Legal Definitions - no-shop provision

A no-shop provision is a clause in a commercial contract that restricts one or more parties from seeking, soliciting, or accepting alternative offers from other potential partners or buyers for a specified period. Essentially, it creates an exclusive negotiation window, preventing the party from "shopping around" for a better deal while the current agreement is being finalized or executed.

Here are some examples to illustrate how a no-shop provision works:

• Mergers and Acquisitions: Imagine a large corporation, "Global Conglomerate," is in the process of acquiring a smaller software company, "InnovateTech." As part of their initial agreement to proceed with due diligence and detailed negotiations, Global Conglomerate insists on a no-shop provision. This means that for the next 60 days, InnovateTech cannot entertain offers from other potential buyers, nor can it actively seek out new acquisition proposals. InnovateTech is obligated to focus solely on finalizing the deal with Global Conglomerate during this period.

  This illustrates the term because InnovateTech is prohibited from "shopping" its company to other interested parties, ensuring Global Conglomerate has an exclusive window to pursue the acquisition without competition.

• Real Estate Development: A city government is negotiating with "Urban Renewal Developers" to redevelop a large downtown parcel. They sign a preliminary agreement that includes a no-shop clause. This clause prevents the city from discussing the redevelopment project with other developers, accepting bids from them, or even publicly soliciting alternative proposals for the duration of their exclusive negotiation period with Urban Renewal Developers.

  This example demonstrates a no-shop provision by showing the city's commitment to exclusively negotiate with Urban Renewal Developers, preventing them from exploring other development partners for the project.

• Exclusive Licensing Agreement: A biotechnology startup, "BioGen Innovations," has developed a promising new drug compound. They enter into a term sheet with a major pharmaceutical company, "PharmaGiant," to negotiate an exclusive license for the drug's development and commercialization. The term sheet includes a no-shop provision, stating that BioGen Innovations cannot engage in discussions with other pharmaceutical companies regarding licensing or selling the rights to this specific drug compound for the next three months.

  Here, the no-shop provision ensures that PharmaGiant has an exclusive period to evaluate and finalize the licensing agreement without BioGen Innovations simultaneously negotiating with or receiving offers from PharmaGiant's competitors.