**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**WASHINGTON,D.C. 20549

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**FORM 10-K/A**(Amendment No. 1)

**ANNUAL REPORTPURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934**

**FOR THE FISCALYEAR ENDED OCTOBER 29, 2005**

**Commission File Number 000-24990**

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**WESTAFF, INC.**(Exactname of registrant as specified in its charter)

| **DELAWARE**                    |   | **94-1266151**      |
|---------------------------------|--------|---------------------|
| (State or other jurisdiction of |   | (I.R.S. Employer    |
| incorporation or organization)  |   | Identification No.) |

 

**298 NORTH WIGET LANE, WALNUTCREEK, CA 94598-2453**(Address of principal executiveoffices, including zip code)

**(925) 930-5300**(Registrant’s telephone number,including area code)

Securities registered pursuant to Section 12(b) of the Act:**None**

Securities registered pursuant to Section 12(g) ofthe Act:

**Common Stock, $0.01 par valueper share**(Title of class)

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined inFull 405 of the Securities Act. Yes o No x

Indicateby check mark if the registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Exchange Act. Yes o No x

Indicateby check mark whether the registrant: (1) has filed all reports requiredto be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes x    No o

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof Registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. x

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange.

Largeaccelerated filer o                           Accelerated filer o                               Non-acceleratedfiler x

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act). Yes o No x

Asof April 15, 2005, the aggregate market value of the registrant’s commonstock held by non-affiliates of the registrant was $32,850,107 based on theclosing sale price as reported on the Nasdaq National Market.

As of January 26, 2006, the Registrant had outstanding 16,377,958shares of Common Stock.

 

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**EXPLANATORY NOTE**

Westaff, Inc. (the “Company”) is filing thisAmendment No. 1 to its Form 10-K for the year ended October 29,2005, that was originally filed on January 27, 2006 (the “Original 10-K”),to add in information required in Part III of the Company’s Annual Reporton the Original 10-K. There are no changes to the amounts on thefinancial statements as originally filed. There are also no changes to thedisclosures in the Original 10-K, except that this Amendment No. 1amends and restates, in their entirety, Items 10 through 14 of Part III ofthe Original 10-K. This Amendment No. 1 continues to speak as of thedate of the Original 10-K, and we have not updated the disclosurecontained herein to reflect any events that occurred at a later date. All informationcontained in this Amendment No. 1 is subject to updating and supplementingas provided in our periodic reports filed with the SEC subsequent to the dateof the filing of the Original 10-K.

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**PART III**

**ITEM 10.**   DIRECTORS AND EXECUTIVE OFFICERS OF THEREGISTRANT.

**DIRECTORS**

*RonaldD. Stevens,***age 62, Class Idirector, was appointed as a director of the Company effective February 24,2002. He began his business career in 1967 with Arthur Andersen & Co.and became an audit partner in that organization in 1977. He left ArthurAndersen & Co. at the end of 1990 and joined in opening ProductivityConsulting Group, Inc. In April 2002, he retired from Robertson-CecoCorporation where he had been its Executive Vice President and Chief FinancialOfficer since October 1996. He is a certified public accountant oninactive status.

*JackD. Samuelson,* age 81, Class I director, has beena director of the Company since March 1995. Mr. Samuelson co-foundedSamuelson Brothers in 1957 to engage in general construction and commercialreal estate development. Mr. Samuelson has been its President and Chairmanof the Board of Directors from incorporation to the present. Samuelson Brotherssold its construction business in 1979 and since then has continued to developindustrial and commercial real estate. It is now known as Samuelson Partners. Mr. Samuelsonis also a director of Nationwide Health Properties, Inc., a New York StockExchange-listed real estate investment trust focused on healthcare-relatedproperties.

*PatriciaM. Newman,* age 54, Class II director, wasappointed as our President and Chief Executive Officer effective March 16,2005. Ms. Newman is a 25 year veteran of the staffing industry and wasappointed as Chief Operating Officer of the Company on November 1, 2004. Priorto that, she had been the Company’s U.K. Managing Director since December 1998.In November 2002, she took on the added responsibility of overseeing theCompany’s Denmark and Norway Operations. Ms. Newman will continue to serveon the board of Westaff U.K. Limited.

*W.Robert Stover,* age 84, Class III director,founded the Company in 1948 and has been continuously involved in themanagement of the Company since that time. Since our incorporation in 1954, Mr. Stoverhas held the position of Chairman of the Board of Directors. From 1954 to 1985,Mr. Stover served as President, and from 1985 to the end of calendar year1998, as Chief Executive Officer. He stepped down as Chief Executive Officereffective January 1, 1999, and continued to serve as Chairman of the Boardof Directors until May 3, 2000, when he also assumed the position ofinterim President and Chief Executive Officer following the termination of amanagement-led buyout transaction. Mr. Stover’s interim service asPresident and Chief Executive Officer ended upon the hiring of a successor inthat office effective May 1, 2001. He continues to serve as Chairman ofthe Board of Directors.

*Janet M. Brady,*age 52, Class III director, was appointed as a director of the Companyeffective September 19, 2002. She was employed by The Clorox Company foralmost twenty-seven years having started as Brand Assistant in 1976.After a series of promotions, including as Vice President-CorporateMarketing Services of that company, she was named Vice President-HumanResources in 1993 where she served until her retirement in January 2003.She was a former director of American Protective Services, Inc., aprivately held guard service company. She is a director on the Advisory Boardof I.P.S.A., a privately held investigative and protective services company.

**EXECUTIVE OFFICERS**

*PatriciaM. Newman,**age 54, was appointed as President and ChiefExecutive Officer of the Company effective March 16, 2005. Prior to that,*Ms. Newman held the position of ChiefOperating Officer of the Company from November 1, 2004, until theappointment as President and Chief Executive Officer. She joined the Company asUnited Kingdom Managing Director in December 1998. (In November 2002,she took on the added responsibility of overseeing the Company’s Denmark andNorway operations.) Prior to joining the Company, Ms. Newman was employedby Kelly Services in the UK from 1989 to 1998, most 

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recently as CommercialOperations Director. From 1979 to 1989 she was employed by Manpower in the UK.

*DirkA. Sodestrom,**age 48,* joined the Company as Controller in February 1991. In December 1992,he was elected to the additional position of Vice President. In June 1998,Mr. Sodestrom was named a Senior Vice President of the Company. Effective January 1,2001, Mr. Sodestrom was appointed as Chief Financial Officer. Mr. Sodestromwas employed from 1980 to 1991 by Price Waterhouse LLP, most recently as aSenior Audit Manager. He is a certified public accountant on inactive status.

*StephenJ. Russo,* age 49, joined the Company as Western ZoneManager in July 2004. On July 25, 2005, he was elected to theposition of Senior Vice President, Field Operations and is the Company’sprincipal operating officer. Prior to that, Mr. Russo was a partner at ECPGroup in Walnut Creek, California, an organizational and individual developmentconsulting partnership from October 2001 to June 2004. Prior to ECPGroup, Mr. Russo was Senior Vice President, Chief Administrative Officerand Chief Operating Officer at Gary D. Nelson Associates from August 1998to June 2001.

*ChristaC. Leonard,**age 48,*was hired as Vice President and Treasurer of the Company in November 2000.Ms. Leonard was previously employed by USI Insurance Services Corp. asVice President, Treasury and Tax, from 1996 to 2000. She has approximately nineyears’ prior work experience in the public accounting field, most recently from1995 to 1996 with Roberts Schultz & Co., and also with Wallace Meyer &Co. from 1992 to 1994, and KPMG Peat Marwick & Co. from 1987 to 1992.She is a certified public accountant on inactive status.

