Consulting Agreement with Seller - Enhanced Drafting Instructions

You are tasked with drafting a comprehensive Consulting Agreement between a seller (who will serve as consultant) and a buyer (who will serve as client) in connection with a business transaction. This agreement typically arises in M&A contexts where the seller's expertise and institutional knowledge are valuable during a transition period. Your draft must be professionally formatted, legally sound, and tailored to protect both parties' interests while facilitating a successful consulting relationship.

Parties and Recitals

Begin by clearly identifying both parties to the agreement with complete legal names, entity types (if applicable), principal business addresses, and jurisdictional information. The consultant should be identified as the selling party or principal of the selling entity, while the client should be identified as the acquiring party or acquiring entity. Establish the effective date of the agreement and include recitals that provide context for the consulting relationship, specifically referencing the underlying transaction that gives rise to this consulting arrangement. The recitals should explain that the consultant possesses unique knowledge, expertise, and relationships valuable to the client's operation of the acquired business, and that both parties desire to formalize the terms under which such consulting services will be provided.

Scope of Services

Articulate with precision the consulting services the seller will provide, ensuring the description is sufficiently detailed to avoid future disputes while maintaining appropriate flexibility. Define the specific areas of expertise the consultant will provide, such as customer relationship management, operational guidance, strategic planning, industry insight, or technical knowledge transfer. Establish clear deliverables with measurable outcomes where possible, including:

• Regular availability for consultation (specify hours per week or month)
• Participation in specific meetings, calls, or strategic sessions
• Preparation of transition documentation or knowledge transfer materials
• Introduction to key customers, suppliers, or industry contacts
• Advisory services on specific operational or strategic matters

Specify the consultant's time commitment, whether services will be provided on-site or remotely, and any geographic limitations. Address whether the consultant has discretion in how services are performed or must follow client direction. Clarify that the consultant is providing advisory services only and will not have decision-making authority over business operations unless explicitly granted.

Compensation and Payment Terms

Structure the compensation provisions to reflect the nature and duration of services while ensuring clarity on all financial obligations. Specify whether compensation will be provided as a fixed monthly retainer, hourly rate, project-based fees, or a combination thereof. If using hourly rates, state the rate explicitly and define what constitutes billable time. For retainer arrangements, clarify whether unused time carries forward or expires. Address the treatment of expenses separately, specifying which categories of expenses are reimbursable (travel, lodging, meals, materials) and establishing any pre-approval requirements or spending limits. Detail the invoicing process, including:

• Frequency of invoicing (monthly, quarterly, or upon completion of milestones)
• Required invoice documentation and detail level
• Payment terms (typically net 30 days from invoice date)
• Method of payment and recipient information
• Consequences of late payment, including any interest charges

Consider whether any portion of compensation should be held back or placed in escrow pending satisfactory completion of services or resolution of any indemnification claims arising from the underlying transaction.

Term and Termination

Define the initial term of the consulting relationship with specific start and end dates, typically ranging from six months to two years depending on the complexity of the transition. Address whether the agreement will automatically renew and under what conditions, or whether renewal requires affirmative action by both parties. Establish termination rights for both parties, distinguishing between termination for cause and termination for convenience. For cause termination should be available immediately upon material breach that remains uncured after written notice and a reasonable cure period (typically 15-30 days), or immediately upon certain fundamental breaches such as disclosure of confidential information or violation of non-compete provisions. Termination for convenience provisions should require advance written notice (typically 30-60 days) and address whether any compensation is owed for the notice period. Specify the effect of termination on accrued but unpaid compensation, expense reimbursements, and the survival of key provisions such as confidentiality, non-compete, indemnification, and dispute resolution clauses.

Confidentiality and Non-Disclosure

Impose robust confidentiality obligations on the consultant regarding all proprietary and confidential information of the client and the acquired business, recognizing that the consultant will necessarily have access to sensitive operational, financial, customer, and strategic information. Define "Confidential Information" broadly to include all non-public information relating to the business, whether disclosed orally, in writing, or by observation, including customer lists, pricing information, financial data, business strategies, trade secrets, proprietary processes, and employee information. Establish the consultant's obligations to:

• Maintain confidentiality during and after the term of the agreement
• Use confidential information solely for performing consulting services
• Refrain from disclosing confidential information to third parties without prior written consent
• Return or destroy all confidential information upon termination
• Notify the client immediately of any unauthorized disclosure or use

Carve out standard exceptions for information that is publicly available, independently developed, rightfully obtained from third parties, or required to be disclosed by law (with advance notice to client where possible). Consider whether the consultant should be prohibited from using confidential information to compete with the client or solicit its customers or employees.

