Tesla 2015 Annual Report Download - page 40

Servicing our convertible senior notes requires a significant amount of cash, and we may not have sufficient cash flow from our business
to pay our substantial debt.
We incurred $660.0 million, $920.0 million and $1.38 billion, respectively, in aggregate principal amount of senior indebtedness when we
issued pursuant to registered public offerings 1.50% convertible senior notes due 2018 (2018 Notes) in 2013, and 0.25% convertible senior notes
due 2019 (2019 Notes) and 1.25% convertible senior notes due 2021 (2021 Notes) in 2014. Our ability to make scheduled payments of the
principal when due, to make quarterly interest payments or to make payments upon conversion or to refinance the Notes, depends on our future
performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to
generate cash flow from operations in the future sufficient to satisfy our obligations under the Notes and any future indebtedness we may incur
and to make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives,
such as reducing or delaying investments or capital expenditures, selling assets, refinancing or obtaining additional equity capital on terms that
may be onerous or highly dilutive. Our ability to refinance the Notes or future indebtedness will depend on the capital markets and our financial
condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could
result in a default on the Notes or future indebtedness.
Pursuant to their terms, holders may convert their Notes at their option at any time prior to the final three-month period of the scheduled
term of the respective Notes only under certain circumstances. For example, holders may generally convert their Notes at their option during a
quarter (and only during such quarter), commencing with the fourth quarter of 2013 in the case of the 2018 Notes and the third quarter of 2014 in
the case of the 2019 Notes and the 2021 Notes, if the last reported sale price of our common stock for at least 20 trading days (whether or not
consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding quarter is greater than or
equal to 130% of the conversion price for such series of Notes on each applicable trading day. As a result of this conversion feature, the 2018
Notes have been convertible at their holders
’ option during each quarter commencing with the fourth quarter of 2013, except the first quarter of
2014. Neither this nor any other conversion feature has been met with respect to the 2019 Notes and 2021 Notes, and consequently the 2019
Notes and 2021 have not been convertible at their holders
’ option Upon conversion of the Notes, we will be obligated to make cash payments in
respect of the principal amounts thereof, and we may also have to deliver cash and, if applicable, shares of our common stock, in respect of such
Notes. Any conversion of the Notes prior to their maturity, or acceleration of the repayment of the Notes or future indebtedness after any
applicable notice or grace periods could have a material adverse effect on our business, results of operations and financial condition.
In addition, holders of the Notes will have the right to require us to purchase their Notes upon the occurrence of a fundamental change at a
purchase price equal to 100% of the principal amount of the Notes, plus accrued and unpaid interest, if any, to, but not including, the
fundamental change purchase date. However, we may not have enough available cash or be able to obtain financing at the time we are required
to make purchases of Notes surrendered therefor or Notes being converted. In addition, our ability to purchase the Notes or to pay cash upon
conversions of the Notes may be limited by law, by regulatory authority or by agreements governing our future indebtedness. Our failure to
purchase Notes at a time when the purchase is required by the indenture or to pay cash payable on future conversions of the Notes as required by
the indenture would constitute a default under the indenture. If the repayment of the related indebtedness were to be accelerated after any
applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and purchase the Notes or make cash payments
upon conversions thereof.
We may still incur substantially more debt or take other actions, which would intensify the risks discussed above.
We and our subsidiaries are not restricted under the terms of the indenture governing the Notes, or the indenture, from incurring additional
debt, securing existing or future debt, recapitalizing our debt or taking a number of other actions that are not limited by the terms of the indenture
that could have the effect of diminishing our ability to make payments on the Notes when due.
The classification of our Notes may have a material effect on our reported financial results.
As described in the Risk Factor “ Servicing our convertible senior notes requires a significant amount of cash, and we may not have
sufficient cash flow from our business to pay our substantial debt,” Notes have been historically, and may become in the future, convertible at
the option of their holders prior to their scheduled terms under certain circumstances. Even if holders do not elect to convert their Notes, the
Notes become convertible prior to their scheduled maturity dates, we would be required to reclassify such Notes and the related debt issuance
costs as current liabilities and certain portions of our equity outside of equity to mezzanine equity, which would have an adverse impact on our
reported financial results for such quarter, and could have an adverse impact on the market price of our common stock.
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