REVISED PUBLIC VERSION of Exhibit 19 to Transmittal Affidavit of Benjamin Z. Grossberg in Support of the Director Defendants’ Motion for Summary Judgment Pursuant to Court of Chancery Rule 56
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This is the most up-to-date, least redacted version of Elon Musk's deposition testimony in the Tesla/SolarCity merger case.
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Page 1 EFiled: Apr 03 2020 07:25P
Transaction ID 65558847
Case No. 12711-VCS
Exhibit 19Page 2 o oOo wT Ho OH Ff
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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
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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
4 5 Miles Ledanois, Videographer
Brenan nn nnn mx 6 Lynn Miller, Tesla In-House Counsel
& 77
7 8
a Videotaped deposition of BRAD BUSS, 9
taken of WilmerHale, 950 Poge Mill Road. Palo 10
10 Alto, California, commencing at 9:32 o.m., on 11
11 Tuesday, June 4, 2019 before Lynne Ledancis, 1 2
12 Certified Shorthand Reporter No 6811. 43
a
is IS
\6 16
7 17
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19 19
20 20
n /22
4 2B
24 (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
6 CHRISTINE MACKINTOSH 6
7 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 13
14 Forthe Witness and Director Defendants: 14
15 CRAVATH, SWAINE & MOORELLP 15
16 BY: VANESSA LAVELY (16
17 RYAN SILA 17
18 Attomeys at Law 18
19 825 Eighth Avenue 19
20 New York, New York 10019-7475 20
21 (212) 474-1438 21
vlavely@cravath.com 22
rsila@cravath.com 23
24 M/ 24
25 25 fff
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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
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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 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.
8 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.
12 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?
16 A [think it was early, mid March
of "16.
118 Q Okay. And when did you retire from
19 Cypress?
20 A Juneish, I think, of '14, around
there.
22 Q Okay. And what were your
responsibilities? I think you said you were
24 CFO? Or what was your position at Cypress when :
you left? :
Page 17 ¢
l A I was the CFO the entire tenure there.
2 Q. Okay. And what were your
responsibilities as CFO?
4 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.
8 Q Was Cypress publicly-traded?
9 A Yes. :
‘(10 Q ~ And FP&A, is that financial planning ,
and analysis?
12 A Correct.
13 Q Okay. And what was your role as CFO,
(14 of SolarCity? ,
15 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.
19 Q = What was the capital markets group?
20 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.
25 Q_ And you mentioned this briefly, but
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| how did you hear about the open CFO position at | 1 know, We had input as the controlling
2 SolarCity? ! 2 shareholder. Because our goal is eventually to
4 A Elon had asked me post, you know, when =| 3 do a tax respin of it.
4 | was retiring from Cypress, you know, Are 4 Q Okay.
you -- are you going to work, are you really 5 A Which we ended up doing.
retired? : 6 QQ. And when was that? ;
_ 7 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
9 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
16 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.
19 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.
24 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
2 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
6 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?
13 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?
15 SunPower? Q Sure.
16 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
18 Q. Okay. Were you involved in financial interesting idea, so I've been involved
_ 19 planning for SunPower? everything from, you know, the BottleRock
20 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?
4 Q Do you look at value indications? 4 A_ You know, it was a pretty -- you know,
5 A [look -- 5 I was not looking to work again full-time, but
7 6 MS. LAVELY: Objection. 6 it wasa-- you know, it's a pretty unique
7 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
12 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
14 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,
16 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. |
19 MS. LAVELY: Yes. 19 mean, I've always like solar. | mean, | think
20 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 :
24 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
7 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
4 BY MS, TUCKER: 4 Cypress to begin with because of the solar IPO,
5 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
7 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
10 Q Do you know the size of your :10 you mean by that, market share?
‘IL investment in I? .11 A Market share, yes. |
12 A Oh, it's probably under I. ‘12. Q_ And when you say "dominant," are you
13 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
15 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
17 I didn't — [ don't think [ had any then, no. ‘17 1-1 don't even think the closest competitor
18 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
20 A No. I don't think so, no. 20 fragmented industry.
21 Q So what is the J in shares that 21 =Q = And what was appealing about that to
-22 you mentioned you -- 22 you?
23 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.
25 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.
19 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
2 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,
5 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
8 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
14 _ 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
16 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
20 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, |
22 ~~ at the time. '22 all the financing stuff we did. They started
23 Q And why did you leave SolarCity? 23 reporting into Tanguy effective then.
24 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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And then J would really just come in 1
periodically in January through February until 2
we finalized the 10-K. So [ was really focused 3
on the year-end reporting, the auditors getting 4
the 10-K done. And then, you know, | signed 5
that, and then | was officially finished at the 6
company as an employee. 7
Q Okay. And you may have mentioned that 8
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
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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.
Sos NA b&w he
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24 Q And what does that company do?
25 A They make semiconductors with a focus
: Page 3
on data centers. 4
2 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
8 {ooking for a -- an audit committee chair. g
9 Q And who was that person? 9
10 A The individual? 10
1 Q Yes. 11
12 A Jeff Smith. 12
13 Q Jeff Smith. Okay. 13
14 And how Jong have you been a director 14
of Tesla? 15
16 A '09,[ think. Right before the -- | 116
_ 17 came on about a year before the IPO. 117
18 Q And how did you come to be a director 14g
on the Tesla board? _19
20 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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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
_
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Page 40
with any board.
! 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)
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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.
woe so tn oe tw Ne
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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
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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?
12 MS. LAVELY: Objection to form.
13 THE WITNESS: We -- we collectively
would make a decision and agree on it.
15 BY MS. TUCKER:
16 Q And what criteria did you consider?
17 MS. LAVELY: Don't disclose any
discussions you've had with legal counsel.
19 BY MS. TUCKER:
20 Q = Regardless of whether counsel told you
or not, you considered, presumably, some
criteria in making those determinations; right?
23 MS. LAVELY: I'm instructing the
witness not to answer to the extent it will
disclose discussions with legal counsel.
Page 49
1 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?
10 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.
14 BY MS. TUCKER:
15 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 --
18 MS. LAVELY: Objection to form,
THE WITNESS: No, I mean, it's --
again, it's a whole decision of it.
21 BY MS. TUCKER:
22 Q So you relied on legal counsel in
making that determination?
