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Lmv Ofices of

& BA UM'. P. C. . 4041 Norrh Central Avenue

BOIVI~ETT FA IRBO URV, FRlEDh!4 N

Suite I100 Phoenix. Arizona 85012-3311

Andrew S. Friedman (OOj42j) Dovid D. Wein-wrrg (018687)

Arforneys for Plaimfl

(602) 274-1100

7 UNITED STATES DISTRICT COURT

8 DISTRICT OF ARIZONA

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l 1 ll BRUCE L E V N , Individually and on behalf of all other ) persons similarly situated, ) Civil Action No.

Plaintiff,

l 2 ll V. CLASS ACTION

l 3 // SKYMALL, INC. and ROBERT M. WORSLEY, CO&PLAEVT

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Defendants. ) Juw Trial Demanded

Plaintiff, individually and on behalf of all others similarly situated, by and through his

attorneys, alleges the followi.ng upon information and belief, except as to the allegations which pertain

to the named plaintiff and his counsel, which are alleged upon personal knowledge. Plaintiffs

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Exchange Act. 27

of 1934 (the "Exchange Act") and Rule lob-S promulgated thereunder, and Section 20(a) of the 26

Period"), against the defendants for violations of Section 10(b) of the Securities and Exchange Act 25

SkyMall common stock during the period December 28, 1995 to December 30, 1998 (the "Class 24

1. Plaintiff brings this action on behalf of himself and all other persons who purchased 23

INTRODUCTION 22

disseminated statements of SkyMall, Inc. ("SkyMall" or the "Company"). 2 1

which investigation included,. among other, things, a review of the public documents and publicly 20

information and belief is based, inter alia, on the investigation made by and through his attorneys,

28 2. Defendant SkyMall makes products and services available to airline passengers

through its in-flight catalogues and to on-line shoppers on the Internet throush its website and other -

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Lmu Ofices of

& BALJNT. P.C. . JOJI North Centml Avenue

Phoenix. Arizona 81012-3311

Andrew S. Fri'rdnran (00542 j) Dautd D. Wein--erg (018687)

Artornqvs for Plainrtfl

B O I V I V ~ , FA IRBOURV, RUED,LL-I,L'

Suite I100

(602) 274-1100

UNITED STATES DISTRICT COURT

DISTRICT OF ARIZONA

3RUCE LEVWE, Individually and on behalf of all other ) lersons similarly situated, ) Civil Action No.

Plaintiff

V. CLASS ACTION

KYMALL, MC. and ROBERT M. WORSLEY, COMPLAINT

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Defendants. ) Jurv Trial Demanded

Plaintiff, individually and on behalf of all others similarly situated, by and through his

morneys, alleges the following upon information and belief, except as to the allegations which pertain

o the named plaintiff and his counsel, which are alleged upon personal knowledge. Plaintiffs

nformation and belief is based, inter alia, on the investigation made by and through his attorneys,

which investigation included,. among other, things, a review of the public documents and publicly

lisseminated statements of SkyMall, Inc. ("SkyMall" or the "Company"). I INTRODUCTION

1. Plaintiff brings this action on behalf of himself and all other persons who purchased

kyMall common stock during the period December 28, 1998 to December 30, 1998 (the "Class I 'eriod"), against the defendants for violations of Section 10(b) of the Securities and Exchange Act

I f 1934 (the "Exchange Act") and Rule lob-5 promulgated thereunder, and Section 20(a) of the I Ixchange Act. I

2. Defendant SkyMall makes products and services available to airline passengers I lrough its in-flight catalogues and to on-line shoppers on the Internet throush its website and other I

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internet alliances. On December 28, 199S, SkyMall announced in a press release (the "December 2:

Press Release") that the Company's Internet sales were expected to increase by 600 percent Over t h t

previous year. As a result of this announcement, the price per share of SLyMall's common stock

soared from 5 12 9/16 to S48 5 / S , and closed at 535 911 6, in heavy trading.

3 . That same day, December 28, 1998, unbeknownst to the investing public, includins

plaintiff and the members of the class, Skymall's President and Chief Executive Oficer, defendan1

Robert h3. Worsley ("Worsley"), took advantage of the anticipated surge in the value of the

Company's stock by selling 675,000 of his shares of SkyMall common stock at an average price ot

$35 a share. He then used the proceeds from those sales to exercise options which he held to

purchase 2.9 million shares of the Company's stock at an average price of $7.23 a share.

4. On December 30, 1998, when it became publicly known that defendant Worsley had

taken advantage of the expected dramatic rise in the price of SkyMall's shares caused by the

December 28 Press Release by selling 675,000 of his shares at inflated prices, and then, by exercising

his options, increasing his equity stake in the Company from 2.3 million to almost 4.6 million shares,

:he price of SkyMall's shares plunged to $27 3/4 a share.

5 . On behalf of himself and the Class, plaintiff seeks damages resulting from defendants'

JnlawfiA manipulation of the price of SkyMall's common stock and the insider selling by defendant

Norsley.

JURISDICTION AND VENUE

6. This Court has jurisdiction of this action pursuant to Section 27 of the Exchange Act

:15 U.S.C. 4 78aa], and 28 U.S.C. $ 5 1331 and 1337.

7. This action arises under and pursuant to Section 10(b) of the Exchange Act

15 U.S.C. 3 78j(b)], Rule IOb-5 promulgated thereunder by the Securities and Exchange

:ommission ("SEC") [ I7 C.F.R. 0 240.10b-51 and Sections 20(a) and 20A ofthe Exchange Act [ 15

J.S.C.S. 4 78t(a) and 78t-I].

8. Venue is proper in this District pursuant to Section 27 of the Exchange Act and 28

J.S.C. 4 1391(b) and (c). SkyMall has its headquarters in this District, and the acts complained of

lerein, including the offer and sale of securities and the preparation, issuance and dissemination of

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materially false and misleading information to the investing public, occurred in substantial pan i n

District.

9. In connection with the acts alleged in this Complaint, defendants, directly or indirectly,

used the means and instrumentalities of interstate commerce, including, but not limited to, the mails,

interstate telephonic communications and the facilities of the National ,Association of Securities

Dealers Automated Quotation System ("NASDAQ"). a national securities exchan,oe.

P A R T E S

10. Plaintiff Bruce Levine bought 350 shares of SkyMall common stock at 535, jo per

share on December 25, 1998.

1 1. Defendant SkyMall, Inc. ("SkyMall" or the "Company") is a Nevada corporation with

headquarters located in Phoenix. Arizona.

12. Defendant Robert M. Worsley ("Worsley") has been the President, Chief Executive

Officer and Chairman of the Board of Directors of the Company since it was founded in 19S9.

13. Defendant Worsley, by reason of his management position, his membership on the

SkyMall Board of Directors and stock ownership, was, at all relevant times, a "controlling person"

of the Company within the meaning of Section 20(a) of the Exchange Act.

14. Each of defendants is liable as a participant in a fraudulent scheme and course of

wsiness that operated as a fraud and deceit on purchasers of SkyMall common stock.

PLAINTIFF'S CLASS ACTION ALLEGATTONS

15. Plaintiffbrings this action as a class action pursuant to Federal Rule ofcivil Procedure

23(a) and (b)(3) on behalf of a Class consisting of all persons who purchased shares of SkyMall

:ommon stock between December 28, 1998 and December 30, 1998, inclusive, ;.e., the Class Period,

md who were damaged thereby (the "Class"). Excluded from the Class are: defendants; members

If Worsley's immediate family; any director, officer, subsidiary, or affiliate of SkyMall; any entity in

Nhich any excluded person has a controlling.interest; and their legal representatives, heirs, SuCCeSSOrS.

md assigns.

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16. The members of the Class are so numerous that joinder of all mmbers is

rnpracticable. While the exact number of Class members is unknown to plaintiffat this time and can

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only be ascertained throuzh appropriate discovery, plaintiff believes that there are thousands 0

members of the Class located throushout the United States. Throushout the Class Period, SAyblal.

common stock was actively traded on the NASDAQ stock market's National Market System u n d c

the symbol "SKYM." During the Class Period, there were more than 17 million shares of Sh~bIa l l

common stock bousht and sold on the open market. Record owners and other members ofthe Class

may be identified from records maintained by SkyMali and/or its transfer agent and may be notified

of the pendency of this action by mail and publication, using forms of notice similar to those

customarily used in securities class actions.

17. Plaintiffs claims are typical of the claims of other members of the Class as all members

of the Class were similarly affected by defendants' wrongful conduct in violation of federal law that

is complained of herein.

1 S. Plaintiffwill fairly and adequately protect the interests ofthe members ofthe Class and

has retained counsel competent and experienced in class and securities litigation.

19. Common questions of law and fact exist as to all members of the Class and

Jredominate over any questions solely affecting individual members of the Class. Among the

questions of law and fact common to the Class are:

(a) Whether the federal securities laws were violated by defendants' acts and

missions as alleged herein;

(b) Whether defendants participated in and pursued the illegal course of conduct

:omplained of herein;

(c) Whether documents, press releases. and other statements disseminated to the

nformation as alleged herein;

(d) Whether the market price of SkyMall common stock durins the Class Period

was artificially inflated due to the material omissions complained of herein;

(e) Whether defendants unlawfblly manipulated the price of SkyMall's common

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( f ) To what extent the members of the Class have sustained damages and the - proper measure of damages.

20 A class action is superior to all other available methods for the fair and efficient

adjudication of this controversy since joinder of all members is impracticable. i\s the dama_oes

suffered by individual Class members may be relatively small, the expense and burden of individual

litigations make it impossible for members of the Class individually to seek redress for the wrongs

done to them. There will be no difficult in the management of this suit as a class action.

FACTUAL ALLEGATIONS

21. SkyMall claims to be the largest in-flight catalog company in the United States by

making high-quality products and services available to more than 400 million airline passengers per

year and to millions ofon-line shoppers over the Internet. The Company markets and sells premium

merchandise from participating merchants, including major catalog companies and specialty retailers,

through its in-flight catalog program and electronic commerce via its website and other Internet

alliances. I I

22. As of April 6, 1998, there were 8,489,600 shares of SkyMall common stock

xtstanding. At that time, Worsley and his wife(the "Worsleys") owned 2,440.5 18 shares ofSkyMall

:ommon stock, representing 28.7% ofthe Company's outstanding common stock. At that time, the

Worsleys also owned options to purchase: (i) 2,386,798 shares from Alan C. Ashton, a director and

:o-founder of SkyMall, and his wife (the "Ashtons"); and (ii) 537,298 shares from Bert A. Getz

:"Getz"). Those options were due to expire on December 3 1, 1998.

23. In December 1998, the Defendants began an aggressive scheme to artificially inflate

he price of SkyMall stock by exploiting investors' already heightened interest in companies that do

Iusiness over the Internet by issuing a series of five press releases that trumpeted SkyMall's

wported transition from the mail order catalog business to on-line retailing through the Company's

lew Web Site, SkyMall.com.

24. On December S. 1998, SkyMall issued a press release announcing that

IliyFamily.com, which offers the Internet's first free, private family Web sites, had begun hosting

ikyMall's online version of its in-flight catalog. In the December 8, 1998 press release, defendant

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Worsley told investors that:

We are excited to be a part of the roll-out of MyFamily.com and to offer its members quality, unique gifts from the nation's leading merchants. . . . I'vlyFamily.com is providing families a new way to stay in touch, while at the same time capitalizing on a p o w e h l marketins opportunity. We believe partnering with MyFamily.com and providing gifts through their gift registry and event calendar are excellent ways to expand distribution of SkyMall's shoppins prosrams.

25. Three days later, on December 1 1, 1998, SLyMall issued another press release,

announcing that SkyMall's electronic mall would be marketed to various "hish- traffic web sites"

through a new arrangement with an order-processing facility. In the December 1 1, 1998 press

release, defendant Worsley told investors that

This new arrangement represents an important opportunity for SkyMall as we pursue a key element of our growth strategy via the Internet. . . . What we're doing is offering high-profile Web sites the opportunity to feature SkyMall's products and services. We've customized this program to the unique high-traffic volume these Web sites enjoy on the Internet.

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With our new Web-based architecture in place, development time for these opportunities has been drastically reduced, enablins SkyMall to quickly implement new, customized programs.

26. Three days after that, on December 14, 1998, SkyMall followed up with yet another

press release, in which the Company announced that theglobe.com. the leading online community

Web site with an average of more than 7.5 million visitors per month, would now feature SkyMall's

m-line catalog in the Marketplace area of its Web site. In the December 14, 1998 press release, ~

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Worsley told investors that

We are very pleased to have joined forces with theglobe.com, which we selected because of their impressive user network and rapidly growing Web presence. . . . Through this agreement, we will make i t easier than ever to purchase quality SkyMalI merchandize over the Internet, both for globe.com members and the general public. ,

27. Just two days later, on December 16, 1998, SkyMall issued a press release announcing

hat it had formed partnerships with a variety of other Internet sites to increase the number of

:onsumers exposed to SkyMall's products. In the December 16, 1998 press release, defendant

Norsley informed investors that:

These online partnerships increase awareness of SkyMall's online business and our wide array of products and services. . . . This program offers advantages to both consumers and our partners: consumers set the convenience of SkyMall's online

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shopping, our partner sites enjoy the benefit of Skyblall's unique, one-stop shoppins, while ensuring their customers return to their site, and our many merchant partners enjoy exposure to customers they may not otherwise reach.

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These relationships are a key part of SkyMall's Srowth plan, and we plan to continue to grow throuzh additional programs and alliances. We believe this is a profitable way to broaden our online presence.

25. On December 25, 1998, before the stock market opened, defendant Worsley caused

SkyMall to issue a press release (the "December 25 Press Release") entitled "SkvMall Internst Sales

Up 600 Percent." I n the December 25 Press Release, SkyMall announced that Skyblall's internet

;ales for fiscal 199s was expected to reach approximately $2.1 million compared with sales in 1997

Ifjust over $300,000, an increase of approximately 600 percent. Defendants also announced that

.hey expected total revenues for fiscal 1998 would increase to S65 million versus $60.5 million the

xior year. Defendants emphasized the 600 percent increase in expected internet sales, even though

hose sales still only accounted for approximately $2 million of the Company's anticipated revenues

If $65 million in 1998.

29. In the December 25 Press Release, defendant Worsley said that SkyMall was "pleased

[bout the positive trend in our internet sales." He went on to tout SkyMall's hture on the internet:

The total order volumes we processed on the busiest days this Holiday season have proven that our Web-based infrastructure decision was.ri,oht and is highly scalable for h ture growth. Through its virtual inventory system, SkyMall processed more than 35,000 orders to over 100 merchant hlfillers during the two busiest days ofthe 1995 Holiday season.

SkyMall has strong hndamentals, including gross margins in excess of SO percent and a track record of strong revenue growth and profitability. We have recently announced a number of new relationships that have made SkyMall's product offering more widely available to online consumers. These and other new relationships will be important in hrthering SkyMall's strategy of becoming a well-recognized Web retailer.

We believe consumers will continue to look to brands they know and t rust when shopping on the Web. SkyMall brings the consumer the best products from more than 100 well-known merchants. With our in-flight paper catalog that is available to more than one million airline passengers each day, we essentially have a paper banner ad for driving traffic to our Web site. Without the size restriction of our paper catalog. we will continue to add additional content to our Web site, providing on-line consumers a superior shopping experience.

