Voluntary Lock-Up Agreements

From a regulatory perspective, lockout agreements should help protect investors. The scenario that aims to avoid the lockout agreement is a group of insiders who take over an overvalued corporate audience and then throw it at investors as they flee with the revenue. For this reason, some Blue Sky laws still have blockages as a legal requirement, as this has been a real problem during several periods of market exuberance in the United States. Investors need to know if there is a blocking agreement, as the likelihood of a price crash after the locking contract expires is high. Similarly, business leaders and some employees may have benefited from stock options as part of their employment contracts. As with VCs, these employees may be tempted to exercise their options and sell their shares, as the company`s IPO price would almost certainly be well above the exercise price of their options. A blocking agreement is a contractual clause that prevents a company`s insiders from selling their shares for a specified period of time. They are often used in the IPO. In the event of the sale of a controlling interest, the purchaser must temporarily consent to a blocking clause. It prohibits the resale of assets or shares for the duration of the agreed suspension period. This measure is intended to maintain price stability for other stakeholders. The blackout periods usually last 180 days, but can sometimes last up to 90 days or a year.

Sometimes all insiders are “blocked” for the same period. In other cases, the agreement will have a staggered blocking structure, in which different insider classes will be blocked for different periods. Although federal law does not require companies to use blackout periods, they can still be imposed by state blue sky laws. A blackout period usually lasts 180 days or six months, but can last between four months and a year. Since there are generally no federal laws On Markets and Stock Market Supervision (SEC) The Securities and Exchange Commission (SEC) is an independent authority of the U.S. federal government, which is responsible for the implementation of federal securities laws and the proposed securities rules. It is also responsible for maintaining the securities industry and stock exchanges and options for lockout agreements, with the decision on the duration generally made by the insurer. Even if there is a blocking agreement, investors who are not insiders of the company may be affected as soon as this blocking agreement exceeds the expiry date. When the blockages expire, the company`s insiders will be able to sell their shares. If many insiders and venture capitalists are looking for an exit, this can lead to a dramatic fall in the price due to the huge offer of shares. A lock-in, lock-in or lockout period is a predetermined period after an IPO in which large shareholders, such as corporate executives and investors representing major syzudes, are excluded from the sale of their shares. In general, a blackout period is a condition for the exercise of an employee action option.

According to the company, the IPO ban period is generally between 90 and 180 days before these shareholders are granted the right, but not the obligation to exercise the option. Before a company can go public, insurers require insiders to sign a blocking agreement. The objective is to obtain the stability of the company`s shares in the first few months following the offer. The practice offers an orderly market in the company`s shares after the IPO. It leaves enough time for the market to determine the true value of the stock. It also ensures that insiders continue to act in accordance with the company`s objectives. Lock-ups are designed to prevent insiders from liquidating assets too quickly after a company went public.