Sample Business Contracts


Credit and Security Agreement - SkyMall Inc., Durham & Co. and Imperial Bank

Loan Forms


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                          CREDIT AND SECURITY AGREEMENT

                                  by and among

                                  SKYMALL, INC.
                              a Nevada corporation,




                                skymall.com, inc.
                              a Nevada corporation,


                                DURHAM & COMPANY,
                               a Utah corporation


                                       and


                                  IMPERIAL BANK
                        a California banking corporation




                                   Dated as of

                                  June 30, 1999


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<PAGE>

                                TABLE OF CONTENTS

                                                                            Page

RECITALS..................................................................    1

ARTICLE I     Definitions.................................................    2
     Section 1.1   Definitions............................................    2
     Section 1.2   Terms Generally........................................   10

ARTICLE II    The RLC.....................................................   11
     Section 2.1   RLC Commitment.........................................   11
     Section 2.2   Revolving Line.........................................   11
     Section 2.3   RLC Note...............................................   11
     Section 2.4   RLC....................................................   11
     Section 2.5   Excess Balance Repayment...............................   13
     Section 2.6   Conditions.............................................   13
     Section 2.7   Other RLC Advances.....................................   13
     Section 2.8   Assignment.............................................   14
     Section 2.9   Liability Records......................................   14
     Section 2.10  Setoff.................................................   14

ARTICLE III   Payments, Fees and Eurodollar Provisions....................   15
     Section 3.1   Payments...............................................   15
     Section 3.2   Loan Fees..............................................   15
     Section 3.3   Computations...........................................   16
     Section 3.4   Maintenance of Accounts................................   16
     Section 3.5   Special Provisions for LIBOR Rate Advances.............   16
     Section 3.6   Prepayments............................................   18

ARTICLE IV    Security Interest...........................................   20
     Section 4.1   Grant of Security Interest.............................   20
     Section 4.2   Notification of Account Debtors and Other Obligors.....   20
     Section 4.3   Assignment of Insurance................................   20
     Section 4.4   Occupancy..............................................   21
     Section 4.5   License................................................   21

ARTICLE V     Conditions of Lending.......................................   22
     Section 5.1   Conditions Precedent to the Initial RLC Advance........   22
     Section 5.2   Conditions Precedent to All RLC Advances...............   23

ARTICLE VI    Representations and Warranties..............................   25
     Section 6.1   Recitals...............................................   25


                                       -i-
<PAGE>

     Section 6.2   Corporate Existence and Power, Name; Chief Executive
                   Office; Inventory and Equipment Locations..............   25
     Section 6.3   Authorization of Borrowing; No Conflict as to Law or
                   Agreements.............................................   25
     Section 6.4   Legal Agreements.......................................   25
     Section 6.5   Subsidiaries...........................................   26
     Section 6.6   Financial Condition; No Adverse Change.................   26
     Section 6.7   Litigation.............................................   26
     Section 6.8   Regulation U...........................................   26
     Section 6.9   Taxes..................................................   26
     Section 6.10  Titles and Liens.......................................   26
     Section 6.11  Plans..................................................   27
     Section 6.12  Default................................................   27
     Section 6.13  Environmental Protection...............................   27
     Section 6.14  Submissions to the Lender..............................   28
     Section 6.15  Financing Statements...................................   28
     Section 6.16  Rights to Payment......................................   28
     Section 6.17  Year 2000 Compliance...................................   28

ARTICLE VII   Affirmative Covenants of the Borrower.......................   30
     Section 7.1   Reporting Requirements.................................   30
     Section 7.2   Books and Records, Inspection and Examination..........   32
     Section 7.3   Account Verification...................................   32
     Section 7.4   Compliance with Laws; Environmental Indemnity..........   32
     Section 7.5   Payment of Taxes and Other Claims......................   33
     Section 7.6   Maintenance of Properties..............................   33
     Section 7.7   Insurance..............................................   33
     Section 7.8   Preservation of Corporate Existence....................   34
     Section 7.9   Delivery of Instruments, Etc...........................   34
     Section 7.10  Year 2000 Compliance...................................   34
     Section 7.11  Performance by the Lender..............................   34
     Section 7.12  Interest Coverage Ratio................................   35
     Section 7.13  Senior Debt to Total Capital Percentage................   35
     Section 7.14  [Not Used..............................................   35
     Section 7.15  [Not Used.]............................................   35
     Section 7.16  Invested Capital Condition.............................   35

ARTICLE VIII  Negative Covenants..........................................   36
     Section 8.1   Liens..................................................   36
     Section 8.2   Indebtedness...........................................   36
     Section 8.3   Guaranties.............................................   36
     Section 8.4   [Not Used].............................................   37
     Section 8.5   [Not Used].............................................   37
     Section 8.6   Sale or Transfer of Assets, Suspension of Business
                   Operations.............................................   37
     Section 8.7   Consolidation and Merger; Asset Acquisitions...........   37


                                      -ii-

<PAGE>

     Section 8.8   Sale and Leaseback.....................................   37
     Section 8.9   Restrictions on Nature of Business.....................   37
     Section 8.10  [Not Used].............................................   37
     Section 8.11  Accounting.............................................   37
     Section 8.12  Discounts, Etc.........................................   37
     Section 8.13  Defined Benefit Pension Plans..........................   38
     Section 8.14  Other Defaults.........................................   38
     Section 8.15  Place of Business; Name................................   38
     Section 8.16  Organizational Documents, S Corporation Status.........   38

ARTICLE IX    Events of Default, Rights and Remedies......................   39
     Section 9.1   Events of Default......................................   39
     Section 9.2   Rights and Remedies....................................   41
     Section 9.3   Indemnity..............................................   42
     Section 9.4   Certain Notices........................................   42

ARTICLE X     Miscellaneous...............................................   43
     Section 10.1  No Waiver; Cumulative Remedies.........................   43
     Section 10.2  Amendments, Etc........................................   43
     Section 10.3  Addresses for Notices, Etc.............................   43
     Section 10.4  Financing Statement....................................   44
     Section 10.5  Further Documents......................................   45
     Section 10.6  Collateral.............................................   45
     Section 10.7  Costs and Expenses.....................................   45
     Section 10.8  Indemnity..............................................   46
     Section 10.9  Participants...........................................   46
     Section 10.10 Execution in Counterparts..............................   46
     Section 10.11 Binding Effect; Assignment; Complete Agreement;
                   Sharing of Information.................................   46
     Section 10.12 Governing Law; Jurisdiction, Venue; Waiver of Jury
                   Trial..................................................   47
     Section 10.13 Severability of Provisions.............................   47
     Section 10.14 Headings...............................................   47
     Section 10.15 Reference Provision....................................   47


                                      -iii-
<PAGE>

                          CREDIT AND SECURITY AGREEMENT


         BY THIS CREDIT AND SECURITY AGREEMENT  (together with any amendments or
modifications,  (the "Agreement")  entered into as of the 30th day of June, 1999
(the  "Effective  Date"),  by and between  SKYMALL,  INC., a Nevada  corporation
("SkyMall"),  skymall.com, inc., a Nevada corporation ("skymall.com"),  DURHAM &
COMPANY, a Utah corporation ("Durham"; and with SkyMall and skymall.com, jointly
and  severally,  the  "Borrower"),  and  IMPERIAL  BANK,  a  California  banking
corporation  (the  "Lender"),  in  consideration  of the mutual  promises herein
contained and for other  valuable  consideration,  the parties  hereto do hereby
agree as follows:

                                    RECITALS

         A. Borrower has  requested  that Lender  establish a revolving  line of
credit  (the  "RLC") in the  principal  amount  of  $10,000,000.00  for  general
corporate purposes.

         B. Lender has agreed to do so upon the terms, conditions and provisions
set forth herein.

         C. Effective as of the Effective Date, SkyMall  acknowledges and agrees
that the Credit and Security  Agreement  dated as of January 27,  1997,  between
SkyMall and Lender (the "Prior  Agreement") shall be terminated and Lender shall
have no further  obligations  to SkyMall under said Prior  Agreement and SkyMall
shall have no further obligation to Lender under said Prior Agreement. As of the
Effective   Date,  the   outstanding   balance  under  the  Prior  Agreement  is
$2,800,000.00,  which amount shall be  immediately  repaid on the Effective Date
from the proceeds of an RLC Advance (defined below).



<PAGE>

                                    ARTICLE I

                                   DEFINITIONS

         Section 1.1 DEFINITIONS.  For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:

                  (a) the  terms  defined  in this  Article  have  the  meanings
assigned  to  them  in this  Article,  and  include  the  plural  as well as the
singular; and

                  (b) all accounting terms not otherwise defined herein have the
meanings  assigned to them in  accordance  with  generally  accepted  accounting
principles.

                  "Accounts" means the aggregate unpaid obligations of customers
and other  account  debtors to the Borrower  arising out of the sale or lease of
goods or  rendition  of services by the  Borrower on an open account or deferred
payment basis.

                  "Adjusted Cash Flow" means Borrower's earnings,  before taxes,
interest  expense,   depreciation  and  amortization  ("EBITDA")  of  Borrower's
domestic in-flight operations for the preceding four (4) quarters plus EBITDA of
Durham for the preceding four (4) quarters.  All components of the Adjusted Cash
Flow are to be determined  in  accordance  with  generally  accepted  accounting
principles  consistent  with  those used in  preparing  Borrower's  most  recent
consolidating and consolidated audited financial statement.

                  "Affiliate" or  "Affiliates"  means any Person  controlled by,
controlling  or under  common  control  with the  Borrower,  including  (without
limitation)  any  Subsidiary of the Borrower.  For purposes of this  definition,
"control,"  when used with respect to any specified  Person,  means the power to
direct the  management  and  policies of such  Person,  directly or  indirectly,
whether through the ownership of voting securities, by contract or otherwise.

                  "Agreement" means this Credit and Security Agreement.

                  "Banking  Day"  means a day of the  year on  which  commercial
banks are not required or authorized to close in  Inglewood,  California  and/or
Phoenix,  Arizona,  and,  with respect to a LIBOR Rate  Advance,  a day on which
dealings are carried on in the London interbank market.

                  "Collateral" means all of the Equipment,  General Intangibles,
Inventory,  Real Estate,  Receivables and all sums on deposit, together with all
substitutions  and  replacements  for  and  products  of any  of  the  foregoing
Collateral and together with proceeds of any and all of the foregoing Collateral
and, in the case of all tangible  Collateral,  together with all  accessions and
together with (i) all accessories, attachments, parts, equipment and repairs now
or hereafter  attached or affixed to or used in connection  with any such goods,
and (ii) all warehouse  receipts,  bills of lading and other  documents of title
now or hereafter covering such goods.


                                       -2-

<PAGE>

                  "Default"  means an event  that,  with  giving  of  notice  or
passage of time or both, would constitute an Event of Default.

                  "Default  Period" means the period following the occurrence of
a Default or Event of Default which period shall  continue  until and unless the
Lender shall thereafter waive such Default or Event of Default in writing.

                  "Default  Rate" means at any time five  percent  (5%) over the
Variable  Rate,  which  Default Rate shall change when and as the Variable  Rate
changes.

                  "Dollars"  and the sign $ mean  lawful  currency of the United
States of America.

                  "Effective  Date" has the  meaning  specified  in the  initial
paragraph hereof.

                  "Environmental Laws" has the meaning specified in Section 6.13
hereof.

                  "Equipment"  means all of the  Borrower's  equipment,  as such
term is defined in the UCC, whether now owned or hereafter  acquired,  including
but not  limited to all  present  and  future  machinery,  vehicles,  furniture,
fixtures,  manufacturing equipment, shop equipment,  fixed assets, plant assets,
office and  recordkeeping  equipment,  parts,  tools,  supplies,  and  including
specifically  (without limitation) the goods described in any equipment schedule
or list herewith or hereafter furnished to the Lender by the Borrower.

                  "ERISA" means the Employee  Retirement  Income Security Act of
1974,  as amended,  together  with all final and  permanent  regulations  issued
pursuant  thereto.  References  herein to sections and  subsections of ERISA are
deemed to refer to any successor or substitute provisions therefor.

                  "Eurocurrency  Liabilities"  has the meaning  assigned to that
term in Regulation D of the Board of Governors to the Federal Reserve System, as
in effect from time to time.

                  "Eurodollar  Rate Reserve  Percentage"  for the LIBOR Interest
Period for each LIBOR Rate Advance means the reserve  percentage  applicable two
(2)  Banking  Days  before the first day of such  LIBOR  Interest  Period  under
regulations  issued from time to time by the Board of  Governors  of the Federal
Reserve  System  (or  any  successor)  for   determining   the  maximum  reserve
requirement  (including,  but not limited to, any  emergency,  supplemental,  or
other marginal  reserve  requirement)  for a member bank of the Federal  Reserve
System in San Francisco with respect to  liabilities or assets  consisting of or
including  Eurocurrency  Liabilities  (or with respect to any other  category of
liabilities  which includes  deposits by reference to which the interest rate on
LIBOR Rate Advances) having a term equal to such Interest Period.

                  "Event of Default"  has the meaning  specified  in Section 9.1
hereof.


                                       -3-

<PAGE>

                  "General  Intangibles"  means  all of the  Borrower's  general
intangibles,  as such term is defined in the UCC, whether now owned or hereafter
acquired,  including (without limitation) all present and future patents, patent
applications,  copyrights, trademarks, trade names (including without limitation
the trade names and trademarks "SkyMall", "The World's In-Flight Shopping Mall",
"The World Traveler's Shopping Mall",  "Puppies and Playgrounds",  "TravelMall",
"SkyMall Factory Outlet",  "SkyMall Express",  "SkyAdPlus",  "Immediate Delivery
(with  Design)",   "Bejeweled  Elegance",  "RX  Rapid  Ex-Press",  "First  Class
Enjoyment", "skymall.com" and "Shop Smart Travel Easy"), trade secrets, customer
or supplier  lists and  contracts,  manuals,  operating  instructions,  permits,
franchises,  the  right  to use the  Borrower's  name  and the  goodwill  of the
Borrower's business.

                  "Interest  Coverage Ratio" means the Borrower's  Adjusted Cash
Flow divided by the Borrower's interest expense.  All components of the Interest
Coverage  Ratio are to be  determined  in  accordance  with  generally  accepted
accounting  principles  consistent with those used in preparing  Borrower's most
recent consolidating and consolidated audited financial statement.

                  "Inventory"  means all of the  Borrower's  inventory,  as such
term is defined in the UCC,  whether now owned or  hereafter  acquired,  whether
consisting  of whole goods,  spare parts or  components,  supplies or materials,
whether  acquired,  held or  furnished  for  sale,  for  lease or under  service
contracts or for manufacture or processing, and wherever located.

                  "Invested  Capital  Condition"  means  Borrower  has  provided
evidence  reasonably  satisfactory  to Lender  that it has  raised a minimum  of
$15,000,000.00  in  invested  capital in the form of  subordinated  debt  and/or
equity.  The terms and conditions of the  subordinated  debt shall be reasonably
acceptable  to Lender,  including  the  execution of a  Subordination  Agreement
substantially in the form attached hereof as Exhibit F.

                  "Leasehold Deed of Trust" means that certain Leasehold Deed of
Trust,  Assignment of Rents,  Security  Agreement and Fixture Filing dated as of
January  27,  1997,  by  SkyMall,  as Trustor  for the  benefit  of  Lender,  as
Beneficiary,  recorded on January  27,1997,  in the official Records of Maricopa
County, State of Arizona at Recorder's No. 97-0052342, as amended.

                  "LIBOR" means the London Interbank Offered Rate, determined as
provided herein, for the applicable LIBOR Interest Period to be specified by the
Borrower as provided  herein.  For each RLC Advance under the LIBOR option,  the
LIBOR rate will remain in effect through the end of the LIBOR  Interest  Period.
If  prior  to the  due  date  for a  LIBOR  Rate  Advance  Borrower  requests  a
continuation  of said LIBOR Rate Advance,  Borrower's  request shall comply with
the  request  procedure  specified  below and the LIBOR  rate for the LIBOR Rate
Advance shall be  re-determined  for the next LIBOR Interest  Period as provided
below. LIBOR shall mean with respect to any LIBOR Interest Period the rate equal
to  the  arithmetic  mean  (rounded  upwards,  if  necessary,   to  the  nearest
one-sixteenth (1/16th) of one percent (1%)) of:


                                       -4-

<PAGE>

                           (a)  the offered rates per annum for deposits in U.S.
                  Dollars for a period equal to such LIBOR Interest Period which
                  appears at 11:00 a.m.,  London  time,  on the  Reuters  Screen
                  LIBOR Page on the  Banking  Day that is two (2)  Banking  Days
                  before the first day of such LIBOR  Interest  Period,  in each
                  case if at least four (4) such  offered  rates  appear on such
                  page, or

                           (b) if clause (a) is not  available,  (x) the offered
                  rate per annum for deposits in U.S. Dollars for a period equal
                  to  such  LIBOR  Interest  Period  for a  LIBOR  Rate  Advance
                  hereunder  which appears as of 11:00 a.m.,  London time on the
                  Telerate  Monitor on  Telerate  Screen 3750 on the Banking Day
                  which is two (2)  Banking  Days  before  the first day of such
                  LIBOR  Interest  Period;  or (y) if  clause  (x)  above is not
                  available, the arithmetic mean (rounded upwards, if necessary,
                  to the nearest one-sixteenth  (1/16th) of one percent (1%)) of
                  the  interest  rates per annum  offered by at least  three (3)
                  prime banks  selected by Lender at  approximately  11:00 a.m.,
                  London time,  on the Banking Day which is two (2) Banking Days
                  before such date for  deposits in U.S.  Dollars to prime banks
                  in the  London  interbank  market,  in each  case for a period
                  equal to such LIBOR  Interest  Period for a LIBOR Rate Advance
                  hereunder  in an amount equal to the amount to which the LIBOR
                  applies.  "Reuters Screen LIBOR Page" as used herein means the
                  display  designated as page LIBOR on the Reuters Monitor Money
                  Rates Service or such other page as may replace the LIBOR page
                  on that service for the purpose of displaying London interbank
                  offered rates of major banks.

                  "LIBOR  Based  Rate" means the rate per annum equal (A) to the
sum of LIBOR and two hundred  twenty-five basis points (225 b.p.),divided by (B)
a  percentage  equal to one hundred  percent  (100%) minus the  Eurodollar  Rate
Reserve Percentage for the period equal to the applicable LIBOR Interest Period.

                  "LIBOR  Interest  Period" means,  for each LIBOR Rate Advance,
the period  commencing  on the date of such LIBOR Rate Advance and ending on the
last day of the period  selected by Borrower  pursuant to the provisions  herein
and,  thereafter,  each  subsequent  period  commencing  on the  last day of the
immediately  preceding  LIBOR Interest  Period and ending on the last day of the
period selected by Borrower pursuant to the provisions  herein.  The duration of
each LIBOR Interest  Period shall be one, two, three or six months,  as selected
by Borrower (A), for a new RLC Advance,  in the request for a LIBOR Rate Advance
or (B), for an outstanding RLC Advance,  in the request for a LIBOR Rate Advance
to continue  bearing interest at the LIBOR Based Rate or (C), for an outstanding
Variable  Rate  Advance,  in the  request to  convert  to a LIBOR Rate  Advance;
provided, however, that:


                                       -5-

<PAGE>

                           (i)   LIBOR  Interest  Periods commencing on the same
                  date shall be of the same duration;

                           (ii)  Whenever  the  last day of any  LIBOR  Interest
                  Period  would  otherwise  occur on a day other  than a Banking
                  Day,  the  last day of such  LIBOR  Interest  Period  shall be
                  extended to occur on the next succeeding Banking Day, provided
                  that if such extension  would cause the last day of such LIBOR
                  Interest Period to occur in the next following calendar month,
                  the last day of such LIBOR Interest  Period shall occur on the
                  next preceding Banking Day; and

                           (iii) No LIBOR  Interest  Period with  respect to any
                  RLC Advance shall extend beyond the Maturity Date.

                  "LIBOR  Rate  Advance"  means an RLC Advance or a portion of a
RLC designated by Borrower,  that bears, or is requested to bear,  interest at a
LIBOR  Based  Rate.  Each LIBOR  Rate  Advance  shall be in a minimum  amount of
$250,000.00 with integral multiples of $50,000.00 in excess thereof.

                  "Loan  Documents"  means  this  Agreement,  the RLC Note,  the
Security Documents and all other documents relating to any of the foregoing.

                  "Maturity Date" means May 30, 2001.

                  "Maximum RLC Loan Amount":  See Paragraph 2.1.

                  "Net Loss" means an after tax net loss for the  Borrower  from
continuing  operations  determined on a consolidating and consolidated basis, to
be  determined in  accordance  with  generally  accepted  accounting  principles
consistent with those used in preparing Borrower's most recent consolidating and
consolidated audited financial statement.

                  "Obligations" has the meaning specified in Section 4.1 hereof.

                  "Payment Date" means:

                           (i) as to a Variable Rate  Advance,  the first day of
                  each  month,  provided  that if any such day is not a  Banking
                  Day,  then  such  Payment  Date  shall be the next  successive
                  Banking Day; and

                           (ii) as to a LIBOR Rate  Advance,  the earlier of (A)
                  the last day of its LIBOR Interest Period, or (B) the last day
                  of each three month period during such LIBOR Interest Period.


                                       -6-

<PAGE>

                  "PBGC" means the Pension Benefit Guaranty Corporation, and any
successor  to  all  or  substantially   all  of  the  Pension  Benefit  Guaranty
Corporation's functions under ERISA.

                  "Person" means any individual, corporation, partnership, joint
venture,  limited liability company,  association,  joint-stock company,  trust,
unincorporated organization or government or any agency or political subdivision
thereof.

                  "Plan" means an employee benefit plan or other plan maintained
for employees of the Borrower and covered by Title IV of ERISA.

                  "Premises" means all premises where the Borrower  conducts its
business and has any rights of possession,  including  (without  limitation) the
premises legally described in Exhibit E attached hereto.

                  "Prime  Rate"  means the rate of interest  publicly  announced
from  time to time by  Imperial  Bank,  a  California  banking  corporation,  in
Inglewood,  California  and/or Phoenix,  Arizona,  as its prime rate for lending
(the  "Prime  Rate")  (the Prime Rate is not  intended  to be the lowest rate of
interest charged by Lender in connection with extensions of credit to borrowers)
or, if such bank ceases to  announce a rate so  designated,  "Prime  Rate" shall
mean, at any time, a rate of interest equal to the "prime Rate" as most recently
published  in THE WALL STREET  JOURNAL or, if no longer so  published,  in other
comparable sources.

                  "Prior  Agreement"  has the  meaning  specified  in  Recital C
hereof.

                  "Real Estate" means all of:

                  (a) the Borrower's  interest in that certain  property located
         at 1520 East Pima Street, Phoenix,  Arizona 85034, whether now owned or
         hereafter acquired, including but not limited to Borrower's interest as
         Sublessee pursuant to

                           (i)  a Lease dated June 24, 1960  between Pasqualetti
                  Properties, Inc., in  Arizona  corporation ("Master Landlord")
                  and Smitty's Super Valu, Inc., an Iowa corporation ("Smitty's"
                  or "Lessee"); and

                           (ii) a Sublease dated August 1, 1984 between Smitty's
                  as  Sublessor  and  Schwan  Brothers  Properties,  an  Arizona
                  general   partnership   ("Sublessee"),   Borrower   being  the
                  successor  in  interest  of the  Sublessee's  interest  in the
                  Sublease,

         together  with  Borrower's   interest  in  all  of  the  buildings  and
         improvements located on said property; and


                                       -7-

<PAGE>

                  (b) Borrower's  interest in that certain  property  located at
         1432 South 16th Street,  Phoenix,  Arizona 85034,  whether now owned or
         hereafter  acquired,  including  but not limited to that certain  pylon
         sign located on the property and Borrower's interest as Lessee pursuant
         a Lease dated April 19, 1994 between Saint Lawrence Holding Company,  a
         Delaware corporation,  as Lessor, and the Borrower as Lessee,  together
         with  Borrower's  interest  in all of the  buildings  and  improvements
         located on said property; and

                  (c) the Borrower's  interest in that certain  property located
         at 1580 East Pima Street, Phoenix,  Arizona 85034, whether now owned or
         hereafter acquired, including but not limited to Borrower's interest in
         that  Purchase  and Sale  Agreement  dated  December  27, 1996  between
         Borrower as Seller and Adrian C.  Quinones and  Guadalupe M.  Quinones,
         husband and wife, as Buyer,  the  Promissory  Note of even date made by
         Buyer (the "Quinones Note"),  the Security  Agreement of even date made
         by Buyer,  the UCC-1  Financing  Statement made by Buyer and filed with
         the Arizona Secretary of State on December 31, 1996 at Recording Number
         949965,  the  Sub-Sublease  and any Deed of Trust  to be  entered  into
         pursuant to said  Purchase and Sale  Agreement,  and other  security or
         related  documents  arising  out of  Borrower's  sale of said  property
         interest.

                  "Receivables"  means each and every  right of the  Borrower to
the  payment of money,  whether  such right to payment  now exists or  hereafter
arises,  whether  such  right to payment  arises  out of a sale,  lease or other
disposition  of goods or other  property,  out of a  rendering  of  services  or
services to be rendered, out of a loan, out of the overpayment of taxes or other
liabilities,  or otherwise arises under any contract or agreement,  whether such
right to payment is  created,  generated  or earned by the  Borrower  or by some
other person who subsequently  transfers such person's interest to the Borrower,
whether such right to payment is or is not already  earned by  performance,  and
howsoever such right to payment may be evidenced, together with all other rights
and interests  (including all liens and security  interests)  which the Borrower
may at any time have by law or  agreement  against any  account  debtor or other
obligor  obligated  to make any such  payment or against  any  property  of such
account  debtor or other  obligor;  all including but not limited to all present
and future accounts, accounts receivable, contract rights, loans and obligations
receivable,  chattel papers, bonds, notes, drafts,  acceptances,  and other debt
instruments, purchase orders, tax refunds and rights to payment in the nature of
general intangibles and other forms of obligations and receivables.

                  "Regulatory  Change" means any change effective after the date
of this Agreement in United States federal,  state, or foreign law, regulations,
or rules or the  adoption  or  making  after  such  date of any  interpretation,
directive, or request applying to a class of banks including Lender, of or under
any United States federal, state, or foreign law, regulation or rule (whether or
not having the force of law) by any court or governmental or monetary  authority
charged with the interpretation or administration thereof.


                                       -8-

<PAGE>

                  "Reportable  Event" means any "reportable  event" as described
in Section  4043(b) of ERISA  with  respect to which the thirty  (30) day notice
requirement has not been waived by the PBGC.

                  "RLC" has the meaning specified in Recital A hereof.

                  "RLC  Advance"  means an advance to the Borrower by the Lender
under the RLC.

                  "RLC Commitment"  means Five Million Dollars  ($5,000,000.00);
provided,  however, that should Borrower satisfy the Invested Capital Condition,
RLC Commitment shall mean Ten Million Dollars ($10,000,000.00).

                  "RLC Fee" has the meaning specified in Section 3.2(a) hereof.

                  "RLC Note" means the  Revolving  Note of even date herewith of
the  Borrower  payable  to the  order of the  Lender in  substantially  the form
attached as Exhibit A.

                  "Security   Documents"  means  one  or  more  UCC-1  Financing
Statements; the Leasehold Deed of Trust, Assignment of Rents, Security Agreement
and Fixture  Filing (as amended,  the  "Leasehold  Deed of Trust");  one or more
Trademark,  Tradename  and  Service  Mark  Collateral  Assignment  and  Security
Agreements;  the Collateral  Assignment of Debtor's Interest in Promissory Note,
Security Agreement and UCC-1 Financing Statement,  the UCC-2 Assignment of UCC-1
Financing Statement and the original Promissory Note endorsed in favor of Lender
(relating to the Quinones transaction described above in the definition of "Real
Estate",  Subsection  (c));  and all other  documents  relating to the  security
interest in the Collateral being given to Lender.

                  "Security  Interest" has the meaning  specified in Section 4.1
hereof.

                  "Senior Debt" means Borrower's total liabilities to Lender.

                  "Subsidiary"  means any  corporation of which more than 50% of
the  outstanding  shares of capital  stock  having  general  voting  power under
ordinary  circumstances  to elect a majority of the board of  directors  of such
corporation, irrespective of whether or not at the time stock of any other class
or classes  shall have or might have voting power by reason of the  happening of
any contingency, is at the time directly or indirectly owned by the Borrower, by
the  Borrower  and  one or more  other  Subsidiaries,  or by one or  more  other
Subsidiaries.

                  "Total  Capital" means the sum of Borrower's (i) total equity,
(ii) total subordinated debt, and (iii) Senior Debt.

                  "UCC" means the Uniform Commercial Code as in effect from time
to time in the state  designated in Section 10.12 hereof as the state whose laws
shall govern this Agreement, or in any other state whose laws are held to govern
this Agreement or any portion hereof.


                                       -9-

<PAGE>

                  "Variable  Rate"  means the rate per annum  equal to the Prime
Rate per annum as in effect from time to time.  The Variable Rate will change on
each day that the "Prime Rate" changes.

                  "Variable  Rate  Advance"  means an RLC Advance  designated by
Borrower, that bears, or is requested to bear, interest at the Variable Rate.

         Section 1.2  TERMS GENERALLY.

                  (a) The definitions in Section 1.1 shall apply equally to both
         the singular and plural forms of the terms defined.

                  (b)  Whenever  the context  may  require,  any  pronoun  shall
         include the corresponding masculine, feminine and neuter forms.

                  (c) All references herein to Articles,  Sections, Exhibits and
         Schedules  shall be deemed  references to Articles and Sections of, and
         Exhibits and  Schedules  to, this  Agreement  unless the context  shall
         otherwise require.

                  (d) Except as otherwise  expressly  provided herein, all terms
         of an accounting  or financial  nature shall be construed in accordance
         with GAAP, as in effect from time to time.


                                      -10-

<PAGE>



                                   ARTICLE II

                                     THE RLC

         Section 2.1 RLC COMMITMENT. Lender agrees to loan to or for the benefit
of  Borrower,  and  Borrower  shall be  entitled  to draw upon and borrow in the
manner and upon the terms and conditions contained in this Agreement, an amount,
(the "Maximum RLC Loan Amount") not to exceed the lesser of the following:

                  (a) The RLC Commitment.

                  (b) An amount not to exceed  two and  one-half  times  (2.50x)
         Borrower's  Adjusted  Cash Flow for the  preceding  four (4)  quarters,
         measured on a quarterly basis in advance.

         Section 2.2 REVOLVING  LINE.  The RLC shall be a revolving  commitment,
against  which RLC  Advances may be made to  Borrower,  repaid by Borrower,  and
additional  RLC Advances  made to Borrower,  provided  that Lender shall have no
obligation  to make any RLC Advance that would cause the  outstanding  principal
balance to the RLC plus any amounts  that are  committed  hereunder  and not yet
advanced to exceed the limitations of Paragraph 2.1 above.

         Section 2.3 RLC NOTE.  All RLC  Advances  made by the Lender under this
Article II shall be evidenced by and repayable with interest in accordance  with
the RLC Note.

         Section 2.4 RLC.  The RLC shall bear  interest and be payable to Lender
upon the terms and  conditions  contained  therein,  which include the following
provisions:

                  (a) Interest shall accrue:

                      (i)  On the  unpaid  principal of  an  RLC Advance  at the
                  Variable  Rate except to the extent that an RLC Advance  bears
                  interest at the LIBOR Based Rate.