24 A They were part of the process,
definitely. But] wouldn't say we
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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
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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.
l Q@ Who else was on the disclosures i
control committees with you? . 2
3 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
8 A Correct, yes. : I
9 Q How did you make that decision? _ 49
10 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
16 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
22 A It's a very active board. 22
23 Q Do you know why Mr. Gracias decided (23
24 == not to run for re-election? 24
25 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
5 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
10 Q Did some other directors announce that 110
they were also not running for re-election? | 11
‘12 A Yes. 12
13 QQ And who were they? 13
14 A Linda Rice and Steve Jurvetson. 14
13 Q Do you have an understanding of why 15
16 Linda Rice is not running for re-election? : 16
17 A Idon't, no. I have not talked to her : 7
regarding that. “18
19 Q = She just joined the board recently; 19
correct? 20
21 A Acouple years ago, 21
22 Q Do you have an understanding of why 22
23 Mr. Jurvetson is not running for re-election? 23
24 A Again, same thing. He was on it very 24
early. | mean, way before IPO. His firm was an 25
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?
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
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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.
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Page 64.
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
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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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Page 68 :
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
30 years,
And most normal companies, like at
Cypress, if T sold you a module and [ have all
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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
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separately -- If
A Again -- 12
Q -- accounted far? 113
A -- those weren't official -- 14
MS. LAVELY: Let her finish. 15
THE WITNESS: Qh, I'm sorry. 16
Those weren't official divisions. It 17
was just the way that we would look atthe 18
company, kind of ona, you know, likea = 19
management investor view. : 20
So I fust want to be careful in 21
answering your questions right. | mean, it | 22
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
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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
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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 --
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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
9
10
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.
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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,
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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
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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.
17 Q Are you -- are you familiar with this “VW Q Ultimately as CFO, were you |
document? 18 responsible for the numbers in the budget?
19 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
21 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
25 A No. That would have been Brian and 25 make sure that J felt that we had a shot at
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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 |
19
20
2l
22
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.
ow Ao fb he
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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
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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
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Page 116 i
a home for it.
Q What are solar bonds?
4 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
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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
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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 = 6
solar panel and a module, but then you got all 7
the hardware to hook it on your roof. ' 8
All the software investments and ' 9
technology investments we were doing fo make the 10
company more efficient and quicker, all of those 11
would be part of the install. 12
And, you know, then it was even on 13
panels. Okay. Where are panel pricing going, 14
where can we go, you know, how is Silevo going =, 15
to fit into that, you know. That's very wide 16
and very varying. 17
How many -- you know, how many centers | 18
do you have. How do you manage yourcars? We | 19
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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thing that most peaple looked at and we
I BY MS. TUCKER: I would get judged on. So sometimes you would
2 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
6 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.
12 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?
23 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.
2 In April or May of '16. 2 But things happen. There's a lot of factors
3 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.) |
7 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, 13 Do you have an understanding of what
you know. Hey, we told you this, wedid Y, you = 14 this information provided in this email is?
know, we did a good job type of thing. 15 A I mean, not specifically, but
16 Q Did -- had -- had SolarCity missed 16 generically, again, it would, you know, be --
guidance in the past? 17 what they're doing is kind of the forecast.
18 MS. LAVELY: Objection to form. 18 Like I said, you'd have a budget, and
19 THE WITNESS: Yeah, I believe so. 19 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 —
22 ‘there might have been. 22 Q So this was just part of that process?
23 And again, it depends what you call 23 A So that normal --
guidance. Like megawatts fs kind of the big 24 MS. LAVELY: Objection.
25 THE WITNESS: Yes, to that normal
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process. 1 the re-forecast?
2 BY MS. TUCKER: 2 A Again, it would be part of one of the
3 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
7 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
9 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
12 Q Okay. And then Number 2 says 12 sentence, right?
13. Installations." Is that what we were talking 13 Q Yeah. It says, "The cancel rate being
about before, systems that had been installed? 14 applied is 43.5 percent, up from 40 percent” --
15 A That would be the mega -- yeah, so 15 A Right.
they're saying, Hey, we think we can do, you 16 Q_ -- "from 38 percent up from
know, a million three megawatts. 17 36 percent."
18 Q Okay, And then what's the difference 18 A Yes,
between installations and inspections? 19 Q = One of the things you mentioned before
20 A Sorry, where do you see that? 20 that SolarCity projected was retained value; is
21 Q Inspections is on the next page. 21 = that right? Is that --
22 A On the next one. 22 A Mm-hmm.
23 Okay. So that would basically be, 23 Q And what is that?
like I was saying, you know, we put it on your 24 A I mean, very high level. It's, again,
roof, it's ready to go, and then the utility, 25 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
7 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?
9 A Soit’s really -- it's really timing. 9 A I believe there was some kind of --
10 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
16 So there's always gomg to be a lag. 16 Tesla DIR 0023790 through 91, and there is a
17 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.)
20 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 --
22 §:52 p.m. 22 BY MS. TUCKER:
23 A Mm-hmm, yes. 23 Q We can start with the cover email,
24 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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"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, 14 that would potentially be, you know, costs that
so basically think of all the -- all the lenders 15 we would have to spend down the road,
that we've kind of dealt with or others that 16 Q Where -- where would I find that
would want to deal with us. It was kind of our, 17 document if I were to look for it?
18 Hey, let's bring the management team together 18 MS, LAVELY: Objection to form.
/19 so, you know, you can meet them, company's 19 THE WITNESS: | mean, SolarCity,
20 = complicated, understand the company, understand . 20 someone in the FP&A group would probably
21) where -- you know, what our vision is, where 21 have it. | mean, Aaron, who's mentioned
22 ~we're going. 22 here, did a lot of that work in conjunction
23 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
14 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.
19 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
22 A Well, ] mean, itis a forecast, right? 22 ~~ it was all very detailed in our quarterly press
23 | 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
25 Q How would SolarCity create the 25 and get a feel for it.
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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
]
2
3
4
5
6
7
8
9
10
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13
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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
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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.
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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
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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)
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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
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
clear on that, when you say “both on it,”
I
2
3
4
7 5
6
7
8
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
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
fund to match what's being installed.
19 You know, some of them funded every
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,
a lot of our installs happened, like | said,
very late in the quarter, and very late could be
(14 in the last couple of weeks, So obviously you
don't have - you can't draw the money because
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
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
time. The ITC, you know, et cetera, et cetera,
was a big concern.
10 So it was really just, Okay, let's
‘11 make sure that, you know, we think the thing
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
items could require additional cash"?
‘18 A Mm-hmm.
19 Q_ What Customs item — item were you
referring to?