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30. The December 28 Press Release also noted that SkyMall would be featured O n C m (

Monday, a nationally broadcast financial news program on cable television, at 7:45 a.m. Mountair

Standard Time on December 28, 1998. Defendant Worsley in fact appeared on CNBC Monday tha.

morning where he hrther publicized SkyMall's 600 percent increase in Internet sales (the "Ci\lBC

Monday Interview")

3 1 . The CNBC Monday Interview interviewer opened the interview by notins t h x

SkyMall shares surged 523 that morning after the Company announced it expected 1998 internet sales

to be 600 percent higher than the previous year. The interviewer stated:

"For more on what's behind ShyMall's recent surge: Joining me now from Phoenix, Arizona is the company's chairman and CEO, Robert Worsley."

32. In response to a question as to where SkyMall's "strength is going to come from in

the future," defendant Worsley stated: "And at this point we can't see any limit to what the internet

sales might be."

33. Defendant Worsley also represented in the interview that SkyMall's web site was

started in January 1996.

34. On December 28, 1998, as a result of the issuance of the December 28 Press Release

md the CNBC Monday Interview, the price ofSkyMall's common stock soared from its close of% 12

V16 a share the previous day to a high of $48 518 a share before closing the day at S35 9/16 on a

{olume of over 2.5 million shares, making it one of the most actively traded stocks on Wall Street

hat day. The following day, on December 29, 1998, the price of SkyMall common stock rose again,

litting an intraday high of $45 and closing at $40 3/4 a share, on volume of over 8.1 million shares. ~

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35. What defendants failed to disclose, and the investing public did not know, was that

LS of the issuance of the December 28 Press Release and the CNBC Monday Interview, Worsley

)lamed to take advantage of the anticipated surge in SkyMall's share price following the December

18 Press Release and the CNBC Monday Interview, by selling a large block of his shares of the

Zompany's common stock at inflated prices and then using most of the proceeds to exercise his

bptions which were due to expire on December 3 1, 1998, to purchase shares of SkyMali common

tock from the Ashtons and Getz at well below the open market price per share.

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36. On December 25, 1998, after the December 25 Press Release, and after the CM3(

Monday Interview, and unbeknownst to the public, defendant Worsley and his wife sold 675,OO

shares of their SkyMall common stock, at an, average price of approximately S35 a share, for tot:

proceeds of approximately S23,675,000. They then used approximately 521.1 million of thes:

proceeds to exercise their soon-to-expireoptions to purchase 2,386,795 shares from the Ashtons anc

537,298 shares from Getz. The exercise prices of the options were $7.25 a share for the .Ashton.;

stock and $6.75 a share for Getz's stock. As a result, the Worsleys increased their equity holdins:

in the Company from approximately 2.3 million shares to almost 4.6 million shares, which represents

54 percent of SkyMall's total outstanding common stock.

37. The information that defendants failed to disclose concerning the Worsieys' planned

:ransactions in the Company's stock was material information that would have been important to

nvestors in deciding whether to purchase SkyMall common stock and would have affected the total

nix of information available to investors about SkyMall.

38. The materiality ofthat information is seen from themarket's reaction as it learned, first

hat the Worsleys were planning to sell a large number oftheir SkyMall shares, and then, second, that

hey had actually done so. After the public disclosure, on December 30, 1998, ofthe Worsleys' Form

144 filing, the share price ofSkyMall's stock plummeted. SkyMall shares, which had traded at a high

In December 30, 1998 of$36-3/4 per share, closed at $27 3 4 , down $9 per share,on tradins volume

)f almost 5.6 million shares.

39. By the close of trading on December 3 1, 1998, SkyMall common stock had lost an

.dditional $6 718 per share, closing at $20 7/8, on volume of over 3.8 million shares.

40. Defendants' representation that SkyMall's 1998 internet sales were expected to be 600

lercent greater than 1997 sales was misleading. SkyMall did not launch its web site until October

997. Therefore, a comparison of internet sales in 1998 with internet sales in 1997 is misleading.

ecause SkyMall had a web site for internet sales for all of 1998 but for only two to three months in

997.

4 I . Defendant Worsley also manipulated the publicly available information about his

lanned sale of a large block of SkyMall stock by failing to file timely a required disclosure Statement

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with the SEC.

42. SEC Rule 143(h), entitled "Notice of Proposed Sale." provides that ifsecurities to bc

sold in reliance upon Rule 144 have a sale price in excess o fS 10,000, a notice on Form 113 shall b:

filed with the SEC and with the principal national securities exchange on which the security trades

According to rulings of the staff of the SEC, Rule 144 requires that a Form 141 must be filed at 0;

before the time the securities are sold.

43. Notwithstanding this requirement, defendant Worsley prepared Forms 144 after selling

the shares. A Form 144 with respect to 400,000 shares was filed with the SEC on December 29 ,

199S, and a Form 111 with respect to 250,000 shares was filed with the SEC on December 30, 199s

Apparently, no Form 144 has been filed with respect to 25,000 of the shares sold by defendant

Worsley and his wife on December 25, 1998.

44. On December 30, 1998, at 13: 17 (1: 17 p.m.) EST, an on-line financial news service

-eported that the Worsleys had filed with the SEC a Form 134 which indicated that the Worsleys

ntended to sell 400,000 shares of the Company's stock on December 28, 1998. This was the first

lotice the public marketplace had of the Worsleys' plan to sell shares of the Company.

45. Also on December 30, 1998, at 16:44 (4:44 p.m. EST), in apparent reaction and

.esponse to the report regarding the Form 144 filing, SkyMall issued a press release (the "December

io Press Release") disclosing that Worsley had sold 675,000 shares G f his SkyMall stock and had

lsed the proceeds to exercise his options to purchase another 2.4 million shares from the Ashtons and

j18,OOO shares from Getz for $7.35 and $6.75 per share, respectively. SkyMall also announced that

'[als a result of this planned exit strategy," Alan C. Ashton had resigned as a director of the _1 ,ompany.

46. According to subsequent disclosures, defendant Worsley's options expired on

Iecember 3 1, 1998, and he was "obligated to use his best efforts" to obtain financins to exercise the

kptions. An article in the January 2, 1999Mor1frealGn:et1e reported that SkyMall said Worsley "had

. hays hoped to be in a position to exercise the options giving him a controlling interest."

47. Defendants issued the December 28 Press Release prior to the close of defendant

ikyMall's I998 fiscal year, with the motive and intent of causing an increase in the price of SkykIall'S

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shares before December 3 I , SO that defendant Worsley could sell SkyMall shares at a more favorable

price in order to generate the Funds necessary to exercise his options before their expiration on

December 3 1.

48. Defendants' motive and intent can be inferred From the fact that they issued the press

release several days prior to the end of the fiscal year and from the fact that Sh#v"'s prior practice

was to issue announcements about the Company's performance after the end of the fiscal period i n

question.

49. For its fourth quarter and fiscal year ended December 3 1, 1997, Skyklall issued an

earnings release on February 17, 1998. For each of the first three fiscal quarters in 1998. ShyMall

issued earnings releases at least weeks after the end of the quarter.

50. Defendants' motive and intent can also be inferred from the fact that there was

widespread coverage in the press in December 1998 about the dramatic price increases for stocks of

:ornpanies associated with the internet. Therefore, defendants anticipated that a press release

mphasizing SkyMall's potential for business over the internet could result in a dramatic increase in

:he price of SkyMall stock.

COUNT I

Violations Of Section 10(b) Of The Exchange Act And Rule lob-5 Promulgated Thereunder

Aeainst Both Defendants

5 1. Plaintiff repeats and realleges the allegations set forth above as though hl ly set forth

lerein. This claim is asserted against both defendants.

52. During the Class P'eriod, defendants, and each of them, carried out a plan, scheme and

:ourse of conduct which was intended to and did: (i) deceive the investing public, including plaintiff

,nd other Class members, as alleged herein; (ii) artificially inflate and maintain the market price of

;kyMall common stock; and (iii) cause plaintiff and other members of the Class to purchase SkyMall

tock at artificially inflated prices. In hrtherance of this unlawful scheme, plan and course of

onduct, defendants took the actions set forth herein.

5 3 . Defendants: (a) employed devices, schemes, and artifices to defraud; (b) made Untrue

tatements of material fact and/or omitted to state material facts necessary to make the Statm~entS

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not misleading; and (c) ensaged in acts, practices and a course of business which operated as a fraud

and deceit upon the purchasers of the Company's common stock, in an effort to maintain anificiallv

high market prices for SkyMalI common stock in violation of Section 10(b) ofthe Exchange .Act and

Rule lob-S . Defendants are sued as primary participants in the wrongful and illegal conduct charsed

herein. Defendant Worsley is also sued herein as a controllin,o person OfShyblall, as alleged - below

54. D.efendants had actual knowledse ofthe misrepresentations and omissions ofmaterial

facts set forth herein, or acted with reckless disregard for the t r u t h in that they failed to ascertain and

to disclose such facts, even though facts were readily available to them. Defendants' material

misrepresentations and/or omissions were done knowingly or recklessly and for the purpose and

Effect of concealing and misrepresenting material facts about SkyMall's internet sales, defendants'

notives and purpose in issuing press releases and other public statements, and concealing defendant

Worsley's plans to sell SkylMall stock.

5 5 . As a result of defendants' manipulation of the price of SkyMall stock and the

jissemination ofthe materially false and misleading information and failure to disclose material facts,

1s set forth above, the market price of SkyMall's common stock was artificially inflated during the

llass Period. I n ignorance of the fact that the market price of Skybfall's shares was artificially

nflated, and relying upon the integrity of the market in which the securities trade, and/or on the

tbsence of material adverse information that was known to or recklessly disregarded by defendants

)ut not disclosed in public statements by defendants during the Class Period, plaintiff and the other

nembers of the Class acquired SkyMall common stock during the Class Period at artificially inflated

ligh prices and were damaged thereby.

56. At the time of said misrepresentations and omissions, plaintiff and other members of

he Class were ignorant of their falsity, and believed them to be true. Had plaintiff and the other

nembers of the Class known of the true facts concerning SkyMall, plaintiff and other members of the

:lass would not have purchased or otherwise acquired their SkyMall securities durins the Class

'eriod, or, if they had acquired such securities during the Class Period, they would not have done SO

t the artificially inflated prices which they paid.

57. Plaintiff and the members ofthe Class were injured because the risks that materialized

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were risks of which they were unaware as a result of defendants' misrepresentations, omissions and

other fraudulent conduct alleged herein. The decline in Skyhlall common stock was caused by the

public dissemination at the end of the Class Period of the true facts, which were previously concealed

or hidden. Absent defendants' wrongful conduct, plaintiff and the members of the Class would not

have been injured.

58. By virtue of the foregoing, defendants each violated Section 10(b) of the Exchange

Act and Rule lob-5 promulgated thereunder.

59. As a direct and proximate result of defendants' wronghl conduct, plaintiff and the

other members of the Class suffered damages in connection with their purchases of the Company's

securities during the Class Period.

COUNT ll

Against Defendant Worslev Pursuant To Section 20(a) of the Exchange Act

60. Plaintiff repeats and realleges each and every allegation set forth above.

6 1. This claim is brought pursuant to Section 20(a) of the Exchange Act against defendant , I

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Worsley. I 62. Throughout the Class Period, Worsley was a "controlling person'' of SkyMall within

:he meaning of Section 20(a) of the Exchange Act.

63. Because of his position as President, Chief Executive OfEicer and Chairman of the

3oard of Directors of SkyMall during the relevant period, Worsley made and/or approved SkyMall's

nisleading statements from which there were material omissions as described above. In addition,

Iecause ofhis positions with the Company, Worsley approved and/or controlled SkyMall's unlawfd

nanipulation of the price of its common stock.

64. As President, Chief Executive Officer and Chairman of the Board of Directors of a

wblicly held company, Worsley had a duty to disseminate accurate and t r u t h h i information with

espect to the Company's business operations and his planned transactions in the Company's common

tock as alleged herein so that the market price of SkyMall's securities would be based on tmthhl,

ccurate and timely disclosure of all material information.

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65. By vinue of Worsley being a "controlling person," he is liable for the violations of

Section 10(b) of the Exchange Act and Rule lob-5 committed by defendant SkyMall.

COUNT nT For Insider Tradino, Ao,ninst Defendant Worslev

66. Plaintiff repeats and realleges the allegations set forth above as ifhlly set forth herein.

This claim is brouzht by plaintiff on behalf of all members of the Class who purchased shares of

SkyMall stock contemporaneously with sales of Skyblall stock by defendant Worsley as allzeed in

this count.

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67. Defendant Worsley sold shares of SkyMall common stock on December 25, 1998,

while in possession of non-public information that was material to the value of SkyMall stock, which

sales were contemporaneous with purchases by plaintiff and other members of the Class.

68. Defendant Worsley. by virtue ofsaid sales. violated Section 20A ofthe Exchange Act.

69. Pursuant to Section 2 0 4 subdivision (a), defendant Worsley is liable for damases to j I

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]laintiff and all other members of the Class who purchased shares of SkyMall common stock

:ontemporaneously with defendants' said sales.

PRAYERS FOR RELIEF

WHEREFORE, plaintiff prays for judgment as follows:

A. Declaring this action to be a plaintiffclass action properly maintained pursuant to Rule

!3(a) and (b)(3) of the Federal Rules of Civil Procedure and certifLing the plaintiff as appropriate

daintiff and class representatives;

B. Awarding plaintiff and other members of the Class damages, with interest thereon;

C. Awarding plaintiff and other members of the Class their costs and expenses of this

itigation, including reasonable attorneys' fees, accountants' fees and experts' fees and other costs and

iisbursements; and

D. Awarding plaintiffand other members ofthe Class such other and hrther reliefas may

le just and proper under the circumstances.

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DEMAND FOR JURY TRWL

Plaintiff hereby demands a trial by jury.

Date: January 29, 1999

BONNETT, FAREIOURN, FRIEDMAN & BALINT. P.C.

By: *

ANDREW S. FBdEDMAN I f David D. Weinbeis U

4041 N. Central Avenue Suite 1 100 Phoenix, Az 850 12-33 1 1 Telephone: 60Z274- 1 100

SHAPIRO HABER & umry LLP Thomas G. Shapiro Theodore M. Hess-Mahan 75 State Street Boston, MA 02 109 Telephone: (617) 439-3939

THE LAW OFFICES OF RICHARD J. VITA, P.C. Richard J. Vita 77 Franklin Street Boston, MA 02 109 Telephone: (61 7 ) 426-6566

Attorneys for Plaintiff

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2 I am willing to serve as a representatim party on behalf of a d u s ,

including providing testimony ar depxition and mal, if necessary.

3. My transactions in SkyMall securities durin,a the Class Period were as

foIIows:

D& 3b4Smka d!lmurG f i c t Per ShaE

12/28/98 Bough1 350 shares S3850

4. X did nor purchas! these securities at the direction of counsel. or in order

to parhapate in any private action arising under the Securities Act of 1933 or The

Securities m a n g e Act Of 1934.

5. I have ntirher served, nor sought KO s e w as a representative pany on

behalf of a class in a seaviries fraad lawmft during ahe rhree-year period preceding the

date of signing this cmification

6. I will not accept any paylnem for serving as a representative on behalf of

rhe class beyond my pro ram share of any possible recovery, except for an award, as

ordered or appmved by the Cow for rtasanabie a m and expenses (including Ion

wages) &rea@ relating IO the representation of the Clau

61743S0134

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2

TmEL P. 21 T O T E P.25

To:

copy:

From:

Date:

Re:

M E M O R A N D U M

Board of Directors of SkyMall, Inc. ATTORNEY-CLIENT PRIVILEGED COMMUNICATION

Christine A. Aguilera, Esq.

