Exhibit 10.2
 
CONFIDENTIAL
 
WACHOVIA CAPITAL FINANCE CORPORATION (WESTERN)
251 South Lake Avenue, Suite 900
Pasadena, California 91101

 
September 26, 2006
 
Acquicor Technology, Inc.
4910 Birch Street, Suite 102
Irvine, California 92660
Attention: Gilbert F. Amelio

 
$65,000,000 Senior Secured Revolving Credit Facility
Commitment Letter
 
Ladies and Gentlemen:
 
Wachovia Capital Finance Corporation (Western)(“Bank”) and Wachovia Capital
Markets, LLC (“WCM”, and together with the Bank, “Wachovia”) are pleased to
confirm to Acquicor Technology, Inc. (the “Company”) the commitment of Bank to
provide and the commitment of WCM to structure, arrange and syndicate, a senior
secured revolving loan facility to the Company and its subsidiaries in an amount
up to $65,000,000 (the “Credit Facility”), based upon and subject to the terms
and conditions set forth in this letter and the term sheet attached as Exhibit A
hereto (the “Term Sheet”, and together with this letter, collectively, the
“Commitment Letter”). The Credit Facility would be used to finance the Company’s
acquisition of Jazz Semiconductor, Inc. and its subsidiaries (collectively,
“Jazz”), to refinance existing indebtedness, to fund the working capital needs
of the Company, and to provide for general corporate purposes.
 
The Company hereby appoints WCM and WCM hereby agrees, acting alone or through
or with affiliates selected by it, to act as the sole lead arranger and the sole
bookrunner for the Credit Facility in connection with arranging a syndicate of
banks and financial institutions (collectively, the “Lenders”) mutually
acceptable to Wachovia and the Company to provide a portion of the Credit
Facility. Bank will act as administrative and collateral agent for the Credit
Facility (in such capacity, “Agent”). Bank agrees that completion of such
syndication is not a condition to its commitment hereunder.
 
In connection with the efforts of WCM to form a syndicate of financial
institutions to become Lenders under the Credit Facility, the Company and its
affiliates agree to use commercially reasonable efforts to actively assist in
achieving a syndication that is mutually satisfactory to Wachovia and the
Company. It is understood and agreed that WCM will approach institutions
reasonably acceptable to the Company and manage, in consultation with the
Company, all aspects of the syndication, including, without limitation,
decisions as to the final allocation of the commitments, when commitments will
be accepted, the selection of proposed Lenders and titles among the Lenders. WCM
may use its affiliates to assist in the syndication of the Credit Facility and
may allocate fees payable to it and such affiliates in such manner as it and its
affiliates may agree. Wachovia may share with any of its affiliates and advisors
any information related to the Company, its subsidiaries and the transactions
contemplated under this letter on a confidential basis. The Company (for itself
and its subsidiaries) agrees that the arrangements with Wachovia will be on an
exclusive basis for the term of the commitment set forth in this letter and that
the Company and its affiliates will not engage, solicit or otherwise consult
with any other financial institution or entity regarding the Credit Facility or
any other proposed senior first lien for the Company and its subsidiaries. No
other agents, co-agents, arrangers, bookrunners or book managers will be
appointed or used by the Company or its affiliates in connection with the
financing pursuant to a senior credit facility.
 
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The Company agrees, and agrees to cause its subsidiaries, (i) to cooperate with
and assist Wachovia in its efforts, both prior and for up to 90 days or such
extended period of time as may be reasonably necessary subsequent to closing to
syndicate the Credit Facility to Lenders, and, in connection therewith, to make
the management of the Company reasonably available during normal business hours
for due diligence meetings or conference calls with prospective Lenders and (ii)
to provide, and use its commercially reasonable efforts to cause the agents,
accountants, investment bankers and other advisors of the Company and its
affiliates to provide all information, including financial projections, as may
be reasonably necessary to assist Wachovia in preparing materials with
appropriate information for submission to potential Lenders, including a
customary information memorandum to be used in connection with the syndication
of the Credit Facility.
 
The Company hereby represents, warrants and covenants that (i) all information,
other than Projections (as defined below), which has been or is hereafter made
available to Wachovia or any prospective Lender by or on behalf of the Company
or any of its representatives in connection with the business of the Company and
its subsidiaries (“Information”) is and will be complete and correct as to the
subject matter thereof in all material respects as of the date made available to
Wachovia or such prospective Lender and does not and will not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements contained therein not materially misleading and (ii) all
financial projections concerning the Company and its affiliates that have been
or are hereafter made available to Wachovia or prospective Lenders by the
Company or any of its representatives (the “Projections”) have been or will be
prepared in good faith based upon assumptions believed by the Company to be
reasonable when made (it being understood that such Projections are not to be
viewed as facts and are subject to significant uncertainties and contingencies,
many of which are beyond the Company’s control (including the accuracy of
information supplied by Jazz and its subsidiaries), that no assurance can be
given that any particular Projections will be realized, and that actual results
may differ and such differences may be material). The Company agrees to furnish
to Wachovia such Information and Projections as Wachovia may reasonably request
and to supplement the Information and the Projections from time to time until
the closing date of the Credit Facility so that the representation, warranty and
covenant in the preceding sentence is correct on the closing date of the Credit
Facility. In arranging and syndicating the Credit Facility, Wachovia will be
using and relying on the Information and the Projections without responsibility
for independent verification thereof.
 
