Document:

Exhibit 10(a)

================================================================================

                                CREDIT AGREEMENT

                                      among

                           KNIGHT TRANSPORTATION, INC.
                        and its Significant Subsidiaries

                             THE BANKS NAMED HEREIN

                     WELLS FARGO BANK, NATIONAL ASSOCIATION
                             as Administrative Agent
                                       and
               as Issuing Bank, as Arranger, as Swing Line Lender
                                       and
                                    as a Bank

                                       and

                           THE NORTHERN TRUST COMPANY
                                    as a Bank

                            Dated as of April 6, 2001

================================================================================
<PAGE>
                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

ARTICLE I       DEFINITIONS....................................................2
  SECTION 1.1   Defined Terms..................................................2
  SECTION 1.2   Terms Generally...............................................10

ARTICLE II      THE RLC FACILITY..............................................11
  SECTION 2.1   The RLC Commitment............................................12
  SECTION 2.2   [Intentionally left blank]....................................12
  SECTION 2.3   Procedures for Borrowings Under the RLC Facility..............12
  SECTION 2.4   Revolving Loans...............................................13
  SECTION 2.5   Reborrowings..................................................14
  SECTION 2.6   Fees..........................................................14
  SECTION 2.7   Notes; Repayment of Revolving Loans...........................15
  SECTION 2.8   Interest on Revolving Loans...................................15
  SECTION 2.9   Default Interest..............................................15
  SECTION 2.10  Termination and Reduction of Commitments......................16
  SECTION 2.11  Conversion and Continuation of Borrowings.....................16
  SECTION 2.12  Prepayment....................................................17
  SECTION 2.13  Reserve Requirements; Change in Circumstances.................17
  SECTION 2.14  Change in Legality............................................19
  SECTION 2.15  Redeployment Loss.............................................20
  SECTION 2.16  Pro Rata Treatment............................................21
  SECTION 2.17  Sharing of Setoffs............................................21
  SECTION 2.18  Payments......................................................22
  SECTION 2.19  Taxes.........................................................22
  SECTION 2.20  Termination or Assignment of Commitments Under Certain
                Circumstances.................................................24
  SECTION 2.21  Security Interest.............................................25
  SECTION 2.22  Swing Line Loans..............................................25

ARTICLE IIA     LETTERS OF CREDIT.............................................28
  SECTION 2A.1  Letters of Credit.............................................28
  SECTION 2A.2  Notice........................................................28
  SECTION 2A.3  Letter of Credit Participations...............................28
  SECTION 2A.4  Disbursement and Reimbursement................................29
  SECTION 2A.5  Existing Letters of Credit....................................30

ARTICLE III     REPRESENTATIONS AND WARRANTIES................................32
  SECTION 3.1   Organization; Corporate Powers; Etc...........................32
  SECTION 3.2   Authorization; Etc............................................32
  SECTION 3.3   Enforceability................................................32
  SECTION 3.4   Financial Condition and Information...........................32
  SECTION 3.5   No Material Adverse Change....................................33
<PAGE>
  SECTION 3.6   Litigation....................................................33
  SECTION 3.7   Federal Reserve Regulations...................................33
  SECTION 3.8   Investment Company Act........................................33
  SECTION 3.9   Public Utility Holding Company Act............................33
  SECTION 3.10  Tax Returns...................................................34
  SECTION 3.11  ERISA.........................................................34
  SECTION 3.12  Title to Properties: Possession...............................34
  SECTION 3.13  Use of Proceeds...............................................34
  SECTION 3.14  Environmental Matters.........................................34
  SECTION 3.15  Subsidiaries..................................................34
  SECTION 3.16  No Subordination..............................................34
  SECTION 3.17  Permits, Franchises...........................................35
  SECTION 3.18  Other Obligations.............................................35

ARTICLE IV      CONDITIONS TO CREDIT EVENTS...................................36
  SECTION 4.1   Credit Events.................................................36
  SECTION 4.2   First Credit Event............................................36

ARTICLE V       AFFIRMATIVE COVENANTS.........................................38
  SECTION 5.1   Corporate Existence...........................................38
  SECTION 5.2   Insurance.....................................................38
  SECTION 5.3   Taxes and other Liabilities...................................38
  SECTION 5.4   Financial Statements; Reports, etc............................38
  SECTION 5.5   Litigation and Other Notices..................................39
  SECTION 5.6   Maintaining Records: Access to Premises and Records...........40
  SECTION 5.7   Use of Proceeds...............................................40
  SECTION 5.8   Punctual Payments.............................................40
  SECTION 5.9   Compliance....................................................40
  SECTION 5.10  Facilities....................................................40
  SECTION 5.11  Financial Covenants...........................................40
  SECTION 5.12  New Subsidiaries; Co-Borrower.................................41

ARTICLE VI      NEGATIVE COVENANTS............................................42
  SECTION 6.1   Liens.........................................................42
  SECTION 6.2   Indebtedness..................................................42
  SECTION 6.3   Merger, Consolidation, Transfer of Assets.....................42
  SECTION 6.4   Accounting Change.............................................43
  SECTION 6.5   Guarantee.....................................................43
  SECTION 6.6   ERISA Liabilities.............................................43
  SECTION 6.7   Capital Expenditures..........................................43
  SECTION 6.8   Loans, Advances, Investments..................................43
  SECTION 6.9   Dividend, Distributions.......................................43

ARTICLE VII     EVENTS OF DEFAULT.............................................44

                                        2
<PAGE>
ARTICLE VIII    THE ADMINISTRATIVE AGENT......................................47
  SECTION 8.1   Appointment...................................................47
  SECTION 8.2   Liability.....................................................47
  SECTION 8.3   Action by Administrative Agent................................48
  SECTION 8.4   Resignation...................................................48
  SECTION 8.5   Agent as Bank.................................................48
  SECTION 8.6   Determinations................................................48
  SECTION 8.7   Indemnification...............................................49
  SECTION 8.8   Independent Credit Analysis...................................49

ARTICLE IX      MISCELLANEOUS.................................................50
  SECTION 9.1   Notices.......................................................50
  SECTION 9.2   Survival of Agreement.........................................50
  SECTION 9.3   Binding Effect; Beneficiaries.................................50
  SECTION 9.4   Successors and Assigns........................................51
  SECTION 9.5   Expenses; Indemnity...........................................53
  SECTION 9.6   Right of Setoff...............................................54
  SECTION 9.7   Applicable Law................................................55
  SECTION 9.8   Waivers; Amendment............................................55
  SECTION 9.9   Interest Rate Limitation......................................55
  SECTION 9.10  Entire Agreement..............................................56
  SECTION 9.11  Severability..................................................56
  SECTION 9.12  Counterparts and Signature Pages..............................56
  SECTION 9.13  Headings......................................................56
  SECTION 9.14  Arbitration...................................................56
  SECTION 9.15  Jurisdiction; Consent to Service of Process...................58
  SECTION 9.16  Waiver of Jury Trial..........................................59
  SECTION 9.17  Non-Debtor Borrower Provisions................................59
  SECTION 9.18  Confidentiality...............................................60

                                        3
<PAGE>
LIST OF EXHIBITS AND SCHEDULES

Exhibit "A"     -   Form of Assignment and Acceptance
Exhibit "B"     -   Form of Borrowing Notice
Exhibit "C"     -   Revolving Credit Note (RLC Facility)
Exhibit "C-1"   -   Swing Line Note
Exhibit "D"     -   Administrative Details Reply Form
Exhibit "E"     -   Matters to be Covered by the Legal Opinion of Counsel
Exhibit "F"     -   Form of Quarterly Compliance Certificate
Exhibit "G"     -   Assumption Agreement
Exhibit "H"     -   Security Agreement

Schedule 2.1    -   Commitments of Banks
Schedule 2A.5   -   Existing Letters of Credit
Schedule 3.15   -   Borrower's Subsidiaries
Schedule 6.1    -   Permitted Liens
Schedule 6.2    -   Existing Indebtedness

                                        4
<PAGE>
                                CREDIT AGREEMENT

     BY THIS CREDIT  AGREEMENT  (together with any amendments or  modifications,
the  "Agreement"),  entered  into  as of  April  6,  2001  by and  among  KNIGHT
TRANSPORTATION,  INC., an Arizona  corporation (the "Company"),  all present and
future  Significant   Subsidiaries  (as  hereinafter  defined)  of  the  Company
(together with the Company,  the  "Borrower"),  the banks listed in Schedule 2.1
(the "Banks"),  WELLS FARGO BANK, NATIONAL ASSOCIATION,  as administrative agent
for the Banks (in such  capacity,  together with any successor  agent  appointed
hereunder,   the  "Administrative  Agent"),  as  Issuing  Bank  (as  hereinafter
defined),  as Arranger, as a Bank and as the Swing Line Lender, and THE NORTHERN
TRUST COMPANY, an Illinois banking  corporation,  as a Bank, in consideration of
the mutual promises herein contained and for other valuable  consideration,  the
parties hereto do agree as follows:

                                    RECITALS

     A. The  Borrower  has asked  that the  Banks  provide  a  revolving  credit
facility (the "RLC Facility") in the maximum  principal amount of $50,000,000.00
to Borrower for working capital purposes, of which an amount up to the Letter of
Credit  Commitment  may be applied  to the  issuance  of one or more  Letters of
Credit.

     B. The Banks are  willing to extend  such  credits to the  Borrower  on the
terms and subject to the conditions herein set forth.

     C.  Effective as of the delivery of this  Agreement,  the Credit  Agreement
dated  November 24, 1999  between the  Borrower  and Wells Fargo Bank,  National
Association  (the "1999  Agreement")  will be  terminated  and  replaced by this
Agreement.

     Accordingly,  the Borrower,  the Banks,  the  Administrative  Agent and the
Issuing Bank agree as follows:
<PAGE>
                                    ARTICLE I
                                   DEFINITIONS

     SECTION 1.1 DEFINED TERMS.  Although terms may be defined elsewhere in this
Agreement,  as used in this  Agreement,  the  following  terms  shall  have  the
meanings specified below:

     "Administrative  Agent" shall have the meaning assigned to such term in the
Preamble, and any successor thereto.

     "Administrative  Details Reply Form" shall mean an  Administrative  Details
Reply Form in the form of Exhibit "D".

     "Affiliate"  shall  mean,  when used with  respect to a  specified  person,
another person that directly,  or indirectly through one or more intermediaries,
Controls  or is  Controlled  by or is  under  common  Control  with  the  person
specified.

     "Agreement" shall mean this Credit  Agreement,  as amended or modified from
time to time.

     "Applicable Interest Rate" with respect to a given Borrowing shall mean the
interest rate in effect for that Borrowing as determined pursuant to Section 2.8
herein.

     "Applicable Margin" shall mean the following:

                          LIBOR                    Base Rate
                         Borrowing                 Borrowing
                         ---------                 ---------
                     62.5 basis points           0 basis points

     "Assignment and Acceptance" shall mean an assignment and acceptance entered
into by a Bank and an assignee,  accepted by the  Administrative  Agent,  in the
form of Exhibit "A".

     "Average  Adjusted  Daily  Undrawn  Balance"  shall equal the average daily
unused amount of the Total Commitment during the preceding calendar quarter. For
this  purpose,  the Letter of Credit  Balance shall be deemed to be a use of the
Total Commitment.

     "Banks," each a "Bank": See the Preamble.

     "Base Rate" shall mean the Prime Rate.

     "Base Rate  Borrowing"  shall mean a Borrowing  bearing  interest at a rate
determined by reference to the Base Rate.

     "Board" shall mean the Board of Governors of the Federal  Reserve System of
the United States.

                                       2
<PAGE>
     "Borrower": See the Preamble.

     "Borrowing"  shall  mean  an  outstanding  principal  amount  of one of the
Revolving  Loans as to which a single  Interest  Period  is in  effect  and with
respect to which a single Applicable Interest Rate applies.

     "Borrowing  Notice"  shall mean a notice given  pursuant to Section 2.3, as
therein described.

     "Business  Day" shall mean any day (other  than a day which is a  Saturday,
Sunday or legal  holiday in the State of Arizona or in the State of  California)
on which commercial banks are open for business in Phoenix,  Arizona;  PROVIDED,
HOWEVER,  that,  when  used in  connection  with a  LIBOR  Borrowing,  the  term
"Business Day" shall exclude any day on which banks are not open for dealings in
Dollar deposits in the London interbank market.

     "Capital  Lease"  shall  mean any  lease  of any  property  (whether  real,
personal or mixed)  required by GAAP to be accounted  for as a capital  lease on
the balance sheet of the lessee.

     "Capital  Lease  Obligations"  of any Person shall mean the  obligations of
such  Person  to pay  rent  or  other  amounts  under  any  lease  of (or  other
arrangement  conveying  the  right  to use)  real  or  personal  property,  or a
combination  thereof,  which  obligations  are  required  to be  classified  and
accounted  for as capital  leases on a balance  sheet of such person  under GAAP
and, for the purposes of this Agreement,  the amount of such  obligations at any
time  shall  be the  capitalized  amount  thereof  at such  time  determined  in
accordance with GAAP.

     A "Change in Control"  shall be deemed to have  occurred if, after the date
hereof,  (a) any person or group (within the meaning of Rule 13d-3, as in effect
on the date hereof,  promulgated by the SEC under the 1934 Act),  shall acquire,
directly or indirectly, beneficially or of record, shares representing more than
50% of the  aggregate  ordinary  voting  power  represented  by the  issued  and
outstanding  capital stock of the  Borrower;  (b) a majority of the seats (other
than  vacant  seats) on the board of  directors  become  occupied by persons not
members of said board on the date hereof that were neither (i)  nominated by the
board  of  directors  of the  Borrower,  nor  (ii)  appointed  by  directors  so
nominated;  or (c) any person or group shall  otherwise  directly or  indirectly
Control the Borrower.

     "Closing Date" shall mean the date of the first Credit Event hereunder.

     "Co-Borrowers,"   each  a   "Co-Borrower,"   shall  mean  the   Significant
Subsidiaries that are a party to this Agreement from time to time.

     "Code"  shall mean the Internal  Revenue  Code of 1986,  as the same may be
amended from time to time.

     "Collateral"  shall  mean  all  property  of the  Borrower  subject  to the
Security Documents.

                                       3
<PAGE>
     "Commitment"  shall mean, with respect to each Bank, the commitment of such
Bank as to each Facility  hereunder as set forth in Schedule 2.1, as such Bank's
Commitment may be  permanently  terminated or reduced from time to time pursuant
to Sections 2.10 or 2.20. Each Bank's Commitment shall fully,  automatically and
permanently terminate on the RLC Maturity Date.

     "Commitment  Fee" shall have the  meaning  assigned to such term in Section
2.6(a).

     "Company": See the Preamble.

     "Control"  shall  mean the power to direct  or cause the  direction  of the
management or policies of a person,  whether  through rights of ownership  under
voting   securities,   under  contract  or  otherwise,   and  "Controlling"  and
"Controlled" shall have meanings correlative thereto.

     "Credit Event" shall have the meaning given such term in Article IV.

     "Default Rate" shall mean a rate per annum (computed as provided in Section
2.8(b))  equal to the  Base  Rate  plus  three  percent  (3%)  and  changing  in
conformity with each change in the Base Rate.

     "Designated  Officer"  shall  mean  any  of  the  Chairman  of  the  Board,
President,  any Vice  President,  the  Chief  Financial  Officer,  and the Chief
Accounting Officer of the Borrower.

     "Dollars" or "$" shall mean lawful money of the United States of America.

     "Equipment" shall mean tangible  personalty that is not "inventory,"  "farm
equipment" or "fixtures," as the  immediately  preceding terms in quotations are
defined in Article Nine of the Uniform  Commercial  Code as in effect in and for
the State of Arizona.

     "ERISA" shall mean the Employee  Retirement Income Security Act of 1974, as
the same may be amended from time to time.

     "ERISA  Affiliate"  shall  mean  any  trade  or  business  (whether  or not
incorporated)  that is a member of a group of which the Borrower is a member and
which is treated as a single employer under Section 414 of the Code.

     "ERISA  Liabilities"  shall  mean at any time the  minimum  liability  with
respect  to Plans  that  would be  required  to be  reflected  at such time as a
liability on the consolidated balance sheet of the Borrower under GAAP.

     "Eurodollar  Lending  Office," with respect to any Bank (or  transferee) or
the  Administrative  Agent,  shall  mean such  office or branch as such Bank (or
transferee) or the Administrative Agent has designated to the Borrower herein in
Schedule  "2.1" as the  office or branch  of such  Bank (or  transferee)  or the
Administrative Agent which shall constitute the Lending Office thereof for LIBOR
Borrowings.

     "Event of Default" shall have the meaning  assigned to such term in Article
VII.

                                       4
<PAGE>
     "Existing  Letters of Credit" shall mean the letters of credit  outstanding
on the Closing Date issued under the 1999 Agreement, which letters of credit are
listed on Schedule 2A.5 attached hereto.

     "Facility" shall mean the RLC Facility.

     "Federal Funds Rate" shall mean,  for any day, the weighted  average of the
rates on  overnight  Federal  funds  transactions  with  members of the  Federal
Reserve  System  arranged by Federal  funds  brokers,  as  published on the next
succeeding  Business Day by the Federal  Reserve Bank of San  Francisco,  or, if
such rate is not so published  for any day which is a Business  Day, the average
of  the   quotations  for  the  day  of  such   transactions   received  by  the
Administrative  Agent from three Federal  funds  brokers of recognized  standing
selected by it.

     "Fees" shall mean the  Commitment  Fees and all other fees and charges,  if
any, (other than interest)  payable hereunder or otherwise payable in connection
with the Facility.

     "Financial Covenants": See Section 5.11.

     "Financial  Officer" of any Person shall mean the chief financial  officer,
principal accounting officer, treasurer or controller of such Person.

     "GAAP" shall mean  generally-accepted  accounting  principles in the United
States.

     "Governmental  Authority" shall mean any federal,  state,  tribal, local or
foreign court or governmental agency,  authority,  instrumentality or regulatory
body.

     "Guarantee"  of or by any Person shall mean any  obligation,  contingent or
otherwise,  of such  Person  guaranteeing  or  having  the  economic  effect  of
guaranteeing any Indebtedness of any other Person (the "Primary Obligor") in any
manner,  whether directly or indirectly,  and including  without  limitation any
obligation  of such  Person,  direct or  indirect,  (a) to  purchase  or pay (or
advance or supply funds for the purchase or payment of) such  Indebtedness or to
purchase  (or to advance or supply  funds for the  purchase of) any security for
the  payment of such  Indebtedness,  (b) to  purchase  property,  securities  or
services  for the  purpose of  assuring  the owner of such  Indebtedness  of the
payment of such Indebtedness or (c) to maintain working capital,  equity capital
or other financial statement condition or liquidity of the Primary Obligor so as
to enable the Primary Obligor to pay such Indebtedness;  PROVIDED, HOWEVER, that
the term Guarantee shall not include  endorsements for collection or deposit, in
either case in the ordinary course of business.

     "Indebtedness"  of a  Person  shall  mean  each of the  following  (without
duplication)  that,  individually,  is in excess of  $100,000.00  in outstanding
amount (in Dollars or the equivalent at market  exchange rates) on the date such
obligation is incurred:  (a)  obligations of that Person to any other Person for
payment of borrowed money, (b) Capital Lease  Obligations,  (c) notes and drafts
drawn or  accepted by that Person  payable to any other  Person,  whether or not
representing   obligations  for  borrowed  money  (but  without  duplication  of
indebtedness for borrowed  money),  (d) any obligation for the purchase price of
property the payment of which is deferred for more than one year or evidenced by

                                       5
<PAGE>
a note or  equivalent  instrument,  (e)  Guarantees  of  Indebtedness  of  third
parties,  and (f) a recourse or  non-recourse  payment  obligation  of any other
Person that is secured by a Lien on any property of the first Person, whether or
not assumed by the first person, up to the fair market value (from time to time)
of such property  (absent  manifest  evidence to the  contrary,  the fair market
value of such property shall be the amount  determined  under GAAP for financial
reporting purposes).

     "Information" shall have the meaning defined in Section 9.17 hereof.

     "Interest  Payment  Date"  shall  mean  (a)  with  respect  to a Base  Rate
Borrowing,  the first day of each month in arrears,  and (b) with respect to any
LIBOR Borrowing,  the last day of the Interest Period applicable thereto and, in
the case of a LIBOR Borrowing with an Interest Period of more than three months'
duration (if at any time made  available  under this  Agreement),  each day that
would have been an  Interest  Payment  Date for such  Borrowing  had  successive
Interest  Periods of three months'  duration been  applicable to such  Borrowing
and, in addition, (c) each of (i) the date of any conversion of a Borrowing with
or to a  Borrowing  of a  different  Type,  (ii)  the  date of  prepayment  of a
Borrowing, and (iii) the RLC Maturity Date.

     "Interest  Period"  shall  mean (a) as to any LIBOR  Borrowing,  the period
commencing  on the  date  of  such  Borrowing  and  ending  on  the  numerically
corresponding day (or, if there is no numerically corresponding day, on the last
day) in the calendar month that is one, two, three or six months thereafter,  as
the Borrower may elect,  or, if earlier,  on the RLC Maturity Date and (b) as to
any Base Rate Borrowing, the period commencing on the date of such Borrowing and
ending on the RLC  Maturity  Date,  the date such  Borrowing  is  converted to a
Borrowing  of a different  Type in  accordance  with Section 2.11 or the date of
repayment or  prepayment  of such  Borrowing in  accordance  with Section 2.5 or
2.12;  PROVIDED,  HOWEVER,  that if any Interest Period would end on a day other
than a  Business  Day,  such  Interest  Period  shall  be  extended  to the next
succeeding  Business Day unless, in the case of LIBOR Borrowings only, such next
succeeding  Business Day would fall in the next  calendar  month,  in which case
such Interest  Period shall end on the next  preceding  Business  Day.  Interest
shall  accrue  from and  including  the first day of an  Interest  Period to but
excluding the last day of such Interest Period.

     "Issuing  Bank"  shall  have  the  meaning  assigned  to  such  term in the
Preamble, and any successor thereto.

     "Lending  Office," with respect to any Bank or any  transferee of the Loans
or the  Administrative  Agent,  shall mean such office or branch as such Bank or
such  transferee  or the  Administrative  Agent has  designated  to the Borrower
herein  as the  office  or  branch  of  that  Bank  or  such  transferee  or the
Administrative Agent from which Loans are to be made.

     "Letter of Credit  Balance"  shall  mean,  at any time,  the sum of (a) the
aggregate undrawn amount of all Letters of Credit  outstanding at such time plus
(b) the  aggregate  amount which has been drawn under  Letters of Credit but for
which  the  Issuing  Bank or the  Banks,  as the  case  may be,  have  not  been
reimbursed by the Borrower.

     "Letter of Credit Commitment" shall mean $4,000,000.00.

                                       6
<PAGE>
     "Letter of Credit Disbursement" shall mean any payment or disbursement made
by the Issuing Bank under or pursuant to a Letter of Credit.

     "Letters of Credit" shall mean letters of credit issued by the Issuing Bank
for the account of the Borrower  pursuant to Article IIA as well as the Existing
Letters of Credit.

     "LIBOR  Rate"  shall  mean,  with  respect to any LIBOR  Borrowing  for any
Interest  Period,  the average of the interest  rate per annum (except as to the
Swap Amount, rounded upwards, if necessary,  to the next 1/8 of 1%) equal to the
composite London interbank offered rate for Dollar deposits  approximately equal
in principal  amount to such LIBOR  Borrowing  and for a maturity  comparable to
such  Interest  Period for  delivery  on the first day of the  Interest  Period,
adjusted for reserve requirements.

     "LIBOR  Borrowing"  shall  mean  a  Borrowing  bearing  interest  at a rate
determined by reference to the LIBOR Rate.

     "Lien" shall mean any mortgage, pledge, security interest or similar lien.

     "Loans"  shall mean the loans made  available by the Banks to Borrower,  in
the form of Revolving Loans under the RLC Facility.

     "Loan Documents" shall mean this Agreement, the Notes, the Swing Line Note,
the Security  Documents and all other  documents,  instruments and agreements of
every kind and  description at any time undertaken by any Person for the benefit
of the Banks in connection with the Loans.

     "Margin Stock" shall have the meaning given such term under Regulation U.

     "Maximum RLC Commitment" shall mean $50,000,000.00.

     "Multiemployer  Plan" shall mean a multiemployer plan as defined in Section
4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate (other than one
considered an ERISA  Affiliate only pursuant to subsection (m) or (o) of Section
414 of the Code) is making or accruing an obligation to make  contributions,  or
has within any of the preceding five plan years made or accrued an obligation to
make contributions.

     "1934 Act" shall mean the United States Securities Exchange Act of 1934, as
amended.

     "1999 Agreement": See the Recitals.

     "Note" and "Notes" shall mean, severally and collectively, revolving credit
notes of the Borrower  executed and delivered as provided in Section 2.7 as such
Notes might be amended, modified, extended and restated from time to time.

     "PBGC" shall mean the Pension Benefit Guaranty  Corporation referred to and
defined in ERISA.

                                       7
<PAGE>
     "Permitted Lien" shall mean a Lien permitted under Section 6.1.

     "Person"  shall  mean  any  natural  person  (whether  or not  acting  in a
representative  capacity),  corporation,  limited  liability  company,  business
trust,  joint  venture,   association,   sole  proprietorship,   partnership  or
government, or any agency or political subdivision thereof.

     "Plan" shall mean any pension plan (other than a  Multiemployer  Plan) that
is (1) a qualified  plan under Section  401(a) of the Code,  (ii) subject to the
provisions of Title IV of ERISA or Section 412 of the Code and (iii)  maintained
for employees of the Borrower or any ERISA Affiliate.

     "Potential  Default"  shall  mean any act,  event or  condition  which upon
notice, lapse of time or both would constitute an Event of Default.

     "Prime  Rate"  shall mean at any time the rate of  interest  per annum most
recently  announced within the  Administrative  Agent at its principal office in
San Francisco as its prime rate, with the  understanding  that the prime rate of
the  Administrative  Agent is one of its base rates and serves as the basis upon
which  effective  rates of  interest  are  calculated  for  those  loans  making
reference  thereto,  and  is  evidenced  by  the  recording  thereof  after  its
announcement in such internal  publication or publications as the Administrative
Agent may  designate;  each change in the Prime Rate shall be  effective  on the
date such change is announced within the Administrative Agent.

     "Quarterly Certificate" shall mean that Quarterly Compliance Certificate in
the form of Exhibit F.

     "Redeployment Loss": See Section 2.15.

     "Refunded Swing Line Loan": See Section 2.22(c).

     "Register": See Section 9.4(d).

     "Regulation D" shall mean Regulation D of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.

     "Regulation T" shall mean Regulation T of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.

     "Regulation U" shall mean Regulation U of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.

     "Regulation X" shall mean Regulation X of the Board as from time to time in
effect and all official rulings and interpretations thereunder or thereof.

     "Reportable  Event" shall mean any  reportable  event as defined in Section
4043(b) of ERISA or the  regulations  issued  thereunder  with respect to a Plan
(other than a Plan maintained by an ERISA Affiliate which is considered an ERISA
Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Code).

                                       8
<PAGE>
     "Required  Banks"  shall  mean,  at  any  time,  Banks  having  Commitments
representing at least:

          (a) 100% of the Total Commitment if there are only two Banks.

          (b) 66 and 2/3% of the  Total  Commitment  if there  are more than two
     Banks.

     "Revolving  Loans"  shall  mean the  revolving  lines of credit  loans made
available  by the Banks to the Borrower  pursuant to Article II. Each  Revolving
Loan  shall  be  composed  of one or more  LIBOR  Borrowings  and/or  Base  Rate
Borrowings.

     "RLC  Balance"  means the  outstanding  aggregate  principal  amount of all
Borrowings.

     "RLC  Commitment"  shall mean,  with respect to each Bank, its share of the
Maximum RLC Commitment,  based on its Commitment percentage as shown on Schedule
2.1.

     "RLC  Facility":  See Recital A, which  Facility  consists of the Revolving
Loans and the Letters of Credit.

     "RLC Maturity Date" shall mean June 15, 2003.

     "SEC" shall mean the United States Securities and Exchange Commission.

     "Security Documents": See Section 2.21.

     "Significant  Subsidiary"  shall have the meaning given such term under SEC
Regulation S-X, 17 C.F.R. ss.210.1-02.

     "Subsidiary" of a Person shall mean any  corporation,  association or other
business  entity of which more than 50% of the total  voting  power of shares of
stock  entitled  to vote in the  election  of  directors,  managers  or trustees
thereof is at the time owned or  controlled,  directly  or  indirectly,  by that
Person,  by one or more of the  other  Subsidiaries  of that  Person,  or by any
combination thereof.

     "Subordinated  Debt" shall mean  Indebtedness  of Borrower whose payment is
subordinated in writing to the payment of the Loans and the other obligations of
Borrower under this Agreement, to the satisfaction of all of the Banks.

     "Swap  Agreement"  shall  mean  that  Interest  Rate Swap  Agreement  dated
February  13, 2001  between the Company and Wells  Fargo,  as it may be amended,
modified or restated from time to time.

     "Swap  Amount"  shall  mean  the  aggregate   amount  of  LIBOR  Borrowings
outstanding  at any one time  that has been  designated  by the  Borrower  to be
subject to the Swap Agreement.

                                       9
<PAGE>
     "Swap Amount Maximum" shall mean $12,200,000.00.  At the termination of the
Swap Agreement, the Maximum shall mean zero.

     "Swing Line Balance": See Section 2.22(a).

     "Swing Line Commitment": See Section 2.22(a).

     "Swing Line Lender" shall mean Wells Fargo.

     "Swing  Line Loan"  shall mean the loans made  available  by the Swing Line
Lender to Borrower pursuant to Article IIB.

     "Swing Line Note": See Section 2.22(b).

     "Termination" shall mean the payment in full of the principal amount of all
Loans, all accrued  interest thereon and all fees with respect thereto,  coupled
with  termination of the Facility and all other  obligations  (if any) of all of
the Banks to advance  funds or extend  credit to or for the  benefit of Borrower
pursuant to this Agreement.

     "Termination  Date" shall mean the date of the occurrence of the last event
to occur required for Termination to occur.

     "Total  Commitment"  shall  mean at any time the  aggregate  amount  of the
Banks'  Commitments,  as in effect  from time to time,  which  amount  shall not
exceed the Maximum RLC Commitment.

     "Type," when used in respect of any  Borrowing,  shall refer to the rate by
reference  to which  interest on such  Borrowing  is  determined.  For  purposes
hereof, "rate" shall mean the LIBOR Rate or the Base Rate.

     "Wells Fargo" shall mean Wells Fargo Bank, National Association.

     SECTION 1.2 TERMS  GENERALLY.  The  definitions  in Section 1.1 shall apply
equally to both the singular and plural forms of the terms defined. Whenever the
context may require,  any pronoun  shall  include the  corresponding  masculine,
feminine and neuter forms. All references herein to Articles, Sections, Exhibits
and  Schedules  shall be deemed  references  to  Articles  and  Sections of this
Agreement,  and Exhibits and  Schedules  to this  Agreement,  unless the context
shall otherwise  require.  Except as otherwise  expressly  provided herein,  all
terms of an accounting or financial nature shall be construed in accordance with
GAAP as in effect in the United  States of America from time to time;  PROVIDED,
HOWEVER,  that,  for purposes of  determining  compliance  with any covenant set
forth in Article VI, such terms shall be construed in accordance with GAAP as in
effect on the date of this Agreement.

                                       10
<PAGE>
                                   ARTICLE II
                                THE RLC FACILITY

     SECTION 2.1 THE RLC COMMITMENT.

          (a) Subject to the terms and conditions  herein set forth,  each Bank,
severally and not jointly, agrees to make advances of its Revolving Loans to the
Borrower,  at any time and from time to time on and after  the date  hereof  and
until the earlier of (i) the RLC Maturity  Date or (ii) the  termination  of the
RLC  Commitment  of said  Bank,  in an  aggregate  principal  amount at any time
outstanding not to exceed such Bank's RLC Commitment,  subject,  however, to the
conditions that (A) at no time shall the outstanding  aggregate principal amount
of all Borrowings made by all Banks pursuant to their Revolving Loans,  together
with the Swing Line Balance and the Letter of Credit Balance, exceed the Maximum
RLC Commitment,  and (B) at all times the outstanding aggregate principal amount
of all  Borrowings  advanced by each Bank pursuant to its Revolving  Loans shall
equal the product of (y) the percentage  which its RLC Commitment  represents of
the Maximum RLC Commitment times (z) the outstanding  aggregate principal amount
of all Borrowings  advanced by all Banks pursuant to their Revolving Loans. Such
RLC  Commitments  may be  terminated  or reduced  from time to time  pursuant to
Sections 2.10 and 2.20.  Within the foregoing  limits,  the Borrower may borrow,
pay or prepay and reborrow hereunder,  on and after the date hereof and prior to
the RLC Maturity  Date,  subject to the terms,  conditions and  limitations  set
forth herein.

          (b)  Each  advance  of the  proceeds  of  the  Revolving  Loans  shall
constitute  a single  Borrowing.  Each LIBOR  Borrowing  shall be in a principal
amount  which  is  an  integral  multiple  of  $100,000.00  and  not  less  than
$1,000,000.00 (or, if less, a principal amount equal to the remaining balance of
the available RLC Commitments).

     SECTION 2.2 [Intentionally left blank]

     SECTION 2.3 PROCEDURES FOR BORROWINGS UNDER THE RLC FACILITY.

          (a) Each  advance  under the  Revolving  Loans shall be a single LIBOR
Borrowing  or a  single  Base  Rate  Borrowing,  as the  Borrower  may  request.
Borrowings of more than one Type may be outstanding at the same time;  PROVIDED,
HOWEVER,  that (i) the Borrower  shall not be entitled to request any  Borrowing
which,  if made,  would  result in an  aggregate  of more than five (5) separate
LIBOR Borrowings being outstanding collectively under the Revolving Loans at any
one time and (ii) each LIBOR Borrowing  shall be in a principal  amount which is
an  integral  multiple  of  $100,000.00  and not less  than  $1,000,000.00.  For
purposes  of  the  foregoing,  Borrowings  having  different  Interest  Periods,
regardless  of  whether  they  commence  on the same date,  shall be  considered
separate Borrowings.

                                       11
<PAGE>
          (b) In order to request a Borrowing,  the  Borrower  shall give to the
Administrative  Agent written or telecopy notice (or telephone  notice confirmed
in writing on the same  Business  Day) in the form of Exhibit "B" (a  "Borrowing
Notice") not later than 9:00 a.m.,  California  time, (a) in the case of a LIBOR
Borrowing,  three Business days before a proposed  Borrowing and (b) in the case
of a Base Rate  Borrowing,  on the day of a proposed  Borrowing.  Each Borrowing
Notice  shall be  irrevocable  and shall in each case  specify  (i)  whether the
Borrowing  then  being  requested  is to be a  LIBOR  Borrowing  or a Base  Rate
Borrowing;  (ii) the date of such Borrowing  (which shall be a Business Day) and
the amount  thereof;  (iii) if such  Borrowing is to be a LIBOR  Borrowing,  the
Interest Period with respect thereto;  (iv) if such Borrowing is to reborrow all
or any part of any  outstanding  Borrowing,  the  identity  and  amount  of such
Borrowing that the Borrower requests to be refinanced; and (v) if such Borrowing
is to be a LIBOR Borrowing, whether such Borrowing is to be included in the Swap
Amount. If no election as to the Type of Borrowing is specified in any Borrowing
Notice,  then the  requested  Borrowing  shall be a Base Rate  Borrowing.  If no
Interest  Period  with  respect  to any  LIBOR  Borrowing  is  specified  in any
Borrowing Notice, then the Borrower shall be deemed to have selected an Interest
Period of one month's  duration.  Subject to Section 2.11, if the Borrower shall
not have  given  notice in  accordance  with this  Section  of its  election  to
reborrow a LIBOR Borrowing prior to the end of the Interest Period in effect for
such Borrowing, then the Borrower (unless such Borrowing is repaid at the end of
such  Interest  Period)  shall be deemed to have given  notice of an election to
reborrow such Borrowing with a Base Rate Borrowing.

          (c) If a LIBOR  Borrowing  has been  designated  by the Borrower to be
included in the Swap Amount,  the Interest  Period of such LIBOR  Borrowing  (i)
shall  commence on the 15th day of each month  thereafter  (or if not a Business
Date,  the  next  Business  Day),  (ii)  shall at all  times  be of one's  month
duration, and (iii) shall terminate on the 15th day of each month thereafter (or
if not a Business Date,  the next Business Day). The Swap Amount  outstanding at
any time may not exceed the Swap Amount Maximum unless otherwise consented to by
all the Banks.

     SECTION 2.4 REVOLVING LOANS.

          (a) Each Loan shall be made as part of a  Borrowing  made by the Banks
ratably  in  accordance  with their  Commitments;  PROVIDED,  HOWEVER,  that the
failure of any Bank to make any Loan shall not in itself  relieve any other Bank
of its obligation to lend hereunder (it being understood,  however, that no Bank
shall be responsible for the failure of any other Bank to make any Loan required
to be made by such other Bank).

          (b) Each Bank shall make any LIBOR  Borrowing by causing either at its
option any domestic branch or the Eurodollar Lending Office of such Bank to make
such  Loan;  provided  that any  exercise  of such  option  shall not affect the
obligation  of the Borrower to repay such Loan in  accordance  with the terms of
this Agreement and the Note.

                                       12
<PAGE>
          (c) Subject to Section 2.3,  each Bank shall make each Loan to be made
by it  hereunder on the proposed  date thereof by wire  transfer of  immediately
available funds to the Administrative Agent in Phoenix,  Arizona, not later than
11:00 a.m.,  California time, and the  Administrative  Agent shall by 2:00 p.m.,
California  time,  credit the amounts so received to the general deposit account
of the  Borrower  with the  Administrative  Agent (or such other  account as the
Borrower may designate) or, if a Borrowing  shall not occur on such date because
any condition  precedent  herein  specified  shall not have been met, return the
amounts so received to the  respective  Banks.  Loans shall be made by the Banks
pro rata in accordance with Section 2.16. Unless the Administrative  Agent shall
have received  notice from a Bank prior to the date of any  Borrowing  that such
Bank will not make available to the Administrative  Agent such Bank's portion of
such Borrowing, the Administrative Agent may assume that such Bank has made such
portion available to the  Administrative  Agent on the date of such Borrowing in
accordance with this paragraph (c) and the Administrative Agent may, in reliance
upon  such   assumption,   make  available  to  the  Borrower  on  such  date  a
corresponding  amount.  If and to the extent  that such Bank shall not have made
such portion available to the  Administrative  Agent, such Bank and the Borrower
severally  agree to repay to the  Administrative  Agent forthwith on demand such
corresponding  amount together with interest thereon, for each day from the date
such  amount is made  available  to the  Borrower  until the date such amount is
repaid  to the  Administrative  Agent  at (i) in the case of the  Borrower,  the
interest rate applicable at the time to the Loans  comprising such Borrowing and
(ii) in the case of such Bank,  the Federal Funds Rate. If such Bank shall repay
to the  Administrative  Agent  such  corresponding  amount,  such  amount  shall
constitute  such  Bank's  Loan as part of such  Borrowing  for  purposes of this
Agreement.

     SECTION  2.5  REBORROWINGS.  Subject  to Section  2.11,  the  Borrower  may
reborrow  all or any part of any  Borrowing  with a  Borrowing  of the same or a
different  Type made  pursuant to Section  2.3,  subject to the  conditions  and
limitations set forth herein and elsewhere in this  Agreement.  Any Borrowing or
part thereof so  reborrowed  or combined  shall be deemed to have been repaid in
accordance with Section 2.7 with the proceeds of a new Borrowing hereunder,  and
the proceeds of the new Borrowing (except to the extent, if any, they exceed the
principal amount of the Borrowing(s) being reborrowed) shall not be disbursed to
the Borrower pursuant to Section 2.4(c).

     SECTION 2.6 FEES.

          (a)  The   Borrower   agrees  to  pay  to  each  Bank,   through   the
Administrative  Agent, (i) quarterly in arrears for each calendar quarter ending
each March 31, June 30,  September 30 and December 31, on the last  Business Day
of each calendar quarter, commencing June 30, 2001 and (ii) on the date on which
the respective  Commitment of such Bank shall be terminated as provided  herein,
for the period  from the end of the  preceding  calendar  quarter to the date of
such termination, a commitment fee (each a "Commitment Fee") on a prorated basis
at a rate per annum equal to 6.25 basis points (.0625%) on the Average  Adjusted
Daily Undrawn Balance during the preceding  calendar  quarter (or shorter period
(1) commencing  with the date hereof or (2) ending with the RLC Maturity Date or
any  other  date on  which  the  respective  Commitment  of such  Bank  shall be
terminated).  All  Commitment  Fees shall be computed on the basis of the actual
number of days elapsed in a year of 360 days.  The  Commitment  Fees due to each
Bank shall  commence  to accrue on the date  hereof and shall cease to accrue on
the  earlier of the RLC  Maturity  Date and the  termination  of the  respective
Commitment of Bank as provided herein.

                                       13
<PAGE>
          (b) All Fees shall be paid to each Bank on the dates  due,  in Dollars
in immediately available funds to the Administrative Agent for distribution,  if
and or  appropriate,  among the  Banks.  Once  paid,  none of the Fees  shall be
refundable under any circumstances.

     SECTION 2.7 NOTES; REPAYMENT OF REVOLVING LOANS. The Revolving Loan made by
each Bank shall be evidenced by a separate  Note duly  completed and executed on
behalf of the Borrower, dated the date of said Bank's Commitment, in the form of
Exhibit C hereto,  and payable to the order of such Bank in a  principal  amount
equal to said Bank's  Commitment.  Each Note shall bear  interest  from the date
thereof on the  outstanding  principal  balance  thereof as set forth in Section
2.8. Each Bank may (and is hereby  authorized  by the  Borrower,  at said Bank's
discretion, to) endorse on a schedule attached to the Note held by such Bank (or
on a  continuation  of such schedule  attached to each such Note and made a part
thereof), or otherwise to record in such Bank's internal records, an appropriate
notation  evidencing the date and amount of each  Borrowing  under the Revolving
Loan of such Bank, each payment or prepayment of principal of any such Borrowing
and the other information provided for on such schedule; PROVIDED, HOWEVER, that
the failure of any Bank to make such a notation or any error  therein  shall not
in any manner  affect the  obligation  of the  Borrower to repay each  Borrowing
under the Revolving Loans in accordance with the terms of the Notes.

     SECTION 2.8 INTEREST ON REVOLVING LOANS.

          (a) Subject to the  provisions  of Sections  2.9 and 2.11,  each LIBOR
Borrowing  shall bear  interest  (computed on the basis of the actual  number of
days  elapsed  over a year of 360 days) at a rate per annum  equal to, the LIBOR
Rate for the  Interest  Period  in  effect  for such  LIBOR  Borrowing  plus the
Applicable  Margin.  Interest on each LIBOR  Borrowing  shall be payable on each
applicable  Interest Payment Date. The LIBOR Rate for each Interest Period shall
be determined  by the  Administrative  Agent,  and such  determination  shall be
conclusive absent manifest error. The Administrative Agent shall promptly advise
the Borrower and each Bank of such determination.

          (b) Subject to the provisions of Sections 2.9 and 2.11, each Base Rate
Borrowing  shall bear  interest  (computed on the basis of the actual  number of
days  elapsed  over a year of 360 days,  as the case may be) at a rate per annum
equal to the Base Rate plus the  Applicable  Margin.  Interest on each Base Rate
Borrowing  shall be payable on each applicable  Interest  Payment Date. The Base
Rate shall be  determined  by the  Administrative  Agent and such  determination
shall be  conclusive  absent  manifest  error.  The  Administrative  Agent shall
promptly advise the Borrower and each Bank of such determination.

     SECTION 2.9 DEFAULT INTEREST.  If the Borrower shall default in the payment
of the principal of or interest on any Revolving  Loan or Swing Ling Loan or any
other amount becoming due hereunder,  whether by scheduled  maturity,  notice of
prepayment, acceleration or otherwise, the Borrower shall on demand from time to
time pay interest,  to the extent  permitted by law, on such defaulted amount up
to (but not  including  the date of  actual  payment  (after  as well as  before
judgment) at the Default Rate.

                                       14
<PAGE>
     SECTION 2.10 TERMINATION AND REDUCTION OF COMMITMENTS.

          (a) The RLC Commitment  shall be  automatically  terminated on the RLC
Maturity Date.

          (b) Upon at least three  Business Days' prior  irrevocable  written or
telecopy notice to the Administrative  Agent,  Borrower may at any time in whole
permanently  terminate,  or from time to time in part permanently  reduce,  each
such Commitment;  PROVIDED,  HOWEVER, that each partial reduction of the Maximum
RLC Commitment shall be in an integral  multiple of $100,000.00 and in a minimum
principal amount of $1,000,000.00; and PROVIDED FURTHER, that the Borrower shall
not be  permitted to  terminate  or reduce the Maximum RLC  Commitment  if, as a
result  respectively,  the aggregate  principal  amount of the  Revolving  Loans
together with the Letter of Credit Balance  outstanding  hereunder  would exceed
such reduced amount of the Maximum RLC Commitment.

     SECTION 2.11 CONVERSION AND CONTINUATION OF BORROWINGS.  The Borrower shall
have the right at any time upon prior irrevocable  notice to the  Administrative
Agent not later than 9:00 a.m.,  California  time, (i) on the day of conversion,
to convert any LIBOR Borrowing into a Base Rate  Borrowing,  (ii) three Business
Days prior to conversion  or  continuation,  to convert any Base Rate  Borrowing
into a LIBOR  Borrowing or to continue any LIBOR  Borrowing as a LIBOR Borrowing
for an  additional  Interest  Period,  and (iii)  three  Business  Days prior to
conversion,  to convert the Interest  Period with respect to any LIBOR Borrowing
to another permissible Interest Period, subject in each case to the following:

          (a) if less than all the outstanding principal amount of any Borrowing
shall  be  converted  or  continued,  the  aggregate  principal  amount  of such
Borrowing  converted or continued  shall be an integral  multiple of $100,000.00
and not less than $1,000,000.00;

          (b) each  conversion  shall be effected  by the Banks by applying  the
proceeds of the new Borrowing  resulting  from such  conversion to the Borrowing
(or portion  thereof)  being  converted;  accrued  interest  on a Borrowing  (or
portion  thereof) being  converted  shall be paid by the Borrower at the time of
conversion;

          (c)  any  LIBOR  Borrowing  may be  converted  only  at the end of the
Interest Period applicable thereto;

          (d) any  portion of a  Borrowing  maturing or required to be repaid in
less than one month may not be converted into or continued as a LIBOR Borrowing;

          (e) any portion of a LIBOR  Borrowing  which  cannot be continued as a
LIBOR  Borrowing  by reason of clauses (c) and (d) above shall be  automatically
converted at the end of the Interest  Period in effect for such Borrowing into a
Base Rate Borrowing; and

          (f) each conversion or  continuation  shall be made pro rata among the
Banks in accordance  with the respective  principal  amounts of the converted or
continued Borrowings.

