Exhibit 10.1

 

THIRD AMENDED AND RESTATED FORBEARANCE AGREEMENT

 

THIS THIRD AMENDED AND RESTATED FORBEARANCE AGREEMENT (this “Agreement”), dated
as of February 13, 2009, is entered into by and among the financial institutions
identified on the signature pages hereto (collectively, the “Lenders”), U.S.
Bank National Association, as administrative agent for the Lenders (in such
capacity, the “Agent”), Westaff (USA), Inc., a California corporation (the
“Borrower”), and Westaff, Inc., a Delaware corporation and the sole shareholder
of the Borrower, as parent guarantor (the “Parent Guarantor”), with reference to
the following facts:

 

RECITALS

 

A.                                   The Borrower, the Parent Guarantor, the
Agent and the Lenders are parties to a Financing Agreement, dated as of
February 14, 2008, as amended (collectively, the “Financing Agreement”),
pursuant to which the Agent and the Lenders provide certain credit facilities to
the Borrower.

 

B.                                     Certain Events of Default have occurred
and are continuing under Section 11.1(b)(1) of the Financing Agreement.  Such
Events of Default were caused by the Borrower’s failure to comply with
Section 10.28 of the Financing Agreement, due to the Borrower’s failure to
achieve a Fixed Charge Coverage Ratio of at least 1.25 to 1.00 for the
Applicable Period ended April 19, 2008 through each Applicable Period ending on
or before April 7, 2009 (the “Existing Events of Default”).

 

C.                                     At the request of the Borrower and the
Parent Guarantor, the Agent and the Lenders entered into a Forbearance Agreement
with the Borrower and the Parent Guarantor dated as of July 31, 2008 (the “First
Forbearance Agreement”), pursuant to which the Agent and the Lenders agreed to
forbear from exercising their available default rights and remedies under the
Financing Agreement, the other Loan Documents, applicable law and equity
(collectively, “Default Rights and Remedies”) in response to the occurrence and
continuance of the Existing Events of Default through August 26, 2008.

 

D.                                    At the request of the Borrower and the
Parent Guarantor, the Agent and the Lenders also entered into an Amended and
Restated Forbearance Agreement with the Borrower and the Parent Guarantor dated
as of August 26, 2008 (the “Second Forbearance Agreement”), pursuant to which
the Agent and the Lenders agreed to forbear from exercising their Default Rights
and Remedies in response to the occurrence and continuance of the Existing
Events of Default through September 30, 2008.

 

E.                                      At the request of the Borrower and the
Parent Guarantor, the Agent and the Lenders also entered into a Second Amended
and Restated Forbearance Agreement with the Borrower and the Parent Guarantor
dated as of September 30, 2008, as amended (collectively, the “Second A&R
Forbearance Agreement”), pursuant to which the Agent and the Lenders agreed to
forbear from exercising their Default Rights and Remedies in response to the
occurrence and continuance of the Existing Events of Default through
December 19, 2008.

 

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F.                                      The Borrower and the Parent Guarantor
have requested that the Agent and the Lenders agree to continue to forbear from
exercising their Default Rights and Remedies in response to the occurrence and
continuance of the Existing Events of Default through April 7, 2009.

 

G.                                     The Agent and the Lenders are willing to
continue to forbear from exercising their Default Rights and Remedies in
response to the occurrence and continuance of the Existing Events of Default
through April 7, 2009 on the terms and conditions set forth in this Agreement,
which shall amend, restate, replace and supersede (but which shall not cause a
novation of) the Second A&R Forbearance Agreement.

 

NOW, THEREFORE, the parties hereby agree as follows:

 

1.                                       Defined Terms.  Any and all
initially-capitalized terms used in this Agreement (including, without
limitation, in the recitals to this Agreement) without definition shall have the
respective meanings assigned thereto in the Financing Agreement.

 

2.                                       Limited Forbearance Agreement.  So long
as no Forbearance Events of Default (as hereinafter defined) occur hereunder
during such period, the Agent and the Lenders hereby agree to forbear from
exercising any of their Default Rights and Remedies in response to the
occurrence and continuance of the Existing Events of Default throughout the
period commencing on the date of this Agreement and ending on April 7, 2009 (the
“Forbearance Period”).  Upon the occurrence of a Forbearance Event of Default,
at the option of the Agent, the Forbearance Period shall immediately terminate.

