Underwriting Arrangements – What are lock-up agreements? (35)

similar disclosures. Each underwriter has its own form of indemnification provision and, in light of the importance of this section, underwriters are usually reluctant to make changes to that provision. It should be noted that the SEC has a long-standing position that indemnification for Securities Act liabilities is unenforceable and against public policy.
What are lock-up agreements?
To provide for an orderly market and to prevent existing shareholders who may have owned the shares long enough to have freely tradable shares from dumping their shares into the market immediately after the IPO (and indicating a lack of trust in the future of the company), underwriters will require the company as well as directors, executive officers and large shareholders (and sometimes all pre-IPO shareholders) to agree not to sell their shares of common stock, except under certain limited circumstances, for a period of up to 180 days following the IPO, effectively “locking up” such shares. Exceptions to the lock-up include issuances of shares in acquisitions and in compensation- based grants. Shareholders may be permitted to exercise existing options (but not to sell the underlying shares), transfer shares to family trusts, and sometimes to make specified private sales, provided that the acquiror also agrees to be bound by the lock-up restrictions. Lock-up exceptions can be highly negotiated.
What is FINRA and what are its requirements?
FINRA is the largest non-governmental regulator for all securities firms doing business in the United States. It was created in July 2007 through the consolidation of the National Association of Securities Dealers and the

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