Document:

EXHIBIT 10.7

 

 

WESTAFF, INC.

 

EMPLOYEE STOCK
PURCHASE PLAN

 

(As Amended and
Restated April 16, 2008)

 

I.              PURPOSE
OF THE PLAN

 

This Employee Stock Purchase Plan is intended to promote the interests
of Westaff, Inc. by providing eligible employees with the opportunity to
acquire a proprietary interest in the Corporation through participation in a
payroll-deduction based employee stock purchase plan designed to qualify under Section 423
of the Code.

 

Capitalized terms herein shall have the meanings assigned to such terms
in the attached Appendix.

 

II.            ADMINISTRATION
OF THE PLAN

 

The Plan Administrator shall have full authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations
for administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423. Decisions of the Plan Administrator
shall be final and binding on all parties having an interest in the Plan.

 

III.          STOCK
SUBJECT TO PLAN

 

A.            The
stock purchasable under the Plan shall be shares of authorized but unissued or
reacquired Common Stock, including shares of Common Stock purchased on the open
market. The maximum number of shares of Common Stock which may be issued over
the term of the Plan shall not exceed One Million Three Hundred Sixty-Two
Thousand and Five Hundred (1,362,500) shares.

 

B.            Should
any change be made to the Common Stock by reason of any stock split, stock
dividend, recapitalization, combination of shares, exchange of shares or other
change affecting the outstanding Common Stock as a class without the
Corporation’s receipt of consideration, appropriate adjustments shall be made
to (i) the maximum number and class of securities issuable under the Plan,
(ii) the maximum number and class of securities purchasable per
Participant on any one Purchase Date and (iii) the number and class of
securities and the price per share in effect under each outstanding purchase
right in order to prevent the dilution or enlargement of benefits thereunder.

 

IV.          PURCHASE
PERIODS

 

A.            Shares
of Common Stock shall be offered for purchase under the Plan through a series
of successive purchase periods until such time as (i) the maximum number
of shares of Common Stock available for issuance under the Plan shall have been
purchased or (ii) the Plan shall have been sooner terminated. The Board
shall have the power to change the duration of purchase periods (including the
commencement and termination dates thereof) with respect to future purchase
periods without stockholder approval if such change is announced at least
fifteen (15) days prior to the scheduled beginning of the first purchase
period to be affected thereafter.

 

B.            Each
purchase period shall have a duration of six (6) months. Purchase periods
shall run from the first business day in February to the last business day
in July each year and from the first business day in August each year
to the last business day in January of the following year. The first
purchase period began on November 3, 1996 and ended on the last business
day in January 1997.

 

 

V.            ELIGIBILITY

 

A.            Each
individual who is an Eligible Employee on the start date of any purchase period
shall be eligible to participate in the Plan for that purchase period.

 

B.            To
participate in the Plan for a particular purchase period, the Eligible Employee
must complete the Enrollment/Change Form prescribed by the Plan Administrator
(including a Stock Purchase Agreement) and file such forms with the Plan
Administrator (or its designate) on or before the start date of the purchase
period.

 

VI.          PAYROLL
DEDUCTIONS

 

A.            The
payroll deduction authorized by the Participant for purposes of acquiring
shares of Common Stock under the Plan may be any multiple of one percent (1%)
of the Cash Earnings paid to the Participant during each purchase period, up to
a maximum of ten percent (10%). The deduction rate so authorized shall continue
in effect for the entire purchase period. The Participant may not increase his
or her rate of payroll deduction during a purchase period. However, the
Participant may, at any time during the purchase period, reduce his or her rate
of payroll deduction to become effective as soon as possible after filing the
appropriate form with the Plan Administrator. The Participant may not, however,
effect more than one (1) such reduction per purchase period.

 

B.            Payroll
deductions shall begin on the first pay day following the start date of the
purchase period and shall (unless sooner terminated by the Participant)
continue through the pay day ending with or immediately prior to the last day
of the purchase period. The amounts so collected shall be credited to the
Participant’s book account under the Plan, but no interest shall be paid on the
balance from time to time outstanding in such account. The amounts collected
from the Participant shall not be held in any segregated account or trust fund
and may be commingled with the general assets of the Corporation and used for
general corporate purposes.

 

C.            Payroll
deductions shall automatically cease upon the termination of the Participant’s
purchase right in accordance with the provisions of the Plan.

 

D.            The
Participant’s acquisition of Common Stock under the Plan on any Purchase Date
shall neither limit nor require the Participant’s acquisition of Common Stock
on any subsequent Purchase Date.

 

VII.         PURCHASE
RIGHTS

 

A.            Grant of Purchase
Right.  A Participant shall be
granted a separate purchase right on the start date of each purchase period in
which he or she participates. The purchase right shall provide the Participant
with the right to purchase shares of Common Stock on the Purchase Date upon the
terms set forth below. The Participant shall execute a stock purchase agreement
embodying such terms and such other provisions (not inconsistent with the Plan)
as the Plan Administrator may deem advisable.

 

Under no circumstances shall purchase rights
be granted under the Plan to any Eligible Employee if such individual would,
immediately after the grant, own (within the meaning of Code Section 424(d))
or hold outstanding options or other rights to purchase, stock possessing five
percent (5%) or more of the total combined voting power or value of all classes
of stock of the Corporation or any Corporate Affiliate.

 

B.            Exercise of the
Purchase Right.  Each purchase
right shall be automatically exercised on the Purchase Date, and shares of
Common Stock shall accordingly be purchased on behalf of each Participant
(other than any Participant whose payroll deductions have previously been
refunded pursuant to the Termination of Purchase Right provisions below) on
such date. The purchase shall be effected by applying the Participant’s payroll
deductions for the purchase period ending on such Purchase Date to the purchase
of shares of Common Stock (subject to the limitation on the maximum number of
shares purchasable per Participant on any one Purchase Date) at the purchase
price in effect for that purchase period.

 

C.            Purchase Price.  The purchase price per share at which Common
Stock will be purchased on the Participant’s behalf on each Purchase Date shall
be equal to ninety percent (90%) of the lower
of (i) the Fair Market Value per share of Common Stock on the start date
of the purchase period or (ii) the Fair Market Value per share of Common
Stock on that Purchase Date.

 

 

D.            Number of Purchasable
Shares.  The number of shares of
Common Stock purchasable by a Participant on each Purchase Date shall be the
number of whole shares obtained by dividing the amount collected from the
Participant through payroll deductions during the purchase period ending with
that Purchase Date by the purchase price in effect for that Purchase Date.
However, the maximum number of shares of Common Stock purchasable per
Participant on any one Purchase Date shall not exceed one thousand one hundred
twenty-five (1,125) shares, subject to periodic adjustments in the event of
certain changes in the Corporation’s capitalization.

 

E.             Excess Payroll
Deductions.  Any payroll
deductions not applied to the purchase of shares of Common Stock on any
Purchase Date because they are not sufficient to purchase a whole share of
Common Stock shall be held for the purchase of Common Stock on the next
Purchase Date. However, any payroll deductions not applied to the purchase of
Common Stock by reason of the limitation on the maximum number of shares
purchasable by the Participant on the Purchase Date shall be promptly refunded.

 

F.             Termination of
Purchase Right.  The following
provisions shall govern the termination of outstanding purchase rights:

 

1.             A
Participant may, at any time prior to the last day of the purchase period,
terminate his or her outstanding purchase right by filing the appropriate form
with the Plan Administrator (or its designate), and no further payroll
deductions shall be collected from the Participant with respect to the terminated
purchase right. Any payroll deductions collected during the purchase period in
which such termination occurs shall, at the Participant’s election, be
immediately refunded or held for the purchase of shares on the next Purchase
Date. If no such election is made at the time such purchase right is
terminated, then the payroll deductions collected with respect to the
terminated right shall be refunded as soon as possible.

 

2.             The
termination of such purchase right shall be irrevocable, and the Participant may
not subsequently rejoin the purchase period for which the terminated purchase
right was granted. In order to resume participation in any subsequent purchase
period, such individual must re-enroll in the Plan (by making a timely filing
of the prescribed Enrollment/Change Form) on or before the start date of the
new purchase period.

 

3.             Should
the Participant cease to remain an Eligible Employee for any reason (including
death, disability or change in status) while his or her purchase right remains
outstanding, then that purchase right shall immediately terminate, and all of
the Participant’s payroll deductions for the purchase period in which the
purchase right so terminates shall be immediately refunded. However, should the
Participant cease to remain in active service by reason of an approved unpaid
leave of absence, then the Participant shall have the right, exercisable up
until the last business day of the purchase period in which such leave
commences, to (a) withdraw all the payroll deductions collected to date on
his or her behalf during such purchase period or (b) have such funds held
for the purchase of shares on the next scheduled Purchase Date. In no event,
however, shall any further payroll deductions be collected on the Participant’s
behalf during such leave. Upon the Participant’s return to active service, his
or her payroll deductions under the Plan shall automatically resume at the rate
in effect at the time the leave began, unless the Participant withdraws from
the Plan prior to his or her return.

 

G.            Corporate  Transaction.  In  the  event  of  a  proposed  Corporate  Transaction,  each  outstanding  purchase  right  shall  be  assumed  by  such  successor  corporation  or  a  parent  or  subsidiary  of  such  successor  corporation,  unless  the  Plan  Administrator,  in  the  exercise  of  its  sole  discretion  and  in  lieu  of  such  assumption,  determines  to  shorten  the  purchase  period  then  in  progress  by  setting  a  new  Purchase  Date  (the  “New  Purchase  Date”).  If  the  Plan  Administrator  shortens  the  purchase  period  then  in  progress  in  lieu  of  assumption  in  the  event  of  a  Corporate  Transaction,  the  Plan  Administrator  shall  notify  each  Participant  in  writing  at  least  ten  (10)  business  days  prior  to  the  New  Purchase  Date,  that  the  Purchase  Date  for  the  Participant’s  option  has  been  changed  to  the  New  Purchase  Date  and  that  either:

 

1.             the
Participant’s purchase right will be exercised automatically on the New
Purchase Date, unless prior to such date the Participant has terminated his or
her purchase right as provided in Section VII.F.1; or

 

2.             the
Company shall pay to the Participant on the New Purchase Date an amount in
cash, cash equivalents, or property as determined by the Plan Administrator
that is equal to the difference in the Fair Market Value of the shares subject
to the purchase right and the purchase price due had the Participant’s purchase
right been exercised automatically under clause 1 above.

 

 

For purposes of this Subsection, a purchase right granted under the
Plan shall be deemed to be assumed if, in connection with the Corporate
Transaction, the purchase right is replaced with a comparable purchase right
with respect to shares of the successor corporation or parent thereof. The
determination of purchase right comparability shall be made by the Plan
Administrator prior to the Corporate Transaction and its determination shall be
final, binding and conclusive on all persons.

 

H.            Proration of Purchase
Rights.  Should the total number
of shares of Common Stock which are to be purchased pursuant to outstanding
purchase rights on any particular date exceed the number of shares then
available for issuance under the Plan, the Plan Administrator shall make a
pro-rata allocation of the available shares on a uniform and nondiscriminatory
basis, and the payroll deductions of each Participant, to the extent in excess
of the aggregate purchase price payable for the Common Stock pro-rated to such
individual, shall be refunded.

 

I.              Assignability.  The purchase right shall be exercisable only
by the Participant and shall not be assignable or transferable by the
Participant.

 

J.             Stockholder Rights.  A Participant shall have no stockholder
rights with respect to the shares subject to his or her outstanding purchase
right until the shares are purchased on the Participant’s behalf in accordance
with the provisions of the Plan and the Participant has become a holder of
record of the purchased shares.

 

VIII.       ACCRUAL LIMITATIONS

 

A.            No
Participant shall be entitled to accrue rights to acquire Common Stock pursuant
to any purchase right outstanding under this Plan if and to the extent such
accrual, when aggregated with (i) rights to purchase Common Stock accrued
under any other purchase right granted under this Plan and (ii) similar
rights accrued under other employee stock purchase plans (within the meaning of
Code Section 423) of the Corporation or any Corporate Affiliate, would
otherwise permit such Participant to purchase more than Twenty-Five Thousand
Dollars ($25,000) worth of stock of the Corporation or any Corporate Affiliate
(determined on the basis of the Fair Market Value of such stock on the date or
dates such rights are granted) for each calendar year such rights are at any
time outstanding.

 

B.            For
purposes of applying such accrual limitations, the following provisions shall
be in effect:

 

1.             The
right to acquire Common Stock under each outstanding purchase right shall
accrue on the Purchase Date in effect for the purchase period for which such
right is granted.

 

2.             No
right to acquire Common Stock under any outstanding purchase right shall accrue
to the extent the Participant has already accrued in the same calendar year the
right to acquire Common Stock under one (1) or more other purchase rights
at a rate equal to Twenty-Five Thousand Dollars ($25,000) worth of Common Stock
(determined on the basis of the Fair Market Value per share on the date or
dates of grant) for each calendar year such rights were at any time
outstanding.

 

3.             If
by reason of such accrual limitations, any purchase right of a Participant does
not accrue for a particular purchase period, then the payroll deductions which
the Participant made during that purchase period with respect to such purchase
right shall be promptly refunded.

 

C.            In
the event there is any conflict between the provisions of this Article and
one or more provisions of the Plan or any instrument issued thereunder, the
provisions of this Article shall be controlling.

 

 

IX.          EFFECTIVE
DATE AND TERM OF THE PLAN

 

A.            The
Plan was adopted by the Board on April 25, 1996 and became effective on November 3,
1996, provided no purchase rights
granted under the Plan were to be exercised, and no shares of Common Stock were
to be issued hereunder, until (i) the Plan had been approved by the
stockholders of the Corporation and (ii) the Corporation had complied with
all applicable requirements of the 1933 Act (including the registration of the
shares of Common Stock issuable under the Plan on a Form S-8 registration
statement filed with the Securities and Exchange Commission), all applicable
listing requirements of any stock exchange (or the Nasdaq Global Market, if
applicable) on which the Common Stock is listed for trading and all other
applicable requirements established by law or regulation. In the event such
stockholder approval were not obtained, or such compliance were not effected,
within twelve (12) months after the date on which the Plan is adopted by
the Board, the Plan was to have terminated and have no further force or effect
and all sums collected from Participants during the initial purchase period
hereunder were to have been refunded.

 

B.            Unless
sooner terminated by the Board, the Plan shall terminate upon the earliest to occur of (i) the last
business day in January 2017, (ii) the date on which all shares
available for issuance under the Plan shall have been sold pursuant to purchase
rights exercised under the Plan or (iii) the date on which all purchase
rights are exercised in connection with a Corporate Transaction. No further
purchase rights shall be granted or exercised, and no further payroll
deductions shall be collected, under the Plan following such termination.

 

X.            AMENDMENT
OF THE PLAN

 

The Board may alter, amend, suspend or discontinue the Plan at any time
to become effective immediately following the close of any purchase
period.  To the extent necessary to
comply with Section 423 of the Code (or any successor rule or
provision or any other applicable law), the Company shall obtain stockholder
approval in such a manner and to such degree as required.

 

On July 26, 2006, the Board adopted and approved an amendment and
restatement of the Plan to extend the term of the Plan to the last business day
of January, 2017 and, effective for purchase periods commencing on and after August 1,
2006, to modify the purchase price per share discount from eighty-five percent
(85%) to ninety percent (90%) and to expand the actions the Company may take in
connection with a Corporate Transaction and to modify the list of Participating
Corporations who extend the benefits of the Plan to their Eligible Employees.

 

XI.          GENERAL
PROVISIONS

 

A.            All
costs and expenses incurred in the administration of the Plan shall be paid by
the Corporation.

 

B.            Nothing
in the Plan shall confer upon the Participant any right to continue in the
employ of the Corporation or any Corporate Affiliate for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the
Corporation (or any Corporate Affiliate employing such person) or of the
Participant, which rights are hereby expressly reserved by each, to terminate such
person’s employment at any time for any reason, with or without cause.

 

C.            The
provisions of the Plan shall be governed by the laws of the State of California
without resort to that State’s conflict-of-laws rules.

 

 

Schedule A

 

CURRENT LIST OF PARTICIPATING CORPORATIONS

 

Domestic

 

Westaff, Inc., a Delaware corporation

 

Westaff (USA), Inc., a California
corporation

 

Westaff Support, Inc., a California
corporation

 

 

APPENDIX

 

The following definitions shall be in effect
under the Plan:

 

A.            Board shall
mean the Corporation’s Board of Directors.

 

B.            Cash Earnings
shall mean the (i) regular base salary paid to a Participant by one or
more Participating Companies during such individual’s period of participation
in one or more offering periods under the Plan plus (ii) any pre-tax
contributions made by the Participant to any Code Section 401(k) salary
deferral plan or any Code Section 125 cafeteria benefit program now or
hereafter established by the Corporation or any Corporate Affiliate plus (iii) all
overtime payments, bonuses, commissions, current profit-sharing distributions
and other incentive-type payments. However, Cash Earnings shall not include any contributions (other than
Code Section 401(k) or Code Section 125 contributions) made on
the Participant’s behalf by the Corporation or any Corporate Affiliate under
any employee benefit or welfare plan now or hereafter established.

 

C.            Code shall
mean the Internal Revenue Code of 1986, as amended.

 

D.            Common Stock
shall mean the Corporation’s common stock.

 

E.             Corporate Affiliate
shall mean any parent or subsidiary corporation of the Corporation (as
determined in accordance with Code Section 424), whether now existing or
subsequently established.

 

F.             Corporate Transaction
shall mean either of the following stockholder-approved transactions to which
the Corporation is a party:

 

1.             a
merger or consolidation in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Corporation’s outstanding
securities are transferred to a person or persons different from the persons
holding those securities immediately prior to such transaction;

 

2.             the
sale, transfer or other disposition of all or substantially all of the assets
of the Corporation in complete liquidation or dissolution of the Corporation;
or

 

3.             an
acquisition in a single or series of related transactions by any person or
related group of persons (other than the Company or by a Company-sponsored
employee benefit plan) of beneficial ownership (within the meaning of Rule 13d-3
of the Securities Exchange Act of 1934, as amended) of securities possessing
more than fifty percent (50%) of the total combined voting power of the Company’s
outstanding securities.

 

G.            Corporation
shall mean Westaff, Inc., a Delaware corporation, and any corporate
successor to all or substantially all of the assets or voting stock of Westaff, Inc.
which shall by appropriate action adopt the Plan.

 

H.            Eligible Employee
shall mean any person who is employed by a Participating Corporation on a basis
under which he or she is regularly expected to render more than twenty
(20) hours of service per week for more than five (5) months per
calendar year for earnings considered wages under Code Section 3401(a).

 

I.              Fair Market Value
per share of Common Stock on any relevant date shall be determined in
accordance with the following provisions:

 

1.             If
the Common Stock is are listed on one or more established stock exchanges or
national market systems, including without limitation The NASDAQ Global Select
Market, The NASDAQ Global Market and The NASDAQ Capital Market, its Fair Market
Value shall be the closing sales price for such shares (or the closing bid, if
no sales were reported) as quoted on the principal exchange or system on which
the Common Stock is listed (as determined by the Plan Administrator) on the
date of determination (or, if no closing sales price or closing bid was
reported on that date, as applicable, on the last trading date such closing
sales price or closing bid was reported), as reported in The Wall Street
Journal or such other source as the Plan Administrator deems reliable;

 

 

2.             If
the Common Stock is regularly quoted on an automated quotation system
(including the OTC Bulletin Board) or by a recognized securities dealer, its
Fair Market Value shall be the closing sales price for such shares as quoted on
such system or by such securities dealer on the date of determination, but if
selling prices are not reported, the Fair Market Value of the Common Stock
shall be the mean between the high bid and low asked prices for the Common
Stock on the date of determination (or, if no such prices were reported on that
date, on the last date such prices were reported), as reported in The Wall
Street Journal or such other source as the Plan Administrator deems reliable;
or

 

3.             In
the absence of an established market for the Common Stock of the type described
in (1) and (2), above, the Fair Market Value thereof shall be determined
by the Plan Administrator in good faith.

 

J.             1933 Act
shall mean the Securities Act of 1933, as amended.

 

K.            Participant
shall mean any Eligible Employee of a Participating Corporation who is actively
participating in the Plan.

 

L.            Participating
Corporation shall mean the Corporation and such Corporate Affiliate or
Affiliates as may be authorized from time to time by the Board to extend the
benefits of the Plan to their Eligible Employees. The current Participating
Corporations in the Plan are listed in attached Schedule A.

 

M.           Plan shall mean
the Corporation’s Employee Stock Purchase Plan, as set forth in this document.

 

N.            Plan Administrator
shall mean the committee of two (2) or more non-employee Board members
appointed by the Board to administer the Plan.

 

O.            Purchase Date
shall mean the last business day of each purchase period. The initial Purchase
Date shall mean January 31, 1997.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 THIS
AGREEMENT,

 

U.S. BANK NATIONAL ASSOCIATION,

 

AS AGENT

 

AND

 

WESTAFF (USA), INC.,

 

AS BORROWER

 

AND

 

WESTAFF, INC

 

AS PARENT
GUARANTOR

 

 

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

  

 

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  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

  

 

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  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

  

 

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  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

  

 

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  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

  

 

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  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

 

	
   

  	
   

  	
   

  	
   

  	
  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

 

	
  Schedule 9.29

  	
   

  	
  Government Contracts

  
	
   

  	
   

  	
   

  
	
  Schedule 9.30

  	
   

  	
  Customer and Trade Relations

  
	
   

  	
   

  	
   

  
	
  Schedule 10.10

  	
   

  	
  Existing Indebtedness

  

 

ix

 

FINANCING AGREEMENT

 

THIS FINANCING
AGREEMENT (this “Agreement”), dated as of February 14, 2008,  by and among WESTAFF (USA), INC., a
California corporation (“Borrower”), WESTAFF, INC., a Delaware
corporation and the sole shareholder of Borrower, as Parent Guarantor (“Parent
Guarantor”), 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           Defined
Terms.  In addition to the other
terms 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 after
the Closing Date, by which Borrower or any other Credit Party directly or
indirectly (a) acquires any ongoing business or all or substantially all
of the assets of any Person engaged in any ongoing business, whether through a
purchase of assets, merger or otherwise, (b) acquires control of the
Capital Stock of a Person engaged in an ongoing business representing more than
50% of the ordinary voting power for the election of directors or other
governing position if the business affairs of such Person are managed by a
board of directors or other governing body or (c) acquires control of more
than 50% of the ownership interest in any partnership, joint venture, limited
liability company, business trust or other Person engaged in an ongoing
business that is not managed by a board of directors or other governing body.

 

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

 

“Advance
Request” has the meaning given in Section 2.5.

 

“Affected
Lender” 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 common
control with, the Subject Person.  For
the purpose of this definition, “control” of a Person means the power, direct
or indirect, (i) to vote 10% or more of the securities (or other ownership
interests) having voting power for the election of directors (or managers in
the case of a limited liability company) of the Person or (ii) otherwise
to 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 following
will be deemed an Affiliate of Borrower for the purposes of this Agreement: 

 

 

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

 

“Affiliate
Guarantors” means, collectively, Parent Guarantor and the Subsidiary
Guarantors.  To the extent a term or
provision of this Agreement is applicable to an “Affiliate Guarantor”, it is
applicable to all of the Affiliate Guarantors unless the context expressly
indicates otherwise.

 

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

 

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

 

“Agent
Advance” has the meaning given in Section 13.10.6.

 

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

 

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

 

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

 

“Agent’s
Liens”, “Lien in favor of Agent”, “Lien granted to Agent”, “security
interest of Agent” or words of similar import mean the Liens granted to
Agent, for the benefit of the Secured Parties pursuant to this Agreement and
the other Loan Documents.

 

“Anti-Terrorism
Laws” means any law, rule or regulation relating to terrorism or money
laundering, including Executive Order No. 13224, the USA Patriot Act, the
laws, rules and regulations compromising or implementing the Bank Secrecy
Act and the laws, rules and regulations administered by the United States
Treasury Department’s Office of Foreign Asset Control (as any of the foregoing
may be amended).

 

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

 

2

 

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

 

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

 

“Applicable
Prime Rate Margins” means, the Applicable Prime Rate Margin for Revolving
Loans and Interim Advances, or the Applicable Prime Rate Margin for all other
Obligations (including Agent Advances), as the context requires.

 

“Applicable
Rate” has the meaning given in Section 3.10.

 

“Assignment
and 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 staff
employed by such attorneys) retained by Agent, LC Issuer or any Lender, as
applicable, from time to time in connection with, or arising out of, the
matters encompassed by the reference to the capitalized term Attorneys’ Fees in
the applicable provisions of the applicable agreement, instrument or other
document.

 

“Australian
Loan Documents” means the Australia Dollar Facility Agreement dated as of May 16,
2002 entered into by and among GE Capital Finance Pty Limited Australia, on
behalf of itself and certain lenders, and Westaff Australia and the Debenture
of even date therewith and all guaranties, promissory notes and other
agreements and instruments executed and delivered in connection therewith
including the Australian Subordination Deed.

 

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

 

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

 

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

 

“Available
Funds” has the meaning given in Section 7.4.

 

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

 

3

 

Hedging
Agreement), including:  (a) credit
cards, (b) credit card processing services, (c) debit cards, (d) purchase
cards, (e) ACH Transactions or (f) cash management, including
controlled disbursement, accounts or services.

 

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

 

“Bank
Product Obligations” means all obligations, liabilities, contingent
reimbursement obligations, fees, and expenses owing by any Credit Party to any
Bank Product Provider pursuant to or evidenced by the Bank Product Agreements
and irrespective of whether for the payment of money, whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, and including all amounts that Agent or any Lender is obligated
to pay or reimburse to a Bank Product Provider as a result of Agent or such
Lender purchasing participations from, or executing indemnities or
reimbursement obligations to, a Bank Product Provider with respect to the Bank
Products provided by such Bank Product Provider to any Credit Party or any
other Subsidiary of Parent Guarantor.

 

“Bank
Product Provider” means U.S. Bank or any of such designated Person’s
Affiliates.

 

“Bankruptcy
Case” has the meaning given in Section 11.1.

 

“Benefited
Lender” has the meaning given in Section 4.3.2.

 

“Blocked
Person” means any Person (i) that is listed in the annex to, or is
otherwise subject to the provisions of, Executive Order No. 13224; (ii) designated
by the Secretary of the Treasury as being owned or controlled by, or acting for
or on behalf of, any Person that is listed in the annex to, or is otherwise
subject to the provisions of, Executive Order No. 13224; (iii) with
which any Lender is prohibited from dealing or otherwise engaging in any
transaction by any Anti-Terrorism Law; (iv) that commits, threatens or
conspires to commit or supports “terrorism” as defined in Executive Order No. 13224;
(v) that is named as a “specially designated national” on the most current
list published by the U.S. Treasury Department Office of Foreign Asset Control
at its official website or any replacement website or other replacement
official publication of such list; or (vi) who is an Affiliate of any
Person listed above.

 

 “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 of Borrower and Westaff UK 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 of Borrower
and Westaff UK then outstanding and (b) an amount equal to
20% of the Net Amount of Eligible Billed Receivables of Borrower and Westaff UK
then outstanding; and

 

less         (iii)          the
then Reserve
Amount.

 

4

 

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

 

“Borrowing
Base Certificate” has the meaning given in Section 8.3.

 

“Borrowing
Base Deficiency” means the failure, as of any time, of the sum of (i) Revolving
Credit Availability and (ii) Available Cash to be greater than or equal to
zero Dollars.

 

“Borrowing
Date” means a date on which a Credit Extension is made hereunder, and
thereafter shall be the effective date of the most recent conversion of such
Credit Extension.

 

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

 

(i)            Except
as provided in clause (ii) below, Receivables owing to Borrower which
meet, and continue to meet, all of the following criteria are Eligible Billed
Receivables:

 

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

 

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

 

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

 

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

 

(ii)           The
following Receivables will not, in any event, constitute Borrower Eligible
Billed Receivables:

 

(a)           Receivables with
respect to which the account debtor has filed or had filed against it a
petition in bankruptcy or for reorganization, made an assignment for the
benefit of creditors, or failed, suspended business operations, become
insolvent or in respect of which a receiver, custodian, or a trustee was
appointed for a significant portion of its assets or affairs, or Receivables
with respect to which the account debtor is incompetent or has died;

 

(b)           Receivables with
respect to which (1) the account debtor is not qualified to do business (A) in
one or more States of the United States of America or (B) any Canadian provinces
acceptable to Agent in its discretion exercised in good faith or (2) the
account debtor has its principal place of business or chief executive office
outside of (I) the United States of 

 

5

 

America or (II) any
Canadian provinces acceptable to Agent in its discretion unless, in either or
both of such events (1) or (2) above, the Receivable is supported by (A) an
irrevocable, clean letter of credit or acceptance issued (x) by a
financial institution reasonably satisfactory to Agent and (y) on terms
reasonably acceptable to Agent, and, if so requested by Agent, delivered to
Agent in pledge for negotiation and presentment or (B) foreign credit
insurance satisfactory to Agent in its discretion exercised in good faith and
as to which Agent is named as the loss payee;

 

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

 

(e)           Receivables
owing to Borrower with respect to which the account debtor is a Governmental
Authority, unless collections on such Receivables are directed to be remitted
to the Locked Box or such collections are under Agent’s sole control and
dominion;

 

(f)            Receivables
which (1) consist (or to the extent consisting) of deposits, (2) consist
(or to the extent consisting) of vendor warranty claims, (3) consist (or
to the extent consisting) of finance charges, service charges, or interest on
delinquent accounts, (4) are employee, officer, director or other
Affiliate Receivables or (5) are (or to the extent consisting of) debit
memoranda;

 

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

 

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

 

(i)            Receivables
which are not subject to the first priority security interest of Agent or are
subject to any Lien of any Person (except to the extent, if any, of any
Permitted Liens of the type described in clause (i) or (iv) of that
definition);

 

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

 

6

 

amount of the
then outstanding Eligible Receivables owing to Borrower (whether evidenced by
such Receivables or otherwise) and (2) (A) if the Subject Customer is
located in New Jersey and all Receivables owing from all account debtors
located in New Jersey exceed 15% of the face amount of the then outstanding
Eligible Receivables owing to Borrower (whether evidenced by such Receivables
or otherwise), unless Borrower has properly qualified to do business in New
Jersey or has filed a Notice of Business Activities Report with the New Jersey
Division of Taxation for the then current year, (B) if the Subject
Customer is located in Minnesota and all Receivables owing from all account
debtors located in Minnesota exceed 15% of the aggregate face amount of the
then outstanding Eligible Receivables owing to Borrower (whether evidenced by
such Receivables or otherwise), unless Borrower has properly qualified to do
business in Minnesota or has filed a Notice of Business Activities Report with
the Minnesota Division of Taxation for the then current year, or (C) if
the Subject Customer is located in West Virginia and all Receivables owing from
all account debtors located in West Virginia exceed 15% of the aggregate face
amount of the then outstanding Eligible Receivables owing to Borrower (whether
evidenced by such Receivables or otherwise), unless Borrower has filed, or is
exempt from filing, a Business Activity Report with the Tax Commissioner of the
State of West Virginia for the then current year;

 

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

 

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

 

(m)          Receivables
constituting a healthcare insurance receivable or a Medicare or Medicaid
payment;

 

(n)           Receivables
owing by a licensee of Borrower; or

 

(o)           Receivables
which Agent, in its discretion exercised in good faith, deems to be ineligible
based on those credit or collateral considerations which the Business Credit
Group of Agent makes applicable from time to time.

