**EXHIBIT 10.8.28**

 

**EXECUTION VERSION**

 

**U.S. $50,000,000**

 

**FINANCING AGREEMENT,**

 

**DATED AS OF FEBRUARY 14, 2008**

 

**AMONG**

 

**THE LENDERS FROM TIME TO TIME PARTY TO THISAGREEMENT,**

 

**U.S. BANK NATIONAL ASSOCIATION,**

 

**AS AGENT**

 

**AND**

 

**WESTAFF (USA), INC.,**

 

**AS BORROWER**

 

**AND**

 

**WESTAFF, INC**

 

**AS PARENTGUARANTOR**

 

----

 

TABLE OF CONTENTS

 
| ** ** | ** **                                 | ** **                                                         | ** ** | **Page** |
|------------|--------------------------------------------|--------------------------------------------------------------------|------------|----------|
|       |                                       |                                                               |       |     |
| 1.         | DEFINITIONS                                |                                                               | 1          |
|       |                                       |                                                               |       |     |
|       | 1.1                                        | Defined Terms                                                      |       | 1        |
|       |                                       |                                                               |       |     |
|       | 1.2                                        | Environmental Definitions                                          |       | 31       |
|       |                                       |                                                               |       |     |
|       | 1.3                                        | Other Definitional  Provisions; Construction                       |       | 32       |
|       |                                       |                                                               |       |     |
|       | 1.4                                        | Classes and Types of Loans                                         |       | 33       |
|       |                                       |                                                               |       |     |
|       | 1.5                                        | Exchange Rates                                                     |       | 34       |
|       |                                       |                                                               |       |     |
|       | 1.6                                        | Currency of Account;  Discharge of Obligations in Other Currencies |       | 34       |
|       |                                       |                                                               |       |     |
| 2.         | LOANS AND OTHER FINANCIAL ACCOMMODATIONS   |                                                               | 34         |
|       |                                       |                                                               |       |     |
|       | 2.1                                        | Total Facility                                                     |       | 34       |
|       |                                       |                                                               |       |     |
|       | 2.2                                        | Revolving Loans                                                    |       | 34       |
|       |                                       |                                                               |       |     |
|       | 2.3                                        | [Reserved.]                                                        |       | 34       |
|       |                                       |                                                               |       |     |
|       | 2.4                                        | Letters of Credit                                                  |       | 34       |
|       |                                       |                                                               |       |     |
|       | 2.5                                        | Advance Requests                                                   |       | 39       |
|       |                                       |                                                               |       |     |
|       | 2.6                                        | Initial Interest Election                                          |       | 40       |
|       |                                       |                                                               |       |     |
|       | 2.7                                        | Funding of Loans                                                   |       | 40       |
|       |                                       |                                                               |       |     |
|       | 2.8                                        | Notes; Records of Advances of  Credit                              |       | 42       |
|       |                                       |                                                               |       |     |
|       | 2.9                                        | No Limitation on Liens                                             |       | 43       |
|       |                                       |                                                               |       |     |
|       | 2.10                                       | Advance Rates and Sublimits                                        |       | 43       |
|       |                                       |                                                               |       |     |
|       | 2.11                                       | One General Obligation;  Cross-Collateralized                      |       | 44       |
|       |                                       |                                                               |       |     |
|       | 2.12                                       | Lending Installations                                              |       | 44       |
|       |                                       |                                                               |       |     |
|       | 2.13                                       | Reduction and Termination of  Revolving Credit Commitments         |       | 44       |
|       |                                       |                                                               |       |     |
|       | 2.14                                       | Increased Costs                                                    |       | 45       |
|       |                                       |                                                               |       |     |
|       | 2.15                                       | Taxes                                                              |       | 46       |
|       |                                       |                                                               |       |     |
|       | 2.16                                       | Mitigation of Obligations;  Replacement of Lenders                 |       | 48       |
|       |                                       |                                                               |       |     |
| 3.         | PRINCIPAL PAYMENTS; INTEREST CHARGES; FEES |                                                               | 49         |
|       |                                       |                                                               |       |     |
|       | 3.1                                        | Payments and Prepayments of  Principal                             |       | 49       |
|       |                                       |                                                               |       |     |
|       | 3.2                                        | Interest on Obligations;  Margins; LIBOR Prepayment Fee            |       | 50       |
|       |                                       |                                                               |       |     |
|       | 3.3                                        | Interest Payment Dates                                             |       | 54       |
|       |                                       |                                                               |       |     |
|       | 3.4                                        | Agent Fees                                                         |       | 54       |
|       |                                       |                                                               |       |     |
|       | 3.5                                        | Closing Fee                                                        |       | 55       |

 

i

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| ** ** | ** **                                                     | ** **                                   | ** ** | **Page** |
|------------|----------------------------------------------------------------|----------------------------------------------|------------|----------|
|       |                                                           |                                         |       |     |
|       | 3.6                                                            | Unused Commitment Fee                        |       | 55       |
|       |                                                           |                                         |       |     |
|       | 3.7                                                            | Letter of Credit Fees                        |       | 55       |
|       |                                                           |                                         |       |     |
|       | 3.8                                                            | Calculation of Certain  Charges              |       | 55       |
|       |                                                           |                                         |       |     |
|       | 3.9                                                            | Payment in Full on Maturity  Date            |       | 56       |
|       |                                                           |                                         |       |     |
|       | 3.10                                                           | Maximum Rate                                 |       | 56       |
|       |                                                           |                                         |       |     |
| 4.         | PAYMENTS; APPORTIONMENT OF PAYMENTS; DEFAULTING  LENDER        |                                         | 56         |
|       |                                                           |                                         |       |     |
|       | 4.1                                                            | Payments by Borrower                         |       | 56       |
|       |                                                           |                                         |       |     |
|       | 4.2                                                            | Settlement with Lenders                      |       | 57       |
|       |                                                           |                                         |       |     |
|       | 4.3                                                            | Pro Rata Treatment;  Application of Payments |       | 58       |
|       |                                                           |                                         |       |     |
|       | 4.4                                                            | Non-Receipt of Funds from  Borrower          |       | 59       |
|       |                                                           |                                         |       |     |
|       | 4.5                                                            | Payments to Defaulting Lender                |       | 60       |
|       |                                                           |                                         |       |     |
|       | 4.6                                                            | No Third Party Beneficiary                   |       | 60       |
|       |                                                           |                                         |       |     |
| 5.         | PRECONDITIONS TO CREDIT EXTENSIONS                             |                                         | 60         |
|       |                                                           |                                         |       |     |
|       | 5.1                                                            | Initial Credit Extensions                    |       | 60       |
|       |                                                           |                                         |       |     |
|       | 5.2                                                            | General Conditions                           |       | 63       |
|       |                                                           |                                         |       |     |
| 6.         | SECURITY                                                       |                                         | 63         |
|       |                                                           |                                         |       |     |
|       | 6.1                                                            | Security Documents                           |       | 63       |
|       |                                                           |                                         |       |     |
| 7.         | RECEIVABLES; COLLECTION OF RECEIVABLES; DISPUTED  RECEIVABLES; |                                         | 64         |
|       |                                                           |                                         |       |     |
|       | 7.1                                                            | Agreements Regarding  Receivables            |       | 64       |
|       |                                                           |                                         |       |     |
|       | 7.2                                                            | [Reserved.]                                  |       | 65       |
|       |                                                           |                                         |       |     |
|       | 7.3                                                            | Locked Box                                   |       | 65       |
|       |                                                           |                                         |       |     |
|       | 7.4                                                            | Special Account                              |       | 65       |
|       |                                                           |                                         |       |     |
|       | 7.5                                                            | Crediting of Remittances                     |       | 66       |
|       |                                                           |                                         |       |     |
|       | 7.6                                                            | Cost of Collection                           |       | 66       |
|       |                                                           |                                         |       |     |
|       | 7.7                                                            | Cash Management Services                     |       | 66       |
|       |                                                           |                                         |       |     |
|       | 7.8                                                            | Fees for U.S. Bank’s Account            |       | 67       |
|       |                                                           |                                         |       |     |
|       | 7.9                                                            | Monthly Activity                             |       | 67       |
|       |                                                           |                                         |       |     |
| 8.         | EXAMINATION OF LOAN COLLATERAL; REPORTING                      |                                         | 67         |
|       |                                                           |                                         |       |     |
|       | 8.1                                                            | Maintenance of Books and  Records            |       | 67       |

 

ii

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| ** ** | ** **                     | ** **                                            | ** ** | **Page** |
|------------|--------------------------------|-------------------------------------------------------|------------|----------|
|       |                           |                                                  |       |     |
|       | 8.2                            | Access and Inspection                                 |       | 67       |
|       |                           |                                                  |       |     |
|       | 8.3                            | Reporting Regarding  Receivables and Notes Receivable |       | 67       |
|       |                           |                                                  |       |     |
|       | 8.4                            | Loss Analysis Report                                  |       | 68       |
|       |                           |                                                  |       |     |
|       | 8.5                            | Interim Financial Statements;  Payable Information    |       | 68       |
|       |                           |                                                  |       |     |
|       | 8.6                            | Annual Projections                                    |       | 68       |
|       |                           |                                                  |       |     |
|       | 8.7                            | Annual Financial Statements                           |       | 69       |
|       |                           |                                                  |       |     |
|       | 8.8                            | Management Reports                                    |       | 69       |
|       |                           |                                                  |       |     |
|       | 8.9                            | Comparisons to Financials;  Certificates              |       | 69       |
|       |                           |                                                  |       |     |
|       | 8.10                           | Tax Returns; Additional  Information                  |       | 70       |
|       |                           |                                                  |       |     |
|       | 8.11                           | Actuarial Analysis                                    |       | 70       |
|       |                           |                                                  |       |     |
|       | 8.12                           | Public Posting of Financial  Statements               |       | 70       |
|       |                           |                                                  |       |     |
| 9.         | WARRANTIES AND REPRESENTATIONS |                                                  | 70         |
|       |                           |                                                  |       |     |
|       | 9.1                            | Corporate Status                                      |       | 70       |
|       |                           |                                                  |       |     |
|       | 9.2                            | Due Authorization; Validity                           |       | 71       |
|       |                           |                                                  |       |     |
|       | 9.3                            | No Violation                                          |       | 71       |
|       |                           |                                                  |       |     |
|       | 9.4                            | Use of Loan Proceeds                                  |       | 71       |
|       |                           |                                                  |       |     |
|       | 9.5                            | Management; Ownership of  Assets; Licenses; Patents   |       | 71       |
|       |                           |                                                  |       |     |
|       | 9.6                            | Indebtedness                                          |       | 72       |
|       |                           |                                                  |       |     |
|       | 9.7                            | Title to Property; No Liens                           |       | 72       |
|       |                           |                                                  |       |     |
|       | 9.8                            | Restrictions; Labor Disputes;  Labor Contracts        |       | 72       |
|       |                           |                                                  |       |     |
|       | 9.9                            | No Violation of Law                                   |       | 72       |
|       |                           |                                                  |       |     |
|       | 9.10                           | Hazardous Substances                                  |       | 72       |
|       |                           |                                                  |       |     |
|       | 9.11                           | Absence of Default                                    |       | 73       |
|       |                           |                                                  |       |     |
|       | 9.12                           | Accuracy of Financials; No  Material Changes          |       | 73       |
|       |                           |                                                  |       |     |
|       | 9.13                           | Pension Plans                                         |       | 74       |
|       |                           |                                                  |       |     |
|       | 9.14                           | Taxes and Other Charges                               |       | 74       |
|       |                           |                                                  |       |     |
|       | 9.15                           | No Litigation                                         |       | 75       |
|       |                           |                                                  |       |     |
|       | 9.16                           | No Brokerage Fee                                      |       | 75       |
|       |                           |                                                  |       |     |
|       | 9.17                           | Affiliates                                            |       | 75       |
|       |                           |                                                  |       |     |
|       | 9.18                           | Capitalization; Warrants                              |       | 75       |

 

iii

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| ** ** | ** ** | ** **                                                                           | ** ** | **Page** |
|------------|------------|--------------------------------------------------------------------------------------|------------|----------|
|       |       |                                                                                 |       |     |
|       | 9.19       | Noncompetition Agreements                                                            |       | 75       |
|       |       |                                                                                 |       |     |
|       | 9.20       | Deposit and Other Accounts                                                           |       | 75       |
|       |       |                                                                                 |       |     |
|       | 9.21       | Solvency                                                                             |       | 75       |
|       |       |                                                                                 |       |     |
|       | 9.22       | Full Disclosure                                                                      |       | 75       |
|       |       |                                                                                 |       |     |
|       | 9.23       | [Reserved]                                                                           |       | 76       |
|       |       |                                                                                 |       |     |
|       | 9.24       | Leases                                                                               |       | 76       |
|       |       |                                                                                 |       |     |
|       | 9.25       | Insurance Policies                                                                   |       | 76       |
|       |       |                                                                                 |       |     |
|       | 9.26       | Consents                                                                             |       | 76       |
|       |       |                                                                                 |       |     |
|       | 9.27       | Tax Regulations                                                                      |       | 76       |
|       |       |                                                                                 |       |     |
|       | 9.28       | Anti-Terrorism Laws                                                                  |       | 76       |
|       |       |                                                                                 |       |     |
|       | 9.29       | Government Contracts                                                                 |       | 76       |
|       |       |                                                                                 |       |     |
|       | 9.30       | Customer and Trade Relations                                                         |       | 76       |
|       |       |                                                                                 |       |     |
|       | 9.31       | Status of Parent Guarantor                                                           |       | 77       |
|       |       |                                                                                 |       |     |
|       | 9.32       | Updating Representations and  Warranties                                             |       | 77       |
|       |       |                                                                                 |       |     |
| 10.        | COVENANTS  |                                                                                 | 77         |
|       |       |                                                                                 |       |     |
|       | 10.1       | Payment of Certain Expenses                                                          |       | 77       |
|       |       |                                                                                 |       |     |
|       | 10.2       | Notice of Litigation                                                                 |       | 77       |
|       |       |                                                                                 |       |     |
|       | 10.3       | Notice of ERISA Events                                                               |       | 78       |
|       |       |                                                                                 |       |     |
|       | 10.4       | Notice of Labor Disputes                                                             |       | 78       |
|       |       |                                                                                 |       |     |
|       | 10.5       | Compliance with Laws                                                                 |       | 78       |
|       |       |                                                                                 |       |     |
|       | 10.6       | Notice of Violations of Law,  Tax Assessments                                        |       | 78       |
|       |       |                                                                                 |       |     |
|       | 10.7       | Notice of Default under  Australian Loan Documents; Violations of Certain Agreements |       | 78       |
|       |       |                                                                                 |       |     |
|       | 10.8       | Notice of Customer Defaults  Under Indebtedness owed to Credit Parties               |       | 78       |
|       |       |                                                                                 |       |     |
|       | 10.9       | Taxes and Charges                                                                    |       | 79       |
|       |       |                                                                                 |       |     |
|       | 10.10      | Indebtedness; Guaranties                                                             |       | 79       |
|       |       |                                                                                 |       |     |
|       | 10.11      | Restrictions; Labor Disputes                                                         |       | 81       |
|       |       |                                                                                 |       |     |
|       | 10.12      | Pension Plans                                                                        |       | 81       |
|       |       |                                                                                 |       |     |
|       | 10.13      | Solvency                                                                             |       | 81       |
|       |       |                                                                                 |       |     |
|       | 10.14      | Property Insurance                                                                   |       | 81       |

 

iv

----

 
| ** ** | ** **                        | ** **                                          | ** ** | **Page** |
|------------|-----------------------------------|-----------------------------------------------------|------------|----------|
|       |                              |                                                |       |     |
|       | 10.15                             | Liability Insurance                                 |       | 82       |
|       |                              |                                                |       |     |
|       | 10.16                             | Mergers; Acquisitions                               |       | 82       |
|       |                              |                                                |       |     |
|       | 10.17                             | Investments                                         |       | 82       |
|       |                              |                                                |       |     |
|       | 10.18                             | Restricted Payments                                 |       | 84       |
|       |                              |                                                |       |     |
|       | 10.19                             | Reserved                                            |       | 84       |
|       |                              |                                                |       |     |
|       | 10.20                             | Stock Rights                                        |       | 85       |
|       |                              |                                                |       |     |
|       | 10.21                             | Capital Structure; Fiscal  Year; Nature of Business |       | 85       |
|       |                              |                                                |       |     |
|       | 10.22                             | Affiliate Transactions                              |       | 85       |
|       |                              |                                                |       |     |
|       | 10.23                             | Operating Accounts                                  |       | 85       |
|       |                              |                                                |       |     |
|       | 10.24                             | Sale of Assets                                      |       | 85       |
|       |                              |                                                |       |     |
|       | 10.25                             | [Reserved]                                          |       | 86       |
|       |                              |                                                |       |     |
|       | 10.26                             | Liens                                               |       | 86       |
|       |                              |                                                |       |     |
|       | 10.27                             | [Reserved]                                          |       | 86       |
|       |                              |                                                |       |     |
|       | 10.28                             | Financial Covenants                                 |       | 86       |
|       |                              |                                                |       |     |
|       | 10.29                             | Payments on and Changes to  Subordinated Debt       |       | 86       |
|       |                              |                                                |       |     |
|       | 10.30                             | Burdensome Agreements                               |       | 87       |
|       |                              |                                                |       |     |
|       | 10.31                             | Rate Hedging Agreements                             |       | 87       |
|       |                              |                                                |       |     |
|       | 10.32                             | Changes in Organizational  Documents                |       | 87       |
|       |                              |                                                |       |     |
|       | 10.33                             | Anti-Terrorism Laws                                 |       | 88       |
|       |                              |                                                |       |     |
|       | 10.34                             | Further Assurances                                  |       | 88       |
|       |                              |                                                |       |     |
| 11.        | EVENTS OF DEFAULT                 |                                                | 88         |
|       |                              |                                                |       |     |
|       | 11.1                              | Events of Default                                   |       | 88       |
|       |                              |                                                |       |     |
|       | 11.2                              | Cure Periods                                        |       | 91       |
|       |                              |                                                |       |     |
| 12.        | LENDERS’ RIGHTS AND REMEDIES |                                                | 92         |
|       |                              |                                                |       |     |
|       | 12.1                              | Acceleration                                        |       | 92       |
|       |                              |                                                |       |     |
|       | 12.2                              | Fees and Expenses                                   |       | 92       |
|       |                              |                                                |       |     |
|       | 12.3                              | Actions in Respect of Letters  of Credit            |       | 93       |
|       |                              |                                                |       |     |
| 13.        | AGENT                             |                                                | 93         |
|       |                              |                                                |       |     |
|       | 13.1                              | Appointment                                         |       | 93       |
|       |                              |                                                |       |     |
|       | 13.2                              | Delegation of Duties                                |       | 93       |

 

v

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| ** ** | ** **                                       | ** **                                                   | ** ** | **Page** |
|------------|--------------------------------------------------|--------------------------------------------------------------|------------|----------|
|       |                                             |                                                         |       |     |
|       | 13.3                                             | Exculpatory Provisions                                       |       | 93       |
|       |                                             |                                                         |       |     |
|       | 13.4                                             | Reliance by Agent                                            |       | 94       |
|       |                                             |                                                         |       |     |
|       | 13.5                                             | Notice of Default                                            |       | 95       |
|       |                                             |                                                         |       |     |
|       | 13.6                                             | Non-Reliance on Agent and  Other Lenders                     |       | 95       |
|       |                                             |                                                         |       |     |
|       | 13.7                                             | Indemnification                                              |       | 95       |
|       |                                             |                                                         |       |     |
|       | 13.8                                             | Agent in Its Individual  Capacity                            |       | 96       |
|       |                                             |                                                         |       |     |
|       | 13.9                                             | Resignation of Agent                                         |       | 96       |
|       |                                             |                                                         |       |     |
|       | 13.10                                            | Loan Collateral Matters                                      |       | 96       |
|       |                                             |                                                         |       |     |
|       | 13.11                                            | Overadvances                                                 |       | 99       |
|       |                                             |                                                         |       |     |
|       | 13.12                                            | No Third Party Beneficiary                                   |       | 99       |
|       |                                             |                                                         |       |     |
|       | 13.13                                            | No Reliance on Agent’s  Customer Identification Program |       | 99       |
|       |                                             |                                                         |       |     |
|       | 13.14                                            | USA Patriot Act                                              |       | 99       |
|       |                                             |                                                         |       |     |
| 14.        | AMENDMENTS; WAIVERS; ASSIGNMENTS; PARTICIPATIONS |                                                         | 100        |
|       |                                             |                                                         |       |     |
|       | 14.1                                             | Amendments and Waivers                                       |       | 100      |
|       |                                             |                                                         |       |     |
|       | 14.2                                             | Assignment                                                   |       | 102      |
|       |                                             |                                                         |       |     |
|       | 14.3                                             | Participations                                               |       | 104      |
|       |                                             |                                                         |       |     |
|       | 14.4                                             | Law Requirements                                             |       | 105      |
|       |                                             |                                                         |       |     |
| 15.        | GENERAL                                          |                                                         | 105        |
|       |                                             |                                                         |       |     |
|       | 15.1                                             | Severability                                                 |       | 105      |
|       |                                             |                                                         |       |     |
|       | 15.2                                             | Governing Law                                                |       | 105      |
|       |                                             |                                                         |       |     |
|       | 15.3                                             | WAIVER OF JURISDICTION                                       |       | 105      |
|       |                                             |                                                         |       |     |
|       | 15.4                                             | Survival                                                     |       | 106      |
|       |                                             |                                                         |       |     |
|       | 15.5                                             | Application of Payments;  Revival of Obligations             |       | 106      |
|       |                                             |                                                         |       |     |
|       | 15.6                                             | Fees and Expenses                                            |       | 106      |
|       |                                             |                                                         |       |     |
|       | 15.7                                             | Notices; Electronic Mail                                     |       | 107      |
|       |                                             |                                                         |       |     |
|       | 15.8                                             | Indemnification                                              |       | 108      |
|       |                                             |                                                         |       |     |
|       | 15.9                                             | Additional Waivers by  Borrower                              |       | 109      |
|       |                                             |                                                         |       |     |
|       | 15.10                                            | Equitable Relief                                             |       | 109      |
|       |                                             |                                                         |       |     |
|       | 15.11                                            | Entire Agreement                                             |       | 109      |
|       |                                             |                                                         |       |     |
|       | 15.12                                            | Headings                                                     |       | 110      |

 

vi

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| ** ** | ** ** | ** **                                | ** ** | **Page** |
|------------|------------|-------------------------------------------|------------|----------|
|       |       |                                      |       |     |
|       | 15.13      | Cumulative Remedies                       |       | 110      |
|       |       |                                      |       |     |
|       | 15.14      | Recourse to Directors or  Officers        |       | 110      |
|       |       |                                      |       |     |
|       | 15.15      | WAIVER OF JURY TRIAL;  JUDICIAL REFERENCE |       | 110      |
|       |       |                                      |       |     |
|       | 15.16      | PATRIOT ACT NOTICE                        |       | 111      |
|       |       |                                      |       |     |
|       | 15.17      | Confidentiality                           |       | 111      |
|       |       |                                      |       |     |
|       | 15.18      | Judgment Currency                         |       | 111      |

 

vii

----

 

EXHIBITS

 
| Exhibit A     |   | Note Form                                                |
|--------------------|--------|----------------------------------------------------------|
|               |   |                                                     |
| Exhibit B     |   | [Reserved.]                                              |
|               |   |                                                     |
| Exhibit C     |   | Advance Request Form                                     |
|               |   |                                                     |
| Exhibit D     |   | Borrowing Base Certificate Form                          |
|               |   |                                                     |
| Exhibit E     |   | Officer’s Certificate Form                          |
|               |   |                                                     |
| Exhibit F     |   | Financial Covenants                                      |
|               |   |                                                     |
| Exhibit G     |   | Assignment and Acceptance Form                           |
|               |   |                                                     |
| Exhibit H     |   | Form of Franchise Agreement                         |
|               |   |                                                     |
| SCHEDULES          |
|               |   |                                                     |
| Schedule 1    |   | Lender Revolving Credit Commitments                      |
|               |   |                                                     |
| Schedule 2    |   | Financial Statements                                     |
|               |   |                                                     |
| Schedule 3    |   | Credit Party Facilities                                  |
|               |   |                                                     |
| Schedule 9.1  |   | List of Jurisdictions of Incorporation and Qualification |
|               |   |                                                     |
| Schedule 9.5  |   | Licenses; Trademarks; Patents; Copyrights                |
|               |   |                                                     |
| Schedule 9.7  |   | Permitted Liens                                          |
|               |   |                                                     |
| Schedule 9.8  |   | Labor Matters                                            |
|               |   |                                                     |
| Schedule 9.9  |   | Compliance With Laws                                     |
|               |   |                                                     |
| Schedule 9.10 |   | Environmental Matters                                    |
|               |   |                                                     |
| Schedule 9.13 |   | Pension Matters                                          |
|               |   |                                                     |
| Schedule 9.14 |   | Tax Matters                                              |
|               |   |                                                     |
| Schedule 9.15 |   | Litigation Matters                                       |
|               |   |                                                     |
| Schedule 9.17 |   | Affiliates; Affiliate Transactions                       |
|               |   |                                                     |
| Schedule 9.18 |   | Stockholders                                             |
|               |   |                                                     |
| Schedule 9.20 |   | Bank Accounts                                            |
|               |   |                                                     |
| Schedule 9.24 |   | Leases                                                   |
|               |   |                                                     |
| Schedule 9.25 |   | Insurance Policies                                       |

 

viii

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| Schedule 9.29       |   | Government Contracts         |
|---------------------|--------|------------------------------|
|                |   |                         |
| Schedule 9.30       |   | Customer and Trade Relations |
|                |   |                         |
| Schedule 10.10 |   | Existing Indebtedness        |

 

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**FINANCING AGREEMENT**

 

THIS FINANCINGAGREEMENT (this “Agreement”), dated as of February 14, 2008,  by and among WESTAFF (USA), INC., aCalifornia corporation (“Borrower”), WESTAFF, INC., a Delawarecorporation and the sole shareholder of Borrower, as Parent Guarantor (“ParentGuarantor”), each of the Lenders from time to time party hereto, and U.S.BANK NATIONAL ASSOCIATION, a national banking association (“U.S. Bank”),as LC Issuer and as Agent, is as follows:

 

1.              DEFINITIONS

 

1.1           DefinedTerms.  In addition to the otherterms defined in this Agreement, whenever the following capitalized terms(whether or not underscored) are used, they shall be defined as follows:

 

“Acquisition”means any transaction, or any series of related transactions, consummated afterthe Closing Date, by which Borrower or any other Credit Party directly orindirectly (a) acquires any ongoing business or all or substantially allof the assets of any Person engaged in any ongoing business, whether through apurchase of assets, merger or otherwise, (b) acquires control of theCapital Stock of a Person engaged in an ongoing business representing more than50% of the ordinary voting power for the election of directors or othergoverning position if the business affairs of such Person are managed by aboard of directors or other governing body or (c) acquires control of morethan 50% of the ownership interest in any partnership, joint venture, limitedliability company, business trust or other Person engaged in an ongoingbusiness that is not managed by a board of directors or other governing body.

 

“AdvanceRate” means a percentage, subject to change by Agent from time to time inaccordance with Section 2.10, which is applied to Eligible BilledReceivables (the “Eligible Billed Receivables Advance Rate”) and to EligibleUnbilled Receivables (the “Eligible Unbilled Receivables Advance Rate”) for thepurpose of determining the Borrowing Base. The initial Advance Rates are as follows:  the Borrower Eligible Billed ReceivablesAdvance Rate is 85%; the Borrower Eligible Unbilled Receivables Advance Rate is75%; the Westaff UK Eligible Billed Receivables Advance Rate is 75%; and theWestaff UK Eligible Unbilled Receivables Advance Rate is 75%.

 

“AdvanceRequest” has the meaning given in Section 2.5.

 

“AffectedLender” has the meaning given in Section 3.2.1(vii).

 

“Affiliate”means, as to any Person (the “Subject Person”), any other Person which,directly or indirectly, is in control of, is controlled by, or is under commoncontrol with, the Subject Person.  Forthe purpose of this definition, “control” of a Person means the power, director indirect, (i) to vote 10% or more of the securities (or other ownershipinterests) having voting power for the election of directors (or managers inthe case of a limited liability company) of the Person or (ii) otherwiseto direct or cause the direction of the management and policies of the Person,whether by contract or otherwise. Without limiting the generality of the foregoing, each of the followingwill be deemed an Affiliate of Borrower for the purposes of this Agreement: 

 

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(a) each otherCredit Party, (b) each other Subsidiary of Parent Guarantor, (c) eachexecutive officer of any Credit Party and (d) each director of Borrowerand each Subsidiary Guarantor.

 

“AffiliateGuarantors” means, collectively, Parent Guarantor and the SubsidiaryGuarantors.  To the extent a term orprovision of this Agreement is applicable to an “Affiliate Guarantor”, it isapplicable to all of the Affiliate Guarantors unless the context expresslyindicates otherwise.

 

“AffiliateGuaranty Agreements” means, individually and collectively, the ParentGuaranty Agreement, the Subsidiary Guaranty Agreement and the U.K. Debenture.

 

“Agent”means U.S. Bank in its capacity as contractual representative of LC Issuer andthe Lenders pursuant to Section 13, and not in its individualcapacity as a Lender, and any successor Agent appointed pursuant to Section 13.

 

“AgentAdvance” has the meaning given in Section 13.10.6.

 

“AgentAdvance Exposure” means, with respect to any Lender at any time, an amountequal to (i) the outstanding amount of Agent Advances held by such Lenderat such time plus (ii) such Lender’s Agent Advance Exposure Percentage ofthe total outstanding Agent Advances held by Agent at such time.

 

“AgentAdvance Exposure Percentage” means, with respect to any Lender at any time,the ratio of (i) the Revolving Credit Commitment of such Lender at suchtime or, if the Revolving Credit Commitments are terminated, the RevolvingCredit Exposure of such Lender at such time, to (ii) the Revolving CreditCommitments then in effect at such time or, if the Revolving Credit Commitmentsare terminated, the Revolving Credit Exposure of all of the Lenders at suchtime.

 

“AgentE-mail Address” has the meaning given in Section 15.7.2.

 

“Agent’sLiens”, “Lien in favor of Agent”, “Lien granted to Agent”, “securityinterest of Agent” or words of similar import mean the Liens granted toAgent, for the benefit of the Secured Parties pursuant to this Agreement andthe other Loan Documents.

 

“Anti-TerrorismLaws” means any law, rule or regulation relating to terrorism or moneylaundering, including Executive Order No. 13224, the USA Patriot Act, thelaws, rules and regulations compromising or implementing the Bank SecrecyAct and the laws, rules and regulations administered by the United StatesTreasury Department’s Office of Foreign Asset Control (as any of the foregoingmay be amended).

 

“ApplicableAgreement” means any agreement, commitment, arrangement or instrument(including any note, indenture, loan agreement, mortgage, lease, or deed) towhich, as of any relevant date, any Credit Party is a party or by which anyCredit Party or any of its properties is bound, in each case, the performanceor non-performance of which could reasonably be expected to have a MaterialAdverse Effect.

 

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“ApplicableLIBOR Rate Margin”, “Applicable LOC Fee”, “Applicable Prime RateMargins”, and “Applicable Unused Commitment Fee” means, as of anydate, the applicable per annum rate shown in the applicable column in Section 3.2.2based on the then applicable Fixed Charge Coverage Ratio.

 

“ApplicableMargin” means, as applicable, the “Applicable LIBOR Rate Margin” andthe “Applicable Prime Rate Margins”.

 

“ApplicablePrime Rate Margins” means, the Applicable Prime Rate Margin for RevolvingLoans and Interim Advances, or the Applicable Prime Rate Margin for all otherObligations (including Agent Advances), as the context requires.

 

“ApplicableRate” has the meaning given in Section 3.10.

 

“Assignmentand Acceptance” has the meaning given in Section 14.2.2(ii).

 

“Attorneys’Fees” means, subject to Section 15.6(b), the reasonable fees,costs and expenses of all attorneys (and all paralegals and other staffemployed by such attorneys) retained by Agent, LC Issuer or any Lender, asapplicable, from time to time in connection with, or arising out of, thematters encompassed by the reference to the capitalized term Attorneys’ Fees inthe applicable provisions of the applicable agreement, instrument or otherdocument.

 

“AustralianLoan Documents” means the Australia Dollar Facility Agreement dated as of May 16,2002 entered into by and among GE Capital Finance Pty Limited Australia, onbehalf of itself and certain lenders, and Westaff Australia and the Debentureof even date therewith and all guaranties, promissory notes and otheragreements and instruments executed and delivered in connection therewithincluding the Australian Subordination Deed.

 

“AustralianSubordination Deed” means that certain Subordination Deed, dated as of May 16,2002, entered into by and among Westaff Australia (including as successor bymerger to Western Personnel Services Pty Limited and Western Temporary ServicesPty Limited), Borrower, Westaff Support, Parent Guarantor and GE CapitalFinance Pty Limited Australia.

 

“AuthorizedRepresentative” means any of (i) the Chief Executive Officer, (ii) thePresident, (iii) the Chief Financial Officer, (iv) the Treasurer, or (v) anyother employee, officer or director of Borrower which has been so designated byBorrower in writing and delivered to Agent.

 

“AvailableCash” means, as of any date of determination, all cash on hand (and thenavailable at the close of business) deposited in that certain deposit accountof Borrower, account number 2-534-1002-5147, located at U.S. Bank or in anyother account subject to Agent’s control, and all Cash Equivalents owned by theCredit Parties which are subject to a perfected Agent’s Lien.

 

“AvailableFunds” has the meaning given in Section 7.4.

 

“BankProduct” means any financial accommodation extended to any Credit Party bya Bank Product Provider (other than pursuant to this Agreement or other thanunder a Rate 

 

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HedgingAgreement), including:  (a) creditcards, (b) credit card processing services, (c) debit cards, (d) purchasecards, (e) ACH Transactions or (f) cash management, includingcontrolled disbursement, accounts or services.

 

“BankProduct Agreements” means those agreements entered into from time to timeby any Credit Party with a Bank Product Provider in connection with theobtaining of any of the Bank Products.

 

“BankProduct Obligations” means all obligations, liabilities, contingentreimbursement obligations, fees, and expenses owing by any Credit Party to anyBank Product Provider pursuant to or evidenced by the Bank Product Agreementsand irrespective of whether for the payment of money, whether direct orindirect, absolute or contingent, due or to become due, now existing orhereafter arising, and including all amounts that Agent or any Lender is obligatedto pay or reimburse to a Bank Product Provider as a result of Agent or suchLender purchasing participations from, or executing indemnities orreimbursement obligations to, a Bank Product Provider with respect to the BankProducts provided by such Bank Product Provider to any Credit Party or anyother Subsidiary of Parent Guarantor.

 

“BankProduct Provider” means U.S. Bank or any of such designated Person’sAffiliates.

 

“BankruptcyCase” has the meaning given in Section 11.1.

 

“BenefitedLender” has the meaning given in Section 4.3.2.

 

“BlockedPerson” means any Person (i) that is listed in the annex to, or isotherwise subject to the provisions of, Executive Order No. 13224; (ii) designatedby the Secretary of the Treasury as being owned or controlled by, or acting foror on behalf of, any Person that is listed in the annex to, or is otherwisesubject to the provisions of, Executive Order No. 13224; (iii) withwhich any Lender is prohibited from dealing or otherwise engaging in anytransaction by any Anti-Terrorism Law; (iv) that commits, threatens orconspires to commit or supports “terrorism” as defined in Executive Order No. 13224;(v) that is named as a “specially designated national” on the most currentlist published by the U.S. Treasury Department Office of Foreign Asset Controlat its official website or any replacement website or other replacementofficial publication of such list; or (vi) who is an Affiliate of anyPerson listed above.

 

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

 

(i)            theEligible Billed Receivables Advance Rate applied to the Net Amount of EligibleBilled Receivables of Borrower and Westaff UK then outstanding;

 

plus        (ii)           theEligible Unbilled Receivables Advance Rate applied to an amount equal to thelesser of (a) the Net Amount of Eligible Unbilled Receivables of Borrowerand Westaff UK then outstanding and (b) an amount equal to20% of the Net Amount of Eligible Billed Receivables of Borrower and Westaff UKthen outstanding; and

 

less         (iii)          thethen ReserveAmount.

 

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*provided*that, notwithstanding the foregoing, in no event shall that portion of theBorrowing Base, as calculated from time to time, attributed to Westaff UKEligible Billed Receivables and Westaff UK Eligible Unbilled Receivables exceed$5,000,000.

 

“BorrowingBase Certificate” has the meaning given in Section 8.3.

 

“BorrowingBase Deficiency” means the failure, as of any time, of the sum of (i) RevolvingCredit Availability and (ii) Available Cash to be greater than or equal tozero Dollars.

 

“BorrowingDate” means a date on which a Credit Extension is made hereunder, andthereafter shall be the effective date of the most recent conversion of suchCredit Extension.

 

“Borrower EligibleBilled Receivables” means such of the Receivables owing to Borrower thatmeet the criteria in clause (i) below of this definition and are notineligible pursuant to clause (ii) below.

 

(i)            Exceptas provided in clause (ii) below, Receivables owing to Borrower whichmeet, and continue to meet, all of the following criteria are Eligible BilledReceivables:

 

(a)           Receivableswhich consist of ordinary trade accounts receivable owned solely by Borrower,evidenced by Borrower’s standard invoice therefor, payable in cash in Dollarsand which arise out of the provision of services in the ordinary course ofBorrower’s business as presently conducted by it to a Person who is not anAffiliate of Borrower (or who otherwise is controlled by Borrower or by an Affiliateof Borrower);

 

(b)           Receivableswhich are due and payable absolutely and unconditionally within (1) Borrower’sstandard terms for the applicable account debtor, or (2) such extendedterms as are made available by Borrower in the ordinary course of its business;

 

(c)           Receivableswith respect to which the services covered thereby have been rendered andaccepted by the account debtor or its designee; and

 

(d)           Receivableswith respect to which not more than 90 days have elapsed since the date of theoriginal invoice applicable thereto.

 

(ii)           Thefollowing Receivables will not, in any event, constitute Borrower EligibleBilled Receivables:

 

(a)           Receivables withrespect to which the account debtor has filed or had filed against it apetition in bankruptcy or for reorganization, made an assignment for thebenefit of creditors, or failed, suspended business operations, becomeinsolvent or in respect of which a receiver, custodian, or a trustee wasappointed for a significant portion of its assets or affairs, or Receivableswith respect to which the account debtor is incompetent or has died;

 

(b)           Receivables withrespect to which (1) the account debtor is not qualified to do business (A) inone or more States of the United States of America or (B) any Canadian provincesacceptable to Agent in its discretion exercised in good faith or (2) theaccount debtor has its principal place of business or chief executive officeoutside of (I) the United States of 

 

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America or (II) anyCanadian provinces acceptable to Agent in its discretion unless, in either orboth of such events (1) or (2) above, the Receivable is supported by (A) anirrevocable, clean letter of credit or acceptance issued (x) by afinancial institution reasonably satisfactory to Agent and (y) on termsreasonably acceptable to Agent, and, if so requested by Agent, delivered toAgent in pledge for negotiation and presentment or (B) foreign creditinsurance satisfactory to Agent in its discretion exercised in good faith andas to which Agent is named as the loss payee;

 

(c)           Receivables owing fromthe same account debtor, either alone or together with its Affiliates, if 50%or more of such Receivables are ineligible for any reason;

 

(d)           Receivables owing fromany single account debtor (other than Receivables owing from GovernmentalAuthorities) to the extent, as of any date, that the total amount of suchaccount debtor’s Receivables that would otherwise be Eligible Receivablesexceeds 10% of the aggregate face amount (less maximum discounts, credits andallowances which may be taken by, or granted to, such account debtor inconnection therewith) of the then outstanding Eligible Receivables of Borrowerand of Westaff UK, and with respect to Receivables owing from a GovernmentalAuthority, to the extent, as of any date, that the aggregate amount of suchGovernmental Authority’s Receivables exceeds 25% of the aggregate face amount(less maximum discounts, credits and allowances which may be taken by, orgranted to, such account debtor in connection therewith) of the thenoutstanding Eligible Receivables of Borrower and of Westaff UK;

 

(e)           Receivablesowing to Borrower with respect to which the account debtor is a GovernmentalAuthority, unless collections on such Receivables are directed to be remittedto the Locked Box or such collections are under Agent’s sole control anddominion;

 

(f)            Receivableswhich (1) consist (or to the extent consisting) of deposits, (2) consist(or to the extent consisting) of vendor warranty claims, (3) consist (orto the extent consisting) of finance charges, service charges, or interest ondelinquent accounts, (4) are employee, officer, director or otherAffiliate Receivables or (5) are (or to the extent consisting of) debitmemoranda;

 

(g)           Receivableswhich are evidenced by a promissory note, chattel paper or other instrument,unless such note, chattel paper or instrument is assigned to Agent;

 

(h)           Receivableswhich are subject to set-off, credit, contras, allowance or adjustment by theaccount debtor (except discounts allowed for prompt payment),  *provided,* that,the net amount owed by such account debtor to Borrower in respect of suchReceivable, as determined by Agent in its discretion exercised in good faith,will, if otherwise eligible, be a Borrower Eligible Billed Receivable;

 

(i)            Receivableswhich are not subject to the first priority security interest of Agent or aresubject to any Lien of any Person (except to the extent, if any, of anyPermitted Liens of the type described in clause (i) or (iv) of thatdefinition);

 

(j)            Receivableswith respect to which the account debtor (the “Subject Customer”) islocated in any one or more of New Jersey, Minnesota, or West Virginia (1) tothe extent that the Receivables owing from the Subject Customer exceed 5% ofthe aggregate face 

 

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amount of thethen outstanding Eligible Receivables owing to Borrower (whether evidenced bysuch Receivables or otherwise) and (2) (A) if the Subject Customer islocated in New Jersey and all Receivables owing from all account debtorslocated in New Jersey exceed 15% of the face amount of the then outstandingEligible Receivables owing to Borrower (whether evidenced by such Receivablesor otherwise), unless Borrower has properly qualified to do business in NewJersey or has filed a Notice of Business Activities Report with the New JerseyDivision of Taxation for the then current year, (B) if the SubjectCustomer is located in Minnesota and all Receivables owing from all accountdebtors located in Minnesota exceed 15% of the aggregate face amount of thethen outstanding Eligible Receivables owing to Borrower (whether evidenced bysuch Receivables or otherwise), unless Borrower has properly qualified to dobusiness in Minnesota or has filed a Notice of Business Activities Report withthe Minnesota Division of Taxation for the then current year, or (C) ifthe Subject Customer is located in West Virginia and all Receivables owing fromall account debtors located in West Virginia exceed 15% of the aggregate faceamount of the then outstanding Eligible Receivables owing to Borrower (whetherevidenced by such Receivables or otherwise), unless Borrower has filed, or isexempt from filing, a Business Activity Report with the Tax Commissioner of theState of West Virginia for the then current year;

 

(k)           Receivableswith respect to which the account debtor has sold substantially all of itsassets and has not established adequate reserves or made provisions for thepayment of all amounts owed to such account debtor’s trade creditors, asdetermined by Agent in its discretion exercised in good faith, unless the buyerof such assets has assumed responsibility for payment of such Receivables andis otherwise eligible hereunder;

 

(l)            Receivableswith respect to which Agent has received a check for payment of such Receivablewhich has been returned uncollected, or Receivables with respect to whichAgent, in its discretion exercised in good faith, believes that the collectionof such Receivable is in doubt or impaired or that such Receivable may not bepaid by reason of the account debtor’s financial inability to pay;

 

(m)          Receivablesconstituting a healthcare insurance receivable or a Medicare or Medicaidpayment;

 

(n)           Receivablesowing by a licensee of Borrower; or

 

(o)           Receivableswhich Agent, in its discretion exercised in good faith, deems to be ineligiblebased on those credit or collateral considerations which the Business CreditGroup of Agent makes applicable from time to time.

 

“BorrowerEligible Unbilled Receivables” means such of the Receivables owing toBorrower that meet all of the criteria set forth in the definition of BorrowerEligible Billed Receivables except that such Receivables are not evidenced byBorrower’s standard invoice therefor, so long as the services giving rise tosuch Receivables have been performed by Borrower and accepted by the accountdebtor (as evidenced by an approved time card); *provided*that each Borrower Eligible Unbilled Receivable shall cease to be an BorrowerEligible Unbilled Receivable upon the earlier of (i) fifteen (15) daysafter the end of the week in which such services were performed or (ii) issuanceof an invoice for such Receivable.

 

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“Business Day”means any day (other than a Saturday or Sunday) on which commercial banks inLos Angeles, California are required by law to be open for business.  Periods of days referred to in this Agreementwill be counted in calendar days unless Business Days or New York Banking Daysare expressly prescribed.

