Blank Check Problem.

Takeover,Inc.is a Delaware corporation whose only stated purpose is to acquire companies.It has virtually no assets and no employees other than the original founders who contributed a total of $50,000.The founders are well known in the investment community and were formerly affiliated with a very successful investment banking firm called the Goldman Socks.Takeover registers as a blank check company with the SEC and raises $310 million under a Section 5 IPO.After commissions and underwriting fees, it is left with $300 million.It trades on the NYSE at about $10/share, about $2 above the offering price.The founders allocate $40 million to operation of Takeover, e.g., for salaries, office space, travel expenses, research, consultants, attorneys, etc., in their search for a takeover target.Six months after completing the IPO, Takeover seeks to acquire Target LLC, a privately owned software company valued at about $250 million.Seventeen months after the IPO, Takeover and Target reach an agreement for 100% cash, no equity.

Answer the following questions based on SEC Rule 419; 17 CFR 230.419:

1.After closing the IPO, explain Takeover's obligation with respect to the funds it raised from the IPO.

2.Explain whether Takeover's use of $40 million for overhead, salaries, etc., is in accordance with Rule 419.

3.After reaching a purchase agreement with Target, explain Takeover's obligation to its shareholders under Rule 419.

4.Assume that a sufficient number of shareholders ratify the purchase of Target, but 3 million shares are voted against the acquisition; explain Takeover's obligation to those shareholders. Can the deal go through for 100% cash?

5.What if the stock was trading at $2 below the issued price.Would the deal go through for 100% cash?