Tesla 2011 Annual Report Download - page 20

Table of Contents
The EIP Agreement provides that ending June 29, 2013, if the company receives an offer from a strategic competitor of Daimler to enter
into an agreement for development of a non-Tesla branded vehicle or an integrated electric powertrain system, DNAC would be given the right
of first refusal to enter into such agreement with the company instead of, and on the same terms offered by, the third party.
The EIP Agreement also provides that if we execute a strategic cooperation agreement with DNAC to jointly engineer an electric vehicle,
then additional exclusivities would apply until June 29, 2013, provided a minimum annual volume of sales is achieved. The EIP Agreement
provides that none of the restrictions set out in that agreement, or in any strategic agreement, would limit us from developing technology with
any third party for use in a Tesla-branded product or service or related to the Tesla Roadster or Model S, engaging in any transaction with a
company that is not a Daimler competitor, or supplying components for electric powertrains that are designed by third parties.
The EIP Agreement also provides that if the parties enter into the strategic agreements or further agreements, those agreements will
allocate intellectual property rights according to certain principles outlined in the EIP Agreement. In addition, until June 29, 2013, before
licensing intellectual property generated outside the scope of any strategic cooperation area to a Daimler competitor, we would first have to offer
DNAC the right to license the intellectual property on a non-exclusive, royalty-bearing basis, or on an exclusive basis in the automotive field;
and if DNAC requests the latter, we must negotiate such a license in good faith. If no agreement is reached, however, we would be free to license
the technology to the Daimler competitor, and DNAC could take a non-exclusive license. Both we and Daimler have the right to terminate the
EIP Agreement in the event the other party undergoes, or executes an agreement to undergo, a change of control. Any strategic cooperation
agreements entered into between us and Daimler prior to termination will not be affected by such termination.
To date, with the exception of the development agreement for the Smart fortwo electric drive and the agreement for the development and
production of a battery pack and charger for a pilot fleet of Daimler’s A-Class electric vehicles to be introduced in Europe in 2011, the strategic
agreements described in the EIP Agreement have not been entered into, and there can be no assurance that the parties will ever enter into such
agreements. Even if we were to enter into such agreements, the parties may negotiate and agree to terms that are different to those set forth in the
EIP Agreement and outlined above. Such different or new terms may be more or less favorable to us.
In addition to these agreements, Blackstar lnvestco LLC (Blackstar), an affiliate of Daimler, beneficially owned 7,475,740 shares of our
common stock as of December 31, 2010. Blackstar’s representative, Dr. Herbert Kohler, serves as a member of our Board of Directors.
Toyota Motor Corporation
In May 2010, we and Toyota announced our intention to cooperate on the development of electric vehicles, and for us to receive Toyota’s
support with sourcing parts and production and engineering expertise for the Model S. In July 2010, we entered into an early phase agreement to
develop an electric powertrain for the Toyota RAV4. With an aim by Toyota to market the electric vehicle in the United States in 2012,
prototypes would be made by combining the Toyota RAV4 model with a Tesla electric powertrain. We began developing and delivering
prototypes to Toyota for evaluation in September 2010. Pursuant to the agreement, Toyota will pay us up to $9 million for the anticipated
development services to be provided by us over the expected term of our performance.
In connection with the Toyota RAV4 program, in October 2010, we entered into a Phase 1 contract services agreement with Toyota for the
development of a validated powertrain system, including a battery, power electronics module, motor, gearbox and associated software, which
will be integrated into an electric vehicle version of the Toyota RAV4. Pursuant to the agreement, Toyota will pay us up to $60 million for the
anticipated
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