted by this Lease or applicable law shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party’s signature on this Lease shall be that Party’s address for delivery or mailing of notices. Either Party may by written notice to the other specify a different address for notice, except that upon Lessee’s taking possession of the Premises, the Premises shall constitute Lessee’s address for notice. A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing.

23.2 Date of Notice . Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given 72 hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantee next day delivery shall be deemed given 24 hours after delivery of the same to the Postal Service or courier. Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt (confirmation report from fax machine is sufficient), provided a copy is also delivered via delivery or mail. If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day.

24. Waivers . No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessor’s consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor’s consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment.

25. Disclosures Regarding The Nature of a Real Estate Agency Relationship .

(a) When entering into a discussion with a real estate agent regarding a real estate transaction, a Lessor or Lessee should from the outset understand what type of agency relationship or representation it has with the agent or agents in the transaction. Lessor and Lessee acknowledge being advised by the Brokers in this transaction, as follows:

(i) Lessor’s Agent . A Lessor’s agent under a listing agreement with the Lessor act as the agent for the Lessor only. A Lessor’s agent or subagent has the following affirmative obligations: To the Lessor : A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessor. To the Lessee and the Lessor : a. Diligent exercise of reasonable skills and care in performance of the agent’s duties. b. A duty of honest and fair dealing and good faith. c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

(ii) Lessee’s Agent . An agent can agree to act as agent for the Lessee only. In these situations, the agent is not the Lessor’s agent, even if by agreement the agent may receive compensation for services rendered, either in full or in part from the Lessor. An agent acting only for a Lessee has the following affirmative obligations. To the Lessee : A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessee. To the Lessee and the Lessor : a. Diligent exercise of reasonable skills and care in performance of the agent’s duties. b. A duty of honest and fair dealing and good faith. c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.

(iii) Agent Representing Both Lessor and Lessee . A real estate agent, either acting directly or through one or more associate licenses, can legally be the agent of both the Lessor and the Lessee in a transaction, but only with the knowledge and consent of both the Lessor and the Lessee. In a dual agency situation, the agent has the following affirmative obligations to both the Lessor and the Lessee: a. A fiduciary duty of utmost care, integrity, honesty and loyalty in the dealings with either Lessor or the Lessee. b. Other duties to the Lessor and the Lessee as stated above in subparagraphs (i) or (ii). In representing both Lessor and Lessee, the agent may not without the express permission of the respective Party, disclose to the other Party that the Lessor will accept rent in an amount less than that indicated in the listing or that the Lessee is willing to pay a higher rent than that offered. The above duties of the agent in a real estate transaction do not relieve a Lessor or Lessee from the responsibility to protect their own interests. Lessor and Lessee should carefully read all agreements to assure that they adequately express their understanding of the transaction. A real estate agent is a person qualified to advise about real estate. If legal or tax advice is desired, consult a competent professional.

(b) Brokers have no responsibility with respect to any default or breach hereof by either Party. The Parties agree that no lawsuit or other legal proceeding involving any breach of duty, error or omission relating to this Lease may be brought against Broker more than one year after the Start Date and that the liability (including court costs and attorneys’ fees), of any Broker with respect to any such lawsuit and/or legal proceeding shall not exceed the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker’s liability shall not be applicable to any gross negligence or willful misconduct of such Broker.

(c) Lessor and Lessee agree to identify to Brokers as “Confidential” any communication or information given Brokers that is considered by such Party to be confidential.

26. No Right To Holdover . Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease. In the event that Lessee holds over, then the Base Rent shall be increased to 150% of the Base Rent applicable immediately preceding the expiration or termination. Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee.

27. Cumulative Remedies . No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.

 

     PAGE 15 OF 19    JRH
        MT
INITIALS       INITIALS

 

©2001 – AIR COMMERCIAL REAL ESTATE ASSOCIATION

   FORM STN-8-5/05E


28. Covenants and Conditions; Construction of Agreement . All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. In construing this Lease, all headings and titles are for the convenience of the Parties only and shall not be considered a part of this Lease. Whenever required by the context, the singular shall include the plural and vice versa. This Lease shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both Parties had prepared it.

29. Binding Effect; Choice of Law . This Lease shall be binding upon the Parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located.

30. Subordination; Attornment; Non-Disturbance .

30.1 Subordination . This Lease and any Option granted hereby shall be subject and subordinate to an ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, “ Security Device ”), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof. Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as “ Lender ”) shall have no liability or obligation to perform any of the obligations of Lessor under this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof.

30.2 Attornment . In the event that Lessor transfers title to the Premises, or the Premises are acquired by another upon the foreclosure or termination of a Security Device to which this Lease is subordinated (i) Lessee shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to such new owner, and upon request, enter into a new lease, containing all of the terms and provisions of this Lease, with such new owner for the remainder of the term hereof, or, at the election of the new owner, this Lease will automatically become a new lease between Lessee and such new owner, for the remainder of the term hereof, and (ii) Lessor shall thereafter be relieved of any further obligations hereunder and such new owner shall assume all of Lessor’s obligations, except that such new owner shall not: (a) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership; (b) be subject to any offsets or defenses which Lessee might have against any prior lessor, (c) be bound by prepayment of more than one month’s rent, or (d) be liable for the return of any security deposit paid to any prior lessor.

30.3 Non-Disturbance . With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee’s subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a “ Non-Disturbance Agreement ”) from the Lender which Non-Disturbance Agreement provides that Lessee’s possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. Further, within 60 days after the execution of this Lease, Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises. In the event that Lessor is unable to provide the Non-Disturbance Agreement within said 60 days, then Lessee may, at Lessee’s option, directly contact Lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement.

30.4 Self-Executing . The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein.

31. Attorneys’ Fees . If any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys’ fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, “ Prevailing Party ” shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys’ fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys’ fees reasonably incurred. In addition, Lessor shall be entitled to attorneys’ fees, costs and expenses incurred in the preparation and service of notices of Default an consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach ($200 is a reasonable minimum per occurrence for such services and consultation).

32. Lessor’s Access; Showing Premises; Repairs . Lessor and Lessor’s agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable prior notice for the purpose of showing the same to prospective purchasers, lenders, or tenants, and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary or desirable and the erecting, using and maintaining of utilities, services, pipes and conduits through the Premises and/or other premises as long as there is no material adverse effect to Lessee’s use of the Premises. All such activities shall be without abatement of rent or liability to Lessee.

33. Auctions . Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor’s prior written consent. Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction.

34. Signs . Lessor may place on the Premises ordinary “ For Sale ” signs at any time and ordinary “ For Lease ” signs during the last 6 months of the term hereof. Except for ordinary “for sublease” signs, Lessee shall not place any sign upon the Premises without Lessor’s prior written consent. All signs must comply with all Applicable Requirements.

35. Termination; Merger . Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies. Lessor’s failure within 10 days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor’s election to have such event constitute the termination of such interest.

36. Consents . Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor’s actual reasonable costs and expenses (including but not limited to architects’, attorneys’, engineers’ and other consultants’ fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor

 

     PAGE 16 OF 19    JRH
        MT
INITIALS       INITIALS

 

©2001 – AIR COMMERCIAL REAL ESTATE ASSOCIATION

   FORM STN-8-5/05E


consent, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefor. Lessor’s consent to any act, assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. The failure to specify herein any particular condition to Lessor’s consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within 10 business days following such request.

37. Guarantor .

37.1 Execution . The Guarantors, if any, shall each execute a guaranty in the form most recently published by the AIR Commercial Real Estate Association, and each such Guarantor shall have the same obligations as Lessee under this Lease.

37.2 Default . It shall constitute a Default of the Lessee if any Guarantor fails or refuses, upon request to provide: (a) evidence of the execution of the guaranty, including the authority of the party signing on Guarantor’s behalf to obligate Guarantor, and in the case of a corporate Guarantor, a certified copy of a resolution of its board of director authorizing the making of such guaranty, (b) current financial statements, (c) an Estoppel Certificate, or (d) written confirmation that the guaranty is still in effect.

38. Quiet Possession . Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee’s part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof.

39. Options . If Lessee is granted an Option, as defined below, then the following provisions shall apply:

39.1 Definition . “ Option ” shall mean: (a) the right to extend the term of or renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase or the right of first refusal to purchase the Premises or other property of Lessor.

39.2 Options Personal To Original Lessee . Any Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and, if requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting.

39.3 Multiple Options . In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised.

39.4 Effect of Default on Options .

(a) Lessee shall have no right to exercise an Option: (i) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee), (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been given 3 or more notices of separate Default, whether or not the Defaults are cured, during the 12 month period immediately preceding the exercise of the Option.

(b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee’s inability to exercise an Option because of the provisions of Paragraph 39.4(a).

(c) An Option shall terminate and be of no further force or effect, notwithstanding Lessee’s due and timely exercise of the Option, if, after such exercise and prior to the commencement of the extended term or completion of the purchase, (i) Lessee fails to pay Rent for a period of 30 days after such Rent becomes due (without any necessity of Lessor to give notice thereof), or (ii) if Lessee commits a Breach of this Lease.

40. Multiple Buildings . If the Premises are a part of a group of buildings controlled by Lessor, Lessee agrees that it will abide by and conform to all reasonable rules and regulations which Lessor may make from time to time for the management, safety, and care of said properties, including the care and cleanliness of the grounds and including the parking, loading and unloading of vehicles, and to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform. Lessee also agrees to pay its fair share of common expenses incurred in connection with such rules and regulations.

41. Security Measures . Lessee hereby acknowledges that the Rent payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties.

42. Reservations . Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions.

43. Performance Under Protest . If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment “under protest” and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay. A Party who does not initiate suit for the recovery of sums paid “under protest” with 6 months shall be deemed to have waived its right to protest such payment.

 

     PAGE 17 OF 19    JRH
        MT
INITIALS       INITIALS

 

©2001 – AIR COMMERCIAL REAL ESTATE ASSOCIATION

   FORM STN-8-5/05E


44. Authority; Multiple Parties; Execution .

(a) If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. Each Party shall, within 30 days after request, deliver to the other Party satisfactory evidence of such authority.

(b) If this Lease is executed by more than one person or entity as “Lessee”, each such person or entity shall be jointly and severally liable hereunder. It is agreed that any one of the named Lessees shall be empowered to execute any amendment to this Lease, or other document ancillary thereto and bind all of the named Lessees, and Lessor may rely on the same as if all of the named Lessees had executed such document.

(c) This Lease may be executed by the Parties in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

45. Conflict . Any conflict between the printed provisions of this Lease and typewritten or handwritten provision shall be controlled by the typewritten or handwritten provisions.

46. Offer . Preparation of this Lease by either Party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party. This Lease is not intended to be binding until executed and delivered by all Parties hereto.

47. Amendments . This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification. As long as they do not materially change Lessee’s obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises.

48. Waiver of Jury Trial . THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INVOLVING THE PROPERTY OR ARISING OUT OF THIS AGREEMENT .

49. Mediation and Arbitration of Disputes . An Addendum requiring the Mediation and/or the Arbitration of all disputes between the Parties and/or Brokers arising out of this Lease   x    is   ¨ is not attached to this Lease.

50. Americans with Disabilities Act . Since compliance with the Americans with Disabilities Act (ADA) is dependent upon Lessee’s specific use of the Premises, Lessor makes no warranty or representation as to whether or not the Premises comply with ADA or any similar legislation. In the event that Lessee’s use of the Premises requires modifications or additions to the Premises in order to be in ADA compliance, Lessee agrees to make any such necessary modifications and/or additions at Lessee’s expense.

LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.

ATTENTION : NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AIR COMMERCIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:

1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.

2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE SUITABILITY OF THE PREMISES FOR LESSEE’S INTENDED USE.

WARNING : IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES IS LOCATED.

The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.

 

Executed at:  

San Carlos, CA

    Executed at:  

San Carlos, CA

On:  

Aug. 29, 2006

    On:  

29 Aug 06

By LESSOR:     By LESSEE:

James R. Hull

   

Tesla Motors, Inc.

 

   

 

By:  

/s/ James R. Hull

    By:  

/s/ Marc Tarpenning

Name Printed:  

James R. Hull

    Name Printed:  

Marc Tarpenning

Title:  

 

    Title:  

CFO

By:  

 

    By:  

 

Name Printed:  

James R. Hull

    Name Printed:  

 

Title:  

 

    Title:  

 

Address:  

23852 Pacific Coast Highway

    Address:  

1050 Bing Street

Malibu, CA 90265

   

San Carlos, CA 94070

 

     PAGE 18 OF 19    JRH
        MT
INITIALS       INITIALS

 

©2001 – AIR COMMERCIAL REAL ESTATE ASSOCIATION

   FORM STN-8-5/05E


Telephone:   

(310) 589-5891

    Telephone:  

(650) 413-4001

Facsimile: (      )   

 

    Facsimile:  

(650) 413-4099

Federal ID No.   

 

    Federal ID No.  

 

BROKER:        BROKER:  

Coldwell Banker Commercial WESTMAC

   

Coldwell Banker Commercial WESTMAC

 

   

 

Attn:   

David B. Thind

    Attn:  

David B. Thind

Title:   

Executive Vice President

    Title:  

Executive Vice Present

Address:   

1515 S. Sepulveda Boulevard

    Address:  

1515 S. Sepulveda Boulevard

Los Angeles, CA 90025

   

Los Angeles, CA 90025

Telephone:

  

(310) 478-7700

    Telephone:  

(650) 478-7700

Facsimile: (      )   

479-3989

    Facsimile:  

(650) 479-3989

Federal ID No.   

 

    Federal ID No.  

 

NOTE: These forms are often modified to meet the changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: AIR COMMERCIAL REAL ESTATE ASSOCIATION, 700 So. Flower Street, Suite 600, Los Angeles, California 90017. (213) 687-8777. Fax No. (213) 687-8616

© Copyright 2001 - By AIR Commercial Real Estate Association. All rights reserved.

No part of these works may be reproduced in any form without permission in writing.

 

     PAGE 19 OF 19    JRH
        MT
INITIALS       INITIALS

 

©2001 – AIR COMMERCIAL REAL ESTATE ASSOCIATION

   FORM STN-8-5/05E


LOGO

ADDENDUM

to Standard industrial/Commercial Single-Tenant Lease - NET

Date : August 16, 2006

 

By and Between (Lessor)   

James R. Hull

(Lessee)   

Tesla Motors, Inc.

Address of Premises:   

11159 - 11163 Santa Monica Boulevard

  

Los Angeles, California

 

51.  Commencement Date :    August 16, 2006 on 11159 Santa Monica Boulevard, 1st Floor (4,500 s.f.).
   September 1, 2006 on 11163 Santa Monica Boulevard (3,000 s.f.) and 1635-1/2 Pontius Avenue (1,000 s.f.).
   October 1, 2006 on 11159 Santa Monica Boulevard, 2nd Floor (1,500 s.f.).

 

52.  Rental Rate .   
   August, 2006 - 11159 Santa Monica Boulevard - 1st floor only 4,500 s.f. (excludes 1,500 s.f. 2nd floor space), monthly rental $10,000, (prorated based upon the Commencement Date).
   September, 2006 - 11159 Santa Monica Boulevard - 4,500 s.f. (excludes 1,500 s.f. 2nd floor space) and 1635 1/2 Pontius Avenue (1,000 s.f.), monthly rental $25,500.
   October, 2006 - 11159 Santa Monica Boulevard - 4,500 s.f. + 1,500 s.f. 2nd floor & 11163 Santa Monica Boulevard - 3,000 s.f. & 1635-1/2 Pontius Avenue - 1,000 s.f., monthly rental $15,000.
   November 2006 (same as October, 2006) monthly rental $15,000.
   December 2006 monthly rental $15,000
   January 2007 monthly rental $15,000
   February 2007 monthly rental $15,000
   March 2007 monthly rental $15,000
   April 2007 monthly rental increases to $30,000 through September 2007.
   October 2007 5% increase for each 12 month for the remaining 9 years.

53. Rental Abatement : October, November, December 2006 and January, February and March the rental will be $15,000 per month (50% off the Base Rent of $30,000) for the total of $90,000 Rental Abatement.

Should Lessee fail to add documented remodeling improvements to the premises totaling at least $250,000 by December 31, 2007 then the total rental rebate of $90,000 shall be due to Lessor by Lessee.

 

     PAGE 1 OF 3    JRH
        MT
INITIALS       INITIALS
  


54. Utilities and NNN Charges : Beginning in August 2006 Tenant to pay the direct expenses including maintenance, janitorial, utilities and pro-rated property taxes for 11159 Santa Monica (ground floor only) excludes any expenses for 1,500 s.f. 2nd floor space.

September 2006 - Same as above but inclusive of 1635 1/2 Pontius Avenue, 1,000 s.f. ground floor, and 11163 Santa Monica Boulevard, 3,000 s.f. ground floor.

October 2006 through balance of Lease Term - Tenant to pay the direct expenses pro-rated property taxes for: 11159 Santa Monica Boulevard 4,500 s.f. ground floor, 1,500 s.f. 2nd floor, 11163 Santa Monica Boulevard 3,000 s.f. ground floor and  1635-1/2 Pontius Avenue 1,000 s.f. ground floor.

55. NNN Charges . Tenant shall be responsibel for its NNN charges during the full term of the lease. (The actual expenses for the three (3) properties for the 2005-2006 year have been $29,172 or about $0.30 per s.f. per month however, this may vary each year. In addition, Tenant shall pay for maintenance of the air conditioning, roof, walls, paint, etc.).

56. Annual Increase : Beginning with the second (2nd) year of the lease term there shall be an annual increase of 5% of the Base Rent over the Base Rent for the immediately preceeding year. Such annual adjustment will continue during the balance of term.

57. Security Depositi : $60,000 ($15,000 plus interest to be refunded to Tenant in month 37 of lease, and $15,000 plus interest refunded to Tenant in month 73 of lease). No interest to be paid on remaining $30,000 security deposit during the entire term of lease.

58. Tenant Improvements . Except as otherwise provided in this Lease, the properties are accepted “as is” by Tenant, who will be responsibel for any and all improvements. Landlord to install a new roof to the rear building and warrant the roofs on 11159 and 11163 Santa Monica Boulevard and 1635 1/2 Pontius Avenue not to leak as per commencement of the lease and before any building improvements to be done by Tenant. All work done by Tenant shall be mutually approved by Landlord and Tenant, and will be subject to Los Angeles City codes regulations.

59. Parking : Ten exclusive spaces behind the properties.

60. Hazardous Materials . Landlord represents that he knows of no use of the premises, during his ownership of premises that violates any governmental laws relating to environmental conditions. Tenant agrees to not use any part of the premises in a way that would be in violation of any governmental laws or regulations regarding environmental conditions, and shall agree to pay for any such clean-up necessitated by such use.

61. Subleasing/Assignment : Tenant shall have the right to sublease/assign all or a portion of said space during the term of the lease to a qualified tenant, subject to the Lessor’s prior written approval which shall not be unreasonably withheld or delayed. All net profits (net rental income above what the lease would otherwise require) shall be split 50/50 between Lessor and Tenant. Although no such sublease or assignment shall release Tenant from the obligations under this lease.

62. Broker : Tenant and Landlord acknowledge that Tenant is represented by David Thind at Coldwell Banker Commercial WESTMAC, and that Landlord repesents himself. Coldwell Banker shall be paid a commission by Landlord and Tenant has no obligation to pay Coldwell Banker Commercial any commission whatsoever.

63. Americans with Disabilities Act : Tenant, at Tenant’s sole cost and expense shall be responsible for compliance with all the provisions of the American with Disabilities Act.

64. Contingencies : 1.) Tenant to be responsible for ascertaining that his intended use is allowed by City Zoning and Building agencies, and is not relying on information from Landlord. Landlord hereby represents that he has not received any notice from any governmental agency that Tenant’s intended use is not permitted under applicable law.

 

     PAGE 2 OF 3    JRH
        MT
INITIALS       INITIALS


2.) Landlord to have no requirement under Lease to install sprinkler system in any buildings, however, permission is given by Landlord for Tenant to install such upon their necessity.

65. FINAL LETTER OF CREDIT AS SHOWN IN EXHIBIT “A” SHALL BE SUBMITTED BY LESSEE’S BANK WITHIN 3 DAYS FROM LEASE SIGNING.

 

     PAGE 3 OF 3    JRH
        MT
INITIALS       INITIALS


LOGO

RULES AND REGULATIONS FOR

STANDARD OFFICE LEASE

Dated: August 16 , 2006

By and Between James R. Hull ( “Lessor” ) and Tesla Motors, Inc. ( “Lessee” )

GENERAL RULES

1. Lessee shall not suffer or permit the obstruction of any Common Areas, including driveways, walkways and stairways.

2. Lessor reserves the right to refuse access to any persons Lessor in good faith judges to be a threat to the safety and reputation of the Project and its occupants.

3. Lessee shall not make or permit any noise or odors that annoy or interfere with other lessees or persons having business within the Project.

4. Lessee shall not keep animals or birds within the Project, and shall not bring bicycles, motorcycles or other vehicles into areas not designated as authorized for same.

5. Lessee shall not make, suffer or permit litter except in appropriate receptacles for that purpose.

6. Lessee shall not alter any lock or install new or additional locks or bolts.

7. Lessee shall be responsible for the inappropriate use of any toilet rooms, plumbing or other utilities. No foreign substances of any kind are to be inserted therein.

8. Lessee shall not deface the walls, partitions or other surfaces of the Premises or Project.

9. Lessee shall not suffer or permit anything in or around the Premises or Building that causes excessive vibration or floor loading in any part of the Project.

10. Furniture, significant freight and equipment shall be moved into or out of the building only with the Lessor’s knowledge and consent, and subject to such reasonable limitations, techniques and timing, as may be designated by Lessor. Lessee shall be responsible for any damage to the Office Building Project arising from any such activity.

11. Lessee shall not employ any service or contractor for services or work to be performed in the Building, except as approved by Lessor.

12. [omitted.]

13. Lessee shall return all keys at the termination of its tenancy and shall be responsible for the cost of replacing any keys that are lost.

14. No window coverings, shades or awnings shall be installed or used by Lessee.

15. No Lessee, employee or invitee shall go upon the roof of the Building.

16. Lessee shall not suffer or permit smoking or carrying of lighted cigars or cigarettes in areas reasonably designated by Lessor or by applicable governmental agencies as non-smoking areas.

17. Lessee shall not use any method of heating or air conditioning other than as provided by Lessor.

18. Lessee shall not install, maintain or operate any vending machines upon the Premises without Lessor’s written consent.

19. The Premises shall not be used for lodging or manufacturing, cooking or food preparation.

20. Lessee shall comply with all safety, fire protection and evacuation regulations established by Lessor or any applicable governmental agency.

21. Lessor reserves the right to waive any one of these rules or regulations, and/or as to any particular Lessee, and any such waiver shall not constitute a waiver of any other rule or regulation or any subsequent application thereof to such Lessee.

22. Lessee assumes all risks from theft or vandalism and agrees to keep its Premises locked as may be required.

23. Lessor reserves the right to make such other reasonable rules and regulations as it may from time to time deem necessary for the appropriate operation and safety of the Project and its occupants. Lessee agrees to abide by these and such rules and regulations.

PARKING RULES

1. Parking areas shall be used only for parking by vehicles no longer than full size, passenger automobiles herein called “Permitted Size Vehicles.” Vehicles other than Permitted Size Vehicles are herein referred to as “Oversized Vehicles.”

2. Lessee shall not permit or allow any vehicles that belong to or are controlled by Lessee or Lessee’s employees, suppliers, shippers, customers, or invitees to be loaded, unloaded, or parked in areas other than those designated by Lessor for such activities.

 

     PAGE 1 OF 2    JRH
        MT
INITIALS       INITIALS

 

©1999 – AIR COMMERCIAL REAL ESTATE ASSOCIATION

   FORM OFG-1-9/99E


3. Parking stickers or identification devices shall be the property of Lessor and be returned to Lessor by the holder thereof upon termination of the holder’s parking privileges. Lessee will pay such replacement charge as is reasonably established by Lessor for the loss of such devices.

4. Lessor reserves the right to refuse the sale of monthly identification devices to any person or entity that willfully refuses to comply with the applicable rules, regulations, laws and/or agreements.

5. [Omitted.]

6. [Omitted.]

7. Unless otherwise instructed, every person using the parking area is required to park and lock his own vehicle. Lessor will not be responsible for any damage to vehicles, injury to persons or loss of property, all of which risks are assumed by the party using the parking area.

8. Validation, if established, will be permissible only by such method or methods as Lessor and/or its licensee may establish at rates generally applicable to visitor parking.

9. [Omitted.]

10. Lessee shall be responsible for seeing that all of its employees, agents and invitees comply with the applicable parking rules, regulations, laws and agreements.

11. Lessor reserves the right to modify these rules and/or adopt such other reasonable and non-discriminatory rules and regulations as it may deem necessary for the proper operation of the parking area.

12. Such parking use as is herein provided is intended merely as a license only and no bailment is intended or shall be created hereby.

NOTICE: These forms are often modified to meet changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: AIR Commercial Real Estate Association, 800 W 6th Street, Suite 800, Los Angeles, CA 90017. Telephone No. (213) 687-8777. Fax No.: (213) 687-8616.

 

     PAGE 2 OF 2    JRH
        MT
INITIALS       INITIALS

 

©1999 – AIR COMMERCIAL REAL ESTATE ASSOCIATION

   FORM OFG-1-9/99E


August 16, 2006

Tesla Motors, Inc.

1050 Bing Street

San Carlos, CA 94070

Attn: Martin Eberhard, CEO

 

RE: LEASE AGREEMENT

Dear Mr. Eberhard:

Reference is hereby made to that certain lease dated August 16, 2006 between Tesla Motors, Inc. (“Lessee”) and James R. Hull (“Lessor”) concerning the premises located at 11159 and 11163 Santa Monica Boulevard and 1635-1/2 Pontius Avenue in Los Angeles, CA (the “Lease”). Terms used in this letter but not defined herein shall have the meanings given to them in the Lease. Lessor and Lessee hereby agree as follows:

 

  1. If any sprinkler installations, earthquake compliance work, ADA (other than restrooms compliance work or zoning work) that Lessee is obligated to undertake in connection with its intended use of the Premises is estimated in good faith to be an amount in excess of $100,000 (the “Excess Cost Amount”), then Lessee shall provide a copy of the Excess Cost Amount to Lessor, and Lessee to have the right to terminate the Lease within a thirty (30) days, but not later than one hundred twenty (120) days after the Commencement Date of the Lease; provided, however, if Lessee elects to terminate the Lease, Lessor shall have the right to agree to pay the Excess Cost Amount in full to Lessee within thirty (30) days of Lessee’s termination notice and the Lease shall remain in full force and effect. Lessor shall pay such Excess Cost within 30 days of Lessee’s completion of such work to premises. If Lessee elects to terminate, Lessee will forgo any rents paid to date and 1/2 of the security deposit held by Lessor.

 

  2. Lessee shall credit Lessor the amount of $50,000 towards the purchase of a Tesla Roadster (signature edition #99 or #100) painted in Lessor’s choice of green with the balance of the purchase price for the Tesla. Roadster in the amount of $50,000 due and payable to Lessee by Lessor upon delivery of the Tesla Roadster.

 

Very truly yours

/s/ James R. Hull

James R. Hull

Accepted and agreed on this 29 th day of August, 2006

Tesla Motors, Inc.

 

By:  

/s/ Marc Tarpenning

 

Marc Tarpenning, CFO

  (Print Name and Title)

 


LOGO


LOGO

ARBITRATION AGREEMENT

Standard Lease Addendum

 

Dated   

August 16, 2006

By and Between (Lessor)   

James R. Hull

(Lessee)   

Tesla Motors, Inc.

Address of Premises:   

11159 & 11163 Santa Monica Boulevard and

  

1635 1/2 Pontius Avenue, Los Angeles, CA 90025

Paragraph                             

A. ARBITRATION OF DISPUTES :

Except as provided in Paragraph B below, the Parties agree to resolve any and all claims, disputes or disagreements arising under this Lease, including, but not limited to any matter relating to Lessor’s failure to approve an assignment, sublease or other transfer of Lessee’s interest in the Lease under Paragraph 12 of this Lease, any other defaults by Lessor, or any defaults by Lessee by and through arbitration as provided below and irrevocably waive any and all rights to the contrary. The Parties agree to at all limes conduct themselves in strict, full, complete and timely accordance with the terms hereof and that any attempt to circumvent the terms of this Arbitration Agreement shall be absolutely null and void and of no force or effect whatsoever.

B. DISPUTES EXCLUDED FROM ARBITRATION :

The following claims, disputes or disagreements under this Lease are expressly excluded from the arbitration procedures set forth herein: 1. Disputes for which a different resolution determination is specifically set forth in this Lease, 2. All claims by either party which (a) seek anything other than enforcement or determination of rights under this Lease, or (b) are primarily founded upon matters of fraud, willful misconduct, bad faith or any other allegations of tortious action, and seek the award of punitive or exemplary damages, 3. Claims relating to (a) Lessor’s exercise of any unlawful detainer rights pursuant to applicable law or (b) rights or remedies used by Lessor to gain possession of the Premises or terminate Lessee’s right of possession to the Premises, all of which disputes shall be resolved by suit filed in the applicable court of jurisdiction, the decision of which court shall be subject to appeal pursuant to applicable law and 4. All claims arising under Paragraph 39 of this Lease, which disputes shall be resolved by the specific dispute resolution procedure provided in Paragraph 39 to the extent that such disputes concern solely the determination of rent

C. APPOINTMENT OF AN ARBITRATOR :

All disputes subject to this Arbitration Agreement, shall be determined by binding arbitration before: þ a retired judge of the applicable court of jurisdiction (e.g., the Superior Court of the State of California) , ¨ the American Arbitration Association (“AAA”) under its commercial arbitration rules, ¨

                                                                                                                                                                                                                            .

or as may be otherwise mutually agreed by Lessor and Lessee (the “Arbitrator”). Such arbitration shall be initiated by the Parties, or either of them, within ten (10) days after either party sends written notice (the “Arbitration Notice”) of a demand to arbitrate by registered or certified mail to the other party and to the Arbitrator. The Arbitration Notice shall contain a description of the subject matter of the arbitration, the dispute with respect thereto, the amount involved, if any, and the remedy or determination sought. If the Parties have agreed to use JAMS they may agree on a retired judge from the JAMS panel. If they are unable to agree within ten days, JAMS will provide a list of three available judges and each party may strike one. The remaining judge (or if there are two, the one selected by JAMS) will serve as the Arbitrator. If the Parties have elected to utilize AAA or some other organization, the Arbitrator shall be selected in accordance with said organization’s rules. In the event the Arbitrator is not selected as provided for above for any reason, the party initiating arbitration shall apply to the appropriate Court for the appointment of a qualified retired judge to act as the Arbitrator.

D. ARBITRATION PROCEDURE :

1. PRE-HEARING ACTIONS . The Arbitrator shall schedule a pre-hearing conference to resolve procedural matters, arrange for the exchange of information, obtain stipulations, and narrow the issues. The Parties will submit proposed discovery schedules to the Arbitrator at the pre-hearing conference. The scope and duration of discovery will be within the sole discretion of the Arbitrator. The Arbitrator shall have the discretion to order a pre-hearing exchange of information by the Parties, including, without limitation, production of requested documents,

 

     PAGE 1 OF 2    JRH
        MT
INITIALS       INITIALS

 

©1997 – AIR COMMERCIAL REAL ESTATE ASSOCIATION

   FORM ARB-0-7/97E


exchange of summaries of testimony of proposed witnesses, and examination by deposition of parties and third-party witnesses, This discretion shall be exercised in favor of discovery reasonable under the circumstances. The Arbitrator shall issue subpoenas and subpoenas duces tecum as provided for in the applicable statutory or case law (e.g., in California Code of Civil Procedure Section 1282.6).

2. THE DECISION . The arbitration shall be conducted in the city or county within which the Premises are located at a reasonably convenient site. Any Party may be represented by counsel or other authorized representative. In rendering a decision(s), the Arbitrator shall determine the rights and obligations of the Parties according to the substantive laws and the terms and provisions of this Lease. The Arbitrators decision shall be based on the evidence introduced at the hearing, including all logical and reasonable inferences therefrom. The Arbitrator may make any determination and/or grant any remedy or relief that is just and equitable. The decision must be based on, and accompanied by, a written statement of decision explaining the factual and legal basis for the decision as to each of the principal controverted issues. The decision shall be conclusive and binding, and it may thereafter be confirmed as a judgment by the court of applicable jurisdiction, subject only to challenge on the grounds set forth in the applicable statutory or case law (e.g., in California Code of Civil Procedure Section 1286.2). The validity and enforceability of the Arbitrators decision is to be determined exclusively by the court of appropriate jurisdiction pursuant to the provisions of this Lease. The Arbitrator may award costs, including without limitation, Arbitrators fees and costs, attorneys’ fees, and expert and witness costs, to the prevailing party, if any, as determined by the Arbitrator in his discretion.

Whenever a matter which has been submitted to arbitration involves a dispute as to whether or note particular act or omission (other thane failure to pay money) constitutes a Default, the time to commence or cease such action shall be tolled from the date that the Notice of Arbitration is served through and until the date the Arbitrator renders his or her decision. Provided, however, that this provision shall NOT apply in the event that the Arbitrator determines that the Arbitration Notice was prepared in bad faith.

Whenever a dispute arises between the Parties concerning whether or not the failure to make a payment of money constitutes a default, the service of an Arbitration Notice shall NOT toll the time period in which to pay the money. The Party allegedly obligated to pay the money may, however, elect to pay the money “under protest” by accompanying said payment with a written statement setting forth the reasons for such protest. If thereafter, the Arbitrator determines that the Party who received said money was not entitled to such payment, said money shall be promptly returned to the Party who paid such money under protest together with Interest thereon as defined in Paragraph 13.5. If a Party makes a payment “under protest” but no Notice of Arbitration is filed within thirty days, then such protest shall be deemed waived. (See also Paragraph 43)

NOTICE: These forms are often modified to meet changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: AIR Commercial Real Estate Association, 800 W 6th Street, Suite 800, Los Angeles, CA 90017. Telephone No. (213) 687-8777. Fax No.: (213) 687-8616.

 

     PAGE 2 OF 2    JRH
        MT
INITIALS       INITIALS

 

©1997 – AIR COMMERCIAL REAL ESTATE ASSOCIATION

   FORM ARB-0-7/97E


EXHIBIT “A”

PRO FORMA LETTER OF CREDIT

[BANK LETTERHEAD]

Letter of Credit No.

Ladies and Gentlemen:

We hereby establish our Irrevocable Letter of Credit and authorize you to draw on us at sight for the account of [TENANT], a                                                       (“Applicant”) the aggregate amount of                                                       ($        ).

Funds under this Letter of Credit are available to the beneficiary hereof as follows:

Any and all of the sums hereunder may be drawn down at any time and from time to time from and after the date hereof by                                                       (“Beneficiary”) when accompanied by this Letter of Credit and a written statement signed by an authorized signatory of Beneficiary, certifying that Beneficiary is entitled to make such drawing pursuant to the Lease, together with a notarized certification by any such individual representing that such individual is authorized by Beneficiary to take such action on behalf of Beneficiary, and a sight draft executed and endorsed by such individual. The sums drawn by Beneficiary under this Letter of Credit shall be payable upon demand without necessity of notice.

This Letter of Credit is transferable in its entirety, without any limitation on the number of such transfers. Should a transfer be desired, such transfer will be subject to the return to use of this advice, together with written instructions.

The amount of each draft must be endorsed on the reverse hereof by the negotiating bank. We hereby agree that this Letter of Credit shall be duly honored upon presentation and delivery of the certification specified above.

This Letter of Credit is effective immediately and shall expire at 5:00 P.M., Pacific Standard Time on (the “Expiration Date”).

Notwithstanding the above expiration of this Letter of Credit, the term of this Letter of Credit shall be automatically renewed for successive, additional one (1) year periods (with the last such one (1) year

period expiring no earlier than sixty (60) days after the expiration date of that certain                      Lease dated                      , (the “Lease”) by and between Applicant, as Tenant, and Beneficiary, as Landlord), unless, at least sixty (60) days prior to any such date of expiration, the undersigned shall give written notice to Beneficiary, by certified mail, return receipt requested and at the address set forth above or at such other address as may be given to the undersigned by Beneficiary, that this Letter of Credit will not be renewed; it being understood that if the Applicant fails to maintain the Letter of Credit in the amount and in accordance with the terms of the Lease, Beneficiary shall have the right to present the Letter of Credit to us for payment.

Our obligation under this Letter of Credit shall not be affected by any circumstances, claim or defense, real or personal, of any party as to the enforceability of the Lease between Beneficiary and Applicant or the validity of Beneficiary’s claim, it being understood that our obligation shall be that of a primary obligor and not that of a surety, guarantor or accommodation maker.

Applicant shall pay all costs of, or in connection with, this Letter of Credit, including without limitation, any fees associated with the transfer or assignment of this Letter of Credit by the Beneficiary.

This Letter of Credit is governed by the Uniform Customs and Practice for Documentary Credits (1993) Revision), International Chamber of Commerce publication 500.

This Letter of Credit sets forth in full the terms of our undertaking, and such terms shall not in any way be modified, amended, limited, discharged, or terminated except by a writing signed by authorized representatives of Beneficiary and the undersigned on or before the Expiration Date.

Very truly yours,

 

    

G-1            

   MT              JRH
              Initial                Initial                Initial                Initial    


LOGO

ARTICLE 24

LETTER OF CREDIT

Concurrently with the execution of this Lease, Tenant shall deliver to Landlord, as collateral for the full and faithful performance by Tenant of all of its obligations under this Lease, an irrevocable and unconditional negotiable letter of credit (the “Letter of Credit”), substantially in the form attached as Exhibit G hereto and made a part hereof, and containing the terms required herein, payable in the County of Los Angeles, California, running in favor of Landlord, issued by a solvent bank reasonably approved by Landlord under the supervision of the Superintendent of Banks of the State of California, or a National Banking Association, in the amount of $          .00 (“LC Amount”). The Letter of Credit shall be:

a) at sight and irrevocable;

b) maintained in effect for the entire period from the date of execution of this Lease through the date (“Lease Expiration Date”) which is [sixty (60) days] following the expiration of the Term of this Lease, provide that the expiration date thereof shall be no earlier than the Lease Expiration Date or provide for automatic renewal thereof at least through the Lease Expiration Date, unless the issuing bank provides at least sixty (60) days prior written notice to Landlord of such non-renewal by certified mail, return receipt requested at the address set forth on the form of Letter of Credit attached as Exhibit      , and Tenant shall deliver a new Letter of Credit to Landlord at least sixty (60) days prior to the expiration of the Letter of Credit without any action whatsoever on the part of Landlord;

c) subject to the Uniform Customs and Practices for Documentary Credits (1993-Rev) International Chamber of Commerce Publication #500; and

d) fully assignable by Landlord in connection with any number of transfers of Landlord’s interest in this Lease (with Tenant bearing any fees, costs or expenses in connection with any such transfer), and permit partial draws.

In addition to the foregoing, the form and terms of the Letter of Credit (and the bank issuing the same) shall be acceptable to Landlord, in Landlord’s reasonable discretion, and shall provide, among other things, in effect that:

i) Landlord, or its then managing agent, shall have the right to draw down an amount up to the face amount of the Letter of Credit upon the presentation to the issuing bank of Landlord’s (or Landlord’s then managing agent’s) written statement that Landlord is entitled to make such drawing under this Lease, it being understood that if Landlord or its managing agent be a corporation, partnership or other entity, then such statement shall be signed by an officer (if a corporation), a general partner (if a partnership), or any authorized party (if another entity);

ii) the Letter of Credit will be honored by the issuing bank without inquiry as to the accuracy thereof and regardless of whether the Tenant disputes the content of such statement; and

iii) in the event of a transfer of Landlord’s interest in the Building, Landlord shall transfer the Letter of Credit, in whole or in part (or cause a substitute letter of credit to be delivered, as applicable) to the transferee and thereupon the Landlord shall, without any further agreement between the parties, be released by Tenant from all liability therefor, and it is agreed that the provisions hereof shall apply to every transfer or assignment of the whole or any portion of said Letter of Credit to a new landlord.

If, as a result of any application or use by Landlord of all or any part of the Letter of Credit, the amount of the Letter of Credit shall be less than the LC Amount, Tenant shall, within five (5) days thereafter, provide Landlord with an additional letter(s) of credit in an amount equal to the deficiency (or a replacement letter of credit in the total amount of the LC Amount) and any such additional (or replacement) letter of credit shall comply with all of the provisions of this Article 24, and if Tenant fails to comply with the foregoing, the same shall constitute an uncurable default by Tenant.

        Tenant further covenants and warrants that it will neither assign nor encumber the Letter of Credit, or any part thereof and that neither Landlord nor its successors or assigns will be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. Without limiting the generality of the foregoing, if the Letter of Credit expires earlier than the Lease Expiration Date, Landlord will accept a renewal letter of credit or substitute letter of credit (such renewal or substitute letter of credit to be in effect and delivered to Landlord, as applicable, not later than thirty (30) days prior to the expiration of the Letter of Credit), which shall be irrevocable and automatically renewable as above provided through the Lease Expiration Date upon the same terms as the expiring Letter of Credit or such other terms as may be acceptable to Landlord in its reasonable discretion. However, if the Letter of Credit is not timely renewed or a substitute letter of credit is not timely received, or if Tenant fails to maintain the Letter of Credit in the amount and in accordance with the terms set forth in this Article 24, Landlord shall have the right to present the Letter of Credit to the issuing bank in accordance with the terms of this Article 24, and the entire sum evidenced thereby shall be paid to and held by Landlord as cash (the “Cash Collateral”) to be held as collateral for performance of all of Tenant’s obligations under this Lease and for all losses and damages Landlord may suffer as a result of any default by Tenant under this Lease pending Tenant’s delivery to Landlord of the required replacement letter of credit in the LC Amount and otherwise complying with all of the provisions of this Article 24. Upon delivery of such replacement letter of credit, any Cash Collateral held by Landlord shall be returned to Tenant. Landlord shall have the right to hold Cash Collateral in a deposit account in the name of Landlord and commingle the Cash Collateral with its general assets and Tenant hereby grants Landlord a security interest in the Cash Collateral. Tenant shall not be entitled to any interest earned on the Cash Collateral.


LOGO

If there shall occur a default under the Lease beyond any applicable grace period, Landlord may, but without obligation to do so, draw upon the Letter of Credit and/or utilize the Cash Collateral, in part or in whole, to cure any default of Tenant and/or to compensate Landlord for any and all damages of any kind or nature sustained or which may be sustained by Landlord resulting from Tenant’s default. Tenant agrees not to interfere in any way with payment to Landlord of the proceeds of the Letter of Credit, either prior to or following a “draw” by Landlord of any portion of the Letter of Credit, regardless of whether any dispute exists between Tenant and Landlord as to Landlord’s right to draw from the Letter of Credit. No condition or term of this Lease shall be deemed to render the Letter of Credit conditional to justify the issuer of the Letter of Credit in failing to honor a drawing upon such Letter of Credit in a timely manner.

Landlord and Tenant acknowledge and agree that in no event or circumstance shall the Letter of Credit or any renewal thereof or substitute therefor or Cash Collateral be:

a) deemed to be or treated as a “security deposit” within the meaning of California Civil Code Section 1950.7;

b) subject to the terms of such Section 1950.7; or

c) intended to serve as a “security deposit” within the meaning of such Section 1950.7.

The parties hereto:

i) recite that the Letter of Credit and/or Cash Collateral, as the case may be, is not intended to serve as a security deposit and such Section 1950.7 and any and all other laws, rules and regulations applicable to security deposits in the commercial context (“Security Deposit Laws”) shall have no applicability or relevancy thereto; and

ii) waive any and all rights, duties and obligations either party may now or, in the future, will have relating to or arising from the Security Deposit Laws.

Notwithstanding any contrary provision of this Article 24, but subject to the conditions set forth in the last sentence of this paragraph, the LC Amount shall decrease to $          as of the last calendar day of the              full calendar month; to $          as of the last calendar day of the              full calendar month of the Term and to $          as of the last calendar day of the thirty-sixth (36th) full calendar month of the Term. Notwithstanding the foregoing, the LC Amount shall be decreased only if (a) there does not then exist a monetary or material non-monetary default or breach by Tenant of its obligations or liabilities under this Lease beyond any applicable notice and cure periods , (b) there has been no material adverse change in the financial condition of Tenant since the date of this Lease, as evidenced by current tax returns and income statements provided to Landlord within ninety (90) days after the expiration of each calendar year during the Term, and (c) neither this Lease nor Tenant’s right to possession of the Premises has been terminated.

 

YEAR

   LEASE AMT

    1

   $ 300k

    2

   $ 260k

    3

   $ 220k

    4

   $ 180k

    5

   $ 140k

    6

   $ 100k

    7

   $ 100k

    8

   $ 100k

    9

   $ 100k

  10

   $ 100k

Exhibit 10.20

COMMERCIAL LEASE

THIS LEASE is entered into as of July 25, 2007 (the “ Effective Date ”), by and between THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY, a body having corporate powers under the laws of the State of California (“ Landlord ”), and TESLA MOTORS, INC., a Delaware corporation (“ Tenant ”).

1. BASIC LEASE INFORMATION . The following is a summary of basic lease information. Each item in this Article 1 incorporates all of the terms set forth in this Lease pertaining to such item and to the extent there is any conflict between the provisions of this Article 1 and any other provisions of this Lease, the other provisions shall control. Any capitalized term not defined in this Lease shall have the meaning set forth in the Glossary that appears at the end of this Lease.

 

Address of Premises:    300 El Camino Real, Menlo Park, California
Term:       Five (5) years
Scheduled Date for Delivery of Premises:    August 1, 2007
Commencement Date:    August 1, 2007
Expiration Date:    July 31, 2012
Base Rent:    Year One:    $60,000 ($5,000 per month)
   Year Two:    $90,000 ($7,500 per month)
   Year Three:    $120,000 ($10,000 per month)
   Year Four:    $165,000 ($13,750 per month)
   Year Five:    $165,000 ($13,750 per month
Security Deposit:    $5,000

Use: A dealership for the retail sales of new electric passenger automobiles, with ancillary automobile repair work, automobile displays, sales offices and storage.

Addresses for Notice:

 

Landlord:    Stanford University - Real Estate Office
   2755 Sand Hill Road, Suite 100
   Menlo Park, CA 94025
   Attention: Director, Property Services
with a copy to:    Carol K. Dillon, Esq.
   Bingham McCutchen LLP
   1900 University Avenue
   East Palo Alto, CA 94303
Tenant:    Craig Harding Legal Dept.
   Tesla Motors
   1050 Bing St.
   San Carlos, CA 94070

Brokers:        None


2. PREMISES

Subject to the terms, covenants and conditions set forth in this Lease, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord those premises (the “ Premises ”) comprised of an existing automobile showroom and automobile repair facility, together with all other buildings and improvements, including without limitation parking areas, sidewalks, driveways and landscaping located on that certain real property described on the attached Exhibit A . A site plan generally depicting the Premises is attached as Exhibit B .

3. ACCEPTANCE

The Premises as furnished by Landlord consist of the improvements as they exist as of the Effective Date and Landlord shall have no obligation for construction work or improvements on or to any portion of the Premises. Prior to entering into this Lease, Tenant has made a thorough and independent examination of the Premises and all matters related to Tenant’s decision to enter into this Lease. Tenant is thoroughly familiar with all aspects of the Premises and is satisfied that it is in an acceptable condition and meet Tenant’s needs. Tenant does not rely on, and Landlord does not make, any express or implied representations or warranties as to any matters including, without limitation, (a) the physical condition of the Premises including without limitation the structural components of any improvements or any building systems within or serving the improvements (including without limitation indoor air quality), (b) the existence, quality, adequacy or availability of utilities serving the Premises or any portion thereof, (c) the use, habitability, merchantability, fitness or suitability of the Premises for Tenant’s intended use, (d) the likelihood of deriving business from Tenant’s location or the economic feasibility of Tenant’s business, (e) Hazardous Materials on, in, under or around the Premises, (f) zoning, entitlements or any laws, ordinances or regulations which may apply to Tenant’s use of the Premises or business operations, or (g) any other matter whatsoever. Tenant has satisfied itself as to such suitability and other pertinent matters by Tenant’s own inquiries and tests into all matters relevant in determining whether to enter into this Lease. Tenant accepts the Premises in their existing “AS-IS”, “WHERE-IS” condition, and “WITH ALL FAULTS”. Tenant shall, by entering into and occupying the Premises, be deemed to have accepted the Premises and to have acknowledged that the same are in good order, condition and repair in all respects. Upon the Commencement Date, tenant shall execute and deliver to Landlord the Acceptance Form attached hereto as Exhibit C .

4. TERM

4.1 Term . The Premises are leased for a term (the “ Term ”) commencing on the Commencement Date and expiring on the Expiration Date. Notwithstanding the foregoing, in the event this Lease is executed prior to the stated Commencement Date, the actual Commencement Date shall occur on such earlier date that Landlord delivers possession of the Premises to Tenant. The Term shall end on the Expiration Date, or such earlier date on which this Lease terminates pursuant to its terms. The date upon which this Lease actually terminates, whether by expiration of the Term or earlier termination pursuant to the terms of this Lease, is sometimes referred to in this Lease as the “Termination Date”.

 

-2-


4.2 Failure to Deliver Possession . If for any reason Landlord cannot deliver possession of the Premises to Tenant on or prior to the Scheduled Date for Delivery of the Premises, then the validity of this Lease and the obligations of Tenant under this Lease shall not be affected and Tenant shall have no claim against Landlord arising out of Landlord’s failure to deliver possession of the Premises on the Scheduled Date for Delivery of the Premises. Notwithstanding the foregoing, if Landlord fails to deliver the Premises within thirty (30) days after the Commencement Date, Tenant shall have the option to terminate this Lease, whereupon neither party shall have any further rights or obligations hereunder.

4.3 Extension Option . In the event that Landlord determines in its sole discretion that Landlord does not intend to redevelop the Premises or to use it for Landlord’s own purposes after the Termination Date, and that therefore the Premises will be available for lease, Landlord shall provide Tenant with written notice of such determination, setting forth the period of time that Landlord has determined the Premises will remain available for lease by Tenant (the “ Extension Period ”). Tenant shall have the option (the “ Extension Option ”) to extend the Term for the Extension Period by delivering written notice to Landlord within thirty (30) days after receipt of Landlord’s notice. The Extension Option shall be void if an Event of Default by Tenant exists, either at the time of exercise of the Extension Option or the time of commencement of the Extension Term. The terms of this Lease during the Extension Period shall be the same terms and conditions as during the original Term, except that the Base Rent applicable to the Extension Period shall be equal to the Prevailing Market Rent as of the commencement of the Extension Period, as determined pursuant to Exhibit D . The Extension Option is personal to Tenant and shall be inapplicable and null and void if Tenant assigns its interest under this Lease, or if either party exercises its termination right under Section 4.4. The Extension Option (if not previously exercised) shall expire as of the Termination Date.

4.4 Termination Right .

(a) Either party shall have the right to terminate this Lease during the initial Term (but not the Extension Period) by providing written notice thereof to the other party not less than six (6) months prior to the desired termination date (the “ Early Termination Date ”). The Early Termination Date must be a date later than the second anniversary of the Commencement Date. In the event either party exercises the termination right, the Right of First Offer shall terminate and have no further force or effect.

(b) If Landlord elects to terminate this Lease and the Early Termination Date occurs during months 25 through 36 of the Term, inclusive, then Landlord shall reimburse Tenant the unamortized cost. of any Alterations made by Tenant in the Premises, less the sum of $90,000. If the Early Termination Date occurs during months through 37 through 48 of the Term, inclusive, then Landlord shall reimburse Tenant the unamortized cost of any Alterations made by Tenant in the Premises, less the sum of $45,000. If the Early Termination Date occurs during months through 49 through 60 of the Term, inclusive, then Landlord shall have no obligation to compensate Tenant for such termination. The reimbursement payment obligation of Landlord hereunder is referred to as the “ Termination Fee ”.

 

-3-


(c) If Tenant elects to terminate this Lease, then Landlord shall have no obligation to pay the Termination Fee to Tenant.

(d) All Alterations made by Tenant in the Premises shall comply with any and all requirements of Section 9 below. Additionally and not by way of limitation of the foregoing, Landlord’s obligation to pay the Termination Fee shall be subject to the following conditions: (i) the cost of the Alterations shall not exceed a total aggregate sum of $300,000, and any costs incurred by Tenant in performing Alterations which exceed $300,000 shall not be included in determining the Termination Fee; (ii) the Termination Fee shall be based on hard costs of construction only, as demonstrated by paid invoices provided by Tenant, and shall not include any soft costs incurred by Tenant in performing the Alterations, such as architect fees or the Landlord’s review and supervision fee; and (iii) the term “ unamortized costs ” used herein shall be based on a straight-line accounting calculation based on the then-remaining balance of the Term in accordance with generally accepted accounting principles.

4.5 Right of First Offer for New Lease . If at any time during the Term Landlord determines in its sole discretion that Landlord’s redevelopment plans for the Premises will include a retail car dealership, then Landlord shall offer to Tenant the opportunity to lease the Premises (the “ Right of First Offer ”), as provided in this Section. At such time as the redevelopment planning has proceeded to the point that Landlord is prepared to negotiate a new lease of the Premises, Landlord shall deliver written notice to Tenant of the material terms upon which Landlord would be willing to lease the Premises to Tenant (the “ Offer Notice ”). Tenant shall have ten (10) days after receipt in which to accept the Offer by written notice to Landlord. If Tenant does not give Landlord written notice accepting the Offer within the 10-day period, Landlord shall have the right to market and lease the Premises to a third party without reoffering the interest to Tenant. The Right of First Offer is personal to Tenant and shall be inapplicable and null and void if Tenant assigns its interest under this Lease, or if Tenant’s anticipated use of the Premises will no longer be as set forth in the Basic Lease Information.

5. RENT

5.1 Base Rent . Commencing upon the Commencement Date, and thereafter during the Term, Tenant shall pay to Landlord the monthly Base Rent specified in Article 1 on or before the first day of each month, in advance, at the address specified for Landlord in Article 1, or at such other place as Landlord designates in writing, without any prior notice or demand and without any deductions or setoff whatsoever (except as otherwise expressly provided in this Lease). If the Commencement Date occurs on a day other than the first day of a calendar month, or the Termination Date occurs on a day other than the last day of a calendar month, then the Base Rent for such fractional month will be prorated on the basis of the actual number of days in such month.

5.2 Rent Adjustment . On each anniversary of the Commencement Date (each, an “ Adjustment Date ”), the Base Rent shall be increased as set forth in Article 1.

5.3 Additional Rent . All sums due from Tenant to Landlord or to any third party under the terms of this Lease (other than Base Rent) shall be additional rent (“ Additional Rent ”), including all sums incurred by Landlord due to Tenant’s failure to perform its obligations under this Lease. All Additional Rent that is payable to Landlord shall be paid at the time and place that Base Rent is paid. Landlord will have the same remedies for a default in the payment of any Additional Rent as for a default in the payment of Base Rent. Together, Base Rent and Additional Rent are sometimes referred to in this Lease as “ Rent ”.

 

-4-


5.4 Late Payment . Any unpaid Rent shall bear interest from the date due until paid at the maximum interest rate allowed by law (the “ Interest Rate ”). In addition, Tenant recognizes that late payment of any Rent will result in administrative expense to Landlord, the extent of which expense is difficult and economically impracticable to determine. Therefore, Tenant agrees that if Tenant fails to pay any Rent within five (5) days after its due date, an additional late charge of five percent (5%) of the sums so overdue shall become immediately due and payable. Tenant agrees that the late payment charge is a reasonable estimate of the additional administrative costs and detriment that will be incurred by Landlord as a result of such failure by Tenant. In the event of nonpayment of interest or late charges on overdue Rent, Landlord shall have, in addition to all other rights and remedies, the rights and remedies provided in this Lease and by law for nonpayment of Rent.

6. USE OF PREMISES AND CONDUCT OF BUSINESS

6.1 Permitted Use . Tenant may use and occupy the Premises during the Term solely for the uses specified and permitted in Article 1 and for no other purpose without the prior written consent of Landlord, such consent to be granted or withheld in Landlord’s sole and unfettered discretion. Tenant’s use of the Premises shall in all respects comply with all Applicable Laws (as defined in Section 11.1).

6.2 Prohibited Uses . Tenant shall not use the Premises or allow the Premises to be used for any illegal or immoral purpose, or so as to create waste, or constitute a private or public nuisance. Tenant shall not place any loads upon the floors, walls, or ceiling which endanger the structure, or place any Hazardous Material in the drainage system of the Premises, or overload existing electrical or other mechanical systems. Tenant shall not use any machinery or equipment which causes any unreasonable noise or vibration. No waste materials or refuse shall be dumped upon or permitted to remain upon any part of the Premises except in trash containers placed inside exterior enclosures for that purpose. No loudspeaker or other device, system or apparatus shall be used at the Premises without the prior written consent of Landlord. No explosives or firearms shall be brought onto the Premises without the prior written consent of Landlord, which Landlord may withhold in its sole and absolute discretion.

7. NET LEASE; NO COUNTERCLAIM OR ABATEMENT

7.1 Net Lease . The Rent due hereunder shall be absolutely net to Landlord and shall be paid without assertion of any counterclaim, offset, deduction or defense and without abatement, suspension,, deferment or reduction (except as otherwise provided in this Lease). Landlord shall not be expected or required under any circumstances or conditions whatsoever, whether now existing or hereafter arising, and whether now known or unknown to the parties, to make any payment of any kind whatsoever with respect to the Premises or be under any obligation or liability hereunder, except if and solely to the extent expressly so provided elsewhere in this Lease.

7.2 Real Property Taxes . Without limiting the foregoing, Additional Rent shall include, and Tenant agrees to bear, discharge and pay as the same become due, and before delinquency, all taxes, assessments, rates, charges, license fees, municipal liens, levies, excises or imposts, whether general or special, or ordinary or extraordinary, of every name, nature and kind whatsoever, including all governmental charges of every name, nature or kind that may be levied, assessed, charged or imposed or maybe or become a lien or charge upon the Premises or any part thereof; or upon the rent or income of Tenant; or upon the use or occupancy of the Premises; or any document creating or transferring an estate or interest in the

 

-5-


Premises; upon any of the buildings or improvements existing at any time during the Term upon the Premises; or upon the leasehold of Tenant; or upon Landlord by reason of its ownership of the Premises (but not including any franchise, transfer, inheritance, or capital stock taxes or income taxes measured by the net income of Landlord unless, due to a change in the method of taxation, any of such taxes is levied or assessed against Landlord as a substitute for, in whole or in part, any other tax that would otherwise be the responsibility of Tenant). If at any time during the Term, under any Applicable Laws, any tax is levied or assessed against Landlord directly, in substitution in whole or in part for real property taxes, Tenant covenants and agrees to pay and discharge such tax. All of the foregoing taxes, assessments and other charges which are the responsibility of Tenant are herein referred to as “ Property Taxes .” Notwithstanding the foregoing, Tenant shall have no obligation to pay (a) any portion of an increase in Property Taxes, if any, attributable to a reassessment for assessment year 2007-2008 as a result of Landlord’s recent acquisition of the ground lease interest in the Premises; or (b) any environmental assessment, charges or liens arising in connection with the remediation of Hazardous Materials from the Premises, the causation of which arose prior to the delivery of the Premises to Tenant, or to the extent caused by Landlord or any of Landlord’s agents, (c) costs or fees (other than general real property taxes) payable in connection with Landlord’s right to further develop the Premises, and (d) property transfer taxes, stamp or recording taxes attributable to Landlord’s transfer of ownership of the Premises or any interest of Landlord therein.

7.3 Project Costs . In addition to Minimum Rent, Tenant shall pay or fund when due all Property Taxes, insurance premiums and deductibles, debt service, permit and license fees, costs of utilities and services, maintenance, repair, replacement, rebuilding, restoration, management, marketing and leasing services, operations and other costs of any type whatsoever accruing at any time during the Term in connection with the ownership, marketing, leasing, operation, management, maintenance, repair, replacement, restoration, use, occupancy or enjoyment of the Premises (collectively, “ Project Costs ”). Tenant shall pay all Project Costs directly, and shall contract directly for all required services, utilities (including without limitation water, gas, electricity, sewer service, waste pick-up, telephone and other electronic telecommunication services) and other items described herein; provided, however, that Landlord shall have the right to contract for any such services, utilities or other items if Tenant has failed to do so, or has failed to make any payment of Project Costs which is due and owing. Tenant shall provide Landlord, upon written request, with copies of invoices, receipts, canceled checks and/or other documentation reasonably substantiating Tenant’s payment of all Project Costs.

7.4 Taxes on Tenant’s Property and Business . Tenant shall pay prior to delinquency all taxes levied or assessed by any local, state or federal authority upon the conduct of Tenant’s business in the Premises or upon Tenant’s Property (as defined in Section 9.4) and shall deliver satisfactory evidence of such payment to Landlord. If the assessed value of the Premises is increased by the inclusion of a value placed upon Tenant’s Property, Tenant shall pay to Landlord, upon written demand, the taxes so levied against Landlord, or the portion of Landlord’s taxes resulting from said increase in assessment, as determined from time to time by Landlord.

 

-6-


8. REPAIRS, MAINTENANCE AND SERVICES

8.1 Maintenance and Repairs . During the Term, Tenant shall, at its own cost and expense and without any cost or expense to Landlord, keep and maintain the Premises and all improvements and appurtenant facilities thereon or related thereto, including without limitation the structural components, roof, fixtures and building systems of the improvements, grounds, sidewalks, parking and landscaped areas, in good condition and repair. Tenant shall promptly make all repairs, replacements and alterations (whether structural or nonstructural, foreseen or unforeseen, or ordinary or extraordinary) necessary to maintain the Premises and the improvements in good condition and repair, and in compliance with all Applicable Laws and to avoid any structural damage or injury to the Premises or the improvements.

8.2 No Obligation Of Landlord To Repair . Landlord shall not be obligated to make any repairs, replacements or renewals of any kind, nature or description whatsoever to the Premises or the improvements (except to the extent caused by Landlord’s willful misconduct or gross negligence), and Tenant hereby expressly waives any right to terminate this Lease and any right to make repairs at Landlord’s expense under Sections 1932(1), 1941 and 1942 of the California Civil Code, or any amendments thereof, or any similar law, statute or ordinance now or hereafter in effect.

8.3 Security . Tenant shall be solely responsible for the security of the Premises and of Tenant, its employees, agents, contractors and invitees (collectively, “ Tenant’s Agents ”) while in or about the Premises. Any security services provided to the Premises by Landlord shall be at Landlord’s sole discretion and Landlord shall not be liable to Tenant or Tenant’s Agents for any failure to provide security services or any loss, injury or damage suffered as a result of a failure to provide security services.

8.4 Tenant’s Failure to Repair . If Tenant fails for any reason to repair or maintain the Premises as required by this Lease to Landlord’s reasonable satisfaction, and does not cure such failure (a) within thirty (30) days after receipt of Landlord’s written notice, or (b) if the nature of the cure will reasonably require more than thirty (30) days to perform, within a reasonable time so long as Tenant promptly commences and diligently prosecutes such cure to completion, then Landlord shall have the right, but not the obligation, to enter onto the Premises and perform such repairs or maintenance without liability to Tenant (except to the extent of Landlord’s gross negligence or willful misconduct) for any loss or damage to Tenant’s furnishings, fixtures, equipment or other personal property or for interference with Tenant’s business arising therefrom. If Landlord performs such repairs or maintenance, Tenant shall pay all costs thereof to Landlord upon demand as Additional Rent.

9. ALTERATIONS

9.1 Alterations by Tenant . Tenant shall not make or permit any alterations to the building systems, and shall not make or permit any alterations, installations, additions or improvements, structural or otherwise (collectively, “ Alterations ”) in or to the Premises without Landlord’s prior written consent, which Landlord shall not unreasonably withhold, condition or delay. Landlord shall respond to any request by Tenant to make any Alteration within ten (10) business days after receipt of such request for consent from Tenant. Notwithstanding the foregoing, Landlord’s consent shall not be required (a) in the case of interior, cosmetic non-structural Alterations that do not require a permit, or affect any building systems, or (b) in the case of other Alterations that do not exceed a total price of Twenty-Five Fifty Thousand Dollars ($25,000) per project and do not affect any building systems or the structural integrity of the buildings. All Alterations shall be done at Tenant’s sole cost and expense, including without limitation the cost and expense of obtaining all permits and approvals required for any Alterations. Tenant shall reimburse Landlord within ten (10) days after written demand as

 

-7-


Additional Rent for any out-of-pocket expenses incurred by Landlord in connection with Alterations elected to be made and/or any repairs or replacements required to be made by Tenant, including, without limitation, any reasonable fees charged by Landlord’s contractors and/or consultants to review plans and specifications prepared by Tenant.

9.2 Project Requirements . The following provisions of this Section 9.2 shall apply to all Alterations, whether or not requiring Landlord’s approval (unless otherwise noted):

(a) Prior to entering into a contract for Alterations requiring Landlord’s approval, Tenant shall obtain Landlord’s written approval, which approval shall not be unreasonably withheld, conditioned or delayed, of the identity of each of the design architect and the general contractor.

(b) Before commencing the construction of any Alterations, Tenant shall procure or cause to be procured the insurance coverage described below and provide Landlord with certificates of such insurance in form reasonably satisfactory to Landlord. All such insurance shall comply with the following requirements of this Section and of Section 13.2.

(i) During the course of construction, to the extent not covered by property insurance maintained by Tenant pursuant to Section 13.2, comprehensive “all risk” builder’s risk insurance, including vandalism and malicious mischief, excluding earthquake and flood, covering all improvements in place on the Premises, all materials and equipment stored at the site and furnished under contract, and all materials and equipment that are in the process of fabrication at the premises of any third party or that have been placed in transit to the Premises when such fabrication or transit is at the risk of, or when title to or an insurable interest in such materials or equipment has passed to, Tenant or its construction manager, contractors or subcontractors (excluding any contractors’, subcontractors’ and construction managers’ tools and equipment, and property owned by the employees of the construction manager, any contractor or any subcontractor), such insurance to be written on a completed value basis in an amount not less than the full estimated replacement value of Alterations.

(ii) Commercial general liability insurance covering Tenant, Landlord and each construction manager, contractor and subcontractor engaged in any work on the Premises, which insurance may be effected by endorsement, if obtainable, on the policy required to be carried pursuant to Section 13.2, including insurance for completed operations, elevators, owner’s, construction manager’s and contractor’s protective liability, products completed operations for one (1) year after the date of acceptance of the work by Tenant, broad form blanket contractual liability, broad form property damage and full form personal injury (including but not limited to bodily injury), covering the performance of all work at or from the Premises by Tenant, its construction manager, contractors and subcontractors, and in a liability amount not less than the amount at the time carried by prudent owners of comparable construction projects, but in any event not less than Three Million Dollar ($3,000,000) combined single limit, which policy shall include thereunder for the mutual benefit of Landlord and Tenant, bodily injury liability and property damage liability, and automobile insurance on any non-owned, hired or leased automotive equipment used in the construction of any work.

(iii) Workers’ Compensation Insurance approved by the State of California, in the amounts and coverages required under workers’ compensation, disability and similar employee benefit laws applicable to the Premises, and Employer’s Liability Insurance with limits not less than One Million Dollars ($1,000,000) or such higher amounts as may be required by law.

 

-8-


(c) All construction and other work in connection with any Alterations shall be done at Tenant’s sole cost and expense and in a prudent and first class manner. Tenant shall construct the Alterations in accordance with all Applicable Laws, and with plans and specifications that are in accordance with the provisions of this Article 9 and all other provisions of this Lease.

(d) Prior to the commencement of any Alteration in excess of Ten Thousand Dollars ($10,000), Landlord shall have the right to post in a conspicuous location on the Premises and to record in the public records a notice of Landlord’s nonresponsibility. Tenant covenants and agrees to give Landlord at least ten (10) days prior written notice of the commencement of any such Alteration in order that Landlord shall have sufficient time to post such notice.

(e) Tenant shall take all necessary safety precautions during any construction.

(f) Tenant shall prepare and maintain (i) on a current basis during construction, annotated plans and specifications showing clearly all changes, revisions and substitutions during construction, and (ii) upon completion of construction of the Alterations, as-built drawings showing clearly all changes, revisions and substitutions during construction, including, without limitation, field changes and the final location of all mechanical equipment, utility lines, ducts, outlets, structural members, walls, partitions and other significant features. These as-built drawings and annotated plans and specifications shall be kept at the Premises and Tenant shall update them as often as necessary to keep them current. The as-built drawings and annotated plans and specifications shall be made available for copying and inspection by Landlord at all reasonable times.

(g) Upon completion of the construction of any Alterations in excess of Ten Thousand Dollars ($10,000) during the Term, Tenant shall file for recordation, or cause to be filed for recordation, a notice of completion and shall deliver to Landlord evidence satisfactory to Landlord of payment of all costs, expenses, liabilities and liens arising out of or in any way connected with such construction (except for liens that are contested in the manner provided herein).

9.3 Ownership of Improvements . Except as provided in Section 9.4, all Alterations, and any other appurtenances, fixtures, improvements, equipment, additions and property permanently attached to or installed in or on the Premises at the commencement of or during the Term, shall at the end of the Term become Landlord’s property without compensation to Tenant, or be removed in accordance with this Section. Upon written request by Tenant, Landlord shall notify Tenant in writing at the time of Landlord’s approval of the Alterations whether or not the proposed Alterations will be required to be removed by Tenant at the end of the Term and Tenant shall have no obligation to remove any Alterations that Landlord has not designated in writing for removal. Tenant shall repair or pay the cost of repairing any damage to the Premises caused by the removal of Alterations. If Tenant fails to perform its repair obligations, without limiting any other right or remedy, Landlord may on five (5) business days prior written notice to Tenant perform such obligations at Tenant’s expense and Tenant shall reimburse Landlord within twenty (20) days after demand for all out-of-pocket costs and expenses incurred by Landlord in connection with such repair. Tenant’s obligations under this Section shall survive the termination of this Lease.

 

-9-


9.4 Tenant’s Personal Property . All inventory, furniture, trade fixtures, furnishings, equipment and articles of movable personal property installed in or on the Premises by or for the account of Tenant (except for ceiling and related fixtures, HVAC equipment and floor coverings, which shall become the property of Landlord at the end of the Term), and which can be removed without structural or other material damage to the Premises (collectively, “ Tenant’s Property ”) shall be and remain the property of Tenant and may be removed by it at any time during the Term. Tenant shall remove from the Premises all Tenant’s Property on or before the Termination Date, except such items as the parties have agreed pursuant to the provisions of this Lease or by separate agreement are to remain and to become the property of Landlord. Tenant shall repair or pay the cost of repairing any damage to the Premises resulting from such removal, and the provisions of Section 9.3 above shall apply in the event Tenant fails to do so. Any items of Tenant’s Property which remain in the Premises after the Termination Date may, on five (5) business days prior written notice to Tenant, at the option of Landlord, be deemed abandoned and in such case may either be retained by Landlord as its property or be disposed of, without accountability, at Tenant’s expense in such manner as Landlord may see fit.

10. LIENS

Tenant shall keep the Premises free from any liens arising out of any work performed, material furnished or obligations incurred by or for Tenant. If Tenant shall not, within ten (10) days following notice of the imposition of any such lien, cause the lien to be released of record by payment or posting of a proper bond, Landlord shall have, in addition to all other remedies provided in this Lease and by law, the right but not the obligation to cause any such lien to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All such sums paid by Landlord and all expenses incurred by it in connection therewith (including, without limitation, reasonable counsel fees) shall be payable to Landlord by Tenant upon demand with interest from the date incurred at the Interest Rate. Landlord shall have the right at all times to post and keep posted on the Premises any notices permitted or required by law or that Landlord shall deem proper for the protection of Landlord and the Premises from mechanics’ and materialmen’s liens.

11. COMPLIANCE WITH LAWS AND INSURANCE REQUIREMENTS

11.1 Applicable Laws . Tenant, at Tenant’s cost and expense, shall comply with all applicable laws, statutes, codes, ordinances, orders, rules, regulations, conditions of approval, and requirements, of all federal, state, county, municipal and other governmental authorities and the departments, commissions, boards, bureaus, instrumentalities, and officers thereof, and all administrative or judicial orders or decrees and all permits, licenses, approvals and other entitlements issued by governmental entities, and rules of common law, relating to or affecting the Premises or the use, operation or occupancy of the Premises, whether now existing or hereafter enacted (collectively, “ Applicable Laws ”). Without limiting the foregoing, Tenant shall be solely responsible for compliance with and shall make or cause to be made all such improvements and alterations to the Premises (including, without limitation, removing barriers and providing alternative services) as shall be required to comply with all applicable building codes, laws and ordinances relating to public accommodations, including the Americans with Disabilities Act of 1990, 42 U.S.C. §§ 12111 et seq. (the “ ADA ”), and the ADA Accessibility Guidelines promulgated by the Architectural and Transportation Barriers

 

-10-


Compliance Board, the public accommodations title of the Civil Rights Act of 1964, 42 U.S.C. §§ 2000a et. seq., the Architectural Barriers Act of 1968, 42 U.S.C. §§ 4151 et. seq., as amended, Title V of the Rehabilitation Act of 1973, 29 U.S.C. §§ 790 et. seq., the Minimum Guidelines and

Requirements for Accessible Design, 36 C.F.R. Part 1190, the Uniform Federal Accessibility Standards, and Title 24 of the California Code of Regulations, as the same may be amended from time to time, or any similar or successor laws, ordinances and regulations, now or hereafter adopted. Tenant’s liability shall be primary and Tenant shall indemnify Landlord in accordance with Section 13.1 in the event of any failure or alleged failure of Tenant to comply with Applicable Laws. Any work or installations made or performed by or on behalf of Tenant or any person or entity claiming through or under Tenant pursuant to the provisions of this Section shall be made in conformity with and subject to the provisions of Article 9.

11.2 Insurance Requirements . Tenant shall not do anything, or permit anything to be done, in or about the Premises that would: (a) invalidate or be in conflict with the provisions of or cause any increase in the applicable rates for any fire or other insurance policies covering the Premises or any property located thereon (unless Tenant pays for such increased costs), or (b) result in a refusal by fire insurance companies of good standing to insure the Premises or any such property in amounts reasonably satisfactory to Landlord, or (c) subject Landlord to any liability or responsibility for injury to any person or property by reason of any business operation being conducted in the Premises. Tenant, at Tenant’s expense, shall comply with all rules, orders, regulations or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body that shall hereafter perform the function of such Association.

12. HAZARDOUS MATERIALS

12.1 Definitions . As used in this Lease, the following terms shall have the following meanings:

(a) Environmental Activity ” means any use, treatment, keeping, storage, holding, release, emission, discharge, manufacturing, generation, processing, abatement, removal, disposition, handling, transportation, deposit, leaking, spilling, injecting, dumping or disposing of any Hazardous Materials from, into, on or under the Premises, and shall exclude the mere discovery of a pre-existing contamination, but include the exacerbation of any pre-existing contamination by Tenant or any of Tenant’s Agents.

(b) Environmental Laws ” mean all Applicable Laws, now or hereafter in effect, relating to environmental conditions, industrial hygiene or Hazardous Materials on, under or about the Premises, including without limitation the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Solid Waste Disposal Act, 42 U.S.C. Section 6901, et seq., the Clean Water Act, 33 U.S.C. Section 1251, et seq., the Clean Air Act, 42 U.S.C. Section 7401, et seq., the Toxic Substances Control Act, 15 U.S.C. Section 2601 through 2629, the Safe Drinking Water Act, 42 U.S.C. Sections 300f through 300j, and any similar state and local laws and ordinances and the regulations now or hereafter adopted and published and/or promulgated pursuant thereto.

(c) Hazardous Material ” means any chemical, substance, medical or other waste, living organist or combination thereof which is or may be hazardous to the environment or human or animal health or safety- due to its radioactivity, ignitability, corrosivity,

 

-11-


reactivity, explosivity, toxicity, carcinogenicity, mutagenicity, phytotoxicity, infectiousness or other harmful or potentially harmful properties or effects. Hazardous Materials shall include, without limitation, petroleum hydrocarbons, including MTBE, crude oil or any fraction thereof, asbestos, radon, polychlorinated biphenyls (PCBs), methane, lead, urea, formaldehyde foam insulation, microbial matter (including mold) and all substances which now or in the future may be defined as “hazardous substances,” “hazardous wastes,” “extremely hazardous wastes,” “hazardous materials,” “toxic substances,” “infectious wastes,” “biohazardous wastes,” “medical wastes,” “radioactive wastes” or which are otherwise listed, defined or regulated in any manner pursuant to any Environmental Laws.

(d) Tenant’s Hazardous Materials ” means any Hazardous Materials resulting from the Environmental Activity by Tenant or any of Tenant’s Agents.

12.2 Environmental Release . Landlord hereby informs Tenant that detectable amounts of Hazardous Materials may have come to be located on, beneath and/or in the vicinity of the Premises. Tenant has made such investigations and inquiries as it deems appropriate to ascertain the effects, if any, of such substances and contaminants on its operations and persons using the Premises. Landlord makes no representation or warranty with regard to the environmental condition of the Premises. Tenant hereby releases Landlord and Landlord’s officers, directors, trustees, agents and employees from any and all claims, demands, debts, liabilities, and causes of action of whatever kind or nature, whether known or unknown or suspected or unsuspected which Tenant or any of Tenant’s Agents may have, claim to have, or which may hereafter accrue against the released parties or any of them, arising out of or relating to or in any way connected with Hazardous Materials presently in, on or under, or now or hereafter emanating from or migrating onto the Premises (except to the extent caused by the willful misconduct or gross negligence of Landlord or Landlord’s Agents during the Term. In connection with such release, Tenant hereby waives any and all rights conferred upon it by the provisions of Section 1542 of the California Civil Code, which reads as follows:

A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor.

12.3 Use of Hazardous Materials . Tenant shall not cause or permit any Hazardous Materials to be used, stored, discharged, released or disposed of in the Premises or cause any Hazardous Materials to be used, stored, discharged, released or disposed of in, from, under or about, the Premises, or any other land or improvements in the vicinity of the Premises, excepting only the types and minor quantities of Hazardous Materials which are normally used in connection with Tenant’s permitted use of the Premises and then only in strict accordance with all Applicable Laws, including all Environmental Laws. As of the Commencement Date, Tenant shall provide Landlord a complete list of all Hazardous Materials (including MSDS sheets for all such Hazardous Materials) used or stored by Tenant or any of Tenant’s Agents or subtenants at the Premises, excluding standard janitorial and office products. Throughout the Term, Tenant shall continue to update this list so that it remains current. Without limiting the foregoing, Tenant shall, at its own expense, procure, maintain in effect and comply with all conditions of any and all permits, licenses, and other governmental and regulatory approvals required for Tenant’s use of Hazardous Materials at the Premises, including, without limitation, discharge of appropriately treated materials or wastes into or through any sanitary sewer serving the Premises. Tenant shall in all respects handle, treat, deal with and manage any and all Tenant’s Hazardous Materials in total conformity with all Environmental Laws and prudent industry practices regarding management of such Hazardous Materials.

 

-12-


12.4 Remediation of Hazardous Materials . Tenant shall, upon demand of Landlord, and at Tenant’s sole cost and expense, promptly take all actions to remediate the Premises from the effects of any Tenant’s Hazardous Materials. Such actions shall include, but not be limited to, the investigation of the environmental condition of the Premises, the preparation of any feasibility studies, reports or remedial plans, and the performance of any cleanup, remediation, containment, operation, maintenance, monitoring or restoration work, whether on or off of the Premises, Tenant shall take all actions necessary to remediate the Premises from the effects of such Tenant’s Hazardous Materials to a condition allowing the current use of the Premises, notwithstanding any lesser standard of remediation allowable. under Applicable Laws. All work shall be performed by one or more contractors selected by Tenant and reasonably approved in advance and in writing by Landlord. Tenant shall proceed continuously and diligently with such investigatory and remedial actions, provided that in all cases such actions shall be in accordance with all Applicable Laws. Any such actions shall be performed in a good, safe and workmanlike manner. Tenant shall pay all costs in connection with such investigatory and remedial activities, including but not limited to all power and utility costs, and any and all taxes or fees that may be applicable to such activities. Tenant shall promptly provide to Landlord copies of testing results and reports that are generated in connection with the above activities and any that are submitted to any governmental entity. Promptly upon completion of such investigation and remediation, Tenant shall permanently seal or cap all monitoring wells and test holes in accordance with sound engineering practice and in compliance with Applicable Laws, remove all associated equipment, and restore the Premises to the maximum extent possible, which shall include, without limitation, the repair of any surface damage, including paving, caused by such investigation or remediation.

12.5 Indemnity . Tenant shall indemnify, defend (by counsel reasonably acceptable to Landlord), protect and hold Landlord and Landlord’s trustees, directors, officers, agents and employees and their respective successors and assigns (collectively, “ Landlord’s Agents ”), free and harmless from and against any and all claims, liabilities, penalties, forfeitures, losses or expenses (including reasonable attorneys’ and consultants’ fees and oversight and response costs) to the extent arising from (a) Environmental Activity by Tenant or Tenant’s Agents; or (b) failure of Tenant or Tenant’s Agents to comply with any Environmental Law with respect to Tenant’s Environmental Activity; or (c) Tenant’s failure to remove Tenant’s Hazardous Materials as required in Section 12.4. Tenant’s obligations hereunder shall include, but not be limited to, the burden and expense of defending all claims, suits and administrative proceedings (with counsel reasonably approved by Landlord), even if such claims, suits or proceedings are groundless, false or fraudulent; conducting all negotiations of any description; and promptly paying and discharging when due any and all judgments, penalties, fines or other sums due against or from Landlord or the Premises. Prior to retaining counsel to defend such claims, suits or proceedings, Tenant shall obtain Landlord’s written approval of the identity of such counsel, which approval shall not be unreasonably withheld, conditioned or delayed. In the event Tenant’s failure to surrender the Premises at the expiration or earlier termination of this Lease free of Tenant’s Hazardous Materials prevents Landlord from reletting the Premises, or reduces the fair market and/or rental value of the Premises or any portion thereof, Tenant’s indemnity obligations shall include all losses to Landlord arising therefrom.

12.6 No Lien . Tenant shall not suffer any lien to be recorded against the Premises as a consequence of any Tenant’s Hazardous Materials, including any so-called state, federal or local “super fund” lien related to the remediation of any Tenant’s Hazardous Materials in or about the Premises.

 

-13-


12.7 Investigation . Landlord shall have the right to enter and conduct an inspection of the Premises, including invasive tests, at any reasonable time and upon reasonable advance notice, to determine whether Tenant is complying with the terms of this Lease, including but not limited to the compliance of the Premises and the activities thereon with Environmental Laws (the “ Environmental Investigation ”). Landlord shall have the right, but not the obligation, to retain at its expense an independent professional consultant to enter the Premises to conduct such an inspection, and to review any report prepared by or for Tenant concerning such compliance. In the event the Environmental Investigation identifies any deficiencies in the compliance of the Premises with Environmental Laws due to any Environmental Activity by Tenant or Tenant’s Agents, Tenant shall promptly correct any such deficiencies identified in the Environmental Investigation, and document to Landlord that corrective action has been taken. In such event, Tenant shall also reimburse Landlord for the reasonable cost of the Environmental Investigation. If the Environmental Investigation identifies any such deficiency in compliance of the Premises with Environmental Laws due to any Environmental Activity by Tenant or Tenant’s Agents, then, within nine (9) months of the date of the Environmental Investigation, Landlord may request a detailed review of the status of such violation by a consultant selected by Landlord (the “ Supplemental Investigation ”). Tenant shall pay for the reasonable cost of any Supplemental Investigation. A copy of the Supplemental Investigation shall be promptly supplied to Landlord and Tenant when it becomes available.

12.8 Right to Remediate . Should Tenant fail to perform or observe any of its obligations or agreements pertaining to Hazardous Materials or Environmental Laws, then Landlord shall have the right, but not the obligation, without limitation of any other rights of Landlord hereunder, to enter the Premises personally or through Landlord’s agents, employees and contractors and perform the same. Tenant agrees to indemnify Landlord for the costs thereof and liabilities therefrom as set forth above in this Article 12.

12.9 Notices . Tenant shall immediately notify Landlord of any inquiry, test, claim, investigation or enforcement-proceeding by or against Tenant or the Premises known to Tenant concerning any Hazardous Materials. Tenant shall immediately notify Landlord of any release or discharge of Hazardous Materials on, in under or about the Premises. Tenant acknowledges that Landlord, as the owner of the Premises, shall have the sole right at its election and at Tenant’s expense, to negotiate, defend, approve and appeal any action taken or order issued with regard to Tenant’s Hazardous Materials by any applicable governmental authority.

12.10 Surrender . Tenant shall surrender the Premises to Landlord, upon the expiration or earlier termination of the Lease, free of Tenant’s Hazardous Materials in accordance with the provisions of this Article 12.

12.11 Survival; Insurance . The provisions of this Article 12 shall survive the expiration or earlier termination of this Lease. The provisions of Article 13 (insurance) shall not limit in any way Tenant’s obligations under this Article 12.

 

-14-


13. INDEMNITY; INSURANCE

13.1 Indemnity . Tenant shall indemnify, protect, defend and save and hold Landlord and Landlord’s Agents harmless from and against any and all losses, costs, liabilities, claims, judgments, liens, damages (including consequential damages) and expenses, including, without limitation, reasonable attorneys’ fees and costs, and reasonable investigation costs, incurred in connection with or arising from: (a) any default by Tenant in the observance or performance of any of the terms, covenants or conditions of this Lease on Tenant’s part to be observed or performed, or (b) the use or occupancy or manner of use or occupancy of the Premises by Tenant and Tenant’s Agents, (c) the condition of the Premises, and any occurrence on the Premises (including injury to or death of any person, or damage to property) from any cause whatsoever, and (d) any acts or omissions or negligence of Tenant or of Tenant’s Agents, in, on or about the Premises. In case any action or proceeding be brought, made or initiated against Landlord relating to any matter covered by Tenant’s indemnification obligations under this Section or under Section 12.5, Tenant, upon notice from Landlord, shall at its sole cost and expense, resist or defend such claim, action or proceeding by counsel reasonably approved by Landlord. Notwithstanding the foregoing, Landlord may retain its own counsel to defend or assist in defending any claim, action or proceeding involving potential liability of Five Million Dollars ($5,000,000) or more, and Tenant shall pay the reasonable fees and disbursements of such counsel. Tenant’s obligations under this Section shall survive the expiration or earlier termination of this Lease. Notwithstanding anything to the contrary contained in this Lease, Landlord shall not be indemnified for any losses, damages, liabilities, judgments, actions, claims, attorneys’ fees, costs and expenses arising from the gross negligence or willful misconduct of Landlord and Landlord’s Agents.

13.2 Insurance . Tenant shall procure at its sole cost and expense and keep in effect during the Term:

(a) all risk, fire, earthquake, flood and other perils, including extended coverage insurance on all buildings and other improvements. The amount of such insurance shall be the Full Insurable Replacement Value. Each such policy shall specify that proceeds shall be payable whether or not any improvements are actually rebuilt. Each such policy shall include an endorsement protecting the named and additional insureds against becoming a co- insured under the policy. Tenant hereby waives as against Landlord any and all claims and demands, of whatever nature, for damages, loss or injury to the improvements and to the property of Tenant in, upon or about the Premises caused by or resulting from fire and/or other insured perils. “ Full Insurable Replacement Value ” means 100% of the actual costs to replace the building and improvements (without deduction for depreciation but with standard exclusions such as foundations, excavations, paving and landscaping, as applicable to specific perils), including the costs of demolition and debris removal and including materials and equipment not in place but in transit to or delivered to the Premises. The Full Insurable Replacement Value shall be determined by Landlord. Tenant shall maintain coverage at the current Full Insurable Replacement Value throughout the Term, subject to reasonable deductibles approved by Landlord in writing.

(b) commercial general liability insurance covering Tenant’s operations in the Premises and the use and occupancy of the Premises and any part thereof by Tenant. Such insurance shall include broad form contractual liability insurance coverage insuring Tenant’s obligations under this Lease. Such coverage shall be written on an “occurrence” form and shall have a minimum combined single limit of liability of not less than five million dollars ($5,000,000.00). Tenant’s policy shall be written to apply to all bodily injury,

 

-15-


property damage, personal injury and other covered loss (however occasioned) occurring during the policy term, with at least the following endorsements to the extent such endorsements are generally available: (i) deleting any employee exclusion on personal injury coverage, (ii) including employees as additional insureds, (iii) providing broad form property damage coverage and products completed operations coverage (where applicable), and (iv) deleting any liquor liability exclusions. Such insurance shall name Landlord and any other party designated by Landlord as an additional insured, shall specifically include the liability assumed hereunder by Tenant, shall provide that it is primary insurance, shall provide for severability of interests, shall further provide that an act or omission of one of the named insureds which would void or otherwise reduce, coverage shall not reduce or void the coverage as to any insured, shall afford coverage for claims based on acts, omissions, injury or damage which occurred or arose (or the onset of which occurred or arose in whole or in part during the policy period), and shall provide that Landlord will receive thirty (30) days’ written notice from the insurer prior to any cancellation or material change of coverage;

(c) commercial property insurance, including sprinkler leakages, vandalism and malicious mischief and plate glass damage covering all the items specified as Tenant’s Property and all other property of every description including stock-in-trade, furniture, fittings, installations, alterations, additions, partitions and fixtures or anything in the nature of a leasehold improvement made or installed by or on behalf of the Tenant in the Premises in an amount of not less than one hundred percent (100%) of the full replacement cost thereof as shall from time to time be determined by Tenant in form reasonably satisfactory to Landlord;

(d) Worker’s Compensation Insurance in the amounts and coverages required under worker’s compensation, disability and similar employee benefit laws applicable to Tenant and/or the Premises from time to time, and Employer’s Liability Insurance, with limits of not less than one million dollars ($1,000,000) or such higher amounts as may be required by law;

(e) business income insurance with extra expense insurance in an amount sufficient to insure payment of Rent for a period of not less than twelve (12) months during any interruption of Tenant’s business by reason of the Premises or Tenant’s Property being damaged by casualty; and

(f) any other form or forms of insurance as Landlord may reasonably require from time to time in amounts and for insurable risks against which a prudent tenant would protect itself to the extent landlords of comparable buildings in the vicinity of the Premises require their tenants to carry such other form(s) of insurance.

13.3 Policies . All policies of insurance required of Tenant shall be issued by insurance companies with general policyholders’ rating of not less than A, as rated in the most current available “Best’s Insurance Reports,” and not prohibited from doing business in the State of California, and shall, with the exception of Workers Compensation Insurance, include as additional insureds Landlord, and such other persons or entities as Landlord specifies from time to time. Such policies, with the exception of Worker’s Compensation Insurance, shall be for the mutual and joint benefit and protection of Landlord, Tenant and others specified by Landlord. Executed copies of Tenant’s policies of insurance or certificates thereof shall be delivered to Landlord within ten (10) days prior to the delivery of possession of the Premises to Tenant and thereafter within thirty (30) days prior to the expiration of the term of each such policy. All commercial general liability and property damage policies shall contain a provision that Landlord and any other additional insured, although named as additional insureds, shall

 

-16-


nevertheless be entitled to recover under said policies for a covered loss occasioned by it, its servants, agents and employees, by reason of Tenant’s negligence. As often as any policy shall expire or terminate, renewal or additional policies shall be procured and maintained by Tenant in like manner and to like extent. All such policies of insurance shall provide that the company writing said policy will give to Landlord thirty (30) days notice in writing in advance of any cancellation or lapse or of the effective date of any reduction in the amounts of insurance. All commercial general liability, property damage and other casualty policies shall be written on an occurrence basis. Landlord’s coverage shall not be contributory.

13.4 Landlord’s Rights . Should Tenant fail to take out and keep in force each insurance policy required under this Article 13, or should such insurance not be approved by Landlord and should the Tenant not rectify the situation within two (2) business days after written notice from Landlord to Tenant, Landlord shall have the right, without assuming any obligation in connection therewith, to purchase such insurance at the sole cost of Tenant, and all costs incurred by Landlord shall be payable to Landlord by Tenant within twenty (20) days after demand as Additional Rent and without prejudice to any other rights and remedies of Landlord under this Lease.

13.5 Waiver of Subrogation . Notwithstanding anything to the contrary contained herein, to the extent permitted by their respective policies of insurance and to the extent of insurance proceeds received (or which would have been received had the party carried the insurance required by this Lease) with respect to the loss, Landlord and Tenant each hereby waive any right of recovery against the other party and against any other party maintaining a policy of insurance with respect to the Premises or any portion thereof or the contents of the Premises or the buildings located thereon for any loss or damage sustained by such other party with respect to the Premises or the buildings or other improvements thereon, or any portion thereof, or the contents of the same or any operation therein, whether or not such loss is caused by the fault or negligence of such other party. Either party shall notify the other party if the policy of insurance carried by it does not permit the foregoing waiver.

13.6 No Liability . No approval by Landlord of any insurer, or the terms or conditions of any policy, or any coverage or amount, of insurance, or any deductible amount shall be construed as a representation by Landlord of the solvency of the insurer or the sufficiency of any policy or any coverage or amount of insurance or deductible and Tenant assumes full risk and responsibility for any inadequacy of insurance coverage or any failure of insurers.

14. ASSIGNMENT AND SUBLETTING

14.1 Consent Required . Tenant shall not directly or indirectly, voluntarily or by operation of law, sell, assign, encumber, pledge or otherwise transfer or hypothecate all or any part of its interest in or rights with respect to the Premises or its leasehold estate (collectively, “ Assignment ”), or permit all or any portion of the Premises to be occupied by anyone other than itself or sublet all or any portion of the Premises (collectively, “ Sublease ”) without Landlord’s prior written consent, which consent may be withheld in Landlord’s sole and absolute discretion.

14.2 Notice . If Tenant desires to enter into a Sublease of all or any portion of the Premises or Assignment of this Lease (except as provided in Section 14.8), it shall give written notice (the “ Transfer Notice ”) to Landlord of its intention to do so, which notice shall contain (a) the name and address of the proposed assignee, subtenant or occupant (the “ Transferee ”), (b) the nature of the proposed Transferee’s business to be carried on in the Premises, (c) the terms and provisions of the proposed Assignment or Sublease, and (d) such financial information as Landlord may reasonably request concerning the proposed Transferee.

 

-17-


14.3 approval within fifteen (15) business days after receipt of the Transfer Notice. If Landlord approves the proposed Assignment or Sublease, Tenant may, not later than thirty (30) days thereafter, enter into the Assignment or Sublease with the proposed Transferee upon the terms and conditions set forth in the Transfer Notice.

14.4 Excess Rent . For any Assignment or Sublease (other than a Permitted Transfer under Section 14.7), fifty percent (50%) of the Excess Rent received by Tenant shall be paid to Landlord as and when received by Tenant. “ Excess Rent ” means the gross revenue received from the Transferee during the Sublease term or with respect to the Assignment, less (a) the gross revenue received by Landlord from Tenant during the period of the Sublease term or concurrently with or after the Assignment; (b) any reasonably documented tenant improvement allowance or other economic concession (planning allowance, moving expenses, etc.), paid by Tenant to or on behalf of the Transferee; (d) customary and reasonable external brokers’ commissions to the extent paid and documented; (e) reasonable attorneys’ fees; and (f) reasonable costs of advertising the space for Sublease or Assignment (collectively, “ Transfer Costs ”). Tenant shall not be required to pay to Landlord any Excess Rent until Tenant has recovered its Transfer Costs.

14.5 Right of First Refusal . Except for Permitted Transfers, if Tenant desires to assign Tenant’s interest in the Premises or to sublease any portion of the Premises (collectively, a “ Transfer ”), Tenant’s Transfer Notice shall also include a written offer that includes all of the substantial business terms that Tenant has offered to a Transferee and shall offer to Transfer to Landlord, Tenant’s interest in the portion of the Premises offered to the Transferee on such terms and conditions (the “ Offer ”). Landlord shall have fifteen (15) days from Landlord’s receipt of the Offer to accept the Offer by written notice to Tenant or to approve or disapprove the Transfer as provided in Section 14.3. If Landlord accepts the Offer, Landlord and Tenant shall consummate the Transfer within fifteen (15) days after Landlord’s written notice of acceptance. The Transfer shall be consummated by Tenant’s delivery to Landlord of a good and sufficient assignment of lease or sublease. If Landlord does not accept the Offer, but approves the Transfer, then in the event the terms of the Transfer are materially changed during subsequent negotiations to be more favorable to the Transferee, Tenant shall again deliver to Landlord an Offer in accordance with this Section, offering the interest to Landlord on such more favorable terms. Landlord shall then have another period of fifteen (15) days after receipt of such Offer to accept such Offer.

14.6 No Release . No Sublease or Assignment by Tenant nor any consent by Landlord thereto shall relieve Tenant of any obligation to be performed by Tenant under this Lease. Any Sublease or Assignment that is not in compliance with this Article shall be null and void and, at the option of Landlord, shall constitute an Event of Default by Tenant under this Lease, and Landlord shall be entitled to pursue any right or remedy available to Landlord under the terms of this Lease or under the laws of the State of California. The acceptance of any Rent or other payments by Landlord from a proposed Transferee shall not constitute consent to such Sublease or Assignment by Landlord or a recognition of any Transferee, or a waiver by Landlord of any failure of Tenant or other Transferor to comply with this Article.

14.7 Assumption of Obligations . Any Transferee shall, from and after the effective date of the Assignment, assume all obligations of Tenant under this Lease with respect to the Transferred Space and shall be and remain liable jointly and severally with Tenant for the

 

-18-


payment of Base Rent and Additional Rent, and for the performance of all of the terms, covenants, conditions and agreements herein contained on Tenant’s part to be performed for the Term. No Assignment shall be binding on Landlord unless Tenant delivers to Landlord a counterpart of the Assignment and an instrument that contains a covenant of assumption reasonably satisfactory in substance and form to Landlord, and consistent with the requirements of this Section.

15. DEFAULT

15.1 Event of Default . The occurrence of any of the following shall be an “ Event of Default ” on the part of Tenant:

(a) Failure to pay any part of the Base Rent or Additional Rent, or any other sums of money that Tenant is required to pay under this Lease where such failure continues for a period of five (5) days after written notice of default from Landlord to Tenant. Landlord’s notice to Tenant pursuant to this subsection shall be deemed to be the notice required under California Code of Civil Procedure Section 1161.

(b) Failure to perform any other covenant, condition or requirement of this Lease when such failure shall continue for a period of thirty (30) days after written notice thereof from Landlord to Tenant; provided that if the nature of the default is such that more than thirty (30) days are reasonably required for its cure, then an Event of Default shall not be deemed to have occurred if Tenant shall commence such cure within said thirty (30) day period and thereafter diligently and continuously prosecute such cure to completion. Landlord’s notice to Tenant pursuant to this subsection shall be deemed to be the notice required under California Code of Civil Procedure Section 1161.

(c) The abandonment or vacating of the Premises by Tenant.

(d) Tenant shall admit in writing its inability to pay its debts generally as they become due, file a petition in bankruptcy, insolvency, reorganization, dissolution or liquidation under any law or statute of any government or any subdivision thereof either now or hereafter in effect, or Tenant shall make an assignment for the benefit of its creditors, consent to or acquiesce in the appointment of a receiver of itself or of the whole or any substantial part of the Premises.

(e) A court of competent jurisdiction shall enter an order, judgment or decree appointing a receiver of Tenant or of the whole or any substantial part of the Premises and such order, judgment or decree shall not be vacated, set aside or stayed within thirty (30) days after the date of entry of such order, judgment, or decree, or a stay thereof shall be thereafter set aside.

(f) A court of competent jurisdiction shall enter an order, judgment or decree approving a petition filed against Tenant under any bankruptcy, insolvency, reorganization, dissolution or liquidation law or statute of the federal or state government or any subdivision of either now or hereafter in effect, and such order, judgment or decree shall not be vacated, set aside or stayed within thirty (30) days from the date of entry of such order, judgment or decree, or a stay thereof shall be thereafter set aside.

 

-19-


15.2 Remedies . Upon the occurrence of an Event of Default, Landlord shall have the following rights and remedies:

(a) The right to terminate this Lease upon written notice to Tenant, in which event Tenant shall immediately surrender possession of the Premises in accordance with Article 20.

(b) The right to bring a summary action for possession of the Premises.

(c) The rights and remedies described in California Civil Code Section 1951.2, pursuant to which Landlord may recover from Tenant upon a termination of the Lease, (i) the worth at the time of award of the unpaid rent which has been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award Exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (iii) the worth at the time of the award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; and (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or which in the ordinary course of events would be likely to result therefrom. The “worth at the time of award” of the amounts referred to in (i) and (ii) above is computed by allowing interest at the rate of ten percent (10%) per annum. The “worth at the time of award” of the amount referred to in (iii) above shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). The detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or which in the ordinary course of events would be likely to result therefrom includes, without limitation, (1) the unamortized portion of any brokerage or real estate agent’s commissions paid in connection with the execution of this Lease, (2) any direct costs or expenses incurred by Landlord in recovering possession of the Premises, maintaining or preserving the Premises after such default, (3) preparing the Premises for reletting to a new tenant (excluding the costs of any tenant improvements), (4) any repairs or alterations to the Premises for such reletting, (5) leasing commissions, architect’s fees and any other costs necessary or appropriate either to relet the Premises or, if reasonably necessary in order to relet the Premises, to adapt them to another beneficial use by Landlord and (6) such amounts in addition to or in lieu of the foregoing as may be permitted from time to time by Applicable Law to the extent that such payment would not result in a duplicative recovery.

(d) The rights and remedies described in California Civil Code Section 1951.4 which allow Landlord to continue this Lease in effect and to enforce all of Landlord’s rights and remedies under this Lease, including the right to recover Base Rent, Additional Rent and other charges payable hereunder as they become due. Acts of maintenance or preservation, efforts to relet the Premises or the appointment of a receiver upon Landlord’s initiative to protect its interest under this Lease shall not constitute a termination of Tenant’s right to possession.

(e) The right and power, as attorney-in-fact for Tenant, to sublet the Premises, to collect rents from all subtenants and to provide or arrange for the provision of all services and fulfill all obligations of Tenant under any permitted subleases. Landlord is hereby authorized on behalf of Tenant, but shall have absolutely no obligation, to provide such services and fulfill such obligations and to incur all such expenses and costs as Landlord deems necessary. Landlord is hereby authorized, but not obligated, to relet the Premises or any part

 

-20-


thereof on behalf of Tenant, to incur such expenses as may be necessary to effect a relet and make said relet for such term or terms, upon such conditions and at such rental as Landlord in its reasonable discretion may deem proper. Tenant shall be liable immediately to Landlord for all costs and expenses Landlord incurs in reletting the Premises including, without limitation, brokers’ commissions, expenses of remodeling the Premises required by the reletting, and the cost of collecting rents and fulfilling the obligations of Tenant to any subtenant. If Landlord relets the Premises or any portion thereof, such reletting shall not relieve Tenant of any obligation hereunder, except that Landlord shall apply the rent or other proceeds actually collected by it as a result of such reletting against any amounts due from Tenant hereunder to the extent that such rent or other proceeds compensate Landlord for the nonperformance of any obligation of Tenant hereunder. Such payments by Tenant shall be due at such times as are provided elsewhere in this Lease, and Landlord need not wait until the termination of this Lease, by expiration of the Term or otherwise, to recover them by legal action or in any other manner. Landlord may execute any sublease made pursuant to this Section in its own name, and the tenant thereunder shall be under no obligation to see to the application by Landlord of any rent or other proceeds, nor shall Tenant have any right to collect any such rent or other proceeds. Landlord shall not by any reentry or other act be deemed to have accepted any surrender by Tenant of the Premises or Tenant’s interest therein, or be deemed to have otherwise terminated this Lease, or to have relieved Tenant of any obligation hereunder, unless Landlord shall have given Tenant express written notice of Landlord’s election to do so as set forth herein.

(f) The right to enjoin, and any other remedy or right now or hereafter available to a Landlord against a defaulting tenant under the laws of the State of California or the equitable powers of its courts, and not otherwise specifically reserved herein.

(g) If this Lease provides for a postponement of deferral of any Rent, or for commencement of payment of Rent to a date later than the Commencement Date, or for a period of “free” Rent or any other Rent concession (collectively, “ Abated Rent ”), the right upon an Event of Default to demand immediate payment of the value of the Abated Rent.

15.3 Cumulative Remedies . The various rights and remedies reserved to Landlord, including those not specifically described herein, shall, to the extent that the exercise of such right and/or remedy does not result in a duplicative recovery, be cumulative and shall be in addition to every other right or remedy provided for in this Lease or now or hereafter existing at law or in equity and the exercise of the rights or remedies provided for in this Lease or now or hereafter existing at law or in equity shall not preclude the simultaneous or later exercise by Landlord of any or all other rights and remedies.

15.4 Waiver of Redemption by Tenant . Tenant hereby waives any right to relief against forfeiture of this Lease pursuant to California Code of Civil Procedure Section 1179.

15.5 Landlord’s Right to Cure . If Tenant shall fail or neglect to do or perform any covenant or condition required under this Lease and such failure shall not be cured within any applicable grace period, Landlord may, on five (5) business days written notice to Tenant, but shall not be required to, make any payment payable by Tenant hereunder, discharge any lien, take out, pay for and maintain any insurance required hereunder, or do or perform or cause to be done or performed any such other act or thing (entering upon the Premises for such purposes, if Landlord shall so elect), and Landlord shall not be or be held liable or in any way responsible for any loss, disturbance, inconvenience, annoyance or damage resulting to Tenant on account thereof. Tenant shall repay to Landlord within twenty (20) days after demand the entire out-of-pocket cost and expense incurred by Landlord in connection with the cure, including,

 

-21-


without limitation, compensation to the agents, consultants and contractors of Landlord and reasonable attorneys’ fees and expenses. Landlord may act upon shorter notice or no notice at all if necessary in Landlord’s reasonable judgment to meet an emergency situation or governmental or municipal time limitation or to protect Landlord’s interest in the Premises. Landlord shall not be required to inquire into the correctness of the amount of validity or any tax or lien that may be paid by Landlord and Landlord shall be duly protected In paying the amount of any such tax or lien claimed and in such event Landlord also shall have the full authority, in Landlord’s sole judgment and discretion and without prior notice to or approval by Tenant, to settle or compromise any such lien or tax. Any act or thing done by Landlord pursuant to the provisions of this Section shall not be or be construed as a waiver of any such failure by Tenant, or as a waiver of any term, covenant, agreement or condition herein contained or of the performance thereof.

15.6 Landlord’s Default . Landlord shall be in default under this Lease if Landlord fails to perform obligations required of Landlord within thirty (30) days after written notice by Tenant to Landlord and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have heretofore been furnished to Tenant in writing, specifying wherein Landlord has failed to perform such obligations; provided, however, that if the nature of Landlord’s obligations is such that more than thirty (30) days are required for performance, then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. Tenant shall be entitled to actual (but not consequential) damages in the event of an uncured default by Landlord, but the provisions of Article 17 shall apply to any Landlord default and Tenant shall not have the right to terminate this Lease as a result of a Landlord default.

16. LANDLORD’S RESERVED RIGHTS

16.1 Alterations to Premises . Landlord reserves the right, at any time and from time to time, to make alterations, additions, repairs, replacements or improvements to all or any part of the Premises, for any reasonable purpose, and no such change shall entitle Tenant to any abatement of rent or damages; provided, however, that Landlord shall use reasonable efforts not to materially adversely affect Tenant’s use of the Premises.

16.2 Access . Landlord reserves (for itself and its agents, consultants, contractors and employees) the right to enter the Premises at all reasonable times and, except in cases of emergency, after giving Tenant reasonable notice, to inspect the Premises (including, without limitation, environmental testing); to supply any service to be provided by Landlord hereunder; to show the Premises to prospective purchasers or mortgagees; to show the Premises to prospective tenants during the last year of the Term; to post notices of nonresponsibility; and to repair or maintain the Premises in the event Landlord so elects as a result of Tenant’s failure to do so, without abatement of. , Rent, and may for that purpose erect, use and maintain necessary structures in and throughout the Premises where reasonably required by the character of the work to be performed. Tenant hereby waives any claim for damages for any injury or inconvenience to or interference with Tenant’s business, any loss of occupancy or quiet enjoyment of the Premises or any other loss occasioned thereby, except to the extent caused by the gross negligence or willful misconduct of Landlord in the exercise of its rights and provided that Landlord shall use reasonable efforts not to materially adversely affect Tenant’s use of the Premises. All locks for all of the doors in, upon and about the Premises, excluding Tenant’s vaults and safes or special security areas (designated in advance in writing by Tenant) shall at all times be keyed to a master system and Landlord shall at all times have and retain a key with which to unlock all of said doors. Landlord shall have the right to use any and all

 

-22-


means that Landlord may deem necessary or proper to open said doors in an emergency in order to obtain entry to any portion of the Premises, and any such entry to the Premises or portions thereof obtained by Landlord by any of said means, or otherwise, shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction, actual or constructive, of Tenant from the Premises or any portion thereof.

16.3 Easements . Landlord reserves the right to grant or relocate all easements and rights of way which Landlord in its sole discretion may deem necessary or appropriate; provided that Tenant’s rights to use the Premises is not materially impeded.

16.4 Use of Additional Areas . Landlord reserves the exclusive right to use any air space above the Premises, and the land beneath the Premises; provided that such use shall not materially impede Tenant’s use of and access to the Premises.

16.5 Subordination . This Lease shall be subject and subordinate at all times to: (a) all reciprocal easement agreements, and any ground leases or underlying leases which may now exist or hereafter be executed affecting the Premises, and (b) the lien of any mortgage or deed of trust which may now exist or hereafter be executed in any amount for which the Premises, or any ground leases or underlying leases, or Landlord’s interest or estate in any of said items, is specified as security. Notwithstanding the foregoing, Landlord shall have the right to subordinate or cause to be subordinated to this Lease any of the items referred to in clause (a) or (b) above, subject to compliance with the condition precedent set forth below. In the event that any ground lease or underlying lease terminates for any reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason, (i) no person or entity which as a result of the foregoing succeeds to the interest of Landlord under this Lease, (a “ Successor ”) shall be liable for any default by Landlord or any other matter that occurred prior to the date the Successor succeeded to Landlord’s interest in this Lease, and (ii) Tenant shall, notwithstanding any subordination, attorn to and become the tenant of the Successor, at the option of the Successor. Tenant covenants and agrees, however, to execute and deliver, upon demand by Landlord and in the form reasonably requested by Landlord, any additional documents evidencing the priority or subordination of this Lease with respect to any such ground leases, underlying leases, reciprocal easement agreements or similar documents or instruments, or with respect to the lien of any such mortgage or deed of trust and Tenant’s failure to execute and deliver any such document within ten (10) business days after such demand by Landlord shall constitute an Event of Default without further notice. Landlord shall obtain the written agreement of the mortgagee or trustee named in any mortgage, deed of trust or other encumbrance, and any landlord under any ground lease or underlying lease, that so long as an Event of Default by Tenant is not in existence, neither this Lease nor any of Tenant’s rights hereunder shall be terminated or modified, nor shall Tenant’s possession of the Premises be disturbed or interfered with, by any trustee’s sale or by an action or proceeding to foreclose said mortgage, deed of trust or other encumbrance.

17. LIMITATION OF LANDLORD’S LIABILITY

17.1 Limitation . Landlord shall not be responsible for or liable to Tenant and Tenant hereby releases Landlord, waives all claims against Landlord and assumes the risk for any injury, loss or damage to any person or property in or about the Premises by or from any cause whatsoever (other than Landlord’s gross negligence or willful misconduct) including, without limitation, (a) acts or omissions of persons occupying adjoining premises, (b) theft or vandalism, (c) burst, stopped or leaking water, gas, sewer or steam pipes, (d) loss of utility

 

-23-


service, (e) accident, fire or casualty, (f) nuisance, and (g) work done by Landlord on the Premises. There shall be no abatement of Rent and no liability of Landlord by reason of any injury to or interference with Tenant’s business arising from the making of any repairs, alterations or improvements to any portion of the Premises or to fixtures, appurtenances and equipment in the Premises. If, as a result of the gross negligence or willful misconduct of Landlord, the Premises should become untenantable for Tenant’s use as a consequence of the cessation of utilities or other services, interference with access to the Premises, legal restriction or the presence of any Hazardous Materials that are not located on, in or under the Premises as of the Commencement Date, and In the event any of the foregoing prevents Tenant’s intended use of the Premises for a period of seven (7) days or more, Tenant shall be entitled to an equitable abatement of Base Rent and Additional Rent from the date of the first occurrence through the time in which the Premises are again tenantable for Tenant’s intended use. If such interruption continues for a period of thirty (30) consecutive days or more, Tenant shall be entitled to terminate this Lease, upon written notice to Landlord, whereupon the parties shall have no further rights or obligations under this Lease.

17.2 Sale of Property . It is agreed that Landlord may at any time sell, assign or transfer its interest as landlord in and to this Lease, and may at any time sell, assign or transfer its interest in and to the Premises. In the event of any transfer of Landlord’s interest in this Lease or in the Premises, the transferor shall be automatically relieved of any and all of Landlord’s obligations and liabilities accruing from and after the date of such transfer; provided that the transferee assumes all of Landlord’s obligations under this Lease. Tenant hereby agrees to attorn to Landlord’s assignee, transferee, or purchaser from and after the date of notice to Tenant of such assignment, transfer or sale, in the same manner and with the same force and effect as though this Lease were made in the first instance by and between Tenant and the assignee, transferee or purchaser.

17.3 No Personal Liability . In the event of any default by Landlord hereunder, Tenant shall look only to Landlord’s interest in the Premises and rents therefrom and any available insurance proceeds for the satisfaction of Tenant’s remedies, and no other property or assets of Landlord or any trustee, partner, member, officer or director thereof, disclosed or undisclosed, shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant’s remedies under or with respect to this Lease.

18. DESTRUCTION

18.1 Damage or Destruction; Duty to Restore . If the Premises or the improvements, or any portion thereof, are damaged or destroyed at any time during the Term and this Lease is not terminated by either party pursuant to and in accordance with this Section 18, Tenant, as promptly as practicable and with all due diligence (given the time required to obtain insurance proceeds and to obtain construction permits), shall cause the repair, reconstruction and replacement of the improvements as nearly as possible given the circumstances and then-Applicable Law to their condition immediately prior to such damage or destruction and, except as otherwise approved in writing by Landlord or precluded by then-Applicable Law, to their same general appearance.

18.2 Performance of Repairs and Restoration . All repairs and restoration shall be performed in accordance with the provisions of Section 9 of this Lease (as applicable). Except as otherwise provided herein, all insurance proceeds, less actual costs and expenses incurred in connection with the collection thereof, shall be applied to the costs of repair and restoration of the Premises and the improvements in accordance with the provisions of this

 

-24-


Section 18 and in compliance with Section 9 (as applicable). All such insurance proceeds shall be held by Landlord, or at the request of the holder of any mortgagor, by a trust company reasonably satisfactory to Landlord and such holder. Insurance proceeds shall be made available to Tenant in monthly draws during the repair of the Premises, which shall be available upon submission by Tenant of written request accompanied by reasonably detailed invoices and customary lien releases from Tenant’s contractor. Tenant shall pay any amount by which the insurance proceeds received as a result of such damage, less the costs and expenses incurred in connection with the collection thereof, are insufficient to pay the entire cost of such repair and restoration.

18.3 Option to Terminate Upon Damage or Destruction . In the event of (a) any damage to or destruction of the Premises or the improvements or any portion thereof at any time during the Term and the cost to repair and restore the same to substantially the same condition as existed immediately prior to such occurrence is reasonably estimated to exceed twenty-five percent (25%) of full replacement cost of all improvements on the Premises and is not covered by any insurance obtained or required to be obtained by Tenant pursuant to Article 13, or (b) any damage to or destruction of the Premises or the improvements occurring during the last twelve months of the Term, then Tenant shall have the option to terminate this Lease, exercisable as provided below.

18.4 Termination; Tenant’s Obligation to Restore; Arbitration . Tenant may exercise its option to terminate this Lease pursuant to this Section 18 by giving written notice to Landlord within ninety (90) days after the occurrence of the event of damage or destruction. If Tenant elects to terminate this Lease pursuant to this Section 18, Tenant shall surrender the Premises to Landlord in accordance with the provisions of Section 20, except to the extent the damage or destruction prevents Tenant from so doing. Tenant’s obligations under this Section 18 shall survive the termination of this Lease. All proceeds of insurance payable with respect to damage to, or destruction of the improvements and other property located on the Premises, after payment of costs and expenses of collection thereof, shall first be applied to the costs of demolition, removal, restoration, and remediation, as appropriate, depending on the extent of the damage or destruction, with the balance, if any, of such insurance proceeds, to be distributed as provided in Section 18.5.

18.5 Excess Proceeds . If there are proceeds of insurance in excess of that required to repair, restore, reconstruct or demolish the Premises and the improvements as required herein, upon receipt by Landlord of satisfactory evidence that the work of repair, restoration, reconstruction or demolition required has been fully completed and paid for in accordance with the provisions of this Lease, and that the last day for filing any mechanic’s or materialmen’s liens has passed without the filing of any, or if filed, any such lien has been released, any remaining insurance proceeds shall be paid to Landlord and the holders of mortgages as their interest may appear.

18.6 Right to Participate in Settlement . Landlord and Tenant shall both have the right to participate in the settlement or compromise of any insurance proceeds.

18.7 No Damages . If Landlord is required or elects to make any repairs, reconstruction or restoration of any damage or destruction to the Premises under any of the provisions of this Article 18, Tenant shall not be entitled to any damages by reason of any inconvenience or loss sustained by Tenant as a result thereof. There shall be no reduction, change or abatement of any rental or other charge payable by Tenant to Landlord hereunder, or in the method of computing, accounting for or paying the same. Tenant hereby waives the provisions of Section 1932(2) and Section 1933(4) of the California Civil Code, or any other statute or law that may be in effect at the time of a casualty under which a lease is automatically terminated or a tenant is given the right to terminate a lease due to a casualty.

 

-25-


19. EMINENT DOMAIN

19.1 Taking . If all or any part of the Premises shall be taken as a result of the exercise, of the power of eminent domain or any transfer in lieu thereof, this Lease shall terminate as to the part so taken as of the date of taking or as of the date of final judgment, whichever is earlier, and, in the case of a partial taking if at least twenty-five percent (25%) of the Premises, or if the extent and nature of such taking substantially handicaps, impedes or impairs Tenant’s use of the balance of the Premises, either Landlord or Tenant shall have the right to terminate this Lease as to the balance of the Premises by written notice to the other within thirty (30) days after such date.

19.2 Award . In the event of any taking, Landlord shall be entitled to any and all compensation, damages, income, rent, awards, or any interest therein whatsoever which may be paid or made in connection therewith, and Tenant shall assign to Landlord any right to compensation or damages for the condemnation of its leasehold interest; provided that Tenant may file a claim for (a) Tenant’s relocation expenses, and (b) the taking of Tenant’s Property.

(a) In the event of a partial taking of the Premises which does not result in a termination of this Lease, Landlord shall repair, restore or reconstruct the Premises to a useable state; provided that Landlord shall not be required to expend any sums other than those received pursuant to Section 19.2.

(b) During the period between the date of the partial taking and the completion of any necessary repairs, reconstruction or restoration, Tenant shall be entitled to a reduction of Base Rent by a proportionate amount based upon the extent of interference with Tenant’s operations in the Premises.

19.3 Temporary Taking . Notwithstanding any other provision of this Article, if a taking occurs with respect to all or any portion of the Premises for a period of six (6) months or less, this Lease shall remain unaffected thereby and Tenant shall continue to pay Base Rent and Additional Rent and to perform all of the terms, conditions and covenants of this Lease, provided that Tenant shall have the right to terminate this Lease if the taking continues beyond twelve (12) months. In the event of any such temporary taking, and if this Lease is not terminated, Tenant shall be entitled to receive that portion of any award which represents compensation for the use or occupancy of the Premises during the Term up to the total Base Rent and Additional Rent owing by Tenant for the period of the taking, and Landlord shall be entitled to receive the balance of any award.

19.4 Sale in Lieu of Condemnation . A voluntary sale by Landlord of all or any part of the Premises to any public or quasi-public body, agency or person, corporate or otherwise, having the power of eminent domain, either under threat of condemnation or while condemnation proceedings are pending, shall be deemed to be a taking under the power of eminent domain for the purposes of this Article.

19.5 Waiver . Except as provided in this Article, Tenant hereby waives and releases any right it may have under any Applicable Law to terminate this Lease as a result of a taking, including without limitation Sections 1265.120 and 1265.130 of the California Code of Civil Procedure, or any similar law, statute or ordinance now or hereafter in effect.

 

-26-


20. SURRENDER

20.1 Surrender . Upon the Termination Date, Tenant shall surrender the Premises to Landlord in as good order and repair as on the Commencement Date, reasonable wear and tear and damage by casualty excepted, free and clear of all letting and occupancies and free of Hazardous Materials as required pursuant to Article 12. Subject to Article 9, upon any termination of this Lease all improvements, except for Tenant’s Property, shall automatically and without further act by Landlord or Tenant, become the property of Landlord, free and clear of any claim or interest therein by Tenant, and without payment therefore by Landlord.

20.2 Holding Over . Any holding over after the expiration of the Term with the consent of Landlord shall be construed to automatically extend the Term on a month-to-month basis at a Base Rent equal to the greater of (a) 150% of the then-current Base Rent, and (b) prevailing rate at which Landlord is then offering space in buildings reasonably determined by Landlord to be comparable to the Premises, and shall otherwise be on the terms and conditions of this Lease to the extent applicable. Any holding over without Landlord’s consent shall entitle Landlord to exercise any or all of its remedies provided in Article 15, notwithstanding that Landlord may elect to accept one or more payments of Base Rent and Operating Expenses from Tenant.

20.3 Quitclaim . At the expiration or earlier termination of this Lease, Tenant shall execute, acknowledge and deliver to Landlord, within ten (10) days after written demand from Landlord to Tenant, any quitclaim deed or other document required by any reputable title company, licensed to operate in the State of California, to remove the cloud or encumbrance created by this Lease from the Premises.

21. FINANCIAL STATEMENTS

Tenant shall tender to Landlord within ten (10) business days after receipt of a written request any information reasonably requested by Landlord regarding the financial stability, credit worthiness or ability of Tenant to pay the Rent due under this Lease. Landlord shall be entitled to rely upon the information provided in determining whether or not to enter into this Lease or for the purpose of any financing or other transaction subsequently undertaken by Landlord. Tenant hereby represents and warrants to Landlord the following: (a) that all documents provided by Tenant to Landlord in connection with the negotiation of this Lease are true and correct copies of the originals, (b) Tenant has not withheld any information from Landlord that is material to Tenant’s credit worthiness, financial condition or ability to perform its obligations hereunder, (c) all information supplied by Tenant to Landlord is true, correct and accurate, and (d) no part of the information supplied by Tenant to Landlord contains any misleading or fraudulent statements. A default under this Article shall be a non-curable default by Tenant and Landlord shall be entitled to pursue any right or remedy available to Landlord under the terms of this Lease or available to Landlord under the laws of the State of California. Landlord shall a be entitled to disclose Tenant’s financial information to (1) its agents, employees and consultants, (2) potential purchasers of an interest in the Premises, and (3) lenders contemplating making a loan to the Landlord to be secured by the Premises, provided that such recipients are advised of the confidential nature of such information and agree to maintain such confidentiality.

 

-27-


22. TENANT CERTIFICATES

Tenant, at any time and from time to time within ten (10) business days after receipt of written notice from Landlord, shall execute, acknowledge and deliver to Landlord or to any party designated by Landlord (including prospective lenders, purchasers, ground lessees and others similarly situated), a certificate of Tenant stating, to the best of Tenant’s knowledge: (a) that Tenant has accepted the Premises, (b) the Commencement Date and Expiration Date of this Lease, (c) that this Lease is unmodified and in full force and effect (or, if there have been modifications, that same is in full force and effect as modified and stating the modifications), (d) whether or not there are then existing any defenses against the enforcement of any of the obligations of Tenant under this Lease (and, if so, specifying same), (e) whether or not there are then existing any defaults by Landlord in the performance of its obligations under this Lease (and, if so, specifying same), (f) the dates, if any, to which the Base Rent and Operating Expenses have been paid, and (g) any other factual information relating to the rights and obligations under this Lease that may reasonably be required by any of such persons. Failure to deliver such certificate when due shall constitute an Event of Default. At the request of Tenant, Landlord shall execute, acknowledge and deliver to Tenant a certificate with similar types of information and in the time period set forth above. Failure by either Landlord or Tenant to execute, acknowledge and deliver such certificate shall be conclusive evidence that this Lease is in full force and effect and has not been modified except as may be represented by the requesting party.

23. SIGNS

Tenant shall have the right, at Tenant’s sole cost and expense, to install signage on the Premises, subject to the prior written consent of Landlord, not to be unreasonably withheld, and, if required, the approval of the City of Menlo Park. Any signage shall be removed by Tenant at the expiration or earlier termination of this Lease if so required by Landlord.

24. INABILITY TO PERFORM

If Landlord is unable to fulfill or is delayed in fulfilling any of Landlord’s obligations under this Lease, by reason of acts of God, accidents, breakage, repairs, strikes, lockouts, other labor disputes, inability to obtain utilities or materials or by any other reason beyond Landlord’s reasonable control (and excluding failure or delay as a result of Landlord’s willful misconduct or gross negligence), then no such inability or delay by Landlord shall constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of Base Rent or Additional Rent, or relieve Tenant from any of its obligations under this Lease, or impose any liability upon Landlord or Landlord’s Agents by reason of inconvenience, annoyance, interruption, injury or loss to or interference with Tenant’s business or use and occupancy or quiet enjoyment of the Premises or any loss or damage occasioned thereby. If Tenant is unable to fulfill or is delayed in fulfilling any of Tenant’s obligations under this Lease (other than the payment of Rent), by reason of acts of God, accidents, breakage, repairs, strikes, lockouts, other labor disputes, inability to obtain utilities or materials or by any other reason beyond Tenant’s reasonable control, then such inability or delay by Tenant shall excuse the performance of Tenant for a period equal to the duration of such prevention, delay or stoppage. Tenant hereby waives and releases any right to terminate this Lease under Section 1932(1) of the California Civil Code, or any similar law, statute or ordinance now or hereafter in effect.

 

-28-


25. NOTICES

Notices or other communications given or required to be given under this Lease shall be effective only if rendered or given in writing, sent by certified mail with a return receipt requested, or delivered in person or by reputable overnight courier (e.g., Federal Express, DHL, etc.): (a) to Tenant (i) at Tenant’s address set forth in Article 1, if sent prior to the Commencement Date, or (ii) at the Premises and at the “copy to” address specified in Article 1 if sent subsequent to the Commencement Date, or (iii) at the place where Tenant designates subsequent to Tenant’s vacating, deserting, abandoning or surrendering the Premises; or (b) to Landlord at Landlord’s address set forth in Article 1; or (c) to such other address as either Landlord or Tenant may designate as its new address for such purpose by notice given to the other in accordance with the provisions of this Article. Any such notice or other communication shall be deemed to have been rendered or given five (5) days after the date mailed, if sent by certified mail, or upon the date of delivery in person or by courier, or when delivery is attempted but refused.

26. QUIET ENJOYMENT

Landlord covenants that so long as an Event of Default by Tenant is not in existence, upon paying the Base Rent and Additional Rent and performing all of its obligations under this Lease, Tenant shall peaceably and quietly enjoy the Premises, subject to the terms and provisions of this Lease.

27. AUTHORITY

If Tenant is a corporation, limited liability company or a partnership, Tenant represents and warrants as follows: Tenant is an entity as identified in Article 1, duly formed and validly existing and in good standing under the laws of the state of organization specified in Article 1 and qualified to do business in the State of California. Tenant has the power, legal capacity and authority to enter into and perform its obligations under this Lease and no approval or consent of any person is required in connection with the execution and performance hereof. The execution and performance of Tenant’s obligations under this Lease will not result in or constitute any default or event that would be, or with notice or the lapse of time would be, a default, breach or violation of the organizational instruments governing Tenant or any agreement or any order or decree of any court or other governmental authority to which Tenant is a party or to which it is subject. Tenant has taken all necessary action to authorize the execution, delivery and performance of this Lease and this Lease constitutes the legal, valid and binding obligation of Tenant. Upon Landlord’s request, Tenant shall provide Landlord with evidence reasonably satisfactory to Landlord confirming the foregoing representations and warranties.

Landlord represents and warrants as follows: Landlord has the power, legal capacity and authority to enter into and perform its obligations under this Lease and no approval or consent of any person is required in connection with the execution and performance hereof. The execution and performance of Landlord’s obligations under this Lease will not result in or constitute any default or event that would be, or with notice or the lapse of time would be, a default, breach or violation of the organizational instruments governing Landlord or any agreement or any order or decree of any court or other governmental authority to which Landlord is a party or to which it is subject. Landlord has taken all necessary action to authorize the execution, delivery and performance of this Lease and this Lease constitutes the legal, valid and binding obligation of Landlord.

 

-29-


28. BROKERS

Landlord and Tenant each warrant that no broker has been involved in the procurement of this Lease; and each party hereby agrees to indemnify, defend and hold the other harmless from and against any and all liabilities arising from any breach of the foregoing warranty or any claims by a third party for a brokerage commission or finder’s fee arising out of this transaction.

29. MISCELLANEOUS

29.1 Entire Agreement . This Lease, including the exhibits which are incorporated herein and made a part of this Lease, contains the entire agreement between the parties and all prior negotiations and agreements are merged herein. Tenant hereby acknowledges that neither Landlord nor Landlord’s Agents have made any representations or warranties with respect to the Premises or this Lease except as expressly set forth herein, and no rights, easements or licenses are or shall be acquired by Tenant by implication or otherwise unless expressly set forth herein.

29.2 No Waiver . No failure by Landlord or Tenant to insist upon the strict performance of any obligation of Tenant or Landlord under this Lease or to exercise any right, power or remedy consequent upon a breach thereof, no acceptance of full or partial Base Rent or Additional Rent during the continuance of any such breach by Landlord, or payment of Base Rent or Additional Rent by Tenant to Landlord, and no acceptance of the keys to or possession of the Premises prior to the expiration of the Term by any employee or agent of Landlord shall constitute a waiver of any such breach or of such term, covenant or condition or operate as a surrender of this Lease. No waiver of any breach shall affect or alter this Lease, but each and every term, covenant and condition of this Lease shall continue in full force and effect with respect to any other then-existing or subsequent breach thereof. The consent of Landlord or Tenant given in any instance under the terms of this Lease shall not relieve Tenant or Landlord, as applicable, of any obligation to secure the consent of the other in any other or future instance under the terms of this Lease.

29.3 Modification . Neither this Lease nor any term or provisions hereof may be changed, waived, discharged or terminated orally, and no breach thereof shall be waived, altered or modified, except by a written instrument signed by the party against which the enforcement of the change, waiver, discharge or termination is sought.

29.4 Successors and Assigns . The terms, covenants and conditions contained in this Lease shall bind and inure to the benefit of Landlord and Tenant and, except as otherwise provided or limited herein, their respective personal representatives and successors and assigns.

29.5 Validity . If any provision of this Lease or the application thereof to any person, entity or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such provision to persons, entities or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each provision of this Lease shall be valid and be enforced to the full extent permitted by law.

29.6 Jurisdiction . This Lease shall be construed and enforced in accordance with the laws of the State of California. Any action that in any way involves the rights, duties and obligations of the parties under this Lease may (and if against Landlord, shall) be brought in the courts of the State of California or the United States District Court for the District of California, and the parties hereto hereby submit to the personal jurisdiction of said courts.

 

-30-


29.7 Attorneys’ Fees . In the event that either Landlord or Tenant fails to perform any of its obligations under this Lease or in the event a dispute arises concerning the meaning or interpretation of any provision of this Lease, the defaulting party or the party not prevailing in such dispute, as the case may be, shall pay any and all costs and expenses incurred by the other party in enforcing or establishing its rights hereunder, including, without limitation, court costs, costs of arbitration and reasonable attorneys’ fees.

29.8 Waiver of Jury Trial . Landlord and Tenant each hereby voluntarily and knowingly waive and relinquish their right to a trial by jury in any action, proceeding or counterclaim brought by either against the other on any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord with Tenant, or Tenant’s use or occupancy of the Premises, including any claim of injury or damage, and any emergency and other statutory remedy with respect thereto.

29.9 (Reserved) .

29.10 Light and Air . Tenant covenants and agrees that no diminution of light, air or view by any structure that may hereafter be erected (whether or not by Landlord) shall entitle Tenant to any reduction of the Base Rent or Additional Rent under this Lease, result in any liability of Landlord to Tenant, or in any other way affect this Lease or Tenant’s obligations hereunder.

29.11 Lease Memorandum . Neither Landlord or Tenant shall record this Lease or a short form memorandum hereof without the consent of the other.

29.12 Confidentiality . The parties agree that neither of them shall make public the terms and conditions of this Lease to any person other than a party’s accountants, attorneys, lenders, brokers, prospective ground lessees, investors, consultants or financial advisors without first obtaining the written permission from the other party, except to the extent otherwise required by Applicable Law.

29.13 Terms . The words “Landlord” and “Tenant” as used herein shall include the plural as well as the singular. If there is more than one Tenant or Landlord, the obligations under this Lease imposed on Tenant or Landlord shall be joint and several. The captions preceding the articles of this Lease have been inserted solely as a matter of convenience and such captions in no way define or limit the scope or intent of any provision of this Lease.

29.14 Review and Approval . The review, approval, inspection or examination by Landlord of any item to be reviewed, approved, inspected or examined by Landlord under the terms of this Lease or the exhibits attached hereto shall not constitute the assumption of any responsibility by Landlord for either the accuracy or sufficiency of any such item or the quality of suitability of such item for its intended use. Any such review, approval, inspection or examination by Landlord is for the sole purpose of protecting Landlord’s interests in the Premises and under this Lease, and no third parties, including, without limitation, Tenant or any person or entity claiming through or under Tenant, or the contractors, agents, servants, employees, visitors or licensees of Tenant or any such person or entity, shall have any rights hereunder with respect to such review, approval, inspection or examination by Landlord.

 

-31-


29.15 No Beneficiaries . This Lease shall not confer or be deemed to confer upon any person or entity other than the parties hereto, any right or interest, including without limitation, any third party status or any right to enforce any provision of this Lease.

29.16 Time of the Essence . Time is of the essence in respect of all provisions of this Lease in which a definite time for performance is specified.

29.17 Modification of Lease . In the event of any ruling or threat by the Internal Revenue Service, or opinion of counsel, that all or part of the Rent paid or to be paid to Landlord under this Lease will be subject to the income tax or unrelated business taxable income, Tenant agrees to modify this Lease to avoid such tax; provided that such modifications will not result in any increase in Rent, or any increased obligations of Tenant under this Lease. Landlord will pay all Tenant’s reasonable costs incurred in reviewing and negotiating any such lease modification, including reasonable attorneys’ and accountants’ fees.

29.18 Construction . This Lease has been negotiated extensively by Landlord and Tenant with and upon the advice of their respective legal counsel, all of whom have participated in the drafting hereof. Consequently, Landlord and Tenant agree that no party shall be deemed to be the drafter of this Lease and in the event this Lease is ever construed by a court of law, such court shall not construe this Lease or any provision of this Lease against any party as the drafter of the Lease.

29.19 Use of Name . Tenant acknowledges and agrees that the names “ The Leland Stanford Junior University ,” “ Stanford ” and “ Stanford University ,” and all variations thereof, are proprietary to Landlord. Tenant shall not use any such name or any variation thereof or identify Landlord in any promotional advertising or other promotional materials to be disseminated to the public or any portion thereof or use any trademark, service mark, trade name or symbol of Landlord or that is associated with it, without Landlord’s prior written consent, which may be given or withheld in Landlord’s sole discretion.

29.20 Survival . The obligations of this Lease shall survive the expiration of the Term to the extent necessary to implement any requirement for the performance of obligations or forbearance of an act by either party hereto which has not been completed prior to the termination of this Lease. Such survival shall be to the extent reasonably necessary to fulfill the intent thereof, or if specified, to the extent of such specification, as same is reasonably necessary to perform the obligations and/or forbearance of an act set forth in such term, covenant or condition. Notwithstanding the foregoing, in the event a specific term, covenant or condition is expressly provided for in such a clear fashion as to indicate that such performance of an obligation or forbearance of an act is no longer required, then the specific shall govern over this general provisions of this Lease.

29.21 Counterparts . This Lease may be executed in counterparts, each of which shall be an original, and all of which together shall constitute one original of the Lease.

 

-32-


IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the date first above written.

 

LANDLORD:     TENANT:

THE BOARD OF TRUSTEES OF THE LELAND

STANFORD JUNIOR UNIVERSITY

    TESLA MOTORS, INC., a Delaware corporation
By:  

/s/ Leonie F. Batkin

    By:  

/s/ Elon Musk

Its:  

Director, Property Services

    Its:  

CEO

      By:  

/s/ Darryl Siry

      Its:  

VP, Sales Marketing

 

-33-


GLOSSARY

DEFINITIONS

As used In this Lease, the following terms shall have the following meanings, applicable, as appropriate, to both the singular and plural form of the terms defined below:

Abated Rent ” is defined in Section 15.2(g).

ADA ” is defined in Section 11.1.

Additional Rent ” is defined in Section 5.3.

Alterations ” is as defined in Section 9.3.

Applicable Laws ” are defined in Section 11.1.

Assignment ” is defined in Section 14.1.

Base Rent ” means the amount stated in Article 1, to be adjusted and payable in accordance with Article 5.

Business Days ” means Monday through Friday, excluding Saturdays, Sundays and federal and state legal holidays.

Commencement Date ” means the date specified in Article 1.

Early Termination Date ” is defined in Section 4.4.

Effective Date ” is defined in the introductory paragraph of this Lease.

Environmental Activity ” is defined in Section 12.1(a).

Environmental Investigation ” is defined in Section 12.7.

Environmental Laws ” are defined in Section 12.1(b).

Event of Default ” is defined in Section 15.1.

Excess Rent ” is defined in Section 14.4.

Expiration Date ” means the date specified in Article 1.

Extension Option ” is defined in Section 4.3.

Extension Period ” is defined in Section 4.3.

Hazardous Material ” is defined In Section 12.1(c).

Initial Base Rent ” is defined in Article 1.

 

-34-


Interest Rate ” is defined in Section 5.4.

Landlord ” is defined in the introductory paragraph to this Lease.

Landlord’s Agents ” is defined in Section 12.4.

Offer ” is defined in Section 14.5.

Offer Notice ” is defined in Section 4.5.

Premises ” is defined in Section 2.1.

Property Taxes ” is defined in Section 7.2.

Rent ” means Base Rent, Additional Rent, and all other sums due from Tenant under this Lease.

Right of First Offer ” is defined in Section 4.5.

Scheduled Date for Delivery of the Premises ” is specified in Article 1.

Security Deposit ” is defined in Article 1.

Sublease ” is defined in Section 14.1.

Successor ” is defined in Section 16.5.

Supplemental Investigation ” is defined in Section 12.7.

Tenant ” Is defined in the introductory paragraph to this Lease.

Tenant’s Agents ” is defined in Section 8.3.

Tenant’s Hazardous Materials ” is defined in Section 12.1(d).

Tenant’s Property ” is defined in Section 9.6.

Term ” is defined in Article 1 and Section 4.1.

Termination Date ” is defined in Section 4.1.

Termination Fee ” is defined in Section 4.4.

Termination Notice ” is defined in Section 4.2.

Transfer ” is defined in Section 14.5.

Transfer Costs ” is defined in Section 14.4.

Transfer Notice ” is defined in Section 14.2.

Transferee ” is defined in Section 14.2.

 

-35-


Exhibit A

A tract of land situated in the State of California, County of San Mateo, City of Menlo Park and is described as follows:

PARCEL I:

Portion of that certain 14.80 acre tract of land as described in that certain Deed from Charles Crocker, et al, to Leland Stanford, dated October 19, 1885 and recorded in Book 39 of Deeds at page 354 Records of San Mateo County, California, more particularly described as follows:

BEGINNING at a point on the Northeasterly line of El Camino Real, which point is distant 50 feet measured at right angles, Northeasterly from the center line Station 593+50.00, said point of beginning being marked by an iron pipe monument; thence from said point of beginning, along the said Northeasterly line of El Camino Real, North 50° 17’ 53” West 87.63 feet to the true point of beginning at the lands to be described herein; thence from said true point of beginning, along the said Northeasterly line of El Camino Real, North 50° 17’ 53” West 62.43 feet and North 50° 25’ West 337.57 feet; thence leaving said line of El Camino Real, North 39° 35’ 00” East 188.83 feet to the Southwesterly boundary line of that certain 40 foot wide strip of land containing 2.33 acres, as described in that certain Deed from The Board of Trustees of The Leland Stanford Junior University to the Southern Pacific Railroad Company, dated March 26, 1902 and recorded in Book 92 of Deeds at page 374, Records of San Mateo County, California; thence South 51° 35’ 10” East along said last mentioned line, 400.08 feet; thence South 39° 35’ 00” West 197.12 feet to the point of beginning.


Exhibit B

LOGO

 


Exhibit C

ACCEPTANCE FORM

This Acceptance form is executed with reference to that certain Lease dated as of              , 2007 by and between THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY (“ Landlord ”), and TESLA MOTORS, a              (“ Tenant ”). Terms defined in the Lease and the exhibits thereto shall have the same meaning when used herein.

Tenant hereby certifies to Landlord that Tenant has inspected the Premises as of              (the “ Date of Inspection ”). Tenant further acknowledges that Tenant hereby accepts the Premises in its existing “AS-IS”, “WHERE-IS” condition, and “WITH ALL FAULTS”.

The person executing this Acceptance Form on behalf of Tenant represents and warrants to Landlord that such person is duly authorized to execute this Acceptance Form and that this Acceptance Form has been duly authorized, executed and delivered on behalf of Tenant.

THIS ACCEPTANCE FORM is executed by Tenant as of the Date of Inspection.

 

  TENANT:
 

 

  By:  

 

  Its:  

 

  By:  

 

  Its:  

 


Exhibit D

DETERMINATION OF PREVAILING MARKET RENT

The term “ Prevailing Market Rent ” means the base monthly rent (net of all expenses) for space of comparable size and location to the Premises and in buildings similar in age and quality to the Building, taking into account any additional rent and all other payments or escalations then being charged and allowances and economic concessions being given in the for such comparable space over a comparable term. The Prevailing Market Rent shall be determined by Landlord and Landlord shall give Tenant written notice of such determination not later than thirty (30) days after delivery by Tenant of Tenant’s notice of exercise of the Option. If Tenant disputes Landlord’s determination of the Prevailing Market Rent, Tenant shall so notify Landlord within ten (10) days following Landlord’s notice to Tenant of Landlord’s determination and, in such case, the Prevailing Market Rent shall be determined as follows:

(a) Within thirty (30) days following Landlord’s notice to Tenant of the Prevailing Market Rent, Landlord and Tenant shall meet no less than two (2) times, at a mutually agreeable time and place, to attempt to agree upon the Prevailing Market Rent.

(b) If within this 30-day period Landlord and Tenant cannot reach agreement as to the Prevailing Market Rent, they shall each select one appraiser to determine the Prevailing Market Rent. Each such appraiser shall arrive at a determination of the Prevailing Market Rent and submit his or her conclusions to Landlord and Tenant within thirty (30) days after the expiration of the 30-day consultation period described in (a) above.

(c) If only one appraisal is submitted within the requisite time period, it shall be deemed to be the Prevailing Market Rent, If both appraisals are submitted within such time period, and if the two appraisals so submitted differ by less than ten (10) percent of the higher of the two, the average of the two shall be the Prevailing Market Rent. If the two appraisals differ by more than ten (10) percent of the higher of the two, then the two appraisers shall immediately select a third appraiser who will within thirty (30) days of his or her selection make a determination of the Prevailing Market Rent and submit such determination to Landlord and Tenant. This third appraisal will then be averaged with the closer of the two previous appraisals and the result shall be the Prevailing Market Rent.

