Here’s an example of a commonly overlooked provision in a term sheet coming into play. Recently, news broke that there was a “loophole” in GoPro’s lockup provision, and the company’s shares subsequently tumbled almost 13%.
What is a lockup provision? A lockup provision is an agreement that the shareholders will not sell their shares for a specified period of time—often 180 days—following a company’s initial public offering. The point of the lockup provision is to keep existing shareholders from flooding the market and depressing prices in the company’s offering. There are two primary types of lockup agreements. The first is an agreement between the investors and the company during a private offering.
A standard industry term sheet has the following lockup provision: