Underwriting Agreement Lock Up

Prior to the IPO, some of Lead Underwriter`s subsidiaries owned Facebook shares, but lead underwriters together owned less than 10% of Facebook shares. For this reason, lead underwriters have not fallen within the scope of section 16(b). However, the complaint asserted that, when entering into lock-up agreements, lead underwriters and pre-IPO shareholders constituted a “group” falling within the scope of Section 16(b) by counting shares advantageously held by lead underwriters and pre-IPO shareholders. According to the applicant`s theory, because that so-called “group” held more than 10% of Facebook shares, the lead underwriters, as members of the “group”, were prevented from benefiting from the short swing operations that took place in the days immediately following the IPO. Interestingly, some of these studies have shown that staggered locking agreements can actually have a negative impact on a more negative action than those with a single expiration date. This is surprising, as staggered lock agreements are often seen as a solution for post-lock-up dip. Before a company can go public, sub-writers require insiders to sign a lock-in agreement. The objective is to maintain the stability of the company`s shares in the first months following the offer. The practice provides for an orderly market for the company`s shares after the IPO. It gives the market enough time to discover the true value of the stock. It also ensures that insiders continue to act in accordance with the company`s objectives. Lock-in agreements are important for investors because conditions can influence the share price.

When lock-ups expire, limited people can sell their shares. If a significant number of insiders lose weight, it can lead to a dramatic drop in stock prices. The lock-in agreement may contain additional clauses that limit the number of shares that can be sold for a certain period of time after the lock-in agreement expires. Such clauses help to avoid a significant drop in share prices, which may result from a considerable increase in supply. Lock-in agreements are supposed to protect investors. The lock-in agreement attempts to avoid a scenario in which a group of insiders makes an overvalued company public and wipes it off investors, depriving profits. . .


October 12, 2021

More to Love: