Lock-Up Agreement
For Informational Purposes Only
A comprehensive stockholder lock-up agreement for IPOs and M&A transactions — with structured early-release provisions, price-based release triggers, and pro rata release options.
What This Agreement Does
A Lock-Up Agreement is a legally binding contract between a company and its stockholders that restricts the stockholder from selling, transferring, or otherwise disposing of company shares for a specified period — typically following an IPO or a major corporate transaction like an acquisition. The agreement protects market stability by preventing a flood of insider shares from hitting the market immediately after a liquidity event.
This template is designed to work for both IPO lock-ups (where underwriters require directors, officers, and significant stockholders to agree not to sell shares for a period after the public offering) and M&A lock-ups (where founders and key stakeholders receiving acquirer stock agree to hold for a specified period post-closing). It includes bracket alternatives so you can adapt it to either context.
The agreement covers six substantive sections: the lock-up commitment and prohibited activities (Section 1), permitted exceptions including estate planning and tax-driven transfers (Section 2), market standoff and stop transfer provisions (Section 3), early release and pro rata release mechanics (Section 4), representations and warranties (Section 5), and comprehensive miscellaneous provisions including specific performance remedies (Section 6).
Why Startups Need This Agreement
Underwriter Requirement for IPOs
Investment banks uniformly require lock-up agreements from all directors, executive officers, and stockholders holding more than a threshold percentage of the company’s shares as a condition to underwriting the IPO. Without lock-ups, underwriters won’t proceed — they need assurance that insiders won’t dump shares and crater the stock price before the underwriting syndicate can sell its allocation.
Market Price Stability
The fundamental purpose of a lock-up is to prevent insider selling from overwhelming the market. In a typical IPO, only 10–20% of outstanding shares are offered to the public. If insiders could immediately sell the remaining 80–90%, the resulting supply would collapse the stock price — harming both the company and the public investors who just bought in.
M&A Earnout Protection
In acquisitions where founders receive acquirer stock as part of the purchase price, a lock-up prevents founders from immediately selling and signals continued alignment with the acquirer. This is especially important when the deal includes earnout provisions — the acquirer wants founders focused on hitting milestones, not watching the stock ticker.
Investor Confidence Signal
A lock-up signals to the market that insiders believe in the company’s long-term value. When founders and early investors voluntarily restrict their ability to sell, it tells public investors that those with the deepest knowledge of the business are committed to holding — a powerful confidence signal at a vulnerable moment in the company’s lifecycle.
Key Provisions Explained
Lock-Up Commitment (Section 1)
The core restriction: no selling, pledging, short-selling, hedging, or public announcement of intent to sell during the lock-up period. The prohibition extends beyond simple sales to cover derivatives, swaps, and any economic transfer — preventing stockholders from synthetically selling their position while technically holding shares.
Permitted Exceptions (Section 2)
Eight carve-outs from the lock-up: bona fide gifts, estate planning transfers to family trusts, open market post-IPO purchases, option exercises (but shares remain locked), 10b5-1 plan establishment (without sales), sell-to-cover for tax withholding, court orders, and company/underwriter consent. Each exception includes conditions to prevent abuse.
Stop Transfer Instructions (Section 3)
The company instructs its transfer agent to refuse any transfer of locked-up shares except in compliance with the agreement. This creates a mechanical barrier — even if the stockholder wanted to violate the lock-up, the transfer agent wouldn’t process the transaction. The company may also place a restrictive legend on share certificates.
Early Release Options (Section 4)
Three checkbox options: no early release (standard), price-based early release (a percentage of shares released if stock trades above a threshold), or pro rata release (shares released in scheduled installments). The price-based trigger has become increasingly common in recent IPOs as companies balance investor liquidity with market stability.
Discretionary Pro Rata Release
If the company or underwriters release any other locked-up stockholder early, this provision requires that all locked-up stockholders be released proportionally. This prevents favoritism — management can’t selectively free certain insiders while keeping others locked. It’s a fairness mechanism that protects minority stockholders.