 

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

 

7

 

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

 

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

 

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

 

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

 

“Capital
Stock” means all shares, interests, participations, rights to purchase,
options, warrants, general or limited partnership interests, or limited
liability company interests or other equivalents (regardless of how designated)
of or in a corporation, partnership, limited liability company or equivalent
entity, whether voting or nonvoting, including common stock, preferred stock or
any other “equity security” (as such term is defined in Rule 3a11-1 of the
Rules and Regulations promulgated by the Securities and Exchange
Commission (17 C.F.R. § 240.3a11-1) under the Securities and Exchange Act of
1934, as amended).

 

“Cash
Equivalents” means:

 

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

 

(b)           certificates
of deposit or acceptances and interest bearing deposits of any financial
institution that is a member of the Federal Reserve System having combined
capital and surplus and undivided profits of not less than $300,000,000 in each
case maturing not more than 9 months from the date of acquisition thereof;

 

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

 

(d)           repurchase
agreements, having terms of less 180 days, for government obligations of the
type specified in this Section 10.17 with a commercial bank or
trust company which is rated at least A-2/A by Standard & Poor’s
Rating Services; and

 

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

 

8

 

“Change in
Law” means (i) the adoption of any law, rule or regulation after
the date of this Agreement, (ii) any change in any law, rule or
regulation or in the interpretation or application thereof by any Governmental
Authority after the date of this Agreement or any change in the applicability
of such law, rule or regulation, on the interpretation thereof, with
respect to Agent, LC Issuer, a Lender or any applicable Lending Installation,
or (iii) compliance by Agent, LC Issuer, any Lender or any applicable
Lending Installation with any request, guideline or directive (whether or not
having the force of law) of any Governmental Authority made or issued after the
date of this Agreement.

 

“Change of
Control” means any of the following: 
(a) any person or group of persons (within the meaning of the
Securities Exchange Act of 1934,) shall have acquired beneficial ownership
(within the meaning of Rule 13d-3 promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934,) of more than
50% of the issued and outstanding shares of Capital Stock of Parent Guarantor
having the right to vote for the election of directors of Parent Guarantor
under ordinary circumstances (provided however, any acquisition of 50% or more
of the shares of any Capital Stock of Parent Guarantor having the right to vote
for the election of directors of Parent Guarantor under ordinary circumstances
by 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 in
office; (c) Parent Guarantor ceases to own and control, directly or
indirectly, all of the economic and voting rights associated with all of the
outstanding Capital Stock of Borrower and each Subsidiary Guarantor (other than
a single share of the Capital Stock of Westaff UK owned by Robert Stover and
except 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 and
control, directly or indirectly, all of the economic and voting rights
associated with all of the outstanding Capital Stock of any of its Subsidiaries
that 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 Successor
ceases, for any reason, (i) to serve as chief executive officer (or
interim chief executive officer) of Borrower actively involved in Borrower’s
management or (ii) to be a Director of Borrower.  For the purpose of clause (e), an “Approved
Successor” is the chief executive officer or interim chief executive officer of
Borrower elected by the Continuing Directors not more than 45 days after
Michael T. Willis or an Approved Successor ceases to serve as chief executive
officer or interim chief executive officer of Borrower and, if Parent Guarantor
is no longer registered with the SEC, who is reasonably acceptable to Required
Lenders.

 

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

 

“Charges”
has the meaning given in Section 3.10.

 

“CIP
Regulations” has the meaning given in Section 13.13.

 

“Class”
has the meaning given in Section 1.4.

 

9

 

“Closing
Date” means the date upon which all of the conditions precedent to the
effectiveness of this Agreement contained in Section 5.1 are
satisfied 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.

 

“Continuing
Directors” means those directors on Parent Guarantor’s Board of Directors
as of the Closing Date (“Current Board”) or those directors who are
recommended or endorsed for election to the Board of Directors of Parent
Guarantor by a majority of the Current Board or their successors so recommended
or endorsed.

 

“Controlled
Disbursement 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 controlled
disbursement account policies and procedures from time to time in effect.

 

“Controlled
Group” means all members of a controlled group of corporations and other
entities and all trades or businesses (whether or not incorporated) under
common control which, together with each Credit Party, are treated as a single
employer under Section 414(b) or 414(c) of the Internal Revenue
Code or Section 4001 of ERISA.

 

“Credit
Exposure” 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) the
Agent Advance Exposure of such Lender at such time.

 

“Credit
Extension” means the making of any Loan or the issuance of a Letter of
Credit hereunder.

 

“Credit
Parties” means, collectively, Borrower, Parent Guarantor and the Subsidiary
Guarantors.

 

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

 

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

 

“Default
Rate” has the meaning given in Section 3.2.3.

 

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

 

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

 

10

 

“Determination
Date” has the meaning given in Section 3.2.2.

 

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

 

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

 

“EBITDA”
has the meaning given on Exhibit F.

 

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

 

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

 

“Eligible
Unbilled Receivables” means, collectively, the Borrower Eligible Unbilled
Receivables 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 of
Default” has the meaning given in Section 11.

 

“Excluded
Taxes” means, with respect to Agent, LC Issuer and any Lender or any other
recipient of any payment to be made by or on account of any obligation of any
Credit Party hereunder or under any of the other Loan Documents, (i) Taxes
imposed on its overall revenue or net income, and franchise Taxes imposed on
it, by the jurisdiction (or any political subdivision thereof) under the laws
of which such Lender, LC Issuer or Agent is incorporated or organized or the
jurisdiction in which such Lender, LC Issuer or Agent’s applicable Lending
Installation is located, and (ii) any branch profits taxes imposed by the
United States of America or any similar tax imposed by any other jurisdiction
in which any Credit Party is located.

 

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

 

“Expenses”
has the meaning given in Section 15.6.

 

“Federal
Funds Rate” means, for any day, an interest rate per annum equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published for such day (or, if such day is not a Business Day, for the
immediately 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, the
average of the quotations at approximately 10:00 a.m. Los Angeles time on
such day on such transactions received by Agent from three Federal funds
brokers of recognized standing selected by Agent in its sole discretion.

 

11

 

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

 

“Financial
Covenants” has the meaning given in Section 10.28.

 

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

 

“Fiscal
Period” has the meaning given on Exhibit F.

 

“Fiscal
Quarter” has the meaning given on Exhibit F.

 

“Fiscal
Year” has the meaning given on Exhibit F.

 

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

 

“Foreign
Lender” means any Lender or LC Issuer that (i) is not a “United States
person” within the meaning of Section 7701(a)(30) of the Internal Revenue
Code 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 directly
or indirectly beneficially owned or allocable to a person who is not a “United
States person” within the meaning of Section 7701(a)(30) of the Internal
Revenue Code.

 

“Foreign
Pension Plan” means any plan, scheme, fund or other similar program
established, maintained or contributed to outside the United States by any
Credit Party primarily for the benefit of employees of the Credit Party
residing or working outside the United States, which plan, fund or other similar
program provides, or results in, retirement income, a deferral of income in
contemplation of retirement or payments to be made upon termination of
employment, and which plan is not subject to ERISA or the Internal Revenue
Code.

 

“Foreign
Subsidiary” means any Subsidiary that is not a Domestic Subsidiary and
shall include Westaff NZ Limited, Westaff (Australia) Pty Limited, Westaff UK
and Westaff (Singapore) Limited).

 

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

 

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

 

“GAAP”
has the meaning given in Section 1.3.

 

“General
Intangibles” means general intangibles as defined in the Code.

 

“Governmental
Authority” means any nation or government, any state or other political
subdivision 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 central
bank).

 

12

 

“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 the
benefit of the Secured Parties, in connection with the transactions
contemplated by this Agreement and the other Loan Documents.

 

“Guarantor
Bankruptcy Event” has the meaning given in Section 11.1.

 

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

 

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

 

“Indemnified
Liabilities” has the meaning given in Section 15.8.

 

“Indemnified
Party” has the meaning given in Section 15.8.

 

“Indemnified
Taxes” means Taxes other than Excluded Taxes.

 

“Insolvency
Law” has the meaning given in Section 11.1.

 

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

 

“Interest
Payment Date” means the Maturity Date or any earlier date on which the
credit facility extended hereunder terminates, and (i) the first day of
each month occurring during each Loan Period for each LIBOR Rate Loan and the
last day of each such Loan Period, (ii) the first day of each month for
each Prime Rate Loan which is not an Interim Advance and (iii) on demand
by Agent for each Agent Advance, Interim Advance or other Obligation (provided,
that it will not be deemed a Default hereunder if any payment payable under
this clause (iii) is 

 

13

 

received on
the Business Day immediately succeeding the date demand therefore is made by
Agent).

 

“Interim
Advance” has the meaning given in Section 2.7.1.

 

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

 

“Internal
Revenue 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 that
Person, whether by means of purchase or other acquisition of any equity
securities or other Capital Stock of any other Person or by means of loan,
advance, capital contribution, guaranty or other debt or equity participation
or interest, or otherwise, including the acquisition by such Person of any
partnership, joint venture or limited liability company interests of any other
Person.  The amount of any Investment
shall be the original principal or capital amount thereof less all returns of principal
or equity thereon and distributions or dividends thereon (and without
adjustment by reason of the financial condition of such other Person) and
shall, if made by the transfer or exchange of property other than cash, be
deemed to have been made in an original principal or capital amount equal to
the fair market value of such property.

 

“Involuntary
Proceeding” 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 Payment
Date” has the meaning given in Section 2.4.5.

 

“Lenders”
means each of the financial institutions that is a signatory hereto identified
under the caption “LENDERS” on the signature pages of this
Agreement, and each financial institution that becomes a “Lender” after
the date hereof pursuant to Section 14.2.

 

“Lending
Installation” means, with respect to Agent, a Lender or LC Issuer, the
office, branch, subsidiary or Affiliate of Agent, such Lender or LC Issuer
listed on the signature pages hereof or otherwise selected by Agent, such
Lender or LC Issuer pursuant to Section 2.12.

 

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

 

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

 

14

 

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

 

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

 

“Letter of
Credit Documents” means, with respect to each and every Letter of Credit, (i) a
standby letter of credit application and reimbursement agreement on LC Issuer’s
then customary form (the “Letter of Credit Application”) and (ii) any
other agreements, certificates, documents and information as LC Issuer may
reasonably request relating to a Letter of Credit.

 

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

 

“Letter of
Credit Face Amount” of any Letter of Credit means, at any time, the face
amount of the Letter of Credit, after giving effect to all drawings paid
thereunder and other reductions of the face amount and to all reinstatements of
the face amount effected, pursuant to the terms of the Letter of Credit, prior
to such time.

 

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

 

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

 

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

 

“Lien”
means any mortgage, deed of trust, pledge, hypothecation, assignment, deposit
arrangement, charge, security interest, encumbrance, lien (statutory or other),
or any preference, priority or other security agreement or any preferential
arrangement of any kind or nature whatsoever (including any conditional sale or
other title retention agreement, any lease deemed under the UCC to be intended
for security, and the authorized filing by or against a Person as debtor of any
financing 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 outstanding
at any time may be referred to as “Loans”.

 

“Loan
Collateral” means the Collateral, the Charged Assets, the Trademark
Collateral (as defined in the Trademark Security Agreement), the Pledged
Collateral (as defined in the Stock 

 

15

 

Pledge
Agreement) and any and all other security or collateral provided from time to
time 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 Affiliate
Guaranty Agreements, the Rate Hedging Agreements, the Security Documents, the
Letters of Credit and all other agreements, instruments and documents relating
to the Credit Extensions, including mortgages, deeds of trust, security
agreements, subordination agreements, intercreditor agreements, pledges,
consents, collateral assignments, locked box and cash management agreements,
letter agreements, and letter of credit applications and reimbursement
agreements which have been, are as of the date of this Agreement, or will in
the future be signed by, or on behalf of, Borrower and delivered to Agent, LC
Issuer, or the Lenders pursuant to or in connection with this Agreement or the
transactions contemplated hereby.  Any
reference in this Agreement or in any other Loan Document to this Agreement or
any other Loan Document shall include all appendices, exhibits or schedules
thereto, and all amendments, restatements, supplements or other modifications
thereto, and shall refer to this Agreement or such Loan Document as the same
may be in effect at any and all times such reference is operative.

 

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

 

“Material
Adverse Change” means a material adverse change, as determined by Agent in
good 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 material
Obligations under this Agreement or any of the other Loan Documents, (ii) the
recoverable value of the Loan Collateral or Agent’s, LC Issuer’s or Lenders’
rights or interests therein, (iii) the enforceability of any of the Loan
Documents, or (iv) the ability of Agent, LC Issuer or Lenders to exercise
any of its or their rights or remedies under the Loan Documents or provided by
applicable law.

 

“Material
Adverse Effect” means a material adverse effect, as determined by Agent in
good faith, on (i) Borrower’s or Credit Parties (taken as a whole) (a) business,
property, assets, operations or condition, financial or otherwise, or (b) ability
to perform any of its or their payment or other material Obligations under this
Agreement or any of the other Loan Documents, (ii) the recoverable value
of the Loan Collateral or Agent’s, LC Issuer’s or Lenders’ 

 

16

 

rights or
interests therein, (iii) the enforceability of any of the Loan Documents,
or (iv) the ability of Agent, LC Issuer or Lenders to exercise any of its
or their rights or remedies under the Loan Documents or provided by applicable
law.

 

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

 

“Maximum
Rate” has the meaning given in Section 3.10.

 

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

 

“Money
Markets” means one or more wholesale funding markets available to and
selected by Agent, including negotiable certificates of deposit, commercial
paper, eurodollar deposits, bank notes, federal funds, interest rate swaps or
others.

 

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

 

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

 

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

 

“Notes”
has the meaning given in Section 2.8.

 

“Notice of
Assignment” has the meaning given in Section 14.2.2.

 

“Obligations”
means (i) all Indebtedness, liabilities and other obligations of any and
every kind and nature now existing or hereafter arising, contingent or
otherwise, of Borrower or any other Credit Party under, in connection with, or
evidenced or secured by this Agreement, the Notes and any of the other Loan
Documents, including all obligations to pay (a) principal, (b) interest
or premium (including any interest or premium accruing after the filing of a
petition in bankruptcy or the commencement of any reorganization, regardless of
whether the same is allowed as a claim in such proceeding), (c) fees
(including the fees provided for in the Fee Letter), (d) costs, expenses
and other amounts related to any indemnity against loss, damage or liability
and (e) any other monetary obligation, including such amounts with respect
to 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 an
Bankruptcy Case, regardless of whether allowed or allowable in whole or in part
as a claim in any such Bankruptcy Case), guaranties, covenants, and duties of
any kind 

 

17

 

and
description owing by any Credit Party to Agent, LC Issuer or any Lender
pursuant to or evidenced by the Loan Documents and irrespective of whether for
the payment of money, whether direct or indirect, absolute or contingent, due
or to become due, now existing or hereafter arising, and including all interest
not paid when due and all other expenses or other amounts that any Credit Party
is required to pay or reimburse by the Loan Documents or by law or otherwise in
connection with the Loan Documents, (ii) all Bank Product Obligations, including
obligations arising in connection with overdrafts on checking, deposit or other
accounts or electronic funds transfers (whether through automatic clearing
houses 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 connection
with depository transfer checks or other similar arrangements, and (iii) Rate
Hedging Obligations of any Credit Party owed to any Lender or any Affiliate of
any Lender.

 

“Operating
Account” has the meaning given in Section 2.7.2.

 

“Originating
Lender” has the meaning given in Section 14.3.1.

 

“Other
Taxes” means any and all present or future stamp or documentary Taxes or
any other excise or property Taxes, charges or similar levies arising from any
payment made hereunder or from the execution, delivery, filing or enforcement
of, 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 “Payment
in Full” mean, with respect to the Obligations (other than inchoate
indemnity obligations), all amounts owing with respect thereto (including any
interest accruing thereon after the commencement of any Insolvency Proceeding
against Borrower, whether or not allowed as a claim against the Borrower in
such Insolvency Proceeding, but excluding as yet unasserted contingent
obligations), have been fully, finally and completely paid in cash or, in the
case of the Letters of Credit, cash collateralized on terms reasonably satisfactory
to Agent in an amount equal to 103% of the then outstanding Letter of Credit
Exposure (provided that the cash required to
collateralize any outstanding Letter of Credit shall not exceed the sum of (i) the
Letter 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 the
then outstanding Letter of Credit issued by an issuing bank reasonably
satisfactory to and otherwise in form and substance reasonably satisfactory to
the LC Issuer and Agent, and the foregoing occurs at a time when the Revolving
Credit Commitment has been irrevocably terminated in its entirety.

 

“Participant”
has the meaning given in Section 14.3.1.

 

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

 

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

 

“Pension
Plan” means a “pension plan”, as such term is defined in section 3(2) of
ERISA, as to which Borrower or any corporation or other entity, trade or
business that is, along with 

 

18

 

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

 

“Permitted
Acquisition” means any Acquisition so long as:

 

(i)            no
Default or Event of Default shall have occurred and be continuing or would
result from the consummation of the proposed Acquisition and the proposed
Acquisition is approved by the board of directors or other governing body of
the target;

 

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

 

(iii)          for
any Acquisition for which the all-in purchase price, including any earn-outs as
if fully earned, exceeds $10,000,000: (a) Borrower shall have provided
Agent with forecasted balance sheets, profit and loss statements, and cash flow
statements of the Person to be acquired, all prepared on a basis consistent
with such Person’s historical financial statements, together with appropriate
supporting details and a statement of underlying assumptions for the three year
period 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, on
a month-by-month basis), in form and substance (including as to scope and
underlying assumptions) reasonably satisfactory to Agent; and (b) Agent
shall have completed an audit of the assets of the acquired Person before any
of such assets may be included in the Borrowing Base;

 

(iv)          Borrower
shall have provided Agent with written confirmation, supported by reasonably
detailed calculations (including historical financial statements of the Person
or assets being acquired), that on a pro forma basis
(adjusted to eliminate expense items that would not have been incurred and to
include income items that would have been recognized, in each case, if the
combination had been accomplished at the beginning of the relevant period; such
eliminations and inclusions to be mutually and reasonably agreed upon by
Borrower and Agent), (a) Borrower would have been in compliance with the
financial covenants in Section 10.28 and Exhibit F for
the 4 Fiscal Quarter period ended immediately prior to the proposed date of
consummation of such proposed Acquisition, and (b) Borrower is projected
to be in compliance with the financial covenants in Section 10.28
and Exhibit F for the 4 Fiscal Quarter period ended one year after
the proposed date of consummation of such proposed Acquisition, together with
copies of all such historical financial statements of the Person or assets
being acquired;

 

(v)           Borrower
shall have provided Agent with written notice of the proposed Acquisition at
least 30 Business Days prior to the anticipated closing date of the proposed
Acquisition for which the all-in purchase price, including any earn-outs as if
fully earned, exceeds $10,000,000, and not later than 5 Business Days prior to
the anticipated closing date of the proposed Acquisition, copies of the
acquisition agreement and other material documents relative to the proposed
Acquisition;

 

19

 

(vi)          the
assets being acquired (other than a de minimis
amount of assets in relation to Borrower’s or Credit Parties’ (taken as a
whole) 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 its
Subsidiaries or a business reasonably related thereto;

 

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

 

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

 

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

 

“Permitted
Acquisition Indebtedness” means Indebtedness incurred in connection with a
Permitted Acquisition which is either Subordinated Debt or is approved in
writing by Required Lenders.

 

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

 

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

 

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

 

(iii)          Liens
incurred or deposits made in the ordinary course of business in connection with
workers’ compensation, unemployment insurance and other types of social
security;

 

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

 

(v)           Liens
on Equipment securing Permitted Purchase Money Indebtedness;

 

20

 

(vi)          Liens
for Taxes, assessments and other similar charges to the extent payment thereof
shall not at the time be required to be made in accordance with the provisions
of Section 10.9;

 

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

 

(viii)        Liens
arising 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 of
the Third Party Claim is being contested in good faith and by appropriate and
lawful proceedings promptly initiated and diligently conducted, (b) the
applicable Credit Party has established appropriate reserves for the Third
Party Claim, (c) levy, attachment, garnishment and execution on the Third
Party Claim have been and continue to be stayed, (d) the Third Party Claim
does not prevent Agent from having a perfected first priority security interest
in, or a first priority mortgage lien on, all material portions of the Loan
Collateral provided by the applicable Credit Party or with respect to future
advances made under this Agreement, (e) the applicable Credit Party’s
title to, and its right to use, any of the Loan Collateral provided by such
applicable Credit Party are not materially and adversely affected thereby, and (f) the
amount of all Third Party Claims do not exceed, as of any date, $300,000 in the
aggregate; and, provided, further,
that Borrower must promptly pay each such Third Party Claim to the extent the
dispute is finally settled in favor of the claimant thereof;

 

(ix)           Liens
on cash deposits in connection with bids, tenders or real property leases or as
security for surety or appeal bonds or workers compensation liability in the
ordinary course of business;

 

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

 

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

 

“Permitted
Overadvance” has the meaning given in Section 13.11.

 

“Permitted
Purchase Money Indebtedness” means purchase money or capital lease
Indebtedness or Capital Lease Obligations incurred by any Credit Party to
acquire Equipment if each of the following conditions is satisfied: (i) the
aggregate amount of obligations that are secured by purchase money security
interests or are the subject of Capitalized Leases outstanding at any time shall
not exceed $2,000,000 in the aggregate; (ii) such purchase money
Indebtedness or Capitalized Lease Obligations will not be secured by any of the
Loan Collateral other than the property so acquired and any identifiable
proceeds; (iii) any Liens relating to such purchase money Indebtedness or
Capitalized Lease Obligations will not extend to or cover any property of such
Credit Party other than the property so acquired and any identifiable proceeds,
and (iv) the principal amount of such purchase money Indebtedness or
Capital Lease Obligations, as the case may be, will not, at the time of the
incurrence thereof, exceed the value of the property so acquired.

 

“Permitted
Investment” has the meaning given in Section 10.17.

 

21

 

“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-Settlement
Determination Date” has the meaning given in Section 4.2.

 

“Prior
Claims” means all Liens created by applicable laws (in contrast to those
granted voluntarily) which rank or are capable of ranking prior to or pari passu with Agent’s Liens against all or part of the
Loan Collateral, including for amounts owing for vacation pay, employee
deductions and contributions, goods and services taxes, sales taxes, corporate
taxes, realty taxes, business taxes, workers’ compensation, pension plan or
fund 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 adjusted
each time that such announced prime rate changes.  The prime rate announced by U.S. Bank is
determined solely by U.S. Bank pursuant to market factors and its own operating
needs and is not necessarily U.S. Bank’s best or most favorable rate for
commercial or other loans.

 

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

 

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

 

“Principal
Payment Date” has the meaning given in Section 3.1.1.

 

“Purchaser”
has the meaning given in Section 14.2.2.

 

“Rate
Hedging Agreement” has the meaning as defined in the term “Rate Hedging
Obligations”.

 

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

 

“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 to
issue other 

 

22

 

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

 

“Refinancing
Debt” means, as to any Indebtedness, the Refinancing of such Indebtedness, provided that the following conditions are satisfied with
respect to such Refinancing Indebtedness:

 

(i)            the
Weighted Average Life to Maturity of such Refinancing Debt shall be greater
than or equal to the Weighted Average Life to Maturity of the Indebtedness
being refinanced;

 

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

 

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

 

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

 

(v)           Borrower
is in compliance with the Financial Covenants, on a pro forma
basis, after giving effect to the incurrence of such Refinancing Debt and the
repayment 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 statements
received by Agent for the Fiscal Period, Fiscal Quarter or the Fiscal Year, as
applicable, ended most closely before the date such Refinancing Debt is
proposed to be incurred as if the proposed Refinancing Debt had been made, and
the Indebtedness had been Refinanced, at the beginning of the applicable Test
Period (as defined on Exhibit F) and (b) calculate the Fixed
Charge Coverage Ratio under Section 3 of Exhibit F
taking into account such proposed Refinancing Debt as if the proposed
Refinancing Debt had been made, and the Indebtedness had been refinanced, at
the beginning of the applicable Test Period; and

 

(vi)          additionally,
in the case of any Refinancing of any Subordinated Debt, (a) the interest
rate on, and fees with respect to, such Refinancing Debt are less than or equal
to the interest rate on, and fees with respect to, the Subordinated Debt and (b) the
holders of such Refinancing Debt have entered into a subordination agreement
with Agent on the then material current terms of the Subordination Agreement or
such 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.

 

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

 

“Reports”
has the meaning given in Section 15.7.2.

 

23

 

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

 

“Reserve
Amount” means, as at any time, collectively, such amounts as Agent, in its
discretion exercised in good faith (including in the manner described in this
definition) may from time to time establish in determining the Borrowing Base
based on such credit and collateral considerations as Agent deems, in its
discretion exercised in good faith, appropriate from time to time, based on
market conditions, or to reflect contingencies or risks which could reasonably
be expected to affect any or all of the Loan Collateral, the business,
operations, financial condition or business prospects of Borrower and the other
Credit Parties, or the security of the Loans. 
For purposes of this definition and determining the Borrowing Base and
without limiting Agent’s other discretion in the manner described above, Agent
will be deemed to have exercised its discretion in good faith if reserves are
established in respect of any one or more of the following:

 

(i)            the
occurrence and continuance of an Event of Default;

 

(ii)           the
payment of Obligations then due and payable and unpaid;

 

(iii)          for
price 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 been
dealt with by Agent by designating a specific Receivable or Receivables as
being ineligible pursuant to the terms of this Agreement as opposed to the
establishment of a reserve general in nature;

 

(iv)          for
any Prior Claims;

 

(v)           for
aged credits maintained by Borrower in respect of its accounts receivable
except to the extent that any of the foregoing in this item (v) has been
dealt with by Agent by designating a specific Receivable or Receivables as
being ineligible pursuant to the terms of this Agreement as opposed to the
establishment of a reserve general in nature;

 

(vi)          for
any amounts expended by Agent to protect or preserve any Loan Collateral or
Agent’s or any Secured Party’s rights under the Loan Documents which have not
been reimbursed by Borrower; or

 

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

 

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

 

24

 

other charges
on 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 subordination
thereof (including repayment of the Indebtedness evidenced by the Stover Note);
(d) any payment made to redeem, purchase, repurchase or retire, or to
obtain the surrender of, any outstanding warrants, options or other rights to
acquire Capital Stock of such Credit Party now or hereafter outstanding; (e) any
payment of a claim for the rescission of the purchase or sale of, or for
material damages arising from the purchase or sale of, any shares of such
Credit Party’s Capital Stock or of a claim for reimbursement, indemnification
or contribution arising out of or related to any such claim for damages or
rescission; (f) any payment, loan, contribution, or other transfer of
funds or other property to any holder of the Capital Stock of such Credit Party
other than payment of compensation in the ordinary course of business to
holders of Capital Stock who are employees of such Person; and (g) any
payment of management fees (or other fees of a similar nature) by such Credit
Party to another Credit Party or any holder of the Capital Stock of such Credit
Party or its Affiliates.

 

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

 

“Revolving
Credit Availability” means, as of any time, an amount, in Dollars, equal
to:

 

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

 

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

 

less         (iii)          the
then Letter of Credit Exposure .

 

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

 

“Revolving
Credit Commitment Percentage” means, with respect to any Revolving Credit
Lender at any time, the ratio of (i) the amount of the Revolving Credit
Commitment of such Lender at such time to (ii) the Revolving Credit
Commitments then in effect at such time; provided, however, if all the Revolving Credit Commitments have been
terminated, the “Revolving Credit Commitment Percentage” shall be
determined according to the Revolving Credit Commitments in effect immediately
prior to such termination, giving effect to any assignments.

 

25

 

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

 

“Revolving
Credit Commitment Termination Date” means the Maturity Date or such earlier
date on which the Revolving Credit Commitments shall be terminated in
accordance with this Agreement.

 

“Revolving
Credit Exposure” means, with respect to any Lender at any time, an amount
equal to (i) the outstanding principal amount of such Lender’s Revolving
Loans, plus (ii) the Letter of Credit Exposure of such Lender, plus (iii) the
Interim Advance Exposure of such Lender.

 

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

 

“Revolving
Loans” 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.

 

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

 

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

 

“Security
Documents” means the Security Agreement, the U.K. Debenture, the Trademark
Security Agreements, the Stock Pledge Agreement and each other agreement,
instrument and document executed and delivered from time to time by, or on
behalf of, Borrower, any other Credit Party or any other Person as collateral
security for the Obligations.

 

“Settlement
Date” has the meaning specified in Section 4.2.

 

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

 

“Special
Account” 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 were
to purchase such currency with Dollars, or of Dollars with such currency, as
the case may be, at approximately 9:00 a.m. (Los Angeles time) on such
date as of which the foreign exchange computation is made for delivery 2
Business Days later.

 

26

 

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

 

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

 

“Stated
Maturity Date” means the date which is the fifth anniversary of the Closing
Date; provided that if such date is not a
Business Day, the Stated Maturity Date shall be the immediately preceding
Business Day.

 

“Sterling”  means the lawful currency of the United
Kingdom.

 

“Stock
Pledge Agreement” has the meaning given in Section 6.1.

