Quantifying Contractual Assignment Restrictions in Enterprise Acquisitions
Quantify contractual assignment restrictions by modeling gross profit at risk, re-procurement cost deltas, and dedicated consent escrows against headline price.
Special Indemnity Basket
Meaning
A dedicated pool of funds or specified transaction value in an acquisition agreement that allocates risk for known or high-probability liabilities separately from the general indemnity pool. A special indemnity basket ensures that specific risks, such as pending lawsuits or unresolved tax audits, do not consume the general indemnity limits set for unexpected breaches.
Threshold Function
Claim recovery depends on whether the basket is structured as a deductible or a first-dollar threshold. When a special indemnity basket is structured as a first-dollar threshold, the buyer can recover the entire amount once the total claims exceed the floor. This provides the buyer with greater security for pre-identified liabilities.
Claim Accumulation
Documented losses must be registered against the basket within a specific survival period defined in the purchase agreement. If the special indemnity basket is exhausted, the buyer must seek recovery through other contract terms or bear the remaining cost alone. The seller often demands that only losses directly arising from the named risk can be counted towards this bucket.
Liability Cap
Maximum exposure under this clause is restricted to a pre-negotiated percentage of the transaction value. The special indemnity basket has its own independent cap to prevent a single massive tax claim from exhausting the entire escrow.