*RichardM. Sugerman,* age 53, was hired as Vice President andController of the Company effective February 22, 2005. Mr. Sugermanwas previously employed by DSW & Associates, Inc. as CorporateController and Secretary, from September 2002 to February 2005. From January 2001to September 2002, Mr. Sugerman was Corporate Controller andSecretary of Loquendo, Inc. Prior to that he was Vice President of Financeand Administration at Stellarnet, Inc. from March 2000 to December 2000,and Executive Vice President, Finance Director at Snyder HealthcareCommunications Worldwide from December 1998 to March 2000. Mr. Sugermanis a certified public accountant on inactive status.

*DavidP. Wilson, age 43,*was hired in December 1997, as Field Automation Manager, focusing on thefield automation process. In June 1998, he was assigned the additionaltask of managing the customer service and help desk functions of the Company’sInformation Services Department. Mr. Wilson was promoted to VicePresident, Information Services in January 2001.He has approximately 20 years’ work experience in information services, mostrecently with Triad Systems Corporation as Manager, Financial and MarketingSystems, from 1991 to 1997, and Franklin Covey, Application Design Specialistfrom 1985 to 1991.

There are no family relationships among our executiveofficers or directors.

*The Company has adopted a Code of Ethics that appliesto all the Company’s principal executive, financial and accounting officers.The Code of Ethics is posted on the Company website at www.westaff.com. TheCompany intends to satisfy the requirements under Item 5.05 of Form 8-Kregarding disclosure of amendments to, or waivers from, provisions of its Codeof Ethics that apply, by posting such information on the Company’s website.Copies of the Code of Ethics will be provided, free of charge, upon writtenrequest directed to Investor Relations, Westaff, Inc., P.O. Box 9280,Walnut Creek, CA 94598.*

**SECTION 16(a) BENEFICIALOWNERSHIP REPORTING COMPLIANCE**

Section 16(a) of the Exchange Act requiresthe Company’s executive officers, directors and persons who beneficially ownmore than 10% of the Common Stock to file initial reports of ownership andreports of changes in ownership with the Securities and Exchange Commission (“SEC”).Such persons are 

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required by SECregulations to furnish the Company with copies of all Section 16(a) formsfiled by such persons.

Based solely on theCompany’s review of such forms and amendments thereto furnished to the Companyand written representations from certain reporting persons, the Companybelieves that all executive officers, directors and greater than 10%stockholders complied with all filing requirements applicable to them withrespect to transactions during fiscal 2005.

**ITEM 11.**   EXECUTIVE COMPENSATION.

The following table setsforth the compensation earned by: (i) the Company’s Chief ExecutiveOfficer or the individual acting in a similar capacity during fiscal 2005 and (ii) thefour other highest-paid executive officers of the Company who were serving atthe end of fiscal 2005. The individuals included in the table collectively willbe referred to as the “Named Officers.”

**SUMMARYCOMPENSATION TABLE**

| ** **             | ** **                                     | ** ** | ** ** | ** **               | ** ** | ** **                 | ** ** | **Long-Term Compensation** | ** ** | ** **                       | ** ** |
|------------------------|------------------------------------------------|------------|------------|--------------------------|------------|----------------------------|------------|---------------------------------|------------|----------------------------------|------------|
| ** **             | ** **                                     | ** ** | ** ** | **Annual  Compensation** | ** ** | **Securities  Underlying** | ** ** | **Restricted  Stock**           | ** ** | **All Other  Compensation** | ** ** |
| ** **             | **Name and Principal Position** | ** ** | ** ** | **Year**                 | ** ** | **Salary($)**              | ** ** | **Bonus($)**                    | ** ** | **Options(#)(1)**                | ** ** | **Award(s)($)** | ** ** | **($)(2)(3)(4)** | ** ** |
| Patricia M. Newman     |                                           | 2005       |       | 446,798                  |       |                       | 90,000     | (5)                             |       |                             | 200,000    |   |   |   | 64,400 | (6) |   |   | 86,927 | (7) |   |
| President and Chief    |                                           | 2004       | (8)        | —                   |       |                       | —     |                            |       |                             | —     |   |   |   |   |   |   |   | 21,648 |   |   |
| Executive Officer      |                                           | 2003       | (9)        | —                   |       |                       | —     |                            |       |                             | —     |   |   |   |   |   |   |   | 17,740 |   |   |
| Dwight S. Pedersen(10) |                                           | 2005       |       | 135,000                  |       |                       | —     |                            |       |                             | —     |   |   |   |   |   |   |   | 400,082 | (11) |   |
| President and Chief    |                                           | 2004       |       | 340,824                  |       |                       | —     |                            |       |                             | —     |   |   |   |   |   |   |   | 226 |   |   |
| Executive Officer      |                                           | 2003       |       | 372,824                  |       |                       | —     |                            |       |                             | —     |   |   |   |   |   |   |   | 2,714 |   |   |
| Dirk A. Sodestrom      |                                           | 2005       |       | 253,577                  |       |                       | —     |                            |       |                             | —     |   |   |   |   |   |   |   | 215 |   |   |
| Senior Vice President  |                                           | 2004       |       | 215,757                  |       |                       | —     |                            |       |                             | —     |   |   |   |   |   |   |   | 226 |   |   |
| and Chief Financial    |                                           | 2003       |       | 229,603                  |       |                       | —     |                            |       |                             | —     |   |   |   |   |   |   |   | 587 |   |   |
| Officer                |                                           |       |       |                     |       |                       |       |                            |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Stephen J. Russo(12)   |                                           | 2005       |       | 190,797                  |       |                       | 31,201     | (13)                            |       |                             | —     |   |   |   |   |   |   |   | 152 |   |   |
| Senior Vice President, |                                           | 2004       |       | 53,342                   |       |                       | —     |                            |       |                             | 25,000     |   |   |   |   |   |   |   | 40 |   |   |
| Field Operations       |                                           | 2003       |       | —                   |       |                       | —     |                            |       |                             | —     |   |   |   |   |   |   |   | — |   |   |
| David P. Wilson        |                                           | 2005       |       | 157,094                  |       |                       | —     |                            |       |                             | —     |   |   |   |   |   |   |   | 182 |   |   |
| Vice President,        |                                           | 2004       |       | 143,519                  |       |                       | —     |                            |       |                             | —     |   |   |   |   |   |   |   | 214 |   |   |
| Information Services   |                                           | 2003       |       | 147,336                  |       |                       | —     |                            |       |                             | —     |   |   |   |   |   |   |   | 245 |   |   |
| Christa C. Leonard     |                                           | 2005       |       | 156,028                  |       |                       | —     |                            |       |                             | —     |   |   |   |   |   |   |   | 152 |   |   |
| Vice President and     |                                           | 2004       |       | 141,508                  |       |                       | —     |                            |       |                             | —     |   |   |   |   |   |   |   | 210 |   |   |
| Treasurer              |                                           | 2003       |       | 140,095                  |       |                       | 1,000      | (14)                            |       |                             | —     |   |   |   |   |   |   |   | 235 |   |   |
|                        |                                                |            |            |                          |            |                            |            |                                 |            |                                  |            |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          Long-term compensationhas not been included in the table because such information is not applicable.

(2)          All other compensationfor executive officers other than Ms. Newman for fiscal 2004 includesemployer’s portion of basic life insurance premium (per month) in the amount of$19 for Messrs. Pedersen and Sodestrom, $10 for Mr. Russo, and $18for Ms. Leonard and Mr. Wilson. Employer’s portion was 12 cents per$1,000 of coverage and allowed coverage was one times base salary up to amaximum of $150,000. All other compensation for Ms. Newman for fiscal 2004 includesemployer contributions for her retirement plan.