 

“Stover
Note” 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.

 

“Subordinated
Debt” means unsecured Indebtedness of Borrower or any Subsidiary Guarantor
not to exceed $10,000,000 in the aggregate principal amount at any time
outstanding that has payment terms and is subordinated to the Obligations in
right of payment, enforcement and collection on terms satisfactory to Agent and
Required 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 interests
having ordinary voting power for the election of directors, officers, managers,
trustees or other controlling Persons or an equivalent controlling interest in
Agent’s judgment.

 

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

 

“Subsidiary
Guarantors” means, collectively, Westaff Support, MediaWorld and Westaff
UK; provided, however, that upon a legal
dissolution of MediaWorld as permitted by Section 10.21, MediaWorld
shall cease to be a Subsidiary Guarantor under and for purposes of this
Agreement and the other Loan Documents.

 

“Subsidiary
Guaranty Agreement” means that Continuing Guaranty dated as of the as of
the 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.

 

“Termination
Fee” has the meaning given in Section 2.13.1.

 

27

 

“Termination
Notice” has the meaning given in Section 2.13.1.

 

“Termination Value” means, in respect of any one or more foreign
exchange contract, currency swap agreement, interest rate swap, cap or collar
agreement or other similar agreement or arrangement designed to alter the risks
of that Person arising from fluctuations in currency values or interest rates,
in including any Rate Hedging Obligation (each a “Swap Contract”), after
taking into account the effect of any legally enforceable netting agreement
relating to such Swap Contracts, (i) for any date on or after the date
such Swap Contracts have been closed out and termination value(s) determined
in accordance therewith, such termination value(s), and (ii) for any date
prior to the date referenced in clause (i) the amount(s) determined
as the mark-to-market value(s) for such Swap Contracts, as determined
based upon one or more mid-market or other readily available quotations
provided by any recognized dealer in such Swap Contracts.

 

“Title
Policy” has the meaning given in Section 6.1.

 

“Total
Credit Exposure” means, at any time, the aggregate Credit Exposure of all
of the Lenders at such time.

 

“Total
Exposure Percentage” means, with respect to any Lender at any time, the
ratio of (i) such Lender’s Credit Exposure at such time to (ii) the
Total Credit Exposure at such time.

 

“Trademark
Security 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 this
Agreement by and among Westaff UK, Westaff Support and Agent.

 

“Unused
Commitment Fee” has the meaning given in Section 3.6.

 

“USA
Patriot Act” means the Uniting and Strengthening America by Providing
Appropriate 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 Dollar
Equivalent” means, at any time, (a) as to any amount denominated in
Dollars, the amount thereof; (b) as to any amount denominated in Sterling,
the equivalent amount in Dollars as determined by Agent at such time on the
basis of the Spot Rate for the purchase of Dollars with Sterling on the most
recent computation date.

 

“Voluntary
Termination Date” has the meaning given in Section 2.13.1.

 

“Weighted
Average Life to Maturity” means, when applied to any Indebtedness at any
date, the number of years obtained by dividing (i) the then outstanding
aggregate principal amount of such Indebtedness into (ii) the sum of the
total of the products obtained by multiplying:

 

28

 

(a)           the
amount of each then remaining installment, sinking fund, serial maturity or
other required payment of principal, including payment at final maturity, in
respect thereof, by

 

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

 

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

 

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

 

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

 

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

 

(i)            Except as provided in
clause (ii) below, Receivables owing to Westaff UK which meet, and
continue to meet, all of the following criteria are Eligible Billed
Receivables:

 

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

 

(b)           Receivables
which are due and payable absolutely and unconditionally within (1) Westaff
UK’s standard terms for the applicable account debtor, or (2) such
extended terms as are made available by Westaff UK in the ordinary course of
its business;

 

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

 

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

 

(ii)           The
following Receivables will not, in any event, constitute Westaff UK Eligible
Billed Receivables:

 

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

 

29

 

(b)           Receivables
with respect to which (1) the account debtor is not qualified to do
business in the United Kingdom or (2) the account debtor has its principal
place of business or chief executive office outside of the United Kingdom
unless, in either or both of such events (1) or (2) above, the
Receivable is supported by (A) an irrevocable, clean letter of credit or
acceptance issued (x) by a financial institution reasonably satisfactory
to Agent and (y) on terms reasonably acceptable to Agent, and, if so
requested by Agent, delivered to Agent in pledge for negotiation and presentment
or (B) foreign credit insurance satisfactory to Agent in its discretion
exercised in good faith and as to which Agent is named as the loss payee;

 

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

 

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

 

(f)            Receivables
which (1) consist (or to the extent consisting) of deposits, (2) consist
(or to the extent consisting) of vendor warranty claims, (3) consist (or
to the extent consisting) of finance charges, service charges, or interest on
delinquent accounts, (4) are employee, officer, director or other
Affiliate Receivables or (5) are (or to the extent consisting of) debit
memoranda;

 

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

 

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

 

(i)            Receivables
which are not subject to the first priority security interest of Agent or are
subject to any Lien of any Person (except to the extent, if any, of any
Permitted Liens of the type described in clause (i) or (iv) of that
definition);

 

(j)            Receivables
with respect to which the account debtor has sold substantially all of its
assets and has not established adequate reserves or made provisions for the

 

30

 

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

 

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

 

(l)            Receivables
constituting a healthcare insurance receivable or a United Kingdom government
healthcare payment;

 

(m)          Receivables
owing by a licensee of Westaff UK; or

 

(n)           Receivables
which Agent, in its discretion exercised in good faith, deems to be ineligible
based on those credit or collateral considerations which the Business Credit
Group of Agent makes applicable from time to time.

 

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

 

1.2           Environmental
Definitions.

 

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

 

“Environmental Law” means the Comprehensive Environmental
Response, Compensation and Liability Act (“CERCLA”), 42 U.S.C. §9601 et seq., the Resource Conservation and Recovery Act, 42
U.S.C. §6901 et seq., the Hazardous Materials
Transportation Act, 49 U.S.C. §1802 et seq., the
Toxic 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., the
Clean Air Act, 42 U.S.C. §7401 et seq., the
Occupational 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 other
federal, state, county, municipal, local or other statute, law, ordinance or
regulation, or any common law

 

31

 

(including
common law that may impose strict liability), which may relate to or deal with
human health, the environment, natural resources, or Hazardous Substances, all
as amended.

 

“Environmental Liability” means any Indebtedness, or duty of,
any claim or demand against, any requirement imposed on, or any amount owed by
or payable from, Borrower or any other Credit Party, which is based on, results
from, is in connection with, arises out of, or otherwise is related to any
Environmental Activity, whether the foregoing described liability now exists or
arises 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 under
statutes or regulations) relating to any Hazardous Substances or Environmental
Activity.

 

“Hazardous Substances” means, at any time, (i) any “hazardous
substance” as defined in §101(14) of CERCLA (42 U.S.C. §9601(14)) or
regulations promulgated thereunder; (ii) any “solid waste,” “hazardous
waste,” or “infectious waste,” as such terms are defined in any Environmental
Law at such time; (iii) friable asbestos, urea-formaldehyde, polychlorinated
biphenyls (“PCBs”), nuclear fuel or material, chemical waste, radioactive
material, explosives, known carcinogens, petroleum products, and other
dangerous, toxic or hazardous pollutants, contaminants, chemicals, materials or
substances which are listed or identified in, or regulated by, any
Environmental Law; and (iv) any additional substances or materials which
at such time are classified or considered to be hazardous or toxic under any
Environmental 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 Definitional
Provisions; Construction. Unless otherwise specified,

 

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

 

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

 

32

 

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

 

(iv)          The definition of any
agreement, document or instrument includes all schedules, attachments and
exhibits 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 are
not prohibited by the terms of any Loan Document. All references to statutes
include (a) all rules and regulations promulgated thereunder, (b) any
amendments, renewals, extensions or replacements of such statutes, rules or
regulations promulgated thereunder, and (c) any successor statutes, rules and
regulations, including any comparable provision of the applicable statute,
ordinance, code, regulation or other law as amended after the date of this
Agreement.

 

(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 context
clearly indicates the contrary; the singular includes the plural and
conversely; and any action required to be taken by a Person is to be taken
promptly, unless the context clearly indicates the contrary.

 

(vi)          All of the uncapitalized
terms contained in the Loan Documents which are now or hereafter defined under
the Code will, unless defined in the Loan Documents or the context indicates
otherwise, 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 Schedules
attached to this Agreement are incorporated into, made and form an integral
part of, this Agreement for all purposes.

 

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

 

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

 

1.4           Classes and Types of
Loans. 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 Advance
or 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 the
LIBOR Rate, each of which constitutes a Type. Loans may be identified by both Class and
Type.

 

33

 

1.5           Exchange Rates. Agent
shall determine the Spot Rates as of each Revaluation Date to be used for
calculating the US Dollar Equivalent of amounts denominated in Sterling set
forth in any Borrowing Base Certificate or Fiscal Period Report delivered to
Agent in accordance with Section 8.3. Such Spot Rates shall become
effective as of such Revaluation Date and shall be the Spot Rates employed in
converting any amounts between the applicable currencies until the next
Revaluation Date to occur. Except for purposes of financial statements
delivered by Borrower hereunder or calculating financial covenants hereunder or
except as otherwise provided herein, the applicable amount of any currency for
purposes of the Loan Documents shall be such US Dollar Equivalent as so
determined by Agent.

 

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

 

2.             LOANS
AND OTHER FINANCIAL ACCOMMODATIONS

 

2.1           Total Facility. Subject
to the terms and conditions of this Agreement, the Lenders and LC Issuer will
make 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 made
under the following facilities: (i) the Revolving Loans, and (ii) a
Letter of Credit subfacility, all as more particularly described below.

 

2.2           Revolving Loans.
During the Revolving Credit Commitment Period, and subject to the other terms
and conditions of this Agreement, each Revolving Credit Lender, severally and
not jointly, agrees to make loans (“Revolving Loans”) to Borrower in an
amount not exceeding such Lender’s Revolving Credit Commitment Percentage of
the Revolving Credit Availability then in effect; provided
that after giving effect to the making of any such Revolving Loan, (i) such
Revolving Credit Lender’s Revolving Credit Exposure will not exceed such Lender’s
Revolving Credit Commitment and (ii) the Revolving Credit Exposure of all
of the Lenders will not exceed the total Revolving Credit Commitments. At no
time shall a Revolving Loan be made if, after giving effect thereto, the
Revolving Credit Availability would be less than zero dollars. Within the
foregoing limits, and subject to the other terms and conditions of this
Agreement, Borrower may reborrow Revolving Loans after the repayment thereof.

 

2.3           [Reserved.]

 

34

 

2.4           Letters of Credit.

 

2.4.1        Letter of Credit
Subfacility. During the Revolving Credit Commitment Period and subject to
the other terms and conditions of this Agreement, Borrower may request LC
Issuer to issue one or more of its standard standby letters of credit (“Standby
Letter of Credit”) in favor of such beneficiary(ies) as are designated by
Borrower by delivering to LC Issuer, with a copy to Agent: (i) a Letter of
Credit Application completed to the satisfaction of LC Issuer, together with
the proposed form of the Letter of Credit (which, in all respects, will comply
with the applicable requirements of Section 2.4.2), (ii) a
Borrowing Base Certificate which calculates the Letter of Credit Availability
by giving effect to the proposed Letter of Credit, and (iii) such other
Letter of Credit Documents that LC Issuer then requires. LC Issuer, in addition
to the other terms of this Agreement, will have no obligation to issue the
proposed Letter of Credit if, after giving effect to such proposed Letter of
Credit, the Letter of Credit Availability will be less than zero Dollars. The
making of each Letter of Credit request by Borrower will be deemed to be a
representation by Borrower that the Letter of Credit may be issued in
accordance with, and will not violate the terms of, this Section 2.4.1.
Letters of Credit issued hereunder shall constitute a utilization of the
Revolving Credit Commitments.

 

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

 

2.4.3        Advice of Issuance or
Non-Issuance. Upon receipt of a request from Borrower to open any Letter of
Credit and of all attendant Letter of Credit Documents satisfactorily
completed, LC Issuer, within 3 Business Days after receipt thereof, may, but
shall not be obligated to, issue the requested Letter of Credit to the
beneficiary thereof and transmit a copy to Borrower. If LC Issuer elects not to
issue such Letter of Credit, LC Issuer will communicate in writing to Borrower
the reason(s) why LC Issuer has declined such request.

 

2.4.4        Reimbursement by
Borrower. Borrower shall be irrevocably and unconditionally obligated to
reimburse LC Issuer as of the applicable LC Payment Date for any amounts to be
paid by LC Issuer upon any drawing under any Letter of Credit, without
presentment, demand, protest or other formalities of any kind; provided, however, that
neither Borrower nor any Lender shall hereby be precluded from asserting any
claim for direct (but not consequential) damages suffered by Borrower or such
Lender to the extent, but only to the extent, caused by (i) the willful
misconduct or gross negligence of LC Issuer in determining whether a request
presented under any Letter of Credit issued by it complied with the terms of
such Letter of Credit or (ii) LC Issuer’s failure to pay under any Letter
of Credit issued by it after the presentation to it of a request strictly
complying with the terms and conditions of such Letter of Credit. LC Issuer
will pay to each Lender ratably in accordance with its Revolving Credit

 

35

 

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

 

2.4.5        Administration;
Reimbursement by Lenders. Upon receipt from the beneficiary of any Letter
of Credit of any demand for payment under a Letter of Credit, LC Issuer shall
notify Agent and Agent shall promptly notify Borrower and each other Lender as
to the amount to be paid by LC Issuer as a result of such demand and the
proposed payment date (the “LC Payment Date”). The responsibility of LC
Issuer to Borrower and each Lender shall be only to determine that the
documents (including each demand for payment) delivered under each Letter of
Credit in connection with such presentment shall be in conformity in all
material respects with such Letter of Credit. LC Issuer shall endeavor to
exercise the same care in the issuance and administration of the Letters of
Credit as it does with respect to letters of credit in which no participations
are granted, it being understood that in the absence of any gross negligence or
willful misconduct by LC Issuer, each Lender shall be unconditionally and
irrevocably liable, without regard to the occurrence of any Event of Default or
any condition precedent whatsoever, to reimburse LC Issuer on demand for (i) such
Lender’s Revolving Credit Commitment Percentage of the amount of each payment
made by LC Issuer under each Letter of Credit to the extent such amount is not
reimbursed by Borrower pursuant to Section 2.4.4, plus (ii) interest
on the foregoing amount to be reimbursed by such Lender, for each day from the
date of LC Issuer’s demand for such reimbursement (or, if such demand is made
after 12:00 p.m. noon (Los Angeles time) on such date, from the next
succeeding Business Day) to the date on which such Lender pays the amount to be
reimbursed by it, at a rate of interest per annum equal to the Federal Funds
Rate for the first 3 days and, thereafter, at a rate of interest equal to the
rate applicable to Prime Rate Revolving Loans.

 

2.4.6        Obligations Absolute.
Borrower’s obligations under this Section 2.4 shall be absolute and
unconditional under any and all circumstances and irrespective of any setoff,
counterclaim or defense to payment which Borrower may have or have had against
LC Issuer, any Lender or any beneficiary of a Letter of Credit. Borrower
further agrees with LC Issuer and the Lenders that LC Issuer and the Lenders
shall not be responsible for, and Borrower’s reimbursement obligation in
respect of any Letter of Credit shall not be affected by, among other things,
the validity or genuineness of documents or of any endorsements thereon, even
if 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 its
Affiliates, the beneficiary of any Letter of Credit or any financing
institution or other party to whom any Letter of Credit may be transferred or
any claims or defenses whatsoever of Borrower or of any of its Affiliates
against the beneficiary of any Letter of Credit or any such transferee. LC
Issuer shall not be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit. Borrower agrees that any
action taken or omitted by LC Issuer or any Lender under or in connection with
each Letter of Credit and the related drafts and documents, if done without
gross negligence or willful misconduct, shall be binding upon Borrower and
shall not put LC Issuer or any Lender under any

 

36

 

liability to Borrower. Nothing in this Section 2.4.6
is intended to limit the right of Borrower to make a claim against LC Issuer
for damages as contemplated by the proviso to the
first 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 or
teletype message, statement, order or other document believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons, and upon advice and statements of legal counsel, independent
accountants and other experts selected by LC Issuer. LC Issuer shall be fully
justified in failing or refusing to take any action under this Agreement unless
it shall first have received such advice or concurrence of Required Lenders as
it reasonably deems appropriate or it shall first be indemnified to its
reasonable satisfaction by the Lenders against any and all liability and
expense which may be incurred by it by reason of taking or continuing to take
any such action. Notwithstanding any other provision of this Section 2.4,
LC Issuer shall in all cases be fully protected in acting, or in refraining
from acting, under this Agreement in accordance with a request of Required
Lenders, and such request and any action taken or failure to act pursuant
thereto shall be binding upon the Lenders and any future holders of a
participation in any Letter of Credit.

 

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

 

2.4.9        Lenders’
Indemnification. Each Revolving Credit Lender shall, ratably in accordance
with its Revolving Credit Commitment Percentage, indemnify LC Issuer, its
Affiliates and their respective directors, officers, agents and employees (to
the extent not

 

37

 

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

 

2.4.10      Participations. By
the issuance of a Letter of Credit (or an amendment to a Letter of Credit
increasing the amount thereof) and without any further action on the part of LC
Issuer or the Lenders, LC Issuer hereby grants to each Revolving Credit Lender,
and each Revolving Credit Lender hereby acquires from LC Issuer, a
participation in such Letter of Credit equal to such Revolving Credit Lender’s
Revolving Credit Commitment Percentage of the aggregate amount available to be
drawn under such Letter of Credit. In consideration and in furtherance of the
foregoing, each Revolving Credit Lender hereby absolutely and unconditionally
agrees to pay to Agent, for the account of LC Issuer, such Revolving Credit
Lender’s Revolving Credit Commitment Percentage of each unreimbursed drawing
under any Letter of Credit, or of any reimbursement payment required to be
refunded to Borrower for any reason. Each Revolving Credit Lender acknowledges
and agrees that its obligation to acquire participations pursuant to this
paragraph in respect of Letters of Credit is absolute and unconditional and
shall not be affected by any circumstance whatsoever, including any amendment,
renewal or extension of any Letter of Credit or the occurrence and continuance
of an Event of Default, the failure of any condition in Section 5
to be satisfied, or any reduction or termination of the Revolving Credit
Commitments, 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 any unreimbursed drawing or of any
refunded reimbursement payment, Agent shall disburse such payment to LC Issuer,
or to the extent that the Lenders have made payments pursuant to this Section 2.4.10
to 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 2.4.10
shall not constitute a Loan and shall not relieve Borrower of its reimbursement
and other obligations under this Section 2.4.

 

2.4.11      Letters of Credit
Collateral Account. If a Letter of Credit Deficiency shall have occurred
and be continuing, Agent may make demand upon Borrower to, and forthwith upon
such demand (and in no event later than the immediately succeeding Business
Day) Borrower will, pay to Agent in same day funds at Agent’s office designated
in such demand, for deposit in a special interest bearing cash collateral
account (the “Letter of Credit Collateral Account”) to be maintained at
such office of Agent, an amount equal to the amount by which the Letter of
Credit Availability is less than zero. The Letter of Credit Collateral Account
shall be in the name of Agent (as a cash collateral account), and under the
sole dominion and control of Agent exercised in good faith (with sole right of
withdrawal) and subject to the terms of this Agreement and the other Loan
Documents; provided that interest accruing thereon shall accrue for the benefit
of Borrower. On each drawing under a Letter of Credit during which a Letter of
Credit Deficiency is continuing, Agent shall seek reimbursement from any
amounts then on deposit in the Letter of Credit Collateral Account; however, if (i) no amounts are then on deposit in the
Letter of Credit Collateral Account, (ii) the amount then on deposit in
the Letter of Credit Collateral Account is insufficient to pay the amount of
such drawing, or (iii) Agent is

 

38

 

legally prevented or restrained from immediately
applying amounts on deposit in the Letter of Credit Collateral Account, then
the amount of each unreimbursed drawing under such Letter of Credit and payment
required to be made under this Section 2.4.11 shall automatically
be converted into a Prime Rate Revolving Loan made on the date of such drawing
for all purposes of this Agreement. To the extent that Agent applies amounts on
deposit 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 any
amount so applied must otherwise be returned by Agent upon the insolvency,
bankruptcy or reorganization of Borrower or otherwise, then the amount so
rescinded or returned shall automatically be converted into a Prime Rate
Revolving Loan made on the date of such drawing for all purposes of this
Agreement. Agent shall promptly return to Borrower all funds held in the Letter
of Credit Collateral Account and any interest accrued thereon upon receiving
evidence from Borrower that a Letter of Credit Deficiency is no longer continuing.

 

2.4.12      Letter
of Credit Obligations. All Letter of Credit Obligations will constitute
part 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 “Advance
Request”) in the form of Exhibit C attached hereto, specifying:

 

(i)            the total amount of
the 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 of
such Revolving Loan, which shall be a Business Day;

 

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

 

(v)           that on the date of,
and after giving effect to, such Revolving Loan, all of the representations and
warranties of Borrower contained in this Agreement and in the other Loan
Documents are true and correct in all material respects on and as of such date
of 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 earlier
date).

 

Each such Advance Request by Borrower shall be irrevocable. Each
Advance Request for a Prime Rate Loan shall be given to Agent by no later than
11:00 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 later
than 11:00 a.m. (Los Angeles time) two New York Banking Days prior to the
Borrowing Date of such LIBOR Rate Loan. If Borrower fails to specify the Type
of Loan, then the requested Revolving Loan shall be a Prime Rate Loan. If
Borrower 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 made
with a Loan Period of one month. Each Advance Request must be signed by an
Authorized Representative; however, Agent
may rely on the authority of any officer or employee of Borrower whom Agent in
good faith believes to be authorized to request advances.

 

39

 

2.6           Initial Interest
Election. Any Revolving Loans made on the Closing Date shall be Prime Rate
Loans. Each Revolving Loan made after the Closing Date shall initially be of
the Type specified in the applicable Advance Request for such Revolving Loan.

 

2.7           Funding of Loans.

 

2.7.1        Funding of Loans. With
respect to any Revolving Loans requested by Borrower hereunder, each Lender
agrees 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 an
Interim Advance. If Borrower makes a request for a Revolving Loan as provided
herein, Agent, at its option and in its discretion, shall do either of the
following:

 

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

 

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

 

2.7.2        Operating Account. Borrower
irrevocably authorizes Agent to make all disbursements of Revolving Loans into
a non-interest bearing, DDA operating account maintained by Agent (the “Operating
Account”) that will be structured and utilized for that purpose in
accordance with Agent’s policies and procedures from time to time in effect. Unless
other 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

 

40

 

Operating Account at the end of the applicable
Business Day on which the advance is made. With respect to advances requested
by Borrower to cover Presentments in the Controlled Disbursement Account,
Borrower hereby irrevocably authorizes Agent, without any further written or
oral request of Borrower, to transfer funds automatically from the Operating
Account to the Controlled Disbursement Account in amounts necessary for the payment
of checks and other items drawn on the Controlled Disbursement Account as such
checks and other items (“Presentments”) are presented to Agent for
payment. If any Presentments in the Controlled Disbursement Account are paid by
Agent in excess of funds available in the Operating Account for any reason,
including the failure of Borrower to determine the correct amount of
Presentments in its Advance Request, the amounts so paid by Agent will be
deemed to be an advance of Revolving Loans as a Prime Rate Loan for all
purposes of this Agreement and are hereby ratified and approved by Borrower; however, under no circumstances will Agent have any
obligation to pay any Presentments in the Controlled Disbursement Account in
excess of funds available in the Operating Account. Notwithstanding anything to
the contrary in this Section 2.7.2, Agent may, at any time
hereafter on oral or written notice to Borrower, elect to discontinue the
automatic sweeping of funds from the Operating Account to the Controlled
Disbursement Account, but Agent instead may disburse proceeds of a Revolving
Loan by crediting only the Operating Account. Furthermore, Agent reserves the
right to discontinue providing controlled disbursement accounts to its
customers, including Borrower. Each request submitted by Borrower for a new
advance of a Revolving Loan via wire transfer of funds must be initiated with
Agent’s wire transfer department (or by telephone or on-line functions made
available by Agent’s wire transfer department from time to time) via a duly
completed and signed outgoing wire transfer form (or any replacement form
promulgated by Agent).

 

2.7.3        Availability of Loans.
The failure of any Lender to make any Loan required to be made by it shall not
relieve any other Lender of its obligations hereunder; provided,
however, that the Revolving Credit
Commitments of the Lenders are several and no Lender shall be responsible for
any other Lender’ failure to make Loans as required. Unless Agent shall have
been notified by a Lender prior to the time a Loan is to be made hereunder that
such 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 to
Agent, and Agent may in reliance upon such assumption make available to
Borrower a corresponding amount. If such corresponding amount is not in fact
made available to Agent by such Lender and Agent has made such amount available
to Borrower, Agent shall be entitled to receive such amount from such Lender
forthwith upon its demand, together with interest thereon in respect of each
day during the period from and including the date such amount was made
available to Borrower to but excluding the date Agent recovers such amount from
such Lender at a rate per annum equal to the Federal Funds Rate for the first 3
days and, thereafter, at a rate per annum equal
to the rate applicable to Prime Rate Revolving Loans. If such amount is not in
fact made available to Agent by such Lender upon such demand, Agent shall be
entitled to receive such amount from Borrower forthwith upon its demand (and in
no event later than the Business Day immediately succeeding the day such demand
is made), together with interest thereon at the rate applicable to a Prime Rate
Revolving Loan in respect of each day during the period commencing on the date
such amount was made available to Borrower and ending on but excluding the date
Agent recovers such amount from Borrower. Borrower’s obligation hereunder shall
not affect any rights Borrower may have against any Defaulting Lender.

 

41

 

2.7.4              Loans
on Prepayment Dates.  If Lenders are
required to make a new Loan hereunder to Borrower on a day on which Borrower is
required to or has elected to repay all or any part of an outstanding Loan from
Lenders, Lenders shall apply the proceeds of the new Loan to make such
repayment and only an amount equal to the difference (if any) between the
amount being borrowed and the amount being repaid shall be made available by
Lenders to Borrower as provided in Section 2.7.2.

 

2.7.5              Authority
of Individuals.  Borrower hereby
irrevocably authorizes Agent and each Lender to rely on telephonic,
telegraphic, facsimile, telex or written instructions of any individual whom
Agent or any Lender in good faith believes to be authorized to request a Credit
Extension or a repayment hereunder with respect to any request to make a Credit
Extension or a repayment hereunder, and on any signature which Agent or any
such Lender believes to be genuine, and Borrower shall be bound thereby in the
same manner as if such person were actually authorized or such signature were
genuine.  Borrower also hereby agrees to
indemnify Agent and each of the Lenders and hold Agent and each of the Lenders
harmless from and against any and all claims, demands, damages, liabilities,
losses, costs and expenses (including Attorneys’ Fees) relating to or arising
out of or in connection with the acceptance of instructions by Agent or any
Lender for making Credit Extensions or repayments hereunder from such
individuals, in the absence of gross negligence or willful misconduct by Agent
or such Lender.  The Obligations
described under this Section 2.7.5 shall survive any termination of
this Agreement.

 

2.7.6              Participation
in Interim Advances.  By the making
of an Interim Advance and without any further action on the part of Agent or
the Revolving Credit Lenders, Agent hereby grants to each Revolving Credit
Lender, and each Revolving Credit Lender hereby acquires from Agent, a
participation in such Interim Advance equal to such Revolving Credit Lender’s
Revolving Credit Commitment Percentage of such Interim Advance.  In consideration and in furtherance of the
foregoing, each Revolving Credit Lender hereby absolutely and unconditionally
agrees to pay to Agent, for the account of Agent, such Revolving Credit Lender’s
Revolving Credit Commitment Percentage of each Interim Advance, or of any
payment on any Interim Advance required to be refunded to Borrower for any
reason.  Each Revolving Credit Lender
acknowledges and agrees that its obligation to acquire participations pursuant
to this paragraph in respect of Interim Advances is absolute and unconditional
and shall not be affected by any circumstance whatsoever, including the
occurrence and continuance of an Event of Default, the failure of any condition
in Section 5 to be satisfied, or any reduction or termination of
the Revolving Credit Commitments or a reduction in the Revolving Credit
Availability, 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 any
Interim Advance, Agent shall apply such amounts to the then outstanding Agent
Advances and, to the extent that the Revolving Credit Lenders have made
payments pursuant to this Section 2.7.6 to Agent, to the Revolving
Credit Lenders, as their interest may appear. 
The purchase of participations in an Interim Advance pursuant to this Section 2.7.6
shall 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, the
Revolving Loans made by the Lenders shall be evidenced by a promissory note
duly executed and delivered by Borrower substantially in the form of Exhibit A
with blanks 

 

42

 

appropriately
completed in conformity herewith (each a “Note”).  Agent and each Lender is hereby authorized to
record the date and amount of each advance of the Loans, and the date and
amount of each payment or prepayment thereof, by any or all of the following: (1) on
a schedule constituting a part of the applicable Note which schedule may be
attached thereto and made a part thereof, (2) by entries made into Agent
and each Lender’s electronic systems, or (3) on internal memoranda
maintained by Agent and each Lender, and any such recordation will be
rebuttably presumptive evidence of the accuracy of the information so recorded
absent manifest error; however, the
failure of Agent or any Lender to make any such recordation will not affect the
unconditional obligation of Borrower to repay the outstanding principal,
interest, or other Obligations due under this Agreement, under the Notes, or
the other Loan Documents in accordance with the terms of this Agreement and the
other Loan Documents.

 

2.9           No
Limitation on Liens.  The limits on
outstanding advances against the Borrowing Base are not intended and shall not
be deemed to limit in any way Agent’s Liens on the Receivables or any other
Loan Collateral.