 

“Buy-OutNotice” has the meaning given in Section 14.1.3.

 

“CapitalLease” means, with respect to any Person, any lease of any property(whether real, personal or mixed) by such Person as lessee that, in accordancewith GAAP, would be required to be classified and accounted for as a capitallease on a balance sheet of such Person.

 

“CapitalLease Obligation” means, with respect to any Capital Lease of any Person,the amount of the obligation of the lessee thereunder that, in accordance withGAAP, would appear on a balance sheet of such lessee in respect of such CapitalLease.

 

“CapitalStock” means all shares, interests, participations, rights to purchase,options, warrants, general or limited partnership interests, or limitedliability company interests or other equivalents (regardless of how designated)of or in a corporation, partnership, limited liability company or equivalententity, whether voting or nonvoting, including common stock, preferred stock orany other “equity security” (as such term is defined in Rule 3a11-1 of theRules and Regulations promulgated by the Securities and ExchangeCommission (17 C.F.R. § 240.3a11-1) under the Securities and Exchange Act of1934, as amended).

 

“CashEquivalents” means:

 

(a)           anyevidence of indebtedness issued or directly and fully guaranteed or insured bythe United States of America or any agency or instrumentality thereof (*provided* that the full faith and credit of the United Statesof America is pledged in support thereof);

 

(b)           certificatesof deposit or acceptances and interest bearing deposits of any financialinstitution that is a member of the Federal Reserve System having combinedcapital and surplus and undivided profits of not less than $300,000,000 in eachcase maturing not more than 9 months from the date of acquisition thereof;

 

(c)           commercialpaper issued by a corporation that is not an Affiliate of Borrower and isorganized under the laws of any state of the United States or the District ofColumbia and rated at least A-1 by Standard & Poor’s Rating Servicesor at least P-1 by Moody’s Investors Services, Inc. in each case maturingnot more than 9 months from the date of acquisition thereof;

 

(d)           repurchaseagreements, having terms of less 180 days, for government obligations of thetype specified in this Section 10.17 with a commercial bank ortrust company which is rated at least A-2/A by Standard & Poor’sRating Services; and

 

(e)           money market fundsorganized under the laws of the United States or any state thereof that investssolely in any of the foregoing investments permitted under clauses (a),(b), (c) and (d).

 

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“Change inLaw” means (i) the adoption of any law, rule or regulation afterthe date of this Agreement, (ii) any change in any law, rule orregulation or in the interpretation or application thereof by any GovernmentalAuthority after the date of this Agreement or any change in the applicabilityof such law, rule or regulation, on the interpretation thereof, withrespect to Agent, LC Issuer, a Lender or any applicable Lending Installation,or (iii) compliance by Agent, LC Issuer, any Lender or any applicableLending Installation with any request, guideline or directive (whether or nothaving the force of law) of any Governmental Authority made or issued after thedate of this Agreement.

 

“Change ofControl” means any of the following: (a) any person or group of persons (within the meaning of theSecurities Exchange Act of 1934,) shall have acquired beneficial ownership(within the meaning of Rule 13d-3 promulgated by the Securities andExchange Commission under the Securities Exchange Act of 1934,) of more than50% of the issued and outstanding shares of Capital Stock of Parent Guarantorhaving the right to vote for the election of directors of Parent Guarantorunder ordinary circumstances (provided however, any acquisition of 50% or moreof the shares of any Capital Stock of Parent Guarantor having the right to votefor the election of directors of Parent Guarantor under ordinary circumstancesby Delstaff LLC and/or any of its Affiliates shall not be a “Change of Control”hereunder); (b) during any period of 12 consecutive calendar months,Continuing Directors of Parent Guarantor cease for any reason other than death,disability or retirement to constitute a majority of the directors then inoffice; (c) Parent Guarantor ceases to own and control, directly orindirectly, all of the economic and voting rights associated with all of theoutstanding Capital Stock of Borrower and each Subsidiary Guarantor (other thana single share of the Capital Stock of Westaff UK owned by Robert Stover andexcept as permitted by clause (ii) of Section 10.16), clause(f) of Section 10.24 or**the last sentence of Section 10.21**;(d) Borrower or any of the Subsidiary Guarantors ceases to own andcontrol, directly or indirectly, all of the economic and voting rightsassociated with all of the outstanding Capital Stock of any of its Subsidiariesthat is a Credit Party (except as permitted by clause (ii) of Section 10.16),clause (f) of Section 10.24) or**the last sentence of Section 10.21;**or (e) Michael T. Willis or any Approved Successorceases, for any reason, (i) to serve as chief executive officer (orinterim chief executive officer) of Borrower actively involved in Borrower’smanagement or (ii) to be a Director of Borrower.  For the purpose of clause (e), an “ApprovedSuccessor” is the chief executive officer or interim chief executive officer ofBorrower elected by the Continuing Directors not more than 45 days afterMichael T. Willis or an Approved Successor ceases to serve as chief executiveofficer or interim chief executive officer of Borrower and, if Parent Guarantoris no longer registered with the SEC, who is reasonably acceptable to RequiredLenders.

 

“ChargedAssets” has the meaning given it in the U.K. Debenture.

 

“Charges”has the meaning given in Section 3.10.

 

“CIPRegulations” has the meaning given in Section 13.13.

 

“Class”has the meaning given in Section 1.4.

 

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“ClosingDate” means the date upon which all of the conditions precedent to theeffectiveness of this Agreement contained in Section 5.1 aresatisfied or waived by Agent, the LC Issuer and each of the Lenders.

 

“Code”means the Uniform Commercial Code, as enacted in the State of California,Division 9, as amended.

 

“Collateral”has the meaning given to such term in the Security Agreement.

 

“ContinuingDirectors” means those directors on Parent Guarantor’s Board of Directorsas of the Closing Date (“Current Board”) or those directors who arerecommended or endorsed for election to the Board of Directors of ParentGuarantor by a majority of the Current Board or their successors so recommendedor endorsed.

 

“ControlledDisbursement Account” means account number 153453157635 established at U.S.Bank, which will be structured and utilized as a non-interest bearing,controlled disbursement account in accordance with U.S. Bank’s controlleddisbursement account policies and procedures from time to time in effect.

 

“ControlledGroup” means all members of a controlled group of corporations and otherentities and all trades or businesses (whether or not incorporated) undercommon control which, together with each Credit Party, are treated as a singleemployer under Section 414(b) or 414(c) of the Internal RevenueCode or Section 4001 of ERISA.

 

“CreditExposure” means, with respect to any Lender at any time, an amount equal to(i) the Revolving Credit Exposure of such Lender at such time, plus (ii) theAgent Advance Exposure of such Lender at such time.

 

“CreditExtension” means the making of any Loan or the issuance of a Letter ofCredit hereunder.

 

“CreditParties” means, collectively, Borrower, Parent Guarantor and the SubsidiaryGuarantors.

 

“CreditParty Facilities” means, collectively, those facilities described on Schedule 3which are owned or leased by any Credit Party.

 

“Default”means an event or condition the occurrence of which would, with the lapse oftime or the giving of notice, or both, become an Event of Default.

 

“DefaultRate” has the meaning given in Section 3.2.3.

 

“DefaultingLender” means any Lender that fails to make any Loan (or other extension ofcredit) that it is required to make hereunder on the date that it is requiredto do so hereunder.

 

“Deficiency”means (collectively and individually) a Borrowing Base Deficiency and a Letterof Credit Deficiency.

 

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“DeterminationDate” has the meaning given in Section 3.2.2.

 

“Dollars”and “$” means dollars in lawful currency of the United States of Americaunless otherwise indicated.

 

“DomesticSubsidiary” means any Subsidiary that is organized under the laws of theUnited States or any State or other political subdivision of the United States.

 

“EBITDA”has the meaning given on Exhibit F.

 

“EligibleBilled Receivables” means, collectively, the Borrower Eligible BilledReceivables and the Westaff UK Eligible Billed Receivables.

 

“EligibleReceivables” means, collectively, the Eligible Billed Receivables and theEligible Unbilled Receivables

 

“EligibleUnbilled Receivables” means, collectively, the Borrower Eligible UnbilledReceivables and the Westaff UK Eligible Unbilled Receivables.

 

“Equipment”means equipment as defined in the Code.

 

“ERISA”means the Employee Retirement Income Security Act of 1974, as amended.

 

“Event ofDefault” has the meaning given in Section 11.

 

“ExcludedTaxes” means, with respect to Agent, LC Issuer and any Lender or any otherrecipient of any payment to be made by or on account of any obligation of anyCredit Party hereunder or under any of the other Loan Documents, (i) Taxesimposed on its overall revenue or net income, and franchise Taxes imposed onit, by the jurisdiction (or any political subdivision thereof) under the lawsof which such Lender, LC Issuer or Agent is incorporated or organized or thejurisdiction in which such Lender, LC Issuer or Agent’s applicable LendingInstallation is located, and (ii) any branch profits taxes imposed by theUnited States of America or any similar tax imposed by any other jurisdictionin which any Credit Party is located.

 

“ExecutiveOrder No. 13224” means the Executive Order No. 13224 on TerroristFinancing, effective September 24, 2001, as amended.

 

“Expenses”has the meaning given in Section 15.6.

 

“FederalFunds Rate” means, for any day, an interest rate per annum equal to theweighted average of the rates on overnight Federal funds transactions withmembers of the Federal Reserve System arranged by Federal funds brokers on suchday, as published for such day (or, if such day is not a Business Day, for theimmediately preceding Business Day) by the Federal Reserve Bank of New York,or, if such rate is not so published for any day which is a Business Day, theaverage of the quotations at approximately 10:00 a.m. Los Angeles time onsuch day on such transactions received by Agent from three Federal fundsbrokers of recognized standing selected by Agent in its sole discretion.

 

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“Fee Letter”means the letter agreement of even date herewith by and between Agent andBorrower.

 

“FinancialCovenants” has the meaning given in Section 10.28.

 

“Financials”means those financial statements attached as Schedule 2.

 

“FiscalPeriod” has the meaning given on Exhibit F.

 

“FiscalQuarter” has the meaning given on Exhibit F.

 

“FiscalYear” has the meaning given on Exhibit F.

 

“FixedCharge Coverage Ratio” has the meaning given on Exhibit F.

 

“ForeignLender” means any Lender or LC Issuer that (i) is not a “United Statesperson” within the meaning of Section 7701(a)(30) of the Internal RevenueCode or (ii) is a “United States person” within the meaning of Section 7701(a)(30)of the Internal Revenue Code to the extent that interest payments are directlyor indirectly beneficially owned or allocable to a person who is not a “UnitedStates person” within the meaning of Section 7701(a)(30) of the InternalRevenue Code.

 

“ForeignPension Plan” means any plan, scheme, fund or other similar programestablished, maintained or contributed to outside the United States by anyCredit Party primarily for the benefit of employees of the Credit Partyresiding or working outside the United States, which plan, fund or other similarprogram provides, or results in, retirement income, a deferral of income incontemplation of retirement or payments to be made upon termination ofemployment, and which plan is not subject to ERISA or the Internal RevenueCode.

 

“ForeignSubsidiary” means any Subsidiary that is not a Domestic Subsidiary andshall include Westaff NZ Limited, Westaff (Australia) Pty Limited, Westaff UKand Westaff (Singapore) Limited).

 

“FranchiseAgreements” means those certain Franchise Agreements entered into from timeto time between Borrower and franchisees, a form of which is attached hereto asExhibit H.

 

“FrontingFee” has the meaning given in Section 3.7.

 

“GAAP”has the meaning given in Section 1.3.

 

“GeneralIntangibles” means general intangibles as defined in the Code.

 

“GovernmentalAuthority” means any nation or government, any state or other politicalsubdivision thereof, and any entity exercising executive, legislative,judicial, regulatory or administrative functions of, or pertaining to,government or any agency or instrumentality thereof (including any centralbank).

 

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“Guarantors”means, collectively, the Affiliate Guarantors and each other Person, if any,that executes a guaranty or other similar agreement in favor of Agent, for thebenefit of the Secured Parties, in connection with the transactionscontemplated by this Agreement and the other Loan Documents.

 

“GuarantorBankruptcy Event” has the meaning given in Section 11.1.

 

“Hold-OutLender” has the meaning given in Section 14.1.3.

 

“Indebtedness”means, with respect to any Person, without duplication, (a) allindebtedness of such Person for borrowed money or for the deferred purchaseprice of property payment for which is deferred 6 months or more, but excludingobligations to trade creditors incurred in the ordinary course of business thatare unsecured and not overdue by more than 6 months unless being contested ingood faith, (b) all reimbursement and other obligations with respect toletters of credit, bankers’ acceptances and surety bonds, whether or notmatured, (c) all obligations evidenced by notes, bonds, debentures orsimilar instruments, (d) all indebtedness created or arising under anyconditional sale or other title retention agreement with respect to propertyacquired by such Person (even though the rights and remedies of the seller orlender under such agreement in the event of default are limited to repossessionor sale of such property), (e) all Capital Lease Obligations and thepresent value (discounted at the Prime Rate as in effect on the Closing Date)of future rental payments under all synthetic leases, (f) all netobligations of such Person under commodity purchase or option agreements orother commodity price hedging arrangements, in each case whether contingent ormatured, (g) all obligations of such Person under any foreign exchangecontract, currency swap agreement, interest rate swap, cap or collar agreementor other similar agreement or arrangement designed to alter the risks of thatPerson arising from fluctuations in currency values or interest rates, in eachcase whether contingent or matured, in an amount equal to the TerminationValues thereof, (h) all Indebtedness referred to above secured by (or forwhich the holder of such Indebtedness has an existing right, contingent orotherwise, to be secured by) any Lien upon or in property or other assets(including accounts and contract rights) owned by such Person, even though suchPerson has not assumed or become liable for the payment of such Indebtedness,and (i) the Obligations.

 

“IndemnifiedLiabilities” has the meaning given in Section 15.8.

 

“IndemnifiedParty” has the meaning given in Section 15.8.

 

“IndemnifiedTaxes” means Taxes other than Excluded Taxes.

 

“InsolvencyLaw” has the meaning given in Section 11.1.

 

“InsolvencyProceedings” means an Involuntary Proceeding and/or a Bankruptcy Case.

 

“InterestPayment Date” means the Maturity Date or any earlier date on which thecredit facility extended hereunder terminates, and (i) the first day ofeach month occurring during each Loan Period for each LIBOR Rate Loan and thelast day of each such Loan Period, (ii) the first day of each month foreach Prime Rate Loan which is not an Interim Advance and (iii) on demandby Agent for each Agent Advance, Interim Advance or other Obligation (provided,that it will not be deemed a Default hereunder if any payment payable underthis clause (iii) is 

 

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received onthe Business Day immediately succeeding the date demand therefore is made byAgent).

 

“InterimAdvance” has the meaning given in Section 2.7.1.

 

“InterimAdvance Exposure” means, with respect to any Lender at any time, suchLender’s Revolving Credit Commitment Percentage of the total Interim Advancesoutstanding at such time.

 

“InternalRevenue Code” means the Internal Revenue Code of 1986, as amended.

 

“Inventory”means inventory as defined in the Code.

 

“Investment”means, when used in connection with any Person, any investment by or of thatPerson, whether by means of purchase or other acquisition of any equitysecurities or other Capital Stock of any other Person or by means of loan,advance, capital contribution, guaranty or other debt or equity participationor interest, or otherwise, including the acquisition by such Person of anypartnership, joint venture or limited liability company interests of any otherPerson.  The amount of any Investmentshall be the original principal or capital amount thereof less all returns of principalor equity thereon and distributions or dividends thereon (and withoutadjustment by reason of the financial condition of such other Person) andshall, if made by the transfer or exchange of property other than cash, bedeemed to have been made in an original principal or capital amount equal tothe fair market value of such property.

 

“InvoluntaryProceeding” has the meaning given in Section 11.1.

 

“Judgment”has the meaning given in Section 10.27.

 

“LC Issuer”means U.S. Bank, as the issuer of Letters of Credit under Section 2.4,together with its successors and assigns in such capacity.

 

“LC PaymentDate” has the meaning given in Section 2.4.5.

 

“Lenders”means each of the financial institutions that is a signatory hereto identifiedunder the caption “LENDERS” on the signature pages of thisAgreement, and each financial institution that becomes a “Lender” afterthe date hereof pursuant to Section 14.2.

 

“LendingInstallation” means, with respect to Agent, a Lender or LC Issuer, theoffice, branch, subsidiary or Affiliate of Agent, such Lender or LC Issuerlisted on the signature pages hereof or otherwise selected by Agent, suchLender or LC Issuer pursuant to Section 2.12.

 

“Letter ofCredit” means a Standby Letter of Credit (as defined in Section 2.4)issued by LC Issuer pursuant to Section 2.4.

 

“Letter ofCredit Availability”  means, as atany time, an amount equal to the lesser of (i) an amount equal to (a) $35,000,000less (b) the then Letter of Credit Exposure and (ii) the thenRevolving Credit Availability.

 

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“Letter ofCredit Collateral Account” has the meaning given in Section 2.4.11.

 

“Letter ofCredit Deficiency” means any failure of the Letter of Credit Availabilityto be greater than or equal to zero Dollars.

 

“Letter ofCredit Documents” means, with respect to each and every Letter of Credit, (i) astandby letter of credit application and reimbursement agreement on LC Issuer’sthen customary form (the “Letter of Credit Application”) and (ii) anyother agreements, certificates, documents and information as LC Issuer mayreasonably request relating to a Letter of Credit.

 

“Letter ofCredit Exposure” means, as at any time, the sum of (i) the Letter ofCredit Face Amount of all outstanding Letters of Credit and (ii) allunreimbursed drawings under any Letters of Credit).  The Letter of Credit Exposure of any Lenderat any time shall be its Revolving Credit Commitment Percentage of the totalLetter of Credit Exposure at such time.

 

“Letter ofCredit Face Amount” of any Letter of Credit means, at any time, the faceamount of the Letter of Credit, after giving effect to all drawings paidthereunder and other reductions of the face amount and to all reinstatements ofthe face amount effected, pursuant to the terms of the Letter of Credit, priorto such time.

 

“Letter ofCredit Obligations” means, at any time, the sum of (i) the Letter ofCredit Exposure plus (ii) the aggregate amount of Borrower’s other unpaidobligations in respect of all Letters of Credit (whether or not outstanding)under this Agreement and the Letter of Credit Documents, including anyIndebtedness incurred or arising in connection with any Letters of Credit(including any drafts or acceptances thereunder, all amounts charged orchargeable to Borrower or LC Issuer, including any and all charges, expenses,fees and commissions, and all duties and Taxes and costs of insurance which maypertain either directly or indirectly to such Letters of Credit).

 

“LIBOR Rate”means, with respect to any LIBOR Rate Loan, the applicable interest rate forsuch LIBOR Rate Loan pursuant to Section 3.2.1(i).

 

“LIBOR RateLoan” has the meaning given in Section 3.2.1(i).

 

“Lien”means any mortgage, deed of trust, pledge, hypothecation, assignment, depositarrangement, charge, security interest, encumbrance, lien (statutory or other),or any preference, priority or other security agreement or any preferentialarrangement of any kind or nature whatsoever (including any conditional sale orother title retention agreement, any lease deemed under the UCC to be intendedfor security, and the authorized filing by or against a Person as debtor of anyfinancing statement under the UCC or comparable law of any jurisdiction).

 

“Loan”means each Revolving Loan (including each Overadvance), each Interim Advance,and each Agent Advance, and the total of all such Credit Extensions outstandingat any time may be referred to as “Loans”.

 

“LoanCollateral” means the Collateral, the Charged Assets, the TrademarkCollateral (as defined in the Trademark Security Agreement), the PledgedCollateral (as defined in the Stock 

 

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PledgeAgreement) and any and all other security or collateral provided from time totime by, or on behalf of, Borrower or any other Person for the Obligations.

 

“Loan Documents”means this Agreement, the Notes, the Letter of Credit Documents, the AffiliateGuaranty Agreements, the Rate Hedging Agreements, the Security Documents, theLetters of Credit and all other agreements, instruments and documents relatingto the Credit Extensions, including mortgages, deeds of trust, securityagreements, subordination agreements, intercreditor agreements, pledges,consents, collateral assignments, locked box and cash management agreements,letter agreements, and letter of credit applications and reimbursementagreements which have been, are as of the date of this Agreement, or will inthe future be signed by, or on behalf of, Borrower and delivered to Agent, LCIssuer, or the Lenders pursuant to or in connection with this Agreement or thetransactions contemplated hereby.  Anyreference in this Agreement or in any other Loan Document to this Agreement orany other Loan Document shall include all appendices, exhibits or schedulesthereto, and all amendments, restatements, supplements or other modificationsthereto, and shall refer to this Agreement or such Loan Document as the samemay be in effect at any and all times such reference is operative.

 

“LoanPeriod” means the period commencing on the day any Loan is made as a LIBORRate Loan or converted into a LIBOR Rate Loan and ending on the numericallycorresponding day 1, 2, or 3 months thereafter matching the interest rate termselected by Borrower; *provided*, *however*, (i) if any Loan Period would otherwise end ona day which is not a New York Banking Day, then the Loan Period shall end onthe next succeeding New York Banking Day unless the next succeeding New YorkBanking Day falls in another calendar month, in which case the Loan Periodshall end on the immediately preceding New York Banking Day; or (ii) ifany Loan Period begins on the last New York Banking Day of a calendar month (oron a day for which there is no numerically corresponding day in the calendarmonth at the end of the Loan Period), then the Loan Period shall end on the lastNew York Banking Day of the calendar month at the end of such Loan Period.

 

“LOC Fee”has the meaning given in Section 3.7.

 

“Locked Box”has the meaning given in Section 7.3.

 

“MaterialAdverse Change” means a material adverse change, as determined by Agent ingood faith, on (i) Borrower’s or Credit Parties (taken as a whole) (a) business,property, assets, operations, prospects or condition, financial or otherwise,or (b) ability to perform any of its or their payment or other materialObligations under this Agreement or any of the other Loan Documents, (ii) therecoverable value of the Loan Collateral or Agent’s, LC Issuer’s or Lenders’rights or interests therein, (iii) the enforceability of any of the LoanDocuments, or (iv) the ability of Agent, LC Issuer or Lenders to exerciseany of its or their rights or remedies under the Loan Documents or provided byapplicable law.

 

“MaterialAdverse Effect” means a material adverse effect, as determined by Agent ingood faith, on (i) Borrower’s or Credit Parties (taken as a whole) (a) business,property, assets, operations or condition, financial or otherwise, or (b) abilityto perform any of its or their payment or other material Obligations under thisAgreement or any of the other Loan Documents, (ii) the recoverable valueof the Loan Collateral or Agent’s, LC Issuer’s or Lenders’ 

 

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rights orinterests therein, (iii) the enforceability of any of the Loan Documents,or (iv) the ability of Agent, LC Issuer or Lenders to exercise any of itsor their rights or remedies under the Loan Documents or provided by applicablelaw.

 

“MaturityDate” means the earlier to occur of (i) the Stated Maturity Date and (ii) theVoluntary Termination Date.

 

“MaximumRate” has the meaning given in Section 3.10.

 

“MediaWorld”means MediaWorld International, a California corporation and a wholly-ownedSubsidiary of Borrower and indirect Subsidiary of Parent Guarantor.

 

“MoneyMarkets” means one or more wholesale funding markets available to andselected by Agent, including negotiable certificates of deposit, commercialpaper, eurodollar deposits, bank notes, federal funds, interest rate swaps orothers.

 

“Net Amountof Eligible Billed Receivables” means, at any time, the gross amount of EligibleBilled Receivables less (without duplication for any portion of a Receivable asbeing deemed ineligible pursuant to the terms of this Agreement) sales, exciseor similar Taxes, and less returns, discounts, claims and credits of any natureat any time issued, owing, granted, outstanding, available or claimed.

 

“Net Amountof Eligible Unbilled Receivables” means, at any time, the gross amount ofEligible Unbilled Receivables less (without duplication for any portion of aReceivable as being deemed ineligible pursuant to the terms of this Agreement)sales, excise or similar Taxes, and less returns, discounts, claims and creditsof any nature at any time issued, owing, granted, outstanding, available orclaimed.

 

“New YorkBanking Day” means any day (other than a Saturday or Sunday) on whichcommercial banks are open for business in New York, New York.

 

“Notes”has the meaning given in Section 2.8.

 

“Notice ofAssignment” has the meaning given in Section 14.2.2.

 

“Obligations”means (i) all Indebtedness, liabilities and other obligations of any andevery kind and nature now existing or hereafter arising, contingent orotherwise, of Borrower or any other Credit Party under, in connection with, orevidenced or secured by this Agreement, the Notes and any of the other LoanDocuments, including all obligations to pay (a) principal, (b) interestor premium (including any interest or premium accruing after the filing of apetition in bankruptcy or the commencement of any reorganization, regardless ofwhether the same is allowed as a claim in such proceeding), (c) fees(including the fees provided for in the Fee Letter), (d) costs, expensesand other amounts related to any indemnity against loss, damage or liabilityand (e) any other monetary obligation, including such amounts with respectto the Loans and the Letter of Credit Obligations, premiums, liabilities,obligations (including indemnification obligations), charges, costs, Attorneys’Fees (including any fees or expenses that accrue after the commencement of anBankruptcy Case, regardless of whether allowed or allowable in whole or in partas a claim in any such Bankruptcy Case), guaranties, covenants, and duties ofany kind 

 

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anddescription owing by any Credit Party to Agent, LC Issuer or any Lenderpursuant to or evidenced by the Loan Documents and irrespective of whether forthe payment of money, whether direct or indirect, absolute or contingent, dueor to become due, now existing or hereafter arising, and including all interestnot paid when due and all other expenses or other amounts that any Credit Partyis required to pay or reimburse by the Loan Documents or by law or otherwise inconnection with the Loan Documents, (ii) all Bank Product Obligations, includingobligations arising in connection with overdrafts on checking, deposit or otheraccounts or electronic funds transfers (whether through automatic clearinghouses or otherwise) or Agent’s or any Bank Product Provider’s non-receipt of,or inability to collect, funds or otherwise not being made whole in connectionwith depository transfer checks or other similar arrangements, and (iii) RateHedging Obligations of any Credit Party owed to any Lender or any Affiliate ofany Lender.

 

“OperatingAccount” has the meaning given in Section 2.7.2.

 

“OriginatingLender” has the meaning given in Section 14.3.1.

 

“OtherTaxes” means any and all present or future stamp or documentary Taxes orany other excise or property Taxes, charges or similar levies arising from anypayment made hereunder or from the execution, delivery, filing or enforcementof, or otherwise with respect to, this Agreement or the other Loan Documents.

 

“Overadvance”has the meaning given in Section 13.11.

 

“Paid in Full”and “Paymentin Full” mean, with respect to the Obligations (other than inchoateindemnity obligations), all amounts owing with respect thereto (including anyinterest accruing thereon after the commencement of any Insolvency Proceedingagainst Borrower, whether or not allowed as a claim against the Borrower insuch Insolvency Proceeding, but excluding as yet unasserted contingentobligations), have been fully, finally and completely paid in cash or, in thecase of the Letters of Credit, cash collateralized on terms reasonably satisfactoryto Agent in an amount equal to 103% of the then outstanding Letter of CreditExposure (*provided* that the cash required tocollateralize any outstanding Letter of Credit shall not exceed the sum of (i) theLetter of Credit Exposure in respect of such Letter of Credit and (ii) $250,000)or supported by a standby letter of credit in face amount equal to 103% of thethen outstanding Letter of Credit issued by an issuing bank reasonablysatisfactory to and otherwise in form and substance reasonably satisfactory tothe LC Issuer and Agent, and the foregoing occurs at a time when the RevolvingCredit Commitment has been irrevocably terminated in its entirety.

 

“Participant”has the meaning given in Section 14.3.1.

 

“ParentGuarantor” has the meaning given in the introduction to this Agreement.

 

“ParentGuaranty Agreement” means that Continuing Guaranty dated as of the as ofthe date of this Agreement by Parent Guarantor in favor of Agent, for thebenefit of the Secured Parties.

 

“PensionPlan” means a “pension plan”, as such term is defined in section 3(2) ofERISA, as to which Borrower or any corporation or other entity, trade orbusiness that is, along with 

 

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Borrower, amember of a Controlled Group may have any liability, including any liability byreason of having been a substantial employer within the meaning of section 4063of ERISA at any time during any preceding six year period, or by reason ofbeing deemed to be a contributing sponsor under section 4069 of ERISA.

 

“PermittedAcquisition” means any Acquisition so long as:

 

(i)            noDefault or Event of Default shall have occurred and be continuing or wouldresult from the consummation of the proposed Acquisition and the proposedAcquisition is approved by the board of directors or other governing body ofthe target;

 

(ii)           noIndebtedness other than Permitted Acquisition Indebtedness shall be incurred,assumed, or would exist with respect to any Credit Party as a result of suchAcquisition, other than Indebtedness permitted under Section 10.10,and no Liens will be incurred, assumed, or would exist with respect to theassets of any Credit Party as a result or such Acquisition other than PermittedLiens or Liens otherwise permitted under Section 10.26;

 

(iii)          forany Acquisition for which the all-in purchase price, including any earn-outs asif fully earned, exceeds $10,000,000: (a) Borrower shall have providedAgent with forecasted balance sheets, profit and loss statements, and cash flowstatements of the Person to be acquired, all prepared on a basis consistentwith such Person’s historical financial statements, together with appropriatesupporting details and a statement of underlying assumptions for the three yearperiod following the date of the proposed Acquisition (on a year-by-year basis,and for the one year period following the date of the proposed Acquisition, ona month-by-month basis), in form and substance (including as to scope andunderlying assumptions) reasonably satisfactory to Agent; and (b) Agentshall have completed an audit of the assets of the acquired Person before anyof such assets may be included in the Borrowing Base;

 

(iv)          Borrowershall have provided Agent with written confirmation, supported by reasonablydetailed calculations (including historical financial statements of the Personor assets being acquired), that on a *pro forma* basis(adjusted to eliminate expense items that would not have been incurred and toinclude income items that would have been recognized, in each case, if thecombination had been accomplished at the beginning of the relevant period; sucheliminations and inclusions to be mutually and reasonably agreed upon byBorrower and Agent), (a) Borrower would have been in compliance with thefinancial covenants in Section 10.28 and Exhibit F forthe 4 Fiscal Quarter period ended immediately prior to the proposed date ofconsummation of such proposed Acquisition, and (b) Borrower is projectedto be in compliance with the financial covenants in Section 10.28and Exhibit F for the 4 Fiscal Quarter period ended one year afterthe proposed date of consummation of such proposed Acquisition, together withcopies of all such historical financial statements of the Person or assetsbeing acquired;

 

(v)           Borrowershall have provided Agent with written notice of the proposed Acquisition atleast 30 Business Days prior to the anticipated closing date of the proposedAcquisition for which the all-in purchase price, including any earn-outs as iffully earned, exceeds $10,000,000, and not later than 5 Business Days prior tothe anticipated closing date of the proposed Acquisition, copies of theacquisition agreement and other material documents relative to the proposedAcquisition;

 

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(vi)          theassets being acquired (other than a *de minimis*amount of assets in relation to Borrower’s or Credit Parties’ (taken as awhole) total assets), or the Person whose Capital Stocks are being acquired,shall be useful in or engaged in, as applicable, the business of Parent and itsSubsidiaries or a business reasonably related thereto;

 

(vii)         immediatelyafter giving effect to the consummation of the proposed Acquisition and thepayment of all fees, expenses and other amounts payable in connection therewith(including any deferred compensation), and after subtracting the amount, ifany, of Borrower’s accounts payable which remain unpaid more than 90 days afterthe invoice date of the original invoices applicable thereto, the sum of (a) RevolvingCredit Availability and (b) Available Cash shall be no less than$5,000,000;

 

(viii) (a) inthe case of an Asset Acquisition, the assets being acquired (other than a *de minimis* amount of assets in relation to Borrower’s orCredit Parties’ (taken as a whole) total assets to the assets) are locatedwithin the United States and (b) in the case of a Stock Acquisition, thePerson whose Capital Stock is being acquired is organized in a jurisdictionlocated within the United States (for the purpose of this clause (viii), “AssetAcquisition” means the purchase or other acquisition by any Credit Party ofall or substantially all of the assets of any other Person and “StockAcquisition” means the purchase or other acquisition by any Credit Party ofall of the capital Stock Interests of any other Person); and

 

(ix)           thepurchase consideration payable in respect of all Permitted Acquisitions, in theaggregate (including the proposed Acquisition and including deferred paymentobligations) shall not exceed $10,000,000 in the aggregate; provided, however,that the purchase price of any single Permitted Acquisition or series ofrelated Permitted Acquisitions shall not exceed $10,000,000 in the aggregate.

 

“PermittedAcquisition Indebtedness” means Indebtedness incurred in connection with aPermitted Acquisition which is either Subordinated Debt or is approved inwriting by Required Lenders.

 

“PermittedLiens” means the Liens and interests in favor of Agent for the benefit ofthe Secured Parties granted or provided under the Loan Documents and, to theextent not impairing the operations of Borrower or any performance under, orcontemplated by, the Loan Documents:

 

(i)            Liensarising by operation of law for Taxes not yet due and payable;

 

(ii)           Liensof landlords, mechanics, materialmen, shippers and warehousemen for rent,services or materials for which payment is not yet due;

 

(iii)          Liensincurred or deposits made in the ordinary course of business in connection withworkers’ compensation, unemployment insurance and other types of socialsecurity;

 

(iv)          Liens,if any, specifically permitted by Required Lenders from time to time inwriting;

 

(v)           Lienson Equipment securing Permitted Purchase Money Indebtedness;

 

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(vi)          Liensfor Taxes, assessments and other similar charges to the extent payment thereofshall not at the time be required to be made in accordance with the provisionsof Section 10.9;

 

(vii)         thoseLiens described on Schedule 9.7; *provided*that those Liens secure only the Indebtedness which the Liens secured on theClosing Date or any Refinancing Debt thereof;

 

(viii)        Liensarising from the claims or demands of materialmen, mechanics, carriers,warehousemen, landlords, bailees and other like Persons (“Third Party Claims”)if each of the following conditions is met: (a) the validity or amount ofthe Third Party Claim is being contested in good faith and by appropriate andlawful proceedings promptly initiated and diligently conducted, (b) theapplicable Credit Party has established appropriate reserves for the ThirdParty Claim, (c) levy, attachment, garnishment and execution on the ThirdParty Claim have been and continue to be stayed, (d) the Third Party Claimdoes not prevent Agent from having a perfected first priority security interestin, or a first priority mortgage lien on, all material portions of the LoanCollateral provided by the applicable Credit Party or with respect to futureadvances made under this Agreement, (e) the applicable Credit Party’stitle to, and its right to use, any of the Loan Collateral provided by suchapplicable Credit Party are not materially and adversely affected thereby, and (f) theamount of all Third Party Claims do not exceed, as of any date, $300,000 in theaggregate; and, *provided*, *further*,that Borrower must promptly pay each such Third Party Claim to the extent thedispute is finally settled in favor of the claimant thereof;

 

(ix)           Lienson cash deposits in connection with bids, tenders or real property leases or assecurity for surety or appeal bonds or workers compensation liability in theordinary course of business;

 

(x)            Liensresulting from any Judgment that is not an Event of Default; and

 

(xi)           Easements,rights of way and other real property restrictions that do not materiallyinterfere with or impair the use or operation of any Credit Party Facilities.

 

“PermittedOveradvance” has the meaning given in Section 13.11.

 

“PermittedPurchase Money Indebtedness” means purchase money or capital leaseIndebtedness or Capital Lease Obligations incurred by any Credit Party toacquire Equipment if each of the following conditions is satisfied: (i) theaggregate amount of obligations that are secured by purchase money securityinterests or are the subject of Capitalized Leases outstanding at any time shallnot exceed $2,000,000 in the aggregate; (ii) such purchase moneyIndebtedness or Capitalized Lease Obligations will not be secured by any of theLoan Collateral other than the property so acquired and any identifiableproceeds; (iii) any Liens relating to such purchase money Indebtedness orCapitalized Lease Obligations will not extend to or cover any property of suchCredit Party other than the property so acquired and any identifiable proceeds,and (iv) the principal amount of such purchase money Indebtedness orCapital Lease Obligations, as the case may be, will not, at the time of theincurrence thereof, exceed the value of the property so acquired.

 

“PermittedInvestment” has the meaning given in Section 10.17.

 

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“Person”means any individual, sole proprietorship, partnership, joint venture, trust,unincorporated organization, association, limited liability company,corporation, institution, entity, party or Governmental Authority.

 

“Presentments”has the meaning given in Section 2.7.2.

 

“Pre-SettlementDetermination Date” has the meaning given in Section 4.2.

 

“PriorClaims” means all Liens created by applicable laws (in contrast to thosegranted voluntarily) which rank or are capable of ranking prior to or *pari passu* with Agent’s Liens against all or part of theLoan Collateral, including for amounts owing for vacation pay, employeedeductions and contributions, goods and services taxes, sales taxes, corporatetaxes, realty taxes, business taxes, workers’ compensation, pension plan orfund obligations and overdue rents.

 

“Prime Rate”means the prime rate announced by U.S. Bank from time to time.  The “Prime Rate” hereunder will be adjustedeach time that such announced prime rate changes.  The prime rate announced by U.S. Bank isdetermined solely by U.S. Bank pursuant to market factors and its own operatingneeds and is not necessarily U.S. Bank’s best or most favorable rate forcommercial or other loans.

 

“Prime RateLoan” has the meaning given in Section 3.2.1(i).

 

“Prime RateRevolving Loan” means the applicable portion of the Revolving Loans bearinginterest, as of any date, at a rate determined by reference to the Prime Rate.

 

“PrincipalPayment Date” has the meaning given in Section 3.1.1.

 

“Purchaser”has the meaning given in Section 14.2.2.

 

“RateHedging Agreement” has the meaning as defined in the term “Rate HedgingObligations”.

 

“RateHedging Obligations” of a Person means any and all Indebtedness of suchPerson, whether absolute or contingent and howsoever and whensoever created,arising, evidenced or acquired (including all renewals, extensions andmodifications thereof and substitutions therefor), under (i) any and allagreements, devices or arrangements (“Rate Hedging Agreements”) designedto protect at least one of the parties thereto from the fluctuations ofinterest rates, exchange rates or forward rates applicable to such party’sassets, liabilities or exchange transactions, including dollar-denominated orcross-currency interest rate exchange agreements, forward currency exchangeagreements, interest rate cap or collar protection agreements, forward ratecurrency or interest rate options, puts and warrants, and (ii) any and allcancellations, buy backs, reversals, terminations or assignments of any of theforegoing.

 

“Receivables”means accounts as defined in the Code.

 

“Refinance”means, in respect of any Indebtedness, to refinance, extend, renew, defease,amend, modify, supplement, restructure, replace, refund or repay (in full), or toissue other 

 

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Indebtednessin exchange or replacement for, such Indebtedness in whole or in part.  “Refinanced” and “Refinancing”shall have correlative meanings.

 

“RefinancingDebt” means, as to any Indebtedness, the Refinancing of such Indebtedness, *provided* that the following conditions are satisfied withrespect to such Refinancing Indebtedness:

 

(i)            theWeighted Average Life to Maturity of such Refinancing Debt shall be greaterthan or equal to the Weighted Average Life to Maturity of the Indebtednessbeing refinanced;

 

(ii)           theprincipal amount of such Refinancing Debt shall be less than or equal to thesum of the principal amount then outstanding of, plus accrued and unpaidinterest on and financing fees related to, the Indebtedness being refinanced;

 

(iii)          thepriority of payment of such Refinancing Debt shall be the same as or lower thanthe ranking of the Indebtedness being Refinanced;

 

(iv)          thesecurity, if any, for the Refinancing Debt shall be the same as that for theIndebtedness being refinanced (except to the extent that less security isgranted to holders of the Refinancing Debt);

 

(v)           Borroweris in compliance with the Financial Covenants, on a *pro forma*basis, after giving effect to the incurrence of such Refinancing Debt and therepayment of the Indebtedness being Refinanced. To determine whether there is *pro forma*compliance with the Financial Covenants, Borrower will, on a *pro forma* basis, (a) restate the financial statementsreceived by Agent for the Fiscal Period, Fiscal Quarter or the Fiscal Year, asapplicable, ended most closely before the date such Refinancing Debt isproposed to be incurred as if the proposed Refinancing Debt had been made, andthe Indebtedness had been Refinanced, at the beginning of the applicable TestPeriod (as defined on Exhibit F) and (b) calculate the FixedCharge Coverage Ratio under Section 3 of Exhibit Ftaking into account such proposed Refinancing Debt as if the proposedRefinancing Debt had been made, and the Indebtedness had been refinanced, atthe beginning of the applicable Test Period; and

 

(vi)          additionally,in the case of any Refinancing of any Subordinated Debt, (a) the interestrate on, and fees with respect to, such Refinancing Debt are less than or equalto the interest rate on, and fees with respect to, the Subordinated Debt and (b) theholders of such Refinancing Debt have entered into a subordination agreementwith Agent on the then material current terms of the Subordination Agreement orsuch other terms as have been agreed by Agent.

 

“Register”has the meaning given in Section 14.2.2.

 

“Remittances”has the meaning given in Section 7.3.

 

“ReportableEvent” means an event described in Section 4043 of ERISA and theregulations issued thereunder (other than a Reportable Event not subject to theprovision for 30 day notice to the Pension Benefit Guaranty Corporation undersuch regulations).

 

“Reports”has the meaning given in Section 15.7.2.

 

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“RequiredLenders” means, at any time, Lenders holding more than 66 2/3% of theRevolving Credit Commitments then in effect at such time or, if the RevolvingCredit Commitments are terminated, the aggregate Revolving Credit Exposure ofall of the Lenders then outstanding; *provided* thatif there shall be fewer than 3 Lenders, “Required Lenders” shall mean allLenders.  In any event, Required Lendersshall exclude any Defaulting Lender.

 

“ReserveAmount” means, as at any time, collectively, such amounts as Agent, in itsdiscretion exercised in good faith (including in the manner described in thisdefinition) may from time to time establish in determining the Borrowing Basebased on such credit and collateral considerations as Agent deems, in itsdiscretion exercised in good faith, appropriate from time to time, based onmarket conditions, or to reflect contingencies or risks which could reasonablybe expected to affect any or all of the Loan Collateral, the business,operations, financial condition or business prospects of Borrower and the otherCredit Parties, or the security of the Loans. For purposes of this definition and determining the Borrowing Base andwithout limiting Agent’s other discretion in the manner described above, Agentwill be deemed to have exercised its discretion in good faith if reserves areestablished in respect of any one or more of the following:

 

(i)            theoccurrence and continuance of an Event of Default;

 

(ii)           thepayment of Obligations then due and payable and unpaid;

 

(iii)          forprice adjustments, unearned discounts, credit memoranda (issued or unissued),credits, contras and other similar offsets to Borrower’s accounts receivable,except to the extent that any of the foregoing in this item (iii) has beendealt with by Agent by designating a specific Receivable or Receivables asbeing ineligible pursuant to the terms of this Agreement as opposed to theestablishment of a reserve general in nature;

 

(iv)          forany Prior Claims;

 

(v)           foraged credits maintained by Borrower in respect of its accounts receivableexcept to the extent that any of the foregoing in this item (v) has beendealt with by Agent by designating a specific Receivable or Receivables asbeing ineligible pursuant to the terms of this Agreement as opposed to theestablishment of a reserve general in nature;

 

(vi)          forany amounts expended by Agent to protect or preserve any Loan Collateral orAgent’s or any Secured Party’s rights under the Loan Documents which have notbeen reimbursed by Borrower; or

 

(vii)         100%of the aggregate mark-to-market exposure, as determined by Agent, of all RateHedging Obligations then owing by Borrower to one or more Lenders (or theirAffiliates) under a Rate Hedging Agreement.

 

“RestrictedPayment” means, with respect to any Credit Party (a) the declarationor payment of any dividend or the incurrence of any liability to make any otherpayment or distribution of cash or other property or assets in respect ofCapital Stock; (b) any payment on account of the purchase, redemption,defeasance, sinking fund or other retirement of such Credit Party’s CapitalStock or any other payment or distribution made in respect thereof, eitherdirectly or indirectly; (c) any payment or prepayment of principal of,premium, if any, or interest, fees or 

 

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other chargeson or with respect to, and any redemption, purchase, retirement, defeasance,sinking fund or similar payment and any claim for rescission with respect to,any Subordinated Debt, other than as permitted by the terms of subordinationthereof (including repayment of the Indebtedness evidenced by the Stover Note);(d) any payment made to redeem, purchase, repurchase or retire, or toobtain the surrender of, any outstanding warrants, options or other rights toacquire Capital Stock of such Credit Party now or hereafter outstanding; (e) anypayment of a claim for the rescission of the purchase or sale of, or formaterial damages arising from the purchase or sale of, any shares of suchCredit Party’s Capital Stock or of a claim for reimbursement, indemnificationor contribution arising out of or related to any such claim for damages orrescission; (f) any payment, loan, contribution, or other transfer offunds or other property to any holder of the Capital Stock of such Credit Partyother than payment of compensation in the ordinary course of business toholders of Capital Stock who are employees of such Person; and (g) anypayment of management fees (or other fees of a similar nature) by such CreditParty to another Credit Party or any holder of the Capital Stock of such CreditParty or its Affiliates.

