The above hypothetical would also activate a double trigger acceleration clause. In the hypothetical, the company was sold (first trigger) and Jane was fired immediately after no cause (second trigger). In this case, all (or certain) shares of unceded shares granted to Jane would be transferred or exerciseable. Let`s go back to Roy Rogers and his famous Ross. A single “trigger” acceleration occurs when an event triggers the acceleration of the vesting, so that a shareholder can obtain the full or partial value of his share. As a general rule, they are related to the sale, merger or restructuring of a business. The acceleration of some triggers is unpopular with investors who generally want to position the company for the acquisition. One of the first things that purchasers check as part of their due diligence is the free movement of acceleration rights. This is because they want above all to ensure the continuity of the talents and operations that have made the company successful. If a major employee saves an acceleration directly when selling the business, the buyer risks losing the talent that a successful organization has built. Many venture backed companies are acquired before the four-year ban expires. This raises the question of what will happen to an acquisition with respect to the unsealed common shares1. A common approach is to provide that the unsealed shares will be fully divested or “accelerated” after the acquisition if the shareholder is terminated without “reason”2 by the entity that re-sold it within a specified period, often one year.
This approach is commonly referred to as “double trigger acceleration” in the case of a record. It is so named because two events must occur before the shareholder is treated as the principal owner, without the risk of disintegization, the company must be acquired and two, the employee, must be dismissed.3 As described above, there is more to the approach of the double trigger than he can first meet the eye. The stressed problem and the mechanisms for managing the problem are manageable, provided that the parties recognize them in advance and address them in the agreement. Failure to do so carefully has the potential to lead to outstanding issues and confusion at the time of recovery. This is a representative provision of an action restriction agreement that recognizes the need for a dual trigger language, which takes into account the situation in which there is no survivor or replacement stock in an acquisition. While the parties agree that this is a good solution that finds a reasonable compromise between the interests of the base shareholder, the company and investors, this dual-trigger approach can lead to misunderstandings and confusion in practice. This is because the dual-trigger approach assumes that the shareholder retains its inalienable stock or receives inventory from replacement buyers of a substantially equivalent value. If one of these two is not the case, then there is no stock that can be put on the second trigger. However, many acquisitions are not structured in such a way that non-shareholder common shares survive the acquisition, either to the letter or in the form of replacement stocks of substantially equivalent value. The most obvious situation in which this is the case is an acquisition in which the shareholders of the target company receive cash rather than shares. This is a very common deal structure.
Acceleration, which is triggered only by involuntary termination (sometimes negotiated to be dismissed without “reason” or resignation for “good reason”), is another less frequent form of acceleration of the “single trigger” and can be included in an executive`s severance package.
