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Facebook's Elite Cash In But Other Insiders Must Wait

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Mark Zuckerberg and other elite Facebook insiders are cashing in on their shares while demand for the social network  is at a frenzy. This week we discovered that bankers will unleash Facebook shares at a higher price ($34 to $38 a share) than previously planned and that smart money insiders intend to sell more shares.

Yesterday Facebook announced in a S-1 that it had upped the amount of equity it could sell on its Friday IPO to a possible total of 484,418,657 shares. Executive officers and directors (which includes Zuckerberg, Sheryl Sandberg, Marc Andreessen, Jim Breyer, Peter Thiel and others ) could sell a total of 189,369,144 (or $7.2 billion if it goes off at the top of the price range).

Who's taking more chips off the table? My colleague Eric Savitz broke it down for us:

  • Tiger Global upped the  number of shares it will sell to 23.4 million, from 3.4 million.
  • Mail.ru upped its planned sale to 19.6 million from 11.3 million.
  • Accel Partners now plans to sell 49 million shares, up from 38.2 million.
  • DST Group will sell 45.7 million shares, up from 26.3 million.
  • Goldman Sachs will sell 28.7 million shares, up from 13.2 million.
  • Greylock will sell 7.6 million shares, up from 7 million.
  • Peter Thiel will sell 16.8 million shares, up from 7.7 million.

These investors can turn their paper gains into hard cash. But insiders who don't sell on Friday--and rich investors who bought shares of Facebook on secondary markets (like SecondMarket and SharesPost) have to wait a lot longer to cash out.

As I wrote on March 29th, current stock holders who aren't selling this Friday will be locked in for an additional 180 days before they can unload shares.

An insider pointed out that if you buy Facebook shares on the private market, you’ll have to hold them for 180 days after the IPO date–that’s everyone, not just employees. It says so here on page 145 of the March 27, 2012 S-1. It’s a mess of legalese (I included it at the bottom of the post*) but a source tells me it basically means no selling allowed until six months after the IPO.

It could be along wait. The hype is hot and the bar is high. Current Facebook shareholders will have to endure at least one quarterly report before they get liquid. If Facebook disappoints many paper gains (especially for accredited  investors who bought shares on private markets for about $40 a pop) could turn into real losses.

(Follow me on Twitter at @StevenBertoni)

*Lock-Up Agreements and Market Standoff Provisions

Our officers, directors, employees, and substantially all of our stockholders have agreed with the underwriters or us, not to dispose of any of our common stock or securities convertible into or exchangeable for shares of our common stock for specified periods of time after the date of this prospectus, except with the prior written consent of Morgan Stanley & Co. LLC or us, as applicable. Under the terms of their lock-up agreements with the underwriters, the selling stockholders, other than Mr. Zuckerberg, are eligible to sell up to                      shares of our common stock in the aggregate on the date that is 91 days after the date of this prospectus, up to                      shares of our common stock in the aggregate on the date that is 181 days after the date of this prospectus, and the remaining shares of our common stock held by them 211 days after the date of this prospectus. Under the terms of their lock-up agreement with the underwriters, our directors, our executive officers, and certain stockholders not selling shares in this offering are eligible to sell shares of our common stock 181 days after the date of this prospectus. All other holders of our common stock, RSUs and options have previously entered into market standoff agreements with us not to sell or otherwise transfer any of their common stock or securities convertible into or exchangeable for shares of common stock for a period that extends through 180 days after the date of this prospectus. In addition, Mail.ru Group Limited and DST Global Limited and their respective affiliates have entered into an agreement with us to not sell their shares for certain periods of time ranging from six to 18 months following the date of this prospectus. See “Related Party Transactions—Conversion Agreement” for additional information about this agreement.