LABOR READY INC, 10-Q, 1998-08-17

LABOR READY INC
10-Q, 1998-08-17
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<PAGE>

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 QUARTER ENDED JULY 3, 1998

COMMISSION FILE NUMBER 0-23828

LABOR READY, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as specified in its charter)

Washington 91-1287341
- ---------------------------------- --------------------------------
(State of Incorporation) (Employer Identification No.)

1016 S. 28TH Street, Tacoma, Washington 98409
- ------------------------------------------------- ----------------
(Address of Principal Executive Offices) (Zip Code)

(253) 383-9101
- --------------------------------------------------------------------------------
(Registrant's Telephone Number)

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 reports), and (2) has been subject to
such filing requirements for the past 90 days.

YES (X) NO ( )
------ ------

As of July 27, 1998, the Registrant had 27,778,159 shares of Common Stock
outstanding.
- -------------------------------------------------------------------------------

DOCUMENTS INCORPORATED BY REFERENCE: None.

<PAGE>

LABOR READY, INC.

INDEX

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Balance Sheets
July 3, 1998 and December 31, 1997....................... 2

Consolidated Statements of Income
Twenty-Six and Thirteen Weeks Ended
July 3, 1998 and June 30, 1997........................... 4

Consolidated Statements of Cash Flows
Twenty-Six Weeks Ended July 3, 1998
and June 30, 1997........................................ 5

Notes to Consolidated Financial Statements............... 6

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 9

PART II. OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders..... 15

Item 6. Exhibits and Reports on Form 8-K........................ 16

SIGNATURES........................................................ 16

<PAGE>

LABOR READY, INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)

ASSETS

(UNAUDITED)
JULY 3, DECEMBER 31,
1998 1997
---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . $ 15,289 $ 22,117
Accounts receivable, less allowance for doubtful accounts
of $3,253 and $2,851 . . . . . . . . . . . . . . . . . . . . . . . . . 58,066 36,614
Workers' compensation deposits and credits . . . . . . . . . . . . . . . 2,336 1,082
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . 3,963 2,660
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 1,745 3,144
---------- -------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 81,399 65,617
---------- -------

PROPERTY AND EQUIPMENT:
Buildings and land . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,794 4,448
Computers and software . . . . . . . . . . . . . . . . . . . . . . . . . 11,165 8,220
Cash dispensing machines . . . . . . . . . . . . . . . . . . . . . . . . 6,369 --
Furniture and equipment. . . . . . . . . . . . . . . . . . . . . . . . . 585 497
--------- -------
22,913 13,165
Less accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . 4,180 2,839
--------- -------
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . 18,733 10,326
--------- -------

OTHER ASSETS:
Intangible assets and other, less amortization
of $5,330 and $3,569 . . . . . . . . . . . . . . . . . . . . . . . . . 3,030 3,076
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 2,520 1,212
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121 136
--------- --------
Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,671 4,424
--------- --------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 105,803 $ 80,367
--------- --------
--------- --------

</TABLE>

See accompanying notes to consolidated financial statements.

Page 2

<PAGE>

LABOR READY, INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)

LIABILITIES AND SHAREHOLDERS' EQUITY

(UNAUDITED)
JULY 3, DECEMBER 31,
1998 1997
----------- ------------
<S> <C> <C>
CURRENT LIABILITIES:
Checks issued against future deposits .................................. $ 6,223 $ --
Line of credit ......................................................... 2,200 --
Accounts payable ....................................................... 4,013 3,711
Accrued wages and benefits ............................................. 5,384 4,080
Reserve for workers' compensation claims ............................... 7,661 7,109
Income taxes payable ................................................... 1,264 875
Current maturities of long-term debt ................................... 511 13
-------- -------
Total current liabilities ............................................ 27,256 15,788
-------- -------

LONG-TERM LIABILITIES:
Long-term debt, less current maturities ................................ 5,023 76
Reserve for workers' compensation claims ............................... 11,052 6,462
-------- -------
Total long-term liabilities .......................................... 16,075 6,538
-------- -------
Total liabilities .................................................... 43,331 22,326
-------- -------

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:
Preferred stock, $0.197 par value 20,000 shares authorized;
4,324 shares issued and outstanding ..................................... 854 854
Common stock, no par value 100,000 shares authorized;
27,727 and 27,662 shares issued and outstanding ......................... 50,894 49,694
Cumulative other comprehensive income (expense):
Cumulative foreign currency translation adjustment .................... (155) 86
Retained earnings ....................................................... 10,879 7,407
-------- -------
Total shareholders' equity ............................................ 62,472 58,041
-------- -------
Total liabilities and shareholders' equity ............................ $105,803 $80,367
-------- -------
-------- -------
</TABLE>

See accompanying notes to consolidated financial statements.

Page 3

<PAGE>

LABOR READY, INC.

CONSOLIDATED STATEMENTS OF INCOME

(In Thousands Except Per Share Amounts)

(Unaudited)

TWENTY-SIX WEEKS ENDED THIRTEEN WEEKS ENDED
JULY 3, JUNE 30, JULY 3, JUNE 30,
1998 1997 1998 1997
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Revenues from services. . . . . . . . . $237,028 $129,334 $142,997 $77,620
Cost of services. . . . . . . . . . . . 166,284 90,169 100,588 53,247
-------- -------- -------- -------
Gross profit. . . . . . . . . . . . . . 70,744 39,165 42,409 24,373
Selling, general and
administrative expense. . . . . . . . 61,824 36,328 34,910 20,911
Depreciation and amortization . . . . 3,103 2,083 1,723 1,154
-------- -------- -------- -------
Income from operations. . . . . . . . . 5,817 754 5,776 2,308

Interest income (expense), net . . . . 112 278 (96) 81
-------- -------- -------- -------
Income before taxes on income . . . . . 5,929 1,032 5,680 2,389

Taxes on income . . . . . . . . . . . . 2,436 446 2,331 1,011
-------- -------- -------- -------
Net income. . . . . . . . . . . . . . . $ 3,493 $ 586 $ 3,349 $ 1,378
-------- -------- -------- -------
-------- -------- -------- -------
Earnings per common share:
Basic . . . . . . . . . . . . . . . . $ .13 $ .02 $ .12 $ .05
-------- -------- -------- -------
Diluted . . . . . . . . . . . . . . . $ .12 $ .02 $ .12 $ .05
-------- -------- -------- -------
-------- -------- -------- -------
Weighted average shares:
Basic . . . . . . . . . . . . . . . . 27,727 27,721 27,767 27,617
-------- -------- -------- -------
-------- -------- -------- -------
Diluted . . . . . . . . . . . . . . . 28,741 27,847 28,985 27,708
-------- -------- -------- -------
-------- -------- -------- -------
</TABLE>

See accompanying notes to consolidated financial statements.

Page 4

<PAGE>

LABOR READY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)

TWENTY-SIX WEEKS ENDED
JULY 3, 1998 JUNE 30, 1997
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 3,493 $ 586
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . 3,102 2,083
Provision for doubtful accounts . . . . . . . . . . . . . . 562 1,555
Deferred income taxes . . . . . . . . . . . . . . . . . . . 92 (1,333)
Gain on restricted fund investments . . . . . . . . . . . . -- (22)
Changes in assets and liabilities
Accounts receivable . . . . . . . . . . . . . . . . . . . . (22,091) (13,869)
Workers' compensation deposits and credits. . . . . . . . . (1,254) (1,051)
Prepaid expenses and other. . . . . . . . . . . . . . . . . (1,303) 173
Accounts payable. . . . . . . . . . . . . . . . . . . . . . 396 69
Accrued wages and benefits. . . . . . . . . . . . . . . . . 1,304 37
Reserve for workers' compensation claims. . . . . . . . . . 5,142 3,907
Income taxes payable. . . . . . . . . . . . . . . . . . . . 676 2,757
-------- -------
Net cash used in operating activities . . . . . . . . . . . . (9,881) (5,108)
-------- -------

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . . . . (5,795) (5,581)
Restricted cash . . . . . . . . . . . . . . . . . . . . . . 14 (727)
-------- -------
Net cash used in investing activities . . . . . . . . . . . . (5,781) (6,308)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on line of credit. . . . . . . . . . . . . . 2,200 --
Checks issued against future deposits . . . . . . . . . . . 6,078 (1,008)
Proceeds from options and warrants exercised . . . . . . . 549 15
Proceeds from sale of stock through Employee Stock
Purchase Plan . . . . . . . . . . . . . . . . . . . . . . 249 145
Purchase and retirement of common stock . . . . . . . . . . -- (1,155)
Dividends paid. . . . . . . . . . . . . . . . . . . . . . . -- (21)
Payments on capital lease obligations . . . . . . . . . . . (217) --
Payments on long-term debt. . . . . . . . . . . . . . . . . (6) (7)
-------- -------
Net cash provided by (used in) financing activities . . . . . 8,853 (2,031)
Effect of exchange rates on cash . . . . . . . . . . . . . (19) (6)
-------- -------
Net decrease in cash and cash equivalents . . . . . . . . . . (6,828) (13,453)
CASH AND CASH EQUIVALENTS, beginning of period . . . . . . . 22,117 17,598
-------- -------
CASH AND CASH EQUIVALENTS, end of period . . . . . . . . . . $ 15,289 $ 4,145
-------- -------
-------- -------

</TABLE>

See accompanying notes to consolidated financial statements.

Page 5

<PAGE>

ITEM 1. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and footnote
disclosures usually found in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
These financial statements should be read in conjunction with the
consolidated financial statements and related notes included in the Company's
1997 annual report on Form 10-K. The accompanying consolidated financial
statements reflect all adjustments, including normal recurring adjustments,
which in the opinion of management, are necessary to present fairly the
financial position, results of operations and cash flows for the interim
periods presented. Operating results for the twenty-six week period ended
July 3, 1998 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998.

NOTE 2. WORKERS' COMPENSATION

The Company provides workers' compensation insurance to its temporary workers
and regular employees. In Washington, Ohio and West Virginia (the
monopolistic states), the Company is required to make payments into state
administered programs, at rates established by each state, based upon the job
classification of the insured workers and the previous claims experience of
the Company. The Washington program provides for a retroactive adjustment of
workers' compensation payments based upon actual claims experience. Upon
adjustment, overpayments to the program are returned to the Company and
underpayments, if any, are assessed. At July 3, 1998 and December 31, 1997,
the Company recorded workers' compensation credit receivables of $1.4 million
and $1.1 million and workers' compensation liabilities of $0.5 million and
$0.6 million related to the monopolistic states.

For workers' compensation claims originating in the remaining states (the
non-monopolistic states), the Company self-insures the deductible amount per
claim to a maximum aggregate stop-loss limit and has engaged a third party
administrator to manage the claims and related claims expense. The
deductible amount was $250,000 per claim to an aggregate maximum of
approximately $5.0 million, $6.5 million and $19.0 million in 1995, 1996 and
1997, respectively. In January 1998, the Company renewed its insurance
program, the terms of which included a reduction of the 1995 and 1996
aggregate maximums to $4.5 million and $5.2 million, respectively.
Additionally, for claims arising in 1998, the per claim deductible was
increased to $350,000 and the maximum aggregate stop-loss limit was reduced
from the 1997 limit of $11.60 per $100 of temporary worker payroll to $10.41.

In years prior to 1998, the Company was required to deposit with its workers
compensation carrier, cash collateral in the amount of its total estimated
claims remaining to be paid. In December 1997, the Company replaced its cash
deposits required by the workers' compensation program with irrevocable
letters of credit totaling $15.9 million. During the twenty-six weeks ended
July 3, 1998, the company increased the letters of credit to $21.7 million.
The letters of credit bear fees of .75% per year and are supported by an
equal amount of available borrowings on the Company's $40 million line of
credit. Accordingly, at July 3, 1998, borrowings of $2.2 million were
outstanding on the line-of-credit, and $21.7 million was committed by the
letters of credit. During the third quarter of 1998, the Company expects to
obtain a surety bond in an amount not to exceed 50% of its estimated unpaid
estimated workers compensation claims reserve. The bond will bear fees of
.5% per year and may be renewed annually. The remaining portion of the
Company's estimated unpaid workers' compensation claims reserve will continue
to be collateralized with letters of credit, however with the surety bond,
the company expects to reduce its need for letters of credit through the end
of 1998 by approximately $10.0 million.

The Company establishes provisions for future claim liabilities based upon
actuarial estimates of the future cost of claims and related expenses that
have been reported but not settled, and that have been incurred but not
reported. Adjustments to the claims reserve are charged or credited to
expense in the periods in which they occur. Included in the accompanying
consolidated balance sheet as of July 3, 1998 and December 31, 1997, are
reserves for claims and claim related expenses arising in non-monopolistic
states of $18.2 million and $12.9 million. The reserve for workers'
compensation claims was computed using a discount rate of 6.0% at July 3,
1998 and December 31, 1997.

Page 6
<PAGE>

NOTE 2. WORKERS' COMPENSATION, CONTINUED

Workers' compensation expense totaling $7.5 million and $3.9 million was
recorded as a component of cost of services in each of the thirteen weeks
ended July 3, 1998 and June 30, 1997, respectively. Workers' compensation
expense totaling $12.3 million and $6.8 million was recorded as a component
of cost of services in each of the twenty-six weeks ended July 3, 1998 and
June 30, 1997, respectively.

The Company has formed a wholly-owned, off-shore captive, Labor Ready
Assurance Company ("Labor Ready Assurance"), for the management and payment
of workers' compensation claims and claim related expenses. Labor Ready
Assurance reinsures levels of coverage for losses in excess of the aggregate
stop-loss limits with unrelated insurance carriers. Funds are deposited with
Labor Ready Assurance for the payment of claims and claim related expenses,
and annual premiums are paid to Labor Ready Assurance based principally upon
the cost of reinsurance and other operating expenses. At July 3, 1998 and
December 31, 1997, $121,480 and $136,000 remained on deposit with Labor Ready
Assurance and was recorded as restricted cash in the accompanying
consolidated balance sheets.

The Company has established a risk management department at its corporate
headquarters to manage its insurers, third party administrators, and medical
service providers. To reduce wage-loss compensation claims, the Company has
established a "light duty", transitional return to work program. Workers in
the program are employed within the Company in the local dispatch office or
on customer assignments that require minimal physical exertion. The
Company's information system generates weekly workers' compensation loss
minimization reports for both corporate and dispatch office use. The Company
has an on-line connection with its third party administrator that allows the
Company to maintain visibility of all claims, manage their progress and
generate required management information.

NOTE 3. RECENTLY ISSUED ACCOUNTING STANDARD

Certain pre-opening costs incurred to open new dispatch offices, including
salaries, recruiting, testing, training, lease and other related costs, are
capitalized and amortized using the straight-line method over two years. In
March 1998, the Accounting Standards Executive Committee (the "AcSEC") issued
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities"
("the Statement"). The Statement establishes new rules for the financial
reporting of start-up costs, and will require the Company to expense the cost
of establishing new dispatch offices as incurred and write off, as a
cumulative effect of adopting the Statement, any capitalized pre-opening
costs in the first quarter of the year adopted. The Statement is effective
for years beginning after December 31, 1998 and the Company will adopt it in
the first quarter of 1999. The effect of adopting the Statement will be to
recognize a non-operating expense, net of tax, of approximately $1.5 million,
plus any additional pre-opening costs capitalized during the next two
quarters ended December 31, 1998, net of amortization expense recognized
during the period.

NOTE 4. SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS)
TWENTY-SIX WEEKS ENDED
----------------------
JULY 3, JUNE 30,
1998 1997
------ -------
<S> <C> <C>
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . $ 231 $ 4

Income taxes . . . . . . . . . . . . . . . . . . . $1,551 $ 174

Non-cash investing and financing activities:

Tax effect of disqualifying dispositions on
options exercised. . . . . . . . . . . . . . . . $ 287 --

Preferred stock dividends accrued . . . . . . . . . $ 21 --

Contribution of common stock to 401(k) plan . . . . $ 116 $ 81

Assets acquired with capital lease obligations. . . $5,667 --

</TABLE>

Page 7
<PAGE>

NOTE 5. EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income, less preferred
stock dividends, by the weighted average number of common shares outstanding
during the year. Diluted earnings per share is computed by dividing net
income, less preferred stock dividends, by the weighted average number of
common shares and common share equivalents outstanding during the year.
Common share equivalents for the Company include the dilutive effect of
outstanding options, except where their inclusion would be anti-dilutive.

Basic and diluted earnings per share were calculated as follows (amounts in
thousands, except per share data):

TWENTY-SIX WEEKS ENDED THIRTEEN WEEKS ENDED
----------------------- ------------------------
JULY 3, JUNE 30, JULY 3, JUNE 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BASIC:
Net income. . . . . . . . . . . . . . . . . . . $ 3,493 $ 586 $ 3,349 $ 1,378
Less preferred stock dividends. . . . . . . . . (21) (21) (11) (11)
-------- -------- -------- --------
Income allocable to common
shareholders. . . . . . . . . . . . . . . . . . 3,472 565 3,338 1,367
-------- -------- -------- --------
Weighted average shares outstanding . . . . . . 27,727 27,721 27,767 27,617
-------- -------- -------- --------
Net income per share. . . . . . . . . . . . . . $ .13 $ .02 $ .12 $ .05
-------- -------- -------- --------
DILUTED:
Income allocable to common
shareholders. . . . . . . . . . . . . . . . . . $ 3,472 $ 565 $ 3,338 $ 1,367
-------- -------- -------- --------
Weighted average shares outstanding . . . . . . 27,727 27,721 27,767 27,617
Plus options to purchase common stock at
end of period. . . . . . . . . . . . . . . . 2,570 982 2,570 982
Less shares assumed repurchased . . . . . . . . (1,556) (856) (1,352) (891)
-------- -------- -------- --------
Weighted average shares outstanding
including options. . . . . . . . . . . . . . 28,741 27,847 28,985 27,708
-------- -------- -------- --------
Net income per share . . . . . . . . . . . . . $ .12 $ .02 $ .12 $ .05
-------- -------- -------- --------
</TABLE>

All share and per share data for 1998 and 1997 have been restated to reflect
the Company's 3-for-2 stock splits which were effective on June 9, 1998 and
October 24, 1997.

NOTE 6. COMPREHENSIVE INCOME

The Company's comprehensive income is as follows (amounts in thousands):

<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED THIRTEEN WEEKS ENDED
---------------------- --------------------
JULY 3, JUNE 30, JULY 3, JUNE 30,
1998 1997 1998 1997
------ ---- ------ ------
<S> <C> <C> <C> <C>
Net income. . . . . . . . . . . . . . . . . . . . . . . . . $3,493 $586 $3,349 $1,378
Other comprehensive income(expense) net of income taxes:
Foreign currency translation. . . . . . . . . . . . . . . (142) (4) (6) 21
------ ---- ------ ------
Comprehensive income. . . . . . . . . . . . . . . . . . . . $3,351 $582 $3,343 $1,399
------ ---- ------ ------
------ ---- ------ ------
</TABLE>

Page 8

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Certain matters discussed in this Form 10-Q, including statements about the
Company's revenue growth, the demand for temporary labor, its plans for
opening new offices, and its plans for installing new Cash Dispensing
Machines ("CDM") are forward-looking statements within the meaning of the
Private Litigation Reform Act of 1995. As such, these forward-looking
statements may involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of
the Company to be different from any future results, performance or
achievements expressed or implied by such forward-looking statements. These
factors include, but are not limited to (1) the Company's ability to manage
and continue its rapid growth, (2) economic conditions in its key market
areas, and (3) other risks as set forth in Item 7 of the Company's Form 10-K
for the year ended December 31, 1997. Although the Company believes the
expectations reflected in such forward-looking statements are based upon
reasonable assumptions, it can give no assurance that its expectations will
be attained.