 

“RevaluationDate” means: (a) each date a Borrowing Base Certificate or FiscalPeriod Report is delivered to Agent in accordance with Section 8.3and (b) such additional dates as Agent shall reasonably determine inaccordance with the provisions of this Agreement.

 

“RevolvingCredit Availability” means, as of any time, an amount, in Dollars, equalto:

 

(i)            anamount equal to the lesser of: (a) the then Borrowing Base or (b) thethen effective Revolving Credit Commitments;

 

less         (ii)           thethen aggregate outstanding principal amount of all Revolving Loans (includingOveradvances) and Interim Advances and all due but unpaid interest on theLoans, and all fees, commissions, expenses and other charges payable hereunderand posted to Borrower’s loan account with Agent;

 

less         (iii)          thethen Letter of Credit Exposure .

 

“RevolvingCredit Commitment” means, when used with reference to a particular Lender,its obligation to make Revolving Loans and to participate in Letters of Creditand Interim Advances.  The maximum amountof each Lender’s Revolving Credit Commitment is set forth on Schedule 1,as such commitment may be (i) reduced or increased from time to timepursuant to assignments by or to such Lender pursuant to Section 14.2,(ii) terminated pursuant to Section 2.13 and (iii) terminatedpursuant to Section 12.  “RevolvingCredit Commitments” means, collectively, the aggregate amount of allRevolving Credit Commitments of the Lenders.

 

“RevolvingCredit Commitment Percentage” means, with respect to any Revolving CreditLender at any time, the ratio of (i) the amount of the Revolving CreditCommitment of such Lender at such time to (ii) the Revolving CreditCommitments then in effect at such time; *provided*, *however*, if all the Revolving Credit Commitments have beenterminated, the “Revolving Credit Commitment Percentage” shall bedetermined according to the Revolving Credit Commitments in effect immediatelyprior to such termination, giving effect to any assignments.

 

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“RevolvingCredit Commitment Period” means the period from and including the ClosingDate to, but not including, the Revolving Credit Commitment Termination Date.

 

“RevolvingCredit Commitment Termination Date” means the Maturity Date or such earlierdate on which the Revolving Credit Commitments shall be terminated inaccordance with this Agreement.

 

“RevolvingCredit Exposure” means, with respect to any Lender at any time, an amountequal to (i) the outstanding principal amount of such Lender’s RevolvingLoans, plus (ii) the Letter of Credit Exposure of such Lender, plus (iii) theInterim Advance Exposure of such Lender.

 

“RevolvingCredit Lenders” means (i) on the date hereof, the Lenders havingRevolving Credit Commitments on Schedule 1 and (ii) thereafter,the Lenders from time to time holding Revolving Credit Exposure and RevolvingCredit Commitments after giving effect to any assignments thereof permitted by Section 14.2.

 

“RevolvingLoans” has the meaning given in Section 2.2, and shall include,subject to the terms hereof, all Overadvances.

 

“SEC”means the United States Securities and Exchange Commission.

 

“SecuredParties” means the collective reference to Agent, LC Issuer, each Lender,each Lender (or Affiliate of any Lender) that is owed any Rate HedgingObligation under any Rate Hedging Agreement entered into with any Credit Party,and each Bank Product Provider under any Bank Product Agreements with any CreditParty.

 

“SecurityAgreement” has the meaning given in Section 6.1.

 

“SecurityDocuments” means the Security Agreement, the U.K. Debenture, the TrademarkSecurity Agreements, the Stock Pledge Agreement and each other agreement,instrument and document executed and delivered from time to time by, or onbehalf of, Borrower, any other Credit Party or any other Person as collateralsecurity for the Obligations.

 

“SettlementDate” has the meaning specified in Section 4.2.

 

“Solvent”means, with respect to any Person, that the Person is not insolvent as definedor construed under any and all applicable laws. In computing the amount of contingent liabilities at any time, it isintended that they be computed at the amount that, in light of all the factsand circumstances existing at the time, represents the amount that canreasonably be expected to become an actual or matured liability.

 

“SpecialAccount” has the meaning given in Section 7.4.

 

“Spot Rate”for any currency means the rate quoted by Agent as the spot rate if Agent wereto purchase such currency with Dollars, or of Dollars with such currency, asthe case may be, at approximately 9:00 a.m. (Los Angeles time) on suchdate as of which the foreign exchange computation is made for delivery 2Business Days later.

 

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“StandbyLetter of Credit” has the meaning given in Section 2.4.1.

 

“StatedAdvance Rate Change” has the meaning given in Section 2.10.2.

 

“StatedMaturity Date” means the date which is the fifth anniversary of the ClosingDate; *provided* that if such date is not aBusiness Day, the Stated Maturity Date shall be the immediately precedingBusiness Day.

 

“Sterling”  means the lawful currency of the UnitedKingdom.

 

“StockPledge Agreement” has the meaning given in Section 6.1.

 

“StoverNote” means that Amended and Restated Unsecured Subordinated Note due August 17,2007 issued by Borrower to Robert W. Stover in the original principal amount of$2,000,000.

 

“SubordinatedDebt” means unsecured Indebtedness of Borrower or any Subsidiary Guarantornot to exceed $10,000,000 in the aggregate principal amount at any timeoutstanding that has payment terms and is subordinated to the Obligations inright of payment, enforcement and collection on terms satisfactory to Agent andRequired Lenders, in their reasonable discretion.

 

“Subsidiary”means any Person as to which Parent Guarantor owns, directly or indirectly,more than 50% of the outstanding shares of Capital Stock or other interestshaving ordinary voting power for the election of directors, officers, managers,trustees or other controlling Persons or an equivalent controlling interest inAgent’s judgment.

 

“SubsidiaryContribution” means any cash distributed, contributed or otherwiseadvanced, directly or indirectly, by Borrower to a Subsidiary, including by wayof a cash intercompany loan or by way of a cash capital contribution made byWestaff Support to any Subsidiary using funds contributed, distributed orotherwise advanced by Borrower to Westaff Support for such purpose.  Notwithstanding the foregoing, any non-cashcontribution to any Subsidiary shall not be deemed a Subsidiary Contributionhereunder.

 

“SubsidiaryGuarantors” means, collectively, Westaff Support, MediaWorld and WestaffUK; *provided, however*, that upon a legaldissolution of MediaWorld as permitted by Section 10.21, MediaWorldshall cease to be a Subsidiary Guarantor under and for purposes of thisAgreement and the other Loan Documents.

 

“SubsidiaryGuaranty Agreement” means that Continuing Guaranty dated as of the as ofthe date of this Agreement by each Subsidiary Guarantor (other than Westaff UK)in favor of Agent, for the benefit of the Secured Parties.

 

“Taxes”means any and all present or future taxes, levies, imposts, duties, deductions,charges or withholdings imposed by any Governmental Authority.

 

“TerminationFee” has the meaning given in Section 2.13.1.

 

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“TerminationNotice” has the meaning given in Section 2.13.1.

 

“Termination Value” means, in respect of any one or more foreignexchange contract, currency swap agreement, interest rate swap, cap or collaragreement or other similar agreement or arrangement designed to alter the risksof that Person arising from fluctuations in currency values or interest rates,in including any Rate Hedging Obligation (each a “Swap Contract”), aftertaking into account the effect of any legally enforceable netting agreementrelating to such Swap Contracts, (i) for any date on or after the datesuch Swap Contracts have been closed out and termination value(s) determinedin accordance therewith, such termination value(s), and (ii) for any dateprior to the date referenced in clause (i) the amount(s) determinedas the mark-to-market value(s) for such Swap Contracts, as determinedbased upon one or more mid-market or other readily available quotationsprovided by any recognized dealer in such Swap Contracts.

 

“TitlePolicy” has the meaning given in Section 6.1.

 

“TotalCredit Exposure” means, at any time, the aggregate Credit Exposure of allof the Lenders at such time.

 

“TotalExposure Percentage” means, with respect to any Lender at any time, theratio of (i) such Lender’s Credit Exposure at such time to (ii) theTotal Credit Exposure at such time.

 

“TrademarkSecurity Agreements” has the meaning given in Section 6.1.

 

“Type”has the meaning given in Section 1.4.

 

“U.K.Debenture” means that certain Debenture dated as of the date of thisAgreement by and among Westaff UK, Westaff Support and Agent.

 

“UnusedCommitment Fee” has the meaning given in Section 3.6.

 

“USAPatriot Act” means the Uniting and Strengthening America by ProvidingAppropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001,Public Law 107 56, as amended.

 

“U.S. Bank”means U.S. Bank National Association, a national banking association.

 

“US DollarEquivalent” means, at any time, (a) as to any amount denominated inDollars, the amount thereof; (b) as to any amount denominated in Sterling,the equivalent amount in Dollars as determined by Agent at such time on thebasis of the Spot Rate for the purchase of Dollars with Sterling on the mostrecent computation date.

 

“VoluntaryTermination Date” has the meaning given in Section 2.13.1.

 

“WeightedAverage Life to Maturity” means, when applied to any Indebtedness at anydate, the number of years obtained by dividing (i) the then outstandingaggregate principal amount of such Indebtedness into (ii) the sum of thetotal of the products obtained by multiplying:

 

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(a)           theamount of each then remaining installment, sinking fund, serial maturity orother required payment of principal, including payment at final maturity, inrespect thereof, by

 

(b)           thenumber of years (calculated to the nearest one-twelfth) which will elapsebetween such date and the making of such payment.

 

“Westaff Australia” means Westaff (Australia) Pty Limited.

 

“Westaff Support” means Westaff Support, Inc., a Californiacorporation and a wholly-owned Subsidiary of Borrower and indirect Subsidiaryof Parent Guarantor.

 

“Westaff UK” means Westaff (U.K.) Limited, a corporationorganized under the laws of England and Wales and a direct Subsidiary ofWestaff Support and indirect Subsidiary of Parent Guarantor.

 

“Westaff UK Eligible Billed Receivables” means such of theReceivables owing to Westaff UK that meet the criteria in clause (i) belowof this definition and are not ineligible pursuant to clause (ii) below.

 

(i)            Except as provided inclause (ii) below, Receivables owing to Westaff UK which meet, andcontinue to meet, all of the following criteria are Eligible BilledReceivables:

 

(a)           Receivableswhich consist of ordinary trade accounts receivable owned solely by Westaff UK,evidenced by Westaff UK’s standard invoice therefor, payable in cash in Sterlingand which arise out of the provision of services in the ordinary course ofWestaff UK’s business as presently conducted by it to a Person who is not anAffiliate of Westaff UK (or who otherwise is controlled by Westaff UK or by anAffiliate of Westaff UK);

 

(b)           Receivableswhich are due and payable absolutely and unconditionally within (1) WestaffUK’s standard terms for the applicable account debtor, or (2) suchextended terms as are made available by Westaff UK in the ordinary course ofits business;

 

(c)           Receivableswith respect to which the services covered thereby have been rendered andaccepted by the account debtor or its designee; and

 

(d)           Receivableswith respect to which not more than 90 days have elapsed since the date of theoriginal invoice applicable thereto.

 

(ii)           Thefollowing Receivables will not, in any event, constitute Westaff UK EligibleBilled Receivables:

 

(a)           Receivableswith respect to which the account debtor has filed or had commenced against itany legal proceedings for its winding up, dissolution, administration orre-organization, made an assignment for the benefit of creditors, or failed,suspended business operations, become insolvent or in respect of which areceiver, custodian, or a trustee was appointed for a significant portion ofits assets or affairs, or Receivables with respect to which the account debtoris incompetent or has died;

 

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(b)           Receivableswith respect to which (1) the account debtor is not qualified to dobusiness in the United Kingdom or (2) the account debtor has its principalplace of business or chief executive office outside of the United Kingdomunless, in either or both of such events (1) or (2) above, theReceivable is supported by (A) an irrevocable, clean letter of credit oracceptance issued (x) by a financial institution reasonably satisfactoryto Agent and (y) on terms reasonably acceptable to Agent, and, if sorequested by Agent, delivered to Agent in pledge for negotiation and presentmentor (B) foreign credit insurance satisfactory to Agent in its discretionexercised in good faith and as to which Agent is named as the loss payee;

 

(c)           Receivablesowing from the same account debtor, either alone or together with itsAffiliates, if 50% or more of such Receivables are ineligible for any reason;

 

(d)           Receivablesowing from any single account debtor (other than Receivables owing fromGovernmental Authorities) to the extent, as of any date, that the total amountof such account debtor’s Receivables that would otherwise be EligibleReceivables exceeds 10% of the aggregate face amount (less maximum discounts,credits and allowances which may be taken by, or granted to, such accountdebtor in connection therewith) of the then outstanding Eligible Receivables ofBorrower and Westaff UK, and with respect to Receivables owing from aGovernmental Authority, to the extent, as of any date, that the aggregateamount of such Governmental Authority’s Receivables exceeds 25% of theaggregate face amount (less maximum discounts, credits and allowances which maybe taken by, or granted to, such account debtor in connection therewith) of thethen outstanding Eligible Receivables of Borrower and Westaff UK;

 

(e)           Receivableswith respect to which the account debtor is a Governmental Authority;

 

(f)            Receivableswhich (1) consist (or to the extent consisting) of deposits, (2) consist(or to the extent consisting) of vendor warranty claims, (3) consist (orto the extent consisting) of finance charges, service charges, or interest ondelinquent accounts, (4) are employee, officer, director or otherAffiliate Receivables or (5) are (or to the extent consisting of) debitmemoranda;

 

(g)           Receivableswhich are evidenced by a promissory note, chattel paper or other instrument,unless such note, chattel paper or instrument is assigned to Agent;

 

(h)           Receivableswhich are subject to set-off, credit, contras, allowance or adjustment by theaccount debtor (except discounts allowed for prompt payment),  *provided,* that,the net amount owed by such account debtor to Westaff UK in respect of suchReceivable, as determined by Agent in its discretion exercised in good faith,will, if otherwise eligible, be an Westaff UK Eligible Billed Receivable;

 

(i)            Receivableswhich are not subject to the first priority security interest of Agent or aresubject to any Lien of any Person (except to the extent, if any, of anyPermitted Liens of the type described in clause (i) or (iv) of thatdefinition);

 

(j)            Receivableswith respect to which the account debtor has sold substantially all of itsassets and has not established adequate reserves or made provisions for the

 

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payment of all amounts owed to such account debtor’s trade creditors,as determined by Agent in its discretion exercised in good faith, unless thebuyer of such assets has assumed responsibility for payment of such Receivablesand is otherwise eligible hereunder;

 

(k)           Receivableswith respect to which Agent has received a check for payment of such Receivablewhich has been returned uncollected, or Receivables with respect to whichAgent, in its discretion exercised in good faith, believes that the collectionof such Receivable is in doubt or impaired or that such Receivable may not be paidby reason of the account debtor’s financial inability to pay;

 

(l)            Receivablesconstituting a healthcare insurance receivable or a United Kingdom governmenthealthcare payment;

 

(m)          Receivablesowing by a licensee of Westaff UK; or

 

(n)           Receivableswhich Agent, in its discretion exercised in good faith, deems to be ineligiblebased on those credit or collateral considerations which the Business CreditGroup of Agent makes applicable from time to time.

 

“Westaff UKEligible Unbilled Receivables” means such ofthe Receivables owing to Westaff UK that meet all of the criteria set forth inthe definition of Westaff UK Eligible Billed Receivables except that suchReceivables are not evidenced by Westaff UK’s standard invoice therefor, solong as the services giving rise to such Receivables have been performed byWestaff UK and accepted by the account debtor (as evidenced by an approved timecard); *provided* that each Westaff UK EligibleUnbilled Receivable shall cease to be an Westaff UK Eligible Unbilled Receivableupon the earlier of (i) fifteen (15) days after the end of the week inwhich such services were performed or (ii) issuance of an invoice for suchReceivable.

 

1.2           EnvironmentalDefinitions.

 

“Environmental Activity” means any actual, proposed or threatenedstorage, holding, existence, Release, emission, discharge, generation,manufacturing, producing, refining, creating, processing, abatement, removal,disposition, handling, transportation or disposal of any Hazardous Substancefrom, under, into or on any of Borrower’s or any other Credit Party’s propertyor otherwise relating to any of Borrower’s or any other Credit Party’s propertyor any Use of any of Borrower’s or any other Credit Party’s property which isregulated by or for which standards of conduct or liability are imposed by anyEnvironmental Requirements.

 

“Environmental Law” means the Comprehensive EnvironmentalResponse, Compensation and Liability Act (“CERCLA”), 42 U.S.C. §9601 *et seq*., the Resource Conservation and Recovery Act, 42U.S.C. §6901 *et seq*., the Hazardous MaterialsTransportation Act, 49 U.S.C. §1802 *et seq*., theToxic Substances Control Act, 15 U.S.C. §2601 *et seq*.,the Federal Water Pollution Control Act, 33 U.S.C. §1251 *et seq*.,the Clean Water Act, 33 U.S.C. §1321 *et seq*., theClean Air Act, 42 U.S.C. §7401 *et seq*., theOccupational Safety and Health Act of 1970, 29 U.S.C. §651 *et seq*.,the Federal Insecticide, Fungicide & Rodenticide Act, 7 U.S.C. §136 *et seq*., regulations promulgated thereunder, and any otherfederal, state, county, municipal, local or other statute, law, ordinance orregulation, or any common law

 

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(includingcommon law that may impose strict liability), which may relate to or deal withhuman health, the environment, natural resources, or Hazardous Substances, allas amended.

 

“Environmental Liability” means any Indebtedness, or duty of,any claim or demand against, any requirement imposed on, or any amount owed byor payable from, Borrower or any other Credit Party, which is based on, resultsfrom, is in connection with, arises out of, or otherwise is related to anyEnvironmental Activity, whether the foregoing described liability now exists orarises in the future, is contingent or absolute, primary or secondary,liquidated or unliquidated, due or to become due, and however created,incurred, acquired, owing or arising.

 

“Environmental Requirements” means all Environmental Laws,authorizations, approvals, final judgments, injunctions, decrees, grants,orders and other restrictions and requirements (whether or not arising understatutes or regulations) relating to any Hazardous Substances or EnvironmentalActivity.

 

“Hazardous Substances” means, at any time, (i) any “hazardoussubstance” as defined in §101(14) of CERCLA (42 U.S.C. §9601(14)) orregulations promulgated thereunder; (ii) any “solid waste,” “hazardouswaste,” or “infectious waste,” as such terms are defined in any EnvironmentalLaw at such time; (iii) friable asbestos, urea-formaldehyde, polychlorinatedbiphenyls (“PCBs”), nuclear fuel or material, chemical waste, radioactivematerial, explosives, known carcinogens, petroleum products, and otherdangerous, toxic or hazardous pollutants, contaminants, chemicals, materials orsubstances which are listed or identified in, or regulated by, anyEnvironmental Law; and (iv) any additional substances or materials whichat such time are classified or considered to be hazardous or toxic under anyEnvironmental Law.

 

“Release” includes, but is not limited to, spilling, leaking,pumping, pouring, paving, emitting, emptying, discharging, injecting, escaping,contaminating, leaching, disposing, releasing or dumping into the environment.

 

“Use” includes, but is not limited to, use, ownership,development, construction, maintenance, management, operation or occupancy.

 

1.3           Other DefinitionalProvisions; Construction. Unless otherwise specified,

 

(i)            All terms defined inthis Agreement, whether or not defined in this Section 1, have thedefined meanings provided in this Agreement when used in this Agreement, in anyother of the Loan Documents, or any other certificate, instrument or otherdocument made or delivered pursuant to this Agreement or any other LoanDocument, unless otherwise defined therein.

 

(ii)           As used in thisAgreement, in any other of the Loan Documents, or in any other certificate,instrument or document made or delivered pursuant hereto or thereto, accountingterms relating to Borrower or any other Credit Party not defined in thisAgreement have the respective meanings given to them in accordance withgenerally accepted accounting principles in the United States of America as ineffect at the time any determination is made or financial statement orinformation is required or furnished under this Agreement (“GAAP”).

 

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(iii)          References to theUniform Commercial Code, or UCC, mean as enacted in the particular jurisdiction(s) encompassedby the reference.

 

(iv)          The definition of anyagreement, document or instrument includes all schedules, attachments andexhibits thereto and all renewals, extensions, supplements, modifications,restatements and amendments thereof but only to the extent such renewals,extensions, supplements, modifications, restatements or amendments thereof arenot prohibited by the terms of any Loan Document. All references to statutesinclude (a) all rules and regulations promulgated thereunder, (b) anyamendments, renewals, extensions or replacements of such statutes, rules orregulations promulgated thereunder, and (c) any successor statutes, rules andregulations, including any comparable provision of the applicable statute,ordinance, code, regulation or other law as amended after the date of thisAgreement.

 

(v)           “Hereunder,” “herein,” “hereto,”“this Agreement” and words of similar import refer to this entire document; “including”is used by way of illustration and not by way of limitation, unless the contextclearly indicates the contrary; the singular includes the plural andconversely; and any action required to be taken by a Person is to be takenpromptly, unless the context clearly indicates the contrary.

 

(vi)          All of the uncapitalizedterms contained in the Loan Documents which are now or hereafter defined underthe Code will, unless defined in the Loan Documents or the context indicatesotherwise, have the meanings now or hereafter provided for in the Code.

 

(vii)         The term “good faith”means honesty in fact in the conduct or transaction concerned.

 

(viii)        All Exhibits and Schedulesattached to this Agreement are incorporated into, made and form an integralpart of, this Agreement for all purposes.

 

(ix)           The existence ofreferences to Parent Guarantor’s Subsidiaries throughout this Agreement is fora matter of convenience only. Any references to Subsidiaries of ParentGuarantor set forth herein shall not in any way be construed as consent byAgent, LC Issuer or the Lenders to the establishment, maintenance oracquisition of any Subsidiary, whether direct or indirect.

 

(x)            Whenever the sense ofthis Agreement or any of the other Loan Documents so require, the masculine orfeminine gender will be substituted for, or be deemed to include, the neuter,the feminine gender will be substituted for the masculine, or the masculinewill be deemed to include the feminine, and the neuter gender will besubstituted for, or be deemed to include, the masculine or, as applicable,feminine gender.

 

1.4           Classes and Types ofLoans. Loans hereunder are distinguished by “Class” and by “Type”. The “Class”of a Loan refers to whether such Loan is a Revolving Loan, an Interim Advanceor an Agent Advance, each of which constitutes a Class of Loan. The “Type”of a Loan refers to whether such Loan bears interest at the Prime Rate or theLIBOR Rate, each of which constitutes a Type. Loans may be identified by both Class andType.

 

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1.5           Exchange Rates. Agentshall determine the Spot Rates as of each Revaluation Date to be used forcalculating the US Dollar Equivalent of amounts denominated in Sterling setforth in any Borrowing Base Certificate or Fiscal Period Report delivered toAgent in accordance with Section 8.3. Such Spot Rates shall becomeeffective as of such Revaluation Date and shall be the Spot Rates employed inconverting any amounts between the applicable currencies until the nextRevaluation Date to occur. Except for purposes of financial statementsdelivered by Borrower hereunder or calculating financial covenants hereunder orexcept as otherwise provided herein, the applicable amount of any currency forpurposes of the Loan Documents shall be such US Dollar Equivalent as sodetermined by Agent.

 

1.6           Currency of Account;Discharge of Obligations in Other Currencies. Dollars are the currencyof account and payment for each and every sum at any time due from Borrowerhereunder in each case except as expressly provided in this Agreement and eachpayment of fees of any of the Obligations hereunder or under of the other LoanDocuments shall be in Dollars. No payment to Agent or any other Secured Party(whether under any judgment or court order or otherwise) shall discharge theobligation or liability in respect of which it was made unless and until Agentor such other Secured Party shall have received payment in full in the currencyin which such obligation or liability was incurred, and to the extent that theamount of any such payment shall, on actual conversion into such currency, fallshort of such obligation or liability actual or contingent expressed in that currency,Borrower agrees to indemnify and hold harmless Agent or such other SecuredParty, as the case may be, with respect to the amount of the shortfall, withsuch indemnity surviving the termination of this Agreement and any legalproceeding, judgment or court order pursuant to which the original payment wasmade which resulted in the shortfall.

 

2.             LOANSAND OTHER FINANCIAL ACCOMMODATIONS

 

2.1           Total Facility. Subjectto the terms and conditions of this Agreement, the Lenders and LC Issuer willmake up to $50,000,000 in total credit available to, or for the benefit of,Borrower in the form of the following credit extensions advanced or to be madeunder the following facilities: (i) the Revolving Loans, and (ii) aLetter of Credit subfacility, all as more particularly described below.

 

2.2           Revolving Loans.During the Revolving Credit Commitment Period, and subject to the other termsand conditions of this Agreement, each Revolving Credit Lender, severally andnot jointly, agrees to make loans (“Revolving Loans”) to Borrower in anamount not exceeding such Lender’s Revolving Credit Commitment Percentage ofthe Revolving Credit Availability then in effect; *provided*that after giving effect to the making of any such Revolving Loan, (i) suchRevolving Credit Lender’s Revolving Credit Exposure will not exceed such Lender’sRevolving Credit Commitment and (ii) the Revolving Credit Exposure of allof the Lenders will not exceed the total Revolving Credit Commitments. At notime shall a Revolving Loan be made if, after giving effect thereto, theRevolving Credit Availability would be less than zero dollars. Within theforegoing limits, and subject to the other terms and conditions of thisAgreement, Borrower may reborrow Revolving Loans after the repayment thereof.

 

2.3           [Reserved.]

 

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2.4           Letters of Credit.

 

2.4.1        Letter of CreditSubfacility. During the Revolving Credit Commitment Period and subject tothe other terms and conditions of this Agreement, Borrower may request LCIssuer to issue one or more of its standard standby letters of credit (“StandbyLetter of Credit”) in favor of such beneficiary(ies) as are designated byBorrower by delivering to LC Issuer, with a copy to Agent: (i) a Letter ofCredit Application completed to the satisfaction of LC Issuer, together withthe proposed form of the Letter of Credit (which, in all respects, will complywith the applicable requirements of Section 2.4.2), (ii) aBorrowing Base Certificate which calculates the Letter of Credit Availabilityby giving effect to the proposed Letter of Credit, and (iii) such otherLetter of Credit Documents that LC Issuer then requires. LC Issuer, in additionto the other terms of this Agreement, will have no obligation to issue theproposed Letter of Credit if, after giving effect to such proposed Letter ofCredit, the Letter of Credit Availability will be less than zero Dollars. Themaking of each Letter of Credit request by Borrower will be deemed to be arepresentation by Borrower that the Letter of Credit may be issued inaccordance with, and will not violate the terms of, this Section 2.4.1.Letters of Credit issued hereunder shall constitute a utilization of theRevolving Credit Commitments.

 

2.4.2        Terms of Letter ofCredit. Each Letter of Credit issued under this Agreement will, among otherthings, (i) be in such form requested by Borrower as is acceptable to LCIssuer in its discretion exercised in good faith, (ii) be denominated inDollars, and (iii) be issued to support Borrower’s obligations thatfinance its business needs in a manner not prohibited by the terms of thisAgreement. In no event will any Standby Letter of Credit have a term of morethan one year, nor shall LC Issuer have any obligation to issue any Letter ofCredit with an expiry date later than 30 days prior to the last day of theRevolving Credit Commitment Period; *provided* that aLetter of Credit may be subject to one or more automatic renewal terms so longas any such renewal term does not extend beyond the last day of the RevolvingCredit Commitment Period.

 

2.4.3        Advice of Issuance orNon-Issuance. Upon receipt of a request from Borrower to open any Letter ofCredit and of all attendant Letter of Credit Documents satisfactorilycompleted, LC Issuer, within 3 Business Days after receipt thereof, may, butshall not be obligated to, issue the requested Letter of Credit to thebeneficiary thereof and transmit a copy to Borrower. If LC Issuer elects not toissue such Letter of Credit, LC Issuer will communicate in writing to Borrowerthe reason(s) why LC Issuer has declined such request.

 

2.4.4        Reimbursement byBorrower. Borrower shall be irrevocably and unconditionally obligated toreimburse LC Issuer as of the applicable LC Payment Date for any amounts to bepaid by LC Issuer upon any drawing under any Letter of Credit, withoutpresentment, demand, protest or other formalities of any kind; *provided*, *however*, thatneither Borrower nor any Lender shall hereby be precluded from asserting anyclaim for direct (but not consequential) damages suffered by Borrower or suchLender to the extent, but only to the extent, caused by (i) the willfulmisconduct or gross negligence of LC Issuer in determining whether a requestpresented under any Letter of Credit issued by it complied with the terms ofsuch Letter of Credit or (ii) LC Issuer’s failure to pay under any Letterof Credit issued by it after the presentation to it of a request strictlycomplying with the terms and conditions of such Letter of Credit. LC Issuerwill pay to each Lender ratably in accordance with its Revolving Credit

 

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Commitment Percentage all amounts received by it fromBorrower for application in payment, in whole or in part, of the reimbursementobligation in respect of any Letter of Credit issued by LC Issuer, but only tothe extent such Lender has made payment to LC Issuer in respect of such Letterof Credit pursuant to Section 2.4.5. Subject to the terms andconditions of this Agreement (including the submission of an Advance Requestand the satisfaction of the applicable conditions precedent set forth in Section 5.2),Borrower may request a Revolving Loan hereunder for the purpose of satisfyingany reimbursement obligation.

 

2.4.5        Administration;Reimbursement by Lenders. Upon receipt from the beneficiary of any Letterof Credit of any demand for payment under a Letter of Credit, LC Issuer shallnotify Agent and Agent shall promptly notify Borrower and each other Lender asto the amount to be paid by LC Issuer as a result of such demand and theproposed payment date (the “LC Payment Date”). The responsibility of LCIssuer to Borrower and each Lender shall be only to determine that thedocuments (including each demand for payment) delivered under each Letter ofCredit in connection with such presentment shall be in conformity in allmaterial respects with such Letter of Credit. LC Issuer shall endeavor toexercise the same care in the issuance and administration of the Letters ofCredit as it does with respect to letters of credit in which no participationsare granted, it being understood that in the absence of any gross negligence orwillful misconduct by LC Issuer, each Lender shall be unconditionally andirrevocably liable, without regard to the occurrence of any Event of Default orany condition precedent whatsoever, to reimburse LC Issuer on demand for (i) suchLender’s Revolving Credit Commitment Percentage of the amount of each paymentmade by LC Issuer under each Letter of Credit to the extent such amount is notreimbursed by Borrower pursuant to Section 2.4.4, plus (ii) intereston the foregoing amount to be reimbursed by such Lender, for each day from thedate of LC Issuer’s demand for such reimbursement (or, if such demand is madeafter 12:00 p.m. noon (Los Angeles time) on such date, from the nextsucceeding Business Day) to the date on which such Lender pays the amount to bereimbursed by it, at a rate of interest per annum equal to the Federal FundsRate for the first 3 days and, thereafter, at a rate of interest equal to therate applicable to Prime Rate Revolving Loans.

 

2.4.6        Obligations Absolute.Borrower’s obligations under this Section 2.4 shall be absolute andunconditional under any and all circumstances and irrespective of any setoff,counterclaim or defense to payment which Borrower may have or have had againstLC Issuer, any Lender or any beneficiary of a Letter of Credit. Borrowerfurther agrees with LC Issuer and the Lenders that LC Issuer and the Lendersshall not be responsible for, and Borrower’s reimbursement obligation inrespect of any Letter of Credit shall not be affected by, among other things,the validity or genuineness of documents or of any endorsements thereon, evenif such documents should in fact prove to be in any or all respects invalid,fraudulent or forged, or any dispute between or among Borrower, any of itsAffiliates, the beneficiary of any Letter of Credit or any financinginstitution or other party to whom any Letter of Credit may be transferred orany claims or defenses whatsoever of Borrower or of any of its Affiliatesagainst the beneficiary of any Letter of Credit or any such transferee. LCIssuer shall not be liable for any error, omission, interruption or delay intransmission, dispatch or delivery of any message or advice, howevertransmitted, in connection with any Letter of Credit. Borrower agrees that anyaction taken or omitted by LC Issuer or any Lender under or in connection witheach Letter of Credit and the related drafts and documents, if done withoutgross negligence or willful misconduct, shall be binding upon Borrower andshall not put LC Issuer or any Lender under any

 

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liability to Borrower. Nothing in this Section 2.4.6is intended to limit the right of Borrower to make a claim against LC Issuerfor damages as contemplated by the *proviso* to thefirst sentence of Section 2.4.4.

 

2.4.7        Actions of LC Issuer.LC Issuer shall be entitled to rely, and shall be fully protected in relying,upon any Letter of Credit, draft, writing, resolution, notice, consent,certificate, affidavit, letter, cablegram, telegram, facsimile, telex orteletype message, statement, order or other document believed by it to begenuine and correct and to have been signed, sent or made by the proper Personor Persons, and upon advice and statements of legal counsel, independentaccountants and other experts selected by LC Issuer. LC Issuer shall be fullyjustified in failing or refusing to take any action under this Agreement unlessit shall first have received such advice or concurrence of Required Lenders asit reasonably deems appropriate or it shall first be indemnified to itsreasonable satisfaction by the Lenders against any and all liability andexpense which may be incurred by it by reason of taking or continuing to takeany such action. Notwithstanding any other provision of this Section 2.4,LC Issuer shall in all cases be fully protected in acting, or in refrainingfrom acting, under this Agreement in accordance with a request of RequiredLenders, and such request and any action taken or failure to act pursuantthereto shall be binding upon the Lenders and any future holders of aparticipation in any Letter of Credit.

 

2.4.8        Indemnification. Borrowerhereby agrees to indemnify and hold harmless each Lender, LC Issuer and Agent,and their respective directors, officers, agents and employees from and againstany and all claims and damages, losses, liabilities, costs or expenses whichsuch Lender, LC Issuer or Agent may incur (or which may be claimed against suchLender, LC Issuer or Agent by any Person whatsoever) by reason of or inconnection with the issuance, execution and delivery or transfer of or paymentor failure to pay under any Letter of Credit or any actual or proposed use ofany Letter of Credit, including any claims, damages, losses, liabilities, costsor expenses which LC Issuer may incur by reason of or in connection with (i) thefailure of any other Lender to fulfill or comply with its obligations to LCIssuer hereunder (but nothing herein contained shall affect any rights Borrowermay have against any Defaulting Lender) or (ii) by reason of or on accountof LC Issuer issuing any Letter of Credit which specifies that the term “Beneficiary”included therein includes any successor by operation of law of the namedBeneficiary, but which Letter of Credit does not require that any drawing byany such successor Beneficiary be accompanied by a copy of a legal document,satisfactory to LC Issuer, evidencing the appointment of such successorBeneficiary; *provided* that Borrower shall notbe required to indemnify any Lender, LC Issuer or Agent for any claims,damages, losses, liabilities, costs or expenses to the extent, but only to theextent, caused by (a) the willful misconduct or gross negligence of LCIssuer in determining whether a request presented under any Letter of Creditcomplied with the terms of such Letter of Credit or (b) LC Issuer’sfailure to pay under any Letter of Credit after the presentation to it of arequest strictly complying with the terms and conditions of such Letter ofCredit. Nothing in this Section 2.4.8 is intended to limit theobligations of Borrower under any other provision of this Agreement. TheObligations described under this Section 2.4.8 shall survive anytermination of this Agreement.

 

2.4.9        Lenders’Indemnification. Each Revolving Credit Lender shall, ratably in accordancewith its Revolving Credit Commitment Percentage, indemnify LC Issuer, itsAffiliates and their respective directors, officers, agents and employees (tothe extent not

 

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reimbursed by Borrower) against any cost, expense(including Attorneys’ Fees), claim, demand, action, loss or liability (exceptsuch as result from such indemnitees’ gross negligence or willful misconduct orLC Issuer’s failure to pay under any Letter of Credit after the presentation toit of a request strictly complying with the terms and conditions of the Letterof Credit) that such indemnitees may suffer or incur in connection with this Section 2.4or any action taken or omitted by such indemnitees hereunder. The obligationsof the Lenders described under this Section 2.4.9 shall survive anytermination of this Agreement.

 

2.4.10      Participations. Bythe issuance of a Letter of Credit (or an amendment to a Letter of Creditincreasing the amount thereof) and without any further action on the part of LCIssuer or the Lenders, LC Issuer hereby grants to each Revolving Credit Lender,and each Revolving Credit Lender hereby acquires from LC Issuer, aparticipation in such Letter of Credit equal to such Revolving Credit Lender’sRevolving Credit Commitment Percentage of the aggregate amount available to bedrawn under such Letter of Credit. In consideration and in furtherance of theforegoing, each Revolving Credit Lender hereby absolutely and unconditionallyagrees to pay to Agent, for the account of LC Issuer, such Revolving CreditLender’s Revolving Credit Commitment Percentage of each unreimbursed drawingunder any Letter of Credit, or of any reimbursement payment required to berefunded to Borrower for any reason. Each Revolving Credit Lender acknowledgesand agrees that its obligation to acquire participations pursuant to thisparagraph in respect of Letters of Credit is absolute and unconditional andshall not be affected by any circumstance whatsoever, including any amendment,renewal or extension of any Letter of Credit or the occurrence and continuanceof an Event of Default, the failure of any condition in Section 5to be satisfied, or any reduction or termination of the Revolving CreditCommitments, and that each such payment shall be made without any offset,abatement, withholding or reduction whatsoever. Following receipt by Agent ofany payment by Borrower in respect of any unreimbursed drawing or of anyrefunded reimbursement payment, Agent shall disburse such payment to LC Issuer,or to the extent that the Lenders have made payments pursuant to this Section 2.4.10to LC Issuer, then to such Lenders and LC Issuer, as their interest may appear.The purchase of participations in Letters of Credit pursuant to this Section 2.4.10shall not constitute a Loan and shall not relieve Borrower of its reimbursementand other obligations under this Section 2.4.

 

2.4.11      Letters of CreditCollateral Account. If a Letter of Credit Deficiency shall have occurredand be continuing, Agent may make demand upon Borrower to, and forthwith uponsuch demand (and in no event later than the immediately succeeding BusinessDay) Borrower will, pay to Agent in same day funds at Agent’s office designatedin such demand, for deposit in a special interest bearing cash collateralaccount (the “Letter of Credit Collateral Account”) to be maintained atsuch office of Agent, an amount equal to the amount by which the Letter ofCredit Availability is less than zero. The Letter of Credit Collateral Accountshall be in the name of Agent (as a cash collateral account), and under thesole dominion and control of Agent exercised in good faith (with sole right ofwithdrawal) and subject to the terms of this Agreement and the other LoanDocuments; provided that interest accruing thereon shall accrue for the benefitof Borrower. On each drawing under a Letter of Credit during which a Letter ofCredit Deficiency is continuing, Agent shall seek reimbursement from anyamounts then on deposit in the Letter of Credit Collateral Account; *however*, if (i) no amounts are then on deposit in theLetter of Credit Collateral Account, (ii) the amount then on deposit inthe Letter of Credit Collateral Account is insufficient to pay the amount ofsuch drawing, or (iii) Agent is

 

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legally prevented or restrained from immediatelyapplying amounts on deposit in the Letter of Credit Collateral Account, thenthe amount of each unreimbursed drawing under such Letter of Credit and paymentrequired to be made under this Section 2.4.11 shall automaticallybe converted into a Prime Rate Revolving Loan made on the date of such drawingfor all purposes of this Agreement. To the extent that Agent applies amounts ondeposit in the Letter of Credit Collateral Account as provided in this Section 2.4.11,and, thereafter, such application (or any portion thereof) is rescinded or anyamount so applied must otherwise be returned by Agent upon the insolvency,bankruptcy or reorganization of Borrower or otherwise, then the amount sorescinded or returned shall automatically be converted into a Prime RateRevolving Loan made on the date of such drawing for all purposes of thisAgreement. Agent shall promptly return to Borrower all funds held in the Letterof Credit Collateral Account and any interest accrued thereon upon receivingevidence from Borrower that a Letter of Credit Deficiency is no longer continuing.

 

2.4.12      Letterof Credit Obligations. All Letter of Credit Obligations will constitutepart of the Obligations and be secured by the Loan Collateral.

 

2.5           Advance Requests.To obtain each Revolving Loan, Borrower shall give written notice (an “AdvanceRequest”) in the form of Exhibit C attached hereto, specifying:

 

(i)            the total amount ofthe requested Revolving Loan;

 

(ii)           the Type of Loan (and,if a LIBOR Rate Loan, the requested Loan Period and amount thereof subject to Section 3.2.1(iv));

 

(iii)          the Borrowing Date ofsuch Revolving Loan, which shall be a Business Day;

 

(iv)          that on the date of, andafter giving effect to, such Revolving Loan, no Event of Default has occurredand is continuing; and

 

(v)           that on the date of,and after giving effect to, such Revolving Loan, all of the representations andwarranties of Borrower contained in this Agreement and in the other LoanDocuments are true and correct in all material respects on and as of such dateof such Revolving Loan as if made on and as of the date of such Revolving Loan(except where such representations and warranties speak solely of an earlierdate).

 

Each such Advance Request by Borrower shall be irrevocable. EachAdvance Request for a Prime Rate Loan shall be given to Agent by no later than11:00 a.m. (Los Angeles time) on the Business Day of such Prime Rate Loan.Each Advance Request for a LIBOR Rate Loan shall be given to Agent by no laterthan 11:00 a.m. (Los Angeles time) two New York Banking Days prior to theBorrowing Date of such LIBOR Rate Loan. If Borrower fails to specify the Typeof Loan, then the requested Revolving Loan shall be a Prime Rate Loan. IfBorrower fails to specify the Loan Period for a requested LIBOR Rate Loan,Borrower shall be deemed to have requested that such LIBOR Rate Loan be madewith a Loan Period of one month. Each Advance Request must be signed by anAuthorized Representative; *however*, Agentmay rely on the authority of any officer or employee of Borrower whom Agent ingood faith believes to be authorized to request advances.

 

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2.6           Initial InterestElection. Any Revolving Loans made on the Closing Date shall be Prime RateLoans. Each Revolving Loan made after the Closing Date shall initially be ofthe Type specified in the applicable Advance Request for such Revolving Loan.

 

2.7           Funding of Loans.

 

2.7.1        Funding of Loans. Withrespect to any Revolving Loans requested by Borrower hereunder, each Lenderagrees that Agent may in its sole discretion, but shall not be obligated to,make such requested Revolving Loans to Borrower on behalf of Lenders as anInterim Advance. If Borrower makes a request for a Revolving Loan as providedherein, Agent, at its option and in its discretion, shall do either of thefollowing:

 

(i)            with respect to aPrime Rate Revolving Loan, at its sole discretion, advance the amount of theproposed Revolving Loan to Borrower disproportionately (an “Interim Advance”)out of Agent’s own funds on behalf of Lenders, which advance shall be on theBorrowing Date specified in the relevant Advance Request, and thereby electsettlement in accordance with Section 4.2 such that upon suchsettlement each Lender’s share of the outstanding Revolving Loans (includingthe amount of any such Interim Advance settled on such date) equals itsRevolving Credit Commitment Percentage of the then outstanding Revolving Loans.Interim Advances constitute Loans bearing interest at the rate applicable fromtime to time to Prime Rate Revolving Loans, are secured by the Loan Collateraland Obligations hereunder and constitute a utilization of the Revolving CreditCommitments. All payments on any Interim Advance shall be payable to Agentsolely for its own account (and for the account of the holder of anyparticipation interest with respect to such Interim Advance). No part of anyInterim Advance may, on the repayment thereof, be redrawn or reborrowed byBorrower, except as a result of an election by Agent in its sole discretion, tohave such amounts advanced as a new Interim Advance in accordance with this Section 2.7.1pursuant to an effective Advance Request; or

 

(ii)           notify each Lender byfacsimile, electronic mail or other similar form of teletransmission of theproposed Revolving Loan (a) with respect to Prime Rate Revolving Loans, onthe same day, and (b) with respect to LIBOR Rate Loan, on the Business Dayfollowing the Business Day, in each case, that Agent is notified or deemednotified by Borrower of its request for such proposed a Revolving Loan pursuantto this Agreement, and thereupon each Lender shall remit to, so that Agentshall have received, (1) with respect to Prime Rate Revolving Loans, on orprior to 2:00 p.m. (Los Angeles time), on the date such Prime RateRevolving Loans are to be advanced, and (2) with respect to LIBOR RateLoans, on or prior to 2:00 p.m. (Los Angeles time), on the date such LIBORRate Loans are to be advanced, immediately available funds in an amount equalto such Lender’s Revolving Credit Commitment Percentage of such Revolving Loan.

