Shares Eligible For Future Sale
Section summary: While not specifically prescribed by SEC regulations, this section is intended to provide investors with information on when additional securities of the issuer may be sold into the market by existing stockholders after the IPO. Immediately following the IPO, only those securities registered on this registration statement on Form S-1 or otherwise eligible for sale pursuant to an exemption from registration (typically limited to securities held by non-affiliates eligible for resale pursuant to Rule 144) may be sold. However, over time, additional securities will become freely saleable, and sales of these securities may adversely impact the trading price of the issuer’s stock and the ability of stockholders to sell down their positions at favorable prices or at all.
SHARES ELIGIBLE FOR FUTURE SALE
Before the completion of this offering, there has been no public market for our Class A common stock. Future sales of substantial amounts of our Class A common stock, including shares issued on the exercise of outstanding options, the settlement of RSUs or upon the conversion of our Class B common stock, in the public market after this offering, or the possibility of these sales or issuances occurring, could adversely affect the prevailing market price for our Class A common stock or impair our ability to raise equity capital.
Based on our shares outstanding as of December 31, 2024, upon the completion of this offering, a total of shares of Class A common stock and shares of Class B common stock will be outstanding, after giving effect to the Reclassification and Exchange. Of these shares, all of the Class A common stock sold in this offering by us, plus any shares sold by on the exercise of the underwriters’ option to purchase additional shares of Class A common stock, will be freely tradable in the public market without restriction or further registration under the Securities Act, unless these shares are held by “affiliates,” as that term is defined in Rule 144 under the Securities Act (Rule 144).
The remaining shares of Class A common stock will be, and shares of Class A common stock underlying outstanding RSUs, or subject to stock options or warrants will be on issuance, “restricted securities,” as that term is defined in Rule 144. These restricted securities are eligible for public sale only if they are registered under the Securities Act or if they qualify for an exemption from registration under Rules 144 or 701 under the Securities Act, which are summarized below. Restricted securities may also be sold outside of the United States to non-U.S. persons in accordance with Rule 904 of Regulation S.
Subject to the lock-up agreements described below and the provisions of Rule 144 or Regulation S under the Securities Act, as well as our insider trading policy, these restricted securities will be available for sale in the public market after the date of this prospectus.
Rule 144
In general, under Rule 144 as currently in effect, once we have been subject to public company reporting requirements of Section 13 or Section 15(d) of the Exchange Act for at least 90 days, an eligible stockholder is entitled to sell such shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. To be an eligible stockholder under Rule 144, such stockholder must not be deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and must have beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then such person is entitled to sell such shares without complying with any of the requirements of Rule 144, subject to the lock-up agreements described below.
In general, under Rule 144, as currently in effect, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell shares on expiration of the lock-up agreements described below. Beginning 90 days after the date of this prospectus, within any three-month period, such stockholders may sell a number of shares that does not exceed the greater of:
- 1% of the number of common stock then outstanding, which will equal approximately shares immediately after this offering; or
- the average weekly trading volume of our common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.
Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.
Rule 701
Rule 701 under the Securities Act (Rule 701) generally allows a stockholder who was issued shares under a written compensatory plan or contract and who is not deemed to have been an affiliate of our company during the immediately preceding 90 days, to sell these shares in reliance on Rule 144, but without being required to comply with the public information, holding period, volume limitation or notice provisions of Rule 144. Rule 701 also permits affiliates of our company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required by that rule to wait until 90 days after the date of this prospectus before selling those shares under Rule 701, subject to the lock-up agreements described below.
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Rule 144
For further insight on Rule 144, see this informational overview and flowchart on Rule 144.
Form S-8 Registration Statements
We intend to file one or more registration statements on Form S-8 under the Securities Act with the SEC to register the offer and sale of shares of our Class A common stock that are issuable under our 2018 Plan, 2025 Plan and ESPP. These registration statements will become effective immediately on filing. Shares covered by these registration statements will then be eligible for sale in the public markets, subject to vesting restrictions, any agreements described below, and Rule 144 limitations applicable to affiliates.
Lock-up and Market Standoff Agreements
We, and all of our directors, executive officers and the holders of substantially all of our common stock and securities exercisable for or convertible into our Class A common stock (including shares of our Class B common stock), have agreed with the underwriters that, until 180 days after this offering, we and they will not, subject to certain exceptions and among other things, without the prior written consent of the representative of the underwriters, directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of any of our shares of Class A common stock, or any securities convertible into or exercisable or exchangeable for shares of our Class A common stock, or enter into any hedging, swap or other arrangement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the securities, whether any such swap or transaction is to be settled by delivery of our Class A common stock or other securities, in cash or otherwise. These agreements are described in more detail in the section titled “Underwriting.” The representative of the underwriters may, in its sole discretion, release any of the securities subject to these lock-up agreements at any time.
In addition to the restrictions contained in the lock-up agreements described above, we have entered into agreements with certain of our security holders, that contain market standoff provisions or incorporate market standoff provisions from our equity incentive plan imposing restrictions on the ability of such security holders to offer, sell or transfer our equity securities for a period of 180 days following the date of this prospectus.
Registration Rights
Upon the completion of this offering, pursuant to our amended and restated IRA, the holders of shares of our Class A common stock, or their transferees, will be entitled to certain rights with respect to the registration of the offer and sale of their shares under the Securities Act, subject to the terms of the lock-up agreements described under the section titled “—Lock-up and Market Standoff Agreements” above. Registration of these shares under the Securities Act would result in the shares becoming freely tradable without restriction under the Securities Act immediately on the effectiveness of the registration. Any sales of securities by these stockholders could adversely affect the trading price of our Class A common stock. See the section titled “Description of Capital Stock—Registration Rights” for additional information.
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IPO lock-ups
The vast majority of companies have a 180-day IPO lock-up period, and underwriters expect all or substantially all stockholders and equity holders to sign lock-up agreements prior to the IPO to create stability in the trading market. Nonetheless, in recent years, we saw a number of tech IPOs find creative and complex ways to determine how and when locked-up shares could be released before the traditional 180 days. Any early lock-up release structures would be described in detail here, and such structures should be carefully considered and discussed early in an IPO process with the underwriters.
Companies should understand what RSUs or other equity awards will vest or settle during this period and consider whether the company will have enough funds on hand to cover withholding taxes associated with those awards. Withholding considerations may impact the provisions under the company’s lock-up agreement and will need to be carefully coordinated with the underwriters. Similarly, companies should be mindful of their planned blackout periods in connection with their reporting timelines as public companies and how that might affect the expiration of the lock-up period, settlement of equity awards and potential sales of pre-IPO stock into the market. Companies should also consider, in close consultation with the underwriters, whether certain holders will be granted unique carve outs or preferential lock-up rights like “pro rata release rights” and assess the ramifications of granting such rights.
More information about lock-ups and early lock-up releases can be found on CapitalXchange: Early Lock-Up Releases: Overview and Trends.
