**EXHIBIT 10.8.32**

** **

Execution Version

 

**SECURITY AGREEMENT**

 

THISSECURITY AGREEMENT (this “Agreement”), dated as of February 14,2008, is entered into by and among U.S. BANK NATIONAL ASSOCIATION, anational banking association, as administrative agent for the benefit of theSecured Parties (as such term is defined in the Financing Agreement, as definedbelow) (“Agent”), and WESTAFF (USA), INC., a California corporation (“Borrower”),WESTAFF, INC., a Delaware corporation and the sole shareholder of Borrower (“ParentGuarantor”), WESTAFF SUPPORT, INC., a California corporation and a whollyowned subsidiary of Borrower (“Westaff Support”), and MEDIAWORLDINTERNATIONAL, a California corporation and a wholly owned subsidiary ofBorrower (“MediaWorld”; and together with Borrower, Parent Guarantor andWestaff Support, each is individually from time to time is referred to hereinas a “Grantor” and collectively as “Grantors”), with reference tothe following facts:

 

RECITALS

 

A.            Borrower, Parent Guarantor,the Lenders party thereto (collectively, the “Lenders”) and Agent areentering into a Financing Agreement of even date herewith (the “FinancingAgreement”), pursuant to which Agent and the Lenders propose to providecertain credit facilities to Borrower.

 

B.            Concurrently therewith andherewith, (i) Parent Guarantor is entering into a Continuing Guarantydated as of even date herewith in favor of Agent for the benefit of the SecuredParties (the “Parent Guaranty”), pursuant to which Parent Guarantoragrees to guaranty the payment and performance of Borrower’s obligations underthe Financing Agreement and the other Loan Documents; and (ii) WestaffSupport and MediaWorld are entering into a Continuing Guaranty dated as of evendate herewith in favor of Agent for the benefit of the Secured Parties (the “SubsidiaryGuaranty”), pursuant to which Westaff Support and MediaWorld agree toguaranty the payment and performance of Borrower’s obligations under theFinancing Agreement and the other Loan Documents.

 

C.            Borrower is a memberof an affiliated group of companies that includes each other Grantor.

 

D.            The proceeds of theextensions of credit under the Financing Agreement will be used in part toenable Borrower to make valuable transfers to one or more of the other Grantorsin connection with the operation of their respective businesses.

 

E.             Borrower and theother Grantors are engaged in related businesses, and each Grantor will derivesubstantial direct and indirect benefit from the making of the extensions ofcredit under the Financing Agreement.

 

F.             It is a condition to theeffectiveness of the Financing Agreement that each Grantor enter into thisAgreement with Agent and hereby grant Agent a security interest in theCollateral described below to secure the payment and performance of suchGrantor’s obligations to Agent and the Lenders under the Financing Agreementand the other related Loan Documents entered into in connection with (and asdefined in) the Financing Agreement.

 

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G.            To induce Agent and theLenders to enter into the Financing Agreement and the other Loan Documents withBorrower and provide Borrower the credit facilities contemplated thereunder,each Grantor is willing to enter into this Agreement with Agent and grant Agenta security interest in the Collateral.

 

NOW, THEREFORE, the parties hereby agree as follows:

 

1.             DEFINITIONS.

 

1.1           Financing Agreement.  Any capitalized term used but not definedherein shall have the meaning ascribed thereto in the Financing Agreement.

 

1.2           Defined Terms.  In addition to the other terms defined inthis Agreement, whenever the following capitalized terms (whether or notunderscored) are used, they shall be defined as follows:

 

“Code”means the Uniform Commercial Code, as enacted in the State of California, asamended or superseded from time to time after the date of this Agreement.

 

“Collateral”means all of each Grantor’s right, title and interest in and to all of eachsuch Grantor’s personal property and assets, tangible and intangible, nowexisting or hereafter acquired or arising, and wherever located, including:

 

(i)            all of such Grantor’saccounts, chattel paper, deposit accounts, documents, equipment, fixtures,instruments, inventory, investment property, general intangibles, goods, andletter-of-credit rights;

 

(ii)           all of such Grantor’s right,title and interest in and to the commercial tort claims listed, or required tobe listed, in Exhibit 5.7 to this Agreement;

 

(iii)          without limiting thedescription of the property or any rights or interests in the propertydescribed above in this definition of Collateral, all of such Grantor’s right,title and interest in and to (a) all of such Grantor’s money, cash, andother funds; (b) all attachments, accessions, parts and appurtenances to,all substitutions for, and all replacements of any and all of such Grantor’sequipment, fixtures and other goods; (c) all of such Grantor’s agreements,as-extracted collateral, tangible chattel paper, electronic chattel paper,health-care-insurance receivables, leases, lease contracts, lease agreements,payment intangibles, proceeds of letters of credit, promissory notes, recordsand software; and (d) all of such Grantor’s franchises, customer lists,insurance refunds, insurance refund claims, tax refunds, tax refund claims,pension plan refunds, pension plan reversions, (i) patents and patentapplications, (ii) service marks, service mark applications, trademarks,trademark applications and trade names and all good will associated with any ofthe foregoing, (iii) trade secrets, (iv) copyrights and copyrightapplications and (v) licenses of all rights or property interests in anyof the foregoing;

 

(iv)          all supporting obligations;

 

(v)           all of the products andproceeds of all of the foregoing described property and interests in property,including cash proceeds and noncash proceeds, and including proceeds of 

 

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any insurance, whether in theform of original collateral or any of the property or rights or interests inproperty described above in this definition of Collateral; and

 

(vi)          all of the foregoing, whether now owned or existingor hereafter acquired or arising, or in which such Grantor now has or hereafteracquires any right, title or interest;

 

provided, however,that the Collateral shall not include any Excluded Property.