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(3)          All other compensation forexecutive officers other than Ms. Newman for fiscal 2003 includes employer’smatching contributions under the Westaff Deferred Savings Plan (“Deferred Plan”)for fiscal 2003, the sixth year in which contributions were made. The matchingcontributions for fiscal 2003 were 10% of the first 10% of the participant’scontribution to the Deferred Plan, and were equal to zero for Mr. Wilson,zero for Ms. Leonard, $2,461 for Mr. Pedersen and $355 for Mr. Sodestrom.Also includes employer’s portion of basic life insurance premium (per month) inthe amount of $21 for Messrs. Pedersen and Sodestrom and, $20 for Mr. Wilsonand Ms. Leonard. Employer’s portion was 14 cents per $1,000 ofcoverage and allowed coverage was one times base salary up to a maximum of$150,000. All other compensation for Ms. Newman for fiscal 2008 includesemployer contributions for her retirement plan.

(4)          All other compensationfor fiscal 2005 includes employer’s portion of basic life insurance premium(per month) in the amount of $20 for Mr. Pedersen, $18 for Mr. Sodestrom,$17 for Ms. Newman, $20 for Mr. Russo and Ms. Leonard and $15for Mr. Wilson. Employer’s portion was 14 cents per $1,000 of coverage andallowed coverage was one times base salary to a maximum of $150,000.

(5)          Bonus for fiscal 2005based on a guaranteed minimum payment of $90,000 pursuant to her EmploymentAgreement.

(6)          2005 Long-TermCompensation includes 20,000 shares of restricted Common Stock with a fairmarket value of $93,000 at October 29, 2005. Subject to Ms. Newman’smeeting certain performance criteria, 5,000 shares will vest on October 28,2006 and 5,000 shares will vest on November 3, 2007. Of the remaining10,000 shares, 5,000 will vest on April 7, 2008 and 5,000 will vest on November 1,2008. If performance criteria is not met on either of the 2006 or 2007 vestingtranches, such shares will vest on November 1, 2008.

(7)          Includes $19,909 for acash allowance to be used by Ms. Newman in her discretion for a carallowance, health club membership, or other needs. Also, includes $32,730 fortemporary housing, $17,679 for furniture rental, $8,366 for a car rental and ade minimus amount for traveling expenses incurred by Ms. Newman’s husband.

(8)          British pounds sterling aretranslated into U.S. dollars at an average exchange rate of 1.8040 for fiscal2004.

(9)          British pounds sterling aretranslated into U.S. dollars at an average exchange rate of 1.6110 for fiscal2003.

(10)   Mr. Pedersen’s resignationwas accepted by the Board of Directors and made effective on March 16,2005.

(11)   Includes Mr. Pedersen’scash severance payment of $400,000. In addition, pursuant to Mr. Pedersen’sseverance agreement, we provided him with continued COBRA payments for one yearafter the severance date.

(12)   Mr. Rosso was elected to theposition of Senior Vice President, Field Operations on July 25, 2005.

(13)   Bonus for fiscal 2005 was basedon the incentive plan for zone managers.

(14)   Ms. Leonard received a onetime bonus in January 2003 for a special project.

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**Option Grants in Last Fiscal Year**

Therewere two stock option grants made during fiscal 2005 under the Company’s 1996Stock Option/Stock Issuance Plan to the Named Officers. The table below setsforth information with respect to such option grants.

|                    | ** ** | ** **         | ** ** | **Individual**        | ** ** | ** **                  | ** ** | ** **     | ** ** | ** **                 | ** ** |
|--------------------|------------|--------------------|------------|-----------------------|------------|-----------------------------|------------|----------------|------------|----------------------------|------------|
| ** **         | ** ** | ** **         | ** ** | **Grants(1)**         | ** ** | ** **                  | ** ** | ** **     | ** ** | ** **                 | ** ** |
| ** **         | ** ** | ** **         | ** ** | **Percent Of**   | ** ** | ** **                  | ** ** | ** **     | ** ** | ** **                 | ** ** |
| ** **         | ** ** | ** **         | ** ** | **Total**             | ** ** | ** **                  | ** ** | ** **     | ** ** | **Potential Realizable**   | ** ** |
| ** **         | ** ** | **Number Of** | ** ** | **Options/SAs**       | ** ** | ** **                  | ** ** | ** **     | ** ** | **Value At Assumed**       | ** ** |
| ** **         | ** ** | **Securities**     | ** ** | **Granted To**   | ** ** | ** **                  | ** ** | ** **     | ** ** | **Annual Rates Of Stock**  | ** ** |
| ** **         | ** ** | **Underlying**     | ** ** | **Employees In** | ** ** | **Exercise Price**     | ** ** | ** **     | ** ** | **Price Appreciation For** | ** ** |
| ** **         | ** ** | **Options/SARs**   | ** ** | **Fiscal Year**  | ** ** | **Or Base Price** | ** ** | **Expiration** | ** ** | **Option Term**            | ** ** |
| **Name**           | ** ** | ** **         | ** ** | **Granted(#)**        | ** ** | **2005(%)**                 | ** ** | **($/Sh)**     | ** ** | **Date**                   | ** ** | **5%($)** | ** ** | **10%($)** | ** ** |
| Patricia M. Newman |       |               | 155,275    |                  |       |                        | 76         | %              |       |                       | 3.22       |   |   |   | 04/07/15 |   |   | 314,438 |   | 796,848 |   |
|               |       |               | 44,725     |                  |       |                        | 22         | %              |       |                       | 3.22       |   |   |   | 04/07/15 |   |   | 90,570 |   | 229,522 |   |
|                    |            |                    |            |                       |            |                             |            |                |            |                            |            |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          Options granted underthe Company’s 1996 Stock Option/Stock Issuance Plan have a maximum ten-yearterm measured from the date of grant. Options vest ratably from April 2006through April 2010.

 

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**AggregatedOption Exercises in Last Fiscal Year and Fiscal Year End Values**

OneNamed Officer who was acting as Chief Executive Officer exercised optionsduring fiscal 2005. No other Named Officer exercised an option during fiscal2005. The table below sets forth information with respect to the exercised andunexercised options held by the Named Officers as of October 29, 2005. 

| ** **          | ** ** | **Shares  Acquired on** | ** ** | **Value  Realized** | ** ** | **Number of Securities  Underlying Unexercised  Options at  Fiscal Year End(#)** | ** ** | **Value of Unexercised  In-the-Money Options At  Fiscal Year End($)(1)** | ** ** |
|---------------------|------------|------------------------------|------------|---------------------|------------|----------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------|------------|
| **Name**            | ** ** | ** **                   | ** ** | **Exercise(#)**     | ** ** | **($)**                                                                                                        | ** ** | **Exercisable**                                                                                        | ** ** | **Unexercisable** | ** ** | **Exercisable** | ** ** | **Unexercisable** | ** ** |
| Dwight S.  Pedersen |       |                         | 253,000    |                |       | 565,090                                                                                                        |       |                                                                                                   | —     |   |   |   | — |   |   |   | — |   |   |   | — |   |   |
| Patricia M.  Newman |       |                         | —     |                |       | —                                                                                                         |       |                                                                                                   | 24,791     |   |   |   | 205,209 |   |   |   | 32,937 |   |   |   | 293,814 |   |   |
| Dirk A. Sodestrom   |       |                         | —     |                |       | —                                                                                                         |       |                                                                                                   | 85,333     |   |   |   | 10,417 |   |   |   | 72,875 |   |   |   | 15,626 |   |   |
| Stephen J. Russo    |       |                         | —     |                |       | —                                                                                                         |       |                                                                                                   | 7,812      |   |   |   | 17,188 |   |   |   | 14,608 |   |   |   | 32,142 |   |   |
| David P. Wilson     |       |                         | —     |                |       | —                                                                                                         |       |                                                                                                   | 19,500     |   |   |   | 2,500 |   |   |   | 35,125 |   |   |   | 3,750 |   |   |
| Christa C. Leonard  |       |                         | —     |                |       | —                                                                                                         |       |                                                                                                   | 21,875     |   |   |   | 3,125 |   |   |   | 48,013 |   |   |   | 4,688 |   |   |
|                     |            |                              |            |                     |            |                                                                                                                |            |                                                                                                        |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          Calculated bydetermining the difference between the fair market value of the securitiesunderlying the in-the-money options at October 28, 2005 (based on theclosing price of $4.65 for the Company’s Common Stock on NASDAQ for October 28,2005, the last trading day immediately preceding the end of fiscal 2005) andthe exercise price of the options.

