It's very long. It's very detailed. But it omits some very crucial information about the DOJ investigation and about how immensely wealthy Musk has made the sole member of the "committee of one."
Yes, that's true. I've corrected that error thanks to input from another reader. Also, per the note I just added to the end, I got the proxy statement publication date wrong. It should be April 17, not April 29. Thanks much for the close read.
Tesla's price action which hardly budged even with such a material news today shows that HFs /institutions on the long side are still supporting this trade. May be they are looking at this as the last hurrah before it all comes crashing down under $100
Lately Tesla has been very much immune to bad news, one after the other. The whole AI pump has given the speculators an excuse to keep this charade one.
It's impossible to know what's propping up Tesla's share price. There are some conspiracy theories out there, and not all conspiracy theories are wacky. Plainly, the options action for TSLA is extraordinary - nothing before ever like it. But, also, the credulity of many retail investors, and the cynicism of some institutional investors (e.g., Ron Baron, Cathie Wood) are real phenomena.
With current recent experience it seems only something extraordinary will budge the price. I can only think that multiple large share issuances because they ran out of money. It's the only way I can see the balloon deflate...that or Musk resigning
I am curious what conversations if any DOJ has had with Kirkhorn. It is extremely rare to be able to find someone in the C Suite who was unceremenoiusly booted from Tesla and has all the inner workings and chinks in the armor of the naked emperor
"the proxy statement describes one of the key motivations for the 2018 grant of stock options as incentivizing Musk to cause Tesla to “[a]dvance autonomous technology to create a fully-self driving future.”
The milestone targets that triggered each tranche of the CEO compensation plan made no reference to "advancing autonomous technology". The milestones were triggered by Market Cap plus a combination of either annual revenue or adjusted EBITDA. Nowhere in the plan is there any incentive tied to autonomous driving.
You are, of course, correct. Obviously, I didn't write the latest proxy statement. Tesla's lawyers did. Probably the outside lawyers. The latest proxy statement reads like a cheerleading speech, but certainly fails when subjected to a logical consistency test. But there it is, at the bottom of page 76:
"With these goals [including the "advance" of "autonomous technology"], in 2018 the Board believed that Tesla had the potential to become one of the most valuable companies in the world. The 2018 CEO Performance Award was based on a vision of making Tesla a $650 billion company — more than ten times more valuable than it was at the beginning of 2018 — and accomplishing Tesla’s mission of accelerating the world’s transition to sustainable energy."
So, you see, an explicit tie of "autonomous driving" to the 2018 compensation award. Given that explicit tie, and the others I mentioned, the failure to discuss the DOJ investigation or - for that matter - the two recent NHTSA publications, is an egregious omission of material facts.
A further thought: perhaps Tesla was not eager to highlight the market cap, revenue, and adjusted EBITDA tests because those metrics are now retreating such that Musk would no longer earn three of the 12 tranches, with more erosion this year highly likely.
Is it not somewhat an omission to not mention these facts also? I know not directly relevant due to the original timeline, but surely indirectly relevant in terms of assessing if he 'earned' the awards judged by the current time
Good point. Seems pretty material, no? I'm guessing ISS and Glass Lewis will have something to say about this. I've certainly been banging the drum about it.
The other performance goals in the compensation plan were too low for a company with a sustainable $650 billion market cap.
The goals that were met to achieve the 12 tranches were revenue of $75 billion and Adjusted EBITDA (that is EBITDA plus share based compensation) of $14 billion. Neither of those goals implies a market cap of $650 billion, especially in the automotive business.
Quite true, of course. The EBITDA/revenue multiple was benchmarked to those of Amazon, Apple, and Google, and even then was quite low. Imagine if it had been benchmarked to an auto company. The Tornetta decision discusses this; see especially page 71-72. There was no effort at all by the Comp Committee to benchmark either revenues or EBITDA to the market cap of auto companies.
1. A Delaware court has nullified the award, can a new shareholder vote overturn the court's decision?
2. If the shareholder vote does not have the power to overturn the court's decision, what is the next step. For the appeal to proceed, the judge has asked for the payment of a legal fee and the submission of a proposal for a more amenable award, would Tesla be allowed to proceed to appeal without paying the fee? or proposing a more amenable award?
