Negotiations with PE funds use terms such as put, drag, and vesting. Knowing the translation does not necessarily explain how your money or rights change.

Check four points: who holds the right, when it can be exercised, how the price or payment is determined, and who actually pays. This glossary provides a reference for that review.

The descriptions below assume an owner selling a Japanese company while retaining some shares. Numerical and departure examples are hypothetical and unrelated to actual deals. These clauses are not necessarily present in every Japanese PE transaction, and identical abbreviations can have different effects under contractual definitions and exceptions.

First, identify the agreement being discussed

Reading the price-setting SPA and post-reinvestment SHA separately is insufficient. If departure changes share buyback terms, also review management appointment, employment, and related contracts. Contractual priority and definitions in schedules also matter.

Put and Call: Who decides to sell or buy?

As an independent hypothetical, compare holding a put allowing you to sell for JPY30 million during a specified period with the counterparty holding a call to buy for JPY30 million. The former lets you decide to sell if conditions are met; the latter lets the counterparty decide to buy. Saying only “there is a JPY30 million buyback clause” does not distinguish them.

Even with a put, contractual cash recovery fails if the obligor cannot pay. Distinguish the share-buying company, manager, and fund itself, and check guarantees, collateral, and payment conditions.

Drag and Tag: What happens when other shareholders sell?

Drag rights let a seller deliver a combined shareholding but restrict an individual shareholder's freedom to remain. Check the triggering ownership percentage, any minimum price, and your indemnity obligations.

Tag rights protect minority holders from being left behind, but do not always allow sale of all shares. In a hypothetical, the fund holds 80 shares, the former owner 20, and a third party wants 50 in total. If participation is pro rata, the fund sells 40 and the former owner 10, leaving the former owner with 10 shares.

A pro rata arrangement like this permits a different degree of exit from one covering all the former owner's shares. Do not rely merely on having a tag right; check what happens if the buyer will not increase the number purchased.

ROFR means Right of First Refusal, and ROFO means Right of First Offer. Do not infer the procedure from the name alone; map the initial notice, price proposal, response, and third-party sale in sequence.

Even in the same sale, different share classes may receive different amounts through preferences. Selling simultaneously, on identical terms, and receiving cash proportionate to ownership are separate matters to verify.

Management participation and shares on departure

Reserved matters may give minority holders influence over certain decisions, but not a veto over all management. Check whether they cover only the holding company or subsidiaries too, and whether ordinary business or emergency funding is excepted.

Good and bad describe contractual categories, not character. Suppose a former owner stays in management and later wants to leave for family reasons. If voluntary departure triggers unfavorable buyback terms, the definitions and exceptions affect proceeds. If agreed departure is treated separately, check whose consent is needed.

This does not reproduce a specific Japanese transaction's terms. The labels alone do not determine treatment of voluntary departure. List realistic departure circumstances and test share numbers, buyback price, and payment timing against the draft contract.

Vesting may, for example, establish rights gradually over 3 years. That period is illustrative, not universal. Vesting alone does not necessarily permit unrestricted share sales; read buyback and transfer restrictions separately.

Distinguish the sale price from money received later

If terms are “JPY100 million at closing plus JPY30 million if performance conditions are met,” JPY130 million is a conditional total. Before planning living costs or reinvestment around the extra JPY30 million, check the outcome if conditions fail.

If an earnout is payable only above a specified performance threshold, additional consideration is zero below that threshold. Performance contingency differs from an installment merely paid later.

Escrow also does not necessarily release in full when a period ends. Unresolved indemnity claims may cause amounts to remain withheld. Check the expiry date separately from conditions for receiving the balance.

Small English terms, major differences in indemnity amounts

Basket designs include a deductible covering only losses above the threshold and a tipping basket covering eligible losses from the first amount once the threshold is exceeded.

In an independent hypothetical, eligible losses after applying de minimis rules total JPY1.8 million, with a JPY1 million basket and no other caps or exceptions.

The same summary, “JPY1 million basket,” produces a JPY1 million difference in recovery here. Do not agree on names and figures alone; insert actual loss amounts into examples and confirm both parties expect the same result.

W&I means Warranty and Indemnity and is also called R&W insurance. Insurance does not necessarily eliminate transition obligations or personal guarantees. Compare the sale agreement's scope with the policy. The broader liability framework is discussed in Part 9 in detail.

Conditions determining whether closing proceeds or the deal can end

Declining performance does not necessarily permit termination for MAC. Read the adverse-effect definition, exclusions such as general economic changes, closing conditions, and termination rights together. A deadline may not automatically terminate the agreement; check who can give notice.

At the end of negotiations, return from terminology to your circumstances: selling as planned, deteriorating performance, your departure, or a delayed next exit. For each, write down who decides, how many shares are sold, at what price, and when cash arrives. Verifying those answers in both the contract and calculations matters more than memorizing English terms.