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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No.   )
Filed by the Registrant ☒
Filed by a Party other than the Registrant ☐
Check the appropriate box:

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material under §240.14a-12
TESLA, INC.
(Name of Registrant as Specified In Its Charter)
   
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check all boxes that apply):

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Fee paid previously with preliminary materials.

Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a6(i)(1) and 0-11

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Company Highlights
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Letter to Stockholders
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Dear Fellow Stockholders,
We could call 2023 a watershed year for Tesla, with many defining moments. However, for Tesla — in light of our past accomplishments — 2023 could also be called just a typical year of triumphs and achievements. In 2023, the Model Y became the best-selling vehicle in the world, we launched our new Model 3 lineup, saw tremendous strides in our quest for FSD and we began deliveries of our innovative and highly anticipated Cybertruck. We also witnessed the beginning of the significant growth of our Energy Storage and Services and Other businesses. We believe these types of triumphs and achievements are normal course for Tesla because Tesla is a nimble organization with an unmatched pace of innovation that has resulted in products and services that surpass all expectations driven by visionary leadership and most importantly the best and most dedicated employees in the world. We want to thank all of our employees for their outstanding efforts.
Of course, a key part of this nimble organization requires careful management of our resources. We recently announced a company-wide restructuring that reduces our headcount by more than 10% globally. Over the years, we have grown rapidly with multiple factories scaling around the globe. With this rapid growth, there has been a duplication of roles and job functions in certain areas. We believe it is extremely important to look at every aspect of our business for cost reductions and increasing productivity. This action will prepare us for our next phase of growth, as we are developing some of the most revolutionary technologies in auto, energy and artificial intelligence.
With Your Vote in the 2024 Annual Meeting, Tesla Will Thrive.
Our stockholders drive Tesla. Your votes and your voices make critical decisions for the future of our company, and we have and want to continue to listen to you. That is why we are asking for your support for all of our management proposals including re-election of two of our hardworking and dedicated directors, Kimbal Musk and James Murdoch. However, there are two important proposals that I want to touch on here, that we believe are critical to the future success of Tesla, both of which were recommended following a rigorous and thoughtful analysis by an independent Special Committee, comprised of another one of our hardworking and dedicated directors in Kathleen Wilson-Thompson:
1.
Approving moving Tesla’s state of incorporation from Delaware to Texas (Proposal Three); and
2.
Ratifying Elon Musk’s compensation under the CEO pay package that our stockholders previously approved at our 2018 special meeting (Proposal Four).
Texas Is Tesla’s Home.
2024 is the year that Tesla should move home to Texas. We are asking for your vote to approve Tesla’s move from Delaware, our current state of incorporation, to a new legal home in Texas. Texas is already our business home, and we are committed to it. Gigafactory Texas is one of the largest factories in the United
 

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States, covering 2,500 acres along the Colorado River. The Gigafactory is the manufacturing hub for our most innovative vehicles, including the Cybertruck and the Model Y. We have a significant number of manufacturing, operations, and engineering employees in Texas, and our executives are based there. Texas is where we should continue working towards our mission of accelerating the world’s transition to sustainable energy, as we lay the foundation for our growth with our ramp and build of factories for our future vehicles and to help meet the demand for energy storage as well as with our progress in artificial intelligence via full self-driving and Optimus.
We have received letters from thousands of Tesla stockholders — large and small — supporting a move home to Texas. We have heard you, and now we formally ask that you speak in a meaningful way: and vote in favor of taking Tesla to our business home of Texas.
Ratification Will Restore Tesla’s Stockholder Democracy.
Corporate democracy and stockholder rights are at the heart of Tesla’s values. Earlier this year, a Delaware Court ruling in Tornetta v. Musk (which can be found as Annex I to this Proxy Statement) struck down one of your votes and rescinded the pay package that an overwhelming majority of you voted to grant to our CEO, Elon Musk, in 2018. The Tornetta Court decided, years later, that the CEO pay package was not “entirely fair” to the very same stockholders who voted to approve it — even though approximately 73% of all votes cast by our disinterested stockholders voted to approve it in 2018. Because the Delaware Court second-guessed your decision, Elon has not been paid for any of his work for Tesla for the past six years that has helped to generate significant growth and stockholder value. That strikes us — and the many stockholders from whom we already have heard — as fundamentally unfair, and inconsistent with the will of the stockholders who voted for it.
The 2018 CEO pay package required Elon to deliver transformative and unprecedented growth to earn any compensation. It was a big risk, and many thought that the plan’s targets for benefits to stockholders were simply unachievable. But our company and our leaders have always had big dreams and it is fundamental to the entrepreneurial spirit of Tesla to take big risks for the chance at big rewards. This has led to the incredible innovation and progress — and economic gains — that we have achieved at Tesla. In 2018, we asked for unbelievable growth and accomplishments. Elon delivered: Tesla’s stockholders have benefited from unprecedented growth under Elon’s leadership and Tesla has met every single one of the 2018 CEO pay package’s targets. And — most importantly for the future of Tesla — the 2018 CEO pay package built in further incentives to benefit Tesla stockholders by requiring that Elon hold onto any shares he receives when he exercises his options for five years — which means he will continue to be driven to innovate and drive growth at Tesla because the value of his shares will depend on it!
 

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The Board stands behind this pay package. We believed in it in 2018, as we asked Elon to pursue remarkable goals to grow the company. You, as stockholders, also believed in it in 2018 when you overwhelmingly approved it. Time and results have only shown the wisdom of our judgment.
We do not agree with what the Delaware Court decided, and we do not think that what the Delaware Court said is how corporate law should or does work. So we are coming to you now so you can help fix this issue — which is a matter of fundamental fairness and respect to our CEO. You have the chance to reinstate your vote and make it count. We are asking you to make your voice heard — once again — by voting to approve ratification of Elon’s 2018 compensation plan.
Thank you for your continued support of Tesla, and, together with my fellow Board members, I hope you can join us for our 2024 annual meeting on June 13, 2024 at 3:30 p.m. Central Time.
Very truly yours,
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Robyn Denholm
Chairperson of the Board
 

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Notice of 2024 Annual Meeting of Stockholders
TO BE HELD ON JUNE 13, 2024
Dear Tesla Stockholders:
Tesla, Inc. (the “Company,” “Tesla,” “we,” “us” or “our”) are pleased to inform you that our 2024 Annual Meeting of Stockholders (the “2024 Annual Meeting”) will be held on June 13, 2024, at 3:30 p.m. Central Time, both virtually via the Internet at http://www.virtualshareholdermeeting.com/TSLA2024 and in person for a limited number of stockholders at Tesla’s Gigafactory Texas located at 1 Tesla Road, Austin, Texas 78725. For your convenience, we will also webcast the 2024 Annual Meeting live via the Internet at www.tesla.com/2024shareholdermeeting. The agenda of the 2024 Annual Meeting will be the following items of business, which are more fully described in this proxy statement:
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June 13, 2024,
3:30 p.m. Central Time
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Gigafactory Texas
1 Tesla Road
Austin, Texas 78725
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virtually:
http://www.virtualshareholdermeeting.com/
TSLA2024
Agenda Item
Tesla Proposals
Board Vote Recommendation
1.
A Tesla proposal to elect two Class II directors to serve for a term of three years, or until their respective successors are duly elected and qualified (“Proposal One”).
“FOR EACH COMPANY NOMINEE”
2.
A Tesla proposal to approve executive compensation on a non-binding advisory basis (“Proposal Two”).
“FOR”
3.
A Tesla proposal to approve the redomestication of Tesla from Delaware to Texas by conversion (“Proposal Three”).
“FOR”
4.
A Tesla proposal to ratify the 100% performance-based stock option award to Elon Musk that was proposed to and approved by our stockholders in 2018 (“Proposal Four”).
“FOR”
5.
A Tesla proposal to ratify the appointment of PricewaterhouseCoopers LLP as Tesla’s independent registered public accounting firm for the fiscal year ending December 31, 2024 (“Proposal Five”).
“FOR”
Stockholder Proposals
6.
A stockholder proposal regarding reduction of director terms to one year, if properly presented (“Proposal Six”).
“AGAINST”
7.
A stockholder proposal regarding simple majority voting provisions in our governing documents, if properly presented (“Proposal Seven”).
“AGAINST”
8.
A stockholder proposal regarding annual reporting on anti-harassment and discrimination efforts, if properly presented (“Proposal Eight”).
“AGAINST”
 

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Agenda Item
Tesla Proposals
Board Vote Recommendation
9.
A stockholder proposal regarding adoption of a freedom of association and collective bargaining policy, if properly presented (“Proposal Nine”).
“AGAINST”
10.
A stockholder proposal regarding reporting on effects and risks associated with electromagnetic radiation and wireless technologies, if properly presented (“Proposal Ten”).
“AGAINST”
11.
A stockholder proposal regarding adopting targets and reporting on metrics to assess the feasibility of integrating sustainability metrics into senior executive compensation plans, if properly presented (“Proposal Eleven”).
“AGAINST”
12.
A stockholder proposal regarding committing to a moratorium on sourcing minerals from deep sea mining, if properly presented (“Proposal Twelve”).
“AGAINST”
All stockholders as of the close of business on April 15, 2024 are cordially invited to attend the 2024 Annual Meeting virtually via the Internet at http://virtualshareholdermeeting.com/TSLA2024. We will also accommodate a limited number of stockholders in person at Gigafactory Texas.
We are providing our proxy materials to our stockholders over the Internet. This reduces our environmental impact and our costs while ensuring our stockholders have timely access to this important information. Accordingly, stockholders of record at the close of business on April 15, 2024 will receive a Notice of Internet Availability of Proxy Materials (the “Notice of Internet Availability”) with details on accessing these materials. Beneficial owners of Tesla common stock at the close of business on April 15, 2024 will receive separate notices on behalf of their brokers, banks or other intermediaries through which they hold shares.
Proposal Four Notice:   For purposes of Section 204 of the DGCL (as defined below), at a meeting on April 16, 2024, the Board determined that the 2018 CEO Performance Award (as defined below) may be deemed to be a “defective corporate act” as defined in Section 204 of the DGCL to be ratified. The date of such “defective corporate act” is March 21, 2018. The Board concluded that the nature of the “failure of authorization” as defined in Section 204 of the DGCL in respect of the 2018 CEO Performance Award was the failure of the 2018 CEO Performance Award to have obtained the necessary stockholder approval due to certain defects in the disclosures in the Company's proxy statement for the 2018 Special Meeting. The Board has approved the ratification of the defective corporate act. Pursuant to Section 204 of the DGCL, any claim that the defective corporate act ratified hereunder is void or voidable due to the failure of authorization, or that the Delaware Court of Chancery should declare in its discretion that a ratification in accordance with this section not be effective or be effective only on certain conditions must be brought within 120 days from the applicable validation effective time. The information contained in this section of the notice is being provided solely for purposes of any ratification pursuant to Section 204 of the DGCL and not for any other purpose.
Your vote is very important. Whether or not you plan to attend the 2024 Annual Meeting, we encourage you to read the proxy statement and vote as soon as possible. For specific instructions on how to vote your shares, please refer to the section entitled “Questions and Answers About the 2024 Annual Meeting and Procedural Matters” and the instructions on the Notice of Internet Availability or the notice you receive from your broker, bank or other intermediary.
Thank you for your ongoing support of Tesla.
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Elon Musk
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Robyn Denholm
 

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Proxy Statement for 2024 Annual Meeting of Stockholders
Table of Contents
1
3
6
6
General
6
Nominees for Class II Directors
7
Information Regarding the Board and Director Nominees
16
16
General
16
18
21
64
92
92
General
92
Principal Accounting Fees and Services
92
Pre-Approval of Audit and Non-Audit Services
94
94
95
Opposing Statement of the Board
96
96
96
Opposing Statement of the Board
98
98
99
Opposing Statement of the Board
101
101
102 Opposing Statement of the Board
104
104
105 Opposing Statement of the Board
107
107
108 Opposing Statement of the Board
110
110 Stockholder Proposal and Supporting Statement
111 Opposing Statement of the Board
 

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112
112
Succession Planning
112
Code of Business Ethics and Corporate Governance Guidelines
112
Director Independence
113
Board Leadership Structure
114
Board Role in Risk Oversight
114
Board Meetings and Committees
118
118
Process and Considerations for Nominating Board Candidates
119
Board Diversity
120
120
Stock Transactions
121
Contacting the Board
122
123
123
Compensation Discussion and Analysis
134
Compensation Committee Report
135
Summary Compensation Table
135
Pay Ratio Disclosure
136
Pay Versus Performance
142
Grants of Plan-Based Awards in 2023
142
Outstanding Equity Awards at 2023 Fiscal Year-End
143
2023 Option Exercises and Stock Vested
143
143
Compensation of Directors
145
Pledging of Shares
146
Equity Compensation Plan Information
147
147
147
149
150
152
155
156
A-1
B-1
C-1
D-1
E-1
F-1
G-1
H-1
I-1
J-1
 

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TESLA, INC.
1 Tesla Road
Austin, Texas 78725
Proxy Statement
For 2024 Annual Meeting of Stockholders
Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to be Held on June 13, 2024
The proxy statement and annual report are available at www.proxyvote.com.
In accordance with U.S. Securities and Exchange Commission (the “SEC”) rules, we are providing access to our proxy materials over the Internet to our stockholders rather than in paper form, which reduces the environmental impact of our annual meeting and our costs.
Accordingly, if you are a stockholder of record, a one-page Notice of Internet Availability of Proxy Materials has been mailed to you on or about          , 2024. Stockholders of record may access the proxy materials on the website listed above or request a printed set of the proxy materials be sent to them by following the instructions in the Notice of Internet Availability. The Notice of Internet Availability also explains how you may request that we send future proxy materials to you by e-mail or in printed form by mail. If you choose the e-mail option, you will receive an e-mail next year with links to those materials and to the proxy voting site. We encourage you to choose this e-mail option, which will allow us to provide you with the information you need in a timelier manner, save us the cost of printing and mailing documents to you and conserve natural resources. Your election to receive proxy materials by e-mail or in printed form by mail will remain in effect until you terminate it.
If you are a beneficial owner, you will not receive a Notice of Internet Availability directly from us, but your broker, bank or other intermediary will forward you a notice with instructions on accessing our proxy materials and directing that organization how to vote your shares, as well as other options that may be available to you for receiving our proxy materials.
Please refer to the question entitled “What is the difference between holding shares as a stockholder of record or as a beneficial owner?” below for important details regarding different forms of stock ownership.
Forward-Looking Statements
The discussions in this Proxy Statement contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 reflecting our current expectations that involve risks and uncertainties. These forward-looking statements include, but are not limited to, statements concerning our goals, commitments, and strategies, our plans and expectations regarding our goals, commitments, strategies and mission, our plans and expectations regarding the Texas Redomestication (as defined herein) and the Ratification (as defined herein), expectations regarding the future of litigation in Texas, including the expectations and timing related to the Texas business court, expectations regarding the continued CEO innovation and incentivization under the Ratification, potential benefits, implications, risks or costs or tax effects, costs savings or other related implications associated with the Texas Redomestication or the Ratification, expectations about stockholder intentions, views and reactions, the avoidance of uncertainty regarding CEO compensation through the Ratification, the ability to avoid future judicial or other criticism through the Ratification, our future financial position, expected cost or charge reductions, our executive compensation program, expectations regarding demand and acceptance for our technologies, growth opportunities and trends in the markets in which we operate, prospects and plans and objectives of management. The words “anticipates,” “believes,” “continues,” “could,” “design,” “drive,” “estimates,” “expects,” “future,” “goals,” “intends,” “likely,” “may,” “plans,” “potential,” “seek,” “sets,”
 
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“shall,” “should,” “spearheads,” “spurring,” “will,” “would,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements that we make. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, risks related to the Texas Redomestication and the Ratification and the risks set forth in Part I, Item 1A, “Risk Factors” of the Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and that are otherwise described or updated from time to time in our other filings with the Securities and Exchange Commission (the “SEC”). The discussion of such risks is not an indication that any such risks have occurred at the time of this filing. We do not assume any obligation to update any forward-looking statements.
 
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Investor Outreach and Engagement
Our Approach
Our unique business requires a unique approach to corporate governance, and our mission requires a long-term focus that we believe will ultimately maximize value to our employees and our stockholders. Our corporate governance structure has facilitated several key decisions which have set Tesla up to achieve long-term success and our mission to accelerate the world’s transition to sustainable energy.
Some examples include our decisions to:

Manufacture all-electric vehicles from the ground up rather than being a mere supplier of EV components;

Establish an international network of our stores, service centers and Supercharger stations despite regulatory hurdles and the significant capital outlay required to do so;

Build Gigafactory Nevada, the largest lithium-ion battery factory in the world, so that we can scale most effectively;

Expand into energy generation and storage through the acquisition of SolarCity Corporation (“SolarCity”) in 2016 to create a vertically integrated sustainable energy company and empower individual consumers to be their own utility;

Deploy FSD (Supervised) incrementally, resulting in over one billion cumulative miles driven with FSD (Supervised) to date; and

Compensate our CEO only if other stockholders realize tremendous value.
These and other similar decisions were made due to our corporate governance structure and, ultimately, decisions like these are what differentiate Tesla from other companies.
Year-Round Engagement
Our Board of Directors (the “Board”) continuously evaluates our corporate governance structure, practices and policies, and weighs stakeholder feedback.
It is important to our Board that the Company speaks with our stockholders and is responsive to engagement and believes that stockholder and stakeholder perspectives are important to our Company’s success. The Board maintains an active, year-round dialogue with our largest stockholders to ensure that Tesla’s Board and management understand and consider the issues that matter most to our stockholders. This includes focused one-on-one meetings between our Board and stockholders throughout the year that are designed to give institutional stockholders an opportunity to better understand our strategy and governance and raise any concerns, and allow our directors to become better informed about our stockholders’ views and concerns. We pursue multiple avenues for stockholder engagement, including video and teleconference meetings with our stockholders, participating at various conferences, engaging with proxy and other advisory firms, issuing periodic reports on our activities, and receiving feedback from our retail holders.
Board Responsiveness
Through the Board’s engagement program discussed above, we have received, and continue to periodically receive, helpful input regarding a number of stockholder-related matters. Moreover, members of the Board and management from time to time seek input from our investors when considering important corporate actions, including our consideration of, and responses to, stockholder proposals that involve corporate governance and alignment with stockholder interests. As a result, we have adopted a number of significant changes, including, but not limited to:

Progressively adding directors who are independent under the requirements of The Nasdaq Stock Market LLC (“Nasdaq”) and bring additional viewpoints and key skills in different areas as
 
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we evolve, including Kathleen Wilson-Thompson in 2018, Hiromichi Mizuno in 2020, Joe Gebbia in 2022 and JB Straubel in 2023;

Following the passing proposal at the Annual Meeting of Stockholders in 2022 (the “2022 Annual Meeting”) relating to proxy access, meeting with key stockholders to discuss their views and formulate a framework to address the proposal, after which the Board voted to amend the bylaws of the Company to enable proxy access, in such a manner as to reflect such stockholder views;

Hosting Investor Day in March 2023, in which Tesla leaders presented on key areas important to our success, affording stockholders more detailed assessments of the performance, achievements, growth opportunities and areas of focus for our businesses, and addressing stockholder feedback requesting greater visibility into our business leaders and roadmap;

Amending our pledging policy to (i) cap the aggregate loan or investment amount that can be collateralized by the pledged stock of our CEO to the lesser of $3.5 billion or twenty-five percent (25%) of the total value of the pledged stock, and (ii) lower the percentage used to calculate the maximum loan or investment amount borrowable by directors and officers (other than our CEO) based on the total value of such director or officer’s pledged stock from 25% to 15%;

Enhancing our proxy statement disclosures, including with respect to our corporate governance approach, succession planning, risk oversight, Committee engagement and director skills;

Publishing an annual Impact Report, and providing disclosures including those aligned with the Task Force on Climate-Related Financial Disclosures (TCFD) and Sustainability Accounting Standards Board recommendations, as well as EEO-1 data; and

Recommending management proposals in prior years, including at the 2022 Annual Meeting, to reduce director terms and eliminate applicable supermajority voting requirements.
This year, we will be publishing our sixth annual Impact Report with enhanced disclosures across people, environment, product and supply chain. In response to stockholder engagement, in 2023 we began expanding Scope 3 emissions disclosures and continued our alignment with the TCFD’s recommended climate related disclosures. We will expand our environmental disclosures, as well as disclosures on the culture we continue to build and enhance at Tesla, how we engage and aim to retain our employees, progress we are making on displacing fossil fuels, the efficiency and safety of our products and how we manage risks in the supply chain, among many other topics. For further information, please navigate to the “Impact” page of the Investor Relations section on our website. We intend to publish our 2023 Report by the end of May 2024. Information contained on, or accessible through, our website and in our Impact Report, is not incorporated in, and is not part of, this proxy statement or any other report or filing we make with the SEC.
Our Board’s Commitment to Governance
Our Board believes in maintaining stockholder confidence through, among other things, demonstrating its responsiveness to stockholder feedback and its commitment to corporate governance. Accordingly, to provide an enhanced voice to our stockholders in approving fundamental corporate matters, the Board is committed to enabling the elimination of certain supermajority voting requirements in our charter and bylaws through the process outlined below.
In recent years, our Board repeatedly proposed amendments to our certificate of incorporation and bylaws to reduce director terms and/or to eliminate certain supermajority voting. However, such amendments failed to pass each time that the Board proposed them. Because the affirmative vote of at least 6623% of the total outstanding shares entitled to vote is required to approve such amendments, similar proposals cannot pass unless we achieve such a stockholder participation rate.
In response to not reaching the required stockholder participation rate, beginning in 2022, we took active steps in an effort to further increase the participation rate of our retail investors through the development of our Shareholder Platform (discussed below), outreach campaigns, direct mailings, one-on-one engagements and through social media channels. This resulted in achieving, in 2022, our highest stockholder participation rate in the last five years of over 63%, though still short of the required 6623% participation rate.
 
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We will continue to marshal our resources and continue our efforts to further increase retail investor participation rates as rapidly as possible, including through an active communications campaign via our Shareholder Platform and social media channels encouraging retail stockholders to vote their shares.
Once we have achieved a total stockholder participation rate of at least 65% at a stockholder meeting, the Board will again propose charter and bylaw amendments to eliminate supermajority voting requirements. To the extent that this proposal to eliminate supermajority voting requirements achieves the required threshold to pass, this will unlock a gateway for our Board and stockholders to adopt further stockholder-driven governance actions, including, without limitation, the right for stockholders to act by written consent or to call a special meeting, and the declassification of the Board, as may be appropriate in accordance with law. Furthermore, as previously discussed, the Board is consistently listening and receptive to taking further governance actions when appropriate.
Shareholder Platform
In 2022, building on our efforts to enhance engagement among our retail stockholder base, Tesla launched our Shareholder Platform. Any Tesla stockholder, regardless of holdings size, can sign up to stay informed about investor-related topics such as quarterly filings and event announcements, and are eligible for selection to participate in in-person Tesla events such as the Tesla Semi launch event, AI Day 2, Investor Day and the Cybertruck delivery event. Tesla has one of the largest retail stockholder bases of any public company. Our retail stockholders are incredibly engaged and tend to have a very strong understanding of the Company, and are an important base of support and feedback for management and the Board. We will continue to build the system to maximize depth of engagement and reach. Our goal is for every retail stockholder who wants to engage with the Company to have a meaningful framework for interaction through the Shareholder Platform.
Hybrid Annual Stockholder Meetings
Beginning in 2020, we have conducted our annual meetings both in-person and online through a live webcast and online stockholder tools. Our online format opens up engagement to all stockholders, regardless of the amount of stock owned and geography, and allows our substantial retail stockholder population to hear directly from our Board and management, as well as to submit questions online. At the same time, due to investor feedback and interest, we continue to also host our meetings in-person so stockholders have the opportunity to engage with our Board and management in-person.
 
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Management Proposals
Proposal One
Tesla Proposal for Election of Directors
General
Tesla’s Board currently consists of eight members who are divided into three classes with staggered three-year terms. Our bylaws permit the Board to establish by resolution the authorized number of directors, and eight directors are currently authorized. Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of an equal number of directors. The Board and the Nominating and Corporate Governance Committee will continue to frequently evaluate the optimal size and composition of the Board to allow it to operate nimbly and efficiently, while maintaining new ideas, expertise and experience among its membership.
Nominees for Class II Directors
Two candidates have been nominated for election as Class II directors at the 2024 Annual Meeting for a three-year term expiring in 2027.
Upon recommendation of the Nominating and Corporate Governance Committee, the Board has nominated James Murdoch and Kimbal Musk for election as Class II directors. Biographical information about each of the nominees is contained in the following section. A discussion of the qualifications, attributes and skills of each nominee that led the Board and the Nominating and Corporate Governance Committee to the conclusion that he should be elected or continue to serve as a director follows each of the director and nominee biographies.
If you are a stockholder of record and you sign your proxy card or vote by telephone or over the Internet but do not give instructions with respect to the voting of directors, your shares will be voted “FOR” the election of Messrs. Murdoch and Musk. Each of Messrs. Murdoch and Musk has accepted such nomination; however, in the event that a nominee is unable or declines to serve as a director at the time of the 2024 Annual Meeting, the proxies will be voted for any nominee who shall be designated by the Board to fill such vacancy. If you wish to give specific instructions with respect to the voting of directors, you may do so by indicating your instructions on your proxy card or when you vote by telephone or over the Internet. If you are a beneficial owner holding your shares in street name and you do not give voting instructions to your broker, bank or other intermediary, that organization will leave your shares unvoted on this matter.
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The Board recommends a vote FOR the Tesla proposal for the election of Kimbal Musk and James Murdoch.
 
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Information Regarding the Board and Director Nominees
The names of the members of the Board and Tesla’s director nominees, their respective ages, their positions with Tesla and other biographical information as of April 16, 2024, are set forth below. Except for Messrs. Elon Musk (“Mr. Musk”), our Chief Executive Officer and a director, and Kimbal Musk, a director, who are brothers, there are no other family relationships among any of our directors or executive officers.
Name
Chair of the
Board
Audit
Committee
Compensation
Committee
Nominating
and
Corporate
Governance
Committee
Disclosure
Controls
Committee
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Elon Musk
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Robyn Denholm
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Ira Ehrenpreis
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Joe Gebbia
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James Murdoch
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Kimbal Musk
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JB Straubel
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Kathleen Wilson-Thompson
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Director Bios
   
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ELON MUSK
Age: 52
Director Since: 2004
Career Highlights
Elon Musk has served as our Chief Executive Officer since October 2008. Mr. Musk has also served as Chief Executive Officer, Chief Technology Officer and Chairman of Space Exploration Technologies Corporation, a company which develops and launches advanced rockets and spacecraft (“SpaceX”), since May 2002, served as Chairman of the Board of SolarCity Corporation, a solar installation company, from July 2006 until its acquisition by us in November 2016, served as Chief Technology Officer of X Corp, a social media company (“X”), since October 2022 and served as the Chief Executive Officer of x.AI Corp, an artificial intelligence company, since March 2023. Mr. Musk is also a founder of The Boring Company (“TBC”), an infrastructure company, and Neuralink Corporation, a company focused on developing brain-machine interfaces. Prior to SpaceX, Mr. Musk co-founded PayPal, an electronic payment system, which was acquired by eBay in October 2002, and Zip2 Corporation, a provider of Internet enterprise software and services, which was acquired by Compaq in March 1999. Mr. Musk also served on the board of directors of Endeavor Group Holdings, Inc. from April 2021 to June 2022.
Mr. Musk holds a B.A. in physics from the University of Pennsylvania and a B.S. in business from the Wharton School of the University of Pennsylvania.
Impact
As our Chief Executive Officer, one of our founders and our largest stockholder, Mr. Musk brings historical knowledge, operational and technical expertise and continuity to the Board. Mr. Musk guided Tesla from an early-stage startup, through its IPO in 2010, to transformative growth into one of the most valuable companies in the world. Mr. Musk’s leadership and unique vision has played a key role in our mission to accelerate the world’s transition to sustainable energy.
   