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The Company will reimburse Wachovia on the earliest of the closing date, March
31, 2007, or abandonment of the transaction to be financed for all reasonable
out of pocket costs and expenses incurred by Wachovia in connection with its
continuing review of the transaction and the preparation and negotiation of this
Commitment Letter (including any amendment or modification hereto), and the loan
documentation and the syndication of the Credit Facility, including reasonable
attorneys’ fees and legal expenses, appraisal fees (Wachovia may require that
the Company pay appraisal charges directly), filing and search charges,
recording taxes and field examination expenses (including the then standard per
diem charges per person per day plus out-of-pocket expenses for the field
examiners of Wachovia in the field and in the office, including travel, hotel
and all other reasonable out-of-pocket expenses) and including all CUSIP fees
for registration with the Standard & Poor’s CUSIP Service Bureau (the “CUSIP
Bureau”).
 
Wachovia has the right to apply to such charges and expenses any sums received
from or on behalf of the Company or any of its subsidiaries. Without limiting
the generality of the foregoing, in connection with the execution of this
Commitment Letter, the Company will pay to Wachovia an expense reimbursement
deposit of $75,000 and an additional expense reimbursement deposit of $75,000
will be due and payable upon the negotiation of the initial draft of the Loan
and Security Agreement for the Credit Facility (the “Deposits”). The
arrangements with respect to such charges after the closing of the Credit
Facility will be governed by the terms of the loan documentation.
 
The Deposits will be applied at closing to any unpaid charges and expenses with
any remaining balance credited at closing to the fees due under the Credit
Facility. The Deposits may also be retained by Wachovia as a fee if either (i)
the transaction does not close on or before March 31, 2007 due to delays or
actions of the Company or the inability of the Company to fulfill the conditions
to closing or (ii) the Company or any of its affiliates elect not to obtain the
Credit Facility. In addition, if the transaction does not close on or before
March 31, 2007, and such failure to close is not caused by the failure of
Wachovia to perform its duties pursuant to this commitment, the Company agrees
to then pay to Wachovia a work fee of $125,000 (the “Work Fee”); provided, that
any amounts remaining from the Deposits, after the out of pocket costs and
expenses described above have been paid, will be applied to the Work Fee to
reduce the amount of such fee accordingly; provided, further, that, if the
transaction closes after March 31, 2007 and the Company uses the Credit
Facility, the Work Fee will be credited against fees payable at closing;
provided, further, that, if the acquisition of Jazz does close but the Company
or its affiliates do not use the Credit Facility even though Wachovia was ready,
willing and able to provide the Credit Facility on the terms set forth in this
Commitment Letter, in addition to Wachovia retaining the Deposits, the Company
agrees to pay Wachovia a breakup fee of $325,000 (less the Work Fee, if already
paid). The Company hereby acknowledges and agrees that each fee payable
hereunder is fully earned and non-refundable on the date such fee is due and
payable as provided above. Any balance remaining from the Deposits after all
fees and out of pocket costs and expenses have been satisfied will be returned
to the Company.
 
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The Company and its subsidiaries agree to jointly and severally indemnify and
hold harmless Wachovia and each director, officer, employee, attorney, advisor,
agent and affiliate of Wachovia (each such person or entity referred to
hereafter in this paragraph as an “Indemnified Person”) from any losses, claims,
costs, damages, expenses or liabilities (or actions, suits or proceedings,
including any inquiry or investigation, with respect thereto) to which any
Indemnified Person may become subject, insofar as such losses, claims, costs,
damages, expenses or liabilities (or actions, suits, or proceedings, including
any inquiry or investigation, with respect thereto) arise out of, relate to, or
result from, this Commitment Letter, reports or other information provided to
any Indemnified Person or contemplated by or referred to herein or therein or
the other transactions contemplated hereby and thereby and to reimburse upon
demand each Indemnified Person for any and all legal and other expenses incurred
in connection with investigating, preparing to defend or defending any such
loss, claim, cost, damage, expense or inquiry or investigation, with respect
thereto; provided, that the Company shall have no obligation to any Indemnified
Person under this indemnity provision for liabilities to the extent that such
liabilities have resulted from the gross negligence or willful misconduct of
such Indemnified Person; provided, further, that the Company shall not be
required to reimburse the legal fees and expenses of more than one outside
counsel for all Indemnified Persons with respect to any matter for which
indemnification is sought unless, as reasonably determined by any such
Indemnified Person’s counsel (and the Company’s counsel reasonably concurs),
representation of all such Indemnified Persons would create an actual or
potential conflict of interest. The foregoing provisions of this paragraph shall
be in addition to any right that an Indemnified Person shall have at common law
or otherwise.
 
