Exhibit 10.1


 


SECOND AMENDED AND RESTATED FORBEARANCE AGREEMENT


 


THIS
SECOND AMENDED AND RESTATED FORBEARANCE AGREEMENT (this “Agreement”),
dated as of September 30, 2008, 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 (the “First Event of Default”) and for the Applicable Period ended July 12,
2008 (the “Second Event of Default” and collectively with the First
Event of Default, 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 First Event 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 both of the Existing Events of Default through September 30,
2008.


 


E.                                      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 both of the Existing Events of
Default through November 21, 2008.


 


E.                                      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 both of the
Existing Events of Default through November 21, 2008 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 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 additional Events of Default occur 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 November 21, 2008 (the “Forbearance Period”).


 


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 either 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.                                       Addition of
Minimum EBITDA Covenant.  Exhibit F
to the Financing Agreement is hereby amended and supplemented by deleting
current Section 3 and adding new Sections 3 and 4 as
follows.


 


“Section 3.  Minimum EBITDA.  Borrower shall achieve EBITDA (exclusive of
royalty income) for the respective cumulative periods commencing on the first
day of the four-week fiscal period 10 of Borrower’s Fiscal Year 2008 and ending
on the last day of the applicable 4-week fiscal period of Borrower indicated
below of not less than the corresponding amounts set out below:


 


	
  Cumulative Period Commencing 

  on the First Day of Fiscal Period 10

  of Fiscal Year 2008 and ending

  on the Last Day of

  	
   

  	
  Minimum EBITDA (Exclusive of

  Royalty Income)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  fiscal period 10 of Fiscal Year 2008

  	
   

  	
  $

  	
  (350,000

  	
  )

  
	
   

  	
   

  	
   

  	
   

  
	
  fiscal period 11 of Fiscal Year 2008

  	
   

  	
  $

  	
  (740,000

  	
  )

  
	
   

  	
   

  	
   

  	
   

  
	
  fiscal period 12 of Fiscal Year 2008

  	
   

  	
  $

  	
  (710,000

  	
  )

  
	
   

  	
   

  	
   

  	
   

  
	
  fiscal period 13 of Fiscal Year 2008

  	
   

  	
  $

  	
  (930,000

  	
  )

  
	
   

  	
   

  	
   

  	
   

  
	
  fiscal period 1 of Fiscal Year 2009

  	
   

  	
  $

  	
  (1,280,000

  	
  ).

  
						



 


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Section 4.  Calculation of Financial Covenants.


 


Agent,
in addition to using the information contained in the financial statements
submitted to Agent pursuant to Sections 8.5 and 8.7 of the
Financing Agreement, may calculate Borrower’s EBITDA and the other specified
amounts under this Exhibit F (and under any other Financial
Covenants contained in the Financing Agreement) on the basis of information then
available to Agent, which calculation(s) will be binding on Borrower; however,
Agent shall give notice to Borrower of Agent’s computations made pursuant to
this Exhibit F and an opportunity to provide Agent with any
additional or contrary information. 
Borrower must provide any additional (or contrary) information within 15
Business Days after Agent gives notice to Borrower of Agent’s computations.”


 


5.                                       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
based upon the assumptions that the Borrower’s weekly payroll obligations total
$4,400,000 and that the Borrower’s weekly federal and state payroll tax
obligations total $135,000.  The Agent
shall adjust the required amount of the reserve if the Borrower’s actual weekly
payroll obligations total materially more (or less) than $4,400,000 or if the
Borrower’s actual weekly unemployment taxes total materially more (or less)
than $135,000.  The Agent shall add
$135,000 to such reserve each week.  Upon
the Agent’s receipt of evidence of the Borrower’s payment of all of its weekly federal
and state payroll tax obligations for the preceding quarter, the Agent shall
relieve the entire amount of the cumulative weekly reserves imposed by the
Agent for such quarter and thereafter shall add $135,000 to the reserve for
each week of the following quarter. The reserve against Revolving Credit Availability
under this Section 5 shall be reduced by the $5,000,000 of cash which the
Borrower maintains in a deposit account at U.S. Bank National Association.


 


6.                                       Return of
Travelers Letter of Credit.  The Borrower shall continue to use its best
efforts to cause The Travelers Indemnity Company (“Travelers”) as  promptly as practicable to return to the LC
Issuer the original, undrawn Letter of Credit in the face amount of
$27,000,0000 issued by the LC Issuer to Travelers.  The Borrower shall offer to provide Travelers
cash collateral in the amount of $27,000,000 in exchange for the Borrower’s
requested return of such Letter of Credit, and the Borrower shall obtain such
cash collateral by requesting a Revolving Loan under the Financing Agreement.


 


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


 


8.                                       Daily Delivery
of Borrowing Base Certificates and Sales and Collections Reports.  Notwithstanding anything to the contrary set
forth in Section 8.3 of the Financing 


 


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Agreement,
commencing no later than October 7, 2008, the Borrower shall deliver a
Borrowing Base Certificate to the Agent on each Business Day.  With each such delivery of a Borrowing Base
Certificate, the Borrower shall deliver to the Agent a sales and collections
report in form and substance reasonably satisfactory to the Agent.


 


9.                                       Additional
Covenants Relating to Sale of Stock of Australia and New Zealand Subsidiaries.