Christopher D. Johnson and Ann-Marie Anderson Squire, Sanders & Dempsey L.L.P.

March 15, 1999

Response to Section 16(b) Demand from Milberg, Weiss, Bershad, Hynes & Lerach LLP

I. Introduction

On January 16, 1999, SkyMall received a letter addressed to its Board of Directors from the law firm of Milberg, Weiss, Bershad, Hynes & Lerach LLP (“Milberg Weiss”) demanding that SkyMall take action to recover short-swing profits under Section 16(b) of the Securities Exchange Act of 1934 allegedly attributable to Robert Worsley’s sale of 650,000 shares and subsequent purchase of 2.4 million shares.’ The shares were sold in the open market on December 28, 1998 at an average price of approximately $35 per share. A portion of the proceeds of the sale were used to exercise options granted to Mr. Worsley by Alan C. and Karen Ashton and Bert A. Getz in October 1996, prior to SkyMall’s Initial Public Offering (“IPO”). This memorandum discusses the facts and law relevant to the alleged Section 16(b) violation involving the late December 1998 sale and purchase of shares by M r . Worsley, and is intended to provide the Board with advice regarding the appropriate response to the January 15, 1999 letter fiom Milberg Weiss. A copy of that letter is attached hereto as Exhibit 1.

’ The Milberg Weiss letter actually references the sale of 675,000 shares. SkyMall’s press release on December 30, 1998 reporting Mr. Worsley’s transactions and certain subsequent press accounts stated Mr. Worsley sold 675,000 shares of SkyMall Common Stock on the open market, rather than 650,000 shares as accurately reported on his Form 4, dated January 1 1, 1999, attached hereto as Exhibit 8. The press release reflected the fact that Mr. Worsley had originally intended to sell an additional 25,000 shares and donate the proceeds to his church, but he elected to delay that transaction until a later date.

Library: Phoenix; Document #: 4 2 0 4 9 ~ 8

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For the reasons discussed below, we have determined that the sale by Mr. Worsley and the subsequent exercise of the options under the Worsley/Getz Agreement (as defined below) and the Worsley/Ashton Agreement (as defined below) did not violate Section 16(b), and consequently, that SkyMall is not required to take any action to recover any profits earned by Mr. Worsley from such transactions.

11. Factual Background

A. Worsley/Ashton Agreement

On October 15, 1996, Robert M. Worsley and Chnsti M. Worsley (collectively referred to as “Worsley”), and Alan C. Ashton and Karen Ashton (collectively referred to as “Ashton”) and SkyMall entered into the Worsley/Ashton Stockholders Agreement (“Worsley/Ashton Agreement”) (attached hereto as Exhibit 2). Under the terms of the’ Worsley/Ashton Agreement, upon the closing date of the IPO (December 16, 1996), Ashton granted Worsley an option to acquire all of the shares of Common Stock owned by Ashton on that date, including shares of Common Stock issued to Ashton upon conversion of the Preferred Stock issued in the pre-IPO bridge financing, but excluding shares ‘included in the IPO over- allotment option. The option was exercisable until the last day of the twenty-fourth full month following the IPO closing date, i.e. December 3 1, 1998. Pursuant to the terms of the Worsley/Ashton Agreement, the aggregate exercise price for the option shares was $10,500,000. In addition, if the option was exercised, the Worsley/Ashton Agreement obligated Worsley to make a contribution to the Ashton Family Foundation in the amount of $7,066,100, bringing the effective aggregate exercise price of the option to $17,566,100. Accordingly, the effective exercise price per share, determined by dividing $17,566,100 by the 2,386,798 shares of SkyMall stock held by Ashton on the IPO closing date, was approximately $7.35.

B. Worsley/Getz Agreement

On October 15, 1996, Worsley, Getz and Globe Corporation (“Globe”) entered into the Worsley/Getz Stockholders Agreement (“Worsley/Getz Agreement”) (attached hereto as Exhibit 3). Under the Worsley/Getz Agreement, upon the IPO closing date, Getz granted Worsley an option to acquire one-half of the shares of Common Stock owned by Getz on that date, including shares of Common Stock issued to Getz upon conversion of Preferred Stock, but excluding shares included in the over-allotment option. The option was originally exercisable until the last day of the eighteenth full month following the closing of the IPO, i.e. June 30, 1998. The exercise price per option share was determined as of the Closing Date by dividing the aggregate exercise price of $3,500,000 by the number of option shares, or 518,000 shares for approximately $6.75 per share.2

In Worsley’s beneficial ownership filings with the SEC and in certain SkyMall disclosures, the number of shares subject to the Getz option was reported as 542,998, which would have resulted in a per share exercise price of approximately $6.45. These figures were based upon Worsley’s understanding that one-half of the shares held by Globe (a company owned by Getz) were to be included in the option. In connection with the exercise of the option, Getz advised Worsley of

Squire, Salrders 6 Dernpsey L.L.P. - 2 - March IS, 1999

C. First Amendment to Worsley/Getz Agreement

On June 19, 1998, Worsley, Getz and Globe Corporation entered into the First Amendment to Worsley/Getz Stockholders Agreement (“First Amendment to Worsley/Getz Agreement”) (attached hereto as Exhibit 4). The First Amendment to Worsley/Getz Agreement changed the expiration date of the Worsley/Getz option from “the date that is that last day of the eighteenth full month following the Closing Date” to “December 3 1, 1998.” The parties chose this date to match the expiration date of the Ashton option determined after the closing of the IPO in accordance with the terms of the Worsley/Ashton Agreement.

D. Announcement of SkyMall’s 1998 Internet Sales

On Monday, December 28, 1998, SkyMall said in a press release that sales from its Internet shopping site in December were expected to climb to $2.1 million for the year, compared with just $300,000 in 1997. Mr. Worsley appeared on CNBC early in the morning on Monday, December 28, 1998 to discuss the announcement. Throughout that day, Mr. Worsley was also interviewed by several other news organizations. The price of SkyMall shares spiked that day, gaining $23 to $35.5625.

E. Sale of Stock and Exercise of Options

On December 28, 1998, Worsley sold 650,000 shares of SkyMall Common Stock in open market transactions. On December 30, 1998, Worsley gave Ashton written notice of exercise of Worsley’s option under the Worsley/Ashton Agreement (attached hereto as Exhibit j), and payment of the option price was made to Ashton on December 30, 1998. Also, on December 30, 1998, Worsley gave Getz written notice of exercise of Worsley’s option under the Worsley/Getz Agreement (attached hereto as Exhibit 6). At that time, Getz requested that Worsley defer payment of the option price until January 4, 1999. Worsley agreed that, although he was ready, willing and able to pay the option price immediately (and in fact had the proceeds of his December 28 sale available for that purpose), he was willing to accommodate Getz’s request to receive payment in 1999 rather than 1998. Accordingly, on December 30, 1998, the parties entered into the Second Amendment to Worsley/Getz Stockholders Agreement (attached hereto as Exhibit 7) in order to defer payment of the option price as Getz had requested. Payment of the option price was made by Worsley to Getz on January 4, 1999. A Form 4 filing reporting the transaction was made on January 1 1, 1999 (Attached hereto as Exhibit 8).

By exercising the options, Worsley acquired 2.4 million shares at $7.35 per share from Ashton and 5 18,000 shares at $6.75 per share from Getz, respectively, increasing Worsley’s ownership of the outstanding stock of SkyMall to 4.4 million shares, or approximately 54%. Worsley had previously intended to meet the obligation to exercise the options through a bank borrowing which he had arranged with Imperial Bank. Prompted by the significant

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Getz’s understanding that the Globe shares were not included in the option, and Worsley determined not to dispute that interpretation.

Squire, Sanders b Dempsey L.L.P. - 3 - March IS. 1999

increase in the price of the Company’s stock on December 28, 1998, Worsley sold stock to finance the option exercise only after outside counsel had advised him that the market had absorbed the news about the Company’s increased Internet sales and that the transaction was otherwise appropriate.

F. Letter from Milberg Weiss

Milberg Weiss, a plaintiffs firm specializing in securities class action lawsuits, submitted a letter to the Board of Directors of SkyMall dated January 15. 1999. In the letter, Milberg Weiss alleges that Mr. Worsley’s late December 1998 sale of shares in the open market and purchases by exercising his options constituted a violation of Section 16(b) of the Securities Exchange Act of 1934 and demands recovery of alleged short-swing profits earned in connection with such purchase and sale. The letter states that if the Board fails to recover or prosecute within sixty days, Milberg Weiss will commence a lawsuit on behalf of SkyMall to recover the alleged short swing profits.

111. Legal Considerations

A. Section 16(b) and related rules of the Securities apd Exchange Act of 1934 (the “Act”)

Section 16(b) of the Act is designed to, prevent the unfair use of information obtained by a 10% owner, director, or officer by reason of his relationship to the issuer by requiring that any profit realized by such person fiom any sale and purchase or purchase and sale of any equity security of such issuer within any period of less than six months, be recoverable by the issuer. The intent of such owner, director or officer is irrelevant. The issuer or the owner of any security of the issuer on behalf of the issuer may file a suit to recover such profit. A lawsuit to recover such profit must be brought no later than two years after the short swing profit was realized.

The analysis of whether Worsley’s December 28 open market sale and subsequent option exercises violated Section 16(b) is governed by the SEC rules under Section 16 relating to “derivative securities.” Rule 16a-l(c) defines “derivative securities” as meaning “any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege at a price related to an equity security.. .” Rule 16a- 1 (b) defines one type of derivative security, a “call equivalent position,” as a “derivative security position that increases in value as the value of the underlying security increases, including.. .a long call option.. . .” The options granted by Ashton and Getz to Worsley are “derivative securities” and “call equivalent positions” under the foregoing definitions.

The effect of the grant and exercise of the Ashton and Getz options for purposes of Section 16(b) is controlled by Rule 16b-6, which deals with derivative securities. Under Rule 16b-6(a) the establishment of a call equivalent position is deemed a purchase of the underlying securities for purposes of Section 16(b). The options granted under the Worsley/Ashton Agreement and the Worsley/Getz Agreement constitute call equivalent positions which were established in October 1996, and their terms were fixed as of the IPO

Squire, Saders b Dempsey L.L.P. - 4 - March IS. 1999

closing date, i.e. December 16, 1996. As a result, under Rule 16b-6(a), Worsley was deemed to have purchased the shares subject to the Worsley/Ashton Agreement and the Worsley/Getz Agreement no later than December 16, 1996 for purposes of Section 16(b).

Similarly, Rule 16b-6(b) provides that the closing of a derivative security position as a result of its exercise is exempt from the operation of Section 16(b) and the acquisition of underlying securities at a fixed exercise price due to the exercise of a call equivalent position is exempt from Section 16(b). As a result, the purchase of shares from Ashton and Getz, pursuant to the exercise of the options under the WorsleyIAshton Agreement and the Worsley/Getz Agreement, as amended, cannot be matched with the open market sale of shares by Mr. Worsley on December 28, 1998 to produce a Section 16(b) violation, or result in recoverable short-swing profits.

One other issue which may be raised bears some discussion. Although there is nothing in the SEC rules under Section 16(b) which addresses the effect of extending the period for exercising an existing option, in certain interpretations of employee benefit plan exemptions from Section 16@) under Rule 16b-3, the SEC has indicated that such an extension might constitute the grant of a new option for Section 16(b) purposes. The options granted under the Worsley/Getz Agreement originally expired on June 30, 1998. The Worsley/Getz Agreement was amended on June 19, 1998 to extend the option exercise date until December 3 1, 1998. Even assuming that such extension of the option under the Worsley/Getz Agreement was the grant of a new option on June 19, 1998, and would be deemed a new “purchase” of the underlying shares on that date under Rule 16b-6(a), that “purchase” would be more than six months prior to the December 28, 1998 sales and, therefore, could not result in a Section 16(b) violation. Moreover, the Second Amendment to the Worsley/Getz Agreement, defemng payment until January 4, 1999 at M r . Getz’s request, was entered into after Worsley had already given notice of exercise of the option under the Worsley/Getz Agreement and had indicated his readiness and ability to make immediate payment of the option price (which was, in fact, the case), and thus was clearly entered into for the purpose of accommodating M r . Getz’s desire to receive payment in 1999 and not for the purpose of extending the period of time during which Mr. Worsley could exercise the option. Under these circumstances, we see no basis whatsoever under the applicable SEC rules or interpretations thereof to conclude that the Second Amendment to the Worsley/Getz Agreement could be considered the grant of a new option from Getz to Worsley, and, therefore, it cannot be considered a “purchase” which could be matched with the December 28 open market sale for Section 16(b) purposes.

IV. S u m m a r v and Recommendation

Based on our analysis of the facts and relevant law, it is our conclusion that Mr. Worsley’s December 1998 transactions do not constitute a violation of Section 16(b). Consequently, there are no resulting short-swing profits that SkyMall is required to recover. We recommend that a letter be sent to Milberg Weiss, summarizing our conclusions on these matters and rejecting their demand to recover alleged short-swing profits from Mr. Worsley. A copy of our proposed response to Milberg Weiss is attached hereto as Exhibit 9.

Squire, Sanders b D e m p q L.L.P. - 5 - March IS. 1999

As further support for this recommendation, the Board should be aware that the SEC has recently concluded an informal investigation of the facts and circumstances surrounding SkyMall’s December 28, 1998 press release regarding the increase in Internet sales, and Mr. Worsley’s December 28, 1998 open market sale and subsequent exercise of the Ashton and Getz options. The conclusion verbally communicated by the SEC to Ms. Aguilera on March 15, 1999, is that, based on their investigation, no further action is necessary and the file regarding these matters is closed.

Squire, Sanders 6 Dernpsey LLP. - 6 - March 15, 1 9 9 9

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EXHIBIT 1

MILBERG WEISS BERSHAD HYNES a LERACH U P

January 15, 1999 - Board of Directors SkyHall Inc. 1520 East Pima Street Phoenix, Arizona 85034

To the Board of Directors:

Thio firm together with Barrack Rodos h Bacine repremento a current shareholder of SkyMa11 Inc. ("SkyMa11" or, the "Company"). We write pursuant to Section 16(b) of t h e Sccuritiar Exchange Act of 1934 to demand that you bring suit againat Robert Uorsley (nworsley") to recover short-swing profits earned in connection with purchases and sales of SkyHall common stock within a period of six months.

Worrley, aa Chairman, Prcridcct and Chief Executive of SkyMall and a holder of in excess of 10% of the Company's common stock, is mubjecz to the short-swing trading provisions of Section 16(b). Worolcy'r sale of 6 7 5 , 0 0 0 shares of S k p l a l l on December 28, 1998, a t an average price of $35 per share, and his purchaae of 2.4 million ahrrcs of SkyMall common stock a t S 7 . 3 5 per ahare within a eix month period of those sales is a violation of Section 16 (b) .

If you f a i l to recover or pronecute within s ix ty days, we will deem you to have failed to comply with the demand made hezein and we will institute a lawsuit to recover t h e s h o r t swing profits on behalf of the Company.

cc: Daniel Baeinc, Esq. &he1 'H . Rudman

EXHIBIT 2

WORSLEY/ASHTON STOCKHOLDERS AGREEMENT

THIS WORSLEY/ASHTON STOCKHOLDERS AGREEMENT ("Agreement") is made and entered into as of this 15th day of October, 1996, by and among Roberr M. Worsley and Chnsti M. Worsley, husband and wife (collectively referred to as "Worsley"). Alan C. and Karen Ashton, husband and wife (collectively referred to as "Ashton") and Sky Mall, Inc., a Nevada corporation (the "Company").

