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Board Observer Agreement

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Board Observer Agreement Powered By Docstoc
					When an investor is given board observer rights, the investor is allowed to participate in
board discussions, but the investor does not obtain the right to vote on corporate
matters. An observer right is typically contained in a side letter in connection with
venture financing or another investment matter. Board Observers are sometimes
excluded from parts of a board meeting in order to maintain confidentiality. This
document is a legal letter that grants an investor the right to attend meetings of the
board of directors of a company. This document should be used by small businesses or
other entities that want to grant an outside investor the right to observe and participate
in board meetings.
                            BOARD OBSERVER AGREEMENT

THIS BOARD OBSERVER AGREEMENT (the “Agreement”) made as of ___________
[Instruction: Insert Date], by and between ___________ [Instruction: Insert Name of
Company], a ___________ [Instruction: Insert State] corporation, with its principal office
located at ___________ [Instruction: Insert Address] (“Company”), and ___________
[Instruction: Insert Name of Shareholder], ___________ [Instruction: Insert Address]
(“Shareholder”).

WHEREAS, Shareholder acquired ___________ (_____) shares [Instruction: Insert Amount]
of common stock of the Company (the “Purchased Shares”) pursuant to a Stock Purchase
Agreement by and between the Company and Shareholder, dated ___________ [Instruction:
Insert Date] (the “Stock Purchase Agreement”); and

WHEREAS, as an inducement for Shareholder to enter into the Stock Purchase Agreement, the
Company agreed to grant board observer rights to Shareholder as contained herein.

NOW, THEREFORE, in consideration of the mutual promises and covenants hereinafter set
forth, the Company and Shareholder agree as follows:

1. Observer Rights. Company shall invite a representative of Shareholder (the “Observer”),
which Observer shall be reasonably acceptable to the Company, to attend all meetings of the
Board of Directors, and any committees thereof, in a non-voting observer capacity and, in this
respect, shall give such Observer copies of all notices, minutes, consents and other Board of
Directors’ or audit committee members’ materials that it provides to all of its directors or to its
audit committee members (as appropriate), for as long as:

    A. Shareholder continues to own at least ___________ percent (___%) [Instruction: Insert
Percentage] of the outstanding common stock of the Company (including shares of common
stock issuable upon conversion of outstanding shares of preferred stock); and

   B. A candidate designated by Shareholder is not a member of the Board of Directors.

2. Reservation of Rights. Notwithstanding the foregoing:

    A. Company may withhold any information and/or exclude the Observer from any meeting,
or any portion thereof, as is reasonably determined by the Chairman of the Board or a majority of
the members of the Board of Directors, or committee thereof, to be necessary for purposes of
confidentiality, competitive factors, attorney-client privilege or other reasonable purposes; and

    B. In no event shall the inadvertent non-repetitive failure to provide the notice described in
paragraph 1 invalidate in any way any action taken at a meeting of the Board of Directors or the
meeting of any committee thereof.

3. Confidentiality. Shareholder agrees, and Shareholder will cause the Observer to agree, to
hold in confidence all information provided hereunder and not to use or disclose any confidential
information provided in connection with this Agreement other than for purposes reasonably
related to Shareholder’s interest as a shareholder of the Company, and not to the detriment of, the
Company. The confidentiality provisions hereof will survive any termination of this Agreement.

4. Miscellaneous.

    A. This Agreement constitutes the entire agreement between the parties hereto with respect
to the specific subject matter hereof and supersedes all prior agreements or understandings of any
kind with respect to the specific subject matter hereof.

    B. In the event that any provision or part of this Agreement shall be deemed void or invalid
by a court of competent jurisdiction, the remaining provisions or parts shall be and remain in full
force and effect.

    C. Any modification to this Agreement must be in writing and signed by the parties or it
shall have no effect and shall be void.

    D. This Agreement is binding upon and shall inure to the benefit of the respective
successors, licensees and/or assigns of the parties hereto. Notwithstanding the foregoing, this
Agreement and the rights granted to Shareholder hereunder are personal to Shareholder and may
not be assigned to any other person without Company’s prior written consent.

    E. The waiver by either party of a breach or violation of any provision of this Agreement
shall not constitute a waiver of any subsequent or other breach or violation.

    F. This Agreement shall be governed in accordance with the laws of the State of
_____________ [Instruction: Insert State], applicable to agreements to be wholly performed
therein, with jurisdiction exclusive to the Federal and State courts located in the County of
_____________ [Instruction: Insert County], State of ______________ [Instruction: Insert
State].

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IN WITNESS WHEREOF the parties have duly executed this Agreement as of the date first
written above.


COMPANY:


________________________________ [Instruction: sign]
By: ___________________________ [Instruction: Insert Name of Signatory]
Title: ___________________________ [Instruction: Insert Title of Signatory]


SHAREHOLDER:


________________________________ [Instruction: sign]
By: ___________________________ [Instruction: Insert Name of Signatory]
Title: ___________________________ [Instruction: Insert Title of              Signatory]
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Description: When an investor is given board observer rights, the investor is allowed to participate in board discussions, but the investor does not obtain the right to vote on corporate matters. An observer right is typically contained in a side letter in connection with venture financing or another investment matter. Board Observers are sometimes excluded from parts of a board meeting in order to maintain confidentiality. This document is a legal letter that grants an investor the right to attend meetings of the board of directors of a company. This document should be used by small businesses or other entities that want to grant an outside investor the right to observe and participate in board meetings.