OVERVIEW

Labor Ready is the leading, national provider of temporary workers for manual
labor jobs. The Company's customers are primarily in the construction,
freight handling, warehousing, landscaping, light manufacturing, and other
light industrial industries. The Company has rapidly grown from eight
dispatch offices in 1991 to 481 dispatch offices at July 3, 1998.
Substantially all of the growth in dispatch offices was achieved by opening
Company-owned locations rather than through acquisitions or franchising. The
Company's annual revenues have grown from approximately $6 million in 1991 to
$335 million in 1997 and $237 million for the first half of 1998. This
revenue growth has been generated both by opening new dispatch offices in
markets throughout the U.S. and Canada and by continuing to increase sales at
existing dispatch offices.

The Company opened 165 dispatch offices during the first half of 1998 and
expects to open at least 200 additional dispatch offices in 1999. The Company
expects the average cost of opening each new dispatch office in 1999 to be
approximately $50,000. The cost of opening a new dispatch office includes
extensive management training, the installation of sophisticated computer and
other office systems and a CDM. Further, once open, the Company invests
significant amounts of additional cash into the operations of new dispatch
offices until they begin to generate sufficient revenue to cover their
operating costs, generally in two to six months. The Company pays its
temporary workers on a daily basis, and generally bills its customers weekly.
Consequently, the Company experiences significant negative cash flow from
operations and investment activities during periods of high growth. The
Company may continue to experience periods of negative cash flow from
operations and investment activities while it rapidly opens dispatch offices
and may require additional sources of working capital in order to continue to
grow.

Many of the Company's customers are construction and landscaping businesses,
which are significantly affected by the weather. Construction and landscaping
businesses and, to a lesser degree, other customer businesses typically
increase activity in spring, summer and early fall months and decrease
activity in late fall and winter months. Further, inclement weather can slow
construction and landscaping activities in such periods. As a result, the
Company has generally experienced a significant increase in temporary labor
demand in the spring, summer and early fall months, and lower demand in the
late fall and winter months.

Depending upon location, new dispatch offices initially target the
construction industry for potential customers. As dispatch offices mature,
the customer base broadens and the customer mix diversifies. From time to
time during peak periods, the Company experiences shortages of available
temporary workers. By July 3, 1998, the Company completed the installation of
the CDMs in substantially all of its dispatch offices in the United States.
The CDMs provide the Company's temporary workers with the option of receiving
cash payment instead of a payroll check. The Company believes this additional
feature is unique among its direct competitors and should increase the
Company's ability to attract available temporary workers.

Revenue from services includes revenues earned on services provided by the
Company's temporary workers and fees generated by the CDMs.

Cost of services includes the wages and related payroll taxes of temporary
workers, workers' compensation expense, unemployment compensation insurance
and transportation. Cost of services as a percentage of revenues has
historically been affected by numerous factors, including the use of lower
introductory rates to attract new customers at new dispatch offices, the use
of higher pay rates to attract more skilled workers and the changing
geographic mix of new and established, more mature markets. Although the
Company has implemented policies and procedures to prevent unplanned
increases in pay rates, and is

Page 9

<PAGE>

no longer required to discount billing rates to attract new customers,
significant continuing fluctuations in cost of services can be expected as
the Company pursues further aggressive growth.

Selling, general and administrative expenses include the salaries and wages
of the Company's operations and administrative personnel, dispatch office
operating expenses, corporate office operating expenses and the cost of the
CDM program.

Temporary workers assigned to customers remain Labor Ready employees. Labor
Ready is responsible for the employee-related expenses of its temporary
workers, including workers' compensation coverage, unemployment compensation
insurance, and Medicare and Social Security taxes. The Company does not
provide health, dental, disability or life insurance to its temporary
workers. Generally, the Company bills its customers for the hours worked by
its temporary workers assigned to the customer. Because the Company pays its
temporary workers only for the hours actually worked, wages for the Company's
temporary workers are a variable cost that increases or decreases directly in
proportion to revenue. The Company has one franchisee which operates five
dispatch offices. The Company does not intend to grant additional franchises.
Royalty revenues from the franchised dispatch offices are not material during
any period presented herein.

RESULTS OF OPERATIONS

The following table compares the operating results of the Company for the
twenty-six and thirteen weeks ended July 3, 1998 and June 30, 1997 (amounts
in thousands):

TWENTY-SIX WEEKS ENDED THIRTEEN WEEKS ENDED
------------------------------ ------------------------------
JULY 3, PERCENT JUNE 30, JULY 3, PERCENT JUNE 30,
1998 CHANGE 1997 1998 CHANGE 1997
-------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues from services . . . . . . . . . . . . . . . . . $237,028 83.3 $129,334 $142,997 84.2 $77,620
Cost of services . . . . . . . . . . . . . . . . . . . . 166,284 84.4 90,169 100,588 88.9 53,247
-------- ----- -------- -------- ------ -------
Gross profit. . . . . . . . . . . . . . . . . . . . . . . 70,744 80.6 39,165 42,409 74.0 24,373
Selling, general and administrative expenses . . . . . . 61,824 70.2 36,328 34,910 66.9 20,911
Depreciation and amortization . . . . . . . . . . . . . . 3,103 49.0 2,083 1,723 49.3 1,154
-------- ----- -------- -------- ------ -------
Income from operations. . . . . . . . . . . . . . . . . . 5,817 671.5 754 5,776 150.3 2,308
Interest income (expense), net . . . . . . . . . . . . . 112 (59.7) 278 (96) (218.5) 81
-------- ----- -------- -------- ------ -------
Income before taxes on income . . . . . . . . . . . . . . 5,929 474.5 1,032 5,680 137.8 2,389
Taxes on income . . . . . . . . . . . . . . . . . . . . . 2,436 446.2 446 2,331 130.6 1,011
-------- ----- -------- -------- ------ -------
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 3,493 496.1 $ 586 $ 3,349 143.0 $ 1,378
-------- ----- -------- -------- ------ -------
-------- ----- -------- -------- ------ -------
</TABLE>

THIRTEEN WEEKS ENDED JULY 3, 1998 COMPARED TO THIRTEEN WEEKS ENDED JUNE 30, 1997
DISPATCH OFFICES
The number of offices grew to 481 at July 3, 1998 from 420 locations at
April 3, 1998, a net increase of 61 dispatch offices, or 14.5%. During the
thirteen weeks ended June 30, 1997, the number of offices grew to 300 from
256 locations at March 31, 1997, a net increase of 44 dispatch offices, or
17.2%. The Company has met its target for 1998 dispatch office openings
and does not expect to open any material number of offices during the
balance of 1998. The Company estimates that its aggregate costs of opening
61 new dispatch offices in the second quarter of 1998 were approximately
$3.0 million, an average of approximately $50,000 per dispatch office,
compared to aggregate costs of approximately $1.4 million, an average of
approximately $33,000 per dispatch office, to open 44 new stores in the
second quarter of 1997. The increase in per-store costs in 1998 was
primarily the result of the addition of a CDM to each dispatch office.
Approximately $.6 million of second quarter 1998 costs includes dispatch
office pre-opening costs such as salaries, recruiting, testing, training,
lease and other related costs, which are capitalized and amortized using
the straight-line method over two years. The remaining approximately $2.4
million includes computer systems and other equipment related costs, CDMs,
and leasehold improvements.

REVENUES FROM SERVICES
The Company's revenues from services increased to $143.0 million for the
thirteen weeks ended July 3, 1998, as compared to $77.6 million for the
thirteen weeks ended June 30, 1998, an increase of $65.4 million or 84.3%.
The increase in revenues is due primarily to the increase in the number of
dispatch offices and continued increases in revenues from mature dispatch
offices. Additionally, the Company opened more stores in the first quarter
of 1998 than in the same period in 1997, and the Company's management has
become more skilled and efficient at opening stores. Finally, the Company
continues to consolidate its position in the marketplace and build brand
awareness, eliminating the need to discount billing rates to attract new
customers at new dispatch offices. Included in revenues from services for
the thirteen weeks ended July 3, 1998 and June 30, 1997 are CDM fees of $.9
million and $0, respectively.

Page 10

<PAGE>

COST OF SERVICES
Cost of services increased to $100.6 million for the thirteen weeks ended
July 3, 1998 as compared to $53.2 million for the thirteen weeks ended June
30, 1997, an increase of $47.4 million or 89.1%. This increase is directly
related to the corresponding increase in revenues during the period. Cost
of services was 70.3% of revenue in the second quarter of 1998 compared to
68.6% of revenue in the second quarter of 1997. Cost of services as a
percentage of revenues increased 1.7% as compared to the second quarter of
1997 primarily because newly trained managers believed they would attract
more skilled workers if they offered a slightly higher pay rate and the
changing geographic mix of new and established, more mature markets.
Although the Company has implemented new policies and procedures to prevent
unplanned increases in pay rates, significant continuing fluctuations in
cost of services can be expected as the Company pursues further aggressive
growth.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $34.9 million in the
second quarter of 1998 as compared to $20.9 million in the second quarter
of 1997, an increase of $14.0 million or 67.0%. The increase was largely
due to the 84.3% increase in revenue from 1997 to 1998. Selling, general
and administrative expenses were 24.4% of revenues in the second quarter of
1998 as compared to 26.9% of revenues in the second quarter of 1997. The
decrease in selling, general and administrative expenses as a percentage of
revenue in the second quarter of 1998 is due mainly to economies of scale
on fixed and semi-fixed dispatch office operating and corporate
administrative costs. Included in selling, general and administrative
expense for the thirteen weeks ended July 3, 1998 and June 30, 1997 are CDM
related expenses of $.4 million and $0, respectively.

The Company expects that selling, general and administrative expenses as a
percentage of revenues may fluctuate in future periods as the Company from
time to time upgrades its operating and administrative capabilities to
accommodate anticipated revenue and dispatch office growth.

DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense was $1.7 million in the second
quarter of 1998 and $1.2 million in the second quarter of 1997, an increase
of $0.5 million or 41.7%. The increase in depreciation and amortization
expense is primarily the result of amortization of dispatch office
pre-opening costs as the Company continued its rapid expansion by adding 116
stores in 1997 and 165 stores during the twenty-six weeks ended July 3,
1998. Additionally, the Company added approximately $4.0 million in
property and equipment during 1997 and $9.7 million in the first half of
1998. These additions primarily include the CDMs and computer equipment,
software, and other equipment needed for the new stores opened during the
period. Included in depreciation and amortization expense for the thirteen
weeks ended July 3, 1998 and June 30, 1997 are depreciation on CDMs of $.2
million and $0, respectively.

In March 1998, the Accounting Standards Executive Committee (the "AcSEC")
issued Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities" ("the Statement"). The Statement establishes new rules for the
financial reporting of start-up costs, and will require the Company to
expense the cost of establishing new dispatch offices as incurred and write
off, as a cumulative effect of adopting the Statement, any capitalized
pre-opening costs in the first quarter of the year adopted. The Statement is
effective for years beginning after December 31, 1998 and the Company will
adopt it in the first quarter of 1999. The effect of adopting the
Statement will be to recognize a non-operating expense, net of tax, of
approximately $1.5 million, plus any additional pre-opening costs
capitalized during the next two quarters ended December 31, 1998, net of
amortization expense recognized during the period.

INTEREST INCOME (EXPENSE), NET
The Company recorded net interest expense of $96,000 in the second quarter
of 1998 as compared to interest income of $81,000 in the second quarter of
1997. The increase in interest expense was the result of lower invested
cash balances in the second quarter of 1998 as compared to the second
quarter of 1997. The decrease in invested cash balances is primarily the
result of implementation of the CDM program and the use of cash to fund the
Company's 84.3% growth in sales. Additionally, because the Company has
recorded the acquisition of the CDMs as a capital lease, during the second
quarter of 1998, the Company recorded interest expense of $85,044 as
compared to none in the second quarter of 1997.

The Company expects to incur interest expense in the third quarter of 1998
as the cash demands of the Company's busiest time of year will require
borrowing on the Company's revolving line of credit. Additionally, cash
balances of approximately $14 million at July 3, 1998, held in the CDMs for
payment of temporary worker payrolls, will continue to reduce cash
available for investing.

Page 11

<PAGE>

TAXES ON INCOME
Taxes on income increased to a provision of $2.3 million in the second
quarter of 1998 from a provision of $1.0 million in the second quarter of
1997, an increase of $1.3 million or 130.0%. The increase in taxes was due
to the increase in pretax income to $5.7 million in the second quarter of
1998 from pretax income of $2.4 million in the second quarter of 1997. The
Company's effective tax rate was 41.0% in the second quarter of 1998 as
compared to 42.3% in the second quarter of 1997. The decrease in the
effective rate was primarily due to changes in estimated prior period
amounts in the 1997 tax provision. The principal difference between the
statutory federal income tax rate and the Company's effective income tax
rate result from state income taxes and certain non-deductible expenses.

The Company had a net deferred tax asset of approximately $4.3 million at
July 3, 1998, resulting primarily from workers' compensation claims
reserves. The Company has not established a valuation allowance against
this net deferred tax asset as management believes that it is more likely
than not that the tax benefits will be realized in the future based on the
historical levels of pre-tax income and expected future taxable income.

NET INCOME
The Company reported net income of $3.3 million for the thirteen weeks
ended July 3, 1998, as compared to net income of $1.4 million, for the
thirteen weeks ended June 30, 1997, an increase of $1.9 million or 135.7%.
As a percentage of revenues from services, net income increased to 2.3% for
the second quarter of 1998, which compares to 1.8%, for the second quarter
of 1997, an increase of .5%. This increase in net income is primarily the
result of increased revenues and economies of scale realized on selling,
general and administrative expenses, offset by a decrease in the Company's
gross margin as a percentage of sales in the second quarter of 1998.

TWENTY-SIX WEEKS ENDED JULY 3, 1998 COMPARED TO TWENTY-SIX WEEKS ENDED JUNE 30,
1997

DISPATCH OFFICES
The Company opened 165 dispatch offices during the twenty-six weeks ended
July 3, 1998 as compared to 105 dispatch offices opened during the same
period of the prior year. The total number of dispatch offices grew from
305 at June 30, 1997 to 481 at July 3, 1998, an increase of 57.7%. The
Company has met its target for 1998 dispatch office openings and does not
expect to open any material number of offices during the balance of 1998.
The Company estimates that its aggregate costs of opening 165 new dispatch
offices in the first half of 1998 was approximately $8.3 million, an
average of approximately $50,000 per dispatch office, compared to aggregate
costs of approximately $3.5 million, an average of approximately $33,000
per dispatch office, to open 105 new stores in the first half of 1997. The
increase in per-store costs in 1998 was primarily the result of the
addition of a CDM to each dispatch office. Approximately $2.1 million of
1998 costs includes dispatch office pre-opening costs such as salaries,
recruiting, testing, training, lease and other related costs, which are
capitalized and amortized using the straight-line method over two years.
The remaining approximately $6.2 million includes computer systems and
other equipment related costs, CDMs, and leasehold improvements.

REVENUES FROM SERVICES
The Company's revenues from services increased to $237.0 million for the
twenty-six weeks ended July 3, 1998, as compared to $129.3 million for the
twenty-six weeks ended June 30, 1998, an increase of $107.7 million or
83.3%. The increase in revenues is due primarily to the increase in the
number of dispatch offices and continued increases in revenues from mature
dispatch offices. Additionally, the Company opened more stores in the
first quarter of 1998 than in the same period in 1997, and the Company's
management has become more skilled and efficient at opening stores.
Finally, the Company continues to consolidate its position in the
marketplace and build brand awareness, eliminating the need to discount
billing rates to attract new customers at new dispatch offices. Included
in revenues from services for the twenty-six weeks ended July 3, 1998 and
June 30, 1997 are CDM fees of $1.1 million and $0, respectively.

COST OF SERVICES
Cost of services increased to $166.3 million for the twenty-six weeks ended
July 3, 1998 as compared to $90.2 million for the twenty-six weeks ended
June 30, 1997, an increase of $76.1 million or 84.4%. This increase is
directly related to the corresponding increase in revenues during the
period. Cost of services was 70.2% of revenue in the first half of 1998
compared to 69.7% of revenue in the first half of 1997. Cost of services
as a percentage of revenues increased .5% as compared to the first half of
1997 primarily because newly trained managers believed they would attract
more skilled workers if they offered a slightly higher pay rate and the
changing geographic mix of new and established, more mature markets.
Although the Company has implemented new policies and procedures to prevent
unplanned increases in pay rates, significant continuing fluctuations in
cost of services can be expected as the Company pursues further aggressive
growth.

Page 12

<PAGE>

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses were $61.8 million in the
first half of 1998 as compared to $36.3 million in the first half of 1997,
an increase of $25.5 million or 70.2%. The increase was largely due to the
83.3% increase in revenue from 1997 to 1998. Selling, general and
administrative expenses were 26.1% of revenues in the second half of 1998
as compared to 28.1% of revenues in the second half of 1997. The decrease
in selling, general and administrative expenses as a percentage of revenue
in the second half of 1998, is due mainly to economies of scale on fixed
and semi-fixed dispatch office operating and corporate administrative
costs. Included in selling, general and administrative expense for the
twenty-six weeks ended July 3, 1998 and June 30, 1997 are CDM related
expenses of $.5 million and $0, respectively.

DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense was $3.1 million in the second half
of 1998 and $2.1 million in the second half of 1997, an increase of $1.0
million or 47.6%. The increase in depreciation and amortization expense is
primarily the result of amortization of dispatch office pre-opening costs
as the Company continued its rapid expansion by adding 116 stores in 1997
and 165 stores during the twenty-six weeks ended July 3, 1998.
Additionally, the Company added approximately $4.0 million in property and
equipment during 1997 and $9.7 million in the first half of 1998. These
additions primarily include the CDMs and computer equipment, software, and
other equipment needed for the new stores opened during the period.
Included in depreciation and amortization expense for the twenty-six weeks
ended July 3, 1998 and June 30, 1997 are depreciation on CDMs of $.3
million and $0, respectively.

INTEREST INCOME (EXPENSE), NET
The Company recorded net interest income of $.1 million in the first half
of 1998 as compared to interest income of $.3 million in the first half of
1997, a decrease of .2 million or 66.7%. The decrease in interest income
was the result of lower invested cash balances in the first half of 1998 as
compared to the first half of 1997. The decrease in invested cash balances
is primarily the result of implementation of the CDM program and the use of
cash to fund the Company's 83.3% growth in sales. Additionally, because
the Company has recorded the acquisition of the CDMs as a capital lease,
during the second half of 1998, the Company recorded in interest expense of
$.2 million as compared to none in the second half of 1997.

The Company expects to incur interest expense in the third quarter of 1998
as the cash demands of the Company's busiest time of year will require
continued borrowing on the Company's revolving line of credit.
Additionally, cash balances of approximately $14 million at July 3, 1998,
held in the CDMs for payment of temporary worker payrolls, will continue to
reduce cash available for investing.

TAXES ON INCOME
Taxes on income increased to a provision of $2.4 million in the first half
of 1998 from a provision of $.4 million in the first half of 1997, an
increase of $2.0 million or 500.0%. The increase in taxes was due to the
increase in pretax income to $5.9 million in the first half of 1998 from
pretax income of $1.0 million in the first half of 1997. The Company's
effective tax rate was 41.1% in the first half of 1998 as compared to 43.2%
in the first half of 1997. The decrease in the effective rate was
primarily due to changes in estimated prior period amounts in the 1997 tax
provision. The principal difference between the statutory federal income
tax rate and the Company's effective income tax rate result from state
income taxes and certain non-deductible expenses.