 

“Excluded Property” means collectively,

 

(i)            any equipment, fixture,inventory or other goods of such Grantor which is subject to a Permitted Lien,but solely to the extent that the documents evidencing such Permitted Lienexplicitly prohibit the grant of a security interest in or Lien on suchproperty or asset; provided, however, that at such time as suchproperty or asset is no longer subject to such Lien or such prohibition, suchproperty or asset shall (without any act or delivery by any Person) constituteCollateral hereunder;

 

(ii)           any rights of such Grantorunder any General Intangible existing prior to the Closing Date (other thanwith respect to any Account, payment intangible, Chattel Paper or promissorynote related thereto or as may otherwise be provided under applicable law) (the“Affected Collateral”) if and solely to the extent the creation by therelevant Grantor of a security interest pursuant to this Agreement in suchGrantor’s right, title and interest in such Affected Collateral (A) isprohibited by legally enforceable provisions of any contract, agreement,instrument or indenture governing such Affected Collateral and such prohibitionis not otherwise ineffective as a matter of law (such as pursuant Section 9-406(f),9-407(a) or 9-408(a) of the Code), (B) would give any otherparty to such contract, agreement, instrument or indenture a legallyenforceable right to terminate its obligations thereunder or (C) ispermitted only with the consent of another party, if the requirement to obtainsuch consent is legally enforceable and is not otherwise ineffective as amatter of law (such as pursuant Section 9-406(f), 9-407(a) or 9-408(a) ofthe Code) and such consent has not been obtained (provided, that in anyevent any account or any money or other amounts due or to become due under anysuch contract, agreement, instrument or indenture shall not be ExcludedProperty to the extent that any of the foregoing is (or if it contained aprovision limiting the transferability or pledge thereof would be) subject to Section 9-406of the Code); provided, however, that, notwithstanding theforegoing, at such time as such Affected Collateral is no longer subject tosuch prohibition, such right of termination or such consent requirement, as thecase may be, such Affected Collateral shall (without any act or delivery by anyPerson) constitute Collateral hereunder;

 

(iii)          34% of each class of theissued and outstanding voting Capital Stock of any Foreign Subsidiary owned byany Grantor, if and solely to the extent that the grant of a Lien herein in theCapital Stock of such Foreign Subsidiary would constitute an investment ofearnings in United States property under Section 956 (or a successorprovision) of the Internal Revenue Code, which investment would trigger anyincrease in the gross income of a United States shareholder of such Grantorpursuant to Section 951 (or a successor provision) of the Internal RevenueCode (it being understood and agreed that the remaining 66% of each class ofthe issued and outstanding voting Capital Stock of each such Foreign Subsidiaryand all non-voting

 

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Capital Stock of each suchForeign Subsidiary shall constitute Collateral hereunder owned by any Grantor;

 

(iv)          any (A) of the CapitalStock of Westaff Australia and (B) “Junior Debt,” as such term is definedin the Australian Subordination Agreement, in each case, only for so long asthe Australian Subordination Deed remains in effect and prohibits any Grantorfrom (x) pledging any of the Capital Stock of Westaff Australia and (y) grantinga security interest in such Junior Debt; and

 

(v)           any Permit now or hereafter acquired or held by anyGrantor, together with all amendments, modifications, extensions, renewals andreplacements of any thereof) solely to the extent the granting of a securityinterest therein in favor of Agent would be prohibited by applicable law andsuch prohibition is not otherwise ineffective as a matter of law; provided,however, that at such time as such Permit is no longer subject to suchprohibition, such Permit shall (without any act or delivery by any Person)constitute Collateral hereunder.

 

“Government Contracts” means each of thecontracts entered into by Borrower with Government Authorities, as suchcontracts may be amended, restated, replaced, extended or reaffirmed from timeto time, which Government Contracts as of the Closing Date are identified on Schedule9.29 of the Financing Agreement.

 

“Permit” means any and all permits,certificates, approvals, authorizations, consents, licenses, variances,franchises or other instruments, however characterized, of any GovernmentalAuthority (or any Person acting on behalf of a Government Authority).

 

“Surety Account” means that certain U.S. Bank NationalAssociation Account no. 98554000 which has been pledged by Borrower to theWashington State Department of Labor and Industries as security for providingworkers’ compensation benefits and assessments in the event of default by theself insurer.

 

1.3           Other Definitional Provisions; Construction.  Unless otherwise specified,

 

(i)            As used in this Agreement,accounting terms relating to Borrower not defined in this Agreement have therespective meanings given to them in accordance with GAAP.

 

(ii)           The definition of anydocument, instrument or agreement includes all schedules, attachments andexhibits thereto and all renewals, extensions, supplements, restatements andamendments thereof.  All Exhibits andSchedules attached to this Agreement are incorporated into, made and form anintegral part of, this Agreement for all purposes.

 

(iii)          “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 Borrower is to be takenpromptly, unless the context clearly indicates the contrary.

 

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(iv)          All of the uncapitalizedterms contained in this Agreement which are now or hereafter defined under theCode will, unless the context indicates otherwise, have the meanings providedfor now or hereafter in the Code.

 

2.             GRANT OF SECURITY INTEREST; SET-OFF ANDRELATED MATTERS.

 

2.1           Security Interest.  As security for the full, prompt and completepayment and performance by each Grantor of its respective obligations under theFinancing Agreement and the other Loan Documents, including, withoutlimitation, the Obligations (as such term is defined in the FinancingAgreement) of Borrower and the joint and several Liabilities (as such term isdefined in the applicable Affiliate Guaranty Agreements) of Parent Guarantor,Westaff Support and MediaWorld (collectively, for purposes of this Agreement,the “Obligations”), each Guarantor hereby grants to, and creates infavor of, Agent, for the benefit of the Secured Parties, a continuing securityinterest in, and Lien on, all of the Collateral.

 

2.2           Government Contracts.  In addition to, and without limiting any ofthe foregoing, in order to support the payment and performance of theObligations, and until the Revolving Credit Commitment Termination Date, eachGrantor hereby absolutely assigns, sells and transfers to Agent, for benefit ofthe Secured Parties, all claims and moneys due or to become due under theGovernment Contracts, and agrees that all payments due or to become due underthe Government Contracts shall be made to and at the direction of Agent.

