The Treatment of Stock Options in the Context of a Merger or Acquisition Transaction


A principal issue in merger and acquisition transactions is whether, and to what extent, outstanding options will survive the completion of the transaction and whether and when the vesting of options will be accelerated. It is critical for a properly drafted equity incentive plan to include clear, unambiguous provisions for the treatment of outstanding awards in connection with these types of transactions, which include a company’s consolidation with or acquisition by another entity in a merger or consolidation, or a sale of all or substantially all of a company’s assets (hereinafter referred to as a “Corporate Transaction”).

Whether a change of control of a company should provide for accelerated vesting is a business decision and a separate and distinct issue from the impact the Corporate Transaction will have on the outstanding options. Equity incentives have significant implications in the negotiation of a Corporate Transaction, as their treatment can affect the value of the Corporate Transaction and the consideration to be received by stockholders.

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