                      (ii) On the  unpaid  principal of  an  RLC Advance  at the
                  LIBOR Based Rate to the extent Borrower shall elect and to the
                  extent not otherwise provided herein.

                  (b) All  interest  shall be computed on the basis of a 360-day
         year and accrue on a daily basis for the actual number of days elapsed.
         All accrued interest shall be due and payable on each Payment Date.

                  (c) The entire  unpaid  principal  balance,  all  accrued  and
         unpaid interest, and all other amounts payable under the RLC Note shall
         be due and payable in full on the Maturity Date.


                                      -11-

<PAGE>

                  (d) Each  request  for an RLC  Advance  shall,  in addition to
         complying with the other  requirements in this  Agreement,  (i) specify
         the date and amount of the requested RLC Advance,  (ii) specify whether
         the RLC  Advance  shall be an RLC  Advance  that bears  interest at the
         Variable  Rate or shall be an RLC  Advance  that bears  interest at the
         LIBOR  Based Rate,  (iii) be in a minimum  amount of  $250,000.00  with
         integral multiples of $50,000.00 in excess thereof, and (iv) if the RLC
         Advance is to bear  interest at the LIBOR  Based Rate,  (A) specify the
         LIBOR Interest Period,  and (B) be delivered to Lender before 9:00 a.m.
         (Inglewood,  California  and/or  Phoenix,  Arizona local time) at least
         three (3) Banking Days prior to the date of the  requested RLC Advance.
         Any  request  for an RLC  Advance  not  complying  with  the  foregoing
         requirements  for an RLC  Advance  bearing  interest at the LIBOR Based
         Rate shall bear  interest at the Variable  Rate;  provided  that in the
         event such  non-compliance is due to Borrower's  failure to specify the
         required information,  Lender agrees to notify Borrower of such failure
         and to provide  Borrower the  opportunity  to provide such  information
         prior to directing  that the RLC Advance bear  interest at the Variable
         Rate.

                  (e) If Borrower  desires that a LIBOR Rate Advance continue to
         bear  interest  at the LIBOR  Based Rate  after the end of an  existing
         LIBOR Interest Period,  Borrower shall deliver to Lender at least three
         (3)  Banking  Days  prior  to the end of the  existing  LIBOR  Interest
         Period;  a notice  making such  election and  specifying  the new LIBOR
         Interest  Period.  If Borrower does not deliver such notice within such
         time,  then after the  existing  LIBOR  Interest  Period the LIBOR Rate
         Advance shall become a Variable Rate Advance and shall bear interest at
         the Variable Rate.

                  (f) Borrower may upon written notice to and received by Lender
         not later than 9:00 a.m. (Inglewood, California and/or Phoenix, Arizona
         local time) (i) on the third Banking Day, in the case of any conversion
         of a Variable  Rate  Advance  into a LIBOR Rate Advance and (ii) on the
         first Banking Day in the case of any conversion of a LIBOR Rate Advance
         into a  Variable  Rate  Advance,  prior  to the  date  of the  proposed
         conversion,  convert any RLC Advance of one type into an RLC Advance of
         the other type; provided,  however, that any conversion of a LIBOR Rate
         Advance (A) shall only be made on the last day of the applicable  LIBOR
         Interest Period except as otherwise  provided herein,  and (B) shall be
         made only as to an RLC Advance in a minimum amount of $250,000.00  with
         integral multiples of $50,000.00 in excess thereof. Each such notice of
         a  conversion  shall  specify the date of such  conversion  and the RLC
         Advance(s) to be converted.

                  (g) Each  request for an RLC Advance as well as each  election
         by the Borrower  that an RLC Advance  continue to bear  interest at the
         LIBOR Based Rate after the end of an existing LIBOR Interest Period and
         each  conversion  request shall be irrevocable  and binding on Borrower
         once the request is received by Lender. Borrower shall indemnify Lender


                                      -12-

<PAGE>

         against  any cost,  loss or expense  incurred  by Lender as a result of
         Borrower's  failure to fulfill,  on or before the date specified for an
         RLC Advance in any request for an RLC Advance,  the  conditions to such
         RLC  Advance  set forth  herein,  including  any cost,  loss or expense
         incurred by reason of the  liquidation or  reemployment  of deposits or
         other funds  acquired by Lender to fund such RLC Advance  when such RLC
         Advance,  as a  result  of such  failure,  is not  made on the  date so
         specified.

                  (h) No RLC Advance  shall be  requested  by Borrower to bear a
         LIBOR Based Rate, whether pursuant to a request for an RLC Advance or a
         conversion hereunder,  so long as there shall have occurred an Event of
         Default and such Event of Default is continuing.

                  (i)  If  any  payment  of  interest  and/or  principal  is not
         received  by Lender when such  payment is due,  then in addition to the
         remedies conferred upon Lender under the Loan Documents,  a late charge
         of five  percent (5%) of the amount of the  installment  due and unpaid
         will be added to the  delinquent  amount to  compensate  Lender for the
         expense of handling the  delinquency for any payment past due in excess
         of ten (10) days, regardless of any notice and cure period.

                  (j) Upon the  occurrence  of an Event  of  Default  and  after
         maturity,  including maturity upon  acceleration,  the unpaid principal
         balance,  all accrued and unpaid interest and all other amounts payable
         hereunder shall bear interest at the Default Rate.

         Section 2.5 EXCESS  BALANCE  REPAYMENT.  There shall be due and payable
from Borrower to Lender,  and Borrower shall  immediately  repay to Lender three
(3) days after  notice to Borrower,  from time to time,  any amount by which the
outstanding principal balance of the RLC exceeds the Maximum RLC Loan Amount.

         Section 2.6 CONDITIONS. Lender shall have no obligation to fund any RLC
Advance  unless  and  until  all of the  conditions  and  requirements  of  this
Agreement  are  fully  satisfied.  However,  Lender  in its  sole  and  absolute
discretion may elect to make one or more RLC Advances prior to full satisfaction
of one or more such conditions and/or requirements. Notwithstanding that such an
RLC  Advance or RLC  Advances  are made,  unless  otherwise  waived by Lender in
writing, such unsatisfied  conditions and/or requirements shall not be waived or
released  thereby.  Borrower  shall be and  continue  to be  obligated  to fully
satisfy such conditions and  requirements,  and Lender, at any time, in its sole
and absolute  discretion,  may stop making RLC Advances until all conditions and
requirements are fully satisfied.

         Section 2.7 OTHER RLC ADVANCES.  Lender, after giving written notice to
Borrower,  from time to time,  may make RLC Advances in any amount in payment of
(i) insurance  premiums,  taxes,  assessments,  liens or  encumbrances  existing
against the  Collateral,  (ii) interest  accrued and payable upon the RLC, (iii)
any indebtedness, charges and expenses that are the obligation of Borrower under


                                      -13-

<PAGE>

this Credit  Agreement,  and (iv) any charges or matters  necessary  to cure any
Event of Default.

         Section 2.8 ASSIGNMENT. Borrower shall have no right to any RLC Advance
other  than to have  the  same  disbursed  by  Lender  in  accordance  with  the
disbursement provisions contained in this Agreement. Any assignment or transfer,
voluntary or involuntary,  of this Credit Agreement or any right hereunder shall
not be binding upon or in any way affect Lender without its written consent.

         Section 2.9  LIABILITY  RECORDS.  The Lender may maintain  from time to
time, at its discretion,  liability  records as to any and all RLC Advances made
or repaid and interest accrued or paid under this Agreement. All entries made on
any such record shall be presumed  correct  until the Borrower  establishes  the
contrary.  On demand by the  Lender,  the  Borrower  will  admit and  certify in
writing  the exact  principal  balance  that the  Borrower  then  asserts  to be
outstanding  to the Lender for RLC Advances  under this  Agreement.  Any billing
statement or  accounting  rendered by the Lender shall be  conclusive  and fully
binding on the Borrower unless specific  written notice of exception is given to
the Lender by the Borrower  within 30 days after receipt by the Borrower of said
billing  statement  or  accounting,  or within 30 days after  completion  of the
Borrower's next annual audit by its outside accounting firm.

         Section 2.10 SETOFF. The Borrower agrees that the Lender may at anytime
or from time to time,  at its sole  discretion  and  without  demand and without
notice to anyone,  setoff any  liability  owed to the  Borrower  by the  Lender,
whether or not due, against any indebtedness  owed to the Lender by the Borrower
(for RLC Advances or for any other transaction or event), whether or not due. In
addition, each other Person holding a participating interest in any RLC Advances
made to the Borrower by the Lender shall have the right to appropriate or setoff
any deposit or other liability then owed by such Person to the Borrower, whether
or not due, and apply the same to the payment of said participating interest, as
fully as if such  Person had lent  directly to the  Borrower  the amount of such
participating interest.


                                      -14-

<PAGE>

                                   ARTICLE III

                    PAYMENTS, FEES AND EURODOLLAR PROVISIONS

         Section 3.1  PAYMENTS.

                  (a) All payments and  prepayments by the Borrower of principal
         of and  interest on the RLC Note and all fees,  expenses  and any other
         Obligation  payable  to  Lender  in  connection  with the RLC  shall be
         nonrefundable  and made in Dollars or  immediately  available  funds to
         Lender not later than 5:00 p.m.,  (Phoenix,  Arizona local time) on the
         dates  called  for under  this  Agreement,  at the  office of Lender in
         Phoenix,  Arizona.  Funds  received  after such hour shall be deemed to
         have been received by Lender on the next Banking Day.

                  (b) Unless otherwise required by applicable law, payments will
         be applied first to accrued,  unpaid interest,  then to principal,  and
         any remaining amount to any unpaid  collection  costs, late charges and
         other charges;  provided,  however,  upon delinquency or other default,
         Lender reserve the right to apply payments among  principal,  interest,
         late charges, collection costs and other charges at its discretion.

                  (c)  Interest  shall  be due  and  payable  on the RLC on each
         Payment Date and on the Maturity Date.

                  (d) Whenever any payment to be made hereunder  shall be stated
         to be due on a day which is not a Banking Day,  such  payment  shall be
         made on the next  succeeding  Banking Day,  and such  extension of time
         shall  in  such  case  be  included  in the  computation  of  interest,
         commission or fee, as the case may be.

                  (e) Borrower authorizes Lender to collect all interest,  fees,
         costs,  and/or expenses due under this Agreement by charging Borrower's
         demand deposit account number 97005621 with Lender, or any other demand
         deposit account maintained by Borrower with Lender, for the full amount
         thereof.  Should there be insufficient funds in any such demand deposit
         account  to pay all  such  sums  when  due,  the  full  amount  of such
         deficiency shall be immediately due and payable by Borrower.

         Section 3.2  LOAN FEES.

                  (a) In  connection  with the RLC,  Borrower  agrees  to pay to
         Lender  on the  Effective  Date and on each  anniversary  thereafter  a
         non-refundable  fee in the  amount  of one  percent  (1.0%)  of the RLC
         Commitment (the "RLC Fee").


                                      -15-

<PAGE>

                  (b) In the  event  Borrower  satisfies  the  Invested  Capital
         Condition on or before September 30, 1999, Borrower shall pay to Lender
         an  additional  non-refundable  fee in the  amount  of  $50,000.00.  If
         Borrower  satisfies the Invested Capital  Condition after September 30,
         1999, Borrower shall pay to Lender an additional  non-refundable fee in
         the amount of $100,000.00.  Such additional fee shall be paid to Lender
         upon the closing of the  instrument  providing the  necessary  invested
         capital.

                  (c) In the event  Borrower  elects to terminate all or part of
         the RLC prior to the Maturity Date, Borrower shall pay to Lender, on or
         before the effective date of such termination, in addition to any other
         fees  or  costs,  if any,  to be paid  pursuant  to the  terms  of this
         Agreement   as  a  result  of  such   termination,   a   non-refundable
         cancellation fee in the amount of one-half of one percent (0.5%) of the
         RLC terminated by Borrower (the  "Cancellation  Fee").  Notwithstanding
         anything  contained  herein  to the  contrary,  if  Borrower  elects to
         terminate the increase of the RLC Commitment  upon  satisfaction of the
         Invested Capital  Condition,  Borrower shall not be required to pay the
         Cancellation Fee attributable to such termination.

         Section 3.3  COMPUTATIONS.  All fees and interest on the RLC Note shall
be computed on the basis of a year of 360-days/year  and accrue on a daily basis
for the actual number of days elapsed.

         Section  3.4  MAINTENANCE  OF  ACCOUNTS.   Lender  shall  maintain,  in
accordance  with its usual  practice,  an account  or  accounts  evidencing  the
indebtedness  of the Borrower and the amounts payable and paid from time to time
hereunder.  In any legal action or proceeding in respect of this Agreement,  the
entries  made in the  ordinary  course of business  in such  account or accounts
shall be  evidence  of the  existence  and  amounts  of the  obligations  of the
Borrower  therein  recorded  and  shall be  presumed  to be  accurate  until the
contrary  is  established.  The  failure  to record any such  amount  shall not,
however,  limit or otherwise affect the obligations of the Borrower hereunder to
repay all amounts owed hereunder,  together with all interest accrued thereon as
provided in the RLC Note.

         Section 3.5   SPECIAL PROVISIONS FOR LIBOR RATE ADVANCES.

                  (a)  Funding:   Notwithstanding  any  provision  of  the  Loan
         Documents  to the  contrary,  Lender  shall  be  entitled  to fund  and
         maintain  its  funding  of all or any  part of any RLC  Advance  in any
         manner it sees fit; provided, however, that for the purposes of the RLC
         Note,  all  determinations  thereunder  shall be made as if Lender  had
         actually funded and maintained each RLC Advance bearing interest at the
         LIBOR Based Rate during the LIBOR Interest Period therefor  through the
         purchase of deposits having a maturity corresponding to the last day of
         the LIBOR  Interest  Period and bearing an  interest  rate equal to the
         LIBOR Based Rate for such LIBOR Interest Period.


                                      -16-

<PAGE>

                  (b)  Inadequacy  of  Eurodollar   Pricing:   If,  due  to  any
         Regulatory Change, there shall be any increase in the cost to Lender of
         agreeing  to make or  making,  funding,  or  maintaining  RLC  Advances
         bearing   interest  at  the  LIBOR  Based  Rate   (including,   without
         limitation,  any increase in any applicable reserve requirement),  then
         the  Borrower  shall from time to time,  upon demand by Lender,  pay to
         Lender such amounts as Lender may reasonably  determine to be necessary
         to compensate  Lender for any additional  costs that Lender  reasonably
         determines are  attributable  to such  Regulatory  Change.  Lender will
         notify the Borrower of any  Regulatory  Change that will entitle Lender
         to compensation  pursuant to this paragraph as promptly as practicable,
         but in any event within ninety (90) days after Lender obtains knowledge
         thereof;  provided,  however,  that if Lender fails to give such notice
         within ninety (90) days after it obtains knowledge of such a Regulatory
         Change,  Lender shall, with respect to compensation  payable in respect
         of any costs resulting from such Regulatory Change, only be entitled to
         payment  for costs  incurred  from and after the date that  Lender does
         give such notice.  Lender will  furnish to the  Borrower a  certificate
         setting  forth in  reasonable  detail  the basis for the amount of each
         request by Lender for compensation under this paragraph. Determinations
         by  Lender  of the  amounts  required  to  compensate  Lender  shall be
         conclusive,   absent  manifest  error.  Lender  shall  be  entitled  to
         compensation  in connection  with any Regulatory  Change only for costs
         actually incurred by Lender.