                                       15
<PAGE>
          (g) Each notice  pursuant to this  Section  shall be  irrevocable  and
shall refer to this  Agreement  and specify (i) the  identity  and amount of the
Borrowing  that the Borrower  requests be converted or  continued,  (ii) whether
such Borrowing is to be converted to or continued as a LIBOR Borrowing or a Base
Rate  Borrowing,  (iii) if such notice  requests a conversion,  the date of such
conversion  (which shall be a Business Day) and (iv) if such  Borrowing is to be
converted to or continued as a LIBOR Borrowing, the Interest Period with respect
thereto.  If no Interest  Period is specified in any such notice with respect to
any conversion to or  continuation as a LIBOR  Borrowing,  the Borrower shall be
deemed  to have  selected  an  Interest  Period  of one  month's  duration.  The
Administrative  Agent shall advise the other Banks of any notice given  pursuant
to this  Section  and of each  Bank's  portion  of any  converted  or  continued
Borrowing.  If the Borrower shall not have given notice in accordance  with this
Section to continue any LIBOR  Borrowing into a subsequent  Interest Period (and
shall not otherwise have given notice in accordance with this Section to convert
such  Borrowing),  such  Borrowing  shall,  at the  end of the  Interest  Period
applicable  thereto (unless repaid pursuant to the terms hereof),  automatically
be continued as a Base Rate Borrowing.

     SECTION 2.12 PREPAYMENT.

          (a) The  Borrower  shall  have the  right at any time and from time to
time to prepay any  Borrowing,  in whole or in part,  upon  written or  telecopy
notice (or telephone notice promptly confirmed by written or telecopy notice) to
the Administrative  Agent, such notice to be three Business Days with respect to
a LIBOR  Borrowing  and one Business Day with respect to a Base Rate  Borrowing;
provided,  however,  that each partial prepayment shall be in an amount which is
an integral multiple of $100,000.00 and not less than $1,000,000.00.

          (b) On the date of any  termination  or  reduction  of the Maximum RLC
Commitment  pursuant to Section 2.10, the Borrower shall pay or prepay an amount
of the  Revolving  Loan such that the sum of the aggregate  principal  amount of
such Loan outstanding together with the Letter of Credit Balance will not exceed
the respective Commitment after giving effect to such termination or reduction.

          (c) Each notice of prepayment  shall specify the  prepayment  date and
the principal amount of each Borrowing (or portion thereof) to be prepaid, shall
be  irrevocable  and shall  commit the  Borrower  to prepay such  Borrowing  (or
portion  thereof) by the amount stated therein on the date stated  therein.  All
prepayments  under this Section  shall be subject to Section 2.15 but  otherwise
without  premium  or  penalty.  All  prepayments  under  this  Section  shall be
accompanied by a payment of accrued  interest on the amount being prepaid to the
date of payment.

     SECTION 2.13 RESERVE REQUIREMENTS; CHANGE IN CIRCUMSTANCES.

          (a) If any Bank shall have determined that the adoption after the date
hereof of any law, rule,  regulation or guideline  regarding  capital  adequacy,
special  deposit,  insurance  or any change  after the date hereof in any of the
foregoing or in the  interpretation or administration of any of the foregoing by
any Governmental  Authority,  central bank or comparable agency charged with the
interpretation  or  administration  thereof,  or  compliance by any Bank (or any
Lending Office of such Bank) or any Bank's  holding  company with any request or
directive  promulgated after the date hereof regarding capital adequacy (whether

                                       16
<PAGE>
or not having the force of law) of any such Governmental Authority, central bank
or  comparable  agency,  has or would  have the effect of  reducing  the rate of
return on such Bank's or on the capital of such Bank's holding company,  if any,
as a consequence  of this Agreement or the Revolving Loan made by such Bank to a
level  below that  which such Bank or such  Bank's  holding  company  could have
achieved but for such adoption,  change or compliance (taking into consideration
such  Bank's  policies  and the  policies of such Bank's  holding  company  with
respect to capital  adequacy) by an amount  deemed by such Bank in good faith to
be  material,  then from time to time the  Borrower  shall pay to such Bank such
additional amount or amounts as will compensate such Bank or such Bank's holding
company for any such reduction suffered.

          (b)  Notwithstanding  any other provision herein, if after the date of
this  Agreement  any change in applicable  law or  regulation  (either by way of
changes in existing  laws or  regulations  or the  introductions  of new laws or
regulations)  or  in  the  interpretation  or  administration   thereof  by  any
Governmental Authority charged with the interpretation or administration thereof
(whether  or not having the force of law) shall  change the basis of taxation of
payments to any Bank of the principal of or interest on any LIBOR Borrowing made
by such Bank,  Fees or other amounts  payable  hereunder  (other than changes in
respect  of taxes  imposed  on the net income of such  Bank),  or shall  impose,
modify or deem applicable any reserve,  special  deposit or similar  requirement
against  assets of,  deposits  with or for the account of or credit  extended by
such Bank,  including  without  limitation any reserve  requirement  that may be
applicable to "eurocurrency  liabilities"  under and as defined in Regulation D,
or shall impose on such Bank or the London  interbank market any other condition
affecting  this  Agreement  or any LIBOR  Borrowing  made by such Bank,  and the
result of any of the  foregoing  shall be to  increase  the cost to such Bank of
making or  maintaining  any LIBOR  Borrowing  or to reduce the amount of any sum
received or receivable  by such Bank  hereunder or under its Note (in respect of
LIBOR Borrowing only), whether of principal, interest or otherwise, by an amount
deemed by such Bank in good faith to be material, then, the Borrower will pay to
such Bank upon demand such additional  amount or amounts as will compensate such
Bank for such additional costs incurred or reduction suffered.

          (c) A  certificate  of a Bank setting  forth such amount or amounts as
shall be necessary to compensate  such Bank or its holding  company as specified
in  paragraph  (a) or (b)  above,  as the  case  may be,  and  setting  forth in
reasonable  detail the manner in which  such  amount or amounts  shall have been
determined  shall be delivered to the  Borrower and shall be  conclusive  absent
manifest error.  The Borrower shall pay each Bank the amount shown as due on any
such certificate delivered by it within 10 days after its receipt of the same.

                                       17
<PAGE>
          (d)  Failure  on the part of any Bank to demand  compensation  for any
increased  costs or reduction in amounts  received or receivable with respect to
any  period  shall  not  constitute  a waiver  of said  Bank's  right to  demand
compensation with respect to such period or any other period.  The protection of
this  Section  shall  be  available  to any  Bank  regardless  of  any  possible
contention of the invalidity or  inapplicability  of the law, rule,  regulation,
guideline  or other  change or  condition  which  shall  have  occurred  or been
imposed,  provided that if such Bank is compensated  for such increased costs or
reduction  by any  Governmental  Authority  or  third  party in the  event  such
invalidity or inapplicability is finally determined, then such Bank shall return
to Borrower the respective  compensation  paid by Borrower,  up to the lesser of
such amount as is received by such Bank or such amount as was paid by Borrower.

          (e) Without prejudice to the survival of any other agreement contained
herein,  the agreements and obligations  contained in this Section shall survive
Termination,  provided  that  Borrower  shall have no further  obligation to the
Banks under this Section  unless a certificate  setting forth the amount of such
obligation  shall have been  delivered by the Banks  pursuant to  paragraph  (c)
above within ninety (90) calendar days after the Termination Date.

          (f) Each Bank or the Administrative Agent on behalf of the Banks shall
give  notification to the Borrower of any event or prospective  event which will
give  rise to the  operation  of  paragraphs  (a) or (b) of this  Section,  such
notification  to be sent  within  thirty  (30)  days of the  date of the  public
promulgation of the effective date of any such law, rule, regulation, guidelines
or change therein.

     SECTION 2.14 CHANGE IN LEGALITY.

          (a)  Notwithstanding  any other provision herein, if any change in any
law or regulation or in the interpretation thereof by any Governmental Authority
charged with the administration or interpretation thereof shall make it unlawful
for any Bank to make or maintain  any LIBOR  Borrowing  or to give effect to its
obligations as contemplated hereby with respect to any LIBOR Borrowing,  then by
written notice to the Borrower  setting forth in reasonable  detail the relevant
circumstances and the effect thereof, such Bank may:

               (i) declare that LIBOR  Borrowings will not thereafter be made by
     such Bank  hereunder,  whereupon  any request by the  Borrower  for a LIBOR
     Borrowing  shall be deemed a request for a Base Rate Borrowing  unless such
     declaration shall be subsequently withdrawn; and

               (ii) require that all outstanding  LIBOR Borrowings made by it be
     converted to Base Rate Borrowings, in which event all such LIBOR Borrowings
     shall  be  automatically  converted  to  Base  Rate  Borrowings  as of  the
     effective date of such notice as provided in paragraph (b) below.

In the event any Bank shall  exercise  its rights  under (i) or (ii) above,  all
payments and prepayments of principal which would otherwise have been applied to
repay  the  LIBOR  Borrowings  that  would  have  been  made by such Bank or the
converted  LIBOR  Borrowings  of such Bank shall instead be applied to repay the
Base  Rate  Borrowings  made by such  Bank in lieu  of,  or  resulting  from the
conversion of, such LIBOR Borrowings.

                                       18
<PAGE>
          (b) For purposes of this Section, a notice to the Borrower by any Bank
shall be effective as to each LIBOR Borrowing, if lawful, on the last day of the
Interest Period currently applicable to such LIBOR Borrowing; in all other cases
such notice shall be effective on the date of receipt by the Borrower.

          (c) Each Bank shall use its best  efforts to give prompt  notification
to the  Borrower of any event or  prospective  event which will give rise to the
operation of paragraph (a) of this Section.

     SECTION 2.15  REDEPLOYMENT  LOSS.  The  Borrower  shall pay to each Bank on
demand against any Redeployment Loss (defined below) arising as a consequence of
any  payment,  prepayment  (optional  or  mandatory)  or  conversion  of a LIBOR
Borrowing required by any other provision of this Agreement or otherwise made or
deemed made on a date other than the last day of the Interest Period  applicable
thereto, or failure to borrow,  convert or extend a LIBOR Borrowing after giving
notice. "Redeployment Loss" shall mean, in each circumstance, a fee which is the
sum of the  discounted  monthly  differences  for each  month  from the month of
prepayment  through the month in such  Interest  Period  matures,  calculated as
follows for each such month:

               (i)  DETERMINE  the amount of interest  which would have  accrued
     each month on the amount  prepaid at the interest  rate  applicable to such
     amount  had it  remained  outstanding  until  the last day of the  Interest
     Period applicable thereto.

               (ii) SUBTRACT from the amount  determined in (i) above the amount
     of  interest  which  would  have  accrued  for the same month on the amount
     prepaid for the remaining term of such Interest Period at the LIBOR Rate in
     effect on the date of prepayment  for new loans made for such term and in a
     principal amount equal to the amount prepaid.

               (iii) If the  result  obtained  in (ii) for any month is  greater
     than zero, discount that difference by the LIBOR Rate used in (ii) above.

The Borrower acknowledges that prepayment of such amount may result in the Banks
incurring  additional  costs,  expenses  and/or  liabilities,  and  that  it  is
difficult  to  ascertain  the  full  extent  of  such  costs,   expenses  and/or
liabilities.  The  Borrower,   therefore,  agrees  to  pay  the  above-described
prepayment fee and agrees that said amount  represents a reasonable  estimate of
the prepayment costs,  expenses and/or liabilities of the Banks. If the Borrower
fails to pay any  prepayment  fee when due,  the amount of such  prepayment  fee
shall thereafter bear interest until paid at the Default Rate.

A  certificate  of any Bank  setting  forth in  reasonable  detail any amount or
amounts  which Bank is entitled to receive  pursuant to this Section and setting
forth in  reasonable  detail the manner in which  such  amounts  shall have been
determined  shall be delivered to the  Borrower and shall be  conclusive  absent
manifest  error.  Without  prejudice  to the  survival  of any  other  agreement
contained herein, the agreements and obligations contained in this Section shall
survive  Termination  provided that Borrower shall have no further obligation to

                                       19
<PAGE>
any Bank under this Section  unless a  certificate  setting  forth the amount of
such obligation shall have been delivered by such Bank pursuant to the preceding
sentence within ninety (90) calendar days after the Termination Date.

     SECTION 2.16 PRO RATA  TREATMENT.  Except as required under Section 2.14 or
Section  2.22,  or permitted by Section 2.20,  each  Borrowing,  each payment or
prepayment of principal of any Borrowing, each payment of interest on the Loans,
each payment of the Fees, each reduction of the Commitments and each refinancing
of any Borrowing with a Borrowing of any Type, shall be allocated pro rata among
the  Banks  in  accordance  with  their  respective  Commitments  (or,  if  such
Commitments  shall  have  expired or been  terminated,  in  accordance  with the
respective  principal amounts of their outstanding Loans). Each Bank agrees that
in computing  such Bank's  portion of any  Borrowing to be made  hereunder,  the
Administrative  Agent may, in its  discretion,  round each Bank's  percentage of
such Borrowing to the next higher or lower whole dollar amount.

     SECTION 2.17 SHARING OF SETOFFS. Each Bank agrees that if it shall, through
the exercise of a right of banker's  lien,  setoff or  counterclaim  against the
Borrower,  or pursuant to a secured  claim under  Section 506 of Title 11 of the
United  States Code or other  security or interest  arising from, or in lieu of,
such  secured  claim,  received  by such Bank under any  applicable  bankruptcy,
insolvency  or other  similar law or  otherwise,  or by any other means,  obtain
payment  (voluntary or  involuntary) in respect of any Loan or Loans as a result
of which  the  unpaid  principal  portion  of the  Loans of such  Bank  shall be
proportionately less than the unpaid principal portion of the Loans of any other
Bank, it shall be deemed  simultaneously  to have purchased from such other Bank
at face value, and shall promptly pay to such other Bank the purchase price for,
a  participation  in the Loans of such other Bank, so that the aggregate  unpaid
principal amount of the Loans and  participations in the Loans held by each Bank
shall be in the same proportion to the aggregate  unpaid principal amount of all
Loans  then  outstanding  as the  principal  amount of its  Loans  prior to such
exercise  of banker's  lien,  setoff or  counterclaim  or other event was to the
principal  amount of all Loans  outstanding  prior to such  exercise of banker's
lien,  setoff or counterclaim or other event;  PROVIDED,  HOWEVER,  that, if any
such purchase or purchases or adjustments shall be made pursuant to this Section
and the payment giving rise thereto shall thereafter be recovered, such purchase
or purchases or  adjustments  shall be rescinded to the extent of such  recovery
and the purchase price or prices or adjustment  restored without  interest.  The
Borrower  expressly  consents to the foregoing  arrangements and agrees that any
Bank  holding a  participation  in a Loan deemed to have been so  purchased  may
exercise  any and all  rights of  banker's  lien,  setoff or  counterclaim  with
respect  to any and all  moneys  owing by the  Borrower  to such  Bank by reason
thereof as fully as if such Bank had made a Loan directly to the Borrower in the
amount of such participation.

     SECTION 2.18 PAYMENTS.

          (a) The Borrower shall make each payment (including without limitation
principal  of or  interest  on any  Borrowing  or any  Fees  or  other  amounts)
hereunder and under any other Loan Document no later than 11:00 a.m., California
time, on the date when due in Dollars to the Administrative Agent at its offices
at 100 West Washington,  Phoenix,  Arizona,  or at such other location as it may
direct the Borrower in writing to use, in immediately available funds.

                                       20
<PAGE>
          (b) Whenever any payment (including without limitation principal of or
interest on any Borrowing or any Fees or other  amounts)  hereunder or under any
other Loan Document shall become due, or otherwise would occur, on a day that is
not a Business  Day,  such payment may be made on the next  succeeding  Business
Day,  and  such  extension  of time  shall  in  such  case  be  included  in the
computation of interest or Fees, if applicable.

          (c) The Borrower  authorizes the  Administrative  Agent to collect all
principal and interest due under each Loan by charging Borrower's demand deposit
account number  4159-518950 with the  Administrative  Agent, or any other demand
deposit account  maintained by Borrower with the  Administrative  Agent, 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 the Borrower.

     SECTION 2.19 TAXES.

          (a) All payments by the Borrower  under this  Agreement  shall be made
without setoff or counterclaim  and in such amounts as may be necessary in order
that all such payments after  deduction or withholding  for or on account of any
present or future taxes, levies, imposts, duties,  withholdings or other charges
of whatsoever  nature and all liabilities with respect  thereto,  other than any
taxes on or  measured  by the gross or net income of a Bank  pursuant to (i) the
income  and/or  franchise  tax laws of the  jurisdictions  in which such Bank is
incorporated  or organized or in which the principal  office of such Bank or the
branch that is a party to this  Agreement of that Bank is located,  and (ii) the
income  and/or  franchise  tax laws of the  jurisdictions  in which the  Lending
Office or the Eurodollar  Lending Office of that Bank are then located (all such
nonexcluded taxes, levies, imposts,  duties,  withholdings and liabilities being
hereinafter  referred  to as  "Taxes"),  shall  not be  less  than  the  amounts
otherwise  specified  to be paid by the  Borrower  to or for the  account of the
Administrative   Agent  or  Bank  (or  any  transferee  or  assignee   (each,  a
"Transferee"))  under this  Agreement.  Upon request of the Borrower in writing,
each Bank shall  designate  a different  Lending  Office or  Eurodollar  Lending
Office,  as the case may be, if such  designation  will avoid the  imposition of
Taxes and if such  designation  will not, in the sole  judgment of such Bank, be
otherwise  disadvantageous  to such  Bank.  With  respect to each  deduction  or
withholding  for or on account of any Taxes of the  Administrative  Agent or any
Bank (or  Transferee),  Borrower shall promptly (and in any event not later than
45 days thereafter) furnish to such Administrative Agent or Bank (or Transferee)
a receipt evidencing payment thereof.

          (b) In  addition,  the  Borrower  agrees to pay any  present or future
stamp or  documentary  taxes or any other excise or property  taxes,  charges or
similar  levies  which  arise  from  any  payment  made  hereunder  or from  the
execution,  delivery or  registration  of, or  otherwise  with  respect to, this
Agreement or any other Loan Document (hereinafter referred to as "Stamp Taxes").
Each Bank that is organized  outside the United States  represents  and warrants
that as of the  Closing  Date,  it is not aware of any Stamp Tax  imposed by the
jurisdiction in which it is  incorporated  that applies to this Agreement or any
payment made to such Bank hereunder.

                                       21
<PAGE>
          (c) The Borrower  will  indemnify  each Bank (or  Transferee)  and the
Administrative  Agent for the full  amount of Taxes and Stamp  Taxes  (including
without  limitation  any Taxes or Stamp  Taxes  imposed by any  jurisdiction  on
amounts  payable under this Section)  paid by such Bank (or  Transferee)  or the
Administrative  Agent, as the case may be, and any liability  (including without
limitation  penalties,  interest and expenses) arising therefrom or with respect
thereto,  whether or not such Taxes or Stamp  Taxes  were  correctly  or legally
asserted by the relevant taxing authority or other Governmental Authority.  Such
indemnification  shall  be made  within  30 days  after  the  date  any Bank (or
Transferee)  or the  Administrative  Agent,  as the case may be,  makes  written
demand  therefor.  If a Bank, as the result of any Tax with respect to which the
Borrower is required to make a payment  pursuant to this Section shall realize a
tax credit or refund in its country or other  jurisdiction of  incorporation  or
organization  or in the  jurisdiction  in which its principal  office or Lending
Office or Eurodollar Lending Office is then located,  which tax credit or refund
would not have been  realized but for the  Borrower's  payment of such Tax, such
Bank shall pay to the  Borrower an amount equal to such tax credit or refund (to
the extent of amounts  that have been paid by the  Borrower  under this  Section
with respect to such credit or refund) net of all out-of-pocket expenses of such
Bank; PROVIDED that the Borrower, upon the request of the Bank, agrees to return
such credit or refund (plus  penalties,  interest or other charges) to such Bank
in the  event  such  Bank is  required  to repay  such  credit  or refund to the
relevant taxing authority. Any amount required to be calculated pursuant to this
Section  shall be calculated  in good faith by the Bank (or  Transferee)  or the
Administrative  Agent, and such calculation shall be conclusive and binding upon
the parties hereto.

          (d) Without prejudice to the survival of any other agreement contained
herein,  the agreements and obligations  contained in this Section shall survive
Termination,  provided  that  Borrower  shall have no further  obligation to the
Banks under this Section  unless a certificate  setting forth the amount of such
obligation  shall have been delivered by the Banks to the Borrower within ninety
(90) calendar days after the Termination Date.

          (e) Each Bank (or  Transferee)  that is  organized  outside the United
States (i) on or before the date it becomes a party to this  Agreement  and (ii)
with respect to each Lending Office or Eurodollar Lending Office located outside
the  United  States of such  Bank (or  Transferee),  on or before  the date such
office or branch becomes a Lending Office or Eurodollar  Lending  Office,  shall
deliver  to  the  Borrower  and  the  Administrative  Agent  such  certificates,
documents  or other  evidence,  as required by the Code or Treasury  Regulations
issued pursuant thereto,  properly  completed and duly executed by such Bank (or
Transferee) establishing that payments received hereunder are (i) not subject to
withholding  under the Code because such payment is  effectively  connected with
the  conduct by such Bank (or  Transferee)  of a trade or business in the United
States or (ii) totally exempt from United States Federal withholding tax under a
provision  of an  applicable  tax  treaty.  In  addition,  each  such  Bank  (or
Transferee)   shall,  if  legally  able  to  do  so,  thereafter   deliver  such
certificates,  documents or other evidence from time to time  establishing  that
payments received  hereunder are not subject to such withholding upon receipt of
a written request therefor from the Borrower or the Administrative Agent. Unless
the Borrower and the Administrative Agent have received forms or other documents
satisfactory to them  indicating that payments  hereunder or under the Notes are
not  subject to United  States  Federal  withholding  tax,  the  Borrower or the
Administrative  Agent  shall  withhold  such  taxes  from such  payments  at the
applicable statutory rate.

                                       22
<PAGE>
          (f) The Borrower shall not be required to pay any  additional  amounts
to any Bank (or  Transferee)  or the  Administrative  Agent in respect to United
States Federal withholding tax pursuant to paragraph (a) above if the obligation
to pay such  additional  amounts would not have arisen but for a failure by such
Bank (or Transferee) or the  Administrative  Agent to deliver the  certificates,
documents or other evidence specified in the preceding paragraph (e) unless such
failure  is  attributable  to (i) a change  in  applicable  law,  regulation  or
official  interpretation  thereof or (ii) an amendment or  modification  to or a
revocation  of any  applicable  tax  treaty  or a change  in  official  position
regarding the application or  interpretation  thereof,  in each case on or after
the date such Bank (or Transferee) or the  Administrative  Agent becomes a party
to this Agreement  (or, if applicable,  on or after the date a Lending Office or
Eurodollar  Lending Office of such Bank (or Transferee) or Administrative  Agent
became a Lending Office or Eurodollar Lending Office hereunder).

          (g)  Nothing  contained  in this  Section  shall  require any Bank (or
Transferee) or the Administrative Agent to make available any of its tax returns
(or  any  other  information  relating  to  its  taxes)  which  it  deems  to be
confidential.

          (h) Each Bank or the Administrative Agent on behalf of the Banks shall
give  notification to the Borrower of any event or prospective  event which will
give rise to the operation of paragraphs  (a), (b) or (c) of this Section,  such
notification  to be sent  within  thirty  (30)  days of the  date of the  public
promulgation of the effective date of any such Taxes or Stamp Taxes.

     SECTION  2.20  TERMINATION  OR  ASSIGNMENT  OF  COMMITMENTS  UNDER  CERTAIN
CIRCUMSTANCES.

          (a) If any Bank (or Transferee) or the Administrative Agent claims any
additional amounts payable pursuant to Section 2.13 or Section 2.19 or exercises
its rights under Section 2.14, it shall  (consistent  with legal and  regulatory
restrictions)  (i)  promptly  notify the Borrower  (through  the  Administrative
Agent)  of the  circumstances  giving  rise to such  additional  amounts  or the
exercise of such rights and (ii) file any  certificate or document  requested by
the Borrower or change the jurisdiction of its applicable Lending Office or take
any other  action if the making of such a filing or change or the taking of such
action  would  avoid the need for or reduce  the  amount of any such  additional
amounts which may thereafter  accrue or avoid the  circumstances  giving rise to
such  exercise  and  would  not,  in the  sole  determination  of such  Bank (or
Transferee), be otherwise disadvantageous to such Bank (or Transferee).

          (b) In the  event  that any Bank  shall  have  delivered  a notice  or
certificate  pursuant to Section 2.13 or 2.14, or the Borrower shall be required
to make  additional  payments to any Bank under Section 2.19, the Borrower shall
have the right, at its option and own expense,  upon notice to such Bank and the
Administrative  Agent,  (i) in the case of Sections 2.13,  2.14 or 2.19 only, to
terminate  the  Commitment  of such Bank or (ii) in all cases  described in this
paragraph,  to require  such Bank to transfer  and assign  without  recourse (in
accordance  with and subject to the  restrictions  contained in Section 9.4) all
its interests,  rights and obligations under this Agreement to another financial
institution reasonably acceptable to the Administrative Agent which shall assume
such  obligations;  PROVIDED that (i) no such  termination  or assignment  shall
conflict with any law, rule or regulation or order of any Governmental Authority
and (ii) the  Borrower  or the  assignee,  as the case may be,  shall pay to the

                                       23
<PAGE>
affected Bank in immediately  available funds on the date of such termination or
assignment  the principal of and interest  accrued to the date of payment on the
Loans made by it hereunder and all other amounts accrued for its account or owed
to it hereunder,  including  without  limitation  amounts payable and owed to it
pursuant to Sections 2.13, 2.14 and 2.19.

          (c) Each Bank  represents  and warrants to the Borrower that as of the
date hereof it is not aware of any claims  available to it under  Section  2.13,
2.14 or 2.19 or any circumstances which it has determined will enable it to make
any such claims.

     SECTION 2.21 SECURITY INTEREST.

          (a) At all times prior to Termination,  Borrower shall cause the Loans
and  Borrower's  obligations  under this  Agreement to be secured by a valid and
effective  security  agreement  (the  "Security  Agreement"),  duly executed and
delivered by or on behalf of  Borrower,  granting  the  Administrative  Agent on
behalf of the Bank a valid and enforceable security interest in all of the kinds
and  categories  of  personal  property  described  in the  Security  Agreement,
including  without  limitation  its  accounts  receivable  and  other  rights to
payment, general intangibles, inventory and equipment, wherever located, in, to,
or under which  Borrower now has or  hereafter  acquires  any right,  title,  or
interest,  whether present, future, or contingent,  and in Borrower's expectancy
to acquire such property, subject to no prior Liens except for Permitted Liens.

          (b) All of the  documents  required by this  Section  shall be in form
satisfactory to the Administrative Agent and its counsel, and, together with any
UCC  financing  statements  for filing  and/or  recording,  and any other  items
required by the  Administrative  Agent to fully perfect and effectuate the liens
and security interests of the Administrative  Agent contemplated by the Security
Agreement and this  Agreement,  may  heretofore or hereinafter be referred to as
the "Security Documents."

     SECTION 2.22 SWING LINE LOANS.

          (a) In lieu of making  Revolving  Loans, the Swing Line Lender may, in
its  sole  discretion,  on the  terms  and  subject  to the  conditions  of this
Agreement,  make  available to the Borrower upon its request,  from time to time
until the RLC Maturity  Date,  Swing Line Loans.  Subject to the  provisions  of
Section 2.1 hereof, the aggregate outstanding principal amount of all Swing Line
Loans (the "Swing Line Balance") will not exceed the lesser of (i) $5,000,000.00
(the  "Swing Line  Commitment")  or (ii)  together  with the RLC Balance and the
Letter of Credit  Balance,  the Maximum RLC  Commitment.  Until the RLC Maturity
Date,  the Borrower may from time to time borrow,  repay and reborrow under this
Section  2.22.  Each  Swing Line Loan will be made  either  (i) upon  telephonic
notice from the Borrower to the Swing Line Lender on the date of receipt of such
telephonic  notice if such day is a Business  Day and if such notice is received
before 1:00 p.m.  California  time,  or if received  after 1:00 p.m.  California
time,  such Swing Line Loan shall be made on the next  Business Day, or (ii) via
an  automated  sweep  under the Swing Line  Lender's  automated  four-way  sweep
product. Unless otherwise provided pursuant to Section 2.9, each Swing Line Loan
will bear  interest  at the Base Rate.  The  Borrower  will repay the  aggregate
outstanding  principal  amount  of  the  Swing  Line  Loan  upon  demand  by the

                                       24
<PAGE>
Administrative  Agent or via an  automated  sweep under the Swing Line  Lender's
automated  four-way sweep product.  Each Swing Line Loan will be made at the San
Francisco  Office of the Swing Line Lender by depositing  the amount  thereof in
United  States  Dollars  to  the  general  account  of  the  Borrower  with  the
Administrative Agent. In connection with each such Swing Line Loan, the Borrower
will furnish to the Administrative  Agent a Borrowing Notice. (b) The Swing Line
Commitment  will be  evidenced by a single  promissory  note,  in the  principal
amount of $5,000,000.00,  dated of even date herewith, substantially in the form
attached hereto as Exhibit "C-1" (the "Swing Line Note"). Borrower shall execute
the Swing Line Note and deliver the same to the  Administrative  Agent on behalf
of the Swing Line Lender.  The Swing Line Note will  represent the obligation of
Borrower to pay the amount of the aggregate unpaid principal amount of all Swing
Line Loans made to the  Borrower  together  with  interest  thereon as  provided
herein.  The entire unpaid  balance of the Swing Line Loans shall be immediately
due and payable in full in immediately  available funds on the RLC Maturity Date
if not sooner paid in full.

          (c) The Swing  Line  Lender,  at any time and from time to time in its
sole and absolute  discretion  will, on behalf of the Borrower (and the Borrower
hereby  irrevocably  authorizes  the Swing Line Lender to so act on its behalf),
request each Bank  (including the Swing Line Lender) to make a Revolving Loan to
the Borrower (which shall be a Base Rate Loan) in an amount equal to such Bank's
pro rata share of the Total Commitment of the aggregate  principal amount of the
Borrower's Swing Line Loans (the "Refunded Swing Line Loans") outstanding on the
date such notice is given.  Unless an Event of Default under  Article  VII(e) or
(f) exists and regardless of whether the conditions  precedent set forth in this
Agreement to the making of a Revolving Loan are then  satisfied,  each Bank will
disburse  directly  to the  Administrative  Agent  its  pro  rata  share  of the
Revolving  Loan prior to 9:00 a.m.  California  time, in  immediately  available
funds on the Business  Day next  succeeding  the date such notice is given.  The
proceeds of such  Revolving  Loans shall be  immediately  paid to the Swing Line
Lender and applied to repay the Refunded  Swing Line Loans of the  Borrower,  as
requested by the Swing Line Lender.

          (d) If,  prior to  refunding a Swing Line Loan with a  Revolving  Loan
pursuant to Section  2.22(c),  an Event of Default under  Article  VII(e) or (f)
exists,  then each Bank shall,  on the date such Revolving Loan was to have been
made for the  benefit of the  Borrower,  purchase  from the Swing Line Lender an
undivided participation interest in the Swing Line Loan. Upon request, each Bank
shall  promptly  transfer to the Swing Line  Lender,  in  immediately  available
funds, the amount of its participation.

                                       25
<PAGE>
                                   ARTICLE IIA
                                LETTERS OF CREDIT

     SECTION 2A.1 LETTERS OF CREDIT.

          (a) Provided that the Borrower has satisfied the conditions  precedent
contained in Section 2A.1(b) hereof, the Issuing Bank agrees, from time to time,
to issue and/or renew Letters of Credit on behalf of the Borrower so long as (i)
upon such  issuance  or  renewal,  an  issuance  fee is paid by  Borrower to the
Issuing  Bank in an  amount  equal to  ninety  basis  points  (0.9%)  per  annum
(computed  on the basis of the  actual  number of days  elapsed in a year of 360
days) of the amount of each Letter of Credit, (ii) the Letter of Credit Balance,
after  giving  effect to such  Letter of  Credit,  will not exceed the Letter of
Credit Commitment,  and (iii) the outstanding  aggregate principal amount of all
Borrowings made by all Banks pursuant to their Revolving Loan, together with the
Swing Line Balance and the Letter of Credit Balance, after giving effect to such
Letter of Credit, will not exceed the Maximum RLC Commitment.

          (b) The  obligation  of the  Issuing  Bank to issue  and/or  renew any
Letters of Credit on behalf of the  Borrower  shall be subject to the  following
conditions  precedent  on the date of issuance or renewal of each such Letter of
Credit:

               (i) The Borrower shall execute and deliver to the Issuing Bank an
     application  for letter of credit,  specifying  the amount of the requested
     letter of credit, the requested term thereof, which term may not exceed one
     year, and the beneficiary thereof; and

               (ii) No Event of Default  shall  exist and no event or  condition
     shall exist that after notice or lapse of time, or both would constitute an
     Event of Default.

     SECTION 2A.2 NOTICE. The Issuing Bank shall give the Administrative  Agent,
which shall in turn give to each Bank,  prompt written or telecopy advice of any
notice received from the Borrower pursuant to this paragraph.

     SECTION 2A.3 LETTER OF CREDIT PARTICIPATIONS.

          (a) By the  issuance  of a Letter of Credit and  without  any  further
action on the part of the  Issuing  Bank or the Banks in  respect  thereof,  the
Issuing Bank hereby grants to each Bank, and each Bank hereby  acquires from the
Issuing Bank, a participation  in such Letter of Credit equal to such Bank's RLC
Commitment  percentage,  based upon the RLC Commitments in effect at the time of
any drawing  thereunder (or, if the RLC  Commitments  shall have been terminated
pursuant to Article VII, the RLC Commitments in effect immediately prior to such
termination),  of the face amount of such Letter of Credit,  effective  upon the
issuance  of such  Letter of Credit;  PROVIDED,  HOWEVER,  that no Bank shall be
required to acquire participations in Letters of Credit that would result in its
pro rata  percentage,  based  upon its RLC  Commitment,  of the Letter of Credit
Balance exceeding its RLC Commitment. In consideration and in furtherance of the
foregoing,  each Bank hereby absolutely and unconditionally agrees to pay to the

                                       26
<PAGE>
Administrative  Agent,  for the account of the Issuing Bank, in accordance  with
Section 2A.4 below, such Bank's pro rata percentage of each unreimbursed  Letter
of Credit Disbursement made by the Issuing Bank.

          (b)  Each  Bank  acknowledges  and  agrees  that  its  acquisition  of
participations  pursuant to paragraph  (a) above in respect of Letters of Credit
is absolute  and  unconditional  and shall not be  affected by any  circumstance
whatsoever,  including without  limitation the occurrence and continuance of any
Event of Default hereunder, and that each such payment shall be made without any
offset,  abatement,  withholding or reduction whatsoever;  PROVIDED that nothing
herein shall  constitute a waiver of any rights a Bank may have by reason of the
gross negligence or willful misconduct of the Issuing Bank.

     SECTION 2A.4 DISBURSEMENT AND REIMBURSEMENT.

          (a) Promptly  after it shall have  ascertained  that any draft and any
accompanying  documents  presented  under a Letter  of  Credit  appear  to be in
conformity  with the terms and conditions of such Letter of Credit,  the Issuing
Bank  shall  give   written  or  telecopy   notice  to  the   Borrower  and  the
Administrative  Agent of the  receipt  and  amount of such draft and the date on
which payment thereon will be made. If the  Administrative  Agent shall not have
received from the Borrower the payment required  pursuant to paragraph (b) below
by 10:00 a.m., Arizona time, one Business Day after the date on which payment of
a draft presented  under any Letter of Credit has been made, the  Administrative
Agent shall promptly so notify the Issuing Bank and each Bank, specifying in the
notice  to each  Bank  such  Bank's  pro  rata  percentage,  based  upon the RLC
Commitments,  of such Letter of Credit Disbursement.  Each Bank shall pay to the
Administrative Agent, not later than 1:00 p.m., Arizona time, on such date, such
Bank's   percentage   of  such   Letter  of  Credit   Disbursement,   which  the
Administrative  Agent shall promptly pay to the Issuing Bank. The Administrative
Agent will  promptly  remit to each Bank such Bank's  percentage  of any amounts
subsequently  received by the Administrative  Agent from the Borrower in respect
of such Letter of Credit Disbursement; PROVIDED that (i) amounts so received for
the account of any Bank prior to payment by such Bank of amounts  required to be
paid by it  hereunder in respect of any Letter of Credit  Disbursement  and (ii)
amounts  representing  interest  on any  Letter of Credit  Disbursement  for the
period prior to the payment by such Bank of such  amounts  shall in each case be
remitted to the Issuing Bank.

          (b) If the Issuing Bank shall pay any draft  presented  under a Letter
of Credit,  the Borrower shall pay to the Issuing Bank or to the  administrative
Agent for the account of the Issuing Bank or, if the Administrative  Agent shall
have received the payments  provided in paragraph (a) above with respect to such
drawing,  for the  accounts of the Banks,  an amount equal to the amount of such
draft before 10:00 a.m., Arizona time, on the Business Day immediately following
the date of payment of such draft,  together  with  interest on such amount at a
rate per annum  equal to the  interest  rate in effect for Base Rate  Borrowings
from (and  including)  the date of payment of such draft to (but  excluding) the
date of such payment by the Borrower.  The obligation of the Borrower to pay the
amounts referred to above in this paragraph (b) shall be absolute, unconditional
and irrevocable  and shall be satisfied  strictly in accordance with their terms
irrespective of:

                                       27
<PAGE>
               (i) any lack of  validity  or  enforceability  of any  Letter  of
     Credit;

               (ii) the existence of any claim,  setoff,  defense or other right
     which the  Borrower  or any other  Person may at any time have  against the
     beneficiary  under any  Letter of Credit,  the  Administrative  Agent,  any
     Issuing  Bank or any Bank (other than the defense of payment in  accordance
     with the terms of this Agreement or a defense based on the gross negligence
     or  willful  misconduct  of the  Issuing  Bank)  or  any  other  Person  in
     connection with this Agreement or any other transaction;

               (iii) any  draft or other  document  presented  under a Letter of
     Credit  proving to be forged,  fraudulent  or invalid in any respect or any
     statement therein being untrue or inaccurate in any respect;  PROVIDED that
     payment  by  the  Issuing   Bank  under  such  Letter  of  Credit   against
     presentation  of such draft or document  shall not have  constituted  gross
     negligence or willful misconduct;

               (iv) payment by the Issuing Bank under a Letter of Credit against
     presentation  of a draft or other  document  which  does not  comply in any
     immaterial  respect with the terms of such Letter of Credit;  PROVIDED that
     such  payment  shall  not have  constituted  gross  negligence  or  willful
     misconduct; or

               (v) any other  circumstance or event  whatsoever,  whether or not
     similar to any of the foregoing;  PROVIDED that such other  circumstance or
     event  shall  not have  been the  result  of gross  negligence  or  willful
     misconduct of the Issuing Bank.

          It is  understood  that in making any payment under a Letter of Credit
(1) the Issuing Bank's exclusive reliance on the documents presented to it under
such  Letter of Credit as to any and all matters  set forth  therein,  including
without  limitation,  reliance on the amount of any draft  presented  under such
Letter of Credit,  whether or not the amount due to the  beneficiary  equals the
amount of such draft and whether or not any document  presented pursuant to such
Letter of Credit proves to be forged,  fraudulent or invalid in any respect,  if
such  document on its face appears to be in order,  and whether or not any other
statement  or any other  document  presented  pursuant  to such Letter of Credit
proves to be forged or invalid or any statement  therein proves to be inaccurate
or untrue in any respect whatsoever, and (2) any noncompliance in any immaterial
respect  of the  documents  presented  under a Letter of  Credit  with the terms
thereof  shall,  in either  case,  not be  deemed  willful  misconduct  or gross
negligence of the Issuing Bank.

     SECTION 2A.5 EXISTING LETTERS OF CREDIT. On and after the Closing Date, the
Existing  Letters of Credit  shall be deemed for all  purposes  to be Letters of
Credit  outstanding  under this  Agreement  and entitled to the benefits of this
Agreement  and  the  other  Loan  Documents,   and  shall  be  governed  by  the
applications and agreements pertaining thereto and by this Agreement;  PROVIDED,
HOWEVER,  that,  notwithstanding any other provision of this Agreement,  no fees
with  respect to the  issuance of the  Existing  Letters of Credit  shall be due
hereunder.

                                       28
<PAGE>
                                   ARTICLE III
                         REPRESENTATIONS AND WARRANTIES

     The  Company  and  each  Co-Borrower,  to  the  extent  applicable,  hereby
represents and warrants to the Administrative Agent and the Banks as follows:

     SECTION 3.1  ORGANIZATION;  CORPORATE  POWERS;  ETC.  (a) The Borrower is a
corporation duly organized, validly existing and in good standing under the laws
of the  jurisdiction  of its  incorporation;  (b) the Borrower has the corporate
power and  authority to own its property and assets and to carry on its business
as now  conducted  and is qualified to do business in every  jurisdiction  where
such  qualification is required except where the failure to so qualify would not
result in a material  adverse  effect on the  business,  assets,  operations  or
condition (financial or otherwise) of the Borrower; and (c) the Borrower has the
corporate  power to execute,  deliver and perform this  Agreement  and the other
Loan Documents and to borrow hereunder.

     SECTION 3.2 AUTHORIZATION;  ETC. The execution, delivery and performance by
the Borrower of this  Agreement,  the  Borrowings  hereunder,  and the issuance,
execution  and  delivery  of the  Notes:  (a) have been duly  authorized  by all
requisite  corporate action;  (b) will not violate (i) any provision of law, any
order of any  court,  or any rule,  regulation  or order of any other  agency of
government,  (ii) the  Articles of  Incorporation  or By-laws of the Borrower or
(iii) any provision of any material indenture,  agreement or other instrument to
which the Borrower is a party, or by which the Borrower or any of its properties
or assets are or may be bound;  (c) will not be in  conflict  with,  result in a
breach of or  constitute  (alone,  with notice,  with lapse of time, or with any
combination of these factors) a default under any indenture,  agreement or other
instrument  referred  to in  (b)(iii)  above;  and (d)  will not  result  in the
creation or  imposition  of any Lien upon any property or assets of the Borrower
that is not a Permitted Lien. Except for filings which may be required under the
1934 Act, no  registration  with or consent or approval  of, or other action by,
any  Governmental  Authority  is  required  in  connection  with the  execution,
delivery and  performance of this  Agreement,  the execution and delivery of the
Notes or the Borrowings hereunder.

     SECTION 3.3 ENFORCEABILITY. This Agreement constitutes, and each other Loan
Document when duly executed and delivered by the Borrower will  constitute,  the
legal, valid and binding  obligation of the Borrower,  enforceable in accordance
with its terms,  subject,  as to the  enforcement  of  remedies,  to  applicable
bankruptcy,  reorganization,  insolvency,  moratorium  and other laws of general
applicability  relating to or affecting  creditors'  rights from time to time in
effect  and  to  general  principles  of  equity  (regardless  of  whether  such
enforcement is considered in a proceeding at law or in equity).

     SECTION 3.4 FINANCIAL CONDITION AND INFORMATION.

          (a) The Borrower has  heretofore  furnished to the Banks copies of (i)
the consolidated balance sheets of the Borrower as of December 31, 2000, and the
related  consolidated  statements  of  income  and  shareholder's  equity of the
Borrower for the year ended December 31, 2000,  including without limitation the
related  notes,  audited by and  including  the opinion the  independent  public
accountants  of the  Borrower,  and (ii) the Annual  Report on Form 10-K for the

                                       29
<PAGE>
fiscal year ended December 31, 2000 of the Borrower.  Such financial  statements
fairly  state the  consolidated  financial  condition  of the Borrower as of the
respective  dates thereof and the  consolidated  results of the  operations  and
changes in financial  position of the Borrower for the periods covered  thereby.
All such financial  statements,  including  related schedules and notes thereto,
have been prepared in accordance with GAAP.

          (b) Borrower (both before and after giving effect to the  transactions
contemplated hereby) is solvent, has assets having a fair value in excess of the
amount  required to pay its probable  liabilities  on its existing debts as they
become absolute and matured,  and has, and will have, access to adequate capital
for the  conduct of its  business  and the ability to pay its debts from time to
time incurred in connection therewith as such debts mature.

     SECTION 3.5 NO MATERIAL ADVERSE CHANGE.  There has been no material adverse
change in the business, operations, assets or condition (financial or otherwise)
of the Borrower and its  Significant  Subsidiaries,  taken as a whole (except as
disclosed in the financial statements referred to in Section 3.4).

     SECTION 3.6 LITIGATION.  There are no actions,  suits or proceedings at law
or in equity or by or before any  governmental  instrumentality  or other agency
now  pending  or,  to the  knowledge  of the  Borrower,  threatened  against  or
affecting the Borrower or any property or rights of the Borrower  which would be
reasonably  likely in the aggregate to (i) materially  impair the ability of the
Borrower  to  perform  its  obligations  under  this  Agreement  or the Notes or
materially impair the ability of the Borrower to carry on business substantially
as now being  conducted  or (ii) result in any  material  adverse  change in the
business,  assets,  operations,  or condition  (financial  or  otherwise) of the
Borrower.

     SECTION 3.7 FEDERAL RESERVE REGULATIONS.

          (a)  The  Borrower  is  not  engaged  principally,  or as  one  of its
important  activities,  in the business of  extending  credit for the purpose of
purchasing or carrying Margin Stock.

          (b) No part of the proceeds of any Loan will be used, whether directly
or indirectly,  and whether  immediately,  incidentally  or  ultimately,  (i) to
purchase or carry Margin Stock or to extend  credit to others for the purpose of
purchasing  or  carrying  Margin  Stock  or to  refund  indebtedness  originally
incurred for such purpose, or (ii) for any purpose which entails a violation of,
or which is  inconsistent  with, the provisions of the Regulations of the Board,
including Regulation U or X.