3. Is there anyway for Tesla to re-instate this award without going through the appeal process, except by calling it a new award, accounting for it as such and opening itself up to another court case?
4. Does moving to Texas allow them to overturn a decision that was made by a Delaware court while the company was resident in Delaware?
5. If a vote is taken to grant an award while the company is resident in Delaware and the company moves to Texas, which state has jurisdiction over the grant of the award?
1. To be determined, but there are at least arguments it cannot. First, it amounts to corporate waste (which could be ratified only by a unanimous shareholder vote. Second, Section 204 of the DGCL is designed to allow ratification where there have been problems with statutory authorization, but I can find no case where it has been used to ratify a breach of fiduciary duty.
2. I am uncertain about the rules in the Delaware Court of Chancery, and so do not know whether an appeal could go forward without Tesla first paying the legal fee. Recall that Tornetta is seeking shares of stock in lieu of cash. Assuming stock is what the Court will award, here is a guess: given that it is a court of equity, a satisfactory equitable ruling might be that Tesla can go forward, but if the appeal fails, then the award of stock for legal fees will be, in effect, liquidated to a dollar amount, so that if the share price changes between the date of the order awarding attorneys' fees and the date on which those fees are finally paid, the number of shares must be adjusted (plus some further adjustment for interest).
3. That is exactly what Tesla is attempting with the "ratification" vote. See answer to your Question 1. If the ratification effort fails, either because the shareholders vote it down or because it is found legally defective, then Tesla must make an entirely new award. Presumably it would attempt to do so under Texas corporate law. But, as you know better than anyone, the accounting for the compensation expense would all but preclude such a new award.
4. No. I can't see how. But I have read that Tornetta has filed one or more motions in Delaware aimed at getting a ruling on this point.
5. If it is a brand new award, as opposed to a ratification of one made in Delaware, then the answer is uncertain. I would guess Texas. But, IMO, the Delaware Court of Chancery is the only court with jurisdiction to adjudicate a dispute about the attempt to ratify the 2018 comp package.
If you have more or different views, I would appreciate learning about them.
Unless I'm mistaken small typo: 'explaining why she thinks Tesla should reincorporate in Delaware' should read Texas.
Yes, that's true. I've corrected that error thanks to input from another reader. Also, per the note I just added to the end, I got the proxy statement publication date wrong. It should be April 17, not April 29. Thanks much for the close read.
Tesla's price action which hardly budged even with such a material news today shows that HFs /institutions on the long side are still supporting this trade. May be they are looking at this as the last hurrah before it all comes crashing down under $100
Lately Tesla has been very much immune to bad news, one after the other. The whole AI pump has given the speculators an excuse to keep this charade one.
It's impossible to know what's propping up Tesla's share price. There are some conspiracy theories out there, and not all conspiracy theories are wacky. Plainly, the options action for TSLA is extraordinary - nothing before ever like it. But, also, the credulity of many retail investors, and the cynicism of some institutional investors (e.g., Ron Baron, Cathie Wood) are real phenomena.
With current recent experience it seems only something extraordinary will budge the price. I can only think that multiple large share issuances because they ran out of money. It's the only way I can see the balloon deflate...that or Musk resigning
I am curious what conversations if any DOJ has had with Kirkhorn. It is extremely rare to be able to find someone in the C Suite who was unceremenoiusly booted from Tesla and has all the inner workings and chinks in the armor of the naked emperor
"the proxy statement describes one of the key motivations for the 2018 grant of stock options as incentivizing Musk to cause Tesla to “[a]dvance autonomous technology to create a fully-self driving future.”
The milestone targets that triggered each tranche of the CEO compensation plan made no reference to "advancing autonomous technology". The milestones were triggered by Market Cap plus a combination of either annual revenue or adjusted EBITDA. Nowhere in the plan is there any incentive tied to autonomous driving.
You are, of course, correct. Obviously, I didn't write the latest proxy statement. Tesla's lawyers did. Probably the outside lawyers. The latest proxy statement reads like a cheerleading speech, but certainly fails when subjected to a logical consistency test. But there it is, at the bottom of page 76:
"With these goals [including the "advance" of "autonomous technology"], in 2018 the Board believed that Tesla had the potential to become one of the most valuable companies in the world. The 2018 CEO Performance Award was based on a vision of making Tesla a $650 billion company — more than ten times more valuable than it was at the beginning of 2018 — and accomplishing Tesla’s mission of accelerating the world’s transition to sustainable energy."