 
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ROBYN DENHOLM
Age: 60
Director Since: 2014
Committee Membership

Audit (Chair)

Compensation

Nominating and Corporate Governance

Disclosure Controls (Chair)
Career Highlights
Ms. Denholm has been Chair of the Board since November 2018. Since January 2021, Ms. Denholm has been an operating partner of Blackbird Ventures, a venture capital firm. She is also the Inaugural Chair of the Technology Council of Australia. From January 2017 through June 2019, Ms. Denholm was with Telstra Corporation Limited, a telecommunications company (“Telstra”), where she served as Chief Financial Officer and Head of Strategy from October 2018 through June 2019, and Chief Operations Officer from January 2017 to October 2018. Prior to Telstra, from August 2007 to July 2016, Ms. Denholm was with Juniper Networks, Inc., a manufacturer of networking equipment, serving in executive roles including Executive Vice President, Chief Financial Officer and Chief Operations Officer. Prior to joining Juniper Networks, Ms. Denholm served in various executive roles at Sun Microsystems, Inc. from January 1996 to August 2007. Ms. Denholm also served at Toyota Motor Corporation Australia for seven years and at Arthur Andersen & Company for five years in various finance assignments. Ms. Denholm previously served as a director of ABB Ltd. from 2016 to 2017. Ms. Denholm is a Fellow of the Institute of Chartered Accountants of Australia/New Zealand, a member of the Australian Institute of Company Directors, and holds a Bachelor’s degree in Economics from the University of Sydney, and a Master’s degree in Commerce and a Doctor of Business Administration (honoris causa) from the University of New South Wales.
Impact
Ms. Denholm brings nearly 30 years of executive leadership experience at both NYSE and Nasdaq listed companies, including significant risk management, financial and accounting expertise, as well as technology leadership experience. Ms. Denholm has extensive knowledge of both the automotive and technology industries, including serving as the Chief Financial Officer and Chief Operations Officer of two technology companies.
 
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IRA EHRENPREIS
Age: 55
Director Since: 2007
Committee Membership

Compensation (Chair)

Nominating and Corporate Governance (Chair)
Career Highlights
Mr. Ehrenpreis has been a venture capitalist since 1996. He is a founder and managing member of DBL Partners, a leading impact investing venture capital firm formed in 2015. Previously, he led the Energy Innovation practice at Technology Partners. Mr. Ehrenpreis has served on the board and Executive Committee, including as Annual Meeting Chairman, of the National Venture Capital Association (NVCA). Mr. Ehrenpreis currently serves as the Chairman of the VCNetwork, the largest and most active California venture capital organization, and as the President of the Western Association of Venture Capitalists (WAVC), the oldest venture capital organization in California. Mr. Ehrenpreis is also deeply involved in the energy technology sector. He currently serves on the National Renewable Energy Laboratory (NREL) Advisory Council, the University of Texas at Austin Energy Institute Advisory Board, and the Stanford Precourt Institute for Energy Advisory Council, and has served on the advisory boards of many industry groups, including the American Council on Renewable Energy, the Cleantech Venture Network (Past Chairman of Advisory Board) and the Stanford Global Climate and Energy Project (GCEP). He was also Chairman of the Clean-Tech Investor Summit for nine years. Mr. Ehrenpreis served for years as the Chairman of the Silicon Valley Innovation & Entrepreneurship Forum (SVIEF) and on the Advisory Board of the Forum for Women Entrepreneurs (FWE). Mr. Ehrenpreis is an inductee of the International Green Industry Hall of Fame. In 2018, the National Venture Capital Association awarded Mr. Ehrenpreis with the industry’s “Outstanding Service Award” for career contributions to the venture capital industry. In 2023, the Japan Society of Northern California honored Mr. Ehrenpreis with its 2023 Visionary Award for his “Pioneering Leadership in Impact Investing and the Global Sustainability Community.” Mr. Ehrenpreis was awarded the 2018 NACD Directorship 100 for his influential leadership in the boardroom and corporate governance community. Mr. Ehrenpreis holds a B.A. from the University of California, Los Angeles and a J.D. and M.B.A. from Stanford University.
Impact
Mr. Ehrenpreis is an acknowledged leader in the energy, technology, impact and venture capital industries, where he serves on several industry boards, and brings valuable insights in corporate governance, strategic growth and stockholder values. Mr. Ehrenpreis’ long tenure on Tesla’s Board also provides the Company with stability and experience as it navigates through different challenges.
 
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JOE GEBBIA
Age: 42
Director Since: 2022
Committee Membership

Audit
Career Highlights
Mr. Gebbia co-founded Airbnb, Inc. in 2008 and has served on Airbnb’s board of directors since 2009. In 2022, Mr. Gebbia launched Samara, which produces fully customized, factory-made homes designed to create rental income, house family, support work from home, or bundled together, to form new types of housing communities. Mr. Gebbia received dual degrees in Graphic Design and Industrial Design from the Rhode Island School of Design, where he currently serves on the institution’s Board of Trustees. Mr. Gebbia is the Chairman of Airbnb.org, and also serves on the Olympic Refuge Foundation and leadership councils for UNHCR, Tent.org and Malala Fund. Mr. Gebbia is a sought-after speaker on design and entrepreneurship, and has been named in BusinessWeek’s Top 20 Best Young Tech Entrepreneurs, Inc. Magazine’s Thirty-under-Thirty, Fortune’s Forty-under-Forty, and one of Fast Company’s Most Creative People.
Impact
Mr. Gebbia has valuable experience derived from founding and leading a global public company. The Board benefits from his entrepreneurial background, as well as his experience in design, innovation, brand development and management of complex regulatory environments.
   
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JAMES MURDOCH
Age: 51
Director Since: 2017
Committee Membership

Audit

Nominating and Corporate Governance

Disclosure Controls
Career Highlights
Mr. Murdoch has been the Chief Executive Officer of Lupa Systems, a private holding company that he founded, since March 2019. Previously, Mr. Murdoch held a number of leadership roles at Twenty-First Century Fox, Inc., a media company (“21CF”), over two decades, including its Chief Executive Officer from 2015 to March 2019, its Co-Chief Operating Officer from 2014 to 2015, its Deputy Chief Operating Officer and Chairman and Chief Executive Officer, International from 2011 to 2014 and its Chairman and Chief Executive, Europe and Asia from 2007 to 2011. Previously, he served as the Chief Executive Officer of Sky plc from 2003 to 2007, and as the Chairman and Chief Executive Officer of STAR Group Limited, a subsidiary of 21CF, from 2000 to 2003. Mr. Murdoch formerly served on the boards of News Corporation from 2013 to 2020, of 21CF from 2007 to 2019, and of Sky plc from 2003 to 2018. In addition, he has served on the boards of GlaxoSmithKline plc and of Sotheby’s.
Impact
Mr. Murdoch brings to the Board his decades of executive and board experience across numerous companies. Tesla’s Board benefits from his extensive knowledge of international markets and strategies and experience with the adoption of new technologies.
 
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KIMBAL MUSK
Age: 51
Director Since: 2004
Career Highlights
Mr. Musk is co-founder and Executive Chairman of The Kitchen Restaurant Group, a growing family of businesses with the goal of providing all Americans with access to real food that was founded in 2004. In 2010, Mr. Musk became the Executive Director of Big Green (formerly The Kitchen Community), a non-profit organization that creates learning gardens in schools across the United States. Mr. Musk also co-founded Square Roots, an urban farming company growing fresh, local greens in climate-controlled, AI equipped shipping containers, in 2016, and serves as its Chairman. In 2022, Mr. Musk founded Nova Sky Stories, with a mission to empower producers and artists to bring art to the skies with drone light shows, and serves as its Chief Executive Officer. Previously, Mr. Musk was a co-founder of Zip2 Corporation, a provider of Internet enterprise software and services, which was acquired by Compaq in March 1999. In 2006, Mr. Musk became CEO of OneRiot, a realtime search engine that was acquired by Walmart in 2011. Mr. Musk was a director of SpaceX since its founding in 2002 until January 2022, and was a director of Chipotle Mexican Grill, Inc. from 2013 to 2019. Mr. Musk holds a B. Comm. in business from Queen’s University and is a graduate of The French Culinary Institute in New York City.
Impact
Mr. Musk has extensive senior leadership business experience in the technology, retail and consumer markets, and a robust understanding of mission-driven ventures. Mr. Musk also provides valuable expertise based on his experience on the Tesla Board and is able to apply his unique understanding of the business to the strategy and execution of the Company.
 
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JB STRAUBEL
Age: 48
Director Since: 2023
Career Highlights
Mr. Straubel is the Founder and Chief Executive Officer of Redwood Materials Inc., a Nevada-based company (“Redwood”) working to drive down the costs and environmental footprint of lithium-ion batteries by offering large-scale sources of domestic anode and cathode materials produced from recycled batteries. Mr. Straubel also co-founded and served as the Chief Technology Officer of Tesla from May 2005 to July 2019. Mr. Straubel previously served on the board of SolarCity and as a member of its Nominating and Corporate Governance Committee from August 2006 until its acquisition by Tesla in November 2016. Mr. Straubel has served on the board of directors of QuantumScape since November 2020. Mr. Straubel holds a B.S. in Energy Systems Engineering and a M.S. in Engineering, with an emphasis on energy conversion, from Stanford University.
Impact
As a co-founder and one of the key members of Tesla’s leadership team for over a decade, Mr. Straubel brings extensive operational experience and in-house knowledge of Tesla’s technology, research and development and business management. Mr. Straubel also provides valuable expertise in the areas of cleantech and batteries.
 
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KATHLEEN WILSON-THOMPSON
Age: 66
Director Since: 2018
Committee Membership

Compensation Committee

Nominating and Corporate Governance

Disclosure Controls
Career Highlights
Ms. Wilson-Thompson served as Executive Vice President and Global Chief Human Resources Officer of Walgreens Boots Alliance, Inc., a global pharmacy and wellbeing company, from December 2014 until her retirement in January 2021, and previously served as Senior Vice President and Chief Human Resources Officer from January 2010 to December 2014. Prior to Walgreens, Ms. Wilson-Thompson held various legal and operational roles at The Kellogg Company, a food manufacturing company, from January 1991 to December 2009, including most recently as its Senior Vice President, Global Human Resources. Ms. Wilson-Thompson has served on the board of directors of Wolverine World Wide, Inc. since May 2021 and McKesson Corporation since January 2022. She previously served on the board of directors of Ashland Global Holdings Inc. from 2017-2020 and on the board of directors of Vulcan Materials Company from 2009-2018.
Impact
Ms. Wilson-Thompson brings extensive executive and board experience at both consumer-focused and industrial companies. In addition, her expertise in managing human resources, employment law and other operations at mature companies with large workforces provides the Board with valuable insight and advice for workforce management and relations as Tesla continues to expand.
Additional Information
On October 16, 2018, the U.S. District Court for the Southern District of New York entered a final judgment approving the terms of a settlement filed with the court on September 29, 2018, in connection with the actions taken by the SEC relating to Elon Musk’s August 7, 2018 Twitter post that he was considering taking Tesla private. On April 26, 2019, this settlement was amended to clarify certain of its terms, which was subsequently approved by the Court. Mr. Musk did not admit or deny any of the SEC’s allegations, and there is no restriction on Mr. Musk’s ability to serve as an officer or director on the Board.
See “Corporate Governance” and “Executive Compensation — Compensation of Directors” below for additional information regarding the Board.
 
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Proposal Two
Tesla Proposal for Non-Binding Advisory Vote on Executive Compensation
General
Pursuant to Schedule 14A of the Exchange Act, we are asking our stockholders to vote to approve, on a non-binding advisory basis, the compensation of our “named executive officers” as disclosed in accordance with the SEC’s rules in the “Executive Compensation” section of this proxy statement beginning on page 122 below. This proposal, commonly known as a “say-on-pay” proposal, gives our stockholders the opportunity to weigh in on our named executive officers’ compensation as a whole. This vote is not intended to address any specific item of compensation or any specific named executive officer, but rather the overall compensation of all of our named executive officers and the philosophy, policies and practices described in this proxy statement.
The say-on-pay vote is advisory, and therefore not binding on the Company, the Compensation Committee or the Board. The say-on-pay vote will, however, provide information to us regarding investor sentiment about our executive compensation philosophy, policies and practices, which the Compensation Committee will be able to consider when determining executive compensation for the remainder of the current fiscal year and beyond. The Board and the Compensation Committee value the opinions of our stockholders and to the extent there is any significant vote against our named executive officer compensation as disclosed in this proxy statement, we will consider our stockholders’ concerns and the Compensation Committee will evaluate whether any actions are necessary to address those concerns.
Summary of the 2023 Executive Compensation Program
The following is a summary of some of the key points of our 2023 executive compensation program:

Tesla continues to emphasize structuring compensation incentives to reward our named executive officers based on performance.

Equity awards weigh heavily in our named executive officers’ total compensation, including awards that vest upon the achievement of clear and measurable milestones. Since these awards increase in value as our stock price increases (and in the case of stock option awards, have no value unless our stock price increases following their grant), our named executive officers’ incentives are closely aligned with the long-term interests of our stockholders. Since 2020, the last year any of our named executive officers received equity awards, except for Xiaotong (Tom) Zhu, our Senior Vice President, Automotive, who received stock option awards upon his promotion to such role, all awards that were granted to our named executive officers have been in the form of stock options. As a result, a significant portion of our named executive officers’ total compensation is entirely at risk, depending on long-term stock price performance.

Tesla has no cash bonus program for any of our named executive officers and generally does not provide any perquisites or tax reimbursements to our named executive officers that are not available to other employees. No named executive officer currently has any severance or change of control arrangement.

Each named executive officer is employed at will and is expected to demonstrate exceptional personal performance in order to continue serving as a member of the executive team.

Elon Musk, our Chief Executive Officer, historically earned a base salary that reflected the applicable minimum wage requirements under California law, and he was subject to income taxes based on such base salary. However, he has never accepted his salary. Commencing in May 2019 at Mr. Musk’s request, we eliminated altogether the earning and accrual of this base salary. Consequently, 100% of Mr. Musk’s future compensation was at-risk in the form of the remaining unvested stock options under the 10-year performance-based stock option award granted to Mr. Musk in January 2018 (the “2018 CEO Performance Award”).
 
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In particular, the 2018 CEO Performance Award consisted of 12 equal tranches, each which vested upon the achievement of a market capitalization milestone matched to one of eight revenue-based operational milestones or eight Adjusted EBITDA-based operational milestones, all of which were viewed as difficult hurdles at the time of grant. While our stockholders benefit from each incremental increase in Tesla’s performance and stock price, aligning their interests with Mr. Musk’s incentives, the tranches under the 2018 CEO Performance Award vested only upon the full achievement of specific milestones, making it even more challenging for Mr. Musk to realize value from such increases. As of the date of this proxy statement, all of the tranches have vested and become exercisable, subject to Mr. Musk’s payment of the exercise price of $23.34 per share, as adjusted to give effect to the three-for-one stock split effected in the form of a stock dividend in August 2022 (the “2022 Stock Split”) and the five-for-one stock split effected in the form of a stock dividend in August 2020 (the “2020 Stock Split”), and the minimum five-year holding period generally applicable to any shares he acquires upon exercise. See “Executive Compensation — Compensation Discussion and Analysis — Chief Executive Officer Compensation” below for more details.
For detailed information about Tesla’s executive compensation program, see the “Executive Compensation” section beginning on page 122 below.
Tesla believes that the information provided above and within the “Executive Compensation” section of this proxy statement demonstrates that Tesla’s executive compensation program was designed appropriately and is working to ensure management’s interests are aligned with our stockholders’ interests to support long-term value creation.
Proposed Resolution
Accordingly, we ask our stockholders to vote “FOR” the following resolution at the 2024 Annual Meeting:
“RESOLVED, that the Company’s stockholders approve, on a non-binding advisory basis, the compensation of the named executive officers, as disclosed in the Company’s Proxy Statement for the Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, the compensation tables and the other related disclosure.”
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The Board recommends a vote FOR the Tesla proposal for a non-binding advisory vote approving executive compensation.
 
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Background and Process of the Special Committee
Proposal Three and Proposal Four are being presented for votes of the Company’s stockholders following the recommendations of a special committee of the Board (the “Special Committee”) and the Board. The findings and recommendations of the Special Committee and the Board are presented in Proposal Three and Proposal Four, which follow this summary.
This is only a summary of the background and process of the Special Committee. The background and process of the Special Committee’s review is set forth in Part 2 of its report (the “Special Committee Report”), which is attached hereto as Annex E and incorporated by reference herein. This summary is qualified in its entirety by reference to the Special Committee Report. Our stockholders are encouraged to read the entirety of the Special Committee Report for further information regarding the background and process of the Special Committee.
Kathleen Wilson-Thompson is the sole member of the Special Committee. Ms. Wilson-Thompson is an outside director who joined Tesla’s Board in December 2018. She has served in senior management and director roles at public companies for three decades, rising through the ranks to the C-Suite at two Fortune 500 public companies. Among other positions, she served as the Executive Vice President and Global Chief Human Resources Officer of Walgreens Boots Alliance, Inc., and she is currently a director of McKesson Corporation and Wolverine World Wide, Inc. She was a practicing lawyer before pivoting to management.
Proposal Three relates to the proposed redomestication of the Company from Delaware to Texas. The Board discussed the question of redomestication at two special meetings in early February 2024. On February 4, 2024, the Board, including Mr. Musk, met and discussed the matter. The Board addressed the public narrative that Mr. Musk had already decided the issue for the Company and that Mr. Musk’s post on the social media platform X, which says “Tesla will move immediately to hold a shareholder vote to transfer state of incorporation to Texas,” was a reflexive reaction to the ruling in Tornetta v. Elon Musk, et al., No. 2018-0408-KSJM (the “Tornetta Opinion”). The discussion reflected the fact that outside directors as well as management had previously explored the possibility of a redomestication (though without coming to a decision one way or the other). At this meeting, the Board determined that, regardless of Mr. Musk’s post, the Board would only consider redomestication at this time after an appropriate process and timeline, and based on an evaluation of the best interests of the Company and all of its stockholders.
The Board met again on February 10, 2024, without Mr. Musk and Kimbal Musk. The five directors present were Robyn Denholm, Ira Ehrenpreis, Joe Gebbia, JB Straubel and Kathleen Wilson-Thompson. These directors concluded that a majority of the Board was independent and disinterested with respect to redomestication. They nevertheless decided to create a Special Committee to consider the redomestication issue out of an abundance of caution, in light of the Tornetta Opinion and the high degree of public attention. Accordingly, these five directors unanimously voted to form the Special Committee and to appoint Kathleen Wilson-Thompson and Joe Gebbia as members.
The Board charged the Committee with considering whether it would be in the best interests of the Company and its stockholders to change its corporate domicile, and if so, to which jurisdiction. Among other things, the Special Committee had the authority to: determine the Company’s decision on the redomestication issue; consider all alternatives, including whether to remain in Delaware or redomesticate to any other jurisdiction; determine whether to condition any redomestication on a particular stockholder vote standard; determine its own timing without any deadline; select and retain advisors at the Company’s expense; and obtain information from and direct the Company’s officers, employees, and advisors as it deemed necessary and appropriate. In the Special Committee’s judgment, it was fully empowered to discharge its mandate.
The Special Committee began its work and analysis shortly thereafter. As the Special Committee considered the redomestication question, it concluded that if it made a determination to redomesticate, Mr. Musk’s compensation should also be addressed in some way at the same time. Otherwise, a potential redomestication could be wrongly perceived as being made in response to the Tornetta Opinion and with the intent to award Mr. Musk compensation in a different jurisdiction
 
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that he could not get in Delaware. And, if stockholders were not told of any then-existing plans for Mr. Musk’s compensation, the stockholder vote on redomestication could be subject to attack as not fully informed.
Accordingly, the Special Committee discussed how Mr. Musk’s compensation might be addressed if there were a decision to redomesticate. According to the Special Committee Report, Ms. Wilson-Thompson, as a member of the Compensation Committee, was aware that Mr. Musk had made it clear that he believes it is unfair to not be paid for his work as agreed. She was also aware that the Company was evaluating options regarding Mr. Musk’s compensation, and that the Compensation Committee had not taken any steps to prepare or negotiate a new, forward-looking compensation plan. The Special Committee noted that it then instructed its counsel to inquire about the Company’s current plans, if any, regarding Mr. Musk’s compensation. They learned that an appeal of the Tornetta Opinion was being planned, and the Company also was evaluating seeking ratification of Mr. Musk’s 2018 compensation plan via a new stockholder vote. In light of this information, the Special Committee determined to request that the Board expand the Special Committee’s authority.
The Board did so on March 5, 2024, as requested. Specifically, the Board delegated additional authority to the Special Committee to decide whether, if there is a stockholder vote on redomestication, Mr. Musk’s 2018 CEO Performance Award should be ratified at the same time, as well as potential disclosures about Mr. Musk’s compensation that might need to be made to ensure stockholders were informed in voting on redomestication. The Special Committee concluded it was again fully empowered. In addition to the powers it already had, the Special Committee gained the authority to: determine the Company’s decision on the ratification question; consider all alternatives, including not seeking ratification of the 2018 CEO Performance Award; and determine whether to condition any ratification on a particular stockholder vote standard.
The Special Committee noted that on March 6, 2024, after the Board expanded the Special Committee’s mandate, Mr. Gebbia withdrew from the Special Committee. Mr. Gebbia explained that he was stepping down from the Special Committee out of an abundance of caution because of the potential for unfair attacks based on perceived conflicts of interest. He stepped down entirely of his own accord, and not because of any concern by the Special Committee regarding his independence.
After Mr. Gebbia stepped down, Ms. Wilson-Thompson became a committee of one. According to the Special Committee Report, the Special Committee discussed with the Chair of the Board, the Chair of the Nominating and Corporate Governance Committee, and management the possibility of accelerating the in-process search for new independent directors, and adding any new director(s) to the Special Committee. The Special Committee reported that the timing of the ongoing director search ultimately did not fit with the Special Committee’s work, and the Special Committee determined there was no reason to delay its work based on the possibility that additional directors would be added to the Board at some point in the future.
According to the Special Committee Report, in order to assist the Special Committee in its work, the Special Committee retained multiple advisors. After the Special Committee conducted interviews with multiple law firms, the Special Committee retained Kristen Seeger and John Skakun of Sidley Austin LLP (“Sidley”) as its counsel. The Special Committee also determined that it would benefit from being advised by Delaware counsel, a corporate law and governance expert and an investment bank. For each role, Sidley assessed multiple leading candidates, with a focus on both quality and independence. Sidley recommended and the Special Committee retained the following additional advisors: (i) A. Thompson Bayliss of Abrams & Bayliss LLP, as its Delaware counsel, (ii) Professor Anthony Casey of the University of Chicago Law School, as its corporate law and governance expert, and (iii) Houlihan Lokey Capital, Inc. (“Houlihan”), as its financial advisor. The Special Committee determined that each of its advisors is independent.
According to the Special Committee Report, the Special Committee concluded that it is independent and disinterested with respect to all aspects of its mandate. This conclusion rested on an evaluation of the Special Committee by its counsel, as well as the Special Committee’s evaluation of the independence and disinterestedness of its counsel and other advisors both before and after retention.
 
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The Special Committee reported that since its formation on February 10, 2024, the Special Committee met 16 times (prior to its final approval meeting on April 16, 2024) for more than 26 total hours. Outside of meetings, the Special Committee spent more than 200 hours working on this matter, including reviewing a significant amount of written materials and communicating with its counsel. The Special Committee and its counsel had extraordinary access to and assistance from the Company. Every request for information or resources was fully granted. All seven other directors and five members of management were interviewed. At the Special Committee’s request, its counsel visited the Company’s headquarters. Furthermore, the Special Committee spoke with the Company’s external auditor, instructed its counsel to request relevant information from the Company, and reviewed documents including Professor Anthony Casey’s report, Houlihan’s report, numerous legal decisions, letters from stockholders, and academic articles.
The Special Committee reported that it took the time it needed. At the outset, the Special Committee worked with its counsel to assess the time necessary to conduct a thorough, well-designed process. The Special Committee decided that, if it determined that any matter should be voted on by stockholders, the vote should be at Tesla’s annual meeting because that would give the greatest number of stockholders an opportunity to voice their views. So the Special Committee’s counsel sought to have the previously-selected date for the annual meeting pushed back by more than a month, in order to give the Special Committee the time that it deemed appropriate to complete its process. Following a negotiation over various potential dates, the Company agreed to the Special Committee’s request and moved the date of the annual meeting from May 8, 2024 to June 13, 2024.
The Special Committee always reserved the right to take additional time if necessary, and expressly stated that to the Company. The Special Committee reported that it reached its final decisions on redomestication and on ratification on its own timeline, and would have taken additional time for either question if it believed that was necessary.
 
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Proposal Three
Tesla Proposal to Approve the Redomestication of Tesla from Delaware to Texas by Conversion
Following the recommendations of the Special Committee, the Board, with Mr. Musk and Kimbal Musk recusing themselves, has determined to recommend that our stockholders approve the conversion of the Company from a corporation organized under the laws of the State of Delaware (the “Delaware Corporation”) to a corporation organized under the laws of the State of Texas (the “Texas Corporation”) and adopt the resolutions of the Board approving the redomestication attached as Annex D to this Proxy Statement, as more fully described in this Proposal Three, and has determined that the redomestication is in the best interests of the Company and its stockholders. We call the proposed redomestication of the Delaware Corporation in the form of a conversion into the Texas Corporation the “Texas Redomestication”.
Principal Terms of the Texas Redomestication
The Texas Redomestication, if approved by our stockholders, will be effected through a conversion pursuant to Section 266 of the Delaware General Corporation Law (“DGCL”) and Title 1, Chapter 10, Subchapter C of the Texas Business Organizations Code (“TBOC”), as set forth in the plan of conversion (the “Plan of Conversion”), included as Annex A to this Proxy Statement. Approval of this Proposal Three (the “Texas Redomestication Proposal”) will constitute approval of the Plan of Conversion.
Through the adoption of the Plan of Conversion, upon the Texas Redomestication:

The Company will continue in existence as a Texas corporation and will continue to operate our business under the current name, “Tesla, Inc.”

