ARCH CAPITAL ADVISORS

TERM SHEET
Mezzanine Debt

This term sheet does not constitute an offer and is solely for discussion purposes. This term sheet shall not be
construed as creating any obligations on any party whatsoever, and shall not be binding on any party unless the
conditions contained herein are satisfied and the terms of the proposed investment are contained within definitive
documents which are negotiated, executed and delivered in connection with the closing of such investment.

Borrower/Issuer: [__________] and its controlled affiliates and subsidiaries

(“Issuer” or the “Company”).
Equity Sponsors: [__________], and other person acceptable to Purchaser
(including any affiliates thereof).

Subordinated Notes/[Principal Amount]: Subordinated Notes in a principal amount up to

$[_________] (the “Notes”).
Purchaser: [ ] ("Purchaser").
Credit Facilities: [________].

Agent, Arranger, Underwriter: [________].

Expiration: This Term Sheet expires on [___]. An extension may be
granted by Purchaser at the formal request of the Borrower
and/or Equity Sponsor.
Targeted Closing Date: [________].

Purchase Price: [___]% of the Face Amount (“Par”). If market conditions

change, Purchaser has the right to review the pricing
structure.
Amortization: Bullet payment at Maturity.
Maturity: [___________] years from closing.

Purpose: To provide financing for the [acquisition of ______.]

Security: Secured obligations by second lien on all assets.
Guarantee: The [Borrower's parent and its] subsidiaries shall provide
guarantees of the Notes in form satisfactory to Purchaser.

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Interest Rate: The Notes will bear interest at a fixed annual interest rate
equal to [____] percent ([_____] %), payable each calendar
quarter in arrears, [of which [_____] percent ([____] %) will
be paid in cash and [____] percent ([_____] %) will be paid-
in-kind.] Interest will be calculated on the basis of a 360 day
year of twelve 30 day months.

Up Front Fee: Purchaser will receive a fee equal to [___] percent [___]% of
the total amount of the Notes purchased by Purchaser at
closing.
Default Rate: [__]% in excess of the applicable rate.

Optional Prepayment The Notes may be prepaid in accordance with the schedule
below at the following redemption prices (expressed in
percentages of principal amount to be repaid), plus accrued
interest to the date of prepayment:

Loan Year Redemption Price

1 [___]%
2 [___]%
3 [___]%

4 [___]%
5 [___]%
thereafter [___]%

Mandatory Repayment: The Company may be required by the Purchaser to repay the
Notes upon a Liquidity Event (defined as a liquidation,
winding up, change of control, merger, sale of all or
substantially all of the assets of the Company or an initial
public offering). Repayments under this clause will be at the
prices set forth above under the Optional Prepayment clause.
Subordination: The Notes will be subordinate in payment to the senior debt
of the Borrower or terms acceptable to Purchaser. Other
customary terms and conditions, as well as provisions will be
applied. The Notes will be senior to all existing and future
subordinated debt and seller debt.

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Warrants [or Equivalent Shares]: [At the closing of the transaction, the Purchaser will receive
detachable and freely transferable warrants or other securities
which provide an equivalent equity value in the Company
(the “Warrants”) to acquire [____]% of the fully diluted
stock or value in the Company at closing. The Warrants will
have a nominal exercise price and will include a cashless
exercise feature as well as put provisions. In addition,
Purchaser will receive demand, and unlimited piggyback
registration rights; tag along/co-sale, pre-emptive and anti-
dilution provisions satisfactory to Purchaser.]
or

[The Subordinated Notes will be sold with detachable and

transferable warrants for the purchase of shares at a nominal
price (including a cashless exercise feature) representing
[__]% of the fully diluted stock. This warrant position
assumes that all of the equity contributed by the Equity
Sponsors will be in the form of common stock, and should
the contribution be made in a form of security which
provides for any form of dividend in cash or payment-in-
kind, then the warrant amount shall be adjusted on or before
the closing of the Acquisition to maintain a return to the
investors as if the equity had been contributed as common
equity. The warrants will expire [__] years from closing, be
immediately exercisable, and will have one demand
registration and unlimited "piggy-back" registration rights (in
each case, at the Borrower's expense) with respect to stock
issued upon exercise, customary anti-dilution provisions that
will include dilution protection in the event of issuances
below the common stock price (or common stock equivalent)
paid by the Equity Sponsors and issuances to management
and will contain put and call provisions, preemptive rights
and other terms and conditions, in each case acceptable to
Purchaser. In the event of a sale of all or substantially all of
the stock or assets of the Borrower, the stock issuable upon
the exercise of the warrants will be subject to “drag-along”
and have the benefit of “tag-along” provisions.]

