Item 1.01.
Entry into a Material Definitive Agreement.
On February 14, 2008,
Westaff (USA), Inc. (the “
Borrower
”), a
wholly-owned subsidiary of Westaff, Inc. (the “
Company
”),
entered into a financing agreement (the “
Financing Agreement
”)
among the Borrower, the Company, as parent guarantor, certain lenders party
thereto (the
“Lenders”
) and U.S. Bank National
Association, as agent for the Lenders and letter of credit issuer (“
U.S. Bank
”). The Borrower,
the Company and certain subsidiaries of the Company also entered into (or will
enter into) certain other documents contemplated by the Financing Agreement (together
with the Financing Agreement, the “
Credit Documents
”).
The Financing Agreement
provides for a new five-year US$50 million revolving credit facility, which
includes a letter of credit sub-limit of US$35 million. The Company and the following subsidiaries of
the Borrower are guarantors under the new credit facility: Westaff Support, Inc.,
MediaWorld International and Westaff (U.K.) Limited (together with the Company,
collectively, the “
Guarantors
”). The maximum borrowing availability under the Financing
Agreement is based upon a percentage of certain eligible billed and unbilled accounts
receivable of the Borrower and Westaff (U.K.) Limited. Borrowings under the Financing Agreement bear
interest, at the Borrower’s election, at either U.S. Bank’s prime rate plus 0%
or at LIBOR plus an applicable LIBOR rate margin ranging from 1.25% to 2.00%. A default rate would apply on all loan obligations
in the event of default under the Credit Documents, at a rate per annum of 2%
above the applicable interest rate.
Interest is payable on a monthly basis.
The credit obligations under the Financing Agreement are secured by a
first priority security interest in the assets of the Borrower, the Company and
the other Guarantors, with certain exceptions set forth in the Financing
Agreement and the other Credit Documents.
The proceeds of the extensions of credit under the Financing Agreement
may be used by the Borrower for any lawful purpose.
Under the terms of the
Financing Agreement, the Borrower has agreed to pay (i) to the Lenders, a
commitment fee in an amount equal to 0.25% per annum on the average daily
unused amount of the revolving commitments; (ii) to the Lenders, a closing
fee; (iii) to the Lenders, letter of credit fees based upon the amount
available to be drawn on the outstanding letters of credit issued pursuant to
the letter of credit sub-facility; and (iii) to the letter of credit
issuer, fronting fees and other fees related to the issuance and maintenance of
the letters of credit issued pursuant to the letters of credit sub-facility. Additionally, the Borrower will be required to
pay to the administrative agent certain agency fees. In addition, the Financing Agreement provides
for an early termination fee if such termination occurs on or prior to October 30,
2012 in an amount ranging from $125,000 to $750,000 (depending on the year of
termination).
The Credit Documents
contain customary affirmative covenants and negative covenants restricting or
limiting the ability of the Borrower and the Guarantors to, among other things:
·
incur debt;
·
create liens;
·
pay dividends, distributions or make other specified
restricted payments;
·
make certain investments and acquisitions;
·
enter into certain transactions with affiliates;
·
merge or consolidate with any other entity or sell,
assign, transfer, lease, convey or otherwise dispose of assets; and
·
permit certain changes of control.
Such restrictions are
subject to usual and customary exceptions contained in financing agreements of
this nature.
The financial covenants
under the Financing Agreement include a Fixed Charge Coverage Ratio (as defined
in the Financing Agreement) requirement, measured as of the end of each fiscal
quarter, and a minimum
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Liquidity (as defined in
the Financing Agreement) measured until the Borrower’s financial statements for
the second fiscal quarter are delivered to U.S. Bank.
The Financing Agreement
also contains usual and customary events of default (subject to certain
threshold amounts and grace periods).
Upon the occurrence and
during the continuance of an event of default under the Financing Agreement,
U.S. Bank may, among other things: (i) accelerate the amounts outstanding
under the Financing Agreement to become immediately due and payable, and
require the Borrower to cash collateralize outstanding letters of credit, (ii) terminate
the credit commitments under the Financing Agreement, (iii) terminate the
Financing Agreement and (iv) realize upon the loan collateral under the
Financing Agreement and related Credit Documents.
The above description of
the Financing Agreement is qualified in its entirety by the terms of the Financing
Agreement, a copy of which will be filed as an exhibit to the applicable
quarterly report on Form 10-Q to be filed by the Company.
U.S. Bank and/or its
affiliates have from time to time performed and may in the future perform
various commercial banking services (including cash management services)
for the Company and/or its affiliates in the ordinary course of business,
for which they received or will receive customary fees.
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