(e) All appraisers specified pursuant hereto shall be members of the American Institute of Real Estate Appraisers with not less than five (5) years experience appraising office, research and development and industrial properties in California. Each party shall pay the cost of the appraiser selected by such party and one-half of the cost of the third appraiser plus one-half of any other costs incurred in the determination.

Exhibit 10.21

LICENSE AGREEMENT

This License Agreement is made and entered into as of this 23rd day of July, 2009 (“License”) by and between MS Kearny Northrop Avenue, LLC, a Delaware limited liability company hereinafter called “Licensor” and Tesla Motors, Inc., a Delaware corporation hereinafter called “Licensee.” Licensee and Licensor are sometimes referred to individually as “Party” and collectively as the “Parties”. In consideration for the payment by Licensee and the performance of the conditions and covenants herein contained, Licensor hereby licenses certain real property subject to the following terms and conditions:

Licensed Premises : The building located at 3337 Jack Northrop Avenue, consisting of approximately 12,843 square feet, the real property which is the subject of this License (hereinafter called “Licensed Premises”), is located in the City of Hawthorne, State of California as further described on “Exhibit A” attached hereto and incorporated herein by reference. The Licensed Premises consists of an industrial building and 22 adjacent parking stalls.

1. Grant of License : Licensor hereby grants to Licensee an exclusive right to use the Licensed Premises, subject to the terms and conditions described below. Licensor may designate the exact parking spaces at Licensor’s sole discretion.

2. Consideration for License : Licensee shall pay to Licensor, as consideration for the License, the sum of $9,000.00 per month plus the utility costs associated with the Premises, to be reimbursed to Licensor within 10-days of receipt of an invoice. The total due upon execution of this agreement is $18,000.00 representing advance payment for the period of August 1, 2009 up to and including August 31, 2009, and a security deposit of $9,000.00. No license fee will be payable for the period ending July 31, 2009.

3. Use of Premises : This License is valid for the following uses only: General office, vehicle design, and prototype vehicle development for Tesla Motors.

4. Term of Use : This License shall be in effect from August 1, 2009 through August 31, 2009. Thereafter, this tenancy shall become month-to-month, cancelable by either party following 45 days prior written notice.

5. Notices : All notices to be given under this License shall be in writing and either: sent by certified mail, return receipt requested, in which case notice shall be deemed delivered three (3) business days after deposit, postage prepaid in the United States mail; or sent by a nationally recognized overnight courier, in which case notice shall be deemed delivered one (1) business day after deposit with this courier; or by fax or similar means, if a copy of the notice is also sent by United States Certified Mail, in which case notice shall be deemed delivered on transmittal by telecopier or other similar means provided that a transmission report is generated reflecting the accurate transmission of the notices, as follows:


Notices to Licensor shall be addressed as follows:

MS Kearny Northrop Avenue, LLC

Attention: Mr. Hoonie Kang

1900 Avenue to the Stars, Suite 320

Los Angeles, CA 90067

Tel: (310) 203-1847

And

MS Kearny Northrop Avenue, LLC

Attention: Mr. Jeff Dritley

1900 Avenue to the Stars, Suite 320

Los Angeles, CA 90067

Notices to Licensee shall be addressed as follows:

Tesla Motors.

Attention: Elon Musk

One Rocket Road

Hawthorne, CA 90250

Tel: (310) 363-6000

Fax: (310) 363-6001

and

Tesla Motors, Inc.

1050 Bing St

San Carlos, CA 94070

Attention: Legal Dept.

6. General Restrictions : No storage of hazardous materials shall be allowed on the Licensed Premises unless specifically allowed elsewhere in this License. Licensee shall at all times keep the Licensed Premises clean and free from rubbish, public nuisances, weeds, brush, flammable materials, growth, debris, and waste, and in a condition satisfactory to Licensor. Licensee may store materials on the site consistent with the use of Premises specified in Section 3.

7. Alterations : Licensee shall not make or allow to be made any alterations of the Licensed Premises without the prior written consent of Licensor, which shall not be unreasonably withheld, provided the Premises is restored by Licensee upon termination of the License Agreement.

8. Environmental Compliance : Licensee shall not engage in, nor shall it permit any third party to engage in, activities upon the Licensed Premises, or any portion thereof, for the purpose of or anyway involving the handling, manufacturing, treatment, storage, use, transportation, spillage, leakage, dumping, discharge or disposal (whether legal or illegal, accidental or intentional) of any hazardous or toxic substances, materials or wastes, or any wastes regulated under any local, state or federal law. Licensee may use and store materials on the site consistent with the purpose of the use of Premises specified in Section 3.

 

-2-


9. Compliance with Law : Licensee shall comply with all laws, ordinances, codes, zoning ordinances, and regulations of any Federal, State, Local or other public body or agency exercising jurisdiction over the Licensed Premises. Licensee shall maintain the Licensed Premises and any improvements according to all applicable zoning and other standards. Licensee shall notify Licensor immediately of any non-compliance with any laws, ordinances, codes, zoning ordinances, and regulations of any Federal, State, Local or other public body or agency exercising jurisdiction over the Licensed Premises. Licensee shall further indemnify and hold harmless Licensor from any claim, loss, damage or injury, including any fines or penalties assessed by any agency, body or court, resulting from any violation of such standards in connection with Licensee’s use of the Licensed Premises and improvements, whether such claim, loss, damage or injury arises in whole or in part from the negligence or intentional acts of Licensee. Licensee shall, at its cost, undertake to respond to all such claims.

10. Indemnification : Licensee agrees to indemnify and hold Licensor, its officers, employees, agents, affiliates or Licensees harmless from and against any and all demands, claims, suits, costs of defense, attorneys’ fees (both in-house and outside counsel), witness fees, including expert witness fees, liability, loss, costs, obligations or other expenses for damage to property or for injury, disease to or death of any persons in any manner arising from (a) Licensee’s use, maintenance, presence on or occupation of the Licensed Premises, (b) the presence of Licensee’s automobiles and those of its employees, agents and contractors upon the Licensed Premises, or (c) any act or omission of Licensee, its employees, agents or Licensees, or of any employees, agents or Licensees of its contractors, subcontractors or independent contractors.

11. Liability Insurance : Licensee shall, at its own expense, secure and maintain in effect during the entire life of this License, insurance coverages as described herein, in amounts not less than the minimum limits specified, to protect Licensor and Licensee from claims or liabilities in any way arising out of Licensee’s use of the Licensed Premises: (a) Workers’ Compensation Insurance and Employer’s Liability Insurance in accordance with statutory requirements and limits, (b) Comprehensive General Liability insurance and contractual liability coverage for liability assumed by Licensee under this License, and automobile liability insurance, with limits of not less than $2,000,000.00 each occurrence for bodily injury and property damage combined. Such liability insurance shall name Licensor and its related and relevant affiliate entities as additional insured, shall contain a severability of interest or cross liability clause and shall be primary for all purposes. Certificates of insurance evidencing the coverages and provisions required in (a) and (b) above shall be furnished to Licensor within 15 days of the rent commencement date.

12. Attorneys’ Fees : If either Party files any action or brings any proceeding against the other arising from or related to this License, the prevailing party shall be entitled to recover from the other Party as an element of its costs of suit and not as damages, reasonable attorneys’ fees (both in-house and outside attorney fees), costs and expenses incurred in the action or proceeding, including any appeal thereof.

13. Breach of Conditions : Licensor’s waiver of any one or more of the covenants, conditions, or agreements of this License shall not be construed to be a waiver of any subsequent or other breach of the same or any other covenant, conditions, or agreement of this License. Licensor’s failure to require or exact full complete compliance with any of the covenants, conditions, or agreements of this License shall not be construed as changing the terms hereof, and such failure shall not stop Licensor from enforcing the full provisions hereof. The terms of this License shall be amended only in writing and signed by Licensor and Licensee.

 

-3-


14. Time of the Essence : It is agreed that time is of the essence of each of the terms and provisions of this License.

16. Condition of Premises at Possession : Licensor is leasing the premises to Licensee in its existing “as is” condition as of the commencement date of this License.

17. Condition of Premises - End of Term: Upon termination or revocation of this License, Licensee shall surrender the Licensed Premises to Licensor in the same condition as existed at the commencement of this License, clean and free of debris. If, within ten (10) days, Licensee has failed to remove its property and/or return the Licensed Premises to its original condition, ordinary wear and tear excepted, Licensor may, at its option, remove Licensee’s property and restore the Licensed Premises to its original condition and seek reimbursement from Licensee of the costs incurred therewith.

18. Governing Law : This License shall be governed by and construed in accordance with the laws of the State of California. By execution and delivery of this license, each of the parties hereby irrevocably accepts and submits to the jurisdiction of said courts in person, generally and unconditionally in connection with any such action or proceeding.

19. Severability : If any part, section or provision of this License should be invalid, then all the remaining parts, sections and provisions shall continue in full force and effect.

20. No Obstruction : At no time shall the Licensee store its vehicles in such a way as to block entrance or exit to other portions of the property not considered part of this License. In addition, Licensee covenants not to cause any nuisance to Licensor’s existing tenants using the property adjacent to the Premises.

21. Access/Relocation : Licensor or its, officers, employees, agents, affiliates, prospective buyers or Licensees shall have the right to access the Premises at all times and may relocate certain parking spaces within a reasonable distance following 24 hour written notice if necessary to perform any surveys, tests or other types of studies on the Premises.

22. Broker’s Fees : The Parties agree that Fischer & Company (“Broker”) is the only broker involved in the proposed transaction shall indemnify each other against any claims from other brokers or agents for the proposed License Agreement. Licensor agrees to pay Broker a commission pursuant to the existing Commission Agreement between Licensor and Broker.

23. Security Deposit : Upon mutual execution of the License Agreement, Licensee shall pay Licensor a Security Deposit equal to one months License Fee ($9,000.00). At the expiration or termination of this License, Licensor shall return the Security Deposit to Licensee, less such amounts as are reasonably necessary to remedy Licensee’s defaults, to repair damages the Premises caused by Licensee, as soon as practicable thereafter.

24. Default and Remedies : The occurrence of any one or more of the following events shall constitute a material default and breach of this Agreement by the Licensee.

(a) Licensee shall default in the due and punctual payment of the fees, or any other sums payable hereunder, and on the second such failure to pay such default shall continue for five (5) days after Licensor shall have given Licensee written notice of such default.

 

-4-


(b) Licensee shall neglect or fail to perform or observe any of the covenants herein contained on Licensee’s part to be performed or observed other than described in subparagraph (a) above, and Licensee shall fail to remedy same within thirty (30) days after Licensor shall have given to Licensee written notice specifying such neglect or failure, or if such default is incapable of being cured within thirty (30) days, then in such event, if Licensee shall fail to commence the cure of such default within thirty (30) days of receipt of written notice of same, and continue thereafter in good faith and with due diligence to cure same; or,

(c) Licensee shall be involved in financial difficulties as evidenced by (1) its admitting in writing its inability to pay its debts generally as they come due, or (2) by it its filing a petition in Bankruptcy or for reorganization or for the adoption of an arrangement under the Bankruptcy Act or an answer or other pleading to be filed by or on behalf or Licensee admitting the material allegations of such a petition or seeking, consenting to or acquiescing in the relief provided for under such Act, or (3) by its approving a petition filed against it for the effecting of an arrangement in bankruptcy or for a reorganization pursuant to said Bankruptcy Act. In the event of any such material default or breach by Licensee, Licensor may, at anytime thereafter, with or without notice or demand and without limiting Licensor in the exercise of any right or remedy which Licensor may have by reason of such default or breach.

Upon the occurrence of any such default by Licensee, Licensor shall have, in addition to any other remedies available to Licensor at law or in equity, the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever.

Terminate this Agreement, in which event Licensee shall immediately surrender the Premises to Licensor, and if Licensee fails to do so, Licensor may, without prejudice to any other remedy which it may have for possession or arrearages in License Fee, enter upon and take possession of the Premises and expel or remove Licensee and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim or damages therefore; and Licensor may recover from Licensee the following:

(i) The worth at the time of award of any unpaid License Fee which has been earned at the time of such termination; plus

(ii) The worth at the time of award of the amount by which the unpaid License Fee which would have been earned after termination until the time of award exceeds the amount of such License Fee loss that Licensee proves could have been reasonably avoided; plus

(iii) The worth at the time of award of the amount by which the unpaid License Fee for the balance of the term of this Agreement after the time of award exceeds the amount of such License Fee loss that Licensee proves could have been reasonably avoided; plus

(iv) Any other amount necessary to compensate Licensor for all the detriment proximately caused by Licensee’s failure to perform its obligations under this Agreement or which in the ordinary course of things would be likely to result therefrom, specifically including but not limited to, brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant; and

 

-5-


(v) At Licensor’s election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law.

The term “License Fee” as used in this Section 24 shall be deemed to be and to mean all sums of every nature required to be paid by Licensee pursuant to the terms of this Agreement, whether to Licensor or to others. As used in clauses (i) and (ii) hereinabove, the “worth at the time of award” shall be computed by allowing interest at an interest rate equal to the lesser of (i) the “Prime Rate” or “Reference Rate” announced from time to time by the Bank of America (or such reasonable comparable national banking institution as selected by Licensor in the event Bank of America ceases to exist or publish a Prime Rate or Reference Rate), plus four percent (4%), or (ii) the highest rate permitted by applicable law. As used in Section 24 above, the “worth at the time of award” shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%).

Licensor shall have the remedy described in California Civil Code Section 1951.4 (Licensor may continue License in effect after Licensee’s breach and abandonment and recover License Fee as it becomes due, if Licensee has the right to sublet or assign, subject only to reasonable limitations). Accordingly, if Licensor does not elect to terminate this Agreement on account of any default by Licensee, Licensor may, from time to time, without terminating this Agreement, enforce all of its rights and remedies under this Agreement, including the right to recover all License Fee as it becomes due.

Licensor may, but shall not be obligated to, make any such payment or perform or otherwise cure any such obligation, provision, covenant or condition on Licensee’s part to be observed or performed (and may enter the Premises for such purposes). In the event of Licensee’s failure to perform any of its obligations or covenants under this Agreement, and such failure to perform poses a material risk of injury or harm to persons or damage to or loss of property, then Licensor shall have the right to cure or otherwise perform such covenant or obligation at any time after such failure to perform by Licensee, whether or not any such notice or cure period set forth in this Section 24 above has expired. Any such actions undertaken by Licensor pursuant to the foregoing provisions of this Section 24(3) shall not be deemed a waiver of Licensor’s rights and remedies as a result of Licensee’s failure to perform and shall not release Licensee from any of its obligations under this Agreement.

Licensee shall pay to Licensor, within ten (10) days after delivery by Licensor to Licensee of statements therefore: (i) sums equal to expenditures reasonably made and obligations incurred by Licensor in connection with Licensor’s performance or cure of any of Licensee’s obligations pursuant to the provisions of Section 24(3) above; and (ii) sums equal to all expenditures made and obligations incurred by Licensor in collecting or attempting to collect the License Fee or in enforcing or attempting to enforce any rights of Licensor under this Agreement or pursuant to law, including, without limitation, all legal fees and other amounts so expended. Licensee’s obligations under this paragraph shall survive the expiration or sooner termination of the term of this Agreement.

Whether or not Licensor elects to terminate this Agreement on account of any default by Licensee, as set forth in this Section 24, Licensor shall have the right to terminate any and all sublicenses, licenses, concessions or other consensual arrangements for possession entered into by Licensee and affecting the Premises or may, in Licensor’s sole discretion, succeed to Licensee’s

 

-6-


interest in such sublicenses, licenses, concessions or arrangements. In the event of Licensor’s election to succeed to Licensee’s interest in any such sublicenses, licenses, concessions or arrangements, Licensee shall, as of the date of notice by Licensor of such election, have no further right to or interest in the License Fee or other consideration receivable thereunder.

No waiver by Licensor of any violation or breach by Licensee of any of the terms, provisions and covenants herein contained shall be deemed or construed to constitute a waiver of any other or later violation or breach by Licensee of the same or any other of the terms, provisions, and covenants herein contained. Forbearance by Licensor in enforcement of one or more of the remedies herein provided upon a default by Licensee shall not be deemed or construed to constitute a waiver of such default. The acceptance of any License Fee hereunder by Licensor following the occurrence of any default, whether or not known to Licensor, shall not be deemed a waiver of any such default, except only a default in the payment of the License Fee so accepted.

For the purposes of this Section 24, Licensee’s right to possession shall not be deemed to have been terminated by efforts of Licensor to relet the Premises, by its acts of maintenance or preservation with respect to the Premises, or by appointment of a receiver to protect Licensor’s interests hereunder. The foregoing enumeration is not exhaustive, but merely illustrative of acts which may be performed by Licensor without terminating Licensee’s right to possession.

25. Limitation of Liability : Licensor makes no warranties, express or implied (including warranties of merchantability or fitness for a particular purpose) and the sole and exclusive remedy of Licensee and its successors and assigns (including without limitation, Bank, if applicable), at law or in equity under any legal theory or theories of recovery whatsoever (including without limitation, theories of negligence, breach of contract, breach of warranty, tort or otherwise), shall be limited to the fees payable by Licensee under the License Agreement.

26. Late Fees : If any installment of the monthly License Fee or other sum due from Licensee shall not be received by Licensor within ten days of its due date, then Licensee shall pay to Licensor a Late Fee of five (5) percent of such overdue amount. In addition, there will be a $100.00 fee for every returned check. The parties hereby agree that such late charge represents a fair and reasonable estimate of the cost that the Licensor will incur by reason of the late payment by Licensee.

IN WITNESS WHEREOF , the Parties have executed this License as of the above date first written.

 

LICENSEE     LICENSOR
Tesla Motors, Inc.     MS Kearny Northrop Avenue, LLC
By:  

/s/ Craig W. Harding

    By:  

/s/ Illegible

Date  

July 29, 2009

    Date  

July 30, 2009

 

-7-


EXHIBIT “A”

Licensed Premises


LOGO

 

Exhibit 10.22

COMMERCIAL LEASE

THIS LEASE is entered into as of August 6, 2009 (the “ Effective Date ”), by and between THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY, a body having corporate powers under the laws of the State of California (“ Landlord ”), and TESLA MOTORS, INC., a Delaware corporation (“ Tenant ”).

1.     BASIC LEASE INFORMATION . The following is a summary of basic lease information. Each item in this Article 1 incorporates all of the terms set forth in this Lease pertaining to such item and to the extent there is any conflict between the provisions of this Article 1 and any other provisions of this Lease, the other provisions shall control. Any capitalized term not defined in this Lease shall have the meaning set forth in the Glossary that appears at the end of this Lease.

 

  Premises: 25.28 acres of real property located at 3500 Deer Creek Road, containing three (3) adjoined buildings totaling approximately 350,000 square feet of Rentable Area, as more particularly described on Exhibit A-1 .

Term: Approximately Seventy-eight (78) months

Scheduled Commencement Date: August 20, 2009

Expiration Date: January 31, 2016

Base Rent:

 

Period During
Lease Term

  

Dates

  

Monthly Base Rent

Free Rent Period    18 months    $0
Initial Rent Period    End of Free Rent
Period through 1/31/13
   $165,000
Second Rent Period    2/1/13-1/31/15    $175,000
Third Rent Period    2/1/15-1/31/16    $185,000

Security Deposit: $330,000 (subject to Section 5.4)

 

  Use:

Research and development, distribution, assembly and manufacturing, storage and general office in support of the research and development


 

function, and those functions commonly associated with a headquarters location.

Addresses for Notice:

 

 

Landlord:

The Board of Trustees of the

 

    

Leland Stanford Junior University

 

    

2755 Sand Hill Road, Suite 100

 

    

Menlo Park, CA 94025

 

    

Attention: Managing Director, Real Estate

 

 

with a copy to:

Carol K. Dillon, Esq.

 

    

Bingham McCutchen LLP

 

    

1900 University Avenue

 

    

East Palo Alto, CA 94303

 

 

Tenant:

Tesla Motors, Inc.

 

    

1050 Bing Street

 

    

San Carlos, CA 94070

 

    

Attention: JB Straubel, CTO

 

 

with a copy to:

Tesla Motors, Inc.

 

    

1050 Bing Street

 

    

San Carlos, CA 94070

 

    

Attention: Craig Harding, General Counsel and

 

    

Secretary

 

 

Brokers:

Tenant:    Cornish & Carey Commercial

 

    

Landlord:    CB Richard Ellis

2.    PREMISES

2.1     Premises . Subject to the terms, covenants and conditions set forth in this Lease, Landlord hereby leases the Premises to Tenant and Tenant hereby leases the Premises from Landlord. The approximate total Rentable Area of the Premises is specified in Article 1, and shall not be subject to adjustment by either Landlord or Tenant during the Term. The buildings located at the Premises are sometimes referred to herein as the “ Buildings ”.

2.2     Parking . Tenant shall have the right to use, at no additional cost, all of the parking spaces located in the parking areas of the Premises (the “ Parking Area ”). Other than the temporary staging and storage of Tenant’s inventory, products, and other nonhazardous materials being delivered to the Premises, Tenant shall not store any materials or equipment on any exterior areas of the Premises without the prior written consent of Landlord. Tenant shall not make any use of the Parking Area that reduces the number of available parking spaces. Tenant shall not permit any employee vehicles to be parked on any adjacent property or public streets.

 

-2-


2.3     Service Yard . Notwithstanding the general description of the Premises, the Premises shall not include and Tenant shall not have the right to use or access the service yard area behind Building 25, as identified on the attached Exhibit A-2 (the “ Service Yard’ ). Landlord reserves (for itself, its Agents, consultants, contractors and any third parties Landlord deems to reasonably require access) the exclusive right to use and access the Service Yard for purposes of performing environmental testing, monitoring, cleanup, remediation, containment or restoration work; provided that Landlord shall not materially interfere with Tenant’s access to and use of the loading docks located on the Premises. Landlord may elect in its sole discretion to allow Tenant a license to use portions of the Service Yard, subject to terms and conditions to be determined by Landlord.

3.    ACCEPTANCE

Prior to entering into this Lease, Tenant has made a thorough and independent examination of the Premises and all matters related to Tenant’s decision to enter into this Lease. Tenant is thoroughly familiar with all aspects of the Premises and its construction and is satisfied that it is in an acceptable condition and meets Tenant’s needs. Except as otherwise expressly provided in Section 8.1 and 9.1 below, Tenant does not rely on, and Landlord does not make, any express or implied representations or warranties as to any matters including, without limitation, (a) the physical condition of the Premises, the Buildings, the Building Structure, or the Building Systems (including, without limitation, the indoor air quality), (b) the existence, quality, adequacy or availability of utilities serving the Premises, (c) the size of the Premises or the Buildings, (d) the use, habitability, merchantability, fitness or suitability of the Premises for Tenant’s intended use, (e) the likelihood of deriving business from Tenant’s location or the economic feasibility of Tenant’s business, (f) Hazardous Materials on, in, under or around the Premises, (g) zoning, entitlements or any Applicable Laws which may apply to Tenant’s use of the Premises or business operations, or the Premises’ compliance with Applicable Laws, or (h) any other matter. Tenant has satisfied itself as to such suitability and other pertinent matters by Tenant’s own inquiries and tests into all matters relevant in determining whether to enter into this Lease. Subject to the provisions of Section 9.1, Tenant accepts the Premises (including the Building Systems) in its existing “as-is” condition. Tenant shall, by entering into and occupying the Premises, be deemed to have accepted the Premises and to have acknowledged that the same are in good order, condition and repair. Without limiting the foregoing, Tenant acknowledges the Premises are being delivered to Tenant in a post-demolition state in anticipation of the commencement of the Tenant Improvement Work and that potential physical hazards may be present. Tenant agrees to cause all of Tenant’s Agents to observe best safety practices while on the Premises (e.g. wearing hard hats and eye protection, utilizing flashlights, etc.) during the performance of the Tenant Improvement Work. Upon the Commencement Date, Tenant shall execute and deliver to Landlord the acceptance form attached hereto as Exhibit B ; provided that Tenant’s failure to do so shall not be deemed a failure of acceptance or delay the Commencement Date.

4.    TERM

 

-3-


4.1     Term . The Premises are leased for a term (the “ Term ”) commencing on the date Landlord delivers to Tenant possession of the Initial Space (as defined in Section 4.2), which shall occur pursuant to Sections 4.4 and/or 4.5 (the “ Commencement Date ”), and ending on the Expiration Date, or such earlier date on which this Lease terminates pursuant to its terms. The date upon which this Lease actually terminates, whether by expiration of the Term or earlier termination pursuant to the terms of this Lease, is sometimes referred to in this Lease as the “ Termination Date ”.

4.2     Failure to Deliver Possession . If for any reason Landlord cannot deliver possession of the Premises to Tenant on the Scheduled Commencement Date, then (a) the validity of this Lease and the obligations of Tenant under this Lease shall not be affected by any such delay in delivery, nor shall any such delay result in any extension of the Expiration Date, and (b) Tenant shall have no claim against Landlord arising out of Landlord’s failure to deliver possession of the Premises on the Scheduled Commencement Date. Notwithstanding the foregoing, the parties agree and acknowledge that Tenant initially intends to occupy approximately 217,000 square feet of Rentable Area consisting of the ground floor of Building 25 and the basement, ground floor and second floor of Building 26 (collectively, the “ Initial Space ”), and in the event Landlord does not deliver the Initial Space by October 1, 2009, Tenant may terminate this Lease by written notice to Landlord delivered no later than October 31, 2009, whereupon any consideration paid to Landlord by Tenant shall be returned to Tenant, and thereafter the parties shall have no further rights or obligations under this Lease. In the event of any delay in the delivery of the Initial Space caused by Landlord that does not result in the termination of this Lease, the Term of this Lease shall be reduced by the number of days delivery is delayed, the Commencement Date shall be the date of actual delivery of possession of the Initial Space and the Expiration Date shall not be changed or extended. In such event, Tenant shall retain the benefit of the full Free Rent Period described in Article 1, but the Base Rent for the remainder of the Term shall be modified so that each day of delay in the commencement of this Lease shall result in a one-day reduction in the Initial Base Rent Period. By way of example only, if there is a five (5) day delay in the delivery of the Initial Space, and the Commencement Date is August 6, 2009, the Free Rent Period will run from August 6, 2009 through February 5, 2011, but the Initial Rent Period will remain in effect only through January 31, 2013. No extension of free rent or termination right shall result from any delay in the delivery of the remaining space on the Premises.

4.3     Early Access . Tenant shall have the right upon twenty-four (24) hours prior notice to Landlord to enter upon the Premises prior to the Commencement Date for purposes of designing the Tenant Improvement Work, provided that Tenant shall not interfere with Landlord’s performance of Landlord’s Work and all such early entry shall be subject to the terms and conditions of this Lease and of that certain Access Agreement between the parties dated as of June 10, 2009, except for the obligation to pay Rent hereunder.

4.4     Air Quality Contingency . Prior to the Commencement Date, Landlord will perform indoor air quality sampling in the ground floor of Buildings 25 and the basement of Building 26, and Landlord will provide the results of such testing to Tenant. If

 

-4-


the testing reveals the presence of volatile organic compounds at concentrations exceeding the environmental screening levels for commercial buildings (the “ Indoor Air Screening Level ”), as established by the California Regional Water Quality Control Board (“ RWCQB ”), Landlord shall have the right to either terminate this Lease upon written notice to Tenant delivered within five (5) Business Days after delivery of the results to Tenant, or to undertake such commercially reasonable remediation efforts as Landlord determines in order to remediate the indoor air quality of any Building exceeding the Screening Level. If Landlord undertakes such remediation, upon completion of the remediation Landlord shall retest the Buildings and provide the results of such subsequent testing to Tenant. If any such retesting reveals that the affected Building(s) still exceed the Indoor Air Screening Level, Landlord may elect to terminate this Lease rather than deliver possession of the Premises to Tenant. If Landlord does not so elect, Landlord shall deliver possession of the Premises to Tenant, and the date of such delivery shall be the Commencement Date. In such event, Tenant may terminate this Lease within ten (10) Business Days after the Commencement Date. If this Lease is terminated by either party, neither party shall have any further rights or obligations hereunder. In the event this Lease is not terminated pursuant to this Section, Landlord shall have no further obligations during the Term with respect to the indoor air quality of the Buildings.

4.5     Wipe Sampling Contingency . Prior to the Commencement Date, Landlord will perform wipe sampling for analysis of selected metals on surfaces in multiple locations in the interstitial and attic levels in Buildings 25 and the basement, interstitial and attic levels of Building 26, and Landlord will provide the results of such testing to Tenant. If the testing reveals the presence of metals at concentrations exceeding screening criteria developed by the California Department of Toxic Substances Control personnel ( Human Health Risk Evaluation of Structural Surfaces Contaminated with Metals , presented at the Society of Toxicology Meeting, Salt Lake City, Utah, March 2003) for commercial buildings (the “ Wipe Sampling Screening Level ”), Landlord shall have the right to either terminate this Lease upon written notice to Tenant delivered within five (5) Business Days after delivery of the results to Tenant, or to undertake such commercially reasonable remediation efforts as Landlord determines in order to remediate the surfaces of any Building exceeding the Wipe Sampling Screening Level. If Landlord undertakes such remediation, upon completion of the remediation Landlord shall retest the Buildings and provide the results of such subsequent testing to Tenant. If any such retesting reveals that the affected Building(s) still exceed the Wipe Sampling Screening Level, Landlord may elect to terminate this Lease rather than deliver possession of the Premises to Tenant. If Landlord does not so elect, Landlord shall deliver possession of the Premises to Tenant, and the date of such delivery shall be the Commencement Date. In such event, Tenant may terminate this Lease within ten (10) Business Days after the Commencement Date. If this Lease is terminated by either party, neither party shall have any further rights or obligations hereunder. In the event this Lease is not terminated pursuant to this Section, Landlord shall have no further obligations during the Term with respect to the presence of the tested metals in any of the Buildings.

4.6     Renewal Options . Tenant shall have two (2) consecutive options (respectively, the “ First Renewal Option ” and the “ Second Renewal Option ” and

 

-5-


collectively, the “ Renewal Options ”) to extend the Term of this Lease. Each Renewal Option shall be for a term of twenty-four (24) months (respectively, the “ First Renewal Term ” and the “ Second Renewal Term ” and collectively, the “ Renewal Terms ”). Any Renewal Option shall be void if an Event of Default by Tenant exists, either at the time of exercise of the Renewal Option or the time of commencement of the Renewal Term. Each Renewal Option must be exercised, if at all, by written notice from Tenant to Landlord given not less than twelve (12) months prior to the expiration of the then current Term. Landlord shall have the right to cancel any Renewal Option in the event Landlord intends to redevelop the Premises, which shall be demonstrated by a submittal of redevelopment plans to the City of Palo Alto at any time during the Term; provided that Landlord delivers written notice to Tenant of Landlord having made such submittal within thirty (30) days after Landlord’s receipt of Tenant’s notice exercising its Renewal Option. The Renewal Terms shall be upon the same terms and conditions as set forth in this Lease, except that the monthly Base Rent payable hereunder shall be as follows:

 

            Renewal Term            

 

            Monthly Base Rent            

First Renewal Term:  
2/1/16-1/31/17   $195,000
2/1/17-1/31/18   $200,000
Second Renewal Term:  
2/1/18-1/31/19   $205,000
2/1/19-1/31/20   $210,000

Tenant shall not be entitled to any tenant improvement allowance during any Renewal Term. From and after the exercise of each Renewal Option (a) all references to “Expiration Date” shall be deemed to refer to the last day of the applicable Renewal Term, and (b) all references to “Term” shall be deemed to include the applicable Renewal Term. The Renewal Options are personal to Tenant and shall be inapplicable and null and void if Tenant assigns its interest under this Lease to any Transferee other than a Permitted Transferee. Tenant’s right to exercise the Second Renewal Option is contingent on Tenant having exercised the First Renewal Option.

5.    RENT

5.1     Base Rent . Commencing upon the Commencement Date, and thereafter during the Term, Tenant shall pay to Landlord the monthly Base Rent specified in Article 1 on or before the first day of each month, in advance, at the address specified for Landlord in Article 1, or at such other place as Landlord designates in writing, without any prior notice or demand and without any deductions or setoff whatsoever (except as otherwise expressly provided in this Lease). If the Commencement Date occurs on a day

 

-6-


other than the first day of a calendar month, or the Termination Date occurs on a day other than the last day of a calendar month, then the Base Rent for such fractional month will be prorated on the basis of the actual number of days in such month. The Rentable Area of the Premises shall be conclusively presumed to be as stated in Article 1.

5.2     Additional Rent . All sums due from Tenant to Landlord or to any third party under the terms of this Lease (other than Base Rent) shall be additional rent (“ Additional Rent ”), including without limitation all sums incurred by Landlord due to Tenant’s failure to perform its obligations under this Lease. Tenant’s obligation to pay Additional Rent shall commence on the Commencement Date. All Additional Rent that is payable to Landlord shall be paid at the time and place that Base Rent is paid, unless otherwise specifically provided in this Lease. Landlord will have the same remedies for a default in the payment of any Additional Rent as for a default in the payment of Base Rent. Together, Base Rent and Additional Rent are sometimes collectively referred to in this Lease as “ Rent ”.

5.3     Late Payment . Tenant recognizes that late payment of any Rent will result in administrative expense to Landlord, the extent of which expense is difficult and economically impracticable to determine. Therefore, Tenant agrees that if Tenant fails to pay any Rent within five (5) days after its due date, an additional late charge of five percent (5%) of the sums so overdue shall become immediately due and payable, and unpaid Rent shall thereafter accrue interest at the Interest Rate until paid. Tenant agrees that the late payment charge is a reasonable estimate of the additional administrative costs and detriment that will be incurred by Landlord as a result of such failure by Tenant. In the event of nonpayment of interest or late charges on overdue Rent, Landlord shall have, in addition to all other rights and remedies, the rights and remedies provided in this Lease and by law for nonpayment of Rent. Notwithstanding the foregoing, Landlord will not assess a late charge or interest payment until Landlord has given written notice of such late payment for the first late payment in any twelve (12) month period and after Tenant has not cured such late payment within three (3) days from receipt of such notice. No other notices will be required during the following twelve (12) months for a late charge and interest to be incurred.

5.4     Security Deposit . Concurrently with the execution of this Lease, Tenant shall deliver to Landlord the Security Deposit described in Article 1 in the form of a letter of credit. The Security Deposit shall be payable upon any of the occurrences described in this Section. The Security Deposit shall be held by Landlord as security for the faithful performance of this Lease by Tenant of all of the terms, covenants and conditions of this Lease.

(a)    If there is an Event of Default by Tenant with respect to any provisions of this Lease (including but not limited to the payment of Rent); if Tenant files a petition in bankruptcy, insolvency, reorganization, dissolution or liquidation under any law; makes an assignment for the benefit of its creditors; consents to or acquiesces in the appointment of a receiver of itself or the Premises, or if a court of competent jurisdiction enters an order or judgment appointing a receiver of Tenant or the Premises; or if a court of

 

-7-


competent jurisdiction enters an order or judgment approving a petition filed against Tenant under any bankruptcy, insolvency or liquidation law, then in any such case Landlord may, without waiving any of Landlord’s other rights or remedies under this Lease, apply the Security Deposit in whole or in part to remedy any failure by Tenant to pay any sums due under this Lease, to repair or maintain the Premises, to perform any other terms, covenants or conditions contained in this Lease, to compensate Landlord for any loss or damages which Landlord may suffer as a result thereof, including without limitation any lost rent to which Landlord is entitled in the event the Lease terminates or is rejected as a result of any of the foregoing. Should Landlord so apply any portion of the Security Deposit, Tenant shall replenish the Security Deposit to the original amount within ten (10) days after written demand by Landlord.

(b)    Landlord shall not be required to keep the Security Deposit separate from its general funds, and Tenant shall not be entitled to interest on the Security Deposit. If Tenant has fully complied with all of the terms, covenants and conditions of this Lease, the Security Deposit (less any amount previously refunded or applied to cleaning, repairing damage to the Premises caused by Tenant or otherwise applied in accordance with the provisions of this Lease) shall be returned to Tenant within thirty (30) days after the Expiration Date and after delivery of possession of the Premises to Landlord in the manner required by this Lease. In the event of any Assignment of this Lease by Tenant, such Assignment shall be deemed to include an assignment of Tenant’s rights to recover the Security Deposit, and Landlord’s agreement to return the Security Deposit shall run only to Tenant’s assignee and not to the original Tenant. Tenant hereby expressly waives the provisions of California Civil Code Section 1950.7 except for 1950.7(b) or under any similar law, statute or ordinance now or hereafter in effect.

(c)    The letter of credit that Tenant uses as the Security Deposit shall be issued by a money-center bank (a solvent, nationally recognized bank with a long term rating of BBB, or higher, under the supervision of the Superintendent of Banks of the State of California, or a national banking association, which accepts deposits, maintains accounts, has a local California office which will negotiate a letter of credit, and whose deposits are insured by the FDIC) reasonably approved by Landlord (the “ L-C Bank ”) and shall be in a form that is acceptable to Landlord in Landlord’s reasonable discretion. The L-C Bank shall be a bank that accepts deposits, maintains accounts, has a local Santa Clara County office that will negotiate the letter of credit, or if no local office then the letter of credit shall provide for draws by Landlord upon delivery of the written draw request by courier or by fax (to be confirmed by telephone and with original to follow within three (3) Business Days) and payment to be made by wire transfer to Landlord’s account as directed by Landlord upon receipt of the original or fax request. If Landlord notifies Tenant in writing that the L-C Bank that issued the letter of credit has become financially unacceptable, then Tenant shall have thirty (30) days to provide Landlord with a substitute letter of credit complying with all of the requirements hereof and issued by a L-C Bank reasonably approved by Landlord. In addition, if the L-C Bank is declared insolvent by the FDIC or otherwise closes, Tenant shall immediately provide Landlord with cash in the amount of the Security Deposit or a substitute letter of credit complying with all of the requirements hereof and issued by a L-C Bank reasonably approved by Landlord. If Tenant does not so provide

 

-8-


Landlord with cash in the amount of the Security Deposit or a substitute letter of credit within the applicable time period, such failure shall constitute an Event of Default hereunder and, in addition to any other rights or remedies available hereunder, Landlord shall have the right to draw upon the current letter of credit. Tenant shall pay all expenses, points, or fees incurred by Tenant in obtaining or extending the letter of credit. The letter of credit shall be available by draft at sight, subject only to receipt by the L-C Bank of a statement from Landlord certifying that an Event of Default or other matter allowing Landlord to draw upon the Security Deposit under the terms of this Lease has occurred. The letter of credit shall: (i) name Landlord as beneficiary; (ii) allow Landlord to make partial and multiple draws thereunder up to the face amount, as determined by Landlord in its sole discretion; and (iii) provide that Landlord can freely transfer it upon an assignment or other transfer of its interest in the Lease to the assignee or transferee, without charge to Landlord and without recourse, and without having to obtain the consent of Tenant or the L-C Bank. If transfer fees are assessed as a result of any transfer of the letter of credit by Landlord, Tenant shall pay such fees. Tenant shall cause the letter of credit to be transferred to Landlord’s assignee or transferee within ten (10) Business Days after Landlord’s written request, subject to Landlord surrendering the original letter of credit if a replacement letter of credit will need to be obtained. The letter of credit shall by its terms expire not less than one (1) year from the date issued, and shall provide for automatic one (1) year extensions unless Landlord is notified in writing not less than sixty (60) days prior to such expiration from the L-C Bank that the letter of credit will not be extended. In any event, unless Tenant deposits with Landlord a comparable cash Security Deposit or a replacement letter of credit, said letter of credit shall be renewed by Tenant for successive periods of not less than one (1) year throughout the Term. The letter of credit shall be maintained in effect, whether through renewal or extension, for the period from the Commencement Date and continuing until the date that is thirty (30) days after the Expiration Date. Tenant’s failure to so deliver, renew (including specifically but not limited to the delivery to Landlord of such renewal not less than thirty (30) days prior to expiration of the letter of credit) and maintain such letter of credit, shall be an Event of Default and shall entitle Landlord to draw upon such letter of credit. If any portion of the letter of credit is drawn upon, Tenant shall, within ten (10) days after written demand therefor from Landlord, reinstate the letter of credit to the amount then required under this Lease, and Tenant’s failure to do so shall be an Event of Default. The letter of credit shall not be mortgaged, assigned or encumbered in any manner whatsoever by Tenant without the prior written consent of Landlord.

(d)    If Tenant receives a written commitment letter from the United States Department of Energy for funding under its Advanced Technology Vehicle Manufacturing Loan Program for the power train facility and production of EV power train components in an amount no less than Seventy-Five Million Dollars ($75,000,000, and Landlord receives the Rent owed by Tenant under this Lease for the nineteenth (19th) month of the Term, the Security Deposit shall be reduced to One Hundred Sixty-Five Thousand Dollars ($165,000). Landlord acknowledges that the loan will be funded based upon costs incurred and will have a draw down period of approximately three years.

6.    USE OF PREMISES AND CONDUCT OF BUSINESS

 

-9-


6.1     Permitted Use . Tenant may use and occupy the Premises during the Term solely for the uses specified and permitted in Article 1 and for no other purpose without the prior written consent of Landlord, such consent to be granted or withheld in Landlord’s sole and unfettered discretion. Tenant’s use of the Premises shall in all respects comply with all Applicable Laws (as defined in Section 11.1).

6.2     Prohibited Uses . Tenant shall not use the Premises or allow the Premises to be used for any illegal or immoral purpose, or so as to create waste, or constitute a private or public nuisance. Tenant shall use reasonable efforts to maintain cooperative relations with the occupants of neighboring buildings, including residential neighborhoods in the vicinity of the Premises. Such cooperation shall include, as reasonably requested by Landlord (a) sending a representative to community meetings, (b) responding to complaints regarding operational issues (i.e. lighting, parking, noise, etc.), and (c) advising Tenant’s employees regarding issues of concern to Tenant’s neighbors. Tenant shall not use Deer Creek Road for any staging or loading purposes and shall not block or restrict traffic on Deer Creek Road at any time. Tenant shall not place any loads upon the floors, walls, or ceiling that endanger the structure, or overload existing electrical or other mechanical systems. Tenant shall not use any machinery or equipment which causes any substantial noise or substantial vibration. No waste materials or refuse shall be dumped upon or permitted to remain upon any part of the Premises or outside of the Premises except in trash containers placed inside exterior enclosures designated by Landlord for that purpose or inside of the Premises where approved by Landlord. Except as provided in Section 2.2, no materials, supplies, equipment, finished products or semi-finished products, raw materials or articles of any nature shall be stored upon or permitted to remain outside the Premises unless otherwise approved by Landlord in its sole discretion. No loudspeaker or other device, system or apparatus which can be heard outside the Premises shall be used in or at the Premises without the prior written consent of Landlord. No explosives or firearms shall be brought into the Premises.

6.3     Governmental Authorities . Except as permitted under other provisions of this Lease, or in response to an emergency, Tenant shall not initiate any communications regarding the Premises or Tenant’s use thereof, whether written or oral, with any governmental authorities without Landlord’s prior written consent, which consent Landlord shall not unreasonably withhold, condition or delay. Landlord shall have the right to approve any written communications from Tenant to a governmental authority relating to the Premises or Tenant’s use thereof, and shall have the right to have a representative participate in any oral communications (whether in person or by telephone). Tenant shall give Landlord no less than forty-eight (48) hours prior written notice of any proposed telephone conferences or meetings with a governmental entity in order to allow Landlord’s participation. Tenant shall promptly notify Landlord of any communications otherwise permitted under this Lease or in response to an emergency. Without limiting the foregoing, the parties agree that Tenant will coordinate any applications or other filings under the National Environmental Policy Act or the California Environmental Quality Act, and the provisions of this Section shall apply to all communications with governmental authorities regarding such applications and/or filings.

 

-10-


7.    NET LEASE; ADDITIONAL RENT

7.1     Net Lease . The Rent due hereunder shall be absolutely net to Landlord and shall be paid without assertion of any counterclaim, offset, deduction or defense and without abatement, suspension, deferment or reduction. Landlord shall not be expected or required under any circumstances or conditions whatsoever, whether now existing or hereafter arising, and whether now known or unknown to the parties, to make any payment of any kind whatsoever with respect to the Premises or be under any obligation or liability hereunder, except if and solely to the extent expressly so provided in this Lease.

7.2     Real Property Taxes . Tenant shall pay, as Additional Rent under this Lease, to the relevant authority or entity, in lawful money of the United States, without offset or deduction, prior to delinquency, all taxes, assessments, rates, charges, license fees, municipal liens, levies, excises or imposts, whether general or special, or ordinary or extraordinary, of every name, nature and kind whatsoever, including all governmental charges of every name, nature or kind that may be levied, assessed, charged or imposed or may be or become a lien or charge upon the Premises or any part thereof; or upon the rent or income of Tenant; or upon the use or occupancy of the Premises; upon any of the buildings or improvements that are or are hereafter placed upon the Premises; or upon the leasehold of Tenant or upon the estate hereby created; or upon Landlord by reason of its ownership of the fee underlying this Lease (but not including any franchise, transfer, inheritance, or capital stock taxes or income taxes measured by the net income of Landlord unless, due to a change in the method of taxation, any of such taxes is levied or assessed against Landlord as a substitute for, in whole or in part, any other tax that would otherwise be the responsibility of Tenant). if at any time during the Term, under any Applicable Laws, any tax is levied or assessed against Landlord directly, in substitution in whole or in part for real property taxes, Tenant covenants and agrees to pay and discharge such tax. All of the foregoing taxes, assessments and other charges which are the responsibility of Tenant are herein referred to as “ Real Property Taxes .” Tenant shall obtain and deliver to Landlord, promptly upon request therefor, satisfactory evidence of payment of all Real Property Taxes. Any Real Property Taxes relating to a fiscal period of any taxing authority, only a part of which period is included within the Term, shall be prorated as between Landlord and Tenant so that Landlord shall pay the portion thereof attributable to any period outside the Term, and Tenant shall pay the portion thereof attributable to any period within the Term.

7.3     Right to Contest Taxes . Tenant shall have the right to contest, by appropriate proceedings, the amount or validity, in whole or in part, of any Real Property Taxes; provided that Tenant shall give Landlord prior written notice of any proposed contest, and the right to comment on any documentation Tenant proposes to submit to the County of Santa Clara. In the event the applicable taxing authority having jurisdiction over the contest proceedings allows the posting of security or some other method of deferring payment of the disputed Real Property Taxes, Tenant may do so; otherwise Tenant shall not postpone or defer payment of any disputed Real Property Taxes but shall pay such Real Property Taxes in accordance with Section 7.2 notwithstanding such contest. Landlord shall have no obligation to join in any such proceedings. Tenant shall indemnify

 

-11-


and defend Landlord against and hold Landlord harmless from and against any and all claims, demands, losses, costs, liabilities, damages, penalties and expenses, including, without limitation, reasonable attorneys’ fees and expenses, arising from or in connection with any such proceedings. The provisions of this Section shall in no way limit or supersede Landlord’s right to contest Real Property Taxes applicable to the Premises, and Tenant shall reasonably cooperate with any contest by Landlord.

7.4     Insurance Costs . Tenant shall reimburse Landlord for all premiums and costs for insurance carried by Landlord on the Premises or in connection with the use or occupancy thereof (including all amounts paid as a result of loss sustained that would be covered by such policies but for deductibles or self-insurance retentions), including, but not limited to, the premiums and costs of fire and extended coverage, earthquake, flood, vandalism and malicious mischief, commercial liability and property damage, worker’s compensation insurance, rental income insurance and any other insurance commonly carried by prudent owners of comparable buildings (collectively, “ Insurance Costs ”); provided, however, that Landlord may, but shall not be obligated to carry earthquake insurance on the Premises. Commencing on the Commencement Date, Tenant shall pay to Landlord as Additional Rent one twelfth (1/12) of the Insurance Costs for each calendar year or portion thereof during the Term, in advance, on or before the first day of each month in an amount estimated by Landlord as stated in a written notice to Tenant. Landlord may by written notice to Tenant revise such estimates from time to time and Tenant shall thereafter make payments on the basis of such revised estimates. With reasonable promptness after the expiration of each calendar year, Landlord will furnish Tenant with a statement setting forth in reasonable detail the actual Insurance Costs for the prior calendar year. If the actual Insurance Costs for such year exceed the estimated Insurance Costs paid by Tenant for such year, Tenant shall pay to Landlord (whether or not this Lease has terminated) the difference between the amount of estimated Insurance Costs paid by Tenant and the actual Insurance Costs within fifteen (15) days after the receipt of Landlord’s statement of Insurance Costs. If the total amount paid by Tenant for any year exceeds the actual Insurance Costs for that year, the excess shall be credited against the next installments of Base Rent due from Tenant to Landlord, or, if after the Termination Date, the excess shall first be credited against any unpaid Base Rent or Additional Rent due and any remaining excess shall be refunded to Tenant concurrently with the furnishing of Landlord’s statement of Insurance Costs. If either the Commencement Date or the Termination Date occurs on a date other than the first or last day, respectively, of a calendar year, Insurance Costs for the year in which the Commencement Date or Termination Date occurs shall be prorated based on a 365-day year.

7.5     Utilities . Tenant shall be solely responsible for and shall make all arrangements for all utilities and services furnished to or used at the Premises, including, without limitation, all water, gas, electricity, telephone, telecommunications and other electronic communication services or systems, landscaping, sewer service, waste pick-up, janitorial and any other materials, utilities and services.

 

-12-


7.6     Taxes on Tenant’s Property and Business . Tenant shall pay prior to delinquency all taxes levied or assessed by any local, state or federal authority upon the conduct of Tenant’s business in the Premises or upon Tenant’s Property (as defined in Section 9.7) and shall deliver satisfactory evidence of such payment to Landlord. If the assessed value of the Premises is increased by the inclusion of a value placed upon Tenant’s Property, Tenant shall pay the taxes so levied.

7.7     Transit Fees . Tenant shall pay as Additional Rent under this Lease its proportionate share of the cost of any transit services or traffic mitigation programs that Landlord implements in the Stanford Research Park, including without limitation charges for service and surcharges imposed directly or indirectly on the Premises by any governmental agencies on or with respect to transit (including transit services which may be provided in the future to occupants of the Stanford Research Park) or automobile usage or parking facilities (collectively, “ Transit Fees ”). The share of Transit Fees allocated to the Premises shall be assessed pro rata and on a non-discriminatory basis, based on a reasonable standard applied in a non-discriminatory manner by Landlord (for example, based on the rentable area of the Buildings as compared to the total rentable area of the Stanford Research Park (or the area being served by the service, if less than the entire Stanford Research Park), or based on the average employee headcount in the Buildings as compared to the overall employee density of the Stanford Research Park). Notwithstanding the foregoing, (a) no Transit Fees shall be due or payable during the first twenty-four (24) months of the Term, and (b) in no event shall Tenant’s share of Transit Fees exceed ten cents ($.10) per square foot of Rentable Area in the Premises per calendar year, not to exceed Thirty-Five Thousand Dollars ($35,000) per calendar year. Transit Fees shall be paid by Tenant in the manner described above for the payment of Insurance Costs.

8.    REPAIRS, MAINTENANCE AND SERVICES

8.1     Landlord’s Obligations . Except as expressly provided in this Lease, Landlord shall not be required to maintain or repair the Premises or furnish any services, facilities or utilities to the Premises or to Tenant. Notwithstanding the foregoing, Landlord hereby warrants that the cooling tower, boiler, chiller and air handlers of the heating, ventilating and air conditioning system serving the following portions of the Premises: Building 25 Ground Level, Building 26 Basement Level, Building 26 Ground Level and Building 26 Upper Level (collectively, the “ Main HVAC System Components ”) are in good operating condition. Landlord’s warranty shall continue for a period of twelve (12) months after the Commencement Date (the “ Warranty Period ”). In the event a Main HVAC System Component is in need of repair or replacement and Tenant notifies Landlord in writing of such need during the Warranty Period, Landlord shall repair or replace such Main HVAC System Component at Landlord’s sole cost and expense; provided that such warranty shall not cover any repair that is attributable to misuse by Tenant or Tenant’s Agents or Tenant’s failure to comply with its maintenance obligations as set forth in Section 8.2 below.

 

-13-


8.2     Tenant’s Obligations . Except as otherwise expressly provided in Section 8.1, Tenant assumes full responsibility for the condition, repair, replacement and maintenance of the Premises, including, without limitation, the exterior of the Premises, the foundation, floor/ceiling slabs, roof, curtain wall, exterior glass and mullions, columns, beams, shafts (including elevator shafts), stairs, stairwells and elevators (collectively, the “ Building Structure ”), and all air conditioning, electricity, steam, water, heating, ventilating, mechanical, lighting, escalator and elevator systems, sanitary and storm drainage systems and all other utilities and mechanical systems (the “ Building Systems ”). Tenant shall repair, replace and maintain the Premises (including the Building Structure and Building Systems) in good working order and in a clean, safe and sanitary condition. Tenant shall perform all such work and activities diligently and expeditiously to completion and in a manner consistent with comparable buildings located in the Stanford Research Park in Palo Alto. Without limiting the generality of the foregoing, Tenant shall implement and execute an on-going preventative maintenance program covering the heating, ventilating and air conditioning systems servicing the Premises, including the Main HVAC System Components that is consistent with best industry practices. All repairs and replacements by Tenant for which Tenant is responsible are collectively referred to as the “ Tenant Obligations ” and shall be made and performed: (a) at Tenant’s cost and expense, (b) by licensed and reputable contractors or mechanics approved by Landlord, (c) so that same shall be at least equal in quality, value and utility to the original work or installation, (d) in a manner and using equipment and materials that will not interfere with or impair the operation of or damage the Building Systems, and (e) in accordance with Article 9 (if applicable), and all Applicable Laws. Tenant shall reimburse Landlord within ten (10) days after written demand as Additional Rent for any out-of-pocket expenses incurred by Landlord in connection with any repairs or replacements required to be made by Tenant, including, without limitation, any reasonable fees charged by Landlord’s contractors to review plans and specifications prepared by Tenant.

8.3     Security . Tenant shall be solely responsible for the security of the Premises and Tenant and Tenant’s Agents while in or about the Premises. Landlord shall not be obligated to provide any security services to the Premises. Any security services provided to the Premises by Landlord shall be at Landlord’s sole discretion and Landlord shall not be liable to Tenant or Tenant’s Agents for any failure to provide security services or any loss, injury or damage suffered as a result of a failure to provide security services.

8.4     Landlord’s Right To Perform . In the event Tenant fails to perform or adequately perform any of Tenant’s Obligations as reasonably determined by Landlord, and upon fifteen (15) days written notice to Tenant, may terminate Tenant’s right to perform Tenant’s Obligations. In the event Landlord exercises such right, Landlord shall then assume for itself or assign to Landlord’s property manager all responsibility for the performance of all such Tenant’s Obligations for the remainder of the Term, and Tenant shall reimburse Landlord, as Additional Rent, for (a) the cost of performing all such Tenant’s Obligations, and (b) a commercially reasonable property management fee, within twenty (20) days after receipt of an invoice from Landlord.

 

-14-


9.    INITIAL IMPROVEMENT WORK; ALTERATIONS

9.1     Landlord’s Work . Landlord shall, at its sole cost and expense, (a) complete the work described in the attached Exhibit C (“ Landlord’s Environmental Work ”), and (b) install a new minimum 650-ton cooling tower in the Premises (with Landlord’s Environmental Work, collectively, “ Landlord’s Work ”). Notwithstanding the terms hereof and of Exhibit C , the actual scope of Landlord’s Environmental Work may be modified by Landlord as reasonably necessary to address the actual environmental condition of the Premises, but shall not be materially reduced below the scope of work set forth in Exhibit C . Landlord will provide to Tenant upon completion of Landlord’s Environmental Work a report describing the actual scope and extent of Landlord’s Environmental Work (including soil vapor testing), which report will be deemed to modify the definition of Landlord’s Environmental Work for all purposes under this Lease. Without limiting the foregoing, Tenant agrees and acknowledges that after completion of Landlord’s Environmental Work, certain Hazardous Materials may remain in the Buildings, as more particularly described in the attached Schedule 9.1 (collectively, the “ Remaining Materials ”). Landlord will deliver to Tenant a final report from Landlord’s environmental consultant documenting the completion of Landlord’s Environmental Work. Except for Landlord’s Work and Landlord’s obligations under Section 8.1, the Premises as furnished by Landlord will consist of the improvements and fixtures as they exist in the Premises on and as of the Commencement Date, and Landlord shall have no obligation for construction work or for making or installing any improvements, fixtures or equipment on, to or within the Premises.

9.2     Tenant Improvement Work . Other than Landlord’s Work, Tenant shall be responsible for performing any work required to prepare the Premises for Tenant’s intended purpose (the “ Tenant Improvement Work ”). Within thirty (30) days after the execution of this Lease, Tenant shall submit to Landlord, for review and approval, detailed plans for the Tenant Improvement Work. All Tenant Improvement Work shall be constructed at Tenant’s sole cost and expense, in a good and workmanlike manner and in compliance with all Applicable Laws. Without limiting any other provision of this Lease, all of the provisions of this Article 9 and of Article 10 (Liens) shall apply to the Tenant Improvement Work. Landlord and Landlord’s Agents shall not unreasonably interfere with the Tenant Improvement Work. Tenant and Tenant’s Agents shall cooperate with and provide reasonable access to Landlord and Landlord’s Agents to the Premises for the completion of Landlord’s Work, and shall not unreasonably interfere with the completion of Landlord’s Work.

9.3     Alterations by Tenant . Tenant shall not make or permit any alterations to the Building Systems, and shall not make or permit any alterations, installations, additions or improvements, structural or otherwise (collectively, “ Alterations ”) in or to the Premises, including the Tenant Improvement Work, without Landlord’s prior written consent, which Landlord shall not unreasonably withhold, condition or delay. Landlord shall respond to any request by Tenant to make any Alteration within ten (10) Days after receipt of such request for consent from Tenant, which request shall include submission of detailed plans and specifications for the Alterations and all other information

 

-15-


reasonably required by Landlord to act on the request per the standards and requirements set forth in this Article 9. Notwithstanding the foregoing, Landlord’s consent shall not be required (a) in the case of interior, cosmetic nonstructural Alterations that do not require a permit, affect the Building Systems, or affect the exterior appearance of any Building; or (b) in the case of other Alterations that do not exceed a total price of One Hundred Fifty Thousand Dollars ($150,000) per project and do not affect the Building Systems or the structural integrity of any Building. All Alterations shall be done at Tenant’s sole cost and expense, including without limitation the cost and expense of obtaining all permits and approvals required for any Alterations.

9.4     Project Requirements . The following provisions of this Section 9.4 shall apply to the Tenant Improvement Work and all Alterations, whether or not requiring Landlord’s approval (unless otherwise noted):

(a)    Prior to entering into a contract for any Tenant Improvement Work or Alterations requiring Landlord’s approval, Tenant shall obtain Landlord’s written approval, which approval shall not be unreasonably withheld, conditioned or delayed, of the identity of each of the design architect and the general contractor.

(b)    Before commencing the construction of any Tenant Improvement Work or Alterations, Tenant shall procure or cause its general contractor to procure the insurance coverage described below and provide Landlord with certificates of such insurance in form reasonably satisfactory to Landlord. All such insurance shall comply with the following requirements of this Section and of Section 13.2.

(i)    During the course of construction, to the extent not covered by property insurance maintained by Tenant pursuant to Section 13.2, comprehensive “all risk” builder’s risk insurance, including vandalism and malicious mischief, excluding earthquake and flood, covering all improvements in place on the Premises, all materials and equipment stored at the site and furnished under contract, and all materials and equipment that are in the process of fabrication at the premises of any third party or that have been placed in transit to the Premises when such fabrication or transit is at the risk of, or when title to or an insurable interest in such materials or equipment has passed to, Tenant or its construction manager, contractors or subcontractors (excluding any contractors’, subcontractors’ and construction managers’ tools and equipment, and property owned by the employees of the construction manager, any contractor or any subcontractor), such insurance to be written on a completed value basis in an amount not less than the full estimated replacement cost of the Alterations.

(ii)    Commercial general liability insurance covering Tenant, Landlord and each construction manager, contractor and subcontractor engaged in any work on the Premises, which insurance may be effected by endorsement, if obtainable, on the policy required to be carried pursuant to. Section 13.2, including insurance for completed operations, elevators, owner’s, construction manager’s and contractor’s protective liability, products completed operations for one (1) year after the date of acceptance of the work by Tenant, broad form blanket contractual liability, broad form

 

-16-


property damage and full form personal injury (including but not limited to bodily injury), covering the performance of all work at or from the Premises by Tenant, its construction manager, contractors and subcontractors, and in a liability amount not less than the amount at the time carried by prudent owners of comparable construction projects, but in any event not less than the following amounts of combined single limit coverage: One Million Dollars ($1,000,000) for projects with an estimated cost of $150,000 or less, Three Million Dollars ($3,000,000) for projects with an estimated cost above $150,000 and up to $500,000, and Five Million Dollars ($5,000,000) for projects with an estimated cost in excess of $500,000. Such policy shall include thereunder for the mutual benefit of Landlord and Tenant, bodily injury liability and property damage liability, and automobile insurance on any non-owned, hired or leased automotive equipment used in the construction of any work.

(iii)    Workers’ Compensation Insurance approved by the State of California, in the amounts and coverages required under workers’ compensation, disability and similar employee benefit laws applicable to the Premises, and Employer’s Liability Insurance with limits not less than One Million Dollars ($1,000,000) or such higher amounts as may be required by law.

(c)    All construction and other work shall be done at Tenant’s sole cost and expense and in a good and workmanlike manner. Tenant shall cause all work to be performed in accordance with all Applicable Laws, and with plans and specifications that are in accordance with the provisions of this Article 9 and all other provisions of this Lease.

(d)    Prior to the commencement of any Alteration in excess of Twenty- Five Thousand Dollars ($25,000), Landlord shall have the right to post in a conspicuous location on the Premises and to record in the public records a notice of Landlord’s nonresponsibility. Tenant covenants and agrees to give Landlord at least ten (10) days prior written notice of the commencement of any such Alteration in order that Landlord shall have sufficient time to post such notice.

(e)    Tenant shall reimburse Landlord within ten (10) days after written demand as Additional Rent for any out-of-pocket expenses incurred by Landlord in connection with the Alterations (not including any Tenant Improvement Work) and/or any repairs or replacements required to be made by Tenant, including, without limitation, any reasonable fees charged by Landlord’s contractors and/or consultants to review plans and specifications or working drawings prepared by Tenant. Tenant acknowledges and agrees that Landlord and Landlord’s contractors and consultants, in reviewing Tenant’s plans and specifications or working drawings, in granting approval for them, and in approving any work done by Tenant, owe no duty and assume no responsibility to Tenant for the design or construction of the Tenant Improvement Work or Alterations, it being expressly understood and agreed that Landlord, its contractors and consultants may, in their sole discretion, limit the scope of its review to only such matters as may appear appropriate or necessary in the interests of Landlord.

(f)    Tenant shall take all necessary safety precautions during any construction.

 

-17-


(g)    Within sixty (60) days after the Tenant Improvement Work with respect to the Premises has been substantially completed, Tenant shall, at its cost, deliver copies of annotated plans and specifications to Landlord in hard copy and Adobe Acrobat and AutoCAD formats.

(h)    Upon completion of the construction of the Tenant Improvement Work and any Alterations in excess of Twenty-Five Thousand Dollars ($25,000) during the Term, Tenant shall file for recordation, or cause to be filed for recordation, a notice of completion and shall deliver to Landlord evidence satisfactory to Landlord of payment of all costs, expenses, liabilities and liens arising out of or in any way connected with such construction (except for liens that are contested in the manner provided herein).

9.5     Communications and Computer Lines . Tenant may install, maintain, replace, remove or use any communications or computer wires and cables serving the Premises, provided that (a) Tenant shall obtain Landlord’s prior written consent, use an experienced and qualified contractor approved in writing by Landlord, and otherwise comply with all provisions of this Article 9 in connection with the work.

9.6     Ownership of Improvements . Except as provided in Section 9.7, all Tenant Improvement Work, Alterations, and any other appurtenances, fixtures, improvements, equipment, additions and property permanently attached to or installed in the Premises at the commencement of or during the Term, shall at the end of the Term become Landlord’s property without compensation to Tenant, or be removed in accordance with this Section. Upon written request by Tenant, Landlord shall notify Tenant in writing at the time of Landlord’s approval of the Tenant Improvement Work or Alterations, as applicable, whether or not the proposed Tenant Improvement Work and/or Alterations will be required to be removed by Tenant at the end of the Term; provided that Landlord shall not require removal unless Tenant’s failure to remove such Tenant Improvement Work or Alterations will, in Landlord’s reasonable opinion, cause Landlord to incur additional demolition costs beyond those that would otherwise be incurred by Landlord in the ordinary course of demolition. If Tenant does not request an advance determination by Landlord, Landlord shall notify Tenant in writing prior to the Termination Date whether or not Tenant will be required to remove the Tenant Improvement Work or Tenant Alterations installed by Tenant at the end of the Term, using the same criteria as described in the previous sentence. If Landlord fails to so notify Tenant, Tenant shall not be required to remove any Tenant Improvement Work and Alterations. Tenant shall repair or pay the cost of repairing any damage to the Premises caused by the removal of Tenant Improvement Work or Alterations. If Tenant fails to perform its repair or removal obligations, without limiting any other right or remedy, Landlord may on five (5) Business Days prior written notice to Tenant perform such obligations at Tenant’s expense without liability to Tenant for any loss or damage, and Tenant shall reimburse Landlord within twenty (20) days after demand for all out-of-pocket costs and expenses incurred by Landlord in connection with such repair or removal. Tenant’s obligations under this Section shall survive the termination of this Lease.

9.7     Tenant’s Personal Property . All furniture, trade fixtures, furnishings, equipment and articles of movable personal property installed in the Premises by or for the

 

-18-


account of Tenant (except for ceiling and related fixtures, HVAC equipment and floor coverings, which shall become the property of Landlord at the end of the Term), and which can be removed without structural or other material damage to the Premises (collectively, “ Tenant’s Property ”) shall be and remain the property of Tenant and may be removed by it at any time during the Term. Tenant shall remove from the Premises all Tenant’s Property on or before the Termination Date, except such items as the parties have agreed pursuant to the provisions of this Lease or by separate agreement are to remain and to become the property of Landlord. Tenant shall repair or pay the cost of repairing any damage to the Premises resulting from such removal, and the provisions of Section 9.6 above shall apply in the event Tenant fails to do so. Any items of Tenant’s Property which remain in the Premises after the Termination Date may, on five (5) Business Days prior written notice to Tenant, at the option of Landlord, be deemed abandoned and in such case may either be retained by Landlord as its property or be disposed of, without accountability, at Tenant’s expense in such manner as Landlord may see fit.

10.    LIENS

Tenant shall keep the Premises free from any liens arising out of any work performed, material furnished or obligations incurred by or for Tenant. If Tenant shall not, within twenty (20) days after notice of the imposition of any such lien, cause the lien to be released of record by payment or posting of a proper bond, Landlord shall have, in addition to all other remedies provided in this Lease and by law, the right but not the obligation to cause any such lien to be released by such means as it shall deem proper, including payment of the claim giving rise to such lien. All such sums paid by Landlord and all expenses incurred by it in connection therewith (including, without limitation, reasonable counsel fees) shall be payable to Landlord by Tenant upon demand with interest from the date incurred at the Interest Rate. Landlord shall have the right at all times to post and keep posted on the Premises any notices permitted or required by Applicable Laws or that Landlord shall deem proper for the protection of Landlord, the Premises from mechanics’ and materialmen’s liens, as more specifically provided in Section 9.4(d).

11.    COMPLIANCE WITH LAWS AND INSURANCE REQUIREMENTS

11.1     Applicable Laws . Tenant, at Tenant’s cost and expense, shall comply with all applicable laws, statutes, codes, ordinances, orders, rules, regulations, entitlements, and requirements, of all federal, state, county, municipal and other governmental authorities and the departments, commissions, boards, bureaus, instrumentalities, and officers thereof, and all administrative or judicial orders or decrees and all permits, licenses, approvals and other entitlements issued by governmental entities, and rules of common law, whether now existing or hereafter enacted (collectively, “ Applicable Laws ”), relating to or affecting the Premises or the use, alteration, operation or occupancy of the Premises. Without limiting the foregoing, Tenant shall be solely responsible for compliance with and shall make or cause to be made all such improvements and alterations to and within the Premises (including, without limitation, removing barriers and providing alternative services) as shall be required to comply with all Applicable Laws relating to public accommodations, including the Americans with

 

-19-


Disabilities Act of 1990, 42 U.S.C. §§ 12111 et seq. (the “ ADA ”), and the ADA Accessibility Guidelines promulgated by the Architectural and Transportation Barriers Compliance Board, the public accommodations title of the Civil Rights Act of 1964, 42 U.S.C. §§ 2000a et. seq., the Architectural Barriers Act of 1968, 42 U.S.C. §§ 4151 et. seq., as amended, Title V of the Rehabilitation Act of 1973, 29 U.S.C. §§ 790 et. seq., the Minimum Guidelines and Requirements for Accessible Design, 36 C.F.R. Part 1190, the Uniform Federal Accessibility Standards, and Title 24 of the California Code of Regulations, as the same may be amended from time to time, or any similar or successor laws, ordinances and regulations, now or hereafter adopted. Tenant’s liability shall be primary and Tenant shall indemnify Landlord in accordance with Section 13.1 in the event of any failure or alleged failure of Tenant to comply with Applicable Laws. Any work or installations made or performed by or on behalf of Tenant or any person or entity claiming through or under Tenant pursuant to the provisions of this Section shall be made in conformity with and subject to the provisions of Article 9. Tenant shall deliver to Landlord within five (5) days of receipt, a copy of any notice from any governmental authority relating to any violation or alleged violation of any Applicable Law pertaining to the Premises or activities in, on or about the Premises.

11.2     Insurance Requirements . Tenant shall not do anything, or permit anything to be done, in or about the Premises that would: (a) invalidate or be in conflict with the provisions of or cause any increase in the applicable rates for any fire or other insurance policies covering the Premises or any property located therein (unless Tenant pays for such increased costs), or (b) result in a refusal by fire insurance companies of good standing to insure the Premises or any such property in amounts reasonably satisfactory to Landlord (which amounts shall be comparable to the amounts required by comparable landlords of comparable buildings, or (c) subject Landlord to any liability or responsibility for injury to any person or property by reason of any business operation being conducted in the Premises. Tenant, at Tenant’s expense, shall comply with all rules, orders, regulations or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body that shall hereafter perform the function of such Association.

12.    HAZARDOUS MATERIALS

12.1     Definitions . As used in this Lease, the following terms shall have the following meanings:

(a)    “ Environmental Activity ” means any use, treatment, keeping, storage, holding, release, emission, discharge, manufacturing, generation, processing, abatement, removal, disposition, handling, transportation, deposit, leaking, spilling, injecting, dumping or disposing of any Hazardous Materials from, into, on or under the Premises, and shall include the Exacerbation of the Pre-Existing Condition by Tenant or any of Tenant’s Agents.

(b)    “ Environmental Laws ” mean all Applicable Laws, now or hereafter in effect, relating to environmental conditions, industrial hygiene, Environmental

 

-20-


Activity or Hazardous Materials on, under or about the Premises, including without limitation the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Solid Waste Disposal Act, 42 U.S.C. Section 6901, et seq., the Clean Water Act, 33 U.S.C. Section 1251, et seq., the Clean Air Act, 42 U.S.C. Section 7401, et seq., the Toxic Substances Control Act, 15 U.S.C. Section 2601 through 2629, the Safe Drinking Water Act, 42 U.S.C. Sections 300f through 300j, and any similar federal, state and local laws and ordinances and the regulations now or hereafter adopted and published and/or promulgated pursuant thereto.

(c)    “ Exacerbation ” means any direct, material adverse impact on a Pre-Existing Condition. Exacerbation includes, without limitation, actions which speed, redirect or enhance the migration of groundwater contamination that is an element of the Pre-Existing Condition in a fashion that causes a material adverse impact (for example, by causing Hazardous Materials to migrate to deeper aquifers), and actions which cause damage to or limit the effectiveness of any existing remediation systems or equipment.

(d)    “ Hazardous Material ” means any chemical, substance, medical or other waste, living organism or combination thereof which is or may be hazardous to the environment or human or animal health or safety due to its radioactivity, ignitability, corrosivity, reactivity, explosivity, toxicity, carcinogenicity, mutagenicity, phytotoxicity, infectiousness or other harmful or potentially harmful properties or effects. Hazardous Materials shall include, without limitation, petroleum hydrocarbons, including MTBE, crude oil or any fraction thereof, asbestos, radon, polychlorinated biphenyls (PCBs), methane, lead, urea, formaldehyde foam insulation, microbial matter (including mold, fungus or spores) and all substances which now or in the future may be defined as “hazardous substances,” “hazardous wastes,” “extremely hazardous wastes,” “hazardous materials,” “toxic substances,” “infectious wastes,” “biohazardous wastes,” “medical wastes,” “radioactive wastes” or which are otherwise listed, defined or regulated in any manner pursuant to any Environmental Laws.

(e)    “ Tenant’s Hazardous Materials ” means any Hazardous Materials resulting from, or used in connection with, any Environmental Activity by Tenant or any of Tenant’s Agents.

12.2     Environmental Releases .

(a)    Landlord hereby informs Tenant that detectable amounts of Hazardous Materials have come to be located on, beneath and/or in the vicinity of the Premises, as more particularly described on the attached Schedule 12.2(a) (and together with the Remaining Materials, the “ Pre-Existing Condition ”). Landlord has made available to Tenant all material documentation in Landlord’s possession regarding the Pre-Existing Condition. Tenant has made such investigations and inquiries as it deems appropriate to ascertain the effects, if any, of the Pre-Existing Condition on its operations and persons using the Premises. Landlord makes no representation or warranty with regard to the environmental condition of the Premises. Except for Landlord’s obligation to perform

 

-21-


Landlord’s Environmental Work and Landlord’s obligations under Section 12.5(b), Tenant hereby releases Landlord and Landlord’s officers, directors, trustees, agents and employees from any and all claims, demands, debts, liabilities, and causes of action of whatever kind or nature, whether known or unknown or suspected or unsuspected which Tenant or any of Tenant’s Agents may have, claim to have, or which may hereafter accrue against the released parties or any of them, arising out of or relating to or in any way connected with Hazardous Materials presently in, on or under, or now or hereafter emanating from or migrating onto the Premises, including without limitation the Pre- Existing Condition. In connection with such release, Tenant hereby waives any and all rights conferred upon it by the provisions of Section 1542 of the California Civil Code, which reads as follows:

A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.

(b)    Except to the extent of Tenant’s indemnity as set forth in Section 12.5(a), Tenant’s obligations under this Article 12, or any Exacerbation by Tenant or Tenant’s Agents of the Pre-Existing Condition, Landlord hereby releases Tenant from any and all claims, demands, debts, liabilities and causes of action of whatever kind or nature, whether known or unknown or suspected or unsuspected which Landlord or any of Landlord’s Agents may have, claim to have or which may hereafter accrue against the released parties or any of them, arising out of or relating to or in any way connected with Hazardous Materials presently in, on or under the Premises, including without limitation the Pre-Existing Condition. In connection with such release, Landlord hereby waives any and all rights conferred upon it by the provisions of Section 1542 of the California Civil Code, which reads as follows:

A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him or her must have materially affected his or her settlement with the debtor.

Landlord agrees that Tenant may request a “comfort” letter from the RWQCB confirming that the RWQCB will not hold Tenant liable for the Pre-Existing Condition; provided that Tenant’s inability to obtain such a letter shall not result in any liability of Landlord to Tenant, or have any effect on the terms, conditions or enforceability of this Lease.

12.3     Use of Hazardous Materials . Tenant shall not cause or permit any Hazardous Materials to be used, treated, stored, transported, handled, discharged, released or disposed of in, on, from, under or about the Premises except in strict compliance with all Applicable Laws, including all Environmental Laws, and then only to the extent reasonably necessary for Tenant’s permitted use of the Premises and in compliance with the provisions of this Article 12. Tenant shall not cause or permit any Hazardous Materials to be used, stored, discharged, released or disposed of in, on, from, under or

 

-22-


about any other land or improvements in the vicinity of the Premises. As of the Commencement Date, Tenant has provided and Landlord has approved Tenant’s Hazardous Materials business plan filed with the City of Palo Alto Fire Department, a copy of which is attached as Exhibit D (the “ Approved Plan ”). In no event shall Tenant bring onto the Premises any Hazardous Materials other than those listed on the Approved Plan. In the event Tenant desires to update or amend the Approved Plan, or to bring additional Hazardous Materials onto the Premises, Tenant shall obtain Landlord’s prior written consent, which Landlord may withhold in its sole discretion. Landlord shall respond to Tenant’s request for such consent within three (3) Business Days after receipt of such request. Without limiting the foregoing, (a) Tenant shall, at its own expense, procure, maintain in effect and comply with all conditions of any and all permits, licenses, and other governmental and regulatory approvals required for Tenant’s use of Hazardous Materials at the Premises, including, without limitation, discharge of appropriately treated materials or wastes into or through any sanitary sewer serving the Premises; and (b) Tenant shall not be permitted to install any underground piping for delivery of any Hazardous Materials or other liquid or gaseous substances; it being the understanding of the parties that any such piping must be approved in writing by Landlord and must be installed above ground. Tenant shall in all respects handle, treat, deal with and manage any and all Tenant’s Hazardous Materials in strict conformity with all Environmental Laws and prudent industry practices regarding management of such Hazardous Materials.

12.4     Remediation of Hazardous Materials . Tenant shall, upon demand of Landlord, and at Tenant’s sole cost and expense, promptly take all actions to remediate the Premises from the effects of any Tenant’s Environmental Activity. Such actions shall include, but not be limited to, the investigation of the environmental condition of the Premises (other than the Pre-Existing Condition), the preparation of any feasibility studies, reports or remedial plans, and the performance of any cleanup, remediation, containment, operation, maintenance, monitoring or restoration work with respect to Tenant’s Environmental Activity, whether on or off of the Premises. Subject to the effects of the Pre-Existing Condition, Tenant shall take all actions necessary to remediate the Premises from the effects of such Tenant’s Environmental Activity to a condition allowing unrestricted use of the Premises (i.e. to a level that will allow any future use of the Premises, including residential, hospital, or day care, without any engineering controls or deed restrictions), notwithstanding any lesser standard of remediation allowable under Applicable Laws. The foregoing sentence shall not be deemed to require that Tenant undertake any remediation of the Pre-Existing Condition; provided, however, that the existence of any restrictions on the use of the Premises due to the Pre-Existing Condition shall not excuse Tenant from its obligations under this Section with respect to Tenant’s Environmental Activity. 1 All work

 

 

1

Tenant shall only be required to remediate any contamination resulting from Tenant’s Hazardous Materials, and the standard of such remediation will be unrestricted use as defined in Section 12.4. By way of example, if Tenant’s lithium-ion cells catch fire and leak into the soil, Tenant is responsible for remediation activity to an unrestricted use standard. Tenant is not responsible for remediation of the Pre- Existing Condition, unless Tenant exacerbates the Pre-Existing Condition. If Tenant does not exacerbate the Pre-Existing Condition, Tenant has no restoration responsibilities with respect to the Pre-Existing Condition pursuant to the release set forth in Section 12.2(b) (“ Environmental Release ”).

 

-23-


shall be performed by one or more contractors selected by Tenant and reasonably approved in advance and in writing by Landlord. Tenant shall proceed continuously and diligently with such investigatory and remedial actions, provided that in all cases such actions shall be in accordance with all Applicable Laws. Any such actions shall be performed in a good, safe and workmanlike manner. Tenant shall pay all costs in connection with such investigatory and remedial activities, including but not limited to all power and utility costs, and any and all taxes or fees that may be applicable to such activities. Tenant shall promptly provide to Landlord copies of testing results and reports that are generated in connection with the above activities and any that are submitted to any governmental entity. Promptly upon completion of such investigation and remediation, Tenant shall permanently seal or cap all monitoring wells and test holes in accordance with sound engineering practice and in compliance with Applicable Laws, remove all associated equipment, and restore the Premises to the physical condition existing on the Commencement Date, which shall include, without limitation, the repair of any surface damage, including paving, caused by such investigation or remediation.

12.5     Indemnity; Reimbursement .

(a)    Tenant shall indemnify, defend (by counsel reasonably acceptable to Landlord), protect and hold Landlord and Landlord’s trustees, directors, officers, agents, contractors and employees and their respective successors and assigns (collectively, “ Landlord’s Agents ”), free and harmless from and against any and all claims, liabilities, penalties, forfeitures, losses or expenses (including reasonable attorneys’ and consultants’ fees and oversight and response costs) to the extent arising from (a) Environmental Activity by Tenant or Tenant’s Agents; (b) failure of Tenant or Tenant’s Agents to comply with any Environmental Law with respect to Tenant’s Environmental Activity; or (c) Tenant’s failure to remove Tenant’s Hazardous Materials as required in Section 12.4. Tenant’s obligations hereunder shall include, but not be limited to, the burden and expense of defending all claims, suits and administrative proceedings (with counsel reasonably approved by Landlord), even if such claims, suits or proceedings are groundless, false or fraudulent; conducting all negotiations of any description; and promptly paying and discharging when due any and all judgments, penalties, fines or other sums due against or from Landlord or the Premises related thereto. Prior to retaining counsel to defend such claims, suits or proceedings, Tenant shall obtain Landlord’s written approval of the identity of such counsel, which approval shall not be unreasonably withheld, conditioned or delayed. In the event the presence of Tenant’s Hazardous Materials at the Premises upon surrender of the Premises at the expiration or earlier termination of this Lease prevents Landlord from reletting the Premises, or reduces the fair market and/or rental value of the Premises or any portion thereof, Tenant’s indemnity obligations shall include all losses to Landlord directly arising therefrom.

 

-24-


(b)    In the event that Tenant is named in any enforcement action or litigation regarding the Pre-Existing Condition which is brought by a governmental entity with jurisdiction over the remediation of the Pre-Existing Condition (collectively, an “ Action ”), Tenant will tender the defense of the Action to Landlord (whether or not Landlord is also named in the Action), and Landlord will seek Tenant’s dismissal from the Action at Landlord’s sole cost and expense.

(i)    If the Action also involves alleged Exacerbation of the Pre- Existing Condition by Tenant, or contamination of the Premises by Tenant’s Hazardous Materials or Environmental Activity (collectively, “ Claims Against Tenant ”), Landlord shall have no responsibility for dismissal of such claims, which Tenant shall defend at its sole cost and expense, and which shall be subject to Tenant’s indemnity set forth in Section 12.5(a).

(ii)    If Landlord is not able to obtain Tenant’s dismissal from the Action, Landlord will control the defense of Tenant in the Action with respect to Tenant’s liability for the Pre-Existing Condition (including without limitation settlement of the Action in Landlord’s sole discretion), but not for any Claims Against Tenant. If the Action includes Claims Against Tenant, Landlord and Tenant will mutually agree upon the process for jointly defending the Action in a manner that will give each party control over that portion of the Action for which it is responsible.

(iii)    Landlord shall be responsible at its sole cost and expense for the costs of defense of Tenant as described in this Section, and shall reimburse Tenant for any documented out-of-pocket costs reasonably incurred by Tenant and arising out of the Action (including any fines, penalties, and remediation costs), except to the extent such costs relate to Claims Against Tenant. Landlord shall have no liability to the extent any costs incurred by Tenant relate to Claims Against Tenant, and the provisions of this Section shall not modify or amend Tenant’s indemnity of Landlord as set forth in Section 12.5(a). Landlord shall have no liability to Tenant for defense costs, legal fees, remediation costs, or any other cost or expense related to the Action if Tenant fails to tender defense of the Action to Landlord.

12.6     No Lien . Tenant shall not suffer any lien to be recorded against the Premises as a consequence of any Tenant’s Hazardous Materials, including any so-called state, federal or local “super fund” lien related to the remediation of any Tenant’s Hazardous Materials in or about the Premises.

12.7     Investigation . In the event Landlord reasonably believes that there has been a release of Tenant’s Hazardous Materials at the Premises, Landlord shall have the right to enter and conduct an inspection of the Premises, including invasive tests, at any reasonable time and upon reasonable advance notice, to determine whether Tenant is complying with the terms of this Lease, including but not limited to the compliance of the Premises and the activities thereon with Environmental Laws with respect to Tenant’s Environmental Activity (the “ Environmental Investigation ”). Landlord shall have the right, but not the obligation, to retain at its expense an independent professional consultant to

 

-25-


enter the Premises to conduct such an inspection, and to review any report prepared by or for Tenant concerning such compliance. In the event the Environmental Investigation identifies any deficiencies in the compliance of the Premises with Environmental Laws due to any Environmental Activity by Tenant or Tenant’s Agents, Tenant shall promptly correct any such deficiencies identified in the Environmental Investigation, and document to Landlord that corrective action has been taken. In such event, Tenant shall also reimburse Landlord for the reasonable cost of the Environmental Investigation. If the Environmental Investigation identifies any such deficiency in compliance of the Premises with Environmental Laws due to any Environmental Activity by Tenant or Tenant’s Agents, then, within nine (9) months of the date of the Environmental Investigation, Landlord may request a detailed review of the status of such violation by a consultant selected by Landlord (the “ Supplemental Investigation ”). Tenant shall pay for the reasonable cost of any Supplemental Investigation. A copy of the Supplemental Investigation shall be promptly supplied to Landlord and Tenant when it becomes available.

12.8     Right to Remediate . Should Tenant fail to perform or observe any of its obligations or agreements pertaining to Hazardous Materials or Environmental Laws after notice from Landlord and a reasonable time to cure given to Tenant, then Landlord shall have the right, but not the obligation, without limitation of any other rights of Landlord hereunder, to enter the Premises personally or through Landlord’s Agents and perform the same. Tenant agrees to indemnify Landlord for the costs thereof and liabilities therefrom as set forth above in this Article 12.

12.9     Notices . Tenant shall promptly notify Landlord of any inquiry, test, claim, investigation or enforcement proceeding by or against Tenant or the Premises known to Tenant concerning any of Tenant’s Hazardous Materials or Tenant’s Environmental Activity. Landlord shall promptly notify Tenant of any inquiry, test, claim, investigation, or enforcement proceeding by or against Landlord or the Premises known to Landlord concerning the Pre- Existing Condition. Tenant shall promptly notify Landlord of any release or discharge of Hazardous Materials on, in under or about the Premises due to Tenant’s Environmental Activity. Tenant acknowledges that Landlord, as the owner of the Premises, shall have the sole right at its election and at Tenant’s expense, to negotiate, defend, approve and appeal any action taken or order issued by any applicable governmental authority with respect to any remediation of the Premises pursuant to Section 12.4 due to Tenant’s Environmental Activity.

12.10     Surrender . Tenant shall surrender the Premises to Landlord, upon the expiration or earlier termination of the Lease, with Tenant’s Hazardous Materials removed from the Premises in accordance with the provisions of this Article 12.

12.11     Survival; Insurance . The provisions of this Article 12 shall survive the expiration or earlier termination of this Lease. The provisions of Article 13 (Insurance) shall not limit in any way Tenant’s obligations under this Article 12.

 

-26-


13.    INDEMNITY; INSURANCE

13.1     Indemnity . This indemnity shall not apply to Hazardous Materials, which instead, is covered in Section 12.5(a) above. Tenant shall indemnify, protect, defend and save and hold Landlord and Landlord’s Agents harmless from and against any and all losses, costs, liabilities, claims, judgments, liens, damages (including consequential damages) and expenses, including, without limitation, reasonable attorneys’ fees and costs (including Landlord’s in-house counsel), and reasonable investigation costs (collectively, “ Losses ”), incurred in connection with or arising from: (a) any default by Tenant in the observance or performance of any of the terms, covenants or conditions of this Lease on Tenant’s part to be observed or performed, or (b) the use or occupancy or manner of use or occupancy of the Premises by Tenant and Tenant’s Agents, (c) the condition of the Premises (other than the Pre- Existing Condition), and any occurrence on the Premises during the term of this Lease (including injury to or death of any person, or damage to property) from any cause whatsoever, except to the extent caused by the gross negligence or willful misconduct of Landlord or any third party not acting by or through Tenant, including but not limited to those third parties referenced in Article 12 above, and (d) any acts or omissions or negligence of Tenant or of Tenant’s Agents, in, on or about the Premises. In case any action or proceeding be brought, made or initiated against Landlord relating to any matter covered by Tenant’s indemnification obligations under this Section or under Section 12.5(a), Tenant, upon notice from Landlord, shall at its sole cost and expense, resist or defend such claim, action or proceeding by counsel approved by Landlord. Notwithstanding the foregoing, Landlord may retain its own counsel to defend or assist in defending any claim, action or proceeding involving potential liability in excess of Five Million Dollars ($5,000,000), and Tenant shall pay the reasonable fees and disbursements of such counsel unless such claim is reasonably within Tenant’s liability policy limits as required under Section 13.2(a). Tenant’s obligations under this Section shall survive the expiration or earlier termination of this Lease.

13.2     Insurance . Tenant shall procure at its sole cost and expense and keep in effect during the Term:

(a)    commercial general liability insurance covering Tenant’s operations in the Premises and the use and occupancy of the Premises and any part thereof by Tenant. Such insurance shall include broad form contractual liability insurance coverage insuring Tenant’s obligations under this Lease. Such coverage shall be written on an “occurrence” form and shall have a minimum combined single limit of liability of not less than Five Million Dollars ($5,000,000.00). Tenant’s policy shall be written to apply to all bodily injury, property damage, personal injury and other covered loss (however occasioned) occurring during the policy term, with at least the following endorsements to the extent such endorsements are generally available: (i) deleting any employee exclusion on personal injury coverage, (ii) including employees as additional insureds, (iii) providing broad form property damage coverage and products completed operations coverage (where applicable), and (iv) deleting any liquor liability exclusions. Such insurance shall name Landlord, Landlord’s Agents and any other party designated by Landlord as an additional insured, shall specifically include the liability assumed hereunder by Tenant, shall

 

-27-


provide that it is primary insurance, shall provide for severability of interests, shall further provide that an act or omission of one of the named insureds which would void or otherwise reduce coverage shall not reduce or void the coverage as to any insured, shall afford coverage for claims based on acts, omissions, injury or damage which occurred or arose (or the onset of which occurred or arose in whole or in part during the policy period), and shall provide that Landlord will receive thirty (30) days’ written notice from the insurer prior to any cancellation or material change of coverage or ten (10) days written notice for cancellation for failure to pay premiums;

(b)    commercial property insurance, including sprinkler leakages, vandalism and malicious mischief and plate glass damage covering all the items specified as Tenant’s Property and all other property of every description including stock-in-trade, furniture, fittings, installations, alterations, additions, partitions and fixtures or anything in the nature of a leasehold improvement made or installed by or on behalf of the Tenant in the Premises in an amount of not less than one hundred percent (100%) of the full replacement cost thereof as shall from time to time be determined by Tenant in form reasonably satisfactory to Landlord;

(c)    Worker’s Compensation Insurance in the amounts and coverages required under worker’s compensation, disability and similar employee benefit laws applicable to Tenant and/or the Premises from time to time, and Employer’s Liability Insurance, with limits of not less than One Million Dollars ($1,000,000) or such higher amounts as may be required by law;

(d)    business income insurance with extra expense insurance in an amount sufficient to insure payment of Rent for a period of not less than twelve (12) months during any interruption of Tenant’s business by reason of the Premises or Tenant’s Property being damaged by casualty; and

(e)    any other form or forms of insurance as Landlord may reasonably require from time to time in amounts and for insurable risks against a prudent tenant would protect itself to the extent landlords of comparable buildings in the vicinity of the Premises require their tenants to carry such other form(s) of insurance.

13.3     Policies . All policies of insurance required of Tenant shall be issued by insurance companies with general policyholders’ rating of not less than A-, as rated in the most current available “Best’s Insurance Reports,” and not prohibited from doing business in the State of California, and shall, with the exception of Workers Compensation Insurance, include as additional insureds Landlord, Landlord’s Agents, and such other persons or entities as Landlord specifies from time to time. Such policies, with the exception of Worker’s Compensation Insurance and property insurance, shall be for the mutual and joint benefit and protection of Landlord, Tenant and others specified by Landlord. Executed copies of Tenant’s policies of insurance or certificates thereof, including additional insureds endorsements, shall be delivered to Landlord within ten (10) days prior to the delivery of possession of the Premises to Tenant. Thereafter, Tenant shall provide evidence of renewal of its insurance prior to the expiration of the term of each

 

-28-


policy, and executed copies of Tenant’s renewal policies or certificates thereof within thirty (30) days after the expiration of the term of each such policy. All commercial general liability and property damage policies shall contain a provision that Landlord and any other additional insured, although named as additional insureds, shall nevertheless be entitled to recover under said policies for a covered loss occasioned by it, its servants, agents and employees, by reason of Tenant’s negligence. As often as any policy shall expire or terminate, renewal or additional policies shall be procured and maintained by Tenant in like manner and to like extent. All such policies of insurance shall provide that the company writing said policy will give to Landlord thirty (30) days notice in writing in advance of any cancellation or lapse or of the effective date of any reduction in the amounts of insurance, or ten (10) days written notice for failure to pay premiums All commercial general liability, property damage and other casualty policies shall be written on an occurrence basis. Landlord’s coverage shall not be contributory. No policy shall have a deductible in excess of $25,000 for any one occurrence.

13.4     Landlord’s Rights . Should Tenant fail to take out and keep in force each insurance policy required under this Article 13, or should such insurance not be approved by Landlord and should the Tenant not rectify the situation within two (2) Business Days after written notice from Landlord to Tenant, Landlord shall have the right, without assuming any obligation in connection therewith, to purchase such insurance at the sole cost of Tenant, and all costs incurred by Landlord shall be payable to Landlord by Tenant within twenty (20) days after demand as Additional Rent and without prejudice to any other rights and remedies of Landlord under this Lease.

13.5     Landlord’s Insurance . Landlord will obtain and keep in force during the Term of this Lease a policy of all risk property insurance on the structural components of the Buildings (but not the Tenant Improvement Work, Tenant’s Property or any Alterations). The amount of such insurance shall be Ten Million Dollars ($10,000,000), with a Twenty-Five Thousand Dollar ($25,000) deductible, subject to such modifications as are reasonably required due to insurance industry market conditions. Such policy shall be in the name of Landlord with loss payable to Landlord. Landlord’s policy will insure against all risks of direct physical loss or damage subject to customary exclusions; may be endorsed to cover loss caused by such additional perils against which landlord may elect to insure, including earthquake and/or flood, and may provide coverage for loss of rents for a period of up to twelve (12) months.

13.6     Waiver of Subrogation . Notwithstanding anything to the contrary contained herein, to the extent of insurance proceeds received (or which would have been received had the party carried the insurance required by this Lease) with respect to the loss, Landlord and Tenant each hereby waive any right of recovery against the other party and against any other party maintaining a policy of insurance with respect to the Premises or any portion thereof or the contents of the Premises or the Buildings for any loss or damage sustained by such other party with respect to the Premises or the Buildings, or any portion thereof, or the contents of the same or any operation therein, whether or not such loss is caused by the fault or negligence of such other party. Either party shall notify the other party if the policy of insurance carried by it does not permit the foregoing waiver.

 

-29-


13.7     No Liability . No approval by Landlord of any insurer, or the terms or conditions of any policy, or any coverage or amount of insurance, or any deductible amount shall be construed as a representation by Landlord of the solvency of the insurer or the sufficiency of any policy or any coverage or amount of insurance or deductible and Tenant assumes full risk and responsibility for any inadequacy of insurance coverage or any failure of insurers.

14.    ASSIGNMENT, SUBLETTING AND FINANCING

14.1     No Right to Assign or Sublease . Tenant shall not directly or indirectly, voluntarily or by operation of law, sell, assign, encumber, pledge or otherwise transfer or hypothecate all or any part of its interest in or rights with respect to the Premises or its leasehold estate (collectively, “ Assignment ”), or permit all or any portion of the Premises to be occupied by anyone other than itself or sublet all or any portion of the Premises (collectively, “ Sublease ”) without Landlord’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed. Notwithstanding anything in this Article 14 to the contrary, but subject to the provisions of Section 14.7 below, Landlord’s prior written consent shall not be required for any Assignment or Sublease to (a) any entity resulting from a merger or consolidation with Tenant (by asset acquisition or otherwise) or (b) an Affiliate of Tenant (collectively, a “ Permitted Transferee ”). As used in this Lease, the term “ Affiliate ” shall mean an individual, partnership, corporation, unincorporated association or other entity controlling, controlled by or under common control with Tenant and for the purposes of the foregoing, “control” shall mean ownership of fifty percent (50%) or more of the legal and beneficial interest in such corporation or other entity coupled with the power to direct the management and affairs thereof.

14.2     Notice . If Tenant desires to enter into a Sublease of all or any portion of the Premises or Assignment of this Lease, it shall give written notice (the “ Transfer Notice ”) to Landlord of its intention to do so, which notice shall contain (a) the name and address of the proposed assignee, subtenant or occupant (the “ Transferee ”), (b) the nature of the proposed Transferee’s business to be carried on in the Premises, (c) the terms and provisions of the proposed Assignment or Sublease, and (d) such financial information as Landlord may reasonably request concerning the proposed Transferee.

14.3     Terms of Approval . Landlord shall respond to Tenant’s request for approval within fifteen (15) Business Days after receipt of the Transfer Notice. If Landlord approves the proposed Assignment or Sublease, Tenant may, not later than thirty (30) days thereafter, enter into the Assignment or Sublease with the proposed Transferee upon the terms and conditions set forth in the Transfer Notice and subject to any other conditions imposed by Landlord. Without limiting any other reasonable basis for denial of consent to an Assignment or Sublease, Tenant agrees that it shall be conclusively presumed to be reasonable for Landlord to consider the following requirements in determining whether or not to consent to a proposed Assignment or Sublease: (a) no Event of Default shall have occurred and remain uncured; (b) Tenant shall have complied with all provisions of this Article 14, (c) the use of the Premises by the Transferee shall comply with the provisions of this Lease and shall not materially increase the presence of Hazardous Materials arising

 

-30-


from any Environmental Activity to be conducted by the Transferee at the Premises, and (d) the Transferee shall be capable financially of performing Tenant’s obligations under this Lease and all other obligations relating to the Premises.

14.4     Excess Rent . For any Assignment or Sublease (including an Assignment or Sublease to a Permitted Transferee), fifty percent (50%) of the Excess Rent received by Tenant shall be paid to Landlord as and when received by Tenant. “Excess Rent” means the gross revenue received from the Transferee during the Sublease term or with respect to the Assignment, less (a) the gross revenue received by Landlord from Tenant during the period of the Sublease term (prorated based on the Rentable Area of the Sublease premises) or concurrently with or after the Assignment; (b) any reasonably documented tenant improvement allowance or other economic concession (planning allowance, moving expenses, etc.), paid by Tenant to or on behalf of the Transferee; (d) customary and reasonable external brokers’ commissions to the extent paid and documented; (e) reasonable attorneys’ fees; and (f) reasonable costs of advertising the space for Sublease or Assignment (collectively, “ Transfer Costs ”). Tenant shall not be required to pay to Landlord any Excess Rent until Tenant has recovered its Transfer Costs.

14.5     Right of First Refusal . Except for an Assignment or Sublease to a Permitted Transferee, if Tenant desires to assign Tenant’s interest in the Premises or to sublease the entire Premises for the remainder of the Term (collectively, a “ Transfer ”), Tenant’s Transfer Notice shall also include a written offer that includes all of the substantial business terms that Tenant has offered to a Transferee and shall offer to Transfer to Landlord, Tenant’s interest in the portion of the Premises offered to the Transferee on such terms and conditions (the “ Offer ”). Landlord shall have ten (10) days from Landlord’s receipt of the Offer to accept the Offer by written notice to Tenant or to approve or disapprove the Transfer as provided in Section 14.3. If Landlord accepts the Offer, Landlord and Tenant shall consummate the Transfer within fifteen (15) days after Landlord’s written notice of acceptance. The Transfer shall be consummated by Tenant’s delivery to Landlord of a good and sufficient assignment of lease or sublease. If Landlord does not accept the Offer, but approves the Transfer, then in the event the terms of the Transfer are materially changed during subsequent negotiations to be more favorable to the Transferee, Tenant shall again deliver to Landlord an Offer in accordance with this Section, offering the interest to Landlord on such more favorable terms. Landlord shall then have another period of ten (10) days after receipt of such Offer to accept such Offer.

14.6     No Release . No Sublease or Assignment by Tenant nor any consent by Landlord thereto shall relieve Tenant of any obligation to be performed by Tenant under this Lease. Any Sublease or Assignment that is not in compliance with this Article shall be null and void and, at the option of Landlord, shall constitute an Event of Default by Tenant under this Lease, and Landlord shall be entitled to pursue any right or remedy available to Landlord under the terms of this Lease or under the laws of the State of California. The acceptance of any Rent or other payments by Landlord from a proposed Transferee shall not constitute consent to such Sublease or Assignment by Landlord or a recognition of any Transferee, or a waiver by Landlord of any failure of Tenant or other Transferor to comply with this Article.

 

-31-


14.7     Assumption of Obligations . Any Transferee shall, from and after the effective date of the Assignment, assume all obligations of Tenant under this Lease with respect to the Transferred Space and shall be and remain liable jointly and severally with Tenant for the payment of Base Rent and Additional Rent, and for the performance of all of the terms, covenants, conditions and agreements herein contained on Tenant’s part to be performed for the Term. No Assignment shall be binding on Landlord unless Tenant delivers to Landlord a counterpart of the Assignment and an instrument that contains a covenant of assumption reasonably satisfactory in substance and form to Landlord, and consistent with the requirements of this Section.

14.8     Financing . Landlord agrees and acknowledges that Tenant is required under the terms of its Advance Technology Vehicle Manufacturing Loan to grant to the United States Department of Energy and the Federal Funding Bank a first priority security interest in Tenant’s leasehold interest in the Premises. In no event shall any interest of Landlord in the Premises, including without limitation, Landlord’s fee interest in the Premises or interest under this Lease, be subject or subordinate to such financing.

15.    DEFAULT

15.1     Event of Default . The occurrence of any of the following shall be an “ Event of Default ” on the part of Tenant:

(a)    Failure to pay any part of the Base Rent or Additional Rent, or any other sums of money that Tenant is required to pay under this Lease where such failure continues for a period of three (3) days after written notice of default from Landlord to Tenant. Landlord’s notice to Tenant pursuant to this subsection shall be deemed to be the notice required under California Code of Civil Procedure Section 1161.

(b)    Failure to perform any other covenant, condition or requirement of this Lease when such failure shall continue for a period of thirty (30) days after written notice thereof from Landlord to Tenant; provided that if the nature of the default is such that more than thirty (30) days are reasonably required for its cure, then an Event of Default shall not be deemed to have occurred if Tenant shall commence such cure within said thirty (30) day period and thereafter diligently and continuously prosecute such cure to completion. Landlord’s notice to Tenant pursuant to this subsection shall be deemed to be the notice required under California Code of Civil Procedure Section 1161.

(c)    The abandonment of the Premises by Tenant.

(d)    Tenant shall admit in writing its inability to pay its debts generally as they become due, file a petition in bankruptcy, insolvency, reorganization, dissolution or liquidation under any law or statute of any government or any subdivision thereof either now or hereafter in effect, or Tenant shall make an assignment for the benefit of its creditors, consent to or acquiesce in the appointment of a receiver of itself or of the whole or any substantial part of the Premises.

 

-32-


(e)    A court of competent jurisdiction shall enter an order, judgment or decree appointing a receiver of Tenant or of the whole or any substantial part of the Premises and such order, judgment or decree shall not be vacated, set aside or stayed within thirty (30) days after the date of entry of such order, judgment, or decree, or a stay thereof shall be thereafter set aside.

(f)    A court of competent jurisdiction shall enter an order, judgment or decree approving a petition filed against Tenant under any bankruptcy, insolvency, reorganization, dissolution or liquidation law or statute of the federal or state government or any subdivision of either now or hereafter in effect, and such order, judgment or decree shall not be vacated, set aside or stayed within thirty (30) days from the date of entry of such order, judgment or decree, or a stay thereof shall be thereafter set aside.

15.2     Remedies . Upon the occurrence of an Event of Default, Landlord shall have the following rights and remedies:

(a)    The right to terminate this Lease upon written notice to Tenant, in which event Tenant shall immediately surrender possession of the Premises in accordance with Article 20.

(b)    The right to bring a summary action for possession of the Premises.

(c)    The rights and remedies described in California Civil Code Section 1951.2, pursuant to which Landlord may recover from Tenant upon a termination of the Lease, (i) the worth at the time of award of the unpaid rent which has been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (iii) the worth at the time of the award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; and (iv) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or which in the ordinary course of events would be likely to result therefrom. The “worth at the time of award” of the amounts referred to in (i) and (ii) above is computed by allowing interest at the rate of twelve percent (12%) per annum or the highest rate permitted by law, whichever is lower (the “ Interest Rate ”). The “worth at the time of award” of the amount referred to in (iii) above shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). The detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or which in the ordinary course of events would be likely to result therefrom includes, without limitation, (1) the unamortized portion of any brokerage or real estate agent’s commissions paid in connection with the execution of this Lease, (2) any direct costs or expenses incurred by Landlord in recovering possession of the Premises, maintaining or preserving the Premises after such default, (3) preparing the Premises for reletting to a new tenant, (4) any repairs

 

-33-


or alterations to the Premises for such reletting, (5) leasing commissions, architect’s fees and any other costs necessary or appropriate either to relet the Premises or, if reasonably necessary in order to relet the Premises, to adapt them to another beneficial use by Landlord and (6) such amounts in addition to or in lieu of the foregoing as may be permitted from time to time by Applicable Law to the extent that such payment would not result in a duplicative recovery.

(d)    The rights and remedies described in California Civil Code Section 1951.4 which allow Landlord to continue this Lease in effect and to enforce all of Landlord’s rights and remedies under this Lease, including the right to recover Base Rent, Additional Rent and other charges payable hereunder as they become due. Acts of maintenance or preservation, efforts to relet the Premises or the appointment of a receiver upon Landlord’s initiative to protect its interest under this Lease shall not constitute a termination of Tenant’s right to possession.

(e)    The right and power, as attorney-in-fact for Tenant, to sublet the Premises, to collect rents from all subtenants and to provide or arrange for the provision of all services and fulfill all obligations of Tenant under any permitted subleases. Landlord is hereby authorized on behalf of Tenant, but shall have absolutely no obligation, to provide such services and fulfill such obligations and to incur all such expenses and costs as Landlord deems necessary. Landlord is hereby authorized, but not obligated, to relet the Premises or any part thereof on behalf of Tenant, to incur such expenses as may be necessary to effect a relet and make said relet for such term or terms, upon such conditions and at such rental as Landlord in its reasonable discretion may deem proper. Tenant shall be liable immediately to Landlord for all costs and expenses Landlord incurs in reletting the Premises including, without limitation, brokers’ commissions, expenses of remodeling the Premises required by the reletting, and the cost of collecting rents and fulfilling the obligations of Tenant to any subtenant. If Landlord relets the Premises or any portion thereof, such reletting shall not relieve Tenant of any obligation hereunder, except that Landlord shall apply the rent or other proceeds actually collected by it as a result of such reletting against any amounts due from Tenant hereunder to the extent that such rent or other proceeds compensate Landlord for the nonperformance of any obligation of Tenant hereunder. Such payments by Tenant shall be due at such times as are provided elsewhere in this Lease, and Landlord need not wait until the termination of this Lease, by expiration of the Term or otherwise, to recover them by legal action or in any other manner. Landlord may execute any sublease made pursuant to this Section in its own name, and the tenant thereunder shall be under no obligation to see to the application by Landlord of any rent or other proceeds, nor shall Tenant have any right to collect any such rent or other proceeds. Landlord shall not by any reentry or other act be deemed to have accepted any surrender by Tenant of the Premises or Tenant’s interest therein, or be deemed to have otherwise terminated this Lease, or to have relieved Tenant of any obligation hereunder, unless Landlord shall have given Tenant express written notice of Landlord’s election to do so as set forth herein.

(f)    The right to enjoin, and any other remedy or right now or hereafter available to a Landlord against a defaulting tenant under the laws of the State of

 

-34-


California or the equitable powers of its courts, and not otherwise specifically reserved herein.

15.3     Cumulative Remedies . The various rights and remedies reserved to Landlord, including those not specifically described herein, shall, to the extent that the exercise of such right and/or remedy does not result in a duplicative recovery, be cumulative and shall be in addition to every other right or remedy provided for in this Lease or now or hereafter existing at law or in equity and the exercise of the rights or remedies provided for in this Lease or now or hereafter existing at law or in equity shall not preclude the simultaneous or later exercise by Landlord of any or all other rights and remedies.

15.4     Waiver of Redemption by Tenant . Tenant hereby waives any right to relief against forfeiture of this Lease pursuant to California Code of Civil Procedure Section 1179.

15.5     Landlord’s Right to Cure . If Tenant shall fail or neglect to do or perform any covenant or condition required under this Lease and such failure shall not be cured within any applicable grace period, Landlord may, on five (5) days notice to Tenant, but shall not be required to, make any payment payable by Tenant hereunder, discharge any lien, take out, pay for and maintain any insurance required hereunder, or do or perform or cause to be done or performed any such other act or thing (entering upon the Premises for such purposes, if Landlord shall so elect), and Landlord shall not be or be held liable or in any way responsible for any loss, disturbance, inconvenience, annoyance or damage resulting to Tenant on account thereof. Tenant shall repay to Landlord within twenty (20) days after demand the entire out-of- pocket cost and expense incurred by Landlord in connection with the cure, including, without limitation, compensation to the agents, consultants and contractors of Landlord and reasonable attorneys’ fees and expenses. Landlord may act upon shorter notice or no notice at all if necessary in Landlord’s reasonable judgment to meet an emergency situation or governmental or municipal time limitation or to protect Landlord’s interest in the Premises. Landlord shall not be required to inquire into the correctness of the amount of validity or any tax or lien that may be paid by Landlord and Landlord shall be duly protected in paying the amount of any such tax or lien claimed and in such event Landlord also shall have the full authority, in Landlord’s sole judgment and discretion and without prior notice to or approval by Tenant, to settle or compromise any such lien or tax. Any act or thing done by Landlord pursuant to the provisions of this Section shall not be or be construed as a waiver of any such failure by Tenant, or as a waiver of any term, covenant, agreement or condition herein contained or of the performance thereof.

15.6     Landlord’s Default . Landlord shall be in default under this Lease if Landlord fails to perform obligations required of Landlord within thirty (30) days after written notice by Tenant to Landlord and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have heretofore been furnished to Tenant in writing, specifying wherein Landlord has failed to perform such obligations; provided, however, that if the nature of Landlord’s obligations is such that more than thirty (30) days are required for performance, then Landlord shall not be in default if Landlord

 

-35-


commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. Tenant shall be entitled to actual (but not consequential) damages in the event of an uncured default by Landlord, but the provisions of Article 17 shall apply to any Landlord default and Tenant shall not have the right to terminate this Lease as a result of a Landlord default.

16.    LANDLORD’S RESERVED RIGHTS

16.1     Access . Landlord reserves (for itself and its Agents, consultants, contractors and any third parties Landlord deems to reasonably require access) the right to enter the Premises at all reasonable times and, except in cases of emergency, after giving Tenant reasonable notice, to inspect the Premises; to supply any service to be provided by Landlord hereunder; to show the Premises to prospective purchasers or mortgagees; to show the Premises to prospective tenants during the last year of the Term; to post notices’ of nonresponsibility; and to perform it obligations and exercise its rights under the Conservation Easement (as defined in Section 16.3). In addition to the foregoing, Landlord reserves (for itself and its Agents, consultants, contractors and any third parties Landlord deems to reasonably require access) the right to enter the Premises at all reasonable times and, except in cases of emergency, after giving Tenant reasonable notice, to perform any environmental testing, monitoring, cleanup, remediation, containment or restoration work, and may for that purposes erect, use and maintain necessary structures and equipment in the Premises where reasonably required by the character of the work to be performed. Without limiting the foregoing, Tenant agrees and acknowledges that Landlord has entered into that certain Access Agreement with Hewlett-Packard Company dated as of November 15, 2007, a copy of which is attached as Exhibit E (the “ H-P Access Agreement ”), pursuant to which H-P has the right of access to the Premises as set forth therein. Tenant hereby waives any claim for damages for any injury or inconvenience to or interference with Tenant’s business, any loss of occupancy or quiet enjoyment of the Premises or any other loss occasioned thereby, except to the extent caused by the gross negligence or willful misconduct of Landlord in the exercise of its rights and provided that Landlord shall use reasonable efforts not to materially adversely affect Tenant’s use of the Premises. All locks for all of the doors in, upon and about the Premises, excluding Tenant’s vaults and safes or special security areas (designated in advance in writing by Tenant) shall at all times be keyed to a master system and Landlord shall at all times have and retain a key with which to unlock all of said doors. Landlord shall have the right to use any and all means that Landlord may deem necessary or proper to open said doors in an emergency in order to obtain entry to any portion of the Premises, and any such entry to the Premises or portions thereof obtained by Landlord by any of said means, or otherwise, shall not under any circumstances be construed or deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction, actual or constructive, of Tenant from the Premises or any portion thereof.

16.2     Easements . Landlord reserves the right to grant or relocate all easements and rights of way which Landlord in its sole discretion may deem necessary or appropriate; provided that Tenant’s rights to use the Premises for the operation of its business is not materially impeded. Without limiting the foregoing, Tenant acknowledges

 

-36-


that Landlord is developing and delineating future easements that are identified on Exhibit A-1 .

16.3     Conservation Easement . Landlord hereby reserves a conservation easement (“ Conservation Easement ”) over the Premises, in the area identified on Exhibit A-1 (the “ Conservation Easement Area ”), for purposes of protecting endangered species and their habitats in and adjacent to Deer Creek. Section 9 of the Federal Endangered Species Act prohibits the “taking” of wildlife species listed as threatened or endangered, which is defined as an act which kills or injures wildlife, including those activities that cause significant habitat or behavioral modification or degradation. Tenant acknowledges that Landlord has applied for a Habitat Conservation Plan (“ HCP ”) with federal agencies that will, when and if approved, set forth protective measures that will minimize the taking of endangered species on Stanford lands. The Conservation Easement Area is a component of this broader HCP.

(a)    Tenant will provide Landlord, any grantee of the Conservation Easement, and applicable state and federal agencies, unrestricted access to the Conservation Easement Area for purposes of surveying, monitoring, maintaining, restoring and enhancing vegetation and habitat, including the right to install new vegetation or landscape or structures for the purpose of implementing and maintaining the HCP, and the removal of existing structures or vegetation that degrade the habitat.

(b)    Without limiting the foregoing, Landlord will have the right to impose from time to time site specific rules and regulations (“ Conservation Rules ”) for the Conservation Easement Area that set forth Tenant’s permitted and non-permitted uses of the Conservation Easement Area, so long as such Conservation Rules will not materially increase the costs to Tenant to manage the Premises. The Conservation Rules may restrict Tenant’s access and possibly even intermittently or exclusively prohibit access by Tenant or Tenant’s Agents in the Conservation Easement Area. However, Landlord will use best efforts to preserve for Tenant some access and use of the Conservation Easement Area for passive recreation, if Landlord deems that such use would not lead to an actual or potential taking of an endangered species or jeopardize the goals and objectives of the HCP. Tenant acknowledges that as of the Commencement Date of this Lease, the initial Conservation Rules shall be as set forth in Exhibit F , and that Landlord may modify or change these rules as necessary to comply with its obligations under the HCP. Any such change or modification shall require at least ten (10) Business Days prior notification to Tenant.

(c)    If and when the HCP is approved and an Incidental Take Permit is issued to Landlord, Landlord shall offer Tenant the right to secure a Certificate of Inclusion which shall afford Tenant those protections provided to Landlord by the HCP.

16.4     Use of Additional Areas . Landlord reserves the exclusive right to use any air space above the Premises, and the land beneath the Premises; provided that such use shall not materially impede Tenant’s use of and access to the Premises.

 

-37-


16.5     Subordination . This Lease shall be subject and subordinate at all times to: (a) all reciprocal easement agreements, environmental access agreements (including the H-P Access Agreement), the Conservation Easement and the HCP, and any ground leases or underlying leases which may now exist or hereafter be executed affecting the Premises, and (b) the lien of any mortgage or deed of trust which may now exist or hereafter be executed in any amount for which the Premises, or any ground leases or underlying leases, or Landlord’s interest or estate in any of said items, is specified as security. Notwithstanding the foregoing, Landlord shall have the right to subordinate or cause to be subordinated to this Lease any of the items referred to in clause (a) or (b) above, subject to compliance with the condition precedent set forth below. In the event that any ground lease or underlying lease terminates for any reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason, (i) no person or entity which as a result of the foregoing succeeds to the interest of Landlord under this Lease, (a “ Successor ”) shall be liable for any default by Landlord or any other matter that occurred prior to the date the Successor succeeded to Landlord’s interest in this Lease, and (ii) Tenant shall, notwithstanding any subordination, attorn to and become the tenant of the Successor and Tenant will not be disturbed in its use of the Premises pursuant to the terms of this Lease. Tenant covenants and agrees, however, to execute and deliver, upon demand by Landlord and in the form reasonably requested by Landlord, any additional documents evidencing the priority or subordination of this Lease with respect to any such ground leases, underlying leases, reciprocal easement agreements or similar documents or instruments, or with respect to the lien of any such mortgage or deed of trust and Tenant’s failure to execute and deliver any such document within ten (10) Business Days after such demand by Landlord shall constitute an Event of Default without further notice so long as such subordination is accompanied by a non-disturbance agreement that states that so long as an Event of Default by Tenant is not in existence, neither this Lease nor any of Tenant’s rights hereunder shall be terminated or modified, nor shall Tenant’s possession of the Premises be disturbed or interfered with, by any trustee’s sale or by an action or proceeding to foreclose said mortgage, deed of trust or other encumbrance.

17.    LIMITATION OF LANDLORD’S LIABILITY

17.1     Limitation . Landlord shall not be responsible for or liable to Tenant and Tenant hereby releases Landlord, waives all claims against Landlord and assumes the risk for any injury, loss or damage to any person or property in or about the Premises by or from any cause whatsoever (other than Landlord’s gross negligence or willful misconduct) including, without limitation, (a) acts or omissions of persons occupying adjoining premises, (b) theft or vandalism, (c) burst, stopped or leaking water, gas, sewer or steam pipes, (d) loss of utility service, (e) accident, fire or casualty, or (f) nuisance, and also for work done by Landlord in the Premises other than Landlord’s active negligence. There shall be no abatement of Rent and no liability of Landlord by reason of any injury to or interference with Tenant’s business arising from the making of any repairs, alterations or improvements to any portion of the Premises or to fixtures, appurtenances and equipment in the Premises; provided, however, that in the event Landlord fails to perform its obligations to make repairs, alterations or improvements or performs such obligations in a negligent manner in each case which results in Tenant being unable to operate its business at the

 

-38-


Premises for a period of more than five (5) days, then Tenant shall be entitled to an abatement of Rent commencing on the sixth (6th) business day Tenant is unable to operate and continuing until the Premises are again available for operation of Tenant’s business. Such Rent abatement shall be Tenant’s only remedy in the event of a negligent interference with Tenant’s business and Tenant shall not be entitled to damages or to termination of this Lease arising from Landlord’s repairs, alterations or improvements. No interference with Tenant’s operations in the Premises shall constitute a constructive or other eviction of Tenant. Tenant hereby waives and releases any right it may have to make repairs at Landlord’s expense under Sections 1941 and 1942 of the California Civil Code, or under any similar law, statute or ordinance now or hereafter in effect.

17.2     Sale of Premises . It is agreed that Landlord may at any time sell; assign or transfer its interest as landlord in and to this Lease, and may at any time sell, assign or transfer its interest in and to the Premises. In the event of any transfer of Landlord’s interest in this Lease or in the Premises, the transferor shall be automatically relieved of any and all of Landlord’s obligations and liabilities accruing from and after the date of such transfer; provided that the transferee assumes all of Landlord’s obligations under this Lease. Tenant hereby agrees to attorn to Landlord’s assignee, transferee, or purchaser from and after the date of notice to Tenant of such assignment, transfer or sale, in the same manner and with the same force and effect as though this Lease were made in the first instance by and between Tenant and the assignee, transferee or purchaser.

17.3     No Personal Liability . In the event of any default by Landlord hereunder, Tenant shall look only to Landlord’s interest in the Premises and rents therefrom and any available insurance proceeds for the satisfaction of Tenant’s remedies, and no other property or assets of Landlord or any trustee, partner, member, officer or director thereof, disclosed or undisclosed, shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant’s remedies under or with respect to this Lease.

18.    DESTRUCTION

18.1     Landlord’s Repair Obligation . If the Premises or any portion thereof is damaged by fire or other casualty, Landlord shall undertake the repair and restoration of the Premises, subject to the terms and conditions of this Article 18.

18.2     Termination by Landlord . Notwithstanding Section 18.1, in the event (a) the repair and restoration of the Premises will require an out-of-pocket expenditure by Landlord in excess of One Hundred Thousand Dollars ($100,000), or (b) the out-of-pocket cost to Landlord of repair and restoration when added to the out-of-pocket cost of any previous casualty expenditures with respect to the Premises will exceed a cumulative total of One Hundred Thousand Dollars ($100,000), or (c) the repair will take longer than two hundred seventy (270) days after the date of the casualty, then Landlord shall have the option, exercisable within sixty (60) days after the date of such damage, either to: (i) notify Tenant of Landlord’s intention to repair such damage, in which event this Lease shall continue in full force and effect (unless terminated by Tenant pursuant to Section 18.3

 

-39-


below), or (ii) notify Tenant of Landlord’s election to terminate this Lease as of the date of the damage. If such notice to terminate is given by Landlord, this Lease shall terminate as of the date of such damage, unless Tenant elects by written notice to Landlord delivered within ten (10) Business Days after receipt of Landlord’s termination notice to pay for all excess repair costs. In the event Tenant so elects, Tenant shall pay such excess repair costs within ten (10) Business Days after receipt of a reasonably detailed estimate of such costs, and Landlord’s obligation to commence repairs shall be conditioned on receipt of such funds. Excess repair costs shall be deemed to include all soft and hard costs of the repair and restoration, less (A) any insurance proceeds actually received by Landlord, and (B) a contribution to the cost by Landlord not to exceed the lesser of (x) $100,000, and (y) the sum that when added to all other casualty expenditures previously made by Landlord would equal $100,000.

18.3     Termination by Tenant . If Landlord elects to repair the damage and any such repair (a) is not or cannot practicably be substantially completed by Landlord within two hundred seventy (270) days after the occurrence of such damage or destruction (or in the case of damage occurring in the last twelve (12) months of the Term, within sixty (60) days), and (b) such damage has a material adverse impact on Tenant’s business operations at the Premises, then in such event Tenant may, at its option, upon written notice to Landlord to be delivered within fifteen (15) days after receipt of Landlord’s notice, elect to terminate this Lease as of the date of the occurrence of such damage or destruction.

18.4     Rent Adjustment . In case of termination pursuant to Sections 18.2 or 18.3 above, the Rent shall be reduced by a proportionate amount based upon the Rentable Area of the Premises rendered unusable, and Tenant shall pay such reduced Rent up to the date of vacation of the Premises. If Landlord elects to make repairs, and Tenant does not terminate this Lease pursuant to Section 18.3, this Lease shall remain in full force and effect except that Tenant shall be entitled to a proportionate reduction of Rent from the date of such casualty and during the period such repairs are being made by a proportionate amount based upon the Rentable Area of the Premises rendered unusable; provided that any such Rent reduction shall be limited to the amount of insurance proceeds actually received by Landlord pursuant to Section 13.2(d), and Tenant shall remain liable for any excess Rent. The full amount of Rent shall again become payable immediately upon the completion of such work of repair, reconstruction or restoration. The repairs to be made by Landlord under this Article shall not include, and Landlord shall not be required to repair, any casualty damage to the Tenant Improvement Work, Tenant’s Property or any Alterations.

18.5     Tenant Obligations . If Landlord elects to repair, reconstruct or restore the Premises after any damage or destruction, Tenant shall be responsible at its own expense for the repair and replacement of any of the Tenant Improvement Work, Tenant’s Property and any Alterations which Tenant elects to replace.

18.6     No Claim . Tenant shall have no interest in or claim to any portion of the proceeds of any property insurance or self-insurance maintained by Landlord in

 

-40-


connection with the damage. If Landlord elects not to rebuild the Premises, Landlord shall relinquish to Tenant such claim as Landlord may have for any part of the proceeds of any insurance maintained by Tenant under Section 13.2 of this Lease.

18.7     No Damages . If Landlord elects to make any repairs, reconstruction or restoration of any damage or destruction to the Premises under any of the provisions of this Article 18, Tenant shall not be entitled to any damages by reason of any inconvenience or loss sustained by Tenant as a result thereof. Except as expressly provided in Section 18.4 there shall be no reduction, change or abatement of any rental or other charge payable by Tenant to Landlord hereunder, or in the method of computing, accounting for or paying the same. Tenant hereby waives the provisions of Section 1932(2) and Section 1933(4) of the California Civil Code, or any other statute or law that may be in effect at the time of a casualty under which a lease is automatically terminated or a tenant is given the right to terminate a lease due to a casualty.

19.    EMINENT DOMAIN

19.1     Taking . If all or any part of the Premises shall be taken as a result of the exercise of the power of eminent domain or any transfer in lieu thereof, this Lease shall terminate as to the part so taken as of the date of taking or as of the date of final judgment, whichever is earlier, and, in the case of a partial taking, Landlord shall have the right to terminate this Lease as to the balance of the Premises by written notice to Tenant within thirty (30) days after such date.

19.2     Award . In the event of any taking, Landlord shall be entitled to any and all compensation, damages, income, rent, awards, or any interest therein whatsoever which may be paid or made in connection therewith, and Tenant shall assign to Landlord any right to compensation or damages for the condemnation of its leasehold interest. Nothing contained herein shall be deemed to prohibit Tenant from making a separate claim against the condemning authority for the value of Tenant’s Property and moving expenses, provided such claim does not delay or diminish Landlord’s claim or award.

19.3     Partial Taking . In the event of a partial taking of the Premises which does not result in a termination of this Lease, the Base Rent shall be adjusted as follows:

(a)    In the event of a partial taking, if this Lease is not terminated pursuant to this Article 19, Landlord shall repair, restore or reconstruct the Premises to a useable state; provided that Landlord shall not be required to expend any sums other than those received pursuant to Section 19.2, and in the event Tenant does not elect to reimburse Landlord for such excess costs within thirty (30) days after notice from Landlord as to the amount of such excess cost, Landlord may elect to terminate this Lease;

(b)    During the period between the date of the partial taking and the completion of any necessary repairs, reconstruction or restoration, Tenant shall be entitled to a reduction of Base Rent by a proportionate amount based upon the extent of interference with Tenant’s operations in the Premises; and

 

-41-


(c)    Upon completion of said repairs, reconstruction or restoration, and thereafter throughout the remainder of the Term, the Base Rent shall be recalculated based on the remaining total number of square feet of Rentable Area of the Premises.

19.4     Temporary Taking . Notwithstanding any other provision of this Article, if a taking occurs with respect to all or any portion of the Premises for a period of six (6) months or less, this Lease shall remain unaffected thereby and Tenant shall continue to pay Base Rent and Additional Rent and to perform all of the terms, conditions and covenants of this Lease, provided that Tenant shall have the right to terminate this Lease if the taking continues beyond six (6) months by giving Landlord notice of such termination within twenty (20) days following the expiration of such six (6) month period. If Tenant exercises such termination right, this Lease and the estate hereby granted shall terminate as of the thirtieth (30th) day following the giving of such notice. In the event of any such temporary taking, and if this Lease is not terminated, Tenant shall be entitled to receive that portion of any award which represents compensation for the use or occupancy of the Premises during the Term up to the total Base Rent and Additional Rent owing by Tenant for the period of the taking, and Landlord shall be entitled to receive the balance of any award.

19.5     Sale in Lieu of Condemnation . A voluntary sale by Landlord of all or any part of the Premises to any public or quasi-public body, agency or person, corporate or otherwise, having the power of eminent domain, either under threat of condemnation or while condemnation proceedings are pending, shall be deemed to be a taking under the power of eminent domain for the purposes of this Article.

19.6     Waiver . Except as provided in this Article, Tenant hereby waives and releases any right it may have under any Applicable Law to terminate this Lease as a result of a taking, including without limitation Sections 1265.120 and 1265.130 of the California Code of Civil Procedure, or any similar law, statute or ordinance now or hereafter in effect.

20.    SURRENDER

20.1     Surrender . On or before the ninetieth (90th) day preceding the Expiration Date, Tenant shall notify Landlord in writing of the precise date (the “ Move-Out Date ”) upon which Tenant plans to surrender the Premises to Landlord. At least sixty (60) days prior to the Move-Out Date, Landlord and Tenant shall walk through the Premises to identify any repair and removal work to be performed by Tenant pursuant to Sections 9.6 or 9.7, or due to Tenant’s failure to perform any other obligation set forth in this Lease; provided that failure by any party to participate in the walk-through shall not relieve Tenant of any of its obligations hereunder. Prior to the Termination Date, Tenant shall repair at Tenant’s sole cost, all damage to the Premises that causes material damage to the Building Structure or Building Systems, impairs access to the Premises, or poses a threat to worker safety, to the extent such damage was caused by removal of Tenant’s Property, the Tenant Improvement Work and any Alterations as required under this Lease. Upon the Termination Date, Tenant shall surrender the Premises to Landlord in as good order and repair as on the Commencement Date, reasonable wear and tear and damage by casualty

 

-42-


excepted, free and clear of all letting and occupancies and with Tenant’s Hazardous Materials removed as required pursuant to Article 12. Subject to Article 9, upon any termination of this Lease all improvements, except for Tenant’s Property, shall automatically and without further act by Landlord or Tenant, become the property of Landlord, free and clear of any claim or interest therein by Tenant, and without payment therefore by Landlord. If the Premises are not surrendered as of the end of the Term in the manner and condition described in this Section 20.1, Tenant shall indemnify, defend, protect and hold Landlord harmless from and against any and all Losses resulting from or caused by Tenant’s delay or failure in so surrendering the Premises, including, without limitation, any lost rents and any claims made by any succeeding tenant due to such delay or failure and any loss or damage incurred by Landlord as a result of any delay in Landlord’s redevelopment plans for the Premises.

20.2     Holding Over . Any holding over after the expiration of the Term with the consent of Landlord shall be construed to automatically extend the Term on a month-to-month basis at a Base Rent equal to the greater of (a) one and one-half times the then-current Base Rent, and (b) prevailing rate at which Landlord is then offering space in buildings reasonably determined by Landlord to be comparable to the Premises, and shall otherwise be on the terms and conditions of this Lease to the extent applicable. Any holding over without Landlord’s consent shall entitle Landlord to exercise any or all of its remedies provided in Article 15, notwithstanding that Landlord may elect to accept one or more payments of Base Rent and Additional Rent from Tenant.

20.3     Quitclaim . At the expiration or earlier termination of this Lease, Tenant shall execute, acknowledge and deliver to Landlord, within ten (10) days after written demand from Landlord to Tenant, any quitclaim deed or other document required by any reputable title company, licensed to operate in the State of California, to remove the cloud or encumbrance created by this Lease from the Premises.

21.    FINANCIAL STATEMENTS

Tenant shall tender to Landlord within ten (10) Business Days after receipt of a written request any information reasonably requested by Landlord regarding the financial stability, credit worthiness or ability of Tenant to pay the Rent due under this Lease. Landlord shall be entitled to rely upon the information provided in determining whether or not to enter into this Lease or for the purpose of any financing or other transaction subsequently undertaken by Landlord. Tenant hereby represents and warrants to Landlord the following: (a) that all documents provided by Tenant to Landlord in connection with the negotiation of this Lease are true and correct copies of the originals, (b) Tenant has not withheld any information from Landlord that is material to Tenant’s credit worthiness, financial condition or ability to perform its obligations hereunder, (c) all information supplied by Tenant to Landlord is true, correct and accurate, (d) no part of the information supplied by Tenant to Landlord contains any misleading or fraudulent statements, and (e) Tenant has secured a Series E financing commitment of at least $50,000,000. A default under this Article shall be a non-curable default by Tenant and Landlord shall be entitled to pursue any right or remedy available to Landlord under the terms of this Lease or available to

 

-43-


Landlord under the laws of the State of California. Landlord shall be entitled to disclose Tenant’s financial information to (i) its agents, employees and consultants, (ii) potential purchasers of an interest in the Premises, and (iii) lenders contemplating making a loan to the Landlord to be secured by the Premises, provided that such recipients are advised of the confidential nature of such information and agree to maintain such confidentiality.

22.    TENANT CERTIFICATES

Tenant, at any time and from time to time within ten (10) Business Days after receipt of written notice from Landlord, shall execute, acknowledge and deliver to Landlord or to any party designated by Landlord (including prospective lenders, purchasers, ground lessees and others similarly situated), a certificate of Tenant stating, to the best of Tenant’s knowledge: (a) that Tenant has accepted the Premises, (b) the Commencement Date and Expiration Date of this Lease, (c) that this Lease is unmodified and in full force and effect (or, if there have been modifications, that same is in full force and effect as modified and stating the modifications), (d) whether or not there are then known to exist any defenses against the enforcement of any of the obligations of Tenant under this Lease (and, if so, specifying same), (e) whether or not there are then known to exist any defaults by Landlord in the performance of its obligations under this Lease (and, if so, specifying same), (f) the dates, if any, to which the Base Rent and Additional Rent have been paid, and (g) any other factual information relating to the rights and obligations under this Lease that may reasonably be required by any of such persons. Failure to deliver such certificate when due shall constitute an Event of Default. At the request of Tenant, Landlord shall execute, acknowledge and deliver to Tenant a certificate with similar types of information and in the time period set forth above. Failure by either Landlord or Tenant to execute, acknowledge and deliver such certificate shall be conclusive evidence that this Lease is in full force and effect and has not been modified except as may be represented by the requesting party. If any term in any certificate conflicts with the terms of this Lease, the terms of this Lease shall govern.

23.    RULES AND REGULATIONS; SIGNS

23.1     Rules and Regulations . Tenant shall faithfully observe and comply with all reasonable rules and regulations, and all reasonable modifications thereof and additions thereto from time to time put into effect by Landlord (the “ Rules and Regulations ”). Landlord shall not enforce such Rules and Regulations in an unreasonable or discriminatory manner. In the event of any conflict between the terms of this Lease and the terms, covenants, agreements and conditions of the Rules and Regulations, this Lease shall control.

23.2     Signs . Tenant shall have the right, at Tenant’s sole cost and expense, to install Tenant’s name on one existing road-side monument. Tenant shall also have the right to place signage on the Buildings. All signage to be installed by Tenant pursuant to this Section 23.2 shall comply with Applicable Law, the Stanford Research Park Handbook and shall be subject to the prior written consent of Landlord, not to be unreasonably withheld, and, if required, the approval of the City of Palo Alto.

 

-44-


24.    INABILITY TO PERFORM

If Landlord is unable to fulfill or is delayed in fulfilling any of Landlord’s obligations under this Lease, by reason of acts of God, accidents, breakage, repairs, strikes, lockouts, other labor disputes, inability to obtain utilities or materials or by any other reason beyond Landlord’s reasonable control, then such inability or delay by Landlord shall excuse the performance of Landlord for a period equal to the duration of such prevention, delay or stoppage, and no such inability or delay by Landlord shall constitute an actual or constructive eviction, in whole or in part, or entitle Tenant to any abatement or diminution of Base Rent or Additional Rent, or relieve Tenant from any of its obligations under this Lease, or impose any liability upon Landlord or Landlord’s Agents by reason of inconvenience, annoyance, interruption, injury or loss to or interference with Tenant’s business or use and occupancy or quiet enjoyment of the Premises or any loss or damage occasioned thereby. If Tenant is unable to fulfill or is delayed in fulfilling any of Tenant’s obligations under this Lease (other than the payment of Rent), by reason of acts of God, accidents, breakage, repairs, strikes, lockouts, other labor disputes, inability to obtain utilities or materials or by any other reason beyond Tenant’s reasonable control, then such inability or delay by Tenant shall excuse the performance of Tenant for a period equal to the duration of such prevention, delay or stoppage. Tenant hereby waives and releases any right to terminate this Lease under Section 1932(1) of the California Civil Code, or any similar law, statute or ordinance now or hereafter in effect.

25.    NOTICES

Notices or other communications given or required to be given under this Lease shall be effective only if rendered or given in writing, sent by certified mail with a return receipt requested, or delivered in person or by reputable overnight courier (e.g., Federal Express, DHL, etc.): (a) to Tenant (i) at Tenant’s address set forth in Article 1, if sent prior to the Commencement Date, or (ii) at the Premises and at the “copy to” address specified in Article 1 if sent subsequent to the Commencement Date, or (iii) at the place where Tenant designates subsequent to Tenant’s vacating, deserting, abandoning or surrendering the Premises; or (b) to Landlord at Landlord’s address set forth in Article 1; or (c) to such other address as either Landlord or Tenant may designate as its new address for such purpose by notice given to the other in accordance with the provisions of this Article. Any such notice or other communication shall be deemed to have been rendered or given five (5) days after the date mailed, if sent by certified mail, or upon the date of delivery in person or by courier, or when delivery is attempted but refused.

26.    QUIET ENJOYMENT

Landlord covenants that so long as an Event of Default by Tenant is not in existence, upon paying the Base Rent and Additional Rent and performing all of its obligations under this Lease, Tenant shall peaceably and quietly enjoy the Premises, subject to the terms and provisions of this Lease.

 

-45-


27.    AUTHORITY

27.1     Tenant’s Authority . If Tenant is a corporation, limited liability company or a partnership, Tenant represents and warrants as follows: Tenant is an entity as identified in Article 1, duly formed and validly existing and in good standing under the laws of the state of organization specified in Article 1 and qualified to do business in the State of California. Tenant has the power, legal capacity and authority to enter into and perform its obligations under this Lease and no approval or consent of any person is required in connection with the execution and performance hereof. The execution and performance of Tenant’s obligations under this Lease will not result in or constitute any default or event that would be, or with notice or the lapse of time would be, a default, breach or violation of the organizational instruments governing Tenant or any agreement or any order or decree of any court or other governmental authority to which Tenant is a party or to which it is subject. Tenant has taken all necessary action to authorize the execution, delivery and performance of this Lease and this Lease constitutes the legal, valid and binding obligation of Tenant. Upon Landlord’s request, Tenant shall provide Landlord with evidence reasonably satisfactory to Landlord confirming the foregoing representations and warranties.

27.2     Landlord’s Authority . Landlord represents and warrants as follows: Landlord has the power, legal capacity and authority to enter into and perform its obligations under this Lease and no approval or consent of any person is required in connection with the execution and performance hereof. The execution and performance of Landlord’s obligations under this Lease will not result in or constitute any default or event that would be, or with notice or the lapse of time would be, a default, breach or violation of the organizational instruments governing Landlord or any agreement or any order or decree of any court or other governmental authority to which Landlord is a party or to which it is subject. Landlord has taken all necessary action to authorize the execution, delivery and performance of this Lease and this Lease constitutes the legal, valid and binding obligation of Landlord.

28.     BROKERS

Tenant and Landlord warrant that they have had dealings with only the real estate brokers or agents listed in Article 1 in connection with the negotiation of this Lease and that they know of no other real estate broker or agent who is entitled to a commission in connection with this Lease. Landlord shall pay for the brokerage commission earned in connection with this transaction by Tenant’s Broker pursuant to the terms of a separate agreement between Landlord and Tenant’s Broker. Tenant and Landlord shall indemnify, defend and hold the other harmless from and against all liabilities arising from any other claims of brokerage commissions or finder’s fees based on Tenant’s or Landlord’s, as applicable, dealings or contacts with brokers or agents other than those listed in Article 1.

 

-46-


29.    MISCELLANEOUS

29.1     Entire Agreement . This Lease, including the exhibits which are incorporated herein and made a part of this Lease and that certain letter agreement dated May 22, 2009 from Annette Walton to Craig Harding regarding environmental reports, contains the entire agreement between the parties and all prior negotiations and agreements are merged herein. Tenant hereby acknowledges that neither Landlord nor Landlord’s Agents have made any representations or warranties with respect to the Premises or this Lease except as expressly set forth herein, or therein, and no rights, easements or licenses are or shall be acquired by Tenant by implication or otherwise unless expressly set forth herein or therein.

29.2     No Waiver . No failure by Landlord or Tenant to insist upon the strict performance of any obligation of Tenant or Landlord under this Lease or to exercise any right, power or remedy consequent upon a breach thereof, no acceptance of full or partial Base Rent or Additional Rent during the continuance of any such breach by Landlord, or payment of Base Rent or Additional Rent by Tenant to Landlord, and no acceptance of the keys to or possession of the Premises prior to the expiration of the Term by any employee or agent of Landlord shall constitute a waiver of any such breach or of such term, covenant or condition or operate as a surrender of this Lease. No waiver of any breach shall affect or alter this Lease, but each and every term, covenant and condition of this Lease shall continue in full force and effect with respect to any other then-existing or subsequent breach thereof. The consent of Landlord or Tenant given in any instance under the terms of this Lease shall not relieve Tenant or Landlord, as applicable, of any obligation to secure the consent of the other in any other or future instance under the terms of this Lease.

29.3     Modification . Neither this Lease nor any term or provisions hereof may be changed, waived, discharged or terminated orally, and no breach thereof shall be waived, altered or modified, except by a written instrument signed by the party against which the enforcement of the change, waiver, discharge or termination is sought.

29.4     Successors and Assigns . The terms, covenants and conditions contained in this Lease shall bind and inure to the benefit of Landlord and Tenant and, except as otherwise provided or limited herein, their respective personal representatives and successors and assigns.

29.5     Validity . If any provision of this Lease or the application thereof to any person, entity or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such provision to persons, entities or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each provision of this Lease shall be valid and be enforced to the full extent permitted by law.

29.6     Jurisdiction . This Lease shall be construed and enforced in accordance with the laws of the State of California. Any action that in any way involves the rights, duties and obligations of the parties under this Lease may (and if against Landlord,

 

-47-


shall) be brought in the courts of the State of California or the United States District Court for the District of California, and the parties hereto hereby submit to the personal jurisdiction of said courts.

29.7     Attorneys’ Fees . In the event that either Landlord or Tenant fails to perform any of its obligations under this Lease or in the event a dispute arises concerning the meaning or interpretation of any provision of this Lease, the defaulting party or the party not prevailing in such dispute, as the case may be, shall pay any and all costs and expenses incurred by the other party in enforcing or establishing its rights hereunder, including, without limitation, court costs, costs of arbitration and reasonable attorneys’ fees.

29.8     Waiver of Jury Trial . Landlord and Tenant each hereby voluntarily and knowingly waive and relinquish their right to a trial by jury in any action, proceeding or counterclaim brought by either against the other on any matter whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord with Tenant, or Tenant’s use or occupancy of the Premises, including any claim of injury or damage, and any emergency and other statutory remedy with respect thereto.

29.9     Intentionally Omitted

29.10     Light and Air . Tenant covenants and agrees that no diminution of light, air or view by any structure that may hereafter be erected (whether or not by Landlord) shall entitle Tenant to any reduction of the Base Rent or Additional Rent under this Lease, result in any liability of Landlord to Tenant, or in any other way affect this Lease or Tenant’s obligations hereunder.

29.11     Lease Memorandum . If required to do so in connection with the funding described in Section 5.4(d), Landlord will execute and acknowledge a memorandum of lease for recordation in the Official Records of Santa Clara County in a form reasonably acceptable to Landlord.

29.12     Confidentiality . The parties agree that neither of them shall make public the terms and conditions of this Lease or the fact that they have entered into this Lease to any person other than a party’s accountants, attorneys, brokers, prospective ground lessees, investors, consultants or financial advisors without first obtaining the written permission from the other party, except to the extent otherwise required by Applicable Law. In addition, Landlord agrees that all financial information provided to Landlord by Tenant pursuant to Section 21 shall be subject to the foregoing confidentiality requirements.

29.13     Terms . The term “Premises” includes the space leased hereby and any improvements now or hereafter installed therein or attached thereto. The words “Landlord” and “Tenant” as used herein shall include the plural as well as the singular. If there is more than one Tenant or Landlord, the obligations under this Lease imposed on Tenant or Landlord shall be joint and several. The captions preceding the articles of this

 

-48-


Lease have been inserted solely as a matter of convenience and such captions in no way define or limit the scope or intent of any provision of this Lease.

