The buyer agreed to our valuation multiple but wants thirty percent of the purchase price structured as an earnout tied to specific product launch milestones. We are worried they will starve our development team of the cash and resources needed to hit these deadlines post-close. How do we structure the covenant language and use our EOS® tools to legally protect our resource allocations during the earnout period?

Question

Tyler Smith · Accepted Answer

To protect your earnout from post-closing resource starvation, you must secure explicit resource allocation covenants in the purchase agreement. Do not rely on verbal promises. The contract must mandate that the buyer fund a specific, pre-approved budget for your product development team during the entire earnout period.

To make this operational, define these resources using your EOS® Accountability Chart. Specify that the seats responsible for executing the product launch must remain fully funded and staffed according to your current structure. You should also write a covenant that requires the buyer to maintain your weekly Level 10 Meeting™ structure for the product team. This keeps the execution team focused and ensures issues are surfaced immediately.

In the legal agreement, tie the operational covenants to your EOS® V/TO®. The buyer must agree not to make any material changes to the long-term plan or resource allocation without your written consent. If they do reduce the budget or reassign key staff, the contract should state that the earnout milestones are deemed fully achieved. This legally binds their hands and prevents them from starving your business to avoid paying your earnout.