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 firm called the Carlyng "Make Money" Group. Takeover registers and qualifies 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 at about $10/share, about $2 above the offering price. The founders allocate $50 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 that makes "near field programs" used in Android, valued at about $250 million. Seventeen months after the IPO, Takeover and Target reach an agreement for selling the company.
Answer the following questions based on SEC Rule 419, 17 CFR 230.419:
- After closing the IPO, explain Takeover's obligation with respect to the funds it raised from the IPO.
- Explain whether Takeover's use of $50 million for overhead, salaries, etc., is in accordance with Rule 419. Are there any remedies?
- After reaching a purchase agreement with Target, explain Takeover's obligation to its shareholders under Rule 419.
- Assume that 3 million shares opt out of Takeover; explain Takeover's obligation to those shareholders.
- Will the transaction go forward to completion if the acquisition required:
- 100% cash.
- an exchange of cash and equity, i.e., the owners of Target get $150 million and 40% equity in Takeover.