Exhibit 10.1


 


THIRD AMENDED AND RESTATED FORBEARANCE
AGREEMENT


 


THIS
THIRD AMENDED AND RESTATED FORBEARANCE AGREEMENT (this “Agreement”),
dated as of February 13, 2009, is entered into by and among the financial
institutions identified on the signature pages hereto (collectively, the “Lenders”),
U.S. Bank National Association, as administrative agent for the Lenders (in
such capacity, the “Agent”), Westaff (USA), Inc., a California
corporation (the “Borrower”), and Westaff, Inc., a Delaware
corporation and the sole shareholder of the Borrower, as parent guarantor (the “Parent
Guarantor”), with reference to the following
facts:


 


RECITALS


 


A.                                   The Borrower,
the Parent Guarantor, the Agent and the Lenders are parties to a Financing
Agreement, dated as of February 14, 2008, as amended (collectively, the “Financing
Agreement”), pursuant to which the Agent and the Lenders provide certain
credit facilities to the Borrower.


 


B.                                     Certain Events
of Default have occurred and are continuing under Section 11.1(b)(1) of
the Financing Agreement.  Such Events of
Default were caused by the Borrower’s failure to comply with Section 10.28
of the Financing Agreement, due to the Borrower’s failure to achieve a Fixed
Charge Coverage Ratio of at least 1.25 to 1.00 for the Applicable Period ended April 19,
2008 through each Applicable Period ending on or before April 7, 2009 (the
“Existing Events of Default”).


 


C.                                     At the request of
the Borrower and the Parent Guarantor, the Agent and the Lenders entered into a
Forbearance Agreement with the Borrower and the Parent Guarantor dated as of July 31,
2008 (the “First Forbearance Agreement”), pursuant to which the Agent
and the Lenders agreed to forbear from exercising their available default
rights and remedies under the Financing Agreement, the other Loan Documents,
applicable law and equity (collectively, “Default Rights and Remedies”) in
response to the occurrence and continuance of the Existing Events of Default
through August 26, 2008.


 


D.                                    At the request of
the Borrower and the Parent Guarantor, the Agent and the Lenders also entered
into an Amended and Restated Forbearance Agreement with the Borrower and the
Parent Guarantor dated as of August 26, 2008 (the “Second Forbearance
Agreement”), pursuant to which the Agent and the Lenders agreed to forbear
from exercising their Default Rights and Remedies in response to the occurrence
and continuance of the Existing Events of Default through September 30,
2008.


 


E.                                      At the request of
the Borrower and the Parent Guarantor, the Agent and the Lenders also entered
into a Second Amended and Restated Forbearance Agreement with the Borrower and
the Parent Guarantor dated as of September 30, 2008, as amended
(collectively, the “Second A&R Forbearance Agreement”), pursuant to
which the Agent and the Lenders agreed to forbear from exercising their Default
Rights and Remedies in response to the occurrence and continuance of the
Existing Events of Default through December 19, 2008.


 


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F.                                      The Borrower and
the Parent Guarantor have requested that the Agent and the Lenders agree to
continue to forbear from exercising their Default Rights and Remedies in
response to the occurrence and continuance of the Existing Events of Default
through April 7, 2009.


 


G.                                     The Agent and the
Lenders are willing to continue to forbear from exercising their Default Rights
and Remedies in response to the occurrence and continuance of the Existing
Events of Default through April 7, 2009 on the terms and conditions set
forth in this Agreement, which shall amend, restate, replace and supersede (but
which shall not cause a novation of) the Second A&R Forbearance Agreement.


 


NOW, THEREFORE, the parties hereby agree as
follows:


 


1.                                       Defined Terms.  Any and all initially-capitalized terms used
in this Agreement (including, without limitation, in the recitals to this Agreement)
without definition shall have the respective meanings assigned thereto in the
Financing Agreement.


 


2.                                       Limited
Forbearance Agreement.  So
long as no Forbearance Events of Default (as hereinafter defined) occur hereunder
during such period, the Agent and the Lenders hereby agree to forbear from
exercising any of their Default Rights and Remedies in response to the
occurrence and continuance of the Existing Events of Default throughout the
period commencing on the date of this Agreement and ending on April 7, 2009
(the “Forbearance Period”).  Upon
the occurrence of a Forbearance Event of Default, at the option of the Agent,
the Forbearance Period shall immediately terminate.