The affairs of the Company will cease to be governed by Delaware law at the time the Plan of Conversion is effective and will be subject to Texas law. See “Comparison of Stockholder Rights under Delaware and Texas Law” below.

The Company will cease to be governed by our existing charter and bylaws and will be instead subject to the provisions of the proposed Texas Certificate of Formation (the “Texas Charter”) and the proposed Texas Bylaws (the “Texas Bylaws”), forms of which are included as Annex B and Annex C, respectively, to this Proxy Statement. See “Certain Differences Between Delaware Charter and Bylaws and Texas Charter and Bylaws” below.

The Texas Redomestication will not result in any change in headquarters, business, jobs, management, properties, location of any of our offices or facilities, number of employees, obligations, assets, liabilities or net worth (other than as a result of the costs related to the Texas Redomestication).

Each outstanding share of our common stock, par value $0.001 per share (“Delaware Corporation Common Stock”), will automatically become one outstanding share of common stock, par value $0.001 per share, of the Texas Corporation (“Texas Corporation Common Stock”) pursuant to the Plan of Conversion.

Stockholders will not need to exchange their existing stock certificates for new stock certificates.

Each outstanding restricted stock unit, option or right to acquire shares of Delaware Corporation Common Stock will continue in existence and automatically become a restricted stock unit, option or right to acquire an equal number of shares of the Texas Corporation Common Stock under the same terms and conditions.

Our common stock will continue to be traded on The Nasdaq Global Select Market under the symbol “TSLA.” We do not expect any interruption in the trading of our common stock as a result of the Texas Redomestication.
 
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If our stockholders approve the Texas Redomestication, we anticipate that the Texas Redomestication will become effective as soon as practicable following the 2024 Annual Meeting (the “Effective Time”).
In connection with the Texas Redomestication, the Company intends to make filings with the Secretary of State of Texas and the Secretary of State of Delaware, and does not anticipate making any other filings to effect the Texas Redomestication. Nonetheless, we may face legal challenges to the Texas Redomestication, including, among others, stockholder challenges under Delaware law, seeking to prevent the Texas Redomestication.
The Texas Redomestication may be delayed by the Board or the Plan of Conversion may be terminated and abandoned by action of the Board at any time prior to the Effective Time of the Texas Redomestication, whether before or after the approval by our stockholders, if the Board determines for any reason that such delay or abandonment would be in the best interests of the Company and all of its stockholders, as the case may be.
Background of the Proposal
General
As part of their ongoing oversight, direction, and management of the Company’s business, certain outside directors of the Company and management have, from time to time, considered and explored the issue of the Company’s jurisdiction of incorporation without reaching a decision. These discussions were in response to a number of factors including the relocation of the Company’s corporate headquarters and certain operations from California to Texas in 2021 and views that the legal landscape in Delaware is evolving (including, without limitation, uncertainty expressed by certain directors and management on how Delaware law will be applied to the Company in certain circumstances).
Then, on January 30, 2024, the Delaware Court of Chancery (the “Delaware Court”) issued the Tornetta Opinion, the post-trial opinion finding that, among other things, the Board breached its fiduciary duties in approving the 2018 CEO Performance Award for our Chief Executive Officer, Mr. Musk, which had been unanimously approved by our independent directors and approved by approximately 73% of all votes cast by our disinterested stockholders in 2018 and that rescission of the 2018 CEO Performance Award was the appropriate remedy. Following the Tornetta Opinion, on January 30, 2024, Mr. Musk ran a poll on X asking whether Tesla should “change its state of incorporation to Texas, home of its physical headquarters?” Of 1,102,554 votes on X, 87.1% were in favor. The following day, Mr. Musk posted on X that “Tesla will move immediately to hold a shareholder vote to transfer state of incorporation to Texas.” Mr. Musk made other posts on X regarding the same subject in the days following the Tornetta Opinion. Notwithstanding these communications, redomestication is a Board decision, not a decision for a chief executive officer. And on February 4, 2024, the Board met to discuss these issues, among others, including the multi-year history of Company discussions regarding a potential redomestication.
On February 10, 2024, the Board met again, without Mr. Musk or Kimbal Musk participating, to further discuss these issues. At that meeting, the Board determined to evaluate more formally a redomestication.
In order to evaluate whether to redomesticate Tesla, as described further under the section entitled “Background and Process of the Special Committee”, the Board formed the Special Committee, which ultimately was comprised of Kathleen Wilson-Thompson, as described under the section entitled “Background and Process of the Special Committee.” The Board delegated to the Special Committee the full authority and power of the Board to consider, evaluate, and determine whether it would be in the best interests of the Company and all of its stockholders to change its corporate domicile, and if so, to which jurisdiction, and if so, in what manner (including, without limitation, the manner of the stockholder vote), and authorized and empowered the Special Committee to prepare such analysis and make such conclusions as it deemed appropriate and in the best interests of the Company and all of its stockholders with respect to a potential redomestication, and the Board resolved not to recommend, authorize, approve, or otherwise endorse any redomestication proposal without the prior favorable recommendation of the Special Committee.
 
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The Special Committee’s Evaluation of the Texas Redomestication
Evaluation of Jurisdictions: Narrowing the Focus
The Special Committee considered a precise question: where should this Company be incorporated at this time. The Special Committee initially considered all U.S. states as well as the possibility of incorporating outside of the U.S. It narrowed its focus in stages, first to 10 states, then 5, and finally to a binary choice between remaining incorporated in Delaware and reincorporating in one alternative jurisdiction.
At each stage, the Special Committee conducted an increasingly in-depth analysis of factors it believed were relevant to Tesla. The Special Committee narrowed its focus to US jurisdictions because Tesla is an American company. It selected 10 states for further consideration — California, Delaware, Florida, Maryland, Nevada, New York, Ohio, Pennsylvania, Texas, and Virginia — because each has a significant number of major public companies incorporated in them, and because Tesla’s most significant US operations are in California, Nevada, New York, and Texas.
For this group of 10, the Special Committee reviewed each state’s corporate laws at a high level and concluded they were substantially similar. The Special Committee therefore saw no reason to move to a jurisdiction Tesla has no current significant connection to, and narrowed its focus to 5 states: California, which has two factories; Delaware, the current state of incorporation; New York, which has a Gigafactory; Nevada, which also has a Gigafactory; and Texas, which is Tesla’s corporate headquarters and has a Gigafactory.
The Special Committee then conducted further analysis, including of academic scholarship on the development of corporate law in the US and on companies’ incorporation decisions. The Special Committee continued to find no reason to pick one jurisdiction based on its corporate law. This was not surprising, as each state’s law operates under the same federal constitutional framework, draws on a common law heritage, and evolved in light of — and in competition with — each other. The differentiator at this stage therefore became Tesla’s home state. Academic research shows that more than 90% of companies are incorporated either in Delaware or in their home state, and identifies a range of reasons for this. So the Special Committee determined that the best potential alternative to Delaware was Texas, and resolved to choose between those two states.
Evaluation of Texas and Delaware
The final stage of the Special Committee’s redomestication decision was an in-depth comparison of remaining incorporated in Delaware or reincorporating in Texas. As explained further below, the Special Committee concluded that Delaware and Texas provide substantially equivalent bundles of economic, governance, and litigation rights for stockholders, at least on net (i.e., balancing relevant considerations against one another) and as relevant to Tesla. This left three differentiating factors in the Special Committee’s view: Texas is Tesla’s home state; Texas statutory law on corporate constituencies would better align with Tesla’s mission-driven culture; and Delaware has an established and respected business court and the largest body of corporate case law in the country, whereas Texas just created a business court. The Special Committee balanced these considerations and concluded that, in its business judgment, it is in the best interests of Tesla and all of its stockholders for the Company to reincorporate in Texas. The Special Committee, in this evaluation, included an examination of the effect of the reincorporation on the economic, governance, and litigation rights of stockholders:
Economic Rights.   The Special Committee considered whether there was any reason to believe that Tesla shares would be economically less valuable under Texas law than under Delaware law. The Special Committee concluded, based on the advice of its financial and academic advisors, that there was no convincing evidence that reincorporating in Texas would affect Tesla’s market value. In reaching this conclusion, the Special Committee and its advisors considered, among other things, related to market practices, that a company’s U.S. state of incorporation is not a factor commonly used in valuation methodologies. The Special Committee’s financial advisor also considered whether there was evidence of a “Delaware premium” through three quantitative analyses. First, they evaluated four market-implied valuation multiples from 2019 through 2023 for Fortune 500 companies: enterprise value/revenue;
 
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enterprise value/EBITDA; market capitalization/earnings; and market capitalization/book value. They did not find any observable valuation premium attributable to Delaware incorporation. Second, the Special Committee’s financial advisor also analyzed market return metrics for Fortune 500 companies from 2014 through 2023, and similarly found no observable premium attributable to Delaware incorporation. Finally, the Special Committee’s financial advisor reviewed four case studies of redomestications from Delaware to Texas over the last decade. They reported no observable pattern between redomestication and total stockholder return over the periods studied. In addition, the Special Committee considered conclusions from its academic advisor that existing academic literature strongly suggests that a “Delaware premium” is non-existent or unknowable.
The Special Committee concluded, based on the advice of its financial and academic advisors, that there is no reason to believe that being incorporated in Delaware increases Tesla’s market value. Of the S&P 500, approximately 35% are domiciled outside of Delaware. Seven of the top 20 by market capitalization are incorporated in their home state: Apple, Costco, Eli Lilly, Johnson & Johnson, Merck, Microsoft, and Proctor & Gamble. Tesla would make eight. Notably, the Special Committee saw no indication that Microsoft’s earlier reincorporation from Delaware to its home state of Washington had a negative effect on Microsoft.
In addition, the Special Committee evaluated whether and confirmed that the Texas Redomestication would not materially alter any other economic rights of Tesla stockholders. For example, Texas law would not alter the Company’s ability to pay dividends or buyback stock. As discussed below, at the Special Committee’s request, the Company confirmed that the Texas Redomestication will not have any materially adverse accounting, tax, or other financial implications, and will not affect the public trading of the Company’s shares. Further, the Texas Redomestication will result in the Company saving $250,000 per year in franchise tax payments to Delaware.
Governance Rights.   The Special Committee concluded that governance rights are effectively the same in both states. For example, both Delaware and Texas have similar rules on classified boards, the removal of directors, charter and bylaw amendments, blank check preferred stock, stock buybacks, dividends, and appraisal. Where there may appear to be distinctions, the Special Committee concluded that: most were differences in default rules that could be resolved in a Texas charter and bylaws (see the section “Certain Differences Between Delaware Charter and Bylaws and Texas Charter and Bylaws” below for the Company’s summary of certain differences between the Delaware Charter (as defined below) and Delaware Bylaws (as defined below) and the proposed Texas Charter and Texas Bylaws); some made no difference at least to Tesla (see the section “Comparison of Stockholder Rights under Delaware and Texas Law” below for the Company’s summary of certain differences between Delaware and Texas law); and one — Texas’s constituency statute — did not substantially alter stockholders’ rights but does matter to Tesla (see the section “Certain Differences Between Delaware and Texas Law” below for the Company’s summary of certain differences between Delaware and Texas law).
Litigation Rights.   The Special Committee and its advisors engaged deeply with a wide range of litigation topics and identified no areas in which Texas and Delaware law meaningfully diverged on matters of substance. In most areas the Special Committee examined, Texas and Delaware law apply essentially the same substantive rule, though Texas sometimes articulates it a bit differently. These include fiduciary duties owed to the corporation and the stockholders collectively, the corporate opportunities doctrine, director exculpation, indemnification, advancement, the business judgment rule, and the entire fairness standard of judicial review. In addition, the Special Committee considered that Delaware law has addressed a number of issues impacting public companies that Texas law has not (yet), including Caremark oversight claims, public company conflicted controller transactions, and intermediate scrutiny of defensive tactics. However, Texas’s silence in these areas does not mean that Texas law is or will be meaningfully different from Delaware law. Texas courts often look to Delaware law to fill gaps in Texas law, and the Special Committee and its advisors concluded that there was no reason to believe that Texas law would provide substantially lesser litigation rights than Delaware in areas where it is currently silent. The Special Committee and its advisors identified two important
 
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areas with differences between Texas and Delaware stockholder litigation: procedural approaches to stockholder derivative claims and the fact that Texas recently created a specialized business court system, which is set to open on September 1, 2024. The Special Committee and its Delaware, Texas, and academic advisors concluded that these differences were procedural. In addition to its own analysis with its advisors, the Special Committee took note of commentary comparing Delaware and Texas law, including of ISS’s prior statement that “reincorporation from Delaware to Texas would appear to have a neutral impact on shareholders’ rights,” and Glass Lewis’ prior statement that “in most respects, the corporate statutes in Delaware and Texas are comparable.” Both have previously recommended voting in favor of multiple Delaware-to-Texas reincorporations.
Recommendation of the Special Committee
At a meeting of the Special Committee held on April 16, 2024, after reviewing and considering the factors and considerations deemed relevant by the Special Committee, and after investigating and considering the benefits and detriments, for the reasons set forth in the Special Committee Report and summarized below under the caption “Reasons for the Texas Redomestication”, the Special Committee adopted resolutions determining that the Texas Redomestication is in the best interests of the Company and all of its stockholders, and that the Board should submit reincorporation for approval and adoption by the stockholders of the Company at the 2024 Annual Meeting of stockholders. The Special Committee also recommended that (1) the Board and management take all necessary and appropriate steps to implement the Special Committee’s determination consistent with legal obligations; (2) Mr. Musk and Kimbal Musk be recused from the Board’s deliberations and vote on this matter because of Mr. Musk’s prior posts on X about reincorporation; (3) the stockholder vote on reincorporation be conditioned on approval by a majority of votes cast by non-Musk-affiliated stockholders, for the same reasons; and (4) the Board recommend that stockholders vote for the Texas Redomestication based on the Special Committee’s determination that reincorporating in Texas is in the best interests of the Company and all of its stockholders. The resolution of the Board approving the Texas Redomestication through the adoption of the Plan of Conversion is included as Annex D to this Proxy Statement (the “Texas Redomestication Resolution”). In support of its recommendation, the Special Committee delivered the Special Committee Report to the Board, dated April 12, 2024, which is included as Annex E to this Proxy Statement. The summary of the Special Committee Report, included in this proposal is only a summary and is qualified in its entirety by reference to the full Special Committee Report, which is incorporated by reference herein. The Special Committee considered the factors discussed in the Special Committee Report, which are summarized above in the section “The Special Committee’s Evaluation of the Redomestication”.
The Special Committee considered, among other things, a number of factors relating to the procedural safeguards that it believes were and are present to permit the Special Committee to represent effectively the interests of all of the Company’s stockholders, including stockholders other than Mr. Musk and Kimbal Musk. The Special Committee believes these factors support its determinations and recommendations regarding the Texas Redomestication. The following procedural safeguards are listed in no particular order:

Independence and Disinterestedness:   The Special Committee examined its own independence and concluded that it consisted of an independent (for purposes of serving on the Special Committee) and disinterested director.

Procedural Safeguards:   The Special Committee was empowered to freely select its own independent legal and financial advisors and to consider the potential redomestication of the Company in another jurisdiction (including the ability to choose to remain in Delaware).

Prior Special Committee Approval:   The Board in establishing the Special Committee had decided and resolved not to approve any redomestication transaction without the prior favorable recommendation by the Special Committee.

Active Involvement and Oversight:   The numerous formal and informal meetings and communications held by the Special Committee over an approximately eight-week period
 
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(with its legal advisors present and with other advisors regularly present) to discuss and evaluate, among other things, the process for exploring a potential redomestication, and the Special Committee’s active oversight of the process and negotiations with the Company. The Special Committee was actively engaged in this process on a regular basis and was provided with access to Tesla management and its advisors, as and when requested, in connection with the evaluation process.

Independent Advice:   The Special Committee selected and engaged its own independent legal and other advisors throughout its review and evaluation of a potential redomestication.

Consideration of Relevant Facts and Information:   The Special Committee made its evaluation of a potential redomestication based upon the factors discussed in the Special Committee Report, which is summarized in this Proxy Statement.

No Obligation to Recommend that the Board Should Approve:   The Special Committee had no obligation to recommend that the Board should approve the Texas Redomestication (or any redomestication).

Approval by Majority of Non-Musk Affiliated Stockholders:   The Special Committee recommended that the Texas Redomestication requires the affirmative vote of at least a majority of the votes cast at the 2024 Annual Meeting by non-Musk affiliated stockholders.
Further, the Special Committee ultimately determined that the uncertainties, risks, and potentially negative factors relevant to the Texas Redomestication were outweighed by the potential benefits of the Texas Redomestication, as explained in the Special Committee Report. It therefore recommended that the Board should approve the Texas Redomestication.
Recommendation of the Board
Following the determination of the Special Committee that the Texas Redomestication is in the best interests of the Company and all of its stockholders and the recommendations of the Special Committee, and after considering the Special Committee’s determination and the Special Committee Report, the Board met on April 9, 2024, April 13, 2024 and April 16, 2024, with Mr. Musk and Kimbal Musk recusing themselves. On April 16, 2024, the Board determined that the Texas Redomestication is in the best interests of the Company and all of its stockholders, approved the Texas Redomestication, directed that the Texas Redomestication be submitted for consideration by our stockholders at the 2024 Annual Meeting and recommended that our stockholders approve the Texas Redomestication and adopt the Texas Redomestication Resolution and the Plan of Conversion. In particular, the Board (with Mr. Musk and Kimbal Musk recusing themselves) adopted the Texas Redomestication Resolution and recommended that the stockholders of the Company approve the Texas Redomestication Resolution, adopt the Plan of Conversion and approve the conversion of the Company from a Delaware Corporation to a Texas Corporation. Pursuant to Section 266 of the DGCL, the Redomestication Resolution is hereby submitted for adoption by the stockholders of the Company, with the Board’s recommendation that stockholders vote for the Redomestication Resolution.
Reasons for the Texas Redomestication
The determination of the Special Committee and the determination of our Board that the Texas Redomestication is in the best interest of the Company and all of its stockholders, and the decision of the Special Committee to recommend to the Board that it recommend that the Company’s stockholders vote to approve the Texas Redomestication, were the result of deliberation and consideration. The Special Committee Report explains the Special Committee’s reasoning for its determination and is summarized herein. The following summary of the key considerations of the Special Committee and the Board is not intended to be exhaustive, and is qualified in its entirety by reference to the Special Committee Report attached to this Proxy Statement. Stockholders are encouraged to read the full text of the Special Committee Report for additional detail regarding the analysis of the Special Committee on the proposed Texas Redomestication.
 
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Tesla’s Home and Future Are in Texas
Tesla is All-In on Texas.   The Board believes that our corporate identity is intertwined with our Texas corporate headquarters and that redomiciling in Texas would be consistent with this trajectory.
In 2021, we relocated our corporate headquarters from California to Austin, Texas. Since this relocation, Texas has increasingly become a focal point for Tesla’s corporate identity. Executive management is based in Texas, as are manufacturing, operations and engineering employees. Our corporate headquarters and principal manufacturing facility — Gigafactory Texas — covers over 10 million square feet of factory floor. We continue to invest in the expansion of our campus, which we believe is the second-largest building by volume in the world.
Gigafactory Texas is also the manufacturing hub for our new products. It is the manufacturing hub for the Model Y, which, as of January 24, 2024, was the best-selling car in the world, and is home to the Cybertruck.
Our corporate identity is becoming inextricably tied to our Texas corporate headquarters, and we believe that a change in our state of incorporation would be consistent with this trajectory. Texas is our home state, and we are committed to Texas. Reincorporating in Texas also builds on Tesla’s relationships with the state and local communities. These relationships — with government actors, with employees and with other stakeholders — are critical to Tesla. Academic research reviewed by the Special Committee recognizes that “there is value inherent in home-state incorporation” because it can strengthen such relationships. Fully becoming a Texas company would send a strong signal of Tesla’s commitment to the state and local community that have done so much for it already, and that are so important to Tesla’s future.
By comparison, we have no material operations in Delaware. Our executives and management do not operate out of Delaware. We do not have our Board meetings in Delaware, and the Board does not otherwise visit Delaware as part of their site visits. It was chosen as our state of incorporation solely because of its legal framework. As discussed above, the Special Committee and the Board found no advantage to remaining incorporated in Delaware that justifies a split between the Company’s legal home and its physical home.
There is Value in Local Decision-Making.   Another advantage of home-state incorporation is that the legislators and judges making corporate law — and the juries deciding fact disputes in corporate cases — are drawn from the community in which the company operates. Corporate law and litigation often overlap with and impact business, employment, and operational matters. And Tesla is not a cookie-cutter public company. The Special Committee and the Board believe that local decision-makers have a deeper understanding of our business, and therefore are best situated to make decisions about our corporate governance.
Home-State Incorporation is Common and Intuitively Makes Sense.   Successful companies are incorporated in many U.S. states and other jurisdictions outside of the United States. Approximately 35% of S&P 500 companies are not incorporated in Delaware, instead choosing to incorporate in a variety of other jurisdictions. Some of the most successful consumer-facing companies in the United States are headquartered and incorporated in the same state, demonstrating identification with their home state, including, among others, Apple and Microsoft. The following map illustrates the geographic diversity of some of these companies.
 
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[MISSING IMAGE: mp_homestate-4clr.jpg]
We are not the first to consider redomiciling from Delaware to another jurisdiction. Southwest Airlines Co. is also incorporated in Texas. Some companies, including Microsoft, have reincorporated from Delaware to their home state in order to reunite their legal and physical homes. One of the reasons given by Microsoft when it left Delaware was that Washington was “the location of the Company’s world headquarters and the location of its primary research and development efforts.” Similarly, the Special Committee and the Board believe there is value in unifying Tesla’s legal and physical homes.
Tesla is a Mission-Driven Company
We are driven by our mission to accelerate the world’s transition to sustainable energy, and our mission is a cornerstone of our culture. It is critical to recruitment, motivation and retention, from the factory floor to the boardroom. For some of our directors, our mission is a major reason why they choose to serve on the Board.
The Special Committee and the Board considered that Texas, unlike Delaware, has an express statutory provision that would allow (though not require) Tesla’s directors and officers to consider the Company’s mission in exercising their fiduciary duties. The Special Committee and the Board do not expect this would change the way Tesla operates, but considered the symbolic value in aligning Tesla’s mission-driven culture with Texas’ law.
Litigation Forum Considerations Do Not Alter the Balance
The Special Committee and the Board considered the likely relative predictability of Delaware and Texas law based on differences in their judicial systems. Delaware has the most respected corporate judicial system in the country and has an extensive body of corporate case law. In contrast, Texas is in the process of forming a specialized business court system (which is set to open in September 2024) and has a smaller body of corporate case law. This factor did not alter the balance in the Special Committee’s evaluation of Delaware and Texas.
In making this determination, the Special Committee and the Board were persuaded by the broadly held academic view — echoed by at least three former Delaware Supreme Court Justices and one former Chancellor on the Delaware Court of Chancery — that Delaware law can be indeterminate because of its use of broad, flexible standards that are applied to individual cases in a highly fact-specific way. As described in the Special Committee Report, scholarship demonstrates a high level of reversal rate for decisions of the Delaware Court of Chancery. This focus on precise facts and circumstances means Delaware decisions may be less predictable for an innovative company like Tesla. Although Texas has less corporate case law, as the Special Committee’s corporate law and governance expert pointed out, Texas “has a more code-based corporate governance regime,” and so does not depend on cases to set out the law as much as Delaware.
 
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Moreover, the Special Committee and the Board do not think that the Texas business courts should be avoided simply because they are new. Doing new things is part of Tesla’s DNA, and how it has become one of the most valuable companies in the world.
Certain Risks Associated with the Texas Redomestication
Although the Special Committee and the Board believe that the Texas Redomestication is in the best interests of the Company and all of its stockholders, there can be no assurance that the Texas Redomestication will result in all or any of the benefits described in this Proxy Statement, including the benefits of or resulting from incorporation under Texas or the application of Texas law to the internal affairs of the Company.
For the Company’s comparison of stockholders’ rights and the material substantive provisions that apply to the Board and executive officers under Delaware and Texas law, see “Comparison of Stockholder Rights under Delaware and Texas Law” below.
Extensive Delaware Case Law and Established Court System
The Delaware Court of Chancery and Supreme Court are highly respected and experienced business courts. They have an extensive body of case law. Trials are before judges who are experts in corporate law and appointed for 12 year terms. Delaware statutory law is regularly updated by the legislature. The Delaware system has long and widely been lauded for its expertise.
On the other side of the ledger, Texas’s business courts were just created and will not start hearing cases until September 2024. They will, at least initially, have less existing corporate case law to draw on. Business court judges will be appointed for two-year terms, but there is no track record of their qualifications or experience. Plus, dispositive motion practice is more limited in Texas, and even corporate governance cases will be tried to juries rather than judges. How the Texas business court system will function cannot be known for certain.
Notwithstanding the conclusions of the Special Committee and the Board, it is nevertheless possible that familiarity with Delaware and perceptions regarding the breadth and stability of Delaware corporate law may impact the views of certain investors or certain members of the financial services industry, as well as potential director and officer candidates. It is possible that these external perceptions regarding Delaware law may impact the behaviors of such third parties, which could have an adverse effect on our business.
Certain Differences Between Delaware and Texas Law
Although the Special Committee and the Board have determined that the rights of stockholders under the DGCL and the TBOC are substantially equivalent, at least on net (i.e., balancing relevant considerations against one another) and as relevant to the Company, the DGCL and Delaware case law collectively are different in certain respects than the TBOC and existing Texas case law in ways that may affect the rights of our stockholders. Please see the Company’s summary of certain differences in the section entitled “Comparison of Stockholder Rights under Delaware and Texas Law.” For instance, as further explained in the Company’s summary below, under the TBOC, a shareholder may inspect a Texas corporation’s books and records, subject to certain limitations, if such shareholder holds at least 5% of the outstanding shares of stock of the Texas corporation or has been a holder of shares for at least six months. The DGCL, on the other hand, does not require that a stockholder hold a certain number of shares or hold such shares for a stated period of time prior to exercising their books and records inspection rights. Thus, it is possible that some of our stockholders entitled to make a books and records demand today (as stockholders in a Delaware corporation) will not be able to make a similar demand following the Texas Redomestication.
Further, the TBOC expressly provides that it does not prohibit directors or officers from considering, approving or taking an action that promotes or has the effect of promoting a social, charitable or environmental purpose. Under Delaware law, on the other hand, there is no express statutory authority to consider such purposes, and fiduciary duties in most circumstances merely require directors to seek to maximize the value of the corporation for the long-term benefit of the stockholders unless the corporation is specifically incorporated as a public benefit corporation. As a result, as a Texas corporation, it is possible that our directors may consider the interests of other constituents.
 
