Delaware Court Voids Post-Closing Seller Obligations

In a key decision for M&A dealmakers, the Delaware Court of Chancery invalidated two common post-closing obligations imposed on a selling stockholder. The case involved a merger where the seller was required to sign a letter of transmittal containing a broad release of claims against the acquirer and an indefinite indemnification obligation. The court struck down the release because it was requested after the merger had already closed—a point at which the seller was already entitled to its consideration—meaning there was no new consideration for the release. More significantly, the court found that the indemnification provision, which survived indefinitely and could claw back the seller's merger consideration at any point, violated the Delaware General Corporation Law. The court reasoned this structure made the total merger consideration indeterminable, contravening statutory requirements for certainty. Corporate and private equity counsel should take note, as the ruling highlights critical structuring risks for acquirers seeking post-closing protection. Acquirers cannot use letters of transmittal to impose new material obligations without fresh consideration, and indemnification clauses must not render the final merger consideration unascertainable.