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My company stock option plan contains the following language:

In the event that the company is subject to an Acquisition, outstanding awards acquired under the plan shall be subject to the agreement evidencing the Acquisition .... Such agreement, without the Participant's consent, shall profide for one or more of the following ...

(x) The cancellation of outstanding awards in exchange for no consideration.

This language would appear to allow the company to simply wipe out all vested options that haven't been exercised before the acquisition. I hope that's not true. In my research I've found lots of pages that say things like:

in this case, your company informs you well in advance of the cancellation of existing employee stock options and gives you a window of time in which you may exercise the options that have already vested.

or

Your company cannot terminate vested options, unless the plan allows it to cancel all outstanding options (both unvested and vested) upon a change in control. In this situation, your company may repurchase the vested options.

None of these are particularly reassuring and none of those pages back this up with citations or anything that convinces me the authors actually know what they are talking about. Both companies are public, listed on the NYSE and NASDAQ respectively. I could exercise the options before the acquisition but I would need to come up with the exercise cost, which I would rather not do.** Aside from coming up with the cash, I don't actually know if the company will be acquired -- it's just rumors at this point.

What does the law and the SEC allow?

**Yes, I am aware of exercise-and-sell-to-cover, but I can't use that because I am not allowed to trade except in narrow windows due to my position. I don't really have access to MNPI but I might be exposed and the company is conservative in that regard. (Adding this to the question because my "reputation" doesn't allow me to reply to comments.)

2
  • so TBTC the company is already a well-known company listed on the NYSE?
    – Fattie
    Feb 14, 2021 at 11:43
  • 1
    Regarding "I would need to come up with the exercise cost", note here: "when you hold options with significant value, brokers are more than happy to do an exercise-and-sell where they lend you the exercise amount for a small fee, given your agreement to immediately sell enough of the stock to pay them back."
    – nanoman
    Feb 15, 2021 at 3:43

1 Answer 1

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There can be no "Authoritative Answer" here on Stack Exchange : Corporate laws vary between countries & times & companies & what the Acquisition Details are & ETC.

I would presume that the Corporate lawyers have already complied with local laws when making your Individual Agreement & the Acquisition Agreement.

Listing on NYSE & NASDAQ will have some guidelines & checklists which Corporate lawyers would have complied with.
SEC would have checked things out.

At high level , this is the outline of what we can presume.

When we consider restricted stock units :

When Company A awards you restricted stock units (say 100) & says that you will get 25% at the end of each year , it is trying make you stay with Company A for 4 years.

When you stay for a year , you get 25%.
When you stay for one more year , you get 25% , which is 50% cumulatively.
If you leave after 11 more months , you will get nothing more.
If Acquisition occurs , and your stock agreement had the line you gave "without consent , we can terminate the agreement" , then the Acquirer [ Company B ] can terminate it without consent.
That is because the Acquisition Agreement ( between Company A & Company B ) might include terminating certain Departments ( including yours ) or certain Employees ( including you ) & hence you will not be there to complete a year to get 25% more.
No way the Acquisition is going to get blocked just because few Employees are waiting to get restricted stock units shortly !
Thus , Company B will decide whether to continue with the award or not. It might or might not negotiate a new agreement with you.
You will still have the vested 50% Company A stocks ( might be converted to Company B Stocks ) , the unvested 50% may or may not continue.

When we consider stock options :

Company A is making some agreement with you , that you can buy the stocks @ X cost & some time Y.
At time Y , if the Stock Price is considerably higher than X , you will buy , else you will ignore it. It was some option to you.
The agreement could also be like a Percentage Discount Z%.
At time Y , what-ever the Stock Price , you can buy at a Discount , at your option.
In that Case , you can buy & sell to get Z% Profit , though there may be other charges.

When Company B acquires , there may or may not be some Clause [ between Company A & Company B ] to honour existing stock option awards.
Provided your Employment continues , according to the Acquisition Agreement , that Clause will control whether you can use the options or not. Without that Clause , Company B may or may not use your earlier agreement to terminate the options.
The Company A stocks may not even Exist , having been converted to Company B Stocks.

You will still have the Company A stocks ( might be converted to Company B Stocks ) your bought earlier , the unexcersied options may or may not continue.

"BOTTOM-LINE"

I would presume that the Corporate lawyers have already complied with local laws when making your Individual Agreement & the Acquisition Agreement.

When your agreement with Company A states it can terminate without your consent , then you have no control. When Company B retains your Department ( or at least you ) & it honours the awards concerning restricted stock units or stock options , you can use it. Else you can not use it.

What stocks you have bought & what restricted stocks you own will continue , though Company A Stocks might be converted to Company B Stocks at Acquisition Agreement ratio calculation. What restricted stocks you would have got & what stocks you might have been able to buy may or may not be available after the Acquisition. You might or might not have some new Individual Agreement.

[[ POST SCRIPT : A lot of time has gone by ( more than 30 months ) , you would know what actually occurred in your Case !! ]]

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