With layoffs of potentially hundreds of employees looming, autonomous trucking startup TuSimple agreed to pay CEO Cheng Lu $15 million in cash if it ousts him a second time.
The terms of the agreement are spelled out in an 8-K filing Friday with the Securities and Exchange Commission.
The optics of such a payment compared to whatever severance is paid to laid-off employees are ugly. But having been burned once, Lu assured that shortening his second stay would be expensive to the company.
“It is not surprising at all that they would need a golden parachute of some kind to bring somebody into a bad situation, one that he had already served in previously,” said Jay Kesten, a professor in the College of Law at Florida State University who focuses on corporate governance. “It’s a pretty simple way of dealing with that instability.”
Lu is being paid $450,000 in salary, an 80% targeted cash bonus, or a minimum of $400,000 this year. He is also receiving 6.85 million shares of TuSimpe stock and a $9,000 monthly housing allowance.
Like many technology companies swimming in cash two years ago, TuSimple has seen its enterprise value plummet. Shares are trading around $1.50, down more than 90% over the past year. TuSimple was valued at $8 billion at the time of its IPO. Presently, it is worth about $355 million. With $1 billion in cash and equivalents on its balance sheet, it is worth nearly three times its book value.
If there is a change of control, such as a sale of the company, Lu would get 0.6% of the value of TuSimple or a minimum of $15 million. Such a sale could be to a competitor or to a private equity group that would take the company private. The percentage arrangement is an additional incentive for Lu to try to get as much as possible if the company is sold, Kesten said.
A former investment banker who helped lead TuSimple’s initial public offering in April 2021, Lu was pushed out in March by TuSimple co-founder Xiaodi Hou, who had been serving as chief technology officer.
Lu agreed to return as CEO on Nov. 10 after Hou was fired by TuSimple’s board of directors. The directors themselves were fired by Hou and co-founder Mo Chen, who control 59% of the voting shares in the company. Hou has transferred his super-voting rights to Chen for up to two years.
The previous board was investigating whether Hou had improperly shared TuSimple intellectual property with Chen, who has a China-backed startup called Hydron Inc. that wants to manufacture hydrogen fuel cell-powered autonomous trucks. The board had not concluded its investigation when it suddenly fired Hou without cause on Oct. 30.
Lu: Trying to stabilize the business
In public statements, Lu said he is dedicated to stabilizing the TuSimple business, reputationally damaged by the executive turnover before and after a crash of one of its safety driver-monitored trucks on April 6 near Tucson, Arizona. No one was injured when the truck swerved to the left and struck a median on Interstate 10.
TuSimple blamed the incident on a combination of a software malfunction and human error in the upfitted Navistar International LT truck. It temporarily grounded its fleet of more than 50 trucks used in autonomous freight hauling and made software changes to prevent a recurrence.
Lu was advising the company at the time of the crash but was no longer involved in day-to-day operations. Once he returned, manufacturing partner Navistar ended a 2 1/2-year partnership to develop a purpose-built truck with redundant safety features to support TuSimple’s software.
Moving most operations to Texas
In the third-quarter earnings call with analysts, interim CEO Ersin Yumer — who has since left TuSimple — described how the company is moving most of its technology efforts to Texas from Tucson, where it recently expanded its technology operations.
TuSimple has created high-definition maps of hundreds of miles of freeways for its Autonomous Freight Network in the so-called Texas Triangle of Dallas, Houston and San Antonio.
Separately, TuSimple’s new board of directors, appointed last week, voted to increase the number of available TuSimple shares by 5% a year through 2031. Effectively the opposite of a buyback, the doubling of previous share allotment increase dilutes the value of stock presently held. The annual increase previously had been 2.5%.