Hedge Fund Greenlight Capital – owner of at least 1.3 million shares of Apple common stock – has sued Apple to block a plan to eliminate Apple’s ability to issue preferred shares. In their complaint and motion for preliminary injunction – both filed yesterday –  the Greenlight entities claim that Apple has “bundled” the vote on that plan with two other unrelated proposed modifications of Apple’s articles of incorporation in violation of SEC “unbundling” rules. The bundle – “Proposal No. 2” – is set for shareholder vote at Apple’s annual shareholder meeting on February 27. As David Einhorn – co-founder of Greenlight – explained in his declaration in support of Greenlight’s motion for preliminary injunction:

5.     Proposal No.2 in the definitive proxy bundles together three separate, discrete amendments for a single up or down vote. First, the proposal would modify the articles of incorporation to facilitate “majority voting” for directors under California law. Second, the proposal would establish a par value for Apple’s common stock. And third, the proposal would eliminate Apple’s power to issue preferred stock. 6.     The proxy requires shareholders to vote either “yes” or “no” to these proposed amendments as a group. 7.     The Greenlight Entities support the first two proposed changes to Apple’s articles of incorporation. 8.     The Greenlight Entities oppose, however, the proposed elimination of Apple’s power to issue preferred shares, and believe that the proposed change is not in the best interests of Apple’s shareholders. The power to issue preferred stock gives the board important flexibility in managing Apple’s capital, and the Greenlight Entities believe this flexibility can be used to enhance shareholder value. 9.     Because the three proposed modifications to the Articles are bundled together, the Greenlight Entities, like other shareholders who support some but not all of the  modifications, will be forced to either vote in favor of one or more modifications they oppose, or to vote against one or more modifications they support.

Judge Sullivan’s expedited briefing schedule for the PI requires Apple to respond by February 15, with replies due February 18 and oral argument on February 22.