Document:

Exhibit 10.8.17

EXECUTION VERSION

FORBEARANCE AND WAIVER AGREEMENT

AND AMENDMENT TO LOAN DOCUMENTS

This FORBEARANCE AND WAIVER
AGREEMENT AND AMENDMENT TO LOAN DOCUMENTS (this “Forbearance, Waiver and
Amendment”), dated as of March 27, 2002 (the “Forbearance, Waiver and
Amendment Effective Date”), is entered into by and among WESTAFF (USA),
INC. (formerly known as Western Staff Services (USA), Inc.) (“WSS”),
WESTERN MEDICAL SERVICES, INC. (“WMS” and together with WSS,
collectively the “Borrowers” and each of WMS and WSS individually, a “Borrower”),
each of the financial institutions party to the Credit Agreement (as that term
is defined below) (collectively, the “Banks”), BANK OF AMERICA, N.A.
(formerly known as Bank of America National Trust and Savings Association) (“BofA”),
as agent for the Banks (in such capacity, the “Agent”) and each of the
parties that are current active Subsidiaries (the “Existing Guarantors”) that
have previously executed that certain Guaranty dated as of March 4, 1998 in
favor of the Agent and the Banks.

RECITALS

A.            The Borrowers, the Banks, the Agent and BofA, as the
letter of credit issuing bank thereunder (in such capacity, the “Issuing
Bank”) entered into that certain Credit Agreement dated as of March 4,
1998, as amended by that certain First Amendment to Credit Agreement dated as
of May 15, 1998, as further amended by that certain Second Amendment to Credit
Agreement dated as of July 23, 1998, as further amended by that certain Third
Amendment to Credit Agreement dated as of January 22, 1999, as further amended
by that certain Fourth Amendment to Credit Agreement dated as of December 15,
1999, as further amended by that certain Fifth Amendment to Credit Agreement
dated as of November 7, 2000, (as amended, the “Credit Agreement”), pursuant
to which the Banks and the Issuing Bank agreed to provide certain financial
accommodations to or for the benefit of the Borrowers upon the terms and
conditions contained therein.  Unless
otherwise defined herein, capitalized terms and matters of construction defined
and established in the Credit Agreement shall be applied herein as defined and
established therein.

B.            Westaff, Inc. (formerly known as Western Staff Services,
Inc.) (“Parent”), Western Medical Services (NY), Inc., (“WMSNY”),
Western Technical Services, Inc. (“WTSI”) and MediaWorld International
(“MediaWorld”) are parties to that certain Guaranty dated as of March 4,
1998 (as amended by this Forbearance, Waiver and Amendment, the “Guaranty”),
made by the Guarantors in favor of the Agent and the Banks; WMSNY and WTST are
no longer active operating companies, and Parent and Mediaworld are the only
Existing Guarantors under the Guaranty.

C.            The Existing Guarantors and the Agent are parties to that
certain Guarantor Security Agreement (Receivables, Inventory, Equipment and
General Intangibles) dated as of March 4, 1998 (as amended by this Forbearance,
Waiver and Amendment, the “Guarantor Security Agreement”).

D.            The Borrowers have notified the Agent that certain Events
of Default have occurred and are continuing. 
Specifically, an Event of Default has occurred and is continuing
(i) under Section 7.01(a) of the Credit Agreement as a result of
the Borrowers’ failure to deliver 

 

 

 

to the Agent an unqualified
opinion of a certified public account in connection with the audited
consolidated financial statements of the Parent for the fiscal year ended
November 3, 2001; (ii) under Sections 7.01(a) and 7.02(a)
of the Credit Agreement as a result of the Borrowers’ failure to deliver the
annual financial statements and officer’s certificate required thereunder
within the 120 days of the Borrowers’ fiscal year-end as specified therein;
(iii) under Section 8.04(e) of the Credit Agreement as a result of
the Borrowers’ failure to comply with the covenant requiring that loans and
investments in foreign Subsidiaries or Affiliates not exceed 25% of
Consolidated Net Worth as of the fiscal quarter ending on November 3, 2001
and as of the fiscal quarter ending January 26, 2002 (such Events of
Default described in clauses (i), (ii) and (iii) to be referred to
collectively herein as the “Forbearance Events of Default”); (iv) under Section
7.13(b) of the Credit Agreement as a result of the Borrowers’ failure to
cause certain domestic Material Subsidiaries to execute and deliver a guaranty
and security agreement in favor of the Agent for the benefit of the Banks;
(v) under Section 7.03(g) of the Credit Agreement as a result of
the Borrowers’ failure to deliver a written notice to the Agent of the Material
Adverse Effect resulting from the adverse arbitration award obtained by Synergy
Staffing, Inc. against the Parent; (vi) under Section 8.16 of the
Credit Agreement as a result of the Borrowers’ failure to comply with the Total
Debt to EBITDA Ratio covenant for the four fiscal quarter period ending
November 3, 2001 and the four fiscal quarter period ending January 26,
2002; (vii) under Section 8.17 of the Credit Agreement as a result
of the Borrowers’ failure to comply with the Fixed Charge Coverage Ratio
covenant for the four fiscal quarter period ending November 3, 2001 and
the four fiscal quarter period ending January 26, 2002; (viii) under Section 8.15
of the Credit Agreement as a result of the Borrowers’ failure to comply with
the ratio of Total Indebtedness to Total Capitalization covenant as of the
fiscal quarter ending on November 3, 2001 and as of the fiscal quarter
ending on January 26, 2002; and (ix) under Section 8.14 of the
Credit Agreement as a result of the Borrowers failure to comply with the ratio
of current assets to current liabilities as of the fiscal quarter ending on
November 3, 2001 and as of the fiscal quarter ending on January 26,
2002 (such Events of Default described in clauses (iv) through (ix)
above to referred to herein collectively as the “Waiver Events of Default”
and, together with the Forbearance Events of Default, the “Existing Events
of Default”).

E.             The Borrowers have requested that the Agent and the
Banks forbear from exercising their rights and remedies as a result of the
Forbearance Events of Default and that the Agent and the Banks waive the Waiver
Events of Default.

F.             The Agent and the Banks are willing to so forbear from
exercising their rights and remedies with respect to the Forbearance Events of
Default and to waive the Waiver Events of Default.

G.            In addition, the Agent, the Banks and the Borrowers have
agreed to amend the Credit Agreement in certain respects, and the Existing
Guarantors, the Agent and the Banks have agreed to amend the Guaranty and the
Guarantor Security Agreement in certain respects.

AGREEMENT

NOW,
THEREFORE, in consideration of the continued performance by the Borrowers of
their promises and obligations under the Credit Agreement and the other Loan
Documents, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby 

 

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acknowledged, the Borrowers, the Guarantors, the Agent and the Banks
(as applicable) hereby agree as follows:

1.             Ratification and Incorporation of Credit Agreement and
Other Loan Documents. 
Except as expressly modified by this Forbearance, Waiver and Amendment,
(a) the Borrowers hereby acknowledge, confirm and ratify all of the terms
and conditions set forth in, and all of their obligations under, the Credit
Agreement and the other Loan Documents, and (b) all of the terms and
conditions set forth in the Credit Agreement and the other Loan Documents are
incorporated herein by this reference as if set forth in full herein, as
amended hereby and subject to the terms hereof.  Without limiting the generality of the foregoing, the Borrowers
acknowledge and agree that as of March 27, 2002 (i) the aggregate
Effective Amount of all Revolving Loans was $0, and (ii) the aggregate
Effective Amount of all outstanding L/C Obligations was $11,842,500.  The Borrowers represent that they have no
offset, defense, counterclaim, dispute or disagreement of any kind or nature
whatsoever with respect to the amount of such Indebtedness.

2.             Amendment of Credit Agreement.  The Credit Agreement is hereby amended as
follows:

(a)           The definitions of “Applicable
Margin” and “Guarantors” in Section 1.01 of the Credit
Agreement are hereby amended to read in their entirety as follows:

“Applicable Margin” means

(i)            with respect to Base Rate Loans, two percent (2%);

(ii)           with respect to Offshore Rate Loans, the Applicable
Offshore Rate Margin.

“Guarantors” means, when
used in the singular, any one of, and, when used in the plural, collectively
all of, the following companies:  the
Parent, WESTAFF SUPPORT, INC., a California corporation, WESTAFF (CA), INC., a
California corporation, WESTAFF (GP), INC., a California corporation, WESTAFF
(LP), INC., a California corporation and WESTAFF LP, a Delaware limited
partnership, and any other Person that may, after the date hereof, execute a
guaranty of the Borrowers’ obligations under this Agreement.

(b)           The following defined terms are
added, in the appropriate alphabetical order, to Section 1.01 of
the Credit Agreement:

“Forbearance, Waiver and
Amendment Effective Date” means March 28, 2002.

(c)           A new Subsection 2.01(c) is
hereby added to read in its entirety as follows:

 

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(c)           Notwithstanding any other provision
of this Agreement to the contrary, as of the Forbearance, Waiver and Amendment
Effective Date no Bank shall be obligated to make any Offshore Rate Loans to
any Borrower.

(d)           Subsection 11.16(b) is hereby
amended by deleting the phrase “EXCEPT AS OTHERWISE LIMITED BY SECTION 11.17”
from the beginning of the first sentence thereof.

(e)           Section 11.17 is hereby
amended to reading in its entirety as follows:

11.17       Waiver to Right to Trial by Jury.

EACH PARTY TO THIS AGREEMENT
HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH
OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM
WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH
CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT
OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY
JURY.

(f)            Schedule 2.01(b) is hereby
amended in its entirety as set forth in Exhibit A hereto.

3.             Amendment of Guaranty.  The Guaranty is hereby amended as follows:

(a)           Subsection 4.8(b) is hereby
amended by deleting the phrase “EXCEPT AS OTHERWISE LIMITED BY SECTION 4.9”
from the beginning of the first sentence thereof.

(b)           Section 4.9 is hereby amended
to read in its entirety as follows:

4.9           Waiver of Right to Trial by Jury.

EACH PARTY TO THIS GUARANTY
HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION ARISING UNDER THIS GUARANTY OR ANY OTHER LOAN DOCUMENT OR IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO OR THERETO OR ANY OF THEM WITH RESPECT TO THIS GUARANTY OR ANY OTHER
LOAN DOCUMENT, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR
TORT OR OTHERWISE; AND EACH 

 

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PARTY HEREBY AGREES AND
CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY
FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF
THEIR RIGHT TO TRIAL BY JURY.

4.             Amendment of Guarantor Security Agreement.  The Guarantor Security Agreement is hereby
amended as follows:

(a)           Section 18 is hereby amended
by deleting the phrase “EXCEPT AS OTHERWISE LIMITED BY SECTION 19” from the
beginning of the first sentence thereof.

(b)           Section 19 is hereby amended
in its entirety to read as follows:

SECTION 19  Waiver of Right to Trial By Jury.  EACH PARTY TO THIS AGREEMENT HEREBY
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH
RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER FOUNDED IN CONTRACT OR
TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY
JURY.

5.             Forbearance in Respect of Forbearance Events of
Default.

(a)           Acknowledgment.  The Borrowers hereby acknowledge and agree
that the Forbearance Events of Default have occurred and are continuing, which
entitle the Agent, at the request or with the consent of the Majority Banks, to
exercise certain rights and remedies, on its behalf and on behalf of the Banks,
under the Loan Documents and applicable law, and the Borrowers further
represent and warrant that as of the date hereof no Events of Default (other
than the Existing Events of Default) have occurred and are continuing.  The Borrowers hereby acknowledge and agree
that the Agent, at the request or with the consent of the Banks, has the
presently exercisable right, on its behalf and on behalf of the Banks, to
declare the Obligations to be immediately due and payable under the terms of
the Credit Agreement but the Agent, at the request of the Banks, has agreed to
forbear exercising such rights in accordance with this Agreement.

 

 

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(b)           Forbearance.

(i)            In reliance upon the
representations, warranties and covenants of the Borrowers contained in this
Forbearance, Waiver and Amendment, and subject to the terms and conditions of
this Forbearance, Waiver and Amendment and any documents or instruments
executed in connection herewith, the Agent and the Banks each agree, during the
period (the “Forbearance Term”) beginning on the date hereof and ending
on the earlier of (i) the occurrence of any Event of Default other than an
Existing Event of Default or (ii) April 30, 2002, to forbear from
exercising their rights and remedies under the Credit Agreement and other Loan
Documents in respect of or arising out of the Forbearance Events of Default,
subject to the conditions, amendments and modifications contained herein.

(ii)           Upon the termination of the
Forbearance Term, the agreement of the Agent and the Banks to forbear shall
automatically and without further action terminate and be of no force and
effect, it being expressly agreed that the effect of such termination will be
to permit the Agent and the Banks to exercise such rights and remedies
immediately, without any further notice, passage of time or forbearance of any
kind unless the Forbearance Events of Default are cured.

6.             Waiver of the Waiver Events of
Default.

(a)           Acknowledgment.  The Borrowers hereby acknowledge and agree
that the Waiver Events of Default have occurred and are continuing, each of
which entitles the Agent, at the request or with the consent of the Majority
Banks, to exercise certain rights and remedies, on its behalf and on behalf of
the Banks, under the Loan Documents and applicable law, and the Borrowers
further represent and warrant that as of the date hereof no Events of Default
(other than the Existing Events of Default) have occurred and are
continuing.  The Borrowers hereby
acknowledge and agree that the Agent, at the request or with the consent of the
Banks, has the presently exercisable right, on its behalf and on behalf of the
Banks, to declare the Obligations to be immediately due and payable under the
terms of the Credit Agreement but the Agent, at the request of the Banks, has
agreed to waive the Waiver Events of Default in accordance with this Agreement.

                (b)           Waiver.  Subject to the terms and conditions of this
Forbearance, Waiver and Amendment, the Agent and the Banks each agree to waive
the Waiver Events of Default.

7.             No Other Waivers; Reservation of
Rights.

(a)           Other than the Waiver Events of
Default, the Agent and the Banks have not waived, are not by this Forbearance,
Waiver and Amendment waiving, and have made no commitment to waive, any Events
of Default that may be continuing on the date hereof (including the Forbearance
Events of Default) or any Events of Default that may occur after the date
hereof (whether similar to the Existing Events of Default or otherwise), and
the Agent and the Banks have not agreed to forbear with respect to any of its
rights or remedies concerning any Events of Default (other than, during the
Forbearance Term, the Forbearance Events of Default to the extent expressly set
forth herein), that may have occurred or are continuing as of the date hereof
or that may occur after the date hereof.

 

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(b)           Subject to Section 5(b) above
(solely with respect to the Existing Events of Default) and to Section 6(b)
above (solely with respect to the Waiver Events of Default), the Agent and the
Banks reserve the right, in their discretion, to exercise any or all of their
rights and remedies under the Credit Agreement and the other Loan Documents as
a result of any Events of Default that may be continuing on the date hereof or
any Event of Default that may occur after the date hereof, and the Agent and
the Banks have not waived any of such rights or remedies, and nothing in this
Forbearance, Waiver and Amendment, and no delay on their part in exercising any
such rights or remedies, should be construed as a waiver of any such rights or
remedies.

8.             Conditions to Effectiveness.  The effectiveness of this Forbearance,
Waiver and Amendment is subject to satisfaction of each of the following
conditions:

(a)           the receipt by the Agent and the
Banks of copies of this Forbearance, Waiver and Amendment duly executed by the
Borrowers;

(b)           the receipt by the Agent of duly
executed copies of a Certificate of Additional Guarantor, in substantially the
form of Exhibit B attached hereto, from each of Westaff (CA), Inc. (“WCA”),
Westaff (GP), Inc. (“WGP”), Westaff (LP), Inc. (“WLP”), and
Westaff LP (“LP” and, collectively with WCA, WGP and WLP, the “Additional
Guarantors”), whereby the Additional Guarantors shall elect and agree to be
bound by all the terms, conditions and obligations applicable to a Guarantor
under the Guaranty (as amended by this Forbearance, Waiver and Amendment);

(c)           the receipt by the Agent of a
Guaranty, in substantially the form of Exhibit C attached hereto, duly
executed by Westaff Support, Inc. (“WSI”) in favor of the Agent (the
“WSI Guaranty”);

(d)           the receipt by the Agent of duly
executed copies of a Certificate of Additional Grantor, in substantially the
form of Exhibit D attached hereto, from each of the Additional
Guarantors and WSI, whereby the Additional Guarantors and WSI shall elect and
agree to be bound by all the terms, conditions and obligations applicable to a
Grantor (as that term is defined in the Guarantor Security Agreement) under the
Guarantor Security Agreement (as amended by this Forbearance, Waiver and
Amendment) and shall pledge, assign, transfer, hypothecate and set over to the
Agent for is benefit and the ratable benefit of the Banks a security interest
in all of the Additional Guarantors’ and WSI’s right, title and interest in, to
and under certain property;

(e)           the recordation of the Deed of Trust,
Absolute Assignment of Leases and Rents, Security Agreement and Fixture Filing,
dated as of March 26, 2002, made by WSI to Chicago Title Company for the
benefit of BofA, as agent (the “Deed of Trust”);

(f)            the receipt by the Agent of evidence
satisfactory to the Agent that the Borrowers have delivered all promissory notes
made by Licensees or Franchisees, along with copies of all security agreements,
guaranties and stock certificates delivered in connection with such promissory
notes, required to be delivered to the Agent pursuant to Sections 7.14(c)
and 8.04(c) of the Credit Agreement, with the exception of security
documents relating to real 

 

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property in the state of Florida, and with the
exception of any foreign Subsidiary promissory notes not available on the date
hereof and to be delivered by the Borrowers pursuant to Section 9(g)
hereof;

(g)           the receipt by the Agent of such
other documents, agreements or filings as the Agent may reasonably request to
evidence the Borrowers’ compliance with the terms and conditions of the Credit
Agreement, the other Loan Documents, and this Forbearance, Waiver and
Amendment;

(h)           satisfactory arrangements by
Borrowers acceptable to the Agent for payment in full by the Borrowers of all
unpaid costs and expenses (including Attorney Costs) incurred by the Agent as
of the date hereof in the development, preparation, negotiation and execution
of this Forbearance, Waiver and Amendment and any other amendment, amendment
and restatement, waiver, consent, restructuring or other modification of the
provisions to the Credit Agreement or any other Loan Documents (whether or not
the transactions contemplated hereby or thereby have been consummated), the
amount of such Attorney Costs incurred through March 25, 2002 being One Hundred
Sixty Thousand Three Hundred Forty-Six Dollars and Ninety-One Cents
($160,346.91);

(i)            satisfactory arrangements by
Borrowers acceptable to the Agent for payment in full by the Borrowers of all
title insurance premiums, fees and expenses, including escrow and recording
fees, in connection with the recordation of the Deed of Trust;

(j)            payment in full by the Borrowers of
a forbearance fee as set forth in that certain Fee Letter Agreement dated as of
March 26, 2002 between the Borrowers and the Agent; and

(k)           the absence of any Defaults or Events
of Default, other than the Existing Events of Default.

9.             Certain Agreements of the Loan
Parties.

(a)           Negative Pledge Covenant.  Each Borrower hereby covenants and agrees
that, during the Forbearance Term, no Borrower shall, and nor shall any
Borrower suffer or permit any other Loan Party to, directly or indirectly,
make, create, incur, assume or suffer to exist any Lien upon or with respect to
any part of its Property, whether now owned or hereafter acquired, other than
(i) Liens in existence as of the date of this Forbearance, Waiver and
Amendment, including the Lien on $5,500,000 of cash held at Travellers
Indemnity to support insurance obligations of WSS, (ii) the Lien evidenced
by the Deed of Trust, and (iii) Liens in favor of the Agent for any Cash
Collateralized amounts as required by Section 9(b).

(b)           Cash Collateralization of
Additional Letters of Credit. 
Notwithstanding any provision in the Credit Agreement or any other Loan
Document, the Borrowers agree that, during the Forbearance Term, the Issuing
Bank shall not be obligated to Issue, and no Bank shall be obligated to
participate in, Letters of Credit for the account of WSS unless the Borrowers
(in addition to complying with the applicable terms and conditions of the
Credit Agreement) Cash Collateralize, for the benefit of the Agent and the
Banks only (and not the Note Purchasers), such 

 

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additional Letters of Credit in an amount equal to the
maximum amounts available for drawings under such additional Letters of Credit.

(c)           Availability of Revolving Loans.