 

2.7.2        Operating Account. Borrowerirrevocably authorizes Agent to make all disbursements of Revolving Loans intoa non-interest bearing, DDA operating account maintained by Agent (the “OperatingAccount”) that will be structured and utilized for that purpose inaccordance with Agent’s policies and procedures from time to time in effect. Unlessother arrangements are made with, and expressly agreed to by, Agent (*e.g.*, disbursements of Revolving Loans by wire transfer),all advances of the Revolving Loans, will be credited to the

 

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Operating Account at the end of the applicableBusiness Day on which the advance is made. With respect to advances requestedby Borrower to cover Presentments in the Controlled Disbursement Account,Borrower hereby irrevocably authorizes Agent, without any further written ororal request of Borrower, to transfer funds automatically from the OperatingAccount to the Controlled Disbursement Account in amounts necessary for the paymentof checks and other items drawn on the Controlled Disbursement Account as suchchecks and other items (“Presentments”) are presented to Agent forpayment. If any Presentments in the Controlled Disbursement Account are paid byAgent in excess of funds available in the Operating Account for any reason,including the failure of Borrower to determine the correct amount ofPresentments in its Advance Request, the amounts so paid by Agent will bedeemed to be an advance of Revolving Loans as a Prime Rate Loan for allpurposes of this Agreement and are hereby ratified and approved by Borrower; *however*, under no circumstances will Agent have anyobligation to pay any Presentments in the Controlled Disbursement Account inexcess of funds available in the Operating Account. Notwithstanding anything tothe contrary in this Section 2.7.2, Agent may, at any timehereafter on oral or written notice to Borrower, elect to discontinue theautomatic sweeping of funds from the Operating Account to the ControlledDisbursement Account, but Agent instead may disburse proceeds of a RevolvingLoan by crediting only the Operating Account. Furthermore, Agent reserves theright to discontinue providing controlled disbursement accounts to itscustomers, including Borrower. Each request submitted by Borrower for a newadvance of a Revolving Loan via wire transfer of funds must be initiated withAgent’s wire transfer department (or by telephone or on-line functions madeavailable by Agent’s wire transfer department from time to time) via a dulycompleted and signed outgoing wire transfer form (or any replacement formpromulgated by Agent).

 

2.7.3        Availability of Loans.The failure of any Lender to make any Loan required to be made by it shall notrelieve any other Lender of its obligations hereunder; *provided*,*however*, that the Revolving CreditCommitments of the Lenders are several and no Lender shall be responsible forany other Lender’ failure to make Loans as required. Unless Agent shall havebeen notified by a Lender prior to the time a Loan is to be made hereunder thatsuch Lender does not intend to make its share of such Loan available to Agent,Agent may assume that such Lender will make its share of such Loan available toAgent, and Agent may in reliance upon such assumption make available toBorrower a corresponding amount. If such corresponding amount is not in factmade available to Agent by such Lender and Agent has made such amount availableto Borrower, Agent shall be entitled to receive such amount from such Lenderforthwith upon its demand, together with interest thereon in respect of eachday during the period from and including the date such amount was madeavailable to Borrower to but excluding the date Agent recovers such amount fromsuch Lender at a rate per annum equal to the Federal Funds Rate for the first 3days and, thereafter, at a rate *per annum* equalto the rate applicable to Prime Rate Revolving Loans. If such amount is not infact made available to Agent by such Lender upon such demand, Agent shall beentitled to receive such amount from Borrower forthwith upon its demand (and inno event later than the Business Day immediately succeeding the day such demandis made), together with interest thereon at the rate applicable to a Prime RateRevolving Loan in respect of each day during the period commencing on the datesuch amount was made available to Borrower and ending on but excluding the dateAgent recovers such amount from Borrower. Borrower’s obligation hereunder shallnot affect any rights Borrower may have against any Defaulting Lender.

 

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2.7.4              Loanson Prepayment Dates.  If Lenders arerequired to make a new Loan hereunder to Borrower on a day on which Borrower isrequired to or has elected to repay all or any part of an outstanding Loan fromLenders, Lenders shall apply the proceeds of the new Loan to make suchrepayment and only an amount equal to the difference (if any) between theamount being borrowed and the amount being repaid shall be made available byLenders to Borrower as provided in Section 2.7.2.

 

2.7.5              Authorityof Individuals.  Borrower herebyirrevocably authorizes Agent and each Lender to rely on telephonic,telegraphic, facsimile, telex or written instructions of any individual whomAgent or any Lender in good faith believes to be authorized to request a CreditExtension or a repayment hereunder with respect to any request to make a CreditExtension or a repayment hereunder, and on any signature which Agent or anysuch Lender believes to be genuine, and Borrower shall be bound thereby in thesame manner as if such person were actually authorized or such signature weregenuine.  Borrower also hereby agrees toindemnify Agent and each of the Lenders and hold Agent and each of the Lendersharmless from and against any and all claims, demands, damages, liabilities,losses, costs and expenses (including Attorneys’ Fees) relating to or arisingout of or in connection with the acceptance of instructions by Agent or anyLender for making Credit Extensions or repayments hereunder from suchindividuals, in the absence of gross negligence or willful misconduct by Agentor such Lender.  The Obligationsdescribed under this Section 2.7.5 shall survive any termination ofthis Agreement.

 

2.7.6              Participationin Interim Advances.  By the makingof an Interim Advance and without any further action on the part of Agent orthe Revolving Credit Lenders, Agent hereby grants to each Revolving CreditLender, and each Revolving Credit Lender hereby acquires from Agent, aparticipation in such Interim Advance equal to such Revolving Credit Lender’sRevolving Credit Commitment Percentage of such Interim Advance.  In consideration and in furtherance of theforegoing, each Revolving Credit Lender hereby absolutely and unconditionallyagrees to pay to Agent, for the account of Agent, such Revolving Credit Lender’sRevolving Credit Commitment Percentage of each Interim Advance, or of anypayment on any Interim Advance required to be refunded to Borrower for anyreason.  Each Revolving Credit Lenderacknowledges and agrees that its obligation to acquire participations pursuantto this paragraph in respect of Interim Advances is absolute and unconditionaland shall not be affected by any circumstance whatsoever, including theoccurrence and continuance of an Event of Default, the failure of any conditionin Section 5 to be satisfied, or any reduction or termination ofthe Revolving Credit Commitments or a reduction in the Revolving CreditAvailability, and that each such payment shall be made without any offset,abatement, withholding or reduction whatsoever. Following receipt by Agent of any payment by Borrower in respect of anyInterim Advance, Agent shall apply such amounts to the then outstanding AgentAdvances and, to the extent that the Revolving Credit Lenders have madepayments pursuant to this Section 2.7.6 to Agent, to the RevolvingCredit Lenders, as their interest may appear. The purchase of participations in an Interim Advance pursuant to this Section 2.7.6shall not relieve Borrower of any default in the payment thereof.

 

2.8           Notes;Records of Advances of Credit. Borrower’s obligation to pay the principal of, and interest on, theRevolving Loans made by the Lenders shall be evidenced by a promissory noteduly executed and delivered by Borrower substantially in the form of Exhibit Awith blanks 

 

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appropriatelycompleted in conformity herewith (each a “Note”).  Agent and each Lender is hereby authorized torecord the date and amount of each advance of the Loans, and the date andamount of each payment or prepayment thereof, by any or all of the following: (1) ona schedule constituting a part of the applicable Note which schedule may beattached thereto and made a part thereof, (2) by entries made into Agentand each Lender’s electronic systems, or (3) on internal memorandamaintained by Agent and each Lender, and any such recordation will berebuttably presumptive evidence of the accuracy of the information so recordedabsent manifest error; *however*, thefailure of Agent or any Lender to make any such recordation will not affect theunconditional obligation of Borrower to repay the outstanding principal,interest, or other Obligations due under this Agreement, under the Notes, orthe other Loan Documents in accordance with the terms of this Agreement and theother Loan Documents.

 

2.9           NoLimitation on Liens.  The limits onoutstanding advances against the Borrowing Base are not intended and shall notbe deemed to limit in any way Agent’s Liens on the Receivables or any otherLoan Collateral.

 

2.10         AdvanceRates and Sublimits.

 

2.10.1            Changes.  Borrower acknowledges that Agent, from timeto time, may do any one or more of the following in its discretion exercised ingood faith: (i) decrease the dollar limits on outstanding advances againstthe Borrowing Base or percentages applicable to any one or more Receivablesadvance sublimits or (ii) decrease the Advance Rates if one or more of thefollowing events occur or conditions exist: (a) an Event of Default hasoccurred; or (b) with regard to the Eligible Billed Receivables AdvanceRate or the Eligible Unbilled Receivables Advance Rate, as the case may be, (1) thedilution percentage with respect to Borrower’s Eligible Receivables (*i.e.*, reductions in the amount of accounts receivablebecause of returns, discounts, price adjustments, credit memoranda, credits,contras and other similar offsets) increases by an amount which Agent, in itsdiscretion exercised in good faith, has determined is materially above thatwhich existed as of the Closing Date, (2) the percentage of accountsreceivable which are 90 days or more past the date of the original invoicesapplicable thereto increases, in comparison to the percentage of accountsreceivable which are within 90 days from the date of the original invoicesapplicable thereto, by an amount which Agent, in its discretion exercised ingood faith, determines is material, or (3) any material change occurs,determined by Agent in good faith, from the Closing Date in respect of thecredit rating or credit quality of Borrower’s or Westaff UK’s account debtors.

 

2.10.2            Notice.  If, at any time as permitted hereunder, Agent(a) imposes any Reserve Amounts after the Closing Date, or (b) decreasesany of the dollar limits on outstanding advances against the Borrowing Base orpercentages applicable to any one or more Receivables advance sublimits ordecreases the Advance Rates from that which, in any case, is expressly statedin clauses (i) or (ii) of the definition of the Borrowing Base (*i.e.*, exclusive of those changes which result from theeffect of applying applicable eligibility criteria) (“Stated Advance RateChange”), Agent will give Borrower 30 days advance written notice of suchStated Advance Rate Change, unless an Event of Default then exists, in whichcase Agent will give Borrower contemporaneous oral or written notice of suchStated Advance Rate Change.

 

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2.11         OneGeneral Obligation; Cross-Collateralized. All advances of credit by Agent, LC Issuer and Lenders to, or for thebenefit of, Borrower under this Agreement and under any other Loan Documentconstitute one loan, and all of the Obligations constitute one obligation.  The Loans and Letter of Credit Exposure andall other advances or extensions of credit to, or for the benefit of, Borrowerunder this Agreement or the other Loan Documents are made on the security ofall of the Loan Collateral.

 

2.12         LendingInstallations.  Agent and each Lendermay book its Loans and other Credit Exposure, if any, and LC Issuer may bookthe Letter of Credits, at any Lending Installation selected by Agent, suchLender or LC Issuer, as the case may be, and may change its LendingInstallation from time to time.  Allterms of this Agreement shall apply to any such Lending Installation and theLoans, Letters of Credit, and other Credit Exposure, and any Notes issuedhereunder shall be deemed held by Agent, each Lender or LC Issuer, as the casemay be, for the benefit of any such Lending Installation.  Agent, each Lender and LC Issuer may, by writtennotice to Agent and Borrower in accordance with Section 15.7,designate replacement or additional Lending Installations through which Loanswill be made by it or Letters of Credit and other Credit Exposure will beissued or maintained by it and for whose account payments are to be made.  Notwithstanding the foregoing, neither Agentnor any Lender may book Loans or other Credit Exposure, or book Letters ofCredit, at any Lending Installation if, as a result thereof, Borrower shall beobligated to pay any additional amounts under Sections 2.14 or 2.15 hereof.

 

2.13         Reductionand Termination of Revolving Credit Commitments.

 

2.13.1            VoluntaryTermination of Revolving Credit Commitments.  Borrower may voluntarily terminate theRevolving Credit Commitments in total prior to the Stated Maturity Date by (i) givingAgent 10 days advance notice (“Termination Notice”) of the proposed dateon which the Revolving Credit Commitments are to terminate (“VoluntaryTermination Date”), which Termination Notice may be revoked by Borrower atany time prior to the Voluntary Termination Date, and (ii) paying andsatisfying on the Voluntary Termination Date: (a) all Loans and otherObligations (which shall include the cancellation and return of all outstandingLetters of Credit, or provision made for the cash collateralization of all suchLetters of Credit on terms reasonably acceptable to Agent and the LC Issuer), (b) anyLIBOR Prepayment Fee under Section 3.2.1(v), and (c) paying,as compensation to the Lenders for loss of bargain with respect to the creditadvanced hereunder, and not as a penalty, a termination fee (“TerminationFee”) in the amounts set forth below:

 

| **Voluntary Termination Date**                                  | ** ** | **Termination Fee** | ** ** |
|---------------------------------------------------------------------------|------------|--------------------------|------------|
|                                                                      |       |                     |       |
| On or before January 31, 2009                                        |       | $                        | 750,000    |   |
|                                                                      |       |                     |       |
| On or after February 1, 2009 but on or  before January 31, 2010 |       | $                        | 375,000    |   |
|                                                                      |       |                     |       |
| On or after February 1, 2010 but on or  before June 30, 2011    |       | $                        | 250,000    |   |
|                                                                      |       |                     |       |
| On or after July 1, 2011 but on or  before October 30, 2012     |       | $                        | 125,000    |   |

 

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Borrower maynot terminate the Revolving Credit Commitment in part.  Notwithstanding the foregoing, if theRevolving Credit Commitment is terminated in connection with a refinancingthereof, then no Termination Fee shall be payable to those Lenders thatparticipate in such refinancing by providing a commitment to lend loans ofmoney thereunder.

 

2.13.2            ScheduledTermination of Revolving Credit Commitments.  The Revolving Credit Commitments willautomatically terminate on the Revolving Credit Commitment Termination Date.

 

2.13.3            PermanentReduction of Revolving Credit Commitments. Each termination or reduction of the Revolving Credit Commitment shallbe permanent.

 

2.13.4            BorrowerRemains Liable.  Notwithstanding anytermination of the Revolving Credit Commitments under this Agreement, until allof the Obligations have been Paid in Full, Borrower shall remain liable for thefull and prompt performance and payment of the Obligations, and Agent, LCIssuer and the Lenders shall retain all of their respective individual andcollectively rights and privileges under the Loan Documents, including theretention of Agent’s Liens on and interest in and to all of the Loan Collateraluntil all of the Obligations have been Paid in Full.  Upon Payment in Full of the Obligations,Agent shall release its Liens on all Collateral other than its Lien on the cashsecuring Letters of Credit Obligations.

 

2.14         IncreasedCosts.

 

2.14.1            IncreasedCosts Generally.  If any Change inLaw shall:

 

(i)                impose,modify or deem applicable any reserve, special deposit or similar requirementagainst assets of, deposits with or for the account of, or credit extended byany Lender, LC Issuer or any applicable Lending Installation (except any suchreserve requirement reflected in the LIBOR Rate); or

 

(ii)               imposeon any Lender, LC Issuer or any applicable Lending Installation any othercondition affecting this Agreement or LIBOR Rate Loans made by such Lender orapplicable Lending Installation or any Letter of Credit or participationtherein;

 

and the resultof any of the foregoing shall be to increase the cost to such Lender orapplicable Lending Installation of making or maintaining any LIBOR Rate Loan(or of maintaining its obligation to make any such Loan) or to increase the costto such Lender, LC Issuer or applicable Lending Installation of participatingin, issuing or maintaining any Letter of Credit or to reduce the amount of anysum received or receivable by such Lender, LC Issuer or applicable LendingInstallation hereunder (whether of principal, interest or otherwise), thenBorrower will pay to such Lender or LC Issuer, as the case may be, suchadditional amount or amounts as will compensate such Lender or LC Issuer, asthe case may be, for such additional costs incurred or reduction suffered.

 

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2.14.2            CostsAttributable to Regulatory Change or Risk-Based Capital Guidelines.  If Agent, any Lender or LC Issuer determinesthat any Change in Law regarding capital requirements has or would have theeffect of reducing the rate of return on Agent’s, such Lender’s or LC Issuer’scapital or on the capital of Agent’s, such Lender’s or LC Issuer’s holdingcompany, if any, as a consequence of this Agreement or the Loans made by or participationin Letters of Credit held by Agent, such Lender, or the Letters of Creditissued by LC Issuer, to a level below that which Agent, such Lender or LCIssuer or Agent’s, such Lender’s or LC Issuer’s holding company could haveachieved but for such Change in Law (taking into consideration Agent’s, suchLender’s or LC Issuer’s policies and the policies of Agent’s, such Lender’s orLC Issuer’s holding company with respect to capital adequacy), then from timeto time Borrower will pay to Agent, such Lender or LC Issuer such additionalamount or amounts as will compensate Agent, such Lender or LC Issuer or Agent’s,such Lender’s or LC Issuer’s holding company for any such reduction suffered.

 

2.14.3            Certification.  A certificate of Agent, a Lender or LC Issuersetting forth the amount or amounts necessary to compensate Agent, such Lenderor LC Issuer or its holding company, as the case may be, as specified in Sections 2.14.1and 2.14.2 of this Section shall be delivered to Borrower and shallbe rebuttably presumptive evidence of the accuracy thereof, absent manifesterror.  Borrower shall pay Agent, suchLender or LC Issuer, as the case may be, the amount shown as due on any suchcertificate within 10 Business Days after receipt thereof.

 

2.14.4            Delayin Requests.  Failure or delay on thepart of Agent, any Lender or LC Issuer to demand compensation pursuant to this Section 2.14shall not constitute a waiver of Agent’s, such Lender’s or LC Issuer’s right todemand such compensation; *provided* thatBorrower shall not be required to compensate Agent,  a Lender or LC Issuer pursuant to this Section forany increased costs or reductions incurred more than 180 days prior to the datethat Agent, such Lender or LC Issuer notifies Borrower of the Change in Lawgiving rise to such increased costs or reductions and of Agent’s such Lender’sor LC Issuer’s intention to claim compensation therefor; *providedfurther* that, if the Change in Law giving rise to such increasedcosts or reductions is retroactive, then the 180 days period referred to aboveshall be extended to include the period of retroactive effect thereof.

 

2.14.5            Survival.  The Obligations described under this Section 2.14shall survive any termination of this Agreement.

 

2.15         Taxes.

 

2.15.1            Gross-Up.  Any and all payments by or on account of anyobligation of Borrower hereunder shall be made free and clear of and withoutdeduction for any Indemnified Taxes or Other Taxes; *provided*that if Borrower shall be required to deduct any Indemnified Taxes or OtherTaxes from such payments, then (i) the sum payable shall be increased asnecessary so that after making all required deductions (including deductionsapplicable to additional sums payable under this Section 2.15)Agent, Lender or LC Issuer (as the case may be) receives an amount equal to thesum it would have received had no such deductions been made, (ii) Borrowershall make such deductions and (iii) Borrower shall pay the full amountdeducted to the relevant Governmental Authority in accordance with applicable law.

 

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2.15.2            OtherTaxes.  In addition, Borrower shallpay any Other Taxes to the relevant Governmental Authority in accordance withapplicable law.

 

2.15.3            Indemnityfor Taxes.  Borrower shall indemnify Agent,each Lender and LC Issuer, within 10 Business Days after written demandtherefor, for the full amount of any Indemnified Taxes or Other Taxes paid byAgent, such Lender or LC Issuer, as the case may be, on or with respect to anypayment by or on account of any obligation of Borrower hereunder (includingIndemnified Taxes or Other Taxes imposed or asserted on or attributable toamounts payable under this Section) and any penalties, interest and reasonableexpenses arising therefrom or with respect thereto, whether or not suchIndemnified Taxes or Other Taxes were correctly or legally imposed or assertedby the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered toBorrower by a Lender or LC Issuer, or by Agent on its own behalf or on behalfof a Lender or LC Issuer, shall be rebuttably presumptive evidence of theaccuracy thereof, absent manifest error.

 

2.15.4            Evidenceof Payment.  As soon as practicableafter any payment of Indemnified Taxes or Other Taxes by Borrower to aGovernmental Authority, Borrower shall deliver to Agent the original or acertified copy of a receipt issued by such Governmental Authority evidencingsuch payment, a copy of the return reporting such payment or other evidence of suchpayment reasonably satisfactory to Agent.

 

2.15.5            ForeignLenders.

 

(i)                EachForeign Lender that is entitled to an exemption from or reduction inwithholding tax under the jurisdiction in which Borrower is located, or anytreaty to which such jurisdiction is a party, with respect to payments underthis Agreement shall deliver to Borrower (with a copy to Agent), at the timesprescribed by applicable law, properly completed and executed documentationprescribed by applicable law or reasonably requested by Borrower as will permitsuch payments to be made without withholding or at a reduced rate.  Without limiting the generality of theforegoing, any Foreign Lender shall deliver to the Borrower and the Agent (insuch number of copies as shall be requested by the recipient) on or prior tothe date on which such Foreign Lender becomes a Lender under this Agreement(and from time to time thereafter upon the request of the Borrower or theAgent, but only if such Foreign Lender is legally entitled to do so), whicheverof the following is applicable (i) duly completed copies of InternalRevenue Service Form W-8BEN claiming eligibility for benefits of an incometax treaty to which the United States of America is a party, (ii) dulycompleted copies of Internal Revenue Service Form W-8ECI, (iii) inthe case of a Foreign Lender claiming the benefits of the exemption forportfolio interest under section 881(c) of the Code, (x) acertificate to the effect that such Foreign Lender is not (A) a “bank”within the meaning of section 881(c)(3)(A) of the Code, (B) a “10percent shareholder” of Borrower within the meaning of section 881(c)(3)(B) ofthe Code, or (C) a “controlled foreign corporation” described in section881(c)(3)(C) of the Code and (y) duly completed copies of Internal RevenueService Form W-8BEN, or (iv) any other form prescribed by applicablelaw as a basis for claiming exemption from or a reduction in United StatesFederal withholding tax duly completed together with such supplementarydocumentation as may be prescribed by applicable law to permit the Borrower todetermine the withholding or deduction required to be made.

 

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(ii)               Borrowershall not be required to indemnify any Foreign Lender, or to pay any additionalamounts to any Foreign Lender, in respect of any withholding tax pursuant to Section 2.15.1to the extent that (a) the obligation to withhold amounts with respect tosuch withholding tax existed on the date such Foreign Lender became a party tothis Agreement; *provided*, *however*,that this Section 2.15.5(ii)(a) shall not apply to the extentthat (1) the indemnity payments or additional amounts any Lender would beentitled to receive (without regard to this Section 2.15.5(ii)) donot exceed the indemnity payment or additional amounts that the person makingthe assignment, participation or transfer to such Lender would have beenentitled to receive in the absence of such assignment, participation ortransfer, or (2) such assignment, participation or transfer has beenrequested by Borrower, or (b) the obligation to pay such additionalamounts would not have arisen but for a failure by such Foreign Lender tocomply with the provisions of Section 2.15.5(i).

 

2.15.6            Refund.  If Agent, a Lender or an LC Issuer determines,in its sole discretion, that it has received a refund of any Taxes or OtherTaxes as to which it has been indemnified by the Borrower or with respect towhich the Borrower has paid additional amounts pursuant to this Section, itshall pay to the Borrower an amount equal to such refund (but only to theextent of indemnity payments made, or additional amounts paid, by the Borrowerunder this Section with respect to the Taxes or Other Taxes giving rise tosuch refund), net of all out-of-pocket expenses of the Agent, such Lender or LCIssuer, as the case may be, and without interest (other than any interest paidby the relevant Governmental Authority with respect to such refund), providedthat the Borrower, upon the request of the Agent, such Lender or LC Issuer,agrees to repay the amount paid over to the Borrower (plus any penalties,interest or other charges imposed by the relevant Governmental Authority) tothe Agent, such Lender or LC Issuer in the event Agent, such Lender or LCIssuer is required to repay such refund to such Governmental Authority.  This Section 2.15.6 shall not beconstrued to require Agent, any Lender or LC Issuer to make available its taxreturns (or any other information relating to its taxes that it deemsconfidential) to the Borrower or any other Person.

 

2.15.7            Survival.  The Obligations described under this Section 2.15shall survive any termination of this Agreement.

 

2.16         Mitigationof Obligations; Replacement of Lenders.

 

2.16.1            Mitigationof Obligations.  If Borrower is requiredto pay any additional amount to any Lender or any Governmental Authority forthe account of any Lender pursuant to Section 2.14 or Section 2.15,or if any Lender determines that it is unable to fund LIBOR Rate Loans, ascontemplated by Section 3.2.1, then such Lender shall usereasonable efforts to designate a different lending office for funding orbooking its Loans and other Credit Exposure hereunder or to assign its rightsand obligations hereunder to another of its offices, branches or affiliates,if, in the judgment of such Lender, such designation or assignment (i) wouldeliminate or reduce amounts payable pursuant to Section 2.15, inthe future or would enable such Lender to fund LIBOR Rate Loans (asapplicable), and (ii) would not subject such Lender to any unreimbursedcost or expense and would not otherwise be materially disadvantageous to suchLender.  Borrower hereby agrees to payall reasonable costs and expenses incurred by any Lender in connection with anysuch designation or assignment.

 

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2.16.2            Replacementof Lenders.  If (a) any Lenderrequests compensation under Section 2.14, (b) Borrower isrequired to pay any additional amount to any Lender or any GovernmentalAuthority for the account of any Lender pursuant to Section 2.15, (c) anyLender notifies Borrower pursuant to Section 3.2.1 that it is unable tofund or continue LIBOR Rate Loans, (d) any Lender is a Defaulting Lenderor (e) any Lender is a Hold-Out Lender, then Borrower may, at its soleexpense and effort, upon notice to such Lender and Agent, require such Lenderto assign and delegate, without recourse (in accordance with and subject to therestrictions contained in Section 14.2), all its interests, rightsand obligations under this Agreement to an assignee that shall assume suchobligations (which assignee may be another Lender, if a Lender accepts suchassignment); *provided* that (i) Borrowershall have received the prior written consent of Agent, which consent shall notunreasonably be withheld, (ii) such Lender shall have received payment ofan amount equal to the outstanding principal of its Loans, accrued interestthereon, accrued fees and all other amounts payable to it hereunder, from theassignee (to the extent of such outstanding principal and accrued interest andfees) or Borrower (in the case of all other amounts), (iii) in the case ofany such assignment resulting from a claim for compensation under Section 2.14or payments required to be made pursuant to Section 2.15, suchassignment will result in a reduction in such compensation or payments and (iii) inthe case of any such assignment of in respect of a Hold-Out Lender, Lenderssufficient to comprise Required Lenders have already provided written consentto the relevant amendment, modification, supplement or waiver, asapplicable.  A Lender shall not berequired to make any such assignment and delegation if, prior thereto, as aresult of a waiver by such Lender or otherwise, the circumstances entitlingBorrower to require such assignment and delegation cease to apply.

 

3.             PRINCIPALPAYMENTS; INTEREST CHARGES; FEES

 

3.1           Paymentsand Prepayments of Principal.

 

3.1.1              Repaymentof Principal.

 

(i)                                               Borrowerhereby promises to pay the entire unpaid principal balance of the RevolvingLoans, and the unpaid principal of each Revolving Loan will be due and payable,on the earlier to occur of (a) the Maturity Date and (b) the date theRevolving Loans are due and payable pursuant to Section 12.

 

(ii)               [Reserved.]

 

(iii)              Borrowerhereby promises to pay (subject to settlement thereof by the Lenders asprovided in Section 4.2) the entire outstanding principal balanceof each Interim Advance, and each Interim Advance shall be due and payable, onthe earliest to occur of (a) first Business Day of the week immediatelysucceeding the making of such Interim Advance, (b) the Maturity Date, and (c) thedate the Interim Advances are due and payable pursuant to Section 12.

 

(iv)                                        Borrowerhereby promises to pay the entire outstanding principal balance of each AgentAdvance, and each Agent Advance shall be due and payable, on demand (and in noevent later than the immediately succeeding Business Day).

 

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(v)              Borrowerhereby promises to pay the entire outstanding principal balance of any otherObligations at the times provided in the Loan Documents or, if not so provided,on demand by Agent (and in no event later than the immediately succeedingBusiness Day).

 

3.1.2              Correctionof Deficiency.  Notwithstandinganything in this Agreement to the contrary, if, as at any time, a Deficiencyoccurs or exists, Borrower will immediately, without demand or notice, reducethe sum of the then outstanding principal balance of the Loans so that aDeficiency no longer exists unless the Deficiency results solely from anyPermitted Overadvance.  Any payments madeby Borrower in respect of a Deficiency will be applied to the Revolving Loansuntil a Deficiency no longer exists.

 

3.1.3              OptionalPrepayments of Loans.  Borrower mayfrom time to time optionally prepay the principal balance of any Loan.  At the time of any prepayment of any LoanBorrower shall pay any applicable LIBOR Prepayment Fee under Section 3.2.1(v).

 

3.2           Intereston Obligations; Margins; LIBOR Prepayment Fee .  Borrower will pay Lenders interest on theObligations as follows:

 

3.2.1              Intereston Loans and Other Obligations; LIBOR Prepayment Fee.

 

(i)                Intereston each Revolving Loan and Interim Advance shall accrue at one of the followingper annum rates selected by Borrower: (a) unless prior notice is given toAgent pursuant to subpart (b) of this Section 3.2.1(i), theApplicable Prime Rate Margin for such Class of Loan plus the Prime Rate (a“Prime Rate Loan”); or (b) upon a minimum of two New York BankingDays prior notice to Agent, the Applicable LIBOR Rate Margin plus the 1, 2, or3 month LIBOR rate quoted by U.S. Bank from Bloomberg Professional Service Page BBAM1as the offered rate for Loans for the applicable Loan Periods under the captionBritish Bankers Association LIBOR Rates (or any successor reference page thereto)in effect two New York Banking Days prior to the making of such Loan, adjustedfor any reserve requirement (a “LIBOR Rate Loan”).

 

(ii)               Exceptas provided in Section 3.2.1(i), the principal balance of all otheroutstanding Obligations (except that portion of the Obligations, if any,arising under any agreement other than this Agreement if such other agreementprovides for the payment of interest at a rate specified therein) will bear interestat an annual rate equal to the Applicable Prime Rate Margin then in effect forRevolving Loans plus the Prime Rate.

 

(iii)              Theforegoing provisions of this Section 3.2.1(i) and (ii) aresubject to the Default Rate specified in Section 3.2.3.  Agent’s internal records of applicableinterest rates shall be rebuttably presumptive evidence of the accuracythereof, in the absence of manifest error.

 

(iv)             NoLIBOR Rate Loan may extend beyond the Maturity Date.  In any event, if the Loan Period for a LIBOR RateLoan should happen to extend beyond the Maturity Date,  such Loan must be prepaid at the MaturityDate together with any amounts owing under Section 3.2.1(v).  Each LIBOR Rate Loan shall be in a minimumprincipal amount 

 

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of $1,000,000 and inintegral multiples of $500,000.  Borrowermay not, in the aggregate, have more than 5 LIBOR Rate Loans outstanding at anytime.

 

(v)              Ifa LIBOR Rate Loan is prepaid prior to the end of the Loan Period, for such Loan,whether voluntarily or because prepayment is required due to the Loansmaturing, the cure of any Deficiency, or the acceleration of the Loans upon anEvent of Default or otherwise, Borrower will pay all of Lenders’ costs,out-of-pocket expenses and Interest Differential incurred as a result of suchprepayment.  The term “InterestDifferential” means that sum equal to the greater of zero or the financialloss incurred by the Lenders (as determined by Agent) resulting fromprepayment, calculated as the difference between the amount of interest Lenderswould have earned (from like investments in the Money Markets as of the firstday of the LIBOR Rate Loan) had prepayment not occurred and the interestLenders will actually earn (from like investments in the Money Markets as ofthe date of prepayment) as a result of the redeployment of funds from theprepayment.  Because of the short-termnature of this facility, Borrower agrees that the Interest Differential shallnot be discounted to its present value. Any prepayment of a LIBOR Rate Loan shall be in an amount equal to theremaining entire principal balance of such Loan.  A certificate as to such InterestDifferential submitted by Agent to Borrower shall be rebuttably presumptiveevidence of the accuracy thereof, absent manifest error, as to the amountthereof.  The Obligations described underthis Section 3.2.1(v) shall survive any termination of thisAgreement.

 

(vi)          Borrowermay elect to continue any outstanding LIBOR Rate Loan from one Loan Period intoa subsequent Loan Period to begin on the last day of the earlier Loan Period,or convert any outstanding Loan into another Type of Loan (on the last day of aLoan Period only, in the instance of a LIBOR Rate Loan), by giving Agenttelephonic notice promptly confirmed in writing, given so as to be received byAgent not later than:

 

(a)           10:00 a.m.(Los Angeles time) on the date of the requested conversion, if requestingconversion of a LIBOR Rate Loan to a Prime Rate Loan; or

 

(b)           10:00 a.m.(Los Angeles time) at least two (2) New York Banking Days prior to thedate of the requested continuation or conversion, if requesting thecontinuation of a LIBOR Rate Loan or the conversion of a Prime Rate Loan to aLIBOR Rate Loan.

 

Each notice ofcontinuation or conversion of a Loan shall specify (1) the effective dateof the continuation or conversion (which shall be a New York Banking Day), (2) theamount and the Class and Type or Types of Loans following suchcontinuation or conversion (subject to the limitation on amount set forth in Section 3.2.1(iv)),and (3) for continuation as, or conversion into, LIBOR Rate Loans, theLoan Periods for such Loans.  Absenttimely notice of continuation or conversion as provided above, Agent shallcontinue such LIBOR Rate Loan into a new LIBOR Rate Loan with a one (1) monthLoan Period on or after the last day of an applicable Loan Period, unless paidin full on such last day, but until such conversion, the funds advanced underthe LIBOR Rate Loan shall continue to accrue interest at the same rate as theinterest rate in effect for such LIBOR Rate Loan prior to the end of the LoanPeriod.  No Loan shall be continued as,or converted into, a LIBOR Rate Loan if the shortest Loan Period for such Loanmay not transpire prior to the Maturity Date.

 

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(vii)         Notwithstandingany other provisions of this Section 3.2 to the contrary, Borrowermay not request any LIBOR Rate Loans, and if a LIBOR Rate Loan is outstandingit shall be immediately converted to a Prime Rate Loan, if at any time (a) depositsin Dollars for any Loan Period are not available in the London interbank marketor (b) by reason of national or international financial, political oreconomic conditions or by reason of any applicable law, treaty, rule orregulation (whether domestic or foreign) now or hereafter in effect or theinterpretation or administration thereof by any Governmental Authority chargedwith the interpretation or administration thereof, or compliance by a Lenderwith any request or directive of such authority (whether or not having theforce of law), including exchange controls, Agent determines in good faiththat: (1) it is impracticable, unlawful or impossible for the Lenders tomaintain the LIBOR Rate Loans at an interest rate based on the LIBOR Rate, (2) adequateand fair means do not exist for ascertaining the interest rate applicablehereunder to LIBOR Rate Loans, or (3) the LIBOR Rate determined by Agentwill not adequately and fairly reflect the cost to the Lenders, determined byAgent in good faith, of making or maintaining any LIBOR Rate Loans.  Moreover, notwithstanding any otherprovisions of this Section 3.2.1 to the contrary, Agent shall havethe option to convert any outstanding LIBOR Rate Loans to Prime Rate Loans atthe end of the applicable Loan Period for such LIBOR Rate Loans, at any timethat there exists an Event of Default. Moreover, notwithstanding any other provisions of this Section 3.2to the contrary, if any individual Lender determines, in its discretionexercised in good faith, that it is unlawful under applicable law to make ormaintain LIBOR Rate Loans as contemplated by this Agreement, the affectedLender (the “Affected Lender”) will provide prompt written notice ofsuch determination to Borrower and (A) the Affected Lender’s commitmenthereunder to make LIBOR Rate Loans, continue LIBOR Rate Loans as such andconvert Prime Rate Loans to LIBOR Rate Loans will thereupon terminate and (B) theAffected Lender’s Loans then outstanding as LIBOR Rate Loans, if any, will beconverted automatically to Prime Rate Loans on the respective last days of thethen current Loan Period with respect to such Loans.

 

(viii)        NotwithstandingSection 3.2.1(i)(b) or Section 3.2.1(vi), noportion of the Loans which represents Agent Advances, Interim Advances or anyunreimbursed drawings under any Letter of Credit can be made as, convertedinto, or continued as, a LIBOR Rate Loan. Borrower shall not request, and no Loan will be made as, converted into,or continued as, a LIBORRateLoan:(a)whenanEventofDefaulthasoccurredandis continuing, (b) during a period that, pursuant to Section 3.2.1(vii),a LIBOR Rate Loan is not available or (c) from an Affected Lender whichhas notified Borrower under Section 3.2.1(vii) that it is unlawfulfor the Affected Lender to make such LIBOR Rate Loan.

 

3.2.2              ApplicableLIBOR Rate Margin, Applicable Prime Rate Margins, Application LOC Fee, andApplicable Unused Commitment Fee. Each of the Applicable LIBOR Rate Margin, the Applicable Prime RateMargins, the Applicable LOC Fee, and the Applicable Unused Commitment Fee willbe determined from time to time by reference to the table set forth below onthe basis of the then Fixed Charge Coverage Ratio as described in this Section 3.2.2.

 

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| **Fixed Charge  Coverage Ratio**                             | ** ** | **Applicable  LIBOR Rate  Margin** | ** ** | **Applicable Prime  Rate Margin for  Revolving Loans  and Interim  Advances** | ** ** | **Applicable LOC  Fee** | ** ** | **Applicable  Unused  Commitment Fee** | ** ** |
|------------------------------------------------------------------------|------------|-----------------------------------------|------------|--------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|---------------------------------------------|------------|
|                                                                   |       |                                    |       |                                                                                                   |       |                         |       |                                        |       |
| < 1.15 to 1.0 (“Pricing Level I”)                         |       | 2.00                                    | %          | 0.00                                                                                                   | %          | 2.00                         | %          | 0.25                                        | %          |
|                                                                   |       |                                    |       |                                                                                                   |       |                         |       |                                        |       |
| > 1.15 to 1.0  and < 1.35 to 1.0 (“Pricing Level II”)  |       | 1.75                                    | %          | 0.00                                                                                                   | %          | 1.75                         | %          | 0.25                                        | %          |
|                                                                   |       |                                    |       |                                                                                                   |       |                         |       |                                        |       |
| > 1.35 to 1.0  and < 1.60 to 1.0 (“Pricing Level III”) |       | 1.50                                    | %          | 0.00                                                                                                   | %          | 1.50                         | %          | 0.25                                        | %          |
|                                                                   |       |                                    |       |                                                                                                   |       |                         |       |                                        |       |
| > 1.60 to 1.0  (“Pricing Level IV”)                       |       | 1.25                                    | %          | 0.00                                                                                                   | %          | 1.25                         | %          | 0.25                                        | %          |

 

For thepurpose of determining the Applicable LIBOR Rate Margin, the Applicable PrimeRate Margins, the Applicable LOC Fee, and the Applicable Unused Commitment Fee,the Fixed Charge Coverage Ratio will, after the date of this Agreement, bedetermined as of the end of each Fiscal Quarter occurring during the term ofthis Agreement (the end of each Fiscal Quarter being a “Determination Date”).  The first Determination Date after the date ofthis Agreement is April 19, 2008 (the “Initial Determination Date”).  The Fixed Charge Coverage Ratio will bedetermined as of each Determination Date. On Agent’s receipt of Borrower’s financial statements required to bedelivered to Agent pursuant to Section 8.5 (in the case of aDetermination Date occurring as of the end of a Fiscal Quarter other than thelast Fiscal Quarter of a Fiscal Year) and Section 8.7 (in the caseof a Determination Date occurring as of the end of the last Fiscal Quarter of aFiscal Year), the Applicable LIBOR Rate Margin, the Applicable Prime RateMargins, the Applicable LOC Fee, and the Applicable Unused Commitment Fee willbe subject to adjustment in accordance with the table set forth in this Section 3.2.2based on the then Fixed Charge Coverage Ratio (*provided,however*, that notwithstanding anything to the contrary herein, nodecrease in the Applicable LIBOR Rate Margin, the Applicable Prime RateMargins, the Applicable LOC Fee, and/or the Applicable Unused Commitment Fee thatotherwise would be made as of any Determination Date shall become effective asof such Determination Date if an Event of Default has occurred and iscontinuing as of such Determination Date, and such decrease shall thereaftertake effect only if such Event of Default is cured or otherwise waived inwriting by the Lenders in accordance with the terms of this Agreement and noother Events of Default are then continuing, such decrease to take effect as ofthe effective date of such cure or waiver, as applicable).  The foregoing adjustment, if applicable, tothe Applicable LIBOR Rate Margin, the Applicable Prime Rate Margins, theApplicable LOC Fee and the Applicable Unused Commitment Fee will becomeeffective for LIBOR Rate Loans 

 

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made, theunpaid principal balance of Prime Rate Loans and other Obligations outstanding,Unused Commitment Fees accruing, and LOC Fees due with respect to Letters ofCredit issued or renewed, on and after the first day of the first Fiscal Periodfollowing delivery to Agent of Borrower’s financial statements required to bedelivered to Agent pursuant to Section 8.5 (in the case of theDetermination Date occurring as of the end of a Fiscal Quarter other than thelast Fiscal Quarter of a Fiscal Year) and Section 8.7 (in the caseof the Determination Date occurring as of the end of the last Fiscal Quarter ofa Fiscal Year) until the next succeeding effective date of adjustment pursuantto this Section 3.2.2.  Eachof the financial statements required to be delivered to Agent must be deliveredto Agent in compliance with Sections 8.5 and 8.7.  If Borrower, however, has not timelydelivered its financial statements, then, at Agent’s option, commencing on thedate upon which such financial statements should have been delivered inaccordance with Sections 8.5 or 8.7 and continuing untilsuch financial statements are actually delivered in accordance with Sections 8.5or 8.7, it shall be assumed for purposes of determining the ApplicableLIBOR Rate Margin, the Applicable Prime Rate Margins, the Applicable LOC Fee,and the Applicable Unused Commitment Fee that the Fixed Charge Coverage Ratiowas less than 1.15 to 1.0 and Price Level I will be applicable on the thenapplicable Determination Date.  Borrowerhereby agrees that if at any time after receipt by Agent of any auditedFinancials required to be delivered hereunder, Agent determines in itsreasonable discretion that an unjustified reduction in the Applicable Marginshas been granted to Borrower, Borrower shall pay upon demand therefore (and inno event later than the Business Day immediately succeeding the date suchdemand is made) an amount equal to the difference between (i) the interestamount that should have been paid by Borrower for such period but for suchunjustified reduction in the Applicable Margins and (ii) the interestamount actually paid by Borrower for such period.  As of the date of this Agreement, (a) theApplicable LIBOR Rate Margin is 1.75% per annum; (b) the Applicable PrimeRate Margin for Revolving Loans and Interim Advances is 0.00% per annum; (c) theApplicable Prime Rate Margin for all other Obligations (including AgentAdvances) is 0.00% per annum; (e) the Applicable LOC Fee is 1.75% perannum; and (f) the Applicable Unused Commitment Fee is 0.25% per annum.

 

3.2.3              DefaultRate.  Commencing automatically andwithout notice upon the occurrence of an Event of Default pursuant to any of Sections11.1(a), 11.1(e) or 11.1(f), or upon written notice fromAgent (in its discretion or at the direction of Required Lenders) or RequiredLenders upon or at any time during the continuance of any other Event ofDefault, the per annum rates of interest applicable at all times thereafterduring the continuance of such Event of Default shall be the applicable ratesof interest set forth above in Section 3.2.1 plus an additional2.00% with respect to all Obligations (the “Default Rate”).

 

3.3           InterestPayment Dates.  Interest on allObligations shall be paid on the Interest Payment Dates for such Obligationsand upon the payment or prepayment thereof or the conversion of a Loan to aLoan of another Type; *provided*, *however*, that any interest accrued or accruing at theDefault Rate, or accrued or accruing on or after the Maturity Date, shall bepayable on the earlier of the applicable Interest Payment Date or demand byAgent.

 

3.4           AgentFees.  Borrower will pay to Agent thefees as set forth in the Fee Letter.

 

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3.5           ClosingFee.  Borrower will pay to Agent forthe ratable account of the Lenders a non-refundable, fully-earned closing feein the total amount of $125,000 on the date of this Agreement.

