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I work for a publicly traded company that was acquired by another publicly traded company. I also own shares of "restricted stock units" for my company. All of my shares are scheduled to vest far after the acquisition will be completed.

What typically happens to unvested stock options / restricted stock units during an acquisition?

I'm guessing/hoping that they'll be used to grant me to an equally valued amount of my new employer's stock, with the same vesting date.

This article actually answers most of my question:

There are a number of possible outcomes upon an acquisition. They include but are not limited to: 1) full vesting automatically upon an acquisition, 2) partial vesting upon an acquisition with provision for additional vesting upon termination following an acquisition, 3) partial vesting upon an acquisition with no provision for additional vesting upon termination following an acquisition , and 4) no vesting upon an acquisition with no provision for any acceleration post-acquisition.

Regardless of that answer, I am still curious to hear from anyone else that has gone through this scenario and how it worked out for them, especially if it isn't one of the outcomes described in that article linked above.

EDIT: ---------

According the publicly filed Form 8-K document for the acquisition, I'll be getting a equitable amount of unvested stock with the same schedule. Great!

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3 Answers 3

up vote 6 down vote accepted

This is a great question. I've participated in a deal like that as an employee, and I also know of friends and family who have been involved during a buyout. In short: The updated part of your question is correct: There is no single typical treatment. What happens to unvested restricted stock units (RSUs), unvested employee stock options, etc. varies from case to case.

Furthermore, what exactly will happen in your case ought to have been described in the grant documentation which you (hopefully) received when you were issued restricted stock in the first place.

Anyway, here are the two cases I've seen happen before:

  • Immediate vesting of all units. Immediate vesting is often the case with RSUs or options that are granted to executives or key employees. The grant documentation usually details the cases that will have immediate vesting. One of the cases is usually a Change in/of Control (CIC or COC) provision, triggered in a buyout. Other immediate vesting cases may be when the key employee is terminated without cause, or dies. The terms vary, and are often negotiated by shrewd key employees.

  • Conversion of the units to a new schedule. If anything is more "typical" of regular employee-level grants, I think this one would be. Generally, such RSU or option grants will be converted, at the deal price, to a new schedule with identical dates and vesting percentages, but a new number of units and dollar amount or strike price, usually so the end result would have been the same as before the deal.

I'm also curious if anybody else has been through a buyout, or knows anybody who has been through a buyout, and how they were treated.

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Thanks for the great answer. I dug up my grant docs, and the gist I get from it is that all the described outcomes (here in this question and in the agreement) are possible: a range from the not-so-fair, to the very-equitable, and to the windfall cases. I guess I have to wait and see, unfortunately, as I'm definitely not a C-level or "key" exec employee. –  Mike Apr 20 '10 at 16:25
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Went through a buyout at a software company - they converted my stock options to the new company's stock at the same schedule they were before. (And then offered us a new new-hire package and a retention bonus, just because they wanted to keep the employees around.) –  fennec Apr 25 '10 at 17:40
    
According the "Form-8K" filed with the SEC, I'll be getting an equally valued number of shares of the acquirer with the same vesting schedule. Good to know... now I just have to hope for a good re-hire package...! –  Mike Apr 27 '10 at 21:16
    
What if you can't find any mention of what happens during an acquisition or going public in your grant docs? Could any of the above occur? Is this something that can be decided at the time of acquisition/going public? –  Sean Glover May 31 at 16:04
    
@SeanGlover Absent any mention of the situation, they may just end up honoring the original terms, unless they decide to do better, e.g. accelerate the vesting. IANAL, but I don't think they can unilaterally change the terms of your grant so you're worse off (unless the grant documents said they could unilaterally change the terms of your grant at any time, for any reason.) In any case, somebody finding themselves in a situation such as you describe and where the amounts are material should seek professional advice. –  Chris W. Rea May 31 at 23:45

I've been through two instances where I worked for a public company that was merged (for stock) into another company. In both cases the options I had were replaced with equivalent options in the merged company with the number of shares and strike price adjusted at the same rate as the actual stock was converted, and the vesting terms remained essentially the same. In other words, the options before and after were in essence equivalent.

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I worked for a small private tech company that was aquired by a larger publicly traded tech company. My shares were accelerated by 18 months, as written in the contract. I excercised those shares at a very low strike price (under $1) and was given an equal number of shares in the new company. Made about $300,000 pre tax. This was in 2000. (I love how the government considered us "rich" that year, but have never made that amount since!)

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