(i)            Notwithstanding any provision in the
Credit Agreement or any other Loan Document, the Borrowers agree that, except
as set forth in clause (ii) below, during the Forbearance Term no Bank shall be
obligated to make Revolving Loans to the Borrowers, unless all of the Banks
shall agree in writing and in their sole discretion that Revolving Loans shall
be available during the Forbearance Term.

(ii)           Notwithstanding clause (i) above, the
Banks agree to make, on a limited basis, Revolving Loans (“Limited Revolving
Loans”) to WSS during the Forbearance Term, subject to the following
conditions:

(A)          WSS shall submit to the Agent before
11:00 a.m. on the date (any such date, a “Delivery Date”) two (2)
Business Days prior to the requested Borrowing Date for a Limited Revolving
Loan both of the following:  (I) a
certificate substantially in the form of Exhibit E attached hereto (a “Borrowing
Base Certificate”) setting forth the amount of Acceptable Accounts,
calculated as of the Friday immediately preceding such Delivery Date, and (II)
an irrevocable written notice in accordance with Section 11.02 of the
Credit Agreement in the form of the Request for Borrowing attached as Exhibit
F hereto.  For purposes of this subclause
(A), the term “Acceptable Accounts” shall have the meaning ascribed to it
in Attachment 1 to Exhibit E hereto.

(B)           The Effective Amount of Limited
Revolving Loans during the Forbearance Term shall not exceed two million
dollars ($2,000,000.00) at any one time.

(C)           After giving effect to any Limited
Revolving Loan, the Effective Amount of all Revolving Loans and L/C Obligations
(with the exception of L/C Obligations that are Cash Collateralized) shall not
exceed an amount equal to the lesser of (I) the Aggregate Commitment and (II)
the Borrowing Base (as that term is defined in Attachment 1 to Exhibit
E hereto).

(D)          WSS shall repay in full the Effective
Amount of such Limited Revolving Loans within three (3) Business Days after the
date that the proceeds of such Limited Revolving Loans are first made available
to WSS.

(E)           WSS shall use such Revolving Loans
only for the purposes of paying any outstanding payroll or withholding tax
obligations incurred in the ordinary course of the Borrowers’, the Parent’s or
any domestic Subsidiary’s business.

(F)           No Default or Event of Default (other
than the Existing Events of Default) shall have occurred and be continuing.

(iii)          The Borrowers agree that the failure
by WSS to satisfy any of the conditions set forth in subclauses (ii)(C), (D)
and (E) shall constitute an Event of Default under Section 9.01(c)
of the Credit Agreement.

 

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(d)           Release of Claims.

(i)            Each Borrower hereby acknowledges
and agrees that it does not have any defenses, counterclaims, offsets,
cross-claims, claims or demands of any kind or nature whatsoever that can be
asserted to reduce or eliminate all or any part of the liability of such
Borrower to repay the Agent, any Bank or the Issuing Bank as provided in the
Credit Agreement and the other Loan Documents or to seek affirmative relief or
damages of any kind or nature from the Agent, any Bank or the Issuing
Bank.  Each Borrower hereby voluntarily
and knowingly releases and forever discharges the Agent, the Banks and the
Issuing Bank and the Agent’s, each of the Banks’ and the Issuing Bank’s
predecessors, agents, employees, consultants, advisors, attorneys, successors
and assigns, from all possible claims, demands, actions, causes of action,
damages, costs, expenses, and liabilities whatsoever, known or unknown,
anticipated or unanticipated, suspected or unsuspected, fixed, contingent, or
conditional, at law or in equity, originating in whole or in part on or before
the Forbearance, Waiver and Amendment Effective Date, which such Borrower may
now have or may hereafter have against the Agent, any Bank or the Issuing Bank
or the Agent’s, any Bank’s or the Issuing Bank’s predecessors, agents,
employees, consultants, advisors, attorneys, successors and assigns, if any,
and irrespective of whether or not any such claims arise out of contract, tort,
violation of law or regulations, or otherwise, including without limitation,
the exercise of any rights and remedies under this Forbearance, Waiver and
Amendment, the Credit Agreement or the other Loan Documents, and negotiation
and execution of this Forbearance, Waiver and Amendment, the Credit Agreement
and the other Loan Documents.

(ii)           Each Borrower acknowledges and agrees
that it understands the meaning and effect of Section 1542 of the California
Civil Code which provides:

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

Each Borrower agrees to assume the risk of any and all
unknown, unanticipated or misunderstood defenses, claims, contracts,
liabilities, indebtedness and obligations which are released, waived and
discharged pursuant to this Subsection 5(d).  Each Borrower hereby waives and relinquishes all rights and
benefits which it might otherwise have under the aforementioned Section 1542 of
the California Civil Code or any similar law, to the extent such law may be
applicable, without regard to the release of such unknown, unanticipated or
misunderstood defenses, claims, contracts, liabilities, indebtedness and
obligations.  To the extent that such
laws may be applicable, each Borrower waives and releases any right or defense
which it might otherwise have under any other law or any applicable
jurisdiction which might limit or restrict the effectiveness or scope of any of
its waivers or releases hereunder.

(e)           Attorney Costs, Fees and Expenses.  On a monthly basis, within five (5) business
days of receipt of a written invoice from the Agent, the Borrowers agree (i) to
pay or reimburse the Agent for all reasonable costs and expenses incurred in
connection with the development, preparation, negotiation and execution of any
amendment, amendment and restatement, waiver, consent, restructuring or other
modification of the provisions of this 

 

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Forbearance, Waiver and Amendment, the Credit
Agreement and the other Loan Documents (whether or not the transactions
contemplated hereby or thereby are consummated), and the consummation and
administration of the transactions contemplated hereby and thereby, including
all Attorney Costs, and (ii) to pay or reimburse the Agent and each Bank for
all reasonable costs and expenses incurred in connection with the enforcement,
attempted enforcement, or preservation of any rights or remedies under this
Forbearance, Waiver and Amendment, the Credit Agreement or the other Loan
Documents (including all such costs and expenses incurred during any “workout”
or restructuring in respect of the Obligations and during any legal proceeding,
including any proceeding under any Debtor Relief Law), including all Attorney
Costs.  The foregoing costs and expenses
shall include all search, filing, recording, title insurance and appraisal
charges and fees and taxes related thereto, and other out-of-pocket expenses
incurred by the Agent and the cost of independent public accountants and other
outside experts retained by the Agent or any Bank.  The agreements in this Section 9(e) shall survive the
termination of the Commitments and repayment of all other Obligations.

(f)            Payment of Appraisal Fees.  The Borrowers agree to pay in full, within
five (5) Business Days of the Forbearance, Waiver and Amendment Effective Date,
all real estate appraisal fees incurred in connection with the Deed of Trust.

(g)           Delivery of Foreign Subsidiary
Promissory Notes.  Notwithstanding
the requirements set forth in Section 5(m) of the Borrower Security
Agreement and Section 5(m) of the Guarantor Security Agreement that
the Borrowers and the Guarantors immediately deliver to the Agent all instruments
held by such Person (including instruments executed and delivered by foreign
Subsidiaries), the Borrowers and the Guarantors (and the Additional Guarantors
and WSI, having agreed to become Grantors under the Guarantor Security
Agreement and to be bound by the terms, conditions and obligations of a Grantor
thereunder) agree, within fourteen (14) Business Days of the Forbearance,
Waiver and Amendment Effective Date, to deliver to the Agent all promissory
notes made by foreign Subsidiaries in favor of any Borrower, Guarantor or
Additional Guarantor (appropriately endorsed or accompanied by appropriate
instruments of assignment or transfer).

10.           Certain
Agreements of the Agent and the Banks.

(a)           Negotiation of Amendment and
Restatement of Credit Agreement. 
The Agent and the Banks agree (subject, among other things, to their
satisfactory review of the financial condition and prospects of the Borrowers),
to negotiate in good faith with the Borrowers an amendment and restatement of
the Credit Agreement in order to replace the Credit Agreement with a new credit
facility with WSS as the sole borrower and on terms acceptable to the Agent and
the Banks; provided, however, that nothing in this Section
10(a) shall obligate or commit the Agent or any Bank to enter into any
agreement to amend and restate the Credit Agreement.

11.           Miscellaneous.

(a)           Entire Agreement.  This Forbearance, Waiver and Amendment,
together with the Credit Agreement and the other Loan Documents, is the entire
agreement between the parties hereto with respect to the subject matter
hereof.  This Forbearance, Waiver and 

 

11

 

Amendment supersedes all prior and contemporaneous
oral and written agreements and discussions with respect to the subject matter
hereof.  Except as otherwise expressly
modified herein, the Loan Documents shall remain in full force and effect.

(b)           Counterparts.  This Forbearance, Waiver and Amendment may
be executed in identical counterpart copies, each of which shall be an original,
but all of which shall constitute one and the same agreement.  Delivery of an executed counterpart of a
signature page to this Forbearance, Waiver and Amendment by facsimile
transmission shall be effective as delivery of a manually executed counterpart
thereof.

(c)           Headings.  Section headings used herein are for
convenience of reference only, are not part of this Forbearance, Waiver and
Amendment, and are not to be taken into consideration in interpreting this
Forbearance, Waiver and Amendment.

(d)           Recitals.  The recitals set forth at the beginning of
this Forbearance, Waiver and Amendment are true and correct, and such recitals
are incorporated into and are a part of this Forbearance, Waiver and Amendment.

(e)           Governing Law.  This Forbearance, Waiver and Amendment shall
be governed by, and construed and enforced in accordance with, the laws of the
State of California applicable to contracts made and performed in such state,
without regard to the principles thereof regarding conflict of laws.

(f)            Effect.  Upon the effectiveness of this Forbearance,
Waiver and Amendment, from and after the date hereof, each reference in the
Credit Agreement to “this Agreement,” “hereunder,” “hereof,” or words of like
import shall mean and be a reference to the Credit Agreement as amended hereby,
and each reference in the other Loan Documents to the Credit Agreement,
“thereunder,” “thereof,” or words of like import shall mean and be a reference
to the Credit Agreement as amended hereby.

(g)           No Novation.  The execution, delivery, and effectiveness
of this Forbearance, Waiver and Amendment shall not (a) limit, impair,
constitute a waiver of, or otherwise affect any right, power, or remedy of the
Agent or the Banks under the Credit Agreement or any other Loan Document, except
as specifically set forth herein, (b) constitute a waiver of any provision
in the Credit Agreement or in any of the other Loan Documents, except as
specifically set forth herein, or (c) except as expressly modified by this
Forbearance, Waiver and Amendment, alter, modify, amend, or in any way affect
any of the terms, conditions, obligations, covenants, or agreements contained
in the Credit Agreement, all of which are ratified and affirmed in all respects
and shall continue in full force and effect.

(h)           Conflict of Terms.  In the event of any inconsistency between
the provisions of this Forbearance, Waiver and Amendment and any provision of
the Credit Agreement, the terms and provisions of this Forbearance, Waiver and
Amendment shall govern and control.

[THE SIGNATURE PAGES FOLLOW]

 

 

12

 

IN WITNESS WHEREOF, this
Forbearance Agreement and Sixth Amendment to Credit Agreement has been duly
executed as of the date first written above.

“Borrowers”

WESTAFF (USA), INC.

By:      /s/ Dirk A. Sodestrom

Name:  Dirk A. Sodestrom

Title:  Senior Vice President and
Chief Financial Officer

WESTERN
MEDICAL SERVICES, INC.

By: /s/ Gary A. Kittleson

Name: Gary A. Kittleson

Title:  Executive Vice President and
Chief Financial Officer

“Agent”

BANK OF AMERICA, N.A.

By:      /s/ Dora A. Brown

Name: Dora A. Brown

Title:  Vice President

“Banks”

BANK OF AMERICA, N.A.

By:      /s/ Carol M. Clements

Name:  Carol M. Clements

Title:  Senior Vice President

COMERICA
BANK—CALIFORNIA

By:      /s/ Ronald Tucker

Name: Ronald Tucker, Vice President

13

 

Title:
________________________________________

UNITED
CALIFORNIA BANK (formerly known as Sanwa Bank California)

By:      /s/ Jerry M. Dermott

Name: Jerry M. Dermott

Title: Vice President

“Existing Guarantors”

WESTAFF, INC.

By:      /s/ Dirk A. Sodestrom

Name: Dirk A. Sodestrom

Title: Senior Vice President and Chief Financial Officer

MEDIAWORLD
INTERNATIONAL

By:      /s/ Dirk A. Sodestrom

Name: Dirk A. Sodestrom

Title: Senior Vice President and Chief Financial Officer

 

 

14

 

Exhibit A

SCHEDULE 2.01(b)

REVOLVING COMMITMENT

I.              Revolving
Commitment before the Forbearance, Waiver and Amendment Effective Date:

	
   

  	
  Name of Bank

  	
  Commitment Percentage

  	
  Revolving Commitment

  	
  L/C Commitment

  
	
   

  	
  Bank of America, N.A.
  (formerly known as Bank of America National Trust and Savings Association)

  	
  43.420210000%

  	
  $39,078,189

  	
  $8,684,042

  
	
   

  	
  Comerica
  Bank—California

  	
  33.333333333%

  	
  $30,000,000

  	
  $6,666,667

  
	
   

  	
  United California Bank
  (formerly known as Sanwa Bank California)

  	
  23.246456667%

  	
  $20,921,811

  	
  $4,649,291

  
	
   

  	
  TOTAL

  	
  100.000000000%

  	
  $90,000,000

  	
  $20,000,000

  

 

II.            Revolving
Commitment on and as of the Forbearance, Waiver and Amendment Effective Date:

	
   

  	
  Name of Bank

  	
  Commitment Percentage

  	
  Revolving Commitment

  	
  L/C Commitment

  
	
   

  	
  Bank of America, N.A.
  (formerly known as Bank of America National Trust and Savings Association)

  	
  43.420210000%

  	
  $11,289,255

  	
  $8,684,042

  
	
   

  	
  Comerica
  Bank—California

  	
  33.333333333%

  	
  $8,666,667

  	
  $6,666,667

  
	
   

  	
  United California Bank
  (formerly known as Sanwa Bank California)

  	
  23.246456667%

  	
  $6,044,078

  	
  $4,649,291

  
	
   

  	
  TOTAL

  	
  100.000000000%

  	
  $26,000,000

  	
  $20,000,000

  

 

 

A-1

 

Exhibit B

CERTIFICATE
OF ADDITIONAL GUARANTOR

 

Reference is made to that
certain Guaranty dated as of March ___, 1998 (as amended, amended and restated,
modified, supplemented or renewed from time to time, the “Guaranty”), by
and among the Guarantors from time to time party thereto in favor of BANK OF
AMERICA, N.A. (formerly known as Bank of America National Trust and Savings
Association) (“BofA”) for its benefit and the benefit of the financial
institutions (the “Banks”) from time to time party to the Credit
Agreement dated as of March 4, 1998 (as now in effect or hereafter extended,
renewed, modified, supplemented, amended or restated from time to time, the “Credit
Agreement”) among WESTAFF (USA), INC. (formerly known as Western Staff
Services (USA), Inc.) (“WUSAI”), WESTERN MEDICAL SERVICES, INC. (“WMS”
and, together with WUSAI, each a “Borrower” and collectively, the “Borrowers”),
the Banks referred to therein and BofA as agent for the Banks (in such
capacity, the “Agent”).  Unless
otherwise defined herein or in the Guaranty, capital terms used in this
Certificate have the meanings given to them in the Credit Agreement.

Each of Westaff (CA), Inc.,
a California Corporation, Westaff (GP), Inc., a California corporation, Westaff
(LP), Inc., a California corporation and Westaff Limited Partnership, a
Delaware limited partnership (individually and collectively “Additional
Guarantor”), is a Subsidiary of Westaff (USA), Inc. (with the exception of
Westaff Limited Partnership, which is 99% owned by Westaff (LP), Inc., and 1%
owned by Westaff (GP), Inc.  Each
Additional Guarantor hereby elects to become a Guarantor under the Guaranty,
and agrees to be bound by all the terms, conditions, and obligations applicable
to a Guarantor thereunder as of the date hereof.

Each Additional Guarantor
hereby represents and warrants that each of the representations and warranties
set forth in the Guaranty are true and correct as of the date hereof as
applicable to Additional Guarantor.

This Certificate is dated
March ___, 2002.

	
  WESTAFF (CA), INC.  

   

  By:______________________________________________

  Dirk
  A. Sodestrom 

  Title:
  ______________________________________

  	
   

  	
  WESTAFF (GP), INC.  

   

  By:______________________________________________

  Dirk
  A. Sodestrom 

  Title:
  ______________________________________

  
	
   

  
	
  WESTAFF (LP), INC.  

   

  By:
  _____________________________________________

  Dirk A. Sodestrom

  Title:______________________________________

  	
   

  	
  WESTAFF LIMITED PARTNERSHIP, A DELAWARE 

  LIMITED PARTNERSHIP 

   

  BY: WESTAFF
  (GP), INC., ITS GENERAL PARTNER  

   

  By:
  ____________________________________________

  Dirk A. Sodestrom 

  Title:_______________________________________

  
	
   

  	
   

  	
   

  

 

 

 

B-1

 

 

 

ACCEPTED AND AGREED TO:

 

BANK OF AMERICA, N.A., in
its capacity as Agent

 

By:                                                                                        

Name:                                                                                   

Title:  
                                                                                    

 

 

B-2

 

 

Exhibit C

 

FORM OF WSI GUARANTY

 

[SEE ATTACHED]

 

 

 

C-1

 

 

Exhibit D

 

CERTIFICATE OF ADDITIONAL GRANTOR

Reference is made to that
certain Guarantor Security Agreement (Receivables, Inventory, Equipment and
General Intangibles) dated as of March ___, 1998 (as now in effect or hereafter
extended, renewed, modified, supplemented, amended or restated from time to
time, the “Security Agreement”), by and among the Grantors from time to
time party thereto in favor of BANK OF AMERICA, N.A. (formerly known as Bank of
America National Trust and Savings Association) (“BofA”) for its benefit
and the benefit of the financial institutions (the “Banks”) from time to
time party to the Credit Agreement dated as of March 4, 1998 (as now in effect
or hereafter extended, renewed, modified, supplemented, amended or restated
from time to time, the “Credit Agreement”) among WESTAFF (USA), INC.
(formerly known as Western Staff Services (USA), Inc.) (“WUSAI”),
WESTERN MEDICAL SERVICES, INC. (“WMS” and, together with WUSAI, each a “Borrower”
and collectively, the “Borrowers”), the Banks referred to therein and
BofA, as agent for the Banks (in such capacity, the “Agent”).  Unless otherwise defined herein or in the
Security Agreement, or in the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of California, capitalized terms used
in this Certificate have the meanings given to them in the Credit Agreement.

Each of Westaff Support,
Inc., a California corporation, Westaff (CA), Inc., a California Corporation (“WCAI”),
Westaff (GP, Inc.), a California corporation (“WGPI”), Westaff (LP),
Inc., a California corporation (“WLPI”) and Westaff Limited Partnership,
a Delaware limited partnership (“WLP”) (individually and collectively “Additional
Grantor”), is a Subsidiary of WUSAI (with the exception of WLP, which is
99% owned by WLPI and 1% owned by WGPI).  Each Additional Grantor hereby elects to become a Grantor under
the Security Agreement, and agrees to be bound by all the terms, conditions,
and obligations applicable to a Grantor thereunder as of the date hereof.

As security for the payment
and performance of the Secured Obligations, each Additional Grantor hereby
pledges, assigns, transfers, hypothecates and sets over to the Agent for its
benefit and for the ratable benefit of the Banks, and hereby grants to the
Agent for its benefit and for the ratable benefit of the Banks, a security
interest in, all of such Additional Grantor’s right, title and interest in, to
and under the following property, wherever located and whether now existing or
owned or hereafter acquired or arising: (i) all Accounts; (ii) all Chattel
Paper; (iii) all Deposit Accounts; (iv) all Documents; (v) all Equipment; (vi)
all General Intangibles; (vii) all Instruments; (viii) all Inventory; (ix) all
Books; (x) all Investment Property; (xi) all Securities Accounts; (xii) all
Rights to Payment; (xiii) all Commercial Tort Claims, and (xiv) all products
and Proceeds of any and all of the foregoing.

Each Additional Grantor
hereby represents and warrants to the Agent that:

(a)           Such
Additional Grantor’s name as it appears in official filings in the state of its
incorporation or other organization, the type of entity of Additional Grantor
(including corporation, partnership, limited partnership or limited liability
company), the organizational identification number issued by Additional Grantor’s
state of incorporation or organization or a statement that no such number has
been issued, 

 

D-1

 

Additional Grantor’s
state of organization or incorporation and the location of Additional Grantor’s
chief executive office and principal place of business are set forth in Schedule
1 hereto.  Such Additional Grantor
has only one state of incorporation or organization.