 

3.6           UnusedCommitment Fee.  Commencing on thefirst day of the first calendar month immediately following the Closing Dateand continuing on the first Business Day of each and every calendar monththereafter until the Obligations are Paid in Full, Borrower will pay to Agentfor the account of the Revolving Credit Lenders (ratably in accordance withtheir respective Revolving Credit Commitment Percentages) a fee (“UnusedCommitment Fee”) in an amount equal to the result obtained by multiplying (i) thedifference between (a) the then Revolving Credit Commitments and (b) theaverage daily Revolving Loans advanced to Borrower during the precedingcalendar month (or portion thereof during which any portion of the RevolvingLoans (including any Interim Advances and the then Letter of Credit Exposure)was outstanding or during which this Agreement was in full force and effect)for which the Unused Commitment Fee is being determined by (ii) the resultobtained (expressed as a percentage) by multiplying the Applicable UnusedCommitment Fee by a fraction, the numerator of which is the sum of days in suchcalendar month during which this Agreement was in full force and effect (orduring which any portion of the Revolving Loans including any Interim Advancesand the then Letter of Credit Exposure was outstanding) and the denominator ofwhich is 360.

 

3.7           Letterof Credit Fees.  Borrower will pay (i) toLC Issuer for its own account, with respect to each Letter of Credit, aone-time fronting fee (“Fronting Fee”) equal to 0.125% of the faceamount of each such Letter of Credit and (ii) to Agent for the account ofthe Revolving Credit Lenders (ratably in accordance with their respectiveRevolving Credit Commitment Percentages) a fee (“LOC Fee”) equal to thethen Applicable LOC Fee on the amount available to be drawn under each Letterof Credit from, and including, the issuance date of the Letter of Credit to andincluding the expiry date thereof.  Inaddition, Borrower will pay to LC Issuer, on its demand for payment, LC Issuer’sthen current issuance, opening, closing, transfer, amendment, draw, renewal,negotiation and other letter of credit administration fees, charges and out ofpocket expenses with respect to each Letter of Credit.  The Fronting Fee is fully earned by LC Issuerwhen paid and will be due and payable upon issuance of each Letter ofCredit.  The LOC Fee is fully earned byAgent for the benefit of the Lenders when paid and will be due and payable inrespect of each Standby Letter Credit, monthly in arrears based on the amountavailable to be drawn under each Standby Letter of Credit during the previouscalendar month, payable on the first day of each calendar month, commencingwith the first calendar month occurring after the calendar month in which theStandby Letter of Credit is issued, and on the date the Obligations are Paid inFull.  The LOC Fee will be calculated onthe basis of the actual number of days elapsed in a 360-day year.

 

3.8           Calculationof Certain Charges.  Interest on theLoans and other Obligations shall be charged for the actual number of dayselapsed over a year of 360 days on the actual daily balance of such Loans andother Obligations.  Interest on theunpaid principal balance of the Loans and other Obligations shall accrue fromthe date such Loan is made or Obligation occurs to the date such Loan or otherObligation is paid in full. Except the fees and expenses set forth in Sections 2.14,2.15, 3.2.3, 3.4, 3.5, 3.7 which shall bepaid in accordance with such Sections, all such charges and other fees shall bepaid in arrears.

 

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3.9           Paymentin Full on Maturity Date.  On theMaturity Date, (i) Payment in Full shall automatically and immediatelybecome due and payable, and (ii) Agent’s and the Lenders’ obligationsunder this Agreement and the other Loan Documents will automatically andimmediately terminate (other than in respect of any outstanding Letter ofCredit Exposure), without notice or demand, which Borrower hereby expresslywaives.  On the Maturity Date, Borrowerwill make Payment in Full.

 

3.10         MaximumRate.  If, at any time, the rate ofinterest contracted for, and computed in the manner provided, in this Section 3(“Applicable Rate”), together with all fees and charges as provided forherein or in any other Loan Document (collectively, the “Charges”),which are treated as interest under applicable law, exceeds the maximum lawfulrate (the “Maximum Rate”) allowed under applicable law, it is agreedthat such contracting for, charging or receiving of such excess amount was anaccidental and bona fide error and the provisions of this Section 3.10will govern and control.  The rate ofinterest payable hereunder, together with all Charges, shall be limited to theMaximum Rate; *provided*, *however*,that any subsequent reduction in the Prime Rate plus the Applicable Prime RateMargins then in effect or the LIBOR Rate plus the Applicable LIBOR Rate Marginthen in effect shall not reduce the Applicable Rate below the Maximum Rateuntil the total amount of interest earned hereunder, together with all Charges,equals the total amount of interest which would have accrued at the ApplicableRate if the Applicable Rate had at all times been in effect.  If any payment hereunder, for any reason,results in Borrower having paid interest in excess of that permitted by applicablelaw, then all excess amounts theretofore collected by Agent shall be creditedon the principal balance of the Obligations (or, if all sums owing hereunderhave been paid in full, refunded to Borrower), and the amounts thereaftercollectible hereunder shall immediately be deemed reduced, without thenecessity of the execution of any new document, so as to comply with applicablelaw and permit the recovery of the fullest amount otherwise called forhereunder.

 

4.             PAYMENTS;APPORTIONMENT OF PAYMENTS; DEFAULTING LENDER

 

4.1           Payments by Borrower.

 

4.1.1              Payment.  Except to the extent otherwise providedherein, all payments of principal, interest and other amounts to be made byBorrower under this Agreement and the Notes, and, except to the extent otherwiseprovided therein, all payments to be made by Borrower under any other LoanDocument, shall be made in Dollars, in immediately available funds, withoutdeduction, set-off, offset, recoupment or counterclaim, to Agent, not laterthan 1:00 p.m. (Los Angeles time), on the date on which such payment shallbecome due (each such payment made after such time on such due date to bedeemed to have been made on the next succeeding Business Day) and anyapplicable interest or fee shall continue to accrue until such followingBusiness Day.

 

4.1.2              BusinessDays.  If any payment under thisAgreement becomes due and payable on a day other than a Business Day, thematurity of the payment will be extended to the next succeeding Business Day,and, with respect to payments of principal, interest thereon will be payable atthe then applicable rate during that extension.

 

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4.1.3              Chargingof Accounts.  Borrower herebyirrevocably authorizes Agent, at Agent’s option, to charge any account ofBorrower at U.S. Bank or charge or increase the Revolving Loans (as Prime RateLoans) for the payment or repayment of any interest or principal of the Loans,any fees, charges, expenses, or other amounts due to Agent, Lenders or LCIssuer under the Loan Documents, and any or all of the other Obligations.

 

4.2           Settlementwith Lenders.  On a weekly basis (ormore frequently if required by Agent) (a “Settlement Date”), Agent shallprovide each Lender with a statement of the outstanding balance of theRevolving Loans (including any Overadvances) and any Interim Advances and anyAgent Advances as of the end of the Business Day preceding the Settlement Date(the “Pre-Settlement Determination Date”) and the current balance of theRevolving Loans (including Overadvances) and any Agent Advances actually fundedby each Lender (whether made directly by such Lender to Borrower orconstituting a settlement by such Lender of a previous Interim Advance made byAgent on behalf of such Lender to Borrower). Agent will provide such statement to each Lender at or prior to 10:00 a.m.(Los Angeles time) on each Settlement Date. If such statement discloses that (i) such Lender’s current balanceof the Revolving Loans (including any Overadvances) exceeds such Lender’s RevolvingCredit Commitment Percentage of the Revolving Loans (including anyOveradvances) and Interim Advances or (ii) any Agent Advances actuallyfunded by such Lender as of the Pre-Settlement Determination Date exceeds suchLender’s Agent Advance Exposure Percentage of any Agent Advances outstanding asof the Pre-Settlement Determination Date, then Agent shall on the SettlementDate, transfer, by wire transfer to be received at or prior to 12:00 p.m.noon (Los Angeles time) on such Settlement Date, the net amount due to suchLender in accordance with such Lender’s instructions.  If such statement discloses that (a) suchLender’s current balance of the Revolving Loans (including any Overadvances) asof the Pre-Settlement Determination Date is less than such Lender’s RevolvingCredit Commitment Percentage of the Revolving Loans (including anyOveradvances) and Interim Advances or (b) such Lender’s Agent Advancesactually funded by such Lender as of the Pre-Settlement Determination Date isless than such Lender’s Agent Advance Exposure Percentage of the Agent Advancesoutstanding as of the Pre-Settlement Determination Date, then such Lender shallon the Settlement Date, transfer, by wire transfer to be received at or priorto 12:00 p.m. noon (Los Angeles time) on such Settlement Date, the netamount due to Agent in accordance with Agent’s instructions.  Each Lender acknowledges and agrees that itsobligation to make payments under this Section 4.2 in respect ofsettled Loans is absolute and unconditional and shall not be affected by anycircumstance whatsoever, including the occurrence and continuance of an Eventof Default, the failure of any condition in Section 5 to besatisfied, any reduction or termination of the Revolving Credit Commitments ora reduction in the Revolving Credit Availability, and that each such paymentshall be made without offset, abatement, withholding or reductionwhatsoever.  The statements provided byAgent to Lenders pursuant to this Section 4.2 shall be prima facieevidence of the existence and amounts set forth therein.  In addition, payments actually received byAgent with respect to the following items shall be distributed by Agent toLenders as follows:

 

(1)           [Reserved.];

 

(2)           Withinone Business Day after receipt thereof by Agent, payments to be applied tointerest on the Loans, subject to any adjustments for any Interim Advances andAgent Advances so that Agent shall receive interest on the Interim Advances andAgent Advances 

 

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during such period as Agent has advanced such funds (which paymentsshall be payable solely for Agent’s own account) and each Lender shall onlyreceive interest on the amount of funds actually advanced by such Lender;

 

(3)           Withinone Business Day after receipt thereof by Agent, payment to be applied to theUnused Commitment Fee set forth in Section 3.6; and

 

(4)           Withinone Business Day after receipt thereof by Agent, payment to be applied to theLOC Fee set forth in Section 3.7.

 

4.3           Pro Rata Treatment;Application of Payments.

 

4.3.1              Apportionmentof Payments.  Subject to Section 4.2and except as otherwise provided with respect to Defaulting Lenders and asotherwise provided herein and in the other Loan Documents, (i) eachborrowing of Loans of a particular Class from the Lenders shall be madefrom the relevant Lenders and each termination or reduction of the amount ofthe Revolving Credit Commitments of a particular Class of Loans shall beapplied to the respective Revolving Credit Commitments of such Class ofthe relevant Lenders, pro rata according to the amounts of their respectiveRevolving Credit Commitments of such Class of Loans; (ii) eachpayment or prepayment of principal of Loans of any Class by Borrower shallbe made for account of the relevant Lenders pro rata in accordance with therespective unpaid principal amounts of the Loans of such Class held bythem; and (iii) each payment of interest on Loans of any Class byBorrower shall be made for account of the relevant Lenders pro rata inaccordance with the amounts of interest on such Loans then due and payable tothe respective Lenders.  Except asotherwise provided in the Loan Documents, payments of fees and expenses shallbe made ratably among the parties entitled thereto in accordance with the amountof fees and expenses then due.  Followingthe occurrence of an Event of Default and acceleration of the Loans, allpayments shall be remitted to Agent and all such payments and all proceeds ofLoan Collateral received by Agent, shall be applied as follows:

 

(a)           first,to pay any Agent Advances or Interim Advances, interest, fees, expenses orindemnities due to Agent under the Loan Documents, until paid in full;

 

(b)           second,to pay any Letter of Credit Obligations, fees, expenses or indemnities then dueto LC Issuer under the Loan Documents, until paid in full;

 

(c)           third,to pay any expenses or indemnities then due to any or all of the Lenders underthe Loan Documents, until paid in full;

 

(d)           fourth,to pay any fees then due to any or all of the Lenders under the Loan Documents,including fees and premiums owing to any Lender (or any Affiliate thereof) withrespect to any Rate Hedging Agreement entered into with any Credit Party, untilpaid in full;

 

(e)           fifth,to pay interest due to any or all of the Lenders under the Loan Documents inrespect of the Obligations and, with respect to any Rate Hedging Agreemententered into with any Credit Party, any premiums, scheduled periodic paymentsand any interest thereon owing to any Lender (or any Affiliate thereof);

 

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(f)            sixth,to pay any other Obligations due to the Lenders until paid in full, includingprincipal of the Loans, ratably in accordance with their Total ExposurePercentage;

 

(g)           seventh,with respect to any Rate Hedging Agreement entered into with any Credit Party,to pay any breakage, termination or payment due under such Rate HedgingAgreement owing to any Lender (or any Affiliate thereof);

 

(h)           eighth,to pay any Bank Product Obligations then outstanding until paid in full ratablyto the Bank Product Providers; and

 

(i)            ninth,to Borrower or such other Person entitled thereto under applicable law.

 

Agent willdistribute to each Lender at its address set forth on the applicable signature page ofthis Agreement, or at any other address as a Lender may request in writing, theamount of funds as the Lender may be entitled to receive in accordance with theterms of this Agreement and the Settlement procedures set forth in Section 4.2.

 

4.3.2              Sharingof Payments or Collateral.  If anyLender (a “Benefited Lender”) at any time receives any payment of all orpart of its Loans or other Obligations owing to it, any interest on thoseamounts, or any collateral in respect of any or all of the foregoing (whether voluntarilyor involuntarily, by set-off, pursuant to events or proceedings of the naturereferred to in Sections 11.1(i)(e) or 11.1(i)(f), orotherwise), in a greater proportion than any payment to or collateral receivedby any other Lender, if any, in respect of the other Lender’s Loans or otherObligations owing to it, as the case may be, or any interest on those amounts,the Benefited Lender will (i) purchase for cash from the other Lenders aparticipating interest in that portion of each other Lender’s Loans or otherObligations owing to each of them, as the case may be, or (ii) provide theother Lenders with the benefits of any collateral, or the proceeds of anycollateral obtained by the Benefited Lender, as is necessary to cause theBenefited Lender to share the excess payment or benefits of the applicablecollateral or proceeds ratably with each of the Lenders; *however*,if all or any portion of that excess payment or benefits is thereafterrecovered from the Benefited Lender, the purchase by the Benefited Lender fromthe other Lenders will be rescinded, and the purchase price and benefitsreturned, to the extent of such recovery, but without interest unless theBenefited Lender is obligated to pay interest to the applicable Person in whichcase the other Lenders will pay their pro rata share of the interest payment.

 

4.4           Non-Receiptof Funds from Borrower.  Unless Agentshall have received notice from Borrower prior to the date on which any paymentis due to Agent for the account of the Lenders, LC Issuer or Agent hereunderthat Borrower will not make such payment, Agent may assume that Borrower hasmade such payment on such date in accordance herewith and may, in reliance uponsuch assumption, distribute to the Lenders, LC Issuer or Agent, as the case maybe, the amount due.  In such event, ifBorrower has not in fact made such payment, then each of the Lenders, LC Issueror Agent, as the case may be, severally agrees to repay to Agent forthwith ondemand the amount so distributed to such Lender, LC Issuer or Agent withinterest thereon, for each day from and including the date such amount isdistributed to it to but excluding the date of 

 

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payment to Agent, at thegreater of the Federal Funds Rate and a rate determined by Agent in accordancewith banking industry rules on interbank compensation, it being understoodthat the return by the Lenders, LC Issuer or Agent, as the case may be, of suchpayment shall not limit the obligation of Borrower under Section 3.2to pay interest at the rate set forth therein in respect of such payment.

 

4.5           Paymentsto Defaulting Lender.  Agent shallnot be obligated to transfer to any Defaulting Lender any payments made byBorrower to Agent for the Defaulting Lender’s benefit; nor will a DefaultingLender be entitled to the sharing of any payments hereunder.  Amounts payable to a Defaulting Lender shallinstead be paid to or retained by Agent. Agent may hold and, in its discretion, re-lend to Borrower the amount ofall such payments received or retained by it for the account of such DefaultingLender.  Any amounts so re-lent toBorrower shall bear interest at the rate applicable to Prime Rate RevolvingLoans and for all other purposes of this Agreement shall be treated as if theywere Revolving Loans; *provided*, *however*, that for purposes of voting or consenting tomatters with respect to the Loan Documents and determining ratable shares, suchDefaulting Lender shall be deemed not to be a “Lender”, and each of suchDefaulting Lender’s Revolving Credit Commitments and the unpaid principalbalance of the Loans owing to such Defaulting Lender shall be deemed to be zero(-0-).  Until a Defaulting Lender curesits failure to fund its share of any Loan (i) such Defaulting Lender shallnot be entitled to any portion of the Unused Commitment Fee or LOC Fee and (ii) theUnused Commitment Fee or LOC Fee shall accrue in favor of Lenders which havefunded their respective pro rata share of such requested Loan and shall beallocated among such performing Lenders ratably based upon their relativeRevolving Credit Commitments.  This Section 4.5shall remain effective with respect to such Lender until such time as theDefaulting Lender shall no longer be in default of any of its obligations underthis Agreement.  The terms of this Section 4.5shall not be construed to increase or otherwise affect the Revolving CreditCommitment of any Lender, or relieve or excuse the performance by Borrower ofits duties and obligations hereunder or under any of the other Loan Documents.

 

4.6           NoThird Party Beneficiary.  Theprovisions of Sections 4.2, 4.3, 4.4 and 4.5are solely for the benefit of Agent, LC Issuer and the Lenders, and neitherBorrower nor any other Credit Party will not have any rights as third partybeneficiary of any of the provisions thereof.

 

5.             PRECONDITIONSTO CREDIT EXTENSIONS

 

5.1           InitialCredit Extensions.  Notwithstandingany provision contained in this Agreement to the contrary, the Lenders and LCIssuer shall have no obligation to make the initial Credit Extensions underthis Agreement unless Agent, LC Issuer and the Lenders shall, on or before February 29,2008, have first received:

 

(i)                thisAgreement and the Notes, each duly executed by Borrower;

 

(ii)               theother Loan Documents, each duly executed and delivered by Borrower, each otherCredit Party and each other Persons party thereto;

 

(iii)              acopy of resolutions of the board of directors of Borrower and of each otherCredit Party, duly adopted, which authorize the execution, delivery andperformance 

 

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by Borrower and each suchother Credit Party of this Agreement, the Notes and the other Loan Documents towhich Borrower or such other Credit Party is a party, certified by the Secretaryof Borrower or such other Credit Party, as the case may be;

 

(iv)             acopy of the articles of incorporation of Borrower, including any amendmentsthereto, certified by the Secretary of State of the State of****California as of a date within 10 days prior to the ClosingDate;

 

(v)              acopy of the bylaws of Borrower, including any amendments thereto, certified bythe Secretary of Borrower as being in full force and effect as of the ClosingDate;

 

(vi)             anincumbency certificate, executed by the Secretary of Borrower, which shallidentify by name and title and bear the signatures of all of the officers ofBorrower executing any of the Loan Documents to which Borrower is a party;

 

(vii)            certificatesof corporate good standing of Borrower issued by the Secretary of State of theState of California and of each other state where the failure to be qualifiedand in good standing could reasonably be expected to cause or result in aMaterial Adverse Change;

 

(viii)           acopy of the certificate or articles of incorporation, as applicable, of eachAffiliate Guarantor, including any amendments thereto, certified by theSecretary of State of the State of****Delaware orCalifornia, as applicable, as of a date within 30 days prior to the ClosingDate;

 

(ix)              acopy of the bylaws of each Affiliate Guarantor, including any amendmentsthereto, certified by the Secretary of such Affiliate Guarantor as being infull or force and effect as of the Closing Date;

 

(x)               anincumbency certificate, executed by the Secretary of each Affiliate Guarantor,which shall identify by name and title and bear the signatures of all of theofficers of such Affiliate Guarantor executing any of the Loan Documents towhich it is a party;

 

(xi)              certificatesof corporate good standing of each Affiliate Guarantor issued by the Secretaryof State of the state of incorporation of such Affiliate Guarantor and of eachstate where the failure of such Affiliate Guarantor to be qualified and in goodstanding as a foreign corporation could reasonably be expected to cause or resultin a Material Adverse Change.

 

(xii)             anopinion of counsel of Morrison and Foerster, special counsel to Borrower andeach Affiliate Guarantor, in form and substance satisfactory to Agent and Agent’scounsel;

 

(xiii)            theinitial Borrowing Base Certificate required by Section 8.3;

 

(xiv)            theinitial Advance Request required by Section 2.5;

 

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(xv)             evidenceof the proper filing of financing statements perfecting first priority securityinterests in favor of Agent for the ratable benefit of the Secured Parties inall of the Loan Collateral;

 

(xvi)            terminationstatements for all financing statements filed of record against Borrower andeach Affiliate Guarantor other than financing statements relating to PermittedLiens or as otherwise permitted under Section 10.26, or a payoffletter, in form and substance reasonably satisfactory to Agent, from the holderof any such Lien, authorizing Agent to file a termination statement withrespect to the financing statement of such creditor upon such creditor’sreceipt of the payoff amount indicated in such payoff letter;

 

(xvii)           evidencesatisfactory to Agent of the insurance required by this Agreement and the otherLoan Documents together with endorsements in form and substance satisfactory toAgent, duly executed by the insurance company;

 

(xviii)          copiesof all financial statements and other Exhibits and Schedules required by thisAgreement and the other Loan Documents (including interim financial statementsthrough the third Fiscal Quarter of 2007);

 

(xix)            aletter of direction from Borrower with respect to the disbursement of theproceeds of the initial Credit Extensions under this Agreement;

 

(xx)             ifavailable from the landlord, warehouseman or bailee, as applicable, usingcommercially reasonable efforts, such landlord access agreements, warehouseagreements or bailee agreements, as applicable, as Agent may reasonably requireregarding locations at which any Loan Collateral with a value in excess of$50,000, or the books and records with respect thereto, is located;

 

(xxi)            apay-off letter from General Electric Capital Corporation, in form and substancereasonably satisfactory to Agent;

 

(xxii)           evidencesatisfactory to Agent and the Lenders that at closing the sum of (a) RevolvingCredit Availability and (b) Available Cash is at least $10,000,000 (*i.e.*, taking into account all applicable borrowing limits,Reserve Amounts, ineligibles, closing costspaid at closing and repayment ofdebts to be paid at closing) and after subtracting therefrom the total, as ofsuch date, of the amount, if any, of (1) Borrower’s accounts payable whichremain unpaid greater than 90 days past the original invoice date and (2) anybook overdraft of Borrower relating to accounts payable more than 90 days pastthe original invoice date applicable thereto;

 

(xxiii)          evidenceof (a) the capital structure of Parent Guarantor and each of itsSubsidiaries and (b) the material terms of all Indebtedness of each of theCredit Parties, as reasonably requested by Agent, acceptable to Agent and theLenders;

 

(xxiv)          sinceOctober 28, 2006, (a) no event or circumstance has occurred or existsthat reasonably could be expected to cause or result in a Material AdverseEffect, and (b) no litigation has been commenced which, if successful,would reasonably be expected to have a material adverse impact on Borrower oron Credit Parties (taken as a whole), 

 

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its or their business, orits or their ability to repay the Obligations, or that would challenge thetransactions under consideration;

 

(xxv)           collateralaudits, satisfactory to Agent, prepared by an independent firm engaged directlyby Agent; and

 

(xxvi)          suchother agreements, documents, instruments and certificates as Lenders mayreasonably request.

 

5.2           GeneralConditions.  In addition to any otherprovisions contained in this Agreement, the making of any Credit Extensionunder this Agreement will be subject to the existence or fulfillment as of thedate of such Credit Extension to the reasonable satisfaction of Agent, LCIssuer and the Lenders of each of the following conditions:

 

(i)                Aftergiving effect to any such Credit Extension, no Deficiency exists, unless theDeficiency results solely from any Permitted Overadvance;

 

(ii)               NoEvent of Default has occurred and is continuing;

 

(iii)              NoMaterial Adverse Change shall have occurred and is continuing since November 3,2007;

 

(iv)             Nolaw or regulation prohibits, and no order, judgment or decree of any arbitratoror Governmental Authority enjoins or restrains Agent or the Lenders, frommaking the requested advance; and

 

(v)              Borrower’srepresentations and warranties contained in this Agreement and the other LoanDocuments to which it is a party are complete and correct as of the date ofthis Agreement and are true and correct in all material respects as of the dateof such Credit Extension (except where such representations and warrantiesspeak solely as of an earlier date) subject to such changes as are notprohibited hereby or do not constitute Events of Default under this Agreement.

 

The giving ofeach Advance Request and request for the issuance of a Letter of Credit byBorrower hereunder shall constitute a certification by Borrower to the effectset forth in the preceding sentence (both as of the date of such AdvanceRequest or request and, unless Borrower otherwise notifies Agent prior to thedate of such borrowing or issuance, as of the date of such borrowing orissuance).

 

6.             SECURITY

 

6.1           SecurityDocuments.  The Obligations shall besecured (in such order as may be determined by Agent in its discretion) by afirst priority Lien on all Loan Collateral (subject to Permitted Liens),including:

 

(i)                afirst priority (a) security interest in all of the Collateral pursuant tothe Security Agreement dated as of the date of this Agreement between eachCredit Party (other than Westaff UK) and Agent, for the benefit of the SecuredParties (the “Security 

 

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Agreement”),and accompanying financing statements and (b) charge upon all of theCharged Assets pursuant to the UK Debenture;

 

(ii)               afirst priority security interest in (a) all of the Trademark Collateral,as defined in the Trademark Security Agreement dated as of the date of thisAgreement between Borrower and Agent, for the benefit of the Secured Parties(the “Borrower Trademark Security Agreement”), (b) all of theTrademark Collateral, as defined in the Trademark Security Agreement dated asof the date of this Agreement between Parent Guarantor and Agent, for thebenefit of the Secured Parties (the “Parent Guarantor Trademark SecurityAgreement”), and (c) all of the Trademark Collateral, as defined inthe Trademark Security Agreement dated as of the date of this Agreement betweenWestaff Support and Agent, for the benefit of the Secured Parties (the “WestaffSupport Trademark Security Agreement”; and together with the BorrowerTrademark Security Agreement and the Parent Guarantor Trademark SecurityAgreement, the “Trademark Security Agreements”); and

 

(iii)              afirst priority pledge of, and security interest in, (a) all of the votingand non-voting issued and outstanding Capital Stock of Borrower and each of theother direct and indirect Domestic Subsidiaries of Parent Guarantor and a firstpriority pledge of, and security interest in, 66% of all of the issued andoutstanding voting Capital Stock and 100% of the non-voting issued andoutstanding first tier Foreign Subsidiaries of any Credit Party (other than (A) WestaffAustralia so long as the Australian Subordination Deed remains in effect andprohibits Westaff Support from pledging any of the Capital Stock of WestaffAustralia and (B) Westaff UK), and all of the other Pledged Collateral asdefined in the Stock Pledge Agreement dated as of the date of this Agreementbetween the Credit Parties and Agent (the “Stock Pledge Agreement”) and (b) allof the voting and non-voting issued and outstanding Capital Stock of Westaff UKowned by any Credit Party pursuant to the UK Debenture.

 

7.             RECEIVABLES;COLLECTION OF RECEIVABLES; DISPUTED RECEIVABLES;

 

7.1           AgreementsRegarding Receivables.  Borrower maynot backdate, postdate or redate any of its invoices or statements.  Borrower may not make any sales on extendeddating or credit terms beyond that customary in the ordinary course of Borrower’sbusiness.  In addition to the BorrowingBase Certificate to be delivered in accordance with Section 8.3,Borrower shall notify Agent promptly upon Borrower’s learning thereof, in theevent any Eligible Receivable in an amount in excess of $250,000 becomesineligible for any reason, other than the aging of such Receivable, and of thereasons for such ineligibility.  Borrowershall also notify Agent promptly of all material disputes and claims withrespect to its Receivables (other than with respect to any individualReceivable in an amount not in excess of $250,000), and Borrower will settle oradjust such material disputes and claims at no expense to Agent or the Lenders;*however*, Borrower may not, without Agent’sconsent, grant (i) any discount, credit or allowance in respect of itsReceivables (a) which is outside the ordinary course of business and (b) whichdiscount, credit or allowance exceeds an amount equal to $100,000 in theaggregate with respect to any individual Receivable or (ii) any materiallyadverse extension, compromise or settlement to any customer or account debtorwith respect to any then Eligible Receivable, other than in respect to any suchindividual Receivable in an amount not in excess of $250,000.  Nothing permitted by this Section 7.1or Section 7.2, however, may be construed to alter in any way thecriteria for Eligible Receivables provided in Section 1.1.

 

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7.2           [Reserved.]

 

7.3           LockedBox.  Borrower has obtained and shallcontinue to maintain during the term of this Agreement the post office boxes atthe U.S. Post Office bearing the following addresses: U.S. Bank NationalAssociation, P.O. Box 52372,St. Louis, MO 63195-2373 and U.S. Bank National Association, P.O. Box54618, Los Angeles, CA 90054-0619, or such other addresses as Agent may notifyBorrower from time to time (the “Locked Box”).  Borrower shall notify all of its customersand account debtors to forward all remittances of every kind due to Borrower (“Remittances”)to the Locked Box (such notices to be in such form and substance as Agent mayrequire from time to time).  Immediatelyupon receipt thereof, Borrower shall deposit all other proceeds of Receivablesowing to Borrower or other Loan Collateral of Borrower into the Locked Box (orinto the Special Account, as defined below). Agent shall have sole access to the Locked Box at all times, andBorrower shall take all action necessary to grant Agent such sole access. At notime shall Borrower remove any item from the Locked Box without Agent’s priorwritten consent, and Borrower shall not notify any customer or account debtorof Borrower to pay any Remittance owing to Borrower to any other place oraddress without Agent’s prior written consent. If Borrower should neglect or refuse to notify any customer or accountdebtor of Borrower to pay any Remittance owing to Borrower to the Locked Box,Agent shall be entitled to make such notification. Borrower hereby grants toAgent an irrevocable power of attorney, coupled with an interest, to take inBorrower’s name all action necessary to (a) grant Agent sole access to theLocked Box, (b) contact account debtors to pay any Remittance to theLocked Box in the event that any such account debtor is not paying any suchRemittance to the Locked Box, (c) contact account debtors for any reasonupon the occurrence of an Event of Default and (d) endorse each Remittancedelivered to the Locked Box for deposit to the Special Account.

 

7.4           SpecialAccount.  Upon collection ofRemittances owing to Borrower and other proceeds of Receivables owing toBorrower and other Loan Collateral of Borrower from the Locked Box, Agent shalldeposit the same in a non-interest bearing account at U.S. Bank in the name ofWestaff (USA), Inc. pledged to Agent using Borrower’s Federal taxidentification number, Account No. 15349052669 (the “Special Account”).  Any Remittance owing to Borrower or otherproceeds of Receivables or other Loan Collateral received by Borrower shall bedeemed held by Borrower in trust and as fiduciary for Agent, and Borrowerimmediately shall deliver the same, in its original form, to Agent for depositinto the Special Account by overnight delivery carrier.  Pending such deposit, Borrower agrees that itwill not commingle any such Remittance or other proceeds of Receivables owingto Borrower or other Loan Collateral of Borrower with any of Borrower’s otherfunds or property, but will hold it separate and apart therefrom in trust forAgent until deposit is made into the Locked Box or Special Account or untildelivery is made to Agent by overnight delivery carrier as describedabove.  All deposits to the SpecialAccount and the Locked Box shall be subject only to the signing authoritydesignated from time to time by Agent, and Borrower shall have no control oversuch deposits or funds. Agent shall have sole access to the Special Account andthe Locked Box, and Borrower shall have no access thereto.  Agent shall have, and Borrower hereby grantsto Agent, a Lien on and security interest in all funds held in the SpecialAccount and the Locked Box as security for the Obligations. The Special Accountshall not be subject to any deduction, set-off, banker’s lien or any otherright in favor of any Person other than Agent. Deposits to the Special Account shall be applied to the Obligations inaccordance with Section 4.3.1. Any funds in the Special Account 

 

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remaining after paymentof the Obligations that are then due and payable (“Available Funds”)will be paid over by Agent to Borrower; *however*,at any time on and after the occurrence and during the continuation of an Eventof Default, all Available Funds may, at Agent’s option, be retained in theSpecial Account as continuing security for the Obligations.  If any Remittance deposited in the SpecialAccount is dishonored or returned unpaid for any reason, Agent, in itsdiscretion, may charge the amount of such dishonored or returned Remittancedirectly against Borrower and any account maintained by Borrower with U.S. Bankand such amount shall be deemed part of the Obligations.  Agent shall not be liable for any loss ordamage resulting from any error, omission, failure or negligence on the part ofAgent with respect to the operation of the Special Account, the Locked Box, orthe services to be provided by Agent under this Agreement, except to theextent, but only to the extent, of any direct, as opposed to any consequential,special or lost profit damages suffered by Borrower from Agent’s grossnegligence or willful misconduct.  Untila payment is received by Agent for Agent’s account in finally collected funds,all risks associated with such payment will be borne solely by Borrower.  From time to time, Agent may adopt suchregulations and procedures as it may deem reasonable and appropriate withrespect to the operation of the Special Account, the Locked Box, and theservices to be provided by Agent under this Agreement so long as the adoptionof such regulations and procedures will not change the material terms of thisAgreement and are applied to similarly situated borrowers.

 

7.5           Creditingof Remittances.  For the purpose ofcalculating interest and determining Revolving Credit Availability, allRemittances and other proceeds of Receivables owing to Borrower and other LoanCollateral of Borrower shall be credited (conditional on final collection)against the unpaid Revolving Loan balance on the same Business Day that Agentreceived the same into the Locked Box or the Special Account (subject to Agent’sreceipt of such funds no later than 12:00 p.m. noon (Los Angeles time) onsuch day and subject to any other applicable Business Day cut-offs establishedfrom time to time by Agent). Notwithstanding anything to the contrary in this Section 7.5,Borrower acknowledges and agrees that deposits made and other items credited tothe Special Account are subject to applicable laws and regulations governingavailability of funds and Agent’s funds availability polices and may not beimmediately available for application to the Loans or the other Obligations.

 

7.6           Costof Collection.  All reasonable costsof collection of Borrower’s Receivables, including Attorneys’ Fees,out-of-pocket expenses, administrative and recordkeeping costs, and all servicecharges and costs related to the establishment and maintenance of the LockedBox and the Special Account shall be the sole responsibility of Borrower,whether the same are incurred by Agent or Borrower, and Agent, at its discretion,may charge the same against Borrower and any account maintained by Borrowerwith Agent and the same shall be deemed part of the Obligations.

 

7.7           CashManagement Services.  During the termof this Agreement, Borrower will contract with U.S. Bank to obtain U.S. Bank’sthen current: (i) automated balance and information reporting system and (ii) positivepay, reverse positive pay, check filter, ACH filter and block, and othersimilar anti-fraud, cash management products, in each case in connection withthe operation of the various cash management systems contemplated by thisAgreement.

 

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7.8           Feesfor U.S. Bank’s Account.  Any fees,charges or income created by, or resulting from, the cash management ortreasury services, Borrower’s Locked Box, the Special Account, and any otheraccounts to be provided by U.S. Bank, in its capacity as a Bank ProductProvider, under or as a result of the application or operation of the terms orconditions of this Section 7 are, as among Agent and the Lenders,for the sole benefit and account of Agent.

 

7.9           MonthlyActivity.  Agent will provideBorrower monthly with a statement of advances, charges and payments madepursuant to this Agreement, and such account rendered by Agent shall berebuttably presumptive evidence of the amount of the Obligations owing andunpaid by Borrower and shall be deemed to be an account stated and binding asagainst Borrower unless a written statement of Borrower’s or Agent’s exceptionsis received by the other within 60 days after the statement is mailed toBorrower; *however*, Agent will have no obligationto correct any error or errors specified by Borrower unless Agent, in itsdiscretion exercised in a commercially reasonable manner, believes that anerror was made.  If any error is amanifest error, Borrower or Agent shall have one year to raise the exception.

 

8.             EXAMINATIONOF LOAN COLLATERAL; REPORTING.

 

8.1           Maintenanceof Books and Records.  Borrower andParent Guarantor shall, and Parent Guarantor shall cause each other CreditParty to, keep and maintain complete books of account, records and files withrespect to its business in accordance with GAAP consistently applied and shallaccurately and completely record all transactions therein.

 

8.2           Accessand Inspection.  Agent, and followingthe occurrence and during the continuation of an Event of Default, the Lenders,may at all times during normal business hours have (i) access to, and theright to examine and inspect, all of Borrower’s and each other Credit Party’sreal and personal property and (ii) access to, and the right to inspect,audit and make extracts from, all of Borrower’s and each other Credit Party’srecords, files and books of account, and Borrower and Parent Guarantor shall,and Parent Guarantor shall cause each other Credit Party to, execute anddeliver at the request of any Agent, or, if applicable, the Lenders suchinstruments as may be necessary for Agent or such Lender to obtain suchinformation concerning the business of the Credit Parties as Agent or suchLender may require from any Person; *however*, unlessan Event of Default has occurred and is continuing, Agent will give Borrowerreasonable prior notice before it makes the inspections and examinations at anyoffice or place of business of Borrower or any other Credit Party and Agentshall not conduct more than two (2) such inspections and examinations inany calendar year.  Borrower and ParentGuarantor, shall, and Parent Guarantor shall cause each other Credit Party to,furnish Agent at reasonable intervals with such statements and reportsregarding the Credit Parties’ financial condition and the results of the CreditParties’ operations, in addition to those hereinafter required, and such otherinformation as Agent, and following the occurrence and during the continuationof an Event of Default, the Lenders, may reasonably request from time to time.

 

8.3           ReportingRegarding Receivables and Notes Receivable. Not less frequently than weekly, Borrower shall deliver to Agent aborrowing base certificate in the form of Exhibit D (a “BorrowingBase Certificate”) by no later than Tuesday of each week (which is based onvalues as of the end of the immediately preceding Saturday), which BorrowingBase Certificate shall update the aging of the Eligible Billed Receivables andthe Eligible Unbilled Receivables 

 

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described in theimmediately prior delivered Borrowing Base Certificate.  By no later than the 21st day after the endof each Fiscal Period, or sooner if available, Borrower shall deliver to Agenta report (the “Fiscal Period Report”) of each of Borrower’s and WestaffUK’s sales, credits to sales or credit memoranda applicable to sales,collections and non-cash charges (from whatever source, including sales andnoncash journals or other credits to Receivables) for the applicable period,and acceptable supporting documentation thereto (including, a report indicatingthe Dollar or Sterling, as applicable, value of the Eligible Receivables, andall other information reasonably deemed necessary by Agent to determine levelsof that which is and is not Eligible Receivables), and monthly agings ofReceivables listed by invoice date, in each case reconciled to the BorrowingBase Certificate for the end of such month and each of Borrower’s and WestaffUK’s general ledger, and setting forth any changes in the reserves made for badaccounts or any extensions of the maturity of, any refinancing of, or any othermaterial changes in the terms of any Receivables in such format as is specifiedby Agent from time to time, together with such further information with respectthereto in such format as Agent may then reasonably require.

 

8.4           LossAnalysis Report.  Promptly whenavailable and in any event not later than 30 days after the end of each FiscalPeriod, Borrower shall deliver to Agent, a report (i) detailing claimsincurred under the Loss Analysis Report, substantially in the form attachedhereto as Exhibit I during such Fiscal Period, and (ii) indicatingloss per $100 of payroll for such Fiscal Period.

 

8.5           InterimFinancial Statements; Payable Information. Promptly when available and in any event not later than (A) 30 daysafter the end of each Fiscal Period and (B) the later of (x) 45 daysafter the end of each Fiscal Quarter and (y) the period then allowed forFiscal Quarterly reporting to the SEC per SEC Regulation S-K, Parent Guarantorshall deliver to Agent a monthly (and, as applicable, quarterly) consolidated(and, in the case of balance sheets and statements of income, consolidating foreach Credit Party) balance sheet and statement of income and statement of changesin cash flows, (i) showing the financial condition and the results ofoperations of the Parent Guarantor and its Subsidiaries for the periods coveredby such statements in such detail as Agent may from time to time require, (ii) preparedin accordance with GAAP consistently applied (except as otherwise disclosed toAgent to the extent such exceptions are acceptable to Agent), (iii) containingall disclosures required to fully and accurately present the financial positionand results of operations of the Parent Guarantor and its Subsidiaries (subjectto normal year-end adjustments and the omission of footnotes) and to make suchstatements not misleading under the circumstances, and (iv) setting forthin each case in comparative form, the figures for the corresponding FiscalPeriod (and, as applicable, Fiscal Quarter) and the corresponding portion ofthe previous Fiscal Year.  By no laterthan the 30th day after the end of each Fiscal Period, Borrower shall deliverto Agent agings of accounts payable listed by invoice date, in each casereconciled to each of Borrower’s and Westaff UK’s general ledger for the end ofsuch Fiscal Period, in such format as is specified by Agent from time to time.

 

8.6           AnnualProjections.  Promptly when availableand in any event not later than the date approved by Parent Guarantor’s boardof directors (which shall not be later than 30 days after the end of eachFiscal Year), Parent Guarantor shall deliver to Agent detailed projections forthe next Fiscal Year, in consolidated and consolidating form, setting forthprojected income 

 

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and cash flow for eachFiscal Period, the operating budget and the balance sheet for Parent Guarantorand its Subsidiaries and the borrowing availability of Borrower for each FiscalPeriod, in each case accompanied by a certificate of Parent Guarantor’s chieffinancial officer, countersigned by Parent Guarantor’s chief executive officer,stating (i) the assumptions on which the projections were prepared, (ii) thatthe assumptions, except as otherwise noted, were prepared on a consistent basiswith the operation of the business of Parent Guarantor and its Subsidiariesduring the immediately preceding Fiscal Year and adjusted by factors known toexist as of the date of the certificate or reasonably anticipated to existduring the periods covered by the projections, and (iii) that the officersigning the certificate has no reason to believe that the projections areincorrect or misleading in any material respect.  Such projections shall be prepared by ParentGuarantor in light of the past operations of the businesses of Parent Guarantorand its Subsidiaries, but including future payments of known contingentliabilities. Such projections shall be based upon estimates and assumptionsstated therein, all of which Parent Guarantor shall believe to be reasonableand fair in light of then current conditions and then current facts known toParent Guarantor and shall reflect Parent Guarantor’s good faith and reasonableestimates of the future financial performance of Borrower and of ParentGuarantor and its Subsidiaries (taken as a whole) and of the other informationprojected therein for the period set forth therein.

 

8.7           AnnualFinancial Statements.  Promptly whenavailable and in any event not later than the later of (x) 90 days afterthe end of each of Parent Guarantor’s Fiscal Years or (y) the period thenallowed for fiscal annual reporting to the SEC per SEC Regulation S-K, ParentGuarantor shall deliver to Agent financial statements showing the financialcondition, the results of operations, a balance sheet and related statements ofincome, stockholders’ equity, and changes in cash flows and financial positionfor the Parent Guarantor and its Subsidiaries for the Fiscal Year then ended,all on a consolidated (and, with respect to Credit Parties as to balance sheetsand related statements of income, consolidating) basis, and setting forth incomparative form, the figures for the previous Fiscal Year.  All of the foregoing annual financialstatements must be: (i) audited in accordance with generally acceptedauditing standards by an independent certified public accounting firmacceptable to Agent (*provided* thatthe accompanying consolidating balance sheets and statements of income shall beunaudited), (ii) prepared and presented in accordance with GAAPconsistently applied and (iii) accompanied by an unqualified audit reportof Borrower’s independent certified public accountants.

 

8.8           ManagementReports.  Parent Guarantor shallfurnish to Agent promptly on receipt, copies of all management lettersaccompanying the annual audited financial statements required to be deliveredpursuant to Section 8.7. Parent Guarantor hereby authorizes Agent and the Lenders to communicatedirectly with Parent Guarantor’s independent accountants to discuss the ParentGuarantor’s affairs, finances, accounts and such other matters of or related toParent Guarantor and its Subsidiaries as Agent and the Lenders deem necessary,provided, that Agent shall use commercially reasonable efforts to notify ParentGuarantor prior to any such communication.

 

8.9           Comparisonsto Financials; Certificates.  Witheach quarterly or annual financial statement delivered by Parent Guarantor toAgent under Sections 8.5 and 8.7, Parent Guarantor willdeliver to Agent: (i) a comparison prepared by Parent Guarantor of theprojected financial position and results of operations provided for in Section 8.6with the actual financial position 

 

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and results of operationsfor the applicable period and an explanation of any material variations betweenthem; (ii) a comparison prepared by Parent Guarantor between actualcalculated results for the applicable Fiscal Quarter or Fiscal Year, asapplicable, and the covenanted results for each of the Financial Covenants (asdefined in Section 10.28); and (iii) a reconciliation preparedby Parent Guarantor of the interim financial statements then submitted and thereporting described in clause (ii) of the first sentence of Section 8.3.  Parent Guarantor shall also furnish Agenttogether with all materials required pursuant to Sections 8.5, 8.6,and 8.7, a certificate signed by the chief financial officer of ParentGuarantor in the form of Exhibit E.

