What is a pre-closing lock-up provision?
In a lock-up arrangement, the seller gives a prospective buyer an option to purchase certain of the seller’s stock or assets as a way to entice the buyer to enter into and progress negotiations. In a stock lock-up, the bidder receives an option to purchase authorized but unissued shares of the seller or an option to purchase the shares of one or more large stockholders. The bidder then holds this option through the course of the transaction. If another party outbids the first bidder holding the option, the first bidder may realize a profit by exercising the option and tendering the shares at the higher price. Also, the first bidder could exercise the options for shares and vote them in favor of his bid. Courts look upon stock lock-ups with disfavor if they impede competitive bidding and thereby prevent the stockholders from getting the best price. An asset lock-up, often referred to as a “crown jewel” lock-up, involves a grant by the selling company of an option to acquire a particular