(b)           All
locations where Books pertaining to the Rights to Payment are kept, including
all equipment necessary for accessing such Books and the names and addresses of
all service bureaus, computer or data processing companies and other Persons
keeping any Books or collecting Rights to Payment for such Additional Grantor,
are set forth Schedule 1 hereto.

(c)           All
trade names and trade styles under which such Additional Grantor presently
conducts its business operations are set forth in Schedule 1 hereto,
and, except as set forth in Schedule 1 hereto, such Additional Grantor
has not, at any time during the preceding five years: (i) been known as or used
any other corporate, trade or fictitious name; (ii) changed its name;
(iii) been the surviving or resulting corporation in a merger or
consolidation; or (iv) acquired through asset purchase or otherwise any
business of any Person.

(d)           No
Inventory is stored with any bailee, warehouseman or similar Person or on any
premises leased to such Additional Grantor, nor has any Inventory been
consigned to Additional Grantor or consigned by Additional Grantor to any
Person or is held by such Additional Grantor for any Person under any “bill and
hold” or other arrangement, except as set forth in Schedule 1 hereto.

(e)           Except
as set forth in Schedule 1 hereto, such Additional Grantor (directly or
through any Subsidiary) does not own, possess or use under any licensing
arrangement any patents, copyrights, trademarks, service marks or trade name,
nor is there currently pending before any Governmental Authority any
application for registration of any patent, copyright, trademark, service mark
or trade name.

(f)            The
names and addresses of all financial institutions at which such Additional
Grantor maintains Deposit Accounts or Securities Accounts, and the account
numbers and account names of such Deposit Accounts and Securities Accounts, are
set forth in Schedule 1 hereto.

(g)           Each
of the remaining representations and warranties set forth in the Security
Agreement are true and correct as of the date hereof as applicable to such
Additional Grantor.

 

 

D-2

 

This Certificate is dated March______, 2002.

 

 

 

	
  WESTAFF SUPPORT, INC.  

   

  By:______________________________________________

  Dirk
  A. Sodestrom 

  Title:
  ______________________________________

  	
   

  	
  WESTAFF (LP), INC.  

   

  By:______________________________________________

  Dirk
  A. Sodestrom 

  Title:
  ______________________________________

  
	
   

  
	
  WESTAFF (CA), INC.  

   

  By:
  _____________________________________________

  Dirk A. Sodestrom

  Title:______________________________________

  	
   

  	
  WESTAFF (GP), INC.  

   

  By:______________________________________________

  Dirk
  A. Sodestrom 

  Title: ______________________________________

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  WESTAFF LIMITED PARTNERSHIP, A DELAWARE 

  LIMITED PARTNERSHIP 

   

  BY: WESTAFF
  (GP), INC., ITS GENERAL PARTNER  

   

  By:
  ____________________________________________

  Dirk A. Sodestrom 

  Title:_______________________________________

  

 

 

 

ACCEPTED AND AGREED TO:

 

BANK OF AMERICA, N.A., in its capacity as Agent

 

By:                                                                                        

Name:                                                                                   

Title:  
                                                                                    

 

 

 

D-3

 

 

Schedule 1 to Certificate of Additional Grantor

 

1.                                      Locations of Chief Executive
Office and Principal Place of Business of each Additional Grantor

 

 

2.                                      Locations of Books
Pertaining to Rights to Payment of each Additional Grantor

                

 

3.                                      Corporate Name, State of
Incorporation, Organizational Identification Number, Trade Names and Trade
Styles:  Other Corporate, Trade or
Fictitious Names, Etc. of Borrower and each Additional Grantor

 

 

4.                                      Inventory Stored with
Warehousemen or on Leased Premises, Etc. of each Additional Grantor

 

 

5.                                      Patents, Copyrights,
Trademarks, Etc. of each Additional Grantor

 

 

6.                                      Deposit Accounts of each
Additional Grantor

 

 

7.                                      Locations in the United
States where Additional Grantors own, lease, or occupy any real property

 

 

D-4

 

 

Exhibit E

 

WEEK-END COLLATERAL REPORT AND BORROWING CERTIFICATE

(Refer to Attachment 1 for definitions of terms)

Note:  Items denoted
by an “*” are not included in the calculation of the Borrowing Base for
purposes of determining eligibility for Limited Revolving Loans during the
Forbearance Term.

	
  WEEK
  ENDING __________________

  FRIDAY _____________, 2002

  
	
   

  	
  ACCOUNTS RECEIVABLE

  	
  REVOLVING FACILITY

  	
   

  	
   

  
	
  1.)

  	
  Beginning
  of Week G/L Balance

  	
  $

  	
  
   

  

  
	
  2.)

  	
  ADD:  Gross Sales for the Week

  	
  $

  	
  
   

  

  
	
  3.)

  	
  ADD:  Debit Memos, Returned Checks, Other Debit
  Adjustments

  	
  $

  	
  
   

  

  
	
  4.)

  	
  LESS:  Net Cash Collections for the Week

  	
  $

  	
  
   

  

  
	
  5.)

  	
  LESS:  Credit Memos, Discounts, Other Credit
  Adjustments

  	
  $

  	
  
   

  

  
	
  6.)

  	
  End of Week G/L Balance as
  of  _/_/02 (See Schedule “B” for
  reconciliation)

  	
  $

  	
  
   

  

  
	
  7.)

  	
  A/R
  Aging Balance as of the same date

  	
  $

  	
  
   

  

  
	
   

  	
  Variance,
  if any (Line 6 minus Line 7)

  	
  $

  	
  
   

  

  
	
  8.)

  	
  Ineligible
  Accounts Receivable (Per Attached Schedule A)

  	
  $

  	
  
   

  

  
	
  9.)

  	
  Net
  Eligible Accounts Receivable (Line 7 Aging Balance minus Line 8)

  	
  $

  	
  
   

  

  
	
  BORROWING
  BASE

  	
   

  	
   

  
	
   

  	
  Accounts
  Receivable

  	
   

  	
   

  
	
  13.)

  	
  Gross Availability (85% of Line 9) 

  	
  $

  	
  
   

  

  
	
  [14.)

  	
  Restricted  Cash 
  (@100%)]*

  	
  $

  	
  
   

  

  
	
  [15.)

  	
  Overadvance  Facility 
  (See schedule A)]*

  	
  $

  	
  
   

  

  
	
  [16.)

  	
  Real
  Estate availability  ($10,050,000 @
  70%)]*

  	
  $

  	
  
   

  

  
	
  17.)

  	
  TOTAL 
  Availability

  	
   

  	
  
   

  

  
	
  LOAN
  DETAIL

  	
   

  	
   

  
	
   

  	
  Bank
  Group—Reference Rate

  	
  $                                                      

  	
  $

  	
   

  
	
   

  	
  Bank
  Group—IBOR

  	
  $                                                      

  	
  $

  	
   

  
	
   

  	
  Stand-by
  L/Cs (at 100%)

  	
  $                                                      

  	
  $

  	
   

  
	
   

  	
  [Senior
  Notes (secured by A/R)

  	
  $                                                      ]*

  	
  $

  	
   

  
	
   

  	
  Other
  (Specify)

  	
  $                                                      

  	
  $

  	
   

  
	
  18.)

  	
  Total
  Obligations at Month-end

  	
  $

  	
  
   

  

  
	
  19.)

  	
  Net Borrowing Base Availability (Line 17
  minus Line 18)

  	
  $

  	
  
   

  

  

 

 

E-1

 

The undersigned
represents and warrants that:

(A)  The information
provided above and in the accompanying supporting documentation is true,
complete and correct, and complies fully with the conditions, with terms and
covenants of the Forbearance and Waiver Agreement and Amendment to Loan
Documents (the “Forbearance, Waiver and Amendment”) dated as of March 27, 2002
among the Borrowers, the Agent, the Banks and the Guarantors.

(B)   Since the date of
the last financial statement or certification furnished to the Agent:

(a)   To the best knowledge, after making due
inquiry, of the undersigned, there has been no material adverse change in the
financial condition or operations of the undersigned; and

(b)   To the best knowledge, after making due
inquiry, of the undersigned there is no event which is, or with notice or lapse
of time or both would be, a default under that certain Credit Agreement dated
as of March 4, 1998 by and among the Borrowers, the Agent and the Banks
(other than the Existing Events of Default, as that term is defined in the
Forbearance, Waiver and Amendment).

 

	
  Westaff (USA), Inc.  

  	
   

  
	
   

  	
   

  
	
  By:
  _____________________________________________________________

  	
  Date:
  __________________________

  
	
  (Signature & Title)

  	
   

  

 

 

E-2

 

Westaff (USA), Inc.

SCHEDULE A

SCHEDULE OF INELIGIBLES         

FOR THE WEEK ENDING FRIDAY, __________, 2002

	
   

  	
  Ineligible Accounts Receivable

  	
   

  	
   

  
	
  1

  	
  COD, Consignment or
  Guaranteed Sales

  	
  $

  	
  
   

  

  
	
  2

  	
  Contested

  	
  $

  	
  
   

  

  
	
  3

  	
  Contra Elimination

  	
  $

  	
  
   

  

  
	
  4

  	
  Unbilled FBA
  receivables

  	
  $

  	
  
   

  

  
	
  5

  	
  Estimated unbilled
  others

  	
  $

  	
  
   

  

  
	
  6

  	
  Nonjusticiable

  	
  $

  	
  
   

  

  
	
  7

  	
  Encumbered

  	
  $

  	
  
   

  

  
	
  8

  	
  IntraCompany

  	
  $

  	
  
   

  

  
	
  9

  	
  Government

  	
  $

  	
  
   

  

  
	
  10

  	
  Defaulted

  	
  $

  	
  
   

  

  
	
  11

  	
  Nondelivered goods

  	
  $

  	
  
   

  

  
	
  12

  	
  Note obligations

  	
  $

  	
  
   

  

  
	
  13

  	
  Excess concentration
  limit

  	
  $

  	
  
   

  

  
	
  14

  	
  Debit
  Memos/Chargebacks

  	
  $

  	
  
   

  

  
	
  15

  	
  Other (Specify)  ____________________________________

  	
  $

  	
  
   

  

  
	
   

  	
  TOTAL ACCOUNTS RECEIVABLE INELIGIBLES

  	
  $

  	
  
   

  

  
	
   

  	
  (To Line #8 of Borrowing
  Certificate)

  	
   

  	
   

  
	
   

  	
  [Overadvance
  Facility:

  	
   

  	
   

  
	
  16

  	
  Unbilled FBA
  receivables (line 11) 

  	
  $

  	
  
   

  

  
	
  17

  	
  Revenue Week Accrual

  	
  $

  	
  
   

  

  
	
  18

  	
  G/L adjustment to
  Revenue Week Accrual

  	
  $

  	
  
   

  

  
	
  19

  	
  Total

  	
  $

  	
   

  
	
   

  	
  Lesser of:

  	
   

  	
   

  
	
  20

  	
  Advance Rate @ 60% of
  line 19

  	
  $

  	
  $

  	
   

  
	
  21

  	
  Overadvance Facility

  	
  $                                   

  	
  $

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Overadvance Facility amount  Line #16 of Borrowing Certificate)]*

  	
  $

  	
  
   

  

  

 

 

E-3

 

Westaff (USA), Inc.

SCHEDULE B

ACCOUNTS RECEIVABLE RECONCILIATION 

FOR THE WEEK ENDING: FRIDAY,

____________, 2002

	
  Westaff (USA), Inc.

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Accounts
  Receivable Reconciliation

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  As of ______________
  in $000:

  	
  Aging

  	
  G/L

  	
  Financials

  
	
   

  	
   

  	
   

  	
   

  
	
  Balance per Source
  Records:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Revenue  Week

  	
   

  	
   

  	
   

  
	
  Unapplied  Cash

  	
   

  	
   

  	
   

  
	
  Adjustments: Accrual
  Revenue Week

  	
   

  	
   

  	
   

  
	
  Foreign

  	
   

  	
   

  	
   

  
	
  Unexplained

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Total
  Adjustments

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Reconciled  Totals

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Variance ineligible:

  	
   

  	
   

  	
   

  
	
  Variance Between Aging
  & G/L (if G/L is lower)

  	
   

  	
   

  

 

 

E-4

 

Attachment 1 to Exhibit E

 

Definitions

As used in the Forbearance, Waiver and Amendment and
in this Exhibit E, the following terms shall have the meanings set forth
below:

“Acceptable Accounts”
means, the Accounts of the Loan Parties which are determined to be Acceptable
Accounts by the Agent in its sole but reasonable discretion.  Without limiting the discretion of the Agent
to establish other criteria of ineligibility, for an Account to be considered
an Acceptable Account the following requirements must be satisfied:

(a)           the Account must have resulted from the sale of goods or
services by any Loan Party in the ordinary course of its business (and with
respect to goods, without any further obligation on the part of such Loan Party
to service, repair, or maintain any such goods sold);

(b)           there shall be no conditions which must be satisfied
before the applicable Loan Party is entitled to receive payment of the Account;

(c)           the Account must not have arisen from a COD sale, a consignment
or a guaranteed sale;

(d)           to the best of the applicable Loan Party’s knowledge,
there must be no claim by the Account Debtor to such Account or any defense
asserted to payment of the Account, in each case whether valid or otherwise;

(e)           such Account is not subject to any counterclaims or
offsets which have been or may be, to the best of the applicable Loan Party’s
knowledge, asserted against such Loan Party by the Account Debtor (including
offsets for any “contra accounts” owed by the Loan Party to the Account Debtor
for goods purchased by such Loan Party or for services performed for such Loan
Party); provided, however, that the Agent, in its sole
discretion, may permit WSS to include such Account as an Acceptable Account
and, to the extent any counterclaims, offsets, credit balances, or contra
accounts exist in favor of such Account Debtor, such amounts shall be deducted
from the Account balance;

(f)            the Account represents a genuine obligation of the
Account Debtor for goods sold or services rendered to and accepted by the
Account Debtor;

(g)           the applicable Loan Party has sent an invoice to the
Account Debtor in the amount of the Account;

(h)           the applicable Loan Party is not prohibited by the laws of
the state where the Account Debtor is located from bringing an action in the
courts of that state to enforce the Account Debtor’s obligation to pay the
Account;

(i)            the applicable Loan Party has taken
all appropriate actions to ensure access to the courts of the state where the
Account Debtor is located, including, where necessary, the filing of a “Notice
of Business Activities Report” or other similar filing with the applicable
state agency 

 

E-5

 

or the qualification by the applicable Loan Party as a foreign
corporation authorized to transact business in such state;

(j)            the Account is owned by the applicable Loan Party free of
any title defects or any Liens or interests of others except the security
interest in favor of the Agent;

(k)           the Account Debtor with respect to such Account is not (i)
an employee, Affiliate, or Subsidiary of WSS, the Parent, or an entity which
has common officers or directors with WSS, (ii) the U.S. government or any
Governmental Authority unless WSS complies with the procedures in the Federal
Assignment of Claims Act, 41 U.S.C. § 15, with respect to the Account, or (iii)
any state, county, city, town or municipality, (iv) any Person or entity
located in a foreign country;

(l)            the Account is not a Defaulted Account;

(m)          the Account is not the obligation of an Account Debtor who is
the Account Debtor on Defaulted Accounts of 50% or more of the Accounts upon
which such debtor is obligated;

(n)           the Account does not arise from the sale of goods which
remain in the applicable Loan Party’s 
possession or under the applicable Loan Party’s control;

(o)           the Account is not evidenced by a promissory note or
chattel paper, nor is the Account Debtor obligated to the applicable Loan Party
under any other obligation which is evidenced by a promissory note; and

(p)           the Agent believes, in the exercise of its reasonable
judgment, that the prospect of collection of such Account is not impaired by
reason of the Account Debtor’s financial inability to pay.

In addition to the foregoing
limitations, the dollar amount of Accounts included as Acceptable Accounts
which are the obligations of a single Account Debtor shall not exceed the
concentration limit established for such Account Debtor.  To the extent the total of such Accounts
exceeds an Account Debtor’s concentration limit, the amount of any such excess
shall be excluded.  The concentration
limit for each Account Debtor other than FBS shall be equal to 10% of the total
amount of the Acceptable Accounts at that time and the concentration limit for
FBS shall be equal to 15% of the total amount of the Acceptable Accounts at
that time.

“Acceptable Unbilled
Accounts” means Accounts of any Loan Party otherwise constituting
Acceptable Accounts which have not yet been submitted for payment to the
Account Debtor obligated therefor but for which such Loan Party has recognized
the revenue to be generated therefrom in accordance with such Loan Party’s
standard accounting practices, or, with respect to FBS only, invoiced the
amounts to be paid thereunder but has not yet submitted such invoice for
payment to FBS in order to present a consolidated invoice to FBS which will
include all related Accounts.

“Accounts” means,
with respect to each Loan Party, all of such Loan Party’s now owned or
hereafter acquired or arising “accounts”, as defined or used in the UCC,
including any rights 

 

E-6

 

to payment for the sale or
lease of goods or rendition of services, whether or not they have been earned
by performance.

“Account Debtor”
means each Person obligated in any way on or in connection with an Account.

“Agent” means Bank of
America, N.A., in its capacity as agent for the Banks under the Credit
Agreement.

“Borrowing Base”
means, for purposes of providing the information required of WSS by Section
9(c)(ii)(A) of the Forbearance, Waiver and Amendment for any Delivery Date,
the sum, calculated as of the Friday immediately preceding such Delivery Date,
of (a) 85% of the balance due on Acceptable Accounts as of the Friday
immediately preceding such Delivery Date, plus (b) the lesser of
(A) $7,000,000 and (B) 70% of Acceptable Unbilled Accounts.  For the purposes of the Forbearance, Waiver
and Amendment, the Borrowing Base on any date of determination shall be
presumed to be the Borrowing Base determined pursuant to the latest Borrowing
Base Certificate delivered by the Borrower prior to such date of determination.

“Borrowing Base
Certificate” has the meaning given such term in Section 9(c)(ii)(A)
of the Forbearance, Waiver and Amendment.

“Defaulted Account”
means, collectively, (a) an Account which is not paid within the 90 days period
starting on its invoice date; (b) an Account for which the Account Debtor
obligated upon such Account suspends business, makes a general assignment for
the benefit of creditors, or fails to pay its debts generally as they come due;
or (c) an Account for which any petition is filed by or against the Account
Debtor obligated upon such Account under any Debtor Relief Laws.

“Delivery Date” has
the meaning given such term in Section 9(c)(ii)(A) of the Forbearance,
Waiver and Amendment.

“FBS” means the Franchise
Business Association or any successor Governmental Authority.

“Governmental Authority”
means any nation or government, any state or other political subdivision
thereof, any agency, authority, instrumentality, regulatory body, court,
administrative tribunal, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative powers or functions
of or pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.

“Person” means any
individual, trustee, corporation, general partnership, limited partnership,
limited liability company, joint stock company, trust, unincorporated
organization, bank, business association, firm, joint venture, Governmental
Authority or other legal entity.

 

 

E-7

 

 

Exhibit F

 

FORM OF REQUEST FOR BORROWING

Date: 
___________, _____

To:  Bank of
America, N.A., as Agent

Ladies and Gentlemen:

Reference is made to (i) that certain Credit
Agreement, dated as of March 4, 1998 (as amended, restated, extended,
supplemented or otherwise modified in writing from time to time, the “Agreement;”
the terms defined therein being used herein as therein defined), among Westaff
(USA) Inc. (formerly known as Western Staff Services (USA), Inc.), a California
corporation, (“WSS”), Western Medical Services, Inc. a California corporation
(“WMS” and together with WSS, the “Borrowers”), the Banks from
time to time party thereto, and Bank of America, N.A. (formerly known as Bank
of America National Trust and Savings Association) (“BofA”) as agent for
the Banks (in such capacity, the “Agent”); and (ii) that certain
Forbearance and Waiver Agreement and Amendment to Loan Documents, dated as of
March 27, 2002, (the “Forbearance, Waiver and Amendment”) among the
Borrowers, the Agent, the Banks and the Guarantors.

The undersigned hereby requests a Borrowing of
Revolving Loans:

1.             On
________________________(a Business Day).

2.             In
the amount of $__________________________.

The Borrowing requested herein complies with the
proviso to the first sentence of Section 9(c)(ii) of the Forbearance,
Waiver and Amendment.

WESTAFF (USA), INC.