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The Special Committee identified a handful of areas where the rule in Texas differed in some respect from the rule in Delaware. These were generally procedural and not relevant to Tesla in the view of the Special Committee and its advisors. The most potentially important area is related to antitakeover protections. Both Delaware and Texas permit a range of antitakeover defenses, including poison pills. Both have business combination provisions, though they apply at different ownership thresholds: 20% in Texas and 15% in Delaware. Both allow boards of directors to create new vacancies and to fill them, though Texas limits the number of such vacancies that can be filled without a stockholder vote to 2. Another potential area of difference involved cash-out transactions and “Revlon duties”: Texas statutes allow directors to take into account “the long-term and short-term interests of the corporation and the stockholders of the corporation, including the possibility that those interests may be best served by the continued independence of the corporation.” Delaware law, at least in certain circumstances, requires directors to accept the highest price reasonably available, though in many circumstances they are allowed to also “just say no” to a potential transaction and take into account long-term interests.
Transaction Costs
We will also incur certain non-recurring costs in connection with the Texas Redomestication, including certain filing fees and legal and other transaction costs. As noted above, we may face legal challenges in connection with the Texas Redomestication, and we may also face additional media scrutiny. We believe a majority of these costs have already been incurred or will be incurred by the submission of the Texas Redomestication Proposal to stockholders regardless of whether the Texas Redomestication is ultimately completed, except for any litigation related expenses that may arise, which we cannot predict. Many of the expenses that will be incurred and other potential transaction costs are difficult to accurately estimate at the present time, and additional unanticipated costs may be incurred in connection with the Texas Redomestication.
It is also possible that the Texas Redomestication results in additional litigation, with additional expense, distraction and time, or that it does not diminish the expenses, distraction and time the Company currently spends in litigious disputes. Further, if a court determines that such litigation has merit, we may be required to pay substantial monetary damages..
Risks Relating to the Special Committee
Certain stockholders may file litigation against Tesla in connection with the Texas Redomestication. If such litigation is filed, a court may find that the Texas Redomestication is not fair to stockholders, even if stockholders approve the Texas Redomestication Proposal, and it may find that the process employed by the Special Committee was not adequate or fair.
A court may also find that Ms. Wilson-Thompson was not independent with respect to the Texas Redomestication and this proposal notwithstanding the Special Committee’s determination. Litigation relating to the Texas Redomestication, regardless of merit, may cause us to incur significant expense, distraction and time. Further, if a court determines that claims brought in such litigation are meritorious, we may be required to pay substantial monetary damages.
What Changes After Texas Redomestication?
The Texas Redomestication will effect a change in the legal domicile of the Company and other changes, the most significant of which are described below. Following the Texas Redomestication, we will be governed by the TBOC instead of the DGCL, and we will be governed by the Texas Charter and Texas Bylaws. Approval of this Proposal will constitute approval of the Texas Charter and Texas Bylaws. Our current Amended and Restated Certificate of Incorporation (as amended, the “Delaware Charter”) and our current Amended and Restated Bylaws (as amended, the “Delaware Bylaws”) will no longer be in effect following completion of the Texas Redomestication. Copies of the Delaware Charter and Delaware Bylaws are included as Annex F and Annex G, respectively, to this Proxy Statement.
 
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Certain Differences Between Delaware Charter and Bylaws and Texas Charter and Bylaws
The Texas Charter and Texas Bylaws have been drafted with an intent to reflect the Delaware Charter and Delaware Bylaws to the extent legally possible. Nonetheless, because of differences between the TBOC and the DGCL, certain differences will be in effect. Certain differences between the Texas Charter and the Delaware Charter are summarized below:
Issue
Delaware Charter
Texas Charter
Shareholder Voting Threshold
Under the DGCL, certain matters subject to a stockholder vote, including certain business transactions including, without limitation, mergers, conversions, sales of substantially all assets, require a default vote of the holders of a majority of the outstanding shares entitled to vote thereon, unless the charter specifies a higher voting threshold. The current Delaware Charter does not include a higher voting threshold so the default voting standard for such business transactions applies. Under the TBOC, certain matters subject to a shareholder vote, including “fundamental business transactions” such as mergers, sales of substantially all assets, and other transactions, require a default vote of 2/3 of the shareholders of each class, unless the charter specifies a lower voting threshold. Accordingly, the proposed Texas Charter contains language setting the default voting thresholds at a majority standard unless a different standard is specified elsewhere.
Board of Directors Vacancies
The current Delaware Charter provides that vacancies on the Board can only be filled by vote of a majority of the remaining members of the Board or by a sole remaining director, and not by the stockholders.
The TBOC provides that director vacancies may be filled (1) by a vote of a majority of the remaining members of the board of directors, (2) by a sole remaining director, or (3) by a vote of holders of a majority of the outstanding shares of stock. Additionally, the TBOC prevents a board of directors from filling more than two vacancies caused by an increase in the size of the board of directors between any two annual meetings of shareholders, and any directors appointed or elected by the board of directors or shareholders to fill a vacancy can only serve until the next annual meeting of the shareholders (or special meeting called to elect directors).
The proposed Texas Charter provides that director vacancies may be filled in any manner permitted by the TBOC, in each case to the extent permitted by the TBOC.
Action by Written Consent
The current Delaware Charter prohibits stockholder action by written consent. Under the TBOC, shareholders are required to have the option to act by written consent in lieu of a meeting, and so the proposed Texas Charter provides that shareholders may act by unanimous written consent in lieu of a meeting. This option most closely aligns with the terms of the current Delaware Charter, which prohibits shareholder action by
 
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Issue
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written consent. In particular, in light of our widely held shareholder base, we do not believe that action by unanimous written consent is likely.
Calling of Special Shareholder Meetings
The current Delaware Charter provides that special stockholder meetings may be called only by the Board, the chairperson of the Board, the chief executive officer, or the president (in the absence of a chief executive officer), and may not be called by stockholders. The proposed Texas Charter provides that special shareholder meetings may be called by the Board of Directors, the chairperson of the Board of Directors, the chief executive officer, the president, or by shareholders holding 50% of the shares entitled to vote on the proposed action of such meeting. Under the TBOC, the president of a corporation is required to have the right to call a shareholder meeting as are shareholders holding a specified percentage of the shares entitled to vote at such meeting. We have acknowledged that statutory right in the proposed Texas Charter.
Cancellation of Special Shareholder Meetings
The current Delaware Charter provides that the Board may cancel, postpone, or reschedule a special stockholder meeting. Because the TBOC requires that shareholders holding 50% of the shares entitled to vote thereat to be able to call a special meeting of shareholders, the proposed Texas Charter does not provide that the Board of Directors has the right to cancel a special shareholder meeting, although the Board of Directors retains the right to postpone and reschedule shareholder meetings. The proposed Texas Bylaws, however, permit the Board to cancel a special shareholder meeting not called by shareholders.
Indemnification
The current Delaware Bylaws authorize indemnification of directors and officers to the fullest extent permitted by Delaware law as it exists or may be amended from time to time.
Under Delaware law, a corporation may indemnify a director or officer against expenses and judgments reasonably incurred by the person in connection with a legal proceeding, other than an action by or in the right of the corporation, provided such a director or officer acted in good faith and reasonably believed: (1) in the case of a civil, administrative or investigative proceeding, that such person’s conduct was in or not opposed to
The proposed Texas Charter authorizes the indemnification of directors and officers to the fullest extent permitted by Texas law as it exists or may be amended from time to time.
Under the TBOC, a corporation may indemnify a director or officer against judgments and expenses reasonably incurred by the director or officer in connection with a legal proceeding if the director or officer: (1) acted in good faith, (2) reasonably believed, in the case of conduct in the person’s official capacity, that the person’s conduct was in the corporation’s best interests, and otherwise, that the person’s conduct was not opposed
 
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the best interests of the corporation, or (2) in the case of a criminal proceeding, that such person had no reasonable cause to believe their conduct was unlawful.
In connection with an action by or in the right of the corporation against a director or officer, the corporation may indemnify such director or officer for expenses actually and reasonably incurred in connection with such suit: (1) if such person acted in good faith and a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and (2) if such person is found liable to the corporation, only if ordered by a court of law.
to the corporation’s best interests, and (3) in the case of a criminal proceeding, did not have reasonable cause to believe the person’s conduct was unlawful.
If, however, the director or officer is found liable to the corporation or is found liable on the basis that such director or officer received an improper personal benefit, then indemnification is limited to the reimbursement of reasonable expenses actually incurred. Additionally, no indemnification will be available if a director or officer is found liable for: (1) willful or intentional misconduct, (2) breach of the duty of loyalty, or (3) an act or omission not committed in good faith that constitutes a breach of a duty owed to the corporation.
Certain differences between the Texas Bylaws and the Delaware Bylaws are as follows:
Issue
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Board of Directors Vacancies
The current Delaware Bylaws provide that vacancies on the Board can only be filled by vote of a majority of the remaining members of the Board or by a sole remaining director, and not by stockholders. The proposed Texas Bylaws provide that director vacancies may be filled in any manner permitted by the TBOC, in each case to the extent permitted by the TBOC, the effect of which is described in the above comparison summary of the Delaware Charter and the proposed Texas Charter under “Board of Directors Vacancies.”
Action by Written Consent
The current Delaware Bylaws prohibit stockholder action by written consent. Under the TBOC, shareholders are required to have the option to act by written consent in lieu of a meeting. The proposed Texas Bylaws set this at the highest standard permitted under the TBOC, which is unanimous written consent.
Calling of Special Shareholder Meetings
The current Delaware Bylaws provide that special stockholder meetings may be called only by the Board, the chairperson of the Board, the chief executive officer, or the president (in the absence of a chief executive officer), and may not be called by stockholders. Under the TBOC, shareholders that own a certain percentage of shares having the right to vote thereat, as specified in the certificate of formation, but not to exceed 50%, are required to have the right to call special shareholder meetings, and the proposed Texas Bylaws provide that holders of not less than 50% of our shares of stock entitled to vote thereat may call a special meeting of shareholders.
 
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Cancellation of Special Shareholder Meetings
The current Delaware Bylaws provide that the Board may cancel, postpone, or reschedule a special stockholder meeting. The proposed Texas Bylaws provide that the Board may not cancel a special shareholder meeting called by shareholders, although the Board retains the right to postpone and reschedule shareholder meetings. The Board may cancel a meeting that is not called by shareholders, to the extent permitted under the TBOC.
Proxies
The current Delaware Bylaws provide that no proxy authorized by a stockholder is valid after three years from the date of its execution, unless the proxy provides for a longer period. Under the TBOC, a proxy is not valid for more than eleven months after the date the proxy is executed, unless otherwise provided by the proxy, and so the proposed Texas Bylaws provide that no proxy shall be voted or acted upon after eleven months from its date, unless the proxy provides for a longer period.
Board of Directors Committees
The current Delaware Bylaws provide that no committee of directors shall have the power or authority to (1) approve or adopt, or recommend to the stockholders, any action or matter (other than the election or removal of directors) expressly required by the DGCL to be submitted to stockholders for approval, or (2) adopt, amend, or repeal bylaws.
The proposed Texas Bylaws provide that committees shall not have the power or authority to (i) approve or adopt, or recommend to the shareholders any action or matter (other than the election or removal of directors) expressly required by the TBOC to be submitted to shareholders for approval or which otherwise may not be delegated to a committee, or (ii) adopt, amend or repeal any bylaw of the corporation. The proposed Texas Bylaws, by reference to the TBOC, acknowledge that, under the TBOC, a committee of directors is prohibited from taking certain actions. The TBOC provides that a committee of the board of directors may not:
(1)
amend the certificate of formation, except to: (A) establish a series of shares; (B) increase or decrease the number of shares in a series; or (C) eliminate a series of shares established by the board of directors;
(2)
propose a reduction of stated capital;
(3)
approve a plan of merger, share exchange, or conversion of the
 
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corporation;
(4)
recommend to shareholders the sale, lease, or exchange of all or substantially all of the property and assets of the corporation not made in the usual and regular course of its business;
(5)
recommend to the shareholders a voluntary winding up and termination or revocation of a voluntary winding up and termination;
(6)
amend, alter, or repeal the bylaws or adopt new bylaws;
(7)
fill vacancies on the board of directors;
(8)
fill vacancies on or designate alternate members of a committee of the board of directors;
(9)
fill a vacancy to be filled because of an increase in the number of directors;
(10)
elect or remove officers of the corporation or members or alternate members of a committee of the board of directors;
(11)
set the compensation of the members or alternate members of a committee of the board of directors; or
(12)
alter or repeal a resolution of the board of directors that states that it may not be amended or repealed by a committee of the board of directors.
Partly Paid Stock
The current Delaware Bylaws permit the corporation to issue partly paid stock. Under the TBOC, partly paid stock is prohibited due to the TBOC’s requirement that full consideration for shares be paid before issuance, and so the proposed Texas Bylaws do not provide for the issuance of partly paid stock.
 
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Notice to Shareholders
The current Delaware Bylaws permit the corporation to deliver a single written notice to stockholders who share an address (unless a stockholder objects) and permit the corporation not to give notice where notice would be unlawful. The TBOC does not currently contain provisions allowing for a single notice to be delivered to multiple shareholders at the same address, and so the right of the corporation to so deliver notice is limited by the TBOC. The TBOC does not have provisions specifically allowing the corporation not to deliver notice where such notice would be unlawful, and so the Texas Bylaws do not contain such provisions.
Advancement of Expenses
The current Delaware Bylaws provide that expenses incurred by an officer or director in connection with any legal proceedings will be advanced by the corporation upon the corporation’s receipt of a written request and an undertaking by the person to repay such amounts if it is ultimately determined that the person is not entitled to indemnification. Under the TBOC, before a corporation can advance expenses incurred by a director or officer in connection with any legal proceedings, a director or officer is also required to provide, in addition to an undertaking to repay any expenses advanced if such director or officer is ultimately not entitled to indemnification, a written affirmation attesting in good faith to such director’s or officer’s compliance with the standard of conduct necessary for indemnification, which requirement is included in the proposed Texas Bylaws.
Exclusive Forum
The current Delaware Bylaws provide that a state court within the State of Delaware (or, if no Delaware state court has jurisdiction, the federal district court for the District of Delaware) shall serve as the sole and exclusive forum for certain matters relating to the internal affairs of the corporation.
The exclusive forum provision in the Delaware Bylaws does not apply to any direct claims under the Securities Act of 1933, as amended (the “Securities Act”) or the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
The proposed Texas Bylaws provide that the sole and exclusive forum for certain matters relating to the internal affairs of the corporation shall be, first, the Business Court in the Third Business Court Division of the State of Texas (which Division includes the county of our Texas corporate headquarters), unless such court is not then accepting filings or lacks jurisdiction, in which case the exclusive forum shall be either the federal district court for the Western District of Texas, Austin Division, or if there is not federal jurisdiction then the state district court of Travis County, Texas.
The exclusive forum provision in the proposed Texas Bylaws explicitly states that it shall not apply to any direct claims under the Securities Act or the Exchange Act.
 
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Comparison of Stockholder Rights under Delaware and Texas Law
The rights of our stockholders are currently governed by the DGCL, Delaware case law, the Delaware Charter and the Delaware Bylaws. Following completion of the Texas Redomestication, the rights of our shareholders will be governed by the TBOC, Texas case law, the Texas Charter and the Texas Bylaws.
The Special Committee has found that the corporate laws of Texas and of Delaware are substantially equivalent, at least on net (i.e., balancing relevant considerations against one another) and as relevant to the Company.
The statutory corporate laws of Texas, as governed by the TBOC, are similar in many respects to those of Delaware, as governed by the DGCL. However, there are certain individual differences that may relate to your rights as a stockholder, as well as the corporate governance of the Company. The following are brief summaries of certain legal considerations relating to the current rights of stockholders of a Delaware corporation and the shareholders of a Texas corporation and the corporate governance of a company in Delaware and in Texas.
The following discussion does not provide a complete description of the differences that may affect you. This summary is qualified in its entirety by reference to the TBOC and DGCL, the Delaware Charter and Delaware Bylaws, the Texas Charter and Texas Bylaws, and the body of case law in both jurisdictions, and some of the differences in the legal considerations below may not affect you in light of the provisions of the Texas Charter and Texas Bylaws, which opt in to certain determinations as permitted under the TBOC.
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Increasing or Decreasing Authorized Capital Stock, Including Number of Unissued Shares of a Series of Preferred Stock
The DGCL has no provision for increasing or decreasing authorized capital stock by unilateral board action without stockholder approval, although if the increase in the number of authorized shares is in connection with a forward stock split (up to an amount proportionate to the subdivision), no stockholder approval is required provided that the corporation only has one class of stock outstanding and such class is not divided into series (unless stockholder approval is expressly required by the certificate of incorporation). See “Charter Amendments” below.
Under the TBOC, once stock has been issued, the board cannot unilaterally increase or decrease the authorized capital stock without shareholder approval, and there is no express exception for forward stock splits.
With respect to a series of shares of preferred stock established by the board of directors if authorized by the corporation’s certificate of formation (and subject thereto), unless the certificate of formation expressly restricts the board of directors from increasing or decreasing the number of unissued shares of a series to be established by the board of directors, the board of directors may increase or decrease the number of shares in each series to be established, except that the board of directors may not decrease the number of shares in a particular series to a number that is less than the number of shares in that series that are issued at the time of the decrease.
Number of Directors
Under the DGCL, the number of directors shall be fixed by, or in the manner provided in, the bylaws, unless the certificate of incorporation fixes the number of directors. If the certificate of incorporation fixes the Under the TBOC, the number of directors shall be set by, or in the manner provided by, the certificate of formation or bylaws, except that the number of directors on the initial board of directors must be set by the
 
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number of directors, then a change in the number of directors shall be made only by amendment of the certificate of incorporation.
certificate of formation.
The number of directors may be increased or decreased by amendment to, or as provided by, the certificate of formation or bylaws.
If the certificate of formation or bylaws do not set the number constituting the board of directors or provide for the manner in which the number of directors must be determined, the number of directors is the same as the number constituting the initial board of directors as set by the certificate of formation.
Procedures for Filling Vacant Directorships
Under the DGCL, unless otherwise provided in the certificate of incorporation or bylaws: (1) vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director; and (2) whenever the holders of any class or classes of stock or series thereof are entitled to elect 1 or more directors by the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected.
In the case of a Delaware corporation the directors of which are divided into classes, any directors chosen by (1) or (2) of the above shall hold office until the next election of the class for which such directors shall have been chosen, and until their successors shall be elected and qualified.
Under the TBOC, except as provided below with respect to class voting, vacancies may be filled by the affirmative vote of the majority of the remaining directors, even if less than a quorum, or by the election at an annual or special meeting of shareholders called for that purpose.
The term of a director elected to fill a vacancy occurring in the board of directors is the unexpired term of the director’s predecessor in office.
Except as provided below with respect to class voting, a directorship to be filled because of an increase in the number of directors may be filled by the shareholders or by the board of directors for a term of office continuing only until the next election of one or more directors by the shareholders. The board of directors may not fill more than two such directorships during the period between any two successive annual meetings of shareholders.
Unless otherwise authorized by a corporation’s certificate of formation, a vacancy or a newly created vacancy in a director position that the certificate of formation entitles the holders of a class or series of shares or group of classes or series of shares to elect may be filled only: (1) by the affirmative vote of the majority of the directors then in office elected by the class, series, or group; (2) by the sole
 
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remaining director elected in that manner; or (3) by the affirmative vote of the holders of the outstanding shares of the class, series, or group.
Removal of Directors
Under the DGCL, subject to the exceptions discussed below, holders of a majority of shares then entitled to vote at an election of directors may remove a director or the entire board of directors with or without cause.
Unless the certificate of incorporation provides otherwise, if the board of directors of a Delaware corporation is classified (i.e., elected for staggered terms), a director may only be removed by stockholders for cause.
If a Delaware corporation uses cumulative voting and less than the entire board is to be removed, a director may not be removed without cause if the votes cast against his or her removal would be sufficient to elect him or her if then cumulatively voted at an election of the entire board of directors or, if the board of directors is classified, at an election of the class of directors of which such director is a part.
Where the certificate of incorporation provides that separate classes or series of stockholders are entitled, as such a class or series, to elect separate directors, in calculating the sufficiency of votes for removal without cause of such a director, only the votes of the holders of such a class or series are considered.
Under the TBOC, subject to the exceptions discussed below or as otherwise provided by the certificate of formation or bylaws of a corporation, the holders of a majority of shares then entitled to vote at an election of directors may remove a director or the entire board of directors with or without cause.
Unless the certificate of formation provides otherwise, if a Texas corporation’s directors serve staggered terms, a director may only be removed for cause.
If the certificate of formation permits cumulative voting and less than the entire board is to be removed, a director may not be removed if the votes cast against the removal would be sufficient to elect him or her if cumulatively voted at an election of the entire board of directors, or if there are classes of directors, at an election of the class of directors of which the director is a part. Where the certificate of formation provides that separate classes or series of shareholders are entitled, as such a class or series, to elect separate directors, in calculating the sufficiency of votes for removal of such a director, only the votes of the holders of such a class or series are considered.
Action by Written Consent of Directors
Under the DGCL, unless otherwise restricted by the certificate of incorporation or bylaws, the board of directors of a Delaware corporation may act without a meeting if all of the directors consent in writing. Under the TBOC, unless otherwise provided by the certificate of formation or bylaws, a written consent stating the action taken and signed by all members of the board of directors of a Texas corporation is also an act of the board of directors.
Action by Written Consent of Stockholders
Under the DGCL, unless otherwise provided in the certificate of incorporation, stockholders may act without a meeting, without prior notice and without a vote, with the written consent of the stockholders having not less than the minimum Under the TBOC, shareholders may act without a meeting, without prior notice and without a vote, with the written consent of (1) all shareholders or (2) if authorized by the certificate of formation, the shareholders having at least the minimum number of votes
 
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number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. If less than unanimous written consent is given, the corporation must give prompt notice of the action taken to the non-consenting stockholders. that would be necessary to take the action that is the subject of the consent at a meeting, in which each owner or member entitled to vote on the action is present and votes. If less than unanimous written consent is given, the corporation must give prompt notice of the action taken to the non-consenting shareholders.
Special Meetings of the Stockholders
Under the DGCL, the board of directors, or any other one or more persons authorized in the certificate of incorporation or bylaws, may call a special meeting. Stockholders do not have a statutory right to call a special meeting, but the certificate of incorporation or bylaws for the corporation may provide for such right.
Special meetings of the shareholders of a corporation may be called by: (1) the president, the board of directors, or any other person authorized to call special meetings by the certificate of formation or bylaws of the corporation;  or (2) the holders of the percentage of shares specified in the certificate of formation, not to exceed 50 % of the shares entitled to vote or, if no percentage is specified, at least 10 % of all of the shares of the corporation entitled to vote at the proposed special meeting.
Under the TBOC, a corporation cannot prohibit its shareholders from calling a special meeting of shareholders.
Adjournment of Stockholder Meetings
Under the DGCL, unless the bylaws provide otherwise, a meeting of stockholders may be adjourned to another time or place without notice if the time, place, if any, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are: (1) announced at the meeting at which the adjournment is taken; (2) displayed, during the time scheduled for the meeting, on the same electronic network used to enable stockholders and proxy holders to participate in the meeting by means of remote communication; or (3) set forth in the notice of meeting.
Under the DGCL, if a meeting of stockholders is adjourned for more than 30 days, or if after the adjournment a new record date for stockholders entitled to vote is fixed for the adjourned meeting, notice of
Under the TBOC, unless the certificate of formation or bylaws provide otherwise, a meeting of shareholders may be adjourned due to lack of quorum until the time and to the place as may be determined by a vote of the holders of the majority of the shares who are present or represented by proxy at the meeting.
The TBOC does not have a specific provision on the notice for an adjourned meeting or the business that may be transacted at an adjourned meeting.
Generally, under the TBOC, the only business that may be conducted at a special meeting of the shareholders is business that is within the purposes described in the notice.
 
