Item 1.01.
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Entry into a Material Definitive Agreement
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Merger Agreement
On July 31, 2016, Tesla Motors, Inc. (
Tesla
), SolarCity Corporation (
SolarCity
) and D Subsidiary, Inc., a
wholly owned subsidiary of Tesla (
Merger Sub
), entered into an Agreement and Plan of Merger (the
Merger Agreement
). The Merger Agreement provides for the merger of Merger Sub with and into SolarCity (the
Merger
), with SolarCity surviving the Merger as a wholly owned subsidiary of Tesla. Capitalized terms used in this Current Report on Form 8-K but not defined herein shall have the meanings ascribed to them in the Merger
Agreement.
The Board of Directors of Tesla (the
Tesla Board
), with Messrs. Elon Musk and Antonio Gracias recusing
themselves, determined that the transactions contemplated by the Merger Agreement, including the Merger and the issuance of shares of Tesla common stock in connection with the Merger (the
Share Issuance
), are fair to, and in the
best interests of, Tesla and its stockholders, approved the Merger Agreement and the transactions contemplated by the Merger Agreement, and recommended that the stockholders of Tesla approve the Merger and the Share Issuance.
Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (the
Effective Time
), each share of SolarCity common stock, par value $0.0001 per share (the
SolarCity common stock
) issued and outstanding immediately prior to the Effective Time (other than shares of SolarCity
common stock owned by SolarCity as treasury stock or owned by Tesla or Merger Sub, which will be cancelled) will be converted into the right to receive 0.110 (the
Exchange Ratio
) shares of Tesla common stock, par value $0.001 per
share (the
Tesla common stock
).
No fractional shares of Tesla common stock will be issued in the Merger and SolarCity
stockholders will receive cash in lieu of any fractional shares. SolarCity options and restricted stock unit awards will be converted into corresponding equity awards in respect of Tesla common stock based on the Exchange Ratio, with the awards
retaining the same vesting and other terms and conditions as in effect immediately prior to consummation of the Merger (except for certain founder options granted in 2015 which will be cancelled for no consideration). It is intended that the
Merger will qualify as a reorganization for U.S. federal income tax purposes.
SolarCity and Tesla have made representations
and warranties to each other in the Merger Agreement customary for transactions of this type. SolarCity and Tesla have also agreed to various customary covenants and agreements, including, among others, agreements to conduct their respective
businesses in the ordinary course in all material respects during the period between the signing of the Merger Agreement and the consummation of the Merger. In addition, SolarCity is subject to a number of customary interim operating covenants
relating to, among other things, its capital expenditures, incurrence of indebtedness, entry into or amendment of certain types of agreements, equity grants, changes in employee compensation, and certain employment decisions.
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Stockholders of SolarCity will be asked to vote on the adoption and approval of the Merger
Agreement and the Merger, and stockholders of Tesla will be asked to vote on the approval of the Merger and the Share Issuance, at special meetings of the stockholders of SolarCity and Tesla, respectively, that will be held on dates to be
announced.
The consummation of the Merger is subject to, among other things, a condition that:
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(i)
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the Merger Agreement and the Merger be adopted and approved by stockholders of SolarCity, including by the holders of a majority of the total votes of shares of SolarCity common stock cast on that matter at the
special meeting of the stockholders of SolarCity that are not owned by Mr. Elon Musk and the other directors and the named executive officers of Tesla and SolarCity, and certain of their affiliates, other than Nancy E. Pfund and Donald R. Kendall,
Jr.; and
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(ii)
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the Merger and the Share Issuance be approved by the stockholders of Tesla, including by the holders of a majority of the total votes of shares of Tesla common stock cast on that matter at the special meeting of the
stockholders of Tesla that are not owned by Mr. Elon Musk and the other directors and the named executive officers of SolarCity and certain of their affiliates.
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Consummation of the Merger is also subject to certain other conditions, including, among others, declaration of effectiveness of the
registration statement on Form S-4 relating to the shares of Tesla common stock to be issued in the Merger, and authorization of such shares for listing on the Nasdaq Stock Market, subject to official notice of issuance, the accuracy of the other
partys representations and warranties (subject to customary qualifications), the other partys material compliance with its covenants and agreements contained in the Merger Agreement, the absence of any event that has had a material
adverse effect on the other party since the date of the Merger Agreement, the receipt by each party of an opinion from its counsel to the effect that the Merger will qualify as a reorganization for U.S. federal income tax purposes, and,
in the case of Teslas and Merger Subs obligation to complete the Merger, the absence of certain continuing defaults or mandatory prepayment events under SolarCitys indebtedness and SolarCity having a specified level of accounts
payable.
Pursuant to the terms of a go-shop provision in the Merger Agreement, for 45 calendar days following the signing of
the Merger Agreement (the
Go-Shop Period
), SolarCity and its representatives may solicit, discuss or negotiate alternative proposals from third parties for the acquisition of SolarCity.