29.14     Review and Approval . The review, approval, inspection or examination by Landlord of any item to be reviewed, approved, inspected or examined by Landlord under the terms of this Lease or the exhibits attached hereto shall not constitute the assumption of any responsibility by Landlord for either the accuracy or sufficiency of any such item or the quality of suitability of such item for its intended use. Any such review, approval, inspection or examination by Landlord is for the sole purpose of protecting Landlord’s interests in the Premises and under this Lease, and no third parties, including, without limitation, Tenant or any person or entity claiming through or under Tenant, or the contractors, agents, servants, employees, visitors or licensees of Tenant or any such person or entity, shall have any rights hereunder with respect to such review, approval, inspection or examination by Landlord.

29.15     No Beneficiaries . This Lease shall not confer or be deemed to confer upon any person or entity other than the parties hereto, any right or interest, including without limitation, any third party status or any right to enforce any provision of this Lease.

29.16     Time of the Essence . Time is of the essence in respect of all provisions of this Lease in which a definite time for performance is specified.

29.17     Modification of Lease . In the event of any ruling or threat by the Internal Revenue Service, or opinion of counsel, that all or part of the Rent paid or to be paid to Landlord under this Lease will be subject to the income tax or unrelated business taxable income, Tenant agrees to modify this Lease to avoid such tax; provided that such modifications will not result in any increase in Rent, or any increased obligations of Tenant under this Lease. Landlord will pay all Tenant’s reasonable costs incurred in reviewing and negotiating any such lease modification, including reasonable attorneys’ and accountants’ fees.

29.18     Construction . This Lease has been negotiated extensively by Landlord and Tenant with and upon the advice of their respective legal counsel, all of whom have participated in the drafting hereof. Consequently, Landlord and Tenant agree that no party shall be deemed to be the drafter of this Lease and in the event this Lease is ever construed by a court of law, such court shall not construe this Lease or any provision of this Lease against any party as the drafter of the Lease.

29.19     Use of Name . Tenant acknowledges and agrees that the names “ The Leland Stanford Junior University ,” “ Stanford ” and “ Stanford University ,” and all variations thereof, are proprietary to Landlord. Tenant shall not use any such name or any variation thereof or identify Landlord in any promotional advertising or other promotional materials to be disseminated to the public or any portion thereof or use any trademark, service mark, trade name or symbol of Landlord or that is associated with it, without Landlord’s prior written consent, which may be given or withheld in Landlord’s sole

 

-49-


discretion. Notwithstanding the foregoing, Tenant may use the term “Stanford Research Park” only to identify the location of the Premises.

29.20     Survival . The obligations of this Lease shall survive the expiration of the Term to the extent necessary to implement any requirement for the performance of obligations or forbearance of an act by either party hereto which has not been completed prior to the termination of this Lease. Such survival shall be to the extent reasonably necessary to fulfill the intent thereof, or if specified, to the extent of such specification, as same is reasonably necessary to perform the obligations and/or forbearance of an act set forth in such term, covenant or condition. Notwithstanding the foregoing, in the event a specific term, covenant or condition is expressly provided for in such a clear fashion as to indicate that such performance of an obligation or forbearance of an act is no longer required, then the specific shall govern over this general provisions of this Lease.

29.21     Counterparts . This Lease may be executed in counterparts, each of which shall be an original, and all of which together shall constitute one original of the Lease.

IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the date first above written.

 

LANDLORD:

   

TENANT:

THE BOARD OF TRUSTEES OF THE

LELAND STANFORD JUNIOR UNIVERSITY

   

TESLA MOTORS, INC.

a Delaware corporation

By:

 

/s/ Tiffany Griego

   

By:

 

/s/ JB Straubel

Its:

 

Associate Director, Real Estate

   

Its:

 

CTO

     

By:

 

/s/ Craig W. Harding

     

Its:

 

General Counsel & Secretary

 

-50-


GLOSSARY

DEFINITIONS

As used in this Lease, the following terms shall have the following meanings, applicable, as appropriate, to both the singular and plural form of the terms defined below:

ADA ” is defined in Section 11.1.

Additional Rent ” is defined in Section 5.2.

Affiliate ” is defined in Section 14.1.

Alterations ” are defined in Section 9.3.

Applicable Laws ” are defined in Section 11.1.

Approved Plan ” is defined in Section 12.3.

Assignment ” is defined in Section 14.1.

Base Rent ” means the amount stated in Article 1, payable in accordance with Article 5.

Buildings ” are defined in Section 2.1.

Building Structure ” is defined in Section 8.2.

Building Systems ” are defined in Section 8.2.

Business Days ” means Monday through Friday, excluding federal and state legal holidays.

Commencement Date ” is defined in Section 4.1.

Conservation Easement ” is defined in Section 16.3.

Conservation Easement Area ” is defined in Section 16.3.

Conservation Rules ” are defined in Section 16.3(b).

Effective Date ” is defined in the introductory paragraph.

Environmental Activity ” is defined in Section 12.1(a).

Environmental Investigation ” is defined in Section 12.7.

 

-51-


Environmental Laws ” are defined in Section 12.1(b).

Event of Default ” is defined in Section 15.1.

Excess Rent ” is defined in Section 14.4.

Exacerbation ” is defined in Section 12.1(c).

Expiration Date ” means the date specified in Article 1.

First Renewal Option ” is defined in Section 4.4.

First Renewal Term ” is defined in Section 4.4.

Hazardous Material ” is defined in Section 12.1(d).

H-P Access Agreement ” is defined in Section 16.1.

Indoor Air Screening Level ” is defined in Section 4.4.

Initial Space ” is defined in Section 4.2.

Insurance Costs ” are defined in Section 7.4.

Interest Rate ” is defined in Section 15.2(c).

Landlord” is defined in the introductory paragraph to this Lease.

Landlord’s Agents ” are defined in Section 12.5(a).

Landlord’s Environmental Work ” is defined in Section 9.1.

Landlord’s Work ” is defined in Section 9.1.

L-C Bank ” is defined in Section 5.4(c).

Losses ” are defined in Section 13.1.

Main HVAC System Components ” are defined in Section 8.1.

Move-Out Date ” is defined in Section 20.1.

Offer ” is defined in Section 14.5.

Parking Area ” is defined in Section 2.2.

Permitted Transferee ” is defined in Section 14.1.

 

-52-


Pre-Existing Condition ” is defined in Section 12.2(a).

Premises ” is defined in Section 2.1.

Real Property Taxes ” are defined in Section 7.2.

Remaining Materials ” are defined in Section 9.1.

Renewal Options ” is defined in Section 4.4.

Renewal Terms ” are defined in Section 4.4.

Rent ” is defined in Section 5.2.

Rentable Area ” means the enclosed areas of the Premises measured to the outside face of the exterior wall or glass line (whichever is greater) and including all second floor vertical shafts and penetrations, but excluding outside balconies, arcades and covered entrances.

Rules and Regulations ” are defined in Section 23.1.

RWQCB ” is defined in Section 4.4.

Scheduled Commencement Date ” is defined in Article 1.

Second Renewal Option ” is specified in Section 4.4.

Second Renewal Term ” is defined in Section 4.4.

Security Deposit ” is defined in Article 1.

Service Yard ” is defined in Section 2.3.

Sublease ” is defined in Section 14.1.

Successor ” is defined in Section 16.4.

Supplemental Investigation ” is defined in Section 12.7.

Tenant ” is defined in the introductory paragraph to this Lease.

Tenant Improvement Work ” is defined in Section 9.2.

Tenant Obligations ” are defined in Section 8.2.

Tenant’s Agents ” means Tenant’s directors, officers, agents, employees, subtenants, licensees and lenders.

 

-53-


Tenant’s Hazardous Materials ” are defined in Section 12.1(e).

Tenant’s Property ” is defined in Section 9.7.

Term ” is defined in Article 1 and Section 4.1.

Termination Date ” is defined in Section 4.1.

Transfer ” is defined in Section 14.5.

Transfer Costs ” are defined in Section 14.4.

Transfer Notice ” is defined in Section 14.2.

Transferee ” is defined in Section 14.2.

Transit Fees ” are defined in Section 7.7.

Warranty Period ” is defined in Section 8.1.

Wipe Sample Screening Level ” is defined in Section 4.5.

 

-54-


EXHIBIT A-1

DESCRIPTION OF PREMISES ATTACHED


LOGO


EXHIBIT A-2

DESCRIPTION OF SERVICE YARD ATTACHED


LOGO


EXHIBIT B

ACCEPTANCE FORM

AND

NOTICE OF COMMENCEMENT DATE

Tenant hereby certifies to Landlord that Tenant has accepted the Initial Spare in its existing condition, subject to the provisions of the Lease as of August 6 , 2009 (the “ Date of Acceptance ”). Tenant further acknowledges that Landlord has delivered to Tenant the results of indoor air quality sampling pursuant to Section 4.4 of the Leases which did not reveal the presence of volatile organic compounds at concentrations exceeding the Indoor Air Screening Level. Tenant hereby waives any right to terminate the Lease pursuant to Section 4.4. Tenant further acknowledges that Landlord has delivered to Tenant the results of wipe sampling for analysis of selected metals pursuant to Section 4.5, which did not reveal the presence of metals at concentrations exceeding the Wipe Sampling Screening Level. Tenant hereby waives any right to terminate the Lease pursuant to Section 4.5.

Tenant further acknowledges and accepts the following Commencement Date for all purposes under the Lease:

 

Commencement Date

  8/20/2009  
     

Free Rent Period is

  8/20/09 – 2/19/11  
     

Initial Rent Period is

  2/20/11   - 1/31/13  
       

Second Rent Period

  2/1/13 - 1/31/15    

Third Rent Period

  2/1/15 - 1/31/16    

The person executing this Acceptance Form and Notice of Commencement Date on behalf of Tenant represents and warrants to Landlord that such person is duly authorized to execute this form and that this form has been duly authorized, executed and delivered on behalf of Tenant.

 

TENANT:

TESLA MOTORS, INC.

By:  

/s/ JB Straubel

Its:  

CTO

By:  

/s/ Craig Harding

Its:  

General Counsel & Secretary


EXHIBIT C

DESCRIPTION OF LANDLORD’S WORK ATTACHED


Exhibit C

3500 Deer Creek Road

Demolition Scope to be Completed by Stanford

   May 1, 2009

 

 

The following descriptions summarize the scope of the interior demolition which will be completed by Stanford. Due to unknown field conditions related to the necessary demolition, the actual scope of Landlord’s Environmental Work may be modified by Landlord as reasonably necessary to accommodate actual field conditions.

Two general categories for demolition are used to characterize the scope: the Green Cross-Hatched Areas; and the Yellow Shaded (Non-Cross-Hatched) Areas.

Green Cross-Hatched Areas:

[Areas only occur in Building 25 Ground Level; Building 25 Upper Level; Building 26 Ground Level]

 

 

Electrical distribution: be taken back to the panels/sub-panels. Conduits will be left in place where they are not obstructing removal of hazardous materials.

 

 

Lighting: To be removed and sealed-off back to electrical sub-panels.

 

 

Walls and Ceilings: To be removed, with the exception of walls labeled red and blue on the exhibits. (Interstitial and mezzanine structure will be left intact.)

 

 

Utilities: To be capped above the ceiling as necessary to facilitate wall and ceiling demolition.

 

 

Process Piping to manufacturing and lab areas (e.g. hydrofluoric, acid neutralization, waste solvent system): To be removed.

 

 

House and process vacuum lines (primarily located in the interstitial and mezzanine spaces): To be removed. Utilities will be removed and capped off or sated-off as necessary to facilitate the removal of this material.

 

 

Ductwork and blowers associated with the laboratory/process recirculation system (primarily located in the interstitial and mezzanine spaces): To be removed. Utilities will be removed and capped off or sated-off as necessary to facilitate the removal of this material.

 

 

Main HVAC systems: Air handlers will be cleaned and remain in place; filters will be replaced. Some or all of the primary ductwork and/or lateral ductwork may need to be removed based on field conditions.

 

 

Concrete: To be sawcut or jack-hammered as required to remove drains which are part of the hydrofluoric, acid neutralization, or solvent waste system; concrete will be patched back locally at these locations.

 

Page 1 of 3


3500 Deer Creek Road

Demolition Scope to be Completed by Stanford

   May 1, 2009

 

 

Yellow Shaded (Non-Cross-Hatched) Areas:

[Areas only occur in Building 24 Basemen’: Building 24 Ground Level; Building 26 Basement; Building 26 Upper Level]

 

 

Sheetrock: Selective sheetrock demolition will be performed to expose and remove acid and solvent waste drains buried in the walls. Approximate quantity of 20+ drain lines need to be removed. No patching will be done where sheetrock removal is required.

 

 

Ceilings: Selective ceiling demolition will be performed to expose and remove ductwork and blowers associated with the laboratory/process recirculation system and house and process vacuum lines. Ceiling will be left in a safe condition but will not be restored.

 

 

Cabinetry and hoods: To be cleaned and remain ill place, except where it is necessary to move them to gain access for removal of acid waste solvent waste, process vacuum, or other lines and ducts. Exhaust ducts serving laboratory hoods have been or will be disconnected and P-traps under lab sinks have been removed. Asbestos is reported or suspected in several laboratory hoods and chemical storage cabinets on the Upper Level of Building 26; these hoods and cabinets will be removed.

 

 

Process piping (which was part of the hydrofluoric, acid neutralization, and/or waste solvent system): To be removed.

 

 

Utility lines that serviced manufacturing areas and labs: To be capped as required.

 

 

House and process vacuum lines: To be removed. Utilities will be removed and capped off or sated-off as necessary to facilitate the removal of this material.

 

 

Ductwork and blowers associated with the laboratory/process recirculation system will be removed. Utilities will be removed and capped off or safed-off as necessary to facilitate the removal of this material.

 

 

Concrete will be sawcut or jack-hammered as required to remove drains which are part of the hydrofluoric, acid neutralization, or solvent waste system: concrete will he patched back locally at these locations,

 

 

Main HVAC systems: Air handlers will be cleaned and remain in place; filters will be replaced. Some or all of the primary ductwork and/or lateral ductwork may need to be removed based on field conditions. Air handlers may be removed from Building 24,

 

 

Walls to remain in place are shown on the exhibit.

 

 

Flooring will be left as-is. In areas where sections of flooring may need to be removed to access drains (e.g. linoleum, sheet vinyl, ceramic tile, all of which are non-asbestos containing), holes will not be patched.

 

Page 2 of 3


3500 Deer Creek Road

Demolition Scope to be Completed by Stanford

   May 1, 2009

 

 

 

Some additional mastic will be removed from concrete; concrete will be left as-is alter removal of the mastic.

 

 

Existing trenches will be backfilled and brought up to level with adjacent floor: floor loading capacity will be at least equivalent to adjacent slab.

 

Page 3 of 3


LOGO


LOGO


LOGO


LOGO


LOGO


LOGO


LOGO


EXHIBIT D

HAZARDOUS MATERIALS BUSINESS PLAN ATTACHED


Exhibit D

LOGO


LOGO


LOGO


LOGO


LOGO


LOGO


LOGO


LOGO


LOGO


LOGO


LOGO


LOGO


LOGO


Emergency Response/Contingency Plan

(Hazardous Materials Business Plan Module)

Authority Cited: HSC §25504(b); 19 CCR §2731; 22 CCR §66262.34(a)(4)

All facilities that handle hazardous materials in HMBP quantities must have a written emergency response plan. In addition, facilities that generate 1,000 kilograms or more of hazardous waste (or more than 1 kilogram of acutely hazardous waste or 100 kilograms of debris resulting from the spill of an acutely hazardous waste) per month, or accumulate more than 6,000 kilograms of hazardous waste on-site at any one time, must prepare a hazardous waste contingency plan. Because the requirements are similar, they have been combined in a single document, provided below, for your convenience. This plan is a required module of the Hazardous Materials Business Plan (HMBP). If you already have a plan that meets these requirements, you should not complete the blank plan, below, but you must include a copy of your existing plan as part of your HMBP.

This site-specific Emergency Response/Contingency Plan is the facilities plan for dealing with emergencies and shall be implemented immediately whenever there is a fire, explosion, or release of hazardous materials that could threaten human health and/or the environment. At least one copy of the plan shall be maintained at the facility for use in the event of an emergency and for inspection by the local agency. A copy of the plan and any revisions must be provided to any contractor, hospital, or agency with whom special (i.e., contractual) emergency services arrangements have been made ( see section 3, below ).

 

1.      Evacuation Plan:
     a.   The following alarm signal(s) will be used to begin evacuation of the facility (check all that apply) :
     ¨   Bells;   x   Horns/Sirens;   x   Verbal  (i.e., shouting) ;   ¨   Other  (specify                                                                                           
     b.   x   Evacuation map is prominently displayed throughout the facility.
     Note:   A properly completed HMBP Site Plan satisfies contingency plan step requirements. This drawing (or any other drawing that shows primary and alternate evacuation routes, emergency exits and primary and alternate staging areas) must be prominently posted throughout the facility in locations where it will be visible to the employees and visitors.
2.      a.   Emergency Contacts*:    
       Fire/Police/Ambulance   Phone No.:   911
       State Office of Emergency Services   Phone No.:   (800) 852-7550
     b.   Post-Incident Contacts*:
       City of Santa China Fire Department (CUPA)   Phone No.:  

(408) 651-4900

       Local Hazardous Materials Program   Phone No.:  

(408) 651-4900

       California EPA Department of Toxic Substances Control   Phone No.:  

(916) 324-1826

       Cal-OSHA Division of Occupational Safety and Health   Phone No.:  

(800) 963-9424

       Air Quality Management District   Phone No.:  

(415) 771-6000

       Regional Water Quality Control Board   Phone No.:  

(510) 622-2300

       *Phone numbers for agencies in United Member Agency geographic jurisdictions are available at www.unidocs.org.
     c.   Emergency Resources:
       Poison Control Center*   Phone No.:  

(800) 876-4766

       Nearest Hospital:   Name:  

STANFORD HOSPITAL

  Phone No.:  

(877) 717 3733

         Address:  

300 PASTEUR DRIVE

  City:  

STANFORD

3.      Arrangements With Emergency Responders:

If you have made special (i.e., contractual) arrangements with any police department, fire department, hospital, contractor, or State or local emergency response team to coordinate emergency services, describe those arrangements below:

 

Contracted with Veolia Environmental Services for Emergency Response - Contact Greg Hemsworth - 408-421-1303

 

 

 

 


4. Emergency Procedures:

Emergency Coordinator Responsibilities :

 

a. Whenever there is an imminent or actual emergency situation such as a explosion, fire, or release, the emergency coordinator (or his/her designee when the emergency coordinator is on call) shall:

 

  i. Identify the character, exact source, amount, and aerial extent of any released hazardous materials:

 

  ii. Assess possible hazards to human health or the environment that may result from the explosion, fire, or release. This assessment must consider both direct and indirect effects (e.g., the effects of any toxic, irritating, or asphyxiating gases that are generated, the effects of any hazardous surface water run-off from water or chemical agents used to control fire, etc.) .

 

  iii. Activate internal facility alarms, or communications systems, where applicable, to notify all facility personnel.

 

  iv. Notify appropriate local authorities (i.e., call 911) .

 

  v. Notify the State Office of Emergency Services at 1-800-852-7550.

 

  vi. Monitor for leaks, pressure build-up, gas, generation, or ruptures in valves, pipes, or other equipment shut down in response to the incident,

 

  vii. Take all reasonable measures necessary to ensure that fires, explosions, and releases do not occur, recur, or spread to other hazardous materials at the facility.

 

b. Before facility operations are resumed hi areas of the facility affected by the incident, the emergency coordinator shall:

 

  i. Provide for proper storage and disposal of recovered waste, contaminated soil or surface water, or any other material that results from a explosion, tire, or release at the facility.

 

  ii. Ensure that no material that is incompatible with the released material is transferred, stored, or disposed of in areas of the facility affected by the incident until cleanup procedures are completed.

 

  iii. Ensure that all emergency equipment is cleaned, fit for its intended use, and available for use.

 

  iv. Notify the California Environmental Protection Agency’s Department of Toxic Substances Control, the local CUPA, and the local fire department’s hazardous materials program that the facility is in compliance with requirements b-i and b-ii, above.

Responsibilities of Other Personnel :

On a separate page, list any emergency response functions not covered in “Emergency Coordinator Responsibilities” section, above. Next to each function, list the job title or name of each person responsible for perforating the function. Number the page(s) appropriately.

 

5. Post Incident Reporting/Recording:

The time, date, and details of any hazardous materials incident that requires implementation of this plan shall be noted in the facility’s operating record.

Within 15 days of any hazardous materials emergency incident or threatened hazardous materials emergency, incident that triggers implementation of this plan, a written Emergency Incident Report, including, but not limited to a description of the incident and the facilities response to the incident, must be submitted to the California Environmental Protection Agency’s Department of Toxic Substances Control, the local CUPA, and the local fire department’s hazardous materials program. The report shall-include:

 

  a. Name, address, and telephone number of the facilities owner/operator;

 

  b. Name, address, and telephone number of the facility;

 

  c. Date, time and type of incident ( e.g., fire, explosion, etc );

 

  d. Name and quantity of material(s) involved;

 

  e. The extent of injuries, if any;

 

  f. An assessment of actual or potential hazards to human health or the environment, where this is applicable;

 

  g. Estimated quantity and disposition of recovered material that resulted from the incident;

 

  h. Cause(es) of the incident;

 

  i. Actions taken In response to the incident:

 

  j. Administrative or engineering controls designed to prevent such incidents in the future.

 

6. Earthquake Vulnerability: [19 CCR §2731(e)]

As an attachment to this plan, you must identify any areas of the facility and mechanical or other systems that require immediate inspection or isolation because of their vulnerability to earthquake-related ground motion.

 

7. Hazard Mitigation/Prevention/Abatement [19 CCR §2731(e)]

As an attachment to this plan, you must include procedures that provide for mitigation, prevention, or abatement of hazards to persons, property, or the environment. These procedures must be scaled appropriately for the size and nature oldie business, the nature of the damage potential of the hazardous materials handled, and the proximity of the business to residential areas and other populations.


8. Emergency Equipment:

22 CCR §66265.52(e) [as referenced by 22 CCR §66262.34(a)(4)] requires that emergency equipment at the facility be listed. Completion or the following Emergency Equipment Inventory Table meets this requirement.

EMERGENCY EQUIPMENT INVENTORY TABLE

 

1.

Equipment

Category

  

2.

Equipment Type

  

3.

Locations*

  

4.

Description**

Personal

Protective

Equipment,

Safety

Equipment, and

First Aid

Equipment

   ¨   Cartridge Respirators      
   ¨   Chemical Monitoring Equipment ( describe )      
   ¨   Chemical Protective Aprons/Coats      
   ¨   Chemical Protective Boots      
   ¨   Chemical Protective Glasses      
   ¨   Chemical Protective Suits ( describe )      
   x   Face Shields    Stock Cabinet   
   x   First Aid Kits/Stations ( describe )       Lobby/Supervisors
   x   Hard Hats       In “Lift” & Construction Areas
   ¨   Plumbed Eye Wash Stations      
   x   Portable Eye Wash Kits ( i.e., bottle type )       Near FL Safety Cabinet
   ¨   Respirator Cartridges ( describe )      
   x   Safety Glasses/Splash Goggle       Issued to Persons & Visitors
   ¨   Safety Showers      
   ¨   Self-Contained Breathing Apparatus (SCBA)      
   x   Other ( describe )       AED – Defibrillator

Fire

Extinguishing

Systems

   x   Automatic Fire Sprinkler Systems       Building to Code
   ¨   Fire Alarm Boxes/Stations      
   ¨   Fire Extinguisher System ( describe )      
   x   Fire Extinguisher ( describe )       Building to Code + Type D fires
   ¨   Other ( describe )      

Spill Control

Equipment and Decontamination

Equipment

   x   Absorbents ( describe )       Kitty Litter/Pigs
   ¨   Berms/Dikes ( describe )      
   ¨   Decontamination Equipment ( describe )      
   ¨   Emergency Tanks ( describe )      
   ¨   Exhaust Hoods      
   ¨   Gas Cylinder Leak Repair Kits ( describe )      
   ¨   Neutralizers ( describe )      
   ¨   Overpack Drums      
   ¨   Sumps ( describe )      
   ¨   Other ( describe )      

Communications

and Alarms

Systems

   ¨   Chemical Alarms ( describe )      
   x   Intercoms/PA Systems       Building PA
   ¨   Portable Radios      
   x   Telephones       Cell Phone
   ¨   Tank Leak Detection Systems      
   ¨   Other ( describe )      

Additional Equipment

( Use Additional

Pages if Needed )

   ¨      
   ¨      
   ¨      
   ¨      
   ¨      
   ¨      

 

* Use the map and grid numbers from the Storage Map prepared earlier for your HMBP.
** Describe the equipment and its capabilities. If applicable specify any testing/maintenance procedures/intervals. Attach additional pages, numbered appropriately, if needed.


Employee Training Plan

(Hazardous Materials Business Plan Module)

Authority Cited: HSC Section 25504(c); 22 CCR §66262.34(a)(4)

All facilities that handle hazardous materials in HMBP quantities must have a written employee training plan. This plan is a required module of the Hazardous Materials Business Plan (HMBP). A blank plan has been provided below for you to complete and submit if you do not already have such a plan. If you already have a brief written description of you training program that addresses all subjects covered below, you are not required to complete the blank plan, below, but you must include a copy of your existing document as part of your HMBP .

Check all boxes that apply. [Note: Items marked with an asterisk (*) are required.] :

 

1. Personnel are trained in the following procedures:

 

x    Internal alarm/notification*   
x    Evacuation/re-entry procedures & assembly point locations*   
¨    Emergency incident reporting   
¨    External emergency response organization notification   
¨    Location(s) and contents of Emergency Response/Contingency Plan
x    Facility Evacuation drills, that are conducted at least ( specify ) Quarterly    ( e.g., “Quarterly,” etc .)
2.    Chemical Handlers are additionally trained in the following:
x    Safe methods for handling and storage of hazardous materials*
¨    Location(s) and proper use of fire and spill control equipment   
¨    Spill procedures/emergency procedures   
x    Proper use of personal protective equipment*   
x    Specific hazard(s) of each chemical to which they may be exposed, including routes of exposure (i.e., inhalation, ingestion, absorption)*
x   

Hazardous Waste Handlers/Managers are trained in all aspects of hazardous waste management specific to their job duties

( e.g., container accumulation time requirements, labeling requirements, storage area requirements, manifesting requirements, etc .)

3.    Emergency Response Team Members are capable of and engaged in the Following:
¨    Personnel rescue procedures
¨    Shutdown of operations
¨    Liaison with responding agencies
¨    Use, maintenance, and replacement of emergency response equipment
¨    Refresher training, which is provided at least annually*
¨    Emergency response drills, which are conducted at least ( specify ):    ( e.g., “Quarterly,” etc .)


Record Keeping

(Hazardous Materials Business Plan Module)

All facilities that handle hazardous materials in HMBP must maintain records associated with their management. A summary of your record keeping procedures is a required module of the Unidocs Hazardous Materials Business Plan (HMBP). A blank summary has been provided below for you to complete and submit if you do not already have such a document. If you already have a brief written description of your hazardous materials record keeping systems that addresses all subjects covered below, you are not required to complete this page, but you must include a copy of your existing document as part of your HMP .

Check all boxes that apply. The following records are maintained at the facility.

[Note: Items marked with an asterisk (*) are required.]:

 

x Current employees’ training records ( to be retained until closure of the facility )*

 

x Former employees’ training records ( to be retained at least three years after termination of employment )*

 

x Training Program(s) ( i.e., written description o introductory and continuing training )*

 

x Current copy of this Emergency Response/Contingency Plan*

 

x Record of recordable/reportable hazardous material/waste releases*

 

x Record of hazardous material/waste storage area inspections*

 

¨ Record of hazardous waste tank daily inspections*

 

¨ Description and documentation of facility emergency response drills

Note: The above list of records does not necessarily identify every type of record required to be maintained by the facility.

 

Note: The following section applies where local agencies require facility owners/operators to perform and document routine facility self-inspections:

A copy of the Inspection Cheek Sheet(s) or Log(s) used in conjunction with required routine self-inspections of your facility must be submitted with your HMBP . [ Exception: Unidocs provides a Hazardous Materials/Waste Storage Area Inspection Form that you may use if you do not already have your own form. If you use the Unidocs form (available at www.unidocs.org) you do not need to attach a copy. ]

Check the appropriate box:

 

x We will use the Unidocs “Hazardous Material/Waste Storage Area Inspection Form” to document inspections.

 

¨ We will use our own documents to record inspections. ( A blank copy of each document used must be attached to this HMBP .)


Facility Area Map - 1

(Hazardous Materials Business Plan Module)

 

Site Address:  

TESLA MOTORS, INC. 3500 DEER CREEK ROAD, PALO ALTO

  
Date Map Drawn:  

6/15/2009

     Map Scale:   

 

      Page      of     

LOGO


Facility Site Plan/Storage Map - Map #2

(Hazardous Materials Business Module)

 

Site Address:  

TESLA MOTORS, INC. 3500 DEER CREEK ROAD, PALO ALTO

  
Date Map Drawn:  

6/15/2009

     Map Scale:   

 

      Page      of     

LOGO


Facility Site Plan/Storage Map - Map #3

(Hazardous Materials Business Module)

 

Site Address:  

TESLA MOTORS, INC. 3500 DEER CREEK ROAD, PALO ALTO

  
Date Map Drawn:  

6/15/2009

     Map Scale:   

 

      Page      of     

LOGO


LOGO


EXHIBIT E

H-P ACCESS AGREEMENT ATTACHED


Exhibit E

ACCESS AGREEMENT

THIS AGREEMENT is made as of the 15 of November, 2007 by and between Hewlett-Packard Company (“HP”), a California corporation with its principal offices at 3000 Hanover Street, Palo Alto, California 94304 and the Board of Trustees of Leland Stanford Junior University (“Stanford”), a body having corporate powers under the laws of the State of California and with its principal offices at Stanford University, Stanford, California 94305 (“Agreement”).

RECITALS

A. Stanford owns the real property located at 3500 Deer Creek Road, Palo Alto, California (the “Property”).

B. HP and Stanford are named as dischargers under Site Cleanup Requirements Order No 89-028 issued by the California Regional Water Quality Control Board, San Francisco Bay Region (“RWQCB”) on February 15, 1989, and amended by Order No 95-160 dated July 19, 1995 (the “Order”), establishing requirements to investigate and remediate soil and groundwater contamination at the Property.

C. HP has requested Stanford’s permission to enter the Property to access existing remedial equipment installed by or on behalf of HP and to conduct various activities associated with soil and/or groundwater investigation or remediation as required or requested by the RWQCB or as otherwise determined by HP to be necessary or appropriate.

D. The investigation, monitoring and/or remedial activities conducted or to be conducted by HP on the Property are defied in Section 1(a) below as the “Activities.” Stanford hereby grants HP access to the Property to perform the Activities upon the terms and conditions set forth below.

NOW THEREFORE , in consideration of the mutual undertakings and covenants of the parties as set forth herein, the parties agree as follows:

1. Definitions . For purposes of this Agreement, the following terms shall have the meaning set forth below.

(a) Activities . Shall mean the (i) maintenance, repair, replacement, abandonment and removal of existing groundwater monitoring and extraction wells, treatment systems, and related piping and other systems; (ii) installation and operation of pipelines, groundwater monitoring wells and groundwater extraction wells, and excavation associated therewith; and (iii) other investigatory, monitoring, sampling, and remediation work and related activities that are undertaken by or on behalf of HP at, in, on, or under the. Property, and which are required by or are consistent with the Order (collectively, the “Remedial Work”), and the repair to Property and improvements and removal and closure of wells as specified in Exhibit A of this Agreement Activities include, but are not limited to, an in situ bio-remediation program


involving periodic injection of carbon substrate and associated monitoring. Activities may also include additional excavation, pipeline installation, groundwater extraction well and groundwater monitoring well installation and operation, investigatory, monitoring or remediation work or activities undertaken by or on behalf of HP on the Property that may be required by the RWQCB to be implemented at the Property under any amendment or modification of the Order.

(b) Hazardous Substance . Any substance which is designated as a “hazardous substance” under Section 101(14) of CERCLA or Section 25316 or 25317 of the California Health & Safety Code, or is a “hazardous waste” under Section 25117 of the California Health & Safety Code or under Title 22, Division 4.5 of the California Code of Regulations.

(c) Release . With respect to hazardous substance[s] (as defined in paragraph 1(h)), any occurrence defined as a “release” under Section 101(22) of CERCLA.

(d) Hazardous Substance Releases . Any Release (as defined in paragraph 1(c)) of Hazardous Substance (as defined in paragraph 1(b)) as to which investigation or remediation has been, is or will be undertaken pursuant to the Order.

2. Access . As fee owner of the Property, Stanford hereby grants HP, its employees, contractors, subcontractors and agents, access to the Property for the purpose of performing Activities. Such access is granted subject to the further terms set forth in Exhibit A annexed hereto.

If HP so requests, Stanford shall also use its best efforts to assist. HP in obtaining access for HP to the Property on the terms set forth above from any tenant, master tenant, or ground lessee of the Property, or any portion thereof, whose permission may also be required under the terms of any lease, master lease or ground lease entered into by Stanford prior to the date of this Agreement, in order for HP to perform Activities.

With respect to any lease, master lease or ground lease entered into: by Stanford on and after the date of this Agreement with respect to the Property, or any, portion thereof, Stanford agrees that it shall require such lessee, master lessee or ground lessee to grant access to HP in accordance with the terms of this Agreement

3. No Admissions . This Agreement shall not constitute, and no action taken pursuant to this Agreement shall constitute, any admission of fact, liability, causation, responsibility or fault, or proportionate share thereof, by either party with respect to any matter referred to herein. This Agreement shall not be used by either party in any administrative or judicial action or proceeding or in any arbitration or alternative dispute resolution proceeding for any purpose; provided, however, that either party may introduce this Agreement to establish the terms hereof in any dispute under this Agreement

4. No Waiver . The failure of either party to insist upon strict adherence to any term of this Agreement on any occasion shall not be deemed a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. Any waiver must be in a writing signed by the party granting the waiver.


5. Notices . Any notice required or permitted to be given pursuant to this Agreement shall be in writing and shall be deemed to be given when served personally or on the third day after mailing if mailed by United States mail, postage prepaid, addressed to the address for each party set forth below:

 

If to HP:
   Hewlett-Packard Company
   1501 Page Mill Road
   Palo Alto, CA 94304
   Attention: Mr. Jonathan Bauer
With a copy to:
   Hewlett-Packard Company
   3000 Hanover Street
   Palo Alto, California 94304
   Attention: Environmental Attorney
If to Stanford:
   Stanford University Real Estate Office
   2755 Sand Hill Road, Suite 100
   Menlo Park, California 94025
   Attention: Environmental Manager
With a copy to:
   Stanford University Real Estate Office
   2755 Sand Hill Road, Suite 100
   Menlo Park, California 94025
   Attention: Stanford Research Park Director.

6. Effective Date . The effective date of this Agreement shall November 15, 2007.

7. Term . This Agreement shall extend until receipt of final RWQCB approvals of completion of all remedial action for the Property under the Order, Paragraphs 3 and 4 and 9 shall survive expiration of this Agreement.

8. Successors and Assigns . The Agreement shall be binding on, and inure to the benefit of, the successors of each party hereto. Neither party may assign its rights or obligations


under this Agreement to any other party without the prior written consent of the other party, which consent may be withheld for any reason. Any attempted or purported assignment without such prior written consent shall be null, void and of no force or effect.

9. No Third Party Benefit . This Agreement shall inure only to the benefit of each party hereto and their respective successors and assigns. No right of action shall accrue, by reason of this Agreement, to or for the benefit of anyone, including any governmental entity, other than the parties hereto.

10. Modification . Each party warrants and agrees that this Agreement may not be altered, amended, modified or otherwise changed except by a writing which expressly states that it is a modification of this Agreement and which is duly executed by an authorized representative of each party.

11. Severability and Savings Provision . In case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or enforceability shall not affect any other provision of this Agreement but this Agreement shall be construed as if such invalid, illegal or unenforceable provision had not been contained herein.

12. Headings . The headings in this Agreement are for convenience only and shall be given no effect in the construction or interpretation of this Agreement.

13. Governing Law . The validity, interpretation and performance of this Agreement shall be, governed by and construed in accordance with the laws of the State of California applicable to agreements made to be performed in California

14. Recordation of Memorandum . This Agreement shall not be recorded, however, a short form of this Agreement in the form attached hereto as Exhibit B shall be recorded by HP. Upon termination of this Agreement, HP shall execute and record a termination notice in the form attached hereto as Exhibit C, canceling and removing the effect of said short form and this Agreement.


IN WITNESS HEREOF, each of the parties hereto has executed this Agreement as of November 11, 2007.

 

By:   HEWLETT-PACKARD COMPANY
Name:  

/s/ Jonathan Bauer

Title:  

Manager, Environmental Affairs

Date:  

11/7/07

 

By:   THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY
Name:  

/s/ Jean Snider

Title:  

Managing Director, RE

Date:  

11/13/07


EXHIBIT A

1. At its sole expense, HP shall repair any damage to the real Property or improvements thereon to the extent that such damage is caused by the activities of HP herein permitted.

2. HP shall provide Stanford with the results of any tests HP conducts on the Property.

3. HP shall take all reasonable and necessary safety and security precautions in connection with its activities hereunder.

4. HP shall allow a Stanford archeologist (or suitable representative) to inspect any excavation for the presence of significant archeological artifacts. The Property is not an archaeologically sensitive Property; therefore, Stanford agrees that in no case shall such inspection take the form of job stoppage unless required by law.

5. Where excavation is necessary and the possibility exists of encountering existing underground utility lines, HP shall call the Underground Service Alert organization (800-642-2444) two working days prior to commencing excavation.

6. HP shall indemnify, defend, save and hold harmless Stanford from and against (and hereby waives any and all claims against Stanford for) any and all claims, suits and demands of liability, loss or damage on account of any loss, injury, death or damage to the extent such loss, injury, death or damage is caused by the activities of HP herein permitted. Such loss, injury, death or damage shall include, but not be, limited to, reasonable attorneys’ fees.

7. HP shall take all reasonable precautions to safeguard existing trees during any construction or other Activities. HP is required to receive written approval from Stanford prior to any removal or pruning of trees on the Property.

8. Upon completion of any groundwater well installed by HP on the Property, HP, at its sole expense, promptly shall secure such well in an appropriate manner consistent with applicable environmental laws and regulations. Each such well shall be removed or closed in accordance with applicable government regulations upon receipt of approval for closure of such well from the RWQCB.

9. Stanford reserves the right to require HP, at HP’s sole expense, to move and, relocate to another location on the Property any conveyance pipeline installed on the Property by HP at any time upon 90 days’ prior written notice to HP, if the location of such pipeline is interfering with the use or development of the Property; provided, however, that any such relocation shall be required only upon obtaining prior approval of the RWQCB of an alternate location on the Property.

10. HP shall provide double containment and a leak monitoring plan for conveyance pipelines between any extraction wells and groundwater treatment facilities and shall comply


with any and all applicable standards to prevent leakage or release of Hazardous Substances from the pipeline on, in, under or about the Property.

12. HP shall obtain separate written architectural approval from Stanford prior to installing any above-ground remediation equipment or systems on the Property.

EXHIBIT A


RECORDING REQUESTED BY:

The Board of Trustees of

Leland Stanford Junior University

WHEN RECORDED RETURN TO:

The Board of Trustees of the

Leland Stanford Junior University

c/o Stanford University Real Estate Office

2755 Sand Hill Road

Menlo Park, CA 94025

Attention: Environmental Manager

SHORT FORM OF ACCESS AGREEMENT

(    )

3500 Deer Creek Road, Palo Alto, CA

By this Short Form of Access Agreement effective as of                     , the undersigned party designated as “Stanford” on the signature block of this Short Form of Access Agreement (“Stanford”) hereby grants to Hewlett-Packard Company (“HP”) the right to perform investigatory, design, construction, monitoring, testing, operating, repairing, removal, or remediation work or action on that certain Property located at 3500 Deer Creek Road, Palo Alto, California, as further described on Exhibit A attached hereto and incorporated herein by reference, and on the terms and conditions of that certain Agreement between Stanford and HP dated

IN WITNESS WHEREOF, the parties hereto have executed this Short Form of Access Agreement on the day and year first above written.

 

STANFORD :     HP :
The Board of Trustees of the     Hewlett-Packard Company
Leland Stanford Junior University      
By:   Stanford Management Company      
By  

 

    By:  

 

Its:   Managing Director,     Its:  

 

  Real Estate      

EXHIBIT B


Exhibit “B”

Legal Description

Real property In the City of Palo Alto, County of Santa Clara, State of California, described as follows:

PARCEL ONE:

ALL THAT CERTAIN REAL PROPERTY SITUATE IN THE CITY OF PALO ALTO, COUNTY OF SANTA CLARA, BEING A PORTION OF PARCEL A AS SAID PARCEL IS SHOWN ON THAT CERTAIN PARCEL MAP RECORDED MAY 22, 1969, IN BOOK 254 OF PARCEL MAPS AT PAGE 1, OFFICIAL RECORDS OF SANTA CLARA COUNTY, MORE PARTICULARLY DESCRIBED AS FOLLOWS:

BEGINNING AT A POINT ON THE SOUTHWESTERLY LINE OF ROAD “B” (70 FEET IN WIDTH) AS SAID ROAD IS SHOWN ON THE AFOREMENTIONED PARCEL MAP, SAID POINT OF BEGINNING BEARING SOUTH 65 DEG. 06’ 26” EAST 347.24 FEET FROM THE WESTERLY TERMINUS OF THE COURSE NORTH 65 DEG. 06’ 26” WEST 659.31 FEET AS SAID COURSE IS SHOWN ON THE AFOREMENTIONED PARCEL MAP; THENCE FROM SAID POINT OF BEGINNING ALONG THE SOUTHWESTERLY LINE OF THE AFOREMENTIONED ROAD “B” SOUTH 65 DEG. 06’ 26” EAST 312.07 FEET; THENCE ALONG THE ARC OF A CURVE TO THE RIGHT, HAVING A RADIUS OF 965 FEET, THROUGH A CENTRAL ANGLE OF 41 DEG. 46’ 06”, A DISTANCE OF 703.48 FEET; THENCE SOUTH 23 DEG. 20’ 20” EAST 148.15 FEET; THENCE LEAVING THE SOUTHWESTERLY LINE OF THE AFOREMENTIONED ROAD “B” SOUTH 66 DEG. 39’ 40” WEST 581.37 FEET; THENCE NORTH 23 DEG. 20’ 20” WEST 648.61 FEET; THENCE NORM 65 DEG. 06’ 26” WEST 236.00 FEET; THENCE NORTH 24 DEG. 53’ 34” EAST 14.76 FEET; THENCE ALONG THE ARC OF A TANGENT CURVE TO THE LEFT, HAVING A RADIUS OF 20 FEET, THROUGH A CENTRAL ANGLE OF 21 DEG. 40’ 04”, A DISTANCE OF 7.56 FEET; THENCE ALONG THE ARC OF A REVERSE CURVE TO THE RIGHT, HAVING A RADIUS OF 110 FEET, THROUGH A CENTRAL ANGLE OF 22 DEG. 50’ 07” A DISTANCE OF 43.84 FEET; THENCE ALONG THE ARC OF A COMPOUND CURVE TO THE RIGHT, HAVING A RADIUS OF 305 FEET, THROUGH A CENTRAL ANGLE OF 31 DEG. 51’ 09”, A DISTANCE OF 169.56 FEET; THENCE ALONG THE ARC OF A REVERSE CURVE TO THE LEFT, HAVING A RADIUS OF 10 FEET, THROUGH A CENTRAL ANGLE OF 31 DEG. 01’ 12”, A DISTANCE OF 5.41 FEET; THENCE NORTH 24 DEG. 53’ 34” EAST 115.06 FEET TO THE POINT OF BEGINNING.

PARCEL TWO:

ALL THAT CERTAIN REAL PROPERTY SITUATE IN THE CITY OP PALO ALTO, COUNTY OF SANTA CLARA, BEING A PORTION OF PARCEL A AS SAID PARCEL IS SHOWN ON THAT CERTAIN PARCEL MAP RECORDED MAY 22, 1969, IN BOOK 254 OF PARCEL MAPS AT PAGE 1, OFFICIAL RECORDS OF SANTA CLARA COUNTY, MORE PARTICULARLY DESCRIBED AS FOLLOWS:

BEGINNING AT A POINT ON THE SOUTHWESTERLY LINE OF ROAD “B” (70 FEET IN WIDTH) AS SAID ROAD “B” IS SHOWN ON THE AFORESAID PARCEL MAP, SAID POINT BEARING SOUTH 23 DEG. 20’ 20” EAST 148.15 FEET FROM THE NORTHERLY TERMINUS OF THE COURSE NORTH 23 DEG. 20’ 20” WEST 440.00 FEET AS SAID COURSE IS SHOWN ON THE AFOREMENTIONED PARCEL MAP; THENCE FROM SAID POINT OF BEGINNING ALONG THE SOUTHWESTERLY LINE OF ROAD “B” SOUTH 23 DEG. 20’ 20” EAST 291.85 FEET; THENCE SOUTH 14 DEG. 36’ 34” EAST 79.07 FEET; THENCE SOUTH 23 DEG. 20’ 20” EAST 85.00 FEET; THENCE ALONG THE ARC OF A TANGENT CURVE TO THE RIGHT, HAVING A RADIUS OF 20 FEET, THROUGH A CENTRAL ANGLE OF 90 DEG. 00, A DISTANCE OF 31.42 FEET TO A POINT ON ‘THE NORTHERLY LINE OF ARASTRADERO ROAD AS SAID ARASTRADERO ROAD IS SHOWN ON THE AFOREMENTIONED PARCEL MAP; THENCE SOUTH 66 DEG. 39’ 40” WEST 488.00 FEET; THENCE NORTH 23 DEG. 20’ 20” WEST 475.00 FEET; THENCE NORTH 66 DEG. 39’ 40” EAST 520.00 FEET TO THE POINT OF BEGINNING.


PARCEL THREE:

ALL THAT CERTAIN REAL PROPERTY SITUATE IN THE CITY OF PALO ALTO, COUNTY OF SANTA CLARA, BEING A PORTION OF PARCEL A AS SAID PARCEL IS SHOWN ON THAT CERTAIN PARCEL MAP RECORDED MAY 22, 1969, IN BOOK 254 OF PARCEL MAPS AT PAGE 1, OFFICIAL RECORDS OF SANTA CLARA COUNTY, MORE PARTICULARLY DESCRIBED AS FOLLOWS:

BEGINNING AT THE MOST NORTHERLY CORNER OF THE AFOREMENTIONED PARCEL A, SAID POINT OF BEGINNING ALSO LYING ON THE SOUTHWESTERLY LINE OF ROAD “B” (70 FEET IN WIDTH) AS SAID ROAD “B” IS SHOWN ON THE AFOREMENTIONED PARCEL MAP; THENCE FROM SAID POINT OF BEGINNING SOUTH 12 DEG. 46’ 51” EAST 522.61 FEET; THENCE SOUTH 30 DEG. 41’ 41’ EAST 1330.33 FEET; THENCE NORTH 66 DEG. 39’ 40” EAST 167.44 FEET; THENCE NORTH 23 DEG. 20’ 20” WEST 475.00 FEET; THENCE SOUTH 66 DEG. 39’ 40” 61.37 FEET; THENCE NORTH 23 DEG. 20’ 20” WEST 648.61 FEET; THENCE NORTH 65 DEG. 06’ 26” WEST 236.00 FEET; THENCE NORTH 24 DEG. 53’ 34” EAST 14.76 FEET; THENCE ALONG THE ARC OF A TANGENT CURVE TO THE LEFT, HAVING A RADIUS OF 20 FEET, THROUGH A CENTRAL ANGLE OF 21 DEG. 40’ 04”, A DISTANCE OF 7.56 FEET; THENCE ALONG THE ARC OF A REVERSE CURVE TO THE RIGHT, HAVING A RADIUS OF 110 FEET, THROUGH A CENTRAL ANGLE OF 22 DEG. 50’ 07”, A DISTANCE OF 43.84, FEET; THENCE ALONG THE ARC OF A COMPOUND CURVE TO THE RIGHT, HAVING A RADIUS OF 305 FEET, TROUGH A CENTRAL ANGLE OF 31 DEG 51’ 09”, A DISTANCE OF 169.56 FEET; THENCE ALONG THE ARC OF A REVERE CURVE TO THE LEFT, HAVING A RADIUS OF 10 FEET, THROUGH A CENTRAL ANGLE OF 31 DEG. 01’ 12”, A DISTANCE OF 5.41 FEET; THENCE NORTH 24 DEG. 53’ 34” EAST 115.06 FEET TO A POINT ON THE SOUTHWESTERLY LINE OF THE AFOREMENTIONED ROAD “B”; THENCE ALONG THE SOUTHWESTERLY LINE OF THE AFOREMENTIONED ROAD “B” NORTH 65 DEG. 06’ 26” WEST 347.24 FEET, THENCE ALONG THE ARC OF A TANGENT CURVE TO THE LEFT, HAVING A RADIUS OF 765 FEET, THROUGH A CENTRAL ANGLE OF 8 DEG. 06’ 51”, A DISTANCE OF 108.34 FEET TO THE POINT OF BEGINNING.

PARCEL FOUR:

AN EASEMENT FOR COMMUNICATIONS FACILITIES AS CONVEYED IN THAT CERTAIN INSTRUMENT EXECUTED BY THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY, IN FAVOR OF HEWLETT-PACKARD COMPANY, A CALIFORNIA CORPORATION, AND RECORDED NOVEMBER 8, 1985 IN BOOK J515, PAGE 273, OFFICIAL RECORDS OF SANTA CLARA COUNTY, BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

A STRIP OF LAND EIGHTEEN INCHES WIDE LYING NINE INCHES ON EACH SIDE OF THE FOLLOWING DESCRIBED CENTERLINE:

BEGINNING AT A POINT ON THE WESTERLY LINE OF LOT 9 AS SAID LOT AND LINE ARE SHOWN ON “TRACT NO 4781, STANFORD INDUSTRIAL PARK” FILED IN BOOK 261 OF MAPS, AT PAGE 41, RECORDS OF SANTA CLARA COUNTY, CALIFORNIA DISTANT THEREON SOUTH 23 DEG. 20’ 20” EAST 4.69 FEET FROM THE SOUTHERLY END OF A CURVE HAVING A RADIUS OF 1035.00 FEET; RUNNING THENCE NORTH 71 DEG. 14’ 05” EAST 87.63 FEET; THENCE SOUTH 84 DEG. 59’ 46” EAST 19.99 FEET; THENCE SOUTH 89 DEG. 29’ 28” EAST 26.44 FEET.

PARCEL FIVE:

AN EASEMENT FOR COMMUNICATIONS FACILITIES AS CONVEYED IN THAT CERTAIN INSTRUMENT EXECUTED BY THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY, IN FAVOR OF HEWLETT-PACKARD COMPANY, A CALIFORNIA CORPORATION, AND RECORDED NOVEMBER 8, 1985 IN BOOK J515, PAGE 291, OFFICIAL RECORDS OF SANTA CLARA COUNTY, BEING, MORE PARTICULARLY DESCRIBED AS FOLLOWS:

A STRIP OF LAND 2.00 FEET WIDE LYING SOUTHEASTERLY OF, ADJACENT TO AND CONTIGUOUS WITH THE FOLLOWING DESCRIBED LINE:

BEGINNING AT THE MOST WESTERLY CORNER OF ASSESSOR’S PARCEL 142-18-9 BEING THAT CERTAIN PARCEL DESCRIBED IN LEASE FROM LELAND STANFORD JUNIOR UNIVERSITY TO DOW JONES AND COMPANY, INC., AND RUNNING THENCE ALONG THE NORTHWESTERLY LINE OF SAID PARCEL NORTH 33 DEG. 05’ 37” EAST, 76.35 FEET; THENCE NORTH 33 DEG. 18’ 37” EAST, 481.26 FEET; THENCE 31.42 FEET ALONG THE ARC OF A TANGENT CURVE TO THE RIGHT HAVING A RADIUS OF 20.00 FEET THROUGH A CENTRAL ANGLE OF 90 DEG. 00’ 00”.


PARCEL SIX:

AN EASEMENT FOR COMMUNICATIONS FACILITIES AS CONVEYED IN THAT CERTAIN INSTRUMENT EXECUTED BY THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY, IN FAVOR OF HEWLETT-PACKARD COMPANY, A CALIFORNIA CORPORATION, AND RECORDED NOVEMBER 14, 1905 IN BOOK J519, PAGE 1392, OFFICIAL RECORDS OF SANTA CLARA COUNTY, BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

A STRIP OF LAND 2.00 FEET WIDE LYING WESTERLY OF, ADJACENT TO AND CONTIGUOUS WITH THE FOLLOWING DESCRIBED LINE:

BEGINNING AT THE INTERSECTION OF THE NORTHERLY LINE OF COYOTE HILL TRAIL, 70.00 FEET WIDE, WITH THE WESTERLY LINE OF 10 FOOT SANITARY EASEMENT, RECORDED IN VOLUME 8529, OFFICIAL RECORDS OF SANTA CLARA COUNTY AT PAGE 213; AND RUNNING THENCE ALONG THE SAID WESTERLY LINE OF SAID EASEMENT NORTH 14 DEG. 57’ 41” EAST, 423.68 FEET; THENCE NORTH 55 DEG. 02’ 13” WEST, 162.54 FEET; THENCE NORTH 33 DEG. 01’ 54” EAST, 311.96 FEET; THENCE NORTH 33 DEG. 30’ 00” WEST, 210.60 FEET TO THE NORTHERLY LINE OF A 20 FOOT SANITARY SEWER EASEMENT DESCRIBED IN DEED RECORDED IN BOOK 5324, OFFICIAL RECORDS OF SANTA CLARA COUNTY AT PAGE 246; THENCE ALONG SAID LINE NORTH 72 DEG. 44’07” EAST, 76.20 FEET; THENCE NORTH 55 DEG. 44’ 07” EAST, 188.09 FEET TO THE EASTERLY BOUNDARY OF ASSESSORS PARCEL 148-16-72; THENCE ALONG SAID LINE NORTH 5 DEG. 27’ 07’ EAST, 12.69 FEET TO THE SOUTHERLY LINE OF FOOTHILL BOULEVARD.

PARCEL SEVEN:

AN EASEMENT FOR COMMUNICATIONS FACILITIES AS CONVEYED IN THAT CERTAIN INSTRUMENT EXECUTED BY THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY, IN FAVOR OF HEWLETT-PACKARD COMPANY, A CALIFORNIA CORPORATION, AND RECORDED NOVEMBER 14, 1985 IN BOOK J519, PAGE 1409, OFFICIAL RECORDS OF SANTA CLARA COUNTY, BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

A STRIP OF LAND 2.00 FEET WIDE LYING SOUTHEASTERLY OF, ADJACENT TO AND CONTIGUOUS WITH THE FOLLOWING DESCRIBED LINE:

BEGINNING AT THE MOST NORTHERLY CORNER OF ASSESSOR’S PARCEL 142-18-30 BEING THAT CERTAIN PARCEL DESCRIBED IN LEASE FROM LELAND STANFORD JUNIOR UNIVERSITY TO KAISER AEROSPACE AND ELECTRONICS CORPORATION, AND RUNNING THENCE ALONG THE NORTHWESTERLY LINE OF SAID PARCEL SOUTH 33 DEG. 18’ 37” WEST, 400.86 FEET TO THE MOST WESTERLY CORNER OF SAID PARCEL.


PARCEL EIGHT:

AN EASEMENT FOR COMMUNICATIONS FACILITIES AS CONVEYED IN THAT CERTAIN INSTRUMENT EXECUTED BY THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY, IN FAVOR OF HEWLETT-PACKARD COMPANY, A CALIFORNIA CORPORATION, AND RECORDED NOVEMBER 26, 1985 IN BOOK J531, PAGE 1708, OFFICIAL RECORDS OF SANTA CLARA COUNTY, BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

A STRIP OF LAND 2.00 FEET WIDE LYING EASTERLY OF, ADJACENT TO AND CONTIGUOUS WITH THE FOLLOWING DESCRIBED LINE:

BEGINNING AT THE MOST NORTHERLY CORNER OF ASSESSOR’S PARCEL 142-18-22 BEING THAT CERTAIN PARCEL DESCRIBED IN THE LEASE FROM LELAND STANFORD JUNIOR UNIVERSITY TO W.S.J. PROPERTIES; AND RUNNING THENCE ALONG THE NORTHEASTERLY LINE OF SAID PARCEL SOUTH 33 DEG. 03’ 37” WEST, 596.45 FEET; THENCE 58.81 FEET ALONG THE ARC OF A TANGENT CURVE TO THE LEFT HAVING A RADIUS OF 607.07 FEET THROUGH A CENTRAL ANGLE OF 5 DEG. 33’ 03” TO THE MOST WESTERLY CORNER OF SAID PARCEL, BEING A POINT ON THE NORTHERLY LINE OF THE HETCH HETCHY RIGHT-OF-WAY OF THE CITY AND COUNTY OF SAN FRANCISCO, THENCE ALONG SAID LINE SOUTH 47 DEG. 20’ 23” EAST, 31.20 FEET; THENCE 652.32 FEET ALONG THE ARC OF A TANGENT CURVE TO THE LEFT, HAVING A RADIUS OF 1075.00 FEET THROUGH A CENTRAL ANGLE OF 34 DEG. 46’ 03” TO THE MOST SOUTHERLY CORNER OF SAID PARCEL.

PARCEL NINE:

AN EASEMENT FOR COMMUNICATIONS FACILITIES AS CONVEYED IN THAT CERTAIN INSTRUMENT EXECUTED BY THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY, IN FAVOR OF HEWLETT-PACKARD COMPANY, A CALIFORNIA CORPORATION, AND RECORDED NOVEMBER 26, 1985 IN BOOK J531, PAGE 1725, OFFICIAL RECORDS OF SANTA CLARA COUNTY, BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

A STRIP OF LAND 2.00 FEET WIDE LYING SOUTHEASTERLY OF, ADJACENT TO AND CONTIGUOUS WITH THE FOLLOWING DESCRIBED LINE:

BEGINNING AT THE MOST NORTHERLY CORNER OF ASSESSOR’S PARCEL 142-18-29 BEING THAT CERTAIN PARCEL DESCRIBED IN LEASE FROM LELAND STANFORD JUNIOR UNIVERSITY TO KAISER AEROSPACE AND ELECTRONICS, AND RUNNING THENCE ALONG THE NORTHWESTERLY LINE OF SAID PARCEL SOUTH 33 DEG. 18’ 37” WEST, 380.00 FEET; THENCE 31.42 FEET ALONG THE ARC OF A TANGENT CURVE TO THE LEFT HAVING A RADIUS OF 20.00 FEET THROUGH A CENTRAL ANGLE OF 90 DEG. 00’ 00”.

PARCEL TEN:

AN EASEMENT FOR COMMUNICATIONS FACILITIES AS CONVEYED IN THAT CERTAIN INSTRUMENT EXECUTED BY THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY, IN FAVOR OF HEWLETT-PACKARD COMPANY, A CALIFORNIA CORPORATION, AND RECORDED NOVEMBER 26, 1985 IN BOOK J531, PAGE 1742, OFFICIAL RECORDS OF SANTA CLARA COUNTY, BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

A STRIP OF LAND 2.00 FEET WIDE LYING WESTERLY OF ADJACENT TO AND CONTIGUOUS WITH THE FOLLOWING DESCRIBED LINE:

BEGINNING AT THE INTERSECTION OF THE NORTHERLY LINE OF LOT 2 WITH THE WESTERLY LINE OF 10 FOOT SANITARY EASEMENT RECORDED IN VOLUME 8529, OFFICIAL RECORDS OF SANTA CLARA COUNTY AT PAGE 213 AS SAID LINES, LOT AND EASEMENT ARE SHOWN ON “TRACT NO. 4781, STANFORD INDUSTRIAL PARK” FILED NOVEMBER 13, 1969 IN BOOK 261 OF MAPS AT PAGES 40 AND 41; AND RUNNING THENCE ALONG THE WESTERLY LINE OF SAID EASEMENT NORTH 00 DEG. 12’ 58” EAST 468.11 FEET; THENCE NORTH 19 DEG. 36’ 51” EAST, 289.36 FEET; THENCE NORTH 49 DEG. 18’ 16” WEST, 262.06 FEET; THENCE NORTH 11 DEG. 45’ 29” WEST, 228.33 FEET; THENCE NORTH 8 DEG 22’ 12” EAST, 252.23 FEET TO THE SOUTHERLY LINE OF COYOTE HILL TRAIL, 70.00 FEET WIDE.


PARCEL ELEVEN:

AN EASEMENT FOR COMMUNICATIONS FACILITIES AS CONVEYED IN THAT CERTAIN INSTRUMENT EXECUTED BY THE BOARD OP TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY, IN FAVOR OF HEWLETT-PACKARD COMPANY, A CALIFORNIA. CORPORATION, AND RECORDED AUGUST 21, 1986 IN BOOK J815, PAGE 705, OFFICIAL RECORDS OF SANTA CLARA COUNTY, BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:

A STRIP OF LAND 2.00 FEET WIDE LYING NORTHWESTERLY OF, ADJACENT TO AND CONTIGUOUS WITH THE FOLLOWING DESCRIBED LINE:

BEGINNING AT THE SOUTHEAST CORNER OF ASSESSOR’S PARCEL 142-18-33 BEING THAT CERTAIN PARCEL DESCRIBED IN LEASE FROM LELAND STANFORD JUNIOR UNIVERSITY TO LOCKHEED MISSILES AND SPACE COMPANY, INC., AND RUNNING THENCE ALONG THE SOUTHEASTERLY LINE OF SAID PARCEL NORTH 33 DEG. 05’ 37” EAST, 68.53 FEET TO THE INTERSECTION THEREOF WITH THE SOUTHERLY LINE OF HETCH HETCHY RIGHT-OF-WAY OF THE CITY AND COUNTY OF SAN FRANCISCO.

APN: 142-16-066


RECORDING REQUESTED BY:

The Board of Trustees of

Leland Stanford Junior University

WHEN RECORDED RETURN TO:

The Board of Trustees of the

Leland Stanford Junior University

c/o Stanford University Real Estate Office

2755 Sand Hill Road

Menlo Park, CA 94025

Attention: Environmental Manager

TERMINATION OF ACCESS AGREEMENT

(    )

3500 Deer Creek Road, Palo Alto, CA

By this Termination of Access Agreement effective as of                     , the undersigned hereby acknowledges the termination of all rights of access to the Property described on Exhibit A attached hereto and incorporated herein by reference, that were granted to HP pursuant to that certain Access Agreement dated                     , a short form of which was recorded on                      at Book No            , Page              of the records of Santa Clara County.

IN WITNESS WHEREOF, the parties hereto have executed this Termination off Access Agreement on the day and year first above written.

 

HP :
Hewlett-Packard Company
By  

 

Its:  

 

EXHIBIT C


EXHIBIT F

CONSERVATION RULES

The following uses and actions will be prohibited in the Conservation Easement Area:

 

  1. Erecting new structures of any kind, including but not limited to light fixtures, poles, recreational equipment, landscape planters, fences, and buildings or sheds, whether permanent or temporary;

 

  2. Removing any debris or vegetation existing upon the Commencement Date of this Lease;

 

  3. Installing any new landscaping, plants, irrigation systems, trees, vegetation;

 

  4. Vehicular use of any kind (other than access to monitoring wells by Hewlett-Packard Company pursuant to the H-P Access Agreement);

 

  5. Use of bicycles, skateboards, rollerblades or any other such recreational equipment;

 

  6. Installing or storing any materials of any kind, including but not limited to chemicals, dirt, gravel, wood chippings, debris, garbage, landscape compost, etc.;

 

  7. Establishing-any feral cat or other animal (domestic or feral such as rabbits, dogs) feeding stations;

 

  8. Pedestrian use of any paths or trails; and

 

  9. Use of the volleyball or basketball court.


SCHEDULE 9.1

REMAINING MATERIALS

 

  1. Building components that would be considered Universal Waste if disposed of or recycled: e.g. fluorescent light tubes, light ballast; mercury vapor bulbs, hydraulic fluids associated with elevators and loading docks, etc.

 

  2. Trace amount of asbestos in remaining sheetrock, joint tape and mud in Building 25.

 

  3. Possibility of piping remnants of former acid neutralization and industrial waste lines beneath the slab.


SCHEDULE 12.2(a)

PRE-EXISTING CONDITION

Order : Regional Water Quality Control Board, #89-028 F dated 2/15/89, and amended Order #95-160 dated 7/19/95.

Reports regarding facility closure

 

  1. “Building Decommissioning Survey and Investigation”, Geomatrix Consultants, Inc., June 2007,

 

  2. “Final Closure Report”, ERM, July 30, 2007.

 

  3. “Phase I Process. Equipment Decommissioning Report,” Decon, November 16, 2006.

 

  4. “Hazardous Materials Facility Closure Plan”, Decon, March 8, 2006.

 

  5. “Hazardous Material Facility and Tiered Permit-By-Rule Final Closure”, Decon, March 7, 2007.

 

  6. “Lead Survey and Evaluation”, Protech Consulting, May 7, 2007.

 

  7. City of Palo Alto Facility Closure Letter, 3500 Deer Creek, dated 8/1/07.

 

  8. Santa Clara County Department of Environmental Health Permit-by-Rule closure letter for 3500 Deer Creek, dated 8/23/07.

Reports regarding the site’s environmental investigation

 

  9. Recommendation for Source Area Soil Cleanup, McLaren Hart, dated May 1987.

 

  10. Evaluation of Final Cleanup Alternatives, McLaren Hart, April 1988.

 

  11. Hazard Index Evaluation Report, McLaren Hart, dated November 1, 1988.

 

  12. Source Area Excavation Report, McLaren Hart, dated March 20, 1989.

 

  13. Ten Year Status Report and Effectiveness Evaluation, Secor International, dated July 8, 2000.

 

  14. Enhanced In-situ Bioremediation Pilot Study Work Plan, Secor international, dated January 10, 2003.

 

  15. “Phase 1 Environmental Site Assessment”, ERM, July 2006.

 

  16. Phase I Environmental Site Assessment by Geomatrix, dated July 2007.

 

  17. Phase II Subsurface Investigation Report by Geomatrix, dated July 2007.

 

  18. 3500 Deer Creek Semi-Annual Groundwater Report for the 3rd and 4th Quarter 2008 by Stantec Environmental, dated 2/13/2009.

Environmental Access Agreement

Between the Board of Trustees of the Leland Stanford Junior University and Hewlett Packard, dated November 15, 2007.

Exhibit 10.23

Confidential Treatment Requested by Tesla Motors, Inc.

Dated 11 July 2005

(1) LOTUS CARS LIMITED

(2) TESLA MOTORS INC

 

 

SUPPLY AGREEMENT FOR PRODUCTS AND SERVICES

BASED ON LOTUS ELISE TECHNOLOGY

 

 

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

TABLE OF CONTENTS

 

Clause

       Page No.

1.

  DEFINITIONS AND APPLICABLE PROVISIONS    2

2.

  DESIGN AND DEVELOPMENT OF TESLA VEHICLE, PROVISION BY LOTUS OF TECHNICAL SERVICES    16

3.

  SUPPLY AND USE OF THE PRODUCTS    18

4.

  CHANGE CONTROL    20

5.

  QUALITY OF PRODUCT    21

6.

  CONDITIONS PRECEDENT    21

7.

  PAYMENT AND TRANSFER PRICE    23

8.

  HOMOLOGATION RESPONSIBILITIES    27

9.

  VOLUME FORECASTS AND ORDERS    27

10.

  ORDER AND ACCEPTANCE    36

11.

  PRODUCT ACCEPTANCE AND COLLECTION    37

12.

  RISK AND PROPERTY    38

13.

  INTELLECTUAL PROPERTY BACKGROUND AND TESLA BESPOKE FOREGROUND    40

14.

  WARRANTIES    46

15.

  SUPPLY OF PARTS CATEGORIES OF PARTS    47

16.

  RECALLS AND REWORKS    49

17.

  LIABILITY    51

18.

  TERMINATION OF TSA    53

19.

  INSURANCE    53

20.

  TERM AND TERMINATION    54

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

TABLE OF CONTENTS

 

Clause

       Page No.

21.

  RIGHT TO PURCHASE AND USE INVENTORY IN THE EVENT OF INSOLVENCY    56

22.

  NON—HIRING OF PERSONNEL    56

23.

  AUDIT    56

24.

  CONFIDENTIALITY    57

25.

  DISPUTE RESOLUTION    58

26.

  ENTIRE AGREEMENT/VARIATION    59

27.

  ASSIGNMENT    59

28.

  GENERAL WAIVER    59

29.

  SEVERABILITY    60

30.

  NOTICES    60

31.

  CRITICAL SUPPLY FAILURES    61

32.

  GOVERNING LAW    61

33.

  SERVICE OF PROCESS    61

34.

  THIRD PARTY RIGHTS    62

 

Appendix 1   Outline Product Specification
Appendix 2   Gatewary Deliverables
Appendix 3   Criteria
Appendix 4   IPRS
Appendix 5   Indicative List of Parts
Appendix 6   Warranty Claims
Appendix 7   Order and Forecasting Provisions
Appendix 8   Lotus Manufacturing Calendar
Appendix 9   Example PCR
Appendix 10   Technical Services Fees
Appendix 11   Approval Request for Bespoke Work

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -2-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

THIS AGREEMENT is dated the                      day of                      2005

BETWEEN:

 

(1) LOTUS CARS LIMITED , a company incorporated in England and Wales (registered number (895081) having its registered office at Hethel, Norwich, Norfolk NR14 8EZ, UK (“ LOTUS ”) and

 

(2) TESLA MOTORS INC , a company incorporated in the State of Delaware having its registered office at 1050 Commercial Street, San Carlos, CA 94070 USA (“ TESLA ”)

(each individually referred to as a Party or together as Parties ).

WHEREAS:

 

(A) LOTUS designs, develops and manufactures high performance sports motor vehicles and provides engineering consultancy services to the automotive industry.

 

(B) TESLA has expertise in electric powertrain and vehicle technology.

 

(C) LOTUS has provided technical support of an advisory nature in relation to the design and development by TESLA of an electric vehicle under the TSA.

 

(D) Subject to the terms and conditions of this Agreement, TESLA has agreed to order from LOTUS and LOTUS has agreed to supply to TESLA part assembled vehicles into which TESLA will incorporate its electric powertrain before completing the assembly of the part assembled vehicles and marketing and selling the TESLA Vehicles in the USA.

 

(E) The Parties have also agreed to terminate the TSA from the date of this Agreement and to provide instead for certain of the services previously provided by LOTUS under the TSA to be provided under this Agreement in accordance with the terms and conditions set out herein.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

1. DEFINITIONS AND APPLICABLE PROVISIONS

 

1.1 Unless expressly provided to the contrary in this Agreement, the following words and expressions shall have the following meanings:

 

“After-Sales Supply and Services Agreement    means the agreement to be entered into between the Parties for the after-sales supply of Category 2 Parts and Category 3 Parts and other after-sales services to TESLA the entry into which is a Condition Precedent under clause 6.1;
“Annual Volumes”    has the meaning ascribed to it in clause 9.1.5;
“Background”    means the LOTUS Background and the TESLA background;
“Bespoke Background”    means all LOTUS Background in Bespoke Work;
“Bespoke Foreground”    means all Foreground in Bespoke Work excluding Bespoke Background;
“Bespoke Work”    means Technical Services and the information, materials and deliverables created by LOTUS in connection with the provision of such Technical Services agreed by the Parties to be Bespoke Work pursuant to clause 13.10 of this Agreement;
“Binding Product Order”    means each order made by TESLA in accordance with clause 9 and Appendix 7 once accepted or deemed accepted by LOTUS pursuant to clause 10.2;
“Business Day”    means any day excluding Saturday, Sunday and public holidays in either the USA or the UK and company designated holidays of LOTUS and TESLA;
“Category 1 Part”    means new parts not used by LOTUS in LOTUS Products that are designed and developed by TESLA for use in the Product and purchased by TESLA and supplied by TESLA to LOTUS for use in the Product;
“Category 2 Part”    means new parts or modified LOTUS Product parts that are designed and developed by TESLA and purchased by LOTUS for use in the Product;

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -2-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

“Category 3 Part”    means unmodified existing parts that are used at the Go Live Date by LOTUS in the manufacture of any LOTUS Products and/or the Vauxhall VX220 and that are common to both a LOTUS Product and/or the Vauxhall VX220 and the Product and purchased by LOTUS for use in the Product;
“Change”    means any and all of the following: a variation, change, amendment, Modification to any of the Parts or manufacturers of the Parts, the Product, the Design Specifications, or the sourcing status and/or the scope of work or service being supplied as part of this Agreement;
“Collection”    means the collection of a unit or units of Product by or on behalf of TESLA from LOTUS premises at Hethel or such other location as may be agreed in writing between the parties;
“Conditions Precedent”    means the conditions that have to be fulfilled to the satisfaction of both Parties before TESLA’s order obligations and LOTUS’ supply obligations enter into force as detailed in clauses 3 and 6;
“Confidential Information”    means any information of a confidential nature (including, without limitation, specifications, drawings, trade secrets and information of a technical or commercial value) concerning the Product, LOTUS Product or the TESLA Vehicle and the subject matter of this Agreement and any documents referred to herein known by either or both the Parties and communicated to or made available or accessible to each other or any other party under the terms of this Agreement;
“Configuration Options”    means the Long Lead Time Configuration Options and the Short Lead Time Configuration Options;
“Cost of Indicative Parts”    has the meaning ascribed to it in clause 7.2;
“Cost of Released Parts”    has the meaning ascribed to it in clause 7.2;

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -3-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

“Criteria”    means performance standards referred to in clause 2 and as set out in Appendix 3;
“Critical Concerns”   

means very serious concerns that there is a high probability of any or all of:

 

(a)    disabled vehicles;

 

(b)    complete loss of function in major components;

 

(c)    customer/dealer extreme dissatisfaction;

 

(d)    material safety or regulatory issue;

 

(e)    inability to build or rework TESLA Vehicle;

 

(f)     material non-compliance with applicable legislation;

 

(g)    material failure to meet Performance Specifications;

 

(h)    material failure to meet Gateway timetable.

“Critical Supply Failure”    has the meaning ascribed to it in clause 31;
“Critical Supply Failure Notice”    has the meaning ascribed to it in clause 31;
“Current Overhead Costs”    has the meaning ascribed to it in clause 7.6.1;
“Default Product”    means a unit of Product with a pre-agreed specification that will be manufactured by LOTUS in the absence of a timely order by TESLA as set out in clause 9.4;
“Defect”   

means any and all of the following:

 

(a)    a defect in design;

 

(b)    a defect in material;

 

(c)    a defect in workmanship;

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -4-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

“Deficiency”    has the meaning ascribed to it in clause 9.5;
“Design Project”    means the LOTUS exterior and interior design project for the TESLA Vehicle under or in connection with the Styling Agreement;
“Design Specifications”    means the design specifications for the Product agreed by the Parties pursuant to the Styling Agreement;
“Designated Supplier”   

means certain suppliers of parts to LOTUS at the Effective Date as follows:

 

(a)    TRW Automotive;

 

(b)    Siemens Automotive Euro A/C;

 

(c)    Key Safety Systems SLA Europe; and

 

(d)    Hydro Aluminium Worcester Limited;

“Due Date”    means the date on which any payment of an invoice or other payment is due to either Party in accordance with the terms of this Agreement;
“Effective Date”    means the date this Agreement is executed by the Parties;
“Evaluation Prototype”    means Product produced according to the intended design concept which must be completed a minimum of eight (8) weeks before start of manufacture of Validation Prototypes by LOTUS and purchased by TESLA in accordance with clause 10.6 of this Agreement;
“Ex Works”    has the same meaning as “Ex-works” in the Incoterms published by ICC Publishing SAA (2000), as amended from time to time;
“Facilities”    means factory and engineering design and testing facilities and associated services;
“Failure”    has the meaning ascribed to it in clause 5;

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -5-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

“Federal Market”   means designed, homologated, approved and fully authorised for use and sale in the USA;
“Foreground”   means any and all Intellectual Property Rights: (i) relating to the Product and/or the design, development and manufacture of the Product that arose, were licensed to were created by LOTUS or jointly by LOTUS and TESLA in the performance of services under the TSA; or (ii) that arise, are licensed to or are created by LOTUS or jointly by LOTUS and TESLA pursuant to this Agreement;
“Gateway Deliverables”   means the Gateway deliverables described in the “Deliverables RASIC” sheet and the “All Deliverables Printout” sheet, each of which are contained in the Gateway Deliverables Spreadsheet;
“Gateway Deliverables Spreadsheet”   means the [***] referred to in Appendix 2;
“Gateway Programme”   means the schedule, procedures and standards specified for the Gateways as described in the “Deliverables RASIC” sheet and the “All Deliverables Printout” sheet, each of which are contained in the Gateway Deliverables Spreadsheet;
“Gateways”   means each of the Product design, development and production reviews comprised in the Gateway Programme;
“Go Live Date”   means the date (if any) on which the Parties agree that all the Conditions Precedent have been satisfied;
“In Field Defect”   means a Defect:
  (a)    in a Category 3 Part provided that such Defect is not caused by a TESLA Modification and the same Defect has also manifested itself (or subsequently manifests itself) in LOTUS Products and/or the Vauxhall VX220; and/or

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -6-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

  (b)    in a Category 2 Part provided that such Defect is not caused by TESLA’s design of such Part or by a TESLA Modification; and/or
  (c)    in any Part, any unit of Product or in its or their assembly provided that in either case TESLA can reasonably demonstrate that such Defect was caused by the fault or negligence of:
    

(i)     LOTUS; or

 

(ii)    LOTUS’ suppliers;

     save where (a) the Defect is in a Category 1 Part or (b) in any other Part, any unit of Product or in its or their assembly and TESLA has imposed the selection of such supplier against Lotus’ reasonable written recommendation;
“IPRS”   means the matrix (as amended from time to time by the Parties in accordance with the provisions of clauses 3.2 and 3.5) detailing the production levels, ramp-up proposal and run rate at Appendix 4;
“Insolvency Event”   means the circumstances et out in clauses 20.2.2 to 20.2.4;
“Intellectual Property Rights”   means all patents (including supplementary protection certificates), trademarks, service marks, and goodwill in relation to such marks, copyright and design rights (whether registered or not) get-up and all applications for any of the foregoing and all rights in confidence and in Know-how whensoever and howsoever arising for the full terms thereof and all renewals and extensions thereof whether subsisting in the United Kingdom or elsewhere;

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -7-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

“Inventory”    means all Parts acquired by LOTUS for the purpose of manufacturing units of Product and units of Product (whether partly or wholly assembled) held in inventory by LOTUS and/or in respect of which LOTUS has made binding orders other than any inventory that has not been obtained or ordered in accordance with the terms and conditions of this Agreement;
“Invoice Date”    for invoices relating to supply of the Product dated 1st to 15th day of a Month inclusive the Invoice Date shall be the 15th date of the Month of the invoice and for invoices dated 16th to 31st day of a Month inclusive the Invoice Date shall be the last day of the Month of the invoice;
“Key Gateway Deliverables”   

means any or all of certain deliverables from the Gateway Programme as follows:

 

(a)    T1 – 8;

 

(b)    T10 – 20;

 

(c)    P3;

 

(d)    P6;

 

(e)    P11;

 

(f)     SUP5;

 

(g)    SUP11;

 

(h)    SUP12;

 

(i)     M9;

 

(j)     QUA5;

 

(k)    QUA6;

 

(l)     QUA11 and

 

(m)   PD11;

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -8-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

  as described in the “Deliverables RASIC” sheet and further defined in the “All Deliverables Printout” sheet, each of which are contained in the Gateway Deliverables Spreadsheet;
“Know-how”   means information, data, know-how, or experience whether patentable or not, including, but not limited to, all design or manufacturing techniques, operating instructions, machinery designs, raw materials or product specifications, drawings, blue prints, and any other technical and commercial information;
“Long Lead Time Configuration Options”   means the Product configuration options with long supply lead times that: (i) TESLA shall select for each unit of Product from the range of such Configuration Options agreed by the Parties as part of the Conditions Precedent, and (ii) TESLA is required to notify to LOTUS because of the long lead times involved as part of its forecasting and ordering obligations under clause 9;
“LOTUS Background”   means all Intellectual Property Rights and Know-how (owned by LOTUS or licensed by third parties to LOTUS):
  (1)   in existence at the date of execution of the TSA and subsisting in information and/or materials provided to TESLA pursuant to the TSA; and /or
  (2)   in existence at the Effective Date:
    (a)    in or relating to the Federal Market LOTUS Elise and the manufacturing process and assembly methods thereof; and/or
    (b)    which are used by LOTUS in the design and manufacture of the Product;
  but excluding all Foreground, and, for the avoidance of doubt, TESLA Background;

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -9-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

“LOTUS Foreground”   means all Intellectual Property Rights and Know-how owned by LOTUS or licensed by third parties to LOTUS in or relating to the Federal Market LOTUS Elise, all parts thereof and the manufacturing process and assembly methods thereof which arise, are created by LOTUS or are licensed by third parties to LOTUS at any time during the Term, excluding Foreground;
“LOTUS Business Day”   means any day excluding Saturday, Sunday and public holidays in the UK and LOTUS designed holidays as detailed in the Manufacturing Calendar;
“LOTUS Per Unit Overhead Costs”   has the meaning ascribed to it in clause 7.6.1;
“LOTUS Products”   means automotive vehicles manufactured or designed and developed by LOTUS within the LOTUS brand (other than, for the avoidance of doubt, any Product);
“LOTUS Styling Rights”   Means
  (a)    all Intellectual Property Rights in: (i) the styling and appearance of LOTUS Products and any other products produced and/or designed by LOTUS for any third party, (ii) all design drawings, sketches, photographs, renderings, models and other design materials produced by LOTUS for itself or any third party, and
  (b)    all Intellectual Property Rights owned by or licensed to LOTUS in the styling and appearance of Category 2 Parts and/or Category 3 Parts;
“Manufacturing Calendar”   means the LOTUS manufacturing calendar set out in Appendix 8 and as updated from time to time by LOTUS in accordance with the provisions of clause 3.12;

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -10-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

“Manufacturing Discrepancy”    means a Defect in any unit of Product that is outside the scope of the Quality Standards and Product Specifications (excluding Defects that LOTUS is not reasonably able to check or test for while the unit of Product is being manufactured or tested by LOTUS);
“Manufacturing Foreground”    means all Foreground other than Bespoke Foreground, LOTUS Foreground and TESLA Foreground;
“Missed Move Up”    has the meaning ascribed to it in clause 9.5;
“Missed Order”    has the meaning ascribed to it in clause 9.4;
“Missed Shipment”    has the meaning ascribed to it in clause 9.16;
“Model Year”    has the meaning ascribed to it in Appendix 6;
“Modification”    means any change, development, or enhancement of the Product, or its design or manufacturing process after the engineering design has been fixed at the start of the Validation Prototype stage;
“Month”    means a calendar month;
“Order-Accepted Products”    means all units of Product that are subject to Binding Product Orders together with all Default Products (if any);
“Overhead Costs”    means the per unit overhead costs of LOTUS’s factory (which, for the avoidance of doubt is £[***] at the Effective Date) as amended from time to time in accordance with clause 7.6;
“Parts”    means Category 1, 2 and 3 Parts, collectively;
“Pass(ed) to Sale(s) or “PTS”    means completion of manufacture of a unit of Product by LOTUS in accordance with the Quality Standards and Product Specifications;
“PCR”    means a product change request made on a form that shall be substantially in the form of the document identified as such and attached at Appendix 9;

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -11-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

“PCR Process”    means the product change request process described in clause 15.8;
“Planned PTS Date”    means in respect of each Order-Accepted Product the date notified by LOTUS to TESLA in writing on which LOTUS expects to PTS such Product, including for the avoidance of doubt any revisions to such date notified by LOTUS to TESLA pursuant to clause 12.1.3;
“Product”    means the part assembled vehicle comprising all of the Parts assembled in accordance with the Product Specifications to be supplied by LOTUS to TESLA pursuant to this Agreement;
“Product Specifications”    means the list of Parts to be used in the Product, the technical specifications for those Parts and the assembly and configuration specifications for the assembly of the Parts into the Product;
“Quality Standards”    means the acceptance standards and tests that will be agreed upon by the Parties for the assembly of the Product;
“Relevant Forecast”    has the meaning ascribed to it in Appendix 7;
“Revised Planned PTS Date”    has the meaning ascribed to in clause 12.1.13;
“Representations”    means the design drawings, sketches, photographs, renderings, models and other design materials, the styling sign-off model and other design materials that the Parties agree as such on Styling Sign-Off;
“Short Lead Time Configuration Options”    means all Configuration Options apart from Long Lead Time Configuration Options that TESLA shall be entitled to select and notify to LOTUS pursuant to Appendix 7 up to six (6) weeks prior to the date on which LOTUS is obliged to supply the units of Product in respect of which such Short Lead Time Configuration Options have been selected;

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -12-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

“Standard Warranty Labour Rates and Times”    means the standard labour rates and times for repairing, replacing and refitting units of Product and/or Parts subject to Warranty Claims which will be agreed by the Parties as part of the Conditions Precedent;
“Start of Production”    means the date to be agreed upon the Parties as part of the Conditions Precedent on which LOTUS shall first load Product components on the production line and commence production;
“Styling Agreement”    means the agreement entered into between the Parties on 6 January 2005 in connection with the provision by LOTUS of exterior body styling consultancy and design for the TESLA Vehicle;
“Styling Rights”    means all Intellectual Property Rights except for LOTUS Styling Rights in the exterior and interior styling and appearance of the TESLA Vehicle (and all parts of it) in or represented in the Representations;
“Styling Sign-Off”    means written agreement by both Parties of their acceptance of completion of the Design Project and that the deliverables of the Design Project are fully represented in the Representations, and if signed-off separately, “Styling Sign-Off” shall be construed accordingly;
“Supplier Selection Process”    means the supplier selection process to be agreed by the Parties as part of the Conditions Precedent that LOTUS shall use in connection with the selection of the suppliers of the Category 2 Parts and the Category 3 Parts;
“Supplier’s No-Fault Missed Move Up”    has the meaning ascribed to it in clause 9.5;
“Technical Services”    means consultancy services relating to automotive design, development, manufacturing and engineering;

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -13-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

“Technical Services Fees”    means the fees to be paid by TESLA in accordance with clause 7 for such Technical Services and Facilities as LOTUS may provide to TESLA under the Agreement, such fees to be determined in accordance with Appendix 10;
“Term”    means a period commencing on the Effective Date and ending on the third anniversary of the Start of Production or such other period as the Parties may agree from time to time, in each case unless earlier terminated in accordance with the provisions of this Agreement in which case the Term shall end on the date of such termination;
“Territory”    means the United States of America;
“TESLA Background”    means all Intellectual Property Rights and know-how owned by TESLA or licensed by third parties to TESLA at the Effective Date in or relating to the TESLA Vehicle, all Parts thereof and the manufacturing and assembly methods thereof excluding all Foreground and, for the avoidance of doubt, LOTUS Background;
“TESLA Foreground”    means all Intellectual Property Rights and Know-how owned by TESLA or licensed by third parties to TESLA in or relating to the TESLA Vehicle, all Parts thereof and the manufacturing and assembly methods thereof, which arise, are created by TESLA or are licensed by third parties to TESLA at any time during the Term;
“TESLA Modification”    means a change, development or alteration made by TESLA in or to the Product or Parts in the design, development or manufacture of the TESLA Vehicle (including, without limitation, Category 2 Parts);
“TESLA Parts Supply Agreement”    has the meaning ascribed to it in clause 6.1.3(vii);

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -14-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

“TESLA Vehicle”    means the electrically powered passenger sport motor vehicle (and subsequent model updates of such vehicle) incorporating the Product to be designed and developed by TESLA in line with the Outline Product Specification set out in Appendix 1 and the Design Specification and in accordance with the terms of this Agreement and sold and marketed by TESLA in the Territory. For the purposes of this definition “model updates” means updates to the TESLA Vehicle not amounting to the new versions or entirely new models of the TESLA Vehicle;
“Total Compensation”    means all sums due and payable by TESLA in accordance with the terms of this Agreement;
“Transfer Price”    means the transfer price payable by TESLA to LOTUS per unit of Product to be agreed between the Parties in accordance with the provisions of clause 7.2;
“TSA”    means the Technical Services Agreement entered into by the Parties on 8 September 2004 whereby LOTUS provides engineering advice in relation to TESLA’s design and development of an electric vehicle;
“Type Approval Requirements”    means all homologation regulations and requirements necessary to sell and market a vehicle for use on the public highway in the Territory;
“Unit Profit”    has the meaning ascribed to it in clause 7.2.4;
“Use”    means to use, copy and adapt;
“Validation Prototype”    means Products produced at LOTUS’ facilities and Hethel from the Parts that have been released through the PCR Process which must be completed a minimum of eight (8) weeks before Start of Production by LOTUS and purchased by TESLA in accordance with clause 10.6 of this Agreement;
“Volume Requirements”    has the meaning ascribed to it in clause 9.1;
“Volume Shortfall”    has the meaning ascribed to it in clause 9.14;

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -15-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

“Volume Shortfall Compensation”   means the compensation amount that, subject to the terms and conditions of this Agreement, TESLA shall be required to pay to compensate LOTUS in respect of a Volume Shortfall and shall be calculated by inclusion of the following elements only:
  (i)    LOTUS’ direct labour costs and Overhead Costs multiplied by the Volume Shortfall;
  (ii)    a loss of profit element (being [***]% of the Unit Profit) multiplied by the Volume Shortfall; and
  (iii)    Inventory costs;
  incurred as a result of the said Shortfall provided that the compensation amount shall be reduced by any amounts already paid to LOTUS in respect of Suppliers No-Fault Missed Move Ups;
“Warranty Ceiling”   means the per unit of Product costs resulting from In Field Defects arising during the Warranty Period to be borne by TESLA and which will not be subject to reimbursement by LOTUS in accordance with Appendix 6;
“Warranty Claims”   claims submitted by TESLA to LOTUS for reimbursement of costs that TESLA suffers or incurs as a result of an In Field Defect arising in the Product during the Warrant Period;
“Warranty Labour Costs”   means labour costs calculated by reference to the Standard Warranty Labour Rates and Times;
“Warranty Period”   means the period of time commencing upon the date a unit of Product within a particular Model Year is Passed to Sales and ending [***] thereafter.

 

2. DESIGN AND DEVELOPMENT OF TESLA VEHICLE, PROVISION BY LOTUS OF TECHNICAL SERVICES

 

2.1 TESLA shall prepare a design, development and verification programme for the TESLA Vehicle and TESLA shall incorporate the Criteria into such programme.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -16-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

2.2 The Parties recognise that the Criteria define the requirements that LOTUS considers necessary to ensure that the performance of the TESLA Vehicle meets the standards generally associated with the LOTUS brand.

 

2.3 LOTUS shall review TESLA’s vehicle development programme in accordance with the Gateway Programme. Both Parties shall ensure that appropriately qualified representatives of each of the companies attend and participate in all Gateway review meetings. If: (i) at any time before the end of the Production Approval Gateway in the Gateway Programme LOTUS is not reasonably satisfied with the content and conduct of TESLA’s vehicle development programme, and/or (ii) TESLA materially fails to meet any Key Gateway Deliverable, LOTUS may raise in a timely manner appropriate concerns by notice in writing to TESLA. LOTUS shall ensure that any such notification contains sufficient detail to enable TESLA to understand the reasons for and substance of LOTUS’ concerns. TESLA shall produce a plan acceptable to LOTUS to remedy such concerns within thirty (30) calendar days of being so notified. LOTUS shall not unreasonably withhold or delay its acceptance of any plan produced by TESLA in response to any such notification. In the event that TESLA fails to produce such a plan within the thirty (30) calendar day period or fails to comply with the plan once approved by LOTUS then the following provisions shall apply:

 

  2.3.1 LOTUS shall be entitled to terminate this Agreement forthwith by notice; and:

 

  2.3.2 if (i) LOTUS has notified TESLA in a timely manner of all appropriate concerns (including any concerns relating to any actual or anticipated failure by TESLA to meet the Key Gateway Deliverables), (ii) LOTUS serves a notice to terminate this Agreement pursuant to clause 2.3.1 above after the earlier of 5.30pm on 30 September 2006 or the Go Live Date, (iii) at the time such notice is served TESLA has not remedied such concerns or produced a plan that is acceptable to LOTUS to remedy such concerns, and (iv) LOTUS’ termination is due to TESLA’s material failure to meet the Key Gateway Deliverables and LOTUS has any Critical Concern, TESLA shall be liable to pay Volume Shortfall Compensation in accordance with the provisions of clauses 9.14 and 9.15.

 

2.4 Each Party shall use reasonable commercial endeavours to fulfil all of its obligations in connection with the Gateway Programme in accordance with the timings in the Gateway schedule.

 

2.5 LOTUS shall provide such Technical Services and access to and use of such Facilities as the Parties may agree from time to time.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -17-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

2.6 TESLA may request that LOTUS provides Technical Services by telephone, fax, email, hard copy written documentation or in person. The Parties shall meet regularly and in any event not less than once a Month during any period in which LOTUS is providing Technical Services to liaise with regard to progress of any current Technical Services projects and agree any additional Technical Services projects going forwards. LOTUS shall provide TESLA with a resource plan at the beginning of each Month that shows the labour resource LOTUS plans to allocate to the Technical Services that Month. By the end of each calendar week LOTUS shall provide TESLA with information that shows the actual hours charged against the resource plan for the preceding week and LOTUS shall invoice TESLA accordingly for the Technical Services Fees based on the number of hours spent in performing the Technical Services.

 

2.7 TESLA shall:

 

  2.7.1 supply written confirmation of their requirements for Technical Services in a sufficiently clear form to enable LOTUS to perform such services; and

 

  2.7.2 promptly furnish LOTUS with such information as LOTUS may from time to time reasonably request to perform any Technical Services.

 

2.8 TESLA acknowledges and agrees that it shall be TESLA’s sole responsibility to ensure that the design specifications for the TESLA Vehicle meet the required standards for a sports car with an electric powertrain in the Territory.

 

3. SUPPLY AND USE OF THE PRODUCTS

 

3.1 Subject to the terms and conditions of this Agreement

 

  3.1.1 LOTUS shall, in accordance with the Product Specifications and Quality Standards procure Category 2 Parts and Category 3 Parts and assemble all Parts and manufacture and supply to TESLA the Order-Accepted Products; and

 

  3.1.2 TESLA shall purchase the Order-Accepted Products from LOTUS.

 

3.2

LOTUS shall commence assembly of Product units on Start of Production, provided that the Conditions Precedent have been met. LOTUS reserves the right within fourteen (14) calendar days of the Go Live Date to reschedule the Start of Production by up to thirty (30) calendar days and make corresponding amendments to the IPRS upon notice to and consent by TESLA (such consent not to be unreasonably withheld) and any such rescheduling shall not constitute a breach of

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -18-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

 

this Agreement and LOTUS shall not be liable for any loss (including consequential, direct, indirect, economic or loss of profit) caused solely as a result of such rescheduling.

 

3.3 Subject to clause 3.4 below, in the event that LOTUS fails to meet the volume requirements of any Binding Product Order, then LOTUS shall make up the volume shortfall by the end of the next Month.

 

3.4 If LOTUS fails to meet the volume requirements of any Binding Product Order as a result of a Deficiency according to clause 9.5, LOTUS’ sole obligation with regard to making up such volume shortfall shall be to use its reasonable endeavours to make up the volume shortfall as soon as reasonably practicable.

 

3.5 The maximum production capacity contained within the IPRS may be varied by written agreement of the Parties, provided that the Parties agree on the respective liabilities for costs, investment requirements and Total Compensation.

 

3.6 Provided always that LOTUS shall be entitled to supply Category 3 Parts to third parties (including without limitation, third parties that are part of LOTUS’ existing or future supply relationships) for whatever purpose, LOTUS shall not supply Category 1 Parts, Category 2 Parts, units of Product or any of them to any party, other than TESLA, unless specifically requested to do so in writing by TESLA.

 

3.7 TESLA shall have discretion regarding the Parts to be used in the Product and the choice of supplier for such Parts provided that such discretion is subject at all times to the provisions of clauses 3.9, 3.10, 13, and 24.

 

3.8 Subject to clause 12.4.4 and clause 3.9 and the provisions of any binding supplier agreement entered into by LOTUS in accordance with clause 15.6, nothing in this Agreement shall prevent TESLA from obtaining any Category 1 Parts and/or Category 2 Parts for the Product from any supplier of TESLA’s choosing other than a Designated Supplier. TESLA shall consult with LOTUS prior to communicating with any existing supplier regarding the supply of Category 2 Parts that are derived from standard Lotus parts and/or Category 3 Parts.

 

3.9 TESLA shall not communicate with a Designated Supplier with regard to obtaining any Parts without LOTUS’ prior express written approval and agreement on the management of communications with such supplier (not to be unreasonably withheld or delayed).

 

3.10

TESLA shall only use the Product for the purposes set out in this Agreement to create the TESLA Vehicle. For the avoidance of doubt, TESLA shall not design, develop or manufacture any other vehicle from the Product without LOTUS’ prior

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -19-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

 

written consent. The Parties acknowledge that nothing in this Agreement shall prevent TESLA from designing, assembling or manufacturing other vehicles provided that such vehicles are not derived from any LOTUS Background.

 

3.11 Subject always to clauses 12.4.4 and 24, the Parties acknowledge that nothing in this Agreement shall prevent LOTUS from manufacturing and supplying the LOTUS Products and Category 3 Parts to its dealer network, or from designing, assembling or manufacturing other vehicles, components or parts (including, without limitation, vehicles with electric powertrains) for itself or for any third parties.

 

3.12 LOTUS’ Manufacturing Calendar for the current year is shown in Appendix 8 and LOTUS shall provide TESLA with a copy of its Manufacturing Calendar for each calendar year during the Term.

 

3.13 LOTUS shall assemble the units of Product in the United Kingdom unless the Parties otherwise agree in writing.

 

3.14 TESLA and LOTUS shall consult with each other on a periodic basis with respect to TESLA’s marketing plans in respect of the TESLA Vehicle, including in connection with the product positioning of the TESLA Vehicle.

 

3.15 TESLA shall not sell or distribute the TESLA Vehicle outside the Territory.

 

4. CHANGE CONTROL

 

4.1 Either Party has the right to request a Change. If either Party considers that a Change is necessary, or that a Change is in effect being forced upon it by the other Party, it shall serve a Change Notice on the other Party. A Change Notice can be in any written form but must provide reasonable details of the Change and the Party’s estimate of the effect (if any) on the Transfer Price or fees for services, its impact on Collection dates or supply times, and any other material effect which the Party considers the Change will have. Each Change Notice shall be submitted to the Parties’ respective project managers, or such other persons as the Parties may agree to from time to time.

 

4.2 The receiving Party shall respond to a Change Notice in writing as soon as possible but in any event within seven (7) calendar days of the date of the Change Notice, indicating whether or not it accepts the requested Change and giving its own estimate of the effects of the Change (including any costs).

 

4.3 The Parties shall respond to all further correspondence concerning the requested Change within seven (7) calendar days of receipt until agreement on such Change is reached and recorded in a Change Notice signed by both Parties. No Change request shall be implemented or binding on the Parties, unless it is the subject of a Change Notice signed by both Parties.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -20-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

4.4 Changes in respect of Parts shall be requested using a PCR as the Change Notice and the process used to manage Changes in Parts shall be the PCR Process as provided in clause 15.8. Save as otherwise expressly provided in this Agreement or agreed by the Parties in writing as part of the Conditions Precedent in accordance with clause 6, the PCR Process shall in all other respects be the same as the change control process set out in this clause 4.

 

5. QUALITY OF PRODUCT

LOTUS shall not Pass to Sales a unit of Product unless the unit conforms to the Quality Standards and Product Specifications or a derogation from the Quality Standards and Product Specifications in relation to such unit has been expressly agreed in writing by the Parties. Notwithstanding the above provision of this clause 5 LOTUS shall not be in breach of this clause 5 if it Passes to Sales a unit of Product that fails to meet the Product Specifications (a “Failure”) if the Failure is caused by the non-compliance of any Part with the Product Specifications that LOTUS could not reasonably have identified or tested for prior to Passing to Sales such unit of Product.

 

6. CONDITIONS PRECEDENT

 

6.1 Save as otherwise expressly provided, neither TESLA’s obligations to order any units of Product nor LOTUS’ obligations to accept such orders, procure Parts, start production, or assemble Product together with any other associated obligations on the part of the Parties shall come into effect unless and until all the following conditions (the “Conditions Precedent”) have been fulfilled as follows:

 

  6.1.1 The Evaluation Prototypes and the Validation Prototypes have been manufactured at Hethel and both Parties have confirmed in writing that they are satisfied with the design, development and performance of the Evaluation Prototypes and Validation Prototypes;

 

  6.1.2 Both Parties have confirmed in writing that they are satisfied with the design, development and test programme for the TESLA Vehicle;

 

  6.1.3 The following have been agreed by the Parties in writing:

 

  (i) the Default Product specification;

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -21-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

  (ii) a complete and accurate list of the Parts to be included in the Product Specifications, the allocation of those Parts as Category 1 Parts, Category 2 Parts or Category 3 Parts, and a description of the usage of those Parts in the configuration of the Product, together with the Product Specifications;

 

  (iii) the Quality Standards;

 

  (iv) the Gateway Programme;

 

  (v) the Transfer Price;

 

  (vi) a supplier selection process (including, without limitation, agreement of maximum order quantities for Parts);

 

  (vii) terms and conditions for the purchase and supply of all Parts including, for the avoidance of doubt, an agreement for the purchase by LOTUS and supply by TESLA of all Category 1 Parts (the “TESLA Parts Supply Agreement”);

 

  (viii) terms and conditions for the supply of the ancillary services to support the supply of Product as per clause 7.7;

 

  (ix) the terms and conditions of the After-Sales Supply and Services Agreement;

 

  (x) the range of specific configuration options from which TESLA will be required to select its Configuration Options for forecasting and/or ordering purposes;

 

  (xi) Start of Production;

 

  (xii) the Warranty Ceiling and the Standard Warranty Labour Rates and Times;

 

  (xiii) the Parts approval procedure as detailed in clause 15.2.

 

  6.1.4 LOTUS is reasonably satisfied that TESLA has put in place so far as it is able the appropriate procedures and documentation to ensure that TESLA will be treated as the manufacturer of the TESLA Vehicle in the Territory by any relevant governmental or other regulatory authority.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -22-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

6.2 TESLA’s obligations to order units of Product and LOTUS’ obligations to procure Parts, start production and accept such orders together with any other associated obligations on the part of the Parties shall come into effect on the date that all the Conditions Precedent have been fulfilled (the “Go Live Date”). If the Conditions Precedent are not satisfied by 5:30 pm on 30 September 2006 either Party shall be able to terminate the Agreement immediately on written notice to the other and the provisions of clause 9.14 and 9.15 shall apply.

 

7. PAYMENT AND TRANSFER PRICE

 

7.1 TESLA shall pay to LOTUS the Total Compensation of:

 

  7.1.1 the Transfer Price for each unit of the Product;

 

  7.1.2 the Technical Services Fees; and

 

  7.1.3 any other sum due and payable by TESLA;

in accordance with the terms of this Agreement.

 

7.2 The Transfer Price shall comprise the following elements:

 

  7.2.1 Overhead Costs;

 

  7.2.2 labour for manufacture of the Product;

 

  7.2.3 cost of Parts;

 

  7.2.4 profit and licence fee for LOTUS Background totalling £[***] (the “Unit Profit”);

 

  7.2.5 inbound logistics;

 

  7.2.6 indirect costs;

and the Parties further agree that if the total market value cost of Parts released pursuant to clause 15.8 for use in the Product (“Cost of Released Parts”) materially exceeds the total market value cost for the Parts included in the Indicative List of Parts referred to in Appendix 5 (“Cost of Indicative Parts”), the Parties will liaise in good faith with a view to agreeing a revised Unit Profit amount which, as a proportion of the Cost of Released Parts, is substantially in line with the proportion that the Unit Profit figure set out in clause 7.2.4 was of the Cost of Indicative Parts.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -23-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

7.3 Save as otherwise expressly provided in clauses 7.5, 7.6 and 15.12, once the Parties have agreed the Transfer Price in accordance with clause 6 neither Party shall be entitled to alter the Transfer Price except with the written agreement of the other Party.

 

7.4 All fees, charges, costs, expenses and other sums payable by TESLA under this Agreement (each a “Charge”) other than Technical Services Fees and fees for ancillary services pursuant to clause 7.7 shall be established in advance by LOTUS in conjunction with TESLA on an “open book basis”. In particular, but without limitation, this shall mean that LOTUS promptly provides at TESLA’s request clear and accurate information that is not misleading setting out LOTUS’ input and output costs and profit margins in respect of each category of Charge together with LOTUS’ method for calculating the level of such Charge. Notwithstanding any other provision of this Agreement:

 

  7.4.1 nothing in this clause 7.4 obliges LOTUS to provide information regarding Charges that is not readily available and of the kind routinely used by LOTUS in the normal course of its business; and

 

  7.4.2 LOTUS shall not seek payment of and TESLA shall not be obliged to pay any Charge unless the amount of such Charge or the method by which TESLA may calculate the amount of such Charge prior to incurring any obligation to pay it has been agreed by the Parties.

 

7.5 TESLA shall bear the changes to costs for Category 1 Parts at all times during the Term of this Agreement. After the Go Live Date any increase in LOTUS’ input costs for Category 2 Parts and Category 3 Parts caused by any increase in third party supplier costs to LOTUS will be borne for a period of six (6) Months by the Parties in equal shares and the Transfer Price will be adjusted accordingly. Any rebates, refunds or other payments made by any such suppliers to LOTUS shall be taken into account when determining the relevant cost increase and the amount representing TESLA’s 50% share of such increase. After such six (6) Month period, the full cost of the relevant Category 2 Part(s) or Category 3 Part(s) shall be borne by TESLA and the Transfer Price will be adjusted accordingly. The benefit of any decreases in the costs for Category 2 Parts and Category 3 Parts shall be shared for a period of six (6) Months equally between the Parties. After such six (6) Month period, TESLA shall be entitled to the full benefit of any such decrease and the Transfer Price will be adjusted accordingly.

 

7.6

The Parties shall hold a pricing review meeting every six (6) Months starting on the date six (6) Months after the Go Live Date. Subject to the provisions of this clause

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -24-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

 

7.6, at each such pricing review meeting (or on the date that such meeting should have taken place if no such meeting is held):

 

  7.6.1 In the event that LOTUS’ factory overhead costs at the time of the relevant review meeting (as described in the then current LOTUS Management Committee Meeting report) divided by the volume of manufacturing units produced in the Month covered by such report) (“LOTUS Per Unit Overhead Costs”) have increased relative to the Overhead Costs figure most recently used by the Parties in the Transfer Price (the “Current Overhead Costs”), LOTUS shall be entitled to raise the Overhead Costs element within the Transfer Price for units of Product produced after the review meeting by the same percentage (up to a maximum of [***]%) as the percentage increase (if any) in LOTUS’ Per Unit Overhead Costs; and

 

  7.6.2 In the event that LOTUS Per Unit Overhead Costs have decreased relative to the Current Overhead Costs, LOTUS shall reduce the Overhead Costs element within the Transfer Price for units of Product produced after the review meeting by the same percentage (up to a maximum [***]%) as the percentage decrease (if any) in LOTUS’ Per Unit Overhead Costs.

 

7.7 The Transfer Price relates to the manufacture and supply of the Product itself. The Parties understand and agree that ancillary services are required to support this supply, including without limitation, manufacturing engineering, attendance at Gateway meetings, project meetings, and supply chain management, and TESLA shall appoint LOTUS to undertake such services. The Parties understand and agree that the terms (including pricing for such ancillary services) shall be agreed between them as part of the Conditions Precedent in accordance with clause 6 above.

 

7.8 Unless stated otherwise, LOTUS shall invoice TESLA for:

 

  7.8.1 units of Product at the point the unit has been Passed to Sales and TESLA shall pay such invoice within thirty (30) calendar days of the Invoice Date;

 

  7.8.2 Technical Services Fees at the end of each Month in which such services are delivered; and

 

  7.8.3 all other sums due under this Agreement within a reasonable time of incurring such sums unless expressly stated otherwise within the terms of this Agreement;

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -25-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

and TESLA shall pay such invoices arising from clauses 7.8.2 and 7.8.3 within thirty (30) calendar days of the date of the invoice date.

 

7.9 If TESLA fails to make any payment according to this Agreement on the Due Date then, without prejudice to any other right or remedy available to LOTUS, LOTUS shall provide TESLA with seven (7) days’ written notice identifying the outstanding payment and notifying TESLA that LOTUS intends to invoke its rights under this clause 7.9. If TESLA has not paid LOTUS the outstanding payment LOTUS shall be entitled to:

 

  7.9.1 suspend any ongoing engineering work being undertaken pursuant to this Agreement and/or further deliveries of Product to TESLA;

 

  7.9.2 charge interest on the cumulative unpaid balance. Such interest shall be paid at the rate of three percent (3%) per annum above LIBOR (London Inter Bank Offered Rate) from time to time applicable, and calculated on a daily basis with effect from the Due Date until payment in full is made whether before or after judgment.

 

7.10 The Total Compensation shall be payable in sterling.

 

7.11 The Total Compensation is net of all taxes and in the event that any local, state, national or withholding taxes (or similar, e.g. duties) are applied by any governmental and/or state agencies within the Territory which would have the effect of reducing the amount received by LOTUS from TESLA, TESLA accepts an obligation to increase the Total Compensation so as to take account of any such reduction and to pay such increase. LOTUS must use its reasonable efforts to claim any available refunds or reimbursement of withholding taxes paid by TESLA as reasonably possible and, in the event of such recovery by LOTUS, shall forthwith re-imburse TESLA the amount so recovered. Each Party is obliged to provide the other with the necessary certificate of tax exemption, where appropriate. Nothing in this clause shall require TESLA to make payments in relation to any Corporation Tax or other taxes on profits levied on LOTUS by the UK Government.

 

7.12 All sums due from TESLA to LOTUS shall be paid by means of telegraphic transfer to the LOTUS account specified in clause 7.13 below or notified to TESLA by LOTUS from time to time.

 

7.13 LOTUS’ bank account is:

 

[***]   
[***]   

Swift:

   [***]

Bank Sort Code:

   [***]

Account:

   [***]

Iban No:

   [***]

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -26-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

This bank and account may be changed by LOTUS at its sole discretion from time to time and LOTUS shall notify TESLA in writing accordingly.

 

7.14 The Parties agree that all invoices submitted by LOTUS shall be deemed to have been properly submitted if sent to the Vice President of Manufacturing at TESLA or his appointed designee.

 

8. HOMOLOGATION RESPONSIBILITIES

 

8.1 TESLA shall ensure that the TESLA Vehicle meets Type Approval Requirements and complies with all applicable laws in the Territory at the time of sale to distributors or end-users.

 

8.2 TESLA shall be identified as the manufacturer of the TESLA Vehicle with respect to any type approval filing required by any governmental or other regulatory authority.

 

8.3 The Product shall bear a TESLA vehicle identification number and body code. TESLA shall notify LOTUS of its identification numbering and body code requirements and LOTUS shall mark all units of the Product accordingly.

 

8.4 LOTUS shall provide TESLA with homologation test results and supplier compliance certifications relevant to the Product and its use in the Territory where such test results and supplier compliance certifications are in existence at the Effective Date as requested by TESLA subject to TESLA paying LOTUS’ reasonable pre-agreed administrative costs.

 

8.5 TESLA shall not sell the TESLA Vehicle in any territory if LOTUS is deemed by any relevant governmental authority in that territory to be the actual manufacturer of the TESLA Vehicle.

 

9. VOLUME FORECASTS AND ORDERS

 

9.1 TESLA shall provide LOTUS with forecasts for the numbers of units of Product that it requires (“Volume Requirements”) and the Long Lead Time Configuration Options for such units, and place orders for such units in accordance with the provisions of this clause 9 and Appendix 7 as follows:

 

  9.1.1

for the period commencing three Months prior to Start of Production through to and including Start of Production, TESLA shall provide

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -27-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

 

LOTUS with forecasts for the numbers of units of Product that it requires and the Long Lead Time Configuration Options for such units and place orders for units of Product in accordance with the arrangements set out in the table and accompanying comments below:

 

    

Month

    

M -3

  

M -2

  

M -1

  

M

TESLA Forecast Obligation    Volume Requirements with Long Lead Time Configuration Options for M 3 .    Volume Requirements with Long Lead Time Configuration Options for M 4 .    Volume Requirements with Long Lead Time Configuration Options for M 3 , M 4 and M 5 .    Volume Requirements with Long Lead Time Configuration Options for M 4 , M 5 , and M 6 .
TESLA Order Obligation    Volume Requirements already set out in IPRS. Long Lead Time Configuration Options for M    Volume Requirements already set out in IPRS. Long Lead Time Configuration Options for M 1 .    Volume Requirements already set out in IPRS. Long Lead Time Configuration Options for M 2 .    Volume Requirements with Long Lead Time Configuration Options for M 3 .

Comments:

1. M means the Month of Start of Production. A numerical designation after the letter M (eg M3 or M6) indicates the Month that falls that number of Months before (in the case of negative numbers) or after (in the case of positive numbers) the Start of Production. Thus, if Start of Production takes place in [***], M3 would be [***], and M6 would be [***].

2. TESLA has no order obligation in Months M-3 to M-1 other than the order obligations specified in this Agreement under the IPRS and TESLA’s obligation to specify the Long Lead Time Configuration Options for the units specified in the IPRS in accordance with the provisions of this clause 9.1.1.

 

  9.1.2

Subject to clause 9.1.7, for the period beginning on the first Month after Start of Production onwards, TESLA shall provide LOTUS with forecasts for its Volume Requirements and the Long Lead Time Configuration Options for the units of Product covered by such forecasts, and place orders for units of Product on a monthly basis in

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -28-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

 

accordance with the arrangements set out in the table and accompanying comments below:

 

    

Month

    

M n

TESLA Forecast Obligation   

Volume Requirements with Long Lead Time

Configuration Options for M n+4 , M n+5 , and M n+6 .

TESLA Order Obligation   

Volume Requirements with Long Lead Time

Configuration Options for M n+3

Comments:

1. M means the Month of Start of Production with “n” representing each successive Month after Start of Production. Thus, in each successive Month after Start of Production, TESLA shall, subject to the provisions of this clause 9 and Appendix 7, order units of Product for the Month falling n+3 Months after Month n, and forecast its Volume Requirements for the Months falling n+4, n+5 and n+6 Months after Month n. For example, if Start of Production takes place in [***], TESLA’s ordering and forecasting obligations for the following Month of [***] (n=1) shall be to order units of Product for M4 (i.e., MR*3), which is [***] and to forecast its Volume at with Long Lead Time Configuration Options for M5, M6 and M [***].

 

  9.1.3 TESLA’s order for each Month may exceed the order for the prior Month by up to 20%, but shall not exceed this level without the prior written agreement of LOTUS subject to the provisions of Appendix 7.

 

  9.1.4 Subject to clause 9.1.7, for the period beginning on the first Month after Start of Production onwards, TESLA shall not make orders for fewer than [***] or more than [***] units of Product per full working week of five (5) consecutive LOTUS Business Days and pro rata for working weeks of less than five (5) consecutive LOTUS Business Days during the Term unless otherwise agreed in writing with LOTUS. Notwithstanding the above, and for the avoidance of doubt, nothing in this Agreement shall operate to impose any obligation on TESLA to order or purchase in any year any more than the minimum fixed volumes of Product specified in clause 9.1.5 below.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -29-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

  9.1.5 TESLA shall not order less than certain fixed volumes of Product in each year of supply (“Annual Volumes”) as follows and each year of supply shall commence on the Start of Production or its relevant anniversary and finish at the end of the twelfth Month thereafter:

 

[***] year =    [***] units of Product;
[***] year =    [***] units of Product;
[***] year =    [***] units of Product.

 

  9.1.6 TESLA shall not order less than 1,700 units of Product during the Term.

 

  9.1.7 TESLA shall not be obliged to make any orders or forecasts in respect of any period which is subsequent to the date of expiry or termination of this Agreement.

 

9.2 Subject to clause 9.1 above, if TESLA fails on three (3) successive Months to: (i) submit the relevant Volume Requirements forecast in accordance with the provisions of this Agreement, and/or (ii) place an order for units of Product in accordance with the provisions of this Agreement, then the Parties shall immediately discuss the situation and in the event that they are unable to reach a mutually satisfactory resolution within seven (7) Business Days then LOTUS shall be entitled to terminate this Agreement forthwith upon notice and TESLA shall be subject to the provisions set out in clauses 9.14 — 9.15.

 

9.3

Subject to the provisions of this clause 9.3, LOTUS reserves the right prior to the making of any Binding Product Order in respect of any Month to notify TESLA in writing that, notwithstanding TESLA’s forecasts of Volume Requirements and Long Lead Time Configuration Options for that Month, LOTUS will be unable to supply some or all of the units of Product specified in the Relevant Forecast in accordance with the Long Lead Time Configuration Options selected for them by TESLA in such Relevant Forecast. If LOTUS provides any such notice to TESLA, the Parties shall liaise in good faith to determine whether alternative Long Lead Time Configuration Options for the units of Product affected will be acceptable to TESLA. If TESLA accepts such alternative Long Lead Time Configuration Options, the Parties shall confirm in writing that TESLA’s order has been revised accordingly and such written confirmation shall constitute a Binding Product Order. If the Parties are unable to agree on an alternative solution that is acceptable to TESLA within five (5) Business Days, then TESLA shall be deemed to have ordered only such units of Product not covered by LOTUS’ notice that LOTUS is able to supply during the relevant Month in accordance with the Long Lead Time Configuration Options selected by TESLA for such units of Product in the Relevant Forecast, and such order shall be deemed to be a Binding Product Order. If, as a result of LOTUS’ inability to supply any units of

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -30-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

 

Product in accordance with the relevant Long Lead Time Configuration Options, the number of units of Product ordered by TESLA is less than the number of units of Product in the Relevant Forecast, and provided that LOTUS’ inability to supply does not arise as a result of a Deficiency and/or the fault of TESLA, TESLA’s obligation to order any specific Annual Volume of Products under clause 9.1.5 or total volume of Products under clause 9.1.6 shall be reduced accordingly (and, for the avoidance of doubt, TESLA shall have no obligation to pay any Volume Shortfall Compensation to LOTUS in respect of such lower-volume orders). LOTUS shall be entitled to invoke its rights under this clause 9.3 only if it is unable to supply the relevant units of Product in accordance with the Long Lead Time Configuration Options because of a supply chain problem beyond LOTUS’ reasonable control.

Missed Orders and Build

 

9.4 Subject to clause 9.1.7, in the event that TESLA fails to provide orders or Short Lead Time Configuration Options for units of Product in respect of any particular Month in accordance with clause 9.1 and Appendix 7 (a “Missed Order”) then LOTUS shall notify TESLA in writing and in the event that TESLA fails to rectify the Missed Order within two (2) Business Days of receipt of such notice then LOTUS shall manufacture Default Products to make up the Missed Orders and TESLA shall pay LOTUS for the Default Product in accordance with the terms of clause 7. The specification for the Default Product shall be agreed between the Parties at least three (3) Months prior to the Start of Production. Any change to the specification after this date shall only be made by mutual agreement of the Parties in writing. The number of Default Products manufactured shall be the number of units of Product ordered in the Relevant Forecast for the Month in question or, in the absence of such a Forecast, the number of units of Product last ordered by TESLA. For the purposes of this Agreement, each Default Product manufactured by LOTUS pursuant to this clause shall be deemed to be an Order-Accepted Product.

Deficiencies in Parts

 

9.5 In the event that LOTUS is unable to manufacture a unit of Product in accordance with the applicable LOTUS build schedule (a “Missed Move Up”) at any time because TESLA fails to comply with any obligations under the TESLA Parts Supply Agreement to:

 

  (a) deliver on time the correct quantities or types of Category 1 Parts to LOTUS; or

 

  (b) provide Parts to LOTUS that are free from defects;

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -31-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

(any such failure being referred to herein as a “Deficiency”) and provided that any such Deficiency is not due to LOTUS’ fault or negligence, then TESLA shall pay to LOTUS monetary compensation to enable LOTUS to recover its reasonable losses in respect of the Missed Move Up (a “Supplier’s No-Fault Missed Move Up”) in accordance with the provisions of clause 9.6 below. For the avoidance of doubt LOTUS shall bear its own costs associated with a Missed Move Up arising for any other reason.

 

9.6 LOTUS shall use reasonable endeavours to recover a Supplier’s No-Fault Missed Move Up (for the avoidance of doubt, such endeavours shall not include measures which would incur additional labour costs such as overtime or additional shift allowances unless LOTUS has proposed such measures and identified the additional costs that would be incurred and TESLA has agreed to reimburse LOTUS for such costs). If the Supplier’s No-Fault Missed Move Up is recovered within:

 

  (a) a period of less than seven (7) calendar days, TESLA shall have no compensation obligation to LOTUS under clause 9.5 above, but shall reimburse any additional labour costs as set out in this clause 9.6 above;

 

  (b) a period of between seven (7) calendar days and thirty (30) calendar days (inclusive), then TESLA shall pay to LOTUS monetary compensation equal to the direct labour and Overhead Costs associated with the Supplier’s No-Fault Missed Move Up;

 

  (c) a period greater than thirty (30) calendar days, then TESLA shall pay to LOTUS monetary compensation equal to the direct labour and Overhead Costs associated with the Supplier’s No-Fault Missed Move Up together with [***]% of the Unit Profit in respect of the unit(s) of Product affected by the Supplier’s No-Fault Missed Move(s) Up.

 

9.7 LOTUS shall invoice TESLA for the relevant amounts of compensation specified in clauses 9.5 and 9.6 on a Monthly basis throughout a production year (a production year shall commence on the date of Start of Production) and LOTUS shall provide documentary evidence and information regarding the amounts of compensation. TESLA shall pay such invoices in accordance with clause 7.

 

9.8 If either Party becomes aware of circumstances that may give rise to Deficiencies then that Party shall notify the other as soon as reasonably practicable. The Parties shall discuss measures to mitigate the occurrence of Missed Moves Up recognising that subject to LOTUS’ specific obligations under this Agreement, LOTUS has the right to schedule its production as it deems necessary to satisfy LOTUS’ own requirements.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -32-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

9.9 Subject to clause 7.4, if a Deficiency arises at a point in the LOTUS manufacturing process where a unit of Product has moved beyond the stage at which the Part is normally fitted (“Past Point of Fit”) unless the Parties otherwise agree, LOTUS shall use its reasonable endeavours to complete the unit of Product and TESLA shall pay LOTUS’ reasonable costs associated with additional activities to complete the Product subject to LOTUS providing written evidence of such costs.

 

9.10 Without prejudice to clause 9.9 above, in the event that a Deficiency in a unit of Product causes a delay that prevents LOTUS from Passing to Sales that unit of Product on the Planned PTS date TESLA agrees that LOTUS may raise an invoice for the Transfer Price of that unit of Product and TESLA shall pay such invoice in accordance with the provisions of clause 7, provided always that unless the Parties otherwise agree, LOTUS shall use its reasonable endeavours to complete and supply the unit of Product to TESLA and TESLA shall pay LOTUS’ reasonable costs associated with additional activities to complete and supply the unit of Product subject to LOTUS providing written evidence of such costs.

 

9.11 Subject to clause 9.6 above, if Deficiencies make it impossible for LOTUS to recover a Supplier’s No-Fault Missed Move Up in respect of [***]% or more of the units of Product ordered by TESLA over any ninety (90) calendar day period, the following provisions shall apply. LOTUS shall be entitled to terminate this Agreement forthwith on written notice to TESLA. On receipt of such notice, TESLA shall pay to LOTUS the Volume Shortfall Compensation in accordance with the provisions of clauses 9.14 to 9.15.

Early Termination

 

9.12 Subject to clauses 9.14 - 9.15, TESLA may terminate this Agreement by giving to LOTUS not less than six (6) calendar Months’ notice in writing.

 

9.13 In the event that TESLA serves a notice to terminate this Agreement pursuant to clause 9.12 and such notice is served before (i) the time at which all Conditions Precedent are satisfied on the Go Live Date or, if earlier, (ii) 5.30pm on 30 September 2006, TESLA shall subject to clause 7.4 pay LOTUS’ reasonable costs associated with the cancellation of Start of Production subject to LOTUS providing written evidence thereof. Notwithstanding the above, TESLA’s maximum liability to LOTUS under this clause 9.13 shall be no more than £[***]. Subject to the provisions of clause 20.6, this Agreement shall automatically terminate on receipt of payment of such reasonable costs by LOTUS. Additional Effects of Early Termination — Volume Shortfall Compensation

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -33-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

9.14 If LOTUS or TESLA serve a notice to terminate this Agreement after (i) the time at which all Conditions Precedent are satisfied on the Go Live Date or, if earlier, (ii) 5.30pm on 30 September 2006, and such notice is served:

 

  9.14.1 by LOTUS pursuant to any of clauses 2.3 (provided always that all the requirements of clause 2.3.2 have been fulfilled), 9.2 or 9.11; or

 

  9.14.2 by TESLA pursuant to clause 9.12; and if at the date that such notice to terminate is served (the “Service of Termination Date”) the number of units of the Product ordered by TESLA plus the number of Default Products paid for by TESLA is less than the minimum volume commitment of 1,700 units of the Product, this will constitute a “Volume Shortfall” (being the difference between (i) the units of Product ordered and Default Products paid for, and (ii) the minimum volume commitment of 1,700 units of the Product) and the following provisions shall apply:

 

  9.14.3 Subject to the provisions of clauses 9.15 and 17.8 TESLA shall pay LOTUS the Volume Shortfall Compensation; and

 

  9.14.4 In the event that TESLA pays Inventory costs as part of the Volume Shortfall Compensation paid pursuant to clause 9.14.3 above TESLA shall be entitled to collect at its cost such Inventory from LOTUS’ premises at Hethel and LOTUS hereby grants to TESLA a non-transferable, non-exclusive, world-wide, royalty-free, irrevocable licence to Use the LOTUS Background and any Foreground not owned by TESLA at the time in the Inventory (“Inventory Foreground”) for the assembly, marketing, distribution and sale of the Inventory as spare parts and accessories and otherwise in connection with the provision of after sales services for the TESLA Vehicle in the Territory (the “Provision of After Sales Services”) and authorises TESLA to use such Inventory for the Provision of After Sales Services. For the avoidance of doubt, TESLA shall not use and nor shall it permit others to use the LOTUS Background, the Inventory Foreground or the Inventory for or in relation to any other vehicles, components or products or for any other purpose whatsoever.

 

9.15

If TESLA is required to pay any Volume Shortfall Compensation under clause 9.14.3 above, LOTUS shall invoice TESLA for (i) its actual Inventory Costs, the Overhead Costs element and the foregone profit element of the Volume Shortfall Compensation caused by the Volume Shortfall together with (ii) its anticipated average direct labour costs in respect of any necessary redundancy or retraining caused by the Volume Shortfall within thirty (30) calendar days of the Service of

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -34-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

 

Termination Date and TESLA shall pay such Volume Shortfall Compensation within fifteen (15) days of receipt of such invoice. Payment by TESLA of the Volume Shortfall Compensation figure invoiced by LOTUS shall fully satisfy TESLA’s obligations to pay any Volume Shortfall Compensation to LOTUS and, subject to the provisions of clause 20.6, this Agreement shall automatically terminate on receipt of such payment by LOTUS.

Missed Shipment

 

9.16 In the event that: (i) the date a unit of Product is Passed to Sales is delayed beyond the Planned PTS Date (or the Revised Planned PTS Date provided that LOTUS has provided TESLA with at least four (4) Business Days notice of such Revised Planned PTS Date) and provided always that such delay is not caused by a Deficiency or otherwise by the fault of TESLA, and (ii) such delay causes TESLA to miss a shipment allocation with its carrier (“Missed Shipment”), then LOTUS shall, unless TESLA otherwise agrees in writing, pay compensation to TESLA in accordance with clause 9.17 below.

 

9.17 Compensation for a Missed Shipment shall comprise TESLA’s reasonable costs arising directly from the Missed Shipment, including:

 

  9.17.1 additional logistics costs;

 

  9.17.2 direct labour costs of production personnel;

 

  9.17.3 costs associated with disruption of TESLA’s business;

 

  9.17.4 any other direct costs that the Parties agree are reasonable;

provided that such costs shall not exceed [***] per unit of Product. TESLA shall at LOTUS’ request evidence its costs on an “open book” basis, providing clear and accurate information that is not misleading in respect of such costs. Nothing in this clause shall oblige TESLA to provide information regarding such costs that is not readily available and of the kind routinely used by TESLA in the normal course of its business.

Mitigation, Genuine Pre-estimate of Losses and Sole Remedies

 

9.18 In order for either Party to be entitled to claim monetary compensation from the other Party under this clause 9 in respect of any loss, damage, costs, or expenses that they may suffer or incur in connection with any Missed Move Up or Volume Shortfall (in each case including Inventory costs) or Missed Shipment, that Party shall take all such steps as are reasonably practicable to minimise such loss, damage, costs, or expenses.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -35-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

9.19 Subject to each Party’s compliance with clause 9.18 above, the Parties hereby agree that the elements of compensation set out in this clause 9 represent a genuine estimate of the losses likely to be suffered by the relevant Party in the event of a Missed Move Up, Volume Shortfall or a Missed Shipment.

 

9.20 THE COMPENSATION PROVISIONS IN THIS CLAUSE 9 SHALL BE THE SOLE REMEDIES OF LOTUS AND TESLA WITH RESPECT TO MISSED SHIPMENTS, SUPPLIER NO-FAULT MISSED MOVE UPS, PAST POINT OF FIT AND VOLUME SHORTFALL.

 

10. ORDER AND ACCEPTANCE

 

10.1 The order volumes for the first three (3) Months after Start of Production are defined in the IPRS.

 

10.2 TESLA will submit, and LOTUS will accept, purchase orders for the Product in accordance with clause 9 and Appendix 7.

 

10.3 TESLA shall be responsible to LOTUS for ensuring the accuracy of the terms of any order and details of Configuration Options submitted by TESLA, and for providing all information required to be provided by TESLA in connection with such order pursuant to the terms of this Agreement. LOTUS shall be obligated to inform TESLA of any missing information which prevents acceptance of the order in a reasonable time.

 

10.4 Unless otherwise agreed by the Parties, LOTUS shall provide at least four (4) week’s prior written notification to TESLA of the Planned PTS Date for each Order-Accepted Product. Save as expressly provided in this Agreement or agreed by the Parties in writing, LOTUS shall not Pass to Sales any unit of Product prior to the Planned PTS Date.

 

10.5 Subject to clause 9.6, LOTUS shall Pass to Sales all Order-Accepted Products in the Month which falls three Months after the Month in which such Order-Accepted Products became subject to a Binding Product Order.

 

10.6

TESLA shall at the request of LOTUS purchase up to four (4) Evaluation Prototypes and eight (8) Validation Prototypes. LOTUS shall manufacture and sell to TESLA such additional Evaluation and Validation Prototypes as TESLA requests. The costs for each Evaluation or Validation Prototype shall be agreed in advance by the Parties and shall be payable by TESLA to LOTUS. LOTUS shall inform TESLA

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -36-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

 

when the Prototypes (or any one of them) are available for Collection at which point LOTUS shall be entitled to invoice TESLA in respect of such Prototype(s).

 

11. PRODUCT ACCEPTANCE AND COLLECTION

 

11.1 Subject to the terms and conditions of this Agreement, LOTUS shall ensure that all Order-Accepted Products are available for Collection on the Planned PTS Date. TESLA shall Collect such Order-Accepted Products no later than ten (10) Business Days after the Planned PTS Date.

 

11.2 If TESLA fails to ensure that Collection takes place within the time set out in clause 11.1 then LOTUS may store the affected units of Product in the open air at TESLA’s risk until actual Collection and LOTUS may charge TESLA for the reasonable costs of storage. TESLA shall be liable for any damage to the Product due to the storage of the Product in the open air. TESLA may ask LOTUS to repair any damage and subject to the Parties’ prior agreement on costs LOTUS will invoice TESLA for such costs and TESLA shall pay the invoice in accordance with the provisions of clause 7.

 

11.3 To ensure that the Parties have a good understanding of the practical application of the Quality Standards TESLA shall inspect the first fifty (50) units of Product to be manufactured to confirm that the Product meets the Quality Standards and Product Specifications when Passed to Sales. Thereafter TESLA shall elect either LOTUS (subject to payment of LOTUS’ fees), TESLA, or a third party to confirm that the Product meets the Quality Standards and Product Specifications at the point the Product is Passed to Sales. TESLA has the right to carry out inspections at the LOTUS production facility that relate to the manufacture of the Product, subject to giving LOTUS reasonable notice.

 

11.4 In the event of any Manufacturing Discrepancy being discovered during the TESLA manufacturing process, TESLA shall promptly notify LOTUS in writing of the existence of such Manufacturing Discrepancy.

 

11.5

Upon receipt of a notice from TESLA informing LOTUS of a Manufacturing Discrepancy, LOTUS shall investigate and shall inform TESLA within seven (7) Business Days as to whether it accepts or wishes to inspect such Manufacturing Discrepancy. LOTUS reserves the right to inspect (either itself or through a nominated third party) such Manufacturing Discrepancies and TESLA shall allow LOTUS any necessary access to its manufacturing plant, storage facilities or service centres and shall provide any information to LOTUS that it may reasonably require to assist in the inspection. LOTUS shall undertake the inspection within a reasonable time and, unless the Parties otherwise agree, in any event no later than three (3) weeks after receipt of TESLA’s notice. The costs of such inspection shall

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -37-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

 

be apportioned to the Parties as follows. In the event that LOTUS accepts the existence of the Manufacturing Discrepancy then LOTUS shall pay its own inspection costs. In the event that LOTUS acting reasonably does not accept the existence of the Manufacturing Discrepancy then TESLA shall pay LOTUS’ reasonable inspection costs.

 

11.6 If TESLA has not notified LOTUS of any Manufacturing Discrepancies (and LOTUS has notified TESLA of all Manufacturing Discrepancies of which it is aware) with respect to any particular units of Product by the earlier of: (i) the date that is ten (10) weeks from the Passed to Sales date in respect of such units, or (ii) the date on which TESLA ships the TESLA Vehicles incorporating such units of Product to its distributors or customers, such units of Product shall be conclusively presumed to be free from all Manufacturing Discrepancies and accordingly TESLA shall be deemed to have accepted those units of the Product and LOTUS shall have no further liability for any Manufacturing Discrepancies in relation to such units of Product.

 

11.7 If TESLA gives notice in accordance with clause 11.5 and provided that LOTUS has accepted such Manufacturing Discrepancy, then LOTUS shall remedy at its reasonable cost the Manufacturing Discrepancy, to the reasonable satisfaction of both Parties. Such remedy to be undertaken, if practicable, no later than 4 calendar weeks from LOTUS notifying TESLA that it accepts the Manufacturing Discrepancy. The provisions of clause 11.7 shall be the sole remedies of TESLA with respect to Manufacturing Discrepancies.

 

12. RISK AND PROPERTY

 

12.1 Units of Products are supplied by LOTUS to TESLA Ex Works. The following provisions shall apply in connection with: (i) LOTUS’ obligations relating to the Passing to Sales of each unit of Product; (ii) Collection of such unit of Product by TESLA; and (iii) the passing of risk (including without limitation, in respect of damage, loss or theft) in any such unit:

 

  12.1.1 if the unit is Passed to Sales on the Planned PTS Date for such unit, risk shall pass at 9.30am on the Planned PTS Date or, if such Date is not a Business Day, on the first following Business Day;

 

  12.1.2 if the unit is Passed to Sales with the written agreement of the Parties prior to the Planned PTS Date, TESLA may at its option collect the unit after it has been Passed to Sales at any time prior to or on the Planned PTS Date, and risk in such unit shall pass at the time of Collection by TESLA or at 9.30am on the Planned PTS Date, whichever is earlier;

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -38-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

 

  12.1.3 without prejudice to clauses 9.16, 10.5 and 11.1, if LOTUS is unable to Pass to Sales any unit of Product on the Planned PTS Date, LOTUS shall provide TESLA with as much reasonable prior notice in writing as possible of the revised Planned PTS Date (the “Revised Planned PTS Date”) and the provisions of this clause 12 shall apply as if the references therein to the Planned PTS Date were references to the Revised Planned PTS Date.

 

12.2 The Product shall be supplied without any transportation, protective coverings or materials unless agreed otherwise by the Parties.

 

12.3 Notwithstanding Collection and the passing of risk in the Product, or any other provisions of these conditions, the title in any units of Product or other goods agreed to be sold by LOTUS shall not pass to TESLA until LOTUS has received payment in full in cleared funds from TESLA of the Transfer Price for such units of Product and/or goods.

 

12.4 TESLA shall comply with the following conditions until such time as the title in any units of Product and other goods agreed to be sold by LOTUS to TESLA pass to TESLA in accordance with clause 12.3:

 

  12.4.1 TESLA shall hold the Product and/or other goods as LOTUS’ fiduciary agent and bailee and promptly after Collection shall keep the Product and/or goods properly stored, protected and insured and identified as LOTUS’ property and TESLA shall not resell or use such units of Product and/or goods in the ordinary course of its business or for any purpose other than the performance of this Agreement;

 

  12.4.2 if TESLA is in breach of its obligations under clause 7.8 of this Agreement, TESLA shall deliver up the units of Product and/or goods upon request from LOTUS and if TESLA fails to do so then LOTUS shall be entitled to enter upon the premises of TESLA or any third party where the units of Product and/or goods are stored;

 

  12.4.3 LOTUS shall have the right to enter the premises at all reasonable times to inspect such units of Product and/or goods and TESLA’s records with respect thereto; and

 

  12.4.4 if TESLA is in breach of its obligations under clause 7.8 of this Agreement, LOTUS shall have the right to take possession of the units of Product and/or goods and on so doing risk in such units of Product and/or good shall pass to LOTUS.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -39-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

13. INTELLECTUAL PROPERTY

BACKGROUND AND TESLA BESPOKE FOREGROUND

 

13.1 Each Party shall continue to be the sole and exclusive owner of all rights in its own Background. Save as expressly provided in this Agreement each Party acknowledges that this Agreement shall not give it any right, title or interest in or to the other Party’s Background and neither Party will make any representation or in any way act in a manner which may be taken to indicate that it has any right, title or interest in the other Party’s Background other than as expressly provided in this Agreement.

 

13.2 In consideration of the payment of the sums to be paid in accordance with this Agreement, LOTUS hereby grants to TESLA for the Term a non-assignable, non-exclusive, worldwide and, subject to clause 13.3 below, sub-licensable, licence to Use the LOTUS Background solely for the purposes of and only to the extent necessary for the: (i) design, development, manufacture and production of the TESLA Vehicle; (ii) use and incorporation of the Product and any other components and products manufactured by LOTUS and supplied to TESLA pursuant to this Agreement in the TESLA Vehicle; and (iii) marketing, distribution and sale of the TESLA Vehicle in the Territory. For the avoidance of doubt, TESLA shall not Use nor shall it permit others to Use the LOTUS Background or the LOTUS Foreground for or in relation to any vehicles, components or products other than the TESLA Vehicle or for any other purpose whatsoever.

 

13.3 TESLA shall not be entitled without the prior consent of LOTUS (such consent not to be unreasonably withheld or delayed) to sub-license the rights granted under clause 13.2 except, subject to clause 24, in connection with any or all of the design, development, manufacture, production, marketing, distribution and/or sale of the TESLA Vehicle, and provided always that in connection with such right to sub-licence; (i) such sub-licences do not grant a right to grant further sub-licences; (ii) the sub- licence is on the same or stricter terms as the licence in clause 13.2; (iii) TESLA procures the performance by the sub-licensee of the terms of such sub-licence; and (iv) TESLA consults with LOTUS prior to granting any sub-license relating to design and/or development of the TESLA Vehicle.

 

13.4 On the expiry or termination of this Agreement the licence granted under clause 13.2 shall continue solely in relation to any Products or goods for which as at the date of expiry or termination LOTUS has received an order in accordance with this Agreement and which are subsequently delivered to TESLA by LOTUS, provided always that TESLA pays for those products or goods in accordance with this Agreement.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -40-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

13.5 In consideration of the mutual promises set out in this Agreement TESLA hereby grants to LOTUS for the Term a non-assignable, non-exclusive, worldwide and, subject to the provisions below, sub-licensable, licence to Use the TESLA Background, TESLA Foreground and Bespoke Foreground solely for the purposes of and only to the extent necessary for: (i) designing, developing, manufacturing, producing, and selling to TESLA the Product and such other components and products as LOTUS provides to TESLA pursuant to this Agreement; and (ii) the provision of the Technical Services and any other services provided in accordance with this Agreement. LOTUS shall not be entitled to sub-license the rights granted under this clause 13.5 other than, subject to clause 24, in connection with the performance of its obligations under this Agreement, provided that; (i) such sub- licences do not grant a right to grant further sub-licences; (ii) the sub-licence is on the same or stricter terms as the licence in this clause 13.5; and (iii) LOTUS procures the performance by the sub-licensee of the terms of such sub-licence. For the avoidance of doubt, LOTUS shall not Use nor shall it permit others to Use the TESLA Background or the TESLA Foreground for or in relation to any vehicles, components or products other than the TESLA Vehicle or for any other purpose whatsoever.

 

13.6 On expiry or termination of this Agreement, the licence granted under clause 13.5 shall continue solely in relation to the designing, developing, manufacturing and selling to TESLA of the Products or goods referred to in clause 13.4 and providing any Technical Services or any such services in relation to them.

Foreground

 

13.7 All Foreground shall belong to the Party that creates it on creation of that Foreground.

 

13.8 Subject to the licence contemplated by clause 13.13 below and to the payment referred to below LOTUS hereby assigns to TESLA all right, title and interest (existing and future) LOTUS may have in and to the Manufacturing Foreground created by LOTUS during the period from the Effective Date to the date to which a payment in accordance with clause 7.12 relates, effective from the date on which such payment is received by LOTUS.

 

13.9 Subject to:

 

  13.9.1 the licence contemplated by clause 13.13 below;

 

  13.9.2 the payment of fees for the Bespoke Work in accordance with clause 7.12; and

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -41-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

  13.9.3 TESLA complying with the Bespoke Work procedure set out in clause 13.10 below, LOTUS hereby assigns with full title guarantee to TESLA all right, title and interest (existing and future) LOTUS may have in and to all Bespoke Foreground arising or created during the period to which a payment for Bespoke Work in accordance with clause 7.12 relates, effective from the date on which such payment of fees for the Bespoke Work (or part thereof) is received by LOTUS.

 

13.10 TESLA requests that LOTUS provide to it Technical Services:

 

  13.10.1 TESLA shall provide to LOTUS a completed Approval Request in the form set out in Appendix 11, duly approved and signed by the Vice President Engineering of TESLA or his or her delegate (“Approval Request”);

 

  13.10.2 LOTUS shall review the completed Approval Request and either approve or refuse the Approval Request in writing;

 

  13.10.3 if LOTUS approves the Approval Request the Engineering Director of LOTUS or his or her delegate shall duly approve and sign the Approval Request and, the Technical Services and any and all information, materials and deliverables created by LOTUS in connection with the provision of such Technical Services shall be Bespoke Work; and

 

  13.10.4 if LOTUS refuses the Approval Request it shall do so in writing providing a summary of its reason for doing so.

 

13.11 LOTUS hereby grants to TESLA an exclusive, royalty-free, non-assignable, non-sub-licensable, worldwide licence to Use for the purposes of this Agreement all rights that LOTUS may have from time to time in the Manufacturing Foreground and the Bespoke Foreground arising, licensed to or created by it during the period from the date on which that Foreground arose or was created to the date the assignment contemplated by clauses 13.8 and 13.9 above (as relevant) comes into effect.

