UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q
--------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1997
Commission File No. 0-21886
BARRETT BUSINESS SERVICES, INC.
(Exact name of registrant as specified in its charter)
Maryland 52-0812977
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
4724 SW Macadam Avenue
Portland, Oregon 97201
(Address of principal executive offices) (Zip Code)
(503) 220-0988
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Number of shares of Common Stock, $.01 par value outstanding at July 31, 1997
was 6,727,423 shares.
<PAGE>
BARRETT BUSINESS SERVICES, INC.
INDEX
Page
----
Part I - Financial Information
Item 1. Financial Statements
Balance Sheets - June 30, 1997 and
December 31, 1996.......................................3
Statements of Operations - Three Months
Ended June 30, 1997 and 1996............................4
Statements of Operations - Six Months
Ended June 30, 1997 and 1996............................5
Statements of Cash Flows - Six Months
Ended June 30, 1997 and 1996............................6
Notes to Financial Statements...........................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................................10
Part II - Other Information
Item 1. Legal Proceedings......................................16
Item 4. Submission of Matters to a Vote of Security
Holders................................................17
Item 6. Exhibits and Reports on Form 8-K.......................17
Signatures .......................................................18
Exhibit Index .......................................................19
2
<PAGE>
PART I - Financial Information
Item 1. Financial Statements
BARRETT BUSINESS SERVICES, INC.
Balance Sheets
(Unaudited)
(In thousands)
June 30, December 31,
1997 1996
-------- ------------
Assets
Current assets:
Cash and cash equivalents $ 459 $ 1,901
Trade accounts receivable, net 22,686 19,057
Note receivable - 324
Prepaid expenses and other 1,485 914
Deferred tax asset (Note 4) 1,433 1,279
------ ------
Total current assets 26,063 23,475
Intangibles, net 12,785 10,226
Property and equipment, net 3,641 3,111
Restricted marketable securities
and workers' compensation deposits 6,074 5,707
Other assets 143 127
------ ------
$48,706 $42,646
====== ======
Liabilities and Stockholders' Equity
Current liabilities:
Advances on credit line $ 1,896 $ -
Current portion of long-term debt 70 36
Income taxes payable (Note 4) 223 -
Accounts payable 715 667
Accrued payroll, payroll taxes
and related benefits 9,967 7,354
Accrued workers' compensation claims
liabilities 2,488 2,240
Customer safety incentives payable 1,005 1,015
Other accrued liabilities 559 606
------ ------
Total current liabilities 16,923 11,918
Long-term debt, net of current portion 819 838
Customer deposits 939 890
Long-term workers' compensation
liabilities 608 613
Other long-term liabilities 1,014 -
------ ------
20,303 14,259
------ ------
Commitments and contingencies
Redeemable common stock, 159 shares issued
and outstanding (Note 2) - 2,825
Nonredeemable stockholders' equity:
Common stock, $.01 par value; 20,500
shares authorized, 6,727 and 6,625
shares issued and outstanding, respectively 67 66
Additional paid-in capital 11,685 10,929
Retained earnings 16,651 14,567
------ ------
28,403 25,562
------ ------
$48,706 $42,646
====== ======
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
BARRETT BUSINESS SERVICES, INC.
Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended
June 30,
----------------------
1997 1996
------ ------
Revenues:
Staffing services $38,403 $27,091
Professional employer services 32,052 24,780
------ ------
70,455 51,871
Cost of revenues:
Direct payroll costs 54,164 39,160
Payroll taxes and benefits 6,794 4,989
Workers' compensation 1,973 1,213
Safety incentives 381 362
------ ------
63,312 45,724
------ ------
Gross margin 7,143 6,147
Selling, general and administrative
expenses 4,857 3,939
Amortization of intangibles 275 209
------ ------
Income from operations 2,011 1,999
Other income (expense):
Interest expense (42) (21)
Interest income 87 126
Other, net - 1
------ ------
45 106
------ ------
Income before provision for income taxes 2,056 2,105
Provision for income taxes 802 800
------ ------
Net income $ 1,254 $ 1,305
====== ======
Primary earnings per share (Note 6) $ .19 $ .19
====== ======
Primary weighted average number of common
stock equivalent shares outstanding 6,736 6,978
====== ======
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
BARRETT BUSINESS SERVICES, INC.
Statements of Operations
(Unaudited)
(In thousands, except per share amounts)
Six Months Ended
June 30,
----------------------
1997 1996
------- ------
Revenues:
Staffing services $ 71,134 $49,719
Professional employer services 62,101 45,337
------- ------
133,235 95,056
Cost of revenues:
Direct payroll costs 102,203 71,878
Payroll taxes and benefits 13,253 9,322
Workers' compensation 3,828 1,983
Safety incentives 704 709
------- ------
119,988 83,892
------- ------
Gross margin 13,247 11,164
Selling, general and administrative
expenses 9,372 7,567
Amortization of intangibles 592 369
------- ------
Income from operations 3,283 3,228
Other income (expense):
Interest expense (67) (42)
Interest income 189 252
Other, net 1 -
------- ------
123 210
------- ------
Income before provision for income taxes 3,406 3,438
Provision for income taxes 1,322 1,306
------- ------
Net income $ 2,084 $ 2,132
======= ======
Primary earnings per share (Note 6) $ .31 $ .31
======= ======
Primary weighted average number of common
stock equivalent shares outstanding 6,768 6,883
======= ======
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
BARRETT BUSINESS SERVICES, INC.
Statements of Cash Flows
(Unaudited)
(In thousands)
Six Months Ended
June 30,
---------------------
1997 1996
------ ------
Cash flows from operating activities:
Net income $ 2,084 $ 2,132
Reconciliation of net income to cash
from operations:
Depreciation and amortization 775 512
Changes in certain assets and liabilities, net
of assets acquired and liabilities assumed:
Trade accounts receivable, net (3,083) (2,954)
Note receivable 324 -
Prepaid expenses and other (505) (153)
Deferred tax asset (154) 273
Accounts payable 39 (262)
Accrued payroll, payroll taxes and related
benefits 2,606 2,543
Accrued workers' compensation claims
liabilities 248 (777)
Customer safety incentives payable (10) 205
Income taxes payable 212 443
Other accrued liabilities (171) (92)
Customer deposits and long-term workers'
compensation liabilities 44 183
Other long-term liabilities 14 -
------ ------
Net cash provided by operating activities 2,423 2,053
------ ------
Cash flows from investing activities:
Cash paid for acquisitions, including other
direct costs (Note 3) (2,246) (113)
Purchases of fixed assets, net of amounts
purchased in acquisitions (639) (206)
Proceeds from maturities of marketable
securities 3,782 3,244
Purchases of marketable securities (4,149) (4,380)
------ ------
Net cash used in investing activities (3,252) (1,455)
------ ------
Cash flows from financing activities:
Payment of credit line assumed in acquisition (401) -
Proceeds from credit line borrowings 1,896 -
Payments on long-term debt (40) (16)
Repurchase of common stock (2,825) -
Proceeds from exercise of stock
options and warrants 757 109
------ ------
Net cash (used in) provided by financing activities (613) 93
------ ------
Net (decrease)increase in cash and cash equivalents (1,442) 691
Cash and cash equivalents, beginning of period 1,901 3,218
------ ------
Cash and cash equivalents, end of period $ 459 $ 3,909
====== ======
Supplemental schedule of noncash activities:
Acquisition of other businesses:
Cost of acquisitions in excess of fair market
value of net assets acquired $ 3,179 $ 2,898
Tangible assets acquired 674 472
Liabilities assumed 1,607 52
Common stock issued in connection with acquisitions - 3,205
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
BARRETT BUSINESS SERVICES, INC.
Notes to Financial Statements
NOTE 1 - BASIS OF PRESENTATION OF INTERIM PERIOD STATEMENTS:
The accompanying financial statements are unaudited and have
been prepared by Barrett Business Services, Inc. (the "Company") pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures typically included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management, the financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the results for
the interim periods presented. The financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's 1996 Annual Report on Form 10-K at pages 28-51. The results of
operations for an interim period are not necessarily indicative of the results
of operations for a full year.
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings
Per Share." SFAS 128 replaces APB Opinion 15, "Earnings Per Share," and
simplifies the computation of EPS by replacing the presentation of primary EPS
with a presentation of basic EPS. In accordance with this pronouncement, the
Company will adopt the new standard for periods ending after December 15, 1997.
The impact of the SFAS 128 EPS calculation for the three and six-month periods
ended June 30, 1997 is not material.
Certain prior year amounts have been reclassified to conform
with the 1997 presentation. Such reclassifications had no impact on net income
or stockholders' equity.
NOTE 2 - REDEEMABLE COMMON STOCK:
On April 11, 1997, pursuant to a Plan and Agreement of
Reorganization between StaffAmerica, Inc. and the Company dated April 1, 1996,
the Company repurchased from StaffAmerica and its two shareholders all 159,154
shares of common stock previously issued by the Company as consideration for the
acquisition, for a total of $2,824,984 or $17.75 per share. Upon completion of
the share repurchase, the Company canceled the shares of common stock.
NOTE 3 - ACQUISITIONS:
Effective February 1, 1997, the Company acquired D&L Personnel
Department Specialists, Inc., dba HR Only, a staffing services company which
specializes in human resource professionals with offices in Los Angeles and
Orange County, California. The Company paid $1,800,000 in cash for all of the
outstanding common stock of HR Only and $1,200,000 in cash for noncompete
agreements with certain individuals, of which $1,000,000 will be deferred with
7
<PAGE>
simple interest at 5% per annum for five years and then be paid ratably over the
succeeding five-year period. The deferred portion of the noncompete agreement is
presented on the balance sheet in other long-term liabilities. HR Only's
revenues for the fiscal year ended January 31, 1997 were approximately $4.3
million. The transaction was accounted for under the purchase method of
accounting, which resulted in $3,027,000 of intangible assets, including $92,000
for acquisition-related costs, and $65,000 of net tangible assets.
Effective April 13, 1997, the Company acquired certain assets
of JRL Services, Inc., dba TLC Staffing, a provider of clerical staffing
services located in Tucson, Arizona. TLC Staffing had revenues of approximately
$800,000 (unaudited) for the year ended December 31, 1996. The Company paid
$150,000 in cash for the assets, assumed an $18,000 office lease liability and
incurred approximately $4,000 in acquisition related costs. The transaction was
accounted for under the purchase method of accounting, which resulted in
$152,000 of intangible assets and $2,000 of fixed assets.
NOTE 4 - PROVISION FOR INCOME TAXES:
Deferred tax assets (liabilities) are comprised of the
following components (in thousands):
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------ -----------------
<S> <C> <C>
Accrued workers' compensation claims
liabilities $1,213 $1,113
Allowance for doubtful accounts 30 10
Tax depreciation in excess of book
depreciation (161) (154)
Safety incentives 284 281
Book amortization of intangibles in excess
of tax amortization 67 29
----- -----
$1,433 $1,279
===== =====
</TABLE>
The provision for income taxes for the six months ended June 30, 1997 and 1996,
is as follows (in thousands):
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Current:
Federal $1,195 $ 843
State 281 190
----- -----
1,476 1,033
Deferred:
Federal (127) 228
State (27) 45
----- -----
(154) 273
----- -----
Provision for income taxes $1,322 $1,306
===== =====
</TABLE>
8
<PAGE>
NOTE 5 - STOCK INCENTIVE PLAN:
In 1993, the Company adopted a stock incentive plan (the
"Plan") which provides for stock-based awards to the Company's employees,
directors and outside consultants or advisers. The number of shares of common
stock reserved for issuance under the Plan is 1,300,000.
The following table summarizes options granted under the Plan
in 1997:
Outstanding at December 31, 1996 491,998 $ 3.50 to $16.36
Options granted 111,011 $13.38 to $17.94
Options exercised (42,375) $ 3.50 to $15.06
Options canceled or expired (39,375) $ 3.50 to $15.06
-------
Outstanding at June 30, 1997 521,259 $ 3.50 to $17.94
=======
Exercisable at June 30, 1997 199,708
=======
Available for grant at
June 30, 1997 612,616
=======
The options listed in the table generally become exercisable in four equal
annual installments beginning one year after the date of grant.
NOTE 6- NET INCOME PER SHARE:
Net income per share for 1997 is computed based on the
weighted average number of actual shares of common stock outstanding during the
period, without giving effect to securities that would otherwise be considered
to be common stock equivalents because such securities aggregate less than 3% of
shares outstanding and, thus, are not considered dilutive. Net income per share
for 1996 is computed based on the weighted average number of common stock and
common stock equivalent shares outstanding during the period; common stock
equivalents aggregated more than 3% of shares outstanding for such period.
9
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
- ---------------------
The following table sets forth the percentages of total
revenues represented by selected items in the Company's Statements of Operations
for the three and six-month periods ended June 30, 1997 and 1996.
<TABLE>
<CAPTION>
Percentage of Total Revenues
----------------------------
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C>
Staffing services 54.5% 52.2% 53.4% 52.3%
Professional employer services 45.5 47.8 46.6 47.7
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
----- ----- ----- -----
Cost of revenues:
Direct payroll costs 76.9 75.5 76.7 75.6
Payroll taxes and benefits 9.7 9.6 10.0 9.8
Workers' compensation 2.8 2.3 2.9 2.1
Safety incentives .5 .7 .5 .8
----- ----- ----- -----
Total cost of revenues 89.9 88.1 90.1 88.3
----- ----- ----- -----
Gross margin 10.1 11.9 9.9 11.7
Selling, general and administrative
expenses 6.9 7.6 7.0 8.0
Amortization of intangibles .4 .4 .4 .3
----- ----- ----- -----
Income from operations 2.8 3.9 2.5 3.4
Other income (expense) .1 .2 .1 .2
----- ----- ----- -----
Pretax income 2.9 4.1 2.6 3.6
Provision for income taxes 1.1 1.6 1.0 1.4
----- ----- ----- -----
Net income 1.8 2.5 1.6 2.2
===== ===== ===== =====
</TABLE>
Three months ended June 30, 1997 and 1996
Net income for the second quarter of 1997 was $1,254,000, a
decrease of $51,000 or 3.9% from the same period in 1996. The decrease in net
income was attributable to a lower gross margin percent and increased selling,
general and administrative expenses. Earnings per share for the second quarter
of 1997 were $.19, the same amount as the second quarter of 1996.
Revenues for the second quarter of 1997 totaled approximately
$70.5 million, an increase of approximately $18.6 million or 35.8% over the
second quarter of 1996. The quarter-over-quarter internal growth rate of
revenues was 25.1%. The percentage increase in total revenues exceeded the
internal growth rate of revenues primarily due to the acquisition of five
staffing and PEO businesses since July 1, 1996.
10
<PAGE>
The higher internal growth rate of revenues of 25.1% for the
1997 second quarter compared to 4.8% for the 1996 second quarter was primarily
attributable to the opening of four new branch offices during 1996 and early
1997 in Boise, Idaho, Tucson, Arizona, Ontario, California, and Flint, Michigan,
coupled with the continued growth in business at existing branch offices.
Staffing services revenue increased approximately $11.3 million or 41.8%, while
professional employer services revenue increased approximately $7.3 million or
29.3%, which resulted in an increase in the mix of staffing services to 54.5% of
total revenues for the second quarter of 1997, as compared to 52.2% for the
second quarter of 1996. The mix of professional employer services revenues had a
corresponding decline from 47.8% for the second quarter of 1996 to 45.5% for the
second quarter of 1997.
Gross margin for the second quarter of 1997 totaled
approximately $7.1 million, which represented an increase of $1.0 million or
16.2% over the second quarter of 1996. The gross margin percent decreased to
10.1% of revenues for the second quarter of 1997, as compared to 11.9% for the
same period of 1996. The decline in the gross margin percentage was due to
higher direct payroll costs and workers' compensation expense, both in terms of
total dollars and as a percentage of revenues. The increase in the percentage of
direct payroll costs from 75.5% for the second quarter of 1996 to 76.9% for the
second quarter of 1997 was primarily attributable to increased business activity
in contract staffing and on-site management arrangements, which also have a
lower workers' compensation risk profile. The increase in workers' compensation
expense to 2.8% of revenues for the 1997 second quarter, up from the 1996 second
quarter level of 2.3% of revenues, was due to a higher incidence of injuries
during the 1997 period as compared to 1996 and management's decision to (i)
continue to increase the Company's accrual for future adverse loss development
of open claims, and (ii) build an accrual for potential future catastrophic
workers' compensation claims.
The following table summarizes certain indicators of
performance regarding the Company's self-insured workers' compensation program
for each of the first two quarters of 1997 and 1996.
Self-Insured Workers' Compensation Profile
<TABLE>
<CAPTION>
Total Workers'
Total Workers' Comp Expense
No. of Injury Comp Expense as a % of
Claims (in thousands) Total Payroll
----------------- -------------------- --------------------
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Q1 321 193 $1,855 $ 770 3.9% 2.4%
Q2 419 312 1,973 1,213 3.6 3.1
--- --- ----- ----- --- ---
YTD 740 505 $3,828 $1,983 3.7% 2.8%
=== === ===== ===== === ===
</TABLE>
11
<PAGE>
Selling, general and administrative expenses for the 1997
second quarter amounted to approximately $4.9 million, an increase of $918,000
or 23.3% over the comparable period in 1996. These expenses, however, decreased
from 7.6% of revenues for the second quarter of 1996 to 6.9% of revenues for the
second quarter of 1997. The increase in total dollars was primarily attributable
to additional branch office expenses as a result of the five acquisitions since
July 1, 1996, and the opening of four new offices in 1996 and early 1997.
Amortization of intangibles totaled $275,000, or .4% of
revenues for the second quarter of 1997, which compares to $209,000 or .4% of
revenues for the same period in 1996. The increased amortization expense was
primarily due to amortization from the Company's five acquisitions since July 1,
1996.
The Company offers various employee benefit plans to its
employees, including its worksite employees. These employee benefit plans
include a savings plan (the "401(k) plan") under Section 401(k) of the Internal
Revenue Code (the "Code"), a cafeteria plan under Code Section 125, a group
health plan, a group life insurance plan, a group disability insurance plan, and
an employee assistance plan. Generally, employee benefit plans are subject to
provisions of both the Code and the Employee Retirement Income Security Act
("ERISA"). In order to qualify for favorable tax treatment under the Code,
qualified plans must be established and maintained by an employer for the
exclusive benefit of its employees. In the event the tax exempt status of the
Company's benefit plans were to be discontinued and the benefit plans were to be
disqualified, such actions could have a material adverse effect on the Company's
business, financial condition, and results of operations. Reference is made to
pages 12-14 of the Company's 1996 Annual Report on Form 10-K for a more detailed
discussion of this issue.
Six Months Ended June 30, 1997 and 1996
Net income for the six months ended June 30, 1997 was
$2,084,000, a decrease of $48,000 or 2.3% from the same period in 1996. The
decrease in net income was primarily due to a lower gross margin percentage
owing to increased direct payroll costs and workers' compensation expense. Net
income per share for the six months ended June 30, 1997 was $.31, the same
amount as the six months ended June 30, 1996.