21 A Tdon't remember the Customs, but the
22 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)
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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 2
current, and then looking at that as projections 3
like we do every year. If we're going to grow 4
at this pace doing these things, you know, 5
here's the funding, and it's, I think, just 6
giving some perspective on what's going on, and 7
if there is a recession or the ITC and it 8
becomes a challenge, then, you know, here's 9
things that we'd have to look at either scaling | 10
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
25
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.
40 (Pages 154 - 157)
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1 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. 4
5 THE WITNESS: Again, I'd have to go 5
look at a chart, and that was three years 6
ago. 7
8 BY MS. TUCKER: 8
9 Q = The first bullet point under -- or the 9
first bullet point, the third subset, says, "New 10
I] buyers are better off purchasing these converts 1]
versus a new issue.” :12
13 A Sorry, is -- 13
14 Q So the first -- _I4
15 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
20 Q It's the third -- 20
(21 A Sorry, yeah, yeah, yeah, | got it. 21
22 Q Why would new buyers be better off 22
23° purchasing existing converts versus anewissue? 23
24 MS. LAVELY: Object to the form. 24
25 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
11 And that 3 and a half'to 5 is way ll
higher than anything we'd ever done. 12
13 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
17 MS. LAVELY: Object to the form. 7
18 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
23 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)
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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.
16 BY MS. TUCKER:
17
(18
19
20
21
22
23
24
25
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.
ON AUER WN
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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.
17 BY MS. TUCKER:
18
19
20
“21
22
23
24
25
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
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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 --
l
2
3
4
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6
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8
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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
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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
2
3
4
5
6
7
8
9
10
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.
18
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
10
(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;
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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: 17
closed, SolarCity had about $3.5 billionin =: 18
debt; correct? 19
A Again, I don't know offthe top of my 20
head. _ 21
Q = Ifitdid, you would have to subtract =| 22
that out from the cash flows to get yournet 23
retained value as you calculated here; right? 24
MS. LAVELY: Object to the form, 25
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)
top of my head, 1 Q = Did you--
2 BY MS. TUCKER: 2 A So they would do the day-to-day
3 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
6 MS. LAVELY: Object to the form. 6 continual business process, all right, what's in
7 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
11 BY MS. TUCKER: 11 communications with any of these --
12 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
16 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?
20 Q Was there a management level 20 BY MS. TUCKER:
committee? 21 Q Ending in 941. The header is
22 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
1 Exhibit 13, a document family beginning with 1 Q Were you involved in the renegotiating
2 TESLA DIR 0030934 and ending in 952, 2 of USB’s investment at this time?
3 (Exhibit 13 was marked.) 3 A No.
4 BY MS. TUCKER: 4 Q = Ifyou could turn to the slide ending
5 Q Have you seen this document before? 5 in 944, the header is "JPM Debt."
6 A Yes. 6 A 944.
7 Q. Were you involved in its preparation? 7 Q Were you involved in the negotiation
8 A No. 8 of this instrument?
9 Q Are you familiar with the information 9 A No.
discussed in the presentation? 10 Q If you could tum to the slide ending
Ik A Imean, the generic format, yes. The 11 in 947, it's "LMC5 Securitization." Were you
specifics here, I would have to go through. 12 involved in the creation of this securitization?
13 Q If we could start at the slide ending 13 A No.
14. in 938, which the header is "Intel 4." Did 14 Q Under -- are you familiar with the
15 Intel ask to renegotiate the terms of one of its 15 term "advance rate"?
financings around this time? 16 A Yes. Conceptually, yes.
17 A I don't -- I mean, I don't know 17 Q What is it?
specifically. I was never involved in the 18 A Sol would look at it as the -- you
day-to-day of each of the funds. 19 know, if the project has, you know, a
20 Q Who was? 20 thousand-dollar value, I'm going to advance
21 A So Rad Small was the senior VP 21 X percent, whatever that percent is. So if it's
overseeing the group. Then he would have a 22 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
46 (Pages 178 - 181)
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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? 18
A No. Notat all. 19
Q But you did receive it? You have no 20
reason to doubt that you received it; right? 21
A Yes. No. Notatall. 22
Q Okay. So you wouldn't have -- iff 23
heard you correctly, you wouldn't have 24
participated in the board meeting where this was =. 25
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?
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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?
4 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
6 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
8 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?
10 Q What was Tesla’s optional plan for 10 MS. LAVELY: Objection to form.
“LL SolarCity? Il THE WITNESS: Again, | don't know
12 A What was their optional? 12. specifically, but it's a lot of head count.
13 Q. Mr. Kimbal Musk referred to an 13 MS. TUCKER: T'll introduce Buss
optional plan, Tesla's optional plan for 14 Exhibit 15, a document beginning with Bates
15 SolarCity. Do you know what it was? 15 Number TESLA DIR 0087767 through 88168, and
16 MS, LAVELY: Objection to form. 16 this was produced as a family of documents.
7 THE WITNESS: I have no idea what that 17 BY MS. TUCKER:
“18 term means or what he's referencing. 18 Q Youcan feel free te review the whole
19 BY M8. TUCKER: 19 thing, but I'm going to --
20 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
23 MS. LAVELY: Objection to form. ; 23° slide 19. And that's —
24 BY MS. TUCKER: 24 A Sorry. Can I get the last three
25 Q Or, excuse me, sales channels. 25 numbers?
Page (87 Page 189 }
4 MS. LAVELY: Same objection. ot Q oO4i.
7 2 THE WITNESS: Sales channels? Yeah, 2 A O41,
7 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 --
9 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
17 BY MS. TUCKER: 17 here -- or, excuse me, five on the left-hand
18 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
20 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
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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
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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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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
oma AO ee
So
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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
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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? 18
A Yes, | was not asked to review it. 19
Q Okay. And you weren't even sure if 20
there was support and validation for some of the 21
comments in this blog post; right? 22
MS. LAVELY: Objection to form. 23
THE WITNESS: No. It was -- [ 24
wasn't -- since I wasn't part of it and I 25
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)
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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
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ow
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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)
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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.)
