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, 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.

1 Comment

DanaHShultz

December 16, 2010 at 6:47 pm

Adding to Naomi’s answer:

This issue should have been addressed in you employment agreement.

In my experience, executives typically request – and companies typically agree – that in the event of a merger or other “change of control” (a topic for discussion in and of itself), if the options do not carry over to the merged / new entity, then vesting of all unvested options accelerates, giving the executive an opportunity to exercise the options before they disappear.

DanaHShultz
December 16, 2010 at 6:47 pm

Adding to Naomi’s answer:

This issue should have been addressed in you employment agreement.

In my experience, executives typically request – and companies typically agree – that in the event of a merger or other “change of control” (a topic for discussion in and of itself), if the options do not carry over to the merged / new entity, then vesting of all unvested options accelerates, giving the executive an opportunity to exercise the options before they disappear.