This form provides boilerplate contract clauses that restrict or limit the dollar exposure of any indemnity under the contract agreement. Several different language options are included to suit individual needs and circumstances.
Arizona Indemnity Provisions - Dollar Exposure of the Indemnity regarding Baskets, Caps, and Ceilings
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US-ND1010
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How to fill out Indemnity Provisions - Dollar Exposure Of The Indemnity Regarding Baskets, Caps, And Ceilings?
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FAQ
A basket establishes a threshold under which the buyer cannot make a claim against the seller. In small market transactions, the basket amount is usually in the range of $25,000-$50,000, and is often determined as a percentage of the purchase price (around 0.5%).
A tipping basket means where a loss exceeds the de-minimis, all losses beyond the de-minimis accumulate and they must go above the threshold in order for the indemnifier to pay. In other words, the indemnifier is liable for the entire amount once the basket threshold is tipped.
An indemnity basket requires the buyer to incur a certain amount of loss before it can seek indemnification from the seller. There are typically two types of baskets: true deductibles and threshold/tipping baskets. With a true deductible, the seller is only responsible for losses exceeding the basket amount.
An indemnification cap, or cap on an indemnity clause , is a cap on liability. It represents the obligation of a seller to a buyer against breaches of reps and warranties. This cap is the maximum liability under the indemnification stipulations and is stated to a specific dollar amount.
Deductibles or baskets, also sometimes called thresholds, are designed to set a minimum limit on when a party is responsible for indemnification. They state for both parties how significant or material a claim has to be before one party contacts the other party to address the claim.
In the context of mergers and acquisitions, or a commercial transaction, a basket is a provision in a purchase and sale agreement that limits an indemnifying party's obligations to indemnify another party for small losses or claims. The basket establishes a monetary threshold.