     SECTION 3.8  INVESTMENT  COMPANY ACT.  The  Borrower is not an  "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.

     SECTION 3.9 PUBLIC  UTILITY  HOLDING  COMPANY  ACT.  The  Borrower is not a
"holding  company,"  or a  "subsidiary  company" of a "holding  company,"  or an
"affiliate"  of a "holding  company" or of a "subsidiary  company" of a "holding
company,"  within the meaning of the Public Utility Holding Company Act of 1935,
as amended.

                                       30
<PAGE>
     SECTION  3.10 TAX  RETURNS.  As of the filing date of the  Borrower's  Form
10-K,  Form 10-Q or Form 8-K most recently  filed with the SEC, the Borrower has
duly filed or caused to be filed all federal,  state and local tax returns which
are  required to have been filed and has paid or caused to be paid all  material
taxes  required to be paid by it,  except  taxes the  validity of which is being
contested in good faith by appropriate proceedings and with respect to which the
Borrower has set aside on its books such reserves as are required by GAAP.

     SECTION 3.11 ERISA. As of the filing date of the Borrower's Form 10-K, Form
10-Q or Form 8-K most recently  filed with the SEC, the Borrower had no material
undisclosed ERISA Liabilities under any Plans.

     SECTION  3.12 TITLE TO  PROPERTIES:  POSSESSION.  The Borrower has good and
indefeasible  title  to,  or valid  leasehold  interests  in,  all its  material
properties and assets, subject only to encumbrances,  adverse claims and defects
in title which do not involve any risk of loss that is material to the  Borrower
and the  Subsidiaries  taken as a whole. All such assets and properties are free
and clear of all Liens other than those  permitted  by Section 6.1. The Borrower
has  all  licenses  and  rights  necessary  to  enable  it to use  all  material
technology used by it in its operations.

     SECTION  3.13 USE OF PROCEEDS.  The  Borrower  will use the proceeds of any
borrowing  hereunder  solely for the  purposes set forth in the Recitals to this
Agreement.

     SECTION 3.14 ENVIRONMENTAL MATTERS.  Except as disclosed by the Borrower to
the Banks in writing prior to the date hereof,  the Borrower and each Subsidiary
is in compliance in all material  respects with all applicable  federal or state
environmental,  hazardous waste,  health and safety  statutes,  and any rules or
regulations  adopted  pursuant  thereto,  which  govern  or  affect  any  of the
Borrower's  operations  and/or  properties,  including without  limitation,  the
Comprehensive  Environmental  Response,  Compensation and Liability Act of 1980,
the Superfund  Amendments and  Reauthorization Act of 1986, the Federal Resource
Conservation and Recovery Act of 1976, and the Federal Toxic Substances  Control
Act, as any of the same may be amended,  modified or  supplemented  from time to
time. None of the operations of the Borrower or any Subsidiary is the subject of
any  federal or state  investigation  evaluating  whether  any  remedial  action
involving a material  expenditure is needed to respond to a release of any toxic
or hazardous waste or substance into the  environment.  Neither Borrower nor any
Subsidiary has material  contingent  liability in connection with any release of
any toxic or hazardous waste or substance into the environment.

     SECTION 3.15  SUBSIDIARIES.  All Subsidiaries  are correctly  identified on
Schedule "3.15" hereto.

     SECTION 3.16 NO SUBORDINATION.  There is no agreement,  indenture, contract
or  instrument  to which the Borrower is a party or by which the Borrower may be
bound  that  requires  the  subordination  in  right  of  payment  of any of the
Borrower's  obligations subject to this Agreement to any other obligation of the
Borrower.

     SECTION  3.17  PERMITS,   FRANCHISES.  The  Borrower  possesses,  and  will
hereafter possess,  all permits,  consents,  approvals,  franchises and licenses
required and rights to all  trademarks,  trade names,  patents,  and  fictitious
names, if any, necessary to enable it to conduct the business in which it is now
engaged in compliance with applicable law.

     SECTION  3.18  OTHER  OBLIGATIONS.  Borrower  is  not  in  default  on  any
obligation  for borrowed  money,  any  purchase  money  obligation  or any other
material lease, commitment, contract, instrument or obligation.

                                       31
<PAGE>
                                   ARTICLE IV
                           CONDITIONS TO CREDIT EVENTS

     The  obligations  of the Banks to make each and every Loan and of the Swing
Line  Lender to make the  initial  Swing Line  Loan,  and to make each and every
advance of the proceeds  thereof  (each of the  foregoing  events being called a
"Credit Event") are subject to the prior or contemporaneous  satisfaction of the
following conditions:

     SECTION 4.1 CREDIT EVENTS. On the date of each Credit Event,  including the
date of each reborrowing of a Borrowing as contemplated by Section 2.5:

          (a) The  Administrative  Agent shall have  received in respect of such
advance or reborrowing a Borrowing Notice as required by Section 2.3.

          (b) The representations and warranties set forth in Article III hereof
shall have been true and correct in all material  respects  both (i) on the date
hereof and (ii) as of such date, except to the extent such  representations  and
warranties expressly relate and are limited to a different date.

          (c) At the time of and  immediately  after such advance or reborrowing
no Event of Default or Potential  Default  shall have occurred and be continuing
or shall exist.

Each  advance  or  refinancing   hereunder  shall  be  deemed  to  constitute  a
representation  and warranty by the Borrower on the date of such Credit Event as
to the  satisfaction  of the  conditions  specified in paragraphs (b) and (c) of
this Section 4.1.

     SECTION 4.2 FIRST CREDIT EVENT. On the Closing Date:

          (a) Each Bank and the Swing  Line  Lender  shall  have  received  duly
executed  copies of this  Agreement,  the Security  Documents and all other Loan
Documents.

          (b) Each Bank shall have received a duly executed Note  complying with
the  provisions  of Section 2.7 and the Swing Line Lender shall have  received a
duly executed Swing Line Note complying with the provisions of Section 2.22(b).

          (c) The  Administrative  Agent shall have received as to each Borrower
(i) a copy of its  Certificate  or  Articles  of  Incorporation,  including  all
amendments  thereto,  certified as of a recent date by the Secretary of State of
the state of its organization, and a certificate from such Secretary of State as
of a recent date, as to its good  standing;  (ii) a certificate of its Secretary
or Assistant  Secretary  dated the Closing Date and certifying (A) that attached
thereto is a true and  complete  copy of its By-Laws as in effect on the Closing
Date  and at all  times  since  a date  prior  to the  date  of the  resolutions
described in the next clause of this  sentence,  (B) that attached  thereto is a
true and complete  copy of  resolutions  duly adopted by its Board of Directors,

                                       32
<PAGE>
authorizing  the execution,  delivery and  performance of the Loan Documents and
the Credit Events  hereunder,  and that such resolutions have not been modified,
rescinded or amended and are in full force and effect,  (C) that its Certificate
or Articles of  Incorporation  have not been amended  since the date of the last
amendment thereto shown on its certificate of good standing  furnished  pursuant
to clause (i) above, and (D) as to the incumbency and specimen signature of each
officer  executing  any  Loan  Document  or  any  other  document  delivered  in
connection herewith on its behalf; and (iii) a certificate of another officer as
to the incumbency and specimen signature of the Secretary or Assistant Secretary
executing the certificate pursuant to (ii) above.

          (d) The Administrative Agent shall have received a certificate,  dated
the Closing Date and signed on behalf of the Borrower by a Financial  Officer of
the Borrower,  confirming  compliance with the conditions precedent set forth in
paragraphs (b) and (c) of Section 4.1.

          (e) The  Administrative  Agent shall have received a favorable written
opinion of legal counsel to the  Borrower,  dated the Closing Date and addressed
to the  Administrative  Agent and the Banks,  to the effect set forth in Exhibit
"E" hereto.

          (f) The  Administrative  Agent shall have received all amounts due and
payable  hereunder or under the other Loan  Documents on or prior to the Closing
Date.

          (g) The  Administrative  Agent  shall  have  received  payment  of all
expenses owed to the Banks pursuant to Section 9.5(a).

          (h) All legal matters  incident to this Agreement and the first Credit
Event hereunder  shall be reasonably  satisfactory to the Banks and to the legal
counsel for the Administrative Agent.

          (i) The Administrative Agent shall have received evidence satisfactory
to it that the 1999  Agreement has been or will be terminated  and all loans and
other amounts and letters of credit outstanding  thereunder have been or will be
paid in full or assumed hereunder, on or prior to the Closing Date.

          (j) The Administrative Agent shall have received landlord lien waivers
as to each  location  where  Collateral  is  located in  premises  leased to the
Borrower.

          (k) The Administrative  Agent shall have entered into on behalf of the
Banks  an   Intercreditor   Agreement  with  Wells  Fargo  as  to  the  existing
Indebtedness described in Schedule 6.2.

          (l) The  Administrative  Agent  shall have  received  such  additional
documents as the Banks and the Administrative Agent may reasonably require.

                                       33
<PAGE>
                                    ARTICLE V
                              AFFIRMATIVE COVENANTS

     The Company and each Co-Borrower,  to the extent applicable,  covenants and
agrees that, at all times prior to Termination,  unless the Required Banks shall
otherwise consent in writing, it will:

     SECTION  5.1  CORPORATE  EXISTENCE.  Do or  cause  to be  done  all  things
necessary  to  preserve,  renew and keep in full force and effect its  corporate
existence,  material rights,  licenses,  permits and franchises  material to the
conduct of its  business  and that of its  Subsidiaries;  comply in all material
respects with all applicable laws, rules,  regulations,  and orders (except that
force majeure events will excuse  noncompliance so long as  noncompliance  would
not  materially  impair the  creditworthiness  of the  Borrower)  whether now in
effect or hereafter  enacted  where the failure to so comply would be reasonably
likely to have a material adverse effect on the business,  assets, operations or
condition  (financial or otherwise) of the Borrower or that of its Subsidiaries;
and, at all times maintain and preserve all material  property  required for the
conduct of its business and that of its  Subsidiaries  as presently or hereafter
conducted.

     SECTION 5.2 INSURANCE. Maintain adequate insurance by financially sound and
reputable insurers of all properties of a character usually insured by companies
engaged in the same or a similar business  operating on a similar economic scale
as the Borrower and its Subsidiaries against loss or damage resulting from fire,
flood, property damage, workers compensation,  or other risks insured against by
extended coverage and of the kind customarily insured against by such companies,
and maintain in full force and effect public liability  insurance against claims
for personal  injury,  death or property damage  occurring upon, in, about or in
connection  with the use of any properties  occupied or controlled by it and its
Subsidiaries in such amounts as shall be customary  among  companies  engaged in
the same or similar  businesses  and similarly  situated and maintain such other
insurance  as  may be  required  by  law  with  deductibles  not  in  excess  of
$500,000.00 per occurrence for personal  injury and property  damage  liability,
cargo  liability  and  collision  and  comprehensive,   and  not  in  excess  of
$250,000.00 per occurrence for worker's compensation.

     SECTION 5.3 TAXES AND OTHER  LIABILITIES.  Pay and  discharge  promptly any
taxes,  assessments and governmental charges or levies imposed upon the Borrower
or any of its  Subsidiaries or upon their income or profits or in respect of the
Collateral or any material property (real or personal) of the Borrower or as any
of its Subsidiaries, before the same shall become delinquent; PROVIDED, HOWEVER,
that neither the Borrower nor any of the  Subsidiaries  shall be required to pay
and discharge or to cause to be paid and  discharged any such  obligation,  tax,
assessment,  charge,  levy or claim so long as the  validity  or amount  thereof
shall be contested in good faith by appropriate  proceedings and the Borrower or
such Subsidiary,  as appropriate,  shall set aside on its books such reserves as
are required by GAAP with respect thereto.

     SECTION 5.4 FINANCIAL  STATEMENTS;  REPORTS,  ETC. Cause to be furnished to
the Administrative Agent (as Information subject to the applicable  requirements
of Section 9.17 herein, if any):

                                       34
<PAGE>
          (a)  (i)  within  120  days  after  the  end  of  each  fiscal   year,
consolidated and  consolidating,  (A) a balance sheet, (B) a statement of income
and (C) a statement of cash flow,  each showing the  financial  condition of the
Borrower  and its  Subsidiaries  as of the  close  of such  fiscal  year and the
results of  operations  during such fiscal  year,  all the  foregoing  financial
statements to be prepared in accordance with GAAP, audited by an accounting firm
of nationally  recognized  standing with an unqualified  opinion from such firm,
and (ii) promptly when filed by the Borrower with the SEC,  Borrower's Form 10-K
for such fiscal year;

          (b) within 60 days after the end of each fiscal quarter of each fiscal
year of the  Borrower or, if earlier,  when filed by the Borrower  with the SEC,
Borrower's  Form 10-Q for such fiscal quarter  together with  consolidating  (if
applicable and if requested by the Administrative  Agent) and fully consolidated
company-prepared    financial   statements   including,    without   limitation,
consolidating (if applicable and if requested by the  Administrative  Agent) and
fully  consolidated  balance  sheets as of the end of that fiscal  quarter,  and
consolidating (if applicable and if requested by the  Administrative  Agent) and
fully  consolidated  statements  of income for the fiscal  quarter,  prepared in
accordance with GAAP by the Borrower;

          (c) concurrently  with each delivery of the statements  referred to in
(a) and (b) above, the Quarterly Certificate certifying that to the best of its,
his or her knowledge no Event of Default or Potential Default has occurred,  or,
if such an Event of Default or Potential  Default has occurred,  specifying  the
nature and extent thereof and accompanied by a statement of a Financial  Officer
of the Borrower  specifying any corrective  action taken or proposed to be taken
with respect  thereto,  and setting  forth in  reasonable  detail in the form of
Exhibit  "F" the  calculation  of  financial  measures  and ratios  required  to
demonstrate  compliance with the covenants,  conditions and agreements contained
in Section 5.11 hereof,  all  determined as of the end of the period  covered by
said statements;

          (d)  within  10 days of  their  being  filed,  in  addition  to  those
delivered by Borrower to the Administrative Agent pursuant to (a) and (b) above,
copies of all reports (other than  preliminary  proxy  statements)  filed by the
Borrower with the SEC (or any Governmental Authority succeeding to any or all of
the  functions  of the SEC)  under  the  requirements  of the 1934  Act,  or any
successor statute; and

          (e) promptly,  from time to time, such other information regarding the
operations,  business  affairs and  financial  condition of the Borrower and its
Subsidiaries as the Administrative Agent may reasonably request.

     SECTION 5.5  LITIGATION AND OTHER NOTICES.  Give the  Administrative  Agent
prompt  (but in no event  more than five (5) days after the  occurrence  of each
such event or matter)  written or telecopy  notice in  reasonable  detail of the
following:

          (a) the occurrence of any Event of Default, or any condition, event or
act  which  with the  giving  of notice  or the  passage  of time or both  would
constitute an Event of Default;

          (b)  any  change  in the  name  or  the  organizational  structure  of
Borrower;

                                       35
<PAGE>
          (c) the occurrence  and nature of any  Reportable  Event or Prohibited
Transaction, each as defined in ERISA, or any funding deficiency with respect to
any Plan;

          (d) any  termination  or  cancellation  of any insurance  policy which
Borrower is required to maintain,  or any uninsured or partially  uninsured loss
through  liability or property damage, or through fire, theft or any other cause
affecting Borrower's property; or

          (e)  the  filing  or  commencement  of  any  action,  suit  or  formal
proceeding  at law or in equity or by or before any court or hearing  officer of
any Governmental Authority involving amounts in excess of $5,000,000.00,  or any
other event or condition,  which has resulted in, or which is reasonably  likely
to result in, a material adverse change in the business, operations or condition
(financial or otherwise) of the Borrower and the  Subsidiaries  taken as a whole
and which has not been  reported  in the  Borrower's  most recent SEC filings on
Form 10-K, 10-Q or 8-K.

     SECTION 5.6 MAINTAINING RECORDS:  ACCESS TO PREMISES AND RECORDS.  Maintain
all financial records in accordance with GAAP, and upon reasonable notice permit
representatives of the Administrative Agent and each Bank to have access to such
financial  records and the premises of the Borrower at  reasonable  times and to
make such excerpts from such records as such representatives may deem necessary,
provided  that each person  obtaining  information  shall hold all  confidential
information  obtained in accordance with the  restrictions  set forth in Section
9.17.

     SECTION 5.7 USE OF  PROCEEDS.  Use the proceeds of the Loans solely for the
purposes set forth in Recitals hereto.

     SECTION 5.8 PUNCTUAL PAYMENTS. Punctually pay all principal, interest, fees
or other  liabilities due under any of the Loan Documents at the times and place
and in the manner specified therein.

     SECTION 5.9  COMPLIANCE.  Preserve  and  maintain  all  licenses,  permits,
governmental  approvals,  rights,  privileges and  franchises  necessary for the
conduct  of its  business;  and  comply  with the  provisions  of all  documents
pursuant to which the Borrower is organized  and/or which govern the  Borrower's
continued  existence and with the requirements of all laws,  rules,  regulations
and orders of any  governmental  authority  applicable  to  Borrower  and/or its
business.

     SECTION  5.10  FACILITIES.  Keep all  properties  useful  or  necessary  to
Borrower's and that its Subsidiaries business in good repair and condition,  and
from time to time make necessary repairs,  renewals and replacements  thereto so
that such properties shall be fully and efficiently preserved and maintained.

     SECTION 5.11 FINANCIAL COVENANTS. Maintain Company's financial condition as
follows  using GAAP,  calculated on a  consolidated  basis (except to the extent
modified by the definitions herein) (the "Financial Covenants"):

          (a) Its Tangible Net Worth of not less than $95,000,000.00 plus 50% of
positive  net income and not  reduced  for any net  losses,  measured  quarterly
commencing   March  31,  2001,  with  "Tangible  Net  Worth"  defined  as  total
stockholders' equity less its intangible assets, plus its Subordinated Debt.

                                       36
<PAGE>
          (b) Its EBITDA  Coverage Ratio of not less than 3.00 to 1.0 as of each
fiscal quarter end,  determined on a rolling  four-quarter  basis, with "EBITDA"
defined  as net profit  before tax plus  interest  expense  (net of  capitalized
interest  expense),  depreciation  expense and  amortization  expense,  and with
"EBITDA  Coverage  Ratio"  defined as EBITDA  divided by the  aggregate of total
interest  expense plus the prior period  current  maturity of long-term debt and
the prior  period  current  maturity of  subordinated  debt plus  dividends  and
distributions.

          (c) Its Funded Debt to EBITDA  ratio of not at any time  greater  than
1.50 to 1.0, on a trailing  four-quarter  basis,  as of each fiscal quarter end,
with "Funded Debt to EBITDA Ratio" defined as Funded Debt divided by EBITDA, and
with "Funded  Debt"  defined as the  aggregate of both the long-term and current
portions (without duplication) of all indebtedness or liabilities resulting from
borrowings, loans or advances and capitalized lease obligations, plus the stated
amounts of any issued and  outstanding  Letters of Credit,  and with "EBITDA" as
defined and calculated above.

          (d) Its net income after tax determined at the end of each fiscal year
of not less than $1.00 for such fiscal  year and its  pre-tax  profit as of each
fiscal quarter at the end of such fiscal quarter of not less than $1.00.

          (e) Its Minimum  Asset  Coverage of not less than 120.0% at all times,
where  "Minimum  Asset  Coverage"  is  defined  as (i) the sum of its cash,  net
accounts  receivable,  real estate book value (which may consist of no more than
$25,000,000.00)  and  rolling  stock (such as trucks and  trailers)  at net book
value  which  are  free  and  clear of any and all  Liens  (except  those of the
Administrative  Agent  for  the  benefit  of  the  Banks,  those  of  the  Banks
individually and those pursuant to Capital  Leases),  (ii) divided by the sum of
its accounts payable (as so described on its consolidated  financial statements)
and its total outstanding  Indebtedness,  including without limitation the Total
Commitment and other funded and unfunded but committed Indebtedness.

     SECTION 5.12 NEW  SUBSIDIARIES;  CO-BORROWER.  Borrower  shall promptly and
diligently  take  all  actions  necessary  to  cause  any  existing  Significant
Subsidiary  not a Co-Borrower  and that  subsequently  undertakes to conduct any
business  or  operations,  and  any  new  Significant  Subsidiary  (each  a "New
Subsidiary")  to  become  a  Co-Borrower  and  a  "Debtor"  under  the  Security
Documents.  Within  thirty  (30)  days of being  acquired,  or in the case of an
existing  Significant  Subsidiary  within  thirty  (30) days of  undertaking  to
conduct any business or operations  (the "Grace  Period"),  such New  Subsidiary
shall deliver to the Banks an executed Assumption Agreement in the form attached
hereto as Exhibit  "G",  a Security  Agreement  in the form  attached  hereto as
Exhibit "H", a UCC-1  Financing  Statement and such other documents as the Banks
may reasonably request.  The term "Co-Borrower" shall mean that such Significant
Subsidiary  shall be jointly  liable,  and each  severally  and  unconditionally
liable,  for the full  payment  and  satisfaction  of the  Loans  and all  other
obligations of Borrower under this  Agreement.  The term "Debtor" shall have the
meaning set forth in the Security Agreement.

                                       37
<PAGE>
                                   ARTICLE VI
                               NEGATIVE COVENANTS

     The Company and each Co-Borrower,  to the extent applicable,  covenants and
agrees that, at all times prior to Termination, IT WILL NOT, and WILL NOT PERMIT
ANY SUBSIDIARY to:

     SECTION 6.1 LIENS.  Incur,  create,  assume or permit to exist any Liens on
any of  Borrower's  property  or  assets  or that of any  Subsidiary,  including
without  limitation,  "accounts" and "inventory" (each as defined in the Arizona
Uniform  Commercial  Code) and  unencumbered  fixed  assets  (including  without
limitation tractors, trailers and real estate) or such property or assets of any
Subsidiary,  whether such property or assets are now owned or hereafter acquired
by Borrower,  or by a  Subsidiary,  or on any income or rights in respect of any
thereof, to secure any Indebtedness; PROVIDED that the foregoing shall not apply
to Liens on the property or assets of Borrower or any Subsidiary:

               (i) existing on the date hereof and  described in Schedule  "6.1"
     and any refinancing thereof;

               (ii) in favor of the Administrative  Agent for the benefit of the
     Banks under the Security Documents; or

               (iii) that secures the Indebtedness permitted pursuant to Section
     6.2.

     SECTION 6.2 INDEBTEDNESS.  Become or remain obligated either directly or as
a guarantor or surety for any  Indebtedness  for borrowings,  loans or advances,
whether secured or unsecured, matured or unmatured,  liquidated or unliquidated,
joint or  several,  or for any  Indebtedness  incurred  in  connection  with the
acquisition of any property, real or personal, tangible or intangible including,
but not limited to, lease purchase agreements or sale leasebacks, except:

          (a) Indebtedness to the Banks hereunder;

          (b)  Unsecured  trade,  utility  or  accounts  payable  arising in the
ordinary course of its business;

          (c) The Indebtedness disclosed on Schedule 6.2 attached hereto and any
other Indebtedness disclosed in the most recent financial statements of Borrower
submitted to the Banks on or prior to the date of this Agreement; and

          (d)  Capital  purchases  not  to  exceed   $50,000,000.00,   including
operating leases, capital leases and debt.

     SECTION  6.3  MERGER,  CONSOLIDATION,  TRANSFER  OF  ASSETS.  Merge into or
consolidate with any other entity without the written consent of the Banks; make
any substantial  change in the nature of Borrower's  business as conducted as of
the date  hereof;  acquire all or  substantially  all of the assets of any other

                                       38
<PAGE>
entity without the written consent of the Banks;  nor sell,  lease,  transfer or
otherwise  dispose of all or a  substantial  or material  portion of  Borrower's
assets  except in the  ordinary  course of its  business,  nor transfer all or a
substantial or material portion of its assets to its Subsidiaries.

     SECTION  6.4  ACCOUNTING  CHANGE.  Change  the  times  of  commencement  or
termination  of its  fiscal  year or other  accounting  periods;  or change  its
methods of accounting  other than to conform to GAAP so as to  constitute  sound
accounting practice.

     SECTION  6.5  GUARANTEE.  Except  with  respect to  Indebtedness  permitted
pursuant to Section 6.2 hereof, guarantee,  directly or indirectly, or otherwise
become  contingently liable or obligated for, any indebtedness or obligations of
any other person or entity (except for the endorsement in the ordinary course of
business  of  negotiable  instruments  for deposit or  collection)  or pledge or
hypothecate  any  assets  of  Borrower  or  security  for,  any  liabilities  or
obligations of any other person or entity.

     SECTION 6.6 ERISA LIABILITIES.  Create or suffer to exist ERISA Liabilities
in an aggregate amount for all Plans in excess of $1,000,000.00.

     SECTION  6.7  CAPITAL  EXPENDITURES.  Make,  or permit  any  Subsidiary  or
Affiliate,  to make any purchase or acquisition of any fixed or capital  assets,
if the aggregate  amount of all such purchases or acquisitions  shall exceed the
sum permitted  pursuant to Section  6.2(d) in any calendar  year.  The foregoing
restrictions shall not apply to the Borrower's  purchase of tractors or trailers
in the Borrower's normal course of business.

     SECTION 6.8 LOANS, ADVANCES,  INVESTMENTS. Make any loans or advances to or
investments in any person or entity, except any of the foregoing existing as of,
and disclosed to the Banks prior to, the date hereof.

     SECTION  6.9  DIVIDEND,  DISTRIBUTIONS.  Declare  or pay  any  dividend  or
distribution  in excess of fifty percent  (50%) of Borrower's  net income in any
fiscal year either in cash,  stock or any other property on Borrower's stock now
or  hereafter  outstanding,   nor  redeem,  retire,   repurchase  in  excess  of
$15,000,000.00  in  any  12  month  period  effective  as of the  date  of  this
Agreement,  or otherwise acquire any shares of any class of Borrower's stock now
or hereafter outstanding.

                                       39
<PAGE>
                                   ARTICLE VII
                                EVENTS OF DEFAULT

     In case of the  happening of any of the  following  events  (herein  called
"Events of Default"):

          (a) default  shall be made in the payment of any principal or interest
on any Loan or any Fee,  indemnification amount or any other amount due from the
Borrower  under  the  Loan  Documents  whether  at the due  date  thereof  or by
acceleration  thereof or  otherwise,  when and as the same shall  become due and
payable;

          (b) any representation or warranty made or deemed made by the Borrower
in connection  with the Loan  Documents or in any report,  certificate  or other
instrument  furnished by the Borrower pursuant to the Loan Documents or with the
Borrowings hereunder shall prove to have been incorrect,  false or misleading in
any material  respect  when made or delivered or when deemed made in  accordance
with the terms hereof;

          (c)  any  default  in  the  performance  of  or  compliance  with  any
obligation,  agreement or other provision  contained herein or in any other Loan
Document  (other than those referred to in subsections  (a) and (b) above),  and
except with respect to any such  default as to a Financial  Covenant or which by
its nature can not be cured;  such default shall continue for a period of twenty
(20) days from its occurrence;

          (d) the  Borrower  or any  Subsidiary  shall fail to make when due any
payment (of whatever amount) on Indebtedness (whether due by scheduled maturity,
required  prepayment,  acceleration,  demand or  otherwise),  including  without
limitation any Indebtedness owed to any Bank and any obligations incurred by the
Borrower or any  Subsidiary  to any Bank or  Affiliate  thereof  pursuant to any
agreement  with respect to any interest  rate swap or similar  transaction;  and
such failure shall  continue after the  applicable  notice and grace period,  if
any, specified in the agreement or instrument relating to such Indebtedness;  or
any failure by the  Borrower to perform any covenant or agreement on its part to
be performed under any agreement or instrument  evidencing or security  relating
to any Indebtedness shall result after the applicable notice and grace period in
the acceleration of the maturity of a portion of such Indebtedness;

          (e) the Borrower shall (i) voluntarily commence any proceeding or file
any  petition  seeking  relief  under Title 11 of the United  States Code or any
other  Federal,  state or foreign  bankruptcy,  insolvency  or similar law, (ii)
consent to the institution of, or fail to controvert in a timely and appropriate
manner, any such proceeding or the filing of any such petition,  (iii) apply for
or consent to the appointment of a receiver, trustee, custodian, sequestrator or
similar official for such corporation or for a substantial part of its property,
(iv) file an answer  admitting  the  material  allegations  of a petition  filed
against it in any such proceeding, (v) make a general assignment for the benefit
of  creditors,  (vi)  become  unable,  admit in writing  its  inability  or fail
generally  to pay its debts as they become due, or (vii) take  corporate  action
for the purpose of effecting any of the foregoing;

                                       40
<PAGE>
          (f) an  involuntary  proceeding  shall be commenced or an  involuntary
petition shall be filed in a court of competent  jurisdiction seeking (i) relief
in respect of the Borrower or of a substantial  part of the property under Title
11 of the United States Code or any other Federal,  state or foreign bankruptcy,
insolvency  or  similar  law,  (ii)  the  appointment  of a  receiver,  trustee,
custodian,   sequestrator  or  similar  official  for  the  Borrower  or  for  a
substantial part of its property,  or (iii) the winding-up or liquidation of the
Borrower, and such proceeding or petition shall continue undismissed for 60 days
or an order or  decree  approving  or  ordering  any of the  foregoing  shall be
entered;

          (g) either of (A) the occurrence of any one or more Reportable  Events
or (B) a failure to make a "required  payment"  under the  provisions of Section
412(n)(1) of the Code shall have  occurred with respect to any Plan or Plans and
the  occurrence  of either (A) or (B) above  shall have  resulted  in any of (1)
liability  of the  Borrower to the PBGC or to one or more Plans in an  aggregate
amount  exceeding  $1,000,000.00,  (2) the termination of the respective Plan or
Plans by the PBGC, (3) the appointment by the appropriate United States District
Court of a trustee to administer such Plan or Plans or (4) for the imposition of
a Lien in favor of such Plan or Plans;

          (h) any material  provision of the Loan  Documents  ceases to be valid
and binding on or enforceable against the Borrower;

          (i) there shall have occurred a Change in Control;

          (j) the liquidation,  termination or dissolution of Borrower or any of
its directors,  stockholders  or members shall take action seeking to effect the
dissolution or liquidation of Borrower;

          (k) the occurrence of any adverse change in the financial condition of
Borrower, that the Banks, in their reasonable discretion,  deems material, or if
the  Banks  in good  faith  shall  believe  that  the  prospect  of  payment  or
performance of the Loans is impaired or is likely to be substantially  impaired;
or

          (l) the filing of a notice of judgment lien against  Borrower;  or the
recording  of any abstract of judgment  against  Borrower in any county in which
Borrower  has an interest in real  property;  or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process,  against the
assets of Borrower;  or the entry of a judgment against  Borrower,  in each case
for an amount in excess of  $250,000.00  and subject to the right of Borrower to
contest such action pursuant to Section 5.3 hereof;

then, and in any such event,  and at any time thereafter  during the continuance
of such  event,  the  Administrative  Agent,  shall,  at the sole  option of the
Required Banks and if so directed by the Required  Banks, by written or telecopy
notice to the Borrower, take either or both of the following actions at the same
or different times:

               (i)  terminate  forthwith  any or all  Commitments  of the Banks,
     including without limitation  terminate any obligation of the Banks to make
     any further advances under the RLC Facility.

                                       41
<PAGE>
               (ii)  declare  any or all of the  Loans to be  forthwith  due and
     payable,  whereupon  the  principal  of such Loans,  together  with accrued
     interest  thereon and any unpaid accrued Fees and all other  liabilities of
     the Borrower accrued hereunder and under the Notes,  shall become forthwith
     due and payable  together with interest thereon as provided in Section 2.9,
     without presentment,  demand,  protest or any other notice of any kind, all
     of which are hereby  expressly waived by the Borrower,  anything  contained
     herein or in any Note to the contrary notwithstanding;

               (iii)  exercise  any  or all of its  rights  under  the  Security
     Documents and/or available to it pursuant to applicable law; and

               (iv)   require   that  the   Borrower   deposit   cash  with  the
     Administrative  Agent in an amount equal to the Letter of Credit Balance as
     Collateral  (under its sole  dominion and  contract)  for the  repayment of
     drawings under outstanding Letters of Credit;

PROVIDED,  HOWEVER,  that in the  case  of an  Event  of  Default  specified  in
paragraph  (e) or (f)  above  involving  the  Borrower,  without  notice  to the
Borrower  or any  other  act by  the  Administrative  Agent  or the  Banks,  the
Commitments shall  automatically  terminate and all Loans together with all such
interest,  Fees and other amounts, shall become immediately due and payable, all
without  presentment,  demand,  protest or any other notice of any kind,  all of
which are hereby expressly waived by the Borrower,  anything contained herein or
in any Note to the contrary notwithstanding.

                                       42
<PAGE>
                                  ARTICLE VIII
                            THE ADMINISTRATIVE AGENT

     SECTION 8.1 APPOINTMENT. In order to expedite the transactions contemplated
by this Agreement, Wells Fargo Bank, National Association is hereby appointed to
act as Administrative  Agent on behalf of the Banks. Each of the Banks, and each
subsequent  holder of any Note by its  acceptance  thereof,  hereby  irrevocably
authorizes  the  Administrative  Agent to take such actions on its behalf and to
exercise such powers as are specifically  delegated to the Administrative  Agent
by the terms and  provisions  hereof and of the other Loan  Documents,  together
with  such  actions  and  powers  as  are  reasonably  incidental  thereto.  The
Administrative Agent is hereby expressly authorized by the Banks, without hereby
limiting  any  implied  authority,  (a) to  receive  on  behalf of the Banks all
payments of principal of and interest on the Loans and all other  amounts due to
the Banks hereunder, and promptly to distribute to each Bank its proper share of
each payment so  received;  (b) to give notice on behalf of each of the Banks to
the Borrower of any Default or Event of Default  specified in this  Agreement of
which the Administrative  Agent has actual knowledge acquired in connection with
its agency hereunder;  and (c) to distribute to each Bank copies of all notices,
financial  statements and other materials  delivered by the Borrower pursuant to
this Agreement as received by the Administrative Agent.

     SECTION  8.2  LIABILITY.  Neither the  Administrative  Agent nor any of its
directors,  officers, employees or agents shall be liable as such for any action
taken or omitted by any of them  except for its or his own gross  negligence  or
willful   misconduct,   or  be  responsible  for  any  statement,   warranty  or
representation  herein or the contents of any document  delivered in  connection
herewith,  or be required to  ascertain  or to make any inquiry  concerning  the
performance  or  observance  by the  Borrower  of any of the terms,  conditions,
covenants or agreements contained in any Loan Document. The Administrative Agent
shall not be  responsible  to the Banks or the  holders of the Notes for the due
execution,  genuineness,  validity,  enforceability  or  effectiveness  of  this
Agreement,  the  Notes or any  other  Loan  Documents  or other  instruments  or
agreements. The Administrative Agent may deem and treat the payee of any Note as
the owner thereof for all purposes  hereof until it shall have received from the
payee of such Note notice,  given as provided herein,  of the transfer  thereof.
The  Administrative  Agent shall in all cases be fully  protected in acting,  or
refraining from acting,  in accordance with written  instructions  signed by the
Required  Banks or if required by the  provisions  of this  Agreement by all the
Banks, as applicable,  and, except as otherwise  specifically  provided  herein,
such  instructions and any action or inaction  pursuant thereto shall be binding
on all the Banks and each  subsequent  holder  of any Note.  The  Administrative
Agent shall, in the absence of knowledge to the contrary, be entitled to rely on
any  instrument  or  document  believed  by it in good faith to be  genuine  and
correct and to have been signed or sent by the proper Person or Persons. Neither
the Administrative Agent nor any of its directors, officers, employees or agents
shall have any  responsibility  to the  Borrower on account of the failure of or
delay in performance or breach by any Bank of any of its  obligations  hereunder
or to any Bank on account of the failure of or delay in performance or breach by
any other Bank or the Borrower of any of their respective  obligations hereunder
or under any other Loan  Document or in connection  herewith or  therewith.  The
Administrative  Agent may  execute  any and all duties  hereunder  by or through
agents or  employees  and  shall be  entitled  to rely upon the  advice of legal
counsel  selected by it with respect to all matters arising  hereunder and shall
not be liable for any action taken or suffered in good faith by it in accordance
with the advice of such counsel.

                                       43
<PAGE>
     SECTION 8.3 ACTION BY  ADMINISTRATIVE  AGENT. The Banks hereby  acknowledge
that the  Administrative  Agent shall be under no duty to take any discretionary
action  permitted to be taken by it pursuant to the provisions of this Agreement
unless it shall be requested in writing to do so by the Required Banks.

     SECTION 8.4  RESIGNATION.  The  Administrative  Agent may not,  without the
consent of the Borrower,  resign at any time.  Upon receiving such consent,  and
subject to giving 30 days' prior written notice to the Banks, the Administrative
Agent may resign as Administrative  Agent hereunder.  Upon any such resignation,
the Required Banks, with the consent of the Borrower (which consent shall not be
unreasonably  withheld),  shall  have the  right  to  appoint  from the  Banks a
successor.  If no successor  shall have been so appointed by the Required  Banks
and shall have accepted such appointment within 30 days after the Administrative
Agent gives notice of its  resignation,  then the  Administrative  Agent may, on
behalf of the Banks,  appoint a successor  Administrative Agent which shall be a
bank with an office in Phoenix,  Arizona,  having a combined capital and surplus
of at least $50,000,000.00 or an Affiliate of any such bank. Upon the acceptance
of any appointment as  Administrative  Agent hereunder by a successor bank, such
successor  shall  succeed  to and become  vested  with all the  rights,  powers,
privileges  and duties of the retiring  Administrative  Agent and such  retiring
Administrative  Agent  shall be  discharged  from  its  duties  and  obligations
hereunder.   After  the  Administrative  Agent's  resignation   hereunder,   the
provisions  of this  Article and  Section  9.5 shall  continue in effect for its
benefit in respect  of any  actions  taken or omitted to be taken by it while it
was acting as an Administrative Agent.

     SECTION 8.5 AGENT AS BANK.  With  respect to the Loans made by it hereunder
and the Notes issued to it, the Administrative  Agent in its individual capacity
and not as an Administrative  Agent shall have the same rights and powers as any
other Bank and may  exercise  the same as though it were not the  Administrative
Agent, and the Administrative Agent and its Affiliates may accept deposits from,
lend money to and generally  engage in any kind of business with the Borrower or
any Subsidiary or other Affiliate  thereof as if it were not the  Administrative
Agent.

     SECTION 8.6  DETERMINATIONS.  Each Bank recognizes  that  applicable  laws,
rules,  regulations or guidelines of  Governmental  Authorities  may require the
Administrative  Agent to determine whether the transactions  contemplated hereby
should be classified as "highly  leveraged" or assigned any similar or successor
classification, and that such determination may be binding upon the other Banks.
Each Bank  understands that any such  determination  shall be made solely by the
Administrative  Agent  based  upon such  factors  (which  may  include,  without
limitation,  the Administrative  Agent's internal policies and prevailing market
practices) as the  Administrative  Agent shall deem relevant and agrees that the
Administrative  Agent shall have no liability for the  consequences  of any such
determination.

     SECTION  8.7  INDEMNIFICATION.  Each  Bank  agrees  (i)  to  reimburse  the
Administrative  Agent, on demand,  in the amount of its pro rata share (based on
its Commitment  hereunder) of any expenses incurred for the benefit of the Banks
by the Administrative  Agent,  including counsel fees and compensation of agents

                                       44
<PAGE>
and employees paid for services rendered on behalf of the Banks, which shall not
have been reimbursed by the Borrower and (ii) to indemnify and hold harmless the
Administrative Agent and any of its directors, officers, employees or agents, on
demand,  in the  amount of such pro rata  share,  from and  against  any and all
liabilities, taxes, obligations, losses, damages, penalties, actions, judgments,
suits,  costs,  expenses or disbursements of any kind or nature whatsoever which
may be imposed on,  incurred by or  asserted  against it in its  capacity as the
Administrative  Agent or any of them in any way  relating  to or arising  out of
this  Agreement or any other Loan  Document or any action taken or omitted by it
or any of them under this  Agreement or any other Loan  Document,  to the extent
the same shall not have been reimbursed by the Borrower; PROVIDED that no Person
shall be liable to the Administrative Agent for any portion of such liabilities,
obligations,  losses,  damages,  penalties,  actions,  judgments,  suits, costs,
expenses  or  disbursements  resulting  from the  gross  negligence  or  willful
misconduct  of the  Administrative  Agent  or any  of its  directors,  officers,
employees or agents.

     SECTION 8.8 INDEPENDENT  CREDIT ANALYSIS.  Each Bank  acknowledges  that it
has,  independently  and without reliance upon the  Administrative  Agent or any
other  Bank  and  based  on such  documents  and  information  as it has  deemed
appropriate,  made its own  credit  analysis  and  decision  to enter  into this
Agreement.  Each Bank also acknowledges that it will,  independently and without
reliance  upon the  Administrative  Agent or any  other  Bank and  based on such
documents  and  information  as it shall  from  time to time  deem  appropriate,
continue to make its own decisions in taking or not taking action under or based
upon this  Agreement or any other Loan  Document,  any related  agreement or any
document furnished hereunder or thereunder.

                                       45
<PAGE>
                                   ARTICLE IX
                                  MISCELLANEOUS

     SECTION 9.1 NOTICES.  Notices and other communications  provided for herein
shall be in writing and shall be delivered by hand or overnight courier service,
mailed or sent by telecopy, graphic scanning or other telegraphic communications
equipment of the sending party, as follows:

          (a) if to the  Borrower,  to it at 5601 West  Buckeye  Road,  Phoenix,
Arizona 85043, Attention: Chief Financial Officer;

          (b) if to the  Administrative  Agent,  to it at 100  West  Washington,
Phoenix, Arizona 85003, Attention: Arizona RCBO;

          (c) if to a Bank, to it at its address (or telecopy  number) set forth
in Schedule 2.1 or in the Assignment and Acceptance  pursuant to which such Bank
shall have become a party hereto.

All notices and other  communications  given to any party  hereto in  accordance
with the provisions of this Agreement  shall be deemed to have been given on the
date of receipt if  delivered by hand or  overnight  courier  service or sent by
telecopy or other telegraphic  communications equipment of the sender, or on the
date five  Business  Days after  dispatch by  certified  or  registered  mail if
mailed,  in each case  delivered,  sent or mailed  (properly  addressed) to such
party as provided in this  Section or in  accordance  with the latest  unrevoked
direction from such party given in accordance with this Section.

     SECTION   9.2   SURVIVAL   OF   AGREEMENT.   All   covenants,   agreements,
representations   and  warranties  made  by  the  Borrower  herein  and  in  the
certificates  or other  instruments  prepared or delivered in connection with or
pursuant to this  Agreement or any other Loan  Document  shall be  considered to
have been relied upon by the Banks and shall  survive the making by the Banks of
the Loans,  and the execution and delivery to the Banks of the Notes  evidencing
such  Loans,  regardless  of any  investigation  made by the  Banks  or on their
behalf,  and shall  continue  in full force and  effect  until  Termination  has
occurred.

     SECTION 9.3 BINDING EFFECT; BENEFICIARIES.

          (a) This  Agreement  shall  become  effective  when it shall have been
executed  by  the   Borrower   and  the   Administrative   Agent  and  when  the
Administrative  Agent  shall  have  received  copies  hereof  which,  when taken
together, bear the signatures of each Bank, and thereafter shall be binding upon
and inure to the benefit of the Borrower, the Administrative Agent and each Bank
and their respective successors and assigns.

          (b) This  Agreement is made and entered  into for the sole  protection
and benefit of the parties hereto and their respective  permitted successors and
assigns, and no other person or entity shall be a third party beneficiary of, or
have any direct or indirect  cause of action or claim in connection  with,  this
Agreement or any other of the Loan Documents to which it is not a party.

                                       46
<PAGE>
          (c)  Time  is of the  essence  of each  and  every  provision  of this
Agreement and each other of the Loan Documents.

     SECTION 9.4 SUCCESSORS AND ASSIGNS.

          (a) Whenever in this  Agreement any of the parties  hereto is referred
to, such reference shall be deemed to include the successors and assigns of such
party;  and all  covenants,  promises  and  agreements  by or on  behalf  of the
Borrower,  the  Administrative  Agent or the Banks  that are  contained  in this
Agreement shall bind and inure to the benefit of their respective successors and
assigns.

          (b) Each Bank at its own expense  may assign to one or more  assignees
all or a portion of its interests,  rights and obligations  under this Agreement
(including all or a portion of its  Commitment,  and the Loans at the time owing
to it and the Notes held by it); PROVIDED,  HOWEVER, that (i) except in the case
of an assignment to a Bank or an Affiliate of any Bank, the Administrative Agent
and, so long as there is no Event of Default outstanding, the Borrower must give
their prior  written  consent to such  assignment  (which  consent  shall not be
unreasonably  withheld),  (ii) each such assignment shall be of a constant,  and
not a varying,  percentage  of all the assigning  Bank's rights and  obligations
under this Agreement,  (iii) except in the case of an assignment to a Bank or an
Affiliate  of any Bank,  the  amount of the  Commitment  of the  assigning  Bank
subject to each such  assignment  (determined  as of the date the Assignment and
Acceptance  with respect to such  assignment is delivered to the  Administrative
Agent) shall not be less than $5,000,000.00 or such lesser amount if such amount
is the entire  Commitment of the assigning  Bank,  (iv) the parties to each such
assignment shall execute and deliver to the  Administrative  Agent an Assignment
and Acceptance,  together with the Note or Notes subject to such assignment and,
except in the case of an  assignment  to a Bank or an  Affiliate  of any Bank, a
processing and recordation  fee of $3,500.00  (which fee shall not in any way be
the  responsibility  of the  Borrower),  (v) the assignee,  if it shall not be a
Bank, shall deliver to the Administrative Agent an Administrative  Details Reply
Form and (vi) any increased  costs by reason of any such  assignment will not be
borne by the Borrower.  Upon acceptance and recording  pursuant to paragraph (e)
of this  Section  9.4,  from and  after the  effective  date  specified  in each
Assignment and Acceptance,  which effective date shall be at least five Business
Days after the execution thereof,  (A) the assignee  thereunder shall be a party
hereto  and,  to the extent of the  interest  assigned  by such  Assignment  and
Acceptance,  have all the rights and  obligations of a Bank under this Agreement
and (B) the  assigning  Bank  thereunder  shall,  to the extent of the  interest
assigned by such  Assignment and  Acceptance,  be released from its  obligations
under this Agreement (and, in the case of an Assignment and Acceptance  covering
all or the remaining portion of an assigning Bank's rights and obligations under
this  Agreement,  such Bank shall cease to be a party hereto (but shall continue
to be entitled to the benefits of Sections 2.13,  2.15, 2.19 and 9.5, as well as
to any Fees accrued for its account hereunder and not yet paid)).

