A prospective buyer included a closing condition in our LOI requiring our top five key employees to sign new two-year employment agreements with restrictive covenants before funds wire. How do we keep this closing condition from killing our deal or giving our staff holdout leverage?

Question

Tyler Smith · Accepted Answer

When an acquirer conditions the wire on key employee signatures, they shift leverage from your deal team to your staff. If employees discover the entire transaction hinges on their cooperation, they can demand ransom equity, immediate retention bonuses, or refuse to sign non-competes altogether. You must neutralize this trap early in the LOI-to-close workflow.

First, push back on making individual employment agreements a broad closing condition. Reframe the covenant so closing requires only an agreed-upon percentage of key leadership, such as four out of five seats, or ties the condition to commercially reasonable efforts rather than guaranteed execution. Define who qualifies as critical early by reviewing your Accountability Chart. True key personnel should be limited to executive leaders who own core functions, not middle managers who can be replaced through standard operational training.

Second, keep deal knowledge restricted to the primary leadership team until the Quality of Earnings review and preliminary legal documentation are complete. Introducing employment agreements too early creates organizational anxiety and distracts the team from hitting their quarterly Scorecard targets, which invites a price re-trade.

Third, align employee incentives using a structured transaction bonus pool funded from your exit proceeds. Present the buyer's employment agreement and your retention incentive in a single conversation. Ensure the retention package requires them to fulfill their post-close duties and sign reasonable non-solicitation or non-disclosure agreements. By pairing the new employment terms with tangible upside, you eliminate staff holdout leverage and deliver the stable leadership structure the buyer expects at closing.