This practice note provides a comprehensive overview of key considerations for legal counsel involved in private investment in public equity (PIPE) transactions conducted alongside business combinations by special purpose acquisition companies (SPACs). It outlines the context of SPACs, including their structure, market trends, and the role of PIPEs in mitigating redemption risks. This note discusses the importance of engagement letters, timing of announcements, and alternative transaction structures to address market volatility. It emphasizes the need for careful planning around investor commitments, use of convertible instruments, and lock-up agreements. The document also explores the intricacies of wall-crossing procedures, due diligence obligations for placement agents, the implications of proposed SEC rules that may expand underwriter liability, and the importance of keeping current with evolving market standards and regulatory expectations. It highlights the significance of robust diligence by both placement agents and prospective investors, especially given the limited public information on private company targets. The document further addresses the structure and negotiation of PIPE purchase agreements, including representations, warranties, and indemnification provisions. Finally, it discusses registration rights, Rule 144 limitations, and compliance issues specific to SPACs as shell companies, particularly in relation to communication restrictions and the use of free writing prospectuses.
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