Representations and Warranties

Include representations and warranties from the consultant that establish baseline assurances about their ability to perform and the quality of services. The consultant should represent and warrant that they have the full right, power, and authority to enter into the agreement and perform the services without violating any other agreement or obligation. The consultant should warrant that services will be performed in a professional and workmanlike manner consistent with industry standards, and that they possess the necessary expertise, qualifications, and licenses to provide the services. Include representations that the consultant will comply with all applicable laws and regulations in performing services, and that their performance will not infringe upon any third-party intellectual property rights. Address ownership of work product, typically providing that any materials, documents, or intellectual property created in the course of performing services will be deemed work-for-hire owned by the client, or alternatively will be assigned to the client upon creation. The client should provide reciprocal representations regarding its authority to enter the agreement and its obligation to pay compensation as agreed.

Indemnification and Liability

Establish mutual indemnification obligations that allocate risk appropriately between the parties. The consultant should indemnify the client against claims arising from the consultant's gross negligence, willful misconduct, breach of confidentiality obligations, violation of law, or breach of representations and warranties. The client should indemnify the consultant against claims arising from the client's use of the consultant's work product or advice in a manner inconsistent with the consultant's recommendations, or from the client's own negligence or misconduct. Structure the indemnification provisions to require:

• Prompt written notice of any claim
• The right of the indemnifying party to control the defense
• Cooperation by the indemnified party in the defense
• The obligation to mitigate damages

Include limitations on liability that cap each party's total liability under the agreement (typically at the total compensation paid or payable) except for excluded categories such as breaches of confidentiality, indemnification obligations, or gross negligence and willful misconduct. Explicitly disclaim consequential, incidental, punitive, and special damages except in cases of intentional breach or fraud. Consider whether these limitations should apply differently in the context of claims arising from the underlying transaction versus claims arising solely from the consulting relationship.

Governing Law and Dispute Resolution

Designate the governing law that will apply to interpretation and enforcement of the agreement, typically selecting the law of the state where the business operates or where the client is headquartered. Include a mandatory dispute resolution process that begins with good faith negotiation between senior executives of both parties for a specified period (typically 30 days) before either party may initiate formal proceedings. Specify whether disputes will be resolved through litigation or binding arbitration, weighing the benefits of each approach. If selecting arbitration, designate the arbitration rules (such as AAA Commercial Arbitration Rules), the number of arbitrators (typically one for smaller disputes, three for larger), the seat of arbitration, and how arbitrator fees will be allocated. Address whether the prevailing party will be entitled to recover attorneys' fees and costs. Include a venue and jurisdiction clause specifying the exclusive courts for any litigation or for enforcement of arbitration awards. Consider including a provision permitting either party to seek injunctive relief in court for breaches of confidentiality or non-compete obligations without first pursuing arbitration, given the inadequacy of monetary damages for such breaches.

Miscellaneous Provisions

Include comprehensive boilerplate provisions that address administrative and interpretive matters essential to contract enforceability. The entire agreement clause should specify that this agreement, together with any exhibits and schedules, constitutes the complete agreement between the parties and supersedes all prior negotiations, understandings, and agreements regarding the subject matter, whether written or oral. A severability provision should state that if any provision is found invalid or unenforceable, the remaining provisions will continue in full force and effect, and the invalid provision will be modified to the minimum extent necessary to make it enforceable. The amendment and waiver clause should require that any modifications be made in writing and signed by both parties, and that no waiver of any provision will constitute a waiver of any other provision or subsequent breach. Address assignment rights, typically prohibiting the consultant from assigning the agreement without client consent while permitting the client to assign to affiliates or successors. Establish notice procedures specifying the addresses for formal communications and acceptable delivery methods (personal delivery, overnight courier, certified mail, or email with confirmation). Include an independent contractor provision clarifying that the consultant is not an employee, agent, or partner of the client and is responsible for their own taxes, insurance, and benefits. Add a counterparts clause permitting execution in multiple counterparts, each constituting an original, and recognizing electronic signatures as valid.

Execution

Conclude the agreement with appropriate signature blocks for each party, providing space for the signature, printed name, title, and date for authorized representatives. For entity parties, ensure the signatory has proper authority to bind the entity, typically requiring signatures from officers, managers, or authorized representatives. Include a statement above the signature lines confirming that the signatories represent they have authority to execute the agreement on behalf of their respective parties. Consider whether the agreement requires notarization or witnesses based on the governing law jurisdiction, though this is typically not necessary for commercial consulting agreements.

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Drafting Notes: Tailor this agreement to the specific transaction context, considering factors such as the nature of the business, the seller's ongoing role, any non-compete or non-solicitation provisions in the purchase agreement, and the relationship between consulting compensation and purchase price adjustments or earnouts. Ensure consistency between this consulting agreement and related transaction documents, including the purchase agreement, employment agreements, and any shareholder or equity documents. Consider tax implications of the consulting arrangement for both parties, particularly regarding classification of payments and withholding obligations.