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IN THE SPOTLIGHT
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Kristen G. Dickey, Esquire
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Kristen is an associate in Starfield & Smith's Florida office and she concentrates her practice in the areas of commercial lending, real estate, contracts and corporate law. As closing counsel for various financial institutions (including banks, credit unions and certified development companies) that extend commercial credit facilities to small and mid-size businesses, she drafts, analyzes, and negotiates documents for government guaranteed loans through SBA 7(a) and 504 loan programs and conventional loans.
Kristen has closed many commercial finance transactions from start-up business transactions to complex real estate and business acquisitions. She has also worked on financings under the SBA CAPLine, Export Working Capital, and USDA Business and Industry loan programs.
ADMISSIONS:
* Florida (2006)
* District of Columbia (2009)
To read more about Kristen, click here.
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FEATURED ARTICLE
Best Practices: Indemnification Clauses in Purchase Agreements
By: Katie O'Brien, Esquire
 | | Katie O'Brien, Esquire |
When financing the purchase of a business, one of the most important pieces of due diligence that a lender collects is the purchase agreement. Most lenders review a purchase agreement and its exhibits for details such as the parties to the purchase agreement (to confirm that parties match the loan applicant), the purchase price and purchase price allocation, the duration and geographical scope of any non-compete clause, the terms of any seller financing, and bulk sales or successor liability provisions, if applicable. But one important provision that sometimes gets overlooked is whether or not the purchase agreement contains an adequate indemnification clause for the benefit of the buyer/borrower.
An indemnification provision benefiting the buyer is intended to make the buyer whole for certain losses incurred by the buyer in connection with the business due to issues arising. For example, a seller might indemnify a buyer for losses arising from a failure by the seller to adhere to contractual covenants, inaccuracies or breaches of representations and warranties, and/or third party claims against the business related to the operation of the business by seller prior to the closing. A seller may further agree to indemnify a buyer for liabilities that buyer is not assuming, unpaid taxes and environmental issues that were present prior to closing.
Indemnification provisions can be heavily negotiated. Below are a few of the considerations that arise during negotiations:
- Time limitation - The indemnification may be limited to one year, two years, etc. The parties may also place different time limitations on different covered acts. For example, a seller might indemnify a buyer for contractual breaches that transpire within a year of closing, but third party claims that arise within three years of closing. If no time is specified in the contract, the applicable statute of limitation controls.
- Maximum amount - Indemnification may be limited to a maximum specified amount (sometimes a percentage of the purchase price).
- Threshold amount - The indemnifying party may not have any obligation until a certain threshold has been reached (e.g. a $15,000 loss to the buyer).
- Who, in addition to the buyer, is considered an indemnified party? Are affiliates, employees and representatives of the buyer given the same protections as buyer?
- Escrow - Funds may be escrowed at closing to ensure that the indemnifying party has the financial wherewithal to cover a claim under the indemnification clause.
Although an indemnification clause does not take the place of a buyer's thorough due diligence on the seller and the business, it is an important protection enhancement for the buyer. Thus, it is important for lenders to be aware of the role indemnification provisions play in a purchase agreement and be aware of the impact indemnification provisions may have, or the risks that their absence may pose when underwriting their loans, and projecting the likely success of the business.
For more information regarding contract provisions and identification clauses, please contact Katie at 215.542.7070 or kobrien@starfieldsmith.com.
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EVENTS & SEMINARS
Date: December 6, 2013
Location: Webinar
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WHAT OUR CLIENTS SAY
Robert R. Dwyer / Vice President - Lending / 1st Colonial National Bank
The law firm of Starfield and Smith is unparalleled in its professionalism and expertise. On a daily basis, every single member of the firm, from the top to bottom, breaks down the typical stereotype of staid, overly cautious legal work. They do this by rolling up their sleeves and cranking out the work while telling it straight to the client. Their advice and product is always spot-on and delivered timely. They are a essential part of my business. The firm, and everyone in it, is at the top of their game.
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