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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