In order to protect the interests of investors as much as possible, VAM agreements often need to include factors closely related to the interests of investors, such as performance targets and listing time. Therefore, common terms of VAM agreements need to include the following:

◆ Financial performance

Since financial performance is the main indicator for the valuation of an enterprise, the clause on financial performance is also the core content of the VAM signed by the investment and financing parties, which is mainly aimed at whether the target enterprise can complete the corresponding performance indicators within the agreed time. After all, if a company wants to obtain a higher valuation, it needs to have higher performance as a guarantee.

After agreeing on the financial performance of the target enterprise, the parties also need to set out the compensation measures in the VAM agreement. That is, when the target enterprise cannot achieve the performance target within the agreed time, what compensation method should be adopted. At present, VAM agreements signed by enterprises usually compensate the interests of the investor in the form of equity or cash. It should be noted that when formulating a VAM agreement on financial performance, the setting of the performance growth rate should be scientific and reasonable, and the uncertainty in the game can also be reduced by repeating the game.

◆ Availability time

Similar to financial results, the content on the time of listing is also a common clause in VAM agreements. The so-called agreement on the listing time means that the investment and financing parties agree on the listing time of the target enterprise. In terms of the VAM agreements currently signed, the parties usually stipulate in the VAM agreement that if the target enterprise cannot be listed within the agreed time, the actual controller of the enterprise will repurchase the shares held by the investor. Therefore, from a certain point of view, the agreement on the time of listing is equivalent to the agreement on share repurchase.

◆ Non-financial performance

In addition to financial results, VAM agreements also include provisions on non-financial results. However, these non-financial performance clauses are also aimed at the content closely related to the development of the enterprise, such as the progress of technology research and development, the sales volume of the main products, the annual output of the enterprise, the number of users, etc. However, it should be noted that the content of the clause on non-financial performance should not be too detailed and should have a certain degree of flexibility.

◆ Related Party Transactions

After the investment has occurred, in order to prevent the target enterprise from transferring benefits to the detriment of the investor's interests, the parties will often add related party transaction clauses to the VAM agreement. The so-called related-party transaction clause means that the investment and financing parties agree that the target company cannot engage in related-party transactions in violation of the relevant articles of association within the agreed time. If the target enterprise violates the provisions of the relevant clauses, the actual controller or major shareholder of the enterprise needs to compensate the investor for the amount of the related party transaction in accordance with the agreed proportion.

◆ Claims and debts

Before the investment and financing takes place, the target company may have certain claims and debts. In order to protect the interests of the investor, this part should be clearly communicated to the investor, so as to avoid the investor being implicated. As a result, VAM agreements may contain clauses relating to claims and debts. The investment and financing parties may stipulate in the terms that if the target company has undisclosed guarantees, debts, etc., the investor has the right to claim compensation after the actual compensation is paid. The compensation formula is: creditor's rights and debts compensation formula = the actual total amount of debts and liabilities borne by the company × the proportion of shares held by the investor.

◆ Non-competition

The non-compete clause refers to the fact that before the target enterprise is successfully listed and participates in other M&A activities, the actual controller or major shareholder of the enterprise cannot participate in the business that may compete with the target enterprise through the company or other affiliated forms.

In addition to the above-mentioned circumstances, the following two situations are often included in the non-compete clause: first, if the founder or middle and senior management of the target enterprise resigns, he or she cannot engage in business that competes with the enterprise for several years after leaving the company; Second, whether the main founder or actual controller of the target enterprise has an unexpired non-compete clause before the financing activities take place.

◆ Restrictions on equity transfer

The equity transfer restriction clause refers to the fact that the two parties need to follow certain prerequisites when carrying out the equity transfer, and only when these prerequisites are met can the equity transfer be carried out.

It should be noted that for both parties, the equity transfer restriction clause is a contractual obligation, that is, if the restricted party fails to meet the corresponding prerequisites for equity transfer without authorization, it needs to bear the liability for breach of contract, and the identity of the shareholder will not change. Therefore, equity restriction clauses are also usually included in the company's articles of association to have stronger effectiveness against third parties.

◆ Restrictions on the introduction of new investors

The content of the restriction clause on the introduction of new investors in the VAM agreement is actually to further ensure the interests of the investor, and is mainly aimed at the later financing activities of the enterprise, and the clause will stipulate that the price at which the subsequent investors of the target enterprise subscribe for the shares of the enterprise shall not be lower than the price at which the investor subscribes. If the restriction on the introduction of new investors is violated, the investor's subscription price will be automatically adjusted to the minimum subscription price, and the premium part needs to be converted into the corresponding amount of shares.

◆ Anti-dilution rights

The anti-dilution clause is similar to the restriction clause on the introduction of new investors, and is aimed at the financing and M&A behavior of enterprises in the later stage. The so-called anti-dilution clause means that the equity of the new investor in the later stage of the enterprise shall not exceed that of the original investor, and the equity ratio of the original investor will not decrease due to the entry of the new investor. It should be noted that the formulation of the equity change clause needs to refer to the restrictive provisions on share change in laws and regulations.

◆ One veto

The one-vote veto clause refers to the fact that, according to the agreement between the investment and financing parties, the investor has the right to veto the relevant matters agreed upon at the shareholders' meeting or the board of directors of the enterprise. According to Article 42 of the Company Law of the People's Republic of China, shareholders shall exercise their voting rights at the shareholders' meeting of a limited liability company in accordance with the proportion of their capital contributions, unless otherwise provided in the articles of association. Therefore, the one-vote veto power only applies to a limited liability company, and a company limited by shares follows the principle of "equal shares and equal rights".