 

2.3           Set-Off.  All cash, moneys, investment property andother properties of any Grantor and the proceeds thereof now or hereafter heldor received by Agent from or for the account of any Grantor, including any andall deposits (general or special), account balances and credits of any Grantorwith any Secured Party at any time existing, (i) are part of theCollateral, (ii) will be held as security for the Obligations, and (iii) maybe set-off and applied against any or all Obligations at any time following theoccurrence and during the continuance of any Event of Default, and after theoccurrence of and during the continuance of an Event of Default, Agent has theright at any time to refuse to allow withdrawals from any account of anyGrantor.  At any time following theoccurrence and during the continuance of any Event of Default, each Grantorauthorizes each Secured Party and its and their respective Affiliates to pay orto deliver to Agent any deposits or other sums credited by, or due from, suchAffiliates to any Grantor for application against any or all Obligations, allwithout further notice to Grantors (such notice being expressly waived) andwithout any necessity on Agent’s part to resort to other security or sources ofreimbursement for the Obligations.  Therights given to Agent and the Secured Parties hereunder are cumulative withAgent’s and the Secured Parties’ other rights and remedies, including otherrights of setoff.  Agent will promptlynotify Borrower of Agent’s receipt of such funds for application against theObligations, but Agent’s failure to do so will not affect the validity orenforceability thereof.

 

3.             PERFECTION OF AGENT’S SECURITY INTEREST; DUTYOF CARE.

 

3.1           Required Grantor Actions.  Until the termination of this Agreement, eachGrantor shall perform any and all steps and take all actions reasonablyrequested by Agent from time to time to perfect, maintain, protect, and enforceAgent’s security interest in, and Lien on, the Collateral, including (i) executingand delivering all appropriate documents and instruments as 

 

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Agent may determine arenecessary or reasonably desirable to perfect, preserve, or enforce Agent’sinterest in the Collateral, all in form and substance satisfactory to Agent, (ii) deliveringto Agent any warehouse receipts or other documents of title covering thatportion of the Collateral which may be located in warehouses and in respect ofwhich warehouse receipts are issued, (iii) upon the occurrence and thecontinuance of any Event of Default, transferring inventory to warehousesapproved by Agent, (iv) placing notations on such Grantor’s books ofaccount to disclose Agent’s security interest and Lien therein, and (v) takingsuch other steps and actions as deemed necessary or reasonably desirable byAgent to perfect and enforce Agent’s security interest in, and Lien on, andother rights and interests in, the Collateral.

 

3.2           Financing Statements; Notices.  Each Grantor hereby irrevocably authorizesAgent at any time and from time to time to file in any filing office in anyjurisdiction any initial financing statements and amendments thereto that (a) indicatethe Collateral (i) as all assets of such Grantor, whether now owned orhereafter acquired or arising, and all proceeds and products thereof, (ii) asbeing of an equal or lesser scope or with greater detail, and (b) provideany other information required by Part 5 of Article 9 of the UniformCommercial Code as enacted in any jurisdiction for the sufficiency or filingoffice acceptance of any financing statement or amendment, including whethersuch Grantor is an organization, the type of organization and anyorganizational identification number issued to such Grantor.  Each Grantor hereby irrevocably authorizesAgent at any time and from time to time to correct or complete, or to cause tobe corrected or completed, any financing statements, continuation statements orother such documents as have been filed naming such Grantor as debtor and Agentas secured party.  Each Grantor agrees tofurnish any such information to Agent promptly upon request.  At Agent’s request, each Grantor will executenotices appropriate under any applicable requirements of law that Agent deemsdesirable to evidence, perfect, or protect its security interest in and otherLiens on the Collateral in such form(s) as are satisfactory to Agent.  Each Grantor, jointly and severally, agreesto pay the cost of filing all financing statements and other notices in all publicoffices where filing is deemed by Agent to be necessary or desirable toperfect, protect or enforce the security interest and Lien granted to Agenthereunder.  A carbon, photographic,photostatic or other reproduction of this Agreement or of a financing statementis sufficient as a financing statement. Agent is hereby authorized to give notice to any creditor, landlord orany other Person as may be necessary or desirable under applicable laws toevidence, protect, perfect, or enforce the security interest and Lien grantedto Agent in the Collateral.

 

3.3           Bailees; Consignees; Warehousemen.  If any Collateral having a value in excess of$100,000 individually or $250,000 in the aggregate is in the possession orcontrol of any warehouseman or any of any Grantor’s consignees, agents,processors, customers or other bailees, upon the request of Agent theapplicable Grantor shall notify such warehousemen, consignee, agents,processors, customers or other bailees of Agent’s security interest and Lientherein, and upon Agent’s request, such Grantor shall use commerciallyreasonable efforts to obtain a bailee letter agreement and financing statementsacceptable to Agent from such warehousemen, consignees, agents, processors,customers or other bailees, pursuant to which each such warehousemen,consignee, agent, processor, customer or other bailee acknowledges in anauthenticated record that such Person is holding the Collateral for Agent’sbenefit, and such documentation from any secured creditor or lessor of such Personas Agent may request.

 

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3.4           Impositions; Protection of Agent’s Interests.  To protect, perfect, or enforce, from time totime, Agent’s rights or interests in the Collateral, Agent may, in itsdiscretion (but without any obligation to do so), (i) discharge any Liens(other than Permitted Liens so long as no Event of Default has occurred and iscontinuing) at any time levied or placed on the Collateral, (ii) pay anyinsurance to the extent any Grantor has failed to timely pay the same, (iii) ifdetermined by the Agent, in its reasonable judgment, to be necessary to protectthe Collateral, maintain guards where any Collateral is located if an Event ofDefault has occurred and is continuing, and (iv) obtain any record fromany service bureau and pay such service bureau the cost thereof.  All costs and expenses incurred by Agent inexercising its discretion under this Section 3.4 will be part ofthe Obligations, payable on Agent’s demand and secured by the Loan Collateral.

 

3.5           Agent’s Duty of Care.  Agent shall have no duty of care with respectto the Collateral except that Agent shall exercise reasonable care with respectto the Collateral in Agent’s custody. Agent shall be deemed to have exercised reasonable care if (i) suchproperty is accorded treatment substantially equal to that which Agent accordsits own property or (ii) Agent takes such action with respect to theCollateral as the applicable Grantor shall reasonably request in writing.  Agent will not be deemed to have, and nothingin this Section 3.5 may be construed to deem that Agent has, failedto exercise reasonable care in the custody or preservation of Collateral in itspossession merely because either (a) Agent failed to comply with anyrequest of any Grantor or (b) Agent failed to take steps to preserverights against any Persons in such property. Each Grantor agrees that Agent has no obligation to take steps topreserve rights against any prior parties.

