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Hi All,

My apologies if this isn't the right place for this posting.

Just curious if anyone out there knows what typically happens to accumulated employee stock options after the employee's company has been taken over. Are the options transferred to the new stock, or are they just wiped out??? If they are transferred, is this typically good for the stock or bad?

Many thanks in advance,
MB
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MB Wrote:
Hi All,

My apologies if this isn't the right place for this posting.

Just curious if anyone out there knows what typically happens to accumulated employee stock options after the employee's company has been taken over. Are the options transferred to the new stock, or are they just wiped out??? If they are transferred, is this typically good for the stock or bad?

Many thanks in advance,
MB


Probably not the right place, but I couldn't tell you where the right place is. So, let's go with it!

I DID go through this once, so I can only relate that experience. I would guess that what happens to the employee's options is totally controlled by the parties negotiating the acquisition. When my non-public company was acquired, they negotiated an option ratio. EVERY employee had to sign off on their new option contract (and associated employee agreement). So, in my case, my N worthless options in company A were converted to Y worthless options in company B, complete with a new vesting schedule. I'm sure that there are plenty of other alternatives that are possible, including having the options bought outright, terminated completely (who's gonna sign off on that?), etc.

I would guess the good or bad of it would depend on which stock you were talking about and the value of the acquisition as a whole. The process I went through was dilutive. But, had it turned out to be a highly profitable acquisition, it may have outweighed the dilution.

SO, the short answer to your questions are yes & maybe. ;)

Hopefully, someone smart will answer you too!
--Chris
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Just curious if anyone out there knows what typically happens to accumulated employee stock options after the employee's company has been taken over.

The employee stock options are granted under one or more employee stock option plans that generally have to be approved by the company's shareholders. Approval for publicly traded companies is typically a rubber-stamp vote on a management sponsored proposal that appears on the proxy statement for the annual meeting.

Each employee stock option plan will specify what happens to the options in the event of a change in control of the company. It is typical for unvested options to vest immediately upon change in control. Unexercised options may be settled in cash or converted to options in the acquiring company's stock based on the terms of a stock swap merger; what happens depends on the nature of the acquisition and the terms of the employee stock option plan. It is theoretically possible for an employee to have options granted under two different plans, with one plan settling in cash and the other converting to the new owner's stock.

If you were granted employee stock options, you should have received a copy of the employee stock option plan with the first block you were granted. You may have been given another copy with each additional block of options you were granted. If you can't figure out what happens from reading the plan, you should be able to ask your HR compensation people to find out for you.

Patzer
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