Are ‘No Shop’ Clauses Kosher?

SAN FRANCISCO, CA – In perhaps the fastest litigated lawsuit ever in time, Yuchem sued Rainberry, Inc. alleging that Rainberry, Inc. had violated a ‘no shop’ clause in a letter of intent that contemplated an equity and/or asset purchase. The case was filed on the 1st of February. Plaintiff sought a TRO and the case was dismissed on the 8th.

‘No shop’ clauses are common in equity and/or asset purchase documents but they are not without their problems. Officers and directors have a fiduciary duty to get shareholders the best price. ‘No shop’ clauses are in conflict with that idea.

The workarounds are rather elaborate and include setting up independent committees to evaluate deal terms. But again, without the benefit of competing bids, how can an independent committee make an informed opinion?

This blog reports on cases filed in and around the San Francisco Bay Area. The statements made are based on the allegations in court-filed documents. Allegations are just accusations, and may or may not be true.
The authors of the blog are attorneys at the San Francisco litigation firm, Wood Robbins, LLP. If you have a legal issue, send them an email. If they cannot help you, they will try and point you in the right direction.


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