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EFiled: Apr 03 2020 07:25P Transaction ID 65558847 Case No. 12711-VCS
Exhibit 19
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Page i THE COURT OF CHANCERY OF THE STATE OF DELAWARE IN RE TESLA MOTORS, INC. Consolidated STOCKHOLDER LITIGATION C.A. No. 12711-VCS VIDEOTAPED DEPOSITION OF BRAD HUSS DATE: Tuesday, June 4, 2019 TIME: 9:32 a.m.
LOCATION: WilmerHale 950 Page Mill Road Palo Alto, California Reported By: Lynne Ledanois, CSR 6811 Jeb No. 3406341 Veritext Legal Solutions 212-267-6868 www.veritext.com 516-608-2400
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| 1 THE COURT OF CHANCERY OF THE STATE OF DELAWARE ! APPEARANCES sere ere eerie ere eet : 2
3. INRE TESLA MOTORS, INC. Consolidated * 3 ALSO PRESENT: STOCKHOLDER LITIGATION CA No 12711-¥CS ? 4 Monica Coscia, Cravath Swaine & Moore 5 Miles Ledanois, Videographer Brenan nn nnn mx 6 Lynn Miller, Tesla In-House Counsel & 77 8 a Videotaped deposition of BRAD BUSS, 9 taken of WilmerHale, 950 Poge Mill Road. Palo 10 Alto, California, commencing at 9:32 o.m., on 11 Tuesday, June 4, 2019 before Lynne Ledancis, 1 2 Certified Shorthand Reporter No 6811. 43 a is IS \6 16 17 18 19 20 n /22 2B (24 "35 it 25 ff Page 3 Page 5 | | ] APPEARANCES l INDEX OF EXAMINATION | 2 2 ' 3 For the Plaintiffs: 3 Examination by: Page i 4 GRANT & EISENHOFER P.A. 4 Ms. Tucker 11, 204 /§ BY: KELLY L. TUCKER 5 Ms. Lavely 203 CHRISTINE MACKINTOSH 6 Attorneys at Law 7 ' 8 123 Justison Street g "9 Wilmington, Delaware [980 9 _ 10 (302) 622-7109 10 ‘ll ktucker@gelaw.com 11 cmackintosh@gelaw.com 12 13 Forthe Witness and Director Defendants: 14 CRAVATH, SWAINE & MOORELLP 15 BY: VANESSA LAVELY (16 RYAN SILA 17 Attomeys at Law 18 825 Eighth Avenue 19 New York, New York 10019-7475 20
(212) 474-1438 21 vlavely@cravath.com 22 rsila@cravath.com 23 M/ 24 25 fff
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SODmanKU AWN — SIRKEON = | 19 20 2 122 23 24 25 212-267-6868 Page 6 INDEX OF EXHIBITS Deposition Description Page Exhibit | Email chain with attachments, TESLADIRO032966-32977; 32 Exhibit 2 Email with attachments, TESLADIRO02 1137-21139 and Pages 1-11]; 79 Exhibit 3. Email chain with attachments, TESLADIRO0278 | 7-27855; 85 wey au aun — Exhibit 4 Email with attachments, 10 TESLADIRO001412-1413 and i Pages 1-44: 107 12 Exhibit 5 Email with attachment, i 13 TESLADERO00258 10-811; 118 l4 Exhibit 6 Email, Ng TESLADIR000723 90; 125 16 Exhibit 7 Email chain with attachments, 7 TESLADIRO00035 15-3517; 129 ‘18 Exhibit 8 Email with attachment, 19 TESLADIR0023790-2379| and 20 Pages 1-15; 133 21 Exhibit 9 Email chain with attachments, 22 TESLADIRO023254-23256; 141 623 24 Hl :25 Page 7 INDEX OF EXHIBITS i Deposition Description Page 2 Exhibit 10 Email with attachments, 3 TESLA DIRO022885-22898; 146 «4 Exhibit 11 Email with attachments, 5 TESLA00529579-29587; 150 | 6 Exhibit 12 Email with attachments, : 7 TESLADIRO0247 14-24715 and 8 Pages 1-35; 171 9 Exhibit 13 Email chain with attachments, 10 TESLADIR0030934-30952; 179 Exhibit 14 Email with attachments, | 12 TESLADIRO0531373-00531210; 183) 13 Exhibit 15 Email with attachments, ‘14 TESLADIR0087767-881 67; 194 (14 Exhibit 16 Email with attachments, 16 TESLADIRO045780-45782; 194 17 Exhibit 17 Document headed, Rule 425, 18 Tesla Motors/SolarCity; 197 19 Exhibit 18 Email chain, 20 TESLADIRGO48424-48245: 199 .21 ‘22 23 24 il 25 Page 8 ; Palo Alto, California Tuesday, June 4, 2019 9:32 a.m.
VIDEOGRAPHER: Good moming. We are on the record at 9:32 a.m. on the 4th of June, 2019, Please note that the microphones are sensitive and may pick up whispering, private conversations and celular inference.
Please tum off ail celi phones and place them away from the microphones as they can interfere with the deposition audio. Audio and video recording will continue to take place until all parties agree (o go off the record.
This is Media Unit Number | of the video-recorded deposition of Mr. Brad Buss, taken by counsel for plaintiff, in The Matter of Tesla Motors Incorporated Stockhojders Litigation, filed in the Court of Chancery in the State of Delaware, the case number of which is 12711-¥CS. This deposition is being held al
Page | Road, Palo Alto, California 94304, My name is Miles Ledanois from the firm Verttext Legal Solutions, and ['m the videographer. The court reporter is Lynne Ledanois from the firm Veritext Legal Solutions.
T am not authorized to administer an oath; | am not related to any party in this action, nor am | financially interested in the outcome.
Counsel and all present in the room and everyone attending remotely will now State their appearances and affiliations for the record.
If there are any objections to proceeding, please state them at the time of your appearance, beginning with the noticing attorney.
MS. TUCKER: Kelly Tucker, Grant & | Eisenhofer, for plaintiffs.
MS. MACKINTOSH: Christine MacKintosh, Grant and Eisenhofer, for plaintiffs, | MS. LAVELY: Vanessa Lavely, Cravath Swaine & Moore, for defendants. MR. SILA: Ryan Sila, Cravath, Swaine & 3 (Pages 6 - 9) Veritext Legal Solutions Wwww.veritext.com 516-608-2400
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212-267-6868 Page 10 Moore, for defendants.
MS. COSCIA: Monica Coscia, Cravath Swaine & Moore, for defendants.
VIDEOGRAPHER: Okay. Will the court reporter please swear in the witness. Off the record? Okay. We are going off the record. The time is 9:34 a.m. (Recess.)} VIDEOGRAPHER: We're back on the record. The time is 9:36a.m.
BY MS. TUCKER:
Q Good morning, Mr. Buss.
A Good morning.
Q J introduced myself earlier, but my name is Kelly Tucker, and I'm the attorney representing plaintiffs in this derivative and stockholder litigation.
MS, LAVELY: Can we pause for a second. | don't think we swore in the witness.
MS. LAVELY: Did we swear the witness? (Discussion off the record.)
BRAD BLISS,
having been first duly sworn, testified as followed:
Page [1 EXAMINATION BY MS. TUCKER:
Q_ Mr. Buss, have you ever been deposed before?
A Thave.
Q You have.
And what were the circumstances in which you were deposed previously? A Recently with the SEC matter with Tesla a few months back, and then when [ was the CFO at Cypress Semiconductor in a suit with an investor related to an acquisition. QQ. And was Cypress the acquirer or the -- A We were the acquirer.
Q And was that a -- was Cypress the plaintiff or the defendant in that litigation? A We were the defendant.
Q Okay.
A There was an appraisal rights issue in Delaware, which we actually won.
Q Okay. And when you said the SEC matter, are you referring to the SEC lawsuit regarding the going-private transaction? A Correct.
Q Just to give you a refresher on kind On A Wo Ww hom No o PURO — A a NN hh ee WN = Ow oo wa tw hm uy ew Ao ho Wen KRKHeEONM- Sw hm Qo
“25 Page 12 of the guidelines for today, the court reporter is taking down my questions and your answers, So make sure that when you answer, you provide verbal responses instead of nodding your head or —- A Gotit.
Q And then we shouid try not to talk over each other because ~ so she can accurately record what we're saying. I'll wait for you to answer your questions before I follow up, and just please wait for me to finish my questions before you answer.
If you don't understand a question that I've asked, please let me know. Otherwise I'll understand that you understand what I'm asking.
When | refer to the “merger” or the "acquisition" today, unless | state otherwise, I'm referring to the -- Tesla’s acquisition of SolarCity in November of 2016 -- A Okay, Q --is that okay?
A Yes.
Q = Okay. Through the course of the deposition today, | may be presenting you with Page 13 .
emails that have been sent by you or received from you. If you did not, in fact, send or receive those emails, please let me know. Otherwise, I will assume that you did. And if you need a break today, just let me know. I'd be happy to accommodate you. I just ask that you answer any pending questions before we go ona break.
A Sounds good, Q Did you do anything to prepare for today's deposition?
A [had aprep meeting with counsel. Q [sit counsel who's present here or is there anyone else?
A No, counsel that is present.
Q Okay. And did you review any documents?
A Some prep documents and some public documents.
Q Okay, Were any of those documents from your personal files?
A No.
Q. Were all those documents produced in this litigation?
A I'm assuming so, yes.
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212-267-6868 Page 14 Q Did you speak with anyone about your deposition today?
A Outside of counsel?
QYes.
A No.
Q_ Did you review deposition testimony of anyone else that's been deposed in this case? A Lhave not.
QQ After reviewing the documents that you looked at, did any of them help refresh your recollection?
A Not really.
Q = Could you tell me about your educational background post high school? A Dida bachelor's degree in economics, did an honors business administration, the major in finance and accounting.
Q Okay. Do you have any professional certifications?
A Idonot.
Q Can you tel] me about your work history post college, starting at the earliest. A Wow. Okay. Out of college I joined Arthur Andersen & Company, started in the Toronto office doing audits.
Page 15 Transferred to the L.A. office, so that was probably, in total at Anderson, four or five years.
And then | joined a company called Wiley Electronics, which was a semiconductor distributor, And [ was there for six or seven years in a variety of capacities, internal audit through finance, ended up being the CFO of : one of their divisions.
And then I went to acompany called Altera, again, another large semiconductor company in -- up in Silicon Valley here. Worked at a startup as a CFO called Sapphire for a short period. Then it was acquired, and then | was back at Altera. 1 was there, | was the VP of finance running all the -- the business units.
And then | became the CFO at Cypress Semiconductor in, I think around ‘05, mid '05, I believe. I was there for almost nine years, and then I was retired.
And then Elon asked me to look at SolarCity. And | went there for a very short stint to do a couple things, help them through a few things, and | was there maybe a year and a Page 16 half. '
| 2 And I finished there in early 'l6, and | 3 then went back into my full-time retirement, i 4 which I've been doing since. And | sit ona couple boards now and do a bunch of investing. . 6 I've taught some classes. I'm enjoying Phase 3 i 7 of life.
Q Are you working in an executive capacity or as a consultant for any companies, : 10 outside of your board positions? iH A No, no, just really board.
Q Did you serve as a consultant to | 13. SolarCity after your retirement? ‘14 A Fora brief period of time | did. | 15 Q Until when?
A [think it was early, mid March of "16.
118 Q Okay. And when did you retire from Cypress?
A Juneish, I think, of '14, around there.
Q Okay. And what were your responsibilities? I think you said you were CFO? Or what was your position at Cypress when : you left? :
Page 17 ¢ l A I was the CFO the entire tenure there.
Q. Okay. And what were your responsibilities as CFO?
A 1 mean, I had the traditional finance, accounting, you know, FP&A, investor ' 6 relationships, tax, treasury, was heavily ' 7 involved in the strategy of the company. Q Was Cypress publicly-traded?
A Yes. :
‘(10 Q ~ And FP&A, is that financial planning , and analysis?
A Correct.
Q Okay. And what was your role as CFO, (14 of SolarCity? , A Basically all the same, similar '16 functions, you know, overseeing accounting, (1? finance, you know, our capital markets group, :18 tax, treasury, investor relations. Q = What was the capital markets group? A I[t was justthe group where we would raise the various project financing or debt or equity financing. Kind of like, you think of it as treasury, but since it was a very big part of the company, we called it capital markets. Q_ And you mentioned this briefly, but (Pages 14 - 17) Veritext Legal Solutions www. veritext.com 516-608-2400
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| how did you hear about the open CFO position at | know, We had input as the controlling SolarCity? ! shareholder. Because our goal is eventually to A Elon had asked me post, you know, when =| do a tax respin of it.
| was retiring from Cypress, you know, Are Q Okay.
you -- are you going to work, are you really A Which we ended up doing. retired? : QQ. And when was that? ; _ I said, No, I was planning on i 7 A Three or four years later. [ don't -- , > 8 retiring. & Idon't remember the exact date, but that's all And he's like, Hey, there's an 9 public.
interesting opportunity at SolarCity. 10 Q. Okay. And I think you mentioned il And I had had a lot of background in 11 earlier that Mr. Musk -- or you joined SolarCity solar because at Cypress, we owned a company 12 tohelp them through a few things.
13. called SunPower, and when! joinedthe company, 13 What were you referring to there? you know, we took that public very quickly and —: ‘14 A Well, he had wanted to make a change it was extremely successful, : 15 inthe CFO. They had had a couple of accounting So we were really the first public '16 issues related to the rapid growth. [ mean, solar company of any sorts at the time. And it '17 nothing substantial, but they had a couple of had done very well, you know. [18 material weaknesses.
So based on that, you know, as solar -19 So | think the company was just started growing, you know, and I had been i 20 looking to do a change to get somebody that involved in that, you know, | was contacted for ; 21 was -- 1! would say more well-rounded in running a variety jobs in solar, and still do because of ‘22 a company and growth than maybe the prior CFO the experience that | had there. 123° was.
Then also being a CFO for the years :24 Q And who was the prior CFO? and being on the board. (25 A Bab Kelly, | believe his name was.
: Poge 19 ; Page 2] / ol Q When did Cypress take SunPower public? Q Ethink you mentioned one of the A End of 04, end of '05, [ think. I -- things that you're doing now is investing; is ' 3 [don't remember exactly. But it -- it was that right?
early on when | started because [ literally was A Mm-hmm.
working on the S-I the day | started. Q_ What types of companies are you Q And was then SunPower a separate investing in?
organization from Cypress? A Well, I do a lot of public company g A Yeah. Once it went public, it was a investing, and then I've done a handful of, you
publicly-traded company, but we owned know, private companies -- [0 80-something percent of it, and we had a Q. Do you-- high-vote stock, so we actually controlled the A -- small private companies, yes.
' 12 company economically as well as voting. Q = Do you focus on a particular industry? Q So in that capacity, were you involved A Not really. It's really — in the on, a day-to-day basis, of the management of private companies?
SunPower? Q Sure.
A Ona day-to-day, no. We had a full, A No, it's really more just do | like ‘17 you know, management team there. the individual, do | think they have an
Q. Okay. Were you involved in financial interesting idea, so I've been involved _ 19 planning for SunPower? everything from, you know, the BottleRock A No, [ would look at it more like concert in Napa, me and a buddy funded, all the you're kind of like a board member that’s a way to educational software, little more involved. So major decisions, since Q = And are there any other criteria that we were the controlling shareholder, we would be | 23 you use to determine whether you would make an involved. You know, | would attend the board 24 investment?
meetings, you know. So major decisions, you 25 MS. LAVELY: Objection to form.
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THE WITNESS: It's -- really just A I've owned it for a while, yeah.
"| I
/ 2 depends on the situation. 2 Q . Okay. Why did you decide to come out . 3 BY MS. TUCKER: 3 of retirement and join SolarCity as CFO?
Q Do you look at value indications? 4 A_ You know, it was a pretty -- you know, A [look -- 5 I was not looking to work again full-time, but 6 MS. LAVELY: Objection. 6 it wasa-- you know, it's a pretty unique THE WITNESS: I mean, 1 Jock atalot 7 company and it was at a unique time, and what | . 8 of things. Most of these are very early 8 had said is like, Hey, I'd be glad to come for , 3 stage So it's really a monster bed. You 9 maybe a year or two to help kind of fix things “10 know, I'm usually helping it's going to bea 10 up, it’s kind of interesting. ‘11 two or three X return, or it could be zero. 1] But, you know, I'm not looking to go And many have became zero. /12 work for another eight or nine years like I had '13 BY MS. TUCKER: 13. done at -- at Cypress. You know, I did not want Q_ And how do you determine what public 14 the full-time commitment. My kids would be companies you invest in? 15 leaving for school soon, and, you know, MS. LAVELY: Gbjection to form. '16 financially | didn't need to work.
117 THE WITNESS: Can1-- should] just ,17 Q What was unique about the time? still answer? 18 A Well, it's just the entire space. | MS. LAVELY: Yes. 19 mean, I've always like solar. | mean, | think THE WITNESS: You know, again, it's , 20 it's a great spot, and that company, I mean, 21] very similar, It's either do J like the ;21 they were the Number t installer, residential sector, like I like semiconductors because [ :22 and commercial by far. spent a jot of time in that area, obviously. | 23 So it was kind of exiting to see : And I -- you know, growth, sometimes I | 24 somebody that was very dominant in the space and look at stuff with dividends, you know, :25 bea part of that.
: Page 23 Page 25 | ] since, you know, I don't -- I don't work I And -- and it was part of the 2 full-time, you know; I use dividends and 2 averall -- ['m a big believer in sustainability. interest income a lot. 3 You know, that was part of the reason I went to BY MS, TUCKER: 4 Cypress to begin with because of the solar IPO, Q_ Do you -- do you currently invest in § and one of the reasons [ ended up joining the any companies in the solar industry? 6 Tesla board was because of the long-term vision A I may still have asmall investmentin 7 on sustainable energy. ['m a huge, huge | 8 But, | mean, ] own a lot of stock so 8 believer in that.
: 9 I'mnot -- I think that would be the only one. . 9 Q So when you say "Number [," what do Q Do you know the size of your :10 you mean by that, market share?
‘IL investment in I? .11 A Market share, yes. | A Oh, it's probably under I. ‘12. Q_ And when you say "dominant," are you Q_ And do you know the size of your | 13 also referring to market share? investment in in 2016? ‘14 A Yes, that's -- yeah, meaning, you A Well, we had -- I think we had spun =| 15 know, they -- I think during my time there it all the shares off. So technically I didn't- ‘16 was between 30 and 35 percent market share. And I didn't — [ don't think [ had any then, no. ‘17 1-1 don't even think the closest competitor Q Sosubsequent to 2016, did youbuy #18 was close to 10. We were bigger than really the shares in A? ‘19 next 30 guys put together. It was a pretty A No. I don't think so, no. 20 fragmented industry.
Q So what is the J in shares that 21 =Q = And what was appealing about that to -22 you mentioned you -- 22 you?
A I probably owned it from before when 1.23. A Just this ~ bought it prior to '16 or... “24 MS. LAVELY: Object to form.
Q So you've owned that continuously? = 25 THE WITNESS: Like | said earlier, |
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wanted to promote Tanguy into president and then consolidate a couple of functions under him.
And he was going to put all the finance
the solar business, you know, is a fraction | 15 of the size of the totality of -- of Tesla.
'16 BY MS. TUCKER:
i17 Q. Do you -- is that not something that functions there as well. And I was like,
| 18 Tesla looks at? Perfect.
mean, | think the whole solar industry, the | with, you know, Lyndon, you know, going through | ability to drive sustainability and, you 2 the interview, it's like, Hey, you know, I'm -- © 3 know, they were very well positioned as a 3 I'm good for a year or two, I'll help rebuild ' 4 company. some of the team, put in some structure, but, . BY M8. TUCKER: § you know, it's not my goal to be a long-term | Q What's Tesla's share of the solar -- CFO. | market share of the solar industry today? And then in -- so I was figuring, you A Well, I don't know specifically. know, probably do, you know, '14,'15,and then Q Do you know generally? hopefully be able to roll out. So 1 was | A | don't, no. 0 spending a lot of time building the team andthe iT Q _Isit less than 30 to 35 percent? | staff.
MS. LAVELY: Objection to form. 2 And then in November, | think it was | 13 THE WITNESS: I don't know. I mean, 13 November of '15, somewhere around there, Lyndon 0 ]
MS. LAVELY: Objection to form. So instead of me waiting until January | :20 THE WITNESS: I mean, no, we look or February -- because my goal was always to | the automotive business and we look at the ; file the 10 -- the 10-K. You know, | was the | energy business, and the energy is solar, 22 chief principal, you know, like financial | it's batteries, it's Powerwall, it's grid :23 officer. | stuff. It's -- it's a large group. We 24 So my goal was like, Okay, I'll finish | don't look at subcategories of stuff. 25 that 10-K and then probably roll out. . i Page 27 Page 29 - » 1 BY MS. TUCKER: I And then when he wanted to do that, it Q Okay. And when you say "we," who are 2 was like a perfect way to go, Great, I'll still ' 3° you referring to? 3 stay and do that, but then, you know, you can | 4 A We, the board. 4 have all the people start reporting into Tanguy, Q How many interviews did you -- how § and then we can make the transition effective many times were you interviewed in connection 6 then from the day-to-day stuff, and then I'll _ 7 with the SolarCity CFO position? 7 ~~ stay around and finish off basically signing the A I mean, quite a few. I mean, I] meta 8 10-K, which we did in early February. | 9 multitude of people. | don't remember on how 9 Qs Okay. And I'm sorry, [ may have many different occasions, but | met, you know, 10 missed it, when did that transition start? ‘11 multiple members of the management team anda = A The transition of my responsibilities? /12 couple of the board members as well. 2 Q Yes.