 

 

 

By:                                                                                                  

Name:                                                                                             

Title:                                                                                               

 

 

 

F-1Exhibit
10.8.18

 

RECORDING
REQUESTED BY, AND

WHEN
RECORDED RETURN TO:

 

Orrick, Herrington &
Sutcliffe LLP

400 Sansome Street

San Francisco, California 94111

Attention:   Dolph Hellman, Esq.

INSTRUCTIONS
TO COUNTY RECORDER:

Index
this document as

(1)  Deed of Trust and

(2)  a fixture filing

 

Assessor’s Parcel No(s).: 
143-130-013 and 143-040-066

DEED OF
TRUST, ABSOLUTE ASSIGNMENT OF LEASES AND RENTS,

SECURITY AGREEMENT AND FIXTURE FILING

Dated:  March
26, 2002

Made by

WESTAFF
SUPPORT, INC.

as Trustor,

to

CHICAGO
TITLE COMPANY

as Trustee,

for the benefit of

BANK OF
AMERICA, N.A.,

as Bank Credit Agent and as Noteholder Collateral
Agent,

as Beneficiary

 

 

 

DEED
OF TRUST, ABSOLUTE ASSIGNMENT OF LEASES AND RENTS,

SECURITY AGREEMENT AND FIXTURE FILING

THIS DEED OF TRUST,
ABSOLUTE ASSIGNMENT OF LEASES AND RENTS, SECURITY AGREEMENT AND FIXTURE FILING
(this “Deed of Trust”) is made as of March  26, 2002, by WESTAFF SUPPORT, INC., a California corporation,
having an address at P.O. Box 9280, 301 Lennon Lane, Walnut Creek, CA  94598 (“Trustor”), to CHICAGO TITLE
COMPANY, having an address at 590 Ygnacio Valley Road, Suite 300, Walnut Creek,
CA 94596 (“Trustee”), for the benefit of Bank of America, N.A., a
national banking association (formerly known as Bank of America National Trust
and Savings Association) (“BofA”), having an address at 800 Fifth
Avenue, Floor 37, Seattle, Washington 98104, in its capacity as agent for the
benefit of the Bank Lenders (“Bank Credit Agent”) and in its capacity as
collateral agent for the benefit of the Noteholders (“Noteholder Collateral
Agent”) under and pursuant to the Intercreditor and Collateral Agency
Agreement (as hereinafter defined) (together with its permitted successors and
assigns, “Beneficiary”).

RECITALS:

A.            Reference is hereby made to that certain Credit Agreement
dated as of March 4, 1998, by and among Westaff (USA) Inc., a California
corporation (formerly known as Western Staff Services (USA), Inc.)  (“WSS”), Western Medical Services,
Inc., a California corporation (“WMS” and together with WSS,
collectively, “Borrower”), BofA, as letter of credit issuing bank (in
such capacity, the “Issuing Bank”), and as agent for the Banks (in such
capacity, the “Agent”), and the financial institutions from time to time
party thereto (“Banks”) (as the same may have been consolidated,
extended, modified, amended and/or restated from time to time, the “Credit
Agreement”).

B.            The Banks have made certain Loans to Borrower and the
Issuing Bank has issued Letters of Credit as provided in the Credit Agreement.

C.            Pursuant to the terms and provisions of the Credit
Agreement, Trustor was required to execute a guaranty of the Borrower’s
obligations under the Credit Agreement in favor of Agent.  Furthermore, one or more Events of Default
(as defined in the Credit Agreement) have occurred thereunder and in
consideration of waiving such Events of Default, among other things, the Banks
are requiring that Trustor enter into this Deed of Trust to secure Trustor’s
obligation under and pursuant to that certain Guaranty dated of even date
herewith delivered under and pursuant to Section 7.13(b) of the Credit
Agreement (the “Guaranty”).

D.            Reference is hereby made to those separate and several
Note Purchase Agreements each dated as of May 15, 1998 (as amended, collectively,
the “Note Purchase Agreements”) entered into by the Borrower and Western
Medical Services, Inc., a California corporation (“WMS”, the Borrower
and WMS are hereinafter sometimes collectively referred to as the “Co-Issuers”)
with each of the Noteholders listed on Schedule A thereto (collectively, the “Noteholders”)
under and pursuant to which the Noteholders purchased the 6.77% Senior Secured
Notes of the Co-Issuers due May 15, 2008 (collectively, the “Senior Notes”).
Pursuant to Section 9.6 of the Note Purchase Agreements, Trustor is required to
deliver a guaranty of the 

 

 

 

Co-Issuer’s
obligations under the Note Purchase Agreements to the Noteholders.  Furthermore, one or more Events of Default
(as defined in the Note Purchase Agreements) have occurred thereunder and in
consideration of waiving such Events of Default, among other things, the
Noteholders are requiring that Trustor enter into this Deed of Trust to secure
Trustor’s obligation under and pursuant to that certain Guaranty dated of even
date herewith delivered under and pursuant to Section 9.6 of the Note Purchase
Agreements (the “Noteholder Guaranty”).

E.             Pursuant to the
Intercreditor and Collateral Agency Agreement dated as of May 15, 1998 (“Intercreditor
and Collateral Agency Agreement”) entered into by and among the Banks, the
Noteholders,  Beneficiary and certain
other parties, Beneficiary was appointed as collateral agent to act on behalf
of the Banks and the Noteholders as the holders of the Obligations (as
hereinafter defined) regarding, among other collateral, the Secured Property
(as hereinafter defined) and the obligations of Trustor to the Banks under the
Guaranty and the obligations of Trustor to the Noteholders under the Noteholder
Guaranty are to be secured pari passu pursuant to this Deed of Trust.

F.             Trustor has derived substantial and direct benefits from
the Loans and the Letters of Credit and other benefits provided to Borrower
under the Credit Agreement and Trustor has derived substantial and direct
benefits from the agreements and terms set forth in the Note Purchase
Agreements and the other benefits provided to Borrower under the Note Purchase
Agreements.

G.            In consideration of the foregoing and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Trustor has agreed to execute this Deed of Trust.  Unless otherwise specifically defined or
used in this Deed of Trust to the contrary, capitalized terms shall have the
meanings as set forth in the Credit Agreement.

ARTICLE
I.  DEED OF TRUST

1.1   Grant.  For the purposes of and upon the terms and conditions in this
Deed of Trust, Trustor does hereby grant, convey, mortgage, transfer, bargain,
and assign to Trustee, and successors and assigns of Trustee, in trust for the
benefit of Beneficiary, with power of sale and right of entry and possession,
all of Trustor’s right, title and interest, whether now owned or hereafter
acquired, in or to all of the following property, rights and interests listed
in subsections (a) through (k) below (hereinafter collectively referred to as
the “Secured Property”):

(a)   the real
property described in Exhibit A attached hereto and incorporated herein
by reference (the “Property”);

(b)   all
buildings and improvements now or hereafter located on the Property (the “Improvements”);

(c)   all of the
estate, right, title, claim or demand of any nature whatsoever of Trustor,
either in law or in equity, in possession or expectancy, in and to the Property
and the Improvements or any part thereof;

(d)   all easements,
rights-of-way, gores of land, streets, ways, alleys, passages, sewer rights,
waters, water courses, water rights and powers, and all estates, rights,
titles, 

2

 

interests,
privileges, liberties, tenements, hereditaments, and appurtenances of any nature
whatsoever, in any way belonging, relating or pertaining to the Property and
Improvements (including, without limitation, any and all development rights,
air rights or similar or comparable rights of any nature whatsoever now or
hereafter appurtenant to the Property or now or hereafter transferred to the
Property) and all land lying in the bed of any street, road or avenue, opened
or proposed, in front of or adjoining the Property to the center line thereof;

(e)   all
machinery, apparatus, equipment, fittings, fixtures and other property of every
kind and nature whatsoever owned by Trustor, or in which Trustor has or shall
have an interest, now or hereafter located upon the Property or Improvements,
or appurtenances thereto, or usable in connection with the present or future
operation and occupancy of the Property or Improvements and all building
equipment, materials and supplies of any nature whatsoever owned by Trustor, or
in which Trustor has or shall have an interest, now or hereafter located upon the
Property or Improvements (collectively, the “Equipment”);

(f)    all awards
or payments, including interest thereon, and the right to receive the same,
which may be made with respect to the Property or Improvements whether from the
exercise of the right of eminent domain (including any transfer made in lieu of
the exercise of said right), or for any other injury to or decrease in the
value of the Property or Improvements;

(g)   all right,
title and interest of Trustor (to the extent assignable) in and to any and all
leases now or hereafter on or affecting the Property, whether written or oral,
and all licenses and other agreements for use or occupancy of the Property,
together with all security therefor and deposits thereunder and all guaranties
thereof and all monies payable thereunder;

(h)   all rents,
awards, deposits (other than security deposits in respect of leases), issues,
profits, payments, income, revenues, proceeds reimbursements and/or accounts
receivable derived from the sale, lease, sublease, license, concession or other
grant of the right of the use and occupancy of any portion of the Property;

(i)    all
proceeds of and any unearned premiums on any insurance policies covering the
Property, Improvements or Equipment, including, without limitation, the right
to receive and apply the proceeds of any insurance, judgments, or settlements
made in lieu thereof, for damage to the Property, Improvements or Equipment;
provided, that prior to an Event of Default hereunder, such grant shall be
subject to the provisions of Section 5.4(b) below;

(j)    the right,
in the name and on behalf of Trustor, to appear in and defend any action or
proceeding brought with respect to the Property, Improvements or Equipment and
to commence any action or proceeding to protect the interest of Beneficiary in
the Property, Improvements or Equipment; and

(k)   all
proceeds of each of the foregoing.

 

3

 

TO HAVE AND TO HOLD the
above granted and described Secured Property unto Trustee, and its successors
and assigns, forever.

ARTICLE
II.  OBLIGATIONS SECURED

2.1   Obligations Secured.  Trustor makes this grant and assignment for
the purpose of securing the following obligations (the “Obligations”):

(a)   Full and
punctual payment by Trustor to Beneficiary of all sums at any time owing under
the Guaranty and full and punctual payment by Trustor to the Noteholders of all
sums at anytime owing under the Noteholder Guaranty;

(b)   Full and
punctual payment and performance of all covenants and obligations of Trustor
under this Deed of Trust including, without limitation, indemnification
obligations, and advances made to protect the Secured Property;

(c)   Full and
punctual performance and observance by Trustor of each other term, covenant,
agreement, requirement, condition and other provision to be performed or
observed by Trustor under the Guaranty and the Noteholder Guaranty;

(d)   Full and
punctual payment and performance of all future advances and other obligations
that the then record owner of all or part of the Secured Property may agree to
pay and/or perform (whether as principal, surety or guarantor) for the benefit
of Beneficiary, when such future advance or obligation is evidenced by a
writing which recites that it is secured by this Deed of Trust;

(e)   All
interest and charges on all Obligations secured hereby; and

(f)    All
modifications, extensions and renewals of any of the Obligations, however
evidenced, including, without limitation: 
(i) modifications of the required principal payment dates or interest
payment dates or both under the Credit Agreement or the Note Purchase
Agreements, as the case may be, deferring or accelerating payment dates wholly
or partly; or (ii) amendments, modifications, extensions or renewals at a
different rate of interest of the Credit Agreement or the Note Purchase Agreements,
whether or not any such amendment, modification, extension or renewal of the
Credit Agreement or the Note Purchase Agreements is evidenced by a new or
additional promissory note or notes.

2.2   Obligations.  The term “Obligations” is used herein in its broadest and most
comprehensive sense and shall be deemed to include, without limitation, all
interest and charges, prepayment charges, late charges or loan fees at any time
accruing or assessed on any of the Obligations.

2.3   Incorporation.  All terms and conditions of the Guaranty and
the Noteholder Guaranty which evidence any of the Obligations are incorporated
herein by this reference.  All persons
who may have or acquire an interest in the Secured Property shall be deemed to
have notice of the terms of the Obligations.

 

4

 

ARTICLE
III. ABSOLUTE
ASSIGNMENT OF LEASES AND RENTS

3.1   Assignment.  Trustor irrevocably assigns to Beneficiary all of Trustor’s
right, title and interest in, to and under: (a) all present and future leases
of the Secured Property or any portion thereof, if any, all licenses and
agreements relating to the management, leasing or operation of the Secured
Property or any portion thereof, and all other agreements of any kind relating
to the use and occupancy of the Secured Property or any portion thereof,
whether such leases, licenses and agreements are now existing or entered into
after the date hereof (the “Leases”), provided, that it is acknowledged
that the Secured Property is currently used by Trustor for the operation of
Trustor’s business; and (b) the rents, issues, deposits and profits payable and
all rights and benefits accruing to Trustor under the Leases, if any (the “Rents”).  The term “Leases” shall also include all
guaranties of and security for the tenants’ performance thereunder, and all
amendments, extensions, renewals or modifications thereto which are permitted
hereunder.  This is a present and
absolute assignment, not an assignment for security purposes only, and
Beneficiary’s right to the Leases and Rents is not contingent upon, and may be
exercised without, possession of the Secured Property.

3.2   Grant of License.  Beneficiary confers upon Trustor a revocable
license (the “License”) to collect and retain the Rents as they become
due and payable, until the occurrence of an Event of Default (as hereinafter
defined).  Upon an Event of Default, the
License shall be automatically revoked and Beneficiary may collect and apply
the Rents pursuant to the terms hereof without notice and without taking
possession of the Secured Property.  All
Rents thereafter collected by Trustor shall be held by Trustor as trustee under
a constructive trust for the benefit of Beneficiary.  Trustor hereby irrevocably authorizes and directs the tenants
under the Leases to rely upon and comply with any notice or demand by
Beneficiary for the payment to Beneficiary of any rental or other sums which
may at any time become due under the Leases, or for the performance of any of
the tenants’ undertakings under the Leases, and the tenants shall have no right
or duty to inquire as to whether any Event of Default has actually occurred or
is then existing.  Trustor hereby
relieves the tenants from any liability to Trustor by reason of relying upon
and complying with any such notice or demand by Beneficiary.  Beneficiary may apply, in its sole
discretion, any Rents so collected by Beneficiary against any Obligation or any
other obligation of Trustor or any other person or entity, under any document
or instrument related to or executed in connection with the Guaranty or the
Noteholder Guaranty, whether existing on the date hereof, or hereafter
arising.  Collection of any Rents by
Beneficiary shall not cure or waive any Event of Default or notice of default
or invalidate any acts done pursuant to such notice.

3.3   Effect
of Assignment.  The foregoing
irrevocable assignment shall not cause Beneficiary to be:  (a) a mortgagee in possession; (b)
responsible for or liable for the control, care, management or repair of the
Secured Property or for performing any of the terms, agreements, undertakings,
obligations, representations, warranties, covenants and conditions of the
Leases; (c) responsible or liable for any waste committed on the Secured
Property by the tenants under any of the Leases or by any other parties; for any
dangerous or defective condition of the Secured Property; or for any negligence
in the management, upkeep, repair or control of the Secured Property resulting
in a loss or injury or death to any tenant, licensee, employee, invitee or
other person; or (d) responsible for or obliged by any duty to produce rents or
profits.  Beneficiary shall not directly
or indirectly be liable to Trustor or any other person as a 

5

 

consequence
of:  (i) the failure to exercise any of
the rights, remedies or powers granted to Beneficiary hereunder; or
(ii) the exercise of any of the rights, remedies or powers granted to
Beneficiary hereunder, with the exception of Beneficiary’s or Trustee’s gross
negligence or willful misconduct in such exercise; or (iii) the failure or
refusal of Beneficiary to perform or discharge any obligation, duty or
liability of Trustor arising under the Leases prior to any foreclosure of
Beneficiary’s interest in the Secured Property or transfer of the Secured
Property by deed in lieu of foreclosure.

3.4   Covenants.  During the occurrence of an Event of Default hereunder Trustor
shall not, without the consent of Beneficiary: 
(a) materially alter, modify or change the terms of any Lease; (b)
terminate or cancel any Lease; (c) accept prepayments of the Rents for a period
of more than one (1) month in advance; (d) terminate or cancel any guaranties
of any Lease; or (e) further assign the whole or any part of the Rents.  Trustor shall (i) fulfill or perform each
and every provision of the Leases on the part of Trustor to be fulfilled or
performed, (ii) promptly send copies of all notices of default which Trustor
shall send or receive under the Leases to Beneficiary, and (iii) enforce the
performance or observance of the provisions thereof by the tenants thereunder,
which enforcement may include termination of any such Lease in the event of a
default thereunder.  Nothing contained
in this Section shall be construed as imposing on Beneficiary any of the
obligations of the lessor under the Leases.

ARTICLE
IV.  SECURITY AGREEMENT AND FIXTURE FILING

4.1   Security Interest.  Trustor hereby grants and assigns to
Beneficiary a security interest, to secure payment and performance of all of
the Obligations, in all of the following described personal property in which
Trustor now or at any time hereafter has any interest (collectively, the “Collateral”):

All goods, building and
other materials, supplies, work in process, equipment, machinery, fixtures,
furniture, furnishings, signs and other personal property, wherever situated,
which are or are to be incorporated into, used in connection with, or
appropriated for use on the real property and the improvements situated thereon
as described on Exhibit A attached hereto and incorporated by reference
herein (to the extent the same are not effectively made a part of the Property
pursuant to Section 1.1 above); together with all rents, issues,
deposits and profits of the Secured Property (to the extent, if any, they are
not subject to Article III above); all inventory, accounts, cash
receipts, deposit accounts, accounts receivable, contract rights, general
intangibles, chattel paper, instruments, documents, notes, drafts, letters of
credit, insurance policies, insurance and condemnation awards and proceeds, any
other rights to the payment of money, trade names, trademarks and service marks
arising from or related to the Secured Property or any business now or
hereafter conducted thereon by Trustor; all permits, consents, approvals,
licenses, authorizations and other rights granted by, given by or obtained
from, any governmental entity with respect to the Secured Property; all
deposits or other security now or hereafter made with or given to utility
companies by Trustor with respect to the Secured Property; all advance payments
of insurance premiums made by Trustor with respect to the Secured Property; all
plans, drawings and specifications relating to the Secured Property; deposits,
accounts, refunds, cost savings and payments of any kind related to the Secured
Property or any portion thereof; together with all replacements and proceeds
of, and additions and 

6

 

accessions to, any of the
foregoing; together with all books, records and files relating to any of the
foregoing.

This Deed of Trust
constitutes a financing statement filed as a fixture filing pursuant to the
provisions of Division 9 of the California Uniform Commercial Code,
(“CUCC”) with respect to those portions of the Secured Property consisting of
goods which are or are to become fixtures relating to the Secured Property.  The addresses of Trustor (Debtor) and
Beneficiary (Secured Party) are set forth in Section 5.8 below.

4.2   Representations and Warranties.  Trustor represents and warrants that: (a)
Trustor has, or will have, good title to the Collateral; and (b) Trustor has
not previously assigned or encumbered the Collateral, and no financing
statement covering any of the Collateral has been delivered to any other person
or entity.

4.3   Rights of Beneficiary.  In addition to Beneficiary’s rights as a
“Secured Party” under the CUCC, Beneficiary may, but shall not be obligated to,
at any time without notice (except as otherwise provided herein) and at the
reasonable expense of Trustor: (a) give notice to any person of Beneficiary’s
rights hereunder and enforce such rights at law or in equity; (b) insure,
protect, defend and preserve the Collateral or any rights or interests of
Beneficiary therein; (c) inspect the Collateral, provided such inspection is
conducted in accordance with Section 6.10 of the Credit Agreement and in
accordance with the relevant terms of the Note Purchase Agreements; and (d)
with Trustor’s consent or otherwise following an Event of Default, endorse,
collect and receive any right to payment of money owing to Trustor under or
from the Collateral.

4.4   Rights of Beneficiary upon an Event of
Default.  Upon the occurrence of an
Event of Default under this Deed of Trust, then in addition to all of
Beneficiary’s rights as a “Secured Party” under the CUCC or otherwise at
law:

(a)   Beneficiary
may (i) upon written notice, require Trustor to assemble any or all of the
Collateral and make it available to Beneficiary at the Property; (ii) without
prior notice, enter upon the Property or other place where any of the
Collateral may be located and take possession of, collect, sell, and dispose of
any or all of the Collateral, and store the same at locations acceptable to
Beneficiary at Trustor’s expense; (iii) sell, assign and deliver at any place
or in any lawful manner all or any part of the Collateral and bid and become
purchaser at any such sales; and

(b)   Beneficiary
may, for the account of Trustor and at Trustor’s expense: (i) operate, use,
consume, sell or dispose of the Collateral as Beneficiary deems appropriate for
the purpose of performing any or all of the Obligations; (ii) enter into any
agreement, compromise, or settlement, including insurance claims, which
Beneficiary may deem desirable or proper with respect to any of the Collateral;
and (iii) endorse and deliver evidences of title for, and receive, enforce and
collect by legal action or otherwise, all indebtedness and obligations now or
hereafter owing to Trustor in connection with or on account of any or all of
the Collateral.