**Director Compensation**

Non-employee members of the Board of Directors eachreceived an annual fee of $15,000 for service on the Board of Directors infiscal 2005. They received an additional fee of $1,000 for each meetingattended in person. In the event a Board meeting and a committee meeting washeld on the same day, the total meeting fee was not more than $1,000 per day.They also received a fee of $500 for each telephonic meeting attended, ifcalled by the Chairman of the Board of Directors or an employee member of theBoard of Directors. The Chairman of the Compensation Committee and the Chairmanof the Audit Committee received an additional fee of $1,500 per quarter.

Non-employee members of the Board of Directors alsowere reimbursed for their reasonable expenses incurred in connection withattending Board of Directors meetings.

We anticipate no increase in our directors’ compensationduring fiscal 2006. No additional compensation was paid to any of the directorsduring fiscal 2005 for their committee service.

In addition, non-employee Board of Directors membersare eligible to receive periodic option grants under the Automatic Option GrantProgram in effect under our 1996 Stock Option/Stock Issuance Plan (the “StockOption Plan”). Under the Automatic Option Grant Program, each individual whosubsequently joins the Board of Directors as a non-employee director willreceive at that time an option grant, provided such individual has notpreviously been in our employ. In addition, at each annual stockholders’meeting each individual who continues to serve as a non-employee Board ofDirectors member presently is entitled to an option grant for 3,000 shares withan exercise price equal to the fair market value of the option shares on thegrant date, provided such individual has served as a Board of Directors memberfor at least six months.

Each automatic option grant will have a maximum termof ten years measured from the grant date, subject to earlier terminationfollowing the optionee’s cessation of Board of Directors service. The optionwill become exercisable for all the option shares upon the optionee’scompletion of one year of Board of Directors service measured from the grantdate. However, the option will become immediately exercisable for all theoption shares should the optionee cease Board of Directors service by reason ofdeath or disability or should the Company be acquired by merger or asset saleor change of control during the period of the optionee’s service on the Boardof Directors. The Stock Option Plan will expire in 2006 in 

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accordance with its terms.The Company is currently considering a new plan, which will be subject tostockholder approval.

Pursuant to the terms ofthe Automatic Option Grant Program, Messrs. Samuelson and Stevens, and Ms. Bradyeach received an option grant to purchase 3,000 shares of Common Stock duringfiscal 2005.

**EmploymentContracts, Termination of Employment Arrangements and Change in ControlAgreements**

The Company entered into an employment agreement withW. Robert Stover effective January 1, 1999. The agreement contains acompensation package for Mr. Stover in his continuing role as Chairman ofthe Board of Directors, including a salary of $75,000. His compensation packageincludes payment of his executive assistant’s annual salary, continuedparticipation by Mr. Stover and his executive assistant in present andfuture employee benefit plans including group health, life, supplemental life,long-term disability, accidental death and dismemberment insurance, a 401(k) savingsplan and a deferred savings plan, and reimbursement for reasonable travel andother business expenses. Mr. Stover and his assistant also utilize officesat the Company’s corporate headquarters at no cost to him. Mr. Stover isnot eligible for a bonus or other incentive compensation under the agreement orotherwise and he is not entitled to vacation pay. Except with respect to Mr. Stover’ssalary, the agreement is of indefinite duration and will continue until hechooses to retire or until his death; however, the contractual obligationsrelating to compensation of his executive assistant will terminate uponreassignment of the current assistant to other duties or upon termination of Mr. Stover’semployment, subject to negotiation of a different arrangement at the discretionof the Compensation Committee of the Board of Directors.

On April 7, 2005, the Company, Westaff Support, Inc.and Patricia M. Newman executed an employment agreement effective as of March 16,2005, the date on which Ms. Newman was appointed President and ChiefExecutive Officer of the Company (the “Employment Agreement”). Pursuant to theterms of the Employment Agreement, Ms. Newman will receive an annual basesalary of $450,000. In addition to her base salary, Ms. Newman is eligiblefor an Incentive Bonus Compensation targeted at 40% of her base salary in anamount to be determined at the sole discretion of the Compensation Committee ofthe Board. The Employment Agreement establishes a maximum bonus level of sixtypercent (60%) of her Base Salary each fiscal year with no minimum bonus level.Ms. Newman’s Incentive Bonus Compensation is based on her satisfaction ofobjective factors and performance criteria established by the CompensationCommittee. She received a bonus for fiscal 2005 based on a guaranteed minimumpayment of $90,000 pursuant to her employment agreement. This is a one-timeevent.

Upon Ms. Newman’s execution of her employmentagreement, Ms. Newman was also granted 20,000 shares of restricted commonstock of the Company. Subject to Ms. Newman’s meeting certain performancecriteria, 5,000 shares will vest on October 28, 2006 and 5,000 shares willvest on November 3, 2007. Of the remaining 10,000 shares, 5,000 will veston April 7, 2008 and 5,000 will vest on November 1, 2008. If theperformance criteria specified in her employment agreement are not met oneither of the 2006 or 2007 vesting tranches, such shares will vest on November 1,2008.

Under her employment agreement, Ms. Newman wasalso granted stock options to purchase an aggregate of 200,000 shares of CommonStock at an exercise price of $3.22 per share, the closing price of a share ofCommon Stock as of the date of signing the Employment Agreement. The optionsvest in five equal annual installments, with vesting of the first installmentto occur upon the first anniversary of the effective date, or April 7,2006.

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The RestrictedStock and the stock options become fully vested and exercisable if Ms. Newmanis either terminated without cause or demoted within one year after theeffective date of a “Change in Control,” a “Corporate Transaction,” or a “HostileTakeover,” as defined in the Westaff, Inc. 1996 Stock Option/StockIssuance Plan.

Ms.  Newman alsoreceives an annual cash allowance of $30,000 per fiscal year, payable in eachpay period in equal installments. These payments are intended to be used as acar allowance, health club membership or other needs. During the period of herhire date of March 16, 2005 through the end of calendar year 2005, shereceived a car allowance of $1,500 per month and the reasonable and propercosts of temporary housing. Ms. Newman is entitled to reimbursement for apersonal financial planner and/or tax consultant. Such reimbursement will be inan aggregate amount not to exceed $20,000 in fiscal year 2005 and $10,000 infiscal year 2006. She is also entitled to reimbursement for moving and otherexpenses reasonably related to her relocation from the United Kingdom to the USin an amount not to exceed $30,000. Her contract was amended on January 17,2006 to extend her reimbursement of reasonable and proper costs of temporaryhousing through calendar year 2006.

The Company’s former President and Chief ExecutiveOfficer, Dwight S. Pedersen, resigned on March 16, 2005. Concurrently, Mr. Pedersenresigned from the Company’s Board of Directors. Mr. Pedersen received alump sum payment equal to one year’s annual base salary of $400,000, andcontinued COBRA payments for one year after the severance date. Thereafter, Mr. Pedersenreceived no other employee benefits or perquisites from the Company. The fulltext of Mr. Pedersen’s separation agreement is available as an exhibit toour Form 8-K filed on March 22, 2005.

