To Cash Out, Or Not To Cash Out: That Is The Question

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When a company is acquired in an all-cash merger, it is commonplace to cancel the stock options granted to employees. In consideration, the holders of the stock options receive the ?intrinsic value? of the options, which is equal to the excess, if any, of the per-share cash consideration paid to the company?s stockholders in the merger less the per-share exercise price of an individual option. As a result, those who hold an option that has a per-share exercise price greater than the per-share cash consideration, a so-called ?out of the-money? option, will receive no consideration in exchange for the option?s cancellation.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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