                  (c)  Illegality:  Notwithstanding  any  provision  of the Loan
         Documents,  if Lender shall  notify the Borrower  that as a result of a
         Regulatory Change it is unlawful for Lender to make RLC Advances at the
         LIBOR Based Rate, or to fund or maintain RLC Advances  bearing interest
         at the LIBOR  Based  Rate,  (i) the  obligations  of Lender to make RLC
         Advances  at the LIBOR  Based Rate and to convert  RLC  Advances to the
         LIBOR  Based Rate shall be  suspended  until  Lender  shall  notify the
         Borrower  that the  circumstances  causing  such  suspension  no longer
         exist,  and  (ii)  in  the  event  such  Regulatory  Change  makes  the
         maintenance  of RLC  Advances  at the LIBOR  Based Rate  unlawful,  the
         Borrower  shall  forthwith  prepay  in full  all RLC  Advances  bearing
         interest  at the LIBOR  Based  Rate  then  outstanding,  together  with
         interest  accrued  thereon  and all  amounts  in  connection  with such
         prepayment  specified  herein,  unless the  Borrower,  within  five (5)
         Banking Days of notice from Lender,  converts all RLC Advances  bearing
         interest at the LIBOR  Based Rate then  outstanding  into RLC  Advances
         bearing  interest  at the  Variable  Rate  pursuant  to the  conversion
         procedures  herein  and  pays  all  amounts  in  connection  with  such
         prepayments or conversions specified herein.

                  (d) Market Disruption:  Notwithstanding any other provision of
         the Loan Documents,  if prior to the commencement of any LIBOR Interest
         Period,  Lender shall  determine (i) that United States dollar deposits
         in the amount of any RLC  Advance  bearing  interest at the LIBOR Based
         Rate to be  outstanding  during  such  LIBOR  Interest  Period  are not
         readily  available to Lender in the London interbank market, or (ii) by
         reason of circumstances affecting the London interbank market, adequate


                                      -17-

<PAGE>

         and reasonable means do not exist for ascertaining the LIBOR Based Rate
         for  such  LIBOR  Interest  Period  in  the  manner  prescribed  in the
         definition  of "LIBOR  Based  Rate," then Lender  shall  promptly  give
         notice  thereof to the Borrower and the obligation of Lender to create,
         continue,  or effect by conversion any RLC Advance bearing  interest at
         the LIBOR Based Rate in such amount and for such LIBOR Interest  Period
         shall  terminate until United States dollar deposits in such amount and
         for the LIBOR Interest  Period shall again be readily  available in the
         London  interbank  market and adequate and  reasonable  means exist for
         ascertaining the LIBOR Based Rate.

         Section 3.6  PREPAYMENTS.

                  (a) Borrower  may,  upon at least two (2) Banking Days' notice
         in the case of LIBOR  Based Rate  Advances  and one (1)  Banking  Day's
         notice in the case of  Variable  Rate  Advances  to Lender  stating the
         proposed date and aggregate principal amount of the prepayment,  and if
         such notice is given Borrower shall,  prepay the outstanding  principal
         balance  of the  RLC in  whole  or in  part at any  time  prior  to the
         Maturity Date as stated in such notice by Borrower,  subject to payment
         of all amounts  specified  hereinbelow  with  respect to any LIBOR Rate
         Advance.

                  (b) If  for  any  reason  (including   voluntary   prepayment,
         voluntary  conversion  of a LIBOR Rate  Advance  into a  Variable  Rate
         Advance,  or  acceleration,  but excluding any mandatory  prepayment or
         mandatory  conversion  such as  pursuant  to  Section  3.5(c)),  Lender
         receives  all or part of the  principal  amount of a LIBOR Rate Advance
         prior to the last Banking Day of the LIBOR Interest Period for such RLC
         Advance,  the Borrower shall  immediately on demand by Lender,  pay the
         "LIBOR  Breakage Fees," defined as the amount (if any) by which (i) the
         additional  interest  which  would  have been  payable on the amount so
         received  had it not been  received  until  the last day of such  LIBOR
         Interest  Period  exceeds  (ii) the  interest  which  would  have  been
         recoverable by Lender  (without  regard to whether  Lender  actually so
         invest  said funds) by placing the amount so received on deposit in the
         certificate  of deposit  markets  or the  offshore  currency  interbank
         markets or United States Treasury investment products,  as the case may
         be for a period  starting on the date on which it was so  received  and
         ending on the last day of such LIBOR  Interest  Period at the  interest
         rate  determined  by  Lender  in its  reasonable  discretion.  Lender's
         determination  as to such amount shall be conclusive and final,  absent
         manifest error.

                  (c) The Borrower  shall pay to Lender,  upon the demand,  such
         other amount or amounts as shall be sufficient to compensate it for any
         loss, costs or expense ("LIBOR Prepayment Charges") incurred by it as a
         result  of  any  prepayment  by  the  Borrower   (including   voluntary
         prepayment,  voluntary  conversion  of a  LIBOR  Rate  Advance  into  a
         Variable Rate Advance, or prepayment due to acceleration, but excluding
         any mandatory prepayment or  mandatory  conversion  such as pursuant to


                                      -18-

<PAGE>

         Section 3.5(c)) of all or part of the principal  amount of a LIBOR Rate
         Advance prior to the last Banking Day of the LIBOR Interest  Period for
         such RLC  Advance  (including  without  limitation,  any failure by the
         Borrower  to  borrow a LIBOR  Rate  Advance  on the loan  date for such
         borrowing  specified  in the relevant  notice of borrowing  hereunder).
         Such LIBOR Prepayment Charges shall include,  without  limitation,  any
         interest or fees payable by Lender to lenders of funds obtained by them
         in order to make or maintain their loans based on the London  interbank
         eurodollar market.  Lender's  determination as to such LIBOR Prepayment
         Charges shall be conclusive and final, absent manifest error.

                  (d) Lender agrees that it shall make a best effort to minimize
         any such LIBOR Breakage Fees or any such LIBOR Prepayment Charges.


                                      -19-

<PAGE>

                                   ARTICLE IV

                                SECURITY INTEREST

         Section 4.1 GRANT OF SECURITY INTEREST. The Borrower hereby assigns and
grants  to the  Lender a  security  interest  (collectively  referred  to as the
"Security  Interests")  in the  Collateral,  as  security  for the  payment  and
performance  of each and every debt,  liability and obligation of every type and
description  which  the  Borrower  may now or at any time  hereafter  owe to the
Lender  (whether such debt,  liability or obligation  now exists or is hereafter
created or incurred,  whether it arises in a  transaction  involving  the Lender
alone or in a transaction involving other creditors of the Borrower, and whether
it is direct or indirect, due or to become due, absolute or contingent,  primary
or secondary,  liquidated or unliquidated,  or sole, joint, several or joint and
several, and including specifically, but not limited to, all indebtedness of the
Borrower  arising under this Agreement or any other loan or credit  agreement or
guaranty between the Borrower and the Lender, whether now in effect or hereafter
entered  into;  all  such  debts,   liabilities   and   obligations  are  herein
collectively referred to as the "Obligations").

         Section 4.2  NOTIFICATION OF ACCOUNT  DEBTORS AND OTHER OBLIGORS.  With
respect to any and all rights to payment constituting  Collateral the Lender may
at any time  after the  occurrence  of an Event of Default  notify  any  account
debtor or other  person  obligated  to pay the  amount  due that  such  right to
payment has been assigned or transferred to the Lender for security and shall be
paid directly to the Lender. The Borrower will join in giving such notice if the
Lender so  requests.  At any time after the  Borrower  or the Lender  gives such
notice to an account debtor or other  obligor,  the Lender may, but need not, in
the Lender's name or in the  Borrower's  name, (a) demand,  sue for,  collect or
receive any money or property at any time payable or  receivable  on account of,
or  securing,  any such right to payment,  or grant any  extension  to, make any
compromise  or settlement  with or otherwise  agree to waive,  modify,  amend or
change the obligations  (including  collateral  obligations) of any such account
debtor or other obligor;  and (b) as agent and attorney in fact of the Borrower,
notify the United  States  Postal  Service to change the address for delivery of
the Borrower's mail to any address designated by the Lender, otherwise intercept
the  Borrower's  mail,  and receive,  open and dispose of the  Borrower's  mail,
applying all Collateral as permitted  under this Agreement and holding all other
mail for the Borrower's  account or forwarding  such mail to the Borrower's last
known address.  This right of Lender to act as agent and attorney in fact of the
Borrower  shall  be  irrevocable  for  the  life of  this  Agreement  and may be
exercised  by the Lender  only at any time after the  occurrence  and during the
continuance of an Event of Default.

         Section 4.3  ASSIGNMENT  OF INSURANCE.  As additional  security for the
payment and performance of the  Obligations,  the Borrower hereby assigns to the
Lender any and all monies (including, without limitation,  proceeds of insurance
and  refunds of  unearned  premiums)  due or to become due under,  and all other
rights of the Borrower with respect to, any and all policies of insurance now or
at any time  hereafter  covering the  Collateral or any evidence  thereof or any
business records or valuable papers pertaining thereto,  and the Borrower hereby
directs  the issuer of any such  policy to pay all such  monies  directly to the
Lender.  At any time  after the  occurrence of any  Event of Default, the Lender


                                      -20-

<PAGE>

may (but need not), in the Lender's name or in the Borrower's name,  execute and
deliver  proof of claim,  receive  all such  monies,  endorse  checks  and other
instruments   representing  payment  of  such  monies,  and  adjust,   litigate,
compromise or release any claim against the issuer of any such policy.

         Section 4.4  OCCUPANCY.

                  (a) The Borrower hereby  irrevocably  grants to the Lender the
right to take  possession of the Premises at any time after the  occurrence  and
during the continuance of an Event
of Default.

                  (b) The Lender  may use the  Premises  only to hold,  process,
manufacture,  sell, use, store, liquidate,  realize upon or otherwise dispose of
goods that are  Collateral  and for other  purposes  that the Lender may in good
faith deem to be related or incidental purposes.

                  (c) The right of the Lender to hold the  Premises  shall cease
and  terminate  upon the  earlier of (i)  payment in full and  discharge  of all
Obligations,  and (ii)  final  sale or  disposition  of all  goods  constituting
Collateral and delivery of all such goods to purchasers.

                  (d) The Lender  shall not be  obligated  to pay or account for
any rent or other  compensation  for the possession,  occupancy or use of any of
the  Premises;  provided,  however,  in the event  that the  Lender  does pay or
account for any rent or other compensation for the possession,  occupancy or use
of any of the Premises, the Borrower shall reimburse the Lender promptly for the
full amount thereof. In addition, the Borrower will pay, or reimburse the Lender
for, all taxes, fees, duties, imposts, charges and expenses at any time incurred
by or imposed upon the Lender by reason of the execution,  delivery,  existence,
recordation,  performance  or enforcement of this Agreement or the provisions of
this Section 4.4.

         Section 4.5 LICENSE.  The  Borrower  hereby   grants  to  the  Lender a
non-exclusive,  worldwide and royalty-free  license to use or otherwise  exploit
all trademarks,  franchises, trade names, copyrights and patents of the Borrower
for the  purpose  of  selling,  leasing  or  otherwise  disposing  of all or all
Collateral following an Event of Default.


                                      -21-

<PAGE>

                                    ARTICLE V

                              CONDITIONS OF LENDING

         Section  5.1  CONDITIONS  PRECEDENT  TO THE INITIAL  RLC  ADVANCE.  The
obligation  of the Lender to make the initial RLC Advance under the RLC shall be
subject to the  condition  precedent  that the Lender shall have received all of
the following, each in form and substance satisfactory
to the Lender:

                  (a)  This  Agreement,  properly  executed  on  behalf  of  the
Borrower.

                  (b) The RLC Note, properly executed on behalf of the Borrower.

                  (c) (i) A true and correct copy of any and all leases pursuant
to which the  Borrower  is leasing  the  Premises or has an interest in the Real
Estate;  (ii) the  Amendment to Leasehold  Deed of Trust,  Assignment  of Rents,
Security  Agreement  and  Fixture  Filing  properly  executed  on  behalf of the
Borrower;  (iii)  the  Amendment  to  Trademark,   Tradename  and  Service  Mark
Collateral  Assignment and Security Agreement properly executed on behalf of the
SkyMall (iv) the Trademark, Tradename and Service Mark Collateral Assignment and
Security  Agreement  properly  executed on behalf of skymall.com;  (v) the UCC-1
Financing  Statement(s)  properly executed on behalf of skymall.com;  and Durham
and  (vi) the  Amendment  to  Collateral  Assignment  of  Debtor's  Interest  in
Promissory Note,  Security  Agreement and UCC-1 Financing  Statement,  the UCC-2
Assignment  of  UCC-1  Financing  Statement  and the  original  Promissory  Note
endorsed in favor of Lender  (relating  to the  Quinones  transaction  described
above in the definition of "Real Estate", subsection (c)), all properly executed
on behalf of the Borrower.

                  (d) Current  searches of appropriate  filing  offices  showing
that (i) no state or  federal  tax liens  have been  filed and  remain in effect
against the Borrower, (ii) no financing statements have been filed and remain in
effect against the Borrower, except those financing statements relating to liens
permitted pursuant to Section 8.1 hereof and those financing statements filed by
the  Lender,  and (iii) the  Lender  has duly  filed  all  financing  statements
necessary to perfect the Security Interests granted hereunder, to the extent the
Security Interests are capable of being perfected by filing.

                  (e) Current  searches of appropriate  filing  offices  showing
that (i) no mortgages,  deeds of trust, collateral assignments or other security
interests have been filed and remain in effect  against the Borrower's  interest
in the Real Estate or the General  Intangibles,  except those  relating to liens
permitted  pursuant to Section 8.1 hereof and those filed by the Lender and (ii)
the Lender has duly filed all mortgages,  deeds of trust, collateral assignments
or other security  interests  necessary to perfect the Security Interests in the
Real Estate and the General  Intangibles  granted  hereunder,  to the extent the
said Security Interests are capable of being perfected by filing.


                                      -22-

<PAGE>

                  (f) A Corporate  Resolution  Regarding  Credit executed by the
Secretary of the Borrower, certifying as to (i) the resolutions of the directors
and, if required,  the shareholders of the Borrower,  authorizing the execution,
delivery and performance of this Agreement and the Security Documents,  (ii) the
articles of incorporation  and bylaws of the Borrower,  and (iii) the signatures
of the officers or agents of the Borrower authorized to execute and deliver this
Agreement,  the  Security  Documents  and  other  instruments,   agreements  and
certificates, including RLC Advance requests, on behalf of the Borrower.

                  (g) A current  certificate issued by the Secretary of State of
the state of the Borrower's  incorporation,  certifying  that the Borrower is in
compliance with all corporate organizational requirements of such state.

                  (h) Evidence  that the Borrower is duly  licensed or qualified
to transact  business in all  jurisdictions  where the character of the property
owned or leased or the nature of the
business transacted by it makes such licensing or qualification necessary.

                  (i) A certificate of an officer of the Borrower confirming, in
his corporate capacity,  the representations and warranties set forth in Article
VI hereof.

                  (j) Certificates of the insurance required hereunder, with all
hazard insurance  containing a loss payee endorsement in favor of the Lender and
with all liability insurance naming
the Lender as an additional insured.

                  (k)  Payment of the fees due  through  the date of the initial
RLC Advance under Section 3.2 hereof and expenses incurred by the Lender through
such date and  required to be paid by the  Borrower  under  Section  10.7 hereof
(including  without  limitation  the  Lender's  attorneys'  fees as  provided in
Section 10.7).

                  (l) Such other  documents as the Lender in its sole discretion
may  reasonably  require,  including  without  limitation  such documents as are
necessary to perfect any and all registered trademarks or trade names (including
without  limitation  the trade  names and  trademarks  "SkyMall",  "The  World's
In-Flight  Shopping Mall",  "The World Traveler's  Shopping Mall",  "Puppies and
Playgrounds",   "TravelMall",   "SkyMall  Factory  Outlet",  "SkyMall  Express",
"SkyAdPlus", "Immediate Delivery (with Design)", "Bejeweled Elegance", "RX Rapid
Ex-Press", "First Class Enjoyment", "skymall.com" and "Shop Smart Travel Easy").