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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,
2
3
4 NAME OF WITNESS. Brad Buss
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1, To clarify the record
2 To conform to the facts.
3. To correct transcription errors
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DELAWARE RULES OF CIVIL PROCEDURE
Part V. Depositions and Discovery
Title V, Rule 30
(e) Submission to witness; changes; signing. When
the testimony is fully transcribed, the deposition
shall be submitted to the witness for examination
and shall be read to the witness, unless such
examination and reading are waived by the witness
and by the parties. Any changes in form or
substance which the witness desires to make shall
be entered upon the deposition by the officer with
a statement of the reasons given by the witness for
making them, The deposition shall then be signed by
the witness, unless the parties by stipulation
waive the signing or the witness is ill or cannot
be found or refuses to sign. If the deposition is
not signed by the witness within 30 days after the
date when the reporter notifies the witness and
counsel by mail of the availability for examination
by the witness, the officer shall sign it and state
on the record the fact of the waiver or of the
illness or absence of the witness or the fact of
the refusal to sign together with the reason, if
any, given therefor; and the deposition may then bePage 56 10
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used as fully as though signed, unless on a motion
to suppress under Rule 32{(d) the Court holds that
the reasons given for the refusal to sign require
rejection of the deposition in whole or in part.
DISCLAIMER: THE FOREGOING CIVIL PROCEDURE RULES
ARE PROVIDED FOR INFORMATIONAL PURPOSES ONLY.
THE ABOVE RULES ARE CURRENT AS OF APRIL 1,
2019. PLEASE REFER TO THE APPLICABLE STATB RULES
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documents as submitted by the court reporter and/or
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PDF Page 1
PlainSite Cover Page
PDF Page 2
EFiled: Apr 03 2020 07:25P
Transaction ID 65558847
Case No. 12711-VCS
Exhibit 19
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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
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PDF Page 4
Page 2 Page 4
| 1 THE COURT OF CHANCERY OF THE STATE OF DELAWARE ! APPEARANCES
2 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
4 5 Miles Ledanois, Videographer
Brenan nn nnn mx 6 Lynn Miller, Tesla In-House Counsel
& 77
7 8
a Videotaped deposition of BRAD BUSS, 9
9 taken of WilmerHale, 950 Poge Mill Road. Palo 10
10 Alto, California, commencing at 9:32 o.m., on 11
11 Tuesday, June 4, 2019 before Lynne Ledancis, 1 2
12 Certified Shorthand Reporter No 6811. 43
a
is IS
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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
6 CHRISTINE MACKINTOSH 6
7 Attorneys at Law 7
' 8 123 Justison Street g
"9 Wilmington, Delaware [980 9
_ 10 (302) 622-7109 10
‘ll ktucker@gelaw.com 11
12 cmackintosh@gelaw.com 12
13 13
14 Forthe Witness and Director Defendants: 14
15 CRAVATH, SWAINE & MOORELLP 15
16 BY: VANESSA LAVELY (16
17 RYAN SILA 17
18 Attomeys at Law 18
19 825 Eighth Avenue 19
20 New York, New York 10019-7475 20
21 (212) 474-1438 21
22 vlavely@cravath.com 22
23 rsila@cravath.com 23
24 M/ 24
25 25 fff
2 (Pages 2 - 3)
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SODmanKU AWN —
SIRKEON =
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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
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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)
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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
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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.
4 (Pages 10-13)
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Page 18 | Page 20
| how did you hear about the open CFO position at | 1 know, We had input as the controlling
2 SolarCity? ! 2 shareholder. Because our goal is eventually to
4 A Elon had asked me post, you know, when =| 3 do a tax respin of it.
4 | was retiring from Cypress, you know, Are 4 Q Okay.
5 you -- are you going to work, are you really 5 A Which we ended up doing.
6 retired? : 6 QQ. And when was that? ;
_ 7 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
9 And he's like, Hey, there's an 9 public.
10 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
12 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?
14 you know, we took that public very quickly and —: ‘14 A Well, he had wanted to make a change
15 it was extremely successful, : 15 inthe CFO. They had had a couple of accounting
16 So we were really the first public '16 issues related to the rapid growth. [ mean,
17 solar company of any sorts at the time. And it '17 nothing substantial, but they had a couple of
18 had done very well, you know. [18 material weaknesses.
19 So based on that, you know, as solar -19 So | think the company was just
20 started growing, you know, and I had been i 20 looking to do a change to get somebody that
21 involved in that, you know, | was contacted for ; 21 was -- 1! would say more well-rounded in running
22 a variety jobs in solar, and still do because of ‘22 a company and growth than maybe the prior CFO
23 the experience that | had there. 123° was.
24 Then also being a CFO for the years :24 Q And who was the prior CFO?
25 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
2 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?
4 early on when | started because [ literally was A Mm-hmm.
5 working on the S-I the day | started. Q_ What types of companies are you
6 Q And was then SunPower a separate investing in?
7 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
9 publicly-traded company, but we owned know, private companies --
[0 80-something percent of it, and we had a Q. Do you--
11 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?
13 Q So in that capacity, were you involved A Not really. It's really — in the
14 on, a day-to-day basis, of the management of private companies?
15 SunPower? Q Sure.
16 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
18 Q. Okay. Were you involved in financial interesting idea, so I've been involved
_ 19 planning for SunPower? everything from, you know, the BottleRock
20 A No, [ would look at it more like concert in Napa, me and a buddy funded, all the
21 you're kind of like a board member that’s a way to educational software,
22 little more involved. So major decisions, since Q = And are there any other criteria that
23 we were the controlling shareholder, we would be | 23 you use to determine whether you would make an
24 involved. You know, | would attend the board 24 investment?
25 meetings, you know. So major decisions, you 25 MS. LAVELY: Objection to form.
6 (Pages 18-21)
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Page 22 Page 24 :
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?
4 Q Do you look at value indications? 4 A_ You know, it was a pretty -- you know,
5 A [look -- 5 I was not looking to work again full-time, but
7 6 MS. LAVELY: Objection. 6 it wasa-- you know, it's a pretty unique
7 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
12 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
14 Q_ And how do you determine what public 14 the full-time commitment. My kids would be
15 companies you invest in? 15 leaving for school soon, and, you know,
16 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?
18 still answer? 18 A Well, it's just the entire space. |
19 MS. LAVELY: Yes. 19 mean, I've always like solar. | mean, | think
20 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
22 sector, like I like semiconductors because [ :22 and commercial by far.
23 spent a jot of time in that area, obviously. | 23 So it was kind of exiting to see :
24 And I -- you know, growth, sometimes I | 24 somebody that was very dominant in the space and
25 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
7 2 full-time, you know; I use dividends and 2 averall -- ['m a big believer in sustainability.
