Exhibit
10.8.27


 


UNSECURED
SUBORDINATED NOTE


 


	
  $1,000,000

  	
  May 17, 2002

  
	
   

  	
  Walnut Creek,
  California

  



 


1.             Promise to
Pay.    This Unsecured Subordinated Note (this “Note”), is the
promise of WESTAFF (USA), INC., a California corporation (“Payor”) to
pay to DWIGHT S. PEDERSEN, and his successors and assigns (“Holder”),
the principal amount and all interest accrued the loan (the “Loan”),
made by Holder to the undersigned, in the amount of ONE MILLION DOLLARS
(US$1,000,000) (the “Principal Amount”).  Upon the terms and conditions hereof, Payor hereby
unconditionally promises to pay to the order of Holder at such address as
Holder shall hereinafter designate to Payor in writing, in lawful money of the
United States of America and in immediately available funds, the Principal
Amount, and to pay interest on the outstanding principal balance of the Loan as
computed in the manner set forth in Section 3 below.  In addition, Payor shall pay Holder a fee of
THIRTY THOUSAND DOLLARS (US$30,000) on the date of this Note (the “Note
Fee”).  All capitalized terms herein
shall have the meanings as provided herein (including Section 13 below),
and if not defined herein, shall have the respective meanings as defined in
Annex A of that certain Westaff (USA), Inc., Westaff (U.K.) Limited, Westaff
Support, Inc., Westaff (CA), Inc., and Westaff Limited Partnership, as
Borrowers, Westaff, Inc., as Guarantor, General Electric Capital Corporation,
as Agent, and the Lenders signatory thereto (as amended, supplemented,
replaced, refinanced or otherwise modified from time to time, “Credit
Agreement”).


 


2.             Maturity.  Subject to Section 4 hereof, the
Principal Amount of the Loan made under this Note, plus all accrued and unpaid
interest thereon, shall be due and payable on the earlier of (a) on August 18,
2007 (the “Maturity Date”), or (b) 10 calendar days after the
payment in full in cash of the Term Loan upon the sale of the real property
described in the Deed of Trust, but only from the proceeds of the sale of such
real property (the “Prepayment Event”). 
Subject to the provisions of Section 4(c), Payor may also prepay
all or any portion of this Note at any time without penalty.  All payments to Holder shall be accompanied
by a certificate from an officer of Payor certifying that Payor is not prohibited
from making payments under Section 4(c) hereof.  All payments received from Payor hereunder
shall be applied first, to the payment of any unpaid interest under this Note,
and second, to reduce the principal balance hereunder.


 


3.             Interest
Rate.  Payor shall pay
interest to Holder on the outstanding and unpaid principal amount of the Loan
at the rate (the “Interest Rate”) equal to the US Index Rate (as calculated
under the Credit Agreement) plus the Applicable Term Loan Index Margin (as
calculated under the Credit Agreement) calculated on the basis of a year of 365
days for the actual number of days elapsed, provided, however,
that in no event 


1

















 


shall the Interest Rate exceed
the maximum rate permitted by law. 
Interest accruing on the principal amount of the Loan shall be paid by
Payor to Holder 45 calendar days after the end of each Fiscal Period (subject
to the Section 4(c) hereof).  For
the purposes of this Note, “Fiscal Period” means any  means any of the 13 four-week accounting
periods of Payor.


 


4.             Subordination.


 


(a)           Payor and Holder agree that all payments under this Note
are and shall be subordinate, to the extent and in the manner hereinafter set
forth, in right of payment to the prior cash payment in full of all of Payor’s
payment obligations now or hereafter existing in respect of any Senior Debt (as
defined in Section 13 below), whether for principal, interest, fees,
expenses or otherwise (such payment obligations being the “Senior Obligations”).


 


(b)           Senior Debt Holders (as defined in Section 13
below) will be entitled to receive payment in full of all Senior Obligations
due in respect of Senior Debt (including interest after the commencement of any
bankruptcy proceeding at the rate specified in the applicable Senior Debt,
without regard to whether or not such interest is an allowed claim, but except
for any contingent indemnity obligation) before Holder will be entitled to
receive any payment with respect to this Note, in the event of any distribution
to creditors of Payor:  (i) in a
liquidation or dissolution of Payor; (ii) in a bankruptcy, reorganization,
insolvency, receivership or similar proceeding relating to Payor or its
property; (iii) in an assignment for the benefit of creditors; or (iv) in any
marshaling of Payor’s assets and liabilities.