 

8.10         TaxReturns; Additional Information. Promptly upon Agent’s request after Parent Guarantor has filed its Taxreturns with each applicable Governmental Authority, Parent Guarantor shall,and shall cause such other Credit Party, as applicable, to, deliver to Agent acopy of all federal (and at Agent’s request all state and local) income Taxreturns and schedules filed by Parent or such other Credit Party in respect ofeach taxable year ending on and after the date of this Agreement.  Parent Guarantor shall furnish all other Taxand financial information as Agent may reasonably request from time to time.

 

8.11         ActuarialAnalysis.  Semiannually, Borrowershall deliver to Agent each actuarial report received by the Borrower, updatingBorrower’s reserve analysis of the retained workers’ compensation claimexposure; provided, that it shall not be a Default or Event of Defaultif the company generating such report refuses to disclose such report to Agentso long as Borrower uses commercially reasonable efforts to obtain consent fromsuch company to disclose such report to Agent for its review but not reliance.

 

8.12         PublicPosting of Financial Statements. Documents required to be delivered pursuant to Section 8.5and Section 8.7 (to the extent any such documents are included inmaterials otherwise filed with the SEC) may be delivered electronically and ifso delivered, shall be deemed to have been delivered on the date on whichParent Guarantor posts such documents, or provides a link thereto on ParentGuarantor’s website on the Internet at Parent Guarantor’s website address ofwestaff.com (or such other website address as Parent Guarantor may provide toAgent in writing from time to time); *provided*, that:(x) to the extent Agent is otherwise unable to receive any suchelectronically delivered documents, Parent Guarantor shall, upon request byAgent, deliver paper copies of such documents to Agent until a written requestto cease delivering paper copies is given by Agent and (y) ParentGuarantor shall notify Agent (by telecopier or electronic mail) of the postingof any such documents or provide to Agent by electronic mail electronicversions (i.e., soft copies) of such documents.

 

9.             WARRANTIESAND REPRESENTATIONS

 

In order toinduce Agent, LC Issuer and the Lenders to enter into this Agreement and tomake Credit Extensions hereunder, Parent Guarantor, on behalf of itself and theother Credit Parties, and Borrower, on behalf of itself, warrants andrepresents as of the Closing Date and as of the date of each Credit Extensionas follows.

 

9.1           CorporateStatus.  Each Credit Party (i) isduly organized and is and shall remain validly existing and in good standingunder the laws of its state of organization, and is and shall remain qualifiedto do business as a foreign corporation under the laws of the jurisdictionslisted 

 

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on Schedule 9.1and under the laws of each other jurisdiction in which the failure to be soqualified and in good standing could reasonably be expected to cause or resultin a Material Adverse Effect, and (ii) has and shall maintain allrequisite power and authority, corporate or otherwise, to conduct its business,to own its property, to execute, deliver and perform all of its obligations underthis Agreement and each of the other Loan Documents, and to grant the Liens onthe Loan Collateral provided by it.  NoCredit Party is an “investment company”, an “investment adviser” or a company “controlled”by an “investment company” as such terms are defined in the Investment CompanyAct of 1940, as amended.

 

9.2           DueAuthorization; Validity.  The signingand delivery of the Loan Documents, the performance by each Credit Party of itsObligations under the Loan Documents, and the grant of the Liens on or securityinterests in, the Loan Collateral provided by each Credit Party have been dulyauthorized by all requisite corporate or other action of each such CreditParty.  This Agreement and each of theother Loan Documents have been duly executed and delivered by each CreditParty, and each will constitute, upon the due execution and delivery thereof,the legal, valid, and binding obligations of such Credit Party enforceable inaccordance with their respective terms, except as such enforceability may belimited by bankruptcy, insolvency, reorganization or similar laws affectingcreditors’ rights generally.

 

9.3           NoViolation.  The execution, deliveryand performance by each Credit Party of this Agreement and the other LoanDocuments and the grant of the Liens on or security interests in the LoanCollateral provided by each Credit Party, do not and will not (i) constitutea violation of any applicable law except where such violation, in each case,would not reasonably be expected to have a Material Adverse Effect, (ii) constitutea breach of any provision contained in such Credit Party’s Articles orCertificate of Incorporation, or bylaws or any governing or other organizationdocuments of such Credit Party, (iii) constitute a breach of any materialprovision contained in any Applicable Agreement, (iv) constitute aviolation of any order of any court or other Governmental Authority, exceptwhere such violation would not reasonably be expected to cause or have aMaterial Adverse Effect, or (v) result in the creation or imposition ofany Lien on any of such Credit Party’s properties (other than (a) Agent’sLiens and (b) any other Permitted Lien).

 

9.4           Useof Loan Proceeds.  Borrower’s uses ofthe proceeds of the Credit Extensions pursuant to this Agreement are, and willcontinue to be, legal and proper uses (duly authorized by Borrower’s board ofdirectors).  Such uses do not and shallnot violate any applicable laws or statutes as in effect as of the date hereofor hereafter.  The Loans are not andshall not be secured, directly or indirectly, by any stock for the purpose ofpurchasing or carrying any margin stock or for any purpose which would violateeither Regulation U, 12 C.F.R. Part 221, or Regulation X, 12 C.F.R. Part 224,promulgated by the Board of Governors of the Federal Reserve System.

 

9.5           Management;Ownership of Assets; Licenses; Patents. Each Credit Party employs and shall continue to employ active,full-time, professional management adequate to handle its affairs, and eachsuch Credit Party has, and will continue to have, adequate employees, assets,governmental approvals, licenses, permits, patents, copyrights, service marks,trademarks and trade names that are necessary to continue to conduct itsbusiness as heretofore and hereafter conducted by it, and (i) all of eachsuch Credit Party’s patents, copyrights, service marks, trademarks and tradenames (to the extent registered with the United States Patent and 

 

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Trademark Office or theUnited States Copyright Office or as to which an application for registrationhas been recorded with the with the United States Patent and Trademark Officeor the United States Copyright Office, as applicable) and (ii) allmaterial licenses (excluding mass-market non-customized “shrinkwrap” licenses)of any patent, copyright, service mark, trademark or trade name by each suchCredit Party, whether as licensor or licensee, existing as of the Closing Dateare described in Schedule 9.5.

 

9.6           Indebtedness.  Except for (i) Indebtedness identifiedon Schedule 10.10, (ii) the Obligations, (iii) Indebtedness(a) which is unsecured, (b) which is not for borrowed money, (c) whichhas been incurred in the ordinary course of business, (d) which is nototherwise prohibited under any provision of this Agreement and (e) thenonpayment of or other default under which would not reasonably be expected tocause or have a Material Adverse Effect, and (iv) other Indebtednesspermitted to be incurred or paid by Borrower pursuant to Section 10.10,Borrower has no Indebtedness.  Except as (i) disclosedon Schedule 10.10 or (ii) otherwise permitted to be incurred under Section 10.10,no Credit Party has guaranteed the obligations of any Person (except byendorsement of negotiable instruments payable at sight for deposit orcollection or similar banking transactions in the usual course of such CreditParty’s business).

 

9.7           Titleto Property; No Liens.  Each suchCredit Party has valid title to, and ownership of, all of its personal property(exclusive of that property for which it has only a leasehold estate),including the Loan Collateral provided by it, free and clear of all Liensexcept to the extent of Permitted Liens.

 

9.8           Restrictions;Labor Disputes; Labor Contracts. Except as described in Schedule 9.8, no Credit Party is aparty or subject to, any charge, corporate restriction, judgment, decree ororder for which such Credit Party’s compliance or non-compliance wouldreasonably be expected to cause or have a Material Adverse Effect.  As of the Closing Date, except as describedon Schedule 9.8, no Credit Party is (i) a party to anycollective bargaining agreement or labor contract or (ii) the subject ofany labor dispute that would reasonably be expected to cause or have a MaterialAdverse Effect.  No collective bargainingagreement or other labor contract identified on Schedule 9.8 isscheduled to expire during the term of this Agreement except as described on Schedule 9.8.  As of the Closing Date, to Borrower’sknowledge, no union or other labor organization is seeking to organize, or tobe recognized as, a collective bargaining unit of employees of any Credit Partyor for any similar purpose.

 

9.9           NoViolation of Law.  Except asdescribed on Schedule 9.9, no Credit Party is in violation of anyapplicable statute, regulation or ordinance of any Governmental Authority(including any Environmental Law), which violation would reasonably be expectedto cause or have a Material Adverse Effect.

 

9.10         HazardousSubstances.  Except as described on Schedule 9.10,(i) no investigations, inquiries, orders, hearings, actions or otherproceedings by or before any Governmental Authority are pending against orotherwise naming any Credit Party as a party thereto or, to the knowledge ofeach of Parent Guarantor and Borrower, threatened against any Credit Party nor,to the knowledge of each of Parent Guarantor and Borrower, are pending orthreatened against or name any owner or third party lessor or sublessor of anyfacility (including any Credit Party Facility) leased, subleased or otherwiseoccupied by any Credit Party in 

 

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connection with anyEnvironmental Activity or alleged Environmental Activity, and with respect toany such investigations, inquiries, orders, hearings, actions or otherproceedings against the owner or third party lessor or sublessor of any suchfacility, such investigations, inquiries, orders, hearings, actions or otherproceedings would reasonably be expected to cause or have a Material AdverseEffect; (ii) no Hazardous Substances have been integrated into any of anyCredit Party’s Facilities in such manner or quantity as may reasonably beexpected to or in fact does violate any applicable Environmental Requirementexcept such violations that, individually or in the aggregate, would notreasonably be expected to cause or have a Material Adverse Effect; (iii) theuse of any Credit Party’s Facilities does not result in any EnvironmentalActivity in violation of any applicable Environmental Requirements that wouldreasonably be expected to cause or have a Material Adverse Effect; (iv) toeach of Parent Guarantor’s and Borrower’s knowledge, no occurrence or conditionon any real property adjoining or in the vicinity of any of any Credit Party’sFacilities exists which could reasonably be expected to cause any of any CreditParty’s Facilities to be subject to any restrictions on ownership, occupancy oroperation under any Environmental Requirements that would reasonably beexpected to cause or have a Material Adverse Effect; (v) to each of ParentGuarantor’s and Borrower’s knowledge, none of any Credit Party’s Facilitiesprior to when such Credit Party has owned or leased them has been used for thedisposal of Hazardous Substances or was the site of any Release of HazardousSubstances in violation of any Environmental Requirements that would reasonablybe expected to cause or have a Material Adverse Effect; (vi) none of anyCredit Party’s business operations have contaminated the lands, waters or otherproperty of others with Hazardous Substances except in compliance withapplicable Environmental Requirements that would reasonably be expected tocause or have a Material Adverse Effect; (vii) no underground or aboveground storage tank (regardless of contents) has been in the past, or is now,located on, at or beneath any of any Credit Party’s Facilities, the existenceof which would reasonably be expected to cause or have a Material AdverseEffect; and (viii) none of any Credit Party’s Facilities, since suchCredit Party has owned or leased them, has been used by such Credit Party forthe production, treatment, storage, generation, disposal or Release of anyHazardous Substance other than in compliance with applicable EnvironmentalRequirements that would reasonably be expected to cause or have a MaterialAdverse Effect.

 

9.11         Absenceof Default.  No Credit Party is indefault under any material provision of any Applicable Agreement, nor has anyCredit Party received any notice of such breach, nor notice of any terminationor acceleration or demand for adequate assurances under any ApplicableAgreement.

 

9.12         Accuracyof Financials; No Material Changes. The Financials (i) have been prepared in accordance with GAAPconsistently applied and are true, correct and complete in all materialrespects and (ii) fairly present each Credit Party’s assets, liabilitiesand financial condition and results of operations and those of such otherPersons described therein as of the date thereof (subject to normal year-endadjustments and the lack of footnotes in the case of monthly or *pro forma* Financials). There are no omissions from the Financials or other facts orcircumstances not reflected in the Financials which are or may be material, andthere has been no material and adverse change in the assets, liabilities orfinancial condition of the Credit Parties, taken as a whole, since the date ofthe Financials nor has there been any material damage to or loss of any of theassets or properties of the Credit Parties that are material to the operationof the 

 

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business of the CreditParties, since such date.  Borrower’sFiscal Year is the annual 52 or 53 week accounting period ending on theSaturday nearest the end of October of each year.

 

9.13         Pension Plans.

 

(i)            Except as described onSchedule 9.13, neither any Credit Party nor any Controlled Groupmember has ever sponsored, maintained, or contributed (or become obligated tosponsor, maintain, or contribute) to a Pension Plan subject to Title IV ofERISA.  Neither any Credit Party nor anyControlled Group member has ever sponsored, maintained, or contributed (orbecome obligated to sponsor, maintain, or contribute) to any “multiemployerplan” (as defined in ERISA). No “prohibited transaction,” or “reportable event”,as those terms are defined by ERISA, has occurred or is continuing as to anyPension Plan of any Credit Party or any Controlled Group member, which poses athreat of the imposition of Taxes or penalties against such Pension Plans (ortrusts related thereto), such Credit Party or any Controlled Group member, theimposition or payment of which could reasonably be expected to cause or have aMaterial Adverse Effect.  Each PensionPlan that is intended to meet the requirements of qualified pension benefitplans under Sections 401(a) of the Internal Revenue Code has receiveda current favorable determination letter or opinion letter of the InternalRevenue Service upon which the Plan’s sponsor is entitled to rely to thateffect under the Internal Revenue Code, and neither such Credit Party nor, toBorrower’s or Parent Guarantor’s knowledge (after making due inquiries), anyControlled Group member has violated such requirements with respect to anyPension Plan.

 

(ii)           Each Foreign PensionPlan has been maintained in substantial compliance with its terms and with therequirements of any and all applicable laws, statutes, rules, regulations andorders and has been maintained, where required, in good standing with applicableregulatory authorities.  Allcontributions required to be made with respect to a Foreign Pension Plan havebeen timely made.  Except as set forth inSchedule 9.13, the present value of the accrued benefit liabilities(whether or not vested) under each Foreign Pension Plan which is funded,determined as of the end of the most recently ended fiscal year of each suchForeign Pension Plan on the basis of actuarial assumptions, each of which isreasonable, did not exceed the fair market value of the assets of such ForeignPension Plan, and for each Foreign Pension Plan which is not funded, theobligations of such Foreign Pension Plan are properly accrued on the financialstatements of the applicable Credit Party.

 

9.14         Taxesand Other Charges.  Parent Guarantorhas filed, and has caused each Credit Party to file, all federal, state andmaterial local Tax returns and other reports which it is required by law tofile.  All of such Tax returns andreports accurately and properly reflect, in all material respects, the Taxesdue for the periods covered thereby. Except as described on Schedule 9.14, Parent Guarantor andeach Credit Party have paid all Taxes that are due and payable except for anysuch Taxes which are being contested in good faith in accordance with the termsof Section 10.9.  Except asdisclosed on Schedule 9.14, Parent Guarantor has withheld, and hascaused each Credit Party to withhold all employment and similar Taxes which itis required by law to withhold and has maintained adequate reserves for thepayment of all Taxes.  Except asdescribed on Schedule 9.14, no Tax Liens in excess of an aggregateof $25,000 have been filed with respect to Parent Guarantor or any other CreditParty and, to the best knowledge of Parent Guarantor and Borrower (after dueinquiry), no claims are being asserted with respect to any 

 

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such Taxes (and no basisexists for any such claims). There are not in effect any waivers of applicablestatutes of limitations for federal, foreign, state or local Taxes for anyperiod.  No Credit Party is a party toany Tax-sharing agreement or arrangement.

 

9.15         NoLitigation.  Except as described on Schedule 9.15,there is not, as of the Closing Date, any litigation, action or proceeding pendingor, to Parent Guarantor’s and Borrower’s knowledge, threatened, against anyCredit Party, except such litigation, action or proceeding that would notreasonably be expected to cause or have a Material Adverse Effect.

 

9.16         NoBrokerage Fee.  No brokerage, finder’sor similar fee or commission is due to any Person by reason of any Credit Partyentering into this Agreement or any other Loan Document or by reason of any ofthe transactions contemplated hereby or thereby, and Borrower shall indemnifyand hold Agent, the Lenders and LC Issuer harmless from all such fees andcommissions.

 

9.17         Affiliates.  As of the Closing Date, all Persons who areBorrower’s Affiliates are identified in Schedule 9.17.  As of the Closing Date, except as set forthon Schedule 9.17, no Affiliate of Borrower (i) sells or leasesany goods or real property to Borrower, (ii) sells any services toBorrower, (iii) purchases or leases any goods or real property, orpurchases any services from Borrower, or (iv) is a party to any contractor commitment with Borrower.

 

9.18         Capitalization;Warrants.  Schedule 9.18sets forth the number of shares of Capital Stock of every Subsidiary of ParentGuarantor which are issued and outstanding as of the Closing Date.  Each such outstanding share of Capital Stockis a common share and is duly authorized, validly issued, fully paid andnonassessable.  Set forth in Schedule 9.18is a complete and accurate list of all Persons who, as of the Closing Date, arerecord and beneficial owners of the Capital Stock of each Subsidiary of ParentGuarantor.  As of the Closing Date, allwarrants, subscriptions, options, instruments, rights and agreements underwhich any shares of Capital Stock of each Subsidiary of Parent Guarantor are ormay be redeemed, retired, converted, encumbered, bought, sold or issued aredescribed in Schedule 9.18.

 

9.19         NoncompetitionAgreements.  No Credit Party issubject to any contract or agreement containing a covenant not to compete inany line of business with any Person.

 

9.20         Depositand Other Accounts.  As of theClosing Date, all of the accounts maintained by any such Credit Party with anybank, brokerage house or other financial institution are set forth in Schedule 9.20,and none of such other accounts (other than accounts designated as “PayrollAccounts” or “Disbursement Accounts”) is subject to withdrawal other than bytransfers of amounts therein to the Locked Box or the Special Account.

 

9.21         Solvency.  Each Credit Party individually, and ParentGuarantor and its Subsidiaries (taken as a whole) will be Solvent after (i) receiptand application of the Loans in accordance with the terms of this Agreement, (ii) theexecution and delivery of this Agreement and the other Loan Documents to whichany of them is a party, and (iii) the filing of any financing statementsor other perfecting notices or actions in connection with this Agreement.

 

9.22         FullDisclosure.  No representation orwarranty made by Borrower, Parent Guarantor or any other Credit Party, in thisAgreement or any other Loan Document to which it 

 

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is a party, contains orwill contain at the time such representation is made or such documentfurnished, any untrue statement of a material fact or omits or will omit to stateany material fact necessary to make the statements herein or therein notmisleading in any material respect.

 

9.23         [Reserved].

 

9.24         Leases.  As of the Closing Date, except as listed on Schedule 9.24,no Credit Party is a party to any lease, assignment or sublease relating to anyreal property or leasehold interest in real property, or any material equipmentor other material personal property.

 

9.25         InsurancePolicies.  As of the Closing Date, Schedule 9.25correctly sets forth all of the insurance policies maintained by any CreditParty, including the carriers thereof, and the types of coverage and insuredamounts covered thereby.

 

9.26         Consents.  No authorization or approval or other actionby, and no notice to or filing with, any Governmental Authority or any otherPerson is required for the due execution, delivery and performance by anyCredit Party of any Loan Document to which it is or will be a party, other thanthose authorizations, approvals or actions taken as of the Closing Date (or tobe taken in connection with any realization upon the Collateral).

 

9.27         TaxRegulations.  No Credit Party intendsto treat the Loans, or any related transactions contemplated by this Agreement,as being a “reportable transaction” (within the meaning of Treasury Regulation Section 1.6011-4).

 

9.28         Anti-TerrorismLaws.  None of Parent Guarantor orany of its Subsidiaries nor to the knowledge of Borrower, any other Affiliateof Borrower is in violation of any Anti-Terrorism Law or engages in orconspires to engage in any transaction that evades or avoids, or has thepurpose of evading or avoiding, or attempts to violate, any of the prohibitionsset forth in any Anti-Terrorism Law. None of Parent Guarantor or any of its Subsidiaries nor to the knowledgeof Borrower, any other Affiliate of Borrower nor, to the knowledge of Borrower,their respective agents acting or benefiting in any capacity in connection withthe Credit Extensions or other transactions hereunder, is a BlockedPerson.  None of Parent Guarantor or anyof its Subsidiaries nor to the knowledge of Borrower, any other Affiliate ofBorrower nor, to the knowledge of Borrower, any of their respective agentsacting in any capacity in connection with the Credit Extensions or othertransactions hereunder (i) conducts any business or engages in making orreceiving any contribution of funds, goods or services to or for the benefit ofany Blocked Person, or (ii) deals in, or otherwise engages in anytransaction relating to, any property or interests in property blocked pursuantto the Executive Order No. 13224.

 

9.29         GovernmentContracts.  Except as set forth in Schedule 9.29(which Schedule lists only the names of the Government Authorities with whichthe Credit Parties do business), as of December 31, 2007 no Credit Party wasa party to any contract or agreement with any GovernmentalAuthority providing for annual payments in excess of $25,000.

 

9.30         Customerand Trade Relations.  As of theClosing Date, except as set forth on Schedule 9.30, there exists noactual or, to the knowledge of Parent Guarantor and Borrower, writtenthreatened termination or cancellation of, or any material adverse modificationor change in:  the business relationshipof any Credit Party with any customer or group of customers whose 

 

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purchases during thepreceding 12 months comprise at least 5% of all of such Credit Party’s customerpurchases during such period.

 

9.31         Statusof Parent Guarantor.  ParentGuarantor does not engage in any business other than (i) owning theCapital Stock of its direct Subsidiaries; (ii) ordinary course activitieswith NASDAQ regarding trading of itsCapital Stock; (iii) procuring directors and officers liability insurancecoverage for its and its Subsidiaries’ directors and officers; (vi) enteringinto guaranties of certain real property leases entered into in the ordinarycourse of business by its Subsidiaries; (v) owning certain intellectualproperty; and (vi) guaranteeing the obligations of Borrower as a franchisor.

 

9.32         UpdatingRepresentations and Warranties.  Tothe extent necessary to cause the representations and warranties set forth inthis Section 9 to remain true, complete and accurate as of the datehereof and as of the date of any Credit Extension, Parent Guarantor andBorrower shall update in writing any Schedules provided for in this Section 9to the extent they have knowledge of any circumstance which may have the effectof making any such representation or warranty contained in this Section 9untrue or incomplete in any material respect. The requirement of Parent Guarantor and Borrower to update any Scheduleprovided for herein is not, and may not be construed to be, a cure of any Eventof Default occurring prior to any such update or existing at the time of anysuch update without the written waiver of such Event of Default by RequiredLenders (or Agent with the consent of Required Lenders as provided herein).

 

10.           COVENANTS

 

Until theObligations are Paid in Full, Parent Guarantor on behalf of itself and eachCredit Party and Borrower on behalf of itself will observe, perform, and complywith each of the covenants set forth below in this Section 10.

 

10.1         Paymentof Certain Expenses.  Borrower shallpay to Agent, LC Issuer and each of the Lenders, within one Business Day ofAgent’s demand any and all fees, costs and expenses which Agent, LC Issuer orany Lender pays to a bank or other similar institution arising out of or inconnection with (i) the forwarding to Borrower, or any other Person onBorrower’s behalf, by Agent, LC Issuer or any Lender of proceeds of any CreditExtension made to Borrower pursuant to this Agreement, and (ii) thedepositing for collection by Agent, LC Issuer or any Lender of any check oritem of payment received or delivered to Agent, LC Issuer or any Lender onaccount of the Obligations.  Borrowershall reimburse Agent, LC Issuer and each Lender immediately, for any claimsasserted by any bank at which a blocked account is established for the depositof proceeds of the Loan Collateral in connection with such blocked account orany returned or uncollected checks received by such bank as proceeds of theLoan Collateral.

 

10.2         Noticeof Litigation.  Parent Guarantor orBorrower shall notify Agent in writing, promptly on Parent Guarantor’s orBorrower’s learning thereof, of any litigation, suit or administrativeproceeding which, if adversely determined, would reasonably be expected tocause or have a Material Adverse Effect, whether or not the claim is consideredby Parent Guarantor or Borrower to be covered by insurance.

 

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10.3         Noticeof ERISA Events.  Parent Guarantor orBorrower shall notify Agent in writing (i) at least 10 days prior to theadoption by Borrower or any Controlled Group member of any Pension Plan subjectto Title IV of ERISA; (ii) promptly on the occurrence of any ReportableEvent, and (iii) 30 days prior to any termination, partial termination ormerger of a Pension Plan or a transfer of a Pension Plan’s assets.

 

10.4         Noticeof Labor Disputes.  Parent Guarantoror Borrower shall notify Agent in writing (i), promptly upon Parent Guarantor’sor Borrower’s learning thereof, of any labor dispute to which any Credit Partymay become a party and which would reasonably be expected to cause or have aMaterial Adverse Effect, and (ii) the entering into of any collectivebargaining agreement or other labor contract relating to any of its facilities.

 

10.5         Compliancewith Laws.  Each Credit Party shallcomply with the requirements of all applicable laws, statutes, regulations, rules orordinances of any Governmental Authority, the noncompliance with which couldreasonably be expected to cause or have a Material Adverse Effect.

 

10.6         Noticeof Violations of Law, Tax Assessments. Parent Guarantor or Borrower shall notify Agent in writing, promptlyupon Parent Guarantor’s or Borrower’s, as the case may be, learning thereof, ofany violation of any law, statute, regulation, rule or ordinance of anyGovernmental Authority, and of the imposition of any federal, state or localTax withholding or assessment, applicable to any Credit Party, the violation orimposition of which could reasonably be expected to cause or have a MaterialAdverse Effect.  Parent Guarantor orBorrower shall (i) provide Agent with copies of all written notices andother documents pertaining to any investigation or remediation involving anyCredit Party and any Governmental Authorities which relate to EnvironmentalActivities, Environmental Requirements, or Hazardous Substances affecting suchCredit Party; and (ii) notify Agent promptly after obtaining knowledge ofthe Release or alleged Release in a reportable quantity (as defined underapplicable Environmental Law) of any Hazardous Substances on, in, under or affectingsuch Credit Party’s property or any surrounding area, and any noncompliancewith any Environmental Requirement which would reasonably be expected to causeor have a Material Adverse Effect.

 

10.7         Noticeof Default under Australian Loan Documents; Violations of Certain Agreements.  Borrower shall provide Lender with promptwritten notice of any default under the Australian Loan Documents upon becomingaware of such default.  Parent Guarantoror Borrower shall notify Agent in writing, within 10 Business Days after theearlier of when Parent Guarantor or Borrower learns, or is notified of theoccurrence, of any material breach by any Credit Party of, a notice oftermination or acceleration, or any demand for adequate assurances under, anyApplicable Agreement.

 

10.8         Noticeof Customer Defaults Under Indebtedness owed to Credit Parties.  Parent Guarantor or Borrower shall notifyAgent in writing, promptly upon Parent Guarantor’s or Borrower’s, as the casemay be, learning thereof, of any default by any obligor under any promissorynote or other evidence of any Indebtedness in the individual or aggregateprincipal amount in excess of $75,000 payable to any Credit Party.

 

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10.9         Taxesand Charges.  Parent Guarantor orBorrower shall, and Parent Guarantor shall cause each other Credit Party to, (i) timelyfile all federal, state and material local Tax returns which it is required bylaw to file, (ii) pay prior to their being delinquent all Taxes that aredue and payable, (iii) withhold all employment and similar Taxes which itis required by law to withhold, and (iv) maintain adequate reserves forthe payment of all Taxes; *provided*, *however*, that no such Taxes need be paid during such periodas they are being contested in good faith by such Credit Party, in appropriateproceedings promptly commenced and diligently prosecuted, if adequate reservesin accordance with GAAP have been set aside on such Credit Party’s books, andthe continuance of any such contest does not (a) result in any part of theLoan Collateral or any other property of such Credit Party being made thesubject of (1) any proceeding in foreclosure, (2) any levy orexecution (which shall not have been stayed or dismissed), or (3) anyseizure or other loss and (b) prevent Agent from having a perfected firstpriority security interest in, or as applicable, mortgage Lien on, the LoanCollateral or with respect to future advances made hereunder; and *provided*, *further*, thatsuch Credit Party will promptly pay such Tax when the dispute is finallysettled.

 

10.10       Indebtedness; Guaranties.

 

(i)               Other than theObligations, no Credit Party shall incur any Indebtedness other than (withoutduplication):

 

(a)           PermittedPurchase Money Indebtedness and any Refinancing Debt in respect thereof;

 

(b)           theLoans and the other Obligations;

 

(c)           unfundedpension fund and other employee benefit plan obligations and liabilities to theextent they are permitted to remain unfunded under applicable law;

 

(d)           existingIndebtedness described in Schedule 10.10 (excluding anyIndebtedness required hereunder to be repaid in full at closing) and (exceptfor intercompany indebtedness, which shall be subject to clause (i) below)any Refinancing Debt in respect thereof;

 

(e)           Indebtednessspecifically permitted under Section 10.31;

 

(f)            SubordinatedDebt, *provided* that immediately prior to andafter giving effect to such Indebtedness, no Event of Default shall haveoccurred and be continuing;

 

(g)           Indebtednesssecured by a Lien described by subsection (iii) of the definition ofPermitted Liens in an amount not to exceed the US Dollar Equivalent of$12,000,000 at any time outstanding;

 

(h)           Indebtednessconsisting of cash intercompany loans or advances received by or on behalf ofany Credit Party from any other Credit Party; *provided*,that: (i) each such Credit Party receiving such cash intercompany loan oradvance from Borrower 

 

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shall have executed anddelivered to Borrower (prior to or concurrently with the making of such cashloan or advance) a subordinated demand promissory note to evidence any suchcash intercompany Indebtedness owing at any time by such Credit Party toBorrower, which subordinated demand promissory note shall be in form andsubstance reasonably satisfactory to Agent and shall be pledged and deliveredto Agent pursuant to the applicable Security Documents as additional collateralsecurity for the Obligations; (ii) the applicable Credit Parties shallrecord all intercompany transactions on their books and records in a mannerreasonably satisfactory to Agent; (iii) at the time any such intercompanyloan or advance is made by any Credit Party and after giving effect thereto,such Credit Party shall be Solvent; (iv) no Event of Default would occurand be continuing after giving effect to any such proposed cash intercompanyloan or advance; and (v) in respect of any such cash intercompany loans oradvance received by Westaff UK from any other Credit Party, such cashintercompany loan or advance shall be an Investment permitted under clause (d) ofSection 10.17.

 

(i)            Indebtednessincurred by any Credit Party to Westaff Support consisting of unsecured,book-entry non-cash intercompany loans or advances made by Westaff Support toother Credit Party’s representing such other Credit Party’s deferred obligationto pay management fees or royalty payments to Westaff Support in the ordinarycourse consistent with past practices as of the Closing Date;

 

(j)            unsecuredIndebtedness incurred by any Credit Party (other than Parent Guarantor) inconnection with any deferred purchase price (including with respect toearn-outs) in connection with Permitted Acquisitions and other Acquisitionspermitted by Section 10.17, *provided* thatsuch Indebtedness not exceed $5,000,000; and

 

(k)           Permitted AcquisitionIndebtedness;

 

*provided*, that no Indebtedness otherwisepermitted under this subsection (i) to be incurred shall be permitted tobe incurred if, after giving effect to the incurrence thereof, any Event ofDefault shall have occurred and be continuing.

 

(ii)               TheCredit Parties shall not guaranty or enter into any agreements of guaranty orindemnity of the obligations of any Person except: (a) by endorsement ofnegotiable instruments payable at sight for deposit and or collection orsimilar banking transactions in the usual course of business; and (b) forguaranties of Indebtedness incurred for the benefit of any other Credit Partyif the primary obligation is expressly permitted by this Agreement; (c) forsupport letters required by the law of foreign jurisdictions in connection withthe filing of any annual report or delivery of financial statements by anyForeign Subsidiary; (d) for guaranties of payment obligations underoperating leases, including leases of real property, entered into by anyfranchisee or Subsidiary in an amount not to exceed (i) $1,000,000, in theaggregate, at any time outstanding if supported by any Letter of Credit issuedpursuant to this Agreement and (ii) $400,000, in the aggregate, at anytime outstanding for all other such guaranties; and (e) for customaryindemnity obligations arising under purchase agreements in represent ofPermitted Acquisitions and other Acquisitions permitted under Section 10.17.

 

(iii)              NoCredit Party shall, directly or indirectly, voluntarily purchase, redeem,defease or prepay before the scheduled payment date therefore any principal of,

 

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premium, if any, interestor other amount payable in respect of any Indebtedness, other than (a) theObligations; (b) any Indebtedness which Borrower is required by the termshereof to repay in full on the Closing Date; (c) Indebtedness secured by aPermitted Lien if the asset securing such Indebtedness has been sold orotherwise disposed of in accordance with Section 10.24; (d) Indebtednesspermitted by Section 10.31 upon any Refinancing thereof; (e) intercompanyIndebtedness owed to Borrower by any Credit Party or owed to any Credit Partyby any other Credit Party (other than Borrower); (f) Indebtednesspermitted under Section 10.10(i)(a) and Section 10.10(i)(d) upona refinancing thereof; (g) payments on Indebtedness evidenced by theStover Note as permitted by Section 10.29.1; and (h) otherIndebtedness (excluding Subordinated Debt) not in excess of $500,000.

 

10.11       Restrictions;Labor Disputes.  No Credit Partyshall become a party or subject to any charge, corporate restriction, judgment,decree or order or any labor dispute or enter into any contract, agreement orarrangement which, in any case, would reasonably be expected to cause or have aMaterial Adverse Effect.

 

10.12       PensionPlans.  No Credit Party shall, and noCredit Party shall allow any Controlled Group member to, permit any ReportableEvent or “prohibited transaction” (as defined by ERISA) for which no statutoryor class exemption exists under Sections 407 or 408 of ERISA orSections 4975(c)(2) or 4975(d) of the Internal Revenue Code tooccur or to continue as to any Pension Plan of any Credit Party or anyControlled Group member, which poses a threat of (i) termination of suchPension Plans (or trusts related thereto), which termination could reasonablybe expected to have a Material Adverse Effect or (ii) the imposition ofTaxes or penalties against such Pension Plans (or trusts related thereto), anyCredit Party, or any Controlled Group member, the imposition or payment ofwhich could reasonably be expected to cause or have a Material Adverse Effect.  With respect to each Pension Plan that isintended to meet the requirements of qualified pension benefit plans underSections 401(a) and 501(a) of the Internal Revenue Code, eachCredit Party and the applicable Controlled Group members shall continue tomaintain the qualified status of such Pension Plans, and all contributions toPension Plans which any Credit Party or any member of the Controlled Group isobligated to make shall be timely made when due, unless the failure to do sowould not reasonably be expected to cause or have a Material AdverseEffect.  No Credit Party shall, and noCredit Party shall permit any Controlled Group member to, incur any liabilityto the Pension Benefit Guaranty Corporation, the incurrence of which couldreasonably be expected to cause or have a Material Adverse Effect.

 

10.13       Solvency.  Each Credit Party individually and ParentGuarantor and its Subsidiaries (taken as a whole) shall continue to be Solvent.

 

10.14       PropertyInsurance.  Each Credit Party willinsure all of its real and personal property against loss or damage by fire,theft, burglary, pilferage, loss in transit and such other extended coveragehazards in amounts and against such hazards as is customary, in such CreditParty’s good faith and commercially reasonable determination, in its businessand location, and by insurers reasonably acceptable to Agent.  The policies or a certificate thereof signedby the insurer evidencing that such insurance coverage is in effect for periodsof not less than one year (as measured from the date of renewal) shall bedelivered to Agent within 5 Business Days after the issuance of the policies toany such Credit Party and after each renewal thereof.  All 

 

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premiums thereon shall bepaid by such Credit Party when due so as to keep such insurance in full forceand effect at all times.  Each suchpolicy of property insurance shall name Agent (and no other party) as losspayee and, as appropriate, mortgagee under a New York standard mortgagee clauseor other similar clause acceptable to Agent and shall provide that such policymay not be canceled without 30 days prior written notice to Agent (10 days fornon-payment of premium).  If any CreditParty fails to do so, Agent may (but shall not be required to) procure suchinsurance and charge the cost to Borrower’s loan account as part of theObligations payable on demand and secured by the Loan Collateral.

 

10.15       LiabilityInsurance.  Each Credit Party shall,at all times, maintain in full force and effect such liability insurance withrespect to its activities and business interruption, product liability andother insurance as is customary in its business and location, such insurance tobe provided by insurer(s) reasonably acceptable to Agent.  Such insurance shall name Agent as anadditional insured.

 

10.16       Mergers;Acquisitions.  No Credit Party shallform or acquire a subsidiary or merge or consolidate or be merged orconsolidated with or into any other Person, or otherwise reorganize, liquidateor wind-up or dissolve itself other than (i) in connection with aPermitted Acquisition or other Acquisition permitted by Section 10.17;(ii) any Credit Party may merge with any other Credit Party, but ifBorrower is a party to such merger, it shall be the surviving entity; and (iii) Borrowermay acquire all or substantially all of the assets or Stock of any franchiseeas permitted by Section 10.17(ii). No Credit Party shall (a) purchase or otherwise acquire (1) allor substantially all of the assets of any Person or the assets comprising anyline of business or business unit or division or (2) any partnership,joint venture or limited liability company interest in or with any Person or (b) purchasethe securities of, create, invest in, or form any Person (including aSubsidiary), in each case other than in connection with a Permitted Investmentor other Acquisition permitted by Section 10.17.

 

10.17       Investments.  No Credit Party shall make an Investment, exceptfor the following Investments after compliance with the terms of the applicableSecurity Document (each, a “Permitted Investment”):

 

(i)                PermittedAcquisitions;

 

(ii)               Acquisitionsby Borrower of all or substantially all of the assets or Capital Stock of anyfranchisee of Borrower, *provided* thatpayments made in respect of all such Acquisitions shall not exceed $5,000,000in the aggregate in any Fiscal year and *provided further*that immediately before and after giving effect to any such Acquisition, (a) noEvent of Default shall have occurred and be continuing or would result fromsuch Acquisition and (b) the sum of (i) Revolving Credit Availabilityand (2) Available Cash shall not be less than $5,000,000;

 

(iii)              CashEquivalents;

 

(iv)             investmentscomprised of notes payable, or stock or other securities issued by accountdebtors to any Credit Party pursuant to negotiated agreements with 

 

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respect to settlement ofsuch account debtor’s Receivables in the ordinary course of such Credit Party’sbusiness;

 

(v)              eachCredit Party may:

 

(a) maintain itsexisting investments in its Subsidiaries as of the Closing Date,

 

(b) make unsecured,book-entry non-cash intercompany loans and advances to Westaff Support aspermitted under Section 10.10(i)(i),

 

(c) make SubsidiaryContributions to any other Credit Party or any of their Subsidiaries aspermitted under clauses Section 10.10(i)(h),

 

(d) make SubsidiaryContributions in the form of cash intercompany loans or advances to Westaff UKafter the Closing Date, *provided* that (A) WestaffUK shall have executed and delivered to the applicable Credit Party (prior toor concurrently with the making of such cash intercompany loan or advance) asubordinated demand promissory note to evidence the corresponding Indebtednessowing at any time by Westaff UK to the applicable Credit Party, whichsubordinated demand promissory note shall be subordinated to the Obligations,in form and substance reasonably satisfactory to Agent, and shall be pledgedand delivered to Agent pursuant to the applicable Security Documents asadditional collateral security for the Obligations; (B) Westaff UK and theapplicable Credit Party shall record all intercompany transactions on its booksand records in a manner reasonably satisfactory to Agent; (C) at the timeany cash intercompany loan or advance is made and after giving effect thereto,the applicable Credit Party shall be Solvent; (D) no Event of Defaultwould occur and be continuing after giving effect to such proposed cashintercompany loan or advance; (E) the sum of (x) Revolving CreditAvailability and (y) Available Cash shall be not less than $6,000,000after giving effect to cash intercompany loan or advance; and (F) theaggregate principal amount of all cash intercompany loans and advances to WestaffUK after the Closing Date and otherwise permitted by this clause (4) shallnot exceed $1,000,000 at any time outstanding,

 

(e) make Subsidiary Contributions in theform of cash intercompany loans or advances to any Foreign Subsidiaries (otherthan Westaff UK) after the Closing Date, *provided* that,as to each such cash intercompany loan or advance, (A) each such ForeignSubsidiary receiving such cash intercompany loan or advance shall have executedand delivered to the applicable Credit Party (prior to or concurrently with themaking of such cash intercompany loan or advance) a promissory note to evidencethe corresponding Indebtedness owing at any time by such Foreign Subsidiary tothe applicable Credit Party, which promissory note shall be in form and substancereasonably satisfactory to Agent and shall be pledged and delivered to Agentpursuant to the applicable Security Documents as additional collateral securityfor the Obligations, *provided*, thatSubsidiary Contributions constituting “Junior Debt”, as such term is defined inthe Australian Subordination Deed, by any Credit Party to Westaff Australiashall not be pledged to Agent so long as the Australian Subordination Deedremains in effect and prohibits such pledge; (B) the applicable CreditParty shall record all intercompany transactions on its books and records in amanner reasonably satisfactory to Agent; (C) at the time any such cashintercompany loan or advance is made and after giving effect thereto, the 

 

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applicable Credit Party shall be Solvent; (D) no Event of Defaultwould occur and be continuing after giving effect to any such proposedSubsidiary Contribution; (E) the sum of (x) Revolving CreditAvailability and (y) Available Cash shall be not less than $6,000,000after giving effect to such cash intercompany loan or advance; and (F) theaggregate principal amount of all cash intercompany loans and advances toForeign Subsidiaries (other than Westaff UK) after the Closing Date andotherwise permitted by this clause (5) shall not exceed $500,000 atany time outstanding; and

 

(vi)             Borrowermay make loans or advances to licensees and franchisees in an aggregate amountoutstanding not to exceed the US Dollar Equivalent of $1,000,000.

 

Notwithstanding the foregoing, in the event Borrowershall request Lenders to consent to any Acquisition that is not a PermittedAcquisition because the all-in purchase price (after giving effect to anyearn-outs) of such Acquisition exceeds the maximum threshold amounts set forthin clause (ix) of the definition of “Permitted Acquisition” or is nototherwise permitted under this Section 10.17, Lenders agree toconsider such request for consent in good faith and in the exercise of theircommercially reasonable discretion so long as (i) the proposed Acquisitionwould be accretive to EBITDA of Borrower and the Credit Parties and (ii) anythird party debt used to fund any portion of the purchase price of suchAcquisition is subordinated to the Obligations in right of payment, enforcementand collection a manner acceptable to Required Lenders, it being understood andagreed that any such requested consent shall be at Lenders’ discretion andthat, as of the Closing Date, Lenders have not consented, nor committed, agreedor undertaken to consent, to any such Acquisition.

 

10.18       RestrictedPayments.  No Credit Party shall makeany Restricted Payment, except (a) intercompany loans and advances to theextent permitted by Section 10.10; (b) dividends anddistributions paid to Borrower; (c) dividends and distributions paid by toParent Guarantor to enable Parent Guarantor to pay any Taxes payable in respectof such Person, including in respect of such Person’s taxable income; (d) advancesto officers and employees of such Credit Party with respect to expensesincurred by those officers and employees which expenses are ordinary andnecessary business expenses and do not exceed in the aggregate $100,000outstanding at any one time; (e) payments of principal and interest ofIntercompany Notes issued in accordance with Section 10.10(i)(h); (f) scheduledpayments with respect to any Subordinated Debt in accordance with the terms ofsubordination relating thereto; (g) *provided* thatno Event of Default has occurred and is continuing or would result after givingeffect to any Restricted Payment pursuant to this clause (g), (1) paymentson the Indebtedness evidenced by the Stover Note permitted by Section 10.29.1,and (2) payments to repurchase or retire any outstanding Capital Stock,warrants, options, or other rights of Parent made to departed employees,officers or directors of any Credit Party, which amounts under this clause (2) arenot to exceed $500,000 in the aggregate in any Fiscal Year; (h) thepayment of a management fees to Westaff Support not to exceed 50% of any CreditParty’s gross profit in any Fiscal Year; and (i) the payment of royaltiesand license fees by a Credit Party to Westaff Support or Borrower.

 

10.19       Reserved.

 

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10.20       StockRights.  No Credit Party (other thanParent Guarantor) shall (i) change the rights or obligations associatedwith, or the terms of, any class of Capital Stock now issued by such CreditParty or (ii) issue any new class of Capital Stock of such Credit Party.