NET INCOME
The Company reported net income of $3.5 million for the twenty-six weeks
ended July 3, 1998, as compared to net income of $.6 million, for the
twenty-six weeks ended June 30, 1997, an increase of $2.9 million or
483.3%. As a percentage of revenues from services, net income increased to
1.5% for the first half of 1998, which compares to 0.4%, for the first half
of 1997, an increase of 1.1%. This increase in net income is primarily the
result of increased revenues and economies of scale realized on selling
general and administrative expenses, offset by a decrease in the Company's
gross margin as a percentage of sales in the second half of 1998.

Page 13

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $9.9 million in the first half of
1998 compared to $5.1 million in the first half of 1997. The increase in
cash used in operations in 1998 is largely due to the increase in accounts
receivable as compared to the same period in 1997. Additionally, the net
change in workers' compensation deposits and credits, prepaid expenses and
income taxes payable was greater than in the first half of 1997. These
changes were offset by an increase in net income in 1998, and increases in
the deferred income tax asset and workers' compensation claims reserve.

The Company used net cash in investing activities of $5.8 million in first
half of 1998, compared to $6.3 million in the first half of 1997. The
decrease in cash used in investing activities in 1998 as compared to 1997
is due primarily to the replacement of restricted cash held by the
Company's captive insurance subsidiary with letters of credit in December
1997, eliminating the need to invest additional cash as capital in the
captive. The Company's capital expenditures includes dispatch office
pre-opening costs, and property and equipment acquired other than through
capital lease. Capital expenditures in the first half of 1998 increased
by .2 million over the first half of 1997. This increase does not include
the lease-purchase of the CDMs which are accounted for as a non-cash
transaction.

Net cash provided by (used in) financing activities was $8.9 million in the
first half of 1998 and $(2.0) million in the first half 1997. The increase
in cash provided by financing activities in 1998 as compared to 1997 is due
mainly to the Company's net borrowings on the line of credit and an
increase in checks issued against future deposits. In the first half of
1997, the Company used cash of $1.1 million to repurchase shares of its
common stock on the open market and recorded a decrease in checks issued
against future deposits of $1.0 million.

In June 1998, the Company entered into a new line of credit agreement with
U.S. Bank. The new agreement allows the company to borrow up to the lesser
of $40 million or 80% of eligible accounts receivable, as defined by the
bank, with interest at the lesser of the bank's prime rate (8.5% at July 3,
1998) or the London Inter-Bank Offering Rate (LIBOR) plus 1.44%. The line
of credit is secured primarily by the Company's accounts receivable and is
due in full on June 30, 2000. The line of credit agreement requires that
the Company maintain certain minimum net worth and working capital amounts
and ratios. The Company was in compliance with the requirements at July 3,
1998.

As discussed further in Note 2 to the consolidated financial statements, in
1997 the Company replaced the cash deposits required by its workers'
compensation program with irrevocable letters of credit totaling $15.9
million. During the first half of 1998, the Company increased the letters
of credit to $21.7 million. The letters of credit bear annual fees of .75%
and are supported by an equal amount of available borrowings on the
line-of-credit. Accordingly, at July 3, 1998, borrowings of $2.2 million
were outstanding on the line of credit, $21.7 million was committed by the
letters of credit and $16.1 million was available for borrowing. During
the third quarter of 1998, the Company expects to obtain a surety bond in
an amount not to exceed 50% of its estimated unpaid estimated reserve for
workers compensation claims. The bond will bear fees of .5% per year and
may be renewed annually. The remaining portion of the Company's estimated
unpaid workers' compensation claims reserve will continue to be
collateralized with letters of credit, however with the surety bond, the
company expects to reduce its need for letters of credit through the end of
1998 by approximately $10.0 million.

In December 1997, the Company entered into an agreement to lease 450
automated CDMs for installation in all of the Company's dispatch offices.
The fair market value of the CDMs at inception of the lease is
approximately $6.2 million. The lease is payable over 84 months with an
imputed interest rate of 9.0% and is secured by the CDMs. During the
twenty-six weeks ended July 3, 1998, the Company installed 408 CDMs in its
dispatch offices throughout the United States. Accordingly, the Company
recorded assets under capital lease and capital lease obligations totaling
$5.7 million with future minimum lease payments over the next 5 years of
approximately $1.1 million per year. The Company anticipates installing
CDMs at all of its remaining dispatch offices in the United States during
1998 and in all new offices opened in the United States during 1999.

Included in cash and cash equivalents at July 3, 1998, is approximately
$14.0 million of cash which is located in the CDMs for payment of temporary
worker payrolls. The Company anticipates further increases in cash held in
the CDMs as it enters the busiest time of its year and completes the
installation of CDMs at all of its dispatch offices in the United States.

Historically, the Company has financed its operations through cash
generated by external financing including term loans, lines-of-credit and a
common stock offering completed in 1996. The principal use of cash is to
finance the growth in receivables, fund the cost of opening new dispatch
offices and to fund the initial deposit of cash into newly installed CDMs.
The Company may experience cash flow deficits from operations and investing
activities while the Company expands its operations, including the
acceleration of opening new dispatch offices. Management expects cash flow
deficits to be financed by profitable operations, the use of the Company's
line of credit, and may consider other equity or debt financings as
necessary. The Company analyzes acquisition opportunities from time to
time and may pursue acquisitions in certain circumstances. Any
acquisitions the Company enters into may require additional equity or debt
financing.

Page 14

<PAGE>

INFORMATION PROCESSING SYSTEMS AND THE YEAR 2000
As the year 2000 approaches, there are uncertainties concerning whether
computer systems will properly recognize date-sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or fail. Management believes
that the year 2000 does not pose a significant operational problem for the
Company's computer systems. The Company has completed its assessment of
its significant systems and believes them to be year 2000 compliant.
Management has not completed its assessment of the systems of third parties
with which it deals. While it is not possible at this time to assess the
effect of a third party's inability to adequately address year 2000 issues,
management does not believe the potential problems associated with year
2000 will have a material effect on its financial condition or results of
operations.

PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 7, 1998, at the Company's Special Meeting of Shareholders ("the Special
Meeting"), the shareholders of the Company voted to: (1) amend the Company's
Articles of Incorporation to authorize the issuance of up to 100,000,000 shares
of common stock and 20,000,000 shares of preferred stock, (2) approve an
increase of 1,400,000 shares available for grant under the Company's 1996
Employee Stock Option and Incentive Plan, and (3) approve an increase of 600,000
shares available for grant under the Company's 1996 Employee Stock Purchase
Plan. The results of the proposals voted upon at the Special Meeting are as
follows (vote totals have not been adjusted for the Company's 3 for 2 stock
split, effective June 9, 1998):

FOR AGAINST ABSTAIN
---------- --------- -------
<S> <C> <C> <C>
Proposal (1) 11,245,455 2,761,455 114,712

Proposal (2) 13,192,808 853,863 74,951

Proposal (3) 13,313,196 710,146 98,280

</TABLE>

On August 5, 1998, at the Company's Annual Meeting of Shareholders ("the Annual
Meeting") the shareholders of the Company voted to: (1) elect 6 directors, and
(2) to appoint Arthur Andersen LLP as the Company's independent accountants for
the year ended December 31, 1998. The results of the proposals voted upon at
the Annual Meeting are as follows:

FOR AGAINST WITHHELD ABSTAIN
---------- ------- -------- -------
<S> <C> <C> <C> <C>
1. a) Election of
Glenn A. Welstad 26,714,346 -- 399,490 --

b) Election of
Robert J. Sullivan 26,714,958 -- 398,878 --

c) Election of
Thomas E. McChesney 26,742,001 -- 371,835 --

d) Election of
Ralph E. Peterson 26,702,295 -- 411,241 --

e) Election of
Ronald J. Junck 26,718,726 -- 395,110 --

f) Election of
Richard W. Gasten 26,716,870 -- 396,966 --

2. Ratification of Arthur Andersen LLP
as the Company's independent
auditors and accountants 27,033,663 28,309 -- 51,864

</TABLE>

Page 15

<PAGE>

PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS:
The following exhibits are being filed as a part of this report:

EXHIBIT NO. DESCRIPTION
10.10 Business Loan Agreement between Labor Ready, Inc. and
U.S. Bank of Washington, N.A., dated June 18, 1998

27 Financial Data Schedules as of July 3, 1998 and June
30, 1997 and for each of the twenty-six week periods
then ended.

(b) REPORTS ON FORM 8-K
None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

REGISTRANT: LABOR READY, INC.

<S> <C> <C>
By: /s/ Glenn A. Welstad August 12, 1998
-------------------------------------- ---------------
Glenn A. Welstad Date
Chairman of the Board, Chief Executive
Officer and President

By: /s/ Joseph P. Sambataro, Jr. August 12, 1998
-------------------------------------- ---------------
Joseph P. Sambataro, Jr. Date
Executive Vice President,
Chief Financial Officer, Treasurer
and Assistant Secretary

</TABLE>

Page 16

<PAGE>
ADDENDUM TO LOAN AGREEMENT

This Addendum to Loan Agreement supplements the Loan Agreement dated as of
June 18, 1998, by and between LABOR READY, INC., as Borrower, and U.S. BANK
NATIONAL ASSOCIATION, as Lender, to amend and add the following provisions:

1. ACCOMMODATIONS.

(a) Lender may, in its sole discretion, issue or cause to be issued,
from time to time, at Borrower's request and on terms and conditions and
for purposes satisfactory to Lender, credit accommodations consisting of
letters of credit, merchandise purchase guaranties or other guaranties
or indemnities for Borrower's account ("Accommodations"). Borrower shall
execute and perform additional agreements relating to the Accommodations
in form and substance acceptable to Lender and the issuer of any
Accommodations, all of which shall supplement the rights and remedies
granted herein. Any payments made by Lender or any affiliate of Lender
in connection with the Accommodations shall constitute additional
Advances to Borrower.

(b) In addition to the fees and costs of any issuer in connection
with issuing or administering Accommodations, Borrower shall pay to the
Lender, in advance, a charge on open Accommodations at the rate of .75%
per annum (the "Accommodation Charges"). Accommodation Charges shall be
due and payable on the date of issuance of any Accommodation and on the
first day of each calendar quarter thereafter.

(c) No Accommodation will be issued if the Accommodation as
requested, plus fees and costs for issuance, would cause the outstanding
Indebtedness to exceed the Borrowing Base.

(d) All indebtedness, liabilities and obligations of any sort
whatsoever, however arising, whether present or future, fixed or
contingent, secured or unsecured, due or to become due, paid or
incurred, arising or incurred in connection with any Accommodation shall
be included in the term "Indebtedness," as defined herein, and shall
include, without limitation, (i) all amounts due or which may become due
under any Accommodation; (ii) all amounts charged or chargeable to
Borrower or to Lender by any bank, other financial institution or
correspondent bank which opens, issues or is involved with such

- 1 -
<PAGE>

Accommodations; (iii) Lender's Accommodation Charges and all fees, costs
and other charges of any issuer of any Accommodation; and (iv) all
duties, freight, taxes, costs, insurance and all such other charges and
expenses which may pertain directly or indirectly to any Indebtedness or
Accommodations are to the goods or documents relating thereto.

(e) Borrower unconditionally agrees to indemnify and hold Lender
harmless from any and all loss, claim or liability (including reasonable
attorneys' fees) arising from any transactions or occurrences relating
to any Accommodations established or opened for Borrower's account, the
Collateral relating thereto and any drafts or acceptances thereunder,
including any such loss or claim due to any action taken by an issuer of
any Accommodation. Borrower further agrees to indemnify and hold Lender
harmless for any errors or omissions in connection with the
Accommodations, whether caused by Lender, by the issuer of any
Accommodation or otherwise. Borrower's unconditional obligation to
indemnify and hold Lender harmless under this provision shall not be
modified or diminished for any reason or in any manner whatsoever,
except for Lender's willful misconduct. Borrower agrees that any charges
made to Lender by any issuer of any Accommodation shall be conclusive on
borrower and may be charged to Borrower's account.

(f) Lender shall not be responsible for: the conformity of any goods
to the documents presented; the validity or genuineness of any
documents; delay, default, or fraud by the Borrower or shipper and/or
anyone else in connection with the Accommodations or any underlying
transaction.

(g) Borrower agrees that with respect to any action taken by Lender,
if taken in good faith, or any action taken by an issuer of any
Accommodation, under or in connection with any Lender in furtherance
thereof, Lender shall have the full right and authority to clear and
resolve any questions of non-compliance of documents; to give any
instructions as to acceptance or rejection of any documents or goods; to
execute for Borrower's account any and all applications for steamship or
airway guarantees, indemnities or delivery orders; to grant any
extensions of the maturity of time of payment for, or time of
presentation of, any drafts, acceptances or documents; and to agree to
any amendments, renewals, extensions, modifications, changes or
cancellations of any of the terms or conditions of any of the
applications or Accommodations. All of the foregoing actions may

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<PAGE>

be taken in Lender's sole name, and the issuer thereof shall be entitled
to comply with and honor any and all such documents or instruments
executed by or received solely from Lender, all without any notice to or
any consent from Borrower. None of the foregoing actions described in
this subsection (g) may be taken by Borrower without Lender's express
written consent.

2. LINE OF CREDIT. The first sentence of the section entitled "LINE OF
CREDIT" is hereby amended to read as follows:

LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to
time from the date of this Agreement to the Expiration Date, provided
that the aggregate amount of outstanding Indebtedness at any one time
does not exceed the Borrowing Base.

3. RESERVES. Lender shall have a continuing right to deduct reserves in
determining the Borrowing Base ("Reserves") and to increase and decrease
such Reserves from time to time, if and to the extent that, in Lender's
reasonable credit judgment, such Reserves are necessary to protect
Lender against any state of facts which does, or would, with notice or
passage of time or both, constitute an Event of Default or have an
adverse effect on any Collateral. Lender may, at its option, implement
Reserves by designating as ineligible a sufficient amount of Accounts
which would otherwise be Eligible Accounts so as to reduce the Borrowing
Base by the amount of the intended Reserve.

4. ACQUISITIONS SUB-LIMIT. Notwithstanding anything to the contrary in
the Agreement, Borrower may use up to $7,500,000.00 of Advances to
acquire other enterprises or companies engaged in the same type of
business as the Borrower without first obtaining Lender's prior
approval.

5. UNUSED LINE FEE. Borrower shall pay Lender quarterly, on the first
day of each quarter, in arrears, an Unused Line Fee of .125% for each
quarter, calculated upon the amount, if any, by which the $40,000,000.00
exceeds the average daily balance outstanding on the Indebtedness during
the preceding quarter.

6. SEC FILINGS. Borrower covenants and agrees to furnish the Lender
with, as soon as available but in no event later than one hundred twenty
(120) days after the end of each fiscal year, a copy of Borrower's 10K
report as filed with the Security and

-3-

<PAGE>

Exchange Commission and, as soon as possible but in no event later than
forty-five (45) days after the end of each fiscal quarter, a copy of
Borrower's 10Q report as filed with the Security and Exchange
Commission.

7. ARBITRATION PROCEDURE AND VENUE. If either party makes a demand for
arbitration as provided herein and each party's claim is less than
$100,000, one neutral arbitrator will decide all issues. If a party's
claim is $100,000 or more, then in such case, the parties will each
select an arbitrator who will then select a third arbitrator. All
arbitration hearings will be held in Seattle, Washington.

8. ADDITIONAL DOCUMENTS. Borrower agrees to execute a new Loan Agreement
which incorporates the terms of this Addendum to Loan Agreement, and
such other provisions as Lender might reasonably require into a single
document.

The terms of this Addendum are hereby incorporated into the Loan Agreement,
which Loan Agreement, as supplemented hereby, is hereby confirmed by the parties
in all respects.

-----------------------------------------------------------------------
NOTICE REGARDING ORAL AGREEMENTS. ORAL AGREEMENTS OR ORAL COMMITMENTS TO
LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A
DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
-----------------------------------------------------------------------

Borrower acknowledges having read all the provisions of the Loan Agreement
and this Addendum, and Borrower agrees to their terms.

DATED as of the day and year first above written.

BORROWER: LENDER:

LABOR READY, INC. U.S. BANK NATIONAL ASSOCIATION

By: /s/ Joseph P. Sambataro By: /s/ Bruce H. Marley
------------------------------- --------------------------------
Title: CFO/EVP Authorized Officer
-------------------------

- 4 -
<PAGE>

[LOGO]
LOAN AGREEMENT
<TABLE>
<CAPTION>

- ----------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$40,000,000.00 06-18-1998 06-30-2000 397-83 365 4919402202 55640
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
- -------------------------------------------------------------------------------
BORROWER: LABOR READY, INC. LENDER: U.S. BANK NATIONAL ASSOCIATION
1016 SOUTH 28TH STREET TACOMA CORPORATE BKG.
TACOMA, WA 98409 1145 BROADWAY
SUITE 1100
TACOMA, WA 98402

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THIS LOAN AGREEMENT BETWEEN LABOR READY, INC. ("BORROWER") AND U.S. BANK
NATIONAL ASSOCIATION ("LENDER") IS MADE AND EXECUTED ON THE FOLLOWING TERMS AND
CONDITIONS. BORROWER HAS RECEIVED PRIOR COMMERCIAL LOANS FROM LENDER OR HAS
APPLIED TO LENDER FOR A COMMERCIAL LOAN OR LOANS AND OTHER FINANCIAL
ACCOMMODATIONS, INCLUDING THOSE WHICH MAY BE DESCRIBED ON ANY EXHIBIT OR
SCHEDULE ATTACHED TO THIS AGREEMENT. ALL SUCH LOANS AND FINANCIAL
ACCOMMODATIONS, TOGETHER WITH ALL FUTURE LOANS AND FINANCIAL ACCOMMODATIONS FROM
LENDER TO BORROWER, ARE REFERRED TO IN THIS AGREEMENT INDIVIDUALLY AS THE "LOAN"
AND COLLECTIVELY AS THE "LOANS." BORROWER UNDERSTANDS AND AGREES THAT: (a) IN
GRANTING, RENEWING, OR EXTENDING ANY LOAN, LENDER IS RELYING UPON BORROWER'S
REPRESENTATIONS, WARRANTIES, AND AGREEMENTS, AS SET FORTH IN THIS AGREEMENT; (b)
THE GRANTING, RENEWING, OR EXTENDING OF ANY LOAN BY LENDER AT ALL TIMES SHALL BE
SUBJECT TO LENDER'S SOLE JUDGMENT AND DISCRETION; AND (c) ALL SUCH LOANS SHALL
BE AND SHALL REMAIN SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS OF THIS
AGREEMENT.

TERM. This Agreement shall be effective as of June 18, 1998, and shall continue
thereafter until all Indebtedness of Borrower to Lender has been performed in
full and the parties terminate this Agreement in writing.

DEFINITIONS. The following words shall have the following meanings when used in
this Agreement. Terms not otherwise defined in this Agreement shall have the
meanings attributed to such terms in the Uniform Commercial Code. All references
to dollar amounts shall mean amounts in lawful money of the United States of
America.

AGREEMENT. The word "Agreement" means this Loan Agreement, as this Loan
Agreement may be amended or modified from time to time, together with all
exhibits and schedules attached to this Loan Agreement from time to time.

ACCOUNT. The word "Account" means a trade account, account receivable, or
other right to payment for goods sold or services rendered owing to
Borrower (or to a third party grantor acceptable to Lender).

ACCOUNT DEBTOR. The words "Account Debtor" mean the person or entity
obligated upon an Account.

ADVANCE. The word "Advance" means a disbursement of Loan funds under this
Agreement.

BORROWER. The word "Borrower" means LABOR READY, INC. The word "Borrower"
also includes, as applicable, all subsidiaries and affiliates of Borrower
as provided below in the paragraph titled "Subsidiaries and Affiliates."

BORROWING BASE. The words "Borrowing Base" mean, as determined by Lender
from time to time, the lesser of (a) $40,000,000.00; or (b) 80.000% of the
aggregate amount of Eligible Accounts.