The Company enteredinto an employment agreement with Mr. Pedersen for his service asPresident and Chief Executive Officer on January 14, 2002. On therecommendation of Mr. Pedersen, his employment agreement was amendedeffective June 30, 2003, to reduce his base annual salary from $400,000 to$320,000. Pursuant to the amendment, the Company had the right to terminate hisemployment for any reason, without cause, by providing him termination pay (“TerminationPay”) equivalent to six (6) months of his then current base salary payablein the form of a single lump sum payment. If his employment was terminatedwithout cause, he would also be paid his earned but unpaid base salary, accruedvacation pay through the date of termination, and his earned but unpaid annualincentive, if any. Mr. Pedersen’s employment agreement was amended effective June 30,2004, to change his annual base salary to $400,000.

Additionally, Mr. Pedersen’s employment agreementincluded a grant of 550,000 option shares with an exercise price at $2.35 pershare, of which 250,000 option shares were immediately vested as of January 14,2002. The remaining 300,000 option shares were to vest on January 13, 2007.On January 28, 2005, Mr. Pedersen exercised his 250,000 vested optionshares. As a result of his resignation, the remaining 300,000 option shareswere cancelled effective March 16, 2005.

The Company entered into an employment agreement withDirk A. Sodestrom as Chief Financial Officer effective January 1, 2001,with an annual salary of $235,000 that contained a requirement for six-months’advance notice of termination. The agreement was amended effective June 30,2003, to delete the requirement of six-months advance notice of termination andto reduce his annual salary to $200,000 per year. In exchange for his salaryreduction, he will be eligible to receive transition compensation in the formof a single lump sum cash payment equivalent to sixty-five (65) weeks ofhis then current base salary less appropriate withholdings if his employment isterminated except for cause or performance-related issues, and he has notbeen offered a position similar in responsibility, skill requirements and workschedule as his current position, and a position for which the salary offeredwould require no more than a 10% reduction in his then current pay, and aposition that does not require him to travel more than 30 miles from hiscurrent primary place of work. He is eligible to receive transitioncompensation provided that he is an active regular employee or on an approvedleave of absence of no more than six (6) months in thetwelve (12) month-period prior to the time of positionelimination or restructuring, he has not voluntarily 

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terminated his employmentprior to the elimination of his position, and he has not been dismissed forcause or performance-related issues. Mr. Sodestrom’s employmentcontract was amended effective June 30, 2004 to change his annual salaryto $245,000, his annual salary prior to the reduction in pay in June 2003.

The Company entered into an employment agreement withStephen J. Russo as Western Zone Manager on July 1, 2004 with an annualsalary of $180,000 that contained a requirement of two weeks’ advance notice oftermination, or pay in lieu of notice. The agreement was amended on August 6,2004 to include Mr. Russo’s eligibility for transition compensation for upto one year following a change in control, or in the event of his jobelimination, and he has not been offered a comparable position which is aposition similar in responsibility, skill requirements and work schedule as hiscurrent position, a position for which the salary offered would require no morethan 10% reduction in his then current pay. He would be eligible to receivetransition compensation in the form of a single lump sum payment equivalent totwenty-six (26) weeks of his then current base salary less appropriatewithholdings, provided that he is an active regular employee at the time of theelimination of his job and he has not voluntarily terminated his employmentprior to the elimination of this job. Effective September 19, 2004, Mr. Russo’semployment agreement was further amended to expand the definition of “Change inControl” to include any transactions within the meaning of Rule 13d-3of the Securities Exchange Act of 1934. Mr. Russo’s employment agreementwas further amended effective August 17, 2005 to expand the definition of “Eliminationof job” to include the statement “and you have not been offered a position thatwould require you to travel 30 miles or less from your current primary place ofwork.”

The Company entered into an employment agreement withChrista C. Leonard as Vice President and Treasurer on November 20, 2000,with an annual salary of $125,000 that contained a requirement of two weeks’advance notice of termination, or pay in lieu of notice. The agreement wasamended on January 29, 2001, to replace the two weeks’ advance notice oftermination with three month’s advance notice of termination. In exchange for a10% salary reduction effective June 30, 2003, Ms. Leonard becameeligible to receive transition compensation for up to one year following achange in control, or in the event of her job elimination, and she has not beenoffered a comparable position which is a position similar in responsibility,skill requirements and work schedule as her current position, a position forwhich the salary offered would require no more than 10% reduction in the herthen current pay and a position that would not require her to travel more than30 miles from her current primary place of work. She is eligible to receivetransition compensation in the form of a single lump sum cash paymentequivalent to twenty-six (26) weeks of her then current pay lessappropriate withholdings, provided that she is an active regular employee or onan approved leave of absence of no more than six (6) months in thetwelve (12) month-period prior to the time of positionelimination or restructuring, she has not voluntarily terminated her employmentprior to the elimination of her position, and she has not been dismissed forcause or performance-related issues. Effective June 30, 2004, herannual salary was changed to $150,000, which was her salary prior to thereduction in pay in June 2003.

All of the Company’semployment agreements permit termination at will, and the Company may terminatethe employment of any of the Named Officers at any time at the discretion ofthe Board of Directors. The Plan Administrator of the 1996 Stock OptionPlan/Stock Issuance has authority to provide for the accelerated vesting of theshares of Common Stock subject to outstanding options held by the ChiefExecutive Officer and the Company’s other executive officers, whether grantedunder that Plan or any predecessor plan, in the event their employment were tobe terminated within a designated period (whether involuntarily or through aforced resignation) following: (i) an acquisition of the Company by mergeror asset sale; (ii) a change in control, as defined in the Plan, or (iii) ahostile takeover of the Company effected through a successful tender offer formore than 50% of the Company’s outstanding Common Stock or through a change inthe majority of the members of the Board of Directors as a result of one ormore contested elections for Board of Directors membership over a period of 36consecutive months.

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**CompensationCommittee Interlocks and Insider Participation**

The Board of Directors established a CompensationCommittee in March 1995. The Compensation Committee currently consists of Ms. Brady,and Messrs. Stevens and Stover. Except for Mr. Stover, no member ofthe Compensation Committee was at any time during fiscal 2005, or at any othertime, an officer or employee of the Company. Mr. Stover did notparticipate in any committee decision making with respect to his salary infiscal 2005.

No executive officer of the Company served on theBoard of Directors or Compensation Committee of any entity that has one or moreexecutive officers serving as a member of the Company’s Board of Directors orCompensation Committee.

For a description oftransactions between the Company and Mr. Stover, a member of theCompensation Committee, see Certain Relationships and Related Transactions.

**COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORSEXECUTIVE COMPENSATION REPORT**

*Notwithstandinganything to the contrary set forth in any of our previous filings under theSecurities Act of 1933, as amended (the “Securities Act”), or the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”), that might incorporatefuture filings, in whole or in part, the following report shall not be deemedto be “soliciting material” or to be “filed” with the Securities and ExchangeCommission, nor shall such report be incorporated by reference into any suchfilings, nor be deemed to be incorporated by reference into any future filingsunder the Securities Act or the Exchange Act.*

The Compensation Committee currently consists of threedirectors, Janet M. Brady, Ronald D. Stevens and W. Robert Stover. Ms. Bradyis its current Chairman. It is the duty of the Compensation Committee to reviewand establish the compensation of executive officers of the Company, includingbase salary, participation in profit sharing, bonus and other cash incentiveplans, subject to ratification by the Board of Directors. During fiscal 2005,the Compensation Committee also had the authority to administer the Company’s1996 Stock Option/Stock Issuance Plan (the “Plan”) under which grants may bemade to such officers. With respect to administration of the Plan, theCompensation Committee has a Primary Committee and a Secondary Committee.

The Primary Committee consists of two or morenon-employee members of the Board of Directors who have authority to administerthe Discretionary Option Grant, the Automatic Option Grant and Stock IssuancePrograms with respect to Section 16 insiders. Section 16 insiders areofficers or directors of the Company subject to the short-swing profitrecapture provisions of Section 16 of the Exchange Act. The PrimaryCommittee is constituted in such a manner as to satisfy all applicable laws andto permit such grants and related transactions under the Plan to be exempt fromSection 16(b) of the Exchange Act in accordance with Rule 16b-3.In fiscal 2005, the Primary Committee members were Janet M. Brady andRonald D. Stevens.

