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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.

The terms of lockup agreements may vary, but most prevent insiders from selling their shares for a period of 180 days. Lockups may also limit the number of shares that can be sold over a designated period of time. The federal securities laws do not govern the actual terms of lockup agreements, but they require a company employing a lockup to disclose the terms in its registration documents, including its prospectus. At the same time, some states require lockup agreements under their "blue-sky" laws.

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

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