Stock options: what happens if I leave a company and then an acquisition is finalized?
"When you exercise your options, you come up with cash to buy the shares. This makes you an owner of the company for shares at the share price your options let you have. Ideally, your share price is at a significant discount to what the company is worth. Being a shareholder, you gain from any share price appreciation in a sale. The only thing the ""60-day window"" applies to is whether you come up with the cash to buy fast enough, or your shares get permanently deleted from the company finances, where everyone else potentially makes more, you make nothing. The sale of the company is based on whenever the sell finalizes, which is between your company and the acquiring company." Having stock options means that you have worked for and rightfully earned a part of the company's capital appreciation. Takeover of the company would indicate someone is interested in the company (something should be valuable). It would be unwise to not strike before the period lapses since the strike price is always lower than market price and takeovers generally increases stock values ... it is capital gains all the way my friend. Good luck. *observations not in professional capacity. pls consult a professional for investment related advice.
"This is a great question.  I've participated in a deal like that as an employee, and I also know of friends and family who have been involved during a buyout.  In short:  The updated part of your question is correct: There is no single typical treatment.  What happens to unvested restricted stock units (RSUs), unvested employee stock options, etc. varies from case to case. Furthermore, what exactly will happen in your case ought to have been described in the grant documentation which you (hopefully) received when you were issued restricted stock in the first place. Anyway, here are the two cases I've seen happen before: Immediate vesting of all units.  Immediate vesting is often the case with RSUs or options that are granted to executives or key employees.  The grant documentation usually details the cases that will have immediate vesting.  One of the cases is usually a Change in/of Control (CIC or COC) provision, triggered in a buyout.  Other immediate vesting cases may be when the key employee is terminated without cause, or dies.  The terms vary, and are often negotiated by shrewd key employees. Conversion of the units to a new schedule.  If anything is more ""typical"" of regular employee-level grants, I think this one would be.  Generally, such RSU or option grants will be converted, at the deal price, to a new schedule with identical dates and vesting percentages, but a new number of units and dollar amount or strike price, usually so the end result would have been the same as before the deal. I'm also curious if anybody else has been through a buyout, or knows anybody who has been through a buyout, and how they were treated." Vesting As you may know a stock option is the right to acquire a given amount of stock at a given price.  Actually acquiring the stock is referred to as exercising the option.  Your company is offering you options over 200,000 shares but not all of those options can be exercised immediately. Initially you will only be able to acquire 25,000 shares; the other 175,000 have conditions attached, the condition in this case presumably being that you are still employed by the company at the specified time in the future.  When the conditions attached to a stock option are satisfied that option is said to have vested - this simply means that the holder of the option can now exercise that option at any time they choose and thereby acquire the relevant shares. Dividends Arguably the primary purpose of most private companies is to make money for their owners (i.e. the shareholders) by selling goods and/or services at a profit.  How does that money actually get to the shareholders?  There are a few possible ways of which paying a dividend is one.  Periodically (potentially annually but possibly more or less frequently or irregularly) the management of a company may look at how it is doing and decide that it can afford to pay so many cents per share as a dividend.  Every shareholder would then receive that number of cents multiplied by the number of shares held. So for example in 4 years or so, after all your stock options have vested and assuming you have exercised them you will own 200,000 shares in your company.  If the board declares a dividend of 10 cents per share you would receive $20,000.  Depending on where you are and your exact circumstances you may or may not have to pay tax on this. Those are the basic concepts - as you might expect there are all kinds of variations and complications that can occur, but that's hopefully enough to get you started. "Many companies (particularly tech companies like Atlassian) grant their employees ""share options"" as part of their compensation. A share option is the right to buy a share in the company at a ""strike price"" specified when the option is granted. Typically these ""vest"" after 1-4 years so long as the employee stays with the company. Once they do vest, the employee can exercise them by paying the strike price - typically they'd do that if the shares are now more valuable. The amount they pay to exercise the option goes to the company and will show up in the $2.3 million quoted in the question." It depends.  If you accept the offer, then your stock will cease existing.  If you reject the offer, then you will become a minority shareholder.  Depending on the circumstances, you could be in the case where it becomes illegal to trade your shares.  That can happen if the firm ceases to be a public company.  In that case, you would discount the cash flows of future dividends to determine worth because there would be no market for it. If the firm remained public and also was listed for trading, then you could sell your shares although the terms and conditions in the market would depend on how the controlling firm managed the original firm. Good questions. I can only add that it may be valuable if the company is bought, they may buy the options. Happened to me in previous company. 2 things may happen. Either your positions are closed by the broker and the loss or profit is credited to your account. Else it is carried over to the next day and you pay interest on the stocks lent to you. What happens will be decided by the agreement signed between you and your broker. "I'm adding to @Dilip's basic answer, to cover the additional points in your question.  