WITNESSETH:

WHEREAS, Ashton is the owner of 2,268,898 shares of common stock, 5.001 par value per share (the "Common Stock") of the Company;

WHEREAS, on March 17, 1994, Ashton loaned 52,000,000 to the Company as evidenced by a Promissory Note (the "1994 Note");

WHEREAS, on June 30, 1995, Ashton loaned $850,000 to the Company as evidenced by a Loan and Security Agreement (the " 1995 Note"), which loan and security agreement was amended as of June 30, 1996, on which date all accrued interest on the loan was added to the ori,oinal principal balance of the loan which increased the total principal amount of the loan to 5958,523 (the "Amended Note");

WHEREAS, the parties wish to rescind the Amended Note and to reinstate the 1995 Note at its stated interest rate;

WHEREAS, accrued interest on the 1994 Note and the 1995 Note as of September 15, 1996 totalled approximately $575,000 and the 1994 Note and the 1995 Note will continue to accrue interest at their respective contract rates through the date of conversion or repayment as provided herein (all of such interest is referred to herein as the "Ashton Accrued Interest");

WHEREAS, the Company plans to undertake a private placement (the "Private Placement") of 6% Dividend Paying Convertible Redeemable Preferred Stock (the "Preferred Stock") and, following the completion of the Private Placement, to undertake an initial public offering (an "IPO") of 2,000,000 shares of common stock pursuant to the Securities Act of 1933, as amended (the "Securities Act");

WHEREAS, Ashton wishes to convert $1,425,000 in principal of the 1994 Note into 1,425 shares of Preferred Stock upon the closing of the Private Placement, all on the terms and conditions set forth herein;

WHEREAS, on the effective date of the PO, Ashton has agreed to grant to the underwriters in the PO an option (the "Over-Allotment Option") to purchase up to 150,000 shares of Common Stock ("Over-Allotment Shares") at the initial public offering price to cover over-allotments in connection with the PO. if any, which Over-Allotment Option will expire on the 45th day following the effective date of the IPO;

WHEREAS, upon the closing date of the IPO (the "Closing Date"), Ashton has agreed to grant to Worsley an option (the "Option") to acquire all of the shares of Common Stock owned by Ashton on that date, including shares of Common stock issued to Ashton upon

conversion of the Preferred Stock, but excluding the Over-Allotment Shares ( b e "Option Shares"), which option shall be exercisable for twenty-four months following the closin= Q of the IPO and, upon expiration of the option, a right of first refusal (the "Right of First Refusal") to purchase such Option Shares for an additional five-year period commencing on the date of &e expiration of the Option;

WHEREAS, in order to promote the stability of the Company's management, Ashton has also agreed, effective upon the Closing Date, to grant to Worsley an irrevocable proxy (the "Proxy") to vote the Option Shares for the twelve month period following the Closing Date; and

WHEREAS, Ashton has agreed to assist the Company in obtaining additional f m c i n g and to guarantee repayment of such financing all as set forth herein.

AGREEMENTS

NOW, THEREFORE, in consideration of the foregoing premises and mutual covenants hereinafter contained, and for other good and lawful consideration, the receipt and sufficiency of which are hereby acknowledged, the panies hereto agree as follows:

ARTICLE 1

CONVERSION OF NOTES

1.1 Conversion of Notes. Upon the closing of the Private Placement, $1,425,000 in principal of the 1994 Note principal will, without further action by Ashton or the Company, convert into 1,425 shares of the Company's fully paid and nonassessable Preferred Stock, which Preferred Stock, when issued, shall be free and clear of any liens, claims and other encumbrances. Ashton acknowledges that upon the Closing Date of the Company's PO, the shares of Preferred Stock issued to Ashton under this Section 1.1 shall automatically convert into shares of Common Stock of the Company on the same terms as the Preferred Stock issued in the Private Placement, except that. notwithstanding anyttung to the contrary in the Cenificate of Designation relating to the Preferred Stock or in any other documents relating to the Private Placement, the Company will have no obligation to register such Common Stock issued upon conversion of the Preferred Stock under the Securities Act of 1933, as amended. Ashton acknowledges that the rate at which it is currently anticipated that the Preferred Stock will convert into Common Stock is equal to the greater of 180 shares of Common Stock per share of Preferred Stock or 1,OOO divided by (66-2/3 7% multiplied by the IPO price per share of Common Stock) per sharc of Preferred Stock.

ARTICLE 2

COMMERCIAL LOAN AND PAYMENT OF LOAN AND ACCRUED INTEREST

2.1 Additional Financia. As soon as practicable following the date of this Agreement, Ashton agrees to assist the Company in securing a loan from a commercial bank, on terms and conditions reasonably acceptable to the Company, in the aggregate principal amount of % 4 , O O O , O O O (the "Bank Loan"). If required by the bank, Ashton will personally guarantee repayment of $2,OOO,oOO in principal amount of the Bank Loan.

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2 . 2 Pavment of Loan and Accrued Interest. The Company and Ashton agree that, except as set fonh above, they will honor the terms of the 1995 Note effective as of its original date and that the Amended Note is hereby deemed null and void. Immediately upon receipt of the proceeds of the Bank Loan, the Company shall pay to Ashton S2,OOO.OOO which shall be applied as follows: ( i ) $575,000 shall be applied to pay the Accrued Interest, (ii) $850,000 shall be applied to repay the 1995 Note, and (iii) 5575,000 shall be applied to repay a portion of the 1994 Note. Ashton hereby acknowledges that the Ashton Accrued Interest shall be calculated on the 1994 Loan and the 1995 Loan through their respective repayment or conversion dates at the stated rates in the respective loan agreements and Ashton hereby waives any right to collect interest on the 1994 Note and the 1995 Note at the default rates of interest contained therein. Upon the closing of the Company's IPO, the Company will pay all then unpaid Ashton Accrued Interest together with any other amounts then owed to Ashton, except for amounts owed under the vendor work-out fund, which will be paid according to its terms.

ARTICLE 3

OPTTON TO PURCHASE SHARES

3.1 Stock Purchase Option. Subject to the terms of this Agreement, Ashton hereby grants to Worsley the Option to acquire the Option Shares.

3.2 Tern of Oution; Exercise of ODtion. Subject to the terms of this Agreement, Worsley shall have the right, at any time after the Closing Date of the IPO until on or before 5:OO p.m. on the date that is that last day of the twenty-founh full month following the Closing Date (the "Option Expiration Time"), to purchase upon demand from Ashton all or any portion of the Option Shares. The exercise price per Option Share (the "Exercise Price") shall be determined on the Closing Date by dividing $10,500,000 by the number of Option Shares; provided, however, that should Worsley desire to exercise the Option to acquire less than all of the Option Shares, he must first obtain the consent of the Ashtons prior to exercising the Option. Payment of the aggregate Exercise Price shall be made by cashier's check, wire transfer or any combination thereof upon exercise of the Option. The Exercise Price for the Option Shares shall be paid directly to Ashton by Worsley. Subject to the following provisions, Worsley hereby agrees that as soon as reasonably practicable after the PO, Worsley will use his best efforts to obtain financing from a third party to permit him to exercise the Option in full. Worsley agrees that, if necessary or required to obtain such financing. Worsley will, following the expiration of a lock-up agreement between Worsley and the underwriters in the PO. which has a term of twelve months from the closing of the IPO, pledge as collateral the Option Shares acquired on exercise of the Option as well as other shares of Common Stock of the Company owned by Worsley. Worsley funher acknowledges and agrees that he will not exercise any other option to acquire Common Stock of the Company until this Option has either been exercised in full or has expired.

3.3 Adiustment Relatinp to Over-Allotment Ootion. To the extent all or any portion of the Over-Allotment Shares are not acquired by the undemriters pursuant to the exercise of the Over-Allotment Option, then upon the expiration of the of the Over-Allotment Option, the number of Option Shares shall be increased by an amount equal to the number of shares for which the underwriters declined to exercise their Over-Allotment Option (the "Additional Shares"). In such event, the Exercise Price per Option Share, includinz the Additional Shares. shall be recalculated as follows: the sum of ($10,500,000 less any amount previously paid upon

exercise of any portion of the Option) plus (the Additional Shares multiplied by the IPO p i c e per share of Common Stock net of underwriting discounts and commissions) shall be divided by the sum of the then outstandin,o Option Shares and the Additional Shares.

3.4 Charitable Contnbution. Upon the exercise of all or any portion of the Option. Worsley agrees to make contributions (the "Contributions") to the Ashton Family Foundation in the name of Ashton and Worsley. The amount of the Contributions shall be S7,066,100. Worsley shall pay the Contributions as follows: t i ) 40% of the Contribution shall be paid no later than the fifth anniversary (the "Fifth h v e r s a r y " ) of the exercise date of the Option and (ii) 15% of the Contribution shall be paid on each anniversary following the Fifth .hmversary until the entire contribution shall have been paid in full. To secure payment of the Charitable Contributions, Worsley agrees to grant to Ashton a security interest in the shares of Common Stock acquired by Worsley from Ashton upon exercise of the Option, which security interest shall be subordinate to any security interest granted by Worsley to thud parry in connection with obtaining financing for the acquisition of the Option Shares.

3.5 Transfer of Common Stock. Subject to the t e r n of this Asreemem, upon payment of the applicable Exercise Price and any applicable taxes, Ashton shall promptly deliver to Worsley or to such person or persons as Worsley may. designate in writing (subject to applicable securities laws), a certificate or certificates (in such name or names as Worsley may designate in writing) and the stock powers relating thereto signed in blank for the number of duly authorized, fully paid and non-assessable whole shares of Common Stock so purchased upon the exercise of the Option. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become the holder of record of such shares of Common Stock as of the close of business on the date of exercise of the Option and payment of the Exercise Price, notwithstanding that the certificates representing such shares of Common Stock shall not actually have been delivered or that the stock transfer books of the Company shall then be closed.

3.6 Pavment of Taxes. Worsley shall pay all mnsfer, documentary stamp and similar taxes, if any, attributable to the acquisition of the Option Shares; including, without limitation, any tax or taxes which may be payable as a result of the issuance of the Option Shares to any person other than Worsley, and the Company shall not be required to issue or deliver any certificate for any Option Shares unless and until Wonley shall have paid the amount of such tax or shall have produced evidence that such tax has been paid to the appropriate taxlng authority.

3.7 Legend on Shares. Each certificate for shares of Common Stock issued upon exercise of the Option, unless at the time of exercise such shares are registered under the Securities Act shall bear the following legend:

The Shares of Common Stock represented by this certificate have not been registered under the Securities Act of 1933, as amended ("Act"), or any state securities laws and may not be sold, transferred, pledged or otherwise disposed of unless pursuant to an effective registration statement under the Act and such laws or pursuant to an exemption from registration under the Act and such laws.

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. ..

Any certificate issued at any time in exchange or substitution for any Certificate bearing such lezend (except a new certificate issued upon completion of a public distribution pursuant to a registration statement under the Securities Act of the securities represented thereby) shall also bear the above legend unless the holder of su'ch certificate receives an opinion of counsel reasonably acceptable to the Company or its counsel that registration or qualification of the securities represented thereby under the laws referred to therein is not required.

3.8 Adiustment of Exercise Price and Number of Shares. Following the Closing Date, the number and lund of securities purchasable upon the exercise of the Option and the Exercise Price shall be subject to adjustment from time to time after the date hereof upon the happening of certain events, as follows:

3.8.1 Adiusunents. The number of Shares purchasable upon the exercise, and the Exercise Price of the Option shall be subject to adjustment as follows:

3.8.1.1 In case the Company shall (i) pay a dividend on Common Stock in Common Stock or securities convertible into, exchangeable for or otherwise entitling a holder thereof to receive Common Stock, (ii) declare a dividend payable in cash on its Common Stock and at substantially the same time offer its shareholders a right to purchase new Common Stock (or securities convertible into, exchangeable for or otherwise entitling a holder thereof to receive Common Stock) from the proceeds of such dividend (all Common Stock so issued shall be deemed to have been issued as a stock dividend), (iii) subdivide i ts outstanding shares of Common Stock into a greater number of shares of Common Stock, (iv) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, or (v) issue by reclassification of its Common Stock any shares of Common Stock of the Company, the number of shares of Common Stock issuable upon exercise of the Option and, if applicable, the Exercise Price immediately prior thereto shall be adjusted so that Worsley shall be entitled to receive after the happening of any of the events described above that number and kind of shares as Worsley would have received had such Option been exercised immediately prior to the happening of such event or any record date with respect thereto at the Exercise Price immediately prior to such event or record date. Any adjustment made pursuant to this subdivision shall become effective immediately after the close of business on the record date in the case of a stock dividend and shall become effective immediately after the close of business on the effective date in the case of a stock split, subdivision, combination or reclassification.

3.8.1.2 In case the Company shall distribute, without receivins consideration therefor, to all holders of its Common Stock evidences of its indebtedness, securities ocher than Common Stock, rights or warrants to subscribe for securities of the Company or property or assets (including cash), then in such case, the number of shares of Common Stock thereafter issuable upon exercise of the Option shall be determined by multiplying the number of shares of Common Stock theretofore issuable upon exercise of the Options, by a fraction, of which the numerator shall be the closing bid price if publicly traded (or fair market value as reasonably determined by the Board of Directors of the Company, as the case may be) per share of Common Stock on the record date for

such distribution, and of which the denominator shall be the closing bid price of the Common Stock less the then fair value (as reasonably determmed by the Board of Directors of the Company, whose determination shall be conclusive) of the portion of the assets, securities or evidences of indebtedness so distributed per share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record dare for the determination of stockholders entitled to receive such distribution.

3.8.1.3 Whenever the number of shares of Common Stock issuable upon the exercise of the Options is adjusted, as herein provided, the Exercise Price shall be adjusted (to the nearest cent) by multiplying such Exercise Price immediately prior to such adjustment by a fraction, of which the numerator shall be the number of shares of Common Stock issuable upon the exercise of the Option immediately prior to such adjustment, and of which the denominator shall be the number of shares of Common Stock issuable immediately thereafrer.

3.8.2 Mereen. etc. In the case of any (i) consolidation or merger of the Company into any entity (other than a consolidation or merger that does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Company), (ii) sale, transfer, lease or conveyance of all or substantially all of the assets of the Company as an entirety or substantially as an entirety, or (iii) reclassification, capital reorganization or change of the Common Stock (other than solely a change in par value, or from par value to no par value), in each case as a result of which shares of Common Stock shall be converted into the right to receive stock, securities or other property (including cash or any combination thereof), Worsley shall have the right thereafter to exercise such Option only into the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale, transfer, capital reorganization or reclassification by a holder of the number of shares of Common Stock of the Company for which such Option could have been exercised immediately prior to such consolidation, merger, sale, transfer, capital reorganization or reclassification, assuming such holder of Common Stock of the Company (A) is not an entity with which the Company consolidated or into which the Company merged or which merged into the Company or to which such sale or transfer was made, as the case may be ("constituent entity"), or an affiliate of a constituent entity, and (B) failed to exercise his or her rights of election, if any, as to the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer (provided that if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer is not the same for each share of Common Stock of the Company held immediately prior to such consolidation, merger, sale or transfer by other than a constituent entity or an affiliate thereof and in respect of which such rights or election shall not have been exercised ("non-electing share"), then for the purpose of this paragraph 3.8.2 the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). If necessary, appropriate adjustment shall be made in the application of the provisions set forth herein with respect to the rights and interests thereafter of Worsley, to the end that the provisions set forth herein shall thereafter correspondingly be made applicable, as nearly as may reasonably be, in relation to any shares of stock or other securities or property thereafter deliverable on the exercise of the shares. The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers, capital reorganizations and reclassifications.