113 Q Doyou remember who you met with on 13 A | would say, you know, we kind ~ I _ the board? 14 think we made a public announcement in late HS A I don't, no. 15 November, maybe. And then literally within the Q Do you remember who at management you 16 next couple of weeks, because it's very . met with? 17 confusing. It's like, okay, I'm going to be ‘18 A [know | definitely met with Lyndon 18 gone but I'm still going to be here for the K. i and Pete Rive, the cofounders, and then Tanguy .19 So we started having my direct reports report Serra and, | believe, Hayes Barnard. Andi -20 into Tanguy, you know, for the day-to-day stuff, think Seth Weissman, who was the general counsel 21 you know. So, you know, the FP&A, the forecast, | ~~ at the time. '22 all the financing stuff we did. They started Q And why did you leave SolarCity? 23 reporting into Tanguy effective then. A Well, like I said, | was planning on 24 And then I was really just wrapping up being there just -- you know, when | talked 25 the end of the year.
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212-267-6868 And then J would really just come in periodically in January through February until we finalized the 10-K. So [ was really focused on the year-end reporting, the auditors getting the 10-K done. And then, you know, | signed that, and then | was officially finished at the company as an employee.
Q Okay. And you may have mentioned that you served as 4 consultant for a little while "9 post resignation; is that correct? 10 A Yeah, It's kind of a standard thing. “Hl did the same thing at Cypress Square. It's 12 like, Okay, you know, you're done, you were ‘13 transitioned, but if there's anything that comes 14 up, you're still kind of associated with the 15 company so that you can help in that regard. 16 And then it really wasn't needed, you 17 know, at the time, and [ mean, if was really 18 just some stock vesting. The stock was so far 19 under the water ~ do you understand -- the 20 option price was so low, like there really 2] wasn't a ton of value and [ wasn't beingusedsao =| 22 I just said, Hey, let's just call ita day. 23 Q Okay. And just to clarify that point, 24 are you saying that the option price was higher 25 Page 31 than the stock price or the other way -- I A Correct. 2
Q. Okay. 3 A Correct, exactly. 1 think my option 4 price was around 71, and I mean, the stock was 5 less than half of that at the time. | 6 Q Okay. Did you do any work in | 7 connection with your consulting agreement? ° 8 A No. | 9 Q Did anyone from SolarCity management 10 reach out to you during that time period? dl A I might have had the odd call from one . 12 of the people that worked for me on something, 13 but [ don't recall anything specific. Nothing «14 Major, ‘V5 Q Okay. 16 A Because that was the beauty of me ‘17 being there and transitioning the people over - 18 those few months, that a lot of the stuff we “19 were able to get done and takencareofina ;:20 very orderly manner. ‘21 Q Okay, Did you signa termination 22 agreement when you left SolarCity? 23 A Yes. 24 Q Did that include a nondisparagement 25 Page 32 provision?
A | don't recall specifically.
Q Okay.
MS. TUCKER: I'll introduce as Buss | a document family that begins with Tesla DIR 0032966 through 977.
(Exhibit 1 was marked.)
THE WITNESS: Do you want me to read through this?
BY MS. TUCKER:
Q Sure, if you like. I'm going to direct your attention to a particular portion of this agreement.
But the first thing ['m going to ask you is, is this the termination agreement or agreement you signed when you resigned from SolarCity?
A Yes, yeah, looks familiar. Has my signature.
Q Okay. And I'm just going to turn your attention to -- it's Page 6 of the agreement. Feel free to review whatever you need to. But I'm interested in Paragraph 16.
A You're just -- okay. Paragraph 16. MS, TUCKER: It's on Page 6, which
Page 33 ends in Bates Number 972.
A Okay.
Q My question for you is: Do you believe that you're bound by this provision in connection with your testimony today? MS. LAVELY: Objection to form.
THE WITNESS: | mean, I'm not a lawyer in reading that, but everything you ask me is going to be the truth. So hopefully it doesn't conflict with that and I get in trouble. .
BY MS. TUCKER:
Q Okay. You mentioned you sit on some corporate boards?
A Yes,
Q. What corporate boards do you sit on? A Currently?
Q. Yes.
A Tesla, and a company called Marvell Technology and a company called Advance Auto Parts, and they're all public boards. Q Okay, And when did you become a director of Marvel! Technology?
A Abouta year ago. 1 was previously on acompany called Cavium that got bought by (Pages 30 - 33) Veritext Legal Solutions www. veritext.com 516-608-2400
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Wraon~w nai fw P= bo BOND Dee Whe OWI Do PL = Oo Page 34 Marvell, and as part of the acquisition, three directors went over to Marvell, and | was one of the ones selected.
Q Okay. And when did you join Cavium on the board?
A [think sometime in 2016. [ don't know, it's all public. | QQ And when did you join the board of Advance Auto Parts? 9 A 'I6or'l7,
Q. Okay. And how did you hear about the i! open board seat on Cavium?
A I knew the CEO from, you know, when ! was a CFO at Cypress. There's, you know, always tons of different investor conferences, and | met him over the years through that. And he had reached out to me going, Hey, you know, are you fully retired now? And I'm like, Yeah.
What are you going to do?
You know, I'm just going to focus on some boards and invest. And he asked if {1 would come on the board.
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212-267-6868 Q And what does that company do?
A They make semiconductors with a focus : Page 3 on data centers. 4 Q Okay. And how did you hear about the » 2 ' 3° board position at Advance Auto Parts? 3 | 4 A Through one of the other board members 4 onthe board. | had had some conversation with 5 them ona couple of different opportunities, and 6 then he asked if | was interested. They were 7 {ooking for a -- an audit committee chair. g Q And who was that person? 9 A The individual? 10 Q Yes. 11 A Jeff Smith. 12 Q Jeff Smith. Okay. 13 And how Jong have you been a director 14 of Tesla? 15 A '09,[ think. Right before the -- | 116 _ 17 came on about a year before the IPO. 117 Q And how did you come to be a director 14g on the Tesla board? _19 A Larry Sonsini from the building 20 -2) nextdoor was a lawyer we used atCypress,andhe 21 (22 was the main lawyer at Tesla, and he had asked 22 23~=«me that, Hey, you know, they're looking at 23 potentially going public, and t -- you know, 24 they were looking for outside, independent 25
Page 36 directors.
And, you know, due to the experience | had, especially in the solar, you know, renewable areas, he thought I'd be a good add, so thought, Yeah, that's pretty exciting. The company's doing some amazing things, has a great | vision, and I'd be willing to talk about it. So, you knaw, I did, and, you know, they offered me the -- the directorship.
Q = Who did you speak with at Tesla prior to joining the board?
A Definitely Elon, and I betieve a couple of the other -- | think Antonio and Ira at the time. But I'm not !00 percent sure. [ -- [know [ definitely talked to a couple different people.
Q What did you discuss with therm prior to joining the board?
A I mean, the main thing with it being, you know, kind ofan early-stage company, 5¢ to speak, and, you know, looking to go public -- it was really just, you know, what's the vision, where are you looking to go.
You know, was it just cars; how many cars; are you going to be kind of a niche Page 37 player; how big are you going to get; you know, how is the solar and energy going to play into it long term. Because they had a pretty big vision, you know. So it was generically on that.
And then the usual stuff, you know:
How's the company's financial position, what are the board dynamics like, you know, what is your plan, you know, really just for the future. Q You said, "How is the solar and energy going to play into it."
What do you mean by that?
A Well, you know, their big, you know, vision, you know, was always, you know, really focused on sustainable energy, you know, how do we, you know, upend fossil fuel, you know, with, you know, really a big focus on, Hey, the planet's in trouble. We need to change our ways, which again, | find very appealing, was a big focus for us, obviously, at SunPower, you know, We were trying to do our part, but they were looking to take it to the next level, which I found very appealing, especially since we had divested of it.
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Caw AW fe Ww ho NNN MN NS ee Se eR ee ibe - Swoon nl BwWN - Ow eo~ Ao fF We 212-267-6868 Q When you say "we had divested" -- A Cypress, when we had divested SunPower, when we did the tax respin, Q In 2009, were you still -- was Cypress still a majority owner of SunPower? A You know, it might have been -- we either just spun it or were going to spun it, I'm not -- [ think we might have spun it at the end of '09, | think it was right before the downturn hit, if 1 remember. But somewhere around there, so it was pretty close, Q Were you involved in the decision by Cypress to spin off SunPawer?
A Very.
Q_ And why did you decide ta do that? A Well, it's -- [ mean, our core business was making semiconductors, you know. Solar cells, you know, are kind of like a big old-fashioned semiconductor in a way. The old days, they used to be big and round, and, you know, they're much smaller.
But it became -- it was a very successful company, so at various points in time, the semiconductor business, which used to be the whole company, was valued at, you know, Page 39 | nothing or sometimes negative because the solar business, if you took the shares we own timed the stock price, was very valuable. So -- and then it was causing, you know, some -- some issues, you know, internally and it was like, you know what, it's a very capital-intensive business and we really couldn't do both things at once to -- to keep it growing. You know, you would have to keep building factories.
Because we were actually making the modules, we actually made the cells, where SolarCity was buying them from someone else initially, and then they were looking at manufacturing down the road. So it was a very different business madel.
Q A é little bit earlier I think you were referring to someone's big vision for Tesla. Who were you referring to?
A Well, the company's vision, obviously driven, you know, via Elon as he was the CEO. Q What do you view as your responsibility as a director of Tesla? A [ mean, the overall fiduciary duties, you know, that are pretty standard, I think, Page 38 _ I
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! mean, looking at the strategy, you know, looking, you know, working with the CEO, working with the management team as necessary. Q _ As the director, do you believe that you owe fiduciary duties to Tesla?
MS. LAVELY: Objection to form.
THE WITNESS: Our shareholders, really all stakeholders. 1 mean, you have to look at everything, right.
BY MS. TUCKER:
Q Have you ever served on any committees of the Tesla board?
A Many.
Q_ Which ones have you served on?
A Every single committee. | mean, the audit committee, NomGov, compensation, And then we had a disclosure committee as part of the SEC settlement, and | was part of that as well. Q And when did you serve on the audit committee?
A When I initially started at Tesla, so when I joined, 1 was the chair of the audit committee.
Q. And when did you serve as chair Page 41 through?
A When | went to SolarCity, I -- 1 stepped down from the audit committee, and | helped bring in Robyn Denholm. And she became the chair of the committee, and still is the chair of the committee.
Q Okay. And why did you resign as chair of the audit committee when you joined SolarCity?
A Well, we had related party stuff, you know, periodically between the two companies. And, you know, with it being a full-time job, you know, I didn't want the load, you know, of -- [ was pretty active as an audit committee chair.
Q What do you mean by that?
A Mean by what?
Q = You were pretty active as a -- A Oh. Well, being a chair, you know, you talk to management, you're involved with -- you talk with auditors, it's -- you know, it's not a just show up once a quarter kind of job. Qs Okay.
A So1 wanted to be devoted into what | was doing, you know, full-time, which was the 1] (Pages 38 - 41) Veritext Legal Solutions www.veritext.com 516-608-2400
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| a
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212-267-6868 Page 42 CFO of SolarCity. , Q And how did you know Robyn Denholm? _ A Again, through various investor functions. She was the CFO at Juniper Networks, and | was always impressed with her as an individual, very capable, very strong, very direct.
Q What were the related company stulf you were talking about between Tesla and SolarCity?
A Well-- M8. LAVELY: Objection to form.
THE WITNESS: We would just -- you know, we might buy solar panels for something. They may be buying batteries and stuff from our perspective. You know, I think they bought some cars.
BY MS. TUCKER:
Q Okay.
A The basic stuff that we sold back and forth.
Q And as a member of the audit committee, did you review SEC filings? A Oh, yes.
Q And what did you review those SEC Page 43 :
filings for?
A Far?
Q What questions of them did you -- A Oh, God. | mean, so we would look -- obviously we would look at press releases, we would look at, you know, the 10-Q, the 10-Ks, you know, If there is any other material document, we would look at that as well. So it was really just looking at it for, you know, is it complete, you know, is there good balance disclosures.
Q Do you know why you were selected ta the audit committee?
MS. LAVELY: Objection, form.
THE WITNESS: Of Tesla?
BY M8. TUCKER:
QO Yes.
A Well, | -- being a CFO, they needed an audit committee chair, so ] was obviously very qualified to be that person. And that's why I Started there as that chair.
Q Okay. I think you mentioned the nominating governance committee; is that correct?
A Correct.
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:25 Page 44 Q = And what was the role of the nominating and governance committee at Tesla? A I mean, just overall corporate governance and then, you know, again looking at the composition of the board.
Q. Okay. And what types of things did you look at when you were looking at the composition of the board?
A I mean, it was really everything from, you know, skill sets, you know, diversity, you know, with people rolloff, post IPO, as the company grew, what skill sets do we need or not need, et cetera, very standard stuff. Q = Would the nominating and governance committee look at the independence of the directors?
MS. LAVELY: Objection to form.
THE WITNESS: I don't know if we did it in that -- ] mean, it's -- whether it was that or comp or the board or, you know, | don't remember exactly what -- how we dealt with that in every committee, but we'd obviously go through that as part of the regular thing every public company does. You know, you have to go through an Page 45 | independence review, and, you know, yousay | it in your proxy and all of that fun stuff. Q And what types of things would you look at when you were doing that evaluation? MS, LAVELY: Objection to form, THE WITNESS: | mean, big picture, it's really related ta, you know, do we all feel that we can make independent decisions as independent directors -- BY MS. TUCKER; Q So- A - you know.
Q So would the directors themselves make that determination about themselves? A No, we would have various dialogs with legal counsel as well, inside and outside, Q Ultimately it was the board that made | those decisions though; correct?
MS. LAVELY: Objection to form.
THE WITNESS: Again, with outside and inside legal counsel and advice all the time. We went through pretty rigorous - 1 mean, there's a lot of criteria for being a public company, and then based on the stock exchange that you're listed on, that you (Pages 42 - 45) Veritext Legal Solutions www. veritext.com 516-608-2400
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Oo oo ONO BB wh BO bo BORD BRO ORD me ee RR a ee PA BWM —- OOM An Pwr — Oo Soma KnnaAWH Ree eee Sowom~A tin BR Wo 2i 212-267-6868 well, Page 46 need to ensure that, you know, you're comfortable with, so we would go through pretty detailed stuff.
And obviously all the director and officer questions formed a basis for that as well.
Q And how long did you serve on the nominating and governance committee? A I mean, years. I think I was on it A & whe Page 48 MS. LAVELY: Don't disclose any discussions you've had with legal counsel. THE WITNESS: Yeah, that's kind of where | was going to -- | mean, there's a big list that legal would kind of put through, and we would go through that by each individual and look through that.
| 8 BY MS. TUCKER:
i 9 Q But you personally made a the vast majority of the time. I can'tremember! 10 determination, as a director of the board, as to when I went to Tesla -- or to SalarCity. [ know 11 I definitely stepped down from the audit stuff, but I think | was still on the Nom&Gov, but... Q_ And you mentioned the compensation - committee as well?
A Mm-hmm.
Q What was your role in connection -- A Yes.
Q_ -- with the compensation committee? A It was pretty wide-ranging. You know, we'd look at head count trends, or we'd obviously look at, you know, if they wanted to do, you know, global wage increases. Stock option or RSU grants were a big part of it as Page 47 Q And how long did you serve on the compensation committee?
A Again, same thing, | think all the way through until maybe a year ago.
Q. Okay. A year ago being 2018?
A Yeah, roughly. We jiggered some committees around.
Q = Okay.
A With the new directors that we brought on over the last year or two.
Q So when you were serving as SolarCity’s CFO, were you also serving as a member of the compensation committee? A I think I might have been, but ['m not 100 percent sure.
Q Okay. You mentioned that there's a the independent of the directors; correct? MS. LAVELY: Objection to form.
THE WITNESS: We -- we collectively would make a decision and agree on it.
BY MS. TUCKER:
Q And what criteria did you consider? MS. LAVELY: Don't disclose any discussions you've had with legal counsel.
BY MS. TUCKER:
Q = Regardless of whether counsel told you or not, you considered, presumably, some criteria in making those determinations; right? MS. LAVELY: I'm instructing the witness not to answer to the extent it will disclose discussions with legal counsel. Page 49 A Yeah, it would be hard not fo violate, . 2. I mean, because again, there's a lot of criteria. There -- there would be a big memo. : 4 We would go through it and look at it by . 5 individual -- with legal counsel.
: 6 BY MS. TUCKER:
77 Q. Are there any criteria that you ' 8 believe personally were more important than others?
MS. LAVELY: Objection to form.
ll THE WITNESS: It's a collective decision. 1 mean, there's a lot of factors that go into it.
BY MS. TUCKER:
Q You can't -- sitting here today, there are none that you consider more important for lot of criteria for being a public company you |17 you personally than others? would consider in connection with director independence determinations. Can youtell me 19 what -- some of the criteria you considered? MS. LAVELY: Don't disclose any discussions you've had with legal counsel. THE WITNESS: Yeah, I mean, that's kind of -- MS. TUCKER: Don't disclose -- MS. LAVELY: Objection to form, THE WITNESS: No, I mean, it's -- again, it's a whole decision of it.
BY MS. TUCKER:
Q So you relied on legal counsel in making that determination?
A They were part of the process, definitely. But] wouldn't say we (Pages 46 - 49) Veritext Legal Solutions www. veritext.com 516-608-2400
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ona HRP Wh TN NMNN ME eee eee (A BUNK Sue TAKER N Ho} 212-267-6868 Page 50 100 percent — again, it was a collective decision that was done with a lot of different inputs and advice.
Q = So to the extent it wasn't 100 percent reliance on legal counsel, can you tell me what you considered in making director independence determinations?
MS. LAVELY: Don't disclose any discussions you've had with legal counsel to the extent that you can’t distinguish which discussions involved them and which -- A Yeah, 1 -- i -- | couldn't do that because, again, like | said a few times already, it's, you know, it was a very detailed memo and a bunch of different criterias that we would look at with legal to go through all of that. And in the end, you know, all our conclusions, you know, were disclosed in the proxy of what we thought was independent and who wasn't, from the standards that were required.
BY MS. TUCKER:
Q Did you review the Form S-4 filed in connection with the acquisition of SolarCity? A Yes.
Q What did you review in that proxy Page 5!
statement?
A The whole thing.
Q = What did you review it for, what were you looking for when you reviewed it? A Youknow, again, it's kind of similar, you know, to, you know, any big filing that we would do, whether it's the proxy or the [0-K or the 10-Qs.
You know, as -- as a board member and, more importantly, as being part of an audit committee, it's something that we would do. So again, just looking through, Yep, makes sense. Anything I'm aware of that's missing, are we, you know -- again, are we documenting it the right way.
Just anywhere where we think we could add value to make it clearer, you know, to the investor.
Q Did you request any changes to the proxy during that review process?
A 1 couldn't tell you. | mean, | generically have comments on most things. So | mean, | -- | can't recall, [t was a long time ago. But.
Q Do you remember generally what those WOMAN HNPWPhY “10 wn
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Page 52 changes would have been?
MS. LAVELY: Objection to form.
THE WITNESS: No. [ mean, most of it's just, [ would cail it like wording language. I mean, it's normally just, Oh, maybe we can show it this way or, you know, Maybe explain it that way. I mean, generally not like something major is missing or what do you -- you know, it was never anything major.
The company always did a very good job on disclosure, Q = Why was the disclosure controls committee formed?
A It wasa result of the SEC settlement. Q And what was the role of the disclosures control committee?
A It would be if there's, you know, any kind of tweets, you know, material nonpublic | information that should be preapproved, you know, prior to it, you know, being decimated in a tweet, tweet format.
Q And does the disclosures control committee only look at tweets?
A For that specific person -- purpose, Page 53 yes.
Q And that was only Elon Musk's tweets; is that correct?
A It would be anything from the company, But it obviously was focused on, you know, the issues the SEC had related to him.
Q You said it "was" focused on that. Is the disclosure controls committee dissolved? A No. No, no. It was part of the settlement. So I mean, from our perspective, itll be an ongoing committee maybe forever until there's some agreement with the SEC that it doesn't need to no Ionger exist. Q Who was reviewing the tweets prior to the formation of the disclosures control committee?
A Elon would work with counsel, you know, when and if he thought that it was anything that he needed that input. Q = Would they be run by the board? MS.LAVELY: Objection to form.
THE WITNESS: Not generically, no. I mean, communications are generally the purview of the company.
BY MS. TUCKER:
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Page 54 *
l Q@ Who else was on the disclosures i control committees with you? . 2 A Antonio and James Murdoch, Antonio : 3 ' 4 Gracias and James Murdoch. : | : 3 Q You recently announced that you're not i running for re-election on the Tesla board; if correct? i A Correct, yes. : I Q How did you make that decision? _ 49 A I mean, it's almost ten years, so t 10 mean, I've never had a job for ten years, N
12. nevermind a board. You know, it was time. You: 12
13. know, I was good -- we had hired a bunch of 113 / 14. different directors, so, you know, we had some 14 / 15 good -- good skill sets. “15 You know, Robyn, i'm financial, Robyn 16 is very financial. So she's very capable. So , 17 °18 to me, it was a good time to be done and moveon = =-:18 to, you know, a different board potentially or 19 just take some time. 20 2) Q Do you know — 21 A It's a very active board. 22 Q Do you know why Mr. Gracias decided (23 == not to run for re-election? 24 A 1 --T think it’s a similar -- | mean, 25 Page 55 | he's been on it longer than [ have. So | think ! it's a similar fime of just, you know, it's a 2 very active board; he's very busy as well. And 3 it's just -- it's been a long time. 4 You know, investors like board i § | 6 refreshment, you know, it’s a big trend. And, , 6 : 7 you know, a lot of people have been on that | 7 ! 8 board ten plus years. So just striking the 1 8 | 9 right balance. ; 9 Q Did some other directors announce that 110 they were also not running for re-election? | 11 ‘12 A Yes. 12 QQ And who were they? 13 A Linda Rice and Steve Jurvetson. 14 Q Do you have an understanding of why 15 Linda Rice is not running for re-election? : 16 A Idon't, no. I have not talked to her : 7 regarding that. “18 Q = She just joined the board recently; correct?