I'll assume you are referring to publicly traded stock options, such as those found on the CBOE, and not an option contract entered into privately between two specific counterparties (e.g. as in an employer stock option plan). Since you are not obligated to exercise a call option you purchased on the market, you don't need to maintain funds on account for possible exercising.  You could instead let the option expire, or resell the option, neither of which requires funds available for purchase of the underlying shares. However, should you actually choose to exercise the call option (and usually this is done close to expiration, if at all), you will be required to fund your account much like if you bought the underlying shares in the first place.  Call your broker to determine the exact rules and timing for when they need the money for a call-option exercise. And to expand on the idea of ""cancelling"" an option you purchased: No, you cannot ""cancel"" an option contract, per se.  But, you are permitted to sell the call option to somebody else willing to buy, via the market.  When you sell your call option, you'll either make or lose money on the sale – depending on the price of the underlying shares at the time (are they in- or out- of the money?), volatility in the market, and remaining time value.  Once you sell, you're back to ""no position"".  That's not the same as ""cancelled"", but you are out of the trade, whether at profit or loss. Furthermore, the option writer (i.e. the seller who ""sold to open"" a position, in writing the call in the first place) is also not permitted to cancel the option he wrote.  However, the option writer is permitted to close out the original short position by simply buying back a matching call option on the market.  Again, this would occur at either profit or loss based on market prices at the time.  This second kind of buy order – i.e. made by someone who initially wrote a call option – is called a ""buy to close"", meaning the purchase of an offsetting position.  (The other kind of buy is the ""buy to open"".) Then, consider: Since an option buyer is free to re-sell the option purchased, and since an option writer (who ""sold to open"" the new contract) is also free to buy back an offsetting option, a process known as clearing is required to match remaining buyers exercising the call options held with the remaining option writers having open short positions for the contract.  For CBOE options, this clearing is performed by the Options Clearing Corporation.  Here's how it works (see here): What is the OCC? The Options Clearing Corporation is the sole issuer of all securities   options listed at the CBOE, four other U.S. stock exchanges and the   National Association of Securities Dealers, Inc. (NASD), and is the   entity through which all CBOE option transactions are ultimately   cleared. As the issuer of all options, OCC essentially takes the   opposite side of every option traded. Because OCC basically becomes   the buyer for every seller and the seller for every buyer, it allows   options traders to buy and sell in a secondary market without having   to find the original opposite party.   [...]   [emphasis above is mine] When a call option writer must deliver shares to a call option buyer exercising a call, it's called assignment.  (I have been assigned before, and it isn't pleasant to see a position called away that otherwise would have been very profitable if the call weren't written in the first place!) Also, re: ""I know my counter party cannot sell his shares"" ... that's not strictly true.  You are thinking of a covered call.  But, an option writer doesn't necessarily need to own the underlying shares.  Look up Naked call (Wikipedia).  Naked calls aren't frequently undertaken because a naked call ""is one of the riskiest options strategies because it carries unlimited risk"".  The average individual trader isn't usually permitted by their broker to enter such an order, but there are market participants who can do such a trade. Finally, you can learn more about options at The Options Industry Council (OIC)." "I don't have anything definitive, but in general positions in a company are not affected materially by what is called a corporate action. ""Corp Actions"" can really be anything that affects the details of a stock. Common examples are a ticker change, or exchange change, IPO (ie a new ticker), doing a split, or merging with another ticker. All of these events do not change the total value of people's positions. If a stock splits, you might have more shares, but they are worth less per share. A merger is quite similar to a split. The old company's stock is converted two the new companies stock at some ratio (ie 10 shares become 1 share) and then converted 1-to-1 to the new symbol. Shorting a stock that splits is no different. You shorted 10 shares, but after the split those are now 100 shares, when you exit the position you have to deliver back 100 ""new"" shares, though dollar-for-dollar they are the same total value. I don't see why a merger would affect your short position. The only difference is you are now shorting a different company, so when you exit the position you'll have to deliver shares of the new company back to the brokerage where you ""borrowed"" the shares you shorted." The best answer I can give is - be prepared for change. There's no perfect question you can ask or assurance you can get prior to accepting the offer that will give you any particularly perfect security or sense of stability here.  The company itself is going through a change of identity that can change how it will do business and even what the business is and how revenue is acquired.  In the time of the acquisition your role within the company could change radically for better or worse, it could even be eliminated entirely. If that type of uncertainty doesn't appeal to you - don't take the position. If you are absolutely psyched about this job, the best thing you can do is to learn more about the business itself and see if you can make any educated bets about how your role will play into the changes in business strategy that will come with the acquisition. Cart's answer is basically correct, but I'd like to elaborate: A futures contract obligates both the buyer of a contract and the seller of a contract to conduct the underlying transaction (settle) at the agreed-upon future date and price written into the contract. Aside from settlement, the only other way either party can get out of the transaction is to initiate a closing transaction, which means:  The party that sold the contract buys back another similar contract to close his position.  