          (c) By executing  and  delivering an Assignment  and  Acceptance,  the
assigning Bank thereunder and the assignee thereunder shall be deemed to confirm
to and agree with each other and the other parties  hereto as follows:  (i) such
assigning  Bank  warrants  that it is the  legal  and  beneficial  owner  of the
interest being assigned thereby free and clear of any adverse claim and that its
Commitment and the outstanding  balances of its Loans,  without giving effect to

                                       47
<PAGE>
assignments  thereof which have not become  effective,  are as set forth in such
Assignment and Acceptance, (ii) except as set forth in (i) above, such assigning
Bank makes no  representation  or warranty  and assumes no  responsibility  with
respect  to  any  statements,  warranties  or  representations  made  in  or  in
connection  with  this  Agreement,   or  the  execution,   legality,   validity,
enforceability,  genuineness,  sufficiency or value of this Agreement, any other
Loan Document or any other instrument or document  furnished  pursuant hereto or
the financial  condition of the Borrower or any Subsidiary or the performance or
observance  by the Borrower or any  Subsidiary of any of its  obligations  under
this  Agreement,  any other Loan  Document or any other  instrument  or document
furnished pursuant hereto;  (iii) such assignee  represents and warrants that it
is legally  authorized to enter into such Assignment and  Acceptance;  (iv) such
assignee  confirms that it has received a copy of this Agreement,  together with
copies of the most recent financial statements delivered pursuant to Section 5.4
and such other  documents and  information as it has deemed  appropriate to make
its own  credit  analysis  and  decision  to  enter  into  such  Assignment  and
Acceptance;  (v) such assignee will  independently and without reliance upon the
Administrative  Agent,  such  assigning Bank or any other Bank and based on such
documents and information as it shall deem appropriate at the time,  continue to
make its own  credit  decisions  in  taking  or not  taking  action  under  this
Agreement;  (vi) such assignee appoints and authorizes the Administrative  Agent
to take such  action as agent on its behalf and to exercise  such  powers  under
this Agreement as are delegated to the Administrative Agent by the terms hereof,
together with such powers as are reasonably  incidental thereto;  and (vii) such
assignee  agrees  that it will  perform in  accordance  with their terms all the
obligations which by the terms of this Agreement are required to be performed by
it as a Bank.

          (d) The  Administrative  Agent shall maintain at one of its offices in
Phoenix, Arizona, a copy of each Assignment and Acceptance delivered to it and a
register for the  recordation  of the names and addresses of the Banks,  and the
Commitment of, and principal amount of the Loans owing to, each Bank pursuant to
the terms hereof from time to time (the "Register"). The entries in the Register
shall be  conclusive  in the absence of  manifest  error and the  Borrower,  the
Administrative  Agent and the Banks may treat each Person whose name is recorded
in the  Register  pursuant  to the  terms  hereof  as a Bank  hereunder  for all
purposes of this  Agreement.  The Register  shall be available for inspection by
the Borrower  and any Bank,  at any  reasonable  time and from time to time upon
reasonable prior notice.

          (e) Upon its receipt of a duly  completed  Assignment  and  Acceptance
executed by an assigning  Bank and an assignee  together  with the Note or Notes
subject to such assignment,  an  Administrative  Details Reply Form completed in
respect of the assignee (unless the assignee shall already be a Bank hereunder),
the  processing and  recordation  fee referred to in paragraph (b) above and, if
required,  the written consent of the Borrower and the  Administrative  Agent to
such assignment,  the Administrative  Agent shall (i) accept such Assignment and
Acceptance,  (ii) record the information  contained  therein in the Register and
(iii) give prompt  notice  thereof to the  Borrower  and the Banks.  Within five
Business Days after receipt of notice, the Borrower,  at its own expense,  shall
execute and deliver to the Administrative Agent, in exchange for the surrendered
Note or  Notes,  a new Note or Notes to the  order of such  assigning  Bank in a
principal  amount equal to the  applicable  Commitment  retained by it. Such new
Note or Notes shall be in an aggregate  principal  amount equal to the aggregate
principal  amount of such  surrendered  Note or Notes;  such new Notes  shall be
dated the date of the  surrendered  Notes which they replace and shall otherwise
be in  substantially  the form of Exhibit C. Canceled Notes shall be returned to
the Borrower.

                                       48
<PAGE>
          (f)  Each  Bank  may  without  the  consent  of  the  Borrower  or the
Administrative  Agent sell participations to one or more banks or other entities
in  all  or a  portion  of its  rights  and  obligations  under  this  Agreement
(including  all or a portion of its Commitment and the Loans owing to it and the
Notes held by it);  PROVIDED,  HOWEVER,  that (i) such Bank's  obligations under
this  Agreement  shall  remain  unchanged,  (ii) such Bank shall  remain  solely
responsible to the other parties hereto for the performance of such obligations,
(iii) the participating banks or other entities shall be entitled to the benefit
of the cost protection  provisions  contained in Sections 2.13, 2.15 and 2.19 to
the same extent as if they were Banks (however no  participating  bank or entity
shall be entitled to claim a greater  amount than could have been claimed by the
Bank  from whom the  participation  was  acquired)  and (iv) the  Borrower,  the
Administrative  Agent and the other  Banks  shall  continue  to deal  solely and
directly  with such Bank in connection  with such Bank's rights and  obligations
under this  Agreement,  and such Bank shall retain the sole right to enforce the
obligations of the Borrower  relating to the Loans and to approve any amendment,
modification or waiver of any provision of this Agreement. No entity acquiring a
participation   pursuant  to  this   paragraph  (f)  shall  by  virtue  of  such
participation have any direct voting rights under this Agreement.

          (g) Any Bank or participant  may, in connection with any assignment or
participation or proposed  assignment or participation  pursuant to this Section
9.4, disclose to the assignee or participant or proposed assignee or participant
any information  relating to the Borrower furnished to such Bank by or on behalf
of  the  Borrower;   PROVIDED  that,  prior  to  any  such  disclosure  of  such
information,   each  such  assignee  or  participant  or  proposed  assignee  or
participant  shall  execute an agreement  whereby such  assignee or  participant
shall agree to preserve the confidentiality of such information on terms no less
restrictive than those applicable to Banks pursuant to Section 9.17.

          (h) Any Bank may at any time  assign all or any  portion of its rights
under  this  Agreement  and the Notes  issued to it to a Federal  Reserve  Bank;
PROVIDED  that  no  such  assignment  shall  release  a  Bank  from  any  of its
obligations hereunder.

          (i) The  Borrower  shall not assign or  delegate  any of its rights or
duties hereunder without the prior written consent of the Banks.

     SECTION 9.5 EXPENSES; INDEMNITY.

          (a) The Borrower agrees to pay all out-of-pocket  expenses  reasonably
incurred by the Administrative  Agent in connection with the preparation of this
Agreement  and the other Loan  Documents or in connection  with any  amendments,
modifications or waivers of the provisions hereof or thereof (whether or not the
transactions hereby contemplated shall be consummated) or reasonably incurred by
the Administrative Agent in connection with the enforcement or protection of the
rights  of the  Banks in  connection  with this  Agreement  and the  other  Loan
Documents or in  connection  with the Loans made or the Notes issued  hereunder,
including without  limitation the reasonable fees,  charges and disbursements of
the counsel for the  Administrative  Agent,  and,  in  connection  with any such
enforcement or protection,  the reasonable  fees,  charges and  disbursements of

                                       49
<PAGE>
counsel for the Administrative  Agent. The Borrower further agrees that it shall
indemnify  the  Administrative  Agent and any Bank  from and hold them  harmless
against any documentary  taxes,  assessments or charges made by any Governmental
Authority by reason of the  execution  and delivery of this  Agreement or any of
the other Loan Documents.

          (b) The Borrower agrees to indemnify the  Administrative  Agent,  each
Bank and each of their respective affiliates, directors, officers, employees and
agents (each such person being called an "Indemnitee") against, and to hold each
Indemnitee harmless from, any and all losses, claims,  damages,  liabilities and
related expenses,  including without limitation reasonable counsel fees, charges
and  disbursements,  incurred by or asserted against any Indemnitee  arising out
of, in any way  connected  with, or as a result of (i) the execution or delivery
of this  Agreement or any other Loan  Document or any  agreement  or  instrument
contemplated thereby, the performance by the parties thereto of their respective
obligations  thereunder or the  consummation  of the  transactions  contemplated
thereby,  (ii) the use of the  proceeds of the Loans  pursuant to the request of
the  Borrower  or (iii)  any  claim,  litigation,  investigation  or  proceeding
relating  to any of the  foregoing,  whether  or not any  Indemnitee  is a party
thereto;  PROVIDED  that such  indemnity  shall not,  as to any  Indemnitee,  be
available  to the extent  that such  losses,  claims,  damages,  liabilities  or
related  expenses are determined by a court of competent  jurisdiction  by final
and nonappealable judgment to have resulted from the gross negligence or willful
misconduct of such Indemnitee.

          (c) The provisions of this Section shall remain  operative and in full
force and effect regardless of the expiration of the term of this Agreement, the
consummation of the transactions  contemplated  hereby,  the repayment of any of
the Loans, the invalidity or  unenforceability  of any term or provision of this
Agreement or any other Loan Document,  or any investigation made by or on behalf
of the  Administrative  Agent and any Bank.  All amounts due under this  Section
shall be payable on written demand therefor.

     SECTION 9.6 RIGHT OF SETOFF.  Subject to the provisions of Section 2.17, if
an Event of Default  shall have  occurred and be  continuing  and any Bank shall
have requested the Administrative Agent to declare the Loans immediately due and
payable pursuant to Article VII, each Bank is hereby  authorized at any time and
from time to time, to the fullest extent  permitted by law, to set off and apply
any and all deposits (general or special, time or demand,  provisional or final)
at any time held and other indebtedness at any time owing by such Bank to or for
the credit or the account of the Borrower against any of and all the obligations
of the Borrower now or hereafter  existing  under this  Agreement  and any other
Loan Documents held by such Bank, irrespective of whether or not such Bank shall
have made any demand  under this  Agreement  or such  other  Loan  Document  and
although such  obligations may be unmatured;  PROVIDED that such right of setoff
shall not apply to amounts which may be held in (i) trust accounts or (ii) asset
management  accounts,  including without  limitation  brokerage  accounts,  cash
management  accounts  or other  money  management  or  investment  accounts of a
non-depository  nature with any Bank. The rights of each Bank under this Section
are in addition to other rights and remedies  (including other rights of setoff)
which such Bank may have.

                                       50
<PAGE>
     SECTION 9.7  APPLICABLE  LAW. THIS  AGREEMENT AND THE OTHER LOAN  DOCUMENTS
SHALL BE CONSTRUED IN  ACCORDANCE  WITH AND GOVERNED BY THE LAWS OF THE STATE OF
ARIZONA  APPLICABLE TO CONTRACTS  MADE AND TO BE ENFORCED  ENTIRELY  WITHIN THAT
STATE.

     SECTION 9.8 WAIVERS; AMENDMENT.

          (a) No failure or delay of a party hereto in  exercising  any power or
right  hereunder  shall  operate  as a waiver  thereof,  nor shall any single or
partial   exercise  of  any  such  right  or  power,   or  any   abandonment  or
discontinuance of steps to enforce such a right or power,  preclude any other or
further exercise thereof or the exercise of any other right or power. The rights
and remedies of the parties  hereunder  and under the other Loan  Documents  are
cumulative  and are not  exclusive  of any rights or  remedies  which they would
otherwise  have. No waiver of any provision of this  Agreement or any other Loan
Document or consent to any departure by a party  therefrom shall in any event be
effective  unless the same shall be permitted  by Paragraph  (b) of this Section
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given.  No notice or demand on a party in any case
shall entitle that party to any other or further  notice or demand in similar or
other circumstances.

          (b) Neither this  Agreement  nor any  provision  hereof may be waived,
amended or modified  except  pursuant to an agreement or  agreements  in writing
entered into by the Borrower and the Required Banks; PROVIDED,  HOWEVER, that no
such  agreement  shall (i)  decrease  the  principal  amount  of, or extend  the
maturity of or any scheduled  principal  payment date or date for the payment of
any  interest  on any Loan,  or waive or  excuse  any such  payment  or any part
thereof, or decrease the rate of interest on any Loan, without the prior written
consent of each  holder of a Note  affected  thereby,  (ii) change or extend the
Commitment or decrease the Commitment Fees of any Bank without the prior written
consent of such Bank, or (iii) amend or modify the  provisions of Sections 2.13,
2.14,  2.16, 2.19, 2.21, 5.11, 9.5 or 9.6, the provisions of this Section or the
definition of "Required Banks",  without the prior written consent of each Bank;
PROVIDED FURTHER that no such agreement shall amend,  modify or otherwise affect
the rights or duties of the  Administrative  Agent  hereunder  without the prior
written consent of the Administrative Agent. Each Bank and each holder of a Note
shall be bound by any  waiver,  amendment  or  modification  authorized  by this
Section  regardless of whether its Note shall have been marked to make reference
thereto,  and any  consent  by any Bank or  holder  of a Note  pursuant  to this
Section shall bind any Person subsequently  acquiring a Note from it, whether or
not such Note shall have been so marked.

     SECTION 9.9 INTEREST RATE LIMITATION. Notwithstanding anything herein or in
the Notes to the contrary, if at any time the applicable interest rate, together
with all fees and charges  which are treated as interest  under  applicable  law
(collectively,  the "Charges"),  as provided for herein or in any other document
executed in connection herewith, or otherwise contracted for, charged, received,
taken or  reserved  by any Bank,  shall  exceed  the  maximum  lawful  rate (the
"Maximum  Rate")  which may be  contracted  for,  charged,  taken,  received  or
reserved by such Bank in accordance  with  applicable  law, the rate of interest
payable under the Notes held by such Bank,  together with all Charges payable to
such Bank,  shall be limited to the Maximum Rate.  Borrower hereby agrees to the
payment of interest with respect to the Loans and Borrowings  under the Loans at
the respective  applicable rates determined pursuant to this Agreement,  in each

                                       51
<PAGE>
case as  increased  by any rate of  interest  resulting  from any charges in the
nature of  interest  paid or payable  in  connection  with the Loans,  the Notes
and/or this Agreement.

     SECTION 9.10 ENTIRE AGREEMENT.  This Agreement and the other Loan Documents
constitute  the entire  contract  between  the  parties  relating to the subject
matter hereof.  Any previous  agreement among any of the parties with respect to
the subject  matter hereof is  superseded  by this  Agreement and the other Loan
Documents.  Nothing in this Agreement or in the other Loan Documents,  expressed
or implied,  is intended to confer upon any party other than the parties  hereto
and thereto any rights, remedies,  obligations or liabilities under or by reason
of this Agreement or the other Loan Documents.

     SECTION 9.11  SEVERABILITY.  In the event any one or more of the provisions
contained  in this  Agreement  or in any  other  Loan  Document  should  be held
invalid,  illegal or  unenforceable in any respect,  the validity,  legality and
enforceability  of the remaining  provisions  contained herein and therein shall
not in any way be affected or impaired  thereby.  The parties shall  endeavor in
good-faith  negotiations  to  replace  the  invalid,  illegal  or  unenforceable
provisions with valid  provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.

     SECTION 9.12  COUNTERPARTS  AND  SIGNATURE  PAGES.  This  Agreement  may be
executed in two or more counterparts, each of which shall constitute an original
but all of which when taken together shall constitute but one contract. Delivery
of an executed  counterpart  of a signature  page to this Agreement by facsimile
transmission  shall be effective as delivery of a manually executed  counterpart
of this  Agreement.  All parties hereto  authorize the  Administrative  Agent to
gather and attach manually executed  counterpart  signature pages to counterpart
copies of this Agreement in order to constitute one or more counterparts bearing
evidence of manual execution by all parties.

     SECTION  9.13  HEADINGS.  Article  and  Section  headings  and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement  and are not to  affect  the  construction  of,  or to be  taken  into
consideration in interpreting, this Agreement.

     SECTION 9.14 ARBITRATION.

          (a) ARBITRATION.  The parties hereto agree,  upon demand by any party,
to submit to binding arbitration all claims,  disputes and controversies between
or among them (and their respective employees,  officers, directors,  attorneys,
and other  agents),  whether in tort,  contract or  otherwise  arising out of or
relating to in any way (i) the loan and  related  Loan  Documents  which are the
subject of this  Agreement and its  negotiation,  execution,  collateralization,
administration,  repayment, modification,  extension,  substitution,  formation,
inducement, enforcement, default or termination; or (ii) requests for additional
credit.

                                       52
<PAGE>
          (b) GOVERNING RULES. Any arbitration  proceeding will (i) proceed in a
location in Phoenix,  Arizona selected by the American  Arbitration  Association
("AAA");  (ii) be governed by the Federal Arbitration Act (Title 9 of the United
States Code),  notwithstanding any conflicting choice of law provision in any of
the  documents  between the parties;  and (iii) be conducted by the AAA, or such
other administrator as the parties shall mutually agree upon, in accordance with
the  AAA's  commercial  dispute  resolution  procedures,  unless  the  claim  or
counterclaim  is  at  least   $1,000,000.00   exclusive  of  claimed   interest,
arbitration  fees and costs in which case the arbitration  shall be conducted in
accordance  with the AAA's  optional  procedures for large,  complex  commercial
disputes  (the  commercial  dispute   resolution   procedures  or  the  optional
procedures  for  large,  complex  commercial  disputes  to be  referred  to,  as
applicable,  as the "Rules").  If there is any  inconsistency  between the terms
hereof and the Rules,  the terms and  procedures set forth herein shall control.
Any party who fails or refuses to submit to  arbitration  following  a demand by
any other party shall bear all costs and  expenses  incurred by such other party
in compelling  arbitration  of any dispute.  Nothing  contained  herein shall be
deemed to be a waiver by any party that is a bank of the protections afforded to
it under 12 U.S.C. ss.91 or any similar applicable state law.

          (c) NO WAIVER OF PROVISIONAL REMEDIES,  SELF-HELP AND FORECLOSURE. The
arbitration  requirement  does not limit the right of any party to (i) foreclose
against personal property collateral;  (ii) exercise self-help remedies relating
to collateral or proceeds of collateral such as setoff or repossession; or (iii)
obtain  provisional or ancillary  remedies such as replevin,  injunctive relief,
attachment or the appointment of a receiver, before during or after the pendency
of any  arbitration  proceeding.  This exclusion does not constitute a waiver of
the right or  obligation  of any party to submit any dispute to  arbitration  or
reference  hereunder,  including  those arising from the exercise of the actions
detailed in sections (i), (ii) and (iii) of this paragraph.

          (d) ARBITRATOR  QUALIFICATIONS AND POWERS. Any arbitration  proceeding
in which the amount in controversy is $5,000,000.00 or less will be decided by a
single arbitrator  selected  according to the Rules, and who shall not render an
award of  greater  than  $5,000,000.00.  Any  dispute  in which  the  amount  in
controversy  exceeds  $5,000,000.00 shall be decided by majority vote of a panel
of three arbitrators selected according to the Rules;  PROVIDED,  HOWEVER,  that
all  three   arbitrators   must  actively   participate   in  all  hearings  and
deliberations.  Each arbitrator will be a neutral attorney licensed in the State
of  Arizona or a neutral  retired  judge of the state or  federal  judiciary  of
Arizona,  in  either  case  with  a  minimum  of  ten  years  experience  in the
substantive  law  applicable  to  the  subject  matter  of  the  dispute  to  be
arbitrated.   The  arbitrator  will  determine   whether  or  not  an  issue  is
arbitratable  and will give effect to the statutes of limitation in  determining
any  claim.  In any  arbitration  proceeding  the  arbitrator  will  decide  (by
documents only or with a hearing at the arbitrator's discretion) any pre-hearing
motions  which are similar to motions to dismiss for failure to state a claim or
motions for summary  adjudication.  The arbitrator shall resolve all disputes in
accordance  with the  substantive  law of  Arizona  and may grant any  remedy or
relief that a court of such state could order or grant  within the scope  hereof
and such  ancillary  relief as is necessary  to make  effective  any award.  The
arbitrator shall also have the power to award recovery of all costs and fees, to
impose sanctions and to take such other action as the arbitrator deems necessary
to the  same  extent  a judge  could  pursuant  to the  Federal  Rules  of Civil
Procedure,  the  Arizona  Rules of Civil  Procedure  or  other  applicable  law.
Judgment upon the award  rendered by the  arbitrator may be entered in any court

                                       53
<PAGE>
having  jurisdiction.  The institution and maintenance of an action for judicial
relief or pursuit of a provisional  or ancillary  remedy shall not  constitute a
waiver  of the right of any  party,  including  the  plaintiff,  to  submit  the
controversy  or claim to arbitration if any other party contests such action for
judicial relief.

          (e)  DISCOVERY.  In  any  arbitration  proceeding  discovery  will  be
permitted in accordance with the Rules. All discovery shall be expressly limited
to  matters  directly  relevant  to the  dispute  being  arbitrated  and must be
completed  no later than 20 days before the hearing  date and within 180 days of
the filing of the dispute  with the AAA.  Any  requests  for an extension of the
discovery  periods,  or  any  discovery  disputes,  will  be  subject  to  final
determination by the arbitrator upon a showing that the request for discovery is
essential  for the  party's  presentation  and  that no  alternative  means  for
obtaining information is available.

          (f)  CLASS  PROCEEDINGS  AND  CONSOLIDATIONS.  The  resolution  of any
dispute arising pursuant to the terms of this Agreement shall be determined by a
separate arbitration  proceeding and such dispute shall not be consolidated with
other disputes or included in any class proceeding.

          (g) PAYMENT OF ARBITRATION  COSTS AND FEES. The arbitrator shall award
all costs and expenses of the arbitration proceeding.

          (h)  MISCELLANEOUS.  To the maximum extent  practicable,  the AAA, the
arbitrators  and the parties  shall take all action  required  to  conclude  any
arbitration  proceeding  within 180 days of the filing of the  dispute  with the
AAA. No arbitrator or other party to an arbitration  proceeding may disclose the
existence,  content or results thereof, except for disclosures of information by
a party required in the ordinary  course of its business or by applicable law or
regulation. If more than one agreement for arbitration by or between the parties
potentially  applies to a  dispute,  the  arbitration  provision  most  directly
related  to the Loan  Documents  or the  subject  matter  of the  dispute  shall
control.  This  arbitration  provision shall survive  termination,  amendment or
expiration of any of the Loan Documents or any relationship between the parties.

     SECTION 9.15 JURISDICTION; CONSENT TO SERVICE OF PROCESS.

          (a) Each of the parties hereto hereby irrevocably and  unconditionally
submits,  for itself  and its  property,  to the  nonexclusive  jurisdiction  of
Arizona State court or Federal court of the United States of America  sitting in
Phoenix,  Arizona,  and any appellate  court from any thereof,  in any action or
proceeding  arising  out of or  relating  to this  Agreement  or the other  Loan
Documents,  or for  recognition or enforcement of any judgment,  and each of the
parties hereto hereby irrevocably and unconditionally  agrees that all claims in
respect of any such action or  proceeding  may be heard and  determined  in such
Arizona State or, to the extent permitted by law, in such Federal court. Each of
the parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive  and may be enforced in other  jurisdictions  by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement shall
affect  any  right  that any Bank may  otherwise  have to bring  any  action  or
proceeding  relating to this Agreement or the other Loan  Documents  against the
Borrower or its properties in the courts of any jurisdiction.

                                       54
<PAGE>
          (b) Each of the parties hereto hereby irrevocably and  unconditionally
waives,  to the  fullest  extent  it may  legally  and  effectively  do so,  any
objection which it may now or hereafter have to the laying of venue of any suit,
action or proceeding  arising out of or relating to this  Agreement or the other
Loan  Documents  in any  Arizona  State or Federal  court  sitting  in  Phoenix,
Arizona.  Each of the parties hereto hereby  irrevocably  waives, to the fullest
extent permitted by law, the defense of an inconvenient forum to the maintenance
of such action or proceeding in any such court.

          (c) Each party to this  Agreement  irrevocably  consents to service of
process in the manner  provided  for  notices  in Section  9.1.  Nothing in this
Agreement  will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.

     SECTION 9.16 WAIVER OF JURY TRIAL.  Each party hereto hereby waives, to the
fullest extent  permitted by applicable law, any right it may have to a trial by
jury in respect of any litigation  directly or indirectly  arising out of, under
or in connection  with this Agreement or any of the other Loan  Documents.  Each
party  hereto (a)  certifies  that no  representative,  agent or attorney of any
other party has represented, expressly or otherwise, that such other party would
not, in the event of  litigation,  seek to enforce the foregoing  waiver and (b)
acknowledges  that it and the other  parties  hereto have been  induced to enter
into this Agreement and the other Loan Documents, as applicable, by (among other
things) the mutual waivers and certifications in this Section.

     SECTION 9.17 NON-DEBTOR BORROWER PROVISIONS.

          (a) All advances of principal  hereunder  shall be made to the Company
subject to and in accordance with the terms hereof.  It is not necessary for the
Banks to  inquire  into the  powers  of  Borrower  or the  officers,  directors,
partners or agents acting or purporting to act on its behalf.  Each  Co-Borrower
is and shall  continue to be fully  informed  as to all aspects of the  business
affairs of the Company  that it deems  relevant to the risks it is assuming  and
hereby waives and fully  discharges  the Banks from any and all  obligations  to
communicate to the Co-Borrower any facts of any nature whatsoever  regarding the
Company and the Company's business affairs.

          (b) Each Co-Borrower  authorizes the Banks,  without notice or demand,
without  affecting the obligations of the Co-Borrower  hereunder or the personal
liability of any person for payment or performance of the obligations  hereunder
and without affecting the lien or the priority of the Security  Documents,  from
time to time,  at the request of any person  primarily  obligated  therefor,  to
renew, compromise,  extend,  accelerate or otherwise change the time for payment
or  performance  of, or  otherwise  change  the terms of, all or any part of the
obligations  hereunder,  including  increase  or  decrease  any rate of interest
thereon.  Each  Co-Borrower  waives and  agrees not to assert:  (i) any right to
require  the Banks to proceed  against  the  Company;  (ii) the  benefits of any
statutory  provision  limiting  the  liability  of a surety,  including  without
limitation  the benefit of Section  12-1641,  ET SEQ.,  of the  Arizona  Revised
Statutes;  and (iii) any defense  arising by reason of any  disability  or other
defense of the Company or by reason of the cessation  from any cause  whatsoever
of the  liability  of the  Company.  The  Co-Borrower  shall  have no  right  of
subrogation  and hereby  waives any right to enforce any remedy  which the Banks
now have, or may hereafter have, against the Company.

                                       55
<PAGE>
     SECTION 9.18 CONFIDENTIALITY. Each Bank agrees to keep confidential (and to
cause its officers,  directors,  employees,  agents and  representatives to keep
confidential) the Information (as defined below),  except that any Bank shall be
permitted  to  disclose  Information  (i) to  such of its  officers,  directors,
employees,  agents and  representatives  (including  outside counsel) as need to
know such  Information;  (ii) to the  extent  required  by  applicable  laws and
regulations  or by any subpoena or similar  legal  process,  or requested by any
bank regulatory authority (provided that such Bank shall, except for Information
requested by any such bank  regulatory  authority,  promptly notify Borrower (to
the extent practicable and lawful,  notice shall be given to the Borrower before
such disclosure is made so as to permit Borrower to seek a protective  order) of
the  circumstances  and  content  of each  such  disclosure  and  shall  request
confidential  treatment of any  Information so  disclosed);  (iii) to the extent
such  Information  (A) becomes  publicly  available  other than as a result of a
breach  of  this   Agreement,   (B)  becomes   available   to  such  Bank  on  a
non-confidential  basis from a source other than the Borrower or its  Affiliates
or (C) was  available  to such  Bank on a  non-confidential  basis  prior to its
disclosure to such Bank by the Borrower or its Affiliates; or (iv) to the extent
the Borrower shall have consented to such disclosure in writing. As used in this
Section 9.18, as to any Bank, "Information" shall mean any financial statements,
materials,  documents  and other  information  that the  Borrower  or any of its
Affiliates  may  have  furnished  or may  hereafter  furnish  to  such  Bank  in
connection  with this  Agreement  or any other  materials  prepared  by any such
person from any of the foregoing.

                                       56
<PAGE>
     IN WITNESS WHEREOF,  the Borrower,  the Administrative  Agent and the Banks
have caused this  Agreement to be duly executed by their  respective  authorized
officers as of the day and year first above written.

                                        KNIGHT TRANSPORTATION, INC., an Arizona
                                        corporation

                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Its:
                                            ------------------------------------

                                        QUAD-K LEASING, INC., an Arizona
                                        corporation

                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Its:
                                            ------------------------------------

                                                                      "Borrower"

                                        WELLS FARGO BANK, NATIONAL ASSOCIATION

                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Its:
                                            ------------------------------------

                                         "Administrative Agent and Issuing Bank"

                                       57
<PAGE>
                                        WELLS FARGO BANK, NATIONAL ASSOCIATION

                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Its:
                                            ------------------------------------

                                                                          "Bank"

                                        THE NORTHERN TRUST COMPANY, an Illinois
                                        banking corporation

                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Its:
                                            ------------------------------------

                                                                          "Bank"

                                       58
<PAGE>
                                   EXHIBIT "A"

                        FORM OF ASSIGNMENT AND ACCEPTANCE

                              ______________, 20___

     Reference  is made to the Credit  Agreement  dated as of April 6, 2001 (the
"Credit Agreement"), among KNIGHT TRANSPORTATION,  INC., an Arizona corporation,
and its Significant  Subsidiaries  (collectively,  the "Borrower"),  the lenders
named  therein  (the  "Banks"),  WELLS  FARGO  BANK,  NATIONAL  ASSOCIATION,  as
Administrative  Agent  for the  Banks  (in such  capacity,  the  "Administrative
Agent") and as Swing Line Lender,  and THE NORTHERN TRUST  COMPANY,  an Illinois
banking  corporation,  as a Bank.  Terms defined in the Credit Agreement and not
otherwise  defined herein shall have the meanings  assigned to such terms in the
Credit Agreement.

     1.  The  Assignor  hereby  sells  and  assigns,  without  recourse,  to the
Assignee, and the Assignee hereby purchases and assumes,  without recourse, from
the  Assignor,  effective  as of the  Effective  Date set  forth on the  reverse
hereof, the interests set forth on the reverse hereof (the "Assigned  Interest")
in the Assignor's rights and obligations under the Credit Agreement,  including,
without  limitation,  the  interests  set  forth on the  reverse  hereof  in the
Commitment  of the  Assignor  on the  Effective  Date and the Loans owing to the
Assignor  which are  outstanding  on the  Effective  Date,  together with unpaid
interest accrued on the assigned Loans to the Effective Date and the amount,  if
any, set forth on the reverse  hereof of the Fees accrued to the Effective  Date
for the account of the  Assignor.  Each of the Assignor and the Assignee  hereby
makes  and  agrees  to be  bound  by all  the  representations,  warranties  and
agreements set forth in Section 9.4(c) of the Credit Agreement,  a copy of which
has been received by each such party.  From and after the Effective Date (i) the
Assignee  shall  be a party  to and be bound  by the  provisions  of the  Credit
Agreement  and, to the extent of the interests  assigned by this  Assignment and
Acceptance,  have the rights and  obligations of a Bank thereunder and under the
Loan  Documents  and (ii) the  Assignor  shall,  to the extent of the  interests
assigned  by this  Assignment  and  Acceptance,  relinquish  its  rights  and be
released from its obligations under the Credit Agreement.

     2. This Assignment and Acceptance is being delivered to the  Administrative
Agent together with (i) the Notes  evidencing the Loans included in the Assigned
Interest,  (ii) the appropriate forms specified in Section 2.19(e) of the Credit
Agreement,  duly completed and executed by such Assignee,  (iii) if the Assignee
is not  already a Bank under the Credit  Agreement,  an  Administrative  Details
Reply  Form in the  form of  Exhibit  "D" to the  Credit  Agreement  and  (iv) a
processing fee of $2,500.00.

     3. This  Assignment  and  Acceptance  shall be governed by and construed in
accordance with the laws of the State of Arizona.
<PAGE>
Date of Assignment:

Legal Name of Assignor:

Legal Name of Assignee:

Assignee's Address for Notice:

Effective Date of Assignment
(may not be fewer than 5 Business
Days after the Date of Assignment):

                                            Percentage Assigned of Facility/
                                            Commitment (set forth, to at least
                                            8 decimals, as a percentage of the
                                            Facility and the aggregate
Facility        Principal Amount Assigned   Commitments of all Banks thereunder)

Commitment      $________________           ______________%
Assigned:

Loans:

Fees Assigned
(if any):

The terms set forth above and on the
reverse side hereof are hereby agreed to: Accepted

__________________, as Assignor         ________________________________________

By __________________________           By _____________________________________

   Its ______________________              Its _________________________________

________________, as Assignor           ________________________________________

By __________________________           By _____________________________________

   Its_______________________              Its _________________________________

                                        2
<PAGE>
                                   EXHIBIT "B"

                            FORM OF BORROWING NOTICE

WELLS FARGO BANK, NATIONAL ASSOCIATION
as Administrative Agent for the Banks
100 West Washington
Phoenix, Arizona  85003

Attention: Arizona RCBO                                      Date:______________
                                                             Time:______________

Dear Sir:

     The  undersigned,  KNIGHT  TRANSPORTATION,  INC.,  an  Arizona  corporation
(together with its Significant Subsidiaries,  "Borrower"),  refers to the Credit
Agreement  dated as of April 6, 2001 (as it may hereafter be amended,  modified,
extended or restated from time to time, the "Credit Agreement"), among Borrower,
the  Banks  named   therein,   WELLS  FARGO  BANK,   NATIONAL   ASSOCIATION   as
Administrative  Agent for the Banks and as Swing Line  Lender,  and THE NORTHERN
TRUST COMPANY,  an Illinois banking  corporation,  as a Bank.  Capitalized terms
used herein and not otherwise defined herein shall have the meanings assigned to
such terms in the Credit  Agreement.  The  Borrower  hereby gives notice that it
requests a Borrowing  pursuant to Section 2.3 of the Credit  Agreement  and sets
forth below the terms of such requested Borrowing:

     A.   Type of Borrowing(1)                         ____________________

     B.   Advance date of Borrowing                    ____________________

     C.   Principal Amount of Borrowing(2)             ____________________

     D.   LIBOR Borrowing Interest
          Period and last day thereof(3)               ____________________

----------
(1)  LIBOR Borrowing or Base Rate Borrowing or Swing Line Loan.
(2)  Each LIBOR  Borrowing  under the RLC Facility  shall be a principal  amount
     which  is  an  integral   multiple  of   $100,000.00   and  not  less  than
     $1,000,000.00.
(3)  Which shall be subject to the  definition of "Interest  Period" and end not
     later than the RLC Maturity Date.
<PAGE>
     E.   Reborrowing Election (Identity
          of Borrowing to be reborrowed)(4)
               Date                                    ____________________
               Type                                    ____________________
               Amount                                  ____________________
               Last Interest Period                    ____________________
               Included in the Swap Amount (or not)    ____________________

     Upon  acceptance  of the  Borrowing  to be made by the Banks in response to
this request,  Borrower shall be deemed to have represented and warranted to the
Banks that, as of the date of such Credit  Event,  the  conditions  specified in
Section 4.1 of the Credit Agreement are satisfied.

                                        Sincerely,

                                        KNIGHT TRANSPORTATION, INC., an Arizona
                                        corporation

                                        By
                                           -------------------------------------
                                           Its
                                               ---------------------------------
                                               An officer of Borrower duly
                                               authorized to request Borrowings
                                               under the Credit Agreement

----------
(4)  Identity shall include the date and amount of Borrowing, the Type and, with
     respect  to LIBOR  Borrowings,  the date of the last  Interest  Period  and
     whether to be included in the Swap Amount.

                                        2
<PAGE>
                                   EXHIBIT "C"

                              REVOLVING CREDIT NOTE
                                 (RLC Facility)

$_____________                                                     April 6, 2001
                                                                Phoenix, Arizona

     FOR  VALUE  RECEIVED,  the  undersigned  (hereinafter  collectively  called
"Maker"),     hereby     promises     to     pay     to     the     order     of
____________________________________________  (the  "Bank"),  at the  office  of
WELLS FARGO BANK, NATIONAL ASSOCIATION (the "Administrative Agent"), at 100 West
Washington,  Phoenix,  Arizona  85003  (Attention:  Arizona  RCBO) in Dollars in
immediately   available   funds,   the   principal   sum  of   _________________
__________________________________  AND ____/100 DOLLARS ($_________________) or
the aggregate  unpaid  principal amount of all Borrowings of the Revolving Loans
(as such terms and each other  capitalized  term used  herein are defined in the
Credit  Agreement  hereinafter  referred  to) made by the Bank  pursuant  to the
Credit Agreement,  whichever is less, and to pay interest in like funds from the
date hereof on the unpaid balance thereof at the rates of interest per annum and
at the times specified in the Credit Agreement.

     Principal hereof shall be payable in the amounts and at the times set forth
in the Credit Agreement.

     Maker agrees to an effective rate of interest that is the rate stated above
plus any  additional  rate of interest  resulting  from any other charges in the
nature of interest  paid or to be paid by or on behalf of Maker,  or any benefit
received or to be received by the Bank, in connection with this Note.

     This Note is one of the revolving  credit notes  referred to in Section 2.7
of the Credit  Agreement dated as of April 6, 2001 by and among Maker, the Banks
named  therein,  the  Administrative  Agent  and as Swing  Line  Lender  and The
Northern Trust Company, an Illinois banking corporation,  as a Bank (as the same
may be amended, modified or restated from time to time, the "Credit Agreement").
All of the terms, conditions and covenants of the Credit Agreement are expressly
made a part of this  Note by  reference  in the  same  manner  and with the same
effect as if set forth herein at length and Bank or any  transferee of this Note
(sequentially,  the  "Holder")  is  entitled  to the  benefits  of and  remedies
provided in the Credit  Agreement and any other  agreements by and between Maker
and Bank. Reference is made to the Credit Agreement for provisions regarding the
maturity,  payment,  prepayment and acceleration of the  indebtedness  evidenced
hereby.

     After maturity, including maturity upon acceleration, all unpaid amounts of
this Note shall bear  interest  at the  Default  Rate.  Maker  agrees to pay all
collection  expenses,  including  reasonable  attorneys'  fees and court  costs,
incurred in the  collection  or  enforcement  of all or any part of this Note in
which the Holder is the prevailing party. In the event of any court proceedings,
court  costs and  attorneys'  fees shall be set by the court and not by jury and
shall be included in any judgment obtained by the Holder.
<PAGE>
     Failure of the Holder to exercise any option hereunder shall not constitute
a waiver of the right to exercise same in the event of any  subsequent  default,
or in the event of continuance  of any existing  default after demand for strict
performance hereof.

     This Note is entitled to the benefit of the Credit  Agreement and the other
Loan Documents.

     This Note shall be binding  upon Maker and its  successors  and assigns and
shall inure to the benefit of the payee hereof,  and any subsequent  transferees
of this Note, and their successors and assigns.

     This Note shall be governed by and  construed  according to the laws of the
State of Arizona.

     IN WITNESS  WHEREOF,  Maker has caused this Note to be executed by its duly
authorized corporate agent as of the day and year first above written.

                                        KNIGHT TRANSPORTATION, INC., an Arizona
                                        corporation

                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Title:
                                              ----------------------------------

                                        QUAD-K LEASING, INC., an Arizona
                                        corporation

                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Title:
                                              ----------------------------------

                                                                         "MAKER"

                                        2
<PAGE>
                                  EXHIBIT "C-1"

                                 SWING LINE NOTE

$5,000,000.00                                                      April 6, 2001
                                                                Phoenix, Arizona

     FOR  VALUE  RECEIVED,  the  undersigned  (hereinafter  collectively  called
"Maker"),  hereby  promises to pay to the order of WELLS  FARGO  BANK,  NATIONAL
ASSOCIATION  (the "Swing Line  Lender"),  at its office at 100 West  Washington,
Phoenix,  Arizona  85003  (Attention:  Arizona  RCBO) in Dollars in  immediately
available   funds,  the  principal  sum  of  FIVE  MILLION  AND  NO/100  DOLLARS
($5,000,000.00) or the aggregate unpaid principal amount of all Swing Line Loans
(as such term and each other  capitalized  term used  herein are  defined in the
Credit Agreement hereinafter referred to) made by the Swing Line Lender pursuant
to the Credit  Agreement,  whichever is less,  and to pay interest in like funds
from the date hereof on the unpaid balance  thereof at the rates of interest per
annum and at the times specified in the Credit Agreement.

     Principal hereof shall be payable in the amounts and at the times set forth
in the Credit Agreement.

     Maker agrees to an effective rate of interest that is the rate stated above
plus any  additional  rate of interest  resulting  from any other charges in the
nature of interest  paid or to be paid by or on behalf of Maker,  or any benefit
received or to be received by the Swing Line  Lender,  in  connection  with this
Swing Line Note.

     This Swing Line Note is that  revolving  credit note referred to in Section
2.22 of the Credit  Agreement dated as of April 6, 2001 by and among Maker,  the
Banks  named  therein,  the  Swing  Line  Lender,  Wells  Fargo  Bank,  National
Association,  as the  Administrative  Agent for the Banks  (the  "Administrative
Agent"), and The Northern Trust Company, an Illinois banking  corporation,  as a
Bank (as the same may be amended,  modified or restated  from time to time,  the
"Credit  Agreement").  All of the terms,  conditions and covenants of the Credit
Agreement are expressly  made a part of this Swing Line Note by reference in the
same manner and with the same effect as if set forth  herein at length and Swing
Line  Lender  or any  transferee  of this  Swing  Line Note  (sequentially,  the
"Holder")  is entitled to the  benefits of and  remedies  provided in the Credit
Agreement  and any other  agreements by and between Maker and Swing Line Lender.
Reference is made to the Credit Agreement for provisions regarding the maturity,
payment, prepayment and acceleration of the indebtedness evidenced hereby.

     After maturity, including maturity upon acceleration, all unpaid amounts of
this Swing Line Note shall bear  interest at the Default  Rate.  Maker agrees to
pay all collection  expenses,  including  reasonable  attorneys'  fees and court
costs,  incurred in the  collection  or  enforcement  of all or any part of this
Swing Line Note in which the Holder is the prevailing party. In the event of any
court proceedings, court costs and attorneys' fees shall be set by the court and
not by jury and shall be included in any judgment obtained by the Holder.
<PAGE>
     Failure of the Holder to exercise any option hereunder shall not constitute
a waiver of the right to exercise same in the event of any  subsequent  default,
or in the event of continuance  of any existing  default after demand for strict
performance hereof.

     This Swing Line Note is entitled to the benefit of the Credit Agreement and
the other Loan Documents.

     This Swing Line Note shall be  binding  upon Maker and its  successors  and
assigns and shall inure to the benefit of the payee hereof,  and any  subsequent
transferees of this Swing Line Note, and their successors and assigns.

     This Swing Line Note shall be governed by and  construed  according  to the
laws of the State of Arizona.

     IN WITNESS WHEREOF, Maker has caused this Swing Line Note to be executed by
its duly authorized corporate agent as of the day and year first above written.

                                        KNIGHT TRANSPORTATION, INC., an Arizona
                                        corporation

                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Title:
                                              ----------------------------------

                                        QUAD-K LEASING, INC., an Arizona
                                        corporation

                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Title:
                                              ----------------------------------

                                                                         "MAKER"

                                        2
<PAGE>
                                   EXHIBIT "D"

                        ADMINISTRATIVE DETAILS REPLY FORM

Re:  Facility for Knight Transportation, Inc., and its Significant Subsidiaries

1.   NAME OF ENTITY FOR SIGNATURE PAGE: ________________________________________

2.   NAME OF ENTITY AS IT SHOULD
     APPEAR IN ANY PUBLICITY: __________________________________________________
                              (if different than above)

3.   NAME OF PERSON TO RECEIVE DRAFT
     LOAN AGREEMENT AT BANK: ___________________________________________________

4.   NAME OF PERSON TO SIGN
     LOAN AGREEMENT:

5.   CONTACTS:        CREDIT CONTACT     OPERATIONS CONTACT     LEGAL COUNSEL
                    ------------------   ------------------   ------------------

     Name:          __________________   __________________   __________________

     Title:         __________________   __________________   __________________

     Address:       __________________   __________________   __________________

                    __________________   __________________   __________________

                    __________________   __________________   __________________

     Telephone:     __________________   __________________   __________________

     Facsimile #:   __________________   __________________   __________________

     Telex #:       __________________   __________________   __________________

     Answerback:    __________________   __________________   __________________
<PAGE>
6.   PAYMENT INSTRUCTIONS:

     Method of Payment: Fedwire _________________   Chips ______________________

     Pay to:            ________________________________________________________

     Name of Bank:      ________________________________________________________

     City, State, Zip:  ________________________________________________________

     ABA Number:        _______________________   Reference: ___________________

     Account Number:    _______________________   Account Name: ________________

     Attention:         ________________________________________________________

                                        2
<PAGE>
                                   EXHIBIT "E"

                            MATTERS TO BE COVERED BY
                          THE LEGAL OPINION OF COUNSEL

     1.  ____________________________________  (the "Borrower") is a corporation
duly  incorporated,  validly existing and in good standing under the laws of the
State of Arizona,  and has all  corporate  power and all  material  governmental
licenses,  authorizations,  consents  and  approvals  required  to  carry on its
business as now conducted.

     2. Each Subsidiary identified in Schedule "3.15" of the Credit Agreement is
a corporation duly  incorporated,  validly existing,  and in good standing under
the laws of the jurisdiction of its  incorporation,  and has all corporate power
and all material governmental licenses,  authorizations,  consents and approvals
to carry on its business as now conducted.

