A Double Trigger is a form of accelerated provision, along with the single-trigger which is an event typically triggered when either a merger or acquisition of the target company or a change in its control takes place. A double trigger typically starts with the sale or change of control but does not cause acceleration until a second event occurs, hence the name. This second event for example could potentially include the termination of the original founder of the firm without cause.
Alternatively, it could be if they leave the company within a specified time period. This period is typically six months to eighteen months following the buyout or change of control of the firm. Typically, the qualifying termination means termination of employment by the company without “cause,” but can also include the resignation of an employee for “good reason” such as a cut in pay, mandated relocation or significant downgrade of duties. The company is free to include any triggering events so long as they are specified clearly in the employee compensation plan.
A Single trigger simply provides that upon a sale or change of control of the target firm, a pre-specified amount of the restricted stock will immediately become vested.
Reasons for the Acceleration
The reason double trigger acceleration has become very popular with early stage companies is that it aims to align the interests of the employees, the investors and potential acquirers. This is done by
- providing a safety net for key employees, some of whom may be removed in the consolidation during post-closing integration – CFOs and GCs are particularly susceptible
- reducing dilution from automatic acceleration
- easing the qualms of the acquirer by preserving the requirement of ongoing service to the company in order to vest.
Therefore, in the absence of an acceleration feature, the employee could find themselves in the disadvantageous position of having been too successful. Growing and selling a business before all of their equity had vested would result in losing the value of that unvested equity if the acquirer decides not to keep the employee.
An important point to consider here is that in order for double-trigger acceleration to be meaningful, the option grant or equity award must be assumed or continued by the acquirer in the transaction. Acquirers often have their own plans and employee incentives. Should an unvested option or equity award terminate in connection with a takeover, then technically, there will be no unvested options or awards to accelerate should the second trigger occur after the buyout.
Double Trigger Example
The following text is taken from the Form DEF14A filing with the SEC made by Wright Medical (WMGI) on March 20, 2020 in relation to the proposed takeover by Stryker (SYK)
Our 2017 equity plan contains a “double-trigger” change in control provision under which equity awards will not vest in connection with a change in control unless there is a termination event or the equity awards are not continued, assumed or substituted with like awards by the successor…
…Thus, the immediate vesting of stock options and RSU awards is triggered by the change in control, itself, and thus is known as a “single trigger” change in control arrangement…
…These “double trigger” change in control protections are intended to induce executives to accept or continue employment with our company, provide consideration to executives for certain restrictive covenants that apply following termination of employment, and provide continuity of management in connection with a threatened or actual change in control transaction.
In this document, the double trigger and single trigger mechanisms are clearly explained and how the restricted stock units (RSU) will be affected.