Promptly after receipt by any Indemnified Person of notice of its involvement in
any pending or threatened proceeding as to which, or related to or arising out
of any matter for which, indemnification may be sought hereunder (an
“Indemnified Proceeding”), such Indemnified Person shall, if a claim in respect
thereof is to be made against the Company hereunder, notify the Company in
writing of such involvement, provided, however, that the failure by such
Indemnified Person to so notify the Company shall not relieve the Company from
the obligation to indemnify or any other liability hereunder or otherwise except
to the extent that such failure to provide notice prejudices the Company in any
material respect. In case any Indemnified Person’s involvement in such
Indemnified Proceeding shall be in any capacity other than as a witness, the
Company and its counsel shall be entitled to participate therein with such
Indemnified Person and its counsel. To the extent the Company wishes, the
Company also shall be entitled to assume the defense of any Indemnified
Proceeding with counsel of the Company’s choice that is reasonably acceptable to
the relevant Indemnified Person and after notice from the Company to the
Indemnified Person of the Company’s election so to assume the defense thereof,
the Company will not be liable to such Indemnified Person for the cost of
defense thereof. Notwithstanding the foregoing, the Company shall not be
entitled to assume the defense of any Indemnified Proceeding, and the
limitations in the proceeding sentence on its liability to any Indemnified
Person shall not apply, if counsel to any Indemnified Person reasonably
determines, and the Company’s counsel reasonably concurs, that there are actual
or potential conflicts of interest between such Indemnified Person and the
Company or that defenses available to such Indemnified Person may not be
asserted by the Company on the behalf of such Indemnified Person. In any event,
notwithstanding the foregoing, the Company shall not be liable for any
settlement of any Indemnified Proceedings effected without your consent (which
consent shall not be unreasonably withheld), but if settled with your written
consent or if there is a final judgment for the plaintiff in any such
Indemnified Proceedings, the Company agrees to indemnify and hold harmless each
Indemnified Person from and against any and all losses, claims, damages,
liabilities and expenses by reason of such settlement or judgment in accordance
with the preceeding paragraph.
 
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This Commitment Letter is addressed solely to the Company and is not intended to
confer any obligations to or on, or benefits to or on, any third party. No
Indemnified Person shall be liable for any damages arising from the use by
others of Information or other materials obtained through internet, Intralinks,
SyndTrak or other similar transmission systems in connection with the Credit
Facility except to the extent that such liabilities have resulted from the gross
negligence or willful misconduct of such Indemnified Person. In addition, no
Indemnified Person shall be responsible or liable for special, indirect,
consequential, exemplary, incidental or punitive damages which may be alleged as
a result of this Commitment Letter.
 
Except as required by applicable law, the Fee Letter executed concurrently
herewith and the contents thereof shall not be disclosed by the Company or any
of its affiliates to any third party without the prior consent of Wachovia,
other than to Jazz and its affiliates, potential providers of subordinated debt
to assist in financing the acquisition, and, in each case, to their respective
attorneys, financial advisors and accountants.
 
The Company acknowledges and agrees that Wachovia and/or its affiliates may
disclose information relating to the Credit Facility to industry and/or bank
trade publications, including, without limitation, Gold Sheets, the ABF Journal,
and the Secured Lender, with such information to consist of deal terms and other
information customarily found in such publications (the “Publication
Information”). The Company further acknowledges and agrees that Wachovia and/or
its affiliates may use the Publication Information in its own pitchbooks and
other marketing materials that are shared with other prospective customers, and
may also reproduce and include in such materials the Company’s corporate logo,
if any, in the form in which it appears on the Company’s Website on the date on
which such materials are prepared. The Publication Information will not include
any confidential information.
 
This Commitment Letter will be of no force and effect unless a counterpart
hereof and a counterpart of the Fee Letter are accepted and agreed to by the
Company and, as so accepted and agreed to, received by Wachovia by 5:00 p.m. in
Pasadena, California on September 26, 2006, as duly authorized, executed and
delivered by the Company. The commitments of Wachovia under this Commitment
Letter, if timely accepted and agreed to by the Company, will terminate upon the
earlier of (i) the occurrence of any event that Wachovia reasonably believes in
good faith has, or would be expected to have, a Material Adverse Effect (as
defined below) and (ii) as of the close of business on March 31, 2007, if the
initial borrowings under the Credit Facility have not occurred on or prior to
such date. All indemnities and obligations of the Company and its subsidiaries
and affiliates hereunder shall be joint and several and shall survive the
termination of this Commitment Letter or the commitments of Wachovia hereunder.
Following any termination hereof, the Credit Facility will require reapproval by
the credit committee of Wachovia even if Wachovia and its counsel and other
advisors continue to work on the transaction. Such reapproval, if obtained, may
result in different terms or conditions, or the determination not to consummate
the transaction.
 
