CREDIT AGREEMENT

 

                                                                    EXHIBIT 10.1

 

                                CREDIT AGREEMENT

 

     THIS CREDIT   AGREEMENT   (this   "Agreement")   is entered   into as of July 1,

2005, by and between   BARRETT   BUSINESS   SERVICES,   INC. a Maryland   corporation

("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank").

 

                                    RECITALS

 

     Borrower has requested   that Bank extend or continue   credit to Borrower as

described   below,   and Bank has agreed to provide such credit to Borrower on the

terms and conditions contained herein.

 

     NOW, THEREFORE, for valuable consideration,   the receipt and sufficiency of

which are hereby acknowledged, Bank and Borrower hereby agree as follows:

 

                                     ARTICLE I

                                  CREDIT TERMS

 

     SECTION 1.1. LINE OF CREDIT.

 

     (a) Line of Credit.   Subject to the terms and conditions of this Agreement,

Bank hereby   agrees to make   advances   to   Borrower   from time to time up to and

including July 1, 2006, not to exceed at any time the aggregate principal amount

of Four Million   Dollars   ($4,000,000.00)   ("Line of   Credit"),   the proceeds of

which   shall   be   used   to   finance   Borrower's   working   capital   requirements.

Borrower's   obligation   to repay   advances   under   the Line of   Credit   shall be

evidenced by a promissory note dated as of July 1, 2005 ("Line of Credit Note"),

all terms of which are incorporated herein by this reference.

 

     (b) Letter of Credit Subfeature.   As a subfeature under the Line of Credit,

Bank   agrees   from time to time   during   the term   thereof   to issue or cause an

affiliate to issue standby   letters of credit for the account of Borrower (each,

a "Letter   of Credit"   and   collectively,   "Letters   of   Credit").   The form and

substance of each Letter of Credit shall be subject to approval by Bank,   in its

sole discretion.   Each Letter of Credit shall be issued for a term acceptable to

the Bank which,   shall not exceed one (1) year and shall not have an   expiration

date more than six months (6)   beyond   the   maturity   date of the Line of Credit

subject to any   automatic   extension   clause that may be included in a Letter of

Credit at the Bank's   discretion.   The   undrawn   amount of all Letters of Credit

shall be   reserved   under the Line of Credit   and   shall   not be   available   for

borrowings thereunder.   Each Letter of Credit shall be subject to the additional

terms and conditions of the Letter of Credit   agreements,   applications   and any

related documents required by Bank in connection with the issuance thereof. Each

drawing paid under a Letter of Credit shall be deemed an advance   under the Line

of   Credit   and shall be repaid by   Borrower   in   accordance   with the terms and

conditions of this Agreement applicable to such advances; provided however, that

if advances under the Line of Credit are not available,   for any reason,   at the

time any drawing is paid,   then Borrower shall   immediately pay to Bank the full

amount drawn,   together with interest thereon from the date such drawing is paid

to the date such   amount is fully   repaid by   Borrower,   at the rate of interest

applicable to advances under the Line of Credit.   In such event Borrower   agrees

that Bank, in its sole discretion,   may debit any account maintained by Borrower

with Bank for the amount of any such drawing.

 

     (c) Borrowing and Repayment. Borrower may from time to time during the term

of the   Line of   Credit   borrow,   partially   or   wholly   repay   its   outstanding

borrowings,   and   reborrow,   subject

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to all of the limitations,   terms and conditions contained herein or in the Line

of Credit Note;   provided however,   that the total outstanding   borrowings under

the Line of Credit   shall not at any time   exceed the maximum   principal   amount

available thereunder, as set forth above.

 

     SECTION 1.2. INTEREST/FEES.

 

     (a) Interest. The outstanding principal balance of the Line of Credit shall

bear   interest,   and the amount of each   drawing paid under any Letter of Credit

shall bear   interest   from the date such drawing is paid to the date such amount

is   fully   repaid   by   Borrower,   at the   rate of   interest   set   forth   in each

promissory   note   or   other   instrument   or   document    executed   in   connection

therewith. (b) Computation and Payment.   Interest shall be computed on the basis

of a 360-day year,   actual days elapsed.   Interest shall be payable at the times

and place set forth in each   promissory   note or other   instrument   or   document

required hereby.

 

     (c) Commitment Fee. Borrower shall pay to Bank a non-refundable   commitment

fee for the Line of Credit equal to Eight Thousand   Dollars   ($8,000.00),   which

fee shall be due and payable in full on the date of this Agreement.

 

      (d)   Letter of Credit   Fees.   Borrower   shall pay to Bank (i) fees upon the

issuance   and renewal of each   Letter of Credit   equal to the greater of $410.00

or,   ninety   hundredths   percent   (.90%) per annum   (computed   on the basis of a

360-day   year,   actual days elapsed) of the face amount   thereof,   and (ii) fees

upon the payment or   negotiation   of each drawing under any Letter of Credit and

fees upon the   occurrence   of any other   activity   with respect to any Letter of

Credit (including without limitation, the transfer, amendment or cancellation of

any Letter of Credit)   determined   in accordance   with Bank's   standard fees and

charges then in effect for such activity.