Revenues for the six months ended June 30, 1997 totaled
approximately $133.2 million, an increase of approximately $38.2 million or
40.2% over the comparable period of 1996. The internal growth rate of revenues
was 25.1%. The growth rate of total revenues exceeded the internal growth rate
of revenues primarily due to the acquisition of five staffing and PEO businesses
between August 1996 and April 1997.
12
<PAGE>
The higher internal growth rate of revenues of 25.1% for 1997
compared to the 1996 period internal growth rate of 5.1% was primarily
attributable to the opening of four new branch offices during 1996 and in early
1997, coupled with the continued growth in business at existing branch offices.
Gross margin for the six months ended June 30, 1997 totaled
approximately $13.2 million, which represented an increase of $2.1 million or
18.7% over the same period of 1996. The gross margin percent decreased to 9.9%
of revenues for the first six months of 1997, as compared to 11.7% for the same
period of 1996. The decline in the gross margin percentage was due to higher
direct payroll costs and workers' compensation expense, both in terms of total
dollars and as a percentage of revenues. The increase in the percentage of
direct payroll costs from 75.6% for the first six months of 1996 to 76.7% for
the first six months of 1997 was primarily attributable to increased business
activity in contract staffing and on-site management arrangements. The increase
in workers' compensation expense to 2.9% of revenues for the six months ended
June 30, 1997, up from the 1996 period of 2.1% of revenues, was due to a higher
incidence of injuries during the 1997 period as compared to 1996 and
management's decision to (i) continue to increase the Company's accrual for
future adverse loss development of open claims, and (ii) build an accrual for
potential future catastrophic workers' compensation claims.
Selling, general and administrative expenses for the six
months ended June 30, 1997 amounted to approximately $9.4 million, an increase
of $1.8 million or 23.9% over the comparable period in 1996. These expenses,
however, decreased from 8.0% of revenues for the 1996 period to 7.0% of revenues
for 1997. The increase in total dollars was primarily attributable to additional
branch office expenses as a result of the five acquisitions made since July 1,
1996, and the opening of four new offices.
Amortization of intangibles totaled $592,000 or .4% of
revenues for the six-month period ended June 30, 1997, which compares to
$369,000 for the same period in 1996. The increased amortization expense was
attributable to amortization from the five acquisitions made since July 1, 1996.
Fluctuations in Quarterly Operating Results
The Company has historically experienced significant
fluctuations in its quarterly operating results and expects such fluctuations to
continue in the future. The Company's operating results may fluctuate due to a
number of factors such as seasonality, wage limits on payroll taxes, claims
expense for workers' compensation, demand and competition for the Company's
services, and the effect of acquisitions. The Company's revenue levels fluctuate
from quarter to quarter primarily due to the impact of seasonality in its
staffing services business and on certain of its PEO clients in the agriculture
and forest products related industries. As a result, the Company may have
greater revenues and net income in the third and fourth quarters of its fiscal
year. Payroll taxes and benefits fluctuate with the level of direct payroll
costs but may tend to represent a smaller
13
<PAGE>
percentage of revenues later in the Company's fiscal year as federal and state
statutory wage limits for unemployment and social security taxes are exceeded by
employees. Workers' compensation expense varies with both the frequency and
severity of workplace injury claims reported during a quarter, as well as
adverse loss development of prior period claims during the current quarter.
Liquidity and Capital Resources
- -------------------------------
The Company's cash position of $459,000 at June 30, 1997
decreased by $1,442,000 from December 31, 1996. The decrease was primarily due
to cash used in financing activities to satisfy the Company's obligation to
repurchase shares of its common stock, offset in part by the cash provided by
operating activities.
Net cash provided by operating activities for the six months
ended June 30, 1997 amounted to $2,423,000 as compared to $2,053,000 for the
comparable 1996 period. For the 1997 period, cash flow generated by net income,
together with an increase of $2,606,000 in accrued payroll and benefits, was
offset in part by a $3,083,000 increase in trade accounts receivable. The
$1,014,000 increase in other long-term liabilities includes the $1,000,000
deferred noncompete agreement arising from the acquisition of HR Only and is
reflected in the supplemental schedule of noncash activities within the
liabilities assumed caption.
Net cash used in investing activities totaled $3,252,000 for
the six months ended June 30, 1997, as compared to $1,455,000 for the similar
1996 period. For the 1997 period, the principal use of cash for investing
activities was the acquisition of HR Only and funds used to purchase office
equipment and software. The Company presently has no material long-term capital
commitments.
Net cash used in financing activities for the six-month period
ended June 30, 1997 was $613,000, which compares to net cash provided by
financing activities of $93,000 for the comparable 1996 period. For the 1997
period, the principal use of cash for financing activities arose from the
Company's obligation to redeem 159,154 shares of its common stock at a value of
$2,824,984 pursuant to a Plan and Agreement of Reorganization between
StaffAmerica, Inc. and the Company, offset in part by net proceeds from
borrowings on the Company's revolving credit line in the amount of $1,896,000
and proceeds from the exercise of stock options and warrants totaling $757,000.
As of the date of this report, an underwriter continues to hold warrants to
purchase 30,000 shares of common stock at $4.20 per share issued in connection
with the Company's 1993 initial public offering of its common stock.
The Company's business strategy continues to focus on growth
through the acquisition of additional personnel-related businesses, both in its
existing markets and other strategic geographic areas, together with the
expansion of operations at existing offices. As disclosed in Note 3 to the
financial statements included herein, the Company purchased, during February
1997, a staffing services company located in the Los Angeles, California area
for $2,092,000 in cash, plus an additional
14
<PAGE>
$1,000,000 for a noncompete agreement which will be paid ratably, with accrued
interest, over five years beginning after the end of the fifth year following
the acquisition. As also disclosed in Note 3, the Company purchased in April
1997, certain assets of a staffing services company located in Tucson, Arizona
for $154,000 in cash. The Company actively explores proposals for various
acquisition opportunities on an ongoing basis, but there can be no assurance
that any additional transactions will be consummated.
Management recently renewed the Company's credit arrangement
with its principal bank on terms and conditions which were generally more
favorable than the prior agreement. The amount of the credit facility remained
unchanged, which primarily includes an unsecured $4.0 million revolving credit
facility and $1.6 million for previously existing standby letters of credit in
connection with certain workers' compensation surety arrangements. Management
expects the funds anticipated to be generated from operations, together with the
credit facility and other potential sources of financing, will be sufficient in
the aggregate to fund the Company's working capital needs for the foreseeable
future.
Inflation
Inflation generally has not been a significant factor in the
Company's operations during the periods discussed above. The Company has taken
into account the impact of escalating medical and other costs in establishing
reserves for future expenses for self-insured workers' compensation claims.
Forward-Looking Information
- ---------------------------
Statements in this report which are not historical in nature,
including discussion of economic conditions in the Company's market areas, the
potential for and effect of future acquisitions, the effect of changes in the
Company's mix of services on gross margin, the adequacy of the Company's
workers' compensation reserves, the tax-qualified status of the Company's 401(k)
savings plan, the outcome of various legal proceedings, and the availability of
financing and working capital to meet the Company's funding requirements, are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors with
respect to the Company include difficulties associated with integrating acquired
businesses and clients into the Company's operations, economic trends in the
Company's service areas, uncertainties regarding government regulation of PEOs,
including the possible adoption by the IRS of an unfavorable position as to the
tax-qualified status of employee benefit plans maintained by PEOs, future
workers' compensation claims experience, and the availability of and costs
associated with potential sources of financing. The Company disclaims any
obligation to update any such factors or to publicly announce the result of any
revisions to any of the forward-looking
15
<PAGE>
statements contained herein to reflect future events or developments.
Part II - Other Information
Item 1. Legal Proceedings
A lawsuit was filed in the Circuit Court of the State of
Oregon for the County of Multnomah on February 5, 1997, by Javier and Ester
Munoz, husband and wife, against Asger M. Nielson, doing business as Nielson and
Son ("Nielson"), Rain-Master Roofing, Inc. ("Rain-Master"), and the Company. Mr.
Munoz was employed by the Company under a PEO arrangement with Rain-Master,
which is in the roofing business. On February 1, 1995, Rain-Master was providing
roofing services at a construction site for which Nielson was serving as a
general contractor. Mr. Munoz fell from the roof at the site in the course of
his employment and is now a paraplegic as a result of the injuries he suffered.
Until the filing of the lawsuit referred to above, Mr. Munoz's claim was being
defended as a workers' compensation claim. In the lawsuit, the plaintiffs are
seeking damages in the amount of $10,000,000 pursuant to claims for relief based
on employer liability, intentional injury, product liability, negligence, breach
of implied warranty and loss of consortium. On July 14, 1997, the court granted
the Company's motion to dismiss the Company as a party to the lawsuit. The
dismissal is without prejudice such that the plaintiff may seek to file an
amended complaint alleging facts which would serve as a basis for a claim
against the Company.
On March 11, 1997, a Notice of Intent to Revoke Farm/Forest
Labor Contractor License and to Assess Civil Penalties (the "Notice") was served
on the Company by the Bureau of Labor and Industries of the State of Oregon (the
"Bureau"). The Notice also names Daniel A. Hatfield, an employee of the Company.
The Notice proposes to assess civil penalties in the amount of $488,000, based
on the numbers of workers allegedly affected, for alleged noncompliance with
various duties imposed on farm labor contracts by Oregon law, including
licensing violations, failure to comply with wage payment laws, and failure to
maintain and to provide workers and the Bureau with required documentation. A
default judgment entered against the Company was withdrawn by an administrative
law judge on April 23, 1997. Management intends to vigorously contest the claims
asserted in the Notice; an administrative hearing is presently scheduled for
September 1997.