BUSINESS DAY. The words "Business Day" mean a day on which commercial banks
are open for business in the State of Washington.

CERCLA. The word "CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.

CASH FLOW. The words "Cash Flow" mean net income after taxes, and exclusive
of extraordinary gains and income, plus depreciation and amortization.

COLLATERAL. The word "Collateral" means and includes without limitation all
property and assets granted as collateral security for a Loan, whether real
or personal property, whether granted directly or indirectly, whether
granted now or in the future, and whether granted in the form of a security
interest, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien, charge, lien or title retention contract, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise. The
word "Collateral" includes without limitation all collateral described
below in the section titled "COLLATERAL."

DEBT. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.

ELIGIBLE ACCOUNTS. The words "Eligible Accounts" mean, at any time, all of
Borrower's Accounts which contain selling terms and conditions acceptable
to Lender. The net amount of any Eligible Account against which Borrower
may borrow shall exclude all returns, discounts, credits, and offsets of
any nature. Unless otherwise agreed to by Lender in writing, Eligible
Accounts do not include:

(a) Accounts with respect to which the Account Debtor is an
officer, an employee or agent of Borrower.

(b) Accounts with respect to which the Account Debtor is a
subsidiary of, or affiliated with or related to Borrower or its
shareholders, officers, or directors.

(c) Accounts with respect to which goods are placed on consignment,
guaranteed sale, or other terms by reason of which the payment by
the Account Debtor may be conditional.

(d) Accounts with respect to which Borrower is or may become liable
to the Account Debtor for goods sold or services rendered by the
Account Debtor to Borrower.

(e) Accounts which are subject to dispute, counterclaim, or setoff.

(f) Accounts with respect to which the goods have not been shipped
or delivered, or the services have not been rendered, to the
Account Debtor.

(g) Accounts with respect to which Lender, in its sole discretion,
deems the creditworthiness or financial condition of the Account
Debtor to be unsatisfactory.

(h) Accounts of any Account Debtor who has filed or has had filed
against it a petition in bankruptcy or an application for relief
under any provision of any state or federal bankruptcy, insolvency,
or debtor-in-relief acts; or who has had appointed a trustee,
custodian, or receiver for the assets of such Account Debtor; or
who has made an assignment for the benefit of creditors or has
become insolvent or fails generally to pay its debts (including its
payrolls) as such debts become due.

(i) Accounts which have not been paid in full within sixty (60)
days from the invoice date.

(j) Datings; Progress Billings; Retainages; Cash Sales; C.O.D.;
Service Charges; any Account of an Account Debtor that is not a
resident of the United States and Canada; Accounts which are not
collateral.

ERISA. The word "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.

EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "EVENTS OF DEFAULT."

EXPIRATION DATE. The words "Expiration Date" mean the date of termination
of Lender's commitment to lend under this Agreement.

GRANTOR. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security Interest in any
Collateral for the Indebtedness, including without limitation all Borrowers
granting such a Security Interest.

GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with any Indebtedness.

INDEBTEDNESS. The word "Indebtedness" means and includes without limitation
all Loans, together with all other obligations. debts and liabilities of
Borrower to Lender, or any one or more of them, as well as all claims by
Lender against Borrower, or any one or more of them; whether now or
hereafter existing, voluntary or involuntary, due or not due, absolute or
contingent, liquidated or unliquidated; whether Borrower may be liable
individually or jointly with others; whether Borrower may be obligated as a
guarantor, surety, or otherwise; whether recovery upon such Indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such Indebtedness may be or hereafter may become otherwise
unenforceable.

LENDER. The word "Lender" means U.S. BANK NATIONAL ASSOCIATION, its
successors and assigns.

LINE OF CREDIT. The words "Line of Credit" mean the credit facility
described in the Section titled "LINE OF CREDIT" below.

LIQUID ASSETS. The words "Liquid Assets" mean Borrower's cash on hand plus
Borrower's readily marketable securities.

<PAGE>

06-18-1998 LOAN AGREEMENT PAGE 2
LOAN NO 397-83 (CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOAN. The word "Loan" or "Loans" means and includes without limitation any
and all commercial loans and financial accommodations from Lender to
Borrower, whether now or hereafter existing, and however evidenced,
including without limitation those loans and financial accommodations
described herein or described on any exhibit or schedule attached to this
Agreement from time to time.

NOTE. The word "Note" means and includes without limitation Borrower's
promissory note or notes, if any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.

PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being
contested in good faith; (c) liens of materialmen, mechanics, warehousemen,
or carriers, or other like liens arising in the ordinary course of business
and securing obligations which are not yet delinquent; (d) purchase money
liens or purchase money security interests upon or in any property acquired
or held by Borrower in the ordinary course of business to secure
indebtedness outstanding on the date of this Agreement or permitted to be
incurred under the paragraph of this Agreement titled "Indebtedness and
Liens"; (e) liens and security interests which, as of the date of this
Agreement, have been disclosed to and approved by the Lender in writing;
and (f) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to
the net value of Borrower's assets.

RELATED DOCUMENTS. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.

SECURITY AGREEMENT. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.

SECURITY INTEREST. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien,
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel trust, factor's lien, equipment trust, conditional sale, trust
receipt, lien or title retention contract, lease or consignment intended as
a security device, or any other security or lien interest whatsoever,
whether created by law, contract, or otherwise.

SARA. The word "SARA" means the Superfund Amendments and Reauthorization
Act of 1986 as now or hereafter amended.

SUBORDINATED DEBT. The words "Subordinated Debt" mean indebtedness and
liabilities of Borrower which have been subordinated by written agreement
to indebtedness owed by Borrower to Lender in form and substance acceptable
to Lender.

TANGIBLE NET WORTH. The words "Tangible Net Worth" mean Borrower's total
assets excluding all intangible assets (i.e., goodwill, trademarks,
patents, copyrights, organizational expenses, and similar intangible items,
but including leaseholds and leasehold improvements) less total Debt.

WORKING CAPITAL. The words "Working Capital" mean Borrower's current
assets, excluding prepaid expenses, less Borrower's current liabilities.

LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time
from the date of this Agreement to the Expiration Date, provided the aggregate
amount of such Advances outstanding at any time does not exceed the Borrowing
Base. Within the foregoing limits, Borrower may borrow, partially or wholly
prepay, and reborrow under this Agreement as follows.

CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make any
Advance to or for the account of Borrower under this Agreement is subject
to the following conditions precedent, with all documents, instruments,
opinions, reports, and other items required under this Agreement to be in
form and substance satisfactory to Lender:

(a) Lender shall have received evidence that this Agreement and all
Related Documents have been duly authorized, executed, and
delivered by Borrower to Lender.

(b) Lender shall have received such opinions of counsel,
supplemental opinions, and documents as Lender may request.

(c) The security interests in the Collateral shall have been duly
authorized, created, and perfected with first lien priority and
shall be in full force and effect.

(d) All guaranties required by Lender for the Line of Credit shall
have been executed by each Guarantor, delivered to Lender, and be
in full force and effect.

(e) Lender, at its option and for its sole benefit, shall have
conducted an audit of Borrower's Accounts, books, records, and
operations, and Lender shall be satisfied as to their condition.

(f) Borrower shall have paid to Lender all fees, costs, and
expenses specified in this Agreement and the Related Documents as
are then due and payable.

(g) There shall not exist at the time of any Advance a condition
which would constitute an Event of Default under this Agreement,
and Borrower shall have delivered to Lender the compliance
certificate called for in the paragraph below titled "Compliance
Certificate."

MAKING LOAN ADVANCES. Advances under the Line of Credit may be requested
either orally or in writing by authorized persons. Lender may, but need
not, require that all oral requests be confirmed in writing. Each Advance
shall be conclusively deemed to have been made at the request of and for
the benefit of Borrower (a) when credited to any deposit account of
Borrower maintained with Lender or (b) when advanced in accordance with the
instructions of an authorized person. Lender, at its option, may set a
cutoff time, after which all requests for Advances will be treated as
having been requested on the next succeeding Business Day.

MANDATORY LOAN REPAYMENTS. If at any time the aggregate principal amount of
the outstanding Advances shall exceed the applicable Borrowing Base,
Borrower, immediately upon written or oral notice from Lender, shall pay to
Lender an amount equal to the difference between the outstanding principal
balance of the Advances and the Borrowing Base. On the Expiration Date,
Borrower shall pay to Lender in full the aggregate unpaid principal amount
of all Advances then outstanding and all accrued unpaid interest, together
with all other applicable fees, costs and charges, if any, not yet paid.

LOAN ACCOUNT. Lender shall maintain on its books a record of account in
which Lender shall make entries for each Advance and such other debits and
credits as shall be appropriate in connection with the credit facility.
Lender shall provide Borrower with periodic statements of Borrower's
account, which statements shall be considered to be correct and
conclusively binding on Borrower unless Borrower notifies Lender to the
contrary within thirty (30) days after Borrower's receipt of any such
statement which Borrower deems to be incorrect.

COLLATERAL. To secure payment of the Line of Credit and performance of all other
Loans, obligations and duties owed by Borrower to Lender, Borrower (and others,
if required) shall grant to Lender Security Interests in such property and
assets as Lender may require (the "Collateral"), including without limitation
Borrower's present and future Accounts and general intangibles. Lender's
Security Interests in the Collateral shall be continuing liens and shall include
the proceeds and products of the Collateral, including without limitation the
proceeds of any insurance. With respect to the Collateral, Borrower agrees and
represents and warrants to Lender:

PERFECTION OF SECURITY INTERESTS. Borrower agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's Security Interests in the Collateral. Upon
request of Lender, Borrower will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Borrower will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Contemporaneous with the execution of this
Agreement, Borrower will execute one or more UCC financing statements and
any similar statements as may be required by applicable law, and will file
such financing statements and all such similar statements in the
appropriate location or locations. Borrower hereby appoints Lender as its
irrevocable attorney-in-fact for the purpose of executing any documents
necessary to perfect or to continue any Security Interest. Lender may at
any time, and without further authorization from Borrower, file a carbon,
photograph, facsimile, or other reproduction of any financing statement for
use as a financing statement. Borrower will reimburse Lender for all
expenses for the perfection, termination, and the continuation of the
perfection of Lender's security interest in the Collateral. Borrower
promptly will notify Lender of any change in Borrower's name including any
change to the assumed business names of Borrower. Borrower also promptly
will notify Lender of any change in Borrower's Social Security Number or
Employer Identification Number. Borrower further agrees to notify Lender in
writing prior to any change in address or location of Borrower's principal
governance office or should Borrower merge or consolidate with any other
entity.

COLLATERAL RECORDS. Borrower does now, and at all times hereafter shall,
keep correct and accurate records of the Collateral, all of which records
shall be available to Lender or Lender's representative upon demand for
inspection and copying at any reasonable time. With respect to the
Accounts, Borrower agrees to keep and maintain such records as Lender may
require, including without limitation information concerning Eligible
Accounts and Account balances and agings.

COLLATERAL SCHEDULES. Concurrently with the execution and delivery of this
Agreement, Borrower shall execute and deliver to Lender a schedule of
Accounts and Eligible Accounts, in form and substance satisfactory to the
Lender. Thereafter Borrower shall execute and deliver to Lender such
supplemental schedules of Eligible Accounts and such other matters and
information relating to Borrower's Accounts as Lender may request.
Supplemental schedules shall be delivered according to the following
schedule: BORROWER TO FURNISH LENDER WITH ACCOUNTS RECEIVABLE AGINGS ON A
MONTHLY BASIS, IN SUMMARY FORM, ON THE BORROWING BASE CERTIFICATE, BROKEN
OUT AS FOLLOWS: INVOICE DATE TO 30 DAYS FROM INVOICE DATE; 31 DAYS TO 60
DAYS FROM INVOICE DATE; TOTAL ELIGIBLE ACCOUNTS; ALL OTHER ACCOUNTS; TOTAL
ACCOUNTS. BORROWER TO SUBMIT A BORROWER'S

<PAGE>

06-18-1998 LOAN AGREEMENT PAGE 3
LOAN NO 397-83 (CONTINUED)
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- --------------------------------------------------------------------------------

CERTIFICATE WITHIN 15 DAYS OF EACH MONTH-END.

REPRESENTATIONS AND WARRANTIES CONCERNING ACCOUNTS. With respect to the
Accounts. Borrower represents and warrants to Lender: (a) Each Account
represented by Borrower to be an Eligible Account for purposes of this
Agreement conforms to the requirements of the definition of an Eligible
Account; (b) All Account information listed on schedules delivered to
Lender will be true and correct, subject to immaterial variance; and (c)
Lender, its assigns, or agents shall have the right at any time and at
Borrower's expense to inspect, examine, and audit Borrower's records and to
confirm with Account Debtors the accuracy of such Accounts.

REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:

ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the State of Washington
and is validly existing and in good standing in all states in which
Borrower is doing business. Borrower has the full power and authority to
own its properties and to transact the businesses in which it is presently
engaged or presently proposes to engage. Borrower also is duly qualified as
a foreign corporation and is in good standing in all states in which the
failure to so qualify would have a material adverse effect on its
businesses or financial condition.

AUTHORIZATION. The execution, delivery, and performance of this Agreement
and all Related Documents by Borrower, to the extent to be executed,
delivered or performed by Borrower, have been duly authorized by all
necessary action by Borrower; do not require the consent or approval of any
other person, regulatory authority or governmental body; and do not
conflict with, result in a violation of, or constitute a default under (a)
any provision of its articles of incorporation or organization, or bylaws,
or any agreement or other instrument binding upon Borrower or (b) any law,
governmental regulation, court decree, or order applicable to Borrower.

FINANCIAL INFORMATION. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.

LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms.

PROPERTIES. Except for Permitted Liens, Borrower owns and has good title to
all of Borrower's properties free and clear of all Security interests, and
has not executed any security documents or financing statements relating to
such properties. All of Borrower's properties are titled in Borrower's
legal name, and Borrower has not used, or filed a financing statement
under, any other name for at least the last five (5) years.

HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance,"
"disposal," "release," and "threatened release," as used in this Agreement.
shall have the same meanings as set forth in the "CERCLA," "SARA," the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq..
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et
seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. Except as disclosed to and
acknowledged by Lender in writing, Borrower represents and warrants that:
(a) During the period of Borrower's ownership of the properties, there has
been no use, generation, manufacture, storage, treatment, disposal, release
or threatened release of any hazardous waste or substance by any person on,
under, about or from any of the properties. (b) Borrower has no knowledge
of, or reason to believe that there has been (i) any use, generation,
manufacture, storage, treatment, disposal, release, or threatened release
of any hazardous waste or substance on, under, about or from the properties
by any prior owners or occupants of any of the properties, or (ii) any
actual or threatened litigation or claims of any kind by any person
relating to such matters. (c) Neither Borrower nor any tenant, contractor,
agent or other authorized user of any of the properties shall use,
generate, manufacture, store, treat, dispose of, or release any hazardous
waste or substance on, under, about or from any of the properties; and any
such activity shall be conducted in compliance with all applicable federal,
state, and local laws, regulations, and ordinances, including without
limitation those laws, regulations and ordinances described above. Borrower
authorizes Lender and its agents to enter upon the properties to make such
inspections and tests as Lender may deem appropriate to determine
compliance of the properties with this section of the Agreement. Any
inspections or tests made by Lender shall be at Borrower's expense and for
Lender's purposes only and shall not be construed to create any
responsibility or liability on the part of Lender to Borrower or to any
other person. The representations and warranties contained herein are based
on Borrower's due diligence in investigating the properties for hazardous
waste and hazardous substances. Borrower hereby (a) releases and waives any
future claims against Lender for indemnity or contribution in the event
Borrower becomes liable for cleanup or other costs under any such laws, and
(b) agrees to indemnify and hold harmless Lender against any and all
claims, losses, liabilities, damages, penalties, and expenses which Lender
may directly or indirectly sustain or suffer resulting from a breach of
this section of the Agreement or as a consequence of any use, generation,
manufacture, storage, disposal, release or threatened release occurring
prior to Borrower's ownership or interest in the properties, whether or not
the same was or should have been known to Borrower. The provisions of this
section of the Agreement, including the obligation to indemnify, shall
survive the payment of the Indebtedness and the termination or expiration
of this Agreement and shall not be affected by Lender's acquisition of any
interest in any of the properties, whether by foreclosure or otherwise.

LITIGATION AND CLAIMS. No material litigation, claim, investigation,
administrative proceeding or similar action (including those for unpaid
taxes) against Borrower is pending or threatened, and no other event has
occurred which may materially adversely affect Borrower's financial
condition or properties, other than litigation, claims, or other events, if
any, that have been disclosed to and acknowledged by Lender in writing.

TAXES. To the best of Borrower's knowledge, all tax returns and reports of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good faith
in the ordinary course of business and for which adequate reserves have
been provided.

LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, or
permitted the filing or attachment of any Security Interests on or
affecting any of the Collateral directly or indirectly securing repayment
of Borrower's Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to such
Collateral.

BINDING EFFECT. This Agreement, the Note, all Security Agreements directly
or indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successors, representatives and assigns, and are legally enforceable in
accordance with their respective terms.

COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.

EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower may
have any liability complies in all material respects with all applicable
requirements of law and regulations, and (i) no Reportable Event nor
Prohibited Transaction (as defined in ERISA) has occurred with respect to
any such plan. (ii) Borrower has not withdrawn from any such plan or
initiated steps to do so, (iii) no steps have been taken to terminate any
such plan, and (iv) there are no unfunded liabilities other than those
previously disclosed to Lender in writing.

LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business,
or Borrower's Chief executive office, if Borrower has more than one place
of business, is located at 1016 South 28th Street, Tacoma, WA 98409. Unless
Borrower has designated otherwise in writing this location is also the
office or offices where Borrower keeps its records concerning the
Collateral.

INFORMATION. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connection with
this Agreement or any transaction contemplated hereby is, and all
information hereafter furnished by or on behalf of Borrower to Lender will
be, true and accurate in every material respect on the date as of which
such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to make
such information not misleading.

SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and agrees
that Lender, without independent investigation, is relying upon the above
representations and warranties in extending Loan Advances to Borrower.
Borrower further agrees that the foregoing representations and warranties
shall be continuing in nature and shall remain in full force and effect
until such time as Borrower's Indebtedness shall be paid in full, or until
this Agreement shall be terminated in the manner provided above, whichever
is the last to occur.

AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:

LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations, administrative proceedings
or similar actions affecting Borrower or any Guarantor which could
materially affect the financial condition of Borrower or the financial
condition of any Guarantor.

FINANCIAL RECORDS. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.

FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in no
event later than one hundred twenty (120) days after the end of each fiscal
year, Borrower's balance sheet and income statement for the year ended,
audited by a certified public accountant satisfactory to Lender, and, as
soon as available, but in no event later than forty five (45) days after
the end of each fiscal quarter, Borrower's balance sheet and profit and
loss statement for the period ended, prepared and certified as correct to
the best knowledge and belief by Borrower's chief financial officer or
other officer or person acceptable to Lender. All financial reports
required to be provided under this Agreement shall be prepared in
accordance with generally accepted accounting principles, applied on a
consistent basis, and certified by Borrower as being true and correct.

ADDITIONAL INFORMATION. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivables and payables,

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06-18-1998 LOAN AGREEMENT PAGE 4
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inventory schedules, budgets, forecasts, tax returns, and other reports
with respect to Borrower's financial condition and business operations as
Lender may request from time to lime.

FINANCIAL COVENANTS AND RATIOS. Comply with the following covenants and
ratios:

TANGIBLE NET WORTH. Maintain a minimum Tangible Net Worth of not less
than $40,000,000.00.

