We are negotiating a two-year earnout, but we are terrified the buyer will terminate our key leadership team members without cause just to avoid paying us. How do we write a protective deemed achievement clause into the purchase agreement?

Question

Tyler Smith · Accepted Answer

A primary risk of a post-closing earnout is that the buyer can terminate you or your key leadership team members without cause, effectively cutting off your ability to influence the business operations and hit your performance milestones. To prevent this, your purchase agreement must contain a robust deemed achievement clause. This clause must state that if you or any key executive on your Accountability Chart is terminated without cause, or if you resign for good reason, during the earnout period, the entire remaining earnout balance is immediately deemed fully earned and becomes payable in cash. Good reason should be defined broadly, including any material reduction in your title, responsibilities, compensation, or operating budget. Furthermore, ensure that the deemed achievement clause is triggered if the buyer sells the company or its primary assets to another party before the earnout period ends. This prevents a secondary transaction from wiping out your performance milestones. You must protect your team's hard work. Do not rely on verbal promises of goodwill from the buyer's executive team. Put these operational protections directly into the legal documents, ensuring that your team's GWC™ and commitment to the transition are protected by clear, legally binding financial consequences if the buyer decides to change directions.