 

2.10         Advance
Rates and Sublimits.

 

2.10.1            Changes.  Borrower acknowledges that Agent, from time
to time, may do any one or more of the following in its discretion exercised in
good faith: (i) decrease the dollar limits on outstanding advances against
the Borrowing Base or percentages applicable to any one or more Receivables
advance sublimits or (ii) decrease the Advance Rates if one or more of the
following events occur or conditions exist: (a) an Event of Default has
occurred; or (b) with regard to the Eligible Billed Receivables Advance
Rate or the Eligible Unbilled Receivables Advance Rate, as the case may be, (1) the
dilution percentage with respect to Borrower’s Eligible Receivables (i.e., reductions in the amount of accounts receivable
because of returns, discounts, price adjustments, credit memoranda, credits,
contras and other similar offsets) increases by an amount which Agent, in its
discretion exercised in good faith, has determined is materially above that
which existed as of the Closing Date, (2) the percentage of accounts
receivable which are 90 days or more past the date of the original invoices
applicable thereto increases, in comparison to the percentage of accounts
receivable which are within 90 days from the date of the original invoices
applicable thereto, by an amount which Agent, in its discretion exercised in
good faith, determines is material, or (3) any material change occurs,
determined by Agent in good faith, from the Closing Date in respect of the
credit 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) decreases
any of the dollar limits on outstanding advances against the Borrowing Base or
percentages applicable to any one or more Receivables advance sublimits or
decreases the Advance Rates from that which, in any case, is expressly stated
in clauses (i) or (ii) of the definition of the Borrowing Base (i.e., exclusive of those changes which result from the
effect of applying applicable eligibility criteria) (“Stated Advance Rate
Change”), Agent will give Borrower 30 days advance written notice of such
Stated Advance Rate Change, unless an Event of Default then exists, in which
case Agent will give Borrower contemporaneous oral or written notice of such
Stated Advance Rate Change.

 

43

 

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

 

2.12         Lending
Installations.  Agent and each Lender
may book its Loans and other Credit Exposure, if any, and LC Issuer may book
the Letter of Credits, at any Lending Installation selected by Agent, such
Lender or LC Issuer, as the case may be, and may change its Lending
Installation from time to time.  All
terms of this Agreement shall apply to any such Lending Installation and the
Loans, Letters of Credit, and other Credit Exposure, and any Notes issued
hereunder shall be deemed held by Agent, each Lender or LC Issuer, as the case
may be, for the benefit of any such Lending Installation.  Agent, each Lender and LC Issuer may, by written
notice to Agent and Borrower in accordance with Section 15.7,
designate replacement or additional Lending Installations through which Loans
will be made by it or Letters of Credit and other Credit Exposure will be
issued or maintained by it and for whose account payments are to be made.  Notwithstanding the foregoing, neither Agent
nor any Lender may book Loans or other Credit Exposure, or book Letters of
Credit, at any Lending Installation if, as a result thereof, Borrower shall be
obligated to pay any additional amounts under Sections 2.14 or 2.15 hereof.

 

2.13         Reduction
and Termination of Revolving Credit Commitments.

 

2.13.1            Voluntary
Termination of Revolving Credit Commitments.  Borrower may voluntarily terminate the
Revolving Credit Commitments in total prior to the Stated Maturity Date by (i) giving
Agent 10 days advance notice (“Termination Notice”) of the proposed date
on which the Revolving Credit Commitments are to terminate (“Voluntary
Termination Date”), which Termination Notice may be revoked by Borrower at
any time prior to the Voluntary Termination Date, and (ii) paying and
satisfying on the Voluntary Termination Date: (a) all Loans and other
Obligations (which shall include the cancellation and return of all outstanding
Letters of Credit, or provision made for the cash collateralization of all such
Letters of Credit on terms reasonably acceptable to Agent and the LC Issuer), (b) any
LIBOR Prepayment Fee under Section 3.2.1(v), and (c) paying,
as compensation to the Lenders for loss of bargain with respect to the credit
advanced hereunder, and not as a penalty, a termination fee (“Termination
Fee”) 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

  	
   

  

 

44

 

Borrower may
not terminate the Revolving Credit Commitment in part.  Notwithstanding the foregoing, if the
Revolving Credit Commitment is terminated in connection with a refinancing
thereof, then no Termination Fee shall be payable to those Lenders that
participate in such refinancing by providing a commitment to lend loans of
money thereunder.

 

2.13.2            Scheduled
Termination of Revolving Credit Commitments.  The Revolving Credit Commitments will
automatically terminate on the Revolving Credit Commitment Termination Date.

 

2.13.3            Permanent
Reduction of Revolving Credit Commitments. 
Each termination or reduction of the Revolving Credit Commitment shall
be permanent.

 

2.13.4            Borrower
Remains Liable.  Notwithstanding any
termination of the Revolving Credit Commitments under this Agreement, until all
of the Obligations have been Paid in Full, Borrower shall remain liable for the
full and prompt performance and payment of the Obligations, and Agent, LC
Issuer and the Lenders shall retain all of their respective individual and
collectively rights and privileges under the Loan Documents, including the
retention of Agent’s Liens on and interest in and to all of the Loan Collateral
until 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 cash
securing Letters of Credit Obligations.

 

2.14         Increased
Costs.

 

2.14.1            Increased
Costs Generally.  If any Change in
Law shall:

 

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

 

(ii)               impose
on any Lender, LC Issuer or any applicable Lending Installation any other
condition affecting this Agreement or LIBOR Rate Loans made by such Lender or
applicable Lending Installation or any Letter of Credit or participation
therein;

 

and the result
of any of the foregoing shall be to increase the cost to such Lender or
applicable Lending Installation of making or maintaining any LIBOR Rate Loan
(or of maintaining its obligation to make any such Loan) or to increase the cost
to such Lender, LC Issuer or applicable Lending Installation of participating
in, issuing or maintaining any Letter of Credit or to reduce the amount of any
sum received or receivable by such Lender, LC Issuer or applicable Lending
Installation hereunder (whether of principal, interest or otherwise), then
Borrower will pay to such Lender or LC Issuer, as the case may be, such
additional amount or amounts as will compensate such Lender or LC Issuer, as
the case may be, for such additional costs incurred or reduction suffered.

 

45

 

2.14.2            Costs
Attributable to Regulatory Change or Risk-Based Capital Guidelines.  If Agent, any Lender or LC Issuer determines
that any Change in Law regarding capital requirements has or would have the
effect of reducing the rate of return on Agent’s, such Lender’s or LC Issuer’s
capital or on the capital of Agent’s, such Lender’s or LC Issuer’s holding
company, if any, as a consequence of this Agreement or the Loans made by or participation
in Letters of Credit held by Agent, such Lender, or the Letters of Credit
issued by LC Issuer, to a level below that which Agent, such Lender or LC
Issuer or Agent’s, such Lender’s or LC Issuer’s holding company could have
achieved but for such Change in Law (taking into consideration Agent’s, such
Lender’s or LC Issuer’s policies and the policies of Agent’s, such Lender’s or
LC Issuer’s holding company with respect to capital adequacy), then from time
to time Borrower will pay to Agent, such Lender or LC Issuer such additional
amount 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 Issuer
setting forth the amount or amounts necessary to compensate Agent, such Lender
or LC Issuer or its holding company, as the case may be, as specified in Sections 2.14.1
and 2.14.2 of this Section shall be delivered to Borrower and shall
be rebuttably presumptive evidence of the accuracy thereof, absent manifest
error.  Borrower shall pay Agent, such
Lender or LC Issuer, as the case may be, the amount shown as due on any such
certificate within 10 Business Days after receipt thereof.

 

2.14.4            Delay
in Requests.  Failure or delay on the
part of Agent, any Lender or LC Issuer to demand compensation pursuant to this Section 2.14
shall not constitute a waiver of Agent’s, such Lender’s or LC Issuer’s right to
demand such compensation; provided that
Borrower shall not be required to compensate Agent,  a Lender or LC Issuer pursuant to this Section for
any increased costs or reductions incurred more than 180 days prior to the date
that Agent, such Lender or LC Issuer notifies Borrower of the Change in Law
giving rise to such increased costs or reductions and of Agent’s such Lender’s
or LC Issuer’s intention to claim compensation therefor; provided
further that, if the Change in Law giving rise to such increased
costs or reductions is retroactive, then the 180 days period referred to above
shall be extended to include the period of retroactive effect thereof.

 

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

 

2.15         Taxes.

 

2.15.1            Gross-Up.  Any and all payments by or on account of any
obligation of Borrower hereunder shall be made free and clear of and without
deduction for any Indemnified Taxes or Other Taxes; provided
that if Borrower shall be required to deduct any Indemnified Taxes or Other
Taxes from such payments, then (i) the sum payable shall be increased as
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.15)
Agent, Lender or LC Issuer (as the case may be) receives an amount equal to the
sum it would have received had no such deductions been made, (ii) Borrower
shall make such deductions and (iii) Borrower shall pay the full amount
deducted to the relevant Governmental Authority in accordance with applicable law.

 

46

 

2.15.2            Other
Taxes.  In addition, Borrower shall
pay any Other Taxes to the relevant Governmental Authority in accordance with
applicable law.

 

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

 

2.15.4            Evidence
of Payment.  As soon as practicable
after any payment of Indemnified Taxes or Other Taxes by Borrower to a
Governmental Authority, Borrower shall deliver to Agent the original or a
certified copy of a receipt issued by such Governmental Authority evidencing
such payment, a copy of the return reporting such payment or other evidence of such
payment reasonably satisfactory to Agent.

 

2.15.5            Foreign
Lenders.

 

(i)                Each
Foreign Lender that is entitled to an exemption from or reduction in
withholding tax under the jurisdiction in which Borrower is located, or any
treaty to which such jurisdiction is a party, with respect to payments under
this Agreement shall deliver to Borrower (with a copy to Agent), at the times
prescribed by applicable law, properly completed and executed documentation
prescribed by applicable law or reasonably requested by Borrower as will permit
such payments to be made without withholding or at a reduced rate.  Without limiting the generality of the
foregoing, any Foreign Lender shall deliver to the Borrower and the Agent (in
such number of copies as shall be requested by the recipient) on or prior to
the 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 the
Agent, but only if such Foreign Lender is legally entitled to do so), whichever
of the following is applicable (i) duly completed copies of Internal
Revenue Service Form W-8BEN claiming eligibility for benefits of an income
tax treaty to which the United States of America is a party, (ii) duly
completed copies of Internal Revenue Service Form W-8ECI, (iii) in
the case of a Foreign Lender claiming the benefits of the exemption for
portfolio interest under section 881(c) of the Code, (x) a
certificate 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 “10
percent shareholder” of Borrower within the meaning of section 881(c)(3)(B) of
the Code, or (C) a “controlled foreign corporation” described in section
881(c)(3)(C) of the Code and (y) duly completed copies of Internal Revenue
Service Form W-8BEN, or (iv) any other form prescribed by applicable
law as a basis for claiming exemption from or a reduction in United States
Federal withholding tax duly completed together with such supplementary
documentation as may be prescribed by applicable law to permit the Borrower to
determine the withholding or deduction required to be made.

 

47

 

(ii)               Borrower
shall not be required to indemnify any Foreign Lender, or to pay any additional
amounts to any Foreign Lender, in respect of any withholding tax pursuant to Section 2.15.1
to the extent that (a) the obligation to withhold amounts with respect to
such withholding tax existed on the date such Foreign Lender became a party to
this Agreement; provided, however,
that this Section 2.15.5(ii)(a) shall not apply to the extent
that (1) the indemnity payments or additional amounts any Lender would be
entitled to receive (without regard to this Section 2.15.5(ii)) do
not exceed the indemnity payment or additional amounts that the person making
the assignment, participation or transfer to such Lender would have been
entitled to receive in the absence of such assignment, participation or
transfer, or (2) such assignment, participation or transfer has been
requested by Borrower, or (b) the obligation to pay such additional
amounts would not have arisen but for a failure by such Foreign Lender to
comply 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 Other
Taxes as to which it has been indemnified by the Borrower or with respect to
which the Borrower has paid additional amounts pursuant to this Section, it
shall pay to the Borrower an amount equal to such refund (but only to the
extent of indemnity payments made, or additional amounts paid, by the Borrower
under this Section with respect to the Taxes or Other Taxes giving rise to
such refund), net of all out-of-pocket expenses of the Agent, such Lender or LC
Issuer, as the case may be, and without interest (other than any interest paid
by the relevant Governmental Authority with respect to such refund), provided
that 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) to
the Agent, such Lender or LC Issuer in the event Agent, such Lender or LC
Issuer is required to repay such refund to such Governmental Authority.  This Section 2.15.6 shall not be
construed to require Agent, any Lender or LC Issuer to make available its tax
returns (or any other information relating to its taxes that it deems
confidential) to the Borrower or any other Person.

 

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

 

2.16         Mitigation
of Obligations; Replacement of Lenders.

 

2.16.1            Mitigation
of Obligations.  If Borrower is required
to pay any additional amount to any Lender or any Governmental Authority for
the 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, as
contemplated by Section 3.2.1, then such Lender shall use
reasonable efforts to designate a different lending office for funding or
booking its Loans and other Credit Exposure hereunder or to assign its rights
and obligations hereunder to another of its offices, branches or affiliates,
if, in the judgment of such Lender, such designation or assignment (i) would
eliminate or reduce amounts payable pursuant to Section 2.15, in
the future or would enable such Lender to fund LIBOR Rate Loans (as
applicable), and (ii) would not subject such Lender to any unreimbursed
cost or expense and would not otherwise be materially disadvantageous to such
Lender.  Borrower hereby agrees to pay
all reasonable costs and expenses incurred by any Lender in connection with any
such designation or assignment.

 

48

 

2.16.2            Replacement
of Lenders.  If (a) any Lender
requests compensation under Section 2.14, (b) Borrower is
required to pay any additional amount to any Lender or any Governmental
Authority for the account of any Lender pursuant to Section 2.15, (c) any
Lender notifies Borrower pursuant to Section 3.2.1 that it is unable to
fund or continue LIBOR Rate Loans, (d) any Lender is a Defaulting Lender
or (e) any Lender is a Hold-Out Lender, then Borrower may, at its sole
expense and effort, upon notice to such Lender and Agent, require such Lender
to assign and delegate, without recourse (in accordance with and subject to the
restrictions contained in Section 14.2), all its interests, rights
and obligations under this Agreement to an assignee that shall assume such
obligations (which assignee may be another Lender, if a Lender accepts such
assignment); provided that (i) Borrower
shall have received the prior written consent of Agent, which consent shall not
unreasonably be withheld, (ii) such Lender shall have received payment of
an amount equal to the outstanding principal of its Loans, accrued interest
thereon, accrued fees and all other amounts payable to it hereunder, from the
assignee (to the extent of such outstanding principal and accrued interest and
fees) or Borrower (in the case of all other amounts), (iii) in the case of
any such assignment resulting from a claim for compensation under Section 2.14
or payments required to be made pursuant to Section 2.15, such
assignment will result in a reduction in such compensation or payments and (iii) in
the case of any such assignment of in respect of a Hold-Out Lender, Lenders
sufficient to comprise Required Lenders have already provided written consent
to the relevant amendment, modification, supplement or waiver, as
applicable.  A Lender shall not be
required to make any such assignment and delegation if, prior thereto, as a
result of a waiver by such Lender or otherwise, the circumstances entitling
Borrower to require such assignment and delegation cease to apply.

 

3.             PRINCIPAL
PAYMENTS; INTEREST CHARGES; FEES

 

3.1           Payments
and Prepayments of Principal.

 

3.1.1              Repayment
of Principal.

 

(i)                                               Borrower
hereby promises to pay the entire unpaid principal balance of the Revolving
Loans, 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 the
Revolving Loans are due and payable pursuant to Section 12.

 

(ii)               [Reserved.]

 

(iii)              Borrower
hereby promises to pay (subject to settlement thereof by the Lenders as
provided in Section 4.2) the entire outstanding principal balance
of each Interim Advance, and each Interim Advance shall be due and payable, on
the earliest to occur of (a) first Business Day of the week immediately
succeeding the making of such Interim Advance, (b) the Maturity Date, and (c) the
date the Interim Advances are due and payable pursuant to Section 12.

 

(iv)                                        Borrower
hereby promises to pay the entire outstanding principal balance of each Agent
Advance, and each Agent Advance shall be due and payable, on demand (and in no
event later than the immediately succeeding Business Day).

 

49

 

(v)              Borrower
hereby promises to pay the entire outstanding principal balance of any other
Obligations 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 succeeding
Business Day).

 

3.1.2              Correction
of Deficiency.  Notwithstanding
anything in this Agreement to the contrary, if, as at any time, a Deficiency
occurs or exists, Borrower will immediately, without demand or notice, reduce
the sum of the then outstanding principal balance of the Loans so that a
Deficiency no longer exists unless the Deficiency results solely from any
Permitted Overadvance.  Any payments made
by Borrower in respect of a Deficiency will be applied to the Revolving Loans
until a Deficiency no longer exists.

 

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

 

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

 

3.2.1              Interest
on Loans and Other Obligations; LIBOR Prepayment Fee.

 

(i)                Interest
on each Revolving Loan and Interim Advance shall accrue at one of the following
per annum rates selected by Borrower: (a) unless prior notice is given to
Agent pursuant to subpart (b) of this Section 3.2.1(i), the
Applicable 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 Banking
Days prior notice to Agent, the Applicable LIBOR Rate Margin plus the 1, 2, or
3 month LIBOR rate quoted by U.S. Bank from Bloomberg Professional Service Page BBAM1
as the offered rate for Loans for the applicable Loan Periods under the caption
British Bankers Association LIBOR Rates (or any successor reference page thereto)
in effect two New York Banking Days prior to the making of such Loan, adjusted
for any reserve requirement (a “LIBOR Rate Loan”).

 

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

 

(iii)              The
foregoing provisions of this Section 3.2.1(i) and (ii) are
subject to the Default Rate specified in Section 3.2.3.  Agent’s internal records of applicable
interest rates shall be rebuttably presumptive evidence of the accuracy
thereof, in the absence of manifest error.

 

(iv)             No
LIBOR Rate Loan may extend beyond the Maturity Date.  In any event, if the Loan Period for a LIBOR Rate
Loan should happen to extend beyond the Maturity Date,  such Loan must be prepaid at the Maturity
Date together with any amounts owing under Section 3.2.1(v).  Each LIBOR Rate Loan shall be in a minimum
principal amount 

 

50

 

of $1,000,000 and in
integral multiples of $500,000.  Borrower
may not, in the aggregate, have more than 5 LIBOR Rate Loans outstanding at any
time.

 

(v)              If
a 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 Loans
maturing, the cure of any Deficiency, or the acceleration of the Loans upon an
Event of Default or otherwise, Borrower will pay all of Lenders’ costs,
out-of-pocket expenses and Interest Differential incurred as a result of such
prepayment.  The term “Interest
Differential” means that sum equal to the greater of zero or the financial
loss incurred by the Lenders (as determined by Agent) resulting from
prepayment, calculated as the difference between the amount of interest Lenders
would have earned (from like investments in the Money Markets as of the first
day of the LIBOR Rate Loan) had prepayment not occurred and the interest
Lenders will actually earn (from like investments in the Money Markets as of
the date of prepayment) as a result of the redeployment of funds from the
prepayment.  Because of the short-term
nature of this facility, Borrower agrees that the Interest Differential shall
not be discounted to its present value. 
Any prepayment of a LIBOR Rate Loan shall be in an amount equal to the
remaining entire principal balance of such Loan.  A certificate as to such Interest
Differential submitted by Agent to Borrower shall be rebuttably presumptive
evidence of the accuracy thereof, absent manifest error, as to the amount
thereof.  The Obligations described under
this Section 3.2.1(v) shall survive any termination of this
Agreement.

 

(vi)          Borrower
may elect to continue any outstanding LIBOR Rate Loan from one Loan Period into
a 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 a
Loan Period only, in the instance of a LIBOR Rate Loan), by giving Agent
telephonic notice promptly confirmed in writing, given so as to be received by
Agent not later than:

 

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

 

Each notice of
continuation or conversion of a Loan shall specify (1) the effective date
of the continuation or conversion (which shall be a New York Banking Day), (2) the
amount and the Class and Type or Types of Loans following such
continuation 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, the
Loan Periods for such Loans.  Absent
timely notice of continuation or conversion as provided above, Agent shall
continue such LIBOR Rate Loan into a new LIBOR Rate Loan with a one (1) month
Loan Period on or after the last day of an applicable Loan Period, unless paid
in full on such last day, but until such conversion, the funds advanced under
the LIBOR Rate Loan shall continue to accrue interest at the same rate as the
interest rate in effect for such LIBOR Rate Loan prior to the end of the Loan
Period.  No Loan shall be continued as,
or converted into, a LIBOR Rate Loan if the shortest Loan Period for such Loan
may not transpire prior to the Maturity Date.

 

51

 

(vii)         Notwithstanding
any other provisions of this Section 3.2 to the contrary, Borrower
may not request any LIBOR Rate Loans, and if a LIBOR Rate Loan is outstanding
it shall be immediately converted to a Prime Rate Loan, if at any time (a) deposits
in Dollars for any Loan Period are not available in the London interbank market
or (b) by reason of national or international financial, political or
economic conditions or by reason of any applicable law, treaty, rule or
regulation (whether domestic or foreign) now or hereafter in effect or the
interpretation or administration thereof by any Governmental Authority charged
with the interpretation or administration thereof, or compliance by a Lender
with any request or directive of such authority (whether or not having the
force of law), including exchange controls, Agent determines in good faith
that: (1) it is impracticable, unlawful or impossible for the Lenders to
maintain the LIBOR Rate Loans at an interest rate based on the LIBOR Rate, (2) adequate
and fair means do not exist for ascertaining the interest rate applicable
hereunder to LIBOR Rate Loans, or (3) the LIBOR Rate determined by Agent
will not adequately and fairly reflect the cost to the Lenders, determined by
Agent in good faith, of making or maintaining any LIBOR Rate Loans.  Moreover, notwithstanding any other
provisions of this Section 3.2.1 to the contrary, Agent shall have
the option to convert any outstanding LIBOR Rate Loans to Prime Rate Loans at
the end of the applicable Loan Period for such LIBOR Rate Loans, at any time
that there exists an Event of Default. 
Moreover, notwithstanding any other provisions of this Section 3.2
to the contrary, if any individual Lender determines, in its discretion
exercised in good faith, that it is unlawful under applicable law to make or
maintain LIBOR Rate Loans as contemplated by this Agreement, the affected
Lender (the “Affected Lender”) will provide prompt written notice of
such determination to Borrower and (A) the Affected Lender’s commitment
hereunder to make LIBOR Rate Loans, continue LIBOR Rate Loans as such and
convert Prime Rate Loans to LIBOR Rate Loans will thereupon terminate and (B) the
Affected Lender’s Loans then outstanding as LIBOR Rate Loans, if any, will be
converted automatically to Prime Rate Loans on the respective last days of the
then current Loan Period with respect to such Loans.

 

(viii)        Notwithstanding
Section 3.2.1(i)(b) or Section 3.2.1(vi), no
portion of the Loans which represents Agent Advances, Interim Advances or any
unreimbursed drawings under any Letter of Credit can be made as, converted
into, or continued as, a LIBOR Rate Loan. 
Borrower shall not request, and no Loan will be made as, converted into,
or continued as, a LIBOR  Rate  Loan:  (a)  when  an  Event  of  Default  has  occurred  and  is 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 which
has notified Borrower under Section 3.2.1(vii) that it is unlawful
for the Affected Lender to make such LIBOR Rate Loan.

 

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

 

52

 

	
  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 the
purpose of determining the Applicable LIBOR Rate Margin, the Applicable Prime
Rate Margins, the Applicable LOC Fee, and the Applicable Unused Commitment Fee,
the Fixed Charge Coverage Ratio will, after the date of this Agreement, be
determined as of the end of each Fiscal Quarter occurring during the term of
this Agreement (the end of each Fiscal Quarter being a “Determination Date”).  The first Determination Date after the date of
this Agreement is April 19, 2008 (the “Initial Determination Date”).  The Fixed Charge Coverage Ratio will be
determined as of each Determination Date. 
On Agent’s receipt of Borrower’s financial statements required to be
delivered to Agent pursuant to Section 8.5 (in the case of a
Determination Date occurring as of the end of a Fiscal Quarter other than the
last Fiscal Quarter of a Fiscal Year) and Section 8.7 (in the case
of a Determination Date occurring as of the end of the last Fiscal Quarter of a
Fiscal Year), the Applicable LIBOR Rate Margin, the Applicable Prime Rate
Margins, the Applicable LOC Fee, and the Applicable Unused Commitment Fee will
be subject to adjustment in accordance with the table set forth in this Section 3.2.2
based on the then Fixed Charge Coverage Ratio (provided,
however, that notwithstanding anything to the contrary herein, no
decrease in the Applicable LIBOR Rate Margin, the Applicable Prime Rate
Margins, the Applicable LOC Fee, and/or the Applicable Unused Commitment Fee that
otherwise would be made as of any Determination Date shall become effective as
of such Determination Date if an Event of Default has occurred and is
continuing as of such Determination Date, and such decrease shall thereafter
take effect only if such Event of Default is cured or otherwise waived in
writing by the Lenders in accordance with the terms of this Agreement and no
other Events of Default are then continuing, such decrease to take effect as of
the effective date of such cure or waiver, as applicable).  The foregoing adjustment, if applicable, to
the Applicable LIBOR Rate Margin, the Applicable Prime Rate Margins, the
Applicable LOC Fee and the Applicable Unused Commitment Fee will become
effective for LIBOR Rate Loans 

 

53

 

made, the
unpaid principal balance of Prime Rate Loans and other Obligations outstanding,
Unused Commitment Fees accruing, and LOC Fees due with respect to Letters of
Credit issued or renewed, on and after the first day of the first Fiscal Period
following delivery to Agent of Borrower’s financial statements required to be
delivered to Agent pursuant to Section 8.5 (in the case of the
Determination Date occurring as of the end of a Fiscal Quarter other than the
last Fiscal Quarter of a Fiscal Year) and Section 8.7 (in the case
of the Determination Date occurring as of the end of the last Fiscal Quarter of
a Fiscal Year) until the next succeeding effective date of adjustment pursuant
to this Section 3.2.2.  Each
of the financial statements required to be delivered to Agent must be delivered
to Agent in compliance with Sections 8.5 and 8.7.  If Borrower, however, has not timely
delivered its financial statements, then, at Agent’s option, commencing on the
date upon which such financial statements should have been delivered in
accordance with Sections 8.5 or 8.7 and continuing until
such financial statements are actually delivered in accordance with Sections 8.5
or 8.7, it shall be assumed for purposes of determining the Applicable
LIBOR Rate Margin, the Applicable Prime Rate Margins, the Applicable LOC Fee,
and the Applicable Unused Commitment Fee that the Fixed Charge Coverage Ratio
was less than 1.15 to 1.0 and Price Level I will be applicable on the then
applicable Determination Date.  Borrower
hereby agrees that if at any time after receipt by Agent of any audited
Financials required to be delivered hereunder, Agent determines in its
reasonable discretion that an unjustified reduction in the Applicable Margins
has been granted to Borrower, Borrower shall pay upon demand therefore (and in
no event later than the Business Day immediately succeeding the date such
demand is made) an amount equal to the difference between (i) the interest
amount that should have been paid by Borrower for such period but for such
unjustified reduction in the Applicable Margins and (ii) the interest
amount actually paid by Borrower for such period.  As of the date of this Agreement, (a) the
Applicable LIBOR Rate Margin is 1.75% per annum; (b) the Applicable Prime
Rate Margin for Revolving Loans and Interim Advances is 0.00% per annum; (c) the
Applicable Prime Rate Margin for all other Obligations (including Agent
Advances) is 0.00% per annum; (e) the Applicable LOC Fee is 1.75% per
annum; and (f) the Applicable Unused Commitment Fee is 0.25% per annum.

 

3.2.3              Default
Rate.  Commencing automatically and
without notice upon the occurrence of an Event of Default pursuant to any of Sections
11.1(a), 11.1(e) or 11.1(f), or upon written notice from
Agent (in its discretion or at the direction of Required Lenders) or Required
Lenders upon or at any time during the continuance of any other Event of
Default, the per annum rates of interest applicable at all times thereafter
during the continuance of such Event of Default shall be the applicable rates
of interest set forth above in Section 3.2.1 plus an additional
2.00% with respect to all Obligations (the “Default Rate”).

 

3.3           Interest
Payment Dates.  Interest on all
Obligations shall be paid on the Interest Payment Dates for such Obligations
and upon the payment or prepayment thereof or the conversion of a Loan to a
Loan of another Type; provided, however, that any interest accrued or accruing at the
Default Rate, or accrued or accruing on or after the Maturity Date, shall be
payable on the earlier of the applicable Interest Payment Date or demand by
Agent.

 

3.4           Agent
Fees.  Borrower will pay to Agent the
fees as set forth in the Fee Letter.

 

54

 

3.5           Closing
Fee.  Borrower will pay to Agent for
the ratable account of the Lenders a non-refundable, fully-earned closing fee
in the total amount of $125,000 on the date of this Agreement.

 

3.6           Unused
Commitment Fee.  Commencing on the
first day of the first calendar month immediately following the Closing Date
and continuing on the first Business Day of each and every calendar month
thereafter until the Obligations are Paid in Full, Borrower will pay to Agent
for the account of the Revolving Credit Lenders (ratably in accordance with
their respective Revolving Credit Commitment Percentages) a fee (“Unused
Commitment Fee”) in an amount equal to the result obtained by multiplying (i) the
difference between (a) the then Revolving Credit Commitments and (b) the
average daily Revolving Loans advanced to Borrower during the preceding
calendar month (or portion thereof during which any portion of the Revolving
Loans (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 result
obtained (expressed as a percentage) by multiplying the Applicable Unused
Commitment Fee by a fraction, the numerator of which is the sum of days in such
calendar month during which this Agreement was in full force and effect (or
during which any portion of the Revolving Loans including any Interim Advances
and the then Letter of Credit Exposure was outstanding) and the denominator of
which is 360.