 

7

 

Notwithstanding
the above, in no event shall Beneficiary be deemed to have accepted any
property other than cash in satisfaction of any obligation of Trustor to
Beneficiary unless Beneficiary shall make an express written election of said
remedy under the CUCC or other applicable law.

4.5   Power of Attorney.  Trustor hereby irrevocably appoints
Beneficiary as Trustor’s attorney-in-fact (such agency being coupled with an
interest) for the sole purpose of preparing, filing or recording, in
Beneficiary’s name, or in the name of Trustor, financing statements,
continuation statements, applications for registration and like papers
necessary to create, perfect or preserve any of Beneficiary’s security
interests and rights in or to any of the Collateral (provided such appointment
shall not obligate Beneficiary to take any such action), and, upon an Event of
Default hereunder, taking any other action required of Trustor; provided,
however, that Beneficiary as such attorney-in-fact shall be accountable
only for such funds as are actually received by Beneficiary.

4.6   Possession and Use of Collateral.  During the occurrence of an Event of Default
hereunder, the Collateral will be kept at the Property and, except for Obsolete
Collateral (as defined in Section 5.6 below) or as otherwise permitted
in this Section, will not be removed therefrom without the consent of
Beneficiary.  So long as no Event of
Default exists under this Deed of Trust, Trustor may possess, use, move,
transfer, sell and/or dispose of any of the Collateral to the extent not
otherwise prohibited by the Credit Agreement or the Note Purchase Agreements.

ARTICLE
V.  RIGHTS AND DUTIES OF THE PARTIES

5.1   Warranty of Title.  Trustor represents and warrants that it has
fee simple title to the Property and Improvements, and good and marketable
title to the Equipment and the balance of the Secured Property, and that this
Deed of Trust is a first and prior lien on the Secured Property free and clear
of all encumbrances and liens having priority over the first lien of this Deed
of Trust, except for (a) liens for real estate taxes and assessments not yet
due and payable, (b) the exceptions to title (“Permitted Exceptions”) referred
to in the title policy issued to Beneficiary by Chicago Title Insurance Company
as policy number 135178 in connection with the closing of the Loan, and (c) other
matters to which like properties are commonly subject and which do not
materially interfere with the benefits of the security intended to be provided
by this Deed of Trust or the use, enjoyment, value or marketability of the
related Secured Property.  In addition,
Trustor represents and warrants that Trustor has full power, authority and
right to deliver and perform this Deed of Trust and convey and encumber
Trustor’s interest in the Secured Property. 
Trustor also represents and warrants that (i) Trustor is now, and after
giving effect to this Deed of Trust will be in, a solvent condition, (ii) the
execution and delivery of this Deed of Trust by Trustor does not constitute a
“fraudulent conveyance” within the meaning of Title 11 of the United States Code
as now constituted or under any other applicable statute, and (iii) no
bankruptcy or insolvency proceedings are pending or contemplated by or against
Trustor.

5.2   Taxes
and Assessments.

(a)   Subject to
Trustor’s right to contest such payments pursuant to Section 5.2(b) below,
Trustor shall pay all taxes, assessments, water rates and sewer rents, now or 

8

 

hereafter
levied or assessed or imposed against the Secured Property or any part thereof
(the “Taxes”) and all ground rents, maintenance charges, other
impositions, and other charges, now or hereafter levied or assessed or imposed
against the Secured Property or any part thereof (the “Other Charges”)
as the same become due and payable. 
With the exception of any Permitted Liens, Trustor shall not suffer and
shall promptly cause to be paid and discharged any lien or charge whatsoever
which may be or become a lien or charge against the Secured Property, and shall
promptly pay for all utility services provided to the Secured Property.  Trustor shall furnish to Beneficiary, at the
request of Beneficiary, receipts for the payment of the Taxes and the Other
Charges prior to the date the same become delinquent.

(b)   Provided
that no Event of Default is then occurring, Trustor may, in good faith and with
due diligence, contest or cause to be contested the validity or amount of any
such Taxes or Other Charges without paying the same as provided in Section
5.2(a) above, provided that:

(i)            such
contest shall have the effect of preventing or Trustor shall otherwise prevent
the collection of the Taxes or Other Charges so contested and the sale or
forfeiture of the Secured Property or any part thereof or interest therein to
satisfy the same; and

(ii)           Trustor
has notified Beneficiary in writing of the intention of Trustor to contest the
same or to cause the same to be contested before any of such Taxes or Other
Charges have been materially increased by any interest, penalties, or costs;
and

(iii)          Trustor
has deposited with Beneficiary cash, a bond or other security reasonably
acceptable to Beneficiary in an amount equal to one hundred ten percent (110%)
(or such higher amount as may be required by law) of the amounts being
contested which exceed Two Hundred Fifty Thousand Dollars ($250,000) in the
aggregate and any additional interest, charge or penalty arising from such
contest.

(c)           Trustor
shall keep Beneficiary generally advised of the status of any contest as it
continues and shall promptly provide any information requested by Beneficiary
with respect thereto.  If Trustor fails
to prosecute such contest with due diligence or fails to maintain sufficient
funds or security on deposit as hereinabove provided, or, if any of the other
conditions to such contest are no longer being satisfied or if there has been a
final disposition of such contest or if such contest has been discontinued,
without satisfaction of the outstanding amount of Taxes or Other Charges due,
Beneficiary may, at its option, within ten (10) days following Beneficiary’s
written notice to Trustor (or such shorter period of time necessary in
Beneficiary’s opinion to prevent the sale or forfeiture of the Secured Property
or any part thereof or interest therein), apply the monies and in connection
therewith liquidate any investments of cash deposited with Beneficiary, in
payment of, or on account of, such Taxes or Other Charges, as applicable, or
any portion thereof then unpaid, including all penalties and interest
thereon.  If the amount of the money so
deposited is insufficient for the payment in full of such Taxes or Other
Charges, as applicable, including all penalties and interest thereon, Trustor
shall forthwith, upon demand, either deposit with Beneficiary a sum that, 

9

 

when
added to such funds then on deposit, is sufficient to make such payment in
full, or, if Beneficiary has applied funds on deposit on account of such Taxes
or Other Charges, as applicable, pay to the applicable taxing authority the
amount sufficient to fully satisfy the outstanding Taxes or Other Charges due.  Provided that no Event of Default shall then
exist hereunder, Beneficiary shall, if so requested in writing by Trustor,
after final disposition of such contest and upon Trustor’s delivery to
Beneficiary of an official bill for such Taxes or Other Charges, apply the
money so deposited in full payment of such Taxes or Other Charges or that part
thereof then unpaid, including all penalties and interest thereon, and return
any excess to Trustor, unless Trustor has paid all such Taxes or Other Charges,
together with all penalties and interest thereon, and has provided Beneficiary
with evidence satisfactory to Beneficiary of such payment, in which event
Beneficiary shall return such money to Trustor.  All monies deposited with Beneficiary pursuant to this Section 5.2(b)
are hereby pledged and conveyed to Beneficiary as additional security for all
amounts which now or at any time may be due to Beneficiary under the
Guaranty.  Upon the occurrence of an
Event of Default, Beneficiary shall have the right to apply any and all monies
held pursuant to this Section 5.2(b) to the payment of the Taxes or
Other Charges being contested or to any or all of the Obligations, in such
order and manner as Beneficiary may elect.

5.3   Insurance.

(a)   Trustor
shall provide, maintain and deliver to Beneficiary an “all risk” property
damage insurance policy (insuring against loss by hazards included within the
term “extended coverage”), vandalism and malicious mischief insurance, flood
insurance and, subject to the proviso set forth in Section 5.3(c) below,
any other type or form of hazard or property damage insurance reasonably
required by Beneficiary or governmental law or regulation from time to time,
covering the Property and all Improvements located thereon in an amount not
less than the full replacement cost of the Property and such Improvements
(without regard to depreciation), naming Beneficiary as an additional insured
and with loss payable to Beneficiary; provided, however, that Beneficiary may
only require flood insurance if all or any portion of the Improvements is or
becomes located in a special flood hazard area.  At Beneficiary’s request, but not more frequently than once
annually, Trustor shall deliver to Beneficiary such evidence as Beneficiary
deems reasonably satisfactory that such full replacement cost insurance (both
in amount and coverage) is in force.

(b)   Trustor
shall also provide, maintain and deliver to Beneficiary (i) commercial
general liability insurance for personal injury, bodily injury, death and
property damage liability in amounts not less than One Million Dollars
($1,000,000) per occurrence (together with a Twenty-five Million Dollar
($25,000,000) umbrella policy), or such other amount as Beneficiary may, in
Beneficiary’s sole reasonable discretion, require from time to time, and naming
Beneficiary, the Banks and the Noteholders as named insureds, (ii) such
policies of workers compensation and similar insurance required by applicable
law, and (iii) subject to the proviso set forth in Section 5.3(c)
below, such other policies of insurance as Beneficiary shall reasonably require
or any governmental authority having jurisdiction over the Property or the
Trustor shall from time to time require.

10

 

(c)   Trustor
shall maintain all required insurance in companies, amounts, coverages and
forms reasonably satisfactory to and approved by Beneficiary; provided,
however, that Trustor shall not be required to maintain insurance coverages or
coverage amounts which are greater than or otherwise in excess of the coverages
customarily maintained by owners of similarly situated properties located in
the geographic area surrounding the Property. 
Neither Beneficiary nor Trustee shall, by reason of accepting,
rejecting, approving or obtaining insurance incur any liability for (i) the
existence, nonexistence, form or legal sufficiency thereof, (ii) the solvency
of any insurer, or (iii) the payment of losses.  All such policies or certificates of insurance shall name
Beneficiary and Trustor, as their interests may appear, as the loss payees;
shall stipulate that Beneficiary is to receive written notice thirty (30) days
prior to any modification or cancellation (or ten (10) days in the case of any
cancellation due to Trustor’s failure to pay premiums when due); shall have no
deductible amount greater than Five Thousand Dollars ($5,000) without the
consent of Beneficiary; shall contain a waiver of subrogation against
Beneficiary; and shall be primary and non-contributory to any other insurance
Beneficiary may possess.  Upon Beneficiary’s
request Trustor shall deliver certificates to Beneficiary evidencing such
policies of insurance and payment of the premiums therefor.  Sums paid to Beneficiary by any insurer
shall be paid to Trustor for the repair or restoration of the Secured Property
as provided in Section 5.4 below; provided, however that during the
occurrence of an Event of Default, sums paid to Beneficiary by any insurer may
be retained and applied by Beneficiary toward payment of the Obligations.

5.4   Insurance
and Condemnation Proceeds.

(a)           Assignment
of Claims.  Trustor absolutely and
irrevocably assigns to Beneficiary all of the following rights, claims and
amounts (collectively, “Claims”), all of which shall be paid to
Beneficiary unless otherwise set forth herein: (i) all awards of damages
and all other compensation payable directly or indirectly by reason of a
condemnation or proposed condemnation for public or private use affecting all
or any part of, or any interest in, the Secured Property; (ii) all other
claims and awards for damages to or decrease in value of all or any part of, or
any interest in, the Secured Property; (iii) all proceeds of any insurance
policies payable by reason of loss sustained to all or any part of the Secured
Property, whether or not such insurance policies were required under this Deed
of Trust or by Beneficiary; and (iv) all interest which may accrue on any
of the foregoing.  Trustor shall give
Beneficiary prompt written notice of the occurrence of any casualty affecting
greater than five percent (5%) of the value of the Property, or the institution
of any proceedings for eminent domain or for the condemnation of, the Secured
Property or any portion thereof.  So
long as no Event of Default has occurred and is continuing at the time, Trustor
shall have the right to adjust, compromise and settle any Claim of $500,000 or
less without the consent of Beneficiary, provided, however, all awards,
proceeds and other sums described herein payable in relation to any Claims
shall continue to be payable directly to Beneficiary (other than Claims under
insurance policies payable by reason of loss sustained in aggregate amounts of
$250,000 or less for any one occurrence which shall be payable to Trustor to be
applied as provided in Section 5.4(b) below). 
During the occurrence of an Event of Default Beneficiary may commence,
appear in, defend or prosecute any Claim and may 

11

 

adjust, compromise and settle all Claims (except for Claims which
Trustor may settle as provided herein), but shall not be responsible for any
failure to commence, appear in, defend, prosecute or collect any such Claim
regardless of the cause of the failure. 
All awards, proceeds and other sums described herein shall be payable to
Beneficiary, and each insurance company which has issued an insurance policy
with respect to the Secured Property is hereby authorized and directed to make
payment for all losses covered by such insurance policy to Beneficiary alone,
and not to Beneficiary and Trustor jointly. 
Trustor agrees to execute all documents and make all deliveries required
in order to permit adjustment and payment of insurance proceeds as provided
above.

(b)           Application of
Proceeds; No Event of Default.  So
long as no Event of Default has occurred and is continuing at the time of any
Claims under any insurance policies payable by reason of loss sustained in
aggregate amounts of $250,000 or less for any one occurrence, the proceeds of
such Claims (“Minor Loss Proceeds”) shall be payable directly to Trustor,
provided that, if any such Minor Loss Proceeds are paid to Beneficiary,
Beneficiary shall promptly deliver such Minor Loss Proceeds to Trustor to be
used in accordance with this Section 5.4(b) 
Upon receipt of any Minor Loss Proceeds, Trustor shall promptly apply
the Minor Loss Proceeds toward the costs of repair or restoration of the
Secured Property.  Any surplus which may
remain out of the Minor Loss Proceeds held by Trustor after payment of such
repair or restoration costs shall be retained by Trustor.  So long as no Event of Default has occurred
and is continuing at the time of Beneficiary’s receipt of the proceeds of the
Claims other than any Minor Loss Proceeds (“Proceeds”) and no Event of
Default occurs thereafter, Beneficiary shall apply the Proceeds in the
following order of priority: First, to Beneficiary’s expenses in
settling, prosecuting or defending the Claims; Second, to the repair or
restoration of the Secured Property; and Third, promptly to Trustor if
the repair or restoration of the Secured Property has been completed.  Notwithstanding the foregoing, Beneficiary
shall have no obligation to make any Proceeds (other than Minor Loss Proceeds)
available for the repair or restoration of the Secured Property unless and
until all the following conditions have been satisfied:  (i) delivery to Beneficiary of the
Proceeds; (ii) establishment of an arrangement for lien releases and
disbursement of funds reasonably acceptable to Beneficiary; (iii) delivery
to Beneficiary in form and content reasonably acceptable to Beneficiary of all
of the following:  (aa) plans and
specifications for the work; (bb) a contract for the work, signed by a
contractor acceptable to Beneficiary; (cc) a cost breakdown for the work;
(dd) evidence that, upon completion of the work, the size and capacity of the
Secured Property will be as near as practically possible to the condition in
which it existed immediately prior to such damage or condemnation, and the
value of the Secured Property will be at least as great as that which existed
immediately before the damage or condemnation occurred; and (ee) evidence
of the satisfaction of any additional conditions that Beneficiary may
reasonably establish to protect Beneficiary’s security.  No payment made prior to the final
completion of the work shall exceed ninety percent (90%) of the value of the
work performed or materials delivered, as applicable, from time to time; and at
all times the undisbursed balance of the Proceeds remaining in the hands of
Beneficiary, together with any cash deposited delivered to Beneficiary by
Trustor to pay the cost of completion of the work, shall be at least sufficient
in the reasonable judgment of Beneficiary to pay the entire unpaid cost of the
completion of the work, free and clear of all liens or claims for 

12

 

lien.  In addition to all other conditions
contained in this Section 5.4, final payment of all Proceeds (other than
Minor Loss Proceeds which shall be payable upon receipt as provided above)
remaining with Beneficiary shall be made upon receipt by Beneficiary of a
certification by an independent architect approved by Beneficiary as to the
completion of the work substantially in accordance with the submitted plans and
specifications, and the filing of a notice of completion.  Any surplus which may remain out of the
Proceeds held by Beneficiary after payment of such restoration costs shall be
promptly paid to Trustor.  If there is
an Event of Default while Beneficiary is holding the Proceeds, Beneficiary may
at its sole option apply such funds against the Obligations in accordance with
the terms of the Intercreditor and Collateral Agency Agreement.  If the cost to restore the loss or damage
from any casualty or condemnation is estimated to exceed $250,000, Trustor
shall pay, from time to time, within ten (10) days after written demand
therefor, the reasonable fees and expenses of any consultant hired by
Beneficiary to review the progress of the restoration and inspect the work,
which consultant’s approval shall be required for any disbursement to be
made.  Beneficiary shall not be
obligated to see to the proper application of funds disbursed to Trustor
pursuant hereto, whether pursuant to the above conditions or upon waiver
thereof.  Trustor acknowledges that the
specific conditions described above are reasonable.

(c)           Application of Proceeds; Event of
Default.  If an Event of Default has
occurred and is continuing at the time of either Trustor’s receipt or
Beneficiary’s receipt of the Minor Loss Proceeds, or at the time of Beneficiary’s
receipt of the Proceeds or if an Event of Default occurs at any time after
Trustor’s receipt of the Proceeds, Beneficiary may, at Beneficiary’s absolute
discretion and regardless of any impairment of security or lack of impairment
of security, but subject to applicable law governing use of either the Minor
Loss Proceeds or the Proceeds, if any, apply all or any of the Minor Loss
Proceeds or the Proceeds, as applicable, to Beneficiary’s expenses in settling,
prosecuting or defending the Claims and then apply the balance to the
Obligations in accordance with the terms of the Intercreditor and Collateral
Agency Agreement, or may release all or any part of the Minor Loss Proceeds or
the Proceeds, as applicable, to Trustor upon any conditions Beneficiary
chooses.

5.5   Maintenance
of the Secured Property.

(a)   Trustor
shall (i) keep the Secured Property in good and safe condition and repair, free
from waste, including, making all repairs and replacements, structural or
nonstructural, foreseen or unforeseen, ordinary or extraordinary, as the same
become necessary or appropriate, to keep the Secured Property in good and safe
condition and repair, (ii) pay all operating costs of the Secured Property,
(iii) complete, within a reasonable time, and pay for any building or buildings
or other Improvements now or at any time in the process of erection upon the
Property, (iv) comply with any restrictions and covenants of record with
respect to the Property and the use thereof, and (v) perform all agreements,
undertakings and functions necessary to operate and maintain the Secured
Property as currently operated.

(b)   Without the
prior written consent of Beneficiary, Trustor shall not cause, suffer or permit
any (i) (x) Material Alterations of the Property or the Improvements 

13

 

except
(A) as required by any Requirement of Law or, (B) as permitted or required to
be made by the terms of any Leases approved by Beneficiary (with respect to
work in any space demised thereunder), or (y) demolition or removal of any
portion of the Improvements or Equipment except for the removal of any such
portion which is simultaneously replaced with equivalent materials or which are
worn out, obsolete or no longer used or useful in connection with the operation
of the Property (“Obsolete Collateral”) and the removal of which shall
not adversely affect the use or operation of the Improvements.  Without the prior written consent of
Beneficiary, Trustor shall not cause, suffer or permit any (i) change in the
intended use or occupancy of the Property for which the Improvements have been
constructed which would adversely affect the use or operation of the
Improvements; (ii) zoning reclassification with respect to the Property which
would materially and adversely affect the valuation of the Secured Property; or
(iii) unlawful use of, or nuisance to exist upon, the Property.  Without limiting the generality of the
foregoing, Trustor will not, by act or omission (y) impair the integrity of the
Property as separate and apart from all other premises, or (z) permit or suffer
to permit the Property to be used by the public or any person or entity in such
manner as might make possible a claim of adverse usage or possession or any
implied dedication or easement.  As used
herein, the term “Material Alteration” shall mean any alteration,
improvement or replacement (x) the cost of which (including any related
alteration, improvement or replacement) shall exceed $500,000 (excluding tenant
improvement work pursuant to Leases), or (y) which (A) materially and adversely
affects the mechanical, electrical, heating, ventilating, air-conditioning or
other building or operating systems of any of the Improvements, (B) materially
and adversely affects the structure or structural soundness of any of the
Improvements, (C) reduces or materially and adversely affects the usability of
loading docks or parking spaces or the access to such loading docks or parking
spaces from outside the Property, or (D) otherwise has a material adverse
effect on the Secured Property, the lien of this Deed of Trust, or the ability
of Trustor to perform the Obligations.