Registration Rights: After an Initial Public Offering, the warrant holders will have
a single demand registration right on Form S-1 and unlimited
demand registration rights on Form S-3, all at the Borrower’s
expense. The warrant holders will also have a pro rata
participation right in the event of any private disposition of a
controlling interest in the Borrower. The Borrower will have
the right to require the warrant holders to participate on a pro
rata basis in any such liquidity event.

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Board of Directors/[Observer Rights]: Purchaser will have the right to elect [__] members to the
Company's Broad of Directors, or alternatively, Purchaser
will be allowed to send [__] observers to all regular and
special meetings of the Board of Directors of the Company.
Financial and Other Covenants: The Note and Warrant Purchase Agreement will contain
customary covenants (the terms of which will be defined in
the Note and Warrant Purchase Agreement) including, but
not limited to:
- Limitations on indebtedness, material changes, change of
control, liens, restricted payments and investments, asset
sales, capital expenditures, changes in nature of business,
mergers, acquisitions, dividends, etc.;
- Maintenance of existence;
- Maintenance of eligibility in SBIC program;
- Minimum Fixed Charge Coverage [and Interest Coverage]
Ratio[s];
- Minimum EBITDA;
- Leverage Ratio;
- Limitation of Capital Expenditures; and
- [Maintenance of Minimum Tangible Net Worth.]
Documentation: Documentation will contain such terms, conditions,
representations, warranties, reporting requirements,
covenants, including financial covenants customary for
investments of this type, and subordination terms as
Purchaser or its affiliates may require.
Reporting Requirements: Borrower will furnish the following reports, including, but
not limited to:
• Audited financial statements on a [annual][quarterly] basis
and unaudited financial statements on a [monthly basis]
• Any other reports that the Purchaser may reasonably
request and as necessary for the Purchaser to comply with the
regulations of the Small Business Investment Company Act
as required by law.

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Conditions to Closing/[Funding]: Conditions to closing will include, without limitation, the
following:
 The terms, conditions and structure of the [acquisition]
(and all documents related thereto) shall be in form and
substance satisfactory to Purchaser and its counsel and
all transactions contemplated thereunder shall have
been consummated as set forth therein and no
conditions or material provisions contained therein
shall have been waived or amended unless agreed to by
Purchaser;
 The negotiation, execution and delivery of definitive
documentation, including the Note and Warrant
Purchase Agreement, the Notes and the Warrants (in
form and substance satisfactory to Purchaser and its
counsel);
 Purchaser shall have received independent legal, tax,
insurance, fairness and accounting opinions satisfactory
to Purchaser and its counsel;
 Receipt of (i) SBA Form 480, Size Status Declaration,
(ii) SBA Form 652, Assurance for Compliance for
Nondiscrimination by the Borrower and (iii) use of
proceeds certification

 The absence of any material adverse change or

disruption in the financial or capital markets;]
 The absence of any change, which Purchaser deems to
be materially adverse, in respect of the business, results
of operation, condition (financial or otherwise), value,
prospects, liabilities or assets of the Company;

 The management incentive and employment

agreements of the Company shall be acceptable to
Purchaser and its counsel;
 [A minimum Adjusted EBITDA on a proforma, run-
rate basis [______] of at least $[____] million on a
basis satisfactory to Purchaser;]

 Satisfactory liquidity in the amount of $[____];

 Satisfactory insurance;
 Satisfactory legal, accounting and financial due
diligence;
 Accuracy of representations and warrants under the
Note and Warrant Purchase Agreement;

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  Approvals of all requisite parties to the Transaction
have been received by closing;
 No violation of any securities laws or other applicable
laws or regulations;
 No default in any material contracts and absence of any
material litigations as of the date of closing and after
giving effect to the [acquisition];

 Purchaser shall have received all fees and expenses

(including fees and expenses of counsel) on or before
the date of the closing of the [Transaction];
 Absence of any defaults or event of default under the
Note and Warrant Purchase Agreement, the Notes or
any other related documents.

 Receipt by the Company of all third party consents and

governmental approvals;

 Satisfaction that there are no material environmental

issues;
 No default in any material contracts and absence of any
material litigation as of the date of closing and after
giving effect to the acquisition;
 The Equity Sponsors shall have made a cash equity
investment in the Company of at least $[_____] million
(which shall have been made on terms and conditions
acceptable to Purchaser); and
 Senior financing in the amount of $[____] will be
available to be drawn at closing.

Governing Law: State of [______________].

Events of Default: Customary Events of Default will include but are not limited
to: (i) failure to pay interest or principal when due and
payable; (ii) failure to comply with the covenants in the
securities purchase agreement; (iii) defaults under other
agreements; (iv) breaches of representations and warranties;
(v) failure to discharge material judgments; and
(vi) bankruptcy or insolvency.

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Assignment/Transfer of Notes: The Purchaser may syndicate, assign or sell a portion or all
of the Notes.

