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Exchange Act Rule 14a-4(a)(3)

Last Update: January 24, 2014

Exchange Act Rule 14a-4(a)(3) concerns the “unbundling” of separate matters that are submitted to a shareholder vote by a company or any other person soliciting proxy authority.  These Compliance and Disclosure Interpretations (“C&DIs”) comprise the Division's interpretations of Rule 14a-4(a)(3) generally.  For guidance on the application of Rule 14a-4(a)(3) in the specific context of mergers, acquisitions, and similar transactions, refer to the September 2004 Interim Supplement to the Publicly Available Telephone Interpretations.  These C&DIs are not intended to replace the 2004 guidance.  The bracketed date following each C&DI is the latest date of publication or revision.

QUESTIONS AND ANSWERS OF GENERAL APPLICABILITY

Section 101. Unbundling under Rule 14a-4(a)(3) Generally

Question 101.01

Question: Management of a registrant has 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.  Must a single proposal submitted by management to holders of the registrant’s common stock to approve a charter amendment containing these modifications be unbundled into separate proposals under Rule 14a‑4(a)(3) – one relating to the reduction of the dividend rate, and another relating to the extension of the maturity date?

Answer: No.  Multiple matters that are so “inextricably intertwined” as to effectively constitute a single matter need not be unbundled.  The staff, in this particular case, would view the matters relating to the terms of the preferred stock as being inextricably intertwined, because each of the proposed provisions relates to a basic financial term of the same series of capital stock and was the sole consideration for the countervailing provision.  Note, however, that 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 one or the other of the parties considers essential to the overall bargain. [Jan. 24, 2014]

Question 101.02

Question: Management of a registrant intends to present an amended and restated charter to shareholders for approval at an annual meeting.  The proposed amendments would change the par value of the common stock, eliminate provisions relating to a series of preferred stock that is no longer outstanding and is not subject to further issuance, and declassify the board of directors.  Under Rule 14a‑4(a)(3), must the individual amendments that are part of the restatement be unbundled into separate proposals?

Answer: No.  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), registrants should 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 staff notes that the analysis under Rule 14a-4(a)(3) is not governed by the fact that, for state law purposes, these 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.  [Jan. 24, 2014]

Question 101.03

Question: Management of a registrant intends to present for a vote of shareholders a single proposal covering an omnibus amendment to a registrant’s equity incentive plan.  The amendment makes the following changes to the terms of the plan:

  • increases the total number of shares reserved for issuance under the plan;
  • 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;
  • adds restricted stock to the types of awards that can be granted under the plan; and
  • extends the term of the plan.

Must any of these proposed changes be unbundled into a separate proposal pursuant to Rule 14a‑4(a)(3)?

Answer: No.  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.  See Section III of Exchange Act Release No. 33229 (Nov. 22, 1993).  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.  [Jan. 24, 2014]

 

http://www.sec.gov/divisions/corpfin/guidance/14a-interps.htm


Modified: 01/24/2014