Specific Performance Remedy
The agreement expressly provides for specific performance and injunctive relief — meaning the company can get a court order forcing compliance rather than just suing for money damages after the fact. This is critical because once shares are sold in violation of a lock-up, the market damage is done and money damages are difficult to calculate.
MNPI Compliance (Section 3(c))
A reminder that lock-up restrictions exist alongside — not instead of — insider trading laws. Even after the lock-up expires, insiders who possess material non-public information cannot trade. This provision sets expectations and creates a contractual obligation to comply with securities laws, supplementing the statutory prohibitions.
10b5-1 Plan Exception
Stockholders may establish a Rule 10b5-1 trading plan during the lock-up period — a pre-arranged trading program that automates future sales — provided no actual sales occur during the lock-up. This allows insiders to set up their post-lock-up selling strategy in advance without waiting for the lock-up to expire.
Emerging Provisions (2025–2026)
Structured / Price-Based Early Release
The most significant development in IPO lock-up practice has been the shift from rigid 180-day lock-ups to structured release mechanisms. Companies like Rivian, Coinbase, and others have pioneered “early release” provisions where a portion of locked-up shares (typically 20–25%) become tradeable at 90 days if the stock price exceeds a threshold (often 33% above the IPO price) for a specified number of trading days. This trend reflects recognition that rigid lock-ups can actually increase volatility at expiration — the “lock-up cliff” effect — while structured releases allow for more gradual market absorption.
SEC Rule 10b5-1 Plan Reforms (2023–2025)
The SEC’s December 2022 amendments to Rule 10b5-1 trading plans — which took full effect in 2023–2024 — have materially affected lock-up agreement drafting. Key changes include: a mandatory cooling-off period before the first trade under a new or modified plan (90 days for officers/directors, 30 days for others); a prohibition on overlapping plans; a limit of one single-trade plan per 12-month period; and new Form 4 disclosure requirements. Lock-up exceptions permitting 10b5-1 plan establishment during the lock-up period must now account for these cooling-off periods to ensure plans established during lock-up are effective upon expiration.
Spousal Equivalent & Expanded Family Definition
Following the SEC’s 2020 amendments to the accredited investor definition (which added “spousal equivalent” throughout), lock-up agreements have increasingly broadened the definition of “immediate family” for permitted transfer exceptions to include domestic partners, spousal equivalents, and non-traditional family structures. This template uses an inclusive definition covering relationships by blood, current or former marriage, domestic partnership, or adoption.
SPAC & Direct Listing Lock-Up Variations
SPAC transactions and direct listings have introduced novel lock-up structures. SPAC sponsor lock-ups often have longer periods (12–18 months) with price-based early release triggers. Direct listings — which have no underwriters — typically feature company-imposed lock-up agreements with shorter durations (90–180 days) and more permissive exceptions. Companies considering alternative paths to public markets should adapt lock-up terms accordingly.
Lock-Up Period Comparison by Transaction Type
| Feature | IPO Lock-Up | M&A Lock-Up | SPAC Lock-Up |
|---|---|---|---|
| Typical Duration | 180 days (90–365) | 12–24 months | 6–18 months (sponsors longer) |
| Required By | Underwriters (contractual) | Acquirer (negotiated) | SEC / Exchange rules + contractual |
| Early Release | Increasingly common (price-based) | Rare (milestone-based if any) | Common for sponsors ($12 threshold) |
| Who’s Covered | Directors, officers, 1%+ holders | Founders, key employees receiving stock | Sponsors, insiders, initial stockholders |
| Enforcement | Stop transfer + specific performance | Escrow + stop transfer | Stop transfer + SEC/exchange rules |
How to Use This Template
Related Forms
Disclaimer: This template is provided by Montague Law for informational and educational purposes only and does not constitute legal advice. Lock-up terms are highly negotiated and vary significantly based on the type of transaction, the parties involved, underwriter requirements, and prevailing market conditions. Use of this template does not create an attorney-client relationship. Companies and stockholders should consult with qualified legal counsel before entering into any lock-up arrangement. For legal assistance with your IPO or M&A transaction, contact john@montague.law.