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As used herein, the term “Material Adverse Effect” shall mean any change, event,
effect, claim, circumstance or matter that (considered together with all other
changes, effects, claims, circumstances or matters) has materially and adversely
affected, or would reasonably be expected to materially and adversely affect the
business, financial condition, properties, assets, liabilities or results of
operations of the Company and its subsidiaries taken as a whole; provided,
however, that none of the following, in and of itself, either individually or in
the aggregate, shall be deemed to constitute a Material Adverse Effect: (i) any
change or event attributable to conditions generally affecting the semiconductor
wafer fabrication or semiconductor design industries in which Jazz participates,
provided that such change or event does not have a materially disproportionate
impact on the Company, Jazz or their subsidiaries, taken as a whole; (ii) any
change or event attributable to conditions generally affecting the general
economy as a whole, provided that such change or event does not have a
materially disproportionate impact on the Company, Jazz and their Subsidiaries,
taken as a whole; (iii) the failure of Jazz to meet its projections of earnings,
revenues or other financial measures; (iv) the announcement of the acquisition
agreement and the pendency of the Contemplated Transactions, including any
impact thereof on relationships, contractual or otherwise, with customers,
suppliers, distributors, consultants or employees; or (v) the taking by Jazz of
any action required to be taken by Jazz by the acquisition agreement (other than
actions taken by Jazz in the pre-closing period in violation of its negative
covenants as contemplated by the acquisition agreement). “Contemplated
Transactions” shall mean the transactions and other matters contemplated by the
acquisition agreement, including the merger of the Company’s acquisition
subsidiary with and into Jazz, the adoption of amendments to charter documents
and the solicitation and obtaining of approvals for the contemplated
transactions.
 
This Commitment Letter contains the entire commitment of Wachovia for this
transaction and, upon acceptance by the Company, supersedes all prior proposals,
commitment letter, negotiations, discussions and correspondence. This Commitment
Letter may not be contradicted by evidence of any alleged oral agreement. No
party has been authorized by Wachovia to make any oral or written statements
inconsistent with this Commitment Letter.
 
This Commitment Letter may be executed in any number of counterparts, each of
which shall be an original, and all of which, when taken together, shall
constitute one agreement. Delivery of an executed signature page of this
Commitment Letter by facsimile transmission or other electronic means shall be
effective as delivery of a manually executed counterpart hereof.
 
This Commitment Letter may not be assigned by the Company without the prior
written consent of Wachovia and may not be amended, waived or modified, except
in writing signed by Wachovia and the Company. The commitment of Wachovia
hereunder is subject to the condition that there shall not have occurred any
material disruption or material adverse change in, or other condition with
respect to, the United States financial and capital markets that materially
impair the ability of Wachovia to syndicate the Credit Facility. Wachovia may
terminate this Commitment Letter if, in Wachovia’s good faith judgment, any
condition to the obligations of Wachovia and Lenders set forth in this
Commitment Letter or in the proposed definitive documentation is or becomes
incapable of satisfaction. This Commitment Letter is governed by and construed
in accordance with the laws of the State of New York, without regard to
principles of conflicts of law.
 
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WACHOVIA AND THE COMPANY EACH WAIVES ITS RIGHT TO A JURY TRIAL IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR IN ANY WAY RELATING TO THIS COMMITMENT LETTER OR
THE TRANSACTIONS REFERRED TO IN THIS COMMITMENT LETTER.
 
If the Company accepts and agrees to the foregoing, please so indicate by
executing and returning the enclosed copy of this letter for itself and its
subsidiaries to Wachovia.

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We look forward to continuing to work with you to complete this transaction.
 
Very truly yours,
 

WACHOVIA CAPITAL FINANCE CORPORATION (WESTERN)   WACHOVIA CAPITAL MARKETS LLC  
        By: /s/ Vicky L. Balmot   By: /s/ Vicky L. Balmot Title:

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Managing Director   Title:

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Managing Director   

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Accepted on this 26th day
of September, 2006:
 
ACQUICOR TECHNOLOGY, INC.,
for itself and its subsidaries
                By: /s/ Gilbert F. Amelio        Title:

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Chairman and CEO       

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EXHIBIT A
 
Wachovia Capital Finance Corporation (Western) (“Wachovia”)

 
$65,000,000 Senior Secured Revolving Credit Facility
(“Senior Credit Facility”)
 
Summary of Proposed Terms and Conditions (“Term Sheet”)
 
September 26, 2006  
 
Borrowers:
 
Jazz Semiconductor, Inc. (the “Company”), an acquisition subsidiary of Acquicor
Technology, Inc. (the “Parent”) and/or any operating subsidiaries of the Company
that have eligible assets.
     
Guarantors:
 
Parent and all domestic subsidiaries of the Company that are not Borrowers.
     
Sole Lead Arranger and Sole Bookrunner:
 
Wachovia Capital Markets, LLC (“WCM”).
     
Syndication Agent:
 
WCM.
     
Administrative Agent:
 
Wachovia Capital Finance Corporation (Western) (“Agent”).
     
Lenders:
 
Wachovia and other financial institutions selected by WCM.
     
Letter of Credit Issuer:
 
Wachovia Bank, National Association.
     
Credit Facility:
 
$65,000,000 (the “Maximum Credit”) consisting of revolving loans (“Revolving
Loans”), subject to the Borrowing Base and other terms described below (the
“Revolving Loan Facility”).
 
