Abstract
Among the most contentious issues in the sale of securities issued by a privately held company is the scope of indemnification to which an investor is entitled for a breach of representations and warranties by the issuer. A subset of that issue is the proper measure of an investor’s loss upon the occurrence of an indemnifiable event. Sophisticated investors maintain that the appropriate metric is the amount by which the value of their investment has diminished. Issuers who appreciate the ramifications of this position recoil at it, and the battle among lawyers ensues. This article examines the meaning and basis of a diminution in value indemnification, how it seeks to maximize the recovery available to the investor, and whether the commercial benefit of such an indemnification outweighs the costs associated with demanding it as a condition of making the investment. <b>TOPICS:</b>Private equity, exchanges/markets/clearinghouses, portfolio construction
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