(c) Notice. Upon the happening of any event requiring an adjustment of the Exercise Price hereunder, the Company shall forthwith give written notice thereof to Worsley, stating the adjusted Exercise Price and the adjusted number of Option Shares purchasable upon the exercise thereof resulting from such event, and setting fonh in reasonable detail the method of calculation.

3.9 No Obligation to Exercise ODtion. The grant and acceptance of any Option and the execution of this Agreement imposes no obligation on Worsley to exercise all or any pan of the Option.

3.10 No Transfer of Option Shares. DuMg the period from the date of this Agreement until the expiration of the Option, Ashton agrees that Ashton will not sell, transfer, convey or otherwise dispose of any of the Option Shares.

ARTICLE 4

RIGHT OF FIRST REFUSAL

4.1 Offering Notice: Involuntarv Transfer Date. For the period beginning on the expiration of the Option and ending on the fifth anniversary thereof, Ashton hereby covenants that Ashton will not transfer any shares of Common Stock owned by Ashton (hereinafter "Shares"), or any interest therein, whether legal or beneficial, without first offering to transfer the same to Worsley as hereinafter provided:

4.1.1 Offering Notice. If Ashton (for purposes of this Article 4, the "Selling Stockholder") desires to transfer the Shares, prior to transferring the same, the Selling Stockholder shall offer in writing to transfer all of such Shares to Worsley. The offer (the "Offering Notice") shall identify the number of Shares owned by the Selling Stockholder (the "Offered Shares") and shall set forth the per share consideration (the "Share Price") for which the Selling Stockholder intends to sell the Offend Shares, which shall be (i) if there is a public trading market for the Company's Common Stock, the average trading price for the Common Stock on the date of the Offering Notice and (ii) if there is no public trading market for the Company's Common Stock, the per share price at which a third parry has made a born fide offer to purchase the Offered Shares.

4.1.2 Involuntarv Transfer Date. If Ashton becomes aware that there is a reasonable possibility that Shares held by Ashton may be transferred involuntarily in the reasonably foreseeable future, Ashton shall provide written notice to Worsley describing in reasonable detail the circumstances concerning the possible transfer and thereafter keep Worsley reasonably informed with respect to the potential transfer. The date upon which an involuntary transfer becomes effective shall be an "Involuntary Transfer Date" for purposes of this Agreement. In the event of the occurrence of an Involuntary Transfer Date, any person or entity who receives Shares as a result of the transfer that occurred on the Involuntary Transfer Date shall be deemed to be a "Selling Stockholder" for purposes of this Agreement, such Shares shall be deemed to be "Offered Shares". and upon receipt of notice of such event, Ashton shall send written notice of such

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event identifying the number of Shares and the interest therein held by the Selling Stockholder to Worsley, and such notice shall be deemed to be an "Offenng Notice.

4.2 ODtions to Purchase.

4.2.1 Option. Worsley shall have an option, continuiq for a period of fifteen days, beginning with the day following receipt of the Offering Notice to acquire, at the Share Price. the Offered Shares. Worsley may acquire all, but not less than all, of the Offered Shares. If Worsley desires to acquire the Offered Shares, Worsley shall deliver to the Sellin,o Stockholder (with a copy to the Secretary of the Company) within said fifteen day period a written election so to acquire the Offered Shares.

4.2.2 Failure to Exercise ODtion. If Worsley does not give timely notice of his election to exercise his option under this Article 4 Worsley shall be deemed to have elected not to exercise that option.

4.3 Election to Acauire All Offered Shares. If pursuant to chis Agreement, Worsley elects to acquire all the Offered Shares, Worsley shall be obligated to consummate his election to acquire the Offered Shares no later than the forty fifth day following the last day of the option period provided for herein (the "Settlement Date"). The price to acquire each Offered Share shall be the Share Price, which shall be paid by Worsley to the Selling Stockholder no later than the forty fifth day following the last day of the option period provided herein; provided, however, that in the event that the Share Price is less than the fair market value of the Common Stock of the Company on the Settlement Date, in addition to paying the Share Price on the Settlement Date, Worsley shall also pay to Ashton interest on the aggregate Share Price at a rate of 10% from the date of notice of exercise from Worsiey to Ashton through the Settlement Date. If Worsley exercises his option to acquire the Option Shares pursuant to this Section 4.3 but fails to settle the transaction by the forty fifth day from the date he exercises such Option, Ashton may sell the Option Shares pursuant to Section 4.4. In such event, if the price at which Ashton is able to sell the Option Shares is less than the price of such Shares on the date of notice of exercise, Worsley agrees to pay Ashton the difference between the price at which Ashton is able to sell the Shares and the fair market value of the Option Shares on the date of notice of exercise.

4.4 Failure to Acauire All Offered Shares. If pursuant to this Agreement, Worsley does not elect to acquire all the Offered Shares, the Selling Stockholder may transfer all, but not less than all, of the Offered Shares to a third party (the "Proposed Purchaser"), no later than the thirtieth day following the last day of the option period provided for herein. If the uansaction with the Proposed Purchaser is not consummated by such thirtieth day, then all the provisions of this Agreement shall be deemed to apply again to the Offered Shares.

ARTICLE 5

PROXIES

5.1 Irrevocable Proxy. For the twelve month period following the Closing Date of an IPO, Ashton shall grant to Worsley an irrevocable proxy in the form set forth as Exhibit A

(the "Proxy") to vote all shares of Common Stock that are Option Shares on all maners which come before a vote of the stockholders of the Company in such manner as Worsley shall determine, in his sole discretion. Ashton further asrees that he shall execute and deliver a new irrevocable proxy, substantially similar to the forin set forth in Exhibit A, from time to time as may be necessary or desirable in accordance with the Nevada General Corporation Law, as amended from time to time.

ARTICLE 6

COVENANTS

6.1 Covenants of the Comuanv. The Company hereby agrees that upon exercise, if any, of the Over-Allotment option granted to the managing underwriters in connection with the Company's IPO, Ashton shall be permined to sell 150.000 shares of Common Stock to the underwriters for purposes of sale to the public in connection with any such over-allotments.

6.2 Covenants of the Ashton. Ashton hereby agrees to grant the Over-Allotment Option to the underwriters and further agrees to execute all documents or agreements necessary or required to evidence such Over-Allotment Option.

ARTICLE 7

MISCELLANEOUS

7.1 Endorsement of Shares. Upon the execution of this Agreement or upon subsequent issuance of any Option Shares, the certificates representing the Option Shares shall be surrendered to the Secretary of the Company and endorsed as follows:

The shares of stock represented by this certificate are subject to the Worsley/Ashton Stockholders Agreement to whish the Company is a party, and none of such shares, or any interest therein. shall be transferred, pledged, encumbered or otherwise disposed of except as provided in such Agreement. A copy of the Worsley/Ashton Stockholders Agreement is on file in the office of the Company and will be made available for inspection to any properly interested person without charge within five days after the Company's receipt of a written request.

7.2 Filino of Ameement. A copy of this Agreement, together with any amendments thereto, and the Proxies shall remain on file with the Secretary of the Company and shall be available for inspection by any properly interested person without charge within five days after the Company's receipt of a written request therefor.

7.3 Assionment. This Agreement may not be assigned by any party hereto without the advance written consent of the other parties hereto. Any attempt to assign in violation of this provision shall be void. This Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties respective successors and permitted assigns.

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7.4 Amendment. This Agreement may only be amended by a written agreement approved by the Company, Worsley and Ashton. Any agreement so approved shall be execured by the Company, Worsley and Ashton and filed with the Secretary of the Company.

7.5 Entire Agreement. This Agreement constitutes the entire agreement among the parties with respect to the subject maner hereof and supersedes all other prior agreements and understandings, both wrinen and oral, between the parties with respect to the subject maner hereof.

7.6 Severability. In the case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect. all other provisions hereof shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in a manner materially adverse to any of the parties.

7.7 Notices. All notices, requests, claims, demands, and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given and received upon actual receipt or refusal) by hand delivery or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties as follows:

If to Worsley:

with a copy to:

If to Ashton:

If to the Company:

7.8 Countemam.

Mr. Robert Worsley 601 East Houston Gilben. Arizona 85234

Squire, Sanders & Dempsey, L.L.P. 40 North Central Avenue, Suite 2700 Phoenix, Arizona 85004 Attention: Christopher D. Johnson

c/o Ralph Rasmussen. Jr., Esq. 261 E. 1200 South Orem. Utah 84058

Sky Mall, Inc. 1520 East Pima Street Phoenix, Arizona 85034 Attention: President

This Agreement may be executed and delivered (including by facsimile transmission) in any number of counterparts, all such counterparts shall be deemed to constitute one and the same instrument, and each of said counterparts shall be deemed an original hereof.

7.9 Waiver. Failure of any party to exercise any right or option arising out of a breach of this Agreement shall not be deemed a waiver of any right or option with respect to any subsequent or different breach, or the continuance of any existing breach.

7.10 Caotions. Captions and section headings used herein are for convenience only and are not a part of this Agreement and shall not be deemed to limit or alter any provisions hereof.

7.11 Governine Law. This Agreement shall be governed by and consuued in accordance with the laws of the State of Nevada.

7.12 Further Assurances. Ashton, Worsley and the Company agree to execute and deliver any further or additional insuuments and to perform any acts whch may become reasonably necessary in order to effectuate and carry out the purposes of this Ageement, including without limitation any promissory notes and irrevocable proxies that are necessary or reasonably appropriate to effect the purposes of this Agreement.

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. ... - . . - -

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day, month and year fmt written above.

SKYMALL, INC., a Nevada corporation

By : Name: Title:

ROBERT M. WORSLEY

CHRISTI M. WORSLEY

ALAN C. ASHTON

KAREN ASHTON

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IN WITNESS M E R E O F , the panies have executed this Agreement as of the day, month and year fmt written above.

SKYMALL, INC., a Nevada corporation n

I

ROBERT M. WORSLEY

HRISTI M. WORSLEY

\

ALAN C. ASHTON 1

KAREN ASHTON

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SKYMALL, INC.. a Nevada corporation

By: Nunc: Title:

ROBERT M. WORSLEY

CHRISTI M. WORSLEY

EXHIBIT 3

WORSLEY/GETZ STOCKHOLDERS AGREEMENT

THIS WORSLEY/GETZ STOCKHOLDERS AGREEMENT ("Agreement") is made and entered into as of this 15th day of October, 1996, by and among Robert M. Worsley and Christi M. Worsley, husband and wife (collectively referred to as "Worsley"), Bert Getz. an individual, Globe Corporation, an Iliinois corporation ("Globe", Mr. Getz together with Globe are collectively referred to as "Getz") and Sky Mall, Inc., a Nevada corporation (the "Company").

WITNESSETH:

WHEREAS, Getz is the owner of 552,497 shares of common stock, $.001 par value per share (the "Common Stock") of the Company;

WHEREAS, on March 10, 1995, GeQ loaned $4,000,000 to the Company as evidenced by a Loan and Security Agreement (the "1995 Note");

WHEREAS, accrued interest on the 1994 Note and the 1995 Note as of September 15, 1996 totalled $575,000 and the 1994 Note and the 1995 Note will continue to accrue interest at their respective contract rates through the date of conversion or repayment as provided herein (all of such interest is referred to herein as the "Gee Accrued Interest");

WHEREAS, the Company plans to undertake a private placement (the "Private Placement") of 6% Dividend Paying Convertible Redeemable Preferred Stock (the "Preferred Stock") and, following the completion of the Private Placement, to undertake an initial public offering (an "PO") of 2,000,000 shares of common stock pursuant to the Securities Act of 1933, as amended (the "Securities Act");

WHEREAS, Getz wishes to convert the entire principal balance of the 1994 Note and $2,575,000 in principal amount of the 1995 Note into 3,575 shares of Preferred Stock upon the closing of the Private Placement, all on the t e r n and conditions set forth herein;

WHEREAS, on the effective date of the PO, Getz has agreed to grant to the underwriters in the IPO an option (the "Over-Allotment Option") to purchase up to 150,000 shares of Common Stock ("Over-Allotment Shares") at the initial public offering price to cover over-allotments in connection with the PO, if any, which Over-Allotment Option will expire on the 45th day following the effective date of the P O ;

WHEREAS, upon the closing date of the PO (the "Closing Date"), Gek has agreed to grant to Worsley an option (the "Option") to acquire one half of the shares of Common Stock owned by him on that date, including shares of Common stock issued to Gea upon conversion of the Preferred Stock but excluding the Over-Allotment Shares (the "Option Shares"), which option shall be exercisable for eighteen months following the closing of the PO and, upon expiration of the option, a right of fmt refusal (the "Right of First Refusal") to purchase such

WHEREAS, Getz has agreed to use his best efforts to obtain certain financing for the Company and, if required, to guarantee repayment or otherwise provide collateral for up to 52,000,000 in principal of such financing all as set forth herein.

AGREEMENTS :

NOW, THEREFORE, in consideration of the foregoing premiszs and mutual covenants hereinafter contained, and for other good and lawful consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE 1

CONVERSION OF NOTES

1.1 Conversion of Notes. Upon the closing of the Private Placement, the entire $1,OOO,OOO in principal of the 1994 Note together with $2,575,000 in principal of the 1995 Note will, without further action by Getz or the Company, convert into 3,575 sharcs of the Company's fully paid and nonassessable Preferred Stock, which Preferred Stock, when issued, shall be free and clear of any liens, claims and other encumbrances. Getz acknowledges that upon the Closing Date of the Company's PO, the shares of Preferred Stock issued to him under this Section 1.1 shall automatically convert into shares of Common Stock of the Company on the same terms as the Preferred Stock issued in the Private Placement, except that the Company shall have no obligation to register such Common Stock issued upon conversion of the Preferred Stock under the Securities Act of 1933, as amended, notwithstanding anythmg to the contrary in any documents relating to the Private Placement. Getz acknowledges that the rate at which it is currently anticipated that the Preferred Stock will convert into Common Stock is equal to the greater of 180 shares of Common Stock per share of Preferred Stock or 1,OOO divided by (66-2/3 % multiplied by the PO price per share of Common Stock) per share of Preferred Stock.

ARTICLE 2

COMMERCIAL LOAN AND PAYMENT OF LOAN AND ACCRUED INTEREST

2.1 Additional Financing. As soon as practicable following the date of this Agreement, Gctz agrees to use his best efforts to assist the Company in securing a loan from a commercial bank or similar institution, on terms and conditions reasonably acceptable to the Company, in the aggregate principal amount of $4,000,000 (the "Loan"). If required by the bank, Getz will personally guarantee repayment or otherwise provide collateral for up to $2,000,000 in principal amount of the Loan. Upon receipt of the Loan proceeds, $2,000,000 will be applied as provided in Section 2.2.