NET WORTH RATIO. Maintain a ratio of Total Liabilities to Tangible Net
Worth of less than 1.50 to 1.00.

WORKING CAPITAL. Maintain Working Capital in excess of $30,000,000.00.

CASH FLOW REQUIREMENTS. Maintain Cash Flow at not less than the
following level: A RATIO OF 2.50 TO 1.00, DEFINED AS THE RATIO OF NET
PROFIT AFTER TAXES PLUS NON-CASH CHARGES PLUS INTEREST EXPENSE TO
INTEREST EXPENSE. THIS RATIO WILL BE MEASURED ON A TRAILING FOUR
QUARTER BASIS.

The following provisions shall apply for purposes of determining compliance
with the foregoing financial covenants and ratios: MINIMUM TANGIBLE NET
WORTH COVENANT WILL INCREASE BY 50.00% OF BORROWER'S NET PROFIT AFTER
TAXES FOR THE PREVIOUS FISCAL YEAR END. THIS INCREASE WILL BE EFFECTIVE
JUNE 30 ANNUALLY. THE INCREASE AS OF JUNE 30, 1998, WILL BE TO A MINIMUM OF
$43,481.00. BORROWER'S COMPLIANCE TO BE TESTED ON A QUARTERLY BASIS. Except
as provided above. all computations made to determine compliance with the
requirements contained in this paragraph shall be made in accordance with
generally accepted accounting principles, applied on a consistent basis,
and certified by Borrower as being true and correct.

INSURANCE. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies reasonably acceptable to Lender. Borrower, upon request
of Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be cancelled or diminished without at
least ten (10) days' prior written notice to Lender. Each insurance policy
also shall include an endorsement providing that coverage in favor of
Lender will not be impaired in any way by any act, omission or default of
Borrower or any other person. In connection with all policies covering
assets in which Lender holds or is offered a security interest for the
Loans, Borrower will provide Lender with such loss payable or other
endorsements as Lender may require.

INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (a) the
name of the insurer; (b) the risks insured; (c) the amount of the policy;
(d) the properties insured; (e) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (f) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually), Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of any Collateral.
The cost of such appraisal shall be paid by Borrower.

OTHER AGREEMENTS. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.

LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.

TAXES, CHARGES AND LIENS. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments,
taxes, governmental charges, levies and liens, of every kind and nature.
imposed upon Borrower or its properties, income, or profits, prior to the
date on which penalties would attach, and all lawful claims that, if
unpaid, might become a lien or charge upon any of Borrower's properties,
income, or profits. Provided however, Borrower will not be required to pay
and discharge any such assessment, tax, charge, levy, lien or claim so long
as (a) the legality of the same shall be contested in good faith by
appropriate proceedings, and (b) Borrower shall have established on its
books adequate reserves with respect to such contested assessment, tax,
charge, levy, lien, or claim in accordance with generally accepted
accounting practices. Borrower, upon demand of Lender, will furnish to
Lender evidence of payment of the assessments, taxes, charges, levies,
liens and claims and will authorize the appropriate governmental official
to deliver to Lender at any time a written statement of any assessments,
taxes, charges, levies, liens and claims against Borrower's properties,
income, or profits.

PERFORMANCE. Perform and comply with all terms, conditions, and provisions
set forth in this Agreement and in the Related Documents in a timely
manner, and promptly notify Lender if Borrower learns of the occurrence of
any event which constitutes an Event of Default under this Agreement or
under any of the Related Documents.

OPERATIONS. Maintain executive personnel with substantially the same
qualifications and experience as the present executive and management
personnel; provide written notice to Lender of any change in executive and
management personnel; conduct its business affairs in a reasonable and
prudent manner and in compliance with all applicable federal, state and
municipal laws, ordinances, rules and regulations respecting its
properties, charters, businesses and operations, including without
limitation, compliance with the Americans With Disabilities Act and with
all minimum funding standards and other requirements of ERISA and other
laws applicable to Borrower's employee benefit plans.

INSPECTION. Permit employees or agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party to
permit Lender free access to such records at all reasonable times and to
provide Lender with copies of any records it may request, all at Borrower's
expense.

COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender
quarterly and at the time of each disbursement of Loan proceeds with a
certificate executed by Borrower's chief financial officer, or other
officer or person acceptable to Lender, certifying that the representations
and warranties set forth in this Agreement are true and correct as of the
date of the certificate and further certifying that, as of the date of the
certificate, no Event of Default exists under this Agreement.

ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respects
with all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part
of any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment, unless
such environmental activity is pursuant to and in compliance with the
conditions of a permit issued by the appropriate federal, state or local
governmental authorities; shall furnish to Lender promptly and in any event
within thirty (30) days after receipt thereof a copy of any notice,
summons, lien, citation, directive, letter or other communication from any
governmental agency or instrumentality concerning any intentional or
unintentional action or omission on Borrower's part in connection with any
environmental activity whether or not there is damage to the environment
and/or other natural resources.

ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, financing
statements, instruments, documents and other agreements as Lender or its
attorneys may reasonably request to evidence and secure the Loans and to
perfect all Security Interests.

RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law,
rule, regulation or guideline, or the interpretation or application of any
thereof by any court or administrative or governmental authority (including any
request or policy not having the force of law) shall impose, modify or make
applicable any taxes (except U.S. federal, state or local income or franchise
taxes imposed on Lender), reserve requirements, capital adequacy requirements or
other obligations which would (a) increase the cost to Lender for extending or
maintaining the credit facilities to which this Agreement relates, (b) reduce
the amounts payable to Lender under this Agreement or the Related Documents, or
(c) reduce the rate of return on Lender's capital as a consequence of Lender's
obligations with respect to the credit facilities to which this Agreement
relates, then Borrower agrees to pay Lender such additional amounts as will
compensate Lender therefor, within five (5) days after Lender's written demand
for such payment, which demand shall be accompanied by an explanation of such
imposition or charge and a calculation in reasonable detail of the additional
amounts payable by Borrower, which explanation and calculations shall be
conclusive in the absence of manifest error.

NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:

INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (b) except as allowed as a Permitted Lien, sell,
transfer, mortgage, assign, pledge, lease, grant a security interest in, or
encumber any of Borrower's assets, or (c) sell with recourse any of
Borrower's accounts, except to Lender.

CONTINUITY OF OPERATIONS. (a) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or consolidate
with any other entity, change ownership, change its name, dissolve or
transfer or sell Collateral out of the ordinary course of business, (c) pay
any dividends on Borrower's common stock (other than dividends payable in
its stock), provided, however that notwithstanding the foregoing, but only
so long as no Event of Default has occurred and is continuing or would
result from the payment of dividends, if Borrower is a "Subchapter S
Corporation" (as defined in the Internal Revenue Code of 1986, as amended),
Borrower may pay cash dividends on its stock to its shareholders from time
to time in amounts necessary to enable the shareholders to pay income taxes
and make estimated income tax payments to satisfy their liabilities under
federal and state law which arise solely from their status as Shareholders

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of a Subchapter S Corporation because of their ownership of shares of stock
of Borrower, or (d) purchase or retire any of Borrower's outstanding shares
or allot or amend Borrower's capital structure.

LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money or
assets, (b) purchase, create or acquire any interest in any other
enterprise or entity, or (c) incur any obligation as surety or guarantor
other than in the ordinary course of business.

CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(a) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent,
files a petition in bankruptcy or similar proceedings, or is adjudged a
bankrupt; (c) there occurs a material adverse change in Borrower's financial
condition, in the financial condition of any Guarantor, or in the value of any
Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any
other loan with Lender; or (e) Lender in good faith deems itself insecure, even
though no Event of Default shall have occurred.

STATUTE OF FRAUDS DISCLOSURE. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY,
EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW.

COLLATERAL AUDITS. Borrower agrees to undergo annual collateral audits, to be
performed by Lender or Lender approved auditors. Direct verifications will be
required, to be performed by certified public accounts via audited statements.
Borrower agrees to bear the expenses incurred with each collateral audit.

EXPIRATION DATE. Notwithstanding any verbiage to the contrary as it may appear
elsewhere in this Agreement, the words "Expiration Date" as applied in this
Agreement mean the earlier of (a) June 30, 2000; or (b) the date of termination
of the Lender's commitment to lend under this Commitment.

RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on the Indebtedness against
any and all such accounts.

EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:

DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due
on the Loans.

OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition
contained in this Agreement or in any of the Related Documents, or failure
of Borrower to comply with or to perform any other term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.

DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective
obligations under this Agreement or any of the Related Documents.

FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Borrower or any Grantor under this
Agreement or the Related Documents is false or misleading in any material
respect at the time made or furnished, or becomes false or misleading at
any time thereafter.

DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time
and for any reason.

INSOLVENCY. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.

CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower, any creditor
of any Grantor against any collateral securing the indebtedness, or by any
governmental agency. This includes a garnishment, attachment, or levy on or
of any of Borrower's deposit accounts with Lender.

EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, or liability
under, any Guaranty of the Indebtedness.

CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.

ADVERSE CHANGE. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of
the Indebtedness is impaired.

INSECURITY. Lender, in good faith, deems itself insecure.

EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
Loan Advances or disbursements), and, at Lender's option, all indebtedness
immediately will become due and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the type described
in the "Insolvency" subsection above, such acceleration shall be automatic and
not optional. In addition, Lender shall have all the rights and remedies
provided in the Related Documents or available at law, in equity, or otherwise.
Except as may be prohibited by applicable law, all of Lender's rights and
remedies shall be cumulative and may be exercised singularly or concurrently.
Election by Lender to pursue any remedy shall not exclude pursuit of any other
remedy, and an election to make expenditures or to take action to perform an
obligation of Borrower or of any Grantor shall not affect Lender's right to
declare a default and to exercise its rights and remedies.

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:

AMENDMENTS. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.

APPLICABLE LAW. This Agreement has been delivered to Lender and accepted by
Lender in the State of Washington. If there is a lawsuit, Borrower agrees
upon Lender's request to submit to the jurisdiction of the courts of King
County, the State of Washington. Subject to the provisions on arbitration,
this Agreement shall be governed by and construed in accordance with the
laws of the State of Washington.

ARBITRATION. LENDER AND BORROWER AGREE THAT ALL DISPUTES, CLAIMS AND
CONTROVERSIES BETWEEN THEM, WHETHER INDIVIDUAL, JOINT, OR CLASS IN NATURE,
ARISING FROM THIS AGREEMENT OR OTHERWISE, INCLUDING WITHOUT LIMITATION
CONTRACT AND TORT DISPUTES, SHALL BE ARBITRATED PURSUANT TO THE RULES OF
THE AMERICAN ARBITRATION ASSOCIATION, UPON REQUEST OF EITHER PARTY. No act
to take or dispose of any Collateral shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief or a temporary
restraining order; invoking a power of sale under any deed of trust or
mortgage; obtaining a writ of attachment or imposition of a receiver; or
exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to
Article 9 of the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness of any act, or
exercise of any right, concerning any Collateral, including any claim to
rescind, reform, or otherwise modify any agreement relating to the
Collateral, shall also be arbitrated, provided however that no arbitrator
shall have the right or the power to enjoin or restrain any act of any
party. Judgment upon any award rendered by any arbitrator may be entered in
any court having jurisdiction. Nothing in this Agreement shall preclude any
party from seeking equitable relief from a court of competent jurisdiction.
The statute of limitations, estoppel, waiver, laches, and similar doctrines
which would otherwise be applicable in an action brought by a party shall
be applicable in any arbitration proceeding, and the commencement of an
arbitration proceeding shall be deemed the commencement of an action for
these purposes. The Federal Arbitration Act shall apply to the
construction, interpretation, and enforcement of this arbitration
provision.

CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.

MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Borrower under
this Agreement shall be joint and several, and all references to Borrower
shall mean each and every Borrower.

CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's
sale or transfer, whether now or later, of one or more participation
interests in the Loans to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation whatsoever,
to any one or more purchasers, or potential purchasers, any information or
knowledge Lender may have about Borrower or about any other matter relating
to the Loan, and Borrower hereby waives any rights to privacy it may have
with respect to such matters. Borrower additionally waives any and all
notices of sale of participation interests, as well as all notices of any
repurchase of such participation interests. Borrower also agrees that

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the purchasers of any such participation interests will be considered as
the absolute owners of such interests in the Loans and will have all the
rights granted under the participation agreement or agreements governing
the sale of such participation interests. Borrower further waives all
rights of offset or counterclaim that it may have now or later against
Lender or against any purchaser of such a participation interest and
unconditionally agrees that either Lender or such purchaser may enforce
Borrower's obligation under the Loans irrespective of the failure or
insolvency of any holder of any interest in the Loans. Borrower further
agrees that the purchaser of any such participation interests may enforce
its interests irrespective of any personal claims or defenses that Borrower
may have against Lender.

COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's
expenses, including without limitation attorneys' fees, incurred in
connection with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made pursuant
to this Agreement. Lender may pay someone else to help collect the Loans
and to enforce this Agreement, and Borrower will pay that amount. This
includes, subject to any limits under applicable law, Lender's attorneys'
fees and Lender's legal expenses, whether or not there is a lawsuit,
including attorneys' fees for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any
court costs, in addition to all other sums provided by law.

NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise required
by law), and shall be effective when actually delivered or when deposited
with a nationally recognized overnight courier or deposited in the United
States mail, first class, postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above. Any party may change
its address for notices under this Agreement by giving formal written
notice to the other parties, specifying that the purpose of the notice is
to change the party's address. To the extent permitted by applicable law,
if there is more than one Borrower, notice to any Borrower will constitute
notice to all Borrowers. For notice purposes, Borrower will keep Lender
informed at all times of Borrower's current address(es).

SEVERABILITY. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any
such offending provision shall be deemed to be modified to be within the
limits of enforceability or validity; however, if the offending provision
cannot be so modified, it shall be stricken and all other provisions of
this Agreement in all other respects shall remain valid and enforceable.

SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other
financial accommodation to any subsidiary or affiliate of Borrower.

SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on
behalf of Borrower shall bind its successors and assigns and shall inure to
the benefit of Lender, its successors and assigns. Borrower shall not,
however, have the right to assign its rights under this Agreement or any
interest therein, without the prior written consent of Lender.

SURVIVAL. All warranties, representations, and covenants made by Borrower
in this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery
to Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.

WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Borrower, or between Lender and any
Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the
granting of such consent by Lender in any instance shall not constitute
continuing consent in subsequent instances where such consent is required,
and in all cases such consent may be granted or withheld in the sole
discretion of Lender.

BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT, AND
BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF JUNE 18, 1998.

BORROWER:

LABOR READY, INC.

BY: /s/ Joseph P. Sambataro
--------------------------------------------
TITLE: CFO/EVP
--------------------------------------

LENDER:

U.S. BANK NATIONAL ASSOCIATION

BY: /s/ Bruce H. Marley
--------------------------------------------
AUTHORIZED OFFICER
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

<PAGE>

EXHIBIT "A" TO
LOAN AGREEMENT
DATED AS OF JUNE 18, 1998

PRIOR COMMERCIAL LOANS

1. $10,000,000.00 Revolving Credit Facility, per terms of Business Loan
Agreement dated February 13, 1996 (replaced by the Twenty Million Dollar Loan).

2. $20,000,000.00 Revolving Credit Facility per terms of Business Loan
Agreement dated September 13, 1996 (Twenty Million Dollar Loan).*

3. $30,000,000.00 Revolving Credit Facility per terms of Business Loan
Agreement dated November 4, 1997 (Thirty Million Dollar Loan)

* The Twenty Million Dollar Loan was replaced by the Thirty Million Dollar Loan,
which in turn is replaced by the Loan provided for in this Agreement.

<PAGE>

ALTERNATIVE RATE OPTIONS
PROMISSORY NOTE
(PRIME RATE, LIBOR)

$40,000,000.00 Dated as of: June 18, 1998

Labor Ready, Inc. ("Borrower")

U.S. BANK NATIONAL ASSOCIATION ("LENDER")

1. TYPE OF CREDIT. This note is given to evidence Borrower's obligation to
repay all sums which Lender may from time to time advance to Borrower
("Advances") under a:

/ / single disbursement loan. Amounts loaned to Borrower hereunder will be
disbursed in a single Advance in the amount shown in Section 2.

/X/ revolving line of credit. No Advances shall be made which create a maximum
amount outstanding at any one time which exceeds the maximum amount shown
in Section 2. However, Advances hereunder may be borrowed, repaid and
reborrowed, and the aggregate Advances loaned hereunder from time to time
may exceed such maximum amount.

/ / non-revolving line of credit. Each Advance made from time to time
hereunder shall reduce the maximum amount available shown in Section 2.
Advances loaned hereunder which are repaid may not be reborrowed.

2. PRINCIPAL BALANCE. The unpaid principal balance of all Advances
outstanding under this note ("Principal Balance") at one time shall not exceed
Forty Million and 00/100ths dollars in lawful money of the United States of
America.

3. PROMISE TO PAY. For value received Borrower promises to pay to Lender or
order at 1145 Broadway, Suite 1100, Tacoma, WA, the Principal Balance of this
note, with interest thereon at the rate(s) specified in Sections 4 and 11 below.

4. INTEREST RATE. The interest rate on the Principal Balance outstanding may
vary from time to time pursuant to the provisions of this note. Subject to the
provisions of this note, Borrower shall have the option from time to time of
choosing to pay interest at the rate or rates and for the applicable periods of
time based on the rate options provided herein; PROVIDED, however, that once
Borrower notifies Lender of the rate option chosen in accordance with the
provisions of this note, such notice shall be irrevocable. The rate options are
the Prime Borrowing Rate and the LIBOR Borrowing Rate, each as defined herein.

(a) DEFINITIONS. The following terms shall have the following meanings:

"Business Day" means any day other than a Saturday, Sunday, or
other day that commercial banks in Seattle, Washington, Portland, Oregon or New
York City are authorized or required by law to close; provided, however that
when used in connection with a LIBOR Rate, LIBOR Amount or LIBOR Interest Period
such term shall also exclude any day on which dealings in U.S. dollar deposits
are not carried on in the London interbank market.

"LIBOR Amount" means each principal amount for which Borrower
chooses to have the LIBOR Borrowing Rate apply for any specified LIBOR Interest
Period.

"LIBOR Interest Period" means as to any LIBOR Amount, a period of
one, two, three, six or twelve months commencing on the date the LIBOR Borrowing
Rate becomes applicable thereto; PROVIDED, however, that: (i) the first day of
each LIBOR Interest Period must be a Business Day; (ii) no LIBOR Interest Period
shall be selected which would extend beyond June 30, 2000; (iii) no LIBOR
Interest Period shall extend beyond the date of any principal payment required
under Section 6 of this note, unless the sum of the Prime Rate Amount, plus
LIBOR Amounts with LIBOR Interest Periods ending on or before the scheduled date
of such principal payment, plus principal amounts remaining unborrowed under a
line of credit, equals or exceeds the amount of such principal payment; (iv) any
LIBOR Interest Period which would otherwise expire on a day which is not a
Business Day, shall be extended to the next succeeding Business Day, unless the
result of such extension would be to extend such LIBOR Interest Period into
another calendar month, in which event the LIBOR Interest Period shall end on
the immediately preceding Business Day; and (v) any LIBOR Interest Period that
begins on the last Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end of such
LIBOR Interest Period) shall end on the last Business Day of a calendar month.