 

3.6           Verification.  Except as may otherwise be provided by theFinancing Agreement, after the occurrence and during the continuance of anyEvent of Default, Agent, in its own name or in the name of others, mayperiodically communicate with each Grantor’s account debtors, customers andother obligors to verify with them, to Agent’s satisfaction, the existence,amount and terms of any sums owed by such account debtors, customers or otherobligors to each Grantor and the nature of any such account debtor’s, customer’sor other obligor’s relationship with such Grantor.

 

3.7           [Reserved].

 

3.8           Control Agreement.  With respect to any of the Collateral forwhich control of such Collateral is a method of perfection under the UniformCommercial Code as enacted in any jurisdiction, including all of each Grantor’sright, title and interest in deposit accounts, investment property, electronicchattel paper and letter-of-credit rights, and without limiting the obligationsof each Grantor under the provisions of Sections 3.9, 3.10,and 3.11 below, each Grantor shall, on Agent’s reasonable request,cause to be executed by each Person that Agent determines is appropriate, acontrol agreement in a form reasonably acceptable to Agent; provided that, theGrantors are not required to obtain such a control agreement for suchCollateral in deposit, investment or securities accounts which do not have abalance in excess of $25,000 (or $750,000 with respect to the Surety Account),and provided further, that at no time shall the aggregate balances (other thanamounts deposited in the Surety Account up to $750,000) for all Grantors insuch deposit, investment or securities accounts exceed $250,000 in theaggregate.

 

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3.9           Promissory Notes and Tangible Chattel Paper.  If any Grantor shall at any time hold oracquire any promissory notes or tangible chattel paper evidencing obligationsowing to such Grantor in excess of $100,000 (individually or as part of arelated series of transactions) that is not Excluded Property, such Grantorshall forthwith endorse, assign and deliver the same to Agent, accompanied bysuch instruments of transfer or assignment duly executed in blank as Agent mayfrom time to time specify.

 

3.10         Electronic Chattel Paper and Transferable Records.  If any Grantor at any time holds or acquiresan interest in any electronic chattel paper or any “transferable record,” asthat term is defined in Section 201 of the Federal Electronic Signaturesin Global and National Commerce Act, or in § 16 of the Uniform Electronic TransactionsAct as in effect in any relevant jurisdiction, such Grantor shall promptlynotify Agent thereof and, at the request and option of Agent, shall take suchaction as Agent may reasonably request to vest in Agent control, under§ 9-105 of the Uniform Commercial Code, of such electronic chattel paperor control under Section 201 of the Federal Electronic Signatures inGlobal and National Commerce Act or, as the case may be, § 16 of theUniform Electronic Transactions Act, as so in effect in such jurisdiction, ofsuch transferable record.

 

3.11         Letter-of-Credit Rights.  If any Grantor is at any time now orhereafter a beneficiary under a letter of credit having a face amount in excessof $100,000, such Grantor shall promptly notify Agent thereof and, at therequest and option of Agent, such Grantor shall, pursuant to an agreement inform and substance satisfactory to Agent, either, at the option of Agent, (i) arrangefor the issuer and any confirmer or other nominated person of such letter ofcredit to consent to an assignment to Agent of the proceeds of the letter ofcredit or (ii) arrange for Agent to become the beneficiary of the letterof credit.

 

3.12         Commercial Tort Claims.  If any Grantor shall at any time hold oracquire a commercial tort claim for an asserted amount in excess of $100,000,such Grantor shall promptly notify Agent in a writing signed by such Grantor ofthe particulars thereof and grant to Agent in such writing a security interesttherein and in the proceeds thereof, all upon the terms of this Agreement, withsuch writing to be in form and substance satisfactory to Agent.

 

4.             POWER OF ATTORNEY.

 

4.1           Grant of Power.  Each Grantor does hereby severally make,constitute and appoint Agent (or any officer or agent of Agent) as such Grantor’strue and lawful attorney-in-fact, with full power of substitution, in the nameof such Grantor or in the name of Agent or otherwise, for the use and benefitof Agent, but at the joint and several cost and expense of Grantors, (i) toendorse the name of such Grantor on any instruments, notes, checks, drafts,money orders, or other media of payment (including payments payable under anypolicy of insurance on the Collateral) or Collateral that may come into thepossession of Agent or any Affiliate of Agent in full or part payment of any ofthe Obligations; (ii) upon the occurrence and during the continuance ofany Event of Default, to sign and indorse the name of such Grantor on anyinvoice, freight or express bill, bill of lading, storage or warehouse receipts,drafts against debtors, assignments, verifications and notices in connectionwith any Collateral, and any instrument or document relating thereto or to anyof such Grantor’s rights therein; (iii) to file financing statementspursuant to the Code and other notices appropriate under applicable law as 

 

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Agent deems necessary toperfect, preserve, and protect Agent’s rights and interests under thisAgreement; (iv) after an Event of Default has occurred and is continuing,to obtain the insurance referred to in Section 10.14 of theFinancing Agreement and indorse any drafts and cancel any insurance so obtainedby Agent; (v) after an Event of Default has occurred and is continuing, togive written notice to the United States Post Office to effect change(s) ofaddress so that all mail addressed to such Grantor may be delivered directly toAgent; and (vi) to do any and all things necessary or desirable to perfectAgent’s security interest in, and Lien on, and other rights and interests in,the Collateral, to preserve and protect the Collateral and to otherwise carryout this Agreement.

 

4.2           Duration; Ratification of Acts.  This power of attorney, being coupled with aninterest, will be irrevocable for the term of this Agreement and alltransactions under this Agreement and thereafter until the Obligations havebeen Paid in Full.  Each Grantor jointlyand severally ratifies and approves all acts of such attorney, and neitherAgent nor its attorney will be liable for any acts or omissions or for anyerror of judgment or mistake of fact or law, other than as results from suchPerson’s own gross negligence or willful misconduct.  Each Grantor shall will execute and deliverpromptly to Agent all instruments necessary or desirable, as determined inAgent’s discretion, to further Agent’s exercise of the rights and powersgranted it in this Section 4.