3 interest income a lot. 3 You know, that was part of the reason I went to
4 BY MS, TUCKER: 4 Cypress to begin with because of the solar IPO,
5 Q_ Do you -- do you currently invest in § and one of the reasons [ ended up joining the
6 any companies in the solar industry? 6 Tesla board was because of the long-term vision
7 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
10 Q Do you know the size of your :10 you mean by that, market share?
‘IL investment in I? .11 A Market share, yes. |
12 A Oh, it's probably under I. ‘12. Q_ And when you say "dominant," are you
13 Q_ And do you know the size of your | 13 also referring to market share?
14 investment in in 2016? ‘14 A Yes, that's -- yeah, meaning, you
15 A Well, we had -- I think we had spun =| 15 know, they -- I think during my time there it
16 all the shares off. So technically I didn't- ‘16 was between 30 and 35 percent market share. And
17 I didn't — [ don't think [ had any then, no. ‘17 1-1 don't even think the closest competitor
18 Q Sosubsequent to 2016, did youbuy #18 was close to 10. We were bigger than really the
19 shares in A? ‘19 next 30 guys put together. It was a pretty
20 A No. I don't think so, no. 20 fragmented industry.
21 Q So what is the J in shares that 21 =Q = And what was appealing about that to
-22 you mentioned you -- 22 you?
23 A I probably owned it from before when 1.23. A Just this ~
24 bought it prior to '16 or... “24 MS. LAVELY: Object to form.
25 Q So you've owned that continuously? = 25 THE WITNESS: Like | said earlier, |
7 (Pages 22 - 25)
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And then J would really just come in 1
periodically in January through February until 2
we finalized the 10-K. So [ was really focused 3
on the year-end reporting, the auditors getting 4
the 10-K done. And then, you know, | signed 5
that, and then | was officially finished at the 6
company as an employee. 7
Q Okay. And you may have mentioned that 8
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
1 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
9 (Pages 30 - 33)
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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.
Sos NA b&w he
212-267-6868
24 Q And what does that company do?
25 A They make semiconductors with a focus
: Page 3
1 on data centers. 4
2 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
5 onthe board. | had had some conversation with 5
6 them ona couple of different opportunities, and 6
7 then he asked if | was interested. They were 7
8 {ooking for a -- an audit committee chair. g
9 Q And who was that person? 9
10 A The individual? 10
1 Q Yes. 11
12 A Jeff Smith. 12
13 Q Jeff Smith. Okay. 13
14 And how Jong have you been a director 14
15 of Tesla? 15
16 A '09,[ think. Right before the -- | 116
_ 17 came on about a year before the IPO. 117
18 Q And how did you come to be a director 14g
19 on the Tesla board? _19
20 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
24 potentially going public, and t -- you know, 24
25 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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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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Page 40
with any board.
! 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)
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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.
woe so tn oe tw Ne
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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
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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?
12 MS. LAVELY: Objection to form.
13 THE WITNESS: We -- we collectively
14 would make a decision and agree on it.
15 BY MS. TUCKER:
16 Q And what criteria did you consider?
17 MS. LAVELY: Don't disclose any
18 discussions you've had with legal counsel.
19 BY MS. TUCKER:
20 Q = Regardless of whether counsel told you
21 or not, you considered, presumably, some
22 criteria in making those determinations; right?
23 MS. LAVELY: I'm instructing the
24 witness not to answer to the extent it will
25 disclose discussions with legal counsel.
Page 49
1 A Yeah, it would be hard not fo violate,
. 2. I mean, because again, there's a lot of
3 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
9 others?
10 MS. LAVELY: Objection to form.
ll THE WITNESS: It's a collective
12 decision. 1 mean, there's a lot of factors
13 that go into it.
14 BY MS. TUCKER:
15 Q You can't -- sitting here today, there
16 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 --
18 MS. LAVELY: Objection to form,
THE WITNESS: No, I mean, it's --
20 again, it's a whole decision of it.
21 BY MS. TUCKER:
22 Q So you relied on legal counsel in
23 making that determination?
24 A They were part of the process,
25 definitely. But] wouldn't say we
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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
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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.
25 BY MS. TUCKER:
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Page 54 *
l Q@ Who else was on the disclosures i
2 control committees with you? . 2
3 A Antonio and James Murdoch, Antonio : 3
' 4 Gracias and James Murdoch. : |
: 3 Q You recently announced that you're not i
6 running for re-election on the Tesla board; if
7 correct? i
8 A Correct, yes. : I
9 Q How did you make that decision? _ 49
10 A I mean, it's almost ten years, so t 10
11 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
16 You know, Robyn, i'm financial, Robyn 16
17 is very financial. So she's very capable. So , 17
°18 to me, it was a good time to be done and moveon = =-:18
19 to, you know, a different board potentially or 19
20 just take some time. 20
2) Q Do you know — 21
22 A It's a very active board. 22
23 Q Do you know why Mr. Gracias decided (23
24 == not to run for re-election? 24
25 A 1 --T think it’s a similar -- | mean, 25
Page 55
| he's been on it longer than [ have. So | think !
2 it's a similar fime of just, you know, it's a 2
3 very active board; he's very busy as well. And 3
4 it's just -- it's been a long time. 4
5 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
10 Q Did some other directors announce that 110
11 they were also not running for re-election? | 11
‘12 A Yes. 12
13 QQ And who were they? 13
14 A Linda Rice and Steve Jurvetson. 14
13 Q Do you have an understanding of why 15
16 Linda Rice is not running for re-election? : 16
17 A Idon't, no. I have not talked to her : 7
18 regarding that. “18
19 Q = She just joined the board recently; 19
20 correct? 20
21 A Acouple years ago, 21
22 Q Do you have an understanding of why 22
23 Mr. Jurvetson is not running for re-election? 23
24 A Again, same thing. He was on it very 24
25 early. | mean, way before IPO. His firm was an 25
Page 56
original investor. So rotating off again from a
tenure perspective.
Q Okay,
ee
ee
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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
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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.
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Page 64.
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.
1 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
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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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Page 68 :
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
30 years,
And most normal companies, like at
Cypress, if T sold you a module and [ have all
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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 -- 14
MS. LAVELY: Let her finish. 15
THE WITNESS: Qh, I'm sorry. 16
Those weren't official divisions. It 17
was just the way that we would look atthe 18
company, kind of ona, you know, likea = 19
management investor view. : 20
So I fust want to be careful in 21
answering your questions right. | mean, it | 22
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
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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,
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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
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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
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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
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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
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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?
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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 12
supply chain. It's -- it's a pretty 13
rigorous process they would go through 14
and -- it's no different than forecasting 15
any other kind of revenue that we all go i 16
through as a company. 17
BY MS. TUCKER: 18
Q Did SolarCity's financial planning 19
include cash projections? 20
A Oh, we spent a lot of time on -- | 21
mean, if you call it -- I'm not sure what you're 22
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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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 --
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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 :
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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.