The Secondary Committee consists of two or moremembers of the Board of Directors who administer the Discretionary Option Grantand Stock Issuance Programs with respect to eligible persons other than Section 16insiders. In fiscal 2005, the Secondary Committee members were Janet M. Brady,Ronald D. Stevens and W. Robert Stover.

Members of the Primary Committee or any SecondaryCommittee serve for such period of time as the Board of Directors may determineand may be removed by the Board of Directors at any time. The Board ofDirectors may also at any time terminate the functions of the Primary Committeeand any Secondary Committee and reassume all powers and authority previouslydelegated to such committee.

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**General Compensation Policy**

The fundamental policy of the Compensation Committeeis to offer the Company’s executive officers competitive compensationopportunities based upon their personal performance and their contribution tothe financial success of the Company. Generally, each executive officer’scompensation package comprises three elements: (i) base salary which isdesigned primarily to be competitive with base salary levels in effect both atcompanies within the temporary staffing industry that are of comparable size tothe Company and at companies outside of such industry with which the Companycompetes for executive talent; (ii) annual bonuses payable in cash andtied to the Company’s attainment of financial milestones based on criteriaestablished by the Compensation Committee; and (iii) long-term stock-basedincentive awards which strengthen the mutuality of interests between theexecutive officers and the Company’s stockholders. As an employee’s level ofresponsibility and accountability within the Company increases over time, agreater portion of his or her total compensation is intended to be dependentupon the Company’s performance and stock price appreciation rather than uponbase salary.

*Factors.**  *The principal factor considered by the CompensationCommittee in establishing the components of each executive officer’scompensation package for fiscal 2005 is external salary data of both temporarystaffing service companies and other companies within a similar geographicalarea and with small to medium market capitalization.

*BaseSalary.**  *The basesalary for each executive officer is determined on the basis of internalcomparability and on external salary data of temporary staffing servicecompanies and other companies within a similar geographic area and with smallto medium market capitalization. Salaries are reviewed on an annual basis, anddiscretionary adjustments to each executive officer’s base salary are basedupon individual performance and salary increases paid by the Company’scompetitors and other companies of similar size and scope. The PrimaryCommittee of the Compensation Committee sets the base salaries of the Chairmanof the Board of Directors and makes a recommendation to the Board regarding thebase salary of the President and Chief Executive Officer, and the committee reviewsthe salaries of the other corporate officers who are members of the seniormanagement team and makes recommendations to the Board.

*AnnualIncentive Compensation.**  *Therewas a discretionary executive bonus plan for fiscal 2005 designed to providefinancial rewards to the participants based on company performance for fiscal2005. No bonuses were awarded under the plan since the Company did not meet itsminimum financial goals other than a minimum guaranteed bonus paid to Ms. Newmanas part of her contractual agreement.

*Long-TermIncentive Compensation.**  *Optiongrants are intended to align the interests of each executive officer with thoseof the Company’s stockholders and to provide each individual with an incentiveto manage the Company from the perspective of an owner with an equity stake inthe business. The Compensation Committee has the discretion to set the optionexercise price (not less than 100% of the fair market value of the stock on thegrant date for an Incentive Option and not less than 85% of such fair marketvalue for a Non-Statutory Option) and the vesting schedule for option grants.The Compensation Committee determines the amount of the option grant accordingto each executive’s position within the Company and sets a level it considersappropriate to create a meaningful opportunity for stock ownership. Inaddition, the Compensation Committee takes into account an individual’s levelof responsibility and opportunity to influence the Company’s financial results,comparable awards made to individuals in similar positions within the industry,and the number of unvested options held by each individual at the time of thenew grant. The relative weight given to each of these factors varies amongindividuals and is at the Compensation Committee’s discretion.

Each option grant allows the officer to acquire sharesof the Company’s Common Stock at a fixed price per share (typically the closingmarket price on the date of grant) over a specified period of time (up to tenyears). The options generally vest in installments over a four-year period,contingent upon the 

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executive officer’scontinued employment with the Company. The options generally become exercisablewith respect to 25% of the option shares upon the optionee’s completion of oneyear of service measured from the vesting commencement date and the balance in36 successive monthly installments upon the optionee’s completion of each monthof service over the 36-month period measured from the first anniversaryof the vesting commencement date. Accordingly, the option will provide a returnto the executive officer only if the executive officer remains employed by theCompany for one or more years during which the option vests, and then only ifthe market price of the underlying shares appreciates over the option term.

*Tax Limitation.**  *As a result of federal tax legislation enacted in1993, a publicly-held company such as Westaff, Inc. will not be allowed afederal income tax deduction for compensation paid to the executive officersnamed in the Summary Compensation Table to the extent that compensation exceeds$1,000,000 per officer unless it qualifies for an exemption. The compensationpaid to the Company’s executive officers for fiscal 2005 did not exceed the$1,000,000 limit per officer, nor is the compensation to be paid to the Company’sexecutive officers for fiscal 2006 expected to reach that level. Nevertheless,if the compensation payable to any of the Company executive officers were toreach the $1,000,000 limitation in fiscal 2006 or future fiscal years, theCompany will continue to enjoy an exemption because the Plan was amended andrestated with shareholder approval as of the 2000 Annual Meeting ofStockholders held on June 20, 2000, with respect to option grants, stockappreciation rights or direct stock issuances that are intended to qualify asperformance-based compensation to any covered employee under Section 162(m)(3) ofthe Internal Revenue Code of 1986, as amended. Unless otherwise required bylaw, the Compensation Committee therefore will not be required to limit or restructurethe elements of compensation payable to the Company’s executive officers in theforeseeable future.

**Compensationof the Chief Executive Officer**

Ms.  Newman’semployment agreement established her initial annual base salary of $450,000 asPresident and Chief Executive Officer commencing on March 16, 2005, basedin part on external salary data of temporary staffing service companies withina similar geographical area and with small to medium capitalization. She wasgranted an aggregate of 200,000 option shares and awarded 20,000 restrictedstock shares as part of her original compensation package. In addition to her base salary, Ms. Newman iseligible for an Incentive Bonus Compensation targeted at 40% of her base salaryin an amount to be determined at the sole discretion of the CompensationCommittee of the Board. Her agreement establishes a maximum bonus level ofsixty percent (60%) of her Base Salary each fiscal year with no minimum bonuslevel. Ms. Newman’s Incentive Bonus Compensation is based on hersatisfaction of objective factors and performance criteria established by theCompensation Committee. She received a one-time bonus for fiscal 2005 based ona guaranteed minimum payment of $90,000 which was negotiated in her EmploymentAgreement. Her actual compensation for fiscal 2005 was not based on companyperformance since the Company did not meet its minimum financial goals.

TheCompensation Committee reviews Ms. Newman’s base salary at least once eachyear to make appropriate adjustments as they determine in their discretion.

|          |     | COMPENSATION COMMITTEE               |
|----------|----------|--------------------------------------|
|     |     | Janet M. Brady,                      |
| * * | * * | *Chairman of Compensation Committee* |
|     |     | Ronald D. Stevens,                   |
| * * | * * | *Member of Compensation Committee*   |
|     |     | W. Robert Stover,                    |
| * * | * * | *Member of Compensation Committee*   |

 

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**COMPARISONOF STOCKHOLDER RETURN**

The graph depicted belowreflects a comparison of the cumulative total return (change in stock priceplus reinvestment dividends) of the Company’s Common Stock with the cumulativetotal returns of the Standard and Poor’s 500 Index and peer issuers in thetemporary staffing industry (the “Peer Group Index”). The selected peer groupis composed of companies which are common competitors of a similar or greatermarket capitalization. The graph covers the period from October 28, 2000,through the last trading day of fiscal 2005.