 

3.7           Letter
of Credit Fees.  Borrower will pay (i) to
LC Issuer for its own account, with respect to each Letter of Credit, a
one-time fronting fee (“Fronting Fee”) equal to 0.125% of the face
amount of each such Letter of Credit and (ii) to Agent for the account of
the Revolving Credit Lenders (ratably in accordance with their respective
Revolving Credit Commitment Percentages) a fee (“LOC Fee”) equal to the
then Applicable LOC Fee on the amount available to be drawn under each Letter
of Credit from, and including, the issuance date of the Letter of Credit to and
including the expiry date thereof.  In
addition, Borrower will pay to LC Issuer, on its demand for payment, LC Issuer’s
then current issuance, opening, closing, transfer, amendment, draw, renewal,
negotiation and other letter of credit administration fees, charges and out of
pocket expenses with respect to each Letter of Credit.  The Fronting Fee is fully earned by LC Issuer
when paid and will be due and payable upon issuance of each Letter of
Credit.  The LOC Fee is fully earned by
Agent for the benefit of the Lenders when paid and will be due and payable in
respect of each Standby Letter Credit, monthly in arrears based on the amount
available to be drawn under each Standby Letter of Credit during the previous
calendar month, payable on the first day of each calendar month, commencing
with the first calendar month occurring after the calendar month in which the
Standby Letter of Credit is issued, and on the date the Obligations are Paid in
Full.  The LOC Fee will be calculated on
the basis of the actual number of days elapsed in a 360-day year.

 

3.8           Calculation
of Certain Charges.  Interest on the
Loans and other Obligations shall be charged for the actual number of days
elapsed over a year of 360 days on the actual daily balance of such Loans and
other Obligations.  Interest on the
unpaid principal balance of the Loans and other Obligations shall accrue from
the date such Loan is made or Obligation occurs to the date such Loan or other
Obligation 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 be
paid in accordance with such Sections, all such charges and other fees shall be
paid in arrears.

 

55

 

3.9           Payment
in Full on Maturity Date.  On the
Maturity Date, (i) Payment in Full shall automatically and immediately
become due and payable, and (ii) Agent’s and the Lenders’ obligations
under this Agreement and the other Loan Documents will automatically and
immediately terminate (other than in respect of any outstanding Letter of
Credit Exposure), without notice or demand, which Borrower hereby expressly
waives.  On the Maturity Date, Borrower
will make Payment in Full.

 

3.10         Maximum
Rate.  If, at any time, the rate of
interest contracted for, and computed in the manner provided, in this Section 3
(“Applicable Rate”), together with all fees and charges as provided for
herein or in any other Loan Document (collectively, the “Charges”),
which are treated as interest under applicable law, exceeds the maximum lawful
rate (the “Maximum Rate”) allowed under applicable law, it is agreed
that such contracting for, charging or receiving of such excess amount was an
accidental and bona fide error and the provisions of this Section 3.10
will govern and control.  The rate of
interest payable hereunder, together with all Charges, shall be limited to the
Maximum Rate; provided, however,
that any subsequent reduction in the Prime Rate plus the Applicable Prime Rate
Margins then in effect or the LIBOR Rate plus the Applicable LIBOR Rate Margin
then in effect shall not reduce the Applicable Rate below the Maximum Rate
until the total amount of interest earned hereunder, together with all Charges,
equals the total amount of interest which would have accrued at the Applicable
Rate 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 applicable
law, then all excess amounts theretofore collected by Agent shall be credited
on the principal balance of the Obligations (or, if all sums owing hereunder
have been paid in full, refunded to Borrower), and the amounts thereafter
collectible hereunder shall immediately be deemed reduced, without the
necessity of the execution of any new document, so as to comply with applicable
law and permit the recovery of the fullest amount otherwise called for
hereunder.

 

4.             PAYMENTS;
APPORTIONMENT OF PAYMENTS; DEFAULTING LENDER

 

4.1           Payments by Borrower.

 

4.1.1              Payment.  Except to the extent otherwise provided
herein, all payments of principal, interest and other amounts to be made by
Borrower under this Agreement and the Notes, and, except to the extent otherwise
provided therein, all payments to be made by Borrower under any other Loan
Document, shall be made in Dollars, in immediately available funds, without
deduction, set-off, offset, recoupment or counterclaim, to Agent, not later
than 1:00 p.m. (Los Angeles time), on the date on which such payment shall
become due (each such payment made after such time on such due date to be
deemed to have been made on the next succeeding Business Day) and any
applicable interest or fee shall continue to accrue until such following
Business Day.

 

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

 

56

 

4.1.3              Charging
of Accounts.  Borrower hereby
irrevocably authorizes Agent, at Agent’s option, to charge any account of
Borrower at U.S. Bank or charge or increase the Revolving Loans (as Prime Rate
Loans) 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 LC
Issuer under the Loan Documents, and any or all of the other Obligations.

 

4.2           Settlement
with Lenders.  On a weekly basis (or
more frequently if required by Agent) (a “Settlement Date”), Agent shall
provide each Lender with a statement of the outstanding balance of the
Revolving Loans (including any Overadvances) and any Interim Advances and any
Agent Advances as of the end of the Business Day preceding the Settlement Date
(the “Pre-Settlement Determination Date”) and the current balance of the
Revolving Loans (including Overadvances) and any Agent Advances actually funded
by each Lender (whether made directly by such Lender to Borrower or
constituting a settlement by such Lender of a previous Interim Advance made by
Agent 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 balance
of the Revolving Loans (including any Overadvances) exceeds such Lender’s Revolving
Credit Commitment Percentage of the Revolving Loans (including any
Overadvances) and Interim Advances or (ii) any Agent Advances actually
funded by such Lender as of the Pre-Settlement Determination Date exceeds such
Lender’s Agent Advance Exposure Percentage of any Agent Advances outstanding as
of the Pre-Settlement Determination Date, then Agent shall on the Settlement
Date, 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 such
Lender in accordance with such Lender’s instructions.  If such statement discloses that (a) such
Lender’s current balance of the Revolving Loans (including any Overadvances) as
of the Pre-Settlement Determination Date is less than such Lender’s Revolving
Credit Commitment Percentage of the Revolving Loans (including any
Overadvances) and Interim Advances or (b) such Lender’s Agent Advances
actually funded by such Lender as of the Pre-Settlement Determination Date is
less than such Lender’s Agent Advance Exposure Percentage of the Agent Advances
outstanding as of the Pre-Settlement Determination Date, then such Lender shall
on the Settlement Date, 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 Agent in accordance with Agent’s instructions.  Each Lender acknowledges and agrees that its
obligation to make payments under this Section 4.2 in respect of
settled Loans is absolute and unconditional and shall not be affected by any
circumstance whatsoever, including the occurrence and continuance of an Event
of Default, the failure of any condition in Section 5 to be
satisfied, any reduction or termination of the Revolving Credit Commitments or
a reduction in the Revolving Credit Availability, and that each such payment
shall be made without offset, abatement, withholding or reduction
whatsoever.  The statements provided by
Agent to Lenders pursuant to this Section 4.2 shall be prima facie
evidence of the existence and amounts set forth therein.  In addition, payments actually received by
Agent with respect to the following items shall be distributed by Agent to
Lenders as follows:

 

(1)           [Reserved.];

 

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

 

57

 

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

 

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

 

(4)           Within
one Business Day after receipt thereof by Agent, payment to be applied to the
LOC Fee set forth in Section 3.7.

 

4.3           Pro Rata Treatment;
Application of Payments.

 

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

 

(a)           first,
to pay any Agent Advances or Interim Advances, interest, fees, expenses or
indemnities 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 due
to 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 under
the 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) with
respect to any Rate Hedging Agreement entered into with any Credit Party, until
paid in full;

 

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

 

58

 

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

 

(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 Hedging
Agreement owing to any Lender (or any Affiliate thereof);

 

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

 

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

 

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

 

4.3.2              Sharing
of Payments or Collateral.  If any
Lender (a “Benefited Lender”) at any time receives any payment of all or
part of its Loans or other Obligations owing to it, any interest on those
amounts, or any collateral in respect of any or all of the foregoing (whether voluntarily
or involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in Sections 11.1(i)(e) or 11.1(i)(f), or
otherwise), in a greater proportion than any payment to or collateral received
by any other Lender, if any, in respect of the other Lender’s Loans or other
Obligations 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 a
participating interest in that portion of each other Lender’s Loans or other
Obligations owing to each of them, as the case may be, or (ii) provide the
other Lenders with the benefits of any collateral, or the proceeds of any
collateral obtained by the Benefited Lender, as is necessary to cause the
Benefited Lender to share the excess payment or benefits of the applicable
collateral or proceeds ratably with each of the Lenders; however,
if all or any portion of that excess payment or benefits is thereafter
recovered from the Benefited Lender, the purchase by the Benefited Lender from
the other Lenders will be rescinded, and the purchase price and benefits
returned, to the extent of such recovery, but without interest unless the
Benefited Lender is obligated to pay interest to the applicable Person in which
case the other Lenders will pay their pro rata share of the interest payment.

 

4.4           Non-Receipt
of Funds from Borrower.  Unless Agent
shall have received notice from Borrower prior to the date on which any payment
is due to Agent for the account of the Lenders, LC Issuer or Agent hereunder
that Borrower will not make such payment, Agent may assume that Borrower has
made such payment on such date in accordance herewith and may, in reliance upon
such assumption, distribute to the Lenders, LC Issuer or Agent, as the case may
be, the amount due.  In such event, if
Borrower has not in fact made such payment, then each of the Lenders, LC Issuer
or Agent, as the case may be, severally agrees to repay to Agent forthwith on
demand the amount so distributed to such Lender, LC Issuer or Agent with
interest thereon, for each day from and including the date such amount is
distributed to it to but excluding the date of 

 

59

 

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

 

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

 

4.6           No
Third Party Beneficiary.  The
provisions of Sections 4.2, 4.3, 4.4 and 4.5
are solely for the benefit of Agent, LC Issuer and the Lenders, and neither
Borrower nor any other Credit Party will not have any rights as third party
beneficiary of any of the provisions thereof.

 

5.             PRECONDITIONS
TO CREDIT EXTENSIONS

 

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

 

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

 

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

 

(iii)              a
copy of resolutions of the board of directors of Borrower and of each other
Credit Party, duly adopted, which authorize the execution, delivery and
performance 

 

60

 

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

 

(iv)             a
copy of the articles of incorporation of Borrower, including any amendments
thereto, certified by the Secretary of State of the State of  California as of a date within 10 days prior to the Closing
Date;

 

(v)              a
copy of the bylaws of Borrower, including any amendments thereto, certified by
the Secretary of Borrower as being in full force and effect as of the Closing
Date;

 

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

 

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

 

(viii)           a
copy of the certificate or articles of incorporation, as applicable, of each
Affiliate Guarantor, including any amendments thereto, certified by the
Secretary of State of the State of  Delaware or
California, as applicable, as of a date within 30 days prior to the Closing
Date;

 

(ix)              a
copy of the bylaws of each Affiliate Guarantor, including any amendments
thereto, certified by the Secretary of such Affiliate Guarantor as being in
full or force and effect as of the Closing Date;

 

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

 

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

 

(xii)             an
opinion of counsel of Morrison and Foerster, special counsel to Borrower and
each Affiliate Guarantor, in form and substance satisfactory to Agent and Agent’s
counsel;

 

(xiii)            the
initial Borrowing Base Certificate required by Section 8.3;

 

(xiv)            the
initial Advance Request required by Section 2.5;

 

61

 

(xv)             evidence
of the proper filing of financing statements perfecting first priority security
interests in favor of Agent for the ratable benefit of the Secured Parties in
all of the Loan Collateral;

 

(xvi)            termination
statements for all financing statements filed of record against Borrower and
each Affiliate Guarantor other than financing statements relating to Permitted
Liens or as otherwise permitted under Section 10.26, or a payoff
letter, in form and substance reasonably satisfactory to Agent, from the holder
of any such Lien, authorizing Agent to file a termination statement with
respect to the financing statement of such creditor upon such creditor’s
receipt of the payoff amount indicated in such payoff letter;

 

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

 

(xviii)          copies
of all financial statements and other Exhibits and Schedules required by this
Agreement and the other Loan Documents (including interim financial statements
through the third Fiscal Quarter of 2007);

 

(xix)            a
letter of direction from Borrower with respect to the disbursement of the
proceeds of the initial Credit Extensions under this Agreement;

 

(xx)             if
available from the landlord, warehouseman or bailee, as applicable, using
commercially reasonable efforts, such landlord access agreements, warehouse
agreements or bailee agreements, as applicable, as Agent may reasonably require
regarding 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)            a
pay-off letter from General Electric Capital Corporation, in form and substance
reasonably satisfactory to Agent;

 

(xxii)           evidence
satisfactory to Agent and the Lenders that at closing the sum of (a) Revolving
Credit 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 of
debts to be paid at closing) and after subtracting therefrom the total, as of
such date, of the amount, if any, of (1) Borrower’s accounts payable which
remain unpaid greater than 90 days past the original invoice date and (2) any
book overdraft of Borrower relating to accounts payable more than 90 days past
the original invoice date applicable thereto;

 

(xxiii)          evidence
of (a) the capital structure of Parent Guarantor and each of its
Subsidiaries and (b) the material terms of all Indebtedness of each of the
Credit Parties, as reasonably requested by Agent, acceptable to Agent and the
Lenders;

 

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

 

62

 

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

 

(xxv)           collateral
audits, satisfactory to Agent, prepared by an independent firm engaged directly
by Agent; and

 

(xxvi)          such
other agreements, documents, instruments and certificates as Lenders may
reasonably request.

 

5.2           General
Conditions.  In addition to any other
provisions contained in this Agreement, the making of any Credit Extension
under this Agreement will be subject to the existence or fulfillment as of the
date of such Credit Extension to the reasonable satisfaction of Agent, LC
Issuer and the Lenders of each of the following conditions:

 

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

 

(ii)               No
Event of Default has occurred and is continuing;

 

(iii)              No
Material Adverse Change shall have occurred and is continuing since November 3,
2007;

 

(iv)             No
law or regulation prohibits, and no order, judgment or decree of any arbitrator
or Governmental Authority enjoins or restrains Agent or the Lenders, from
making the requested advance; and

 

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

 

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

 

6.             SECURITY

 

6.1           Security
Documents.  The Obligations shall be
secured (in such order as may be determined by Agent in its discretion) by a
first priority Lien on all Loan Collateral (subject to Permitted Liens),
including:

 

(i)                a
first priority (a) security interest in all of the Collateral pursuant to
the Security Agreement dated as of the date of this Agreement between each
Credit Party (other than Westaff UK) and Agent, for the benefit of the Secured
Parties (the “Security 

 

63

 

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

 

(ii)               a
first priority security interest in (a) all of the Trademark Collateral,
as defined in the Trademark Security Agreement dated as of the date of this
Agreement between Borrower and Agent, for the benefit of the Secured Parties
(the “Borrower Trademark Security Agreement”), (b) all of the
Trademark Collateral, as defined in the Trademark Security Agreement dated as
of the date of this Agreement between Parent Guarantor and Agent, for the
benefit of the Secured Parties (the “Parent Guarantor Trademark Security
Agreement”), and (c) all of the Trademark Collateral, as defined in
the Trademark Security Agreement dated as of the date of this Agreement between
Westaff Support and Agent, for the benefit of the Secured Parties (the “Westaff
Support Trademark Security Agreement”; and together with the Borrower
Trademark Security Agreement and the Parent Guarantor Trademark Security
Agreement, the “Trademark Security Agreements”); and

 

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

 

7.             RECEIVABLES;
COLLECTION OF RECEIVABLES; DISPUTED RECEIVABLES;

 

7.1           Agreements
Regarding Receivables.  Borrower may
not backdate, postdate or redate any of its invoices or statements.  Borrower may not make any sales on extended
dating or credit terms beyond that customary in the ordinary course of Borrower’s
business.  In addition to the Borrowing
Base Certificate to be delivered in accordance with Section 8.3,
Borrower shall notify Agent promptly upon Borrower’s learning thereof, in the
event any Eligible Receivable in an amount in excess of $250,000 becomes
ineligible for any reason, other than the aging of such Receivable, and of the
reasons for such ineligibility.  Borrower
shall also notify Agent promptly of all material disputes and claims with
respect to its Receivables (other than with respect to any individual
Receivable in an amount not in excess of $250,000), and Borrower will settle or
adjust such material disputes and claims at no expense to Agent or the Lenders;
however, Borrower may not, without Agent’s
consent, grant (i) any discount, credit or allowance in respect of its
Receivables (a) which is outside the ordinary course of business and (b) which
discount, credit or allowance exceeds an amount equal to $100,000 in the
aggregate with respect to any individual Receivable or (ii) any materially
adverse extension, compromise or settlement to any customer or account debtor
with respect to any then Eligible Receivable, other than in respect to any such
individual Receivable in an amount not in excess of $250,000.  Nothing permitted by this Section 7.1
or Section 7.2, however, may be construed to alter in any way the
criteria for Eligible Receivables provided in Section 1.1.

 

64

 

7.2           [Reserved.]

 

7.3           Locked
Box.  Borrower has obtained and shall
continue to maintain during the term of this Agreement the post office boxes at
the U.S. Post Office bearing the following addresses: U.S. Bank National
Association, P.O. Box 52372,
St. Louis, MO 63195-2373 and U.S. Bank National Association, P.O. Box
54618, Los Angeles, CA 90054-0619, or such other addresses as Agent may notify
Borrower from time to time (the “Locked Box”).  Borrower shall notify all of its customers
and 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 may
require from time to time).  Immediately
upon receipt thereof, Borrower shall deposit all other proceeds of Receivables
owing to Borrower or other Loan Collateral of Borrower into the Locked Box (or
into the Special Account, as defined below). 
Agent shall have sole access to the Locked Box at all times, and
Borrower shall take all action necessary to grant Agent such sole access. At no
time shall Borrower remove any item from the Locked Box without Agent’s prior
written consent, and Borrower shall not notify any customer or account debtor
of Borrower to pay any Remittance owing to Borrower to any other place or
address without Agent’s prior written consent. 
If Borrower should neglect or refuse to notify any customer or account
debtor of Borrower to pay any Remittance owing to Borrower to the Locked Box,
Agent shall be entitled to make such notification. Borrower hereby grants to
Agent an irrevocable power of attorney, coupled with an interest, to take in
Borrower’s name all action necessary to (a) grant Agent sole access to the
Locked Box, (b) contact account debtors to pay any Remittance to the
Locked Box in the event that any such account debtor is not paying any such
Remittance to the Locked Box, (c) contact account debtors for any reason
upon the occurrence of an Event of Default and (d) endorse each Remittance
delivered to the Locked Box for deposit to the Special Account.

 

7.4           Special
Account.  Upon collection of
Remittances owing to Borrower and other proceeds of Receivables owing to
Borrower and other Loan Collateral of Borrower from the Locked Box, Agent shall
deposit the same in a non-interest bearing account at U.S. Bank in the name of
Westaff (USA), Inc. pledged to Agent using Borrower’s Federal tax
identification number, Account No. 15349052669 (the “Special Account”).  Any Remittance owing to Borrower or other
proceeds of Receivables or other Loan Collateral received by Borrower shall be
deemed held by Borrower in trust and as fiduciary for Agent, and Borrower
immediately shall deliver the same, in its original form, to Agent for deposit
into the Special Account by overnight delivery carrier.  Pending such deposit, Borrower agrees that it
will not commingle any such Remittance or other proceeds of Receivables owing
to Borrower or other Loan Collateral of Borrower with any of Borrower’s other
funds or property, but will hold it separate and apart therefrom in trust for
Agent until deposit is made into the Locked Box or Special Account or until
delivery is made to Agent by overnight delivery carrier as described
above.  All deposits to the Special
Account and the Locked Box shall be subject only to the signing authority
designated from time to time by Agent, and Borrower shall have no control over
such deposits or funds. Agent shall have sole access to the Special Account and
the Locked Box, and Borrower shall have no access thereto.  Agent shall have, and Borrower hereby grants
to Agent, a Lien on and security interest in all funds held in the Special
Account and the Locked Box as security for the Obligations. The Special Account
shall not be subject to any deduction, set-off, banker’s lien or any other
right in favor of any Person other than Agent. 
Deposits to the Special Account shall be applied to the Obligations in
accordance with Section 4.3.1. 
Any funds in the Special Account 

 

65

 

remaining after payment
of 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 Event
of Default, all Available Funds may, at Agent’s option, be retained in the
Special Account as continuing security for the Obligations.  If any Remittance deposited in the Special
Account is dishonored or returned unpaid for any reason, Agent, in its
discretion, may charge the amount of such dishonored or returned Remittance
directly against Borrower and any account maintained by Borrower with U.S. Bank
and such amount shall be deemed part of the Obligations.  Agent shall not be liable for any loss or
damage resulting from any error, omission, failure or negligence on the part of
Agent with respect to the operation of the Special Account, the Locked Box, or
the services to be provided by Agent under this Agreement, except to the
extent, but only to the extent, of any direct, as opposed to any consequential,
special or lost profit damages suffered by Borrower from Agent’s gross
negligence or willful misconduct.  Until
a 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 such
regulations and procedures as it may deem reasonable and appropriate with
respect to the operation of the Special Account, the Locked Box, and the
services to be provided by Agent under this Agreement so long as the adoption
of such regulations and procedures will not change the material terms of this
Agreement and are applied to similarly situated borrowers.

 

7.5           Crediting
of Remittances.  For the purpose of
calculating interest and determining Revolving Credit Availability, all
Remittances and other proceeds of Receivables owing to Borrower and other Loan
Collateral of Borrower shall be credited (conditional on final collection)
against the unpaid Revolving Loan balance on the same Business Day that Agent
received the same into the Locked Box or the Special Account (subject to Agent’s
receipt of such funds no later than 12:00 p.m. noon (Los Angeles time) on
such day and subject to any other applicable Business Day cut-offs established
from 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 to
the Special Account are subject to applicable laws and regulations governing
availability of funds and Agent’s funds availability polices and may not be
immediately available for application to the Loans or the other Obligations.

 

7.6           Cost
of Collection.  All reasonable costs
of collection of Borrower’s Receivables, including Attorneys’ Fees,
out-of-pocket expenses, administrative and recordkeeping costs, and all service
charges and costs related to the establishment and maintenance of the Locked
Box 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 Borrower
with Agent and the same shall be deemed part of the Obligations.

 

7.7           Cash
Management Services.  During the term
of this Agreement, Borrower will contract with U.S. Bank to obtain U.S. Bank’s
then current: (i) automated balance and information reporting system and (ii) positive
pay, reverse positive pay, check filter, ACH filter and block, and other
similar anti-fraud, cash management products, in each case in connection with
the operation of the various cash management systems contemplated by this
Agreement.

 

66

 

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

 

7.9           Monthly
Activity.  Agent will provide
Borrower monthly with a statement of advances, charges and payments made
pursuant to this Agreement, and such account rendered by Agent shall be
rebuttably presumptive evidence of the amount of the Obligations owing and
unpaid by Borrower and shall be deemed to be an account stated and binding as
against Borrower unless a written statement of Borrower’s or Agent’s exceptions
is received by the other within 60 days after the statement is mailed to
Borrower; however, Agent will have no obligation
to correct any error or errors specified by Borrower unless Agent, in its
discretion exercised in a commercially reasonable manner, believes that an
error was made.  If any error is a
manifest error, Borrower or Agent shall have one year to raise the exception.

 

8.             EXAMINATION
OF LOAN COLLATERAL; REPORTING.

 

8.1           Maintenance
of Books and Records.  Borrower and
Parent Guarantor shall, and Parent Guarantor shall cause each other Credit
Party to, keep and maintain complete books of account, records and files with
respect to its business in accordance with GAAP consistently applied and shall
accurately and completely record all transactions therein.

 

8.2           Access
and Inspection.  Agent, and following
the 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 the
right to examine and inspect, all of Borrower’s and each other Credit Party’s
real 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’s
records, files and books of account, and Borrower and Parent Guarantor shall,
and Parent Guarantor shall cause each other Credit Party to, execute and
deliver at the request of any Agent, or, if applicable, the Lenders such
instruments as may be necessary for Agent or such Lender to obtain such
information concerning the business of the Credit Parties as Agent or such
Lender may require from any Person; however, unless
an Event of Default has occurred and is continuing, Agent will give Borrower
reasonable prior notice before it makes the inspections and examinations at any
office or place of business of Borrower or any other Credit Party and Agent
shall not conduct more than two (2) such inspections and examinations in
any calendar year.  Borrower and Parent
Guarantor, shall, and Parent Guarantor shall cause each other Credit Party to,
furnish Agent at reasonable intervals with such statements and reports
regarding the Credit Parties’ financial condition and the results of the Credit
Parties’ operations, in addition to those hereinafter required, and such other
information as Agent, and following the occurrence and during the continuation
of an Event of Default, the Lenders, may reasonably request from time to time.

 

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

 

67

 

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

 

8.4           Loss
Analysis Report.  Promptly when
available and in any event not later than 30 days after the end of each Fiscal
Period, Borrower shall deliver to Agent, a report (i) detailing claims
incurred under the Loss Analysis Report, substantially in the form attached
hereto as Exhibit I during such Fiscal Period, and (ii) indicating
loss per $100 of payroll for such Fiscal Period.

 

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

 

8.6           Annual
Projections.  Promptly when available
and in any event not later than the date approved by Parent Guarantor’s board
of directors (which shall not be later than 30 days after the end of each
Fiscal Year), Parent Guarantor shall deliver to Agent detailed projections for
the next Fiscal Year, in consolidated and consolidating form, setting forth
projected income 

 

68

 

and cash flow for each
Fiscal Period, the operating budget and the balance sheet for Parent Guarantor
and its Subsidiaries and the borrowing availability of Borrower for each Fiscal
Period, in each case accompanied by a certificate of Parent Guarantor’s chief
financial officer, countersigned by Parent Guarantor’s chief executive officer,
stating (i) the assumptions on which the projections were prepared, (ii) that
the assumptions, except as otherwise noted, were prepared on a consistent basis
with the operation of the business of Parent Guarantor and its Subsidiaries
during the immediately preceding Fiscal Year and adjusted by factors known to
exist as of the date of the certificate or reasonably anticipated to exist
during the periods covered by the projections, and (iii) that the officer
signing the certificate has no reason to believe that the projections are
incorrect or misleading in any material respect.  Such projections shall be prepared by Parent
Guarantor in light of the past operations of the businesses of Parent Guarantor
and its Subsidiaries, but including future payments of known contingent
liabilities. Such projections shall be based upon estimates and assumptions
stated therein, all of which Parent Guarantor shall believe to be reasonable
and fair in light of then current conditions and then current facts known to
Parent Guarantor and shall reflect Parent Guarantor’s good faith and reasonable
estimates of the future financial performance of Borrower and of Parent
Guarantor and its Subsidiaries (taken as a whole) and of the other information
projected therein for the period set forth therein.

 

8.7           Annual
Financial Statements.  Promptly when
available and in any event not later than the later of (x) 90 days after
the end of each of Parent Guarantor’s Fiscal Years or (y) the period then
allowed for fiscal annual reporting to the SEC per SEC Regulation S-K, Parent
Guarantor shall deliver to Agent financial statements showing the financial
condition, the results of operations, a balance sheet and related statements of
income, stockholders’ equity, and changes in cash flows and financial position
for 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 sheets
and related statements of income, consolidating) basis, and setting forth in
comparative form, the figures for the previous Fiscal Year.  All of the foregoing annual financial
statements must be: (i) audited in accordance with generally accepted
auditing standards by an independent certified public accounting firm
acceptable to Agent (provided that
the accompanying consolidating balance sheets and statements of income shall be
unaudited), (ii) prepared and presented in accordance with GAAP
consistently applied and (iii) accompanied by an unqualified audit report
of Borrower’s independent certified public accountants.

 

8.8           Management
Reports.  Parent Guarantor shall
furnish to Agent promptly on receipt, copies of all management letters
accompanying the annual audited financial statements required to be delivered
pursuant to Section 8.7. 
Parent Guarantor hereby authorizes Agent and the Lenders to communicate
directly with Parent Guarantor’s independent accountants to discuss the Parent
Guarantor’s affairs, finances, accounts and such other matters of or related to
Parent Guarantor and its Subsidiaries as Agent and the Lenders deem necessary,
provided, that Agent shall use commercially reasonable efforts to notify Parent
Guarantor prior to any such communication.

 

8.9           Comparisons
to Financials; Certificates.  With
each quarterly or annual financial statement delivered by Parent Guarantor to
Agent under Sections 8.5 and 8.7, Parent Guarantor will
deliver to Agent: (i) a comparison prepared by Parent Guarantor of the
projected financial position and results of operations provided for in Section 8.6
with the actual financial position 

 

69

 

and results of operations
for the applicable period and an explanation of any material variations between
them; (ii) a comparison prepared by Parent Guarantor between actual
calculated results for the applicable Fiscal Quarter or Fiscal Year, as
applicable, and the covenanted results for each of the Financial Covenants (as
defined in Section 10.28); and (iii) a reconciliation prepared
by Parent Guarantor of the interim financial statements then submitted and the
reporting described in clause (ii) of the first sentence of Section 8.3.  Parent Guarantor shall also furnish Agent
together with all materials required pursuant to Sections 8.5, 8.6,
and 8.7, a certificate signed by the chief financial officer of Parent
Guarantor in the form of Exhibit E.

 

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

 

8.11         Actuarial
Analysis.  Semiannually, Borrower
shall deliver to Agent each actuarial report received by the Borrower, updating
Borrower’s reserve analysis of the retained workers’ compensation claim
exposure; provided, that it shall not be a Default or Event of Default
if the company generating such report refuses to disclose such report to Agent
so long as Borrower uses commercially reasonable efforts to obtain consent from
such company to disclose such report to Agent for its review but not reliance.

 

8.12         Public
Posting of Financial Statements. 
Documents required to be delivered pursuant to Section 8.5
and Section 8.7 (to the extent any such documents are included in
materials otherwise filed with the SEC) may be delivered electronically and if
so delivered, shall be deemed to have been delivered on the date on which
Parent Guarantor posts such documents, or provides a link thereto on Parent
Guarantor’s website on the Internet at Parent Guarantor’s website address of
westaff.com (or such other website address as Parent Guarantor may provide to
Agent in writing from time to time); provided, that:
(x) to the extent Agent is otherwise unable to receive any such
electronically delivered documents, Parent Guarantor shall, upon request by
Agent, deliver paper copies of such documents to Agent until a written request
to cease delivering paper copies is given by Agent and (y) Parent
Guarantor shall notify Agent (by telecopier or electronic mail) of the posting
of any such documents or provide to Agent by electronic mail electronic
versions (i.e., soft copies) of such documents.

 

9.             WARRANTIES
AND REPRESENTATIONS

 

In order to
induce Agent, LC Issuer and the Lenders to enter into this Agreement and to
make Credit Extensions hereunder, Parent Guarantor, on behalf of itself and the
other Credit Parties, and Borrower, on behalf of itself, warrants and
represents as of the Closing Date and as of the date of each Credit Extension
as follows.

