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Basket and Cap
Terms in an indemnity agreement where the "basket" is the threshold amount of losses that must be incurred before the seller is liable, and the "cap" is the maximum amount the seller will pay for indemnified claims.
Implications
A legal mechanism in M&A transactions that sets thresholds for indemnification claims, where the �basket� is the minimum claim amount, and the �cap� is the maximum liability.
Example
Example: In a merger agreement, a seller agrees to a basket and cap clause where the buyer can only claim indemnification if losses exceed $100,000 (basket), with a maximum liability of $1 million (cap).
Related Terms
Different from standard indemnification, basket and cap clauses limit the amount and conditions under which indemnification can occur.
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