                  (m) The original of the Quinones Note, endorsed by Borrower in
favor of Lender, which Lender shall hold as part of its security.

                  (n) [Not Used]

         Section 5.2 CONDITIONS PRECEDENT TO ALL RLC ADVANCES. The obligation of
the Lender to make each RLC Advance  shall be subject to the further  conditions
precedent that on such date:


                                      -23-

<PAGE>



                  (a) the representations and warranties contained in Article VI
hereof are  correct on and as of the date of such RLC  Advance as though made on
and as of  such  date,  except  to the  extent  that  such  representations  and
warranties relate solely to an earlier date; and

                  (b) no event has occurred and is  continuing,  or would result
from such RLC Advance which constitutes a Default or an Event of Default.


                                      -24-

<PAGE>

                                   ARTICLE VI

                         REPRESENTATIONS AND WARRANTIES

         The Borrower represents and warrants to the Lender as follows:

         Section 6.1 RECITALS. The recitals appearing in this Agreement are true
and correct.

         Section  6.2  CORPORATE  EXISTENCE  AND POWER,  NAME;  CHIEF  EXECUTIVE
OFFICE;  INVENTORY AND EQUIPMENT  LOCATIONS.  The Borrower is a corporation duly
incorporated,  validly existing and in good standing under the laws of the State
of Nevada or Utah, as applicable,  and is duly licensed or qualified to transact
business in all  jurisdictions  where the  character  of the  property  owned or
leased or the nature of the business  transacted  by it makes such  licensing or
qualification  necessary.  The Borrower has all requisite  power and  authority,
corporate or otherwise,  to conduct its business,  to own its  properties and to
execute and  deliver,  and to perform  all of its  obligations  under,  the Loan
Documents. During its corporate existence, the Borrower has done business solely
under the names set forth in Exhibit B hereto.  The chief  executive  office and
principal  place of business of the Borrower is located at the address set forth
in Exhibit B hereto,  and all of the Borrower's records relating to its business
or the  Collateral  are kept at that  location.  All  Inventory and Equipment is
located at that location or at one of the other locations set forth in Exhibit B
hereto.

         Section  6.3  AUTHORIZATION  OF  BORROWING;  NO  CONFLICT  AS TO LAW OR
AGREEMENTS. The execution,  delivery and performance by the Borrower of the Loan
Documents  and the  borrowings  from  time  to time  hereunder  have  been  duly
authorized by all necessary corporate action and do not and will not (a) require
any consent or approval of the stockholders of the Borrower,  (b) other than the
filing of the necessary Loan Documents with the Securities Exchange  Commission,
require any authorization, consent or approval by, or registration,  declaration
or filing with, or notice to, any governmental  department,  commission,  board,
bureau,  agency or  instrumentality,  domestic or foreign,  or any third  party,
except such authorization, consent, approval, registration,  declaration, filing
or notice as has been obtained,  accomplished or given prior to the date hereof,
(c) violate any  provision of any law, rule or  regulation  (including,  without
limitation,  Regulation  X of the  Board of  Governors  of the  Federal  Reserve
System) or of any order,  writ,  injunction or decree presently in effect having
applicability  to the Borrower or of the Articles of  Incorporation or Bylaws of
the  Borrower,  (d)  result in a breach  of or  constitute  a default  under any
indenture or loan or credit agreement or any other material agreement,  lease or
instrument to which the Borrower is a party or by which it or its properties may
be bound or affected,  or (e) result in, or require,  the creation or imposition
of any mortgage,  deed of trust, pledge, lien, security interest or other charge
or  encumbrance of any nature (other than the Security  Interests)  upon or with
respect  to any  of the  properties  now  owned  or  hereafter  acquired  by the
Borrower.

         Section 6.4 LEGAL AGREEMENTS.  This Agreement constitutes and, upon due
execution by the Borrower,  the other Loan Documents will  constitute the legal,
valid and binding obligations of the Borrower,  enforceable against the Borrower
in accordance with their respective terms.


                                      -25-

<PAGE>



         Section 6.5 SUBSIDIARIES.  Except  as set  forth in  Exhibit B attached
hereto, the Borrower has no Subsidiaries.

         Section 6.6 FINANCIAL  CONDITION;  NO ADVERSE CHANGE.  The Borrower has
heretofore  furnished to the Lender audited financial statements of the Borrower
for the  reporting  period  ended  December  31,  1998 and  unaudited  financial
statements  of the  Borrower  for the quarter  ended March 31,  1999,  and those
statements  fairly present the financial  condition of the Borrower on the dates
thereof and the results of its  operations  and cash flows for the periods  then
ended  and were  prepared  in  accordance  with  generally  accepted  accounting
principles.  Since the date of the most recent financial  statements,  there has
been no  material  adverse  change  in the  business,  properties  or  condition
(financial or otherwise) of the Borrower.

         Section  6.7  LITIGATION.  Except as  disclosed  in  Exhibit G attached
hereto and by this reference incorporated herein, there are no actions, suits or
proceedings pending or, to the knowledge of the Borrower,  threatened against or
affecting  the  Borrower  or any  of its  Affiliates  or the  properties  of the
Borrower or any of its Affiliates  before any court or governmental  department,
commission,  board,  bureau,  agency or  instrumentality,  domestic  or foreign,
which, if determined  adversely to the Borrower or any of its Affiliates,  would
have a  material  adverse  effect  on the  financial  condition,  properties  or
operations of the Borrower or any of its Affiliates.

         Section 6.8  REGULATION  U. The Borrower is not engaged in the business
of extending  credit for the purpose of  purchasing  or  carrying,  margin stock
(within the meaning of  Regulation  U of the Board of  Governors  of the Federal
Reserve System),  and no part of the proceeds of any RLC Advance will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock.

         Section 6.9 TAXES.  The Borrower and its Affiliates have paid or caused
to be paid to the proper authorities when due all federal, state and local taxes
required to be withheld by each of them.  The Borrower and its  Affiliates  have
filed all  federal,  state and local tax returns  which to the  knowledge of the
officers of the Borrower or any  Affiliate,  as the case may be, are required to
be filed,  and the Borrower and its Affiliates have paid or caused to be paid to
the respective  taxing  authorities all taxes as shown on said returns or on any
assessment  received  by any of them to the extent  such taxes have  become due,
except for any tax whose amount, applicability or validity is being contested in
good faith by  appropriate  proceedings  and so long as the  Collateral  and the
Lender's lien thereon is not in any manner  impaired by any  enforcement  remedy
available to the tax levying entity during the period of such contest.

         Section 6.10 TITLES AND LIENS. The Borrower has good and absolute title
to all Collateral described in the collateral reports provided to the Lender and
all other  Collateral,  properties  and assets  reflected in the latest  balance
sheet referred to in Section 6.6 hereof and all proceeds thereof, free and clear
of all mortgages,  security  interests,  liens and encumbrances,  except for (i)
mortgages,  security  interests and liens  permitted by Section 8.1 hereof,  and
(ii)  in the  case  of any  such  property  which  is not  Collateral  or  other
collateral described in the Security Documents, covenants, restrictions, rights,
easements and minor  irregularities in title which do not  materially  interfere


                                      -26-

<PAGE>

with the  business or  operations  of the Borrower as  presently  conducted.  No
financing  statement  naming  the  Borrower  as debtor is on file in any  office
within the States of Arizona and Nevada,  or to  Borrower's  knowledge  with any
other office, except to perfect only security interests permitted by Section 8.1
hereof.  If any financing  statements not permitted by Section 8.1 hereof become
known to  Borrower,  Borrower  will  use its  best  efforts  to  terminate  same
promptly.

         Section 6.11 PLANS.  Except as disclosed to the Lender in writing prior
to the date hereof,  neither the Borrower nor any of its Affiliates maintains or
has maintained any Plan. Neither the Borrower nor any Affiliate has received any
notice or has any knowledge to the effect that it is not in full compliance with
any of the  requirements  of  ERISA.  No  Reportable  Event  or  other  fact  or
circumstance which may have an adverse effect on the Plan's tax qualified status
exists  in  connection  with  any  Plan.  Neither  the  Borrower  nor any of its
Affiliates has:

                  (a) Any accumulated  funding  deficiency within the meaning of
ERISA; or

                  (b) Any liability or knows of any fact or circumstances  which
could result in any liability to the PBGC,  the Internal  Revenue  Service,  the
Department of Labor or any  participant in connection  with any Plan (other than
accrued benefits which or which may become
payable to participants or beneficiaries of any such Plan).

         Section 6.12 DEFAULT. The Borrower is in compliance with all provisions
of all agreements,  instruments, decrees and orders to which it is a party or by
which it or its  property is bound or  affected,  the breach or default of which
could have a material adverse effect on the financial  condition,  properties or
operations of the Borrower.

         Section 6.13  ENVIRONMENTAL  PROTECTION.  The Borrower has obtained all
permits,  licenses and other  authorizations  which are required  under federal,
state and local laws and regulations relating to emissions, discharges, releases
of  pollutants,  contaminants,  hazardous  or toxic  materials,  or wastes  into
ambient air, surface water,  ground water or land, or otherwise  relating to the
manufacture,   processing,  distribution,  use,  treatment,  storage,  disposal,
transport  or  handling  of  pollutants,  contaminants  or  hazardous  or  toxic
materials or wastes  ("Environmental  Laws") at the Borrower's  facilities or in
connection  with the  operation of its  facilities.  The Borrower  shall provide
copies of all such permits, licenses and other authorizations to the Lender upon
the Lender's  request.  The Borrower  also shall provide to the Lender copies of
all environmental investigation and inspection reports available to the Borrower
that pertain to the Borrower's facilities,  upon the Lender's request. Except as
previously  disclosed to the Lender in writing,  the Borrower and all activities
of the Borrower at its facilities  comply with all  Environmental  Laws and with
all terms and conditions of any required  permits,  licenses and  authorizations
applicable to the Borrower with respect thereto.  Except as previously disclosed
to the  Lender  in  writing,  the  Borrower  is  also  in  compliance  with  all
limitations,  restrictions,  conditions, standards, prohibitions,  requirements,
obligations,  schedules  and  timetables  contained  in  Environmental  Laws  or
contained in any plan, order,  decree,  judgment or notice of which the Borrower
is aware. Except as previously  disclosed to the Lender in writing, the Borrower


                                      -27-

<PAGE>

is not  aware  of,  nor  has  the  Borrower  received  notice  of,  any  events,
conditions,  circumstances,  activities,  practices, incidents, actions or plans
which may interfere with or prevent continued compliance with, or which may give
rise to any  liability  under,  any  Environmental  Laws.  Except as  previously
disclosed  to the Lender in writing,  the  Borrower has received no inquiry from
any federal,  state or local agency concerning the Borrower's  facilities or any
adjacent properties involving possible environmental contamination or violations
of any Environmental Laws, and has no knowledge of any such inquiry to any party
concerning the Borrower's  facilities or any adjacent  properties.  The Borrower
agrees to notify  the Lender  promptly  in  writing  of any  inquiries  by third
parties or regulatory agencies concerning the possible presence of environmental
contamination  on the  Borrower's  facilities  or  any  adjacent  properties  or
concerning  any  possible   violations  of  Environmental   Laws  involving  the
Borrower's  facilities  or any  adjacent  properties.  The Lender shall have the
right  to  enter  the  Borrower's  facilities  for  the  purpose  of  conducting
environmental  investigations,  including taking soil and water samples,  during
the Borrower's normal business hours of operation.

         Section  6.14  SUBMISSIONS  TO THE  LENDER.  All  financial  and  other
information provided to the Lender by or on behalf of the Borrower in connection
with the Borrower's  request for the credit  facilities  contemplated  hereby is
true and correct in all material respects and, as to projections,  valuations or
proforma  financial  statements,  present  a  good  faith  opinion  as  to  such
projections,  valuations and proforma condition and results. Lender acknowledges
that certain financial  information  provided to it under this Agreement will be
provided in greater  detail than what is reflected  and  required in  Borrower's
disclosures with the Securities Exchange  Commission and,  therefore,  is not in
the public domain.

         Section  6.15  FINANCING  STATEMENTS.  The Borrower has provided to the
Lender signed financing  statement(s) and deed(s) of trust sufficient when filed
to perfect the Security  Interests and the other security  interests  created by
the Security Documents.  When such financing statements and deed(s) of trust are
filed in the offices noted  therein,  the Lender will have a valid and perfected
security  interest in all Collateral and all other  collateral  described in the
Security  Documents  which is capable  of being  perfected  by filing  financing
statements.  None of the Collateral or other collateral  covered by the Security
Documents  is or will  become a  fixture  on real  estate,  unless a  sufficient
fixture filing is in effect with respect thereto.

         Section  6.16  RIGHTS  TO  PAYMENT.  Each  right  to  payment  and each
instrument,   document,  chattel  paper  and  other  agreement  constituting  or
evidencing  Collateral or other collateral  covered by the Security Documents is
(or, in the case of all future Collateral or such other collateral, will be when
arising or issued)  the  valid,  genuine  and  legally  enforceable  obligation,
subject to no defense,  setoff or  counterclaim,  of the account debtor or other
obligor named therein or in the Borrower's  records  pertaining thereto as being
obligated to pay such obligation.

         Section 6.17 YEAR 2000 COMPLIANCE.  Borrower and its Subsidiaries  have
reviewed the areas within their operations and business which could be adversely
affected  by, and have  developed  or are  developing  a program to address on a
timely basis, the Year 2000 Problem and have made related appropriate inquiry of
material  suppliers  and vendors,  and based on such review and program,  to the


                                      -28-

<PAGE>

best of  Borrower's  knowledge,  the Year 2000  Problem will not have a material
adverse  effect  upon its  financial  condition,  operations  or business as now
conducted.   "Year  2000  Problem"  means  the  possibility  that  any  computer
applications or equipment used by Borrower and its Subsidiaries may be unable to
recognize and properly perform date-sensitive  functions involving certain dates
prior to and any dates on or after December 31, 1999.