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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,
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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 |
19
20
2l
22
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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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
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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
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Page 116 i
a home for it.
Q What are solar bonds?
4 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
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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
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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 = 6
solar panel and a module, but then you got all 7
the hardware to hook it on your roof. ' 8
All the software investments and ' 9
technology investments we were doing fo make the 10
company more efficient and quicker, all of those 11
would be part of the install. 12
And, you know, then it was even on 13
panels. Okay. Where are panel pricing going, 14
where can we go, you know, how is Silevo going =, 15
to fit into that, you know. That's very wide 16
and very varying. 17
How many -- you know, how many centers | 18
do you have. How do you manage yourcars? We | 19
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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thing that most peaple looked at and we
I BY MS. TUCKER: I would get judged on. So sometimes you would
2 Q Okay. Starting at the second sentence 2 be off a little.
3 of your email at 8:38 p.m., you say, "We need to 3 And some of it was just timing, you
4 be very mindful of guidance for 2016. Investors 4 know, a big commercial project was supposed
5 want to know we are listening to the markets. 5 to get done but it slipped four days, you
6 Being conservative will pay off, and we have 6 know.
7 good opportunity to give conservative guidance 7 No different than Tesla. We think
8 for 2016, get rewarded for it and have a strong "8 we're going to do X amount of cars, but some
9 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.
12 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?
15 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
19 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?
23 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.
25 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.
2 In April or May of '16. 2 But things happen. There's a lot of factors
3 And then you had, you know, the 3 that go into it.
4 investment tax credit stuff. So there was just 4 MS. TUCKER: I'll introduce as Buss 7
5 alot going on. So, wow, a lot of macro things 5 Tesla 00003515 through 17.
6 going on, okay. 6 (Exhibit 7 was marked.) |
7 Even if we feel good, we need to be 7 THE WITNESS: Okay.
8 careful because, you know, investors tend to get & BY MS. TUCKER: |
9 conservative. They don't want to invest ina 9 Q I'l turn your attention to an email
10 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 ,
12 always liking to be conservative, because I ‘12 you.
13. would rather be conservative and then beat it, 13 Do you have an understanding of what
14 you know. Hey, we told you this, wedid Y, you = 14 this information provided in this email is?
15 know, we did a good job type of thing. 15 A I mean, not specifically, but
16 Q Did -- had -- had SolarCity missed 16 generically, again, it would, you know, be --
17 guidance in the past? 17 what they're doing is kind of the forecast.
18 MS. LAVELY: Objection to form. 18 Like I said, you'd have a budget, and
19 THE WITNESS: Yeah, I believe so. 19 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 —
22 ‘there might have been. 22 Q So this was just part of that process?
23 And again, it depends what you call 23 A So that normal --
24 guidance. Like megawatts fs kind of the big 24 MS. LAVELY: Objection.
25 THE WITNESS: Yes, to that normal
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1 process. 1 the re-forecast?
2 BY MS. TUCKER: 2 A Again, it would be part of one of the
3 Q What are bookings? What does bookings 3 things that the team would look at. Okay.
4 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.
6 signed up with us. So that's kind of a booking. 6 It's one of the main things you would get to
7 And then we have to convert it into a signed 7 look at to your install number.
8 agreement to go ahead with the install. 8 Q Was the cancel rate increasing at this
9 And that's where that cancellation 9 time at SolarCity?
10 rate is, you know, book, and then it's X number 10 A Yeah, I don't remember specifically,
11 ofpeople, for whatever reason, don't install. 11 butI mean, it kind of says in that first
12 Q Okay. And then Number 2 says 12 sentence, right?
13. Installations." Is that what we were talking 13 Q Yeah. It says, "The cancel rate being
14 about before, systems that had been installed? 14 applied is 43.5 percent, up from 40 percent” --
15 A That would be the mega -- yeah, so 15 A Right.
16 they're saying, Hey, we think we can do, you 16 Q_ -- "from 38 percent up from
17 know, a million three megawatts. 17 36 percent."
18 Q Okay, And then what's the difference 18 A Yes,
19 between installations and inspections? 19 Q = One of the things you mentioned before
20 A Sorry, where do you see that? 20 that SolarCity projected was retained value; is
21 Q Inspections is on the next page. 21 = that right? Is that --
22 A On the next one. 22 A Mm-hmm.
23 Okay. So that would basically be, 23 Q And what is that?
24 like I was saying, you know, we put it on your 24 A I mean, very high level. It's, again,
25 roof, it's ready to go, and then the utility, 25 those future payments, you know, that would come
Page 131 Page 133
1 you know, has to kind of inspect it or the City 1 over that portion of time. So it's just the
2 might need to check a permit, and then they go 2 accumulation of the various different contracts
3 through whatever they do to say, Fine, you can 3 and the value that we would expect that to
4 start -- you can turn it on, so to speak, and 4 deliver, you know, over the lease term or the
5 start producing electricity and putting it into 5 PPA term or whatever.
6 the grid. 6 Q Did you assume that the full
7 Q = Why would the number for inspections 7 contractual amount would be paid in making those
8 be lower than the number for installations? 8 projections?
9 A Soit’s really -- it's really timing. 9 A I believe there was some kind of --
10 So we're -- every day you've got thousands of 10 but I -- I don't remember specifically, but I
11 people installing, so at the end of the month, 11 think we had some kind of small default thing
12 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.
14 off and do their inspection to give me the green 14 Q Okay. Let me introduce as Buss
15 light. 15 Exhibit 8 a document family with Bates Numbers
16 So there's always gomg to be a lag. 16 Tesla DIR 0023790 through 91, and there is a
17 You're never going to be -- we're always 17 native document that was attached and produced
18 fighting to try to get it same day, it would be 18 innative format.
19 awesome, but that never happens. 19 (Exhibit 8 was marked.)
20 Q = On the first page of that document 20 THE WITNESS: Do you want me to look
21 there's an email from Mr, Setra on May 8th at 21 through the whole presentation or --
22 §:52 p.m. 22 BY MS. TUCKER:
23 A Mm-hmm, yes. 23 Q We can start with the cover email,
24 Q = Itrefers to the cancel rate. Do you 24 which appears to be from Sam Barton to you and
25 have an understanding of how that factors into 25 copies some other people with a subject
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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 —
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so
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S
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12 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
14 holding, you know, what we call the partner day, 14 that would potentially be, you know, costs that
15 so basically think of all the -- all the lenders 15 we would have to spend down the road,
16 that we've kind of dealt with or others that 16 Q Where -- where would I find that
17 would want to deal with us. It was kind of our, 17 document if I were to look for it?