16
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its 1997 annual meeting of stockholders on
May 14, 1997. The following directors were elected at the annual meeting:
<TABLE>
<CAPTION>
ABSTENTIONS AND
FOR WITHHELD BROKER NON-VOTES
--- -------- ----------------
<S> <C> <C>
Robert R. Ames 6,170,376 211,710
Jeffrey L. Beaudoin 6,170,476 211,610
Stephen A. Gregg 6,170,376 211,710
Anthony Meeker 6,170,476 211,610
Stanley G. Renecker 6,170,276 211,810
William W. Sherertz 6,170,276 211,810
</TABLE>
The other matters presented for action at the annual meeting
were approved by the following vote:
<TABLE>
<CAPTION>
ABSTENTIONS AND
FOR AGAINST BROKER NON-VOTES
--- ------- ----------------
<S> <C> <C> <C>
Approval of amendment 3,961,585 520,466 1,900,035
to the Company's 1993
Stock Incentive Plan
Approval of the 6,366,186 14,400 1,500
appointment of Price
Waterhouse LLP as
independent accountants
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits filed herewith are listed in the Exhibit Index
following the signature page of this report.
(b) Reports on Form 8-K
Except as set forth in the Registrant's Quarterly Report on
Form 10-Q, Item 6 (b), for the quarterly period ended March
31, 1997, no reports on Form 8-K were filed by the Registrant
during the quarter for which this report is filed.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
BARRETT BUSINESS SERVICES, INC.
(Registrant)
Date: August 12, 1997 By: /s/ Michael D. Mulholland
--------------------------
Michael D. Mulholland
Vice President-Finance
(Principal Financial Officer)
18
<PAGE>
EXHIBIT INDEX
EXHIBIT
4.1 Loan agreement between the Registrant and Wells Fargo Bank, N.A. dated
May 30, 1997.
11 Statement of Calculation of Average
Common Shares Outstanding
27 Financial Data Schedule
19
[LOGO]
WELLS FARGO
Portland Commercial Banking
MAC #6101-192
1300 Southwest Fifth Avenue
P.O. Box 3131
Portland, OR 97208-3131
May 30, 1997
Barrett Business Services, Inc.
4724 SW Macadam Avenue
Portland, OR 97201
Gentlemen:
This letter is to confirm that Wells Fargo Bank, National Association
("Bank"), subject to all terms and conditions contained herein, has agreed to
make available to Barrett Business Services, Inc. ("Borrower") the following
described credit accommodations (each, a "Credit" and collectively, the
"Credits"):
1. A revolving line of credit under which Bank will make advances to
Borrower from time to time up to and including May 31, 1998, not to exceed at
any time the maximum principal amount of Four Million Dollars ($4,000,000.00)
("Line of Credit"), the proceeds of which shall be used for working capital.
2. A term loan in the original principal amount of Six Hundred
Ninety-three Thousand Seven Hundred Fifty Dollars ($693,750.00) ("Term Loan"),
on which the outstanding principal amount as of the date hereof is $585,236.50.
Subject to the terms and conditions of this letter, Bank hereby confirms that
the Term Loan remains in full force and effect.
3. A standby letter of credit for the account of Borrower ("Standby Letter
of Credit A") in the principal amount of Fifty Thousand Dollars ($50,000.00).
4. A standby letter of credit for the account of Borrower ("Standby Letter
of Credit B") in the principal amount of One Million Five Hundred Seventy-two
Thousand Dollars ($1,572,000.00).
I. CREDIT TERMS:
1. LINE OF CREDIT:
(a) Line of Credit Note. Borrower's obligation to repay advances under the
Line of Credit shall be evidenced by a
<PAGE>
Barrett Business Services, Inc.
May 30, 1997
Page 2
promissory note substantially in the form of Exhibit A attached hereto ("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 standby letters
of credit for the account of Borrower (each, a "Letter of Credit" and
collectively, "Letters of Credit"); provided however, that the form and
substance of each Letter of Credit shall be subject to approval by Bank, in its
sole discretion; and provided further, that the aggregate undrawn amount of all
outstanding Letters of Credit shall not at any time exceed Four Million Dollars
($4,000,000.00). Each Letter of Credit shall be issued for a term not to exceed
365 days, as designated by Borrower; provided however, that no Letter of Credit
shall have an expiration date subsequent to the maturity date of the Line of
Credit. 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 Agreement and related documents, if any, required by Bank in
connection with the issuance thereof. Each draft paid by Bank 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 letter
applicable to such advances; provided however, that if advances under the Line
of Credit are not available, for any reason, at the time any draft is paid by
Bank, then Borrower shall immediately pay to Bank the full amount of such draft,
together with interest thereon from the date such amount is paid by Bank 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 demand deposit account maintained by
Borrower with Bank for the amount of any such draft.
(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 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. Notwithstanding the foregoing, Borrower shall maintain a zero balance on
advances under the Line of Credit for a period of at least 30 consecutive days
during each fiscal year.
<PAGE>
Barrett Business Services, Inc.
May 30, 1997
Page 3
2. TERM LOAN:
(a) Term Note. Borrower's obligation to repay the Term Loan is evidenced
by a promissory note substantially in the form of Exhibit B attached hereto
("Term Note"), all terms of which are incorporated herein by this reference. Any
reference in the Term Note to any prior loan agreement between Bank and Borrower
shall be deemed a reference to this letter.
(b) Repayment. Principal and interest on the Term Loan shall be repaid in
accordance with the provisions of the Term Note.
(c) Prepayment. Borrower may prepay principal on the Term Loan solely in
accordance with the provisions of the Term Note.
3. STANDBY LETTER OF CREDIT A:
(a) Standby Letter of Credit A. Standby Letter of Credit A has been issued
by Bank for the benefit of Argonaut Insurance Company to finance worker's
compensation obligations. Standby Letter of Credit A has an expiration date of
August 31, 1997, and is subject to the additional terms of the Application and
Agreement for Standby Letter of Credit A required by Bank in connection with the
issuance thereof (the "Letter of Credit A Agreement"). Subject to the terms and
conditions of this letter, Bank hereby confirms that Standby Letter of Credit A
remains in full force and effect.
(b) Repayment of Drafts. Each draft paid by Bank under Standby Letter of
Credit A shall be repaid by Borrower in accordance with the provisions of Letter
of Credit A Agreement.
4. STANDBY LETTER OF CREDIT B:
(a) Standby Letter of Credit B. Standby Letter of Credit B has been issued
by Bank for the benefit of Self-Insurance Plans, State of California, to serve
as a surety deposit pursuant to state worker's compensation regulations. Standby
Letter of Credit B has an expiration date of April 10, 1998, and is subject to
the additional terms of the Application and Agreement for Standby Letter of
Credit B required by Bank in connection with the issuance thereof (the "Letter
of Credit B Agreement"). Subject to the terms and conditions of this letter,
Bank hereby confirms that Standby Letter of Credit B remains in full force and
effect.
<PAGE>
Barrett Business Services, Inc.
May 30, 1997
Page 4
(b) Repayment of Drafts. Each draft paid by Bank under Standby Letter of
Credit B shall be repaid by Borrower in accordance with the provisions of Letter
of Credit B Agreement.
5. COLLATERAL:
As security for all indebtedness of Borrower to Bank under the Term Loan,
Borrower hereby grants to Bank a lien of not less than first priority on that
certain real property located at 4724 SW Macadam Avenue, Portland, OR. All of
the foregoing shall be evidenced by and subject to the terms of such security
agreements, financing statements, deeds of trust and other documents as Bank
shall reasonably require, all in form and substance satisfactory to Bank.
Borrower shall reimburse Bank immediately upon demand for all costs and expenses
incurred by Bank in connection with any of the foregoing security, including
without limitation, filing and recording fees and costs of appraisals, audits
and title insurance.
II. INTEREST/FEES:
1. Interest. The outstanding principal balances of the Line of Credit and
Term Loan shall bear interest at the rates of interest set forth in the Line of
Credit Note and Term Note. The amount of each draft paid by Bank under Standby
Letter of Credit A and Standby Letter of Credit B shall bear interest from the
date such draft is paid by Bank to the date such amount is fully repaid by
Borrower at a rate per annum equal to the Prime Rate in effect from time to
time.
a. Prime Rate. The "Prime Rate" is a base rate that Bank from time to time
establishes and which serves as the basis upon which effective rates of interest
are calculated for those loans making reference thereto. Each change in the rate
of interest shall become effective on the date each Prime Rate change is
announced within Bank.
b. Computation and Payment. Interest on the Line of Credit shall be
computed on the basis of a 360-day year, actual days elapsed. Interest on the
Term Loan shall be computed on the basis of a 366-day year, actual days elapsed.
Interest shall be payable at the times and places set forth in the Line of
Credit Note and Term Note.
2. Unused Commitment Fee. Borrower shall pay to Bank a fee equal to
one-eights percent (0.125%) per annum (computed on the basis of a 360-day year,
actual days elapsed) on the average
<PAGE>
Barrett Business Services, Inc.
May 30, 1997
Page 5
daily unused amount of the Line of Credit, which fee shall be calculated on a
quarterly basis by Bank and shall be due and payable by Borrower in arrears on
the last day of each March, June, September and December.
