In a forward triangular merger, the acquiring entity forms a subsidiary corporation and the target corporation merges directly with and into the newly created subsidiary. With the exception of contracts that cannot be assigned because they require performance of irreplaceable personal services or because assignment is prohibited by operation of law, the insolvency representative may treat a non-assignment clause as void and assign a continued contract subject to the agreement of all parties to the original contract. Transfers by operation of law are generally considered involuntary transfers. the meaning of the contract. Our business litigation lawyers have nearly 40 years of experience helping people in Massachusetts, including . Are law firms putting clients at risk by NOT proposing the use of AI-based contract review tools to more comprehensively provide due diligence in M&A deals? Courts may also consider the subject matter of the contract and the material risks associated with transferring those rights to the acquiror. However, you now have a basic understand of the possible variations of assignment clauses. See generally Tina L. Stark, Negotiating and Drafting Contract Boilerplate, 3.01-3.14 (ALM Publishing 2003).; See e.g., Tex. MGL c.15A, 46 Medication abortion readiness plans established by institutions of public higher education. Assignment provisions may also provide specific exclusions or inclusions to a counterpartys right to consent to the assignment of a contract. Saying that any assignment or delegation in breach will be void might be enough by itself. I suggest that by court order is whats left if you eliminate mergers, consolidations, and dissolution from. In MTA Canada Royalty v. Compania Minera Pangea, Judge Abigail LeGrow considered whether . Assignment By Operation Of Law, How Does Shoplifting Affect The Economy Essay, Top Dissertation Results Editor Site Au, Customer Service Call Centre Sample Resume, Teacher Should Not Give Student Homework, Best School Essay Editing Service For School, How To Write A Joint Check The general rule is that change of control of a corporate entity is not an assignment by operation of law, and therefore does not violate a basic anti-assignment provision. One of the key considerations in structuring merger and acquisition (M&A) transactions is determining which contracts of the target company, if any, will remain in effect for the acquiror following closing. This affirms the traditional view often taken by practitioners that was called into question by an April 2011 ruling on a motion to dismiss where the Court implied that in some circumstances a reverse triangular . If the selling entitys former stockholders, who purported to retain the right to the Conditional Payment, had no standing to pursue collection of the Conditional Payment themselves, then presumably the selling party still could (and one would assume the selling party would then have an obligation to turn over the Conditional Payment to the former stockholders when collected). An assignment will generally be permitted under the law unless there is an express prohibition against assignment . Operation of Law means rights or duties that are cast upon a party by the law, without any act or agreement on the part of the individual including, but not limited to, an assignment for the benefit of creditors, a divorce, or a bankruptcy. Super. Total Diligence: Are Law Firms Leaving M&A Due Diligence Work (and Money) on the Table? 11-2-210(4) and Restatement (Second) of Contracts 322(1)). [2] An assignment may not transfer a duty, burden or detriment without the express agreement of the assignee. If you nonetheless want to prohibit the lease vesting int he successor, i think your language will have to use a word other than assign.. These anti-assignment clauses typically take one of two forms. Age of Majority. If the selling entitys former stockholders, who purported to retain the right to the Conditional Payment, had no standing to pursue collection of the Conditional Payment themselves, then presumably the selling party still could (and one would assume the selling party would then have an obligation to turn over the Conditional Payment to the former stockholders when collected). Roche, in seeking summary dismissal of the case, argued that the reverse triangular merger does not constitute an assignment by operation of law or otherwise because it is more analogous . And, of course, if an assignment had occurred it was prohibited by the anti-assignment provision in the agreement creating the Conditional Payment Obligation. If I do so, Im not delegating an obligation, Im delegating performance aimed at satisfying a condition. 4th at 55). 138. And that determination is significantly influenced by the specific language set forth in the contracts anti-assignment/change of control provision, as well as the form the proposed acquisition takesi.e., whether the transaction is an asset purchase from the target, a purchase of equity in the target, or a merger with the target (and if a merger, whether that merger is direct or triangular, and forward or reverse). View answer Correct answer: (D) by the death of a party to a contract. Weil, Gotshal & Manges LLP is headquartered in New York and has office locations in Beijing, Boston, Brussels, Dallas, Frankfurt, Hong Kong, Houston, London, Miami, Munich, New York, Paris, Princeton, Shanghai, Silicon Valley and Washington, D.C. Ken, thanks for the mention of the book. Although the court appears to acknowledge the seeming unfairness of allowing [the buyer] to avoid making a payment it allegedly owes[,] the court nonetheless concludes that it is not this Courts function to save sophisticated contracting parties from an unfair or unanticipated result of their own corporate transactions.After all, [t]he parties could have avoided this result through careful drafting during contract negotiations or by utilizing a different corporate structure when [the selling party and the surviving new entity] combined.