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From Securities Regulation Daily, February 25, 2013

Federal Judge Enjoins Voting on Management Proxy Proposal Bundled in Violation of SEC Proxy Rules

By Jim Hamilton, J.D., LL.M.

A federal judge ruled that a company bundled a number of management proxy proposals together in one proxy proposal in violation of SEC rules. The dimensions of this dispute extend well beyond the SEC rules invoked in this action and involve a large hedge fund shareholder's battle with Apple over the company's future capital allocation strategy. Despite the sweep of the parties' disagreement, the court's narrow holding was that the company's proxy materials likely violated SEC rules governing proxies for shareholder vote and that the hedge fund shareholder and another individual shareholder would suffer irreparable harm as a result (Greenlight Capital, L.P. v. Apple, Inc., February 22, 2013, Sullivan, R.).

The SEC's proxy rules require the unbundling of management proposals, said the court, which means that the rules require distinct voting items on each separate matter. What constitutes a "separate matter" for the purpose of the proxy rules is ultimately a question of fact to be decided in light of the corporate documents and in consideration of the SEC's apparent preference for more voting items rather than fewer.

The management proxy proposal improperly bundled together director term, par value and blank-check authority together. The court found that the shareholders would be irreparably harmed if they are compelled to vote on the bundled management proxy proposal in violation of SEC rules. By voting either against the bundled slate of amendment and thus against two proposals that they support, or for the proposal, including the blank-check proposal that they oppose, the shareholders would have been forced to vote on a package of items for which they did not have a single position and denied the right to inform management of their views of separate items.

In addition, a balancing of the hardships tips in favor of the shareholders. The court found that ruling against the shareholders would strike a blow against fair corporate suffrage, while ruling for the shareholders would merely require the company to comply with SEC proxy rules a little earlier than they would have otherwise had to comply. Further, the court found that it would be perverse to allow the company to proceed with a bundled proxy vote merely because the company desires quick passage of one of the items that it chose to bundle.

Thus, the court found that it was in the public interest to enjoin the company from proceeding with a shareholder vote on the proxy proposal at the annual meeting. The ruling in no way prevents the holding of the annual meeting on the appointed day, but it does prevent a shareholder vote on this bundled proxy proposal. The public interest and investor protection are well-served, emphasized the court, when persons faced with solicitations that do not comply with SEC proxy rules can obtain equitable relief from a federal court to ensure that their opponents play by the rules.

TopStory: CorporateGovernance Proxies

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