Transaction Expenses: The Borrower shall reimburse Purchaser for all expenses
related to the transaction (whether or not the transaction
closes), including, but not limited to, legal fees and
disbursements, consulting fees (which consultants shall be
agreed upon with the equity sponsors prior to their
engagement), and out-of-pocket expenses (including travel
and incidental expenses, etc.).

[Syndication:] [Purchaser intends to syndicate a portion of the Notes to

other financial institutions. The Borrower and the Equity
Sponsors agree to assist and facilitate the Agent's syndication
process. ]

Market Conditions: The Borrower acknowledges and agrees that the financing
commitment is subject to the absence of a material adverse
change in the condition (whether financial or otherwise) or
results of operations of the Borrower and/or its affiliated
entities since the period ended ____________, ____.
[Furthermore, the financing commitment is subject to the
absence of any material disruption of or material adverse
change in current financial, banking or capital market
conditions that, in Purchaser's judgment, could materially
impair the satisfactory syndication of the Notes.]

Good Faith Deposit: The Issuer shall pay to Purchaser a good faith deposit in the
amount of $[____], which upon closing of the transaction
will be credited toward the Up Front Fee. Should the equity
sponsors decline to proceed with the financings as described
herein for any reason, Purchaser shall retain the deposit as
compensation for its time and effort in connection with the
requested financing.

Opportunity Cost Fee: If the transaction proposed herein is closed within one year
from the end of the Exclusivity Period, without Purchaser
financing, and Purchaser is prepared to consummate the
proposed financing on substantially the same terms set forth
herein, then an Opportunity Cost Fee will be paid to
Purchaser equal to [__]% of the proposed principal amount
of the notes that Purchaser was prepared to purchase.

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Termination Fee: Additionally, if a termination fee is paid to the Equity
Sponsors or their affiliates pursuant to any agreement, then a
fee equal to [__] % of the amount remaining after the out-of-
pocket expenses of the equity sponsors are deducted from the
termination fee received by the equity sponsors shall be
payable in cash to Purchaser within ten business days of the
equity sponsors receiving such payment. This fee will be in
addition to any other fees previously paid to Purchaser.

No Shop Clause: Upon acceptance of this commitment, the Equity Sponsors

and the Company agree that until the earlier of (i) closing of
the Transaction and (ii) [________], the Equity Sponsors and
the Company will not, and will not permit any of their
affiliates to, syndicate or issue, attempt to syndicate or issue,
announce or authorize the announcement of the syndication
or issuance of, or engage in discussions concerning the
syndication or issuance of, any debt facility other than the
Notes financing contemplated hereby or solicit any proposal
or commitment or engage in any discussions or negotiations
concerning the financing of the Transaction by any person
other than Purchaser as contemplated hereunder.

Pricing Terms: Purchaser shall be entitled, after consultation with the Equity
Sponsors and the Borrower, to change the pricing, terms and
structure of the Notes if the Syndication has not been
completed and if Purchaser determines that such changes are
advisable to insure a successful syndication of the Notes.

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Indemnification: The Equity Sponsors and the Borrower (each an
"indemnifying person"), jointly and severally, agree to
indemnify and hold harmless Purchaser and any and all other
financial institutions or banks that become a lender or
purchaser under the Notes, each affiliate thereof and each
director, officer, employee, agent or representative thereof
(each an "indemnified person") in connection with any
losses, claims, damages, liabilities or other expenses to which
such indemnified persons may become subject, insofar as
such losses, claims, damages, liabilities (or actions or other
proceedings commenced or threatened in respect thereof) or
other expenses arise out of or in any way relate to or result
from the [acquisition] or this letter or the issuance of the
Notes contemplated by this letter, or in any way arise from
any use or intended use of this letter or the proceeds of the
Subordinated Notes, and the Equity Sponsors and the
Borrower, jointly and severally, agree to reimburse each
indemnified person for any reasonable legal or other
expenses incurred in connection with investigating,
defending or participating in any such loss, claim, damage,
liability or action or other proceeding (whether or not such
indemnified person is a party to any action or proceeding out
of which indemnified expenses arise).
Required Documents/Due Diligence Issues: Prior to closing, Borrower will provide the following due-
diligence documents, and any other information deemed
necessary by Purchaser to complete its credit review process,
the form and substance of which must be acceptable to
Purchaser:
 Legal, tax and accounting opinions provided by firms
acceptable to Purchaser;
 Consolidated audited financial statements of the
Borrower for the past three years;
 A comprehensive business plan, including financial
projections of the operations of Borrower for the next
seven years;
 Visit with management;
 Visit of Company’s facilities;
 Interviews with customers, suppliers, etc.;
 Data Room visit;
 All available relevant consultant reports will be
submitted to Purchaser;
 Available industry reports will be made accessible; and
 Customary background checks will be initiated.

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