A Acouple years ago, Q Do you have an understanding of why Mr. Jurvetson is not running for re-election? A Again, same thing. He was on it very early. | mean, way before IPO. His firm was an Page 56 original investor. So rotating off again from a tenure perspective.
Q Okay, ee ee i es ee a Q = Are you looking for any other board positions?
A Notactively. You know, things come up quite frequently and, you know, for me, it's, you know, I like -- to me, I want the right company and the right industry and the right people, so I'm in no hurry.
Q_ And did the announcements that the four of you were not running for re-election have anything to do with the SEC action? A No, that was all settled prior to that.
Q Including the revised settlement?
A Correct.
Q The businesses of some of the other directors have relationships with Tesla; isn't that right?
MS. LAVELY: Objection to form, THE WITNESS: Could you be more specific?
BY MS, TUCKER:
Q Tesla has done business with Juniper Networks; correct?
A Oh, yeah. I mean, buying equipment in the normal course, yes. And all that's been disclosed.
Q And that -- the directors of Tesla didn't classify Ms. Denholm as not independent? A No, notatall. Very immaterial.
Q What would be material?
MS. LAVELY: Objection to form.
THE WITNESS: | mean, again, it's -- it's -- there's it's -- there's not like a dollar material threshold that's -- if it's stuff bought in the normal course of business and you're not influencing the sale, 1 mean, it's like | would have no issue if it was 100 million from Juniper. But, you know, if Robyn got us a sweetheart deal or something, that would be adifferent issue, that, you know, we'd have to look at in a different light and make a (Pages 54 - 57) Veritext Legal Solutions 212-267-6868 www. veritext.com 516-608-2400
Page 17
18 25 212-267-6868 Page 58 | judgment on it. i i [t was no different than my company, j| 2 Cypress, would sell chips to Teslaas well. 3 And, you know, if] was in there saying. i 4 Hey, guys, you got to sell it to them at 5 10 percent gross profit instead of 50, that 6 would be an issue, regardless of the amount. 7 BY MS, TUCKER: 8 Q = So was something different about the 9 Tesla/SolarCity relationship in 2014? 10 MS. LAVELY: Objection to form. Il THE WITNESS: Is there a question? 12 BY MS. TUCKER: 13 Q Was something different? 14 M8. LAVELY: Same objection. 14 THE WITNESS: | don't -- I don't 16 follow what you're trying to ask. I7 BY MS. TUCKER: 18 Q You mentioned earlier that the related ‘ 19 party transactions between SolarCity and Tesla 20 were part of the reason that youresigned from 21 the audit committee. 22 So what was different about the 23 relationship between SolarCity andTeslain 24 2014? 25 Page 59 A Well, ] would have been -- 1 MS. LAVELY: Objection to form. 2 THE WITNESS: | would have beenthe 3 CFO one side and on the audit committee of 4 another, It’s -- you can't play both sides 5 from, you know, a-- my perspective froma 6 finance guy. 7 BY MS. TUCKER: 8 Q Can you please describe to me your 9 relationship with Elon Musk today? 10 A I mean, a normal board to CEO ill relationship. I'm not -- i mean, I'm not a 12 personal friend. I don't socialize, You know, . 13 like any other board, you go to a board meeting, |4 you talk to them periodically, you have a board: 15 dinner periodically. You know, that's really 16 the extent of -- of anything with him. “17 Q Okay. Have you ever attended parties 18 together? 19 A Never. 20 Q Have you ever vacationed together? 21 A [have nat. 22 Q Could you describe your relationship © 23 with Kimbal Musk? 24 A The same thing. 25 Page 60 Q Have you ever invested in any businesses owned by Kimbal Musk?
A | have not.
Q Could you describe your relationship with Peter Rive to me? i A He was a cofounder, CTO at SolarCity when I was the CFO, That -- that's it. Q_ Did you have any social relationship? A No, Q How about Lyndon Rive, could you describe your relationship with him? A Exact same as Peter except he was the CEO.
Q Do you have any social relationships with your fellow directors on the Tesla board? . A What do you define as a "social" relationship?
Q Are you friends with them?
A No. [ wouldn't -- } wouldn't say -- I mean, I'm friendly with people but I don't -- | don't socialize, Le., you know, I don't hang out, I don't go to ball games, I don't go bike riding or -- if that's what you call friends and social, but no.
It's a strictly board relationship.
Page 6 Did you go to Kimbal Musk's wedding? I did not.
Were you invited?
| was not.
Do you have any affiliations with entities associated with Elon Musk other than Tesla and SolarCity?
MS. LAVELY: Objection to form.
THE WITNESS: No.
BY MS. TUCKER: |
Q. What's the Buss Family Trust?
A [t's just a basic estate planning | trust that | put in place, you know, for my family.
Q Other than SolarCity, have you ever invested in any businesses associated with Lyndon Rive?
A No.
Q ~~ Peter Rive?
A No.
Q Could you describe generally Tesla's business in early 20167 MS.LAVELY: Objection to form.
THE WITNESS: Early 2016. Really kind Orroroo 16 (Pages 58 - 61)
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Bas] oS ln fw he hWNNNNhe ee ee ee eee JA BUN EF Ow ae UI AaB ow 212-267-6868 Page 62 Model X, and then battery storage, you know, with our Powerwall. It was a pretty exciting new product that we were -- we were launching into the markets I believe around those times.
BY MS. TUCKER:
Q And when you say “ramp,” what do you mean?
A Well, introducing -- it's a new product so, Hey, it's brand new, look at this, and then, you know, looking for the sales to ramp up.
Q So-- A Just like the cars, same thing, if's just a new product that you bring to market, and obviously we hope that it sells.
Q So is it fair to say it's increasing, ramping -- when you say “ramping,” you mean increasing up?
A Yes, the roles have to increase, you know, over a couple of years substantially, Q Was Tesla facing any challenges in early 2016?
MS. LAVELY; Objection to form.
THE WITNESS: I mean, we always had a Page 63 ton of operational challenges, manufacturing challenges. The Mode! X, 1 believe that early '16 was the time period when just ramping that X, you know, the doors were different, you know, was -- it was definitely very challenging.
Q So what were the problems or challenges in connection with -- A It's just -- Q_ -- the Model X ramp?
A It's anew platform. So, I mean, the car is a whole new platform. The doors were very -- there was a lot of things that were very different from the Modei 5.
i mean, we had issues ramping §. You know, it was the first car the company had ever done in volume.
And similar thing here, now you're bringing on a new platform, new technology, some new things, and just getting that manufacturing throughput with two cars instead of one, you know, some of the quality, you know, issues like on -- that you have, you know, pretty normally On a new product.
And it was, you know, a lot going on. Wwadwnu pwn — i 10 ll :13 1S
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Q When were those issues resolved?
MS. LAVELY: Objection to form.
THE WITNESS: I -- | don't remember exactly. But it was -- [ think it was by the end of that year.
BY MS. TUCKER:
Q End of 2016?
A [believe so, yes. 1 think -- you know, most of everything's six to nine months, normal birthing pains for a new product that’s that complicated.
Q. And Tesla announced the Model 3 in 2016; correct?
A Yeah. [ don't remember the exact time, but it's probably around that zip code, Q = And where was Tesla in the production process when it made the announcement about the vehicle?
A The production process of what?
Q The Model 3.
A Oh, we had -- [ think we just announced the car. [ don't —- production didn’t happen for quite a while.
mean, the -- I have one of the first Model 3s and it's, you know, a year plus, you Page 65 | know, so | mean, it was probably a year and a half, two years later, which is kind of normal. . We kind of announce, Hey, here's what's coming next on the roadmap and, you know, here’s when we think it will happen, Q So what had to be done in between the announcement of the vehicle and its manufacture? A Well, the normal stuff. You'd finalize the design of the car, and then you'd have to retool, you know, because it was, again, a different platform. So you had a manufacturing process that needed to get in place to manufacture that in high volume, you know.
And then you have the entire supply chain. You have to kind of qualify each individual part. You have to go through all of the government crash testing, you know, et cetera, et cetera. And then really once that's done and you're ready, then you begin the ramp. Q And is that a cash-intensive process? fs it fair to characterize it that way? MS. LAVELY: Objection to form.
THE WITNESS: Yes, mean, you've got development costs to get the car to the (Pages 62 - 65) Veritext Legal Solutions www. veritext.com 516-608-2400
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212-267-6868 technology going on, which I found super Poge 66 point, and then you've got the CapEx cost to bring up.
BY MS. TUCKER:
Q Does it require a lot of personnel resources, as well, to go through that process? A Imean, yeah. I mean, it's -- it's a big process for sure. I mean, there's generally dedicated teams that will focus, but, you know, when there's issues, it’s all hands on decks and : we'll bring people from everywhere to help. It's one of the beauties of Tesla.
Trust me [ was delivering cars when we were bringing out the Model 3, you know.
Q. And when was that?
A A year -- a year ago or so, yeah.
QQ And could you describe SolarCity's business to me in 2015?
A How much time do you have?
Q However much you need, A Sol mean, at a -- at a very high level, I mean, they're -- you know, were an installer, you know, of solar systems, residential and commercial, in a multitude of states. Had a lot of really interesting Page 67 :
interesting.
So they weren't just -- a lot of other competitors were truly just installers. They'd buy third-party stuff, put it together on your roof and maybe finance or sell it to you and go away. Where they were really trying to drive the technology, you know, whether it was the cells, the modules, the balance of system. Because really the goal was to drive down the cost such that, you know, you didn't have to rely on any of the investment tax credits and you could have a really compelling, you know, solution for you as a consumer and obviously us as a company. | QI think you mentioned earlier SunPower | was also doing some manufacturing of technology; | is that right? | A Yes. So SunPower actually - like when we started, it was literally making the cells and it would sell it to somebody else, ie., like a SolarCity could have been a customer.
Where SolarCity didn't manufacture, when | started there, they had just bought a small company that they were looking at that had
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some really interesting technology that they | would start to potentially utilize, but would always continue to buy from third parties. Q Isthat small company Silevo?
A Correct, Q Are you familiar with the term "PowerCo" as it applies to SolarCity? A Yes.
Q And what is that?
A The easiest way to explain it would be, we kind of had a concept of DevCo, PowerCo. , So think of it as you want to buy a solar cell; i I sell it to you, then I install it. That's kind of DevCo.
So we do the sales, we do the marketing, we do the sales, we kind of get you installed, your system's ready. And then now you really just become an ongoing annuity to me, the company. i You might have leased it from me or you have a loan generically, right, so then you're just paying me over the course of the lease term.
So that's what we call PowerCo where it was like all the heavy lifting, all the heavy Page 69°!
cost was done here, now you're an annuity, and PowerCo, really over the course, you know, of, you know, whatever, if it's a 30-year term, you're paying me for 30 years. That's kind of high level how to think about it.
Q. Okay. And you mentioned DevCo. What is DevCo?
A Like I said, DevCo is the upfront, how do | find you as a customer and how do] get you installed.
Q = Okay. Sorry. Sa PowerCo is where the ongoing lease payments would be -- A Yeah. And again, these -- Q_ -- located?
A -- these weren't official subsidiaries or groups. They were just conceptually how we try to organize the business, especially so people externally could understand it. Because if you looked at the GAAP financials, they make zero sense because all those costs | talked about in DevCo, they pet expensed right away, But the revenue comes over years, And most normal companies, like at Cypress, if T sold you a module and [ have all (Pages 66 - 69) Veritext Legal Solutions www. veritext.com 516-608-2400
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212-267-6868 Page 70 these costs of selling, | get profit and it's all in the same period and I show a profit. That's not how it kind of worked in this business, so -- it's very confusing. So we were explaining that, you know, internally as well as externally to people, how to look at the company.
Q Were there any other divisions other than PowerCo and DevCo, like was there a on Aw & Ww HR Oo corporate arm of the company that was 10 separately -- If A Again -- 12 Q -- accounted far? 113 A -- those weren't official -- MS. LAVELY: Let her finish.
THE WITNESS: Qh, I'm sorry.
Those weren't official divisions. It was just the way that we would look atthe company, kind of ona, you know, likea = management investor view. :
So I fust want to be careful in answering your questions right. | mean, it | really wasn't structured that way as a :23 division from a reporting segment or, you =‘ 24 know, internally in the financials that way. | 25 Page 7T !
But we would have normal sales and 74 marketing department, R&D department, 2 operations department, G&A department, 3 like -- like most companies. 4 BY MS. TUCKER: 5 Q How did SolarCity generate revenue in 6 2015? 7 A The vast majority of it, again, would 8g be the lease or the loan payments. So now that 9 it's on your roof, you're generating through the 10 sun. You owe me money and you pay memoney, i] that becomes revenue. 12 Q = And some of that revenue was 13 attributable to tax credits; correct? 14 A From a revenue perspective, no, that 15 became part of really financing. 16 Q_ And how did the tax credits play into 17 financing? 18 A Okay. So ifyou -- if you look at -- 19 I sell you -- I'm going to lease you the solar 20 cell. There's a tax credit associated with it. 2) But since you don't own it, you don't get it. - 22 So we have it. So we can’t monetize 23 it asa company. So we would create a tax 24 equity fund. And we would go to various, it 25 Page 72 could be a bank, it was [ntel, Google, people that have a lot of taxable income could utilize those tax credits, | So we would create a fund, we would contribute the assets, they would contribute cash. We'd kind of get the cash, and then there'd be a stream of the credits and payments and stuff that would really go through that fund, Q And why couldn’t SolarCity monetize the tax credits?
A Well, you had to be — you have to be a taxpayer and have taxable income to offset it. No different than if you were the consumer, if you weren't paying any tax because of your situation, you wouldn't be able to take advantage of the credit.
Q = So SolarCity at that time didn't have profit -- A No.
Q_ --soit couldn't -- :
A No, because of the GAAP law -- you know, because tax goes with the GAAP accounting | plus, you know, losses that accumulated over the years. They -- they would not have been able to Page 73 utilize them anytime soon.
Q Was SolarCity facing any challenges in 2015?
MS. LAVELY: Objection to form.
A Sorry, in 20145?
BY MS. TUCKER:
Q Yes.
A Well, the industries always had stuff going on. So there's a lot of policy things that were running around, the investment tax credit, Net metering came up a lot.
And then one of the large competitors in the area was a company called SunEdison, and they were trying to buy a company called Vivint, who was, you know, one of our direct competitors, you know, Number 2, but a distant Number 2, | believe.
And then they ran into some financial difficulties, so that -- that casted a little bit of a pale on the market, but the investment tax credit and some of the net metering stuff was really -- | would call that a headwind in the entire industry, you know, definitely in the latter half of '15 if | remember correctly. Q = What were the issues with the -- the 19 (Pages 70 - 73) Veritext Legal Solutions www.veritexi.com 516-608-2400
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| 24 212-267-6868 tax credits?
A Well, there's, you know, there was a push, you know -- it's very political, obviously, and there was a lot of push that it should go away. So, you know, then there's a stepdown.
In the end it got renewed but it literally didn't get renewed till mid or late December. It was a nail-biter.
Q How did SolarCity factor that into their financial planning?
A How did we look at it? Well, [ mean, . our view was that it was always going to get extended, you know, to some degree. And,you —: know, we were literally the lowest cost provider in the industry. So we felt pretty comfortable. There -- you know, maybe demand gets impacted a little bit in the short run, who : knows, [t was too hard to tell, so it was really just, Okay, we'll just have to look at : how we go to market, And again, that's easy to adjust pretty quickly, is like if in certain states it just doesn't make sense or the demand isn't there, you just -- you don't spend the money Page 75 | driving marketing. You know, you don't have the | sales cost, you know, you would take your install costs down, et cetera, et cetera. Q = Would that impact revenue?
MS. LAVELY: Objection to form.
THE WITNESS: Not really because again, it's -- the revenue comes over years. So, yeah, there'd be a little trickle for, you know, maybe two quarters down the road you're not getting revenue from the new installs to kind of keep filling up, you know, the bucket, so to speak, but you always have -- if you — if you stopped right then and I shut down DevCo, all that money in PowerCo just keeps coming in forever and the company would be extremely profitable, BY MS. TUCKER:
Q How would it keep coming in forever if there were no new systems installed? A Because you -- and you already bought from me prior to the tax credit going away -- | : think we had 30,000 people. So 300,000 people already had their systems done, already are paying and will keep paying over time.
Page 74 I
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Page 76 Ifthe credit went away, it could impact our pricing such that maybe you wouldn't do it. Now, ooh, you know, [ used to save percent of my electricity bill, and some of that was | was giving you a subsidy because of -- because of the tax credit, but ifthat goes away, maybe [ can only let you save percent.
You may still buy solar because you think sustainabitity is important, 5 percent's good, you think rates are still going to go up. Hey, I'm going to do it, it's the right thing to do, or you say, No, I'm not going to do it, and then I wouldn't get revenue over 30 years. Q Well, after -- 30 years after no new systems were installed, that revenue would end; right?
A Oh, totally. That revenue would just kind of waterfall down over 30 years, but! mean, it's a pretty massive annuity. I think if you looked -- you know, I haven't done the math lately, but | think if you looked at that revenue, which | think we called retain value, over the time, if you did a net present value of that, it was probably equal or greater to than what we paid for the company.
Q. What portion of SolarCity's business in 2015 was commercial installs?
A 20157 Oh, boy. I'd say -- again, I don't remember specifically, it's all disclosed I'm pretty sure, but around 30ish, maybe. Twenty-five, 30, somewhere around there. Q = Did SolarCity expect that it would change that product mix?
M8. LAVELY: Objection to form.
BY MS, TUCKER:
Q As part of its financial planning. A [ mean, commercial was looked at constantly. I mean, because really, the residential stuff's pretty vanilla. If you got a certain FICO score and you're in the right state, It's pretty much a no-brainer, boom, boom, boom, you're done, Commercial's really every -- every job you had to -- had to get looked at individually. © So you would -- you weuld literally run, you know, a project costing on that job, and then it : makes good return or it doesn't. You know, can I finance it through one of my vehicles or not. So, you know, it's -- it's -- [ would (Pages 74 - 77) Veritext Legal Solutions www. veritext.com 516-608-2400
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oN A bw he bo obo BD ODD ORDO ei i i bw b= OO Mas Dinh Whe OW won Kirk Wh — 212-267-6868 call it lumpy, where, Hey, this is really good, you do a few jobs, it gets installed, and then all of a sudden you could have a ton of revenue and then, you know, it may take a year to get the next big project in so you may go down and then up. It was kind of a lumpy kind of business.
Q Were any of the commercial projects leased, or would the owners of those projects buy them?
A No, alot of them, you know, had like a power purchase agreetent, | believe was the term you would use, which is like a lease, right. [t's like you're buying it.
Q __ So in that circumstance, in the power purchase agreement, would SolarCity get the tax credit benefit?
A It would -- it would go through one of our funds just like the resident -- so you would have specific funds that would do specific things.
So some of the funds were dedicated to commercial, and they would take these types of jobs, and then you would put it there. Others would go here, and, you know, it was kind of Page 79 like a -- you know, there was something for everybody. It literally depended on the investor that was on the -- that was the counterparty to that fund.
MS. TUCKER: I'm going to introduce as Buss Number 2 a document with Bates Number Tesla DIR 0021137 through 39. It attaches a native PowerPoint in the back.
(Exhibit 2 was marked.)
BY MS. TUCKER:
Q This appears to be an email -- a series of emails, including you. The original email in the chain is from Hayes Barnard to executive, with a subject marked "Customer Cancel Data."
A Okay.
Q_ What did "cancellation" refer to in the context of this email and presentation? M8. LAVELY: Objection to form.
THE WITNESS: | mean, | have to go through this entire thing to understand what he was trying to get at.
BY MS. TUCKER:
Q Okay.
A Would you like me to -- Page 78 :
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Page 80 Q Yeah, | want to understand what this document is discussing.
A Okay.
I think [ get the gist.
Q So what is cancellation rate that's being referred ta?
A So it-- you kind of think of like a sales funnel. You know, every company has some type of sales funnel, and, you know, we're ‘ really no different and we -- we did alot of measurements of different things because obviously you -- the less your cancellation rate, the more people are -- youknow, come, the =; less cost and time you spend and everything else; right.
So -- so basically you would -- again, using you as a customer, you'd sign an initial agreement with us, Yeah, hey, it sounds great, | want to do it, da, da, da, da, you sign. And then it takes time to get to an : install date and you got to work with the , utility. So during that time period before when you actually have to commit, it's like, Okay, we're ready, you would -- you would cancel. You would just say, No, 1 don't want to do it. Page 8] .
And there's -- you know, there's ' always 100 reasons, right, you know, [ signed if, my wife didn't agree and my wife doesn't think it will nook nice on the roof. You know, maybe you were phishing us and then you went and got another price from somebody else. | mean, the usual stuff we all go through in life as we, you know, negotiate. So we would really just -- we were fanatical in tracking a lot of stuff to have it and very efficient, because our whole goal, like I said and you'll see in a lot of stuff, is, you know, whoever's going to be the lowest cost provider is going to win in this space. And I know when [ left in 2015, that last quarter of '15, we had the lowest cost we'd ever got to in our history.
And as you can take these type of inefficiencies out, your cost structure just gets better.
