Scenario 02

---
name: draft-term-sheet-markup-scenario-02
task_id: corporate-ma/draft-term-sheet-markup/scenario-02
description: Guides buyer-side term sheet markup and explanatory memorandum where valuation, purchase price mechanics, working capital, and risk-allocation provisions must be revised using the transaction documents and available diligence materials.
activates_for: [planner, solver, checker]
---

# Skill: Buyer-Side Term Sheet Markup with Explanatory Memo

## 1. Subject-matter triage
- Treat the proposed term sheet as the primary deliverable and the memo as secondary.
- Review the full source set before drafting so valuation, mechanics, diligence risk, and binding terms are revised in a coherent deal position.
- If the materials present multiple valuation inputs, working-capital methodologies, risk buckets, counterparties, or interim periods, enumerate them first and analyze each separately rather than collapsing them into a single pass.

## 2. Failure modes the skill is correcting
- Proposed revisions to purchase price and valuation are not tied to the transaction documents or the diligence record, producing positions that are commercially unmoored.
- Working capital target negotiation is addressed at a high level without testing the actual calculation methodology, definitions, and adjustment mechanics reflected in the materials.
- Risk allocation is revised without tracing identified diligence issues through representations, indemnities, escrow, closing conditions, and interim covenants.
- Earnout, if present, is drafted without enough control, measurement, or anti-manipulation protection to protect the buyer's economic bargain.
- Binding terms are omitted or treated as boilerplate even though they can change leverage, timing, and post-signing conduct.
- The commentary explains what changed but not why the change is justified under the record or what consequence it has for the client.

## 3. Legal frameworks / domain conventions that apply
- Buyer-side term sheet markup should align price, structure, and risk allocation with the operative deal documents and diligence findings.
- Valuation positions should be tested against the available financial information, quality-of-earnings materials, and any market evidence in the source set.
- Net working capital provisions should specify the calculation method, reference accounting principles, included and excluded items, and the adjustment process with enough precision to prevent post-closing drift.
- Diligence issues that touch operational, regulatory, tax, environmental, litigation, or contractual risk should be reflected in the term sheet at the appropriate point in the risk-allocation stack.
- Earnout provisions should address management control, accounting consistency, information rights, dispute resolution, and protection against manipulation of the measurement base.
- Indemnity provisions should be calibrated for basket structure, cap, survival, escrows or holdbacks, and any special or bespoke indemnities implicated by the record.
- Binding provisions such as exclusivity, confidentiality, expenses, governing law, and interim operating restrictions should be clearly stated because they shape leverage and conduct before closing.
- Use the governing legal and accounting standards cited in the source materials where they are identified; otherwise, state the conventional market framing without overclaiming certainty.

## 4. Analytical scaffolds
- Proceed provision by provision through the term sheet and ask whether each clause reflects the intended buyer-side position or requires tightening.
- For each price or valuation clause, identify the economic driver, the supporting material, and the specific drafting change needed.
- For each working-capital or closing-adjustment clause, test the definition, reference methodology, timing, and dispute mechanics against the diligence record.
- For each risk-allocation clause, trace the identified issue from diligence into the operative term sheet language and align the remedy with the magnitude and character of the risk.
- For each earnout or contingent consideration clause, test who controls the measured business, how performance is calculated, and how the buyer is protected against distortive conduct.
- For each binding or interim covenant provision, determine whether the restriction is complete enough to preserve the negotiated position through signing and closing.
- In the memo, pair every material revision with a concise explanation that states the commercial reason, the supporting material, and the downstream consequence if the revision is not made.
- If an issue depends on another clause or document, cross-reference the interaction explicitly rather than treating the clause in isolation.
- Where the source set supports more than one position, present the chosen drafting position and note the tradeoff in a way that helps negotiation.

## 5. Vertical / structural / temporal relationships
- Track how valuation, purchase price mechanics, and working capital interact with each other so the markup does not create inconsistent economics.
- Track how diligence findings flow into representations, indemnities, closing conditions, covenants, and any special escrows or holdbacks.
- Track how interim operating covenants interact with earnout measurement periods, financial reporting, and control rights.
- Track how signing, disclosure, closing, and post-closing periods affect the timing of obligations and remedies.
- If the materials identify multiple affected periods or counterparties, address each distinctly and explain any sequencing effects.

## 6. Output structure conventions
- Produce two separate deliverables: a marked-up term sheet and an explanatory memorandum.
- The marked-up term sheet should preserve the proposed structure while making every substantive change unmistakable in the text using a robust markup convention that survives export, such as explicit inserted, deleted, and replaced text markers.
- Each substantive change should be accompanied by a short rationale note so the reader can understand the reason for the revision from the text alone.
- The memo should mirror the sequence of the term sheet provisions and explain each material revision in commercial terms.
- Use an issue-by-issue format with a clear severity label for each entry drawn from a consistent ordinal scale defined once at the top of the memo.
- For each memo entry, state the issue, the severity, the supporting basis in the source materials, the related clause interactions, and the practical consequence for the client.
- End the memo with a concise Recommended Actions section that assigns each action to the relevant role and ties it to a signing, closing, or diligence milestone.
- Before finishing, confirm that the primary markup file is complete and contains operative marked text, and that the memo is complete and not a substitute for the markup.