Piggyback Rights . . .
are contractual rights that entitle investors to
register and sell their shares of company stock whenever the company
conducts a public offering. Unlike demand rights, piggyback rights do
not entitle investors to require a company to conduct a public
offering but, rather, allow them to include shares in a registration
that is initiated by the company.
Piggyback rights usually appear as provisions in a
financing agreement, an investor rights agreement or a registration
rights agreement. Piggyback rights are common in venture financings.
Because share registration is often necessary to permit the sale of
stock to the public, registration rights give investors a way to cash
out all or a part of their investment. Most venture capitalists insist
on them as a condition to providing funding.
Piggyback rights should be evidenced in a written
agreement to be sure an underwriter will honor them. If management
wants piggyback rights, these too should be reflected in a written
agreement. Except for certain fees required by various state
securities law administrators to be shared by all selling
shareholders, companies usually bear the cost of investors exercising
piggyback rights. See: Cashing Out (or
In), Demand Rights,