So it was just -- Hayes was the head of sales and marketing, so obviously it's something near and dear to his heart because he wants people to convert into sales because he spends time an money, if you don't come to us, (Pages 78 - 81)
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Page 82:
Page 84 MS. LAVELY: Objection to form.
Q_ Any -- any of those?
THE WITNESS: That's a lot of questions. Let's pick one.
Q Was SolarCity looking to sell the A No, not -- not when [ was there or anything [ was involved in.
Q Was SolarCity looking to sell any A [mean --I mean, all of the financing that we do, there's technically a sale of assets associated with that. [ mean, were we trying to exit a business or sell a chunk of the company, no. No, it was really businesses as usual. We were looking at evolving the sales model into selling more systems. So instead of. you leasing it or doing a loan, there's a lot of people that are like, I'd really like to buy it because I want the tax credit and I don't like paying you. Whatever the embedded finance
Page 85 charge, I don't want to have that pay that. You know, I have cash in the bank.
So there's, you know -- the company was going to start moving more that way, and they did a lot in '16 towards selling systems, Hopefully that answers your question.
MS, TUCKER: [ll introduce as Buss 3 a document with Bates Number -- document family with Bates Number Tesla DIR 0027817 (Exhibit 3 was marked.)
VIDEOGRAPHER: We are going off the record. The time is 10:54 a.m.
VIDEOGRAPHER: We are back on the record. The time is 11:07 a.m.
Q = Okay, Mr. Buss, you have a document in front of you that | marked as Buss Exhibit 3 right before we went off the record.
Linvite you to review it, but my first question is going to be, do you recognize A I'l have to take a look through this.
Okay. [ got it.
' 1 then, you know, that's money down the drain. So | reorganize the company. | 2 he was just looking at that. /2 <A Weil-- Q I've seen in some SolarCity documents 13 something call "megawatts installed"? 4A BY MS. TUCKER: / 5 A Correct. 5 Q What does that term mean? 6 A The mega -- I mean, think of it, it's 7 all the solar energy generation that we've 8 BY MS. TUCKER: ’ 9 installed in that period. Soe, i.e., you know, 9 '10 wecome to your house, you're going to be X 10 company in 2015? / 11) number of kilowatts, which will aggregate the WW (12 megawatts, so it's just an aggregation of 12 /13 everything we've installed that period, because 13 | 14 that becomes the foundation. So that's new 14 assets in 20157 /15 megawatts. 18 And then we have all the cumulative 16 megawatts we've done. So you just keep adding \7 /18 to this pile. That's that retained value that's 18 :79 now going to start turning into payments for us 19 as that installed stuff starts generating .20 -21 electricity. 21 “22 Q_ What's the difference between 22 installed and deployed? i2d A Installed and deployed? If! remember 24 correctly, installed would be, I ~~ [ -- you 25 i Page 83 ' | know, the guys came to your house, they put it I _ 2 onyour roof, and it's ready to go. So the 2 electric works, da, da, da, da. 3 But then you -- we still need the 4
* 5 utility to allow you to send the juice -- the 5 electricity, sorry, not the juice, the 6 electricity back into the grid. Right. So 7 you're waiting for them, which again was always 8 asore point because it's time. : 9 So I've already spent the money, 10 through 855. you're all excited, your shiny new toy on your ll
12. roof, but you can't get that electricity and (12 that value until they say yea. 13 And that would -- that could be a “14 (Brief recess.) week, it could be a month, depending on the 15 | 16 utility. 16 | 17 Q In2015, was SolarCity looking at BY MS. TUCKER: alternatives to remaining a standalone business? MS. LAVELY: Objection to form.
THE WITNESS: Was it looking at 2] alternatives? We were -- again, we were a standalone company. Is your question were we looking to sell the company in 20157 this?
BY MS. TUCKER:
Q Sell the company, sell assets, (Pages 82 - 85) Veritext Legal Solutions 212-267-6868 www. veritext.com 516-608-2400
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cos oN tn BL Boe 212-267-6868 Q Who is Lawrence Graham? ] A He was a managing director at 2 Barclays. 3 Q And what was your relationship with 4 Mr. Graham? 74 A I've known him for probably ten years. | 6 You know, he's an investment banker that -- he 7 had called on us at Cypress. :
Q Had -- had Barclays done any business . 9 with SolarCity as of November 20157 “10 A [don't believe so. That's kind of ll why he was pitching me, ‘12 Q Did you -- the cover email, at the bottom, says, "Materials fora 10:30 a.m. call. Look forward to the discussion.” Had you had a conversation before Mr. Graham sent these -- this presentation over to you?
A Yeah, most likely. [mean,every-- , we dealt with a lot of banks, and every bank wanted to be part of our financing factory, 50 to speak, as we called it. ; And I -- like I said, I've known him for quite a while.
Q And what was -- Page 87 | A Sohe most likely called, Hey, you | know, | want to have a meeting, [ want to talk 2 to you about Barclays what we can do in solar. 3 Every guy was pitching us constantly. 4 Q_ And why -- what's your understanding 5 of why he reached out now in November of 2015? 6 A [| mean, I don't know why the specific 7 time, but like -- like I said, all of these guys g are looking for business. Right? We were a 9 very active financier, right, doing -- doing 10 equity or doing converts, And then again, all the project 12 finance we were doing, there is a lot of banking 13 fees, so every bank wanted a piece of the 14 action. 15 And he was probably on the outside 16 looking in and, you know, knew me, probably “7 wasn't getting in before and wanted to have a 18 Meeting, s0 sure. We need lots of banking 19 partners so have a meeting. 20 Q Do you recall -- 21 A Very standard, normal, happens. You 22 know, at Cypress, same thing, banks wouldcome = 23 in every month on something, pitching some weird 24 idea, 25 Page &8 © Q Do you recall having a conversation with him?
MS. LAVELY: Objection to form.
THE WITNESS: I -- | don't recall the meeting. I'm -- I'm sure I probably did but -- BY MS. TUCKER:
Q Do you recall reviewing these materials?
A I don't, no.
I mean, again, it's highly likely. 1 mean, it's pretty standard stuff.
Q If you could tum to slide 22, 21 and 22, which is 846 to 847.
A 846. Okay.
Q It looks like the cover for the section says, "Process Overview Materials” at 846, and then at 847, the title of that slide is “Key Areas of Focus for Potential Buyers." Do you know what that was referring to?
A Not specifically. It's almost like he's trying to pitch us to sell the company, or it could be around the concept of a yieldco, which was very in fashion at the time. Think of it as, you know how we talk Page 89 about PowerCo. People were separating PowerCos — into separate publicly-traded companies to try to maximize the valuation. So a lot of banks were pitching around that idea as well. But it wasn't anything we actively were pushing or looking for.
Q Okay. Would you have told the board about -- at SolarCity about this presentation? MS. LAVELY: Objection to form.
THE WITNESS: This one?
11 BY MS. TUCKER:
Q Yes.
A No. This -- again, a regular sales pitch.
Q That -- that slide that ends -- 22 that ends in 847, one of the -- there's a list of parameters in one column, in the left-hand column, and then key factors in the right-hand column.
Under the parameter quality of PPAs -- A Mm-hmm.
Q_ -- one of the -- one of the key factors is FICO scores and quality of offtakers. Do you have an understanding of what that means?
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owen Aw whe SenNRAEGHO& So [21 NoNN in & GI bo 212-267-6868 Page 90 A ['msorry, where's the quality of offtaker one?
Q It's FICO scores and -- it's the second bullet point.
A Oh, quality of offtakers, yes.
Q Do you have an understanding of what | that means?
A Yeah. Again, think of -- like again, go back to our PowerCo. So basically it's a pool of, you know, hundreds of thousands of people, right. So everyone has a PPA price, okay. It varies by state, some are lower, some | are higher.
And then what's your FICO score.
You're an 800, I'm a 700, you know, that, and then, you know, the offtakers would be the various funds, you know, that have participated in those financings.
So again, it's ranging from corporates to, you know, again, like other banks. JP Morgan was a big tax equity fund player. And then the defaults, we talked about that. However, this is in a different context. This is not you not buying. This is you have solar, and two years into it you stop paying me Page 91 and, you know, | have to go through a hassle to get you to pay or repossess your system, which, you know, very relatively didn't happen. Q What was SolarCity's historical default rate?
MS. LAVELY: Objection to form, THE WITNESS: No, I don't recall it, But it was very low.
BY MS. TUCKER:
Q Do you have any idea?
A I don't, no.
Q Why were FICO scores of customers relevant to SolarCity's business?
A Well, if you think about it, right, it's -- it's a 30-year contract, so] mean, if somebody has a 600 FICO score, ii's -- you know, they're having challenges paying their bills or they're late or whatever it may be that's impacted their score.
So really FICO scores are used in financial services retail pretty heavily to decide who was, in theory, creditworthy. So it was -- it's an independent way for us to be able to look at an individual without, you know, probing into their personal oma Aw hw Ne o 10 ‘I 12 ; 13 "14 “15 16 \7 18 “19 20 2 2 23 24 25 stuff.
And obviously the theory is the higher your FICO score, the fess likely you're going to default, which, [ think, is why we had very limited defaults.
You know, again you can go get it small. And again, to put it in perspective, the funds that we would use would prescribe a FICO, I'll do it between here and here, so it’s not like if we wanted to do 600s and take the risk, we couldn't because the fund wouldn't allow it contractually.
And the quality of these assets were very good. We would monetize them in the market, and we actually had the first ever triple investment-grade credit fund ever done in solar.
Q = So-- A You can imagine what we went through with the rating agencies to get that, Q Soif FICO scores were going lower or trending lower over time, you would expect the default rate to increase?
A Not necessarily -- MS. LAVELY: Objection to form.
Page 94 THE WITNESS: -- no. It's a pool.
BY MS. TUCKER:
Q = Would you take that into account? A It'sapool. And -- no, because it's teally a poo! of assets, right. You'll look at -- you know, I don't remember the lowest we went but not everybody had to be 780 or 800. So you'd have a pool of assets just like you'd have a pool of customers in different states and even utilities to kind of spread, you know, kind of your risk and concentration, so to speak.
Q Further down under "PPA Renewal," the first bullet point say, "Buyers will sensitize assumptions around customer renewals at the -- at end of PPA life?"
A Mm-hmm.
Q Do you have an understanding of what that means?
A Yes. So that would be related to -- so let's say your contract that we have, you know, say it's a 30-year contract and then there's a renewal post the 30-year period. So there's obviously some value if you renew or if we reposition that solar, and it's just what is 24 (Pages 90 - 93) Veritext Legal Solutions www. veritext.com 516-608-2400
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Somer nwuRuUwo pee ee SO co ~) Ch or fe Lo bo
Wms Ain ph lt We 212-267-6868 that value.
So we would look at trying to conceptualize how much that could be, and obviously, you know, that's subject to a lot of = assumptions, Q What are some of the assumptions?
A Well, ] mean, the main one being, you know, you haven't been in business 20 years, nevermind 30 years, so you really don't know what the take rate, you know, would be on renewals.
Q So anything else -- I mean, what did you assume if you don't have the historical information?
A [don't remember exactly what we looked. It was some fraction would renew at, you know, some type of lower percent. | . think -- I believe it was something along those : lines.
Q But you don't remember what -- A I don't remember.
MS, LAVELY: Let her finish.
THE WITNESS: Sorry.
BY MS. TUCKER:
Q = You don't remember what those assumptions were?
A Idon't, no.
Qs Under -- the second from the bottom left-hand column is titled "Tax Attributes.” A Mm-hmm.
Q The second bullet point says, "Risk of [TC recapturing contractual indemnities." A Mm-hmm.
Q Do you have an understanding of what that is?
A Not-- not [00 percent. [ mean, that was kind of more legal terms that are in all of these different agreements. There's always some indemnification where everyone's trying to limit exposure.
But ! couldn't say with any degree of certainty exactly what it is.
Q Was there a risk that the Treasury Department could come in and say, You shouldn't have claimed this high of an amount in tax credits?
MS. LAVELY: Objection to form.
THE WITNESS: That's always arisk. | mean, we actually had an open case that was pretty consistent with that.
Page 94 l [0 I i12 iB j 14 EIS . 16 1?
419 2] 33 wosxarn on hw he — oa ) NB ob) BD ORO Be eee oe AU bhUN |= Soma iw o pw pe Page 96 BY MS. TUCKER:
Q_ Andif the -- if those tax credits were bundled up in these tax equity funds, what impact would that have in a recapture, | guess, of the -- those tax credits, the difference between what SolarCity originally said it was and what Treasury Department said it should be? A Yeah, [ get it.
MS. LAVELY: Objection to form.
THE WITNESS: Again, it would be specific in that agreement. | mean, it could vary, and I -- [ couldn't tell you exactly what it was. That was kind of one of those worst-case scenario clauses.
BY MS. TUCKER:
Q Insome circumstances, would SolarCity indemnify other investors in the funds for any ITC recapture? i MS. LAVELY: Objection to form.
THE WITNESS: Again, it -- it might, it could be. [ mean, again, depending on the agreement.
BY MS. TUCKER:
Q Could you describe generally SolarCity's financial planning process? Page 97 A Could | describe it?
Q Yes.
A Yeah. I mean it would really, you know -- if you think on the DevCo, because that was really kind of the new stuff and where you would spend money and time, you would kind of look at the megawatts, okay, what do we think we can deploy, what is the funnel like, how much of that is going to convert, can we install it, yada, yada, yada. So it really start -- that was the biggest assumption that drove everything.
And then from there it was just a matter of, you know, the cost per megawatt, so to speak, right? Okay, ['ve got to spend X amount in sales and marketing, G& A's, you know, fairly -- fairly fixed other than, you know, basic headcount ads or one-time things. You know, you had commissions on the sales and it would just -- it would really fall out of that. It would be a normal budgeting forecasting process that anybody would go through looking at inputs and outputs, Q Soam I understanding you correctly that you would start with megawatts? (Pages 94 - 97) Veritext Legal Solutions www. veritext.com 516-608-2400
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Boe eee ae Owen Ain bw ht Cowen Aw WwW he we =—_ Noe Dany auw & wh — hl nN NmN bh ina OL 3 =—e ae Au & lb a io = So 0 co “2i 22 23 24 25 212-267-6868 Page 98 A That was one of the major inputs, ] definitely, 2 Q And who would come up with the 3 megawatts projections? 4 A Generally kind of operations and sales 5 would kind of work tagether and, you know, they 6 would go, Yep, this is what we think we can do, 7 you know, kind of by the area, you know, resi, 8 commercial, et cetera. 9 Qs And who would be the people who were 10 involved in that? I A There's a variety of people involved. 112 I mean, they would have asupportteam just like , 13 I did, you know, crunching numbers, rolling “14 things into a system, you know, making educated 15 assumptions. 16 Q Are there any people who would have 17 overall responsibility of that process? “18 A Well, | think if you rolled it up to 19 like an executive level, you know, it would be , 20 Tanguy and -- and Hayes, because of their 21 functional responsibilities. You know, they ; 22 would be the one basically signing up to deliver | 23 that. 24 Q Okay. Do you have any understanding 25 Page 99 | of what assumptions they would make or anything I underlying those projections? 2 MS. LAVELY: Objection to form. 3 THE WITNESS: | mean, again, I -- I 4 don't know specifically how they went / 3 through everything, but again, it's -- / 6 there's a lot of inputs that starts with 7 that pipeline | mentioned, to people that i 8 have committed to install, They've 9 scheduled a date. You know, we know, we | [0 have a crew. | 1 And then you got weather and you have supply chain. It's -- it's a pretty rigorous process they would go through and -- it's no different than forecasting any other kind of revenue that we all go i through as a company.
BY MS. TUCKER:
Q Did SolarCity's financial planning include cash projections?
A Oh, we spent a lot of time on -- | mean, if you call it -- I'm not sure what you're calling. Is this just true cash in the bank /23 account or project financing? 24 Q For example -- 25 Page 100 A Allofthe above. We did all of the above, Q Okay. A lot of companies project free cash flow.
A Yeah. | mean our company's a little different than that, but, yeah, we're very focused obviously on cash, but also the available, what I'd call project financing to finance all of those installs that are coming down, that were a little different than a regular company because of how they were financed.
But, yes, we would plan and project to make sure we had enough capacity to fund those once they were installed, because it would make no sense to install it if you couldn't put it into one of the funds post the install. Q So were the financings necessary to install solar systems to pay for the cost of installation?
A They were very important.
Q How would it work? When -- when in the process in between a consumer signing a contract and saying, I'm going to buy a solar system, and that solar system actually being Page 101 installed on their home, and the solar system being part of the power grid, I think, you know, you referred to?
A Yeah, sure.
Q So where in the process would those be bundled up and -- and used for project financing?
MS. LAVELY: Objection to form.
THE WITNESS: So I think like big picture, when you're getting ready to -- when you havea plan to install it, we would kind of look at, Okay, what fund would that go into, you know, ones it's installed and accepted and on the grid. So you would start kind of planning like a funnel for financing.
So | would say as installs were kind of scheduled, you kind of had a rough idea, And then once they were kind of accepted, then they would get -- we would call it tranched. It's like, Okay, you group here, bang, you're going here, and we would bundle it up and send it to the investor, and then they would approve it, and then you would get money.
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125 212-267-6868 Page 102 | Q_ And would that money be used to install the systems in that tranche? A It's kind of -- think of itas a generic poo] because you have different financing sources, and it would just go to the day-to-day stuff, working capital, project financing. There's a multitude of sources that. we used.
Q Would SolarCity have the cash on hand to install systems prior to receiving the proceeds from those financings? Is it -- or did | it wait?
A No, because you had it. ] mean, you obviously have to pay your bills, right? | mean, like | have to pay payroll and -- you know, so you're always -- you always have X amount of cash funding available to run your business.
And then you look at it more of like, I'm getting cash to fund new future growth, really, through these kinds of funds. QQ And new future growth would be projects that you already identified and were somewhere -- A Yeah, or stuff that we know -- ao Aw hw Nh on ow
i 12
122 123 /24 225 Page [04 - THE WITNESS: So if we achieve -- so like if we're going tc do 100 megawatts but we only did 95, you mean?
BY MS. TUCKER:
Q Yes.
A Itkind of doesn't really impact it because the fund's like, Hey, I'll take anybody in California with a FICO over 750. Soonce you | fill it up, they take it. [t's not a matter of, Oh, you'd not do it this quarter so the money goes away.
Like it's -- does that make sense?
It's kind of like a captive fund, you just fill it up, and then, okay, do you need more, we agree to extend it or do a new fund or whatever. And we always had multitudes of funds available -- Q I'mjust -- A --to have flexibility.
Q ['m just trying to understand. You need identified projects, though, to go into that? You're not saying, We'll do 100 megawatts; we don't have contracts yet but we think that's what we're going to do so give us money,
Page 103 .
MS. LAVELY: Let her finish. , BY MS. TUCKER:
Q_ And somewhere in between -- A Oh, sorry.
Q__ -- the consumer signing the contract and it actually being installed? | A It will be that, but it's also -- think of it as generic capacity. If we think we're going to grow megawatts 50 percent ina , year based on a formula, you'd look at, okay, — you know, we need to try to have X amount of : ~smw oA hw We ' 8 Il funding and, you know, here's when we kind of 12 want to have it. And, you know, it just depends 13 how much you want to have available and, you: know, what's new, where the market is, et cetera, et cetera, Q What would happen if -- to the extent that you're looking at future plans when you're - doing these financings, what would happen if those plans didn't come to fruition if you achieved less installs than you projected? MS. LAVELY: Objection — BY MS. TUCKER:
Q How would that affect the financings? MS. LAVELY: Objection to form.
‘15 “16 WW
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Page 105 ' You mean -- | think what you're saying and if -- correct me if ['m wrong - is, it needs to be specific projects that go into thase financing instruments?
A | mean different financing instruments have different criteria, is what |'m trying to say.
So as we source deals and we book these deals and then get ready to install it, then we're like, Oh, yeah, that'll go there and that'll go there and that'li go there. So -- so for instance, the bigger issue is really more of like, Oh, you're booking stuff that no fund wants. That becomes, then I have to finance that, if you think about it. But that's kind of nat how we operate and why we had a variety of different funds that would take different states, different FICO, the commercial like [ mentioned earlier, you know. The funds generally had, you know, I wouldn't say — they're not tight parameters but it was a pretty loose basket of what could go into it, and then our job would just be to put it in the right one.
So that -- that's why to your point, (Pages 102 - 105) Veritext Legal Solutions WWw.veritext.com 516-608-2400
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Page 1OB his team, who's on this. They're -- he was the head of the FP&A that put this all together so I would - | would participate or review things at certain stages but | would not have prepared this.
Q. Okay. What's your role in connection with prep -- or what was your role as CFO in connection with preparation of the budget?
Page 106 if we missed a forecast, which does happen, you know, it's happened a few times, it's not a matter of the funding goes away or people don't give you new funding, if's just, Okay, well, you'll fund it next month or next week or -- because you're always growing, you're always adding stuff.