Revolving Loans may be drawn, repaid and reborrowed.
      Borrowing Base:   Revolving Loans and LCs may be provided subject to
availability under the lesser of (a) the Borrowing Base, (b) the amount equal to
the Maximum Credit minus $5,000,000, or (c) the amount equal to: (i) the
Accounts Sublimit, plus (ii) the Equipment Sublimit, minus (iii) $5,000,000.

 
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The Borrowing Base shall be calculated as follows:
 
(a)   the amount equal to the lesser of: (i) 85% multiplied by the net  amount
of eligible accounts of Borrowers (less applicable reserves relating to
Accounts), or (ii) the Accounts Sublimit; plus
 
(b)   the amount equal to the lesser of: (i) 70% multiplied by the “net  orderly
liquidation value” of eligible equipment of Borrowers  determined in a “balanced
market” (less reserves relating to Equipment), or (ii) the Equipment Sublimit,
minus
 
(c)   $5,000,000, minus
 
(d)  applicable reserves, to the extent not taken above.
 
Notwithstanding the foregoing, and other than as provided in this Term Sheet,
the definition of “Borrowing Base” shall not be less favorable to the Borrowers,
taken as a whole, than the comparable definitions in the existing Loan and
Security Agreement.
 
The “Accounts Sublimit” shall mean the amount equal to $25,000,000.
 
The “Equipment Sublimit” shall mean the amount equal to $50,000,000; provided,
however, the Equipment Sublimit shall be reduced by: (a) $1,800,000 on each of
January 31, 2007, April 30, 2007, July 31, 2007, and October 31, 2007, (b)
$2,100,000 on each of January 31, 2008, April 30, 2008, July 31, 2008, and
October 31, 2008, (c) $2,500,000 on each of January 31, 2009, April 30, 2009,
July 31, 2009, and October 31, 2009, and (d) $24,400,000 on the third
anniversary of the closing date; provided, further, that, to the extent the
closing date is delayed beyond November 30, 2006, the dates listed above will be
adjusted by one month for each month or part thereof that the closing date is
delayed.
 
The “net orderly liquidation value” of eligible equipment in a “balanced market”
will initially be determined as those terms have been used and per the
valuations set forth in Emerald March 2006 appraisal, as may be required to be
updated pursuant to this term sheet, and on a going forward basis in form and
containing assumptions and appraisal methods satisfactory to Agent by an
appraiser acceptable to Agent, on which Agent and Lenders are specifically
permitted to rely.
 
Eligibility:
 
Criteria for determining eligible accounts and eligible equipment will be in
accordance with Agent’s past practices as of the Closing Date and on a going
forward basis in accordance with customary practices and as appropriate under
the circumstances as determined by Agent pursuant to its standard field
examinations and other due diligence.
 

 
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Letters of Credit:
 
Up to $5,000,000 of the Revolving Loan Facility, subject to the Borrowing Base
and the other terms described herein, will be available for the issuance of
letters of credit arranged for by Agent (“LCs”).
 
Interest and Fees:
 
See the Fee Letter.
 
Collateral:
 
First priority perfected security interests and liens to secure all obligations
of Borrowers and Guarantors to Agent and Lenders upon all of each Borrower’s and
Guarantor’s present and future assets, including all accounts, general
intangibles, chattel paper, documents, instruments, supporting obligations,
letters of credit, letter-of-credit rights, deposit accounts, investment
property, inventory, equipment, fixtures and owned real property, and all
products and proceeds thereof (the “Collateral”). The obligations secured may
include hedging and bank product obligations of for the benefit Borrowers and
Guarantors as selected by the Company.
 
Prior to the closing of the transaction set forth herein, Borrowers and
Guarantors agree that Agent, for the benefit of itself and Lenders, is
irrevocably and unconditionally authorized to file UCC financing statements
naming Agent, for the benefit of itself and Lenders, as secured party and each
Borrower and each Guarantor as debtor with respect to the Collateral.
     
Use of Proceeds:
 
Satisfaction of the outstanding obligations of Borrowers and Guarantors to
Wachovia under the existing secured working capital financing to Borrowers and
Guarantors, acquisition consideration to be paid by Parent or the Company as
part of Parent’s acquisition of the Company at Closing, costs, expenses and fees
in connection with the Credit Facility and such acquisition, for working capital
of Borrowers and other proper corporate purposes.
 
Term:
 
Three (3) years from the date of closing.
 
Documentation:   Definitive loan documentation (collectively, the "Loan
Documents”), including, without limitation, a loan and security agreement,
supplemental security agreements, mortgages, pledge agreements, guarantees,
control agreements, intercreditor agreements, UCC financing statements,
collateral access agreements for leased and third party locations, opinion
letters of counsel to Borrowers and Guarantors, and related documents, each in
form and substance satisfactory to Agent.

 
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All of the Loan Documents will be prepared using the existing loan documents as
a base with such changes as shall be mutually agreed and without Agent, Lenders,
Borrowers or Guarantors having hereby agreed to any particular provision in the
existing loan documents. The Loan Documents shall be approved by Agent and
counsel to Agent and incorporate Agent’s customary terms and provisions,
including, without limitation, the absence of any default as a condition to all
Revolving Loans and LCs and the right to establish reserves against loan
availability and such other provisions as may be required in the context of the
transactions contemplated hereby. The right of Agent to establish reasonable
reserves will be in accordance with its customary practices and as may be
customary under the circumstances based on its field examination, scheduled
collateral reviews and updated information received after the acceptance of the
Commitment Letter.
 