                                      -29-

<PAGE>



                                   ARTICLE VII

                      AFFIRMATIVE COVENANTS OF THE BORROWER

         So long  as the RLC  Note  shall  remain  unpaid  or the RLC  shall  be
outstanding,  the Borrower will comply with the following  requirements,  unless
the Lender shall otherwise consent in writing:

         Section 7.1 REPORTING REQUIREMENTS. The Borrower will deliver, or cause
to be delivered, to the Lender each of the following, which shall be in form and
detail acceptable to the Lender:

                  (a) as soon as available,  and in any event within one hundred
twenty  (120) days after the end of each  fiscal year of the  Borrower,  audited
financial statements of the Borrower with the unqualified opinion of independent
certified  public  accountants  selected by the Borrower and  acceptable  to the
Lender, which annual financial statements shall include the balance sheet of the
Borrower as at the end of such fiscal year and the related statements of income,
retained earnings and cash flows of the Borrower for the fiscal year then ended,
prepared,  if the Lender so requests,  on a consolidating and consolidated basis
to include any Affiliates,  all in reasonable  detail and prepared in accordance
with generally accepted accounting principles applied on a basis consistent with
the  accounting  practices  applied in the financial  statements  referred to in
Section 6.6 hereof;  and  accompanied  by a certificate  of the chief  financial
officer of the Borrower,  substantially  in the form of Exhibit D hereto stating
(i) that  such  financial  statements  have been  prepared  in  accordance  with
generally accepted accounting  principles applied on a basis consistent with the
accounting  practices  reflected  in the  financial  statements  referred  to in
Section 6.6  hereof,  (ii)  whether or not such  officer  has  knowledge  of the
occurrence of any Default or Event of Default hereunder not theretofore reported
and remedied  and, if so,  stating in  reasonable  detail the facts with respect
thereto, and (iii) all relevant facts in reasonable detail to evidence,  and the
computations  as to,  whether  or not the  Borrower  is in  compliance  with the
requirements set forth in Sections 7.12 through 7.14 hereof;

                  (b) as soon as  available  and in any event  within forty five
(45) days after the end of each quarter, an unaudited/internal balance sheet and
statements of income and retained  earnings of the Borrower as at the end of and
for such  quarter and for the year to date period then ended,  prepared,  if the
Lender so requests,  on a consolidating  and  consolidated  basis to include any
Affiliates, in reasonable detail and stating in comparative form the figures for
the  corresponding  date and  periods in the  previous  year,  all  prepared  in
accordance  with generally  accepted  accounting  principles  applied on a basis
consistent with the accounting  practices reflected in the financial  statements
referred to in Section 6.6 hereof,  subject to year-end audit  adjustments;  and
accompanied  by a certificate  of the chief  financial  officer of the Borrower,
substantially  in the form of Exhibit D hereto  stating (i) that such  financial
statements have been prepared in accordance with generally  accepted  accounting
principles applied on a basis consistent with the accounting practices reflected
in the  financial  statements  referred  to in Section  6.6  hereof,  subject to
year-end  audit  adjustments,  (ii) whether or not such officer has knowledge of
the occurrence of any  Default or  Event of Default  hereunder  not  theretofore


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<PAGE>

reported and remedied and, if so,  stating in  reasonable  detail the facts with
respect thereto,  and (iii) all relevant facts in reasonable detail to evidence,
and the  computations  as to, whether or not the Borrower is in compliance  with
the requirements set forth in Sections 7.12 through 7.14 hereof;

                  (c)  as  promptly  as  practicable,   after  the  commencement
thereof,  notice in writing of all litigation and of all proceedings  before any
governmental or regulatory  agency  affecting the Borrower of the type described
in Section 6.6 hereof or which seek a monetary  recovery against the Borrower in
excess of Two Hundred Fifty Thousand Dollars ($250,000.00);

                  (d) as  promptly  as  practicable  (but in any event not later
than five (5) business days) after an officer of the Borrower obtains  knowledge
of the occurrence of any breach,  default or event of default under any Security
Document or any event which constitutes a Default or Event of Default hereunder,
notice of such occurrence,  together with a detailed  statement by a responsible
officer of the  Borrower of the steps  being  taken by the  Borrower to cure the
effect of such breach, default or event;

                  (e) as soon as possible  and in any event within 30 days after
the Borrower knows or has reason to know that any Reportable  Event with respect
to any Plan has occurred,  the statement of the chief  financial  officer of the
Borrower  setting forth details as to such Reportable Event and the action which
the Borrower proposes to take with respect thereto,  together with a copy of the
notice of such Reportable Event to the PBGC;

                  (f) as soon as possible, and in any event within 10 days after
the Borrower fails to make any quarterly  contribution  required with respect to
any Plan under Section 412(m) of the Internal  Revenue Code of 1986, as amended,
the  statement  of the chief  financial  officer of the Borrower  setting  forth
details as to such failure and the action  which the  Borrower  proposes to take
with  respect  thereto,  together  with a copy of any  notice  of  such  failure
required to be provided to the PBGC;

                  (g)  promptly  upon  knowledge  thereof,  notice  of  (i)  any
disputes or claims by customers  of the Borrower  (except for disputes or claims
in the normal course of the Borrower's business);  (ii) any goods returned to or
recovered by the Borrower (except for returns or recoveries in the normal course
of the Borrower's  business);  and (iii) any change in the persons  constituting
the officers and directors of the Borrower;

                  (h) promptly upon knowledge thereof,  notice of any loss of or
material  damage to any Collateral or other  collateral  covered by the Security
Documents or of any  substantial  adverse change in any Collateral or such other
collateral or the prospect of payment thereof;

                  (i) promptly upon their distribution,  copies of all financial
statements,  reports and proxy  statements which the Borrower shall have sent to
its stockholders;


                                      -31-

<PAGE>

                  (j) promptly  after the sending or filing  thereof,  copies of
all regular and periodic  financial  reports which the Borrower  shall file with
the  Securities  and Exchange  Commission or any national  securities  exchange,
including without limitation the Borrower's  Quarterly 10Q Reports no later that
45 days after the quarterly  period ending and the Borrower's  Annual 10K Report
no later than 120 days after the fiscal year period ending;

                  (k) promptly upon knowledge  thereof,  notice of the violation
by the Borrower of any law, rule or regulation,  the  non-compliance  with which
could materially and adversely  affect its business or its financial  condition;
and

                  (l) from time to time, with reasonable promptness, any and all
receivables schedules, collection reports, deposit records, equipment schedules,
copies of invoices to account debtors,  shipment documents and delivery receipts
for goods sold, and such other material,  reports, records or information as the
Lender may reasonably request.

         Section 7.2 BOOKS AND RECORDS, INSPECTION AND EXAMINATION. The Borrower
will keep  accurate  books of record and  account for itself  pertaining  to the
Collateral and pertaining to the Borrower's business and financial condition and
such other  matters as the  Lender may from time to time  reasonably  request in
which  true and  complete  entries  will be made in  accordance  with  generally
accepted accounting principles consistently applied and, upon reasonable request
of the Lender, will permit any officer, employee, attorney or accountant for the
Lender to audit,  review,  make  extracts from or copy any and all corporate and
financial  books  and  records  of the  Borrower  at all times  during  ordinary
business  hours,  to send and discuss  with account  debtors and other  obligors
requests for  verification  of amounts owed to the Borrower,  and to discuss the
affairs  of the  Borrower  with any of its  directors,  officers,  employees  or
agents.  The Borrower  will permit the Lender,  or its  employees,  accountants,
attorneys or agents,  to examine and inspect any  Collateral,  other  collateral
covered by the Security  Documents or any other  property of the Borrower at any
time during ordinary business hours.

         Section 7.3 ACCOUNT  VERIFICATION.  The  Borrower  will at any time and
from time to time upon  reasonable  request  of the  Lender  send  requests  for
verification  of accounts or notices of assignment to account  debtors and other
obligors.

         Section 7.4 COMPLIANCE WITH LAWS; ENVIRONMENTAL INDEMNITY. The Borrower
will (a) comply with the  requirements of applicable laws and  regulations,  the
non-compliance  with which would materially and adversely affect its business or
its financial condition,  (b) comply with all applicable  Environmental Laws and
obtain  any  permits,  licenses  or  similar  approvals  required  by  any  such
Environmental  Laws, and (c) use and keep the Collateral,  and will require that
others use and keep the Collateral,  only for lawful purposes, without violation
of any federal,  state or local law,  statute or  ordinance.  The Borrower  will
indemnify, defend and hold the Lender harmless from and against any claims, loss
or damage to which the Lender may be subjected as a result of any past,  present
or future existence, use, handling,  storage,  transportation or disposal of any
hazardous  waste or substance or toxic  substance by the Borrower or on property


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<PAGE>

owned,  leased or  controlled by the Borrower.  This  indemnification  agreement
shall survive the termination of this Agreement and payment of the  indebtedness
hereunder.

         Section 7.5 PAYMENT OF TAXES AND OTHER CLAIMS. The Borrower will pay or
discharge,  when due, (a) all taxes, assessments and governmental charges levied
or imposed upon it or upon its income or profits,  upon any properties belonging
to it (including,  without  limitation,  the  Collateral) or upon or against the
creation, perfection or continuance of the Security Interests, prior to the date
on which  penalties  attach  thereto,  (b) all  federal,  state and local  taxes
required to be withheld  by it, and (c) all lawful  claims for labor,  materials
and  supplies  which,  if unpaid,  might by law become a lien or charge upon any
properties of the Borrower; provided, that the Borrower shall not be required to
pay any such tax,  assessment,  charge or claim whose amount,  applicability  or
validity is being contested in good faith by appropriate proceedings and so long
as the Collateral and the Lender's lien thereon is not in any manner impaired by
any enforcement  remedy available to the tax levying entity during the period of
such contest.

         Section 7.6  MAINTENANCE OF PROPERTIES.

                  (a) The Borrower  will keep and maintain the  Collateral,  the
other  collateral  covered  by the  Security  Documents  and  all  of its  other
properties  necessary  or useful in its business in good  condition,  repair and
working order (normal wear and tear excepted) and will from time to time replace
or repair any worn, defective or broken parts;  provided,  however, that nothing
in this Section 7.6 shall prevent the Borrower from  discontinuing the operation
and maintenance of any of its properties if such  discontinuance is desirable in
the conduct of the Borrower's  business and not  disadvantageous in any material
respect to the Lender.

                  (b) The Borrower will defend the Collateral against all claims
or demands of all persons (other than the Lender) claiming the Collateral or any
interest therein.

                  (c) The Borrower will keep all Collateral and other collateral
covered by the  Security  Documents  free and clear of all  security  interests,
liens  and  encumbrances  except  the  Security  Interests  and  other  security
interests permitted by Section 8.1 hereof.

         Section  7.7  INSURANCE.  The  Borrower  will  obtain  and at all times
maintain  insurance with insurers believed by the Borrower to be responsible and
reputable,  in such  amounts and against  such risks as may from time to time be
reasonably  required in writing by the Lender, but in all events in such amounts
and against  such risks as is usually  carried by  companies  engaged in similar
business and owning  similar  properties  in the same general areas in which the
Borrower  operates.  Without  limiting  the  generality  of the  foregoing,  the
Borrower will at all times keep all tangible Collateral insured against risks of
fire (including so-called extended coverage),  theft,  collision (for Collateral
consisting  of motor  vehicles)  and such other risks and in such amounts as the
Lender may reasonably request in writing, with any loss payable to the Lender to
the extent of its interest,  and all policies of such insurance  shall contain a
lender's loss payable endorsement for the benefit of the Lender. All policies of
liability  insurance  required  hereunder shall name the Lender as an additional
insured.


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<PAGE>

         Section 7.8  PRESERVATION  OF CORPORATE  EXISTENCE.  The Borrower  will
preserve and maintain its corporate existence and all of its rights,  privileges
and franchises  necessary or desirable in the normal conduct of its business and
shall conduct its business in an orderly, efficient and regular manner.

         Section 7.9 DELIVERY OF  INSTRUMENTS,  ETC. Upon request by the Lender,
the  Borrower  will  promptly  deliver to the Lender in pledge all  instruments,
documents and chattel papers constituting Collateral,  duly endorsed or assigned
by the Borrower.

         Section  7.10 YEAR 2000  COMPLIANCE.  Borrower  shall  perform all acts
reasonably  necessary  to ensure  that (a)  Borrower  and any  business in which
Borrower  holds a substantial  interest,  and (b) all  customers,  suppliers and
vendors whose compliance is likely to be material to Borrower's business, become
Year 2000 Compliant in a timely manner;  provided however,  should Borrower fail
to comply with the  provisions  contained  in (a) or (b) above,  Borrower  shall
provide  Lender with a backup or continency  plan,  reasonably  satisfactory  to
Lender,  so as to become Year 2000 Complaint  within a period of time calculated
to result in no material  disruption of Borrower's  operations.  Such acts shall
include, without limitation, performing a comprehensive review and assessment of
all Borrower's  systems and adopting a detailed plan, with itemized budget,  for
the  remediation,  monitoring  and  testing  of  such  systems.  As used in this
paragraph,  "Year 2000 Compliant" shall mean, in regard to any entity,  that all
software,  hardware,  firmware,  equipment,  goods  or  systems  utilized  by or
material to the business  operations or financial condition of such entity, will
properly  perform date  sensitive  functions  before,  during and after the year
2000.  Borrower  shall,   immediately  upon  request,  provide  to  Lender  such
certifications or other evidence of Borrower's compliance with the terms of this
paragraph as Lender may from time to time require.

         Section  7.11  PERFORMANCE  BY THE LENDER.  If the Borrower at any time
fails to perform or observe any of the  foregoing  covenants  contained  in this
Article VII or elsewhere herein, and if such failure shall continue for a period
of ten (10)  calendar  days after the Lender gives the Borrower  written  notice
thereof (or in the case of the  agreements  contained  in  Sections  7.5 and 7.7
hereof, immediately upon the occurrence of such failure, without notice or lapse
of time),  the Lender may,  but need not,  perform or observe  such  covenant on
behalf and in the name,  place and stead of the  Borrower  (or, at the  Lender's
option,  in the  Lender's  name) and may,  but need not,  take any and all other
actions which the Lender may  reasonably  deem necessary to cure or correct such
failure (including,  without limitation,  the payment of taxes, the satisfaction
of security  interests,  liens or  encumbrances,  the performance of obligations
owed to account  debtors or other  obligors,  the procurement and maintenance of
insurance,  the  execution of  assignments,  security  agreements  and financing
statements,  and  the  endorsement  of  instruments);  and  the  Borrower  shall
thereupon pay to the Lender on demand the amount of all monies  expended and all
costs and expenses  (including  reasonable  attorneys'  fees and legal expenses)
incurred by the Lender in connection  with or as a result of the  performance or
observance  of such  agreements  or the  taking of such  action  by the  Lender,
together  with  interest  thereon  from the date  expended  or  incurred  at the
Variable Rate. To facilitate the performance or observance by the Lender of such
covenants of the Borrower,  the Borrower hereby irrevocably appoints the Lender,


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<PAGE>

or the  delegate of the Lender,  acting  alone,  as the  attorney in fact of the
Borrower (which appointment is coupled with an interest) with the right (but not
the duty)  from time to time to create,  prepare,  complete,  execute,  deliver,
endorse  or  file  in the  name  and on  behalf  of the  Borrower  any  and  all
instruments,  documents, assignments, security agreements, financing statements,
applications  for insurance  and other  agreements  and writings  required to be
obtained,  executed,  delivered or endorsed by the  Borrower  under this Section
7.11.  This right of Lender to act as attorney in fact of the Borrower  shall be
irrevocable  for the life of this  Agreement  and may be exercised by the Lender
only at any time after the occurrence and during the  continuance of an Event of
Default.

         Section 7.12 INTEREST  COVERAGE  RATIO.  The Borrower will at all times
maintain an Interest  Coverage Ratio of not less than 5.00 to 1.00 measured on a
rolling four(4) quarter basis.

         Section 7.13 SENIOR DEBT TO TOTAL  CAPITAL  PERCENTAGE.  Commencing  on
December 31,  1999,  the  Borrower  will at all times  maintain a Senior Debt to
Total Capital  Percentage  of not more than fifty  percent  (50%)  measured on a
quarterly basis as follows: Senior Debt divided by Total Capital.

         Section 7.14 [NOT USED.]

         Section 7.15 [NOT USED.]

         Section 7.16 INVESTED CAPITAL  CONDITION.  With respect to the Invested
Capital Condition, Borrower shall:

                  (a) Provide  Lender  with a plan on or before  June 30,  1999,
reasonable satisfactory to Lender, to satisfy the Invested Capital Condition.

                  (b)  Engage an  investment  bank on or before  July 31,  1999,
reasonably satisfactory to Lender, to satisfy the Invested Capital Condition.

                  (c)  Satisfy  the  Invested  Capital  Condition  on or  before
December 31, 1999.


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<PAGE>

                                  ARTICLE VIII

                               NEGATIVE COVENANTS

         So long  as the RLC  Note  shall  remain  unpaid  or the RLC  shall  be
outstanding,  the Borrower agrees that, without the prior written consent of the
Lender:

         Section 8.1 LIENS.  The  Borrower  will not create,  incur or suffer to
exist any mortgage,  deed of trust, pledge, lien, security interest,  assignment
or transfer upon or of any of its assets,  now owned or hereafter  acquired,  to
secure  any  indebtedness;   EXCLUDING,  HOWEVER,  from  the  operation  of  the
foregoing:

                  (a)  mortgages,  deeds  of  trust,  pledges,  liens,  security
interests and  assignments in existence on the date hereof and listed in Exhibit
C hereto,  securing  indebtedness for borrowed money permitted under Section 8.2
hereof;

                  (b)  the Security Interests; and

                  (c)  purchase money  security  interests  or operating  leases
relating  to the  acquisition  or  leasing of  machinery  and  equipment  of the
Borrower so long as the  Borrower is in, and  maintains,  compliance  with every
other provision of this Agreement.