Q What would happen if the -- that Seay ain hbk Ne : 2
financing —- those financings went away? 9 A Well, that was one of the main outputs MS. LAVELY: Objection to form. 10 that our group would produce, so, you know, we THE WITNESS: Like in totality? 1] would work with all the stakeholders in the BY MS. TUCKER: 12 company to come up with a budget, you know, kind Q Yes. 113 of have a framework to guide how we're going to A Well, you would just have to slow down | 14 manage the company for that year. your growth of new projects. So like, you know, 15 Q When did SolarCity typically start its we've talked about DevCo, you know, it's -- you [16 budget planning process? know, we source it and scale it because we're 17 A You know, | mean, again, this -- when going to do this because we're confident we have “18 was this? This is January, so | mean, I had the finding. only been there, you know, kind of a few months, You would just have to go, Oh, I'm not so! mean, it's -- it's -- | couldn't say if going to have the funding so it makes no sense there was anything.
to go add new customers. It wasn't rigid. Like a lot of So we would just -- you would just companies, It's like, We start this day and we switch down all your costs and your spending. end this day. There's really no formula for it. Because that's to my earlier paint, like, you Q Were you involved in the preparation : Page 107 Page 109 know, if the credit or all your funding went 1 of the 2016 budget?
away or, you know, Trump does something crazy 2 A I would have -- [ would have and you can't do new solar, then you just wind 3. definitely have reviewed it, yes, for sure. I down that part of the company and PowerCo just © 4 wouldn't -- again, preparation would have been continues on in its merry way. 5 Brian and his team and all the inputs, outputs Q For 30 years? ' 6 and putting together the presentation.
A Whatever the contract term is; 7 Q = Would you be the one who presented the correct. ' 8 budget to the board if it was presented?
Xo Q_ I'll introduce as Buss 4 a document : A Myselfor -- or Brian probably, yeah, with Bates Number Tesla DIR 0001412 through 10 Q When did SolarCity finalize its 2016 1413, And this has anative PowerPoint attached {11 budget?
to jt, 12 A [ don't know.
(Exhibit 4 was marked.) /13 Q. Was it finalized before you left the THE WITNESS: Should | --do you want = 14 company? | me to review it? 1S A [-Idon'trecall. I mean, | té BY MS. TUCKER: -16 couldn't tell you.
Q Are you -- are you familiar with this “VW Q Ultimately as CFO, were you | document? 18 responsible for the numbers in the budget?
A Yes, It would have been something | “19 A I would give -- you know, yeah. I .20 would have reviewed with the team. 20 = feel comfortable with it. You know, [ think Q Would — this tooks like it was sent 21 it's fair and, you know, it might be aggressive, /22 to youon January Sth, 2015. Would you have 22 it might be conservative. | mean, we would all (23 been involved in the preparation of this 23 collectively make those decisions. /24 PowerPoint presentation? 24 But, yeah, I mean, 1 would want to A No. That would have been Brian and 25 make sure that J felt that we had a shot at (Pages 106 - 109) Veritext Legal Solutions 212-267-6868 www.veritext.com 516-608-2400
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om A tr eR WN =. 2 ULL LL CaerATRARBON— SYS +20 | 21 | 22 i 24
weow~wawnain hk We Tm NW NN ee ee (ARON SH- Soman RAEWHH Sow 212-267-6868 Page 110; making it.
You know, every budget is not cast in stone. You know, it's really -- sometimes it's aspirational and you'll just manage -- | mean, a lot of times you do a budget and it kind of goes in a drawer because you're really running your business as things happen.
You know, something could change, you know, that wasn't reflected in your budget, So -- especially a company that's growing that fast, you were really trying to look at things, you know, quite frequently.
You know, the monthly -- the monthly forecasts were much more important than — than a budget.
Q Was that true throughout your time as CFO of SolarCity?
A Yes. It's -- 1 mean, it's kind of how it works really in most companies. The budget's kind of a guide and you're trying to aim for it. You might set compensation stuff around certain parameters but...
Q Was SolarCity's 2016 budget aspirational?
A [ mean, I -- 1 don't recall as | sit Page [Il :
here right now, Q What did SolarCity use the budget for? J think you mentioned compensation. Anything else?
A I mean, it could have been. I'm not saying specifically SolarCity did, but again, i's a planning tool, right. It's kind ofa baseline to begin, and, you know, you're trying to focus sales on -- like I said, the megawatt thing is the biggest thing that drives everything.
So you'd have a lot of time and effort on the company going, Yep, you know, we -- you know, we want to hit this type of megawatts, it was just X amount of growth, what do [ need to obtain that. Blah, blah, blah, blah, you know. You kind of waterfall it through. | And then as you go, Oh, I'm doing | 2l better, | might need more money. I'm not doing as good, okay, we might need to lay offon some spending. You know, it's a very dynamic process that companies will go through.
Q Did SolarCity use its budget to provide guidance to stockholders?
MS. LAVELY: Objection to form.
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Page 112 THE WITNESS: [ mean, when we did i forecast, | mean, I would say the -- generally the budget -- because it's really more the forecast because like ] said, the budget's done. You know, it's over here, and now, okay, three months later ['m giving guidance, J'm not going to go back to my budget.
We have a -- you have a business process internally that you're locking at what's really going on. And you could be deviating from budget and you may report to budget, but guidance would really be based on, Okay, what do we really think is -- we can do.
BY MS. TUCKER:
Q And for those forecasts, how often would they be created that you're using to inform guidance?
A There is generically a monthly update process that you would do looking at the current quarter and, you know, maybe parts of the next quarter.
Q And who would put together that analysis?
Page (13 A Brian, who's here, and then again, he had -- the people listed are analysts that worked for him that did a lot of the —- the legwork working with the business leaders. Q = Would those ultimately be sent up through you?
A Oh, yeah, | would -- in the end, they would do a package, | would see -- and Lyndon and the executive staff, you know, we would all review it in executive staff. Lots of discussions.
It's like a lot of things, there's a consensus, right, it's not just one group. Because we're really a -- think about it, we're a process engine, we're not making up -- we're not saying, This is how many megawatts you're poing to do.
Somebody is telling me. You know, | may say, This is how much we're going to spend in payroll because that's kind of easy. We pay payroll, da, da, da, da, da, But, you know, the main drivers from the company would come from the business people that our people would work with to get their number, and then hence, the reason we would (Pages 110-113) Veritext Legal Solutions www. veritext.com 516-608-2400
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asa OMA eB WY Nm RO OR ORD BRO mee ee PUN | oO VeHN AWD WN —- ov ; 25 212-267-6868 review it with executive staff, going, Okay. Your teams collectively are all -- own certain pieces of this, and this is what they're saying, and we've put it together in a nice, pretty package, you know, does it make sense. QQ And you said those -- that would mostly be on the executive level, Mr, Serra and Mr. Barnard?
A Would review it, yes.
Q Yes.
A Everybody in executive staff. So if you were in attendance that day, you know, when we were showing, you know, the forecast update, then you would have an opportunity to see it, comment, challenge it, you know, andtherewas | always healthy discussions.
QQ [fyou could turn to slide 33 of Exhibit 4. [ justhave a question about this slide.
On the right-hand side of this slide it says, "Major additions from prior forecast. Securitization, $275 million, Solar bonds, | $120 million."
A Okay. |
Q. "Debt W/C, $95 million. And Page (15 | revolver," it looks like negative $70 million? A Yep.
Q Would these be financings in hand or would these be projections for future financing? MS. LAVELY: Objection to form.
THE WITNESS: Again, without -- without going through the specifics. [ mean, it could be either because you could have an existing facility that just got increased, or like [ said, we were always working on new facilities constantly. There would be something going on literally every month that could be new and added to it.
So same thing jike when we did the budget. We would look at the megawatts, we would look at, Weil, okay, how much funding, project financing funding do you need for it.
And then we'd look at, Okay, what do we already have, okay, what do we need new, and then the guys would just go out and create and work with the various lenders to ensure that we have the available capacity such that if we hit those megawatts, we have Page | 14 | l 2) SIA ewe NWP Nh he ee ee ee ee uu bkwnN = Cop wes Ain hy — O&O Page 116 i a home for it.
Q What are solar bonds?
Solar bonds was a new -- they had bought a little company prior to me getting there. And the whole point of that was to be able to go out, you know, to noninvestment bank | type of customers and pay them an above-market | interest rate.
And so, for instance, you're making 0 percent in the bank at that time. Let's say I'm going to pay you two and a half, and | might have been paying the banks five.
So it's good for me, I spend less money, | don't pay banks those big fees. And then you, as whoever you are, a corporate, a retail, a consumer, a current customer, maybe a new customer, could get an above-market interest rate.
So it was a very novel concept that had not been done in the industry before, and then we rolled that out, Q About-- A [n2015.
Q About 75 percent of outstanding solar bonds were issued to SpaceX; is that right? Page t17 A IT mean, they were a major purchaser of those. | mean, [ don't know what the exact percent and what time frame you're referencing, but they were definitely a big portion of it. Q = What would SolarCity do with proceeds from solar bond sales?
A It—it's tike any other flight -- it just kind of goes in the generic kitty, and then we would just use that for kind of DevCo or, you know, generic corporate purposes, They weren't segregated into any separate -- they were unsecured, so it wasn't like a tax equity fund where you can only use it for X, ¥ or Z.
Q What does debt W/C mean?
A [ mean, | would be guessing, but [ would imagine it's just working capital, debt working capital, but ['m not [00 percent sure. Qs [fthese projected financings either didn't close or were less than -- SclarCity was able to obtain less than projected, haw would that effect the budget?
MS.LAVELY: Objection to form.
THE WITNESS: [ mean, again, without knowing if these are already existing or if (Pages 114 - 117) Veritext Legal Solutions www. Veritext.com 516-608-2400
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Oey AUMW RW NS BBRBRoOoe 16 212-267-6868 Page 118 :
these are planned things that we think we could get, or they could be, Yep, we're halfway through doing docs, we know we're going to -- I don't know the context of haw it ended up there, but whether it's these or anything else, it's just a matter of how much megawatts you can do, right?
You can always throttle back on ona Ate Ww NS selling new systems and installing new 9 systems to fit your pipeline. That's very 10 easy to do and happens very quickly. 1 MS. TUCKER: I'll introduce as Buss 5 12 a document family with Bates Numbers Tesla ‘13 DIR 0025810 through f1. 14 (Exhibit 5 was marked.} 18 BY MS. TUCKER: 16 Q_ And this appears to be an email from 7 Brian Ellis to you and Radford Small, dated 18 November 2nd, 2016, And the subjectis"Hereis «19 (20 / 2 2 (23 the 2016 cash forecast using cost/numbers we walked through last Wednesday."
A Okay. Holy smokes.
QQ And luckily I’m not going to ask you about specific numbers in this —
25
A Thank you.
Page 11 Q_ -- PDF, but when did SolarCity start i] forecasting cash in the format that it's "2 provided here? 23 MS. LAVELY: Objection to form. 4 THE WITNESS: | mean, again, I can't ' § say specifically, but they've always had 6 a-- you know, a pretty good process, 7 from -- from what [ remember. 8 BY MS. TUCKER: 9 10 11 Q_ And who would be involved in preparing the cash forecasts?
A Again, the actual ending the numbers /12 on here, Brian and his team would work with 13 people in the capital markets group and in just 14 the business groups to -- kind of just like 115 the -- the budget, right, is, Hey, this is a 16 process we go through. | \7 They get inputs, They kind of roll it 118 up so that, you know, we could look at, you 19 know, what we call cash being kind of, you 20 know -- it's obviously typical cash you're used al to seeing, but it's kind of the available 22 funding for the future. 23 So terms get used very loosely, you 24 know, in many different ways. You know, you'll 25 Page [20 see liquidity, cash, funding, project financing; it's all kind of this bucket of, you know, generic financing that we do to run the company and to fund those projects.
QQ. Soif we're looking at cash available for a liquidity analysis, would that include available funds not in hand; is that -- is that what you're saying?
MS. LAVELY: Objection to form.
THE WITNESS: Yes, what do you -- | mean, what do you -- like what's liquidity analysis to you?
BY MS. TUCKER:
Q You just mentioned liquidity.
A I'm just saying those are terms that get used -- Q Okay. !
A -~ but you have to be very careful in what context or what it's -- means, 50 -- Q Okay.
A --[ just want to make sure if you have a specific question or if you -- i Q Oh, ! made it -- that's okay. ‘ A Got it. i Q Did SolarCity prepare long-range Page 121 | forecasts for periods of over one year? : A You know, I think really more on the megawatts kind of. It's like, Okay, if we're here and new things we're doing or where can we go, you know, what does that curve kind oflook =| like. But, you know, detailed -- like a detailed budget like we went through, no. Because it was -- it was such a fluid industry and company that it really would make no sense, Very few companies do any long-range planning these days.
Q Did -- so would SolarCity Look at cost projections beyond one year?
A Oh, for sure. Yeah. [ mean, a year, maybe a year and a half, you know, because, again, it was a curve, right, megawatts, cost, okay, we're doing this.
You know, we think we can get this, you know, the cancellation rates we talked about, we could shrink this, do that, do that. Okay. How does that flow through to cost, because our goal was to, you know, within, you know, hopefully a couple years not even need to think about the ITC anymore.
Be the lowest cost provider with the 31 (Pages 118 - 121) Veritext Legal Solutions www. veritext.com 516-608-2400
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OmwWdI nw ww = NNN = =e me eS eS ee eS eS H-OAwvwwonnu pun Oo 123 Nh la COM NR Wh NH SGCMGUADEREUN=Sw 23 212-267-6868 Page |22 most market share and, you know, basically be ‘4 the -- the default, you know, choice of 2 customers for their energy needs. 3 Q = What were SolarCity's plans to achieve 4 that? 5 A Toachieve what specifically? The . 6 cost? i 7 Q_ The goal within a couple of years not 8 to think about the ITC anymore, to be the lowest | 9 cost provider with the most market share. 10 A Okay. Well, Jeez, all of those. So 1] the thought being if you're the lowest cost | 12 provider without the ITC, ] mean, it's a slam 13 dunk for sales, So then obviously by default, | 14 you should -- we should -- we could keep our j 15 market share, hopefully maybe grow it overtime, | 16 right. 1)7 And then the focus on the cost piece, 18 you know, with generically three components -- —_, 19 and we talked about it frequently internally as well as externally -- it would be the install cost, then you'd have sales and marketing, and then you'd have kind of the G&A.
Q = And what were plans to -- with 121 ‘22 ,23 | 24
relation to the install costs? 125 Page 123 - A_— Oh, very -- very varied. 1 mean, like od any company, you're constantly looking at all 2 your inputs to make your product, right? And we : 3 were no different so supply chain. 1 4 A lot of it was really on -- it's (3 called the balance of systems, so you may buya = solar panel and a module, but then you got all the hardware to hook it on your roof. ' All the software investments and ' technology investments we were doing fo make the company more efficient and quicker, all of those would be part of the install.
And, you know, then it was even on panels. Okay. Where are panel pricing going, where can we go, you know, how is Silevo going =, to fit into that, you know. That's very wide and very varying.
How many -- you know, how many centers | do you have. How do you manage yourcars? We | had a massive fleet of cars. 1 mean, you looked 20 at every input trying to figure that out. 2 Q_ Is that in a presentation or in an 22 analysis somewhere? 23 MS. LAVELY: Objection to form. 24 THE WITNESS: | mean, again, it would 25 Page 124 get looked at. Tanguy, he -- that was kind of his purview, the install piece of it. He did a lot of work in those areas, you know, and he had projections, and we would look at cost and, you know, we would make the odd projection, maybe out a quarter or two, but, | you know, nothing long-term other than our stated goal that, you know -- I don't remember what the exact period, but over a couple of years we were hoping to get there, da, da, da, da, And we would report every quarter kind of that cost, okay. And we broke it into the three buckets 1 mentioned. And our goal was, one, we wanted to be very transparent and show that you can get there. But two, it put pressure on the competitors who were must more costly to start showing that data because the analysts would demand it.
20 BY MS. TUCKER:
Q How did Silevo fit into SolarCity's plans?
A Soit would have fell into that install bucket. So if you look at it, SolarCity -- you know, they didn't make any Page 125 cells, you know. So they had bought a company, accepts, you knew, which did, you know, hardware and different things to help standardize those costs and take costs down and take margin out. And then they were looking at Sileva because it had a very high efficiency cell, and high efficiency means you convert sun to electricity better. So therefore, in the same number of inches, we could generate more ‘ electricity than a lower efficiency cell. So that was part of the strategy as well, was, you know, looking at that as a potential to differentiate, And then that went into this whole solar roof concept, which I'm sure we'll get to as well, MS. TUCKER: I'll introduce as Buss 6 a document with Bates Number Tesla 00072390. - (Exhibit 6 was marked.) :
MS. TUCKER; Feel free to review this ' whole document, but I'm going to be asking you about your email to Peter Rive, Tanguy, Serra, Hayes Barnard, and copying Lyndon Rive at the top of the email chain.
THE WITNESS: Okay.
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Page 126 Page 128 nN LA 212-267-6868 thing that most peaple looked at and we I BY MS. TUCKER: I would get judged on. So sometimes you would Q Okay. Starting at the second sentence 2 be off a little.
of your email at 8:38 p.m., you say, "We need to 3 And some of it was just timing, you be very mindful of guidance for 2016. Investors 4 know, a big commercial project was supposed want to know we are listening to the markets. 5 to get done but it slipped four days, you Being conservative will pay off, and we have 6 know.
good opportunity to give conservative guidance 7 No different than Tesla. We think for 2016, get rewarded for it and have a strong "8 we're going to do X amount of cars, but some ability to” succeed -- "exceed." / 9 went the next month. So, yeah, we've had —10 What were you referring to when you -10 issues in 'l5, and | believe they had issues i 11 said being conservative? “W in '16 as well.
A Well, basically being a good CFO. | 12 BY MS. TUCKER:
/13 mean, a CFO's job is to kind of be balanced; /13 Q Did SolarCity's stock price react to ' 14 right. And sometimes you're aggressive, 14 misguidance?
sometimes you're conservative, sometimes you're | 15 MS. LAVELY: Objection to form. '16 somewhere in the middle. 16 THE WITNESS: Again, I'd have to look ‘7 And | think the point here is there 17 at the chart and the time of it, but '18 wasa lot going on in the market. Obviously, 18 normally, you know, there's an impact one you know -- you know, Elon was concerned on / 19 way or the other.
-20 recession stuff. The economy was kind of -20 BY MS. TUCKER:
/2!> wobbling. Solar stocks have sold off a lot in 2] Q = Stockholders typically don't like it _ 22 that period. “22 when companies miss guidance; right?
There was a little bit of buzz with -23. A s(It's not -- :24 SunEdison at the time, you know, that eventually 24 M8. LAVELY: Objection to form. went bankrupt by the way and -- was it already 25 THE WITNESS: It's not preferred. Page 127 Page 129 :
. | bankrupt here or not? No, this is '15. | Nobody wants to run their business that way. In April or May of '16. 2 But things happen. There's a lot of factors And then you had, you know, the 3 that go into it.
investment tax credit stuff. So there was just 4 MS. TUCKER: I'll introduce as Buss 7 alot going on. So, wow, a lot of macro things 5 Tesla 00003515 through 17. going on, okay. 6 (Exhibit 7 was marked.) | Even if we feel good, we need to be 7 THE WITNESS: Okay.
careful because, you know, investors tend to get & BY MS. TUCKER: | conservative. They don't want to invest ina 9 Q I'l turn your attention to an email company that gets too far of itself, and for me 10 from Brian Ellis. it's the last e-mail on the {1 asa CFO and with my experience, I'm -- ['m Il chain. It was sent on May 8th, 2015, copying , always liking to be conservative, because I ‘12 you.
13. would rather be conservative and then beat it, Do you have an understanding of what you know. Hey, we told you this, wedid Y, you = this information provided in this email is? know, we did a good job type of thing. A I mean, not specifically, but Q Did -- had -- had SolarCity missed generically, again, it would, you know, be -- guidance in the past? what they're doing is kind of the forecast.
MS. LAVELY: Objection to form. Like I said, you'd have a budget, and THE WITNESS: Yeah, I believe so. then you'd kind of look at a forecast ona :20 Yeah, definitely, 1 know when I was there, 20 continual rolling basis, so they were just doing : ‘21 at least once, you know, that | can recall 21 their updates — ‘there might have been. 22 Q So this was just part of that process?
And again, it depends what you call 23 A So that normal -- guidance. Like megawatts fs kind of the big 24 MS. LAVELY: Objection.
THE WITNESS: Yes, to that normal 33 (Pages 126 - 129) Veritext Legal Solutions www. veritext.com 516-608-2400
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Page 130 Page 132 process. 1 the re-forecast?
BY MS. TUCKER: 2 A Again, it would be part of one of the Q What are bookings? What does bookings 3 things that the team would look at. Okay. represent? 4 You've got these bookings, how many are going fo § A So as we talked before, you kind of 5 cancel, what's -- you know, blah, blah, blah. signed up with us. So that's kind of a booking. 6 It's one of the main things you would get to And then we have to convert it into a signed 7 look at to your install number. agreement to go ahead with the install. 8 Q Was the cancel rate increasing at this And that's where that cancellation 9 time at SolarCity?
rate is, you know, book, and then it's X number 10 A Yeah, I don't remember specifically, ofpeople, for whatever reason, don't install. 11 butI mean, it kind of says in that first Q Okay. And then Number 2 says sentence, right?
13. Installations." Is that what we were talking Q Yeah. It says, "The cancel rate being about before, systems that had been installed? applied is 43.5 percent, up from 40 percent” -- A That would be the mega -- yeah, so A Right.
they're saying, Hey, we think we can do, you Q_ -- "from 38 percent up from know, a million three megawatts. 36 percent."
Q Okay, And then what's the difference A Yes, between installations and inspections? Q = One of the things you mentioned before A Sorry, where do you see that? that SolarCity projected was retained value; is Q Inspections is on the next page. = that right? Is that -- A On the next one. A Mm-hmm.
Okay. So that would basically be, Q And what is that?
like I was saying, you know, we put it on your A I mean, very high level. It's, again, roof, it's ready to go, and then the utility, those future payments, you know, that would come Page 131 Page 133 you know, has to kind of inspect it or the City 1 over that portion of time. So it's just the might need to check a permit, and then they go 2 accumulation of the various different contracts through whatever they do to say, Fine, you can 3 and the value that we would expect that to start -- you can turn it on, so to speak, and 4 deliver, you know, over the lease term or the start producing electricity and putting it into 5 PPA term or whatever. the grid. 6 Q Did you assume that the full Q = Why would the number for inspections 7 contractual amount would be paid in making those be lower than the number for installations? 8 projections?