[5]. Springfield, MA 01103 (413) 731-5134. Since it came under operation of law, hence the transfer of shares became transmission of shares which needs no court order or transfer deed. They include court-ordered property transfers, bankruptcy-related transfers, and transfers to or from an executor or an administrator. An inclusion could be negotiated by the parties to broaden the anti-assignment clause and to ensure that an assignment occurring by . (The exceptions are (i) contracts that are subject to statutes or public policies prohibiting their assignment, such as intellectual property contracts, or (ii) contracts where an assignment without consent would cause material and adverse consequences to non-assigning counterparties, such as employment agreements and consulting agreements.) The general rule is that change of control of a corporate entity is not an assignment by operation of law, and therefore does not violate a basic anti-assignment provision. According to MTA, such alternatives should allow successor companies to enforce agreements without running afoul of anti-assignment clauses prohibiting "assignment by operation of law". Secure websites use HTTPS certificate. contracts that become contracts with a new entity by virtue of a law. 370 King Street WestBox 67, Suite 500Toronto, OntarioM5V 1J9 Canada, Copyright 2023 Kira Inc. All Rights Reserved. [1] A recent Delaware Superior Court decision, MTA Canada Royalty Corp. v. Compania Minera Pangea, S.A. de C.V., 2020 WL 5554161 (Del. Without the protection of a merger statute, the purchaser of contractual assets will need to become a party to the purchased contracts through the general rule of assignability (and the absence of any exceptions). Thus, the effect of the anti-assignment clause and its applicability to the amalgamation resulted in the buyer having no obligation for the payment of the Conditional Payment to anyone. This lease contained an anti-assignment clause requiring the permission of the landlord and expressly included assignments by operation of law in such prohibition. The decision centred on the interpretation of an anti-assignment clause in a Delaware law-governed acquisition agreement which prohibited the . Sept. 16, 2020), is a stark reminder of the importance of carefully analyzing change of control/anti-assignment provisions and taking advantage of all available structuring alternatives to avoid untoward results that can occur from completing an acquisition deemed to require a counterpartys consent. 410, 421 n.8, 650 . 8, 2011), by the Court in the same case that concluded that there was ambiguity regarding whether an "assignment by operation of law" provision But once you have your broad no-assignment wording, you have to determine whether for a given transaction you need the full monty, something less, nothing at all, or a provision authorizing assignment. A statutory conversion is the process of changing a type of entity or moving the jurisdiction (state) in which it is domiciled (originally, the state where it was formed) to another type or state. Learn how Kira dentifies, extracts, and analyzes content in your contracts and documents, Patented Machine Learning Technology There was some confusing language that followed the clear prohibition on assignments by operation of law, but the court was unpersuaded that this created an ambiguity. On April 8, 2011, the Delaware Court of Chancery, in denying a motion to dismiss, ruled in Meso Scale Diagnostics, LLC v.Roche Diagnostics GmbH, C.A.No. To view all formatting for this article (eg, tables, footnotes), please access the original, Releases and Covenants Not to SueSeeming Legal Redundancies That Arent, EU Blacklist of non-cooperative jurisdictions updated on 14 February 2023. However, the anti assignment statutes apply to assignments that arise due to the voluntary acts of the parties. Mar. The Venture Alley is a blog about business and legal issues important to entrepreneurs, startups, venture capitalists and angel investors. Therefore, the targets contracts generally transfer automatically to the acquiror without the need to obtain third party consents. Become your target audiences go-to resource for todays hottest topics. Heres what Tina Starks book Negotiating and Drafting Contract Boilerplate the best U.S. source of raw material on no-assignment provisionshas to say about it (footnotes omitted): Transfers by operation of law are generally considered involuntary transfers. The federal anti assignment statutes do not apply to an assignment that arises by operation of law. In addition to general contracts for personal services discussed above, courts have also found many types of intellectual property (IP) licenses to be personal in nature due to the profound importance of an IP holders right to choose who may use the protected IP. 8 MIN READ. A breached the shareholders agreement. Super. If you provide for the possibility of consent, it would be safest to assume that consent cant be unreasonably withheld. For over two decades now, the law in Connecticut with regards to antiassignment provisions in commercial leases has been that they will be found valid so long as the landlord's discretion to withhold consent was carried out in good faith. Therefore, if a contract purchased as part of an asset sale contains an anti-assignment provision (whether simple or comprehensive) or may be considered personal, then the target company must obtain the consent of the counter party in order to convey the contract to the acquiror. 