"LIBOR Rate" means, for any LIBOR Interest Period, the rate per annum
(computed on the basis of a 360-day year and the actual number of days elapsed
and rounded upward to the nearest 1/16 of 1%) established by Lender as its LIBOR
Rate, based on Lender's determination, on the basis of such factors as Lender
deems relevant, of the rate of interest at which U.S. dollar deposits would be
offered to U.S. Bank National Association in the London interbank market at
approximately 11 a.m. London time on the date which is two Business Days prior
to the first day of such LIBOR Interest Period for delivery on the first day of
such LIBOR Interest Period for the number of months therein; provided, however,
that the LIBOR Rate shall be adjusted to take into account the maximum reserves
required to be maintained for Eurocurrency liabilities by banks during each such
LIBOR Interest Period as specified in Regulation D of the Board of Governors of
the Federal Reserve System or any successor regulation.

"Prime Rate" means the rate of interest which Lender from time to
time establishes as its prime rate and is not, for example, the lowest rate of
interest which Lender collects from any borrower or class of borrowers. When the
Prime Rate is applicable under Section 4(b) or 11(b), the interest rate
hereunder shall be adjusted without notice effective on the day the Prime Rate
changes, but in no event shall the rate of interest be higher than allowed by
law.

"Prime Rate Amount" means any portion of the Principal Balance
bearing interest at the Prime Borrowing Rate.

(b) THE PRIME BORROWING RATE.

(i) The Prime Borrowing Rate is a per annum rate equal to the Prime
Rate plus 0.00 % per annum.

(ii) Whenever Borrower desires to use the Prime Borrowing Rate option,
Borrower shall give Lender notice orally or in writing in accordance with
Section 15 of this note, which notice shall specify the requested effective date
(which must be a Business Day) and principal amount of the Advance or increase
in the Prime Rate Amount, and whether Borrower is requesting a new Advance under
a line of credit or conversion of a LIBOR Amount to the Prime Borrowing Rate.

(iii) Subject to Section 11 of this note, interest shall accrue on the
unpaid Principal Balance at the Prime Borrowing Rate unless and except to the
extent that the LIBOR Borrowing Rate is in effect.

(i) The LIBOR Borrowing Rate is the LIBOR Rate plus 1.44% per annum.

(ii) Borrower may obtain LIBOR Borrowing Rate quotes from Lender between
8:00 a.m. and 10:00 a.m. (Portland, Oregon time) on any Business Day. Borrower
may request an Advance, conversion of any portion of the Prime Rate Amount to a
LIBOR Amount or a new LIBOR Interest Period

LIBORWA (6/97) Page 1 of 4

<PAGE>

for an existing LIBOR Amount, at such rate only by giving Lender notice in
accordance with Section 4 (c) (iii) before 10:00 a.m. (Portland, Oregon time) on
such day.

(iii) Whenever Borrower desires to use the LIBOR Borrowing Rate option,
Borrower shall give Lender irrevocable notice (either in writing or orally and
promptly confirmed in writing) between 8:00 a.m. and 10:00 a.m. (Portland,
Oregon time) two (2) Business Days prior to the desired effective date of such
rate. Any oral notice shall be given by, and any written notice or confirmation
of an oral notice shall be signed by, the person(s) authorized in Section 15 of
this note, and shall specify the requested effective date of the rate, LIBOR
Interest Period and LIBOR Amount, and whether Borrower is requesting a new
Advance at the LIBOR Borrowing Rate under a line of credit, conversion of all or
any portion of the Prime Rate Amount to a LIBOR Amount, or a new LIBOR Interest
Period for an outstanding LIBOR Amount. Notwithstanding any other term of this
note, Borrower may elect the LIBOR Borrowing Rate in the minimum principal
amount of $500,000.00 and in multiples of $500,000.00 above such amount;
PROVIDED, however, that no more than (not applicable) separate LIBOR Interest
Periods may be in effect at any one time.

(iv) If at any time the LIBOR Rate is unascertainable or unavailable
to Lender or if LIBOR Rate loans become unlawful, the option to select the
LIBOR Borrowing Rate shall terminate immediately. If the LIBOR Borrowing Rate
is then in effect, (A) it shall terminate automatically with respect to all
LIBOR Amounts (i) on the last day of each then applicable LIBOR Interest
Period, if Lender may lawfully continue to maintain such loans, or (ii)
immediately if Lender may not lawfully continue to maintain such loans through
such day, and (B) subject to Section 11, the Prime Borrowing Rate automatically
shall become effective as to such amounts upon such termination.

(v) If at any time after the date hereof (A) any revision in or
adoption of any applicable law, rule, or regulation or in the interpretation or
administration thereof (i) shall subject Lender or its Eurodollar lending office
to any tax, duty, or other charge, or change the basis of taxation of payments
to Lender with respect to any loans bearing interest based on the LIBOR Rate, or
(ii) shall impose or modify any reserve, insurance, special deposit, or similar
requirements against assets of, deposits with or for the account of, or credit
extended by Lender or its Eurodollar lending office, or impose on Lender or its
Eurodollar lending office any other condition affecting any such loans, and (B)
the result of any of the foregoing is (i) to increase the cost to Lender of
making or maintaining any such loans or (ii) to reduce the amount of any sum
receivable under this note by Lender or its Eurodollar lending office, Borrower
shall pay Lender within 15 days after demand by Lender such additional amount as
will compensate Lender for such increased cost or reduction. The determination
hereunder by Lender of such additional amount shall be conclusive in the absence
of manifest error. If Lender demands compensation under this Section 4(c)(v),
Borrower may upon three (3) Business Days' notice to Lender pay the accrued
interest on all LIBOR Amounts, together with any additional amounts payable
under Section 4(c)(vi). Subject to Section 11, upon Borrower's paying such
accrued interest and additional costs, the Prime Borrowing Rate immediately
shall be effective with respect to the unpaid principal balance of such LIBOR
Amounts.

(vi) Borrower shall pay to Lender, on demand, such amount as Lender
reasonably determines (determined as though 100% of the applicable LIBOR Amount
had been funded in the London interbank market) is necessary to compensate
Lender for any direct or indirect losses, expenses, liabilities, costs, expenses
or reductions in yield to Lender, whether incurred in connection with
liquidation or re-employment of funds or otherwise, incurred or sustained by
Lender as a result of: (A) Any payment or prepayment of a LIBOR Amount,
termination of the LIBOR Borrowing Rate or conversion of a LIBOR Amount to the
Prime Borrowing Rate on a day other than the last day of the applicable LIBOR
Interest Period (including as a result of acceleration or a notice pursuant to
Section 4 (c) (v)); or (B) Any failure of Borrower to borrow, continue or prepay
any LIBOR Amount or to convert any portion of the Prime Rate Amount to a LIBOR
Amount after Borrower has given a notice thereof to Lender.

(vii) If Borrower chooses the LIBOR Borrowing Rate, Borrower shall pay
interest based on such rate, plus any other applicable taxes or charges
hereunder, even though Lender may have obtained the funds loaned to Borrower
from sources other than the London interbank market. Lender's determination of
the LIBOR Borrowing Rate and any such taxes or charges shall be conclusive in
the absence of manifest error.

(viii) Notwithstanding any other term of this note, Borrower may not
select the LIBOR Borrowing Rate if an event of default hereunder has occurred
and is continuing.

(ix) Nothing contained in this note, including without limitation the
determination of any LIBOR Interest Period or Lender's quotation of any LIBOR
Borrowing Rate, shall be construed to prejudice Lender's right, if any, to
decline to make any requested Advance or to require payment on demand.

5. COMPUTATION OF INTEREST. All interest under Section 4 and Section 11 will
be computed at the applicable rate based on a 360-day year and applied to the
actual number of days elapsed.

6. PAYMENT SCHEDULE.

(a) PRINCIPAL. Principal shall be paid:

/ / on demand.
/ / on demand, or if no demand, on .
/X/ on June 30, 2000.
/ / subject to Section 8, in installments of
/ / each, plus accrued interest, beginning on and on
the same day of each thereafter until when the
entire Principal Balance plus interest thereon shall be due
and payable.
/ / each, including accrued interest, beginning on
and on the same day of each thereafter until
when the entire Principal Balance plus interest thereon shall
be due and payable.
/ /

(b) INTEREST.

(i) Interest on the Prime Rate Amount shall be paid:

/X/ on the 15th day of July, 1998, and on the same day of each
month thereafter prior to maturity and at maturity.
/ / at maturity.
/ / at the time each principal installment is due and at maturity.
/ /

(ii) Interest on all LIBOR Amounts shall be paid:

/ / on the last day of the applicable LIBOR Interest Period, and
if such LIBOR Interest Period is longer than three months, on
the last day of each three month period occurring during such
LIBOR Interest Period, and at maturity.
/X/ on the 15th day of July, 1998, and on the same day of each
month thereafter prior to maturity and at maturity.
/ / at maturity.
/ / at the time each principal installment is due and at maturity.
/ /

7. PREPAYMENT.

(a) Prepayments of all or any part of the Prime Rate Amount may be made at any
time without penalty.

(b) Except as otherwise specifically set forth heroin, Borrower may not prepay
all or any part of any LIBOR Amount or terminate any LIBOR Borrowing Rate,
except on the last day of the applicable LIBOR Interest Period.

(c) Principal prepayments will not postpone the date of or change the amount
of any regularly scheduled payment. At the time of any principal prepayment, all
accrued interest, fees, costs and expenses shall also be paid.

LIBORWA (6/97) Page 2 of 4

<PAGE>

8. CHANGE IN PAYMENT AMOUNT. Each time the interest rate on this note changes
the holder of this note may, from time to time, in holder's sole discretion,
increase or decrease the amount of each of the installments remaining unpaid at
the time of such change in rate to an amount holder in its sole discretion deems
necessary to continue amortizing the Principal Balance at the same rate
established by the installment amounts specified in Section 6(a), whether or not
a "balloon" payment may also be due upon maturity of this note. Holder shall
notify the undersigned of each such change in writing. Whether or not the
installment amount is increased under this Section 8, Borrower understands that,
as a result of increases in the rate of interest the final payment due, whether
or not a "balloon" payment, shall include the entire Principal Balance and
interest thereon then outstanding, and may be substantially more than the
installment specified in Section 6.

9. ALTERNATE PAYMENT DATE. Notwithstanding any other term of this note, if in
any month there is no day on which a scheduled payment would otherwise be due
(e.g. February 31 ), such payment shall be paid on the last banking day of that
month.

10. PAYMENT BY AUTOMATIC DEBIT.

/X/ Borrower hereby authorizes Lender to automatically deduct the amount of
all principal and interest payments from account number 0547-517821
at a branch of Lender. If there are insufficient funds in the account to pay the
automatic deduction in full, Lender may allow the account to become overdrawn,
or Lender may reverse the automatic deduction. Borrower will pay all the fees on
the account which result from the automatic deductions, including any overdraft
and non-sufficient funds charges. If for any reason Lender does not charge the
account for a payment, or if an automatic payment is reversed, the payment is
still due according to this note. If the account is a Money Market Account, the
number of withdrawals from that account is limited as set out in the account
agreement. Lender may cancel the automatic deduction at any time in its
discretion.

Provided, however, if no account number is entered above, Borrower does not want
to make payments by automatic debit.

11. DEFAULT.

(a) Without prejudice to any right of Lender to require payment on demand or
to decline to make any requested Advance, each of the following shall be an
event of default: (i) Borrower fails to make any payment when due. (ii) Borrower
fails to perform or comply with any term, covenant or obligation in this note or
any agreement related to this note, or in any other agreement or loan Borrower
has with Lender. (iii) Borrower defaults under any loan, extension of credit,
security agreement, purchase or sales agreement, or any other agreement, in
favor of any other creditor or person that may materially affect any of
Borrower's property or Borrower's ability to repay this note or perform
Borrower's obligations under this note or any related documents. (iv) Any
representation or statement made or furnished to Lender by Borrower or on
Borrower's behalf is false or misleading in any material respect either now or
at the time made or furnished. (v) Borrower dies, becomes insolvent, liquidates
or dissolves, a receiver is appointed for any part of Borrower's property,
Borrower makes an assignment for the benefit of creditors, or any proceeding is
commenced either by Borrower or against Borrower under any bankruptcy or
insolvency laws. (vi) Any creditor tries to take any of Borrower's property on
or in which Lender has a lien or security interest. This includes a garnishment
of any of Borrower's accounts with Lender. (vii) Any of the events described in
this default section occurs with respect to any general partner in Borrower or
any guarantor of this note, or any guaranty of Borrower's indebtedness to Lender
ceases to be, or is asserted not to be, in full force and effect. (viii) There
is any material adverse change in the financial condition or management of
Borrower or Lender in good faith deems itself insecure with respect to the
payment or performance of Borrower's obligations to Lender. If this note is
payable on demand, the inclusion of specific events of default shall not
prejudice Lender's right to require payment on demand or to decline to make any
requested Advance.

(b) Without prejudice to any right of Lender to require payment on demand,
upon the occurrence of an event of default, Lender may declare the entire unpaid
Principal Balance on this note and all accrued unpaid interest immediately due
and payable, without notice. Upon default, including failure to pay upon final
maturity, Lender, at its option, may also, if permitted under applicable law,
increase the interest rate on this note to a rate equal to the Prime Borrowing
Rate plus 5%. The interest rate will not exceed the maximum rate permitted by
applicable law. In addition, if any payment of principal or interest is 15 or
more days past due, Borrower will be charged a late charge of 5% of the
delinquent payment.

12. EVIDENCE OF PRINCIPAL BALANCE; PAYMENT ON DEMAND. Holder's records shall,
at any time, be conclusive evidence of the unpaid Principal Balance and interest
owing on this note. Notwithstanding any other provisions of this note, in the
event holder makes Advances hereunder which result in an unpaid Principal
Balance on this note which at any time exceeds the maximum amount specified in
Section 2, Borrower agrees that all such Advances, with interest, shall be
payable on demand.

13. LINE OF CREDIT PROVISIONS. If the type of credit indicated in Section 1 is
a revolving line of credit or a non-revolving line of credit, Borrower agrees
that Lender is under no obligation and has not committed to make any Advances
hereunder. Each Advance hereunder shall be made at the sole option of Lender.

14. DEMAND NOTE. If this note is payable on demand, Borrower acknowledges and
agrees that (a) Lender is entitled to demand Borrower's immediate payment in
full of all amounts owing hereunder and (b) neither anything to the contrary
contained herein or in any other loan documents (including but not limited to,
provisions relating to defaults, rights of cure, default rate of interest,
installment payments, late charges, periodic review of Borrower's financial
condition, and covenants) nor any act of Lender pursuant to any such provisions
shall limit or impair Lender's right or ability to require Borrower's payment in
full of all amounts owing hereunder immediately upon Lender's demand.

15. REQUESTS FOR ADVANCES.

(a) Any Advance may be made or interest rate option selected upon the request
of Borrower (if an individual), any of the undersigned (if Borrower consists of
more than one individual), any person or persons authorized in subsection (b) of
this Section 15, and any person or persons otherwise authorized to execute and
deliver promissory notes to Lender on behalf of Borrower.

(b) Borrower hereby authorizes any one of the following individuals to request
Advances and to select interest rate options:
Glenn Weistad, Ralph Peterson, Bob Sovern, Joseph Havlin and Joseph P.
Sambataro, Jr., unless Lender is otherwise instructed in writing.

(c) All Advances shall be disbursed by deposit directly to Borrower's account
number 0547-517821 at a branch of Lender, or by cashier's check issued to
Borrower.

(d) Borrower agrees that Lender shall have no obligation to verify the
identity of any person making any request pursuant to this Section 15, and
Borrower assumes all risks of the validity and authorization of such requests.
In consideration of Lender agreeing, at its sole discretion, to make Advances
upon such requests, Borrower promises to pay holder, in accordance with the
provisions of this note, the Principal Balance together with interest thereon
and other sums due hereunder, although any Advances may have been requested by a
person or persons not authorized to do so.

16. PERIODIC REVIEW. Lender will review Borrower's credit accommodations
periodically. At the time of the review, Borrower will furnish Lender with any
additional information regarding Borrower's financial condition and business
operations that Lender requests. This information may include but is not limited
to, financial statements, tax returns, lists of assets and liabilities, agings
of receivables and payables, inventory schedules, budgets and forecasts. If upon
review, Lender, in its sole discretion, determines that there has been a
material adverse change in Borrower's financial condition, Borrower will be in
default. Upon default, Lender shall have all rights specified herein.

17. NOTICES. Any notice hereunder may be given by ordinary mail, postage paid
and addressed to Borrower at the last known address of Borrower as shown on
holder's records. If Borrower consists of more than one person, notification of
any of said persons shall be complete notification of all.

18. ATTORNEY FEES. Whether or not litigation or arbitration is commenced,
Borrower promises to pay all costs of collecting overdue amounts. Without
limiting the foregoing, in the event that holder consults an attorney regarding
the enforcement of any of its rights under this note or any document securing
the same, or if this note is placed in the hands of an attorney for collection
or if suit or litigation is brought to enforce this note or any document
securing the same, Borrower promises to pay all costs thereof including such
additional sums as the court or arbitrator(s) may adjudge reasonable as attorney
fees, including without limitation, costs and attorney fees incurred in any
appellate court, in any proceeding under the bankruptcy code, or in any
receivership and post-judgment attorney fees incurred in enforcing any judgment.

19. WAIVERS; CONSENT. Each party hereto, whether maker, co-maker, guarantor or
otherwise, waives diligence, demand, presentment for payment, notice of
non-payment, protest and notice of protest and waives all defenses based on
suretyship or impairment of collateral. Without notice to Borrower and without
diminishing or affecting Lender's rights or Borrower's obligations hereunder,
Lender may deal in any manner with any person who at any time is liable for, or
provides any real or personal property collateral for, any indebtedness of
Borrower to Lender, including the indebtedness evidenced

LIBORWA (6/97) Page 3 of 4

<PAGE>

by this note. Without limiting the foregoing, Lender may, in its sole
discretion: (a) make secured or unsecured loans to Borrower and agree to any
number of waivers, modifications, extensions and renewals of any length of such
loans, including the loan evidenced by this note; (b) impair, release (with or
without substitution of new collateral), fail to perfect a security interest in,
fail to preserve the value of, fail to dispose of in accordance with applicable
law, any collateral provided by any person; (c) sue, fail to sue, agree not to
sue, release, and settle or compromise with, any person.

20. JOINT AND SEVERAL LIABILITY. All undertakings of the undersigned Borrowers
are joint and several and are binding upon any marital community of which any of
the undersigned are members. Holder's rights and remedies under this note shall
be cumulative.

21. SEVERABILITY. If any term or provision of this note is declared by a court
of competent jurisdiction to be illegal, invalid or unenforceable for any reason
whatsoever, such illegality, invalidity or unenforceability shall not affect the
balance of the terms and provisions hereof, which terms and provisions shall
remain binding and enforceable, and this note shall be construed as if such
illegal, invalid or unenforceable provision had not been contained herein.

23. GOVERNING LAW. This note shall be governed by and construed and enforced
in accordance with the laws of the State of Washington without regard to
conflicts of law principles; PROVIDED, however, that to the extent that Lender
has greater rights or remedies under Federal law, this provision shall not be
deemed to deprive Lender of such rights and remedies as may be available under
Federal law.

24. DISCLOSURE.

ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR
FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.

EACH OF THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS
DOCUMENT.

Borrower Name: LABOR READY, INC.

/s/ Joseph P. Sambataro CFO/EVP
- ----------------------------------------
Title

- --------------------------------------------------------------------------------

For valuable consideration, Lender agrees to the terms of the arbitration
provision set forth in this note.