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the adjourned meeting must be given to each stockholder of record entitled to vote at the meeting, or each stockholder of record entitled to vote at the adjourned meeting as of the new record date set for notice of the adjourned meeting, respectively.
At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting.
Voting by Proxy
Under the DGCL, a stockholder may authorize another person or persons to act for such stockholder by proxy. A proxy is valid for three years from its date unless a longer period is provided in the proxy. Under the TBOC, a shareholder may authorize another person or persons to act for such shareholder by proxy. A proxy is valid for eleven months from its date of execution unless otherwise provided in the proxy.
Quorum and Required Vote for Stock Corporations
Under the DGCL, the certificate of incorporation or bylaws of a Delaware corporation may specify the number of shares and/or the amount of other securities having voting power the holders of which must be present or represented by proxy at any meeting in order to constitute a quorum for, and the votes that shall be necessary for, the transaction of any business, but in no event shall a quorum consist of less than one-third of the shares entitled to vote at the meeting, except that, where a separate vote by a class or series or classes or series is required, a quorum shall consist of no less than one-third of the shares of such class or series or classes or series.
In the absence of such specification in the certificate of incorporation or bylaws of the corporation: (1) a majority of the shares entitled to vote, present in person or represented by proxy, shall constitute a quorum at a meeting of stockholders; (2) in all matters other than the election of directors, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders; (3) directors shall be elected by a plurality of the votes of the shares present in person or
Under the TBOC, subject to the following sentence, the holders of the majority of the shares entitled to vote at a meeting of the shareholders of a Texas corporation that are present or represented by proxy at the meeting are a quorum for the consideration of a matter to be presented at that meeting. The certificate of formation of a corporation may provide that a quorum is present only if: (1) the holders of a specified portion of the shares that is greater than the majority of the shares entitled to vote are represented at the meeting in person or by proxy; or (2) the holders of a specified portion of the shares that is less than the majority but not less than one-third of the shares entitled to vote are represented at the meeting in person or by proxy.
Subject to the following sentence, directors of a corporation shall be elected by a plurality of the votes cast by the holders of shares entitled to vote in the election of directors at a meeting of shareholders at which a quorum is present. The certificate of formation or bylaws of a corporation may provide that a director of a corporation shall be elected only if the director receives: (1) the vote of the holders of a specified portion, but not less than the majority, of the shares entitled to vote in the election of
 
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represented by proxy at the meeting and entitled to vote on the election of directors; and (4) where a separate vote by a class or series or classes or series is required, a majority of the outstanding shares of such class or series or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter and, in all matters other than the election of directors, the affirmative vote of the majority of shares of such class or series or classes or series present in person or represented by proxy at the meeting shall be the act of such class or series or classes or series.
A bylaw amendment adopted by stockholders which specifies the votes that shall be necessary for the election of directors shall not be further amended or repealed by the board of directors.
directors; (2) the vote of the holders of a specified portion, but not less than the majority, of the shares entitled to vote in the election of directors and represented in person or by proxy at a meeting of shareholders at which a quorum is present; or (3) the vote of the holders of a specified portion, but not less than the majority, of the votes cast by the holders of shares entitled to vote in the election of directors at a meeting of shareholders at which a quorum is present.
Subject to the following sentence, with respect to a matter other than the election of directors or a matter for which the affirmative vote of the holders of a specified portion of the shares entitled to vote is required by the TBOC, the affirmative vote of the holders of the majority of the shares entitled to vote on, and who voted for, against, or expressly abstained with respect to, the matter at a shareholders’ meeting of a corporation at which a quorum is present is the act of the shareholders. With respect to a matter other than the election of directors or a matter for which the affirmative vote of the holders of a specified portion of the shares entitled to vote is required by this code, the certificate of formation or bylaws of a corporation may provide that the act of the shareholders of the corporation is: (1) the affirmative vote of the holders of a specified portion, but not less than the majority, of the shares entitled to vote on that matter; (2) the affirmative vote of the holders of a specified portion, but not less than the majority, of the shares entitled to vote on that matter and represented in person or by proxy at a shareholders’ meeting at which a quorum is present; (3) the affirmative vote of the holders of a specified portion, but not less than the majority, of the shares entitled to vote on, and who voted for or against, the matter at a shareholders’ meeting at which a
 
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quorum is present; or (4) the affirmative vote of the holders of a specified portion, but not less than the majority, of the shares entitled to vote on, and who voted for, against, or expressly abstained with respect to, the matter at a shareholders’ meeting at which a quorum is present.
Stockholder Vote for Fundamental Business Transactions
Under the DGCL, a majority of the outstanding stock of the corporation entitled to vote thereon generally must approve fundamental changes, such as: (1) certain mergers or consolidations; (2) a sale, lease, or exchange of all or substantially all of the corporation’s assets (provided that no stockholder authorization or consent is required (A) to mortgage or pledge the corporation’s property and assets unless the certificate of incorporation so requires or (B) where the property or assets in the sale, lease or exchange is collateral that secures a mortgage or is pledged to a secured party and certain additional conditions are met); (3) dissolution; (4) conversion of a domestic corporation to other entities; and (5) transfer, domestication or continuance of a domestic corporation to a foreign jurisdiction. The certificate of incorporation may contain provisions requiring for any corporate action the vote of a larger portion of the stock or of any class or series thereof than is required by the DGCL. Under the TBOC, unless otherwise provided for in the TBOC or the certificate of formation of a corporation, shareholders holding at least two-thirds of the outstanding shares of a class entitled to vote on the matter must typically approve fundamental business transactions such as: (1) a merger; (2) an interest exchange; (3) a conversion; or (4) a sale of all or substantially all of the corporation’s assets that is not made in the usual and regular course of the corporation’s business. The certificate of formation can provide for a different threshold of approval, but not less than a majority of the shares entitled to vote.
Stockholder Vote for Sales, Leases, Exchanges or Other Dispositions
Under the DGCL, a Delaware corporation may sell, lease or exchange all or substantially all of its property and assets when and as authorized by a majority of the outstanding stock of the corporation entitled to vote thereon.
No such approval is required, however, if the assets being sold, leased or exchanged are not all or substantially all of the corporation’s assets. There is no necessary quantifying percentage for determining whether assets constitute substantially all of a Delaware corporation’s assets. Only if
Under the TBOC, generally the sale, lease, exchange or other disposition of all, or substantially all, of the property and assets of a Texas corporation requires the approval of the holders of at least two-thirds of the outstanding shares of the corporation entitled to vote, unless the corporation’s certificate of formation sets a lower threshold (which may not be less than a majority of the voting shares).
No such approval is required, however, if the transaction is made in the usual and regular course of a Texas corporation’s business. Under Texas
 
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the sale is of assets quantitatively and qualitatively vital to the business of the corporation is stockholder authorization mandated. law, even the transfer of substantially all of a corporation’s assets in such a manner that the corporation continues directly or indirectly to engage in one or more businesses is deemed not to be a transaction requiring shareholder approval under the TBOC.
Business Combinations Statute
Under the DGCL, unless a Delaware corporation’s certificate of incorporation or bylaws (original, or approved by stockholders) provide otherwise, Delaware corporations that have a class of voting stock listed on a national securities exchange or held of record by 2,000 or more persons are prohibited from entering into any “business combination” with any “interested stockholder” for a period of three years following the time that such stockholder became an interested stockholder. The DGCL generally defines a “business combination” as (i) certain mergers and consolidations; (ii) sales leases, exchanges, mortgages, pledges, transfers or other dispositions of assets having an aggregate market value of 10% or more of either the consolidated assets or the outstanding stock of a company; (iii) certain transactions that would result in the issuance or transfer of stock of the corporation to an interested stockholder; (iv) certain transactions that have the effect, directly or indirectly, of increasing the proportionate share of stock of the corporation which is owned by the interested stockholder, subject to exceptions; and (v) any receipt by the interested stockholder of the benefit, directly or indirectly, of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation, subject to certain exceptions.
“Interested stockholder” is generally defined as a person (including the affiliates and associates of such person) that is directly or indirectly a beneficial owner of 15% or more of
Under the TBOC, a Texas “issuing public corporation” is generally prohibited from, directly or indirectly, entering into (i) mergers, share exchanges or conversions with an affiliated shareholder or other entity that after such transaction would be an affiliate or associate of an affiliated shareholder, and certain other entities, (ii) sales, leases, exchanges, mortgages, pledges, transfers or other dispositions of assets having an aggregate market value of 10% or more of (a) the aggregate market value of the consolidated assets of such Texas public corporation, (b) the aggregate market value of the outstanding voting stock of such Texas public corporation or (c) the earning power or net income of such Texas public corporation on a consolidated basis, (iii) certain transactions that would result in the issuance or transfer of shares of such Texas public corporation to an affiliated shareholder or an affiliate or associate, (iv) liquidation or dissolution plans or proposals with an affiliated shareholder or an associate or an affiliate of an associate of an affiliated shareholder, (v) certain transactions, including reclassifications of securities or other share distributions or recapitalizations, that have the effect, directly or indirectly, of increasing the proportionate ownership percentage of the outstanding shares of a class or series of voting shares or securities convertible into voting shares of the issuing public corporation that is beneficially owned by the affiliated shareholder or an affiliate or associate of the affiliated shareholder, except as a result of immaterial changes due to
 
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the outstanding voting stock of a Delaware corporation or is an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the corporation at any time within the 3-year period before the date on which it is sought to be determined whether such person is an interested stockholder, and the affiliates and associates of such person, in each case subject to certain exceptions.
The DGCL provides an exception to this prohibition if: (i) the corporation’s board of directors approved either the business combination or the transaction in which the stockholder became an interested stockholder prior to the date the interested stockholder became an interested stockholder; (ii) the interested stockholder acquired at least 85% of the voting stock of that company (excluding shares owned by persons who are directors and also officers, and employee stock plans in which participants do not have the right to determine whether shares will be tendered in a tender or exchange offer) in the transaction in which it became an interested stockholder; or (iii) the business combination is approved by the board of directors and the affirmative vote of at least two-thirds of the votes entitled to be cast by disinterested stockholders at an annual or special meeting (and not by written consent).
fractional share adjustments or (vi) loans, advances, guarantees, pledges, or other financial assistance or a tax credit or other tax advantages the recipient of which is an affiliated shareholder or an affiliate or associate of an affiliated shareholder, in each case, with an “affiliated shareholder” or any affiliate or associate of the “affiliated shareholder” for a period of three years after the date the shareholder obtained “affiliated shareholder” status.
“Affiliated shareholder” is generally broadly defined as a person who beneficially owns (or has owned within the preceding three-year period) 20% or more of the outstanding voting stock of a Texas public corporation.
“Issuing public corporation” means a Texas corporation that has: (i) 100 or more shareholders of record as shown by the share transfer records of the corporation; (ii) a class or series of the corporation’s voting shares registered under the Securities Exchange Act of 1934 (15 U.S.C. Section 77b et seq.), as amended; or (iii) a class or series of the corporation’s voting shares qualified for trading on a national securities exchange.
The TBOC provides an exception to this prohibition if: (i) the board of directors of the corporation approves the transaction or the acquisition of shares by the affiliated shareholder prior to the affiliated shareholder becoming an affiliated shareholder; or (ii) the holders of at least two-thirds of the outstanding voting shares not beneficially owned by the affiliated shareholder or an affiliate or associate of the affiliated shareholder approve the transaction at a meeting held no earlier than six months after the shareholder acquires such ownership. The TBOC expressly provides that the foregoing shareholder approval may not be by written consent.
 
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Charter Amendments
Under the DGCL, subject to limited exceptions, an amendment to the certificate of incorporation must be approved by (i) the board of directors and (ii) the holders of a majority of a Delaware corporation’s outstanding stock entitled to vote thereon, unless the certificate of incorporation provides for a greater number.
In addition, unless otherwise expressly required by the certificate of incorporation: (1) no meeting or vote of stockholders is required to adopt an amendment that reclassifies by subdividing the issued shares of a class of stock into a greater number of issued shares of the same class of stock (and, in connection therewith, such amendment may increase the number of authorized shares of such class of stock up to an amount proportionate to the subdivision), provided the corporation has only one class of stock outstanding and such class is not divided into series; and (2) an amendment to increase or decrease the authorized number of shares of a class of capital stock or an amendment to reclassify by combining the issued shares of a class of capital stock into a lesser number of issued shares of the same class of stock may be made and effected, without obtaining the vote or votes of stockholders otherwise required if: (A) the shares of such class are listed on a national securities exchange immediately before such amendment becomes effective and meet the listing requirements of such national securities exchange relating to the minimum number of holders immediately after such amendment becomes effective, (B) at a properly called meeting, a vote of the stockholders entitled to vote thereon, voting as a single class, is taken for and against the proposed amendment, and the votes cast for the amendment exceed the votes cast against the amendment, and (C) if the amendment increases or decreases the authorized number of shares of a
Under the TBOC, subject to limited exceptions, an amendment to the certificate of formation requires the approval of (i) the board of directors and (ii) the holders of at least two-thirds of the outstanding shares of a Texas corporation, unless a different threshold, not less than a majority, is specified in the certificate of formation.
 
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class of capital stock for which no provision in the certificate of incorporation has been made in accordance with the DGCL, the votes cast for the amendment by the holders of such class exceed the votes cast against the amendment by the holders of such class.
Bylaw Amendments
Under the DGCL, stockholders of a Delaware corporation entitled to vote have the right to amend, repeal or adopt the bylaws. If a Delaware corporation’s certificate of incorporation so provides, the Delaware corporation’s board of directors may also have the right to amend, repeal or adopt the bylaws. Generally, under the TBOC, the board of directors may amend, repeal or adopt a Texas corporation’s bylaws. However, (i) the shareholders may amend, repeal or adopt bylaws even if the directors also have that power and (ii) a Texas corporation’s certificate of formation may wholly or partly reserve the power to amend, repeal or adopt bylaws exclusively to the shareholders. Similarly, the shareholders, in amending, repealing or adopting a particular bylaw, may expressly provide that the board of directors may not amend, readopt or repeal that bylaw.
Dividends and Distributions
Under the DGCL, a Delaware corporation may, subject to any restrictions contained in its certificate of incorporation, pay dividends out of surplus or, if there is no surplus, out of net profits for the current and/or the preceding fiscal year, unless the capital of the corporation is less than the capital represented by issued and outstanding stock having preferences on asset distributions.
In addition, a Delaware corporation may not repurchase or redeem shares if doing so would render the corporation insolvent in the sense that it could not pay its debts as they come due or continue as a going concern.
Under the TBOC, a distribution is defined as a transfer of cash or other property (except a corporation’s own shares or rights to acquire its shares or a split-up or division of the issued shares of a class of a corporation into a larger number of shares within the same class that does not increase the stated capital of the corporation), or an issuance of debt, by a corporation to its shareholders in the form of: (i) a dividend on any class or series of a Texas corporation’s outstanding shares; (ii) a purchase or redemption, directly or indirectly, of its shares; or (iii) a payment in liquidation of all or a portion of its assets.
Under the TBOC, a Texas corporation may not make a distribution if such distribution violates its certificate of formation, if the corporation’s surplus is less than the amount of the corporation’s stated capital (as determined by the TBOC) or, unless a Texas corporation is in receivership or the distribution is made in connection with the winding up and termination of the Texas corporation, if it either
 
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renders a Texas corporation unable to pay its debts as they become due in the course of its business or affairs, or exceeds, depending on the type of distribution, either the net assets or the surplus of the Texas corporation, or, subject to certain exceptions, if the distribution will be made to shareholders of another class or series.
Stock Redemption and Repurchase
Under the DGCL, a Delaware corporation may purchase or redeem shares of any class except when its capital is impaired or would be impaired by such purchase or redemption. A Delaware corporation may, however, purchase or redeem out of capital, shares that are entitled upon any distribution of its assets to a preference over another class or series of its stock, or, if no shares entitled to such a preference are outstanding, any of its own shares, if such shares are to be retired and the capital reduced. However, a corporation may not purchase redeemable shares for a price greater than that at which they would be redeemed.
In addition, a Delaware corporation may not effect a repurchase or redemption if doing so would render the corporation insolvent in the sense that it could not pay its debts as they come due or continue as a going concern.
As noted above, under the TBOC, the purchase or redemption by a Texas corporation of its shares constitutes a distribution. Accordingly, the discussion above relating to distributions is applicable to stock redemptions and repurchases.
Ratification
Under the DGCL, there is a codified ratification process for defective corporate actions.
The board of directors must adopt a resolution ratifying the defective corporate action and, if stockholder approval would have been required for the defective corporate action to have been taken, the defective corporate action must be submitted to stockholders for approval.
In addition to the foregoing, under the DGCL, the corporation, any successor entity to the corporation, any director, or certain stockholders can apply to
Under the TBOC, there is a codified ratification process for defective corporate acts.
The board of directors must adopt a resolution and then submit the ratified defective corporate act for shareholder approval (shareholder approval is subject to certain exceptions). In the absence of actual fraud in the transaction, the judgment of the board of directors of a Texas corporation that shares of the Texas corporation are valid shares or putative shares is conclusive, unless otherwise determined by a Texas district court or a Texas Business
 
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the Delaware Court for an order determining the validity and effectiveness of defective corporate acts, including without limitation to confirm whether a prior ratification was effective, whether a defective corporate act can be validated even if not previously ratified. In connection with such applications, the Delaware Court has broad discretion to fashion appropriate relief, including without limitation declaring ratifications effective, validating and declaring effective any defective corporate act, and making such other orders regarding such matters as it deems proper under the circumstances. Court.
Inspection of Books and Records
Under the DGCL, any stockholder may inspect, and make copies and extracts from, a Delaware corporation’s books and records during normal business hours for any proper purpose upon written demand under oath stating the purpose of the inspection.
If a Delaware corporation refuses to permit inspection or does not reply to the demand within five business days after the demand has been made, the stockholder may apply to the Delaware Court for an order to compel such inspection.
Generally, the stockholder bears the burden of showing that each category of requested records is essential to accomplishment of the stockholder’s stated purpose for the inspection. However, when a stockholder seeks to inspect a corporation’s list of stockholders or stock ledger, the burden of proof is on the corporation to establish that the inspection is for an improper purpose.
Under the TBOC, a shareholder may inspect a Texas corporation’s books and records during normal business hours upon written demand stating a proper purpose if such shareholder holds at least 5% of the outstanding shares of stock of the Texas corporation or has been a holder of shares for at least six months prior to such demand.
If a Texas corporation refuses to allow a person to examine and make copies of account records, minutes, and share transfer records under the TBOC, the Texas corporation is liable to the shareholder for any cost or expense, including attorney’s fees, incurred in enforcing the shareholder’s rights under the TBOC.
A Texas corporation may defend against an inspection action by establishing that the shareholder: (1) has sold or offered for sale, or has aided or abetted a person in procuring a list of shareholders or of holders of voting trust certificates for the purpose of selling, a list of shareholders or of holders of voting trust certificates for shares of the Texas corporation or any other corporation within the two years preceding the date the action is brought; (2) has improperly used information obtained through prior examination of the books, account
 
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records, minutes, or share transfer records of the corporation or any other corporation; or (3) was not acting in good faith or for a proper purpose in making the request.
Insurance
Under the DGCL, a Delaware corporation is allowed to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the corporation would have the power to indemnify such person against such liability under the DGCL.
The DGCL does not prohibit a Delaware corporation from establishing and maintaining arrangements, other than insurance, to protect such persons, including a trust fund or surety arrangement.
Under the TBOC, a Texas enterprise is allowed to purchase or procure or establish and maintain insurance or another arrangement to indemnify or hold harmless an existing or former governing person, delegate, officer, employee, or agent against any liability: (1) asserted against and incurred by the person in that capacity or (2) arising out of the person’s status in that capacity. The insurance or other arrangement established may insure or indemnify against the liability described above without regard to whether the enterprise otherwise would have had the power to indemnify the person against that liability under the TBOC.
Under the TBOC, for the benefit of persons to be indemnified by the enterprise, an enterprise may, in addition to purchasing or procuring or establishing and maintaining insurance or another arrangement: (1) create a trust fund; (2) establish any form of self-insurance, including a contract to indemnify; (3) secure the enterprise’s indemnity obligation by grant of a security interest or other lien on the assets of the enterprise; or (4) establish a letter of credit, guaranty, or surety arrangement.
Interested Party Transaction
Approvals
The DGCL provides that certain interested party transactions are not void or voidable solely because the transaction is between a corporation and one or more of its directors or officers, or between the corporation and an entity in which one or more of its directors or officers has a financial interest, or solely because the interested director or officer was present at or participated in the meeting in which the interested transaction was approved if any of the following conditions are satisfied: (1) the material facts as to the The TBOC provides that an otherwise valid and enforceable contract or transaction between a corporation and (1) one or more directors or officers, or one or more affiliates or associates of one or more directors or officers, of the corporation; or (2) an entity or other organization in which one or more directors or officers, or one or more affiliates or associates of one or more directors or officers, of the corporation: (A) is a managerial official; or (B) has a financial interest is valid and enforceable, and is not void or voidable, notwithstanding such
 
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director’s or officer’s relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors or the committee, and the board or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; (2) the material facts as to the director’s or officer’s relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (3) the contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified, by the board of directors, a committee or the stockholders.
relationship or interest if any one of the following conditions is satisfied: (1) the material facts as to the applicable relationship or interest and as to the contract or transaction are disclosed to or known by: (A) the corporation’s board of directors or a committee of the board of directors, and the board of directors or committee in good faith authorizes the contract or transaction by the approval of the majority of the disinterested directors or committee members, regardless of whether the disinterested directors or committee members constitute a quorum; or (B) the shareholders entitled to vote on the authorization of the contract or transaction, and the contract or transaction is specifically approved in good faith by a vote of the shareholders; or (2) the contract or transaction is fair to the corporation when the contract or transaction is authorized, approved, or ratified by the board of directors, a committee of the board of directors, or the shareholders.
The TBOC differs from the DGCL’s interested party transaction statute in that it expressly provides that if at least one of the above conditions is satisfied, neither the corporation nor any of the corporation’s shareholders will have a cause of action against any of the corporation’s directors or officers for breach of duty with respect to the making, authorization, or performance of the contract or transaction because the person had an applicable relationship or interest.
Limitation of Liability of Stockholders
Under the DGCL, unless the certificate of incorporation otherwise provides, the stockholders of a corporation shall not be personally liable for the payment of the corporation’s debts except as they may be liable by reason of their own conduct or acts. Under the TBOC, subject to certain exceptions, a shareholder’s liability is limited to its contributed capital.
 
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Limitation of Personal Liability of Directors and Officers
Under the DGCL, a Delaware corporation is permitted to adopt a provision in its certificate of incorporation eliminating or limiting the personal liability of a director or officer to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director or officer, provided that such provision does not eliminate or limit the liability of: (i) a director or officer breaching the duty of loyalty to the corporation or its stockholders; (ii) a director or officer failing to act in good faith, engaging in intentional misconduct or a knowing violation of law; (iii) a director declaring an illegal dividend or approving an illegal stock purchase or redemption; (iv) a director or officer obtaining an improper personal benefit from the corporation; or (v) an officer in any action by or in the right of a Delaware corporation.
Under the TBOC, a Texas corporation is permitted to provide that a director is not liable, or is liable only to the extent provided by the certificate of formation, to the corporation or its shareholders for monetary damages for an act or omission by the person in the person’s capacity as a director.
The TBOC does not, however, permit any limitation of the liability of a director for: (i) a breach of the duty of loyalty to the corporation or its shareholders; (ii) an act or omission not in good faith that constitutes a breach of duty of the person to the corporation or involves intentional misconduct or a knowing violation of law; (iii) a transaction from which the director obtains an improper benefit, regardless of whether the benefit resulted from an action taken within the scope of the person’s duties; or (iv) an act or omission for which the liability of a director is expressly provided by an applicable statute (such as wrongful distributions).
Considerations by Directors Permitted by Statute
Except for corporations that have opted to become public benefit corporations, directors of Delaware corporations do not have any express statutory authority to consider other constituencies. Delaware case law provides that fiduciary duties in most circumstances require directors to seek to maximize the value of the corporation for the long-term benefit of the stockholders.
Under the TBOC, in discharging the duties of director under the TBOC or otherwise and in considering the best interests of the corporation, a director is entitled to consider the long-term and short-term interests of the corporation and the shareholders of the corporation, including the possibility that those interests may be best served by the continued independence of the corporation.
In discharging the duties of a director or officer under the TBOC or otherwise, a director or officer of a corporation is entitled to consider any social purpose specified in the corporation’s certificate of formation. In addition, the TBOC provides that nothing in the applicable section thereof prohibits or limits a director or officer of a corporation that does not have a social purpose specified as a purpose in the corporation’s certificate of formation from considering, approving, or taking an action that promotes or has the effect
 
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of promoting a social, charitable, or environmental purpose.
Texas also has a public benefit corporation statute.
Business Opportunities
Under Delaware law, the corporate opportunity doctrine holds that a corporate officer or director may not generally and unilaterally take a business opportunity for his or her own. Factors to be considered include: (i) whether the corporation is financially able to exploit the opportunity; (ii) if the opportunity is within the corporation’s line of business; (iii) whether the corporation has an interest or expectancy in the opportunity; and (iv) whether by taking the opportunity for his or her own, the corporate fiduciary will thereby be placed in a position inimical to his duties to the corporation.
The DGCL permits a Delaware corporation to renounce, in its certificate of incorporation or by action of the board of directors, any interest or expectancy of the corporation in, or being offered an opportunity to participate in, specified business opportunities or specified classes or categories of business opportunities that are presented to the corporation or one or more of its officers, directors or stockholders.
Texas law generally follows the Delaware corporate opportunity doctrine.
The TBOC permits a Texas entity to renounce, in its certificate of formation or by action of its board of directors, an interest or expectancy of the entity in, or an interest or expectancy of the entity in being offered an opportunity to participate in, specified business opportunities or a specified class or category of business opportunities presented to the entity or one or more of its managerial officials or owners.
Indemnification of Directors and Officers
Under the DGCL, a Delaware corporation is permitted to indemnify any person who is a director, officer, employee, or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with any threatened, pending or completed action, suit or proceeding, other than an action by or in the right of the corporation, to which such director, officer, employee or agent Under the TBOC, a Texas corporation is permitted to indemnify a director, former director, or delegate who was, is, or is threatened to be made a respondent in a proceeding, against (i) judgments and (ii) expenses (other than a judgment) reasonably and actually incurred by the person in connection with a proceeding if the person: (a) acted in good faith; (b) reasonably believed, in the case of conduct in the person’s official capacity, that the person’s conduct was in the corporation’s best interests, and in any other case, that the person’s conduct was not opposed to the corporation’s best interests; and (c) in the case of a criminal
 
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may be a party or threatened to be made a party, provided such person acted in good faith and in a manner the person reasonably believed was in or not opposed to the best interests of the corporation, and in the case of a criminal proceeding, that he or she had no reasonable cause to believe his or her conduct was unlawful.
In connection with any threatened, pending or completed action by or in the right of the corporation involving a person who is or was a director, officer, employee or agent, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, a Delaware corporation has the power to indemnify such a person who is a party or is threatened to be made a party for expenses (including attorneys’ fees) actually and reasonably incurred in connection with the defense or settlement of such action or suit: (i) if such person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation; and (ii) if such person is found liable to the corporation, only to the extent the Court of Chancery or the court in which such action or suit was brought determined that in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. This is not exclusive of any other indemnification rights, which may be granted by a Delaware corporation to its directors, officers, employees or agents.
proceeding, did not have a reasonable cause to believe the person’s conduct was unlawful. In addition, the TBOC permits indemnification of other persons as described in the section entitled “Persons Covered” below.
If, however, the person is found liable to a Texas corporation, or is found liable on the basis he or she received an improper personal benefit, then indemnification under the TBOC is limited to the reimbursement of reasonable expenses actually incurred in connection with the proceeding, and which excludes a judgment, a penalty, a fine, and an excise or similar tax, including an excise tax assessed against the person with respect to an employee benefit plan. Furthermore, no indemnification will be available if the person is found liable for: (i) willful or intentional misconduct in the performance of the person’s duty to the corporation; (ii) breach of the person’s duty of loyalty owed to the corporation; or (iii) an act or omission not committed in good faith that constitutes a breach of a duty owed by the person to the corporation.
Advancement of Expenses
Expenses (including attorneys’ fees) incurred by an officer or director of the corporation in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the A corporation may pay or reimburse reasonable expenses incurred by a present director or officer who was, is, or is threatened to be made a respondent in a proceeding in advance of the final disposition of the
 
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corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the corporation as authorized in this section. proceeding without making the determinations required for permissive indemnification after the corporation receives: (1) a written affirmation by the person of the person’s good faith belief that the person has met the standard of conduct necessary for indemnification;  and (2) a written undertaking by or on behalf of the person to repay the amount paid or reimbursed if the final determination is that the person has not met that standard or that indemnification is prohibited by the TBOC.
Procedure for Indemnification
Under the DGCL, a determination that indemnification of a director or officer is appropriate generally must be made: (i) by a majority vote of directors who are not party to the proceeding, even though less than a quorum; (ii) by a committee of such directors designated by majority vote of such directors, even though less than a quorum; (iii) if there are no such directors or if such directors so direct, by independent legal counsel in a written opinion; or (iv) by stockholder vote. Under the TBOC, a determination that indemnification is appropriate generally must be made: (i) by a majority vote of the directors who, at the time of the vote, are disinterested and independent, regardless of whether such directors constitute a quorum; (ii) by a majority vote of a special committee of the board of directors if the committee is designated by a majority vote of the directors who at the time of the vote are disinterested and independent, regardless of whether such directors constitute a quorum, and is composed solely of one or more directors who are disinterested and independent; (iii) by special legal counsel selected by majority vote under (i) or (ii) above; (iv) by the shareholders in a vote that excludes those shares held by directors who, at the time of the vote, are not disinterested and independent; or (v) by a unanimous vote of the shareholders of the corporation.
Mandatory Indemnification
The DGCL requires indemnification for expenses (including attorneys’ fees) actually and reasonably incurred with respect to any claim, issue or matter on which the director or officer is successful on the merits or otherwise, in the defense of the proceeding. The TBOC requires indemnification for reasonable expenses actually incurred only if the director is wholly successful on the merits or otherwise, in the defense of the proceeding.
Persons Covered
Under the DGCL, directors and officers, but not employees and agents, are entitled to mandatory indemnification for expenses incurred The TBOC generally provides that a corporation may indemnify and advance expenses to a person who is not a director, including an officer,
 
