What are my options?

January 16, 2008 11:46 AM

What usually happens to vested stock options when a private company buys a public company (or a part of the company)?

Publicly held parent company is looking to sell my division to a private company. I have vested stock options, some underwater, some not. Can I count on being compensated from either company for the vested options? Would I only be compensated for options that are currently above the strike? What's the likelihood that I could end up with no compensation?

posted by tdischino to work & money (6 comments total)

I'm not sure what the requirements are, but they'll probably make an effort to compensate you, unless they want all of the employees of their new division to quit.

You really should ask your HR person about this stuff. They can give you a much more specific answer than anyone here can.
posted by aubilenon at 12:01 PM on January 16, 2008

Considering that not every situation like this is going to have the same results, I guess I was looking for anecdotal experiences to see what various scenarios have played out for others.
posted by tdischino at 12:50 PM on January 16, 2008

Look for an accelerated vesting clause in your options agreement. The options agreement I recently received from my current employer includes an accelerated vesting clause that advances my options to 100% if the company gets acquired. This isn't typical, but most places will have acceleration clauses that advance the vesting by a year.
posted by Nelsormensch at 1:31 PM on January 16, 2008

This isn't a situation where the options are effectively immaterial or unvested, the options I have are all vested, but not all of them are above the strike price. In real world situations, what have people seen in regard to compensation for vested options (market price of the stock on the day the sale occurs? n% on the dollar?)
posted by tdischino at 1:44 PM on January 16, 2008

They probably can't take stock options away from you - that's part of your compensation plan. However, you may be forced to exercise at the sale price. So if the negotiated sale price is $15 per share and you are holding options with $10 strike price and $20 strike prices, your $20s are worthless and you net out $5 for your $10s.

I believe this is the most likely scenario, but it all depends on what your company's shareholders (read: not you when you only hold options) agree to as conditions of the sale.
posted by uaudio at 2:04 PM on January 16, 2008

The rights you have with your options are usually delineated contractually, so there is probably no special law you can look to to see what happens. Likely, the answer will be in the incentive agreement which authorizes the issuance of options to employees and it will also likely be in the options agreement itself. Often, there are change of control provisions in such plans which indicate what happens to the options if certain conditions come into being, such as the sale of substantially all the assets or a merger or acquisition. The Board of Directors or some subcommittee also often has adjustment powers where they can reduce or augment the number of underlying shares or change the strike price of the options if they believe it will bring it more in line with the intent of the incentive (but that usually only applies to unvested options).

If options are underwater, you may completely lose them unless there is some provision that specifically deals with that scenario. Getting nothing for underwater options is not uncommon. The company may decide to compensate you for them as some condition of the transaction, but there is no guarantee. For your vested options, there may be a clause that requires you to exercise them within a certain time period after a change in control.

Ask your benefits person or HR for a copy of your options agreement and the incentive plan under which they were issued. They usually aren't especially complicated and a lay person can decipher them. Look for change in control provisions and see whether the transaction triggers them.
posted by Falconetti at 5:36 PM on January 16, 2008