 

9.1           Corporate
Status.  Each Credit Party (i) is
duly organized and is and shall remain validly existing and in good standing
under the laws of its state of organization, and is and shall remain qualified
to do business as a foreign corporation under the laws of the jurisdictions
listed 

 

70

 

on Schedule 9.1
and under the laws of each other jurisdiction in which the failure to be so
qualified and in good standing could reasonably be expected to cause or result
in a Material Adverse Effect, and (ii) has and shall maintain all
requisite power and authority, corporate or otherwise, to conduct its business,
to own its property, to execute, deliver and perform all of its obligations under
this Agreement and each of the other Loan Documents, and to grant the Liens on
the Loan Collateral provided by it.  No
Credit Party is an “investment company”, an “investment adviser” or a company “controlled”
by an “investment company” as such terms are defined in the Investment Company
Act of 1940, as amended.

 

9.2           Due
Authorization; Validity.  The signing
and delivery of the Loan Documents, the performance by each Credit Party of its
Obligations under the Loan Documents, and the grant of the Liens on or security
interests in, the Loan Collateral provided by each Credit Party have been duly
authorized by all requisite corporate or other action of each such Credit
Party.  This Agreement and each of the
other Loan Documents have been duly executed and delivered by each Credit
Party, and each will constitute, upon the due execution and delivery thereof,
the legal, valid, and binding obligations of such Credit Party enforceable in
accordance with their respective terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors’ rights generally.

 

9.3           No
Violation.  The execution, delivery
and performance by each Credit Party of this Agreement and the other Loan
Documents and the grant of the Liens on or security interests in the Loan
Collateral provided by each Credit Party, do not and will not (i) constitute
a violation of any applicable law except where such violation, in each case,
would not reasonably be expected to have a Material Adverse Effect, (ii) constitute
a breach of any provision contained in such Credit Party’s Articles or
Certificate of Incorporation, or bylaws or any governing or other organization
documents of such Credit Party, (iii) constitute a breach of any material
provision contained in any Applicable Agreement, (iv) constitute a
violation of any order of any court or other Governmental Authority, except
where such violation would not reasonably be expected to cause or have a
Material Adverse Effect, or (v) result in the creation or imposition of
any Lien on any of such Credit Party’s properties (other than (a) Agent’s
Liens and (b) any other Permitted Lien).

 

9.4           Use
of Loan Proceeds.  Borrower’s uses of
the proceeds of the Credit Extensions pursuant to this Agreement are, and will
continue to be, legal and proper uses (duly authorized by Borrower’s board of
directors).  Such uses do not and shall
not violate any applicable laws or statutes as in effect as of the date hereof
or hereafter.  The Loans are not and
shall not be secured, directly or indirectly, by any stock for the purpose of
purchasing or carrying any margin stock or for any purpose which would violate
either 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 each
such 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 its
business as heretofore and hereafter conducted by it, and (i) all of each
such Credit Party’s patents, copyrights, service marks, trademarks and trade
names (to the extent registered with the United States Patent and 

 

71

 

Trademark Office or the
United States Copyright Office or as to which an application for registration
has been recorded with the with the United States Patent and Trademark Office
or the United States Copyright Office, as applicable) and (ii) all
material licenses (excluding mass-market non-customized “shrinkwrap” licenses)
of any patent, copyright, service mark, trademark or trade name by each such
Credit Party, whether as licensor or licensee, existing as of the Closing Date
are described in Schedule 9.5.

 

9.6           Indebtedness.  Except for (i) Indebtedness identified
on Schedule 10.10, (ii) the Obligations, (iii) Indebtedness
(a) which is unsecured, (b) which is not for borrowed money, (c) which
has been incurred in the ordinary course of business, (d) which is not
otherwise prohibited under any provision of this Agreement and (e) the
nonpayment of or other default under which would not reasonably be expected to
cause or have a Material Adverse Effect, and (iv) other Indebtedness
permitted to be incurred or paid by Borrower pursuant to Section 10.10,
Borrower has no Indebtedness.  Except as (i) disclosed
on 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 by
endorsement of negotiable instruments payable at sight for deposit or
collection or similar banking transactions in the usual course of such Credit
Party’s business).

 

9.7           Title
to Property; No Liens.  Each such
Credit 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 Liens
except to the extent of Permitted Liens.

 

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

 

9.9           No
Violation of Law.  Except as
described on Schedule 9.9, no Credit Party is in violation of any
applicable statute, regulation or ordinance of any Governmental Authority
(including any Environmental Law), which violation would reasonably be expected
to cause or have a Material Adverse Effect.

 

9.10         Hazardous
Substances.  Except as described on Schedule 9.10,
(i) no investigations, inquiries, orders, hearings, actions or other
proceedings by or before any Governmental Authority are pending against or
otherwise naming any Credit Party as a party thereto or, to the knowledge of
each of Parent Guarantor and Borrower, threatened against any Credit Party nor,
to the knowledge of each of Parent Guarantor and Borrower, are pending or
threatened against or name any owner or third party lessor or sublessor of any
facility (including any Credit Party Facility) leased, subleased or otherwise
occupied by any Credit Party in 

 

72

 

connection with any
Environmental Activity or alleged Environmental Activity, and with respect to
any such investigations, inquiries, orders, hearings, actions or other
proceedings against the owner or third party lessor or sublessor of any such
facility, such investigations, inquiries, orders, hearings, actions or other
proceedings would reasonably be expected to cause or have a Material Adverse
Effect; (ii) no Hazardous Substances have been integrated into any of any
Credit Party’s Facilities in such manner or quantity as may reasonably be
expected to or in fact does violate any applicable Environmental Requirement
except such violations that, individually or in the aggregate, would not
reasonably be expected to cause or have a Material Adverse Effect; (iii) the
use of any Credit Party’s Facilities does not result in any Environmental
Activity in violation of any applicable Environmental Requirements that would
reasonably be expected to cause or have a Material Adverse Effect; (iv) to
each of Parent Guarantor’s and Borrower’s knowledge, no occurrence or condition
on any real property adjoining or in the vicinity of any of any Credit Party’s
Facilities exists which could reasonably be expected to cause any of any Credit
Party’s Facilities to be subject to any restrictions on ownership, occupancy or
operation under any Environmental Requirements that would reasonably be
expected to cause or have a Material Adverse Effect; (v) to each of Parent
Guarantor’s and Borrower’s knowledge, none of any Credit Party’s Facilities
prior to when such Credit Party has owned or leased them has been used for the
disposal of Hazardous Substances or was the site of any Release of Hazardous
Substances in violation of any Environmental Requirements that would reasonably
be expected to cause or have a Material Adverse Effect; (vi) none of any
Credit Party’s business operations have contaminated the lands, waters or other
property of others with Hazardous Substances except in compliance with
applicable Environmental Requirements that would reasonably be expected to
cause or have a Material Adverse Effect; (vii) no underground or above
ground 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 existence
of which would reasonably be expected to cause or have a Material Adverse
Effect; and (viii) none of any Credit Party’s Facilities, since such
Credit Party has owned or leased them, has been used by such Credit Party for
the production, treatment, storage, generation, disposal or Release of any
Hazardous Substance other than in compliance with applicable Environmental
Requirements that would reasonably be expected to cause or have a Material
Adverse Effect.

 

9.11         Absence
of Default.  No Credit Party is in
default under any material provision of any Applicable Agreement, nor has any
Credit Party received any notice of such breach, nor notice of any termination
or acceleration or demand for adequate assurances under any Applicable
Agreement.

 

9.12         Accuracy
of Financials; No Material Changes. 
The Financials (i) have been prepared in accordance with GAAP
consistently applied and are true, correct and complete in all material
respects and (ii) fairly present each Credit Party’s assets, liabilities
and financial condition and results of operations and those of such other
Persons described therein as of the date thereof (subject to normal year-end
adjustments and the lack of footnotes in the case of monthly or pro forma Financials). 
There are no omissions from the Financials or other facts or
circumstances not reflected in the Financials which are or may be material, and
there has been no material and adverse change in the assets, liabilities or
financial condition of the Credit Parties, taken as a whole, since the date of
the Financials nor has there been any material damage to or loss of any of the
assets or properties of the Credit Parties that are material to the operation
of the 

 

73

 

business of the Credit
Parties, since such date.  Borrower’s
Fiscal Year is the annual 52 or 53 week accounting period ending on the
Saturday nearest the end of October of each year.

 

9.13         Pension Plans.

 

(i)            Except as described on
Schedule 9.13, neither any Credit Party nor any Controlled Group
member has ever sponsored, maintained, or contributed (or become obligated to
sponsor, maintain, or contribute) to a Pension Plan subject to Title IV of
ERISA.  Neither any Credit Party nor any
Controlled Group member has ever sponsored, maintained, or contributed (or
become obligated to sponsor, maintain, or contribute) to any “multiemployer
plan” (as defined in ERISA). No “prohibited transaction,” or “reportable event”,
as those terms are defined by ERISA, has occurred or is continuing as to any
Pension Plan of any Credit Party or any Controlled Group member, which poses a
threat of the imposition of Taxes or penalties against such Pension Plans (or
trusts related thereto), such Credit Party or any Controlled Group member, the
imposition or payment of which could reasonably be expected to cause or have a
Material Adverse Effect.  Each Pension
Plan that is intended to meet the requirements of qualified pension benefit
plans under Sections 401(a) of the Internal Revenue Code has received
a current favorable determination letter or opinion letter of the Internal
Revenue Service upon which the Plan’s sponsor is entitled to rely to that
effect under the Internal Revenue Code, and neither such Credit Party nor, to
Borrower’s or Parent Guarantor’s knowledge (after making due inquiries), any
Controlled Group member has violated such requirements with respect to any
Pension Plan.

 

(ii)           Each Foreign Pension
Plan has been maintained in substantial compliance with its terms and with the
requirements of any and all applicable laws, statutes, rules, regulations and
orders and has been maintained, where required, in good standing with applicable
regulatory authorities.  All
contributions required to be made with respect to a Foreign Pension Plan have
been timely made.  Except as set forth in
Schedule 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 such
Foreign Pension Plan on the basis of actuarial assumptions, each of which is
reasonable, did not exceed the fair market value of the assets of such Foreign
Pension Plan, and for each Foreign Pension Plan which is not funded, the
obligations of such Foreign Pension Plan are properly accrued on the financial
statements of the applicable Credit Party.

 

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

 

74

 

such Taxes (and no basis
exists for any such claims). There are not in effect any waivers of applicable
statutes of limitations for federal, foreign, state or local Taxes for any
period.  No Credit Party is a party to
any Tax-sharing agreement or arrangement.

 

9.15         No
Litigation.  Except as described on Schedule 9.15,
there is not, as of the Closing Date, any litigation, action or proceeding pending
or, to Parent Guarantor’s and Borrower’s knowledge, threatened, against any
Credit Party, except such litigation, action or proceeding that would not
reasonably be expected to cause or have a Material Adverse Effect.

 

9.16         No
Brokerage Fee.  No brokerage, finder’s
or similar fee or commission is due to any Person by reason of any Credit Party
entering into this Agreement or any other Loan Document or by reason of any of
the transactions contemplated hereby or thereby, and Borrower shall indemnify
and hold Agent, the Lenders and LC Issuer harmless from all such fees and
commissions.

 

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

 

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

 

9.19         Noncompetition
Agreements.  No Credit Party is
subject to any contract or agreement containing a covenant not to compete in
any line of business with any Person.

 

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

 

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

 

9.22         Full
Disclosure.  No representation or
warranty made by Borrower, Parent Guarantor or any other Credit Party, in this
Agreement or any other Loan Document to which it 

 

75

 

is a party, contains or
will contain at the time such representation is made or such document
furnished, any untrue statement of a material fact or omits or will omit to state
any material fact necessary to make the statements herein or therein not
misleading 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 any
real property or leasehold interest in real property, or any material equipment
or other material personal property.

 

9.25         Insurance
Policies.  As of the Closing Date, Schedule 9.25
correctly sets forth all of the insurance policies maintained by any Credit
Party, including the carriers thereof, and the types of coverage and insured
amounts covered thereby.

 

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

 

9.27         Tax
Regulations.  No Credit Party intends
to 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-Terrorism
Laws.  None of Parent Guarantor or
any of its Subsidiaries nor to the knowledge of Borrower, any other Affiliate
of Borrower is in violation of any Anti-Terrorism Law or engages in or
conspires to engage in any transaction that evades or avoids, or has the
purpose of evading or avoiding, or attempts to violate, any of the prohibitions
set forth in any Anti-Terrorism Law. 
None of Parent Guarantor or any of its Subsidiaries nor to the knowledge
of Borrower, any other Affiliate of Borrower nor, to the knowledge of Borrower,
their respective agents acting or benefiting in any capacity in connection with
the Credit Extensions or other transactions hereunder, is a Blocked
Person.  None of Parent Guarantor or any
of its Subsidiaries nor to the knowledge of Borrower, any other Affiliate of
Borrower nor, to the knowledge of Borrower, any of their respective agents
acting in any capacity in connection with the Credit Extensions or other
transactions hereunder (i) conducts any business or engages in making or
receiving any contribution of funds, goods or services to or for the benefit of
any Blocked Person, or (ii) deals in, or otherwise engages in any
transaction relating to, any property or interests in property blocked pursuant
to the Executive Order No. 13224.

 

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

 

9.30         Customer
and Trade Relations.  As of the
Closing Date, except as set forth on Schedule 9.30, there exists no
actual or, to the knowledge of Parent Guarantor and Borrower, written
threatened termination or cancellation of, or any material adverse modification
or change in:  the business relationship
of any Credit Party with any customer or group of customers whose 

 

76

 

purchases during the
preceding 12 months comprise at least 5% of all of such Credit Party’s customer
purchases during such period.

 

9.31         Status
of Parent Guarantor.  Parent
Guarantor does not engage in any business other than (i) owning the
Capital Stock of its direct Subsidiaries; (ii) ordinary course activities
with NASDAQ regarding trading of its
Capital Stock; (iii) procuring directors and officers liability insurance
coverage for its and its Subsidiaries’ directors and officers; (vi) entering
into guaranties of certain real property leases entered into in the ordinary
course of business by its Subsidiaries; (v) owning certain intellectual
property; and (vi) guaranteeing the obligations of Borrower as a franchisor.

 

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

 

10.           COVENANTS

 

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

 

10.1         Payment
of Certain Expenses.  Borrower shall
pay to Agent, LC Issuer and each of the Lenders, within one Business Day of
Agent’s demand any and all fees, costs and expenses which Agent, LC Issuer or
any Lender pays to a bank or other similar institution arising out of or in
connection with (i) the forwarding to Borrower, or any other Person on
Borrower’s behalf, by Agent, LC Issuer or any Lender of proceeds of any Credit
Extension made to Borrower pursuant to this Agreement, and (ii) the
depositing for collection by Agent, LC Issuer or any Lender of any check or
item of payment received or delivered to Agent, LC Issuer or any Lender on
account of the Obligations.  Borrower
shall reimburse Agent, LC Issuer and each Lender immediately, for any claims
asserted by any bank at which a blocked account is established for the deposit
of proceeds of the Loan Collateral in connection with such blocked account or
any returned or uncollected checks received by such bank as proceeds of the
Loan Collateral.

 

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

 

77

 

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

 

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

 

10.5         Compliance
with Laws.  Each Credit Party shall
comply with the requirements of all applicable laws, statutes, regulations, rules or
ordinances of any Governmental Authority, the noncompliance with which could
reasonably be expected to cause or have a Material Adverse Effect.

 

10.6         Notice
of Violations of Law, Tax Assessments. 
Parent Guarantor or Borrower shall notify Agent in writing, promptly
upon Parent Guarantor’s or Borrower’s, as the case may be, learning thereof, of
any violation of any law, statute, regulation, rule or ordinance of any
Governmental Authority, and of the imposition of any federal, state or local
Tax withholding or assessment, applicable to any Credit Party, the violation or
imposition of which could reasonably be expected to cause or have a Material
Adverse Effect.  Parent Guarantor or
Borrower shall (i) provide Agent with copies of all written notices and
other documents pertaining to any investigation or remediation involving any
Credit Party and any Governmental Authorities which relate to Environmental
Activities, Environmental Requirements, or Hazardous Substances affecting such
Credit Party; and (ii) notify Agent promptly after obtaining knowledge of
the Release or alleged Release in a reportable quantity (as defined under
applicable Environmental Law) of any Hazardous Substances on, in, under or affecting
such Credit Party’s property or any surrounding area, and any noncompliance
with any Environmental Requirement which would reasonably be expected to cause
or have a Material Adverse Effect.

 

10.7         Notice
of Default under Australian Loan Documents; Violations of Certain Agreements.  Borrower shall provide Lender with prompt
written notice of any default under the Australian Loan Documents upon becoming
aware of such default.  Parent Guarantor
or Borrower shall notify Agent in writing, within 10 Business Days after the
earlier of when Parent Guarantor or Borrower learns, or is notified of the
occurrence, of any material breach by any Credit Party of, a notice of
termination or acceleration, or any demand for adequate assurances under, any
Applicable Agreement.

 

10.8         Notice
of Customer Defaults Under Indebtedness owed to Credit Parties.  Parent Guarantor or Borrower shall notify
Agent in writing, promptly upon Parent Guarantor’s or Borrower’s, as the case
may be, learning thereof, of any default by any obligor under any promissory
note or other evidence of any Indebtedness in the individual or aggregate
principal amount in excess of $75,000 payable to any Credit Party.

 

78

 

10.9         Taxes
and Charges.  Parent Guarantor or
Borrower shall, and Parent Guarantor shall cause each other Credit Party to, (i) timely
file all federal, state and material local Tax returns which it is required by
law to file, (ii) pay prior to their being delinquent all Taxes that are
due and payable, (iii) withhold all employment and similar Taxes which it
is required by law to withhold, and (iv) maintain adequate reserves for
the payment of all Taxes; provided, however, that no such Taxes need be paid during such period
as they are being contested in good faith by such Credit Party, in appropriate
proceedings promptly commenced and diligently prosecuted, if adequate reserves
in accordance with GAAP have been set aside on such Credit Party’s books, and
the continuance of any such contest does not (a) result in any part of the
Loan Collateral or any other property of such Credit Party being made the
subject of (1) any proceeding in foreclosure, (2) any levy or
execution (which shall not have been stayed or dismissed), or (3) any
seizure or other loss and (b) prevent Agent from having a perfected first
priority security interest in, or as applicable, mortgage Lien on, the Loan
Collateral or with respect to future advances made hereunder; and provided, further, that
such Credit Party will promptly pay such Tax when the dispute is finally
settled.

 

10.10       Indebtedness; Guaranties.

 

(i)               Other than the
Obligations, no Credit Party shall incur any Indebtedness other than (without
duplication):

 

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

 

(b)           the
Loans and the other Obligations;

 

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

 

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

 

(e)           Indebtedness
specifically permitted under Section 10.31;

 

(f)            Subordinated
Debt, provided that immediately prior to and
after giving effect to such Indebtedness, no Event of Default shall have
occurred and be continuing;

 

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

 

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

 

79

 

shall have executed and
delivered to Borrower (prior to or concurrently with the making of such cash
loan or advance) a subordinated demand promissory note to evidence any such
cash intercompany Indebtedness owing at any time by such Credit Party to
Borrower, which subordinated demand promissory note shall be in form and
substance reasonably satisfactory to Agent and shall be pledged and delivered
to Agent pursuant to the applicable Security Documents as additional collateral
security for the Obligations; (ii) the applicable Credit Parties shall
record all intercompany transactions on their books and records in a manner
reasonably satisfactory to Agent; (iii) at the time any such intercompany
loan 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 occur
and be continuing after giving effect to any such proposed cash intercompany
loan or advance; and (v) in respect of any such cash intercompany loans or
advance received by Westaff UK from any other Credit Party, such cash
intercompany loan or advance shall be an Investment permitted under clause (d) of
Section 10.17.

 

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

 

(j)            unsecured
Indebtedness incurred by any Credit Party (other than Parent Guarantor) in
connection with any deferred purchase price (including with respect to
earn-outs) in connection with Permitted Acquisitions and other Acquisitions
permitted by Section 10.17, provided that
such Indebtedness not exceed $5,000,000; and

 

(k)           Permitted Acquisition
Indebtedness;

 

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

 

(ii)               The
Credit Parties shall not guaranty or enter into any agreements of guaranty or
indemnity of the obligations of any Person except: (a) by endorsement of
negotiable instruments payable at sight for deposit and or collection or
similar banking transactions in the usual course of business; and (b) for
guaranties of Indebtedness incurred for the benefit of any other Credit Party
if the primary obligation is expressly permitted by this Agreement; (c) for
support letters required by the law of foreign jurisdictions in connection with
the filing of any annual report or delivery of financial statements by any
Foreign Subsidiary; (d) for guaranties of payment obligations under
operating leases, including leases of real property, entered into by any
franchisee or Subsidiary in an amount not to exceed (i) $1,000,000, in the
aggregate, at any time outstanding if supported by any Letter of Credit issued
pursuant to this Agreement and (ii) $400,000, in the aggregate, at any
time outstanding for all other such guaranties; and (e) for customary
indemnity obligations arising under purchase agreements in represent of
Permitted Acquisitions and other Acquisitions permitted under Section 10.17.

 

(iii)              No
Credit Party shall, directly or indirectly, voluntarily purchase, redeem,
defease or prepay before the scheduled payment date therefore any principal of,

 

80

 

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

 

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

 

10.12       Pension
Plans.  No Credit Party shall, and no
Credit Party shall allow any Controlled Group member to, permit any Reportable
Event or “prohibited transaction” (as defined by ERISA) for which no statutory
or class exemption exists under Sections 407 or 408 of ERISA or
Sections 4975(c)(2) or 4975(d) of the Internal Revenue Code to
occur or to continue as to any Pension Plan of any Credit Party or any
Controlled Group member, which poses a threat of (i) termination of such
Pension Plans (or trusts related thereto), which termination could reasonably
be expected to have a Material Adverse Effect or (ii) the imposition of
Taxes or penalties against such Pension Plans (or trusts related thereto), any
Credit Party, or any Controlled Group member, the imposition or payment of
which could reasonably be expected to cause or have a Material Adverse Effect.  With respect to each Pension Plan that is
intended to meet the requirements of qualified pension benefit plans under
Sections 401(a) and 501(a) of the Internal Revenue Code, each
Credit Party and the applicable Controlled Group members shall continue to
maintain the qualified status of such Pension Plans, and all contributions to
Pension Plans which any Credit Party or any member of the Controlled Group is
obligated to make shall be timely made when due, unless the failure to do so
would not reasonably be expected to cause or have a Material Adverse
Effect.  No Credit Party shall, and no
Credit Party shall permit any Controlled Group member to, incur any liability
to the Pension Benefit Guaranty Corporation, the incurrence of which could
reasonably be expected to cause or have a Material Adverse Effect.

 

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

 

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

 

81

 

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

 

10.15       Liability
Insurance.  Each Credit Party shall,
at all times, maintain in full force and effect such liability insurance with
respect to its activities and business interruption, product liability and
other insurance as is customary in its business and location, such insurance to
be provided by insurer(s) reasonably acceptable to Agent.  Such insurance shall name Agent as an
additional insured.

 

10.16       Mergers;
Acquisitions.  No Credit Party shall
form or acquire a subsidiary or merge or consolidate or be merged or
consolidated with or into any other Person, or otherwise reorganize, liquidate
or wind-up or dissolve itself other than (i) in connection with a
Permitted Acquisition or other Acquisition permitted by Section 10.17;
(ii) any Credit Party may merge with any other Credit Party, but if
Borrower is a party to such merger, it shall be the surviving entity; and (iii) Borrower
may acquire all or substantially all of the assets or Stock of any franchisee
as permitted by Section 10.17(ii). 
No Credit Party shall (a) purchase or otherwise acquire (1) all
or substantially all of the assets of any Person or the assets comprising any
line 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) purchase
the securities of, create, invest in, or form any Person (including a
Subsidiary), in each case other than in connection with a Permitted Investment
or other Acquisition permitted by Section 10.17.

 

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

 

(i)                Permitted
Acquisitions;

 

(ii)               Acquisitions
by Borrower of all or substantially all of the assets or Capital Stock of any
franchisee of Borrower, provided that
payments made in respect of all such Acquisitions shall not exceed $5,000,000
in the aggregate in any Fiscal year and provided further
that immediately before and after giving effect to any such Acquisition, (a) no
Event of Default shall have occurred and be continuing or would result from
such Acquisition and (b) the sum of (i) Revolving Credit Availability
and (2) Available Cash shall not be less than $5,000,000;

 

(iii)              Cash
Equivalents;

 

(iv)             investments
comprised of notes payable, or stock or other securities issued by account
debtors to any Credit Party pursuant to negotiated agreements with 

 

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

 

(v)              each
Credit Party may:

 

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

 

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

 

(c) make Subsidiary
Contributions to any other Credit Party or any of their Subsidiaries as
permitted under clauses Section 10.10(i)(h),

 

(d) make Subsidiary
Contributions in the form of cash intercompany loans or advances to Westaff UK
after the Closing Date, provided that (A) Westaff
UK shall have executed and delivered to the applicable Credit Party (prior to
or concurrently with the making of such cash intercompany loan or advance) a
subordinated demand promissory note to evidence the corresponding Indebtedness
owing at any time by Westaff UK to the applicable Credit Party, which
subordinated demand promissory note shall be subordinated to the Obligations,
in form and substance reasonably satisfactory to Agent, and shall be pledged
and delivered to Agent pursuant to the applicable Security Documents as
additional collateral security for the Obligations; (B) Westaff UK and the
applicable Credit Party shall record all intercompany transactions on its books
and records in a manner reasonably satisfactory to Agent; (C) at the time
any cash intercompany loan or advance is made and after giving effect thereto,
the applicable Credit Party shall be Solvent; (D) no Event of Default
would occur and be continuing after giving effect to such proposed cash
intercompany loan or advance; (E) the sum of (x) Revolving Credit
Availability and (y) Available Cash shall be not less than $6,000,000
after giving effect to cash intercompany loan or advance; and (F) the
aggregate principal amount of all cash intercompany loans and advances to Westaff
UK after the Closing Date and otherwise permitted by this clause (4) shall
not exceed $1,000,000 at any time outstanding,

 

(e) make Subsidiary Contributions in the
form of cash intercompany loans or advances to any Foreign Subsidiaries (other
than Westaff UK) after the Closing Date, provided that,
as to each such cash intercompany loan or advance, (A) each such Foreign
Subsidiary receiving such cash intercompany loan or advance shall have executed
and delivered to the applicable Credit Party (prior to or concurrently with the
making of such cash intercompany loan or advance) a promissory note to evidence
the corresponding Indebtedness owing at any time by such Foreign Subsidiary to
the applicable Credit Party, which promissory note shall be in form and substance
reasonably satisfactory to Agent and shall be pledged and delivered to Agent
pursuant to the applicable Security Documents as additional collateral security
for the Obligations, provided, that
Subsidiary Contributions constituting “Junior Debt”, as such term is defined in
the Australian Subordination Deed, by any Credit Party to Westaff Australia
shall not be pledged to Agent so long as the Australian Subordination Deed
remains in effect and prohibits such pledge; (B) the applicable Credit
Party shall record all intercompany transactions on its books and records in a
manner reasonably satisfactory to Agent; (C) at the time any such cash
intercompany loan or advance is made and after giving effect thereto, the 

 

83

 

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

 

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

 

Notwithstanding the foregoing, in the event Borrower
shall request Lenders to consent to any Acquisition that is not a Permitted
Acquisition because the all-in purchase price (after giving effect to any
earn-outs) of such Acquisition exceeds the maximum threshold amounts set forth
in clause (ix) of the definition of “Permitted Acquisition” or is not
otherwise permitted under this Section 10.17, Lenders agree to
consider such request for consent in good faith and in the exercise of their
commercially reasonable discretion so long as (i) the proposed Acquisition
would be accretive to EBITDA of Borrower and the Credit Parties and (ii) any
third party debt used to fund any portion of the purchase price of such
Acquisition is subordinated to the Obligations in right of payment, enforcement
and collection a manner acceptable to Required Lenders, it being understood and
agreed that any such requested consent shall be at Lenders’ discretion and
that, as of the Closing Date, Lenders have not consented, nor committed, agreed
or undertaken to consent, to any such Acquisition.

 

10.18       Restricted
Payments.  No Credit Party shall make
any Restricted Payment, except (a) intercompany loans and advances to the
extent permitted by Section 10.10; (b) dividends and
distributions paid to Borrower; (c) dividends and distributions paid by to
Parent Guarantor to enable Parent Guarantor to pay any Taxes payable in respect
of such Person, including in respect of such Person’s taxable income; (d) advances
to officers and employees of such Credit Party with respect to expenses
incurred by those officers and employees which expenses are ordinary and
necessary business expenses and do not exceed in the aggregate $100,000
outstanding at any one time; (e) payments of principal and interest of
Intercompany Notes issued in accordance with Section 10.10(i)(h); (f) scheduled
payments with respect to any Subordinated Debt in accordance with the terms of
subordination relating thereto; (g) provided that
no Event of Default has occurred and is continuing or would result after giving
effect to any Restricted Payment pursuant to this clause (g), (1) payments
on 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) are
not to exceed $500,000 in the aggregate in any Fiscal Year; (h) the
payment of a management fees to Westaff Support not to exceed 50% of any Credit
Party’s gross profit in any Fiscal Year; and (i) the payment of royalties
and license fees by a Credit Party to Westaff Support or Borrower.

 

10.19       Reserved.

 

84

 

10.20       Stock
Rights.  No Credit Party (other than
Parent Guarantor) shall (i) change the rights or obligations associated
with, or the terms of, any class of Capital Stock now issued by such Credit
Party or (ii) issue any new class of Capital Stock of such Credit Party.