 

13.12 LOTUS hereby grants to TESLA a non-exclusive, royalty-free, worldwide licence to Use the Bespoke Background in connection with the Bespoke Foreground for the purposes of TESLA’s business, which licence shall become perpetual, sub-licensable and assignable on the date on which LOTUS receives payment in respect of the Bespoke Work in which such Bespoke Background subsists pursuant to clause 7.12.

 

13.13 TESLA hereby grants to LOTUS a royalty-free, non-exclusive, assignable, irrevocable, world-wide licence in perpetuity to Use and sub-licence all rights TESLA may have from time to time in the Manufacturing Foreground effective from the date of the assignment contemplated by clause 13.8 above.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -42-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

13.14 LOTUS may, at its discretion, grant to TESLA a non-exclusive, non-assignable, non-sub-licensable licence to Use the LOTUS Foreground on terms determined by LOTUS at its discretion.

 

13.15 Neither TESLA nor LOTUS shall charge or grant any security over the Manufacturing Foreground or any part of it or purport to do any of the above.

Styling Rights

 

13.16 The Styling Rights shall belong exclusively to TESLA. LOTUS shall not charge, grant any interest in, right to or security over, or otherwise encumber the Styling Rights or any of them, or purport to do any of the above. To the extent that any Styling Rights do not automatically vest in TESLA, LOTUS hereby assigns to TESLA, effective upon receipt by LOTUS of payment in full by TESLA for the Design Project, all right, title and interest in and to such Styling Rights.

Infringement and Third Party IPR

 

13.17 TESLA warrants that Use by LOTUS in the United Kingdom and/or the United States of the Intellectual Property Rights licensed under this Agreement by TESLA to LOTUS in accordance with this Agreement, shall not infringe the Intellectual Property Rights of any third party

 

13.18 LOTUS warrants that:

 

  13.18.1 as at the date of the assignment the Intellectual Property Rights assigned to TESLA by LOTUS under this Agreement shall not infringe the Intellectual Property Rights of any third party in the United States and/or the United Kingdom; and

 

  13.18.2 that Use by TESLA in the United States and/or the United Kingdom of the Intellectual Property Rights licensed by LOTUS to TESLA under this Agreement in accordance with this Agreement shall not infringe the Intellectual Property Rights of any third party.

 

13.19 In the event that the Technical Services, utilise software programs and documentation provided by TESLA in relation to which rights may be owned by third parties, TESLA warrants and represents that:

 

  13.19.1 TESLA has all necessary permissions, express or otherwise, to enable the software programs and documentation to be copied or otherwise used by LOTUS during the performance of the Technical Services without infringing any third party copyright, patent or trade secret; and

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -43-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

  13.19.2 the disclosure of the software programs and documentation during the course of the Technical Services will not involve the breach of any confidential information or contractual relationship.

 

13.20 Each Party (the “Indemnifying Party”) shall at all times indemnify and keep indemnified the other Party (the “Indemnified Party”), from and against all losses, claims, liabilities, costs, damages, and expenses (including reasonable legal costs) of any nature incurred or suffered by it in relation to any infringement or alleged infringement of any third party’s Intellectual Property Rights arising from a breach by the Indemnifying Party of the warranties set out in clauses 13.17 to 13.19 (as applicable) provided always that:

 

  13.20.1 the Indemnified Party agrees that the Indemnifying Party has the right to defend, or to settle, and the Indemnifying Party agrees, at its own expense, to defend or to settle, any claim, suit or allegation of infringement;

 

  13.20.2 the Indemnifying Party shall consult with Indemnified Party on a regular basis in connection with the investigation, preparation, defence and settlement of any claim or alleged infringement falling within the indemnities in clause 13.20 above and shall make no settlement or admission of liability on behalf of the Indemnified Party without the Indemnified Party’s prior written approval (not to be unreasonably withheld or delayed);

 

  13.20.3 the indemnified Party agrees that the Indemnifying Party shall be relieved of its indemnity obligations under clause 13.20 above unless the Indemnified Party:

 

  13.20.3.1 promptly notifies the Indemnifying Party in writing as soon as it becomes aware of any such claim or threatened claim; and

 

  13.20.3.2 gives the Indemnifying Party proper and full information and assistance to settle and/or defend any such claim, suit or proceeding;

 

  13.20.4

the Indemnifying Party may, at its option and cost, modify or replace the infringing part or product the subject of the infringement or alleged

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -44-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

 

infringement (“Infringing Part”) with a part or product which does not infringe the third party’s Intellectual Property Rights or procure the right for the Indemnified Party to Use the Infringing Part, provided that such action does not reduce or affect the function of the part or product to which the claim relates;

 

  13.20.5 where LOTUS is the Indemnifying Party the indemnity shall not apply where the infringement or alleged infringement arises as a result of a combination of any materials embodying the Intellectual Property Rights licensed by LOTUS to TESLA pursuant to this Agreement with other parts or materials; and

 

  13.20.6 where LOTUS is the Indemnifying Party the indemnity shall not apply in respect of Category 1 Parts.

Trademarks, Branding and Publicity

 

13.21 LOTUS shall provide TESLA with prior notice of the positioning of any LOTUS branding that will be displayed on any of the Parts or units of Product. Kingdom and I or the United States for any purposes other than that specifically permitted under this Agreement or any written agreement of the owning Party. For the avoidance of doubt, the Parties acknowledge and agree that the design of the TESLA Vehicle in accordance with the Design Specifications shall not infringe this clause in any way.

 

13.22 In the event that LOTUS or TESLA wish to use the other Party’s name products (including the LOTUS Products and the TESLA Vehicle) or images of such products in any advertisement, publicity, sales promotion activities or for any other similar promotional purpose, each shall obtain the other’s prior consent to such usage including the manner thereof, such consent not to be unreasonably withheld. Both Parties will use their reasonable endeavours to ensure that their respective dealers and distributors comply with the provisions of this clause.

 

13.23 The Parties shall discuss the opportunities for the use of the LOTUS name and logo in the marketing and sale of the TESLA Vehicle prior to the sale of the first TESLA Vehicle.

 

13.24 The Parties will discuss the grant of an option to LOTUS to have distribution rights of the TESLA Vehicle in markets outside the Territory and the permission to brand the vehicle a LOTUS. The terms of the licence and the exercise of the option shall be subject to the written agreement of the Parties.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -45-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

14. WARRANTIES

 

14.1 LOTUS warrants that the Product is and will remain free from In Field Defects for the Warranty Period.

 

14.2 LOTUS shall have no liability in respect of In Field Defects or Manufacturing Discrepancies to the extent that they are caused by the acts or omissions of a third party during the loading, unloading or transportation of the Product and/or the loading, unloading and transportation of the TESLA Vehicle, provided always that the exclusion in this clause 14.2 shall not apply if the third party has been engaged by LOTUS on TESLA’s behalf.

 

14.3 In the event of a breach of the warranty provided in clause 14.1 the provisions of Appendix 6 shall apply. LOTUS shall have no further liability to TESLA whatsoever in respect of such breach other than as provided in Appendix 6 and clause 16.

 

14.4 Notwithstanding any other provision of this Agreement, to the extent that any warranty, guarantee or other protection in respect of any Parts has been or is made available to LOTUS, LOTUS shall to the fullest extent that it is able pass on the benefit of such warranty, guarantee or protection to TESLA, provided that nothing in this clause 14.4 shall require LOTUS to pass on to TESLA any sums received by LOTUS to reimburse LOTUS for sums incurred by LOTUS in the performance of its obligations under clause 11.7, Appendix 6 or clause 16. For the avoidance of doubt, nothing in this clause 14.4 shall require LOTUS to undertake activities to obtain such warranty, guarantee or protection.

 

14.5 LOTUS gives no warranty as to satisfactory or merchantable quality nor fitness for any purpose (whether or not such purpose is made known at any time to LOTUS) with respect to the equipment, machinery, systems and/or products derived or resulting from the Technical Services or the equipment, machinery, systems or products obtained by LOTUS in the performance of such services, or any goods delivered or conveyed to TESLA by LOTUS and TESLA assumes all risk and liability in respect of any use or implementation of the Technical Services and/or such goods, equipment, machinery, systems or products, whether used singly or in combination with other designs or products. The warranty given in clause 14.6 below is in lieu of all other warranties, express or implied whether by statute or otherwise relating to the Technical Services or any equipment, machinery, systems and/or products derived used or resulting from the provision of the Technical Services to the fullest extent permitted by law.

 

14.6 Lotus warrants that it will use reasonable care and skill in performing the Technical Services.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -46-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

14.7 To the extent that LOTUS can reasonably demonstrate that any Defect falling within paragraph (c) of the definition of In Field Defect was partially caused by the fault or negligence of TESLA, LOTUS’ liability in respect of the warranty in clause 14.1 above shall be adjusted proportionately to reflect its respective responsibility for such In Field Defect. TESLA shall co-operate with LOTUS by providing technical information and/or advice as appropriate in connection with any efforts on LOTUS part to demonstrate that such Defect was caused by the fault or negligence of TESLA.

 

15. SUPPLY OF PARTS CATEGORIES OF PARTS

 

15.1 The Parts used in the manufacture of the Product shall comprise Category 1, Category 2 and Category 3 Parts. The indicative list of the Parts or types of Parts that the Parties currently intend to use is set out in the [***] referred to in Appendix 5.

 

     Approval of Suppliers and Parts

 

15.2 The Parties shall develop a parts approval procedure and record the procedure in writing as soon as possible after the Effective Date. The procedure shall be based on a production parts approval process (“PPAP”) as is used in the LOTUS advanced product quality planning (“APQP”) system. The procedure shall be agreed in any event at the latest between the Parties as part of the Conditions Precedent in accordance with clause 6.

 

15.3 To the extent that the Parties agree that any Part has become obsolete. TESLA shall be responsible subject to clause 7.4 above for LOTUS’ costs arising from such determination. Such costs shall include, but shall not be limited to, those associated with Modifications agreed under the change control procedure set out in clause 4 and TESLA Changes agreed by the Parties to the production schedule outside of the agreed variance parameters in clause 9. TESLA shall not be responsible for any such costs that relate to quantities of Parts that are in excess of the relevant maximum order quantities for such parts to be agreed as a Condition Precedent in accordance with clause 6 (assuming scheduling and ordering is undertaken in accordance with clause 9 and Appendix 7), unless the Parties agree otherwise.

 

15.4 TESLA shall be responsible for:

 

  15.4.1 designing, engineering, negotiating, entering into supplier contracts for, and paying suppliers of Category 1 Parts;

 

  15.4.2 designing and engineering Category 2 Parts;

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -47-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

15.5 Subject to clause 7.7, LOTUS shall be responsible for negotiating and, subject to clause 15.6, entering into supply contracts for Category 2 Parts and Category 3 Parts.

 

15.6 LOTUS shall identify suppliers for the supply of Category 2 Parts and Category 3 Parts in accordance with the Supplier Selection Process. LOTUS shall order Category 1 Parts from TESLA and LOTUS shall purchase Category 2 Parts and Category 3 Parts from suppliers approved under the Supplier Selection Process. LOTUS shall not enter into any agreement with any supplier of Category 2 Parts except on terms previously reviewed and approved by TESLA in writing such approval not to be unreasonably withheld or delayed.

 

15.7 The Parties hereby understand and agree that LOTUS entering into this Agreement represents LOTUS willingness to supply Category 2 Parts and Category 3 Parts to TESLA and that the proposed suppliers of these Category 2 Parts and Category 3 Parts have not yet consented to supply the Category 2 Parts and Category 3 Parts for use in the Product and the TESLA Vehicle. Subject to clause 15.6, TESLA shall be responsible for charges that any and all of these suppliers/LOTUS make in supplying the Category 2 Parts and Category 3 Parts for use in the Product. LOTUS shall have no liability to TESLA in the event that any of these suppliers decline to supply any Category 2 Parts and Category 3 Parts for use in the Product. In circumstances where a supplier has consented to supply Parts for use in the Product then LOTUS shall use reasonable endeavours to ensure that the supplier provides all necessary approvals, consents and permits, and grants all necessary Intellectual Property Rights to enable TESLA to use the parts and components supplied by them in the TESLA Vehicle provided that such services are included within the scope of the supply chain ancillary services described in clause 7.7.

Change Control for Parts

 

15.8 All Parts that will be used in Validation Prototypes and the Product thereafter shall be released using a PCR. The PCR must be agreed by both Parties and such change shall not become effective until the PCR is signed by both Parties (provided that LOTUS shall not unreasonably withhold agreement for a Change proposed by TESLA).

 

15.9 The PCR shall be accompanied by any relevant technical information and shall also include, but not be limited to, the following information:

 

  15.9.1 impact on Transfer Price and other costs associated with the Change;

 

  15.9.2 introduction date; and

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -48-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

  15.9.3 any other effect which it is considered the Change will have.

 

15.10 Provided that LOTUS provides an appropriate PCR, LOTUS retains the right and discretion at any time to change the specification of Category 3 Parts to satisfy its own requirements in respect of LOTUS Products, provided always that LOTUS informs TESLA that it intends to make such change to specification and TESLA is offered the chance to purchase such changed Part. LOTUS shall give TESLA reasonable notice of such changes. Nothing in this clause shall require TESLA to purchase such changed Part. Any costs associated with the impact of such changes on the Product if TESLA decides to purchase such Part shall be the responsibility of TESLA.

Tooling

 

15.11 Subject to clause 7.4 above, TESLA shall be responsible for all tooling costs associated with the Product. Such costs relate to, without limitation, tooling for Category 2 Parts and TESLA’s proportional share of new or refurbished tooling (determined by reference to volume of parts produced from the new or refurbished tool) for Category 3 Parts necessary because of the additional production requirements arising from the obligations under this Agreement.

TESLA Parts

 

15.12 The terms and conditions for the supply of each of the Category 1 Parts from TESLA to LOTUS shall be agreed separately as part of the Conditions Precedent in accordance with clause 6 above. Any fluctuations in the costs of such parts shall be the responsibility of TESLA and therefore changes in the purchase price to LOTUS from TESLA shall result in an equivalent variation in the Transfer Price from LOTUS to TESLA. For the avoidance of doubt, LOTUS shall not be responsible for any adverse cash flow obligations in respect of Category 1 Parts.

 

16. RECALLS AND REWORKS

 

16.1 If, as a result of field experience, test data, or otherwise, a Party becomes aware of a problem that may constitute a safety-related defect or safety or emissions non-compliance, and/or believes that it is necessary to conduct a Product Recall, it will immediately notify the other Party.

 

16.2

If one Party reasonably believes that a Product Recall is required by law or as a result of an In Field Defect or Manufacturing Discrepancy, then the Parties will cooperate with each other in investigating the issue, analyzing its effects and establishing the appropriate remedial action, if any. Each Party will provide, upon

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -49-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

 

reasonable request of the other Party, any test, quality or other data in its possession necessary for the requesting Party to carry out its investigation.

 

16.3 If the Parties agree, after consultation with each other (such agreement not to be unreasonably withheld or delayed) that remedial action is warranted, TESLA will, through its service network, establish and implement an appropriate Product Recall for affected TESLA Vehicles.

 

16.4 If the Parties agree after consultation with each other (such agreement not to be unreasonably withheld or delayed), that a Product Recall is caused by an In Field Defect, then LOTUS shall co-operate with TESLA by providing technical information and/or advice as appropriate and shall pay TESLA’s reasonable costs directly associated with such Product Recall as set out in clause 16.5 in so far as they exceed the Warranty Ceiling. To the extent that LOTUS can reasonably demonstrate that any Product Recall was partially caused by the fault or negligence of TESLA, LOTUS’ liability to pay TESLA’s reasonable costs under this clause shall be adjusted proportionately to reflect its respective responsibility for such Product Recall. TESLA shall co-operate with LOTUS by providing technical information and/or advice as appropriate in connection with any efforts on LOTUS’ part to demonstrate that such Product Recall was caused by the fault or negligence of TESLA.

 

16.5 TESLA’s costs that are subject to reimbursement from LOTUS pursuant to clause 16.4 shall be limited to:

 

  16.5.1 repairing or replacing and refitting the units of Product or Parts affected by such In Field Defect; and

 

  16.5.2 transportation costs of replacement Parts affected by the Product Recall to TESLA.

 

16.6 TESLA shall at LOTUS’ request evidence the costs in respect of which it claims reimbursement under clauses 16.4 and 16.5 on an “open book” basis, providing clear and accurate information that is not misleading in respect of such costs. Nothing in this clause shall oblige TESLA to provide information regarding such costs that is not readily available and of the kind routinely used by TESLA in the normal course of its business.

 

16.7 TESLA shall submit an estimation of costs to LOTUS for the costs set out in clause 16.5 within two (2) Months of commencing a Product Recall. TESLA will use commercially reasonable efforts to mitigate and minimise such costs and shall notify LOTUS of the steps it has taken in this respect.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -50-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

16.8 The provisions of this clause 16 shall be without prejudice to any other provision of this Agreement.

 

17. LIABILITY

Indemnity

 

17.1 TESLA shall indemnify LOTUS at all times from and against any and all liabilities, demands, claims, reasonable costs, losses, damages, recoveries, settlements and expenses (including reasonable professional fees) (together “Liabilities”) that LOTUS may suffer or incur (other than as a result of any acts or omissions of LOTUS or any party other than TESLA acting on Lotus’ behalf, arising from or related to):

 

  17.1.1 any third party product liability claims (including for the avoidance of doubt, any class action claims) for Defects in Product and/or the TESLA Vehicle to the extent that the claim does not concern an In Field Defect or Manufacturing Discrepancy;

 

  17.1.2 any third party claim arising in relation to Category 1 Parts provided that such claim does not arise in connection with In Field Defects or Manufacturing Discrepancies in such Category 1 Parts other than where such Defects or Discrepancies arise as a result of any acts or omissions of TESLA or any third party acting on TESLA’s behalf); and

 

  17.1.3 any third party claim (other than a claim covered by clause 17.1.1 above) arising in relation to design Defects in Category 2 Parts; provided that: (1) this indemnity shall not apply to any claim covered by clause 13.20 above; (2) LOTUS shall at all times take such steps as are reasonably practicable to minimise and mitigate any Liabilities that it may incur; and (3) LOTUS agrees that TESLA shall be relieved of its indemnity obligations above unless LOTUS:

 

  (a) promptly notifies TESLA in writing as soon as it becomes aware of any such claim or threatened claim; and

 

  (b) gives TESLA proper and full information and assistance to settle and/or defend any such claim, suit or proceeding.

 

17.2 TESLA shall consult with LOTUS on a regular basis in connection with the investigation, preparation, defence and settlement of any third party claim falling within the indemnity in clause 17.1 above and shall make no settlement or admission of liability on behalf of LOTUS without LOTUS’ prior written approval (not to be unreasonably withheld or delayed).

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -51-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

17.3 The indemnity in clause 17.1 above is given in addition to LOTUS’ other rights and remedies that may arise under this Agreement.

Limitation on Liability

 

17.4 Notwithstanding any other provision of this Agreement and/or the TSA neither party nor its affiliates shall be liable to the other in any circumstances in contract, tort (including negligence or breach of statutory duty) or otherwise howsoever, and whatever the cause thereof:

 

  17.4.1 for any loss of profit, business, contracts, revenues or anticipated savings; or

 

  17.4.2 for any special, indirect or consequential damage of any nature whatsoever, and in all other respects each Party’s liability to the other in respect of any and all claims under this Agreement or otherwise shall be limited to a maximum of [***].

 

17.5 LOTUS shall not be liable (whether in contract, tort, negligence or otherwise) for any delays in the programme and failure to satisfy the Gateway Deliverables resulting from:

 

  17.5.1 the late, inadequate or defective supply of goods, materials and/or information by TESLA;

 

  17.5.2 the breach by TESLA of any of its obligations under the Agreement; 17.5.3 the late nomination by TESLA of any preferred supplier of TESLA; or any Changes to the Product or any Modification made by or requested by TESLA;

 

17.6 The Parties recognise that TESLA is ultimately responsible for the implementation of the Technical Services and accordingly, TESLA agrees, and acknowledges that it retains full control over and is solely responsible for the design, performance, manufacture and use of its equipment, machinery, systems, products including, without limitation, those created pursuant to the Technical Services.

 

17.7 Nothing in this Agreement shall restrict or exclude either Party’s liability to the other for death or personal injury caused by its negligence.

 

17.8

Without prejudice to clause 17.4 above, TESLA’s maximum liability to LOTUS for Volume Shortfall Compensation above shall be £5,400,000. The Parties agree that if the Cost of Released Parts materially exceeds the Cost of Indicative Parts, the

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -52-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

 

Parties will liaise in good faith with a view to agreeing a revised maximum liability for Volume Shortfall Compensation reflecting the increased Cost of Released Parts.

 

17.9 TO THE EXTENT PERMISSIBLE BY LAW THE OBLIGATIONS AND WARRANTIES OF EACH PARTY SET FORTH IN THIS AGREEMENT UNLESS EXPRESSLY STATED OTHERWISE ARE EXCLUSIVE AND IN LIEU OF ANY OTHER REMEDIES, OBLIGATIONS AND LIABILITIES, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF SATISFACTORY QUALITY OR FITNESS FOR A PARTICULAR PURPOSE, AND ANY OTHER LIABILITIES AS TO ANY DEFECT OF THE PRODUCT OR ANY PARTS.

 

18. TERMINATION OF TSA

 

18.1 The Parties hereby agree that with effect from the Effective Date all provisions of the TSA relating to the Intellectual Property Rights of each of the Parties shall be treated as not having come into effect at any time and the Intellectual Property Rights of each of the Parties created or arising under the TSA shall be governed solely by the provisions of this Agreement; and

 

  18.1.1 all services being provided at the Effective Date under the TSA shall continue to be provided by LOTUS in accordance with the provisions of this Agreement; and

 

  18.1.2 the TSA is terminated.

 

19. INSURANCE

 

19.1 Each Party shall maintain:

 

  19.1.1 product liability insurance at a limit sufficient to cover its obligations and liabilities under this Agreement and such insurance coverage shall not be less than twenty one million dollars (US$21m) per annum in the case of TESLA and twelve million pounds (£12m) per annum in the case of LOTUS;

 

  19.1.2 insurance to cover run-off claims that may arise in relation to the Product in the event of either Party ceasing to trade as a business or TESLA ceasing to manufacture and sell the TESLA Vehicle such insurance to be maintained at the limits set out in clause 19.1.1;

 

  19.1.3 workers’ compensation and employer’s liability insurance in amounts sufficient to comply with each Party’s statutory obligations in the US and the UK;

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -53-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

  19.1.4 insurance at a limit that is appropriate to cover liabilities arising from negligence in the design and development of the Product, the Parts and the TESLA Vehicle.

 

19.2 Each Party shall, on the other’s request, provide the other with copies of the certificates of insurance in respect of the policies and wording of the policies referred to in clause 19.1 above together with proof of payment of the last applicable premium.

 

19.3 All coverages set out in clauses 19.1.1 and 19.1.2 must be maintained by TESLA from the time that the first unit of Product is Passed to Sales (the “First Pass to Sales Date”) and thereafter until the end of the period of ten (10) years after the date of sale of the last TESLA Vehicle to the end-user and in the case of LOTUS throughout the Term and for a period of ten (10) years from the date the final unit of Product is Passed to Sales.

 

19.4 In the event that LOTUS’ insurance premium for the product liability insurance described in clause 19.1.1 increases due to the Product being manufactured by LOTUS then the Parties shall discuss the increase and LOTUS shall recover the costs of that increase by raising the Transfer Price for each unit of Product and TESLA hereby agrees to accept such increase accordingly.

 

20. TERM AND TERMINATION

 

20.1 This Agreement shall come into force on the Effective Date and unless terminated earlier in accordance with the provisions of this Agreement shall continue for the Term.

 

20.2 Either Parry shall be entitled forthwith to terminate this Agreement by written notice to the other if:

 

  20.2.1 the other Party commits any material breach of this Agreement and, in the case of a breach which is capable of remedy, fails to remedy the same within thirty (30) calendar days after receipt of a written notice giving full particulars of the breach and requiring it to be remedied;

 

  20.2.2 any attachment, garnishee order or provisional disposition order is issued against a Party that prejudices the ability of that Party to perform any of its obligations under this Agreement;

 

  20.2.3 any action, application or proceeding is taken, filed or commenced in respect of a Party for:

 

  (a) bankruptcy, liquidation or in respect of that Party’s liability to pay its debts as they fall due, or for its winding up, dissolution or reorganisation (other than a solvent reorganisation);

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -54-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

  (b) the appointment of a liquidator, trustee, receiver, administrative receiver or similar officer or any similar action, application or proceeding in any jurisdiction to which it is subject;

 

  20.2.4 the other Party ceases, or threatens to cease, to carry on business (except in connection with a solvent reorganisation);

 

  20.2.5 one Party submits or has been found by the other Party to have submitted fictitious or fraudulent information that the other has relied on to its material detriment;

 

  20.2.6 if the other Party directly or indirectly, attacks, or takes steps to contest or contests (either on its own or with or through any other party) any of Intellectual Property Rights owned by it.

 

20.3 LOTUS shall be entitled to terminate this Agreement forthwith on written notice to TESLA in the event that TESLA is unable to provide LOTUS with written confirmation that it has complied with its obligations in clause 19.1.1 no later than thirty (30) days after the First Pass to Sales Date.

 

20.4 TESLA shall be entitled to terminate this Agreement forthwith on written notice to LOTUS in the event that LOTUS is unable to provide TESLA with written confirmation that it has complied with its obligations in clause 19.1.1 no later than thirty (30) days after the First Pass to Sales Date.

 

20.5 TESLA shall be entitled to terminate this Agreement pursuant to clause 31.

 

20.6 Clauses 9.14 to 9.17, 13, 14, 16, 17, 19, 20, 21, 22, 24 to 30 and 32 to 34 and any other clauses in this Agreement which expressly or impliedly have effect upon or after expiration or earlier termination shall continue to be enforceable notwithstanding expiration or earlier termination and (except as otherwise expressly provided herein) shall not prejudice any remedies available to either party to this Agreement.

 

20.7 Termination of this Agreement shall be without prejudice to any rights or remedies accruing to the Parties prior to termination.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -55-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

21. RIGHT TO PURCHASE AND USE INVENTORY IN THE EVENT OF INSOLVENCY

 

     In the event that LOTUS is subject to an Insolvency Event, (i) TESLA shall be entitled to purchase and collect at its cost such Inventory as TESLA at its sole discretion determines from LOTUS’ premises at Hethel on a mutually agreed date (which date shall be a Business Day that, unless TESLA otherwise agrees, is no later than seven (7) days after LOTUS’ receipt of TESLA’s notice of termination pursuant to clause 20.2), and (ii) LOTUS hereby grants to TESLA a non-transferable, non-exclusive, world-wide, royalty-free, irrevocable licence to Use the LOTUS Background and any Inventory Foreground for the assembly, marketing, distribution and sale of the Inventory as spare parts and accessories and otherwise in connection with the Provision of After Sales Services and authorises TESLA to use such Inventory for the Provision of After Sales Services. For the avoidance of doubt, TESLA shall not use and nor shall it permit others to use the LOTUS Background, the Inventory Foreground or the Inventory for or in relation to any other vehicles, components or products or for any other purpose whatsoever.

 

22. NON—HIRING OF PERSONNEL

 

     Each Party agrees that it will not on its own account, or in association with any person, firm, company or organisation or otherwise, and whether directly or indirectly during the Term of this Agreement and for a period of six (6) Months from the end of the Term solicit or entice away or attempt to solicit or entice away (or authorise the taking of any such action by any other person) any individual who is at the date of any such solicitation or enticement and was at 1 March 2005 an employee or contractor of the other unless the Parties agree otherwise.

 

23. AUDIT

 

     LOTUS shall have a right to audit TESLA’s manufacturing and shipping processes and TESLA shall have a right to audit the Product manufacturing process at LOTUS, in each case solely for and to the extent necessary to ensure compliance with the terms of this Agreement and not more. Each Party shall bear the costs of any audit that it instigates. Each Party shall give the other reasonable written notice of at least one (1) week prior to any audit and all audits shall be conducted during the other Party’s normal business hours in compliance with any reasonable site rules and procedures established by that Party and in such a way as to cause the minimum disruption to that Party.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -56-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

24. CONFIDENTIALITY

 

24.1 Neither of the Parties hereto shall disclose or make available to any third party without the consent of the other Party any Confidential Information whether written or oral and whether including any technical information relating to the Product, the Parts, the LOTUS Products or the TESLA Vehicle, which is obtained from or made available or accessible by the other Party or parties in connection with the transactions under this Agreement except any information which is:

 

  24.1.1 subject to an obligation to disclose under law or to any regulatory authority which is entitled to require disclosure by notice or otherwise;

 

  24.1.2 in the public domain other than as a result of a breach of this clause 24;

 

  24.1.3 already in the receiving party’s possession prior to disclosure other than as a result of a breach of this clause; or

 

  24.1.4 required to be transmitted by the Parties to their suppliers or service organisations provided that such third parties are bound by the same obligations of confidentiality as set out in this Agreement and provided further that each Party shall notify the other of any disclosures made pursuant to this clause.

 

24.2 The obligations under this clause 24 shall apply to all employees, officers, agents and sub-contractors of the Parties, and each of the Parties shall procure that these parties are bound by the same obligations of confidentiality.

 

24.3 TESLA acknowledges that all technical and engineering information and/or advice furnished to TESLA under this Agreement that constitutes or relates to LOTUS Background is LOTUS property. TESLA shall use such information and/or advice only for the purpose of this Agreement and at all times treat them as confidential.

 

24.4 LOTUS acknowledges that all technical and engineering information and/or advice furnished to LOTUS by TESLA under this Agreement that constitutes or relates to TESLA Background is TESLA property. LOTUS shall use such information and/or advice only for the purpose of this Agreement and at all times treat them as confidential.

 

24.5 For the purpose of this clause, if any Confidential Information (including technical information and/or advice) furnished to the receiving Party by the disclosing Party in tangible form is, in the reasonable opinion of the disclosing Party, no longer necessary to receiving Party’s performance as a result of expiration or earlier termination of this Agreement, the receiving Party shall, at the disclosing Party’s request, promptly return or dispose of the same and all reproductions thereof at receiving Party’s expense.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -57-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

24.6 The Parties acknowledge and agree that nothing in this clause 24 shall apply in respect of the use by:

 

  24.6.1 LOTUS of Manufacturing Foreground in accordance with clause 13.13;

 

  24.6.2 TESLA of Manufacturing Foreground in accordance with clause 13.11;

 

  24.6.3 TESLA of Bespoke Foreground in accordance with clause 13.11; and

 

  24.6.4 TESLA of Bespoke Background in accordance with clause 13.12.

 

24.7 The Parties agree that the provisions of this clause 24 shall not apply to any Confidential Information to the extent that the obligations of any Tripartite Non- Disclosure Agreement between Group Lotus PLC, TESLA and any potential supplier (substantially in the form of the pro-forma agreement agreed by Group Lotus PLC and TESLA applies to LOTUS and TESLA in relation to such Confidential Information.

 

25. DISPUTE RESOLUTION

 

25.1 Any dispute, controversy or difference which may arise between the Parties hereto, out of or in connection with this Agreement, any agreements or transactions hereunder, or for the breach thereof, will be settled as follows:

 

  25.1.1 in the first instance all disputes shall be referred to the CEO of TESLA or such other person as the CEO selects and the Managing Director of LOTUS Cars or such other person as the Managing Director of LOTUS Cars selects, who shall meet together and attempt to resolve the dispute between themselves (the “Mediation Committee”);

 

  25.1.2 if the Mediation Committee fails to resolve the matter within one (1) Month, or such other agreed period, then the Parties agree that the dispute shall be subject to mediation in accordance with the Centre for Dispute Resolution Model Mediation Procedure (“CEDR”) (the “Model Procedure”);

 

  25.1.3 in order to initiate a mediation under the Model Procedure a Party must give written notice to the other of the required mediation, such notice to be from one Chief Executive Officer or other senior Board Director (“CEO”) addressed to the other party’s CEO. A copy of the request should be sent to CEDR;

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -58-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

25.2 the mediation shall start no later than thirty (30) calendar days after the date of the notice;

 

25.3 the commencement of mediation will not prevent the parties commencing or continuing court proceedings;

 

25.4 the mediation will take place in London and the Mediation Agreement referred to in the model procedure shall be governed by and construed and take effect in accordance with English law. The courts of England shall have exclusive jurisdiction to settle any claim, dispute or matter of difference that may or may not arise in connection with the dispute.

 

26. ENTIRE AGREEMENT/VARIATION

 

     This Agreement and the documents referred to herein record the entire agreement and understanding between the Parties relating to the supply of Product. Nothing in this Agreement shall operate to limit or avoid the liability of either Party for fraudulent misrepresentations. No variation of the terms of this Agreement shall have legal effect unless evidenced in writing and signed by both Parties. Only a director of each Party shall have authority to effect such variations on behalf of such Party.

 

27. ASSIGNMENT

 

     None of the Parties hereto shall, without the prior written consent of the other, assign or transfer to any third party this Agreement or all or any part of its rights or obligations hereunder or of those under any agreements or transactions hereunder, and any assignment or transfer or purported assignment or transfer without such consent shall be null and void.

 

28. GENERAL WAIVER

 

     Any waiver or indulgence granted by either Party to the other in respect of a breach of any part of this Agreement shall not be deemed to be a waiver or indulgence in respect of any further or future breach of that part or any other part of this Agreement.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -59-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

29. SEVERABILITY

 

     The clauses of this Agreement shall be severable and the illegality, invalidity or unenforceability of any clause shall not affect the operation of any other part of this Agreement.

 

30. NOTICES

 

30.1 Any notices, order forms or consents which may be required to be served under this Agreement shall be in writing and shall be sent by facsimile machine and/or pre-paid registered mail and/or by hand delivery and/or electronic mail to the Party for whom it is intended at the address (or number, in the case of a facsimile transmission) set out in clause 30.1.1 or to any other address which that Party shall have notified in writing as being an address for service. Any notice or consent so sent by facsimile machine or electronic mail shall be deemed to be served on the first following Business Day; any notice or consent sent by pre-paid registered mail shall be deemed to be served seven Business Days after dispatch and any notice or consent given by hand shall be deemed served upon presentation to the recipient Party. In the case of delivery by hand, facsimile transmission or electronic mail, where delivery or transmission occurs after 6.00 pm at the place of delivery or transmission, receipt shall be deemed to occur at 9.00 am on the first following Business Day at the place of receipt. All notices or consents sent by electronic mail or facsimile machine shall be confirmed by the dispatch of a copy sent by pre-paid registered mail. No notice sent by electronic mail or facsimile machine shall be deemed to have been served if the sending Party receives or is provided with any automated notification that such notice has not been received by the other Party.

 

  30.1.1 For the purposes of this clause the authorised address of each Party shall be the address set out below (including the details of the facsimile number and person whose attention a notice or communication is to be addressed) or such other address as that Party may notify to the other in writing from time to time in accordance with the requirements of this clause:

 

LOTUS:   
Address:   

Potash Lane, Hethel

Norwich, Norfolk

NR14 8EZ

Facsimile No:    +44 1953 608 104
Attention:    The Company Secretary

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -60-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

TESLA:   
Address:   

1050 Commercial Street

San Carlos, CA 94070

Facsimile No:    +1 650 413 4099
Attention:    Vice President of Manufacturing

 

31. CRITICAL SUPPLY FAILURES

 

     Notwithstanding any other provision of this Agreement, if LOTUS fails to supply to TESLA [***]% or more of the Order-Accepted Products by their original (unrevised) Planned Pass to Sales date over any ninety (90) calendar day period (and such failure is not caused by Deficiencies) (a “Critical Supply Failure”), the following provisions shall apply. TESLA shall be entitled to notify LOTUS that a Critical Supply Failure has occurred (a “Critical Supply Failure Notice”). Effective upon receipt by LOTUS of such Notice: (i) TESLA shall be entitled to terminate this Agreement forthwith on written notice to LOTUS and purchase and collect at its cost such Inventory from LOTUS’ premises at Hethel on a mutually agreed date (which date shall be a Business Day that, unless TESLA otherwise agrees, is no later than seven (7) days after LOTUS’ receipt of the Critical Supply Failure Notice), and (ii) LOTUS hereby grants to TESLA a non-transferable, non-exclusive, world-wide, royalty-free, irrevocable licence to Use the LOTUS Inventory Foreground in connection with the assembly, marketing, distribution and sale of the Inventory as spare parts and accessories and otherwise in connection with the Provision of After Sales Services and authorises TESLA to use such Inventory for the Provision of After Sales Services. For the avoidance of doubt, TESLA shall not use and nor shall it permit others to use the LOTUS Background, the Inventory Foreground or the Inventory for or in relation to any other vehicles, components or products or for any other purpose whatsoever.

 

32. GOVERNING LAW

 

     This Agreement and any documents to be entered into pursuant to it (including its formal validity) shall be governed and construed in accordance with English law. The Parties hereby irrevocably submit to the exclusive jurisdiction of the English courts.

 

33. SERVICE OF PROCESS

 

    

TESLA hereby irrevocably appoints Varney Barfield & Co., Ltd of 17 The Square, Kenilworth, Warwickshire as its agent to receive, for it and on its behalf, service of process in any proceedings in England in connection herewith. Such service shall

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -61-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

 

be deemed completed on delivery to such process agent (whether or not it is forwarded to and received by TESLA). LOTUS shall also send a copy of any claim at the same time by registered mail to TESLA at its address for notices. If for any reason such process agent ceases to be able to act as such or no longer has an address in England, TESLA irrevocably agrees to appoint a substitute process agent acceptable to LOTUS (such acceptance not to be unreasonably withheld or delayed), and shall promptly notify LOTUS of such appointment. Nothing shall affect the right to serve process in any other manner permitted by law.

 

34. THIRD PARTY RIGHTS

 

     No person other than a Party to this Agreement shall have any right by virtue of the Contracts (Rights of Third Parties) Act 1999 to enforce any term (express or implied) of this Agreement, but this is without prejudice to any right or remedy of the third party which may exist or be available apart from that Act.

IN WITNESS WHEREOF the Parties have caused the Agreement to be executed in two parts by their duly authorised representatives.

 

Signed by    )    /s/ Clive Dopson
duly authorised for and on    )   
behalf of  LOTUS CARS LIMITED    )    7/7/05
in the presence of    )   
Signed by    )   
duly authorised for and on    )    /s/ Simon Wood
behalf of LOTUS CARS LIMITED    )   
in the presence of    )   
Signed by    )   
duly authorised for and on    )    /s/ Thomas E. Colson
behalf of TESLA MOTORS INC.    )   
in the presence of    )   
Signed by    )   
duly authorised for and on    )    /s/ Martin F. Eberhard
behalf of TESLA MOTORS INC.    )   
in the presence of    )   

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -62-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

Appendix 1

Outline Product Specification

 

1. The parties intend that the TESLA Vehicle will be a two seater, two door, electric, rear wheel drive convertible sports car.

 

2. The Product will be derived from the federal market LOTUS Elise platform.

 

3. The TESLA Vehicle will comprise the Product and any other parts that may be added by TESLA.

 

4. The intended styling theme of the TESLA Vehicle is illustrated below: Gateway Deliverables

[Photo of Tesla Roadster]

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

Appendix 2

Gateway Deliverables

The Gateway Deliverables are the deliverables set out in the “Deliverables RASIC” sheet as further defined in the “All Deliverables Printout” sheet, each of which are contained in the [***].

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

Appendix 3

Criteria

The TESLA Vehicle shall comply with the following standards at Validation Prototype standard.

 

      

Test Standard

  

Criteria

[***]    [***]    [***]
[***]    [***]    [***]
[***]    [***]    [***]
[***]    [***]    [***]
[***]    [***]    [***]
[***]    [***]    [***]

The above list assumes that the TESLA Vehicle will comply with all applicable legal and regulatory requirements in the Territory. It also assumes that the operational environment within which the TESLA vehicle is required to function lies within that specified for the Federal Elise ( -20 degrees C to +40 degrees C ). The subjective evaluations are to be made by appropriate LOTUS personnel acting reasonably, with TESLA personnel fully able to observe and monitor such evaluations, and consult with LOTUS in respect of them. The evaluations shall take place at times reasonably convenient for both Parties.

The Vehicle Evaluation Rating (“VER”) scale is shown overleaf. Definitions for Level 1 and 2 Concerns are set out in the LOTUS PPDM Concerns Process document (reference B4-A-3293) attached.

It should be noted that the performance of various systems such as the SRS Airbags may also need to be approved by the system suppliers.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

Vehicle Evaluation Rating Score System

 

[***]

 

[***]

 

[***]

    [***]   [***]   [***]   [***]   [***]   [***]   [***]   [***]   [***]   [***]
[***]                  
    [***]   [***]   [***]   [***]   [***]   [***]   [***]   [***]   [***]   [***]
[***]                  
    [***]   [***]   [***]   [***]   [***]   [***]   [***]   [***]   [***]   [***]

[***]

                 

[***]

  [***]   [***]   [***]   [***]

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

PPDM CONCERN SEVERITY RATINGS

B4-A-3293

 

    

Level

  

Issue Definition

 

Scope:

 

Lotus Engineering

 

Responsibility:

 

Head of Quality

 

Related Documents:

 

B3-A-3.29

PPDM

Concern

Process

 

B4-A-329 I

How to Raise

a PPDM

Concern

 

B4-A-3292

PPDM

Concern Form

  

 

1

  

 

CRITICAL

     

Walk home (disabled vehicle).

Complete loss of function.

Customer or Dealer dissatisfaction (extreme inconvenience, high expense, unable to repair).

No build (cannot assemble, take off-line, cannot rework).

Safety or Regulatory Item.

Will not meet legislation.

Will not meet performance specifications.

Will not meet Project Timing.

Corrective and Preventive actions not identified.

  

 

2

  

 

MAJOR

     

Customer or Dealer dissatisfaction (great inconvenience, immediate return to dealer, high repair or service expense).

Changes to specification.

Rework of parts.

Unplanned activities.

Excessive build problems (manpower, difficulty ergonomics, etc.).

Not likely to meet performance specifications.

Not likely to meet Project Timing.

Corrective and Preventive actions not identified.

  

 

3

  

 

MODERATE (less severe terms of level 2)

     

Customer dissatisfaction (for on next trip to dealer).

Dealer dissatisfaction (difficult service).

Clarification of specification.

Difficult build (fastener problems, improvements to assembly procedures, extra operators, plant layout).

May not meet performance specifications.

May not meet Project Timing.

Documentation Errors (tolerances too tight, process sheets incorrect).

Corrective and Preventive actions identified.

  

 

4

  

 

MINOR – Continuous Improvement

     

Customer annoyance (possible warranty repair).

Possible improvements to any area (design, assembly, cosmetic, documentation, cost reduction, part deproliferation, additional tooling for quality improvement etc.)

No effect on Project Timing or performance specifications.

Corrective and Preventive actions identified.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  Uncontrolled if Printed   Page 1 of 1


Confidential Treatment Requested by Tesla Motors, Inc.

 

Appendix 4

Initial Production Ramp Schedule

 

     3 Month fixed ramp up period

Week No.

   1    2    3    4    5    6    7    8    9    10    11    12

Launch

   1    1    2    2    3    3    4    4    5    6    6    8

PTS

         1    1    2    2    3    3    4    4    5    6

Notes:

“Launch” means Start of Production.

Assumptions:

Weeks represent LOTUS normal manufacturing weeks as set out in the Manufacturing Calendar in Appendix 8.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

Appendix 5

Indicative list of Parts

The Indicative List of Parts is set out in the [***].

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

Appendix 6

Warranty Claims and Conditions

The Warranty

 

1. LOTUS will reimburse TESLA only in respect of costs of In Field Defects in excess of the Warranty Ceiling and in accordance with the Warranty Claims process set out below.

 

2. At the end of the Warranty Period for each Model Year, the Parties shall calculate the average Warranty Claim per unit of Product for that Model Year (the “Average Claim per Unit”).

 

The Average Claim per Unit =   

the Total Approved Warranty Costs for All

units of Product in the Model Year

  
  

the total number of units of Product in the

Model Year that were Passed to Sales

  

The “Total Approved Warranty Costs for All Units of Product in the Model Year” means all costs in respect of In Field Defects in respect of each Model Year that TESLA is permitted to claim for in accordance with paragraph 4 below and that TESLA actually claims for.

If the Average Claim per Unit is equal to or below the Warranty Ceiling, LOTUS shall have no obligation to pay TESLA any Warranty payment in respect of the units of Product in the relevant Model Year.

If the Average Claim per Unit is greater than the Warranty Ceiling, subject to paragraph 9 below, LOTUS shall pay TESLA within thirty (30) days an amount equal to the total number of units of Product in the Model Year that were Passed to Sales multiplied by the difference between the Average Claim per Unit and the Warranty Ceiling.

 

3. For the purposes of this Agreement, the Parties agree as follows:

 

  a)

“Model Year” means the model year designation that will be allocated to each unit of Product by reference to the Vehicle Identification Number (“VIN”) assigned to the unit of Product. The allocation of any particular Model Year to the TESLA Vehicles shall be determined by reference to any Changes made to the TESLA Vehicles and

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

 

the extent to which, taken individually or together, they represent a model update (the intention being that the Model Year will change with each model update). Nothing in this definition shall be taken to indicate that the period of time between changes in Model Years (the “Model Year Duration”) will be either equal to, or less or more than, a calendar year; and

 

  b) units of Product allocated to any Model Year with a Model Year Duration of less than six (6) Months shall be treated as being included in the following Model Year.

 

4. TESLA shall be entitled to claim only for the following costs in respect of In Field Defects:

 

  a) Warranty Labour Costs;

 

  b) costs of replacement Parts and associated service level parts affected by such In Field Defect; and

 

  c) transportation costs of the units of the Parts (including units and Parts repaired or replaced under (b) above affected by such In Field Defects from LOTUS and/or a third party supplier to TESLA.

 

5. The Parties shall discuss and agree in good faith the implications of changes in the unit costs of Category 3 Parts and/or Category 2 Parts and associated labour rates and it is intended that any change will change the Warranty Ceiling by a corresponding percentage. Neither TESLA nor LOTUS shall unreasonably withhold their consent to such a change.

Exclusions

 

6. LOTUS shall not be obliged under this Warranty to reimburse TESLA in respect of costs relating to:

 

  a) Category 3 Parts and Category 2 Parts which have been subject to any misuse, track use, negligence or accident or modification by customers;

 

  b) Category 3 Parts and Category 2 Parts which have been subject to any repair or alteration (including without limitation, Parts subject to or affected by a TESLA Modification) which adversely affects the Product’s or Part’s performance and/or reliability;

 

  c) Category 3 Parts and Category 2 Parts that are replaced as a service item (le not under a Warranty Claim) and replaced in accordance with routine replacement or maintenance;

 

  d) deterioration of Category 3 Parts and Category 2 Parts due to normal customer wear and tear and/or exposure and/or inappropriate storage;

 

  e) hire cars;

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -2-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

  f) goodwill and incentives;

 

  g) polishing and preparation work;

 

  h) the representations made to customers by TESLA (including third parties acting on TESLA’s behalf) connected with the sale of the TESLA Vehicle;

 

  i) all TESLA Vehicle buy backs.

 

  j) administration by TESLA in relation to this Warranty;

 

  k) any Defect in a Category 1 Part or any Defect caused by a Category 1 Part; I)

 

  l) roadside assistance costs;

 

  m) any warranty costs below the Warranty Ceiling;

 

  n) any costs relating to non acceptable claims to be agreed by both Parties.

 

7. In respect of the aluminium chassis frame, LOTUS’ obligations to make any payment under this Warranty for In Field Defects shall not apply to any chassis (or part of a chassis) where corrosion results from damage to the protective surface caused by extraneous factors including, without limitation, accident damage, atmospheric pollution or the application of corrosive materials or where corrosion results from heating, welding or bending of the chassis in contravention of LOTUS’ approved practices.

Claims Process

 

9. TESLA shall make Warranty Claims by submitting an invoice (together setting out the relevant calculations) for such Claims at the end of the Warranty Period for each Model Year.

 

10. TESLA shall make their Warranty Claim source data available to LOTUS for review when requested by LOTUS and shall provide their Warranty Claim calculations and reports when requested by LOTUS. This data shall include, without limitation, Category 3 Part number, Category 2 Part number, Pass to Sale date, dealer claim date, VIN number, mileage, months after retail sale date, Category 3 Part description, fault description, cost as set out in paragraph 4, labour cost and labour time.

 

11. TESLA shall make available to LOTUS copies of TESLA warranty policies and procedures, and advise of any updates.

 

12. TESLA shall calculate the total Warranty Claim for each Model Year separately (as defined with paragraph 3).

 

13. LOTUS shall co-operate with TESLA by providing technical information and/or advice as appropriate in connection with any efforts on TESLA’s part to demonstrate that any In Field Defect in any Part, any unit of Product or in its or their assembly was caused by the fault or negligence of LOTUS or LOTUS’ suppliers.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -3-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

14. TESLA shall use its reasonable endeavours to mitigate costs for which LOTUS is responsible under this Warranty.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -4-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

Appendix 7

Forecasting and Ordering Rules

LOTUS and TESLA shall undertake the forecasting of Volume Requirements and ordering for units of Product according to the provisions of this Agreement and the rules described below.

1. Ordering

TESLA and LOTUS shall nominate individuals to communicate regarding purchasing and supply of the Product and Parts and such individuals shall maintain regular contact.

Subject to clauses 9 and 10, TESLA shall provide LOTUS with forecasts for the numbers of units of Product that it requires and the Long Lead Time Configuration Options for such units by the 5th Business Day of each Month. Provided that TESLA’s order for any Month complies with the provisions of clause 9.1 and matches the forecast made for that Month by TESLA during the prior Month (the “Relevant Forecast”), TESLA’s order shall be binding on both Parties (a “Binding Product Order”).

Subject to clauses 9 and 10, TESLA shall provide LOTUS with, and place orders for units of Product as follows:

In the event that TESLA’s order for any Month does not match the Relevant Forecast, LOTUS shall notify TESLA in writing within seven (7) Business Days of the date on which LOTUS received TESLA’s order and the parties shall liaise in good faith to resolve any discrepancy and agree TESLA’s order for the relevant Month and such agreement once confirmed in writing shall constitute a Binding Product Order. If, following such notification, the Parties are unable to resolve any discrepancy and agree TESLA’s order for the relevant Month within a further three (3) Business Days, then LOTUS shall at its discretion be entitled to deem TESLA to have ordered such units of Product for that Month as were specified either in the Relevant Forecast or, in the event that TESLA fails to provide such a Relevant Forecast, as were actually ordered by TESLA in the prior Month and once confirmed to TESLA in writing, such deemed order shall constitute a Binding Product Order.

If LOTUS does not notify TESLA of any discrepancy at the latest within seven (7) Business Days of the date on which TESLA made its order, such order shall be automatically deemed accepted at the end of such period and shall constitute a Binding Product Order.

By the 10th Business Day of each Month, LOTUS shall notify TESLA of any additional information that LOTUS considers may be relevant to TESLA’s forecasting of Volume Requirements decisions for future Months (including, without limitation, commercial factors

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

that may influence TESLA’s decision to order different versions or options, Inventory status and run-out, timings and supply factors in relation to Changes and model updates, and other special timing requests) and LOTUS and TESLA shall consult with each other in relation to such notified information and its potential affect on TESLA’s forecasting decisions.

TESLA shall notify LOTUS of all relevant Short Lead Time Configuration Options In respect of units of Product ordered for any Month at least six (6) weeks prior to the date for commencement of production of such units, as provided for in the LOTUS Build Schedule.

Subject to the provisions of this Appendix 7 and clause 9 of the Agreement, LOTUS shall configure such units of Product and deliver them to TESLA in accordance with the Short Lead Time Configuration Options and the Long Lead Time Configurations Options. LOTUS holidays and shutdowns

2. LOTUS holidays and shutdowns

Without prejudice to LOTUS’ obligations under this Agreement, LOTUS shall provide TESLA with as much prior notice as is commercially practicable of all expected, planned or known dates of factory shutdowns (or other interruptions or disruptions to the manufacturing and production process or schedule) and UK public holidays during the Term.

3. Scheduling process for Engineering/Validation Prototypes

TESLA shall notify LOTUS in writing of the number of Evaluation and/or Validation Prototypes and a representative list of the Category 3 Parts required for such Prototypes at least three (3) Months prior to the scheduled start of assembly of such Prototypes.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -2-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

Appendix 8

Manufacturing Calendar 2005

LOGO

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

Appendix 9

Example Product Change Request Form

[Screenshot of Online Form]

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

Appendix 10

Technical Services and Facilities Fees

 

LABOUR CATEGORY

  

CHARGE PER HOUR/ £

Chief Engineer

  

[***]

Senior Engineer

  

[***]

Engineer

  

[***]

Technician

  

[***]

CATEGORY

  

HANDLING CHARGE

Expenses

   +[***]%

Materials (less than or equal to £10,000 per single item)

   +[***]%

Materials (greater than £10,000 per single item)

   +[***]%

FACILITY CATEGORY

  

CHARGE PER HOUR/ £

Catia

  

[***]

CAE Structural

  

[***]

Other facilities

   By arrangement

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

Appendix 11

Approval Request for Bespoke Work Request for Technical Services for Bespoke Work.

 

To: [Engineering Director]

LOTUS

Scope of Bespoke Work: [Detailed description of the work requested].

 

Bespoke Work to be undertaken by:
Approved and signed by TESLA:
Signed  

 

  [Vice President Engineering]
Date  

 

Approved and signed by LOTUS:
Signed  

 

  [Engineering Director]
Date  

 

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

Exhibit 10.23A

Confidential Treatment Requested by Tesla Motors, Inc.

 

[Lotus Logo]   [Tesla Logo]

THIS AGREEMENT is dated the 4th day of August 2009

BETWEEN:

(1) LOTUS CARS LIMITED a company incorporated in England and Wales (registered number 895081) having its registered office at Potash Lane, Hethel, Norwich, Norfolk, NR14 8EZ, UK (“LOTUS”); and

(2) TESLA MOTORS, INC. a company incorporated in the State of Delaware having its registered office at 1050 Bing Street, San Carlos, CA 94070, USA (“TESLA”) each individually referred to as a Party or together as the Parties.

WHEREAS:

The Parties entered into an Agreement entitled Supply Agreement for Products and Services Based on Lotus Elise Technology dated 11 July 2005 (“the Manufacturing Services Agreement” or the “MSA”) and now wish to revise a number of the provisions of the MSA as set out in this Agreement (Amendment Number 1”).

IT IS AGREED AS FOLLOWS:

 

1. The various additions, variations and changes to the clauses referred to below and highlighted for ease of reference in bold italics shall come into force on the Effective Date of this Agreement provided that all outstanding invoices payable by TESLA to LOTUS which are outside terms have been discharged.

 

2. Definitions

 

2.1 There shall be included in the MSA the following new definitions:

 

“BOM”

   means Bill of Materials;

“LOTUS Site”

   Means the LOTUS premises at Potash Lane, Hethel, Norwich, Norfolk, NR14 8RZ;

“NAFTA”

   means the North American Free Trade Agreement including the countries of the United States of America, Canada and Mexico;

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

“Stable Production”

   means the receipt of PPAP (Production Part Approval Process) approved material on time for use by personnel trained In the execution of relevant assignments in accordance with the relevant LOTUS’ processes with all necessary equipment in place and fully functional and where the resulting Product meets the agreed quality standards on a right first time basis within the parameters of current LOTUS Elise production.

 

2.2 The following definition in the MSA shall be amended:

“Territory” means worldwide ;

 

2.3 The following definitions in the MSA shall be deleted:

Annual Volumes

Warranty Ceiling

Warranty Labour Costs

 

3. Territory

Clause 3.15 shall be amended as follows:

“3.15 TESLA may sell or distribute the TESLA Vehicle in the Territory.”

 

4. Quality of Product

The following words shall be inserted at the end of clause 11.4

In the event of any Manufacturing Discrepancy being discovered during the TESLA manufacturing process, TESLA shall promptly notify LOTUS in writing of the existence of such Manufacturing Discrepancy and the Manufacturing Discrepancy shall be resolved in accordance with the agreed process set out in Appendix 12 attached hereto .

 

5. Conditions Precedent

Clause 6.1.3 (vii) shall be amended as follows:

(vii) terms and conditions for the purchase and supply of all Parts including, for the avoidance of doubt, an agreement for the purchase by LOTUS and supply by TESLA of all Category 1 Parts (the “ TESLA Parts Supply Agreement ”). The TESLA Parts Supply Agreement shall include provisions requiring LOTUS inter alia to exercise the same level of care that it uses in the planning, acceptance, storage, release and fitting of parts that LOTUS uses for and in LOTUS Products. Notwithstanding the generality of the foregoing LOTUS shall consider any claims made by TESLA for loss or damage to Category 1 Parts for the Product if its is proven that such loss or damage occurred as a result of LOTUS negligence whilst the Category 1 Parts were on LOTUS Site and under LOTUS direct control .

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -2-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

For the avoidance of doubt LOTUS shall not be liable for any loss suffered as a result of the actions of TESLA employees or any requests for the rework of Parts or components, unless:

 

  (a) LOTUS has received a written and audited statement of the value of Category 1 Parts which TESLA requests LOTUS to manage on TESLA’s behalf and LOTUS has agreed the value; and

 

  (b) TESLA adopts and adheres to LOTUS’ business practices; and

 

  (c) TESLA has undertaken at its own cost a stock take of all Category 1 Parts on LOTUS Site; and

 

  (d) Model year 10 and European programmes have been introduced and Stable Production has been achieved.

Unless TESLA achieves all of the above requirements by 1 September 2009 and/or TESLA fails to follow LOTUS’ business practices and/or fails to achieve Stable Production LOTUS shall be entitled at its sole discretion to disclaim responsibility for all Category 1 Parts.

 

6. Payment and Transfer Price

Clause 7.2 shall be revised as follows:

 

  “7.2 The Transfer Price shall comprise the following elements:

 

  7.2.1 Overhead Costs;

 

  7.2.2 labour for manufacture of the Product,

 

  7.2.3 cost of Parts;

 

  7.2.4 profit and licence fee for LOTUS Background totaling £[***] (the “Unit Profit”);

 

  7.2.5 Inbound logistics;

 

  7.2.6 indirect costs;

 

  7.2.7 in the case of units of Product to be sold, distributed and/or delivered outside the NAFTA countries, TESLA shall pay to LOTUS an additional £[***] per unit of Product;

 

  7.2.8 the credit from LOTUS to TESLA for the ‘Warranty Reserve” as described in clause 14.3, Warranty Reserve to be [***] % for model year 08 and [***] % for model year 10 and beyond of the Transfer Price for each unit of Product, before applying the Warranty Reserve. If the Lotus content of each unit of Product changes by more than £[***] the parties shall mutually agree any changes to the Warranty Reserve percentage.

and the Parties further agree that if the total market value cost of Parts released pursuant to clause 15.8 for use in the Product (“ Cost of Released Parts ”) materially exceeds the

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -3-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

total market value cost for the Parts included in the Indicative List of Parts referred to in Appendix 5 (“ Cost of Indicative Parts ”), the Parties will liaise in good faith with a view to agreeing a revised Unit Profit amount which, as a proportion of the Cost of Released Parts, is substantially in line with the proportion that the Unit Profit figure set out in clause 7.2.4 was of the Cost of Indicative Parts; and

the Parties further agree that the full BOM variance of Category 2 Parts and Category 3 Parts shall be passed on to TESLA every two months, the first two monthly period to commence on signature hereof provided that TESLA agrees to LOTUS either fitting any Category 2 Parts and any Category 3 Parts which are not modified until such stock of unmodified Category 2 Parts and Category 3 Parts is fully consumed or TESLA agrees to pay to LOTUS the cost of any Category 2 Parts and Category 3 Parts rendered obsolete as a result

Clause 7.6 shall be deleted in its entirety and replaced with the following clauses:

 

  “7.6 The Overhead Cost shall be fixed in the sum of £[***] per unit of Product for the balance of the 1700 units of Product remaining at the date hereof. For the avoidance of doubt TESLA will pay in addition the sum of £[***] in respect of any units of Product sold outside NAFTA countries as set out in clause 7.2.7 above.

 

  7.6.A The Parties agree to review and update the costs of labour for manufacture of the Product and/or inbound logistics costs every six months.”

 

7. Minimum Term Volume

Clause 9.1.5 shall be amended as follows:

“9.1.5 TESLA shall order not less than 1700 units of Product In the first three years of supply to commence on the Start of Production and finish within thirty-six months thereafter:

Clause 9.1.6 shall be deleted.

 

8. Deficiencies in Parts

Clause 9.6 shall be amended as follows:

Clause 9.6. (a) shall read as follows:

“9.6.(a) a period of less than thirty (30) calendar days, TESLA shall have no compensation obligation to LOTUS under clause 9.5 above, but shall reimburse any additional labour costs as set out in this clause 9.6 above.”

Clause 9.6 (b) shall be deleted.

 

9. Technical Services Fees

“Appendix 10 shall be amended as follows with effect from 1 September 2009.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -4-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

Chief Engineer

   £ [***]

Senior Engineer

   £ [***]

Engineer

   £ [***]

Technician

   £ [***]

LOTUS Engineering is prepared to quote for standalone Technical Services on a work package basis provided that the value of each work package exceeds £[***].”

 

10. Warranty

 

10.1 Clause 14.1 shall be deleted.

 

10.2 Clause 14.3 shall be deleted.

 

10.3 Clause 14.4 shall be amended as follows:

“Notwithstanding any other provision in this Agreement, TESLA will assume all responsibility for warranty repair of Products delivered to and accepted by TESLA. TESLA agrees that in consideration of LOTUS reserving to TESLA the amount of [***] % for model year 08 and [***] % for model year 10 and beyond of the Transfer Price for each unit of Product, before applying the Warranty Reserve. If the Lotus content of each unit of Product changes by more than £[***] the parties shall mutually agree any changes to the Warranty Reserve percentages. TESLA shall not submit nor seek reimbursement of TESLA’s Warranty Claims. TESLA may offset such Warranty Reserve payable by LOTUS against amounts payable by TESLA to LOTUS but excluding any invoices which are outside terms and shall be coincident with invoicing by LOTUS and payment by TESLA.”

For the avoidance of doubt this will close the Condition Precedent in clause 6.1.3 (xii).

 

10.4 Clause 14.7 shall be deleted.

 

10.5 Clause 14.8 shall be added as follows:

“TESLA shall make their Warranty Claim source data available to LOTUS for review when requested by LOTUS and shall provide their Warranty Claim calculations and reports when requested by LOTUS. This data shall Include without limitation, Category 3 Part number, Category 2 Part number, Pass to Sale date, dealer claim date, VIN number, mileage, months after retail sale date and fault description.”

 

10.6 Appendix 6 shall be deleted in its entirety.

 

11. Recalls and Reworks

 

12.1 Clause 16.4 shall be amended as follows:

“If the Parties agree after consultation with each other (such agreement not to be unreasonably withheld or delayed), that a Product Recall is caused by an In Field Defect, then LOTUS shall co-operate with TESLA by providing technical information and/or advice as appropriate and shall pay TESLA’s reasonable costs

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -5-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

directly associated with such Product Recall as set out in clause 16.5. To the extent that LOTUS can reasonably demonstrate that any Product Recall was partially caused by the fault of negligence of TESLA, LOTUS’ liability to pay TESLA’s reasonable costs under this clause shall be adjusted proportionately to reflect its respective responsibility for such Product Recall. TESLA shall co-operate with LOTUS by providing technical information and/or advice as appropriate in connection with any efforts on LOTUS’ part to demonstrate that such Product Recall was caused by the fault or negligence of TESLA.

All other terms in the MSA shall remain in full force and effect and in the event of any conflict between the terms of the MSA and this Amendment Number 1, this Amendment Number 1 will prevail.

In WITNESS WHEREOF the Parties have caused this Amendment Number 1 to be executed in any number of, counterparts each of which shall be considered an original by their duly authorised representatives.

 

Signed by Luke Bennett   )   
Duly authorised for and on   )    /s/Luke Bennett
Behalf of LOTUS CARS LIMITED   )   
In the presence of Sarah Price   )   
Signed by Roger Becker   )   
Duly authorised for and on   )    /s/Roger Becker
Behalf of LOTUS CARS LIMITED   )   
In the presence of Sarah Price   )   
Signed by Mike Donoughe   )   
Duly authorised for and on   )    /s/ Mike Donoughe
Behalf of TESLA MOTORS, INC.   )   
In the presence of Evelyn Chiang   )   
Signed by Craig Harding   )   
Duly authorised for and on   )    /s/ Craig W. Harding
Behalf of TESLA MOTORS, INC.   )   
In the presence of Evelyn Chiang   )   

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -6-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

APPENDIX 12

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -7-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

LOGO

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -8-   

Exhibit 10.24

Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

SUPPLY AGREEMENT

TESLA MOTORS, INC.

[Tesla Logo]

and

[***]

[***]

First DAY OF September, 2006

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 1 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

THIS SUPPLY AGREEMENT Is entered into as of this first day of September, 2006 (the “ Effective Date ”) between

 

  (a) Tesla Motors, Inc., a Delaware corporation, with its principal place of business in San Carlos, California, U.S.A. and its subsidiaries in world wide locations, including Hethel, Norwich, Norfolk in the United Kingdom; and

 

  (b) [***], with its principal place of business in [***].

The Parties agree as follows:

1. Definitions .

Unless defined additionally elsewhere in this Agreement, the following capitalized terms shall have the meanings specified below:

(a) “ Agreement ” means (i) this Supply Agreement, (ii) all Attachments, and (iii) all Orders, as each may be amended from time to lime.

(b) “ Attachment ” means any document that is referenced in this Supply Agreement and attached hereto. All Attachments are deemed to be incorporated into this Agreement by this reference.

(c) “ Order ” means an order for Items communicated pursuant to this Agreement by Tesla to Supplier via a purchase order whether in hardcopy or electronic form. All Orders are deemed to be incorporated Into this Agreement by this reference.

(d) “ internal Tesla Data ” means planning data, product engineering or manufacturing data, information, forecasts, Specifications or Confidential Information that is stored, displayed, maintained or accessed on the Tesla Web Site or other Tesla internal databases or internal network servers or storages.

(e) “ Items ” means, collectively either singular or plural, components, equipment, materials, subassemblies or other goods and related software and services specified in (i)  Attachment 1 , (ii) an Order: or (iii) a purchase order placed by Tesla with Supplier prior to the Effective Date and undelivered as of such date.

(f) “ Parties ” means Tesla and Supplier.

(g) “ Specifications ” means such drawings, designs, instructions, technical or performance requirements or other technical or commercial information relating to the design, development, manufacture, packaging and labeling, delivery, logistics, installation, assembly, testing and/or use of one or more Items.

(h) “ Sub-tier Supplier ” means a member of Supplier’s direct or indirect sub-tier supply base (including, without limitation, subcontractors and vendors of Supplier, and of Supplier’s subcontractors and vendors) that provides goods and/or services in connection with Items.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 2 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

(i) “ Supplier ” means [***] and those of its subsidiaries and affiliates authorized in writing by Tesla to perform under this Agreement.

(j) “ Tesla ” means Tesla Motors, Inc., including its subsidiaries existing on or after the Effective Date.

(k) “ Tesla Web Site ” means the portion of the password-protected Web Site, including the database related to supply chain management, maintained by Tesla, to which Supplier may be given access for the purpose of performing under this Agreement.

2. Scope of Agreement; Term .

(a) Scope of Agreement . This Agreement sets forth the terms and conditions governing the purchase and sale of items, the relationship between Tesla and Supplier, and compliance with Tesla’s business processes. Tesla’s current business processes and requirements for certain matters covered by this Agreement, including packaging, delivery, shipment, crating and repair of Items, are set forth In the Attachments. Tesla Motors, Inc. and its subsidiaries shall be entitled to purchase Items from Supplier under this Agreement, and shall have all of the rights of “Tesla” under this Agreement. As to any purchase of Items under this Agreement by Tesla Motors, Inc., all obligations under this Agreement are the sole obligations of Tesla Motors, Inc. As to any purchase of Items under this Agreement by a subsidiary of Tesla, all obligations under this Agreement are the sole obligations of such subsidiary. Nothing in this Agreement shall prevent Tesla from engaging third parties other than the Supplier to provide goods or services the same as, or similar to the Items.

(b) Term . This Agreement shall commence on the Effective Date and, unless terminated as set forth in Section 21 (Termination), shall continue in effect for at least thirty-six (36) months. After thirty-six (36) months, this Agreement shall continue unless either party provides six (6) months prior written notice to the other party of such party’s desire to allow this Agreement to expire. The effective period of this Agreement is referenced as the “ Term .”

(c) Updating Business Processes . Tesla regularly improves its business processes. In that regard, Tesla shall have the right to amend any Attachment, other than Attachment 1, by giving notice thereof to Supplier iii writing, or by other electronic means. All modifications to Attachment I shall be upon the mutual written agreement of the Parties,

3. Orders .

(a) Orders . All authorized demand signals for Items from Tesla to Supplier shall be in the form of “ Orders ”. An Order shall (i) identify the Items requested and (ii) state the quantity, date, time and place of delivery, and price of the Items requested (unless previously specified in Attachment 1, which shall control), Supplier shall accept communications of Orders in the format reasonably designated by Tesla.

(b) Acceptance/Rejection of Orders . Supplier shall promptly communicate its acceptance or rejection of an Order. Supplier shall not, however, reject (and shall be deemed to have accepted) an Order for Items set forth on Attachment I so long as the Order conforms to the terms and conditions of this Agreement (including without limitation lead time requirements specified for such

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 3 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

Items on Attachment 1, if any). Any notice of rejection shall state the specific grounds for such rejection. In all events, any objection by Supplier to the terms of an Order shall be deemed waived upon Supplier’s delivery of Items.

(c) Order Adjustments . Supplier acknowledges that Tesla may be required to modify Orders from time to time. Tesla may increase the quantity of Items in any Order at any time prior to the scheduled delivery date and, provided such Increase falls within the Quantity Adjustment Schedule set forth below, (i) Supplier will deliver such increased quantity with no additional charges including accelerated delivery, expedite fees or the like, and (ii) such increase will not affect the delivery schedule of Items previously ordered.

 

Weeks until Delivery Date

   Up to 12
weeks
    13-20     20+  

Percent Quantity Adjustment for Authorized Order Signal

   [***]   [***]   [***]

If Tesla requires an increase in the quantity of Items in any Order and such increase does not fall within the Quantity Adjustment Schedule set forth above, then, if feasible and as mutually agreed upon by the Parties, Supplier will provide such increased Items in accordance with the modified Order and Tesla shall pay costs resulting therefrom, provided such costs are (i) reasonable; (ii) authorized by Tesla in writing in advance of delivery; and (iii) identified separately from the unit price on Supplier’s invoice to Tesla.

(d) Reduction or Cancellation of an Order . If Tesla requires a reduction in the quantity of Items in any Order, or cancels any Order, the Parties’ respective rights and obligations shall be as specified in Section 21 (Termination).

(e) Purchases by Authorized Third Party . Certain Items may be (i) incorporated into subassemblies, modules, or other products made for Tesla by a third party; or (ii) otherwise processed by a third party. In such event, Tesla may designate the third party as authorized to purchase Items from Supplier and, upon Supplier’s receipt of notice thereof, Supplier shall enter Into an agreement with such third party to sell Items to the third party on terms (including pricing) no less favorable than the terms set forth in this Agreement.

(f) No Volume Commitment . Tesla does not commit to purchase a specific volume of any Items from Supplier except as specified in an Order and, subject to Supplier’s IP Rights (as defined in Section 11(c)), Tesla may manufacture or buy goods and/or services from third parties that are identical or similar to the Items.

4. Pricing .

(a) Contract Price . “ Contract Price ” means the domestic and/or export price in British Pounds Sterling for an Item as set forth on Attachment 1; provided, that if a price for an Items is not specified on Attachment 1, then the Contract Price shall be the price set forth in an Order that is accepted by Supplier in accordance with this Agreement. The Contract Price for each Item shall remain in effect throughout the Term, except for any changes mutually agreed to by the Parties in writing. Any change in circumstances, may result in a review of Agreement terms and/or negotiated reduction in the Contract Price.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 4 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

(b) Pricing Components . The Contract Price, and any quotations for Items, shall include all finishing, testing, inspecting and packaging fees, applicable royalties and all applicable taxes (excluding sales, use and similar taxes). Any quotations for Items shall include all costs relating to warranties. Any quotations for Items shall not include any amounts relating to (i) initial set-up charges; (ii) costs for special dies, tools, patterns or test fixtures; and (iii) non-recurring engineering fees amortized into the per unit price, unless separately identified and itemized.

(c) Transportation Costs . Pursuant to Section 6(b), below, Tesla pays transportation charges directly to certain common carriers designated by Tesla. For those Items where Tesla pays such charges, pricing in a quotation or invoice or as set forth in Attachment I shall not include any transportation costs. For all other Items, all costs for shipping, import/export fees, customs, and other transportation expenses shall be separately identified and itemized by Supplier in each quotation or invoice or on Attachment 1.

(d) Taxes . Tesla will pay any applicable sales, use or similar tax imposed in connection with the sale of Items to Tesla; provided, that Supplier shall not charge or collect, and Tesla shall have no liability for, taxes on any sale of Items for which Tesla has provided Supplier with an appropriate resale certificate or other documentation evidencing an exemption from such taxes. For all sales of Items upon which tax reimbursement to Supplier is applicable, Supplier shall separately itemize all applicable taxes on invoices submitted to Tesla. All amounts payable under this Agreement are exclusive of Value Added Tax (VAT) which will be paid at the date and in the manner for the time being prescribed by law.

(e) The Supplier agrees that for the purposes of calculating and paying the Contract Price it shall allow Tesla (including Tesla’s accountants and other professional advisors) access to its financial and other records. The Supplier agrees that it will at all time during the term of this Agreement maintain accurate and up-to-date financial and other records of all costs and other matters relevant to the provisions of this clause. The Supplier agrees that it shall complete a Tesla quotation analysis form upon request from Tesla.

(f) No increase in the Contract Price may be made (whether on account of increased materials, labor or transport costs, other fixed or variable costs, fluctuation in exchange rates, pricing errors or otherwise) without the prior written consent of Tesla.

(g) Tesla and the Supplier shall work together to reduce the cost to the Supplier of producing the Items and to improve the Items in both manufacture and assembly. The supply commits to endeavor to reduce piece costs and pass on saving to Tesla Motors.

5. Delivery of Items .

(a) Delivery Requirements . Time is of the essence as to the delivery of all Items ordered under this Agreement. Supplier shall meet the (i) negotiated lead time; (ii) order adjustment requirements as set forth in Section 3; and (iii) time, date, location and other delivery requirements for Items, as specified in Attachment 1 or, if not set forth in Attachment 1 , as set forth in the Order for said Items, Delivery will be considered timely only if Items are delivered in the correct

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 5 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

quantity, and at the time, date and location specified in the Order. If necessary for Supplier to meet its delivery requirements, Supplier, at its expense, will use expedited delivery methods to complete and deliver the Items.

(b) Remedies . If Supplier fails to deliver Items at the time and place set forth on the Order through no fault of Tesla, Supplier will immediately notify Tesla and at Tesla’s request locate alternative suppliers which are acceptable to Tesla for the Items. Supplier will remain primarily liable for the delivery of such Items from the third party suppliers, and Supplier will reimburse Tesla for any additional reasonable costs incurred by Tesla for such alternative suppliers.

6. Shipping and Risk of Loss .

(a) Shipping and Packaging Requirements .

(i) Supplier will ship all Items in accordance with (A) the authorized shipping service level (ground, sea, air, second-day, next-day, etc.) included in an Order; and (B) “Transportation Routing Guide” (“ Attachment 3 ”), including use of approved carriers as may be applicable given the classification of the shipment (i.e., domestic or international).

(ii) Supplier shall comply with any special packaging and labeling requirements for Items as set forth In the “Transportation, Packaging and Label Specifications” (“ Attachment 2 ”). In the event such Attachments are not applicable to an Item, the Items shall be packaged, marked and labeled In accordance with best commercial practices, along with all required shipping documentation. In all events, Supplier must include a valid packing slip number or package ID on each package or shipment of Items.

(iii) If Supplier delivers Items that do not meet the packaging or labeling requirements of this Agreement, Tesla may reject the Item, treat the Items as non-conforming to Specification, or charge and bill to Supplier all repackaging and re-labeling costs and expanses incurred by Tesla as a result of Supplier’s failure to comply with the packaging and labeling requirements of this Agreement.

(b) Shipments and Insurance .

(i) Domestic Shipments . Supplier agrees to make goods available for collection by Tesla Motors Ltd arranged transport in the provided stillages.

(ii) International Shipments . Supplier agrees to make goods available for collection by Tesla Motors Ltd arranged transport.

(iii) Other Shipments . For Items not covered by Section 6(b)(i) and (ii) above, Supplier shall pay all delivery costs and expenses to deliver the Items to the applicable destination point, and Tesla shall reimburse Supplier for all such reasonable costs and expenses if incurred and itemized by Supplier in accordance with this Agreement.

(iv) Insurance and Risk of Loss . The contract price is therefore ex works with all shipping costs within the contract the responsibility of Tesla and therefore under such

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 6 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

circumstances Tesla will become responsible for insurance of all products supplied once the products have been loaded on their designated carrier.

7. Acceptance, Payment, and Title Transfer . Title to Items will only transfer to Tesla upon acceptance of an Item and payment for such Item. Acceptance shall occur only in the event that: (i) Tesla or its designee has received the Items at the specified destination point; and (ii) either (1) Tesla or its designee has entered the Items into Tesla’s internal systems, or (2) a period of five (5) days from the delivery of the Items has elapsed. At any point prior to acceptance, Tesla may reject and return any Items that does not conform to the applicable Specifications and incur no liability or obligation related to such Item. As to Items that are rejected and returned, Tesla may recover and offset or adjust payments in respect of such Items, including any costs or fees related to shipping and insuring such Items. In addition to acceptance, title to Items will only transfer to Tesla once they have been paid for in full by Tesla.

8. Payment

(a) Payment Terms . Payment by Tesla for Items shall be made within forty-five (45) days from end of month of delivery or month of receipt of valid invoice, whichever is later.

(b) Invoices . Supplier will remit Items invoices to Tesla no earlier than when the Items are shipped to Tesla and adhere to the Invoicing requirements for suppliers as defined by Tesla.

(c) Effect of Payment and Right to Offset . Tesla’s payment for Items shall not affect the time at which title to Items passes to Tesla nor shall it preclude revocation of acceptance. All payments shall be subject to adjustment for errors, shortages, non-conformities or defects. Tesla may at any time set off any amount owed by Tesla to Supplier against any amount owed by Supplier to Tesla.

9. Confidentiality and Prohibited Activities .

(a) General . “ Confidential Information ” means all Information obtained by, disclosed to, or developed by Supplier and that is based on, Incorporates, constitutes or derived from any of the following that were obtained, directly or indirectly, from Tesla: samples, schematics, drawings, designs, Specifications, internal data, manuals, forecasts, Orders, customer information and other technical, business, financial or trade secret information. Parties agree that such Confidential Information may be obtained by Supplier from Tesla during the term of business relations between Tesla and Supplier, or in connection with the negotiation, performance or enforcement of the Agreement. Confidential Information does not, however, include information that (i) is or becomes a matter of public knowledge through no fault or act of Supplier; (ii) is rightfully received by Supplier from a third party not subject to restriction on disclosure of such information; (iii) is independently developed by Supplier without the use of any Confidential Information; or (iv) was rightfully in the possession of Supplier prior to its disclosure by or on behalf of Tesla; provided, however, that such information shall be Confidential Information to the extent that (1) such information constitutes specific information, even if it is embraced by more general information which is a matter of public knowledge or In the possession of Supplier, or (2) such information is a combination of Individual Items of information, even if that combination could be reconstructed from non-confidential sources if none of the non-confidential sources shows the whole combination and its principle of operation: and, provided further, that the sale or unrestricted disclosure of Items or other article or product made through a confidential manufacturing process of Tesla shall

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 7 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

not be deemed to constitute a public disclosure of the process. Supplier shall use reasonable care to protect the confidentiality of Confidential Information, and in any event, Supplier shall use at least that degree of care that Supplier uses to protect its own like information.

(b) Permitted and Prohibited Activities . Except as expressly set forth in this Section 9 or agreed by Tesla in writing, Supplier (i) may use Confidential Information solely for the purpose of providing Items to Tesla, (ii) may provide Confidential Information only to those individuals who need to know such Confidential Information to provide Items to Tesla, provided that it is clearly marked as “Tesla Motors Confidential” and provided that such individuals have agreed in writing to protect Confidential Information pursuant to a non disclosure agreement as set forth in Section 17(b) below, and (iii) shall not use or disclose any Confidential Information for any other purpose, including: (A) reverse engineering the Items; (B) developing, designing, manufacturing, engineering, refurbishing, selling or offering for sale, any “ Prohibited Replacement ” which means any good or service which may be used or sold as a replacement for any Items or other good used on or with Tesla product for which Tesla provided Supplier with Confidential Information at any time, including modifications to any Item; or (C) assisting any third party in any manner to perform any such activities, In addition, Supplier shall not make or sell to any third party any Prohibited Replacement. Further, Supplier agrees not to disclose to Tesla any information that any third party regards as proprietary or confidential. Supplier’s obligations under this Section 9(b) shall not apply to any disclosure required by applicable law, court order or legal process, provided that Supplier shall (i) if permitted by applicable law, promptly notify Tesla of its intent to make such disclosure, which notice shall be in writing and delivered at least ten (10) days’ prior to the Intended disclosure (or such shorter period as necessary to comply with applicable law), (ii) redact and keep confidential all financial terms and such other terms as agreed by the Parties after conferring in good faith and consistent with applicable law, and (iii) seek a protective order or confidential treatment from the tribunal or governmental agency for any agreements or other documents to be disclosed or filed, and disclose or file the minimum information and/or documents necessary to comply with applicable law, legal process or court order.

(c) Notice of Disclosure . Supplier shall, immediately upon becoming aware of it, give notice to Tesla of any unauthorized disclosure, misuse, theft or other loss of Confidential Information, whether inadvertent or otherwise.

(d) Other NDA’s . During the business relationship between Supplier and Tesla one or more NDA’s may be, or may have been, entered into. In the event of an apparent conflict between or among provision(s) of this Agreement and any NDA, such provisions shall be read in a mutually consistent way, or if no such reading is reasonably possible, the provision(s) that are most protective of Confidential Information shall take precedence over conflicting or less protective provision(s).

(e) Equitable Relief . Supplier agrees that Tesla would suffer irreparable harm for which monetary damages are an Inadequate remedy, and that equitable relief Is appropriate, if Supplier were to breach or threaten to breach any obligations in this Section 9.

(f) Press Releases/Publicity Not Authorized . The existence and terms of this Agreement are Confidential Information. Except as permitted by Section 9(b) above, Supplier will not issue any press release, advertising, publicity or public statement or in any way engage in any other form of

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 8 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

public disclosure that indicates Tesla’s relationship with Supplier or implies any endorsement by Tesla of Supplier or Supplier’s products or services, without the prior written approval of Tesla.

(g) Disposal of Confidential Information . Upon the termination or expiration of the Agreement, and otherwise upon the request of Tesla, Supplier will promptly return to Tesla all Confidential Information and all documentation that reveal or are based in any way on Confidential Information, and permanently eliminate the same from all of its computer and information storage systems. Supplier may, however, with Tesla’s prior written approval, destroy any Confidential Information or documentation, provided that Supplier certifies to Tesla the destruction of such Confidential Information or documentation. Thereafter, Supplier shall cease all use of Confidential Information. In addition, Supplier agrees it will immediately return to Tesla any materials provided to it to facilitate electronic access to Internal Tesla Data, including data access hardware, documents, software or other items.

10. Electronic Access to Internal Tesla Data .

(a) General . If Supplier is granted access to Internal Tesla Data then, in addition to Supplier’s obligations under Sections 9 and 11, the terms and conditions of this Section 10 shall apply Supplier’s access to the Internal Tesla Data is subject to compliance with (i) the terms of use, if any, of the Tesla Web Site or such other database or intranet, as applicable, and (ii) any technical, security, and software licensing requirements of Tesla, including the issuance of passwords and requirements related to using Tesla’s virtual private network. Tesla may terminate Supplier’s right of access or change the method of access to the Internal Tesla Data at any time. In no event shall Supplier facilitate or enable access to Internal Tesla Data by any Sub-tier Supplier or other third party. In no event shall Supplier facilitate or enable access to Internal Tesla Data by its employees or contractors that may either cause to exceed the available number of authorized software licensing seats or violate the login authority (for example, improper sharing of a single user name and password by multiple users).

(b) Use . If Tesla grants Supplier access to the Internal Tesla Data, then Supplier shall have the limited right to download, store, display and use Tesla Internal Data for the sole purpose of performing its obligations under this Agreement. Supplier may not use the Tesla Internal Data in any other way, commercially or otherwise. Unless otherwise notified by Tesla, Supplier may store copies of Internal Tesla Data on Supplier’s networks and information storage systems, provided, such Internal Tesla Data is stored either on hardware that is dedicated solely to Tesla, or otherwise separated from other information of Supplier, so that the Internal Tesla Data is not accessible to individuals except as authorized by this Agreement If Tesla provides Supplier with any recommendations for establishing an interface or other methods of accessing the Internal Tesla Data, Supplier assumes all risk in implementing any such recommendation.

(c) Consent to Monitoring . Supplier agrees that its access to and use of Internal Tesla Data and all acts in connection with Tesla’s internal systems are recorded and may be monitored. Supplier expressly consents to such recording and monitoring. If such recording or monitoring reveals possible evidence of criminal activities involving any individual, then Tesla may provide such evidence to the appropriate law enforcement organization and take any other appropriate action.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 9 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

11. Intellectual Property Rights .

(a) Definitions . “ Works ” means all works including without limitation all notes, code, art work, reports, documentation, drawings, creations devices, models, works-in-progress, inventions, discoveries, specifications, works of authorship, know-how, technical information, work product, and/or other information. “ IP Rights ” means all rights, whether registered or unregistered, including all patents, copyrights, trade secrets, trademarks, service marks, trade names, mask works, moral rights and other proprietary rights in any jurisdiction.

(b) Tesla’s IP Rights . As between Tesla and Supplier, Tesla owns all right, title, and interest in IP Rights in or to any Works made, conceived, or developed by Tesla employees or contractors (“ Tesla Personnel ”), and all IP Rights acquired by Tesla or otherwise owned by Tesla. All IP Rights owned by Tesla as set forth in this Section 11(b), or transferred to Tesla by Section 11(d) or Section 17(b), are referenced in this Agreement as “ Tesla’s IP Rights .

(c) Supplier’s IP Rights . As between Tesla and Supplier, except as set forth in Section 11(d) and Section 17(b), Supplier owns all right, title and interest in IP Rights in or to any Works made, conceived or developed by Supplier employees or contractors, and all IP Rights acquired by Supplier or otherwise owned by Supplier. All IP Rights owned by Supplier are referenced in this Agreement as “ Supplier’s IP Rights .”

(d) Assignment . Supplier irrevocably transfers and assigns to Tesla all IP Rights in or to (i) any Works made, conceived or developed by Supplier, either alone or with others, with the assistance (financial or otherwise), collaboration, input, involvement, or development efforts of Tesla or Tesla Personnel, and (ii) any Works that are not made, conceived, and developed independent of Tesla’s IP Rights (including Confidential Information). Supplier shall not improve, enhance, or modify any Works in which Tesla owns IP Rights without Tesla’s express prior written consent. In any event, if Supplier improves, enhances, or modifies any Works in which Tesla owns IP Rights, Supplier irrevocably transfers and assigns to Tesla all IP Rights in or to such Improvement, enhancement, or modification. In the event that any of the foregoing transfers and assignments by Supplier is to any extent ineffective, Supplier shall grant to Tesla an exclusive, royalty free, irrevocable, perpetual, worldwide license to make, use, market and sell such IP Rights.

(e) License . Tesla grants to Supplier a non-exclusive, revocable, royalty-free, limited and non-transferable license to use Tesla’s IP Rights solely for the purpose of performing Supplier’s obligations under this Agreement to manufacture and sell to Tesla Items under the Agreement. This license may be revoked by Tesla at any time, with or without cause, and shall expire in any event, if not sooner revoked, on the expiration or termination of the Agreement. Such license shall not be assigned or transferred in any way, except by limited sublicense to Sub-tier Suppliers for the sole purpose of providing Items to Tesla, or to Tesla-designated third parties, in accordance with this Agreement, and shall not succeed to or vest in any successor. Supplier acknowledges Tesla’s IP Rights are not capable of being independently exploited by Supplier other than In the context of this Agreement. As such, Tesla does not grant to Supplier any other license, right to sublicense or other right to or under any Tesla IP Right for Supplier’s own benefit to use in any other way, commercially or otherwise, or to provide or offer Items or other products or services to any party other than Tesla.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 10 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

(f) Further Assurances . At no cost to Tesla, Supplier will take, and will cause its employees and agents to take, all actions reasonably requested by Tesla, from time to time, to fully vest, perfect or defend Tesla’s IP Rights. Such actions shall include providing documents and information useful or necessary to register, apply for or maintain any of Tesla’s IP Rights.

(g) License to Marks . Tesla grants to Supplier a non-exclusive, revocable, royalty-free, limited and non-transferable license to affix or install on Items those trademarks, service marks and trade names of Tesla’s (collectively, “ Marks ”) that are specified to be installed or affixed under Tesla Specifications for the Items. Such license of Marks is limited, revocable by Tesla, shall not be assigned, sublicensed or transferred in any way and shall terminate upon termination of this Agreement. Use by Supplier of all Marks shall be solely for the benefit of Tesla and as directed by Tesla. Supplier shall install and affix the Marks solely in accordance with Tesla’s specifications, packaging and labeling requirement and any quality requirements for the Marks or Items that Tesla may establish. Tesla may Inspect Supplier’s facilities and examine Items at any time during normal business hours to monitor, or evaluate the quality of, the Marks affixed to the Items.

(h) Audit . Supplier shall permit Tesla, and cause its employees and agents to permit Tesla, to audit and verify compliance with Sections 9 and 11.

(i) Continuity of Supply for Essential Items . “ Essential Item ” means Items that, at any time, Tesla is not able to replace with a reasonably practicable commercial alternative within six (6) months or less of Tesla desiring to do so. Upon Tesla’s request, Tesla and Supplier will agree upon a mechanism to maintain Tesla’s continuity of supply with respect to an Essential Item, such as agreeing upon the terms of a “lifetime buy” or executing a mutually agreeable escrow or license agreement.

12. Warranty . Warranty terms for the Items are set forth in the attached Attachment 11 (“ Supplier Warranty ”):

13. Supplier Refurbishment Services . Upon Tesla’s request, Supplier and Tesla shall negotiate in good faith to enter Into an arrangement.

14. Supplier Performance Plan . Tesla and Supplier will jointly develop a supplier performance plan. Supplier agrees to self-monitor its performance, at both corporate and operational site levels, against the performance targets established in the plan. At least once a month, Supplier will submit to Tesla its actual performance against performance targets.

15. Manufacturing and Quality Requirements .

(a) Production Part Approval Process (“ PPAP ”) . Tesla and Supplier shall follow the PPAP requirements set forth in “PPAP Submission Workbook” (“ Attachment 5 ”). Supplier shall provide all necessary documentation.

(b) Design and Process Change Communication . After Tesla has approved the PPAP Submission, Supplier shall not make any change to the design (firmware, hardware or software) of the Items that may alter the Specifications or the form, fit, function or interchangeability of parts without first informing and obtaining approval from Tesla. Supplier will not make, or permit Sub-tier Suppliers to make, changes to the manufacturing process of such Items, including a transfer of any portion of the design, manufacturing, or assembly process to a different facility, without first obtaining such approval from Tesla.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 11 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

(c) Other Changes and Equitable Adjustments . Tesla may, upon notice to Supplier, submit Engineering Change Orders (“ ECOs ”) or request other changes within the scope of the Agreement with respect to any of the following: (i) Specifications; (ii) the place and date of delivery of Items; or (iii) the place, date and manner of inspection or acceptance of Items. Supplier agrees that It will use reasonable efforts to accommodate such requests in a timely and cost effective manner. If any request for such changes causes an increase or decrease in the cost of or time required for performance of the Agreement, Supplier may propose, and Tesla will then consider, an equitable adjustment in the Contract Price or delivery schedule, or both, and if the Parties agree to an adjustment, the Agreement shall be modified in writing accordingly. If Tesla and Supplier are unable to agree upon an equitable adjustment, then Tesla may remove the affected Items from this Agreement without affecting the remaining Items, and Supplier shall not be required to supply the Items as modified by the ECO to Tesla. No claim by Supplier for adjustment under this subsection shall be valid unless in writing and received by Tesla within thirty (30) days from the date of Supplier’s receipt of the notice of such change; provided, however, that such period may be extended upon the written approval of Tesla.

(d) Quality Requirements . Supplier shall comply with Tesla’s quality requirements set forth in Attachment 6 entitled “Tesla Motors Supplier Handbook”.

(e) Minimum Environmental, Health & Safety Requirements . Supplier shall comply with, and shall cause Sub-tier Suppliers to comply with, any applicable environmental, health or safety law, rule, regulation, order, decree or ordinance.

(f) Safety Notices . In addition to any of Supplier’s obligations under this Agreement or Supplier’s or Sub-tier Suppliers’ obligations imposed by law, Supplier will immediately notify Tesla of any known or suspected safety issues related to Items (including component or material issues).

16. Management of Finished Goods Inventory .

(a) Designation of Inventory Liability Items . Tesla may designate certain Items as “ Inventory Liability Items ” by (i) reporting a non-zero “Target Inventory” quantity for those Items in an authorized inventory planning tool, or (ii) identifying Items as an Inventory Liability Items on Attachment 1, or otherwise providing Supplier with written or electronic notice of such designation. So that Tesla can set appropriate Target Inventory quantities, Supplier shall actively maintain accurate lead times for all Items in such authorized inventory planning tool, using the definition of “lead time” designated by Tesla from time to time for this purpose. Supplier agrees to manufacture and stock such Inventory Liability Items in accordance with this Section 16; and/or, if requested by Tesla, a separate written agreement between Tesla and Supplier.

(b) Forecasts . Tesla may periodically Issue to Supplier rolling forecasts setting forth projected demand for items (“ Tesla Forecasts ”). Tesla Forecasts are intended for planning purposes only and shall not constitute a binding purchase commitment of Tesla. If Tesla designates a Inventory Liability Items under Section 16(a)(ii), and does not specify a “Target Inventory” quantity for it in an authorized inventory planning tool, then that Item’s Target Inventory quantity shall equal the two (2) weeks forecasted demand for that Items in the most recent and most specific Tesla’s Forecast for that Item. (The Parties may modify this number of weeks for any particular Items in Attachment 1.)

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 12 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

(c) Inventory Levels and Tracking Requirements . Unless otherwise designated in Attachment 1 or a separate written agreement, Supplier will maintain the “Target Inventory” quantity, if any, of each Inventory Liability Items as specified by Teals from time to time. All Inventory Liability Items manufactured by Supplier to meet a then-current Target Inventory quantity shall be considered “ Finished Goods Inventory ” under this Agreement. When Supplier is creating inventory levels to satisfy required Target Inventory levels of Finished Goods Inventory, any reduction in quantity of Items that were ordered pursuant to an Order, or any quantity of Items ordered pursuant to an Order that is later cancelled by Tesla, shall be returned to Supplier’s inventory and Supplier will increase Its inventory levels accordingly. Supplier shall monitor and report its work-in-process and Inventory Liability Items count to Tesla for all Finished Goods Inventory.

(d) Claim for Reimbursement of Excess Items . If Tesla has not taken delivery of any unit of a Inventory Liability Items In Finished Goods Inventory within twelve (12) months from the date of Tesla’s last receipt of any such unit, Supplier may then submit a claim for reimbursement for such Items (“ Excess items ”) to Tesla within thirty (30) days from the end of such twelve (12) month period. Supplier’s failure to submit such a claim within this thirty (30) day period shall constitute waiver of any claim for reimbursement for Excess Items and Tesla shall be released from all liability relating to such Excess Items.

(e) Claim for Reimbursement of Obsolete Items . An Inventory Liability Items in Finished Goods Inventory will be considered an “ Obsolete item ” when Tesla provides notice to Supplier that such Inventory Liability Item is an ‘Obsolete Item.” If Supplier desires to submit a claim for costs associated with Obsolete Items, then Supplier shall submit a claim for such Obsolete Items within thirty (30) days from the date on which Tesla notifies Supplier that the Inventory Liability Items are Obsolete Items. Supplier’s failure to submit such a claim within this thirty (30) day period shall constitute a waiver of any claim for reimbursement for such Obsolete Items and Tesla shall be released from all liability relating to such Obsolete Items.

(f) Scope of Claim . Tesla will not be liable for Finished Goods Inventory other than as described in this Section 16. In addition, no claim for reimbursement or payment for Finished Goods Inventory shall be made in the following situations: (i) any termination by Tesla pursuant to Section 21(a) (Termination for Default); (ii) if Supplier has introduced design or product changes; (iii) Supplier errors in production; (iv) if Supplier has been paid for such Items previously or has made a claim for reimbursement or payment for such Items previously; (v) if such Items are “ Commercial Off-the-Shelf Items ” meaning Items that are standard or stock Items in the industry or have been manufactured to Supplier’s specifications in contrast to Items manufactured to build-to-print specifications of Tesla or its customer; (vi) if Supplier has failed to fulfill its obligations to meet with Tesla in accordance with Section 16(l), unless Supplier is unable to do so because of actions of Tesla; (vii) if such Items wore not disclosed by Supplier to Tesla on each report required by Section 16(i) when each such report was due; or (viii) if Supplier fails to participates in Tesla’s ECO process as reasonably requested by Tesla, including without limitation providing accurate information about such Items that will be affected by a proposed ECO and that Supplier has in inventory or on order so that Tesla can plan its ECO implementation to minimize the quantity of on-hand and/or on-order Items that will be made obsolete by the ECO.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 13 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

(g) Claim Process . Any claim made under this Section 16 will be addressed based on negotiated settlement between Tesla and Supplier. Supplier is responsible for disassembling Inventory Liability Items in Finished Goods Inventory down to a usable level and otherwise making all efforts to mitigate the cost to Tesla in any such claim. Any claim shall be supported by reasonable evidence including a detailed listing of the relevant Inventory Liability Items by part number and quantity; documentary evidence that the quantity was manufactured to meet a Target Inventory required for that Inventory Liability Items and was not subsequently purchased by Tesla; and a detailed description of Supplier’s efforts to mitigate the costs to Tesla. Supplier’s claim will be based solely on costs incurred as a result of Tesla’s actions or obsolescence. No profit or opportunity costs shall be considered in calculating such claims. Tesla reserves the right to physically audit the Inventory levels identified in the claim. Such audit shall be conducted in accordance with Section 19(e) (Financial Statements and Right to Audit).

(h) Disposal of Excess and Obsolete Items . Supplier agrees to physically dispose of all Excess and Obsolete Items as directed in writing by Tesla. Excess and Obsolete Items that are to be delivered to Tesla’s facilities must be delivered In accordance with the requirements of this Agreement and/or any supplemental Instructions provided by Tesla. In lieu of delivery to Tesla, Tesla may require that Supplier destroy or otherwise scrap the Excess and Obsolete Items so that they are non-functional, and Supplier shall comply with this requirement in accordance with Tesla’s instructions and provide Tesla with a certification of destruction.

(i) Materials Liability Review Meetings . Designated representatives of each party shall attend a meeting (each, an “ Inventory Review Meeting ”) at the beginning of each Tesla fiscal quarter at such dates and times as agreed to between the Parties. On the business day immediately before each Inventory Review Meeting (or by the tenth day of the first month of each Tesla fiscal quarter, whichever comes first), Supplier shall provide a report in Microsoft Excel format (or another mutually agreed-upon written or electronic format) to Tesla Identifying Supplier’s on-hand and on-order inventory levels for all Finished Goods Inventory, listed by Tesla part number, and showing (1) quantity on hand, (2) quantity on order, (3) the number of weeks since Tesla issued an Order for that part number, (4) the quantity of that Items that Tesla has forecasted it will order in the next 13 weeks (if any), and (5) where Tesla’s forecasted demand is lower than Supplier’s on-hand and on-order quantities, a description in reasonable detail of all actions taken by Supplier to mitigate or reduce Tesla’s liability with respect to such on-hand and on-order quantities. At each Inventory Review Meeting, the Parties will share information to coordinate their combined operations, and discuss the report provided by Supplier. From time to time, the Parties may mutually agree upon the specific format for Supplier’s report and Supplier shall thereafter provide such report In the agreed-upon format; however, no failure to agree on a format shall relieve Supplier from providing this report in a commercially reasonable format when and as required by this Section 16(i).

17. Management of Sub-tier Suppliers .

(a) Sub-tier Suppliers . After Tesla has approved of the PPAP Submission, Supplier and its Sub-tier Suppliers shall not subcontract with any new or different Sub-tier Supplier as to such Items without the prior written approval of Tesla. Supplier agrees to inform Tesla of any process or Sub-tier Supplier changes related to Items (including, for example, obsolescence of components, any changes in the manufacturing process of a Sub-tier Supplier, or a transfer of any portion of the

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 14 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

design, manufacturing, or assembly process to a different facility), not less than one hundred eighty (180) days prior to the date the Supplier or Sub-tier Supplier is contemplating the implementation of the change.

(b) Sub-tier Supplier’s Obligations . Supplier will ensure that all Sub-tier Suppliers have entered into signed, written agreements with Supplier obligating the Sub-tier Suppliers to undertake each action that is required of Sub-tier Suppliers by another provision of this Agreement, and to comply with the following provisions:

(i) Sub-tier Suppliers shall comply with all Specifications, quality, manufacturing and other technical requirements that may be necessary in order for the Sub-tier Supplier to timely deliver conforming Items, or any portion thereof, to the Supplier for the benefit of Tesla.

(ii) Supplier Related Persons will take all actions with respect to Tesla IP Rights and Marks that Supplier is obligated to take by Section 11, including all actions reasonably requested by Tesla to vest, perfect and defend Tesla IP Rights, and to use and protect Tesla IP Rights and Marks solely for the benefit of Tesla upon substantially similar terms to those set forth in Section 11 above.

(iii) All Supplier Related Persons and designated third parties who are authorized to receive or obtain (directly or indirectly) Confidential Information (collectively, “ Recipients ”), shall agree, prior to the Recipient obtaining any Confidential Information, to be obligated to hold all Confidential Information in confidence and not to use the Confidential Information in any way, except on behalf of Supplier in performing its obligations hereunder for the benefit of Tesla, and to protect the Confidential Information and not to engage in prohibited activities, upon substantially similar terms to those set forth in Section 9 above.

(iv) Sub-tier Suppliers shall provide Supplier with sufficient prior written notice of all design, process, manufacturing, component obsolescence and facility changes contemplated by Sub-tier Suppliers to ensure that Supplier will comply with its notification obligations to Tesla under Sections 15 and 17(a) of this Agreement.

Upon Tesla’s request, Supplier will (A) provide Tesla with copies of all such agreements with Sub-tier Suppliers, Supplier Related Persons or other Recipients that implement Supplier’s obligations under this Section 17(b); (B) actively enforce Supplier’s rights under such agreements for the benefit of Tesla, including but not limited to retrieving Confidential Information from Supplier Related Persons; (C) assign to Tesla any such agreement between Supplier and Supplier Related Person (and Supplier shall not enter into any agreement restricting such an assignment); and (D) cause Sub-tier Suppliers or Supplier Related Persons to enter such an agreement directly with Tesla.

(c) Mandated Sub-tier Suppliers . “ Special Process ” moans a process that is specifically designated as such by Tesla, which may Include, but Is not limited to, causing a metallurgical change to the base material such as heat treating, forging or hardening processes; joining materials by welding, brazing, or other bonding process; or providing a coating or surface treatment such as cleaning, electro-polishing, plating, painting, or anodizing. Upon Tesla’s request, Supplier will use (and cause Sub-tier Suppliers to use) only one or more of the designated suppliers.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 15 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

18. Product and Training Support .

(a) Supplier Response . Supplier will provide technical assistance and product support services to Tesla at no additional charge. Supplier agrees to provide an initial response (via telephone or electronically) to any inquiry from Tesla within one (1) business day. If Supplier is requested by Tesla to provide an in-depth failure analysis of Items failures, Supplier agrees to provide timely analysis and feedback to Tesla.

(b) On-Site Support Requirements . As determined by Tesla, Supplier may be asked to provide appropriate or necessary personnel to support on-site operations at Tesla’s facilities or at a third-party site designated by Tesla. On-site representatives shall comply with all requirements of Tesla or such third-party with regard to such support. Unless otherwise agreed, such support will be provided at no cost.

(c) Training Support . Upon Tesla’s request, Supplier shall provide repair, maintenance and trouble-shooting training and related documentation for the Items to Tesla representatives. The Parties will mutually agree on the Items to be included in the training and the specific content and level of training to be provided.

19. Electronic Communication and Documentation .

(a) General . The Parties acknowledge that they are relying upon electronic means, in addition to email and facsimile transmissions, to exchange Orders and other delivery and order information, Supplier agrees to communicate with Tesla using the standards designated by Tesla. To the extent communication through electronic means is inaccessible or made otherwise unavailable due to technical difficulties or due to the effect of any law or regulation governing electronic transactions, the Parties agree (i) that any delivery or order Information received electronically prior to the date of such Inaccessibility or unavailability will remain valid; and (ii) to conduct, to the extent possible, their transactions by other than electronic means.

(b) Documentation Format Requirements . With each PPAP Submission delivered hereunder, Supplier shall provide to Tesla one (1) set of electronic files of product, repair, maintenance and support documentation for such Items in accordance with Attachment 5 entitled “PPAP Submission Workbook”. Electronic files shall be source files in either Microsoft ® Excel, or Adobe ® PDF, or other mutually agreed upon format. If such documentation is not a part of Tesla’s IP Rights, then Tesla shall have the right to use, copy, display, modify, reproduce and distribute such documentation as Tesla deems necessary to support the Items. Tesla may post, or require Supplier to post, such documentation on a Web-based tool accessible by Tesla and its customers.

(c) Field Support Requirements . Supplier agrees that Tesla may provide technical assistance, product maintenance and service to Tesla’s customers relating to Items and that the provision of any such services by Tesla shall not Invalidate or relieve Supplier of its obligations, including warranty obligations, under this Agreement.

(d) Tesla Unique Prototype Items or Subassemblies Documentation . Upon Tesla’s request, Supplier shall provide to Tesla all current and complete Specifications, including designs, and drawings for (i) all Tesla unique build-to-print Items, including prototype and subassembly Items; and (ii) those Items, or any components thereof, purchased by Supplier from a Sub-tier Supplier

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 16 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

(collectively, “ Support Items ”) (digital drawings format preferred) and shall further provide assistance in understanding and Implementing the Specifications as to Support Items. Supplier shall provide a complete bill of materials, reflecting as-manufactured or produced Support Items, including Supplier part number and vendor or manufacturers’ part number for purchased Support Items and Tesla’s part number for cross-reference. Supplier shall provide a list of recommended spare parts, with associated prices, for all bills of materials down to the lowest level. All Support Items Specifications are the sole property of Tesla. Any changes to process or bills of materials must comply with the terms of this Agreement. If Supplier is purchasing Support Items from Sub-tier Suppliers, Supplier agrees that upon written notice from Tesla, it will assign to Tesla any such agreement between Supplier and Sub-tier Supplier, and Supplier will not enter into any agreement restricting such assignment.

(e) Financial Statements . If Supplier has securities registered with the Securities Exchange Commission (“SEC”) pursuant to Section 12 of the Securities Exchange Act of 1934, Supplier shall timely submit all financial statements and reports as required by SEC rules. Otherwise, upon Tesla’s request, Supplier will provide Tesla with financial statements and other financial information relating to Supplier’s business and operations as Tesla may reasonably request.

20. Continuity of Supply .

(a) Performance Constraints . Supplier Is responsible for anticipating and promptly notifying Tesla of (i) any inability on its part or its Sub-tier’s part to perform their respective obligations under this Agreement; and (ii) any breach of a provision of this Agreement.

(b) Disaster Recovery Plan . Upon Tesla’s request, Supplier shall provide to Tesla reasonable information describing its disaster recovery plan that includes emergency back-up capacity, and appropriate record protection and recovery.

(c) Tooling . For up to ninety (90) days after the Term, upon Tesla’s request, Supplier agrees to itemize and/or sell to Tesla any tooling that is built or procured by Supplier that is unique to the Items and relevant to the manufacture, testing or maintenance of Items. The purchase price of such tooling shall be at the book value. If Tesla provides notice of its election to purchase such tooling, upon Tesla’s payment, title shall transfer to Tesla. If at any time Supplier receives tooling furnished by or purchased from or by Tesla, Supplier shall comply with the terms of Attachment 7 entitled “Tesla Tooling and Property Requirements.”

(d) Wind Down . In the event of, or in preparation for, the expiration or a termination of the Agreement for any reason, Supplier shall use commercially reasonable efforts to transfer, or cooperate fully with Tesla to enable Tesla to transfer, the performance of Supplier’s obligations under the Agreement to Tesla or a third party supplier designated by Tesla, in a manner that (i) minimizes the time to complete such transfer; (ii) maintains the highest quality and performance to ensure the adequate supply of Items; and (iii) causes no disruption to Tesla’s customers’ requirements.

(e) Availability Assurance and After-Sales . Unless expressly excluded, all provisions contained within this Agreement shall apply to the supply of after-sale Items, and:

 

  (i) Supplier agrees to maintain capabilities necessary to provide technical and service support to Tesla and/or its designated third party as to any Items for a minimum of twelve (12) years from the date of final shipment of items to Tesla; providing that [***] have had exclusive supply rights for the production volume.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 17 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

  (ii) Tesla shall pay the Contract Price for the Items in accordance with Section 4.

 

  (iii) If, during the period detailed in Section 20 (e)(i) above, Tesla does not order one particular Item in a rolling 12 month period then the Supplier will be entitled to request Tesla’ written permission to cease supply of such Item. The Supplier shall not be entitled to cease supply of such Item until it has provided Tesla with written notice of not less than 2 months of Its intent to cease supply of such Items and obtained Tesla’ permission.

 

  (iv) In the event that Tesla provides its consent in accordance with Section 20 (e)(iii) above, Tesla may notify the Supplier that it wishes to make a “last time buy” at prices not higher than the Contract Prices. The Supplier will be obliged to fulfill the “last time buy” upon the terms of this Agreement.

21. Termination .

(a) Termination for Default .

(i) Notice By Tesla . Tesla may give Supplier notice of default of this Agreement or of any Order if (1) Supplier fails to deliver items in accordance with the delivery times, Specifications, and other requirements of this Agreement, or otherwise materially breaches this Agreement; (2) Supplier anticipatorily repudiates any material provision of this Agreement and fails to provide adequate assurance to Tesla of Supplier’s future performance; or (3) Supplier becomes insolvent, files a petition for relief under any bankruptcy, insolvency or similar law, or makes an assignment for the benefit of Its creditors.

(ii) Notice By Supplier . Supplier may give Tesla notice of default of this Agreement, if (1) Tesla materially breaches Section 8, 11, or 26(a) of this Agreement; (2) Tesla anticipatorily repudiates Section 8, 11, or 26(a) of this Agreement and fails to provide adequate assurance to Supplier of Tesla’s future performance; or (3) Tesla becomes insolvent, files a petition for relief under any bankruptcy, insolvency or similar law, or makes an assignment for the benefit of its creditors.

(iii) Notices of Default and Cure Period . Any notice of default shall be in wilting, reference this Section 21(a), state whether the notice relates to a specified Order (under (i) above) or to this Agreement (under (i) or (ii) above), and specify the basis for such notice (the “ Defaulting Condition ”). No cure period shall be available, and this Agreement shall terminate immediately, at the non-defaulting party’s option after the notice of default, if (1) the Defaulting Condition is a negligent, knowing or willful material breach of Section 9 or Section 11, or (2) the Defaulting Condition cannot reasonably be cured. No cure period shall be available for termination of an Order for default. For all other Defaulting Conditions, the defaulting party shall have ninety (90) days in which to cure the Defaulting Condition, and the Agreement shall not terminate if the defaulting party cures the Defaulting Condition within such cure period.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 18 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

(iv) After Termination for Default . Upon any termination by Tesla pursuant to this Section 21(a), Supplier shall: (1) continue to supply any portion of the Items for which this Agreement is not cancelled; (2) be liable for additional costs, if any, Incurred by Tesla for the purchase of similar goods and services to cover such default: and (3) at Tesla’s request, transfer title and deliver to Tesla: (A) any completed Items, (B) any partially completed Items, and (C) all unique materials and tooling subject or relating to the termination, Termination of the Agreement under this Section 21(a) shall constitute ‘cancellation” under the Uniform Commercial Code as adopted In California.

(b) Termination of this Agreement or an Order for Convenience .

(i) Tesla may give Supplier notice of termination of this Agreement at any time for Tesla’s convenience by giving Supplier six (6) months’ prior written notice. In such notice, Tesla will specify either (a) Tesla will take delivery, remit payment for, and not terminate any order as otherwise permitted by Section (ii) below for the duration of the six month period; or (b) cancel all pending Orders for Tesla’s convenience. In the event Tesla elects option (b) herein, Tesla will pay to Supplier liquidated damages in the amount of a [***]% margin on the then current price of a system of items for the Tesla vehicle, times [***] (i.e., [***] of a production run of [***] vehicles).

(ii) In addition to either Party’s rights under Section 2(b) and under Section 21(a), Tesla may terminate any Order in whole or in part at any time for Tesla’s convenience by giving Supplier notice which shall state the extent of the termination and the conduct required of Supplier in connection therewith. Such a cancellation may be for any reason including a reduction in the quantity of an Items ordered under an Order. Supplier will use commercially reasonable efforts to mitigate any damages incurred in connection with such termination. Within ninety (90) days from the date on which Supplier receives such notice, Supplier shall deliver to Tesla a written claim for all of Supplier’s damages incurred In connection with the termination (“ Termination Charges ”), in the form and containing such documentation as required by Tesla. In no event, shall Termination Charges include any damages relating to Commercial Off-the-Shelf Items.

(i) Failure by Supplier to deliver such claim for Termination Charges within this 90-day period shall constitute a waiver by Supplier of all claims against Tesla as to Termination Charges and a release of all Tesla’s liability arising out of such termination.

(ii) If Tesla does not agree with the amount specified in Supplier’s claim for Termination Charges Tesla and Supplier will attempt to agree upon a reasonable amount for Termination Charges. If Tesla and Supplier fail to agree upon such an amount within six (6) months after receipt by Tesla of the claim for Termination Charges from Supplier, then the Termination Charges will be conclusively presumed to be the sum of the following as to Items for which the termination applies (provided that no costs shall be duplicated): (1) the unpaid Contract Price for all Items delivered to Tesla pursuant to the Order prior to the date of Tesla’s termination; (2) the Contract Price for all Items ordered pursuant to the Order and completed in accordance with the Agreement but not delivered to Tesla prior to the date of termination, provided such items are promptly delivered to Tesla; (3) the actual costs for work-in-process incurred by Supplier relating to Items ordered pursuant to the Order, less any costs related to Commercial-Off-The-Shelf components either manufactured or procured by Supplier, and an amount representing a fair and reasonable profit on such costs; and (4) the reasonable, out-of-pocket costs paid by Supplier to its Sub-tier Suppliers as a direct result of Supplier’s cancellation of work being performed by such Sub-tier

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 19 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

Suppliers or Supplier’s termination of contracts with such Sub-tier Suppliers. Tesla’s obligation to pay costs pursuant to clauses (3) and (4) above shall be subject to Supplier’s obligation to use commercially reasonable efforts to mitigate any such costs.

(iii) This Section 21(b) sets forth Supplier’s sole remedies, and Tesla’s entire liability to Supplier, in the event of a termination of an Order by Tesla for convenience, other than Supplier’s remedy and Tesla’s liability as set forth in Section 16.

(c) Post Termination Consequences . On the date of termination or expiration of the Agreement for any reason, Supplier shall (i) stop work being performed by Supplier pursuant to the Agreement, (II) cancel orders for parts and/or materials with Supplier’s Sub-tier Suppliers and cease ordering any such parts and/or materials, (iii) cancel work being performed by Supplier’s Sub-tier Suppliers, (iv) cancel any sublicense granted to Sub-tier Suppliers in accordance with this Agreement, (v) at Tesla’s request, assign to Tesla Supplier’s interests in contracts with Supplier’s Sub-tier Suppliers, (vi) furnish Tesla with release of claims from Supplier’s Sub-tier Suppliers resulting from orders and/or work canceled by Supplier, (vii) protect all property in which Tesla has or may acquire an interest, (viii) fully cooperate with Tesla to minimize any adverse effect on Tesla or its customers, and (ix) perform those other obligations set forth in this Agreement upon the termination or expiration of this Agreement.

22. Disclaimer and Limitation of Liability . Notwithstanding anything else in this Agreement, in no event shall Tesla be liable to supplier or to any other person or entity with respect to any subject matter of this Agreement, under any equity, common law, tort, contract, estoppel, negligence, strict liability or other theory, for any (a) incidental, special, punitive, consequential or indirect damages or (b) damages resulting from loss of sale, business, profits, data, opportunity or goodwill, even if the remedies provided for in this Agreement fail of their essential purpose and even if Tesla has been advised of the possibility of any of the foregoing damages.

23. Indemnity by Supplier .

(a) Supplier shall defend, indemnify and hold harmless Tesla from and against any and all third party claims, demands, suits, actions, losses, penalties, damages (whether actual, punitive, consequential or otherwise), authorized settlements, and all other liabilities and associated costs and expenses, including attorney’s fees, expert’s fees, costs of investigation and other costs of litigation (all of the foregoing being collectively called “ Indemnified Liabilities ”), arising out of or relating to (i) Supplier’s breach of any provision of the Agreement; (ii) any negligent, grossly negligent or intentional acts, errors or omissions by Supplier, its employees, officers, agents or representatives, except to the extent caused by the negligence or intentional misconduct of Tesla; or (iii) strict liability or products liability with respect to or in connection with the Items; (iv) any claim by a Sub-tier Supplier against Tesla relating to goods or services provided to Supplier; or (v) the actual or alleged infringement or misappropriation of patent, copyright, trademark, trade secret rights, confidential information, proprietary rights, or other rights of a third party, (collectively, a “ Third Party IP Right ”), except to the extent that the infringement or misappropriation was unavoidably caused by Supplier’s compliance with a detailed design furnished and required by Tesla. The indemnity by Supplier in favor of Tesla shall extend to Tesla, its officers, directors, employees, agents and representatives and shall include, and is intended to include, indemnified liabilities which are determined by a court of competent jurisdiction to be the

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 20 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

result of acts or omissions of Supplier as a joint tortfeasor. If Supplier is liable only as a joint tortfeasor, then Supplier’s liability shah not extend to that portion of liability determined by the court to be the result of acts or omissions of Tesla. In addition to Supplier’s obligations as to Indemnified Liabilities that arise under clause (v), Supplier shall, at Tesla’s option (1) procure for Tesla and its customers the right to continue to use, sell and resell any affected Item, (2) with respect to a claim for infringement, modify the affected items so that it is no longer infringing, or (3) replace any affected Items with a non-infringing good or service comparable to the affected Item. If none of these alternatives are possible, Tesla shall have the right to return or destroy, at Tesla’s option, any affected Items for a full refund of the purchase price, plus applicable transportation costs.

(b) In the event of any such Indemnified Liabilities, Tesla shall (i) promptly notify Supplier of such Indemnified Liabilities and the identity of the Tesla’s legal counsel; (ii) at Supplier’s expense, reasonably cooperate with Supplier in the defense of such claim; and (iii) not settle any such Indemnified Liabilities without Supplier’s written consent, which shall not be unreasonably withheld or delayed. Supplier shall keep Tesla informed at all times as to the status of Supplier’s efforts and consult with Tesla and/or its counsel regarding such efforts. Supplier shall not settle any such claim without the prior written consent of Tesla, which shall not be unreasonably withheld or delayed. Failure by Tesla to give notice of the Indemnified Liabilities to Supplier shall not relieve Supplier of its indemnification obligations hereunder except to the extent, if any, that Supplier has actually been prejudiced hereby.

(c) This Section 23 sets forth the entire obligation of Supplier to Tesla and Tesla to Supplier as to Indemnified Liabilities arising from the actual or alleged misappropriation or infringement of any Third Party IP Right.

24. Import and Export Requirements .

(a) General . Supplier agrees it will be required to deliver items to, and receive Items from, locations outside of the United States. Supplier will comply with all applicable export control laws or regulations promulgated and administered by the laws of the United States or the government of any other country with jurisdiction over the Parties or the transactions contemplated by this Agreement (“ Export Laws ”) including the obligation that Supplier shall not export, re export or otherwise disclose, directly or indirectly, Items or technical data received from Tesla or the direct product of such technical data or Items to any person or destination when such export, re-export or disclosure is in violation of Export Laws. Supplier will provide Tesla with any and all information that may be required to comply with Export Laws, including applicable “Export Control Classification Numbers,” documentation substantiating U.S. and foreign regulatory approvals for the Items, and information required by Customs officials to substantiate the value of imported Items including any adjustments in valuation attributable to “assists” as defined by U.S. Customs regulations. All required export and import information shall be sent to the attention of: Manager, Compliance, Tesla Motors, 1050 Bing Street, San Carlos, CA 94070; or any agent so designated by Tesla.

(b) Country of Manufacture . Items shall be marked with the country of origin as required by Export Laws. Supplier shall provide Tesla with a written statement identifying for each Items delivered the (i) Tesla part number and (ii) the country of manufacture. This data shall be provided to Tesla upon Tesla’s request.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 21 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

(c) Duty Drawback . Supplier will provide Tesla or its agent with U.S. Customs entry data and information that Tesla determines Is necessary for Tesla to qualify for duty drawback. Such data shall include information and receipts for duties paid, directly or indirectly, on all Items which are either imported or contain imported parts or components. Information related to serial numbers, unique part numbers, lot numbers and any other data which will assist Tesla in identifying imported Items sold to Tesla shall also be provided. At the time of delivery of the Items, but in no event later than thirty (30) days after each calendar quarter, Supplier will provide said documents accompanied by a completed Certificate of Delivery of Imported Merchandise or Certificate of Manufacture and Delivery of Imported Merchandise (Customs Form 331) as promulgated pursuant to 19 CFR 191, or successor regulations.

25. Miscellaneous .

(a) Assignment . This Agreement shall be binding on, and inure to the benefit of, the Parties and their respective permitted assigns. Supplier shall not assign or otherwise transfer this Agreement or any of Supplier’s rights or obligations hereunder, in any manner, without the prior written consent of Tesla, which shall not be unreasonably withheld.

(b) Change in Control . Supplier will notify Tesla immediately of Supplier’s intent (or any other person’s intent, to the extent Supplier Is aware of it) to effect any sale of all or substantially all of Supplier’s assets, any consolidation, merger or other transaction involving the sale or transfer of ten percent (10%) or more of Supplier’s capital stock or similar ownership interest of Supplier.

(c) Waiver . If either Party fails to insist on performance of any term or condition, or fails to exercise any right or privilege hereunder, such failure shall not constitute a waiver of such term, condition, right or privilege.

(d) Survival of Obligations . Termination or expiration of this Agreement will not relieve either Party of its obligations under Sections 8(c), 9, 11(a)-f), 11(h), 12, 17(b), 18, 19(c)-(e), 20-23, 26(c)-(a), (h), (i), and (l)-(r), nor will termination or expiration relieve the Parties from any liability arising prior to the date of termination or expiration.

(e) Severability . Any provision of this Agreement that is held unenforceable or invalid for any reason by a court of competent jurisdiction shall be severed from this Agreement, and the remainder of the Agreement shall continue in effect; provided, that such unenforceable or invalid provision shall be given effect to the maximum extent then permitted by law.

(f) General Compliance with Laws and EEO Regulations . Each Party represents, warrants and agrees that (i) such Party’s execution, delivery and performance of this Agreement will not conflict with or violate any applicable law, rule, regulation, order, decree, or ordinance; and (ii) such Party shall comply with the requirements of 41 CFR § 60-1.4(a)-250.5(a), and -741.5(a), if applicable, relating to equal opportunity clauses pertaining to government contracts.

(g) No Gratuity . Neither Party will offer or give any gratuity to induce any person or entity to enter into, execute or perform the Agreement or any other agreement with between the Parties.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 22 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

(h) Governing Law, Exclusive Forum . The Agreement and any dispute arising out of or in connection with the Agreement or the Parties’ relationship shall be interpreted, enforced and governed by the laws of the State of California, excluding its choice of law rules. The exclusive forum for any dispute related in any way to this Agreement or the Parties’ relationship shall lie in the courts, state or federal, of California, and venue shall lie in the courts of Santa Clara County. Items shall be deemed and shall qualify as goods under the Uniform Commercial Code as adopted in California. Each Party consents to personal jurisdiction in the above courts. Notwithstanding the foregoing, Tesla shall have the right to seek injunctive relief, including preliminary and permanent Injunctive relief, in any court of competent jurisdiction, including, without limitation, to enforce Tesla’s rights under Sections 9 and 11, or to otherwise enforce any judgment made hereunder.

(i) General Representations . Each Party represents and warrants as follows: (i) such Party is duly organized, validly existing, and in good standing under the laws of the jurisdiction of its organization; and (ii) such Party’s execution and delivery of this Agreement and performance of its obligations hereunder will not (1) violate any provision of the charter, bylaws or other governing document of such Party, or (2) conflict with, result in a breach of, or constitute a default under, any other agreement or arrangement by which such Party is bound.

(j) Force Majeure . If and to the extent that a Party’s performance of any of its obligations pursuant to this Agreement is prevented, hindered or delayed by fire, flood, earthquake, elements of nature or acts of God, acts of war, terrorism, riots, civil disorders, rebellions, revolutions, strikes, labor disputes or any other similar cause beyond the reasonable control of such Party (each, a “Force Majeure Event”), then the non-performing, hindered or delayed Party shall be excused for such non-performance, hindrance or delay, as applicable, of those obligations affected by the Force Majeure Event for as long as such Force Majeure Event continues; provided, that such Party continues to use commercially reasonable efforts to recommence performance whenever and to whatever extent possible without delay, including through the use of alternate sources, workaround plans or other means. Notwithstanding the preceding sentence, if the Force Majeure Event continues for a period of more than thirty (30) days, either Party may thereafter exercise its rights, if any, pursuant to Section 21, to deliver a notice of termination, subject to any cure period that may be required by Section 21. The Party whose performance is prevented, hindered or delayed by a Force Majeure Event shall promptly notify the other Party In writing of the occurrence of a Force Majeure Event and describe in reasonable detail the nature of the Force Majeure Event.

(k) No Agency . Each Party shall be deemed to be an independent contractor and not an agent, joint venturer or representative of the other Party, and neither Party may create any obligations or responsibilities on behalf of or in the name of the other Party.

(l) Cumulative Remedies . The rights and remedies of the Parties provided under this Agreement are not exclusive (unless another provision of this Agreement expressly provides that a right or remedy is exclusive), and may be exercised, alternatively or cumulatively, with any other rights and remedies available to the Parties under this Agreement or in law or in equity.

(m) Amendments and Modifications; Captions and Construction . Except as provided in Section 2(c) (Updating Business Processes), amendments or revisions to this Agreement must be in writing, signed by both Tesla and Supplier duly authorized representatives, traced by revision numbers and attached to the original of this Agreement.

(n) Counterparts and Facsimile . This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and such

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 23 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

counterparts together shall constitute the same Instrument. For purposes hereof, a facsimile copy of this Agreement, including the signature pages hereto, shall be deemed an original.

(o) Notices . Subject to Section 2(c), any notice, consent or approval required or permitted under this Agreement shall be in writing and In English (unless otherwise expressly stated) and shall be given (1) personally; (2) by express courier; (3) by facsimile with confirmation of delivery; or (4) by email with confirmation of delivery. The Supplier and Tesla shall each nominate a representative who shall be authorized to make decisions relating to the Items and who shall be responsible for organizing all meetings and actions provided for in this Agreement.

Notices to Tesla :

Ken Zadegan

Supply Chain Management

1050 Bing Street

San Carlos, CA 94070

Fax: (650) 413-4099

e-mail: supplychain@teslamotors.com

Notices to Supplier :

[***]

[***]

[***]

[***]

Fax: [***]

Tel: [***]

(p) Notifications to Tesla . Supplier shall promptly notify Tesla in writing as soon as possible before, and in any event prior to the occurrence of, (i) Supplier’s acquisition of a majority of the capital stock of, or substantially all of the assets of, a third party or business division of a third party that directly or indirectly provides goods or services to Tesla; (ii) a significant change in leadership roles at Supplier, a business division of Supplier, or factory or physical plant of Supplier, which is involved in Supplier’s performance of this Agreement; (iii) any problem or other issue that a reasonable person in the position of Supplier would believe could negatively impact Supplier’s ability to perform its obligations under this Agreement (including making on-time deliveries); or (iv) any material change to Supplier’s information, inventory management, or financial management systems or processes.

(q) Foreign Translation . This Agreement is written in the English language. The English text of this Agreement shall prevail over any translation thereof.

(r) Entire Agreement . This Agreement, including its Attachments, sets forth the entire understanding and agreement of the Parties as to the subject matter of this Agreement and supersedes all prior agreements, understandings, proposals and representations, oral or written, between the Parties as to the subject matter, except for NDA(s), which are addressed by Section 9(d). In the event of any conflict between or among any documents which are part of this Agreement, the following order of precedence shall apply: (i) Supply Agreement; (ii) Attachment 1; (iii) other Attachments; (iv) Specifications; and (v) Order.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 24 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

By execution hereof, the person signing for each Party below hereby certifies, represents and warrants that he/she has read this Agreement and that he/she is duly authorized to execute this Agreement on behalf of such Party.

 

TESLA MOTORS, INC.     [***]
By:  

/s/ Thomas E. Colson

    By:  

/ S / [***]

Thomas E. Colson

   

[***]

Printed name     Printed name

VP - Manufacturing

   

Managing Director

Title     Title

31 Oct 07

   

27/11/2007

Date     Date

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 25 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

Table of Attachments

 

No

  

Name

1    List of Items, Pricing Mechanism, and Lead Times
2    Packaging and Labeling Specification
3    Transportation Routing Guide
4    Supplier Corrective Action Request
5    PPAP Submission Workbook
6    Tesla Motors Supplier Handbook
7    Tesla Tooling and Property Requirements
8    Tesla Supplier Warranty Agreement Appendix 1
9    Tesla Supplier Warranty Agreement Appendix 2
10    Tesla Supplier Warranty Agreement Appendix 3
11    Supplier Warranty

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 26 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

Attachment 1

List of Items, Pricing Mechanism, and Lead Times

 

SUPPLIER PIN

  

TESLA PART No

  

DESCRIPTION

 

PRICES

 

LEAD TIME

92079    06-00064-00 /6000156    [***]   £[***]  
98168    06-000936-00 / 6000521    [***]   £[***]  
91150    02-000724-00 /2001996    [***]   £[***]  
96825    02-001483-001 2002144    [***]   £[***]  
96888    06-000367-00 / 6000042    [***]   £[***]  
96889    06-000340-00 / 6000039    [***]   £[***]  
98205    06-000596-00 / 6000107    [***]   £[***]  
98829    01-000978-00 /2000432    [***]   £[***]  
96891    02-002406-00 / 2002635    [***]   £[***]  
96892    02-002407-00 / 2002636    [***]   £[***]  
96848    02-001839-00/2002227    [***]   £[***]  
99959    02-001485-00 /2002146    [***]   £[***]  

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 27 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

Attachment 2

Transportation, Packaging and Labeling Specification

 

1 The Supplier shall (where applicable):

 

  (a) properly pack and label the Items in accordance with the specific requirements of Tesla;

 

  (b) route consignments in accordance with any instructions from Tesla;

 

  (c) not charge for the handling, packaging, storage or transportation of the Items, protective packaging, material, delivering of parts to various plants in special racks/different container types or re-assignment of all kind of containers unless otherwise agreed in writing with Tesla;

 

  (d) properly mark each package with a label/tag according to Tesla’ instructions and/or In accordance with any legal obligation;

 

  (e) include on any bills of lading or other shipping receipts the correct classification and identification of the Items transported in accordance with Tesla instructions and any requirements of the carrier and to promptly forward the same in accordance with Tesla’ instructions;

 

  (f) ensure that the marks on each package and identification of the Items on packing slips, bills of lading and invoices are sufficient to enable Tesla to easily identify the goods;

 

  (g) obtain all necessary export licenses and/or permissions in respect of the delivery of the Items or where Tesla must obtain such export licenses and/or permissions in its own name, provide Tesla with reasonable assistance to secure the same;

 

  (h) notify Tesla in advance of delivery in writing if the Supplier requires Tesla to return any packaging material to the Supplier. Such packaging material will only be returned to the Supplier at the Supplier’s cost and risk.

 

  (i) comply with a all provisions of the Tesla supplier handbook

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 28 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

Attachment 3

Transportation Routing Guide

[omitted]

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 29 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

Attachment 4

Supplier Corrective Action Request

Refer to Tesla Motors Document Numbers:

 

   

99-000002-02                 Corrective & Preventive Actions

 

   

99-000066-04                 Supplier Corrective Action Request form

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 30 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

Attachment 5

PPAP Submission Workbook

Refer to Tesla Motors Document Number:

 

   

99-000094-04                 PPAP Submission Workbook

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 31 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

Attachment 6

Tesla Motors Supplier Handbook

Refer to Tesla Motors Document Number:

 

   

99-000068-03                 Tesla Motors Supplier Handbook

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 32 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

Attachment 7

Tesla Tooling and Property Requirements

 

1 Unless otherwise agreed In writing by Tesla, the Supplier shall be responsible for and shall undertake the design and development of all tools, jigs, dies, gauges, fixtures, molds and patterns or other equipment necessary in the provision of the Items (“Tooling”), unless Tesla solely provides the design of the Tooling and provides instruction relating to design in which case the Supplier shall be responsible for producing the Tooling to the Tesla design. Supplier shall at its own expense furnish, keep in good condition, and replace when necessary all Tooling.

 

2 Supplier warrants that the design, assembly, manufacture or procurement of the Tooling shall render the Tooling fit for purpose and of satisfactory quality provided that the parties hereby acknowledge and agree that the Supplier shall not be in breach of this warranty if a design provided by Tesla is in error and such error is not due to the acts or omissions of the Supplier;

 

3 The cost of changes to the Tooling necessary to make design and specification changes authorized by Tesla shall, unless otherwise agreed in writing, be paid for by the Supplier. The Supplier hereby grants to Teals an irrevocable option (exercisable at any time during the duration of the Agreement or after its termination) to take possession of and title to the Tooling that are special for the provision of the Items upon payment to the Supplier of the book value thereof less any amounts which Tesla has previously paid to the Supplier for the cost of such Tooling.

 

4 All supplies, tools, jigs, dies, gauges, fixtures, molds, patterns, equipment and other items provided by Tesla, either directly or indirectly, to the Supplier, or for which the Supplier has been reimbursed by Tesla (“Tesla Property”), shall be and remain the property of Tesla and held by the Supplier on a bailment basis.

 

5 The Supplier shall bear the risk of loss and damage to Tesla Property. Tesla Property shall at all times at the Supplier’s cost

 

  (a) be properly housed and maintained In full working order;

 

  (b) be replaced by the Supplier (at the Supplier’s cost), if the replacement is required due to

 

  (i) abuse of the Tesla Properly; and/or

 

  (ii) failure to maintain, repair, service or house the Tesla Property.

 

  (c) not be used by the Supplier for any purpose other than the performance of an Order under the Agreement;

 

  (d) be conspicuously marked as property of Tesla by the Supplier;

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 33 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

  (e) not be mixed with the property of the Supplier or with that of a third party; and

 

  (f) not be moved from the Supplier’s premises, modified or replaced without Tesla’ prior written approval.

 

6 Upon the request of Tesla, the Teals Properly shall be immediately released to Tesla or delivered to Tesla’ premises by the Supplier properly packed and marked in accordance with the requirements of Tesla all at the Supplier’s cost or delivered to any location reasonably designated by Tesla, in which event Tesla shall pay the Supplier the reasonable cost of delivering such Tesla Property to such location.

 

7 The Supplier shall insure all Tesla Property against all risks for the replacement value and shall, upon Tesla’ request, provide to Tesla certificates or other satisfactory evidence of such insurance.

 

8 Tesla, its employees, agents and subcontractors may enter in or on the Supplier’s premises (or any other premises where the Tesla Property may be) at all reasonable times and on reasonable notice to Inspect the Tesla Property and the Supplier’s records with respect thereto and the Supplier hereby provides its irrevocable consent (and shall procure the irrevocable consent of any relevant third parties) to permit Tesla its employees, agents and sub-contractors to enter such premises for this purpose.

 

9 On termination of the Agreement (for whatever reason) the Supplier must not destroy the Tesla Property but shall liaise with Tesla over arrangements for the Tesla Property to be returned to Tesla.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 34 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

ATTACHMENT 8

Tesla Supplier Warranty Agreement Appendix 1

Tesla Purchase Cost for Replacement Parts

 

SUPPLIER PIN

  

TESLA PART No

   DESCRIPTION   PRICES
92079    06-00064-00 / 6000156    [***]   £[***]
98168    06-000936-00 /6000521    [***]   £[***]
91150    02-000724-00/ 2001996    [***]   £[***]
96825    02-001483-00 /2002144    [***]   £[***]
96888    06-000367-00 I 6000042    [***]   £[***]
96889    06-000340-00 / 6000039    [***]   £[***]
98205    06-000596-00 /6000107    [***]   £[***]
96829    01-000978-00 / 2000432    [***]   £[***]
96891    02-002406-00 /2002635    [***]   £[***]
96892    02-002407-00 /2002636    [***]   £[***]
96848    02-001839-00 /2002227    [***]   £[***]
99959    02-001485-00 / 2002146    [***]   £[***]

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 35 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

ATTACHMENT 9

Tesla Supplier Warranty Agreement Appendix 2

 

•  Labour Rate    £[***] Per Hour, or the equivalent in US Dollars at the exchange rate prevailing at the time of the claim.

The above rates are to be reviewed on a periodical basis to review authenticity to rates paid by Tesla to its Dealers.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 36 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

ATTACHMENT 10

Tesla Supplier Warranty Agreement Appendix 3

Agreed Repair Time Schedules

 

 

Description    Repair Time (mins)
TBA   

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 37 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

Attachment 11

Supplier Warranty

 

1.1 Without prejudice to any other rights of Tesla, express or implied by law, Supplier shall warrant that Supplier’s products (“Components’) shall be new and unused, free from defects In design, materials and workmanship, shall be fit for their purpose, of satisfactory quality and shall comply with all specifications, drawings, samples and other descriptions furnished or specified by Tesla and shall be approved for use in the Tesla installation and/or application subject to compliance to Tesla’s and/or the supplier’s sign off procedure.

 

1.2 The Components shall be of no lesser quality than any (prototypes or other trial) products delivered to or examined by Tesla prior to production supplies.

 

2. Warranty Reimbursement

 

2.1 The Supplier shall reimburse Tesla’s costs incurred in respect of the rectification and/or replacement of the Components which do not comply with the warranty as listed below.

 

  2.1.1 Material — Tesla purchase cost of replacement (failed) parts. See Attachment 8.

 

  2.1.2 Labour — The labour rate per hour see Attachment 9 multiplied by the labour time allowances as agreed between Tesla and Supplier as detailed in Attachment 10.

 

  2.1.3 Labour Only Claims — For the avoidance of doubt, where repairs/adjustments involve labour only, the Supplier shall reimburse such labour as detailed above.

 

3. Warranty Period

 

3.1 Original Equipment — [***] from the date of the retail of the vehicle to the end customer as reported by the Tesla dealer.

 

3.2 Parts — [***] from the date of retail of the part to the end customer.

 

3.3 Exclusions — All [***] product fails outside the normal terms & conditions of this agreement. Tesla will receive the warranty cost which [***] can recover from [***] themselves and which are within [***]’s warranty terms & conditions.

 

4. Warranty Procedure

 

4.1 All warranty claims will be raised upon the Supplier by Tesla. Warranty claims will be prepared as required when they arise. Only Tesla warranty claim forms are to be used.

 

4.2 The Supplier shall perform warranty adjudication and shall record its decision and its appropriate comments regarding the acceptance of liability for each of the Components, as follows:

Category I — Fault found and Is the Supplier’s liability

Category 2 — Fault found but is not the Supplier’s liability

Category 3 — No fault found

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 38 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

Category 4 — Not Supplier part

Category 5 — Out of Warranty Period

 

4.3 Supplier shall inform Tesla of the warranty adjudication within 28 days of a part being received at the supplier’s premises for Investigation. Rejection Categories 2, 3, 4 or 5, components will be returned to Tesla (Norwich) within 28 days of the warranty adjudication.

 

4.4 Failure to comply with the procedure in clause 4.3 will result in Tesla treating the warranty claim as 100% accepted by Supplier, unless a prior request for an extension by the Supplier has been received and agreed by Tesla. Debit notes will be raised by Tesla for warranty claims in respect of which Supplier fails to respond in accordance with clause 4.3.

 

4.5 Components returned to Tesla resulting from warranty judgements/rejections will be clearly identified by the warranty claim number and will be accompanied by a written endorsement for agreed category 2, 3, 4, and 5.

 

4.6 Supplier shall issue a credit note to Tesla referencing each agreed warranty claim.

 

4.7 Material will not be accepted in lieu of credit notes.

 

4.8 Supplier shall visit Tesla on an agreed regular basis to discuss warranty issues in general.

 

5. Component Returns

 

5.1 All warranty claim parts are to be returned to the Supplier. Tesla shall be responsible for returning the Components to the supplier’s premises. The Supplier will bear the cost of transportation only for claims which are accepted as valid by the supplier

 

5.2 Each Component returned will be labelled so as to refer to the warranty claim, which will provide the following information: Any claims missing all or part of this information will be rejected until all information is available

 

  5.2.1 Dealer name and Dealer code.

 

  5.2.2 Vehicle model.

 

  5.2.3 Vehicle serial number.

 

  5.2.4 Vehicle mileage.

 

  5.2.5 Date of sale of vehicle or installation date.

 

  5.2.6 Repair date.

 

  5.2.7 Customer complaint/defect code and comments.

 

  5.2.8 Part number causing failure.

 

  5.2.9 Claim number registered in Tesla.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 39 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

  5.2.10 Breakdown of warranty costs

 

  5.2.11 Warranty claim reference number.

 

6. Information

 

6.1 The Supplier shall not without first obtaining Tesla’s consent in writing supply Components to any Tesla dealer. For the purpose of this clause a Tesla dealer shall mean any distributor/dealer authorised by Tesla or any of Tesla’s subsidiary or associated companies to distribute, service and repair Tesla cars.

 

6.2 Tesla shall advise the supplier of the names and addresses of any UK or Export associated companies, branches and dealers to which the supplier may be asked to send products.

 

7. Recall Campaigns

 

7.1 If a repetitive defect or attributable batch quantity, or an otherwise significant problem in the Components or any range becomes apparent to either party after incorporation into Tesla cars, the parties shall immediately carry out a joint investigation to determine the cause of the defect, to evaluate any safety issues and to establish the remedial action required, if any.

 

7.2 If it is determined by either party that the relevant defect affects vehicle safety, Tesla and its service network shall implement an adequate recall or service action campaign. Such products as are or may prove to be defective shall be repaired or replaced as appropriate, including any units or parts held for replacement purposes.

 

7.3 Tesla shall give reasonable notice to the Supplier with reasonable substantiation of its intention to make a claim for reimbursement of recall costs under this agreement. Upon receipt of such written notice, the Supplier shall give Tesla either written acceptance of such costs or shall advise Tesla of its objection and provide supporting data. The merits of the claim and objection shall be considered by Tesla and the Supplier resulting in the amount of reimbursement to be agreed between Tesla and the Supplier. Prior agreement must be made by both parties before any costs are incurred.

 

8. General Matters

 

8.1 This agreement shall be effective for the duration of the Agreement.

 

8.2 The Supplier shall notify Tesla in advance of the Supplier’s proposal to transfer its business activities to a new owner. The Supplier shall not assign this agreement to any third party without the prior written consent of Tesla,

 

8.3 Any dispute or differences of opinion arising out of or in connection with this agreement shall initially be the subject of good faith negotiations between Tesla and the Supplier. In the event of negotiations not being successful the parties may agree to refer the matter to arbitration under the control of a mutually acceptable arbitrator.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 40 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

 

English law shall govern this warranty agreement

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   TESLA MOTORS CONFIDENTIAL/[***]    Page 41 of 41

Exhibit 10.25

Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

TESLA MOTORS, INC.