 

3.                                       No Waiver.  The agreement of the Agent
and the Lenders under Section 2 of this Agreement conditionally to forbear from
exercising their Default Rights and Remedies throughout the Forbearance Period
shall not constitute a waiver of the Existing Events of Default, and the Agent
and the Lenders hereby expressly reserve all their Default Rights and Remedies
in connection with the Existing Events of Default.

 

4.                                       Amendment of Travelers Letter of
Credit.  On the effective date of this Agreement, US Bank shall amend the
Irrevocable Standby Letter of Credit in the face amount of $27,000,000 issued by
U.S. Bank to The Travelers Indemnity Company, with an expiration date of
February 28, 2009, to extend its expiration date to April 7, 2009.

 

5.                                       Amendment of Ohio Bureau of Worker’s
Compensation Letter of Credit.  On the effective date of this Agreement, US Bank
shall amend the Irrevocable Standby Letter of Credit in the face amount of
$253,000 issued by U.S. Bank to the Ohio Bureau of Worker’s Compensation, with
an expiration date of February 28, 2009, to extend its expiration date to
April 7, 2009.

 

6.                                       Agreements Regarding Credit Facility.

 

A.  Reduction of Credit Facility.  The Revolving Credit Commitments are hereby
reduced to Twenty-Eight Million Dollars ($28,000,000).  The respective Revolving
Credit Commitments of the Lenders are set forth on Schedule 1 to this Agreement.

 

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B.  No Additional Loans.  In light of the reduction of the Revolving Credit
Commitments pursuant to Section 6A and the amount of the outstanding Letters of
Credit, the Borrower shall have no further right to request, and the Agent and
the Lenders shall have no further obligation to make, any additional Revolving
Loans under the Financing Agreement, other than forced loans due to draws upon
the outstanding Letters of Credit.

 

C.  Use of Excess Cash.  The Borrower may use its operating cash on deposit in
the Special Account for the Borrower’s working capital needs, provided that the
use of such cash does not cause a Borrowing Base Deficiency.  Each day, the
Agent shall recalculate the Borrowing Base and determine whether any Borrowing
Base Deficiency has occurred by (i) increasing the Borrowing Base by the amount
of all new Eligible Receivables reported by the Borrower to the Agent on the
preceding day, (ii) reducing the Borrowing Base by the amount of all collections
on Eligible Receivables received in the Special Account on that day, and
(iii) increasing the Borrowing Base by the amount of all Available Cash added to
the Special Account on that day.

 

                                                D.  Weekly Adjustments to
Reserve for Payroll and Payroll Taxes.  The Agent shall adjust weekly the
reserve against Revolving Credit Availability that it maintains in accordance
with Section 8 below to cover the Borrower’s payroll and payroll tax
obligations.

 

7.                                       Amendments to Definitions.

 

A. Amendments to Definitions of “Borrowing Base” and “Borrowing Base
Deficiency.”  Section 1.1 of the Financing Agreement is hereby amended such that
the definitions of “Borrowing Base” and “Borrowing Base Deficiency” shall be
amended and restated in their entirety as follows:

 

“Borrowing Base” means, as of any time, an amount in Dollars equal to the sum
of:

 

(i)            the Eligible Billed Receivables Advance Rate applied to the Net
Amount of Eligible Billed Receivables then outstanding; plus

 

(ii)           the Eligible Unbilled Receivables Advance Rate applied to an
amount equal to the lesser of (a) the Net Amount of Eligible Unbilled
Receivables then outstanding and (b) an amount equal to 20% of the Net Amount of
Eligible Billed Receivables then outstanding; plus

 

(iii)                               Available Cash (including the Additional
Guarantor Collateral); less

 

(iv)                              the then Reserve Amount.

 

“Borrowing Base Deficiency” means the failure, as of any time, of Revolving
Credit Availability to be greater than or equal to Zero Dollars.

 

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B.  Addition of Definition of “Additional Guarantor Collateral.”  Section 1.1 of
the Financing Agreement is hereby further amended and supplemented by adding
therein a new definition of “Additional Guarantor Collateral” as follows:

 

“Additional Guarantor Collateral” shall mean (i) any cash collateral in a
blocked deposit account at U.S. Bank in which the Agent has a first-priority
security interest perfected by control, securing the obligation of an Additional
Guarantor under its Additional Guaranty, or (ii) any irrevocable standby letter
of credit issued by a commercial bank reasonably satisfactory to the Agent and
the Lenders, naming the Agent as beneficiary, securing the obligation of an
Additional Guarantor under its Additional Guaranty.