     3. The  execution,  delivery  and  performance  by the Borrower of the Loan
Documents are within  Borrower's  corporate power,  have been duly authorized by
all necessary  corporate  action,  and require no action by or in respect of, or
filing with, any  Governmental  Authority and neither the execution and delivery
thereof  nor the  consummation  of the  transactions  contemplated  thereby  nor
compliance by the Borrower with any, nor the  Borrower's  performance of all, of
the  terms  and  provisions  of the  Loan  Documents  will  contravene  any  law
applicable to it or conflict  with,  result in any breach of, or constitute  any
default under,  its certificate of  incorporation or by-laws (both as amended to
date) or conflict with, result in any breach of, or constitute default under, or
result in the creation of a Lien under, or require the consent of any trustee or
creditor pursuant to, any indenture,  mortgage, chattel mortgage, deed of trust,
conditional  sales contract,  lease,  bank loan or credit agreement to which the
Borrower is a party or by which it or its assets are bound, known to us.

     4. Each  Loan  Document  has been  duly  authorized  and  delivered  by the
Borrower,  and is the  legal,  valid and  binding  obligation  of the  Borrower,
enforceable  against  it in  accordance  with its terms,  except as  enforcement
thereof may be limited by  applicable  bankruptcy,  insolvency  or other laws or
equitable  principles  of general  application  relating to the  enforcement  of
creditors' rights.

     5. To the best  knowledge of such counsel  after due inquiry,  there are no
actions,  suits or proceedings  pending or threatened in any court or before any
regulatory  commission,  board or  other  administrative  or other  governmental
entity against or affecting the Borrower  which could  reasonably be expected to
have a material  adverse  effect on its  ability  to enter  into or perform  its
obligations  under any of the Loan  Documents or on the condition  (financial or
otherwise),  operations,  business or  prospects of the  Borrower,  except those
described in the Borrower's report on Form 10-K for its most recently  completed
fiscal year ended ___________, _____.

     6. No consent,  approval,  waiver, license or authorization or other action
by or filing with any governmental  authority is required in connection with the
execution  and delivery by the Borrower of the Loan  Documents  except for those
which have already been obtained and are in full force and effect.
<PAGE>
                                   EXHIBIT "F"

                        QUARTERLY COMPLIANCE CERTIFICATE
                            FOR FISCAL QUARTER ENDING
                             ________________, 20__

WELLS FARGO BANK, NATIONAL ASSOCIATION
As Administrative Agent for the Banks
100 West Washington
Phoenix, Arizona  85003

Attn: Arizona RCBO                                       Date: _________________

Dear Ladies and Gentlemen:

     This Quarterly Compliance  Certificate refers to the Credit Agreement dated
as of April 6, 2001 (as it may  hereafter  be  amended,  modified,  extended  or
restated   from  time  to  time,   the   "Credit   Agreement"),   among   KNIGHT
TRANSPORTATION,  INC., an Arizona corporation,  and its Significant Subsidiaries
(collectively,  "Borrower"), the Banks named therein, WELLS FARGO BANK, NATIONAL
ASSOCIATION  as  Administrative  Agent for the  Banks,  and THE  NORTHERN  TRUST
COMPANY, an Illinois banking corporation,  as a Bank. Capitalized terms used and
not otherwise  defined herein shall have the meanings  assigned to such terms in
the Credit Agreement.

     Pursuant  to  Section  5.4 of the  Credit  Agreement,  the  undersigned,  a
Financial Officer of Borrower, certifies that:

     1. Enclosed are the required financial statements for the [quarter] [fiscal
year] (the "Reporting Period") ending for Borrower as required under Section 5.4
of the Credit Agreement.

     2. To the best of the  undersigned's  knowledge,  no "Event of  Default" or
Potential  Default  has  occurred  [or if so,  specifying  the nature and extent
thereof and any corrective actions taken or to be taken].

     3. As of the last day of the Reporting Period,  the computations below were
true and correct:
<PAGE>
I.   SECTION 5.11(a)   Tangible Net Worth
                       Initial Amount                             $95,000,000.00
                       +50% of positive net income
                       since March 31, 2001                       $
                                                                  --------------
                       =Tangible Net Worth Limitation             $
                                                                  --------------

                       Actual Tangible Net Worth:                 $
                                                                  --------------

II.  SECTION 5.11(b)   EBITDA Coverage Ratio
                       (calculated on a rolling 4 quarter basis)

     Numerator:        Net Profit before Tax
                                                                  --------------
                       +Depreciation & Amortization Exp.
                                                                  --------------
                       +Interest Expense (net of capitalized
                       interest expense)
                                                                  --------------
                       =EBITDA                                                 A
                                                                  --------------

                       Divided by

     Denominator:      Interest expense
                                                                  --------------
                       Current maturity of long-term
                       debt (prior period)
                                                                  --------------
                       +Current maturity of subordinated
                       debt (prior period)
                       +Dividends/distributions
                                                                  --------------
                       =Payment Requirement                                    B
                                                                  --------------

                       Equals:                                               A/B
                                                                  --------------

                       Minimum Required:                                   3.00X
                                                                  --------------

III. SECTION 5.11(c)   Funded Debt to EBITDA Ratio
                       (calculated on a trailing 4 quarter basis)

     Numerator:        Indebtedness
                                                                  --------------
                       +Letter of Credit Balance
                                                                  --------------
                       =Funded Debt                                            A
                                                                  --------------

                       Divided by

     Denominator:      EBITDA                                                  B
                                                                  --------------

                       Equals:                                               A/B
                                                                  --------------

                       Maximum Permitted:                                  1.50X
                                                                  --------------

                                        2
<PAGE>
IV.  SECTION 5.11(d)   (i) Net Income after Tax: actual           $
                                                                  --------------
                                                     Requirement  =>       $1.00
                                                                  --------------

                       (ii) Pre-Tax Profit: actual                $
                                                                  --------------
                                                     Requirement  =>       $1.00
                                                                  --------------

V.   SECTION 5.11(e)   Minimum Asset Coverage

     Numerator:        Cash
                                                                  --------------
                       +Net accounts receivable
                                                                  --------------
                       +real estate BV (<= $25,000,000.00)
                                                                  --------------
                       +rolling stock NBV
                                                                  --------------
                       =Assets                                                 A
                                                                  --------------

                       Divided by:

     Denominator:      Accounts Payable
                                                                  --------------
                       +Outstanding Indebtedness
                                                                  --------------
                       =Total                                                  B
                                                                  --------------

                       Equals                                                A/B
                                                                  --------------

                       Minimum Required                                   120.0%
                                                                  --------------

                                        KNIGHT TRANSPORTATION, INC., an Arizona
                                        corporation

                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Title:
                                              ----------------------------------

                                        3
<PAGE>
                                   EXHIBIT "G"

                              ASSUMPTION AGREEMENT

     BY THIS ASSUMPTION  AGREEMENT (the "Agreement") made and entered into as of
the _____ day of _________________, 20__, ______________________________________
_______________________________________________________________,  whose  address
is _____________________________________________________________________________
(hereinafter  called "Added Borrower"),  in favor of WELLS FARGO BANK,  NATIONAL
ASSOCIATION,  as Administrative  Agent for the Banks,  whose address is 100 West
Washington,  Phoenix,  Arizona 85003,  Attn:  Arizona RCBO  (hereinafter  called
"Administrative  Agent"),  in consideration of the recitals herein contained and
other good and valuable  consideration,  the receipt and sufficiency of which is
hereby acknowledged, confirms and agrees as follows:

SECTION 1. RECITALS.

     1.1 Added Borrower is a Significant  Subsidiary (as that term is defined in
the Agreement  hereinafter defined) of Knight  Transportation,  Inc., an Arizona
corporation  (the  "Company"),  and its then existing  Significant  Subsidiaries
(with the Company, the "Borrower").

     1.2 As such,  Added Borrower is benefitted by the financial  accommodations
(the  "Loans")  advanced  by the Banks to the  Borrower  pursuant to that Credit
Agreement dated April 6, 2001 among the Banks named therein,  the Administrative
Agent, the Swing Line Lender and Borrower (the "Agreement").

     1.3 A  condition  for  the  continuation  of  the  Loans  specified  in the
Agreement is that any subsequently acquired or created Subsidiary of the Company
assume as a  "Co-Borrower"  within the meaning of Section 5.12 of the  Agreement
the  obligations of the Borrower  under the Agreement,  and agree to be bound by
all of the terms,  conditions  and provisions  thereof,  and agree to be jointly
liable with the Borrower for the full payment and  satisfaction of the Loans and
all other obligations of the Borrower under the Agreement.

     1.4  Because  of the  benefits  derived  by the  Added  Borrower  from said
financial accommodations,  which consideration is acknowledged by Added Borrower
as sufficient for its agreements herein, Added Borrower desires to so agree.

SECTION 2. ASSUMPTION.

     2.1 Added Borrower hereby assumes as a "Co-Borrower"  and agrees to perform
as a  "Co-Borrower"  all of the duties,  obligations and promises of Borrower as
set forth in or arising under the Agreement, to be bound as a Co-Borrower by all
of  the  terms,  conditions  and  provisions  of  the  Agreement  and to do as a
Co-Borrower  any and all acts and things required under the Agreement to be done
by Borrower.
<PAGE>
SECTION 3. MISCELLANEOUS.

     3.1 Added  Borrower  shall  execute such  additional  documents and do such
other acts as may be reasonably  necessary to fully implement the intent of this
Agreement.

     3.2 This Agreement shall be governed by and construed according to the laws
of the State of Arizona.

     3.3 This  Agreement  shall be binding upon,  and shall inure to the benefit
of, the parties hereto and their heirs, personal representatives, successors and
assigns.

     IN WITNESS  WHEREOF,  these  presents are executed as of the date indicated
above.

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

                                        By:
                                           -------------------------------------
                                           Its:
                                               ---------------------------------

                                                                  ADDED BORROWER

                                        2
<PAGE>
                                   EXHIBIT "H"

                               SECURITY AGREEMENT

     THIS  SECURITY  AGREEMENT  is made and entered  into as of the _____ day of
_________________,   2001,  by   ____________________,   __________  corporation
(hereinafter  called "Debtor"),  whose chief executive office is located at 5601
West  Buckeye  Road,  Phoenix,  Arizona  85043,  in favor of WELLS  FARGO  BANK,
NATIONAL ASSOCIATION, and its successors and assigns as Administrative Agent for
the Banks (as defined in the hereinafter  defined Credit Agreement) and as Swing
Line Lender  (hereinafter  called  "Secured  Party"),  whose address is 100 West
Washington, Phoenix, Arizona 85003, Attention: Arizona RCBO.

1.   SECURITY INTEREST

     Debtor  hereby  grants to Secured  Party a security  interest  (hereinafter
called the "Security  Interest") in all of Debtor's right, title and interest in
and to the  following  described  personal  property  described  on  Schedule  A
attached hereto (the "Collateral").

2.   OBLIGATION SECURED

     The Security  Interest  shall secure,  in such order of priority as Secured
Party may elect:

          (a) Payment of the  aggregate sum of  $50,000,000.00  according to the
     terms of those  Revolving  Promissory  Notes dated  April 6, 2001,  made by
     Knight  Transportation,  Inc., an Arizona  corporation  and its Significant
     Subsidiaries  (as  defined  in the  Credit  Agreement)  (collectively,  the
     "Borrower"),  payable to the order of the  Banks,  evidencing  a  revolving
     lines of  credit,  all or any part of which may be  advanced  to  Borrower,
     repaid by Borrower and readvanced to Borrower,  from time to time,  subject
     to the terms and conditions thereof,  with interest thereon,  extension and
     other  fees,  late  charges,   prepayment  premiums  and  attorneys'  fees,
     according to the terms thereof, and all extensions, modifications, renewals
     or replacements thereof (hereinafter collectively called the "RLC Note");

          (b) Payment of the sum of $5,000,000.00 according to the terms of that
     Swing Line Note dated April 6, 2001, made by Borrower, payable to the order
     of the Swing Line Lender, evidencing a revolving line of credit, all or any
     part  of  which  may be  advanced  to  Borrower,  repaid  by  Borrower  and
     readvanced  to  Borrower,  from  time to time,  subject  to the  terms  and
     conditions thereof,  with interest thereon,  extension and other fees, late
     charges,  prepayment  premiums and attorneys' fees,  according to the terms
     thereof,  and  all  extensions,  modifications,  renewals  or  replacements
     thereof (hereinafter with the RLC Note collectively called the "Note");
<PAGE>
          (c) Payment,  performance  and  observance by Debtor of each covenant,
     condition,  provision  and  agreement  contained  herein  and of all monies
     expended or advanced  by Secured  Party or the Banks  pursuant to the terms
     hereof,  or to preserve any right of Secured Party and the Banks hereunder,
     or to protect or preserve the Collateral or any part thereof;

          (d) Payment,  performance and observance by Borrower of each covenant,
     condition, provision and agreement contained in that Credit Agreement dated
     April 6, 2001,  by and  between  Borrower,  Secured  Party,  the Swing Line
     Lender and the Banks listed from time to time therein  (hereinafter  called
     the "Credit  Agreement") and in any other document or instrument related to
     the indebtedness  described in  subparagraphs  (a) and (b) above and of all
     monies  expended or advanced by Secured Party or the Banks  pursuant to the
     terms  thereof  or to  preserve  any  right of  Secured  Party or the Banks
     thereunder;

          (e)  Payment  and  performance  of any  and  all  other  indebtedness,
     obligations  and  liabilities  of  Borrower  to the Banks of every kind and
     character,  direct or indirect,  absolute or  contingent,  due or to become
     due, now existing or hereafter incurred,  whether such indebtedness is from
     time to time reduced and thereafter increased or entirely  extinguished and
     thereafter reincurred;

All  of  the  indebtedness  and  obligations   secured  by  this  Agreement  are
hereinafter collectively called the "Obligation."

3.   USE; LOCATION

     3.1. The  Collateral is or will be used or produced  primarily for business
purposes.

     3.2.  The  Collateral  will be kept at  Debtor's  address  set forth at the
beginning  of this  Agreement  and/or  at the  locations  listed on  Schedule  B
attached hereto.

     3.3.  Debtor's  records  concerning the Collateral will be kept at Debtor's
address set forth at the beginning of this Agreement.

4.   REPRESENTATIONS AND WARRANTIES OF DEBTOR

     4.1.  Debtor hereby  represents and warrants that it (i) is qualified to do
business  and is in good  standing  under  the laws of the  state  in which  the
Collateral is located; and (ii) is fully authorized and permitted to execute and
deliver  this  Agreement  and to enter into any  transactions  evidenced  by any
portion of the Collateral.

     4.2. The  execution,  delivery and  performance by Debtor of this Agreement
and all other  documents and  instruments  relating to the  Obligation  will not
result in any breach of the terms and  conditions  or constitute a default under
any agreement or instrument under which Debtor is a party or is obligated.

                                        2
<PAGE>
     4.3.  Debtor  does not conduct  business  under any name other than that in
which it has executed this Agreement.

     4.4. FEDERAL EMPLOYER  IDENTIFICATION NUMBER. The Debtor's Federal employer
identification number is ______-_______

     4.5. STATE ORGANIZATION NUMBER. If the Debtor is a registered organization,
the Debtor's state organization number is _________________.

5.   COVENANTS OF DEBTOR

     5.1. Debtor shall not sell,  transfer,  assign or otherwise  dispose of any
Collateral  or any  interest  therein  (except as  permitted  herein)  except as
permitted  under the Credit  Agreement and shall keep the Collateral free of all
security  interests  or other  encumbrances  except the  Security  Interest  and
Permitted Liens (as defined in the Credit Agreement).

     5.2.  Debtor shall keep and maintain the  Collateral in good  condition and
repair and shall not use the  Collateral  in violation of any  provision of this
Agreement or any  applicable  statute,  ordinance or regulation or any policy of
insurance insuring the Collateral.

     5.3.  Debtor shall provide and maintain  insurance  insuring the Collateral
against risks, with coverage in accordance with the Credit Agreement.

     5.4. The Debtor will not sign or authorize the signing on its behalf or the
filing  of any  financing  statement  naming it as  debtor  covering  all or any
portion of the Collateral except as permitted by the Credit Agreement.

     5.5.  Debtor,  upon demand,  shall  promptly  deliver to Secured  Party all
instruments,  documents and chattel  paper  included in the  Collateral  and all
invoices,  shipping or delivery  records,  purchase  orders,  contracts or other
items related to the Collateral.

     5.6. Debtor shall give Secured Party immediate written notice of any change
in the location of: (i) Debtor's chief executive office;  (ii) Debtor's state of
organization;  (iii)  the  Collateral  or any  material  part  thereof;  or (iv)
Debtor's records concerning the Collateral.

     5.7.  Secured Party or its agents may inspect the  Collateral at reasonable
times and may enter into any premises where the Collateral is or may be located.
Debtor shall keep records concerning the Collateral in accordance with generally
accepted  accounting  principles and, unless waived in writing by Secured Party,
shall mark its records and the  Collateral  to indicate the  Security  Interest.
Secured Party shall have free and complete access to Debtor's  records and shall
have the right to make extracts therefrom or copies thereof.

     5.8.  Debtor,  at its cost and  expense,  shall  protect  and  defend  this
Agreement,  all of the rights of Secured  Party  hereunder,  and the  Collateral
against all claims and demands of other parties,  including  without  limitation

                                        3
<PAGE>
defenses,  setoffs,  claims and  counterclaims  asserted by any Obligor  against
Debtor and/or Secured Party. Debtor shall pay all claims and charges that in the
opinion of Secured  Party  might  prejudice,  imperil  or  otherwise  affect the
Collateral or the Security Interest.  Debtor shall promptly notify Secured Party
of any levy,  distraint  or other  seizure by legal  process or otherwise of any
part of the Collateral and of any threatened or filed claims or proceedings that
might in any way affect or impair the terms of this Agreement.

     5.9. The Security  Interest,  at all times, shall be perfected and shall be
prior to any other interests in the Collateral.  Debtor shall act and perform as
necessary  and  shall  execute  and  file  all  security  agreements,  financing
statements,  continuation  statements and other  documents  requested by Secured
Party to  establish,  maintain  and continue the  perfected  Security  Interest.
Debtor,  on demand,  shall  promptly  pay all costs and  expenses  of filing and
recording,  including  the costs of any  searches,  deemed  necessary by Secured
Party  from  time  to time to  establish  and  determine  the  validity  and the
continuing priority of the Security Interest.

     5.10.  If Debtor  shall fail to pay any  taxes,  assessments,  expenses  or
charges,  to keep all of the  Collateral  free from  other  security  interests,
encumbrances or claims,  to keep the Collateral in good condition and repair, to
procure and  maintain  insurance  thereon,  or to perform  otherwise as required
herein,  Secured  Party may advance  the monies  necessary  to pay the same,  to
accomplish  such  repairs,  to procure  and  maintain  such  insurance  or to so
perform;  Secured  Party is hereby  authorized to enter upon any property in the
possession or control of Debtor for such purposes.

     5.11.  All rights,  powers and remedies  granted  Secured Party herein,  or
otherwise available to Secured Party, are for the sole benefit and protection of
Secured Party, and Secured Party may exercise any such right, power or remedy at
its option and in its sole and absolute  discretion without any obligation to do
so. In addition,  if under the terms hereof,  Secured Party is given two or more
alternative  courses  of  action,  Secured  Party may elect any  alternative  or
combination  of  alternatives  at  its  option  and  in its  sole  and  absolute
discretion.  All monies advanced by Secured Party under the terms hereof and all
amounts paid,  suffered or incurred by Secured Party in exercising any authority
granted herein,  including  reasonable  attorneys'  fees,  shall be added to the
Obligation,  shall be secured by the Security  Interest,  shall bear interest at
the highest rate payable on any of the  Obligation  until paid, and shall be due
and payable by Debtor to Secured Party immediately without demand.

6.   NOTIFICATION AND PAYMENTS;  COLLECTION OF COLLATERAL;  USE OF COLLATERAL BY
     DEBTOR

     6.1.  Secured  Party,  after the  occurrence  of any Event of  Default,  as
defined in the Credit Agreement, and without notice to Debtor, may notify any or
all  Obligors  of the  existence  of the  Security  Interest  and may direct the
Obligors to make all payments on the Collateral to Secured Party.  Until Secured
Party has notified the Obligors to remit  payments  directly to it,  Debtor,  at
Debtor's  own cost and  expense,  shall  collect  or cause to be  collected  the
accounts and monies due under the accounts,  documents,  instruments and general
intangibles or pursuant to the terms of the chattel  paper.  Secured Party shall
not be liable or responsible  for any  embezzlement,  conversion,  negligence or

                                        4
<PAGE>
default by Debtor or  Debtor's  agents  with  respect to such  collections;  all
agents  used in such  collections  shall be agents of Debtor  and not  agents of
Secured Party.  Unless  Secured Party notifies  Debtor in writing that it waives
one or more of the  requirements  set forth in this  sentence,  any  payments or
other proceeds of Collateral received by Debtor, after notification to Obligors,
shall be held by  Debtor in trust  for  Secured  Party in the same form in which
received,  shall not be commingled with any assets of Debtor and shall be turned
over to Secured  Party not later than the next business day following the day of
receipt. All payments and other proceeds of Collateral received by Secured Party
directly or from  Debtor  shall be applied to the  Obligation  in such order and
manner  and at  such  time as  Secured  Party,  in its  sole  discretion,  shall
determine. In addition, Debtor shall promptly notify Secured Party of the return
to or possession by Debtor of goods underlying any Collateral; Debtor shall hold
the same in trust for  Secured  Party and shall  dispose  of the same as Secured
Party directs.

     6.2.  Secured Party,  before or after the occurrence of an Event of Default
and  without  notice to Debtor,  may demand,  collect and sue on the  Collateral
(either in Debtor's or Secured  Party's name),  enforce,  compromise,  settle or
discharge  the  Collateral  and  endorse   Debtor's  name  on  any  instruments,
documents, or chattel paper included in or pertaining to the Collateral;  Debtor
hereby  irrevocably  appoints  Secured  Party its  attorney in fact for all such
purposes.

     6.3.  Until the  occurrence  of an Event of Default,  Debtor may:  (i) use,
consume and sell any inventory  included in the  Collateral in any lawful manner
in the ordinary course of Debtor's  business provided that all sales shall be at
commercially  reasonable  prices;  and (ii)  subject to  Paragraphs  6.1 and 6.2
above, retain possession of any other Collateral and use it in any lawful manner
consistent with this Agreement.

7.   COLLATERAL IN THE POSSESSION OF SECURED PARTY

     7.1.  Secured Party shall use such reasonable care in handling,  preserving
and protecting  the Collateral in its possession as it uses in handling  similar
property for its own account.  Secured Party,  however,  shall have no liability
for the loss,  destruction or  disappearance  of any Collateral  unless there is
affirmative  proof of a lack of due  care;  the lack of due  care  shall  not be
implied solely by virtue of any loss, destruction or disappearance.

     7.2.  Debtor shall be solely  responsible for taking any and all actions to
preserve  rights  against all Obligors;  Secured Party shall not be obligated to
take any such  actions  whether  or not the  Collateral  is in  Secured  Party's
possession. Debtor waives presentment and protest with respect to any instrument
included  in the  Collateral  on which  Debtor is in any way  liable  and waives
notice of any action  taken by Secured  Party  with  respect to any  instrument,
document or chattel paper included in any  Collateral  that is in the possession
of Secured Party.

8.   EVENTS OF DEFAULT; REMEDIES

     8.1. The  occurrence  of any of the following  events or  conditions  shall
constitute and is hereby defined to be an "Event of Default":

                                        5
<PAGE>
          (a) Any  failure or  neglect  to perform or observe  any of the terms,
     provisions, conditions, or covenants of this Agreement.

          (b)  Any  warranty,  representation  or  statement  contained  in this
     Agreement.

          (c) The  occurrence of any event of default under the Note, the Credit
     Agreement  or any other  document or  instrument  executed or  delivered in
     connection with the Obligation.

     8.2. Upon the occurrence of any Event of Default and at any time while such
Event of Default is  continuing,  Secured Party shall have the following  rights
and remedies and may do one or more of the following:

          (a) Without  further notice or demand and without legal process,  take
     possession of the Collateral  wherever  found and, for this purpose,  enter
     upon any  property  occupied by or in the control of Debtor.  Debtor,  upon
     demand by Secured  Party,  shall  assemble the Collateral and deliver it to
     Secured Party or to a place  designated by Secured Party that is reasonably
     convenient to both parties.

          (b) Operate  the  business  of Debtor as a going  concern,  including,
     without  limitation,  extend sales or services to new customers and advance
     funds  for such  operation.  Secured  Party  shall  not be  liable  for any
     depreciation, loss, damage or injury to the Collateral or other property of
     Debtor  as a result  of such  action.  Debtor  hereby  waives  any claim of
     trespass or replevin arising as a result of such action.

          (c) Pursue any legal or  equitable  remedy  available  to collect  the
     Obligation,  to  enforce  its  title  in and  right  to  possession  of the
     Collateral and to enforce any and all other rights or remedies available to
     it.

          (d) Upon  obtaining  possession of the Collateral or any part thereof,
     after  notice to Debtor as provided  in  Paragraph  8.4  herein,  sell such
     Collateral  at public or private  sale either  with or without  having such
     Collateral at the place of sale. The proceeds of such sale, after deducting
     therefrom all expenses of Secured Party in taking,  storing,  repairing and
     selling the  Collateral  (including  reasonable  attorneys'  fees) shall be
     applied  to the  payment  of the  Obligation,  and any  surplus  thereafter
     remaining  shall be paid to Debtor or any other  person that may be legally
     entitled  thereto.  In the event of a deficiency  between such net proceeds
     from the sale of the  Collateral  and the total  amount of the  Obligation,
     Debtor,  upon demand,  shall promptly pay the amount of such  deficiency to
     Secured Party.

                                        6
<PAGE>
     8.3.  The Banks,  so far as may be lawful,  may purchase all or any part of
the Collateral  offered at any public or private sale made in the enforcement of
Secured Party's rights and remedies hereunder.

     8.4. Any demand or notice of sale,  disposition  or other  intended  action
hereunder or in connection  herewith,  whether  required by the Arizona  Uniform
Commercial Code or otherwise,  shall be deemed to be commercially reasonable and
effective  if such  demand or  notice is given to Debtor at least  five (5) days
prior to such sale, disposition or other intended action, in the manner provided
herein for the giving of notices.

     8.5. Debtor shall pay all costs and expenses,  including without limitation
costs of Uniform Commercial Code searches, court costs and reasonable attorneys'
fees,  incurred by Secured  Party in enforcing  payment and  performance  of the
Obligation or in exercising the rights and remedies of Secured Party  hereunder.
All such costs and expenses  shall be secured by this Agreement and by all deeds
of trust and other lien and security documents  securing the Obligation.  In the
event of any court proceedings,  court costs and attorneys' fees shall be set by
the court and not by jury and shall be  included  in any  judgment  obtained  by
Secured Party.

     8.6. In addition to any remedies  provided  herein for an Event of Default,
Secured  Party shall have all the rights and remedies  afforded a secured  party
under the Uniform  Commercial  Code and all other legal and  equitable  remedies
allowed  under  applicable  law.  No  failure  on the part of  Secured  Party to
exercise any of its rights hereunder  arising upon any Event of Default shall be
construed to prejudice its rights upon the occurrence of any other or subsequent
Event of Default.  No delay on the part of Secured Party in exercising  any such
rights shall be  construed to preclude it from the exercise  thereof at any time
while that Event of Default is continuing.  Secured Party may enforce any one or
more rights or remedies  hereunder  successively or  concurrently.  By accepting
payment or  performance  of any of the  Obligation  after its due date,  Secured
Party shall not thereby waive the agreement contained herein that time is of the
essence,  nor shall  Secured  Party  waive  either its right to  require  prompt
payment or performance  when due of the remainder of the Obligation or its right
to consider the failure to so pay or perform an Event of Default.

     8.7. Secured Party, as the  Administrative  Agent, shall have no obligation
to clean-up or otherwise prepare the Collateral for sale.

9.   MISCELLANEOUS PROVISIONS

     9.1.  The  acceptance  of this  Agreement  by  Secured  Party  shall not be
considered a waiver of or in any way to affect or impair any other security that
Secured Party may have, acquire  simultaneously  herewith,  or hereafter acquire
for the  payment  or  performance  of the  Obligation,  nor shall the  taking by
Secured  Party at any time of any such  additional  security be  construed  as a
waiver of or in any way to affect or impair the Security Interest; Secured Party
may resort,  for the payment or  performance of the  Obligation,  to its several
securities therefor in such order and manner as it may determine.

                                        7
<PAGE>
     9.2. Without notice or demand,  without affecting the obligations of Debtor
hereunder or the personal  liability of any person for payment or performance of
the  Obligation,  and without  affecting  the Security  Interest or the priority
thereof,  the Banks,  from time to time, may: (i) extend the time for payment of
all or any part of the  Obligation,  accept a renewal note therefor,  reduce the
payments  thereon,  release any person  liable for all or any part  thereof,  or
otherwise  change the terms of all or any part of the Obligation;  (ii) take and
hold  other  security  for the  payment or  performance  of the  Obligation  and
enforce, exchange, substitute,  subordinate, waive or release any such security;
(iii) join in any extension or subordination agreement; or (iv) release any part
of the Collateral from the Security Interest.

     9.3.  Debtor  waives and  agrees  not to  assert:  (i) any right to require
Secured Party to proceed  against any guarantor,  to proceed  against or exhaust
any other security for the Obligation,  to pursue any other remedy  available to
Secured Party, or to pursue any remedy in any particular  order or manner;  (ii)
the  benefits of any legal or equitable  doctrine or  principle of  marshalling;
(iii) the  benefits  of any statute of  limitations  affecting  the  enforcement
hereof; (iv) demand, diligence, presentment for payment, protest and demand, and
notice of extension,  dishonor, protest, demand and nonpayment,  relating to the
Obligation;  and (v) any benefit of, and any right to participate  in, any other
security now or hereafter held by Secured Party.

     9.4. The terms herein shall have the meanings in and be construed under the
Uniform  Commercial  Code as in  effect  in  Arizona  from  time to  time.  This
Agreement shall be governed by and construed  according to the laws of the State
of Arizona. Each provision of this Agreement shall be interpreted in such manner
as to be effective and valid under  applicable law, but if any provision of this
Agreement is held to be void or invalid, the same shall not affect the remainder
hereof which shall be effective as though the void or invalid  provision had not
been contained herein.

     9.5. No  modification,  rescission,  waiver,  release or  amendment  of any
provision of this Agreement shall be made except by a written agreement executed
by Debtor and a duly authorized officer of Secured Party.

     9.6.  This is a continuing  Agreement  which shall remain in full force and
effect until actual receipt by Secured Party of written notice of its revocation
as to future  transactions and shall remain in full force and effect  thereafter
until all of the Obligation  incurred before the receipt of such notice, and all
of the Obligation  incurred  thereafter  under  commitments  extended by Secured
Party before the receipt of such notice,  shall have been paid and  performed in
full.

     9.7.  No setoff or claim  that  Debtor  now has or may in the  future  have
against  Secured  Party  shall  relieve  Debtor from  paying or  performing  the
Obligation.

     9.8.  Time is of the  essence  hereof.  If more  than one  Debtor  is named
herein, the word "Debtor" shall mean all and any one or more of them,  severally
and  collectively.  All  liability  hereunder  shall be joint and several.  This
Agreement  shall be binding upon, and shall inure to the benefit of, the parties
hereto and their heirs,  personal  representatives,  successors and assigns. The
term "Secured Party" shall include not only the original Secured Party hereunder
but also any  future  owner and  holder,  including  pledgees,  of note or notes

                                        8
<PAGE>
evidencing  the  Obligation.  The  provisions  hereof shall apply to the parties
according to the context  thereof and without  regard to the number or gender of
words or expressions used.

     9.9. All notices  required or permitted to be given  hereunder  shall be in
writing and may be given in person or by United States mail, by delivery service
or by electronic transmission.  Any notice directed to a party to this Agreement
shall become effective upon the earliest of the following: (i) actual receipt by
that party; (ii) delivery to the designated address of that party,  addressed to
that party;  or (iii) if given by certified or  registered  United  States mail,
twenty-four  (24) hours after  deposit with the United  States  Postal  Service,
postage  prepaid,  addressed  to  that  party  at its  designated  address.  The
designated  address of a party  shall be the  address of that party shown at the
beginning of this  Agreement or such other  address as that party,  from time to
time, may specify by notice to the other parties.

     9.10. A carbon,  photographic  or other  reproduced  copy of this Agreement
and/or any financing  statement  relating  hereto shall be sufficient for filing
and/or recording as a financing statement.

10.  NON-DEBTOR BORROWER PROVISIONS

     10.1.  All advances of  principal  under the Note shall be made to Borrower
subject  to  and  in  accordance  with  the  terms  thereof.  If  Borrower  is a
corporation  or  partnership,  it is not  necessary for Secured Party to inquire
into the powers of  Borrower  or the  officers,  directors,  partners  or agents
acting or  purporting to act on its behalf.  Debtor is and shall  continue to be
fully  informed as to all aspects of the  business  affairs of Borrower  that it
deems  relevant  to the  risks  it is  assuming  and  hereby  waives  and  fully
discharges  Secured Party from any and all  obligations to communicate to Debtor
any facts of any nature whatsoever  regarding  Borrower and Borrower's  business
affairs.

     10.2. Debtor authorizes  Secured Party,  without notice or demand,  without
affecting the obligations of Debtor  hereunder or the personal  liability of any
person for payment or performance  of the  Obligation and without  affecting the
lien or the priority of the Security Interest, from time to time, at the request
of any  person  primarily  obligated  therefor,  to renew,  compromise,  extend,
accelerate  or  otherwise  change  the time for  payment or  performance  of, or
otherwise  change  the terms of,  all or any part of the  Obligation,  including
increase or decrease any rate of interest thereon.  Debtor waives and agrees not
to assert:  (i) any right to require Secured Party to proceed against  Borrower;
(ii) the benefits of any statutory provision limiting the liability of a surety,
including  without  limitation the benefit of Section  12-1641,  ET SEQ., of the
Arizona  Revised  Statutes;  and  (iii)  any  defense  arising  by reason of any
disability or other  defense of Borrower or by reason of the cessation  from any
cause  whatsoever  of the  liability of Borrower.  Debtor shall have no right of
subrogation  and hereby  waives any right to enforce  any remedy  which  Secured
Party now has, or may hereafter have, against Borrower.

                                        9
<PAGE>
     IN WITNESS  WHEREOF,  these  presents are executed as of the date indicated
above.

                                        _______________________________________,
                                        __________ corporation

                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Its:
                                            ------------------------------------

                                                                          DEBTOR

                                       10
<PAGE>
                                   SCHEDULE A

                                   COLLATERAL

     All of  Debtor's  right,  title and  interest  in and to all  Accounts  (as
defined in the Arizona  UCC),  Chattel  Paper (as  defined in the Arizona  UCC),
Documents (as defined in the Arizona UCC),  Equipment (as defined in the Arizona
UCC),  Fixtures (as defined in the Arizona UCC), General Intangibles (as defined
in the Arizona UCC),  Instruments (as defined in the Arizona UCC), Inventory (as
defined in the Arizona UCC), Investment Property(as defined in the Arizona UCC),
any Deposit  Accounts (as defined in the Arizona  UCC) pledged to Secure  Party,
Deposits,  cash,  letters of credit,  stock rights and other deposits,  it being
intended that the Collateral  include all property of the Debtor other than real
property,  whether located in which the Debtor now has or hereafter acquires any
right or interest,  and the proceeds,  insurance  proceeds and products thereof,
together with all books and records,  customer  lists,  credit  files,  computer
files,  programs,  printouts and other  computer  materials and records  related
thereto,  together with (i) all policies or certificates  of insurance  covering
any of the  foregoing  property,  and all awards,  loss  payments,  proceeds and
premium refunds that may become payable with respect to such policies;  (ii) all
property of Debtor that is now or may hereafter be in the  possession or control
of Secured Party in any capacity,  including without  limitation all monies owed
or that become owed by Secured Party to Debtor; and (iii) all proceeds of any of
the foregoing property,  whether due or to become due from any sale, exchange or
other  disposition  thereof,  whether  cash or non-cash  in nature,  and whether
represented by checks,  drafts,  notes or other  instruments  for the payment of
money, including,  without limitation, all property, whether cash or non-cash in
nature,  derived from tort,  contractual  or other claims  arising in connection
with any of the foregoing  property.  The terms herein shall have the meaning in
and be construed under the Uniform  Commercial Code as in effect in Arizona from
time to time (the "Arizona  UCC").  All property  described above is hereinafter
called the "Collateral."
<PAGE>
                                   SCHEDULE B

                             LOCATION OF COLLATERAL
<PAGE>
                                  SCHEDULE 2.1

                              COMMITMENTS OF BANKS
                               as to the Facility
                                as of XXXX, 2001

                                                              Euro Dollar
             BANK                 %            $            Lending Office
             ----              -------   --------------    -----------------
1.   Wells Fargo Bank,
     National Association       70.0%     $35,000,000      _________________

2.   The Northern Trust
     Company                    30.0%     $15,000,000      _________________

     ______________________    _______   ______________    _________________

     ______________________    _______   ______________    _________________

     Maximum RLC
     Commitment                  100%    $50,000,000.00    _________________

ADDRESSES:

     1.   100 West Washington
          Phoenix, Arizona  85003
          Attention: Jeff Lowe, Arizona RCBO
          Phone: 602-378-1230
          Fax: 602-378-4758

     2.   50 South La Salle Street, B-2
          Chicago, Illinois 60675
          Attention: Candelario Martinez, Corporate Banking
          Phone: 312-557-2816
          Fax: 312-444-7028
<PAGE>
                                  SCHEDULE 2A.5

                           EXISTING LETTERS OF CREDIT

<TABLE>
<CAPTION>
L/C NO.                     BENEFICIARY                          AMOUNT         EXPIRY DATE
-------                     -----------                         ----------      -----------
<S>         <C>                                                 <C>               <C>
242146      Comdata Network & its subsidiaries & affiliates     $   10,000        12/31/01
242220      United States Fire Insurance Company                $  400,000        02/01/02
242260      The Industrial Commission of Arizona                $  250,000        06/30/01
272643      Self Insurance Plan State of California             $  332,000        06/18/01
282513      Liberty Mutual Insurance Company                    $  250,000        10/01/01
319234      The Travelers Indemnity Company                     $1,300,000        03/05/02
389506      Protective Insurance Company                        $1,000,000        01/31/02
            Sagamore Insurance Company
            TOTAL                                               $3,542,000
</TABLE>
<PAGE>
                                  SCHEDULE 3.15

                             BORROWER'S SUBSIDIARIES

*Quad-K Leasing, Inc., an Arizona corporation
Knight Administrative Services, Inc., an Arizona corporation
KTTE Holdings, Inc., a Nevada corporation
QKTE Holdings, Inc., a Nevada corporation
Knight Management Services, Inc., an Arizona corporation
Knight Transportation Midwest, Inc., an Arizona corporation
Knight Transportation South Central Limited Partnership, a Nevada partnership
John Fayard Fast Freight, Inc., a Mississippi corporation
KTE Com, L.L.C.

*Significant Subsidiary
<PAGE>
                                  SCHEDULE 6.1

                                 PERMITTED LIENS

                                    NUMBER          ORIGINAL         OUTSTANDING
                                   TRACTORS           DATE             3/31/01
                                   --------           ----             -------
Pitney Bowes                          85             Apr-00          $3,807,427
Pitney Bowes                          83             Jun-00           4,111,918
Pitney Bowes                          29             Oct-00           1,791,975
Pitney Bowes                          33             Oct-00           2,203,530
Pitney Bowes                          11             Nov-00             755,332
Pitney Bowes                          56             Dec-00           4,099,258
Bank of America                       54             Dec-00           3,681,760
<PAGE>
                                  SCHEDULE 6.2

                              EXISTING INDEBTEDNESS

1.   Term Loan with the  Company  from Wells  Fargo,  maturing  October 1, 2003.
     Current balance as of April 6, 2001: $5,528,642.84.

2.   Lease  financing  between Quad K and Wells Fargo Equipment  Finance,  Inc.,
     dated June 1, 2000, guaranteed by the Company.

3.   The Interest  Rate Swap  Agreement,  dated  February 13, 2001,  between the
     Company and Wells Fargo.

4.   The Indebtedness shown on Schedule 6.1 hereof.
<PAGE>
                             MODIFICATION AGREEMENT

     BY THIS MODIFICATION AGREEMENT (the "Agreement"),  made and entered into as
of the 5th day of  June,  2001,  WELLS  FARGO  BANK,  NATIONAL  ASSOCIATION,  as
administrative  agent (the  "Administrative  Agent") for the Banks listed in the
hereinafter  defined Credit  Agreement (the "Banks") and as the Issuing Bank and
the Swing Line Lender, and KNIGHT  TRANSPORTATION,  INC., an Arizona corporation
(the  "Company")  and all present  and future  Significant  Subsidiaries  of the
Company  (with the Company,  the  "Borrower"),  in  consideration  of the mutual
covenants  herein  contained  and other  good and  valuable  consideration,  the
receipt and  sufficiency  of which is hereby  acknowledged,  hereby  confirm and
agree as follows:

SECTION 1. RECITALS; ACKNOWLEDGEMENTS.

     1.1 The Borrower and the  Administrative  Agent and the Banks  entered into
that Credit  Agreement  dated April 6, 2001 (as amended  from time to time,  the
"Credit  Agreement")  to provide  financial  accommodations  to the  Borrower as
provided therein.

     1.2 Borrower and the  Administrative  Agent, with the consent of the Banks,
desire to modify the Credit Agreement as set forth herein.

     1.3 All  undefined  capitalized  terms used  herein  shall have the meaning
given them in the Credit Agreement.

SECTION 2. CREDIT AGREEMENT.

     2.1  Section  2.11 of the  Credit  Agreement  is hereby  amended to read as
follows:

          SECTION  2.11   CONVERSION  AND   CONTINUATION   OF  BORROWINGS.   The
     Administrative Agent agrees to communicate the proposed LIBOR Rate verbally
     or otherwise to the Borrower on or about 8:00 a.m., California time, on any
     proposed  conversion or continuation  date and thereupon the Borrower shall
     have  the  right  at  any  time  upon  prior  irrevocable   notice  to  the
     Administrative Agent not later than 10:00 a.m., California time, (i) on the
     day of  conversion,  to  convert  any  LIBOR  Borrowing  into  a Base  Rate
     Borrowing,  (ii) on the day of conversion or  continuation,  to convert any
     Base  Rate  Borrowing  into a LIBOR  Borrowing  or to  continue  any  LIBOR
     Borrowing as a LIBOR Borrowing for an additional Interest Period, and (iii)
     on the day of  conversion,  to convert the Interest  Period with respect to
     any LIBOR Borrowing to another permissible Interest Period, subject in each
     case to the following:

               (a) if less  than all the  outstanding  principal  amount  of any
     Borrowing shall be converted or continued,  the aggregate  principal amount
     of such Borrowing  converted or continued shall be an integral  multiple of
     $100,000.00 and not less than $1,000,000.00;
<PAGE>
               (b) each  conversion  shall be  effected by the Banks by applying
     the proceeds of the new  Borrowing  resulting  from such  conversion to the
     Borrowing  (or portion  thereof)  being  converted;  accrued  interest on a
     Borrowing  (or  portion  thereof)  being  converted  shall  be  paid by the
     Borrower at the time of conversion;

               (c) any LIBOR  Borrowing may be converted  only at the end of the
     Interest Period applicable thereto;

               (d) any portion of a Borrowing  maturing or required to be repaid
     in less than one month may not be  converted  into or  continued as a LIBOR
     Borrowing;

               (e) any portion of a LIBOR Borrowing which cannot be continued as
     a  LIBOR  Borrowing  by  reason  of  clauses  (c) and (d)  above  shall  be
     automatically  converted  at the end of the  Interest  Period in effect for
     such Borrowing into a Base Rate Borrowing; and

               (f) each conversion or continuation  shall be made pro rata among
     the  Banks in  accordance  with the  respective  principal  amounts  of the
     converted or continued Borrowings.

          Each notice  pursuant to this Section shall be  irrevocable  and shall
     refer to this  Agreement  and  specify (i) the  identity  and amount of the
     Borrowing  that the  Borrower  requests be  converted  or  continued,  (ii)
     whether  such  Borrowing  is to be  converted  to or  continued  as a LIBOR
     Borrowing  or a Base  Rate  Borrowing,  (iii)  if such  notice  requests  a
     conversion,  the date of such  conversion  (which shall be a Business Day),
     and (iv) if such  Borrowing  is to be  converted to or continued as a LIBOR
     Borrowing,  the Interest Period with respect thereto. If no Interest Period
     is  specified  in any such  notice  with  respect to any  conversion  to or
     continuation  as a LIBOR  Borrowing,  the Borrower  shall be deemed to have
     selected an Interest  Period of one month's  duration.  The  Administrative
     Agent  shall  advise the other Banks of any notice  given  pursuant to this
     Section and of each Bank's portion of any converted or continued Borrowing.
     If the Borrower shall not have given notice in accordance with this Section
     to continue  any LIBOR  Borrowing  into a subsequent  Interest  Period (and
     shall not otherwise  have given notice in  accordance  with this Section to
     convert such  Borrowing),  such Borrowing shall, at the end of the Interest
     Period  applicable  thereto  (unless repaid  pursuant to the terms hereof),
     automatically be continued as a Base Rate Borrowing.

     2.2 The  reference to $2,500.00 in Section 2(iv) of Exhibit A to the Credit
Agreement is hereby amended to read $3,500.00.

                                        2
<PAGE>
SECTION 3. OTHER MODIFICATIONS, RATIFICATIONS AND AGREEMENTS.

     3.1 All references to the Credit  Agreement in the other Loan Documents are
hereby amended to refer to the Credit Agreement as hereby amended.

     3.2 Borrower  hereby  reaffirms  to the Banks each of the  representations,
warranties,  covenants  and  agreements  of  Borrower  set  forth in the  Credit
Agreement,  with the same  force and  effect as if each were  separately  stated
herein and made as of the date hereof.

     3.3 Borrower hereby ratifies, reaffirms,  acknowledges, and agrees that the
Notes and the Credit  Agreement  represent  valid,  enforceable  and collectible
obligations  of  Borrower,  and that  there are no  existing  claims,  defenses,
personal or  otherwise,  or rights of setoff  whatsoever  with respect to any of
these documents or instruments.  Borrower  further  acknowledges  and represents
that no event has occurred and no condition  exists that,  after notice or lapse
of time, or both, would constitute a default under this Agreement,  the Notes or
the Credit Agreement.