 


3.                                       No Waiver.  The agreement of the Agent and the Lenders
under Section 2 of this Agreement conditionally to forbear from exercising
their Default Rights and Remedies throughout the Forbearance Period shall not
constitute a waiver of the Existing Events of Default, and the Agent and the
Lenders hereby expressly reserve all their Default Rights and Remedies in
connection with the Existing Events of Default.


 


4.                                       Amendment of
Travelers Letter of Credit.  On the effective date of this Agreement, US
Bank shall amend the Irrevocable Standby Letter of Credit in the face amount of
$27,000,000 issued by U.S. Bank to The Travelers Indemnity Company, with an
expiration date of February 28, 2009, to extend its expiration date to April 7,
2009.


 


5.                                       Amendment of
Ohio Bureau of Worker’s Compensation Letter of Credit.  On the effective date of this Agreement, US
Bank shall amend the Irrevocable Standby Letter of Credit in the face amount of
$253,000 issued by U.S. Bank to the Ohio Bureau of Worker’s Compensation, with
an expiration date of February 28, 2009, to extend its expiration date to April 7,
2009.


 


6.                                       Agreements
Regarding Credit Facility.


 


A.  Reduction of Credit Facility.  The Revolving Credit Commitments are hereby
reduced to Twenty-Eight Million Dollars ($28,000,000).  The respective Revolving Credit Commitments
of the Lenders are set forth on Schedule 1 to this Agreement.


 


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B.  No Additional Loans.  In light of the reduction of the Revolving
Credit Commitments pursuant to Section 6A and the amount of the
outstanding Letters of Credit, the Borrower shall have no further right to
request, and the Agent and the Lenders shall have no further obligation to
make, any additional Revolving Loans under the Financing Agreement, other than
forced loans due to draws upon the outstanding Letters of Credit.


 


C.  Use of Excess Cash.  The Borrower may use its operating cash on
deposit in the Special Account for the Borrower’s working capital needs, provided
that the use of such cash does not cause a Borrowing Base Deficiency.  Each day, the Agent shall recalculate the
Borrowing Base and determine whether any Borrowing Base Deficiency has occurred
by (i) increasing the Borrowing Base by the amount of all new Eligible
Receivables reported by the Borrower to the Agent on the preceding day, (ii) reducing
the Borrowing Base by the amount of all collections on Eligible Receivables
received in the Special Account on that day, and (iii) increasing the
Borrowing Base by the amount of all Available Cash added to the Special Account
on that day.


 


                                                D.  Weekly Adjustments to Reserve for Payroll
and Payroll Taxes.  The Agent shall
adjust weekly the reserve against Revolving Credit Availability that it
maintains in accordance with Section 8 below to cover the Borrower’s
payroll and payroll tax obligations.


 


7.                                       Amendments to
Definitions.


 


A. Amendments to
Definitions of “Borrowing Base” and “Borrowing Base Deficiency.”  Section 1.1 of the Financing Agreement
is hereby amended such that the definitions of “Borrowing Base” and “Borrowing
Base Deficiency” shall be amended and restated in their entirety as follows:


 


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


 


(i)            the Eligible Billed Receivables Advance Rate applied to
the Net Amount of Eligible Billed Receivables then outstanding; plus


 


(ii)           the Eligible Unbilled Receivables Advance Rate applied to
an amount equal to the lesser of (a) the Net Amount of Eligible Unbilled
Receivables then outstanding and (b) an amount equal to 20% of the Net
Amount of Eligible Billed Receivables then outstanding; plus


 


(iii)                               Available Cash
(including the Additional Guarantor Collateral); less


 


(iv)                              the then
Reserve Amount.


 


“Borrowing Base
Deficiency” means the failure, as of any time, of Revolving Credit
Availability to be greater than or equal to Zero Dollars.


 


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B.  Addition of Definition of “Additional
Guarantor Collateral.”  Section 1.1
of the Financing Agreement is hereby further amended and supplemented by adding
therein a new definition of “Additional Guarantor Collateral” as follows:


 


“Additional Guarantor
Collateral” shall mean (i) any cash collateral in a blocked deposit
account at U.S. Bank in which the Agent has a first-priority security interest
perfected by control, securing the obligation of an Additional Guarantor under
its Additional Guaranty, or (ii) any irrevocable standby letter of credit
issued by a commercial bank reasonably satisfactory to the Agent and the
Lenders, naming the Agent as beneficiary, securing the obligation of an
Additional Guarantor under its Additional Guaranty.


