Scenario 01

---
name: draft-term-sheet-markup-scenario-01
task_id: corporate-ma/draft-term-sheet-markup/scenario-01
description: Guides seller-side term sheet markup and commentary memorandum for a strategic subsidiary acquisition, where valuation, purchase price mechanics, working capital, risk allocation, and related deal terms must be revised using deal materials and market comparables.
activates_for: [planner, solver, checker]
---

# Skill: Seller-Side Term Sheet Markup with Commentary

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

- Treat the buyer’s proposed term sheet as the primary drafting object and the commentary memo as secondary.
- Before drafting the memo, ensure the marked-up term sheet file exists, is non-empty, and contains operative redlines rather than a summary of them.
- If the source set includes multiple business, diligence, or financial inputs, inventory them first and map each revision to the specific support that governs it.
- If only one buyer term sheet is in scope, state that explicitly and proceed provision-by-provision within that single document.

## 2. Failure modes the skill is correcting

- Proposed valuation and purchase price changes are asserted without anchoring them to the deal materials, financial analysis, or market comparables, making the seller position look arbitrary.
- Working capital language is revised generically, without tying the target, methodology, and true-up mechanics to the actual accounting treatment in the source materials.
- Risk allocation is not calibrated to the diligence record, so representations, indemnities, escrow, and survival periods remain misaligned with known exposures.
- Buyer-favorable mechanics are left intact because the markup does not identify where the term sheet is open-ended, internally inconsistent, or incomplete.
- The commentary memo explains what changed but not why the seller should accept the revised formulation or how the support documents justify it.
- Redlines rely only on visual styling and become unreadable once converted or exported, obscuring the operative edits.
- The memo lists objections without assigning priority or next steps, making it less useful for negotiation management.

## 3. Legal frameworks / domain conventions that apply

- Seller-side term sheet markup should revise the buyer’s draft to protect value, narrow ambiguous mechanics, and align risk allocation with the seller’s disclosure and diligence posture.
- Valuation and purchase price provisions should track the quality-of-earnings analysis, financial statements, and any market transaction comparables in the source set; unsupported deviations should be recast as seller-favorable alternatives.
- Working capital provisions should define the calculation method, included and excluded line items, accounting principles, and seasonality treatment with precision to avoid post-closing disputes.
- Risk allocation provisions should be calibrated to the actual diligence findings, with representations, indemnities, caps, baskets, escrows, and survival periods adjusted to the nature and scale of the identified issues.
- Earnout or contingent consideration provisions should include anti-manipulation protections, objective metrics, and timing mechanics that prevent buyer control of performance-based payouts.
- Binding terms commonly addressed at term sheet stage include exclusivity, confidentiality, governing law, expenses, and process timing; these should be reviewed for scope and duration.
- Where the source materials identify governing legal standards, drafting should reflect the controlling authority rather than a generic formulation; avoid conclusory statements that are not tied to a cited rule, statute, or market convention.

## 4. Analytical scaffolds

- Review the term sheet clause by clause and classify each provision as acceptable, needs tightening, or seller-unfavorable.
- For each seller-unfavorable provision, identify the specific source material that supports revision: financial analysis for pricing, diligence for risk allocation, and transaction documents or market comps for structural terms.
- Evaluate valuation language against the financial materials before proposing any change to price mechanics, closing adjustments, or contingent consideration.
- Evaluate working capital language by tracing the calculation from defined accounting inputs through the adjustment mechanics and closing deliverable process.
- Evaluate risk-allocation language by matching each identified diligence issue to the clause that should absorb or narrow it.
- When multiple revision candidates exist for the same concept, enumerate them first and then assess which formulation best fits the seller’s negotiating position.
- For each revision, draft the operative markup in the term sheet and a paired explanation in the memo that states the commercial rationale and the supporting source material.
- If an issue affects another clause, schedule, or companion document, identify the interaction so the revision does not create an internal inconsistency.
- Close each memo point by stating the practical consequence to the seller if the buyer’s language remains unchanged.

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

- Preserve the vertical relationship between valuation terms, working capital adjustment mechanics, and any post-closing true-up provisions so the economics read as one integrated package.
- Preserve the relationship between representations, indemnity mechanics, escrow, and survival so risk is not shifted twice for the same issue.
- Preserve the relationship between earnout metrics and post-closing operating control so performance conditions cannot be manipulated by the buyer.
- Preserve the relationship between exclusivity, diligence access, and signing/closing timing so process rights do not exceed their intended duration.
- If the source materials describe phased diligence or staged approvals, align the markup to the transaction timeline rather than treating every issue as if it were immediate and final.

## 6. Output structure conventions

- Produce two files: a marked-up term sheet and a commentary memorandum.
- In the marked-up term sheet, every substantive change must be visible in plain text as well as styling-resistant markup, using explicit deletion, insertion, and substitution conventions so the revision survives format conversion.
- Attach a short rationale to each substantive change in the markup or adjacent annotation, not only in the memo.
- In the commentary memo, define a simple ordinal severity scale once at the top and apply it consistently to each revision point.
- Organize the memo in the same order as the term sheet provisions so the reader can follow the redline sequence.
- For each memo entry, include: the issue, the revised drafting move, the supporting source material, the seller-side rationale, the clause interaction, and the downstream consequence if unchanged.
- End the memo with a concise Recommended Actions section that assigns each next step to the appropriate deal role and ties it to the relevant transaction milestone or deadline from the source materials.
- Keep the commentary operative and revision-focused; do not repeat the full term sheet or turn the memo into a summary of the transaction.