Minimum Cash and Net Tangible Assets Closing Conditions
(De-SPAC)

Summary

This is a minimum cash and net tangible assets closing condition clause. This clause is common in business combination agreements specific for public special purpose acquisition companies acquiring private business entities (de-SPAC transaction). This clause includes practical guidance and drafting notes. Conditions to closing are heavily negotiated because failure to satisfy a condition likely gives a party the right to terminate the acquisition agreement. In de-SPAC transactions, the parties seek assurances that the "blank check" acquirer will have enough cash, and often times net tangible assets that can be liquidated, to finance and close the deal. Parties may include a minimum cash condition, a net tangible assets condition, or both. De-SPAC transactions are unique in that the acquirer is a special purpose acquisition company (SPAC), also known as a blank check company, with no business or operations. The only assets held by SPACs is usually the cash and other financing received by investors and held in trust. The consideration payable by a SPAC to acquire the target in a business combination is payable as cash, equity, or a combination of both. There may be more than one round of financing contemplated by an acquisition agreement to assuage concerns about either a large number of investors exercising redemption rights or the incurrence of more transaction expenses than initially contemplated. Because of the unique attributes of a SPAC, including a minimum cash and/or net tangible assets closing condition: • Ensures there is sufficient cash to satisfy financial obligations at closing after redemptions and transaction expenses are paid from the trust • Increases deal certainty • Satisfies regulatory requirements in certain industries (i.e., healthcare and financial institution transactions may be subject to regulatory approvals that require a minimum cash condition) Net Tangible Assets Closing Condition At and after the closing, the surviving public company must have a minimum amount of net tangible assets to avoid being classified as an investment company under the Investment Company Act of 1940. Net tangible assets in its simplest formula breaks down to: total assets – (intangible assets x liabilities) = net tangible assets Net tangible assets of a SPAC could be limited to the cash held in a trust, but if there are other assets that can be liquidated and taken into consideration, or if the target company's assets may be accounted for, then it makes sense to include a net tangible assets closing condition. The $5,000,001 threshold is based on the requirements of Rule 3a-51-1 under the Investment Company Act of 1940. If the surviving company's net tangible assets falls below this threshold, it may be classified as an investment company (which triggers the application of and compliance with additional rules and regulations). The following links are examples of de-SPAC transactions with net tangible assets conditions: • Xtribe Group LLC / WinVest Acquisition Corp, dated January 14, 2025 • Four Leaf Acquisition Corp / Xiaoyu Dida Interconnect International Limited, dated December 17, 2024 • Compass Digital Acquisition Corp / EEW Renewable Ltd, dated October 22, 2024 • Angel Studios Inc / Southport Acquisition Corp, dated September 11, 2024 • Indiev, Inc / Malacca Straits Acquisition Company Limited, dated September 26, 2022 • Spinal Stabilization Technologies LLC / Blueriver Acquisition Corp, dated July 24, 2023 • SCHMID Group / Pegasus Digital Mobility Acquisition Corp, dated May 31, 2023 • VinFast Auto Pte Ltd / Black Spade Acquisition Co, dated May 12, 2023 • EVIE Autonomous Automotive Ltd / Bannix Acquisition Corp, dated April 21, 2023 • SVES / Relativity Acquisition Corp, February 13, 2023 Minimum Cash Closing Condition Parties also include minimum cash as a condition to closing to trigger additional financing obligations (i.e., private placements) to satisfy the minimum cash threshold once redemptions, liabilities and transaction expenses are taken into account. The minimum cash threshold amount varies by transaction and is tailored to the deal depending on industry, project near-term obligations, working capital needs, and the availability of other financing arrangements. The following links are examples of de-SPAC transactions with minimum cash conditions: • Coliseum Acquisition Corp / Rain Enhancement Technologies Inc, December 31, 2024 • PowerUp Acquisition Corp / Aspire Biopharma Inc, December 13, 2024 • Venhub Global Inc / Target Global Acquisition I Corp, dated December 2, 2024 • Compass Digital Acquisition Corp / EEW Renewable Ltd, dated October 22, 2024 • Spinal Stabilization Technologies LLC / Blueriver Acquisition Corp, dated July 24, 2023 • SCHMID Group / Pegasus Digital Mobility Acquisition Corp, dated May 31, 2023 • VinFast Auto Pte Ltd / Black Spade Acquisition Co, dated May 12, 2023 • Above Food Corp / Bite Acquisition Corp, dated May 1, 2023 • Starton Therapeutics Inc / Healthwell Acquisition Corp I, dated April 27, 2023 • Vast / Nabors Energy Transition Corp, dated February 14, 2023 Case Law and Statutes • Delman v. GigAcquisitions3, LLC, 288 A.3d 692 (Del. Ch. 2023) • 26 Cap. Acquisition Corp. v. Tiger Resort Asia Ltd., 309 A.3d 434 (Del. Ch. 2023) • Kusnier v. Virgin Galactic Holdings, Inc., 693 F. Supp. 3d 350 (E.D.N.Y. 2022) Click here to see recent examples of de-SPAC transaction agreements in Market Standards—M&A, the searchable database of publicly filed M&A deals from Practical Guidance that enables users to search, compare, and analyze its comprehensive database of transactions using over 150 detailed deal points to filter search results. You can customize this search to your needs by adding filters or modifying the search criteria. For related practice notes, see Covenants in Acquisition Agreements, Conditions to Closing in Acquisition Agreements, M&A Provisions Resource Kit, Public Merger Transaction Resource Kit, and Private Merger Transaction Resource Kit. For related clause, see Trust Account Representation (De-SPAC). For related templates, see Agreement and Plan of Merger (De-SPAC) (Neutral) (DE).