[Tesla Logo]

and

[***]

[***]

First DAY OF September, 2006

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
     


Confidential Treatment Requested by Tesla Motors, Inc.

 

THIS SUPPLY AGREEMENT is entered into as of this first day of September, 2006 (the “ Effective Date ”) between

 

  (a) Tesla Motors, Inc ., a Delaware corporation, with its principal place of business in San Carlos, California, U.S.A. and its subsidiaries in world wide locations, including Hethel, Norwich, Norfolk in the United Kingdom; and

 

  (b) [***], with its principal place of business in [***].

The Parties agree as follows:

1. Definitions .

Unless defined additionally elsewhere in this Agreement, the following capitalized terms shall have the meanings specified below:

(a) “ Agreement means (i) this Supply Agreement, (ii) all Attachments, and (iii) all Orders, as each may be amended from time to time.

(b) “ Attachment ” means any document that is referenced in this Supply Agreement and attached hereto. All Attachments are deemed to be incorporated into this Agreement by this reference.

(c) “ Order ” means an order for Items communicated pursuant to this Agreement by Tesla to Supplier via a purchase order whether in hardcopy or electronic form. All Orders are deemed to be incorporated into this Agreement by this reference.

(d) “ Internal Tesla Data ” means planning data, product engineering or manufacturing data, information, forecasts, Specifications or Confidential Information that is stored, displayed, maintained or accessed on the Tesla Web Site or other Tesla internal databases or internal network servers or storages.

(e) “ Items ” means, collectively either singular or plural, components, equipment, materials, subassemblies or other goods and related software and services specified in (i)  Attachment 1 , (ii) an Order; or (iii) a purchase order placed by Tesla with Supplier prior to the Effective Date and undelivered as of such date.

(f) “ Parties ” means Tesla and Supplier.

(g) “ Specifications ” means such drawings, designs, instructions, technical or performance requirements or other technical or commercial information relating to the design, development, manufacture, packaging and labeling, delivery, logistics, installation, assembly, testing and/or use of one or more Items.

(h) “ Sub-tier Supplier ” means a member of Supplier’s direct or indirect sub-tier supply base (including, without limitation, subcontractors and vendors of Supplier, and of Supplier’s subcontractors and vendors) that provides goods and/or services in connection with Items.

(i) “ Supplier ” means [***] and those of its subsidiaries and affiliates authorized in writing by Tesla to perform under this Agreement.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

(j) “ Tesla ” means Tesla Motors, Inc., including its subsidiaries existing on or after the Effective Date.

(k) “ Tesla Web Site ” means the portion of the password-protected Web Site, including the database related to supply chain management, maintained by Tesla, to which Supplier may be given access for the purpose of performing under this Agreement.

2. Scope of Agreement; Term .

(a) Scope of Agreement . This Agreement sets forth the terms and conditions governing the purchase and sale of Items, the relationship between Tesla and Supplier, and compliance with Tesla’s business processes. Tesla’s current business processes and requirements for certain matters covered by this Agreement, including packaging, delivery, shipment, crating and repair of Items, are set forth in the Attachments. Tesla Motors, Inc. and its subsidiaries shall be entitled to purchase Items from Supplier under this Agreement, and shall have all of the rights of “Tesla” under this Agreement. As to any purchase of Items under this Agreement by Tesla Motors, Inc., all obligations under this Agreement are the sole obligations of Tesla Motors, Inc. As to any purchase of Items under this Agreement by a subsidiary of Tesla, all obligations under this Agreement are the sole obligations of such subsidiary. Nothing in this Agreement shall prevent Tesla from engaging third parties other than the Supplier to provide goods or services the same as, or similar to the Items.

(b) Term . This Agreement shall commence on the Effective Date and, unless terminated as set forth in Section 21 (Termination), shall continue in effect for at least thirty-six (36) months. After thirty-six (36) months, this Agreement shall continue unless either party provides six (6) months prior written notice to the other party of such party’s desire to allow this Agreement to expire. The effective period of this Agreement is referenced as the “ Term .”

(c) Updating Business Processes . Tesla regularly improves its business processes. In that regard, Tesla shall have the right to amend any Attachment, other than Attachment 1, by giving notice thereof to Supplier in writing, or by other electronic means. All modifications to Attachment 1 shall be upon the mutual written agreement of the Parties.

3. Orders .

(a) Orders . All authorized demand signals for Items from Tesla to Supplier shall be in the form of “ Orders ”. An Order shall (i) identify the Items requested and (ii) state the quantity, date, time and place of delivery, and price of the Items requested (unless previously specified in Attachment 1, which shall control). Supplier shall accept communications of Orders in the format reasonably designated by Tesla.

(b) Acceptance/Rejection of Orders . Supplier shall promptly communicate its acceptance or rejection of an Order. Supplier shall not, however, reject (and shall be deemed to have accepted) an Order for Items set forth on Attachment 1 so long as the Order conforms to the terms and conditions of this Agreement (including without limitation lead time requirements specified for such Items on Attachment 1, if any). Any notice of rejection shall state the specific grounds for such rejection. In all events, any objection by Supplier to the terms of an Order shall be deemed waived upon Supplier’s delivery of Items.

(c) Order Adjustments . Supplier acknowledges that Tesla may be required to modify Orders from time to time. Tesla may increase the quantity of Items in any Order at any time prior to the scheduled delivery date and, provided such increase falls within the Quantity Adjustment

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

Schedule set forth below, (i) Supplier will deliver such increased quantity with no additional charges including accelerated delivery, expedite fees or the like, and (ii) such increase will not affect the delivery schedule of Items previously ordered.

 

Weeks until Delivery Date

   £ 2
weeks
    2< & £ 5
weeks
    5< & £ 10
weeks
    10<&20
weeks
    20<
weeks
 

Percent Quantity Adjustment for Authorized Order Signal

   [*** ]%    [*** ]%    [*** ]%    [*** ]%    [*** ]% 

If Tesla requires an increase in the quantity of Items in any Order and such increase does not fall within the Quantity Adjustment Schedule set forth above, then, if feasible and as mutually agreed upon by the Parties, Supplier will provide such increased Items in accordance with the modified Order and Tesla shall pay costs resulting therefrom, provided such costs are (i) reasonable; (ii) authorized by Tesla in writing in advance of delivery; and (iii) identified separately from the unit price on Supplier’s invoice to Tesla.

(d) Reduction or Cancellation of an Order . If Tesla requires a reduction in the quantity of Items in any Order, or cancels any Order, the Parties’ respective rights and obligations shall be as specified in Section 21 (Termination).

(e) Purchases by Authorized Third Party . Certain Items may be (i) incorporated into subassemblies, modules, or other products made for Tesla by a third party; or (ii) otherwise processed by a third party. In such event, Tesla may designate the third party as authorized to purchase Items from Supplier and, upon Supplier’s receipt of notice thereof, Supplier shall enter into an agreement with such third party to sell Items to the third party on terms (including pricing) no less favorable than the terms set forth in this Agreement.

(f) No Volume Commitment . Tesla does not commit to purchase a specific volume of any Items from Supplier except as specified in an Order and, subject to Supplier’s IP Rights (as defined in Section 11(c)), Tesla may manufacture or buy goods and/or services from third parties that are identical or similar to the Items.

4. Pricing .

(a) Contract Price . “ Contract Price ” means the domestic and/or export price in British Pounds Sterling for an Item as set forth on Attachment 1; provided, that if a price for an Items is not specified on Attachment 1, then the Contract Price shall be the price set forth in an Order that is accepted by Supplier in accordance with this Agreement. The Contract Price for each Item shall remain in effect throughout the Term, except for any changes mutually agreed to by the Parties in writing. Any change in circumstances, may result in a review of Agreement terms and/or negotiated reduction in the Contract Price.

(b) Pricing Components . The Contract Price, and any quotations for Items, shall include all finishing, testing, inspecting and packaging fees, applicable royalties and all applicable taxes (excluding sales, use and similar taxes). Any quotations for Items shall include all costs relating to warranties. Any quotations for Items shall not include any amounts relating to (i) initial set-up charges; (ii) costs for special dies, tools, patterns or test fixtures; and (iii) non-recurring engineering fees amortized into the per unit price, unless separately identified and itemized.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

(c) Transportation Costs . Pursuant to Section 6(b), below, Tesla pays transportation charges directly to certain common carriers designated by Tesla. For those Items where Tesla pays such charges, pricing in a quotation or invoice or as set forth in Attachment 1 shall not include any transportation costs. For all other Items, all costs for shipping, import/export fees, customs, and other transportation expenses shall be separately identified and itemized by Supplier in each quotation or invoice or on Attachment 1.

(d) Taxes . Tesla will pay any applicable sales, use or similar tax imposed in connection with the sale of Items to Tesla; provided, that Supplier shall not charge or collect, and Tesla shall have no liability for, taxes on any sale of Items for which Tesla has provided Supplier with an appropriate resale certificate or other documentation evidencing an exemption from such taxes. For all sales of Items upon which tax reimbursement to Supplier is applicable, Supplier shall separately itemize all applicable taxes on invoices submitted to Tesla. All amounts payable under this Agreement are exclusive of Value Added Tax (VAT) which will be paid at the date and in the manner for the time being prescribed by law.

(e) The Supplier agrees that for the purposes of calculating and paying the Contract Price it shall allow Tesla (including Tesla’s accountants and other professional advisors) access to its financial and other records. The Supplier agrees that it will at all time during the term of this Agreement maintain accurate and up-to-date financial and other records of all costs and other matters relevant to the provisions of this clause. The Supplier agrees that it shall complete a Tesla quotation analysis form upon request from Tesla.

(f) No increase in the Contract Price may be made (whether on account of increased materials, labor or transport costs, other fixed or variable costs, fluctuation in exchange rates, pricing errors or otherwise) without the prior written consent of Tesla. For the avoidance of doubt, Tesla shall be under no obligation to consent to any such increase.

(g) Tesla and the Supplier shall work together to reduce the cost to the Supplier of producing the Items and to improve the Items in both manufacture and assembly and the Supplier shall aim to reduce the Contract Price once the product has reached full production volume.

5. Delivery of Items .

(a) Delivery Requirements . Time is of the essence as to the delivery of all Items ordered under this Agreement. Supplier shall meet the (i) negotiated lead time; (ii) order adjustment requirements as set forth in Section 3; and (iii) time, date, location and other delivery requirements for Items, as specified in Attachment 1 or, if not set forth in Attachment 1 , as set forth in the Order for said Items. Delivery will be considered timely only if Items are delivered in the correct quantity, and at the time, date and location specified in the Order. If necessary for Supplier to meet its delivery requirements, Supplier, at its expense, will use expedited delivery methods to complete and deliver the Items.

(b) Remedies . If Supplier fails to deliver any Items at the time and place set forth in the Order, Tesla shall have the right, at its sole option, to (i) require Supplier, at Supplier’s expense, to use expedited delivery methods to complete and deliver the Items; (ii) allocate or redirect the Supplier’s deliveries of Items to certain Tesla designated locations; (iii) reverse manufacture Items previously purchased by Tesla to obtain component parts and then debit Supplier the reasonable fair market value for those unused remaining component parts that Tesla returns to Supplier; or (iv) purchase products comparable to the Items in the open market or from other suppliers and charge Supplier with any cost differential between the Contract Price and the

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

price paid in the open market or to other suppliers, which cost may include premium costs for expedited delivery and administrative costs.

6. Shipping and Risk of Loss .

(a) Shipping and Packaging Requirements .

(i) Supplier will ship all Items in accordance with (A) the authorized shipping service level (ground, sea, air, second-day, next-day, etc.) included in an Order; and (B) “Transportation Routing Guide” (“ Attachment 3 ”), including use of approved carriers as may be applicable given the classification of the shipment (i.e., domestic or international).

(ii) Supplier shall comply with any special packaging and labeling requirements for Items as set forth in the “Transportation, Packaging and Label Specifications” (“ Attachment 2 ”). In the event such Attachments are not applicable to an Item, the Items shall be packaged, marked and labeled in accordance with best commercial practices, along with all required shipping documentation. In all events, Supplier must include a valid packing slip number or package ID on each package or shipment of Items.

(iii) If Supplier delivers Items that do not meet the packaging or labeling requirements of this Agreement, Tesla may reject the Item, treat the Items as non-conforming to Specification, or charge and bill to Supplier all repackaging and re-labeling costs and expenses incurred by Tesla as a result of Supplier’s failure to comply with the packaging and labeling requirements of this Agreement.

(b) Shipments and Insurance .

(i) Domestic Shipments . For Items manufactured in the country where the applicable destination point is also in the same country, Tesla shall be responsible for all costs and expenses to deliver the Items to the applicable destination point once such Items have been tendered to the carrier, provided that Supplier uses a shipping service level (ground, air, second-day, next-day, etc.) that does not exceed the shipping service level authorized in the corresponding Order and in accordance with Tesla’s Transportation Routing Guide. All delivery costs and expenses for such shipment shall be specified as “Freight — Third Party Bill” on bills of lading or shipping receipts, to be paid directly by Tesla. Unless specifically approved by Tesla in advance, Tesla shall not be responsible for delivery costs and expenses (i) for a shipping service level that exceeds the shipping service level authorized in an Order; (ii) in excess of the costs determined under Tesla’s Transportation Routing Guide for applicable delivery methods; (iii) payable to carriers not approved under Tesla’s Transportation Routing Guide, (iv) incurred as a result of Supplier’s need to use expedited delivery methods, unless Tesla agrees to pay for such expedited delivery methods in advance in writing, or (v) incurred in connection with the transportation of Items between Supplier and a Sub-tier Supplier or any other supplier.

(ii) International Shipments . For Items where the designated Tesla destination point is in a different country, Supplier shall at no additional charge clear all Items for export from the country of manufacture and shall be responsible for delivery of Items from Supplier’s manufacturing facility to Tesla’s designated international carrier’s dock. Tesla shall be responsible for all costs and expenses (other than insurance, but including import duties and brokerage fees) to deliver the Items to the Tesla destination point once such Items have been tended to the carrier’s dock, provided that Supplier uses a shipping service level that does not exceed the shipping service level authorized in the corresponding Order and in accordance with Tesla’s Transportation Routing Guide. All delivery costs and expenses for such shipment shall

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

be specified as “Freight — Third Party Bill” on bills of lading or shipping receipts, to be paid directly by Tesla. Unless specifically approved by Tesla in advance, Tesla shall not be responsible for delivery costs and expenses (i) for a shipping service level that exceeds the shipping service level authorized in the Order; (ii) in excess of the costs determined under Tesla’s Transportation Routing Guide for applicable delivery methods; (iii) payable to carriers not approved under Tesla’s Transportation Routing Guide, (iv) incurred as a result of Supplier’s need to use expedited delivery methods, unless Tesla agrees to pay for such expedited delivery methods in advance in writing, or (v) incurred in connection with the transportation of Items between Supplier and a Sub-tier Supplier or any other supplier.

(iii) Other Shipments . For Items not covered by Section 6(b)(i) and (ii) above, Supplier shall pay all delivery costs and expenses to deliver the Items to the applicable destination point, and Tesla shall reimburse Supplier for all such reasonable costs and expenses if incurred and itemized by Supplier in accordance with this Agreement.

(iv) Insurance and Risk of Loss . In all events, Tesla shall be responsible to insure such Items during transport up to at least the Contract Price of such Item. Supplier shall be responsible for the risk of loss to Items until delivered to the applicable destination point and accepted by Tesla. In addition, Supplier’s responsibility for risk of loss continues with respect to any Items rejected by Tesla, or as to any Items for which acceptance is revoked, except if such loss is caused by the negligence or willful misconduct of Tesla’s employees.

7. Acceptance and Title Transfer . Title to Items will only transfer to Tesla upon acceptance of an Item. Acceptance shall occur only in the event that: (i) Tesla or its designee has received the Items at the specified destination point; and (ii) either (1) Tesla or its designee has entered the Items into Tesla’s internal systems, or (2) a period of five (5) days from the delivery of the Items has elapsed. At any point prior to acceptance, Tesla may reject and return any Items that does not conform to the applicable Specifications and incur no liability or obligation related to such Item. As to Items that are rejected and returned, Tesla may recover and offset or adjust payments in respect of such Items, including any costs or fees related to shipping and insuring such Items.

8. Payment

(a) Payment Terms . Payment by Tesla for Items shall be made within forty five (45) days from end of month of delivery or month of receipt of valid invoice, whichever is later. Tesla is authorized by Supplier to make payments under this Agreement by either check or electronic funds transfer, and Supplier shall provide Tesla with the information necessary for electronic funds transfer capability.

(b) Invoices . Supplier will remit Items invoices to Tesla no earlier than when the Items are shipped to Tesla and adhere to the invoicing requirements for suppliers as defined by Tesla.

(c) Effect of Payment and Right to Offset . Tesla’s payment for Items shall not affect the time at which title to Items passes to Tesla nor shall it preclude revocation of acceptance. All payments shall be subject to adjustment for errors, shortages, non-conformities or defects. Tesla may at any time set off any amount owed by Tesla to Supplier against any amount owed by Supplier to Tesla.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

9. Confidentiality and Prohibited Activities .

(a) General . “ Confidential Information ” means all information obtained by, disclosed to, or developed by Supplier and that is based on, incorporates, constitutes or derived from any of the following that were obtained, directly or indirectly, from Tesla: samples, schematics, drawings, designs, Specifications, internal data, manuals, forecasts, Orders, customer information and other technical, business, financial or trade secret information. Parties agree that such Confidential Information may be obtained by Supplier from Tesla during the term of business relations between Tesla and Supplier, or in connection with the negotiation, performance or enforcement of the Agreement. Confidential Information does not, however, include information that (i) is or becomes a matter of public knowledge through no fault or act of Supplier; (ii) is rightfully received by Supplier from a third party not subject to restriction on disclosure of such information; (iii) is independently developed by Supplier without the use of any Confidential Information; or (iv) was rightfully in the possession of Supplier prior to its disclosure by or on behalf of Tesla; provided, however, that such information shall be Confidential Information to the extent that (1) such information constitutes specific information, even if it is embraced by more general information which is a matter of public knowledge or in the possession of Supplier, or (2) such information is a combination of individual items of information, even if that combination could be reconstructed from non-confidential sources if none of the non-confidential sources shows the whole combination and its principle of operation; and, provided further, that the sale or unrestricted disclosure of Items or other article or product made through a confidential manufacturing process of Tesla shall not be deemed to constitute a public disclosure of the process. Supplier shall use reasonable care to protect the confidentiality of Confidential Information, and in any event, Supplier shall use at least that degree of care that Supplier uses to protect its own like information.

(b) Permitted and Prohibited Activities . Except as expressly set forth in this Section 9 or agreed by Tesla in writing, Supplier (i) may use Confidential Information solely for the purpose of providing Items to Tesla, (ii) may provide Confidential Information only to those individuals who need to know such Confidential Information to provide Items to Tesla, provided that it is clearly marked as “Tesla Motors Confidential” and provided that such individuals have agreed in writing to protect Confidential Information pursuant to a non disclosure agreement as set forth in Section 17(b) below, and (iii) shall not use or disclose any Confidential Information for any other purpose, including: (A) reverse engineering the Items; (B) developing, designing, manufacturing, engineering, refurbishing, selling or offering for sale, any “ Prohibited Replacement ,” which means any good or service which may be used or sold as a replacement for any Items or other good used on or with Tesla product for which Tesla provided Supplier with Confidential Information at any time, including modifications to any Item; or (C) assisting any third party in any manner to perform any such activities. In addition, Supplier shall not make or sell to any third party any Prohibited Replacement. Further, Supplier agrees not to disclose to Tesla any information that any third party regards as proprietary or confidential. Supplier’s obligations under this Section 9(b) shall not apply to any disclosure required by applicable law, court order or legal process, provided that Supplier shall (1) if permitted by applicable law, promptly notify Tesla of its intent to make such disclosure, which notice shall be in writing and delivered at least ten (10) days’ prior to the intended disclosure (or such shorter period as necessary to comply with applicable law), (ii) redact and keep confidential all financial terms and such other terms as agreed by the Parties after conferring in good faith and consistent with applicable law, and (iii) seek a protective order or confidential treatment from the tribunal or governmental agency for any agreements or other documents to be disclosed or filed, and disclose or file the minimum information and/or documents necessary to comply with applicable law, legal process or court order.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

(c) Notice of Disclosure . Supplier shall, immediately upon becoming aware of it, give notice to Tesla of any unauthorized disclosure, misuse, theft or other loss of Confidential Information, whether inadvertent or otherwise.

(d) Other NDA’s . During the business relationship between Supplier and Tesla one or more NDA’s may be, or may have been, entered into. In the event of an apparent conflict between or among provision(s) of this Agreement and any NDA, such provisions shall be read in a mutually consistent way, or if no such reading is reasonably possible, the provision(s) that are most protective of Confidential Information shall take precedence over conflicting or less protective provision(s).

(e) Equitable Relief . Supplier agrees that Tesla would suffer irreparable harm for which monetary damages are an inadequate remedy, and that equitable relief is appropriate, if Supplier were to breach or threaten to breach any obligations in this Section 9.

(f) Press Releases/Publicity Not Authorized . The existence and terms of this Agreement are Confidential Information. Except as permitted by Section 9(b) above, Supplier will not issue any press release, advertising, publicity or public statement or in any way engage in any other form of public disclosure that indicates Tesla’s relationship with Supplier or implies any endorsement by Tesla of Supplier or Supplier’s products or services, without the prior written approval of Tesla.

(g) Disposal of Confidential Information . Upon the termination or expiration of the Agreement, and otherwise upon the request of Tesla, Supplier will promptly return to Tesla all Confidential Information and all documentation that reveal or are based in any way on Confidential Information, and permanently eliminate the same from all of its computer and information storage systems. Supplier may, however, with Tesla’s prior written approval, destroy any Confidential Information or documentation, provided that Supplier certifies to Tesla the destruction of such Confidential Information or documentation. Thereafter, Supplier shall cease all use of Confidential Information. In addition, Supplier agrees it will immediately return to Tesla any materials provided to it to facilitate electronic access to Internal Tesla Data, including data access hardware, documents, software or other items.

10. Electronic Access to Internal Tesla Data .

(a) General . If Supplier is granted access to Internal Tesla Data then, in addition to Supplier’s obligations under Sections 9 and 11, the terms and conditions of this Section 10 shall apply. Supplier’s access to the Internal Tesla Data is subject to compliance with (i) the terms of use, if any, of the Tesla Web Site or such other database or intranet, as applicable, and (ii) any technical, security, and software licensing requirements of Tesla, including the issuance of passwords and requirements related to using Tesla’s virtual private network. Tesla may terminate Supplier’s right of access or change the method of access to the Internal Tesla Data at any time. In no event shall Supplier facilitate or enable access to Internal Tesla Data by any Sub-tier Supplier or other third party. In no event shall Supplier facilitate or enable access to Internal Tesla Data by its employees or contractors that may either cause to exceed the available number of authorized software licensing seats or violate the login authority (for example, improper sharing of a single user name and password by multiple users).

(b) Use . If Tesla grants Supplier access to the Internal Tesla Data, then Supplier shall have the limited right to download, store, display and use Tesla Internal Data for the sole purpose of performing its obligations under this Agreement. Supplier may not use the Tesla Internal Data in any other way, commercially or otherwise. Unless otherwise notified by Tesla, Supplier may

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

store copies of Internal Tesla Data on Supplier’s networks and information storage systems, provided, such Internal Tesla Data is stored either on hardware that is dedicated solely to Tesla, or otherwise separated from other information of Supplier, so that the Internal Tesla Data is not accessible to individuals except as authorized by this Agreement. If Tesla provides Supplier with any recommendations for establishing an interface or other methods of accessing the Internal Tesla Data, Supplier assumes all risk in implementing any such recommendation.

(c) Consent to Monitoring . Supplier agrees that its access to and use of Internal Tesla Data and all acts in connection with Tesla’s internal systems are recorded and may be monitored. Supplier expressly consents to such recording and monitoring. If such recording or monitoring reveals possible evidence of criminal activities involving any individual, then Tesla may provide such evidence to the appropriate law enforcement organization and take any other appropriate action.

11. Intellectual Property Rights .

(a) Definitions . “ Works ” means all works including without limitation all notes, code, art work, reports, documentation, drawings, creations, devices, models, works-in-progress, inventions, discoveries, specifications, works of authorship, know-how, technical information, work product, and/or other information. “ IP Rights ” means all rights, whether registered or unregistered, including all patents, copyrights, trade secrets, trademarks, service marks, trade names, mask works, moral rights and other proprietary rights in any jurisdiction.

(b) Tesla’s IP Rights . As between Tesla and Supplier, Tesla owns all right, title, and interest in IP Rights in or to any Works made, conceived, or developed by Tesla employees or contractors (“ Tesla Personnel ), and all IP Rights acquired by Tesla or otherwise owned by Tesla. All IP Rights owned by Tesla as set forth in this Section 11(b), or transferred to Tesla by Section 11(d) or Section 17(b), are referenced in this Agreement as “ Tesla’s IP Rights .”

(c) Supplier’s IP Rights . As between Tesla and Supplier, except as set forth in Section 11(d) and Section 17(b), Supplier owns all right, title and interest in IP Rights in or to any Works made, conceived or developed by Supplier employees or contractors, and all IP Rights acquired by Supplier or otherwise owned by Supplier. All IP Rights owned by Supplier are referenced in this Agreement as “ Supplier’s IP Rights .”

(d) Assignment . Supplier irrevocably transfers and assigns to Tesla all IP Rights in or to (i) any Works made, conceived or developed by Supplier, either alone or with others, with the assistance (financial or otherwise), collaboration, input, involvement, or development efforts of Tesla or Tesla Personnel, and (ii) any Works that are not made, conceived, and developed independent of Tesla’s IP Rights (including Confidential Information). Supplier shall not improve, enhance, or modify any Works in which Tesla owns IP Rights without Tesla’s express prior written consent. In any event, if Supplier improves, enhances, or modifies any Works in which Tesla owns IP Rights, Supplier irrevocably transfers and assigns to Tesla all IP Rights in or to such improvement, enhancement, or modification. In the event that any of the foregoing transfers and assignments by Supplier is to any extent ineffective, Supplier shall grant to Tesla an exclusive, royalty free, irrevocable, perpetual, worldwide license to make, use, market and sell such IP Rights.

(e) License . Tesla grants to Supplier a non-exclusive, revocable, royalty-free, limited and nontransferable license to use Tesla’s IP Rights solely for the purpose of performing Supplier’s obligations under this Agreement to manufacture and sell to Tesla Items under the Agreement. This license may be revoked by Tesla at any time, with or without cause, and shall expire in any

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

event, if not sooner revoked, on the expiration or termination of the Agreement. Such license shall not be assigned or transferred in any way, except by limited sublicense to Sub-tier Suppliers for the sole purpose of providing Items to Tesla, or to Tesla-designated third parties, in accordance with this Agreement, and shall not succeed to or vest in any successor. Supplier acknowledges Tesla’s IP Rights are not capable of being independently exploited by Supplier other than in the context of this Agreement. As such, Tesla does not grant to Supplier any other license, right to sublicense or other right to or under any Tesla IP Right for Supplier’s own benefit to use in any other way, commercially or otherwise, or to provide or offer Items or other products or services to any party other than Tesla.

(f) Further Assurances . At no cost to Tesla, Supplier will take, and will cause its employees and agents to take, all actions reasonably requested by Tesla, from time to time, to fully vest, perfect or defend Tesla’s IP Rights. Such actions shall include providing documents and information useful or necessary to register, apply for or maintain any of Tesla’s IP Rights.

(g) License to Marks . Tesla grants to Supplier a non-exclusive, revocable, royalty-free, limited and non-transferable license to affix or install on Items those trademarks, service marks and trade names of Tesla’s (collectively, “ Marks ”) that are specified to be installed or affixed under Tesla Specifications for the Items, provided that Supplier complies with all requirements set forth in Attachment S. Such license of Marks is limited, revocable by Tesla, shall not be assigned, sublicensed or transferred in any way and shall terminate upon termination of this Agreement. Use by Supplier of all Marks shall be solely for the benefit of Tesla and as directed by Tesla. Supplier shall install and affix the Marks solely in accordance with Tesla’s specifications, packaging and labeling requirements and any quality requirements for the Marks or Items that Tesla may establish. Tesla may inspect Supplier’s facilities and examine Items at any time during normal business hours to monitor, or evaluate the quality of, the Marks affixed to the Items.

(h) Audit . Supplier shall permit Tesla, and cause its employees and agents to permit Tesla, to audit and verify compliance with Sections 9 and 11.

(i) Continuity of Supply for Essential Items . “ Essential Item ” means Items that, at any time, Tesla is not able to replace with a reasonably practicable commercial alternative within six (6) months or less of Tesla desiring to do so. Upon Tesla’s request, Tesla and Supplier will agree upon a mechanism to maintain Tesla’s continuity of supply with respect to an Essential Item, such as agreeing upon the terms of a “lifetime buy” or executing a mutually agreeable escrow or license agreement.

12. Warranty .

(a) Supplier Warranty : Supplier represents and warrants that, for a period of [***] from the date of delivery to Tesla, the Items (i) will be free from defects in workmanship, material, and manufacture; (ii) will comply with the requirements of this Agreement, including all Tesla Specifications and manufacturing work instructions; and (iii) will be of merchantable quality and fit and suitable for the purpose intended by Tesla. Supplier further represents and warrants that (A) the Items will consist of new (not used or recycled) material, and (B) Tesla shall acquire good and marketable title to the Items, free and clear of all liens, claims and encumbrances. Further, to the extent that the design of Items is Supplier’s responsibility, Supplier represents and warrants that such design will be free from defects. Supplier acknowledges that Tesla’ intended use of the Items (as components in an electric motor vehicle for sale and use in various territories throughout the world, albeit initially and primarily the United States Of America) and expressly warrants that the Items covered by this Agreement have been selected,

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

designed, manufactured, supplied and/or assembled by the Supplier will be fit and sufficient for the particular purposes intended by Tesla.

(b) Services . Supplier represents and warrants that, for a period of [***] from delivery to Tesla, all services performed in connection with this Agreement will be performed with reasonable skill and care, in a competent, professional and workmanlike manner, free from defects, and in accordance with the best professional practices in the industry. For the purposes of this Section 12, the results of any service performed by Supplier will be considered included in the term “ Item .”

(c) Free from Infringement . Supplier represents and warrants that the Items, including the manufacture, use and sale of the Items, shall not give rise to, nor be subject to, any claim or liability for infringement of any intellectual property rights, including any patent, copyright, trademark, trade secrets, moral rights, confidential information or any other proprietary or intellectual property rights, of any third party, except to the extent that the infringement was unavoidably caused by Supplier’s compliance with a detailed design furnished and required by Tesla.

(d) Assignments of Warranty . Supplier hereby assigns and transfers to Tesla all warranties provided to Supplier with respect to the Items, or any portion thereof, and represents and warrants that such warranties are fully assignable to Tesla and by Tesla to its customers or subsequent purchasers of the Items.

(e) Remedies . If Items do not meet the warranty requirements set forth in this Agreement, Tesla may, at its option, (i) require Supplier to correct any defective or nonconforming Items by, at Tesla’s option, either repair or replacement; or (ii) return such defective or nonconforming Items to Supplier and recover from Supplier the Contract Price thereof; or (iii) correct the defective or nonconforming Items and charge Supplier with the cost of such correction; or (iv) purchase products comparable to the defective or nonconforming Items in the open market or from other suppliers, as deemed appropriate by Tesla, and, at Tesla’s option, charge Supplier with any reasonable cost differential between the price of the Items under this Agreement and the price paid, which cost may include premium fees for expedited delivery and administrative costs. In addition, Tesla may cancel the undelivered balance of the defective or nonconforming Items and/or terminate this Agreement pursuant to Section 21(a) (Termination for Default). If a defective or non-conforming Items damage other property of Tesla, Supplier shall pay all reasonable costs to repair such damaged property as directed by Tesla, or, if repairing the property is not commercially reasonable, to replace it. As to any Items that are repaired, replaced or corrected under this Section 12, Supplier’s warranty shall continue to apply to such Items for (A) the full remaining balance of the original [***] term applicable to such Item, or (B) ninety (90) days from the date such repaired, replaced or corrected Items are received and accepted by Tesla, whichever period of time is greater. Upon request from Tesla Supplier shall provide pre-approved returned material authorization (“ RMA(s) ”) to facilitate return of Items. Tesla may notify Supplier of defects and nonconformance and communicate its elected remedy by delivery of notice in the form of a “Supplier Corrective Action Request” (“ Attachment 4 ”) and closed-loop corrective action processes.

(f) Extended Warranty; Epidemic Failure . Without limiting Tesla’s rights as specified elsewhere in this Section 12, if Items are discovered to be defective or nonconforming at a statistically higher rate than the rate applicable to such Items as established upon mutual agreement of the Parties and set forth in Attachment 1, (or if no rate is specified by agreement with respect to an Item, then [***] of such Items delivered in any three consecutive months), then, at no cost to Tesla and at Tesla’s option, Supplier will (i) extend the warranty period for all

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

such Items for no less than an additional [***] from the date on which the warranty for the Items would otherwise expire, and/or (ii) compensate Tesla for all expenses associated with correcting the defect/nonconformance, including field support, logistics (freight, duties), advanced exchange of a refurbished part, refurbishment, and any required upgrade cost including qualification.

(g) Timing . If Supplier receives notice that Items are defective or non-conforming, then Supplier will use the most expeditious manner possible to effect the action specified by Tesla, including the use of overnight delivery services for shipment of Items to and from Tesla. For any Items for which a repair or replacement timeline is identified in Attachment 1, Supplier will repair or replace such Items within such timeline. In all events, however, as to any Items that Tesla identifies as “production” or that are delivered by Supplier for the purposes of production, Supplier will replace or repair the defective or non-conforming Items within four (4) hours from receipt of Tesla’s request.

(h) Costs . Supplier shall be solely responsible for all costs, fees and expenses in connection with fulfilling its obligations under this Section 12, including all labor, material, parts, shipping, taxes, customs and other costs, fees and expenses arising from, among other things, the removal, repair, replacement, reinstallation, inspection, shipping and testing of any defective or nonconforming Items. If any such costs, fees or expenses are incurred or paid by Tesla (including, for example, the cost to remove such Items from a customer site), or if Tesla incurs increased costs as a result of Supplier’s breach of warranty (including without limitation overtime or increased shipping charges) or suffers lost productivity as a result of Supplier’s breach of warranty (including without limitation a reasonable estimate of the hourly cost to Tesla of Tesla’s employees whose time is wasted), Tesla may charge and bill such costs to Supplier, and may offset such costs against amounts otherwise due to Supplier from Tesla. All costs reimbursable to Tesla under this Section 12 shall be due and payable on demand.

13. Supplier Performance Plan . Tesla and Supplier will jointly develop a supplier performance plan. Supplier agrees to self-monitor its performance, at both corporate and operational site levels, against the performance targets established in the plan. At least once a month, Supplier will submit to Tesla its actual performance against performance targets.

14. Manufacturing and Quality Requirements .

(a) Production Part Approval Process (“ PPAP ”) . Tesla and Supplier shall follow the PPAP requirements set forth in “PPAP Submission Workbook” (“ Attachment 5 ”). Supplier shall provide all necessary documentation.

(b) Design and Process Change Communication . After Tesla has approved the PPAP Submission, Supplier shall not make any change to the design (firmware, hardware or software) of the Items that may alter the Specifications or the form, fit, function or interchangeability of parts without first informing and obtaining approval from Tesla. Supplier will not make, or permit Sub-tier Suppliers to make, changes to the manufacturing process of such Items, including a transfer of any portion of the design, manufacturing, or assembly process to a different facility, without first obtaining such approval from Tesla.

(c) Other Changes and Equitable Adjustments . Tesla may, upon notice to Supplier, submit Engineering Change Orders (“ECOs”) or request other changes within the scope of the Agreement with respect to any of the following: (i) Specifications; (ii) the place and date of delivery of Items; or (iii) the place, date and manner of inspection or acceptance of Items. Supplier agrees that it will use reasonable efforts to accommodate such requests in a timely and

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

cost effective manner. If any request for such changes causes an increase or decrease in the cost of or time required for performance of the Agreement, Supplier may propose, and Tesla will then consider, an equitable adjustment in the Contract Price or delivery schedule, or both, and if the Parties agree to an adjustment, the Agreement shall be modified in writing accordingly. if Tesla and Supplier are unable to agree upon an equitable adjustment, then Tesla may remove the affected Items from this Agreement without affecting the remaining Items, and Supplier shall not be required to supply the Items as modified by the ECO to Tesla. No claim by Supplier for adjustment under this subsection shall be valid unless in writing and received by Tesla within thirty (30) days from the date of Supplier’s receipt of the notice of such change; provided, however, that such period may be extended upon the written approval of Tesla.

(d) Quality Requirements . Supplier shall comply with Tesla’s quality requirements set forth in Attachment 6 entitled “Tesla Motors Supplier Handbook”.

(e) Minimum Environmental, Health & Safety Requirements . Supplier shall comply with, and shall cause Sub-tier Suppliers to comply with, any applicable environmental, health or safety law, rule, regulation, order, decree or ordinance.

(f) Safety Notices . In addition to any of Supplier’s obligations under this Agreement or Supplier’s or Sub-tier Suppliers’ obligations imposed by law, Supplier will immediately notify Tesla of any known or suspected safety issues related to Items (including component or material issues).

15. Management of Finished Goods Inventory .

(a) Designation of Inventory Liability Items . Tesla may designate certain Items as “ Inventory Liability Items ” by (i) reporting a non-zero “Target Inventory” quantity for those Items in an authorized inventory planning tool, or (ii) identifying Items as an Inventory Liability Items on Attachment 1, or otherwise providing Supplier with written or electronic notice of such designation. So that Tesla can set appropriate Target Inventory quantities, Supplier shall actively maintain accurate lead times for all Items in such authorized inventory planning tool, using the definition of “lead time” designated by Tesla from time to time for this purpose. Supplier agrees to manufacture and stock such Inventory Liability Items in accordance with this Section 16; and/or, if requested by Tesla, a separate written agreement between Tesla and Supplier.

(b) Forecasts . Tesla may periodically issue to Supplier rolling forecasts setting forth projected demand for Items (“ Tesla Forecasts ”). Tesla Forecasts are intended for planning purposes only and shall not constitute a binding purchase commitment of Tesla. if Tesla designates a Inventory Liability Items under Section 16(a)(ii), and does not specify a “Target Inventory” quantity for it in an authorized inventory planning tool, then that Item’s Target Inventory quantity shall equal the two (2) weeks forecasted demand for that Items in the most recent and most specific Tesla’s Forecast for that Item. (The Parties may modify this number of weeks for any particular Items in Attachment 1.)

(c) Inventory Levels and Tracking Requirements . Unless otherwise designated in Attachment 1 or a separate written agreement, Supplier will maintain the “Target Inventory” quantity, if any, of each Inventory Liability Items as specified by Tesla from time to time. All Inventory Liability Items manufactured by Supplier to meet a then-current Target Inventory quantity shall be considered “ Finished Goods Inventory ” under this Agreement. When Supplier is creating inventory levels to satisfy required Target Inventory levels of Finished Goods Inventory, any reduction in quantity of Items that were ordered pursuant to an Order, or

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

any quantity of Items ordered pursuant to an Order that is later cancelled by Tesla, shall be returned to Supplier’s inventory and Supplier will increase its inventory levels accordingly. Supplier shall monitor and report its work-in-process and Inventory Liability Items count to Tesla for all Finished Goods Inventory.

(d) Claim for Reimbursement of Excess Items . If Tesla has not taken delivery of any unit of a Inventory Liability Items in Finished Goods Inventory within twelve (12) months from the date of Tesla’s last receipt of any such unit, Supplier may then submit a claim for reimbursement for such Items (“ Excess Items ”) to Tesla within thirty (30) days from the end of such twelve (12) month period. Supplier’s failure to submit such a claim within this thirty (30) day period shall constitute waiver of any claim for reimbursement for Excess Items and Tesla shall be released from all liability relating to such Excess Items.

(e) Claim for Reimbursement of Obsolete Items . An Inventory Liability Items in Finished Goods Inventory will be considered an “ Obsolete Item ” when Tesla provides notice to Supplier that such Inventory Liability Item is an “Obsolete Item.” If Supplier desires to submit a claim for costs associated with Obsolete Items, then Supplier shall submit a claim for such Obsolete Items within thirty (30) days from the date on which Tesla notifies Supplier that the Inventory Liability Items are Obsolete Items. Supplier’s failure to submit such a claim within this thirty (30) day period shall constitute a waiver of any claim for reimbursement for such Obsolete Items and Tesla shall be released from all liability relating to such Obsolete Items.

(f) Scope of Claim . Tesla will not be liable for Finished Goods Inventory other than as described in this Section 16. In addition, no claim for reimbursement or payment for Finished Goods Inventory shall be made in the following situations: (i) any termination by Tesla pursuant to Section 21(a) (Termination for Default); (ii) if Supplier has introduced design or product changes; (iii) Supplier errors in production; (iv) if Supplier has been paid for such Items previously or has made a claim for reimbursement or payment for such Items previously; (v) if such Items are “ Commercial Off-the-Shelf Items ” meaning Items that are standard or stock items in the industry or have been manufactured to Supplier’s specifications in contrast to Items manufactured to build-to-print specifications of Tesla or its customer; (vi) if Supplier has failed to fulfill its obligations to meet with Tesla in accordance with Section 16(i), unless Supplier is unable to do so because of actions of Tesla; (vii) if such Items were not disclosed by Supplier to Tesla on each report required by Section 16(i) when each such report was due; or (viii) if Supplier fails to participates in Tesla’s ECO process as reasonably requested by Tesla, including without limitation providing accurate information about such Items that will be affected by a proposed ECO and that Supplier has in inventory or on order so that Tesla can plan its ECO implementation to minimize the quantity of on-hand and/or on-order Items that will be made obsolete by the ECO.

(g) Claim Process . Any claim made under this Section 16 will be addressed based on negotiated settlement between Tesla and Supplier. Supplier is responsible for disassembling Inventory Liability Items in Finished Goods Inventory down to a usable level and otherwise making all efforts to mitigate the cost to Tesla in any such claim. Any claim shall be supported by reasonable evidence including a detailed listing of the relevant Inventory Liability Items by part number and quantity; documentary evidence that the quantity was manufactured to meet a Target Inventory required for that Inventory Liability Items and was not subsequently purchased by Tesla; and a detailed description of Supplier’s efforts to mitigate the costs to Tesla. Supplier’s claim will be based solely on costs incurred as a result of Tesla’s actions or obsolescence. No profit or opportunity costs shall be considered in calculating such claims. Tesla reserves the right to physically audit the inventory levels identified in the claim. Such

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

audit shall be conducted in accordance with Section 19(e) (Financial Statements and Right to Audit).

(h) Disposal of Excess and Obsolete Items . Supplier agrees to physically dispose of all Excess and Obsolete Items as directed in writing by Tesla. Excess and Obsolete Items that are to be delivered to Tesla’s facilities must be delivered in accordance with the requirements of this Agreement and/or any supplemental instructions provided by Tesla. In lieu of delivery to Tesla, Tesla may require that Supplier destroy or otherwise scrap the Excess and Obsolete Items so that they are non-functional, and Supplier shall comply with this requirement in accordance with Tesla’s instructions and provide Tesla with a certification of destruction.

(i) Materials Liability Review Meetings . Designated representatives of each party shall attend a meeting (each, an “ Inventory Review Meeting ”) at the beginning of each Tesla fiscal quarter at such dates and times as agreed to between the Parties. On the business day immediately before each Inventory Review Meeting (or by the tenth day of the first month of each Tesla fiscal quarter, whichever comes first), Supplier shall provide a report in Microsoft Excel format (or another mutually agreed-upon written or electronic format) to Tesla identifying Supplier’s on- hand and on-order inventory levels for all Finished Goods Inventory, listed by Tesla part number, and showing (1) quantity on hand, (2) quantity on order, (3) the number of weeks since Tesla issued an Order for that part number, (4) the quantity of that Items that Tesla has forecasted it will order in the next 13 weeks (if any), and (5) where Tesla’s forecasted demand is lower than Supplier’s on-hand and on-order quantities, a description in reasonable detail of all actions taken by Supplier to mitigate or reduce Tesla’s liability with respect to such on-hand and on-order quantities. At each Inventory Review Meeting, the Parties will share information to coordinate their combined operations, and discuss the report provided by Supplier. From time to time, the Parties may mutually agree upon the specific format for Supplier’s report and Supplier shall thereafter provide such report in the agreed-upon format; however, no failure to agree on a format shall relieve Supplier from providing this report in a commercially reasonable format when and as required by this Section 16(i).

16. Management of Sub-tier Suppliers .

(a) Sub-tier Suppliers. After Tesla has approved of the PPAP Submission, Supplier and its Sub-tier Suppliers shall not subcontract with any new or different Sub-tier Supplier as to such Items without the prior written approval of Tesla. Supplier agrees to inform Tesla of any process or Sub-tier Supplier changes related to Items (including, for example, obsolescence of components, any changes in the manufacturing process of a Sub-tier Supplier, or a transfer of any portion of the design, manufacturing, or assembly process to a different facility), not less than one hundred eighty (180) days prior to the date the Supplier or Sub-tier Supplier is contemplating the implementation of the change.

(b) Sub-tier Supplier’s Obligations . Supplier will ensure that all Sub-tier Suppliers have entered into signed, written agreements with Supplier obligating the Sub-tier Suppliers to undertake each action that is required of Sub-tier Suppliers by another provision of this Agreement, and to comply with the following provisions:

(i) Sub-tier Suppliers shall comply with all Specifications, quality, manufacturing and other technical requirements that may be necessary in order for the Sub-tier Supplier to timely deliver conforming Items, or any portion thereof, to the Supplier for the benefit of Tesla.

(ii) Supplier Related Persons will take all actions with respect to Tesla IP Rights and Marks that Supplier is obligated to take by Section 11, including all actions reasonably

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

requested by Tesla to vest, perfect and defend Tesla IP Rights, and to use and protect Tesla IP Rights and Marks solely for the benefit of Tesla upon substantially similar terms to those set forth in Section 11 above.

(iii) All Supplier Related Persons and designated third parties who are authorized to receive or obtain (directly or indirectly) Confidential Information (collectively, “ Recipients ”), shall agree, prior to the Recipient obtaining any Confidential Information, to be obligated to hold all Confidential Information in confidence and not to use the Confidential Information in any way, except on behalf of Supplier in performing its obligations hereunder for the benefit of Tesla, and to protect the Confidential Information and not to engage in prohibited activities, upon substantially similar terms to those set forth in Section 9 above.

(iv) Sub-tier Suppliers shall provide Supplier with sufficient prior written notice of all design, process, manufacturing, component obsolescence and facility changes contemplated by Sub-tier Suppliers to ensure that Supplier will comply with its notification obligations to Tesla under Sections 15 and 17(a) of this Agreement.

Upon Tesla’s request, Supplier will (A) provide Tesla with copies of all such agreements with Sub-tier Suppliers, Supplier Related Persons or other Recipients that implement Supplier’s obligations under this Section 17(b); (B) actively enforce Supplier’s rights under such agreements for the benefit of Tesla, including but not limited to retrieving Confidential Information from Supplier Related Persons; (C) assign to Tesla any such agreement between Supplier and Supplier Related Person (and Supplier shall not enter into any agreement restricting such an assignment); and (D) cause Sub-tier Suppliers or Supplier Related Persons to enter such an agreement directly with Tesla.

(c) Mandated Sub-tier Suppliers . “ Special Process ” means a process that is specifically designated as such by Tesla, which may include, but is not limited to, causing a metallurgical change to the base material such as heat treating, forging or hardening processes; joining materials by welding, brazing, or other bonding process; or providing a coating or surface treatment such as cleaning, electro-polishing, plating, painting, or anodizing. Upon Tesla’s request, Supplier will use (and cause Sub-tier Suppliers to use) only one or more of the designated suppliers.

17. Product and Training Support .

(a) Supplier Response . Supplier will provide technical assistance and product support services to Tesla at no additional charge. Supplier agrees to provide an initial response (via telephone or electronically) to any inquiry from Tesla within one (1) business day. If Supplier is requested by Tesla to provide an in-depth failure analysis of Items failures, Supplier agrees to provide timely analysis and feedback to Tesla.

(b) On-Site Support Requirements . As determined by Tesla, Supplier may be asked to provide appropriate or necessary personnel to support on-site operations at Tesla’s facilities or at a third-party site designated by Tesla. On-site representatives shall comply with all requirements of Tesla or such third-party with regard to such support. Unless otherwise agreed, such support will be provided at no cost.

(c) Training Support . Upon Tesla’s request, Supplier shall provide repair, maintenance and trouble-shooting training and related documentation for the Items to Tesla representatives. The Parties will mutually agree on the Items to be included in the training and the specific content and level of training to be provided.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

18. Electronic Communication and Documentation .

(a) General . The Parties acknowledge that they are relying upon electronic means, in addition to email and facsimile transmissions, to exchange Orders and other delivery and order information. Supplier agrees to communicate with Tesla using the standards designated by Tesla. To the extent communication through electronic means is inaccessible or made otherwise unavailable due to technical difficulties or due to the effect of any law or regulation governing electronic transactions, the Parties agree (I) that any delivery or order information received electronically prior to the date of such inaccessibility or unavailability will remain valid; and (ii) to conduct, to the extent possible, their transactions by other than electronic means.

(b) Documentation Format Requirements . With each PPAP Submission delivered hereunder, Supplier shall provide to Tesla one (1) set of electronic files of product, repair, maintenance and support documentation for such Items in accordance with Attachment 5 entitled “PPAP Submission Workbook”. Electronic files shall be source files in either Microsoft ® Excel, or Adobe ® PDF, or other mutually agreed upon format. If such documentation is not a part of Tesla’s IP Rights, then Tesla shall have the right to use, copy, display, modify, reproduce and distribute such documentation as Tesla deems necessary to support the Items. Tesla may post, or require Supplier to post, such documentation on a Web-based tool accessible by Tesla and its customers.

(c) Field Support Requirements . Supplier agrees that Tesla may provide technical assistance, product maintenance and service to Tesla’s customers relating to Items and that the provision of any such services by Tesla shall not invalidate or relieve Supplier of its obligations, including warranty obligations, under this Agreement.

(d) Tesla Unique Prototype Items or Subassemblies Documentation . Upon Tesla’s request, Supplier shall provide to Tesla all current and complete Specifications, including designs, and drawings for (i) all Tesla unique build-to-print Items, including prototype and subassembly Items; and (ii) those Items, or any components thereof, purchased by Supplier from a Sub-tier Supplier (collectively, “ Support Items ”) (digital drawings format preferred) and shall further provide assistance in understanding and implementing the Specifications as to Support Items. Supplier shall provide a complete bill of materials, reflecting as-manufactured or produced Support Items, including Supplier part number and vendor or manufacturers’ part number for purchased Support Items and Tesla’s part number for cross-reference. Supplier shall provide a list of recommended spare parts, with associated prices, for all bills of materials down to the lowest level. All Support Items Specifications are the sole property of Tesla. Any changes to process or bills of materials must comply with the terms of this Agreement. If Supplier is purchasing Support Items from Sub-tier Suppliers, Supplier agrees that upon written notice from Tesla, it will assign to Tesla any such agreement between Supplier and Sub-tier Supplier, and Supplier will not enter into any agreement restricting such assignment.

(e) Financial Statements . If Supplier has securities registered with the Securities Exchange Commission (“ SEC ”) pursuant to Section 12 of the Securities Exchange Act of 1934, Supplier shall timely submit all financial statements and reports as required by SEC rules. Otherwise, upon Tesla’s request, Supplier will provide Tesla with financial statements and other financial information relating to Supplier’s business and operations as Tesla may reasonably request.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

19. Continuity of Supply .

(a) Performance Constraints . Supplier is responsible for anticipating and promptly notifying Tesla of (i) any inability on its part or its Sub-tier’s part to perform their respective obligations under this Agreement; and (ii) any breach of a provision of this Agreement.

(b) Disaster Recovery Plan . Upon Tesla’s request, Supplier shall provide to Tesla reasonable information describing its disaster recovery plan that includes emergency back-up capacity, and appropriate record protection and recovery.

(c) Tooling . For up to ninety (90) days after the Term, upon Tesla’s request, Supplier agrees to itemize and/or sell to Tesla any tooling that is built or procured by Supplier that is unique to the Items and relevant to the manufacture, testing or maintenance of Items. The purchase price of such tooling shall be at the book value. If Tesla provides notice of its election to purchase such tooling, upon Tesla’s payment, title shall transfer to Tesla. If at any time Supplier receives tooling furnished by or purchased from or by Tesla, Supplier shall comply with the terms of Attachment 7 entitled “Tesla Tooling and Property Requirements.”

(d) Wind Down . In the event of, or in preparation for, the expiration or a termination of the Agreement for any reason, Supplier shall use commercially reasonable efforts to transfer, or cooperate fully with Tesla to enable Tesla to transfer, the performance of Supplier’s obligations under the Agreement to Tesla or a third party supplier designated by Tesla, in a manner that (i) minimizes the time to complete such transfer; (ii) maintains the highest quality and performance to ensure the adequate supply of Items; and (iii) causes no disruption to Tesla’s customers’ requirements.

(e) Availability Assurance and After-Sales . Unless expressly excluded, all provisions contained within this Agreement shall apply to the supply of after-sale Items, and:

(i) Supplier agrees to maintain capabilities necessary to provide technical and service support to Tesla and/or its designated third party as to any Items for a minimum of twelve years (12 years) from the date of final shipment of Items to Tesla provided [***] still has production supply rights & tooling i.e. not moved else where by Tesla Motors Inc.

(ii) Tesla shall pay the Contract Price for the Items in accordance with Section 4.

(iii) If, during the period detailed in Section 20 (e)(i) above, Tesla does not order one particular Item in a rolling 12 month period then the Supplier will be entitled to request Tesla’ written permission to cease supply of such Item. The Supplier shall not be entitled to cease supply of such Item until it has provided Tesla with written notice of not less than 2 months of its intent to cease supply of such Items and obtained Tesla’ permission.

(iv) In the event that Tesla provides its consent in accordance with Section 20 (e)(iii) above, Tesla may notify the Supplier that it wishes to make a “last time buy” at prices not higher than the Contract Prices. The Supplier will be obliged to fulfill the “last time buy” upon the terms of this Agreement.

20. Termination .

(a) Termination for Default .

(i) Notice By Tesla . Tesla may give Supplier notice of default of this Agreement or of any Order if (1) Supplier fails to deliver Items in accordance with the delivery times, Specifications, and other requirements of this Agreement, or otherwise materially breaches this

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

Agreement; (2) Supplier anticipatorily repudiates any material provision of this Agreement and fails to provide adequate assurance to Tesla of Supplier’s future performance; or (3) Supplier becomes insolvent, files a petition for relief under any bankruptcy, insolvency or similar law, or makes an assignment for the benefit of its creditors.

(ii) Notice By Supplier . Supplier may give Tesla notice of default of this Agreement, if (1) Tesla materially breaches Section 8, 11, or 26(a) of this Agreement; (2) Tesla anticipatorily repudiates Section 8, 11, or 26(a) of this Agreement and fails to provide adequate assurance to Supplier of Tesla’s future performance; or (3) Tesla becomes insolvent, files a petition for relief under any bankruptcy, insolvency or similar law, or makes an assignment for the benefit of its creditors.

(iii) Notices of Default and Cure Period . Any notice of default shall be in writing, reference this Section 21(a), state whether the notice relates to a specified Order (under (i) above) or to this Agreement (under (1) or (ii) above), and specify the basis for such notice (the “ Defaulting Condition ”). No cure period shall be available, and this Agreement shall terminate immediately, at the non — defaulting party’s option after the notice of default, if (1) the Defaulting Condition is a negligent, knowing or willful material breach of Section 9 or Section 11, or (2) the Defaulting Condition cannot reasonably be cured. No cure period shall be available for termination of an Order for default. For all other Defaulting Conditions, the defaulting party shall have ninety (90) days in which to cure the Defaulting Condition, and the Agreement shall not terminate if the defaulting party cures the Defaulting Condition within such cure period.

(iv) After Termination for Default . Upon any termination by Tesla pursuant to this Section 21(a), Supplier shall: (1) continue to supply any portion of the Items for which this Agreement is not cancelled; (2) be liable for additional costs, if any, incurred by Tesla for the purchase of similar goods and services to cover such default; and (3) at Tesla’s request, transfer title and deliver to Tesla: (A) any completed Items, (B) any partially completed Items, and (C) all unique materials and tooling subject or relating to the termination. Termination of the Agreement under this Section 21(a) shall constitute “cancellation” under the Uniform Commercial Code as adopted in California.

(b) Termination of an Order for Convenience .

(i) In addition to either Party’s rights under Section 2(b) and under Section 21(a), Tesla may terminate any Order in whole or in part at any time for Tesla’s convenience by giving Supplier notice which shall state the extent of the termination and the conduct required of Supplier in connection therewith. Such a cancellation may be for any reason including a reduction in the quantity of an Items ordered under an Order. Supplier will use commercially reasonable efforts to mitigate any damages incurred in connection with such termination. Within ninety (90) days from the date on which Supplier receives such notice, Supplier shall deliver to Tesla a written claim for all of Supplier’s damages incurred in connection with the termination (“ Termination Charges ”), in the form and containing such documentation as required by Tesla. In no event, shall Termination Charges include any damages relating to Commercial Off-the Shelf Items.

(ii) Failure by Supplier to deliver such claim for Termination Charges within this 90-day period shall constitute a waiver by Supplier of all claims against Tesla as to Termination Charges and a release of all Tesla’s liability arising out of such termination.

(iii) If Tesla does not agree with the amount specified in Supplier’s claim for Termination Charges, Tesla and Supplier will attempt to agree upon a reasonable amount for

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

Termination Charges. If Tesla and Supplier fail to agree upon such an amount within six (6) months after receipt by Tesla of the claim for Termination Charges from Supplier, then the Termination Charges will be conclusively presumed to be the sum of the following as to Items for which the termination applies (provided that no costs shall be duplicated): (1) the unpaid Contract Price for all Items delivered to Tesla pursuant to the Order prior to the date of Tesla’s termination; (2) the Contract Price for all Items ordered pursuant to the Order and completed in accordance with the Agreement but not delivered to Tesla prior to the date of termination, provided such Items are promptly delivered to Tesla; (3) the actual costs for work-in-process incurred by Supplier relating to Items ordered pursuant to the Order, less any costs related to Commercial-Off-The-Shelf components either manufactured or procured by Supplier, and an amount representing a fair and reasonable profit on such costs; and (4) the reasonable, out-of- pocket costs paid by Supplier to its Sub-tier Suppliers as a direct result of Supplier’s cancellation of work being performed by such Sub-tier Suppliers or Supplier’s termination of contracts with such Sub-tier Suppliers. Tesla’s obligation to pay costs pursuant to clauses (3) and (4) above shall be subject to Supplier’s obligation to use commercially reasonable efforts to mitigate any such costs.

(iv) This Section 21(b) sets forth Supplier’s sole remedies, and Tesla’s entire liability to Supplier, in the event of a termination of an Order by Tesla for convenience, other than Supplier’s remedy and Tesla’s liability as set forth in Section 16.

(c) Post Termination Consequences . On the date of termination or expiration of the Agreement for any reason, Supplier shall (i) stop work being performed by Supplier pursuant to the Agreement, (ii) cancel orders for parts and/or materials with Supplier’s Sub-tier Suppliers and cease ordering any such parts and/or materials, (iii) cancel work being performed by Supplier’s Sub-tier Suppliers, (iv) cancel any sublicense granted to Sub-tier Suppliers in accordance with this Agreement, (v) at Tesla’s request, assign to Tesla Supplier’s interests in contracts with Supplier’s Sub-tier Suppliers, (vi) furnish Tesla with release of claims from Supplier’s Sub-tier Suppliers resulting from orders and/or work canceled by Supplier, (vii) protect all property in which Tesla has or may acquire an interest, (viii) fully cooperate with Tesla to minimize any adverse effect on Tesla or its customers, and (ix) perform those other obligations set forth in this Agreement upon the termination or expiration of this Agreement.

21. Disclaimer and Limitation of Liability . Notwithstanding anything else in this Agreement, in no event shall Tesla be liable to supplier or to any other person or entity with respect to any subject matter of this Agreement, under any equity, common law, tort, contract, estoppel, negligence, strict liability or other theory, for any (a) incidental, special, punitive, consequential or indirect damages or (b) damages resulting from loss of sale, business, profits, data, opportunity or goodwill, even if the remedies provided for in this Agreement fail of their essential purpose and even if Tesla has been advised of the possibility of any of the foregoing damages.

22. Indemnity by Supplier .

(a) Supplier shall defend, indemnify and hold harmless Tesla from and against any and all third party claims, demands, suits, actions, losses, penalties, damages (whether actual, punitive, consequential or otherwise), authorized settlements, and all other liabilities and associated costs and expenses, including attorney’s fees, expert’s fees, costs of investigation and other costs of litigation (all of the foregoing being collectively called “ Indemnified Liabilities ”), arising out of or relating to (i) Supplier’s breach of any provision of the Agreement; (ii) any negligent, grossly negligent or intentional acts, errors or omissions by Supplier, its employees, officers, agents or representatives, except to the extent caused by the negligence or intentional misconduct of Tesla; or (iii) strict liability or products liability with respect to or in connection with

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

the Items; (iv) any claim by a Sub-tier Supplier against Tesla relating to goods or services provided to Supplier; or (v) the actual or alleged infringement or misappropriation of patent, copyright, trademark, trade secret rights, confidential information, proprietary rights, or other rights of a third party, (collectively, a “Third Party IP Right ”), except to the extent that the infringement or misappropriation was unavoidably caused by Supplier’s compliance with a detailed design furnished and required by Tesla. The indemnity by Supplier in favor of Tesla shall extend to Tesla, its officers, directors, employees, agents and representatives and shall include, and is intended to include, indemnified liabilities which are determined by a court of competent jurisdiction to be the result of acts or omissions of Supplier as a joint tortfeasor. If Supplier is liable only as a joint tortfeasor, then Supplier’s liability shall not extend to that portion of liability determined by the court to be the result of acts or omissions of Tesla. In addition to Supplier’s obligations as to Indemnified Liabilities that arise under clause (v), Supplier shall, at Tesla’s option (1) procure for Tesla and its customers the right to continue to use, sell and resell any affected Item, (2) with respect to a claim for infringement, modify the affected Items so that it is no longer infringing, or (3) replace any affected Items with a non-infringing good or service comparable to the affected Item. If none of these alternatives are possible, Tesla shall have the right to return or destroy, at Tesla’s option, any affected Items for a full refund of the purchase price, plus applicable transportation costs.

(b) In the event of any such Indemnified Liabilities, Tesla shall (i) promptly notify Supplier of such Indemnified Liabilities and the identity of the Tesla’s legal counsel; (ii) at Supplier’s expense, reasonably cooperate with Supplier in the defense of such claim; and (iii) not settle any such Indemnified Liabilities without Supplier’s written consent, which shall not be unreasonably withheld or delayed. Supplier shall keep Tesla informed at all times as to the status of Supplier’s efforts and consult with Tesla and/or its counsel regarding such efforts. Supplier shall not settle any such claim without the prior written consent of Tesla, which shall not be unreasonably withheld or delayed. Failure by Tesla to give notice of the Indemnified Liabilities to Supplier shall not relieve Supplier of its indemnification obligations hereunder except to the extent, if any, that Supplier has actually been prejudiced hereby.

(c) This Section 23 sets forth the entire obligation of Supplier to Tesla and Tesla to Supplier as to Indemnified Liabilities arising from the actual or alleged misappropriation or infringement of any Third Party IP Right.

23. Import and Export Requirements .

(a) General . Supplier agrees it will be required to deliver Items to, and receive Items from, locations outside of the United States. Supplier will comply with all applicable export control laws or regulations promulgated and administered by the laws of the United States or the government of any other country with jurisdiction over the Parties or the transactions contemplated by this Agreement (“ Export Laws ”) including the obligation that Supplier shall not export, re export or otherwise disclose, directly or indirectly, Items or technical data received from Tesla or the direct product of such technical data or Items to any person or destination when such export, re-export or disclosure is in violation of Export Laws. Supplier will provide Tesla with any and all information that may be required to comply with Export Laws, including applicable “Export Control Classification Numbers,” documentation substantiating U.S. and foreign regulatory approvals for the Items, and information required by Customs officials to substantiate the value of imported Items including any adjustments in valuation attributable to “assists” as defined by U.S. Customs regulations. All required export and import information shall be sent to the attention of: Manager, Compliance, Tesla Motors, 1050 Bing Street, San Carlos, CA 94070; or any agent so designated by Tesla.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

(b) Country of Manufacture . Items shall be marked with the country of origin as required by Export Laws. Supplier shall provide Tesla with a written statement identifying for each Items delivered the (i) Tesla part number and (ii) the country of manufacture. This data shall be provided to Tesla upon Tesla’s request.

(c) Duty Drawback . Supplier will provide Tesla or its agent with U.S. Customs entry data and information that Tesla determines is necessary for Tesla to qualify for duty drawback. Such data shall include information and receipts for duties paid, directly or indirectly, on all Items which are either imported or contain imported parts or components. Information related to serial numbers, unique part numbers, lot numbers and any other data which will assist Tesla in identifying imported Items sold to Tesla shall also be provided. At the time of delivery of the Items, but in no event later than thirty (30) days after each calendar quarter, Supplier will provide said documents accompanied by a completed Certificate of Delivery of Imported Merchandise or Certificate of Manufacture and Delivery of imported Merchandise (Customs Form 331) as promulgated pursuant to 19 CFR 191, or successor regulations.

24. Insurance .

Supplier shall maintain (I) comprehensive general liability insurance covering bodily injury, property damage, contractual liability, products liability and completed operations; (ii) Worker’s Compensation and employer’s liability insurance; and (iii) auto insurance, all in such amounts as are necessary to insure against the risks to Supplier’s operations, but in no event less than the following minimum amounts:

 

Insurance

  

Minimum Limits of Liability

Worker’s Compensation

   Statutory

Employer’s Liability

   $1,000,000

Automobile Liability

   $1,000,000 per occurrence

Comprehensive General Liability

(Including Products Liability)

   $1,000,000 per occurrence

Umbrella/Excess Liability

   $1,000,000 per occurrence

All policies must be primary and non-contributing, shall have a deductible amount that is not commercially unreasonable, and shall include Tesla as an additional insured. Supplier also waives all rights of subrogation. Supplier will require and verify that each of its Sub-tier Suppliers carries at least the same insurance coverage and minimum limits of insurance, as Supplier is required to carry pursuant to the Agreement. Supplier shall notify Tesla at least thirty (30) days prior to the cancellation or implementation of any material change in the foregoing policy coverage that would affect Tesla’s interests. Upon request, Supplier shall furnish to Tesla as evidence of insurance a certificate of insurance stating that the coverage will not be canceled or materially altered without thirty (30) days prior notice to Tesla.

25. Miscellaneous .

(a) Assignment . This Agreement shall be binding on, and inure to the benefit of, the Parties and their respective permitted assigns. Supplier shall not assign or otherwise transfer this Agreement or any of Supplier’s rights or obligations hereunder, in any manner, without the prior written consent of Tesla, which shall not be unreasonably withheld.

(b) Change in Control . Supplier will notify Tesla immediately of Supplier’s intent (or any other person’s intent, to the extent Supplier is aware of it) to effect any sale of all or substantially all of

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

Supplier’s assets, any consolidation, merger or other transaction involving the sale or transfer of ten percent (10%) or more of Supplier’s capital stock or similar ownership interest of Supplier.

(c) Waiver . If either Party fails to insist on performance of any term or condition, or fails to exercise any right or privilege hereunder, such failure shall not constitute a waiver of such term, condition, right or privilege.

(d) Survival of Obligations . Termination or expiration of this Agreement will not relieve either Party of its obligations under Sections 8(c), 9, 11(a) (f), 11(h), 12, 17(b), 18, 19(c)—(e), 20, 23, 25(c) (e), (h), (i), and (I) — (r), nor will termination or expiration relieve the Parties from any liability arising prior to the date of termination or expiration.

(e) Severability . Any provision of this Agreement that is held unenforceable or invalid for any reason by a court of competent jurisdiction shall be severed from this Agreement, and the remainder of the Agreement shall continue in effect; provided, that such unenforceable or invalid provision shall be given effect to the maximum extent then permitted by law.

(f) General Compliance with Laws and EEO Regulations . Each Party represents, warrants and agrees that (i) such Party’s execution, delivery and performance of this Agreement will not conflict with or violate any applicable law, rule, regulation, order, decree, or ordinance; and (ii) such Party shall comply with the requirements of 41 CFR §§ 60-1.4(a) —250.5(a), and — 741.5(a), if applicable, relating to equal opportunity clauses pertaining to government contracts.

(g) No Gratuity . Neither Party will offer or give any gratuity to induce any person or entity to enter into, execute or perform the Agreement or any other agreement with between the Parties.

(h) Governing Law, Exclusive Forum . The Agreement and any dispute arising out of or in connection with the Agreement or the Parties’ relationship shall be interpreted, enforced and governed by the laws of the State of California, excluding its choice of law rules. The exclusive forum for any dispute related in any way to this Agreement or the Parties’ relationship shall lie in the courts, state or federal, of California, and venue shall lie in the courts of Santa Clara County. Items shall be deemed and shall qualify as goods under the Uniform Commercial Code as adopted in California. Each Party consents to personal jurisdiction in the above courts. Notwithstanding the foregoing, Tesla shall have the right to seek injunctive relief, including preliminary and permanent injunctive relief, in any court of competent jurisdiction, including, without limitation, to enforce Tesla’s rights under Sections 9 and 11, or to otherwise enforce any judgment made hereunder.

(i) General Representations . Each Party represents and warrants as follows: (i) such Party is duly organized, validly existing, and in good standing under the laws of the jurisdiction of its organization; and (ii) such Party’s execution and delivery of this Agreement and performance of its obligations hereunder will not (1) violate any provision of the charter, bylaws or other governing document of such Party, or (2) conflict with, result in a breach of, or constitute a default under, any other agreement or arrangement by which such Party is bound.

(j) Force Majeure . If and to the extent that a Party’s performance of any of its obligations pursuant to this Agreement is prevented, hindered or delayed by fire, flood, earthquake, elements of nature or acts of God, acts of war, terrorism, riots, civil disorders, rebellions, revolutions, strikes, labor disputes or any other similar cause beyond the reasonable control of such Party (each, a “ Force Majeure Event ”), then the non-performing, hindered or delayed Party shall be excused for such non-performance, hindrance or delay, as applicable, of those obligations affected by the Force Majeure Event for as long as such Force Majeure Event

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

continues; provided, that such Party continues to use commercially reasonable efforts to recommence performance whenever and to whatever extent possible without delay, including through the use of alternate sources, workaround plans or other means. Notwithstanding the preceding sentence, if the Force Majeure Event continues for a period of more than thirty (30) days, either Party may thereafter exercise its rights, if any, pursuant to Section 21, to deliver a notice of termination, subject to any cure period that may be required by Section 21. The Party whose performance is prevented, hindered or delayed by a Force Majeure Event shall promptly notify the other Party in writing of the occurrence of a Force Majeure Event and describe in reasonable detail the nature of the Force Majeure Event.

(k) No Agency . Each Party shall be deemed to be an independent contractor and not an agent, joint venturer or representative of the other Party, and neither Party may create any obligations or responsibilities on behalf of or in the name of the other Party.

(l) Cumulative Remedies . The rights and remedies of the Parties provided under this Agreement are not exclusive (unless another provision of this Agreement expressly provides that a right or remedy is exclusive), and may be exercised, alternatively or cumulatively, with any other rights and remedies available to the Parties under this Agreement or in law or in equity.

(m) Amendments and Modifications; Captions and Construction . Except as provided in Section 2(c) (Updating Business Processes), amendments or revisions to this Agreement must be in writing, signed by both Tesla and Supplier duly authorized representatives, traced by revision numbers and attached to the original of this Agreement.

(n) Counterparts and Facsimile . This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and such counterparts together shall constitute the same instrument. For purposes hereof, a facsimile copy of this Agreement, including the signature pages hereto, shall be deemed an original.

(o) Notices . Subject to Section 2(c), any notice, consent or approval required or permitted under this Agreement shall be in writing and in English (unless otherwise expressly stated) and shall be given (1) personally; (2) by express courier; (3) by facsimile with confirmation of delivery; or (4) by email with confirmation of delivery. The Supplier and Tesla shall each nominate a representative who shall be authorized to make decisions relating to the Items and who shall be responsible for organizing all meetings and actions provided for in this Agreement.

Notices to Tesla:

Mike Trueman

Supply Chain Management

Potash Lane

Hethel, Norfolk, NR14 8EZ

e-mail: mtrueman@teslamotors.com

Notices to Supplier :

[***]

[***]

e-mail: [***]

(p) Notifications to Tesla . Supplier shall promptly notify Tesla in writing as soon as possible before, and in any event prior to the occurrence of, (i) Supplier’s acquisition of a majority of the

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

capital stock of, or substantially all of the assets of, a third party or business division of a third party that directly or indirectly provides goods or services to Tesla; (ii) a significant change in leadership roles at Supplier, a business division of Supplier, or factory or physical plant of Supplier, which is involved in Supplier’s performance of this Agreement; (iii) any problem or other issue that a reasonable person in the position of Supplier would believe could negatively impact Supplier’s ability to perform its obligations under this Agreement (including making on- time deliveries); or (iv) any material change to Supplier’s information, inventory management, or financial management systems or processes.

(q) Foreign Translation . This Agreement is written in the English language. The English text of this Agreement shall prevail over any translation thereof.

(r) Entire Agreement . This Agreement, including its Attachments, sets forth the entire understanding and agreement of the Parties as to the subject matter of this Agreement and supersedes all prior agreements, understandings, proposals and representations, oral or written, between the Parties as to the subject matter, except for NDA(s), which are addressed by Section 9(d). In the event of any conflict between or among any documents which are part of this Agreement, the following order of precedence shall apply: (i) Supply Agreement; (ii) Attachment 1; (iii) other Attachments; (iv) Specifications; and (v) Order.

By execution hereof, the person signing for each Party below hereby certifies, represents and warrants that he/she has read this Agreement and that he/she is duly authorized to execute this Agreement on behalf of such Party.

 

TESLA MOTORS, INC.     [***]
By:  

/s/ Thomas E. Colson

    By:  

/s/ [***]

Thomas E. Colson

     

[***]

Printed name       Printed name

VP- Manufacturing

     

Director

Title       Title

9 Apr 07

     

25/04/07

Date       Date

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

Table of Attachments

 

No

  

Name

1

   List of Items, Pricing Mechanism, and Lead Times

2

   Packaging and Labeling Specification

3

   Transportation Routing Guide

4

   Supplier Corrective Action Request

5

   PPAP Submission Workbook

6

   Tesla Motors Supplier Handbook

7

   Tesla Tooling and Property Requirements

8

   Leveraging Tesla Brand Marketing

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 1

List of Items, Pricing Mechanism, and Lead Times

 

Part Number

  

Description

 

Unit Price

 

Leadtime

02-002122-00    [***]   £[***]   [***]
02-002123-00    [***]   £[***]   [***]
02-002125-00    [***]   £[***]   [***]
02-002126-00    [***]   £[***]   [***]
02-002127-00    [***]   £[***]   [***]

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 2

Transportation, Packaging and Labeling Specification

 

1 The Supplier shall (where applicable):

 

  (a) properly pack and label the Items in accordance with the specific requirements of Tesla;

 

  (b) route consignments in accordance with any instructions from Tesla;

 

  (c) not charge for the handling, packaging, storage or transportation of the Items, protective packaging, material, delivering of parts to various plants in special racks/different container types or re-assignment of all kind of containers unless otherwise agreed in writing with Tesla;

 

  (d) properly mark each package with a label/tag according to Tesla’ instructions and/or in accordance with any legal obligation;

 

  (e) include on any bills of lading or other shipping receipts the correct classification and identification of the Items transported in accordance with Tesla’ instructions and any requirements of the carrier and to promptly forward the same in accordance with Tesla’ instructions;

 

  (f) ensure that the marks on each package and identification of the Items on packing slips, bills of lading and invoices are sufficient to enable Tesla to easily identify the goods;

 

  (g) obtain all necessary export licenses and/or permissions in respect of the delivery of the Items or where Tesla must obtain such export licenses and/or permissions in its own name, provide Tesla with reasonable assistance to secure the same;

 

  (h) notify Tesla in advance of delivery in writing if the Supplier requires Tesla to return any packaging material to the Supplier. Such packaging material will only be returned to the Supplier at the Supplier’s cost and risk.

 

  (i) comply with a all provisions of the Tesla supplier handbook

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 3

Transportation Routing Guide

[omitted]

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 4

Supplier Corrective Action Request

Refer to Tesla Motors Document Numbers:

 

   

99-000002-02                 Corrective & Preventive Actions

 

   

99-000066-04                 Supplier Corrective Action Request form

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 5

PPAP Submission Workbook

Refer to Tesla Motors Document Number:

 

   

99-000094-04                 PPAP Submission Workbook

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 6

Tesla Motors Supplier Handbook

Refer to Tesla Motors Document Number:

 

   

99-000068-03                 Tesla Motors Supplier Handbook

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 7

Tesla Tooling and Property Requirements

 

1 Unless otherwise agreed in writing by Tesla, the Supplier shall be responsible for and shall undertake the design and development of all tools, jigs, dies, gauges, fixtures, molds and patterns or other equipment necessary in the provision of the Items (“Tooling”), unless Tesla solely provides the design of the Tooling and provides instruction relating to design in which case the Supplier shall be responsible for producing the Tooling to the Tesla design. Supplier shall at its own expense furnish, keep in good condition, and replace when necessary all Tooling.

 

2 Supplier warrants that the design, assembly, manufacture or procurement of the Tooling shall render the Tooling fit for purpose and of satisfactory quality provided that the parties hereby acknowledge and agree that the Supplier shall not be in breach of this warranty if a design provided by Tesla is in error and such error is not due to the acts or omissions of the Supplier;

 

3 The cost of changes to the Tooling necessary to make design and specification changes authorized by Tesla shall, unless otherwise agreed in writing, be paid for by the Supplier. The Supplier hereby grants to Tesla an irrevocable option (exercisable at any time during the duration of the Agreement or after its termination) to take possession of and title to the Tooling that are special for the provision of the Items upon payment to the Supplier of the book value thereof less any amounts which Tesla has previously paid to the Supplier for the cost of such Tooling.

 

4 All supplies, tools, jigs, dies, gauges, fixtures, molds, patterns, equipment and other items provided by Tesla, either directly or indirectly, to the Supplier, or for which the Supplier has been reimbursed by Tesla (“Tesla Property”), shall be and remain the property of Tesla and held by the Supplier on a bailment basis.

 

5 The Supplier shall bear the risk of loss and damage to Tesla Property. Tesla Property shall at all times at the Supplier’s cost

 

  (a) be properly housed and maintained in full working order;

 

  (b) be replaced by the Supplier (at the Supplier’s cost), if the replacement is required due to

 

  (i) abuse of the Tesla Property; and/or

 

  (ii) failure to maintain, repair, service or house the Tesla Property.

 

  (c) not be used by the Supplier for any purpose other than the performance of an Order under the Agreement;

 

  (d) be conspicuously marked as property of Tesla by the Supplier;

 

  (e) not be mixed with the property of the Supplier or with that of a third party; and

 

  (f) not be moved from the Supplier’s premises, modified or replaced without Tesla’ prior written approval.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

6 Upon the request of Tesla, the Tesla Property shall be immediately released to Tesla or delivered to Tesla’ premises by the Supplier properly packed and marked in accordance with the requirements of Tesla all at the Supplier’s cost or delivered to any location reasonably designated by Tesla, in which event Tesla shall pay the Supplier the reasonable cost of delivering such Tesla Property to such location.

 

7 The Supplier shall insure all Tesla Property against all risks for the replacement value and shall, upon Tesla’ request, provide to Tesla certificates or other satisfactory evidence of such insurance.

 

8 Tesla, its employees, agents and sub-contractors may enter in or on the Supplier’s premises (or any other premises where the Tesla Property may be) at all reasonable times and on reasonable notice to inspect the Tesla Property and the Supplier’s records with respect thereto and the Supplier hereby provides its irrevocable consent (and shall procure the irrevocable consent of any relevant third parties) to permit Tesla, its employees, agents and sub-contractors to enter such premises for this purpose.

 

9 On termination of the Agreement (for whatever reason) the Supplier must not destroy the Tesla Property but shall liaise with Tesla over arrangements for the Tesla Property to be returned to Tesla.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 8

Leveraging Tesla Brand Marketing

 

1 Definitions : In this section, the following capitalized terms shall have the meanings specified below.

 

  (a) Tesla Marketing Materials ” means all marketing materials that promote Tesla’s products and vehicles that include, but are not limited to: (A) Tesla’s trademarks, service marks, photographs, or images in promotional, advertising, instructional, or reference materials, or on its web sites, products, labels, or packaging; (B) marketing merchandize, props, posters, banners, toys, gifts, mugs, etc.; (C) links to or from Tesla’s web sites to various third party sites, including Supplier’s; and (D) display or demonstration of Tesla vehicles, sub-systems, parts, models, or replicas in show rooms, conventions, or marketing events.

 

2 The following guideline shall be applied when Supplier wishes to use Tesla Marketing Materials. Additional guidelines may be provided by Tesla at its discretion.

 

3 Use of the Tesla Marketing Materials for commercial purposes without the prior written consent of Tesla may constitute trademark infringement and unfair competition in violation of federal and state laws. Use of Tesla trademarks may be prohibited, unless expressly authorized.

 

4 Tesla’s trademarks, service marks, trade names, and trade dress are valuable assets. In following these guidelines, Supplier shall protect Tesla’s valuable trademark rights and strengthen Tesla’s corporate and brand identities.

 

5 By using a Tesla trademark, in whole or in part, Supplier acknowledges that Tesla is the sole owner of the trademark and promising that Supplier will not interfere with Tesla’s rights in the trademark, including challenging Tesla’s use, registration of, or application to register such trademark, alone or in combination with other words, anywhere in the world, and that Tesla will not harm, misuse, or bring into disrepute any Tesla trademark.

 

6 The goodwill derived from using any part of a Tesla trademark exclusively inures to the benefit of and belongs to Tesla. Except for the limited right to use as expressly permitted under these Guidelines, no other rights of any kind are granted hereunder, by implication or otherwise.

 

7 Authorized Use of Tesla Trademarks .

 

  (a) Advertising, Promotional, and Sales Materials . Only Tesla and its authorized licensees may use the Tesla Marketing Materials in advertising, promotional, and sales materials. Supplier may use the Tesla Marketing Materials only as specified in the agreement.

 

  (b) Word mark . Supplier may use Tesla word mark in a referential phrase on promotional/advertising materials, provided they comply with the following requirements.

 

  (i) The Tesla word mark is not part of the product name.

 

  (ii) The Tesla word mark appears less prominent than the product name.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

  (iii) The reference to Tesla does not create a sense of endorsement, sponsorship, or false association with Tesla or Tesla products or services.

 

  (iv) The use does not show Tesla or its products in a false or derogatory light.

 

  (c) Publications, Seminars, and Conferences . Supplier may use a Tesla word mark in connection with book titles, magazines, periodicals, seminars, or conferences provided Supplier comply with the following requirements:

 

  (i) The use is referential and less prominent than the rest of the title.

 

  (ii) The use reflects favorably on both Tesla and Tesla products or technology.

 

  (iii) Supplier’s name and logo appear more prominent than the Tesla word mark on all printed materials related to the publication, seminar or conference.

 

  (iv) The Tesla Marketing Materials or any other Tesla-owned graphic symbol, logo, icon or image does not appear on or in the publication or on any materials related to the publication, seminar, or conference without express written permission from Tesla.

 

  (v) A disclaimer of sponsorship, affiliation, or endorsement by Tesla, similar to the following, is included on the publication and on all related printed materials: “(Title) is an independent (publication) and has not been authorized, sponsored, or otherwise approved by Tesla Motors, Inc.”

 

  (vi) A trademark attribution notice is included in the credit section giving notice of Tesla’s ownership of its trademark(s).

 

  (d) Web Sites . Web sites may use the appropriate Tesla word mark, provided such use complies with the guidelines set forth in Sections 7(a) to (c) above.

 

8 Unauthorized Use of Tesla Trademarks .

 

  (a) Supplier shall not use or register, in whole or in part, Tesla trademark, including Tesla-owned graphic symbols, logos, icons, or an alteration thereof, as or as part of a company name, trade name, product name, or service name except as specifically noted in these guidelines.

 

  (b) Supplier shall not use the Tesla Marketing Materials or any other Tesla-owned graphic symbol, logo, or icon on or in connection with web sites, products, packaging, manuals, promotional/advertising materials, or for any other purpose except pursuant to an express written trademark license from Tesla.

 

  (c) Supplier shall not use an image of other variation of the Tesla Marketing Materials for any purpose. Third parties cannot use a variation, phonetic equivalent, foreign language equivalent, takeoff, or abbreviation of a Tesla trademark for any purpose.

 

  (d) Supplier shall not use a Tesla trademark or any other Tesla-owned graphic symbol, logo, or icon in a disparaging manner.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

  (e) Supplier shall not use Tesla trademark, including Tesla-owned graphic symbols/logos, or icons, in a manner that would imply Tesla’s affiliation with or endorsement, sponsorship, or support of a third party product or service.

 

  (f) Supplier shall not manufacture, sell or give-away merchandise items, such as T-shirts and mugs, bearing Tesla trademark, including symbols, logos, or icons, except pursuant to an express written trademark license from Tesla.

 

  (g) Supplier shall not imitate the distinctive Tesla packaging, web site design, logos, or typefaces.

 

  (h) Supplier shall not use or imitate a Tesla slogan or tagline.

 

  (i) Supplier shall not use an identical or virtually identical Tesla trademark as a second level domain name.

 

9 Proper Use of Tesla Trademarks.

 

  (a) Trademarks are adjectives used to modify nouns; the noun is the generic name of a product or service. Trademarks may not be used in the plural or possessive form.

 

  (b) Spell and capitalize Tesla’s trademarks exactly as intended by Tesla. No shorten or abbreviated Tesla product names or made-up names that contain Tesla trademarks shall be allowed.

 

10 Compensation . In return for using Tesla Marketing Materials, Parties may agree to Supplier paying Tesla a reasonable compensation for anticipated potential for Supplier’s enhanced market position and sales. When such agreements are made by Parties, the agreed sum shall be paid to Tesla in a mutually agreed term, including deduction from Item costs.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

Exhibit 10.26

Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

TESLA MOTORS, INC.

[Tesla Logo]

And

[***]

First DAY OF September, 2006

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

THIS SUPPLY AGREEMENT is entered into as of this first day of September, 2006 (the “ Effective Date ”) between

(a) Tesla Motors, Inc. , a Delaware corporation, with its principal place of business in San Carlos, California, U.S.A. and its subsidiaries in world wide locations, including Hethel, Norwich, Norfolk in the United Kingdom; and

(b) [***], with its principal place of business in [***].

The Parties agree as follows:

1. Definitions .

Unless defined additionally elsewhere in this Agreement, the following capitalized terms shall have the meanings specified below:

(a) “ Agreement ” means (i) this Supply Agreement, (ii) all Attachments, and (iii) all Orders, as each may be amended from time to time.

(b) “ Attachment ” means any document that is referenced in this Supply Agreement and attached hereto. All Attachments are deemed to be incorporated into this Agreement by this reference.

(c) “ Order ” means an order for Items communicated pursuant to this Agreement by Tesla to Supplier via a purchase order whether in hardcopy or electronic form. All Orders are deemed to be incorporated into this Agreement by this reference.

(d) “ Internal Tesla Data ” means planning data, product engineering or manufacturing data, information, forecasts, Specifications or Confidential Information that is stored, displayed, maintained or accessed on the Tesla Web Site or other Tesla internal databases or internal network servers or storages.

(e) “ Items ” means, collectively either singular or plural, components, equipment, materials, subassemblies or other goods and related software and services specified in (i)  Attachment 1 , (ii) an Order; or (iii) a purchase order placed by Tesla with Supplier prior to the Effective Date and undelivered as of such date.

(f) “ Parties ” means Tesla and Supplier.

(g) “ Specifications ” means such drawings, designs, instructions, technical or performance requirements or other technical or commercial information relating to the design, development, manufacture, packaging and labeling, delivery, logistics, installation, assembly, testing and/or use of one or more Items.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

     


Confidential Treatment Requested by Tesla Motors, Inc.

 

(h) “ Sub-tier Supplier ” means a member of Supplier’s direct or indirect sub-tier supply base (including, without limitation, subcontractors and vendors of Supplier, and of Supplier’s subcontractors and vendors) that provides goods and/or services in connection with Items.

(i) “ Supplier ” means [***] and those of its subsidiaries and affiliates authorized in writing by Tesla to perform under this Agreement.

(j) “ Tesla ” means Tesla Motors, Inc., including its subsidiaries existing on or after the Effective Date.

(k) “ Tesla Web Site ” means the portion of the password-protected Web Site, including the database related to supply chain management, maintained by Tesla, to which Supplier may be given access for the purpose of performing under this Agreement.

2. Scope of Agreement; Term .

(a) Scope of Agreement . This Agreement sets forth the terms and conditions governing the purchase and sale of Items, the relationship between Tesla and Supplier, and compliance with Tesla’s business processes. Tesla’s current business processes and requirements for certain matters covered by this Agreement, including packaging, delivery, shipment, crating and repair of items, are set forth in the Attachments. Tesla Motors, Inc. and its subsidiaries shall be entitled to purchase Items from Supplier under this Agreement, and shall have all of the rights of “Tesla” under this Agreement. As to any purchase of Items under this Agreement by Tesla Motors, Inc., all obligations under this Agreement are the sole obligations of Tesla Motors, Inc. As to any purchase of Items under this Agreement by a subsidiary of Tesla, all obligations under this Agreement are the sole obligations of such subsidiary. Nothing in this Agreement shall prevent Tesla from engaging third parties other than the Supplier to provide goods or services the same as, or similar to the Items.

(b) Term . This Agreement shall commence on the Effective Date and, unless terminated as set forth in Section 21 (Termination), shall continue in effect for at least thirty-six (36) months. After thirty-six (36) months, this Agreement shall continue unless either party provides six (6) months prior written notice to the other party of such party’s desire to allow this Agreement to expire. The effective period of this Agreement is referenced as the “ Term .”

(c) Updating Business Processes . Tesla regularly improves its business processes. In that regard, Tesla shall have the right to amend any Attachment, other than Attachment 1, by giving notice thereof to Supplier in writing, or by other electronic means. All modifications to Attachment 1 shall be upon the mutual written agreement of the Parties.

3. Orders .

(a) Orders . All authorized demand signals for Items from Tesla to Supplier shall be in the form of “ Orders ”. An Order shall (i) identify the Items requested and (ii) state the quantity, date, time and place of delivery, and price of the Items requested (unless previously specified in Attachment 1, which shall control). Supplier shall accept communications of Orders in the format reasonably designated by Tesla.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -2-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

(b) Acceptance/Rejection of Orders . Supplier shall promptly communicate its acceptance or rejection of an Order. Supplier shall not, however, reject (and shall be deemed to have accepted) an Order for Items set forth on Attachment 1 so long as the Order conforms to the terms and conditions of this Agreement (including without limitation lead time requirements specified for such Items on Attachment 1, if any). Any notice of rejection shall state the specific grounds for such rejection. In all events, any objection by Supplier to the terms of an Order shall be deemed waived upon Supplier’s delivery of Items.

(c) Order Adjustments . Supplier acknowledges that Tesla may be required to modify Orders from time to time. Tesla may increase the quantity of Items in any Order at any time prior to the scheduled delivery date and, provided such increase falls within the Quantity Adjustment Schedule set forth below, (i) Supplier will deliver such increased quantity with no additional charges including accelerated delivery, expedite fees or the like, and (ii) such increase will not affect the delivery schedule of Items previously ordered.

 

Weeks until Delivery Date

   < 10
weeks
    10<& £ 20
weeks
    20<
weeks
 

Percent Quantity Adjustment for Authorized Order Signal

   [ ***]%    [ ***]%    [ ***]% 

If Tesla requires an increase in the quantity of Items in any Order and such increase does not fall within the Quantity Adjustment Schedule set forth above, then, if feasible and as mutually agreed upon by the Parties, Supplier will provide such increased Items in accordance with the modified Order and Tesla shall pay costs resulting there from, provided such costs are (i) reasonable; (ii) authorized by Tesla in writing in advance of delivery; and (iii) identified separately from the unit price on Suppliers invoice to Tesla.

(d) Reduction or Cancellation of an Order . If Tesla requires a reduction in the quantity of Items in any Order, or cancels any Order, the Parties’ respective rights and obligations shall be as specified in Section 21 (Termination).

(e) Purchases by Authorized Third Party . Certain Items may be (i) incorporated into subassemblies, modules, or other products made for Tesla by a third party; or (ii) otherwise processed by a third party. In such event, Tesla may designate the third party as authorized to purchase Items from Supplier and, upon Supplier’s receipt of notice thereof, Supplier shall enter into an agreement with such third party to sell Items to the third party on terms (including pricing) no less favorable than the terms set forth in this Agreement.

(f) No Volume Commitment . Tesla does not commit to purchase a specific volume of any Items from Supplier except as specified in an Order ([***] is the minimum manufacturing run) and, subject to Supplier’s IP Rights (as defined in Section 11(c)), Tesla may manufacture or buy goods and/or services from third parties that are identical or similar to the Items.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -3-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

4. Pricing .

(a) Contract Price . “ Contract Price ” means the domestic and/or export price in British Pounds Sterling for an Item as set forth on Attachment 1; provided , that if a price for an Items is not specified on Attachment 1, then the Contract Price shall be the price set forth in an Order that is accepted by Supplier in accordance with this Agreement. The Contract Price for each Item shall remain in effect throughout the Term, except for any changes mutually agreed to by the Parties in writing. Any change in circumstances, may result in a review of Agreement terms and/or negotiated reduction in the Contract Price.

(b) Pricing Components . The Contract Price, and any quotations for Items, shall include all finishing, testing, inspecting and packaging fees, applicable royalties and all applicable taxes (excluding sales, use and similar taxes). Any quotations for Items shall include all costs relating to warranties. Any quotations for Items shall not include any amounts relating to (i) initial set-up charges; (ii) costs for special dies, tools, patterns or test fixtures; and (ill) non-recurring engineering fees amortized into the per unit price, unless separately identified and itemized.

(c) Transportation Costs . The Items are to be collected by Tesla Motors Ltd transportation and as such are supplied ex-works.

(d) Taxes . Tesla will pay any applicable sales, use or similar tax imposed in connection with the sale of Items to Tesla; provided , that Supplier shall not charge or collect, and Tesla shall have no liability for, taxes on any sale of Items for which Tesla has provided Supplier with an appropriate resale certificate or other documentation evidencing an exemption from such taxes.

For all sales of Items upon which tax reimbursement to Supplier is applicable, Supplier shall separately itemize all applicable taxes on invoices submitted to Tesla. All amounts payable under this Agreement are exclusive of Value Added Tax (VAT) which will be paid at the date and in the manner for the time being prescribed by law.

(e) The Supplier agrees that for the purposes of calculating and paying the Contract Price it shall allow Tesla (including Tesla’s accountants and other professional advisors) access to its financial and other records. The Supplier agrees that it will at all time during the term of this Agreement maintain accurate and up-to-date financial and other records of all costs and other matters relevant to the provisions of this clause. The Supplier agrees that it shall complete a Tesla quotation analysis form upon request from Tesla.

(f) No increase in the Contract Price may be made (whether on account of increased materials, labor or transport costs, other fixed or variable costs, fluctuation in exchange rates, pricing errors or otherwise) without the prior written consent of Tesla. For the avoidance of doubt, Tesla shall be under no obligation to consent to any such increase.

(g) Tesla and the Supplier shall work together to reduce the cost to the Supplier of producing the Items and to improve the Items in both manufacture and assembly and the Supplier shall reduce the Contract Price payable by Tesla by a minimum of [***]% per annum or as otherwise defined by the Parties.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -4-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

5. Delivery of items .

(a) Delivery Requirements . Time is of the essence as to the delivery of all items ordered under this Agreement. Supplier shall meet the (i) negotiated lead time; (ii) order adjustment requirements as set forth in Section 3; and (iii) time, date, location and other delivery requirements for Items, as specified in Attachment 1 or, if not set forth in Attachment 1 , as set forth in the Order for said Items. Delivery will be considered timely only if Items are delivered in the correct quantity, and at the time, date and location specified in the Order. If necessary for Supplier to meet its delivery requirements, Supplier, at its expense, will use expedited delivery methods to complete and deliver the Items.

(b) Remedies . If Supplier fails to deliver any Items at the time and place set forth in the Order, Tesla shall have the right, at its sole option, to (i) require Supplier, at Supplier’s expense, to use expedited delivery methods to complete and deliver the Items; (ii) allocate or redirect the Supplier’s deliveries of Items to certain Tesla designated locations; (iii) reverse manufacture Items previously purchased by Tesla to obtain component parts and then debit Supplier the reasonable fair market value for those unused remaining component parts that Tesla returns to Supplier; or (iv) purchase products comparable to the Items in the open market or from other suppliers and charge Supplier with any cost differential between the Contract Price and the price paid in the open market or to other suppliers, which cost may include premium costs for expedited delivery and administrative costs.

6. Shipping and Risk of Loss .

(a) Shipping and Packaging Requirements .

(i) Supplier will ship all Items in accordance with the Tesla Motors Ltd transport arrangements in approved stillaging.

(ii) Supplier shall comply with any special packaging and labeling requirements for Items as set forth in the “Transportation, Packaging and Label Specifications” (“ Attachment 2 ”). In the event such Attachments are not applicable to an item, the Items shall be packaged, marked and labeled in accordance with best commercial practices, along with all required shipping documentation. In all events, Supplier must include a valid packing slip number or package ID on each package or shipment of Items.

(iii) If Supplier delivers Items that do not meet the packaging or labeling requirements of this Agreement, Tesla may reject the Item, treat the Items as non-conforming to Specification, or charge and bill to Supplier all repackaging and re-labeling costs and expenses incurred by Tesla as a result of Supplier’s failure to comply with the packaging and labeling requirements of this Agreement.

(b) Shipments and insurance .

(i) Domestic Shipments . Supplier agrees to make Items available for collection by Tesla Motors Ltd.-arranged transport in the provided stillages.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -5-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

(ii) International Shipments . Items that require international shipment will be dealt with as separate orders, outside of the scope of the pricing set out in Appendix 1.

(iii) Other Shipments . For Items not covered by Section 6(b)(i) and (ii) above, Supplier shall pay all delivery costs and expenses to deliver the Items to the applicable destination point, and Tesla shall reimburse Supplier for all such reasonable costs and expenses if incurred and itemized by Supplier in accordance with this Agreement.

(iv) Insurance and Risk of Loss . In all events, Supplier shall be responsible to insure such Items during transport up to at least the Contract Price of such Item. Supplier shall be responsible for the risk of loss to Items until delivered to the applicable destination point and accepted by Tesla. In addition, Supplier’s responsibility for risk of loss continues with respect to any Items rejected by Tesla, or as to any Items for which acceptance is revoked, except if such loss is caused by the negligence or willful misconduct of Tesla’s employees.

7. Acceptance and Title Transfer . Title to Items will only transfer to Tesla upon acceptance of an Item. Acceptance shall occur only in the event that: (i) Tesla or its designee has received the Items at the specified destination point; and (ii) either (1) Tesla or its designee has entered the Items into Tesla’s internal systems, or (2) a period of five (5) days from the delivery of the Items has elapsed. At any point prior to acceptance, Tesla may reject and return any Items that does not conform to the applicable Specifications and incur no liability or obligation related to such Item. As to Items that are rejected and returned, Tesla may recover and offset or adjust payments in respect of such Items, including any costs or fees related to shipping and insuring such Items.

8. Payment .

(a) Invoices . Supplier will remit Items invoices to Teals no earlier than when the Items are shipped to Tesla and adhere to the invoicing requirements for suppliers as defined by Tesla. Payment by Tesla for Items shall be made within forty-five (45) days from end of month of delivery or month of receipt of valid invoice, whichever is later.

(b) Effect of Payment and Right to Offset . Tesla’s payment for Items shall not affect the time at which title to Items passes to Tesla nor shall it preclude revocation of acceptance. All payments shall be subject to adjustment for errors, shortages, non-conformities or defects. Tesla may at any time set off any amount owed by Tesla to Supplier against any amount owed by Supplier to Tesla.

9. Confidentiality and Prohibited Activities .

(a) General . “ Confidential Information ” means all information obtained by, disclosed to, or developed by Supplier and that is based on, incorporates, constitutes or derived from any of the following that were obtained, directly or indirectly, from Tesla: samples, schematics, drawings, designs, Specifications, internal data, manuals, forecasts, Orders, customer information and other technical, business, financial or trade secret information. Parties agree that such Confidential Information may be obtained by Supplier from Tesla during the term of business relations between Tesla and Supplier, or in connection with the negotiation, performance or

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -6-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

enforcement of the Agreement. Confidential Information does not, however, include information that (i) is or becomes a matter of public knowledge through no fault or act of Supplier; (ii) is rightfully received by Supplier from a third party not subject to restriction on disclosure of such information; (iii) is independently developed by Supplier without the use of any Confidential Information; or (iv) was rightfully in the possession of Supplier prior to its disclosure by or on behalf of Tesla; provided , however , that such information shall be Confidential Information to the extent that (1) such information constitutes specific information, even if it is embraced by more general information which is a matter of public knowledge or in the possession of Supplier, or (2) such information is a combination of individual items of information, even if that combination could be reconstructed from non-confidential sources if none of the non-confidential sources shows the whole combination and its principle of operation; and, provided further , that the sale or unrestricted disclosure of Items or other article or product made through a confidential manufacturing process of Tesla shall not be deemed to constitute a public disclosure of the process. Supplier shall use reasonable care to protect the confidentiality of Confidential Information, and in any event, Supplier shall use at least that degree of care that Supplier uses to protect its own like information.

(b) Permitted and Prohibited Activities . Except as expressly set forth in this Section 9 or agreed by Tesla in writing, Supplier (i) may use Confidential Information solely for the purpose of providing Items to Tesla, (ii) may provide Confidential Information only to those individuals who need to know such Confidential Information to provide Items to Tesla, provided that it is clearly marked as “Tesla Motors Confidential” and provided that such individuals have agreed in writing to protect Confidential Information pursuant to a non disclosure agreement as set forth in Section 17(b) below, and (iii) shall not use or disclose any Confidential Information for any other purpose, including: (A) reverse engineering the Items; (B) developing, designing, manufacturing, engineering, refurbishing, selling or offering for sale, any “ Prohibited Replacement ,” which means any good or service which may be used or sold as a replacement for any items or other good used on or with Tesla product for which Tesla provided Supplier with Confidential Information at any time, including modifications to any Item; or (C) assisting any third party in any manner to perform any such activities. In addition, Supplier shall not make or sell to any third party any Prohibited Replacement. Further, Supplier agrees not to disclose to Tesla any information that any third party regards as proprietary or confidential. Supplier’s obligations under this Section 9(b) shall not apply to any disclosure required by applicable law, court order or legal process, provided that Supplier shall (i) if permitted by applicable law, promptly notify Tesla of its intent to make such disclosure, which notice shall be in writing and delivered at least ten (10) days’ prior to the intended disclosure (or such shorter period as necessary to comply with applicable law), (ii) redact and keep confidential all financial terms and such other terms as agreed by the Parties after conferring in good faith and consistent with applicable law, and (iii) seek a protective order or confidential treatment from the tribunal or governmental agency for any agreements or other documents to be disclosed or filed, and disclose or file the minimum information and/or documents necessary to comply with applicable law, legal process or court order.

(c) Notice of Disclosure . Supplier shall, immediately upon becoming aware of it, give notice to Tesla of any unauthorized disclosure, misuse, theft or other loss of Confidential Information, whether inadvertent or otherwise.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -7-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

(d) Other NDA’s . During the business relationship between Supplier and Tesla one or more NDA’s may be, or may have been, entered into. In the event of an apparent conflict between or among provision(s) of this Agreement and any NDA, such provisions shall be read in a mutually consistent way, or if no such reading is reasonably possible, the provision(s) that are most protective of Confidential Information shall take precedence over conflicting or less protective provision(s).

(e) Equitable Relief . Supplier agrees that Tesla would suffer irreparable harm for which monetary damages are an inadequate remedy, and that equitable relief is appropriate, if Supplier were to breach or threaten to breach any obligations in this Section 9.

(f) Press Releases/Publicity Not Authorized . The existence and terms of this Agreement are Confidential Information. Except as permitted by Section 9(b) above, Supplier will not issue any press release, advertising, publicity or public statement or in any way engage in any other form of public disclosure that indicates Tesla’s relationship with Supplier or implies any endorsement by Tesla of Supplier or Supplier’s products or services, without the prior written approval of Tesla.

(g) Disposal of Confidential Information . Upon the termination or expiration of the Agreement, and otherwise upon the request of Tesla, Supplier will promptly return to Tesla all Confidential Information and all documentation that reveal or are based in any way on Confidential Information, and permanently eliminate the same from all of its computer and information storage systems. Supplier may, however, with Tesla’s prior written approval, destroy any Confidential Information or documentation, provided that Supplier certifies to Tesla the destruction of such Confidential Information or documentation. Thereafter, Supplier shall cease all use of Confidential Information. In addition, Supplier agrees it will immediately return to Tesla any materials provided to it to facilitate electronic access to Internal Tesla Data, including data access hardware, documents, software or other items.

10. Electronic Access to Internal Tesla Data .

(a) General . If Supplier is granted access to Internal Tesla Data then, in addition to Supplier’s obligations under Sections 9 and 11, the terms and conditions of this Section 10 shall apply. Supplier’s access to the Internal Tesla Data is subject to compliance with (i) the terms of use, if any, of the Tesla Web Site or such other database or intranet, as applicable, and (ii) any technical, security, and software licensing requirements of Tesla, including the issuance of passwords and requirements related to using Tesla’s virtual private network. Tesla may terminate Supplier’s right of access or change the method of access to the Internal Tesla Data at any time. In no event shall Supplier facilitate or enable access to Internal Tesla Data by any Sub-tier Supplier or other third party. In no event shall Supplier facilitate or enable access to Internal Tesla Data by its employees or contractors that may either cause to exceed the available number of authorized software licensing seats or violate the login authority (for example, improper sharing of a single user name and password by multiple users).

(b) Use . If Tesla grants Supplier access to the Internal Tesla Data, then Supplier shall have the limited right to download, store, display and use Tesla Internal Data for the sole

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -8-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

purpose of performing its obligations under this Agreement. Supplier may not use the Tesla Internal Data in any other way, commercially or otherwise. Unless otherwise notified by Tesla, Supplier may store copies of Internal Tesla Data on Supplier’s networks and information storage systems, provided , such Internal Tesla Data is stored either on hardware that is dedicated solely to Tesla, or otherwise separated from other information of Supplier, so that the Internal Tesla Data is not accessible to individuals except as authorized by this Agreement. If Tesla provides Supplier with any recommendations for establishing an interface or other methods of accessing the Internal Tesla Data, Supplier assumes all risk in implementing any such recommendation.

(c) Consent to Monitoring . Supplier agrees that its access to and use of Internal Tesla Data and all acts in connection with Tesla’s internal systems are recorded and may be monitored. Supplier expressly consents to such recording and monitoring. If such recording or monitoring reveals possible evidence of criminal activities involving any individual, then Tesla may provide such evidence to the appropriate law enforcement organization and take any other appropriate action.

11. Intellectual Property Rights .

(a) Definitions . “ Works ” means all works including without limitation all notes, code, art work, reports, documentation, drawings, creations, devices, models, works-in-progress, inventions, discoveries, specifications, works of authorship, know-how, technical information, work product, and/or other information. “ IP Rights ” means all rights, whether registered or unregistered, including all patents, copyrights, trade secrets, trademarks, service marks, trade names, mask works, moral rights and other proprietary rights in any jurisdiction.

(b) Tesla’s IP Rights . As between Tesla and Supplier, Tesla owns all right, title, and interest in IP Rights in or to any Works made, conceived, or developed by Tesla employees or contractors (“ Tesla Personnel ”), and all IP Rights acquired by Tesla or otherwise owned by Tesla. All IP Rights owned by Tesla as set forth in this Section 11(b), or transferred to Tesla by Section 11(d) or Section 17(b), are referenced in this Agreement as “ Tesla’s IP Rights .”

(c) Supplier’s IP Rights . As between Tesla and Supplier, except as set forth in Section 11(d) and Section 17(b), Supplier owns all right, title and interest in IP Rights in or to any Works made, conceived or developed by Supplier employees or contractors, and all IP Rights acquired by Supplier or otherwise owned by Supplier. All IP Rights owned by Supplier are referenced in this Agreement as “ Supplier’s IP Rights .”

(d) Assignment . Supplier irrevocably transfers and assigns to Tesla all IP Rights in or to (i) any Works made, conceived or developed by Supplier, either alone or with others, with the assistance (financial or otherwise), collaboration, input, involvement, or development efforts of Tesla or Tesla Personnel, and (ii) any Works that are not made, conceived, and developed independent of Tesla’s IP Rights (including Confidential Information). Supplier shall not improve, enhance, or modify any Works in which Tesla owns IP Rights without Tesla’s express prior written consent. In any event, if Supplier improves, enhances, or modifies any Works in which Tesla owns IP Rights, Supplier irrevocably transfers and assigns to Tesla all IP Rights in or to such improvement, enhancement, or modification. In the event that any of the foregoing transfers and

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -9-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

assignments by Supplier is to any extent ineffective, Supplier shall grant to Tesla an exclusive, royalty free, irrevocable, perpetual, worldwide license to make, use, market and sell such IP Rights.

(e) License . Tesla grants to Supplier a non-exclusive, revocable, royalty-free, limited and non-transferable license to use Tesla’s IP Rights solely for the purpose of performing Supplier’s obligations under this Agreement to manufacture and sell to Tesla Items under the Agreement. This license may be revoked by Tesla at any time, with or without cause, and shall expire in any event, if not sooner revoked, on the expiration or termination of the Agreement. Such license shall not be assigned or transferred in any way, except by limited sublicense to Sub-tier Suppliers for the sole purpose of providing Items to Tesla, or to Tesla-designated third parties, in accordance with this Agreement, and shall not succeed to or vest in any successor. Supplier acknowledges Tesla’s IP Rights are not capable of being independently exploited by Supplier other than in the context of this Agreement. As such, Tesla does not grant to Supplier any other license, right to sublicense or other right to or under any Tesla IP Right for Supplier’s own benefit to use in any other way, commercially or otherwise, or to provide or offer Items or other products or services to any party other than Tesla.

(f) Further Assurances . At no cost to Tesla, Supplier will take, and will cause its employees and agents to take, all actions reasonably requested by Tesla, from time to time, to fully vest, perfect or defend Tesla’s IP Rights. Such actions shall include providing documents and information useful or necessary to register, apply for or maintain any of Tesla’s IP Rights.

(g) License to Marks . Tesla grants to Supplier a non-exclusive, revocable, royalty-free, limited and non-transferable license to affix or install on Items those trademarks, service marks and trade names of Tesla’s (collectively, “ Marks ”) that are specified to be installed or affixed under Tesla Specifications for the Items. Such license of Marks is limited, revocable by Tesla, shall not be assigned, sublicensed or transferred in any way and shall terminate upon termination of this Agreement. Use by Supplier of all Marks shall be solely for the benefit of Tesla and as directed by Tesla. Supplier shall install and affix the Marks solely in accordance with Tesla’s specifications, packaging and labeling requirements and any quality requirements for the Marks or Items that Tesla may establish. Tesla may inspect Supplier’s facilities and examine Items at any time during normal business hours to monitor, or evaluate the quality of, the Marks affixed to the Items.

(h) Audit . Supplier shall permit Tesla, and cause its employees and agents to permit Tesla, to audit and verify compliance with Sections 9 and 11.

(i) Continuity of Supply for Essential Items . “ Essential Item ” means Items that, at any time, Tesla is not able to replace with a reasonably practicable commercial alternative within six (6) months or less of Tesla desiring to do so. Upon Tesla’s request, Tesla and Supplier will agree upon a mechanism to maintain Tesla’s continuity of supply with respect to an Essential Item, such as agreeing upon the terms of a “lifetime buys or executing a mutually agreeable escrow or license agreement.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -10-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

12. Warranty .

(a) Supplier Warranty : Supplier represents and warrants that, for a period of [***] from the date of delivery to Tesla, the Items (i) will be free from defects in workmanship, material, and manufacture; (ii) will comply with the requirements of this Agreement, including all Tesla Specifications and manufacturing work instructions; and (iii) will be of merchantable quality and fit and suitable for the purpose intended by Tesla. Supplier further represents and warrants that (A) the Items will consist of new (not used or recycled) material, and (B) Tesla shall acquire good and marketable title to the Items, free and clear of all liens, claims and encumbrances. Further, to the extent that the design of Items is Supplier’s responsibility, Supplier represents and warrants that such design will be free from defects. Supplier acknowledges that Tesla’ intended use of the Items (as components in an electric motor vehicle for sale and use in various territories throughout the world, albeit initially and primarily the United States Of America) and expressly warrants that the Items covered by this Agreement have been selected, designed, manufactured, supplied and/or assembled by the Supplier will be fit and sufficient for the particular purposes intended by Tesla.

(b) Services . Supplier represents and warrants that, for a period of [***] from delivery to Tesla, all services performed in connection with this Agreement will be performed with reasonable skill and care, in a competent, professional and workmanlike manner, free from defects, and in accordance with the best professional practices in the industry. For the purposes of this Section 12, the results of any service performed by Supplier will be considered included in the term “Item.”

(c) Free from Infringement . Supplier represents and warrants that the Items, including the manufacture, use and sale of the Items, shall not give rise to, nor be subject to, any claim or liability for infringement of any intellectual property rights, including any patent, copyright, trademark, trade secrets, moral rights, confidential information or any other proprietary or intellectual property rights, of any third party, except to the extent that the infringement was unavoidably caused by Supplier’s compliance with a detailed design furnished and required by Tesla.

(d) Assignments of Warranty . Supplier hereby assigns and transfers to Tesla all warranties provided to Supplier with respect to the Items, or any portion thereof, and represents and warrants that such warranties are fully assignable to Tesla and by Tesla to its customers or subsequent purchasers of the Items.

(e) Remedies . If Items do not meet the warranty requirements set forth in this Agreement, Tesla may, at its option, (i) require Supplier to correct any defective or nonconforming Items by, at Tesla’s option, either repair or replacement; or (ii) return such defective or nonconforming Items to Supplier and recover from Supplier the Contract Price thereof; or (iii) correct the defective or nonconforming Items and charge Supplier with the cost of such correction; or (iv) purchase products comparable to the defective or nonconforming Items in the open market or from other suppliers, as deemed appropriate by Tesla, and, at Tesla’s option, charge Supplier with any reasonable cost differential between the price of the Items under this Agreement and the price paid, which cost may include premium fees for expedited delivery and administrative costs. In addition, Tesla may cancel the undelivered balance of the defective or nonconforming Items and/or terminate this Agreement pursuant to Section 21(a) (Termination for Default). If a defective or non-conforming Items damage other property of Tesla, Supplier shall pay all reasonable

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -11-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

costs to repair such damaged property as directed by Tesla, or, if repairing the property is not commercially reasonable, to replace it. As to any Items that are repaired, replaced or corrected under this Section 12, Supplier’s warranty shall continue to apply to such Items for (A) the full remaining balance of the original [***] term applicable to such Item, or (B) ninety (90) days from the date such repaired, replaced or corrected Items are received and accepted by Tesla, whichever period of time is greater. Upon request from Tesla, Supplier shall provide pre-approved returned material authorization (“ RMA(s) ”) to facilitate return of Items. Tesla may notify Supplier of defects and nonconformance and communicate its elected remedy by delivery of notice in the form of a “Supplier Corrective Action Request” (“ Attachment 4 ”) and closed-loop corrective action processes.

(f) Extended Warranty; Epidemic Failure . Without limiting Tesla’s rights as specified elsewhere in this Section 12, if Items are discovered to be defective or nonconforming at a statistically higher rate than the rate applicable to such Items as established upon mutual agreement of the Parties and set forth in Attachment 1, (or if no rate is specified by agreement with respect to an Item, then [***] of such Items delivered in any three consecutive months), then, at no cost to Teals and at Tesla’s option, Supplier will (i) extend the warranty period for all such Items for no less than an additional [***] from the date on which the warranty for the Items would otherwise expire, and/or (ii) compensate Tesla for all expenses associated with correcting the defect/nonconformance, including field support, logistics (freight, duties), advanced exchange of a refurbished part, refurbishment, and any required upgrade cost including qualification.

(g) Timing . If Supplier receives notice that Items are defective or non-conforming, then Supplier will use the most expeditious manner possible to effect the action specified by Tesla, including the use of overnight delivery services for shipment of Items to and from Tesla. For any Items for which a repair or replacement timeline is identified in Attachment 1, Supplier will repair or replace such Items within such timeline. In all events, however, as to any Items that Tesla identifies as “production” or that are delivered by Supplier for the purposes of production, Supplier will replace or repair the defective or non-conforming Items within forty eight hours (48) from receipt of Tesla’s request.

(h) Costs . Supplier shall be solely responsible for all costs, fees and expenses in connection with fulfilling its obligations under this Section 12, including all labor, material, parts, shipping, taxes, customs and other costs, fees and expenses arising from, among other things, the removal, repair, replacement, reinstallation, inspection, shipping and testing of any defective or nonconforming items. If any such costs, fees or expenses are incurred or paid by Tesla (including, for example, the cost to remove such Items from a customer site), or if Tesla incurs increased costs as a result of Supplier’s breach of warranty (including without limitation overtime or increased shipping charges) or suffers lost productivity as a result of Supplier’s breach of warranty (including without limitation a reasonable estimate of the hourly cost to Tesla of Tesla’s employees whose time is wasted), Tesla may charge and bill such costs to Supplier, and may offset such costs against amounts otherwise due to Supplier from Tesla. All costs reimbursable to Tesla under this Section 12 shall be due and payable on demand.

13. Supplier Refurbishment Services . Upon Tesla’s request, Supplier and Tesla shall negotiate in good faith to enter into an arrangement.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -12-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

14. Supplier Performance Plan . Tesla and Supplier will jointly develop a supplier performance plan. Supplier agrees to self-monitor its performance, at both corporate and operational site levels, against the performance targets established in the plan. At least quarterly, Supplier will submit to Tesla its actual performance against performance targets.

15. Manufacturing and Quality Requirements .

(a) Production Part Approval Process (“ PPAP ”) . Tesla and Supplier shall follow the PPAP requirements set forth in “PPAP Submission Workbook” (“ Attachment 5 ”). Supplier shall provide all necessary documentation.

(b) Design and Process Change Communication . After Tesla has approved the PPAP Submission, Supplier shall not make any change to the design (firmware, hardware or software) of the Items that may alter the Specifications or the form, fit, function or interchangeability of parts without first informing and obtaining approval from Tesla. Supplier will not make, or permit Sub-tier Suppliers to make, changes to the manufacturing process of such Items, including a transfer of any portion of the design, manufacturing, or assembly process to a different facility, without first obtaining such approval from Tesla.

(c) Other Changes and Equitable Adjustments . Tesla may, upon notice to Supplier, submit Engineering Change Orders (“ ECOs ”) or request other changes within the scope of the Agreement with respect to any of the following: (i) Specifications; (ii) the place and date of delivery of Items; or (iii) the place, date and manner of inspection or acceptance of Items. Supplier agrees that it will use reasonable efforts to accommodate such requests in a timely and cost effective manner. If any request for such changes causes an increase or decrease in the cost of or time required for performance of the Agreement, Supplier may propose, and Tesla will then consider, an equitable adjustment in the Contract Price or delivery schedule, or both, and if the Parties agree to an adjustment, the Agreement shall be modified in writing accordingly. If Tesla and Supplier are unable to agree upon an equitable adjustment, then Tesla may remove the affected Items from this Agreement without affecting the remaining Items, and Supplier shall not be required to supply the Items as modified by the ECO to Tesla. No claim by Supplier for adjustment under this subsection shall be valid unless in writing and received by Tesla within thirty (30) days from the date of Supplier’s receipt of the notice of such change; provided , however , that such period may be extended upon the written approval of Tesla.

(d) Quality Requirements . Supplier shall comply with Tesla’s quality requirements set forth in Attachment 6 entitled “Tesla Motors Supplier Handbook”.

(e) Minimum Environmental, Health & Safety Requirements . Supplier shall comply with, and shall cause Sub-tier Suppliers to comply with, any applicable environmental, health or safety law, rule, regulation, order, decree or ordinance.

(f) Safety Notices . In addition to any of Supplier’s obligations under this Agreement or Supplier’s or Sub-tier Suppliers’ obligations imposed by law, Supplier will immediately notify Tesla of any known or suspected safety issues related to Items (including component or material issues).

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -13-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

16. Management of Finished Goods Inventory .

(a) Designation of Inventory Liability Items . Tesla may designate certain Items as “ Inventory Liability Items ” by (i) reporting a non-zero “Target Inventory” quantity for those items in an authorized inventory planning tool, or (ii) identifying items as an Inventory Liability Items on Attachment 1, or otherwise providing Supplier with written or electronic notice of such designation. So that Tesla can set appropriate Target Inventory quantities, Supplier shall actively maintain accurate lead times for all Items in such authorized inventory planning tool, using the definition of “lead time” designated by Tesla from time to time for this purpose. Supplier agrees to manufacture and stock such Inventory Liability Items in accordance with this Section 16; and/or, if requested by Tesla, a separate written agreement between Tesla and Supplier.

(b) Forecasts . Tesla may periodically issue to Supplier rolling forecasts setting forth projected demand for Items (“ Tesla Forecasts ”). Tesla Forecasts are intended for planning purposes only and shall not constitute a binding purchase commitment of Tesla. If Tesla designates a Inventory Liability Items under Section 16(a)(ii), and does not specify a “Target Inventory” quantity for it in an authorized inventory planning tool, then that Item’s Target Inventory quantity shall equal the two (2) weeks forecasted demand for that Items in the most recent and most specific Tesla’s Forecast for that Item. (The Parties may modify this number of weeks for any particular Items in Attachment 1.)

(c) Inventory Levels and Tracking Requirements . Unless otherwise designated in Attachment 1 or a separate written agreement, Supplier will maintain the “Target Inventory” quantity, if any, of each Inventory Liability Items as specified by Tesla from time to time. All Inventory Liability Items manufactured by Supplier to meet a then-current Target inventory quantity shall be considered “Finished Goods Inventory” under this Agreement. When Supplier is creating inventory levels to satisfy required Target Inventory levels of Finished Goods Inventory, any reduction in quantity of Items that were ordered pursuant to an Order, or any quantity of Items ordered pursuant to an Order that is later cancelled by Tesla, shall be returned to Supplier’s inventory and Supplier will increase its inventory levels accordingly. Supplier shall monitor and report its work-in-process and Inventory Liability Items count to Tesla for all Finished Goods Inventory.

(d) Claim for Reimbursement of Excess Items . If Tesla has not taken delivery of any unit of a Inventory Liability Items in Finished Goods Inventory within twelve (12) months from the date of Tesla’s last receipt of any such unit, Supplier may then submit a claim for reimbursement for such Items (“Excess items”) to Tesla within thirty (30) days from the end of such twelve (12) month period. Supplier’s failure to submit such a claim within this thirty (30) day period shall constitute waiver of any claim for reimbursement for Excess Items and Tesla shall be released from all liability relating to such Excess Items.

(e) Claim for Reimbursement of Obsolete Items . An Inventory Liability Items in Finished Goods Inventory will be considered an “ Obsolete Item ” when Tesla provides notice to Supplier that such Inventory Liability Item is an “Obsolete Item.” If Supplier desires to submit a claim for costs associated with Obsolete Items, then Supplier shall submit a claim for such Obsolete Items within thirty (30) days from the date on which Tesla notifies Supplier that the Inventory

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -14-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

Liability Items are Obsolete Items. Supplier’s failure to submit such a claim within this thirty (30) day period shall constitute a waiver of any claim for reimbursement for such Obsolete Items and Tesla shall be released from all liability relating to such Obsolete Items.

(f) Scope of Claim . Tesla will not be liable for Finished Goods Inventory other than as described in this Section 16. In addition, no claim for reimbursement or payment for Finished Goods Inventory shall be made in the following situations: (i) any termination by Tesla pursuant to Section 21(a) (Termination for Default); (ii) if Supplier has introduced design or product changes; (iii) Supplier errors in production; (iv) if Supplier has been paid for such Items previously or has made a claim for reimbursement or payment for such Items previously; (v) if such Items are “ Commercial Off-the-Shelf Items ” meaning Items that are standard or stock items in the industry or have been manufactured to Supplier’s specifications in contrast to Items manufactured to build-to-print specifications of Tesla or its customer; (vi) if Supplier has failed to fulfill its obligations to meet with Tesla in accordance with Section 16(i), unless Supplier is unable to do so because of actions of Tesla; (vii) if such Items were not disclosed by Supplier to Tesla on each report required by Section 16(i) when each such report was due; or (viii) if Supplier fails to participates in Tesla’s ECO process as reasonably requested by Tesla, including without limitation providing accurate information about such Items that will be affected by a proposed ECO and that Supplier has in inventory or on order so that Tesla can plan its ECO implementation to minimize the quantity of on-hand and/or on-order Items that will be made obsolete by the ECO.

(g) Claim Process . Any claim made under this Section 16 will be addressed based on negotiated settlement between Tesla and Supplier. Supplier is responsible for disassembling Inventory Liability Items in Finished Goods Inventory down to a usable level and otherwise making all efforts to mitigate the cost to Tesla in any such claim. Any claim shall be supported by reasonable evidence including a detailed listing of the relevant Inventory Liability Items by part number and quantity; documentary evidence that the quantity was manufactured to meet a Target Inventory required for that Inventory Liability Items and was not subsequently purchased by Tesla; and a detailed description of Supplier’s efforts to mitigate the costs to Tesla. Supplier’s claim will be based solely on costs incurred as a result of Tesla’s actions or obsolescence. No profit or opportunity costs shall be considered in calculating such claims. Tesla reserves the right to physically audit the inventory levels identified in the claim. Such audit shall be conducted in accordance with Section 19(e) (Financial Statements and Right to Audit).

(h) Disposal of Excess and Obsolete Items . Supplier agrees to physically dispose of all Excess and Obsolete Items as directed in writing by Tesla. Excess and Obsolete Items that are to be delivered to Tesla’s facilities must be delivered in accordance with the requirements of this Agreement and/or any supplemental instructions provided by Tesla. In lieu of delivery to Tesla, Tesla may require that Supplier destroy or otherwise scrap the Excess and Obsolete Items so that they are non-functional, and Supplier shall comply with this requirement in accordance with Tesla’s instructions and provide Teals with a certification of destruction.

(i) Materials Liability Review Meetings . Designated representatives of each party shall attend a meeting (each, an “ Inventory Review Meeting ”) at the beginning of each Tesla fiscal quarter at such dates and times as agreed to between the Parties. On the business day immediately before each Inventory Review Meeting (or by the tenth day of the first month of each

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -15-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

Tesla fiscal quarter, whichever comes first), Supplier shall provide a report in Microsoft Excel format (or another mutually agreed-upon written or electronic format) to Tesla identifying Supplier’s on-hand and on-order inventory levels for all Finished Goods Inventory, listed by Tesla part number, and showing (1) quantity on hand, (2) quantity on order, (3) the number of weeks since Tesla issued an Order for that part number, (4) the quantity of that Items that Tesla has forecasted it will order in the next 13 weeks (if any), and (5) where Tesla’s forecasted demand is lower than Supplier’s on-hand and on-order quantities, a description in reasonable detail of all actions taken by Supplier to mitigate or reduce Tesla’s liability with respect to such on-hand and on-order quantities. At each Inventory Review Meeting, the Parties will share information to coordinate their combined operations, and discuss the report provided by Supplier. From time to time, the Parties may mutually agree upon the specific format for Supplier’s report and Supplier shall thereafter provide such report in the agreed-upon format; however, no failure to agree on a format shall relieve Supplier from providing this report in a commercially reasonable format when and as required by this Section 16(i).

17. Management of Sub-tier Suppliers .

(a) Sub-tier Suppliers . After Tesla has approved of the PPAP Submission, Supplier and its Sub-tier Suppliers shall not subcontract with any new or different Sub-tier Supplier as to such Items without the prior written approval of Tesla. Supplier agrees to inform Tesla of any process or Sub-tier Supplier changes related to Items (including, for example, obsolescence of components, any changes in the manufacturing process of a Sub-tier Supplier, or a transfer of any portion of the design, manufacturing, or assembly process to a different facility), not less than one hundred eighty (180) days prior to the date the Supplier or Sub-tier Supplier is contemplating the implementation of the change.

(b) Sub-tier Supplier’s Obligations . Supplier will ensure that all Sub-tier Suppliers have entered into signed, written agreements with Supplier obligating the Sub-tier Suppliers to undertake each action that is required of Sub-tier Suppliers by another provision of this Agreement, and to comply with the following provisions:

(i) Sub-tier Suppliers shall comply with all Specifications, quality, manufacturing and other technical requirements that may be necessary in order for the Sub-tier Supplier to timely deliver conforming Items, or any portion thereof, to the Supplier for the benefit of Tesla.

(ii) Supplier Related Persons will take all actions with respect to Tesla IP Rights and Marks that Supplier is obligated to take by Section 11, including all actions reasonably requested by Tesla to vest, perfect and defend Tesla IP Rights, and to use and protect Tesla IP Rights and Marks solely for the benefit of Tesla upon substantially similar terms to those set forth in Section 11 above.

(iii) All Supplier Related Persons and designated third parties who are authorized to receive or obtain (directly or indirectly) Confidential Information (collectively, “ Recipients ”), shall agree, prior to the Recipient obtaining any Confidential Information, to be obligated to hold all Confidential Information in confidence and not to use the Confidential

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -16-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

Information in any way, except on behalf of Supplier in performing its obligations hereunder for the benefit of Tesla, and to protect the Confidential Information and not to engage in prohibited activities, upon substantially similar terms to those set forth in Section 9 above,

(iv) Sub-tier Suppliers shall provide Supplier with sufficient prior written notice of all design, process, manufacturing, component obsolescence and facility changes contemplated by Sub-tier Suppliers to ensure that Supplier will comply with its notification obligations to Tesla under Sections 15 and 17(a) of this Agreement.

Upon Tesla’s request, Supplier will (A) provide Tesla with copies of all such agreements with Sub-tier Suppliers, Supplier Related Persons or other Recipients that implement Supplier’s obligations under this Section 17(b); (B) actively enforce Supplier’s rights under such agreements for the benefit of Tesla, including but not limited to retrieving Confidential Information from Supplier Related Persons; (C) assign to Tesla any such agreement between Supplier and Supplier Related Person (and Supplier shall not enter into any agreement restricting such an assignment); and (D) cause Sub-tier Suppliers or Supplier Related Persons to enter such an agreement directly with Tesla.

(c) Mandated Sub-tier Suppliers . “ Special Process ” means a process that is specifically designated as such by Tesla, which may include, but is not limited to, causing a metallurgical change to the base material such as heat treating, forging or hardening processes; joining materials by welding, brazing, or other bonding process; or providing a coating or surface treatment such as cleaning, electro-polishing, plating, painting, or anodizing. Upon Tesla’s request, Supplier will use (and cause Sub-tier Suppliers to use) only one or more of the designated suppliers.

18. Product and Training Support .

(a) Supplier Response . Supplier will provide technical assistance and product support services to Tesla at no additional charge. Supplier agrees to provide an initial response (via telephone or electronically) to any Inquiry from Tesla within two (2) business days. If Supplier is requested by Tesla to provide an in-depth failure analysis of Items failures, Supplier agrees to provide timely analysis and feedback to Tesla.

(b) On-Site Support Requirements . As determined by Tesla, Supplier may be asked to provide appropriate or necessary personnel to support on-site operations at Tesla’s facilities or at a third-party site designated by Tesla. On-site representatives shall comply with all requirements of Tesla or such third-party with regard to such support. Unless otherwise agreed, such support will be provided at no cost.

(c) Training Support . Upon Tesla’s request, Supplier shall provide repair, maintenance and trouble-shooting training and related documentation for the Items to Tesla representatives. The Parties will mutually agree on the items to be included in the training and the specific content and level of training to be provided.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -17-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

19. Electronic Communication and Documentation .

(a) General . The Parties acknowledge that they are relying upon electronic means, in addition to email and facsimile transmissions, to exchange Orders and other delivery and order information. Supplier agrees to communicate with Tesla using the standards designated by Tesla. To the extent communication through electronic means is inaccessible or made otherwise unavailable due to technical difficulties or due to the effect of any law or regulation governing electronic transactions, the Parties agree (i) that any delivery or order information received electronically prior to the date of such inaccessibility or unavailability will remain valid; and (ii) to conduct, to the extent possible, their transactions by other than electronic means.

(b) Documentation Format Requirements . With each PPAP Submission delivered hereunder, Supplier shall provide to Tesla one (1) set of electronic files of product, repair, maintenance and support documentation for such Items in accordance with Attachment 5 entitled “PPAP Submission Workbook”. Electronic files shall be source files in either Microsoft ® Excel, or Adobe ® PDF, or other mutually agreed upon format. If such documentation is not a part of Tesla’s IP Rights, then Tesla shall have the right to use, copy, display, modify, reproduce and distribute such documentation as Tesla deems necessary to support the Items. Tesla may post, or require Supplier to post, such documentation on a Web-based tool accessible by Tesla and its customers.

(c) Field Support Requirements . Supplier agrees that Tesla may provide technical assistance, product maintenance and service to Tesla’s customers relating to Items and that the provision of any such services by Tesla shall not invalidate or relieve Supplier of its obligations, including warranty obligations, under this Agreement.

(d) Tesla Unique Prototype Items or Subassemblies Documentation . Upon Tesla’s request, Supplier shall provide to Tesla all current and complete Specifications, including designs, and drawings for (i) all Tesla unique build-to-print Items, including prototype and subassembly items; and (ii) those Items, or any components thereof, purchased by Supplier from a Sub-tier Supplier (collectively, “ Support Items ”) (digital drawings format preferred) and shall further provide assistance in understanding and implementing the Specifications as to Support Items. Supplier shall provide a complete bill of materials, reflecting as-manufactured or produced Support Items, including Supplier part number and vendor or manufacturers’ part number for purchased Support Items and Tesla’s part number for cross-reference. Supplier shall provide a list of recommended spare parts, with associated prices, for all bills of materials down to the lowest level. All Support Items Specifications are the sole property of Tesla. Any changes to process or bills of materials must comply with the terms of this Agreement. If Supplier is purchasing Support Items from Sub-tier Suppliers, Supplier agrees that upon written notice from Tesla, it will assign to Tesla any such agreement between Supplier and Sub-tier Supplier, and Supplier will not enter into any agreement restricting such assignment.

(e) Financial Statements . If Supplier has securities registered with the Securities Exchange Commission (“ SEC ”) pursuant to Section 12 of the Securities Exchange Act of 1934, Supplier shall timely submit all financial statements and reports as required by SEC rules. Otherwise, upon Tesla’s request, Supplier will provide Tesla with financial statements and other financial information relating to Supplier’s business and operations as Tesla may reasonably request.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -18-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

20. Continuity of Supply .

(a) Performance Constraints . Supplier is responsible for anticipating and promptly notifying Tesla of (i) any inability on its part or its Sub-tier’s part to perform their respective obligations under this Agreement; and (ii) any breach of a provision of this Agreement.

(b) Disaster Recovery Plan . Upon Tesla’s request, Supplier shall provide to Tesla reasonable information describing its disaster recovery plan that includes emergency back-up capacity, and appropriate record protection and recovery.

(c) Tooling . For up to ninety (90) days after the Term, upon Tesla’s request, Supplier agrees to itemize and/or sell to Tesla any tooling that is built or procured by Supplier that is unique to the Items and relevant to the manufacture, testing or maintenance of Items. The purchase price of such tooling shall be at the book value. If Tesla provides notice of its election to purchase such tooling, upon Tesla’s payment, title shall transfer to Tesla. If at any time Supplier receives tooling furnished by or purchased from or by Tesla, Supplier shall comply with the terms of Attachment 7 entitled “Tesla Tooling and Property Requirements.”

(d) Wind Down . In the event of, or in preparation for, the expiration or a termination of the Agreement for any reason, Supplier shall use commercially reasonable efforts to transfer, or cooperate fully with Tesla to enable Tesla to transfer, the performance of Supplier’s obligations under the Agreement to Tesla or a third party supplier designated by Teals, in a manner that (i) minimizes the time to complete such transfer; (ii) maintains the highest quality and performance to ensure the adequate supply of Items; and (iii) causes no disruption to Tesla’s customers’ requirements.

(e) Availability Assurance and After-Sales . Unless expressly excluded, all provisions contained within this Agreement shall apply to the supply of after-sale Items, and:

(i) Supplier agrees to maintain capabilities necessary to provide technical and service support to Tesla and/or its designated third party as to any Items for a minimum of twelve (12) years from the date of final shipment of Items to Tesla;

(ii) After sales pricing to be agreed and attached as an addendum to this Agreement at a later date.

(iii) If, during the period detailed in Section 20 (e)(i) above, Tesla does not order one particular Item in a rolling 12 month period then the Supplier will be entitled to request Tesla’ written permission to cease supply of such item. The Supplier shall not be entitled to cease supply of such Item until it has provided Tesla with written notice of not less than 2 months of its intent to cease supply of such Items and obtained Tesla’ permission.

(iv) In the event that Tesla provides its consent in accordance with Section 20 (e)(iii) above, Tesla may notify the Supplier that it wishes to make a “last time buy” at prices not higher than the Contract Prices. The Supplier will be obliged to fulfill the “last time buy” upon the terms of this Agreement.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -19-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

21. Termination .

(a) Termination for Default .

(i) Notice By Tesla . Tesla may give Supplier notice of default of this Agreement or of any Order if (1) Supplier fails to deliver Items in accordance with the delivery times, Specifications, and other requirements of this Agreement, or otherwise materially breaches this Agreement; (2) Supplier anticipatorily repudiates any material provision of this Agreement and fails to provide adequate assurance to Tesla of Supplier’s future performance; or (3) Supplier becomes insolvent, files a petition for relief under any bankruptcy, insolvency or similar law, or makes an assignment for the benefit of its creditors.

(ii) Notice By Supplier . Supplier may give Tesla notice of default of this Agreement, if (1) Tesla materially breaches Section 8, 11, or 26(a) of this Agreement; (2) Tesla anticipatorily repudiates Section 8, 11, or 26(a) of this Agreement and fails to provide adequate assurance to Supplier of Tesla’s future performance; or (3) Tesla becomes insolvent, files a petition for relief under any bankruptcy, insolvency or similar law, or makes an assignment for the benefit of its creditors.

(iii) Notices of Default and Cure Period. Any notice of default shall be in writing, reference this Section 21(a), state whether the notice relates to a specified Order (under (i) above) or to this Agreement (under (i) or (ii) above), and specify the basis for such notice (the “ Defaulting Condition ”). No cure period shall be available, and this Agreement shall terminate immediately, at the non — defaulting party’s option after the notice of default, if (1) the Defaulting Condition is a negligent, knowing or willful material breach of Section 9 or Section 11, or (2) the Defaulting Condition cannot reasonably be cured. No cure period shall be available for termination of an Order for default. For all other Defaulting Conditions, the defaulting party shall have ninety (90) days in which to cure the Defaulting Condition, and the Agreement shall not terminate if the defaulting party cures the Defaulting Condition within such cure period.

(iv) After Termination for Default . Upon any termination by Tesla pursuant to this Section 21(a), Supplier shall: (1) continue to supply any portion of the Items for which this Agreement is not cancelled; (2) be liable for additional costs, if any, incurred by Tesla for the purchase of similar goods and services to cover such default; and (3) at Tesla’s request, transfer title and deliver to Tesla: (A) any completed Items, (B) any partially completed Items, and (C) all unique materials and tooling subject or relating to the termination. Termination of the Agreement under this Section 21(a) shall constitute “cancellation” under the Uniform Commercial Code as adopted in California.

(b) Termination of an Order for Convenience .

(i) In addition to either Party’s rights under Section 2(b) and under Section 21(a), Tesla may terminate any Order in whole or in part at any time for Tesla’s convenience by giving Supplier notice which shall state the extent of the termination and the conduct required of Supplier in connection therewith. Such a cancellation may be for any reason including a reduction in the quantity of an Items ordered under an Order. Supplier will use commercially reasonable efforts to mitigate any damages incurred in connection with such termination. Within ninety (90) days from the date on which Supplier receives such notice, Supplier shall deliver to Tesla a written

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -20-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

claim for all of Supplier’s damages incurred in connection with the termination (“ Termination Charges ”), in the form and containing such documentation as required by Tesla. In no event, shall Termination Charges include any damages relating to Commercial Off-the-Shelf Items.

(ii) Failure by Supplier to deliver such claim for Termination Charges within this 90-day period shall constitute a waiver by Supplier of all claims against Tesla as to Termination Charges and a release of all Tesla’s liability arising out of such termination.

(iii) If Tesla does not agree with the amount specified in Supplier’s claim for Termination Charges, Tesla and Supplier will attempt to agree upon a reasonable amount for Termination Charges. If Tesla and Supplier fail to agree upon such an amount within six (6) months after receipt by Tesla of the claim for Termination Charges from Supplier, then the Termination Charges will be conclusively presumed to be the sum of the following as to Items for which the termination applies ( provided that no costs shall be duplicated): (1) the unpaid Contract Price for all Items delivered to Tesla pursuant to the Order prior to the date of Tesla’s termination; (2) the Contract Price for all Items ordered pursuant to the Order and completed in accordance with the Agreement but not delivered to Tesla prior to the date of termination, provided such Items are promptly delivered to Tesla; (3) the actual costs for work-in-process incurred by Supplier relating to Items ordered pursuant to the Order, less any costs related to Commercial-Off-The-Shelf components either manufactured or procured by Supplier, and an amount representing a fair and reasonable profit on such costs; and (4) the reasonable, out-of- pocket costs paid by Supplier to its Sub-tier Suppliers as a direct result of Supplier’s cancellation of work being performed by such Sub-tier Suppliers or Supplier’s termination of contracts with such Sub-tier Suppliers. Tesla’s obligation to pay costs pursuant to clauses (3) and (4) above shall be subject to Supplier’s obligation to use commercially reasonable efforts to mitigate any such costs.

(iv) This Section 21(b) sets forth Supplier’s sole remedies, and Tesla’s entire liability to Supplier, in the event of a termination of an Order by Tesla for convenience, other than Supplier’s remedy and Tesla’s liability as set forth in Section 16.

(c) Post Termination Consequences . On the date of termination or expiration of the Agreement for any reason, Supplier shall (i) stop work being performed by Supplier pursuant to the Agreement, (ii) cancel orders for parts and/or materials with Supplier’s Sub-tier Suppliers and cease ordering any such parts and/or materials, (iii) cancel work being performed by Supplier’s Sub-tier Suppliers, (iv) cancel any sublicense granted to Sub-tier Suppliers in accordance with this Agreement, (v) at Tesla’s request, assign to Tesla Supplier’s interests in contracts with Supplier’s Sub-tier Suppliers, (vi) furnish Tesla with release of claims from Supplier’s Sub-tier Suppliers resulting from orders and/or work canceled by Supplier, (vii) protect all property in which Tesla has or may acquire an interest, (viii) fully cooperate with Tesla to minimize any adverse effect on Tesla or its customers, and (ix) perform those other obligations set forth in this Agreement upon the termination or expiration of this Agreement.

