2020 was a year of “not normal.” Not only on the health and human interaction front, but also in the world of corporate mergers and acquisitions. An alternative method of “going public,” utilizing a SPAC, has had a resurgence and accounts for more than 50% of initial public offerings (IPOs) in the past year. The change in ownership involved when a private company undergoes the de-SPAC process can have a direct effect on executive compensation, including outstanding stock options. The following highlights some change in control considerations in such situations.

Let’s start with the basics:

SPACs are special purpose acquisition companies (shells) which are formed to raise capital through an IPO with the purpose of acquiring an existing private operating company. Once the capital is raised, an operating company merges with, or is acquired by, the publicly traded SPAC to become a listed company.

For our purposes, an “Equity Incentive Compensation Plan” governs grants of stock options, restricted stock, stock appreciation rights, restricted stock units or other stock-based compensation to employees, consultants and non-employee directors of a company.