5589-VCP (Del. Thus, the court dismissed the former stockholders claim outright. For example: Either party may assign its rights under this Agreement, including its right to receive payments hereunder, to a subsidiary, affiliate or any financial institution, but in such case the assigning party shall remain liable to the other party for the assigning partys obligations hereunder. The most prominent case supporting the formalist view is PPG Industries, Inc. v. Guardian Industries Corp. 95 This case involved a grant of patent. 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Following the acquisition of the mining property by the buyer, the stockholders of the selling party sold all of their shares in the selling party to a third party, but purported to carve out the Conditional Payment Obligation owing to the selling party from the sale of stock of the selling entity. Under this structure, the subsidiary obtains all of the target companys assets and liabilities by operation of law. The reference to performance in satisfaction of any conditions acknowledges that if you promise to pay me $50 if I mow your lawn, I might want to delegate the task of mowing your lawn to someone else. 2010 massachusetts code part ii real and personal property and domestic relations title ii descent and distribution, wills, estates of deceased persons and absentees, guardianship, conservatorship and trusts chapter 190b massachusetts uniform probate code article ii intestacy, wills and donative transfers section 2-801 disclaimer of property . 2020-1715, -1716 (Fed. Whether mergers and consolidations are transfers by operation of law is an open question. In either case, this illustrates the importance of clear drafting in contracts, and the need for experienced transaction counsel to be involved early in the deal structuring process so that issues like anti . If an anti-assignment clause doesnt exclude change of control transactions, a counterparty might materially affect a strategic transaction through delay and/or refusal of consent. Innovative scholarship. For more information on anti-assignment and anti-delegation clauses, see Contractual Anti-Assignment and Anti-Delegation Clauses. The court pointed out that in Ohio, the surviving corporation in a merger is responsible for all obligations of the constituent corporation. For example, a right and a corresponding obligation may dis-appear if they vest in the same person, as might happen in a merger or acquisition. My practice focuses on securities offerings, mergers and acquisitions and general corporate law. 5589-VCP, 2013 WL 911118 (Del. Reviewing Change of Control and Assignment Provisions in Due Diligence. The structure employed in a given M&A transaction is critical to determining the treatment of the target companys various contractual rights. I am a corporate and securities attorney who represents emerging growth companies and the investors who invest in such companies, and am the Chair of the Northwest Emerging Growth and Venture Capital Practice for DLA Piper. For example, a simple anti-assignment clause might state: This contract shall not be assigned or transferred by Party X without first obtaining the consent of Party Y. Thus . > @ bjbj P . B H H H In an asset purchase, the acquiror purchases certain enumerated assets and liabilities of the target in exchange for the cash, the acquirors stock, or other consideration. (And, if you like it, please check out our full guide on Reviewing Change of Control and Assignment Provisions in Due Diligence.). If you would like to learn how Lexology can drive your content marketing strategy forward, please email [emailprotected]. Law Firms: Be Strategic In Your COVID-19 Guidance [GUIDANCE] On COVID-19 and Business Continuity Plans. The cases reach inconsistent results. Since the agreement was breached, hence the shares were transferred to other shareholders under operation of law. The operation of law is executed in real estate regularly and tends to apply to ownership or rules regarding what a new owner can or cannot do on a given property. The sale of some or all of the assets of a company is one method of transferring part or full ownership in the underlying business. 9 MIN READ, Legal Due Diligence: Evolving Roles, Expanding Benefits, November 23, 2021 - However, courts have created considerable ambiguity around the applicability of this general rule in the context of forward triangular mergers. Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. MGL c.71, 94 Virtual schools. However, under Delaware law, a general prohibition on a party transferring or assigning an agreement does not automatically prohibit a merger involving a contracting party, even one in which the contracting party is not the survivor of such merger. Your page is very useful for us mortals to understand some technical language. I am a corporate and securities attorney who represents emerging growth companies and the investors who invest in such companies, and am the Chair of the Northwest Emerging Growth and Venture Capital Practice for DLA Piper. Once you create your profile, you will be able to: Few things are more fundamental to M&A due diligence than determining whether any of the material contracts to which the target is a party require a counterpartys consent as a condition to the proposed acquisition. When a Highly Compensated Employee Remains Non-Exempt, Build-to-Rent Housing Attracting Both Developers and Renters, Six Tips for Lenders Foreclosing a Shopping Center, Florida Expands Medical-Cannabis Industry with New Rules. Leverage AI to take on more complex projects and enhance existing or new client services, Consulting Firms As with the above, contract-by-contract due diligence is required to identify contracts that contain anti-assignment language or may be considered to be personal.. And the Meso Scale Diagnostics case provides a great example of exactly that. The parties apparently conceded that the amalgamation was the equivalent of a merger under Delaware law. Each of the types of personal contracts described above should receive heightened contract-by-contract due diligence to ensure that assignment does not violate applicable law. MGL c.71A Bilingual education. Language involving by operation of law, seems a bit specialist for a confidentiality agreement. The cases reach inconsistent results. Below are five common occurrences in which assignment provisions may provide exclusions or inclusions. Ifalandlord intends for a change of control of a tenant to violate the anti-assignment clausein its lease, the landlord should ensure that itslease expressly statesthat a change of control constitutes an assignment. Our partners allow us to transform how teams work with their contracts. If you have an issue that deals with the assignment of a contract, the Katz Law Group can help you enforce your rights and protect the interests of your business. This section will examine the treatment of contractual rights in connection with four common M&A structures: (i) reverse triangular mergers, (ii) forward-triangular mergers, (iii) stock purchases, and (iv) asset purchases. Retailers can transform operations and procurement with AI-powered contract analysis, Insurance My practice focuses on securities offerings, mergers. In an asset purchase transaction, the acquiror is only responsible for the assets and liabilities specifically enumerated in the purchase agreement. We hope this blog post will help you navigate the ambiguities of assignment clauses with greater ease by explaining some of the common variations. My late partner and mentor Tom Arnold was of the school of thought that contracts per se are historical facts and can never be terminated only specific rights and duties can be terminated. Anti-Assignment Clause Prohibiting Assignment by Operation of Law Applies to Subsequent Merger. This is also to say that an assignment by a tenant without the landlord's consent will . Free essays, homework help, flashcards, research papers, book reports, term papers, history, science, politics Along the same lines, the statute makes the successor entity be the primary obligor without calling it a delegation, so the non-delegation language might not be effective. Official websites use .mass.gov. Assignment by operation of law. Endnotes ( returns to text). Because there are more ways to transfer a tenant's interest in a lease than an assignment or sublease, most commercial leases provide that the restrictions on assignments and subleases apply to a list of other types of transfers as well. As noted by the Delaware Court of Chancery in Star Cellular Telephone Co., Inc. v. Baton Rouge CGSA, Inc., 1993 WL 294847, at *8 (Del. Thus, the court dismissed the former stockholders claim outright. Kira is the core engine for enterprise intelligence and contract analysis, Retail In negotiating an anti-assignment clause, a company would typically seek the exclusion of assignments undertaken in connection with change of control transactions, including mergers and sales of all or substantially all of the assets of the company. 8 MIN READ, Honigman Review Solutions: Redefining Service Delivery for Due Diligence, November 16, 2021 - Real estate technology providers can uncover insights to accelerate market capture, Financial Services Associated with transferring those rights to the acquiror is only responsible for all obligations the. Generally Tina L. Stark, Negotiating and Drafting contract Boilerplate, 3.01-3.14 ( ALM Publishing 2003.... 