Piggyback Registration is a weaker form of registration than Demand Registration Rights for Investors. If a Company is carrying out an IPO or going through the registration process of common stock, an Investor with Piggyback Registration rights can “piggyback” off the Company and have their unregistered stock registered, too.
It is weaker than Demand Registration rights because here, Investors must wait for the Company to initiate registration. It is also up to the Company to bear the registration costs if an Investor chooses to invoke their Piggyback Registration rights.
Common negotiated terms when discussing Piggyback Registration include:
Whether underwriters can cut back Investors’ shares when registration occurs. Negotiated terms in registration rights are somewhat flexible, as companies rely on experts at the time of actual registration to adjust. However, full power for an underwriter to slash all Piggyback Registration rights would not be good for an Investor. So, many Investors typically negotiate a floor that underwriters cannot go below: here, 20-30% of the offering;
Whether founders and management can also have Piggyback Registration rights; and
Which Investors’ shares will be at the front of the line to be included in the offering. The ones at the end of the line will be the first cut.
Term Sheet Language: The holders of Registrable Securities will be entitled to “piggyback” registration rights on all registration statements of the Company, subject to the right, however, of the Company and its underwriters to reduce the number of shares proposed to be registered to a minimum of [20-30]% on a pro rata basis and to complete reduction on an IPO at the underwriter’s discretion. In all events, the shares to be registered by holders of Registrable Securities will be reduced only after all other stockholders’ shares are reduced.