The loan documentation will also provide that Lenders may assign loans and
commitments and/or sell participations in the Credit Facility.
 
Representations and Warranties:
 
Usual and customary for facilities of this nature, subject to materiality and
other negotiated limitations, including, but not limited to, representations and
warranties concerning: the Collateral; corporate existence and good standing,
power and authority; accuracy of financial information; absence of circumstances
giving rise to a Material Adverse Effect (as defined in the Commitment Letter)
(to be given at closing); absence of material adverse change in the assets,
business or prospects of Borrowers and Guarantors (to be given each time the
representations and warranties are brought down, including with each borrowing);
locations of jurisdiction of incorporation, chief executive office and
Collateral; priority of Agent’s security interests; ownership of properties, and
absence of other liens (except as specifically agreed to by Agent); filing of
tax returns and payment of taxes; absence of material litigation or
investigations; compliance with other agreements and applicable law, regulation,
etc.; identification of bank accounts; intellectual property matters;
identification of subsidiaries; matters related to the capital stock of the
Borrowers and their subsidiaries; solvency of the Borrowers; matters related to
labor disputes; absence of certain restrictions on the Borrowers and Guarantors;
identification of material contracts; absence of changes in accounts payable
practices; environmental matters; employee benefit matters; accuracy and
completeness of information furnished to Agent; survival and continuing nature
of representations and warranties. The representations and warranties will be
substantially similar to those in the existing loan documents with modifications
as applicable to comply with the terms of this Commitment Letter.
 

 
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Financial Covenants:
 
Financial Covenants will be determined by mutual agreement but be of types and
set at levels no more restrictive than the most senior of all third-party
subordinated debt provided as part of the financing of the acquisition
consideration and will, if no comparable covenant is applicable to such
subordinated debt, include a minimum earnings before interest, taxes,
depreciation and amortization covenant.
 
The financial covenants referred to above will only be applicable at any time
after the sum of excess availability plus qualified cash is less than
$10,000,000.
 
Affirmative Covenants:
 
Usual and customary for facilities of this nature, including, but not limited
to: maintenance of corporate existence and rights; requirements for new
locations; compliance with laws; performance of obligations; maintenance of
properties in good repair; maintenance of appropriate and adequate insurance;
Agent’s rights to inspect books and properties; payment of taxes and claims;
delivery of financial statements, financial projections and other information;
collateral reporting, notices and appraisal requirements; and further
assurances. The affirmative covenants will be substantially similar to those in
the existing loan documents with modifications as applicable to comply with the
terms of this Commitment Letter.
 
Collateral reporting will include a monthly borrowing base report in form
satisfactory to Agent, with monthly summaries as to accounts and equipment
disposed of during the period, or more frequently as Agent may from time to time
reasonably request.
 
Negative Covenants:
 
Usual and customary for facilities of this nature, subject to negotiated
exceptions and limitations, including, but not limited to, limitations on:
dividends, redemptions and repurchases of capital stock; incurrence of debt
(including capital leases) and guarantees; repurchases or prepayment of debt;
creation or suffering of liens; loans, investments and acquisitions; affiliate
transactions; changes in business conducted; asset sales, mergers and
consolidations; restrictions affecting subsidiaries; etc. The negative covenants
will be substantially similar to those in the existing loan documents with
modifications as applicable to comply with the terms of this Commitment Letter.
 
Events of Default:
 
Usual and customary for facilities of this nature, subject to negotiated
exceptions and limitations, to include, but not be limited to payment and
performance defaults under any of the loan documentation, cross-defaults to
other indebtedness and documents, breach of representations and warranties,
insolvency, voluntary and involuntary bankruptcy, judgments and attachments,
revocation of any guaranty, dissolution and change in control. The events of
default will be substantially similar to those in the existing loan documents
with modifications as applicable to comply with the terms of this Commitment
Letter.
 

 
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Waivers:
 
To include, but not be limited to a waiver by Agent, Lenders and Borrowers and
Guarantors of their rights to jury trial; waiver by Borrowers and Guarantors of
claims for special, indirect or consequential damages in respect any breach or
alleged breach by any Agent or any Lender of any of the Loan Documents.
 