 

5.             WARRANTIES AND REPRESENTATIONS.  To induce Agent and the Lenders to make theLoans and other extensions of credit pursuant to the Loan Documents, eachGrantor severally represents to Agent that the following statements are, andwill continue throughout the term of this Agreement to be, true:

 

5.1           Jurisdiction of Organization; Places of Business,etc.  Such Grantor’s (i) jurisdictionof organization is the jurisdiction identified on Exhibit 5.1, (ii) exactlegal name is as set forth in the first paragraph of this Agreement (as may beupdated from time to time as provided in Section 6.2), (iii) chiefexecutive office and principal place of business are set forth on Exhibit 5.1(as may be updated from time to time as provided in Section 6.2), (iv) officesor locations where such Grantor keeps the Collateral (except for inventory intransit) or conducts any of its business are listed on Exhibit 5.1(as may be updated from time to time as provided in Section 6.2), (v) federaltax identification number is identified on Exhibit 5.1, and (vii) organizationalidentification number in its jurisdiction of organization is identified on Exhibit 5.1.

 

5.2           Prior Locations Of Collateral.  Except for inventory in transit, none of theinventory or equipment constituting part of the Collateral has been at, or hasbeen removed from, any location as of the date of this Agreement other thanthose locations set forth on Exhibit 5.1.

 

5.3           Names.  All trade names, assumed names, fictitiousnames and other names used by such Grantor during the 5 year period precedingthe date of this Agreement are set forth on Exhibit 5.3, and suchGrantor has not, during the preceding 5 year period, except as may be setforth on Exhibit 5.3, acquired any of its assets in any bulktransfer.

 

5.4           Investment Property.  Exhibit 5.4 lists all of suchGrantor’s rights, title or interests in, or with respect to, any investmentproperty as of the Closing Date.

 

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5.5           Letter-of-Credit Rights.  Exhibit 5.5 lists all of suchGrantor’s rights, title or interests in, or with respect to, any letters ofcredit as of the Closing Date.

 

5.6           Electronic Chattel Paper.  Exhibit 5.6 lists all of suchGrantor’s rights, title or interests in, or with respect to, any electronicchattel paper as of the Closing Date.

 

5.7           Commercial Tort Claims.  Exhibit 5.7 lists all of suchGrantor’s rights, titles or interests in, or with respect to, any commercialtort claims as of the Closing Date.

 

5.8           Instruments.  Exhibit 5.8 lists all of suchGrantor’s rights, titles or interests in, or with respect to, any instruments,including promissory notes having and outstanding or committed principal amountin excess of $100,000, as of the Closing Date.

 

5.9           State of Title.  Such Grantor has good and marketable titleto, and ownership of, all the Collateral not owned by the other Grantors, freeand clear of all Liens except to the extent, if any, of the Permitted Liens.

 

6.             COLLATERAL COVENANTS.  Until the Obligations are fully paid,performed and satisfied and this Agreement is terminated, each Grantor shall:

 

6.1           Claims Against Collateral.  Maintain the Collateral, as the same isconstituted from time to time, free and clear of all Liens, except to theextent, if any, of the Permitted Liens, and defend or cause to be defended theCollateral against all of the claims and demands of all Persons whomsoever(except to the extent, if any, of the Permitted Liens).

 

6.2           Notice of Change in Place of Business; Names, etc.  (i) Give Agent at least 30 BusinessDays advance notice in writing of any change in Borrower’s (a) chiefexecutive office or (b) exact legal name as set forth in the firstparagraph of this Agreement, and (ii) not, without the prior written consentof Agent, change Borrower’s jurisdiction of organization.

 

6.3           [Reserved].

 

6.4           Notice of Adverse Information.  Promptly notify Agent in writing of any Lienor claim known to the Borrower which could reasonably be expected to materiallyand adversely affect the value of any material portion of the Collateral or therights of Agent with respect thereto.

 

6.5           Equipment.  Maintain the equipment in good operatingcondition and repair in accordance with the Grantors’ standard businesspractice, ordinary wear and tear excepted.

 

6.6           [Reserved].

 

6.7           Insurance.  Insure the Collateral in accordance with theterms of the Financing Agreement.

 

6.8           Removal of Collateral.  Not remove any of the Collateral (except forinventory in transit) with a value in excess of $100,000 at any one location or$250,000 in the aggregate, in each case during any Fiscal Year, from thelocations set forth in Exhibit 5.1 of this Agreement or 

 

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keep any of such Collateral(except for inventory in transit) at any other office or location withoutproviding Agent with an updated Exhibit 5.1 within 30 days thereof.

 

6.9           No Liens.  Not create or permit to be created or toexist any Lien on any of the Collateral except to the extent, if any, of thePermitted Liens.

 

7.             TERM.  Subject to Section 11.6 below,this Agreement will terminate on the later to occur of (i) the Payment inFull of the Obligations or (ii) the termination of the FinancingAgreement.

 

8.             AGENT’S RIGHTS AND REMEDIES.

 

8.1           Remedies.  (i)  On the occurrence and duringthe continuance of an Event of Default and after the lapse of any applicableperiod of cure provided in Section 11.2 of the Financing Agreement,Agent may immediately, at any time, while such Event of Default is continuing,take any one or more of the following actions, without notice, demand or legalprocess of any kind (except as may be required by law), all of which eachGrantor waives to the fullest extent permitted by law:

 

(a)           proceed to enforce payment of the Obligations and toexercise all of the rights and remedies afforded to Agent by the UniformCommercial Code as enacted in any jurisdiction, under the terms of the LoanDocuments and by law and in equity provided, including those set forth below inthis Section 8.1;

 

(b)           take possession of the Collateral and maintain suchpossession on any Grantor’s premises at no cost to Agent, or remove theCollateral, or any part thereof, to such other place(s) as Agent maydesire;

 

(c)           enter on any premises on which the Collateral, orany part or records thereof, may be situated and remove the same therefrom, forwhich action no Grantor shall assert against Agent any claim for trespass,breach of the peace or similar claim and no Grantor shall not hinder Agent’s effortsto effect such removal;

 

(d)           require Grantors, at their joint and several cost,to assemble the Collateral and make it available at a place designated byAgent;

 