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when successful on the merits or otherwise in defense of litigation. Other than in that instance, the DGCL provides the same indemnification rights to officers, employees and agents that it provides for directors. employee or agent, as provided by: (1) the corporation’s governing documents; (2) general or specific action of the corporation’s board of directors; (3) resolution of the shareholders; (4) contract; or (5) common law. A corporation must indemnify an officer to the same extent that indemnification is required under the TBOC for a director. A determination of indemnification for a person who is not a director of a corporation, including an officer, employee, or agent, is not required to be made in accordance with the procedures set out in the relevant sections of the TBOC.
Rights Plans
Delaware has no statutory authorization for stockholder rights plans. Adoption of stockholder rights plans is viewed as a defensive action and is subject to enhanced scrutiny by the Delaware courts, with the burden initially on the board of directors to demonstrate that the adoption of the rights plan is reasonable in response to a reasonably identified threat posed.
Texas case law has generally upheld shareholder rights plans, but indicates that rights plans will be scrutinized for validity at the time of adoption and for continued validity in the face of changing circumstances.
In addition, the TBOC expressly permits directors to look to the “long-term” benefit to shareholders in taking action.
Selection of Forum
Under the DGCL, a Delaware corporation’s certificate of incorporation or bylaws may require, consistent with applicable jurisdictional requirements, that any or all internal corporate claims shall be brought solely and exclusively in any or all of the courts in Delaware, and no provision of a Delaware corporation’s certificate of incorporation or bylaws may prohibit bringing such claims in the courts of Delaware.
“Internal corporate claims” means claims, including claims in the right of the corporation, (i) that are based upon a violation of a duty by a current or former director or officer or stockholder in such capacity; or (ii) as to which this title confers jurisdiction upon the Delaware Court.
Under the TBOC, the governing documents of a Texas entity may require, consistent with applicable state and federal jurisdictional requirements, that any internal entity claims shall be brought only in a court in Texas.
“Internal entity claim” means a claim of any nature, including a derivative claim in the right of an entity, that is based on, arises from, or relates to the internal affairs of the entity. Internal affairs include the rights, powers, and duties of the entity’s governing persons, officers, owners, and members, and matters relating to the entity’s membership or ownership interests.
Pre-Suit Demand in Derivative Suits
Under Delaware court rules and case law, in order for a stockholder to commence a derivative action on behalf of the corporation, the Texas is a universal demand jurisdiction. Under the TBOC, the focus is on harm to the corporation rather than the Delaware standard of
 
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stockholder must: (1) make a demand on the company’s board of directors; or (2) show that demand would be futile. Demand will be deemed futile if at least half the members of the board: (1) received a material personal benefit from the alleged misconduct that is the subject of the litigation demand; (2) faces a substantial likelihood of liability on any of the claims that would be the subject of the litigation demand; and (3) lacks independence from someone who received a material personal benefit from the alleged misconduct that would be the subject of the litigation demand or who would face a substantial likelihood of liability on any of the claims that are the subject of the litigation demand.
futility. A shareholder may not institute a derivative proceeding until the 91st day after the date a written demand is filed with the corporation stating with particularity the act, omission, or other matter that is the subject of the claim or challenge and requesting that the corporation take suitable action.
The foregoing waiting period is not required or, if applicable, shall terminate if: (1) the shareholder has been notified that the demand has been rejected by the corporation; (2) the corporation is suffering irreparable injury; or (3) irreparable injury to the corporation would result by waiting for the expiration of the 90-day period.
Stock Ownership Requirement for Derivative Suits; Jury Trials
Under the DGCL, subject to limited exceptions, a stockholder may not institute or maintain a derivative suit unless the plaintiff was a stockholder of the corporation at the time of the transaction of which such stockholder complains or that such stockholder’s stock thereafter devolved upon such stockholder by operation of law.
Jury trials are generally not available in the Delaware Court, which is the Court in which stockholder suits relating to the internal affairs of a Delaware corporation must be filed.
Under the TBOC, a shareholder may not institute or maintain a derivative proceeding unless: (1) the shareholder was a shareholder of the corporation at the time of the transaction in question, or became a shareholder by operation of law originating from a person that was a shareholder at the time of the transaction in question; and (2) the shareholder fairly and adequately represents the interests of the corporation in enforcing the right of the corporation.
Under Texas law, in civil cases, a party generally has a right to a jury trial to determine questions of fact if the party timely demands a jury and pays the jury fee.
Dissent and Appraisal Rights
Under the DGCL, a stockholder of a corporation that is a constituent in a merger, consolidation, conversion, domestication, transfer, or continuance may, under certain circumstances, be entitled to appraisal rights pursuant to which the stockholder may receive cash in the amount of the fair market value of their shares as determined by the Delaware Court.
Under the DGCL, stockholders have no appraisal rights in the event of a merger, consolidation, conversion,
Under the TBOC, except for the limited classes of mergers, consolidations, sales and asset dispositions for which no shareholder approval is required under Texas law, shareholders of Texas corporations with voting rights have dissenters’ rights in the event of a merger, consolidation, interest exchange, conversion, sale, lease, exchange or other disposition of all, or substantially all, the property and assets of the corporation. However, a shareholder of a Texas corporation
 
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ISSUE
DELAWARE
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domestication, transfer or continuance if (i) prior to the effective time of the transaction the stock of the corporation is listed on a national securities exchange or is held of record by more than 2,000 stockholders, and (ii) in the merger, consolidation conversion, domestication, transfer or continuance they receive solely shares of stock of the surviving corporation or entity or of any other corporation which shares at the effective date of the merger or consolidation will be either listed on a national securities exchange or held of record by more than 2,000 stockholders. has no dissenters’ rights with respect to any plan of merger or conversion in which there is a single surviving or new domestic or foreign corporation, or with respect to any plan of exchange if: (1) the ownership interest, or a depository receipt in respect of the ownership interest, held by the owner is part of a class or series of ownership interests, or depository receipts in respect of ownership interests, that are, on the record date set for purposes of determining which owners are entitled to vote on the plan of merger, conversion, or exchange, as appropriate: (A) listed on a national securities exchange; or (B) held of record by at least 2,000 owners; (2) the owner is not required by the terms of the plan of merger, conversion, or exchange, as appropriate, to accept for the owner’s ownership interest any consideration that is different from the consideration to be provided to any other holder of an ownership interest of the same class or series as the ownership interest held by the owner, other than cash instead of fractional shares or interests the owner would otherwise be entitled to receive; and (3) the owner is not required by the terms of the plan of merger, conversion, or exchange, as appropriate, to accept for the owner’s ownership interest any consideration other than: (A) ownership interests, or depository receipts in respect of ownership interests, of another entity of the same general organizational type that, immediately after the effective date of the merger, conversion, or exchange, as appropriate, will be part of a class or series of ownership interests, or depository receipts in respect of ownership interests, that are: (i) listed on a national securities exchange or authorized for listing on the exchange on official notice of issuance; or (ii) held of record by at least 2,000 owners; (B) cash instead of fractional
 
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ISSUE
DELAWARE
TEXAS
ownership interests the owner would otherwise be entitled to receive; or (C) any combination of the ownership interests and cash above.
Under the TBOC, an owner of an ownership interest in a Texas domestic entity subject to dissenters’ rights is entitled to dissent from an amendment to a Texas for-profit corporation’s certificate of formation to add required provisions to elect to be a public benefit corporation or delete required provisions, which in effect cancels the corporation’s election to be a public benefit corporation if the owner owns shares that were entitled to vote on the amendment; except if the shares held by the owner are part of a class or series of shares listed on a national securities exchange; or held of record by at least 2,000 owners.
Franchise Tax Savings and Filing Fees
The Company’s current status as a Delaware corporation physically located in Texas requires the Company to comply with franchise tax obligations in both Delaware and Texas. For the most recent franchise tax period, the Company paid approximately $250,000 in franchise taxes to the state of Delaware, which will no longer be required to be paid if the Texas Redomestication is completed. The Company’s Texas tax obligations will not change as a result of the Texas Redomestication, except potentially with respect to the calculation of gross income with respect to any future repurchases of the Company’s debt at a discount. Accordingly, the Texas Redomestication will result in a net savings by the Company of approximately $250,000 annually.
The annual filing fees to qualify as a foreign jurisdiction in either jurisdiction are immaterial, and there are certain immaterial fees associated with effecting the Texas Redomestication via conversion.
What Doesn’t Change After Texas Redomestication?
Apart from being governed by the Texas Charter, Texas Bylaws and the TBOC, following completion of the Texas Redomestication, the Company will continue to exist in the form of a Texas corporation and cease to exist as a Delaware corporation. By virtue of the Texas Redomestication, the Texas Corporation will be a continuation of the Delaware Corporation and all of the rights, privileges, and powers of the Delaware Corporation, and all property, real, personal, and mixed, and all debts due to the Delaware Corporation, as well as all other things and causes of action belonging to the Delaware Corporation, will remain vested in the Texas Corporation and will be the property of the Texas Corporation, and the title to any real property vested by deed or otherwise in the Delaware Corporation will not revert or be in any way impaired by reason of the Texas Redomestication, but all rights of creditors and all liens upon any property of the Delaware Corporation will be preserved unimpaired. In addition, all debts, liabilities, and duties of the Delaware Corporation will remain attached to the Texas Corporation and may be enforced against the Texas Corporation to the same extent as if said debts, liabilities and duties had originally been incurred or contracted by it in its capacity as the Texas Corporation. The rights, privileges, powers and interest in property of the Delaware Corporation, as well as the debts, liabilities and duties of the Delaware Corporation, will not be deemed, as a consequence of the Texas Redomestication, to have been transferred to the Texas Corporation for any purpose of the laws of the State of Delaware.
 
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The conversion of the Delaware Corporation into the Texas Corporation and the resulting cessation of the Company’s existence as a corporation of Delaware will not affect any obligations or liabilities of the Company incurred prior to the conversion or the personal liability of any person incurred prior to the conversion, nor will it affect the choice of law applicable to the Company with respect to matters arising prior to the conversion.
No Change in Business, Jobs or Physical Location
The Texas Redomestication will not result in any change in business, jobs, management, properties, location of any of our offices or facilities, number of employees, obligations, assets, liabilities or net worth (other than as a result of the costs related to the Texas Redomestication ). We intend to maintain our corporate headquarters in Texas.
Our management, including all directors and officers, will remain the same in connection with the Texas Redomestication and will have identical positions with the Texas Corporation. To the extent that the Texas Redomestication will require the consent or waiver of a third party, the Company will use commercially reasonable effects to obtain such consent or waiver before completing the Texas Redomestication. The Company does not expect that any such required consent will impede its ability to redomesticate to Texas. The Texas Redomestication will not otherwise adversely affect any of the Company’s material contracts with any third parties and the Company’s rights and obligations under such material contractual arrangements will continue as rights and obligations of the Texas Corporation.
No Securities Act Consequences
We will continue to be a publicly held company following completion of the Texas Redomestication, and our common stock will continue to be listed on The Nasdaq Global Select Market and traded under the symbol “TSLA.” We will continue to file required periodic reports and other documents with the SEC. We do not expect there to be any interruption in the trading of our common stock as a result of the Texas Redomestication. We and our shareholders will be in the same respective positions under the federal securities laws after the Texas Redomestication as we and our stockholders were prior to the Texas Redomestication.
No Material Accounting Implications
Effecting the Texas Redomestication will not have any material adverse accounting implications.
No Exchange of Stock Certificates Required
Stockholders will not have to exchange their existing stock certificates for new stock certificates. At the Effective Time, each outstanding share of Delaware Corporation Common Stock will automatically be converted into one share of Texas Corporation Common Stock, and your stock certificates will represent the same number of shares of the Texas corporation as they represented of the Delaware corporation. If you hold physical stock certificates, you do not have to exchange your existing stock certificates of the Company for stock certificates of the Texas Corporation; however, after the Texas Redomestication, any shareholder desiring a new stock certificate may submit the existing stock certificate to Computershare Trust Company, N.A., the Company’s transfer agent, for cancellation and obtain a new certificate by contacting Computershare Trust Company, N.A. at 800-662-7232.
All of the Company’s obligations under the Company’s equity compensation plans will be obligations of the Texas Corporation. Each outstanding option to purchase shares of Delaware Corporation Common Stock under these plans will be converted into an option to purchase an equal number of shares of the Texas Corporation Common Stock on the same terms and conditions as in effect immediately prior to the Texas Redomestication. Each other stock award will be converted to an equivalent award with the same terms issued by the Texas Corporation.
Certain Federal Income Tax Consequences
We believe that for federal income tax purposes no gain or loss will be recognized by the Company, the Texas Corporation, or the stockholders of the Company who receive the Texas Corporation
 
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Common Stock for their Delaware Corporation Common Stock in connection with the Texas Redomestication. The aggregate tax basis of the Texas Corporation Common Stock received by a stockholder of the Company as a result of the Texas Redomestication will be the same as the aggregate tax basis of the Delaware Corporation Common Stock converted into that Texas Corporation Common Stock held by that stockholder as a capital asset at the time of the Texas Redomestication. Each stockholder’s holding period of the Texas Corporation Common Stock received in the Texas Redomestication will include the holding period of the common stock converted into that Texas Corporation Common Stock, provided the shares are held by such stockholder as a capital asset at the time of the Texas Redomestication.
This Proxy Statement only discusses U.S. federal income tax consequences and has done so only for general information. It does not address all of the U.S. federal income tax consequences that may be relevant to particular stockholders based upon individual circumstances or to stockholders who are subject to special rules, such as financial institutions, tax-exempt organizations, insurance companies, dealers in securities, stockholders who hold their stock through a partnership or as part of a straddle or other derivative arrangement, foreign holders or holders who acquired their shares as compensation, whether through employee stock options or otherwise. This Proxy Statement does not address the tax consequences under state, local or foreign laws. State, local or foreign income tax consequences to stockholders may vary from the federal income tax consequences described above, and stockholders are urged to consult their own tax advisors as to the consequences to them of the Texas Redomestication under all applicable tax laws.
This discussion is based on the U.S. Internal Revenue Code (the “Tax Code”) , applicable Treasury Regulations, judicial authority and administrative rulings and practice, all in effect as of the date of this Proxy Statement, all of which are subject to differing interpretations and change, possibly with retroactive effect. The Company has neither requested nor received a tax opinion from legal counsel or rulings from the Internal Revenue Service regarding the consequences of the Reincorporation. There can be no assurance that future legislation, regulations, administrative rulings or court decisions would not alter the consequences discussed above.
You should consult your own tax advisor to determine the particular tax consequences to you of the Texas Redomestication, including the applicability and effect of U.S. federal, state, local, foreign and other tax laws.
Additional Information
Regulatory Matters
In connection with the Texas Redomestication, the Company intends to make filings with the Secretary of State of Texas and the Secretary of State of Delaware, and does not anticipate making any other filings to effect the Texas Redomestication. Nonetheless, we may face legal challenges to the Texas Redomestication, including, among others, stockholder challenges under Delaware law, arising from the Texas Redomestication.
No Appraisal Rights
Under the DGCL, holders of our common stock are not entitled to appraisal rights with respect to the Texas Redomestication described in this proposal. We have no holders of preferred stock.
Interest of Certain Persons
The Special Committee has found that the corporate laws of the state of Delaware and the state of Texas are substantially equivalent, at least on net (i.e., balancing relevant considerations against one another) and as relevant to the Company. As described in the Special Committee Report, the Special Committee expressly considered whether incorporating in Texas would convey any non-ratable benefits on any of Tesla’s directors or officers, including Mr. Musk. Its process did not identify any such non-ratable benefits. However, others may allege, and stockholders should be aware in voting on the Texas Redomestication Proposal, that our directors and executive officers may be considered to have interests in the transaction that are different from, or in addition to, the interests of the stockholders generally. The Special Committee and the Board have considered
 
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these interests, among other matters, in reaching the Special Committee’s decision to recommend the Texas Redomestication and the Board’s decision to approve the Texas Redomestication and to recommend that our stockholders vote in favor of this proposal.
While the Texas Redomestication itself will have no impact on the outcome of Proposal Four, nor is it expected to directly impact the compensation of any of our directors or executive officers, Mr. Musk has publicly expressed his personal view in support of the Texas Redomestication. In addition, it may be alleged that Mr. Musk and Kimbal Musk may have an interest in the Texas Redomestication by virtue of future decisions about compensation and the fact that such compensation decisions would be governed by Texas law. Further, it may be alleged that the independent directors of the Board (other than Ms. Wilson-Thompson) have personal or business relationships with Mr. Musk or Kimbal Musk such that they are not disinterested in all respects due to such relationships with Mr. Musk and Kimbal Musk and the interest of Mr. Musk and Kimbal Musk in the Texas Redomestication. The Company cautions that such allegations have been made in the past and may be made in connection with this proposal, and cautions stockholders to take such allegations into account in deciding how to vote on the Texas Redomestication Proposal.
Disclosure of Committee Advisors
In order to assist the Special Committee in its work, the Special Committee retained multiple advisors. After the Special Committee conducted interviews with multiple law firms, the Special Committee retained Sidley as its legal counsel. The Special Committee also determined that it would benefit from being advised by Delaware counsel, a corporate law and governance expert and an investment bank. For each role, Sidley assessed multiple leading candidates, with a focus on both quality and independence. Sidley recommended and the Special Committee retained the following additional advisors: (i) Abrams & Bayliss LLP, as Delaware counsel, (ii) Professor Anthony Casey of the University of Chicago Law School, as corporate law and governance expert and (iii) Houlihan as its financial advisor. The Special Committee determined that each of its advisors is independent. For additional information, see the Special Committee Report.
Conclusion
After careful review of all of the factors, taken together, the Special Committee and the Board believe that the Texas Redomestication is in the best interests of the Company and all of its stockholders, and the Board recommends that stockholders vote “FOR” the Texas Redomestication.
Effect of Not Obtaining the Required Vote for Approval
If the Texas Redomestication Proposal fails to obtain the requisite vote for approval, the Texas Redomestication will not be consummated, and the Company’s domicile will be unchanged by this vote.
Required Vote
We ask our stockholders to approve the Texas Redomestication and the adoption of the Texas Redomestication Resolution. This proposal to approve the Texas Redomestication and the adoption of the Texas Redomestication Resolution requires the following votes of Tesla’s stockholders:
(1)
the affirmative vote of a majority of the outstanding shares of stock of Tesla entitled to vote thereon (the “Conversion Standard”),
and
(2)
in addition to the Statutory Standard, the affirmative vote of a majority of the voting power of the shares of Tesla stock not owned, directly or indirectly, by Mr. Musk or Kimbal Musk, present in person or represented by proxy and entitled to vote thereon (the “Conversion Disinterested Standard”).
 
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With respect to approval of the Texas Redomestication and the adoption of the Texas Redomestication Resolution, you may vote “FOR”, “AGAINST” or “ABSTAIN.” Abstentions will only be counted toward the tabulations of voting power present and entitled to vote on the Texas Redomestication proposal for the Conversion Disinterested Standard and will have the same effect as votes against the proposal for both the Conversion Standard and the Conversion Disinterested Standard. Brokers do not have discretion to vote on the proposal to approve the Texas Redomestication. Broker non-votes will have the same effect as votes against the proposal for purposes of the Conversion Standard and will have no effect on the Conversion Disinterested Standard.
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The Board (with Mr. Musk and Kimbal Musk recusing themselves) recommends that stockholders vote FOR the approval of the redomestication of Tesla from Delaware to Texas by conversion and the adoption of the Texas redomestication resolution and plan of conversion.
 
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Proposal Four
Tesla Proposal to Ratify the 100% Performance-Based Stock Option Award to Elon Musk That Was Proposed to and Approved By Our Stockholders in 2018
Following the recommendations of the Special Committee, the Board, with Mr. Musk and Kimbal Musk recusing themselves, has determined to seek ratification by stockholders of the 2018 CEO Performance Award (such ratification of the 2018 CEO Performance Award, whether under common law or under Section 204 of the DGCL, the “Ratification”), and determined that the Ratification is in the best interests of the Company and its stockholders, and recommends that our stockholders vote to ratify the 2018 CEO Performance Award at the 2024 Annual Meeting. The Ratification is being sought for any purpose permitted under Delaware law, including but not limited to Delaware common law and Delaware statutory provisions such as Section 204 of the DGCL. For purposes of your consideration of the Ratification, you should consider all of the facts disclosed in this proposal as pertinent to your vote on Ratification, including but not limited to the conclusions reached by the Delaware Court described herein.
Principal Terms of the 2018 CEO Performance Award To Be Ratified
Under the 2018 CEO Performance Award, which is attached as Annex H, Mr. Musk was entitled to receive no salary, no cash bonuses, and no equity that would vest simply by the passage of time, all of which are standard methods for compensating executives of U.S. public companies. Instead, Mr. Musk’s only opportunity to be compensated for his effort, dedication and achievements on behalf of Tesla was a 100% at-risk performance award, consisting exclusively of stock options with tranches that would vest only if certain specified milestones were met, each of which required Tesla to achieve both a market capitalization milestone and an operational milestone, as described below. Additionally, Mr. Musk was required to hold shares that he acquired upon exercise of the 2018 CEO Performance Award for a period of five years after he exercised the underlying options — not just for a five year period after such options vested.

For the first tranche, Tesla’s market capitalization was required to increase to $100 billion and the Company needed to meet an additional operational milestone. Each subsequent tranche required not only that Tesla’s market capitalization increase by additional $50 billion increments — up to a total of $650 billion — (each, a “Market Capitalization Milestone”) but also that Tesla was required to achieve a series of previously unmet operational milestones (each, an “Operational Milestone”).

The 2018 CEO Performance Award consisted of a 10-year grant of stock options with 12 potential vesting tranches, and was designed to help drive Tesla towards exceptional execution on both a top-line and bottom-line basis.
 
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For each tranche in which both milestones were achieved under the 2018 CEO Performance Award, Mr. Musk would vest in a number of stock options that corresponded to approximately 1% of Tesla’s total outstanding shares of common stock, based on the shares of Tesla’s common stock outstanding at the time of the approval of the 2018 CEO Performance Award. The 2018 CEO Performance Award was intended to further align Mr. Musk’s incentives with stockholder returns by requiring that Mr. Musk continue to hold any shares acquired through exercise of the stock options for a further five years after the option is exercised (not just for a five year period after the option vested), meaning that Mr. Musk was not only incentivized to achieve remarkable results to earn his incentive awards but he was also incentivized to continue to improve those results to ultimately realize value from these awards.
The following table provides details regarding how the 2018 CEO Performance Award would vest over the 12 tranches and the milestone requirements for each tranche to vest.
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Overview of the 2018 CEO Performance Award
Below is an overview of the 2018 CEO Performance Award as it was adopted in 2018. Where appropriate, the discussion below provides updated information regarding share numbers and dates, in particular in light of intervening stock splits and Mr. Musk’s achievement of the Market Capitalization Milestones and Operational Milestones. See Annex H for a copy of the 2018 CEO Performance Award agreement. In addition, see “Compensation Discussion & Analysis” elsewhere in this Proxy Statement for additional information.
 
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Award Terms
Details
2018 CEO Performance Award Value
Total size: 12% of total outstanding shares of our common stock as of January 19, 2018, the last trading day prior to the grant date of January 21, 2018 (approximately 20.3 million option shares equivalent to 303,960,630 shares of our common stock today after giving effect to stock splits).
Number of Vesting Tranches: 12 tranches; 1% of total outstanding shares of our common stock as of January 19, 2018 per tranche. The present intrinsic value of the 2018 CEO Performance Award is $44.9 billion (based on the closing price of Tesla common stock on April 12, 2024).
Equity Type
Nonqualified stock options.
Exercise Price
Fair Market Value (FMV) of Tesla common stock on the grant date of January 21, 2018, which was $350.02 per share of our common stock (based on the closing price on January 19, 2018, the last trading day prior to the grant date). Equivalent to $23.34 per share of our common stock today after giving effect to stock splits.
Award Vesting / Milestones
Market Capitalization Milestones
a.
12 Market Capitalization Milestones.
b.
First tranche milestone was a market capitalization of $100 billion (representing an increase of approximately $40.9 billion over the Company’s market capitalization of approximately $59.1 billion on January 19, 2018); each tranche thereafter required an additional $50 billion in market capitalization for such tranche to vest, up to $650 billion market capitalization for the last tranche.
c.
Sustained market capitalization was required for each Market Capitalization Milestone to be met, other than in a change in control situation. Specifically, there were two prongs that needed to be met to achieve a given Market Capitalization Milestone:

Six-calendar-month trailing average (based on trading days); and

30 calendar day trailing average (based on trading days).
Operational Milestones
a.
16 Operational Milestones, of which at least 12 of which may be paired with Market Capitalization Milestones for all tranches to vest.
b.
Two types of Operational Milestones:
 
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Eight focused on revenue:
Eight focused on profitability:
Total Revenue*
(in billions)
Adjusted EBITDA**
(in billions)
$ 20.0 $ 1.5
$ 35.0 $ 3.0
$ 55.0 $ 4.5
$ 75.0 $ 6.0
$ 100.0 $ 8.0
$ 125.0 $ 10.0
$ 150.0 $ 12.0
$ 175.0 $ 14.0
* As used in this proposal, “Revenue” means total Tesla revenues as reported in our financial statements on Forms 10-Q or 10-K filed with the SEC for the previous four consecutive fiscal quarters.
** As used in this proposal, “Adjusted EBITDA” means net (loss) income attributable to common stockholders before (i) interest expense, (ii) (benefit) provision for income taxes, (iii) depreciation and amortization, and (iv) stock-based compensation, as each such item is reported in our financial statements on Forms 10-Q or 10-K filed with the SEC for the previous four consecutive fiscal quarters.
Vesting
Each of the 12 tranches vested only when both a Market Capitalization Milestone and an Operational Milestone were certified by the Board as having been met.
Any one of the 16 Operational Milestones could be matched with any one of the 12 Market Capitalization Milestones, but any single Operational Milestone could only satisfy the vesting requirement for one tranche.
A Market Capitalization Milestone and an Operational Milestone that were matched together could be achieved at different points in time and vesting would occur at the later of the achievement certification dates for such Market Capitalization Milestone and Operational Milestone. Subject to any applicable clawback provisions, policies or other forfeiture terms, once a milestone was achieved, it was forever deemed achieved for determining the vesting of a tranche.
Term of 2018 CEO Performance Award
Ten years.
Post-Termination of Employment Exercise Period
One year.
Post-Exercise Holding Period
Five years following the exercise (not vesting) of the stock options, to further align Mr. Musk’s interests with Tesla stockholders’ interests following option exercise.
 