5.6   Environmental
Provisions.

(a)   For the
purposes of this Section 5.6, the following terms shall have the
following meanings:  (i) the term “Hazardous
Material” shall mean any material or substance that, whether by its nature
or use, is now or hereafter defined as a hazardous waste, hazardous substance,
pollutant or contaminant subject to regulation under any Environmental
Requirements, (ii) the term “Environmental Requirements” shall
collectively mean the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (42 U.S.C. §9601 et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. §1801 et seq.), the Resource Conservation and
Recovery Act (42 U.S.C. §6901 et seq.), the Toxic Substances Control Act (15
U.S.C. §2601 et seq.), the Clean Air Act (42 U.S.C. §7401 et seq.) and the
Federal Water Pollution Control Act (33 U.S.C. §1251 et seq.), all as presently
in effect and as the same may hereafter be amended, any regulation pursuant
thereto, or any other present or future law, ordinance, rule, regulation, order
or directive addressing environmental, health or safety issues of or by any
Governmental Authority, and (iii) the term “Governmental Authority”
shall mean the Federal government, or any state or other political subdivision
thereof, or any agency, 

14

 

court
or body of the Federal government, any state or other political subdivision
thereof, exercising executive, legislative, judicial, regulatory or
administrative functions.

(b)   Trustor
hereby represents and warrants to Beneficiary that to the best of Trustor’s
knowledge (provided that such qualification as to Trustor’s knowledge shall in
no way limit Trustor’s obligations (including indemnification) under this Section
5.6):  (i) no Hazardous
Material is currently located at, on, in, under or about the Secured Property,
other than products of the types and in the quantity commonly used by Trustor
in the operation of its business at the Property, provided the storage and or
existence of such products located at, on, in, under or about the Secured
Property is in compliance with all Environmental Requirements, (ii) no
Hazardous Material has been or is currently located at, in, on, under or about
the Secured Property in a manner which violates any Environmental Requirements,
or which requires cleanup or corrective action of any kind under any
Environmental Requirements, (iii) no releasing, emitting, discharging,
leaching, dumping or disposing of any Hazardous Material from the Secured
Property onto or into any other property or from any other property onto or
into the Secured Property has occurred or is occurring in violation of any
Environmental Requirements, and (iv) no notice of violation, lien, complaint,
suit, order or other notice with respect to the environmental condition of the
Secured Property is outstanding, nor has any such notice been issued which has
not been fully satisfied and complied with in a timely fashion so as to bring
the Secured Property into full compliance with all Environmental Requirements.

(c)   Trustor
shall comply, and shall cause all tenants or other occupants of the Secured
Property to comply, in all material respects with all Environmental
Requirements, and will not generate, store, handle, process, dispose of or
otherwise use, and will not permit any tenant or other occupant of the Secured
Property to generate, store, handle, process, dispose of or otherwise use,
Hazardous Materials at, in, on, under or about the Secured Property in a manner
that will lead to the imposition on Trustor, Beneficiary or the Secured
Property of any liability or lien of any nature whatsoever under any
Environmental Requirements.  Trustor
shall notify Beneficiary promptly in the event of any spill or other release of
any Hazardous Material at, in, on, under or about the Secured Property which is
required to be reported to a Governmental Authority under any Environmental
Requirements, will promptly forward to Beneficiary copies of any notices
received by Trustor relating to alleged violations of any Environmental
Requirements and will promptly pay when due any fine or assessment against
Beneficiary, Trustor or the Secured Property relating to any Environmental
Requirements.

(d)   If at any
time it is determined that the operation or use of the Secured Property
violates any applicable Environmental Requirements or that there are Hazardous
Materials located at, in, on, under or about the Secured Property which, under
any Environmental Requirements, require special handling in collection,
storage, treatment or disposal, or any other form of cleanup or corrective
action, Trustor shall, within the earlier of (a) thirty (30) days after receipt
of notice thereof from any Governmental Authority or from Beneficiary, or (b)
the time period specified by any Environmental Requirements, take, at its sole
cost and expense, such actions as may be necessary to fully comply in all
respects with all Environmental Requirements, provided, however, that if 

15

 

such
compliance cannot reasonably be completed within such thirty (30) day period
(unless otherwise sooner required by applicable Environmental Requirements),
Trustor shall commence such necessary action within such thirty (30) day period
and shall thereafter diligently and expeditiously proceed to fully comply in
all respects and in a timely fashion with all Environmental Requirements.  If Trustor fails to timely take, or to
diligently and expeditiously proceed to complete in a timely fashion, any such
action, Beneficiary may, in its sole and absolute discretion, make advances or
payments towards the performance or satisfaction of the same, but shall in no
event be under any obligation to do so. 
All sums so advanced or paid by Beneficiary (including, without
limitation, counsel and consultant fees and expenses, investigation and
laboratory fees and expenses, and fines or other penalty payments) and all sums
advanced or paid in connection with any judicial or administrative
investigation or proceeding relating thereto, will immediately, upon demand,
become due and payable from Trustor and shall bear interest at the Default Rate
(as defined in the Credit Agreement) from the date any such sums are so
advanced or paid by Beneficiary until the date any such sums are repaid by Trustor
to Beneficiary.  Trustor will execute
and deliver, promptly upon request, such instruments as Beneficiary may deem
useful or necessary to permit Beneficiary to take any such action, and such
additional notes and mortgages, as Beneficiary may require to secure all sums
so advanced or paid by Beneficiary.

(e)   If a lien
is filed against the Secured Property by any Governmental Authority resulting
from the need to expend or the actual expending of monies arising from an
action or omission, whether intentional or unintentional, of Trustor or for
which Trustor is responsible, resulting in the releasing, spilling, leaking,
leaching, pumping, emitting, pouring, emptying or dumping of any Hazardous
Material into the waters or onto land located within or without the state where
the Secured Property is located, then Trustor will, within thirty (30) days
from the date that Trustor is first given notice that such lien has been placed
against the Secured Property (or within such shorter period of time as may be
specified by Beneficiary if such Governmental Authority has commenced steps to
cause the Secured Property to be sold pursuant to such lien) either (a) pay the
claim and remove the lien, or (b) furnish a cash deposit, bond, or such other
security with respect thereto as is satisfactory in all respects to Beneficiary
and is sufficient to effect a complete discharge of such lien on the Secured
Property.  Beneficiary may, upon
Beneficiary’s reasonable belief that a Hazardous Material or other
environmental condition violates or threatens to violate any Environmental
Requirements, cause an environmental audit of the Secured Property or portions
thereof to be conducted to confirm Trustor’s compliance with the provisions of
this paragraph, and Trustor shall cooperate in all reasonable ways with
Beneficiary in connection with any such audit and shall pay all costs and
expenses incurred in connection therewith.

(f)    Trustor
will defend, indemnify, and hold harmless Beneficiary, its employees, agents,
officers, and directors, from and against any and all claims, demands,
penalties, causes of action, fines, liabilities, settlements, damages, costs,
or expenses of whatever kind or nature, known or unknown, foreseen or
unforeseen, contingent or otherwise (including, without limitation, counsel and
consultant fees and expenses, investigation and laboratory fees and expenses,
court costs, and litigation expenses) arising out of, or in any way related to,
(i) any breach by Trustor of any of the provisions of this paragraph, 

16

 

(ii)
the presence, disposal, spillage, discharge, emission, leakage, release, or
threatened release of any Hazardous Material which is at, in, on, under, about,
from or affecting the Secured Property, including, without limitation, any
damage or injury resulting from any such Hazardous Material to or affecting the
Secured Property or the soil, water, air, vegetation, buildings, personal
property, persons or animals located on the Secured Property or on any other
property or otherwise, (iii) any personal injury (including wrongful death) or
property damage (real or personal) arising out of or related to any such
Hazardous Material, (iv) any lawsuit brought or threatened, settlement reached,
or order or directive of or by any Governmental Authority relating to such
Hazardous Material, or (v) any violation of any Environmental Requirements or
any policy or requirement of Beneficiary hereunder, with the exception of any
such claims, demands, penalties, causes of action, fines, liabilities,
settlements, damages, costs, or expenses which are imposed upon or incurred by
or asserted against Beneficiary either by reason of the gross negligence or
willful misconduct of Beneficiary and/or Trustee, or first arising after any
foreclosure of Beneficiary’s interest in the Secured Property or transfer of
the Secured Property by deed in lieu of foreclosure.  This indemnification shall, notwithstanding any exculpatory
limitations or other provision of any nature whatsoever to the contrary set
forth in the Guaranty or this Deed of Trust, constitute the personal recourse
undertakings, obligations and liabilities of Trustor.  If this Deed of Trust is foreclosed or Trustor tenders a deed or
assignment in lieu of foreclosure, Trustor shall deliver the Secured Property
to the purchaser at foreclosure or to Beneficiary, its nominee, or wholly owned
subsidiary, as the case may be, in a condition that complies in all respects
with all Environmental Requirements.

(g)   The
obligations and liabilities of Trustor under this Section 5.6 shall survive
and continue in full force and effect and shall not be terminated, discharged
or released, in whole or in part, irrespective of whether the Obligations have
been paid in full and irrespective of any foreclosure of this Deed of Trust or
acceptance by Beneficiary, its nominee or wholly owned subsidiary of a deed or
assignment in lieu of foreclosure and irrespective of any other fact or
circumstance of any nature whatsoever.

5.7   Transfer or Encumbrance of the Secured
Property.  Except as otherwise
expressly provided in this Deed of Trust, no part of the Secured Property nor
any interest of any nature whatsoever therein shall in any manner be further
encumbered, sold, transferred, assigned or conveyed, or permitted to be further
encumbered, sold, transferred, assigned or conveyed without the prior consent
of Beneficiary, which consent in any and all circumstances may be withheld in
the sole and absolute discretion of Beneficiary.  The provisions of the foregoing sentence of this Section 5.7
shall apply to each and every such further encumbrance, sale, transfer,
assignment or conveyance, regardless of whether or not Beneficiary has
consented to, or waived by its action or inaction its rights hereunder with
respect to, any such previous further encumbrance, sale, transfer, assignment
or conveyance, and irrespective of whether such further encumbrance, sale,
transfer, assignment or conveyance is voluntary, by reason of operation of law
or is otherwise made.

5.8   Notice.  Any notice, report, demand or other instrument authorized or
required to be given or furnished (“Notices”) shall be in writing and
shall be given as follows:  (i) by
hand delivery; (ii) by deposit in the United States mail as first class
certified mail, return receipt 

17

 

requested, postage paid; (iii) by overnight
nationwide commercial courier service; or (iv) by telecopy transmission
with a confirmation copy to be delivered by duplicate notice in accordance with
any of clauses (i) through (iii) above, in each case, to the party intended to
receive the same at the following address(es):

	
   

  	
  If to Trustor:

  	
   

  	
  Westaff Support, Inc.

  
	
   

  	
   

  	
   

  	
  P.O. Box 9280

  
	
   

  	
   

  	
   

  	
  301 Lennon Lane

  
	
   

  	
   

  	
   

  	
  Walnut Creek, CA 
  94598

  
	
   

  	
   

  	
   

  	
  Attn: 
  Treasurer

  
	
   

  	
   

  	
   

  	
  Facsimile: 
  (925) 930-5361

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  With a copy to:

  	
   

  	
  Westaff Support, Inc.

  
	
   

  	
   

  	
   

  	
  Legal Department

  
	
   

  	
   

  	
   

  	
  P.O. Box 9280

  
	
   

  	
   

  	
   

  	
  301 Lennon Lane

  
	
   

  	
   

  	
   

  	
  Walnut Creek, CA 
  94598

  
	
   

  	
   

  	
   

  	
  Attn: 
  General Counsel

  
	
   

  	
   

  	
   

  	
  Facsimile: 
  (925) 930-5361

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  If to Beneficiary:

  	
   

  	
  Bank of America, N.A.

  
	
   

  	
   

  	
   

  	
  Commercial Agency Management

  
	
   

  	
   

  	
   

  	
  Mail Code: 
  WA1-501-37-20

  
	
   

  	
   

  	
   

  	
  800 Fifth Avenue, Floor 37

  
	
   

  	
   

  	
   

  	
  Seattle, WA 
  98104-3185

  
	
   

  	
   

  	
   

  	
  Attention: 
  Dora Brown

  
	
   

  	
   

  	
   

  	
  Facsimile: 
  (206) 358-0971

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  With a copy to:

  	
   

  	
  Orrick, Herrington & Sutcliffe LLP

  
	
   

  	
   

  	
   

  	
  400 Sansome Street

  
	
   

  	
   

  	
   

  	
  San Francisco, CA 94111

  
	
   

  	
   

  	
   

  	
  Attention: 
  Dolph Hellman, Esq.

  
	
   

  	
   

  	
   

  	
  Facsimile: 
  (415) 773-5759

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  or any successor Bank Credit Agent and Noteholder
  Collateral Agent under

  
	
   

  	
   

  	
   

  	
  the Intercreditor and Collateral Agency Agreement.

  

 

Notice delivered in
accordance with the foregoing shall be effective (i) when delivered, if
delivered personally or by receipted-for telex, telecopier, or facsimile
transmission, (ii) on the next business day after being delivered in the United
States (properly addressed and all fees paid) for overnight delivery service to
a courier (such as Federal Express) which regularly provides such service and
regularly obtains executed receipts evidencing delivery or (iii) five (5) days
after being deposited (properly addressed and stamped for first-class delivery)
in a daily serviced United States mail box. 
Notice for any party may be given by its respective counsel.

18

 

5.9   Changes in Laws Regarding Taxation.  If after the date of this Deed of Trust, the
state in which the Property is located passes any law imposing a tax, either
directly or indirectly, on this Deed of Trust, or the Obligations, then,
Trustor, after written demand by Trustee or Beneficiary, shall pay such tax
prior to the delinquency thereof, or reimburse Trustee or Beneficiary within
fifteen (15) days after such written demand, as applicable.  If any law of the state in which the
Property is located prohibits Trustor from paying the tax on this Deed of
Trust, or the Obligations, or reimbursing Trustee or Beneficiary for payment
thereof, then the Obligations shall be due and payable within sixty (60) days
after written demand by Beneficiary to Trustor.  Nothing in this Section 5.9 shall require Trustor to
pay any income, franchise or excise tax imposed upon Trustee or Beneficiary.

5.10 Right of Entry.  Beneficiary and its agents shall have the
right to enter and inspect the Secured Property at all reasonable times, during
Trustor’s normal business hours and otherwise in accordance with the provisions
of Section 6.10 of the Credit Agreement and the relevant provision of the Note
Purchase Agreements.

5.11 Performance of Other Agreements.  Trustor shall observe and perform each and
every material term to be observed or performed by Trustor pursuant to the
terms of any agreement or recorded instrument affecting or pertaining to the
Secured Property.

5.12 Acceptance of Trust; Powers and Duties of
Trustee.  Trustee accepts this trust
when this Deed of Trust is recorded. 
From time to time upon written request of Beneficiary and presentation
of this Deed of Trust, or a certified copy thereof, for endorsement, and
without affecting the personal liability, if any, of any person for payment of
any indebtedness or performance of any Obligation, Trustee may, without
liability therefor and without notice: 
(a) reconvey all or any part of the Property; (b) consent to
the making of any map or plat thereof; (c) join in granting any easement
thereon; (d) join in any declaration of covenants and restrictions; or
(e) join in any extension agreement or any agreement subordinating the lien
or charge hereof.  Except as may
otherwise be required by applicable law, Trustee or Beneficiary may from time
to time apply to any court of competent jurisdiction for aid and direction in
the execution of the trusts hereunder and the enforcement of the rights and
remedies available hereunder, and Trustee or Beneficiary may obtain orders or
decrees directing or confirming or approving acts in the execution of said
trusts and the enforcement of said remedies. 
Trustee has no obligation to notify any party of any pending sale or any
action or proceeding unless held or commenced and maintained by Trustee under
this Deed of Trust.  Trustee shall not
be obligated to perform any act required of it hereunder unless the performance
of the act is requested in writing and Trustee is reasonably indemnified and
held harmless against loss, cost, liability and expense.

5.13 Compensation of Trustee; Exculpation.  Trustor shall pay to Trustee reasonable
compensation and reimbursement for services and expenses in the administration
of this trust, including, without limitation, reasonable attorneys’ fees.  Beneficiary shall not directly or indirectly
be liable to Trustor or any other person as a consequence of:  (i) the exercise of the rights, remedies or
powers granted to Beneficiary in this Deed of Trust; (ii) the failure or
refusal of Beneficiary to perform or discharge any obligation or liability of
Trustor under any agreement related to the Secured Property or under this Deed
of Trust; or (iii) any loss sustained by Trustor or any third party
resulting from Beneficiary’s failure to lease the Property after an Event
of  

19

 

Default or from
any other act or omission of Beneficiary in managing the Property after an
Event of Default unless the loss is caused by the willful misconduct or gross
negligence of Beneficiary and no such liability, in the absence of
Beneficiary’s willful misconduct or gross negligence, shall be asserted or
enforced against Beneficiary, all such liability being expressly waived and
released by Trustor.

5.14 Substitution of Trustee.  From time to time, by a writing signed and
acknowledged by Beneficiary and recorded in the Office of the Recorder of the
County in which the Property is situated, Beneficiary may appoint another
trustee to act in the place and stead of Trustee or any successor.  Such writing shall set forth any information
required by applicable law.  The
recordation of such instrument of substitution shall discharge Trustee herein
named and shall appoint the new trustee as the trustee hereunder with the same
effect as if originally named trustee herein. 
A writing recorded pursuant to the provisions of this paragraph shall be
conclusive proof of the proper substitution of such new trustee.

5.15 Representations, Warranties and Covenants
Concerning the Secured Property. 
Trustor represents, warrants and covenants as follows:

(a)   First
Lien.  Upon the execution by Trustor
and the recording of this Deed of Trust, and upon the execution and filing of
UCC-1 financing statements or amendments thereto, Beneficiary will have a valid
first lien on the Secured Property and a valid security interest in the
Equipment subject to no liens, charges or encumbrances other than the Permitted
Liens.

(b)   Access/Utilities.  The Property and the Improvements have
adequate rights of access to public ways and is served by adequate water,
sewer, sanitary sewer and storm drain facilities.  All roads necessary for the full utilization of the Property and
the Improvements for their current purpose have been completed and dedicated to
public use and accepted by all governmental authorities or are the subject of
access easements for the benefit of the Property.

(c)   Multiple
Tax Lots.  The Property consists of
multiple tax lots; no portion of said tax lots covers property other than the
Property or a portion of the Property and no portion of the Property lies in
any other tax lot.

(d)   Special
Assessments.  Except as disclosed in
the title insurance policy, there are no pending or, to the knowledge of
Trustor, proposed special or other assessments for public improvements or
otherwise affecting the Property, nor, to the knowledge of Trustor, are there
any contemplated improvements to the Property that may result in such special
or other assessments.

(e)   Flood
Zone.  The Property is not located
in a special flood hazard area as defined by the Federal Insurance
Administration.

(f)    No
Condemnation.  No part of any
property subject to this Deed of Trust has been taken in condemnation or other
like proceeding to an extent which would impair the value of the Secured
Property or the usefulness of such property, nor is any proceeding 

20

 

pending,
threatened or known to be contemplated for the partial or total condemnation or
taking of the Secured Property.

(g)   No Labor
or Materialmen Claims.  All parties
furnishing labor and materials have been paid in full and, except for such
liens or claims insured against by the policy of title insurance to be issued
in connection with the Loan, there are no mechanics’, laborers’ or
materialmens’ liens or claims outstanding for work, labor or materials
affecting the Secured Property, whether prior to, equal with or subordinate to
the lien of this Deed of Trust.

(h)   No
Purchase Options.  No tenant,
person, party, firm, corporation or other entity has an option to purchase the
Secured Property, any portion thereof or any interest therein.

(i)    Boundary
Lines.  All of the Improvements
which were included in determining the appraised value of the Secured Property
lie wholly within the boundaries and building restriction lines of the
Property, and no improvements on adjoining properties encroach upon the
Property, and no easements or other encumbrances upon the Property encroach
upon any of the Improvements, so as to affect the value or marketability of the
Improvements except those which are insured against by title insurance.