 


8.                                       Reserve for
Payroll and Payroll Taxes.  The
Agent shall continue to maintain a reserve against Revolving Credit Availability
to cover the Borrower’s payroll and payroll tax obligations.  The required amount of such reserve shall be equal
to the sum of (i) the Borrower’s actual accrued Federal Unemployment Tax
Act and State Unemployment Tax Authority payroll tax liabilities, which
liabilities the Borrower shall accrue weekly and (ii) the estimated amount
of the Borrower’s payroll obligations to temporary employees, which estimate
shall be adjusted each week, based upon the Borrower’s average payroll
obligations for the immediately preceding two weeks (excluding any holiday
week).  The payroll reserve required
under this Section 8 shall constitute the Reserve Amount for the purpose
of calculating the Borrowing Base.


 


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


 


10.                                 Suspension of
Agent Advances.  The Agent
hereby agrees not to incur any Agent Advances pursuant to Section 13.10.6
of the Financing Agreement so long as no Forbearance Event of Default
occurs.  The Borrower and the Lenders
acknowledge and agree that the Agent may incur Agent Advances, subject to the
limitations set forth in Section 13.10.6 of the Financing
Agreement, from and after the occurrence of a Forbearance Event of Default as
the Agent in its discretion may deem necessary or desirable to enforce the
available Default Rights and Remedies of the Agent and the Lenders, provided
that such Agent Advances do not cause a Borrowing Base Deficiency.


 


11.                                 Deletion of
Overadvances Provision.  Section 13.11
of the Financing Agreement is hereby amended and restated to read in its
entirety as follows:


 


“13.11  Intentionally Deleted.”


 


12.                                 General Release.  In consideration of the agreement of the
Agent and the Lenders to enter into this Agreement and hereby conditionally
forbear from exercising their available Default Rights and Remedies throughout
the Forbearance Period, the Borrower and the Parent hereby release, discharge
and acquit the Agent, each Lender and their respective agents, servants,
employees, successors and assigns from any and all claims, demands,
liabilities, obligations and causes of action, whether known or unknown,
against them, which the Borrower or the Parent now own or hold, which the
Borrower or the Parent has at any time heretofore owned or held, or which the
Borrower or the Parent hereafter may own or


 


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hold, by reason of any action, matter, cause or thing whatsoever done
prior to the date of this Agreement, including specifically, but not limited
to, any and all claims, demands, rights and causes of action whatsoever arising
out of or which could be alleged to arise out of the Financing Agreement or any
of the other Loan Documents.


 


It
is the intention of the Borrower and the Parent in executing this Agreement
that the same shall be effective as a bar to each and every claim, demand, and
cause of action hereinabove specified, and in furtherance of this intention the
Borrower and the Parent each waives and relinquishes all rights and benefits
under Section 1542 of the Civil Code of the State of California, which
provides:


 


“A general release does not extend to claims which the creditor does
not know or suspect to exist in his or her favor at the time of executing the
release, which if known by him or her might have materially affected his or her
settlement with the debtor.”


 


The
Borrower and the Parent acknowledge that each of them may hereafter discover
facts different from or in addition to those now known or believed to be true
with respect to such claims, demands, or causes of action and agree that this
Agreement shall be and remain effective in all respects notwithstanding any
such differences or additional facts.


 


13.                               Forbearance
Events of Default.  The following
events shall constitute Forbearance Events of Default hereunder:


 


A.  Termination of Merger Agreement.  If either Koosharem Corporation, a California
corporation doing business as Select Staffing (“Select Staffing”), or the
Borrower terminates the Agreement and Plan of Merger dated as of January 28,
2009 by and among Select Staffing, Select Merger Sub Inc., a Delaware
corporation, and the Borrower for any reason;


 


B.  Occurrence of a Borrowing Base Deficiency.  If a Borrowing Base Deficiency occurs;


 


C.  Revocation of Additional Guaranty.  If any Additional Guarantor revokes its
Additional Guaranty;


 


D.  Failure to Extend Term of Travelers
Insurance Policy.  The Borrower fails
to deliver satisfactory evidence to the Agent by April 1, 2009 that
Travelers has extended the term of the Borrower’s workers compensation
insurance policy from the current policy termination date of April 1, 2009
to a new termination date after April 7, 2009 which is reasonably
satisfactory to the Agent and the Lenders; or


 


E.  Other Events of Default.  The occurrence, discovery or disclosure of
any other Event of Default (other than the Existing Events of Default).