         Section 8.2  INDEBTEDNESS.  The  Borrower,  without  the prior  written
consent  of  Lender,  will not  incur,  create,  assume  or  permit to exist any
indebtedness or liability on account of deposits or advances or any indebtedness
for borrowed money, or any other  indebtedness or liability  evidenced by notes,
bonds, debentures or similar obligations, except:

                  (a) indebtedness arising hereunder;

                  (b)  indebtedness  of the  Borrower in  existence  on the date
hereof and listed in Exhibit C hereto; and

                  (c)  indebtedness  relating to liens  permitted in  accordance
with Section 8.l(c) hereof.

         Section  8.3  GUARANTIES.  The  Borrower  will not  assume,  guarantee,
endorse or otherwise  become directly or contingently  liable in connection with
any obligations of any other Person, except:

                  (a) the endorsement of negotiable  instruments by the Borrower
for deposit or  collection  or similar  transactions  in the ordinary  course of
business; and


                                      -36-

<PAGE>

                  (b)  guaranties,  endorsements  and other direct or contingent
liabilities in connection  with the obligations of other Persons in existence on
the date hereof and listed in Exhibit C hereto.

         Section 8.4 [NOT USED].

         Section 8.5 [NOT USED].

         Section  8.6  SALE  OR  TRANSFER  OF  ASSETS,  SUSPENSION  OF  BUSINESS
OPERATIONS.  The Borrower will not sell,  lease,  assign,  transfer or otherwise
dispose of: (i) the stock of any Subsidiary;  (ii) all or a substantial  part of
its assets;  or (iii) any  Collateral  or any interest  therein  (whether in one
transaction or in a series of transactions) to any other Person,  other than the
sale of Inventory in the ordinary course of business or de minimis sale of other
Collateral; and will not liquidate, dissolve or suspend business operations. The
Borrower will not in any manner  transfer any property  without prior or present
receipt of full and adequate consideration.

         Section 8.7 CONSOLIDATION AND MERGER; ASSET ACQUISITIONS.  The Borrower
will not consolidate  with or merge into any Person,  or permit any other Person
to merge into it, or acquire in a transaction  analogous in purpose or effect to
a consolidation or merger all or substantially all
the assets of any other Person.

         Section 8.8 SALE AND  LEASEBACK.  The Borrower  will not enter into any
arrangement,  directly or indirectly, with any other Person whereby the Borrower
shall sell or  transfer  any real or  personal  property,  whether  now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Borrower  intends to use for
substantially  the same  purpose  or  purposes  as the  property  being  sold or
transferred.

         Section 8.9  RESTRICTIONS ON NATURE OF BUSINESS.  The Borrower will not
engage in any line of business materially  different from that presently engaged
in by the Borrower and will not purchase,  lease or otherwise acquire assets not
related to its business.

         Section 8.10 [NOT USED].

         Section 8.11  ACCOUNTING.  The  Borrower  will  not adopt any  material
change in  accounting  principles  other than as required by generally  accepted
accounting  principles.  The Borrower  will not adopt,  permit or consent to any
change in its fiscal year.

         Section 8.12  DISCOUNTS,  ETC.  Except  in  the  normal  course  of the
Borrower's  business,  the  Borrower  will not  grant  any  discount,  credit or
allowance to any customer of the Borrower or accept any return of goods sold, or
at any time  (whether  before  after  notice  from the  Lender)  modify,  amend,
subordinate,  cancel or terminate the  obligation of any account debtor or other
obligor of the Borrower.


                                      -37-

<PAGE>

         Section 8.13  DEFINED  BENEFIT  PENSION  PLANS.  The Borrower  will not
adopt,  create,  assume or become a party to any defined  benefit  pension plan,
unless disclosed to the Lender pursuant to Section 6.11 hereof.

         Section 8.14 OTHER DEFAULTS.  The Borrower will not permit any material
breach,  default or event of default by the  Borrower  to occur  under any note,
loan  agreement,   indenture,  lease,  mortgage,  contract  for  deed,  security
agreement or other contractual obligation binding upon the
Borrower.

         Section 8.15 PLACE OF BUSINESS;  NAME.  The Borrower  will not transfer
its chief executive  office or principal place of business  outside the State of
Arizona,  or close or sell any business  location  except in  connection  with a
transfer of its chief executive office or principal place of business within the
State of Arizona.  The Borrower  will not permit any tangible  Collateral or any
records  pertaining  to the  Collateral  to be  located  in any state or area in
which,  in the event of such  location,  a  financing  statement  covering  such
Collateral  would be required to be, but has not in fact been, filed in order to
perfect the Security Interests. The Borrower will not change its name.

         Section 8.16  ORGANIZATIONAL  DOCUMENTS,  S  CORPORATION  STATUS.   The
Borrower  will  not  amend  its  certificate  of   incorporation,   articles  of
incorporation  or bylaws.  The Borrower will not become an S Corporation  within
the  meaning  of the  Internal  Revenue  Code of 1986,  as  amended,  or, if the
Borrower  already is such an S  Corporation,  it shall not change or rescind its
status as an S Corporation.


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<PAGE>

                                   ARTICLE IX

                     EVENTS OF DEFAULT, RIGHTS AND REMEDIES

         Section 9.1  EVENTS OF  DEFAULT.   "Event of  Default",  wherever  used
herein, means any one of the following events:

                  (a) Default in the payment of any  interest on or principal of
the RLC Note when it becomes due and  payable,  which  default  continues  for a
period of ten (10) days; or

                  (b) Default in the payment of any fees, commissions,  costs or
expenses required to be paid by the Borrower under this Agreement, which default
continues  for a period of thirty  (30) days after the Lender has given  written
notice thereof; or

                  (c) Default in the performance,  or breach, of any covenant or
agreement of the Borrower  contained in sections 7.12 through and including 7.16
of this Agreement; or

                  (d) Default in the performance,  or breach, of any covenant or
agreement of the Borrower  contained in this Agreement (other than sections 7.12
through and  including  7.16 which are covered in the prior  subsection),  which
default  continues  for a period of twenty  (20) days after the Lender has given
written notice thereof; or

                  (e) The  Borrower  shall be or become  insolvent,  or admit in
writing its inability to pay its debts as they mature, or make an assignment for
the  benefit of  creditors;  or the  Borrower  shall apply for or consent to the
appointment of any receiver,  trustee,  or similar  officer for it or for all or
any  substantial  part of its  property;  or such  receiver,  trustee or similar
officer shall be appointed  without the  application or consent of the Borrower,
as the case may be; or the Borrower shall  institute (by petition,  application,
answer,  consent  or  otherwise)  any  bankruptcy,  insolvency,  reorganization,
arrangement,   readjustment  of  debt,   dissolution,   liquidation  or  similar
proceeding  relating  to it  under  the  laws of any  jurisdiction;  or any such
proceeding shall be instituted (by petition,  application or otherwise)  against
the Borrower;  or any judgment,  writ,  warrant of  attachment,  garnishment  or
execution or similar  process  shall be issued or levied  against a  substantial
part of the property of the Borrower; or

                  (f) A petition shall be filed by or against the Borrower under
the United States Bankruptcy Code naming the Borrower as debtor; or

                  (g) Any  representation  or warranty  made by the  Borrower in
this  Agreement,  or by the Borrower (or any of its officers) in any  agreement,
certificate,  instrument or financial statement or other statement  contemplated
by or made or delivered  pursuant to or in connection  with this Agreement shall
prove  to  have  been  incorrect  in any  material  respect  when  deemed  to be
effective; or


                                      -39-

<PAGE>

                  (h) The  rendering  against the Borrower of a final  judgment,
decree or order for the  payment  of money in  excess of Five  Hundred  Thousand
Dollars  ($500,000)  and the  continuance  of such  judgment,  decree  or  order
unsatisfied and in effect for any period of thirty
(30) consecutive days without a stay of execution; or

                  (i) A  material  default  under any bond,  debenture,  note or
other evidence of indebtedness of the Borrower owed to any Person other than the
Lender, or under any indenture or other instrument under which any such evidence
of indebtedness  has been issued or by which it is governed,  or under any lease
of any of the Premises, and the expiration of the applicable period of grace, if
any, specified in such evidence of indebtedness,  indenture, other instrument or
lease, which default continues for a period of thirty (30) days; or

                  (j) Any Reportable Event,  which the Lender determines in good
faith  might  constitute  grounds  for the  termination  of any  Plan or for the
appointment  by the  appropriate  United States  District  Court of a trustee to
administer any Plan, shall have occurred and be continuing 30 days after written
notice to such effect shall have been given to the Borrower by the Lender;  or a
trustee shall have been appointed by an appropriate United States District Court
to administer any Plan; or the Pension Benefit Guaranty  Corporation  shall have
instituted  proceedings  to  terminate  any  Plan or to  appoint  a  trustee  to
administer any Plan; or the Borrower shall have filed for a distress termination
of any Plan under Title IV of ERISA;  or the Borrower  shall have failed to make
any  quarterly  contribution  required  with  respect to any Plan under  Section
412(m) of the  Internal  Revenue  Code of 1986,  as  amended,  which the  Lender
determines in good faith may by itself, or in combination with any such failures
that the Lender may determine  are likely to occur in the future,  result in the
imposition of a lien on the assets of the Borrower in favor of the Plan; or

                  (k) An  event  of  default  shall  occur  under  any  Security
Document  or under  any  other  security  agreement,  mortgage,  deed of  trust,
assignment or other  instrument  or agreement  securing any  obligations  of the
Borrower  hereunder  or  under  any note  (other  than  any  obligations  to pay
principal and interest  under the RLC Note,  which are covered in subsection (a)
above),  which  continues  for a period of twenty (20) days after the Lender has
given written notice thereof; or

                  (l) The  Borrower  shall  liquidate,  dissolve,  terminate  or
suspend its business operations or otherwise fail to operate its business in the
ordinary  course,  or sell all or substantially  all of its assets,  without the
prior written consent of the Lender; or

                  (m) The Borrower shall fail to pay, withhold, collect or remit
any tax or tax  deficiency  when assessed or due (other than any tax  deficiency
which is being  contested in good faith and by proper  proceedings and for which
it shall  have set  aside on its books  adequate  reserves  therefor)  except as
allowed by  Section  7.5 or notice of any state or  federal  tax liens  shall be
filed or issued, which continues for a period of thirty (30) days after any such
event has occurred; or


                                      -40-

<PAGE>

                  (n) Default in the payment of any amount owed by the  Borrower
to the Lender other than any indebtedness arising hereunder,  and the expiration
of the  applicable  period  of  grace,  if any,  specified  in the  evidence  of
indebtedness; or

                  (o) Any breach, default or event of default by or attributable
to any Affiliate under any agreement between such Affiliate and the Lender,  and
the  expiration of the  applicable  period of grace,  if any,  specified in such
agreement.

         Section 9.2 RIGHTS AND  REMEDIES.  Upon the  occurrence  of an Event of
Default or at any time  thereafter,  the Lender may  exercise  any or all of the
following rights and remedies:

                  (a) The Lender may, by notice to the Borrower, declare the RLC
to be terminated, whereupon the same shall forthwith terminate;

                  (b) The Lender may, by notice to the  Borrower,  declare to be
forthwith  due and payable the entire  unpaid  principal  amount of the RLC Note
then outstanding,  all interest accrued and unpaid thereon,  all amounts payable
under this Agreement and any other Obligations, whereupon the RLC Note, all such
accrued  interest  and all such  amounts  and  Obligations  shall  become and be
forthwith due and payable, without presentment,  notice of dishonor,  protest or
further  notice of any kind,  all of which are  hereby  expressly  waived by the
Borrower;

                  (c) The Lender may, without notice to the Borrower and without
further  action,  apply any and all money  owing by the Lender to the  Borrower,
including  without  limitation any funds on deposit with the Lender,  whether or
not matured,  to the payment of the RLC  Advances,  including  interest  accrued
thereon, and of all other sums then owing by the Borrower hereunder;

                  (d) The Lender  may,  exercise  and enforce any and all rights
and remedies available upon default to a secured party under the UCC, including,
without limitation,  the right to take possession of Collateral, or any evidence
thereof,  proceeding  without judicial process or by judicial process (without a
prior hearing - or notice thereof,  which the Borrower hereby expressly  waives)
and  the  right  to  sell,  lease  or  otherwise  dispose  of  any or all of the
Collateral,  and, in connection therewith,  the Borrower will on demand assemble
the  Collateral  and make it available to the Lender at a place to be designated
by the Lender which is reasonably convenient to both parties;

                  (e) The  Lender  may  automatically  convert  all  LIBOR  Rate
Advances  then  outstanding  to Variable  Rate  Advances on the last day of each
respective interest period for each LIBOR Rate Advance;

                  (f) The  Lender  may  exercise  and  enforce  its  rights  and
remedies under the Loan Documents; and

                  (g) The  Lender may  exercise  any other  rights and  remedies
available to it by law or agreement.


                                      -41-

<PAGE>

Notwithstanding  the  foregoing,  upon the  occurrence  of an  Event of  Default
described in Section 9.1(f) hereof,  the entire unpaid  principal  amount of the
RLC Note  (whether  contingent  or  funded),  all  interest  accrued  and unpaid
thereon,   all  other  amounts  payable  under  this  Agreement  and  any  other
Obligations  shall  be  immediately  due  and  payable   automatically   without
presentment, demand, protest or notice of any kind.

         Section 9.3 INDEMNITY.  Borrower agrees to pay and indemnify the Lender
for, and to hold the Lender  harmless  from,  any and all cost,  loss or expense
(including  without  limitation  any such  cost,  loss or expense  arising  from
interest  or fees  payable by the Lender to lenders of funds  obtained  by it in
order to maintain its LIBOR Rate Advances  hereunder,  or in its reemployment of
funds  obtained  in  connection  with the  making or  maintaining  of LIBOR Rate
Advances)  which the Lender may sustain or incur as a consequence of any default
by the Borrower in  connection  with or related to: (a) payment of the principal
amount  of or  interest  on LIBOR  Rate  Advances,  (b)  making a  borrowing  or
conversion of a LIBOR Rate Advance after the Borrower has given a notice thereof
in accordance  with this  Agreement,  or (c) making a prepayment of a LIBOR Rate
Advance  after  Borrower  has given a notice  thereof  in  accordance  with this
Agreement,  or any prepayment  (whether optional or mandatory) of any LIBOR Rate
Advance prior to the end of the applicable LIBOR Interest Period for such loan.

         Section 9.4 CERTAIN NOTICES.  If notice to the Borrower of any intended
disposition of Collateral or any other  intended  action is required by law in a
particular  instance,  such notice shall be deemed  commercially  reasonable  if
given (in the manner  specified in Section 10.3) at least five (5) calendar days
prior to the date of intended disposition or other action.


                                      -42-

<PAGE>

                                    ARTICLE X

                                  MISCELLANEOUS

         Section 10.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the
part of the  Lender in  exercising  any  right,  power or remedy  under the Loan
Documents  shall  operate as a waiver  thereof;  nor shall any single or partial
exercise  of any such  right,  power or remedy  preclude  any  other or  further
exercise  thereof or the exercise of any other right,  power or remedy under the
Loan Documents.  The remedies  provided in the Loan Documents are cumulative and
not exclusive of any remedies provided by law.

         Section 10.2 AMENDMENTS, ETC. No amendment,  modification,  termination
or waiver of any  provision of any Loan  Document or consent to any departure by
the Borrower  therefrom or any release of a Security Interest shall be effective
unless  the same shall be in writing  and  signed by the  Lender,  and then such
waiver or consent shall be effective  only in the specific  instance and for the
specific  purpose for which given. No notice to or demand on the Borrower in any
case shall  entitle  the  Borrower  to any other or further  notice or demand in
similar or other circumstances.