(e)           collect, compromise, take, sell or otherwise dealwith the Collateral and proceeds thereof in its own name or in the name of anyGrantor, including (1) bringing suit on any one or more of the accounts,chattel paper, instruments, documents, leases or other agreements(collectively, “Contracts”) in the name of any Grantor or Agent, and exerciseall such other rights respecting the Contracts, in the name of any Grantor orAgent, including the right to accelerate or extend the time of payment, settle,release in whole or in part any amounts owing on any Contract and issue creditsin the name of any Grantor or Agent, and including proceeding against anycollateral or security provided in respect of any Contract and (2) bringingsuit on any one or more of the general intangibles, in the name of any Grantoror Agent, and exercise all such other rights respecting the generalintangibles, including the right to accelerate or extend the time of payment,settle, release in whole or in part any amounts owing on any general intangible

 

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and issue credits in the nameof any Grantor or Agent, and including proceeding against any collateral orsecurity provided in respect of any general intangible;

 

(f)            sell part or all of the Collateral at public orprivate sale(s), for cash, upon credit or otherwise, at such prices and uponsuch terms as Agent deems advisable, at Agent’s discretion, and Agent may, ifAgent deems it reasonable, postpone or adjourn any sale of the Collateral fromtime to time by an announcement at the time and place of sale or by announcementat the time and place of such postponed or adjourned sale, without beingrequired to give a new notice of sale, and without being obligated to make anysale of the Collateral regardless of notice of sale having been given;

 

(g)           to the extent Agent has not so acted or is currentlyso acting pursuant to the other terms of this Agreement, notify any Grantor’scustomers, account debtors and any other Persons (1) obligated on theCollateral to make payment or otherwise render performance to or for the benefitof Agent and (2) that, without limiting the generality of clause (1),the Contracts and general intangibles have been assigned to Agent and thatpayments should be made directly to Agent;

 

(h)           require any Grantor, using such form as Agent mayapprove, to notify such Grantor’s customers, account debtors and any otherPersons, and to indicate on all of any such Grantor’s correspondence to suchcustomers, account debtors and other Persons, that the Contracts and generalintangibles must be paid to Agent directly;

 

(i)            sign any indorsements, assignments or other writingsof conveyance or transfer in connection with any disposition of the Collateral;

 

(j)            sell, assign, transfer or otherwise dispose of allor any part of the Collateral in any manner permitted by law and do any otherthing and exercise any other right or remedy which Agent may, with or withoutjudicial process, do or exercise under applicable law, and in any such saleAgent may sell, assign, transfer or otherwise dispose of all or any part of theCollateral without giving any warranties and Agent may specifically disclaimany warranties of title and the like;

 

(k)           apply for and have a receiver appointed under stateor federal law by a court of competent jurisdiction in any action taken byAgent to enforce its rights and remedies under this Agreement and, asapplicable, the other Loan Documents in order to manage, protect, preserve, andsell and otherwise dispose of all or any portion of the Collateral and continuethe operation of the business of any Grantor, and to collect all revenues andprofits thereof and apply the same to the payment of all expenses and othercharges of such receivership, including the compensation of the receiver, andto the payment of the Obligations until a sale or other disposition of suchCollateral is finally made and consummated;

 

(l)            enforce the obligations of an account debtor orother Person obligated on collateral and exercise the rights of the debtor withrespect to the obligation of the account debtor or other Person obligated oncollateral to make payment or otherwise render performance to any Grantor, andwith respect to any property that secures the obligations of the account debtoror 

 

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other Person obligated oncollateral, in any case directly or through collection agencies or othercollection specialists; and

 

(m)          without limiting the provisions of Section 2.3above, apply (or instruct another Person to apply) to the Obligations thebalance of any deposit account that is part of the Collateral.

 

(ii)           Each Grantor acknowledges that portions of theCollateral could be difficult to preserve and dispose of and be further subjectto complex maintenance and management. Accordingly, Agent, in exercising its rights under this Section 8.1,shall have the widest possible latitude to preserve and protect the Collateraland Agent’s security interest in and Lien thereon.  Moreover, each Grantor acknowledges andagrees that Agent shall have no obligation to, and each Grantor hereby waivesto the fullest extent permitted by law any right that it may have to requireAgent to (a) clean up or otherwise prepare any of the Collateral for sale,(b) pursue any Person to collect any of the Obligations or (c) exercisecollection remedies against any Persons obligated on the Collateral.  Agent’s compliance with applicable local,state or federal law requirements, in addition to those imposed by the UniformCommercial Code as enacted in any jurisdiction, in connection with adisposition of any or all of the Collateral will not be considered to adverselyaffect the commercial reasonableness of any disposition of any or all of theCollateral under the Uniform Commercial Code as enacted in any jurisdiction.

 

8.2           Notice of Disposition; Allocations.  If any notice is required by law toeffectuate any sale or other disposition of the Collateral, (i) Agent willgive the applicable Grantor(s) written notice of the time and place of anypublic sale or of the time after which any private sale or other intendeddisposition thereof will be made, and at any such public or private sale, Agentmay purchase all or any of the Collateral; and (ii) Agent and each Grantoragree that such notice will not be unreasonable as to time if given incompliance with this Agreement ten days prior to any sale or otherdisposition.  The proceeds of the salewill be applied first to all costs and expenses of such sale includingAttorneys’ Fees and other costs and expenses, and second to the payment of allObligations in the manner and order determined by Agent in its discretion.  Each Grantor shall remain jointly andseverally liable to Agent and the Lenders for any deficiency.  Unless otherwise directed by law, Agent willreturn any excess to Borrower.

 

8.3           Payment of Expenses.  Grantors shall, jointly and severally, pay toAgent, on its demand, all costs and expenses, including court costs, Attorneys’Fees and costs of sale, incurred by Agent in exercising any of its rights orremedies hereunder, all of which constitute part of the Obligations and aresecured by the Loan Collateral.

 

9.             INDEMNIFICATION.  In consideration of the execution anddelivery of the Financing Agreement and the making of any Loan to Borrower,each Grantor agrees, jointly and severally, to indemnify and hold Agent andeach other Secured Party and each of Agent’s and such other Secured Party’sdirectors, Affiliates and agents (for the purposes of this Section 9each is an “Indemnified Party”) harmless from and against any and allclaims, losses, obligations and liabilities arising out of or resulting fromany or all of (i) this Agreement and (ii) the transactionscontemplated by this Agreement (including enforcement of this Agreement),except for claims, losses or liabilities to the extent resulting from anIndemnified Party’s gross negligence or willful misconduct.  The indemnification provided for in this Section 9is in 

 

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addition to, and not inlimitation of, any other indemnification or insurance provided by any Grantorto Agent or any other Secured Party.