(j)    Compliance
with Laws.  To the Trustor’s
knowledge, all federal, state and local laws, rules and regulations applicable
to the Secured Property, including, without limitation, all zoning and building
requirements and all requirements of the Americans With Disabilities Act of
1990, as amended from time to time (42 U. S. C. §12101 et seq.) have been
satisfied or complied with, except where any such failure to comply has not and
will not result in a material adverse effect to the value, use or operation of
the Property.  Trustor is in possession
of all certificates of occupancy and all other licenses, permits and other
authorizations required by applicable law for the existing use of the Property
and the Improvements.  All such
certificates of occupancy and other licenses, permits and authorizations are
valid and in full force and effect. 
Trustor covenants to comply with all conditions and requirements of all
licenses, permits and other authorizations as required by applicable law with
respect to the Property and the Improvements.

5.16 Indemnification.  In addition to any other indemnifications
provided herein, Trustor shall protect, defend, indemnify and save harmless
Beneficiary, the Banks and the Noteholders (collectively, the “Indemnified
Parties”) from and against all liabilities, obligations, claims, demands,
damages, penalties, causes of action, losses, fines, costs and expenses
(including, without limitation, reasonable attorneys’ fees and disbursements)
(collectively “Subject Claims”), imposed upon or incurred by or asserted
against the Indemnified Parties by reason of (a) ownership of this Deed of
Trust, the Secured Property or any interest therein or receipt of any Rents;
(b) any accident, injury to or death of persons or loss of or damage to
property occurring in, on or about the Secured Property or any part thereof or
on the adjoining 

21

 

sidewalks, curbs,
adjacent property or adjacent parking areas, streets or ways; (c) any use,
nonuse or condition in, on or about the Secured Property or any part thereof or
on adjoining sidewalks, curbs, adjacent property or adjacent parking areas,
streets or ways; (d) any failure on the part of Trustor to perform or
comply with any of the terms of this Deed of Trust; (e) performance of any
labor or services or the furnishing of any materials or other property in
respect of the Secured Property or any part thereof; (f) any failure of
the Secured Property to comply with  the
Americans With Disabilities Act of 1990, as amended from time to time (42 U. S.
C. §12101 et seq.); (g) any representation or warranty made in the
Guaranty, the Noteholder Guaranty or this Deed of Trust being false or
misleading in any material respect as of the date such representation or warranty
was made; (h) any claim by brokers, finders or similar persons claiming to
be entitled to a commission in connection with any transaction involving the
Secured Property or any part thereof under any legal requirement or any
liability asserted against the Indemnified Parties  with respect thereto; and (i) the claims of any lessee of
any or any portion of the Secured Property or any person acting through or
under any lessee or otherwise arising under or as a consequence of any Lease,
with the exception of any such Subject Claims which are imposed upon or
incurred by or asserted against the Indemnified Parties either by reason of the
gross negligence or willful misconduct of the Indemnified Parties and/or
Trustee, or with respect to any matter first arising after any foreclosure of
Beneficiary’s interest in the Secured Property or transfer of the Secured
Property by deed in lieu of foreclosure. 
Any amounts payable to the Indemnified Parties by reason of the application
of this paragraph shall be secured by this Deed of Trust and shall become
immediately due and payable and shall bear interest at the Default Rate (as
defined in the Credit Agreement) from the date loss or damage is sustained by
the Indemnified Parties until paid.  The
obligations and liabilities of Trustor under this Section 5.16 shall
survive and termination, satisfaction, or assignment of this Deed of Trust and
the exercise by Beneficiary of any of its rights or remedies hereunder,
including, but not limited to, the acquisition of the Secured Property by
foreclosure or a conveyance in lieu of foreclosure.

ARTICLE
VI.  EVENTS OF DEFAULT AND REMEDIES

6.1   Events of Default.  The occurrence of any one or more of the
following events shall constitute an “Events of Default” under this Deed
of Trust:

(a)   (i) the
failure of Trustor to pay or perform any obligation when due under the Guaranty
or under the Noteholder Guaranty; (ii) the failure of Trustor to perform
or cause to be performed any obligation, term or condition under this Deed of
Trust and any such failure shall remain unremedied for twenty (20) days after
notice of such failure; (iii) the failure of any representation or
warranty of Trustor contained in this Deed of Trust to be truthful in all
material respects; or (iv) either the Noteholder Guaranty or the Guaranty,
shall cease to be in full force and effect for any reason whatsoever other than
the termination thereof in accordance with its terms due to the full
satisfaction of the Note Purchase Agreements or the Credit Agreement, as applicable,
or the Trustor shall contest or deny in writing the validity or enforceability
of any of its obligations under any such Noteholder Guaranty or the Guaranty,
as the case may be; or

(b)   if Trustor
shall fail to pay prior to delinquency any installment of any tax or assessment
against the Secured Property, which tax or assessment has become a lien on the
Secured Property and may have a material and adverse effect on the Secured
Property, except where Trustor is challenging such tax or assessment in accordance
with Section 5.2(b) above; or

22

 

(c)   if the
Secured Property shall become subject (i) to any tax lien which may have a
material and adverse effect upon the Secured Property, other than a lien for
local real estate taxes and assessments not due and payable, or (ii) to any lis
pendens, notice of pendency, stop order, mechanic’s or materialman’s lien or
other lien of any nature whatsoever, with the exception of any such liens which
are the subject of any challenge by Trustor pursuant to Section 5.2(b) above or
are otherwise Permitted Liens hereunder, and such lien has not either be
discharged of record or in the alternative insured or bonded over to the
reasonable satisfaction of Beneficiary within a period of thirty (30) days
after the same is filed or recorded, in each case irrespective of whether the
same is superior or subordinate in lien or other priority to the lien of this
Deed of Trust.

6.2   Rights and Remedies.  At any time during the continuance of an
Event of Default, Beneficiary and/or Trustee shall have all of the following
rights and remedies:

(a)   To declare
all Obligations immediately due and payable;

(b)   With or
without notice, and without releasing Trustor from any Obligation, and without
becoming a mortgagee in possession, to cure any breach or default of Trustor
and, in connection therewith, to enter upon the Secured Property and to do such
acts and things as Beneficiary and/or Trustee deem reasonably necessary to
inspect, investigate, assess and protect the security hereof, including,
without limitation:  (i) to appear in
and defend any action or proceeding purporting to affect the security hereof or
the rights or powers of Beneficiary and/or Trustee hereunder; (ii) to pay,
purchase, contest or compromise any encumbrance, charge, lien or claim of lien
which, in the sole judgment of either Beneficiary or Trustee, is or may be
senior in priority hereto, the judgment of either Beneficiary or Trustee being
conclusive as between the parties hereto; (iii) to obtain insurance; (iv) to
pay any premiums or charges with respect to insurance required to be carried
hereunder; (v) to obtain a court order to enforce Beneficiary’s right to enter
and inspect the Secured Property; and/or (vi) to employ counsel, accountants,
contractors and other appropriate persons to assist them;

(c)   To commence
and maintain an action or actions in any court of competent jurisdiction to
foreclose this instrument as a mortgage or to obtain specific enforcement of
the covenants of Trustor hereunder, and Trustor agrees that such covenants
shall be specifically enforceable by injunction or any other appropriate
equitable remedy and that for the purposes of any suit brought under this
subparagraph, Trustor waives the defense of laches and any applicable statute
of limitations;

(d)   To apply to
a court of competent jurisdiction for and obtain appointment of a receiver of
the Property as a matter of strict right upon ex parte application and without
notice to Trustor and without regard to: (i) the adequacy of the security for
the repayment of the Obligations; (ii) the existence of a declaration that the
Obligations are immediately due and payable; or (iii) the filing of a notice of
default; and Trustor hereby consents to such appointment, waives any and all
notices of and defenses to such appointment, agrees that it will not oppose any
such appointment, and hereby expressly agrees that such appointment shall be
made as a matter of absolute right to Beneficiary; such appointment may be made
either before or after sale, without notice, without regard to the solvency or 

23

 

insolvency
of Trustor at the time of application for such receiver, and without regard to
the then value of the Secured Property or whether the same shall be then
occupied as a homestead or not; and Beneficiary hereunder or any employee or
agent thereof may be appointed as such receiver.  Such receiver shall have all powers and duties prescribed by law
in order to preserve the value, marketability or rentability of the Secured
Property or increase the income therefrom or protect the security hereof,
including, but not limited to, the power to make all necessary and needful
repairs, and to pay all taxes, assessments and charges against the Secured
Property and all premiums for insurance thereon, and the power to make leases
to be binding upon all parties, including Trustor, the purchaser at a sale
pursuant to a judgment of foreclosure and any person acquiring an interest in
the Secured Property after entry of a judgment of foreclosure.  In addition, such receiver shall also have
the power to sue for or otherwise collect the Rents, including those past due
and unpaid, and to extend or modify any then existing Leases, which extensions
and modifications may provide for terms to expire, or for options to tenants to
extend or renew terms to expire, beyond the maturity date of the Loan and
beyond the date the issuance of a deed or deeds to a purchaser or purchasers at
a foreclosure sale, it being understood and agreed that any such Leases, and
the options or other provisions to be contained therein, shall be binding upon
Trustor and all the persons whose interest in the Secured Property are subject
to the lien hereof and upon the purchaser or purchasers at any foreclosure
sale, notwithstanding any redemption, reinstatement, discharge of the
Obligations, satisfaction of any foreclosure judgment, or issuance of any
certificate of sale or deed to any purchaser. 
In addition, such receiver shall have the power to collect the Rents
during the pendency of such foreclosure suit and, in case of a sale and
deficiency, during the full statutory period of redemption, if any, whether
there be a redemption or not, as well as during any further times when Trustor,
except for the intervention of such receiver, would be entitled to collection of
such Rents, and such receiver shall have all other powers which may be
necessary or are usual in such cases for the protection, possession, control,
management and operation of the Secured Property during the whole of said
period.  The court may, from time to
time, authorize the receiver to apply the net income from the Secured Property
in payment in whole or in part of the Obligations or the indebtedness secured
by a decree foreclosing this Deed of Trust, or any taxes or liens which may
become superior to the lien hereof or of such decree, or to any loan deficiency
owed by Trustor to Beneficiary in case of a sale and deficiency.

(e)   To enter
upon, possess, manage and operate the Secured Property or any part thereof; to
take and possess all documents, books, records, papers and accounts of Trustor
or the then owner of the Secured Property; to make, terminate, enforce or
modify leases of the Secured Property upon such terms and conditions as
Beneficiary deems proper; to elect to disaffirm any Lease made subsequent to
this Deed of Trust without Beneficiary’s prior written consent; to make
repairs, alterations and improvements to the Secured Property necessary, in
Beneficiary’s sole judgment, to protect or enhance the security hereof; to
conduct a marketing or leasing program with respect to the Secured Property, or
employ a marketing or leasing agent or agents to do so, directed to the leasing
or sale of the Secured Property under such terms and conditions as Beneficiary
may in its sole discretion deem appropriate or desirable; to employ such
contractors, subcontractors, materialmen, architects, engineers, consultants,
managers, brokers, marketing agents, or other employees, agents, independent
contractors or professionals, as Beneficiary may in 

24

 

its
sole discretion deem appropriate or desirable to implement and effectuate the
rights and powers herein granted; to maintain actions in forcible entry and
detainer, ejectment for possession and actions in distress for rent; to
delegate or assign any and all rights and powers given to Beneficiary or
Trustee by this Deed of Trust; and to do any acts which Beneficiary or Trustee
in their sole discretion deems appropriate or desirable to protect the security
hereof and use such measures, legal or equitable, as Beneficiary or Trustee may
in their sole discretion deem appropriate or desirable to implement and
effectuate the provisions of this Deed of Trust.  In such event, Beneficiary shall have, and Trustor hereby gives
and grants to Beneficiary, the right, power and authority to make and enter
into Leases, licenses and occupancy agreements with respect to the Secured
Property or portions thereof for such Rents and for such periods of occupancy
and upon conditions and provisions as Beneficiary may deem desirable in its
sole discretion, and Trustor expressly acknowledges and agrees that the term of
such Lease, license or occupancy agreement may extend beyond the date of any
foreclosure sale of the Security Property; it being the intention of Trustor
that in such event Beneficiary shall be deemed to be and shall be the
attorney-in-fact of Trustor for the purpose of making and entering into Leases,
licenses or occupancy agreements of parts or portions of the Secured Property
for the Rents and upon the terms, conditions and provisions deemed desirable to
Beneficiary in its sole discretion and with like effect as if such Leases,
licenses or occupancy agreements had been made by Trustor as the owner in fee
simple of the Secured Property free and clear of any conditions or limitations
established by this Deed of Trust. 
Beneficiary shall have the right to apply the net income generated from
the Secured Property, after allowing a reasonable fee for the collection
thereof and for the management and leasing of the Secured Property, to the
payment of operating expenses, taxes, insurance premiums and other charges
applicable to the Secured Property, or in reduction of the Obligations in such
order and manner as Beneficiary shall select. 
The power and authority hereby given and granted by Trustor to
Beneficiary shall be deemed to be coupled with an interest, shall not be
revocable by Trustor so long as any of the Obligations remains outstanding,
shall survive the voluntary or involuntary dissolution of Trustor and shall not
be affected by any disability or incapacity suffered by Trustor subsequent to
the date hereof.  In connection with any
action taken by Beneficiary pursuant to this Section, Beneficiary shall not be
liable for any loss sustained by Trustor resulting from any failure to let the
Secured Property, or any part thereof, or from any other act or omission of
Beneficiary in managing the Secured Property, nor shall Beneficiary be
obligated to perform or discharge any obligation, duty or liability under any
Lease, license or occupancy agreement covering the Secured Property or any part
thereof or under or by reason of this instrument or the exercise of rights or
remedies hereunder.  Nothing in this
Section shall impose on Beneficiary any duty, obligation or responsibility for
the control, care, management or repair of the Secured Property, or for the
carrying out of any of the terms and conditions of any such Lease, license or
occupancy agreement, nor shall it operate to make Beneficiary responsible or
liable for any waste committed on the Secured Property by the tenants or by any
other parties or for any dangerous or defective condition of the Secured
Property, or for any negligence in the management, upkeep, repair or control of
the Secured Property, unless any such loss or damage arises from the gross
negligence or willful misconduct of Beneficiary.  Trustor 

25

 

hereby
assents to, ratifies and confirms any and all actions of Beneficiary with
respect to the Secured Property taken under this Section.

(f)    To execute
a written notice of such default and of the election to cause the Secured
Property to be sold to satisfy the Obligations.  Trustee shall give and record such notice as the law then
requires as a condition precedent to a foreclosure sale.  When the minimum period of time required by
law after such notice has elapsed, Trustee, without notice to or demand upon
Trustor except as required by law, shall sell the Secured Property at the time
and place of sale fixed by it in the notice of sale, at one or several sales,
either as a whole or in separate parcels and in such manner and order, all as
Beneficiary in its sole discretion may determine, at public auction to the
highest bidder for cash, in lawful money of the United States, payable at time
of sale.  Neither Trustor nor any other
person or entity other than Beneficiary shall have the right to direct the
order in which the Secured Property is sold. 
Subject to requirements and limits imposed by law, Trustee may from time
to time postpone sale of all or any portion of the Secured Property by public
announcement at such time and place of sale, and from time to time may postpone
the sale by public announcement at the time and place fixed by the preceding
postponement.  The power of sale under
this Deed of Trust shall not be exhausted by any one or more sales (or attempts
to sell) as to all or any portion of the Secured Property remaining unsold, but
shall continue unimpaired until all of the Secured Property has been sold by
exercise of the power of sale in this Deed of Trust and all Obligations have
been paid and discharged in full. 
Trustee shall deliver to the purchaser at such sale a deed conveying the
Secured Property or portion thereof so sold, but without any covenant or
warranty, express or implied.  The
recitals in the deed of any matters or facts shall be conclusive proof of the
truthfulness thereof.  Any  person, including Trustee, Trustor or
Beneficiary, may purchase at the sale;

(g)   To resort
to and realize upon the security hereunder and any other security now or hereafter
held by Beneficiary concurrently or successively and in one or several
consolidated or independent judicial actions or lawfully taken non-judicial
proceedings, or both, and to apply the proceeds received upon the Obligations
all in such order and manner as Trustee and Beneficiary or either of them
determine in their sole discretion;

(h)   To exercise
such other rights Trustee or Beneficiary may have with respect to the Secured
Property under this Deed of Trust, the CUCC or otherwise at law; and

(i)    To exercise
such other rights as Trustee or Beneficiary may have at law or equity or
pursuant to the terms and conditions of this Deed of Trust.

Upon sale of the Secured
Property at any judicial or non-judicial foreclosure, Beneficiary may credit
bid (as determined by Beneficiary in its sole and absolute discretion) all or
any portion of the Obligations.

In connection with any
sale or sales hereunder, Beneficiary may elect to treat any of the Secured
Property which consists of a right in action or which is property that can be
severed from the real property covered hereby or any improvements thereon
without causing structural damage thereto as if the same were personal property
or a fixture, as the case may be, 

26

 

and dispose of the
same in accordance with applicable law, separate and apart from the sale of
real property.  Any sale of any personal
property or fixtures hereunder shall be conducted in any manner permitted by
the CUCC.

6.3   Application of Foreclosure Sale Proceeds.  In the event of any foreclosure sale,
Trustee shall apply the proceeds of such sale in the following order of
priority:  First, to the costs,
fees and expenses of exercising the power of sale and of sale, including,
without limitation, the payment of Trustee’s fees and reasonable attorneys’
fees; Second, to all sums expended under the terms of this Deed of
Trust, not then repaid, with accrued interest at the Default Rate (as defined
in the Credit Agreement); Third, to the payment of all other Obligations
which are secured by this Deed of Trust, in such order as Beneficiary shall
direct in accordance with the terms and provisions of the Intercreditor and
Collateral Agency Agreement; Fourth, to satisfy the outstanding balance
of obligations secured by any junior liens or encumbrances in the order of
their priority; and Fifth, to the Trustor or the Trustor’s successor in
interest.

6.4   No Cure or Waiver.  Neither Beneficiary’s nor Trustee’s nor any
receiver’s entry upon and taking possession of all or any part of the Secured
Property, nor any collection of rents, issues, profits, insurance proceeds,
condemnation proceeds or damages, other security or proceeds of other security,
or other sums, nor the application of any collected sum to any Obligation, nor
the exercise of any other right or remedy by Trustee or Beneficiary or any
receiver shall cure or waive any default or notice of default under this Deed
of Trust, or nullify the effect of any notice of default or sale (unless all
Obligations then due have been paid or performed and Trustor has cured all
other defaults hereunder), or impair the status of the security, or prejudice
Trustee or Beneficiary in the exercise of any right or remedy, or be construed
as an affirmation by Beneficiary of any tenancy, lease or option or a
subordination of the lien of this Deed of Trust.

6.5   Payment of Costs, Expenses and Attorneys’
Fees.  Trustor agrees to pay to
Beneficiary upon demand all costs and expenses incurred by Trustee or
Beneficiary in the enforcement of the terms and conditions of this Deed of Trust
(including, without limitation, statutory trustee’s fees, court costs and
attorneys’ fees, whether incurred in litigation or not) with interest from the
date of expenditure until said sums have been paid at the Default Rate (as
defined in the Credit Agreement).

6.6   Power to File Notices and Cure Defaults.  Trustor hereby irrevocably appoints
Beneficiary and its successors and assigns, as its attorney-in-fact, which
agency is coupled with an interest to: (a) execute and/or record any notices of
completion, cessation of labor, or any other notices that Beneficiary deems
appropriate to protect Beneficiary’s interest; and (b) upon the occurrence of
an Event of Default, perform any obligation of Trustor hereunder; provided,
however, that: (i) Beneficiary as such attorney-in-fact shall only be
accountable for such funds as are actually received by Beneficiary; and (ii)
Beneficiary shall not be liable to Trustor or any other person or entity for
any failure to act under this Section.

6.7   Rights Cumulative, No Waiver.  All rights, powers and remedies of Trustee
and/or Beneficiary provided in this Deed of Trust, may be exercised at any time
by Beneficiary, except as expressly provided herein, and from time to time
after the occurrence of any Event of Default, are cumulative and not exclusive,
may be pursued singularly, successively, or together 

27

 

at the sole
discretion of Trustee and/or Beneficiary, and shall be in addition to any other
rights, powers or remedies provided by law or equity.  The failure to exercise any such right or remedy shall in no
event be construed as a waiver or a release thereof.  Trustee’s or Beneficiary’s exercise of any right or remedy shall
not constitute a cure of any Event of Default unless all sums then due and
payable to Beneficiary under the Guaranty, the Noteholder Guaranty or under
this Deed of Trust are repaid and Trustor has cured all other defaults.  No waiver shall be implied from any failure
of Beneficiary to take, or any delay by Beneficiary in taking, action
concerning any Event of Default, or from any previous waiver of any similar or
unrelated Event of Default.  Any waiver
or approval under the Guaranty or under this Deed of Trust must be in writing
and shall be limited to its specific terms.

