Practical Law Glossary Item 1-382-3264 (Approx. 3 pages)
This term has several meanings. In the context of:
Finance, "basket" is business jargon for a maximum dollar amount for a specific exception to a covenant restriction in a financing agreement. For example, a loan agreement may limit the borrower's ability to incur debt but permit it to incur up to $5 million in letters of credit. The $5 million is referred to as a debt "basket."
Mergers and acquisitions, an indemnification concept limiting a party's obligation regarding small claims. A basket provides that an indemnifying party does not have an obligation to indemnify until the amount of the indemnified party's losses exceed a certain agreed amount. Baskets can be structured in two different ways. They can be structured as a threshold so that once the agreed amount is reached, the indemnifying party is liable for the total amount of losses (sometimes referred to as a "tipping basket" or "dollar one" threshold). Alternatively, they can be structured as a deductible so that once the agreed amount is reached, the indemnifying party is only liable for the amount of losses in excess of the agreed amount (sometimes referred to as an "excess liability" basket). For recent trends in deals with basket provisions, see Practice Note, What's Market: Indemnification Provisions in Acquisition Agreements.