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Initial Public Offerings, Lockup Agreements
Lockup agreements prohibit company insiders—including employees, their friends and family, and venture capitalists—from selling their shares for a set period of time. In other words, the shares are "locked up." Before a company goes public, the company and its underwriter typically enter into a lockup agreement to ensure that shares owned by these insiders don’t enter the public market too soon after the offering.
If you are considering investing in a company that has recently conducted an initial public offering, you should determine whether the company has a lockup and when it expires. This is important information because a company’s stock price may drop in anticipation that the lockup shares will be sold into the market when the lockup ends.
To find out whether a company has a lockup agreement, you can contact the company’s shareholder relations department to ask for its prospectus or use the SEC’s EDGAR database if the company has filed its prospectus electronically. For companies that do not file on EDGAR, you can contact the SEC’s Public Disclosure Office. There are also commercial websites you can use for free that track when companies’ lockup agreements expire. The SEC does not endorse these websites and makes no representation about any of the information or services contained on these websites.
Source: Securities and Exchange Commission