When the 2022 10-K was released u/Reddsled highlighted a few things from his read. One that seemed to be mostly overlooked, that I thought was significant, was:

“The commercialization timeline originally contemplated in 2018 by the joint venture agreements, and by subsequent amendments, has changed, and as of the time of our filing of this annual report on Form 10-K, certain milestones contemplated by the joint venture agreements were not met. As a result, Volkswagen now has the right to exercise its put rights.”

I am going to briefly explain what this means and if necessary, explain why it's important.

There are two types of option contracts, a CALL option and an PUT option.

I have discussed two types of options issued before, publicly traded options and employee award options.

Publicly traded options trade relative to an expiration date and a target price of (usually) 100 shares of the underlying stock. Both call and put options are traded.

Employee award options are part of an employee's compensation package and once granted will vest, or become owned by the employee, over a period of time, often something like 25% per year for 4 years after the grant. They will typically have an expiration date of close to ten years and are meant to provide employees with an incentive to remain with the employer for the long term. These are only call options.

Definitions:

• Owner: Owning an option gives the owner the right but NOT the obligation to exercise the terms of the option. With stock the terms are usually for 100 shares, or 1 share in the case of employee awards.

• Seller/issuer: The issuer or seller of an option is obligated to comply with the terms of the option contract if the option owner chooses to exercise the right the option gives them.

• Call Option: The contract is an agreement for the holder/owner to buy something.

• Put Option: The contract is an agreement for the holder/owner to sell something.

Call example:

You notice that I have an 1969 Ford Mustang in my garage. You think that it would be a great investment piece and would like to buy it from me. I'm not quite ready to part with it because, even though I don't drive it anymore, this was the car I went on my first date in and prom and..., well..., I have a lot of nostalgia tied up in it. But at the same time, I have some medical expenses that have come up all of a sudden and I am in need of some cash.

Knowing you want to buy the car I begrudgingly offer to sell it to you. We agree that the value of the car is $25,000, but you don't have that in the time that I need the money, all you have is $10,000.

We come to a mutually beneficial agreement where you give me the $10,000 you have now, in exchange for my commitment to sell you the car in ten years, or upon my death, for $20,000 more.

This is a call option contract. I am obligated to sell you my '69 Mustang for $20,000 when the time comes, if you choose exercise the option.

You do this because you think in 10 years the car will be worth $50,000 or more and you have 10 years to save up the additional $20,000. I do this because I need the money now and I will still be able to enjoy all the benefits of having it in my garage for the next 10 years.

Why would you NOT exercise the option? If I unexpectedly die in the next 12 months and you didn't have enough time to save the $20,000. If, in 10 years, the cost of 7 year old triplets does not allow for you to pull together the $20,000 needed. A flood has damaged the vehicle beyond any reasonable value.

Put example:

You and I are BFFs and for years we have talked about the '69 Mustang that old lady Stark has in her garage and how she's just going to let it rust away. A couple seasons before Winter, old lady Stark unexpectedly dies at a wedding and knowing her son Bran is going to be traveling north for schooling and a new job, I convince you to buy it from him with me for $5,000 each. We plan to fix it up, splitting the costs, and then sell it and split the gains.

But even though you've agreed to this now, you just started dating this girl Shae and you want an opt out clause in the agreement so that if for any reason you need to back out, that I will buy you out for the original $5,000 you invested.

This is a put option contract. You have the right to exercise the contract that obligates me to buy your half of the car. Buy holding this "insurance" of sorts, you lose out on whatever money we put into the restoration. However, if we do nothing to restore it yet, and rust further engulfs it, then I am still obligated to pay you your $5000.

Why would you NOT exercise the option? Even though, we're not working on it, the value has tripled as is and I refuse to sell it until we finish the restoration. If you want I'll happily buy you out for $5,000 and sell it for $30,000 straight away.

What the hell was all that?!?!

Put and call options are all around us all the time, we just don't always see it like that.

• Right of first refusal is a CALL option

• An opt out clause is a PUT option

• Insurance is a PUT option

Many contracts and agreements have similar types of clauses.

The options that we see traded daily by the CBOE are contracts that are nothing but the option part of the contract.

The JV Agreement between QuantumScape and VW has many of these and they specifically call them "Put rights" and "Call rights". With these, the basics don't change.

• Calls are where option owners buy, or force the other party to sell.

• Puts are where option owners sell, or force the other party to buy.

• The owner/holder has the rights

• The issuer/seller has an obligation

The 2022 10-K statement

For full context you can read the section of the 10-K titled Joint Venture Relationship

I have tried to condense the wordiness of the statement without losing context.

The commercialization timeline originally contemplated in 2018 ... has changed, ... as of (this) filing ..., certain milestones ... were not met. As a result, VW now has the right to exercise its put rights.

If VW exercises ... the JV, and VW's (included purchase) commitments, ... would terminate, ...

(QS) would be obligated to purchase VW's interest in the JV for its book value...(of) $1.7M...

Money (added) to the JV in the future, ... would increase (that amount). ...

VW has not informed us of any intention to exercise... (but they now can, at any time.)

Due to the many redactions in the JV agreement and in the QSV LLC agreement, it's not clear as to what specifically triggered the option right, but as of Dec 31, 2022, and, (as far as I can tell), for as long as the JV exists, VW can opt out, getting book value for their interest.