Draft Fund Term Sheet Vs Side Letter Deviation Analysis

---
name: draft-fund-term-sheet-side-letter-deviation
task_id: corporate-ma/draft-fund-term-sheet-vs-side-letter-deviation-analysis
description: Guides preparation of a fund term sheet versus side letter deviation report, requiring severity ratings for structural conflicts, MFN cascade analysis across eligible investors, misrepresentation exposure assessment, and identification of governing law conflicts between side letters and the fund governing documents.
activates_for: [planner, solver, checker]
---

# Skill: Draft Fund Term Sheet vs. Side Letter Deviation Analysis

## 1. Subject-matter triage (only if applicable)

- Treat the fund term sheet, side letters, and MFN eligibility memo as an interdependent set; no single document can be read in isolation.
- Enumerate each investor-side letter pairing, then analyze each pairing separately before drawing portfolio-level conclusions.
- Preserve the governing-documents hierarchy: term sheet, LPA or equivalent fund documents, then side letters, then MFN election mechanics.
- If the source set includes multiple side letters or multiple MFN classes, map each to a discrete row or subsection rather than collapsing them into a single narrative pass.

## 2. Failure modes the skill is correcting

- Identifying deviations without grading their severity, which prevents prioritization of true structural conflicts over negotiated economics.
- Missing that some side-letter terms are not merely bespoke economics but governance conflicts that may be inconsistent with the fund architecture.
- Failing to trace MFN election rights across eligible investors, which understates the commercial spread of one favorable concession.
- Treating MFN as a binary label instead of a term-by-term capture analysis tied to each eligible investor’s election scope.
- Overlooking that a factual warranty in a side letter can create independent misrepresentation exposure beyond the contract dispute.
- Missing governing-law or forum inconsistencies that complicate dispute resolution and enforcement.
- Summarizing deviations without tying each one to the source documents, the operative threshold, and the downstream consequence.
- Omitting a practical remediation path, leaving the report diagnostic but not usable.

## 3. Legal frameworks / domain conventions that apply

- Structural governance conflicts: where a side letter conflicts with the fund’s distribution, suspension, investment, or approval architecture, the conflict is assessed against the governing documents and the authority they reserve for sponsor and investor actions.
- Contract consistency principle: a side letter cannot be applied as though it were standalone if it contradicts the fund’s governing documents; the report should state whether the provision is likely unenforceable, requires consent, or creates performance tension.
- MFN mechanics: analyze whether the favorable term is within the MFN grant, whether any exclusions limit capture, and whether the term is the kind that investors commonly elect in practice.
- Misrepresentation and warranty exposure: identify factual statements that, if inaccurate, may support rescission, fraud, negligent misrepresentation, or securities-law exposure depending on the record and governing law.
- Governing law and forum analysis: compare the side letter’s governing law or dispute forum to the fund documents and identify whether the mismatch creates interpretive or enforcement risk.
- For legal propositions, cite the controlling authority named in the source set or the generally recognized authority for the issue being discussed; do not state conclusions untethered to a rule or doctrine.
- Use an ordinal severity scale defined once at the top and apply it uniformly: Critical, High, Medium, Low.

## 4. Analytical scaffolds

- Begin with a document inventory:
  1. list each side letter reviewed,
  2. identify the MFN eligibility memo’s role,
  3. note any governing-document provisions that set the baseline for comparison.
- For each investor section, run the same provision-by-provision analysis:
  - fee economics and expense-sharing terms;
  - distribution or waterfall deviations;
  - suspension, removal, veto, or approval rights;
  - carried interest, clawback, or related economics;
  - MFN scope and election mechanics;
  - governing law and forum;
  - factual warranties, certifications, or representations;
  - any other operational or governance carve-out.
- For each deviation, close the analysis by stating:
  1. the operative source term and the contrasting baseline,
  2. the scale or threshold implicated by the source documents,
  3. the cross-document interaction that matters,
  4. the consequence for the sponsor and the fund.
- Distinguish between:
  - mere economic favoritism,
  - governance interference,
  - enforceability tension,
  - disclosure or misrepresentation risk.
- MFN cascade analysis should be term-specific, not investor-specific:
  - identify the favorable term,
  - identify all investors whose MFN scope would capture it,
  - note exclusions or thresholds in the eligibility memo,
  - describe the commercial consequence of the capture.
- If the source documents contain a factual warranty, verify it against the record available in the workstream and flag any mismatch as exposure, not as a negotiated point.
- If a side letter grants a unilateral right that changes fund operations, test it against the governing documents’ decision standard and reserved authority.
- If the analysis depends on a defined term, quote or paraphrase the definition only to the extent necessary to explain the conflict; do not reproduce internal text verbatim beyond what the task instructions require.
- When multiple documents touch the same issue, identify the controlling document and note whether the side letter is additive, inconsistent, or unworkable as drafted.

## 5. Vertical / structural / temporal relationships (only if applicable)

- Cross-reference side-letter rights against:
  - the fund term sheet baseline,
  - the fund governing documents,
  - the MFN eligibility memo,
  - any election deadlines or notice periods.
- Show vertical priority: a favorable side-letter term may be commercially relevant but still subordinate to the governing documents if it conflicts with reserved fund authority.
- Show temporal sequencing where relevant:
  - execution timing,
  - MFN election window,
  - notice or consent periods,
  - any post-closing remediation steps.
- Where one term may cascade to later investors, track the sequence from the original concession to the set of eligible electors, then to the aggregate effect if elections are exercised.
- If a remedy depends on amendment, consent, waiver, or disclosure, note whether that step must occur before fund closing, before an MFN election, or before a disputed term is relied upon.

## 6. Output structure conventions

- Produce a deviation report organized by investor, with a separate subsection for each side letter.
- At the top, define the severity scale once in a short legend and use it consistently throughout.
- Within each investor subsection, use a provision-by-provision format with a brief severity label for each item.
- For each issue, include:
  - the deviation identified,
  - the severity,
  - the controlling document comparison,
  - the MFN relevance, if any,
  - the governing-law or enforceability point, if any,
  - the practical consequence.
- Include a distinct MFN cascade section that is term-based and identifies which investors can elect each favorable term.
- Include a cross-cutting issues section for structural conflicts, governing-law mismatches, and misrepresentation exposure.
- End with a Recommended Actions block that gives concrete remediation steps, assigns each to a role reflected in the workstream, and ties the timing to the transaction or election timeline.
- The final report should read as a practitioner-ready deviation analysis, not a generic memo: it should identify what changes, why it matters, who can capture it, and what should happen next.