22. Disclaimer and Limitation of Liability . Notwithstanding anything else in this Agreement, in no event shall Tesla be liable to supplier or to any other person or entity with respect to any subject matter of this Agreement, under any equity, common law, tort, contract, estoppel, negligence, strict liability or other theory, for any (a) incidental, special, punitive, consequential or

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -21-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

indirect damages or (b) damages resulting from loss of sale, business, profits, data, opportunity or goodwill, even if the remedies provided for in this Agreement fail of their essential purpose and even if Tesla has been advised of the possibility of any of the foregoing damages.

23. Indemnity by Supplier .

(a) Supplier shall defend, indemnify and hold harmless Tesla from and against any and all third party claims, demands, suits, actions, losses, penalties, damages (whether actual, punitive, consequential or otherwise), authorized settlements, and all other liabilities and associated costs and expenses, including attorney’s fees, expert’s fees, costs of investigation and other costs of litigation (all of the foregoing being collectively called “ Indemnified Liabilities ”), arising out of or relating to (i) Supplier’s breach of any provision of the Agreement; (ii) any negligent, grossly negligent or intentional acts, errors or omissions by Supplier, its employees, officers, agents or representatives, except to the extent caused by the negligence or intentional misconduct of Tesla; or (iii) strict liability or products liability with respect to or in connection with the Items; (iv) any claim by a Sub-tier Supplier against Tesla relating to goods or services provided to Supplier; or (v) the actual or alleged infringement or misappropriation of patent, copyright, trademark, trade secret rights, confidential information, proprietary rights, or other rights of a third party, (collectively, a “ Third Party IP Right ”), except to the extent that the infringement or misappropriation was unavoidably caused by Supplier’s compliance with a detailed design furnished and required by Tesla. The indemnity by Supplier in favor of Tesla shall extend to Tesla, its officers, directors, employees, agents and representatives and shall include, and is intended to include, indemnified liabilities which are determined by a court of competent jurisdiction to be the result of acts or omissions of Supplier as a joint tortfeasor. If Supplier is liable only as a joint tortfeasor, then Supplier’s liability shall not extend to that portion of liability determined by the court to be the result of acts or omissions of Tesla. In addition to Supplier’s obligations as to Indemnified Liabilities that arise under clause (v), Supplier shall, at Tesla’s option (1) procure for Tesla and its customers the right to continue to use, sell and resell any affected Item, (2) with respect to a claim for infringement, modify the affected Items so that it is no longer infringing, or (3) replace any affected Items with a non-infringing good or service comparable to the affected Item. If none of these alternatives are possible, Tesla shall have the right to return or destroy, at Tesla’s option, any affected Items for a full refund of the purchase price, plus applicable transportation costs.

(b) In the event of any such Indemnified Liabilities, Tesla shall (i) promptly notify Supplier of such indemnified Liabilities and the identity of the Tesla’s legal counsel; (ii) at Supplier’s expense, reasonably cooperate with Supplier in the defense of such claim; and (iii) not settle any such Indemnified Liabilities without Supplier’s written consent, which shall not be unreasonably withheld or delayed. Supplier shall keep Tesla informed at all times as to the status of Supplier’s efforts and consult with Tesla and/or its counsel regarding such efforts. Supplier shall not settle any such claim without the prior written consent of Tesla, which shall not be unreasonably withheld or delayed. Failure by Tesla to give notice of the Indemnified Liabilities to Supplier shall not relieve Supplier of its indemnification obligations hereunder except to the extent, if any, that Supplier has actually been prejudiced hereby.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -22-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

(c) This Section 23 sets forth the entire obligation of Supplier to Tesla and Tesla to Supplier as to Indemnified Liabilities arising from the actual or alleged misappropriation or infringement of any Third Party IP Right.

24. Import and Export Requirements .

(a) General . Supplier agrees it will be required to deliver Items to, and receive Items from, locations outside of the United States. Supplier will comply with all applicable export control laws or regulations promulgated and administered by the laws of the United States or the government of any other country with jurisdiction over the Parties or the transactions contemplated by this Agreement (“ Export Laws ”) including the obligation that Supplier shall not export, re export or otherwise disclose, directly or indirectly, Items or technical data received from Tesla or the direct product of such technical data or Items to any person or destination when such export, re-export or disclosure is in violation of Export Laws. Supplier will provide Tesla with any and all information that may be required to comply with Export Laws, including applicable “Export Control Classification Numbers,” documentation substantiating U.S. and foreign regulatory approvals for the Items, and information required by Customs officials to substantiate the value of imported Items including any adjustments in valuation attributable to “assists” as defined by U.S. Customs regulations. All required export and import information shall be sent to the attention of: Manager, Compliance, Tesla Motors, 1050 Bing Street, San Carlos, CA 94070; or any agent so designated by Tesla.

(b) Country of Manufacture . Items shall be marked with the country of origin as required by Export Laws. Supplier shall provide Tesla with a written statement identifying for each Items delivered the (i) Tesla part number and (ii) the country of manufacture. This data shall be provided to Tesla upon Tesla’s request.

(c) Duty Drawback . Supplier will provide Tesla or its agent with U.S. Customs entry data and information that Tesla determines is necessary for Tesla to qualify for duty drawback. Such data shall include information and receipts for duties paid, directly or indirectly, on all Items which are either imported or contain imported parts or components. Information related to serial numbers, unique part numbers, lot numbers and any other data which will assist Tesla in identifying imported Items sold to Tesla shall also be provided. At the time of delivery of the Items, but in no event later than thirty (30) days after each calendar quarter, Supplier will provide said documents accompanied by a completed Certificate of Delivery of Imported Merchandise or Certificate of Manufacture and Delivery of Imported Merchandise (Customs Form 331) as promulgated pursuant to 19 CFR 191, or successor regulations.

25. Insurance .

Supplier shall maintain (i) comprehensive general liability insurance covering bodily injury, property damage, contractual liability, products liability and completed operations; (ii) Worker’s Compensation and employer’s liability insurance; and (iii) auto insurance, all in such amounts as are necessary to insure against the risks to Supplier’s operations, but in no event less than the following minimum amounts:

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -23-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

Insurance

   Minimum Limits of Liability

Worker’s Compensation

   Statutory

Employer’s Liability

   $1,000,000

Automobile Liability

   $1,000,000 per occurrence

Comprehensive General Liability (Including Products Liability)

   $1,000,000 per occurrence

Umbrella/Excess Liability

   $1,000,000 per occurrence

All policies must be primary and non-contributing, shall have a deductible amount that is not commercially unreasonable, and shall include Tesla as an additional insured. Supplier also waives all rights of subrogation. Supplier will require and verify that each of its Sub-tier Suppliers carries at least the same Insurance coverage and minimum limits of insurance, as Supplier is required to carry pursuant to the Agreement. Supplier shall notify Tesla at least thirty (30) days prior to the cancellation or implementation of any material change in the foregoing policy coverage that would affect Tesla’s interests. Upon request, Supplier shall furnish to Tesla as evidence of insurance a certificate of insurance stating that the coverage will not be canceled or materially altered without thirty (30) days prior notice to Tesla.

26. Miscellaneous .

(a) Assignment . This Agreement shall be binding on, and inure to the benefit of, the Parties and their respective permitted assigns. Supplier shall not assign or otherwise transfer this Agreement or any of Supplier’s rights or obligations hereunder, in any manner, without the prior written consent of Tesla, which shall not be unreasonably withheld.

(b) Change in Control . Supplier will notify Tesla immediately of Suppliers intent (or any other person’s intent, to the extent Supplier is aware of it) to effect any sale of all or substantially all of Supplier’s assets, any consolidation, merger or other transaction involving the sale or transfer of ten percent (10%) or more of Supplier’s capital stock or similar ownership interest of Supplier.

(c) Waiver . If either Party fails to insist on performance of any term or condition, or fails to exercise any right or privilege hereunder, such failure shall not constitute a waiver of such term, condition, right or privilege.

(d) Survival of Obligations . Termination or expiration of this Agreement will not relieve either Party of its obligations under Sections 8(c), 9, 11(a) — (f), 11(h), 12, 17(b), 18, 19(c)—(e), 20 — 23, 26(c) — (e), (h), (i), and (l) – (r), nor will termination or expiration relieve the Parties from any liability arising prior to the date of termination or expiration.

(e) Severability . Any provision of this Agreement that is held unenforceable or invalid for any reason by a court of competent jurisdiction shall be severed from this Agreement, and the remainder of the Agreement shall continue in effect; provided , that such unenforceable or invalid provision shall be given effect to the maximum extent then permitted by law.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -24-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

(f) General Compliance with Laws and EEO Regulations . Each Party represents, warrants and agrees that (i) such Party’s execution, delivery and performance of this Agreement will not conflict with or violate any applicable law, rule, regulation, order, decree, or ordinance; and (ii) such Party shall comply with the requirements of 41 CFR §§ 60-1.4(a) –250.5(a), and – 741.5(a), if applicable, relating to equal opportunity clauses pertaining to government contracts.

(g) No Gratuity . Neither Party will offer or give any gratuity to induce any person or entity to enter into, execute or perform the Agreement or any other agreement with between the Parties.

(h) Governing Law, Exclusive Forum . This Agreement is governed by UK law.

(i) General Representations . Each Party represents and warrants as follows: (i) such Party is duly organized, validly existing, and in good standing under the laws of the jurisdiction of its organization; and (ii) such Party’s execution and delivery of this Agreement and performance of its obligations hereunder will not (1) violate any provision of the charter, bylaws or other governing document of such Party, or (2) conflict with, result in a breach of, or constitute a default under, any other agreement or arrangement by which such Party is bound.

(j) Force Majeure . If and to the extent that a Party’s performance of any of its obligations pursuant to this Agreement is prevented, hindered or delayed by fire, flood, earthquake, elements of nature or acts of God, acts of war, terrorism, riots, civil disorders, rebellions, revolutions, strikes, labor disputes or any other similar cause beyond the reasonable control of such Party (each, a “ Force Majeure Event ”), then the non-performing, hindered or delayed Party shall be excused for such non-performance, hindrance or delay, as applicable, of those obligations affected by the Force Majeure Event for as long as such Force Majeure Event continues; provided , that such Party continues to use commercially reasonable efforts to recommence performance whenever and to whatever extent possible without delay, including through the use of alternate sources, workaround plans or other means. Notwithstanding the preceding sentence, if the Force Majeure Event continues for a period of more than thirty (30) days, either Party may thereafter exercise its rights, if any, pursuant to Section 21, to deliver a notice of termination, subject to any cure period that may be required by Section 21. The Party whose performance is prevented, hindered or delayed by a Force Majeure Event shall promptly notify the other Party in writing of the occurrence of a Force Majeure Event and describe in reasonable detail the nature of the Force Majeure Event.

(k) No Agency . Each Party shall be deemed to be an independent contractor and not an agent, joint venturer or representative of the other Party and neither Party may create any obligations or responsibilities on behalf of or in the name of the other Party.

(l) Cumulative Remedies . The rights and remedies of the Parties provided under this Agreement are not exclusive (unless another provision of this Agreement expressly provides that a right or remedy is exclusive), and may be exercised, alternatively or cumulatively, with any other rights and remedies available to the Parties under this Agreement or in law or in equity.

(m) Amendments and Modifications; Captions and Construction . Except as provided in Section 2(c) (Updating Business Processes), amendments or revisions to this Agreement

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -25-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

must be in writing, signed by both Tesla and Supplier duly authorized representatives, traced by revision numbers and attached to the original of this Agreement.

(n) Counterparts and Facsimile . This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and such counterparts together shall constitute the same instrument. For purposes hereof, a facsimile copy of this Agreement, including the signature pages hereto, shall be deemed an original.

(o) Notices . Subject to Section 2(c), any notice, consent or approval required or permitted under this Agreement shall be in writing and in English (unless otherwise expressly stated) and shall be given (1) personally; (2) by express courier; (3) by facsimile with confirmation of delivery; or (4) by email with confirmation of delivery. The Supplier and Tesla shall each nominate a representative who shall be authorized to make decisions relating to the Items and who shall be responsible for organizing all meetings and actions provided for in this Agreement.

Notices to Tesla:

Mike Trueman

Tesla Motors Ltd.

Supply Chain Management

Potash Lane

Hethel

England

e-mail: suppychain@teslamotors.com

Notices to Supplier:

[***]

[***]

[***]

Fax [***]

[***]

(p) Notifications to Tesla . Supplier shall promptly notify Tesla in writing as soon as possible before, and in any event prior to the occurrence of, (i) Supplier’s acquisition of a majority of the capital stock of, or substantially all of the assets of, a third party or business division of a third party that directly or indirectly provides goods or services to Tesla; (ii) a significant change in leadership roles at Supplier, a business division of Supplier, or factory or physical plant of Supplier, which is involved in Supplier’s performance of this Agreement (iii) any problem or other issue that a reasonable person in the position of Supplier would believe could negatively impact Supplier’s ability to perform its obligations under this Agreement (including making on- time deliveries); or (iv) any material change to Supplier’s information, inventory management, or financial management systems or processes.

(q) Foreign Translation . This Agreement is written in the English language. The English text of this Agreement shall prevail over any translation thereof.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -26-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

(r) Entire Agreement . This Agreement, including its Attachments, sets forth the entire understanding and agreement of the Parties as to the subject matter of this Agreement and supersedes all prior agreements, understandings, proposals and representations, oral or written, between the Parties as to the subject matter, except for NDA(s), which are addressed by Section 9(d). In the event of any conflict between or among any documents which are part of this Agreement, the following order of precedence shall apply: (i) Supply Agreement; (ii) Attachment 1; (iii) other Attachments; (iv) Specifications; and (v) Order.

By execution hereof, the person signing for each Party below hereby certifies, represents and warrants that he/she has read this Agreement and that he/she is duly authorized to execute this Agreement on behalf of such Party.

 

TESLA MOTORS, INC.     [***]
By:  

/s/ Thomas E. Colson

    By:  

/s/ [***]

Thomas E. Colson

     

[***]

Printed name       Printed name

VP, Manufacturing

     

Managing Director

Title       Title

14May07

     

30/5/07

Date       Date

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -27-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

SUPPLY AGREEMENT

Table of Attachments

 

No

  

Name

1    List of Items, Pricing Mechanism, and Lead Times
2    Packaging and Labeling Specification
3    Transportation Routing Guide
4    Supplier Corrective Action Request
5    PPAP Submission Workbook
6    Tesla Motors Supplier Handbook
7    Tesla Tooling and Property Requirements

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -28-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 1

List of Items, Pricing Mechanism, and Lead Times

 

PART
NUMBER

  

Description

   BATCH
QTY
  COST
GBP
02-001047-00    [***]    [***]   £[***]
02-001230-00    [***]    [***]   £[***]
02-001233-00    [***]    [***]   £[***]
02-001241-00    [***]    [***]   £[***]
02-001454-00    [***]    [***]   £[***]
02-001455-00    [***]    [***]   £[***]
02-001458-00    [***]    [***]   £[***]
02-001459-00    [***]    [***]   £[***]
02-002244-00    [***]    [***]   £[***]
02-002959-00    [***]    [***]   £[***]
06-000605-00    [***]    [***]   £[***]
06-000634-00    [***]    [***]   £[***]

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -29-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 2

Transportation, Packaging and Labeling Specification

1. The Supplier shall (where applicable):

(a) properly pack and label the Items in accordance with the specific requirements of Tesla;

(b) route consignments in accordance with any instructions from Tesla;

(c) not charge for the handling, packaging, storage or transportation of the Items, protective packaging, material, delivering of parts to various plants in special racks/different container types or re-assignment of all kind of containers unless otherwise agreed in writing with Tesla;

(d) properly mark each package with a label/tag according to Tesla’ instructions and/or in accordance with any legal obligation;

(e) include on any bills of lading or other shipping receipts the correct classification and identification of the Items transported in ‘accordance with Tesla’ instructions and any requirements of the carrier and to promptly forward the same in accordance with Tesla’ instructions;

(f) ensure that the marks on each package and identification of the Items on packing slips, bills of lading and invoices are sufficient to enable Tesla to easily identify the goods;

(g) obtain all necessary export licenses and/or permissions in respect of the delivery of the Items or where Tesla must obtain such export licenses and/or permissions in its own name, provide Tesla with reasonable assistance to secure the same;

(h) notify Tesla in advance of delivery in writing if the Supplier requires Tesla to return any packaging material to the Supplier. Such packaging material will only be returned to the Supplier at the Supplier’s cost and risk.

(i) comply with a all provisions of the Tesla supplier handbook.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -30-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 3

Transportation Routing Guide

[omitted]

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -31-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 4

Supplier Corrective Action Request

Refer to Tesla Motors Document Numbers:

 

   

99-000002-02    Corrective & Preventive Actions

 

   

99-000066-04    Supplier Corrective Action Request form

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -32-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 5

PPAP Submission Workbook

Refer to Tesla Motors Document Number:

 

   

99-000094-04    PPAP Submission Workbook

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -33-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 6

Tesla Motors Supplier Handbook

Refer to Tesla Motors Document Number:

 

   

99-000068-03    Tesla Motors Supplier Handbook

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -34-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 7

Tesla Tooling and Property Requirements

 

1. Unless otherwise agreed in writing by Tesla, the Supplier shall be responsible for and shall undertake the design and development of all tools, jigs, dies, gauges, fixtures, molds and patterns or other equipment necessary in the provision of the Items (“Tooling”), unless Tesla solely provides the design of the Tooling and provides instruction relating to design in which case the Supplier shall be responsible for producing the Tooling to the Tesla design. Supplier shall at its own expense furnish, keep in good condition, and replace when necessary all Tooling.

 

2. Supplier warrants that the design, assembly, manufacture or procurement of the Tooling shall render the Tooling fit for purpose and of satisfactory quality provided that the parties hereby acknowledge and agree that the Supplier shall not be in breach of this warranty if a design provided by Tesla is in error and such error is not due to the acts or omissions of the Supplier.

 

3. The cost of changes to the Tooling necessary to make design and specification changes authorized by Tesla shall, unless otherwise agreed in writing, be paid for by the Supplier. The Supplier hereby grants to Tesla an irrevocable option (exercisable at any time during the duration of the Agreement or after its termination) to take possession of and title to the Tooling that are special for the provision of the Items upon payment to the Supplier of the book value thereof less any amounts which Tesla has previously paid to the Supplier for the cost of such Tooling.

 

4. All supplies, tools, jigs, dies, gauges, fixtures, molds, patterns, equipment and other items provided by Tesla, either directly or indirectly, to the Supplier, or for which the Supplier has been reimbursed by Tesla (“Tesla Property”), shall be and remain the property of Tesla and held by the Supplier on a bailment basis.

 

5. The Supplier shall bear the risk of loss and damage to Tesla Property. Tesla Property shall at all times at the Supplier’s cost

 

  (a) be properly housed and maintained in full working order;

 

  (b) be replaced by the Supplier (at the Supplier’s cost), if the replacement is required due to

 

  (i) abuse of the Tesla Property; and/or

 

  (ii) failure to maintain, repair, service or house the Tesla Property.

 

  (c) not be used by the Supplier for any purpose other than the performance of an Order under the Agreement;

 

  (d) be conspicuously marked as property of Tesla by the Supplier;

 

  (e) not be mixed with the property of the Supplier or with that of a third party; and

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -35-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

  (f) not be moved from the Supplier’s premises, modified or replaced without Tesla’ prior written approval.

 

6. Upon the request of Tesla, the Tesla Property shall be immediately released to Tesla or delivered to Tesla’ premises by the Supplier properly packed and marked in accordance with the requirements of Tesla all at the Supplier’s cost or delivered to any location reasonably designated by Tesla, in which event Tesla shall pay the Supplier the reasonable cost of delivering such Tesla Property to such location.

 

7. The Supplier shall insure all Tesla Property against all risks for the replacement value and shall, upon Tesla’ request, provide to Tesla certificates or other satisfactory evidence of such insurance.

 

8. Tesla, its employees, agents and sub-contractors may enter in or on the Supplier’s premises (or any other premises where the Tesla Property may be) at all reasonable times and on reasonable notice to inspect the Tesla Property and the Supplier’s records with respect thereto and the Supplier hereby provides its irrevocable consent (and shall procure the irrevocable consent of any relevant third parties) to permit Tesla, its employees, agents and sub-contractors to enter such premises for this purpose.

 

9. On termination of the Agreement (for whatever reason) the Supplier must not destroy the Tesla Property but shall liaise with Tesla over arrangements for the Tesla Property to be returned to Tesla.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -36-   

Exhibit 10.27

Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

TESLA MOTORS, INC.

[Tesla Logo]

and

SANYO Electric Co., Ltd.

Mobile Energy Company &

Sanyo Energy (USA) Corporation

1st day of February, 2007

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/SANYO   Page 1 of 17


Confidential Treatment Requested by Tesla Motors, Inc.

 

THIS SUPPLY AGREEMENT is entered into as of this 1st day of February , 2007 (the “ Effective Date ”) between

 

  (a) Tesla Motors, Inc ., a Delaware corporation, with its principal place of business at 1050 Bing St., San Carlos, California 94070, U.S.A. and its subsidiaries in world wide locations, including Hethel, Norwich, Norfolk in the United Kingdom; and

 

  (b) SANYO Electric Co., Ltd . Mobile Energy Company, a company duly organized and existing under the laws of Japan with its office located at 222-1, Kaminaizen, Sumotoshi, Hyogo, 656-8555 Japan and Sanyo Energy (USA) Corporation , a company duly organized and existing under the laws of the State of Delaware with its office located at 2600 Network Blvd. Ste 600, Frisco, TX 75034, U.S.A.

WHEREAS, Tesla (hereinafter defined in Section 1) intends to manufacture Li-Ion battery packs (hereinafter called “Finished Products” defined in Section 1) with the Items (hereinafter defined in Section 1) supplied by SANYO (hereinafter defined in Section 1).

WHEREAS, SANYO is willing to supply the Items to Tesla in accordance with this Agreement.

The Parties agree as follows:

1. Definitions .

Unless defined additionally elsewhere in this Agreement the following capitalized terms shall have the meanings specified below:

(a) “ Agreement ” means (i) this Supply Agreement, (ii) all Attachments, and (iii) all Orders, as each may be amended from time to time.

(b) “ Attachment ” means any document that is referenced in this Supply Agreement and attached hereto. All Attachments are deemed to be incorporated into this Agreement by this reference.

(c) “ Order ” means an order for items communicated pursuant to this Agreement by Tesla to SANYO via a purchase order whether in hardcopy or electronic form. All Orders are deemed to be incorporated into this Agreement by this reference.

(d) “ Finished Products ” means Li-Ion battery packs or any other product not identified as “Items” manufactured by Tesla or by Tesla’s subcontractor with the Items.

(e) “ Internal Tesla Data ” means planning data, product engineering or manufacturing data, information, forecasts, or confidential information that is stored, displayed, maintained or accessed on the Tesla Web Site or other Tesla internal databases or internal network servers or storages.

(f) “ Items ” means, collectively either singular or plural, Li-Ion battery cells which are manufactured by SANYO and which are supplied to Tesla as specified in (i) Attachment 1, (ii) an Order; or (iii) a purchase order placed by Tesla with SANYO prior to the Effective Date and undelivered as of such date.

 

(g) Parties ” means Tesla and SANYO.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/SANYO   Page 2 of 17


Confidential Treatment Requested by Tesla Motors, Inc.

 

(h) “ SANYO ” means SANYO Mobile Energy Company and Sanyo Energy (USA) Corporation collectively.

(i) “ Tesla ” means Tesla Motors, Inc., including its subsidiaries, which Tesla has substantial control, which shall be defined as no less than 50% ownership or control on or after the Effective Date.

(j) “ Tesla Web Site ” means the portion of the password-protected Web Site, including the database related to supply chain management, maintained by Tesla, to which SANYO may be given access for the purpose of performing under this Agreement.

2. Scope of Agreement; Term .

(a) Scope of Agreement . This Agreement sets forth the terms and conditions governing the purchase and sale of Items and the relationship between Tesla and SANYO. Tesla shall be entitled to purchase Items from SANYO under this Agreement. Nothing in this Agreement shall prevent Tesla from engaging third parties other than SANYO to provide goods that are same as, or similar to, the Items.

(b) Term . This Agreement shall commence on the Effective Date and, unless terminated as set forth in Section 12 (Termination), shall continue in effect for one (1) year. This Agreement, however, shall be automatically extended from year to year for one (1) year periods, unless either party hereto gives a written notice of termination to the other party at least sixty (60) days before the expiration date of the initial term or the respective expiration dates thereafter. The effective period of this Agreement is referenced as the “ Term .”

3. Orders .

(a) Orders . An Order shall (i) identify the Items requested and (ii) state the quantity, date, time, mode and place of delivery, and price of the Items requested (unless previously specified in Attachment 1, which, in the event of a conflict with the Order, shall control).

(b) Acceptance/Rejection of Orders . SANYO shall promptly communicate its acceptance or rejection of an Order. SANYO shall not, however, reject (and shall be deemed to have accepted) an Order for Items set forth on Attachment 1 so long as the Order conforms to the terms and conditions of this Agreement (including without limitation lead time requirements specified for such Items on Attachment 1, if any). Any notice of rejection shall state the specific grounds for such rejection. In all events, any objection by SANYO to the terms of an Order shall be deemed waived upon SANYO’s delivery of Items.

(c) Order Adjustments . SANYO acknowledges that Tesla may be required to modify Orders from time to time and may do so as outlined in Attachment 4.

(d) Purchases by Authorized Third Party . Items may be incorporated into Finished Products made for Tesla by a third party. Upon the mutual agreement of the Parties, Tesla may designate the third party as authorized to purchase Items from SANYO, once credit terms have been approved by SANYO, and SANYO shall enter into an agreement with such third party to sell Items to the third party on terms (including pricing) no less favorable than the terms set forth in this Agreement.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/SANYO   Page 3 of 17


Confidential Treatment Requested by Tesla Motors, Inc.

 

(e) No Volume Commitment . Tesla does not commit to purchase a specific volume of any items from SANYO except as specified in an Order. Tesla may buy goods from third parties that are identical or similar to the Items.

4. Pricing .

(a) Contract Price . “ Contract Price ” means the domestic and/or export price in US Dollars for an Item as set forth in Attachment 1; provided, that if a price for an Items is not specified on Attachment 1, then the Contract Price shall be the price set forth in an Order that is accepted by SANYO in accordance with this Agreement. The Contract Price for each Item shall remain in effect throughout the Term, except for any changes mutually agreed to by the Parties in writing.

(b) Pricing Components . The Contract Price, and any quotations for items, shall include all finishing, testing, inspecting and packaging fees, applicable royalties and all applicable taxes (excluding sales, use and similar taxes). Any quotations for Items shall include all costs relating to warranties, standard warranty of [***] from delivery to Tesla of Items,

(c) Transportation and Insurance Costs . The Contract Price shall be based on delivery according to either the Incoterm, Cost, Insurance, and Freight (“CIF”) Bangkok (within the meaning of INCOTERMS 2000), for those Items that are delivered to Thailand or the Incoterm, Free On Board (“FOB’) Japan (within the meaning of INCOTERMS 2000), for those Items that are delivered to elsewhere.

(d) Taxes . Tesla will pay any applicable sales, use or similar tax imposed in connection with the sale of Items to Tesla; provided, that SANYO shall not charge or collect, and Tesla shall have no liability for, taxes on any sale of Items for which Tesla has provided SANYO with an appropriate resale certificate or other documentation evidencing an exemption from such taxes. For all sales of Items upon which tax reimbursement to SANYO is applicable, SANYO shall separately itemize all applicable taxes on invoices submitted to Tesla. All amounts payable under this Agreement are exclusive of Value Added Tax (VAT) which will be paid at the date and in the manner for the time being prescribed by law.

(e) Recycling Fees . Tesla will pay any applicable recycling fees should it decide to recycle the Items and/or if any rules and regulations pertaining to battery recycling change to require recycling of the Items.

5. Delivery of Items .

(a) Delivery Requirements . Time is of the essence as to the delivery of all Items ordered under this Agreement. SANYO shall meet the (i) negotiated lead time, (ii) order adjustment requirements as set forth in Section 3; and (iii) time, date, location and other delivery requirements for Items as set forth in the Order. Delivery will be considered timely only if items are delivered in the correct quantity, and at the time, date and location specified in the Order.

(b) Remedies . If SANYO fails to deliver any Items at the time and place set forth in the Order, and the Order is based on the agreed schedule and quantity, Tesla shall have the right, at its sole option, to (i) require SANYO, at SANYO’s expense, to use expedited delivery methods to complete and deliver the Items; or (ii) allocate or redirect SANYO’s deliveries of Items to certain Tesla designated locations.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/SANYO   Page 4 of 17


Confidential Treatment Requested by Tesla Motors, Inc.

 

6. Shipping and Packaging Requirements .

(a) SANYO will ship all Items in accordance with the authorized shipping service level (ground, sea, air, second-day, next-day, etc.) included in an Order.

(b) SANYO shall comply with any special packaging and labeling requirements for Items as may be applicable given the classification of the shipment. The Items shall be packaged, marked and labeled in accordance with best commercial practices, along with all required shipping documentation. In all events, SANYO must include a valid packing slip number or package ID on each package or shipment of Items.

7. Acceptance .

(a) All shipments of the Items shall be accepted subject to Tesla’s incoming inspection to be carried out in accordance with incoming inspection criteria as mutually agreed between the parties and as specified in Section 10(d). The incoming inspection shall be conducted promptly after the arrival of the Items at premises or any other place designated in writing by Tesla, and in any event no later than fourteen (14) working days after the arrival at premises or any other place designated in writing by Tesla (hereinafter called “ Incoming Inspection Period ”). If any report of claim is not received by SANYO within the applicable Incoming Inspection Period, such Items shall be deemed to have passed the incoming inspection and accepted by Tesla.

(b) In the event of any defect in a shipment that is communicated to SANYO pursuant to Section 7(a), Tesla shall promptly supply to SANYO the allegedly defective Items. Further, Tesla shall promptly supply to SANYO the detail fact and additional supporting evidence with respect to the allegedly defective Items.

(c) If the cause of the defect is determined by the Parties to be attributable to SANYO, SANYO shall replace the items found to be defective by Tesla. It has been agreed between the parties that such Items replacement shall constitute Tesla’s sole remedy in respect of the subject defective Items.

(d) SANYO may require Tesla to return defective Items to SANYO at SANYO’s expense or to destroy or otherwise dispose of such Items at SANYO’s expense, pursuant to instructions of SANYO, at SANYO’s sole discretion.

8. Payment

(a) Payment Terms . After the initial period as set forth in the “Payment Term Transition Period’ (“ Attachment 2 ”), payment by Tesla for items shall be made within [***] from the date of receipt of valid invoice. Tesla is authorized by SANYO to make payments under this Agreement by either check or electronic funds transfer, and SANYO shall provide Tesla with the information necessary for electronic funds transfer capability.

(b) Invoices . SANYO will submit invoices to Tesla no earlier than when the Items are shipped to Tesla.

(c) Effect of Payment . Tesla’s payment for Items shall not affect the time at which title to Items passes to Tesla nor shall it preclude revocation of acceptance. All payments shall be subject to adjustment for errors, shortages, non-conformities or defects.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/SANYO   Page 5 of 17


Confidential Treatment Requested by Tesla Motors, Inc.

 

9. Electronic Access to Internal Tesla Data .

(a) General . If SANYO is granted access to Internal Tesla Data, SANYO’s access to the internal Tesla Data is subject to compliance with (i) the terms of use, if any, of the Tesla Web Site or such other database or intranet, as applicable, and (ii) any technical, security, and software licensing requirements of Tesla, including the issuance of passwords and requirements related to using Tesla’s virtual private network. Tesla may terminate SANYO’s right of access or change the method of access to the Internal Tesla Data at any time. In no event shall SANYO facilitate or enable access to Internal Tesla Data by any sub-tier supplier or other third party. In no event shall SANYO facilitate or enable access to Internal Tesla Data by its employees or contractors that may either cause to exceed the available number of authorized software licensing seats or violate the login authority (for example, improper sharing of a single user name and password by multiple users).

(b) Use . If Tesla grants SANYO access to the Internal Tesla Data, SANYO shall have the limited right to download, store, display and use Tesla Internal Data for the sole purpose of performing its obligations under this Agreement. SANYO may not use the Tesla Internal Data in any other way, commercially or otherwise. Unless otherwise notified by Tesla, SANYO may store copies of Internal Tesla Data on SANYO’s networks and information storage systems, provided, such internal Tesla Data is stored either on hardware that is dedicated solely to Tesla, or otherwise separated from other information of SANYO, so that the internal Tesla Data is not accessible to individuals except as authorized by this Agreement. If Tesla provides SANYO with any recommendations for establishing an interface or other methods of accessing the Internal Tesla Data, SANYO assumes all risk in implementing any such recommendation.

(c) Consent to Monitoring . SANYO agrees that its access to and use of Internal Tesla Data and all acts in connection with Tesla’s internal systems are recorded and may be monitored SANYO expressly consents to such recording and monitoring. If such recording or monitoring reveals possible evidence of criminal activities involving any individual, Tesla may provide such evidence to the appropriate law enforcement organization and take any other appropriate action.

10. Responsibility for the Quality of the Items and the Finished Products .

(a) Warranty . SANYO represents and warrants that, for a period of [***] from the date of delivery to Tesla, the Items (i) will be free from defects in workmanship, material, and manufacture; (ii) will comply with the requirements of this Agreement, including all Tesla Specifications and manufacturing work instructions; and (iii) will be supplied according to the Automotive Industry Action Group (“ AIAG ”) Production Part Approval Process (hereafter referred to as “ PPAP ”). Only after the PPAP is submitted and approved by Tesla, shall the Items be allowed to be shipped to the manufacturing site for use in production vehicles.

(b) PPAP Requirements . SANYO shall submit a mutually agreed quantity of samples of a standard production run of Items to Tesla per a mutually agreed PPAP plan.

(c) PPAP Approval . Tesla Motors shall review the samples, as referred to in Section 10(b) and documents and notify SANYO in writing of approval status. Once approved the Items can be shipped to Tesla for use on production vehicles. If the PPAP is rejected, SANYO agrees to implement corrective actions to bring the PPAP into compliance.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/SANYO   Page 6 of 17


Confidential Treatment Requested by Tesla Motors, Inc.

 

(d) Requirements For Acceptance Of Items For Production Lots . Per section 7(a), Tesla will inspect the shipment upon receipt and prior to acceptance. In order to verify the quality of incoming product, SANYO shall supply the following test reports to Tesla for [***] production during November, December 2006 and January 2007:

 

  (i) Cumulative yield report for incoming lot.

 

  (ii) Inspection 3; inspection of Vo, IR. Lots with yields <[***]% will be rejected;

After the January 2007 report is received, Tesla and Sanyo will discuss whether or not such reporting needs to continue.

(e) Tesla shall be solely responsible for the quality of the Finished Products at any and all processes after Tesla have accepted the Items pursuant to Section 7, including but not limited to, manufacturing, assembly, storage, inspection and shipment to third parties. Therefore, SANYO shall be indemnified from any and all responsibilities of the quality of the Finished Products.

(f) Tesla shall not repair, improve or modify the Items without a prior written approval of SANYO.

(g) Quality Control of the Finished Products .

(i) Tesla shall establish and maintain proper quality control and inspection systems at the each stage of manufacturing, assembly, storage, inspection and shipping.

(ii) SANYO may enter from time to time with reasonable advance notice into the Finished Products assembly facility of Tesla for the purpose of inspecting and examining the quality control and inspection system in the manufacturing process of the Finished Products. Tesla reserves the right to shield particular confidential areas of the assembly process.

(iii) SANYO may from time to time give Tesla advice or instruction as to optimize the performance of cell usage of the Finished Products and/or the quality control and inspection system in the manufacturing and inspection process of the Finished Products as SANYO deems appropriate. Tesla may, upon receipt of such advice or instructions, comply with such advice or instructions if the advice is deemed reasonable by Tesla management and is within the scope of Tesla business plans and objectives.

(iv) Any advice or instructions given by SANYO under Section 10(g)(iii) is not intended to indemnify Tesla for any acts or omissions for which it is responsible, nor shall it create any warranty by SANYO for the Finished Products Tesla manufactures.

(h) Returned Finished Products .

(i) Tesla shall agree to receive the Finished Products that its customers or final users return to Tesla.

(ii) Tesla shall store and control those returned Finished Products from its customers and final users (hereinafter called “ Returned Finished Products ”) and inspect the Returned Finished Products to identify the cause of return.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/SANYO   Page 7 of 17


Confidential Treatment Requested by Tesla Motors, Inc.

 

(iii) As a result of inspection under Section 10(d)(ii), if the reason of return is attributable to the Items manufactured by SANYO and such return of the Finished Products is done within [***] after the delivery of the Items by SANYO, Tesla shall communicate this in writing to SANYO with evidence and shall return the Items within the Returned Finished Products to SANYO within fourteen (14) working days after Tesla received the Returned Finished Products.

(iv) SANYO shall be responsible for the Items only to the extent that, as a result of the re-inspection of such Returned Finished Products, Parties conclude the cause of return as a product failure caused by a failure or defect in the items supplied by SANYO, provided, however, that if the cause of return is not due to failure or defect in the items, Tesla shall be responsible for the Returned Finished Products.

(i) Indemnification .

(i) At any time during the term of this Agreement and thereafter, Tesla agrees to indemnify SANYO and its agents, employees, successors and assigns (collectively referred to as “Indemnitees”) and shall hold all and each of the lndemnitees harmless from and against any and all claims, demands, suits, actions, liabilities, judgments, losses or costs (including reasonable attorneys’ fees and costs of litigation) arising from or in connection with (i) the use of the Items by Tesla or any other work, service or other action performed (or failure to perform any work, service or other action) by Tesla in connection with the Finished Products, and (ii) the manufacture, assembly, purchase, sale, use, operation or disposal of the Finished Products, subject to Section 10(e)(ii).

(ii) At any time during the term of this Agreement and thereafter, SANYO shall indemnify and hold Tesla harmless from and against any and all claim, demands, suits, actions, liabilities, judgments, losses or costs (including reasonable attorneys’ fees and costs of litigation) arising solely from a defect in the Items supplied by SANYO, unless Tesla was aware of or, in the exercise of reasonable care, should have been aware of the existence of such defect; provided, however, SANYO shall have no liability to Tesla with respect to any failure of the Items caused by the integration of the Items to make the Finished Products.

(j) In no event shall SANYO be liable to Tesla for any lost profits, indirect, special, incidental, or consequential damages whatsoever. In no event shall Tesla be liable to Sanyo for any lost profits, indirect, special, incidental, or consequential damages whatsoever. The parties shall give each other prompt prior written notice of any claim, which is or may be subject to indemnification hereunder. The indemnifying party will be responsible for defending any and all such claims hereunder. Each lndemnitee shall cooperate fully with the indemnifying party, including but not limited to, complying with all reasonable requests for all relevant information and data. In any action or proceeding the defense of which an indemnifying party assumes an lndemnitee will have the right to participate in such litigation and to retain its own counsel at such Indemnitee’s own expense. No party shall be liable for any settlement of any claim affected without its consent, which shall not be unreasonably withheld.

(k) Tesla agrees it shall, at all times, carry insurance and add Sanyo as a named insured on each applicable insurance policy, from a reputable insurance carrier to the extent Tesla, in its sole discretion, determines to be adequate to meet its obligations hereunder and it will provide evidence of such insurance to SANYO upon request.

(l) Tesla agrees to manufacture, assemble, sell and/or dispose of the Finished Products in compliance with the laws and regulations related to health and safety of workers and general public, and environmental protection in the countries where the Finished Products are manufactured, handled, or sold.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/SANYO   Page 8 of 17


Confidential Treatment Requested by Tesla Motors, Inc.

 

(m) Tesla shall be solely responsible for health, safety and environmental matters arising from its manufacture, assembly, sales, use, and/or disposal of the Finished Products, subject to the limitations set forth in this Section 10, and shall defend, indemnify, and hold SANYO, its subsidiaries, affiliates, and customers, and their officers, successors, agents, and employees harmless from and against any and all claim, demands, suits, actions, liabilities, judgments, losses or costs (including reasonable attorneys’ fees and costs of litigation), with respect to any pollution, threat to the environment, or death, disease, incapacity or injury to any person or damage to any property resulting, directly or indirectly, from the manufacture, assembly, purchase, sales, use, operation, or disposal of the Finished Products; except to the extent that Tesla shall be exempted from such obligation if and so long as the cause of such damage is attributable to SANYO.

(n) Tesla agrees to comply with the “Restricted Sales or Uses” (“ Attachment 3 ”) requirements.

11. Continuity of Supply .

(a) Performance Constraints . SANYO is responsible for anticipating and promptly notifying Tesla of (i) any inability on its part or its Sub-tier’s part to perform their respective obligations under this Agreement; and (ii) any breach of a provision of this Agreement.

(b) Disaster Recovery Plan . Upon Tesla’s request, SANYO shall provide to Tesla reasonable information describing its disaster recovery plan that includes emergency back-up capacity, and appropriate record protection and recovery.

12. Termination .

(a) If either party defaults in the performance of any terms of this Agreement and fails to cure the default within thirty (30) days after receipt of a written notice given by the non-defaulting party demanding remedy of such default, the non-defaulting party may terminate this Agreement by giving written notice thereof.

(b) This Agreement may also be terminated by either party, should the other party; (i) cease to function as a going concern; (ii) become involved in financial difficulties including the appointment of a receiver, a moratorium on indebtedness, the filing of a petition in bankruptcy, or an assignment on behalf of its creditors.

(c) Neither party shall be liable to the other party for incidental, consequential, or punitive damages for any claim or cause of action arising out of, or related to, any performance or non-performance under this Agreement,

13. Import and Export Requirements .

(a) Upon request from Tesla, SANYO will provide Tesla with any and all information that may be required to comply with export laws, including applicable “Export Control Classification Numbers,” documentation substantiating U.S. and foreign regulatory approvals for the Items, and information required by Customs officials to substantiate the value of imported Items including any adjustments in valuation attributable to “assists” as defined by U.S. Customs regulations. All required export and

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/SANYO   Page 9 of 17


Confidential Treatment Requested by Tesla Motors, Inc.

 

import information shall be sent to the attention of: Manager, Compliance, Tesla Motors, 1050 Bing Street, San Carlos, CA 94070; or any agent so designated by Tesla.

(b) In case Tesla would export the Items and/or the Finished Products from any country, Tesla shall comply with applicable export control laws and regulations in such country and export them only after taking adequate proceedings required under such laws and regulations.

(c) Tesla shall not use the Items and/or the Finished Products for military purposes, nor shall Tesla directly or indirectly use them in the development, production or handling of conventional weapons or weapons of mass destruction, including but not limited to, nuclear, chemical or biological weapons and missiles.

(d) Tesla shall not sell or turn over the Items and/or the Finished Products to a third party or parties who, Tesla knows or there is a sufficient reason to suspect so, might use such Items and/or Finished Products for military purposes or might directly or indirectly use such Items and/or Finished Products in the development, production or handling of conventional weapons or weapons of mass destruction, including but not limited to, nuclear, chemical or biological weapons and missiles.

(e) Country of Manufacture . Items shall be marked with the country of origin as required by export laws. SANYO shall provide Tesla with a written statement identifying for each Items delivered the (i) Tesla part number and (ii) the country of manufacture

(f) Duty Drawback . SANYO will provide Tesla or its agent with U.S. Customs entry data and information that Tesla determines is necessary for Tesla to qualify for duty drawback. Information related to date code, lot numbers and any other data which will assist Tesla in identifying imported Items sold to Tesla shall also be provided.

14. Miscellaneous .

(a) Assignment . Neither this Agreement nor any right hereunder shall be assignable and transferable to any third party or parties by either of the parties without a prior written consent of the other party hereto. Tesla may assign this Agreement to a successor in interest with the prior written notice to SANYO in connection with a sale of Tesla or its assets.

(b) Waiver . If either Party fails to insist on performance of any term or condition, or fails to exercise any right or privilege hereunder, such failure shall not constitute a waiver of such term, condition, right or privilege.

(c) Survival of Obligations . Termination or expiration of this Agreement will not relieve either Party of its obligations under Sections 8(c), 10, 12(c), 13(c)-(d), and 14.

(d) Severability . Any provision of this Agreement that is held unenforceable or invalid for any reason by a court of competent jurisdiction shall be reformed to reflect the true intent of the Parties, and the remainder of the Agreement shall continue in effect.

(e) No Gratuity . Neither Party will offer or give any gratuity to induce any person or entity to enter into, execute or perform the Agreement or any other agreement between the Parties.

(f) Arbitration . In the event any disputes, differences or controversies arise between the parties hereto, out of or in relation to or in connection with the provisions of this Agreement, the parties

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/SANYO   Page 10 of 17


Confidential Treatment Requested by Tesla Motors, Inc.

 

hereto shall thoroughly explore all possibilities for the amicable settlement. In case an amicable settlement could not be reached within ninety (90) days from the date a party is first notified, in accordance with this Agreement, of the existence of a dispute, such disputes, differences or controversies shall be referred to arbitration in San Francisco, California conducted by the Judicial Arbitration and Mediation Services/Endispute, Inc. (“JAMS”), or its successors provided that the arbitrator shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration decision including the arbitrator’s essential findings and conclusions and a statement of the award. The award of such arbitration shall be final and binding upon the parties hereto.

(g) Governing Law . The Agreement and any dispute arising out of or in connection with the Agreement or the Parties’ relationship shall be interpreted, enforced and governed by the laws of the State of California, excluding its choice of law rules.

(h) Force Majeure . If and to the extent that a Party’s performance of any of its obligations pursuant to this Agreement is prevented, hindered or delayed by fire, flood, earthquake, elements of nature or acts of God, acts of war, terrorism, riots, civil disorders, rebellions, revolutions, strikes, labor disputes or any other similar cause beyond the reasonable control of such Party (each, a “ Force Majeure Event ”), then the non-performing, hindered or delayed Party shall be excused for such non-performance, hindrance or delay, as applicable, of those obligations affected by the Force Majeure Event for as long as such Force Majeure Event continues; provided, that such Party notified the other party of such event, in accordance with this Agreement, no later than five (5) days after its occurrence and continues to use commercially reasonable efforts to recommence performance whenever and to whatever extent possible without delay, including through the use of alternate sources, workaround plans or other means. Either party hereto shall have the option to terminate this Agreement, should the parties have not been able to find solution within ninety (90) days after the occurrence and notification of such event.

(i) Press Releases/Publicity Not Authorized . The terms of this Agreement are Confidential Information. Sanyo will not issue any press release, advertising, publicity or public statement or in any way engage in any other form of public disclosure that refers to the relationship between the Parties or in any way relates to the terms of this Agreement without the prior written approval of Tesla. Sanyo gives permission to Tesla to issue any press release, advertising, publicity or public statement or in any way engage in any other form of public disclosure that refers to the relationship between the Parties or in any way relates to the terms of this Agreement. Any mutual undertaking of Sanyo and Tesla for the purposes of publicity does not require prior written agreements. Tesla may disclose the terms of this Agreement to its accountants, attorneys, members of its Board of Directors, other advisors, potential investors, and as may be required by applicable federal law and securities regulations in connection with fund raising activity by Tesla.

(j) Foreign Translation . This Agreement is written in the English language. The English text of this Agreement shall prevail over any translation thereof.

(k) Entire Agreement . This Agreement, including its Attachments, sets forth the entire understanding and agreement of the Parties as to the subject matter of this Agreement and supersedes all prior agreements, understandings, proposals and representations, oral or written, between the Parties as to the subject matter, except for non-disclosure agreements. In the event of any conflict between or among any documents which are part of this Agreement, the following order of precedence shall apply: (i) Supply Agreement; (ii) Attachment 1, (iii) other Attachments; and (iv) Order.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/SANYO   Page 11 of 17


Confidential Treatment Requested by Tesla Motors, Inc.

 

IN WITNESS WHEREOF, the parties hereto have caused three (3) sets of this Agreement to be executed as of the date first above written by their authorized representatives.

 

TESLA MOTORS, INC.
By:
/s/ Bernard K. Tse
Printed name Bernard K. Tse
Title Exec. VP Tesla Engineering

 

SANYO Electric Co., Ltd.    Sanyo Energy (USA) Corporation
Mobile Energy Company   
By:   
/s/ Toru Amazutsumi    /s/ Kazumaji Kobayashi
Printed name Toru Amazutsumi    Kazumaji Kobayashi
Title General Manager    Vice President OEM

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/SANYO   Page 12 of 17


Confidential Treatment Requested by Tesla Motors, Inc.

 

Table of Attachments

 

No

  

Name

1    List of Items, Pricing Mechanism, and Lead Times
2    Payment Term Transition Period
3    Restricted Sales or Uses
4    Order Adjustments

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/SANYO   Page 13 of 17


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 1

List of Items, Pricing Mechanism, and Lead Times

Lithium Ion Cells, Part Number: [***] (Tesla P/N: 01-000819-00)

 

    FOB Japan   CIF Bangkok

Quantity

      AIR   Reefer   Dry Container
[***]   $ [***]   $ [***]   $ [***]   $ [***]
[***]   $ [***]   $ [***]   $ [***]   $ [***]
[***]   $ [***]   $ [***]   $ [***]   $ [***]
[***]   $ [***]   $ [***]   $ [***]   $ [***]
[***]   $ [***]   $ [***]   $ [***]   $ [***]

Lead-time: [***] ARO. Will decrease with blanket PO and/or forecast.

Payment Terms per Attachment 2.

Price changes will occur in the month following the time the new volume is achieved.

Volume Forecast (as of January 2007)

Note: This is only an estimate and not a commitment.

Forecast (Preliminary March 2007 )

[***]

 

[***]   [ ***]    [ ***]    [ ***]    [ ***]    [ ***]    [ ***]    [ ***] 
[***]   [ ***]    [ ***]    [ ***]    [ ***]    [ ***]    [ ***]    [ ***] 

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/SANYO   Page 14 of 17


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 2

Payment Term Transition Period

The following is an approximate payment term schedule and is subject to change during the initial period

 

  (a) Shipment 1 ([***]) = [***]

 

  (b) Shipment 2 ([***]) = [***]

 

  (c) Shipment 3 ([***]) = [***]

 

  (d) Shipment 4 ([***]) = [***]*

 

  (e) Shipment 5 ([***]) = [***]

 

  (f) Shipment 6 ([***]) = [***]

 

  (g) Shipment 7 ([***]) = [***]*

Conditions (*)

 

  (i) If payments made by Tesla are on time for Shipments 1-3, SANYO shall move to the new terms outlined on shipment 4.

 

  (ii) Following shipment 6, SANYO shall offer [***] Terms going forward.

PIA ” means Pay in Advance of shipment of Items. SANYO shall provide a pre-shipment notice and an invoice to Tesla minimum of five (5) business days before the shipment.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/SANYO   Page 15 of 17


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 3

Restricted Sales or Uses

1. Tesla shall limit its use of the Items to applications other than laptops, cell phones, and power tools.

2 Parties agree to from time to time add any applications for which Tesla shall not use the Items in addition to those mentioned above.

3. Tesla shall notify SANYO with the final application of the Finished Products for SANYO’s confirmation in advance.

4. If Tesla is in material default of any of the sections herein, SANYO has the right to suspend forthwith the supply of the Items to Tesla and cooperation in the production of the Finished Products.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/SANYO   Page 16 of 17


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 4

Order Adjustments

 

Weeks until Delivery Date

   £ 1
weeks
   1< &  £ 2
weeks
   2< &  £ 4
weeks
   4<& £ 6
weeks
   6<& £ 8
weeks

Percent Quantity Adjustment for Authorized Order Signal

   TBD    TBD    TBD    TBD    TBD

SANYO acknowledges that Tesla may be required to modify Orders from time to time. Tesla may increase or decrease the Order at any time prior to the scheduled delivery date and, provided such change can be reasonably accommodated by Sanyo and such change will not affect the delivery schedule of Items previously ordered.

If Tesla requires a change in the quantity of Items in any Order and the change is mutually agreed upon by the Parties, SANYO will provide such changed Items in accordance with the modified Order and Tesla shall pay costs resulting therefrom, provided such costs are (i) reasonable, (ii) authorized by Tesla in writing in advance of delivery, and (iii) identified separately from the unit price on SANYO’s invoice to Tesla. SANYO and Tesla shall work together in good faith to negotiate any Order changes to ensure SANYO can reasonably accommodate Tesla’s requested changes with regard to quantity and time of delivery. The above table is negotiable if the need to change arises and is to be determined and agreed to in writing by both Parties before the Orders are adjusted. Percentages to be determined in good faith by the Parties on a quarterly basis starting in April of 2007 and shall continue each quarter thereafter.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/SANYO   Page 17 of 17

Exhibit 10.27A

Confidential Treatment Requested by Tesla Motors, Inc.

AMENDMENT NO. 1 TO SUPPLY AGREEMENT BETWEEN

TESLA MOTORS, INC.

AND

SANYO ELECTRIC CO., LTD. MOBILE ENERGY COMPANY & SANYO ENERGY

(USA) CORPORATION

* * * * * * * * * * *

This shall serve as Amendment No. 1 to the Supply Agreement, effective as of February 1, 2007 (“Agreement”) between Sanyo Electric Co., Ltd. Mobile Energy Company & Sanyo Energy (USA) Corporation (“Sanyo”) and Tesla Motors, Inc. (“Tesla”).

NOW THEREFORE, the parties to the Agreement have agreed as follows:

1. Section 8 (a) of the Supply Agreement (“Payment Terms”) is hereby amended in its entirety by replacing the existing language with the following: “Payment for items shall be made within [***] from the date of valid invoice. Tesla is authorized by SANYO to make payments under the Supply Agreement by either check or electronic fund transfer, and SANYO shall provide Tesla with the information necessary for electronic funds capability.”

2. Attachment 1 of the Supply Agreement (“List of Items, Pricing Mechanism, and Lead Time”) is hereby amended in its entirety by replacing the existing language with the following:

“Lithium Ion Cells, Part Number: [***] (Tesla P/N: 01-000819-00)

 

    FOB Japan   CIF Bangkok

Quantity

      AIR   Reefer   Dry Container
[***]   $ [***]   $ [***]   $ [***]   $ [***]
[***]   $ [***]   $ [***]   $ [***]   $ [***]

Lead-Time [***] ARO with the following conditions:

 

  a) Tesla will provide rolling monthly forecasts for Tesla’s anticipated requirements for the next six (6) months, with firm orders for the [***] month requirement. The forecasts for months [***] through [***] of each rolling forecast will be non-binding and are for planning purposes only.

 

  b) No battery cell allocation exists at Sanyo that is caused by component or material supply limitations beyond Sanyo’s reasonable control.

 

  c). If cell allocation exists at Sanyo, then Tesla’s firm orders will cover the required lead time. For example, current lead time (June 2007) is understood to be [***], and therefore, Tesla agrees to extend the firm orders to cover the [***] month requirements. This current cell allocation condition is expected to continue at least through September 30, 2007. The forecast for months [***] through [***] of each rolling forecast will be non-binding and are for planning purposes only.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

Price: After [***] cells are purchased by Tesla, based upon accumulated volume of part numbers, including and not limited to [***], [***], [***], [***] or any other Lithium Ion Cells, Sanyo’s price will drop in accordance with the price matrix shown above. For example, the reefer per unit price will drop from $[***] to $[***] each, CIF Bangkok.

Special Price Conditions:

 

  a) Notwithstanding any of the foregoing, from May 29, 2007, to September 30, 2007, an additional Material Price Adjustment (MPA) of $[***] will be added to the price of each cell on the price matrix shown above.

 

  b) In calendar Q4/2007, the MPA will be further reviewed between the two companies and the parties may agree, in writing, to continue the MPA at a mutually acceptable amount.

 

  c) The MPA will be removed when the average 3-months [***] price reaches $[***]/lb or less, as reflected by the Metal Bulletin of London.

3. This Amendment No. 1 shall be effective as of May 29, 2007, and shall expire per Section 2b of the Supply Agreement (“Scope of Agreement; Term”).

4. As hereinabove amended, the Agreement will remain in full force and effect. All other provisions of the Agreement not amended herein shall continue in accordance with their terms as set forth in the Agreement. The Agreement, as so amended, may not be further amended or modified except in writing signed by duly authorized signatories of both parties.

 

Agreed to:     Agreed to:
Tesla Motors, Inc.     Sanyo Electric Co., Ltd.
      Mobile Energy Company

/s/ Thomas E. Colson

   

/s/ Yoshimuro Nakatari

(Signature)     (Signature)
Name:  

Thomas E. Colson

    Name:  

Yoshimuro Nakatari

Title:  

VP-Manufacturing

    Title:  

Executive V.P.

Date:  

13 July 07

    Date:  

7/2/2007

  (Month spelled out)       (Month spelled out)
Tesla Motors, Inc.     Sanyo Energy (USA) Corporation
1050 Bing Street     2600 Network Blvd, Suite 600
San Carlos, California 94070     Frisco, Texas 75034

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  2  

Exhibit 10.28

Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

SUPPLY AGREEMENT

TESLA MOTORS, INC.

[Tesla Logo]

and

[***]

12 February 2007

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 1 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

THIS SUPPLY AGREEMENT is entered into as of this 12th day of February, 2007 (the “ Effective Date ”) between

 

  (a) Tesla Motors, Inc. , a Delaware corporation, with its principal place of business in San Carlos, California , U.S.A. and its subsidiaries in world wide locations, including Hethel, Norwich, Norfolk in the United Kingdom; and

 

  (b) [***], a corporation, with its principal place of business in [***].

The Parties agree as follows:

1. Definitions .

Unless defined additionally elsewhere in this Agreement, the following capitalized terms shall have the meanings specified below:

(a) “ Agreement ” means (i) this Supply Agreement, (ii) all Attachments, and (iii) all Orders, as each may be amended from time to time.

(b) “ Attachment ” means any document that is referenced in this Supply Agreement and attached hereto. All Attachments are deemed to be incorporated into this Agreement by this reference.

(c) “ Order ” means an order for Items communicated pursuant to this Agreement by Tesla to Supplier via a purchase order whether in hardcopy or electronic form. All Orders are deemed to be incorporated into this Agreement by this reference.

(d) “ Internal Tesla Data ” means planning data, product engineering or manufacturing data, information, forecasts, Specifications or Confidential Information that is stored, displayed, maintained or accessed on the Tesla Web Site or other Tesla internal databases or internal network servers or storages.

(e) “ Items ” means, collectively either singular or plural, components, equipment, materials, subassemblies or other goods and related software and services specified in (i)  Attachment 1 , (ii) an Order; or (iii) a purchase order placed by Tesla with Supplier prior to the Effective Date and undelivered as of such date.

(f) “ Parties ” means Tesla and Supplier.

(g) “ Specifications ” means such drawings, designs, instructions, technical or performance requirements or other technical or commercial information relating to the design, development, manufacture, packaging and labeling, delivery, logistics, installation, assembly, testing and/or use of one or more Items.

(h) “ Sub-tier Supplier ” means a member of Supplier’s direct or indirect sub-tier supply base (including, without limitation, subcontractors and vendors of Supplier, and of Supplier’s subcontractors and vendors) that provides goods and/or services in connection with Items.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 2 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

(i) “ Supplier ” means [***] and those of its subsidiaries and affiliates authorized in writing by Tesla to perform under this Agreement.

(j) “ Tesla ” means Tesla Motors, Inc., including its subsidiaries existing on or after the Effective Date.

(k) “ Tesla Web Site ” means the portion of the password-protected Web Site, including the database related to supply chain management, maintained by Tesla, to which Supplier may be given access for the purpose of performing under this Agreement.

(l) “ ASO ” means After Sales Organization for Tesla.

(m) “ VP Build ” means Validation Prototype (“ VP ”) vehicle build at Hethel, Norwich, Norfolk in the United Kingdom.

2. Scope of Agreements Term .

(a) Scope of Agreement . This Agreement sets forth the terms and conditions governing the purchase and sale of Items, the relationship between Tesla and Supplier, and compliance with Tesla’s business processes. Tesla’s current business processes and requirements for certain matters covered by this Agreement, including packaging, delivery, shipment, crating and repair of Items, are set forth in the Attachments. Tesla Motors, Inc. and its subsidiaries shall be entitled to purchase Items from Supplier under this Agreement, and shall have all of the rights of “Tesla” under this Agreement. As to any purchase of Items under this Agreement by Tesla Motors, Inc., all obligations under this Agreement are the sole obligations of Tesla Motors, Inc. As to any purchase of Items under this Agreement by a subsidiary of Tesla, all obligations under this Agreement are the sole obligations of such subsidiary. Nothing in this Agreement shall prevent Tesla from engaging third parties other than the Supplier to provide goods or services the same as, or similar to the Items.

(b) Term . This Agreement shall commence on the Effective Date and, unless terminated as set forth in Section 21 (Termination), shall continue in effect for at least thirty-six (36) months. After thirty-six (36) months, this Agreement shall continue unless either party provides six (6) months prior written notice to the other party of such party’s desire to allow this Agreement to expire. The effective period of this Agreement is referenced as the “ Term .”

(c) Updating Business Processes . Tesla regularly improves its business processes. In that regard, Tesla shall have the right to amend any Attachment, other than Attachment 1, by giving notice thereof to Supplier in writing, or by other electronic means. All modifications to Attachment 1 shall be upon the mutual written agreement of the Parties.

3. Orders .

(a) Orders . All authorized demand signals for Items from Tesla to Supplier shall be in the form of “ Orders ”. An Order shall (i) identify the Items requested and (ii) state the quantity, date, time and place of delivery, and price of the Items requested (unless previously specified in Attachment 1, which shall control). Supplier shall accept communications of Orders in the format reasonably designated by Tesla.

Acceptance / Rejection of Orders . Supplier shall promptly communicate its acceptance or rejection of an Order. Supplier shall not, however, reject (and shall be deemed to have

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 3 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

accepted) an Order for Items set forth on Attachment 1 so long as the Order conforms to the terms and conditions of this Agreement (including without limitation lead time requirements specified for such Items on Attachment 1, if any). Any notice of rejection shall state the specific grounds for such rejection. In all events, any objection by Supplier to the terms of an Order shall be deemed waived upon Supplier’s delivery of Items.

(b) Order Adjustments . Supplier acknowledges that Tesla may be required to modify Orders from time to time. Tesla may increase the quantity of Items in any Order at any time prior to the scheduled delivery date and, provided such increase falls within the Quantity Adjustment Schedule set forth below, (i) Supplier will deliver such increased quantity with no additional charges including accelerated delivery, expedite fees or the like, and (ii) such increase will not affect the delivery schedule of Items previously ordered.

 

Weeks until Delivery Date

   £ 2
weeks
    2< & £ 5
weeks
    5< & £ 10
weeks
    10<&20
weeks
    20<
weeks
 

Percent Quantity Adjustment for Authorized Order Signal

   [***]   [***]   [***]   [***]   [***]

If Tesla requires an increase in the quantity of Items in any Order and such increase does not fall within the Quantity Adjustment Schedule set forth above, then, if feasible and as mutually agreed upon by the Parties, Supplier will provide such increased Items in accordance with the modified Order and Tesla shall pay costs resulting there from provided such costs are (i) reasonable; (ii) authorized by Tesla in writing in advance of delivery; and (iii) identified separately from the unit price on Supplier’s invoice to Tesla.

(c) Reduction or Cancellation of an Order . If Tesla requires a reduction in the quantity of Items in any Order, or cancels any Order, the Parties’ respective rights and obligations shall be as specified in Section 21 (Termination).

(d) Purchases by Authorized Third Party . Certain items may be (i) incorporated into subassemblies, modules, or other products made for Tesla by a third party; or (ii) otherwise processed by a third party. In such event, Tesla may designate the third party as authorized to purchase Items from Supplier and, upon Supplier’s receipt of notice thereof, Supplier shall enter into an agreement with such third party to sell items to the third party on terms (including pricing) no Tess favorable than the terms set forth in this Agreement.

(e) No Volume Commitment . Tesla does not commit to purchase a specific volume of any Items from Supplier except as specified in an Order and, subject to Supplier’s IP Rights (as defined in Section 11(c)); Tesla may manufacture or buy goods and/or services from third parties that are identical or similar to the Items.

4. Pricing .

(a) Contract Price . “ Contract Price ” means the domestic and/or export price in USD for an Item as set forth on Attachment 1; provided, that if a price for an Items is not specified on Attachment 1, then the Contract Price shall be the price set forth in an Order that is accepted by Supplier in accordance with this Agreement. The Contract Price for each Item shall remain in

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 4 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

effect throughout the Term, except for any changes mutually agreed to by the Parties in writing. Any change in circumstances, may result in a review of Agreement terms and/or negotiated reduction in the Contract Price,

(b) Pricing Components . The Contract Price, and any quotations for Items, shall include all finishing, testing, inspecting and packaging fees, applicable royalties and all applicable taxes (excluding sales, use and similar taxes). Any quotations for Items shall include all costs relating to warranties. Any quotations for Items shall not include any amounts relating to (i) initial set-up charges; (ii) costs for special dies, tools, patterns or test fixtures; and (iii) non-recurring engineering fees amortized into the per unit price, unless separately identified and itemized.

(c) Transportation Costs . Pursuant to Section 6(b), below, Tesla pays transportation charges directly to certain common carriers designated by Tesla. For those Items where Tesla pays such charges, pricing in a quotation or invoice or as set forth in Attachment 1 shall not include any transportation costs. For all other Items, all costs for shipping, import/export fees, customs, and other transportation expenses shall be separately identified and itemized by Supplier In each quotation or invoice or on Attachment 1 .

(d) Taxes . Tesla will pay any applicable sales, use or similar tax imposed in connection with the sale of Items to Tesla; provided, that Supplier shall not charge or collect, and Tesla shall have no liability for, taxes on any sale of Items for which Tesla has provided Supplier with an appropriate resale certificate or other documentation evidencing an exemption from such taxes. For all sales of Items upon which tax reimbursement to Supplier is applicable, Supplier shall separately itemize all applicable taxes on invoices submitted to Tesla. All amounts payable under this Agreement are exclusive of Value Added Tax (VAT) which will be paid at the date and in the manner for the time being prescribed by law. The parties will cooperate in reclaiming any local tax paid by either party.

(e) The Supplier agrees that for the purposes of calculating and paying the Contract Price it shall allow Tesla (including Tesla’s accountants and other professional advisors) access to its financial and other records. The Supplier agrees that it will at all time during the term of this Agreement maintain accurate and up-to-date financial and other records of all costs and other matters relevant to the provisions of this clause, The Supplier agrees that it shall complete a Tesla quotation analysis form upon request from Tesla.

(f) No increase in the Contract Price may be made (whether on account of increased materials, labor or transport costs, other fixed or variable costs, fluctuation in exchange rates, pricing errors or otherwise) without the prior written consent of Tesla. For the avoidance of doubt, Tesla shall be under no obligation to consent to any such increase.

(g) Tesla and the Supplier shall work together to reduce the cost to the Supplier of producing the Items and to improve the Items in both manufacture and assembly and the Supplier shall reduce the Contract Price payable by Tesla by a minimum of [***]% per annum or as otherwise defined by the Parties.

5. Delivery of Items .

(a) Delivery Requirements . Time is of the essence as to the delivery of all Items ordered under this Agreement. Supplier shall meet the (i) negotiated lead time; (ii) order adjustment requirements as set forth in Section 3; and (iii) time, date, location and other delivery

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 5 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

requirements for Items, as specified in Attachment 1 or, if not set forth in Attachment 1 , as set forth in the Order for said Items. Delivery will be considered timely only if Items are delivered in the correct quantity, and at the time, date and location specified in the Order. If necessary for Supplier to meet its delivery requirements, Supplier, at its expense, will use expedited delivery methods to complete and deliver the Items.

(b) Remedies . If Supplier fails to deliver any Items at the time and place set forth in the Order, Tesla shall have the right, at its sole option, to (1) require Supplier, at Supplier’s expense, to use expedited delivery methods to complete and deliver the Items; (ii) allocate or redirect the Supplier’s deliveries of Items to certain Tesla designated locations; (iii) reverse manufacture Items previously purchased by Tesla to obtain component parts and then debit Supplier the reasonable fair market value for those unused remaining component parts that Tesla returns to Supplier, or (iv) purchase products comparable to the Items in the open market or from other suppliers and charge Supplier with any cost differential between the Contract Price and the price paid in the open market or to other suppliers, which cost may include premium costs for expedited delivery and administrative costs.

6. Shipping and Risk of Loss .

(a) Shipping and Packaging Requirements .

(i) Supplier will ship all Items in accordance with (A) the authorized shipping service level (ground, sea, air, second-day, next-day, etc.) included in an Order; and (B) ”Transportation Routing Guide” (“ Attachment 3 ”), including use of approved carriers as may be applicable given the classification of the shipment (i.e., domestic or international).

(ii) Supplier shall comply with any special packaging and labeling requirements for Items as set forth in the “Transportation, Packaging and Label Specifications” (“ Attachment 2 ”). In the event such Attachments are not applicable to an item, the Items shall be packaged, marked and labeled in accordance with best commercial practices, along with all required shipping documentation, In all events, Supplier must include a valid packing slip number or package ID on each package or shipment of items.

(iii) If Supplier delivers Items that do not meet the packaging or labeling requirements of this Agreement, Tesla may reject the Item, treat the items as non-conforming to Specification, or charge and bill to Supplier all repackaging and re-labeling costs and expenses incurred by Tesla as a result of Supplier’s failure to comply with the packaging and labeling requirements of this Agreement.

(b) Shipments and Insurance .

(i) Domestic Shipments . For Items manufactured in the country where the applicable destination point is also in the same country, Tesla shall be responsible for all costs and expenses (other than insurance) to deliver the Items to the applicable destination point once such Items have been tendered to the carrier, provided that Supplier uses a shipping service level (ground, air, second-day, next-day, etc.) that does not exceed the shipping service level authorized in the corresponding Order and in accordance with Tesla’s Transportation Routing Guide. All delivery costs and expenses for such shipment shall be specified as “Freight — Third Party Bill” on bills of lading or shipping receipts, to be paid directly by Tesla. Unless specifically approved by Tesla in advance, Tesla shall not be responsible for delivery costs and

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 6 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

expenses (i) for a shipping service level that exceeds the shipping service level authorized in an Order; (ii) in excess of the costs determined under Tesla’s Transportation Routing Guide for applicable delivery methods; (iii) payable to carriers not approved under Tesla’s Transportation Routing Guide, (iv) incurred as a result of Supplier’s need to use expedited delivery methods, unless Tesla agrees to pay for such expedited delivery methods in advance in writing, or (v) incurred in connection with the transportation of Items between Supplier and a Sub-tier Supplier or any other supplier.

(ii) International Shipments . For Items where the designated Tesla destination point is in a different country, Supplier shall at no additional charge clear all Items for export from the country of manufacture and shall be responsible for delivery of Items from Supplier’s manufacturing facility to Tesla’s designated international carrier’s dock. Tesla shall be responsible for all costs and expenses (other than insurance, but including import duties and brokerage fees) to deliver the Items to the Tesla destination point once such Items have been tended to the carrier’s dock, provided that Supplier uses a shipping service level that does not exceed the shipping service level authorized in the corresponding Order and in accordance with Tesla’s Transportation Routing Guide. All delivery costs and expenses for such shipment shall be specified as “Freight — Third Party Bill’ on bills of lading or shipping receipts, to be paid directly by Tesla. Unless specifically approved by Tesla in advance, Tesla shall not be responsible for delivery costs and expenses (i) for a shipping service level that exceeds the shipping service level authorized in the Order; (ii) in excess of the costs determined under Tesla’s Transportation Routing Guide for applicable delivery methods; (iii) payable to carriers not approved under Tesla’s Transportation Routing Guide, (iv) incurred as a result of Supplier’s need to use expedited delivery methods, unless Tesla agrees to pay for such expedited delivery methods in advance in writing, or (v) incurred in connection with the transportation of Items between Supplier and a Sub-tier Supplier or any other supplier.

(iii) Other Shipments . For Items not covered by Section 6(b)(1) and (ii) above, Supplier shall pay all delivery costs and expenses to deliver the Items to the applicable destination point, and Tesla shall reimburse Supplier for all such reasonable costs and expenses if incurred and itemized by Supplier in accordance with this Agreement.

(iv) Insurance and Risk of Loss . In all events, Supplier shall be responsible to insure such Items during transport up to at least the Contract Price of such Item. Supplier shall be responsible for the risk of loss to Items until delivered to the applicable destination point and accepted by Tesla. In addition, Supplier’s responsibility for risk of loss continues with respect to any Items rejected by Tesla, or as to any Items for which acceptance is revoked, except if such loss is caused by the negligence or willful misconduct of Tesla’s employees.

7. Acceptance and Title Transfer . Title to Items will only transfer to Tesla upon acceptance of an Item. Acceptance shall occur only in the event that: (i) Tesla or its designee has received the Items at the specified destination point; and (ii) either (1) Tesla or its designee has entered the Items into Tesla’s internal systems, or (2) a period of five (5) days from the delivery of the Items has elapsed. At any point prior to acceptance, Tesla may reject and return any Items that does not conform to the applicable Specifications and incur no liability or obligation related to such Item. As to Items that are rejected and returned, Tesla may recover and offset or adjust payments in respect of such Items, including any costs or fees related to shipping and insuring such Items.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 7 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

8. Payment

(a) Payment Terms . Payment by Tesla for Items shall be made within thirty (30) days from end of month of delivery or month of receipt of valid invoice, whichever is later. Tesla is authorized by Supplier to make payments under this Agreement by either check or electronic funds transfer, and Supplier shall provide Tesla with the information necessary for electronic funds transfer capability.

(b) Invoices . Supplier will remit Items invoices to Tesla no earlier than when the Items are shipped to Tesla and adhere to the invoicing requirements for suppliers as defined by Tesla.

(c) Effect of Payment and Right to Offset . Tesla’s payment for Items shall not affect the time at which title to Items passes to Tesla nor shall it preclude revocation of acceptance. All payments shall be subject to adjustment for errors, shortages, non-conformities or defects. Tesla may at any time set off any amount owed by Tesla to Supplier against any amount owed by Supplier to Tesla. A debit notice will be sent to Supplier as transactions are made.

9. Confidentiality and Prohibited Activities .

(a) General . “ Confidential Information ” means all information obtained by, disclosed to, or developed by Supplier and that is based on, incorporates, constitutes or derived from any of the following that were obtained, directly or indirectly, from Tesla: samples, schematics, drawings, designs, Specifications, internal data, manuals, forecasts, Orders, customer information and other technical, business, financial or trade secret information. Parties agree that such Confidential Information may be obtained by Supplier from Tesla during the term of business relations between Tesla and Supplier, or in connection with the negotiation, performance or enforcement of the Agreement. Confidential Information does not, however, include information that (i) is or becomes a matter of public knowledge through no fault or act of Supplier; (ii) is rightfully received by Supplier from a third party not subject to restriction on disclosure of such information; (iii) is independently developed by Supplier without the use of any Confidential Information; or (iv) was rightfully in the possession of Supplier prior to its disclosure by or on behalf of Tesla; provided, however, that such information shall be Confidential Information to the extent that (1) such information constitutes specific information, even if it is embraced by more general information which is a matter of public knowledge or in the possession of Supplier, or (2) such information is a combination of individual items of information, even if that combination could be reconstructed from non-confidential sources if none of the non-confidential sources shows the whole combination and its principle of operation; and, provided further, that the sale or unrestricted disclosure of Items or other article or product made through a confidential manufacturing process of Tesla shall not be deemed to constitute a public disclosure of the process. Supplier shall use reasonable care to protect the confidentiality of Confidential Information, and in any event, Supplier shall use at least that degree of care that Supplier uses to protect its own like information.

(b) Permitted and Prohibited Activities . Except as expressly set forth in this Section 9 or agreed by Tesla in writing, Supplier (i) may use Confidential Information solely for the purpose of providing Items to Tesla, (Ii) may provide Confidential Information only to those individuals who need to know such Confidential Information to provide Items to Tesla, provided that it is clearly marked as “Tesla Motors Confidential” and provided that such individuals have agreed in writing to protect Confidential Information pursuant to a non disclosure agreement as set forth in Section 17(b) below, and (iii) shall not use or disclose any Confidential Information for any other purpose, including: (A) reverse engineering the Items; (B) developing, designing, manufacturing, engineering, refurbishing, selling or offering for sale, any “ Prohibited Replacement ,” which

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 8 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

means any good or service which may be used or sold as a replacement for any Items or other good used on or with Tesla product for which Tesla provided Supplier with Confidential Information at any time, including modifications to any Item; or (C) assisting any third party in any manner to perform any such activities. In addition, Supplier shall not make or sell to any third party any Prohibited Replacement. Further, Supplier agrees not to disclose to Tesla any information that any third party regards as proprietary or confidential. Supplier’s obligations under this Section 9(b) shall not apply to any disclosure required by applicable law, court order or legal process, provided that Supplier shall (i) if permitted by applicable law, promptly notify Tesla of its intent to make such disclosure, which notice shall be in writing and delivered at least ten (10) days’ prior to the intended disclosure (or such shorter period as necessary to comply with applicable law), (ii) redact and keep confidential all financial terms and such other terms as agreed by the Parties after conferring in good faith and consistent with applicable law, and (iii) seek a protective order or confidential treatment from the tribunal or governmental agency for any agreements or other documents to be disclosed or filed, and disclose or file the minimum information and/or documents necessary to comply with applicable law, legal process or court order.

(c) Notice of Disclosure . Supplier shall, immediately upon becoming aware of it, give notice to Tesla of any unauthorized disclosure, misuse, theft or other loss of Confidential Information, whether inadvertent or otherwise.

(d) Other NDA’s . During the business relationship between Supplier and Tesla one or more NDA’s may be, or may have been, entered into. In the event of an apparent conflict between or among provision(s) of this Agreement and any NDA, such provisions shall be read in a mutually consistent way, or if no such reading is reasonably possible, the provision(s) that are most protective of Confidential Information shall take precedence over conflicting or less protective provision(s).

(e) Equitable Relief . Supplier agrees that Tesla would suffer irreparable harm for which monetary damages are an inadequate remedy, and that equitable relief is appropriate, if Supplier were to breach or threaten to breach any obligations in this Section 9.

(f) Press Releases/Publicity Not Authorized . The existence and terms of this Agreement are Confidential Information. Except as permitted by Section 9(b) above, Supplier will not issue any press release, advertising, publicity or public statement or in any way engage in any other form of public disclosure that indicates Tesla’s relationship with Supplier or implies any endorsement by Tesla of Supplier or Supplier’s products or services, without the prior written approval of Tesla.

(g) Disposal of Confidential Information . Upon the termination or expiration of the Agreement, and otherwise upon the request of Tesla, Supplier will promptly return to Tesla all Confidential Information and all documentation that reveal or are based in any way on Confidential Information, and permanently eliminate the same from all of its computer and information storage systems. Supplier may, however, with Tesla’s prior written approval, destroy any Confidential Information or documentation, provided that Supplier certifies to Tesla the destruction of such Confidential Information or documentation. Thereafter, Supplier shall cease all use of Confidential Information. In addition, Supplier agrees it will immediately return to Tesla any materials provided to it to facilitate electronic access to Internal Tesla Data, including data access hardware, documents, software or other items.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 9 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

10. Electronic Access to Internal Tesla Data .

(a) General . If Supplier Is granted access to Internal Tesla Data then, in addition to Supplier’s obligations under Sections 9 and 11, the terms and conditions of this Section 10 shall apply. Supplier’s access to the Internal Tesla Data is subject to compliance with (i) the terms of use, if any, of the Tesla Web Site or such other database or Intranet, as applicable, and (ii) any technical, security, and software licensing requirements of Tesla, including the issuance of passwords and requirements related to using Tesla’s virtual private network. Tesla may terminate Supplier’s right of access or change the method of access to the Internal Tesla Data at any time. In no event shall Supplier facilitate or enable access to Internal Tesla Data by any Sub-tier Supplier or other third party. In no event shall Supplier facilitate or enable access to Internal Tesla Data by its employees or contractors that may either cause to exceed the available number of authorized software licensing seats or violate the login authority (for example, improper sharing of a single user name and password by multiple users).

(b) Use . If Tesla grants Supplier access to the Internal Tesla Data, then Supplier shall have the limited right to download, store, display and use Tesla Internal Data for the sole purpose of performing its obligations under this Agreement. Supplier may not use the Tesla Internal Data in any other way, commercially or otherwise. Unless otherwise notified by Tesla, Supplier may store copies of Internal Tesla Data on Supplier’s networks and information storage systems, provided, such Internal Tesla Data is stored either on hardware that is dedicated solely to Tesla, or otherwise separated from other information of Supplier, so that the Internal Tesla Data is not accessible to individuals except as authorized by this Agreement. If Tesla provides Supplier with any recommendations for establishing an interface or other methods of accessing the Internal Tesla Data, Supplier assumes all risk in implementing any such recommendation.

(c) Consent to Monitoring . Supplier agrees that its access to and use of Internal Tesla Data and all acts in connection with Tesla’s internal systems are recorded and may be monitored. Supplier expressly consents to such recording and monitoring. If such recording or monitoring reveals possible evidence of criminal activities involving any individual, then Tesla may provide such evidence to the appropriate law enforcement organization and take any other appropriate action.

11. Intellectual Property Rights .

(a) Definitions . “Works” means all works including without limitation all notes, code, art work, reports, documentation, drawings, creations, devices, models, works-in-progress, inventions, discoveries, specifications, works of authorship, know-how, technical Information, work product, and/or other information. “ IP Rights ” means all rights, whether registered or unregistered, including all patents, copyrights, trade secrets, trademarks, service marks, trade names, mask works, moral rights and other proprietary rights in any jurisdiction.

(b) Tesla’s IP Rights . As between Tesla and Supplier, Tesla owns all right, title, and interest in IP Rights in or to any Works made, conceived, or developed by Tesla employees or contractors (“ Tesla Personnel ”), and all IP Rights acquired by Tesla or otherwise owned by Tesla. All IP Rights owned by Tesla as set forth in this Section 11(b), or transferred to Tesla by Section 11(d) or Section 17(b), are referenced in this Agreement as “ Tesla’s IP Rights .”

(c) Supplier’s IP Rights . As between Tesla and Supplier, except as set forth in Section 11(d) and Section 17(b), Supplier owns all right, title and interest in IP Rights in or to any Works

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 10 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

made, conceived or developed by Supplier employees or contractors, and all IP Rights acquired by Supplier or otherwise owned by Supplier. All IP Rights owned by Supplier are referenced in this Agreement as “ Supplier’s IP Rights .”

(d) Assignment . Supplier irrevocably transfers and assigns to Tesla all IP Rights in or to (i) any Works made, conceived or developed by Supplier, either alone or with others, with the assistance (financial or otherwise), collaboration, input, involvement, or development efforts of Tesla or Tesla Personnel, and (ii) any Works that are not made, conceived, and developed independent of Tesla’s IP Rights (including Confidential Information). Supplier shall not improve, enhance, or modify any Works in which Tesla owns IP Rights without Tesla’s express prior written consent. In any event, if Supplier improves, enhances, or modifies any Works in which Tesla owns IP Rights, Supplier irrevocably transfers and assigns to Tesla all IP Rights in or to such improvement, enhancement, or modification. In the event that any of the foregoing transfers and assignments by Supplier is to any extent ineffective, Supplier shall grant to Tesla an exclusive, royalty free, irrevocable, perpetual, worldwide license to make, use, market and sell such IP Rights.

(e) License . Tesla grants to Supplier a non-exclusive, revocable, royalty-free, limited and non¬transferable license to use Tesla’s IP Rights solely for the purpose of performing Supplier’s obligations under this Agreement to manufacture and sell to Tesla Items under the Agreement. This license may be revoked by Tesla at any time, with or without cause, and shall expire in any event, if not sooner revoked, on the expiration or termination of the Agreement. Such license shall not be assigned or transferred in any way, except by limited sublicense to Sub-tier Suppliers for the sole purpose of providing Items to Tesla, or to Tesla-designated third parties, in accordance with this Agreement, and shall not succeed to or vest in any successor. Supplier acknowledges Tesla’s IP Rights are not capable of being independently exploited by Supplier other than in the context of this Agreement. As such, Tesla does not grant to Supplier any other license, right to sublicense or other right to or under any Tesla IP Right for Supplier’s own benefit to use in any other way, commercially or otherwise, or to provide or offer Items or other products or services to any party other than Tesla.

(f) Further Assurances . At no cost to Tesla, Supplier will take, and will cause its employees and agents to take, all actions reasonably requested by Tesla, from time to time, to fully vest, perfect or defend Tesla’s IP Rights. Such actions shall include providing documents and information useful or necessary to register, apply for or maintain any of Tesla’s IP Rights,

(g) License to Marks . Tesla grants to Supplier a non-exclusive, revocable, royalty-free, limited and non-transferable license to affix or install on Items those trademarks, service marks and trade names of Tesla’s (collectively, “ Marks ”) that are specified to be installed or affixed under Tesla Specifications for the Items. Such license of Marks is limited, revocable by Tesla, shall not be assigned, sublicensed or transferred in any way and shall terminate upon termination of this Agreement. Use by Supplier of all Marks shall be solely for the benefit of Tesla and as directed by Tesla. Supplier shall install and affix the Marks solely in accordance with Tesla’s specifications, packaging and labeling requirements and any quality requirements for the Marks or Items that Tesla may establish. Tesla may inspect Supplier’s facilities and examine Items at any time during normal business hours to monitor, or evaluate the quality of, the Marks affixed to the Items.

(h) Audit . Supplier shall permit Tesla, and cause its employees and agents to permit Tesla, to audit and verify compliance with Sections 9 and 11.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 11 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

(i) Continuity of Supply for Essential Items . “Essential Item” means Items that, at any time, Tesla is not able to replace with a reasonably practicable commercial alternative within six (6) months or less of Tesla desiring to do so. Upon Tesla’s request, Tesla and Supplier will agree upon a mechanism to maintain Tesla’s continuity of supply with respect to an Essential Item, such as agreeing upon the terms of a lifetime buy” or executing a mutually agreeable escrow or license agreement.

12. Warranty .

(a) Supplier Warranty : Supplier represents and warrants that, for a period of [***] from the date of delivery to Tesla, the Items (i) will be free from defects in workmanship, material, and manufacture; (ii) will comply with the requirements of this Agreement, including all Tesla Specifications and manufacturing work instructions; and (iii) will be of merchantable quality and fit and suitable for the purpose intended by Tesla. Supplier further represents and warrants that (A) the Items will consist of new (not used or recycled) material, and (B) Tesla shall acquire good and marketable title to the Items, free and clear of all liens, claims and encumbrances. Further, to the extent that the design of Items is Supplier’s responsibility, Supplier represents and warrants that such design will be free from defects. Supplier acknowledges that Tesla’ intended use of the Items (as components in an electric motor vehicle for sale and use in various territories throughout the world, albeit initially and primarily the United States Of America) and expressly warrants that the Items covered by this Agreement have been selected, designed, manufactured, supplied and/or assembled by the Supplier will be fit and sufficient for the particular purposes intended by Tesla.

(b) Services . Supplier represents and warrants that, for a period of [***] from delivery to Tesla, all services performed in connection with this Agreement will be performed with reasonable skill and care, in a competent, professional and workmanlike manner, free from defects, and in accordance with the best professional practices in the industry. For the purposes of this Section 12, the results of any service performed by Supplier will be considered included in the term “Item.”

(c) Free from Infringement . Supplier represents and warrants that the Items, including the manufacture, use and sale of the Items, shall not give rise to, nor be subject to, any claim or liability for infringement of any intellectual property rights, including any patent, copyright, trademark, trade secrets, moral rights, confidential information or any other proprietary or intellectual property rights, of any third party, except to the extent that the infringement was unavoidably caused by Supplier’s compliance with a detailed design furnished and required by Tesla.

(d) Assignments of Warranty . Supplier hereby assigns and transfers to Tesla all warranties provided to Supplier with respect to the Items, or any portion thereof, and represents and warrants that such warranties are fully assignable to Tesla and by Tesla to its customers or subsequent purchasers of the Items.

(e) Remedies . If Items do not meet the warranty requirements set forth In this Agreement, Tesla may, at its option, (i) require Supplier to correct any defective or nonconforming Items by, at Tesla’s option, either repair or replacement; or (ii) return such defective or nonconforming Items to Supplier and recover from Supplier the Contract Price thereof; or (iii) correct the defective or nonconforming Items and charge Supplier with the cost of such correction; or (iv) purchase products comparable to the defective or nonconforming Items in the open market

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 12 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

or from other suppliers, as deemed appropriate by Tesla, and, at Tesla’s option, charge Supplier with any reasonable cost differential between the price of the Items under this Agreement and the price paid, which cost may include premium fees for expedited delivery and administrative costs. In addition, Tesla may cancel the undelivered balance of the defective or nonconforming Items and/or terminate this Agreement pursuant to Section 21(a) (Termination for Default). If a defective or non-conforming Items damage other property of Tesla, Supplier shall pay all reasonable costs to repair such damaged property as directed by Tesla or, If repairing the property is not commercially reasonable, to replace it. As to any Items that are repaired, replaced or corrected under this Section 12, Supplier’s warranty shall continue to apply to such Items for (A) the full remaining balance of the original [***] term applicable to such Item, or (B) ninety (90) days from the date such repaired, replaced or corrected Items are received and accepted by Tesla, whichever period of time is greater. Upon request from Tesla, Supplier shall provide pre-approved returned material authorization (“ RMA(s) ” to facilitate return of Items. Tesla may notify Supplier of defects and nonconformance and communicate its elected remedy by delivery of notice in the form of a “Supplier Corrective Action Request” (“ Attachment 4 ”) and closed-loop corrective action processes.

(f) Extended Warranty; Epidemic Failure . Without limiting Tesla’s rights as specified elsewhere in this Section 12, if Items are discovered to be defective or nonconforming at a statistically higher rate than the rate applicable to such Items as established upon mutual agreement of the Parties and set forth in Attachment 1 , (or if no rate is specified by agreement with respect to an Item, then [***] of such Items delivered in any three consecutive months), then, at no cost to Tesla and at Tesla’s option, Supplier will (i) extend the warranty period for all such Items for no less than an additional [***] from the date on which the warranty for the Items would otherwise expire, and/or (ii) compensate Tesla for all expenses associated with correcting the defect/nonconformance, including field support, logistics (freight, duties), advanced exchange of a refurbished part, refurbishment, and any required upgrade cost including qualification.

(g) Timing . If Supplier receives notice that Items are defective or non-conforming, then Supplier will use the most expeditious manner possible to effect the action specified by Tesla, including the use of overnight delivery services for shipment of items to and from Tesla. For any Items for which a repair or replacement timeline is identified in Attachment 1 , Supplier will repair or replace such Items within such timeline. In all events, however, as to any Items that Teals identifies as “production” or that are delivered by Supplier for the purposes of production, Supplier will replace or repair the defective or non-conforming Items within four (4) hours from receipt of Tesla’s request.

(h) Costs . Supplier shall be solely responsible for all costs, fees and expenses in connection with fulfilling its obligations under this Section 12, including all labor, material, parts, shipping, taxes, customs and other costs, fees and expenses arising from, among other things, the removal, repair, replacement, reinstallation, inspection, shipping and testing of any defective or nonconforming Items. If any such costs, fees or expenses are incurred or paid by Tesla (including, for example, the cost to remove such Items from a customer site), or if Tesla incurs increased costs as a result of Supplier’s breach of warranty (including without limitation overtime or increased shipping charges) or suffers lost productivity as a result of Supplier’s breach of warranty (including without limitation a reasonable estimate of the hourly cost to Teals of Tesla’s employees whose time is wasted), Tesla may charge and bill such costs to Supplier, and may offset such costs against amounts otherwise due to Supplier from Tesla. All costs reimbursable to Tesla under this Section 12 shall be due and payable on demand.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 13 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

13. Supplier Refurbishment Services . Upon Tesla’s request, Supplier and Tesla shall negotiate in good faith to enter into an arrangement.

14. Supplier Performance Plan . Tesla and Supplier will jointly develop a supplier performance plan. Supplier agrees to self-monitor its performance, at both corporate and operational site levels, against the performance targets established in the plan. At least once a month, Supplier will submit to Tesla its actual performance against performance targets.

15. Manufacturing and Quality Requirements .

(a) Production Part Approval Process ( “PPAP” ) . Tesla and Supplier shall follow the PPAP requirements set forth In “PPAP Submission Workbook” (“ Attachment 5 ”). Supplier shall provide all necessary documentation.

(b) Design and Process Change Communication . After Tesla has approved the PPAP Submission, Supplier shall not make any change to the design (firmware, hardware or software) of the Items that may alter the Specifications or the form, fit, function or interchangeability of parts without first informing and obtaining approval from Tesla. Supplier will not make, or permit Sub-tier Suppliers to make, changes to the manufacturing process of such Items, including a transfer of any portion of the design, manufacturing, or assembly process to a different facility, without first obtaining such approval from Tesla.

(c) Other Changes and Equitable Adjustments . Tesla may, upon notice to Supplier, submit Engineering Change Orders (“ECOs”) or request other changes within the scope of the Agreement with respect to any of the following: (i) Specifications; (ii) the place and date of delivery of Items; or (iii) the place, date and manner of inspection or acceptance of Items. Supplier agrees that it will use reasonable efforts to accommodate such requests in a timely and cost effective manner. If any request for such changes causes an increase or decrease in the cost of or time required for performance of the Agreement, Supplier may propose, and Tesla will then consider, an equitable adjustment in the Contract Price or delivery schedule, or both, and if the Parties agree to an adjustment, the Agreement shall be modified in writing accordingly. If Tesla and Supplier are unable to agree upon an equitable adjustment, then Tesla may remove the affected Items from this Agreement without affecting the remaining Items, and Supplier shall not be required to supply the Items as modified by the ECG to Tesla. No claim by Supplier for adjustment under this subsection shall be valid unless in writing and received by Tesla within thirty (30) days from the date of Supplier’s receipt of the notice of such change; provided, however, that such period may be extended upon the written approval of Tesla.

(d) Quality Requirements . Supplier shall comply with Tesla’s quality requirements set forth in Attachment 6 entitled “Tesla Motors Supplier Handbook”.

(e) Minimum Environmental, Health & Safety Requirements . Supplier shall comply with, and shall cause Sub-tier Suppliers to comply with, any applicable environmental, health or safety law, rule, regulation, order, decree or ordinance.

(f) Safety Notices . In addition to any of Supplier’s obligations under this Agreement or Supplier’s or Sub-tier Suppliers’ obligations imposed by law, Supplier will immediately notify Tesla of any known or suspected safety issues related to Items (including component or material issues).

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 14 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

16. Management of Finished Goods Inventory .

(a) Designation of inventory Liability Items . Tesla may designate certain Items as “ Inventory Liability Items ” by (i) reporting a non-zero “Target Inventory” quantity for those Items in an authorized inventory planning tool, or (ii) identifying Items as an Inventory Liability Items on Attachment 1 , or otherwise providing Supplier with written or electronic notice of such designation. So that Tesla can set appropriate Target Inventory quantities, Supplier shall actively maintain accurate lead times for all Items in such authorized inventory planning tool, using the definition of “lead time” designated by Tesla from time to time for this purpose. Supplier agrees to manufacture and stock such Inventory Liability Items in accordance with this Section 16; and/or, if requested by Tesla, a separate written agreement between Tesla and Supplier.

(b) Forecasts . Tesla may periodically issue to Supplier rolling forecasts setting forth projected demand for Items (“ Tesla Forecasts ”). Tesla Forecasts are intended for planning purposes only and shall not constitute a binding purchase commitment of Tesla. If Tesla designates an Inventory Liability Items under Section 16(a)(ii), and does not specify a “Target Inventory” quantity for it in an authorized inventory planning tool, then that Item’s Target Inventory quantity shall equal the two (2) weeks forecasted demand for that Items in the most recent and most specific Tesla’s forecast for that Item. (The Parties may modify this number of weeks for any particular Items in Attachment 1 .)

(c) Inventory Levels and Tracking Requirements . Unless otherwise designated in Attachment 1 or a separate written agreement, Supplier will maintain the “Target Inventory” quantity, if any, of each Inventory Liability Items as specified by Tesla from time to time. All Inventory Liability Items manufactured by Supplier to meet a then-current Target Inventory quantity shall be considered “ Finished Goods Inventory ” under this Agreement. When Supplier is creating inventory levels to satisfy required Target Inventory levels of Finished Goods Inventory, any reduction in quantity of Items that were ordered pursuant to an Order, or any quantity of Items ordered pursuant to an Order that is later cancelled by Tesla, shall be returned to Suppliers inventory and Supplier will increase its inventory levels accordingly. Supplier shall monitor and report its work-in-process and Inventory Liability Items count to Tesla for all Finished Goods Inventory.

(d) Claim for Reimbursement of Excess Items . If Tesla has not taken delivery of any unit of a Inventory Liability Items in Finished Goods Inventory within twelve (12) months from the date of Tesla’s last receipt of any such unit, Supplier may then submit a claim for reimbursement for such Items (“ Excess Items ”) to Tesla within thirty (30) days from the end of such twelve (12) month period. Supplier’s failure to submit such a claim within this thirty (30) day period shall constitute waiver of any claim for reimbursement for Excess Items and Tesla shall be released from all liability relating to such Excess Items.

(e) Claim for Reimbursement of Obsolete Items . An Inventory Liability Items in Finished Goods Inventory will be considered an “ Obsolete Item ” when Tesla provides notice to Supplier that such Inventory Liability Item is an “Obsolete Item.” If Supplier desires to submit a claim for costs associated with Obsolete Items, then Supplier shall submit a claim for such Obsolete Items within thirty (30) days from the date on which Tesla notifies Supplier that the Inventory Liability Items are Obsolete Items. Suppliers failure to submit such a claim within this thirty (30) day period shall constitute a waiver of any claim for reimbursement for such Obsolete Items and Tesla shall be released from all liability relating to such Obsolete Items.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 15 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

(f) Scope of Claim . Tesla will not be liable for Finished Goods Inventory other than as described in this Section 16. In addition, no claim for reimbursement or payment for Finished Goods Inventory shall be made in the following situations: (i) any termination by Tesla pursuant to Section 21(a) (Termination for Default): (ii) if Supplier has introduced design or product changes; (iii) Supplier errors in production; (iv) if Supplier has been paid for such Items previously or has made a claim for reimbursement or payment for such Items previously; (v) if such Items are “ Commercial Off-the-Shelf Items ” meaning Items that are standard or stock items in the industry or have been manufactured to Supplier’s specifications in contrast to Items manufactured to build-to-print specifications of Tesla or its customer; (vi) if Supplier has failed to fulfill its obligations to meet with Tesla in accordance with Section 16(i), unless Supplier is unable to do so because of actions of Tesla; (vii) if such Items were not disclosed by Supplier to Tesla on each report required by Section 16(i) when each such report was due; or (viii) if Supplier fails to participates in Tesla’s ECO process as reasonably requested by Tesla, including without limitation providing accurate information about such Items that will be affected by a proposed ECO and that Supplier has in inventory or on order so that Tesla can plan its ECO implementation to minimize the quantity of on-hand and/or on-order Items that will be made obsolete by the ECO.

(g) Claim Process . Any claim made under this Section 16 will be addressed based on negotiated settlement between Tesla and Supplier. Supplier is responsible for disassembling Inventory Liability Items in Finished Goods Inventory down to a usable level and otherwise making all efforts to mitigate the cost to Tesla in any such claim. Any claim shall be supported by reasonable evidence including a detailed listing of the relevant Inventory Liability Items by part number and quantity; documentary evidence that the quantity was manufactured to meet a Target Inventory required for that Inventory Liability Items and was not subsequently purchased by Tesla; and a detailed description of Supplier’s efforts to mitigate the costs to Tesla. Supplier’s claim will be based solely on costs incurred as a result of Tesla’s actions or obsolescence. No profit or opportunity costs shall be considered in calculating such claims. Tesla reserves the right to physically audit the inventory levels identified in the claim. Such audit shall be conducted in accordance with Section 19(e) (Financial Statements and Right to Audit).

(h) Disposal of Excess and Obsolete Items . Supplier agrees to physically dispose of all Excess and Obsolete Items as directed in writing by Tesla. Excess and Obsolete Items that are to be delivered to Tesla’s facilities must be delivered in accordance with the requirements of this Agreement and/or any supplemental instructions provided by Tesla. In lieu of delivery to Tesla, Tesla may require that Supplier destroy or otherwise scrap the Excess and Obsolete Items so that they are non-functional, and Supplier shall comply with this requirement in accordance with Tesla’s instructions and provide Tesla with a certification of destruction.

(i) Materials Liability Review Meetings . Designated representatives of each party shall attend a meeting (each, an “ Inventory Review Meeting ”) at the beginning of each Tesla fiscal quarter at such dates and times as agreed to between the Parties. On the business day immediately before each Inventory Review Meeting (or by the tenth day of the first month of each Tesla fiscal quarter, whichever comes first), Supplier shall provide a report in Microsoft Excel format (or another mutually agreed-upon written or electronic format) to Tesla identifying Supplier’s on-hand and on-order inventory levels for all Finished Goods Inventory, listed by Tesla part number, and showing (1) quantity on hand, (2) quantity on order, (3) the number of weeks since Tesla issued an Order for that part number, (4) the quantity of that Items that Tesla has forecasted it will order in the next 13 weeks (if any), and (5) where Tesla’s forecasted demand is

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 16 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

lower than Supplier’s on-hand and on-order quantities, a description in reasonable detail of all actions taken by Supplier to mitigate or reduce Tesla’s liability with respect to such on-hand and on-order quantities. At each Inventory Review Meeting, the Parties will share information to coordinate their combined operations, and discuss the report provided by Supplier. From time to time, the Parties may mutually agree upon the specific format for Supplier’s report and Supplier shall thereafter provide such report in the agreed-upon format; however, no failure to agree on a format shall relieve Supplier from providing this report in a commercially reasonable format when and as required by this Section 16(i).

17. Management of Sub-tier Suppliers .

(a) Sub-tier Suppliers . After Tesla has approved of the PPAP Submission, Supplier and its Sub-tier Suppliers shall not subcontract with any new or different Sub-tier Supplier as to such Items without the prior written approval of Tesla. Supplier agrees to inform Tesla of any process or Sub-tier Supplier changes related to Items (including, for example, obsolescence of components, any changes in the manufacturing process of a Sub-tier Supplier, or a transfer of any portion of the design, manufacturing, or assembly process to a different facility), not less than one hundred eighty (180) days prior to the date the Supplier or Sub-tier Supplier is contemplating the implementation of the change.

(b) Sub-tier Supplier’s Obligations . Supplier will ensure that all Sub-tier Suppliers have entered into signed, written agreements with Supplier obligating the Sub-tier Suppliers to undertake each action that is required of Sub-tier Suppliers by another provision of this Agreement, and to comply with the following provisions:

(i) Sub-tier Suppliers shall comply with all Specifications, quality, manufacturing and other technical requirements that may be necessary in order for the Sub-tier Supplier to timely deliver conforming Items, or any portion thereof, to the Supplier for the benefit of Tesla.

(ii) Supplier Related Persons will take all actions with respect to Tesla IP Rights and Marks that Supplier is obligated to take by Section 11, including all actions reasonably requested by Tesla to vest, perfect and defend Tesla IP Rights, and to use and protect Tesla IP Rights and Marks solely for the benefit of Tesla upon substantially similar terms to those set forth in Section 11 above.

(iii) All Supplier Related Persons and designated third parties who are authorized to receive or obtain (directly or indirectly) Confidential Information (collectively, “ Recipients ”), shall agree, prior to the Recipient obtaining any Confidential Information, to be obligated to hold all Confidential Information in confidence and not to use the Confidential Information in any way, except on behalf of Supplier in performing its obligations hereunder for the benefit of Tesla, and to protect the Confidential Information and not to engage in prohibited activities, upon substantially similar terms to those set forth in Section 9 above.

(iv) Sub-tier Suppliers shall provide Supplier with sufficient prior written notice of all design, process, manufacturing, component obsolescence and facility changes contemplated by Sub-tier Suppliers to ensure that Supplier will comply with its notification obligations to Tesla under Sections 15 and 17(a) of this Agreement.

Upon Tesla’s request, Supplier will (A) provide Tesla with copies of all such agreements with Sub-tier Suppliers, Supplier Related Persons or other Recipients that implement Supplier’s

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 17 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

obligations under this Section 17(b); (B) actively enforce Supplier’s rights under such agreements for the benefit of Tesla, including but not limited to retrieving Confidential Information from Supplier Related Persons; (C) assign to Tesla any such agreement between Supplier and Supplier Related Person (and Supplier shall not enter into any agreement restricting such an assignment); and (D) cause Sub-tier Suppliers or Supplier Related Persons to enter such an agreement directly with Tesla.

(c) Mandated Sub-tier Suppliers . “ Special Process ” means a process that is specifically designated as such by Tesla, which may include, but is not limited to, causing a metallurgical change to the base material such as heat treating, forging or hardening processes; joining materials by welding, brazing, or other bonding process; or providing a coating or surface treatment such as cleaning, electro-polishing, plating, painting, or anodizing. Upon Tesla’s request, Supplier will use (and cause Sub-tier Suppliers to use) only one or more of the designated suppliers.

18. Product and Training Support .

(a) Supplier Response . Supplier will provide technical assistance and product support services to Tesla at no additional charge. Supplier agrees to provide an initial response (via telephone or electronically) to any inquiry from Tesla within one (1) business day. If Supplier is requested by Tesla to provide an in-depth failure analysis of Items failures, Supplier agrees to provide timely analysis and feedback to Tesla.

(b) On-Site Support Requirements . As determined by Tesla, Supplier may be asked to provide appropriate or necessary personnel to support on-site operations at Tesla’s facilities or at a third-party site designated by Tesla. On-site representatives shall comply with all requirements of Tesla or such third-party with regard to such support. Unless otherwise agreed, such support will be provided at no cost.

(c) Training Support . Upon Tesla’s request, Supplier shall provide repair, maintenance and trouble-shooting training and related documentation for the Items to Tesla representatives. The service & support will be available only in Taiwan. The Parties will mutually agree on the Items to be included in the training and the specific content and level of training to be provided.

19. Electronic Communication and Documentation .

(a) General . The Parties acknowledge that they are relying upon electronic means, in addition to email and facsimile transmissions, to exchange Orders and other delivery and order information. Supplier agrees to communicate with Tesla using the standards designated by Tesla. To the extent communication through electronic means is inaccessible or made otherwise unavailable due to technical difficulties or due to the effect of any law or regulation governing electronic transactions, the Parties agree (i) that any delivery or order information received electronically prior to the date of such inaccessibility or unavailability will remain valid; and (ii) to conduct, to the extent possible, their transactions by other than electronic means.

(b) Documentation Format Requirements . With each PPAP Submission delivered hereunder, Supplier shall provide to Tesla one (1) set of electronic files of product, repair, maintenance and support documentation for such Items in accordance with Attachment 5 entitled uPPAP Submission Workbook”. Electronic files shall be source files in either Microsoft ® Excel, or Adobe ® PDF, or other mutually agreed upon format. If such documentation is not a part of

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 18 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

Tesla’s IP Rights, then Tesla shall have the right to use, copy, display, modify, reproduce and distribute such documentation as Tesla deems necessary to support the Items. Tesla may post, or require Supplier to post, such documentation on a Web-based tool accessible by Tesla and its customers.

(c) Field Support Requirements . Supplier agrees that Tesla may provide technical assistance, product maintenance and service to Tesla’s customers relating to Items and that the provision of any such services by Tesla shall not invalidate or relieve Supplier of its obligations, including warranty obligations, under this Agreement.

(d) Tesla Unique Prototype Items or Subassemblies Documentation . Upon Tesla’s request, Supplier shall provide to Tesla all current and complete Specifications, including designs, and drawings for (i) all Tesla unique build-to-print Items, including prototype and subassembly Items; and (ii) those Items, or any components thereof, purchased by Supplier from a Sub-tier Supplier (collectively, “ Support items ”) (digital drawings format preferred) and shall further provide assistance in understanding and implementing the Specifications as to Support Items. Supplier shall provide a complete bill of materials, reflecting as-manufactured or produced Support Items, including Supplier part number and vendor or manufacturers’ part number for purchased Support Items and Tesla’s part number for cross-reference. Supplier shall provide a list of recommended spare parts, with associated prices, for all bills of materials down to the lowest level. All Support Items Specifications are the sole property of Tesla. Any changes to process or bills of materials must comply with the terms of this Agreement. If Supplier is purchasing Support Items from Sub-tier Suppliers, Supplier agrees that upon written notice from Tesla, it will assign to Tesla any such agreement between Supplier and Sub-tier Supplier, and Supplier will not enter into any agreement restricting such assignment.

(e) Financial Statements . if Supplier has securities registered with the Securities Exchange Commission (“SEC”) pursuant to Section 12 of the Securities Exchange Act of 1934, Supplier shall timely submit all financial statements and reports as required by SEC rules, Otherwise, upon Tesla’s request, Supplier will provide Tesla with financial statements and other financial information relating to Supplier’s business and operations as Tesla may reasonably request.

20. Continuity of Supply .

(a) Performance Constraints . Supplier is responsible for anticipating and promptly notifying Tesla of (i) any inability on its part or its Sub-tiers part to perform their respective obligations under this Agreement; and (ii) any breach of a provision of this Agreement.

(b) Disaster Recovery Plan . Upon Tesla’s request, Supplier shall provide to Tesla reasonable information describing its disaster recovery plan that includes emergency back-up capacity, and appropriate record protection and recovery.

(c) Tooling . For up to ninety (90) days after the Term, upon Tesla’s request, Supplier agrees to itemize and/or sell to Tesla any tooling that is built or procured by Supplier that is unique to the Items and relevant to the manufacture, testing or maintenance of Items. The purchase price of such tooling shall be at the book value. If Tesla provides notice of its election to purchase such tooling, upon Tesla’s payment, title shall transfer to Tesla. If at any time Supplier receives tooling furnished by or purchased from or by Tesla, Supplier shall comply with the terms of Attachment 7 entitled “Tesla Tooling and Property Requirements.”

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 19 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

(d) Wind Down . In the event of, or in preparation for, the expiration or a termination of the Agreement for any reason, Supplier shall use commercially reasonable efforts to transfer, or cooperate fully with Tesla to enable Tesla to transfer, the performance of Suppliers obligations under the Agreement to Tesla or a third party supplier designated by Tesla, in a manner that (i) minimizes the time to complete such transfer; (ii) maintains the highest quality and performance to ensure the adequate supply of Items; and (iii) causes no disruption to Tesla’s customers’ requirements.

(e) Availability Assurance and After-Sales . Unless expressly excluded, all provisions contained within this Agreement shall apply to the supply of after-sale Items, and:

(i) Supplier agrees to maintain capabilities necessary to provide technical and service support to Tesla and/or its designated third party as to any Items for a minimum of twelve (12) years from the date of final shipment of Items to Tesla;

(ii) Tesla shall pay the Contract Price for the Items in accordance with Section 4.

(iii) If, during the period detailed in Section 20 (e)(i) above, Tesla does not order one particular Item in a rolling 12 month period then the Supplier will be entitled to request Tesla’ written permission to cease supply of such Item. The Supplier shall not be entitled to cease supply of such Item until it has provided Tesla with written notice of not less than 2 months of its intent to cease supply of such Items and obtained Tesla’ permission.

(iv) In the event that Tesla provides its consent in accordance with Section 20 (e)(iii) above, Tesla may notify the Supplier that it wishes to make a “last time buy” at prices not higher than the Contract Prices. The Supplier will be obliged to fulfill the “last time buy” upon the terms of this Agreement.

21. Termination .

(a) Termination for Default .

(i) Notice By Tesla . Tesla may give Supplier notice of default of this Agreement or of any Order if (1) Supplier fails to deliver Items in accordance with the delivery times, Specifications, and other requirements of this Agreement, or otherwise materially breaches this Agreement; (2) Supplier anticipatorily repudiates any material provision of this Agreement and fails to provide adequate assurance to Tesla of Supplier’s future performance; or (3) Supplier becomes insolvent, files a petition for relief under any bankruptcy, insolvency or similar law, or makes an assignment for the benefit of its creditors.

(ii) Notices by Supplier . Supplier may give Tesla notice of default of this Agreement, If (1) Tesla materially breaches Section 8, 11, or 26(a) of this Agreement; (2) Tesla anticipatorily repudiates Section 8, 11, or 26(a) of this Agreement and fails to provide adequate assurance to Supplier of Tesla’s future performance; or (3) Tesla becomes insolvent, files a petition for relief under any bankruptcy, insolvency or similar law, or makes an assignment for the benefit of its creditors.

(iii) Notices of Default and Cure Period . Any notice of default shall be in writing, reference this Section 21(a), state whether the notice relates to a specified Order (under (i) above) or to this Agreement (under (i) or (ii) above), and specify the basis for such notice (the “ Defaulting Condition ”), No cure period shall be available, and this Agreement shall terminate

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 20 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

immediately, at the non — defaulting party’s option after the notice of default, if (1) the Defaulting Condition is a negligent, knowing or willful material breach of Section 9 or Section 11, or (2) the Defaulting Condition cannot reasonably be cured. No cure period shall be available for termination of an Order for default. For all other Defaulting Conditions, the defaulting party shall have ninety (90) days in which to cure the Defaulting Condition, and the Agreement shall not terminate if the defaulting party cures the Defaulting Condition within such cure period.

(iv) After Termination for Default . Upon any termination by Tesla pursuant to this Section 21(a), Supplier shall: (1) continue to supply any portion of the Items for which this Agreement is not cancelled; (2) be liable for additional costs, if any, incurred by Tesla for the purchase of similar goods and services to cover such default; and (3) at Tesla’s request, transfer title and deliver to Tesla: (A) any completed Items, (B) any partially completed Items, and (C) all unique materials and tooling subject or relating to the termination. Termination of the Agreement under this Section 21(a) shall constitute “cancellation” under the Uniform Commercial Code as adopted in California.

(b) Termination of an Order for Convenience .

(i) in addition to either Party’s rights under Section 2(b) and under Section 21(a), Tesla may terminate any Order in whole or in part at any time for Tesla’s convenience by giving Supplier notice which shall state the extent of the termination and the conduct required of Supplier in connection therewith. Such a cancellation may be for any reason including a reduction in the quantity of an Items ordered under an Order. Supplier will use commercially reasonable efforts to mitigate any damages incurred in connection with such termination. Within ninety (90) days from the date on which Supplier receives such notice, Supplier shall deliver to Tesla a written claim for all of Supplier’s damages incurred in connection with the termination (“ Termination Charges ”), in the form and containing such documentation as required by Tesla. In no event, shall Termination Charges include any damages relating to Commercial Off-the-Shelf Items.

(ii) Failure by Supplier to deliver such claim for Termination Charges within this 90-day period shall constitute a waiver by Supplier of all claims against Tesla as to Termination Charges and a release of all Tesla’s liability arising out of such termination.

(iii) If Tesla does not agree with the amount specified in Supplier’s claim for Termination Charges, Tesla and Supplier will attempt to agree upon a reasonable amount for Termination Charges. If Tesla and Supplier fail to agree upon such an amount within six (6) months after receipt by Tesla of the claim for Termination Charges from Supplier, then the Termination Charges will be conclusively presumed to be the sum of the following as to Items for which the termination applies (provided that no costs shall be duplicated); (1) the unpaid Contract Price for all Items delivered to Tesla pursuant to the Order prior to the date of Tesla’s termination; (2) the Contract Price for all Items ordered pursuant to the Order and completed in accordance with the Agreement but not delivered to Tesla prior to the date of termination, provided such Items are promptly delivered to Tesla; (3) the actual costs for work-in-process incurred by Supplier relating to Items ordered pursuant to the Order, less any costs related to Commercial-Off-The-Shelf components either manufactured or procured by Supplier, and an amount representing a fair and reasonable profit on such costs; and (4) the reasonable, out-of- pocket costs paid by Supplier to its Sub-tier Suppliers as a direct result of Supplier’s cancellation of work being performed by such Sub-tier Suppliers or Supplier’s termination of contracts with such Sub-tier Suppliers. Tesla’s obligation to pay costs pursuant to clauses (3) and (4) above shall be subject to Supplier’s obligation to use commercially reasonable efforts to mitigate any such costs.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 21 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

(iv) This Section 21(b) sets forth Supplier’s sole remedies, and Tesla’s entire liability to Supplier, in the event of a termination of an Order by Tesla for convenience, other than Supplier’s remedy and Tesla’s liability as set forth in Section 16.

(c) Post Termination Consequences . On the date of termination or expiration of the Agreement for any reason, Supplier shall (i) stop work being performed by Supplier pursuant to the Agreement, (ii) cancel orders for parts and/or materials with Supplier’s Sub-tier Suppliers and cease ordering any such parts and/or materials, (iii) cancel work being performed by Supplier’s Sub-tier Suppliers, (iv) cancel any sublicense granted to Sub-tier Suppliers in accordance with this Agreement, (v) at Tesla’s request, assign to Tesla Supplier’s interests in contracts with Supplier’s Sub-tier Suppliers, (vi) furnish Tesla with release of claims from Supplier’s Sub-tier Suppliers resulting from orders and/or work canceled by Supplier, (vii) protect all property in which Tesla has or may acquire an interest, (viii) fully cooperate with Tesla to minimize any adverse effect on Tesla or its customers, and (ix) perform those other obligations set forth in this Agreement upon the termination or expiration of this Agreement.

22. Disclaimer and Limitation of Liability . Notwithstanding anything else in this Agreement, in no event shall Tesla be liable to supplier or to any other person or entity with respect to any subject matter of this Agreement, under any equity, common law, tort, contract, estoppel, negligence, strict liability or other theory, for any (a) incidental, special, punitive, consequential or indirect damages or (b) damages resulting from loss of sale, business, profits, data, opportunity or goodwill, even if the remedies provided for in this Agreement fail of their essential purpose and even if Tesla has been advised of the possibility of any of the foregoing damages.

23. Indemnity by Supplier .

(a) Supplier shall defend, indemnify and hold harmless Tesla from and against any and all third party claims, demands, suits, actions, losses, penalties, damages (whether actual, punitive, consequential or otherwise), authorized settlements, and all other liabilities and associated costs and expenses, including attorney’s fees, expert’s fees, costs of investigation and other costs of litigation (all of the foregoing being collectively called “ Indemnified Liabilities ”), arising out of or relating to (i) Supplier’s breach of any provision of the Agreement; (ii) any negligent, grossly negligent or intentional acts, errors or omissions by Supplier, its employees, officers, agents or representatives, except to the extent caused by the negligence or intentional misconduct of Tesla; or (iii) strict liability or products liability with respect to or in connection with the Items; (iv) any claim by a Sub-tier Supplier against Tesla relating to goods or services provided to Supplier; or (v) the actual or alleged infringement or misappropriation of patent, copyright, trademark, trade secret rights, confidential information, proprietary rights, or other rights of a third party, (collectively, a “ Third Party IP Right ), except to the extent that the infringement or misappropriation was unavoidably caused by Supplier’s compliance with a detailed design furnished and required by Tesla. The indemnity by Supplier in favor of Tesla shall extend to Tesla, its officers, directors, employees, agents and representatives and shall include, and is intended to include, indemnified liabilities which are determined by a court of competent jurisdiction to be the result of acts or omissions of Supplier as a joint tortfeasor. If Supplier is liable only as a joint tortfeasor, then Supplier’s liability shall not extend to that portion of liability determined by the court to be the result of acts or omissions of Tesla. In addition to Supplier’s obligations as to Indemnified Liabilities that arise under clause (v), Supplier shall, at

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 22 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

Tesla’s option (1) procure for Tesla and its customers the right to continue to use, sell and resell any affected Item, (2) with respect to a claim for infringement, modify the affected Items so that it is no longer infringing, or (3) replace any affected Items with a non-infringing good or service comparable to the affected Item. If none of these alternatives are possible, Tesla shall have the right to return or destroy, at Tesla’s option, any affected Items for a full refund of the purchase price, plus applicable transportation costs. A certificate of destruction will be sent to [***] upon completion of such act.

(b) In the event of any such Indemnified Liabilities, Tesla shall (i) promptly notify Supplier of such Indemnified Liabilities and the identity of the Tesla’s legal counsel; (ii) at Supplier’s expense, reasonably cooperate with Supplier in the defense of such claim; and (iii) not settle any such Indemnified Liabilities without Supplier’s written consent, which shall not be unreasonably withheld or delayed. Supplier shall keep Tesla informed at all times as to the status of Supplier’s efforts and consult with Tesla and/or its counsel regarding such efforts. Supplier shall not settle any such claim without the prior written consent of Tesla, which shall not be unreasonably withheld or delayed. Failure by Tesla to give notice of the Indemnified Liabilities to Supplier shall not relieve Supplier of its indemnification obligations hereunder except to the extent, if any, that Supplier has actually been prejudiced hereby.

(c) This Section 23 sets forth the entire obligation of Supplier to Tesla and Tesla to Supplier as to Indemnified Liabilities arising from the actual or alleged misappropriation or infringement of any Third Party IP Right.

24. Import and Export Requirements .

(a) General . Supplier agrees it will be required to deliver Items to, and receive Items from, locations outside of the United States. Supplier will comply with all applicable export control laws or regulations promulgated and administered by the laws of the United States or the government of any other country with jurisdiction over the Parties or the transactions contemplated by this Agreement (“Export Laws”) including the obligation that Supplier shall not export, re export or otherwise disclose, directly or indirectly, Items or technical data received from Tesla or the direct product of such technical data or Items to any person or destination when such export, re-export or disclosure is in violation of Export Laws, Supplier will provide Tesla with any and all information that may be required to comply with Export Laws, including applicable “Export Control Classification Numbers,” documentation substantiating U.S. and foreign regulatory approvals for the Items, and information required by Customs officials to substantiate the value of imported items including any adjustments in valuation attributable to “assists” as defined by U.S. Customs regulations. All required export and import information shall be sent to the attention of: Manager, Compliance, Tesla Motors, 1050 Bing Street, San Carlos, CA 94070; or any agent so designated by Tesla.

(b) Country of Manufacture . Items shall be marked with the country of origin as required by Export Laws. Supplier shall provide Tesla with a written statement identifying for each Items delivered the (i) Tesla part number and (ii) the country of manufacture. This data shall be provided to Tesla upon Tesla’s request.

(c) Duty Drawback . Supplier will provide Tesla or its agent with U.S. Customs entry data and information that Tesla determines is necessary for Tesla to qualify for duty drawback. Such data shall include information and receipts for duties paid, directly or indirectly, on all Items which are either imported or contain imported parts or components. Information related to serial

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 23 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

numbers, unique part numbers, lot numbers and any other data which will assist Tesla in identifying imported Items sold to Tesla shall also be provided. At the time of delivery of the Items, but in no event later than thirty (30) days after each calendar quarter, Supplier will provide said documents accompanied by a completed Certificate of Delivery of Imported Merchandise or Certificate of Manufacture and Delivery of Imported Merchandise (Customs Form 331) as promulgated pursuant to 19 CFR 191, or successor regulations,

25. Insurance .

Supplier shall maintain (i) comprehensive general liability insurance covering bodily injury, property damage, contractual liability, products liability and completed operations; (ii) Worker’s Compensation and employer’s liability insurance; and (iii) auto insurance, all in such amounts as are necessary to insure against the risks to Supplier’s operations, but in no event less than the following minimum amounts:

 

Insurance   Minimum Limits of Liability
Worker’s Compensation   Statutory
Employer’s Liability   $1,000,000
Automobile Liability   $1,000,000 per occurrence

Comprehensive General Liability

(Including Products Liability)

  $1,000,000 per occurrence
Umbrella/Excess Liability   $1,000,000 per occurrence

All policies must be primary and non-contributing, shall have a deductible amount that is not commercially unreasonable, and shall include Tesla as an additional insured. Supplier also waives all rights of subrogation. Supplier will require and verify that each of its Sub-tier Suppliers carries at least the same insurance coverage and minimum limits of insurance, as Supplier is required to carry pursuant to the Agreement. Supplier shall notify Tesla at least thirty (30) days prior to the cancellation or implementation of any material change in the foregoing policy coverage that would affect Tesla’s interests. Upon request, Supplier shall furnish to Tesla as evidence of insurance a certificate of insurance stating that the coverage will not be canceled or materially altered without thirty (30) days prior notice to Tesla.

26. Miscellaneous .

(a) Assignment . This Agreement shall be binding on, and inure to the benefit of, the Parties and their respective permitted assigns. Supplier shall not assign or otherwise transfer this Agreement or any of Supplier’s rights or obligations hereunder, in any manner, without the prior written consent of Tesla, which shall not be unreasonably withheld,

(b) Change in Control . Supplier will notify Tesla immediately of Supplier’s intent (or any other person’s intent, to the extent Supplier is aware of it) to effect any sale of all or substantially all of Supplier’s assets, any consolidation, merger or other transaction involving the sale or transfer of ten percent (10%) or more of Supplier’s capital stock or similar ownership interest of Supplier.

(c) Waiver . If either Party fails to insist on performance of any term or condition, or fails to exercise any right or privilege hereunder, such failure shall not constitute a waiver of such term, condition, right or privilege.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 24 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

(d) Survival of Obligations . Termination or expiration of this Agreement will not relieve either Party of its obligations under Sections 8(c), 9, 11(a)-(f), 11(h), 12, 17(b), 18, 19(c)-(e), 20-23, 26(c)-(e), (h), (i), and (I)-(r), nor will termination or expiration relieve the Parties from any liability arising prior to the date of termination or expiration.

(e) Severability . Any provision of this Agreement that is held unenforceable or invalid for any reason by a court of competent jurisdiction shall be severed from this Agreement, and the remainder of the Agreement shall continue in effect; provided, that such unenforceable or invalid provision shall be given effect to the maximum extent then permitted by law.

(f) General Compliance with Laws and EEO Regulations . Each Party represents, warrants and agrees that (i) such Party’s execution, delivery and performance of this Agreement will not conflict with or violate any applicable law, rule, regulation, order, decree, or ordinance: and (ii) such Party shall comply with the requirements of 41 CFR §§ 60-1.4(a) —250.5(a), and — 741 .5(a), if applicable, relating to equal opportunity clauses pertaining to government contracts.

(g) No Gratuity . Neither Party will offer or give any gratuity to induce any person or entity to enter into, execute or perform the Agreement or any other agreement with between the Parties.

(h) Governing Law, Exclusive Forum . The Agreement and any dispute arising out of or in connection with the Agreement or the Parties’ relationship shall be interpreted, enforced and governed by the laws of the State of California, excluding its choice of law rules, The exclusive forum for any dispute related in any way to this Agreement or the Parties’ relationship shall lie in the courts, state or federal, of California, and venue shall lie in the courts of Santa Clara County. Items shall be deemed and shall qualify as goods under the Uniform Commercial Code as adopted in California. Each Party consents to personal jurisdiction in the above courts. Notwithstanding the foregoing, Tesla shall have the right to seek injunctive relief, including preliminary and permanent injunctive relief, in any court of competent jurisdiction, including, without limitation, to enforce Tesla’s rights under Sections 9 and 11, or to otherwise enforce any judgment made hereunder.

(i) General Representations . Each Party represents and warrants as follows: (i) such Party is duly organized, validly existing, and in good standing under the laws of the jurisdiction of its organization; and (ii) such Party’s execution and delivery of this Agreement and performance of its obligations hereunder will not (1) violate any provision of the charter, bylaws or other governing document of such Party, or (2) conflict with, result in a breach of, or constitute a default under, any other agreement or arrangement by which such Party is bound.

(j) Force Majeure . If and to the extent that a Party’s performance of any of its obligations pursuant to this Agreement is prevented, hindered or delayed by fire, flood, earthquake, elements of nature or acts of God, acts of war, terrorism, riots, civil disorders, rebellions, revolutions, strikes, labor disputes or any other similar cause beyond the reasonable control of such Party (each, a “ Force Majeure Event ”), then the non-performing, hindered or delayed Party shall be excused for such non-performance, hindrance or delay, as applicable, of those obligations affected by the Force Majeure Event for as long as such Force Majeure Event continues; provided, that such Party continues to use commercially reasonable efforts to recommence performance whenever and to whatever extent possible without delay, including through the use of alternate sources, workaround plans or other means. Notwithstanding the preceding sentence, if the Force Majeure Event continues for a period of more than thirty (30) days, either Party may thereafter exercise its rights, if any, pursuant to Section 21, to deliver a

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 25 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

notice of termination, subject to any cure period that may be required by Section 21. The Party whose performance is prevented, hindered or delayed by a Force Majeure Event shall promptly notify the other Party in writing of the occurrence of a Force Majeure Event and describe in reasonable detail the nature of the Force Majeure Event.

(k) No Agency . Each Party shall be deemed to be an independent contractor and not an agent, joint venturer or representative of the other Party, and neither Party may create any obligations or responsibilities on behalf of or in the name of the other Party.

(l) Cumulative Remedies . The rights and remedies of the Parties provided under this Agreement are not exclusive (unless another provision of this Agreement expressly provides that a right or remedy is exclusive), and may be exercised, alternatively or cumulatively, with any other rights and remedies available to the Parties under this Agreement or in law or in equity.

(m) Amendments and Modifications; Captions and Construction . Except as provided in Section 2(c) (Updating Business Processes), amendments or revisions to this Agreement must be in writing, signed by both Tesla and Supplier duly authorized representatives, traced by revision numbers and attached to the original of this Agreement.

(n) Counterparts and Facsimile . This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and such counterparts together shall constitute the same instrument. For purposes hereof, a facsimile copy of this Agreement, including the signature pages hereto, shall be deemed an original.

(o) Notices . Subject to Section 2(c), any notice, consent or approval required or permitted under this Agreement shall be in writing and in English (unless otherwise expressly stated) and shall be given (1) personally; (2) by express courier; (3) by facsimile with confirmation of delivery; or (4) by email with confirmation of delivery. The Supplier and Tesla shall each nominate a representative who shall be authorized to make decisions relating to the Items and who shall be responsible for organizing all meetings and actions provided for in this Agreement.

Notices to Tesla:

Ken Zadegan

Supply Chain Management

1050 Bing Street

San Carlos, CA 94070

Fax: (650) 413-4099

E-mail: supplychain@teslamotors.com

Notices to Supplier:

[***]

[***]

[***]

[***]

[***]

Tel: [***]

Fax: [***]

[***]

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 26 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

(p) Notifications to Tesla . Supplier shall promptly notify Tesla in writing as soon as possible before, and In any event prior to the occurrence of, (i) Supplier’s acquisition of a majority of the capital stock of, or substantially all of the assets of, a third party or business division of a third party that directly or indirectly provides goods or services to Tesla; (ii) a significant change in leadership roles at Supplier, a business division of Supplier, or factory or physical plant of Supplier, which is involved in Supplier’s performance of this Agreement; (iii) any problem or other issue that a reasonable person in the position of Supplier would believe could negatively impact Supplier’s ability to perform its obligations under this Agreement (including making on-time deliveries); or (iv) any material change to Supplier’s information, inventory management, or financial management systems or processes.

(q) Foreign Translation . This Agreement is written in the English language. The English text of this Agreement shall prevail over any translation thereof.

(r) Entire Agreement . This Agreement, including its Attachments, sets forth the entire understanding and agreement of the Parties as to the subject matter of this Agreement and supersedes all prior agreements, understandings, proposals and representations, oral or written, between the Parties as to the subject matter, except for NDA(s), which are addressed by Section 9(d). In the event of any conflict between or among any documents which are part of this Agreement, the following order of precedence shall apply: (i) Supply Agreement; (ii) Attachment 1; (iii) other Attachments; (iv) Specifications; and (v) Order.

By execution hereof, the person signing for each Party below hereby certifies, represents and warrants that he/she has read this Agreement and that he/she is duly authorized to execute this Agreement on behalf of such Party.

 

TESLA MOTORS, INC.     [***]
By:  

/s/ Thomas E. Colson

    By:  

/s/ [***]

        Thomas E. Colson

   

        [***]

Printed name     Printed name

        VP Manufacturing

   

        Sales Manager

Title       Title  

        13 Feb 07

   

        15-Feb-07

Date       Date  

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 27 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

Table of Attachments

 

No

  

Name

1    List of Items, Pricing Mechanism, and Lead Times
2    Packaging and Labeling Specification
3    Transportation Routing Guide
4    Supplier Corrective Action Request
5    PPAP Submission Workbook
6    Tesla Motors Supplier Handbook
7    Tesla Tooling and Property Requirements
8    Project Cost
9    Invoicing Requirements
10    Nominated Representatives
11    Leveraging Tesla Brand Marketing

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 28 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

Attachment 1

List of Items, Pricing Mechanism, Lead Times and Darkstar forecast

 

Attachment December 1, 2006

Description

  Part Number   Lotus
Part Number
  Qty per Car   Unit Price   Total Cost   Lead Time
[***]   02-001824-00   NA   1   $ [***]   $ [***]   [***]

Note :

 

  1- There is an aggressive cost reduction plan set up for this module that in which the Supplier agrees to participate

 

Dark-Star Manufacturing Forecast

Manufacturing
Period

   Number of
units
[***]    [***]
[***]    [***]
[***]    [***]

The cost quote is based on the volume of [***] units during [***].

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 29 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

Attachment 2

Transportation, Packaging and Labeling Specification

 

1 The Supplier shall (where applicable):

 

  (a) properly pack and label the Items in accordance with the specific requirements of Tesla;

 

  (b) route consignments in accordance with any instructions from Tesla;

 

  (c) not charge for the handling, packaging, storage or transportation of the Items, protective packaging, material, delivering of parts to various plants in special racks/different container types or re-assignment of all kind of containers unless otherwise agreed in writing with Tesla;

 

  (d) properly mark each package with a label/tag according to Tesla’ instructions and/or in accordance with any legal obligation;

 

  (e) include on any bills of lading or other shipping receipts the correct classification and identification of the Items transported in accordance with Tesla’ instructions and any requirements of the carrier and to promptly forward the same in accordance with Tesla’ instructions;

 

  (f) ensure that the marks on each package and identification of the Items on packing slips, bills of lading and invoices are sufficient to enable Tesla to easily identify the goods;

 

  (g) obtain all necessary export licenses and/or permissions in respect of the delivery of the Items or where Tesla must obtain such export licenses and/or permissions in its own name, provide Tesla with reasonable assistance to secure the same;

 

  (h) Notify Tesla in advance of delivery in writing if the Supplier requires Tesla to return any packaging material to the Supplier. Such packaging material will only be returned to the Supplier at the Supplier’s cost and risk.

 

  (i) comply with a all provisions of the Tesla supplier handbook

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 30 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

Attachment 3 Transportation Routing Guide

To be defined by Tesla prior to SOP.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 31 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

Attachment 4

Supplier Corrective Action Request

Refer to Tesla Motors Document Numbers:

 

   

99-000002-02            Corrective & Preventive Actions

 

   

99-000066-04            Supplier Corrective Action Request form

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 32 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

Attachment 5

PPAP Submission Workbook

Refer to Tesla Motors Document Number:

 

   

99-000094-04            PPAP Submission Workbook

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 33 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

Attachment 6

Tesla Motors Supplier Handbook

Refer to Tesla Motors Document Number:

 

   

99-000068-03            Tesla Motors Supplier Handbook

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 34 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

Attachment 7

Tesla Tooling and Property Requirements

 

1 Unless otherwise agreed in writing by Tesla, the Supplier shall be responsible for and shall undertake the design and development of all tools, jigs, dies, gauges, fixtures, molds and patterns or other equipment necessary in the provision of the Items (“Tooling”), unless Tesla solely provides the design of the Tooling and provides instruction relating to design in which case the Supplier shall be responsible for producing the Tooling to the Tesla design. Supplier shall at its own expense furnish, keep in good condition, and replace when necessary all Tooling,

 

2 Supplier warrants that the design, assembly, manufacture or procurement of the Tooling shall render the Tooling fit for purpose and of satisfactory quality provided that the parties hereby acknowledge and agree that the Supplier shall not be in breach of this warranty if a design provided by Tesla is in error and such error is not due to the acts or omissions of the Supplier;

 

3 The cost of changes to the Tooling necessary to make design and specification changes authorized by Tesla shall, unless otherwise agreed in writing, be paid for by the Supplier. The Supplier hereby grants to Tesla an irrevocable option (exercisable at any time during the duration of the Agreement or after its termination) to take possession of and title to the Tooling that are special for the provision of the Items upon payment to the Supplier of the book value thereof less any amounts which Tesla has previously paid to the Supplier for the cost of such Tooling.

 

4 All supplies, tools, jigs, dies, gauges, fixtures, molds, patterns, equipment and other items provided by Tesla, either directly or indirectly, to the Supplier, or for which the Supplier has been reimbursed by Tesla (“Tesla Property”), shall be and remain the property of Tesla and held by the Supplier on a bailment basis.

 

5 The Supplier shall bear the risk of loss and damage to Tesla Property. Tesla Property shall at all times at the Supplier’s cost

 

  (a) be properly housed and maintained in full working order;

 

  (b) be replaced by the Supplier (at the Supplier’s cost), if the replacement is required due to

 

  (i) abuse of the Tesla Property; and/or

 

  (ii) Failure to maintain, repair, service or house the Tesla Property.

 

  (c) not be used by the Supplier for any purpose other than the performance of an Order under the Agreement;

 

  (d) be conspicuously marked as property of Tesla by the Supplier; (a) not be mixed with the property of the Supplier or with that of a third party; and

 

  (f) Not be moved from the Supplier’s premises, modified or replaced without Tesla’ prior written approval.

 

6 Upon the request of Tesla, the Tesla Property shall be immediately released to Tesla or delivered to Tesla’ premises by the Supplier properly packed and marked in accordance with the requirements of Tesla all at the Supplier’s cost or delivered to any location reasonably designated by Tesla, in which event Tesla shall pay the Supplier the reasonable cost of delivering such Tesla Property to such location.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 35 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

7 The Supplier shall insure all Tesla Property against all risks for the replacement value and shall, upon Tesla’ request, provide to Tesla certificates or other satisfactory evidence of such insurance.

 

8 Tesla, its employees, agents and sub-contractors may enter in or on the Supplier’s premises (or any other premises where the Tesla Property may be) at all reasonable times and on reasonable notice to inspect the Tesla Property and the Supplier’s records with respect thereto and the Supplier hereby provides its irrevocable consent (and shall procure the irrevocable consent of any relevant third parties) to permit Tesla, its employees, agents and sub-contractors to enter such premises for this purpose.

 

9 On termination of the Agreement (for whatever reason) the Supplier must not destroy the Tesla Property but shall liaise with Tesla over arrangements for the Tesla Property to be returned to Tesla.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 36 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

Attachment 8

Project Cost

Project cost details during the VP phase is provided by Tesla Motors Program Management team and will be added later

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 37 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

Attachment 9

Invoicing Requirements

 

1 The Supplier shall be responsible for ensuring that the information on invoices are accurate and sufficient to meet Tesla’s import and export requirements for the items, as well as to help to expedite the Tesla’s payment process.

 

2 All invoices shall be sent to the attention of Tesla’s assigned buyer, who issued the Order.

 

3 All invoices shall include the following:

 

  (a) Date of Invoice,

 

  (b) Ship To Designee,

 

  (c) Ship To Address,

 

  (d) “Bill To: Tesla Motors, Inc.”

 

  (e) “Bill to Address: 1050 Bing Street, San Carlos, California, 94070, U.S. A.

 

  (f) Tesla Buyer Name

 

  (g) Purchase Order Number,

 

  (h) Item Number(s),

 

  (1) Item Description(s), which is/are consistent with all other commercial invoices and documents,

 

  (j) Ship To Quantity,

 

  (k) Ship To Date(s) or Collection Date(s),

 

  (I) Costs (items only),

 

  (m) Shipping & Handling (only if applicable),

 

  (n) Tax & Duty (only if applicable),

 

  (o) Payment Term (“ Net 30 ”), and

 

  (p) INCOTERM (only if applicable).

 

4 All drop-ship related invoices (for example, those for overseas shipment for ASO) shall include the following additional information:

 

  (a) Harmonized Tariff Schedule (“HTS”) Codes,

 

  (b) Control Number (“CN”) Codes,

 

  (c) Number of Cartons or Crates Shipped,

 

  (d) Weight of Cartons or Crates Shipped,

 

  (e) A Copy of Weigh Bill Information per carrier,

 

  (f) Any Special Information Specified in the Order, and

 

  (g) Value of Rejected Part(s), only if Applicable.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 38 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

Attachment 10

Nominated Representatives

 

1 The following listed names are the nominated representatives by Supplier and Tesla, who shall be authorized to make decisions relating to the Items and who shall be responsible for organizing all meetings and actions provided for in this Agreement.

 

2 Subject to Section 26(o), any notice, consent or approval required or permitted under this Agreement shall be sent to in writing to the following representatives:

 

  (a) Notices to Tesla :

Ken Zadegan

Tesla Motors

1050 Bing Street

San Carlos, CA 94070

Fax: (650) 413-4099

E-mail: supplychain@teslamotors.com

 

  (b) Notices to Supplier :

[***]

[***]

[***]

[***]

Tel: [***]

Fax: [***]

[***]

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 39 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

Attachment 11

Leveraging Tesla Brand Marketing

 

1 Definitions : In this section, the following capitalized terms shall have the meanings specified below.

 

  (a) Tesla Marketing Materials ” means all marketing materials that promote Tesla’s products and vehicles that include, but are not limited to: (A) Tesla’s trademarks, service marks, photographs, or images in promotional, advertising, instructional, or reference materials, or on its web sites, products, labels, or packaging; (B) marketing merchandize, props, posters, banners, toys, gifts, mugs, etc.; (C) links to or from Tesla’s web sites to various third party sites, Including Supplier’s; and (D) display or demonstration of Tesla vehicles, sub-systems, parts, models, or replicas in show rooms, conventions, or marketing events.

 

2 The following guideline shall be applied when Supplier wishes to use Tesla Marketing Materials. Additional guidelines may be provided by Tesla at its discretion.

 

3 Use of the Tesla Marketing Materials for commercial purposes without the prior written consent of Tesla may constitute trademark infringement and unfair competition in violation of federal and state laws. Use of Tesla trademarks may be prohibited, unless expressly authorized.

 

4 Tesla’s trademarks, service marks, trade names, and trade dress are valuable assets. In following these guidelines, Supplier shall protect Tesla’s valuable trademark rights and strengthen Tesla’s corporate and brand identities.

 

5 By using a Tesla trademark, in whole or in part, Supplier acknowledges that Tesla is the sole owner of the trademark and promising that Supplier will not interfere with Tesla’s rights in the trademark, including challenging Tesla’s use, registration of, or application to register such trademark, alone or in combination with other words, anywhere in the world, and that Tesla will not harm, misuse, or bring into disrepute any Tesla trademark.

 

6 The goodwill derived from using any part of a Tesla trademark exclusively inures to the benefit of and belongs to Tesla. Except for the limited right to use as expressly permitted under these Guidelines, no other rights of any kind are granted hereunder, by implication or otherwise.

 

7 Authorized Use of Teals Trademarks .

 

  (a) Advertising Promotional and Sales Materials . Only Tesla and its authorized licensees may use the Tesla Marketing Materials in advertising, promotional, and sales materials. Supplier may use the Tesla Marketing Materials only as specified in the agreement.

 

  (b) Word mark . Supplier may use Tesla word mark in a referential phrase on promotional/advertising materials, provided they comply with the following requirements.

 

  (i) The Tesla word mark is not part of the product name.

 

  (ii) The Tesla word mark appears less prominent than the product name.

 

  (iii) The reference to Tesla does not create a sense of endorsement, sponsorship, or false association with Tesla or Teals products or services.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 40 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

  (iv) The use does not show Tesla or its products in a false or derogatory light.

 

  (c) Publications, Seminars, and Conferences . Supplier may use a Tesla word mark in connection with book titles, magazines, periodicals, seminars, or conferences provided Supplier comply with the following requirements:

 

  (i) The use is referential and less prominent than the rest of the title,

 

  (ii) The use reflects favorably on both Tesla and Tesla products or technology.

 

  (iii) Supplier’s name and logo appear more prominent than the Tesla word mark on all printed materials related to the publication, seminar or conference.

 

  (iv) The Tesla Marketing Materials or any other Tesla-owned graphic symbol, logo, icon or image does not appear on or in the publication or on any materials related to the publication, seminar, or conference without express written permission from Tesla.

 

  (v) A disclaimer of sponsorship, affiliation, or endorsement by Tesla, similar to the following, is included on the publication and on all related printed materials: “(Title) is an independent (publication) and has not been authorized, sponsored, or otherwise approved by Tesla Motors, Inc.”

 

  (vi) A trademark attribution notice is included In the credit section giving notice of Tesla’s ownership of its trademark(s).

 

  (d) Web Sites . Web sites may use the appropriate Tesla word mark, provided such use complies with the guidelines set forth in Sections 7(a) to (c) above.