         Section 10.3 ADDRESSES FOR NOTICES,  ETC. Except as otherwise expressly
provided  herein,  all  notices,  requests,  demands  and  other  communications
provided  for  under the Loan  Documents  shall be in  writing  and shall be (a)
personally  delivered,  (b) sent by first class United States mail,  (c) sent by
overnight  courier of national  reputation,  or (d) transmitted by telecopy,  in
each case addressed to the party to whom notice is being given at its address as
set forth below and, if telecopied,  transmitted to that party at its telecopier
number set forth below:

         If to the Borrower:  SkyMall, Inc.
                              1520 East Pima Street
                              Phoenix, Arizona 85034
                              Attention:  Stephen R. Peterson, Chief Financial
                                          Officer and Treasurer
                              Telecopier: (602) 254-6544

         with a copy to:      SkyMall, Inc.
                              1520 East Pima Street
                              Phoenix, Arizona 85034
                              Attention:  Chris A. Aguilera, Executive Vice
                                          President and General Counsel
                              Telecopier: (602) 254-6544


                                      -43-

<PAGE>

         If to the Lender:    Imperial Bank
                              9920 South La Cienega Boulevard
                              Suite 636
                              Inglewood, California  90301
                              Attention:  Lending Services
                              Telecopier:  (310) 417-5695

         With a copy to:      Imperial Bank
                              400 East Van Buren
                              Suite 900
                              Phoenix, Arizona  85004
                              Attention: R. Mark Chambers
                              Telecopier:  (602) 261-7881

or,  as to each  party,  at such  other  address  or  telecopier  number  as may
hereafter  be  designated  by such party in a written  notice to the other party
complying  as to  delivery  with the terms of this  Section.  All such  notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail,  (c) the date sent if sent by overnight  courier,  or (d) the
date of transmission  if delivered by telecopy,  except that notices or requests
to the Lender  pursuant to any of the  provisions of Article 11 hereof shall not
be effective until received by the Lender.

         Section  10.4  FINANCING  STATEMENT.  A carbon,  photographic  or other
reproduction  of this  Agreement  or of an  financing  statements  signed by the
Borrower is sufficient as a financing  statement and may be filed as a financing
statement in any state to perfect the security  interests  granted  hereby.  For
this purpose, the following information is set forth:

         Name and address of Debtor:

                              SkyMall, Inc.
                              1520 East Pima Street
                              Phoenix, Arizona 85034
                              Federal Tax Identification No. 86-0651100

                              or

                              skymall.com, inc.
                              1520 East Pima Street
                              Phoenix, Arizona 85034
                              Federal Tax Identification No. 86-0942159

                              or


                                      -44-

<PAGE>

                              Durham & Company
                              1205 South Park Lane
                              Tempe, Arizona 85281
                              Federal Tax Identification No. 86-0930397

         Name and address of Secured Party:

                              Imperial Bank, a California banking corporation
                              Lending Services
                              9920 South La Cienega Boulevard
                              Inglewood, California 90301
                              Attention: Lending Services

         Section 10.5  FURTHER  DOCUMENTS.  The Borrower  will from time to time
execute and deliver or endorse any and all instruments,  documents, conveyances,
assignments,  security agreements, financing statements and other agreements and
writings  that the Lender may  reasonably  request in order to secure,  protect,
perfect or enforce the Security Interests or the rights of the Lender under this
Agreement  (but any  failure to request or assure  that the  Borrower  executes,
delivers  or  endorses  any such item shall not  affect or impair the  validity,
sufficiency  or  enforceability  of this  Agreement and the Security  Interests,
regardless  of  whether  any such  item was or was not  executed,  delivered  or
endorsed in a similar context or on a prior occasion).

         Section 10.6 COLLATERAL.  This Agreement does not contemplate a sale of
accounts,  contract  rights or chattel  paper,  and,  as  provided  by law,  the
Borrower is entitled to any surplus and shall remain liable for any  deficiency.
The  Lender's  duty of care with respect to  Collateral  in its  possession  (as
imposed by law) shall be deemed  fulfilled  if it exercises  reasonable  care in
physically keeping such Collateral,  or in the case of Collateral in the custody
or possession of a bailee or other third person,  exercises  reasonable  care in
the  selection  of the bailee or other  third  person,  and the Lender  need not
otherwise preserve, protect, insure or care for any Collateral. The Lender shall
not be obligated  to preserve  any rights the  Borrower  may have against  prior
parties,  to realize on the  Collateral  at all or in any  particular  manner or
order or to apply any cash proceeds of the Collateral in any particular order of
application.

         Section 10.7 COSTS AND EXPENSES.  The Borrower  agrees to pay on demand
all reasonable costs and expenses,  including  (without  limitation)  reasonable
attorneys' fees, incurred by the Lender in connection with the Obligations, this
Agreement, the Loan Documents and any other document or agreement related hereto
or  thereto,  and  the  transactions   contemplated  hereby,  including  without
limitation all such reasonable  costs,  expenses and fees incurred in connection
with  the  negotiation,   preparation,  execution,  amendment,   administration,
performance,  collection  and  enforcement  of  the  Obligations  and  all  such
documents and agreements and the creation, perfection, protection, satisfaction,
foreclosure  or  enforcement  of the Security  Interests.  Lender shall use best
efforts to provide  Borrower an estimate in advance of the costs and expenses to
be incurred by Lender.


                                      -45-

<PAGE>

         Section 10.8 INDEMNITY. In addition to the payment of expenses pursuant
to Section 10.7 hereof and the environmental  indemnity  pursuant to Section 7.4
hereof,  the Borrower agrees to indemnify,  defend and hold harmless the Lender,
and  any of its  participants,  parent  corporations,  subsidiary  corporations,
affiliated  corporations,  successor  corporations,  and all  present and future
officers, directors,  employees and agents of the foregoing (the "Indemnities"),
from and against (i) any and all transfer taxes,  documentary taxes, assessments
or charges made by any  governmental  authority by reason of the  execution  and
delivery of this Agreement and the other Loan Documents or the making of the RLC
Advances,  and  (ii)  any  and  all  liabilities,  losses,  damages,  penalties,
judgments,  suits,  claims,  costs and expenses of any kind or nature whatsoever
(including,  without  limitation,  the  reasonable  fees  and  disbursements  of
counsel)  in  connection  with any  investigative,  administrative  or  judicial
proceedings, whether or not such Indemnitee shall be designated a party thereto,
which may be imposed on, incurred by or asserted against such Indemnitee, in any
manner relating to or arising out of or in connection with the making of the RLC
Advances, this Agreement and all other Loan Documents or the use or intended use
of the  proceeds of the RLC Advances  (the  "Indemnified  Liabilities").  If any
investigative,  judicial or  administrative  proceeding  arising from any of the
foregoing is brought  against any Indemnitee,  upon request of such  Indemnitee,
the  Borrower,  or counsel  designated by the Borrower and  satisfactory  to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner reasonably directed by the Indemnitee,  at the Borrower's sole
cost and expense.  Each Indemnitee will use its best efforts to cooperate in the
defense of any such action, suit or proceeding.  If the foregoing undertaking to
indemnify,  defend and hold harmless may be held to be unenforceable  because it
violates any law or public  policy,  the Borrower  shall  nevertheless  make the
maximum  contribution to the payment and satisfaction of each of the Indemnified
Liabilities  which is permissible  under  applicable  law. The obligation of the
Borrower under this Section 10.8 shall survive the termination of this Agreement
and the discharge of the Borrower's other Obligations.

         Section 10.9 PARTICIPANTS. The Lender and its participants, if any, are
not partners or joint venturers,  and the Lender shall not have any liability or
responsibility  for any obligation,  act or omission of any of its participants.
All rights and powers specifically  conferred upon the Lender may be transferred
or delegated to any of the participants, successors or assigns of the Lender.

         Section 10.10 EXECUTION IN COUNTERPARTS.  This Agreement and other Loan
Documents may be executed in any number of  counterparts,  each of which when so
executed  and  delivered  shall be  deemed  to be an  original  and all of which
counterparts, taken together, shall constitute but one and the same instrument.

         Section 10.11 BINDING EFFECT; ASSIGNMENT;  COMPLETE AGREEMENT;  SHARING
OF  INFORMATION.  The Loan  Documents  shall be  binding  upon and  inure to the
benefit  of the  Borrower  and the Lender and their  respective  successors  and
assigns,  except that the Borrower shall not have the right to assign its rights
thereunder  or any interest  therein  without the prior  written  consent of the
Lender. This Agreement, together with the Loan Documents, comprises the complete
and  integrated  agreement  of the  parties  on the  subject  matter  hereof and


                                      -46-

<PAGE>

supersedes all prior agreements,  written or oral, on the subject matter hereof.
Without  limitation  of the Lender's  right to share  information  regarding the
Borrower and its Affiliates with Lender's participants, accountants, lawyers and
other  advisors,  the Lender may share  (subject  to  applicable  provisions  of
securities laws) at any time with Imperial Bancorp.  and all direct and indirect
subsidiaries of Imperial Bancorp. any and all information the Lender may have in
its  possession  regarding  the  Borrower and its  Affiliates,  and the Borrower
waives any right of  confidentiality it may have with respect to such sharing of
such information.

         Section 10.12 GOVERNING LAW; JURISDICTION, VENUE; WAIVER OF JURY TRIAL.
The Loan  Documents  shall be governed by and construed in  accordance  with the
substantive  laws (other than conflict laws) of the State of California  (except
that  the  Leasehold  Deed of  Trust  shall  be  governed  by and  construed  in
accordance with the substantive  laws (other than conflict laws) of the State of
Arizona),  except to the extent  Lender has  greater  rights or  remedies  under
Federal law, whether as a national bank or otherwise,  in which case such choice
of California  law shall not be deemed to deprive  Lender of any such rights and
remedies as may be available  under  Federal law.  Subject to the  provisions of
Section 10.15 hereof, each party consents to the personal jurisdiction and venue
of the state courts  located in Los Angeles,  State of  California in connection
with any controversy  related to this Agreement,  waives any argument that venue
in any such forum is not convenient and agrees that any litigation  initiated by
any of them in connection  with this  Agreement  shall be venued in the Superior
Court of Los Angeles County,  California.  Notwithstanding the provisions in the
prior sentence,  each party consents to the personal  jurisdiction  and venue of
the state  courts  located  in  Phoenix,  Maricopa  County,  State of Arizona in
connection with any controversy  related to the Leasehold Deed of Trust,  waives
any argument that venue in any such forum is not  convenient and agrees that any
litigation  initiated by any of them in connection  with the  Leasehold  Deed of
Trust shall be venued in the Superior  Court of Maricopa  County,  Arizona.  The
parties waive any right to trial by jury in any action or proceeding based on or
pertaining to this Agreement or any of the Loan Documents.

         Section  10.13  SEVERABILITY  OF  PROVISIONS.  Any  provision  of  this
Agreement  which is  prohibited or  unenforceable  shall be  ineffective  to the
extent  of  such  prohibition  or  unenforceability   without  invalidating  the
remaining provisions hereof.

         Section 10.14 HEADINGS.  Article and Section headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.

         Section 10.15 REFERENCE PROVISION.

                  (a) Each  controversy,  dispute or claim ("Claim") between the
parties  arising  out of or relating  to this  Agreement  and/or any of the Loan
Documents,  which is not  settled  in  writing  within ten days after the "Claim
Date"  (defined as the date on which a party gives  written  notice to all other
parties  that a  controversy,  dispute  or claim  exists),  will be settled by a
reference  proceeding  in  Los  Angeles,  California,  in  accordance  with  the
provisions of Section 638 ET SEQ. of the California Code of Civil Procedure,  or
their successor section ("CCP"), which  shall constitute  the  exclusive  remedy


                                      -47-

<PAGE>

for the settlement of any Claim,  including whether such Claim is subject to the
reference  proceeding  and the parties  waive their rights to initiate any legal
proceedings  against  each  other in any court or  jurisdiction  other  than the
Superior  Court of Los Angeles  (the  "Court").  The referee  shall be a retired
Judge selected by mutual  agreement of the parties,  and if they cannot so agree
with in thirty days (30) after the Claim Date,  the referee shall be selected by
the  Presiding  Judge of the Court.  The referee  shall be appointed to sit as a
temporary judge, as authorized by law. The referee shall (a) be requested to set
the matter for hearing  within  sixty (60) days after the Claim Date and (b) try
any and all issues of law or fact and report a statement of decision  upon them,
if possible, within ninety (90) days of the Claim Date. Any decision rendered by
the referee will be final,  binding and conclusive and judgment shall be entered
pursuant to CCP 644 in the Court.  All  discovery  permitted  by this  Agreement
shall be completed no later than fifteen (15) days before the first hearing date
established by the referee. The referee may extend such period in the event of a
party's  refusal  to provide  requested  discovery  for any  reason  whatsoever,
including,  without  limitation,  legal  objections  raised to such discovery or
unavailability  of a  witness  due to  absence  or  illness.  No party  shall be
entitled to  "priority"  in  conducing  discovery.  Depositions  may be taken by
either party upon seven (7) days written notice,  and, request for production of
inspection  of  documents  shall be  responded  to within  ten (10)  days  after
service.  All  disputes  relating to  discovery  which cannot be resolved by the
parties  shall be submitted  to the referee  whose  decision  shall be final and
binding upon the parties.

                  (b) The referee  shall be required to determine  all issues in
accordance  with  existing  case  law and the  statutory  laws of the  State  of
California.  The rules of evidence applicable to proceedings at law in the State
of California will be applicable to the reference proceeding.  The referee shall
be  empowered  to  enter  equitable  as well as legal  relief,  to  provide  all
temporary and/or provisional remedies and to enter equitable orders that will be
binding upon the parties. The referee shall issue a single judgment at the close
of the  reference  proceeding  which  shall  dispose of all of the claims of the
parties  that are the subject to the  reference.  The parties  hereto  expressly
reserve the right to contest or appeal from the final judgment or any appealable
order or  appealable  judgment  entered by the  referee.  The parties  expressly
reserve the right to findings of fact,  conclusions of law, a written  statement
of  decision,  and the  right to move for a new trial or a  different  judgment,
which new trial,  if granted,  is also to be a reference  proceeding  under this
provision.

         (c) No  provision  of  Paragraphs  (a) or (b) of  this  Section  10.15,
however,  shall limit the right of Lender to bring action for  possession of any
collateral  in any  jurisdiction,  wherever  located,  in  accordance  with  the
provisions of the Security Documents.


                                      -48-

<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective  officers  thereunto duly authorized as of the date
first above written.

                                   SKYMALL, INC., a Nevada corporation


                                   By:  /s/ Stephen R. Peterson
                                        ----------------------------------------
                                   Name:  Stephen R. Peterson
                                          --------------------------------------
                                   Title: CFO
                                          --------------------------------------

                                   skymall.com, inc., a Nevada corporation


                                   By:  /s/ Stephen R. Peterson
                                        ----------------------------------------
                                   Name:  Stephen R. Peterson
                                          --------------------------------------
                                   Title: CFO
                                          --------------------------------------

                                   DURHAM & COMPANY, a Utah corporation


                                   By:  /s/ Stephen R. Peterson
                                        ----------------------------------------
                                   Name:  Stephen R. Peterson
                                          --------------------------------------
                                   Title: CFO
                                          --------------------------------------

                                                                        BORROWER


                                   IMPERIAL BANK, a California banking
                                   corporation


                                   By:  /s/ R. Mark Chambers
                                        ----------------------------------------
                                   Name:  R. Mark Chambers
                                          --------------------------------------
                                   Title: Vice President
                                          --------------------------------------

                                                                          LENDER


                                      -49-


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