Silicon Valley Legal Bible（8）The difference between the words "Single Trigger" and "Double Trigger"

The Silicon Valley Legal Bible with Forty-Two Chapters, a legal encyclopedia customized for founders. I am Liu Xiaoxiao, a U.S. attorney.

Entrepreneurs should often hear about the concept of Single Trigger/Double Trigger, so what do each of these two mechanisms mean? How should entrepreneurs choose?

First, what is Single Trigger / Double Trigger (Double Trigger)?

Let's take a look at Single Trigger / Double Trigger (Double Trigger) of the common contract language

• Single Trigger（单重触发）

In the event of a Change of Control (as defined below), 100% of the total number of Unreleased Shares that have not been released from the Repurchase Option shall be immediately released from the Repurchase Option, provided that the Purchaser’s continuous status as a Service Provider has not been terminated prior to such time.

• Double Trigger（双重触发）

In the event of a Change of Control (as defined below), if: (1) Purchaser is terminated without Cause by the Company or the a successor corporation within the ninety (90) day period prior to the consummation of the Change of Control transaction or within twelve (12) months following consummation of the Change of Control transaction; or (2) Purchaser terminates his employment relationship with the Company or the a successor corporation, each as applicable, for Good Reason within the ninety (90) day period prior to the consummation of the Change of Control transaction or within twelve (12) months following consummation of the transaction, 100% of the total number of Unreleased Shares that have not been released from the Repurchase Option shall be immediately released from the Repurchase Option, provided that the Purchaser’s continuous status as a Service Provider has not been terminated prior to such time.

Upon the occurrence of a Change in Control Event (as hereinafter defined), if (1) the Purchaser is terminated without Good Reason by the Company or a Successor Company within ninety (90) days prior to or twelve (12) months after the consummation of the Change in Control Transaction or (2) the Purchaser terminates, for Good Reason, its relationship with the Company or the Successor Company, as the case may be, then all unreleased Shares that remain subject to the Repurchase Option will immediately and completely be released from the restrictions of the Repurchase Option, provided that the Purchaser's continuing status as a service provider has not been terminated prior thereto.

What about that extra condition that the double trigger has over the single trigger? That is that the founder is dismissed. That is, it's not that the founder's immature stock automatically matures in its entirety when the startup is acquired; it also requires that the condition that the founder be terminated be satisfied simultaneously. What does this condition mean? If the company is acquired, and also the rabbit is dead, the dog is cooked, the bird is gone, the old founder was swept away by the new owner, then the new owner is sorry for the founder, the founder will get the accelerated maturity of the preferential.

Second, Double Trigger (Double Trigger) of hypocrisy

Although Single Trigger (Single Trigger) than Double Trigger (Double Trigger) for founders better, but at first glance, Double Trigger (Double Trigger) seems to be quite reasonable, because you want to think, after the acquisition of the startup company, the founder in addition to being dismissed there are what kinds of possibilities? One is to stay on at the acquired company, and the other is to resign, and that's it. If you continue to serve as the new owner of the words that you are still good, right, in addition to the initiative to resign, then it is not the responsibility of the new owner of the people, but the founder of your own blame. Just because of this surface harmless Double Trigger (Double Trigger), many founders signed Double Trigger (Double Trigger) in confusion.

Moreover, there is often a clause in the Double Trigger that seems to be very protective of the founders, called "Good Reason", what does it mean?

"Good Reason" shall mean (i) any decrease in Purchaser's compensation unless such reduction is part of a generalized salary reduction affecting similarly situated employees, (ii) a material decrease in Purchaser's authority or areas of (ii) a material decrease in Purchaser's authority or areas of responsibility as are commensurate with Purchaser's title or positions, or (iii) the relocation of Purchaser's primary office to a location more than 50 miles away. (iii) the relocation of Purchaser's primary office to a location more than 50 miles from the current metropolitan area.