2.2 Pavment of Loan and Accrued Interest. Immediately upon receipt of the proceeds of the Loan, the Company shall pay to Getz (i) $575,000 of Gea Accrued Interest, and

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(ii) $1,425,000 in principal of the 1995 Note. G e a hereby acknowledges that the Getz Accrued Interest shall be calculated on the 1994 Loan and the 1995 Loan through their respective repayment or conversion dates at the stated rates in,the respective loan agreements and he hereby waives any right to collect interest on the 1994 Note and the 1995 Note at the default rates of interest contained therein. Upon the closing of the Company's IPO, the Company will pay dl then unpaid Getz Accrued Interest.

ARTICLE 3

OPTION TO PURCHASE SHARES

3.1 Stock Purchase ODtion. Subject to the t e r n of this Agreement, Gea hereby grants to Worsley the Option to acquire the Option Shares.

3.2 Term of ODtion: Exercise of Oution. Subject to the terms of this Agreement, Worsley shall have the right, at any time after the Closing Date of the Up0 until on or before 5:OO p.m. on the date that is that last day of the eighteenth full month following the Closing Date (the "Option Expiration Time"), to purchase upon demand from Gttz all or any portion of the Option Shares. The exercise price per Option Share (the "Exercise Price") shall be determined on the Closing Date by dividing $3,500,000 by the number of Option Shares. Payment of the aggregate Exercise Price shall be made by cashier's check, wire transfer or any combination thereof upon exercise of the Option.

3.3 Adiustment Relating to Over-Allotment ODtion. To the extent all or any portion of the Over-Allotment Shares are not acquired by the underwriters pursuant to the exercise of the Over-Allotment Option, then upon the expiration of the of the Over-Allotment Option, the number of Option Shares shall be increased by the remaining number of Over-Allotment Shares for which the underwriters declined to exercise their Over-Allotment Option (the "Additional Shares"). In such event, the Exercise Price per Option Share, including the Additional Shares, shall be recalculated as follows: the sum of ($3,500,000 less any amount previously paid upon exercise of any portion of the Option) plus (the Additional Shares multiplied by the P O price per share of Common Stock net of underwriting discounts and commissions) shall be divided by the sum of the then outstanding Option Shares and the Additional Shares.

3.4 Transfer of Common Stock. Subject to the terms of this Agreement, upon payment of the applicable Exercise Price and any applicable taxes, Gea shall promptly deliver to Worsley or to such person or persons as Worsley may designate in writing (subject to applicable securities laws), a certificate or certifkates (in such name or names as Worsley may designate in writing) and the stock powers relating thereto signed in blank for the number of duly authorized, fully paid and non-assessable whole shares of Common Stock so purchased upon the exercise of the Option. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become the holder of record of such shares of Common Stock as of the close of business on the date of exercise of the Option and payment of the Exercise Price, notwithstanding that the Certificates representing such shares of Common Stock shall not actually have been delivered or that the stock transfer books of the Company shall then be closed. The Option shall be exercisable, at the election of Worsley, either in full or from time to time in part.

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3.5 Pament of Taxes. Worsley shall pay all transfer, documentary stamp and similar taxes, if any, attributable to the acquisition of the Option Shares; including, without limitation, my tax or taxes which may be payable as a result of the issuance of the Option Shares to any person other than Worsley, and the Company shall not be required to issue or deliver any certificate for any Option Shares unless and until Wotsley shall have paid the amount of such tax or shall have produced evidence that such tax has been paid to the appropriate taxing authority.

3.6 Leeend on Shares. Each certificate for shares of Common Stock issued upon exercise of the Option, unless at the time of exercise such shares are registered under the Securities Act shall bear the following legend:

The Shares of Common Stock represented by this certificate have not been registered under the Securities Act of 1933, as amended ("Act"), or any state securities laws and may not be sold, transferred, pledged or otherwise disposed of unless pursuant to an effective registration statement under the Act and &h laws or pursuant to an exemption from registration under the Act and such laws.

Any certificate issued at any time in exchange or substitution for any certificate bearing such legend (except a new certificate issued upon completion of a public distribution pursuant to a registration statement under the Securities Act of the securities represented thereby) shall also bear the above legend unless the holder of such certificate receives an opinion of counsel reasonably acceptable to the Company or its counsel that registration or qualifcation of the securities represented thereby under the laws referred to therein is not required.

3.7 Adiustment of Exetcise Price and Number of Shares. Following the Closing Date, the number and kind of securities purchasable upon the exercise of the Option and the Exercise Price shall be subject to adjustment from time to time aftcr the date hereof upon the happening of certain events, as follows:

3.7.1 Adiustments. The number of Shares purchasable upon the exercise, and the Exercise Price of the Option sball be subject to adjustment as follows:

3.7.1.1 In case the Company shall (i) pay a dividend on Common Stock in Common Stock or securities convertible into, exchangeable for or otherwise entitling a holder thereof to receive Common Stock, (ii) declare a dividend payable in cash on its Common Stock and at substantially the same time offer its shareholders a right to purchase new Common Stock (or securities convertible into, exchangeable for or otherwise entitling a holder thereof to rcceive Common Stock) from the proceeds of such dividend (all Common Stock so issued shall be deemed to have been issued as a stock dividend), (iii) subdivide its outstanding shares of Common Stock into a greater number of sharcs of Common Stock, (iv) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock, or (v) issue by reclassification of its Common Stock any shares of Common Stock of the Company, the number of

shares of Common Stock issuable upon exercise of the Option and, if applicable, the Exercise Price immediately prior thereto shall be adjusted so that Worsley shall be entitled to receive after the happening of any of the events described above that number and kind of shares as Worsley would have received had such Option been exercised immediately prior to the happening of such event or any record date with respect thereto at the Exercise Price immediately prior to such event or record date. Any adjustment made pursuant to this subdivision shall become effective immediately after the close of business on the record date in the case of a stock dividend and shall become effective immediately after the close of business on the effective date in the case of a stock split, subdivision, combination or reclassification.

3.7.1.2 In case the Company shall distribute, without receiving consideration therefor, to all holders of its Common Stock evidences of its indebtedness, securities other than Common Stock, rights or warrants to subscribe for securities of the Company or property or assets (including cash), then in such case, the number of shares of Common Stock thereafter issuable upon exercise of the Option shall be determined by multiplying the number of shares of Common Stock theretofore issuable upon exercise of the Options, by a fraction, of which the numerator shall be the closing bid price if publicly traded (or fair market value as reasonably determined by the Board of Directors of the Company, as the case may be) per share of Common Stock on the record date for such distribution, and of which the denominator shall be the closing bid price of the Common Stock less the then fair value (as reasonably determined by the Board of Directors of the Company, whose determination shall be conclusive) of the portion of the assets, securities or evidences of indebtedness so distributed per share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date for the determination of stockholders entitled to receive such distribution.

3.7.1.3 Whenever the number of shares of Common Stock issuable upon the exercise of the Options is adjusted, as herein provided, the Exercise Price- shall be adjusted (to the nearest cent) by multiplying such Exercise Price immediately prior to such adjustment by a fraction, of which the numerator shall be the number of shares of Common Stock issuable upon the exercise of the Option immediately prior to such adjustment, and of which the denominator shall be the number of shares of Common Stock issuable immediately thereafter.

3.7.2 Mereers. etc. In the case of any (i) consolidation or merger of the Company into any entity (other than a consolidation or merger that does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Company), (ii) sale, transfer, lease or conveyance of all or substantially all of the assets of the Company as an entirety or substantially as an entirety, or (iii) reclassification, capital reorganization or change of the Common Stock (other than solely a change in par value, or from par value to no par value), in each case as a result of which shares of Common Stock shall be converted into the right to receive stock, securities or other property (including cash or any combination thereof), Worsley shall have the right thereafter to exercise such Option only into

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the kind and amount Of securities, cash and other property receivable upon such consolidation, merger, sale, W f e r , capital reorganization or reclassification by a holder of the number of shares of Common Stock of the Company for which such Option could have been exercised immediately prior to such consolidation, merger, sale, transfer, capital reorganization or reclassification, assuming such holder of Common Stock of the Company (A) is not an entity with which the Company consolidated or into which the Company merged or whch merged into the Company or to which such sale or transfer was made, as the case may be ("constituent entity"), or an affiliate of a constituent entity, and (B) failed to exercise his or her rights of election, if any, as to the kind or amount of securities, cash and other propeny receivable upon such consolidation, merger, sale or transfer (provided that if the kind or amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer is not the same for each share of Common Stock of the Company held immediately prior to such consolidation, merger, sale or transfer by other than a constituent entity or an affiliate thereof and in respect of which such rights or election shall not have been exercised ("non-electing share"), then €or the purpose of this paragraph 3.7.2 the kind and amount of securities, cash and other property receivable upon such consolidation, merger, sale or transfer by each non-electing share shall be deemed to be the kind and amount so receivable per share by a plurality of the non-electing shares). If necessary, appropriate adjustment shall be made in the application of the provisions set forth herein with respect to the rights and interests thereafter of Worsley, to the end that the provisions set forth herein shall thereafter correspondingly be made applicable, as nearly as may reasonably be, in relation to any shares of stock or other securities or property thereafter deliverable on the exercise of the shares. The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers, capital reorganizations and reclassifications.

(c) Notice. Upon the happening of any event requiring an adjustment of the Exercise Price hereunder, the Company shall forthwith give Written notice thereof to Worsley, stating the adjusted Exercise Price and the adjusted number of Option Shares purchasable upon the exercise thereof resulting from such event, and setting forth in reasonable detail the method of calculation.

3.8 No Transfer of Ootion Shares. During the period from the date of this Agreement until the expiration of the Option, Getz agrees that he will not sell, transfer, convey or otherwise dispose of any of the Option Shares.

ARTICLE 4

RIGHT OF FIRST REFUSAL

4.1 Offerina Notice: Involuntary Transfer Date. For the period beginning on the expiration of the Option and ending on the last day of the eighteenth full month thereafter, except as set forth in Section 4.5, Getz hereby covenants that he will not transfer any Option Shares owned by him, or any interest therein, whether legal or beneficial, without fmt offering to transfer the same to Worsley as hereinafter provided:

4.1.1 Offerina Notice. If Getz (for purposes of this Article 4, the "Selling Stockholder") desires to transfer any Option Shares, prior to transferring

the same, the Selling Stockholder shall offer in writing to transfer ail of such Option Shares to Worsley. The offer (the "Offering Notice") shall identify the number of Option Shares owned by the Selling Stockholder that the Selling Stock- holder desires to transfer (the "Offered Shares") and shall set forth the per share consideration (the "Share Price") for which the Selling Stockholder intends to sell the Offered Shares, which shall be determined by the Selling Stockholder in his sole discretion.

4.1.2 Involunrarv Transfer Date. If Getz becomes aware that there is a reasonable possibility that Option Shares held by him may be transferred involuntarily in the reasonably foreseeable future, he shall provide written notice to Worsley describing in reasonable detail the circumstances concerning the possible transfer and thereafter keep Worsley reasonably informed with respect to the potential transfer. The date upon which an involuntary transfer becomes effective shall be an "Involuntary Transfer Date" for purposes of this Agreement. In the event of the occurrence of an Involuntary Transfer Date, any person or entity who receives Option Shares as a result of the transfer that occurred on the Involuntary Transfer Date shall be deemed to be a "Selling Stockholder" for purposes of this Agreement, such Option Shares shall be deemed to be "Offered Shares", and upon receipt of notice of such event, Getz shall send written notice of such event identifying the number of Option Shares and the interest therein held by the Selling Stockholder to Worsley, and such notice shall be deemed to be an "Offering Notice. "

4.2 ODtions to Purchase.

4.2.1 @tion. Woniey shall have an option, continuing for a period of thirty days, beginning with the day following receipt of the Offering Notice to acquire, at the Share Price, the Offered Shares. Worsley may acquire all, but not less than all, of the Offered Shares. If Worsiey desires to acquire the Offered Sham, Worsley s h a l l deliver to the Selling Stockholder (with a copy to the Secretary of the Company) within said thrrty day period a written election so to acquire the Offered Shares.

4.2.2 Failure to Exercise ODtion. If Worsley does not give timely notice of his election to exercise his option under this Article 4 Worsley shall be deemed to have elected not to exercise that option.

4.3 Election to Acauire All Offered Shares. If pursuant to this Agreement, Worsley elects to acquire all the Offered Sham, Woniey shall be obligated to consummate its election to acquire the Offered Shares no later than the thirtieth day following the last day of the option period provided for herein. The price to acquire each Offered Share shall be the Share! Price, which shall be paid by Worsley to the Selling Stockholder no later than the thirtieth day following the last day of the option period provided herein.

4.4 Failure to Acauirc All Offered Shares. If pursuant to this Agreement, Worsiey does not elect to acquire all the Offered Shares, the Selling Stockholder may transfer all, but not

less than all, of the Offered Shares to a third party (the “Proposed Purchaser”) at a per share price that is no less than the share Price, no later than the thirtieth day following the last day of the option period provided for herein. If the transaction with the Proposed Purchaser is not consummated by such thirtieth day, then all the provisions of this Agreement shall be deemed to apply again to the Offered Shares.

4.5 Sales of De Minimis Amounts of Shares. Notwithstanding the provisions of the this Article 4, Worsley agrees that Getz may sell from time to time an amount of shares of Common Stock owned by him without compliance with the provisions of this Article 4; provided that the aggregate amount of the shares sold hereunder shall not exceed 5 % of the total number of shares of Common Stock held by Gea as of the Closing Date of the PO.

ARTICLE 5

COVENANTS 5.1 Covenants of the ComDany. The Company hereby agrees that upon exercise, if

any, of the Over-Allotment option granted to the managing underwriters in connection with the Company’s PO, G~u shall be permitted to sell 150,OOO s h s of Common Stock to the underwriters for purposes of sale to the public in connection with any such over-allotments.

5.2 Covenants of the Gea. Gea hereby a g m s to grant the Over-Allotment Option to the underwriters and further agrees to execute all documents or agreements necessary or required to evidence such Over-Allotment Option.

ARTICLE 6

JmSCELLANEOUS

6.1 Endorsement of Sham. Upon the zxecution of this Agreement or upon subsequent issuance of any Option Shares, the certifrcatcs representing the Option shares shall be sumndered to the Secretary of the Company and endorsed as follows:

The shares of stock represented by this certificate arc subject to the WorsleylGetz Stockholders Agreement to which the Company is a party, and none of such shares, or any interest therein, shall be transferred, pledged, encumbered or otherwise disposed of except as provided in such Agreement. A copy of the WorsleylGeb Stockholders Agreement is on file in the office of the Company and will be made available for inspection to any properly interested person without charge within five days after the Company’s receipt of a written request.

6.2 of Ameemerg. A copy of this Agreement, together with any amendments thereto, shall remain on file with the Secretary of the Company and shall be avaiiable for inspection by any properly interested person without charge within five days after the Company’s receipt of a written request therefor.

6.3 Assienment. This Agreement may not be assigned by any parcy hereto without the advance written consent of the other parties hereto. Any attempt to assign in violation of thrs provision Shall be void. This Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties respective successors and permitted assigns.

6.4 Amendment. This Agreement may only be amended by a written agreement approved by the Company, Worsley and Getz. Any agreement so approved shall be executed by the Company, Worsley and Getz and fded with the Secretary of the Company.

6.5 Entire Agreement. This Agreement constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all other prior agreements and understandings, both Written and oral, becween the parties with respect to the subject matter hereof.

6.6 Severabilitv. In the case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal, or unenforceable in any respect, all other provisions hereof shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in a manner materially adverse to any of the parties.

