What is a VAM? What is a VAM?

Hello, the VAM has nothing to do with gambling, but when there is a certain uncertainty about the future profitability of the enterprise, it sets certain terms to achieve the reasonableness and fairness of the investment transaction as much as possible. A VAM is an agreement between the investor and the financier to enter into a financing agreement due to uncertain circumstances in the future, and the financier can exercise a right if the agreed conditions appear. If the agreed conditions do not appear, the investor exercises a right. A VAM is actually a form of option, which can not only protect the interests of the investor, but also play a certain incentive role for the financier.

VAM agreements are not only used in investment and financing, but are also often used in mergers and acquisitions, mergers and acquisitions and equity restructuring of enterprises.

It's actually a form of option. Through the design of the clauses, the VAM can effectively protect the interests of investors. VAM agreements have been applied in foreign investment banks' investments in domestic enterprises.

A VAM is an agreement between the acquirer (including the investor) and the transferor (including the financier) on uncertain future circumstances when they enter into an M&A (or financing) agreement.

There are many types of VAM agreements, which can be performance VAM, profit VAM, or condition VAM, and you must ensure your understanding of the project and the validity of the agreement when you sign it.

A VAM is an agreement between the investor and the financier on uncertain future circumstances. VAMs arise from the uncertainty of the future profitability of the enterprise, in order to achieve as reasonable and fair investment transactions as possible. A VAM, also known as the valuation adjustment mechanism, is an agreement between an investor and the investee on matters agreed upon in the future in order to reduce the investment risk caused by information asymmetry and protect its own interests.

The matters here can be the company's future operating performance, or certain matters that are completed within the deadline. If the investee fails to complete the relevant matters within the commitment period, the investor has the right to exercise certain rights. In this way, the VAM agreement can be understood to a certain extent as an equity transfer agreement with effective conditions, and when the effective conditions are not fulfilled, the actual controller exercises the right to make trouble in accordance with the agreement.

VAM maximizes the protection of the investor's interests, as if it does not have to bear any investment risks, and the investee is at the bottom regardless of the investment outcome, which is the price that the investee has to pay if he wants to obtain a large amount of money quickly.

Civil Code of the People's Republic of China: Article 146:Civil juristic acts carried out by the actor and the counterpart with false expressions of intent are invalid. The effectiveness of civil juristic acts concealed by false expressions of intent is to be handled in accordance with the relevant legal provisions.

What are the precautions for VAM agreements?

The precautions for VAM agreements are as follows: 1. Reasonably determine the VAM object and VAM tools. These two elements are different, and the risk content and risk control means are also different; 2. Reasonably set various VAM indicators and prudently determine the valuation of VAM.

The performance target of the VAM agreement should be set within a relatively controllable range, supplemented by necessary catch-all clauses or exemption clauses, and the idea of floating equity ratio clauses can be used to negotiate and determine the investment amount and proportion of the investor; 3. Scientifically design the VAM structure. Legal risks may be allowed for VAM content that is unfavorable to the Party, and legality, compliance and enforceability of VAM content that is favorable to Party shall be ensured through alternative arrangements or even the establishment of an overseas structure. 4. The control of the company is the VAM floor. The target company should set up a control guarantee clause to guarantee a minimum controlling position.

Legal analysis: A VAM, also known as a valuation adjustment agreement, refers to an agreement designed by the investor and the financier to adjust the valuation of the future target company such as equity repurchase and monetary compensation in order to solve the uncertainty of the future development of the target company, information asymmetry and cost of the target company between the two parties to the transaction when they reach an equity financing agreement.

Legal basis: Minutes of the National Conference on Civil and Commercial Trial of Courts Article 2 In practice, the so-called "VAM agreement", also known as the valuation adjustment agreement, refers to an agreement designed by the investor and the financier to resolve the uncertainty, information asymmetry and cost of the future development of the target company by both parties to the transaction, including equity repurchase, monetary compensation, etc., when the investor and the financier reach an equity financing agreement. From the perspective of the entities that enter into VAM agreements, there are forms of VAM between the investor and the shareholders or actual controllers of the target company, VAM between the investor and the target company, and VAM between the investor and the shareholders of the target company and the target company.

When a people's court hears a VAM dispute case, it shall apply not only the relevant provisions of the Contract Law, but also the relevant provisions of the Company Law. It is necessary not only to adhere to the principle of encouraging investors to invest in real enterprises, especially scientific and technological innovation enterprises, so as to alleviate the financing difficulties of enterprises to a certain extent, but also to implement the principle of capital maintenance and the principle of protecting the legitimate rights and interests of creditors, and balance the interests of investors, company creditors and companies in accordance with the law. There is no dispute in practice that a VAM entered into between an investor and a shareholder or actual controller of the target company is found to be valid and supported for actual performance if there are no other reasons for invalidity.