Conditions:
 
The closing of the Credit Facility will be subject to the satisfaction, in a
manner acceptable to Agent, of those conditions precedent customarily required
by Agent in similar financings, including, without limitation, the following:
 
(a)
 
 
 
 
 
 
 
Receipt by Agent of all financial information, projections, budgets, business
plans, cash flows and such other information as Agent shall request from time to
time, including (i) projected monthly balance sheets, income statements,
statements of cash flows and availability of Borrowers for the period through
the end of the 2007 fiscal year, (ii) projected annual balance sheets, income
statements, statements of cash flows and availability of Borrowers and
Guarantors through the end of the 2011 fiscal year, in each case as to the
projections described in clauses (i) and (ii), with the results and assumptions
set forth in all of such projections in form and substance satisfactory to
Agent, and an opening pro forma balance sheet for Borrowers and Guarantors in
form and substance reasonably satisfactory to Agent, (iii) any updates or
modifications to the projected financial statements of the Company and its
subsidiaries previously received by Agent, in each case in form and substance
reasonably satisfactory to Agent and (iv) current agings of receivables, current
perpetual inventory records and/or rollforwards of accounts and inventory
through the date of closing, together with supporting documentation.
 
(b)
 
 
This transaction and the events contemplated herein must close by December 31,
2006; provided, however, Agent receives each of the following: (i) not more than
two weeks prior to the closing date, a written update to the Emerald March 2006
appraisal which (A) confirms there is not a decline of more than 10% in the
balanced market values since the March 2006 appraisal, and (B) provides an
update on current industry conditions, (ii) updated field examinations of the
business and collateral of Borrowers and Guarantors in accordance with Agent’s
customary procedures and practices and as otherwise required by the nature and
circumstances of the businesses of Borrowers and Guarantors, and (iii) evidence,
satisfactory to Agent, that Borrowers’ year-to-date EBITDA as of August 31, 2006
is at least $15,000,000. Such date may be extended until March 31, 2007, if
delivery to Agent of the following: (i) a full inventory appraisal satisfactory
to Agent by Emerald which confirms there is not a decline of more than 10% in
the balanced market values since the March 2006 appraisal, and (ii) a full field
examination of the business and collateral of Borrowers and Guarantors
satisfactory to Agent and in accordance with Agent’s customary procedures and
practices and as otherwise required by the nature of the businesses of Borrowers
and Guarantors, and (iii) evidence, satisfactory to Agent, that Borrowers’
year-to-date EBITDA (x) as of November 30, 2006 is at least $18,000,000, if the
closing occurs before February 1, 2007, or (y) as of December 31, 2006 is at
least $20,000,000, if the closing occurs on or after February 1, 2007.
 

 
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(c)
 
 
Execution and delivery of loan documents, all in form and substance satisfactory
to Agent. The loan documents will include, among other documents, a loan
agreement, security agreements, guarantees, UCC financing statements,
intercreditor agreements, control agreements, and opinion letters of counsel and
including all consents, waivers, acknowledgments and other agreements from third
persons that Agent may deem necessary or desirable, in form and substance
satisfactory to Agent and including delivery to Agent of evidence of insurance
coverage and a lender’s loss payee endorsement in favor of Agent as to casualty
and business interruption insurance, each of the foregoing in form and substance
satisfactory to Agent.
 
(d)
 
 
Agent, for the benefit of itself and Lenders, shall hold perfected, first
priority security interests in and liens upon the Collateral and Agent shall
have received such evidence thereof as it requires.
 
(e)
 
 
Minimum opening excess availability plus qualified cash at closing (a) after the
application of proceeds of (i) the initial Revolving Loans, (ii) the cash equity
contributions and (iii) the junior debt and (b) after provision for payment of
the acquisition costs and all fees and expenses of the transaction, shall not be
less than $30,000,000.
 
The term "excess availability" as used in this Term Sheet means the result of:
(a) lesser of: (i) the Borrowing Base, (ii) the amount equal to the Maximum
Credit minus $5,000,000, or (iii) the amount equal to: (A) the Accounts
Sublimit, plus (B) the Equipment Sublimit, minus (C) $5,000,000; minus (b)
outstanding obligations under the loan documents; minus (c) past due payables in
accordance with Agent’s customary practices.
 

 
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(f)
 
 
Agent shall have received Deposit Account Control Agreements in respect of
accounts where Borrowers have deposit accounts (other than deposit accounts
specifically swept for payroll, taxes, benefits and the like). Agent shall have
received an Investment Property Control Agreement with respect to any investment
account, securities account, commodity account or other similar account existing
on the date of closing held by or in the name of any Borrower.
 
(g)
 
 
No material misstatements in or omissions from the materials previously
furnished to Agent by Borrowers and Guarantors.
 
(h)
 
 
No defaults or events of default on the closing date under the loan documents
for the Credit Facility or on any other debt or any material contract of
Borrowers or Guarantors shall exist.
 
(i)
 
 
No Material Adverse Effect (as defined in the Commitment Letter), and no
material pending or threatened, litigation, proceeding, bankruptcy or
insolvency, injunction, order or unpaid judgments with respect to Borrowers and
Guarantors shall exist which would constitute a default or event of default,
which has not been cured or waived, under the existing loan agreement with the
Company. No Event of Default exists or has occurred and is continuing, which has
not been cured or waived, under the existing loan agreement with the Company.
 
(j)
 
 
Agent shall have received evidence, in form and substance satisfactory to Agent,
that at least $150,000,000 has been distributed and made available to Borrowers
from a trust account established by the Company (the “Equity Contribution”).
 