 

8 Unauthorized Use of Tesla Trademarks .

 

  (a) Supplier shall not use or register, in whole or in part, Tesla trademark, including Tesla- owned graphic symbols, logos, icons, or an alteration thereof, as or as part of a company name, trade name, product name, or service name except as specifically noted in these guidelines.

 

  (b) Supplier shall not use the Tesla Marketing Materials or any other Tesla-owned graphic symbol, logo, or icon on or in connection with web sites, products, packaging, manuals, promotional/advertising materials, or for any other purpose except pursuant to an express written trademark license from Tesla.

 

  (c) Supplier shall not use an image of other variation of the Tesla Marketing Materials for any purpose. Third parties cannot use a variation, phonetic equivalent, foreign language equivalent, takeoff, or abbreviation of a Tesla trademark for any purpose.

 

  (d) Supplier shall not use a Tesla trademark or any other Tesla-owned graphic symbol, logo, or icon in a disparaging manner.

 

  (e) Supplier shall not use Tesla trademark, including Tesla-owned graphic symbols/logos, or icons, in a manner that would imply Tesla’s affiliation with or endorsement, sponsorship, or support of a third party product or service.

 

  (f) Supplier shall not manufacture, sell or give-away merchandise items, such as T-shirts and mugs, bearing Tesla trademark, including symbols, logos, or icons, except pursuant to an express written trademark license from Tesla.

 

  (g) Supplier shall not imitate the distinctive Tesla packaging, web site design, logos, or typefaces.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 41 of 42


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

  (h) Supplier shall not use or imitate a Tesla slogan or tagline.

 

  (i) Supplier shall not use an identical or virtually identical Tesla trademark as a second level domain name.

 

9 Proper Use of Tesla Trademarks .

 

  (a) Trademarks are adjectives used to modify nouns; the noun is the generic name of a product or service. Trademarks may not be used in the plural or possessive form.

 

  (b) Spell and capitalize Tesla’s trademarks exactly as intended by Tesla . No shorten or abbreviated Tesla product names or made-up names that contain Tesla trademarks shall be allowed.

 

10 Compensation . In return for using Tesla Marketing Materials, Parties may agree to Supplier paying Tesla a reasonable compensation for anticipated potential for Supplier’s enhanced market position and sales. When such agreements are made by Parties, the agreed sum shall be paid to Tesla in a mutually agreed term, including deduction from Item costs.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL / [***]   Page 42 of 42

Exhibit 10.29

Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

SUPPLY AGREEMENT

TESLA MOTORS, INC.

[Tesla Logo]

and

[***]

19, April 2007

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 1 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

THIS SUPPLY AGREEMENT is entered into as of this 19th day of April , 2007 (the “ Effective Date ”) between

 

  (a) Tesla Motors, Inc ., a Delaware corporation, with its principal place of business in San Carlos, California, U.S.A. and its subsidiaries in world wide locations, including Hethel, Norwich, Norfolk in the United Kingdom; and

 

  (b) [***], a [***] corporation, with its principal place of business in [***].

The Parties agree as follows:

1. Definitions .

Unless defined additionally elsewhere in this Agreement, the following capitalized terms shall have the meanings specified below:

(a) “ Agreement” means (i) this Supply Agreement, (ii) all Attachments, and (iii) all Orders, as each may be amended from time to time.

(b) “ Attachment ” means any document that is referenced in this Supply Agreement and attached hereto. All Attachments are deemed to be incorporated into this Agreement by this reference.

(c) “ Order ” means an order for Items communicated pursuant to this Agreement by Tesla to Supplier via a purchase order whether in hardcopy or electronic form. All Orders are deemed to be incorporated into this Agreement by this reference.

(d) “ Internal Tesla Data ” means planning data, product engineering or manufacturing data, information, forecasts, Specifications or Confidential Information that is stored, displayed, maintained or accessed on the Tesla Web Site or other Tesla internal databases or internal network servers or storages.

(e) “ Items ” means, collectively either singular or plural, components, equipment, materials, subassemblies or other goods and related software and services specified in (i)  Attachment 1 , (ii) an Order; or (iii) a purchase order placed by Tesla with Supplier prior to the Effective Date and undelivered as of such date.

(f) “ Parties ” means Tesla and Supplier.

(g) “ Specifications ” means such drawings, designs, instructions, technical or performance requirements or other technical or commercial information relating to the design, development, manufacture, packaging and labeling, delivery, logistics, installation, assembly, testing and/or use of one or more Items.

(h) “ Sub-tier Supplier ” means a member of Supplier’s direct or indirect sub-tier supply base (including, without limitation, subcontractors and vendors of Supplier, and of Supplier’s subcontractors and vendors) that provides goods and/or services in connection with Items.

(i) “ Supplier ” means [***] and those of its subsidiaries and affiliates authorized in writing by Tesla to perform under this Agreement.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 2 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

(j) “ Tesla ” means Tesla Motors, Inc., including its subsidiaries existing on or after the Effective Date.

(k) “ Tesla Web Site ” means the portion of the password-protected Web Site, including the database related to supply chain management, maintained by Tesla, to which Supplier may be given access for the purpose of performing under this Agreement.

(l) “ ASO ” means After Sales Organization for Tesla.

(m) “ VP Build ” means Validation Prototype (“ VP ”) vehicle build at Hethel, Norwich, Norfolk in the United Kingdom.

2. Scope of Agreement; Term .

(a) Scope of Agreement . This Agreement sets forth the terms and conditions governing the purchase and sale of Items, the relationship between Tesla and Supplier, and compliance with Tesla’s business processes. Tesla’s current business processes and requirements for certain matters covered by this Agreement, including packaging, delivery, shipment, crating and repair of Items, are set forth in the Attachments. Tesla Motors, Inc. and its subsidiaries shall be entitled to purchase Items from Supplier under this Agreement, and shall have all of the rights of “Tesla” under this Agreement. As to any purchase of Items under this Agreement by Tesla Motors, Inc., all obligations under this Agreement are the sole obligations of Tesla Motors, Inc. As to any purchase of Items under this Agreement by a subsidiary of Tesla, all obligations under this Agreement are the sole obligations of such subsidiary. Nothing in this Agreement shall prevent Tesla from engaging third parties other than the Supplier to provide goods or services the same as, or similar to the Items.

(b) Term . This Agreement shall commence on the Effective Date and, unless terminated as set forth in Section 21 (Termination), shall continue in effect for at least thirty-six (36) months. After thirty-six (36) months, this Agreement shall continue unless either party provides six (6) months prior written notice to the other party of such party’s desire to allow this Agreement to expire. The effective period of this Agreement is referenced as the “ Term .”

(c) Updating Business Processes . Tesla regularly improves its business processes. In that regard, Tesla shall have the right to amend any Attachment, other than Attachment 1, by giving notice thereof to Supplier in writing, or by other electronic means. All modifications to Attachment 1 shall be upon the mutual written agreement of the Parties.

3. Orders .

(a) Orders . All authorized demand signals for Items from Tesla to Supplier shall be in the form of “ Orders ”. An Order shall (i) identify the Items requested and (ii) state the quantity, date, time and place of delivery, and price of the Items requested (unless previously specified in Attachment 1, which shall control). Supplier shall accept communications of Orders in the format reasonably designated by Tesla.

(b) Acceptance/Rejection of Orders . Supplier shall promptly communicate its acceptance or rejection of an Order. Supplier shall not, however, reject (and shall be deemed to have accepted) an Order for Items set forth on Attachment 1 so long as the Order conforms to the terms and conditions of this Agreement (including without limitation lead time requirements specified for such Items on Attachment 1, if any). Any notice of rejection shall state the specific grounds for such rejection. In all events, any objection by Supplier to the terms of an Order shall be deemed waived upon Supplier’s delivery of Items.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 3 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

(c) Order Adjustments . Supplier acknowledges that Tesla may be required to modify Orders from time to time. Tesla may increase the quantity of Items in any Order at any time prior to the scheduled delivery date and, provided such increase falls within the Quantity Adjustment Schedule set forth below, (i) Supplier will deliver such increased quantity with no additional charges including accelerated delivery, expedite fees or the like, and (ii) such increase will not affect the delivery schedule of Items previously ordered.

 

Weeks until Delivery Date

   £  2
weeks
    2< & £  5
weeks
    5< & £  10
weeks
    10< & £  20
weeks
    20<
weeks
 

Percent Quantity Adjustment for Authorized Order Signal

   [***]   [***]   [***]   [***]   [***]

If Tesla requires an increase in the quantity of Items in any Order and such increase does not fall within the Quantity Adjustment Schedule set forth above, then, if feasible and as mutually agreed upon by the Parties, Supplier will provide such increased Items in accordance with the modified Order and Tesla shall pay costs resulting there from, provided such costs are (i) reasonable; (ii) authorized by Tesla in writing in advance of delivery; and (iii) identified separately from the unit price on Supplier’s invoice to Tesla.

(d) Reduction or Cancellation of an Order . If Tesla requires a reduction in the quantity of Items in any Order, or cancels any Order, the Parties’ respective rights and obligations shall be as specified in Section 21 (Termination).

(e) Purchases by Authorized Third Party . Certain Items may be (i) incorporated into subassemblies, modules, or other products made for Tesla by a third party; or (ii) otherwise processed by a third party. In such event, Tesla may designate the third party as authorized to purchase Items from Supplier and, upon Supplier’s receipt of notice thereof, Supplier shall enter into an agreement with such third party to sell Items to the third party on terms (including pricing) no less favorable than the terms set forth in this Agreement.

(f) No Volume Commitment . Tesla does not commit to purchase a specific volume of any Items from Supplier except as specified in an Order and, subject to Supplier’s IP Rights (as defined in Section 11(c)), Tesla may manufacture or buy goods and/or services from third parties that are identical or similar to the Items.

4. Pricing .

(a) Contract Price . “ Contract Price ” means the domestic and/or export price in USD for an Item as set forth on Attachment 1; provided, that if a price for an Items is not specified on Attachment 1, then the Contract Price shall be the price set forth in an Order that is accepted by Supplier in accordance with this Agreement. The Contract Price for each Item shall remain in effect throughout the Term, except for any changes mutually agreed to by the Parties in writing. Any change in circumstances, may result in a review of Agreement terms and/or negotiated reduction in the Contract Price.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 4 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

(b) Pricing Components . The Contract Price, and any quotations for Items, shall include all finishing, testing, inspecting and packaging fees, applicable royalties and all applicable taxes (excluding sales, use and similar taxes). Any quotations for Items shall include all costs relating to warranties. Any quotations for Items shall not include any amounts relating to (i) initial set-up charges; (ii) costs for special dies, tools, patterns or test fixtures; and (iii) non-recurring engineering fees amortized into the per unit price, unless separately identified and itemized.

(c) Transportation Costs . Pursuant to Section 6(b), below, Tesla pays transportation charges directly to certain common carriers designated by Tesla. For those Items where Tesla pays such charges, pricing in a quotation or invoice or as set forth in Attachment 1 shall not include any transportation costs. For all other Items, all costs for shipping, import/export fees, customs, and other transportation expenses shall be separately identified and itemized by Supplier in each quotation or invoice or on Attachment 1.

(d) Taxes . Tesla will pay any applicable sales, use or similar tax imposed in connection with the sale of Items to Tesla; provided, that Supplier shall not charge or collect, and Tesla shall have no liability for, taxes on any sale of Items for which Tesla has provided Supplier with an appropriate resale certificate or other documentation evidencing an exemption from such taxes. For all sales of Items upon which tax reimbursement to Supplier is applicable, Supplier shall separately itemize all applicable taxes on invoices submitted to Tesla. All amounts payable under this Agreement are exclusive of Value Added Tax (VAT) which will be paid at the date and in the manner for the time being prescribed by law.

(e) The Supplier agrees that for the purposes of calculating and paying the Contract Price it shall allow Tesla (including Tesla’s accountants and other professional advisors) access to its financial and other records. The Supplier agrees that it will at all time during the term of this Agreement maintain accurate and up-to-date financial and other records of all costs and other matters relevant to the provisions of this clause. The Supplier agrees that it shall complete a Tesla quotation analysis form upon request from Tesla.

(f) No increase in the Contract Price may be made (whether on account of increased materials, labor or transport costs, other fixed or variable costs, fluctuation in exchange rates, pricing errors or otherwise) without the prior written consent of Tesla. For the avoidance of doubt, Tesla shall be under no obligation to consent to any such increase.

(g) Tesla and the Supplier shall work together to reduce the cost to of the Items and to improve the Items in both manufacturing and assembly process, and the Supplier shall reduce the Contract Price by a minimum of [***] per annum or as otherwise defined by the Parties.

5. Delivery of Items .

(a) Delivery Requirements . Time is of the essence as to the delivery of all Items ordered under this Agreement. Supplier shall meet the (i) negotiated lead time; (ii) order adjustment requirements as set forth in Section 3; and (iii) time, date, location and other delivery requirements for Items, as specified in Attachment 1 or, if not set forth in Attachment 1 , as set forth in the Order for said Items. Delivery will be considered timely only if Items are delivered in the correct quantity, and at the time, date and location specified in the Order. If necessary for Supplier to meet its delivery requirements, Supplier, at its expense, will use expedited delivery methods to complete and deliver the Items.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 5 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

(b) Remedies . If Supplier fails to deliver any Items at the time and place set forth in the Order, Tesla shall have the right, at its sole option, to (i) require Supplier, at Supplier’s expense, to use expedited delivery methods to complete and deliver the Items; (ii) allocate or redirect the Supplier’s deliveries of Items to certain Tesla designated locations; (iii) reverse manufacture Items previously purchased by Tesla to obtain component parts and then debit Supplier the reasonable fair market value for those unused remaining component parts that Tesla returns to Supplier; or (iv) purchase products comparable to the Items in the open market or from other suppliers and charge Supplier with any cost differential between the Contract Price and the price paid in the open market or to other suppliers, which cost may include premium costs for expedited delivery and administrative costs.

6. Shipping and Risk of Loss .

(a) Shipping and Packaging Requirements .

(i) Supplier will ship all Items in accordance with (A) the authorized shipping service level (ground, sea, air, second-day, next-day, etc.) included in an Order; and (B) “Transportation Routing Guide” (“ Attachment 3 ”), including use of approved carriers as may be applicable given the classification of the shipment (i.e., domestic or international).

(ii) Supplier shall comply with any special packaging and labeling requirements for Items as set forth in the “Transportation, Packaging and Label Specifications” (“ Attachment 2 ”). In the event such Attachments are not applicable to an Item, the Items shall be packaged, marked and labeled in accordance with best commercial practices, along with all required shipping documentation. In all events, Supplier must include a valid packing slip number or package ID on each package or shipment of Items.

(iii) If Supplier delivers Items that do not meet the packaging or labeling requirements of this Agreement, Tesla may reject the Item, treat the Items as non-conforming to Specification, or charge and bill to Supplier all repackaging and re-labeling costs and expenses incurred by Tesla as a result of Supplier’s failure to comply with the packaging and labeling requirements of this Agreement.

(b) Shipments and Insurance .

(i) Domestic Shipments . For Items manufactured in the country where the applicable destination point is also in the same country, Tesla shall be responsible for all costs and expenses (other than insurance) to deliver the Items to the applicable destination point once such Items have been tendered to the carrier, provided that Supplier uses a shipping service level (ground, air, second-day, next-day, etc.) that does not exceed the shipping service level authorized in the corresponding Order and in accordance with Tesla’s Transportation Routing Guide. All delivery costs and expenses for such shipment shall be specified as “Freight — Third Party Bill” on bills of lading or shipping receipts, to be paid directly by Tesla. Unless specifically approved by Tesla in advance, Tesla shall not be responsible for delivery costs and expenses (i) for a shipping service level that exceeds the shipping service level authorized in an Order; (ii) in excess of the costs determined under Tesla’s Transportation Routing Guide for applicable delivery methods; (iii) payable to carriers not approved under Tesla’s Transportation Routing Guide, (iv) incurred as a result of Supplier’s need to use expedited delivery methods, unless Tesla agrees to pay for such expedited delivery methods in advance in writing, or (v) incurred in connection with the transportation of Items between Supplier and a Sub-tier Supplier or any other supplier.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 6 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

(ii) International Shipments . For Items where the designated Tesla destination point is in a different country, Supplier shall at no additional charge clear all Items for export from the country of manufacture and shall be responsible for delivery of Items from Supplier’s manufacturing facility to Tesla’s designated international carrier’s dock. Tesla shall be responsible for all costs and expenses (other than insurance, but including import duties and brokerage fees) to deliver the Items to the Tesla destination point once such Items have been tended to the carrier’s dock, provided that Supplier uses a shipping service level that does not exceed the shipping service level authorized in the corresponding Order and in accordance with Tesla’s Transportation Routing Guide. All delivery costs and expenses for such shipment shall be specified as “Freight — Third Party Bill” on bills of lading or shipping receipts, to be paid directly by Tesla. Unless specifically approved by Tesla in advance, Tesla shall not be responsible for delivery costs and expenses (i) for a shipping service level that exceeds the shipping service level authorized in the Order; (ii) in excess of the costs determined under Tesla’s Transportation Routing Guide for applicable delivery methods; (iii) payable to carriers not approved under Tesla’s Transportation Routing Guide, (iv) incurred as a result of Supplier’s need to use expedited delivery methods, unless Tesla agrees to pay for such expedited delivery methods in advance in writing, or (v) incurred in connection with the transportation of Items between Supplier and a Sub-tier Supplier or any other supplier.

(iii) Other Shipments . For Items not covered by Section 6(b)(i) and (ii) above, Supplier shall pay all delivery costs and expenses to deliver the Items to the applicable destination point, and Tesla shall reimburse Supplier for all such reasonable costs and expenses if incurred and itemized by Supplier in accordance with this Agreement.

(iv) Insurance and Risk of Loss . In all events, Supplier shall be responsible to insure such Items during transport up to at least the Contract Price of such Item. Supplier shall be responsible for the risk of loss to Items until delivered to the applicable destination point and accepted by Tesla. In addition, Supplier’s responsibility for risk of loss continues with respect to any Items rejected by Tesla, or as to any Items for which acceptance is revoked, except if such loss is caused by the negligence or willful misconduct of Tesla’s employees.

7. Acceptance and Title Transfer . Title to Items will only transfer to Tesla upon acceptance of an Item. Acceptance shall occur only in the event that: (i) Tesla or its designee has received the Items at the specified destination point; and (ii) either (1) Tesla or its designee has entered the Items into Tesla’s internal systems, or (2) a period of five (5) days from the delivery of the Items has elapsed. At any point prior to acceptance, Tesla may reject and return any Items that does not conform to the applicable Specifications and incur no liability or obligation related to such Item. As to Items that are rejected and returned, Tesla may recover and offset or adjust payments in respect of such Items, including any costs or fees related to shipping and insuring such Items.

8. Payment

(a) Payment Terms . Payment by Tesla for Items shall be made at [***] with the purchase order and [***] within thirty (30) days from end of month of delivery or month of receipt of valid invoice, whichever is later. Supplier agrees to change terms to [***] after the purchase of [***] units is completed. Tesla is authorized by Supplier to make payments under this Agreement by either check or electronic funds transfer, and Supplier shall provide Tesla with the information necessary for electronic funds transfer capability.

(b) Invoices . Supplier will remit Items invoices to Tesla no earlier than when the Items are shipped to Tesla and adhere to the invoicing requirements for suppliers as defined by Tesla.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 7 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

(c) Effect of Payment and Right to Offset . Tesla’s payment for Items shall not affect the time at which title to Items passes to Tesla nor shall it preclude revocation of acceptance. All payments shall be subject to adjustment for errors, shortages, non-conformities or defects. Tesla may at any time set off any amount owed by Tesla to Supplier against any amount owed by Supplier to Tesla.

9. Confidentiality and Prohibited Activities .

(a) General . “ Confidential Information ” means all information obtained by, disclosed to, or developed by Supplier and that is based on, incorporates, constitutes or derived from any of the following that were obtained, directly or indirectly, from Tesla: samples, schematics, drawings, designs, Specifications, internal data, manuals, forecasts, Orders, customer information and other technical, business, financial or trade secret information. Parties agree that such Confidential Information may be obtained by Supplier from Tesla during the term of business relations between Tesla and Supplier, or in connection with the negotiation, performance or enforcement of the Agreement. Confidential Information does not, however, include information that (i) is or becomes a matter of public knowledge through no fault or act of Supplier; (ii) is rightfully received by Supplier from a third party not subject to restriction on disclosure of such information; (iii) is independently developed by Supplier without the use of any Confidential Information; or (iv) was rightfully in the possession of Supplier prior to its disclosure by or on behalf of Tesla; provided, however, that such information shall be Confidential Information to the extent that (1) such information constitutes specific information, even if it is embraced by more general information which is a matter of public knowledge or in the possession of Supplier, or (2) such information is a combination of individual items of information, even if that combination could be reconstructed from non-confidential sources if none of the non- confidential sources shows the whole combination and its principle of operation; and, provided further, that the sale or unrestricted disclosure of Items or other article or product made through a confidential manufacturing process of Tesla shall not be deemed to constitute a public disclosure of the process. Supplier shall use reasonable care to protect the confidentiality of Confidential Information, and in any event, Supplier shall use at least that degree of care that Supplier uses to protect its own like information.

(b) Permitted and Prohibited Activities . Except as expressly set forth in this Section 9 or agreed by Tesla in writing, Supplier (i) may use Confidential Information solely for the purpose of providing Items to Tesla, (ii) may provide Confidential Information only to those individuals who need to know such Confidential Information to provide Items to Tesla, provided that it is clearly marked as “Tesla Motors Confidential” and provided that such individuals have agreed in writing to protect Confidential Information pursuant to a non disclosure agreement as set forth in Section 17(b) below, and (iii) shall not use or disclose any Confidential Information for any other purpose, including: (A) reverse engineering the Items; (B) developing, designing, manufacturing, engineering, refurbishing, selling or offering for sale, any “ Prohibited Replacement ,” which means any good or service which may be used or sold as a replacement for any Items or other good used on or with Tesla product for which Tesla provided Supplier with Confidential Information at any time, including modifications to any Item; or (C) assisting any third party in any manner to perform any such activities. In addition, Supplier shall not make or sell to any third party any Prohibited Replacement. Further, Supplier agrees not to disclose to Tesla any information that any third party regards as proprietary or confidential. Supplier’s obligations under this Section 9(b) shall not apply to any disclosure required by applicable law, court order or legal process, provided that Supplier shall (i) if permitted by applicable law, promptly notify Tesla of its intent to make such disclosure, which notice shall be in writing and delivered at least ten (10) days’ prior to the intended disclosure (or such shorter period as necessary to comply with applicable law), (ii) redact and keep confidential all financial terms and such other terms as agreed by the Parties after conferring in good faith and

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 8 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

consistent with applicable law, and (iii) seek a protective order or confidential treatment from the tribunal or governmental agency for any agreements or other documents to be disclosed or filed, and disclose or file the minimum information and/or documents necessary to comply with applicable law, legal process or court order.

(c) Notice of Disclosure . Supplier shall, immediately upon becoming aware of it, give notice to Tesla of any unauthorized disclosure, misuse, theft or other loss of Confidential Information, whether inadvertent or otherwise.

(d) Other NDA’s . During the business relationship between Supplier and Tesla one or more NDA’s may be, or may have been, entered into. In the event of an apparent conflict between or among provision(s) of this Agreement and any NDA, such provisions shall be read in a mutually consistent way, or if no such reading is reasonably possible, the provision(s) that are most protective of Confidential Information shall take precedence over conflicting or less protective provision(s).

(e) Equitable Relief . Supplier agrees that Tesla would suffer irreparable harm for which monetary damages are an inadequate remedy, and that equitable relief is appropriate, if Supplier were to breach or threaten to breach any obligations in this Section 9.

(f) Press Releases/Publicity Not Authorized . The existence and terms of this Agreement are Confidential Information. Except as permitted by Section 9(b) above, Supplier will not issue any press release, advertising, publicity or public statement or in any way engage in any other form of public disclosure that indicates Tesla’s relationship with Supplier or implies any endorsement by Tesla of Supplier or Supplier’s products or services, without the prior written approval of Tesla.

(g) Disposal of Confidential Information . Upon the termination or expiration of the Agreement, and otherwise upon the request of Tesla, Supplier will promptly return to Tesla all Confidential Information and all documentation that reveal or are based in any way on Confidential Information, and permanently eliminate the same from all of its computer and information storage systems. Supplier may, however, with Tesla’s prior written approval, destroy any Confidential Information or documentation, provided that Supplier certifies to Tesla the destruction of such Confidential Information or documentation. Thereafter, Supplier shall cease all use of Confidential Information. In addition, Supplier agrees it will immediately return to Tesla any materials provided to it to facilitate electronic access to Internal Tesla Data, including data access hardware, documents, software or other items.

10. Electronic Access to Internal Tesla Data .

(a) General . If Supplier is granted access to Internal Tesla Data then, in addition to Supplier’s obligations under Sections 9 and 11, the terms and conditions of this Section 10 shall apply. Supplier’s access to the Internal Tesla Data is subject to compliance with (i) the terms of use, if any, of the Tesla Web Site or such other database or intranet, as applicable, and (ii) any technical, security, and software licensing requirements of Tesla, including the issuance of passwords and requirements related to using Tesla’s virtual private network. Tesla may terminate Supplier’s right of access or change the method of access to the Internal Tesla Data at any time. In no event shall Supplier facilitate or enable access to Internal Tesla Data by any Sub-tier Supplier or other third party. In no event shall Supplier facilitate or enable access to Internal Tesla Data by its employees or contractors that may either cause to exceed the available number of authorized software licensing seats or violate the login authority (for example, improper sharing of a single user name and password by multiple users).

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 9 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

(b) Use . If Tesla grants Supplier access to the Internal Tesla Data, then Supplier shall have the limited right to download, store, display and use Tesla Internal Data for the sole purpose of performing its obligations under this Agreement. Supplier may not use the Tesla Internal Data in any other way, commercially or otherwise. Unless otherwise notified by Tesla, Supplier may store copies of Internal Tesla Data on Supplier’s networks and information storage systems, provided, such Internal Tesla Data is stored either on hardware that is dedicated solely to Tesla, or otherwise separated from other information of Supplier, so that the Internal Tesla Data is not accessible to individuals except as authorized by this Agreement. If Tesla provides Supplier with any recommendations for establishing an interface or other methods of accessing the Internal Tesla Data, Supplier assumes all risk in implementing any such recommendation.

(c) Consent to Monitoring . Supplier agrees that its access to and use of Internal Tesla Data and all acts in connection with Tesla’s internal systems are recorded and may be monitored. Supplier expressly consents to such recording and monitoring. If such recording or monitoring reveals possible evidence of criminal activities involving any individual, then Tesla may provide such evidence to the appropriate law enforcement organization and take any other appropriate action.

11. Intellectual Property Rights .

(a) Definitions . “ Works ” means all works including without limitation all notes, code, art work, reports, documentation, drawings, creations, devices, models, works-in-progress, inventions, discoveries, specifications, works of authorship, know-how, technical information, work product, and/or other information. “ IP Rights ” means all rights, whether registered or unregistered, including all patents, copyrights, trade secrets, trademarks, service marks, trade names, mask works, moral rights and other proprietary rights in any jurisdiction.

(b) Tesla’s IP Rights . As between Tesla and Supplier, Tesla owns all right, title, and interest in IP Rights in or to any Works made, conceived, or developed by Tesla employees or contractors (“ Tesla Personnel ”), and all IP Rights acquired by Tesla or otherwise owned by Tesla. All IP Rights owned by Tesla as set forth in this Section 11(b), or transferred to Tesla by Section 11(d) or Section 17(b), are referenced in this Agreement as “ Tesla’s IP Rights .”

(c) Supplier’s IP Rights . As between Tesla and Supplier, except as set forth in Section 11(d) and Section 17(b), Supplier owns all right, title and interest in IP Rights in or to any Works made, conceived or developed by Supplier employees or contractors, and all IP Rights acquired by Supplier or otherwise owned by Supplier. All IP Rights owned by Supplier are referenced in this Agreement as “ Supplier’s IP Rights .”

(d) Assignment . Supplier irrevocably transfers and assigns to Tesla all IP Rights in or to (i) any Works made, conceived or developed by Supplier, either alone or with others, with the assistance (financial or otherwise), collaboration, input, involvement, or development efforts of Tesla or Tesla Personnel, and (ii) any Works that are not made, conceived, and developed independent of Tesla’s IP Rights (including Confidential Information). Supplier shall not improve, enhance, or modify any Works in which Tesla owns IP Rights without Tesla’s express prior written consent. In any event, if Supplier improves, enhances, or modifies any Works in which Tesla owns IP Rights, Supplier irrevocably transfers and assigns to Tesla all IP Rights in or to such improvement, enhancement, or modification. In the event that any of the foregoing transfers and assignments by Supplier is to any extent ineffective, Supplier shall grant to Tesla an exclusive, royalty free, irrevocable, perpetual, worldwide license to make, use, market and sell such IP Rights.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 10 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

(e) License . Tesla grants to Supplier a non-exclusive, revocable, royalty-free, limited and non-transferable license to use Tesla’s IP Rights solely for the purpose of performing Supplier’s obligations under this Agreement to manufacture and sell to Tesla Items under the Agreement. This license may be revoked by Tesla at any time, with or without cause, and shall expire in any event, if not sooner revoked, on the expiration or termination of the Agreement. Such license shall not be assigned or transferred in any way, except by limited sublicense to Sub-tier Suppliers for the sole purpose of providing Items to Tesla, or to Tesla-designated third parties, in accordance with this Agreement, and shall not succeed to or vest in any successor. Supplier acknowledges Tesla’s IP Rights are not capable of being independently exploited by Supplier other than in the context of this Agreement. As such, Tesla does not grant to Supplier any other license, right to sublicense or other right to or under any Tesla IP Right for Supplier’s own benefit to use in any other way, commercially or otherwise, or to provide or offer Items or other products or services to any party other than Tesla.

(f) Further Assurances . At no cost to Tesla, Supplier will take, and will cause its employees and agents to take, all actions reasonably requested by Tesla, from time to time, to fully vest, perfect or defend Tesla’s IP Rights. Such actions shall include providing documents and information useful or necessary to register, apply for or maintain any of Tesla’s IP Rights.

(g) License to Marks . Tesla grants to Supplier a non-exclusive, revocable, royalty-free, limited and non-transferable license to affix or install on Items those trademarks, service marks and trade names of Tesla’s (collectively, “ Marks ”) that are specified to be installed or affixed under Tesla Specifications for the Items. Such license of Marks is limited, revocable by Tesla, shall not be assigned, sublicensed or transferred in any way and shall terminate upon termination of this Agreement. Use by Supplier of all Marks shall be solely for the benefit of Tesla and as directed by Tesla. Supplier shall install and affix the Marks solely in accordance with Tesla’s specifications, packaging and labeling requirements and any quality requirements for the Marks or Items that Tesla may establish. Tesla may inspect Supplier’s facilities and examine Items at any time during normal business hours to monitor, or evaluate the quality of, the Marks affixed to the Items.

(h) Audit . Supplier shall permit Tesla, and cause its employees and agents to permit Tesla, to audit and verify compliance with Sections 9 and 11.

(i) Continuity of Supply for Essential Items . “ Essential Item ” means Items that, at any time, Tesla is not able to replace with a reasonably practicable commercial alternative within [***] or less of Tesla desiring to do so. Upon Tesla’s request, Tesla and Supplier will agree upon a mechanism to maintain Tesla’s continuity of supply with respect to an Essential Item, such as agreeing upon the terms of a “lifetime buy” or executing a mutually agreeable escrow or license agreement.

12. Warranty .

(a) Supplier Warranty : Supplier represents and warrants that, for a period of [***] from the date of delivery to Tesla, the Items (i) will be free from defects in workmanship, material, and manufacture; (ii) will comply with the requirements of this Agreement, including all Tesla Specifications and manufacturing work instructions; and (iii) will be of merchantable quality and fit and suitable for the purpose intended by Tesla. Supplier further represents and warrants that (A) the Items will consist of new (not used or recycled) material, and (B) Tesla shall acquire good and marketable title to the Items, free and clear of all liens, claims and encumbrances. Further, to the extent that the design of Items is Supplier’s responsibility, Supplier represents and warrants that such design will be free from defects. Supplier acknowledges that Tesla’ intended use of the Items (as components in an

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 11 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

electric motor vehicle for sale and use in various territories throughout the world, albeit initially and primarily the United States of America). Tesla and Supplier agree to plan and implement a reliability test program with which the overall performance of the items are tested under various conditions and the warranty of the items specified above will be re-affirmed by the end of CY 2007. Supplier and Tesla agree that the foregoing warranty does not extend to design parameters and overall functionality of the items in relationship to other modules.

(b) Services . Supplier represents and warrants that, for a period of [***] from delivery to Tesla, all services performed in connection with this Agreement will be performed with reasonable skill and care, in a competent, professional and workmanlike manner, free from defects, and in accordance with the best professional practices in the industry. For the purposes of this Section 12, the results of any service performed by Supplier will be considered included in the term “Item.”

(c) Free from Infringement . Supplier represents and warrants that the Items, including the manufacture, use and sale of the Items, shall not give rise to, nor be subject to, any claim or liability for infringement of any intellectual property rights, including any patent, copyright, trademark, trade secrets, moral rights, confidential information or any other proprietary or intellectual property rights, of any third party, except to the extent that the infringement was unavoidably caused by Supplier’s compliance with a detailed design furnished and required by Tesla.

(d) Assignments of Warranty . Supplier hereby assigns and transfers to Tesla all warranties provided to Supplier with respect to the Items, or any portion thereof, and represents and warrants that such warranties are fully assignable to Tesla and by Tesla to its customers or subsequent purchasers of the Items.

(e) Remedies . If Items do not meet the warranty requirements set forth in this Agreement, Tesla may, at its option, (i) require Supplier to correct any defective or nonconforming Items by, at Tesla’s option, either repair or replacement; or (ii) return such defective or nonconforming Items to Supplier and recover from Supplier the Contract Price thereof; or (iii) correct the defective or nonconforming Items and charge Supplier with the cost of such correction; or (iv) purchase products comparable to the defective or nonconforming Items in the open market or from other suppliers, as deemed appropriate by Tesla, and, at Tesla’s option, charge Supplier with any reasonable cost differential between the price of the Items under this Agreement and the price paid, which cost may include premium fees for expedited delivery and administrative costs. In addition, Tesla may cancel the undelivered balance of the defective or nonconforming Items and/or terminate this Agreement pursuant to Section 21(a) (Termination for Default). If a defective or non-conforming Items damage other property of Tesla, Supplier shall pay all reasonable costs to repair such damaged property as directed by Tesla, or, if repairing the property is not commercially reasonable, to replace it. As to any Items that are repaired, replaced or corrected under this Section 12, Supplier’s warranty shall continue to apply to such Items for (A) the full remaining balance of the original [***] term applicable to such Item, or (B) ninety (90) days from the date such repaired, replaced or corrected Items are received and accepted by Tesla, whichever period of time is greater. Upon request from Tesla, Supplier shall provide pre-approved returned material authorization (“ RMA(s) ”) to facilitate return of Items. Tesla may notify Supplier of defects and nonconformance and communicate its elected remedy by delivery of notice in the form of a “Supplier Corrective Action Request” (“ Attachment 4 ”) and closed-loop corrective action processes.

(f) Extended Warranty; Epidemic Failure . Without limiting Tesla’s rights as specified elsewhere in this Section 12, if Items are discovered to be defective or nonconforming at a statistically higher rate than the rate applicable to such Items as established upon mutual agreement of the Parties and set

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 12 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

forth in Attachment 1, (or if no rate is specified by agreement with respect to an Item, then [***] of such Items delivered in any three consecutive months), then, at no cost to Tesla and at Tesla’s option, Supplier will (i) extend the warranty period for all such Items for no less than an additional [***] from the date on which the warranty for the Items would otherwise expire, and/or (ii) compensate Tesla for all expenses associated with correcting the defect/nonconformance, including field support, logistics (freight, duties), advanced exchange of a refurbished part, refurbishment, and any required upgrade cost including qualification.

(g) Timing . If Supplier receives notice that Items are defective or non-conforming, then Supplier will use the most expeditious manner possible to effect the action specified by Tesla, including the use of overnight delivery services for shipment of Items to and from Tesla. For any Items for which a repair or replacement timeline is identified in Attachment 1, Supplier will repair or replace such Items within such timeline. In all events, however, as to any Items that Tesla identifies as “production” or that are delivered by Supplier for the purposes of production, Supplier will replace or repair the defective or non-conforming Items within twenty four (24) hours from receipt of Tesla’s request.

(h) Costs . Supplier shall be solely responsible for all costs, fees and expenses in connection with fulfilling its obligations under this Section 12, including all labor, material, parts, shipping, taxes, customs and other costs, fees and expenses arising from, among other things, the removal, repair, replacement, reinstallation, inspection, shipping and testing of any defective or nonconforming Items. If any such costs, fees or expenses are incurred or paid by Tesla (including, for example, the cost to remove such Items from a customer site), or if Tesla incurs increased costs as a result of Supplier’s breach of warranty (including without limitation overtime or increased shipping charges) or suffers lost productivity as a result of Supplier’s breach of warranty (including without limitation a reasonable estimate of the hourly cost to Tesla of Tesla’s employees whose time is wasted), Tesla may charge and bill such costs to Supplier, and may offset such costs against amounts otherwise due to Supplier from Tesla. All costs reimbursable to Tesla under this Section 12 shall be due and payable on demand.

13. Supplier Refurbishment Services . Upon Tesla’s request, Supplier and Tesla shall negotiate in good faith to enter into an arrangement.

14. Supplier Performance Plan . Tesla and Supplier will jointly develop a supplier performance plan. Supplier agrees to self-monitor its performance, at both corporate and operational site levels, against the performance targets established in the plan. At least once a month, Supplier will submit to Tesla its actual performance against performance targets.

15. Manufacturing and Quality Requirements .

(a) Production Part Approval Process (“ PPAP ”) . Tesla and Supplier shall follow the PPAP requirements set forth in “PPAP Submission Workbook” (“ Attachment 5 ”). Supplier shall provide all necessary documentation.

(b) Design and Process Change Communication . After Tesla has approved the PPAP Submission, Supplier shall not make any change to the design (firmware, hardware or software) of the Items that may alter the Specifications or the form, fit, function or interchangeability of parts without first informing and obtaining approval from Tesla. Supplier will not make, or permit Sub-tier Suppliers to make, changes to the manufacturing process of such Items, including a transfer of any portion of the design, manufacturing, or assembly process to a different facility, without first obtaining such approval from Tesla.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 13 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

(c) Other Changes and Equitable Adjustments . Tesla may, upon notice to Supplier, submit Engineering Change Orders (“ ECOs ”) or request other changes within the scope of the Agreement with respect to any of the following: (i) Specifications; (ii) the place and date of delivery of Items; or (iii) the place, date and manner of inspection or acceptance of Items. Supplier agrees that it will use reasonable efforts to accommodate such requests in a timely and cost effective manner. If any request for such changes causes an increase or decrease in the cost of or time required for performance of the Agreement, Supplier may propose, and Tesla will then consider, an equitable adjustment in the Contract Price or delivery schedule, or both, and if the Parties agree to an adjustment, the Agreement shall be modified in writing accordingly. If Tesla and Supplier are unable to agree upon an equitable adjustment, then Tesla may remove the affected Items from this Agreement without affecting the remaining Items, and Supplier shall not be required to supply the Items as modified by the ECO to Tesla. No claim by Supplier for adjustment under this subsection shall be valid unless in writing and received by Tesla within thirty (30) days from the date of Supplier’s receipt of the notice of such change; provided, however, that such period may be extended upon the written approval of Tesla.

(d) Quality Requirements . Supplier shall comply with Tesla’s quality requirements set forth in Attachment 6 entitled “Tesla Motors Supplier Handbook”.

(e) Minimum Environmental, Health & Safety Requirements . Supplier shall comply with, and shall cause Sub-tier Suppliers to comply with, any applicable environmental, health or safety law, rule, regulation, order, decree or ordinance.

(f) Safety Notices . In addition to any of Supplier’s obligations under this Agreement or Supplier’s or Sub-tier Suppliers’ obligations imposed by law, Supplier will immediately notify Tesla of any known or suspected safety issues related to Items (including component or material issues).

16. Management of Finished Goods Inventory .

(a) Designation of Inventory Liability Items . Tesla may designate certain Items as “ Inventory Liability Items ” by (i) reporting a non-zero “Target Inventory” quantity for those Items in an authorized inventory planning tool, or (ii) identifying Items as an Inventory Liability Items on Attachment 1, or otherwise providing Supplier with written or electronic notice of such designation. So that Tesla can set appropriate Target Inventory quantities, Supplier shall actively maintain accurate lead times for all Items in such authorized inventory planning tool, using the definition of “lead time” designated by Tesla from time to time for this purpose. Supplier agrees to manufacture and stock such Inventory Liability Items in accordance with this Section 16; and/or, if requested by Tesla, a separate written agreement between Tesla and Supplier.

(b) Forecasts . Tesla may periodically issue to Supplier rolling forecasts setting forth projected demand for Items (“ Tesla Forecasts ”). Tesla Forecasts are intended for planning purposes only and shall not constitute a binding purchase commitment of Tesla. If Tesla designates a Inventory Liability Items under Section 16(a)(ii), and does not specify a “Target Inventory” quantity for it in an authorized inventory planning tool, then that Item’s Target Inventory quantity shall equal the two (2) weeks forecasted demand for that Items in the most recent and most specific Tesla’s Forecast for that Item. (The Parties may modify this number of weeks for any particular Items in Attachment 1.)

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 14 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

(c) Inventory Levels and Tracking Requirements . Unless otherwise designated in Attachment 1 or a separate written agreement, Supplier will maintain the “Target Inventory” quantity, if any, of each Inventory Liability Items as specified by Tesla from time to time. All Inventory Liability Items manufactured by Supplier to meet a then-current Target Inventory quantity shall be considered “ Finished Goods Inventory ” under this Agreement. When Supplier is creating inventory levels to satisfy required Target Inventory levels of Finished Goods Inventory, any reduction in quantity of Items that were ordered pursuant to an Order, or any quantity of Items ordered pursuant to an Order that is later cancelled by Tesla, shall be returned to Supplier’s inventory and Supplier will increase its inventory levels accordingly. Supplier shall monitor and report its work-in-process and Inventory Liability Items count to Tesla for all Finished Goods Inventory.

(d) Claim for Reimbursement of Excess Items . If Tesla has not taken delivery of any unit of a Inventory Liability Items in Finished Goods Inventory within twelve (12) months from the date of Tesla’s last receipt of any such unit, Supplier may then submit a claim for reimbursement for such Items (“ Excess Items ”) to Tesla within thirty (30) days from the end of such twelve (12) month period. Supplier’s failure to submit such a claim within this thirty (30) day period shall constitute waiver of any claim for reimbursement for Excess Items and Tesla shall be released from all liability relating to such Excess Items.

(e) Claim for Reimbursement of Obsolete Items . An Inventory Liability Items in Finished Goods Inventory will be considered an “ Obsolete Item ” when Tesla provides notice to Supplier that such Inventory Liability Item is an “Obsolete Item.” If Supplier desires to submit a claim for costs associated with Obsolete Items, then Supplier shall submit a claim for such Obsolete Items within thirty (30) days from the date on which Tesla notifies Supplier that the Inventory Liability Items are Obsolete Items. Supplier’s failure to submit such a claim within this thirty (30) day period shall constitute a waiver of any claim for reimbursement for such Obsolete Items and Tesla shall be released from all liability relating to such Obsolete Items.

(f) Scope of Claim . Tesla will not be liable for Finished Goods Inventory other than as described in this Section 16. In addition, no claim for reimbursement or payment for Finished Goods Inventory shall be made in the following situations: (i) any termination by Tesla pursuant to Section 21(a) (Termination for Default); (ii) if Supplier has introduced design or product changes; (iii) Supplier errors in production; (iv) if Supplier has been paid for such Items previously or has made a claim for reimbursement or payment for such Items previously; (v) if such Items are “ Commercial Off-the-Shelf Items ” meaning Items that are standard or stock items in the industry or have been manufactured to Supplier’s specifications in contrast to Items manufactured to build-to-print specifications of Tesla or its customer; (vi) if Supplier has failed to fulfill its obligations to meet with Tesla in accordance with Section 16(i), unless Supplier is unable to do so because of actions of Tesla; (vii) if such Items were not disclosed by Supplier to Tesla on each report required by Section 16(i) when each such report was due; or (viii) if Supplier fails to participates in Tesla’s ECO process as reasonably requested by Tesla, including without limitation providing accurate information about such Items that will be affected by a proposed ECO and that Supplier has in inventory or on order so that Tesla can plan its ECO implementation to minimize the quantity of on-hand and/or on-order Items that will be made obsolete by the ECO.

(g) Claim Process . Any claim made under this Section 16 will be addressed based on negotiated settlement between Tesla and Supplier. Supplier is responsible for disassembling Inventory Liability Items in Finished Goods Inventory down to a usable level and otherwise making all efforts to mitigate the cost to Tesla in any such claim. Any claim shall be supported by reasonable evidence including a detailed listing of the relevant Inventory Liability Items by part number and

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 15 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

quantity; documentary evidence that the quantity was manufactured to meet a Target Inventory required for that Inventory Liability Items and was not subsequently purchased by Tesla; and a detailed description of Supplier’s efforts to mitigate the costs to Tesla. Supplier’s claim will be based solely on costs incurred as a result of Tesla’s actions or obsolescence. No profit or opportunity costs shall be considered in calculating such claims. Tesla reserves the right to physically audit the inventory levels identified in the claim. Such audit shall be conducted in accordance with Section 19(e) (Financial Statements and Right to Audit).

(h) Disposal of Excess and Obsolete Items . Supplier agrees to physically dispose of all Excess and Obsolete Items as directed in writing by Tesla. Excess and Obsolete Items that are to be delivered to Tesla’s facilities must be delivered in accordance with the requirements of this Agreement and/or any supplemental instructions provided by Tesla. In lieu of delivery to Tesla, Tesla may require that Supplier destroy or otherwise scrap the Excess and Obsolete Items so that they are non-functional, and Supplier shall comply with this requirement in accordance with Tesla’s instructions and provide Tesla with a certification of destruction.

(i) Materials Liability Review Meetings . Designated representatives of each party shall attend a meeting (each, an “ Inventory Review Meeting ”) at the beginning of each Tesla fiscal quarter at such dates and times as agreed to between the Parties. On the business day immediately before each Inventory Review Meeting (or by the tenth day of the first month of each Tesla fiscal quarter, whichever comes first), Supplier shall provide a report in Microsoft Excel format (or another mutually agreed-upon written or electronic format) to Tesla identifying Supplier’s on- hand and on-order inventory levels for all Finished Goods Inventory, listed by Tesla part number, and showing (1) quantity on hand, (2) quantity on order, (3) the number of weeks since Tesla issued an Order for that part number, (4) the quantity of that Items that Tesla has forecasted it will order in the next 13 weeks (if any), and (5) where Tesla’s forecasted demand is lower than Supplier’s on-hand and on-order quantities, a description in reasonable detail of all actions taken by Supplier to mitigate or reduce Tesla’s liability with respect to such on-hand and on-order quantities. At each Inventory Review Meeting, the Parties will share information to coordinate their combined operations, and discuss the report provided by Supplier. From time to time, the Parties may mutually agree upon the specific format for Supplier’s report and Supplier shall thereafter provide such report in the agreed-upon format; however, no failure to agree on a format shall relieve Supplier from providing this report in a commercially reasonable format when and as required by this Section 16(i).

17. Management of Sub-tier Suppliers .

(a) Sub-tier Suppliers . After Tesla has approved of the PPAP Submission, Supplier and its Sub-tier Suppliers shall not subcontract with any new or different Sub-tier Supplier as to such Items without the prior written approval of Tesla. Supplier agrees to inform Tesla of any process or Sub-tier Supplier changes related to Items (including, for example, obsolescence of components, any changes in the manufacturing process of a Sub-tier Supplier, or a transfer of any portion of the design, manufacturing, or assembly process to a different facility), not less than one hundred eighty (180) days prior to the date the Supplier or Sub-tier Supplier is contemplating the implementation of the change.

(b) Sub-tier Supplier’s Obligations . Supplier will ensure that all Sub-tier Suppliers have entered into signed, written agreements with Supplier obligating the Sub-tier Suppliers to undertake each action that is required of Sub-tier Suppliers by another provision of this Agreement, and to comply with the following provisions:

(i) Sub-tier Suppliers shall comply with all Specifications, quality, manufacturing and other technical requirements that may be necessary in order for the Sub-tier Supplier to timely deliver conforming Items, or any portion thereof, to the Supplier for the benefit of Tesla.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 16 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

(ii) Supplier Related Persons will take all actions with respect to Tesla IP Rights and Marks that Supplier is obligated to take by Section 11, including all actions reasonably requested by Tesla to vest, perfect and defend Tesla IP Rights, and to use and protect Tesla IP Rights and Marks solely for the benefit of Tesla upon substantially similar terms to those set forth in Section 11 above.

(iii) All Supplier Related Persons and designated third parties who are authorized to receive or obtain (directly or indirectly) Confidential Information (collectively, “ Recipients ”), shall agree, prior to the Recipient obtaining any Confidential Information, to be obligated to hold all Confidential Information in confidence and not to use the Confidential Information in any way, except on behalf of Supplier in performing its obligations hereunder for the benefit of Tesla, and to protect the Confidential Information and not to engage in prohibited activities, upon substantially similar terms to those set forth in Section 9 above.

(iv) Sub-tier Suppliers shall provide Supplier with sufficient prior written notice of all design, process, manufacturing, component obsolescence and facility changes contemplated by Sub-tier Suppliers to ensure that Supplier will comply with its notification obligations to Tesla under Sections 15 and 17(a) of this Agreement.

Upon Tesla’s request, Supplier will (A) provide Tesla with copies of all such agreements with Sub-tier Suppliers, Supplier Related Persons or other Recipients that implement Supplier’s obligations under this Section 17(b); (B) actively enforce Supplier’s rights under such agreements for the benefit of Tesla, including but not limited to retrieving Confidential Information from Supplier Related Persons; (C) assign to Tesla any such agreement between Supplier and Supplier Related Person (and Supplier shall not enter into any agreement restricting such an assignment); and (D) cause Sub-tier Suppliers or Supplier Related Persons to enter such an agreement directly with Tesla.

(c) Mandated Sub-tier Suppliers . “ Special Process ” means a process that is specifically designated as such by Tesla, which may include, but is not limited to, causing a metallurgical change to the base material such as heat treating, forging or hardening processes; joining materials by welding, brazing, or other bonding process; or providing a coating or surface treatment such as cleaning, electro-polishing, plating, painting, or anodizing. Upon Tesla’s request, Supplier will use (and cause Sub-tier Suppliers to use) only one or more of the designated suppliers.

18. Product and Training Support .

(a) Supplier Response . Supplier will provide technical assistance and product support services to Tesla at no additional charge. Supplier agrees to provide an initial response (via telephone or electronically) to any inquiry from Tesla within one (1) business day. If Supplier is requested by Tesla to provide an in-depth failure analysis of Items failures, Supplier agrees to provide timely analysis and feedback to Tesla.

(b) On-Site Support Requirements . As determined by Tesla, Supplier may be asked to provide appropriate or necessary personnel to support on-site operations at Tesla’s facilities or at a third-party site designated by Tesla. On-site representatives shall comply with all requirements of Tesla or such third-party with regard to such support. Unless otherwise agreed, such support will be provided at no cost.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 17 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

(c) Training Support . Upon Tesla’s request, Supplier shall provide repair, maintenance and trouble-shooting training and related documentation for the Items to Tesla representatives. The Parties will mutually agree on the Items to be included in the training and the specific content and level of training to be provided.

19. Electronic Communication and Documentation .

(a) General . The Parties acknowledge that they are relying upon electronic means, in addition to email and facsimile transmissions, to exchange Orders and other delivery and order information. Supplier agrees to communicate with Tesla using the standards designated by Tesla. To the extent communication through electronic means is inaccessible or made otherwise unavailable due to technical difficulties or due to the effect of any law or regulation governing electronic transactions, the Parties agree (i) that any delivery or order information received electronically prior to the date of such inaccessibility or unavailability will remain valid; and (ii) to conduct, to the extent possible, their transactions by other than electronic means.

(b) Documentation Format Requirements . With each PPAP Submission delivered hereunder, Supplier shall provide to Tesla one (1) set of electronic files of product, repair, maintenance and support documentation for such Items in accordance with Attachment 5 entitled “PPAP Submission Workbook”. Electronic files shall be source files in either Microsoft ® Excel, or Adobe ® PDF, or other mutually agreed upon format. If such documentation is not a part of Tesla’s IP Rights, then Tesla shall have the right to use, copy, display, modify, reproduce and distribute such documentation as Tesla deems necessary to support the Items. Tesla may post, or require Supplier to post, such documentation on a Web-based tool accessible by Tesla and its customers.

(c) Field Support Requirements . Supplier agrees that Tesla may provide technical assistance, product maintenance and service to Tesla’s customers relating to Items and that the provision of any such services by Tesla shall not invalidate or relieve Supplier of its obligations, including warranty obligations, under this Agreement.

(d) Tesla Unique Prototype Items or Subassemblies Documentation . Upon Tesla’s request, Supplier shall provide to Tesla all current and complete Specifications, including designs, and drawings for (i) all Tesla unique build-to-print Items, including prototype and subassembly Items; and (ii) those Items, or any components thereof, purchased by Supplier from a Sub-tier Supplier (collectively, “ Support Items ”) (digital drawings format preferred) and shall further provide assistance in understanding and implementing the Specifications as to Support Items. Supplier shall provide a complete bill of materials, reflecting as-manufactured or produced Support Items, including Supplier part number and vendor or manufacturers’ part number for purchased Support Items and Tesla’s part number for cross-reference. Supplier shall provide a list of recommended spare parts, with associated prices, for all bills of materials down to the lowest level. All Support Items Specifications are the sole property of Tesla. Any changes to process or bills of materials must comply with the terms of this Agreement. If Supplier is purchasing Support Items from Sub-tier Suppliers, Supplier agrees that upon written notice from Tesla, it will assign to Tesla any such agreement between Supplier and Sub-tier Supplier, and Supplier will not enter into any agreement restricting such assignment.

(e) Financial Statements . If Supplier has securities registered with the Securities Exchange Commission (“ SEC ”) pursuant to Section 12 of the Securities Exchange Act of 1934, Supplier shall timely submit all financial statements and reports as required by SEC rules. Otherwise, upon

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 18 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

Tesla’s request, Supplier will provide Tesla with financial statements and other financial information relating to Supplier’s business and operations as Tesla may reasonably request.

20. Continuity of Supply .

(a) Performance Constraints . Supplier is responsible for anticipating and promptly notifying Tesla of (i) any inability on its part or its Sub-tier’s part to perform their respective obligations under this Agreement; and (ii) any breach of a provision of this Agreement.

(b) Disaster Recovery Plan . Upon Tesla’s request, Supplier shall provide to Tesla reasonable information describing its disaster recovery plan that includes emergency back-up capacity, and appropriate record protection and recovery.

(c) Tooling . For up to ninety (90) days after the Term, upon Tesla’s request, Supplier agrees to itemize and/or sell to Tesla any tooling that is built or procured by Supplier that is unique to the Items and relevant to the manufacture, testing or maintenance of Items. The purchase price of such tooling shall be at the book value. If Tesla provides notice of its election to purchase such tooling, upon Tesla’s payment, title shall transfer to Tesla. If at any time Supplier receives tooling furnished by or purchased from or by Tesla, Supplier shall comply with the terms of Attachment 7 entitled “Tesla Tooling and Property Requirements.”

(d) Wind Down . In the event of, or in preparation for, the expiration or a termination of the Agreement for any reason, Supplier shall use commercially reasonable efforts to transfer, or cooperate fully with Tesla to enable Tesla to transfer, the performance of Supplier’s obligations under the Agreement to Tesla or a third party supplier designated by Tesla, in a manner that (i) minimizes the time to complete such transfer; (ii) maintains the highest quality and performance to ensure the adequate supply of Items; and (iii) causes no disruption to Tesla’s customers’ requirements.

(e) Availability Assurance and After-Sales . Unless expressly excluded, all provisions contained within this Agreement shall apply to the supply of after-sale Items, and:

 

  (i) Supplier agrees to maintain capabilities necessary to provide technical and service support to Tesla and/or its designated third party as to any Items for a minimum of twelve (12) years from the date of final shipment of Items to Tesla;

 

  (ii) Tesla shall pay the Contract Price for the Items in accordance with Section 4.

 

  (iii) If, during the period detailed in Section 20(e)(i) above, Tesla does not order one particular Item in a rolling 12 month period then the Supplier will be entitled to request Tesla’ written permission to cease supply of such Item. The Supplier shall not be entitled to cease supply of such Item until it has provided Tesla with written notice of not less than 2 months of its intent to cease supply of such Items and obtained Tesla’ permission.

 

  (iv) In the event that Tesla provides its consent in accordance with Section 20(e)(iii) above, Tesla may notify the Supplier that it wishes to make a “last time buy” at prices not higher than the Contract Prices. The Supplier will be obliged to fulfill the “last time buy” upon the terms of this Agreement.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 19 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

21. Termination .

(a) Termination for Default .

(i) Notice By Tesla . Tesla may give Supplier notice of default of this Agreement or of any Order if (1) Supplier fails to deliver Items in accordance with the delivery times, Specifications, and other requirements of this Agreement, or otherwise materially breaches this Agreement; (2) Supplier anticipatorily repudiates any material provision of this Agreement and fails to provide adequate assurance to Tesla of Supplier’s future performance; or (3) Supplier becomes insolvent, files a petition for relief under any bankruptcy, insolvency or similar law, or makes an assignment for the benefit of its creditors.

(ii) Notice By Supplier . Supplier may give Tesla notice of default of this Agreement, if (1) Tesla materially breaches Section 8, 11, or 26(a) of this Agreement; (2) Tesla anticipatorily repudiates Section 8, 11, or 26(a) of this Agreement and fails to provide adequate assurance to Supplier of Tesla’s future performance; or (3) Tesla becomes insolvent, files a petition for relief under any bankruptcy, insolvency or similar law, or makes an assignment for the benefit of its creditors.

(iii) Notices of Default and Cure Period . Any notice of default shall be in writing, reference this Section 21(a), state whether the notice relates to a specified Order (under (i) above) or to this Agreement (under (i) or (ii) above), and specify the basis for such notice (the “ Defaulting Condition ”). No cure period shall be available, and this Agreement shall terminate immediately, at the non — defaulting party’s option after the notice of default, if (1) the Defaulting Condition is a negligent, knowing or willful material breach of Section 9 or Section 11, or (2) the Defaulting Condition cannot reasonably be cured. No cure period shall be available for termination of an Order for default. For all other Defaulting Conditions, the defaulting party shall have ninety (90) days in which to cure the Defaulting Condition, and the Agreement shall not terminate if the defaulting party cures the Defaulting Condition within such cure period.

(iv) After Termination for Default . Upon any termination by Tesla pursuant to this Section 21(a), Supplier shall: (1) continue to supply any portion of the Items for which this Agreement is not cancelled; (2) be liable for additional costs, if any, incurred by Tesla for the purchase of similar goods and services to cover such default; and (3) at Tesla’s request, transfer title and deliver to Tesla: (A) any completed Items, (B) any partially completed Items, and (C) all unique materials and tooling subject or relating to the termination. Termination of the Agreement under this Section 21(a) shall constitute “cancellation” under the Uniform Commercial Code as adopted in California.

(b) Termination of an Order for Convenience .

(i) In addition to either Party’s rights under Section 2(b) and under Section 21(a), Tesla may terminate any Order in whole or in part at any time for Tesla’s convenience by giving Supplier notice which shall state the extent of the termination and the conduct required of Supplier in connection therewith. Such a cancellation may be for any reason including a reduction in the quantity of an Items ordered under an Order. Supplier will use commercially reasonable efforts to mitigate any damages incurred in connection with such termination. Within ninety (90) days from the date on which Supplier receives such notice, Supplier shall deliver to Tesla a written claim for all of Supplier’s damages incurred in connection with the termination (“ Termination Charges ”), in the form and containing such documentation as required by Tesla. In no event, shall Termination Charges include any damages relating to Commercial Off-the-Shelf Items.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 20 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

(ii) Failure by Supplier to deliver such claim for Termination Charges within this 90-day period shall constitute a waiver by Supplier of all claims against Tesla as to Termination Charges and a release of all Tesla’s liability arising out of such termination.

(iii) If Tesla does not agree with the amount specified in Supplier’s claim for Termination Charges, Tesla and Supplier will attempt to agree upon a reasonable amount for Termination Charges. If Tesla and Supplier fail to agree upon such an amount within six (6) months after receipt by Tesla of the claim for Termination Charges from Supplier, then the Termination Charges will be conclusively presumed to be the sum of the following as to Items for which the termination applies (provided that no costs shall be duplicated): (1) the unpaid Contract Price for all Items delivered to Tesla pursuant to the Order prior to the date of Tesla’s termination; (2) the Contract Price for all Items ordered pursuant to the Order and completed in accordance with the Agreement but not delivered to Tesla prior to the date of termination, provided such Items are promptly delivered to Tesla; (3) the actual costs for work-in-process incurred by Supplier relating to Items ordered pursuant to the Order, less any costs related to Commercial-Off-The-Shelf components either manufactured or procured by Supplier, and an amount representing a fair and reasonable profit on such costs; and (4) the reasonable, out-of- pocket costs paid by Supplier to its Sub-tier Suppliers as a direct result of Supplier’s cancellation of work being performed by such Sub-tier Suppliers or Supplier’s termination of contracts with such Sub-tier Suppliers. Tesla’s obligation to pay costs pursuant to clauses (3) and (4) above shall be subject to Supplier’s obligation to use commercially reasonable efforts to mitigate any such costs.

(iv) This Section 21(b) sets forth Supplier’s sole remedies, and Tesla’s entire liability to Supplier, in the event of a termination of an Order by Tesla for convenience, other than Supplier’s remedy and Tesla’s liability as set forth in Section 16.

(c) Post Termination Consequences . On the date of termination or expiration of the Agreement for any reason, Supplier shall (i) stop work being performed by Supplier pursuant to the Agreement, (ii) cancel orders for parts and/or materials with Supplier’s Sub-tier Suppliers and cease ordering any such parts and/or materials, (iii) cancel work being performed by Supplier’s Sub-tier Suppliers, (iv) cancel any sublicense granted to Sub-tier Suppliers in accordance with this Agreement, (v) at Tesla’s request, assign to Tesla Supplier’s interests in contracts with Supplier’s Sub-tier Suppliers, (vi) furnish Tesla with release of claims from Supplier’s Sub-tier Suppliers resulting from orders and/or work canceled by Supplier, (vii) protect all property in which Tesla has or may acquire an interest, (viii) fully cooperate with Tesla to minimize any adverse effect on Tesla or its customers, and (ix) perform those other obligations set forth in this Agreement upon the termination or expiration of this Agreement.

22. Disclaimer and Limitation of Liability . Notwithstanding anything else in this Agreement, in no event shall Tesla be liable to supplier or to any other person or entity with respect to any subject matter of this Agreement, under any equity, common law, tort, contract, estoppel, negligence, strict liability or other theory, for any (a) incidental, special, punitive, consequential or indirect damages or (b) damages resulting from loss of sale, business, profits, data, opportunity or goodwill, even if the remedies provided for in this Agreement fail of their essential purpose and even if Tesla has been advised of the possibility of any of the foregoing damages.

23. Indemnity by Supplier .

(a) Supplier shall defend, indemnify and hold harmless Tesla from and against any and all third party claims, demands, suits, actions, losses, penalties, damages (whether actual, punitive,

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 21 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

consequential or otherwise), authorized settlements, and all other liabilities and associated costs and expenses, including attorney’s fees, expert’s fees, costs of investigation and other costs of litigation (all of the foregoing being collectively called “ Indemnified Liabilities ”), arising out of or relating to (i) Supplier’s breach of any provision of the Agreement; (ii) any negligent, grossly negligent or intentional acts, errors or omissions by Supplier, its employees, officers, agents or representatives, except to the extent caused by the negligence or intentional misconduct of Tesla; or (iii) strict liability or products liability with respect to or in connection with the items; (iv) any claim by a Sub-tier Supplier against Tesla relating to goods or services provided to Supplier; or (v) the actual or alleged infringement or misappropriation of patent, copyright, trademark, trade secret rights, confidential information, proprietary rights, or other rights of a third party, (collectively, a “ Third Party IP Right ”), except to the extent that the infringement or misappropriation was unavoidably caused by Supplier’s compliance with a detailed design furnished and required by Tesla. The indemnity by Supplier in favor of Tesla shall extend to Tesla, its officers, directors, employees, agents and representatives and shall include, and is intended to include, indemnified liabilities which are determined by a court of competent jurisdiction to be the result of acts or omissions of Supplier as a joint tortfeasor. If Supplier is liable only as a joint tortfeasor, then Supplier’s liability shall not extend to that portion of liability determined by the court to be the result of acts or omissions of Tesla. In addition to Supplier’s obligations as to Indemnified Liabilities that arise under clause (v), Supplier shall, at Tesla’s option (1) procure for Tesla and its customers the right to continue to use, sell and resell any affected Item, (2) with respect to a claim for infringement, modify the affected Items so that it is no longer infringing, or (3) replace any affected Items with a non-infringing good or service comparable to the affected Item. If none of these alternatives are possible, Tesla shall have the right to return or destroy, at Tesla’s option, any affected Items for a full refund of the purchase price, plus applicable transportation costs.

(b) In the event of any such Indemnified Liabilities, Tesla shall (i) promptly notify Supplier of such Indemnified Liabilities and the identity of the Tesla’s legal counsel; (ii) at Supplier’s expense, reasonably cooperate with Supplier in the defense of such claim; and (iii) not settle any such Indemnified Liabilities without Supplier’s written consent, which shall not be unreasonably withheld or delayed, Supplier shall keep Tesla informed at all times as to the status of Supplier’s efforts and consult with Tesla and/or its counsel regarding such efforts. Supplier shall not settle any such claim without the prior written consent of Tesla, which shall not be unreasonably withheld or delayed. Failure by Tesla to give notice of the Indemnified Liabilities to Supplier shall not relieve Supplier of its indemnification obligations hereunder except to the extent, if any, that Supplier has actually been prejudiced hereby.

(c) This Section 23 sets forth the entire obligation of Supplier to Tesla and Tesla to Supplier as to Indemnified Liabilities arising from the actual or alleged misappropriation or infringement of any Third Party IP Right.

24. Import and Export Requirements .

(a) General . Supplier agrees it will be required to deliver Items to, and receive Items from, locations outside of the United States. Supplier will comply with all applicable export control laws or regulations promulgated and administered by the laws of the United States or the government of any other country with jurisdiction over the Parties or the transactions contemplated by this Agreement (“ Export Laws ”) including the obligation that Supplier shall not export, re export or otherwise disclose, directly or indirectly, Items or technical data received from Tesla or the direct product of such technical data or Items to any person or destination when such export, re-export or disclosure is in violation of Export Laws. Supplier will provide Tesla with any and all information

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 22 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

that may be required to comply with Export Laws, including applicable “Export Control Classification Numbers,” documentation substantiating U.S. and foreign regulatory approvals for the Items, and information required by Customs officials to substantiate the value of imported Items including any adjustments in valuation attributable to “assists” as defined by U.S. Customs regulations. All required export and import information shall be sent to the attention of: Manager, Compliance, Tesla Motors, 1050 Bing Street, San Carlos, CA 94070; or any agent so designated by Tesla.

(b) Country of Manufacture . Items shall be marked with the country of origin as required by Export Laws. Supplier shall provide Tesla with a written statement identifying for each Items delivered the (i) Tesla part number and (ii) the country of manufacture. This data shall be provided to Tesla upon Tesla’s request.

(c) Duty Drawback . Supplier will provide Tesla or its agent with U.S. Customs entry data and information that Tesla determines is necessary for Tesla to qualify for duty drawback. Such data shall include information and receipts for duties paid, directly or indirectly, on all Items which are either imported or contain imported parts or components. Information related to serial numbers, unique part numbers, lot numbers and any other data which will assist Tesla in identifying imported Items sold to Tesla shall also be provided. At the time of delivery of the Items, but in no event later than thirty (30) days after each calendar quarter, Supplier will provide said documents accompanied by a completed Certificate of Delivery of Imported Merchandise or Certificate of Manufacture and Delivery of Imported Merchandise (Customs Form 331) as promulgated pursuant to 19 CFR 191, or successor regulations.

25. Insurance .

Supplier shall maintain (i) comprehensive general liability insurance covering bodily injury, property damage, contractual liability, products liability and completed operations; (ii) Worker’s Compensation and employer’s liability insurance; and (iii) auto insurance, all in such amounts as are necessary to insure against the risks to Supplier’s operations, but in no event less than the following minimum amounts:

 

Insurance

  

Minimum Limits of Liability

Worker’s Compensation    Statutory
Employer’s Liability    $1,000,000
Automobile Liability    $1,000,000 per occurrence

Comprehensive General Liability

(Including Products Liability)

   $1,000,000 per occurrence
Umbrella/Excess Liability    $1,000,000 per occurrence

All policies must be primary and non-contributing, shall have a deductible amount that is not commercially unreasonable, and shall include Tesla as an additional insured. Supplier also waives all rights of subrogation. Supplier will require and verify that each of its Sub-tier Suppliers carries at least the same insurance coverage and minimum limits of insurance, as Supplier is required to carry pursuant to the Agreement. Supplier shall notify Tesla at least thirty (30) days prior to the cancellation or implementation of any material change in the foregoing policy coverage that would affect Tesla’s interests. Upon request, Supplier shall furnish to Tesla as evidence of insurance a certificate of insurance stating that the coverage will not be canceled or materially altered without thirty (30) days prior notice to Tesla.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 23 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

26. Miscellaneous .

(a) Assignment . This Agreement shall be binding on, and inure to the benefit of, the Parties and their respective permitted assigns. Supplier shall not assign or otherwise transfer this Agreement or any of Supplier’s rights or obligations hereunder, in any manner, without the prior written consent of Tesla, which shall not be unreasonably withheld.

(b) Change in Control . Supplier will notify Tesla immediately of Supplier’s intent (or any other person’s intent, to the extent Supplier is aware of it) to effect any sale of all or substantially all of Supplier’s assets, any consolidation, merger or other transaction involving the sale or transfer of ten percent (10%) or more of Supplier’s capital stock or similar ownership interest of Supplier.

(c) Waiver . If either Party fails to insist on performance of any term or condition, or fails to exercise any right or privilege hereunder, such failure shall not constitute a waiver of such term, condition, right or privilege.

(d) Survival of Obligations . Termination or expiration of this Agreement will not relieve either Party of its obligations under Sections 8(c), 9, 11(a) - (f), 11(h), 12, 17(b), 18, 19(c) - (e), 20 - 23, 26(c) - (e), (h), (i), and (I) - (r), nor will termination or expiration relieve the Parties from any liability arising prior to the date of termination or expiration.

(e) Severability . Any provision of this Agreement that is held unenforceable or invalid for any reason by a court of competent jurisdiction shall be severed from this Agreement, and the remainder of the Agreement shall continue in effect; provided, that such unenforceable or invalid provision shall be given effect to the maximum extent then permitted by law.

(f) General Compliance with Laws and EEO Regulations . Each Party represents, warrants and agrees that (i) such Party’s execution, delivery and performance of this Agreement will not conflict with or violate any applicable law, rule, regulation, order, decree, or ordinance; and (ii) such Party shall comply with the requirements of 41 CFR §§ 60-1.4(a) - 250.5(a), and - 741.5(a), if applicable, relating to equal opportunity clauses pertaining to government contracts.

(g) No Gratuity . Neither Party will offer or give any gratuity to induce any person or entity to enter into, execute or perform the Agreement or any other agreement with between the Parties.

(h) Governing Law, Exclusive Forum . The Agreement and any dispute arising out of or in connection with the Agreement or the Parties’ relationship shall be interpreted, enforced and governed by the laws of the State of California, excluding its choice of law rules. The exclusive forum for any dispute related in any way to this Agreement or the Parties’ relationship shall lie in the courts, state or federal, of California, and venue shall lie in the courts of Santa Clara County. Items shall be deemed and shall qualify as goods under the Uniform Commercial Code as adopted in California. Each Party consents to personal jurisdiction in the above courts. Notwithstanding the foregoing, Tesla shall have the right to seek injunctive relief, including preliminary and permanent injunctive relief, in any court of competent jurisdiction, including, without limitation, to enforce Tesla’s rights under Sections 9 and 11, or to otherwise enforce any judgment made hereunder.

(i) General Representations . Each Party represents and warrants as follows: (i) such Party is duly organized, validly existing, and in good standing under the laws of the jurisdiction of its organization; and (ii) such Party’s execution and delivery of this Agreement and performance of its obligations hereunder will not (1) violate any provision of the charter, bylaws or other governing

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 24 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

document of such Party, or (2) conflict with, result in a breach of, or constitute a default under, any other agreement or arrangement by which such Party is bound.

(j) Force Majeure . If and to the extent that a Party’s performance of any of its obligations pursuant to this Agreement is prevented, hindered or delayed by fire, flood, earthquake, elements of nature or acts of God, acts of war, terrorism, riots, civil disorders, rebellions, revolutions, strikes, labor disputes or any other similar cause beyond the reasonable control of such Party (each, a “ Force Majeure Event ”), then the non-performing, hindered or delayed Party shall be excused for such non-performance, hindrance or delay, as applicable, of those obligations affected by the Force Majeure Event for as long as such Force Majeure Event continues; provided, that such Party continues to use commercially reasonable efforts to recommence performance whenever and to whatever extent possible without delay, including through the use of alternate sources, workaround plans or other means. Notwithstanding the preceding sentence, if the Force Majeure Event continues for a period of more than thirty (30) days, either Party may thereafter exercise its rights, if any, pursuant to Section 21, to deliver a notice of termination, subject to any cure period that may be required by Section 21. The Party whose performance is prevented, hindered or delayed by a Force Majeure Event shall promptly notify the other Party in writing of the occurrence of a Force Majeure Event and describe in reasonable detail the nature of the Force Majeure Event.

(k) No Agency . Each Party shall be deemed to be an independent contractor and not an agent, joint venturer or representative of the other Party, and neither Party may create any obligations or responsibilities on behalf of or in the name of the other Party.

(l) Cumulative Remedies . The rights and remedies of the Parties provided under this Agreement are not exclusive (unless another provision of this Agreement expressly provides that a right or remedy is exclusive), and may be exercised, alternatively or cumulatively, with any other rights and remedies available to the Parties under this Agreement or in law or in equity.

(m) Amendments and Modifications; Captions and Construction . Except as provided in Section 2(c) (Updating Business Processes), amendments or revisions to this Agreement must be in writing, signed by both Tesla and Supplier duly authorized representatives, traced by revision numbers and attached to the original of this Agreement.

(n) Counterparts and Facsimile . This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and such counterparts together shall constitute the same instrument. For purposes hereof, a facsimile copy of this Agreement, including the signature pages hereto, shall be deemed an original.

(o) Notices . Subject to Section 2(c), any notice, consent or approval required or permitted under this Agreement shall be in writing and in English (unless otherwise expressly stated) and shall be given (1) personally; (2) by express courier; (3) by facsimile with confirmation of delivery; or (4) by email with confirmation of delivery. The Supplier and Tesla shall each nominate a representative who shall be authorized to make decisions relating to the Items and who shall be responsible for organizing all meetings and actions provided for in this Agreement.

Notices to Tesla:

Ken Zadegan

Supply Chain Management

1050 Bing Street

San Carlos, CA 94070

Fax: (650) 413-4099

e-mail: supplychain@teslamotors.com

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 25 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

Notices to Supplier:

[***]

[***]

[***]

[***]

[***]

[***]

Tel: [***]

Fax: [***]

e-mail: [***]

(p) Notifications to Tesla . Supplier shall promptly notify Tesla in writing as soon as possible before, and in any event prior to the occurrence of, (i) Supplier’s acquisition of a majority of the capital stock of, or substantially all of the assets of, a third party or business division of a third party that directly or indirectly provides goods or services to Tesla; (ii) a significant change in leadership roles at Supplier, a business division of Supplier, or factory or physical plant of Supplier, which is involved in Supplier’s performance of this Agreement; (iii) any problem or other issue that a reasonable person in the position of Supplier would believe could negatively impact Supplier’s ability to perform its obligations under this Agreement (including making on- time deliveries); or (iv) any material change to Supplier’s information, inventory management, or financial management systems or processes.

(q) Foreign Translation . This Agreement is written in the English language. The English text of this Agreement shall prevail over any translation thereof.

(r) Entire Agreement . This Agreement, including its Attachments, sets forth the entire understanding and agreement of the Parties as to the subject matter of this Agreement and supersedes all prior agreements, understandings, proposals and representations, oral or written, between the Parties as to the subject matter, except for NDA(s), which are addressed by Section 9(d). In the event of any conflict between or among any documents which are part of this Agreement, the following order of precedence shall apply: (i) Supply Agreement; (ii) Attachment 1; (iii) other Attachments; (iv) Specifications; and (v) Order.

By execution hereof, the person signing for each Party below hereby certifies, represents and warrants that he/she has read this Agreement and that he/she is duly authorized to execute this Agreement on behalf of such Party.

 

TESLA MOTORS, INC.

    [***]
By:  

/s/ Thomas E. Colson

    By:  

/s/ [***]

Thomas E. Colson

   

[***]

Printed name     Printed name

VP, Manufacturing

   

CEO & Chairman

Title     Title

19Apr07

   

4/19/07

Date     Date

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 26 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

Table of Attachments

 

No

 

Name

1   List of Items, Pricing Mechanism, and Lead Times
2   Packaging and Labeling Specification
3   Transportation Routing Guide
4   Supplier Corrective Action Request
5   PPAP Submission Workbook
6   Tesla Motors Supplier Handbook
7   Tesla Tooling and Property Requirements
8   Project Cost
9   Invoicing Requirements
10   Nominated Representatives
11   Leveraging Tesla Brand Marketing

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 27 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

Attachment 1

List of Items, Pricing Mechanism, Lead Times and Darkstar forecast

Attachment, December 1, 2006

 

Description

  

Part Number

  

Lotus Part Number

   Qty per
Car
   Unit
Price
   Total
Cost
   Lead
Time
[***]    06-000667-00    NA    1    $[***]    $[***]    [***]

Notes:

 

  1- This attachment is provided as the basis collected during the VP manufacturing phase as an estimate for production cost and is subject to further evaluation and update.

 

  2- There is an aggressive cost target on this module which Tesla Motors and [***] will work to achieve.

Dark Star Manufacturing Forecast

 

Manufacturing

Period

  

Number of

units

[***]    [***]
[***]    [***]
[***]    [***]

Year 1 = 12 month period from the start of SOP

The cost quote is based on the volume of [***] during [***].

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 28 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

Attachment 2

Transportation, Packaging and Labeling Specification

 

1 The Supplier shall (where applicable):

 

  (a) properly pack and label the Items in accordance with the specific requirements of Tesla;

 

  (b) route consignments in accordance with any instructions from Tesla;

 

  (c) not charge for the handling, packaging, storage or transportation of the Items, protective packaging, material, delivering of parts to various plants in special racks/different container types or re-assignment of all kind of containers unless otherwise agreed in writing with Tesla;

 

  (d) properly mark each package with a label/tag according to Tesla’ instructions and/or in accordance with any legal obligation;

 

  (e) include on any bills of lading or other shipping receipts the correct classification and identification of the Items transported in accordance with Tesla’ instructions and any requirements of the carrier and to promptly forward the same in accordance with Tesla’ instructions;

 

  (f) ensure that the marks on each package and identification of the Items on packing slips, bills of lading and invoices are sufficient to enable Tesla to easily identify the goods;

 

  (g) obtain all necessary export licenses and/or permissions in respect of the delivery of the Items or where Tesla must obtain such export licenses and/or permissions in its own name, provide Tesla with reasonable assistance to secure the same;

 

  (h) notify Tesla in advance of delivery in writing if the Supplier requires Tesla to return any packaging material to the Supplier. Such packaging material will only be returned to the Supplier at the Supplier’s cost and risk.

 

  (i) comply with a all provisions of the Tesla supplier handbook

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 29 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

Attachment 3

Transportation Routing Guide

To be defined by Tesla prior to SOP.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 30 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

Attachment 4

Supplier Corrective Action Request

Refer to Tesla Motors Document Numbers:

 

•   99-000002-02

     Corrective & Preventive Actions

•   99-000066-04

     Supplier Corrective Action Request form

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 31 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

Attachment 5

PPAP Submission Workbook

Refer to Tesla Motors Document Number:

 

•   99-000094-04

     PPAP Submission Workbook

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 32 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

Attachment 6

Tesla Motors Supplier Handbook

Refer to Tesla Motors Document Number:

 

•   99-000068-03

     Tesla Motors Supplier Handbook

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 33 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

Attachment 7

Tesla Tooling and Property Requirements

 

1 Unless otherwise agreed in writing by Tesla, the Supplier shall be responsible for and shall undertake the design and development of all tools, jigs, dies, gauges, fixtures, molds and patterns or other equipment necessary in the provision of the Items (“Tooling”), unless Tesla solely provides the design of the Tooling and provides instruction relating to design in which case the Supplier shall be responsible for producing the Tooling to the Tesla design. Supplier shall at its own expense furnish, keep in good condition, and replace when necessary all Tooling.

 

2 Supplier warrants that the design, assembly, manufacture or procurement of the Tooling shall render the Tooling fit for purpose and of satisfactory quality provided that the parties hereby acknowledge and agree that the Supplier shall not be in breach of this warranty if a design provided by Tesla is in error and such error is not due to the acts or omissions of the Supplier;

 

3 The cost of changes to the Tooling necessary to make design and specification changes authorized by Tesla shall, unless otherwise agreed in writing, be paid for by the Supplier. The Supplier hereby grants to Tesla an irrevocable option (exercisable at any time during the duration of the Agreement or after its termination) to take possession of and title to the Tooling that are special for the provision of the Items upon payment to the Supplier of the book value thereof less any amounts which Tesla has previously paid to the Supplier for the cost of such Tooling.

 

4 All supplies, tools, jigs, dies, gauges, fixtures, molds, patterns, equipment and other items provided by Tesla, either directly or indirectly, to the Supplier, or for which the Supplier has been reimbursed by Tesla (“Tesla Property”), shall be and remain the property of Tesla and held by the Supplier on a bailment basis.

 

5 The Supplier shall bear the risk of loss and damage to Tesla Property. Tesla Property shall at all times at the Supplier’s cost

 

  (a) be properly housed and maintained in full working order;

 

  (b) be replaced by the Supplier (at the Supplier’s cost), if the replacement is required due to

 

  (i) abuse of the Tesla Property; and/or

 

  (ii) failure to maintain, repair, service or house the Tesla Property.

 

  (c) not be used by the Supplier for any purpose other than the performance of an Order under the Agreement;

 

  (d) be conspicuously marked as property of Tesla by the Supplier;

 

  (e) not be mixed with the property of the Supplier or with that of a third party; and

 

  (f) not be moved from the Supplier’s premises, modified or replaced without Tesla’ prior written approval.

 

6 Upon the request of Tesla, the Tesla Property shall be immediately released to Tesla or delivered to Tesla’ premises by the Supplier properly packed and marked in accordance with the requirements of Tesla all at the Supplier’s cost or delivered to any location reasonably designated by Tesla, in which event Tesla shall pay the Supplier the reasonable cost of delivering such Tesla Property to such location.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 34 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

7 The Supplier shall insure all Tesla Property against all risks for the replacement value and shall, upon Tesla’ request, provide to Tesla certificates or other satisfactory evidence of such insurance.

 

8 Tesla, its employees, agents and sub-contractors may enter in or on the Supplier’s premises (or any other premises where the Tesla Property may be) at all reasonable times and on reasonable notice to inspect the Tesla Property and the Supplier’s records with respect thereto and the Supplier hereby provides its irrevocable consent (and shall procure the irrevocable consent of any relevant third parties) to permit Tesla, its employees, agents and sub-contractors to enter such premises for this purpose.

 

9 On termination of the Agreement (for whatever reason) the Supplier must not destroy the Tesla Property but shall liaise with Tesla over arrangements for the Tesla Property to be returned to Tesla.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 35 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

Attachment 8

Project Cost

Project cost details during the VP phase is provided by Tesla Motors Program Management team and will be added later

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 36 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

Attachment 9

Invoicing Requirements

 

1 The Supplier shall be responsible for ensuring that the information on invoices are accurate and sufficient to meet Tesla’s import and export requirements for the Items, as well as to help to expedite the Tesla’s payment process.

 

2 All invoices shall be sent to the attention of Tesla’s assigned buyer, who issued the Order.

 

3 All invoices shall include the following:

 

  (a) Date of Invoice,

 

  (b) Ship To Designee,

 

  (c) Ship To Address,

 

  (d) “Bill To: Tesla Motors, Inc.”

 

  (e) “Bill To Address: 1050 Bing Street, San Carlos, California, 94070, U.S.A.”

 

  (f) Tesla Buyer Name

 

  (g) Purchase Order Number,

 

  (h) Item Number(s),

 

  (i) Item Description(s), which is/are consistent with all other commercial invoices and documents,

 

  (j) Ship To Quantity,

 

  (k) Ship To Date(s) or Collection Date(s),

 

  (l) Costs (Items only),

 

  (m) Shipping & Handling (only if applicable),

 

  (n) Tax & Duty (only if applicable),

 

  (o) Payment Term (“ Net 30 ”), and

 

  (p) INCOTERM(only if applicable).

 

4 All drop-ship related invoices (for example, those for overseas shipment for ASO) shall include the following additional information:

 

  (a) Harmonized Tariff Schedule (“ HTS ”) Codes,

 

  (b) Control Number (“ CN ”) Codes,

 

  (c) Number of Cartons or Crates Shipped,

 

  (d) Weight of Cartons or Crates Shipped,

 

  (e) A Copy of Weigh Bill Information per carrier,

 

  (f) Any Special Information Specified in the Order, and

 

  (g) Value of Rejected Part(s), only if Applicable.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 37 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

Attachment 10

Nominated Representatives

 

1 The following listed names are the nominated representatives by Supplier and Tesla, who shall be authorized to make decisions relating to the Items and who shall be responsible for organizing all meetings and actions provided for in this Agreement.

 

2 Subject to Section 26(o), any notice, consent or approval required or permitted under this Agreement shall be sent to in writing to the following representatives:

 

  (a) Notices to Tesla:

Mike Kubic

Materials Project Manager

Tesla Motors

1050 Bing Street

San Carlos, CA 94070

Fax: (650) 413-4099

E-mail: supplychain@teslamotors.com

 

  (b) Notices to Supplier:

[***]

[***]

[***]

[***]

[***]

[***]

Tel: [***]

Fax: [***]

e-mail: [***]

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 38 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

Attachment 11

Leveraging Tesla Brand Marketing

 

1 Definitions : In this section, the following capitalized terms shall have the meanings specified below.

 

  (a) Tesla Marketing Materials means all marketing materials that promote Tesla’s products and vehicles that include, but are not limited to: (A) Tesla’s trademarks, service marks, photographs, or images in promotional, advertising, instructional, or reference materials, or on its web sites, products, labels, or packaging; (B) marketing merchandize, props, posters, banners, toys, gifts, mugs, etc.; (C) links to or from Tesla’s web sites to various third party sites, including Supplier’s; and (D) display or demonstration of Tesla vehicles, sub-systems, parts, models, or replicas in show rooms, conventions, or marketing events.

 

2 The following guideline shall be applied when Supplier wishes to use Tesla Marketing Materials. Additional guidelines may be provided by Tesla at its discretion.

 

3 Use of the Tesla Marketing Materials for commercial purposes without the prior written consent of Tesla may constitute trademark infringement and unfair competition in violation of federal and state laws. Use of Tesla trademarks may be prohibited, unless expressly authorized.

 

4 Tesla’s trademarks, service marks, trade names, and trade dress are valuable assets. In following these guidelines, Supplier shall protect Tesla’s valuable trademark rights and strengthen Tesla’s corporate and brand identities.

 

5 By using a Tesla trademark, in whole or in part, Supplier acknowledges that Tesla is the sole owner of the trademark and promising that Supplier will not interfere with Tesla’s rights in the trademark, including challenging Tesla’s use, registration of, or application to register such trademark, alone or in combination with other words, anywhere in the world, and that Tesla will not harm, misuse, or bring into disrepute any Tesla trademark.

 

6 The goodwill derived from using any part of a Tesla trademark exclusively inures to the benefit of and belongs to Tesla. Except for the limited right to use as expressly permitted under these Guidelines, no other rights of any kind are granted hereunder, by implication or otherwise.

 

7 Authorized Use of Tesla Trademarks .

 

  (a) Advertising, Promotional, and Sales Materials . Only Tesla and its authorized licensees may use the Tesla Marketing Materials in advertising, promotional, and sales materials. Supplier may use the Tesla Marketing Materials only as specified in the agreement.

 

  (b) Word mark . Supplier may use Tesla word mark in a referential phrase on promotional/advertising materials, provided they comply with the following requirements.

 

  (i) The Tesla word mark is not part of the product name.

 

  (ii) The Tesla word mark appears less prominent than the product name.

 

  (iii) The reference to Tesla does not create a sense of endorsement, sponsorship, or false association with Tesla or Tesla products or services.

 

  (iv) The use does not show Tesla or its products in a false or derogatory light.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 39 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

  (c) Publications, Seminars, and Conferences . Supplier may use a Tesla word mark in connection with book titles, magazines, periodicals, seminars, or conferences provided Supplier comply with the following requirements:

 

  (i) The use is referential and less prominent than the rest of the title.

 

  (ii) The use reflects favorably on both Tesla and Tesla products or technology.

 

  (iii) Supplier’s name and logo appear more prominent than the Tesla word mark on all printed materials related to the publication, seminar or conference.

 

  (iv) The Tesla Marketing Materials or any other Tesla-owned graphic symbol, logo, icon or image does not appear on or in the publication or on any materials related to the publication, seminar, or conference without express written permission from Tesla.

 

  (v) A disclaimer of sponsorship, affiliation, or endorsement by Tesla, similar to the following, is included on the publication and on all related printed materials: “(Title) is an independent (publication) and has not been authorized, sponsored, or otherwise approved by Tesla Motors, Inc.”

 

  (vi) A trademark attribution notice is included in the credit section giving notice of Tesla’s ownership of its trademark(s).

 

  (d) Web Sites . Web sites may use the appropriate Tesla word mark, provided such use complies with the guidelines set forth in Sections 7(a) to (c) above.

 

8 Unauthorized Use of Tesla Trademarks.

 

  (a) Supplier shall not use or register, in whole or in part, Tesla trademark, including Tesla-owned graphic symbols, logos, icons, or an alteration thereof, as or as part of a company name, trade name, product name, or service name except as specifically noted in these guidelines.

 

  (b) Supplier shall not use the Tesla Marketing Materials or any other Tesla-owned graphic symbol, logo, or icon on or in connection with web sites, products, packaging, manuals, promotional/advertising materials, or for any other purpose except pursuant to an express written trademark license from Tesla.

 

  (c) Supplier shall not use an image of other variation of the Tesla Marketing Materials for any purpose. Third parties cannot use a variation, phonetic equivalent, foreign language equivalent, takeoff, or abbreviation of an Tesla trademark for any purpose.

 

  (d) Supplier shall not use an Tesla trademark or any other Tesla-owned graphic symbol, logo, or icon in a disparaging manner.

 

  (e) Supplier shall not use Tesla trademark, including Tesla-owned graphic symbols/logos, or icons, in a manner that would imply Tesla’s affiliation with or endorsement, sponsorship, or support of a third party product or service.

 

  (f) Supplier shall not manufacture, sell or give-away merchandise items, such as T-shirts and mugs, bearing Tesla trademark, including symbols, logos, or icons, except pursuant to an express written trademark license from Tesla.

 

  (g) Supplier shall not imitate the distinctive Tesla packaging, web site design, logos, or typefaces.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 40 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

 

  (h) Supplier shall not use or imitate a Tesla slogan or tagline.

 

  (i) Supplier shall not use an identical or virtually identical Tesla trademark as a second level domain name.

 

9 Proper Use of Tesla Trademarks.

 

  (a) Trademarks are adjectives used to modify nouns; the noun is the generic name of a product or service. Trademarks may not be used in the plural or possessive form.

 

  (b) Spell and capitalize Tesla’s trademarks exactly as intended by Tesla. No shorten or abbreviated Tesla product names or made-up names that contain Tesla trademarks shall be allowed.

 

10 Compensation . In return for using Tesla Marketing Materials, Parties may agree to Supplier paying Tesla a reasonable compensation for anticipated potential for Suppliers enhanced market position and sales. When such agreements are made by Parties, the agreed sum shall be paid to Tesla in a mutually agreed term, including deduction from Item costs.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL   Page 41 of 41

Exhibit 10.30

Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

TESLA MOTORS, INC.

[Tesla Logo]

and

[***]

13th DAY OF APRIL, 2007

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 1 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

THIS SUPPLY AGREEMENT is entered into as of this 13th day of April, 2007 (the “ Effective Date ”) between

 

 

(a)

Tesla Motors, Inc. , a Delaware corporation, with its principal place of business in San Carlos, California, U.S.A. and its subsidiaries in world wide locations, including Hethel, Norwich, Norfolk in the United Kingdom; and

 

 

(b)

[***], with its principal place of business in [***].

The Parties agree as follows:

1. Definitions .

Unless defined additionally elsewhere in this Agreement, the following capitalized terms shall have the meanings specified below:

(a) “ Agreement ” means (i) this Supply Agreement, (ii) all Attachments, and (iii) all Orders, as each may be amended from time to time.

(b) “ Attachment ” means any document that is referenced in this Supply Agreement and attached hereto. All Attachments are deemed to be incorporated into this Agreement by this reference.

(c) “ Order ” means an order for Items communicated pursuant to this Agreement by Tesla to Supplier via a purchase order whether in hardcopy or electronic form. All Orders are deemed to be incorporated into this Agreement by this reference.

(d) “ Internal Tesla Data ” means planning data, product engineering or manufacturing data, information, forecasts, Specifications or Confidential Information that is stored, displayed, maintained or accessed on the Tesla Web Site or other Tesla internal databases or internal network servers or storages.

(e) “ Items ” means, collectively either singular or plural, components, equipment, materials, subassemblies or other goods and related software and services specified in (i)  Attachment 1 ; or (ii) an Order.

(f) “ Parties ” means Tesla and Supplier.

(g) “ Specifications ” means such drawings, designs, instructions, technical or performance requirements or other technical or commercial information relating to the design, development, manufacture, packaging and labeling, delivery, logistics, installation, assembly, testing and/or use of one or more Items.

(h) “ Sub-tier Supplier ” means a member of Supplier’s direct or indirect sub-tier supply base (including, without limitation, subcontractors and vendors of Supplier, and of Supplier’s subcontractors and vendors) that provides goods and/or services in connection with Items.

(i) “ Supplier ” means [***] and affiliates authorized in writing by Tesla to perform under this Agreement.

(j) “ Tesla ” means Tesla Motors, Inc., including its subsidiaries existing on or after the Effective Date.

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 2 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

(k) “ Tesla Web Site ” means the portion of the password-protected Web Site, including the database related to supply chain management, maintained by Tesla, to which Supplier may be given access for the purpose of performing under this Agreement.

2. Scope of Agreement; Term .

(a) Scope of Agreement . This Agreement sets forth the terms and conditions governing the purchase and sale of Items, the relationship between Tesla and Supplier, and compliance with Tesla’s business processes. Tesla’s current business processes and requirements for certain matters covered by this Agreement, including packaging, delivery, shipment, crating and repair of Items, are set forth in the Attachments. Tesla Motors, Inc. and its subsidiaries shall be entitled to purchase Items from Supplier under this Agreement, and shall have all of the rights of “Tesla” under this Agreement. Nothing in this Agreement shall prevent Tesla from engaging third parties other than the Supplier to provide goods or services the same as, or similar to the Items.

(b) Term . This Agreement shall commence on the Effective Date and, unless terminated as set forth in Section 21 (Termination), shall continue in effect for a term of at least thirty-six (36) months. After thirty-six (36) months this Agreement shall automatically renew for consecutive additional terms of twelve (12) months each. Either party may terminate this Agreement without cause upon conclusion of the initial term or any additional term with six (6) months’ prior written notice to the other party. Parties will agree to review the structure and pricing of the agreement as the production quantity changes after the initial thirty-six (36) months. The effective period of this Agreement is referenced as the “ Term .”

(c) Updating Business Processes . Tesla regularly improves its business processes. In that regard, Tesla shall have the request to amend any Attachment by giving notice of such request to Supplier in writing, or by other electronic means. All modifications to any Attachment shall be upon the mutual written agreement of the Parties.

3. Orders .

(a) Orders . All authorized demand signals for Items from Tesla to Supplier shall be in the form of “ Orders ”. An Order shall (i) identify the Items requested and (ii) state the quantity, date, time and place of delivery, and price of the Items requested (unless previously specified in Attachment 1, which shall control). Supplier shall accept communications of Orders in a written format reasonably designated by Tesla.

Acceptance/Rejection of Orders . Supplier shall promptly communicate its acceptance or rejection of an Order. Supplier shall not, however, reject (and shall be deemed to have accepted) an Order for Items set forth on Attachment 1, so long as the Order conforms to the terms and conditions of this Agreement (including without limitation lead time requirements specified for such Items on Attachment 1, if any). Any notice of rejection shall state the specific grounds for such rejection. In all events, Supplier’s commencement of work on the Items or shipment of Items, whichever occurs first, shall be deemed to be an effective mode of acceptance of such Order.

(b) Order Adjustments . Supplier acknowledges that Tesla may be required to modify Orders from time to time. Tesla may increase the quantity of Items in any Order at any time prior to the scheduled delivery date and, provided such increase falls within the Quantity Adjustment Schedule set forth below, (i) Supplier will deliver such increased quantity with no additional charges including accelerated delivery, expedite fees or the like, and (ii) such increase will not

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 3 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

affect the delivery schedule of Items previously ordered. Supplier shall notify Tesla within three (3) days of receipt of any increase in quantity where the increase is such that sufficient capacity is not available or if there are any material issues which may prevent such an increase. Such notice shall provide sufficient details as to the amount of increase that Supplier will be able to accommodate within the timing contained in the Order adjustment and Supplier will also present to Tesla an actual timing plan showing when the balance of any such increase can be achieved

At no point can Tesla decrease a schedule which falls within the required firm period (6 weeks).

 

Weeks until Delivery Date

   £ 6 weeks     6< &  £ 10
weeks
    10<& £ 20     20<
weeks
 

Percent Quantity Adjustment for Authorized Order Signal

   [*** ]%    [*** ]%    [*** ]%    [*** ]% 

If Tesla requires an increase in the quantity of Items in any Order and such increase does not fall within the Quantity Adjustment Schedule set forth above, then, if feasible and as mutually agreed upon by the Parties, Supplier will provide such increased Items in accordance with the modified Order and Tesla shall pay actual increased costs actually incurred by Supplier, resulting therefrom, provided such costs are (i) reasonable; (ii) authorized by Tesla in writing in advance of Supplier’s incurring such costs; and (iii) identified separately from the unit price on Supplier’s invoice to Tesla.

(c) Reduction or Cancellation of an Order . If Tesla requires a reduction in the quantity of Items in any Order, or cancels any Order, the Parties’ respective rights and obligations shall be as specified in Section 21 (Termination).

(d) Purchases by Authorized Third Party . Certain Items may be (i) incorporated into subassemblies, modules, or other products made for Tesla by a third party; or (ii) otherwise processed by a third party. In such event, Tesla may designate the third party as authorized to purchase Items from Supplier and, upon Supplier’s receipt of notice thereof, Supplier shall enter into an agreement with such third party to sell Items to the third party on terms and conditions (including pricing) no less favorable than the terms set forth in this Agreement.

(e) No Volume Commitment . Tesla does not commit to purchase a specific volume of any Items from Supplier except as specified in an Order and, subject to Supplier’s IP Rights (as defined in Section 11(c)), Tesla may manufacture or buy goods and/or services from third parties that are identical or similar to the Items. The Parties represent and warrant to each other that, as of the Effective Date, no applicable national or state (provincial) securities statute or regulation requires either Party to disclose this Agreement, its existence, or its terms and conditions,

Parties agree that the current pricing is based on approximately [***] vehicle sets in three (3) years as follows: [***] sets after the start of production (“ SOP ”) on the first year, [***] sets on the second year, and [***] vehicle sets on the third year. If the volume changes by more [***] on a year-by-year basis from the assumed volume, Parties agree to review the cost impact on the Items.

4. Pricing .

(a) Contract Price . “ Contract Price ” means the domestic and/or export price in UK Pounds Sterling for an Item as set forth on Attachment 1; provided, that if a price for an Item is not

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 4 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

specified on Attachment 1, then the Contract Price shall be the price set forth in an Order that is accepted by Supplier in accordance with this Agreement. The Contract Price for each Item shall remain in effect throughout the Term, except for any changes mutually agreed to by the Parties in writing.

(b) Pricing Components . The Contract Price, and any quotations for Items, shall include all finishing, testing, inspecting and packaging fees, applicable royalties and all applicable taxes (excluding sales, use and similar taxes). Any quotations for Items shall include all costs relating to warranties. Any quotations for Items shall not include any amounts relating to (i) initial set-up charges; (ii) costs for special dies, tools, patterns or test fixtures; and (iii) non-recurring engineering fees amortized into the per unit price, unless separately identified and itemized.

(c) Transportation Costs . Pursuant to Section 6(b), below, Tesla pays transportation charges directly to certain common carriers designated by Tesla. For those Items where Tesla pays such charges, pricing in a quotation or invoice or as set forth in Attachment 1 shall not include any transportation costs. For all other Items, all costs for shipping, import/export fees, customs, and other transportation expenses shall be separately identified and itemized by Supplier in each quotation or invoice or on Attachment 1.

(d) Taxes . Tesla will pay any applicable sales, use or similar tax imposed in connection with the sale of Items to Tesla; provided, that Supplier shall not charge or collect, and Tesla shall have no liability for, taxes on any sale of Items for which Tesla has provided Supplier with an appropriate direct pay permit, resale certificate or other documentation evidencing an exemption from such taxes. For all sales of Items upon which tax reimbursement to Supplier is applicable, Supplier shall separately itemize all applicable taxes on invoices submitted to Tesla. All amounts payable under this Agreement are exclusive of Value Added Tax (VAT) which will be paid at the date and in the manner for the time being prescribed by law.

(e) The Supplier agrees that for the purposes of calculating and paying the Contract Price it shall allow Tesla (including Tesla’s accountants and other professional advisors) access to its pertinent financial and other records relating to all charges made by Supplier to Tesla for Items. The Supplier agrees that it will at all time during the currency of this Agreement and for a period of two (2) years thereafter, maintain accurate and up-to-date financial and other records of all costs and other matters relevant to the provisions of this clause. The Supplier agrees that it shall complete a Tesla quotation analysis form upon request from Tesla.

(f) No increase in the Contract Price may be made (whether on account of increased cost of materials, labor or transport costs, other fixed or variable costs, fluctuation in exchange rates, pricing errors or otherwise) without the prior written consent of Tesla. For the avoidance of doubt, Parties will discuss the price changes when raw material cost changes more than five (5) percent than reflected in Attachment 1.

(g) Tesla and the Supplier shall work together to reduce the cost to the Supplier of producing the Items and to improve the Items in both manufacture and assembly. Parties agree to work towards improving the costs, according to mutually agreed annual cost targets, throughout the program by mutual cost reduction activities that include design, material, and manufacturing process and to meet at least on a quarterly basis to review the costs of Items. Parties agree, as of the Effective Date, the costs in the Attachment 1 are the pre-production estimates. Parties agree to review all costs (including both cost reducers and increasers) and seek further cost savings on all Items based on actual production data after production starts.

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 5 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

5. Delivery of Items .

(a) Delivery Requirements . Supplier shall meet the (i) negotiated lead time; (ii) order adjustment requirements as set forth in Section 3; and (iii) time, date, location and other delivery requirements for Items, as specified in Attachment 1 or, if not set forth in Attachment 1 , as set forth in the Order for said Items. Delivery will be considered timely only if Items are delivered in the correct quantity, and at the time, date and location specified in the Order. If necessary for Supplier to meet its delivery requirements, Supplier, at its expense, will use expedited delivery methods to complete and deliver the Items.

(b) Remedies . If Supplier fails to deliver a material number of Items at the time and place set forth in the Order, Tesla shall have the right, at its sole option, to (i) require Supplier, at Supplier’s expense, to use expedited delivery methods to complete and deliver the Items; (ii) allocate or redirect the Supplier’s deliveries of Items to certain Tesla designated locations; (iii) reverse manufacture Items previously purchased by Tesla to obtain component parts and then debit Supplier the reasonable fair market value for those unused remaining component parts that Tesla returns to Supplier; or (iv) purchase products comparable to the Items in the open market or from other suppliers and charge Supplier with any cost differential between the Contract Price and the price paid in the open market or to other suppliers, which cost may include premium costs for expedited delivery and administrative costs. The remedies set out herein shall be the sole remedies for Tesla and the Supplier shall not be under any further liability for delay in delivery or delivering the incorrect quantity; provided, however, in the event of repeated or systematic failure by Supplier to deliver a material number of Items at the time and place set forth in the Order, and where such repeated or systematic failure is through no fault of Tesla, Tesla shall have available to it all other remedies as may be permitted by this Agreement, subject to the limit set out in clause 22.

6. Shipping and Risk of Loss .

(a) Shipping and Packaging Requirements .

(i) Supplier will ship all Items in accordance with (A) the authorized shipping service level (ground, sea, air, second-day, next-day, etc.) included in an Order; and (B) “Transportation Routing Guide” (“ Attachment 3 ”), including use of approved carriers as may be applicable given the classification of the shipment (i.e., domestic or international).

(ii) Supplier shall comply with any special packaging and labeling requirements for Items as set forth in the “Transportation, Packaging and Label Specifications” (“ Attachment 2 ”). In the event such Attachments are not applicable to an Item, the Items shall be packaged, marked and labeled in accordance with best commercial practices, along with all required shipping documentation. In all events, Supplier must include a valid packing slip number or package ID on each package or shipment of Items.

(iii) If Supplier delivers Items that do not meet the packaging or labeling requirements of this Agreement, Tesla may reject the Item, treat the Items as non-conforming to Specification, or charge and bill to Supplier all repackaging and re-labeling costs and expenses incurred by Tesla as a result of Supplier’s failure to comply with the packaging and labeling requirements of this Agreement. Tesla will use commercially reasonable efforts to return all returnable packaging and stillage to Supplier in a timely manner. Supplier will recommend the right number of returnable packaging and stillage to Tesla, and Tesla will work with Supplier to procure the correct number prior to SOP.

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 6 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

(b) Shipments and Insurance . For purposes of clarification, Supplier shall deliver all Items ordered under this Agreement to Tesla Ex Works [***], unless otherwise agreed by the parties. In the event of international shipments (i.e., outside of the UK), the parties will agree on delivery terms associated with such shipments.

7. Acceptance and Title Transfer . Title to Items will transfer to Tesla at such time as (i) Items have been installed on a vehicle; or (ii) Items are stored by Tesla in a manner designed to ensure smooth and uninterrupted assembly by Tesla or Lotus. For all other parts delivered by Supplier under this Agreement and otherwise held in inventory by Tesla, Supplier shall retain title to the Items until such time as Supplier has been paid for all Items supplied under this Agreement. At any point prior to title transfer the Items are subject to acceptance by Tesla. In any event, acceptance shall occur once Tesla has made the payment for the Item. At any point prior to acceptance, Tesla may reject and return any Items that does not conform to the applicable Specifications and incur no liability or obligation related to such Items. As to Items that are rejected and returned, Tesla may recover and offset or adjust payments in respect of such Items, including any costs or fees related to shipping and insuring such Items.

8. Payment .

(a) Payment Terms . Payment by Tesla for Items shall be made within thirty (30) days from end of month of delivery or month of receipt of valid invoice, whichever is later. Tesla is authorized by Supplier to make payments under this Agreement by either check or electronic funds transfer, and Supplier shall provide Tesla with the information necessary for electronic funds transfer capability.

(b) Invoices . Supplier will remit Items invoice to Tesla no earlier than when the Items are shipped to Tesla and adhere to the invoicing requirements for suppliers as defined by Tesla.

(c) Effect of Payment and Right to Offset . Tesla’s payment for Items shall not affect the time at which title to Items passes to Tesla nor shall it preclude revocation of acceptance. All payments shall be subject to mutually agreed adjustment for errors, shortages, non- conformities or defects. Tesla may set off any amount owed by Tesla to Supplier against any amount owed by Supplier to Tesla (provided, however, that Set off shall only be permitted for amounts due to and from a specific Tesla legal entity and a specific Supplier legal entity, given that Tesla will effect changes within thirty (30) days from end of month of delivery or month of receipt of valid invoice, whichever is later, unless mutually agree to otherwise.

9. Confidentiality and Prohibited Activities .

In reliance upon and in consideration of the following undertakings, the parties agree as follows:

(a) Subject to the limitations set forth in Subsection (b) below, all information disclosed to the other party, whether marked confidential or not, shall be deemed to be “ Confidential Information .” In particular, Confidential Information shall be deemed to include any technology, content, trade secret, information, process, technique, training manual, workbook, algorithm, computer program (source and object code), design, drawing, formula, business plan or test data relating to any research project, work in process, future development, engineering, manufacturing, marketing, servicing, financing, strategic partnership or personnel matter relating to the disclosing party, its present or future products, services, sales, suppliers, clients, customers, employees, investors, business plans, business strategies, cost of operations, and strategic relationships, whether in oral, written, graphic or electronic form. If Confidential

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 7 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

Information is disclosed in oral form, the disclosing party shall thereafter summarize it in writing and transmit it to the other party within thirty (30) days of the oral disclosure.

(b) The term “Confidential Information” shall not be deemed to include information which: (a) is now, or hereafter becomes, through no act or failure to act on the part of the receiving party, generally known or available; (b) is known by the receiving party at the time of receiving such information as evidenced by its records; (c) is hereafter furnished to the receiving party by a third party, as a matter of right and without restriction on disclosure; (d) is independently developed by the receiving party without any breach of this Agreement; or (e) is the subject of a written permission to disclose provided by the disclosing party.

(c) Each party shall maintain all Confidential Information in trust and confidence and, except as expressly set forth herein, shall not disclose to any third party, or use any Confidential Information for any unauthorized purpose. Each party may-use such Confidential Information only to the extent required to accomplish the purposes of this Agreement. Confidential Information shall not be used for any purpose or in any manner that would constitute a violation of this Agreement. No rights or licenses to trademarks, inventions, copyrights or patents are implied or granted under this Agreement. The parties disclaim any warranty (including, but not limited to, non-infringement) regarding Confidential Information.

(d) Confidential Information shall not be reproduced in any form except as required to accomplish the intent of this Agreement.

(e) Each party under this Agreement shall advise its employees who might have access to Confidential Information of the confidential nature thereof and agrees that its employees and such parties shall be bound by the terms of this Agreement. No Confidential Information shall be disclosed to any employee and/or such parties who do not have a need for such information. Except as expressly set forth herein, the receiving party shall not disclose any Confidential Information to any third party without the disclosing party’s express, written consent.

(f) All Confidential Information (including all copies thereof) shall remain the property of the disclosing party and shall be returned to the disclosing party after the receiving party’s need for it has expired, or upon request of the disclosing party, and in any event, upon completion or termination of this Agreement.

(g) Notwithstanding any other provision of this Agreement, disclosure of Confidential Information shall not be precluded if such disclosure:

(a) is in response to a valid order of a court or other governmental body of the United States or any political subdivision thereof; provided, however, that the responding party shall first have given notice to the other party hereto and shall have made a reasonable effort to obtain a protective order requiring that the Confidential Information so disclosed be used only for the purposes for which the order was issued;

(b) is otherwise required by law; or

(c) is otherwise necessary to establish rights or enforce obligations under this Agreement, but only to the extent that any such disclosure is necessary.

(h) The provisions of these Paragraphs shall survive the termination of this Agreement for a period of five (5) years from the date of such termination.

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 8 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

(i) Press Releases/Publicity Not Authorized . The existence and terms of this Agreement are Confidential Information. Supplier will not issue any press release, advertising, publicity or public statements or in any way engage in any other form of public disclosure that indicates Tesla’s relationship with Supplier or implies any endorsement by Tesla of Supplier or Supplier’s products or services, without the prior written approval of Tesla. In case Tesla grants such a written approval, Supplier shall be compliant to the guidelines specified in Attachment 8 (“ Leveraging Tesla Brand Marketing ”). If Tesla fails to respond to such request within thirty (30) days of receipt, they shall be deemed to be approved. Any disclosure of the existence of this Agreement by Tesla will not be considered a material breach of this Agreement.

(j) Disposal of Confidential Information . Upon the termination or expiration of the Agreement, and otherwise upon the request of the disclosing party, the receiving party will promptly return to the disclosing party all Confidential Information and all documentation that reveal or are based in any way on Confidential Information, and permanently eliminate the same from all of its computer and information storage systems. The receiving party may, however, with the disclosing party’s prior written approval, destroy any Confidential Information or documentation, provided that the receiving party certifies to the disclosing party the destruction of such Confidential Information or documentation. Thereafter, the receiving party shall cease all use of Confidential Information.

10. Electronic Access to Internal Tesla Data .

(a) General . If Supplier is granted access to Internal Tesla Data then, in addition to Supplier’s obligations under Sections 9 and 11, the terms and conditions of this Section 10 shall apply. Supplier’s access to the Internal Tesla Data is subject to compliance with (i) the terms of use, if any, of the Tesla Web Site or such other database or intranet, as applicable, and (ii) any technical, security, and software licensing requirements of Tesla, including the issuance of passwords and requirements related to using Tesla’s Virtual Private Network. Tesla may terminate Supplier’s right of access or change the method of access to the Internal Tesla Data at any time. In no event shall Supplier facilitate or enable access to Internal Tesla Data by any Sub-tier Supplier or other third party. In no event shall Supplier facilitate or enable access to Internal Tesla Data by its employees or contractors that may either cause to exceed the available number of authorized software licensing seats or violate the login authority (for example, improper sharing of a single user name and password by multiple users).

(b) Use . If Tesla grants Supplier access to the Internal Tesla Data, then Supplier shall have the limited right to download, store, display and use Tesla Internal Data for the sole purpose of performing its obligations under this Agreement. Supplier may not use the Tesla Internal Data in any other way, commercially or otherwise. Unless otherwise notified by Tesla, Supplier may store copies of Internal Tesla Data on Supplier’s networks and information storage systems, provided, such Internal Tesla Data is stored either on hardware that is dedicated solely to Tesla, or otherwise separated from other information of Supplier, so that the Internal Tesla Data is not accessible to individuals except as authorized by this Agreement. If Tesla provides Supplier with any recommendations for establishing an interface or other methods of accessing the Internal Tesla Data, Supplier assumes all risk in implementing any such recommendation.

(c) Consent to Monitoring . Supplier agrees that its access to and use of Internal Tesla Data and all acts in connection with Tesla’s internal systems are recorded and may be monitored. Supplier expressly consents to such recording and monitoring. If such recording or monitoring reveals possible evidence of criminal activities involving any individual, then Tesla may provide such evidence to the appropriate law enforcement organization and take any other appropriate action.

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 9 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

11. Intellectual Property Rights .

(a) Definitions . In this section, the following capitalized terms shall have the meanings specified below:

(i) “ Design Works ” means all Works involved in the design, look and shape of the Items, including without limitation, all development work of the Items performed at Tesla’s premises.

(ii) “ Works ” means all works including without limitation all notes, code, art work, reports, documentation, drawings, creations, devices, models, works-in-progress, inventions, discoveries, specifications, works of authorship, know-how, technical information, work product, and/or other information.

(iii) “ Process Works ” means all Works in association with the Items that are not Design Works, including without limitation the process and materials associated with the production of the Items and all development work of the Items performed by the Supplier.

(iv) “ IP Rights ” means all rights, whether registered or unregistered, including all patents, copyrights, trade secrets, trademarks, service marks, trade names, mask works, moral rights and other proprietary rights in any jurisdiction.

(b) Tesla’s IP Rights . As between Tesla and Supplier, except as set forth in Section 11(e), Tesla owns all right, title, and interest in IP Rights in or to any Works made, conceived, or developed by Tesla employees or contractors (“ Tesla Personnel ), and all IP Rights acquired by Tesla or otherwise owned by Tesla. All IP Rights owned by Tesla as set forth in this Section 11(b), or transferred to Tesla by Section 11(d) or Section 17(b), are referenced in this Agreement as “ Tesla’s IP Rights .”

(c) Supplier’s IP Rights . As between Tesla and Supplier, except as set forth in Section 11(d) and Section 17(b), Supplier owns all right, title and interest in IP Rights in or to any Works made, conceived or developed by Supplier employees or contractors, “ Supplier Personnel ,” and all IP Rights acquired by Supplier or otherwise owned by Supplier as set forth in this Section 11(c) or transferred to Supplier by Section 11(e). All IP Rights owned by Supplier are referenced in this Agreement as “ Supplier’s IP Rights .”

(d) Assignment of Design Works . Supplier irrevocably transfers and assigns to Tesla all IP Rights in or to (i) any Design Works made, conceived or developed by Supplier, either alone or with Sub-tier Suppliers, or with the assistance (financial or otherwise), collaboration, input, involvement, or development efforts of Tesla or Tesla Personnel, and (ii) any Design Works that are not made, conceived, and developed independent of Tesla’s IP Rights (including Confidential Information). Supplier shall not improve, enhance, or modify any Design Works in which Tesla owns IP Rights without Tesla’s express prior written consent. In any event, if Supplier improves, enhances, or modifies any Design Works in which Tesla owns IP Rights, Supplier irrevocably transfers and assigns to Tesla all IP Rights in or to such improvement, enhancement, or modification. In the event that any of the foregoing transfers and assignments by Supplier is to any extent ineffective, Supplier shall grant to Tesla an exclusive, royalty free, irrevocable, perpetual, worldwide license to make, use, market and sell such IP Rights.

(e) Assignment of the Process Works . Tesla irrevocably transfers and assigns to Supplier all IP Rights in or to (i) any Process Works made, conceived or developed by Tesla, either alone or with the assistance (financial or otherwise), collaboration, input, involvement, or development

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 10 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

efforts of Supplier or Supplier Personnel, and (ii) any Process Works that are not made, conceived, and developed independent of Supplier IP Rights (including Confidential Information). Tesla shall not improve, enhance or modify any Process Works in which Supplier owns IP Rights without Supplier’s express prior written consent. In the event, if Tesla improves, enhances or modifies any Process Works in which Supplier owns IP Rights, Tesla irrevocably transfers to Supplier all IP Rights in or to such improvement, enhancement, or modification. In the event that any of the foregoing transfers and assignments by Tesla is to any extent ineffective, Tesla shall grant to Supplier an exclusive, royalty free, irrevocable perpetual worldwide license to make, use, market and sell such IP Rights.

(f) License of Tesla IP Rights . Tesla grants to Supplier a non-exclusive, revocable, royalty- free, limited and non-transferable license to use Tesla’s IP Rights solely for the purpose of performing Supplier’s obligations under this Agreement to manufacture and sell to Tesla Items under the Agreement. This license may be revoked by Tesla at any time, with or without cause, and shall expire in any event, if not sooner revoked, on the expiration or termination of the Agreement. Such license shall not be assigned or transferred in any way, except by limited sublicense to Sub-tier Suppliers for the sole purpose of providing Items to Tesla, or to Tesla-designated third parties, in accordance with this Agreement, and shall not succeed to or vest in any successor. Supplier acknowledges Tesla’s IP Rights are not capable of being independently exploited by Supplier other than in the context of this Agreement. As such, Tesla does not grant to Supplier any other license, right to sublicense or other right to or under any Tesla IP Right for Supplier’s own benefit to use in any other way, commercially or otherwise, or to provide or offer Items or other products or services to any party other than Tesla.

(g) License of Supplier IP Rights . Supplier grants to Tesla a non-exclusive, revocable, royalty- free, limited and non-transferable license to use Supplier IP Rights solely for the purpose of manufacturing, marketing and supplying vehicles incorporating the Items supplied by Supplier under this Agreement. This license may be revoked by Supplier at any time, with or without cause, and shall expire in any event, if not sooner revoked, on the expiration or termination of the Agreement. Such license shall not be assigned or transferred in any way, except with Supplier’s prior written consent and shall not succeed to or vest in any successor. Tesla acknowledges Supplier’s IP Rights are not capable of being independently exploited by Tesla other than in the context of this Agreement. As such, Supplier does not grant to Tesla any other license, right to sublicense or other right to or under any Supplier’s IP Right for Tesla’s own benefit to use in any other way, commercially or otherwise.

(h) Further Assurances . At no cost to itself, each party will take, and will cause its employees and agents to take, all actions reasonably requested by the other party (the “ Requesting Party ”), from time to time, to fully vest, perfect or defend the Requesting Party’s IP Rights. Such actions shall include providing documents and information useful or necessary to register, apply for or maintain any of the Requesting Party’s IP Rights.

(i) License to Marks . Tesla grants to Supplier a non-exclusive, revocable, royalty-free, limited and non-transferable license to affix or install on Items those trademarks, service marks and trade names of Tesla’s (collectively, “ Marks ”) that are specified to be installed or affixed under Tesla Specifications for the Items. Such license of Marks is limited, revocable by Tesla, shall not be assigned, sublicensed or transferred in any way and shall terminate upon termination of this Agreement. Use by Supplier of all Marks shall be solely for the benefit of Tesla and as directed by Tesla. Supplier shall install and affix the Marks solely in accordance with Tesla’s specifications, packaging and labeling requirements and any quality requirements for the Marks or Items that Tesla may establish. Tesla may inspect Supplier’s facilities and examine Items at any time during normal business hours to monitor, or evaluate the quality of, the Marks affixed to the Items.

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 11 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

(j) Audit . Each party shall permit, and cause its employees and agents to permit, the other party (or its nominated agents), to audit and verify compliance with Sections 9 and 11.

12. Warranty .

(a) Supplier Warranty : Supplier represents and warrants that, for a period of [***] from the date of delivery to Tesla, the Items (i) will be free from defects in workmanship, material, and manufacture; (ii) will comply with the requirements of this Agreement, including all Tesla Specifications and manufacturing work instructions; and (iii) will be of merchantable quality and fit and suitable for the purpose intended by Tesla. Supplier further represents and warrants that (A) the Items will consist of newly fabricated material, and (B) Tesla shall acquire good and marketable title to the Items, free and clear of all liens, claims and encumbrances. Further, in the event that the Supplier has furnished the design, Supplier represents and warrants that such design will be free from defects. Supplier acknowledges that Tesla’ intended use of the Items (as components in an electric motor vehicle for sale and use in various territories throughout the world, albeit initially and primarily the United States Of America) and expressly warrants that the Items covered by this Agreement have been selected, designed, manufactured, supplied and/or assembled by the Supplier will be fit and sufficient for the particular purposes intended by Tesla.

(b) Services . Supplier represents and warrants that, for a period of [***] from delivery to Tesla, all services performed in connection with this Agreement will be performed with reasonable skill and care, in a competent, professional and workmanlike manner, free from defects, and in accordance with the best professional practices in the industry. For the purposes of this Section 12, the results of any service performed by Supplier will be considered included in the term “Item.”

(c) Assignments of Warranty . Supplier hereby assigns and transfers to Tesla all warranties provided to Supplier with respect to the Items, or any portion thereof, and represents and warrants that such warranties are fully assignable to Tesla and by Tesla to its customers or subsequent purchasers of the Items.

(d) Remedies . If Items do not meet the warranty requirements set forth in this Agreement, Tesla may, at its option, (i) require Supplier to correct any defective or nonconforming Items by, at Tesla’s option, either repair or replacement; or (ii) Tesla at its option may retain and correct such Items provided that if Tesla elects to correct the Items, it will consult with Supplier on the method and cost of correction. In addition, Tesla may cancel the undelivered balance of the defective or nonconforming Items and/or terminate this Agreement pursuant to Section 21(a) (Termination for Default). As to any Items that are repaired, replaced or corrected under this Section 12, Supplier’s warranty shall continue to apply to such Items for (A) the full remaining balance of the original [***] term applicable to such Item, or (B) ninety (90) days from the date such repaired, replaced or corrected Items are received and accepted by Tesla, whichever period of time is greater. Upon request from Tesla, Supplier shall provide pre- approved returned material authorization (“ RMA(s) ”) to facilitate return of Items. Tesla may notify Supplier of defects and nonconformance and communicate its elected remedy by delivery of notice in the form of a “Supplier Corrective Action Request” (“ Attachment 4 ”) and closed- loop corrective action processes. Subject to the costs limit set out in sub-clause (g) this will be the full extent of Supplier’s liability under this clause.

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 12 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

(e) Extended Warranty; Epidemic Failure . Without limiting Tesla’s rights as specified elsewhere in this Section 12, if Items are discovered to be defective or nonconforming at a statistically higher rate than the rate applicable to such Items as established upon mutual agreement of the Parties and set forth in Attachment 1, (or if no rate is specified by agreement with respect to an Item, then [***] of such Items delivered in any three consecutive months), then, at no cost to Tesla and at Tesla’s option, Supplier will (i) extend the warranty period for all such Items for no less than an additional [***] from the date on which the warranty for the Items would otherwise expire, and/or (ii) subject to sub-clause (g) compensate Tesla for all expenses associated with correcting the defect/nonconformance, including field support, logistics (freight, duties), advanced exchange of a refurbished part, refurbishment, and any required upgrade cost including qualification.

(f) Timing . If Supplier receives notice that Items are defective or non-conforming, then Supplier will use the most expeditious manner possible to effect the action specified by Tesla, including the use of overnight delivery services for shipment of Items to and from Tesla. For any Items for which a repair or replacement timeline is identified in Attachment 1, Supplier will repair or replace such Items within such timeline. In all events, however, as to any Items that Tesla identifies as “production” or that are delivered by Supplier for the purposes of production, Supplier will replace or repair the defective or non-conforming Items within twenty four (24) hours from receipt of Tesla’s request for supporting Tesla’s production line in the U.K or be ready to ship the Items to Tesla’s designated location outside of the U.K.

(g) Costs . Supplier shall be solely responsible for all costs, fees and expenses in connection with fulfilling its obligations under this Section 12, including all labor, material, parts, shipping, taxes, customs and other costs, fees and expenses arising from, among other things, the removal, repair, replacement, reinstallation, inspection, shipping and testing of any defective or nonconforming Items. In the event that Tesla is expected to incur any costs, for example, the cost to remove such Items from a customer site, or if Tesla incurs increased costs as a result of Supplier’s breach of warranty (including without limitation overtime or increased shipping charges) or suffers lost productivity as a result of Supplier’s breach of warranty (including without limitation a reasonable estimate of the hourly cost to Tesla of Tesla’s employees whose time is wasted), Tesla will consult with Supplier on cost and method before charging or billing such costs to Supplier Tesla may offset such agreed costs against amounts otherwise due to Supplier from Tesla. In case, such consultation was not feasible prior to incurring costs, the maximum charges to Supplier shall be limited to seven hundred (£700) pounds sterling for any one incident.

(h) Limitations . The foregoing warranties are subject to the following limitations:

(i) Supplier shall be under no liability in respect of any defects in the Items arising from any drawing design or specification supplied by Tesla.

(ii) Supplier shall be under no liability in respect of any defects arising from fair wear and tear, willful damage, negligence outside of Supplier’s control, abnormal working conditions, failure to follow Supplier’s reasonable instructions, or misuse or alteration or repair of the Items without Supplier’s approval.

(iii) Supplier shall be under no liability if Tesla a) fails to notify Supplier of the alleged defect within 28 days of it becoming apparent; and b) does not allow Supplier the opportunity of verifying the alleged defect.

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 13 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

13. Supplier Refurbishment Services . Upon Tesla’s request, Supplier and Tesla shall negotiate in good faith to enter into an arrangement.

14. Supplier Performance Plan . Tesla and Supplier will jointly develop a supplier performance plan. Supplier agrees to self-monitor its performance, at both corporate and operational site levels, against the performance targets established in the plan. At least once a month, Supplier will submit to Tesla its actual performance against performance targets.

15. Manufacturing and Quality Requirements .

(a) Production Part Approval Process (“ PPAP ) . Tesla and Supplier shall follow the PPAP requirements set forth in “PPAP Submission Workbook” (“ Attachment 5 ”). Supplier shall provide all necessary documentation.

(b) Design and Process Change Communication . After Tesla has approved the PPAP Submission, Supplier shall not make any change to the design (firmware, hardware or software) of the Items that may alter the Specifications or the form, fit, function or interchangeability of parts without first informing and obtaining approval from Tesla. Supplier will not make, or permit Sub-tier Suppliers to make changes to the manufacturing process of such Items, including a transfer of any portion of the design, manufacturing, or assembly process to a different facility, without first obtaining such approval from Tesla which shall not be unreasonably withheld.

(c) Other Changes and Equitable Adjustments . Tesla may, upon notice to Supplier, submit Engineering Change Orders (“ ECOs ”) or request other changes within the scope of the Agreement with respect to any of the following: (i) Specifications; (ii) the place and date of delivery of Items; or (iii) the place, date and manner of inspection or acceptance of Items. Supplier agrees that it will use reasonable efforts to accommodate such requests in a timely and cost effective manner. If any request for such changes causes an increase or decrease in the cost of or time required for performance of the Agreement, Supplier may propose, and Tesla will then consider, an equitable adjustment in the Contract Price or delivery schedule, or both, and if the Parties agree to an adjustment, the Agreement shall be modified in writing accordingly. If Tesla and Supplier are unable to agree upon an equitable adjustment, then Tesla may remove the affected Items from this Agreement without affecting the remaining Items, and Supplier shall not be required to supply the Items as modified by the ECO to Tesla. No claim by Supplier for adjustment under this subsection shall be valid unless in writing and received by Tesla within thirty (30) days from the date of Supplier’s receipt of the notice of such change; provided, however, that such period may be extended upon the written approval of Tesla.

(d) Quality Requirements . Supplier shall comply with Tesla’s quality requirements set forth in Attachment 6 entitled “Tesla Motors Supplier Handbook”.

(e) Minimum Environmental, Health & Safety Requirements . Supplier shall use its reasonable endeavors to comply with, and shall cause Sub-tier Suppliers to comply with, any applicable environmental, health or safety law, rule, regulation, order, decree or ordinance.

(f) Safety Notices . In addition to any of Supplier’s obligations under this Agreement or Supplier’s or Sub-tier Suppliers’ obligations imposed by law, Supplier will immediately notify Tesla of any known or suspected safety issues related to Items (including component or material issues).

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 14 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

16. Management of Finished Goods Inventory .

(a) Designation of Inventory Liability Items . Tesla may designate certain Items as “ Inventory Liability Items ” for which certain level of inventory levels are requested to be held by Supplier. In the event of such request, Supplier will agree to discuss the requirements, costs, and methodology with Tesla. Parties will document such arrangement in a separate written agreement between Tesla and Supplier.

(b) Forecasts . Tesla will periodically issue to Supplier rolling 10 week minimum forecasts setting forth projected demand for Items (“ Tesla Forecasts ”), of which first 6 weeks is a firm commitment.

(c) Inventory Levels and Tracking Requirements . Unless otherwise designated in Attachment 1 or a separate written agreement, Supplier will maintain the “Target Inventory” quantity, if any, of each Inventory Liability Items as specified by Tesla from time to time. All Inventory Liability Items manufactured by Supplier to meet a then-current Target Inventory quantity shall be considered “ Finished Goods Inventory ” under this Agreement. Supplier shall monitor and report its work-in-process and Inventory Liability items count to Tesla for all Finished Goods Inventory.

(d) Claim for Reimbursement of Excess Items. If Tesla has not taken delivery of any unit of a Inventory Liability Items in Finished Goods Inventory within twelve (12) months from the date of Tesla’s last receipt of any such unit, Supplier may then submit a claim for reimbursement for such Items (“ Excess Items ”) to Tesla within thirty (30) days from the end of such twelve (12) month period. Supplier’s failure to submit such a claim within this thirty (30) day period shall constitute waiver of any claim for reimbursement for Excess Items and Tesla shall be released from all liability relating to such Excess Items.

(e) Claim for Reimbursement of Obsolete Items. An Inventory Liability Items in Finished Goods Inventory will be considered an “ Obsolete Item ” when Tesla provides notice to Supplier that such Inventory Liability Item is an “Obsolete Item.” If Supplier desires to submit a claim for costs associated with Obsolete Items, then Supplier shall submit a claim for such Obsolete Items within thirty (30) days from the date on which Tesla notifies Supplier that the Inventory Liability Items are Obsolete Items. Supplier’s failure to submit such a claim within this thirty (30) day period shall constitute a waiver of any claim for reimbursement for such Obsolete Items and Tesla shall be released from all liability relating to such Obsolete Items.

(f) Scope of Claim . Tesla will not be liable for Finished Goods Inventory other than as described in this Section 16. In addition, no claim for reimbursement or payment for Finished Goods Inventory shall be made in the following situations: (i) any termination by Tesla pursuant to Section 21(a) (Termination for Default); (ii) if Supplier has introduced design or product changes; (iii) Supplier errors in production; (iv) if Supplier has been paid for such Items previously or has made a claim for reimbursement or payment for such Items previously; (v) if such Items are “ Commercial Off-the-Shelf Items ” meaning Items that are standard or stock items in the industry or have been manufactured to Supplier’s specifications in contrast to Items manufactured to build-to-print specifications of Tesla or its customer; (vi) if Supplier has failed to fulfill its obligations to meet with Tesla in accordance with Section 16(i), unless Supplier is unable to do so because of actions of Tesla; (vii) if such Items were not disclosed by Supplier to Tesla on each report required by Section 16(i) when each such report was due; or (viii) if Supplier fails to participates in Tesla’s ECO process as reasonably requested by Tesla, including without limitation providing accurate information about such Items that will be affected by a proposed ECO and that Supplier has in inventory or on order so that Tesla can plan its ECO implementation to minimize the quantity of on-hand and/or on-order Items that will be made obsolete by the ECO.

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 15 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

(g) Claim Process . Any claim made under this Section 16 will be addressed based on negotiated settlement between Tesla and Supplier. Supplier is responsible for disassembling Inventory Liability Items in Finished Goods Inventory down to a usable level and otherwise making all efforts to mitigate the cost to Tesla in any such claim. Any claim shall be supported by reasonable evidence including a detailed listing of the relevant Inventory Liability Items by part number and quantity; documentary evidence that the quantity was manufactured to meet a Target Inventory required for that Inventory Liability Items and was not subsequently purchased by Tesla; and a detailed description of Supplier’s efforts to mitigate the costs to Tesla. Supplier’s claim will be based price of the Items as stated in the most recent Order for such Items. No additional profit or opportunity costs shall be considered in calculating such claims. Tesla reserves the right to physically audit the inventory levels identified in the claim. Such audit shall be conducted in accordance with Section 19(e) (Financial Statements and Right to Audit).

(h) Disposal of Excess and Obsolete Items . Supplier agrees to physically dispose of all Excess and Obsolete Items as directed in writing by Tesla. Excess and Obsolete Items that are to be delivered to Tesla’s facilities must be delivered in accordance with the requirements of this Agreement and/or any supplemental instructions provided by Tesla. In lieu of delivery to Tesla, Tesla may require that Supplier destroy or otherwise scrap the Excess and Obsolete Items so that they are non-functional, and Supplier shall comply with this requirement in accordance with Tesla’s instructions and provide Tesla with a certification of destruction.

(i) Materials Liability Review Meetings . Designated representatives of each party shall attend a meeting (each, an “Inventory Review Meeting’ ) at the beginning of each Tesla fiscal quarter at such dates and times as agreed to between the Parties. On the business day immediately before each Inventory Review Meeting (or by the tenth day of the first month of each Tesla fiscal quarter, whichever comes first), Supplier shall provide a report in Microsoft Excel format (or another mutually agreed-upon written or electronic format) to Tesla identifying Supplier’s on- hand and on-order inventory levels for all Finished Goods Inventory, listed by Tesla part number, and showing (1) quantity on hand, (2) quantity on order, (3) the number of weeks since Tesla issued an Order for that part number, (4) the quantity of that Items that Tesla has forecasted it will order in the next 13 weeks (if any), and (5) where Tesla’s forecasted demand is lower than Supplier’s on-hand and on-order quantities, a description in reasonable detail of all actions taken by Supplier to mitigate or reduce Tesla’s liability with respect to such on-hand and on-order quantities. At each Inventory Review Meeting, the Parties will share information to coordinate their combined operations, and discuss the report provided by Supplier. From time to time, the Parties may mutually agree upon the specific format for Supplier’s report and Supplier shall thereafter provide such report in the agreed-upon format; however, no failure to agree on a format shall relieve Supplier from providing this report in a commercially reasonable format when and as required by this Section 16(i).

17. Management of Sub-tier Suppliers .

(a) Sub-tier Suppliers . After Tesla has approved of the PPAP Submission, Supplier and its Sub-tier Suppliers shall not subcontract with any new or different Sub-tier Supplier as to such Items without the prior written approval of Tesla. Supplier agrees to inform Tesla of any process or Sub-tier Supplier changes related to Items (including, for example, obsolescence of components, any changes in the manufacturing process of a Sub-tier Supplier, or a transfer of any portion of the design, manufacturing, or assembly process to a different facility), not less than one hundred eighty (180) days prior to the date the Supplier or Sub-tier Supplier is contemplating the implementation of the change.

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 16 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

(b) Sub-tier Supplier’s Obligations . Supplier will ensure that all Sub-tier Suppliers have entered into signed, written agreements with Supplier obligating the Sub-tier Suppliers to undertake each action that is required of Sub-tier Suppliers by another provision of this Agreement, and to comply with the following provisions:

(i) Sub-tier Suppliers shall comply with all Specifications, quality, manufacturing and other technical requirements that may be necessary in order for the Sub-tier Supplier to timely deliver conforming Items, or any portion thereof, to the Supplier for the benefit of Tesla.

(ii) Supplier Related Persons will take all actions with respect to Tesla IP Rights and Marks that Supplier is obligated to take by Section 11, including all actions reasonably requested by Tesla to vest, perfect and defend Tesla IP Rights, and to use and protect Tesla IP Rights and Marks solely for the benefit of Tesla upon substantially similar terms to those set forth in Section 11 above.

(iii) All Supplier Related Persons and designated third parties who are authorized to receive or obtain (directly or indirectly) Confidential Information (collectively, “ Recipients ”), shall agree, prior to the Recipient obtaining any Confidential Information, to be obligated to hold all Confidential Information in confidence and not to use the Confidential Information in any way, except on behalf of Supplier in performing its obligations hereunder for the benefit of Tesla, and to protect the Confidential Information and not to engage in prohibited activities, upon substantially similar terms to those set forth in Section 9 above.

(iv) Sub-tier Suppliers shall provide Supplier with sufficient prior written notice of all design, process, manufacturing, component obsolescence and facility changes contemplated by Sub-tier Suppliers to ensure that Supplier will comply with its notification obligations to Tesla under Sections 15 and 17(a) of this Agreement.

Upon Tesla’s request, Supplier will (A) provide Tesla with copies of all such agreements with Sub-tier Suppliers, Supplier Related Persons or other Recipients that implement Supplier’s obligations under this Section 17(b); (B) actively enforce Supplier’s rights under such agreements for the benefit of Tesla, including but not limited to retrieving Confidential Information from Supplier Related Persons; (C) assign to Tesla any such agreement between Supplier and Supplier Related Person (and Supplier shall not enter into any agreement restricting such an assignment); and (D) cause Sub-tier Suppliers or Supplier Related Persons to enter such an agreement directly with Tesla.

(c) Mandated Sub-tier Suppliers . “ Special Process ” means a process that is specifically designated as such by Tesla, which may include, but is not limited to, causing a metallurgical change to the base material such as heat treating, forging or hardening processes; joining materials by welding, brazing, or other bonding process; or providing a coating or surface treatment such as cleaning, electro-polishing, plating, painting, or anodizing. Upon Tesla’s request, Supplier will use (and cause Sub-tier Suppliers to use) only one or more of the designated suppliers.

18. Product and Training Support .

(a) Technical Information . The Supplier will provide Tesla with Technical Information required by Tesla to install, assemble and otherwise use the Items. “Technical Information” includes engineering, package and installation drawings, specifications, testing protocols and results, documents, data and other information relating to the Items and Tooling and a reasonable amount of technical assistance by Supplier’s employees required to explain such Technical

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 17 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

Information. Technical Information must comply with the computer-aided-design and drafting standards of Tesla. Technical Information will be provided as specified in Sections 18(b) and 18(c) and categorized into either “Level One Materials” or “Level Two Materials” as provided below.

(b) Use of Level One Materials . The Supplier will provide Tesla with Level One Materials to use without restriction. Level One Materials define in general terms the geometric and functional attributes of the Items as they interface with Tesla’s products, demonstrate that they meet the specifications, and describe how they interact with other vehicle systems or environments. At a minimum, Level One Materials are those Tesla requires to support their engineering release systems and package and installation drawings with functional requirements. At Tesla’s request, Level One Materials must also be provided for component parts of the Items that may comprise service and replacement parts. Tesla may use or disclose Level One Materials without restriction, subject only to any patent or trademark rights of the Supplier. Any Supplier legend, like “Confidential” or “Proprietary,” will not affect Tesla’s right to use Level One Materials.

(c) Use of Level Two Materials . Level Two Materials include more detailed design and manufacturing information such as Failure Mode and Effects Analyses (FMEA, including Design Failure Mode and Effects Analysis and Process Failure Mode and Effects Analysis), Design Verification Plans and Reports (DVP&R, including test specifications, test reports and test data), P-Diagrams and Control Plans. The Supplier will provide Tesla with reasonable access, including delivery of reference copies, to Level Two Materials as well as the right to use Level Two Materials internally, including to integrate the Items into the vehicle. Any additional rights (such as licenses or ownership, or the right to disclose the materials to third parties to which disclosure is not permitted under this Section to these or other materials (such as detailed drawings and math data, CAE Models, electrical schematics, or software algorithm and code) will be negotiated in good faith by the Buyer and the Supplier and formalized in a Statement of Work or other written document. The Buyer’s obligations to treat Level Two Materials as confidential are described in Section 9.

(d) Categorization . Supplier and Tesla will work in good faith to categorize the Supplier’s Technical Information as Level One Materials or Level Two Materials and, if appropriate, itemize them in a Statement of Work or other written document. In the event that the Supplier and Tesla are unable to agree on the appropriate categorization, there will be a presumption that the Supplier’s Technical Information is comprised of Level One Materials.

19. Electronic Communication and Documentation .

(a) General . The Parties acknowledge that they are relying upon electronic means, in addition to email and facsimile transmissions, to exchange Orders and other delivery and order information. Supplier agrees to communicate with Tesla using the standards designated by Tesla. To the extent communication through electronic means is inaccessible or made otherwise unavailable due to technical difficulties or due to the effect of any law or regulation governing electronic transactions, the Parties agree (i) that any delivery or order information received electronically prior to the date of such inaccessibility or unavailability will remain valid; and (ii) to conduct, to the extent possible, their transactions by other than electronic means.

(b) Documentation Format Requirements . With each PPAP Submission delivered hereunder, Supplier shall provide to Tesla one (1) set of electronic files of product, repair, maintenance and support documentation for such Items in accordance with Attachment 5 entitled “PPAP Submission Workbook”. Electronic files shall be source files in either Microsoft ® Excel, or

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 18 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

Adobe PDF, or other mutually agreed upon format. If such documentation is not a part of Tesla’s IP Rights, then Tesla shall have the right to use, copy, display, modify, reproduce and distribute such documentation as Tesla deems necessary to support the Items. Tesla may post, or require Supplier to post, such documentation on a Web-based tool accessible by Tesla and its customers.

(c) Field Support Requirements . Supplier agrees that Tesla may provide technical assistance, product maintenance and service to Tesla’s customers relating to Items and that the provision of any such services by Tesla shall not invalidate or relieve Supplier of its obligations, including warranty obligations, under this Agreement; however, any incorrect advice by Tesla will invalidate any warranty claim.