 


Upon the occurrence of a Forbearance Event of Default, the Agent and
the Lenders shall be 


 


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relieved of their respective obligations hereunder to forbear from
exercising their available Default Rights and Remedies and immediately may
exercise all such rights and remedies.


 


14.                                 Conditions
Precedent.  The
effectiveness of this Agreement shall be subject to the satisfaction of each of
the following conditions:


 


A.  This Agreement.  The Agent shall have received this Agreement,
duly executed by the Borrower, the Parent Guarantor, the Agent and each of the
Lenders;


 


B.  Additional Guaranty.  The Agent shall have received any additional
Guaranty agreements that are required by the Agent and the Lenders, in form and
substance reasonably satisfactory to the Agent and the Lenders (each, an “Additional
Guaranty”), from one or more Guarantors that are reasonably satisfactory to the
Agent and the Lenders (any of such Guarantors being an “Additional Guarantor”),
and if required by the Agent and the Lenders, secured by such cash collateral
or letters of credit as are reasonably satisfactory to the Agent and the
Lenders; and


 


C.  Confirmation by Additional Guarantors.  Each Additional Guarantor shall have
confirmed in writing to the Agent that this Agreement is acceptable in form and
substance to such Additional Guarantor.


 


15.                                 Reaffirmation
and Ratification.  The Borrower
and the Parent Guarantor hereby reaffirm, ratify and confirm their respective Obligations
under the Financing Agreement and the other Loan Documents, acknowledge that
all of the terms and conditions in the Financing Agreement remain in full force
and effect, and further acknowledge that the security interests granted to
Agent in the Collateral are valid and perfected.


 


16.                                 Integration.  This Agreement constitutes the entire
agreement of the parties in connection with the subject matter hereof and
cannot be changed or terminated orally. 
All prior agreements, understandings, representations, warranties and
negotiations regarding the subject matter hereof, if any, are merged into this
Agreement.


 


17.                                 Counterparts.  This Agreement may be executed in multiple
counterparts, each of which when so executed and delivered shall be deemed an
original, and all of which, taken together, shall constitute but one and the
same agreement.


 


18.                                 Governing Law.  This Agreement shall be governed by, and
construed and enforced in accordance with, the internal laws (as opposed to the
conflicts of law principles) of the State of California.


 


[Rest of page intentionally left blank;
signature pages follow]


 


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IN WITNESS WHEREOF, the parties hereto have
executed this Agreement by their respective duly authorized officers as of the
date first above written.


 


 


	
   

  	
  WESTAFF (USA), INC.,

  
	
   

  	
  a California corporation,

  
	
   

  	
  as the Borrower

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Christa C. Leonard

  
	
   

  	
   

  	
  Christa C. Leonard

  
	
   

  	
   

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  WESTAFF, INC.,

  
	
   

  	
  a Delaware corporation,

  
	
   

  	
  as the Parent Guarantor

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Christa C. Leonard

  
	
   

  	
   

  	
  Christa C. Leonard

  
	
   

  	
   

  	
  Chief Financial Officer

  



 


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  U.S. BANK NATIONAL
  ASSOCIATION,

  
	
   

  	
  as the Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Suzanne E. Geiger

  
	
   

  	
   

  	
  Suzanne E. Geiger

  
	
   

  	
   

  	
  Senior Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  U.S. BANK NATIONAL
  ASSOCIATION,

  
	
   

  	
  as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Suzanne E. Geiger

  
	
   

  	
   

  	
  Suzanne E. Geiger

  
	
   

  	
   

  	
  Senior Vice President

  



 


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  WELLS
  FARGO BANK,

  
	
   

  	
  NATIONAL ASSOCIATION,

  
	
   

  	
  as a Lender

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Tony S. Lee

  
	
   

  	
   

  	
  Tony S. Lee

  
	
   

  	
   

  	
  Vice
  President

  



 


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SCHEDULE
1.1


 


REVOLVING
CREDIT COMMITMENTS


 


	
  LENDER

  	
   

  	
  REVOLVING

  CREDIT

  COMMITMENT

  	
   

  	
  PRO RATA

  SHARE

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  U.S. Bank National Association

  	
   

  	
  $

  	
  16,800,000

  	
   

  	
  60.00

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Wells Fargo Bank, National Association

  	
   

  	
  $

  	
  11,200,000

  	
   

  	
  40.00

  	
  %

  
	
  Total:

  	
   

  	
  $

  	
  28,000,000

  	
   

  	
  100.00

  	
  %

  



 


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