Following the expiration of the Go-Shop Period, SolarCity will become subject to customary no shop restrictions on its and its
representatives ability to solicit, discuss or negotiate alternative acquisition proposals from third parties, subject to exceptions for acquisition proposals that the SolarCity board of directors has determined constitutes or is reasonably
expected to constitute a
Superior Proposal
(as defined in the Merger Agreement).
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SolarCity has also agreed that the SolarCity board and the special committee of the SolarCity
board will not change its recommendations with respect to the Merger, and that SolarCity will not enter into any agreement relating to an alternative acquisition proposal, except that, upon the terms and subject to the conditions set forth in the
Merger Agreement, (i) the SolarCity board may withdraw its recommendation as a result of a development or change that is unknown to the SolarCity board or the special committee as of the date of the Merger Agreement if it determines that it would be
inconsistent with its fiduciary duties not to do so, or (ii) the SolarCity board may change its recommendation and terminate the Merger Agreement in order to enter into a binding agreement with respect to an alternative acquisition proposal that the
SolarCity board determines constitutes a Superior Proposal. Tesla has agreed to similar no shop restrictions following the signing of the Merger Agreement with respect to acquisition proposals from third parties for the acquisition
of Tesla and similar restrictions on the ability of the Tesla board of directors to change its recommendation with respect to the Merger and the ability of Tesla to enter into any agreement or arrangement relating to an acquisition of Tesla, subject
to similar exceptions.
The Merger Agreement contains certain termination rights for both Tesla and SolarCity, including, among other
things, in the event that the Merger is not consummated on or before April 31, 2017. In addition, if the Merger Agreement is terminated under certain circumstances specified in the Merger Agreement, including by SolarCity in order to enter into
an agreement with respect to an alternative acquisition proposal in accordance with the terms of the Merger Agreement, SolarCity will be required to pay Tesla a termination fee in the amount of $78.2 million, unless SolarCity terminates the Merger
Agreement in order to enter into a binding agreement with respect to an alternative acquisition proposal with a third party who first made an alternative acquisition proposal prior to the expiration of the Go-Shop Period, in which case SolarCity
will be required to pay Tesla a termination fee in the amount of $26.1 million. If the Merger Agreement is terminated under certain circumstances specified in the Merger Agreement, including by SolarCity if the Tesla board of directors changes
its recommendation with respect to the Merger, Tesla will be required to pay SolarCity a termination fee in the amount of $78.2 million.
The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full
text of the Merger Agreement, a copy of which is attached hereto as Exhibit 2.1 and is incorporated herein by reference.
The Merger
Agreement and the above description of the Merger Agreement have been included to provide investors with information regarding the terms of the Merger Agreement. It is not intended to provide any other factual information about Tesla, SolarCity
or their respective subsidiaries or affiliates. The representations, warranties and covenants contained in the Merger Agreement were made only for purposes of that agreement and as of specific dates, were solely for the benefit of the parties
to the Merger Agreement and may be subject to limitations agreed upon by the parties in connection with negotiating the terms of the Merger Agreement, including being qualified by confidential disclosures made by each party to the other for the
purposes of allocating contractual risk between them that differ from those applicable to investors. In addition, certain representations and warranties may be subject to a contractual standard of materiality different from those generally
applicable to investors and may have been used for the
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purpose of allocating risk between the parties rather than establishing matters as facts. Information concerning the subject matter of the representations, warranties and covenants may change
after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in public disclosures by Tesla or SolarCity. Investors should not rely on the representations, warranties and covenants or any description
thereof as characterizations of the actual state of facts or condition of Tesla, SolarCity or any of their respective subsidiaries, affiliates or businesses.
Amendment of Credit Agreement
On
July 31, 2016, Tesla and its subsidiary Tesla Motors Netherlands B.V. (
Tesla B.V.
and together with Tesla, collectively, the
Borrowers
), entered into the Fourth Amendment (the
Fourth
Amendment
) to the ABL Credit Agreement, dated as of June 10, 2015 (as amended, modified or supplemented, the
Credit Agreement
), among the Borrowers, the lenders party thereto, Deutsche Bank AG New York Branch, as
administrative agent and collateral agent (the
Agent
), and the other agents party thereto.
The Fourth Amendment:
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(i)
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provides that, concurrent with the acquisition by Tesla of SolarCity pursuant to the Merger Agreement, the Credit Agreement will be amended to provide that neither SolarCity nor any of its subsidiaries shall constitute
a Subsidiary of the Company for purposes of the Credit Agreement and will not be subject to the restrictions, terms or requirements applicable to subsidiaries of the Company contained in the Credit Agreement; and
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(ii)
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contains other amendments related to the proposed acquisition by the Company of SolarCity.
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The foregoing description of the Fourth Amendment does not purport to be complete and is qualified in its entirety by reference to the full
text of the Fourth Amendment, a copy of which is attached hereto as Exhibit 10.1 and is incorporated herein by reference.