     3.4 All  terms,  conditions  and  provisions  of the Credit  Agreement  are
continued in full force and effect and shall  remain  unaffected  and  unchanged
except as specifically amended hereby. The Credit Agreement,  as amended hereby,
is hereby  ratified  and  reaffirmed  by  Borrower,  and  Borrower  specifically
acknowledges the validity and enforceability thereof.

SECTION 4. GENERAL.

     4.1 This Agreement in no way acts as a release or  relinquishment  of those
rights  securing  payment  of  the  Loans.  Such  rights  are  hereby  ratified,
confirmed, renewed and extended by Borrower in all respects.

     4.2 The modifications  contained herein shall not be binding upon the Banks
until the Administrative Agent shall have received all of the following:

          (a) An original of this Agreement fully executed by the Borrower.

          (b) An executed consent from each Bank.

          (c) Such resolutions or authorizations and such other documents as the
     Administrative  Agent  may  require  relating  to the  existence  and  good
     standing of the Borrower and the  authority  of any person  executing  this
     Agreement or other documents on behalf of the Borrower.

     4.3 Borrower  shall  execute and deliver such  additional  documents and do
such  other acts as the Banks may  reasonably  require  to fully  implement  the
intent of this Agreement.

     4.4 Borrower shall pay all costs and expenses,  including,  but not limited
to,  reasonable   attorneys'  fees  incurred  by  the  Administrative  Agent  in
connection herewith, whether or not all of the conditions described in Paragraph

                                        3
<PAGE>
4.2 above are satisfied.  Banks, at their option,  but without any obligation to
do so,  may  advance  funds  to pay any such  costs  and  expenses  that are the
obligation of the Borrower,  and all such funds  advanced shall bear interest at
the highest rate provided in the Notes and shall be due and payable upon demand.

     4.5  Notwithstanding  anything to the contrary  contained  herein or in any
other instrument executed by Borrower, the Administrative Agent or the Banks, or
in any other action or conduct undertaken by Borrower,  the Administrative Agent
or the  Banks on or  before  the date  hereof,  the  agreements,  covenants  and
provisions  contained  herein shall  constitute  the only evidence of the Banks'
consent to modify the terms and provisions of the Credit Agreement. Accordingly,
no express or implied consent to any further modifications  involving any of the
matters set forth in this Agreement or otherwise shall be inferred or implied by
the  Banks'  consent to this  Agreement.  Further,  the  Banks'  consent to this
Agreement  shall not  constitute  a waiver  (either  express or  implied) of the
requirement that any further  modification of the Credit Agreement shall require
the express  written  consent of the Banks;  no such consent  (either express or
implied) has been given as of the date hereof.

     4.6 Time is hereby  declared  to be of the  essence  hereof  of the  Credit
Agreement, and Banks require, and Borrower agrees to, strict performance of each
and every covenant,  condition,  provision and agreement  hereof,  of the Credit
Agreement.

     4.7 This  Agreement  shall be binding upon,  and shall inure to the benefit
of, the parties hereto and their heirs, personal representatives, successors and
assigns.

     4.8 This  Agreement  is made for the sole  protection  and  benefit  of the
parties  hereto,  and no other  person or entity  shall have any right of action
hereon.

     4.9 This Agreement shall be governed by and construed according to the laws
of the State of Arizona.

     IN WITNESS  WHEREOF,  these  presents are executed as of the date indicated
above.

                                        WELLS FARGO BANK, NATIONAL
                                        ASSOCIATION

                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Its:
                                            ------------------------------------

                                                            ADMINISTRATIVE AGENT

                                        4
<PAGE>
                                        KNIGHT TRANSPORTATION, INC.

                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Its:
                                            ------------------------------------

                                        QUAD-K LEASING, INC., an Arizona
                                        corporation

                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Its:
                                            ------------------------------------

                                                                        BORROWER

                                        5
<PAGE>
                              CONSENT OF THE BANKS

Re:  Knight Transportation, Inc.

     The following:

          (a) is a Bank  named in that  Credit  Agreement  dated  April 6,  2001
between Knight Transportation, Inc., an Arizona corporation (the "Company"), all
present and future  Significant  Subsidiaries  of the Company (the  "Borrower"),
Wells Fargo Bank, National  Association,  as administrative  agent for the Banks
(the "Administrative Agent"), and the Banks; and

          (b) consents to that Modification Agreement dated June 5, 2001 entered
into between the Borrower and the Administrative Agent.

                                        THE NORTHERN TRUST COMPANY, an Illinois
                                        banking corporation

                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Its:
                                            ------------------------------------

                                                                          "Bank"
<PAGE>
                              CONSENT OF THE BANKS

Re:  Knight Transportation, Inc.

     The following:

          (a) is a Bank  named in that  Credit  Agreement  dated  April 6,  2001
between Knight Transportation, Inc., an Arizona corporation (the "Company"), all
present and future  Significant  Subsidiaries  of the Company (the  "Borrower"),
Wells Fargo Bank, National  Association,  as administrative  agent for the Banks
(the "Administrative Agent"), and the Banks; and

          (b) consents to that Modification Agreement dated June 5, 2001 entered
into between the Borrower and the Administrative Agent.

                                        WELLS FARGO BANK, NATIONAL
                                        ASSOCIATION

                                        By:
                                           -------------------------------------
                                        Name:
                                             -----------------------------------
                                        Its:
                                            ------------------------------------

                                                                          "Bank"EXHIBIT 10.15

                              DEBTOR-IN-POSSESSION
                           LOAN AND SECURITY AGREEMENT

     THIS  DEBTOR-IN-POSSESSION LOAN AND SECURITY AGREEMENT (the "Agreement") is
hereby  made and  executed  as of the 5th day of July,  2001,  by and between R1
FRANCHISE SYSTEMS L.L.C. (SUCCESSOR IN INTEREST TO RANCH *1 ACQUISITION L.L.C.),
AN ARIZONA LIMITED LIABILITY  COMPANY  ("Lender") and RANCH *1, INC., A DELAWARE
CORPORATION,  together with each affiliated  entity  identified on SCHEDULE 1.2,
attached   (collectively   referred  to  as  "Borrower").   For  present,   fair
consideration, the receipt and sufficiency of which are hereby acknowledged, and
subject to  Bankruptcy  Court  approval in the  Reorganization  Case (as defined
below), the parties hereto hereby agree as follows:

                                    RECITALS

     A.   Borrower is the debtor and debtor-in-possession in one or more Chapter
          11 bankruptcy cases (collectively,  the "Reorganization Case") pending
          in the United States Bankruptcy Court for the Southern District of New
          York, as shown on SCHEDULE 1.2.

     B.   Borrower     desires    to    establish     certain     post-petition,
          debtor-in-possession  ("DIP")  financing  arrangements with and borrow
          funds  from  Lender,   and  Lender  is  willing  to   establish   such
          arrangements  for and make DIP  loans  and  extensions  of  credit  to
          Borrower,  on the terms and conditions set forth below (subject to the
          approval of the Bankruptcy Court).

     C.   The  ability of Borrower to obtain the DIP  financing  provided  under
          this Agreement is of material  benefit to Borrower.  Without access to
          the DIP financing provided under this Agreement, it is not likely that
          Borrower will be able to reorganize successfully in its Reorganization
          Case.

     NOW, THEREFORE, in consideration of the promises and covenants contained in
this Agreement,  and for other good and valuable consideration,  the receipt and
sufficiency of which are acknowledged, Borrower and Lender agree as follows:

                                   ARTICLE 1

                                   DEFINITIONS

     In addition to the capitalized  terms defined above,  whenever used in this
Agreement,  unless another meaning is expressly indicated, the following defined
terms shall have the meanings  ascribed to them below, all of which  definitions
shall be substantive terms of this Agreement:
<PAGE>
     SECTION 1.1  ACCOUNT.  "Account"  means all of the  following,  whether now
existing or arising in the future: (a) accounts receivable,  including Royalties
and related fees due from Franchisees of Borrower,  and any and all instruments,
documents,  contract rights, chattel paper, general intangibles relating to such
accounts  receivable  acquired  by  Borrower  from  third  parties or created by
Borrower,  including,  without limitation, all accounts acquired by, created by,
or arising from all of the Borrower's sales of goods or rendition of services to
its  respective  customers,  and all accounts  acquired  through or arising from
sales of  goods or  rendition  of  services  made  under  any of the  Borrower's
respective  trade  names  or  styles;  (b)  unpaid  seller's  rights  (including
rescission,  replevin,  reclamation,  and  stoppage in transit)  relating to the
foregoing or arising  therefrom;  (c) rights to any goods  represented by any of
the foregoing,  including rights to returned or repossessed  goods; (d) reserves
and credit balances arising thereunder;  (e) guarantees or collateral for any of
the  foregoing;  (f)  insurance  policies  or  rights  relating  to  any  of the
foregoing; and (g) cash and noncash proceeds of any and all of the foregoing.

     SECTION 1.2 ACCOUNT DEBTOR.  "Account Debtor" means any Person obligated on
any Account of Borrower.

     SECTION 1.3 ADDITIONAL LEASE.  "Additional Lease" has the meaning set forth
in Section 4.23.

     SECTION 1.4 ADVANCE. "Advance" means any advance made under the Loan.

     SECTION  1.5  AFFILIATE.  "Affiliate"  means,  with  respect to a specified
Person, any Person directly or indirectly  controlling,  controlled by, or under
common  control with the specified  Person,  including  without  limitation  its
stockholders  and any Affiliates  thereof.  A Person will be deemed to control a
corporation or other entity if the Person possesses, directly or indirectly, the
power to direct or cause the  direction  of the  management  and business of the
corporation or other entity, whether through the ownership of voting securities,
by contract, or otherwise.

     SECTION 1.6 AGREEMENT. "Agreement" means this Debtor-In-Possession Loan and
Security Agreement, as it may be amended or supplemented from time to time.

     SECTION 1.7 APPROVAL DATE.  "Approval  Date" means the date of the entry of
the Bankruptcy Court Order on the Bankruptcy Court's docket.

     SECTION 1.8 BANKRUPTCY CODE. "Bankruptcy Code" means 11 U.S.C.ss.ss.101, ET
SEQ. as amended from time to time.

     SECTION  1.9  BANKRUPTCY  COURT.  "Bankruptcy  Court" or "Court"  means the
United States Bankruptcy Court for the Southern District of New York.

     SECTION 1.10  BANKRUPTCY  COURT ORDER.  "Bankruptcy  Court Order" means the
following as applicable at any particular  time:  the First Interim  Order,  the
Second  Interim  Order and the  Final  Order  entered  by the  Bankruptcy  Court
approving this  Agreement and the Loan  hereunder.  The  Bankruptcy  Court Order
shall  expressly  provide  that  (i) the  Bankruptcy  Court's  approval  of this
Agreement  shall include  approval of all fixed fees and costs payable to Lender

                                       2
<PAGE>
hereunder  such that (a) no further court  approval of such fixed fees and costs
shall be  necessary,  and (b) such fees and costs  shall be paid by  Borrower to
Lender  in  the  time  and  manner  provided   herein;   and  (ii)  neither  the
professionals  employed by Lender in  connection  with the Loan nor the fees and
costs charged by such professionals shall be subject to any of the provisions of
the  Bankruptcy  Code, the Federal Rules of Bankruptcy  Procedure,  and/or local
bankruptcy   rules  or  orders   concerning  or  governing  the   employment  or
compensation  of  professionals;  PROVIDED,  HOWEVER,  THAT the  amount  of such
professional fees shall, if disputed by Borrower or the Committee, be subject to
the approval of the Bankruptcy  Court as being  reasonable,  PROVIDED,  FURTHER,
THAT pending resolution of any dispute, any undisputed fees shall be paid in the
time and manner provided herein.

     SECTION  1.11 BASE RATE.  "Base  Rate"  means a rate of  interest  equal to
twelve and one-half percent (12.5%) per annum.

     SECTION 1.12 BORROWED MONEY. "Borrowed Money" means any obligation to repay
money,  any  indebtedness  evidenced  by notes,  bonds,  debentures  or  similar
obligations,  any obligation  under a conditional  sale or other title retention
agreement  and the net aggregate  rentals under any lease which under  generally
accepted accounting  principles would be capitalized on the books of Borrower or
which is the substantial equivalent of the financing of the property so leased.

     SECTION  1.13  BORROWER.  "Borrower"  has  the  meaning  set  forth  in the
Preamble.  Unless  otherwise  expressly  stated and  agreed,  Borrower is acting
hereunder  and pursuant to all orders  approving  or otherwise  relating to this
Agreement, in all of its capacities,  including acting on its own behalf, and as
the  debtor-in-possession  representative of its estate,  in the  Reorganization
Case.

     SECTION 1.14 BUDGET. "Budget" has the meaning set forth in Section 2.6.

     SECTION 1.15 BUSINESS DAY.  "Business Day" means any day on which financial
institutions are open for business in the State of Arizona,  excluding Saturdays
and Sundays.

     SECTION 1.16  CARVE-OUT.  "Carve-Out"  has the meaning set forth in Section
9.1.

     SECTION 1.17 CLOSING;  CLOSING DATE.  "Closing" and "Closing Date" have the
meanings set forth in Section 5.12.

     SECTION 1.18 COLLATERAL.  "Collateral" has the meaning set forth in Section
3.1.

     SECTION 1.19 SECTION 1.19  COMMITTEE.  "Committee" has the same meaning set
forth in the Final Order.

     SECTION 1.20 DEFAULT RATE.  "Default  Rate" means a rate per annum equal to
five percent (5%) above the Base Rate.

     SECTION 1.21 DIP. "DIP" has the meaning set forth in Recital B above.

     SECTION 1.22 EARLY TERMINATION FEE. "Early Termination Fee" has the meaning
set forth in Section 2.4.

                                       3
<PAGE>
     SECTION 1.23 EMERGENCY LOAN AMOUNT. "Emergency Loan Amount" has the meaning
set forth in Section 2.1.

     SECTION  1.24 EVENT OF DEFAULT.  "Event of Default" and "Events of Default"
have the meanings set forth in Article 8.

     SECTION  1.25  EXAMINER.  "Examiner"  means the  examiner  appointed by the
Bankruptcy Court in the Reorganization  Case while such appointment is effective
and such examiner is serving.

     SECTION  1.26  FILING  DATE.  "Filing  Date"  means  the date on which  the
Reorganization Case was filed with the Bankruptcy Court.

     SECTION 1.27 FIRST INTERIM  ORDER.  "First  Interim  Order" means the order
entered by the  Bankruptcy  Court,  on an  emergency  basis and pending a second
interim  hearing on approval of this  Agreement  and the Loan  hereunder,  which
order is in form and substance wholly  satisfactory to Lender,  which allows and
authorizes  Borrower to borrow from Lender an amount up to $220,000.00 and which
shall provide to Lender,  among other things, the liens, fees and administrative
claims contemplated by this Agreement.

     SECTION  1.28 FINAL  ORDER.  "Final  Order"  means an order  entered by the
Bankruptcy  Court  approving  this  Agreement and the Loan  hereunder on a final
basis, which Final Order is in form and substance wholly acceptable to Lender.

     SECTION  1.29  FRANCHISE  AGREEMENTS.   "Franchise  Agreements"  means  all
franchise agreements,  area development agreements and similar agreements by and
between  Borrower as  franchisor  and one or more third  parties as  franchisee,
and/or area  developer,  including  without  limitation  those shown on SCHEDULE
4.22, attached.

     SECTION 1.30  FRANCHISEES.  "Franchisees"  shall mean the franchisees under
the Franchise  Agreements  and the area  developers  under the area  development
agreements.

     SECTION 1.31 HIGHEST LAWFUL RATE.  "Highest  Lawful Rate" means the maximum
lawful rate of interest  referred to in Section 2.7 that may accrue  pursuant to
this Agreement.

     SECTION 1.32 INTERIM ORDERS.  "Interim Orders" shall mean the First Interim
Order and the Second Interim Order.

     SECTION 1.33 LEASES. "Leases" has the meaning set forth in Section 4.23.

     SECTION 1.34 LENDER. "Lender" has the meaning set forth in the Preamble.

     SECTION 1.35 LENDER INITIATED  FRANCHISEES.  "Lender Initiated Franchisees"
has the meaning set forth in the Bankruptcy Court Order.

     SECTION 1.36 LOAN. "Loan" has the same meaning as Loan set forth in Section
2.1(a).

                                       4
<PAGE>
     SECTION 1.37 LOAN  DOCUMENTS.  "Loan  Documents"  means and  includes  this
Agreement,  the Note and each and every other document now or hereafter executed
and/or  delivered  in  connection  with  this  Agreement,  as any of them may be
amended, modified, or supplemented from time to time.

     SECTION 1.38 LOAN MANAGEMENT FEE. "Loan Management Fee" has the meaning set
forth in Section 2.4.

     SECTION 1.39 LOAN ORIGINATION  FEE. "Loan  Origination Fee" has the meaning
set forth in Section 2.4.

     SECTION 1.40 MAXIMUM LOAN AMOUNT. "Maximum Loan Amount" has the meaning set
forth in Section 2.1(a).

     SECTION 1.41 NOTE. "Note" has the meaning set forth in Section 2.1(c).

     SECTION  1.42  OBLIGATIONS.  "Obligations"  has the  meaning  set  forth in
Section 3.1.

     SECTION 1.43 PERMITTED LIENS.  "Permitted Liens" means: (a) liens for taxes
not  delinquent,  or which are being  contested in good faith and by appropriate
proceedings  which  suspend  the  collection  thereof  and in  respect  of which
adequate  reserves have been made  (provided  that such  proceedings  do not, in
Lender's sole  discretion,  involve any substantial  danger of the sale, loss or
forfeiture  of such property or assets or any interest  therein);  and (b) those
liens and encumbrances, if any, identified SCHEDULE 1.39, attached.

     SECTION   1.44  PERSON.   "Person"   means  an   individual,   partnership,
corporation,  trust,  joint  venture,  joint stock  company,  limited  liability
company,  association,  unincorporated organization,  governmental authority, or
any other entity, and includes, without limitation, the Borrower, any affiliates
of the Borrower,  any  statutory  committee,  trustee,  examiner or other estate
representative of any type appointed in or in connection with the Reorganization
Case, and any other party-in-interest in the Reorganization Case.

     SECTION 1.45 PLAN EXPIRATION DATE. shall mean the seventy-fifth  (75th) day
after the Closing Date.

     SECTION  1.46 SALE  MOTION.  "Sale  Motion"  has the  meaning  set forth in
Section 2.8.

     SECTION 1.47 PLAN OF  REORGANIZATION.  "Plan of  Reorganization"  means any
plan of  reorganization  filed pursuant to Chapter 11 of the Bankruptcy  Code by
the  Borrower,  by any  Affiliate  of the  Borrower,  or by any  other  party in
interest in the Reorganization Case.

     SECTION 1.48 REORGANIZATION CASE. "Reorganization Case" has the meaning set
forth in Recital A above.

     SECTION 1.49 ROYALTIES. "Royalties" shall mean all royalties, marketing and
advertising  fees,  development  fees, and all other amounts payable to Borrower
under its Franchise Agreements with Franchisees.

                                       5
<PAGE>
     SECTION 1.50 SALES DOCUMENTS.  "Sales  Documents" has the meaning set forth
in Section 3.1.

     SECTION 1.51 SECOND INTERIM ORDER.  "Second  Interim Order" means the order
entered by the  Bankruptcy  Court,  on an  emergency  basis and  pending a final
hearing on approval of this Agreement and the Loan hereunder,  which order is in
form and substance  wholly  satisfactory to Lender,  which allows and authorizes
Borrower  to borrow from Lender an amount up to  $500,000.00  (inclusive  of the
amounts authorized  pursuant to the First Interim Order) and which shall provide
to Lender,  among  other  things,  the  liens,  fees and  administrative  claims
contemplated by this Agreement.

     SECTION 1.52 TERM. "Term" has the meaning set forth in Section 2.8.

                                   ARTICLE 2
                                      LOAN

     SECTION 2.1 TERMS.

          (a) All amounts of credit extended by Lender to Borrower hereunder are
collectively  referred to herein as the "Loan". The maximum aggregate  principal
amount  of  credit  extended  by  Lender  to  Borrower  hereunder  that  will be
outstanding  at any  time  prior to entry  of the  Final  Order is FIVE  HUNDRED
THOUSAND  and  No/100  Dollars  ($500,000.00)  (the  "Emergency  Loan  Amount").
Following the Closing,  provided  there exists no Event of Default and all terms
and conditions of this Agreement are met,  Lender will advance funds to Borrower
according to the schedule attached as EXHIBIT B. The maximum aggregate principal
amount of credit  extended  by Lender to  Borrower  hereunder  at any time after
entry of the Final Order  (including  the Emergency  Loan Amount) is TWO MILLION
DOLLARS ($2,000,000.00) (the "Maximum Loan Amount").

          (b) The Loan will include sums  advanced and other credit  extended by
Lender to or for the benefit of Borrower  from time to time under this Article 2
up to (i) after entry of the Interim  Orders and the  satisfaction  of all other
terms  and  conditions  in this  Agreement  but  prior to the entry of the Final
Order,  the Emergency Loan Amount;  and (ii) after the entry of the Final Order,
the Maximum Loan Amount.  The outstanding  principal  balance of the Loan may be
increased  by  future  advances  and  other  extensions  of credit to or for the
benefit of Borrower,  and will be due and payable in full upon the expiration of
the Term.  This Loan will not  revolve.  All  payments  made to Lender,  whether
voluntary or required by the terms of this Agreement,  will not be available for
subsequent Advances.

          (c) At Closing and on the date of each Advance,  Borrower will execute
and  deliver  to  Lender  one or more  promissory  notes  evidencing  Borrower's
unconditional  obligation  to repay Lender for the Loan and other  extensions of
credit  made  under the Loan,  in the form of EXHIBIT A to this  Agreement  (the
"Note"),  dated the date  hereof,  payable to the order of Lender in  accordance
with the terms thereof.  The Note will bear interest from the date thereof until
repaid,  with  interest  payable  monthly  in  arrears,  on any and all  amounts
outstanding under, or as a result of the Loan, on the first Business Day of each
month,  at a rate per annum (on the basis of the actual  number of days  elapsed

                                       6
<PAGE>
over a year of 360  days)  equal  to the  Base  Rate,  provided  that  upon  the
occurrence  and during the  continuance of an Event of Default such rate will be
equal to the Default  Rate.  Each Advance and other  extension of credit will be
deemed evidenced by the Note,  which is deemed  incorporated by reference herein
and made a part hereof.

     SECTION  2.2 LOAN  ADMINISTRATION.  Borrowings  under  the Loan  will be as
follows:

          (a) A request for an Advance  under the Loan will be made,  or will be
deemed to be made, in the following  manner:  Borrower may give Lender notice of
its intention to borrow, in which notice Borrower will specify the amount of the
proposed  borrowing and the proposed  borrowing  date,  not later than 2:00 p.m.
Phoenix,  Arizona time three (3) Business  Days prior to the proposed  borrowing
date;  PROVIDED,  HOWEVER,  THAT Lender will have no obligation to fund any such
request made at a time when an Event of Default has  occurred and is  continuing
or a condition precedent to the Advance has not been met, and, PROVIDED, further
Advances (after the Emergency Loan Amount) will not be made more frequently than
on 30 day intervals and will not be made in amounts greater than $250,000.00.

          (b)  Borrower  hereby  irrevocably  authorizes  Lender to disburse the
proceeds of each Advance requested,  or deemed to be requested, by wire transfer
to an account specified by Borrower.

          (c) All Advances and other  extensions of credit to or for the benefit
of Borrower will constitute a single general Obligation of Borrower, and will be
secured by Lender's lien upon all of the Collateral.

          (d) Lender will enter all  Advances as debits to a loan account in the
name of Borrower and may record therein, in accordance with customary accounting
practice,  other  debits and  credits,  including  interest  and all charges and
expenses properly  chargeable to Borrower under this Agreement.  Payments on the
Loan  will be  made as  provided  herein  and/or  in the  Note.  Unless  applied
otherwise in Lender's  sole  discretion,  payments made by Borrower to Lender in
respect of the Loan will be applied first to fees,  costs,  and expenses due and
owing under the Loan  Documents,  then to interest  due and owing under the Loan
Documents, and then to principal outstanding with respect to the Loan.

          (e) Lender will  account to Borrower on a regular  basis (but not more
frequently than monthly) with a statement of Advances, charges and payments made
pursuant to this Agreement,  and such account  rendered by Lender will be deemed
final,  binding  and  conclusive  upon  Borrower  unless  Lender is  notified by
Borrower  in  writing  to the  contrary  within  ten (10)  days of the date each
accounting is transmitted  by facsimile to Borrower.  Such notice will be deemed
an objection only to those items specifically objected to therein.

     SECTION 2.3 (INTENTIONALLY OMITTED).

     SECTION 2.4 FEES.

          (a) Borrower  unconditionally agrees to pay to Lender a non-refundable
loan  origination fee in the amount of $25,000.00,  due and payable on the entry
of the Emergency Order.

                                       7
<PAGE>
          (b) For so long as any portion of the Loan remains  outstanding and/or
is available to Borrower,  Borrower unconditionally will pay to Lender a monthly
loan management fee (the "Loan Management  Fee") equal to $20,000.00  payable to
the Lender solely from the proceeds,  if any, of the Borrower's share of initial
franchise fees paid by Lender  Initiated  Franchisees.  The Loan Management Fees
due to the Lender  shall begin to accrue  from July 5, 2001.  The payment of the
Loan  Management Fee shall be in addition to the commissions and fees payable to
the Lender on account of the Lender Initiated Franchisees.

          (c) Borrower  unconditionally promises to pay to Lender a fee equal to
five percent (5%) of the Maximum Loan Amount if Lender terminates this Agreement
upon or  after  the  occurrence  of an  Event  of  Default,  if  this  Agreement
terminates as provided in Section  2.8(c),  or if Borrower shall  terminate this
Agreement  effective  prior to the end of the  Term,  which fee shall be due and
payable upon the  termination of this Agreement (the "Early  Termination  Fee");
PROVIDED,  HOWEVER,  the  Borrower  shall  not be  obligated  to pay  the  Early
Termination  Fee in the event that, on or before the Plan  Expiration  Date, the
Borrower files a plan of reorganization  which is not satisfactory to the Lender
(in the Lender's sole discretion),  unless (i) such plan fails to pay the Lender
the full amount of the DIP  Liabilities,  or (ii) such plan is premised upon the
Borrower's  obtaining funding from an alternative lender,  funder or acquirer or
the sale of  substantially  all of the  Borrower's  assets to a third  party not
affiliated with Lender.

          (d)  Borrower  unconditionally  promises to pay to Lender a commitment
fee in the amount of one fourth of one  percent  (.25%) per annum of the average
daily unused  portion of the Maximum Loan Amount (the portion which has not been
Advanced),  which fee shall be due and  payable  and  non-refundable  monthly in
arrears on the first Business Day of each successive calendar month.

     SECTION 2.5 PAYMENTS. Principal and all other amounts payable on account of
the Loan will be payable by Borrower to Lender  immediately upon the earliest of
(i) the  occurrence of an Event of Default in  consequence of which the Loan and
the  maturity  of the  payment  of the  Obligations  are  accelerated,  (ii) the
termination  of this Agreement  pursuant to Section 2.8(c) hereof,  or (iii) the
end of the Term.  Interest  accrued on the Loan will be paid on the  earliest of
(i) the first Business Day of each month (for the immediately  preceding month),
with interest computed on the last calendar day of the preceding month, (ii) the
occurrence  of an Event of  Default  in  consequence  of which  the Loan and the
maturity  of the  payment  of the  Obligations  are  accelerated,  or (iii)  the
termination  of this  Agreement  pursuant to Section  2.8 hereof.  Except to the
extent  otherwise set forth in this Agreement,  all payments of principal and of
interest on the Loan,  all other charges and any other  obligations  of Borrower
hereunder will be made to Lender in immediately available funds.

     SECTION 2.6 USE OF PROCEEDS. Except as otherwise expressly provided in this
Agreement and in the Bankruptcy Court Order,  the proceeds of Lender's  advances
under the Loan will be used solely for: working capital and payment of essential
post-petition operating and administrative  expenses, all strictly in accordance
with the operating  budget of Borrower  (the  "Budget") as set forth on SCHEDULE
2.6, attached, and as set forth on EXHIBIT B.

     SECTION  2.7  INTEREST  RATE  LIMITATION.  The  parties  intend to  conform
strictly  to the  applicable  usury laws in effect  from time to time during the
term of the Loan. Accordingly,  if any transaction  contemplated hereby would be

                                       8
<PAGE>
usurious under such laws, then  notwithstanding  any other provision hereof: (i)
the aggregate of all interest that is contracted for, charged, or received under
this  Agreement  or under any other Loan  Document  will not exceed the  maximum
amount of interest  allowed by applicable law (the "Highest  Lawful Rate"),  and
any excess  will be  promptly  credited to Borrower by Lender (or, to the extent
that such  consideration  will have been  paid,  such  excess  will be  promptly
refunded to Borrower by Lender);  (ii) neither Borrower nor any other Person now
or  hereafter  liable  hereunder  will be  obligated  to pay the  amount of such
interest  to the extent  that it is in excess of the Highest  Lawful  Rate;  and
(iii) the effective rate of interest will be reduced to the Highest Lawful Rate.
All sums paid,  or agreed to be paid,  to Lender for the use,  forbearance,  and
detention  of the debt of Borrower to Lender  will,  to the extent  permitted by
applicable law, be allocated throughout the full term of the Notes until payment
is made in full so that the actual rate of interest  does not exceed the Highest
Lawful Rate in effect at any particular time during the full term thereof. If at
any time the rate of interest  under the Notes exceeds the Highest  Lawful Rate,
the rate of  interest  to accrue  pursuant  to this  Agreement  will be limited,
notwithstanding anything to the contrary herein, to the Highest Lawful Rate, but
any  subsequent  reductions  in the Base Rate will not  reduce the  interest  to
accrue  pursuant to this Agreement below the Highest Lawful Rate until the total
amount of interest accrued equals the amount of interest that would have accrued
if a varying  rate per annum equal to the  interest  rate under the Notes had at
all times  been in  effect.  If the total  amount of  interest  paid or  accrued
pursuant to this Agreement under the foregoing provisions is less than the total
amount of interest  that would have accrued if a varying rate per annum equal to
the interest rate under the Notes had been in effect,  then  Borrower  agrees to
pay to Lender an amount  equal to the  difference  between (i) the lesser of (x)
the amount of interest that would have accrued if the Highest Lawful Rate had at
all times been in effect,  or (y) the amount of interest that would have accrued
if a varying rate per annum equal to the interest rate under the Note had at all
times been in effect, and (ii) the amount of interest accrued in accordance with
the other provisions of this Agreement.

     SECTION 2.8 TERM.

          (a) Subject to  Lender's  right to cease  making  Advances to Borrower
upon or after any Event of Default has occurred and is  continuing,  and subject
to earlier  termination  as provided  below in this Section 2.8, this  Agreement
will be in effect  for a period  equal to the  EARLIER  of one (1) year from the
Closing Date OR the  effective  date of a Plan of  Reorganization  (the "Term");
and,  in the  absence of any Event of  Default,  this  Agreement  may be renewed
thereafter upon the mutual written agreement of the parties.

          (b)  Notwithstanding  anything  herein  to the  contrary,  subject  to
Section  2.8(d)  hereof,  Lender may terminate  this Agreement upon or after the
occurrence  and during the  continuance  of an Event of Default,  or if Borrower
fails to file a Plan of  Reorganization  within seventy five (75) days after the
Closing,  which is approved by Lender (in Lender's sole  discretion)  and which,
once filed,  is not amended or withdrawn  without the prior  written  consent of
Lender, which consent may be withheld in Lender's sole discretion (the "Approved
Plan").

          (c) This Agreement also will terminate  immediately and  automatically
upon the occurrence of any of the following:

                                       9
<PAGE>
               (i) The appointment of a trustee in the Reorganization Case;

               (ii) The dismissal of the  Reorganization  Case or the conversion
of  the  Reorganization  Case  from a  Chapter  11  proceeding  to a  Chapter  7
proceeding;

               (iii) Without the prior written consent of Lender,  the granting,
by  stipulation  or otherwise,  of relief from the automatic  stay of Bankruptcy
Code Section 362(a),  in favor of a party other than Lender which asserts a lien
or security interest in any of the Collateral;

               (iv)  The  entry of an Order  in the  Reorganization  Case  which
authorizes  (under  Bankruptcy  Code  Sections  105 or 364,  or  otherwise)  the
granting of a lien or security interest in any of the Collateral in favor of any
party other than Lender  which is not  approved  expressly in writing by Lender,
which approval may be withheld in Lender's sole and absolute discretion;

               (v) The modification,  rescission, reversal, termination, stay or
other change in the form,  substance or  effectiveness  of the Bankruptcy  Court
Order which is not approved in writing by Lender, which approval may be withheld
in  Lender's  sole and  absolute  discretion,  or the entry of any order that in
Lender's sole opinion adversely affects the rights, interests and/or protections
of Lender under the Loan or this Agreement; or

               (vi) The  modification,  termination or  subordination  of any of
Lender's  liens on the  Collateral  which is not  approved in writing by Lender,
which approval may be withheld in Lender's sole and absolute discretion.

          (d) All of the  Obligations  will be immediately  due and payable upon
the termination of this Agreement;  PROVIDED, HOWEVER,  notwithstanding anything
to the contrary contained herein, including Section 8.6(l), (i) in the event the
Borrower fails to file a plan of  reorganization  which is  satisfactory  to the
Lender (in the Lender's sole  discretion) on or before the Plan Expiration Date,
all of the  Obligations  will be due and  payable  upon the  earlier  of (1) the
forty-fifth  (45th) day after the Plan Expiration Date and (2) the  consummation
of a plan of reorganization, or such other time which is agreed to in writing by
the Lender,  and (ii) in the event the Borrower  files an  application  with the
Bankruptcy Court seeking  authorization for the sale of substantially all of the
Borrower's  assets  pursuant to Section 363 of the  Bankruptcy  Code without the
Lender's consent (in the Lender's sole  discretion) (the "Sale Motion"),  all of
the  Obligations  will be due and payable upon the earlier of (1) the  thirtieth
(30th) day of the date of the filing of the Sale Motion and (2) the consummation
of such a sale,  or such other time which is agreed to in writing by the Lender.
All undertakings,  agreements,  covenants,  warranties,  and  representations of
Borrower  contained in the Loan Documents will survive any such  termination and
Lender  will  retain  its  liens in the  Collateral  and all of its  rights  and
remedies under the Loan Documents and the Bankruptcy Court  notwithstanding such
termination  until all  Obligations  owing  from  Borrower  to Lender  have been
satisfied indefeasibly and in full.

     SECTION 2.9 COSTS AND EXPENSES.  Borrower shall pay to Lender on demand all
reasonable  costs and expenses that Lender pays or incurs in connection with the
negotiation,  preparation,   consummation,   administration,   enforcement,  and
termination  of this  Agreement and the Loan  Documents,  the  Bankruptcy  Court
Order,  including,  without limitation:  (a) attorneys' and paralegals' fees and

                                       10
<PAGE>
disbursements of counsel to Lender, (b) costs and expenses (including attorneys'
and paralegals' fees and disbursements) for any amendment,  supplement,  waiver,
consent,  or subsequent  closing in connection  with this  Agreement and related
documents,  the  Bankruptcy  Court  Order,  and  any  transaction  mentioned  or
contemplated  thereby;  (c) costs and expenses of lien  searches,  environmental
surveys, recording and filing fees and any other recording taxes associated with
the perfection of interests in the Collateral; (d) taxes, fees and other charges
for recording any agreements or documents with any governmental  authority,  and
the filing of  Financing  Statements  and  continuations,  and other  actions to
perfect, protect, and continue the security interests and liens of Lender in the
Collateral;  (e) sums paid or  incurred  to pay any  amount  or take any  action
required  of  Borrower  under  this  Agreement  and  related  documents,  or the
Bankruptcy  Court  Order  that  Borrower  fails  to pay or  take;  (f)  costs of
appraisals,  inspections  and  verifications  of the  Collateral  and  including
travel,  lodging, and meals for inspections of the Collateral and the Borrower's
operations by Lender or its agents and to attend court  hearings or otherwise in
connection  with the Chapter 11 Case;  (g) costs and expenses of preserving  and
protecting the Collateral;  (h) all out-of-pocket  expenses and costs heretofore
and from time to time  hereafter  incurred  by the  Lender  during the course of
periodic field examinations of the Collateral and Borrower's operations,  plus a
per diem  charge per person per day at  Lender's  then  current  rate (as of the
Closing Date, such rate is $750 per day, per man), for Lender's examiners in the
field  and  office;  and  (i)  costs  and  expenses  (including  attorneys'  and
paralegals'  fees and  disbursements)  paid or incurred to obtain payment of the
Obligations,  enforce  the  security  interests  and  liens of  Lender,  sell or
otherwise  realize upon the Collateral,  and otherwise enforce the provisions of
this  Agreement and related  documents,  and the Bankruptcy  Court Order,  or to
defend  any  claims  made  or  threatened  against  Lender  arising  out  of the
transactions  contemplated hereby (including,  without limitation,  preparations
for and consultations  concerning any such matters).  The foregoing shall not be
construed to limit any other provisions of this Agreement and related  documents
regarding  costs and expenses to be paid by Borrower.  All sums  provided for in
this Section 2.9 shall be part of the  Obligations,  shall be payable on demand,
and shall accrue  interest after demand for payment  thereof at the highest rate
of interest then payable under this Agreement and related  documents.  Lender is
hereby  irrevocably  authorized to charge any amounts payable hereunder directly
to any of the account(s) maintained by Lender with respect to Borrower.

     SECTION 2.10 RIGHT TO CHARGE  ACCOUNT At Lender's  option,  all  principal,
interest,  fees,  costs,  expenses  and  other  charges  provided  for  in  this
Agreement,  or in any other agreement now or hereafter  existing  between Lender
and Borrower,  shall be deemed Obligations  secured by the Collateral and may be
charged to the loan account of Borrower maintained by Lender. By way of example,
Lender may  withhold  from an Advance  fees  which are due and  payable  and for
purposes  of the Loan such fees  shall be  deemed to have been  included  in the
Advance for all intents and purposes as if they had been included in the Advance
and  subsequently  paid to Lender by Borrower.  All  interest,  fees and charges
payable by Borrower to Lender based on a per annum rate shall be  calculated  on
the basis of actual days elapsed over a 360-day year.

                                       11
<PAGE>
                                   ARTICLE 3
                                   COLLATERAL

     SECTION 3.1  GENERALLY.  As security for the payment of all  Obligations of
Borrower to Lender,  including without  limitation:  (i) indebtedness  evidenced
under the Note,  repayment  of the Loan,  repayment  of the  Advances  and other
extensions  of credit,  all fees and charges  owing by  Borrower,  and all other
liabilities  and  obligations of every kind or nature  whatsoever of Borrower to
Lender,   whether  now  existing  or  hereafter  incurred,   joint  or  several,
contingent,  matured or  unmatured,  direct or indirect,  primary or  secondary,
related or  unrelated,  due or to become due,  including  but not limited to any
extensions, modifications,  substitutions,  increases and renewals thereof, (ii)
the payment of all amounts advanced by Lender to preserve,  protect, defend, and
enforce its rights  hereunder and in the following  property in accordance  with
the terms of this Agreement,  and (iii) the payment of all expenses provided for
herein   incurred  by  Lender  in  connection   therewith   (collectively,   the
"Obligations"),  Borrower hereby assigns and grants to Lender a continuing first
priority lien on and security interest in, upon, and to the following  property,
whether  now-owned or  hereafter  acquired or arising  (the  "Collateral"):  all
property  and  assets  of  Borrower  and  the  proceeds  and  products  thereof,
including, without limitation, the following:

          (a) All Accounts; contract rights (including without limitation rights
under all Franchise  Agreements,  all Royalties and all Leases);  chattel paper;
general  intangibles  (including,  but not  limited  to,  tax and duty  refunds,
patents, patent applications,  trademarks,  trademark applications,  trade names
and tradestyles,  copyrights,  copyright applications,  trade rights (whether or
not registered), discoveries, improvements, processes, know-how, formulas, trade
secrets,   service  marks,  other  rights  in  intellectual   property  (whether
patentable  or not),  goodwill,  customer  and  mailing  lists,  life  insurance
policies,  licenses  (whether as licensor or licensee),  and  permits);  payment
intangibles,   commercial  tort  claims,   supporting   obligations;   documents
(including,  without  limitation,  all  warehouse  receipts);  instruments;  all
guaranties,  letters of credit,  steamship guaranties,  airway releases or other
similar  guaranties,  security  interests,  or  agreements  (including,  but not
limited to,  purchase money  security  interests  granted by Account  Debtors in
connection with  installment  sales);  all cash monies,  investment  properties,
deposits, securities, bank accounts, deposit accounts, and credit card receipts;

          (b) All inventory;

          (c) All equipment;

          (d) All chattel paper;

          (e) All claims, rights, interests,  assets and properties recovered by
or on behalf of Borrower  or any trustee of Borrower  (whether in the Chapter 11
Case or any  subsequent  case to which the  Chapter 11 Case is  converted),  but
excluding all rights and claims arising under Chapter 5 of the Bankruptcy Code;

          (f) All  leasehold  interests of Borrower,  together with all fixtures
and leasehold improvements;

          (g) All  rights  of  Borrower  under  the  promissory  notes and other
instruments  listed on SCHEDULE  3.1(G),  attached,  together with all rights of
Borrower in all security agreements and other documents or instruments  executed
in connection  with such  promissory  notes or in connection with any collateral

                                       12
<PAGE>
given in connection  therewith or as security therefor  (collectively all of the
foregoing is referred to herein as the "Sales Documents").

          (h) All  present and future  books and records  relating to any of the
above including,  without limitation, all present and future books of account of
every kind or nature,  purchase and sale  agreements,  invoices,  ledger  cards,
bills  of  lading  and  other  shipping  evidence,  statements,  correspondence,
memoranda, credit files and other data relating to the Collateral or any account
debtor,  together with the tapes,  disks,  diskettes and other data and software
storage  media and  devices,  file  cabinets  or  containers  in or on which the
foregoing  are stored  (including  any rights of Borrower with respect to any of
the foregoing maintained with or by any other person); and

          (i) Any and all  products  and  proceeds of the  foregoing in any form
including,  without  limitation,  all  insurance  claims,  warranty  claims  and
proceeds and claims  against third parties for loss or  destruction of or damage
to any or the foregoing.

     In  applying  the law of any  jurisdiction  that at any time  enacts all or
substantially all of the uniform  provisions of Revised Article 9 of the Uniform
Commercial Code, the foregoing collateral  description consists of all assets of
Borrower,  whether now owned or hereafter acquired, but excluding all rights and
claims arising under Chapter 5 of the Bankruptcy Code.

     SECTION  3.2  LIEN  DOCUMENTS.  At  Closing  or as  soon  thereafter  as is
reasonably  practicable,  and  thereafter as Lender deems  necessary in its sole
discretion,  Borrower  will execute and deliver to Lender,  or have executed and
delivered  (all in  form  and  substance  satisfactory  to  Lender  in its  sole
discretion):

          (a) UCC-1 Financing Statements pursuant to the Uniform Commercial Code
in effect in the  jurisdiction(s) in which Borrower  operates,  which Lender may
file in any  jurisdiction  where any  Collateral is or may be located and in any
other  jurisdiction  that  Lender  deems  appropriate;  PROVIDED  that a carbon,
photographic,  or other  reproduction  or other copy of this  Agreement  or of a
financing  statement  is  sufficient  as and may be filed in lieu of a financing
statement;

          (b)   Such   consents,    agreements,    estoppel   certificates   and
acknowledgements  from  third  parties  to  any  Franchise  Agreements,  leases,
contracts,  or other items of Collateral as Lender deems  reasonably  necessary,
together with such landlord consents and lien waivers as Lender deems reasonably
necessary; and

          (c) Any other agreements,  documents, instruments, and writings deemed
reasonably  necessary by Lender or as Lender may otherwise  request from time to
time to evidence,  perfect,  or protect Lender's liens and security interests in
the  Collateral  required  hereunder,  and to allow  Lender  to  enter  upon all
premises where any item of Collateral may be located and remove such  Collateral
upon an Event of Default.

          (d) The  original  promissory  notes  referenced  in SCHEDULE  3.1(G),
endorsed.

     Borrower   specifically  hereby  gives  Lender  permission  to  file  UCC-1
financing  statements in such  jurisdictions as Lender may determine,  including
without  limitation in the states of New York and Delaware,  to evidence  and/or
perfect the security interests and other rights granted herein.

                                       13
<PAGE>
     SECTION 3.3 COLLATERAL ADMINISTRATION.

          (a) Borrower will keep  accurate and complete  records of its Accounts
and Franchise  Agreements and all payments and collections  thereon,  and all of
the other Collateral,  and Borrower will submit to Lender on such periodic basis
as Lender will request a sales and collections  report for the preceding period,
in form  satisfactory to Lender.  If requested by Lender,  Borrower will execute
and  deliver  to Lender  formal  written  collateral  assignments  of all of its
Accounts,  Franchise  Agreements and leases weekly or daily,  which will include
all Accounts,  Franchise  Agreements and leases that have been created since the
date of the last assignment,  together with copies of claims,  invoices or other
information related thereto.

          (b) Whether or not an Event of Default has  occurred,  any of Lender's
officers,  employees  or  agents  will  have  the  right,  at any  time or times
hereafter,  in the name of Lender, any designee of Lender or Borrower, to verify
with any  Account  Debtor or the  obligor  under any  Franchise  Agreements  the
validity,  amount,  or any other  matter  relating to any  Accounts or Franchise
Agreement by mail,  telephone,  telegraph or otherwise.  Borrower will cooperate
fully  with  Lender  in an effort  to  facilitate  and  promptly  conclude  such
verification process.

          (c) To  expedite  collection,  Borrower  will  endeavor  in the  first
instance to make  collection of its Accounts and  Royalties  for Lender.  Lender
retains the right at all times after the occurrence  and during the  continuance
of an Event of Default to notify Account Debtors and  Franchisees  that Accounts
and Royalties  have been pledged and assigned to Lender and to collect  Accounts
and Royalties  directly in its own name and to charge the  collection  costs and
expenses, including reasonable attorneys' fees, to Borrower.

