A standard provision in merger agreements says that the parties to the agreement shall not communicate any of the terms therein or any matters related thereto to any third party, subject to some standard exceptions. While this sounds reasonable enough, it fails to take into account that a shareholder representative will often need to communicate certain information to the former shareholders, who are not parties to the merger agreement. For instance, if a claim arises, the representative will often need or want to tell all or certain of the former shareholders about the claim and get their feedback on how they think the representative should proceed. Additionally, the representative will often need to communicate something to the former shareholders related to the claim once it is resolved if there was a related payout to let shareholders know why their escrow interest has been reduced.

On the other hand, since many claims relate to sensitive subjects, the buyer will likely want protection that information will not be broadly distributed, especially when there are hundreds of former shareholders.

To resolve this, SRS Acquiom suggests that the representative should either be able to communicate with the shareholders, or should be able to communicate with a subset of shareholders who are bound by confidentiality obligations. Language such as the following can be added to the end of the confidentiality section of merger agreements:

The shareholder representative may disclose information as required by law or to employees, advisors or consultants of the shareholder representative and the Shareholders, in each case who have a need to know such information, provided that such persons either (A) agree to observe the terms of this Section __or (B) are bound by obligations of confidentiality to the shareholder representative of at least as high a standard as those imposed on the shareholder representative under this Section __.

With respect to communications among shareholders or between shareholders and the shareholder representative, the parties should ensure that such communications remain privileged, especially when the buyer has made an indemnification claim or the shareholders believe that buyer has breached one of its obligations under the merger agreement. When the shareholders elect to have conferences and/or phone calls to discuss matters that are either in arbitration or litigation or likely to result in a dispute, shareholders are advised to have the shareholder representative and counsel for the indemnifying shareholders included in all such calls and conferences. Including counsel should maintain privilege as to discussions for which privilege is available. Including the shareholder representative helps to protect the shareholders from unnecessary risk.

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