Lock-up Agreements
At the time of a public offering, underwriters typically require insiders and early investors to sign a so-called lock-up agreement that prohibits them from selling shares for a specific period of time, often 180 days. The underwriter requires such lock-up agreements in order to prevent insiders from dumping the stock from a public offering and driving down the price before the market has had time to value the shares. Issuers are required to disclose lock-up provisions in all registration documents, including the prospectus. Lock-up provisions do not prohibit insiders from buying more shares of the company.
Lock-up provisions are not governed by federal securities laws, and underwriters may waive lock-up provisions. Upon lock-up expiration share prices typically drop, often dramatically, as the supply of available shares expands.
In addition, there is a black-out period for the lead manager or co-manager of an offering. Lead managing firms cannot publish research reports 15 days before or after the expiration of a lock-up agreement. Nor can research analysts that work for the lead manager/co-manager make public appearances 15 days before or after the expiration of a lock-up period. This r