20 Dec Vam Agreement
This example clause is often observed in the hand-held agreements reviewed by the authors. You will find a description of the empirical study in the post-7. The Supreme People`s Court found that the DEM agreement between Haifu and Shiheng was invalid because the agreement “could allow Haifu to reap relatively strong profits from its investment, which departs from Shiheng`s operational effectiveness and undermines the interests of the target company and its creditors.” See Su (2016). In 2008, CDH Investment offered to invest in southern Beauty, provided that a DEM clause was included in the investment contract with the company. The VAM clause was a single-use clause that provided that, in five years, the company would have to successfully apply for an IPO, otherwise it would be required to repurchase all HRC shares with a premium. IPO attempts failed and Zhang Lan had to relinquish his control rights over Southern Beauty. In this case, the applicant and the defendant entered into two separate DEM agreements. The first agreement was executed by the investor (the applicant), the original shareholders, the target company and many other PE investors; the second agreement was executed by the investor (the applicant), the original shareholders and only the target company and set a higher share repurchase price. Based on the principles of trade promotion, respect for party autonomy, protection of public interests and protection of procedural fairness in commercial transactions, Shanghai No.1 Intermediate People`s Court found the first VAM agreement valid, but the second invalid because it harmed the interests of other PE investors. These cases show that the courts have recognized the DEM agreements between investors and shareholders of target companies, either in terms of financial performance or the offer of shares.
The court`s view that the law respects shareholder autonomy and the role of markets in resource management is admirable. Recognition of DEM agreements between investors, shareholders and effective managers of a target entity on the basis of standards for setting general validity should also be welcomed.