A Soit’s really -- it's really timing. 9 A I believe there was some kind of -- So we're -- every day you've got thousands of 10 but I -- I don't remember specifically, but I people installing, so at the end of the month, 11 think we had some kind of small default thing whew, okay, I got a whole bunch ofinstalls done [12 that would be in there that was consistent with
13. but the City of Palo Alto takes 30 days to sign 13 history, but I'm not 100 percent sure. off and do their inspection to give me the green 14 Q Okay. Let me introduce as Buss light. 15 Exhibit 8 a document family with Bates Numbers So there's always gomg to be a lag. 16 Tesla DIR 0023790 through 91, and there is a You're never going to be -- we're always 17 native document that was attached and produced fighting to try to get it same day, it would be 18 innative format.
awesome, but that never happens. 19 (Exhibit 8 was marked.)
Q = On the first page of that document 20 THE WITNESS: Do you want me to look there's an email from Mr, Setra on May 8th at 21 through the whole presentation or -- §:52 p.m. 22 BY MS. TUCKER:
A Mm-hmm, yes. 23 Q We can start with the cover email, Q = Itrefers to the cancel rate. Do you 24 which appears to be from Sam Barton to you and have an understanding of how that factors into 25 copies some other people with a subject
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- Page 136 - Page 134 "Financial Overview Slides,” dated Monday, October 12th, 2015.
Who's Sam Barton?
A He was an associate in what we call the structured finance group, the capital markets group.
Q Okay. Do you know why he was sending you this financial strategy overview?
A Well, the attachment is basically -- let me just flip through it. | think it's what we used at our partner financing day, Yeah, | retained value projections?
A Well, there was a massive database, you know, kind of like a contract level, right, where, you know, we keep using you as an example. You know, your system should generate X, you know, here's your rate, blah, blah, blah.
And it would kind of aggregate all of those together as kind ofa baseline, and then you would have different -- different assumptions that, you know, could go on top of that related to, you know, do you pay on time, OY NAn ER wD — co OU Ww Re so “o S S _ think that's what it is. 12. you know. | believe we looked at maintenance °3 So we were -- yeah, so we were 13. and inverter replacements and different things holding, you know, what we call the partner day, that would potentially be, you know, costs that so basically think of all the -- all the lenders we would have to spend down the road, that we've kind of dealt with or others that Q Where -- where would I find that would want to deal with us. It was kind of our, document if I were to look for it? Hey, let's bring the management team together MS, LAVELY: Objection to form. /19 so, you know, you can meet them, company's THE WITNESS: | mean, SolarCity, = complicated, understand the company, understand . someone in the FP&A group would probably 21) where -- you know, what our vision is, where have it. | mean, Aaron, who's mentioned ~we're going. here, did a lot of that work in conjunction So it was very well received, very -23 with the FP&A guys to do that.
successful, so we had different executives. It 24 BY MS. TUCKER; /25 was kind of like a half-day event, | believe, 25 Q Would he come up with the assumptions, : Page 135 Page 137 ‘1 that would ~ did a — you know, kind of an 1 or would someone else be invalved? overview for minutes and then, you know, typical 2 A i mean, there was fairly standard ' 3) Qand A. Sokind of like an analyst day . 3 assumptions that would get Icoked at , 4 companies would hold for investors, we did it 4 periodically.
| 5 for financing partners. 5 Q_ And what were they in October 20157 | 6 Q Okay. In his email, he -- in the , 6 A | couldn’t even tell you what they second sentence he states, "Aaron did mention 7 were in 2015 nevermind October.
8 that reporting historical RV has historically 8g Q Do you have a general sense of what
9 been a big issue and that Pete has insisted we 9 assumptions SolarCity would use when calculating
[0 never show RY historically since it's ultimately 10 retained value?
just a forecast." ll A | mean, | kind of mentioned them, | /12 Do you have an understanding of what 12 think. I believe we had a default rate that we ‘13 he means there? 13. would apply. They're going, Okay, maybe X A I think vaguely it was the initial 14 percent we'll go away. You know, you might have year or two of SolarCity, you know, where I 15 torepo some. Someone's going to die, you know, _ 16 don't know ifthe records, you know, were as _16 what happens in this, you know, yada, yada, ° 17 good as people wanted, so | think that's what he 17 yada. So you kind of -- | think we did some “18 was -- but ['m not 100 percent sure. - 18 level of judging down in there. Q Do you have an understanding of what 19 And then like | said, | believe we he meant by "since it's ultimately just a 20 implied, you know, kind of a maintenance, you forecast"? 21 know, type of assumption that's in there. But A Well, ] mean, itis a forecast, right? 22 ~~ it was all very detailed in our quarterly press | mean, there's a lot of inputs that go into 23 releases and that. We did a lot of disclosure / 24° that number. 24 around that, So you could take a look at that Q How would SolarCity create the 25 and get a feel for it.
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NO 0G J CN Ln Lb bo wy ‘12
c~ Win PH he BORD ROR Bee ee ee nh Ww Ne oO COO Ao bw nN —- OM 212-267-6868 Page 138 Q Do you know the details of any of the assumptions? Those weren't disclosed in the quarterly stockholder letters, were they? MS. LAVELY: Objection to form, THE WITNESS: I don't know if the specific rates. Again, 1 don't recall. We'd have to look through that.
BY MS. TUCKER:
Q = And who would come up with the specific rates that were used in the analysis? MS, LAVELY: Objection to form.
THE WITNESS: And again, I don’t -- there wasn't one person that, [ think, owned it. You know, the team would look at it. They would talk to the different business people that were part of those areas and get inputs and, you know, would kind of get rolled up and we'd all kind of look at it, going, Does it seem fair. Yeah.
It's -- like again, it's a forecast, so it's never going to be perfect, but you're -- you know you're doing your best to” make sure it makes sense.
BY MS. TUCKER:
Q_ Who are the business people involved Page 139 in that process?
A | mean, again, | --{ -- I'd have to go through all the different assumptions to understand, you know, what they were and then who would that possible person have been. But, you know, there'd be people, you know, that deal with -- you know, we had a group that would deal with canceled -- you know, defaults. If you stopped paying, there's a group that would deal with that, would follow up with you, that would ding you and try to get you to pay.
So they would obviously have input into trends an provide a lot of data. We tracked a lot of that data.
And all our investors looked at it, and the credit rating guys would look at all of that as well.
Q Did the database have a name?
A Not that 1 recall.
Q Would the backup calculations that you mentioned be in a file that had a name? A 1 don’t know what the name would be called.
Q Is that something you would review in ] I} ' 12
asa nin hw he =
- LO ll
i 25 Page L40 :
connection with your role as a CFO? A The file per se, you mean?
Qs The calculations and the inputs. A Oh, yeah, we would talk through, Okay, where is it, where's the trend, you know. Did | any of the assumptions really change; ifso, why, you know, da, da, da, da, da. It was fairly mechanical.
Q_ Atsome point in 2015, did SolarCity realize that it had some shortfalls projected in meeting its cash needs?
MS. LAVELY: Objection to the form. THE WITNESS: | mean, we're always doing financing. You're always trying to have buffer. You know, the -- the investment tax credit, you know, the latter half of the year, you know, was just a different environment.
You know, if -- if that funding went away, right, you know, if the tax credit went away, your funding could go away, you know, pretty shortly, right. So we were always looking at stuff trying to be, you know, ahead of the curve, so to speak.
BY MS. TUCKER: |
Page 14] | Q Doyou have an understanding of what "round-tripping SolarCity contributions more quickly" might mean?
A Round-tripping SolarCity contributions -- not specifically, no. Q Do you have a general idea of what it is?
MS. LAVELY: Object to the form.
THE WITNESS: No, | don't. I mean, I'd have to see the context it's used in. MS. TUCKER: I'll introduce as Buss 9 a document with Bates Number Tesla DIR 0023254 through 56.
(Exhibit 9 was marked.)
BY M8. TUCKER:
Q = This appears to be a series of emails on September 9th, 2015, between you, West Owens | and Radford Small, with some other people copied | on the correspondence. ‘ The title of this email is “Q4 Cash - Problematic in November 2015 - Let's Please Have a Call This Morning to Discuss Options.” A Okay. | Q It looks like it's at 8:16 a.m.
Mr. Ellis wrote, "Hi, Brad, Tanguy and Rad. As 36 (Pages 138 - 141) Veritext Legal Solutions www. veritext.com 516-608-2400
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WN SW OAIH oP WwW Ne Nee ee SoOatHAaAs nN 212-267-6868 Page 142 discussed with Tanguy and Rad yesterday, our latest direct cash forecast shows that SolarCity corporate cash will drop to 35 million during the week of November 20th."
What is corporate cash?
A Again, just generic cash that's on your balance sheet.
Q. Okay. The second bullet point says, “Our previous low point analysis assumed that JPM debt of $88 million would be received in 0 September so we did nothavethis problem. We 11 have now removed JPM debt from ali projections." 12 Do you have an understanding as to why °W3 you removed JPM debt from all projections? /14 A I mean, it was -- not specifically, but there was always -- just business terms, you know, whatever the terms are that they want te do, do we want to do the terms, does it make
Oman ea WP =
sense, or do we just do another fund. 19 You know, we would lock at different 20 funds, we would look at the best deals, rates, 2) you know, flexibility, you know, to put deals in | 22 it. 23 And JPM was getting a little stickier, 24 you know, and I think it was just a matter of, 25 Page 143 Well, if we're not going to go with it, then -- which we could have, you know -- then we'll just fund it with something else.
Q = What do you mean by "stickier"?
A Well, just in their negotiations.
Like [ said, every fund's a negotiation. Every time you do a new one, it's a new negotiation on a variety of parameters, which all boil down to basically, you know, how much are they going to make versus what do you make and is that something you're happy with.
SCwWmeUIKbewb — — Q What were the terms that SolarCity | {2 didn't want to sign on to? | 13 A [couldn't tell you specifically. ‘ld We had 30 plus tax equity funds at the time. 15 But it was always an -- ongoing negotiations, 16 very standard stuff. 17 Q This says "JPM debt." Did you refer 18 to financings as debt? 19 A Yes. 20 Q Okay. Later on that email which is on 2] ba hw the next page, he continues, "Can we please have a calt this moming to discuss options, including," and then Number 5 is "round-tripping SolarCity contributions more quickly (I'm hn BO 25 Page i44 playing telephone here, heard that we did this during the early days when we didn't have much cash - Alex, any more details here?
A Sorry? Oh, onthe back. Sorry, [ was on the wrong page. Let me read this again. Yeah, again, I'm -- MS. LAVELY: Let her ask a question first.
THE WITNESS: Okay.
BY MS. TUCKER:
Q Do you have an understanding of what that means?
A Idon't, no, It doesn't come to mind. Q = One of the things we discussed previously was solar bonds. How would investors in solar bonds redeem their investments? A Well, it would be for -- you would sign up. It's kind of like a bond so you have a rate and you would have aterm. So whatever the term, you know, it's a year, is it-- whatever it may be.
And then when it's done, you would have the option to renew it, or if you wanted to redeem it, you would just redeem it.
Q Did SolarCity keep any cash reserves
Page 145 for redemption?
A We always looked at that as part of our funding requirements. Kind of like any other debt, when is maturities, because, you know, these were fixed maturities.
So you kind of knew, you could go, Okay, that's going to be due here, this portion | will be due here, so it would just go into your | periodic cash forecast of looking at, Okay, these could come due.
So you would take a look at, Okay, what portion will come due or what will renew: Q = Where would that show up the cash forecast? Is there a specific Line system that would deal with solar bond redemptions? A I'd imagine there would be. I mean, I don't know specifically.
Q Okay. So-- A It wasn't that big. So I] mean, it could have been netted in something else. I don't recall.
Q Do you know what that other thing would be, if it was in something else? A I don'tknow. I mean, [ don't recall every line item that's on that cash forecast. 37 (Pages 142 - 145) Veritext Legal Solutions www. veritext.com 516-608-2400
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wow No Rw YD — om At BW Ne ee aon Ah hw ND — OO al wo mA pew =| SO Om ame be we — 212-267-6868 Page 146 Q = SpaceX had over $100 million in solar bonds that came due in 2016; right?
A | know they had a big amount. | don't remember the exact maturity date though. Q = Would you have included that in the 2016 budget?
A That would have definitely factored into it, yeah.
Q Where would it -- how would it have factored in?
A Again, it would have been on some line item of like -- like any other debt maturity that we have.
Q So if SolarCity accounted for it, it would be in the budget?
A | would expect it to be in there somewhere, yeah.
MS, TUCKER: I'm going to introduce as Buss Exhibit 10 a document with Bates Number Tesla DIR 0022885, and it's a family which continues through 898.
(Exhibit 10 was marked.)
BY MS. TUCKER:
Q This appears to be an email from Andrew or well lay to you, copying Pedro Glaser, on September 21st, 2015.
A Okay.
Qs Do you recognize this document?
A Not specifically, but I'm familiar with the process, and obviously | signed it. Q Whatis a true-up?
A [t-- E mean, it could be a variety of things, but basically in the fund, you know, if stuff went into the fund that maybe didn't meet the criteria, you know -- basically something got rejected out of the fund so you had to true them back up. ° So they would have given us money per se, and then it was like, oh, you know, they might go through and look at it going, Well, maybe this shouldn't be in it, it didn't meet the criteria.
So then there'd be a discussion on it, and, you know, if there's a true-up, i-e., this process, we would just true it up.
Q So SolarCity would pay them back?
A We would just pay them back, yeah. 1 would look at it more as like, you know, part of the regular administrative process that would go on. Because you had tons of different things Wen AW wh iH 112 122 (23 (25 Page 147 , oa mo bw he NNN Nee eee ee HEBRON TS SCaeaURAEOH Sw
Page |48 going in there.
Q Sodid this happen often?
A Here and there. | mean, there -- you know, it's not something that happens in every fund or every month. But, you know, there would -- there would be a handful.
Q = The second paragraph — the last sentence of the second paragraph of that email says, “the true-up was driven by the removal of 3.3 megawatts of commercial systems from the fund."
A Mm-hmm.
Q Why would commercial systems be removed from a fund?
A Well, again, the fund -- J] mean, it could be residential or it could be commercial, it just depends on what the fund is. So -- 1 mean, that fund could have been a hybrid or it _ could have been just commercial. So I think he was referencing that it's a commercial contract, not a residential one.
QI think you mentioned before that SolarCity also raises money through the sale of convertible notes?
A Mm-hmm.
Page 149 ' Q Is that right? :
A Yes.
Q Did SolarCity look at raising new funds from convertible notes in the fall of 2015?
A Yes, Q Why?
A Youknow, again, just you're always looking at your cash needs, you're looking at growth. During that time, that was kind of that ITC, you know, what's going on, where is life going to go, the markets were very skittish. So we did -- 1 believe that's the transaction with Silver Lake, if -- if] recall right. And Elon and Lyndon participated to a minor degree.
And it was really more just, you know, one, to have some cash cushion, and then two, to send a message to the market, you know, that, Hey, | know there's a lot of craziness, but, you know, we're very confident where things are, and that too will blow over.
Because our policy guys felt pretty strongly that something would pet changed on the ITC, and it went down to the last of the wire, 38 (Pages 146 - 149) Veritext Legal Solutions www. verifext.com 516-608-2400
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Page 150 but it did happen as we expected.
MS. TUCKER: Okay. I'm going to introduce as Buss |1 a document family beginning at Tesla 00529579 through 587. (Exhibit 11 was marked.)
THE WITNESS: | guess it's nota privileged discussion.
Okay.
- 9 BY MS. TUCKER:
10 Qs The cover email appears to be an email “1 from you, dated October 15th, 2015, witha . 12 subject "Convert 2015 Analysis." 13 A Mm-hmm.
14 Qs And you say, "Latest after Lyndon and [15 l reviewed yesterday," and it attaches an equity / 16 in convert options PowerPoint presentation that ' 17 lists you and Mr. Lyndon Rive as the presenters. 1B What were you preparing this _ 19 presentation for?
: 20 A I'm not [00 percent sure, but I'm 21 pretty sure it was probably for a board
22. discussion since we were both on it. 23 Q Okay. At slide 2, which -- . 24 MS. LAVELY: Just so the record is 25 clear on that, when you say “both on it,” I 7 5 are you referring to the presentation? THE WITNESS: Correct.
BY MS. TUCKER:
Qs The -- if you turn to slide 2, the second bullet point says, “End-of-year corporate cash balances" should range -- "could range," excuse me, "from 65 million to 198 million." And then there's some bullet points under there that say, "Some financing facilities taking longer to close, draw constraints, tranche timing."
The second bullet points says, "Expected 2015 installs of 920 megawatts versus budget of 1.05 gigawatts has reduced cash inflow."
A Mm-hmm.
Q_ Who would have projected those end-of-year cash balances?
A It would have came through Brian and the FP&A team, you know, where they would look at a variety of factors and -- as part of the forecasting needs.
Q Do you have an understanding of what "draw constraints" means in that first bullet point?
Page 152 . | A [ believe if you look -- so the word
2. kind of draws like when you -- when you're _ 3. putting stuff into the fund, you're drawing 4 money from the fund, so it's putting the : 5 projects into the fund and then drawing the ! 6 funds out of it.
7 So, you know, do you have the right 8 fund to match what's being installed. 19 You know, some of them funded every 10 week or twice a month or, you know -- so just ‘11 the characteristics of the funds and how you ‘12 would draw your money.
13 And then when you're back end loaded, 14 a lot of our installs happened, like | said, 14 very late in the quarter, and very late could be (14 in the last couple of weeks, So obviously you 17 don't have - you can't draw the money because 8 it isn't installed and passed inspection yet. : 119 So you're -- you always have a -- it's ‘20 a timing -- think of it as a timing difference, .21 Q Okay. There's -- the last bullet ,22 point under there says, "De-risk any covenant 23° concerns."
24 Do you have an understanding of what .25 that means?
Page 153 1 A Imean, generically. | mean, ' 2 obviously we have — you have covenants on 3 certain things, and, you know, | don't know if
* 4 the low point of 65 would have been an issue or
* 4 not, off the top of my head.
' 6 But the whole point would be there's a | 7 lot of things going on in the world at that 8 time. The ITC, you know, et cetera, et cetera, 9 was a big concern.
10 So it was really just, Okay, let's ‘11 make sure that, you know, we think the thing 12 will get passed, but we don't know a hundred i 13 percent, and let's just be prepared and not have ‘14 an issue.
‘15 Q Thenext big bullet point says, , 16 "Certain open Customs and Department of Treasury 17 items could require additional cash"? ‘18 A Mm-hmm.
Q_ What Customs item — item were you referring to?
A Tdon't remember the Customs, but the Department of Treasury is just kind of that challenge over the value of the credits that were being claimed. So that was an open legal case, 39 (Pages 150 - 153) Veritext Legal Solutions 212-267-6868 www. veritext.com 516-608-2400
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| nM \7 :22 | 25 eee Au wwe Ow 117 i 18 "19 (21 123 212-267-6868 on mA i & Ww Ne i Page 154 But | don't know if Customs and l department is the same or if that is something 2 different. 3 Qs Was the Treasury issue ultimately 4 resolved? § MS. LAVELY: Object to the form. 6 THE WITNESS: | mean, not during my 7 time frame as -- as CFO. 8 BY MS. TUCKER: 9 Q Boyou know in connection, with your : 10 role as a director of Tesla, which acquired ll SolarCity, whether that issue was ever closed? (12 A I think it was, but J'm not °43 100 percent sure. 14 Q Do you know what the terms of that 15 resolution were? 16 A No. 7 Q Okay. Turning to slide 3, which ends 18 in 582. (19 A Okay. 20 Q The second bullet point says, "Initial 21 2016 cash needs could range from 180 million to = 22 300 million depending on," and then it goes 23 through six different things. i24 Was SolarCity looking for ways to meet 1:25 Page 155 those initial 2016 cash needs? [ A It's more of like you've got the current, and then looking at that as projections like we do every year. If we're going to grow at this pace doing these things, you know, here's the funding, and it's, I think, just giving some perspective on what's going on, and if there is a recession or the ITC and it becomes a challenge, then, you know, here's things that we'd have to look at either scaling | back -- because we wouldn't be able to fund it, hI or fund it at the anticipated level. 12 Q Okay. The fourth bullet point down 13 says, "Doesn't include any cash for larger 14 commercial development products around ‘1S $50 million or acquisitions.” ‘16 A Mm-hmm. ‘17 Q So would those represent areas where 18 SolarCity would have to identify additional cash 19 not included in that 150? 20 A Yeah, generically, you know, the 2] megawatts, whatever we're looking at would have 22 acommercial component, and ifwe wantedtodo 23 some really big stuff, there was a lot of talk 24 about doing, you know, commercial grid level
Page 156 stuff, and it was just letting people know that if we did that, we would have to figure a way to finance it separately and then the standard caveat that, you know, if we wanted to buy somebody, we'd have to look at financing that because it wouldn't be included in that range. Q_ Okay. On the next page, which is slide 4, Do you have an understanding of what this slide is trying to communicate? A Yes.
Q And what is that?
A I mean, the first one is just giving a perspective on the existing converts that are already outstanding, the two that are mentioned there, and really just how they're trading in the market.