3. Letter of Credit Fees. Borrower shall pay to Bank fees upon the
issuance of each Letter of Credit, Standby Letter of Credit A or Standby Letter
of Credit B, upon the payment or negotiation by Bank of each draft under any
Letter of Credit, Standby Letter of Credit A or Standby Letter of Credit B and
upon the occurrence of any other activity with respect to any Letter of Credit,
Standby Letter of Credit A or Standby Letter of Credit B (including without
limitation, the transfer, amendment or cancellation of any Letter of Credit,
Standby Letter of Credit A or Standby Letter of Credit B) determined in
accordance with Bank's standard fees and charges then in effect for such
activity.
4. Collection of Payments. Borrower authorizes Bank to collect all
principal, interest and fees due under each Credit by charging Borrower's demand
deposit account number 4159-583848 with Bank, or any other demand deposit
account maintained by Borrower with Bank, for the full amount thereof. Should
there be insufficient funds in any such demand deposit account to pay all such
sums when due, the full amount of such deficiency shall be immediately due and
payable by Borrower.
III. REPRESENTATIONS AND WARRANTIES:
Borrower makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this letter 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 letter.
1. Legal Status. Borrower is a corporation, duly organized and existing
and in good standing under the laws of the state of Maryland, and is qualified
or licensed to do business 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.
2. Authorization and Validity. This letter, the Line of Credit Note, Term
Note, Standby Letter of Credit A, Standby Letter of Credit B, and each other
document, contract or instrument deemed necessary by Bank to evidence any
extension of
<PAGE>
Barrett Business Services, Inc.
May 30, 1997
Page 6
credit to Borrower pursuant to the terms and conditions hereof, or now or at any
time hereafter required by or delivered to Bank in connection with this letter
(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.
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 a breach of or constitute a default under any
contract, obligation, indenture or other instrument to which Borrower is a party
or by which Borrower may be bound.
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.
5. Correctness of Financial Statement. The financial statement of Borrower
dated March 31, 1997, 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 condition or operation 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.
6. Income Tax Returns. Borrower has no knowledge of any pending
assessments or adjustments of its income tax payable with respect to any year.
7. No Subordination. There is no agreement, indenture, contract or
instrument to which Borrower is a party or by which
<PAGE>
Barrett Business Services, Inc.
May 30, 1997
Page 7
Borrower may be bound that requires the subordination in right of payment of any
of Borrower's obligations subject to this letter to any other obligation of
Borrower.
8. Permits, Franchises. Borrower possesses, and will hereafter possess,
all permits, consents, approvals, franchises and licenses required and all
rights to 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.
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.
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.
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
<PAGE>
Barrett Business Services, Inc.
May 30, 1997
Page 8
any release of any toxic or hazardous waste or substance into the environment.
12. Real Property Collateral. Except as disclosed by Borrower to Bank in
writing prior to the date hereof, with respect to any real property collateral
required hereby:
(a) All taxes, governmental assessments, insurance premiums, and water,
sewer and municipal charges, and rents (if any) which previously became due and
owing in respect thereof have been paid as of the date hereof.
(b) There are no construction or similar liens or claims which have been
filed for work, labor or material (and no rights are outstanding that under law
could give rise to any such lien) which affect all or any interest in any such
real property and which are or may be prior to or equal to the lien thereon in
favor of Bank.
(c) None of the improvements which were included for purpose of
determining the appraised value of any such real property lies outside of the
boundaries and/or building restriction lines thereof, and no improvements on
adjoining properties materially encroach upon any such real property.
(d) There is no pending, or to the best of Borrower's knowledge
threatened, proceeding for the total or partial condemnation of all or any
portion of any such real property, and all such real property is in good repair
and free and clear of any damage that would materially and adversely affect the
value thereof as security and/or the intended use thereof.
IV. CONDITIONS:
1. Conditions of Initial Extension of Credit. The obligation of Bank to
grant any of the Credits is subject to fulfillment to Bank's satisfaction of all
of the following conditions:
(a) Documentation. Bank shall have received each of the Loan Documents,
duly executed and in form and substance satisfactory to Bank.
(b) 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
<PAGE>
Barrett Business Services, Inc.
May 30, 1997
Page 9
by Bank, in the market value of any collateral required hereunder or a
substantial or material portion of the assets of Borrower.
(c) Insurance. Borrower shall have delivered to Bank evidence of insurance
coverage on all Borrower's property, in form, substance, amounts, covering risks
and issued by companies satisfactory to Bank, and where required by Bank, with
loss payable endorsements in favor of Bank, including without limitation,
policies of fire and extended coverage insurance covering all real property
collateral required hereby, with replacement cost and mortgagee loss payable
endorsements, and such policies of insurance against specific hazards affecting
any such real property as may be required by governmental regulation or Bank.
(d) Appraisals. Bank shall have obtained, at Borrower's cost, an appraisal
of all real property collateral required hereby, and all improvements thereon,
issued by an appraiser acceptable to Bank and in form, substance and reflecting
values satisfactory to Bank, in its discretion.
(e) Title Insurance. Bank shall have received an ALTA Policy of Title
Insurance, with such endorsements as Bank may require, issued by a company and
in form and substance satisfactory to Bank, in such amount as Bank shall
require, insuring Bank's lien on the real property collateral required hereby to
be of first priority, subject only to such exceptions as Bank shall approve in
its discretion, with all costs thereof to be paid by Borrower.
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 letter 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 on each such date, no
default hereunder, and no condition, event or act which with the giving of
notice or the passage of time or both would constitute such a default, shall
have occurred and be continuing or shall exist.
<PAGE>
Barrett Business Services, Inc.
May 30, 1997
Page 10
(b) Documentation. Bank shall have received all additional documents which
may be required in connection with such extension of credit.
(c) Additional Letter of Credit Documentation. Prior to the issuance of
each Letter of Credit, Standby Letter of Credit A or Standby Letter of Credit B,
Bank shall have received a Letter of Credit Agreement, a Letter of Credit A
Agreement or a Letter of Credit B Agreement, properly completed and duly
executed by Borrower.
V. COVENANTS:
Borrower covenants that so long 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:
1. Punctual Payment. 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, and immediately upon demand by Bank.
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 inspect the
properties of Borrower.
3. Financial Statements. Provide to Bank all of the following, in form and
detail satisfactory to Bank:
(a) not later than 90 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 balance sheet, income statement,
statement of cash flow, statement of retained earnings and a copy of Borrower's
Form 10-K report filed with the Securities and Exchange Commission;
(b) not later than 45 days after and as of the end of each fiscal quarter,
a copy of Borrower's Form 10-Q report filed with the Securities and Exchange
Commission;
<PAGE>
Barrett Business Services, Inc.
May 30, 1997
Page 11
(c) from time to time such other information as Bank may reasonably
request, including without limitation, copies of rent rolls and other
information with respect to any real property collateral required hereby.
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 requirements of all laws, rules, regulations and orders of a
governmental agency applicable to Borrower and/or its business.
5. Insurance. Maintain and keep in force insurance of the types and in
amounts customarily carried in lines of business similar to that of Borrower,
including but not limited to fire, extended coverage, public liability, flood,
property damage and workers' compensation, with all such insurance carried with
companies and in amounts satisfactory to Bank, and deliver to Bank from time to
time at Bank's request schedules setting forth all insurance then in effect.
6. Facilities. Keep all properties useful or necessary to Borrower's
business in good repair and condition, and from time to time make necessary
repairs, renewals and replacements thereto so that such properties shall be
fully and efficiently preserved and maintained.
7. Taxes and Other Liabilities. Pay and discharge when due any and all
indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except (a) such as Borrower may in good faith
contest or as to which a bona fide dispute may arise, and (b) for which Borrower
has made provision, to Bank's satisfaction, for eventual payment thereof in the
event Borrower is obligated to make such payment.
8. Merger, Consolidation, Transfer of Assets. Not merge into or
consolidate with any other entity; nor make any substantial change in the nature
of Borrower's business as conducted as of the date hereof; nor acquire all or
substantially all of the assets of any other entity in any transaction involving
$10,000,000.00 or more without the prior written approval of Bank, which
approval shall not be unreasonably withheld; nor sell, lease, transfer or
otherwise dispose of all
<PAGE>
Barrett Business Services, Inc.
May 30, 1997
Page 12
or a substantial or material portion of Borrower's assets except in the ordinary
course of its business.
9. Guaranties. Not guarantee or become liable in any way as surety,
endorser (other than as endorser of negotiable instruments for deposit or
collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower as security for,
any liabilities or obligations of any other person or entity, except any of the
foregoing in favor of Bank.
10. Loans, Advances, Investments. Not make any loans or advances to or
investments in any person or entity, except any of the foregoing existing as of,
and disclosed to Bank prior to, the date hereof, or any loans or advances or
investments made in the normal course, such as short term advances to employees
or investments of excess cash.
11. Pledge of Accounts. Borrower shall give Bank at least fifteen (15)
days prior notice of any intent by Borrower to pledge, grant or permit to exist
a security interest in, or lien upon, any of its accounts, general intangibles
that constitute payment rights, and other rights to payment, (the foregoing,
together with the proceeds thereof being, collectively, "Receivables
Collateral") in favor of any party other than Bank (an "Other Lender"). Borrower
agrees that in such event, Borrower shall grant to Bank a security interest and
lien in the Receivables Collateral to secure all of Borrower's obligations to
Bank under the Line of Credit, and Bank and any such Other Lender's rights and
interests in and to the Receivables Collateral shall be of equal priority, with
each of Bank and such Other Lender to share the Receivables Collateral on a
pro-rata basis, based on the maximum principal amount of, respectively the loan
from the Other Lender and the maximum principal amount of the Line of Credit.
Further, in such event, borrower agrees to execute, and any such pledge of
receivables collateral to an Other Lender would be made subject to the execution
by such other lender of, appropriate documents to effectuate the foregoing.
