Scenario 01

---
name: analyze-term-sheet-markup-s01
task_id: corporate-ma/analyze-term-sheet-markup/scenario-01
description: Guides buyer-side analysis of a seller's term sheet markup by checking calculations, assessing deleted representations against representation-and-warranty insurance coverage, and evaluating non-market operational covenants before the negotiation session.
activates_for: [planner, solver, checker]
---

# Skill: Analyze Term Sheet Markup (Scenario 01)

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

- Treat this as a buyer-side comparison of the seller markup against the original term sheet and supporting deal documents, not a generic summary.
- Identify whether the source set contains one economic package or multiple variants; if multiple, analyze each separately and do not blend them.
- Separate pure drafting changes from economic changes, coverage changes, and operational-control changes before drafting recommendations.

## 2. Failure modes the skill is correcting

- Missing arithmetic errors in the original term sheet or markup that create independent negotiation issues unrelated to the seller's stated positions
- Failing to connect deleted representations to representation-and-warranty insurance coverage gaps, because such insurance is written against the representations in the signed definitive agreement and deletion can remove the insurance anchor for that category of risk
- Characterizing employee benefit and operational covenant changes as minor without assessing their non-market nature and post-closing operational impact
- Describing an issue without tying it to the relevant deal scale, the interacting provision, and the resulting buyer consequence
- Treating legal conclusions as self-evident instead of naming the governing market rule, contract concept, or insurance principle that supports the recommendation

## 3. Legal frameworks / domain conventions that apply

- Financial arithmetic verification: verify that figures used in different term sheet contexts are internally consistent; check that stated fee percentages and similar deal metrics are measured against the stated transaction value or relevant base
- Change-in-condition definition: standard market carve-outs often exclude general economic, industry-wide, regulatory, and political conditions from the definition of material adverse effect; a carve-out that excludes performance decline measured against the seller's own projections is a seller-favorable deviation that removes a type of underperformance a buyer may view as material
- Basket type economics: a tipping basket provides more protection than a true deductible because once losses exceed the threshold the buyer recovers from dollar one; conversion from tipping to deductible favors the seller and the economic difference is quantifiable
- Representation-and-warranty insurance and deleted representations: such insurance generally follows the representations in the definitive agreement; if a representation covering a risk category is deleted, evaluate whether the insurer would still cover claims that would otherwise have been governed by that representation
- Non-market employee provisions: post-closing headcount restrictions, broad good-reason definitions that trigger equity acceleration on ordinary business decisions, and third-party approval conditions that create potential veto rights at closing are all non-standard and require pushback
- Exclusivity and fiduciary out: exclusivity commitments should be tested against any carve-out that permits active negotiation, disclosure, or termination pathways inconsistent with a true no-shop
- Governing law and dispute architecture: changes to governing law, forum, or related enforcement mechanics can alter leverage, available remedies, and litigation posture even when the substantive business terms are unchanged

## 4. Analytical scaffolds

1. Enumerate the issues first: list each distinct markup change, arithmetic problem, deleted representation, covenant shift, and condition precedent separately before analyzing it.
2. Arithmetic verification: verify all stated calculations; flag errors as stand-alone negotiation items.
3. Consistency check: verify that the same financial metric is used consistently across all references in the term sheet and supporting materials.
4. Change-in-condition definition: identify all carve-outs added or deleted; flag non-standard carve-outs as seller-favorable deviations from market.
5. Basket: identify type, threshold, and interaction with other indemnity limits; assess economic impact of any conversion.
6. Indemnification cap and survival: assess changes; connect them to representation-and-warranty insurance retention, policy structure, and any deleted coverage anchor.
7. Representations deleted: for each deleted representation, state the category of risk covered and whether representation-and-warranty insurance is likely to cover that risk without the representation in the definitive agreement.
8. Employee and operational provisions: enumerate non-market covenants; assess post-closing operational impact and the practical ability to integrate the target.
9. Third-party approval conditions: identify any conditions requiring third-party approval; assess whether timing at signing versus closing creates a veto risk.
10. Exclusivity and fiduciary out: assess whether any fiduciary out language undermines the exclusivity commitment.
11. Governing law: identify any changes and analyze their implications for enforcement, leverage, and remedy selection.
12. For each issue, close the analysis with scale, cross-reference, and consequence: quantify the point of leverage, identify the related clause or document, and state the downstream buyer impact.
13. Assign an ordinal severity level to every issue using a consistent scale defined at the outset, and keep the rationale brief and uniform.
14. End with concrete next-step recommendations that assign an owner and a timing anchor.

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

- Track how one provision changes another: a deleted representation may matter more because indemnity survival was shortened, a deductible becomes more material when the cap is narrowed, and a covenant becomes more burdensome when tied to closing rather than post-closing administration.
- Distinguish signing-only conditions from closing conditions, and closing conditions from post-closing obligations; timing changes can create hidden veto rights or operational lockups.
- If the same concept appears across the term sheet and supporting documents, reconcile the hierarchy of documents and state which text controls the negotiation point.

## 6. Output structure conventions

- Use a negotiation analysis memo format that reads as an issues memo, not a tracked-change report.
- Begin with a short executive overview and a legend for the ordinal severity scale.
- Organize the body by issue; for each issue include the original position, the seller's change, the analysis, the severity rating, and the buyer's recommended response.
- Include a dedicated arithmetic verification section for any calculations or deal metrics that appear inconsistent.
- Include a dedicated representation-and-warranty insurance coverage gap section for every deleted representation, even if the conclusion is that coverage likely remains available.
- Use plain-English issue labels that reflect the commercial point, not internal drafting terminology.
- End with an explicit Recommended Actions block that assigns each action to the relevant lawyer, business lead, or officer and ties it to the next negotiation session or other source-document milestone.
- Keep recommendations specific and action-oriented; avoid generic statements of concern without a proposed ask, fallback, or concession structure.