The buyer is short on senior bank financing and is asking us to carry a seller note for fifteen percent of the transaction value. We are willing to do this to close the deal, but how do we structure the note to ensure we have operational remedies, like reclaiming our seat on the board or retaking management control, if they miss a payment?

Question

Tyler Smith · Accepted Answer

Carrying a seller note can bridge a valuation gap, but you must protect yourself against buyer mismanagement. The subordination agreement with the senior lender will restrict your ability to sue for cash if a default occurs. Therefore, your primary protection must come from operational remedies structured directly into the purchase agreement and corporate bylaws.

You must negotiate a pledge of the company's stock as collateral for the seller note. If the buyer defaults on a payment, the voting rights of that stock must immediately transfer back to you. This allows you to replace the board of directors and assume operational control without waiting for a lengthy foreclosure process.

Additionally, use your EOS® Accountability Chart to define your default remedies. Specify that in the event of a default, you have the unilateral right to step back into the Integrator seat or appoint a temporary manager to run the company. This ensures you can stabilize operations and protect your remaining equity value. By tying your default remedies to operational control rather than just cash collection, you protect your upside even when senior lenders block your payments.