     SECTION 3.4 POWER OF  ATTORNEY.Subject to any applicable law or regulation,
each of the  officers  of Lender is hereby  irrevocably  made,  constituted  and
appointed the true and lawful  attorney for Borrower  (without  requiring any of
them to act as such) with full power of  substitution  to do the following:  (i)
upon the occurance of an Event of Default, endorse the name of Borrower upon any
and all checks,  drafts,  money orders, and other instruments for the payment of
money that are payable to Borrower  and  constitute  collections  on  Borrower's
Accounts;  (ii)  execute  in the  name of  Borrower  any  financing  statements,
schedules, assignments,  instruments, documents, and statements that Borrower is
obligated to give Lender hereunder or perfect Lender's security interest or lien
in any Collateral;  (iii) upon the occurance of an Event of Default,  direct any
Account Debtors,  to remit payments in relation to Borrower's  Accounts directly
to the Lender; and (iv) upon the occurance of an Event of Default, do such other
and  further  acts and  deeds  in the  name of  Borrower  that  Lender  may deem
reasonably  necessary  or  desirable  to enforce any Account or Royalty or other
Collateral.

                                       14
<PAGE>
                                   ARTICLE 4
                         REPRESENTATIONS AND WARRANTIES

     Borrower  hereby  represents and warrants to Lender,  knowing and intending
that Lender shall rely thereon in making the Loan  contemplated  hereby (each of
which  representations  and warranties shall be continuing unless expressly made
in relation only to a specific date), that:

     SECTION  4.1  FINANCING  ORDER.  The  Bankruptcy  Court Order has been duly
entered, is valid, subsisting and continuing and has not been vacated, modified,
reversed on appeal,  or vacated or modified by any order of the Bankruptcy Court
(other than as consented to by Lender) and is not subject to any pending  appeal
or stay;  and  Borrower  will not seek to have such Order  vacated  or  modified
without Lender's prior written  permission,  which permission may be withheld in
Lender's sole discretion.

     SECTION 4.2 EXISTENCE: GOOD STANDING.

          (a) Borrower (i) is a corporation duly organized, validly existing and
in good standing  under the laws of the state of its  incorporation,  (ii) is in
good  standing in all other states in which it is required to be qualified to do
business  as a  foreign  corporation,  and  (iii)  has all  requisite  power and
authority and full legal right to own or to hold under lease its  properties and
to carry on the business as presently engaged.

          (b)  Borrower  has  adequate  power and  authority  and has full legal
rights  to enter  into  each of the Loan  Documents  to which it is a party,  to
perform,  observe and comply with all of its  agreements and  obligations  under
each of such  documents,  and to obtain  all of the Loans  contemplated  by this
Agreement.

     SECTION 4.3  AUTHORITY.  The execution and delivery by Borrower of the Loan
Documents  to which it is a party,  the  performance  by  Borrower of all of its
agreements and obligations  under each of such  documents,  and the incurring by
Borrower of all of the Obligations  contemplated  by this  Agreement,  have been
duly  authorized  by all  necessary  actions  on the  part of  Borrower  and the
officers  and  directors  of each,  does not (a)  contravene  any  provision  of
Borrower's  charter  or bylaws or this  Agreement  (each as from time to time in
effect), (b) conflict with, or result in a breach of the terms,  conditions,  or
provisions of, or constitute a default  under,  or result in the creation of any
mortgage,  lien, pledge, charge, security interest or other encumbrance upon any
of the  property of Borrower  under any  material  agreement,  mortgage or other
instrument to which Borrower is or may become a party, (c) violate or contravene
any provision of any law, regulation, order, ruling or interpretation thereunder
or any  decree,  order or judgment or any court or  governmental  or  regulatory
authority,  bureau,  agency or official  (all as from time to time in effect and
applicable  to such entity),  (d) require any waivers,  consents or approvals by
any of the creditors or trustees for  creditors of Borrower,  or (e) require any
approval, consent, order, authorization,  or license by, or giving notice to, or
taking any other action with respect to, any governmental authority.

     SECTION 4.4 BINDING  EFFECT OF  DOCUMENTS.  Borrower has duly  executed and
delivered  each of the Loan  Documents  to which it is a party,  and each of the
Loan  Documents is valid,  binding and in full force and effect.  The agreements
and  obligations  of  Borrower  as  contained  in  each  of the  Loan  Documents
constitutes,  or upon  execution and delivery  thereof will  constitute,  legal,
valid and binding obligations of Borrower enforceable against each in accordance
with their respective terms, subject, as to the enforcement of remedies only, to
limitations imposed by federal and state laws regarding bankruptcy,  insolvency,

                                       15
<PAGE>
reorganization,  moratorium  and other  laws  affecting  creditors'  rights  and
remedies generally, and by general principles of law and equity.

     SECTION 4.5 NO EVENTS OF DEFAULT.  No Event of Default has  occurred and is
continuing and no event has occurred and is continuing  and no condition  exists
that would,  with notice or the lapse of time,  or both,  constitute an Event of
Default.

     SECTION 4.6 NO GOVERNMENTAL  CONSENT NECESSARY.  No consent or approval of,
giving of notice to,  registration with or taking of any other action in respect
of, any  governmental  authority  is  required  with  respect to the  execution,
delivery  and  performance  by  Borrower  of this  Agreement  and the other Loan
Documents  to  which it is a party  other  than the  filing  of UCC-1  Financing
Statements, and the recording of applicable leasehold mortgages.

     SECTION 4.7 NO  PROCEEDINGS.  There are no actions,  suits,  or proceedings
pending or, to the best of Borrower's knowledge, threatened against or affecting
Borrower in any court or before any  governmental  authority which, if adversely
determined,  would have an adverse  effect on the ability of Borrower to perform
its obligations  under this Agreement or the other Loan Documents to which it is
a party.

     SECTION  4.8  NO  VIOLATIONS  OF  LAWS.  Borrower  has  conducted,  and  is
conducting,  its  business,  so as to comply in all material  respects  with all
applicable  federal,  state,  county and  municipal  statutes  and  regulations.
Borrower or any officer, director or shareholder (except as previously disclosed
to Lender by Borrower) of Borrower is not charged with, or so far as is known by
Borrower,  is not under investigation with respect to, any violation of any such
statutes,  regulations or orders,  which could have a material or adverse effect
on the financial condition, business or operations of Borrower;

     SECTION 4.9 USE OF PROCEEDS OF THE LOAN.

          (a) The  proceeds  of the Loan shall be used by  Borrower  for general
operating  and working  capital  purposes in the ordinary  course of business of
Borrower,  pursuant to the Budget. Unless authorized by the Bankruptcy Court and
approved by Lender in writing, no portion of any administrative expense claim or
other claim relating to the Reorganization  Case shall be paid with the proceeds
of such Loans  provided by Lender to Borrower,  other than those  administrative
expense  claims and other claims  relating to the  Reorganization  Case directly
attributable to the operation of the business of Borrower in the ordinary course
of business.

          (b) Proceeds  from the Loan shall be used only for those  purposes set
forth in this  Agreement.  No part of the  proceeds  of the Loan  shall be used,
directly or  indirectly,  for the purpose of  purchasing  or carrying any margin
stock,  or for the  purpose of  purchasing  or  carrying or trading in any stock
under such  circumstances  as to involve  Borrower in a violation of  applicable
law. In particular, without limitation of the foregoing, no part of the proceeds
from the Loans are intended to be used to acquire any publicly-held stock of any
kind.

     SECTION 4.10 BUDGET. The Budget has been prepared by Borrower and presented
to Lender and has been  agreed to and  accepted  by Lender.  The Budget has been
thoroughly  reviewed by Borrower  and its  management  and sets forth  projected

                                       16
<PAGE>
operating cash disbursements,  and receiptscommencing as of Closing, through and
including  thirty (30) days after Closing.  Borrower  represents and warrants it
has made diligent and good faith  estimates to accurately  project in the Budget
all income  and  expenses.  Borrower  will  prepare  proposed  Budgets  for each
successive thirty (30) day periods,  which must be approved by Lender.  Borrower
represents  and  warrants  it will make  diligent  and good faith  estimates  to
accurately project in the successive  Budgets all income and expenses.  Borrower
will act strictly in  accordance  with the Budget and Lender has relied upon the
Budget and will rely upon  subsequent  Budgets in  determining to enter into the
post-petition financing arrangements provided for herein. Except as specifically
set forth in the Budget which has been approved by Lender, Borrower will make no
expenditures  without the prior consent of Lender,  unless  individually each is
less  than  $2,500.00,  and  cumulatively  the  same  do not  exceed  the sum of
$20,000.00 in any thirty (30) day period.

     SECTION 4.11 FINANCIAL STATEMENTS.

          (a) Subject to any  limitation  stated  therein,  all balance  sheets,
income statements and other financial data which have been or shall hereafter be
furnished to Lender to induce it to enter into this  Agreement,  and to continue
to provide  financing under this Agreement or otherwise in connection  herewith,
do and will fairly present the financial condition of Borrower as at the periods
for which the same are furnished to Lender. All other  information,  reports and
other  papers and data  furnished to Lender are, or will be at the time the same
are so furnished, true, accurate and complete in all material respects.

          (b) Except as shown on the most recent financial statements which have
been  delivered  to Lender,  Borrower has no other  indebtedness  as of the date
hereof which would  materially or adversely  affect the  financial  condition of
Borrower or the Collateral.

     SECTION  4.12 CHANGES IN  FINANCIAL  CONDITION.  There has been no material
change in Borrower's  financial  condition  since the date of its last financial
statements which have been delivered to Lender.

     SECTION 4.13  EQUIPMENT.  Borrower  shall keep its  equipment and all other
items of Collateral in good order and repair marketable condition, ordinary wear
and tear excepted.

     SECTION 4.14 TAXES AND  ASSESSMENTS.  Except as  specifically  set forth in
SCHEDULE 4.14,  attached,  Borrower has paid and discharged  when due all taxes,
assessments  and other  governmental  charges  which may  lawfully  be levied or
assessed upon its income and profits, or upon all or any portion of any property
belonging to it, whether real, personal or mixed, to the extent that such taxes,
assessment  and other  charges  have become due,  and Borrower has filed all tax
returns,  federal, state and local, and all related information,  required to be
filed by it.

     SECTION 4.15 ERISA.  Borrower is in  compliance  in all  respects  with the
applicable  provisions  of ERISA and all  regulations  issued  thereunder by the
United  States  Treasury  Department,  the  Department  of Labor and the Pension
Benefit Guaranty Corporation.

                                       17
<PAGE>
     SECTION 4.16 ENVIRONMENTAL  MATTERS.  Borrower has been issued all required
federal,  state and local  licenses,  certificates  or permits  relating  to the
operation of its business;  and Borrower and its facilities,  business,  assets,
property and equipment  (and, to the best of Borrower's  knowledge,  information
and belief,  all of the properties which Borrower leases and the properties upon
which  the  Franchisees  operate  their  franchises)  are in  compliance  in all
material respects with, all applicable federal,  state and local laws, rules and
regulations relating to air emissions,  water discharge,  noise emissions, solid
or liquid waste disposal,  hazardous waste or materials, or other environmental,
health or safety matters.

     SECTION 4.17  LOCATION OF  COLLATERAL.  As of the date hereof,  none of the
Collateral  is or will be  located  in or on any  property  other than those set
forth in SCHEDULE 4.17 of this Agreement.

     SECTION 4.18 OTHER LIENS.  Borrower  has good and  marketable  title to and
owns all of the Collateral free and clear of any and all liens,  encumbrances or
security  interests  whatsoever,   except  the  Permitted  Liens.  None  of  the
Collateral  is  subject  to  any  prohibition  against  encumbering,   pledging,
hypothecating  or assigning the same or requires notice or consent to Borrower's
doing of the same.

     SECTION  4.19 BOOKS AND RECORDS.  Borrower  maintains  its chief  executive
office and its books and  records  related to its  Accounts,  Inventory  and all
other Collateral at its address set forth in SCHEDULE 4.17 of this Agreement.

     SECTION 4.20 REPRESENTATIONS AND WARRANTIES: TRUE, ACCURATE AND COMPLETE.

          (a) None of the representations,  certificates, reports, warranties or
statements  now or hereafter made or delivered to Lender  pursuant  hereto or in
connection with this Agreement or the transactions  contemplated hereby contains
or will contain any untrue  statement of a material  fact, or omits or will omit
to state a material  fact  necessary in order to make the  statements  contained
herein and therein,  in light of the  circumstances  in which they are made, not
misleading.

          (b) All warranties and representations  made herein or in any the Loan
Documents by Borrower will be true and accurate in all material respects at each
time Borrower requests Lender to make an Advance hereunder.

     SECTION  4.21  LOCATION  OF  OFFICES.   SCHEDULE  4.17  hereto  sets  forth
Borrower's  chief  executive  office,  and  further  sets forth a  complete  and
accurate list of all offices and locations at or out of which Borrower  conducts
any of its business or operations.

     SECTION 4.22 FRANCHISE AGREEMENTS.

          (a) The  Franchise  Agreements  in effect as of the date hereof are as
set forth on SCHEDULE 4.22 annexed  hereto and made a part hereof,  and all such
Franchise  Agreements  are in full force and effect  and  constitute  the legal,
valid and binding  obligation of Borrower and each Franchisee party thereto.  No
material  events  of  default  exist  thereunder  and  there  exist no events or
conditions  which  with the  giving of notice or the lapse of time or both would
result  in a  material  event of  default.  Borrower  shall not  amend,  modify,
supplement or terminate any Franchise  Agreements or any exhibits thereto or any

                                       18
<PAGE>
related  agreement  now or  hereafter  entered  into  between a  Franchisee  and
Borrower, without the prior written consent of Lender.

          (b) Borrower shall advise each Franchisee, in writing, that payment of
all amounts under any  Franchise  Agreement or any  promissory  note executed by
such Franchisee in favor of Borrower has been assigned as collateral to Lender.

          (c) Borrower agrees to provide Lender with written notice within three
(3) Business Days after  Borrower  enters into any  Franchise  Agreement not set
forth on SCHEDULE 4.22 hereto (the "Additional Franchise  Agreements").  In each
instance, Borrower shall deliver to Lender true and accurate copies of each such
Additional  Franchise  Agreement.  Such Additional  Franchise Agreements and all
payments  arising  thereunder  shall  be  subject  to  the  provisions  of  this
Agreement.

          (d)  Borrower  shall  not make any  loans  or  advance,  to or for the
account  of any  Franchisee.  Borrower  has not  made  any  agreement  with  any
Franchisee  for any extension of time for the payment of any amounts  payable to
Borrower  under any Franchise  Agreement,  except as disclosed on SCHEDULE 4.22,
any compromise or settlement for less than the full amount thereof,  any release
of any Franchisee from liability therefor, or any deduction therefrom.  Borrower
will not make any agreement  with any  Franchisee  for any extension of time for
the payment of any amounts  payable to Borrower  under any Franchise  Agreement,
other  than in the  ordinary  course of  business  and in  accordance  with past
practices of Borrower and  practices  not  uncommon to the  industry,  and in no
event where any amount  would be deferred for any period of time longer than six
months. Borrower further acknowledges, confirms and agrees that no payments have
been or shall be made in respect of the foregoing  except  payments  immediately
delivered to the Lender as required hereunder.  In the event that any obligation
due and owing Borrower by any Franchisee is evidenced by an instrument,  note or
chattel paper, Borrower shall deliver such original instrument,  note or chattel
paper to Lender, duly endorsed in favor of Lender.

          (c) Borrower  represents  that the franchise  agreements are valid and
not cancellable as a result of insolvency, Chapter 11 or Chapter 7 bankruptcy in
which the DIP survives  operationally  as a successor  company and  continues to
meet its obligations to the Franchisees.

          (d) Borrower  will perform when due all of its  obligations  under the
Franchise Agreements,  and will promptly notify Lender of any default thereunder
by any party or the existence of any event or condition which with the giving of
notice or the lapse of time or both would result in a default  thereunder by any
party.

     SECTION 4.23 LEASES.

          (a) The real property  leases (the  "Leases") in effect as of the date
hereof are as set forth on SCHEDULE 4.23 annexed  hereto and made a part hereof,
and all such Leases are in full force and effect and constitute the legal, valid
and binding  obligations of the Borrower and each lessor  thereto.  No events of
default  (other  than any default  which by the terms of the Leases  would occur
solely as a result of the filing of the  Reorganization  Case) exist  thereunder
and there exist no events or  conditions  which with the giving of notice or the
lapse of time or both would  result in an event of default.  Borrower  shall not
amend, modify, supplement or terminate any Leases or any exhibits thereto or any

                                       19
<PAGE>
related  agreement now or hereafter  entered into between a lessor and Borrower,
without the prior written consent of Lender.

          (b) Borrower shall advise each lessor, in writing, that the applicable
Lease has been assigned as collateral to Lender.

          (c) Borrower agrees to provide Lender with written notice within three
(3) Business Days before  Borrower  enters into any real property  lease not set
forth on SCHEDULE  4.23  hereto  (the  "Additional  Lease").  In each  instance,
Borrower shall deliver to Lender true and accurate  copies of each such proposed
Additional  Lease  and  Lender's  written  consent  shall be  required  prior to
Borrower  executing such Additional  Lease. If approved,  such Additional  Lease
shall be subject to the  provisions  of this  Agreement and shall be assigned by
Borrower to Lender as additional Collateral. Borrower represents that the Leases
are valid and in full force and effect and there  exists no default by any party
thereunder and no event or condition  which with the lapse of time or the giving
of notice or both would result in a default thereunder by any party thereto.

          (d) Borrower  will perform when due all of its  obligations  under the
Leases,  and will promptly notify Lender of any default  thereunder by any party
or the  existence of any event or  condition  which with the giving of notice or
the lapse of time or both would result in a default thereunder by any party.

     SECTION 4.24 SALES DOCUMENTS.

          (a) The Sales  Documents  are in full force and effect and  constitute
the legal,  valid and binding  obligations  of Borrower and each and every other
party thereto.  No events of default exist  thereunder and there exist no events
or conditions which with the giving of notice or the lapse of time or both would
result in an event of default.  Borrower shall not amend, modify,  supplement or
terminate any Sales Documents or any exhibits  thereto or any related  agreement
now or hereafter entered into in connection  therewith without the prior written
consent of Lender.

          (b) Borrower shall advise each obligor under the Sales  Documents,  in
writing, that the Sales Documents have been assigned as collateral to Lender.

          (c) Borrower  will perform when due all of its  obligations  under the
Sales  Documents,  and will promptly notify Lender of any default  thereunder by
any party or the  existence of any event or  condition  which with the giving of
notice or the lapse of time or both would result in a default  thereunder by any
party.

          (d) Borrower has not made,  and will not make,  any agreement with any
obligor  under any Sales  Document for any  extension of time for the payment of
any amounts  payable to Borrower  under any Sales  Document,  any  compromise or
settlement  for less than the full  amount  thereof,  any release of any obligor
from liability  therefor,  or any deduction  therefrom without the prior written
consent of Lender.  Borrower further  acknowledges,  confirms and agrees that no
payments have been or shall be made in respect of the foregoing  except payments
immediately delivered to the Lender as required hereunder. In the event that any
obligation  due and owing Borrower by any obligor is evidenced by an instrument,
note or chattel paper, Borrower shall deliver such original instrument,  note or
chattel paper to Lender, duly endorsed in favor of Lender

                                       20
<PAGE>
     SECTION 4.25  COLLATERAL.  Borrower  owns all of the  Collateral,  free and
clear of all claims, liens and encumbrances, other than the Permitted Liens.

     Each  representation  and warranty by Borrower contained in this Article 4,
and those contained  elsewhere in this  Agreement,  shall be deemed to have been
made by each entity  comprising  Borrower  and made about such entity as well as
about each and every other entity comprising Borrower.

                                   ARTICLE 5
                        CLOSING AND CONDITIONS OF LENDING

     The obligation of Lender to make each Advance under this Agreement shall be
subject to the  satisfaction or waiver by Lender,  prior thereto or concurrently
therewith, of each of the following conditions precedent:

     SECTION 5.1 LOAN DOCUMENTS. Each of the Loan Documents shall have been duly
and properly authorized,  executed and delivered by the parties hereto and shall
be in full  force and  effect on and as of the date  hereof  and shall have been
duly and properly  authorized,  executed and delivered by Borrower and the other
parties  thereto  and shall be in full  force  and  effect on and as of the date
hereof.

     SECTION 5.2 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties  made by or on behalf of Borrower to Lender in this  Agreement  or in
any other Loan Documents  shall be true and correct in all material  respects on
the date hereof.

     SECTION 5.3 CERTIFIED COPIES OF DOCUMENTS.  Lender shall have received from
Borrower, (a) for Ranch *1, Inc., Ranch *1 Group, Inc., and Ranch *1 Metro, Inc.
(and Borrower shall use its best efforts to provide in connection with the other
entities comprising  Borrower) certified by a duly authorized officer to be true
and complete on and as of a date which is not more than ten (10)  Business  Days
prior to the date hereof,  a copy of each of the certificate of incorporation or
such  other  incorporation  documents  of  Borrower  in  effect  on such date of
certification,  the articles of incorporation  and by-laws of Borrower in effect
on such  date,  and a  certificate  of  good  standing  from  the  state  of its
formation, and (b) each Franchise Agreement,  each Lease and all Sales Documents
(including the original promissory notes).

     SECTION 5.4 PROOF OF ACTION.  Lender shall have  received  from  Borrower a
copy,  certified by a duly authorized  officer to be true and complete on and as
of the date  which is not more  than ten (10)  Business  Days  prior to the date
hereof,  of the records of all action  taken by Borrower to  authorize:  (a) its
execution  and  delivery of each of the Loan  Documents  to which it is or is to
become  a  party  as  contemplated  or  required  by  this  Agreement,  (b)  its
performance  of all  of its  agreements  and  obligations  under  each  of  such
documents,  and  (c)  the  incurring  of the  Obligations  contemplated  by this
Agreement.

                                       21
<PAGE>
     SECTION 5.5 SEARCHES.  Such Uniform  Commercial  Code and other searches as
Lender shall reasonably  require to evidence the Collateral is free and clear of
all claims, liens and encumbrances other than the Permitted Liens.

     SECTION 5.6 COLLATERAL.

          (a) All of the  Obligations  of Borrower to Lender under or in respect
of this Agreement  shall be entitled to all of the benefits of and be secured by
this  Agreement  and the Loan  Documents,  and  Lender  shall  have  obtained  a
first-priority,  perfected  security  interest in the  Collateral  of  Borrower,
subject only to the Permitted Liens.

          (b) The Loan  Documents  and all other  documents in respect  thereto,
which shall create and maintain a first perfected  security interest in favor of
Lender and the appropriate financing statements in respect thereto and necessary
to enable Lender to perfect its security interests  thereunder,  shall have been
duly executed and delivered by Borrower to Lender.

     SECTION 5.7 INSURANCE. Lender shall have received evidence of insurance and
loss payee  endorsements  required hereunder and under the other Loan Documents,
in form and substance  satisfactory  to Lender,  and  certificates  of insurance
policies and/or endorsements naming Lender as loss payee as required hereunder.

     SECTION 5.8 INTENTIONALLY OMITTED.

     SECTION 5.9 ASSIGNMENTS.  All existing Franchise Agreements,  notes, Leases
and royalty  agreements  between Borrower and third parties shall be assigned by
Borrower to Lender as  Collateral  for the  Obligations,  and Lender  shall have
received  from  all  other  parties  thereto  such  acknowledgments,   consents,
agreements  and estoppel  certificates  as Lender  shall in its sole  discretion
require.

     SECTION 5.10  FINANCIAL  PROJECTIONS.  Borrowers  shall provide Lender with
financial projections in form and substance satisfactory to Lender.

     SECTION 5.11 MATTERS RELATING TO THE REORGANIZATION CASE.

          (a) No  trustee,  examiner  or  receiver  or the like  shall have been
appointed   or   designated   with   respect   to   Borrower,   as  debtor   and
debtor-in-possession,  or its business,  properties  and assets and no motion or
proceeding shall be pending seeking such relief;

          (b)  Satisfactory  review  by  counsel  for  Lender  of  legal  issues
attendant to the post-petition financing transactions contemplated hereunder;

          (c)  Borrower   shall  comply  in  full  with  the  notice  and  other
requirements  of the  Bankruptcy  Code  and  the  applicable  Federal  Rules  of
Bankruptcy  Procedure with respect to any relevant  Bankruptcy  Court Order in a
manner  acceptable  to Lender and its  counsel,  and such Order  shall have been
entered by the Bankruptcy Court authorizing the secured financing under the Loan
Documents  on the terms and  conditions  set forth in this Loan  Agreement  and,
INTER ALIA,  modifying the automatic  stay,  authorizing and granting the senior
security  interest in liens in favor of Lender  described in this Loan Agreement

                                       22
<PAGE>
and in the Bankruptcy Court Order, and granting super-priority expense claims to
Lender with respect to all  obligations due Lender.  The Bankruptcy  Court Order
shall authorize  post-petition  financing under the terms set forth in this Loan
Agreement in an amount  acceptable  to Lender,  and it shall  contain such other
terms or provisions as Lender and its counsel shall require;

          (d) With  respect to further  credit after  expiration  of the Interim
Orders, on or before the expiration of the Interim Orders,  the Bankruptcy Court
shall have  entered the Final Order  authorizing  the secured  financing  on the
terms and  conditions set forth in this Loan  Agreement,  granting to Lender the
senior  security   interest  and  liens   described  above  and   super-priority
administrative  expense claims described above, modifying the automatic stay and
other provisions required by Lender and its counsel and Lender shall not provide
any Advances (or other  financial  accommodations)  other than those  authorized
under the Interim Orders unless, on or before the ninetieth (90th) day following
the Petition Date,  the Final Order shall have been entered,  and there shall be
no appeal or other  contest  with  respect to either the  Interim  Orders or the
Final Order and the time to appeal to contest such order shall have expired;

          (e) Other than the  commencement  of the Chapter 11 Case,  no material
impairment  of the priority of Lender's  security  interests  in the  Collateral
shall have occurred from the date of the latest field  examinations of Lender to
the Petition Date; and

          (f) As a condition  precedent to any Advances later than  seventy-five
(75) days after the Closing, Borrower shall have filed an Approved Plan.

     SECTION 5.12  CLOSING.  Closing shall occur on July 5, 2001 and the Closing
Date shall be July 5, 2001 (the "Closing" and "Closing Date").

     SECTION 5.13 LANDLORD CONSENTS. Lender shall receive such landlord consents
and lien waivers as Lender shall require.

     SECTION 5.14 WAIVERS.  Lender may in its sole discretion  waive one or more
conditions precedent for one or more Advances, PROVIDED, HOWEVER, such waiver(s)
shall not be deemed to apply to future Advances,  and as to such future Advances
Lender may as a condition  precedent to such funding insist on strict compliance
with all conditions precedent and other terms and conditions of this Agreement.

                                   ARTICLE 6
                              AFFIRMATIVE COVENANTS

     Until  payment  and  satisfaction  in  full  of  all  Obligations  and  the
termination of this Agreement, Borrower hereby covenants and agrees as follows:

     SECTION 6.1 NOTIFY LENDER. Borrower shall promptly inform Lender if any one
or more of the representations and warranties made by Borrower in this Agreement
or in any document related hereto shall no longer be entirely true, accurate and
complete in any material  respect,  provided,  the foregoing shall not be deemed
consent to any error or falsity in the same.

                                       23
<PAGE>
     SECTION  6.2 PAY TAXES AND  LIABILITIES;  COMPLY WITH  AGREEMENT.  Borrower
shall promptly pay, when due, all indebtedness, sums and liabilities of any kind
now or  hereafter  owing by Borrower  to any party  however  created,  incurred,
evidenced,  acquired,  arising or  payable,  including  without  limitation  the
Obligations,  income taxes, excise taxes, sales and use taxes, license fees, and
all other taxes with respect to any of the Collateral,  or any wages or salaries
paid by Borrower or otherwise,  unless the validity of which are being contested
in good faith by Borrower by  appropriate  proceedings,  provided  that Borrower
shall have  maintained  reasonably  adequate  reserves and accrued the estimated
liability on Borrower's balance sheet for the payment of same.

     SECTION 6.3 OBSERVE COVENANTS.  Borrower shall timely observe,  perform and
comply with the  covenants,  terms and  conditions of this  Agreement,  the Loan
Documents and any other agreement or document  entered into between Borrower and
Lender.

     SECTION 6.4 MAINTAIN EXISTENCE AND QUALIFICATIONS.  Borrower shall maintain
and preserve in full force and effect,  its  existence  and rights,  franchises,
licenses and qualifications  necessary to continue its business, and comply with
all  applicable  statutes,  rules and  regulations  pertaining to the operation,
conduct  and  maintenance  of its  existence  and  business  including,  without
limitation,  all  federal,  state and local  laws  relating  to  benefit  plans,
environmental  safety,  or health  matters,  and  hazardous  or liquid  waste or
chemicals  or  other  liquids  (including  use,  sale,  transport  and  disposal
thereof), if such failure would have a material adverse effect on the Borrower.

     SECTION 6.5 INFORMATION  AND DOCUMENTS TO BE FURNISHED TO LENDER.  Borrower
shall  deliver or cause to be delivered to Lender in form  acceptable to Lender:
(a)  annual  financial  statements  within 60 days of the fiscal  year end;  (b)
interim  financial   statements   consisting  of  compiled  quarterly  financial
statements  to be provided  within 30 days of each end of  quarter,  and monthly
internal  statements  to be  provided  within 20 days of month  end;  (c) weekly
Royalties and note collection reports,  due no later than Wednesday of each week
for the preceding week; (d) notice of judgments, environmental, health or safety
complaints  within 5 days of  receipt;  (e)  within  ten (10)  days  thereafter,
written notice to Lender of the entry of any judgment or the  institution of any
lawsuit or of other  legal or  equitable  proceedings  or the  assertion  of any
crossclaim or counterclaim  seeking  monetary damages from Borrower in an amount
exceeding  $5,000;  (f)  within  ten (10) days  thereafter,  notice or copies if
written of all claims, complaints,  orders, citations or notices, whether formal
or informal,  written or oral,  from a  governmental  body or private  person or
entity,  relating to air emissions,  water discharge,  noise emission,  solid or
liquid waste disposal, hazardous waste or materials, or any other environmental,
health or safety matter, which materially and adversely effect Borrower; and (g)
upon demand,  such other information as Lender may reasonably  request from time
to time, including financial projections and cash flow analysis.

     SECTION 6.6 COMPLY WITH LAWS.  Borrower shall comply with the  requirements
of all  applicable  laws,  rules,  regulations  and  orders of any  governmental
authority,  compliance  with  which  is  necessary  to  maintain  its  corporate
existence  or the  conduct of its  business or  non-compliance  with which would
adversely  affect in any material respect its ability to perform its obligations
or any security given to secure its obligations.

                                       24
<PAGE>
     SECTION 6.7 INSURANCE REQUIRED.

          (a) Borrower shall cause to be maintained, in full force and effect on
all  property of Borrower  insurance  in such  amounts  against such risks as is
reasonably  satisfactory to Lender,  including,  but without  limitation,  fire,
boiler,  theft,  burglary,  pilferage,  vandalism,  malicious mischief,  loss in
transit,  and hazard  insurance  and, if as of the date hereof,  any of the real
property of Borrower is in an area that has been  identified by the Secretary of
Housing and Urban Development as having special flood or mudslide  hazards,  and
on which the sale of flood  insurance has been made available under the National
Flood Insurance Act of 1968, then Borrower shall maintain flood insurance.  Said
policy or policies shall:

               (i) be in a form and with  insurers  which  are  satisfactory  to
Lender;

               (ii) be for such risks and for such  insured  values as Lender or
its assigns may require in order to replace the  property in the event of actual
or constructive total loss;

               (iii) designate Lender and its assignees,  as additional  insured
and loss payees as their interests may from time to time appear;

               (iv)  contain a "breach of warranty  clause"  whereby the insurer
agrees that a breach of the insuring conditions or any negligence by Borrower or
any other  person  shall  not  invalidate  the  insurance  as to Lender  and its
assignee;

               (v) provide that they may not be canceled or  materially  altered
without ten (10) days prior notice to Lender and its assigns; and

               (vi) upon demand, be delivered to Lender;

          (b) Borrower shall obtain,  maintain and provide to Lender evidence of
personal  liability  coverages in minimum  amounts not less than  $5,000,000 for
each occurrence, $5,000,000 for injury or death of any person and $5,000,000 for
property  damage  (provided,  the  foregoing  required  minimum  amounts  may be
satisfied through appropriate  umbrella policies),  containing such endorsements
as are  common  with  like  businesses,  naming  Lender  and  its  assignees  as
additional  insured  and loss  payees as their  interests  may from time to time
appear,  and providing it may not be canceled or materially  altered without ten
(10) days prior notice to Lender and its assigns;

          (c) Borrower shall obtain,  maintain and provide to Lender evidence of
worker's compensation insurance coverage satisfactory to Lender.

          (d)  Borrower  shall  obtain such  additional  insurance as Lender may
reasonably require,  which may include,  without limitation,  insurance covering
vandalism and malicious  mischief,  sprinkler  leakage,  rent  abatement  and/or
business loss.

          (e) Borrower shall, in the event of loss or damage,  forthwith  notify
Lender and file proofs of loss with the appropriate insurer; and

                                       25
<PAGE>
          (f)  Borrower  shall  forthwith  upon  receipt of  insurance  proceeds
endorse and deliver the same to Lender.

     SECTION 6.8 CONDITION OF COLLATERAL;  NO LIENS. Borrower shall maintain all
Collateral  in good  condition  and  repair at all times,  normal  wear and tear
excepted, and preserve it against any loss, damage, or destruction of any nature
whatsoever relating to said Collateral or its use, and keep said Collateral free
and clear of any Liens, except the Permitted Liens permitted hereunder.

     SECTION 6.9 PAYMENT OF PROCEEDS. Prior to an Event of Default, all proceeds
of Collateral  received in other than the ordinary  course of business,  such as
proceeds  from the sale of a store,  will be  immediately  paid to  Lender to be
applied to the amounts  owing Lender under this  Agreement,  whether or not then
due and payable.  Subsequent to an Event of Default,  Borrower  shall  forthwith
upon receipt of all proceeds of Collateral,  pay such proceeds over to Lender to
be applied to the amounts owing Lender under this Agreement, whether or not then
due and payable.

     SECTION  6.10  RECORDS.  Borrower  shall at all  times  keep  accurate  and
complete  records of its  operations and of the  Collateral,  and shall make the
same  available for  inspection,  review and copying from time to time as Lender
shall reasonably request.

     SECTION 6.11 DELIVERY OF DOCUMENTS. If any Collateral shall include, or any
of the Collateral shall be evidenced by, notes, trade acceptances or instruments
or  documents,  or if any  inventory is covered by documents of title or chattel
paper, whether or not negotiable, then Borrower waives protest regardless of the
form of the  endorsement.  If  Borrower  fails  to  endorse  any  instrument  or
document, Lender is authorized to endorse it on Borrower's behalf.

     SECTION  6.12 UNITED  STATES  CONTRACTS.  If any  Collateral  arises out of
contracts  with  the  United  States  or  any of its  departments,  agencies  or
instrumentalities,  Borrower  will notify  Lender,  and, if requested by Lender,
execute any necessary  instruments in order that all monies due or to become due
under such contract  shall be assigned as collateral to Lender and proper notice
of the assignment given under the Federal Assignment of Claims Act.

     SECTION 6.13 NAME CHANGES; LOCATION CHANGES.

          (a) Borrower shall  promptly  notify Lender if Borrower is known by or
conducting  business  under  any  names  other  than  those  set  forth  in this
Agreement; and

          (b)  Borrower  shall  deliver  not less than  thirty  (30) days  prior
written  notice to Lender if Borrower  intends to conduct any of its business or
operations at or out of offices or locations  other than those set forth in this
Agreement,  or if it changes the location of its chief  executive  office or the
address at which it  maintains  its books and records or the  location of any of
the Collateral.

     SECTION 6.14 FURTHER ASSURANCES. Borrower shall at any time or from time to
time upon  request of Lender take such steps and execute and deliver  such other
and further documents and instruments as Lender may reasonably request from time
to time to  evidence or carry out the intent of the parties as set forth in this
Agreement  and to preserve,  maintain,  clarify or give effect to the rights and
remedies  intended by this  Agreement to be given to Lender,  including  without
limitation,  the execution of such financing  statements and other documents all

                                       26
<PAGE>
in the form of  substance  satisfactory  to  Lender  relating  to the  creation,
validity or perfection of the security interests provided for herein,  under the
UCC or other  laws of the  State of New York or of  another  state or  states in
which the Collateral is located or which are reasonably  necessary to effectuate
the purposes and provisions of this Agreement.

     SECTION 6.15  INDEMNIFICATION.  Borrower  shall and hereby does  indemnify,
protect,  defend and save  harmless  Lender,  as well as  Lender's  members  and
managers,  parents,  subsidiaries,  directors,  officers,  trustees,  employees,
agents,   and  shareholders   (hereinafter   referred  to  collectively  as  the
"Indemnified  Parties"  and  individually  as an  "Indemnified  Party") from and
against (a) any and all losses, damages,  expenses or liabilities of any kind or
nature  and from any  suits,  claims  or  demands,  by third  parties  including
reasonable  counsel fees  incurred in  investigating  or  defending  such claim,
suffered by any of them and caused by,  relating to,  arising out of,  resulting
from, or in any way connected  with the Loan and the  transactions  contemplated
herein, (b) any and all losses, damages,  expenses or liabilities of any kind or
nature  and from any  suits,  claims  or  demands,  by third  parties  including
reasonable  counsel fees  incurred in  investigating  or  defending  such claim,
suffered by any of them and caused by,  relating to,  arising out of,  resulting
from, or in any way connected with the breach of any  representation or warranty
or obligation of Borrower contained herein, and (c) any and all losses, damages,
expenses or liabilities sustained by Lender in connection with any environmental
liabilities  and costs,  provided,  however,  Borrower shall not be obligated to
indemnify,  protect, defend and save harmless an Indemnified Party, if the loss,
damage,  expense or liability was caused by or resulted  solely from the willful
misconduct of that  Indemnified  Party as  determined by a final  non-appealable
order of a court or Governmental  Authority of competent  jurisdiction.  In case
any action shall be brought  against an Indemnified  Party based upon any of the
above and in respect to which  indemnity  may be sought  against  Borrower,  the
Indemnified  Party against whom such action was brought,  shall promptly  notify
Borrower in writing,  and Borrower shall assume the defense  thereof,  including
the employment of counsel  selected by Borrower and reasonably  satisfactory  to
the  Indemnified  Party,  the payment of all costs and expenses and the right to
negotiate and consent to settlement.  Upon reasonable  determination made by the
Indemnified Party, the Indemnified Party shall have the right to employ separate
counsel in any such action and to participate in the defense thereof;  provided,
however that the Indemnified  Party shall pay the costs and expenses incurred in
connection with the employment of separate counsel. Borrower shall not be liable
for any  settlement  of any such  action  effected  without its  consent,  which
consent  shall not be  unreasonably  withheld,  but if settled  with  Borrower's
consent,  or if there be a final  judgment  for the claimant in any such action,
Borrower  agrees to indemnify and save harmless said  Indemnified  Party against
whom such action was brought from and against any loss or liability by reason of
such settlement or judgment,  except as otherwise provided above. The provisions
of this Section shall survive the  termination  of this  Agreement and the final
repayment of the Obligations. All costs and expenses which are indemnified under
this Section shall be reimbursed to the Indemnified Parties as incurred.

     SECTION 6.16  NOTIFICATION  OF EVENTS OF DEFAULT AND ADVERSE  DEVELOPMENTS.
Borrower  promptly will notify Lender upon the  occurrence  of: (i) any Event of
Default;  (ii) any event which,  with the giving of notice or lapse of time,  or
both, could constitute an Event of Default;  (iii) any judicial,  administrative
or  arbitration  proceeding  pending  against  Borrower,  and  any  judicial  or
administrative  proceeding known by Borrower to be threatened  against it which,
if  adversely  decided,  could  adversely  affect its  condition  (financial  or

                                       27
<PAGE>
otherwise)  or  operations  (present  or  prospective);  (iv) any  post-petition
default  claimed by any other creditor for Borrowed Money of Borrower other than
Lender;  and (v) any other  development  in the  business or affairs of Borrower
which may be materially  adverse; in each case describing the nature thereof and
(in the case of  notification  under  clauses (i) and (ii)) the action  Borrower
propose to take with respect thereto.

     SECTION 6.17  APPROVED  PLAN.  Borrower will file an Approved Plan no later
than  seventy-five  (75) days  after  Closing,  and  thereafter  will not amend,
withdraw  or modify the  Approved  Plan  without  the prior  written  consent of
Lender.

                                   ARTICLE 7
                               NEGATIVE COVENANTS

     Without  limiting  its other  Obligations  under this  Agreement,  Borrower
covenants  and agrees that so long as Borrower  may borrow  hereunder  and until
payment in full of the Note and performance of all other Obligations of Borrower
under the Loan Documents:

     SECTION 7.1 LIENS AND  ENCUMBRANCES.  Unless otherwise agreed to in writing
by  Lender,  Borrower  will not  create,  incur,  assume  or suffer to exist any
mortgage,  pledge,  lien or other  encumbrance of any kind (including the charge
upon  property  purchased  under a  conditional  sale or other  title  retention
agreement) upon, or any security interest in, any of the Collateral, whether now
owned or hereafter acquired, except for Permitted Liens.

     SECTION 7.2 MERGER, ACQUISITION, OR SALE OF ASSETS. Borrower will not enter
into any merger or consolidation with or acquire all or substantially all of the
assets of any Person,  and,  without the prior written  consent of Lender (which
consent may be withheld in Lender's sole  discretion),  will not sell, lease, or
otherwise  dispose of any of its  assets  except in the  ordinary  course of its
business, unless the same is ordered by the Bankruptcy Court, in which event all
proceeds  resulting  from the same will be paid to  Lender  and  applied  to all
amounts owing under this Agreement, whether or not then due and payable.

     SECTION 7.3 LOANS. Borrower will not make loans or advances to any Person.

     SECTION 7.4 CONTINGENT  LIABILITIES.  Borrower will not assume,  guarantee,
endorse,  contingently  agree to purchase or  otherwise  become  liable upon the
obligation of any Person,  except by the  endorsement of negotiable  instruments
for deposit or  collection  or similar  transactions  in the ordinary  course of
business and in connection with borrowings permitted by this Agreement.

     SECTION 7.5  SUBSIDIARIES.  Without  prior  written  consent  from  Lender,
Borrower will not form any subsidiary,  or make any investment in or any loan in
the nature of an investment to, any other Person.

     SECTION 7.6 TRANSACTIONS WITH AFFILIATES.  Borrower will not enter into any
transaction,  including  without  limitation the purchase,  sale, or exchange of
property,  or the  loaning or giving of funds to any  Affiliate  or  subsidiary,
except in the  ordinary  course  of  business  and  pursuant  to the  reasonable
requirements of Borrower's  businesses and upon terms substantially the same and
no less favorable to Borrower as they would obtain in a comparable  arm's length

                                       28
<PAGE>
transaction  with any Person not an Affiliate or subsidiary,  and so long as the
transaction is not otherwise prohibited hereunder.

     SECTION 7.7 USE OF LENDER'S  NAME.  Borrower will not use Lender's name (or
the name of any of Lender's  affiliates) in connection  with any of its business
operations unless consented to by Lender. Borrower may disclose to third parties
that  Borrower  have  a  borrowing  relationship  with  Lender.  Nothing  herein
contained  is intended to permit or  authorize  Borrower to make any contract on
behalf of Lender.

     SECTION 7.8  CONTRACTS  AND  AGREEMENTS.  Borrower  will not become or be a
party to any material  contract or agreement  which would breach this Agreement,
or  breaches  any other  material  instrument,  agreement,  or document to which
Borrower are a party or by which  Borrower  are or may be bound unless  Borrower
believes in good faith that Borrower has a valid legal basis for such breach.

     SECTION 7.9 TRUTH OF STATEMENTS AND CERTIFICATES. Borrower will not furnish
to Lender any  certificate or other document that contains any untrue  statement
of a material fact or that omits to state a material  fact  necessary to make it
not misleading in light of the circumstances under which it was furnished.

     SECTION  7.10  PROHIBITION  ON  AMENDMENTS  TO  ORGANIZATIONAL   DOCUMENTS.
Borrower  will  not  amend,  modify,  restate,   supplement,  or  terminate  its
respective  certificate  of  incorporation  or bylaws  (or other  organizational
documents)  in  any  manner  that  would  materially  affect  the  validity  and
enforceability  of  the  Obligations  or  such  Borrower's   ability  to  borrow
hereunder, or that would materially impair any security for the Obligations.

     SECTION 7.11 OTHER OBLIGATIONS. Borrower will not without the prior written
consent of Lender, enter into any new obligations with any Person, other than in
the ordinary course of business.

                                   ARTICLE 8
                                EVENTS OF DEFAULT

     The occurrence of any of the following shall constitute an event of default
(hereinafter referred to as an "Event of Default"):

     SECTION 8.1 FAILURE TO PAY.  The failure by Borrower to pay,  when due, any
payment of principal, interest or other charges due and owing to Lender pursuant
to any obligations of Borrower to Lender including,  without  limitation,  those
Obligations  arising  pursuant to this Agreement or any Loan Document,  or under
any other agreement for the payment of monies then due and payable to Lender, if
the same continues for a period of five (5) days after notice to Borrower.

     SECTION 8.2 FAILURE OF INSURANCE. Failure on the part of Borrower to pay or
cause to be paid all premiums when due, or within any  applicable  grace period,
on the insurance policies pursuant to this Agreement; failure to take such other
action as may be  reasonably  requested by Lender in order to keep said policies
of insurance in full force and effect until the entire indebtedness  represented
by the Loan Documents, and interest thereon, has been paid in full.

                                       29
<PAGE>
     SECTION  8.3  FAILURE TO  PERFORM.  Except as  otherwise  provided  herein,
Borrower's failure to perform or observe any covenant, term or condition of this
Agreement  or any other Loan  Document to be  performed or observed by Borrower,
PROVIDED,  HOWEVER,  if the same can  reasonably  be cured  within five (5) days
without  material  harm to  Lender,  and if the same  failure  has not  occurred
previously, Borrower shall have five (5) days following receipt of notice within
which to cure the same and if cured no Event of Default shall exist.

     SECTION 8.4 CROSS DEFAULT.

          (a) The occurrence of any Event of Default on any of the  Obligations,
an  Event of  Default  under  any  Loan  Document  so that  the  holder  of such
obligation or  indebtedness  has  accelerated or has a right to accelerate  such
obligation or indebtedness, if the same is not cured within any applicable grace
or cure period contained in such document.