18 Hey, let's bring the management team together 18 MS, LAVELY: Objection to form.
/19 so, you know, you can meet them, company's 19 THE WITNESS: | mean, SolarCity,
20 = complicated, understand the company, understand . 20 someone in the FP&A group would probably
21) where -- you know, what our vision is, where 21 have it. | mean, Aaron, who's mentioned
22 ~we're going. 22 here, did a lot of that work in conjunction
23 So it was very well received, very -23 with the FP&A guys to do that.
24 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?
2 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
7 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?
11 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
14 A I think vaguely it was the initial 14 percent we'll go away. You know, you might have
15 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.
19 Q Do you have an understanding of what 19 And then like | said, | believe we
20 he meant by "since it's ultimately just a 20 implied, you know, kind of a maintenance, you
21 forecast"? 21 know, type of assumption that's in there. But
22 A Well, ] mean, itis a forecast, right? 22 ~~ it was all very detailed in our quarterly press
23 | 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
25 Q How would SolarCity create the 25 and get a feel for it.
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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
]
2
3
4
5
6
7
8
9
10
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13
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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
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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.
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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
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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)
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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
2
3
4
7 5
6
7
8
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.
19 Q_ What Customs item — item were you
20 referring to?
21 A Tdon't remember the Customs, but the
22 Department of Treasury is just kind of that
23 challenge over the value of the credits that
24 were being claimed. So that was an open legal
25 case,
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|
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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 2
current, and then looking at that as projections 3
like we do every year. If we're going to grow 4
at this pace doing these things, you know, 5
here's the funding, and it's, I think, just 6
giving some perspective on what's going on, and 7
if there is a recession or the ITC and it 8
becomes a challenge, then, you know, here's 9
things that we'd have to look at either scaling | 10
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
25
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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Page 158 :
1 Q When it was announced that the ITC |
2 credits would be extended, at the end of 2015, 2
3 did SolarCity's stock price recover? 3
/ 4 MS. LAVELY: Object to the form. 4
5 THE WITNESS: Again, I'd have to go 5
6 look at a chart, and that was three years 6
7 ago. 7
8 BY MS. TUCKER: 8
9 Q = The first bullet point under -- or the 9
10 first bullet point, the third subset, says, "New 10
I] buyers are better off purchasing these converts 1]
12 versus a new issue.” :12
13 A Sorry, is -- 13
14 Q So the first -- _I4
15 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
18 bullet point under the first -- /18
‘19 A Oh, gotit. ‘19
20 Q It's the third -- 20
(21 A Sorry, yeah, yeah, yeah, | got it. 21
22 Q Why would new buyers be better off 22
23° purchasing existing converts versus anewissue? 23
24 MS. LAVELY: Object to the form. 24
25 THE WITNESS: Soif you look above it, 25
: Page 159
I it's kind of tike, Oh, wow, you know, ]
2 because the price where the stock is, it's 2
3 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
7 you might be able to sell it at 3 and a half 7
8 or 5 percent, so it's like, Well, why do I 8
9 want to buy your new one when canbuy the | 9
10 existing one and get a better yield. ‘10
11 And that 3 and a half'to 5 is way ll
12 higher than anything we'd ever done. 12
13 BY MS. TUCKER: 13
i4 Q = What would happen if SolarCity's stock 14
15 price wasn't trading at the strike price of the 15
16 converts when they were due to be settled? 16
17 MS. LAVELY: Object to the form. 7
18 THE WITNESS: I mean, depending onthe [18
19 specifics of the convert, [ mean, it could 19
20 get settled in cash, you know, or you would 20
21 just convert into the stock. | -- | don't -2t
22 recall which -- which is which but... 22
23 BY MS. TUCKER: 23
(24 Q Thesecond first-level bullet point 24
25 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 |
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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.
16 BY MS. TUCKER:
17
(18
19
20
21
22
23
24
25
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.
17 BY MS. TUCKER:
18
19
20
“21
22
23
24
25
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
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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 --
l
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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
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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
2
3
4
5
6
7
8
9
10
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.
18
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
10
(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;
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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: 17
closed, SolarCity had about $3.5 billionin =: 18
debt; correct? 19
A Again, I don't know offthe top of my 20
head. _ 21
Q = Ifitdid, you would have to subtract =| 22
that out from the cash flows to get yournet 23
retained value as you calculated here; right? 24
MS. LAVELY: Object to the form, 25
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
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1 top of my head, 1 Q = Did you--
2 BY MS. TUCKER: 2 A So they would do the day-to-day
3 Q = When you're looking at the value of 3 discussions, negotiations, with legal. And then
4 the company using this calculation, you have to 4 the purpose of this meeting is just -- it's kind
5 subtract out liabilities; right? 5 ofjusta status. We would just go through as a
6 MS. LAVELY: Object to the form. 6 continual business process, all right, what's in
7 THE WITNESS: Again, this isn't meant 7 play? What's going on? You know, how is it
8 to look at the value. It's meant to try to 8 looking? When is it closing? What are the
9 quantify the long-term cash flow related to 9 terms like? You know, et cetera, et cetera.
10 those leases and loans. 10 Q But you weren't involved with
11 BY MS. TUCKER: 11 communications with any of these --
12 Q Okay. What is the investment 12 A No.
13 committee at SolarCity? 13 Q_ -- investors?
14. A Investment committee? I don't know if 14 A No, no. Never.
15 we had a formal investment committee per se that | 15 Q And if you'll turn to the page ending
16 Icanrecall. | mean, we have different groups 16 in 941,
17 that would look at, you know, different 17 THE WITNESS: Can we kill that
18 projects; but, like, there wasn't a board-level 18 notification thing, please?
19 investment committee that 1 am aware of. 19 Sorry. Where?
20 Q Was there a management level 20 BY MS. TUCKER:
21 committee? 21 Q Ending in 941. The header is
22 A Notthat ] — I mean, not that I can 22 “USB 11." What is USB?
23 recall. There could be. We would look at many =| 23 A I mean, it's obviously a name for one
24 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
1 Exhibit 13, a document family beginning with 1 Q Were you involved in the renegotiating
2 TESLA DIR 0030934 and ending in 952, 2 of USB’s investment at this time?
3 (Exhibit 13 was marked.) 3 A No.