6.8   Trustor’s Waiver of Guarantor Rights.

(a)   Conditions to Exercise of
Rights. Trustor hereby waives any right it may now or hereafter have to
require Beneficiary, as a condition to the exercise of any remedy or other
right against Trustor hereunder or under any other document executed by Trustor
in connection with any Obligation: (i) to proceed against Borrower, or against
any other collateral assigned to Beneficiary by Trustor, by Borrower, or by any
other guarantor; (ii) to pursue any other right or remedy in Beneficiary’s power;
(iii) to give notice of the time, place or terms of any public or private sale
of real or personal property collateral assigned to Beneficiary by Borrower; or
(iv) to make or give (except as otherwise expressly provided in the Credit
Agreement and the Note Purchase Agreements) any presentment, demand, protest,
notice of dishonor, notice of protest or other demand or notice of any kind in
connection with any Obligation or any collateral (other than the Secured
Property) for any Obligation.

(b)   Defenses.  Trustor hereby waives any defense it may now
or hereafter have that relates to:  (i)
any disability or other defense of Borrower, or other person; (ii) the
cessation, from any cause other than full performance, of the obligations of
Borrower, or any other person; (iii) the application of the proceeds of the
Credit Agreement and the Note Purchase Agreements, by Borrower, or other
person, for purposes other than the purposes represented to Trustor by
Borrower, otherwise intended or understood by Trustor, or Borrower; (iv) any
act or omission by Beneficiary which directly or indirectly results in or
contributes to the release of Borrower, or other person or any collateral for
any Obligation; (v) the unenforceability or invalidity of any collateral
assignment (other than this Deed of Trust) or guaranty with respect to any
Obligation, or the lack of perfection or continuing perfection or lack of
priority of any lien (other than the lien hereof) which secures any Obligation;
(vi) any failure of Beneficiary to marshal assets in favor of Trustor or any
other person; (vii) any modification of any Obligation, including any renewal,
extension, acceleration or increase in interest rate; (viii) any law which
provides that the obligation of a surety or guarantor must neither be larger in
amount nor in other respects more burdensome than that of the principal or
which reduces a surety’s or guarantor’s obligation in proportion to the
principal obligation; (ix) any right of subrogation, any right to enforce any
remedy which Beneficiary may have against Borrower and any right to participate
in, or benefit from, any security for the Credit Agreement or the Note Purchase
Agreements now or hereafter held by Beneficiary; (x) any defense based upon
Beneficiary’s failure to disclose to Trustor any information 

28

 

concerning
Borrower’s financial condition or any other circumstances bearing on Borrower’s
ability to pay all sums payable under the Credit Agreement or the Note Purchase
Agreements; (xi) any failure of Beneficiary to file or enforce a claim in any
bankruptcy or other proceeding with respect to any person; (xii) the election
by Beneficiary, in any bankruptcy proceeding of any person, of the application
or non-application of Section 1111(b)(2) of the United States Bankruptcy Code;
(xiii) any extension of credit or the grant of any lien under Section 364 of
the United States Bankruptcy Code; (xiv) any use of cash collateral under
Section 363 of the United States Bankruptcy Code; and (xv) any agreement or
stipulation with respect to the provision of adequate protection in any
bankruptcy proceeding of any person.

(c)   Subrogation.
Trustor hereby waives, until such time as all Obligations are fully performed,
any right to participate in any collateral now or hereafter assigned to Beneficiary
with respect to any Obligation.

(d)   Borrower
Information. Trustor warrants and agrees: (i) that Trustor has not relied,
and will not rely, on any representations or warranties by Beneficiary to
Trustor with respect to the credit worthiness of Borrower or the prospects of
repayment of any Obligation from sources other than the Secured Property; (ii)
that Trustor has adequate means of obtaining from Borrower on a continuing
basis financial and other information pertaining to the business operations, if
any, and financial condition of Borrower; (iii) that Trustor assumes full
responsibility for keeping informed with respect to Borrower’s business
operations, if any, and financial condition; (iv) that Beneficiary shall have
no duty to disclose or report to Trustor any information now or hereafter known
to Beneficiary with respect to any Borrower, including, without limitation, any
information relating to any of Borrower’s business operations or financial
condition; and (v) that Trustor is familiar with the terms and conditions of
the Credit Agreement and of the Note Purchase Agreements and consents to
all  provisions thereof.

(e)   Reinstatement
of Lien. Beneficiary’s rights hereunder shall be reinstated and revived,
and the enforceability of this Deed of Trust shall continue, with respect to
any amount at any time paid on account of any obligations under the Credit
Agreement and of the Note Purchase Agreements which Beneficiary is thereafter
required to restore or return in connection with a bankruptcy, insolvency,
reorganization or similar proceeding with respect to Borrower.

(f)    Lawfulness
and Reasonableness. Trustor warrants that all of the waivers in this Deed
of Trust are made with full knowledge of their significance, and of the fact
that events giving rise to any defense or other benefit waived by Trustor may
destroy or impair rights which Trustor would otherwise have against
Beneficiary, Borrower, or against collateral. 
Trustor agrees that all such waivers are reasonable under the
circumstances and further agrees that, if any such waiver is determined (by a
court of competent jurisdiction) to be contrary to any law or public policy,
the other waivers herein shall nonetheless remain in full force and effect.

(g)   Enforceability.
Trustor hereby acknowledges that: (i) the obligations undertaken by Trustor in
this Deed of Trust are complex in nature, and (ii) numerous 

29

 

possible
defenses to the enforceability of these obligations may presently exist and/or
may arise hereafter, and (iii) as part of Beneficiary’s consideration for
entering into this transaction, Beneficiary has specifically bargained for the
waiver and relinquishment by Trustor of all such defenses, and (iv) Trustor has
had the opportunity to seek and receive legal advice from skilled legal counsel
in the area of financial transactions of the type contemplated herein.  Given all of the above, Trustor does hereby
represent and confirm to Beneficiary that Trustor is fully informed regarding,
and that Trustor does thoroughly understand: (A) the nature of all such
possible defenses, and (B) the circumstances under which such defenses may
arise, and (C) the benefits which such defenses might confer upon Trustor, and
(D) the legal consequences to Trustor of waiving such defenses.  Trustor acknowledges that Trustor makes this
Deed of Trust with the intent that this Deed of Trust and all of the informed
waivers herein shall each and all be fully enforceable by Beneficiary, and that
Beneficiary is induced to enter into this transaction in material reliance upon
the presumed full enforceability thereof.

ARTICLE VII.  MISCELLANEOUS PROVISIONS

7.1   Governing Law.  This Deed of Trust shall be governed by and
construed in accordance with the laws of the State of California without
reference to conflicts of law rules.

7.2   Consent to Jurisdiction.  Trustor irrevocably submits to the
jurisdiction of:  (a) any state or
federal court sitting in the state of California, over any suit, action or
proceeding,  arising out of or relating
to this Deed of Trust; and (b) any state court sitting in the county of the
state where the Property are located over any suit, action or proceeding,
brought by Trustee or Beneficiary related to the exercise of the power of sale
under this Deed of Trust or any action brought by Beneficiary to enforce its
rights with respect to the Secured Property. 
Trustor irrevocably waives, to the fullest extent permitted by law, any
objection that Trustor may now or hereafter have to the laying of venue of any
such suit, action, or proceeding brought in any such court and any claim that
any such suit, action, or proceeding brought in any such court has been brought
in an inconvenient forum.

7.3   Further Acts.  Trustor will, at the cost of Trustor, and
without expense to Trustee or Beneficiary do, execute, acknowledge and deliver
all and every such further acts, deeds, conveyances, mortgages, assignments,
notices of assignments, transfers and assurances as Trustee or Beneficiary
shall, from time to time, require for the better assuring, conveying, assigning,
transferring and confirming unto Trustee or Beneficiary  of the property and rights hereby mortgaged
or intended now or hereafter so to be, or which Trustor may be or may hereafter
become bound to convey or assign to Trustee or Beneficiary or for carrying out
the intention or facilitating the performance of the terms of this Deed of
Trust or for filing, registering or recording this Deed of Trust and, on
demand, will execute and deliver and hereby authorizes Beneficiary to execute
in the name of Trustor to the extent Beneficiary may lawfully do so, one or
more financing statements, chattel mortgages or comparable security
instruments, to evidence more effectively the lien hereof upon the Secured
Property.

30

 

7.4   Headings.  The headings, titles and captions of various sections of this
Deed of Trust are for convenience of reference only and are not to be construed
as defining or limiting, in any way, the scope or intent of the provisions
hereof.

7.5   Limitation of Interest.  This Deed of Trust is subject to the express
condition that at no time shall Trustor be obligated or required to pay
interest at a rate which could subject Beneficiary to either civil or criminal
liability as a result of being in excess of the maximum interest rate which
Trustor is permitted by law to contract or agree to pay.  If by the terms of this Deed of Trust
Trustor is at any time required or obligated to pay interest at a rate in
excess of such maximum rate, the rate of interest shall be deemed to be
immediately reduced to such maximum rate and the interest payable shall be
computed at such maximum rate and all prior interest payments in excess of such
maximum rate shall be applied and shall be deemed to have been payments in
reduction of the principal balance of the Obligation.

7.6   Sole Discretion of Beneficiary.  Except as may otherwise be expressly
provided to the contrary, wherever pursuant to this Deed of Trust, Beneficiary
or Trustee exercises any right given to Beneficiary or Trustee to consent or
not consent, or to approve or disapprove, or any arrangement or term is to be
satisfactory to Beneficiary or Trustee the decision of Beneficiary or Trustee
to consent or not consent, or to approve or disapprove or to decide that
arrangements or terms are satisfactory or not satisfactory, shall be in the
reasonable discretion of Beneficiary or Trustee, as applicable.

7.7   Reasonableness.  If at any time Trustor believes that
Beneficiary has not acted reasonably in granting or withholding any approval or
consent under this Deed of Trust, as to which approval or consent either
Beneficiary has expressly agreed to act reasonably, or absent such agreement, a
court of law having jurisdiction over the subject matter would require
Beneficiary to act reasonably, then Trustor’s sole remedy shall be to seek
injunctive relief or specific performance and no action for monetary damages or
punitive damages shall in any event or under any circumstances be maintained by
Trustor against Beneficiary.

7.8   Recovery of Sums Required To Be Paid.  Beneficiary shall have the right from time
to time to take action to recover any sum or sums which constitute a part of
the Obligations as the same become due, without regard to whether or not the
balance of the Obligations shall be due, and without prejudice to the right of
Beneficiary thereafter to bring an action of foreclosure, or any other action,
for a default or defaults by Trustor existing at the time such earlier action
was commenced.

7.9   Authority.  Trustor (and the undersigned representative of Trustor, if any)
has full power, authority and legal right to execute this Deed of Trust, and to
mortgage, give, grant, bargain, sell, convey, confirm and assign the Secured
Property pursuant to the terms hereof and to keep and observe all of the terms
of this Deed of Trust on Trustor’s part to be performed.

7.10 Severability.  If any term, covenant or condition of this Deed of Trust shall be
held to be invalid, illegal or unenforceable in any respect by a court of
competent jurisdiction, this Deed of Trust shall be construed without such
provision.

31

 

7.11 Counterparts.  This Deed of Trust may be executed in any number of counterpart
originals and each such counterpart original shall be deemed to constitute but
one and the same instrument.

7.12 Waiver of Notice.  Trustor shall not be entitled to any notices
of any nature whatsoever from Beneficiary except with respect to matters for
which this Deed of Trust or applicable law specifically and expressly provides
for the giving of notice by Beneficiary to Trustor, and Trustor hereby
expressly waives the right to receive any notice from Beneficiary with respect
to any matter for which this Deed of Trust or applicable law do not
specifically and expressly provide for the giving of notice by Beneficiary to
Trustor.

7.13 No Oral Change.  This Deed of Trust may only be modified,
amended or changed by an instrument in writing signed by Trustor and
Beneficiary, and may only be released, discharged or satisfied of record by an
instrument in writing signed by Beneficiary. 
No waiver of any term, covenant or provision of this Deed of Trust shall
be effective unless given in writing by Beneficiary and if so given by
Beneficiary shall only be effective in the specific instance in which given.

7.14 Absolute and Unconditional Obligation.  Trustor acknowledges that Trustor’s
obligation to pay the Obligations in accordance with the provisions of this
Deed of Trust is and shall at all times continue to be absolute and
unconditional in all respects other than upon full satisfaction of all
obligations of Borrower under the Credit Agreement and under the Note Purchase
Agreements other than unmatured indemnity obligations, and shall at all times
be valid and enforceable irrespective of any other agreements or circumstances
of any nature whatsoever which might otherwise constitute a defense to this
Deed of Trust or the obligation of Trustor thereunder to pay the Obligations or
the obligations of any other person relating to this Deed of Trust other than
the full satisfaction of all obligations of Borrower under the Credit Agreement
and under the Note Purchase Agreements other than unmatured indemnity
obligations and Trustor absolutely, unconditionally and irrevocably waives any
and all right to assert any defense, setoff, counterclaim or crossclaim of any
nature whatsoever with respect to the obligation of Trustor to pay the
Obligations in accordance with the provisions of this Deed of Trust or the
obligations of any other person relating to this Deed of Trust, other than upon
full satisfaction of all obligations of Borrower under the Credit Agreement and
under the Note Purchase Agreements other than unmatured indemnity obligations,
in any action or proceeding brought by Beneficiary to collect the Obligations,
or any portion thereof, or to enforce, foreclose and realize upon the lien and
security interest created by this Deed of Trust or any other document or
instrument securing repayment of the Obligations, in whole or in part.

7.15 [Intentionally deleted]

7.16 WAIVER OF TRIAL BY JURY. TRUSTOR HEREBY
AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND
WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL
NOW OR HEREAFTER EXIST WITH REGARD TO THIS DEED OF TRUST, OR ANY CLAIM,
COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH.  THIS WAIVER OF RIGHT TO TRIAL BY JURY IS
GIVEN KNOWINGLY AND VOLUNTARILY BY TRUSTOR, AND IS

32

 

 INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS
TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE.  BENEFICIARY IS HEREBY AUTHORIZED TO FILE A
COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER
BY TRUSTOR.

7.17 Waiver of Statutory Rights. To the full
extent permitted by law, Trustor hereby covenants and agrees that it will not
at any time insist upon or plead, or in any manner whatsoever claim or take any
advantage of, any stay, exemption or extension law or any so-called “moratorium
law” now or at any time hereafter in force, nor claim, take or insist upon any
benefit or advantage of or from any law now or hereafter in force providing for
the valuation or appraisement of the Secured Property, or any part thereof,
prior to any sale or sales thereof to be made pursuant to any provisions herein
contained, or to any decree, judgment or order of any court of competent
jurisdiction; or claim or exercise any rights under any statute now or
hereafter in force to redeem the property, or any part thereof, or relating to
the marshaling thereof, upon foreclosure sale or other enforcement hereof.  To the full extent permitted by law, Trustor
hereby expressly waives any and all rights to reinstatement and redemption, on
its own behalf, on behalf of all persons claiming or having an interest (direct
or indirect) by, through or under Trustor and on behalf of each and every
person acquiring any interest in or title to the Secured Property subsequent to
the date hereof, it being the intent hereof that any and all such rights of
reinstatement and redemption of Trustor and such other persons, are and shall
be deemed to be hereby waived to the full extent permitted by applicable
law.  To the full extent permitted by
law, Trustor hereby waives any statute of limitations applicable to this Deed
of Trust.  To the full extent permitted
by law, Trustor agrees that it will not, by invoking or utilizing any
applicable law or laws or otherwise, hinder, delay or impede the exercise of
any right, power or remedy herein or otherwise granted or delegated to Trustee
or Beneficiary, but will suffer and permit the exercise of every such right,
power and remedy as though no such law or laws have been or will have been made
or enacted.  To the full extent
permitted by law, Trustor hereby agrees that no action for the enforcement of
the lien or any provision hereof shall be subject to any defense which would
not be good and valid in an action at law upon the Note.

7.18 Solvency, Binding Effect and Enforceability.  Trustor is (and, after giving effect to this
Deed of Trust, will be) solvent.  This
Deed of Trust is the legal, valid and binding obligation of the Trustor
enforceable in accordance with its terms.

7.19 Relationship.  The relationship of Beneficiary to Trustor hereunder is strictly
and solely that of collateral agent for the benefit of lenders and guarantor
and nothing contained in this Deed of Trust, or any other document or
instrument now or hereafter executed and delivered in connection therewith or
otherwise in connection with the Guaranty and the Noteholder Guaranty secured
hereby is intended to create, or shall in any event or under any circumstance
be construed as creating, a partnership, joint venture, tenancy-in-common,
joint tenancy or other relationship of any nature whatsoever between Beneficiary
and Trustor other than as collateral agent for the benefit of lenders and
guarantor.

7.20 Non Waiver.  The failure of Beneficiary to insist upon strict performance of
any term of this Deed of Trust shall not be deemed to be a waiver of any term
of this Deed of Trust.

33

 

7.21 Reconveyance.  Upon satisfaction of all Obligations secured by this Deed of
Trust with the exception of any unmatured indemnity obligations set forth
hereunder, Beneficiary shall, or shall cause Trustee to, reconvey the Property
and shall surrender this Deed of Trust and all notes evidencing debt, if any,
secured by this Deed of Trust to the Trustor. 
Such reconveyance shall be completed in accordance with the provisions
of Section 2941 of the California Civil Code.

 

 

 

 

 

 

[Signature page follows]

34

 

IN WITNESS WHEREOF,
Trustor has duly executed this Deed of Trust as of the day and year first above
written.

 

WESTAFF SUPPORT, INC.,

 

 

By:  /s/ Dirk A. Sodestrom

Name: Dirk A.
Sodestrom

Title: Senior
Vice President and Chief Financial Officer

 

35

 

	
  STATE OF CALIFORNIA

  	
  )

  	
   

  	
   

  
	
   

  	
  )

  	
   

  	
  ss.

  
	
  COUNTY OF CONTRA COSTA

  	
  )

  	
   

  	
   

  

 

 

On March 26, 2002 before
me, Sandra M. Moeller, Notary Public, personally appeared Dirk A. Sodestrom, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person(s)
whose name(s) is/are subscribed to the within instrument and acknowledged to me
that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.

Witness my hand and official seal.

 

 

	
   

  	
  /s/ Sandra M. Moeller

  
	
   

  	
  Signature of the Notary

  

 

[SEAL]

 

 

 

EXHIBIT A

Description of Property

 

That certain real
property situated in the State of California, County of Contra Costa and
described as follows:

PARCEL ONE:

LOT 13,
SUBDIVISION 5886, FILED FEBRUARY 17, 1981, IN BOOK 249 OF MAPS,
PAGE 13, CONTRA COSTA COUNTY RECORDS.

PARCEL TWO:

AN EASEMENT AND
RIGHT-OF-WAY IN, ON, OVER AND UNDER PARCEL A OF SAID SUBDIVISION,
HEREINBEFORE DESCRIBED, FOR INGRESS, EGRESS, ROADS, STREETS, WALKS, DRIVEWAYS,
PARKING AREAS, SUBSURFACE WIRES AND CONDUITS FOR THE TRANSMISSION OF
ELECTRICITY FOR LIGHTING, HEATING, POWER, TELEPHONE, CONNECTION THEREWITH, AND
PUBLIC SEWERS, SEWAGE DISPOSAL SYSTEMS, STORM WATER DRAINS, LAND DRAINS AND
PIPES, WATER SYSTEMS, SPRINKLING SYSTEMS, WATER HEATING AND GAS LINES OR PIPES,
AND ALL EQUIPMENT IN CONNECTION THEREWITH, AND PUBLIC UTILITIES, TOGETHER WITH
THE RIGHT TO MAINTAIN THE SAME AND THE RIGHT TO CONVEY THE SAME TO OTHERS.

ASSESSOR’S PARCEL
NO. 143-130-013

PARCEL THREE:

PARCEL B, AS
SAID PARCEL IS SHOWN ON THE PARCEL MAP FILED SEPTEMBER 1, 1972,
BOOK 23 OF PARCEL MAPS, PAGE 48, CONTRA COSTA COUNTY RECORDS.

ASSESSOR’S PARCEL
NO. 143-040-066

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