 

10.21       CapitalStructure; Fiscal Year; Nature of Business. No Credit Party shall make any change in such Credit Party’s capitalstructure which could reasonably be expected to cause or have a MaterialAdverse Effect.  No Credit Party shallchange its Fiscal Year.  Parent Guarantorand Borrower shall not, and Parent Guarantor shall not permit any of itsSubsidiaries to, engage in any material line of business substantiallydifferent from those lines of business conducted by Parent Guarantor and its Subsidiariesas of the Closing Date or any business reasonably related or incidentalthereto.  Notwithstanding the foregoingor anything to the contrary contained in any Loan Document, as long asMediaWorld is a dormant company, Borrower may cause MediaWorld to be wound upand dissolved, and upon such legal dissolution MediaWorld shall cease to be aSubsidiary Guarantor or a Credit Party under or for purposes of any of the LoanDocuments.

 

10.22       AffiliateTransactions.  No Credit Party shallenter into, or be a party to, any transaction with any of such Credit Party’sAffiliates, except for (i) payment of any Restricted Payment permittedunder Section 10.18; (ii) transactions described in Sections10.10, and 10.16; (iii) payment of a share of gross profit to aFranchisee, pursuant to the terms of the Franchise Agreement with suchFranchisee entered into in the ordinary course of such Credit Party’s business;*provided*, that if a Franchisee is anAffiliate of Parent Guarantor or any Credit Party, the applicable FranchiseAgreement shall have been entered into on an arm’s length basis and the termsthereof shall be consistent with past practices; and (iv) othertransactions that are in the ordinary course of business pursuant to thereasonable requirements of such Credit Party’s business and upon fair andreasonable terms which are fully disclosed to Agent and are no less favorableto such Credit Party than such Credit Party could obtain in a comparable arm’slength transaction with a Person who is not Borrower’s Affiliate.

 

10.23       OperatingAccounts.  At all times until theObligations are Paid in Full, each Credit Party shall maintain its primaryoperating accounts with Agent.

 

10.24       Saleof Assets.  No Credit Party shallsell, transfer, convey, assign or otherwise dispose of any of its properties orother assets, including the Capital Stock of any of its Subsidiaries (whetherin a public or a private offering or otherwise) or any of its Receivables,other than (a) the sale, transfer, conveyance or other disposition by aCredit Party of Equipment and other fixed assets that are obsolete or no longerused or useful in such Credit Party’s business; (b) property and otherassets having a value not exceeding the US Dollar Equivalent of $250,000 in anysingle transaction or the US Dollar Equivalent of $500,000 in the aggregate inany Fiscal Year, *provided* that Borrower shall notfactor or otherwise sell or transfer any Receivables without the prior writtenconsent of Agent; (c) the licensing of rights to franchisees in theordinary course of business consistent with practices as in effect on theClosing Date; (d) the issuance or sale of Capital Stock of ParentGuarantor upon exercise of warrants and options pursuant to employee anddirector incentive, stock option and employee purchase plans; (e) theliquidation of investments permitted under Section 10.17(iii); and (f) thesale of the Capital Stock of any Foreign Subsidiary (other than WestaffUK).  With respect to any disposition ofassets or other properties permitted pursuant to clauses (a),(b) or(f) above, Agent agrees on 

 

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reasonable prior writtennotice to release its Lien on such assets or other properties in order topermit the applicable Credit Party to effect such disposition and shall executeand deliver to Borrower, on behalf of such Credit Party, at Borrower’s expense,appropriate UCC-3 termination statements and other releases as reasonablyrequested by Borrower.

 

10.25       [Reserved].

 

10.26       Liens.  No Credit Party shall create, incur, assumeor permit to exist any Lien on or with respect to its Accounts or any of itsother properties or assets (whether now owned or hereafter acquired) except for(a) Liens in favor of the Secured Parties, securing the Obligations; (b) PermittedLiens; (c) Liens in existence on the date hereof and summarized on Schedule9.7 securing the Indebtedness described on Schedule 10.10 andRefinancings thereof, including extensions or renewals of any such Liens; providedthat the principal amount of the Indebtedness so secured is not increased andthe Lien does not attach to any other property; and (d) Liens createdafter the date hereof by conditional sale or other title retention agreements(including Capital Leases) securing Permitted Purchase Money Indebtedness (*provided* that such Liens attach only to the assets subjectto such purchase money debt and such Indebtedness is incurred within 30 daysfollowing such purchase and does not exceed 100% of the purchase price of thesubject assets).  In addition, no CreditParty shall become a party to any agreement, note, indenture or instrument, ortake any other action, that would prohibit the creation of a Lien on any of itsproperties or other assets in favor of the Secured Parties, as additionalcollateral for the Obligations, except operating leases, Capital Leasespurchase money financing permitted hereunder or licenses which prohibit Liensupon the assets that are subject thereto.

 

10.27       [Reserved].

 

10.28       FinancialCovenants.  Borrower shall observe,perform and comply with all of the financial covenants contained in Exhibit F(the “Financial Covenants”).

 

10.29       Payments on and Changesto Subordinated Debt.

 

10.29.1          Payments onSubordinated Debt.  Borrower shallnot (i) make any payment (including any principal, premium, interest, feeor charge) with respect to any Subordinated Debt except, in each instance, tothe extent, and in the manner, expressly permitted by the applicablesubordination agreement (including the self-executing subordination provisionsor any promissory note or other agreement evidencing such Subordinated Debt) or(ii) repurchase, redeem, defease, acquire or reacquire for value any ofthe Subordinated Debt except, in each instance to the extent, and in themanner, expressly permitted by the subordination agreement (including theself-executing subordination provisions or any promissory note or otheragreement evidencing such Subordinated Debt). Notwithstanding the foregoing, (a) *provided*that no Default or Event of Default hasoccurred and is continuing or would result therefrom (including withoutlimitation a violation of Section 10.28 on a *pro forma*basis), Borrower may make interest payments owing to Robert Stover under theStover Note in accordance with the terms thereof and (b) *provided* that (1) no Default or Event of Default has occurred and is continuing or wouldresult therefrom (including without limitation a violation of Section 10.28on a *pro forma* basis), (2) the financialstatements and related certificate for the second Fiscal Quarter of 2008 shallhave been delivered in accordance with Section 8.5 and the lastsentence of 

 

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Section 8.9 and (3) the sum of (x) RevolvingCredit Availability and (y) Available Cash would not be less than$7,000,000, Borrower may make principal payments owing to Robert Stover underthe Stover Note in accordance with the terms thereof.

 

10.29.2          Changesto Subordinated Debt Documents. Borrower shall not amend (i) any of the terms of payment(including, principal, interest or premium provisions) of or applicable to, orthe provisions governing the priority of or security for the payment andperformance of the obligations under or applicable to, or acceleration,termination, or default provisions of or applicable to, any of the loandocuments evidencing the Subordinate Debt (the “Subordinated Debt Documents”)unless such terms are more favorable to Borrower and do not materially andadversely affect the rights of Agent and the Lenders hereunder; or (ii) anyother material term of or applicable to any of the Subordinated Debt Documentsunless such terms are more favorable to Borrower and do not materially andadversely affect the rights of Agent and the Lenders hereunder.  For purposes of this Section 10.29,“material” means any modification or amendment of any of the Subordinated DebtDocuments, which would be reasonably likely to (a) adversely affect any ofAgent, LC Issuer or any Lender’s rights or remedies under the Loan Documents,the value of the Loan Collateral, or Agent, LC Issuer or any Lender’s securityinterest in or other Lien on the Loan Collateral (including the prioritythereof) or (b) create or result in an Event of Default.

 

10.30       Burdensome Agreements.  NoCredit Party shall enter into any agreement, instrument or otherundertaking (other than the LoanDocuments) that (i) limits or purport to limit the ability of such CreditParty to (a) make or pay any dividend or distribution or to otherwisetransfer property (other than property subject to Permitted Purchase MoneyIndebtedness) to any other Credit Party, (b) guaranty the Indebtedness ofBorrower or (c) create, incur, assume or suffer to exist Liens on any LoanCollateral; *provided, however*, that this clause (c) shallnot prohibit any negative pledge incurred or provided in favor of any holder ofIndebtedness permitted under Section 10.10(a) solely to theextent any such negative pledge relates to the property financed by or thesubject of such Indebtedness requires the grant of a Lien to secure anobligation of such Person if a Lien is granted to secure another obligation ofsuch Person.

 

10.31       Rate Hedging Agreements.  NoCredit Party shall enter into any Rate Hedging Agreement or incur any relatedRate Hedging Obligations (contingent or otherwise), except for RateHedging Agreements that are entered into by such Credit Party in the ordinarycourse of business for the purpose of directly mitigating risks associated withliabilities, commitments, investments, assets, or property held or reasonablyanticipated by such Credit Party and not for purposes of speculation or takinga “market view”.

 

10.32       Changes in Organizational Documents.  NoCredit Party shall permit the articles or certificate of incorporation, bylawsor other charter or organizational documents of such Credit Party to be amendedor modified in any way which could reasonably be expected to adversely affectthe interests of Agent, LC Issuer or Lenders (including the ability of CreditParties to pay the Obligations when due hereunder and otherwise to performtheir obligations hereunder and under the other Loan Documents).

 

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10.33       Anti-TerrorismLaws.  No Credit Party shall, andParent Guarantor shall not permit any of its other Subsidiaries to, (i) conductany business or engage in any transaction or dealing with any Blocked Person,including the making or receiving any contribution of funds, goods or servicesto or for the benefit of any Blocked Person, (ii) deal in, or otherwiseengage in any transaction relating to, any property or interests in propertyblocked pursuant to Executive Order No. 13224, or (iii) engage in orconspire to engage in any transaction that evades or avoids, or has the purposeof evading or avoiding, or attempts to violate, any of the prohibitions setforth in Executive Order No. 13224, the USA Patriot Act or any otherAnti-Terrorism Law.  Borrower shalldeliver to Agent, LC Issuer and the Lenders any certification or other evidencerequested from time to time by Agent, LC Issuer or the Lenders in their solediscretion confirming compliance with this Section 10.33.

 

10.34       FurtherAssurances.  Parent Guarantor andBorrower will execute and deliver or cause to be executed and delivered any andall further documents and instruments and to take any and all further actionsas may be determined by Agent to be necessary or appropriate to thetransactions contemplated herein or in the other Loan Documents.

 

11.           EVENTSOF DEFAULT

 

11.1         Events of Default.

 

(i)                Eachof the following events, whether or not caused by or within the control ofParent Guarantor or Borrower, will constitute an “Event of Default”under this Agreement:

 

(a)           (1) Borrowerfails to make any payment of principal of, or interest on, the Obligations whendue and payable, or (2) Borrower or any other Credit Party fails to payany of the other Obligations hereunder or under any other Loan Document within3 Business Days following Agent’s demand therefore or the date such Obligationsotherwise become due and payable hereunder or under the applicable LoanDocument, including any amounts required to be paid under Section 3.1.2;

 

(b)           (1) Borrowerdoes not observe, perform, or comply with any of the Financial Covenants, (2) anyof the Loan Documents cease, for any reason, to be in full force and effect, orParent Guarantor, Borrower or any other Person that is a party to any of theLoan Documents so asserts in writing, or (3) any Lien created under anyLoan Document ceases to be a valid and perfected first priority Lien (except asotherwise permitted herein or therein) in any of the Loan Collateral purportedto be covered thereby other than as a result of Agent’s failure to filecontinuation statements or maintain possession of any Loan Collateral under itscontrol;

 

(c)           ParentGuarantor, Borrower or any other Credit Party does not observe, perform, orcomply with any term or provision of this Agreement or of any of the other LoanDocuments to which it is a party (exclusive of those defaults covered by theother clauses of this Section 11.1(i) and Section 11.1(iii));

 

(d)           Anyrepresentation, warranty or statement made by or on behalf of Parent Guarantor,Borrower or any other Credit Party (1) in this Agreement, in 

 

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connection with thisAgreement or in any of the other Loan Documents to which it is a party wasfalse in any material respect, in the good faith judgment of Agent or RequiredLenders, when made or furnished or when treated as being made or furnished or (2) toinduce Lenders to make any Loan or LC Issuer to issue any Letter of Credit wasfalse in any material respect, in the good faith judgment of Agent or RequiredLenders, when made or furnished or when treated as being made or furnished;

 

(e)           Borrower:(1) is, as of any date, not Solvent, (2) becomes generally unable topay its debts as they become due, (3) makes a general assignment for thebenefit of creditors, or (4) calls a meeting of creditors for thecomposition of debts; or the Board of Directors of Borrower (or any committeethereof) adopts a resolution authorizing or has otherwise authorized theactions described in subitems (3) or (4) of this clause (e);

 

(f)            (1) Thereis filed by Borrower any case, petition, proceeding or other action (“BankruptcyCase”) under any existing or future bankruptcy, insolvency, reorganization,liquidation or arrangement or readjustment of debt law or any similar existingor future law of any applicable jurisdiction (“Insolvency Law”), (2) aninvoluntary Bankruptcy Case (“Involuntary Proceeding”) is commencedagainst Borrower under any Insolvency Law and the Involuntary Proceeding is notcontroverted within 10 days, or is not dismissed within 60 days, after thecommencement of the Bankruptcy Case, (3) a custodian, receiver, trustee,sequestrator, or agent is appointed or authorized to take charge of any ofBorrower’s properties or (4) Westaff UK takes any corporate action or other steps are taken or legalproceedings are started for any suspension of payments or a moratorium ofIndebtedness or for its winding up, dissolution, administration orre-organisation or for the appointment of a liquidator, receiver,administrator, administrative receiver, conservator, manager, custodian,examiner, trustee or similar officer of it or of any or all of its revenues andassets, *provided* that this Section 11.1(i)(f) shallnot apply to (i) any proceedings, measures or order relating to a solventreconstruction, amalgamation, reorganisation or merger of Westaff UK, previouslyapproved by Agent in writing; or (ii) any petition presented againstWestaff UK which Westaff UK demonstrates to the satisfaction of Agent (actingreasonably), by providing an opinion of a leading firm of London solicitors (orthe London office of a leading law firm in the United States of America) orotherwise, is frivolous, vexatious or an abuse of the court process or whichrelates to a claim to which Westaff UK has a good defence and which is beingvigorously defended in good faith by Westaff UK and is discharged, withdrawn ordiscontinued within 21 days of its presentation (or such longer period asAgent may allow) (acting reasonably);

 

(g)           (1) RequiredLenders, in the exercise of their judgment exercised in good faith, determinethat there has occurred any material and adverse change in the businessoperations or condition, financial or otherwise, of any Credit Party or ofParent Guarantor and its Subsidiaries (taken as a whole) or its or theirability to perform any of its or their payment or other material obligationsunder this Agreement or any of the other Loan Documents to which it is a partyor (2) Required Lenders, in their judgment exercised in good faith,determine that there has occurred any material and adverse change in theaggregate value of, or Agent’s, LC Issuer’s or the Lenders’ rights or interestsin, the Loan Collateral with the result that Agent’s, LC Issuer’s or theLenders’ security for the Obligations is materially diminished;

 

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(h)           [Reserved];

 

(i)            [Reserved];

 

(j)            (1) Adefault or breach occurs under any other agreement, document or instrument towhich any Credit Party is a party that is not cured within any applicable graceperiod therefor, and such default or breach (i) involves the failure tomake any payment when due in respect of Indebtedness (other than theObligations) of any Credit Party in excess of $2,000,000 in the aggregate (including (x) undrawn committed oravailable amounts and (y) amounts owing to all creditors under anycombined or syndicated credit arrangements), or (ii) causes, or permitsany holder of such Indebtedness or a trustee to cause, Indebtedness or aportion thereof in excess of $2,000,000in the aggregate to become due prior to its stated maturity or prior to itsregularly scheduled dates of payment, or cash collateral in respect thereof tobe demanded, in each case, other than if such default or acceleration is waivedor rescinded by the holder thereof or (2) there occurs a material breachby any Credit Party under any Applicable Agreement (other than the onesdescribed in clause (1) of this Section 11.1(j), the result ofwhich breach is to permit or cause the suspension or termination of the otherparties’ performance thereunder, the delivery of a notice of acceleration, orthe termination of such Applicable Agreement, unless such suspension ortermination is waived or rescinded;

 

(k)           Acontribution failure occurs with respect to any Pension Plan sufficient to giverise to a Lien under Section 302(f) of ERISA that could reasonably beexpected to cause or have a Material Adverse Effect;

 

(l)            Thereis instituted against any Credit Party any criminal proceeding for whichforfeiture of any material portion of its assets is a penalty, or any CreditParty is enjoined, restrained or in any way prevented by order of anyGovernmental Authority from conducting any material part of its businessaffairs and such order is not stayed, to the reasonable satisfaction of Agent,or dissolved within 20 days from the effective date of such order;

 

(m)          AnyCredit Party shall voluntarily dissolve or cease to exist, other than aspermitted under Section 10.16, or any final and nonappealable order orJudgment shall be entered against Borrower decreeing its involuntarydissolution;

 

(n)           Thereoccurs a Change of Control;

 

(o)           [Reserved];

 

(p)           AnyCredit Party discovers, identifies, is given notice by any Person, or otherwisehas knowledge of (1) the existence of any Environmental Liability or (2) anyone or more Releases of Hazardous Substances on, about or affecting a CreditParty Facility or any Credit Party’s business operations which, by itself or inthe aggregate, will or could reasonably be estimated to subject such CreditParty individually or Credit Parties (taken as a whole) to indebtedness,liability, or obligations in excess of $500,000****duringthe term of this Agreement; or

 

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(q)           (1) There is filed by any Affiliate Guarantor any Bankruptcy Case under anyInsolvency Law; (2) an Involuntary Proceeding is commenced against anyAffiliate Guarantor under any Insolvency Law and the Involuntary Proceeding isnot controverted within 20 days, or is not dismissed within 60 days, after thecommencement of the Involuntary Proceeding; (3) a custodian, receiver,trustee, sequestrator, or agent is appointed or authorized to take charge ofany of any Affiliate Guarantor’s properties; (4) any Affiliate Guarantordissolves, ceases to exist, or is wound up, other than as permitted under Section 10.16;or (5) any Affiliate Guarantor denies its obligation to guarantee theGuaranteed Obligations (as defined in the applicable Affiliate GuarantyAgreement) or to grant security interest in its property under any SecurityDocument to which such Affiliate Guarantor is a party or attempts to limit orterminate its obligation to guarantee the Guaranteed Obligations.

 

(r)            Anyjudgment, order for the payment of money or award (“Judgment”) isrendered against a Credit Party:  (i) (a) inexcess of $750,000 (or any number of Judgments in excess of $1,000,000 in theaggregate in respect of all Credit Parties (taken as a whole)) of any availableinsurance coverage in effect to satisfy such Judgment for which the insurer hasaccepted tender of the coverage or otherwise agreed to undertake the defense or(b) which would reasonably be expected to have a Material Adverse Effect(regardless of monetary amount or insurance coverage), and (ii) which (1) hasnot been vacated, discharged or satisfied within 30 days of the due date of theinitial payment; or (2) if appealable by such Credit Party, such CreditParty: (A) has not appealed such Judgment within the time allotted forsuch appeal under applicable law, (B) has ceased prosecuting such appealdiligently and in good faith, or (C) has not bonded or obtained a stay ofsuch Judgment pending such appeal.

 

(ii)           Each Event of Defaultwill be deemed continuing until it is waived in writing by, or cured to thewritten satisfaction of, Required Lenders in accordance with Section 14.1.

 

(iii)          Borrower shall, within 3Business Days after its knowledge thereof, give notice to Agent of theoccurrence of any Default or Event of Default.

 

11.2         Cure Periods.

 

(i)                Subject to Section 11.2(ii),

 

(a)           anevent or condition of the type described in clause (c) of Section 11.1(i) (exclusiveof a default arising under Sections 8.2, 8.3, 8.4, 10.14,10.15, or 10.28 for which no cure period will be allowed) will beconsidered an Event of Default for purposes of Section 12.1 of thisAgreement only if the applicable Credit Party fails to cure the default within15 days after the earlier of (1) the date on which such Credit Party hasknowledge of the existence of such event or condition or (2) the date onwhich Agent notifies Borrower of the existence of such event or condition; *provided*, if such Event of Default is susceptible of cure and theapplicable Credit Party is diligently pursuing such cure, an Event of Defaultshall not exist hereunder if such Event of Default is cured within 30 days ofsuch notice; *provided further,**however*, if a period of cure is provided for in any of theother Loan Documents with respect to a 

 

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default under such otherLoan Documents, the period of cure set forth in this Section 11.2(i)(a) willnot be applicable to such default; and

 

(b)           anevent or condition of the type described in clause (g) of Section 11.1(i) willbe considered an Event of Default for purposes of Section 12.1 ofthis Agreement only if (1) Agent shall have first given written noticethereof to Borrower, and (2) either (A) Borrower shall fail, within15 days after the delivery of such notice from Agent, to deliver a businessplan to Agent which, to Required Lenders’ sole satisfaction, shall provide anacceptable means to cure such default or (B) Parent Guarantor and Borrowerfails to cure such default to Required Lenders’ sole satisfaction within 15days after Agent gives Borrower written approval of such business plan.  Nothing in this clause (b) of Section 11.2(i),however, obligates Required Lenders under any circumstances to (w) supportany business plan proposed by Borrower, (x) consider any more than theoriginal business plan proposed by Borrower, or (y) consider any businessplan proposed by Borrower if any other Event of Default has occurred or thenexists.

 

(i)                Section 11.2(i) willnot be applicable with regard to (1) any default which by its nature isnot susceptible of cure, or (2) any default, as a result of which,Required Lenders believe, in the exercise of their judgment in good faith, thatthere exists an immediate and material risk, threat, or danger to Agent, LCIssuer’s or the Lenders’ interests in a material portion the Loan Collateral orthe collectibility of the Obligations.

 

12.           LENDERS’RIGHTS AND REMEDIES

 

12.1         Acceleration.  Upon the occurrence of any Event of Default,in addition to all other rights and remedies provided in the Loan Documents oravailable at law or in equity, Agent, without further notice or demand butsubject to Section 11.2, (i) may, and will (if requested byRequired Lenders), (a) declare the Loans and all other Obligations to beimmediately due and payable, whereupon the Loans and all other Obligationsshall be immediately due and payable, and (b) terminate the obligation andpower of LC Issuer to issue Letters of Credit and terminate all or any portionof the Revolving Credit Commitments, and thereupon such obligations, powers andRevolving Credit Commitments shall terminate immediately (except that withrespect to any Event of Default under Section 11.1(i)(e) or (f) (exclusiveof an Involuntary Proceeding), such acceleration of the Loans and otherObligations, termination of the obligation and power of LC Issuer to issueLetters of Credit and termination of the Revolving Credit Commitments shall beautomatic), (ii) may terminate this Agreement, and (iii) will haveall rights to realize upon, and exercise Agent’s, LC Issuer’s and the Lenders’rights with respect to, the Loan Collateral pursuant to this Agreement and theother Loan Documents, and as otherwise provided by applicable law.

 

12.2         Feesand Expenses.  Borrower shall pay toAgent, on demand (and in no event later than the immediately succeedingBusiness Day) and as part of the Obligations, all reasonable costs andexpenses, including court costs, Attorneys’ Fees and costs of sale, incurred byAgent, LC Issuer or the Lenders in exercising any of their default rights orremedies under the Loan Documents.

 

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12.3         Actionsin Respect of Letters of Credit.  Ifany Event of Default shall have occurred and be continuing, Agent may, whetherin addition to taking any of the actions described in Section 12.1or otherwise, make demand upon Borrower to, and forthwith upon such demandBorrower will, pay to Agent in same day funds at Agent’s office designated insuch demand, for deposit in the Letter of Credit Collateral Account, an amountequal to the Letter of Credit Exposure from time to time in existence.  On each drawing under a Letter of Credit,Agent shall seek reimbursement from any amounts then on deposit in the Letterof Credit Collateral Account; *however*, if (i) noamounts are then on deposit in the Letter of Credit Collateral Account, (ii) theamount then on deposit in the Letter of Credit Collateral Account isinsufficient to pay the amount of such drawing, or (iii) Agent is legallyprevented or restrained from immediately applying amounts on deposit in theLetter of Credit Collateral Account, then the amount of each unreimburseddrawing under such Letter of Credit and payment required to be made under this Section 12.3shall automatically be converted into a Revolving Loan made on the date of suchdrawing for all purposes of this Agreement. To the extent that Agent applies amounts on deposit in the Letter ofCredit Collateral Account as provided in this Section 12.3, and,thereafter, such application (or any portion thereof) is rescinded or anyamount so applied must otherwise be returned by Agent upon the insolvency,bankruptcy or reorganization of Borrower or otherwise, then the amount sorescinded or returned shall automatically be converted into a Revolving Loanmade on the date of such drawing for all purposes of this Agreement.  Upon Payment in Full of the Obligations, allfunds in the Letter of Credit Collateral Account, including any interestaccrued thereon, shall be returned to Borrower.

 

13.           AGENT

 

13.1         Appointment.  Each Lender and LC Issuer hereby irrevocablydesignates and appoints U.S. Bank as the contractual representative of eachLender and LC Issuer under this Agreement and the other Loan Documents (in suchcapacity, the “Agent”).  EachLender and LC Issuer irrevocably authorizes U.S. Bank, as agent for each Lenderand LC Issuer, to take any and all actions on its behalf under the provisionsof this Agreement and the other Loan Documents and to exercise any and allpowers and perform any and all duties as are expressly delegated to Agent bythe terms of this Agreement and the other Loan Documents together with any andall other powers as are reasonably incidental thereto.  Notwithstanding any provision to the contraryelsewhere in this Agreement, Agent shall not have any duties orresponsibilities except those expressly set forth in this Agreement or anyfiduciary relationship with any Lender or LC Issuer, and no implied covenants,functions, responsibilities, duties, obligations or liabilities may be readinto this Agreement or any other Loan Document or otherwise exist againstAgent.  Each Lender and LC Issuerauthorizes and directs Agent, on behalf the Lenders and LC Issuer, to enterinto each of the Loan Documents.

 

13.2         Delegationof Duties.  Agent may execute any ofits duties under this Agreement and the other Loan Documents by or through agents,contractors, or attorneys-in-fact and will be entitled to advice of counselconcerning all matters pertaining to those duties.  Agent will not be responsible for thenegligence or misconduct of any agents, contractors, or attorneys-in-factselected by it in good faith.

 

13.3         ExculpatoryProvisions.  Neither Agent nor any ofits officers, directors, employees, agents, attorneys-in-fact or Affiliates maybe (i) liable for any action lawfully taken 

 

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or omitted to be taken byit or such Person under or in connection with this Agreement or any other LoanDocument (except to the extent of any direct damages suffered from its or suchPerson’s own gross negligence or willful misconduct) or (ii) responsiblein any manner to any of the Lenders or LC Issuer (a) for any recitals,statements, representations or warranties made by Parent Guarantor, Borrower orany other Credit Party or any officer of Parent Guarantor, Borrower or anyother Credit Party contained in this Agreement or any other Loan Document or inany certificate, report, statement or other document or electronic transmissionreferred to, or provided for in, or received by Agent under or in connectionwith, this Agreement or any other Loan Document, (b) for the value,validity, effectiveness, genuineness, enforceability or sufficiency of thisAgreement or any other Loan Document, (c) the value of the LoanCollateral, the perfection or priority of any interest of Agent, LC Issuer orthe Lenders in the Loan Collateral purported to be created or perfected by theLoan Documents, or with respect to rights and interests pertaining to the LoanDocuments, (d) for any failure of any Credit Party to perform itsobligations under this Agreement or any other Loan Document to which it is aparty, (e) for any loss or depreciation of, lack of insurance on, orfailure to realize on, any Loan Collateral or for the failure or delay incollecting or receiving payment of any sums from Borrower or any other CreditParty, or for any mistake, omission, or error of judgment in passing upon oraccepting any Loan Collateral, or in the making of any examination, or forgranting extensions or indulgences to Borrower or any other Credit Partypermitted to be made hereunder, (f) for any apportionment or distributionsof payments made by it pursuant to Section 4 hereof, absent grossnegligence or willful misconduct or, (g) with respect to the income orwithholding Tax status with respect to any interest on, or fees in respect of,the Loans.  Agent will not be under anyobligation to any Lender or LC Issuer to ascertain or to inquire as to theobservance or performance of any of the agreements contained in, or conditionsof, this Agreement or any other Loan Document, or to inspect the properties,books or records of Parent Guarantor, Borrower and the other Credit Parties.

 

13.4         Relianceby Agent.  Agent will be entitled torely, and will be fully protected in relying, on any agreement, instrument,writing, resolution, notice, consent, certificate, affidavit, letter,facsimile, telex, teletype, or email message, statement, order or otherdocument or conversation believed by it to be genuine and correct and to havebeen signed, sent or made by the proper Person or Persons and on advice and statementsof legal counsel (including counsel to the Credit Parties), independentaccountants and other experts selected by Agent.  Agent may deem and treat each Lender as theowner of its Loans for all purposes unless an assignment thereof has been made inaccordance with the terms of this Agreement. As to any matters not expressly provided for by this Agreement and theother Loan Documents (including without limitation enforcement and collectionof the Notes), Agent may, but shall not be required to, exercise any discretionor take any action, but Agent shall, subject to the terms of this Agreement, berequired to act or to refrain from acting (and shall be fully protected in soacting or refraining from acting) upon the instructions of Required Lenders,whenever such instruction shall be requested by Agent or required hereunder, ora greater or lesser number of the Lenders if so required hereunder, and suchinstructions shall be binding upon all Lenders and all future holders of theObligations; *provided*, that Agent will befully justified as between itself and the Lenders and LC Issuer in failing orrefusing to take any action under this Agreement or any other Loan Documentunless Agent has first received such advice or concurrence of Required Lenders asAgent deems appropriate or Agent has been first indemnified to its satisfactionby the Lenders 

 

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against any and allliability and expense which may be incurred by it by reason of taking orcontinuing to take any such action.

 

13.5         Noticeof Default.  Agent will be deemed notto have knowledge or notice of the occurrence of any Event of Default unlessAgent has received notice from a Lender or Borrower referring to thisAgreement, describing the Event of Default and stating that the notice is a “noticeof default”.  If Agent receives such anotice, Agent will give prompt notice thereof to the Lenders.  Subject to the terms of this Agreement, Agentwill take such action reasonably promptly with respect to such Event of Defaultas is reasonably directed by Required Lenders; *however*,unless and until Agent has received such directions, Agent may (but shall notbe obligated to) take such action, or refrain from taking such action, withrespect to such Event of Default as it believes advisable in the best interestsof the Lenders.  Notwithstanding anythingto the contrary in this Section 13, at no time will Agent berequired under any circumstance to take any action that, in its sole andabsolute judgment, (i) is contrary to the terms of the Loan Documents orapplicable law or (ii) would expose Agent to liability.

 

13.6         Non-Relianceon Agent and Other Lenders.  EachLender and LC Issuer expressly acknowledges that neither Agent nor any of itsofficers, directors, employees, agents, attorneys-in-fact or Affiliates hasmade any representations or warranties to any Lender or LC Issuer and that noact by Agent in the future taken, including any review of the affairs ofBorrower, will be deemed to constitute any representation or warranty by Agentto any Lender or LC Issuer.  Each Lenderand LC Issuer represents to Agent that such Lender and LC Issuer has,independently and without reliance on Agent or any other Lender, and based onsuch documents and information as such Lender or LC Issuer has deemedappropriate, made its own appraisal of and investigation into the business,operations, property, financial and other condition and creditworthiness ofBorrower and the other Credit Parties and made its own decision to make itsCredit Extensions under this Agreement and enter into this Agreement.  Each Lender and LC Issuer also representsthat it will, independently and without reliance on Agent or any other Lender,and based on such documents and information as each Lender or LC Issuer deemsappropriate at the time, continue to make its own credit analysis, appraisalsand decisions in taking or not taking action under this Agreement and the otherLoan Documents, and to make such investigation as it deems necessary to informitself as to the business, prospects, operations, property, financial and othercondition and creditworthiness of Borrower and the other Credit Parties.

 

13.7         Indemnification.  Each Lender shall indemnify Agent in itscapacity as such (to the extent not reimbursed by Borrower and without limitingthe obligation of Borrower and the other Credit Parties to do so), ratablyaccording to their Total Exposure Percentage in effect on the date on whichindemnification is sought under this Section 13.7 (or, if indemnificationis sought after the date on which the Revolving Credit Commitments haveterminated and the Loans shall have been paid in full, ratably in accordancewith their Total Exposure Percentage immediately before that date), from andagainst any and all liabilities, obligations, losses, damages, penalties,actions, judgments, suits, costs, expenses or disbursements of any kindwhatsoever which may at any time (including at any time following the paymentof the Obligations) be imposed on, incurred by or asserted against Agent in anyway relating to or arising out of this Agreement, any of the other LoanDocuments or any documents contemplated by or referred to in this Agreement orin any of the other Loan Documents or the transactions contemplated by this Agreementor by any of the other Loan Documents or any action taken or 

 

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omitted by Agent under orin connection with any of the foregoing; *provided* thatno Lender shall be liable for the payment of any portion of such liabilities,obligations, losses, damages, penalties, actions, judgments, suits, costs,expenses or disbursements to the extent resulting from Agent’s gross negligenceor willful misconduct so long as such Lender had no part in such action oromission by Agent and did not receive any benefit from such action or omissionby Agent.  The agreements in this Section 13.7will survive the payment of the Obligations.

 

13.8         Agentin Its Individual Capacity.  Agentand its Affiliates may make loans to, accept deposits from and generally engagein any kind of business with the Credit Parties and their Affiliates as thoughAgent were not an agent under this Agreement and under the other LoanDocuments.  With respect to its Loansmade or renewed by it, Agent will have the same rights and powers under thisAgreement and the other Loan Documents as any Lender and may exercise the sameas though it were not Agent, and the terms “Lender” and “Lenders” will includeAgent in its individual capacity.

 

13.9         Resignationof Agent.  Agent may resign as Agenton 30 days advance notice to Borrower, the Lenders and LC Issuer.  If Agent resigns as Agent under thisAgreement and the other Loan Documents, then Required Lenders will, within 30days after notice of Agent’s resignation, appoint from among the Lenders asuccessor agent for the Lenders, which, unless an Event of Default has occurredand is continuing, successor agent must be approved by Borrower (which approvalshall not be unreasonably withheld, delayed or conditioned), whereupon (i) suchsuccessor agent will succeed to the rights, powers and duties of Agent, (ii) theterm “Agent” will mean such successor agent effective on such appointment andapproval, and (iii) the former Agent’s rights, powers and duties as Agentwill be terminated, without any other or further act or deed on the part ofsuch former Agent or any of the parties to this Agreement or any holders of theObligations; *however*, if a successor agent hasnot so been appointed within that 30 day period, the retiring Agent will havethe right to appoint a successor agent, which shall be a commercial bankorganized under the laws of the United States of America or of any statethereof and having a combined capital and surplus of at least $500,000,000 who willserve as “Agent” until the time, if ever, as Required Lenders appoint asuccessor Agent as provided in this Section 13.9.  After any retiring Agent’s resignation asAgent, (a) the provisions of this Section 13 will inure to itsbenefit as to any actions taken or omitted to be taken by it while it was Agentunder this Agreement and the other Loan Documents and (b) the retiringAgent will be relieved of all further duties and obligations as Agent.

 

13.10       Loan Collateral Matters.

 

13.10.1          Perfection/EnforcementActions.  Agent will hold the LoanCollateral under the Security Documents as agent for the benefit of Agent, LCIssuer and Lenders, subject to the terms of this Agreement and the SecurityDocuments.  Agent is hereby authorized onbehalf of all of the Lenders and LC Issuer, without the necessity of any noticeto or further consent from any Lender or the LC Issuer, from time to time, totake any action with respect to any Loan Collateral which may be necessary ordesirable to perfect and maintain perfected the security interest in and Lienson the Loan Collateral granted pursuant to the Loan Documents.  Payment and performance of the Obligationsunder this Agreement and the other Loan Documents may be enforced only by theaction of Agent, and no Lender or LC Issuer will have any right individually toseek to enforce or to enforce payment or performance of the Obligations 

 

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or any of thoseagreements, it being understood and agreed that such rights and remedies may beexercised only by Agent, for the benefit of Agent, LC Issuer and the Lenders,upon the terms of those agreements and this Agreement.

 

13.10.2          Releaseof Loan Collateral.  The Lenders andLC Issuer hereby authorize Agent, at its option and in its discretion, torelease any Agent’s Liens on any Loan Collateral (i) upon Payment in Fullof all Obligations at any time arising under or in respect of this Agreement orthe other Loan Documents or the transactions contemplated hereby or thereby, (ii) constitutingproperty in which Borrower or any other Credit Party did not own an interest atthe time the Lien was granted to Agent, (iii) to the extent required inconnection with the sale or disposition of any Loan Collateral by any CreditParty, as permitted hereunder (including under Section 10.24hereof) or under any of the other Loan Documents, or in connection with anymerger permitted under Section 10.16 hereof, or to effect any saleor other disposition of any Loan Collateral in connection with any exercise ofremedies of Agent and Lenders pursuant to the Loan Documents, (iv) ownedby or leased to any Credit Party which is subject to a purchase money securityinterest or which is the subject of a Capital Lease, in either case, enteredinto pursuant to Section 10.10(a) or (v) constitutingproperty leased to any Credit Party under a lease which has expired or beenterminated in a transaction permitted under this Agreement or is about toexpire and which has not been, and is not intended by such Credit Party to be,renewed or extended.  On request by Agentat any time, the Lenders and LC Issuer will confirm in writing Agent’sauthority to release particular types or items of Loan Collateral pursuant tothis Section 13.10.  In theevent of any sale or transfer of Loan Collateral, or any foreclosure withrespect to any of the Loan Collateral, Agent is authorized to deduct all of theexpenses incurred by Agent from the proceeds of any such sale, transfer orforeclosure.

 

13.10.3          AutomaticRelease of Loan Collateral.  TheLenders and LC Issuer hereby agree that Agent’s Liens in any property sold ordisposed of in accordance with the provisions of Section 10.24will, if no Event of Default then exists, be automatically released.

 

13.10.4          Executionof Release Documents.  To the extent,pursuant to the provisions of Sections 13.10.2 and 13.10.3,Agent’s execution of a release is required to release Agent’s Liens on any saleand transfer of Loan Collateral which is expressly permitted pursuant to theterms of this Agreement, or consented to in writing by Required Lenders or byall of the Lenders, as applicable, and on at least 5 Business Days priorwritten request by Borrower, Agent will (and is hereby irrevocably authorizedby the Lenders to) execute such documents as may be necessary to evidence therelease of Agent’s Liens in the Loan Documents on the Loan Collateral that wassold or transferred; *provided* that (i) Agentwill not be required to execute any such document on terms which, in Agent’sopinion, would expose Agent to liability or create any obligation or entail anyconsequence other than the release of such Liens without recourse or warrantyand (ii) such release will not in any manner discharge, affect or impairthe Obligations or any Liens on (or obligations of Borrower in respect of) allinterests retained by Borrower, including the proceeds of the sale, all ofwhich will continue to constitute part of the Loan Collateral (unless and untilthe Obligations are Paid in Full).

 

13.10.5          Agencyfor Perfection by Possession.  EachLender and LC Issuer hereby appoints each other Lender and LC Issuer as agentfor the purpose of perfecting Agent’s Liens on property which, in accordancewith the UCC or other applicable law, can be perfected 

 

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only by possession orcontrol.  Should any Lender or LC Issuer(other than Agent but inclusive of any Lender’s Participant) obtain possessionof any collateral or security for the Obligations, that Lender or LC Issuerwill notify Agent and, promptly on Agent’s request, that Lender or LC Issuerwill deliver the collateral to Agent or in accordance with Agent’sinstructions.

 

13.10.6          Agent Expenditures.

 

(i)                Subjectto the limitations set forth in this Section 13.10.6, Agent is herebyauthorized by Borrower and the Lenders, from time to time in Agent’sdiscretion, (a) during the existence of an Event of Default or (b) atany time that any of the other applicable conditions precedent set forth in Section 5.2have not been satisfied, to make advances to Borrower on behalf of the Lenderswhich Agent, in its judgment, deems necessary or desirable (1) to preserveor protect the Loan Collateral, or any portion thereof, (2) to collect anyof the Obligations, (3) to sell, liquidate, dispose of, or otherwiserealize on, any of the Loan Collateral, (4) to preserve, interpret,enforce, or defend any rights or remedies of Agent, the Lenders or LC Issuer orany of them, conferred by the Loan Documents, (5) to enhance thelikelihood of, or maximize the amount of, repayment of the Loans and otherObligations, or (6) to pay any other amount chargeable to Borrower or anyother Credit Party pursuant to the terms of this Agreement, including costs,fees and expenses as described in Section 15.6 (any of the advancesdescribed in this Section 13.10.6 being hereinafter referred to as “AgentAdvances”); *provided* that Required Lendersmay at any time revoke Agent’s authorization contained in this Section 13.10.6to make the Agent Advances, any such revocation to be in writing and to becomeeffective prospectively upon Agent’s receipt thereof; and, *provided*,*further*, that Agent shall not make AgentAdvances for purposes described in clauses (2) through (5) abovewhich would, if such Agent Advances were treated as Revolving Loans forpurposes of the definition of “Revolving Credit Availability” cause theRevolving Credit Availability to be a negative number greater than$1,000,000.  Agent shall promptly notifyeach Lender in writing of each such Agent Advance.  Each Agent Advance will be evidenced solelyby entries upon Agent’s books and records.

 

(ii)               EachAgent Advance shall be secured by the Loan Collateral and shall constitute aLoan and an Obligation bearing interest at the Default Rate specified in Section 3.2.3for an Obligation which would have borne interest under Section 3.2.1(ii) atthe Applicable Prime Rate Margin plus the Prime Rate.  No part of any Agent Advance may, on therepayment thereof, be redrawn or reborrowed by Borrower.

 

(iii)              BythemakingofanAgentAdvanceandwithoutanyfurtheractiononthepartofAgentortheLenders,AgentherebygrantstoeachLender,andeachLenderherebyacquiresfromAgent,aparticipationinsuchAgentAdvanceequaltosuchLender’sAgentAdvanceExposurePercentageofsuchAgentAdvance.  Inconsiderationandinfurtheranceoftheforegoing,eachLenderherebyabsolutelyandunconditionallyagreestopaytoAgent,fortheaccountofAgent,suchLender’sAgentAdvanceExposurePercentageofeachAgentAdvance,orofanypaymentonanAgentAdvancerequiredtoberefundedtoBorrowerforanyreason.  EachLenderacknowledgesandagreesthatitsobligationtoacquireparticipationspursuanttothisSection13.10.6(iii)inrespectofAgentAdvancesisabsoluteandunconditionalandshallnotbeaffectedbyanycircumstancewhatsoever,includingtheoccurrenceandcontinuanceofanEventofDefault,thefailureofanyconditioninSection5tobe

 

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satisfied, or anyreduction or termination of the Revolving Credit Commitments, and that eachsuch payment shall be made without any offset, abatement, withholding orreduction whatsoever.  Following receiptby Agent of any payment by Borrower in respect of any Agent Advance, Agentshall apply such payments to such Agent Advance and, to the extent that theLenders have made payments pursuant to this Section 13.10.6(iii) toAgent, then to Agent and such Lenders, as their interest may appear.  The purchase of participations in any AgentAdvance pursuant to this Section 13.10.6(iii) shall notrelieve Borrower of any default in the payment thereof.

 

13.11       Overadvances.  Notwithstanding anything to the contrary inthis Agreement, Borrower and the Lenders agree that Agent in its solediscretion may, but shall not be obligated to, elect on behalf of the Lenders,on one or more occasions, to exceed the limits of the Borrowing Base andthereby increase the Revolving Credit Availability by such amount from time totime (each Revolving Loan resulting therefrom, an “Overadvance”); *provided* that (i) no Overadvance shall be for a periodlonger than 15 Business Days and (ii) all such Overadvances outstanding asof any date shall not exceed an amount equal to $2,000,000 in the aggregate(Overadvances meeting those conditions, being “Permitted Overadvances”).  All Overadvances shall constitute RevolvingLoans for all purposes of this Agreement. The making of any Overadvance shall not constitute a waiver by Agent, LCIssuer or the Lenders of their right to refuse the making of any further CreditExtensions at any time any Overadvance exists.

 

13.12       NoThird Party Beneficiary.  Theprovisions of Sections 13.1 through 13.8, 13.10.1, 13.10.5,13.13 and 13.14,  are solely for thebenefit of Agent, LC Issuer and the Lenders, and neither Borrower nor any otherCredit Party will have any rights as a third party beneficiary of any of suchprovisions.  In performing its functionsand duties as Agent under this Agreement and the other Loan Documents, Agentacts solely as Agent of LC Issuer and the Lenders and does not assume and willnot be deemed to have assumed any obligation toward, or relationship of agencyor trust with or for, Borrower, any other Credit Party or any other Affiliateof Borrower.

