Courts may also consider the purpose of the contract and the significant risks associated with transferring those rights to the purchaser. If, for example, the non-issue entity is a competitor to the recipient undertaking, the courts may find that, given the high risk and the heavy burden on the non-issuer party, the assignment is, for fair reasons, ineffective. Essential contracts must be able to be sold or the buyer cannot benefit from the right deal. For example, if you buy a retail store with this „Sweet Spot“ site, the non-order of the real estate rental may destroy the agreement. Each company has its own „essential“ contract. This may be an agreement to supply material, because a specific ingredient or raw material is essential to the product and to maintain market share. Perhaps it is a form of intellectual property that is essential. Or maybe the contract with a major collaborator like the renowned chef of the restaurant you buy is important. As discussed here, the assignee – the seller – must take a step that gives the assignee, the purchaser — the rights defined in the various contracts to the assignee or to the ownership of the assignee. From a practical point of view, we often do two things. First, the initial sales contract generally provides that the seller yields all necessary contracts. As part of the financial statements or before closing, the seller signs documents that assign all contacts assigned in connection with the sale/merger. The structure of a given AM transaction is essential in determining the treatment of the target entity`s various contractual rights.
This section examines the treatment of contractual rights related to four common merger structures: (i) reverse triangular mergers, (ii) pre-triangular mergers, (iii) stock purchases and (iv) asset purchases. For more information on the structures of the M-A deal, click here and here. When checking the following deal structures, note that each of the general rules is subject to the exceptions described above. Nevertheless, Delaware courts generally agree that the clause applies to mergers for which the company with the awarding authority is not the surviving entity where an anti-transfer clause contains a language relating to a transfer agreement that relates to an assignment „by the application of the law.“  Here, the anti-transfer clause contained in the original acquisition agreement provided for a ban on divestitures „by law“.  Although Delaware has recognized that a merger of which the contracting party is a party (a reverse triangular merger) is not a legal assignment „because the contractual rights remain to the contracting party and do not move to another unit“, the merger has led a new entity to contract the contract rights of the original salesperson and to the fact that the original salesperson ceases to exist.