 


                                                A.  Delivery of Executed Share Sale Agreement.  No later than October 1, 2008, the
Borrower shall furnish the Agent a copy of the fully-executed Share Sale
Agreement relating to the sale of shares of Westaff (Australia) Pty Limited and
Westaff NZ Limited (the “Share Sale Agreement”).


 


                                                B.  Satisfaction of Conditions Precedent to
Share Sale Agreement.  No later than October 31,
2008, the Borrower shall deliver to the Agent evidence, in form and substance
reasonably satisfactory to the Agent, that all conditions precedent to the
effectiveness of the Share Sale Agreement have been satisfied or waived.


 


                                                C.  Delivery and Endorsement of Original Seller
Note.  On the Completion Date under
(and as defined in) the Share Sale Agreement, the Borrower shall deliver to the
Agent the original of the promissory note evidencing the obligation of the
Buyer under (and as defined in) the Share Sale Agreement to pay the Subsequent
payment required to be paid by the Buyer to the Seller pursuant to Section 6.2
of (and as such terms are defined in) the Share Sale Agreement, together with
all required endoresements.


 


                                                D.       Receipt of Initial Cash
Payment of Purchase Price.  No
later than November 8, 2008, the Borrower shall deliver evidence, in form
and substance reasonably satisfactory to the Agent, that the Borrower has
received payment of the portion of the purchase price required by Section 6.1
of the Share Sale Agreement (the “Completion Date Payment”).


 


                                                E.  Maintenance of Completion Date Payment in
US Bank Deposit Account.  The
Borrower shall cause the entire amount of the Completion Date Payment to be
deposited into the Controlled Deposit Account established by the Borrower with
U.S. Bank National Association in conjunction with the Westaff UK Sale (as such
term is defined in the First Amendment to Financing Agreement, dated as of February 14,
2008 by and among the parties to the Financing Agreement) immediately upon the
payment of the Completion Date Payment by the Buyer under (and as defined in)
the Share Sale Agreement.  The Borrower
shall maintain the entire amount of the Completion Date Payment on deposit in
the Controlled Deposit Account at all times prior to the payment date of any
Adjustment Amount required by Section 6.6 of (and as defined in) the Share
Sale Agreement (the “Adjustment Amount Payment Date”).  After the Adjustment Amount Payment Date, the
Borrower may withdraw from the Controlled Deposit Account an amount equal to
the difference between the amount of the Completion Date Payment and
$4,000,000, and the Borrower shall use a portion of such withdrawn amount to
pay Delstaff, LLC (“Delstaff”) $1,000,000 of the outstanding principal
amount, plus accrued interest and a $150,0000 facility fee with respect to the
Borrower’s obligations to Delstaff under the Loan Agreement dated as of August 25,
2008 


 


4

















 


between
the Borrower and the other borrowers thereunder, on the one hand, and Delstaff,
on the other hand, and the Subordinated Revolving Note, dated August 25,
2008 executed by the Borrower and such other borrowers in favor of Delstaff.  At no time after the Adjustment Amount
Payment Date shall less than $4,000,000 of the proceeds of the Completion Date
Payment be on deposit in the Controlled Deposit Account or in such other
deposit account under the control of the Agent as the Agent may require or
permit.


 


10.                                 Evidence of
Workers Compensation Policy.  No later than October 31, 2008, the
Borrower shall provide the Agent evidence, in form and substance satisfactory
to the Agent, that the Borrower has renewed its existing workers compensation
insurance policy or obtained a replacement workers compensation insurance
policy, in either case on terms reasonably satisfactory to the Agent.


 


11.                                 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 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 favor at the time of executing the release,
which if known by him might have materially affected his 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.


 


12.                                 Forbearance Fee.  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 shall pay to the Agent, for the ratable
benefit of the Lenders, a one-time forbearance fee in the amount of $25,000
(the “Forbearance Fee”).  The Forbearance
Fee shall be fully-earned, non-refundable 


 


5

















 


and
due and payable in one lump sum on the date of this Agreement.  The Borrower and the Parent Guarantor acknowledge
and agree that the Agent shall effect payment of the Forbearance Fee when due
by charging the full amount thereof to the Borrower’s Revolving Loans account.


 


13.                                 Condition
Precedent.  The
effectiveness of this Agreement shall be subject to the Agent’s receipt of this
Agreement, duly executed by the Borrower, the Parent Guarantor and each of the
Lenders.


 


14.                                 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.


 


15.                                 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.


 


16.                                 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.


 


17.                                 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]


 


6

















 


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

  



 


1

















 


	
   

  	
  U.S. BANK NATIONAL
  ASSOCIATION,

  
	
   

  	
  as the Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Greg F. Ennis

  
	
   

  	
   

  	
  Greg F. Ennis

  
	
   

  	
   

  	
  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  U.S. BANK NATIONAL
  ASSOCIATION,

  
	
   

  	
  as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Greg F. Ennis

  
	
   

  	
   

  	
  Greg F. Ennis

  
	
   

  	
   

  	
  Vice President

  



 


2

















 


	
   

  	
  WELLS FARGO BANK,

  
	
   

  	
  NATIONAL ASSOCIATION,

  
	
   

  	
  as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Tony S. Lee

  
	
   

  	
   

  	
  Tony S. Lee

  
	
   

  	
   

  	
  Vice President

  



 


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