QUESTION #1 (10 points) Background Facts: In 2016, Tesla Motors, Inc. acquired SolarCity Corporation. Tesla is a public Delaware corporation with shares listed on Nasdaq that manufactures electric vehicles. At the time of the SolarCity acquisition, Tesla's chairman and CEO was Elon Musk. SolarCity was a public Delaware corporation founded by Elon Musk and members of his family. It was a solar energy company. Mr. Musk was a member of the SolarCity board of directors as were two of his cousins, one of whom was SolarCity's CEO and the other of whom was its chief technology officer. At the time of the acquisition, Mr. Musk was the largest shareholder of both Tesla and SolarCity's, holding about 22% of the outstanding stock of each company. At the time of the acquisition, SolarCity had serious liquidity issues. Tesla's debt nearly doubled following the acquisition and the assumption of SolarCity's debt. The transaction was approved by Tesla's shareholders. Mr. Musk abstained from the vote. After the transaction closed, Tesla's shareholders filed a shareholder derivative lawsuit, accusing the members of the Tesla board of directors of breaching their fiduciary duties. All directors, except for Elon Musk, settled the lawsuit for $60 million. A trial was held in Delaware Chancery Court. The Court ruled in Mr. Musk's favor. The Tesla-SolarCity transaction and the shareholder derivative litigation were well publicized and information about the transaction and the legal challenges is available on the Internet. Some examples are: 1. Chancery Court Denies Motion to Dismiss Brought By Defendant Tesla Motors, Inc. After Concluding That Elon Musk Is A Controlling Stockholder, Holly Hatfield and Daisy Sexton, K&L Gates LLP (May 18, 2018). 2. Did Tesla Breach Its Fiduciary Duty to Shareholders in SolarCity Acquisition?, Michael Horner, Berkeley Law (April 17, 2018). 3. Elon Musk knew SolarCity was going broke before merger with Tesla, lawsuit alleges, Russ Mitchell, Los Angeles Times (September 23, 2019). 4. Tesla directors settle, isolating Musk as SolarCity trial looms, Tom Hals, Reuters (January 30, 2020). 5. Investors argue Musk should repay $9.4 bln to Tesla for SolarCity deal, Tom Hals, Reuters (October 4, 2021). 6. Judge rules for Elon Musk in $13 bln lawsuit over Tesla-SolarCity deal, Tom Hals, Reuters (April 27, 2022).

Questions: The Tesla shareholders now are considering whether to appeal the decision of the Delaware Chancery Court. After all, the members of the Tesla board of directors, except for Elon Musk, considered the allegations serious enough that they decided to settle the litigation before the trial. In order to make their decision, the Tesla shareholders have requested a legal opinion on the following: 1) Is the Tesla/SolarCity transaction a violation of Elon Musk's duty of loyalty to Tesla? Why or why not? 2) Is the Tesla/SolarCity transaction a violation of Elon Musk's duty of loyalty to SolarCity? Why or why not? Instructions: Assume you are a partner at the Delaware law firm advising the Tesla shareholders. In memo format respond to Tesla's shareholders responding to these questions based on applicable Delaware law. Please include the reasons for your conclusions.