Gail Weinstein is a Senior Counsel, Philip Richter is a Partner, and Steven Epstein is Managing Partner, at Fried, Frank, Harris, Shriver & Jacobson LLP. This post is based on a Fried Frank memorandum by Ms. Weinstein, Mr. Richter, Mr. Epstein, Steven Steinman, Maxwell Yim, and Rati Ranga, and is part of the Delaware law series; links to other posts in the series are available here.
In Tornetta v. Musk (Jan. 30, 2024, “Tornetta I”), the Delaware Court of Chancery ordered rescission of the 10-year equity compensation plan for Elon Musk (Tesla, Inc.’s chief executive) that had been approved by Tesla’s board and the stockholders unaffiliated with Musk. Under the plan, Musk was awarded several tranches of performance-vesting stock options, with an estimated value of approximately $56 billion (now worth about $100 billion based on Tesla’s current stock price). All of the stock options had vested, as Tesla met all of the growth objectives specified in the plan, but Musk had not exercised any of the options. The court’s decision eliminated all of the compensation provided for under the plan.
Following Tornetta I, Tesla provided to the stockholders additional disclosure about the compensation plan and the court’s decision, and the stockholders unaffiliated with Musk again approved the same plan, for the stated purpose of ratifying it. Tesla then requested that, in light of the stockholders’ ratification, the court revise its decision to rescind the plan. In the most recent decision in the case (Dec. 2, 2024, “Tornetta II”), the court rejected the request to revise its decision rescinding the plan.
