| VAM(Valuation Adjustment Mechanism), also called Agreement on Gambling, is a common investment tool in the international capital markets. In the jurisprudence perspective, VAM is the accord reached by the investing and financing parties on the uncertainty of the future development of enterprises. In fact, it is such an arrangement:during the process of consultation, the two parties set aside their disagreement on current value of the invested enterprise, set a unanimously approved target achievement, adjust the valuation and shares distribution of the company according to the actual performance. In recent years, VAM has been observed frequently signed in Chinese capital market. The phenomenon that some emerging growth domestic private enterprises cooperate with JP Morgan, Goldman Sachs and other foreign private equity funds has made VAM a top hot issue in domestic media. In this paper,through interpretation of typically significant gamble cases, the true face of the VAM is revealed and the connotation and core provisions are legally analyzed. In the end,various issues which occurred when VAM applied in China will be discussed.The article is divided into four parts:The first part of this paper first introduced on the gambling agreement "meaning.The so-called "gamble agreement" refers to the main body of investment and investment enterprises convention, this convention is uncertainty about the future. In accordance with the contract, investment entities agreed, then the winner of the gambling agreement is an investment body, and vice versa conditions agreed invested enterprises, such investment companies will win. This convention is the form of options and investment activities basically about the same form. Second, the classification of "form of gambling agreement"that form of gambling agreement based on the contents of the gambling agreement can be divided into the type of equity dilution, equity adjustment type, type of share repurchase, type of monetary compensation, equity incentive, holding transfer type six. Same time,through specific agreement on gambling, such as XCMG and gambling agreements, Harbour andWarburg Pincus, Carlyle agreement on gambling, Yurun and high Sheng Dinghui gambling agreement, an agreement on gambling, as well as the Yongle and Morgan,of Mengniu and Morgan CDH CDH gambling agreement detailed analysis.The second chapter is the detailed legal analysis on gambling agreement. The subject, object and content of VAM, especially content of VAM in foreign practice are introduced first. Next, the paper focuses on the legal nature of the gambling agreement, by establishes and proves the opinion that VAM is not an aleatory contract,but a conditional contract.Thirdly, by finishing discussion in the first case of an agreement on gambling, this thesis clarifies the facts of this case and the controversial issues, and summarized the different legal concepts defined by of the Lanzhou Intermediate People’s Court, Gansu Province Higher People’s Court and the Supreme Court to clarify the important issues of the study discussed in this article, namely the legality of the agreement on gambling between private investment fund and the target company.Subsequently, the thesis mainly focused on the analysis of the legal nature of the gambling agreement and comments issued by the Supreme Court judgment. Most importantly, this thesis through discussing court decisions in depth, pointed out the fallacies of the Supreme Court Judgment and the reality of the gambling agreement under existing legal framework.Chapter 4 is analysis of the legal application of VAM. This part starts by presenting and analyzing the fundamental concept and provisions of the VAM, such as convertible preference shares, convertible bonds, the floating equity ratio terms,anti-dilution provisions. Secondly, in the legal perspective, the paper analyzes a number of problems encountered in domestic practice of VAM and points out that the unreasonableness of China’s legal system. Upon the present problems, there are recommendations on the available amendments in our application. |
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