Series 79 practice questioneasyRepresentations and Warranties
In an M&A agreement, an indemnity basket is best described as which of the following?
- AA provision that excludes certain claims from indemnification.
- BA clause that extends the survival period of warranties.
- CA requirement that representations are brought down at closing.
- DA threshold amount of losses that must be reached before the indemnifying party is liable.✓ Correct answer
Explanation
Why D — A threshold amount of losses that must be reached before the indemnifying party is liable.
An indemnity basket sets a minimum dollar threshold before indemnification is triggered, protecting the seller from immaterial claims. This prevents the buyer from making small individual claims, which could otherwise be a trap for parties unfamiliar with M&A indemnity mechanics.
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