Lock Up Agreements

When a company is preparing for a public offering, underwriters often require certain employees to sign "lock up agreements." The purpose of these agreements, typically, is to prevent executives from selling a large number of shares at the time of the IPO, which in turn could decrease the value of the shares being offered by the underwriter.

Lock up agreements are usually the subject of negotiation between the company and the underwriter. They can also be the subject of negotiation between individuals, the company, and the underwriter. Sometimes, an executive or shareholder might enter a lock up agreement different (and more or less favorable than) the agreement being proposed to others.