(d) Tesla Unique Prototype Items or Subassemblies Documentation . Upon Tesla’s request, Supplier shall provide to Tesla all current and complete Specifications, including designs, and drawings for (i) all Tesla unique build-to-print Items, including prototype and subassembly Items; and (ii) those Items, or any components thereof, purchased by Supplier from a Sub-tier Supplier (collectively, “ Support Items ”) (digital drawings format preferred) and shall further provide assistance in understanding and implementing the Specifications as to Support Items. Supplier shall provide a complete bill of materials, reflecting as-manufactured or produced Support Items, including Supplier part number and vendor or manufacturers’ part number for purchased Support Items and Tesla’s part number for cross-reference. Supplier shall provide a list of recommended spare parts, with associated prices, for all bills of materials down to the lowest level. All Support Items Specifications are the sole property of Tesla. Any changes to process or bills of materials must comply with the terms of this Agreement. If Supplier is purchasing Support Items from Sub-tier Suppliers, Supplier agrees that upon written notice from Tesla, it will assign to Tesla any such agreement between Supplier and Sub-tier Supplier, and Supplier will not enter into any agreement restricting such assignment.

(e) Financial Statements . If Supplier has securities registered with the Securities Exchange Commission (“ SEC ”) pursuant to Section 12 of the Securities Exchange Act of 1934, Supplier shall timely submit all financial statements and reports as required by SEC rules. Otherwise, upon Tesla’s request, Supplier will provide Tesla with financial statements and other financial information relating to Supplier’s business and operations as Tesla may reasonably request.

20. Continuity of Supply .

(a) Performance Constraints . Supplier is responsible for anticipating and promptly notifying Tesla of (i) any inability on its part or its Sub-tier’s part to perform their respective obligations under this Agreement; and (ii) any breach of a provision of this Agreement.

(b) Disaster Recovery Plan . Upon Tesla’s request, Supplier shall provide to Tesla reasonable information describing its disaster recovery plan that includes emergency back-up capacity, and appropriate record protection and recovery.

(c) Tooling . For up to ninety (90) days after the Term, upon Tesla’s request, Supplier agrees to itemize and/or sell to Tesla any tooling that is built or procured by Supplier that is unique to the Items and relevant to the manufacture, testing or maintenance of Items. The purchase price of such tooling shall be at the fair market value. If Tesla provides notice of its election to purchase such tooling, upon Tesla’s payment, title shall transfer to Tesla. If at any time Supplier receives tooling furnished by or purchased from or by Tesla, Supplier shall comply with the terms of Attachment 7 entitled “Tesla Tooling and Property Requirements.”

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 19 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

(d) Wind Down . In the event of, or in preparation for, the expiration or a termination of the Agreement for any reason, Supplier shall use commercially reasonable efforts to transfer, or cooperate fully with Tesla to enable Tesla to transfer, the performance of Supplier’s obligations under the Agreement to Tesla or a third party supplier designated by Tesla, in a manner that (i) minimizes the time to complete such transfer; (ii) maintains the highest quality and performance to ensure the adequate supply of Items; and (iii) causes no disruption to Tesla’s customers’ requirements.

(e) Availability Assurance and After-Sales . Unless expressly excluded, all provisions contained within this Contract shall apply to the supply of after-sale Items, and:

 

 

(i)

Supplier agrees to maintain capabilities necessary to provide technical and service support to Tesla and/or its designated third party as to any Items for a minimum of twelve (12) years from the date of final shipment of Items to Tesla;

 

 

(ii)

Tesla shall pay the Contract Price for the Items in accordance with Section 4.

 

 

(iii)

If, during the period detailed in Section 20(e)(i) above, Tesla does not order one particular Item in a rolling 12 month period then the Supplier will be entitled to request Tesla’ written permission to cease supply of such Item. The Supplier shall not be entitled to cease supply of such Item until it has provided Tesla with written notice of not less than 2 months of its intent to cease supply of such Items and obtained Tesla’ permission.

 

 

(iv)

In the event that Tesla provides its consent in accordance with Section 20(e)(iii) above, Tesla may notify the Supplier that it wishes to make an “last time buy” at prices not higher than the Contract Prices plus actual cost differentials for packaging and manufacturing. The Supplier will be obliged to fulfill the “last time buy” upon the terms of this Agreement.

21. Termination .

(a) Termination for Default .

(i) Notice By Tesla . Tesla may give Supplier notice of default of this Agreement or of any Order if (1) Supplier fails to deliver Items in accordance with the delivery times, Specifications, and other requirements of this Agreement, or otherwise materially breaches this Agreement; (2) Supplier anticipatorily repudiates any material provision of this Agreement and fails to provide adequate assurance to Tesla of Supplier’s future performance; or (3) Supplier becomes insolvent, files a petition for relief under any bankruptcy, insolvency or similar law, or makes an assignment for the benefit of its creditors.

(ii) Notice By Supplier . Supplier may give Tesla notice of default of this Agreement, in whole but not in part, if (1) Tesla materially breaches Section 8, 11, or 26(a) of this Agreement; (2) Tesla anticipatorily repudiates Section 8, 11, or 26(a) of this Agreement and fails to provide adequate assurance to Supplier of Tesla’s future performance; or (3) Tesla becomes insolvent, files a petition for relief under any bankruptcy, insolvency or similar law, or makes an assignment for the benefit of its creditors. Supplier shall be entitled to recover costs and losses associated with such termination by Supplier during the initial 36 month term, provided such recovery is limited to the fair market value of any tooling purchased or funded by Tesla for use by Supplier.

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 20 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

(iii) Notices of Default and Cure Period . Any notice of default shall be in writing, reference this Section 21(a), state whether the notice relates to a specified Order (under (1) above) or to this Agreement (under (i) or (ii) above), and specify the basis for such notice (the “ Defaulting Condition ”). No cure period shall be available, and this Agreement shall terminate immediately after the notice of default, if (1) the Defaulting Condition is a negligent, knowing or willful material breach of Section 9 or Section 11, or (2) the Defaulting Condition cannot reasonably be cured. No cure period shall be available for termination of an Order for default. For all other Defaulting Conditions, the defaulting party shall have ninety (90) days in which to cure the Defaulting Condition, and the Agreement shall not terminate if the defaulting party cures the Defaulting Condition within such cure period.

(iv) After Termination for Default . Upon any termination by Tesla pursuant to this Section 21(a), Supplier shall: (1) continue to supply any portion of the Items for which this Agreement is not cancelled; (2) be liable for additional costs, if any, incurred by Tesla for the purchase of similar goods and services to cover such default; and (3) at Tesla’s request, transfer title and deliver to Tesla: (A) any completed Items, (B) any partially completed Items, and (C) all unique materials and tooling subject or relating to the termination. Termination of the Agreement under this Section 21(a) shall constitute “cancellation” under the Uniform Commercial Code as adopted in California.

(b) Termination of an Order for Convenience .

(i) In addition to either Party’s rights under Section 2(b) and under Section 21(a), Tesla may terminate any Order in whole or in part at any time for Tesla’s convenience by giving Supplier 30 days’ prior written notice which shall state the extent of the termination and the conduct required of Supplier in connection therewith. Such a cancellation may be for any reason including a reduction in the quantity of an Items ordered under an Order. Supplier will use commercially reasonable efforts to mitigate any damages incurred in connection with such termination. Within ninety (90) days from the date on which Supplier receives such notice, Supplier shall deliver to Tesla a written claim for all of Supplier’s damages incurred in connection with the termination (“ Termination Charges ”), in the form and containing such documentation as required by Tesla. In no event, shall Termination Charges include any damages relating to Commercial Off-the-Shelf Items.

(ii) Failure by Supplier to deliver such claim for Termination Charges within this 90-day period shall constitute a waiver by Supplier of all claims against Tesla as to Termination Charges and a release of all Tesla’s liability arising out of such termination.

(iii) If Tesla does not agree with the amount specified in Supplier’s claim for Termination Charges, Tesla and Supplier will attempt to agree upon a reasonable amount for Termination Charges. If Tesla and Supplier fail to agree upon such an amount within six (6) months after receipt by Tesla of the claim for Termination Charges from Supplier, then the Termination Charges will be conclusively presumed to be the sum of the following as to Items for which the termination applies (provided that no costs shall be duplicated): (1) the unpaid Contract Price for all Items delivered to Tesla pursuant to the Order prior to the date of Tesla’s termination; (2) the Contract Price for all Items ordered pursuant to the Order and completed in accordance with the Agreement but not delivered to Tesla prior to the date of termination, provided such Items are promptly delivered to Tesla; (3) the actual costs for work-in-process incurred by Supplier relating to Items ordered pursuant to the Order, less any costs related to

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 21 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

Commercial-Off-The-Shelf components either manufactured or procured by Supplier, and an amount representing a fair and reasonable profit on such costs; and (4) the reasonable, out-of- pocket costs paid by Supplier to its Sub-tier Suppliers as a direct result of Supplier’s cancellation of work being performed by such Sub-tier Suppliers or Supplier’s termination of contracts with such Sub-tier Suppliers. Tesla’s obligation to pay costs pursuant to clauses (3) and (4) above shall be subject to Supplier’s obligation to use commercially reasonable efforts to mitigate any such costs.

(iv) This Section 21(b) sets forth Supplier’s sole remedies, and Tesla’s entire liability to Supplier, in the event of a termination of an Order by Tesla for convenience, other than Supplier’s remedy and Tesla’s liability as set forth in Section 16.

(c) Post Termination Consequences . On the date of termination or expiration of the Agreement for any reason, Supplier shall (i) stop work being performed by Supplier pursuant to the Agreement, (ii) cancel orders for parts and/or materials with Supplier’s Sub-tier Suppliers and cease ordering any such parts and/or materials, (iii) cancel work being performed by Supplier’s Sub-tier Suppliers, (iv) cancel any sublicense granted to Sub-tier Suppliers in accordance with this Agreement, (v) at Tesla’s request, assign to Tesla Supplier’s interests in contracts with Supplier’s Sub-tier Suppliers, (vi) furnish Tesla with release of claims from Supplier’s Sub-tier Suppliers resulting from orders and/or work canceled by Supplier, (vii) protect all property in which Tesla has or may acquire an interest, (viii) fully cooperate with Tesla to minimize any adverse effect on Tesla or its customers, and (ix) perform those other obligations set forth in this Agreement upon the termination or expiration of this Agreement.

22. Disclaimer and Limitation of Liability . Notwithstanding anything else in this Agreement, in no event shall Tesla be liable to Supplier or to any other person or entity with respect to any subject matter of this Agreement, under any equity, common law, tort, contract, estoppel, negligence, strict liability or other theory, for any (a) incidental, special, punitive, consequential or indirect damages or (b) damages resulting from loss of sale, business, profits, data, opportunity or goodwill, even if the remedies provided for in this Agreement fail of their essential purpose and even if Tesla has been advised of the possibility of any of the foregoing damages.

In no event will Supplier be liable to Tesla under any equity, common law, tort, contract, estoppel, negligence, strict liability or other theory, for any consequential damages even if Supplier has been advised of the possibility of any of the foregoing damages. Any liability by Supplier to Tesla will be limited to insurance coverage amounts specified in Section 25 below.

23. Indemnity by Supplier .

(a) The provisions hereof are subject to the limit set out in Clause 22. Supplier shall defend, indemnify and hold harmless Tesla from and against any and all third party claims, demands, suits, actions, losses, penalties, damages (whether actual, punitive, consequential or otherwise), authorized settlements, and all other liabilities and associated costs and expenses, including attorney’s fees, expert’s fees, costs of investigation and other costs of litigation (all of the foregoing being collectively called “ Indemnified Liabilities ”), arising out of or relating to (i) Supplier’s breach of any provision of the Agreement; (ii) any negligent, grossly negligent or intentional acts, errors or omissions by Supplier, its employees, officers, agents or representatives, except to the extent caused by the negligence or intentional misconduct of Tesla; or (iii) strict liability or products liability with respect to or in connection with the Items; (iv) any claim by a Sub-tier Supplier against Tesla relating to goods or services provided to Supplier; or (v) the actual or alleged infringement or misappropriation of patent, copyright, trademark, trade secret rights, confidential information, proprietary rights, or other rights of a

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 22 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

third party, (collectively, a “ Third Party IP Right ”), except to the extent that the infringement or misappropriation was unavoidably caused by Supplier’s compliance with a detailed design furnished and required by Tesla. The indemnity by Supplier in favor of Tesla shall extend to Tesla, its officers, directors, employees, agents and representatives and shall include, and is intended to include, indemnified liabilities which are determined by a court of competent jurisdiction to be the result of acts or omissions of Supplier as a joint tortfeasor. If Supplier is liable only as a joint tortfeasor, then Supplier’s liability shall not extend to that portion of liability determined by the court to be the result of acts or omissions of Tesla. In addition to Supplier’s obligations as to Indemnified Liabilities that arise under clause (v), Supplier shall, at Tesla’s option (1) procure for Tesla and its customers the right to continue to use, sell and resell any affected Item, (2) with respect to a claim for infringement, modify the affected Items so that it is no longer infringing, or (3) replace any affected Items with a non-infringing good or service comparable to the affected Item. If none of these alternatives are possible, Tesla shall have the right to return or destroy, at Tesla’s option, any affected Items for a full refund of the purchase price, plus applicable transportation costs.

(b) In the event of any such Indemnified Liabilities, Tesla shall (i) promptly notify Supplier; (ii) at Supplier’s expense, reasonably cooperate with Supplier in the defense of such claim; and (iii) not settle any such Indemnified Liabilities without Supplier’s written consent, which shall not be unreasonably withheld or delayed. Supplier shall keep Tesla informed at all times as to the status of Supplier’s efforts and consult with Tesla and/or its counsel regarding such efforts. Supplier shall not settle any such claim without the prior written consent of Tesla, which shall not be unreasonably withheld or delayed.

(c) This Section 23 sets forth the entire obligation of Supplier to Tesla and Tesla to Supplier as to Indemnified Liabilities arising from the actual or alleged misappropriation or infringement of any Third Party IP Right.

24. Import and Export Requirements .

(a) General. Supplier agrees it will be required to deliver Items to, and receive Items from, locations outside of the United States. Supplier will use reasonable efforts to comply with all applicable export control laws or regulations promulgated and administered by the laws of the United States or the government of any other country with jurisdiction over the Parties or the transactions contemplated by this Agreement (“ Export Laws ”) including the obligation that Supplier shall not export, re-export or otherwise disclose, directly or indirectly, Items or technical data received from Tesla or the direct product of such technical data or Items to any person or destination when such export, re-export or disclosure is in violation of Export Laws. Supplier will provide Tesla with any and all information that may be required to comply with Export Laws, including applicable “Export Control Classification Numbers,” documentation substantiating U.S. and foreign regulatory approvals for the Items, and information required by Customs officials to substantiate the value of imported Items including any adjustments in valuation attributable to “assists” as defined by U.S. Customs regulations. All required export and import information shall be sent to the attention of: Manager, Compliance, Tesla Motors, 1050 Bing Street, San Carlos, CA 94070; or any agent so designated by Tesla.

(b) Country of Manufacture . Items shall be marked with the country of origin as required by Export Laws. Supplier shall provide Tesla with a written statement identifying for each Items delivered the (i) Tesla part number and (ii) the country of manufacture. This data shall be provided to Tesla upon Tesla’s request.

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 23 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

(c) Duty Drawback . Supplier will provide Tesla or its agent with U.S. Customs entry data and information that Tesla determines is necessary for Tesla to qualify for duty drawback. Such data shall include information and receipts for duties paid, directly or indirectly, on all Items which are either imported or contain imported parts or components. Information related to serial numbers, unique part numbers, lot numbers and any other data which will assist Tesla in identifying imported Items sold to Tesla shall also be provided. At the time of delivery of the Items, but in no event later than thirty (30) days after each calendar quarter, Supplier will provide said documents accompanied by a completed Certificate of Delivery of Imported Merchandise or Certificate of Manufacture and Delivery of Imported Merchandise (Customs Form 331) as promulgated pursuant to 19 CFR 191, or successor regulations.

25. Insurance .

Supplier shall maintain comprehensive public and products liability insurance; in such amounts as are necessary to insure against the risks to Supplier’s operations, but in no event less than the following minimum amounts:

 

Insurance

 

Minimum Limits of Liability

Public/Products Liability

 

As per [***] Commercial Liability Insurance Policy 1

All policies must be primary and non-contributing, shall have a deductible amount that is not commercially unreasonable, and shall include Tesla as an additional insured. Supplier also waives all rights of subrogation. Supplier will require and verify that each of its Sub-tier Suppliers carries at least the same insurance coverage and minimum limits of insurance, as Supplier is required to carry pursuant to the Agreement. Supplier shall notify Tesla at least thirty (30) days prior to the cancellation or implementation of any material change in the foregoing policy coverage that would affect Tesla’s interests. Upon request, Supplier shall furnish to Tesla as evidence of insurance a certificate of insurance stating that the coverage will not be canceled or materially altered without thirty (30) days prior notice to Tesla.

26. Miscellaneous .

(a) Assignment . This Agreement shall be binding on, and inure to the benefit of, the Parties and their respective permitted assigns. Supplier shall not assign or otherwise transfer this Agreement or any of Supplier’s rights or obligations hereunder, in any manner, without the prior written consent of Tesla, which shall not be unreasonably withheld.

(b) Change in Control . Supplier will notify Tesla immediately of Supplier’s intent (or any other person’s intent, to the extent Supplier is aware of it) to effect any Change in Control or any sale of ten percent (10%) or more of Supplier’s capital stock or similar ownership interest of Supplier.

(c) Waiver . If either Party fails to insist on performance of any term or condition, or fails to exercise any right or privilege hereunder, such failure shall not constitute a waiver of such term, condition, right or privilege.

(d) Survival of Obligations . Termination or expiration of this Agreement will not relieve either Party of its obligations under Sections 7, 8(c), 9(a) — (i), 9(j), 11(a) — (f), 11(h), 12, 17(b), 18,

 

1

[***] will maintain Commercial General Liability for the Term, with limits of at least €500,000 or Sterling equivalent Per Occurrence for Public Liability, and €500,000 or Sterling equivalent Per Occurrence and in the annual aggregate for Product Liability.

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 24 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

19(c)—(e), 20 — 23, 26(c) — (e), (h), (i), and (I) — (r), nor will termination or expiration relieve the Parties from any liability arising prior to the date of termination or expiration.

(e) Severability . Any provision of this Agreement that is held unenforceable or invalid for any reason by a court of competent jurisdiction shall be severed from this Agreement, and the remainder of the Agreement shall continue in effect; provided, that such unenforceable or invalid provision shall be given effect to the maximum extent then permitted by law.

(f) General Compliance with Laws and EEO Regulations . Each Party represents, warrants and agrees that such Party’s execution, delivery and performance of this Agreement will not conflict with or violate any applicable law, rule, regulation, order, decree, or ordinance.

(g) No Gratuity . Neither Party will offer or give any gratuity to induce any person or entity to enter into, execute or perform the Agreement or any other agreement with between the Parties. [***] will maintain Commercial General Liability for the Term, with limits of at least €500,000 or Sterling equivalent Per Occurrence for Public Liability, and €500,000 or Sterling equivalent Per Occurrence and in the annual aggregate for Product Liability.

(h) Governing Law, Exclusive Forum . The Agreement and any dispute arising out of or in connection with the Agreement or the Parties’ relationship shall be interpreted, enforced and governed by the laws of the State of California, excluding its choice of law rules. The exclusive forum for any dispute related in any way to this Agreement or the Parties’ relationship shall lie in the courts, state or federal, of California, and venue shall lie in the courts of Santa Clara County. Items shall be deemed and shall qualify as goods under the Uniform Commercial Code as adopted in California. Each Party consents to personal jurisdiction in the above courts. Notwithstanding the foregoing, Tesla shall have the right to seek injunctive relief, including preliminary and permanent injunctive relief, in any court of competent jurisdiction, including, without limitation, to enforce Tesla’s rights under Sections 9 and 11, or to otherwise enforce any judgment made hereunder.

(i) General Representations . Each Party represents and warrants as follows: (i) such Party is duly organized, validly existing, and in good standing under the laws of the jurisdiction of its organization; and (ii) such Party’s execution and delivery of this Agreement and performance of its obligations hereunder will not (1) violate any provision of the charter, bylaws or other governing document of such Party, or (2) conflict with, result in a breach of, or constitute a default under, any other agreement or arrangement by which such Party is bound.

(j) Force Majeure . If and to the extent that a Party’s performance of any of its obligations pursuant to this Agreement is prevented, hindered or delayed by fire, flood, earthquake, elements of nature or acts of God, acts of war, terrorism, riots, civil disorders, rebellions, revolutions, strikes, labor disputes or any other similar cause beyond the reasonable control of such Party (each, a “ Force Majeure Event ”), then the non-performing, hindered or delayed Party shall be excused for such non-performance, hindrance or delay, as applicable, of those obligations affected by the Force Majeure Event for as long as such Force Majeure Event continues; provided, that such Party continues to use commercially reasonable efforts to recommence performance whenever and to whatever extent possible without delay, including through the use of alternate sources, workaround plans or other means. Notwithstanding the preceding sentence, if the Force Majeure Event continues for a period of more than thirty (30) days, either Party may thereafter exercise its rights, if any, pursuant to Section 21, to deliver a notice of termination, subject to any cure period that may be required by Section 21. The Party whose performance is prevented, hindered or delayed by a Force Majeure Event shall promptly

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 25 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

notify the other Party in writing of the occurrence of a Force Majeure Event and describe in reasonable detail the nature of the Force Majeure Event.

(k) No Agency . Each Party shall be deemed to be an independent contractor and not an agent, joint venturer or representative of the other Party, and neither Party may create any obligations or responsibilities on behalf of or in the name of the other Party.

(l) Cumulative Remedies . The rights and remedies of the Parties provided under this Agreement are not exclusive (unless another provision of this Agreement expressly provides that a right or remedy is exclusive), and may be exercised, alternatively or cumulatively, with any other rights and remedies available to the Parties under this Agreement or in law or in equity.

(m) Amendments and Modifications; Captions and Construction . Except as provided in Section 2(c) (Updating Business Processes), amendments or revisions to this Agreement must be in writing, signed by both Tesla and Supplier duly authorized representatives, traced by revision numbers and attached to the original of this Agreement.

(n) Counterparts and Facsimile . This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and such counterparts together shall constitute the same instrument. For purposes hereof, a facsimile copy of this Agreement, including the signature pages hereto, shall be deemed an original.

(o) Notices . Subject to Section 2(c), any notice, consent or approval required or permitted under this Agreement shall be in writing and in English (unless otherwise expressly stated) and shall be given (1) personally; (2) by express courier; (3) by facsimile with confirmation of delivery; or (4) by email with confirmation of delivery. The Supplier and Tesla shall each nominate a representative who shall be authorized to make decisions relating to the Items and who shall be responsible for organizing all meetings and actions provided for in this Agreement.

Notices to Tesla:

Carl Ellis

Supply Chain Manager

Potash Lane

Hethel, Norwich

Norfolk, NR14 8EZ

Fax: + 44 (0) 1953 608404

e-mail: cellis@teslamotors.com

Notices to Supplier :

[***]

[***]

Fax: [***]

e-mail: [***]

(p) Notifications to Tesla . Supplier shall promptly notify Tesla in writing as soon as possible before, and in any event prior to the occurrence of, (i) Supplier’s acquisition of a majority of the capital stock of, or substantially all of the assets of, a third party or business division of a third party that directly or indirectly provides goods or services to Tesla; (ii) a significant change in leadership roles at Supplier, a business division of Supplier, or factory or physical plant of Supplier, which is involved in Supplier’s performance of this Agreement; (iii) any problem or

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 26 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

other issue that a reasonable person in the position of Supplier would believe could negatively impact Supplier’s ability to perform its obligations under this Agreement (including making on- time deliveries); or (iv) any material change to Supplier’s information, inventory management, or financial management systems or processes.

(q) Foreign Translation . This Agreement is written in the English language. The English text of this Agreement shall prevail over any translation thereof.

(r) Entire Agreement . This Agreement, including its Attachments, sets forth the entire understanding and agreement of the Parties as to the subject matter of this Agreement and supersedes all prior agreements, understandings, proposals and representations, oral or written, between the Parties as to the subject matter, except for NDA(s), which are addressed by Section 9(d). In the event of any conflict between or among any documents which are part of this Agreement, the following order of precedence shall apply: (i) Supply Agreement; (ii) Attachment 1; (iii) other Attachments; (iv) Specifications; and (v) Order.

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 27 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

By execution hereof, the person signing for each Party below hereby certifies, represents and warrants that he/she has read this Agreement and that he/she is duly authorized to execute this Agreement on behalf of such Party.

 

TESLA MOTORS, INC.

   

[***]

By:

 

/s/ Thomas E. Colson

   

/s/ [***]

Thomas E. Colson

   

[***]

Printed Name

   

Printed Name

Vice President, Manufacturing

   

Managing Director

Title

   

Title

        20 Apr 07

   

3 rd May 2007

Date

   

Date

 

   

By:

 

/s/ [***]

 

   

[***]

     

Printed Name

 

   

Director

     

Title

 

 

   

03.05.07

     

Date

 

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 28 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

Table of Attachments

 

No

  

Name

1

  

List of Items, Pricing Mechanism, and Lead Times

2

  

Packaging and Labeling Specification

3

  

Transportation Routing Guide

4

  

Supplier Corrective Action Request

5

  

PPAP Submission Workbook

6

  

Tesla Motors Supplier Handbook

7

  

Tesla Tooling and Property Requirements

8

  

Leveraging Tesla Brand Marketing

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 29 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 1

List of Items, Pricing Mechanism, and Lead Times

All prices Ex-Works [***]

[***]

Attachment 1, List of Items, Pricing Mechanism and Lead Times

*This attachment was provided by the supplier on 26th March 2007, and Is subject to further evaluation an updates as per section 4(f)

 

Description   

Tesla Part Number

   Quantity p/car
set
  

Unit Price

  

Cost p/car set

  

MOQ

  

Lead-Time
(Days)

[***]

   06-000535-00-AA    1    £[***]    £[***]    [***]    [***]

[***]

   06-000540.00-AA    1    £[***]    £[***]    [***]    [***]

[***]

   06.900170-00-AA    1    £[***]    £[***]    [***]    [***]

[***]

   06-000541-00-AA    1    £[***]    £[***]    [***]    [***]

[***]

   06-000560-00-AA    1    £[***]    £[***]    [***]    [***]

[***]

   02-002004-00-AB    1    £[***]    £[***]    [***]    [***]

[***]

   02-001845-00-AA    1    £[***]    £[***]    [***]    [***]

[***]

   02-001866.00-AA    1    £[***]    £[***]    [***]    [***]

[***]

  

02-000837-00-AA

02-000838-00-AA

   2    £[***]    £[***]    [***]    [***]

[***]

  

02-000839-00-AA

02-000840-00-AA

              

[***]

  

02-000883.00-AA

00-000884-00-AA

   2    £[***]    £[***]    [***]    [***]

[***]

  

06-000623-00

06-000624-00

   2    [***]    [***]    [***]    [***]

[***]

  

01-003145-00

01-003146-00

              

[***]

  

02-000844-00-AA

00-000845-00-AA

              

[***]

   02-002050-00-AA    1    £[***]    £[***]    [***]    [***]

[***]

   02-001928-00-AA    1    £[***]    £[***]    [***]    [***]

[***]

   02-000568-00-AA    1    £[***]    £[***]    [***]    [***]

[***]

   02-001931-00-AA    1    £[***]    £[***]    [***]    [***]

[***]

   02-001930-00-AA    1    £[***]    £[***]    [***]    [***]

[***]

  

02-001920-00-AA

02-001921-00-AA

   2    [***]    £[***]    [***]    [***]

[***]

  

02-001918-00-AA

02-001919-00-AA

   2    [***]    £[***]    [***]    [***]

[***]

  

02-001916-00-AA

02-001917-00-AA

   2    [***]    £[***]    [***]    [***]

[***]

   06-000739-00-AA    1    £[***]    £[***]    [***]    [***]

[***]

   06-000740-00-AA    1    £[***]    £[***]    [***]    [***]

[***]

  

02-002950-00-AA

02-002952-00-AA

              

[***]

  

02-002951-00-AA

02-002934-00-AA

              

[***]

  

02-002488-00-AA

02-002489-00-AA

   2    £[***]    £[***]    [***]    [***]

[***]

  

02-001925-00-AA

02-001926-00-AA

   2    £[***]    £[***]    [***]    [***]

[***]

  

02-001922-00-AA

02-001923-00-AA

   2    £[***]    £[***]    [***]    [***]

[***]

  

02-001911-00-AA

02-001912-00-AA

   2    £[***]    £[***]    [***]    [***]
                 
           

[***]

   £[***]   

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 30 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 31 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 2

Transportation, Packaging and Labeling Specification

 

1

The Supplier shall (where applicable):

 

 

(a)

properly pack and label the Items in accordance with the specific requirements of Tesla;

 

 

(b)

route consignments in accordance with any instructions from Tesla;

 

 

(c)

not charge for the handling, packaging, storage or transportation of the Items, protective packaging, material, delivering of parts to various plants in special racks/different container types or re-assignment of all kind of containers unless otherwise agreed in writing with Tesla;

 

 

(d)

to properly mark each package with a label/tag according to Tesla’ instructions and/or in accordance with any legal obligation;

 

 

(e)

include on any bills of lading or other shipping receipts the correct classification and identification of the Items transported in accordance with Tesla’ instructions and any requirements of the carrier and to promptly forward the same in accordance with Tesla’ instructions;

 

 

(f)

ensure that the marks on each package and identification of the Items on packing slips, bills of lading and invoices are sufficient to enable Tesla to easily identify the goods;

 

 

(g)

obtain all necessary export licenses and/or permissions in respect of the delivery of the Items or where Tesla must obtain such export licenses and/or permissions in its own name, provide Tesla with reasonable assistance to secure the same;

 

 

(h)

notify Tesla in advance of delivery in writing if the Supplier requires Tesla to return any packaging material to the Supplier. Such packaging material will only be returned to the Supplier at the Supplier’s cost and risk.

 

 

(i)

comply with a all provisions of the Tesla supplier handbook.

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 32 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 3

Transportation Routing Guide

[omitted]

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 33 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 4

Supplier Corrective Action Request

Refer to Tesla Motors Document Numbers:

 

 

 

99-000002-02

  

Corrective & Preventive Actions

 

 

99-000066-04

  

Supplier Corrective Action Request form

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 34 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 5

PPAP Submission Workbook

Refer to Tesla Motors Document Number:

 

 

 

99-000094-04

  

PPAP Submission Workbook

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 35 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 6

Tesla Motors Supplier Handbook

Refer to Tesla Motors Document Number:

 

 

 

99-000068-03

  

Tesla Motors Supplier Handbook

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 36 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 7

Tesla Tooling and Property Requirements

 

1

Unless otherwise agreed in writing by Tesla, the Supplier shall be responsible for and shall undertake the design and development of all tools, jigs, dies, gauges, fixtures, molds and patterns or other equipment necessary in the provision of the Items (“Tooling”), unless Tesla solely provides the design of the Tooling and provides instruction relating to design in which case the Supplier shall be responsible for producing the Tooling to the Tesla design. Supplier shall keep all Tooling in good condition. Supplier shall inform Tesla of any expenses related to any replacement or upkeep of all Tooling when necessary.

 

2

Supplier warrants that the design, assembly, manufacture or procurement of the Tooling shall render the Tooling fit for purpose and of satisfactory quality provided that the parties hereby acknowledge and agree that the Supplier shall not be in breach of this warranty if a design provided by Tesla is in error and such error is not due to the acts or omissions of the Supplier;

 

3

The cost of changes to the Tooling necessary to make design and specification changes authorized by Tesla shall be paid for by Tesla. The Supplier hereby grants to Tesla an irrevocable option (exercisable at any time during the duration of the Agreement or after its termination) to take possession of and title to the Tooling that are special for the provision of the Items upon payment to the Supplier of the book value thereof less any amounts which Tesla has previously paid to the Supplier for the cost of such Tooling.

 

4

All supplies, tools, jigs, dies, gauges, fixtures, molds, patterns, equipment and other items provided by Tesla, either directly or indirectly, to the Supplier, or for which the Supplier has been reimbursed by Tesla (“Tesla Property”), shall be and remain the property of Tesla and held by the Supplier on a bailment basis.

 

5

The Supplier shall bear the risk of loss and damage to Tesla Property. Tesla Property shall at all times at the Supplier’s cost

 

 

(a)

be properly housed and maintained in full working order;

 

 

(b)

be replaced by the Supplier (at the Supplier’s cost), if the replacement is required due to

 

 

(i)

abuse of the Tesla Property; and/or

 

 

(ii)

failure to maintain, repair, service or house the Tesla Property.

 

 

(c)

not be used by the Supplier for any purpose other than the performance of an Order under the Agreement;

 

 

(d)

be conspicuously marked as property of Tesla by the Supplier;

 

 

(e)

not be mixed with the property of the Supplier or with that of a third party; and

 

 

(f)

not be moved from the Supplier’s premises, modified or replaced without Tesla’ prior written approval.

 

6

Upon the request of Tesla, the Tesla Property shall be immediately released to Tesla or delivered to Tesla’ premises by the Supplier properly packed and marked in accordance with the requirements of Tesla all at the Supplier’s cost or delivered to any location reasonably designated by Tesla, in which event Tesla shall pay the Supplier the reasonable cost of delivering such Tesla Property to such location.

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 37 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

7

The Supplier shall insure all Tesla Property against all risks for the replacement value and shall, upon Tesla’ request, provide to Tesla certificates or other satisfactory evidence of such insurance.

 

8

Tesla, its employees, agents and sub-contractors may enter in or on the Supplier’s premises (or any other premises where the Tesla Property may be) at all reasonable times and on reasonable notice to inspect the Tesla Property and the Supplier’s records with respect thereto and the Supplier hereby provides its irrevocable consent (and shall procure the irrevocable consent of any relevant third parties) to permit Tesla, its employees, agents and sub-contractors to enter such premises for this purpose.

 

9

On termination of the Agreement (for whatever reason) the Supplier must not destroy the Tesla Property but shall liaise with Tesla over arrangements for the Tesla Property to be returned to Tesla.

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 38 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 8

Leveraging Tesla Brand Marketing

 

1.

Definitions: The following capitalized term shall have the meaning specified below.

 

 

(a)

“Tesla Marketing Materials” means all marketing materials that promote Tesla’s products and vehicles that include, but are not limited to: (A) Tesla’s trademarks, service marks, photographs, or images in promotional, advertising, instructional, or reference materials, or on its web sites, products, labels, or packaging; (B) marketing merchandize, props, posters, banners, toys, gifts, mugs, etc.; (C) links to or from Tesla’s web sites to various third party sites, including Supplier’s; and (D) display or demonstration of Tesla vehicles, sub-systems, parts, models, or replicas in show rooms, conventions, or marketing events.

 

2.

The following guideline shall be applied when Supplier wishes to use Tesla Marketing Materials. Additional guidelines may be provided by Tesla at its discretion.

 

3.

Use of the Tesla Marketing Materials for commercial purposes without the prior written consent of Tesla may constitute trademark infringement and unfair competition in violation of federal and state laws. Use of Tesla trademarks may be prohibited, unless expressly authorized.

 

4.

Tesla’s trademarks, service marks, trade names, and trade dress are valuable assets. In following these guidelines, Supplier shall protect Tesla’s valuable trademark rights and strengthen Tesla’s corporate and brand identities.

 

5.

By using a Tesla trademark, in whole or in part, Supplier acknowledges that Tesla is the sole owner of the trademark and promising that Supplier will not interfere with Tesla’s rights in the trademark, including challenging Tesla’s use, registration of, or application to register such trademark, alone or in combination with other words, anywhere in the world, and that Tesla will not harm, misuse, or bring into disrepute any Tesla trademark.

 

6.

The goodwill derived from using any part of a Tesla trademark exclusively inures to the benefit of and belongs to Tesla. Except for the limited right to use as expressly permitted under these Guidelines, no other rights of any kind are granted hereunder, by implication or otherwise.

 

7.

Authorized Use of Tesla Trademarks.

 

 

(a)

Advertising, Promotional, and Sales Materials . Only Tesla and its authorized licensees may use the Tesla Marketing Materials in advertising, promotional, and sales materials. Supplier may use the Tesla Marketing Materials only as specified in the agreement.

 

 

(b)

Word mark . Supplier may use Tesla word mark in a referential phrase on promotional/advertising materials, provided they comply with the following requirements.

 

 

(i)

The Tesla word mark is not part of the product name.

 

 

(ii)

The Tesla word mark appears less prominent than the product name.

 

 

(iii)

The reference to Tesla does not create a sense of endorsement, sponsorship, or false association with Tesla or Tesla products or services.

 

 

(iv)

The use does not show Tesla or its products in a false or derogatory light.

 

 

(c)

Publications, Seminars, and Conferences . Supplier may use a Tesla word mark in connection with book titles, magazines, periodicals, seminars, or conferences provided Supplier comply with the following requirements:

 

 

(i)

The use is referential and less prominent than the rest of the title.

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 39 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

 

(ii)

The use reflects favorably on both Tesla and Tesla products or technology.

 

 

(iii)

Supplier’s name and logo appear more prominent than the Tesla word mark on all printed materials related to the publication, seminar or conference.

 

 

(iv)

The Tesla Marketing Materials or any other Tesla-owned graphic symbol, logo, icon or image does not appear on or in the publication or on any materials related to the publication, seminar, or conference without express written permission from Tesla.

 

 

(v)

A disclaimer of sponsorship, affiliation, or endorsement by Tesla, similar to the following, is included on the publication and on all related printed materials: “(Title) is an independent (publication) and has not been authorized, sponsored, or otherwise approved by Tesla Motors, Inc.”

 

 

(vi)

A trademark attribution notice is included in the credit section giving notice of Tesla’s ownership of its trademark(s).

 

 

(d)

Web Sites . Web sites may use the appropriate Tesla word mark, provided such use complies with the guidelines set forth in Sections 7(a) to (c) above.

 

8.

Unauthorized Use of Tesla Trademarks.

 

 

(a)

Supplier shall not use or register, in whole or in part, Tesla trademark, including Tesla-owned graphic symbols, logos, icons, or an alteration thereof, as or as part of a company name, trade name, product name, or service name except as specifically noted in these guidelines.

 

 

(b)

Supplier shall not use the Tesla Marketing Materials or any other Tesla-owned graphic symbol, logo, or icon on or in connection with web sites, products, packaging, manuals, promotional/advertising materials, or for any other purpose except pursuant to an express written trademark license from Tesla.

 

 

(c)

Supplier shall not use an image of other variation of the Tesla Marketing Materials for any purpose. Third parties cannot use a variation, phonetic equivalent, foreign language equivalent, takeoff, or abbreviation of an Tesla trademark for any purpose.

 

 

(d)

Supplier shall not use an Tesla trademark or any other Tesla-owned graphic symbol, logo, or icon in a disparaging manner.

 

 

(e)

Supplier shall not use Tesla trademark, including Tesla-owned graphic symbols/logos, or icons, in a manner that would imply Tesla’s affiliation with or endorsement, sponsorship, or support of a third party product or service.

 

 

(f)

Supplier shall not manufacture, sell or give-away merchandise items, such as T-shirts and mugs, bearing Tesla trademark, including symbols, logos, or icons, except pursuant to an express written trademark license from Tesla.

 

 

(g)

Supplier shall not imitate the distinctive Tesla packaging, website design, logo, or typefaces.

 

 

(h)

Supplier shall not use or imitate a Tesla slogan or tagline.

 

 

(i)

Supplier shall not use an identical or virtually identical Tesla trademark as a second level domain name.

 

9.

Proper Use of Tesla Trademarks.

 

 

(a)

Trademarks are adjectives used to modify nouns; the noun is the generic name of a product or service. Trademarks may not be used in the plural or possessive form.

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 40 of 41


Confidential Treatment Requested by Tesla Motors, Inc.

 

 

(b)

Spell and capitalize Tesla’s trademarks exactly as intended by Tesla. No shortened or abbreviated Tesla product names or made-up names that contain Tesla trademarks shall be allowed.

 

10.

Compensation . In return for using Tesla Marketing Materials, Parties may agree to Supplier paying Tesla a reasonable compensation for anticipated potential for Supplier’s enhanced market position and sales. When such agreements are made by Parties, the agreed sum shall be paid to Tesla in a mutually agreed term, including deduction from Item costs.

 

11.

Tesla will not be allowed to use any logo, trademark, or service mark of the Supplier without agreeing to specific terms as to use.

 

[***]

Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  TESLA MOTORS CONFIDENTIAL/[***]   Page 41 of 41

Exhibit 10.31

Confidential Treatment Requested by Tesla Motors, Inc.

September 22, 2008

BorgWarner

TorqTransfer Systems

Louis J. Bogart

Vice President

Sales & Marketing

Ms. Evelyn Chiang

Tesla Motors

1050 Bing Street

San Carlos, CA 94070

Re: Modification to Tesla Motors Terms & Conditions of Purchase

Dear Ms. Chiang:

BorgWarner TorqTransfer Systems Inc. (“BW”) and Tesla Motors Inc. (“Tesla”) agree that the terms set forth below will apply to BW’s supply of parts to Tesla from and after the date hereof (the “Parts”), notwithstanding anything to the contrary in Tesla’s standard contract documentation, including without limitation Tesla’s purchase orders, and Tesla’s Terms and Conditions of Purchase (“Tesla Ts & Cs”), and any amendments to the foregoing. However, to the extent they are not inconsistent with the terms set forth below, the parties agree that the terms and provisions of such standard contract documentation, but excluding BorgWarner Terms and Conditions of Sale (collectively, the “Contract Documents”) will apply. The parties agree as follows:

1. BW will supply to Tesla, and Tesla will purchase from BW, [***], or such lesser percentage as may be specified in the Contract Documents. Tesla will send releases to BW on a periodic basis, with such reasonable lead times as the parties may mutually agree upon, or as specified in the Contract Documents. Tesla will notify BW in writing if Tesla requires Parts on a more expedited basis and BW will use its commercially reasonable efforts to comply with such revised schedule. Tesla will be responsible for any increased costs due to expedited shipping methods necessary to comply with such revised schedule.

2. Tesla will be deemed to have accepted all Parts delivered to it unless Tesla notifies BW in writing of any non-conformance within 20 business days of Tesla’s receipt of such Parts.

3. BW and Tesla agree to quarterly price adjustments related to [***]. These adjustments will be based upon the average cost of the mid-month of the previous quarter (e.g., April 1 st adjustments will be based upon the average cost during February). [***] adjustments will be based upon [***]. [***] adjustments will be based upon the [***]. Appropriate [***] to be jointly determined by Tesla and BorgWarner. BorgWarner will provide commodity weights and index baseline assumptions with each quotation. (These adjustments will not apply to the August 4, 2008 Purchase Order for [***] units.) BorgWarner reserves the right to re-quote should actual annual

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

volumes fall [***] or more short of program expectations. Tesla may not offset or recoup any claim against amounts due BW from Tesla and BW does not agree to any automatic price discounts for early payments.

4. For a period of [***] from the date of delivery by Tesla to the end user of the vehicle containing the Parts, or [***] miles in service, whichever comes first, BW warrants that the Parts will be free from defects in design (to the extent designed by BW), material and workmanship under normal use, and will conform strictly to the specifications, drawings and/or samples set forth in the Contract Documents, or as otherwise agreed in writing by BW and Tesla. BW’s sole liability for warranty claims hereunder is to repair or provide a replacement Part or allow a credit to Tesla’s account, at BW’s sole option, for any Parts that BW determines to its reasonable satisfaction to be defective. Such credit will be in an amount equal to the original purchase price for the Part in question. Replaced Parts will be warranted in time only through the remaining period of this warranty. BW will not warrant defects or damages which are a result of design defects (to the extent the Parts are designed according to specifications provided by Tesla), improper installation, neglect, improper maintenance, handling or operation of products by Tesla or any third party. THE WARRANTIES SET FORTH HEREIN ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER WARRANTIES, WHETHER STATUTORY, EXPRESS OR IMPLIED, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND WARRANTIES ARISING FROM COURSE OF DEALING OR USAGE OF TRADE.

5. Neither party will be liable to the other under any circumstances for incidental, consequential, special, punitive or exemplary damages.

6. If Tesla cancels or terminates this agreement or an Order for convenience under either Section 20 or 21 of the Tesla Ts & Cs, BW shall have no liability to Tesla and Tesla will make the following payments to BW promptly following the effective date of termination or cancellation:

(i) Payment for all Parts previously delivered to Tesla and not yet paid for;

(ii) Payment for all finished Parts on hand, work-in-process, and raw materials purchased to manufacture parts on order during the lead-time window specified on the BorgWarner quotation. (This clause will not apply to the August 4, 2008 Purchase Order for [***] units, as all [***] units are considered a firm order.) Raw material exposure will be limited to the extent BW cannot recoup such cost by using those raw materials in connection with its other operations or by selling or otherwise disposing of those raw materials. Parts, work-in-process, and raw materials will be shipped to Tesla following receipt of payment; and

(iii) BW’s unamortized capital, tooling and engineering costs as of the effective date of termination in connection with the supply of Parts to Tesla. Detailed documentation to be provided by BW within 90 days of termination notice. Tesla to have 90 days from receipt of documentation to verify claim via an on-site audit, (No claims under this clause will apply to the August 4, 2008 Purchase Order for [***] units.)

7. Tesla agrees that information related to the manufacture of the Parts is confidential information of BW and agrees not to disclose such information to a third party without written

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  -2-  


Confidential Treatment Requested by Tesla Motors, Inc.

 

permission from BW. Tesla agrees that BW does not grant any right or license to BW’s intellectual property rights that existed prior to BW’s supply of the Parts. BW shall not be liable for alleged or actual charges of intellectual property infringement based on Tesla’s modifications to the Parts.

8. Any amendment to the terms set forth in this letter must be in writing and signed by both parties.

9. The terms set forth in this letter and all other documentation relating to BW’s supply of the Parts will be governed by the laws of the State of Michigan without regard to conflict of laws principles.

Please acknowledge and confirm Tesla’s agreement to the matters set forth above by countersigning and returning this letter. This letter agreement will be effective upon execution by both parties.

 

Sincerely,
BorgWarner TorqTransfer Systems Inc.

/s/ Louis J. Bogart

By:   Louis J. Bogart
Its:   Vice President, Sales and Marketing

 

ACKNOWLEDGED AND AGREED
Tesla Motors Inc.
By:  

/s/ Evelyn Chiang

Its:  

Director, Supply Chain

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  -3-  

Exhibit 10.33

Confidential Treatment Requested by Tesla Motors, Inc.

SUPPLY AGREEMENT

between

TESLA MOTORS, INC.

[Tesla Logo]

PANASONIC INDUSTRIAL COMPANY, DIVISION OF PANASONIC

CORPORATION OF NORTH AMERICA,

and

PANASONIC CORPORATION,

ACTING THROUGH ENERGY COMPANY.

[Panasonic Logo]

July 21, 2009

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

THIS SUPPLY AGREEMENT is entered into as of this 21st day of July, 2009 (the “Effective Date”) among:

Tesla Motors, Inc. , a Delaware corporation, with its principal place of business at 1050 Bing St., San Carlos, California 94070, U.S.A. (“Tesla”); and

Panasonic Industrial Company , Division of Panasonic Corporation of North America , a Delaware corporation, with its office located at Three Panasonic Way, Secaucus, New Jersey 07094 (“PIC”) and.

Panasonic Corporation, acting through Energy Company , a Japanese corporation, with its office located at 1-1 Matsushita-cho, Moriguchi-city, Osaka, Japan (“PEC”) (PIC and PEC shall hereinafter be collectively referred to as “Panasonic”).

WHEREAS, Tesla intends to manufacture Li-Ion battery packs (hereinafter called “Finished Products” defined in Section 1) with the Items (hereinafter defined in Section 1) supplied by Panasonic.

WHEREAS, Panasonic is willing to supply the Items to Tesla in accordance with this Agreement.

The Parties agree as follows:

1. Definitions . Unless defined additionally elsewhere in this Agreement, the following capitalized terms shall have the meanings specified below:

 

  a) “Agreement” means (i) this Supply Agreement, (ii) all Attachments, and (iii) all Orders, as each may be amended from time to time.

 

  b) “Attachment” means any document that is referenced in this Supply Agreement and attached hereto, All Attachments are deemed to be incorporated into this Agreement by this reference.

 

  c) “DDP Point” means delivered duty paid (Incoterms 2000) at Panasonic’s receiving location(s) in California.

 

  d) “Finished Products” means Li-Ion battery packs and Modules assembled by Tesla and which incorporate items provided by Panasonic.

 

  e) “FOB Point” means free on board (Incoterms 2000) at Panasonic’s shipping location(s) in Japan.

 

  f) “Item” and “Items” means one (in its singular form) or more than one (in its plural form) Li-Ion battery cells which are manufactured by PEG and which are supplied to Tesla by PIC as specified in (i) Attachment 1, or (ii) an Order.

 

  g) “Module” means smallest replaceable unit in a Tesla battery pack. In the case of the [***], the Module consists of [***] Items connected in a series/parallel arrangement.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  2  


Confidential Treatment Requested by Tesla Motors, Inc.

 

  h) “Order’ means an order for Items communicated pursuant to this Agreement by Tesla to Panasonic via a purchase order whether in hardcopy or electronic form. All Orders are deemed to be incorporated into this Agreement by this reference.

 

  i) “Parties” means Tesla and Panasonic.

 

  j) “Specification” means the specification and product requirements for each Item mutually agreed to by the parties.

 

  k) “Supplier” means Panasonic.

 

  l) “Tesla Application” means any product into which a Tesla battery pack is installed. A Tesla Roadster is an example of a Tesla Application.

2. Scope of Agreement; Term .

 

  a) Scope of Agreement . This Agreement sets forth the terms and conditions governing the purchase and supply of items and the relationship between Tesla and Panasonic in connection with the purchase and supply of Items. Tesla shall be entitled to purchase Items from Panasonic under this Agreement. Nothing in this Agreement shall prevent Tesla from engaging third parties other than Panasonic to provide goods that are the same as, or similar to, the Items. Nothing in this Agreement shall prevent Panasonic from providing goods that are the same as, or similar to, the Items to third parties other than Tesla.

 

  b) Term . This Agreement shall commence on the Effective Date and, unless terminated as set forth in Section 15 (Termination), shall end on December 31, 2010. This Agreement, however, shall be automatically extended from year to year for additional one (1) year periods, unless one Party gives a written notice of termination to the other Parties at least sixty (60) days before the expiration date of the initial term or then current term. The effective period of this Agreement is referred to as the “Term.”

3. Forecasts and Orders .

 

  a)

Monthly Forecasts and Orders . On or before the fifth (5 th ) day of each calendar month, Tesla will provide Panasonic with a good faith, rolling monthly forecast for Tesla’s anticipated requirements of the Items for the next six (6) months, and issue firm and irrevocable Orders for (i) the first [***] for Orders which specify the DDP Point and will be shipped by boat; (ii) [***] for Orders which specify the FOB Point; or (iii) [***] for Orders which specify the DDP Point and will be shipped by air. The scope of firm and irrevocable Orders may be discussed after the date of [***]. The Orders shall comply with applicable lead times and shall be non-cancellable. Delivery of Orders shall not be permitted to be rescheduled without the prior written consent of Panasonic and the payment by Tesla of any rescheduling charges specified by Panasonic. The forecasts for the [***] (in case of (ii) or (iii) above) [***] months will be non-binding and are for planning purposes only.

 

  b) Order Requirements . An Order shall (i) identify the Items requested and (ii) state the quantity, date, time, mode and place of delivery, and price of the Items requested (unless previously specified in Attachment 1, which shall control in the event of a conflict with the Order).

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  3  


Confidential Treatment Requested by Tesla Motors, Inc.

 

  c) Acceptance/Refection of Orders . Panasonic shall communicate to Tesla its acceptance or rejection of a forecast and related Order within seven (7) working days of Panasonic’s receipt of the Order. Panasonic shall not, however, reject an Order for Items placed by Tesla pursuant to Section 3(a) within the [***] period set forth in Section 3(a) so long as the Order conforms to the terms and conditions of this Agreement. Any notice of rejection shall state the specific grounds fore such rejection. If Panasonic fails to notify Tesla of its rejection of an Order within seven (7) working days of Panasonic’s receipt of the Order, the Order shall be deemed accepted by Panasonic, Notwithstanding anything herein to the contrary, Panasonic shall not be obligated to accept a forecast for months one, two (in case of (ii) or (iii) in Section 3(a) above), and three (in case of (i) in Section 3(a) above) or any Order based upon such forecast which contains forecasted quantities of the Items that are [***] greater or less than the quantities originally set forth in the forecast for such quantities in months [***] (in case of (ii) or (iii) in Section 3(a) above) or [***] (in case of (i) in Section 3(a) above).

 

  d) Forecast Adjustments . Panasonic acknowledges that Tesla may be required to modify forecasts from time to time, but such modifications to the forecasts shall not result in a change and/or cancellation of any firm and irrevocable Orders as described in Section 3(a).

 

  e) Purchases by Authorized Third Party . Items may be incorporated into Finished Products made for Tesla by a third party. Upon the mutual agreement of the Parties, Tesla may designate the third party as authorized to purchase Items from Panasonic. Such third party shall meet Panasonic’s technical requirements for battery handling and battery pack assembly, purchasing requirements and credit terms as established by Panasonic from time to time. Tesla shall cause such third party to enter into an agreement with Panasonic to purchase Items from Panasonic on terms and conditions substantially similar to the terms and conditions set forth in this Agreement.

 

  f) Notwithstanding anything herein to the contrary, Panasonic shall not be obligated to deliver any Items to Tesla unless Tesla has issued an Order to Panasonic at least [***] or [***] months (as set forth in Section 3(a)) prior to the expected delivery date for such Items.

 

  g) Minimum Purchase Commitment . Tesla expects to purchase the quantities of the Items set forth in Attachment 1, Tesla may buy goods from third parties that are identical or similar to the Items.

4. Pricing .

 

  a) Contract Prices . “Contract Prices” means the domestic and/or export price in U.S. Dollars for an Item as set forth in Attachment 1.

 

  b) Pricing Components . The Contract Prices, and any quotations for Items, shall include all finishing, testing, inspecting and packaging fees, applicable royalties and all applicable taxes (excluding sales, use and similar taxes). Any quotations for Items shall include all costs relating to warranties.

 

  c) Transportation and Insurance Costs . One Contract Price shall be based on shipment to the DDP Point; an alternate Contract Price will be used in the event Tesla takes delivery of the items at the FOB Point.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  4  


Confidential Treatment Requested by Tesla Motors, Inc.

 

  d) Taxes . Tesla will pay any applicable excise, sales, use or similar tax imposed in connection with the sale of Items to Tesla; provided that Panasonic shall not charge or collect, and Tesla shall have no liability for, taxes on any sale of Items for which Tesla has provided Panasonic with an appropriate resale certificate or other documentation evidencing an exemption from such taxes. For all sales of Items upon which tax reimbursement to Panasonic is applicable, Panasonic shall separately itemize all applicable taxes on invoices submitted to Tesla. All amounts payable under this Agreement are exclusive of Value Added Tax (VAT) which will be paid at the date and in the manner for the time being prescribed by law.

 

  e) Recycling Fees . Tesla will pay any applicable recycling fees should it decide to recycle the Items and/or if any rules and regulations pertaining to battery recycling change to require recycling of the Items.

5. Delivery of Items .

 

  a) Delivery Requirements . Panasonic shall meet the (i) negotiated lead time; (ii) order adjustment requirements as set forth in Section 3; and (iii) time, date, location and other delivery requirements for Items as set forth in the Order.

 

  b) Remedies . If Panasonic fails to deliver any Items at the time and place set forth in the Order, and the Order is based on the agreed schedule and quantity, Tesla shall have the right, at its sole option, to: (i) require Panasonic, at Panasonic’s expense, to use reasonable expedited delivery methods to complete and deliver the Items; or (ii) allocate or redirect Panasonic’s deliveries of Items manufactured by Panasonic for Tesla pursuant to previously accepted Orders to certain Tesla designated locations. The foregoing shall constitute Tesla’s sole and exclusive remedy for any delayed deliveries of the Items by Panasonic.

 

  c) Refusal of Delivery . If Tesla shall at any time wrongly refuse to accept delivery of any shipment of Items, such shipment, at Panasonic’s option, may be held for Tesla’s account, and Panasonic may invoice, and Tesla shall promptly pay, for such shipment. Tesla may at any time thereafter and from time to time be invoiced by Panasonic, and Tesla agrees to promptly accept and pay each such invoice, for any and all freight, handling, warehouse, labor and other costs incurred by Panasonic which arise from or which are in any way related to or associated with such wrongful refusal by Tesla to accept such shipment until such time as delivery of such shipment is accepted by Tesla.

6. Shipping and Packaging Requirements .

 

  a) Panasonic will ship all items in accordance with the Transportation, Packaging and Labeling Specification set forth in Attachment 2. If Tesla specifies an authorized shipping service level (such as ground, sea, air, second-day, next-day, etc.) in a specific Order and Panasonic has previously agreed that it can provide such shipping service level, Panasonic will ship such Items in accordance with the shipping service level included in an Order; provided, however, that Tesla shall be responsible for any increased costs resulting from the use of such shipping service level.

 

  b) The Items shall be packaged, marked and labeled in accordance with mutually agreed upon specifications, In all events, Panasonic must include a valid packing slip number or package ID on each package or shipment of Items.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  5  


Confidential Treatment Requested by Tesla Motors, Inc.

 

7. Acceptance .

 

  a) Initial Inspection and Notification . Tesla will inspect the shipments of Items from Panasonic promptly upon delivery, but in any event within sixty (60) days of delivery to the FOB Point, or thirty (30) days of delivery to the DDP Point, using such testing procedures as Tesla determines are appropriate to determine if the items conform to the mutually agreed upon inspection specifications, and will include an OCV test and impedance test among others, Any claim by Tesla arising from such inspection that an Item fails to comply with the mutually agreed specifications must be made within sixty (60) days of delivery to the FOB Point, or 30 days of the delivery of the Item to the DDP Point. Notification of non-conformity will be made in writing and supporting documentation will be provided to Panasonic. An item will be deemed automatically accepted by Tesla if Panasonic does not receive a notification of non-conformity with sixty (60) days of delivery to the FOB Point, or 30 days of the delivery of the item to the DDP Point.

 

  b) Tesla shall promptly supply to Panasonic the detailed facts and additional supporting evidence with respect to the allegedly defective Items.

 

  c) If the cause of the defect is determined by the Parties to be solely attributable to Panasonic, Panasonic shall replace the Items found to be defective by Tesla: It has been agreed between the Parties that such Items’ replacement shall constitute Tesla’s sole and exclusive remedy with respect to the subject defective Items.

 

  d) Upon written instruction from Panasonic, Tesla shall ship, at its expense, any allegedly defective Items to Panasonic for inspection and testing. Upon Panasonic’s confirmation that the defect in the Items was caused solely by Panasonic, Panasonic shall reimburse Tesla for the reasonable transportation costs for shipping the Items to Panasonic for inspection and testing. If Panasonic instructs Tesla in writing to destroy the allegedly defective Items, Panasonic shall reimburse Tesla for the reasonable cost of such destruction.

8. Payment .

 

  a) Payment Terms . Payment by Tesla for Items shall be in United States Dollars and shall be made net [***] from the date of Panasonic’s invoice. Tesla is authorized by Panasonic to make payments under this Agreement by either check or electronic funds transfer, and Panasonic shall provide Tesla with the information necessary for electronic funds transfer capability. With prior consultation with Tesla, Panasonic reserves the right at any time to determine the payment terms and to decrease, eliminate or otherwise limit the amount or duration of credit extended to Tesla in general and/or with respect to any specific order.

 

  b) Invoices . Panasonic will submit invoices to Tesla no earlier than when the Items are received at the FOB Point or the DDP Point.

 

  c) Title, Risk of Loss and No Right of Offset . Tesla will take title to and assume risk of loss for all Items at the FOB Point or the DDP Point. Tesla shall not have the right to withhold payments to Panasonic or reduce the amount of payments owed to Panasonic under this Agreement for fees, claims, damages, expenses or other amounts owed, or alleged to be owed, to Tesla from Panasonic under this Agreement or any other agreement.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  6  


Confidential Treatment Requested by Tesla Motors, Inc.

 

9. Intentionally Left Blank .

10. Responsibility for the Quality of the Items and the Finished Products .

 

  a) Warranty . Panasonic represents and warrants to Tesla that for a period ending [***] from the date, of delivery of the Item to Tesla at the FOB Point or the DDP Point (“Warranty Period”), the Item will be free from defects in workmanship and material and will comply with the Specifications. Tesla hereby acknowledges and agrees that if an Item is not defective and/or complies with its applicable Specifications, it does not mean that a Tesla battery pack, Module and/or Finished Product cannot be defective for some other reason, including, without limitation, improper design or manufacturing by Tesla or a third party.

 

  b) Warranty Exclusions . Notwithstanding anything herein to the contrary, Panasonic shall have no obligation to Tesla for (i) any defects relating to the design and manufacture of the overall system, equipment and/or goods of which the Items are part; or (ii)any defects in the Items that have been caused by (a) Tesla’s shipment or storage of the Items, (b) articles not supplied by Panasonic, including, without limitation, the goods or systems into which the Items are installed, (c) accident or act of God, or misuse, neglect, abuse, mishandling, misapplication, modification, alteration by Tesla or any third party, or improper installation, service, operation testing, checkout or maintenance by Tesla or any third party, or (d) failure by Tesla or any third party to follow the instructions, cautions, warnings, and notes set forth in the Specification, and any other direction from Panasonic.

 

  c) End User Return and Notification . Tesla shall agree to receive the Items that its end user customers return to Tesla. Tesla shall store and control those returned Items from its end user customers and inspect the items to identify the cause of return. As a result of Tesla’s inspection under this Section 10(c), if the reason of return is solely attributable to a breach of the warranties set forth in Section 10(a) and such return of each Item is done within the Warranty Period, Tesla shall communicate this in writing to Panasonic with supporting evidence, and shall return the Item(s) to Panasonic within 30 working days after Tesla has received the returned Item(s). Panasonic shall be responsible for each Item only to the extent that, as a result of the re-inspection of each such returned Item, it is concluded pursuant to either Section 10(e) or Section 10(g) that the cause of the return of the Item was due solely to a breach of the warranties in Section 10(a) resulting in an Item failure caused by: (1) a weak short of greater than [***]; (2) an internal cell short which leads to thermal runaway in an Item (but not thermal runaway propagating or spreading from such Item to other Items, which shall be Tesla’s sole responsibility and liability); or (3) Panasonic’s non-compliance with the Specifications. If the cause of end user return is not due to one of the above three failure modes resulting solely from the breach of the warranties in Section 10(a), then Tesla shall be responsible for the returned Item. In order to assist in verifying cause of cell failure, Tesla shall monitor (i) the accumulated Wh; (ii) maximum temperature; (iii) minimum temperature; and (iv) maximum voltage of the battery pack.

 

  d) Notification of Defect . In the event an Item is returned to Tesla by an end user customer and the reason of return is solely attributable to the breach of the warranties in Section 10(a) resulting in one or both of the failure modes described in Section 10(c) and such return of the Item is done within the Warranty Period, (a “Defect’ and an Item with a Defect a “Defective Item”), then Tesla will promptly notify Panasonic in writing regarding such Defect, and will include with the notification all available information relating to the Defect. Tesla will cooperate with Panasonic in Panasonic’s verification of such information.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  7  


Confidential Treatment Requested by Tesla Motors, Inc.

 

  e) Determination of Defect . For purposes of replacement of Items, the existence of a Defect will be established by Tesla in the first instance, subject to Panasonic’s verification and right to dispute the existence of a Defect and to allow for determination by a third party of any such Defect as specified in Section 10(g) below. In the event of notification pursuant to Section 10(d), then, subject to Panasonic’s verification and right to dispute the existence of a Defect, Panasonic shall, during the Warranty Period, replace the number of Items with a reported Defect with new Items. In the event that a Defective Item is in a Module of a Tesla battery pack that is In a Tesla Application, and as a result of a Defect, Tesla in its sole discretion replaces a Module, Panasonic will, during the Warranty Period, replace the total number of Items contained in such Module with new (and not refurbished) Items. Tesla will promptly notify Panasonic in writing regarding such Defect, and will include with the notification, all available information relating to the Defect. Tesla will cooperate with Panasonic in Panasonic’s verification of such information. The replacement of Items pursuant to this Section 10(e) shall constitutes Tesla’s sole and exclusive remedy for any breach of the warranties set forth in Section 10(a). Under no circumstances shall Panasonic be liable for any costs or expenses incurred by Tesla or any third party related to the installation, replacement and/or use of the replaced Item, including, without limitation, any labor costs or expenses or costs incurred for the adjustment, modification and/or replacement of other equipment.

 

  f) Warranty Liability; Disclaimer . Panasonic’s sole, exclusive and full liability under its limited warranties set forth in Section 10(a) will be to replace any Defective Item, or any Item that is installed in Module, as described in section 10(e) above. THE WARRANTIES SET FORTH IN THIS AGREEMENT ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER WARRANTIES, WHETHER ARISING FROM A COURSE OF DEALING, COURSE OF PERFORMANCE OR TRADE USAGE, OR WHETHER ORAL, WRITTEN, EXPRESS, IMPLIED OR STATUTORY, INCLUDING, BUT NOT LIMITED TO, THE WARRANTIES OF NON-INFRINGEMENT, MERCHANTABILITY, AND FITNESS FOR A PARTICULAR PURPOSE, ALL OF WHICH ARE HEREBY WAIVED BY TESLA. THE EMPLOYEES AND AGENTS OF PANASONIC ARE NOT AUTHORIZED TO MAKE MODIFICATIONS TO SUCH WARRANTIES, OR ADDITIONAL WARRANTIES BINDING ON PANASONIC; ACCORDINGLY, ADDITIONAL STATEMENTS, WHETHER ORAL OR WRITTEN, DO NOT CONSTITUTE WARRANTIES AND SHOULD NOT BE RELIED UPON BY TESLA, FOR THE AVOIDANCE OF DOUBT, TESLA UNDERSTANDS THAT THE ITEMS MAY MALFUNCTION OR BECOME UNSTABLE WHEN SUBJECTED TO (i) WET CONDITIONS, (ii) AN IMPACT FORCE OR SHOCK GREATER THAN THAT SET FORTH IN THE SPECIFICATIONS, OR (iii) ANY OTHER CONDITIONS DIFFERENT FROM THOSE FOR WHICH THE ITEMS WERE ORIGINALLY DESIGNED, AND THAT TESLA SHOULD TAKE PROPER STEPS TO PROTECT THE MODULE AND ITEMS INSIDE THE MODULE FROM SUCH CONDITIONS. NO ACTION OR SUIT SHALL BE BROUGHT ON AN ALLEGED BREACH OF THE WARRANTIES SET FORTH IN THIS AGREEMENT MORE THAN [***] FOLLOWING THE EXPIRATION OF THE APPLICABLE WARRANTY PERIOD.

 

  g) Third Party Determination . In the event of a disagreement or dispute as to the existence of a Defect, the parties will designate by mutual agreement a third party that will make the technical determination of the existence of a Defect and whether such Defect resulted from a breach of Panasonic’s warranties as set forth in Section 10(a).

 

  h)

Quality Plan Requirements and Approval . Panasonic will supply Items according to the mutually agreed upon part approval quality plan therefor, Only after the quality plan for the Items is submitted and approved by Tesla, shall the Items be allowed to be shipped

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  8  


Confidential Treatment Requested by Tesla Motors, Inc.

 

 

for use in manufacturing the. Finished Products, Panasonic shall at Tesla’s costs and expenses submit a mutually agreed quantity of samples of a standard production run of the Items to Tesla per a mutually agreed quality plan. Panasonic shall also provide Tesla with the following information regarding the Items:

 

  a. QC inspection process flowchart.

 

  b. [***]:

 

  i. [***]

 

  ii. [***]

 

  iii. [***]

 

  iv. [***]

 

  i) Tesla shall not repair, improve or modify the Items without the prior written approval of Panasonic. Tesla shall not include more than [***] Items in a Module without obtaining Panasonic’s prior written consent. Tesla shall comply with the mutually agreed upon assembly and manufacturing instructions for battery packs and/or Modules which include Items.

11. Quality Control of the Finished Products .

 

  a) Tesla shall establish and maintain proper quality control and inspection systems at each stage of manufacturing, assembly, storage, inspection and shipping of the Items. Tesla shall use its best efforts to prevent any and all cell propagation relating to the use of the Items by Tesla or any third party. Cell propagation includes, but shall not be limited to, the burning of an Item which spreads to one or more Items.

 

  b) Panasonic may enter from time to time with reasonable advance notice into Tesla’s Finished Products assembly facility for the purpose of inspecting and examining the quality control and inspection systems referred to in section 11(a). If appropriate, the Parties shall enter into a non-disclosure agreement in connection with such inspection and examination. Tesla reserves the right to shield particular confidential areas of the Finished Products assembly facility or processes.

 

  c) Panasonic may from time to time give Tesla advice or instruction as to optimize the performance of Items in the Finished Products and/or the quality control and inspection systems referred to in section 11(a) as Panasonic deems appropriate. Tesla may, upon receipt of such advice or instructions, comply with such advice or instructions if the advice is deemed reasonable by Tesla management and is within the scope of Tesla business plans and objectives.

 

  d) Any advice or instructions given by Panasonic under Section 11(c) is not intended to indemnify Tesla for any acts or omissions for which it is responsible, nor shall it create any warranty by Panasonic for the Finished Products Tesla manufactures.

12. Indemnification .

 

  a)

Indemnity by Tesla . Tesla acknowledges and agrees that any work conducted by Tesla with regard to the assembly, manufacture or placement (inside a Tesla Application) of the Finished Products hereunder is Tesla’s sole and full responsibility. Except to the extent that a claim is solely attributable to Panasonic’s breach: of the warranty set forth in Section 10(a) above, Tesla agrees, during the term of this Agreement and thereafter, to defend, indemnify and hold Panasonic, its divisions, parent, subsidiaries and affiliates,

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  9  


Confidential Treatment Requested by Tesla Motors, Inc.

 

 

and their respective officers and directors (collectively, the “Panasonic Parties”), harmless from any and all damages, claims, liabilities, injuries (including personal injuries and death), losses, expenses (including attorneys’ fees and litigation expenses), and costs (collectively, “Claims”) arising out of or relating to Tesla battery packs, the Modules, Tesla Application and the Finished Products (including circuit and equipment matching issues) and their respective assembly, manufacture or placement, sale, use, operation, storage, transportation, or otherwise, whether the claim is brought by Tesla, its customers or by third parties. Notwithstanding anything herein to the contrary, Tesla shall be responsible for any and all Claims arising out of or relating to cell propagation involving the Items no matter how such cell propagation is caused. Tesla shall defend, indemnify and hold the Panasonic Parties harmless from such Claims arising out of or relating to cell propagation involving the Items no matter how such cell propagation is caused. To the maximum extent permitted by law, Panasonic agrees to limit Tesla’s liability pursuant to this Section 12(a) to a maximum of [***]. This limitation shall apply regardless of the cause of action or legal theory pled or asserted. Nothing herein to the contrary shall prevent any Panasonic Party from pursuing its remedies at law or in equity against Tesla with respect to any Claim.

 

  b) Indemnity by Panasonic . At any time during the term of this Agreement and thereafter, Panasonic shall indemnify and hold Tesla, its divisions, parent, subsidiaries and affiliates, and their respective officers and directors (collectively, the “Tesla Parties”), harmless from and against any and all Claims arising out of personal injury (including death) or property damage alleged to have been solely caused by a breach of the warranties set forth in Section 10(a), unless Tesla was aware of or, in the exercise of reasonable care, should have been aware of the existence of such defect; provided, however, Panasonic shall have no liability to Tesla with respect to any failure of the Items caused by the integration of the Items to make the Finished Products, any failure of circuit or equipment matching issues. To the maximum extent permitted by law, Tesla agrees to limit Panasonic’s liability pursuant to this Section 12(b) to the lesser of (i) [***] and (ii) [***] of the total amounts paid by Tesla to Panasonic pursuant to this Agreement for the [***] period immediately preceding the date of the event giving rise to the Claim. This limitation shall apply regardless of the cause of action or legal theory pled or asserted. Nothing herein to the contrary shall prevent any Tesla Party from pursuing its remedies at law or in equity against Panasonic with respect to any Claim.

 

  c) Procedures . The Parties shall give each other prompt written notice of any Claim which is or may be subject to indemnification hereunder. The indemnifying Party will be responsible for defending any and all such Claims hereunder. The indemnifying Party shall determine, in its sole and absolute discretion, the manner in which any Claim shall be handled or otherwise disposed of. The indemnified Party shall cooperate fully with the indemnifying Party, including, but not limited to, complying with all reasonable requests for all relevant information and evidence. The indemnifying Party shall be responsible for all reasonable direct costs and expenses incurred by the indemnified Party in connection with providing such cooperation, except for salaries of the employees of the indemnified Party and fees and expenses of any third party retained by the indemnified Party in the defense of any Claim. In any action or proceeding the defense of which an indemnifying Party assumes, the indemnified Party will have the right to retain its own counsel and be represented in such litigation at the indemnified Party’s own expense, provided, however, the indemnified Party shall not consent to any judgment or decree in any such suit or pay or agree to pay any sum of money or agree to do any other act in compromise of any such Claim of a third party without first obtaining the indemnifying Party’s consent thereto in writing,

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  10  


Confidential Treatment Requested by Tesla Motors, Inc.

 

13. Limitation of Liability; Insurance; Environmental Claims .

 

  a) EXCEPT FOR EACH PARTIES OBLIGATIONS SET FORTH IN SECTION 12 AND TESLA’S OBLIGATIONS SET FORTH IN SECTION 13(d), NEITHER PARTY SHALL BE LIABLE OR RESPONSIBLE TO THE OTHER PARTY FOR ANY SPECIAL, INDIRECT, INCIDENTAL, EXEMPLARY, CONSEQUENTIAL OR PUNITIVE DAMAGES ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, ANY WORK DELAYS, LOST GOODWILL, PROFIT, REVENUE OR SAVINGS, LOSS OF USE, COST OF CAPITAL, COST OF SUBSTITUTE EQUIPMENT, FACILITIES OR SERVICES, OR DOWNTIME COSTS, EVEN IF SUCH PARTY HAS BEEN ADVISED OR IS AWARE OF THE POSSIBILITY OF SUCH DAMAGES. EXCEPT FOR EACH PARTIES OBLIGATIONS SET FORTH IN SECTION 12 AND TESLA’S OBLIGATIONS SET FORTH IN SECTION 13(d), NEITHER PARTY’S LIABILITY FOR MONETARY DAMAGES TO THE OTHER PARTY UNDER THIS AGREEMENT SHALL EXCEED THE TOTAL AMOUNTS PAID BY TESLA TO PANASONIC PURSUANT TO THIS AGREEMENT FOR THE [***] PERIOD IMMEDIATELY PRECEDING THE DATE OF THE EVENT GIVING RISE TO THE CLAIM.

 

  b) Insurance .

 

  i) Tesla agrees to maintain in full force and effect at all times while it has any obligations remaining under this agreement, policies of insurance written as primary coverage and not contributing with or in excess of any coverage which Panasonic may carry. These policies will be issued by an insurance carrier acceptable to Panasonic with a Best’s rating of at least A, X which affords the following.

 

  (a) Commercial General Liability Insurance, including coverage for Bodily injury, Property Damage, Personal Injury, Contractual Liability, Products and Completed Operations in an amount not less than $1,000,000 per occurrence. Products and Completed operations coverage will be continued for two (2) years following the expiration of the Term. Tesla’s products liability policy is written on a claims made basis. If products liability coverage, or any other coverages, are written on a claims made basis, Tesla will evidence that any retroactive date applicable to coverage under the policy precedes the effective date of this Agreement, and that continuous coverage will be maintained or an extended discovery period will be exercised for a period of not less than 5 years beginning from the time that final delivery of the product or Item is made.

 

  (b) Workers’ Compensation Insurance in Statutory amounts and Employers Liability Insurance in an amount not less than $500,000 per occurrence.

 

  (c) Umbrella Excess Liability Insurance in an amount not less than $10,000,000 per occurrence, Combined Single Limit.

 

  ii)

Tesla shall deliver to Panasonic within ten (10) days of the date of this Agreement and annually thereafter, Certificates of Insurance evidencing the above coverage’s with limits not less than those specified above. Such Certificates of Insurance, with the exception of Workers’ Compensation Insurance, will confirm that each policy has been endorsed to name Panasonic, its officers, directors and employees as additional named insured and contain a Waiver of Subrogation under the Workers’ Compensation, Commercial General Liability and Policies in favor of Panasonic. All

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  11  


Confidential Treatment Requested by Tesla Motors, Inc.

 

 

Certificates of insurance shall state that the carrier will endeavor to provide 30 day notice in the event of cancellation and 10 day notice in the event of cancellation due to non-payment. Failure by Panasonic to receive or request such Certificates of Insurance does not represent a waiver of the requirements for insurance coverage noted above.

 

  iii) The limits of insurance required shall not limit the Tesla’s liability under its Indemnification obligations set forth herein.

 

  c) Tesla agrees to manufacture, assemble, sell and/or dispose of the Finished Products in compliance with the laws and regulations related to health and safety of workers and general public, and environmental protection in the countries where the Finished Products are manufactured, handled, or sold.

 

  d) Tesla shall be solely responsible for all health, safety and environmental matters arising from the manufacture, assembly, sales, use, operation, storage, transportation, and/or disposal of the Finished Products, and shall, during the Term and thereafter, defend, indemnify, and hold Panasonic, its divisions, parent, subsidiaries and affiliates, and their respective officers and directors harmless from and against any and ail claims, demands, suits, actions, liabilities, judgments, losses or costs (including reasonable attorneys’ fees and costs of litigation), with respect to any pollution, threat and/or damage to the environment, or death, disease, incapacity or injury to any person or damage to any property resulting, directly or indirectly, from the manufacture, assembly, purchase, sales, use, operation, storage, transportation, or disposal of the battery packs, the Modules and/or the Finished Products; except to the extent that Tesla shall be exempted from such obligation if and so long as the cause of such damage is solely attributable to Panasonic’s breach of the warranty in Section 10(a). With respect to the foregoing indemnity, the Parties shall follow the procedures set forth in Section 12(c),

14. Intentionally Left Blank

15. Termination .

 

  a) If either Party defaults in the performance of any material terms and conditions of this Agreement and fails to cure the default within thirty (30) days after receipt of a written notice given by the non-defaulting Party demanding remedy of such default, the non- defaulting Party may terminate this Agreement by giving written notice thereof.

 

  b) This Agreement may be terminated by either Party effective immediately upon written notice to the other Party upon or after the filing of a petition by or against the other Party for the reorganization, liquidation, dissolution, or similar relief under any present or future federal or state statute, law or regulation, or the entry of a decree or order by a court having competent jurisdiction in respect of any such petition, which decree or order is unstayed and in effect for a period of thirty (30) consecutive days, or the appointment, with or without the consent of the other Party, of any receiver, liquidator, custodian, assignee, trustee, sequestrator or other similar official of such Party or of any substantial part of its property, or the making by the other Party of an assignment for the benefit of creditors, or the admission by the other Party in writing of its inability to pay its debts generally as they become due, or the taking of action by the other Party in furtherance of any such action.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  12  


Confidential Treatment Requested by Tesla Motors, Inc.

 

  c) Except as expressly provided herein, the expiration or termination of this Agreement shall not affect or impair the rights, liabilities and obligations of either Party to the other Party as provided pursuant to this Agreement existing prior to such expiration or termination, nor shall such expiration or termination relieve either Party of any obligation or liability accrued under this Agreement prior to such expiration or termination.

16. Import and Export Requirements .

 

  a) Upon written request from Tesla, Panasonic will provide Tesla with any and all information that may be required to comply with export laws, including applicable “Export Control Classification Numbers,” and documentation substantiating U.S. and foreign regulatory approvals for the items. All required export information shall be sent to the attention of: Manager, Compliance, Tesla Motors, 1050 Bing Street, San Carlos, CA 94070; or any agent so designated by Tesla in writing.

 

  b) In case Tesla would export the items and/or the Finished Products from any country, Tesla shall comply with applicable export control laws and regulations in such country and export them only after taking adequate proceedings required under such laws and regulations.

 

  c) Country of Manufacture . Items shall be marked with the country of origin as required by the U.S. import laws. Panasonic shall provide Tesla with a written statement identifying for each Items delivered: (i) the Tesla part number; and (ii) the country of manufacture.

17. Miscellaneous .

 

  a) Assignment . Neither this Agreement nor any right hereunder shall be assignable and transferable to any third party or parties by either of the Parties without the prior written consent of the other Party. Tesla may assign this Agreement to a successor in interest without the prior written consent of Panasonic in connection with a sale of all of the issued and outstanding shares of capital stock of Tesla or all or substantially all of its assets, provided such successor in interest is an automotive OEM. Either PIC or PEG may assign this Agreement without the prior written consent of Tesla to an affiliate or to a successor in interest in connection with a sale of all of its issued and outstanding shares of capital stock or all or substantially all of its assets. If either Party assigns or transfers this Agreement, any right or obligation hereunder to any third party or parties with or without the prior written consent of the other Party as set forth above, such Party which attempts such assignment shall make such assignee agree to succeed to and comply with all terms set forth herein. This Agreement shall be binding upon the parties’ successors and permitted assigns.

 

  b) Waiver . If either Party fails to insist on performance of any term or condition, or fails to exercise any right or privilege hereunder, such failure shall not constitute a waiver of such term, condition, right or privilege.

 

  c) Survival of Obligations . Termination or expiration of this Agreement will not relieve either Party of its obligations under Sections 8(c), 10, 11(a), 12, 13, 15(c), 17(g), 17(i), 17(o) and this Section 17(c).

 

  d) Severability . Any provision of this Agreement that is held unenforceable or invalid for any reason by a court of competent jurisdiction shall be reformed to reflect the true intent of the Parties, and the remainder of the Agreement shall continue in effect.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  13  


Confidential Treatment Requested by Tesla Motors, Inc.

 

  e) No Gratuity . Neither Party will offer or give any gratuity to induce any person or entity to enter into, execute or perform the Agreement or any other agreement between the Parties.

 

  f) Enforceability . The invalidity or unenforceability of any term or condition of this Agreement pursuant to any applicable law shall not affect the validity or enforceability of the remaining provisions hereof, but this Agreement shall be construed as if not containing the provision held invalid or unenforceable in the jurisdiction in which so held unless, in the reasonable opinion of either Party hereto, such invalid or unenforceable provisions comprise an integral part of, or are otherwise inseparable from the remainder of, this Agreement, in which case this Agreement, in such jurisdiction, shall immediately terminate and be of no further force and effect.

 

  g) Governing Law . The Agreement and any dispute arising out of or in connection with the Agreement or the Parties’ relationship shall be interpreted, enforced and governed by the laws of the State of New York, excluding its choice of law rules. The parties hereby agree that any and all causes of action arising under this Agreement shall be brought only in the United States Federal District Court for the Southern District of New York or, if the United States Federal District Court does not have jurisdiction, the Supreme Court of New York County, and the parties hereby submit to the jurisdiction of said Court, and agree not to object to the venue nor the convenience of the forum. The parties agree that the 1980 United Nations Convention on Contracts for the International Sales of Goods, as amended to date, shall not apply to this Agreement.

 

  h) Force Majeure . If and to the extent that a Party’s performance of any of its obligations pursuant to this Agreement is prevented, hindered or delayed by fire, flood, earthquake, elements of nature or acts of God, acts of war, terrorism, riots, civil disorders, rebellions, revolutions, strikes, labor disputes or any other similar cause beyond the reasonable control of such Party (each, a “Force Majeure Event”), then the non-performing, hindered or delayed Party shall be excused for such non-performance, hindrance or delay, as applicable, of those obligations affected by the Force Majeure Event for as long as such Force Majeure Event continues; provided, that such Party notified the other Party of such event in accordance with this Agreement, no later than five business (5) days after its occurrence and continues to use commercially reasonable efforts to recommence performance whenever and to whatever extent possible without delay, including through the use of alternate sources, workaround plans or other commercially reasonable means. Either Party shall have the option to terminate this Agreement, should the Parties not have been able to find a solution to resolve the Force Majeure Event within one hundred eighty (180) days after the occurrence and notification of such Force Majeure Event,

 

  i)

Confidentiality, Press Releases and Publicity . Panasonic and Tesla agree to keep the terms and conditions of this Agreement confidential and not disclose them to any third party, unless such terms and conditions are generally known or available other than as a result of the breach of this Agreement. If either Party is legally required to disclose the terms and conditions of this Agreement by law or pursuant to the order of a court or a governmental agency, such Party shall, unless legally prohibited, promptly notify the other Party to that effect, and seek appropriate protection of the terms and conditions of this Agreement. Such required disclosure shall not be construed as a breach of this Agreement. Panasonic and Tesla will not issue any press release, advertising, publicity or public statement or in any way engage in any other form of public disclosure that refers to the relationship between the Parties or in any way relates to the terms and conditions of this Agreement without the prior written approval of the other Party. Any mutual

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  14  


Confidential Treatment Requested by Tesla Motors, Inc.

 

 

undertaking of Panasonic and Tesla for the purposes of publicity does not require prior written agreements. Each Party may disclose the terms and conditions of this Agreement to its parent, wholly-owned subsidiaries, accountants, attorneys, members of its Board of Directors, and as may be required by applicable law and securities regulations.

 

  j) Foreign Translation . This Agreement is written in the English language. The English text of this Agreement shall prevail over any translation thereof.

 

  k) Entire Agreement .

This Agreement, including its Attachments, sets forth the entire understanding and agreement of the Parties as to the subject matter of this Agreement, and supersedes all prior agreements, understandings, proposals and representations, oral or written, between the Parties as to the subject matter, except for non-disclosure agreements. During the term of this Agreement, all agreements between Tesla and Panasonic for the purchase and sale of the Items shall include and be governed exclusively by the terms and conditions set forth in this Agreement, except as the parties may otherwise agree in a writing executed by their respective duly authorized representatives. In the event of any conflict between or among any documents that are part of this Agreement, the following order of precedence shall apply: (i) Supply Agreement; (ii) Attachment 1; (iii) other Attachments; (iv) Order. Any printed terms of any purchase order of Tesla, or acknowledgment of Panasonic, and any other terms, provisions or conditions in any purchase order of Tesla, or acknowledgment of Panasonic, which vary from, or are inconsistent with, contrary to or in addition to the terms, provisions and conditions of this Agreement, shall be null and void.

 

  l) Independent Contractor . Each party acknowledges and agrees that the other party is an independent contractor and is not an employee, agent or partner of the other party. The parties do not intend to form a partnership or joint venture. No party is granted any right or authority to assume or create any obligation or responsibility, express or implied, on behalf of, or in the name of, the other party, or to bind the other party in any matter or thing whatsoever,

 

  m) Headings . The section headings used herein do not form a part of this Agreement but are for convenience only and shall not limit or be deemed or construed in any way to affect or limit the meaning of the language of the sections herein contained.

 

  n) Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be an original, and all of which, taken together, shall constitute one and the same Agreement.

 

  o) Notices . Any notice, request, consent, demand or other communication given or required to be given under this Agreement shall be effective only if in writing and shall be deemed to have been given when either mailed by first class registered or certified mail, postage prepaid, return receipt requested, or sent by a reputable express courier, addressed to the parties as follows:

 

To Tesla:    With a copy of all legal notices to:
   General Counsel
   Tesla Motors, Inc.
   1050 Bing St
   San Carlos, CA 94070 USA

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  15  


Confidential Treatment Requested by Tesla Motors, Inc.

 

To PIC:    Panasonic Industrial Company,
   Division of Panasonic Corporation of North America
   Three Panasonic Way
   Secaucus, New Jersey 07094
   Attention: President
   With a copy of all legal notices to:
   General Counsel
   Panasonic Corporation of North America
   One Panasonic Way, 3B-6
   Secaucus, New Jersey 07094
To PEC:    Panasonic Corporation, acting through Energy Company
   1-1 Matsushita-cho, Moriguchi City, Osaka, 570-8511 Japan
   Attention:    Hiroshi Kato,
     

Industrial Battery Marketing & Sales. Office,

Corporate Industrial Marketing and Sales Division

Or to such other addresses as may hereafter be designated by like notice.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  16  


Confidential Treatment Requested by Tesla Motors, Inc.

 

IN WITNESS WHEREOF, the Parties have caused three (3) sets of this Agreement to be executed as of the date first above written by their duly authorized representatives.

 

Tesla Motors, Inc.
By: /s/ JB Straubel
Printed name: JB Straubel
Title: Chief Technical Officer
Date: July 21, 2009
Panasonic Industrial Company,
Division of Panasonic Corporation of North America
By: /s/ Thomas A. Gebhardt
Printed name: Thomas A. Gebhardt
Title: President
Date: 7/21/09
Panasonic Corporation, Energy Company
By: /s/ Naoto Noguchi
Printed name: Naoto Noguchi
Title: President
Date: July 21, 2009

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  17  


Confidential Treatment Requested by Tesla Motors, Inc.

 

Table of Attachments

 

No

  

Name

1

   List of Items, Pricing Mechanism, and Lead Times

2

   Transportation, Packaging and Labeling Specification

3

   Invoicing Requirements

4

   Nominated Representatives

5

   Leveraging Tesla Brand Marketing

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  18  


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 1

List of Items, Pricing Mechanism, and Lead Times

Item : Lithium Ion Cells, Part Number: [***]

Contract Prices : Either (I) US$[***] per Item delivered to the FOB Point; (ii) US$[***] per Item delivered to the DDP Point provided that the shipping container is completely full with Items; or (iii) US$[***] per Item delivered by air to the DDP Point. The foregoing Contract Prices are conditioned upon Tesla meeting the minimum purchase expectations below. If Tesla does not meet such expectation or other circumstances change, Panasonic may change the foregoing Contract Prices. The foregoing Contract Prices shall be valid from the Effective Date to [***]. The foregoing Contract Prices are not for customized Items but are for Items that conform to Panasonic’s standard specifications.

Refrigerator Containers : If Tesla requests Panasonic to ship Items via a refrigerated container, Tesla acknowledges and agrees that the refrigerated container must be completely full with Items.

Minimum Purchase Expectations : Tesla expects to purchase at least [***] Items during the period from Effective Date to [***]. Tesla expects to purchase at least [***] Items during the period from [***]. Tesla will use commercially reasonable efforts to purchase such amounts of Items.

Lead-time : [***] after receipt of order (as set forth in Section 3(a)).

Additional Items and associated prices, price adjustments, minimum purchase commitments and lead times may be added to this Attachment 1 from time to time upon the mutual agreement of Tesla and Panasonic.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  19  


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 2

Transportation, Packaging and Labeling Specification

Transportation, Packaging and Labeling Specification shall be mutually agreed upon by Tesla and Panasonic and shall be made a part of and attached to this Agreement as Attachment 2 upon such mutual agreement.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  20  


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 3

Invoicing Requirements

 

1 All invoices shall be sent to the attention of Tesla’s assigned buyer who issued the Order.

 

2 All invoices shall include the following:

 

  (a) Date of Invoice,

 

  (b) Ship To Designee,

 

  (c) Ship To Address,

 

  (d) Bill To: Tesla Motors, Inc.

 

  (e) Bill To Address: 1050 Bing Street, San Carlos, California, 94070, U.S. A.

 

  (f) Tesla Buyer Name

 

  (g) Purchase Order Number,

 

  (h) Item Number(s),

 

  (i) item Description(s), which is/are consistent with all other commercial invoices and documents,

 

  (j) Ship To Quantity,

 

  (k) Ship To Date(s) or Collection Date(s),

 

  (l) Costs (Items only),

 

  (m) Shipping & Handling (only if applicable),

 

  (n) Tax & Duty (only if applicable),

 

  (o) Payment Term (“[***]”), and

 

  (p) INCOTERM (only if applicable).

 

3 All drop-ship related invoices (for example, those for overseas shipment for ASO) shall include the following additional information:

 

  (a) Harmonized Tariff Schedule (“HIS”) Codes,

 

  (b) Number of Cartons or Crates Shipped,

 

  (c) Weight of Cartons or Crates Shipped,

 

  (d) A Copy of Weigh Bill Information per carrier,

 

  (e) Any Special Information Specified in the Order, and

 

  (f) Value of Rejected Part(s), only if Applicable.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  21  


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 4

Nominated Representatives

 

1 The following listed names are the nominated representatives by Panasonic and Tesla, who shall be authorized to make decisions relating to the Items and who shall be responsible for organizing all meetings and actions provided for in this Agreement,

 

2 Any notice, consent or approval required or permitted under this Agreement shall be sent to in writing to the following representatives:

 

  (a) Notices to Tesla :

Evelyn Chiang

Tesla Motors, Inc.

1050 Bing Street

San Carlos, CA 94070

Fax: (850) 413-4099

E-mail: evelyn@teslamotors.com

 

  (b) Notices to Panasonic :

Bob Rauh

Director Battery Sales Group

Panasonic Industrial Company, Division of

Panasonic Corporation of North America

5201 Tollview Drive, EIF-3

Rolling Meadows, Illinois 60008

Telephone: (847) 637-4615

Facsimile: (847) 637-4658

E-mail: rauhb@us.panasonic.com

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  22  


Confidential Treatment Requested by Tesla Motors, Inc.

 

Attachment 5

Leveraging Tesla Brand Marketing

1. Definitions : In this Attachment 5, the following capitalized terms shall have the meanings specified below.

(a) “ Tesla Marketing Materials ” means all marketing materials that promote Tesla’s

(b) products and vehicles that include, but are not limited to: (A) Tesla’s trademarks, service marks, photographs, or images in promotional, advertising, instructional, or reference materials, or on its web sites, products, labels, or packaging; (B) marketing merchandise, props, posters, banners, toys, gifts, mugs, etc.; (C) links to or from Tesla’s web sites to various third party sites, including Suppliers; and (D) display or demonstration of Tesla vehicles, sub-systems, parts, models, or replicas in show rooms, conventions, or marketing events.

2. Reasonable guidelines shall be provided by Tesla in the event that Supplier wishes to use Tesla Marketing Materials.

3. The goodwill derived from using any part of a Tesla trademark exclusively inures to the benefit of and belongs to Tesla. Except for the limited right to use as expressly permitted under these Guidelines, no other rights of any kind are granted hereunder, by implication or otherwise.

4. Authorized Use of Tesla Trademarks .

(a) Advertising, Promotional, and Sales Materials . Only Tesla and its authorized licensees may use the Tesla Marketing Materials in advertising, promotional, and sales materials. Supplier may use the Tesla Marketing Materials only as specified in this Attachment

(b) Word mark . Supplier may use Tesla word mark in a referential phrase on promotional/advertising materials, provided they comply with the following requirements.

(i) The Tesla word mark is not part of the product name.

(ii) The Tesla word mark appears less prominent than the product name.

(iii) The reference to Tesla does not create a sense of endorsement, sponsorship, or false association with Tesla or Tesla products or services.

(iv) The use does not show Tesla or its products in a false or derogatory light.

(c) Publications, Seminars, and Conferences . Supplier may use a Tesla word mark in connection with book titles, magazines, periodicals, seminars, or conferences provided Supplier comply with the following requirements:

(i) The use is referential and less prominent than the rest of the title.

(ii) The use reflects favorably on both Tesla and Tesla products or technology.

(iii) Supplier’s name and logo appear more prominent than the Tesla word mark on all printed materials related to the publication, seminar or conference.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  23  


Confidential Treatment Requested by Tesla Motors, Inc.

 

(iv) The Tesla Marketing Materials or any other Tesla-owned graphic symbol, logo, icon or image does not appear on or in the publication or on any materials related to the publication, seminar, or conference without express written permission from Tesla.

(v) A disclaimer of sponsorship, affiliation, or endorsement by Tesla, similar to the following, is included on the publication and on all related printed materials; “(Title) is an independent (publication) and has not been authorized, sponsored, or otherwise approved by Tesla Motors, Inc.”

(vi) A trademark attribution notice is included in the credit section giving notice of Tesla’s ownership of its trademark(s).

(d) Web Sites . Web sites may use the appropriate Tesla word mark, provided such use complies with the guidelines set forth in Sections 7(a) to (c) above,

5. Unauthorized Use of Tesla Trademarks .

(a) Supplier shall not use or register, in whole or in part, Tesla trademark, including Tesla-owned graphic symbols, logos, icons, or an alteration thereof, as or as part of a company name, trade name, product name, or service name except as specifically noted in these guidelines.

(b) Supplier shall not use the Tesla Marketing Materials or any other Tesla-owned graphic symbol, logo, or icon on or in connection with web sites, products, packaging, manuals, promotional/advertising materials, or for any other purpose except pursuant to an express written trademark license from Tesla.

(c) Supplier shall not use an image of other variation of the Tesla Marketing Materials for any purpose. Third parties cannot use a variation, phonetic equivalent, foreign language equivalent, takeoff, or abbreviation of a Tesla trademark for any purpose.

(d) Supplier shall not use a Tesla trademark or any other Tesla-owned graphic symbol, logo, or icon in a disparaging manner.

(e) Supplier shall not use a Tesla trademark, including Tesla-owned graphic symbols/logos, or icons, in a manner that would imply Tesla’s affiliation with or endorsement, sponsorship, or support of a third party product or service.

(f) Supplier shall not manufacture, sell or give away merchandise items, such as T-shirts and mugs, bearing Tesla trademark, including symbols, logos, or icons, except pursuant to an express written trademark license from Tesla.

(g) Supplier shall not imitate the distinctive Tesla packaging, web site design, logos, or typefaces.

(h) Supplier shall not use or imitate a Tesla’s slogan or tagline,

(i) Supplier shall not use an identical or virtually identical Tesla trademark as a second level domain name.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  24  


Confidential Treatment Requested by Tesla Motors, Inc.

 

6. Proper Use of Tesla Trademarks .

(a) Trademarks are adjectives used to modify nouns; the noun is the generic name of a product or service, Trademarks may not be used in the plural or possessive form.

(b) Spell and capitalize Tesla’s trademarks exactly as intended by Tesla. No shortened or abbreviated Tesla product names or made-up names that contain Tesla trademarks shall be allowed.

7. Compensation . In return for using Tesla Marketing Materials, Parties may agree to Supplier paying Tesla a reasonable compensation for anticipated potential for Supplier’s enhanced market position and sales. When such agreements are made by Parties, the agreed sum shall be paid to Tesla in a mutually agreed term, including deduction from Item costs.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

  25  

Exhibit 10.34

Confidential Treatment Requested by Tesla Motors, Inc.

Exclusivity and Intellectual Property Agreement

Between

TESLA MOTORS, INC.

And

DAIMLER NORTH AMERICA CORPORATION

May 11, 2009

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

EXCLUSIVITY AND INTELLECTUAL PROPERTY AGREEMENT

This Exclusivity and Intellectual Property Agreement (this “ Agreement ”) is made as of the 11th day of May, 2009 (the “Effective Date”), by and between Tesla Motors, Inc., a Delaware corporation (the “ Company ”), on the one hand, and Daimler North America Corporation, a Delaware corporation (“ Daimler ”), on the other hand (each a “ Party ” and together the “ Parties ”).

WHEREAS, on February 24, 2009 Company and Daimler AG executed a Series E Term Sheet (the “ Term Sheet ”) which, set forth, among other things, the outline of certain terms respecting exclusivity and rights to intellectual property;

WHEREAS, on even date herewith Company and Blackstar Investco LLC (“ Blackstar ”) are entering into the Series E Preferred Stock Purchase Agreement (the “ Series E Agreement ”) and certain other agreements contemplated by the Term Sheet;

WHEREAS, Daimler or any of its Affiliates (as such term is defined in the Series E Agreement) and Company intend to enter into a series of definitive agreements regarding a series of strategic projects outlined in the Term Sheet (collectively, the “ Strategic Agreements ”);

WHEREAS, the Parties are entering into this Agreement in conjunction with Company and Blackstar entering into the Series E Agreement and certain other agreement and would not have entered into any agreement without entering into all agreements; and

WHEREAS, accordingly, in connection with the Series E Agreement, the Parties wish to further outline, in this Agreement, their respective rights and obligations respecting exclusivity and the disposition of certain intellectual property to be used in connection with the Strategic Cooperation Areas (as such term is defined herein) pursuant to the Strategic Agreements.

NOW THEREFORE, the Parties hereby agree as follows:

1. Strategic Agreements .

 

  (a) On May 1, 2009 Daimler and Company entered into a Strategic Agreement titled “ SMART 451 ED Predevelopment Contract ” with respect to battery supply for a “Smart EV Project” (“ Strategic Cooperation Area 1 ”).

 

  (b) Daimler, or any of its Affiliates, on the one hand, and Company, on the other hand, will negotiate in good faith and use reasonable commercial efforts to enter into the Strategic Agreements respecting the following areas of strategic cooperation (each a “ Strategic Cooperation Area ”) within six (6) months after the Effective Date, which are more fully described in the Strategic Cooperation Area term sheets exchanged by the parties in connection with the Series E Agreement:

 

  (i) Strategic Cooperation Area 2 : Technology collaboration in areas including cell combination and specification, battery management systems, battery cooling and electrical powertrain and/or such other technology areas as may be mutually agreed upon by the Parties in the course of negotiating and entering into the Strategic Agreement for Strategic Cooperation Area 2;

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -1-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

  (ii) Strategic Cooperation Area 3 : Automotive support by Daimler or by a third-party coordinated by Daimler (including [***] such other automotive support services as may be mutually agreed upon by the Parties in the course of negotiating and entering into the Strategic Agreement for Strategic Cooperation Area 3) to Company to [***];

 

  (iii) Strategic Cooperation Area 4 : Joint engineering and development of an electric vehicle that will be (x) equipped with [***], (y) badged and branded in a manner to be mutually agreed upon by the Parties and (z) based upon a [***]. The Parties intend to [***]. For the avoidance of doubt, the Parties shall commence collaboration on the joint engineering and development of such vehicle upon the execution of the applicable Strategic Agreement for Strategic Cooperation Area 4; and

 

  (iv) Strategic Cooperation Area 5 : Company will be given access to certain mutually agreed upon components from Daimler or its suppliers that are used on Daimler vehicles for use by Company solely in Company designed products.

 

  (c) The Parties acknowledge and agree that (i) the specific areas of collaboration for each Strategic Cooperation Area may be subject to change in order to satisfy the Parties’ strategic objectives and that any such modifications may be made by mutual written agreement of the Parties, (ii) Daimler, or any of its Affiliates, on the one hand, and Company, on the other hand, may, but have no obligation to, (y) mutually agree to collaborate and cooperate with one another on one or more strategic projects from time to time in addition to the Strategic Cooperation Areas contemplated under this Agreement (each an “ Additional Strategic Cooperation Area ”) and (z) enter into one or more written agreements relating to such Additional Strategic Cooperation Areas (each an “ Additional Strategic Agreement ”), (iii) notwithstanding the expiration or termination of any Strategic Agreement or Additional Strategic Agreement for any reason, the other Strategic Agreements and/or Additional Strategic Agreements in effect as of the effective date of such expiration or termination (as applicable) shall remain in full force and effect, and (iv) all rights granted to Daimler herein and in each Strategic Agreement and/or Additional Strategic Agreement shall also be deemed to include Daimler and its Affiliates.

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -2-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

2. Exclusivity .

 

  (a) Commencing on the Effective Date and continuing thereafter for a period of six (6) months from such date (the “ Exclusivity Period ”), neither the Company nor any of its Affiliates shall, without the prior written consent of Daimler (which may not be unreasonably withheld or delayed by Daimler) participate in any negotiations with any Person (as such term is defined in the Series E Agreement) with respect to or in connection with any kind of arrangement or transaction, or otherwise participate in, support, implement, provide for (directly or indirectly in any manner) or enter into any kind of arrangement or transaction, which contemplates or includes the development of any vehicles or powertrains that compete or would reasonably be expected to compete, directly or indirectly, with Daimler, its Affiliates and/or any of Daimler’s or its Affiliates’ respective businesses, products and/or services (each, a “Competitive Arrangement”); provided , however, that so long as the results of any arrangement or transaction with such Person are, without limitation, sold and/or marketed solely using the Company owned and controlled brand “Tesla”, the following transactions and those transactions described in Section 2(c) (each, a “ Permitted Arrangement ”) shall not be Competitive Arrangements:

 

  (i) In the automotive vehicle segments outside of [***] or in any other automotive vehicle class under a commercial agreement between Daimler or its Affiliates, on the one hand, and Company or its subsidiaries, on the other hand, in which the parties to such agreement are materially compliant;

 

  (ii) In any automotive vehicle segment in a geography in which Daimler or its Affiliates does not sell or distribute the [***] or in any other automotive vehicle class under a commercial agreement between Daimler or its Affiliates, on the one hand, and Company or its subsidiaries, on the other hand, in which the parties to such agreement are materially compliant; and

 

  (iii) In any automotive vehicle segment in any geography [***] after the first commercial sale of a vehicle (including the [***]) developed under a commercial agreement between Daimler or its Affiliates, on the one hand, and Company or its subsidiaries, on the other hand.

 

  (b)

Upon entering a Strategic Agreement for Strategic Cooperation Area 4 and subject to good faith negotiations of the terms of such Strategic Agreement, such Strategic Agreement will provide that, for so long as Daimler and Tesla jointly commit to, and are likely to achieve, a minimum average product cycle combined volume of [***] vehicles annually over a five (5) year period starting with model year [***] for the [***], where the volume commitment is contingent on meeting agreed upon criteria ( e.g ., delivery, production, performance, etc.), under terms to be set forth in such agreement, Company may not enter into a Competitive Arrangement with a Daimler Strategic Competitor to supply vehicles in the [***] for sale under a non-Tesla brand until the

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -3-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

 

earlier of (y) five (5) years following the Effective Date hereof or (z) three (3) years following the consummation of a Qualified IPO (as such term is defined in Series E Agreement) (the “ Restricted Period ”). Subject to the foregoing, such Strategic Agreement will also provide that:

 

  (i) if Company receives an offer to enter a Competitive Arrangement from a Daimler Strategic Competitor to develop a vehicle outside the [***], Daimler may exercise the right to enter the agreement on substantially similar terms, as set forth in Section 3. In the event Daimler that does not exercise its right, Company may enter the Competitive Arrangement with the Daimler Strategic Competitor to supply a non-Tesla branded vehicle, but only so long as the vehicle start of production is at least [***] after the start of production of the [***] (or the end of the Restricted Period which ever is earlier); and

 

  (ii) Company shall not enter into a Competitive Arrangement with a Daimler Strategic Competitor to supply an Integrated EV Powertrain System until [***].

 

  (c) For the avoidance of doubt, nothing set forth in this Agreement, including this Section 2 or Section 3 below, shall restrict the Company or any of its Affiliates from, independently or with any third party developing any technology for use in a Tesla branded product or service or related to or necessary for the development of the Tesla Roadster or Model S, or engaging in a transaction with an entity that is not a Strategic Daimler Competitor (as such term is defined below), or entering into any transactions, agreements or arrangements with any third party for the provision of any incidental products and/or services ( e.g ., parts supply agreement, engineering consulting services agreement, etc.) to or on behalf of the Company in connection therewith, or continuing any existing supply agreements. Further, except with respect to those restrictions expressly set forth herein regarding the sale by Company of Integrated EV Powertrain Systems (as such term is defined below), nothing set forth in this Agreement or in any Strategic Agreement will restrict Company from developing and acting as supplier of components for vehicle powertrains which vehicle powertrains have been designed by the third party customer and other vehicle components to third parties or providing related powertrain application engineering.

 

  (d) An “ Integrated EV Powertrain System ” means a vehicle powertrain that includes at least a battery, power electronics module and motor, where such components have been engineered by Company to operate as an integrated vehicle powertrain and which powertrain is provided by Company to a third party along with integration engineering to integrate such powertrain into a vehicle. A “ Strategic Daimler Competitor ” means an automotive OEM that is engaged in the manufacture and sale of complete or substantially complete automobiles.

3. Right of First Refusal . Without limiting, and except for those transactions set forth in, Section 2(c) above, commencing (a) with respect to Competitive Arrangements, on the termination

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -4-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

of the Exclusivity Period, and (b) with respect to Permitted Arrangements, on the Effective Date hereof, and continuing until the expiration of Restricted Period, in the event that the Company or any of its Affiliates receives a bona fide offer (including in the form of a term sheet containing customary reasonable details) from any Strategic Daimler Competitor, with respect to a Competitive Arrangement or Permitted Arrangement, as applicable, with such Strategic Daimler Competitor (a “ Third Party Offer ”), then the Company or such Affiliate, as applicable, shall provide Daimler with written notice of such Third Party Offer, specifying in reasonable detail the material terms and conditions of the same. Daimler shall have (45) forty-five days following Daimler’s receipt of such notice, to notify the Company or such Affiliate in writing (the “ Daimler Notice ”) if Daimler wishes to exercise the right to offer an agreement to the Company on substantially similar terms. Following such Daimler Notice, Daimler, on the one hand, and the Company or its Affiliate, on the other hand, shall use commercially reasonable efforts to actively execute within sixty (60) days of such Daimler Notice on any such Competitive Arrangement or Permitted Arrangement for which Daimler has exercised its right of first refusal. If Daimler has not provided the Daimler Notice within forty-five (45) days, or the Company or any of its Affiliates and Daimler has not entered into such transaction within (60) sixty days of such notice, as provided above, the Company or any of its Affiliates shall be free to enter into the transaction with the applicable third party on the terms reflected in such Third Party Offer.

4. Other Restrictions . Commencing on the Effective Date hereof and continuing until the expiration of the Restricted Period, neither the Company nor any of its Affiliates shall, without Daimler’s prior written approval (which may not be unreasonably withheld or delayed by Daimler): (a) use LiTec batteries and/or cells or sell LiTec batteries and/or cells for use in any non-Daimler or non-Tesla branded vehicle or (b) subject to the consent provisions set forth in Section 3.2 of the Investors’ Rights Agreement, authorize or issue, or obligate itself to issue, to any Strategic Daimler Competitor other than Blackstar any other security, including any other security convertible into or exercisable for any security, having a preference over, or being on a parity with, the Series E Preferred Stock with respect to voting, dividends, conversion, redemption or upon liquidation.

5. Termination of Exclusivity . Daimler acknowledge and agree that in the event Company terminates any Strategic Agreement and/or Additional Strategic Agreement as a result of a material breach thereof by Daimler (or its Affiliate that is party to such Strategic Agreement or Additional Strategic Agreement) that remains uncured following due notice and an opportunity to cure, pursuant to the mutually agreed upon terms and conditions contained in such Strategic Agreement or Additional Strategic Agreement, then upon the effective date of such termination, Company shall have no further obligation to comply with the exclusivity or right of first refusal provisions set forth in Sections 2 and 3 respectively above, solely with respect to the strategic project(s) specifically contemplated under and subject to the terms of the Strategic Agreement and/or Additional Strategic Agreement that is terminated by Company.

6. Equitable Remedies . The Parties acknowledge and agree that, in the event a Party breaches any of its obligations under Section 2 , Section 3 or Section 4 of this Agreement (a) the other Party may suffer substantial, immediate and irreparable harm, (b) the other Party shall not have an adequate remedy at law for money damages in the event of any such failure and (c) that in the event of any such failure, the other Party may be entitled to (i) specific performance, injunctive and other

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -5-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

equitable relief to compel the breaching Party to comply with its obligations in accordance with the terms and conditions of Section 2 , Section 3 and Section 4 of this Agreement and (ii) any other remedy to which the other Party may be entitled at law or in equity (without the necessity of posting of a bond).

7. Intellectual Property . The Parties will allocate rights and licenses with respect to patents, copyrights, trade secrets, trademarks, and other forms of intellectual property rights or proprietary rights arising under any Laws (as such term is defined in the Series E Agreement) (“ Intellectual Property ”) in the Strategic Agreements and Additional Strategic Agreements, as may be negotiated in good faith based upon the following principles:

 

  (a) The SMART 451 ED Predevelopment Contract, which governs Strategic Cooperation Area 1, sets forth the terms with respect to Intellectual Property relevant to such Agreement.

 

  (b) With respect to Strategic Cooperation Areas 2 and 4, except as otherwise provided in any applicable Strategic Agreement or Additional Strategic Agreement, the following principles shall apply:

 

  (i) All Intellectual Property generated jointly in the course of the applicable the Strategic Agreements and Additional Strategic Agreements shall, except as may be set forth in such agreements, be jointly owned, without the duty to account, by Daimler and the Company, subject to such mutual restrictions on a Party’s exercise of its joint ownership interest as may be agreed by the Parties in each applicable Strategic Agreement and Additional Strategic Agreement; such that (a) in the case of Company, there will be restrictions on the right of Company to license such joint Intellectual Property to third parties consistent with the restrictions on Company entering into certain agreements with Strategic Daimler Competitors as may be set forth in this Agreement and the relevant Strategic Agreement, and (b) in the case of Daimler, shall limit Daimler’s right to license third parties in a manner that would be competitive with Company.

 

  (ii)

All Intellectual Property generated independently by Daimler or the Company in the course of providing development services under the applicable Strategic Agreements and Additional Strategic Agreements shall be solely owned by Daimler or Company, respectively. The Party owning such Intellectual Property shall license same to the other Party on a royalty-free, non-exclusive basis for use solely in connection with the development activities and services contemplated by the applicable Strategic Agreement and Additional Strategic Agreement. To the extent that such Intellectual Property relates to the products or services developed under such applicable Strategic Agreement and Additional Strategic Agreement, the Party owning such Intellectual Property shall license same to the other Party on a non-exclusive and royalty bearing basis on terms and rates no less favorable than those contained in any arrangement or agreement with a

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -6-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

 

similarly situated third party for the license of such Intellectual Property. In the event that such Intellectual Property has not previously been the subject or such an arrangement or agreement, the Parties shall negotiate in good faith and at arm’s length to agree upon a reasonable terms and royalty rates for such Intellectual Property.

 

  (iii) All Intellectual Property generated independently by Daimler or the Company outside of the scope of the development services under the applicable Strategic Agreements and Additional Strategic Agreements shall be solely owned by Daimler or Company, respectively. To the extent that such Intellectual Property relates to the products or services developed under such applicable Strategic Agreement and Additional Strategic Agreement, the Party owning such Intellectual Property shall license same to the other Party on a non-exclusive and royalty bearing basis on terms and rates no less favorable than those contained in any arrangement or agreement with a similarly situated third party for the license of such Intellectual Property. In the event that such Intellectual Property has not previously been the subject or such an arrangement or agreement, the Parties shall negotiate in good faith and at arm’s length to agree upon a reasonable terms and royalty rates for such Intellectual Property.

 

  (c) Except for any license or grant of rights that may be contained in any applicable Strategic Agreement or Additional Strategic Agreement or as otherwise provided herein, nothing contained herein shall be construed to restrict, impair, encumber, alter, deprive or adversely affect a Party’s Intellectual Property or such Party’s rights or interests therein.

 

  (d) During the Restricted Period, in the event that the Company desires to offer to any Strategic Daimler Competitor a license to any existing or future material Intellectual Property of the Company generated outside the scope of any Strategic Cooperation Area, then Company will offer Daimler a right to obtain a license to such Intellectual Property as follows:

 

  (i) Company will provide Daimler with notice of such intention to license a third party that is a Strategic Daimler Competitor;

 

  (ii) Daimler shall have fifteen (15) business days to notify Company if it wishes to license the same Intellectual Property and whether it wants an exclusive or sole license. If Company does not receive such notice from Daimler it shall be free to license such Intellectual Property to such Daimler Strategic Competitor;

 

  (iii) If Daimler notifies Company that it wants a non-exclusive license, Company may grant a non-exclusive license to such Strategic Daimler Competitor and will license the same such Intellectual Property to Daimler on a non-exclusive basis on such terms and such royalty rates as may be mutually agreed by the Parties; and

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -7-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

  (iv) If Daimler notifies Company that it wants a sole license in the automotive field, then the Parties shall negotiate in a good faith the terms, including the royalty and other economic terms, of such license. If the Parties are unable to reach agreement on such license within twenty-five (25) business days of Company receiving such notice from Daimler, Company shall be free to license such Intellectual Property to such Daimler Strategic Competitor, and Daimler may elect to take a non-exclusive license on such terms and such royalty rates as may be mutually agreed by the Parties.

 

  (e) Except as otherwise provided in any applicable agreement between the Parties, upon expiration of the Restricted Period, (i) any exclusive or sole rights granted to Daimler during the Restricted Period shall revert to non-exclusive rights; and (ii) the right of Daimler to obtain a license as set forth in this Section 7 shall expire.

 

  (f) Any license granted by one Party to the other as described above shall be of sufficient scope to permit the licensed Party to exercise its rights through its Affiliates, subcontractors, suppliers and distributors.

 

  (g) Nothing set forth herein shall restrict Company from granting, or apply to Company’s granting of, any licenses to any person outside the automotive field, or subject to Section 7(d)(iv) above, to an entity that is not a Strategic Daimler Competitor.

8. Technical Committee . The Parties shall agree on an appropriate organizational set-up (for example implementation of a Technical Committee) to operationally manage the Strategic Cooperation Areas within each Strategic Agreement.

9. Miscellaneous .

 

  (a) Transfer; Successors and Assigns . The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the Parties. Nothing in this Agreement, express or implied, is intended to confer upon any Party other than the Parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

 

  (b)

Governing Law . This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the Parties hereto shall be governed, construed and interpreted in accordance with the laws of Delaware, without giving effect to principles of conflicts of law. It is understood and agreed that each Party’s respective obligations, including with respect to compliance with any restrictions hereunder on

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -8-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

 

such Party’s conduct, are subject to compliance with all applicable Laws (as such term is defined in the Series E Agreement) including those Laws with respect to competition, monopolies and trade practices, and that it shall not be a breach of this Agreement by a Party if such Party is restricted from otherwise complying with the terms hereof by applicable Law.

 

  (c) Titles and Subtitles . The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

 

  (d) Severability . If one or more provisions of this Agreement are held to be unenforceable under applicable law, the Parties agree to renegotiate such provision in good faith. In the event that the Parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (a) such provision shall be excluded from this Agreement, (b) the balance of the Agreement shall be interpreted as if such provision were so excluded, and (c) the balance of the Agreement shall be enforceable in accordance with its terms.

 

  (e) Assignability and Change of Control . This Agreement and each Party’s rights hereunder may not be assigned directly or indirectly including in connection with a change of control (including by means of an asset sale, stock sale, merger, or otherwise) of a Party except with the prior written consent of the other Party. Either Party shall, however, have the right upon notice to the other Party to terminate this Agreement in the event that either such Party or the other Party undergoes, or executes and agreement to undergo, a change of control. Any Strategic Cooperation Agreement entered into prior to such change of control shall not be affected by the termination of this Agreement unless otherwise set forth therein.

 

  (f) Term and Termination . The term of this Agreement shall commence on the Effective Date and shall, unless earlier terminated in accordance with Section 9(e) above, terminate on the last day of the Restricted Period. No terms of this Agreement or obligations or rights of either Party shall survive such termination.

 

  (g) Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.

* * * * *

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

   -9-   


Confidential Treatment Requested by Tesla Motors, Inc.

 

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement by persons duly authorized as of the date and year first above written.

 

TESLA MOTORS, INC.
By:  

/s/ Elon Musk

  Elon Musk,
  Chief Executive Officer
Address:
 

1050 Bing Street

San Carlos, CA 94070

 

SIGNATURE PAGE TO EXCLUSIVITY AND INTELLECTUAL PROPERTY AGREEMENT

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.


Confidential Treatment Requested by Tesla Motors, Inc.

 

IN WITNESS WHEREOF, the Parties hereto have executed this Agreement by persons duly authorized as of the date and year first above written.

 

DAIMLER NORTH AMERICA CORPORATION
By:  

/s/ Paulo Silvestri

Name:  

Paulo Silvestri

Title:  

President and CEO

By:  

/s/ Karl W. Kaufmann

Name:  

Karl W. Kaufmann

Title:  

Asst. Treasurer

Address:   BLACKSTAR INVESTCO LLC
  c/o DAIMLER NORTH AMERICA CORPORATION
  One Mercedes Drive
  Montvale, NJ 07645
  Fax No. (201) 573-2595
  Attention: Dr. Thomas Laubert
With a copy to:
  DAIMLER AG
  Epplestr. 225
  70546 Stuttgart
  Fax No. +49 (711) 17-91577
  Attention: Alexander Nediger
With a copy to:
  Hughes Hubbard & Reed LLP
  One Battery Park Plaza
  New York, NY 10004
  Fax No. (212) 422-4726
  Attention: Kenneth A. Lefkowitz

 

SIGNATURE PAGE TO EXCLUSIVITY AND INTELLECTUAL PROPERTY AGREEMENT

 

[***] Information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

 

Exhibit 10.35

SIDE AGREEMENT

THIS SIDE AGREEMENT (this “ Agreement ”) is made and entered into as of May 11, 2009 by and between Blackstar Investco LLC (“ Newco ”), and Tesla Motors, Inc., a Delaware corporation (the “ Company ”).

RECITALS

WHEREAS, the Company and Newco desire to enter into a Series E Preferred Stock Purchase Agreement (the “ Purchase Agreement ”), dated of even date herewith, pursuant to which the Company will sell to Newco, and Newco will purchase from the Company, shares of the Company’s Series E Preferred Stock (the “ Series E Preferred Stock ”);

WHEREAS, a condition to Newco’s obligations under the Purchase Agreement is that the Company and Newco enter into this Agreement; and

NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

 

  1. Change of Control Provisions .

(a) Within three (3) business days of the receipt of any written notice or other written communication of a bona fide offer (an “ Acquisition Proposal ”) from or on behalf of a third party relating to such third party’s interest in consummating a Deemed Liquidation transaction (as defined in the Purchase Agreement), in the event that either the Board of Directors of the Company or its Chief Executive Officer determines to engage in further discussions with such third party or to otherwise pursue such Acquisition Proposal, the Company shall provide Newco written notice of the Acquisition Proposal (the “ Acquisition Proposal Notice ”). The Acquisition Proposal Notice shall set forth the material terms and conditions of the Acquisition Proposal, including the identity of the proposed acquiror and each of the components of the purchase consideration offered, as well as any material contingencies associated therewith. In addition, the Company shall inform Newco of any material modifications to an Acquisition Proposal that was previously the subject of an Acquisition Proposal Notice. Notwithstanding any of the foregoing, a “Deemed Liquidation” shall not be deemed to occur solely as a result of the Company entering into a loan, credit line, lease of real or personal property or similar contract which involves a pledge of assets of the Company as collateral to secure the performance of the Company’s obligations under such contract.

(b) Newco shall have five (5) business days of its receipt of the Acquisition Proposal Notice to notify the Company that it intends to submit its own Acquisition Proposal (the “ Response Notice Period ”) and, if Newco has delivered a notice that it intends to submit such proposal, ten (10) business days from the end of the Response Notice Period (the “ Acquisition Proposal Notice Period ”) to submit its own Acquisition Proposal to effect a Deemed Liquidation. If Newco elects to submit its own Acquisition Proposal, the material terms


and conditions of such Acquisition Proposal (including, but not limited to, Newco’s identity and each of the components of the purchase consideration offered, as well as any material contingencies associated therewith) may be disclosed by the Company, in its sole and absolute discretion, to other third parties who have previously submitted or thereafter submit an Acquisition Proposal that was previously or thereafter becomes the subject of an Acquisition Proposal Notice. In addition, the Company may, in its sole and absolute discretion, inform any such third parties of any material modifications to a Newco Acquisition Proposal.

(c) If a third party makes any material modification to an Acquisition Proposal that was previously the subject of an Acquisition Proposal Notice during the Acquisition Proposal Notice Period (or thereafter if Newco submitted its own Acquisition Proposal prior to the expiration of the Acquisition Proposal Notice Period), then the Company shall promptly give Newco notice of such modification (each, a “ Modification Notice ”). The Company shall not enter into a definitive agreement to effect an Acquisition Proposal submitted by or on behalf of a third party until the later of: (i) the Acquisition Proposal Notice Period with respect to such Acquisition Proposal has elapsed or (ii) seventy-two (72) hours after Newco’s receipt of a Modification Notice or, if Newco has not notified the Company that it intends to submit an Acquisition Proposal with respect to an Acquisition Proposal submitted by or on behalf of a third party, until the Response Notice Period with respect to such Acquisition Proposal has elapsed. For clarification purposes, if another third party makes a new Acquisition Proposal that was not previously the subject of an Acquisition Proposal Notice that either the Board of Directors of the Company or its Chief Executive Officer determines to engage in further discussions with such third party or to otherwise pursue, then the provisions of subsections (a) and (b) shall apply to such new Acquisition Proposal.

(d) Subject to Newco having entered into a confidentiality agreement in form and substance reasonably satisfactory to the Company, in connection with its consideration of whether to submit its own Acquisition Proposal, during the Acquisition Proposal Notice Period, Newco shall be entitled to examine, at its expense, and the Company shall make available to Newco, the Company’s books of account and records and to discuss the Company’s affairs, finances and accounts with its officers, and Company shall make such officers available for such purpose, all at such times as may be reasonably requested by Newco during the Company’s normal business hours, on terms substantially similar to those granted to a third party, if any, that has submitted and Acquisition Proposal that has been the subject of an Acquisition Proposal Notice.

(e) Notwithstanding the foregoing, the Company’s obligations pursuant to subsections (a)-(d) above shall terminate once the Company has entered into a definitive agreement to effect an Acquisition Proposal with any party.

2. Termination . Newco’s rights and the Company’s obligations under Section 1 of this Agreement shall terminate upon the earliest to occur of: (a) December 31, 2011, (b) the consummation of (i) a merger or consolidation of the Company with or into another corporation for cash consideration or stock that is publicly traded on a national securities exchange or a combination of cash consideration or such publicly traded stock in which the holders of capital stock of the Company immediately prior to such merger or consolidation do not continue to hold at least 50% of the voting power of the capital stock of the Company or the surviving or

 

-2-


acquiring corporation or (ii) a sale of all or substantially all of the Company’s assets in which such assets are sold solely for cash consideration or stock that is publicly traded on a national securities exchange or a combination of cash consideration or such publicly traded stock, (c) such time as Newco (together with Daimler AG (“ Daimler ”) or any Controlled Affiliate of Daimler (as defined in the Purchase Agreement)), no longer hold at least 9,950,000 shares of Common Stock of the Company (including any shares of Common Stock of the Company issuable or issued upon the conversion of the Series E Preferred Stock of the Company and as equitably adjusted for any stock dividends, combinations, splits, recapitalizations, dilutive issuances, deemed issuances and the like), (d) none of the Strategic Agreements (as defined in the Purchase Agreement) are in full force and effect or (e) such time as (A) the representation set forth in Section 3.10 of the Purchase Agreement is no longer true and accurate in all material respects, (B) Daimler (or a Controlled Affiliate of Daimler) no longer holds 20% or more of the equity interests of Newco or (C) Newco is in breach in any material respect of Section 3.5 of the Fourth Amended and Restated Investors’ Rights Agreement dated May 11, 2009 (it being agreed that Newco shall be deemed to not be in such breach if (1) Newco notifies the Company of such breach within 10 business days of such breach and (2) Newco cures such breach within 20 business days after delivery of such notice).

 

  3. Miscellaneous .

(a) Successors and Assigns . The rights granted in this Agreement are personal to Newco and may not be assigned, in whole or in part, except to Daimler or a Controlled Affiliate of Daimler. In particular, any transferee of any shares of Series E Preferred Stock held by Newco (other than Daimler or a Controlled Affiliate of Daimler) will not acquire any rights hereunder. Subject to the foregoing, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective permitted successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

(b) Amendments and Waivers . Any term of this Agreement may be amended or waived only with the written consent of the Company and Newco.

(c) Notices . Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or by overnight courier or sent by fax, or five (5) business days (in the case of intra-United States notices) and ten (10) business days (in the case of international notices) after being deposited in the U.S. or other Government Authority (as defined in the Purchase Agreement) mail, as certified or registered mail, with postage prepaid, addressed to the party to be notified at such party’s address as set forth on the signature pages hereto, or as subsequently modified by written notice.

(d) Severability . To the fullest extent that they may effectively do so under applicable Law (as defined in the Purchase Agreement), the parties hereby waive any provision of Law which renders any provision of this Agreement invalid, illegal or unenforceable in any respect. If one or more provisions of this Agreement are held to be invalid, illegal or unenforceable under applicable Law, the parties agree to promptly renegotiate such provision in

 

-3-


good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision within thirty (30) business days, then (a) if such provision is rendered or held invalid, illegal or unenforceable in a jurisdiction only as to a particular person or persons or under any particular circumstance or circumstances, such provision shall be ineffective, but only in such jurisdiction and only with respect to such particular person or persons or under such particular circumstance or circumstances, as the case may be, (b) without limitation of clause (a), such provision shall in any event be ineffective only as to such jurisdiction and only to the extent of such invalidity, illegality or unenforceability, and such invalidity, illegality or unenforceability in such jurisdiction shall not render invalid, illegal or unenforceable such provision in any other jurisdiction and (c) without limitation of clause (a) or (b), such ineffectiveness shall not render invalid, illegal or unenforceable this Agreement or any of the remaining provisions hereof.

(e) Governing Law . This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law.

(f) Submission to Jurisdiction; Waiver of Jury Trial . Each party to this Agreement hereby irrevocably and unconditionally:

(1) agrees that any suit, action or proceeding instituted against it by any other party with respect to this Agreement or any other Transaction Agreement (as defined in the Purchase Agreement) may be instituted, and that any suit, action or proceeding by it against any other party with respect to this Agreement or any other Transaction Agreement shall be instituted, only in the courts of the State of Delaware, located in the County of New Castle (and appellate courts therefrom), (ii) consents and submits, for itself and its property, to the jurisdiction of such courts for the purpose of any such suit, action or proceeding instituted against it by the other and (iii) agrees that a final judgment in any such suit, action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law (as defined in the Purchase Agreement);

(2) (i) waives any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any other Transaction Agreement brought in any court specified in Section 3(f)(1), (ii) waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum and (iii) agrees not to plead or claim either of the foregoing;

(3) WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER TRANSACTION AGREEMENT AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY; and

(4) to the extent it has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself

 

-4-


or its property, hereby irrevocably waives such immunity in respect of his, her or its obligations with respect to this Agreement and the other Transaction Agreements.

(g) Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

(h) Titles and Subtitles . The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

(i) Specific Enforcement . It is agreed and understood that monetary damages would not adequately compensate an injured party for the breach of this Agreement by any other party, that this Agreement shall be specifically enforceable, and that any breach or threatened breach of this Agreement shall be the proper subject of a temporary or permanent injunction or restraining order. Further, each party hereto waives any claim or defense that there is an adequate remedy at law for such breach or threatened breach or any requirement for posting of a bond.

(j) Delays or Omissions . No delay or omission to exercise any right, power or remedy accruing to any party under this Agreement, upon any breach or default of any other party under this Agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.

(k) Expenses . Each party hereto shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Agreement.

(l) Entire Agreement . This Agreement, any other Transaction Agreements (as defined in the Purchase Agreement) and any exhibits hereto or thereto, constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and no party shall be liable or bound to any other in any manner by any oral or written representations, warranties, covenants and agreements except as specifically set forth herein and therein. Each party expressly represents and warrants that it is not relying on any oral or written representations, warranties, covenants or agreements outside of this Agreement or any other Transaction Agreements (as defined in the Purchase Agreement).

[ remainder of this page intentionally left blank ]

 

-5-


IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

 

COMPANY:

T ESLA M OTORS , I NC .

By:  

/s/ Elon Musk

  Elon Musk,
  Chief Executive Officer

Address:

 
  1050 Bing Street
 

San Carlos, CA 94070

NEWCO:

B LACKSTAR I NVESTCO LLC

By:  

/s/ Prof. Herbert Kohler

Name:

 

Prof. Herbert Kohler

Title:

 

Vice President

By:

 

/s/ Dr. Edgar Krökel

Name:

 

Dr. Edgar Krökel

Title:

 

Vice President

Address:

 

BLACKSTAR INVESTCO LLC

c/o DAIMLER NORTH AMERICA CORPORATION

One Mercedes Drive

 

Montvale, NJ 07645

Fax No.: (201) 573 2595

Attention: Dr. Thomas Laubert

With a copy to:

 

DAIMLER AG

 

Epplestr. 225

70546 Stuttgart

Fax No.: +49 (711) 17-91577

With a copy to:

  Hughes Hubbard & Reed LLP
  One Battery Park Plaza
  New York, NY 10004
  Fax No.: (212) 422-4726
 

Attention: Kenneth A. Lefkowitz

SIGNATURE PAGE TO SIDE AGREEMENT

Exhibit 10.36

May 11, 2009

Blackstar Investco LLC

c/o Daimler North America Corporation

One Mercedes Drive

Montvale, NJ 07645

Attention: Dr. Thomas Laubert

Re: Restrictions on Share Transfer; Certain Voting Restrictions

Ladies and Gentlemen:

Reference is hereby made to that certain Series E Preferred Stock Purchase Agreement, dated of even date herewith (the “ Purchase Agreement ”), by and between Tesla Motors, Inc., a Delaware corporation (the “ Company ”), and Blackstar Investco LLC (“ Newco ”), which provides for the issuance and sale by the Company to Newco of shares of Series E Preferred Stock.

This letter is to confirm that, for full and valid consideration, the undersigned hereby consent and agree to the following:

(i) Agreement Not to Transfer . For period commencing on the date of this agreement and ending on December 31, 2011, the Elon Musk Revocable Trust dated July 22, 2003 (the “ Musk Trust ”) shall not transfer, directly or indirectly, in one or in a series of transactions, any of shares of the Company’s capital stock held by it to any transferee that is a Daimler Competitor unless consented to by Newco in its sole discretion and in writing.

(ii) Agreement Not to Vote Shares . For period commencing on the date of this agreement and ending on December 31, 2011, the Musk Trust shall not, without the consent of Newco (in writing and in Newco’s sole discretion), vote any shares of the Company’s capital stock held by it in favor of a Deemed Liquidation (as defined in the Purchase Agreement) to which a Daimler Competitor or a Person (as defined in the Purchase Agreement) other than an individual controlled by a Daimler Competitor, in one or in a series of transactions, is a party.

(iii) Daimler Competitors . For purposes of this Agreement, the term “ Daimler Competitor ” shall mean any automobile original equipment manufacturers other than Daimler.

(iv) Co-Sale Rights . In the event that the Musk Trust provides a Notice (as defined in the Right of First Refusal Agreement dated May 11, 2009 (the “ ROFR Agreement ”)) that it proposes to accept one or more bona fide offers from a Daimler Competitor to purchase shares of the Company’s Preferred Stock or Common Stock, as applicable (the “Shares”) (and Newco has waived its rights pursuant to subsection (i) above), and to the extent the rights of first refusal under


the ROFR Agreement with respect to the Shares are not exercised, Newco shall have the right, exercisable upon written notice to the Musk Trust within thirty (30) business days after receipt of the Notice, to participate in such sale of the Shares on the same terms and conditions as those set forth in the Notice. To the extent that Newco exercises such right of participation, the number of Shares to be sold by the Musk Trust shall be correspondingly reduced, and the Musk Trust shall sell such reduced number of shares at the price and on the same terms and conditions as set forth in the applicable Notice.

(a) Newco will be entitled to sell its pro rata share of the Shares, which shall be equal to a fraction, (x) the numerator of which shall be the number of Conversion Shares (as defined in the ROFR Agreement) held by Newco on the date of the Notice and (y) the denominator of which shall be the aggregate number of Conversion Shares held on the date of the Notice by the Musk Trust and Newco.

(b) Newco may effect its participation in the sale by delivering to the Musk Trust for transfer to the purchaser one or more certificates, properly endorsed for transfer, which represent the number of shares of Common Stock or Preferred Stock, as may be applicable, that Newco elects to sell pursuant to this subsection (iv); provided, however, that if the purchaser is purchasing Common Stock and objects to the delivery of Preferred Stock in lieu of Common Stock, Newco may convert the Preferred Stock and deliver the Common Stock issuable therefor. The Musk Trust shall promptly remit to Newco that portion of the sale proceeds to which Newco is entitled by reason of its participation in such sale.

(c) If Newco does not elect to exercise its co-sale rights pursuant to this subsection (iv) or does not give notice within the required time pursuant to under subsection (iv) (in each case provided that Newco has waived its rights pursuant to subsection (i) above), the Musk Trust may sell or otherwise transfer the Shares on the same terms and conditions specified in the Notice, provided that such sale or transfer is consummated within forty-five business (45) days from the date of the Notice. In the event the Shares are not disposed of by the Musk Trust within such forty-five business (45) day period, such Shares shall once again be subject to the co-sale rights herein provided.

(v) Assignment; legend . The Musk Trust may not assign, in whole or in party, any of its rights or obligations pursuant to this letter agreement without the prior written consent of Newco and any purported assignment in violation of this letter agreement shall be void. Any such assignee and any future assignee shall agree in writing to be bound by the provisions of this agreement, including all obligations of the Musk Trust hereunder, prior to such assignment becoming effective. The Musk Trust shall cause, promptly following the date of this letter agreement, all certificates of the Company’s capital stock held by the Musk Trust to include legends consistent with the restrictions on transfer and voting contained in this letter agreement.

(vi) Attempt to Transfer . Any attempt by the Musk Trust to transfer or vote any shares in violation of this letter agreement shall be void, and the Company will not treat any alleged transferee as the holder of such shares or any such voted shares as having been validly voted.


(vii) Termination . The provisions of this letter agreement shall terminate and be of no further force or effect upon the earliest to occur of: (a) December 31, 2011, (b) provided that the provisions of this Agreement have not been breached by the Musk Trust, the consummation of (i) a merger or consolidation of the Company with or into another corporation for cash consideration or stock that is publicly traded on a national securities exchange or a combination of cash consideration or such publicly traded stock in which the holders of capital stock of the Company immediately prior to such merger or consolidation do not continue to hold at least 50% of the voting power of the capital stock of the Company or the surviving or acquiring corporation or (ii) a sale of all or substantially all of the Company’s assets in which such assets are sold solely for cash consideration or stock that is publicly traded on a national securities exchange or a combination of cash consideration or such publicly traded stock, (c) such time as Newco (together with Daimler AG (“ Daimler ”) or any Controlled Affiliate of Daimler (as defined in the Purchase Agreement)) no longer hold at least 9,950,000 shares of Common Stock of the Company (including any shares of Common Stock of the Company issuable or issued upon the conversion of the Series E Preferred Stock of the Company and as equitably adjusted for any stock dividends, combinations, splits, recapitalizations, dilutive issuances, deemed issuances and the like), (d) none of the Strategic Agreements (as defined in the Purchase Agreement) are in full force and effect or (e) such time as (A) the representation set forth in Section 3.10 of the Purchase Agreement is no longer true and accurate in all material respects, (B) Daimler (or a Controlled Affiliate of Daimler) no longer holds 20% or more of the equity interests of Newco or (C) Newco is in breach in any material respect of Section 3.5 of the Fourth Amended and Restated Investors’ Rights Agreement dated May 11, 2009 (it being agreed that Newco shall be deemed to not be in such breach if (1) Newco notifies the Company of such breach within 10 business days of such breach and (2) Newco cures such breach within 20 business days after delivery of such notice). Notwithstanding the foregoing, the provisions set forth in subsection (iv) hereof shall terminate upon a Qualified IPO (as defined in the ROFR Agreement).

This letter agreement and the Purchase Agreement and the Transaction Documents (as defined in the Purchase Agreement) constitute the full and entire understanding and agreement between the Purchaser and the Company with regard to the subject matters hereof and thereof, and supersede any and all other oral or written understandings or agreements with respect thereto.

It is agreed and understood that monetary damages would not adequately compensate an injured party for the breach of this letter agreement by any other party, that this agreement shall be specifically enforceable, and that any breach or threatened breach of this agreement shall be the proper subject of a temporary or permanent injunction or restraining order. Further, each party hereto waives any claim or defense that there is an adequate remedy at law for such breach or threatened breach or any requirement for posting of a bond.

This letter agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law.


Any notice required or permitted by this agreement shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or by overnight courier or sent by fax, or five business days (in the case of intra-United States notices) and ten business days (in the case of international notices) after being deposited in the U.S. or other Government Authority (as defined in the Purchase Agreement) mail, as certified or registered mail, with postage prepaid, addressed to the party to be notified at such party’s address as set forth on the signature page hereto, or as subsequently modified by written notice.

Except as expressly provided herein, each of the parties shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this agreement.

Any term of this agreement may be amended or waived only with the written consent of the Musk Trust and Newco.

To the fullest extent that they may effectively do so under applicable Law (as defined in the Purchase Agreement), the parties hereby waive any provision of Law which renders any provision of this agreement invalid, illegal or unenforceable in any respect. If one or more provisions of this agreement are held to be invalid, illegal or unenforceable under applicable Law, the parties agree to promptly renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision within 30 business days, then (a) if such provision is rendered or held invalid, illegal or unenforceable in a jurisdiction only as to a particular Person (as defined in the Purchase Agreement) or Persons or under any particular circumstance or circumstances, such provision shall be ineffective, but only in such jurisdiction and only with respect to such particular Person or Persons or under such particular circumstance or circumstances, as the case may be, (b) without limitation of clause (a), such provision shall in any event be ineffective only as to such jurisdiction and only to the extent of such invalidity, illegality or unenforceability, and such invalidity, illegality or unenforceability in such jurisdiction shall not render invalid, illegal or unenforceable such provision in any other jurisdiction and (c) without limitation of clause (a) or (b), such ineffectiveness shall not render invalid, illegal or unenforceable this agreement or any of the remaining provisions hereof.

No delay or omission to exercise any right, power or remedy accruing to any party under this agreement, upon any breach or default of any other party under this agreement, shall impair any such right, power or remedy of such non-breaching or non-defaulting party nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this agreement, or any waiver on the part of any party of any provisions or conditions of this agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this agreement or by law or otherwise afforded to any party, shall be cumulative and not alternative.


Each party to this Agreement hereby irrevocably and unconditionally:

(a) agrees that any suit, action or proceeding instituted against it by any other party with respect to this agreement or any other Transaction Agreement (as defined in the Purchase Agreement) may be instituted, and that any suit, action or proceeding by it against any other party with respect to this agreement or any other Transaction Agreement shall be instituted, only in the courts of the State of Delaware, located in the County of New Castle (and appellate courts therefrom), (ii) consents and submits, for itself and its property, to the jurisdiction of such courts for the purpose of any such suit, action or proceeding instituted against it by the other and (iii) agrees that a final judgment in any such suit, action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law;

(b) (i) waives any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this agreement or any other Transaction Agreement brought in any court specified in subsection (a) above, (ii) waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum and (iii) agrees not to plead or claim either of the foregoing;

(c) WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER TRANSACTION AGREEMENT AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY; and

(d) to the extent it has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, hereby irrevocably waives such immunity in respect of its obligations with respect to this Agreement and the other Transaction Agreements.

Any reference herein or in any other Transaction Agreement to a “business day” shall mean a day other than Saturday, Sunday or any other day which commercial banks in San Francisco, California or Stuttgart, Germany are authorized or required by law to close, and any reference herein or therein to “day” shall mean a calendar day. If any action may or is required to be taken under this agreement or any other Transaction Agreement by a date which is not a business day, then such date shall be deemed to refer to the business day immediately following such date.

*            *            *


This letter agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.

 

Sincerely,

ELON MUSK REVOCABLE TRUST DATED

JULY 22, 2003

By:

 

/s/ Elon Musk

 

Elon Musk, Trustee

 

Agreed and acknowledged:

BLACKSTAR INVESTCO LLC

By:

 

/s/ Herbert Kohler

Name:

 

Prof. Herbert Kohler

Title:

 

Vice President

Exhibit 21.1

SUBSIDIARIES OF TESLA MOTORS, INC.

Tesla Motors Ltd (UK)

Tesla Motors GmbH (Germany)

Tesla Motors Canada Inc. (Ontario)

Tesla Motors New York, LLC

Tesla Motors SARL (Monaco)

Tesla Motors Taiwan Limited

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the use in this Registration Statement on Form S-1 of our report dated January 29, 2010 relating to the financial statements and financial statement schedules of Tesla Motors, Inc. which appears in such Registration Statement. We also consent to the reference to us under the heading “Experts” in such Registration Statement.

/s/ PricewaterhouseCoopers LLP

San Jose, California

January 29, 2010