Scenario 02

---
name: identify-counterparty-term-sheet-issues-scenario-02
task_id: corporate-ma/identify-counterparty-term-sheet-issues/scenario-02
description: Guides preparation of a seller-side prioritized issues memo identifying material problems in a buyer's proposed non-binding M&A term sheet, cross-referenced against deal economics and market data.
activates_for: [planner, solver, checker]
---

# Skill: Seller-Side Term Sheet Issue Identification

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

- This is a seller-side review of a buyer’s non-binding M&A term sheet, so the core task is issue spotting, severity ranking, and negotiation framing rather than definitive drafting.
- Separate binding from non-binding terms at the outset; binding process terms should be treated as immediate risk items even where the main economics are non-binding.
- If the source set contains more than one valuation input, market comp, or draft term-sheet variant, enumerate them first and analyze each against the same seller-side lens before synthesizing priorities.

## 2. Failure modes the skill is correcting

- Valuation issues are identified generically without anchoring them to the target’s financial performance or the market data in the record.
- The memo reads as a flat list of comments instead of a prioritized negotiation roadmap.
- Risk allocation is assessed in the abstract rather than against the specific deal profile, diligence facts, and other operative provisions.
- Exclusivity, no-shop, and process restrictions are flagged without testing duration, scope, and exceptions against the pace of the transaction.
- Binding provisions are overlooked or mislabeled, causing the memo to miss the terms that create immediate seller exposure.
- Issue statements stop at description and do not explain the concrete economic, operational, or transaction consequence for the seller.

## 3. Legal frameworks / domain conventions that apply

- Non-binding term sheets typically leave major economic and risk-allocation points open, but binding provisions still control the process and must be identified separately.
- Seller-side valuation analysis should be grounded in the target’s financial trajectory, quality of earnings, and any market comparables supplied in the source set.
- Working capital and purchase-price adjustment terms affect effective headline value and post-signing dispute risk; seller-favorable drafting reduces uncertainty in the normalization baseline and true-up mechanics.
- Indemnification terms are evaluated by basket, cap, survival, exclusions, and claim procedures; seller-favorable positions narrow post-closing exposure and limit open-ended claims.
- Earnout structures require special scrutiny for metric design, operational control, anti-manipulation protections, and dispute mechanics.
- Exclusivity and no-shop terms should be tailored to diligence and documentation needs; overbroad or extended lockups are seller-unfriendly in a competitive process.
- Broad representations and covenants often signal where definitive-agreement negotiations will become most contentious.

## 4. Analytical scaffolds

- Review the term sheet provision by provision from the seller’s perspective and separate headline economics, risk allocation, process mechanics, and drafting ambiguities.
- For each issue, state the provision, why it is problematic, and whether the problem is legal, economic, or process-driven.
- Tie valuation comments to the company’s financial data and tie risk-allocation comments to the market materials or diligence facts in the record.
- Where the source set contains multiple relevant figures, dates, or counterparties, identify them explicitly before comparing the term sheet to each.
- Treat every identified issue as incomplete unless it includes:
  - a scale reference drawn from the source documents;
  - the related clause, schedule, or document that interacts with it;
  - the downstream consequence to the seller.
- Distinguish drafting clarifications from substantive objections so the memo does not overstate minor language issues.
- Use a severity ladder consistently from top to bottom; apply the same scale to every issue and justify the rank in one line.

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

- Track how process terms constrain later stages of the deal: exclusivity, access rights, timing assumptions, and signing conditions can materially affect leverage before definitive documents are exchanged.
- Track how economics flow through the deal structure: purchase price, working capital adjustment, earnout, escrow, holdback, and indemnity cap should be assessed as a connected package, not as isolated provisions.
- Track which obligations survive signing and closing, and which are intended to be binding immediately versus only reflected in later definitive agreements.
- If multiple periods matter, compare the proposed duration of each restriction or exposure window against the expected signing-to-closing timeline and post-closing survival period.

## 6. Output structure conventions

- Deliver a single prioritized issues memo suitable for the seller side.
- Open with a short executive summary that states the overall deal posture and the few highest-priority objections.
- Define the severity scale once near the top and use it uniformly for every issue entry.
- Organize the body by priority tier, then by issue.
- For each issue, include:
  - the term or provision at issue;
  - the concern;
  - the recommended revision or counterproposal;
  - the basis in the source documents or market convention;
  - a short severity rationale;
  - the consequence if left unchanged.
- End with a concise Recommended Actions section that assigns each action to the appropriate role and ties it to a transaction milestone or immediate next step.
- Keep the tone commercial and practical; avoid restating the term sheet unless doing so advances the seller-side recommendation.