6.7 Notices. All notices, requests, claims, demands, and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given and received upon actual receipt or refusal) by hand delivery or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties as follows:

If to Worsley: Robert M. Worsley 601 East Houston Gilbert, Arizona 85234

with a copy to:

If to Gek:

Squire, Sanders & Dempsey, L.L.P. 40 North Central Avenue, Suite 2700 Phoenix, Arizona 85004 Attention: Christopher D. Johnson

Globe Corporation 3634 Civic Center Blvd. SCOttsdale, & O M 85251

If to the Company: Sky Mall, Inc. 1520 East Pima Street Phoenix, AZ 85034 Amntion: President

6.8 Countemar& This Agreement may be executed and delivered (including by facsimile transmission) in any number of counterparts, all such counterparts shall be deemed to constitute one and the same instrument, and each of said counterparts shall be deemed an original hereof.

6.9 Waiver. Failure of any party to exercise any right or option arising out of a breach of this Agreement shall not be deemed a waiver of any right or option with respect to any subsequent or different breach, or the continuance of any existing breach.

6.10 Camions. Captions and section headings used herein are for convenience only and are not a part of this Agreement and shall not be deemed to limit or alter any provisions hereof.

6.11 Governinn Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada.

6.12 Further Assurances. Getz, Worsley and the Company agree to execute and deliver any further or additional instruments and to perform any acts which may become reasonably necessary in order to effectuate and carry out the purposes of this Agreement.

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IN n s WHEREOF, the parties have executed this Agmment as of the day, month and year first written above.

SKYMALL, INC., a Nevada corporation

ROBERT M. WORSLEY I

/

BERT GET2

GLOBE CORPORATION an Illinois campany

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EXHIBIT 4

FIRST AMENDMENT TO WORSLEYIGETZ STOCKHOLDERS AGREEMENT

WITNESSETH:

WHEREAS, the parries entered into the Worsley/Getz Stockholders Agreement dated as of October 15, 1996 (the “Agreement”’);

WHEREAS, the parties desire to amend the Agreement on the terns and conditions set forth below;

AGREEMENTS:

NOW, THEREFORE, in consideration of the foregoing premises and mutual covenants hereinaAer contained, and for other good and lawful consideration, the receipt and sufficiency of which eue hereby acknowledged, the parties hereto agree as follows:

1. The first scntence of Section 3.2 offhe Agreement is amended to delete the words “the date that is that last day of the eighteenth hll month following the Closing Date” and replace such words with “December 3 1, 1998”.

2. This Amendment constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all other prior agreement and understandings, both written and oral beween the parties with respect to the subject mattcr hereof.

3. Except as expressly modified by the t m n s of this Amendment, each of the terms conditions and provisions of the Agreement remain in hi1 force and effect.

M WITNESS WHEREOF, the parties have executed this Agreement as of the day, month and year first written above.

SKYMALL, MC. A Nevada corporation

Name: Robert M. Worsley Title: Chief Executive Officer

B a t A. Getz r /

GLOBE CORPORATION An Illinois corporatiw

EXHIBIT 5

December 30. 1998

HhND DELIVERED

Alan and Karen Ashton do Ralph W. Rarmussrn, Esquire Beesmark lnvcsuncnt, L.C. 261 East 1200 Street Oren, LIT 84058

Ladies ;md Gentlemen: /

Pursuant to that ccrtsin WorsleylAshton Stockholders Agreement made and entarcd into u of the lS* day of Octobcr, 1996 (the “Agreemm”), we hereby notify you of our intention to exercise our right to rquire all of the Option Shares (as defmtd in the Agreement), constituting 2,386,798 shares of the ccrmmon stock. S.01 psr d u e per share, o f SkyMall, Inc. On or before the Option Expiration Date (as defined in the Agreement), we will deliver to you by cashier’s check or wirc transfer to an account designated by you the amount of SlO,SOO,OOO representing the full Exercise Pricc (as defined in the Agreement) for all of Olc Option Shares. We hereby affinn our commitmcnt to pay to the Ashton Family Foundarion the sum of S7,066,100 and to enter into a Stock Plcdge and Security Agreement relsting thmto all in accordancc with the provisions of Section 3.4 of he Agmment Upon payment of the Exercise Pice, you are required to deliver 10 us the certificate or cutificatcs representing the Option Shares, accompanied by stock powen relating thereto signed in blank, ail as rquircd by Section 3.5 of the Agrccment.

SinccreIy, n

Chriwi M. Wonley

cc: Christoplrtr D. Johnson, Esq.

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STOCK PLEDGE AGREEMENT

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Thh STOCK PLEDGE AGREEMENT (this "Agcemcnt") is made as of the 30 day of Dewmbcr, 1998. by and among Robert M. Wonlcy and Chrbti M. Wonlcy, husband and wife (collectively referred to herein (is "Wonley"), and Alan Cq b h t o n and Karen bhron , husband and wife (collectively refemd to herein ;IS "Ashton").

-EA& pursuimt r0 Section 3.4 Of dlC Ab?rament, Worsfry is rquirrd to grant tn Ashton a security interest in certain sham of rhc Company's common stock, S.001 par value (the "Common Stock"), to secure payment by Worsley of the Charitable Contributions (as defined in thc Agreement).

WHEREA$ the vies desire to enler into this Aweemcnt in order to evidence the b~anc o f a security intcrcsl in ccruin shares of Common Stock from Wonley to Ashtoa as contcmplatcd by Section 3.4 of the Agreement.

NOW, THEREFORE, in considention of the foregoing Recitals, and for other good and lawful considention, the receipt 3ild sufficiency of which are henby achrowledydl WOKICY agrees with and represents and warrants LO Ashron, and Ashton agrees with Worsluy, ;u follows:

1. To Secure the payrncnt when due of the Obligruiow (as hereinafter defined), Worslry heeby p n u 10 hshron a pledge of, a security intercsr in and a lien upon. the 2,386,798 shares of Common Stock owned by Worsley and identified on Exhibit A to this Agr&men[ (collectively, the "SDC~"). The parties acknowledge that dre Stock has bccn pledged by Worsley to Piper Jalliay ;Is security for shofl-tem f i~ l r~ l c i~ lg reluirlg to thc acquisition of the Option Shares, as permitted by Section 3.4 of Ihc Agtemsnc. and that such short-term financing will bc rcpid upon the settlement of certain innsactionr consummated on or about Decembcr 28, 1998 involving open-market sales by Wonlry of shares of Common Stock. Sllarc ccnificakcs evidencing the Stock will be rc-issued in the name o f Worsloy and b l d by Piper laff'ray until such shon-rmn financing is repaid in f u l l and, as soon as pmtiubte following such repayment, Wonlcy shall deliver or cause to be delivcrcd to Ashton one or more share ccnificatcs evidencing the Stock and stock powers relating thcrcto. Worsley agrees to execute and deliver such addition4 stock powers and other dwumenu and instruments as Asliton shall hercafrcr request in order fo confinn dlc plcdgc, sccuriry inlerest and lien of Ashton in thc Stock and, upon the continuation and during hc continuance of an Event of Default (a. I1crtinrftcr dcfincd), lo cause a msfer of the Stock. Ihc Stock and all 4'1, stock and orher dividcnds and all rights ro subscribe to securities incidmt to, dcclvcd or grantcd in connection with such Stock md all righu IO rcccivc cash or ocher property in mpect of the Stock, together with al l additions and subslikhns hereafter dcpositud with Ashton, we hereinatin collectively referred to as the "Stock Collateral."

2. The S m k Collakml shall be held by Ashton solcly as security €or rhc obligations of Worsley under Section 3.4 o f the Agmtntnt [o make the Contributions (as drfured in Section 3.4 Agreement) as. when and in the manner required under such Section 3.4 (such obligations kine hereinafvr ref& to as rho "Obligations").

3. Worslcy represents and wmants to Ashton that except as sct forth on Exhibit B to h s Agccmmt, the Stock is not subject to any prior assignment, sccurity interest, pledge, lien or other encumbrance or any votmg rights agrement. The,partics acknowledge and expressly a g e e that the security intnut c r e a t e d and evidenced by this Agrccmtnt shall be subordinate and junior in all respects to my secunty intemt in, or lien upon, the Stock Collatasl granted by Warsley to Piper J d b y In connection with obtaining financing for the acquisition of the Option Shares (as detined in the Agecmcnt), as represented by certain short-term financing provided by Piper Jaffiay which is refmcd to in Section 1 of this Agreement.

4. In the event that any of the Obligations are not paid when due (giving effect to any applicable cure period or grace period), the same shall constitute an "Event of Default" hereunder and:

(a) Ashton shall have the right to take possession of the Stock Collatmnl (if not already in its possession) and u) sell all or any pan thereof, a1 m y time and from time to time, upon any exchange, board of hde or broker's board or at any other public or private sale, at h c option of Ashton, withour advmisement and upon ten (10) days' prior mitten notice to Wonlcy; and Ashtan may become the purchaser thcrcof at any such sale ( y h s prohibited by smtute), free h m any equity of redemption and born all othrr claims; and after deducting a11 legal and other expenses for maintaining OT selling the Stock Collateral and a11 reasonable attorneys' fees, legal or other expenses for the collection, sale and delivery, Ashton shall have the right to apply the remainder of the proceeds o f such mlc or sales in p a p c n t of (or Imld the same as a resewe againn) the Obligatians, the manner, order and extent of such application to be at the nasonsblc discretion of Ashton; and

(b) Ashton shall have the rights and remedies of 3 secured party under the Unifonn Commucirl Code and under any and all other applicable laws in addition u) the righrs and remedies provided kin or in any other document or insmment executed by Warsley; and

(c) h h t o n wll have the exclusive right, but not the obligation, to exercise all voting rights with respect to the Stock

AI rights, powm and medics hereunder or in any other instrument provided are cumulative and none is exelusive.

5 . So long as no Event of Default shall have occumd and be conanuing:

(a) Wonley shill bc cntitled to exerrise or refiain from exercising my and all voting and other consensual rights pnnrnlng to the Stock Collstcral or my pur thereof for any purpase not incansistcnt with the t a m s of chis Agrccmcnr; and

(a) Wmlcy rhdl bc cntitled to meive md retain any and all dividends and in- paid in rcspcct of tho COlLtaal; provided, however, that any and all

(i) dividends and interest paid or payable other than in cash in re.vMt of, and instrurncnta and otha prop- rcccived, rtecivatle, or othcwisc distributed i n respect of, or in exchange for, my Sbck Collateral,

(ii) dividends and other distributions paid or payablc in cash in respect of Stock Collatanl in comcctim with a parttal or rod l iqu id ian or dissolulion or in connection with a rduction of capital, capital s u p l u s , or paid-in-nrrplus, and

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3. Worsley represents and wanants to Ashmn that except as sct forth on Exhibit B to h~ Agrccmmt, the Stock is not subject to m y prior assignment, sccurity interest, pledge, limy or other encumbrance or any votmg rights agrement. The,partics acknowledge and expressly agee that the security intnut acated and evidenced by this Agncmrnt shall be subordinate and junior in all respects to any secunty interm in, or Lien upon, the Stock C01lata;rl granted by Worsley to Rper Jtffny In connection with obtaining financing for the acquisition of the Option Shares (as defined in the Agecmurt), as represented by certain shon-lm financing provided by Piper J a h y which is rcfmcd to in Section 1 of this Agreement.

4. In the event that any of the Obligations are not paid when due (giving effect to any applicable cure period or grace period), the same shall constitute an "Event of Default'' hertundm and:

(a) Ashton shall have the right to take possession of the Stock Collatcrnl (if not already in its possession) and U] sell all or any part thereof, ar any time and fiorn time to time, upon any exchange, board of bade or bmkcr's board or at m y 0 t h public or private sale, at h c option of Ashton, withour advdsement and upon ten (10) days' prior mitten notice to Wonlcy; and Ashtan may become the purchaser thcrcof at any such sale (t!nless prohibited by smtute), free from any equity o f redemption and Born all othrr claims; and after deducting a11 legal and other expenses for maintaining ot seiling the Stock Collataal and all reasonable attorneys' fees, legal or other expcnscs for the collection, sale and delivery, Ashton shall have the n'ght to apply the remainder of the proceeds of such mlc or sales in p a p c n t of (or bold the Same as a rcselve tpinlt) the Obligations, the r n a n w , order and extent of such application to be at the nasonsblc discretion of Ashton; and

@) h h t o n shall have the rights and remedies of a secured party under the Uniform Commercial Code and under any and all other applicable laws in addition u) the nghrs and remedies provided bin or in any othcr document or insmmmt executed by Wursley; and

(c) b h t o n wll have the exclusive right, but not the obligation. to exercise all voting rights with respect to the Stock

AI rights, powm and medics hereunder or in any other instrument provided are cumulative and none is exclusive.

5 . So long as no Event of Default shall have occurred and be continuing:

(a) Wonley s h i l l bc cntitled to excrrise or r e h i n from exercising my and all voting and other cansensual rightla pnnmlng to the Stock Collstcral or MY pur thereof for any plrrpoze not inconsistent with the temrs of chis A p m c n r ; and

(a) Wmlcy crhall bc cntitled to meive and retain any and all dividends and inrmst paid in respect of thc Colhtcnl; provrded, however, that any and all

(i) dividends and intoest paid or payable other rhan in cash in respect of, and instnrmcnta and otha pmpcrty rcccived, rteeivatle, or otherwise distributed i n respect of, or in exchange for, my Sbck Collatml,

(ii) dividends and othcr disuibutions paid or payablc in cash in respect of Stock Collaml in comcction with a parttal or rod liquidllian or d h l u l i o n or U1 connection with a rduction of capital, capital nup lus , or paid-in-srrrplus, and

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. . . - ..

(iii) cash paid, payable, or orhenvise dimibuud in respect of prhclpal of, or in redemption of, or in exchange for, any Stock Callatcral,

shall be, and shall bc fonhwith delivend to Asliton to hold as Stock Collateral and shall, if rweived by Worsley, be received in u u s t for the benefit of Ashton, be segregated from rhc other propny or hnds of Wonley, and be fonhwith delivercd to Ashton as Stock Callatcnl in the same form as so received (with any necessary endorsement or assignment).

6. Upon tlw occurrence and during the continuafion of an Event of Default:

(a) all rights of Worslry to exercise or refrain fiom cxercising the voting and odlcr consensual rights which Wonley would otherwise bc entitled to exercise pursuant ro Section 5 and to receive the dividends and inrcresr paymenb which Worsley would orhcrwire be authorized to rcccivc ,and main pursuant to Section 5 sliall cease, and a l l such righhts shall thereupon become vested in hhron, as secund party, who shall hereupon have the sole ri@r to exercise or refrain fiom cxcrcising such voting md other consensual riglm and U) nxeivc and hold as Stock Collateral such dividends and interest paymenu; and

(b) all dividends urd inrerest payments which are received by Wonley conrrory to the provisions o f dlis Section 6 shall bc rwived in crust for the bencfir of Ashton, as secured pyry, shall bc scgegated fiom other finds of Worslcy and shall bc f'orrhwith paid over to Ashlon as Stock Collatcnl in thc same fonn as SO received (with MY necessary endorsement or arsignment).

7. This Agreement shall be binding upon and inure to the hencfil of the pames hereto and their respective heirs, administrators, st~ccessors and assigns.