 

10.           NOTICE.  Any notice, certificate, request,notification and other communication required, permitted or contemplatedhereunder must be in writing and given in accordance with the Financing Agreement.

 

11.           GENERAL.

 

11.1         Severability.  If any term of this Agreement is foundinvalid under California law or other laws of mandatory application by a courtof competent jurisdiction, the invalid term will be considered excluded fromthis Agreement and will not invalidate the remaining terms of this Agreement.

 

11.2         GOVERNING LAW.  THIS AGREEMENT HAS BEEN DELIVERED ANDACCEPTED 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 REGARD TO CALIFORNIA CONFLICTS OF LAW PRINCIPLES).

 

11.3         WAIVER OF JURISDICTION.  AS A SPECIFICALLY BARGAINED INDUCEMENT FORAGENT TO ENTER INTO THIS AGREEMENT AND EXTEND CREDIT TO BORROWER, EACH GRANTORAND AGENT AGREE THAT ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISINGOUT OF THIS AGREEMENT, ITS VALIDITY OR PERFORMANCE AND WITHOUT LIMITATION ONTHE ABILITY OF AGENT, ITS SUCCESSORS AND ASSIGNS, TO INITIATE AND PROSECUTE INANY APPLICABLE JURISDICTION ACTIONS RELATED TO THE REPAYMENT AND COLLECTION OFTHE OBLIGATIONS AND THE EXERCISE OF ALL OF AGENT’S RIGHTS AGAINST ANY GRANTORWITH RESPECT THERETO AND ANY SECURITY OR PROPERTY OF ANY GRANTOR, INCLUDINGDISPOSITIONS OF THE COLLATERAL, SHALL BE INITIATED AND PROSECUTED AS TO ALLPARTIES AND THEIR SUCCESSORS AND ASSIGNS AT LOS ANGELES, CALIFORNIA.  AGENT AND EACH GRANTOR CONSENTS TO ANDSUBMITS TO THE EXERCISE OF JURISDICTION OVER ITS PERSON BY ANY COURT SITUATEDAT LOS ANGELES, CALIFORNIA HAVING JURISDICTION OVER THE SUBJECT MATTER, ANDCONSENTS THAT ALL SERVICE OF PROCESS BE MADE BY CERTIFIED MAIL DIRECTED TO ANYGRANTOR OR AGENT AT THEIR RESPECTIVE ADDRESSES SET FORTH IN THE FINANCINGAGREEMENT OR ANY OTHER LOAN DOCUMENT OR AS OTHERWISE PROVIDED UNDER THE LAWS OFTHE STATE OF CALIFORNIA.  EACH GRANTORWAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY OBJECTION TOVENUE OF ANY ACTION INSTITUTED HEREUNDER, AND CONSENTS TO THE GRANTING OF SUCHLEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT.

 

11.4         Survival and Continuation of Representations andWarranties.  All of eachGrantor’s representations and warranties contained in this Agreement shall (i) survivethe execution, delivery and acceptance hereof by the parties hereto and theclosing of the 

 

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transactions described hereinor related hereto and (ii) shall be brought down from time to time asprovided in the Financing Agreement and any certificate delivered pursuant tothe last sentence of Section 8.9 thereof.

 

11.5         Agent’s Additional Rights Regarding Collateral.  All of the Obligations shall constitute oneobligation secured by all of the Collateral. In addition to Agent’s other rights and remedies under the LoanDocuments, Agent may, in its discretion exercised in good faith, following theoccurrence and during the continuance of any Event of Default:  (i) exchange, enforce, waive or releaseany of the Collateral or portion thereof, (ii) apply the proceeds of theCollateral against the Obligations and direct the order or manner of theliquidation thereof (including any sale or other disposition), as Agent may,from time to time, in each instance determine, and (iii) settle,compromise, collect or otherwise liquidate any such security in any mannerwithout affecting or impairing its right to take any other further action withrespect to any security or any part thereof.

 

11.6         Application of Payments; Revival of Obligations.  Agent shall have the continuing right toapply or reverse and reapply any payments to any portion of theObligations.  To the extent any Grantormakes a payment or payments to Agent or Agent receives any payment or proceedsof the Collateral or any other security for any Grantor’s benefit, whichpayment(s) or proceeds or any part thereof are subsequently voided,invalidated, declared to be fraudulent or preferential, set aside or requiredto be repaid to a trustee, receiver or any other party under any bankruptcyact, state or federal law, common law or equitable cause, then, to the extentof such payment(s) or proceeds received, the Obligations or part thereofintended to be satisfied shall be revived and shall continue in full force andeffect, as if such payment(s) or proceeds had not been received by Agent.

 

11.7         Additional Waivers by Grantors.  Each Grantor waives presentment and protestof any instrument and notice thereof, and, except as expressly provided in theLoan Documents, demand, notice of default and all other notices to which such Grantormight otherwise be entitled.  No Grantorshall assert any claim against Agent or any other Secured Party on any theoryof liability for consequential, special, indirect or punitive damages.

 

11.8         Equitable Relief.  Each Grantor recognizes that, in the eventany Grantor fails to perform, observe or discharge any of its obligations orliabilities under this Agreement, any remedy of law may prove to be inadequaterelief to Agent; therefore, each Grantor agrees that Agent, if Agent sorequests, shall be entitled to temporary and permanent injunctive relief in anysuch case without the necessity of proving actual damages.

 

11.9         Entire Agreement; Counterparts; Fax Signatures.  This Agreement and the other Loan Documentsset forth the entire agreement of the parties with respect to subject matter ofthis Agreement and supersede all previous understandings, written or oral, inrespect thereof.  Any request from timeto time by any Grantor for Agent’s consent under any provision in the LoanDocuments must be in writing, and any consent to be provided by Agent under theLoan Documents from time to time must be in writing in order to be binding onAgent; however, Agent will have no obligation to provide any consentrequested by any Grantor, and Agent may, for any reason in its discretionexercised in good faith, elect to withhold the requested consent.  Two or more duplicate originals of thisAgreement may be signed by the parties, each of which 

 

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shall be an original but all ofwhich together shall constitute one and the same instrument.  Any documents delivered by, or on behalf of,any Grantor by fax transmission (i) may be relied on by Agent as if thedocument were a manually signed original and (ii) will be binding on suchGrantor for all purposes of the Loan Documents.

