Current and former directors of Tesla, the electric-vehicle manufacturer, have reached an agreement to return over $735 million to the company in order to settle a shareholder lawsuit. The lawsuit claims that the directors enriched themselves through excessive compensation. The proposed settlement was submitted to the Delaware Court of Chancery on Friday, pending court approval. It should be noted that this settlement does not cover any other Tesla shareholder lawsuits, including a separate case challenging CEO Elon Musk’s compensation package.
The settlement agreement pertains to a derivative lawsuit filed in 2020 by the Police and Fire Retirement System of the City of Detroit, an investor in Tesla. The lawsuit centered around stock options awarded to company directors starting in June 2017. Notable defendants in the lawsuit include Larry Ellison, co-founder of Oracle and former Tesla board member. As part of the settlement, the director defendants, including Ellison, will provide Tesla with over 3.1 million stock options through cash, stock returns, and unexercised options.
The value of the settlement is based on Tesla’s closing share price on June 16, which was $260.54. The agreement was reached through the guidance of a mediator on June 20. The settlement’s valuation methods result in a total settlement value of $735,266,505, with $458,649,785 in returned options and $276,616,720 in returned cash or stock. Any attorney fees awarded to the plaintiffs will be deducted from the settlement amount.
Additionally, as part of the settlement, the director defendants will forgo stock options for 2021 and 2022 and will not receive further compensation for board service during those years. The current directors will also forgo any compensation for board service in the present year. It is important to clarify that this settlement only addresses the claims related to this specific shareholder suit and does not encompass other lawsuits, such as the one challenging Elon Musk’s compensation package.
Tesla shares were trading at around $20 in June 2017, whereas currently, they are trading at approximately $288 per share. The attorneys representing the Tesla defendants declined to comment on the court filing. Both parties’ lawyers have requested a settlement hearing to take place on October 13.
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