 


(c)           Payor may make principal and interest payments under this
Note when due, without acceleration, except, as long as any Senior Obligations
are outstanding, Payor may not make any payment in respect of this Note in the
event of any of the following:


 


(i)            in the event any default in the
payment of principal of, interest or premium, if any, on any Senior Debt occurs
and is continuing under the agreement, indenture or other document governing
such Senior Debt (a “Payment Default”), or


 


(ii)           in the event (A) any default
(other than a Payment Default) occurs and is continuing with respect to any  Senior
Debt which with the giving of notice or the passage of time, would permit the
Agent or the Senior Debt Holders to accelerate the maturity of the Senior Debt;
or (B) after giving effect to the payment to be made in respect of this
Note, a default would exist that, with the giving of notice or the passage of
time, would permit the Agent or the Senior Debt Holders to accelerate the
maturity of the Senior Debt; or (C) except with respect to the prepayment of
this Note in connection with a Prepayment Event (which prepayment shall not
require any Borrowing Availability under the Credit Agreement, as long as the Term
Loan has been paid in full in cash), after giving 


2

















 


effect to the proposed payment hereunder, the
Borrowers under the Credit Agreement shall have an aggregate Borrowing
Availability (as defined in the Credit Agreement) of the US Dollar
Equivalent  (as defined in the Credit
Agreement) of less than the greater of (y) fifteen percent (15%) of the
Aggregate Borrowing Base (as defined in the Credit Agreement) or (y) $5,000,000,
and in each instance under Clauses (A), (B) and (C) hereof, any Senior Debt
Holder shall have delivered to Payor and Holder at the addresses set forth in
Section 8 below notice of such default or condition (a “Payment Blockage
Notice”) from any Senior Debt Holder.


 


(d)           Payments on this Note may and shall be resumed (i) in
the case of a Payment Default, or (ii) in the case Payor and Holder
receive a Payment Blockage Notice, upon the date on which such Payment Default
or the default or condition described in the Payment Blockage Notice is cured
or waived.


 


(e)           In the event that Holder receives any payment with respect
to this Note at a time when such payment is prohibited by Section 4(c)
hereof, such payment (the “Unpermitted Payment”) shall be held by
Holder, in trust for the benefit of the Senior Debt Holders.  Upon written request of the Agent, Holder
shall deliver the Unpermitted Payment in trust to the Agent to be applied to
the Senior Obligations.


 


(f)            Intentionally Left Blank


 


(g)           This Section 4 defines the relative rights of
Holder and Senior Debt Holders.  Nothing
in this Note shall:


 


(i)            impair, as between Payor and Holder,
the obligation of Payor, which is absolute and unconditional, to pay principal
of and interest on this Note in accordance with its terms;


 


(ii)           affect the relative rights of Holder
and creditors of Payor other than their rights in relation to Senior Debt
Holders; and


 


(iii)          if Payor fails because of this Section
4 to pay principal of or interest on this Note on the due date, the failure
is still a default hereunder.


 


(h)           No right of any Senior Debt Holder to enforce the
subordination of the indebtedness evidenced by this Note shall be impaired by
any act or failure to act by Payor or Holder or by the failure of Payor or
Holder to comply with the terms of this Note.


 


(i)            Upon any payment or distribution of assets of Payor
referred to in Section 4(a), Holder shall be entitled to rely upon
any order or decree made by any court of competent jurisdiction or upon any
certificate of a representative or of the liquidating trustee or agent or other
Person making any distribution to Holder of this Note for the purpose of
ascertaining the Persons entitled to participate in such 


 


3

















 


distribution, the Senior Debt Holders and other
indebtedness of Payor, the amount thereof or payable thereon, the amount or
amounts paid or distributed thereon and all other facts pertinent thereto or to
this Section 4.


 


(j)            For the purposes of this Note, the Senior Obligations
shall not be deemed to have been paid in full unless the Senior Debt Holders
shall have received cash payment in full of all Senior Obligations (whether
matured or unmatured), with the exception of contingent indemnity obligations
and all commitments to extend further financial accommodations under the Credit
Agreement shall have terminated.


 


(k)           Holder (i) will not take, sue for, or demand from Payor
payment of all or any portion of this Note (with the exception of a demand for
a regularly scheduled interest payment for which payment is permitted under
Section 4(c));  (ii) will not
commence, or join with any creditor other than the Senior Debt Holders in
commencing, directly or indirectly, or cause Payor to commence, or assist Payor
in commencing, any proceeding referred to in Section 4(a); and (iii)
will not initiate, prosecute or participate in any claim, action or other
proceeding challenging the enforceability, validity, perfection or priority of
the Senior Debt or any lien or security interest granted to secure the Senior
Debt.


