Lock Up Option Law and Legal Definition

Lock up option is a stock-sale or asset-sale offer by a takeover-target firm to a friendly acquirer (the white knight) to frustrate a hostile acquirer (the black knight). An option is given to the white knight, to purchase selected subsidiaries of a target company which may be exercised only if the merger is not completed between the white knight and the target company. This offer for the sale of the major assets (the crown jewels) or controlling shares is attractively priced but freezes (locks-up) the assets or shares so that they cannot be resold without the target firm's approval. The target company gives the lock up option to a white knight to discourage a hostile takeover.

Lock up option is also called lock up agreement, lock up clause, lock up defense, or lock up provision.