Double trigger acceleration is a term used in the context of employee stock options and equity agreements. It refers to a provision that accelerates the vesting schedule of a company’s stock options or equity grants in the event of certain triggering events. The “double” aspect comes into play when two conditions or “triggers” need to occur before the acceleration is triggered.
Typically, these conditions are:
- Change in Control: A significant event such as a merger, acquisition, or sale of the company that changes its ownership.
- Termination Without Cause: A termination of the employee’s position or employment by the company, without the employee being at fault.
When both of these events occur, the employee’s unvested stock options or equity will vest immediately. This means the employee can exercise their options and sell the shares, often receiving a larger payout or securing ownership rights, even though they may not have reached the normal vesting schedule.
How Does Double Trigger Acceleration Work?
To understand double trigger acceleration, let’s look at a hypothetical example:
Scenario:
- Employee: Jane works at a tech company with a 4-year vesting schedule for her stock options.
- Vesting Schedule: Her stock options vest 25% each year over 4 years. After 2 years, 50% of her stock options are vested.
- Event: The company is acquired by a larger company (Change in Control), and Jane is terminated without cause (Termination Without Cause) shortly after the acquisition.
Under double trigger acceleration, Jane’s unvested stock options would accelerate, meaning her remaining 50% of stock options would vest immediately due to both triggers being met. Jane would now be able to exercise those stock options, potentially sell them, and take advantage of the acquisition.
Benefits of Double Trigger Acceleration
Double trigger acceleration is often viewed as a protection mechanism for employees in case of a significant change within the company. Here are some key benefits:
1. Employee Protection in Mergers & Acquisitions
In the event of a company being acquired or merged, the existing employees may be at risk of losing their unvested stock options or equity. Double trigger acceleration ensures that if an employee’s job is terminated due to the change in control, they are still able to benefit from their equity awards.
Without this provision, employees may lose their unvested options or be forced to forfeit their equity if they are let go. Double trigger acceleration helps mitigate this risk and makes the acquisition or merger process smoother for employees.
2. Attracting Top Talent
Companies that offer double trigger acceleration provisions are often seen as more attractive to prospective employees, especially those in tech or startups where stock options are a significant part of their compensation package. This provision can make a job offer more appealing, knowing that employees will be compensated if the company is sold and they are let go.
3. Retaining Talent Through Transitions
During a company acquisition or significant change in control, there can be a lot of uncertainty about the future. By offering double trigger acceleration, companies can incentivize key employees to stay during the transition. They may be more likely to stay and contribute to the successful integration if they know they will receive the full benefit of their equity should they be let go after the change.
Examples of Double Trigger Acceleration
To help further illustrate double trigger acceleration, here are a few examples of how it might be implemented:
Example 1: Employee with Stock Options in a Tech Startup
- Company: A startup with a 4-year vesting schedule.
- Event: The company is acquired after 2 years.
- Double Trigger: The employee is terminated within 30 days of the acquisition.
In this case, the employee’s unvested stock options will immediately vest, allowing them to exercise and sell the stock post-acquisition.
Example 2: Executive Employee in a Large Corporation
- Company: A large company with stock options granted to executives.
- Event: The company undergoes a change in control (e.g., merger or acquisition).
- Double Trigger: The executive is not retained after the acquisition and is terminated without cause.
Here, the executive’s unvested stock options would be accelerated, ensuring that the executive can still benefit from their equity in the event of termination due to the merger.
Single Trigger vs. Double Trigger Acceleration
It’s important to distinguish between single trigger and double trigger acceleration, as both provide different levels of protection for employees.
1. Single Trigger Acceleration
Single trigger acceleration happens when a single event, typically a change in control, triggers the immediate vesting of unvested stock options or equity. In this case, just the event of a merger, acquisition, or sale of the company is enough to trigger the acceleration, even if the employee remains employed after the transaction.
- Example: If a company is acquired and the employee’s stock options vest immediately as a result of the acquisition, regardless of whether the employee is terminated or stays with the company.
2. Double Trigger Acceleration
As explained, double trigger acceleration requires two events to occur—both a change in control and a termination of employment without cause. This is more protective for employees because it requires an additional condition (the termination without cause) before vesting occurs.
- Example: In the case of double trigger acceleration, if a company is acquired, but the employee is not terminated or their role is not changed, their options would not vest immediately. The employee would only benefit from acceleration if they are let go post-acquisition.
When Is Double Trigger Acceleration Typically Used?
Double trigger acceleration is often used by startups, tech companies, and organizations with equity-based compensation plans. It is especially common in scenarios where there is an anticipated merger or acquisition, as employees want to ensure they can realize the full value of their stock options.
Double trigger acceleration clauses can also be a key part of executive compensation packages, where the risk of job loss due to corporate restructuring is higher. For founders, employees, or key stakeholders in the company, it can serve as a safety net in case their role changes or they are let go following a major company transaction.
