To Unbundle or Not to Unbundle Multiple Amendments? There Is Still No Clear Answer to This Question.

On January 24, 2014, the SEC issued three unbundling Compliance and Disclosure Interpretations (C&DIs), in an apparent response to the decision of the U.S. District Court of the Southern District of New York in Greenlight v. Apple and in time for the 2014 proxy season.  The SEC concept of “unbundling” refers to separating matters submitted to a vote of shareholders into separate proposals, under Rules 14a-4(a)(3) and (b)(1)[1], under the Securities Exchange Act of 1934 so that shareholders could express their views on each separate matter.

With virtually no attention being paid to “unbundling” since September 2004 when the SEC issued an Interim Supplement to the Publicly Available Telephone Interpretations providing “unbundling” guidance in the context of mergers and acquisitions, “unbundling” was brought to light again in 2013, when the Court enjoined Apple, Inc. from accepting proxy votes in connection with a proposal to amend its articles of incorporation to (i) eliminate certain language in order to facilitate the adoption of majority voting for the election of directors, (ii) eliminate “blank check” preferred stock, (iii) establish a par value for Apple’s common stock of $0.00001 per share and (iv) make other conforming changes (Greenlight v. Apple, Feb. 22, 2013).  Greenlight Capital, L.P. sued Apple alleging that such proposal violated SEC “unbundling” Rules 14a-4(a)(3) and (b)(1). 

New C&DIs issued on January 24 provide examples and guidance as to whether companies should be unbundling multiple amendments into separate proposals.  Set forth below is a summary of such guidance, which makes it clear that there is no bright-line test and the unbundling decision is subject to the company’s facts and circumstances analysis. 

Charter Amendments Changing Terms of Preferred Stock

Fact Pattern. If management negotiated concessions from holders of a series of its preferred stock to reduce the dividend rate on the preferred stock in exchange for an extension of the maturity date, can management submit a single proposal to holders of the company’s common stock to approve a charter amendment containing both modifications: one relating to the reduction of the dividend rate and another relating to the extension of the maturity date?

Guidance. Yes, these multiple amendments effectively constitute a single matter and need not be unbundled because they are “inextricably intertwined.” Each of the proposed amendments relates to a basic financial term of the same series of capital stock and was the sole consideration for the countervailing amendment.  However, the staff would not view two arguably separate matters as being inextricably intertwined merely because the matters were negotiated as part of a transaction with a third party, nor because the matters represent terms of a contract that a party considers essential to the overall bargain.

Charter Amendments Changing Common Stock’s Par Value, Eliminating Provisions for Preferred Stock and Declassifying the Board

Fact Pattern.  Can management submit for shareholder approval amendments to the company’s amended and restated charter that would (i) change the par value of the common stock; (ii) eliminate provisions relating to a series of preferred stock that is no longer outstanding and is not subject to further issuance; and (iii) declassify the board of directors as one proposal?.  

Guidance.  Yes, the staff would not ordinarily object to the bundling of any number of immaterial matters with a single material matter. While, there is no bright-line test for determining materiality in the context of Rule 14a‑4(a)(3), companies should generally consider whether a given matter substantively affects shareholder rights. While the declassification amendment would be material under this analysis, the amendments relating to par value and preferred stock do not substantively affect shareholder rights, and therefore both of these amendments ordinarily could be included in a single restatement proposal together with the declassification amendment. However, if management knows or has reason to believe that a particular amendment that does not substantively affect shareholder rights nevertheless is one on which shareholders could reasonably be expected to wish to express a view separate from their views on the other amendments that are part of the restatement, the amendment should be unbundled. 

The analysis under Rule 14a-4(a)(3) is not governed by the fact that, for state law purposes, amendments could be presented to shareholders as a single restatement proposal. If, for example, the restatement proposal also included an amendment to the charter to add a provision allowing shareholders representing 40% of the outstanding shares to call a special meeting, the staff would view the special meeting amendment as material and therefore required to be presented to shareholders separately from the similarly material declassification amendment.

Amendments to Equity Incentive Plan

Fact Pattern. Can management present for a vote of shareholders a single proposal covering an omnibus amendment to the company’s equity incentive plan that (i) increases the total number of shares reserved for issuance under the plan; (ii) increases the maximum amount of compensation payable to an employee during a specified period for purposes of meeting the requirements for qualified performance-based compensation under Section 162(m) of the Internal Revenue Code; (iii) adds restricted stock to the types of awards that can be granted under the plan; and (iv) extends the term of the plan?  

Guidance. Yes, these proposed changes need not be unbundled into separate proposals pursuant to Rule 14a‑4(a)(3). While the Staff generally will object to the bundling of multiple, material matters into a single proposal – provided that the individual matters would require shareholder approval under state law, the rules of a national securities exchange, or the registrant’s organizational documents if presented on a standalone basis – the staff will not object to the presentation of multiple changes to an equity incentive plan in a single proposal.  This is the case even if the changes can be characterized as material in the context of the plan, and the rules of a national securities exchange would require shareholder approval of each of the changes if presented on a standalone basis.


[1] Rule 14a-4(a)(3) requires that the form of proxy must “identify clearly and impartially each separate matter intended to be acted upon, whether or not related to or conditioned on the approval of other matters,” and Rule 14a-4(b)(1) provides that, subject to certain exceptions, the form of proxy must include separate boxes for shareholders to choose between approval, disapproval of or abstention “with respect to each separate matter referred to [in the form of proxy] as intended to be acted upon…”


One thought on “To Unbundle or Not to Unbundle Multiple Amendments? There Is Still No Clear Answer to This Question.”

  1. Having done a ton of these, it would never have occurred to me to try to bundle material amendments into one consent. Really enjoyed the program last week. Thanks for including me.

    Sent from my iPad


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