 


(l)            Holder undertakes to execute, verify, deliver and file
any proofs of claim that the Senior Debt Holders may at any time require to
prove and realize upon any rights or claims pertaining to this Note and to
effectuate the full benefit of the subordination contained herein; and upon
failure of Holder so to do, the Senior Debt Holders shall be deemed to be
irrevocably appointed the agent and attorney-in-fact of Holder to execute,
verify, deliver and file any such proofs of claim; provided, that neither the
Agent nor any Senior Debt Holder shall have any obligation to execute, verify,
deliver or file such proof of claim.


 


(m)          No right of the Senior Debt Holders to enforce
subordination as herein provided shall at any time or in any way be affected or
impaired by any failure to act on the part of Payor or the Senior Debt Holders,
or by any noncompliance by Payor with any of the terms and provisions of this
Note, regardless of any knowledge thereof that the Senior Debt Holders may have
or be otherwise charged with.


 


5.             Subrogation.  Subject to the payment in full of all the Senior Debt (other than
contingent indemnity obligations) and termination of all commitments to extend
further financial accommodations under the Credit Agreement and until this Note
shall be paid in full, Holder shall be subrogated to the rights of the Senior
Debt Holders (to the extent of payments or distributions previously made to
such Senior Debt Holders pursuant to the provisions of Section 4
above) to receive payments or distributions of assets of Payor applicable to
the Senior Debt.  No such payments or
distributions applicable to the Senior Debt shall, as between Payor and its
creditors, other than the Senior Debt Holders and Holder, be deemed to be a
payment by Payor to or on account of this Note; and for the purposes of such
subrogation, no payments or 


4

















 


distributions to the Senior Debt
Holders to which Holder would be entitled except for the provisions of this Section 5
shall, as between Payor and its creditors, other than the Senior Debt Holders
and Holder, be deemed to be a payment by Payor to or on account of the Senior
Debt.  If all or any part of any payment
to the Senior Debt Holders is recovered from or required to be repaid by any
Senior Debt Holder, then this Agreement shall be reinstated and any payment or
distribution to Holder at any time thereafter, whether pursuant to the right of
subrogation or otherwise, shall be deemed to have been received in trust for
the Senior Debt Holders and promptly paid to the Agent to be applied to the
Senior Debt.


 


6.             Usury
Savings Provision.  Under no
circumstances (and notwithstanding any other provisions of this Note) shall the
interest charged, collected, or contracted for on this Note exceed the maximum
rate permitted by law.  If any part of
this Note cannot be enforced, this fact will not affect the rest of this Note.


 


7.             Reimbursement
of Expenses.  If Holder
incurs any out-of-pocket expenses (including, without limitation, the fees and
expenses of Holder’s attorneys) in connection with the placement of this Note
in the hands of its attorneys for collection, or if this Note is collected
through any legal proceedings at law or in equity or in bankruptcy,
receivership or other court proceedings, then Payor shall pay to Holder, on
demand, all reasonable costs and expenses of collection, including, but not
limited to, court costs and reasonable attorneys’ fees.


 


8.             Notices. Any confirmation, notice or any other
communication provided for hereunder shall be in writing or by a
telecommunications device capable of creating a written record, and shall be
effective (a) upon personal delivery thereof, including without limitation, by
overnight mail and courier service or the United States mail, certified or
registered, postage prepaid, return receipt requested, or (b) in the case of
notice by such telecommunications device, when properly transmitted and
confirmed by telephone, addressed to the party to be noticed as follows:


 


If to Payor at:


 


                Westaff
(USA), Inc.


                P.O.
Box 9280


                Walnut
Creek, CA  94598


                Attention:  Treasurer


                Telecopier
No.: 925-930-5361


                Telephone
No.: 925-952-2502


 


                with
copies to:


 


                Westaff
(USA), Inc.


                P.O.
Box 9280


                Walnut
Creek, CA  94598


                Attention:  Chief Financial Officer


 


5

















 


                Telecopier
No.: 925-934-5489


                Telephone
No.: 925-256-1518


 


                Westaff
(USA), Inc.


                P.O.
Box 9280


                Walnut
Creek, CA  94598


                Attention:
Legal Department


                Telecopier
No.: 925-937-0593


                Telephone
No.: 925-930-5349


 


        If to Holder at:


 


Mr.  Dwight S. Pedersen


c/o
Westaff (USA), Inc.


P.O.
Box 9280


Walnut
Creek, CA  94598


 


or to
such other address as either party may hereafter designate for itself by
written notice to the other party in the manner herein prescribed.


 


9.             Binding
Nature; Assignment.  This
Note and all of the provisions hereof shall be binding upon and inure to the
benefit of Payor and Holder and their respective successors and permitted
assigns, but neither this Note nor any of the rights, interests or obligations
hereunder shall be assigned or transferred by Payor without the prior written
consent of Holder.