 

     SECTION 1.3.   COLLECTION OF PAYMENTS.   Borrower   authorizes Bank to collect

all   interest   and fees   due   under   each   credit   subject   hereto   by   charging

Borrower's   deposit account number   415-9583848   with Bank, or any other deposit

account   maintained by Borrower with Bank, for the full amount   thereof.   Should

there be   insufficient   funds in any such   deposit   account to pay all such sums

when   due,   the full   amount of such   deficiency   shall be   immediately   due and

payable by Borrower.

 

                                   ARTICLE II

                         REPRESENTATIONS AND WARRANTIES

 

     Borrower makes the following   representations and warranties to Bank, which

representations and warranties shall survive the execution of this Agreement and

shall   continue in full force and effect until the full and final   payment,   and

satisfaction   and discharge,   of all   obligations of Borrower to Bank subject to

this Agreement.

 

     SECTION 2.1. LEGAL STATUS.   Borrower is a   corporation,   duly organized and

existing and in good   standing   under the laws of Maryland,   and is qualified or

licensed to do business   (and is in good standing as a foreign   corporation,   if

applicable) in all   jurisdictions   in which such   qualification   or licensing is

required or in which the failure to so qualify or to be so licensed could have a

material adverse effect on Borrower.

 

     SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement and each promissory

note, contract, instrument and other document required hereby or at any time

 

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hereafter   delivered to Bank in   connection   herewith   (collectively,   the "Loan

Documents") have been duly authorized,   and upon their execution and delivery in

accordance with the provisions hereof will constitute   legal,   valid and binding

agreements   and   obligations   of Borrower or the party which   executes the same,

enforceable in accordance with their respective terms.

 

     SECTION 2.3. NO   VIOLATION.   The   execution,   delivery and   performance   by

Borrower of each of the Loan   Documents do not violate any   provision of any law

or regulation,   or contravene any provision of the Articles of   Incorporation or

By-Laws of Borrower,   or result in any breach of or default   under any contract,

obligation,   indenture or other   instrument   to which   Borrower is a party or by

which Borrower may be bound.

 

     SECTION 2.4. LITIGATION. There are no pending, or to the best of Borrower's

knowledge threatened,   actions, claims, investigations,   suits or proceedings by

or before any governmental authority, arbitrator, court or administrative agency

which   could   have a   material   adverse   effect on the   financial   condition   or

operation of Borrower other than those   disclosed by Borrower to Bank in writing

prior to the date hereof.

 

     SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement of

Borrower   dated   March 31,   2005,   a true copy of which   has been   delivered   by

Borrower   to Bank prior to the date   hereof,   (a) is   complete   and   correct and

presents   fairly   the   financial   condition   of   Borrower,     (b)   discloses   all

liabilities   of Borrower   that are required to be reflected or reserved   against

under   generally    accepted    accounting    principles,    whether   liquidated   or

unliquidated,   fixed or contingent, and (c) has been prepared in accordance with

generally accepted accounting principles consistently applied. Since the date of

such   financial   statement   there   has been no   material   adverse   change in the

financial condition of Borrower, nor has Borrower mortgaged,   pledged, granted a

security   interest in or otherwise   encumbered   any of its assets or   properties

except in favor of Bank or as otherwise permitted by Bank in writing.

 

     SECTION 2.6.   INCOME TAX RETURNS.   Borrower has no knowledge of any pending

assessments or adjustments of its income tax payable with respect to any year.

 

     SECTION 2.7. NO SUBORDINATION.   There is no agreement,   indenture, contract

or   instrument   to which   Borrower is a party or by which   Borrower may be bound

that   requires   the   subordination   in right   of   payment   of any of   Borrower's

obligations subject to this Agreement to any other obligation of Borrower.

 

     SECTION 2.8. PERMITS,   FRANCHISES.   Borrower possesses,   and will hereafter

possess, all permits, consents, approvals,   franchises and licenses required and

rights to all trademarks,   trade names,   patents,   and fictitious names, if any,

necessary   to enable it to conduct   the   business   in which it is now engaged in

compliance with applicable law.

 

     SECTION 2.9. ERISA. Borrower is in compliance in all material respects with

all   applicable   provisions of the Employee   Retirement   Income   Security Act of

1974, as amended or   recodified   from time to time   ("ERISA");   Borrower has not

violated any provision of any defined   employee pension benefit plan (as defined

in ERISA)   maintained   or   contributed   to by   Borrower   (each,   a   "Plan");   no

Reportable Event as defined in ERISA has occurred and is continuing with respect

to any   Plan   initiated   by   Borrower;   Borrower   has   met its   minimum   funding

requirements   under ERISA with respect to each Plan;   and each Plan will be able

to fulfill its benefit   obligations as they come due in accordance with the Plan

documents and under generally accepted accounting principles.

 

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     SECTION   2.10.OTHER   OBLIGATIONS.    Borrower   is   not   in   default   on   any

obligation   for borrowed   money,   any   purchase   money   obligation   or any other

material lease, commitment, contract, instrument or obligation.