And again, the market, you know, throughout the year, had sold down, you know, whatever global issues plus the ITC paranoia. | And I think a little bit of that SunEdison concer was creeping in near that time, so the stocks were down, which then has an impact on the price of your convert because it's hoping to. convert into equity down the road, So in Jaymen's lingo, that means Page 157° the -- the price of the converts are very expensive, the existing ones. So if you dida new one, it’s going to be as pricey or more pricey, which is pretty expensive.
Q = What was the price in the -- in the converts that were existing that SolarCity stock would have to be trading at for SolarCity to settle them in equity?
A Well, I-- MS. LAVELY: Object to the form.
THE WITNESS: Yeah, I -- I don't know off the top of my head, It's afl detailed in the 10-K.
BY MS. TUCKER:
Q It was higher than SolarCity stock was trading in October 2015; right?
MS. LAVELY: Object to the form.
THE WITNESS: Yes.
BY M8. TUCKER:
Q Do you know how much higher?
A Idor't.
Q You mentioned that you -- one of the reasons you thought stock was trading where it was was ITC concerns; is that right? A One of the factors.
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Q When it was announced that the ITC | credits would be extended, at the end of 2015, 2 did SolarCity's stock price recover? 3 / 4 MS. LAVELY: Object to the form.
THE WITNESS: Again, I'd have to go look at a chart, and that was three years ago.
BY MS. TUCKER:
Q = The first bullet point under -- or the first bullet point, the third subset, says, "New I] buyers are better off purchasing these converts 1] versus a new issue.” :12 A Sorry, is -- 13 Q So the first -- _I4 A Isiton Page 4? 15 : 16 Q Yeah. So there's the circled bullet 16
- 17 points and then the dashes, so it's the third 17 bullet point under the first -- /18 ‘19 A Oh, gotit. ‘19 Q It's the third -- 20 (21 A Sorry, yeah, yeah, yeah, | got it. 21 Q Why would new buyers be better off 22 23° purchasing existing converts versus anewissue? 23 MS. LAVELY: Object to the form. 24 THE WITNESS: Soif you look above it, 25 : Page 159 I it's kind of tike, Oh, wow, you know, ] because the price where the stock is, it's 2 kind of like bonds price and yield kind of 3 | 4 moves inversely. 4 ' 4 So you would get an implied coupon of 5 : 6 6 or 9 percent, where, you know, a new one 6 you might be able to sell it at 3 and a half 7 or 5 percent, so it's like, Well, why do I 8 want to buy your new one when canbuy the | 9 existing one and get a better yield. ‘10 And that 3 and a half'to 5 is way ll higher than anything we'd ever done. 12 BY MS. TUCKER: 13 i4 Q = What would happen if SolarCity's stock 14 price wasn't trading at the strike price of the 15 converts when they were due to be settled? 16 MS. LAVELY: Object to the form. 7 THE WITNESS: I mean, depending onthe [18 specifics of the convert, [ mean, it could 19 get settled in cash, you know, or you would 20 just convert into the stock. | -- | don't -2t recall which -- which is which but... 22 BY MS. TUCKER: 23 (24 Q Thesecond first-level bullet point 24 says, "Stock borrow is very limited and costly 25 borrow that's out there.
Page 160 .
(14 percent) due to existing converts and short sellers, makes a new convert very problematic.” Could you explain to me what that means?
A Sure. So if you're buying this convert, you know, you're buying it to get this -- the coupon, right? So whatever, let's say it's 3 percent, but you're hoping over time it hits to that conversion price and you're able to buy the stock super cheap.
So let's pretend the conversion price | is $50. You're hoping by then the stock's at | 100, you can get it for 50. You make equity, coupon, great return. | So what people will do is they will | hedge that. So they're long on the stock there, | but they'll hedge it so that they can kind of make sure they can try to make something. So that puts pressure on the stock because you're, actually shorting the stock, which isn't good. And then you have natural short sellers in the market that are just -- [TC's not going to happen, you know, [ think the stock will lower.
So you get the two of them together,
Page 161 - and then that just creates a lack of stock borrow.
So if | wanted to go to a new one, there just isn't any stock to borrow because it's already used, or it's so expensive because you have to pay a price as an investor to borrow, and 14 is like off the charts. You know, usually it's a fraction of that and you're willing to take that cost into consideration. Q Okay. So that if -—- so, in your view, would that affect demand for new convertible notes?
A It would definitely be a factor you'd have to weight. You know, what -- one, the size, and two, do you do a public deal or do you do a private deal.
Q The last bullet point says, "Would need to do an equity offering in parallel to achieve sufficient borrow."
Is that what you were referring to to open up kind of that -- A Exactly. [ don't have enough so] issue more shares so now some portion of them can get lent out, so you increase the amount of | 4l (Pages 58 - 161) Veritext Legal Solutions 212-267-6868 www. veritext.com 516-608-2400
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on Ao hw he (NN NN MOE eR ee ee ee ABUDADA AS wea dIhAARY NE oOo on~ A fb WY hw 45 Page (62 Q Okay. And then the second sub bullet point under that says, "Would most likely be at a discount to market per the banks.” Do you have an understanding of what that means?
A Sure. [fyou, you know, did an equity offering for whatever reason, you know, | think the way -- where those markets were in general and the solar industry in particular because of this paranoia, | believe, with the ITC, that you wouldn't be able to just go, Hey, my stock's at whatever, 25, and do a deal at 25. You may have to give some amount, a quarter, 50 cents, a dollar, who knows. | don't remember what the specifics were.
Q Do you - it says, "Per the banks.” Was SolarCity talking to banks about this at this time?
A [ would imagine we did, yeah.
Q Do you have any recollection of what those banks were?
A I don't, no.
Q. Okay. you'll turn to the next slide which, is slide 5, and it ends in 584. And the slide is titled "Process."
Page 163 The first bullet point is, “Discuss current market and proposal with Goldman and Credit Suisse."
A There you go.
Q Are those the banks?
A It's highly probable.
Q Okay, A [just -- [ don't recall though. It's so long.
Q The second bullet point says, "Silver Lake approached us."
A Mm-hmm.
Q Is that what you were referring to earlier when you were talking about Silver Lake? MS. LAVELY: Object to the form.
BY MS. TUCKER:
(18 2)2-267-6868 Q [think you only mentioned it once. A [don't remember the context, but... Q Has Silver Lake had any other -- what's Silver Lake's relationship to SolarCity in October 2015?
A So, | mean Silver Lake is a private equity fund, and they -- one of their divisions was a very early investor in SolarCity, 1 believe prelPO.
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Page 164 Q = Okay.
A So they had an existing relationship. They were very big on the company, and we ultimately didn't do the public one and dida private one with them.
Q. Okay. The third bullet point says, “Also discussed options with GSO (Blackstone)" -- A Mm-hmm.
Q. -— "and High Bridge via contacts from Antonio."
What's GSO?
A Its adivision within Blackstone that deals a Jot with tike corporate debt equity situations. The big part of Blackstone's a private equity fund, and then this is a debt equity group they have.
Q Were you involved in those discussions with GSO?
A I don't know if | was or Rad might have been. | don't recall at the time. I think Rad did it because Rad was an ex Goldman guy and he knew a lot of the people.
Q Were you involved in any discussions with High Bridge? i Page 165 ; A Again, I don't -- | don't remember. Q Okay. The next bullet point down says, “No interest in equity or convertible.” A Mm-hmm.
Q Do you have an understanding of what that means?
A That they wouldn't want to do straight equity or convert, obviously which has an equity component, so...
Q_ Did you discuss why?
A That's -- MS.LAYVELY: Object to the form.
THE WITNESS; No. I mean, again, it's not generally what they do. They're a big debt shop overatl, And | -- [ don’t know the specifics.
BY MS. TUCKER:
“21
Qs The second bullet point says, "Would consider very high coupon debt."
What's "very high coupon"?
A Again, I don't remember the specifics of what they quoted, but it would be substantially higher than what we've done on -- most of our stuff was -- you know, converts would range from 2 to 3 percent, and other 42 (Pages 162 - 165) Veritext Legal Solutions www. veritext.com 516-608-2400
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(25 212-267-6868 Page 166 financing deals were maybe 4, 5, 6, you know. So obviously it would have to be way higher than that.
Q The third bullet point says, "Tough covenants of existing debt."
Do you have an understanding of what that means?
A Again, an assumption that whatever -- if we did a debt deal with them, that they would probably want certain requirements, maybe in the stack of seniority, that would probably conflict with other debt, and then you'd have ta get a waiver, you'd have to have a discussion. And it's like anything else, where do you stack in the food chain, right? Standard stuff you do in a-- ina debt deal.
Q And then it says, "Long due diligence and timeline."
Was that something that was a problem? MS. LAVELY: Object to the form.
A [--[ don't think so. It was really more of just the facts. They don't know us, you know what | mean? Sol mean, just like any other type of transaction, you would do diligence, and, you know, we didn't have a feel Page 167 for what it would take, and, you know, you're not looking to spend months, you know, bringing somebody up to speed.
Q Did youreach out to anyone else about potentially acquiring debt in SolarCity at this time?
A [don't recall. I don't -- nothing that | -- comes to mind, no, Q = Why did you reach out to GSO?
A Well, | -- as it says there, you know, as we talked about, you know, public versus private, you know, Antonio's, Oh, hey, I know these guys and, you know, they might be interested, you know, give them a call. So we pave them a call.
Q What do you mean public -- what do you mean by -- when you're talking about public versus private? | A Sotike a bank under written deal. So like Goldman or Credit Suisse or anybody who does the other converts, that would be like they would underwrite that deal. They would go out to the institutional shareholders, and they would sell it on your behalf.
QsIs there a --
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2] Page 168 , A That's what I call a public, you know, deal. It's versus a direct private transaction between you and I.
Qi you could turn to slide 7, which ends in 586. The title of that slide is "Items to Consider." | A Mm-hmm.
Q The third bullet point is "Dilution." Was that a concern?
MS. LAVELY: Object to the form.
A Yeah, I mean, when you look ata, I mean, a convert, it's like any type of financing, right, equity or a convert or even debt, you know, what's the cost going to be to | you.
And, you know, when you're dealing with a convert, you know, you've got an interest cost but then you also have a potential dilution, you know, if it converts, so you just have to be mindful of -- of what that could be. Q Okay, , A And, you know, every company's sensitive to dilution.
Q And then if you'll go to slide &, which ends in 587.
Page [69 A Okay.
Q Did SolarCity ullimately decide not lo pursue a convertible note offering at that time? A Like overall -- Q Yes.
A -» You mean, or -- Q In October 2015 when you were evaluating convertible notes.
A Well, ’'m not quite sure how to answer that. We ended up deciding not to go with Silver Lake on this big proposal. And then we ended up doing a smaller number with them, you know, [don't know, a monih down the road or something like that.
Because this was a -- this was a big convert which we kind of really didn't want that much, the dilution, and then that's with their main fund. And then because of the size, they would probably want to get involved in the company, maybe have somebody on the board, where we're kind of weighing the tradeoffs, do we really wantihat. And the -- you know, the
final ansiver was m0, And then the other division that used to be the original investor in SolarCity ended 43 (Pages 166 - 169) Veritext Legal Solutions www. veritext.com 516-608-2400
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124 212-267-6868 Page 170 up doing around [00 million-dollar deal with us. Q Okay. That 100 million is less than the 180 million identified in this presentation as initial 2016 cash needs; right?
MS. LAVELY: Object to the form.
THE WITNESS: It is, but it's the different context. [ mean, you would have existing stuff -- stuff coming in plus this hundred, to have and ending balance that you would use, plus new finances next year. So it's kind of apples and oranges.
l I BY MS. TUCKER: -12 Q = Why was the initial target 13 400 million? 14 A It's kind of like anything. It's like 15 if you really think, you know, the economy's ‘16 going into a deep recession, if you really think (17 the ITC could be a huge position, you know, do you stock up your balance sheet and just have some, you know, rainy-day funds.
But that comes with a cost and -- you know, whether it's interest or -- or dilution. So I think ultimately, you know, we felt pretty comfortable the ITC was going to get extended, and it did.
122
Page |7 So it was really -- it's one of those just, Oh, boy, I did the same thing in the ‘08/09 downturn. It's like, Boy, if things get ugly, you know, you want lo have cash. So it's good to kind of stack up.
MS. LAVELY: Counsel, when you find a good time for a break.
MS. TUCKER: Sure.
VIDEOGRAPHER: We're going off the record. The time is 12:48 p.m.
wad worn em WW “oO
(Lunch Recess Taken.) Lk VIDEOGRAPHER: All right We are back 12 onthe record. The time is 1:37 p.m. 13 BY MS. TUCKER: 14 Q Okay. Mr. Buss, have you discussed 15 the substance of your testimony with your | 16 allomeys during any of the breaks today? [17 A Notatall. 118 Q Okay. I’m going {0 introduce, as Buss i419 Exhibit 4 (sic), a document family beginning on 20 Bates Number TESLA DIR. 0024714 through 15. The =: 21 document beginning with 15 is produced in native , 22 format. 23 THE REPORTER: You said "Exhibit 4.” 24 MS. TUCKER: Exhibit 12, Sorry | 95
Page 172 | (Exhibit 12 was marked.)
MS. TUCKER: And for the record, this : appears to be an email from Aaron Chew to | Lyndon Rive and Mr. Buss on October 27th, 2015, THE WITNESS: Should I look through the whole thing or certain sections?
BY MS. TUCKER;
Q [have a couple of slides that I'm going to ask you about beginning in Slide 6 titled "Update on Capital Raise."
A Okay.
Q Did Goldman Sachs and Credit Suisse - tell SolarCity that if it wanted to do an equity raise it would have to offer a discount in the range of 7 to 12 percent or higher? MS.LAVELY: Objection to form.
THE WITNESS: Again, I'm just reading what you're reading. I'm assuming thats the case, yes. | don'trecall it specifically.
BY MS. TUCKER: |
j Q It said both banks do not recommend an equity raise at that time?
A Mm-hmm. | Page 173 | Q Is that your understanding of what they told you?
A Yes.
Qs If you would turn to slide 15, is this net retained value that you were referring to earlier the same calculation?
MS. LAVELY: Objection to form.
THE WITNESS: Yes. Let me take a look at it real quick. Yes.
BY MS. TUCKER: |
Q What does that number PPA-lease energy contract represent? Is that the total cash that would be received through those solar system leases?
A Correct. That would be kind of the accumulation with a 6 percent discount rate applied to that.
Q Would same of that money be owed to the financing investors?
A Some of that money -- yes.
Q What portion of that would be owed to the inyestors?
A I mean, you see it in the debt outstanding that's, you know, the fourth or fifth line down there. It varies by customer; 44 (Pages 170 - 173) Veritext Legal Solutions www.veritext.com 516-608-2400
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so everything is really just aggregated. ! Qs There's also a line that says "lease 2 renewal.” What does that line represent? 3 A Hang onasecond. PPA lease renewals. 4 Oh, okay. Yeah, So that's kind ofan 5 assumption on, okay, what type of -- you know, 6 again, at the end of the lease, what people 7 renew. What's an assumption that you would use 8 for that. 9 Q So if those people did not renew, if ‘10 no one renewed, that value would be zero? 11 A Under that scenario, yes. 12 Q Okay. And what is "my power"? (13 A It's like a— it's the loan product. 14 The -- whether one is a lease and, really, this “15 is a loan, and we called it "my power" because 16 it's a loan to you. 17 Q And how would SolarCity generate 18 revenue from that? 19 A The same way. You -- you have a loan 20 payment, and you're paying that, you know, every, 21 month just like if you had a lease, you would 22 have a payment. | 23 Q How is the 6 percent discount rate | 24 25 selected?
Page 175 A Boy, I don't remember specifically. | | It was kind ofa generic rate, you know, trying | 2 to be similar to cost of capital, ] think, over =| 3 time. 1 4 Q And you don't know what any ofthe | 5 assumptions were about default rates? 6 A No. I mean, again, we would have to 7 go through the -- the details of everything. 3 Q And you don't know what any of the 9 other assumptions underlying these projections 10 are; correct? it A No. Not off the top of my head. 12 Q Okay. The line "Total Debt 13 Outstanding” has a number of approximately | i4 $1.5 billion; right? 71 A Mm-hmm. (6
Q. Atthe time the Tesla/SolarCity deal: closed, SolarCity had about $3.5 billionin =: debt; correct?
A Again, I don't know offthe top of my head. _ Q = Ifitdid, you would have to subtract =| that out from the cash flows to get yournet retained value as you calculated here; right? MS. LAVELY: Object to the form, Page 176 THE WITNESS: No. Because this is really subtracting out the debt that's related to these systems only, BY MS. TUCKER:
Q So there's other debt that SolarCity would owe that isn't included in this net retained value calculation?
A Yeah. if-you [ook at the -- the little asterisks at the bottom, it says the convertible debt is expected to go into equity and is not part of that.
Qs If SolarCity didn't meet its convert price, whatever is in those notes, you would have to settle that in cash; right? A Depending on the terms patentially. Q And then you would have to subtract that out of this analysis; right?
MS. LAVELY: Object to the form.
THE WITNESS: Again, depending on what the final outcome is, you would look at it, yes, BY M&S. TUCKER:
Q = What other operating expenses does SolarCity have that aren't accounted for in this analysis?
Pape (77 A I mean, as a whole company you mean? : Q Yes.
A Because this is -- this is meant to show the PowerCo, not kind of the whole company. Q What other -- so what -- what isn't accounted for in this?
MS. LAVELY: Object to the form.
THE WITNESS: [ mean, everything related to kind of DevCo, like, to building new projects, you know, and the overhead of running the company is not part of what this analysis is meant to show.
BY MS. TUCKER:
Q Would this show conventional debt that SolarCity issued?
A You know, | would have to see the detail of the debt outstanding, what's all in there.
Q It's possible that there is outstanding debt that's not included in that amount; right?
MS. LAVELY: Object to the form.
THE WITNESS: Again, | would have to see what the -- the build-up of the total debt outstanding. | can't recall off the 45 (Pages 174-177)
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top of my head, 1 Q = Did you-- BY MS. TUCKER: 2 A So they would do the day-to-day Q = When you're looking at the value of 3 discussions, negotiations, with legal. And then the company using this calculation, you have to 4 the purpose of this meeting is just -- it's kind subtract out liabilities; right? 5 ofjusta status. We would just go through as a MS. LAVELY: Object to the form. 6 continual business process, all right, what's in THE WITNESS: Again, this isn't meant 7 play? What's going on? You know, how is it to look at the value. It's meant to try to 8 looking? When is it closing? What are the quantify the long-term cash flow related to 9 terms like? You know, et cetera, et cetera. those leases and loans. 10 Q But you weren't involved with BY MS. TUCKER: 11 communications with any of these -- Q Okay. What is the investment 12 A No.
committee at SolarCity? 13 Q_ -- investors?
14. A Investment committee? I don't know if 14 A No, no. Never.
we had a formal investment committee per se that | 15 Q And if you'll turn to the page ending Icanrecall. | mean, we have different groups 16 in 941, that would look at, you know, different 17 THE WITNESS: Can we kill that projects; but, like, there wasn't a board-level 18 notification thing, please? investment committee that 1 am aware of. 19 Sorry. Where?
Q Was there a management level 20 BY MS. TUCKER:
committee? 21 Q Ending in 941. The header is A Notthat ] — I mean, not that I can 22 “USB 11." What is USB?
recall. There could be. We would look at many =| 23 A I mean, it's obviously a name for one different things with many different groups. 24 ofthe funds, but I don't recall who
25. Q Okay. I'll introduce, as Buss 25 specifically the counterparty was. Page 179 Page 181 Exhibit 13, a document family beginning with 1 Q Were you involved in the renegotiating TESLA DIR 0030934 and ending in 952, 2 of USB’s investment at this time? (Exhibit 13 was marked.) A No.
BY MS. TUCKER: Q = Ifyou could turn to the slide ending Q Have you seen this document before? in 944, the header is "JPM Debt." A Yes. A 944.
Q. Were you involved in its preparation? Q Were you involved in the negotiation A No. of this instrument?
Q Are you familiar with the information A No.
discussed in the presentation? Q If you could tum to the slide ending Ik A Imean, the generic format, yes. The in 947, it's "LMC5 Securitization." Were you specifics here, I would have to go through. involved in the creation of this securitization? Q If we could start at the slide ending A No.
14. in 938, which the header is "Intel 4." Did Q Under -- are you familiar with the Intel ask to renegotiate the terms of one of its term "advance rate"? financings around this time? A Yes. Conceptually, yes.
A I don't -- I mean, I don't know Q What is it?
specifically. I was never involved in the A Sol would look at it as the -- you day-to-day of each of the funds. know, if the project has, you know, a Q Who was? thousand-dollar value, I'm going to advance A So Rad Small was the senior VP X percent, whatever that percent is. So if it's overseeing the group. Then he would have a 68 or 70, I'll give you that much value in -- in bunch of different managers that owned different |23 funding.
deals. So this one, I don't think it has a name 24 Q So that's how much cash? onit. I mean, it could be a variety of people. 25 A Correct. Pretty -- every one of these
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funds has some type of advarice rate that you'll } get that's negotiated upfront. 2 Q Does that take into account costs of 3 creating these instruments? Financing, 4 underwriting, those types of expenses? 5 A From a SolarCity perspective? 6 Q Yes. 7 A No. That would be a separate line 8 item. #9 Q Okay. So would it be that in your 10 example, a thousand-dollar investment, SolarCity ; 11 gets 750, would then those costs be subtracted ‘12 out of the 750? 13 A "Those costs" meaning the financing iM costs? 15 Q ¥es. 16 A No. No. We would -- that would just ‘7 get paid, you know, out of, tike, general cash. 18 Q Okay. But that -- | 19 A It wouldn't be withheld by the fund. 20 Is that what you're getting at? 21! Q Yes. 22 A No. 23
Q. Okay. 24 MS. TUCKER: I'll introduce, as 25 Page [83° Buss 14, a document family beginning in I TESLA 00531173 through 1210. 2 (Exhibit 14 was marked.) 3 BY MS. TUCKER: 4 Q And it appears to be an email from 5 Aaron Chew on February Ist, 2016, to several - people including you. .7 A Okay. 8 Q Have you seen this document before? , 9 A [ll have to look through it. I mean, 10 wasn't -- | think this was into '16; right? ‘1 Yes. So, 1 mean, I wasn't, you know, | 12 the day-to-day CFO, and | wasn’t going to the 13 board meetings or anything; 50 Aaron -- you 14
know, obviously he's copied me on it because FYI | 15 but... “16
Q. Okay. So were you not involved in the 117 preparation of this document?
A No. Notat all.