(k)
  Borrowers shall have either (i) entered into second lien and/or mezzanine loan
agreements in form and substance satisfactory to Agent, pursuant to which
Borrowers have obtained financing or (ii) entered into that Shareholder Term B
Loan or Shareholder Mezzanine Loan as defined and described in the Agreement and
Plan of Merger approved by WCM and Agent, in either case with lenders (the
“Junior Lenders”) in an amount not less than $75,000,000; provided that such
amount may be reduced on a dollar for dollar basis with the equivalent increase
of the Equity Contribution. WCM and Agent agree the Shareholder Term B Loan or
Shareholder Mezzanine Loan may be refinanced at any time with equity or
subordinated debt with terms not more burdensome, taken as a whole, to Borrowers
or Lenders than the debt so refinanced. The loan documentation will include
provisions relating to the prepayment of the Shareholder Term B Loan and
Shareholder Mezzanine Loan from Borrower’s excess cash flow and the proceeds of
asset sales, subject to mutually agreeable terms and conditions, including,
without limitation, no default or event of default exists or will exist after
giving effect to such prepayment, the sum of excess availability and qualified
cash after giving effect to such prepayment shall equal or exceed an amount to
be mutually agreed upon and other mutually agreeable terms.

 
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Wachovia agrees that the pricing terms of the Shareholder Loan, as described in
the Agreement and Plan of Merger, are acceptable to Agent. The other terms and
conditions of the Shareholder Loan, not specifically defined in the Agreement
and Plan of Merger, shall be in form and substance reasonably satisfactory to
Agent. Agent acknowledges that such terms and conditions may be consistent with
market terms and conditions for similar loans with third-party lenders.
 
(l)
 
 
Agent shall have entered into intercreditor agreements with the Junior Lenders,
in form and substance reasonably satisfactory to Agent.
 
(m)
 
 
Evidence, in form and substance satisfactory to Agent, that Borrowers have
obtained all necessary corporate governance, regulatory and SEC approval in
connection with the acquisition of Borrowers which will be consummated
substantially concurrently with the closing of the Credit Facility. Any
amendments or modifications to the Agreement and Plan of Merger governing the
acquisition of Borrowers, made after the date of execution of such agreement,
shall be in form and substance satisfactory to Agent.
 
(n)
 
 
Agent shall have received completed background checks with respect to Borrowers’
and Guarantors’ prospective senior management, the results of which are
satisfactory to Agent.
 
(o)
 
 
For verification purposes as part of the measures required by Agent pursuant to
the US Patriot Act, Agent shall have received all information that Agent
requests concerning each Borrower’s and each Guarantor’s identity, the results
of which are satisfactory to Agent.
 
(p)
 
Agent shall have received payment of the fees and commissions due under the loan
documents through the date of closing and, to the extent invoiced, expenses
incurred by Agent through such date and required to be paid by the Borrowers,
including all legal expenses, to the extent invoiced, incurred through the date
of closing.
 

 
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(q)
 
Wachovia agrees that within thirty (30) days of its receipt of (i) the
projections referred to in subsection (a) of the Conditions section of this Term
Sheet and (ii) the background checks contemplated in subsection (n) of the
Conditions section of this Term Sheet, it will advise Borrowers whether the
condition that such items be acceptable to Agent in form and substance has been
satisfied.
 
Governing Law:
 
California (without regard to conflicts of laws).
 
Expenses and Indemnity:
 
Borrowers and Guarantors will reimburse Agent, WCM and Lenders for all
reasonable out-of-pocket expenses, including due diligence and audit and
appraisal expenses and legal fees incurred in the structuring, negotiation,
arrangement, restructuring, administration or amending of the Credit Facility.
 
Borrowers and Guarantors shall indemnify and hold harmless Agent and Lenders and
their respective directors, officers, agents, representatives and employees from
and against all losses, claims, damages, expenses, or liabilities including, but
not limited to, legal or other expenses incurred in connection with
investigating, preparing to defend, or defending any such loss, claim, damage,
expenses or liability, incurred in respect of the Credit Facility or the
relationship between Agent or any Lender and any Borrower or any Guarantor,
except as to any such indemnitee as a result of the gross negligence or wilful
misconduct of such indemnitee.
     
USA PATRIOT Act:
 
Each Lender subject to the USA PATRIOT Act (Title III of Pub.L. 107-56 (signed
into law October 26, 2001) (the “Act”) hereby notifies Borrowers and Guarantors
that pursuant to the requirements of the Act, it is required to obtain, verify
and record information that identifies each person or corporation who opens an
account and/or enters into a business relationship with it, which information
includes the name and address of each Borrower and each Guarantor and other
information that will allow such Lender to identify such person in accordance
with the Act. Borrowers and Guarantors are hereby advised that this commitment
is subject to satisfactory results of such verification.

Each term used but not defined in this Exhibit A shall have the meaning assigned
to such term in the Commitment Letter to which this Exhibit A is attached.
 
This Summary of Principal Terms and Conditions is not meant to be, nor shall it
be construed as an attempt to describe all of, or the specific phrasing for, the
provisions of the documentation. Rather, it is intended only to outline
principal terms to be included in the Loan Documents.
 
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