![]() ![]() Special Considerationsįrom the regulatory point of view, these agreements are there to protect investors. These employees may also be enticed to exercise their options and sell their shares as the price of the IPO will be more than the exercise price of their options. Similarly, stock options may be given to company executives and certain employees as part of their employment agreements. So, to realize the gain on their initial investment, they may have a strong incentive to sell their shares. ![]() Early investors such as VC firms could be some of these insiders who bought into the company when it was worth significantly less than its IPO value. The main objective of a lock-up agreement is to prohibit company insiders from discarding their shares to new investors after the initial months of an IPO. These can be obtained by contacting the company’s investor relations department or by using the Securities and Exchanges Commission’s (SEC) Electronic Data Gathering, Analysis, and Retrieval (EDGAR) database. ![]() The prospectus documents of a company always disclose the details of a company’s lock-up agreements. In other cases, different classes of insiders are locked out for different periods of time. It is possible for all insiders to be locked up for the same period of time. Such agreements usually last for a period of 180 days but can occasionally go on for 90 days or even a year long. In order to prevent excessive selling pressure in the initial months of trading following an IPO, the underwriters require executives, venture capitalists, and other company insiders to sign lock-up agreements. Generally, they are a part of the initial public offering process. A lock-up agreement is a provision in an agreement that prohibits or restricts the selling of shares by insiders of the company for a specified period. ![]()
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