 

13.13       NoReliance on Agent’s Customer Identification Program.  Each Lender acknowledges and agrees thatneither such Lender, nor any of its Affiliates, participants or assignees, mayrely on Agent to carry out such Lender’s, Affiliate’s, participant’s or assignee’scustomer identification program, or other obligations required or imposed underor pursuant to the USA Patriot Act or the regulations thereunder, including theregulations contained in 31 C.F.R. Section 103.121 (as hereafter amended,the “CIP Regulations”), or any other Anti-Terrorism Law, including anyprograms involving any of the following items relating to or in connection withBorrower any other Credit Party or any of their respective Affiliates oragents, this Agreement or the Loan Documents or the transactions hereunder orcontemplated hereby: (1) any identity verification procedures, (2) anyrecordkeeping, (3) comparisons with government lists, (4) customernotices or (5) other procedures required under the CIP Regulations or suchother laws.

 

13.14       USAPatriot Act.  Each Lender or assigneeor participant of a Lender that is not incorporated under the Laws of theUnited States of America or a state thereof (and is not excepted from thecertification requirement contained in Section 313 of the USA Patriot Actand the applicable regulations because it is both (i) an affiliate of adepository institution or foreign Lender that maintains a physical presence inthe United States or foreign county, and (ii) subject 

 

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to supervision by abanking authority regulating such affiliated depository institution or foreignLender) shall deliver to Agent the certification, or, if applicable,recertification, certifying that such Lender is not a “shell” and certifying toother matters as required by Section 313 of the USA Patriot Act and theapplicable regulations: (1) within 10 days after the Closing Date and (2) assuch other times as are required under the USA Patriot Act.

 

14.           AMENDMENTS;WAIVERS; ASSIGNMENTS; PARTICIPATIONS

 

14.1         Amendments and Waivers.

 

14.1.1            AmendmentsPermitted by Consent of Required Lenders. Neither this Agreement, any other Loan Document, nor any terms of thisAgreement or any other Loan Document may be amended, supplemented or modifiedexcept in writing and in accordance with the provisions of this Section 14.1.  Required Lenders may, or, with the writtenconsent of Required Lenders, Agent may, from time to time, (i) enter intowith Borrower or one or more other Credit Parties, as the case may be, writtenamendments, supplements or modifications to this Agreement and the other LoanDocuments for the purpose of adding any provisions to this Agreement or theother Loan Documents or changing in any manner the rights or obligations of theLenders or of Borrower and/or other Credit Parties, as the case may be, underthis Agreement or under any of the other Loan Documents or (ii) waive atBorrower’s request, on the terms and conditions as Required Lenders or Agent,as the case may be, may specify in the applicable instrument, any of therequirements of this Agreement or the other Loan Documents or any Event ofDefault and its consequences. Notwithstanding anything to the contrary contained in this Section 14.1.1,for purposes of this Section 14.1, a waiver, amendment, supplement,or modification of an Rate Hedging Agreement, if between any Credit Party andany Lender or any Affiliate thereof, will only be done with the consent of suchCredit Party and the Lender (or Affiliate thereof) party theretonotwithstanding that such Rate Hedging Agreement is a Loan Document.

 

14.1.2            AmendmentsPermitted by Consent of Affected Lenders. No proposed waiver and no amendment, supplement or modification of thisAgreement or any of the other Loan Documents pursuant to Section 14.1.1may be agreed to if the waiver, amendment, supplement, or modification would:

 

(i)                (a) (1) reducethe amount of, or extend the time for payment of, any payment of principal orinterest due under this Agreement (exclusive of (A) any decrease ininterest resulting from the cancellation of the Default Rate and (B) anychange or amendment of the Fixed Charge Coverage Ratio or any term therein, orany change or amendment in any of the matters set forth on Exhibit F(including any defined term therein) solely for the purpose of calculatingcompliance with Section 10.28 as opposed to calculating the FixedCharge Coverage Ratio for purposes of determining the appropriate pricing levelpursuant to Section 3.2.2), (2) reduce the stated rate of anyinterest or fee (except as provided in Section 14.1.2(viii))payable under this Agreement or any other Loan Document, or (3) extend theStated Maturity Date, in each case without the written consent of all Lenders,or (b) increase the Revolving Credit Commitments of any Lender over theamount of the applicable Revolving Credit Commitment of such Lender then ineffect exclusive of any increase which may result from a Permitted Overadvanceor Agent Advance (it being understood that a waiver of an Event of Default will

 

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not constitute a changein the terms of any Revolving Credit Commitment of any Lender), without theconsent of such Lender;

 

(ii)               increaseany Advance Rate above that amount expressly stated to be the maximum thereofin the definition of “Advance Rate” (exclusive of any increase which, in anyinstance, may result from a Permitted Overadvance), in each case without thewritten consent of all Lenders;

 

(iii)              amend,modify or waive any provision of this Section 14.1.2 or reduce thepercentage specified in the definition of Required Lenders, in each casewithout the written consent of all Lenders;

 

(iv)             releaseany Loan Collateral from the Liens created by the Loan Documents except asexpressly permitted by Section 13.10 without the consent of allLenders;

 

(v)              amend,modify or waive any provision of Section 13 or of any otherprovision relating to the rights or obligations of the then Agent without thewritten consent of the then Agent;

 

(vi)             amend,modify or waive any provision of Section 4.3.1 without the writtenconsent of all of the Lenders;

 

(vii)            amend,modify or waive any provision relating to LC Issuer without the consent of LCIssuer;

 

(viii)           reducethe amount of, or extend the time for payment of the Unused Commitment Fee orthe LOC Fee or reduce the stated rate of the Unused Commitment Fee or the LOCFee payable under this Agreement, without the consent of all Lenders;

 

(ix)              permitBorrower or any other Credit Party to assign, transfer or dispose of any of itsrights or obligations under any Loan Document without the written consent ofall Lenders, other than in connection with a transaction permitted under Section 10.16hereof; or

 

(x)               releaseany guarantor of any obligations except as expressly permitted herein or in theother Loan Documents, without the written consent of all Lenders.

 

In each caseabove, the required consent of all or any of the Lenders shall be exclusive ofa Defaulting Lender.  Notwithstanding thefact that the consent of all the Lenders is required in certain circumstancesas set forth above, (I) each Lender acknowledges that the provisions of Section 1126(c) ofthe Bankruptcy Code of 1978, as amended, 11 U.S.C. § 101 *et seq*.,as amended, supersedes the unanimous consent provisions set forth herein and (II) RequiredLenders may consent to allow Borrower or any other Credit Party to use cashcollateral in the context of a Bankruptcy Case.

 

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14.1.3            Consent Matters.

 

(i)                If(a) Agent requests a Lender’s written consent to any proposed waiver(including any waiver of any Event of Default), amendment, supplement ormodification of this Agreement or any of the other Loan Documents pursuant to Sections 14.1.1or 14.1.2 or for any other matter relating to the Obligations or any ofthe Loan Documents and (b) the Lender does not notify Agent of such Lender’srefusal to grant the consent requested by Agent within 10 Business Days afterreceipt of Agent’s request for such Lender’s consent, then such Lender’sconsent will be treated as having been granted unless such amendment,supplement or modification would require the consent of all of the Lenders, andAgent and the other Lenders will thereafter be permitted to take the actionsdescribed in the request for consent as though such Lender had affirmativelyconsented to the requested actions.

 

(ii)               If(a) Agent requests a Lender’s written consent to any proposed waiver(including any waiver of any Event of Default), amendment, supplement ormodification of this Agreement or any of the other Loan Documents pursuant to Sections 14.1.1or 14.1.2 or for any other matter relating to the Obligations or any ofthe Loan Documents and (b) the Lender refuses to give its consent (a “Hold-OutLender”), Agent, at its option, may, at any time within 45 days after suchLender notifies Agent of such Lender’s refusal to grant the requested consent,acquire on notice to the applicable Lender (a “Buy-Out Notice”) all, butnot less than all, of that Lender’s Loans, other Credit Exposure and RevolvingCredit Commitments by paying to such Lender an amount equal to the unpaidprincipal balance of the Loans held by such Lender plus all accrued interestand fees then due to the Lender as set forth in this Agreement.  From and after the date on which Agentdelivers a Buy-Out Notice to such Lender, Agent and all other Lenders mayamend, modify, and supplement the Loan Documents or waive any of the provisionsof the Loan Documents (including any Event of Default), or all of theforegoing, as though the non-consenting Lender had, in fact, affirmativelyconsented to the requested actions.

 

14.1.4            BindingEffect.  Any waiver and anyamendment, supplement or modification pursuant to this Section 14.1will apply to each of the Lenders and shall be binding on Borrower, Agent, LCIssuer and Lenders and all future holders of the Obligations.

 

14.1.5            NoWaiver.  Failure by Agent, LC Issueror any Lender to exercise any right, remedy or option under this Agreement orin any Loan Document or delay by Agent, LC Issuer or any Lender in exercisingthe same shall not operate as a waiver by Agent, LC Issuer or any Lender of itsright to exercise any such right, remedy or option.

 

14.2         Assignment.

 

14.2.1            BorrowerAssignments.  Borrower may notassign, transfer or otherwise dispose of any of its rights or obligationshereunder or under any other Loan Document, by operation of law or otherwisewithout the consent of Agent, LC Issuer and each Lender, and any suchassignment, transfer or other disposition without the consent of Agent, LCIssuer and each Lender shall be void.

 

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14.2.2            Lender Assignments.

 

(i)                AnyLender may, in the ordinary course of its business and in accordance withapplicable law, at any time assign to one or more banks or other entities (“Purchasers”)all or a portion of its rights and obligations under this Agreement (includingall or a portion of its Revolving Credit Commitments and Credit Exposure) inaccordance with the provisions of this Section 14.2.2.  Each assignment by a Lender of Loans orRevolving Credit Commitments shall be made only if, after giving effectthereto, such Lender continues to hold an equal ratable percentage of each Class ofall Loans and Revolving Credit Commitments under this Agreement.  Borrower will not have any obligation toreimburse any Lender for any costs, fees or expenses incurred by a Lender(exclusive of any expenses of Agent in its capacity as Agent) in connectionwith the assignment by that Lender of any portion of its Revolving CreditCommitment or any Loans owing to it.

 

(ii)               Eachassignment (an “Assignment and Acceptance”) shall be substantially inthe form of Exhibit G and shall not be permitted hereunder unlesssuch assignment is either for all of such Lender’s rights and obligations underthe Loan Documents or involves Loans, other Credit Exposure and Revolving CreditCommitments in an aggregate amount of at least $5,000,000.  Notice to Agent and consent of Agent and, inthe case of an assignment of a Revolving Credit Commitment, LC Issuer and, aslong as no Event of Default shall have occurred and be continuing, Borrower(which consent shall not be unreasonably withheld or delayed, *provided* that Borrower shall not be unreasonable inwithholding its consent of such assignment would cause Borrower to pay anyadditional amounts hereunder, including any withholding tax, or any other costor expense) shall be required prior to an assignment becoming effective withrespect to a Purchaser which is not a Lender or a Person controlling orcontrolled by a Lender and if the Purchaser is a Foreign Lender, such Lendershall deliver all documentation required to be delivered by the Purchaserpursuant to Section 2.15.5, duly completed and executed by thePurchaser.

 

(iii)              Effect;Effective Date.  Upon (a) deliveryto Agent of a notice of assignment (a “Notice of Assignment”), togetherwith any consent required by Section 14.2.2(ii), and (b) paymentof a $3,500 fee to Agent for processing such assignment, such assignment shallbecome effective on the effective date specified in such Notice of Assignment.On and after the effective date of such assignment, such Purchaser, if notalready a Lender, shall for all purposes be a Lender party to this Agreementand any other Loan Documents executed by the Lenders and shall have all therights and obligations of a Lender under the Loan Documents to the same extentas if it were an original party hereto, and no further consent or action byBorrower, Agent, LC Issuer or Lenders shall be required to release thetransferor Lender with respect to the percentage of the Revolving CreditCommitments and Loans assigned to such Purchaser.  Agent shall circulate a revised Schedule 1to this Agreement to reflect the Revolving Credit Commitments of the Purchaser.

 

(iv)             TheRegister.  Agent shall maintain atits address referred to in Section 15.7 a copy of each assignmentdelivered to and accepted by it pursuant to this Section 14.2.2 anda register (the “Register”) for the recordation of the names andaddresses of the Lenders and the Revolving Credit Commitment and CreditExposure of and principal amount of the Loans owing to, each Lender from timeto time and whether such Lender is an original 

 

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Lender or the assignee ofanother Lender pursuant to an assignment under this Section 14.2.2.  The entries in the Register shall berebuttably presumptive evidence of the accuracy thereof, for all purposes,absent manifest error, and Borrower, Agent, LC Issuer and the Lenders may treateach Person whose name is recorded in the Register as a Lender hereunder for allpurposes of this Agreement.  The Registershall be available for inspection by Borrower, LC Issuer or any Lender at anyreasonable time and from time to time upon reasonable prior notice.

 

14.2.3            Benefit;Binding Effect.  All of the rights,privileges, remedies and options given to LC Issuer and the Lenders under theLoan Documents shall inure to the benefit of LC Issuer and each Lender’ssuccessors and assigns, and all the terms, conditions, covenants, provisionsand warranties herein shall inure to the benefit of and bind the permittedsuccessors and assigns of Borrower and LC Issuer and the Lenders, respectively.

 

14.3         Participations.

 

14.3.1            PermittedParticipations.  Notwithstandinganything to the contrary in Section 14.2, any Lender may at any time,with the written consent of Agent, sell to one or more banks, commercialfinance companies or other institutional lenders (a “Participant”)participating interests in its Loans, other Credit Exposure, Revolving CreditCommitments, and the other rights and interests of that Lender (the “OriginatingLender”) hereunder and under the other Loan Documents; *provided*,*however*, that (i) the OriginatingLender shall remain a “Lender” for all purposes of this Agreement andthe other Loan Documents and the Participant receiving the participatinginterest in the Loans, other Credit Exposure, Revolving Credit Commitments, andthe other rights and interests of the Originating Lender hereunder shall notconstitute a “Lender” hereunder or under the other Loan Documents andthe Originating Lender’s obligations under this Agreement shall remainunchanged, (ii) the Originating Lender shall remain solely responsible forthe performance of such obligations, (iii) Borrower, Agent, LC Issuer andthe Lenders shall continue to deal solely and directly with the OriginatingLender in connection with the Originating Lender’s rights and obligations underthis Agreement and the other Loan Documents, (iv) no Lender shall transferor grant any participating interest under which the Participant has the rightto approve any amendment to, or any consent or waiver with respect to, thisAgreement or any other Loan Document, except to the extent such amendment to,or consent or waiver with respect to this Agreement or of any other LoanDocument would require the consent of all of the Lenders; and (v) subjectto Section 14.3.2, all amounts payable by Borrower hereunder shallbe determined as if such Lender had not sold such participation.  The rights of any Participant only shall bederivative through the Originating Lender with whom such Participantparticipates and no Participant shall have any rights under this Agreement orthe other Loan Documents or any direct rights as to the other Lenders, LCIssuer, Agent, Borrower, the Loan Collateral, or otherwise in respect of theObligations.  No Participant shall havethe right to participate directly in the making of decisions by the Lendersamong themselves.

 

14.3.2            SetOff Right.  Borrower agrees that ifamounts outstanding under this Agreement are due and unpaid or have beendeclared or have become due and payable, each Participant, to the extentpermitted by applicable law, will be deemed to have the right of setoff inrespect of its participating interest in amounts owing under this Agreement to thesame extent as if the amount of its participating interest were owing directlyto it as a Lender under this Agreement; *provided* thatany Participant exercising that right will be obligated to share with the 

 

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Lenders, as if suchparticipant were a “Lender” under this Agreement, the amount of any suchsetoff; and *provided*, *further*,that if all or any portion of such excess payment or other recovery isthereafter recovered from the Participant by or on behalf of Borrower, theParticipant’s obligation to share such excess payment will be rescinded andsuch payment shall be returned to Participant to the extent of suchrecovery.  No Participant may exerciseany such right of setoff except with the consent of Required Lenders.

 

14.3.3            Disclosureof Information.  Borrower authorizeseach Lender granting a participation to disclose to any Participant any and allfinancial information in the Lender’s possession concerning Borrower which hasbeen delivered to such Lender by Borrower pursuant to the Loan Documents or inconnection with such Lender’s credit evaluation of Borrower or which has beenobtained independently by such Lender in its credit evaluation or audit ofBorrower.  Each Participant must agree tokeep confidential the information received by it from a Lender regardingBorrower (i) in the same manner that it keeps confidential the businessand financial information of its other commercial customers and as required by Section 15.17hereof and (ii) as required by law.

 

14.4         LawRequirements.  Nothing in the LoanDocuments will prohibit any Lender from pledging or assigning its interests inthe Loans to any Federal Reserve Bank in accordance with applicable law.

 

15.           GENERAL

 

15.1         Severability.  If any term of this Agreement is foundinvalid under California law or laws of mandatory application by a court ofcompetent jurisdiction, the invalid term will be considered excluded from thisAgreement and will not invalidate the remaining terms of this Agreement.

 

15.2         GoverningLaw.  THIS AGREEMENT HAS BEENDELIVERED AND ACCEPTED AT AND SHALL BE DEEMED TO HAVE BEEN MADE AT LOS ANGELES,CALIFORNIA.  THIS AGREEMENT SHALL BEDEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THESTATE OF CALIFORNIA (WITHOUT REFERENCE TO CONFLICTS OF LAW PRINCIPLES).

 

15.3         WAIVEROF JURISDICTION.  AS A SPECIFICALLYBARGAINED INDUCEMENT FOR AGENT, LC ISSUER AND THE LENDERS TO ENTER INTO THISAGREEMENT AND EXTEND CREDIT TO BORROWER, PARENT GUARANTOR (ON BEHALF OF ITSELFAND ALL OTHER CREDIT PARTIES), AGENT, LC ISSUER AND EACH LENDER AGREE THAT ANYACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS AGREEMENT ANDTHE OTHER LOAN DOCUMENTS, THEIR VALIDITY OR PERFORMANCE, AND WITHOUT LIMITATIONON THE ABILITY OF AGENT, LC ISSUER AND LENDERS, THEIR SUCCESSORS AND ASSIGNS,TO EXERCISE ALL RIGHTS AS TO THE LOAN COLLATERAL AND TO INITIATE AND PROSECUTEIN ANY APPLICABLE JURISDICTION ACTIONS RELATED TO REPAYMENT AND COLLECTION OFTHE OBLIGATIONS, SHALL BE INITIATED AND PROSECUTED AS TO ALL PARTIES AND THEIRSUCCESSORS AND ASSIGNS AT SAN FRANCISCO, CALIFORNIA.  BORROWER, PARENT GUARANTOR (ON BEHALF OF 

 

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ITSELF AND ALL OTHERCREDIT PARTIES), AGENT, LC ISSUER AND EACH LENDER EACH CONSENT TO AND SUBMIT TOTHE EXERCISE OF JURISDICTION OVER ITS PERSON BY ANY COURT SITUATED AT SANFRANCISCO, CALIFORNIA HAVING JURISDICTION OVER THE SUBJECT MATTER, AND CONSENTSTHAT ALL SERVICE OF PROCESS BE MADE BY CERTIFIED MAIL DIRECTED TO BORROWER,PARENT GUARANTOR (ON BEHALF OF ITSELF AND ALL OTHER CREDIT PARTIES), AGENT, LCISSUER, AND LENDERS AT THEIR RESPECTIVE ADDRESSES SET FORTH IN SECTION 15.7OR AS OTHERWISE PROVIDED UNDER THE LAWS OF THE STATE OF CALIFORNIA.  BORROWER, PARENT GUARANTOR (ON BEHALF OFITSELF AND ALL OTHER CREDIT PARTIES), AGENT, LC ISSUER AND EACH LENDER WAIVEANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANYACTION INSTITUTED HEREUNDER, AND CONSENT TO THE GRANTING OF SUCH LEGAL OR EQUITABLERELIEF AS IS DEEMED APPROPRIATE BY THE COURT.

 

15.4         Survival.  All of Parent Guarantor’s and Borrower’scovenants, agreements, and representations and warranties contained in thisAgreement, the other Loan Documents and in the certificates or other instrumentsdelivered in connection herewith and therewith shall be considered to have beenrelied upon by the parties hereto and shall survive the execution, delivery andacceptance of this Agreement and the making of any Credit Extensions,regardless of any investigation made by any such party or on its behalf andnotwithstanding that Agent, LC Issuer or any Lender may have notice orknowledge of any Event of Default or incorrect representation or warranty atthe time any credit is extended hereunder, and shall continue in full force andeffect until the Obligations are fully performed and Paid in Full.

 

15.5         Applicationof Payments; Revival of Obligations. Agent, LC Issuer and the Lenders shall have the continuing right toapply or reverse and reapply any payments to any portion of theObligations.  To the extent Borrowermakes a payment or payments to Agent, LC Issuer or any Lender or Agent, LCIssuer or any Lender receives any payment or proceeds of the Loan Collateral orany other security for Borrower’s benefit, which payment(s) or proceeds orany part thereof are subsequently voided, invalidated, declared to befraudulent or preferential, set aside or required to be repaid to a trustee,receiver or any other party under any bankruptcy act, state or federal law,common law or equitable cause, then, to the extent of such payment or proceedsreceived, the Obligations or part thereof intended to be satisfied shall berevived and shall continue in full force and effect, as if such payment orproceeds had not been received.

 

15.6         Fees and Expenses.

 

(i)                Borrowershall pay or, as applicable, reimburse Agent, LC Issuer, and the Lenders, orany one or more of them, for the following costs, fees, expenses andobligations (“Expenses”):

 

(a)           Borrowershall pay or, as applicable, reimburse Agent and LC Issuer for all reasonablecosts, fees, out-of-pocket expenses and obligations incurred by Agent or LCIssuer, whether an Event of Default then exists, in connection with, arisingout of, or related to: (1) the entering into, negotiation, preparation,closing, administration (including amendment, waiver, or other consent withrespect to) of this Agreement and the other Loan 

 

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Documents, and the creditfacilities provided hereby and thereby, or the exercise of any of the rights orremedies of Agent, LC Issuer or the Lenders hereunder and thereunder (includingthe printing and distribution of materials to the Lenders and all costsassociated with bank meetings); (2) any Credit Extensions made by theLenders hereunder and the issuance of Letters of Credit by LC Issuer; (3) anytransaction contemplated by this Agreement or the other Loan Documents; and (4) anyinspection, audit, appraisal, or verification of the Loan Collateral or ofBorrower or any other Credit Party (Agent currently charges, in addition to anyfield examination fee that may be provided pursuant to the terms of thisAgreement, $850.00 per diem based on an 8 hour day plus out-of-pocket expensesper auditor or field examiner for the services of its auditors and fieldexaminers and a potentially greater amount if the auditor is not an Agentemployee); *however*, unless an Event of Default hasoccurred or is existing, Agent shall not seek reimbursement from Borrower formore than a total of 2 periodic, repeat audits (*i.e.*,exclusive of any business audit in connection with a Permitted Acquisition orany other acquisition permitted hereunder) per calendar year undertaken byAgent’s auditors or field examiners of Borrower (including of the LoanCollateral); and

 

(b)           Borrowershall pay or, as applicable, reimburse Agent, LC Issuer, and the Lenders, orany one or more of them, for all reasonable costs, fees, expenses andobligations incurred by Agent, LC Issuer, and the Lenders, or any one or moreof them, following the occurrence and during the continuance of an Event ofDefault, which are in connection with, arise out of, or are related to: (1) enforcingany Obligation or in foreclosing against any of the Loan Collateral orexercising, enforcing or preserving any other right or remedy available byreason of any Event of Default, (2) any refinancing or restructuring ofthe credit arrangements provided under this Agreement and the other LoanDocuments in the nature of a “work-out” or in any insolvency or bankruptcyproceeding, (3) commencing, defending or intervening in any litigation orin filing a petition, complaint, answer, motion or other pleadings in any legalproceeding related to Borrower or any of the other Credit Parties and relatedto or arising out of the transactions contemplated hereby or by any of the LoanDocuments, (4) taking any other action in or with respect to any suit orproceeding (whether in bankruptcy or otherwise), (5) protecting,preserving, collecting, leasing, selling, taking possession of, or liquidatingany of the Loan Collateral or (6) attempting to enforce or enforcing anyAgent’s Liens on any of the Loan Collateral or any other rights under the LoanDocuments.

 

(i)            TheExpenses (a) shall include Attorneys’ Fees for one counsel for Agent andone counsel for all of the Lenders (including L/C Issuer), and fees of otherprofessionals, all lien search and title search fees, all filing and recordingfees and all travel expenses, (b) are part of the Obligations, payableupon Agent’s demand, and (c) shall be secured by the Loan Collateral.

 

(ii)           TheObligations described under this Section 15.6 shall survive anytermination of this Agreement.

 

15.7         Notices; ElectronicMail.

 

15.7.1            Notice.  Any notice required, permitted orcontemplated hereunder shall, except as expressly provided in this Agreement orthe other Loan Documents, be in writing and addressed to the party to benotified at the address or facsimile number set forth on the 

 

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applicable signature page ofthis Agreement or at such other address as each party may designate for itselffrom time to time by notice hereunder, and shall be deemed validly given (i) 3days following deposit in the U.S. certified mails (return receipt requested),with proper postage prepaid, or (ii) the next Business Day after suchnotice was delivered to a regularly scheduled overnight delivery carrier withdelivery fees either prepaid or an arrangement satisfactory with such carrier,made for the payment thereof, or (iii) upon receipt of notice given byfacsimile or personal delivery.

 

15.7.2            ElectronicMail.  Agent may, in its discretion,elect, from time to time, to receive certain routine information, includingreports, otherwise required by the terms of this Agreement or the other LoanDocuments (“Reports”) from Parent Guarantor or Borrower via electronicmail transmission (“e-mail”). Agent will designate from time to time its e-mail address to Borrower(on behalf of itself and the other Credit Parties) (the “Agent E-mailAddress”).  All e-mail transmissionsof Reports from Parent Guarantor or Borrower shall contain the information asspecified in this Agreement, shall be formatted or displayed in a manner andorder substantially similar to that shown in this Agreement or otherwiserequired by Agent and shall conform to the specifications described in thisAgreement.  Borrower will be solelyresponsible for the confidentiality of the contents of e-mail transmissions duringtransmission to the Agent E-mail Address, and Parent Guarantor and Borrowereach acknowledge that none of Agent, LC Issuer or any Lender is responsible forany compromise of data transmitted across public computer networks ortelecommunications facilities, including the Internet.  Parent Guarantor and Borrower will beresponsible for the accuracy of all information provided to Agent via e-mailtransmission to the Agent E-mail Address, and any information so received byAgent will be deemed to have been submitted by and received from ParentGuarantor or Borrower.  In the event of afailure of the transmission of the Reports, it is the responsibility of ParentGuarantor and Borrower to transmit the contents of any pending transmission toAgent using an alternative method which is timely and in accordance with thisAgreement.  Parent Guarantor and Borroweragree that, by sending Agent the Reports via e-mail transmission, ParentGuarantor and Borrower are certifying the truthfulness and accuracy of theReports submitted each and every time Parent Guarantor or Borrower sends Agentthe Reports.  Parent Guarantor andBorrower further agree that, on each occasion when Parent Guarantor or Borrowersends Agent e-mail transmissions containing Reports, Parent Guarantor andBorrower each are warranting and representing, jointly and severally, to Agentthe truthfulness and accuracy of the representations and warranties relevant tothat Report set forth in the relevant Loan Document.  Parent Guarantor and Borrower each consent toand represents that it is Parent Guarantor’s and Borrower’s intent that byParent Guarantor’s and Borrower’s insertion of Parent Guarantor’s or Borrower’sname in the subject line of the transmitting e-mail, or on the Reports(including the header and/or the certification line), Parent Guarantor andBorrower intend such to constitute a legally binding and enforceable signatureof Parent Guarantor or Borrower, as the case may be, and in all aspects thelegal equivalent of Parent Guarantor’s or Borrower’s handwritten signature, asthe case may be.

 

15.8         Indemnification.  In consideration of the execution anddelivery of this Agreement by Agent, LC Issuer and the Lenders and the makingof any Loan and the issuance of any Letter of Credit hereunder, Borrower herebyindemnifies, exonerates and holds Agent, LC Issuer and each of the Lenders andeach of their officers, directors, employees, Affiliates, and agents(collectively the “Indemnified Parties” and, individually, as “IndemnifiedParty”) free and 

 

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harmless from and againstany and all actions, causes of action, suits, demands, investigations,obligations, judgments, losses, costs, liabilities, damages, and expenses(irrespective of whether such Indemnified Party is a party to the action forwhich indemnification hereunder is sought), including Attorneys’ Fees anddisbursements (the “Indemnified Liabilities”), which are incurred by,accrued, asserted, made or brought against, charged to, or recoverable from theIndemnified Parties or any of them as a result of, or arising out of, orrelating to, or as a direct or indirect result of:

 

(i)                anytransaction financed or to be financed in whole or in part or directly orindirectly with the proceeds of any Loan or Letter of Credit;

 

(ii)               theentering into and performance of this Agreement and the other Loan Documents byany of the Indemnified Parties;

 

(iii)              anybreach by Borrower or any other Credit Party of any term, provision,representation, warranty or covenant of this Agreement or the other LoanDocuments;

 

(iv)             anyEnvironmental Law, regardless of whether or not caused by, or within thecontrol of, Borrower or any other Credit Party; or

 

(v)              anyRemittance deposited in the Special Account which is dishonored or returnedunpaid for any reason;

 

except to theextent that the Indemnified Liability is caused by or results from the grossnegligence or willful misconduct of the Indemnified Party.  If and to the extent that the foregoingundertaking may be unenforceable for any reason, Borrower hereby agrees to makethe maximum contribution to the payment and satisfaction of each of theIndemnified Liabilities which is permissible under applicable law, except tothe extent that such Indemnified Liabilities have arisen by reason of anIndemnified Party’s gross negligence or willful misconduct.  The Obligations described under this Section 15.8will survive any termination of this Agreement and shall be due and payable ondemand.

 

15.9         AdditionalWaivers by Borrower.  Borrower waivespresentment and protest of any instrument and notice thereof, and, except asexpressly provided in the Loan Documents, demand, notice of default and allother notices to which Borrower might otherwise be entitled.  Borrower agrees that it shall assert no claimagainst Agent, LC Issuer or any Lender on any theory of liability forconsequential, special, indirect or punitive damages.

 

15.10       EquitableRelief.  Parent Guarantor andBorrower each recognize that, in the event Parent Guarantor or Borrower failsto perform, observe or discharge any of its obligations or liabilities underthis Agreement, any remedy at law may prove to be inadequate relief to Agent,LC Issuer and the Lenders; therefore, Parent Guarantor and Borrower agree thatAgent, LC Issuer and Lenders, if Agent, LC Issuer and the Lenders so request,shall be entitled to temporary and permanent injunctive relief in any such casewithout the necessity of proving actual damages.

 

15.11       EntireAgreement.  This Agreement and theother Loan Documents set forth the entire agreement of the parties with respectto its subject matter and supersede all previous 

 

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understandings, writtenor oral, in respect thereof.  Two or moreduplicate originals of this Agreement may be signed by the parties, each ofwhich shall be an original but all of which together shall constitute one andthe same instrument.  Any documentsdelivered by, or on behalf of, Parent Guarantor or Borrower by fax transmissionor other electronic delivery of an image file reflecting the execution hereof: (i) maybe relied on by Agent, LC Issuer and the Lenders as if the document were amanually signed original and (ii) will be binding on Parent Guarantor orBorrower, as the case may be, for all purposes of the Loan Documents.

 

15.12       Headings.  Section headings in this Agreement areincluded for convenience of reference only and shall not relate to theinterpretation or construction of this Agreement.

 

15.13       CumulativeRemedies.  The remedies provided inthis Agreement and the other Loan Documents are cumulative and not exclusive ofany remedies provided by law.  Exerciseof one or more remedy(ies) by Agent, LC Issuer or Lenders does not require thatall or any other remedy(ies) be exercised and does not preclude later exerciseof the same remedy.  If there is anyconflict, ambiguity, or inconsistency, in Agent’s judgment, between the termsof this Agreement or any of the other Loan Documents, then the applicable termsand provisions, in Agent’s judgment, providing Agent, LC Issuer and the Lenderswith greater rights, remedies, powers, privileges, or benefits will control.

 

15.14       Recourseto Directors or Officers.

 

15.14.1          Theobligations of Agent, LC Issuer and the Lenders under this Agreement are solelythe corporate obligations of Agent, LC Issuer and the Lenders.  No recourse shall be had for the payment ofany amount owing in respect to this Agreement or for the payment of any feehereunder or for any other obligation or claim arising out of or based uponthis Agreement against any stockholder, employee, officer, or director ofAgent, LC Issuer and the Lenders.

 

15.14.2          Theobligations of Borrower and the other Credit Parties under this Agreement andthe other Loan Documents are solely the corporate obligations of Borrower andthe other Credit Parties.  No recourseshall be had for the payment of any amount owing in respect to this Agreementor any other Loan Documents or for the payment of any fee hereunder orthereunder or any other obligation or contract claim arising out of or basedupon this Agreement or any other Loan Document against any stockholder,employee, officer or director of Borrower or any other Credit Party.

 

15.15       WAIVER OF JURY TRIAL;JUDICIAL REFERENCE.

 

15.15.1          ASA SPECIFICALLY BARGAINED INDUCEMENT FOR AGENT, LC ISSUER AND THE LENDERS TOENTER INTO THIS AGREEMENT AND EXTEND CREDIT TO BORROWER, BORROWER PARENTGUARANTOR (ON BEHALF OF ITSELF AND EACH OF THE OTHER CREDIT PARTIES) AND AGENT,LC ISSUER AND THE LENDERS EACH WAIVE TRIAL BY JURY WITH RESPECT TO ANY ACTION,CLAIM, SUIT OR PROCEEDING (COLLECTIVELY, “CLAIMS”) IN RESPECT OF OR ARISING OUTOF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS OR THE 

 

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CONDUCT OF THERELATIONSHIP BETWEEN OR AMONG AGENT, LC ISSUER, THE LENDERS, BORROWER ANDPARENT GUARANTOR (ON BEHALF OF ITSELF AND EACH OF THE OTHER CREDIT PARTIES).

 

15.15.2          Ifthe waiver of jury trial set forth in Section 15.15.1 is ineffective orunenforceable, the parties agree that all Claims shall be resolved by referenceto a private judge sitting without a jury, pursuant to Code of Civil Procedure Section 638,before a mutually acceptable referee or, if the parties cannot agree, a refereeselected by the Presiding Judge of the Los Angeles County, California.  Such proceeding shall be conducted in LosAngeles County, California, with California rules of evidence anddiscovery applicable to such proceeding.

 

15.15.3          Inthe event Claims are to be resolved by judicial reference, any party may seekfrom a court identified in Section 15.3, any prejudgment order, writ orother relief and have such prejudgment order, writ or other relief enforced tothe fullest extent permitted by law notwithstanding that all Claims areotherwise subject to resolution by judicial reference.

 

15.16       PATRIOTACT NOTICE.  To help the governmentfight the funding of terrorism and money laundering activities, federal lawrequires all financial institutions to obtain, verify, and record informationthat identifies each party who opens an account.  Agent will ask each party to a financialtransaction their name, address and other information that will allow Agent toidentify such party.  Agent may also askto see other documents that substantiate a party’s identity.

 

15.17       Confidentiality.  Agent and each Lender agree to usecommercially reasonable efforts (equivalent to the efforts Agent or such Lenderapplies to maintaining the confidentiality of its own confidential information)to maintain as confidential all confidential information provided to them bythe Credit Parties and designated as confidential, except that Agent and anyLender may disclose such information (a) to Persons employed or engaged byAgent or such Lender who are informed of the confidentiality obligationhereunder; (b) to any bona fide assignee or participant or potentialassignee or participant that has agreed to comply with the covenant containedin this Section 15.17 (and any such bona fide assignee orparticipant or potential assignee or participant may disclose such informationto Persons employed or engaged by them as described in clause (a) above);(c) as required or requested by any Governmental Authority or reasonablybelieved by Agent or such Lender to be compelled by any court decree, subpoenaor legal or administrative order or process; (d) as, on the advice ofAgent’s or such Lender’s counsel, is required by law; (e) in connectionwith the exercise of any right or remedy under the Loan Documents or inconnection with any litigation to which Agent or such Lender is a party; or (f) thatceases to be confidential through no fault of Agent or any Lender or any oftheir employees or agents.

 

15.18       JudgmentCurrency.  If, for the purpose ofobtaining judgment in any court or obtaining an order enforcing a judgment, itbecomes necessary to convert any amount due under this Agreement in Dollars orin any other currency (hereinafter in this Section 15.18 called the“first currency”) into any other currency (hereinafter in this Section 15.18called the “second currency”), then the conversion shall be made at therate of exchange at which in accordance with normal banking procedures Agentcould purchase the first currency with such second currency at Agent’s close ofbusiness on the Business Day next preceding the day on which the 

 

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judgment is given or (asthe case may be) the order is made.  Anypayment made to Agent or any other Secured Party pursuant to this Agreement orany other Loan Document in the second currency shall constitute a discharge ofthe obligations of Borrower and the Credit Parties to pay to Agent and theSecured Parties any amount originally due to Agent and the Secured Parties inthe first currency under this Agreement or any other Loan Document only to theextent of the amount of the first currency which Agent and each of the SecuredParties is able, on the date of the receipt by it of such payment in any secondcurrency, to purchase, in accordance with Agent’s and such Secured Party’snormal banking procedures, with the amount of such second currency soreceived.  If the amount of the firstcurrency falls short of the amount originally due to Agent and the otherSecured Parties in the first currency under this Agreement or any other LoanDocument, Borrower and each of the Credit Parties hereby agree that it and theywill indemnify each of Agent and each of the Secured Parties against and saveeach of Agent and each of the Secured Parties harmless from any shortfall soarising.  This indemnity shall constitutean obligation of Borrower and the other Credit Parties separate and independentfrom the other obligations contained in this Agreement, shall give rise to a separateand independent cause of action and shall continue in full force and effectnotwithstanding any judgment or order for a liquidated sum or sums in respectof amounts due to Agent or any other Secured Party under this Agreement or anyother Loan Document or under any such judgment or order.  Any such shortfall shall be deemed toconstitute a loss suffered by each of Agent and each such Secured Parties, asthe case may be, and Borrower nor any Credit Party shall be entitled to requireany proof or evidence of any actual loss. The covenant contained in this Section 15.18 shall survivethe payment in full of all of the other Obligations of Borrower and the otherCredit Parties under this Agreement and the other Loan Documents.

 

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IN WITNESSWHEREOF, this Agreement has been duly executed by the parties hereto as of theday and year first above written.

 

 
| ** ** | **BORROWER:**                         |
|------------|---------------------------------------|
| ** ** | ** **                            |
|       | **WESTAFF (USA), INC.,** a California |
|       | corporation                           |
|       |                                  |
|       | ** **                            |
|       | By:                                   | /s/ Dawn M. Jaffray |
|       |                                  | Dawn M. Jaffray |
|       |                                  | Senior Vice President and Chief  Financial Officer |
|       |                                  |
|       | Address for notices:                  |
|       |                                  |
|       | 298 North Widget Lane                 |
|       | Walnut Creek, California 94598        |
|       | Attention: Chief Financial Officer    |
|       | Telephone: (925) 951-4011             |
|       | Facsimile: (925) 934-5489             |
|       |                                  |
|       | With copies to:                       |
|       |                                  |
|       | 298 North Widget Lane                 |
|       | Walnut Creek, California 94598        |
|       | Attention: General Counsel            |
|       | Telephone: (949) 481-7237             |
|       | Facsimile: (949) 481-7083             |
|       |                                  |
|       | Morrison & Foerster LLP      |
|       | Attention: Jill Feldman               |
|       | 425 Market Street                     |
|       | San Francisco, CA 94105               |
|       | Telephone: (415) 268-6474             |
|       | Facsimile: (415) 276-7298             |

 

 

[SIGNATURE PAGE TO FINANCING AGREEMENT]

 

S-1

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|   | **PARENT GUARANTOR:**                    |
|--------|------------------------------------------|
|   | ** **                               |
|   | **WESTAFF, INC.,**a Delaware corporation |
|   | ** **                               |
|   | ** **                               |
|   | By:                                      | /s/ Dawn M. Jaffray |
|   |                                     | Dawn M. Jaffray |
|   |                                     | Senior Vice President and Chief  Financial Officer |
|   |                                     |
|   | Address for notices:                     |
|   |                                     |
|   | 298 North Widget Lane                    |
|   | Walnut Creek, California 94598           |
|   | Attention: Chief Financial Officer       |
|   | Telephone: (925) 951-4011                |
|   | Facsimile: (925) 934-5489                |
|   |                                     |
|   | With copies to:                          |
|   |                                     |
|   | 298 North Widget Lane                    |
|   | Walnut Creek, California 94598           |
|   | Attention: General Counsel               |
|   | Telephone: (949) 481-7237                |
|   | Facsimile: (949) 481-7083                |
|   |                                     |
|   | Morrison & Foerster LLP         |
|   | Attention: Jill Feldman                  |
|   | 425 Market Street                        |
|   | San Francisco, CA 94105                  |
|   | Telephone: (415) 268-6474                |
|   | Facsimile: (415) 276-7298                |

 

 

[SIGNATURE PAGE TO FINANCING AGREEMENT]

 

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| ** ** | **LENDERS:**                        |
|------------|-------------------------------------|
| ** ** | ** **                          |
|       | **U.S. BANK NATIONAL ASSOCIATION,** |
|       | as a Lender                         |
|       |                                |
|       | ** **                          |
|       | By:                                 | /s/ Susan V. Freed |
|       |                                | Susan V. Freed |
|       |                                | Vice President |
|       |                                |
|       | Address for notices:                |
|       |                                |
|       | U.S. Bank Business Credit           |
|       | 633 West Fifth Street, 29 Floor     |
|       | Los Angeles, California 90071       |
|       | Attention: Susan V. Freed           |
|       | Telephone: (213) 615-6404           |
|       | Facsimile: (213) 615-6594           |

 

 

[SIGNATURE PAGE TO FINANCING AGREEMENT]

 

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|   | **WELLS FARGO BANK,**                |
|--------|--------------------------------------|
|   | **NATIONAL ASSOCIATION,**as a Lender |
|   | ** **                           |
|   | ** **                           |
|   | By:                                  | /s/ Supremna M. Thurmond |
|   |                                 | Supremna M.  Thurmond |
|   |                                 | Relationship  Manager |
|   |                                 |
|   | Address for notices:                 |
|   |                                 |
|   | Wells Fargo Business Credit          |
|   | 245 South Los Robles                 |
|   | Suite 700                       |
|   | Pasadena, CA 91101                   |
|   | Attention: Supremna M. Thurmond      |
|   | Telephone: (626) 685-2621            |
|   | Facsimile: (626) 844-9063            |

 

 

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|   | **AGENT:**                          |
|--------|-------------------------------------|
|   | ** **                          |
|   | **U.S. BANK NATIONAL ASSOCIATION,** |
|   | as Agent                            |
|   | ** **                          |
|   | ** **                          |
|   | By:                                 | /s/ Susan V. Freed |
|   |                                | Susan V. Freed |
|   |                                | Vice President |
|   |                                |
|   | Address for notices:                |
|   |                                |
|   | U.S. Bank Business Credit           |
|   | 633 West Fifth Street, 29 Floor     |
|   | Los Angeles, California 90071       |
|   | Attention: Susan V. Freed           |
|   | Telephone: (213) 615-6404           |
|   | Facsimile: (213) 615-6594           |
|   |                                |
|   | **LC ISSUER:**                      |
|   | ** **                          |
|   | **U.S. BANK NATIONAL ASSOCIATION,** |
|   | as LC Issuer                        |
|   | ** **                          |
|   | ** **                          |
|   | By:                                 | /s/ Susan V. Freed |
|   |                                | Susan V. Freed |
|   |                                | Vice President |
|   |                                |
|   | Address for notices:                |
|   |                                |
|   | U.S. Bank Business Credit           |
|   | 633 West Fifth Street, 29 Floor     |
|   | Los Angeles, California 90071       |
|   | Attention: Susan V. Freed           |
|   | Telephone: (213) 615-6404           |
|   | Facsimile: (213) 615-6594           |

 

 

[SIGNATURE PAGE TO FINANCING AGREEMENT]

 

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