6.5.5: Note on Lockups

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Abstract

The underwriters are not parties to the agreement, but counsel who have been through the mill understand what the underwriters want and, indeed, demand. Piggyback (and sometimes demand) provisions, accordingly, routinely provide that the underwriters can cut down-"haircut"-the amount of stock included by secondary sellers. Moreover, demand rights are not exercisable for some period (usually three to six months) before a planned primary offering or for, say, a year thereafter in order to avoid multiple offerings at the same point in time; this is often called the "stand-aside" or "stand-off' provision.[1] Finally, at the request of the underwriters, all investors who are party to the registration rights agreement, or at least all significant investors, may be asked to agree to "lock up," that is, not to sell shares under Rule 144, for a period of 180 days after a primary registration becomes public. These provisions are