 


10.           Amendments
and Waivers.


 


(a)           The Senior Debt and any Senior Obligations may be amended,
modified, increased, waived or extended, without notice to or consent of
Holder, and such amendment, modification, increase, waiver or extension shall
not change or modify the subordinated nature of this Note or Holder’s or
Payor’s obligations under Section 4 hereof.


 


(b)           Except as otherwise expressly provided herein, this Note
may not be amended or modified except by written instruments signed by the
Agent, Payor and Holder.  Each waiver or
consent under any provision hereof shall be effective only in the specific
instances for the purpose for which it is given.  Holder may delay or forego the enforcement of any of its rights
or remedies under this Note or any other document evidencing or securing this
Note without losing them.  Payor and any
other Person who signs, guarantees or endorses this Note, to the extent allowed
by law, waive presentment, demand for performance, notice of non-performance,
protest, notice of protest, notice of dishonor, notice of default, or any other
notice whatsoever.  Upon any change in
the terms of this Note in compliance with this Section 10 and
unless otherwise expressly stated in writing, no party who signs this Note,
whether as Payor, guarantor, accommodation Payor or endorser, shall be released
from liability.


 


 


6

















 


11.           Applicable
Law.    THIS NOTE SHALL BE
GOVERNED BY, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS
OF THE STATE OF CALIFORNIA WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAWS,
PRINCIPLE OR RULE THAT MIGHT REQUIRE THE APPLICATION OF THE LAWS OF ANOTHER
JURISDICTION.


 


12.           Waiver of
Jury Trial.  EACH OF THE
PARTIES HERETO WAIVES ITS RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR
CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS NOTE, IN ANY
ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE
PARTIES AGAINST ANY OTHER PARTY, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
CLAIMS OR OTHERWISE.  EACH PARTY HERETO
AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL
WITHOUT A JURY.  WITHOUT LIMITING THE
FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY
JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR
OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS SUBORDINATION AGREEMENT OR ANY PROVISION HEREOF.  THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS SUBORDINATION
AGREEMENT.


 


13.   Definitions.


 


(a)           For the purposes of this Note, the terms below shall have
the following meanings:


 


“Agent” means General Electric Capital
Corporation, as agent for the Lenders under the Credit Agreement, and
its successors and assigns.


 


“Deed of Trust”
means that certain Deed of Trust, absolute Assignment of Leases and Rents,
Security Agreement and Fixture Filing, dated on or about May 16, 2002, made by
Westaff Support, Inc., as trustor, to Chicago Title Company, as trustee, for
the Benefit of Agent, as beneficiary.


 


“Lenders” means each of the financial
institutions party to the Credit Agreement.


 


“Credit Agreement” has the meaning set
forth in the introductory paragraph hereto.


 


“Senior Debt Holders” means the Agent and
the Lenders under the Credit Agreement and their respective successors,
participants and assigns, as permitted under the Credit Agreement.


 


7

















 


“Senior Debt”
means all indebtedness and obligations now or hereafter existing or owed by
Payor to the Senior Debt Holders pursuant to the Credit Agreement or any
instruments or other documents executed by Payor with or in favor of the Senior
Debt Holders in connection therewith, as such agreements may be amended,
supplemented, replaced, refinanced or otherwise modified from time to time, and
whether for principal, premium, interest, fees, expenses, indemnities or
otherwise.


 


(b)           The meanings of defined terms are equally applicable to
the singular and plural forms of the defined terms.


 


(c)           Unless otherwise expressly provided
herein, references to agreements (including this Note) and other contractual
instruments shall be deemed to include all subsequent amendments. amendment and
restatements and other modifications thereto.


 


(d)           The words “hereof,” “hereto,”
“herein,” “hereunder” and similar words refer to this Note as a whole and not
to any particular provision of this Note; and Section and clause references are
to this Note unless otherwise specified.


 


(e)           The captions and headings of this
Note are for convenience of reference only and shall not affect the
interpretation of this Note.


 


[Signature Page to Follow]


 


8

















 


IN WITNESS WHEREOF, Payor
has caused this Note to be duly executed by its officer hereunto authorized as
of the date first above written.


 


	
   

  	
  WESTAFF (USA), INC., a California corporation:

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dirk A. Sodestrom

  
	
   

  	
  Name: Dirk A. Sodestrom

  
	
   

  	
  Title:  
  Senior Vice President and Chief Financial Officer

  



 


The undersigned hereby
acknowledges and consents to the terms and conditions of the above Unsecured
Subordinated Note:


 


	
  /s/ Dwight S. Pedersen

  	
   

  
	
  Dwight S. Pedersen, an individual

  



 


9