 

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

 

11.11       Cumulative Remedies.  The remedies provided in this Agreement andthe other Loan Documents are cumulative and not exclusive of any remediesprovided by law.  Exercise of one or moreremedy(ies) by Agent does not require that all or any other remedy(ies) beexercised and does not preclude later exercise of the same remedy.

 

11.12       Waivers and Amendments in Writing.  Failure by Agent to exercise any right,remedy or option under this Agreement or in any Loan Documents or delay byAgent in exercising the same shall not operate as a waiver by Agent of itsright to exercise any such right, remedy or option.  No waiver by Agent shall be effective unlessit is in writing and then only to the extent specifically stated.  This Agreement may only be amended, modified,supplemented or restated in a writing signed by Agent and each Grantor affectedthereby and may not be amended, modified, supplanted or otherwise changedorally.

 

11.13       Recourse to Directors or Officers.  The obligations of each party under thisAgreement are solely the corporate obligations of each party.  No recourse shall be had for any obligationor claim arising out of or based upon this Agreement against any stockholder,employee, officer, or director of each party.

 

11.14       Assignment.  Agent shall have the right to assign thisAgreement and the other Loan Documents in accordance with Section 14.1 ofthe Financing Agreement.  No Grantor mayassign, transfer or otherwise dispose of any of its rights or obligationshereunder, by operation of law or otherwise, and any such assignment, transferor other disposition without Agent’s written consent (with the consent of theLenders as specified in Section 14.2 of the Financing Agreement)shall be void.  All of the rights,privileges, remedies and options given to any Secured Party under the LoanDocuments shall inure to the benefit of the successors and assigns of theapplicable Secured Party, and all the terms, conditions, covenants, provisionsand warranties herein shall inure to the benefit of and bind the permitted successorsand assigns of each Grantor and each Secured Party, respectively.

 

11.15       Agent.  As among the Secured Parties, (a) Agentshall hold all items of the Collateral at any time received under thisAgreement in accordance with the terms of this Agreement and the FinancingAgreement and (b) by accepting the benefits of this Agreement, eachSecured Party acknowledges and agrees that (1) the obligations of Agent asholder of the Collateral and any interests therein and with respect to anydisposition of any of the Collateral or any interests therein are only thoseobligations expressly set forth in this Agreement and the Financing Agreementand (2) this Agreement may be enforced only by the action of Agent andthat no other Secured Party shall have any right individually to seek toenforce or to enforce this Agreement, it being understood and agreed that suchrights and remedies may be exercised by 

 

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Agent, for the benefit of theSecured Parties, upon the terms of this Agreement and the Financing Agreement.

 

11.16       Conflict.  If there is any conflict, ambiguity, orinconsistency, in Agent’s judgment, between the terms of this Agreement and anyof the other Loan Documents, then the applicable terms and provisions, in Agent’sjudgment, providing Agent with greater rights, remedies, powers, privileges, orbenefits will control.

 

11.17       WAIVER OF JURY TRIAL.  AS A SPECIFICALLY BARGAINED INDUCEMENT FORAGENT TO ENTER INTO THIS AGREEMENT AND FOR TE LENDERS AND THE OTHER SECUREDPARTIES TO EXTEND CREDIT TO BORROWER, EACH GRANTOR AND AGENT EACH WAIVES TRIALBY JURY WITH RESPECT TO ANY ACTION, CLAIM, SUIT OR PROCEEDING IN RESPECT OF ORARISING OUT OF THIS AGREEMENT OR THE CONDUCT OF THE RELATIONSHIP BETWEEN AGENTAND GRANTORS.

 

11.18       Incorporation of JudicialReference Provisions.  Thejudicial reference provisions set forth in Section 15.15 of theFinancing Agreement are hereby incorporated into this Agreement by reference(provided that for purposes of this Section 11.18, each referenceto “Borrower” therein shall be deemed to refer to Grantors, individually andcollectively, hereunder) .

 

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INWITNESS WHEREOF, this Agreement has been duly executed by each Grantor as of thedate first set forth above in the preamble to this Agreement.

 
|   | WESTAFF (USA), INC., a California corporation        |
|--------|------------------------------------------------------|
|   |                                                 |
|   | ** **                                           |
|   | By:                                                  | /s/  Dawn M. Jaffray |
|   |                                                 | Dawn  M. Jaffray |
|   |                                                 | Senior  Vice President and Chief Financial

Officer |
|   |                                                 |   |
|   |                                                 |   |
|   | WESTAFF, INC., a Delaware corporation                |
|   |                                                 |
|   | ** **                                           |
|   | By:                                                  | /s/  Dawn M. Jaffray |
|   |                                                 | Dawn  M. Jaffray |
|   |                                                 | Senior  Vice President and Chief Financial

Officer |
|   |                                                 |   |
|   |                                                 |   |
|   | WESTAFF SUPPORT, INC., a California

corporation     |
|   |                                                 |
|   | ** **                                           |
|   | By:                                                  | /s/  Dawn M. Jaffray |
|   |                                                 | Dawn  M. Jaffray |
|   |                                                 | Senior  Vice President and Chief Financial

Officer |
|   |                                                 |   |
|   |                                                 |   |
|   | MEDIAWORLD INTERNATIONAL, a California 

corporation |
|   |                                                 |
|   | ** **                                           |
|   | By:                                                  | /s/  Dawn M. Jaffray |
|   |                                                 | Dawn  M. Jaffray |
|   |                                                 | Senior  Vice President and Chief Financial

Officer |

 

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Accepted at Los Angeles, California as of the date first set forth above in the preamble to this Agreement.

 

February 14,2008

 
| U.S. BANK NATIONAL ASSOCIATION, |               |
|---------------------------------|--------------------|
| as Agent                        |               |
|                            |               |
| By:                             | /s/ Susan V. Freed |   |
|                            | Susan V. Freed     |   |
|                            | Vice President     |   |

 

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