The buyer is insisting on a three-year earnout tied to EBITDA targets, but we are worried they might terminate us or sell the division before the earnout period ends. How do we structure change-of-control and termination-without-cause acceleration clauses to guarantee our payout?

Question

Tyler Smith · Accepted Answer

To secure your earnout against corporate restructuring or premature termination, you must negotiate clear, non-negotiable acceleration clauses in the purchase agreement. If you do not protect yourself, the buyer can easily terminate your employment or shut down your division, wiping out your payout under the guise of corporate synergy.

Start by defining a qualifying acceleration event. This must include any termination of your employment without cause, your resignation for good reason, or a subsequent sale of the company or its assets to another party. If any of these events occur, the agreement must state that all remaining earnout payments are immediately deemed fully achieved and payable.

Additionally, the definition of good reason should include any material reduction in your authority, budget, or resources post-close. If you run your business using the EOS framework, define these resources explicitly. The buyer must commit to maintaining your existing leadership structure and operational autonomy as detailed in your Accountability Chart.

Finaly, require that the earnout calculations be audited annually by an independent third party, with the buyer covering the cost. This prevents the buyer from using creative accounting or internal overhead allocations to artificially depress the EBITDA targets you are fighting to hit.