 

     SECTION 2.11.ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to Bank

in writing   prior to the date hereof,   Borrower is in compliance in all material

respects with all applicable   federal or state   environmental,   hazardous waste,

health   and   safety   statutes,   and any rules or   regulations   adopted   pursuant

thereto,   which govern or affect any of Borrower's operations and/or properties,

including   without   limitation,    the   Comprehensive    Environmental    Response,

Compensation    and   Liability   Act   of   1980,    the   Superfund    Amendments   and

Reauthorization Act of 1986, the Federal Resource   Conservation and Recovery Act

of 1976, and the Federal Toxic Substances Control Act, as any of the same may be

amended,   modified or supplemented   from time to time. None of the operations of

Borrower is the subject of any federal or state investigation evaluating whether

any remedial action   involving a material   expenditure is needed to respond to a

release   of any toxic or   hazardous   waste or   substance   into the   environment.

Borrower has no material contingent   liability in connection with any release of

any toxic or hazardous waste or substance into the environment.

 

                                   ARTICLE III

                                    CONDITIONS

 

     SECTION 3.1.   CONDITIONS OF INITIAL EXTENSION OF CREDIT.   The obligation of

Bank to extend   any   credit   contemplated   by this   Agreement   is subject to the

fulfillment to Bank's satisfaction of all of the following conditions:

 

     (a) Approval of Bank Counsel. All legal matters incidental to the extension

of credit by Bank shall be satisfactory to Bank's counsel.

 

     (b)   Documentation.   Bank   shall   have   received,   in   form   and   substance

satisfactory to Bank, each of the following, duly executed:

 

     (i)   This   Agreement   and   each   promissory   note or   other   instrument   or

          document   required   hereby.

 

     (ii) Certificate of Incumbency.

 

     (iii) Corporate   Resolution:   Borrowing.

 

     (iv) Such other   documents as Bank may require   under any other   Section of

          this Agreement.

 

     (c) Financial Condition.   There shall have been no material adverse change,

as determined by Bank, in the financial   condition or business of Borrower,   nor

any   material   decline,   as   determined   by   Bank,   in the   market   value of any

collateral required hereunder or a substantial or material portion of the assets

of Borrower.

 

     SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of Bank

to make each   extension   of credit   requested   by   Borrower   hereunder   shall be

subject   to the   fulfillment   to Bank's   satisfaction   of each of the   following

conditions:

 

     (a) Compliance.   The representations and warranties contained herein and in

each of the   other   Loan   Documents   shall   be true on and as of the date of the

signing of this   Agreement   and on the date of each   extension of credit by Bank

pursuant   hereto,   with the same   effect   as   though   such   representations   and

warranties had been made on and as of each such date, and

 

 

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<PAGE>

 

on each such date,   no Event of Default as   defined   herein,   and no   condition,

event or act which   with the   giving of   notice or the   passage   of time or both

would constitute such an Event of Default, shall have occurred and be continuing

or shall exist.

 

     (b) Documentation.   Bank shall have received all additional documents which

may be required in connection with such extension of credit.

 

                                    ARTICLE IV

                              AFFIRMATIVE COVENANTS

 

     Borrower   covenants that so long as Bank remains committed to extend credit

to Borrower pursuant hereto,   or any liabilities   (whether direct or contingent,

liquidated or   unliquidated) of Borrower to Bank under any of the Loan Documents

remain   outstanding,   and until payment in full of all   obligations   of Borrower

subject hereto, Borrower shall, unless Bank otherwise consents in writing:

 

     SECTION 4.1.   PUNCTUAL   PAYMENTS.   Punctually pay all principal,   interest,

fees or other   liabilities   due under any of the Loan Documents at the times and

place and in the manner specified therein.

 

     SECTION 4.2.   ACCOUNTING   RECORDS.   Maintain   adequate books and records in

accordance with generally accepted accounting   principles   consistently applied,

and permit any representative of Bank, at any reasonable time, to inspect, audit

and examine such books and records,   to make copies of the same,   and to inspect

the properties of Borrower.

 

     SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the following, in

form and detail satisfactory to Bank:

 

     (a) not later than 95 days after and as of the end of each fiscal year,   an

audited   financial   statement   of   Borrower,   prepared   by   a   certified   public

accountant   acceptable to Bank, to include a balance sheet, an income statement,

a statement   of cash flow and a copy of   Borrower's   Form 10-K report filed with

the Securities and Exchange Commission;

 

     (b) not later than 50 days after and as of the end of each quarter,   a copy

of   Borrower's    Form   10-Q   report   filed   with   the   Securities   and   Exchange

Commission;

 

     (c)   immediately   upon   each   request   from   Bank,   a list of the names and

addresses of all Borrowers' account debtors;

 

     (d)   from   time to time   such   other   information   as Bank   may   reasonably

request.

 

     SECTION 4.4.   COMPLIANCE.   Preserve and   maintain   all   licenses,   permits,

governmental   approvals,   rights,   privileges and   franchises   necessary for the

conduct   of its   business;   and   comply   with the   provisions   of all   documents

pursuant to which Borrower is organized and/or which govern Borrower's continued

existence and with the re