12. Financial Condition. Maintain Borrower's financial condition as
follows using generally accepted accounting principles consistently applied and
used consistently with prior practices (except to the extent modified by the
definitions herein:
Total Liabilities divided by Net Worth not at any time greater than 1.5 to
1.0, with "Total Liabilities" defined as the
<PAGE>
Barrett Business Services, Inc.
May 30, 1997
Page 13
aggregate of current liabilities and non-current liabilities , and with "Net
Worth" defined as the aggregate of assets minus liabilities.
VI. DEFAULT, REMEDIES:
1. Default, Remedies. Upon the violation of any term or condition of any
of the Loan Documents, or upon the occurrence of any default or defined event of
default under any of the Loan Documents: (a) all indebtedness of Borrower under
each of the Loan Documents, any term thereof to the contrary notwithstanding,
shall at Bank's option and without notice become immediately due and payable
without presentment, demand, protest or notice of dishonor, all of which are
expressly waived by Borrower; (b) the obligation, if any, of Bank to extend any
further credit under any of the Loan Documents shall immediately cease and
terminate; and (c) Bank shall have all rights, powers and remedies available
under each of the Loan Documents, or accorded by law, including without
limitation the right to resort to any or all security for any of the Credits and
to exercise any or all of the rights of a beneficiary or secured party pursuant
to applicable law. All rights, powers and remedies of Bank may be exercised at
any time by Bank and from time to time after the occurrence of any such breach
or default, are cumulative and not exclusive, and shall be in addition to any
other rights, powers or remedies provided by law or equity.
2. No Waiver. No delay, failure or discontinuance of Bank in exercising
any right, power or remedy under any of the Loan Documents shall affect or
operate as a waiver of such right, power or remedy; nor shall any single or
partial exercise of any such right, power or remedy preclude, waive or otherwise
affect any other or further exercise thereof or the exercise of any other right,
power or remedy. Any waiver, permit, consent or approval of any kind by Bank of
any breach of or default under any of the Loan Documents must be in writing and
shall be effective only to the extent set forth in such writing.
VII. MISCELLANEOUS:
1. Notices. All notices, requests and demands which any party is required
or may desire to give to any other party under any provision of this letter must
be in writing delivered to each party at its address first set forth above, or
to such other address as any party may designate by written notice to all other
parties. Each such notice, request and demand shall be deemed
<PAGE>
Barrett Business Services, Inc.
May 30, 1997
Page 14
given or made as follows: (a) if sent by hand delivery, upon delivery; (b) if
sent by mail, upon the earlier of the date of receipt or three (3) days after
deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by
telecopy, upon receipt.
2. Costs, Expenses and Attorneys' Fees. Borrower shall pay to Bank
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), expended or
incurred by Bank in connection with (a) the negotiation and preparation of this
letter and the other Loan Documents, Bank's continued administration hereof and
thereof, and the preparation of amendments and waivers hereto and thereto, (b)
the enforcement of Bank's rights and/or the collection of any amounts which
become due to Bank under any of the Loan Documents, and (c) the prosecution or
defense of any action in any way related to any of the Loan Documents, including
without limitation, any action for declaratory relief, whether incurred at the
trial or appellate level, in an arbitration proceeding or otherwise, and
including any of the foregoing incurred in connection with any bankruptcy
proceeding (including without limitation, any adversary proceeding, contested
matter or motion brought by Bank or any other person) relating to any Borrower
or any other person or entity.
3. Successors, Assignment. This letter shall be binding upon and inure to
the benefit of the heirs, executors, administrators, legal representatives,
successors and assigns of the parties; provided however, that Borrower may not
assign or transfer its interest hereunder without Bank's prior written consent.
Bank reserves the right to sell, assign, transfer, negotiate or grant
participations in all or any part of, or any interest in, Bank's rights and
benefits under each of the Loan Documents. In connection therewith Bank may
disclose all documents and information which Bank now has or hereafter may
acquire relating to any of the Credits, Borrower or its business, or any
collateral required hereunder.
4. Entire Agreement; Amendment. This letter and the other Loan Documents
constitute the entire agreement between Borrower and Bank with respect to the
Credits and supersede all prior negotiations, communications, discussions and
correspondence concerning the subject matter hereof. This letter may be amended
or modified only in writing signed by each party hereto.
<PAGE>
Barrett Business Services, Inc.
May 30, 1997
Page 15
5. No Third Party Beneficiaries. This letter is made and entered into for
the sole protection and benefit of the parties hereto and their respective
permitted successors and assigns, and no other person or entity shall be a third
party beneficiary of, or have any direct or indirect cause of action or claim in
connection with, this letter or any other of the Loan Documents to which it is
not a party.
6. Severability of Provisions. If any provision of this letter shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or any remaining provisions of this
letter.
7. Governing Law. This letter shall be governed by and construed in
accordance with the laws of the State of Oregon.
8. Arbitration.
(a) Arbitration. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this letter. A "Dispute" shall mean any action, dispute, claim
or controversy of any kind, whether in contract or tort, statutory or common
law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, any of the Loan Documents, or any
past, present or future extensions of credit and other activities, transactions
or obligations of any kind related directly or indirectly to any of the Loan
Documents, including without limitation, any of the foregoing arising in
connection with the exercise of any self-help, ancillary or other remedies
pursuant to any of the Loan Documents. Any party may by summary proceedings
bring an action in court to compel arbitration of a Dispute. Any party who fails
or refuses to submit to arbitration following a lawful demand by any other party
shall bear all costs and expenses incurred by such other party in compelling
arbitration of any Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered by the
American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in Oregon selected
by the AAA or other administrator.
<PAGE>
Barrett Business Services, Inc.
May 30, 1997
Page 16
If there is any inconsistency between the terms hereof and any such rules, the
terms and procedures set forth herein shall control. All statutes of limitation
applicable to any Dispute shall apply to any arbitration proceeding. All
discovery activities shall be expressly limited to matters directly relevant to
the Dispute being arbitrated. Judgment upon any award rendered in an arbitration
may be entered in any court having jurisdiction; provided however, that nothing
contained herein shall be deemed to be a waiver by any party that is a bank of
the protections afforded to it under 12 U.S.C. ss.91 or any similar applicable
state law.
(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
active members of the Oregon State Bar or retired judges of the state or federal
judiciary of Oregon, with expertise in the substantive law applicable to the
subject matter of the Dispute. Arbitrators are empowered to resolve Disputes by
summary rulings in response to motions filed prior to the final arbitration
hearing. Arbitrators (i) shall resolve all Disputes in accordance with the
substantive law of the state of Oregon, (ii) may grant any remedy or relief that
a court of the state of Oregon could order or grant within the scope hereof and
such ancillary relief as is necessary to make effective any award, and (iii)
shall have the power to award recovery of all costs and fees, to impose
sanctions and to take such other actions as they deem necessary to the same
extent a judge could pursuant to the Federal Rules of Civil Procedure, the
Oregon Rules of Civil Procedure or other applicable law. Any Dispute in which
the amount in controversy is $5,000,000 or less shall be decided by a single
arbitrator who shall not render an award of greater than $5,000,000 (including
damages, costs, fees and expenses). By submission to a single arbitrator, each
party expressly waives any right or claim to recover more than $5,000,000. Any
Dispute in which the amount in controversy exceeds $5,000,000 shall be decided
by majority vote of a panel of three arbitrators;
<PAGE>
Barrett Business Services, Inc.
May 30, 1997
Page 17
provided however, that all three arbitrators must actively participate in all
hearings and deliberations.
(e) Judicial Review. Notwithstanding anything herein to the contrary, in
any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (i) the arbitrators shall not have the
power to make any award which is not supported by substantial evidence or which
is based on legal error, (ii) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and the
conclusions of law are not erroneous under the substantive law of the state of
Oregon, and (iii) the parties shall have in addition to the grounds referred to
in the Federal Arbitration Act for vacating, modifying or correcting an award
the right to judicial review of (A) whether the findings of fact rendered by the
arbitrators are supported by substantial evidence, and (B) whether the
conclusions of law are erroneous under the substantive law of the state of
Oregon. Judgment confirming an award in such a proceeding may be entered only if
a court determines the award is supported by substantial evidence and not based
on legal error under the substantive law of the state of Oregon.
(f) Miscellaneous. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the Dispute
shall control. This arbitration provision shall survive termination, amendment
or expiration of any of the Loan Documents or any relationship between the
parties.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY BANK AFTER
OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR
PERSONAL, FAMILY OR HOUSEHOLD PURPOSES OR SECURED SOLELY BY THE BORROWER'S
RESIDENCE MUST BE IN WRITING, EXPRESS CONSIDERATION AND BE SIGNED BY BANK TO BE
ENFORCEABLE.
<PAGE>
Barrett Business Services, Inc.
May 30, 1997
Page 18
Your acknowledgment of this letter shall constitute acceptance of the foregoing
terms and conditions. Bank's commitment to extend any credit to Borrower
pursuant to the terms of this letter shall terminate on July 15, 1997, unless
this letter is acknowledged by Borrower and returned to Bank on or before that
date.
Sincerely,
WELLS FARGO BANK,
NATIONAL ASSOCIATION
By: /s/ Marlene Roberts
Marlene Roberts
Vice President
Acknowledged and accepted as of 7-7-97:
Barrett Business Services, Inc.
By: /s/ Michael D. Mulholland
Title: Vice President-Finance
- 20 -
<PAGE>
REVOLVING LINE OF CREDIT NOTE
$4,000,000.00 Portland, Oregon
May 30, 1997
FOR VALUE RECEIVED, the undersigned BARRETT BUSINESS SYSTEMS, INC.