Q But you did receive it? You have no reason to doubt that you received it; right? A Yes. No. Notatall.
Q Okay. So you wouldn't have -- iff heard you correctly, you wouldn't have participated in the board meeting where this was =. Page 184 presented?
A Correct. I wasn't -- you know, once we -- like | said earlier, when we made the transition, you know, I stopped doing the E staff, you know, had my people start, you know, going right in to Tanguy. So he would have been involved with Aaron on the prep review with E staff and then the ultimate -- him or Lyndon, ] would assume, with the board, but I wasn't there.
Q Do you have an understanding of what a no pass or fail rating is?
MS. LAVELY: Objection to form.
THE WITNESS: | mean, no, [| would have to see the context. It's not a standard term.
BY MS. TUCKER:
QQ Asadirector of Tesla prior to the deal being reinstituted, did you discuss Tesla's plan for SolarCity once it was part of the combined company?
M8. LAVELY: Objection to form.
THE WITNESS: So when | was a Tesla director, did we decide what we're going to do with SolarCity?
Page 185 BY MS. TUCKER:
Qs Yes.
A Post the acquisition, if we were successful in acquiring it, and it got approved, yada, yada?
Q Yes.
A Yeah. We definitely had some discussion on that.
Q Allright. Did-- A Are we done with this one?
Q Yeah.
Was Tesla considering shutting down DevCo operations?
MS. LAVELY: Objection to form.
THE WITNESS: I mean, as you look at | the totality of it, it's -- you know, you look at all the various pieces. | mean, you try to do a thorough analysis, but I wouldn't say it was ever a -- you know, what: do you call it? -- something we were looking at or pursuing; but you want to look at every angle.
BY M8. TUCKER:
Q = You asked Evercore to do an analysis of PowerCo standalone viability; right? 47 (Pages 182 - 185) Veritext Legal Solutions www.veritext.com 316-608-2400
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l A Yeah. We were looking at ali the I Q And Tesla did shut down door-to-door pieces kind of like, you know, no different than 2. sales shortly after the merger within a couple how we looked at it and showed it externally, 3. of months?
DevCo, PowerCo, what are the costs? You know, . 4 A I'mpretty sure, yeah. ] mean, the what are the optionalities? § whale thing was virtually gone. It was very The same thing with manufacturing. | 6 castly.
mean, do we keep this? Do we do it in-house? 7 Q Door-to-door sales actually had one of You're just trying to understand the different 8 the lowest costs of acquisition; isn't that _ 9 pieces and the costs and how they come together. 9 right?
Q What was Tesla’s optional plan for 10 MS. LAVELY: Objection to form. “LL SolarCity? Il THE WITNESS: Again, | don't know A What was their optional? 12. specifically, but it's a lot of head count.
Q. Mr. Kimbal Musk referred to an MS. TUCKER: T'll introduce Buss optional plan, Tesla's optional plan for Exhibit 15, a document beginning with Bates SolarCity. Do you know what it was? Number TESLA DIR 0087767 through 88168, and MS, LAVELY: Objection to form. this was produced as a family of documents. THE WITNESS: I have no idea what that BY MS. TUCKER:
“18 term means or what he's referencing. Q Youcan feel free te review the whole BY M8. TUCKER: thing, but I'm going to -- Q Okay. Prior to the acquisition 20, A What's for dinner?
closing, Tesla considered shutting down certain 21 Q_ -- tum your attention to a document. revenue - certain distribution channels; right? '22 The Bates number is TESLA DIR 0088041, and it's MS. LAVELY: Objection to form. ; 23° slide 19. And that's — BY MS. TUCKER: 24 A Sorry. Can I get the last three Q Or, excuse me, sales channels. 25 numbers?
Page (87 Page 189 } MS. LAVELY: Same objection. ot Q oO4i.
2 THE WITNESS: Sales channels? Yeah, 2 A O41, 3 We looked at the -- the whole company. I 3 Q It's towards the end. I'll just note i 4 mean, as a standalone company, you have 4 the first page of this presentation appears to different objectives when, you know, you are § be at 017, and it's called "Board Discussion ' 6 a division of a bigger company, and we kind 6 Materials, July 19, 2016," with an Evercore i 7 of had a pretty big retail footprint through 7 stamp on it.
i 8 our stores. 8 A Ami onthe right -- So a lot of our -- it was, like, oh, / 9 Q | was just pointing to the cover page _ 10 we could start selling this in our stores. / 10 of the whole presentation. “Ll It cuts down on the sales cost, The sales 11 A Oh, sorry.
and marketing are a big cost. We have, you 12 Q But youcan feel free to look at it.
know, hundreds of thousands of customers and (13. Its O17. But the title of this slide is
they are growing. Do we -- you know, it was 14 "PowerCo Standalone Viability.” “1S part of our whole synergy thing that we 1 A Yes. I'm there.
looked at. 16 Qs Okay. There are four line items BY MS. TUCKER: 17 here -- or, excuse me, five on the left-hand Qs Specifically you looked at shutting 18 side, The second one is "Ongoing Expenses.” down door-to-door sales; right? 19 Do you have an understanding of what A We looked at every single channel, "20 that line represents in connection with PowerCo? _21 yes. 1 mean, it didn't -- you know, however 21 A Imean,1-- 1 didn't prepare it; so, they were doing it, you know, how would we do 22 you know, | would only be guessing which is ;23 it? Could we do it better? Whatmakes sense? 23 probably not a good thing to do. i 24 What doesn't? Door-to-door and, you know, 24 QI fPowerCo were to be a standalone eventually Home Depot. -25 company, would it have ongoing expenses that
48 (Pages 186 - 189)
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“15 212-267-6868 Page 190 would need to be accounted for?
MS. LAVELY: Object to the form, THE WITNESS: You know, again, that | would be my assumption that they are covering. You know, you've got to maintain the customer and bill them and collect and all that fun stuff. So I'm assuming that's the cost associated with that.
BY MS. TUCKER:
Q Okay. And that wouldn't be accounted for in the net retained value that we just looked at; right?
MS. LAVELY: Object to the form.
THE WITNESS: You know, again, I'd have to go through the entire calculation and see the backup to answer that correctly, (Discussion off the record.)
BY MS. TUCKER:
Q I'm just going to have you look back at a prior exhibit. It's the one that ends in TESLA DIR 24714. It's an email with the title "Final Deck for Board Meeting."
MS, LAVELY: What's the exhibit number?
MS. TUCKER: I'm not sure.
Page I91 THE WITNESS: So 014 is the last three?
BY MS. TUCKER:
Q_ No. It'sa different document.
MS. LAVELY: Exhibit 12 in that stack. :
BY MS. TUCKER:
Q Youcan keep that open. We're still going to be talking about those documents. A This one? Okay. Sorry. And which? Q Slide 15, please.
A Slide 15. Okay.
Q This calculation on this page doesn't include ongoing expenses; right?
MS. LAVELY: Objection to form.
THE WITNESS: Again, I can't answer , one way or the other without going through | the detail of it.
BY MS. TUCKER:
Q Okay. Going back to Exhibit 15, that slide we were just looking at.
A Mm-hmm.
Q There is a line item for tax equity distributions. What are those?
MS. LAVELY: Objection to form.
THE WITNESS: So that would be -- you25 Woo Kin bh Wh Il I4
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Page 192 know, again, because it's in a fund and the fund is a partnership and there is a split, you know, of how some of the payments are done, so that would be the payments that you're contractually owed back to that fund related to that customer that's in their fund. So it's an aggregation of the different customers in the different funds.
BY MS. TUCKER:
Q Okay. And that's a cost; right?
A That's a -- not really. It's -- 1 would fock at it as a capital distribution really because it's a partnership. Q_ It would be a cash outflow; right? A It would be acash outflow from PowerCo; hence, why they have the brackets | around it.
Q -Okay. And do you have an understanding of what interest expense is? A You know, again, | didn't do it; but I'm assuming it's interest on some other kind of debt, you know, that's out there that is not falling under tax equity because there was different facilities that were out there. There itis. It says right below Page 193 under “Interest Expense“ what it is. So there is the other facilities that I kind of mentioned that, you know, tax equity is a partnership with cash splitting, so to speak. And then the other one is just, you know, basic project finance debt that, you know, you would -- you would have interest related to.
BY M8. TUCKER:
Q Okay. Were you involved in Tesla's integration planning for SolarCity? A No. Not -- notin any detail, no. Just, you know, again, from -- you know, we would have a very high level from the board perspective, but that was it.
Q How did the board come up with its synergies estimate?
A The board didn't come up with it. You know, again, it'd probably be through the management team with the diligence they were doing with SolarCity, you know, and the bankers. Q After the deal was announced, Jeff Evanson told you that some people inside the company were unhappy with the deal; is that right?
MS. LAVELY: Objection to form.
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212-267-6868 Page 194 , THE WITNESS: Jeff told me personally?
BY M8. TUCKER:
Q Yes.
A Again, [ would have to see the context. There was a lot of conversations. Q Do you remember any of them?
MS. LAVELY: Objection to form.
THE WITNESS: | mean, just kind of the pulse of what was going on. | mean, whether -- mostly investor-related. It was, you know, how were people looking at it? What questions did they have? What's unclear? You know, stuff a long thase natures.
BY MS. TUCKER:
Q Did you have any communications with investors in connection with the transaction? A Me directly?
Q Yes.
A No.
Should [ keep this out?
Q You can fold that up.
MS. TUCKER: I'll introduce, as Buss 16, TESLA DIR 0045780 through 82. (Exhibit 16 was marked.)
Page 195 BY MS, TUCKER:
Q On September 9th, 2016, at 4:45 p.m. Jeffrey Evanson wrote to you, "Lousy sentiment outside and inside the company. Senior execs need to shut up and get onboard."
And you requested to speak with him, and he said he would be happy to elaborate the following week.
Do you recall having that conversation with Mr. Evanson?
A I mean, I cannot recall. That was a long time ago.
Q Do you recall who the senior execs were that needed to shut up and get onboard? MS. LAVELY: Objection. Form, THE WITNESS: No. Nothing particular there, BY MS. TUCKER:
Q Do you remember anything generally? A I mean, conceptually I think there was, wow, we have a lot going on at Tesla. Holy
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in 2) Page 196 know, tight on resources. And it's like, whew, have another big project. That was kind of how I would generically say, you know, some fractions of the company maybe looked at it. Q = Had Tesla not communicated its integration plan to senior executives at that time?
MS. LAVELY: Objection to form, THE WITNESS: September 9th. This -- it wasn't even closed yet. I mean, I don't know specificaliy, but | would say highly unlikely since it wasn't even closed.
BY MS. TUCKER:
Q Okay. Would the board typically -- did the board, in connection with this transaction, specifically review prospectus statements before they were provided to stockholders?
A Like the proxy when you say “prospectus,” do you mean?
MS. TUCKER: I'll introduce, as Buss Exhibit 77, a document filed by Tesla Motors, Inc., pursuant to Rule 425 of the Securities Act of 1933 dated November Ist, 2016.
Page 197 | (Exhibit 17 was marked.)
THE WITNESS: Okay. The blog post.
Got it. So -- MS. LAVELY: Wait for a question.
THE WITNESS: Yeah. | was going to say your specific question?
BY MS. TUCKER:
Q | said would the board review this statement prior to its being fited with the SEC? A It's nota requirement, no. It's not like one of our -- like the audit committee stuff, we would review, The press release, 10-Ks, 10-Qs. But this was really more of a communication that we wouldn't normally require be reviewed.
Q. Do you know who would review it? A You know, it would just depend. | mean, sometimes they might pass it by people. Sometimes they would manage it all internally. It just really would depend on what the situation is.
smokes. Now we have to go integrate and manage 22 BY MS. TUCKER: this.
So a lot of people are just, you know, [ think generically were feeling overworked, you | 23 | 24 125 Q Who would make — sorry. Go ahead. A There isa lot of blog posts that the company does. And 1 would say the vast majority 50 (Pages 194 - 197) Veritext Legal Solutions www. veritext.com 516-608-2400
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212-267-6868 of this stuff that goes on the blog is it's, you know, standard company communication. Q Who has the final say on whether to post it?
A Youknow, I couldn't say specifically. I'm sure legal is involved to some degree, but I don't know if there is a name or a group that has a formal requirement.
cow A PB WY Q Elon Musk prepared this blog post; ' 9 right? 10 A [actually don’t know who prepared it. 1] I've read it, but I'm not sure who the authors 12 were. 13 Qs You weren't even asked to review this; 14 is that right? 15 A Yes. 16 Q "Yes," you weren't asked to review it? \7 You were not asked to review it?
A Yes, | was not asked to review it.
Q Okay. And you weren't even sure if there was support and validation for some of the comments in this blog post; right?
MS. LAVELY: Objection to form.
THE WITNESS: No. It was -- [ wasn't -- since I wasn't part of it and I Page 199 didn't know, but | -- there is an email that 1 I said, you know, I hope that everything is 2 nailed down like we would normally doinany 3 type of process. 4 MS, TUCKER: ['Il introduce, as Buss 3 Exhibit 18, a document with Tesla -- Bates 6 Number TESLA DIR 0048424 to 25. 7 (Exhibit 18 was marked.) 8g BY MS. TUCKER: : 9 Q So I'm going to turn your attention to -10 an email from you on November [st at 3:06 p.m. 11 where you say, "Sure hope there is support and 12 validation for some of the comments." 13 And Miss Denholmresponds, "So do |. 14 ] asked them a few times." (15 What comments were you referring to? 16 A 1 mean, nothing specific; but, ] mean, VW there's just different statements, you know, “18 that, you know -- can [ go back? 19 Q Sure. 20 A Youknow, just there is a variety of 21 statements that I think they make. And it's 22 like, okay, you know, generally if there is a 23 number in there, I like making sure that there 24 is some kind of logic or support behind it. 25 Page 200 | So it wasn't on any specific item.
It's just a generic thing that, you know, if | was asked to review it or part of the audit committee, ] would say, "Hey, have you guys looked at this? !s this tied up?"
“Yep, yep, yep."
“Okay. Thank you, | feel good."
Q But you weren't aware of anything at the time you sent -- A No.
Q” -- this email?
A No. Notat all.
MS. LAVELY: Objection to form.
THE WITNESS: Sorry, BY MS. TUCKER:
Q_ And you did say you sure hope there is support and validation for some of the comments; right?
A Yeah. The standard comment I make on anything with numbers.
Q = You didn't see any other emails that you sent that said that, did you?
MS. LAVELY: Are you referring to the deposition today, Counsel? 1 Page 201 :
BY MS, TUCKER:
Q I'm referring to any emails that .
you've sent. Where would | find this statement | elsewhere?
MS. LAVELY: Objection to form.
THE WITNESS: Yeah. It wouldn't always be an email. It could be ina meeting. [t could be ona call, | mean, it's a very standard thing that | always do.
BY MS, TUCKER:
Q Did you speak with Ms. Denhalm about this email?
A [don't recalt talking live about it, no.
Q Did you - what did you understand Ms. Denholm’s response to mean when she said, "I : asked them a few times‘?
A [ mean, again, | didn't talk to her. [ mean, you can ask her.
Q Initially there was some concern that Tesla wouldn't be able to close the deal; is that right?
MS. LAVELY: Objection to form, THE WITNESS: Nothing that [ recall a concer. | mean, it was obviously subject 51 (Pages 198 - 201) Veritext Legal Solutions www.veritext.com 516-608-2400
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212-267-6868 Page 202 to the shareholder votes.
BY MS. TUCKER:
Q And investors did not all react positively to the deal, did they?
MS. LAVELY: Objection to form, THE WITNESS: Again, | mean, any transaction, everything is mixed.
BY MS. TUCKER:
Q = One of the things that the board thought needed to be done to change investor sentiment was to do a joint product demo of the solar roof and the power wall; right? MS. LAVELY: Objection to form.
THE WITNESS: They ended up doing that. [ don't know how it came to be.
BY MS. TUCKER:
Q = Was the board involved in the decision to do a joint product demo?
A [-- sorry. I don't recall that specific.
Qs Why did Lyndon Rive resign from Tesla? A | wasn't part of that. 1 don't -- I don't know the specifics.
Q. Why did Peter Rive resign from Tesla? Page 203 MS. TUCKER: 1 think it would be good to take a quick break.
VIDEOGRAPHER: We're going off the record, The time is 2:18 p.m.
(Break taken.)
VIDEOGRAPHER; Okay. We are back on the record. The time is 2:26 p.m.
MS. TUCKER: All right. | have no further questions, Mr. Buss. And if your counsel has any questions, I'll turn to them.
MS. LAVELY: I just have one.
EXAMINATION
BY M8. LAVELY:
Q Counsel asked you some questions about Tesla's work ramping up the Model X in 2016. Do you recall that?
A Mm-hmm.
Q_ Do you still believe that the SolarCity acquisition was a good business decision for Tesla in 20167 A Yes. Definitely.
Q_ And why do you believe that?
A You know, again, if | looked -- if you look at the entire vision of where we're trying ow Ain Bu ow eS = — ne le ba a
wh hh ae OR e~nAn bh — | 9 “10 ii 114 115
Page 200 to go as a company to sustainable energy, the car -- car is really a down payment, I mean, the whole point of it is to have the car, the solar, the battery. You're actually generating -- if you look at the biggest sources of fossil fuel, it's house generation and it's car -- cars. So if you can eliminate or minimize that, then you've got, one, a very viable business that, okay, you're going to help the planet, but it could be extremely profitable by integrating the two together.
MS. LAVELY: ! have no other questions.
FURTHER EXAMINATION
BY MS. TUCKER:
Q Okay. What's your basis for saying that it will be extremely profitable? A Well, | think anything at scale, you know, you get to a certain point, you're able to drive your costs down, | mean, you saw that the SolarCity where the costs, you know, kept moving down as you get bigger.
I think you could continue that with this. It's the same thing we saw on batteries, Page 205 | you know, buying them externaliy, then doing | them ourselves, then the next generation. And,’ you know, normally each generation gets better and better.
[t's the same with the cars, youknow. | Ramping them is hard. You have a lot of cost. You're not depreciating over a big enough base, So then you get to a certain size, and it becomes very profitable, and you learn from it. Q_ SolarCity has shrunk dramatically since it's become part of Tesla, has it not? MS. LAVELY: Objection to form.
THE WITNESS: I| mean, again, we look at the entire energy business. What's -- | mean, it's solar and it's the batteries and it's growing rapidly. [ don't -- ] couldn't break out the exact piece of it.
BY MS. TUCKER:
Q So you have no idea how SolarCity has done as a separate solar business?
A As we sit right now, | couldn't tell you with certainty, no. [ mean -- Q Okay. So you don't -- so you don't know whether it's -- i MS. LAVELY: Can you let him finish, : 52 (Pages 202 - 205) Veritext Legal Solutions www. veritext.com 516-608-2400
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THE WITNESS: Sorry. I'm done.
BY MS, TUCKER:
Q So you don't know whether it's extremely protitable or not sitting here today? A Not with certainty. I couldn't tell you that specifically.
Qs And is there a particular valuation analysis you're relying on to make that statement?
A To make that statement? No. It's just, you know, gut feel how things work. ] mean, I know we got the business to cash flow breakeven very quickly, and [ know that we were getting the synergies based on updates we would get from the team; but, you know, post that, you know, J don’t know specifically.
MS. TUCKER: Okay. | have no further questions, Page 206 | VIDEOGRAPHER: Okay. We are off the record at 2:29 p.m. This concludes today’s testimony given Mr, Brad Buss.
The total number of media units used was three and will be retained by Veritext Page 207 Legal Solutions.
(Proceedings concluded at 2:29 p.m.)
iff I
“TI
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las i, LYNNE M. LEDANOIS, a Certified Shorthand Reporter of the State of California, do hereby certify:
That the foregoing proceedings were taken before me at the time and place herein set forth; that a record of the proceedings was made by me using machine shorthand which was thereafter transcribed under my direction; that the foregoing transcript is a true record of the testimony given.
Further, that if the foregoing pertains to the original transcript of a deposition in a Federal Case, before completion of the proceedings, review of the transcript [ ] was [X] was not requested.
I further certify | am neither financially interested in the action nor a relative or employee of any attorney or party to this action.
Page 208 :
IN WITNESS WHEREOF, | have this date subscribed my naine.
A bap Pisin ttee,, sia puetieg LYNNE MARIE LEDANOIS CSR No. 681] Page | NAME OF CASE: In re Tesla Stockholder Luigation DATE OF DEFOSITION 6/4/19 Reason codes, NAME OF WITNESS. Brad Buss on I (2
M4 1, To clarify the record To conform to the facts.
3. To correct transcription errors Page Lime Reason.
From ta Page Line Reason From to.
Page Line Reason.
From lo Page Line Reason, From Ww Page sLme__—sReason__ From to.
Page Line Reason From to
Page Line Reason From to,
Signature of Deponent 53 (Pages 206 - 2 Veritext Legal Solutions www.veritext.com 209 09) 516-608-2400
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