Not a lawyer, but I suggest you see one to go over your agreement.

Considering they acquired a company but wiped out a large incentive for its employees to work there anymore, this seems like an aggressive (or dumb) move. As an owner it only makes sense to properly incentivize every employee of your organization, so you should have been offered some alternative incentive plan under the new recapitalization. Is it clear to you that this will not be happening? I have heard of acquiring companies being advised to fire and immediately rehire employees of the purchased company to 'cleanse' it of any employment litigation risks that existed from previous owners, so maybe your company is undergoing some similar process.

However, I'm guessing your company might have been acquired for some asset it owned or some other particular reason (like an engineering or management team) and will be gutted and rolled up into the purchasing company. In other words, any part of the acquired company that is not of ongoing interest to the acquirer will be severely uncared for until it is eventually cut completely. If legally possible, this extends to employees.

The ethical issue with this is that you were incentivized to help your startup succeed by inherently agreeing to take a value cut in your paycheck in exchange for a future share of the company's success. In this case you took the pay cut, the company was successful, but you did not share in the upside unless you held stock already and profited from the acquisition event in those shares. Either way it seems sheisty that your options were cut with no explanation of what's happening — this situation could have been managed much more transparently. I'm guessing this passed through the legal teams of both parties so it's likely the company is operating within its contractual rights (would still check with a lawyer to be sure). If you profited from the acquisition I can see some basic element of fairness there, but if you did not see any upside from the acquisition and you get released from the company I would be interested to know who both companies were as this style of management does not look good on them. Capitalism is capitalism but there are many ways to deal with it that aren't douchey. The fact that you have to turn to Reddit to get answers makes me think this seems douchey.