SpaceX requires employees to agree to some unusual terms regarding stock compensation, which has a chilling effect on staff, according to sources and internal documents reviewed by TechCrunch.
It includes a provision that gives SpaceX the right to buy back vested stock within six months after an employee leaves the company for any reason. SpaceX also has the right to prohibit past and present employees from participating in the tender offer if they are deemed to have committed “misconduct against the company” or violated written company policies, among other reasons. is given to the company.
One former employee said employees are often unaware of “fraudulent” situations when they first sign up for stock compensation management platforms.
If SpaceX prohibits employees from selling stock in a tender offer, those employees would have to wait until SpaceX goes public to get cash from the stock, but when does that actually happen? is unknown.
SpaceX did not respond to multiple requests for comment.
Employees pay taxes on stocks
Like most tech companies, SpaceX includes stock options and restricted stock units (RSUs) as part of its compensation package to attract top talent. There is no doubt that this worked. SpaceX's more than 13,000 employees push the boundaries of what was thought possible in aerospace, transporting crews to and from the International Space Station and building the largest constellation of satellites in history.
Unlike stock in a public company, stock in a private company cannot be sold without the company's permission. Therefore, employees can only convert part of their salary into cash if their employer allows such transactions. SpaceX is known for typically holding stock buyback events twice a year. This means SpaceX will buy back stock from its employees. This schedule has been fairly reliable in recent years, meaning that employees have two opportunities a year to liquidate assets that have likely appreciated in value since the vesting date.
It is not uncommon for start-up companies to have additional conditions attached to employee stock awards, and employees who have been with the company for a long time before their stock vests may receive stock under a variety of stock plans with varying terms. There may be. However, employees of start-ups and private companies do not have the right to sell their shares.
In fact, SpaceX says that if an employee is terminated for “just cause,” the company can buy back company stock at $0 per share, according to a document seen by TechCrunch.
“That sounds unusual, but [a] “Tender offer agreements have cause-type exclusions,” attorney and stock options expert Mary Russell told TechCrunch. He said it is also unusual for traditional venture-based startups to have vested stock buyback rights independent of “for cause” termination by bad actors.
Employees don't want to be forced to give back their valuable SpaceX stock for free, so these conditions “allow everyone to stay under their control even if they leave the company,” one former employee said. Ta. “And since SpaceX has no urgency to go public, being barred from making a tender offer effectively reduces its stock to zero, at least for an extended period of time. Even though it paid thousands to cover taxes. regardless of.”
“They will also try to force you into a disgraceful agreement with carrots or sticks when you leave,” the source said.
SpaceX cites Elon Musk's actions as a 'risk factor'
SpaceX also provided employees with another document in 2020 outlining the risks of investing in its securities. This is similar to his S-1 registration statement that public companies must file. Given that SpaceX is a private company, this is a unique disclosure to the company's risk profile.
Such documents are often created to minimize a company's legal liability. SpaceX's documents correctly point out that equity investments are inherently risky because participants are exchanging highly liquid assets, namely cash, for highly liquid stocks. That's why they exhaustively list various important risk factors, no matter how unlikely. For example, in a risk document seen by TechCrunch, SpaceX lists its headquarters in Hawthorne, California, as a “region of high seismic activity.”
The company also has a number of risk factors associated with its CEO and founder, Elon Musk.
“Historically, we have relied heavily on the leadership of our Founder, Chief Executive Officer, and Chief Technology Officer, Elon Musk,” the document said. “SpaceX, Mr. Musk, and the other companies with which Mr. Musk is affiliated frequently receive significant media attention. As such, Mr. Musk's actions and public statements can either add or detract from SpaceX's market capitalization. It may also have an impact.”
The document also mentions a $40 million settlement between Musk and the SEC, which Musk tweeted in August 2018 that he was considering taking Tesla private. It happened later. Although the tweet was not related to SpaceX, “this settlement impacts SpaceX,” the document says.
“Failure to comply with the terms of the settlement could result in additional enforcement actions or other legal proceedings being initiated against Mr. Musk, which could have an adverse impact on SpaceX. Most notably: The SEC could deny SpaceX the right to rely on Regulation D, the exemption from registration under the Securities Act of 1933 for private financial transactions. could make it more difficult for us to raise future capital.”
While Tesla's recent securities filings mention the SEC settlement, they don't directly address the potential for media attention in the same way.
The document also states there is a risk that there may not be a public market for the company's common stock, an issue if employees are excluded from bidding events.
SpaceX is one of the world's most valuable private companies, valued at $180 billion as of last December. Like other privately held companies, the company's stock is divided into preferred stock and common stock. Employees are given the latter, but preferred stock is typically owned by institutional investors or entities affiliated with Musk. Preferred stock has several preferential rights, such as liquidation preference and dividends.
The common stock is divided into three stock classes: Class A, B and C. According to an equity incentive plan approved by SpaceX's board of directors in March 2015 and scheduled to expire in 2025, employees will receive Class C stock, or unlisted stock. Stocks with voting rights.