An Advisory Board & Board Observer Agreement sets participation terms for advisors or observers in company governance. This playbook reviews confidentiality, fiduciary boundaries, and compensation considerations.
Why This Matters: Clear exit rights enable parties to manage unforeseen events or underperformance, minimizing disruption and potential litigation.
Negotiation strategy
If you're the Company:
Ensure termination rights are aligned with strategic objectives. Negotiate for reasonable notice periods and minimal break-up fees to maintain flexibility.
If you're the Advisor:
Focus on securing fair compensation for early termination. Advocate for clear breach definitions and adequate cure periods to protect interests.
Essential elements
1
Termination for Convenience
Allows exit with notice.
2
Termination for Cause
Exit upon breach.
3
Break-Up Fees
Compensation for early exit.
Action framework
ACCEPT
Propose edits if notice periods are too short or fees are excessive.
EDIT
Reject if termination rights are overly restrictive or one-sided.
ADD
Add clauses if termination rights are missing or incomplete.
PRO TIP
Always ensure termination clauses are clear and balanced to avoid disputes.
Example clauses
FAVORABLE
Balanced Termination Rights
"Either party may terminate this Agreement for convenience by providing the other party with thirty (30) days written notice. Upon termination for convenience, neither party shall be liable to the other for any damages, costs, or expenses, except as expressly provided in this Agreement."
NEUTRAL
Standard Notice Requirement
"Any notice of termination must be in writing and delivered to the other party at the address specified in this Agreement. Notices shall be deemed received upon actual receipt by the party to whom it is addressed."
UNFAVORABLE
Excessive Break-Up Fees
"In the event of termination by either party, the terminating party shall pay to the non-terminating party a break-up fee of $50,000, unless the termination is due to a material breach by the non-terminating party."
Fallbacks
High-Risk Jurisdictions
In high-risk jurisdictions, consider additional protections or modifications to standard termination rights, such as specific triggers related to changes in law or political instability.
Long-Term Contracts
For long-term contracts, ensure termination rights include periodic review clauses to adapt to changing circumstances.
Technology Agreements
In technology agreements, termination rights should address data transfer and IP rights upon exit.
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