SpaceX needs employees They agreed to some unusual terms related to stock awards, which had a chilling effect on employees, according to sources and internal documents seen by TechCrunch.
It includes a provision that gives SpaceX the right to buy back vested shares within six months of an employee leaving the company for any reason. SpaceX has also given itself the power to ban past and current employees from participating in tender offers if they are deemed to have acted “dishonestly” towards the company or violated its written policies, among other reasons.
One former employee said employees were often unaware of the “dishonesty” when they initially signed up on the equity compensation management platform.
If SpaceX prohibits an employee from selling stock in a tender offer, the employee would have to wait until SpaceX goes public to cash out the stock — and it’s unclear when that would happen, if at all.
SpaceX did not respond to multiple requests for comment.
Employees pay taxes on their shares
Like most tech companies, SpaceX uses stock options and restricted stock units (RSUs) as part of its compensation package to attract top talent. There’s no question it’s paid off: SpaceX’s 13,000 employees are helping push the limits of aerospace, including flying astronauts to and from the International Space Station and building the largest satellite constellation in history.
Unlike stock in a public company, stock in a private company cannot be sold without the company’s permission. Therefore, employees can convert this portion of their salary into cash only if their employer allows such transactions. SpaceX is known for holding two buyback events per year, which means SpaceX will buy back stock from employees; this schedule has been fairly reliable in recent years, meaning employees have an opportunity every two years to liquidate assets that may have appreciated in value since the vesting date. .
At startups, it’s not uncommon for employees to have riders attached to their stock compensation, and employees who have been with the company long enough to be vested with stock may have purchased stock under various stock plans under various conditions. However, employees of both startups and private companies are not allowed to sell their stock without employer approval.
In fact, at SpaceX, if an employee is fired “for cause,” the company says it can buy back his or her stock for $0 per share, according to documents seen by TechCrunch.
“Sounds unusual [a] Cause type exclusion clauses in tender offer agreements,” attorney and stock options expert Mary Russell told TechCrunch. It’s also unusual for a traditional venture capital startup to have vested share repurchase rights that are not tied to a bad actor-type “for cause” termination, she said.
One former employee said the terms “keep everyone under their control, even if they have left the company,” because employees don’t want to be forced to give back their valuable SpaceX stock without compensation. “Since SpaceX is in no rush to go public, being barred from participating in the tender offer will effectively wipe out your shares, at least for a long time. Even if you paid thousands of dollars in taxes.”
“They will also try to force you to sign a non-disparagement agreement when you leave, either with a carrot or a stick, if they have one,” the person said.
SpaceX calls Elon Musk’s behavior a ‘risk factor’
As recently as 2020, SpaceX provided employees with a separate document outlining the risks of investing in the company’s securities. Its content is similar to the S-1 registration statement that public companies must file; given that SpaceX is a private company, it is a unique disclosure of the company’s risk profile.
To a large extent, such documents are written to minimize a company’s legal liability. SpaceX’s filing correctly points out that equity investing is inherently risky because participants are exchanging a highly liquid asset (cash) for extremely illiquid shares. As such, they exhaustively lay out various significant risk factors, no matter how likely they are — for example, in a risk document seen by TechCrunch, SpaceX included that Hawthorne, California, where its headquarters is located, is a “seismically active area.”
The company also includes a number of risk factors related to its CEO and founder Elon Musk.
“To date, the Company has been highly reliant on the leadership of the Company’s founder, CEO and Chief Technology Officer, Elon Musk,” the filing reads. “SpaceX, Mr. Musk, and other companies to which Mr. Musk is a member are frequently subject to media scrutiny. a lot of attention. Therefore, Mr. Musk’s actions or public statements may also have a positive or negative impact on SpaceX’s market capitalization.
The filing also noted that Musk reached a $40 million settlement with the SEC after he tweeted in August 2018 that he was considering taking Tesla private. The document said that although the tweet had nothing to do with SpaceX, “the settlement agreement has an impact on SpaceX.”
“Failure to comply with the settlement agreement could result in additional enforcement actions or other legal proceedings being brought against Mr. Musk, which could have adverse consequences for SpaceX. Most notably, the SEC could deprive SpaceX of its right to rely on Regulation D, The regulations provide for an exemption from registration for private financing transactions under the Securities Act of 1933. Denying future reliance on Regulation D could make it more difficult for companies to raise capital in the future.”
While Tesla’s recent securities statements do mention the SEC settlement, they don’t address potential media attention in the same direct way.
The filing also notes that there may never be a public market for the company’s common stock – an issue that would arise if employees were barred from participating in the bidding exercise.
SpaceX is one of the most valuable private companies in the world, with a valuation of up to $180 billion as of December last year. Like other private companies, its stock is divided into preferred stock and common stock. Employees get the latter, while preferred stock is typically owned by institutional investors and Musk-affiliated entities. Preferred stock carries certain priority rights, including liquidation preference and dividends.
Common stock is divided into three stock classes: Class A, Class B and Class C. Under the equity incentive plan approved by the SpaceX board of directors in March 2015, with an expiration date of 2025, employees will receive Class C stock, which is a type of non-voting stock.