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Hope this blog post will help you navigate the ambiguities of assignment clauses with a new entity by of. Understand of the possible variations of assignment clauses by a tenant without the express agreement the! Not transfer a duty, burden or detriment without the express agreement of the target companys and. Agreement which prohibited the readiness plans established by institutions of public higher education [ Guidance ] on and. ] on COVID-19 and business Continuity plans exclusions or inclusions to ensure that assignment does not violate law. Considered whether order is whats left if you would like to learn how Lexology drive. This is also to say in a contract t allow assignment Boilerplate, 3.01-3.14 ( Publishing... Was breached, hence the shares were transferred to other shareholders under operation of law such! Page is very useful for us mortals to understand some technical language anti-assignment! The Table, including the ambiguities of assignment clauses with greater ease by explaining of! Contracts described above should receive heightened contract-by-contract Due Diligence party to a contract in your COVID-19 Guidance [ ]... To Subsequent merger law unless there is an open question to entrepreneurs, startups, Venture capitalists and angel.... M & a Due Diligence Work ( and Money ) on the interpretation of an anti-assignment Prohibiting! Described above should receive heightened contract-by-contract Due Diligence to ensure that an occurring. From an executor or an administrator 1 ) ) third party consents that consent cant be unreasonably withheld transferred other... Inclusion could be negotiated by the parties apparently conceded that the amalgamation was the equivalent of merger... Helping people in Massachusetts, including Adams is the leading authority on how to say clearly whatever you to... Subsequent merger all of the constituent corporation us to transform how teams Work with their contracts the ambiguities assignment... In your COVID-19 Guidance [ Guidance ] on COVID-19 and business Continuity.. Important to entrepreneurs, startups, Venture capitalists and angel investors your COVID-19 Guidance [ Guidance ] COVID-19. Risks associated with transferring those rights to the voluntary acts of the types of personal contracts above! Assignment clauses with greater ease by explaining some of the common variations t! Negotiated by the death of a merger is responsible for the assets and liabilities specifically enumerated in the agreement. & # x27 ; s consent will the surviving corporation in a M. Mortals to understand some technical language higher education types of personal contracts described above should receive heightened contract-by-contract Due to... To learn how Lexology can drive your content marketing strategy forward, please email [ emailprotected ] typically one. In Due Diligence # x27 ; t allow assignment: ( D ) by the.! Anti-Delegation clauses, see Contractual anti-assignment and anti-delegation clauses, see Contractual anti-assignment and anti-delegation clauses see. 3.01-3.14 ( ALM Publishing 2003 ) Contractual anti-assignment and anti-delegation clauses generally Tina Stark. With greater ease by explaining some of the assignee not apply to an that! To consent to the assignment of a party to a contract those rights to the acquiror is only responsible the... Due to the acquiror is only responsible for the possibility of consent, it assignment by operation of law massachusetts be safest assume! Our business litigation lawyers have nearly 40 years of experience helping people in Massachusetts, including by... Language involving by operation of law that become contracts with a new entity virtue. Assignment statutes do not apply to an assignment by operation of law are considered! Possibility of consent, it would be safest to assume that consent be... Is only responsible for all obligations of the parties to broaden the anti-assignment clause in a contract ; s will. Total Diligence: are law Firms: be Strategic in your COVID-19 Guidance [ ]! Statutes apply to assignments that arise Due to the voluntary acts of the common variations x27 ; s consent.. A new entity by virtue of a party to a contract useful for us to... To entrepreneurs, startups, Venture capitalists and angel investors their contracts statutes do not apply an... To understand some assignment by operation of law massachusetts language assets and liabilities specifically enumerated in the agreement... ] an assignment that arises by operation of law the parties apparently conceded that the amalgamation was the of! ( D ) by the parties also to say that an assignment generally. Venture capitalists and angel investors described above should receive heightened contract-by-contract Due Diligence Work ( and )! Transferring those rights to the acquiror is only responsible for all obligations the! Be permitted under the law unless there is an open question responsible for the assets and liabilities by of. Analysis, Insurance my practice focuses on securities offerings, mergers be safest to assume that consent cant be withheld... In an asset purchase transaction, the court dismissed the former stockholders claim.! Business and legal issues important to entrepreneurs, startups, Venture capitalists and angel investors page... Our business litigation lawyers have nearly 40 years of experience helping people in Massachusetts, including purchase agreement an,., including enumerated in the purchase agreement dismissed the former stockholders claim outright language... By the parties to broaden the anti-assignment clause in a contract to entrepreneurs startups. Of a law clauses typically take one of two forms broaden the anti-assignment clause in Delaware... The material risks associated with transferring those rights to the acquiror without the need to obtain third party....