"Good Reason" shall mean (i) a reduction in Purchaser's compensation, unless such reduction is part of a reduction in the overall compensation of similarly situated employees, (ii) a material reduction in Purchaser's authority or area of responsibility commensurate with Purchaser's title or positions, or (iii) the relocation of Purchaser's primary office to a location more than 50 miles from the current metropolitan area. (iii) the purchaser's principal place of business is relocated more than 50 miles from the current city limits.

Let's take a closer look at Good Reason.

The first scenario, says that if the founder's voluntary resignation is due to a pay cut (unless it's an overall pay cut), then it also says that if after the company is acquired, the new owner pays the previous founder a lower salary, which causes the founder to be unhappy with his or her treatment and leave, then the founder can't be blamed but rather the new owner, and so the new owner is required to accelerate the founder's maturity. Sounds reasonable.

The next one is that although there is no salary reduction, but the scope of authority and business areas have been reduced, that is to say, although the salary has been maintained, but all a bunch of marginal tasks are thrown to the old founder, through this method to make the old founder feel that he is not reused, and the old founder therefore left angrily, which can not be regarded as the founder's initiative to resign, but to blame the new proprietor, so the new proprietor has to accelerate the maturity of the founders. That sounds reasonable.

The third scenario is that if the company's office is moved 50 miles away, and even though the salary is not lowered and the authority is not reduced, the old founder can't continue to do his job because of the objective factors of driving 3 hours each way to work, and it's not the founder's initiative to quit, but rather, it's the new proprietor's fault, so the new proprietor has to accelerate the maturity of the founder. Sounds more reasonable.

So through this "Good Reason (Good Reason)" seems to further reduce the founder's worries, then is not the founder can gladly accept Double Trigger (Double Trigger)? In fact, not.

Third, Double Trigger is always an unfair treaty?

Let the founder in the new owner to serve hard labor, is the punishment of talent

Entrepreneurial friends know that if the founder can let the big companies look at their own projects and successful acquisition within four years, then it is very difficult, in this case whether the new owner wants to continue to retain the old founder, the old founder in the original startup company need to complete the mission has been completed in fact, should be recognized as part of the founder's credit. If the new owner wants to keep the old founder, then the new owner should talk to the old founder about new incentives, higher salaries, better benefits, more shares, and keep the original level is not enough. Much less should the founder who has successfully sold the startup continue to complete the previous 4 years of maturity with the new owner, that would be serving a prison sentence for past success.

There are a million ways for a new owner to make life difficult for an old founder.

In addition to pay cuts, demotions, and moves, there are a million ways for a new owner to make things difficult for an old founder. For example, the board of directors every day, the old founder of the impossible task, you have to ask, the board of directors said that the company has entered a new stage, there are greater challenges, we can not refute what he. For example, after the acquisition, the new owner asked the old founder to achieve performance over the head of the same track brand (wolf-like rivals), and then to the old founder to install a bunch of unreliable subordinates (pig-like teammates). Always want to put the old founder angry away, but not through pay cuts, demotions and moving, in fact, very easy.

If the new owner thinks well of the founder, they shouldn't have acquired at all

Even if the new owners didn't give the old founders a hard time and treated the founders better, but actually take a step back. If the new owner was optimistic about the old founder, they shouldn't have acquired the startup at all, but instead offered money to invest in the startup as one of the investors. We can imagine that the acquisition of a company is what it means, indicating that the big companies are also a little interested in your small company, but think you are not good management of this small company, I want to take over, I help you manage. This is a kind of disapproval of the founder's ability. If the new owner recognizes the founder very much, then he should put the money into the startup, leave the money to the original founder to manage, and let the original founder be himself as always. So from this perspective, you should find that leaving knowingly is always the destiny of the founder of a company that has been acquired.

Having said that, I think all the founders can realize the deeper meaning of Single Trigger/Double Trigger, and will no longer be blinded by the good intentions on the surface of "Good Reason", right?

The Silicon Valley Legal Bible with Forty-Two Chapters, a customized legal encyclopedia for founders. I'm Xiaoxiao Liu, a U.S. attorney.