4 BY MS. TUCKER: 4 Q = Ifyou could turn to the slide ending
5 Q Have you seen this document before? 5 in 944, the header is "JPM Debt."
6 A Yes. 6 A 944.
7 Q. Were you involved in its preparation? 7 Q Were you involved in the negotiation
8 A No. 8 of this instrument?
9 Q Are you familiar with the information 9 A No.
10 discussed in the presentation? 10 Q If you could tum to the slide ending
Ik A Imean, the generic format, yes. The 11 in 947, it's "LMC5 Securitization." Were you
12 specifics here, I would have to go through. 12 involved in the creation of this securitization?
13 Q If we could start at the slide ending 13 A No.
14. in 938, which the header is "Intel 4." Did 14 Q Under -- are you familiar with the
15 Intel ask to renegotiate the terms of one of its 15 term "advance rate"?
16 financings around this time? 16 A Yes. Conceptually, yes.
17 A I don't -- I mean, I don't know 17 Q What is it?
18 specifically. I was never involved in the 18 A Sol would look at it as the -- you
19 day-to-day of each of the funds. 19 know, if the project has, you know, a
20 Q Who was? 20 thousand-dollar value, I'm going to advance
21 A So Rad Small was the senior VP 21 X percent, whatever that percent is. So if it's
22 overseeing the group. Then he would have a 22 68 or 70, I'll give you that much value in -- in
23 bunch of different managers that owned different |23 funding.
24 deals. So this one, I don't think it has a name 24 Q So that's how much cash?
25 onit. I mean, it could be a variety of people. 25 A Correct. Pretty -- every one of these
46 (Pages 178 - 181)
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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
1 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? 18
A No. Notat all. 19
Q But you did receive it? You have no 20
reason to doubt that you received it; right? 21
A Yes. No. Notatall. 22
Q Okay. So you wouldn't have -- iff 23
heard you correctly, you wouldn't have 24
participated in the board meeting where this was =. 25
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?
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l A Yeah. We were looking at ali the I Q And Tesla did shut down door-to-door
2 pieces kind of like, you know, no different than 2. sales shortly after the merger within a couple
3 how we looked at it and showed it externally, 3. of months?
4 DevCo, PowerCo, what are the costs? You know, . 4 A I'mpretty sure, yeah. ] mean, the
5 what are the optionalities? § whale thing was virtually gone. It was very
6 The same thing with manufacturing. | 6 castly.
7 mean, do we keep this? Do we do it in-house? 7 Q Door-to-door sales actually had one of
8 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?
10 Q What was Tesla’s optional plan for 10 MS. LAVELY: Objection to form.
“LL SolarCity? Il THE WITNESS: Again, | don't know
12 A What was their optional? 12. specifically, but it's a lot of head count.
13 Q. Mr. Kimbal Musk referred to an 13 MS. TUCKER: T'll introduce Buss
14 optional plan, Tesla's optional plan for 14 Exhibit 15, a document beginning with Bates
15 SolarCity. Do you know what it was? 15 Number TESLA DIR 0087767 through 88168, and
16 MS, LAVELY: Objection to form. 16 this was produced as a family of documents.
7 THE WITNESS: I have no idea what that 17 BY MS. TUCKER:
“18 term means or what he's referencing. 18 Q Youcan feel free te review the whole
19 BY M8. TUCKER: 19 thing, but I'm going to --
20 Q Okay. Prior to the acquisition 20, A What's for dinner?
21 closing, Tesla considered shutting down certain 21 Q_ -- tum your attention to a document.
22 revenue - certain distribution channels; right? '22 The Bates number is TESLA DIR 0088041, and it's
23 MS. LAVELY: Objection to form. ; 23° slide 19. And that's —
24 BY MS. TUCKER: 24 A Sorry. Can I get the last three
25 Q Or, excuse me, sales channels. 25 numbers?
Page (87 Page 189 }
4 MS. LAVELY: Same objection. ot Q oO4i.
7 2 THE WITNESS: Sales channels? Yeah, 2 A O41,
7 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
3 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 --
9 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.
12 and marketing are a big cost. We have, you 12 Q But youcan feel free to look at it.
12 know, hundreds of thousands of customers and (13. Its O17. But the title of this slide is
14 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.
16 looked at. 16 Qs Okay. There are four line items
17 BY MS. TUCKER: 17 here -- or, excuse me, five on the left-hand
18 Qs Specifically you looked at shutting 18 side, The second one is "Ongoing Expenses.”
19 down door-to-door sales; right? 19 Do you have an understanding of what
20 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,
22 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
25 eventually Home Depot. -25 company, would it have ongoing expenses that
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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
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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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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
oma AO ee
So
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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)
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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? 18
A Yes, | was not asked to review it. 19
Q Okay. And you weren't even sure if 20
there was support and validation for some of the 21
comments in this blog post; right? 22
MS. LAVELY: Objection to form. 23
THE WITNESS: No. It was -- [ 24
wasn't -- since I wasn't part of it and I 25
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
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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
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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, :
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Counsel?
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
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(Proceedings concluded at
2:29 p.m.)
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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,
2
3
4 NAME OF WITNESS. Brad Buss
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1, To clarify the record
2 To conform to the facts.
3. To correct transcription errors
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Signature of Deponent
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DELAWARE RULES OF CIVIL PROCEDURE
Part V. Depositions and Discovery
Title V, Rule 30
(e) Submission to witness; changes; signing. When
the testimony is fully transcribed, the deposition
shall be submitted to the witness for examination
and shall be read to the witness, unless such
examination and reading are waived by the witness
and by the parties. Any changes in form or
substance which the witness desires to make shall
be entered upon the deposition by the officer with
a statement of the reasons given by the witness for
making them, The deposition shall then be signed by
the witness, unless the parties by stipulation
waive the signing or the witness is ill or cannot
be found or refuses to sign. If the deposition is
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date when the reporter notifies the witness and
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by the witness, the officer shall sign it and state
on the record the fact of the waiver or of the
illness or absence of the witness or the fact of
the refusal to sign together with the reason, if
any, given therefor; and the deposition may then be
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used as fully as though signed, unless on a motion
to suppress under Rule 32{(d) the Court holds that
the reasons given for the refusal to sign require
rejection of the deposition in whole or in part.
DISCLAIMER: THE FOREGOING CIVIL PROCEDURE RULES
ARE PROVIDED FOR INFORMATIONAL PURPOSES ONLY.
THE ABOVE RULES ARE CURRENT AS OF APRIL 1,
2019. PLEASE REFER TO THE APPLICABLE STATB RULES
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