In an equity transfer dispute arising from a VAM (Valuation Adjustment Mechanism) agreement that our firm is handling, our client invested RMB 120 million at a premium to acquire an 8.5% equity stake in the target company. The Capital Increase Agreement and its supplementary agreement stipulated that if the target company failed to meet its performance targets for two consecutive years within three years after the capital increase, our client could claim compensation from the target company. The compensation amount would be calculated based on the total investment and the proportion of the performance targets achieved. The original shareholders were to bear joint and several liability for such compensation.

Within three years after the capital increase, the target company generated profits but failed to meet the performance standards.

We believe that our client may simultaneously claim compensation from both the original shareholders and the target company in accordance with the agreement. There has been no dispute in judicial practice regarding the liability of the original shareholders. As for the claim against the target company, according to the latest judicial practice outlined in the Minutes of the Ninth National Conference on Civil and Commercial Trials (commonly referred to as the "Nine Minutes"), the claim should be supported as long as the company’s distributable profits are sufficient to cover the compensation amount and the Shareholder Agreement signed by all shareholders at the time of investment explicitly included this provision.