8-KMaterial Agreements

Tesla, Inc. 8-K Report, Material Agreement (Jun 30, 2020)

Filed June 30, 2020For Securities:TSLA

Summary

This 8-K filing from Tesla, Inc. on June 30, 2020, details a material definitive agreement entered into by the company with CEO Elon Musk regarding directors' and officers' (D&O) indemnity coverage. Due to disruptions from COVID-19 shelter-in-place orders, Tesla had suspended its annual evaluation of D&O indemnity options. To ensure coverage during this interim period, Tesla entered into a 90-day "Bridge Term" Indemnification Agreement with Mr. Musk. Under this agreement, Mr. Musk will personally provide D&O indemnity coverage to Tesla, up to $100 million, in cases where Tesla's own coverage might not apply. For this interim coverage, Tesla will pay Mr. Musk a one-time fee of $972,361. Tesla is also committed to obtaining a binding market quote for a $100 million D&O liability insurance policy. The company will further compensate Mr. Musk if the market-based premium for this quote, prorated for 90 days and discounted by 50%, exceeds the initial fee.

Key Highlights

  • 1Tesla entered into a 90-day interim Indemnification Agreement with CEO Elon Musk.
  • 2Mr. Musk will personally provide up to $100 million in D&O indemnity coverage for Tesla during the interim period.
  • 3This agreement addresses a temporary gap in D&O coverage caused by COVID-19 related disruptions.
  • 4Tesla will pay Mr. Musk a one-time fee of $972,361 for this interim coverage.
  • 5Tesla is actively seeking a new D&O liability insurance policy with a $100 million coverage limit.
  • 6Tesla may pay an additional amount to Mr. Musk based on the cost of the new market-based insurance policy.

Frequently Asked Questions

Tesla entered into this agreement because its annual evaluation of directors' and officers' indemnity coverage was suspended due to COVID-19 shelter-in-place requirements. This interim agreement with Elon Musk ensures D&O coverage during the period Tesla resumes its evaluation and seeks a new market-based insurance policy.

Tesla will pay Elon Musk a one-time fee of $972,361 for the 90-day interim coverage. Additionally, Tesla may pay an additional amount to Mr. Musk if the market-based premium for a new $100 million D&O insurance policy, prorated and discounted, exceeds this initial fee. This indicates a commitment to securing adequate D&O coverage, with potential for higher costs depending on market conditions.

The $100 million figure represents the aggregate coverage limit for directors' and officers' liability insurance that Tesla is aiming to secure. It also caps the personal indemnity coverage that Mr. Musk will provide to Tesla under the interim agreement, signaling the level of risk the company is seeking to insure against.

No, this is explicitly stated as an interim agreement for a 90-day "Bridge Term." Tesla is actively working to obtain a market quote for a customary, long-term directors' and officers' liability insurance policy following this interim period.