Piggyback registration withdrawal: Overview, definition, and example
What is piggyback registration withdrawal?
Piggyback registration withdrawal refers to the right of a party to withdraw from a registration process for securities, typically in the context of an initial public offering (IPO) or secondary offering, where they were initially included. In a piggyback registration, a shareholder (such as a private investor or company insider) is allowed to "piggyback" on a primary offering by another company to sell their securities without initiating a separate registration. However, a piggyback registration agreement often includes a provision that allows the offering party to withdraw from the registration process if certain conditions arise. This is usually done if the offering party believes the timing or terms of the registration are unfavorable, or if they prefer not to participate in the offering for strategic reasons.
For example, a company may have agreed to allow a major investor to piggyback on its IPO registration. However, the investor may choose to withdraw from the process if they believe the market conditions aren’t ideal for selling their shares.
Why is piggyback registration withdrawal important?
Piggyback registration withdrawal is important because it gives shareholders flexibility in managing the timing and conditions under which they sell their securities. It protects their interests by allowing them to withdraw from a public offering if they believe it’s not the right time to sell, thus avoiding potential losses or unfavorable market conditions. For companies and underwriters, understanding the withdrawal rights of piggyback registrants is essential to ensure that the offering process goes smoothly and that all participating parties are aligned in terms of timing and strategy. It also allows companies to maintain control over the offering process and adjust their plans accordingly.
Understanding piggyback registration withdrawal through an example
Let’s say a private equity firm owns a significant number of shares in a startup preparing for an IPO. Under the terms of the IPO registration, the firm has a piggyback right, meaning they can sell their shares in the offering. However, after reviewing market conditions, the firm decides that the offering price is too low, and they withdraw their shares from the registration. This withdrawal is allowed because of the piggyback registration withdrawal clause in the agreement.
In another example, a large investor in a company planning a secondary offering has the right to piggyback on the registration to sell their shares. However, the investor chooses to withdraw from the registration when they believe the stock price will increase in the near future, and they prefer to sell their shares later at a higher price.
An example of a piggyback registration withdrawal clause
Here’s how a piggyback registration withdrawal clause might appear in a shareholder agreement or registration rights agreement:
“In the event of a registration under the Securities Act of 1933 in which the Holder has piggyback registration rights, the Holder may, upon written notice to the Company and underwriters, withdraw their shares from such registration at any time before the effectiveness of the registration statement. Such withdrawal shall not affect the rights of other holders of the securities in the offering.”
Conclusion
Piggyback registration withdrawal is an important right that allows shareholders to control the timing and conditions of their participation in a public offering. This flexibility helps protect their financial interests by enabling them to withdraw from the offering if market conditions are unfavorable. For companies and investors, understanding piggyback registration withdrawal provisions is essential for managing the registration process, ensuring that all parties are aligned with the offering's objectives, and maintaining strategic flexibility.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.