In a legal battle that has been ongoing for some time now, attorneys representing a Tesla shareholder have urged a judge to invalidate a compensation package awarded to CEO Elon Musk back in 2018.
The package, which has the potential to be worth more than a staggering $55 billion, has been a topic of great debate since it was awarded by the companys board of directors.
The latest arguments in this ongoing case were heard on Tuesday, following a trial in November last year where Musk denied having dictated the terms of the package or even attended meetings where the plan was discussed. However, lawyers representing the shareholder argue that the package should be voided, citing a number of reasons. They claim that it was dictated by Musk himself and that the negotiations with directors were nothing more than a sham. Additionally, they allege that the shareholders who approved the package were given incomplete disclosures in a proxy statement.
Despite these arguments, Delaware courts are known to defer to the "business judgment" of corporate directors when making decisions unless there is evidence of wrongdoing. However, Attorney Greg Varallo has argued that the Tesla defendants should be required to show that the compensation plan was "entirely fair" to stockholders, particularly since Musk was a controlling shareholder.
Varallo further stated that Musk should be forced to give back some, if not all, of the stock option grants that he has earned. It is worth noting that Chancellor Kathaleen St. Jude McCormick, who is presiding over this case, is the same judge who previously forced Musk to purchase Twitter for $44 billion when he attempted to back out of his agreement to buy the social media platform.
Lawyers representing the defense argued that the payment plan had been negotiated in good faith by a compensation committee whose members were impartial, had objectives that were so high-level that some Wall Street investors laughed at them, and had been approved in a shareholder's vote, although Delaware law did not require it.
At the time the plan was authorized, Musk had a 22% stake in Tesla. Upon its approval, he would receive stock that equaled 1% of the total shares. This would cause his interest in Tesla to expand to 28%, should the company's market capitalization increase by $600 billion. Tesla has accomplished all 12 of its market capitalization objectives as well as eleven of its operational goals, granting Elon Musk an estimated $28 billion in stock option gains.
Evan Chesler, the legal representative, stated that the remuneration deal was a "high-risk, high-reward" agreement that not just helped Musk, but also the shareholders of Tesla stock. The value of the company has shot up drastically from $53 billion to beyond $600 billion and even touched the $1 trillion mark briefly last year.
As this case continues to unfold, it remains to be seen what the ultimate outcome will be. However, it is clear that the arguments being presented by both sides are complex and multifaceted, with much at stake for all involved parties.
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