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Employment Requirement For Continued Vesting
Vesting eligibility contingent upon being:
1.
Chief Executive Officer; or
2.
Executive Chairman and Chief Product Officer.
Extended exercise period: If Mr. Musk was still employed at Tesla in a role other than the specified roles above, he would have no longer been able to vest under the 2018 CEO Performance Award but, for so long as Mr. Musk continued as an employee of Tesla, any vested and unexercised portion of the option may be exercised for the full term of the 2018 CEO Performance Award.
Termination of Employment
No acceleration of vesting upon termination of employment, death or disability.
Change in Control of Tesla
No automatic acceleration of vesting upon a change in control of Tesla, but in a change in control situation the achievement of the milestones would have been based solely on the Market Capitalization Milestones, measured at the time of such change in control without regard to the six-calendar-month and 30-calendar-day trailing averages of Tesla’s stock price. In other words, upon a change in control where Tesla was acquired, vesting of milestones under the 2018 CEO Performance Award would not have required the achievement of a matching Operational Milestone.
The treatment of the 2018 CEO Performance Award upon a change in control was intended to align Mr. Musk’s interests with Tesla’s other stockholders with respect to evaluating potential takeover offers.
Exercise Methods / Requirements
Exercise Methods:
1.
Cashless: sufficient shares to cover exercise prices and taxes are simultaneously sold upon exercise of options; and
2.
Cash: exercise price is paid in cash upon exercise of options.
Clawback
Vesting of the 2018 CEO Performance Award subject to a clawback in the event financial statements are restated in a way that a tranche would not have otherwise vested.
Market Capitalization and Operational Milestone Adjustments
Market Capitalization and Operational Milestone targets would be adjusted higher to account for acquisition activity that could be considered material to the achievement of the milestones.
Market Capitalization and Operational Milestone targets would be adjusted lower to account for split-up, spin-off or divestiture activity that could be considered material to the achievement of the milestones.
 
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Material Terms of the 2018 CEO Performance Award
2018 CEO Performance Award Value.   The total number of shares of Tesla common stock underlying the 2018 CEO Performance Award was 20,264,042 (equivalent to 303,960,630 shares of our common stock today after giving effect to stock splits), divided equally among 12 separate tranches of options to purchase approximately 1.69 million shares of our common stock per tranche (equivalent to 25.33 million shares of our common stock today after giving effect to stock splits). The number of shares of our common stock underlying the 2018 CEO Performance Award in each tranche was equivalent to 1% of the 168,867,016 shares of Tesla’s common stock outstanding as of January 19, 2018 (equivalent to 25.33 million shares of our common stock today after giving effect to stock splits) and, therefore, the total number of shares underlying the 2018 CEO Performance Award was equivalent to 12% of the total number of shares of our common stock outstanding as of such date (equivalent to approximately 9.5% of the 3,188,965,775 shares of Tesla’s common stock outstanding at March 31, 2024).
Equity Type.   The 2018 CEO Performance Award was comprised of performance-based nonqualified stock options. Mr. Musk was entitled to receive compensation from the 2018 CEO Performance Award only to the extent that Tesla achieved the applicable performance milestones.
Exercise Price.   The exercise price of the 2018 CEO Performance Award was initially set at $350.02 per share, which was the closing market price of Tesla’s common stock on the Nasdaq Global Select Market on January 19, 2018, the last trading day prior to the grant date of January 21, 2018 (which was not a trading day). After giving effect to stock splits since the date of the initial grant, the exercise price of each of the options issuable under the 2018 CEO Performance Award is now $23.34.
Award Vesting / Milestones.   Each of the 12 vesting tranches of the 2018 CEO Performance Award would vest upon certification by the Board that each of (a) the Market Capitalization Milestone for such tranche and (b) an Operational Milestone had been met. Any single Operational Milestone could only satisfy the vesting requirement for one tranche of the 2018 CEO Performance Award, together with the corresponding Market Capitalization milestone.

There were 12 Market Capitalization Milestones, each of which required an incremental increase in Tesla’s market capitalization, initially to $100 billion and then by increments of $50 billion thereafter, with each incremental increase being approximately equivalent to Tesla’s approximate market capitalization of $50 billion in late 2017.

To meet all 12 Market Capitalization Milestones, Tesla was required to add approximately $600 billion to its market capitalization. In setting the details of the award in 2018, the Board at the time considered the Market Capitalization Milestones to be challenging hurdles, which Mr. Musk met.

There were also 16 operational milestones, half of which were focused on top-line performance and half of which were focused on bottom-line performance. Any one of the Operational Milestones, including one of the eight Revenue milestones or one of the eight Adjusted EBITDA milestones, could have been paired with any of the 12 Market Capitalization Milestones to successfully achieve the vesting of one of the 12 tranches. Any single Operational Milestone could have only satisfied the vesting requirement of one tranche, together with the corresponding Market Capitalization Milestone. Subject to any applicable clawback provisions, policies or other forfeiture terms, once a milestone was achieved, it was forever deemed achieved for determining the vesting of a tranche. Meeting more than 12 of the 16 Operational Milestones would have not resulted in any additional vesting or other compensation to Mr. Musk under the 2018 CEO Performance Award.
In 2018, the Board considered the Revenue milestones to be challenging hurdles as they significantly exceeded Tesla’s historic annual revenue, which was approximately $7.0 billion for 2016 and approximately $11.8 billion for 2017. To achieve the first or second of the Revenue milestones, Tesla would have needed to increase its revenue by 3x and 5x, respectively, from its 2016 revenue levels. To satisfy all eight Revenue milestones, Tesla would have needed to increase revenue by almost $168 billion. The significance of these hurdles was noted in contemporary news reports,
 
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with the New York Times for example running a story under the headline “Tesla’s Elon Musk May Have Boldest Pay Plan in Corporate History” on January 23, 2018, stating that the final Market Capitalization Milestone represented “a figure many experts would contend is laughably impossible” and that critics would be “likely to contend that the new compensation plan is just the company’s latest publicity stunt.” Sorkin, Andrew Ross. New York Times. “Tesla’s Elon Musk May Have Boldest Pay Plan in Corporate History.”
In addition to the Revenue milestones and to promote Tesla’s continued focus on a balanced approach to both growth and profitability, the 2018 CEO Performance Award included eight profitability milestones. In 2018, the Compensation Committee and the Board selected Adjusted EBITDA, which is defined as EBITDA minus only non-cash charges for stock-based compensation, as the appropriate profitability measure because the Board believed at the time that it was a metric that was commonly used for companies at Tesla’s stage of development and because many of Tesla’s stockholders used it to evaluate Tesla’s performance. Adjusted EBITDA is a measure of cash generation from operations that does not disincentivize Tesla from making additional investments to grow further. Like the Revenue milestones described above, the Adjusted EBITDA milestones were designed to be challenging and to reflect Tesla’s objective to have strong bottom-line performance on a consistent basis.
In establishing the Revenue and Adjusted EBITDA milestones in 2018, the Board believed it carefully considered a variety of factors, including Tesla’s growth trajectory and internal growth plans at the time and the historical performance of other high-growth and high-multiples companies in the technology space that had invested in new businesses and tangible assets. These benchmarks provided revenue/EBITDA to market capitalization multiples, which were then used to inform the specific operational targets that aligned with Tesla’s plans for future growth.
Except in a change in control situation, measurement of the Market Capitalization Milestones was based on both (i) a six-calendar-month trailing average of Tesla’s stock price as well as (ii) a 30-calendar-day trailing average of Tesla’s stock price, in each case based on trading days only, and thus required sustained market capitalization appreciation, not simply a spike in market capitalization over a short period.
Measurement of the Operational Milestones was based on the previous four consecutive fiscal quarters for each of Revenue and Adjusted EBITDA, each determined on an aggregate basis, based on publicly disclosed Tesla financial statements.
Term of 2018 CEO Performance Award / Post-Termination of Employment Exercise Period.   The term of the 2018 CEO Performance Award was set as 10 years from the date of the grant, unless Mr. Musk’s employment with Tesla was terminated prior to such date. Accordingly, Mr. Musk was entitled to exercise any portion of the 2018 CEO Performance Award until January 20, 2028 that had vested on or prior to such date, provided that he remains employed at Tesla. For additional information regarding the vesting dates, see “Compensation Discussion & Analysis” elsewhere in this Proxy Statement.
Additionally, Mr. Musk was entitled up to one year following the termination of his employment with Tesla to exercise any portion of the 2018 CEO Performance Award that vested prior to such termination, subject to any earlier expiration of the 2018 CEO Performance Award on January 20, 2028. Further, the 2018 CEO Performance Award also could have terminated earlier in connection with a change in control event of Tesla, as described further below.
Five-Year Holding Period.   Mr. Musk was required to hold shares that he would have acquired upon the exercise of the 2018 CEO Performance Award for five years post-exercise, not post-vesting (except for shares used to pay exercise price and tax withholdings, or in certain other limited circumstances described further below).
After reviewing market practices for post-exercise holding periods for executive equity awards in 2018, the Board believed a five-year holding period, which was the longest period considered by the Board, to be very atypical of executive equity awards generally because of its unusually long duration. Nevertheless, the Board in 2018 selected a five-year holding period in order to further align Mr. Musk’s interests with Tesla stockholders’ interests for five years following the exercise of
 
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any options under the 2018 CEO Performance Award, since Mr. Musk would continue to bear the risk and reward of changes in the value of Tesla’s stock during the five-year holding period. The Board in 2018 believed that such alignment complemented the requirements for sustained increases to Tesla’s market capitalization levels, Revenue and Adjusted EBITDA in order to meet the applicable vesting milestones under the 2018 CEO Performance Award, and would ensure that Mr. Musk would be focused on the long term value in building and sustaining Tesla’s success both before, and even after he achieved, vesting under the 2018 CEO Performance Award.
Moreover, the requirement of a five-year holding period significantly decreased the stock-based compensation expense that Tesla recognized for the 2018 CEO Performance Award. Pursuant to Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC Topic 718”), the maximum stock-based compensation expense in respect of the 2018 CEO Performance Award that Tesla recognized upon the achievement of all performance milestones was the actual aggregate fair value of the 2018 CEO Performance Award, computed on the date that the 2018 CEO Performance Award was approved by our stockholders at the Company’s special meeting of stockholders on March 21, 2018 (the “2018 Special Meeting”). The five-year post-exercise holding period in the 2018 CEO Performance Award reduced the aggregate fair value of the 2018 CEO Performance Award by $278.9 million as of March 21, 2018.
Leadership Requirement.   Mr. Musk needed to lead Tesla’s management at the time each milestone was to be met in order for the corresponding tranche to vest under the 2018 CEO Performance Award. Specifically, he needed to have been serving as either Tesla’s Chief Executive Officer or, alternatively, as both its Executive Chairman and Chief Product Officer, in each case with all leadership ultimately reporting to him.
Termination of Employment.   There would have been no acceleration of vesting of the 2018 CEO Performance Award if the employment of Mr. Musk was terminated, or if Mr. Musk were to have died or become disabled. In other words, termination of Mr. Musk’s employment with Tesla would have precluded his ability to earn any then-unvested portion of the 2018 CEO Performance Award following the date of his termination. Vesting of the 2018 CEO Performance Award would have suspended in the event of any leave of absence by Mr. Musk.
Change in Control of Tesla.   If Tesla experienced a change in control event, such as a merger with or purchase by another company, vesting under the 2018 CEO Performance Award would have not been automatically accelerated. In a change in control situation, the achievement of the milestones would have been based solely on the Market Capitalization Milestones, with the measurement of Tesla’s market capitalization determined by the product of the total number of outstanding shares of Tesla common stock immediately before the change in control multiplied by the greater of the last closing price of a share of Tesla common stock before the effective time of the change in control or the per share price (plus the per share value of any other consideration) received by Tesla’s stockholders in the change in control. The treatment of the 2018 CEO Performance Award upon a change in control was designed to align Mr. Musk’s interests with Tesla’s other stockholders with respect to evaluating potential takeover offers.
Exercise Methods / Requirements.   Mr. Musk was eligible to exercise any vested options under the 2018 CEO Performance Award in one of two ways: (i) a cashless exercise or (ii) a cash exercise. A cashless exercise occurs when the stock option is exercised and the shares are simultaneously sold to pay for the exercise price and any required tax withholding. A cash exercise simply involves paying the Tesla option exercise price in cash.
Clawback Provision.   In the event of a restatement of Tesla’s financial statements previously filed with the SEC (“restated financial results”), and if a lesser portion of the 2018 CEO Performance Award would have vested based on the restated financial results, then Mr. Musk would have been required to forfeit (or repay, as applicable) the portion of the 2018 CEO Performance Award that would not have vested based on the restated financial results (less any amounts Mr. Musk would have been paid to Tesla in exercising any forfeited awards). The 2018 CEO Performance Award also would have been subject, if more stringent than the foregoing, to any current or future Tesla clawback policy applicable to equity awards, provided that the policy does not discriminate solely against Mr. Musk except as required by applicable law.
 
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M&A Adjustment.   In the event that Tesla acquired a business with a purchase price of more than $1 billion, any then-unachieved Market Capitalization Milestones would have been increased by the purchase price of such acquisition. Similarly, if the target of an acquisition transaction had revenue or adjusted EBITDA (based on cumulative four consecutive quarters prior to the transaction) of more than $500 million and $100 million, respectively, the then-unachieved Revenue or Adjusted EBITDA Milestones (as applicable) would have been increased by such target’s revenue or adjusted EBITDA (as applicable). This feature of the 2018 CEO Performance Award was designed to prevent achievement of milestones based on acquisition activity that could be considered material to the achievement of those milestones.
Likewise, in the event that Tesla entered into a transaction constituting a split-up, spin-off or divestiture that had a value over $1 billion, any then-unachieved Market Capitalization Milestones would be decreased by the value of such transaction. Also, if an entity with more than $500 million or $100 million of revenue or adjusted EBITDA, respectively, was divested by Tesla, the then-unachieved Revenue or Adjusted EBITDA Milestones (as applicable) would have been decreased by the amount of revenue or adjusted EBITDA (as applicable) divested in such a transaction.
Other Details Regarding 2018 CEO Performance Award
Administration.   The 2018 CEO Performance Award was administered by the Board, the Compensation Committee, or any committee of Board members or other individuals (excluding Mr. Musk) appointed by the Board and satisfying applicable laws (the “Administrator”), provided that Mr. Musk recused himself from any approvals relating to the administration of the 2018 CEO Performance Award. References to the Board in the executive summary of the material terms of the 2018 CEO Performance Award under the section titled “Material Terms of the Proposed 2018 CEO Performance Award” above generally are references to the Administrator, as applicable. The Administrator has the power and authority, in good faith, to interpret the 2018 CEO Performance Award and adopt rules for its administration, interpretation and application of the terms of the 2018 CEO Performance Award. All actions taken, and interpretations and determinations made, by the Administrator in good faith with respect to the 2018 CEO Performance Award will be final and binding on Mr. Musk and any other interested persons.
Certain Other Market Capitalization Provisions.   For purposes of achieving the Market Capitalization Milestones, the Company’s market capitalization was based on an average of the Company’s market capitalization for all trading days in the applicable trailing six-calendar-month period or 30-calendar-day period. As of any date of determination, the applicable six month or 30-day period ended with (and was inclusive of) such determination date. The Company’s market capitalization on any particular trading day is equal to the product of the closing price of a share of Tesla’s common stock on the trading day, multiplied by the outstanding shares of Tesla common stock at the closing of the trading day.
Certain Other Termination Provisions.   In all cases, the award agreement provided that in the event that Tesla stockholders did not approve the 2018 CEO Performance Award within 12 months after its grant date or, at any meeting of Tesla’s stockholders, did not approve the 2018 CEO Performance Award by the requisite vote, the 2018 CEO Performance Award would have been automatically forfeited and Mr. Musk would have had no rights to the 2018 CEO Performance Award or the shares underlying it.
Upon a change in control of Tesla, any vested portion of the 2018 CEO Performance Award would have been assumed or substituted by the successor and any unvested portion of the 2018 CEO Performance Award automatically would have been terminated at the effective time of the change in control event. The Administrator could not accelerate the vesting of any portion of the 2018 CEO Performance Award in connection with a change in control if the Market Capitalization Milestone (as determined at the time of a change in control) was not met. The vested and unexercised portion of the 2018 CEO Performance Award would have remained exercisable through its expiration date. If Mr. Musk’s role either as Chief Executive Officer or as Executive Chairman and Chief Product Officer terminated while the 2018 CEO Performance Award was outstanding, the Administrator would have promptly made a final determination as to whether any additional tranches had vested
 
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through the date of such termination and whether any portion of the 2018 CEO Performance Award that had failed to vest based on performance through such date of termination will be forfeited.
Certain Other Adjustments Upon Certain Transactions.   In the event of any dividend or other distribution (whether in the form of cash, shares of Tesla common stock, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Tesla’s securities, or other change in the corporate structure of Tesla affecting Tesla’s common stock, then the Administrator, in order to prevent the diminution or enlargement of the benefits or potential benefits intended to be made available under the 2018 CEO Performance Award (and in a manner that would not provide any greater benefit or potential benefits than intended to be made available, other than solely to reflect changes resulting from any such triggering event), would have adjusted the number, class and price of the shares of our common stock underlying the 2018 CEO Performance Award. In the event of a proposed dissolution or liquidation of Tesla, the Administrator would have notified Mr. Musk as soon as practicable before the effective date of the proposed transaction. To the extent the 2018 CEO Performance Award had not been previously exercised, it would have terminated immediately before the completion of such proposed transaction.
Mr. Musk was entitled to no rights or privileges of a stockholder of Tesla with respect to the shares of our common stock underlying the 2018 CEO Performance Award unless and until the shares of our common stock were issued, recorded on the records of Tesla or its transfer agents or registrars, and delivered to Mr. Musk (which may occur through electronic delivery to a brokerage account). In addition, unless and until Tesla’s stockholders approve the 2018 CEO Performance Award, no portion of the 2018 CEO Performance Award may be exercised.
Certain Other Securities Information.   Shares issuable under the 2018 CEO Performance Award were authorized, but unissued, or reacquired, Tesla common stock. As of April 12, 2024, the closing price of Tesla’s common stock was $171.05 per share.
Tax Withholdings.   The Administrator was to determine the methods by which tax withholding obligations with respect to the 2018 CEO Performance Award were to be satisfied by Mr. Musk. For example, to the extent permissible by applicable law, the Administrator could have permitted Mr. Musk to satisfy tax withholding obligations relating to the 2018 CEO Performance Award by (i) paying cash, or (ii) having a sufficient number of shares otherwise deliverable under the 2018 CEO Performance Award sold through means determined by Tesla (whether through a broker or otherwise) equal to the minimum required amount to be withheld (or such greater amount that Mr. Musk elects, if permitted by the Administrator and if withholding a greater amount would not result in adverse financial accounting consequences for Tesla).
Non-transferability.   The 2018 CEO Performance Award could not be transferred in any manner other than by will or the laws of descent or distribution and may be exercised during Mr. Musk’s lifetime only by him. Shares of our common stock issued to Mr. Musk upon exercise of the 2018 CEO Performance Award were subject to the holding period described further above, except that Mr. Musk could have transferred shares to change the form in which he held the shares of our common stock, such as through certain family or estate planning trusts, or as permitted by the Administrator consistent with the Company’s internal policies.
Background of the Proposal
General
In 2018, after months of consideration and discussion, and following a recommendation of the Compensation Committee, the Board, with Mr. Musk and Kimbal Musk, Mr. Musk’s brother and a member of our Board, recusing themselves, approved the 2018 CEO Performance Award and recommended it to our stockholders. We called a special meeting of our stockholders to submit the 2018 CEO Performance Award for approval. At this time, the 2018 CEO Performance Award was approved by (i) the majority of the total votes of shares of our common stock cast in person or by proxy, (ii) the majority of the voting power of the shares present in person or represented by proxy
 
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and entitled to vote on the proposal, and (iii) approximately 73% of all votes cast by disinterested stockholders (i.e., stockholders other than Mr. Musk and Kimbal Musk). Only after obtaining this approval by our stockholders was the 2018 CEO Performance Award put in place.
As discussed below, following a lawsuit brought by a stockholder regarding our decision to incentivize and compensate Mr. Musk, on January 30, 2024, the Delaware Court issued the Tornetta Opinion holding that, among other things, the Board breached its fiduciary duties in approving the 2018 CEO Performance Award and ordering rescission of the 2018 CEO Performance Award as a remedy.
With the Tornetta Opinion, the Delaware Court ordered the rescission of a corporate decision that every company — public, or private, for-profit or not-for-profit — makes; that is, how to retain, compensate and motivate the individuals who devote time, energy, resources and skill to building an enterprise, forsaking the opportunity to pursue other opportunities and interests.
The Tornetta Opinion created a fundamental problem for our Company. The Delaware Court’s rescission of the 2018 CEO Performance Award meant that, absent further action, Mr. Musk would not have received any compensation for nearly six years of service to Tesla — a period in which Mr. Musk’s leadership and vision drove us to popularize electric vehicles, led to groundbreaking innovations in artificial intelligence and sustainable energy, and grew the Company’s market capitalization from $53.7 billion as of March  21, 2018 to $791.3 billion at the end of 2023, an increase of over $700 billion, or almost 1,400%, making Tesla the seventh largest company by market capitalization traded on a U.S. securities exchange.
In light of this, in March 2024, the Board granted the Special Committee the authority, in addition to considering the Texas Redomestication, to also consider, evaluate, and determine whether it would be in the best interests of the Company and its stockholders to consider Ratification through a stockholder vote (including, without limitation, the manner of any applicable stockholder vote), or other disclosures about Mr. Musk’s compensation, consistent with all applicable legal and other requirements and the Board resolved not to proceed with respect to this expanded purpose without the prior favorable recommendation of the Special Committee.
The 2018 Approval Process
As you consider the Ratification of the 2018 CEO Performance Award, the Company has summarized the process followed in 2018 relating to the approval of the 2018 CEO Performance Award. Because the Tornetta Opinion found our definitive proxy statement filed with the SEC on February 8, 2018 (the “2018 Proxy Statement”) did not include a full and accurate description of the process behind the 2018 CEO Performance Award, we are providing you with the below disclosure. You should read this disclosure, together with the summary of the Tornetta Opinion contained below, as well as the copy of the Tornetta Opinion attached to this Proxy Statement as Annex I for a description of the approval process. The Tornetta Opinion attached to this Proxy Statement and the summary of the Tornetta Opinion contained below describe the Court’s criticisms of this process. While the Company believes the discussion under this caption “The 2018 Approval Process” is a true and correct statement of the facts leading up to the approval of the 2018 CEO Performance Award and illustrates the effectiveness of the governance process followed at the time, stockholders are cautioned that the Tornetta Opinion made negative findings about the approval process in 2018. The Company believes that its stockholders should take into account the relevant analysis and reasons expressed in the section entitled “Overview of 2018 Approval Process”, as well as the critiques set forth in the Tornetta Opinion in the section entitled “Tornetta v. Musk Decision and Deficiencies Found by The Court”, as they consider Ratification.
Overview of 2018 Approval Process
In 2012, the Board approved a compensation program for Mr. Musk that consisted entirely of performance stock options that would vest only upon the achievement of certain market capitalization and operational milestones (the “2012 CEO Performance Award”). At the time, Tesla had begun to execute Mr. Musk’s Master Plan that laid out the objectives for Tesla during the first phase of its development. Tesla had yet to begin volume production of Model S and had a market
 
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capitalization of under $4 billion. The vesting milestones for the 2012 CEO Performance Award included 10 tranches, with each tranche requiring Tesla both to:
(i)
grow market capitalization by an additional $4 billion, and
(ii)
achieve an additional specified operational milestone.
Following the grant of the 2012 CEO Performance Award, Tesla received strong stockholder support in its triennial advisory “Say on Pay” votes in 2014 and 2017 (94.4% and 98.9%, respectively, of the shares present or represented by proxy and entitled to vote).
Between 2012 and 2018, Tesla, with Mr. Musk at the helm, among other things, launched and ramped up production of Model S; designed, launched and ramped up production of Model X and Model 3; and added important new business lines, including solar energy generation and energy storage.
With the 2012 CEO Performance Award nearing completion, the Board and the Compensation Committee engaged in more than six months of active and ongoing discussions regarding a new compensation program for Mr. Musk, ultimately deciding to approve the grant in the 2018 CEO Performance Award. These discussions first took place among the then-members of the Compensation Committee, all of whom were independent directors, and then with the Board’s other independent directors. For each of the relevant meetings, both Mr. Musk and Kimbal Musk recused themselves.
In deciding to approve the grant in the 2018 CEO Performance Award, the Board and the Compensation Committee considered among other things:
(i)
The reasons for an award;
(ii)
The desire to incentivize and motivate Mr. Musk to continue to lead Tesla over the long term and to create significant stockholder value in doing so;
(iii)
How to structure an award in a way that would further align the interests of Mr. Musk and Tesla’s other stockholders;
(iv)
Whether to model an award based on elements of the 2012 CEO Performance Award;
(v)
What performance milestones should be used in an award;
(vi)
What the total size of an award should be and how that size would translate into increased ownership and value for Mr. Musk; and
(vii)
How to balance the risks and rewards of a new award.
Throughout this process in 2018, the Board used the services of Compensia, Inc. which served as its independent compensation consultant (“Compensia”), and Wilson Sonsini Goodrich & Rosati, P.C., which served as its special outside counsel.
At various points during the process in 2018, the independent members of the Board met with Mr. Musk to share their thoughts on the award and to solicit his perspective, including as to each of the issues identified above, and ultimately to negotiate the terms of the 2018 CEO Performance Award with Mr. Musk.
Additionally, early in the Board’s 2018 process, at the request of the Compensation Committee, Ira Ehrenpreis and Tesla’s then-General Counsel, Todd Maron, had calls with 15 of Tesla’s largest institutional stockholders to discuss and solicit their views regarding the 2012 CEO Performance Award and considerations for a new compensation award for Mr. Musk, in light of the fact that nearly all of the milestones in the 2012 CEO Performance Award had been or would be achieved in the near future. Many of these stockholders indicated that they favored the approach used in the 2012 CEO Performance Award, especially when coupled with Mr. Musk’s lack of traditional non-performance-based types of compensation (i.e., no salary, no cash bonuses, no time-based equity awards), and indicated that they favored a new equity award to Mr. Musk broadly based on the model of the 2012 CEO Performance Award that would motivate and incentivize his continued service and dedication to Tesla. Stockholders suggested various operational milestones to pair with
 
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market capitalization milestones, but in general expressed preferences for financial-based operational milestones that would ensure both top-line and bottom-line Tesla growth as a condition for awards of compensation to Mr. Musk. As the Board thereafter deliberated on a new performance award for Mr. Musk, it gave great weight to the feedback that its stockholders provided during these calls, and it incorporated much of that feedback into the ultimate design of the award.
After engaging in this extended process and arriving at terms for a performance award that both the independent members of the Board and Mr. Musk concluded would motivate and incentivize Mr. Musk to continue to lead the management of Tesla over the long term, the Board, with Mr. Musk and Kimbal Musk recusing themselves, approved the 2018 CEO Performance Award.
Reasons for the Board’s 2018 Recommendation
In advance of the Company’s 2018 Special Meeting, which was called for the purposes of obtaining a stockholder vote on the 2018 CEO Performance Award, the Board recommended that its stockholders vote their shares “FOR” the 2018 CEO Performance Award.
Prior to the 2018 Special Meeting, the independent members of the Board at the time, led by the members of the Compensation Committee, designed a compensation award over the course of six months that they believed would incentivize Mr. Musk while maximizing value for Tesla stockholders. As part of this process in 2018, the Compensation Committee and the Board sought to balance a variety of important objectives, including:

Aligning Mr. Musk’s interests with those of Tesla and its other stockholders;

Incentivizing Mr. Musk to continue to lead Tesla over the long term;

Motivating Mr. Musk to help Tesla achieve market capitalization and operational milestones that would generate significant stockholder value; and

Ensuring that Mr. Musk’s compensation will be linked entirely to performance so that he does not receive any compensation unless all of Tesla’s stockholders benefit from significant value creation.
The Board sought and obtained feedback from a broad set of institutional stockholders and incorporated that feedback into its decision-making process. As part of its consideration in 2018, the Board drew from the success of the 2012 CEO Performance Award. Such award helped Tesla grow its market capitalization from less than $4 billion to over $55 billion in just over five years, and formed the biggest part of the executive compensation program that Tesla stockholders strongly supported in advisory “Say on Pay” votes in 2014 and 2017.
Additionally, with the 2012 CEO Performance Award milestones largely achieved, and with Tesla entering the next phase of its development, the Board sought to develop a compensation award for Mr. Musk that reflected Tesla’s then-current long-term goals and strategy and helped incentivize their achievement. During the initial phase of its development, Tesla executed on its original Master Plan, which primarily called for Tesla to develop electric vehicles in increasingly affordable and higher volume segments. Even though most believed that Tesla would not be able to accomplish this, Tesla managed to do so, and it created significant stockholder value in the process.
With Tesla becoming the world’s first vertically integrated sustainable energy company, from generation to storage to consumption, its ambitions in 2018 were even greater. Tesla in its original Master Plan intended to:

Expand solar energy generation through Solar Roof and other solar products, and seamlessly integrate them with battery storage;

Build out Tesla’s vehicle product line to cover all major forms of terrestrial transport;

Advance autonomous technology to create a fully-self driving future; and

Through sharing, enable its customers’ cars to make money for them when they are not being used.
 