("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Bank") at its office at 1300 S. W. Fifth Avenue, T-19, Portland,
Oregon, or at such other place as the holder hereof may designate, in lawful
money of the United States of America and in immediately available funds, the
principal sum of Four Million Dollars ($4,000,000.00), or so much thereof as may
be advanced and be outstanding, with interest thereon, to be computed on each
advance from the date of its disbursement as set forth herein.
DEFINITIONS:
As used herein, the following terms shall have the meanings set forth
after each, and any other term defined in this Note shall have the meaning set
forth at the place defined:
(a) "Business Day" means any day except a Saturday, Sunday or any other
day on which commercial banks in Oregon are authorized or required by law to
close.
(b) "Federal Funds Rate" means, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations of such rates on such
day received by Bank from three Federal funds brokers of recognized standing
selected by it.
(c) "Fixed Rate Term" means a period commencing on a Business Day and
continuing for one (1), two (2), or three (3) months, as designated by Borrower,
during which all or a portion of the outstanding principal balance of this Note
bears interest determined in relation to LIBOR; provided however, that no Fixed
Rate Term may be selected for a principal amount less than Five Hundred Thousand
Dollars ($500,000.00); and provided further, that no Fixed Rate Term shall
extend beyond the scheduled maturity date hereof. If any Fixed Rate Term would
end on a day which is not a Business Day, then such Fixed Rate Term shall be
extended to the next succeeding Business Day.
<PAGE>
(d) "LIBOR" means the rate per annum (rounded upward, if necessary, to the
nearest whole 1/8 of 1%) and determined pursuant to the following formula:
LIBOR = Base LIBOR
-------------------------------
100% - LIBOR Reserve Percentage
(i) "Base LIBOR" means the rate per annum for United States dollar
deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the
understanding that such rate is quoted by Bank for the purpose of calculating
effective rates of interest for loans making reference thereto, on the first day
of a Fixed Rate Term for delivery of funds on said date for a period of time
approximately equal to the number of days in such Fixed Rate Term and in an
amount approximately equal to the principal amount to which such Fixed Rate Term
applies. Borrower understands and agrees that Bank may base its quotation of the
Inter-Bank Market Offered Rate upon such offers or other market indicators of
the Inter-Bank Market as Bank in its discretion deems appropriate including, but
not limited to, the rate offered for U.S. dollar deposits on the London
Inter-Bank Market.
(ii) "LIBOR Reserve Percentage" means the reserve percentage prescribed by
the Board of Governors of the Federal Reserve System (or any successor) for
"Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve
Board, as amended), adjusted by Bank for expected changes in such reserve
percentage during the applicable Fixed Rate Term.
(e) "Prime Rate" means at any time the rate of interest most recently
announced within Bank at its principal office as its Prime Rate, with the
understanding that the Prime Rate is one of Bank's base rates and serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto, and is evidenced by the recording thereof after its
announcement in such internal publication or publications as Bank may designate.
INTEREST:
(a) Interest. The outstanding principal balance of this Note shall bear
interest (computed on the basis of a 360-day year, actual days elapsed) either
(i) at a fluctuating rate per annum equal to the Prime Rate in effect from time
to time, (ii) at a fluctuating rate per annum equal to one and three-quarters of
one percent (1.75%) above the Federal Funds Rate in effect from time to time, or
(iii) at a fixed rate per annum determined by Bank to be one and one-quarter
percent (1.25%) above LIBOR in effect on the first day of the applicable Fixed
Rate Term. When interest is determined in relation to the Prime Rate or Federal
Funds Rate, each change in the rate of interest hereunder shall become effective
on the date each Prime Rate or Federal Funds Rate change is announced within
Bank. With respect to each LIBOR
-2-
<PAGE>
selection hereunder, Bank is hereby authorized to note the date, principal
amount, interest rate and Fixed Rate Term applicable thereto and any payments
made thereon on Bank's books and records (either manually or by electronic
entry) and/or on any schedule attached to this Note, which notations shall be
prima facie evidence of the accuracy of the information noted.
(b) Selection of Interest Rate Options. At any time any portion of this
Note bears interest determined in relation to LIBOR, it may be continued by
Borrower at the end of the Fixed Rate Term applicable thereto so that all or a
portion thereof bears interest determined in relation to the Prime Rate, to the
Federal Funds Rate, or to LIBOR for a new Fixed Rate Term designated by
Borrower. At any time any portion of this Note bears interest determined in
relation to the Prime Rate or to the Federal Funds Rate, Borrower may convert
all or a portion thereof so that it bears interest determined in relation to
LIBOR for a Fixed Rate Term designated by Borrower. At such time as Borrower
requests an advance hereunder or wishes to select a LIBOR option for all or a
portion of the outstanding principal balance hereof, and at the end of each
Fixed Rate Term, Borrower shall give Bank notice specifying: (i) the interest
rate option selected by Borrower; (ii) the principal amount subject thereto; and
(iii) for each LIBOR selection, the length of the applicable Fixed Rate Term.
Any such notice may be given by telephone so long as, with respect to each LIBOR
selection, (A) Bank receives written confirmation from Borrower not later than
three (3) Business Days after such telephone notice is given, and (B) such
notice is given to Bank prior to 10:00 a.m., California time, on the first day
of the Fixed Rate Term. For each LIBOR option requested hereunder, Bank will
quote the applicable fixed rate to Borrower at approximately 10:00 a.m.,
California time, on the first day of the Fixed Rate Term. If Borrower does not
immediately accept the rate quoted by Bank, any subsequent acceptance by
Borrower shall be subject to a redetermination by Bank of the applicable fixed
rate; provided however, that if Borrower fails to accept any such rate by 11:00
a.m., California time, on the Business Day such quotation is given, then the
quoted rate shall expire and Bank shall have no obligation to permit a LIBOR
option to be selected on such day. If no specific designation of interest is
made at the time any advance is requested hereunder or at the end of any Fixed
Rate Term, Borrower shall be deemed to have made a Prime Rate interest selection
for such advance or the principal amount to which such Fixed Rate Term applied.
(c) Additional LIBOR Provisions.
(i) If Bank at any time shall determine that for any reason adequate and
reasonable means do not exist for ascertaining LIBOR, then Bank shall promptly
give notice thereof to Borrower. If such notice is given and until such notice
has been withdrawn by Bank, then (A) no new LIBOR option may be selected by
Borrower, and (B) any portion of the outstanding principal
-3-
<PAGE>
balance hereof which bears interest determined in relation to LIBOR, subsequent
to the end of the Fixed Rate Term applicable thereto, shall bear interest
determined in relation to the Prime Rate.
(ii) If any law, treaty, rule, regulation or determination of a court or
governmental authority or any change therein or in the interpretation or
application thereof (each, a "Change in Law") shall make it unlawful for Bank
(A) to make LIBOR options available hereunder, or (B) to maintain interest rates
based on LIBOR, then in the former event, any obligation of Bank to make
available such unlawful LIBOR options shall immediately be cancelled, and in the
latter event, any such unlawful LIBOR-based interest rates then outstanding
shall be converted, at Bank's option, so that interest on the portion of the
outstanding principal balance subject thereto is determined in relation to the
Prime Rate; provided however, that if any such Change in Law shall permit any
LIBOR-based interest rates to remain in effect until the expiration of the Fixed
Rate Term applicable thereto, then such permitted LIBOR-based interest rates
shall continue in effect until the expiration of such Fixed Rate Term. Upon the
occurrence of any of the foregoing events, Borrower shall pay to Bank
immediately upon demand such amounts as may be necessary to compensate Bank for
any fines, fees, charges, penalties or other costs incurred or payable by Bank
as a result thereof and which are attributable to any LIBOR options made
available to Borrower hereunder, and any reasonable allocation made by Bank
among its operations shall be conclusive and binding upon Borrower.
(iii) If any Change in Law or compliance by Bank with any request or
directive (whether or not having the force of law) from any central bank or
other governmental authority shall:
(A) subject Bank to any tax, duty or other charge with respect to any
LIBOR options, or change the basis of taxation of payments to Bank
of principal, interest, fees or any other amount payable hereunder
(except for changes in the rate of tax on the overall net income of
Bank); or
(B) impose, modify or hold applicable any reserve, special deposit,
compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances or
loans by, or any other acquisition of funds by any office of Bank;
or
(C) impose on Bank any other condition;
and the result of any of the foregoing is to increase the cost to Bank of
making, renewing or maintaining any LIBOR options hereunder and/or to reduce any
amount receivable by Bank in connection therewith, then in any such case,
Borrower shall pay to Bank immediately upon demand such amounts as may be
necessary
-4-
<PAGE>
to compensate Bank for any additional costs incurred by Bank and/or reductions
in amounts received by Bank which are attributable to such LIBOR options. In
determining which costs incurred by Bank and/or reductions in amounts received
by Bank are attributable to any LIBOR options made available to Borrower
hereunder, any reasonable allocation made by Bank among its operations shall be
conclusive and binding upon Borrower.
(d) Payment of Interest. Interest accrued on this Note shall be payable on
the first day of each month, commencing July 1, 1997.
(e) Default Interest. From and after the maturity date of this Note, or
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to four percent (4%) above
the rate of interest from time to time applicable to this Note.
BORROWING AND REPAYMENT:
(a) Borrowing and Repayment. Borrower may from time to time during the
term of this Note borrow, partially or wholly repay its outstanding borrowings,
and reborrow, subject to all of the limitations, terms and conditions of this
Note and of any document executed in connection with or governing this Note;
provided however, that the total outstanding borrowings under this Note shall
not at any time exceed the principal amount stated above. The unpaid principal
balance of this obligation at any time shall be the total amounts advanced
hereunder by the holder hereof less the amount of principal payments made hereon
by or for any Borrower, which balance may be endorsed hereon from time to time
by the holder. The outstanding principal balance of this Note shall be due and
payable in full on May 31, 1998.
