Tesla directors to return $735M to settle suit over excess compensation
Tesla Directors Agree to Return Over $735 Million in Shareholder Lawsuit Settlement
Current and former directors of Tesla, the renowned electric-vehicle manufacturer, have reached an agreement to return more than $735 million to the company. This settlement comes in response to a shareholder lawsuit that alleges the directors unfairly enriched themselves through excessive compensation. The proposed agreement was submitted to the Delaware Court of Chancery and is pending court approval.
However, it’s important to note that this settlement only pertains to the specific shareholder lawsuit mentioned above. Another lawsuit involving a compensation package awarded to CEO Elon Musk in 2018, which could be worth over $55 billion, is still ongoing, with a ruling expected in the near future.
The settlement revolves around a derivative lawsuit filed on behalf of the company in 2020 by the Police and Fire Retirement System of the City of Detroit, a retirement fund that had invested in Tesla. This lawsuit specifically challenged stock options granted to company directors starting in June 2017. The settlement agreement requires the directors involved, including Larry Ellison, co-founder of Oracle and former Tesla board member, to reimburse Tesla through cash, returned stock, and unexercised stock options, with a total value of more than 3.1 million stock options. The valuation is based on a settlement stock price of $260.54, which matches Tesla’s closing share price on June 16.
According to court documents, the settlement recommendation from a mediator was accepted by both parties on June 20. The settlement’s total value is cited as $735,266,505, with $458,649,785 in returned options and $276,616,720 in returned cash or returned stock options. Any attorney fees awarded to the plaintiffs would be subtracted from the settlement amount.
As part of the settlement, the director defendants have agreed to forgo stock options for 2021 and 2022. They will not receive any further compensation for board service during these years. Additionally, the current directors have decided to permanently forgo any compensation for their board service this year.
While the defendants have agreed to the settlement, they maintain that they did not commit any wrongdoing or breach any duty owed to the company. The agreement explicitly denies any harm caused to Tesla or its stockholders by the defendants’ actions.
Tesla’s share price has witnessed significant growth since June 2017. At that time, the shares were trading at around $20, but as of Tuesday, they were valued at approximately $288 per share.
The attorneys representing the Tesla defendants have chosen not to comment on the court filing. Both sides have requested a settlement hearing on October 13.
FAQs
Q: What is the shareholder lawsuit against Tesla’s directors about?
A: The lawsuit alleges that the directors unjustly enriched themselves through excessive compensation.
Q: How much money are the directors required to return to Tesla?
A: The directors will return over $735 million to Tesla.
Q: Is this settlement related to Elon Musk’s compensation package?
A: No, this settlement is separate from the ongoing lawsuit regarding Elon Musk’s compensation package, which could be worth more than $55 billion.
Q: Who filed the derivative lawsuit on behalf of the company?
A: The Police and Fire Retirement System of the City of Detroit, a retirement fund that had invested in Tesla, filed the derivative lawsuit.
Q: When will the settlement hearing take place?
A: The attorneys for both sides have requested a settlement hearing to be held on October 13.
Tesla directors agree to pay $735M as settlement in lawsuit regarding excessive compensation
Current and former directors of electric-vehicle manufacturer Tesla have reached an agreement to return over $735 million to the company in order to settle a shareholder lawsuit. The lawsuit alleged that the directors had enriched themselves through excessive compensation. The proposed settlement, which was outlined in documents filed in the Delaware Court of Chancery, is still subject to court approval. It should be noted that this settlement does not include other Tesla shareholder suits, including one that challenges a compensation package awarded to CEO Elon Musk in 2018, which could be worth more than $55 billion. A ruling on that case is expected soon.
The settlement agreement is a result of a derivative lawsuit that was filed on behalf of the company in 2020 by the Police and Fire Retirement System of the City of Detroit, a retirement fund that had invested in Tesla. The lawsuit specifically challenged stock options granted to company directors beginning in June 2017. As per the settlement, the director defendants, including Larry Ellison, co-founder of Oracle and former Tesla board member, will provide Tesla with the value of more than 3.1 million stock options. This will be in the form of returned cash, returned stock, and unexercised stock options. The total value of the settlement is based on a settlement stock price of $260.54, which was Tesla’s closing share price on June 16.
According to court documents, the settlement recommendation was accepted by the parties on June 20, following mediation. The settlement value amounts to $735,266,505, consisting of $458,649,785 in returned options and $276,616,720 in returned cash or stock. Any fees awarded to plaintiffs’ attorneys will be deducted from the settlement amount. As part of the settlement, the director defendants will also give up stock options for 2021 and 2022 and will not receive any further compensation for board service during those years. In addition, the current directors will permanently forgo any compensation for board service this year.
It is important to note that the defendants, in agreeing to the settlement, have denied any wrongdoing or liability. They have stated that they did not harm Tesla or its stockholders and did not breach any duty owed to the company. The lawsuit stems from the fact that Tesla shares were trading in the $20 range in June 2017 and, as of Tuesday, were trading at around $288 per share.
Attorneys for the Tesla defendants have declined to comment on the court filing. Both sides are asking the judge to hold a settlement hearing on October 13.