The graph assumes that$100 was invested on October 28, 2000, in the Company’s Common Stock andin each index and that all dividends were reinvested.

**ComparisonOf Cumulative Total Return AmongWestaff, S&P 500 Index And Peer Group Index**

**Cumulative Return**

****

| ** **  | ** ** | **10/28/00** | ** ** | **11/03/01** | ** ** | **11/02/02** | ** ** | **11/01/03** | ** ** | **10/30/04** | ** ** | **10/29/2005** | ** ** |   |
|-------------|------------|--------------|------------|--------------|------------|--------------|------------|--------------|------------|--------------|------------|----------------|------------|--------|
| S&P 500 |       |         | 100.00     |         |       |         | 79.77      |         |       |         | 66.10      |           |       |   | 77.09 |   |   |   | 82.92 |   |   |   | 87.93 |   |   |
| Peer Group  |       |         | 100.00     |         |       |         | 72.95      |         |       |         | 85.06      |           |       |   | 108.51 |   |   |   | 106.46 |   |   |   | 119.80 |   |   |
| Westaff     |       |         | 100.00     |         |       |         | 53.82      |         |       |         | 58.47      |           |       |   | 67.20 |   |   |   | 91.05 |   |   |   | 135.27 |   |   |

 

The Company’s Common Stockwas first traded publicly on April 30, 1996. The graph depicts cumulativereturns calculated on an annual basis on $100 invested in Westaff stock, theS&P 500 Index and the Peer Group Index comparing Kelly Services Inc.,Spherion Corporation (formerly Interim Services, Inc.), Manpower Inc.and RemedyTemp, Inc.

Stockholder returns over the indicated period shouldnot be considered indicative of future stockholder returns.

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**ITEM 12. SECURITY OWNERSHIP OFCERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.**

Thefollowing table sets forth certain information regarding the beneficialownership of our Common Stock for (i) all persons who are known to us tobe beneficial owners of five percent or more of the outstanding shares of ourCommon Stock, (ii) each of our current directors and nominees, (iii) ourcurrent Chief Executive Officer and the four other executive officers named inthe Summary Compensation Table below, and (iv) all of our currentexecutive officers and directors as a group. Unless otherwise indicated, eachof the stockholders has sole voting and investment power with respect to theshares beneficially owned, subject to community property laws, whereapplicable. Unless otherwise noted, the address of each person identified belowis c/o Westaff, Inc., 298 N. Wiget Lane, Walnut Creek, California 94598.The share information set forth in the table below is as of January 31,2006.

| Name                                                                          | ** ** | ** ** | ** ** | **Number of  Shares(#)(1)** | ** ** | **Percent(%)(2)** | ** ** | ** ** |
|-------------------------------------------------------------------------------|------------|------------|------------|----------------------------------|------------|-------------------|------------|------------|
| Ironwood Capital Management  LLC(3)                                           |       |       | 891,766    |                             |       |              | 5.44       | %          |   |   |
| 21 Custom House Street  Suite 240 Boston, MA 02019                       |       |       |       |                             |       |              |       |       |   |   |
| W. Robert  Stover(4)                                                          |       |       | 6,624,821  |                             |       |              | 40.45      | %          |   |   |
| Jack D. Samuelson(5)                                                          |       |       | 47,250     |                             |       |              | *          |       |   |   |
| Ronald D.  Stevens(6)                                                         |       |       | 9,000      |                             |       |              | *          |       |   |   |
| Janet M. Brady(7)                                                             |       |       | 9,000      |                             |       |              | *          |       |   |   |
| Patricia M.  Newman(8)                                                        |       |       | 33,103     |                             |       |              | *          |       |   |   |
| Dirk A. Sodestrom(9)                                                          |       |       | 114,602    |                             |       |              | *          |       |   |   |
| Stephen J.  Russo(10)                                                         |       |       | 10,937     |                             |       |              | *          |       |   |   |
| David P. Wilson(11)                                                           |       |       | 24,813     |                             |       |              | *          |       |   |   |
| Christa C.  Leonard(12)                                                       |       |       | 23,437     |                             |       |              | *          |       |   |   |
| All current executive  officers and directors as a group (9 persons)(13) |       |       | 6,938,939  |                             |       |              | 42.32      | %          |   |   |

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*Less than one percent

(1)          To the Company’sknowledge, except as indicated in the footnotes to this table and subject toapplicable community property laws, each of the persons named in this table hassole voting and investment power with respect to all shares of Common Stockindicated opposite such person’s name.

(2)          Based on 16,395,568shares of Common Stock outstanding at January 31, 2006. Shares of CommonStock subject to options, warrants and convertible notes and other purchaserights currently exercisable or convertible, or exercisable or convertiblewithin 60 days of January 31, 2006, are deemed outstanding forcomputing the percentage of the person or entity holding such securities butare not deemed outstanding for computing the percentage of any other person orentity.

(3)          Security ownershipinformation for the beneficial ownership is taken from the Form 13F filedwith the SEC on February 7, 2006.

(4)          Includes 2,607,018shares of Common Stock held by W. Robert Stover and Joan C. Stover as Co-Trusteesof the Stover Revocable Trust dated 11/16/88, as amended, the beneficialownership of which may be attributable to each of Mr. Stover and Mrs. Stover.Includes 3,783,164 shares of Common Stock contributed to the Stover 1999Charitable Remainder Unitrust dated 4/21/99 of which Mr. Stover isCo-Trustee. Includes 234,637 shares of Common Stock owned by the StoverFoundation, a California nonprofit religious corporation (the “Foundation”).

(5)          Includes unexercisedoptions to purchase 26,250 shares of Common Stock beneficially owned by Mr. Samuelsonunder the 1996 Stock Option/Stock Issuance Plan.

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(6)          Includes unexercisedoptions to purchase 9,000 shares of Common Stock beneficially owned by Mr. Stevensunder the 1996 Stock Option/Stock Issuance Plan.

(7)          Includes unexercisedoptions to purchase 9,000 shares of Common Stock beneficially owned by Ms. Bradyunder the 1996 Stock Option/Stock Issuance Plan.

(8)          Includes unexercisedoptions to purchase 27,395 shares of Common Stock beneficially owned by Ms. Newmanunder the 1996 Stock Option/Stock Issuance Plan.

(9)          Includes unexercisedoptions to purchase 90,541 shares of Common Stock beneficially owned by Mr. Sodestromunder the 1996 Stock Option/Stock Issuance Plan.

(10)   Includes unexercised options topurchase 10,937 shares of Common Stock beneficially owned by Mr. Russounder the 1996 Stock Option/Stock Issuance Plan.

(11)   Includes unexercised options topurchase 20,750 shares of Common Stock beneficially owned by Mr. Wilsonunder the 1996 Stock Option/Stock Issuance Plan.

(12)   Includes unexercised options topurchase 23,437 shares of Common Stock beneficially owned by Ms. Leonardunder the 1996 Stock Option/Stock Issuance Plan.

(13)   Includesunexercised options to purchase 217,310 shares of Common Stock under the 1996Stock Option/Stock Issuance Plan.

**ITEM 13.**   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The Company’s wholly-owned subsidiary known asWestaff (USA), Inc., a California corporation (“Westaff (USA)”) executedan unsecured subordinated promissory note dated April 1, 2002, payable toW. Robert Stover, its principal stockholder and Chairman of the Board ofDirectors, in the amount of $2,000,000. The initial term of the note was oneyear, with an interest rate of 12% per annum, payable monthly on the lastbusiness day of each calendar month. On May 17, 2002, the note was amendedand restated to extend the maturity date to August 18, 2007. Additionally,the interest rate and payment schedule were amended to a rate equal to the USIndex Rate as calculated under the Company’s Multicurrency Credit Agreementwith General Electric Capital Corporation (“Credit Agreement”), plus sevenpercent, compounded monthly and payable 60 calendar days after the end of eachof the Company’s fiscal quarters. The interest rate in effect on October 29,2005, was 13.75%. Payment of interest is contingent on the Company meetingminimum availability requirements under its credit facilities. Additionally,payments of principal or interest are prohibited in the event of any defaultunder the credit facilities. The interest paid in fiscal 2005 was $246,421.