The party that bought the contract can sell the contract on to somebody else. Whereas, an option contract provides the buyer of the option with the choice of completing the transaction.  Because it's a choice, the buyer can choose to walk away from the transaction if the option exercise price is not attractive relative to the underlying stock price at the date written into the contract.  When an option buyer walks away, the option is said to have expired. However – and this is the part I think needs elaboration – the original seller (writer) of the option contract doesn't have a choice.  If a buyer chooses to exercise the option contract the seller wrote, the seller is obligated to conduct the transaction.  In such a case, the seller's option contract is said to have been assigned.  Only if the buyer chooses not to exercise does the seller's obligation go away.  Before the option expires, the option seller can close their position by initiating a closing transaction.  But, the seller can't simply walk away like the option buyer can. As far as I know, the AMT implications are the same for a privately held company as for one that is publicly traded.  When I was given my ISO package, it came with a big package of articles on AMT to encourage me to exercise as close to the strike price as possible.  Remember that the further the actual price at the time of purchase is from the strike price, the more the likely liability for AMT.  That is an argument for buying early.  Your company should have a common metric for determining the price of the stock that is vetted by outside sources and stable from year to year that is used in a similar way to the publicly traded value when determining AMT liability. During acquisitions stock options often, from what I know of my industry, at least, become options in the new company's stock.  This won't always happen, but its possible that your options will simply translate.  This can be valuable, because the price of stock during acquisition may triple or quadruple (unless the acquisition is helping out a very troubled company). As long as you are confident that the company will one day be acquired rather than fold and you are able to hold the stock until that one day comes, or you'll be able to sell it back at a likely gain, other than tying up the money I don't see much of a downside to investing now. Thanks for your thorough reply.   Basically, I found a case study in one of my old finance workbooks from school and am trying to complete it.   So it's not entirely complicated in the sense of a full LBO or merger model.   That being said, the information that they provide is Year 1 EBITDA for TargetCo and BuyerCo and a Pro-Forma EBITDA for the consolidated company @ Year 1 and Year 4 (expected IPO). I was able to get the Pre-Money and Post-Money values and the Liquidation values (year 4 IPO), as well as the number of shares.   I can use EBITDA to get EPS (ebitda/share in this case) for both consolidated and stand-alone @ Year 1, but can only get EPS for consolidated for all other years. Given the information provided. One of the questions I have is do I do anything with my liquidation values for an accretion/dilution analysis or is it all EPS? "Not necessarily.  The abbreviation ""ESOP"" is ambiguous.  There are at least 8 variations I know of: You'll find references on Google to each of those, some more than others.  For fun you can even substitute the word ""Executive"" for ""Employee"" and I'm sure you'll find more.  Really. So you may be mistaken about the ""O"" referring to ""options"" and thereby implying it must be about options.  Or, you may be right.  If you participate in such a plan (or program) then check the documentation and then you'll know what it stands for, and how it works.  That being said: companies can have either kind of incentive plan: one that issues stock, or one that issues options, with the intent to eventually issue stock in exchange for the option exercise price. When options are issued, they usually do have an expiration date by which you need to exercise if you want to buy the shares. There may be other conditions attached. For instance, whether the plan is about stocks or options, often there is a vesting schedule that determines when you become eligible to buy or exercise. When you buy the shares, they may be registered directly in your name (you might get a fancy certificate), or they may be deposited in an account in your name. If the company is small and private, the former may be the case, and if public, the latter may be the case. Details vary. Check the plan's documentation and/or with its administrators." The NY company's board of directors are your agents and fiduciaries.  I'll call them your agents below.  The acquiring company entered into some contract that your agents negotiated.  Whatever the acquiring company owes you in terms of money, equity, or specific communication is based on what your agents dealt for in the sale contract.   Best ask your agents what they got for you. As I stated in my comment on @JCotton's answer, the only way you benefit by putting your money in an IRA or other tax-deferred vehicle is if you expect to have a lower tax rate when you withdraw than when you put the money in.  If you look at @JCotton's numbers and remember to pay taxes when you withdraw the money in 30 years, you will see that both situations - paying taxes now or 30 years from now - give you the exact same dollar amount if the tax rates are the same at both points in time.  So if you put money in an IRA, you're betting on the fact that the government will not substantially raise interest rates by then, and/or that you will be in a lower tax bracket. To me, the only valid reasons to invest in an IRA or 401K are the following: However, you should also consider the major downside that the money is locked away and, at best, inconvenient to access when you need it.  At worst, you have to pay taxes and penalties if you ever withdraw that money.  If you are a financially responsible person, I think you're generally better off keeping your money outside of an IRA or 401K, with the exception of making sure to get all of your employer's matching contributions.