So, you see, an explicit tie of "autonomous driving" to the 2018 compensation award. Given that explicit tie, and the others I mentioned, the failure to discuss the DOJ investigation or - for that matter - the two recent NHTSA publications, is an egregious omission of material facts.
Yes, the two NHTSA publications post-date the proxy statement, but amendments & supplements to proxy statements are not uncommon.
A further thought: perhaps Tesla was not eager to highlight the market cap, revenue, and adjusted EBITDA tests because those metrics are now retreating such that Musk would no longer earn three of the 12 tranches, with more erosion this year highly likely.
Is it not somewhat an omission to not mention these facts also? I know not directly relevant due to the original timeline, but surely indirectly relevant in terms of assessing if he 'earned' the awards judged by the current time
Good point. Seems pretty material, no? I'm guessing ISS and Glass Lewis will have something to say about this. I've certainly been banging the drum about it.
The other performance goals in the compensation plan were too low for a company with a sustainable $650 billion market cap.
The goals that were met to achieve the 12 tranches were revenue of $75 billion and Adjusted EBITDA (that is EBITDA plus share based compensation) of $14 billion. Neither of those goals implies a market cap of $650 billion, especially in the automotive business.
Quite true, of course. The EBITDA/revenue multiple was benchmarked to those of Amazon, Apple, and Google, and even then was quite low. Imagine if it had been benchmarked to an auto company. The Tornetta decision discusses this; see especially page 71-72. There was no effort at all by the Comp Committee to benchmark either revenues or EBITDA to the market cap of auto companies.
Great work Lawrence, as always
Thanks
Harry
1. A Delaware court has nullified the award, can a new shareholder vote overturn the court's decision?
2. If the shareholder vote does not have the power to overturn the court's decision, what is the next step. For the appeal to proceed, the judge has asked for the payment of a legal fee and the submission of a proposal for a more amenable award, would Tesla be allowed to proceed to appeal without paying the fee? or proposing a more amenable award?
3. Is there anyway for Tesla to re-instate this award without going through the appeal process, except by calling it a new award, accounting for it as such and opening itself up to another court case?
4. Does moving to Texas allow them to overturn a decision that was made by a Delaware court while the company was resident in Delaware?
5. If a vote is taken to grant an award while the company is resident in Delaware and the company moves to Texas, which state has jurisdiction over the grant of the award?
This stuff is way too complicated for me.
All great questions of interest to me.
1. To be determined, but there are at least arguments it cannot. First, it amounts to corporate waste (which could be ratified only by a unanimous shareholder vote. Second, Section 204 of the DGCL is designed to allow ratification where there have been problems with statutory authorization, but I can find no case where it has been used to ratify a breach of fiduciary duty.
2. I am uncertain about the rules in the Delaware Court of Chancery, and so do not know whether an appeal could go forward without Tesla first paying the legal fee. Recall that Tornetta is seeking shares of stock in lieu of cash. Assuming stock is what the Court will award, here is a guess: given that it is a court of equity, a satisfactory equitable ruling might be that Tesla can go forward, but if the appeal fails, then the award of stock for legal fees will be, in effect, liquidated to a dollar amount, so that if the share price changes between the date of the order awarding attorneys' fees and the date on which those fees are finally paid, the number of shares must be adjusted (plus some further adjustment for interest).
3. That is exactly what Tesla is attempting with the "ratification" vote. See answer to your Question 1. If the ratification effort fails, either because the shareholders vote it down or because it is found legally defective, then Tesla must make an entirely new award. Presumably it would attempt to do so under Texas corporate law. But, as you know better than anyone, the accounting for the compensation expense would all but preclude such a new award.
4. No. I can't see how. But I have read that Tornetta has filed one or more motions in Delaware aimed at getting a ruling on this point.
5. If it is a brand new award, as opposed to a ratification of one made in Delaware, then the answer is uncertain. I would guess Texas. But, IMO, the Delaware Court of Chancery is the only court with jurisdiction to adjudicate a dispute about the attempt to ratify the 2018 comp package.
If you have more or different views, I would appreciate learning about them.