(b) Advances. Advances hereunder, to the total amount of the principal sum
stated above, may be made by the holder at the oral or written request of (i)
William W. Sherertz, Jr. or Michael D. Mulholland, any one acting alone, who are
authorized to request advances and direct the disposition of any advances until
written notice of the revocation of such authority is received by the holder at
the office designated above, or (ii) any person, with respect to advances
deposited to the credit of any account of any Borrower with the holder, which
advances, when so deposited, shall be conclusively presumed to have been made to
or for the benefit of each Borrower regardless of the fact that persons other
than those authorized to request advances may have authority to draw against
such account. The holder shall have no obligation to determine whether any
person requesting an advance is or has been authorized by any Borrower.
-5-
<PAGE>
(c) Application of Payments. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof. All payments credited to principal shall be applied
first, to the outstanding principal balance of this Note which bears interest
determined in relation to the Prime Rate and/or Federal Funds Rate, if any, and
second, to the outstanding principal balance of this Note which bears interest
determined in relation to LIBOR, with such payments applied to the oldest Fixed
Rate Term first.
PREPAYMENT:
(a) Prime Rate/Federal Funds Rate. Borrower may prepay principal on any
portion of this Note which bears interest determined in relation to the Prime
Rate or Federal Funds Rate at any time, in any amount and without penalty.
(b) LIBOR. Borrower may prepay principal on any portion of this Note which
bears interest determined in relation to LIBOR at any time and in the minimum
amount of Five Hundred Thousand Dollars ($500,000.00); provided however, that if
the outstanding principal balance of such portion of this Note is less than said
amount, the minimum prepayment amount shall be the entire outstanding principal
balance thereof. In consideration of Bank providing this prepayment option to
Borrower, or if any such portion of this Note shall become due and payable at
any time prior to the last day of the Fixed Rate Term applicable thereto by
acceleration or otherwise, Borrower shall pay to Bank immediately upon demand a
fee which is the sum of the discounted monthly differences for each month from
the month of prepayment through the month in which such Fixed Rate Term matures,
calculated as follows for each such month:
(i) Determine the amount of interest which would have accrued each month
on the amount prepaid at the interest rate applicable to such amount
had it remained outstanding until the last day of the Fixed Rate
Term applicable thereto.
(ii) Subtract from the amount determined in (i) above the amount of
interest which would have accrued for the same month on the amount
prepaid for the remaining term of such Fixed Rate Term at LIBOR in
effect on the date of prepayment for new loans made for such term
and in a principal amount equal to the amount prepaid.
(iii) If the result obtained in (ii) for any month is greater than zero,
discount that difference by LIBOR used in (ii) above.
Each Borrower acknowledges that prepayment of such amount may result in Bank
incurring additional costs, expenses and/or liabilities, and that it is
difficult to ascertain the full
-6-
<PAGE>
extent of such costs, expenses and/or liabilities. Each Borrower, therefore,
agrees to pay the above-described prepayment fee and agrees that said amount
represents a reasonable estimate of the prepayment costs, expenses and/or
liabilities of Bank. If Borrower fails to pay any prepayment fee when due, the
amount of such prepayment fee shall thereafter bear interest until paid at a
rate per annum two percent (2%) above the Prime Rate in effect from time to time
(computed on the basis of a 360-day year, actual days elapsed). Each change in
the rate of interest on any such past due prepayment fee shall become effective
on the date each Prime Rate change is announced within Bank.
EVENTS OF DEFAULT:
The occurrence of any of the following shall constitute an "Event of
Default" under this Note:
(a) The failure to pay any principal, interest, fees or other charges when
due hereunder or under any contract, instrument or document executed in
connection with this Note.
(b) The filing of a petition by or against any Borrower, any guarantor of
this Note or any general partner or joint venturer in any Borrower which is a
partnership or a joint venture (with each such guarantor, general partner and/or
joint venturer referred to herein as a "Third Party Obligor") under any
provisions of the Bankruptcy Reform Act, Title 11 of the United States Code, as
amended or recodified from time to time, or under any similar or other law
relating to bankruptcy, insolvency, reorganization or other relief for debtors;
the appointment of a receiver, trustee, custodian or liquidator of or for any
part of the assets or property of any Borrower or Third Party Obligor; any
Borrower or Third Party Obligor becomes insolvent, makes a general assignment
for the benefit of creditors or is generally not paying its debts as they become
due; or any attachment or like levy on any property of any Borrower or Third
Party Obligor.
(c) The death or incapacity of any individual Borrower or Third Party
Obligor, or the dissolution or liquidation of any Borrower or Third Party
Obligor which is a corporation, partnership, joint venture or other type of
entity.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under any provisions of any contract, instrument or
document pursuant to which any Borrower or Third Party Obligor has incurred any
obligation for borrowed money, any purchase obligation, or any other liability
of any kind to any person or entity, including the holder; provided, however,
that any cure period applicable to such default has expired, and with respect to
a default under any obligation to any person or entity other than Bank, the
amount of the debt or other liability in default exceeds $5,000,000.00.
-7-
<PAGE>
(e) Any financial statement provided by any Borrower or Third Party
Obligor to Bank proves to be incorrect, false or misleading in any material
respect.
(f) Any sale or transfer of all or a substantial or material part of the
assets of any Borrower or Third Party Obligor other than in the ordinary course
of its business.
(g) Any violation or breach of any provision of, or any defined event of
default under, any addendum to this Note or any loan agreement, guaranty,
security agreement, deed of trust, mortgage or other document executed in
connection with or securing this Note, which, if such violation or breach is
curable, is not cured within the earlier to occur of (i) 30 days after the
occurrence thereof or (ii) any applicable cure period expressly provided in such
document.
MISCELLANEOUS:
(a) Remedies. Upon the occurrence of any Event of Default, the holder of
this Note, at the holder's option, may declare all sums of principal and
interest outstanding hereunder to be immediately due and payable without
presentment, demand, notice of nonperformance, notice of protest, protest or
notice of dishonor, all of which are expressly waived by each Borrower, and the
obligation, if any, of the holder to extend any further credit hereunder shall
immediately cease and terminate. Each Borrower shall pay to the holder
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of the holder's in-house counsel), expended
or incurred by the holder in connection with the enforcement of the holder's
rights and/or the collection of any amounts which become due to the holder under
this Note, and the prosecution or defense of any action in any way related to
this Note, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity.
(b) Obligations Joint and Several. Should more than one person or entity
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.
(c) Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of Oregon.
UNDER OREGON LAW, MOST AGREEMENTS, PROMISES AND COMMITMENTS MADE BY BANK AFTER
OCTOBER 3, 1989 CONCERNING LOANS AND OTHER CREDIT EXTENSIONS WHICH ARE NOT FOR
PERSONAL, FAMILY OR HOUSEHOLD
-8-
<PAGE>
PURPOSES OR SECURED SOLELY BY THE BORROWER'S RESIDENCE MUST BE IN WRITING,
EXPRESS CONSIDERATION AND BE SIGNED BY BANK TO BE ENFORCEABLE.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first written above.
BARRETT BUSINESS SERVICES, INC.
By: /s/ Michael D. Mulholland
Title: Vice President-Finance
-9-
EXHIBIT 11
BARRETT BUSINESS SERVICES, INC.
STATEMENT OF CALCULATION OF AVERAGE
COMMON SHARES OUTSTANDING
<TABLE>
<CAPTION>
Three Months
Ended
June 30, 1997
-------------
Primary Earnings Per Share:
<S> <C>
Weighted average number of shares 6,735,682
Stock option plan shares to be issued at prices
ranging from $3.50 to $17.9375 per share 507,231
Warrant issues at a price of $4.20 per share 39,231
Less: Assumed purchase at average market price
during the period using proceeds received upon exercise of options
and purchase of stock, and using tax benefits of compensation due
to premature
dispositions (450,218)
---------
Total Primary Shares 6,831,926
=========
Fully Diluted Earnings Per Share:
Weighted average number of shares 6,735,682
Stock option plan shares to be issued at prices
ranging from $3.50 to $17.9375 per share 507,231
Warrant issues at a price of $4.20 per share 39,231
Less: Assumed purchase at the higher of ending or
average market price during the period using proceeds
received upon exercise of options and purchase of
stock, and using tax benefits of compensation due to
premature dispositions (450,210)
---------
Total Diluted Shares 6,831,934
=========
</TABLE>
Note: The effect of common stock equivalents upon the primary and fully diluted
earnings per share calculation is less than 3%; therefore, earnings per share
are based on the weighted average number of shares outstanding during the
period.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's balance sheets and related statements of operations for the
period ended June 30, 1997 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000902791
<NAME> Barrett Business Services, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 459
<SECURITIES> 0
<RECEIVABLES> 22,686
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 26,063
<PP&E> 3,641
<DEPRECIATION> 0
<TOTAL-ASSETS> 48,706
<CURRENT-LIABILITIES> 16,923
<BONDS> 819
0
0
<COMMON> 67
<OTHER-SE> 28,336
<TOTAL-LIABILITY-AND-EQUITY> 48,706
<SALES> 0
<TOTAL-REVENUES> 133,235
<CGS> 0
<TOTAL-COSTS> 119,988
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67
<INCOME-PRETAX> 3,406
<INCOME-TAX> 1,322
<INCOME-CONTINUING> 2,084
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,084
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0
</TABLE>