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With these goals, 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.
The Board recommended that its stockholders approve the 2018 CEO Performance Award in 2018 for the following reasons:
1.   Strengthening Incentives and Further Aligning of Stockholder, Company and CEO Interests
The Board believed in rewarding Mr. Musk in a fair way that provided compensation to him if, and only if, all of Tesla’s stockholders realized significant value.
Under the 2018 CEO Performance Award, Mr. Musk would not receive any of the kinds of guaranteed forms of compensation that are common for chief executive officers at other companies. Mr. Musk would receive no cash salary, no cash bonuses and no time-based equity awards that vest solely through the passage of time (that is, simply by continuing to show up for work). To the contrary, Mr. Musk’s only opportunity to earn compensation from Tesla would be dependent on him leading Tesla’s achievement of challenging milestones, which, among other things, required Tesla’s market capitalization to increase to $100 billion, and to then continue increasing in additional $50 billion increments thereafter, up to $650 billion.
Additionally, Mr. Musk’s compensation would also be dependent on him leading Tesla’s achievement of challenging operational milestones, which were designed to ensure that it is executing well on both a top-line and bottom-line basis. Under the 2018 CEO Performance Award, if these ambitious milestones were met, the Board determined in 2018, all Tesla stockholders would benefit, with the value of Tesla’s equity growing by tens of billions of dollars per milestone. Moreover, under the 2018 CEO Performance Award, in contrast to Mr. Musk’s rights, which required a pair of milestone targets to be fully met in order for him to receive any vesting of the corresponding tranche, the Tesla stockholders would realize the real-time benefit of any increases to its stock price, even those that result from falling short of the specific milestone targets required by the 2018 CEO Performance Award. Finally, the 2018 CEO Performance Award would create even more stockholder alignment by incorporating features such as a five-year holding period that ensures Mr. Musk’s continuing alignment with company interests for many years even after he exercises his options.
As such, the Board in 2018 determined that the 2018 CEO Performance Award was a true “pay-for-performance” compensation program that tightly aligned Mr. Musk’s interests with the interests of Tesla and its stockholders.
2.   Ensuring Mr. Musk’s Continued Services
The Board in 2018 believed that having the active and engaged services of Mr. Musk was important to the continued growth and long-term interests of Tesla. While the Board recognized that Tesla had many valuable employees who have been a critical part of Tesla’s success, the Board in 2018 believed that many of Tesla’s prior successes were driven significantly by Mr. Musk’s leadership. Those successes included making Model S the top-selling car in its segment in many key markets around the world and ramping up the production of it, designing and ramping up the production of Model X, which continued to gain substantial market share around the world, and designing and beginning to ramp up the production of Model 3, the mass-market vehicle that the success of Model S and Model X enabled. These accomplishments had led to significant value creation for Tesla’s stockholders. Since going public, Tesla’s market capitalization had grown almost 35x when the Board approved the plan in 2018.
The Board designed the 2018 CEO Performance Award to incentivize and motivate Mr. Musk to continue to not only lead Tesla over the long term, but particularly in light of his other business interests, to devote his time and energy in doing so. In the Board’s discussions with Mr. Musk in 2018, he indicated that the 2018 CEO Performance Award would accomplish that.
Mr. Musk was required to remain as Tesla’s Chief Executive Officer or serve as both Executive Chairman and Chief Product Officer, in each case with all leadership ultimately reporting to him, at
 
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the time each milestone was met in order for the corresponding tranche to vest. This was intended to ensure that Mr. Musk would continue to lead the management of Tesla over the long term while also providing the flexibility to bring in another chief executive officer who would report to Mr. Musk at some point in the future. Although there was no intention to bring in another chief executive officer, the Board in 2018 believed that having such flexibility as Tesla continued to grow to potentially allow Mr. Musk to focus more of his attention on the kinds of key product and strategic matters that most impacted Tesla’s long-term growth and profitability would benefit our stockholders.
3.   Spurring the Achievement of Tesla’s Strategic and Financial Objectives
The Board believed in 2018 that the 2012 CEO Performance Award was instrumental in motivating Mr. Musk to lead Tesla’s achievement of the objectives set out in the original Master Plan, thereby generating the significant stockholder value that was created during the process. With the first Master Plan having been achieved and with the second part of the Master Plan having been announced, the 2018 CEO Performance Award was designed to help align Tesla and its employees as they design, engineer and make the products that execute on the master plan, and focus everyone at Tesla on achieving the market capitalization and operational milestones that, while challenging, the Board believed were attainable for Tesla. If all of these milestones were to be achieved, Tesla would have meaningfully achieved its mission of transitioning the world to sustainable energy and would have become one of the most valuable and successful companies in the world.
2018 Stockholder Vote
At the 2018 Special Meeting, our stockholders voted on the 2018 CEO Performance Award. Our stockholders approved the 2018 CEO Performance Award at the 2018 Special Meeting by the affirmative vote of each of:
(1)
the majority of the total votes of shares of Tesla common stock cast in person or by proxy at the 2018 Special Meeting, pursuant to the Nasdaq Stock Market Rules (the “2018 Nasdaq Standard”);
(2)
the majority of the voting power of the shares present in person or represented by proxy at the 2018 Special Meeting and entitled to vote on the proposal, pursuant to Tesla’s amended and restated bylaws (the “2018 Bylaws Standard”); and
(3)
the majority of the total votes of shares of Tesla common stock not owned, directly or indirectly, by Mr. Musk or Kimbal Musk cast in person or by proxy at the 2018 Special Meeting, pursuant to the resolutions of the Board of Directors of Tesla adopted in connection with the 2018 Special Meeting (the “2018 Disinterested Standard”).
Later that day, the Company filed a Current Report on Form 8-K with the SEC disclosing the results of the votes at the 2018 Special Meeting.
Tornetta v. Musk Decision and Deficiencies Found by the Court
Following the 2018 Special Meeting, on June 5, 2018, Richard Tornetta, a stockholder of the Company holding nine shares of our common stock at the time (prior to giving effect to various stock splits), in his individual capacity and on behalf of all other similarly situated stockholders of the Company and derivatively on behalf of the Company, filed a complaint in the Delaware Court alleging breaches of fiduciary duty, unjust enrichment and waste. Mr. Tornetta alleged, and the Delaware Court held, that Mr. Musk controlled the Board, leading to an unfair process surrounding the formulation and approval of the 2018 CEO Performance Award, as well as that the 2018 CEO Performance Award was not fair. The Company and the Board believe that the decision in Tornetta ignored material evidence presented at trial and that the Delaware Court made errors of fact and incorrect conclusions of law. The named director defendants intend to appeal the Delaware Court’s decision vigorously. Moreover, the stockholders’ vote at the 2024 Annual Meeting on whether to ratify the 2018 CEO Performance Award is independent and separate from the named director defendants’ intended appeal of the Delaware Court’s order. The description of the Tornetta Opinion below should not be read to endorse or agree with the findings of fact or conclusions of law in it. Nevertheless, the Company believes that stockholders in evaluating the matters presented to them
 
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for their approval at the 2024 Annual Meeting should understand the conclusions reached by the Delaware Court and the bases for those conclusions; therefore, the description below summarizes the Tornetta Opinion, and a copy of the Tornetta Opinion is attached as Annex I to this Proxy Statement.
We have summarized here the significant rulings of the Delaware Court in the Tornetta Opinion, and are also including a copy of the Tornetta Opinion as Annex I to this Proxy Statement, to ensure that all relevant disclosures are available to our stockholders. The summary below does not purport to be a complete and exhaustive summary of the Tornetta Opinion, and therefore, Annex I is incorporated herein by reference in its entirety.
The Delaware Court’s Analysis: Mr. Musk’s Control
Mr. Tornetta alleged, and the Delaware Court decided, that Mr. Musk is a controlling stockholder of Tesla for the purposes of approving the 2018 CEO Performance Award. The Delaware Court then found that in a conflicted-controller transaction, unless a board of directors follows a judicially-prescribed path involving the establishment of a special committee authorized to make a decision on such transaction and then obtains the fully informed, uncoerced approval of the majority of the voting power of disinterested stockholders, the “entire fairness” standard of review will apply to the transaction. Based on four factors, the Delaware Court concluded that Mr. Musk was a controlling stockholder for purposes of the 2018 CEO Performance Award.
The Delaware Court’s Analysis: Mr. Musk Wielded Significant Influence over Tesla by Virtue of His Stock Holdings
First, the Delaware Court agreed with Mr. Tornetta that:
Musk’s 21.9% block… gives him a sizable leg-up for stockholder votes generally and the ability to block specific categories of bylaw amendments. The block also gives him great influence in the boardroom. This undoubtedly contributes to his clout and sway.
The Delaware Court’s Analysis: Mr. Musk was a “Superstar CEO”
Second, the Delaware Court labeled Mr. Musk a “Superstar CEO” — the type of chief executive officer whose identity is interwoven with that of the company’s and therefore has a “singular importance shift[ing] the balance of power between management, the board, and the stockholders.” According to the Delaware Court, “[i]n the face of a Superstar CEO, it is even more imperative than usual for a company to employ robust protections for minority stockholders, such as staunchly independent directors. In this case, Tesla’s fiduciaries were not staunchly independent.”
The Delaware Court’s Analysis: The Board’s Independence Was Compromised
Third, the Delaware Court concluded that Mr. Musk’s personal and professional relationships with the Board compromised the Board’s and the Compensation Committee’s independence.
For example, the Delaware Court determined that several Board members (who were also members of the Compensation Committee) owed the bulk of their fortunes to investments in Musk-affiliated entities, and that several Board and Compensation Committee members were also friends with Mr. Musk, Kimbal Musk, and the Musk family. In addition, the Delaware Court determined that Todd Maron, Tesla’s General Counsel at the time who had also previously served as Mr. Musk’s divorce attorney, was “totally beholden to Musk” because he was “moved [] to tears during his deposition” on account of his “admiration for Musk.” The Delaware Court also noted that Mr. Maron was a “primary go-between” of Mr. Musk and the Compensation Committee in connection with the negotiation of the 2018 CEO Performance Award and that “many of the documents cited by [Tesla] as proof of a fair process were drafted by Mr. Maron.” As a result, even though Mr. Musk and his brother Kimbal Musk recused themselves from the Board’s vote to approve on the 2018 CEO Performance Award, the Delaware Court determined that the Compensation Committee’s recommendation and the Board’s approval of the 2018 CEO Performance Award were not made independent of influence from Mr. Musk.
 
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The Delaware Court’s Analysis: Mr. Musk Controlled the Board’s Consideration of the 2018 CEO Performance Award
Fourth, the Delaware Court concluded that multiple aspects of the Board’s consideration of the 2018 CEO Performance Award revealed Mr. Musk’s control over it, “including the timeline, the absence of negotiations over the magnitude of the Grant or its other terms, and the committee’s failure to conduct a benchmarking analysis.”
According to the Delaware Court, the 2018 CEO Performance Award did not receive sufficient substantive consideration or time from the Board before the Board approved it, and instead:
[T]here is barely any evidence of negotiations at all. Rather than negotiate against Musk with the mindset of a third party, the Compensation Committee worked alongside him, almost as an advisory body.
The Delaware Court expressed concern over the fact that Mr. Musk proposed the initial terms of his compensation plan and drove the timing of negotiations around the 2018 CEO Performance Award. The Delaware Court found that:
Musk unilaterally set the timeline or made last-minute proposals to the Board prior to six out of the ten Board or Compensation Committee meetings during which the [2018 CEO Performance Award] was discussed. Musk dictated when the game clock started and stopped, thereby artificially compressing the work into short bursts that took place when he wished to move forward. Musk’s habit of shaking things up just before meetings also made it tough for the committee and its advisors to be prepared.
The Delaware Court also observed that although “nine months passed” between the initial meeting about the 2018 CEO Performance Award and the Board’s approval of it, “most of the work on the [2018 CEO Performance Award] occurred during small segments of that nine-month timeline and under significant time pressure imposed by Musk,” resulting in what it believed to be a “recklessly fast approach.”
The Delaware Court also stated that negotiations between Mr. Musk and the Board were compromised because they were not adversarial and were too cooperative and collaborative. To the contrary, the Delaware Court noted that several of the participants in the process testified that the negotiations between Mr. Musk and the Board regarding his compensation were not adversarial or “acrimonious.” Combined, these and certain other factors led the Delaware Court to conclude that the negotiation process was not at arm’s length, and was not fair.
The Delaware Court also found that the Board largely accepted terms Mr. Musk proposed for his own compensation plan, without considering other alternatives, and omitted certain terms that would have been in the best interests of our stockholders. For example, the Delaware Court stressed that a key goal of the Board was “it[s] wish[] to retain Musk as the ‘fully engaged CEO,’ yet” the terms of the 2018 CEO Performance Award did not require him to devote a certain percentage of his time to Tesla relative to his other companies, and also “allowed Musk to step down to the role of ‘Chief Product Officer.’” The Delaware Court also stated that “there was no actual discussion concerning alternatives” to the compensation plan proposals that Mr. Musk was setting forth, and that “[t]here [w]as [n]o [n]egotiation [o]ver [t]he [s]ize [o]f [t]he [g]rant.” The Delaware Court also criticized the Board for not reviewing benchmarking compensation studies that would compare the proposed 2018 CEO Performance Award “to plans at comparable firms.” According to the Delaware Court, the defendants’ “proffered reasons for not performing a traditional benchmarking study [(that they had sufficient information to know what a benchmarking study would show and that they didn’t believe such a study was apt because there were no true comparables)]. . . rang hollow”, and that “[b]enchmarking would have informed the decision makers of the magnitude of difference between the [g]rant and market comparables.”
The Delaware Court also concluded that the defendants failed to prove that the 2018 CEO Performance Award’s milestones were “ambitious and difficult to achieve,” such that they would require compensation of the 2018 CEO Performance Award’s magnitude to incentivize Mr. Musk to attain them. Instead, the Delaware Court noted that:
 
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Tesla determined that three operational milestones were ‘considered probable of achievement,’ which meant that they were greater than 70% probable of achievement within approximately one year of the Grant date.
Finally, the Delaware Court rejected the defendants’ argument that certain other terms that were included in the 2018 CEO Performance Award for the Company’s benefit, the Clawback Provision, the Leadership Requirement, the Five-Year Hold Period and the M&A Adjustment (each as described above and defined in the Tornetta Opinion), were evidence of arm’s-length bargaining, since Mr. Musk accepted them without negotiation. With respect to these provisions, the Delaware Court found that:
The other key terms of the Grant were: the Clawback Provision, the Leadership Requirement, the Five-Year Hold Period, and the M&A Adjustment. As to these terms, the only back-and-forth in the record concerned the M&A Adjustment, but Musk himself conceded that this was at most a minor feature of his compensation plan that he did not care about. He stated, at the end of negotiations on this point, “I don’t think we will be making big acquisitions[]” and “[t]here is no chance I will game the economics here, so I’m fine with limits that prevent that.
The Delaware Court Found the Stockholder Vote Upon Which the 2018 CEO Performance Award Was Conditioned Was Deficient
In addition to finding the Board process related to the 2018 CEO Performance Award to have been deficient, the Delaware Court also found that the stockholder vote at the 2018 Special Meeting on which the 2018 CEO Performance Award’s approval was conditioned was not fully informed. The Delaware Court’s finding that the stockholder vote at the 2018 Special Meeting was not fully informed was based on the failure of the 2018 Proxy Statement to disclose the shortcomings that the Delaware Court had found in the Board’s decision-making process.
The Delaware Court’s Analysis: the 2018 Proxy Statement Contained No Conflict Disclosures
First, the Delaware Court stated that in presenting the 2018 CEO Performance Award to our stockholders, we had failed to disclose any actual or potential conflicts between the 2018 CEO Performance Award’s decision-makers and Mr. Musk, instead describing “all of [them] [as] independent directors” and “independent members of the Board.” In particular, the 2018 proxy statement did not disclose the financial or personal connections between the members of the Compensation Committee and Mr. Musk. These included a 15-year relationship between Mr. Musk and the chair of the Compensation Committee, Ira Ehrenpreis, and business relationships between Mr. Musk and the other Compensation Committee member, Antonio Gracias, “dating back over 20 years, as well as the sort of personal relationship that had [Mr. Gracias] vacationing with Mr. Musk’s family on a regular basis.”
The Delaware Court’s Analysis: the 2018 Proxy Statement did not Include a Full and Accurate Description of the Process
Second, the Delaware Court determined that we did not provide our stockholders with a “full and accurate description of the material steps in the Board or the Compensation Committee process that resulted in the transaction.” The Delaware Court noted that the 2018 proxy statement “does not disclose the level of control that Musk exercised over the process — e.g., his control over the timing, the fact that he made the initial offer, the fact that his initial offer set the terms until he changed them six months later, the lack of negotiations, and the failure to benchmark, among other things.” Above all, the Delaware Court stated that we should have disclosed that Mr. Musk proposed key terms for his compensation plan in an initial call on April 9, 2017, prior to discussions “among the members of the Compensation Committee.”
The Delaware Court’s Decision
As a result of the foregoing, the defendants bore the burden of proving that the 2018 CEO Performance Award was “entirely fair” to our stockholders. Due to the factors discussed above, the Delaware Court ruled that the compensation considered in the 2018 CEO Performance Award was more than Tesla needed to “give” in proportion to what it would “get” and thus the defendants failed to prove that the 2018 CEO Performance Award was “entirely fair” to our stockholders, and
 
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ordered rescission of the 2018 CEO Performance Award as a remedy. The Delaware Court found rescission equitable under the circumstances because Mr. Musk had profited from his work through his ownership of Company stock, observing that other billionaires such as Mark Zuckerberg, Jeff Bezos, Bill Gates and Warren Buffett had been willing to work for nominal amounts in light of their ownership of their respective company’s stock.
Performance of the Company Assessed Against Performance Metrics
Tesla’s Leadership Has Revolutionized the World
Tesla sets extraordinary goals and needs extraordinary leadership to achieve them. Our mission is to accelerate the world’s transition to sustainable energy.
To enact radical change requires radical innovation. Mr. Musk has led our most remarkable projects. Mr. Musk’s leadership and unique vision have played critical roles in our mission and success. He has guided Tesla from an early-stage startup through multiple critical events and crises into one of the world’s leading automakers and one of the most valuable companies in the world. His innovation and vision have driven us to become the world’s first vertically integrated sustainable energy company, with a wide variety of products, from generation to storage to consumption.
Under Mr. Musk’s leadership, we popularized electric vehicles by making them high-performance, accessible and fun to drive. Now, electric vehicles are abundant on the streets, and in the last decade, we produced over 5.5 million of our vehicles. We currently manufacture five different consumer vehicles — the Model 3, Y, S, X and Cybertruck, and, as of January 24, 2024, Model Y was the best-selling vehicle in the world. Importantly, our fully electric cars often replace traditional gasoline-powered cars on the road — tackling one of the largest global sources of carbon dioxide and other greenhouse gas emissions.
Mr. Musk also leads our efforts in designing, developing and manufacturing a range of cutting-edge sustainable energy generation and storage products. We offer two lithium-ion battery energy storage products — Powerwall and Megapack. Powerwall, which we sell directly to customers, as well as through channel partners, is designed to store energy at a home or small commercial facility. Megapack is an energy storage solution for commercial, industrial, utility and energy generation customers, multiples of which may be grouped together to form larger installations of gigawatt hours or greater capacity. Megapack has the potential to eliminate the need for gas peaker plants and avoid power outages. Each unit can store over 3.9 MWh of energy — enough energy to power an average of 3,600 homes for one hour.
Through Mr. Musk’s leadership, we have also developed sophisticated control software, which is utilized in the performance and safety of our vehicles and their battery packs. Our technology uses neural networks in our vehicles, and we currently offer certain advanced driver assist systems under our Autopilot and Full Self Driving (Supervised) options. We develop almost all of this software, including most of the user interfaces, internally and update our vehicles’ software regularly through innovative over-the-air updates.
Even with all this prior innovation, we continue to look ahead to new horizons — Mr. Musk spearheads our efforts on products in development that we believe have the potential to be our most significant contributions.
We have made incredible progress on our mission, and Mr. Musk has driven our conception, design, development, production and commercialization of these revolutionary products.
Achieving such progress requires thoughtful, innovative leaders. The role of a chief executive officer is multi-faceted and demanding. A chief executive officer is not only responsible for managing the day-to-day operations of an entire company, but also developing the company’s vision and strategy, fostering innovation, representing the company and creating a culture of excellence. For a large, sophisticated company such as Tesla, our chief executive officer must be able to execute at an incredibly high level, which requires deep experience and a myriad of specialized abilities. Finding an individual who possesses such a diverse skill set and can excel in these various aspects is not easy, but Mr. Musk’s demonstrated track record of success has proven that he can do so. The Delaware Court in the Tornetta Opinion referred to Mr. Musk as a “Superstar CEO”‘. The Board and
 
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management believe that it is in Tesla’s interest to secure Mr. Musk’s “Superstar CEO” talent and experience by means of appropriate compensation.
With Mr. Musk leading the Company, the Board and management believe that we have fundamentally changed the world. We are proud of what the Company has achieved, but there is much more to be done, and we believe that we are best positioned to accomplish our goals with Mr. Musk at the helm and provided with ambitious targets and appropriate incentives to meet those targets.
Our Compensation Is Designed to Drive Innovation and Growth
In 2018, we carefully designed the 2018 CEO Performance Award to align the interests of our leaders with those of Tesla’s stockholders and to motivate them to use their talent and initiative to drive the Company’s financial performance and stockholder value. We used Compensia, a leading independent compensation consultant to help us develop the 2018 CEO Performance Award and understand how our executive compensation compares to that of our competitors.
The Board and management are committed to compensating our executives both competitively and in line with their contributions to our success and the value delivered to our stockholders. Our Company would not be where it is today without Mr. Musk’s contributions, leadership and vision and we have an exceptionally strong interest in retaining him and motivating him to devote the time, energy, resources and skill to Tesla that is necessary to achieve the success we have achieved and the vision and strategy to which we aspire. As a result, we believe this requires a compensation plan that recognizes Mr. Musk’s unique role and more importantly provides the appropriate incentives for Mr. Musk not only to remain with Tesla and devote time to its business and affairs, but also to continue to bring the level of dedication to the Company that we believe is crucial to reaching the ambition we have for growing the business over the long term.
In developing the 2018 CEO Performance Award, the Board obtained feedback from a broad set of our institutional stockholders and incorporated the feedback into the decision-making process. The 2018 CEO Performance Award was approved by approximately 73% of all votes cast by our disinterested stockholders under the 2018 Disinterested Standard, as well as the majority votes required under the 2018 Nasdaq Standard and the 2018 Bylaws Standard.
The 2018 CEO Performance Award contained no guaranteed compensation of any kind — no salary, no cash bonuses and no equity that vests simply through the passage of time. Since 2018, Mr. Musk has not received any of these customary forms of compensation — nearly six years without salary, cash bonuses or equity grants that vest only due to the passage of time. Instead, Mr. Musk’s only compensation opportunity from Tesla depended on him driving Tesla’s achievement of milestones the Board believed were exceptionally challenging. The only compensation included in the 2018 CEO Performance Award was a 100% at-risk performance award upon achievement of certain performance targets, which was designed so that Mr. Musk would be compensated only if our stock price, revenue and profitability out-performed ambitious targets, resulting in value for all of our stockholders. The intention of the 2018 CEO Performance Award was to motivate Mr. Musk to devote the time, energy, resources and skill necessary to achieve extraordinary goals, well beyond what any contractual commitment to spend a set number of hours and a specified percentage of his professional time devoted to Tesla would achieve.
In addition, under the 2018 CEO Performance Award, Mr. Musk had an obligation to hold any Tesla shares obtained from exercising options under the 2018 CEO Performance Award for a period of five years after the exercise date, which was designed to address Mr. Musk’s economic incentives after he exercised his options. Although the key milestones under the 2018 CEO Performance Award have already been met, if the Ratification is approved by stockholders, the Company believes that Mr. Musk’s holding requirement will continue to incentivize him and align his interests with those of our other stockholders.
In summary, the 2018 CEO Performance Award was high-risk, high-reward. This is a bedrock of capitalism and American innovation — the prospect of significant rewards motivates entrepreneurs to take risks, which leads to innovation and progress, driving economic growth.
 
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Mr. Musk Met — and Exceeded — His Performance Award Milestones
The Board in 2018 believed that the hurdles for performance were exceptionally high, and subsequently, Mr. Musk met — and exceeded — each and every key milestone in the 2018 CEO Performance Award, milestones that have resulted in remarkable value creation for our stockholders.