          (b) INTENTIONALLY OMITTED.

          (c) The failure of Borrower to perform as required any  obligation  of
Borrower under any court order by which Borrower is bound.

     SECTION 8.5 FALSE REPRESENTATION OR WARRANTY.  Borrower shall have made any
statement,  representation  or warranty in this Agreement or in any of the other
Loan  Documents to which it is a party or in a certificate  executed by Borrower
incident to this Agreement, which is at any time found to have been false in any
material respect at the time such representation or warranty was made.

     SECTION  8.6  MATTERS  RELATING  TO  BORROWER'S  REORGANIZATION  CASE.  The
occurrence of any of the following in the  Reorganization  Case shall constitute
an Event of Default hereunder, during the continuance of which Event of Default,
Lender  shall  not be  required  to make any  Advances  or to  extend  any other
financial accommodations to or for the benefit of the Borrower:

          (a) The failure of Borrower to comply with any order of the Bankruptcy
Court which order provides a remedy to Lender in the event of Borrower's failure
to comply; or

          (b) The  termination  or non-renewal of the Loan Documents as provided
for in the Interim Orders or the Final Order; or

          (c) Borrower  suspends or  discontinues or is enjoined by any court or
governmental  agency from  continuing to conduct all or any material part of its
business or if a trustee, receiver or custodian is appointed for Borrower or any
of its properties; or

          (d) Any  act,  condition  or  event  occurring  after  the date of the
commencement of the Reorganization  Case that has a material adverse effect upon
the assets of Borrower  when taken as a whole or the  Collateral or the value of
the rights and  remedies of Lender  under this Loan  Agreement or any other Loan
Documents; or

          (e) Conversion of Borrower's  Reorganization  Case to a Chapter 7 case
under the Bankruptcy Code; or

                                       30
<PAGE>
          (f)  Dismissal of  Borrower's  Reorganization  Case or any  subsequent
Chapter 7 case either voluntarily or involuntarily; or

          (g) The  grant  of a lien on or  other  interest  in any  property  of
Borrower  (other than a lien or encumbrance  permitted by this Loan Agreement or
by  the  Interim  Orders  or  Final  Order)  or the  grant  or  allowance  of an
administrative  expense  claim (other than such  administrative  expense  claims
permitted by the Interim  Orders or Final Order or this Loan  Agreement)  by the
Bankruptcy  Court,  in each case,  which is  superior to or ranks in parity with
Lender's   security   interests  in  or  liens  upon  the   Collateral   or  the
super-priority administrative claim of Lender against Borrower; or

          (h) INTENTIONALLY OMITTED.

          (i) The Interim  Orders or Final Order  shall be  modified,  reversed,
revoked,  remanded,  stayed,  rescinded,  vacated or amended on appeal or by the
Bankruptcy  Court  without  the prior  written  consent  of Lender  (and no such
consent  shall be  implied  from any  other  authorization  or  acquiescence  by
Lender); or

          (j) The  appointment of a trustee  pursuant to Sections  1104(a)(1) or
1104(a)(2) of the Bankruptcy Code in the Reorganization Case; or

          (k) The  appointment  of an examiner with special  powers  pursuant to
Section 1104(a) of the Bankruptcy Code in the Reorganization Case; or

          (l) The  filing  of a plan of  reorganization  by  Borrower  or on its
behalf  which does not  provide for  payment in full of the  Obligations  on the
effective date thereof or which does not constitute an Approved Plan; or

          (m) Prior to the  indefeasible  payment  and  satisfaction  in full of
Obligations  due Lender any party other than the Lender shall  foreclose upon or
otherwise  seek to enforce any junior lien or other  rights such other party may
have in and to any of a Borrower's property upon which Lender holds or asserts a
lien or security interest.

          (n) Any loss of any priority by Lender in the Collateral.

     SECTION 8.7 INTENTIONALLY OMITTED.

     SECTION 8.8 CHANGE IN CONDITION.  There occurs any event or a change in the
condition  or  affairs,  financial  or  otherwise,  of  Borrower  which,  in the
reasonable  opinion of Lender,  impairs Lender's security or ability of Borrower
to discharge its obligations  hereunder or which impairs the rights of Lender in
such Collateral,  PROVIDED,  HOWEVER, if the same can reasonably be cured within
five (5) days without material harm to Lender,  Borrower shall have the right to
cure the same  within  five (5) days after  notice  from Lender and if cured the
same shall not  constitute an Event of Default.  Without in any way limiting the
foregoing,  a "Change in  Condition"  shall be deemed to have  occurred upon the
occurrence of any of the following: a reduction during any consecutive six month
period  following  the date of this  Agreement by more than ten (10%) percent of
the amount of Royalties  received by Borrower  during the six month period prior
to the date of this Agreement,  or termination of greater than ten (10%) percent
of the Franchise Agreements.

                                       31
<PAGE>
     SECTION 8.9  ENVIRONMENTAL  CLAIMS.  At any time Lender determines that any
environmental  liabilities  and  costs or  environmental  lien with  respect  to
Borrower will have a material or adverse  effect on the  financial  condition of
Borrower or on the Collateral.

     SECTION 8.10 FAILURE TO NOTIFY.  If at any time  Borrower  fails to provide
Lender with notice or copies, if written, of all complaints,  orders,  citations
or notices with respect to environmental,  health or safety  complaints,  within
ten  (10)  days  after  receipt  of any  such  notices,  complaints,  orders  or
citations.

     SECTION  8.11  CHANGE IN  MANAGEMENT.  Any  change  in the chief  executive
officer, the chief financial officer or controlling ownership of Borrower.

     SECTION  8.12  NON-PAYMENT  OF DEBTS.  Any  default  after the date of this
Agreement by Borrower  under any agreement,  document or instrument  relating to
any  indebtedness  for borrowed money owing to any person other than Lender,  or
any capitalized lease  obligations,  contingent  indebtedness in connection with
any  guarantee,  letter of credit,  indemnity or similar type of  instrument  in
favor of any  person  other than  Lender,  in any case in an amount in excess of
$10,000,  which default  continues for more than the applicable cure period,  if
any,  with  respect  thereto,  or any  default by  Borrower  under any  material
contract,  lease,  license or other  obligation to any Person other than Lender,
which default materially and adversely affects its business or the Collateral or
other property which is security for the Obligations and which default continues
for more than the applicable cure period, if any, with respect thereto.

     SECTION 8.13 DISSOLUTION;  MAINTENANCE OF EXISTENCE. Borrower is dissolved,
or the usual  business  of  Borrower  ceases  or is  suspended  in any  material
respect.

     SECTION 8.14  INDICTMENT.  The  indictment  of Borrower  under any criminal
statute,  or commencement  of criminal or civil  proceedings  against  Borrower,
pursuant to which statute or  proceedings  the  penalties or remedies  sought or
available  include  forfeiture  of  any  material  portion  of the  property  of
Borrower.

     SECTION 8.15  ACCELERATION.  Upon the  occurrence  of any of the  foregoing
Events of Default,  the Note will become and be immediately due and payable upon
declaration to that effect delivered by Lender to Borrower.

     SECTION 8.16 REMEDIES.

     Upon  the  occurrence  of an  Event  of  Default  and so  long  as  same is
continuing:

          (a)  Lender  shall  have all  rights  and  remedies  provided  in this
Agreement, any of the other Loan Documents, the UCC or other applicable law, all
of which rights and remedies may be exercised  without  notice to Borrower,  all
such notices being hereby  waived,  except such notice as is expressly  provided
for hereunder or is not waivable under  applicable  law. All rights and remedies
of Lender are  cumulative  and not  exclusive and are  enforceable,  in Lender's
discretion,  alternatively,  successively,  or  concurrently  on any one or more
occasions and in any order Lender may determine. Without limiting the foregoing,
Lender may (a) accelerate the payment of all  Obligations  and demand  immediate
payment thereof to Lender,  (b) with or without  judicial  process or the aid or

                                       32
<PAGE>
assistance  of  others,  enter  upon  any  premises  on or in  which  any of the
Collateral  may be located and take  possession  of the  Collateral  or complete
processing,  manufacturing  and repair of all or any portion of the  Collateral,
(c) require Borrower,  at Borrower's  expense, to assemble and make available to
Lender any part or all of the  Collateral  at any place and time  designated  by
Lender, (d) collect, foreclose,  receive,  appropriate,  setoff and realize upon
any and all Collateral,  (e) extend the time of payment of, compromise or settle
for cash, credit, return of merchandise,  and upon any terms or conditions,  any
and all Accounts or other  Collateral  which includes a monetary  obligation and
discharge or release the account debtor or other obligor,  without affecting any
of the Obligations,  (f) sell,  lease,  transfer,  assign,  deliver or otherwise
dispose of any and all Collateral (including, without limitation,  entering into
contracts  with respect  thereto,  by public or private  sales at any  exchange,
broker's  board,  any office of Lender or  elsewhere) at such prices or terms as
Lender may deem reasonable,  for cash, upon credit or for future delivery,  with
Lender  having the right to purchase the whole or any part of the  Collateral at
any such public sale,  all of the foregoing  being free from any right or equity
of  redemption  of  Borrower,  which  right or  equity of  redemption  is hereby
expressly  waived and released by Borrower.  If any of the  Collateral  or other
security  for the  Obligations  is sold or leased by Lender upon credit terms or
for future  delivery,  the Obligations  shall not be reduced as a result thereof
until payment therefor is finally  collected by Lender. If notice of disposition
of  Collateral  is  required  by law,  ten (10) days  prior  notice by Lender to
Borrower  designating  the time and place of any  public  sale or the time after
which any private sale or other  intended  disposition  of  Collateral  is to be
made,  shall be deemed to be reasonable  notice thereof and Borrower  waives any
other notice. In the event Lender institutes an action to recover any Collateral
or seeks  recovery of any  Collateral  by way of  prejudgment  remedy,  Borrower
waives the posting of any bond which might otherwise be required.

          (b) Lender may apply the cash proceeds of Collateral or other security
for  the  Obligations   actually  received  by  Lender  from  any  sale,  lease,
foreclosure  or other  disposition  of the  Collateral  to payment of any of the
Obligations, in whole or in part (including reasonable attorneys' fees and legal
expenses  incurred by Lender with  respect  thereto or otherwise  chargeable  to
Borrower)  and in such  order as  Lender  may  elect,  whether  or not then due.
Borrower  shall  remain  liable  to  Lender  for the  payment  on  demand of any
deficiency  together  with  interest at the highest rate provided for herein and
all costs and  expenses  of  collection  or  enforcement,  including  reasonable
attorneys' fees and legal expenses.

          (c)  If  Borrower  shall  default  in  the  performance  of any of the
provisions of this  Agreement or any other Loan Document to which it is a party,
Lender may (but without any  obligation  to do so) perform  same for  Borrower's
account and any monies expended in doing so shall be chargeable with interest to
Borrower, repayable by Borrower on demand and added to the Obligations.

          (d) Lender may, at its option,  cure any default by Borrower under any
agreement  with a third  party or pay or bond on  appeal  any  judgment  entered
against  Borrower,   discharge  taxes,   liens,   security  interests  or  other
encumbrances  at any time levied on or existing  with respect to the  Collateral
and pay any amount, incur any expense or perform any act which, in Lender's sole
judgment, is necessary or appropriate to preserve, protect, insure, maintain, or
realize upon the Collateral.  Lender may charge  Borrower's loan account for any
amounts so expended,  such amounts to be repayable by Borrower on demand. Lender
shall be under no obligation to effect such cure, payment, bonding or discharge,

                                       33
<PAGE>
and  shall  not,  by doing  so, be deemed  to have  assumed  any  obligation  or
liability of Borrower.

     SECTION 8.17 SET-OFF.  Upon the occurrence and during the continuance of an
Event of  Default,  Lender  shall  have  the  right to  set-off  against  any of
Borrower's  liabilities to Lender any money or other liability owed by Lender or
any  Affiliate of Lender (and such  Affiliate of Lender is hereby  authorized to
effect such set-off) in any capacity to Borrower, whether or not due, and Lender
or such Affiliate shall be deemed to have exercised such right of set-off and to
have made a charge against any such money or other  liability  immediately  upon
the  occurrence of such Event of Default even though the actual book entries may
be made at a time subsequent  thereto.  The right of set-off  granted  hereunder
shall be effective  irrespective  of whether Lender shall have made demand under
or in connection with the Loan.  Lender is hereby granted a security interest in
all money and property of Borrower  being held by it or any Affiliate of Lender,
which security interest shall be a first priority perfected security interest in
favor of Lender as a result of Lender's  or  Affiliates  of Lender's  possession
thereof.  None of the  rights  of  Lender  described  in this  SECTION  8.17 are
intended  to diminish or limit in any way  Lender's  or  Affiliates  of Lender's
common-law set-off rights.

     SECTION 8.18 CUMULATIVE  REMEDIES;  WAIVERS.  No remedy referred to in this
Agreement  or the other Loan  Documents  is intended to be  exclusive,  but each
shall be  cumulative  and in addition to any other  remedy  referred to above or
otherwise  available to Lender at law or in equity. No express or implied waiver
by Lender of any default or Event of Default hereunder shall be effective unless
in a writing  signed by an  officer of Lender and shall not in any way be, or be
construed  to be, a waiver  of any  future  or  subsequent  default  or Event of
Default,  whether similar in kind or otherwise.  The failure, delay or waiver of
Lender in  exercising  any rights  granted it  hereunder or under the other Loan
Documents upon the occurrence of any of the contingencies set forth herein shall
not constitute a waiver of any such right upon the continuation or recurrence of
any such  contingency or similar  contingency and any single or partial exercise
of any  particular  right by Lender  shall not exhaust the same or  constitute a
waiver of any other right  provided  herein.  The Events of Default and remedies
set forth herein are not  restrictive of and shall be in addition to any and all
other  rights  and  remedies  of  Lender  provided  for by  this  Agreement  and
applicable law.

     SECTION 8.19 COSTS AND  EXPENSES.  Borrower  shall be liable for all costs,
charges and expenses,  including  reasonable  attorney's fees and disbursements,
incurred  by Lender by reason of the  occurrence  of any Event of Default or the
exercise of  Lender's  remedies  with  respect  thereto,  each of which shall be
repayable by Borrower on demand with interest, and added to the Obligations.

     SECTION 8.20 NO MARSHALLING. Lender shall be under no obligation whatsoever
to proceed  first  against  any of the  Collateral  or other  property  which is
security  for  the  Obligations  before  proceeding  against  any  other  of the
Collateral.  It is expressly understood and agreed that all of the Collateral or
other  property which is security for the  Obligations  stands as equal security
for all Obligations, and that Lender shall have the right to proceed against any
or all of the Collateral or other property which is security for the Obligations
in any order, or simultaneously, as in its sole and absolute discretion it shall
determine. It is further understood and agreed that Lender shall have the right,
as it in its sole and absolute discretion shall determine, to sell any or all of
the Collateral or other  property  which is security for the  Obligations in any
order or  simultaneously,  as Lender  shall  determine  in its sole and absolute
discretion.

                                       34
<PAGE>
     SECTION 8.21 NO IMPLIED WAIVERS; RIGHTS CUMULATIVE. No delay on the part of
Lender in exercising any right,  remedy,  power or privilege  hereunder or under
any of the Loan  Documents  or  provided  by  statute  or at law or in equity or
otherwise  shall  impair,  prejudice  or  constitute a waiver of any such right,
remedy,  power or  privilege or be construed as a waiver of any Event of Default
or as an acquiescence therein. No right, remedy, power or privilege conferred on
or reserved to Lender  hereunder or under any of the Loan Documents or otherwise
is intended to be exclusive of any other right, remedy, power or privilege. Each
and every right,  remedy,  power or privilege conferred on or reserved to Lender
under this Agreement or under any of the other Loan Documents or otherwise shall
be cumulative  and in addition to each and every other right,  remedy,  power or
privilege  so  conferred on or reserved to Lender and may be exercised by Lender
at such time or times and in such order and manner as Lender  shall (in its sole
and complete discretion) deem expedient.

     SECTION 8.22  COLLECTIONS.  Borrower is  authorized to collect any monetary
obligations  included  in, or proceeds  of, the  Collateral  on behalf of and in
trust for Lender, at Borrower's  expense,  but such authority shall, at Lender's
option,  automatically terminate upon the occurrence and continuance of an Event
of  Default.  Lender may upon the  occurrence  of an Event of Default  modify or
terminate  such  authority  at  any  time  and  directly  collect  the  monetary
obligations  included in the Collateral.  Borrower shall, at Borrower's  expense
and in the manner requested by Lender from time to time, direct that remittances
and all other  proceeds of  Collateral  shall be (a) remitted in kind to Lender,
(b) sent to a post office box designated by and/or in the name of Lender,  or in
the name of  Borrower,  but as to which  access is limited to Lender  and/or (c)
deposited into a bank account  maintained in the name of Lender and/or a blocked
bank account under  arrangements  with the depository bank under which all funds
deposited to such blocked bank account are required to be transferred  solely to
Lender.

     SECTION 8.23 REPAYMENT OF OBLIGATIONS.  All Obligations shall be payable at
Lender's  office set forth  below or at a bank or such other place as Lender may
expressly  designate  from time to time for purposes of this  Section.  Upon the
occurrence of an Event of Default, Lender shall apply all proceeds of Collateral
received by Lender and all other  payments in respect of the  Obligations to the
Loans whether or not then due or to any other  Obligations then due, in whatever
order or manner Lender shall determine.  For purposes of determining remittances
and other  payments  with  respect to the  Collateral  and  Obligations  will be
treated as credited to the loan  account of  Borrower  maintained  by Lender and
Collateral balances to which they relate, upon the date that such remittances or
other payments have been credited to Lender's account at Lender's bank or in the
case of remittances or other payments received directly in kind by Lender,  upon
the date of Lender's deposit thereof at Lender's bank,  subject to final payment
and  collection.  In computing  interest  charges,  the Loan Account of Borrower
maintained by Lender will be credited with remittances and other payments on the
Business Day that such  remittances  have been deposited in Lender's  account at
Lender's Bank.

     SECTION  8.24  NOTIFICATION  OF ACCOUNT  DEBTORS AND BAILEES OF  INVENTORY.
Immediately  following  an Event of  Default,  Lender  may at any time,  without
notice to or assent of Borrower,  notify any party,  including  any  Franchisee,
that the Collateral  which  includes a monetary  obligation has been assigned to
Lender by Borrower  and that  payment  thereof is to be made to the order of and
directly  to Lender,  and Lender may demand,  collect or enforce  payment of the
Collateral,  but without  any duty to do so, and Lender  shall not be liable for
any failure to collect or enforce payment thereof. At any time, Lender may send,
or cause to be sent by its  designee,  requests for  verification  of Collateral
directly to any obligor or any bailee with respect thereto.

                                       35
<PAGE>
     SECTION 8.25 LENDER APPOINTED ATTORNEY-IN-FACT. Borrower hereby irrevocably
constitutes and appoints Lender,  with full power of  substitution,  as its true
and lawful  attorney-in-fact,  with full irrevocable  power and authority in its
place  and  stead and in its name or  otherwise,  from time to time in  Lender's
discretion,  at Borrower's  sole cost and expense,  take any and all appropriate
action and to execute and deliver any and all  documents and  instruments  which
Lender may deem reasonably  necessary or advisable to accomplish the purposes of
this Agreement, including, without limiting the generality of the foregoing, (a)
upon the occurance of an Event of Default, to receive,  take,  endorse,  assign,
deliver,  accept and  deposit,  in the name of Lender or  Borrower,  any and all
cash, checks,  commercial paper,  drafts,  remittances and other instruments and
documents relating to the Collateral or the proceeds thereof;  (b) to execute in
the name of Borrower  and file  against  Borrower in favor of Lender,  Financing
Statements or amendments with respect to the Collateral,  or record a copy or an
excerpt hereof in the United States Copyright Office or the United States Patent
and  Trademark  Office and (c) to take all other steps as are  necessary  in the
reasonable  opinion  of Lender  under  applicable  law to perfect  the  security
interests granted herein. In addition to the foregoing,  Lender may (d) transmit
to account  debtors,  other  obligors or any bailees  notice of the  interest of
Lender in the Collateral or request from account  debtors or such other obligors
or bailees at any time,  in the name of  Borrower  or Lender or any  designee of
Lender, information concerning the Collateral and any amounts owing with respect
thereto,  (e) upon the occurance of an Event of Default,  notify account debtors
or other  obligors to make payment  directly to Lender,  or notify bailees as to
the  disposition of  Collateral,  (f) upon the occurance of an Event of Default,
take or bring, in the name of Lender or Borrower,  all steps, actions,  suits or
proceedings  deemed by Lender necessary or desirable to effect  collection of or
other realization upon the accounts and other Collateral, (g) upon the occurance
of an Event of Default,  change the address for delivery of mail to Borrower and
to receive and open mail  addressed  to Borrower,  (h) upon the  occurance of an
Event of Default,  extend the time of payment of, compromise or settle for cash,
credit,  return of  merchandise,  and upon any terms or conditions,  any and all
accounts or other Collateral which includes a monetary  obligation and discharge
or release the account  debtor or other  obligor,  without  affecting any of the
Obligations,  (i) upon the  occurance of an Event of Default,  obtain and adjust
insurance  required pursuant to this Agreement and to pay all or any part of the
premiums therefor and the costs thereof,  and (j) upon the occurance of an Event
of  Default,  pay  or  discharge  taxes,  liens,  security  interests  or  other
encumbrances levied or placed on or threatened against the Collateral.

     SECTION 8.26 RELEASE OF LENDER.  Borrower  hereby  releases and  exculpates
Lender,  its officers,  directors,  employees,  agents and  designees,  from any
liability arising from any acts under this Agreement or in furtherance  thereof,
whether as attorney-in-fact or otherwise, whether of omission or commission, and
whether  based upon any error of judgment or mistake of law or fact,  except for
gross   negligence   or  willful   misconduct  as  determined  by  a  final  and
non-appealable  order from a court of competent  jurisdiction.  In no event will
Lender have any  liability  to  Borrower  for lost  profits or other  special or
consequential damages.

                                       36
<PAGE>
     SECTION 8.27 UNIFORM  COMMERCIAL CODE. At all times prior and subsequent to
an Event of Default hereinafter,  Lender shall be entitled to all the rights and
remedies of a secured party under the UCC with respect to all Collateral.

     SECTION 8.28 PRESERVATION OF COLLATERAL.  At all times prior and subsequent
to an Event of Default  hereinafter,  and after  reasonable  notice to Borrower,
Lender may take any and all action which in its sole and absolute  discretion is
necessary  and proper to  preserve  its  interest in the  Collateral,  including
without  limitation  the payment of debts of Borrower  which might,  in Lender's
sole and  absolute  discretion,  impair  the  Collateral  or  Lender's  security
interest  therein,  purchasing  insurance  on  the  Collateral,   repairing  the
Collateral,  or paying taxes or assessments thereon, and the sums so expended by
Lender shall be secured by the  Collateral,  shall be added to the amount of the
Obligations  due Lender and shall be payable on demand with interest at the rate
set forth in SECTION  1.10 hereof from the date  expended by Lender until repaid
by Borrower.

     SECTION 8.29 LENDER'S  RIGHT TO CURE. In the event  Borrower  shall fail to
perform any of its Obligations hereunder or under any of the Loan Documents, and
after the occurrence and continuance of an Event of Default, Lender, in addition
to all of its rights and remedies hereunder, may perform the same, but shall not
be obligated  to do so, at the cost and expense of Borrower.  In any such event,
Borrower shall promptly  reimburse Lender together with interest at the rate set
forth in Section 3.1 hereof from the date such sums are expended until repaid by
Borrower.

     SECTION 8.30  INSPECTION  OF  COLLATERAL.  From time to time as  reasonably
requested by Lender,  at the sole  expense of  Borrower,  Lender or its designee
shall have access, prior to an Event of Default during normal business hours and
on or after an  Event of  Default  at any  time,  to all of the  premises  where
Collateral  is located for the purposes of  inspecting,  disposing and realizing
upon the Collateral,  and all Borrower's  books and records,  and Borrower shall
permit  Lender or its  designee to make such copies of such books and records or
extracts  therefrom as Lender may request.  Without expense to Lender,  upon the
occurance of an Event of Default,  Lender may use such of Borrower's  personnel,
equipment,  including computer equipment,  programs, printed output and computer
readable  media,  supplies  and  premises  for the  collection  of Accounts  and
realization  on  other  Collateral  as  Lender,  in its sole  discretion,  deems
appropriate.  Borrower hereby  irrevocably  authorizes all accountants and third
parties to disclose and deliver to Lender at  Borrower's  expense all  financial
information,  books and  records,  work  papers,  management  reports  and other
information in their possession regarding Borrower.

                                   ARTICLE 9
                          SPECIAL BANKRUPTCY PROVISIONS

     SECTION 9.1  POST-PETITION  SECURITY.  From and after the Filing Date,  the
liens granted to and held by Lender with respect to the  Collateral  will be and
are  post-petition  liens,  entitled  to  first  priority  as set  forth  in the
Bankruptcy  Court Order,  subject only to the Permitted Liens and the Carve-Out.
Lender will be entitled to the protections and priorities provided under Section
507(b)  of the  Bankruptcy  Code  if its  interests  in the  Collateral  are not
adequately protected from and after the commencement of the Bankruptcy Case. The
post-petition  liens granted under  Section 364 of the  Bankruptcy  Code and the
protections  and  priorities  provided to Lender under  Bankruptcy  Code Section

                                       37
<PAGE>
507(b) are subject to the payment of allowed professional fees and disbursements
incurred by Borrower, including, without limitation,  attorneys' fees and costs,
and by any  statutory  committee,  trustee,  examiner  or  other  representative
appointed  in  the  Bankruptcy  Case  in  an  aggregate  amount  not  to  exceed
$150,000.00 prior to the filing of the Approved Plan and an additional  $150,000
subsequent to the filing of the Approved Plan, provided, an additional aggregate
amount  not to  exceed  $20,000  may be paid  for a  Creditor's  Committee  (the
"Carve-Out").  Lender  hereby  consents  to  entry  of an  order  providing  for
professional fees to be paid on a monthly basis.

     SECTION 9.2 LIENS PERFECTED WITHOUT FILING OR RECORDING.  Upon entry of the
Bankruptcy Court Order,  the  post-petition  liens and  encumbrances  granted to
Lender  on the  Collateral  by  virtue of the  Bankruptcy  Court  Order and this
Agreement will be first and prior,  and valid and perfected as against all third
parties  (except for Permitted  Liens),  without  regard to applicable  federal,
state or local  filing or recording  statutes,  NUNC PRO TUNC as of the Approval
Date, and without further action of any party, including Lender;  PROVIDED, that
Lender may, but need not, take such steps as it deems  desirable and  applicable
to comply  with such  statutes,  and all  financing  statements  which are filed
listing Borrower as debtor and Lender as secured party, all mortgages or similar
instruments which are filed granting to Lender liens upon and security interests
in  Collateral  will be deemed to have been filed and the security  interest and
liens  evidenced  thereby  will be  deemed  perfected  NUNC  PRO  TUNC as of the
Approval Date.

     SECTION 9.3 EXTENSION OF POST-PETITION CREDIT AND OTHER REMEDIES OF LENDER.
The agreement of Lender to provide  post-petition  financing to Borrower will be
subject to the following exceptions:

          (a) The agreement to provide post-petition financing will not prohibit
Lender from  moving in the  Bankruptcy  Court for any other and  further  relief
which:  (i) Lender  believes  in good  faith to be  reasonably  and  immediately
necessary  to protect  its rights  with  respect to the  Collateral  (including,
without  limitation,  a  request  for the  Debtor  to  abandon  any  part of the
Collateral);  and as to which (ii) Lender also believes  reasonably  and in good
faith that the Bankruptcy Court Order is not sufficient to protect the rights of
Lender with respect to the  Collateral  under the  circumstances  existing  when
Lender requests such other and further relief; and

          (b) From and after the termination of this Agreement, Lender will have
no obligation to provide financing to or on behalf of Borrower or its bankruptcy
estate;  and there will be no  restriction  of any kind  against the exercise by
Lender of its rights and remedies  under the Loan  Documents,  including but not
limited to, the right of Lender to exercise all of its remedies  with respect to
the  Collateral so long as such  exercise is  consistent  with the terms of this
Agreement.

     SECTION 9.4 PLAN OF REORGANIZATION.  Borrower will not file or propose, and
will object to (and will not  thereafter  withdraw or modify such objection to),
any Plan of  Reorganization  (including,  but not limited to, any  amendment  or
modification of a Plan of Reorganization,  whether before or after confirmation)
(i) which does not  incorporate  all of the terms of the Bankruptcy  Court Order
and this  Agreement that pertain to the treatment of the secured claim of Lender
and the  preservation of Lender's rights in the Collateral,  (ii) which does not
provide for  payment  and  performance  in full of all of the  Obligations  upon
confirmation of the Plan of Reorganization, (iii) that would allow any Person to
improve its lien priority VIS A VIS Lender with respect to the Collateral,  (iv)

                                       38
<PAGE>
which does not provide  for Lender (if Lender so elects) to purchase  the assets
of Borrower upon terms and conditions reasonably  satisfactory to Lender, or (v)
which does not  otherwise  meet all of the  requirements  of an  Approved  Plan.
Nothing in this  Agreement  will be  construed  as a consent  by  Lender,  or an
approval by Lender of, the terms of any Plan of  Reorganization or any amendment
or modification thereto.

                                   ARTICLE 10
                                  MISCELLANEOUS

     SECTION 10.1 ENTIRE  AGREEMENT;  AMENDMENTS.  This  Agreement and the other
Loan Documents  constitute the full and entire understanding and agreement among
the parties with regard to their subject  matter and supersede all prior written
or oral  agreements,  understandings,  representations  and warranties made with
respect thereto. No amendment,  supplement or modification of this Agreement nor
any waiver of any provision  thereof will be made except in writing  executed by
the party against whom enforcement is sought.

     SECTION 10.2 NO WAIVER; CUMULATIVE RIGHTS. No waiver by any party hereto of
any one or more  defaults  by the other party in the  performance  of any of the
provisions  of this  Agreement  will  operate or be construed as a waiver of any
future default or defaults, whether of a like or different nature. No failure or
delay on the  part of any  party  in  exercising  any  right,  power  or  remedy
hereunder  will  operate  as a waiver  thereof,  nor will any  single or partial
exercise  of any such  right,  power or remedy  preclude or require any other or
further  exercise  thereof or the exercise of any other right,  power or remedy.
The remedies  provided for herein are  cumulative  and are not  exclusive of any
remedies  that may be  available  to any  party  hereto  at law,  in  equity  or
otherwise.

     SECTION  10.3  NOTICES.  Any  notice  or other  communication  required  or
permitted  hereunder  will be in writing  and  personally  delivered,  mailed by
registered or certified  mail (return  receipt  requested and postage  prepaid),
sent by telecopier  (with a confirming  copy sent by regular  mail),  or sent by
prepaid  overnight  courier service,  and addressed to the relevant party at its
address set forth below,  or at such other address as such party may, by written
notice, designate as its address for purposes of notice hereunder:

                                       39
<PAGE>
          (a)  If to Lender, at:

               R1 Franchise Systems L.L.C.
               Attn: Michael J. Reagan, Esq.
               7730 E. Greenway Road, Suite 104
               Scottsdale, Arizona  85260

               With Copy to:

               KAYE SCHOLER LLP
               Attn: Albert Fenster, Esq. and
               Benjamin Mintz, Esq.
               425 Park Avenue
               New York, New York  10022

          (b)  If to Borrower, at:

               Ranch * 1, Inc.
               Attn: Raymond DioGuardi
               567 7th Avenue, 3rd Floor
               New York, New York  10018

               with a copy to:

               Buchanan Ingersoll
               Attn: Louis DeLucia, Esq.
               650 College Road East
               Princeton, New Jersey  08540

     If mailed,  notice  will be deemed to be given  five (5) days  after  being
sent, if sent by personal  delivery or  telecopier,  notice will be deemed to be
given when delivered,  and if sent by prepaid courier,  notice will be deemed to
be given on the next Business Day following deposit with the courier.

     SECTION  10.4  SEVERABILITY.  If any term,  covenant or  condition  of this
Agreement,  or the application of such term,  covenant or condition to any party
or circumstance will be found by a court of competent jurisdiction to be, to any
extent,  invalid or  unenforceable,  the  remainder  of this  Agreement  and the
application  of such term,  covenant,  or condition to parties or  circumstances
other than those as to which it is held  invalid or  unenforceable,  will not be
affected  thereby,  and each  term,  covenant  or  condition  will be valid  and
enforced to the fullest  extent  permitted by law, or, at Lender's  sole option,
this Agreement shall be deemed terminated. Upon determination that any such term
is invalid, illegal or unenforceable,  and if Lender does not chose to treat the
Agreement as  terminated,  the parties hereto will amend this Agreement so as to
effect  the  original  intent  of the  parties  as  closely  as  possible  in an
acceptable manner.

                                       40
<PAGE>
     SECTION 10.5  SUCCESSORS  AND ASSIGNS.  This  Agreement,  the Note, and the
other Loan  Documents  will be binding upon and inure to the benefit of Borrower
and Lender and their  respective  successors  and assigns.  Notwithstanding  the
foregoing,  Borrower  may not assign any of its  rights or  delegate  any of its
Obligations  hereunder without the prior written consent of Lender, which may be
withheld  in  its  sole  discretion.  Lender  may  sell,  assign,  transfer,  or
participate any or all of its rights or obligations  hereunder without notice to
or consent of Borrower.

     SECTION 10.6 COUNTERPARTS.  This Agreement may be executed in any number of
counterparts,  each of  which  will be  deemed  an  original,  but all of  which
together will constitute but one instrument. Signatures transmitted by facsimile
shall bind the parties signing.

     SECTION 10.7  INTERPRETATION.  No provision of this  Agreement or any other
Loan Document will be  interpreted  or construed  against any party because that
party or its legal  representative  drafted  that  provision.  The titles of the
paragraphs of this  Agreement are for  convenience of reference only and are not
to be  considered  in  construing  this  Agreement.  Any  pronoun  used  in this
Agreement will be deemed to include singular and plural and masculine,  feminine
and  neuter  gender  as the case  may be.  The  words  "herein,"  "hereof,"  and
"hereunder"  will be deemed  to refer to this  entire  Agreement,  except as the
context otherwise requires.

     SECTION 10.8 SURVIVAL OF TERMS. All covenants, agreements,  representations
and  warranties  made in this  Agreement,  any other Loan  Document,  and in any
certificates  and other  instruments  delivered in connection  therewith will be
considered  to have been  relied  upon by Lender and will  survive the making by
Lender of the Loan herein  contemplated and the execution and delivery to Lender
of the Notes,  and will continue in full force and effect until all  liabilities
and Obligations of Borrower to Lender are satisfied in full.

     SECTION  10.9  RELEASE OF LENDER.  Borrower  release  Lender,  its parents,
subsidiaries,  officers,  employees, and agents, of and from any claims for loss
or damage resulting from acts or conduct of any or all of them, unless caused by
Lender's gross negligence or willful misconduct.

     SECTION 10.10 TIME.  Whenever  Borrower are required to make any payment or
perform any act on a Saturday,  Sunday, or a legal holiday under the laws of the
State of Arizona (or other  jurisdiction where Borrower are required to make the
payment or perform the act), the payment may be made or the act performed on the
next Business Day. Time is of the essence in Borrower's  performance  under this
Agreement and all other Loan Documents.

     SECTION 10.11 COMMISSIONS.  The transaction  contemplated by this Agreement
was brought about by Lender and Borrower  acting as  principals  and without any
brokers,  agents,  or finders  being the  effective  procuring  cause.  Borrower
represent  that they have not  committed  Lender to the payment of any brokerage
fee,  commission,  or charge in connection  with this  transaction.  If any such
claim is made on  Lender  by any  broker,  finder,  or  agent  or other  person,
Borrower will indemnify,  defend,  and hold Lender harmless from and against the
claim and will defend any action to recover on that claim,  at  Borrower's  cost
and expense, including Lender's counsel fees. Borrower further agrees that until
any such claim or demand is adjudicated in Lender's  favor,  the amount demanded
will be deemed a liability  of  Borrower  under this  Agreement,  secured by the
Collateral.

                                       41
<PAGE>
     SECTION 10.12 THIRD PARTIES. No rights are intended to be created hereunder
or under any other  Loan  Document  for the  benefit of any third  party  donee,
creditor,  or  incidental  beneficiary  of Borrower.  Nothing  contained in this
Agreement  will be  construed as a delegation  to Lender of  Borrower's  duty of
performance, including without limitation Borrower's duties under any account or
contract in which Lender has a security interest.

     SECTION 10.13  DISCHARGE OF  BORROWER'S  OBLIGATIONS.  Lender,  in its sole
discretion,  will  have the right at any  time,  and from time to time,  without
prior  notice to Borrower if Borrower  fails to do so, to: (i) obtain  insurance
covering  any  of the  Collateral  as  required  hereunder;  (ii)  pay  for  the
performance of any of Borrower's obligations  hereunder;  (iii) discharge taxes,
liens, security interests, or other encumbrances at any time levied or placed on
any of the Collateral in violation of this Agreement unless Borrower are in good
faith with due diligence by appropriate  proceedings contesting those items; and
(iv) pay for the maintenance and preservation of any of the Collateral. Expenses
and advances will be added to the Loan,  until  reimbursed to Lender and will be
secured by the Collateral.  Any such payments and advances by Lender will not be
construed as a waiver by Lender of an Event of Default.

     SECTION  10.14  INFORMATION  TO  PARTICIPANTS.  Lender  may  divulge to any
participant it may obtain in the Loan, or any portion thereof,  all information,
and  furnish  to such  participant  copies  of  reports,  financial  statements,
certificates,  and documents  obtained  under any provision of this Agreement or
any other Loan Document.

     SECTION  10.15 CHOICE OF LAW. THE VALIDITY OF THIS  AGREEMENT AND ALL OTHER
DOCUMENTS EXECUTED AND DELIVERED HEREWITH, THE CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO
WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR
THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE UNITED STATES OF AMERICA  (INCLUDING  THE BANKRUPTCY  CODE),  IT
BEING THE INTENT OF THE PARTIES  THAT  FEDERAL  LAW SHALL  GOVERN THE RIGHTS AND
DUTIES OF THE PARTIES HERETO WITHOUT REGARD TO THE  APPLICATION OF ANY PROVISION
OF STATE LAW. TO THE EXTENT THAT FEDERAL LAW WOULD APPLY THE LAW OF ANY STATE AS
THE FEDERAL RULE FOR THE PURPOSES OF THIS AGREEMENT,  THE PARTIES AGREE THAT THE
LAWS OF THE STATE OF ARIZONA SHALL BE USED TO SUPPLEMENT APPLICABLE FEDERAL LAW.

     THE PARTIES  AGREE THAT ALL ACTIONS OR  PROCEEDINGS  ARISING IN  CONNECTION
WITH THIS AGREEMENT  SHALL BE TRIED AND LITIGATED ONLY IN THE BANKRUPTCY  COURT.
BORROWER AND LENDER WAIVE,  TO THE EXTENT  PERMITTED  UNDER  APPLICABLE LAW, ANY
RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON  CONVENIENS OR TO OBJECT
TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION
10.15.

     BORROWER AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THIS  AGREEMENT
OR ANY OF THE TRANSACTIONS  CONTEMPLATED HEREIN, INCLUDING CONTRACT CLAIMS, TORT

                                       42
<PAGE>
CLAIMS,  BREACH OF DUTY CLAIMS,  AND ALL OTHER  COMMON LAW OR STATUTORY  CLAIMS.
BORROWER  AND  LENDER  REPRESENT  THAT EACH HAS  REVIEWED  THIS  WAIVER AND EACH
KNOWINGLY AND VOLUNTARILY  WAIVES ITS JURY TRIAL RIGHTS  FOLLOWING  CONSULTATION
WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION,  A COPY OF THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

     SECTION 10.16 CONSENT TO  JURISDICTION  AND SERVICE OF PROCESS.  Each party
hereto  hereby  irrevocably  submits  to  the  exclusive   jurisdiction  of  the
Bankruptcy Court and each party agrees that any action, suit or proceeding shall
be brought only in the  Bankruptcy  Court which shall be the  exclusive and only
proper forum for adjudicating any action, suit or proceeding.

     SECTION 10.17 INTENTIONALLY OMITTED.

     SECTION  10.18 LOCK BOX. If requested by Lender at any time,  Borrower will
consent  to  setting  up a lock box into  which  all  money  thereafter  paid to
Borrower (from Account Debtors, Franchisees, obligors under the Sales Documents,
or otherwise),  will be deposited; and, in such event, Borrower will immediately
instruct all applicable  obligors to thereafter send their payments  directly to
the lock box.

     SECTION 10.19 WAIVER.

          (a)  Borrower  waives  presentment,  demand,  protest  and  notices of
protest,  nonpayment,  partial  payment and all other  notices  and  formalities
except as  expressly  called for in this  Agreement.  Borrower  consents  to and
waives  notice of: (i) the  granting of  indulgences  or  extensions  of time of
payment,  (ii) the taking or releasing  of  security,  and (iii) the addition or
release of persons who may be or become primarily or secondarily  liable for the
Loan or any other indebtedness  arising in connection with the Loan, or any part
thereof, and all in such manner and at such time as Lender may deem advisable.

          (b) No delay or omission by Lender in exercising  any right,  power or
remedy hereunder, and no indulgence given to Borrower, with respect to any term,
condition or provision set forth herein, shall impair any right, power or remedy
of Lender  under this  Agreement,  or be  construed as a waiver by Lender of, or
acquiescence  in, any Event of Default.  Likewise,  no such  delay,  omission or
indulgence  by Lender  shall be construed as a variation or waiver of any of the
terms,  conditions or provisions of this Agreement.  Any actual waiver by Lender
of any Event of Default  shall not be a waiver of any other prior or  subsequent
Event of  Default  or of the same  Event of  Default  after  notice to  Borrower
demanding strict performance.

                                       43
<PAGE>
     SECTION  10.20 JOINT AND SEVERAL  LIABILITY.  The  liability of each entity
signing this  Agreement and all other Loan  Documents as Borrower shall be joint
and several, and each entity shall be fully liable to Lender for the performance
of all obligations of Borrower hereunder and under the other Loan Documents.

     IN WITNESS  WHEREOF,  the parties have caused this Agreement to be executed
as of the date first written above.

                                   LENDER:

                                   R1 FRANCHISE SYSTEMS L.L.C.,
                                   an Arizona limited liability company

                                   By: /s/ David Guarino
                                       -----------------------------------------
                                   Name: David Guarino
                                   Title: VP-CFO of its Sole Member

                                   BORROWER:

                                   RANCH* 1, INC., a Delaware corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                   RANCH* 1, GROUP, INC., a New York corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                   RANCH* 1 METRO, INC., a New York corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                       44
<PAGE>
                                   RANCH* 1 PEARL, INC., a New York corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                   RANCH* 1 OF AMERICA, INC.,
                                   a New York corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                   RANCH* 1 DOWNTOWN, INC.,
                                   a New York corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                   RANCH* 1 EIGHTH AVENUE, INC.,
                                   a New York corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                   RANCH* 1 OF BROADWAY, INC.,
                                   a New York corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                   RANCH* 1 ON 34TH STREET, INC.,
                                   a New York corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                   RANCH* 1 FASHION, INC.,
                                   a New York corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                       45
<PAGE>
                                   RANCH* 1 METRO TECH, INC.,
                                   a New York corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                   RANCH* 1 52ND, INC., a New York corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                   RANCH* 1 PALISADES, INC.,
                                   a New York corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                   RANCH* 1 NUMBER 0135, INC.,
                                   a New York corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                   RANCH* 1 NUMBER 0202, INC.,
                                   a Delaware corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                   RANCH* 1 NUMBER 0117, INC.,
                                   a Delaware corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                   RANCH* 1 NUMBER 0125, INC.,
                                   a Delaware corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                       46
<PAGE>
                                   RANCH* 1 NUMBER 0112, INC.,
                                   a Delaware corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                   RANCH* 1 NUMBER 0113, INC.,
                                   a Delaware corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                   RANCH* 1 NUMBER 0128, INC.,
                                   a Delaware corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                   RANCH* 1 NUMBER 0150, INC.,
                                   a Delaware corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                   RANCH* 1 NUMBER 1701, INC.,
                                   a Delaware corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                   RANCH* 1 NUMBER 0207, INC.,
                                   a Delaware corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                   RANCH* 1 NUMBER 0118, INC.,
                                   a Delaware corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                       47
<PAGE>
                                   RANCH* 1 NUMBER 0137, INC.,
                                   a Delaware corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                   RANCH* 1 NUMBER 1904, INC.,
                                   a Delaware corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                   OME, INC., a New York corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                   DOME ENTERPRISES, INC.,
                                   a New York corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                   MORGRHO, INC., a New York corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                   FRANCHISE CONCEPTS GROUP, INC.,
                                   a Delaware corporation

                                   By: /s/ Raymond DioGuardi
                                       -----------------------------------------
                                   Name: Raymond DioGuardi
                                   Title: President and CFO

                                       48
<PAGE>
                                    EXHIBIT A
                                      NOTE
<PAGE>
                                    EXHIBIT B
                            DIP LOAN FUNDING SCHEDULE
<PAGE>
                                  SCHEDULE 4.22
          LIST OF FRANCHISE AGREEMENTS AND AREA DEVELOPMENT AGREEMENTS
<PAGE>
                                  SCHEDULE 4.23
                                 LIST OF LEASES
<PAGE>
                                  SCHEDULE 4.17
                       LOCATIONS OF OPERATIONS OF BORROWER
<PAGE>
                                  SCHEDULE 1.39
                                 PERMITTED LIENS
<PAGE>
                                  SCHEDULE 1.2
            LIST OF BORROWER AND BANKRUPTCY FILINGS AND CASE NUMBERS
<PAGE>
                                SCHEDULE 3.1 (G)
           PROMISSORY NOTES, SECURITY AGREEMENTS AND RELATED DOCUMENTS
                          EXECUTED IN FAVOR OF BORROWER
<PAGE>
                                  SCHEDULE 4.14
           TAXES NOT PAID AND TAX RETURNS NOT FILED (TOGETHER WITH AN
                           ESTIMATE OF THE AMOUNT DUE)

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00028-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00028-of-00352.parquet"}]]