Corporate And Financial Weekly Digest - May 18, 2012

Edited by Robert L. Kohl and David A. Pentlow

SEC/CORPORATE

SEC Implements Secure E-mail System for Confidential Submissions

Effective May 14, the Division of Corporation Finance of the Securities and Exchange Commission has implemented a secure e-mail system that allows it to receive confidential submissions from "emerging growth companies" (EGCs) under the Jumpstart Our Business Startups Act (JOBS Act), as well as from certain foreign private issuers under the Division of Corporation Finance's pre-existing policy that permits such issuers to submit draft registration statements to the SEC for non-public review. According to the SEC, the new system, which is mandatory for such submissions, will allow companies and the Division of Corporation Finance to correspond securely regarding draft registration statements.

As reported in the April 13 edition of Corporate and Financial Weekly Digest, the JOBS Act permits EGCs to confidentially submit draft registration statements to the SEC for non-public review. Prior to the implementation of the secure e-mail system described above, EGCs were required to submit such drafts in a PDF file on a CD/DVD or in paper form.

All draft registration statements submitted confidentially pursuant to the JOBS Act or for non-public review under the Division of Corporation Finance's policy for certain foreign private issuers must be submitted in accordance with instructions published by the Division of Corporation Finance. The submissions must be in text-searchable PDF format and must include a transmittal letter in which the submitting company must confirm its status as an eligible foreign private issuer or an EGC and must identify the type of submission being made. To view such instructions, click here.

LITIGATION

Seventh Circuit Court of Appeals Rejects Argument That Wisconsin Corporate Law is Part of Articles of Incorporation

The U.S. Court of Appeals for the Seventh Circuit rejected the argument of a dissenting shareholder in a freezout merger that provisions of Wisconsin's corporate law were binding contractually on a company's founders and its investors.

Everett Smith Group, Ltd. (Smith), which owned 89% of the stock of Albert Trostel & Sons Company (Trostel) voted to acquire the remaining stock through a freezeout merger. Trostel became a wholly owned subsidiary of Smith and the minority shareholders were to receive $11,900 per share in compensation. Edward Notz, owner of 5.5% of the stock, rejected that amount, contending that the shares were worth twice as much.

The Wisconsin statute provided that when investors reject the compensation offered in a merger, the corporation must commence an appraisal proceeding in the circuit court for the county where its principal office is located. Trostel filed the appraisal action in Wisconsin federal district court, asserting that jurisdiction was proper there based on federal diversity jurisdiction. Mr. Notz moved to dismiss, contending that the district court lacked jurisdiction. He argued that all of Wisconsin's corporate law—including the provision requiring where such an action must be brought—is part of all articles of incorporation, and thus bound the parties as a contractual matter, even though neither party affirmatively consented. The district court denied the motion and, after a trial, concluded that the fair value of the stock was $11,900 per share.

The Seventh Circuit affirmed. It concluded that the Wisconsin law established a rule of venue applicable within its own judicial system and not a rule allowing corporations to defeat diversity jurisdiction. It found that Wisconsin's corporate law provisions are legislative and not "contracts" because they do not depend on the consent of private parties.

Albert Trostel & Sons Co. v. Notz, No. 10-3509 (7th Cir. May 10, 2012).

District Court Rejects Argument that Investment Advisers Act Cannot be Applied Extraterritorially

The Securities and...

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