If there’s a merger, what will happen to my unvested options?

QUESTION:

I’m an exec at a startup, and there’s a lot of talk about a possible merger. If there’s a merger, what will happen to my unvested options?

ANSWER:

Naomi Kokubo

Naomi Kokubo

by Naomi Kokubo, Cofounder of Founders Space

Anything can happen. They can be canceled, accelerated, or stay on the same vesting schedule. You need to check your stock option agreement. If it’s not specified in your stock option agreement, then it’s up to negotiation.

Many option plans contain a provision that states that if the acquiring party doesn’t assume the option plan and doesn’t keep the options on the same vesting schedule, the options will vest immediately upon the merger.

It’s rare that the unvested options are canceled with no payout to employees. This would be an unwise move in almost all cases.

I hope this helps.

ADDITIONAL ANSWER:

Charles Swan

Charles Swan

by Charles Swan at www.thevirtualcfo.net

Examine your option plan as others have advised.  Also, many companies that are “in play” draft termination agreements for key employees, in order to keep them concentrating on making the Company successful, rather than seeking other employment.  These agreements usually deal with option vesting and severance in addition to other matters.

In many acquisitions, the acquirer will provide new option plans in order to encourage employees that they deem critical focused on making the combined company successful.  They may buy out all outstanding options, regardless of the plan terminology.

Comments & Advice:
  1. I’ll add the following to the two answers:

    Given that you are an exec, this issue should have been addressed in your employment agreement. Have you check to see whether this is the case?

    Disclaimer: This post does not constitute legal advice and does not establish an attorney-client relationship.

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