Any future transactionsbetween the Company and its officers, directors, and affiliates will be onterms no less favorable to the Company than can be obtained from unaffiliatedthird parties. Such transactions with such persons will be subject to approvalby the Company’s Audit Committee.

**ITEM 14.**   PRINCIPAL ACCOUNTANT FEES AND SERVICES.

*AuditCommittee.*   The Audit Committee’s duties includereviewing internal financial information, reviewing our internal controls,reviewing our internal audit plans and programs, reviewing with our independentaccountants the results of all audits upon their completion, overseeing thequarterly unaudited reporting process and taking such other action as may benecessary to assure the adequacy and integrity of all financial informationdistributed by us. The Audit Committee is also directly responsible for theappointment, compensation, retention and oversight of the work of the Company’sindependent auditors, including the resolution of disagreements betweenmanagement and the auditors regarding financial reporting. Additionally, theAudit Committee must review and approve all related party transactions that arerequired to be disclosed pursuant to Item 404 of Regulation S-K.

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The current members of theAudit Committee are Messrs. Stevens and Samuelson, and Ms. Brady, andMr. Stevens is the Chairman. The Audit Committee is required to have atleast three members, all of whom must be “independent directors” as defined inthe NASDAQ listing standards. The Board of Directors has determined that it hasan “audit committee financial expert,” as defined in Item 401(h)(2) ofRegulation S-K serving on the Audit Committee, Ronald D. Stevens, and thatMr. Stevens and each of the other Audit Committee members is an “independentdirector” as defined in Rule 4200(a)(15) of the NASDAQ listing standards. TheBoard has adopted a written charter for the Audit Committee, which was amendedand restated after the end of fiscal 2003. A copy of the amended and restatedAudit Committee charter is available on the Company’s website at http://www.westaff.com.

**INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

The Board of Directorsselected Deloitte & Touche LLP as its independent registered publicaccounting firm effective as of May 31, 2002. The Audit Committee of theBoard of Directors has appointed Deloitte & Touche LLP as the Company’sindependent registered public accounting firm to audit the consolidatedfinancial statements of the Company for fiscal 2006. Regardless of thisappointment, the Audit Committee may direct the appointment of a differentindependent auditor at any time during the year if the Audit Committeedetermines, in its discretion, that such a change would be in our bestinterests. It is anticipated that a representative of Deloitte &Touche LLP will be present at the Annual Meeting to respond to appropriatequestions or to make other statements such representative deems appropriate.

**FeesPaid to Independent Registered Public Accounting Firm**

**Audit Fees**

Aggregate fees paid toDeloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu,and their respective affiliates (collectively the “Deloitte Entities”) for theaudit of the annual consolidated financial statements included in the Company’sAnnual Report on Form 10-K and for the reviews of the consolidatedfinancial statements included in the Company’s Forms 10-Q for thequarters included in the fiscal years ended October 29, 2005 and October 30,2004, were $436,000 and $398,000, respectively.

**Audit-related Fees**

Aggregate fees paid to theDeloitte Entities for audit related services for the fiscal years ended October 29,2005 and October 30, 2004 were $14,000 and $12,000, respectively,principally for services rendered in connection with franchise offeringcirculars.

**Tax Fees**

Aggregate fees paid to theDeloitte Entities associated with tax compliance and tax consultation were$36,000 and $52,000, respectively, for the years ended October 29, 2005,and October 30, 2004.

**All Other Fees**

Fees paid to the DeloitteEntities for other services for the fiscal year ended October 29, 2005,were $3,700 for services rendered with respect to the sale of the Company’sNorway and Denmark operations. Fees paid for other services for the fiscal yearended October 30, 2004 were $10,000 for a seminar on compliance with Section 404of the Sarbanes-Oxley Act of 2002, $11,000 for services rendered with respectto value-added taxes for Westaff (U.K.) Limited and $5,000 for servicesrendered in connection with the employment cessation of the Company’s managingdirector in Denmark.

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**AuditCommittee Pre-Approval Policies and Procedures**

In accordance with the Securities and ExchangeCommission’s rules requiring that the Audit Committee pre-approve allaudit and non-audit services provided by the Company’s independent auditor, theAudit Committee has adopted a formal policy on auditor independence requiringthe approval by the Audit Committee of all professional services rendered bythe Company’s independent registered public accounting firm prior to thecommencement of the specified services. TheAudit Committee may delegate to one or more committee members the authority togrant pre-approvals. The decision of any committee member to whom authority isdelegated shall be presented to the committee at each of its scheduledcommittee meetings.

The Audit Committee approved all services performed bythe Deloitte Entities in fiscal 2005 in accordance with the Company’s formalpolicy on auditor independence.

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the Registrant has duly caused this Amendment on Form 10-K/Ato be signed on behalf of the undersigned, thereunto duly authorized.

|          |     | WESTAFF, Inc. |
|----------|----------|--------------------|
|     |     | By:                |   | /s/  Patricia M. Newman |
|     |     |               |   | Patricia M. Newman |
| * * | * * | * *           | * * | *President and Chief Executive  Officer* |
|     |     |               |   | Date: February 24, 2006 |

 

**POWER OF ATTORNEY**

KNOW ALL PERSONS BY THESEPRESENTS:

That the undersignedofficers and directors of Westaff, Inc., a Delaware corporation, do herebyconstitute and appoint Patricia M. Newman and Dirk A. Sodestrom the lawfulattorney-in-fact, each with full power of substitution, for him in any and allcapacities, to sign any amendments to this report on Form 10-K andto file the same, with exhibits thereto and other documents in connectiontherewith, with the Securities and Exchange Commission, hereby ratifying andconfirming all that each of said attorney-in-fact or his substitute orsubstitutes may do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, eachof the undersigned has executed this Power of Attorney as of the dateindicated.

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the Registrant and inthe capacities and on the dates indicated.

| Signature              | ** ** | **Title**                                          | ** ** | **Date**                | ** ** |
|------------------------|------------|----------------------------------------------------|------------|-------------------------|------------|
| /s/ W. ROBERT STOVER   |       | Chairman  of the Board                             |       | February 24,  2006 |       |
| W. Robert Stover       |       |                                               |       |                    |       |
| /s/ Patricia M. Newman |       | President  and Chief Executive Officer and         |       | February 24,  2006 |       |
| Patricia M. Newman     |       | Director (Principal Executive  Officer)            |       |                    |       |
| /s/ Dirk A. Sodestrom  |       | Senior  Vice President and Chief Financial Officer |       | February 24,  2006 |       |
| Dirk A. Sodestrom      |       | (Principal Financial Officer)                      |       |                    |       |
| /s/ Jack D. Samuelson  |       | Director                                           |       | February 24,  2006 |       |
| Jack D. Samuelson      |       |                                               |       |                    |       |
| /s/ Ronald D. Stevens  |       | Director                                           |       | February 24,  2006 |       |
| Ronald D. Stevens      |       |                                               |       |                    |       |
| /s/ JANET M. BRADY     |       | Director                                           |       | February 24,  2006 |       |
| Janet M. Brady         |       |                                               |       |                    |       |

 

| *By:   |     | /s/ Dirk A. Sodestrom |     |     |
|--------|----------|-----------------------|----------|----------|
|   |     | Dirk A. Sodestrom     |     |     |
|   | * * | *Attorney-in-Fact*    | * * | * * |

 

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