 

8.                                       Reserve for Payroll and Payroll Taxes. 
The Agent shall continue to maintain a reserve against Revolving Credit
Availability to cover the Borrower’s payroll and payroll tax obligations.  The
required amount of such reserve shall be equal to the sum of (i) the Borrower’s
actual accrued Federal Unemployment Tax Act and State Unemployment Tax Authority
payroll tax liabilities, which liabilities the Borrower shall accrue weekly and
(ii) the estimated amount of the Borrower’s payroll obligations to temporary
employees, which estimate shall be adjusted each week, based upon the Borrower’s
average payroll obligations for the immediately preceding two weeks (excluding
any holiday week).  The payroll reserve required under this Section 8 shall
constitute the Reserve Amount for the purpose of calculating the Borrowing Base.

 

9.                                       Continued Imposition of Default
Interest.  The Agent shall continue to assess interest on the Obligations at the
Default Rate throughout the Forbearance Period.

 

10.                                 Suspension of Agent Advances.  The Agent
hereby agrees not to incur any Agent Advances pursuant to Section 13.10.6 of the
Financing Agreement so long as no Forbearance Event of Default occurs.  The
Borrower and the Lenders acknowledge and agree that the Agent may incur Agent
Advances, subject to the limitations set forth in Section 13.10.6 of the
Financing Agreement, from and after the occurrence of a Forbearance Event of
Default as the Agent in its discretion may deem necessary or desirable to
enforce the available Default Rights and Remedies of the Agent and the Lenders,
provided that such Agent Advances do not cause a Borrowing Base Deficiency.

 

11.                                 Deletion of Overadvances Provision. 
Section 13.11 of the Financing Agreement is hereby amended and restated to read
in its entirety as follows:

 

“13.11  Intentionally Deleted.”

 

12.                                 General Release.  In consideration of the
agreement of the Agent and the Lenders to enter into this Agreement and hereby
conditionally forbear from exercising their available Default Rights and
Remedies throughout the Forbearance Period, the Borrower and the Parent hereby
release, discharge and acquit the Agent, each Lender and their respective
agents, servants, employees, successors and assigns from any and all claims,
demands, liabilities, obligations and causes of action, whether known or
unknown, against them, which the Borrower or the Parent now own or hold, which
the Borrower or the Parent has at any time heretofore owned or held, or which
the Borrower or the Parent hereafter may own or

 

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hold, by reason of any action, matter, cause or thing whatsoever done prior to
the date of this Agreement, including specifically, but not limited to, any and
all claims, demands, rights and causes of action whatsoever arising out of or
which could be alleged to arise out of the Financing Agreement or any of the
other Loan Documents.

 

It is the intention of the Borrower and the Parent in executing this Agreement
that the same shall be effective as a bar to each and every claim, demand, and
cause of action hereinabove specified, and in furtherance of this intention the
Borrower and the Parent each waives and relinquishes all rights and benefits
under Section 1542 of the Civil Code of the State of California, which provides:

 

“A general release does not extend to claims which the creditor does not know or
suspect to exist in his or her favor at the time of executing the release, which
if known by him or her might have materially affected his or her settlement with
the debtor.”

 

The Borrower and the Parent acknowledge that each of them may hereafter discover
facts different from or in addition to those now known or believed to be true
with respect to such claims, demands, or causes of action and agree that this
Agreement shall be and remain effective in all respects notwithstanding any such
differences or additional facts.

 

13.                               Forbearance Events of Default.  The following
events shall constitute Forbearance Events of Default hereunder:

 

A.  Termination of Merger Agreement.  If either Koosharem Corporation, a
California corporation doing business as Select Staffing (“Select Staffing”), or
the Borrower terminates the Agreement and Plan of Merger dated as of January 28,
2009 by and among Select Staffing, Select Merger Sub Inc., a Delaware
corporation, and the Borrower for any reason;

 

B.  Occurrence of a Borrowing Base Deficiency.  If a Borrowing Base Deficiency
occurs;

 

C.  Revocation of Additional Guaranty.  If any Additional Guarantor revokes its
Additional Guaranty;

 

D.  Failure to Extend Term of Travelers Insurance Policy.  The Borrower fails to
deliver satisfactory evidence to the Agent by April 1, 2009 that Travelers has
extended the term of the Borrower’s workers compensation insurance policy from
the current policy termination date of April 1, 2009 to a new termination date
after April 7, 2009 which is reasonably satisfactory to the Agent and the
Lenders; or

 

E.  Other Events of Default.  The occurrence, discovery or disclosure of any
other Event of Default (other than the Existing Events of Default).

