Fighting the Double Trigger as Free Labor vs Slavery II: Negotiating with a Public Company Change of Control Acceleration Terms

A change of control, such as in a merger/acquisition, can have significant implications for the C-suite executive. You may face the risk of getting laid off, reduction in compensation and benefits, changes in reporting structure, restrictions in seeking new employment due to non-compete or non-disclosure agreements, and much more.

Offsetting these risks to the C-level executive are potential benefits that can flow from a change of control. These often include acceleration of equity vesting, which can be quite valuable.

However, despite the success achieved by the CEO or other C-level executives leading the company to a successful change of control and perhaps to a liquidity event for the investors, as a C-level officer, you might face a further post-closing hurdle that can diminish or even prevent your receiving the benefits and your fair share of the success event which may be largely the result of your efforts.

On September 16, 2023, CEOWORLD magazine published my first article on the subject “Fighting the Double Trigger as free Labor vs Slavery: How to negotiate your own Change of Control acceleration terms.” That article discussed those additional hurdles placed before you, often called the “double trigger.” In the end, it suggested a series of strategies for you to resist the double trigger, building toward and culminating with an invocation of Lincolnian arguments against the “slave power” from 19th century US history: Free labor vs Enslaved labor. Hence, the article’s title. This article, too, makes those same Lincolnian arguments.

Fighting the Double Trigger in a Public Company

This sequel article is focused on fighting for single trigger acceleration if you are a CEO or C-level executive in a public company.

In the autumn of 2023, a public company CEO hired me to review and then redline his new executive employment agreement to change an especially pernicious double trigger for acceleration to single trigger.

After I did so, the Board Compensation Committee held up approval of my suggested redline on advice of their general counsel, a prominent national law firm. That firm said it’s possible the executive might get single trigger acceleration in a privately held company. However, they asserted that single trigger is never offered in public companies and would have adverse consequences.

In response to the advice of the national law firm, I contested each of their positions adverse to my client executive.

Benefits of Single Trigger for Public Company

Certainly, the Double Trigger is widely used and accepted, but that doesn’t have to be so. Furthermore, contrary to the national firm’s advice, I was able to offer a number of examples of public companies that reject the double trigger and offer their CEOs or C-level acceleration upon occurrence of the liquidity event – single trigger acceleration.

Rather than an adverse consequence, I argue that using the single trigger benefited the public companies in their recruitment and retention of the CEO and C-level executives important to keep the company, its stock price and its market cap on the rising trajectory, all of which are paramount for the company’s stockholders.

After offering my many examples of public companies using the single trigger and my arguments as to its beneficial consequences for the public companies embracing the single trigger, the public company’s compensation committee ultimately decided the issue in favor of the executive accepting my redline changes to a single trigger acceleration on occurrence of the liquidity event.

Examples of Public Companies Using Single Trigger Acceleration

Below are just two of the many examples I offered of public companies that have embraced the single trigger.

1. ServiceSource International, Inc. (NASDAQ: SREV), the customer journey experience company. On January 22, 2019, this public company entered into an employment agreement with its CEO, Gary Moore, that provided the executive with single trigger acceleration in section 9 “Benefits of a Change of Control”. That section stated that with respect to equity issued after commencement of this agreement, “upon the occurrence of a Change in Control (defined below) Executive’s outstanding equity compensation awards … shall immediately have vesting accelerated 100%, so as to become fully vested.

   The CEO appeared to have benefited from this single trigger acceleration. In just over three years, on May 6, 2022, a change of control closed where ServiceSource stockholders received a 47% premium to ServiceSource’s unaffected closing stock price on the day of the company’s acquisition by Concentrix.

2. Aethlon Medical, Inc, (NASDAQ: AEMD) is a medical therapeutic company focused on developing the Hemopurifier, a clinical stage immunotherapeutic device. On October 30, 2020, this public company entered into an employment agreement with its CEO, Charles J. Fisher, Jr., M.D., that provided the executive with single trigger acceleration in Section 8.2 “Equity Acceleration.” That section stated with respect to all the executive’s time-based vesting equity, “Notwithstanding anything to the contrary set forth in the Company’s 2020 Equity Incentive Plan, any prior equity incentive plans or any award agreement, effective upon consummation of a Change in Control (as defined below), the vesting and exercisability of all unvested time-based vesting equity awards then held by Executive, including any Additional Options, shall accelerate such that all shares become immediately vested and exercisable, if applicable, by Executive upon such Change in Control and shall remain exercisable, if applicable, following the Change in Control as set forth in the applicable equity award documents. “

Fighting the Double Trigger with words of Lincoln

In my September 16, 2023 article, I made a number of arguments in support of the single trigger. Those arguments remain applicable for public companies as well as private.

My September 16 article concluded, as I conclude now, with the words of Abraham Lincoln in his 7th and final debate with Stephen A. Douglas:

It is the eternal struggle between these two principles—right and wrong—throughout the world. They are the two principles that have stood face to face from the beginning of time; and will ever continue to struggle. The one is the common right of humanity and the other the divine right of kings. It is the same principle in whatever shape it develops itself. It is the same spirit that says, “You work and toil and earn bread, and I’ll eat it.” No matter in what shape it comes, whether from the mouth of a king who seeks to bestride the people of his own nation and live by the fruit of their labor, or from one race of men as an apology for enslaving another race, it is the same tyrannical principle. “ Abraham Lincoln, at Alton, Illinois, October 15, 1858.

Certainly, I am not saying that you, as CEO, are an enslaved person. You are not. However, when I view the Double Trigger, and see you work, and struggle and earn a liquidity event and investors “eat it” – that is, the investors alone reap the benefits of your labor, then I suggest Lincoln would still label this practice as the “theft of labor.”

Fighting for the Right to Negotiate as Free Labor

Furthermore, the investors not only reap the benefits of your labor with the fruits of the liquidity event but they derive a further benefit from you akin to slavery. The Double Trigger allows the investors to obtain a higher price for their shares, a sale premium, because they can “deliver” you, the CEO, in effect sell your body to the new company. They can tell the new company, if you leave you will lose any chance of the liquidity benefit. Hence, you must stay – so the investors get more money by being able to deliver you to new service to the acquiror.

Once again, the Single Trigger creates a different dynamic – Free Labor. With the Single Trigger, you get your acceleration and payout right along with the investors. So, then if the acquiror wants you, you have not been sold. Instead, with the acceleration already in your pocket, you can choose as a free person whether or not to join the acquiror. If you choose to consider the acquiror’s job offer, you can then negotiate as Free Labor your own signing bonus, salary, equity and other terms and decide for yourself whether to take this job offer or another.

So, whether you are in a public company or private company, it is worth your while to seek a Single Trigger for equity acceleration.

Written by Robert A. Adelson, Esq.

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