 

10.21       Capital
Structure; Fiscal Year; Nature of Business. 
No Credit Party shall make any change in such Credit Party’s capital
structure which could reasonably be expected to cause or have a Material
Adverse Effect.  No Credit Party shall
change its Fiscal Year.  Parent Guarantor
and Borrower shall not, and Parent Guarantor shall not permit any of its
Subsidiaries to, engage in any material line of business substantially
different from those lines of business conducted by Parent Guarantor and its Subsidiaries
as of the Closing Date or any business reasonably related or incidental
thereto.  Notwithstanding the foregoing
or anything to the contrary contained in any Loan Document, as long as
MediaWorld is a dormant company, Borrower may cause MediaWorld to be wound up
and dissolved, and upon such legal dissolution MediaWorld shall cease to be a
Subsidiary Guarantor or a Credit Party under or for purposes of any of the Loan
Documents.

 

10.22       Affiliate
Transactions.  No Credit Party shall
enter into, or be a party to, any transaction with any of such Credit Party’s
Affiliates, except for (i) payment of any Restricted Payment permitted
under Section 10.18; (ii) transactions described in Sections
10.10, and 10.16; (iii) payment of a share of gross profit to a
Franchisee, pursuant to the terms of the Franchise Agreement with such
Franchisee entered into in the ordinary course of such Credit Party’s business;
provided, that if a Franchisee is an
Affiliate of Parent Guarantor or any Credit Party, the applicable Franchise
Agreement shall have been entered into on an arm’s length basis and the terms
thereof shall be consistent with past practices; and (iv) other
transactions that are in the ordinary course of business pursuant to the
reasonable requirements of such Credit Party’s business and upon fair and
reasonable terms which are fully disclosed to Agent and are no less favorable
to such Credit Party than such Credit Party could obtain in a comparable arm’s
length transaction with a Person who is not Borrower’s Affiliate.

 

10.23       Operating
Accounts.  At all times until the
Obligations are Paid in Full, each Credit Party shall maintain its primary
operating accounts with Agent.

 

10.24       Sale
of Assets.  No Credit Party shall
sell, transfer, convey, assign or otherwise dispose of any of its properties or
other assets, including the Capital Stock of any of its Subsidiaries (whether
in a public or a private offering or otherwise) or any of its Receivables,
other than (a) the sale, transfer, conveyance or other disposition by a
Credit Party of Equipment and other fixed assets that are obsolete or no longer
used or useful in such Credit Party’s business; (b) property and other
assets having a value not exceeding the US Dollar Equivalent of $250,000 in any
single transaction or the US Dollar Equivalent of $500,000 in the aggregate in
any Fiscal Year, provided that Borrower shall not
factor or otherwise sell or transfer any Receivables without the prior written
consent of Agent; (c) the licensing of rights to franchisees in the
ordinary course of business consistent with practices as in effect on the
Closing Date; (d) the issuance or sale of Capital Stock of Parent
Guarantor upon exercise of warrants and options pursuant to employee and
director incentive, stock option and employee purchase plans; (e) the
liquidation of investments permitted under Section 10.17(iii); and (f) the
sale of the Capital Stock of any Foreign Subsidiary (other than Westaff
UK).  With respect to any disposition of
assets or other properties permitted pursuant to clauses (a),(b) or
(f) above, Agent agrees on 

 

85

 

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

 

10.25       [Reserved].

 

10.26       Liens.  No Credit Party shall create, incur, assume
or permit to exist any Lien on or with respect to its Accounts or any of its
other properties or assets (whether now owned or hereafter acquired) except for
(a) Liens in favor of the Secured Parties, securing the Obligations; (b) Permitted
Liens; (c) Liens in existence on the date hereof and summarized on Schedule
9.7 securing the Indebtedness described on Schedule 10.10 and
Refinancings thereof, including extensions or renewals of any such Liens; provided
that the principal amount of the Indebtedness so secured is not increased and
the Lien does not attach to any other property; and (d) Liens created
after 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 subject
to such purchase money debt and such Indebtedness is incurred within 30 days
following such purchase and does not exceed 100% of the purchase price of the
subject assets).  In addition, no Credit
Party shall become a party to any agreement, note, indenture or instrument, or
take any other action, that would prohibit the creation of a Lien on any of its
properties or other assets in favor of the Secured Parties, as additional
collateral for the Obligations, except operating leases, Capital Leases
purchase money financing permitted hereunder or licenses which prohibit Liens
upon the assets that are subject thereto.

 

10.27       [Reserved].

 

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

 

10.29       Payments on and Changes
to Subordinated Debt.

 

10.29.1          Payments on
Subordinated Debt.  Borrower shall
not (i) make any payment (including any principal, premium, interest, fee
or charge) with respect to any Subordinated Debt except, in each instance, to
the extent, and in the manner, expressly permitted by the applicable
subordination agreement (including the self-executing subordination provisions
or any promissory note or other agreement evidencing such Subordinated Debt) or
(ii) repurchase, redeem, defease, acquire or reacquire for value any of
the Subordinated Debt except, in each instance to the extent, and in the
manner, expressly permitted by the subordination agreement (including the
self-executing subordination provisions or any promissory note or other
agreement evidencing such Subordinated Debt). 
Notwithstanding the foregoing, (a) provided
that no Default or Event of Default has
occurred and is continuing or would result therefrom (including without
limitation a violation of Section 10.28 on a pro forma
basis), Borrower may make interest payments owing to Robert Stover under the
Stover Note in accordance with the terms thereof and (b) provided that (1) no Default or Event of Default has occurred and is continuing or would
result therefrom (including without limitation a violation of Section 10.28
on a pro forma basis), (2) the financial
statements and related certificate for the second Fiscal Quarter of 2008 shall
have been delivered in accordance with Section 8.5 and the last
sentence of 

 

86

 

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

 

10.29.2          Changes
to Subordinated Debt Documents. 
Borrower shall not amend (i) any of the terms of payment
(including, principal, interest or premium provisions) of or applicable to, or
the provisions governing the priority of or security for the payment and
performance of the obligations under or applicable to, or acceleration,
termination, or default provisions of or applicable to, any of the loan
documents evidencing the Subordinate Debt (the “Subordinated Debt Documents”)
unless such terms are more favorable to Borrower and do not materially and
adversely affect the rights of Agent and the Lenders hereunder; or (ii) any
other material term of or applicable to any of the Subordinated Debt Documents
unless such terms are more favorable to Borrower and do not materially and
adversely 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 Debt
Documents, which would be reasonably likely to (a) adversely affect any of
Agent, 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 security
interest in or other Lien on the Loan Collateral (including the priority
thereof) or (b) create or result in an Event of Default.

 

10.30       Burdensome Agreements.  No
Credit Party shall enter into any agreement, instrument or other
undertaking (other than the Loan
Documents) that (i) limits or purport to limit the ability of such Credit
Party to (a) make or pay any dividend or distribution or to otherwise
transfer property (other than property subject to Permitted Purchase Money
Indebtedness) to any other Credit Party, (b) guaranty the Indebtedness of
Borrower or (c) create, incur, assume or suffer to exist Liens on any Loan
Collateral; provided, however, that this clause (c) shall
not prohibit any negative pledge incurred or provided in favor of any holder of
Indebtedness permitted under Section 10.10(a) solely to the
extent any such negative pledge relates to the property financed by or the
subject of such Indebtedness requires the grant of a Lien to secure an
obligation of such Person if a Lien is granted to secure another obligation of
such Person.

 

10.31       Rate Hedging Agreements.  No
Credit Party shall enter into any Rate Hedging Agreement or incur any related
Rate Hedging Obligations (contingent or otherwise), except for Rate
Hedging Agreements that are entered into by such Credit Party in the ordinary
course of business for the purpose of directly mitigating risks associated with
liabilities, commitments, investments, assets, or property held or reasonably
anticipated by such Credit Party and not for purposes of speculation or taking
a “market view”.

 

10.32       Changes in Organizational Documents.  No
Credit Party shall permit the articles or certificate of incorporation, bylaws
or other charter or organizational documents of such Credit Party to be amended
or modified in any way which could reasonably be expected to adversely affect
the interests of Agent, LC Issuer or Lenders (including the ability of Credit
Parties to pay the Obligations when due hereunder and otherwise to perform
their obligations hereunder and under the other Loan Documents).

 

87

 

10.33       Anti-Terrorism
Laws.  No Credit Party shall, and
Parent Guarantor shall not permit any of its other Subsidiaries to, (i) conduct
any business or engage in any transaction or dealing with any Blocked Person,
including the making or receiving any contribution of funds, goods or services
to or for the benefit of any Blocked Person, (ii) deal in, or otherwise
engage in any transaction relating to, any property or interests in property
blocked pursuant to Executive Order No. 13224, or (iii) engage in or
conspire to engage in any transaction that evades or avoids, or has the purpose
of evading or avoiding, or attempts to violate, any of the prohibitions set
forth in Executive Order No. 13224, the USA Patriot Act or any other
Anti-Terrorism Law.  Borrower shall
deliver to Agent, LC Issuer and the Lenders any certification or other evidence
requested from time to time by Agent, LC Issuer or the Lenders in their sole
discretion confirming compliance with this Section 10.33.

 

10.34       Further
Assurances.  Parent Guarantor and
Borrower will execute and deliver or cause to be executed and delivered any and
all further documents and instruments and to take any and all further actions
as may be determined by Agent to be necessary or appropriate to the
transactions contemplated herein or in the other Loan Documents.

 

11.           EVENTS
OF DEFAULT

 

11.1         Events of Default.

 

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

 

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

 

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

 

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

 

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

 

88

 

connection with this
Agreement or in any of the other Loan Documents to which it is a party was
false in any material respect, in the good faith judgment of Agent or Required
Lenders, when made or furnished or when treated as being made or furnished or (2) to
induce Lenders to make any Loan or LC Issuer to issue any Letter of Credit was
false in any material respect, in the good faith judgment of Agent or Required
Lenders, 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 to
pay its debts as they become due, (3) makes a general assignment for the
benefit of creditors, or (4) calls a meeting of creditors for the
composition of debts; or the Board of Directors of Borrower (or any committee
thereof) adopts a resolution authorizing or has otherwise authorized the
actions described in subitems (3) or (4) of this clause (e);

 

(f)            (1) There
is filed by Borrower any case, petition, proceeding or other action (“Bankruptcy
Case”) under any existing or future bankruptcy, insolvency, reorganization,
liquidation or arrangement or readjustment of debt law or any similar existing
or future law of any applicable jurisdiction (“Insolvency Law”), (2) an
involuntary Bankruptcy Case (“Involuntary Proceeding”) is commenced
against Borrower under any Insolvency Law and the Involuntary Proceeding is not
controverted within 10 days, or is not dismissed within 60 days, after the
commencement of the Bankruptcy Case, (3) a custodian, receiver, trustee,
sequestrator, or agent is appointed or authorized to take charge of any of
Borrower’s properties or (4) Westaff UK takes any corporate action or other steps are taken or legal
proceedings are started for any suspension of payments or a moratorium of
Indebtedness or for its winding up, dissolution, administration or
re-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 and
assets, provided that this Section 11.1(i)(f) shall
not apply to (i) any proceedings, measures or order relating to a solvent
reconstruction, amalgamation, reorganisation or merger of Westaff UK, previously
approved by Agent in writing; or (ii) any petition presented against
Westaff UK which Westaff UK demonstrates to the satisfaction of Agent (acting
reasonably), by providing an opinion of a leading firm of London solicitors (or
the London office of a leading law firm in the United States of America) or
otherwise, is frivolous, vexatious or an abuse of the court process or which
relates to a claim to which Westaff UK has a good defence and which is being
vigorously defended in good faith by Westaff UK and is discharged, withdrawn or
discontinued within 21 days of its presentation (or such longer period as
Agent may allow) (acting reasonably);

 

(g)           (1) Required
Lenders, in the exercise of their judgment exercised in good faith, determine
that there has occurred any material and adverse change in the business
operations or condition, financial or otherwise, of any Credit Party or of
Parent Guarantor and its Subsidiaries (taken as a whole) or its or their
ability to perform any of its or their payment or other material obligations
under this Agreement or any of the other Loan Documents to which it is a party
or (2) Required Lenders, in their judgment exercised in good faith,
determine that there has occurred any material and adverse change in the
aggregate value of, or Agent’s, LC Issuer’s or the Lenders’ rights or interests
in, the Loan Collateral with the result that Agent’s, LC Issuer’s or the
Lenders’ security for the Obligations is materially diminished;

 

89

 

(h)           [Reserved];

 

(i)            [Reserved];

 

(j)            (1) A
default or breach occurs under any other agreement, document or instrument to
which any Credit Party is a party that is not cured within any applicable grace
period therefor, and such default or breach (i) involves the failure to
make any payment when due in respect of Indebtedness (other than the
Obligations) of any Credit Party in excess of $2,000,000 in the aggregate (including (x) undrawn committed or
available amounts and (y) amounts owing to all creditors under any
combined or syndicated credit arrangements), or (ii) causes, or permits
any holder of such Indebtedness or a trustee to cause, Indebtedness or a
portion thereof in excess of $2,000,000
in the aggregate to become due prior to its stated maturity or prior to its
regularly scheduled dates of payment, or cash collateral in respect thereof to
be demanded, in each case, other than if such default or acceleration is waived
or rescinded by the holder thereof or (2) there occurs a material breach
by any Credit Party under any Applicable Agreement (other than the ones
described in clause (1) of this Section 11.1(j), the result of
which breach is to permit or cause the suspension or termination of the other
parties’ performance thereunder, the delivery of a notice of acceleration, or
the termination of such Applicable Agreement, unless such suspension or
termination is waived or rescinded;

 

(k)           A
contribution failure occurs with respect to any Pension Plan sufficient to give
rise to a Lien under Section 302(f) of ERISA that could reasonably be
expected to cause or have a Material Adverse Effect;

 

(l)            There
is instituted against any Credit Party any criminal proceeding for which
forfeiture of any material portion of its assets is a penalty, or any Credit
Party is enjoined, restrained or in any way prevented by order of any
Governmental Authority from conducting any material part of its business
affairs 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)          Any
Credit Party shall voluntarily dissolve or cease to exist, other than as
permitted under Section 10.16, or any final and nonappealable order or
Judgment shall be entered against Borrower decreeing its involuntary
dissolution;

 

(n)           There
occurs a Change of Control;

 

(o)           [Reserved];

 

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

 

90

 

(q)           (1) 
There is filed by any Affiliate Guarantor any Bankruptcy Case under any
Insolvency Law; (2) an Involuntary Proceeding is commenced against any
Affiliate Guarantor under any Insolvency Law and the Involuntary Proceeding is
not controverted within 20 days, or is not dismissed within 60 days, after the
commencement of the Involuntary Proceeding; (3) a custodian, receiver,
trustee, sequestrator, or agent is appointed or authorized to take charge of
any of any Affiliate Guarantor’s properties; (4) any Affiliate Guarantor
dissolves, 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 the
Guaranteed Obligations (as defined in the applicable Affiliate Guaranty
Agreement) or to grant security interest in its property under any Security
Document to which such Affiliate Guarantor is a party or attempts to limit or
terminate its obligation to guarantee the Guaranteed Obligations.

 

(r)            Any
judgment, order for the payment of money or award (“Judgment”) is
rendered against a Credit Party:  (i) (a) in
excess of $750,000 (or any number of Judgments in excess of $1,000,000 in the
aggregate in respect of all Credit Parties (taken as a whole)) of any available
insurance coverage in effect to satisfy such Judgment for which the insurer has
accepted 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) has
not been vacated, discharged or satisfied within 30 days of the due date of the
initial payment; or (2) if appealable by such Credit Party, such Credit
Party: (A) has not appealed such Judgment within the time allotted for
such appeal under applicable law, (B) has ceased prosecuting such appeal
diligently and in good faith, or (C) has not bonded or obtained a stay of
such Judgment pending such appeal.

 

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

 

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

 

11.2         Cure Periods.

 

(i)                Subject to Section 11.2(ii),

 

(a)           an
event or condition of the type described in clause (c) of Section 11.1(i) (exclusive
of 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 be
considered an Event of Default for purposes of Section 12.1 of this
Agreement only if the applicable Credit Party fails to cure the default within
15 days after the earlier of (1) the date on which such Credit Party has
knowledge of the existence of such event or condition or (2) the date on
which Agent notifies Borrower of the existence of such event or condition; provided, if such Event of Default is susceptible of cure and the
applicable Credit Party is diligently pursuing such cure, an Event of Default
shall not exist hereunder if such Event of Default is cured within 30 days of
such notice; provided further,  however, if a period of cure is provided for in any of the
other Loan Documents with respect to a 

 

91

 

default under such other
Loan Documents, the period of cure set forth in this Section 11.2(i)(a) will
not be applicable to such default; and

 

(b)           an
event or condition of the type described in clause (g) of Section 11.1(i) will
be considered an Event of Default for purposes of Section 12.1 of
this Agreement only if (1) Agent shall have first given written notice
thereof to Borrower, and (2) either (A) Borrower shall fail, within
15 days after the delivery of such notice from Agent, to deliver a business
plan to Agent which, to Required Lenders’ sole satisfaction, shall provide an
acceptable means to cure such default or (B) Parent Guarantor and Borrower
fails to cure such default to Required Lenders’ sole satisfaction within 15
days 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) support
any business plan proposed by Borrower, (x) consider any more than the
original business plan proposed by Borrower, or (y) consider any business
plan proposed by Borrower if any other Event of Default has occurred or then
exists.

 

(i)                Section 11.2(i) will
not be applicable with regard to (1) any default which by its nature is
not susceptible of cure, or (2) any default, as a result of which,
Required Lenders believe, in the exercise of their judgment in good faith, that
there exists an immediate and material risk, threat, or danger to Agent, LC
Issuer’s or the Lenders’ interests in a material portion the Loan Collateral or
the 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 or
available at law or in equity, Agent, without further notice or demand but
subject to Section 11.2, (i) may, and will (if requested by
Required Lenders), (a) declare the Loans and all other Obligations to be
immediately due and payable, whereupon the Loans and all other Obligations
shall be immediately due and payable, and (b) terminate the obligation and
power of LC Issuer to issue Letters of Credit and terminate all or any portion
of the Revolving Credit Commitments, and thereupon such obligations, powers and
Revolving Credit Commitments shall terminate immediately (except that with
respect to any Event of Default under Section 11.1(i)(e) or (f) (exclusive
of an Involuntary Proceeding), such acceleration of the Loans and other
Obligations, termination of the obligation and power of LC Issuer to issue
Letters of Credit and termination of the Revolving Credit Commitments shall be
automatic), (ii) may terminate this Agreement, and (iii) will have
all 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 the
other Loan Documents, and as otherwise provided by applicable law.

 

12.2         Fees
and Expenses.  Borrower shall pay to
Agent, on demand (and in no event later than the immediately succeeding
Business Day) and as part of the Obligations, all reasonable costs and
expenses, including court costs, Attorneys’ Fees and costs of sale, incurred by
Agent, LC Issuer or the Lenders in exercising any of their default rights or
remedies under the Loan Documents.

 

92

 

12.3         Actions
in Respect of Letters of Credit.  If
any Event of Default shall have occurred and be continuing, Agent may, whether
in addition to taking any of the actions described in Section 12.1
or otherwise, make demand upon Borrower to, and forthwith upon such demand
Borrower will, pay to Agent in same day funds at Agent’s office designated in
such demand, for deposit in the Letter of Credit Collateral Account, an amount
equal 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 Letter
of Credit Collateral Account; however, if (i) no
amounts are then on deposit in the Letter of Credit Collateral Account, (ii) the
amount then on deposit in the Letter of Credit Collateral Account is
insufficient to pay the amount of such drawing, or (iii) Agent is legally
prevented or restrained from immediately applying amounts on deposit in the
Letter of Credit Collateral Account, then the amount of each unreimbursed
drawing under such Letter of Credit and payment required to be made under this Section 12.3
shall automatically be converted into a Revolving Loan made on the date of such
drawing for all purposes of this Agreement. 
To the extent that Agent applies amounts on deposit in the Letter of
Credit Collateral Account as provided in this Section 12.3, and,
thereafter, such application (or any portion thereof) is rescinded or any
amount so applied must otherwise be returned by Agent upon the insolvency,
bankruptcy or reorganization of Borrower or otherwise, then the amount so
rescinded or returned shall automatically be converted into a Revolving Loan
made on the date of such drawing for all purposes of this Agreement.  Upon Payment in Full of the Obligations, all
funds in the Letter of Credit Collateral Account, including any interest
accrued thereon, shall be returned to Borrower.

 

13.           AGENT

 

13.1         Appointment.  Each Lender and LC Issuer hereby irrevocably
designates and appoints U.S. Bank as the contractual representative of each
Lender and LC Issuer under this Agreement and the other Loan Documents (in such
capacity, the “Agent”).  Each
Lender and LC Issuer irrevocably authorizes U.S. Bank, as agent for each Lender
and LC Issuer, to take any and all actions on its behalf under the provisions
of this Agreement and the other Loan Documents and to exercise any and all
powers and perform any and all duties as are expressly delegated to Agent by
the terms of this Agreement and the other Loan Documents together with any and
all other powers as are reasonably incidental thereto.  Notwithstanding any provision to the contrary
elsewhere in this Agreement, Agent shall not have any duties or
responsibilities except those expressly set forth in this Agreement or any
fiduciary relationship with any Lender or LC Issuer, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities may be read
into this Agreement or any other Loan Document or otherwise exist against
Agent.  Each Lender and LC Issuer
authorizes and directs Agent, on behalf the Lenders and LC Issuer, to enter
into each of the Loan Documents.

 

13.2         Delegation
of Duties.  Agent may execute any of
its 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 counsel
concerning all matters pertaining to those duties.  Agent will not be responsible for the
negligence or misconduct of any agents, contractors, or attorneys-in-fact
selected by it in good faith.

 

13.3         Exculpatory
Provisions.  Neither Agent nor any of
its officers, directors, employees, agents, attorneys-in-fact or Affiliates may
be (i) liable for any action lawfully taken 

 

93

 

or omitted to be taken by
it or such Person under or in connection with this Agreement or any other Loan
Document (except to the extent of any direct damages suffered from its or such
Person’s own gross negligence or willful misconduct) or (ii) responsible
in any manner to any of the Lenders or LC Issuer (a) for any recitals,
statements, representations or warranties made by Parent Guarantor, Borrower or
any other Credit Party or any officer of Parent Guarantor, Borrower or any
other Credit Party contained in this Agreement or any other Loan Document or in
any certificate, report, statement or other document or electronic transmission
referred to, or provided for in, or received by Agent under or in connection
with, this Agreement or any other Loan Document, (b) for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document, (c) the value of the Loan
Collateral, the perfection or priority of any interest of Agent, LC Issuer or
the Lenders in the Loan Collateral purported to be created or perfected by the
Loan Documents, or with respect to rights and interests pertaining to the Loan
Documents, (d) for any failure of any Credit Party to perform its
obligations under this Agreement or any other Loan Document to which it is a
party, (e) for any loss or depreciation of, lack of insurance on, or
failure to realize on, any Loan Collateral or for the failure or delay in
collecting or receiving payment of any sums from Borrower or any other Credit
Party, or for any mistake, omission, or error of judgment in passing upon or
accepting any Loan Collateral, or in the making of any examination, or for
granting extensions or indulgences to Borrower or any other Credit Party
permitted to be made hereunder, (f) for any apportionment or distributions
of payments made by it pursuant to Section 4 hereof, absent gross
negligence or willful misconduct or, (g) with respect to the income or
withholding Tax status with respect to any interest on, or fees in respect of,
the Loans.  Agent will not be under any
obligation to any Lender or LC Issuer to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, 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         Reliance
by Agent.  Agent will be entitled to
rely, 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 other
document or conversation believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons and on advice and statements
of legal counsel (including counsel to the Credit Parties), independent
accountants and other experts selected by Agent.  Agent may deem and treat each Lender as the
owner of its Loans for all purposes unless an assignment thereof has been made in
accordance with the terms of this Agreement. 
As to any matters not expressly provided for by this Agreement and the
other Loan Documents (including without limitation enforcement and collection
of the Notes), Agent may, but shall not be required to, exercise any discretion
or take any action, but Agent shall, subject to the terms of this Agreement, be
required to act or to refrain from acting (and shall be fully protected in so
acting or refraining from acting) upon the instructions of Required Lenders,
whenever such instruction shall be requested by Agent or required hereunder, or
a greater or lesser number of the Lenders if so required hereunder, and such
instructions shall be binding upon all Lenders and all future holders of the
Obligations; provided, that Agent will be
fully justified as between itself and the Lenders and LC Issuer in failing or
refusing to take any action under this Agreement or any other Loan Document
unless Agent has first received such advice or concurrence of Required Lenders as
Agent deems appropriate or Agent has been first indemnified to its satisfaction
by the Lenders 

 

94

 

against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action.

 

13.5         Notice
of Default.  Agent will be deemed not
to have knowledge or notice of the occurrence of any Event of Default unless
Agent has received notice from a Lender or Borrower referring to this
Agreement, describing the Event of Default and stating that the notice is a “notice
of default”.  If Agent receives such a
notice, Agent will give prompt notice thereof to the Lenders.  Subject to the terms of this Agreement, Agent
will take such action reasonably promptly with respect to such Event of Default
as is reasonably directed by Required Lenders; however,
unless and until Agent has received such directions, Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Event of Default as it believes advisable in the best interests
of the Lenders.  Notwithstanding anything
to the contrary in this Section 13, at no time will Agent be
required under any circumstance to take any action that, in its sole and
absolute judgment, (i) is contrary to the terms of the Loan Documents or
applicable law or (ii) would expose Agent to liability.

 

13.6         Non-Reliance
on Agent and Other Lenders.  Each
Lender and LC Issuer expressly acknowledges that neither Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates has
made any representations or warranties to any Lender or LC Issuer and that no
act by Agent in the future taken, including any review of the affairs of
Borrower, will be deemed to constitute any representation or warranty by Agent
to any Lender or LC Issuer.  Each Lender
and LC Issuer represents to Agent that such Lender and LC Issuer has,
independently and without reliance on Agent or any other Lender, and based on
such documents and information as such Lender or LC Issuer has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of
Borrower and the other Credit Parties and made its own decision to make its
Credit Extensions under this Agreement and enter into this Agreement.  Each Lender and LC Issuer also represents
that 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 deems
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Agreement and the other
Loan Documents, and to make such investigation as it deems necessary to inform
itself as to the business, prospects, operations, property, financial and other
condition and creditworthiness of Borrower and the other Credit Parties.

 

13.7         Indemnification.  Each Lender shall indemnify Agent in its
capacity as such (to the extent not reimbursed by Borrower and without limiting
the obligation of Borrower and the other Credit Parties to do so), ratably
according to their Total Exposure Percentage in effect on the date on which
indemnification is sought under this Section 13.7 (or, if indemnification
is sought after the date on which the Revolving Credit Commitments have
terminated and the Loans shall have been paid in full, ratably in accordance
with their Total Exposure Percentage immediately before that date), from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind
whatsoever which may at any time (including at any time following the payment
of the Obligations) be imposed on, incurred by or asserted against Agent in any
way relating to or arising out of this Agreement, any of the other Loan
Documents or any documents contemplated by or referred to in this Agreement or
in any of the other Loan Documents or the transactions contemplated by this Agreement
or by any of the other Loan Documents or any action taken or 

 

95

 

omitted by Agent under or
in connection with any of the foregoing; provided that
no 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 negligence
or willful misconduct so long as such Lender had no part in such action or
omission by Agent and did not receive any benefit from such action or omission
by Agent.  The agreements in this Section 13.7
will survive the payment of the Obligations.

 

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

 

13.9         Resignation
of Agent.  Agent may resign as Agent
on 30 days advance notice to Borrower, the Lenders and LC Issuer.  If Agent resigns as Agent under this
Agreement and the other Loan Documents, then Required Lenders will, within 30
days after notice of Agent’s resignation, appoint from among the Lenders a
successor agent for the Lenders, which, unless an Event of Default has occurred
and is continuing, successor agent must be approved by Borrower (which approval
shall not be unreasonably withheld, delayed or conditioned), whereupon (i) such
successor agent will succeed to the rights, powers and duties of Agent, (ii) the
term “Agent” will mean such successor agent effective on such appointment and
approval, and (iii) the former Agent’s rights, powers and duties as Agent
will be terminated, without any other or further act or deed on the part of
such former Agent or any of the parties to this Agreement or any holders of the
Obligations; however, if a successor agent has
not so been appointed within that 30 day period, the retiring Agent will have
the right to appoint a successor agent, which shall be a commercial bank
organized under the laws of the United States of America or of any state
thereof and having a combined capital and surplus of at least $500,000,000 who will
serve as “Agent” until the time, if ever, as Required Lenders appoint a
successor Agent as provided in this Section 13.9.  After any retiring Agent’s resignation as
Agent, (a) the provisions of this Section 13 will inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent
under this Agreement and the other Loan Documents and (b) the retiring
Agent will be relieved of all further duties and obligations as Agent.

 

13.10       Loan Collateral Matters.

 

13.10.1          Perfection/Enforcement
Actions.  Agent will hold the Loan
Collateral under the Security Documents as agent for the benefit of Agent, LC
Issuer and Lenders, subject to the terms of this Agreement and the Security
Documents.  Agent is hereby authorized on
behalf of all of the Lenders and LC Issuer, without the necessity of any notice
to or further consent from any Lender or the LC Issuer, from time to time, to
take any action with respect to any Loan Collateral which may be necessary or
desirable to perfect and maintain perfected the security interest in and Liens
on the Loan Collateral granted pursuant to the Loan Documents.  Payment and performance of the Obligations
under this Agreement and the other Loan Documents may be enforced only by the
action of Agent, and no Lender or LC Issuer will have any right individually to
seek to enforce or to enforce payment or performance of the Obligations 

 

96

 

or any of those
agreements, it being understood and agreed that such rights and remedies may be
exercised 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          Release
of Loan Collateral.  The Lenders and
LC Issuer hereby authorize Agent, at its option and in its discretion, to
release any Agent’s Liens on any Loan Collateral (i) upon Payment in Full
of all Obligations at any time arising under or in respect of this Agreement or
the other Loan Documents or the transactions contemplated hereby or thereby, (ii) constituting
property in which Borrower or any other Credit Party did not own an interest at
the time the Lien was granted to Agent, (iii) to the extent required in
connection with the sale or disposition of any Loan Collateral by any Credit
Party, as permitted hereunder (including under Section 10.24
hereof) or under any of the other Loan Documents, or in connection with any
merger permitted under Section 10.16 hereof, or to effect any sale
or other disposition of any Loan Collateral in connection with any exercise of
remedies of Agent and Lenders pursuant to the Loan Documents, (iv) owned
by or leased to any Credit Party which is subject to a purchase money security
interest or which is the subject of a Capital Lease, in either case, entered
into pursuant to Section 10.10(a) or (v) constituting
property leased to any Credit Party under a lease which has expired or been
terminated in a transaction permitted under this Agreement or is about to
expire and which has not been, and is not intended by such Credit Party to be,
renewed or extended.  On request by Agent
at any time, the Lenders and LC Issuer will confirm in writing Agent’s
authority to release particular types or items of Loan Collateral pursuant to
this Section 13.10.  In the
event of any sale or transfer of Loan Collateral, or any foreclosure with
respect to any of the Loan Collateral, Agent is authorized to deduct all of the
expenses incurred by Agent from the proceeds of any such sale, transfer or
foreclosure.