Lender Name: U.S. Bank National Association

By:
----------------------------------------
Title:
-------------------------------------
Date:
--------------------------------------

<PAGE>

[LOGO]

COMMERCIAL SECURITY AGREEMENT

- --------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$40,000,000.00 06-18-1998 06-30-2000 397-83 365 4919402202 55640
- --------------------------------------------------------------------------------------------------------------------------------

</TABLE>

References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
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BORROWER: LABOR READY, INC. LENDER: U.S. BANK NATIONAL ASSOCIATION
1016 SOUTH 28TH STREET TACOMA CORPORATE BKG.
TACOMA, WA 98409 1145 BROADWAY
SUITE 1100
TACOMA, WA 98402

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THIS COMMERCIAL SECURITY AGREEMENT IS ENTERED INTO BETWEEN LABOR READY. INC.
(REFERRED TO BELOW AS "GRANTOR"); AND U.S. BANK NATIONAL ASSOCIATION (REFERRED
TO BELOW AS "LENDER"). FOR VALUABLE CONSIDERATION, GRANTOR GRANTS TO LENDER A
SECURITY INTEREST IN THE COLLATERAL TO SECURE THE INDEBTEDNESS AND AGREES THAT
LENDER SHALL HAVE THE RIGHTS STATED IN THIS AGREEMENT WITH RESPECT TO THE
COLLATERAL, IN ADDITION TO ALL OTHER RIGHTS WHICH LENDER MAY HAVE BY LAW.

AGREEMENT. The word "Agreement" means this Commercial Security Agreement,
as this Commercial Security Agreement may be amended or modified from time
to time, together with all exhibits and schedules attached to this
Commercial Security Agreement from time to time.

COLLATERAL. The word "Collateral" means the following described property of
Grantor, whether now owned or hereafter acquired, whether now existing or
hereafter arising, and wherever located:

ALL CHATTEL PAPER, ACCOUNTS AND GENERAL INTANGIBLES

In addition, the word "Collateral" includes all the following, whether now
owned or hereafter acquired, whether now existing or hereafter arising, and
wherever located:

(a) All accessions, accessories, increases, and additions to and all
replacements of and substitutions for any property described above.

(b) All products and produce of any of the property described in this
Collateral section.

(c) All accounts, general intangibles, instruments, rents, monies,
payments, and all other rights, arising out of a sale, lease, or other
disposition of any of the property described in this Collateral section.

(d) All proceeds (including insurance proceeds) from the sale, destruction,
loss, or other disposition of any of the property described in this
Collateral section.

(e) All records and data relating to any of the property described in this
Collateral section, whether in the form of a writing, photograph,
microfilm, microfiche, or electronic media, together with all of Grantor's
right, title, and interest in and to all computer software required to
utilize, create, maintain, and process any such records or data on
electronic media.

EVENT OF DEFAULT. The words "Event of Default" mean and include without
limitation any of the Events of Default set forth below in the section
titled "Events of Default."

GRANTOR. The word "Grantor" means LABOR READY, INC., its successors and
assigns

GUARANTOR. The word "Guarantor" means and includes without limitation each
and all of the guarantors, sureties, and accommodation parties in
connection with the Indebtedness.

INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by
the Note, including all principal and interest, together with all other
indebtedness and costs and expenses for which Grantor is responsible under
this Agreement or under any of the Related Documents. In addition, the word
"Indebtedness" includes all other obligations, debts and liabilities, plus
interest thereon, of Grantor, or any one or more of them, to Lender, as
well as all claims by Lender against Grantor, or any one or more of them,
whether existing now or later; whether they are voluntary or involuntary,
due or not due, direct or indirect, absolute or contingent, liquidated or
unliquidated; whether Grantor may be liable individually or jointly with
others; whether Grantor may be obligated as guarantor, surety,
accommodation party or otherwise; whether recovery upon such indebtedness
may be or hereafter may become barred by any statute of limitations; and
whether such indebtedness may be or hereafter may become otherwise
unenforceable.

LENDER. The word "Lender" means U.S. BANK NATIONAL ASSOCIATION, its
successors and assigns.

NOTE. The word "Note" means the note or credit agreement dated June 18,
1998, in the principal amount of $40,000,000.00 from LABOR READY, INC. to
Lender, together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of and substitutions for the note or credit
agreement.

RIGHT OF SETOFF. Grantor hereby grants Lender a contractual possessory security
interest in and hereby assigns, conveys, delivers, pledges, and transfers all of
Grantor's right, title and interest in and to Grantor's accounts with Lender
(whether checking, savings, or some other account), including all accounts held
jointly with someone else and all accounts Grantor may open in the future,
excluding, however, all IRA and Keogh accounts, and all trust accounts for which
the grant of a security interest would be prohibited by law. Grantor authorizes
Lender, to the extent permitted by applicable law, to charge or setoff all
Indebtedness against any and all such accounts, and, at Lender's option, to
administratively freeze all such accounts to allow Lender to protect Lender's
charge and setoff rights provided in this paragraph.

OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows:

PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's security interest in the Collateral. Upon
request of Lender, Grantor will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Grantor will note
Lender's interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Grantor hereby appoints Lender as its
Irrevocable attorney-in-fact for the purpose of executing any documents
necessary to perfect or to continue the security interest granted in this
Agreement. Lender may at any time, and without further authorization from
Grantor, file a carbon, photographic or other reproduction of any financing
statement or of this Agreement for use as a financing statement. Grantor
will reimburse Lender for all expenses for the perfection and the
continuation of the perfection of Lender's security interest in the
Collateral. Grantor promptly will notify Lender before any change in
Grantor's name including any change to the assumed business names of
Grantor. THIS IS A CONTINUING SECURITY AGREEMENT AND WILL CONTINUE IN
EFFECT EVEN THOUGH ALL OR ANY PART OF THE INDEBTEDNESS IS PAID IN FULL AND
EVEN THOUGH FOR A PERIOD OF TIME GRANTOR MAY NOT BE INDEBTED TO LENDER.

NO VIOLATION. The execution and delivery of this Agreement will not violate
any law or agreement governing Grantor or to which Grantor is a party, and
its certificate or articles of incorporation and bylaws do not prohibit any
term or condition of this Agreement.

ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of
accounts, chattel paper, or general intangibles, the Collateral is
enforceable in accordance with its terms, is genuine, and complies with
applicable laws concerning form, content and manner of preparation and
execution, and all persons appearing to be obligated on the Collateral have
authority and capacity to contract and are in fact obligated as they appear
to be on the Collateral. At the time any account becomes subject to a
security interest in favor of Lender, the account shall be a good and valid
account representing an undisputed, bona fide indebtedness incurred by the
account debtor, for merchandise held subject to delivery instructions or
theretofore shipped or delivered pursuant to a contract of sale, or for
services theretofore performed by Grantor with or for the account debtor;
there shall be no setoffs or counterclaims against any such account; and no
agreement under which any deductions or discounts may be claimed shall have
been made with the account debtor except those disclosed to Lender in
writing.

REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the extent
the Collateral consists of intangible property such as accounts, the
records concerning the Collateral) at Grantor's address shown above, or at
such other locations as are acceptable to Lender. Except in the ordinary
course of its business, including the sales of inventory, Grantor shall not
remove the Collateral from its existing locations without the prior written
consent of Lender. To the extent that the Collateral consists of vehicles,
or other titled property, Grantor shall not take or permit any action which
would require application for certificates of title for the vehicles
outside the State of Washington, without the prior written consent of

<PAGE>

06-18-1998 COMMERCIAL SECURITY AGREEMENT PAGE 2
LOAN NO 397-83 (CONTINUED)

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Lender.

TRANSACTIONS INVOLVING COLLATERAL. Except for inventory sold or accounts
collected in the ordinary course of Grantor's business, Grantor shall not
sell, offer to sell, or otherwise transfer or dispose of the Collateral.
Grantor shall not pledge, mortgage, encumber or otherwise permit the
Collateral to be subject to any lien, security interest, encumbrance, or
charge, other than the security interest provided for in this Agreement,
without the prior written consent of Lender. This includes security
interests even if junior in right to the security interests granted under
this Agreement. Unless waived by Lender, all proceeds from any disposition
of the Collateral (for whatever reason) shall be held in trust for Lender
and shall not be commingled with any other funds; provided however, this
requirement shall not constitute consent by Lender to any sale or other
disposition. Upon receipt, Grantor shall immediately deliver any such
proceeds to Lender.

TITLE. Grantor represents and warrants to Lender that it holds good and
marketable title to the Collateral, free and clear of all liens and
encumbrances except for the lien of this Agreement. No financing statement
covering any of the Collateral is on file in any public office other than
those which reflect the security interest created by this Agreement or to
which Lender has specifically consented. Grantor shall defend Lender's
rights in the Collateral against the claims and demands of all other
persons.

COLLATERAL SCHEDULES AND LOCATIONS. As often as Lender shall require, and
insofar as the Collateral consists of accounts and general intangibles,
Grantor shall deliver to Lender schedules of such Collateral, including
such information as Lender may require, including without limitation names
and addresses of account debtors and agings of accounts and general
intangibles. Such information shall be submitted for Grantor and each of
its subsidiaries or related companies.

MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all
tangible Collateral in good condition and repair. Grantor will not commit
or permit damage to or destruction of the Collateral or any part of the
Collateral. Lender and its designated representatives and agents shall have
the right at all reasonable times to examine, inspect, and audit the
Collateral wherever located. Grantor shall immediately notify Lender of all
cases involving the return, rejection, repossession, loss or damage of or
to any Collateral; of any request for credit or adjustment or of any other
dispute arising with respect to the Collateral; and generally of all
happenings and events affecting the Collateral or the value or the amount
of the Collateral.

TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes,
assessments and liens upon the Collateral, its use or operation, upon this
Agreement, upon any promissory note or notes evidencing the Indebtedness,
or upon any of the other Related Documents. Grantor may withhold any such
payment or may elect to contest any lien if Grantor is in good faith
conducting an appropriate proceeding to contest the obligation to pay and
so long as Lender's interest in the Collateral is not jeopardized in
Lender's sole opinion. If the Collateral is subjected to a lien which is
not discharged within fifteen (15) days, Grantor shall deposit with Lender
cash, a sufficient corporate surety bond or other security satisfactory to
Lender in an amount adequate to provide for the discharge of the lien plus
any interest, costs, attorneys' fees or other charges that could accrue as
a result of foreclosure or sale of the Collateral. In any contest Grantor
shall defend itself and Lender and shall satisfy any final adverse judgment
before enforcement against the Collateral. Grantor shall name Lender as an
additional obligee under any surety bond furnished in the contest
proceedings.

COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly
with all laws, ordinances, rules and regulations of all governmental
authorities, now or hereafter in effect, applicable to the ownership,
production, disposition, or use of the Collateral. Grantor may contest in
good faith any such law, ordinance or regulation and withhold compliance
during any proceeding, including appropriate appeals, so long as Lender's
interest in the Collateral, in Lender's opinion, is not jeopardized.

HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral
never has been, and never will be so long as this Agreement remains a lien
on the Collateral, used for the generation, manufacture, storage,
transportation, treatment, disposal, release or threatened release of any
hazardous waste or substance, as those terms are defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"),
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901.
et seq., or other applicable state or Federal laws, rules, or regulations
adopted pursuant to any of the foregoing. The terms "hazardous waste" and
"hazardous substance" shall also include, without limitation, petroleum and
petroleum by-products or any fraction thereof and asbestos. The
representations and warranties contained herein are based on Grantor's due
diligence in investigating the Collateral for hazardous wastes and
substances. Grantor hereby (a) releases and waives any future claims
against Lender for indemnity or contribution in the event Grantor becomes
liable for cleanup or other costs under any such laws, and (b) agrees to
indemnify and hold harmless Lender against any and all claims and losses
resulting from a breach of this provision of this Agreement. This
obligation to indemnify shall survive the payment of the Indebtedness and
the satisfaction of this Agreement.

MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all
risks insurance, including without limitation fire, theft and liability
coverage together with such other insurance as Lender may require with
respect to the Collateral, in form, amounts, coverages and basis reasonably
acceptable to Lender and issued by a company or companies reasonably
acceptable to Lender. Grantor, upon request of Lender, will deliver to
Lender from time to time the policies or certificates of insurance in form
satisfactory to Lender, including stipulations that coverages will not be
cancelled or diminished without at least ten (10) days' prior written
notice to Lender and not including any disclaimer of the insurer's
liability for failure to give such a notice. Each insurance policy also
shall include an endorsement providing that coverage in favor of Lender
will not be impaired in any way by any act, omission or default of Grantor
or any other person. In connection with all policies covering assets in
which Lender holds or is offered a security interest, Grantor will provide
Lender with such loss payable or other endorsements as Lender may require.
If Grantor at any time fails to obtain or maintain any insurance as
required under this Agreement, Lender may (but shall not be obligated to)
obtain such insurance as Lender deems appropriate, including if it so
chooses "single interest insurance," which will cover only Lender's
interest in the Collateral.

APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of
any loss or damage to the Collateral. Lender may make proof of loss if
Grantor fails to do so within fifteen (15) days of the casualty. All
proceeds of any insurance on the Collateral, including accrued proceeds
thereon, shall be held by Lender as part of the Collateral. If Lender
consents to repair or replacement of the damaged or destroyed Collateral,
Lender shall, upon satisfactory proof of expenditure, pay or reimburse
Grantor from the proceeds for the reasonable cost of repair or restoration.
If Lender does not consent to repair or replacement of the Collateral,
Lender shall retain a sufficient amount of the proceeds to pay all of the
Indebtedness, and shall pay the balance to Grantor. Any proceeds which have
not been disbursed within six (6) months after their receipt and which
Grantor has not committed to the repair or restoration of the Collateral
shall be used to prepay the Indebtedness.

INSURANCE RESERVES. Lender may require Grantor to maintain with Lender
reserves for payment of insurance premiums, which reserves shall be created
by monthly payments from Grantor of a sum estimated by Lender to be
sufficient to produce, at least fifteen (15) days before the premium due
date, amounts at least equal to the insurance premiums to be paid. If
fifteen (15) days before payment is due, the reserve funds are
insufficient, Grantor shall upon demand pay any deficiency to Lender. The
reserve funds shall be held by Lender as a general deposit and shall
constitute a non-interest-bearing account which Lender may satisfy by
payment of the insurance premiums required to be paid by Grantor as they
become due. Lender does not hold the reserve funds in trust for Grantor,
and Lender is not the agent of Grantor for payment of the insurance
premiums required to be paid by Grantor. The responsibility for the payment
of premiums shall remain Grantor's sole responsibility.

INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to Lender
reports on each existing policy of insurance showing such information as
Lender may reasonably request including the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy; (d) the
property insured; (e) the then current value on the basis of which
insurance has been obtained and the manner of determining that value; and
(1) the expiration date of the policy. In addition, Grantor shall upon
request by Lender (however not mere often than annually) have an
independent appraiser satisfactory to Lender determine, as applicable, the
cash value or replacement cost of the Collateral.

GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except
as otherwise provided below with respect to accounts, Grantor may have
possession of the tangible personal property and beneficial use of all the
Collateral and may use it in any lawful manner not inconsistent with this
Agreement or the Related Documents, provided that Grantor's right to possession
and beneficial use shall not apply to any Collateral where possession of the
Collateral by Lender is required by law to perfect Lender's security interest In
such Collateral. Until otherwise notified by Lender, Grantor may collect any of
the Collateral consisting of accounts. At any time and even though no Event of
Default exists, Lender may exercise its rights to collect the accounts and to
notify account debtors to make payments directly to Lender for application to
the Indebtedness. If Lender at any time has possession of any Collateral,
whether before or after an Event of Default, Lender shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral if
Lender takes such action for that purpose as Grantor shall request or as Lender,
in Lender's sole discretion, shall deem appropriate under the circumstances, but
failure to honor any request by Grantor shall not of itself be deemed to be a
failure to exercise reasonable care. Lender shall not be required to take any
steps necessary to preserve any rights in the Collateral against prior parties,
nor to protect, preserve or maintain any security interest given to secure the
Indebtedness.

EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but
shall not be obligated to) discharge or pay any amounts required to be
discharged or paid by Grantor under this Agreement, including without limitation
all taxes, liens, security interests, encumbrances, and other claims, at any
time levied or placed on the Collateral. Lender also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Grantor. All such
expenses shall become a part of the Indebtedness and, at Lender's option, will
(a) be payable on demand, (b) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (i) the term of any applicable insurance policy or (ii) the
remaining term of the Note, or (c) be treated as a balloon payment which will be
due and payable at the Note's maturity. This Agreement also will secure payment
of these amounts. Such

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06-18-1998 COMMERCIAL SECURITY AGREEMENT PAGE 3
LOAN NO 397-83 (CONTINUED)

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right shall be in addition to all other rights and remedies to which Lender may
be entitled upon the occurrence of an Event of Default.

EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:

DEFAULT ON INDEBTEDNESS. Failure of Grantor to make any payment when due on
the Indebtedness.

OTHER DEFAULTS. Failure of Grantor to comply with or to perform any other
term, obligation, covenant or condition contained in this Agreement or in
any of the Related Documents or in any other note, security agreement,
lease agreement or lease schedule, loan agreement or other agreement,
whether now existing or hereafter made, between Grantor and U.S. Bancorp or
any direct or indirect subsidiary of U.S. Bancorp.

FALSE STATEMENTS. Any warranty, representation or statement made or
furnished to Lender by or on behalf of Grantor under this Agreement, the
Note or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished.

DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
documents to create a valid and perfected security interest or lien) at any
time and for any reason.

INSOLVENCY. The dissolution or termination of Grantor's existence as a
going business, the insolvency of Grantor, the appointment of a receiver
for any part of Grantor's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Grantor.

CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Grantor or by any
governmental agency against the Collateral or any other collateral securing
the Indebtedness. This includes a garnishment of any of Grantor's deposit
accounts with Lender.

EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or such Guarantor dies or
becomes incompetent.

INSECURITY. Lender, in good faith, deems itself insecure.

RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this
Agreement, at any time thereafter, Lender shall have all the rights of a secured
party under the Washington Uniform Commercial Code. In addition and without
limitation, Lender may exercise any one or more of the following rights and
remedies:

ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness,
including any prepayment penalty which Grantor would be required to pay,
immediately due and payable, without notice.

ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all or
any portion of the Collateral and any and all certificates of title and
other documents relating to the Collateral. Lender may require Grantor to
assemble the Collateral and make it available to Lender at a place to be
designated by Lender. Lender also shall have full power to enter upon the
property of Grantor to take possession of and remove the Collateral. If the
Collateral contains other goods not covered by this Agreement at the time
of repossession, Grantor agrees Lender may take such other goods, provided
that Lender makes reasonable efforts to return them to Grantor after
repossession.

SELL THE COLLATERAL. Lender shall have full power to sell, lease, transfer,
or otherwise deal with the Collateral or proceeds thereof in its own name
or that of Grantor. Lender may sell the Collateral at public auction or
private sale. Unless the Collateral threatens to decline speedily in value
or is of a type customarily sold on a recognized market, Lender will give
Grantor reasonable notice of the time after which any private sale or any
other intended disposition of the Collateral is to be made. The
requirements of reasonable notice shall be met if such notice is given at
least ten (10) days before the time of the sale or disposition. All
expenses relating to the disposition of the Collateral, including without
limitation the expenses of retaking, holding, insuring, preparing for sale
and selling the Collateral, shall become a part of the Indebtedness secured
by this Agreement and shall be payable on demand, with interest at the Note
rate from date of expenditure until repaid.

APPOINT RECEIVER. To the extent permitted by applicable law, Lender shall
have the following rights and remedies regarding the appointment of a
receiver: (a) Lender may have a receiver appointed as a matter of right,
(b) the receiver may be an employee of Lender and may serve without bond,
and (c) all fees of the receiver and his or her attorney shall become part
of the Indebtedness secured by this Agreement and shall be payable on
demand, with interest at the Note rate from date of expenditure until
repaid.

COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a
receiver, may collect the payments, rents, income, and revenues from the
Collateral. Lender may at any time in its discretion transfer any
Collateral into its own name or that of its nominee and receive the
payments, rents, income, and revenues therefrom and hold the same as
security for the Indebtedness or apply it to payment of the Indebtedness in
such order of preference as Lender may determine. Insofar as the Collateral
consists of accounts, general intangibles, insurance policies, instruments,
chattel paper, choses in action, or similar property, Lender may demand,
collect, receipt for, settle, compromise, adjust, sue for, foreclose, or
realize on the Collateral as Lender may determine, whether or not
Indebtedness or Collateral is then due. For these purposes, Lender may, on
behalf of and in the name of Grantor, receive, open and dispose of mail
addressed to Grantor; change any address to which mail and payments are to
be sent; and endorse notes, checks, drafts, money orders, documents of
title, instruments and items pertaining to payment, shipment, or storage of
any Collateral. To facilitate collection, Lender may notify account debtors
and obligors on any Collateral to make payments directly to Lender.

OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral,
Lender may obtain a judgment against Grantor for any deficiency remaining
on the Indebtedness due to Lender after application of all amounts received
from the exercise of the rights provided in this Agreement. Grantor shall
be liable for a deficiency even if the transaction described in this
subsection is a sale of accounts or chattel paper.

OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies
of a secured creditor under the provisions of the Uniform Commercial Code,
as may be amended from time to time. In addition, Lender shall have and may
exercise any or all other rights and remedies it may have available at law,
in equity, or otherwise.

CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether evidenced
by this Agreement or the Related Documents or by any other writing, shall
be cumulative and may be exercised singularly or concurrently. Election by
Lender to pursue any remedy shall not exclude pursuit of any other remedy,
and an election to make expenditures or to take action to perform an
obligation of Grantor under this Agreement, after Grantor's failure to
perform, shall not affect Lender's right to declare a default and to
exercise its remedies.

MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Agreement:

APPLICABLE LAW. This Agreement has been delivered to Lender and accepted by
Lender in the State of Washington. If there is a lawsuit, Grantor agrees
upon Lender's request to submit to the jurisdiction of the courts of King
County, the State of Washington. Subject to the provisions on arbitration,
this Agreement shall be governed by and construed in accordance with the
laws of the State of Washington.

ARBITRATION. Lender and Grantor agree that all disputes, claims and
controversies between them, whether individual, joint, or class in nature,
arising from this Agreement or otherwise, including without limitation
contract and tort disputes, shall be arbitrated pursuant to the Rules of
the American Arbitration Association, Upon request of either party. No act
to take or dispose of any Collateral shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief or a temporary
restraining order; invoking a power of sale under any deed of trust or
mortgage; obtaining a writ of attachment or imposition of a receiver; or
exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to
Article 9 of the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness of any act, or
exercise of any right, concerning any Collateral, including any claim to
rescind, reform, or otherwise modify any agreement relating to the
Collateral, shall also be arbitrated, provided however that no arbitrator
shall have the right or the power to enjoin or restrain any act of any
party. Judgment upon any award rendered by any arbitrator may be entered in
any court having jurisdiction. Nothing in this Agreement shall preclude any
party from seeking equitable relief from a court of competent jurisdiction.
The statute of limitations, estoppel, waiver, laches, and similar doctrines
which would otherwise be applicable in an action brought by a party shall
be applicable in any arbitration proceeding, and the commencement of an
arbitration proceeding shall be deemed the commencement of an action for
these purposes. The Federal Arbitration Act shall apply to the
construction, interpretation, and enforcement of this arbitration
provision.

ATTORNEYS' FEES; EXPENSES. Grantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Agreement.
Lender may pay someone else to help enforce this Agreement, and Grantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Grantor also shall pay all court costs and such additional fees
as may be directed by the court

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06-18-1998 COMMERCIAL SECURITY AGREEMENT PAGE 4
LOAN NO 397-83 (CONTINUED)

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CAPTION HEADINGS. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.

MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Grantor under
this Agreement shall be joint and several, and all references to Grantor
shall mean each and every Grantor. This means that each of the persons
signing below is responsible for all obligations in this Agreement.

NOTICES. All notices required to be given under this Agreement shall be
given in writing, may be sent by telefacsimile (unless otherwise required
by law), and shall be effective when actually delivered or when deposited
with a nationally recognized overnight courier or deposited in the United
States mail, first class, postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above. Any party may change
its address for notices under this Agreement by giving formal written
notice to the other parties, specifying that the purpose of the notice is
to change the party's address. To the extent permitted by applicable law,
if there is more than one Grantor, notice to any Grantor will constitute
notice to all Grantors. For notice purposes, Grantor will keep Lender
informed at all times of Grantor's current address(es).

POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful
attorney-in-fact, irrevocably, with full power of substitution to do the
following: (a) to demand, collect, receive, receipt for, sue and recover
all sums of money or other property which may now or hereafter become due,
owing or payable from the Collateral; (b) to execute, sign and endorse any
and all claims, instruments, receipts, checks, drafts or warrants issued in
payment for the Collateral; (c) to settle or compromise any and all claims
arising under the Collateral, and, in the place and stead of Grantor, to
execute and deliver its release and settlement for the claim; and (d) to
file any claim or claims or to take any action or institute or take part in
any proceedings, either in its own name or in the name of Grantor, or
otherwise, which in the discretion of Lender may seem to be necessary or
advisable. This power is given as security for the Indebtedness, and the
authority hereby conferred is and shall be irrevocable and shall remain in
full force and effect until renounced by Lender.

PREFERENCE PAYMENTS. Any monies Lender pays because of an asserted
preference claim in Borrower's bankruptcy will become a part of the
Indebtedness and, at Lender's option, shall be payable by Borrower as
provided above in the "EXPENDITURES BY LENDER" paragraph.

SUCCESSOR INTERESTS. Subject to the limitations set forth above on transfer
of the Collateral, this Agreement shall be binding upon and inure to the
benefit of the parties, their successors and assigns.

WAIVER. Lender shall not be deemed to have waived any rights under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall
operate as a waiver of such right or any other right. A waiver by Lender of
a provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Grantor, shall constitute a waiver of
any of Lender's rights or of any of Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under this
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.

WAIVER OF CO-OBLIGOR'S RIGHTS. If more than one person is obligated for
the Indebtedness, Borrower irrevocably waives, disclaims and relinquishes
all claims against such other person which Borrower has or would otherwise
have by virtue of payment of the Indebtedness or any part thereof,
specifically including but not limited to all rights of indemnity,
contribution or exoneration.

GRANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY
AGREEMENT, AND GRANTOR AGREES TO ITS TERMS. THIS AGREEMENT IS DATED JUNE 18,
1998.

GRANTOR:

LABOR READY, INC.

By: /s/ Joseph P. Sambataro
-------------------------------------
Title: CFO/EVP
-------------------------------

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

[LOGO]

DISBURSEMENT REQUEST AND AUTHORIZATION

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$40,000,000.00 06-18-1998 06-30-2000 397-83 365 4919402202 55640
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

BORROWER: LABOR READY, INC. LENDER: U.S. BANK NATIONAL ASSOCIATION
1016 SOUTH 28TH STREET TACOMA CORPORATE BKG.
TACOMA, WA 98409 1145 BROADWAY
SUITE 1100
TACOMA, WA 98402
- --------------------------------------------------------------------------------

LOAN TYPE. This is a Variable Rate (at LENDER'S PRIME RATE. THIS IS THE RATE
OF INTEREST WHICH LENDER FROM TIME TO TIME ESTABLISHES AS ITS PRIME RATE AND IS
NOT, FOR EXAMPLE, THE LOWEST RATE OF INTEREST WHICH LENDER COLLECTS FROM ANY
BORROWER OR CLASS OF BORROWERS), Revolving Line of Credit Loan to a Corporation
for $40,000,000.00 due on June 30, 2000. This is a secured renewal loan.

PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for:

/ / PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES OR PERSONAL INVESTMENT.

/X/ BUSINESS (INCLUDING REAL ESTATE INVESTMENT).

SPECIFIC PURPOSE. The specific purpose of this loan is: Fund receivables;
general working capital requirements; standby L/C issuance.

DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be
disbursed until all of Lender's conditions for making the loan have been
satisfied. Please disburse the loan proceeds of $40,000,000.00 as follows:

--------------

NOTE PRINCIPAL: $40,000,000.00

PAYMENT BY AUTOMATIC DEDUCTION. Borrower hereby authorizes Lender to
automatically deduct the amount of all principal and/or interest payments on
this Note from Borrower's account number 0547-517821 with Lender or such other
account as Borrower may designate in writing. If there are insufficient funds in
the account to pay the automatic deduction in full, Lender may allow the account
to become overdrawn, or Lender may reverse the automatic deduction. Borrower
will pay all fees on the account which result from the automatic deductions,
including any overdraft/NSF charges. If for any reason Lender does not charge
the account for a payment, or if an automatic payment is reversed, the payment
is still due according to this Note. If the account is a Money Market Account,
the number of withdrawals from that account is limited as set out in the account
agreement. Lender may cancel the automatic deduction at any time in its
discretion.

STATUTE OF FRAUDS DISCLOSURE. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY,
EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW.

LOAN FEE. Borrower shall pay to Lender an unused commitment fee of .125%,
assessed quarterly in arrears.

FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND
WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND
THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION
AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER. THIS
AUTHORIZATION IS DATED JUNE 18, 1998.

BORROWER:

LABOR READY, INC.

BY: /s/ Joseph P. Sambataro
-------------------------------------
Title: CFO/EVP
-------------------------------

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Variable Rate. Line of Credit.
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.24c (c) 1998 CFI ProServices, Inc.
All rights reserved. [WA-120 E3.24 LABORRI.LN C3.0VL]

<PAGE>

CORPORATE RESOLUTION TO BORROW

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$40,000,000.00 06-18-1998 06-30-2000 397-83 365 4919402202 55640 /S/ [ILLEGIBLE]
- ----------------------------------------------------------------------------------------------------------------------

</TABLE>

References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.

I, THE UNDERSIGNED SECRETARY OR ASSISTANT SECRETARY OF LABOR READY, INC. (THE
"CORPORATION"), HEREBY CERTIFY THAT the Corporation is organized and existing
under and by virtue of the laws of the State of Washington as a corporation for
profit, with its principal office at 1016 South 28th Street, Tacoma, WA 98409,
and is duly authorized to transact business in the State of Washington.

I FURTHER CERTIFY that at a meeting of the Directors of the Corporation, duly
called and held on JUNE 18, 1998, at which a quorum was present and voting, or
by other duly authorized corporate action in lieu of a meeting, the following
resolutions were adopted:

BE IT RESOLVED, that ANY ONE (1) of the following named officers, employees, or
agents of this Corporation, whose actual signatures are shown below:

NAMES POSITIONS ACTUAL SIGNATURES
----- --------- -----------------
<S> <C> <C>
Glenn E. Welstad President and C.E.O. X /s/ Glenn E. Welstad
-----------------------------
Joseph P. Sambataro, Jr. Executive E.V.P. X /s/ Joseph P. Sambataro, Jr.
and C.F.O. -----------------------------
</TABLE>

acting for and on behalf of the Corporation and as its act and deed be, and they
hereby are, authorized and empowered:

BORROW MONEY. To borrow from time to time from U.S. BANK NATIONAL
ASSOCIATION ("Lender"), on such terms as may be agreed upon between the
Corporation and Lender, such sum or sums of money as in their judgment
should be borrowed, without limitation.

EXECUTE NOTES. To execute and deliver to Lender the promissory note or
notes, or other evidence of credit accomodations of the Corporation, on
Lender's forms, at such rates of interest and on such terms as may be
agreed upon, evidencing the sums of money so borrowed or any indebtedness
of the Corporation to Lender, and also to execute and deliver to Lender one
or more renewals, extensions, modifications, refinancings, consolidations,
or substitutions for one or more of the notes, any portion of the notes, or
any other evidence of credit accomodations.

GRANT SECURITY. To mortgage, pledge, transfer, endorse, hypothecate, or
otherwise encumber and deliver to Lender, as security for the payment of
any loans or credit accomodations so obtained, any promissory notes so
executed (including any amendments to or modifications, renewals, and
extensions of such promissory notes), or any other or further indebtedness
of the Corporation to Lender at any time owing, however the same may be
evidenced, any property now or hereafter belonging to the Corporation or in
which the Corporation now or hereafter may have an interest, including
without limitation all real property and all personal property (tangible or
intangible) of the Corporation. Such property may be mortgaged, pledged,
transferred, endorsed, hypothecated, or encumbered at the time such loans
are obtained or such indebtedness is incurred, or at any other time or
times, and may be either in addition to or in lieu of any property
theretofore mortgaged, pledged, transferred, endorsed, hypothecated, or
encumbered.

EXECUTE SECURITY DOCUMENTS. To execute and deliver to Lender the forms of
mortgage, deed of trust, pledge agreement, hypothecation agreement, and
other security agreements and financing statements which may be submitted
by Lender, and which shall evidence the terms and conditions under and
pursuant to which such liens and encumbrances, or any of them, are given;
and also to execute and deliver to Lender any other written instruments,
any chattel paper, or any other collateral, of any kind or nature, which
they may in their discretion deem reasonably necessary or proper in
connection with or pertaining to the giving of the liens and encumbrances.

NEGOTIATE ITEMS. To draw, endorse, and discount with Lender all drafts,
trade acceptances, promissory notes, or other evidences of indebtedness
payable to or belonging to the Corporation in which the Corporation may
have an interest, and either to receive cash for the same or to cause such
proceeds to be credited to the account of the Corporation with Lender, or
to cause such other disposition of the proceeds derived therefrom as they
may deem advisable.

FURTHER ACTS. In the case of lines of credit, to designate additional or
alternate individuals as being authorized to request advances thereunder,
and in all cases, to do and perform such other acts and things, to pay any
and all fees and costs, and to execute and deliver such other documents and
agreements as they may in their discretion deem reasonably necessary or
proper in order to carry into effect the provisions of these Resolutions.
The following person or persons currently are authorized to request
advances and authorize payments under the line of credit until Lender
receives written notice of revocation of their authority: Glenn Welstad;
Joseph P. Sambataro, Jr.; Ralph Peterson; Bob Sovern; and Joseph Havlin.

BE IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
Resolutions and performed prior to the passage of these Resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Lender may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Lender. Any such notice
shall not affect any of the Corporation's agreements or commitments in effect at
the time notice is given.

BE IT FURTHER RESOLVED, that the Corporation will notify Lender in writing at
Lender's address shown above (or such other addresses as Lender may designate
from time to time) prior to any (a) change in the name of the Corporation, (b)
change in the assumed business name(s) of the Corporation, (c) change in the
management of the Corporation, (d) change in the authorized signer(s), (e)
conversion of the Corporation to a new or different type of business entity, or
(f) change in any other aspect of the Corporation that directly or indirectly
relates to any agreements between the Corporation and Lender. No change in the
name of the Corporation will take effect until after Lender has been notified.

STATUTE OF FRAUDS DISCLOSURE. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN
MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT
ENFORCEABLE UNDER WASHINGTON LAW.

I FURTHER CERTIFY that the officers, employees, and agents named above are duly
elected, appointed, or employed by or for the Corporation, as the case may be,
and occupy the positions set opposite their respective names; that the foregoing
Resolutions now stand of record on the books of the Corporation; and that the
Resolutions are in full force and effect and have not been modified or revoked
in any manner whatsoever. The Corporation has no corporate seal, and therefore,
no seal is affixed to this certificate.

IN TESTIMONY WHEREOF, I HAVE HEREUNTO SET MY HAND ON JUNE 18, 1998 AND ATTEST
THAT THE SIGNATURES SET OPPOSITE THE NAMES LISTED ABOVE ARE THEIR GENUINE
SIGNATURES.

CERTIFIED TO AND ATTESTED BY:

X
----------------------------------
X /s/ Ronald L. Junck, Sec'y.
---------------------------------

NOTE: In case the Secretary or other certifying officer is designated by the
foregoing resolutions as one of the signing officers, it is advisable to have
this certificate signed by a second Officer or Director of the Corporation.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.24c (c) 1998 CFI ProServices, Inc.
All rights reserved. [WA-C10 E3.24 F3.24 LABORRI.LN C3.OVL]

<PAGE>

SECRETARY'S CERTIFICATE

I, the undersigned Secretary or Assistant Secretary of LABOR READY, INC.
(the "Corporation") hereby certify that the Corporation is organized and
existing under and by virtue of the laws of the State of Washington as a
corporation for profit, with its principal office at 1016 South 28th Street,
Tacoma, Washington, 98409, and is duly authorized to transact business in the
State of Washington.

I further certify that at a meeting of the directors of the Corporation,
duly called and held on November 4, 1997, at which a quorum was present and
voting, or by other duly authorized corporate action in lieu of a meeting, the
resolutions reflected in the attached Corporate Resolution to Borrow ("Corporate
Resolution") were adopted.

I further certify that the officers, employees, and agents named in the
Corporate Resolution are duly elected, appointed, and employed by or for the
Corporation and continue to occupy the position set forth opposition their
respective name.

I further certify that the Corporate Resolution now stands of record on the
books of the Corporation, the resolutions are in full force and effect and have
not been modified or revoked in any manner whatsoever.

The Corporation has no corporate seal and, therefore, no seal has been
affixed to this Certificate.

IN TESTIMONY HEREOF, I HAVE HEREUNTO SET MY HAND ON THIS 24TH DAY OF JUNE,
1998.

CERTIFIED TO AND ATTESTED BY:

/s/ Ronald L. Junck, Secretary
----------------------------------------

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JULY 3,
1998 CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S FORM 10-Q AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUL-03-1998
<CASH> 15,289
<SECURITIES> 0
<RECEIVABLES> 61,319
<ALLOWANCES> (3,253)
<INVENTORY> 0
<CURRENT-ASSETS> 81,399
<PP&E> 22,913
<DEPRECIATION> (4,180)
<TOTAL-ASSETS> 105,803
<CURRENT-LIABILITIES> 27,256
<BONDS> 70
0
854
<COMMON> 50,894
<OTHER-SE> 10,724
<TOTAL-LIABILITY-AND-EQUITY> 105,803
<SALES> 0
<TOTAL-REVENUES> 237,028
<CGS> 0
<TOTAL-COSTS> 166,284
<OTHER-EXPENSES> 62,128
<LOSS-PROVISION> 2,799
<INTEREST-EXPENSE> (112)
<INCOME-PRETAX> 5,929
<INCOME-TAX> 2,436
<INCOME-CONTINUING> 3,493
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,493
<EPS-PRIMARY> .13
<EPS-DILUTED> .12

</TABLE>

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1997 CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE COMPANY'S FORM 10-Q AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,145
<SECURITIES> 0
<RECEIVABLES> 34,882
<ALLOWANCES> (1,558)
<INVENTORY> 0
<CURRENT-ASSETS> 48,036
<PP&E> 12,136
<DEPRECIATION> (2,220)
<TOTAL-ASSETS> 68,941
<CURRENT-LIABILITIES> 15,992
<BONDS> 83
0
854
<COMMON> 49,215
<OTHER-SE> 1,167
<TOTAL-LIABILITY-AND-EQUITY> 51,236
<SALES> 0
<TOTAL-REVENUES> 129,334
<CGS> 0
<TOTAL-COSTS> 90,169
<OTHER-EXPENSES> 36,855
<LOSS-PROVISION> 1,556
<INTEREST-EXPENSE> (278)
<INCOME-PRETAX> 1,032
<INCOME-TAX> 446
<INCOME-CONTINUING> 586
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 586
<EPS-PRIMARY> .02<F1>
<EPS-DILUTED> .02<F1>
<FN>
<F1>ADJUSTED FOR THE COMPANY'S 3 FOR 2 STOCK SPLITS EFFECTIVE 10/24/97 AND
6/9/98
</FN>

</TABLE>