 

Upon the occurrence of a Forbearance Event of Default, the Agent and the Lenders
shall be

 

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relieved of their respective obligations hereunder to forbear from exercising
their available Default Rights and Remedies and immediately may exercise all
such rights and remedies.

 

14.                                 Conditions Precedent.  The effectiveness of
this Agreement shall be subject to the satisfaction of each of the following
conditions:

 

A.  This Agreement.  The Agent shall have received this Agreement, duly executed
by the Borrower, the Parent Guarantor, the Agent and each of the Lenders;

 

B.  Additional Guaranty.  The Agent shall have received any additional Guaranty
agreements that are required by the Agent and the Lenders, in form and substance
reasonably satisfactory to the Agent and the Lenders (each, an “Additional
Guaranty”), from one or more Guarantors that are reasonably satisfactory to the
Agent and the Lenders (any of such Guarantors being an “Additional Guarantor”),
and if required by the Agent and the Lenders, secured by such cash collateral or
letters of credit as are reasonably satisfactory to the Agent and the Lenders;
and

 

C.  Confirmation by Additional Guarantors.  Each Additional Guarantor shall have
confirmed in writing to the Agent that this Agreement is acceptable in form and
substance to such Additional Guarantor.

 

15.                                 Reaffirmation and Ratification.  The
Borrower and the Parent Guarantor hereby reaffirm, ratify and confirm their
respective Obligations under the Financing Agreement and the other Loan
Documents, acknowledge that all of the terms and conditions in the Financing
Agreement remain in full force and effect, and further acknowledge that the
security interests granted to Agent in the Collateral are valid and perfected.

 

16.                                 Integration.  This Agreement constitutes the
entire agreement of the parties in connection with the subject matter hereof and
cannot be changed or terminated orally.  All prior agreements, understandings,
representations, warranties and negotiations regarding the subject matter
hereof, if any, are merged into this Agreement.

 

17.                                 Counterparts.  This Agreement may be
executed in multiple counterparts, each of which when so executed and delivered
shall be deemed an original, and all of which, taken together, shall constitute
but one and the same agreement.

 

18.                                 Governing Law.  This Agreement shall be
governed by, and construed and enforced in accordance with, the internal laws
(as opposed to the conflicts of law principles) of the State of California.

 

[Rest of page intentionally left blank; signature pages follow]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their
respective duly authorized officers as of the date first above written.

 

 

 

WESTAFF (USA), INC.,

 

a California corporation,

 

as the Borrower

 

 

 

 

By:

/s/ Christa C. Leonard

 

 

Christa C. Leonard

 

 

Chief Financial Officer

 

 

 

 

 

 

 

WESTAFF, INC.,

 

a Delaware corporation,

 

as the Parent Guarantor

 

 

 

 

By:

/s/ Christa C. Leonard

 

 

Christa C. Leonard

 

 

Chief Financial Officer

 

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U.S. BANK NATIONAL ASSOCIATION,

 

as the Agent

 

 

 

 

 

 

 

By:

/s/ Suzanne E. Geiger

 

 

Suzanne E. Geiger

 

 

Senior Vice President

 

 

 

 

 

 

 

U.S. BANK NATIONAL ASSOCIATION,

 

as a Lender

 

 

 

 

 

 

 

By:

/s/ Suzanne E. Geiger

 

 

Suzanne E. Geiger

 

 

Senior Vice President

 

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WELLS FARGO BANK,

 

NATIONAL ASSOCIATION,

 

as a Lender

 

 

 

 

 

 

 

By:

/s/ Tony S. Lee

 

 

Tony S. Lee

 

 

Vice President

 

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SCHEDULE 1.1

 

REVOLVING CREDIT COMMITMENTS

 

LENDER

 

REVOLVING
CREDIT
COMMITMENT

 

PRO RATA
SHARE

 

 

 

 

 

 

 

U.S. Bank National Association

 

$

16,800,000

 

60.00

%

 

 

 

 

 

 

Wells Fargo Bank, National Association

 

$

11,200,000

 

40.00

%

Total:

 

$

28,000,000

 

100.00

%

 

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