 

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

 

13.10.4          Execution
of 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 sale
and transfer of Loan Collateral which is expressly permitted pursuant to the
terms of this Agreement, or consented to in writing by Required Lenders or by
all of the Lenders, as applicable, and on at least 5 Business Days prior
written request by Borrower, Agent will (and is hereby irrevocably authorized
by the Lenders to) execute such documents as may be necessary to evidence the
release of Agent’s Liens in the Loan Documents on the Loan Collateral that was
sold or transferred; provided that (i) Agent
will not be required to execute any such document on terms which, in Agent’s
opinion, would expose Agent to liability or create any obligation or entail any
consequence other than the release of such Liens without recourse or warranty
and (ii) such release will not in any manner discharge, affect or impair
the Obligations or any Liens on (or obligations of Borrower in respect of) all
interests retained by Borrower, including the proceeds of the sale, all of
which will continue to constitute part of the Loan Collateral (unless and until
the Obligations are Paid in Full).

 

13.10.5          Agency
for Perfection by Possession.  Each
Lender and LC Issuer hereby appoints each other Lender and LC Issuer as agent
for the purpose of perfecting Agent’s Liens on property which, in accordance
with the UCC or other applicable law, can be perfected 

 

97

 

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

 

13.10.6          Agent Expenditures.

 

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

 

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

 

(iii)              By  the  making  of  an  Agent  Advance  and  without  any  further  action  on  the  part  of  Agent  or  the  Lenders,  Agent  hereby  grants  to  each  Lender,  and  each  Lender  hereby  acquires  from  Agent,  a  participation  in  such  Agent  Advance  equal  to  such  Lender’s  Agent  Advance  Exposure  Percentage  of  such  Agent  Advance.  In  consideration  and  in  furtherance  of  the  foregoing,  each  Lender  hereby  absolutely  and  unconditionally  agrees  to  pay  to  Agent,  for  the  account  of  Agent,  such  Lender’s  Agent  Advance  Exposure  Percentage  of  each  Agent  Advance,  or  of  any  payment  on  an  Agent  Advance  required  to  be  refunded  to  Borrower  for  any  reason.  Each  Lender  acknowledges  and  agrees  that  its  obligation  to  acquire  participations  pursuant  to  this  Section  13.10.6  (iii)  in  respect  of  Agent  Advances  is  absolute  and  unconditional  and  shall  not  be  affected  by  any  circumstance  whatsoever,  including  the  occurrence  and  continuance  of  an  Event  of  Default,  the  failure  of  any  condition  in  Section  5  to  be  

 

98

 

satisfied, or any
reduction or termination of the Revolving Credit Commitments, 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 any Agent Advance, Agent
shall apply such payments to such Agent Advance and, to the extent that the
Lenders have made payments pursuant to this Section 13.10.6(iii) to
Agent, then to Agent and such Lenders, as their interest may appear.  The purchase of participations in any Agent
Advance pursuant to this Section 13.10.6(iii) shall not
relieve Borrower of any default in the payment thereof.

 

13.11       Overadvances.  Notwithstanding anything to the contrary in
this Agreement, Borrower and the Lenders agree that Agent in its sole
discretion 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 and
thereby increase the Revolving Credit Availability by such amount from time to
time (each Revolving Loan resulting therefrom, an “Overadvance”); provided that (i) no Overadvance shall be for a period
longer than 15 Business Days and (ii) all such Overadvances outstanding as
of 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 Revolving
Loans for all purposes of this Agreement. 
The making of any Overadvance shall not constitute a waiver by Agent, LC
Issuer or the Lenders of their right to refuse the making of any further Credit
Extensions at any time any Overadvance exists.

 

13.12       No
Third Party Beneficiary.  The
provisions of Sections 13.1 through 13.8, 13.10.1, 13.10.5,
13.13 and 13.14,  are solely for the
benefit of Agent, LC Issuer and the Lenders, and neither Borrower nor any other
Credit Party will have any rights as a third party beneficiary of any of such
provisions.  In performing its functions
and duties as Agent under this Agreement and the other Loan Documents, Agent
acts solely as Agent of LC Issuer and the Lenders and does not assume and will
not be deemed to have assumed any obligation toward, or relationship of agency
or trust with or for, Borrower, any other Credit Party or any other Affiliate
of Borrower.

 

13.13       No
Reliance on Agent’s Customer Identification Program.  Each Lender acknowledges and agrees that
neither such Lender, nor any of its Affiliates, participants or assignees, may
rely on Agent to carry out such Lender’s, Affiliate’s, participant’s or assignee’s
customer identification program, or other obligations required or imposed under
or pursuant to the USA Patriot Act or the regulations thereunder, including the
regulations contained in 31 C.F.R. Section 103.121 (as hereafter amended,
the “CIP Regulations”), or any other Anti-Terrorism Law, including any
programs involving any of the following items relating to or in connection with
Borrower any other Credit Party or any of their respective Affiliates or
agents, this Agreement or the Loan Documents or the transactions hereunder or
contemplated hereby: (1) any identity verification procedures, (2) any
recordkeeping, (3) comparisons with government lists, (4) customer
notices or (5) other procedures required under the CIP Regulations or such
other laws.

 

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

 

99

 

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

 

14.           AMENDMENTS;
WAIVERS; ASSIGNMENTS; PARTICIPATIONS

 

14.1         Amendments and Waivers.

 

14.1.1            Amendments
Permitted by Consent of Required Lenders. 
Neither this Agreement, any other Loan Document, nor any terms of this
Agreement or any other Loan Document may be amended, supplemented or modified
except in writing and in accordance with the provisions of this Section 14.1.  Required Lenders may, or, with the written
consent of Required Lenders, Agent may, from time to time, (i) enter into
with Borrower or one or more other Credit Parties, as the case may be, written
amendments, supplements or modifications to this Agreement and the other Loan
Documents for the purpose of adding any provisions to this Agreement or the
other Loan Documents or changing in any manner the rights or obligations of the
Lenders or of Borrower and/or other Credit Parties, as the case may be, under
this Agreement or under any of the other Loan Documents or (ii) waive at
Borrower’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 the
requirements of this Agreement or the other Loan Documents or any Event of
Default 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 and
any Lender or any Affiliate thereof, will only be done with the consent of such
Credit Party and the Lender (or Affiliate thereof) party thereto
notwithstanding that such Rate Hedging Agreement is a Loan Document.

 

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

 

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

 

100

 

not constitute a change
in the terms of any Revolving Credit Commitment of any Lender), without the
consent of such Lender;

 

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

 

(iii)              amend,
modify or waive any provision of this Section 14.1.2 or reduce the
percentage specified in the definition of Required Lenders, in each case
without the written consent of all Lenders;

 

(iv)             release
any Loan Collateral from the Liens created by the Loan Documents except as
expressly permitted by Section 13.10 without the consent of all
Lenders;

 

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

 

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

 

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

 

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

 

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

 

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

 

In each case
above, the required consent of all or any of the Lenders shall be exclusive of
a Defaulting Lender.  Notwithstanding the
fact that the consent of all the Lenders is required in certain circumstances
as set forth above, (I) each Lender acknowledges that the provisions of Section 1126(c) of
the 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) Required
Lenders may consent to allow Borrower or any other Credit Party to use cash
collateral 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 or
modification of this Agreement or any of the other Loan Documents pursuant to Sections 14.1.1
or 14.1.2 or for any other matter relating to the Obligations or any of
the Loan Documents and (b) the Lender does not notify Agent of such Lender’s
refusal to grant the consent requested by Agent within 10 Business Days after
receipt of Agent’s request for such Lender’s consent, then such Lender’s
consent will be treated as having been granted unless such amendment,
supplement or modification would require the consent of all of the Lenders, and
Agent and the other Lenders will thereafter be permitted to take the actions
described in the request for consent as though such Lender had affirmatively
consented 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 or
modification of this Agreement or any of the other Loan Documents pursuant to Sections 14.1.1
or 14.1.2 or for any other matter relating to the Obligations or any of
the Loan Documents and (b) the Lender refuses to give its consent (a “Hold-Out
Lender”), Agent, at its option, may, at any time within 45 days after such
Lender notifies Agent of such Lender’s refusal to grant the requested consent,
acquire on notice to the applicable Lender (a “Buy-Out Notice”) all, but
not less than all, of that Lender’s Loans, other Credit Exposure and Revolving
Credit Commitments by paying to such Lender an amount equal to the unpaid
principal balance of the Loans held by such Lender plus all accrued interest
and fees then due to the Lender as set forth in this Agreement.  From and after the date on which Agent
delivers a Buy-Out Notice to such Lender, Agent and all other Lenders may
amend, modify, and supplement the Loan Documents or waive any of the provisions
of the Loan Documents (including any Event of Default), or all of the
foregoing, as though the non-consenting Lender had, in fact, affirmatively
consented to the requested actions.

 

14.1.4            Binding
Effect.  Any waiver and any
amendment, supplement or modification pursuant to this Section 14.1
will apply to each of the Lenders and shall be binding on Borrower, Agent, LC
Issuer and Lenders and all future holders of the Obligations.

 

14.1.5            No
Waiver.  Failure by Agent, LC Issuer
or any Lender to exercise any right, remedy or option under this Agreement or
in any Loan Document or delay by Agent, LC Issuer or any Lender in exercising
the same shall not operate as a waiver by Agent, LC Issuer or any Lender of its
right to exercise any such right, remedy or option.

 

14.2         Assignment.

 

14.2.1            Borrower
Assignments.  Borrower may not
assign, transfer or otherwise dispose of any of its rights or obligations
hereunder or under any other Loan Document, by operation of law or otherwise
without the consent of Agent, LC Issuer and each Lender, and any such
assignment, transfer or other disposition without the consent of Agent, LC
Issuer and each Lender shall be void.

 

102

 

14.2.2            Lender Assignments.

 

(i)                Any
Lender may, in the ordinary course of its business and in accordance with
applicable 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 (including
all or a portion of its Revolving Credit Commitments and Credit Exposure) in
accordance with the provisions of this Section 14.2.2.  Each assignment by a Lender of Loans or
Revolving Credit Commitments shall be made only if, after giving effect
thereto, such Lender continues to hold an equal ratable percentage of each Class of
all Loans and Revolving Credit Commitments under this Agreement.  Borrower will not have any obligation to
reimburse any Lender for any costs, fees or expenses incurred by a Lender
(exclusive of any expenses of Agent in its capacity as Agent) in connection
with the assignment by that Lender of any portion of its Revolving Credit
Commitment or any Loans owing to it.

 

(ii)               Each
assignment (an “Assignment and Acceptance”) shall be substantially in
the form of Exhibit G and shall not be permitted hereunder unless
such assignment is either for all of such Lender’s rights and obligations under
the Loan Documents or involves Loans, other Credit Exposure and Revolving Credit
Commitments in an aggregate amount of at least $5,000,000.  Notice to Agent and consent of Agent and, in
the case of an assignment of a Revolving Credit Commitment, LC Issuer and, as
long 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 in
withholding its consent of such assignment would cause Borrower to pay any
additional amounts hereunder, including any withholding tax, or any other cost
or expense) shall be required prior to an assignment becoming effective with
respect to a Purchaser which is not a Lender or a Person controlling or
controlled by a Lender and if the Purchaser is a Foreign Lender, such Lender
shall deliver all documentation required to be delivered by the Purchaser
pursuant to Section 2.15.5, duly completed and executed by the
Purchaser.

 

(iii)              Effect;
Effective Date.  Upon (a) delivery
to Agent of a notice of assignment (a “Notice of Assignment”), together
with any consent required by Section 14.2.2(ii), and (b) payment
of a $3,500 fee to Agent for processing such assignment, such assignment shall
become effective on the effective date specified in such Notice of Assignment.
On and after the effective date of such assignment, such Purchaser, if not
already a Lender, shall for all purposes be a Lender party to this Agreement
and any other Loan Documents executed by the Lenders and shall have all the
rights and obligations of a Lender under the Loan Documents to the same extent
as if it were an original party hereto, and no further consent or action by
Borrower, Agent, LC Issuer or Lenders shall be required to release the
transferor Lender with respect to the percentage of the Revolving Credit
Commitments and Loans assigned to such Purchaser.  Agent shall circulate a revised Schedule 1
to this Agreement to reflect the Revolving Credit Commitments of the Purchaser.

 

(iv)             The
Register.  Agent shall maintain at
its address referred to in Section 15.7 a copy of each assignment
delivered to and accepted by it pursuant to this Section 14.2.2 and
a register (the “Register”) for the recordation of the names and
addresses of the Lenders and the Revolving Credit Commitment and Credit
Exposure of and principal amount of the Loans owing to, each Lender from time
to time and whether such Lender is an original 

 

103

 

Lender or the assignee of
another Lender pursuant to an assignment under this Section 14.2.2.  The entries in the Register shall be
rebuttably presumptive evidence of the accuracy thereof, for all purposes,
absent manifest error, and Borrower, Agent, LC Issuer and the Lenders may treat
each Person whose name is recorded in the Register as a Lender hereunder for all
purposes of this Agreement.  The Register
shall be available for inspection by Borrower, LC Issuer or any Lender at any
reasonable 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 the
Loan Documents shall inure to the benefit of LC Issuer and each Lender’s
successors and assigns, and all the terms, conditions, covenants, provisions
and warranties herein shall inure to the benefit of and bind the permitted
successors and assigns of Borrower and LC Issuer and the Lenders, respectively.

 

14.3         Participations.

 

14.3.1            Permitted
Participations.  Notwithstanding
anything 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, commercial
finance companies or other institutional lenders (a “Participant”)
participating interests in its Loans, other Credit Exposure, Revolving Credit
Commitments, and the other rights and interests of that Lender (the “Originating
Lender”) hereunder and under the other Loan Documents; provided,
however, that (i) the Originating
Lender shall remain a “Lender” for all purposes of this Agreement and
the other Loan Documents and the Participant receiving the participating
interest in the Loans, other Credit Exposure, Revolving Credit Commitments, and
the other rights and interests of the Originating Lender hereunder shall not
constitute a “Lender” hereunder or under the other Loan Documents and
the Originating Lender’s obligations under this Agreement shall remain
unchanged, (ii) the Originating Lender shall remain solely responsible for
the performance of such obligations, (iii) Borrower, Agent, LC Issuer and
the Lenders shall continue to deal solely and directly with the Originating
Lender in connection with the Originating Lender’s rights and obligations under
this Agreement and the other Loan Documents, (iv) no Lender shall transfer
or grant any participating interest under which the Participant has the right
to approve any amendment to, or any consent or waiver with respect to, this
Agreement 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 Loan
Document would require the consent of all of the Lenders; and (v) subject
to Section 14.3.2, all amounts payable by Borrower hereunder shall
be determined as if such Lender had not sold such participation.  The rights of any Participant only shall be
derivative through the Originating Lender with whom such Participant
participates and no Participant shall have any rights under this Agreement or
the other Loan Documents or any direct rights as to the other Lenders, LC
Issuer, Agent, Borrower, the Loan Collateral, or otherwise in respect of the
Obligations.  No Participant shall have
the right to participate directly in the making of decisions by the Lenders
among themselves.

 

14.3.2            Set
Off Right.  Borrower agrees that if
amounts outstanding under this Agreement are due and unpaid or have been
declared or have become due and payable, each Participant, to the extent
permitted by applicable law, will be deemed to have the right of setoff in
respect of its participating interest in amounts owing under this Agreement to the
same extent as if the amount of its participating interest were owing directly
to it as a Lender under this Agreement; provided that
any Participant exercising that right will be obligated to share with the 

 

104

 

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

 

14.3.3            Disclosure
of Information.  Borrower authorizes
each Lender granting a participation to disclose to any Participant any and all
financial information in the Lender’s possession concerning Borrower which has
been delivered to such Lender by Borrower pursuant to the Loan Documents or in
connection with such Lender’s credit evaluation of Borrower or which has been
obtained independently by such Lender in its credit evaluation or audit of
Borrower.  Each Participant must agree to
keep confidential the information received by it from a Lender regarding
Borrower (i) in the same manner that it keeps confidential the business
and financial information of its other commercial customers and as required by Section 15.17
hereof and (ii) as required by law.

 

14.4         Law
Requirements.  Nothing in the Loan
Documents will prohibit any Lender from pledging or assigning its interests in
the Loans to any Federal Reserve Bank in accordance with applicable law.

 

15.           GENERAL

 

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

 

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

 

15.3         WAIVER
OF JURISDICTION.  AS A SPECIFICALLY
BARGAINED INDUCEMENT FOR AGENT, LC ISSUER AND THE LENDERS TO ENTER INTO THIS
AGREEMENT AND EXTEND CREDIT TO BORROWER, PARENT GUARANTOR (ON BEHALF OF ITSELF
AND ALL OTHER CREDIT PARTIES), AGENT, LC ISSUER AND EACH LENDER AGREE THAT ANY
ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS, THEIR VALIDITY OR PERFORMANCE, AND WITHOUT LIMITATION
ON 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 PROSECUTE
IN ANY APPLICABLE JURISDICTION ACTIONS RELATED TO REPAYMENT AND COLLECTION OF
THE OBLIGATIONS, SHALL BE INITIATED AND PROSECUTED AS TO ALL PARTIES AND THEIR
SUCCESSORS AND ASSIGNS AT SAN FRANCISCO, CALIFORNIA.  BORROWER, PARENT GUARANTOR (ON BEHALF OF 

 

105

 

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

 

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

 

15.5         Application
of Payments; Revival of Obligations. 
Agent, LC Issuer and the Lenders shall have the continuing right to
apply or reverse and reapply any payments to any portion of the
Obligations.  To the extent Borrower
makes a payment or payments to Agent, LC Issuer or any Lender or Agent, LC
Issuer or any Lender receives any payment or proceeds of the Loan Collateral or
any other security for Borrower’s benefit, which payment(s) or proceeds or
any part thereof are subsequently voided, invalidated, declared to be
fraudulent 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 proceeds
received, the Obligations or part thereof intended to be satisfied shall be
revived and shall continue in full force and effect, as if such payment or
proceeds had not been received.

 

15.6         Fees and Expenses.

 

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

 

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

 

106

 

Documents, and the credit
facilities provided hereby and thereby, or the exercise of any of the rights or
remedies of Agent, LC Issuer or the Lenders hereunder and thereunder (including
the printing and distribution of materials to the Lenders and all costs
associated with bank meetings); (2) any Credit Extensions made by the
Lenders hereunder and the issuance of Letters of Credit by LC Issuer; (3) any
transaction contemplated by this Agreement or the other Loan Documents; and (4) any
inspection, audit, appraisal, or verification of the Loan Collateral or of
Borrower or any other Credit Party (Agent currently charges, in addition to any
field examination fee that may be provided pursuant to the terms of this
Agreement, $850.00 per diem based on an 8 hour day plus out-of-pocket expenses
per auditor or field examiner for the services of its auditors and field
examiners and a potentially greater amount if the auditor is not an Agent
employee); however, unless an Event of Default has
occurred or is existing, Agent shall not seek reimbursement from Borrower for
more than a total of 2 periodic, repeat audits (i.e.,
exclusive of any business audit in connection with a Permitted Acquisition or
any other acquisition permitted hereunder) per calendar year undertaken by
Agent’s auditors or field examiners of Borrower (including of the Loan
Collateral); and

 

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

 

(i)            The
Expenses (a) shall include Attorneys’ Fees for one counsel for Agent and
one counsel for all of the Lenders (including L/C Issuer), and fees of other
professionals, all lien search and title search fees, all filing and recording
fees and all travel expenses, (b) are part of the Obligations, payable
upon Agent’s demand, and (c) shall be secured by the Loan Collateral.

 

(ii)           The
Obligations described under this Section 15.6 shall survive any
termination of this Agreement.

 

15.7         Notices; Electronic
Mail.

 

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

 

107

 

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

 

15.7.2            Electronic
Mail.  Agent may, in its discretion,
elect, from time to time, to receive certain routine information, including
reports, otherwise required by the terms of this Agreement or the other Loan
Documents (“Reports”) from Parent Guarantor or Borrower via electronic
mail 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-mail
Address”).  All e-mail transmissions
of Reports from Parent Guarantor or Borrower shall contain the information as
specified in this Agreement, shall be formatted or displayed in a manner and
order substantially similar to that shown in this Agreement or otherwise
required by Agent and shall conform to the specifications described in this
Agreement.  Borrower will be solely
responsible for the confidentiality of the contents of e-mail transmissions during
transmission to the Agent E-mail Address, and Parent Guarantor and Borrower
each acknowledge that none of Agent, LC Issuer or any Lender is responsible for
any compromise of data transmitted across public computer networks or
telecommunications facilities, including the Internet.  Parent Guarantor and Borrower will be
responsible for the accuracy of all information provided to Agent via e-mail
transmission to the Agent E-mail Address, and any information so received by
Agent will be deemed to have been submitted by and received from Parent
Guarantor or Borrower.  In the event of a
failure of the transmission of the Reports, it is the responsibility of Parent
Guarantor and Borrower to transmit the contents of any pending transmission to
Agent using an alternative method which is timely and in accordance with this
Agreement.  Parent Guarantor and Borrower
agree that, by sending Agent the Reports via e-mail transmission, Parent
Guarantor and Borrower are certifying the truthfulness and accuracy of the
Reports submitted each and every time Parent Guarantor or Borrower sends Agent
the Reports.  Parent Guarantor and
Borrower further agree that, on each occasion when Parent Guarantor or Borrower
sends Agent e-mail transmissions containing Reports, Parent Guarantor and
Borrower each are warranting and representing, jointly and severally, to Agent
the truthfulness and accuracy of the representations and warranties relevant to
that Report set forth in the relevant Loan Document.  Parent Guarantor and Borrower each consent to
and represents that it is Parent Guarantor’s and Borrower’s intent that by
Parent Guarantor’s and Borrower’s insertion of Parent Guarantor’s or Borrower’s
name in the subject line of the transmitting e-mail, or on the Reports
(including the header and/or the certification line), Parent Guarantor and
Borrower intend such to constitute a legally binding and enforceable signature
of Parent Guarantor or Borrower, as the case may be, and in all aspects the
legal equivalent of Parent Guarantor’s or Borrower’s handwritten signature, as
the case may be.

 

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

 

108

 

harmless from and against
any 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 for
which indemnification hereunder is sought), including Attorneys’ Fees and
disbursements (the “Indemnified Liabilities”), which are incurred by,
accrued, asserted, made or brought against, charged to, or recoverable from the
Indemnified Parties or any of them as a result of, or arising out of, or
relating to, or as a direct or indirect result of:

 

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

 

(ii)               the
entering into and performance of this Agreement and the other Loan Documents by
any of the Indemnified Parties;

 

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

 

(iv)             any
Environmental Law, regardless of whether or not caused by, or within the
control of, Borrower or any other Credit Party; or

 

(v)              any
Remittance deposited in the Special Account which is dishonored or returned
unpaid for any reason;

 

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

 

15.9         Additional
Waivers by Borrower.  Borrower waives
presentment and protest of any instrument and notice thereof, and, except as
expressly provided in the Loan Documents, demand, notice of default and all
other notices to which Borrower might otherwise be entitled.  Borrower agrees that it shall assert no claim
against Agent, LC Issuer or any Lender on any theory of liability for
consequential, special, indirect or punitive damages.

 

15.10       Equitable
Relief.  Parent Guarantor and
Borrower each recognize that, in the event Parent Guarantor or Borrower fails
to perform, observe or discharge any of its obligations or liabilities under
this Agreement, any remedy at law may prove to be inadequate relief to Agent,
LC Issuer and the Lenders; therefore, Parent Guarantor and Borrower agree that
Agent, 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 case
without the necessity of proving actual damages.

 

15.11       Entire
Agreement.  This Agreement and the
other Loan Documents set forth the entire agreement of the parties with respect
to its subject matter and supersede all previous 

 

109

 

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

 

15.12       Headings.  Section headings in this Agreement are
included for convenience of reference only and shall not relate to the
interpretation or construction of this Agreement.

 

15.13       Cumulative
Remedies.  The remedies provided in
this Agreement and the other Loan Documents are cumulative and not exclusive of
any remedies provided by law.  Exercise
of one or more remedy(ies) by Agent, LC Issuer or Lenders does not require that
all or any other remedy(ies) be exercised and does not preclude later exercise
of the same remedy.  If there is any
conflict, ambiguity, or inconsistency, in Agent’s judgment, between the terms
of this Agreement or any of the other Loan Documents, then the applicable terms
and provisions, in Agent’s judgment, providing Agent, LC Issuer and the Lenders
with greater rights, remedies, powers, privileges, or benefits will control.

 

15.14       Recourse
to Directors or Officers.

 

15.14.1          The
obligations of Agent, LC Issuer and the Lenders under this Agreement are solely
the corporate obligations of Agent, LC Issuer and the Lenders.  No recourse shall be had for the payment of
any amount owing in respect to this Agreement or for the payment of any fee
hereunder or for any other obligation or claim arising out of or based upon
this Agreement against any stockholder, employee, officer, or director of
Agent, LC Issuer and the Lenders.

 

15.14.2          The
obligations of Borrower and the other Credit Parties under this Agreement and
the other Loan Documents are solely the corporate obligations of Borrower and
the other Credit Parties.  No recourse
shall be had for the payment of any amount owing in respect to this Agreement
or any other Loan Documents or for the payment of any fee hereunder or
thereunder or any other obligation or contract claim arising out of or based
upon 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          AS
A SPECIFICALLY BARGAINED INDUCEMENT FOR AGENT, LC ISSUER AND THE LENDERS TO
ENTER INTO THIS AGREEMENT AND EXTEND CREDIT TO BORROWER, BORROWER PARENT
GUARANTOR (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 OUT
OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS OR THE 

 

110

 

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

 

15.15.2          If
the waiver of jury trial set forth in Section 15.15.1 is ineffective or
unenforceable, the parties agree that all Claims shall be resolved by reference
to 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 referee
selected by the Presiding Judge of the Los Angeles County, California.  Such proceeding shall be conducted in Los
Angeles County, California, with California rules of evidence and
discovery applicable to such proceeding.

 

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

 

15.16       PATRIOT
ACT NOTICE.  To help the government
fight the funding of terrorism and money laundering activities, federal law
requires all financial institutions to obtain, verify, and record information
that identifies each party who opens an account.  Agent will ask each party to a financial
transaction their name, address and other information that will allow Agent to
identify such party.  Agent may also ask
to see other documents that substantiate a party’s identity.

 

15.17       Confidentiality.  Agent and each Lender agree to use
commercially reasonable efforts (equivalent to the efforts Agent or such Lender
applies to maintaining the confidentiality of its own confidential information)
to maintain as confidential all confidential information provided to them by
the Credit Parties and designated as confidential, except that Agent and any
Lender may disclose such information (a) to Persons employed or engaged by
Agent or such Lender who are informed of the confidentiality obligation
hereunder; (b) to any bona fide assignee or participant or potential
assignee or participant that has agreed to comply with the covenant contained
in this Section 15.17 (and any such bona fide assignee or
participant or potential assignee or participant may disclose such information
to Persons employed or engaged by them as described in clause (a) above);
(c) as required or requested by any Governmental Authority or reasonably
believed by Agent or such Lender to be compelled by any court decree, subpoena
or legal or administrative order or process; (d) as, on the advice of
Agent’s or such Lender’s counsel, is required by law; (e) in connection
with the exercise of any right or remedy under the Loan Documents or in
connection with any litigation to which Agent or such Lender is a party; or (f) that
ceases to be confidential through no fault of Agent or any Lender or any of
their employees or agents.

 

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

 

111

 

judgment is given or (as
the case may be) the order is made.  Any
payment made to Agent or any other Secured Party pursuant to this Agreement or
any other Loan Document in the second currency shall constitute a discharge of
the obligations of Borrower and the Credit Parties to pay to Agent and the
Secured Parties any amount originally due to Agent and the Secured Parties in
the first currency under this Agreement or any other Loan Document only to the
extent of the amount of the first currency which Agent and each of the Secured
Parties is able, on the date of the receipt by it of such payment in any second
currency, to purchase, in accordance with Agent’s and such Secured Party’s
normal banking procedures, with the amount of such second currency so
received.  If the amount of the first
currency falls short of the amount originally due to Agent and the other
Secured Parties in the first currency under this Agreement or any other Loan
Document, Borrower and each of the Credit Parties hereby agree that it and they
will indemnify each of Agent and each of the Secured Parties against and save
each of Agent and each of the Secured Parties harmless from any shortfall so
arising.  This indemnity shall constitute
an obligation of Borrower and the other Credit Parties separate and independent
from the other obligations contained in this Agreement, shall give rise to a separate
and independent cause of action and shall continue in full force and effect
notwithstanding any judgment or order for a liquidated sum or sums in respect
of amounts due to Agent or any other Secured Party under this Agreement or any
other Loan Document or under any such judgment or order.  Any such shortfall shall be deemed to
constitute a loss suffered by each of Agent and each such Secured Parties, as
the case may be, and Borrower nor any Credit Party shall be entitled to require
any proof or evidence of any actual loss. 
The covenant contained in this Section 15.18 shall survive
the payment in full of all of the other Obligations of Borrower and the other
Credit Parties under this Agreement and the other Loan Documents.

 

112

 

IN WITNESS
WHEREOF, this Agreement has been duly executed by the parties hereto as of the
day 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

  

 

 

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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]

 

S-2

 

	
   

  	
  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]

 

S-3

 

	
   

  	
  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

  

 

 

[SIGNATURE PAGE TO FINANCING AGREEMENT]

 

S-4

 

	
   

  	
  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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