Meaning
Executive protection clauses provide for the immediate vesting of equity incentives only when two specific conditions are met simultaneously. Double trigger vesting acceleration typically requires both a change of control in the company and the termination of the individual’s employment without cause. This structure balances the interests of the employee with those of a potential acquirer.
Activation Condition
The first event is almost always a merger or acquisition that results in a new majority owner for the entity. Under double trigger vesting acceleration, the second event must occur within a specified window, often twelve to twenty-four months after the deal closes. This ensures that the protection only applies to those who are actually displaced by the transaction.
Retention Incentive
Buyers prefer this arrangement because it encourages management to stay through the integration period. If double trigger vesting acceleration were not used, executives might leave immediately after a deal to cash out their equity. This provision keeps the leadership team focused on a successful transition while providing them with a safety net if their role is eliminated.
Payout Sequence
When both conditions are satisfied, the unvested portion of the grant becomes fully exercisable or payable. The financial impact of double trigger vesting acceleration is included in the deal modeling performed by the buyer during due diligence. This clause is a standard feature in venture capital backed startups to ensure that the talent remains motivated during an exit.
Negotiating the exact definition of a qualifying termination is a critical part of the employment contract.