8. Thc validity, intcrprelation, enforcement and effect of this Agreemenl shall be governed by the laws o f the State of Arizona. In the event that any provision hereof i s hereafter dccmcd 10 be illvalid by rcason o f rhc opcrarion of any law or by reason o f the iuurprctation placed thereon by any coun, this Agreement shall be conrtmed as not containing such provision and the invalidiry of such provision shall not affect dlc validity of any other provisions hereof. and any and 311 other provisions hereof which are orhenvise lawful and valid shall m a i n in f u l l force and effect.

9. Thc lailun: U fury time or times h e m f r a to require the strict performance by Worslcy oC any of the provisions. warnntier, terms and conditions conuincd hemin or in any ocher apeement, document or instrument now or hereafter exautcd by Worsley and delivered to Asliton sllall not wrivc. sffect or diminish any right or Ashton therein to demand strict compliance or performance thcrcwirh nnrl w i h rcspect to any other provisions. warrantie% tcnns and condilions contained in such agreements, documents and instruments, and any waiver o f any default shall not waive or affect any othcr dcfaulr; whcther prior or subsqucnt thereto and whether of thc same or a different cype. None of the wsrranties, conditions, provisions and terms conuined in this Agreement or in any other agreement, document or instrument now or hcrcaficr executed by Worslcy and dclivcrcd 10 Ashlon shall be deemed to have been waived by any act or knowledge of Ashton, but only by an instrument in writing, signed by Ashton and. dirccud to Worsley specifying such waiver.

IO. nlis Agreement may be executed in counterparu which together shall constitute one instrumennl. 11 shall not be necessary for all parties to sigll the same counterpart.

3

. , . - . -

IN WITNESS WHEREOF. Ashton d Worzlcy have caused this insuument ta be execund as of the day and ycrr first above winen.

WORSLEY:

ASHTON:

4

Exhibit A

Attached to and forming a pan of tlla certain Stock Pledge Agreemcnr dared as of Dccember 1998 by and among Robcn M. Wonlcy and Christi M. ‘Worslcy, husband and wife (collectively referred to therein u “WorsIc\y”), and Alan C. Ashton and k e n Ashton. husband and wife (collecrivcly referred to chercin as “Ashton”).

Registered Owner:

Issuer.

Class of Stock

Number of Shares:

Certificate Numbcr.

Robcrr M. Wonley and Chisti M. Wonlcy

Sky Mall, [nc., a Nevada corporation

5

. , . ~ - . -

Atlached to and forming a part of that ccrtain Stock Pledge A p m c n t dated as of Dccembcr ,, 1998 by and among Robert M. Wonlcy and Christi M. 'Uorsley, husband and wife (collectively mf' to therein ns "Worsley"), md Alan C. Ahton and Karen Ashton, husband and wife (collectively r e f m d to thenin as "Ashton").

Agreements Relating to the Stock

PIcdg of Stock to secure short- term fmancing provided by Piper JnfFiay, IO be repaid upon settlement of cenain transactions consummated on or about December 28, 1998 involving open-market sales by Wonlay of sham of Common Stock

6

EXHIBIT 6

December 29. 1998

HAND DELIVERED

Mr. Bert Getz Globe Corporation 2634 Civic Center Boulevard Scottsdale. Arizona 8525 1

Gentlemen:

1520 East Pima Street Phoenix. Aruona 85034 Office - (602) 254-9777 F ~ x - (602) 254-6075

Pursuant to that certain Worsiey/Getz Stockholders Agreement made and entered into as- of the 15* day of October, 1996 (the "Agreement"), we hereby notify you of our intention to exercise our right to acquire all of the Option Shares (as defined in the Agreement), constituting 5 18,298 shares of the common stock, S.01 par value per share, of SkyMall, Inc. On or before the Option Expiration Date (as defined in the Agreement), we will deliver to you by cashier's check or wire transfer to an account designated by you the amount of $3,500,000, representing the fu l l Exercise Price (as defined in the Agreement) for all of the Option Shares. Upon payment of the Exercise Price, you are required to deliver to us the certificate or certificates representing the Option Shares, accompanied by stock powers relating thereto signed in blank, all as required by Section 3.5 of the Agreement.

Sincerely, -

cc: Christopher D. Johnson, Esq.

sky" Inc.

. ,.. -

.

This Second Amendment to the Worsley/Getz Stockholders Agreement (the “Second Amendment”) is made and entered into as of this day of December 1998, by and among Robert M. Worsley and Christi M. Wonley. husband and wife (collectively referred to as “Worslcy”), Bert A. Gee, an individual, Globe Corporation, an Illinois corporation (“Globe”, and Mr. Gttz together with Globe are collectively referred to as “Getz”) and SkyMall, Inc., a Nevada Corporation (the “Company”).

-

WITNESSETH:

WHEREAS, the parties entered into that ccrrain Worsley/Getz Stockholders Agreement dated as of October 15, 1996 (the “Agreement”);

WHEREAS, the parties desire to further amend the Agreement on the t m and conditions set forth below:

AGREEMENTS:

NOW, THEREFORE, in consideration of the foregoing premises and mutual covenants hereinafter contained, and for good and lawful consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

I . Section 3.2 of the Agrcemmt, as m e n d e d by the First Amendment. is hereby further amended by deleting the words “December 3 1, I 998” and replacing such words with the words “January 4,1999.“

2. Article 4 of the Agreement (Right of First Refusal) is hereby deleted in its entirety and rendered null and void and of no force or effect.

3. This Second Amendment constitutes the entire agreement among the parties with respect to the subject matter hereof and supersedes all other prior agreement and understandings, both written and oral between the parties with respect to the subject matter hereof.

4. Except as expressly modified by the terms of this Second Amendment, each of the t e rn , conditions and provisions of the Agreement remain in full force and effect.

IN WITPIES WHEREOF, the panics have executed this Second h l e n d m t n t as of the day, month and year first witten abovc.

SKYMALL, IXC. A Nevada corporation

Robcn M. Worrley Title; Chief Executive 0 leer P

GLOBE CORPORATION An Illinois corporarioqq

E X H I R T T 8

Click on an item shown in the Table Of Contents to view.

SKYMALL INC Form. 4 Filing Date 1/11/99

SELECT FONT SIZE

T Y P E : 4 S E Q U E N C E : 1 D E S C P I P T I O N ~ FOHM 4 OF R O B E R T M WORSLEY

i

Trans- 3 action Date

Day/ (Month/

Year) Code V

Securities Acquired (A) 5. Amount of or Disposed of (0) (Instr. 3, 4 and 5)

Securities Beneficially Owned at End of Month ----------_---------____L______

(A) or Amount (0 ) Price (Instr. 3 and

... /99&Ff ~l'ype--4&tahlename=Rody&tabletype=l &SourcePage=Filini :sults&O~MSource=&lJseFrame= 1 &CompanyName=SK j 9

i j

Reminder: Report on a separ.ll*? line for each class of securities beneficially owned directly or indirectly.

If the form is filed by more than one reporting person, see Instruction 4 (b) (VI. Potential persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OH8 Number.

Form 4 (continued)

6. Date Exer- cisable and Expiration Date (Honth/Day/ Year) ----_-----_---

7 . Title and Amount of Underlying securities (Instr. 3 and 4 )

Date Expira- Exer- tion cisable Date Shares

Amount or Title Number of

8 . Price of Deriv- ative Secur- ity

5 ) (Instr.

9. Number 10. of Deriv- ative Secur- ities Bene- ficially Owned at End

Hon t h of

(Instr. 4 ) - - -_- - - -_-_-_--

Owner- 11. ship Form of

at ive Deriv-

Security: Direct (0) or Indirect (I) (Instr. 4 )

Nature of Indirect

cia1 Benefi-

Owne r - ship (Instr. 4 )

Explanation of Responses:

( 2 ) Securities owned by spouse. ( 1 ) Securities jointly owned with spouse.

( 3 ) Option to purchase 2 , 3 8 6 , 7 9 8 shares of Common Stock from Alan C. and Karen

( 4 ) Optlon to purchase 5 1 8 . 0 0 0 shares of Common Stock from Bert A. Getz at an

( 5 ) Exercise of options pursuant to an Option Agreement. Notice of exercise of

Ashton at an exercise price equal to $17,566,100.

exercise prlce equal to $3,500,000.

the option to purchase these securities was given on 1 2 / 3 0 / 9 8 . Closing of

..,/99&Ft- ~Type=4&~ablename=Body&tabletype=l&SourcePage=Filin~ sults&OEMSource=&UseFrarne=I&CornpanyName=SK '9

..... 0 I age 4 U I 4

the option exercise occurred on 1/4/99.

/s/ Robert H. Worsley January 11, 1999

Robert H. Worsley '*Signature of Reporting Person Date --__________------------------- - - -_______________

**Intentional misstatements or omissions of facts constitute Federal Criminal Violations. See 18 U . S . C . 1001 and 15 U . S . C . 78ff(a).

Note: File three copies of this Form, one of which must be manually signed. If space is insufficient, see Instruction 6 for procedure.

Potential persons who are to respond to the collection of information contained

valid OHB Number. in this form are not required to respond unless the form displays a currently

SEC 1474 ( 7 / 9 7 ) Page 2

Copyright 0 1 999 Partes Corporalion.

'.

,../99 '~rmType=4&tablenarne=Body&labletype=I&SourcePage=F' ys.Results&OEMSource=&1JseFrame=I &CompanyNarne=F '/9/99

I J

(602) 528-4046

EXHIBIT 9

DRAFT March 15, 1999

OVERNIGHT DELIVERY

Samuel H. Rudman, Esq. Milberg Weiss Bershad Hynes & Lerach LLP One Pennsylvania Plaza New York, New York 10 1 19-0 165

Re: Letter from Milberg Webs Bershad Hynes & Lerach LLP to the Board of Directors of SkyMall, Inc., dated January 15,1999

Dear Mr. Rudman:

On January 16, 1999, SkyMall received a letter addressed to its Board of Directors from your f m (“Milberg Weiss”) demanding that SkyMall take action to recover short-swing profits under Section 16@) of the Securities Exchange Act of 1934 allegedly attributable to Robert Worsley’s sale of 650,000 shares’ and subsequent purchase of 2.4 million shares.

For the reasons discussed below, it is clear that the sale by Mr. Worsley and the subsequent exercise of the options under the Worsley/Getz Agreement (as defined below) and

’ Your letter actually references the sale of 675,000 shares. SkyMall’s press release on December 30, 1998 reporting Mr. Worsley’s transactions and certain subsequent press accounts stated M r . Worsley sold 675,000 shares of SkyMall Common Stock on the open market, rather than 650,000 shares as accurately reported on his Form 4, dated January 1 1, 1999 attached hereto as Exhibit _. The press release reflected the fact that Mr. Worsley had originally intended to sell an additional 25,000 shares and donate the proceeds to his church, but he elected to delay that transaction until a later date.

Samuel H. Rudman, Esq. Page 2

March 15. 1999

--

the Worsley/Ashton Agreement (as defined below) did not violate Section 16(b), and consequently, that SkyMall is not required to take any action to recover any profits earned by M r . Worsley from such transactions.

I. Factual Background

A. Worsley/Ashton Agreement

On October 15, 1996, Robert M. Worsley and Christi M. Worsley (collectively referred to as “Worsley”), and Alan C. Ashton and Karen Ashton (collectively referred to as “Ashton”) and SkyMall entered into the Worsley/Ashton Stockholders Agreement (“WorsleylAshton Agreement”) (attached hereto as Exhibit 1). Under the terms of the Worsley/Ashton Agreement, upon the closing date of the IPO (December 16, 1996), Ashton granted Worsley an option to acquire all of the shares of Common Stock owned by Ashton on that date, including shares of Common Stock issued to Ashton upon conversion of Preferred Stock issued in SkyMall’s pre-IPO bridge financing, but excluding shares included for sale by Mr. Ashton in the IPO over-allotment option. The option was exercisable until “the last day of the twenty-fourth full month” following the IPO closing date, i.e. December 3 1, 1998. Pursuant to the terms of the Worsley/Ashton Agreement, the aggregate exercise price for the option shares was $10,500,000. In addition, if the option was exercised, the Worsley/Ashton Agreement obligated Worsley to make a contribution to the Ashton Family Foundation in the amount of $7,066,100, bringing the effective aggregate exercise price of the option to $17,566,100. Accordingly, the effective exercise price per share, determined by dividing $1 7,566,100 by the 2,386,798 shares of SkyMall stock held by Ashton on the IPO closing date, was approximately $7.35.

B. Worsley/Getz Agreement

On October 15, 1996, Worsley, Getz and Globe Corporation (“Globe”) entered into the Worsley/Getz Stockholders Agreement (“Worsley/Getz Agreement”) (attached hereto as Exhibit 2). Under the Worsley/Getz Agreement, upon the IPO closing date (December 16, 1996), Getz granted Worsley an option to acquire one-half of the shares of Common Stock owned by Getz on that date, including shares of Common Stock issued to Getz upon conversion of Preferred Stock, but excluding shares included in the over-allotment option. The option was originally exercisable until “the last day of the eighteenth full month” following the closing of the IPO, Le. June 30, 1998. The exercise price per option share, determined as of the Closing Date by dividing the. aggregate exercise price of $3,500,000 by the number of option shares, or 5 18,000 shares, was approximately $6.75 per share.2

In Worsley’s beneficial ownership filings with the SEC and in certain SkyMall disclosures, the number of shares subject to the Getz option was reported as 542,998, which would have resulted in a per share exercise price of approximately $6.45. These figures were based upon Worsley’s

Library: Phocnix; Document I: 44137~3

Samuel H. Rudman, Esq. Page 3

March 15. 1999

C. First Amendment to Worsley/Getz Agreement

.-

On June 19, 1998, Worsley, Getz and Globe Corporation entered into the First Amendment to WorsleyIGetz Stockholders Agreement (“First Amendment to Worsley/Getz Agreement”) (attached hereto as Exhibit 3). The First Amendment to Worsley/Getz Agreement changed the expiration date of the Worsley/Getz option from “the date that is that last day of the eighteenth full month following the Closing Date” to “December 3 1, 1998.” The parties chose this date to match the expiration date of the Ashton option which was fixed as of the closing of the IPO in accordance with the terms of the Worsley/Ashton Agreement.

D. Announcement of SkyMall’s 1998 Internet Sales

On Monday, December 28, 1998, SkyMall said in a press release that sales from its Internet shopping site in December were expected to climb to $2.1 million for the year. compared with just $300,000 in 1997. Mr. Worsley appeared on CNBC early in the morning on Monday, December 28, 1998 to discuss the announcement. Throughout that day, Mr. Worsley was also interviewed by several other news organizations. The price of SkyMall shares increased significantly that day, gaining $23 to $35.5625.

E. Sale of Stock and Exercise of Options

On December 28, 1998, Worsley sold 650,000 shares of SkyMall Common Stock in open market transactions. On December 30, 1998, Worsley gave Ashton written notice of exercise of Worsley’s option under the Worsley/Ashton Agreement (attached hereto as Exhibit 4), and payment of the option price was made to Ashton on December 30, 1998. Also, on December 30, 1998, Worsley gave Getz written notice of exercise of Worsley’s option under the Worsley/Getz Agreement (attached hereto as Exhibit 5) . At that time, Getz requested that Worsley defer payment of the option price until January 4, 1999. Worsley agreed that, although he was prepared to pay the option price immediately (and in fact had the proceeds of his December 28 sale available for that purpose), he was willing to accommodate Getz’s request to receive payment in 1999 rather than 1998. Payment of the option price was made by Worsley to Getz on January 4, 1999. A Form 4 filing reporting the transaction was made on January 1 1, 1999 (attached hereto as Exhibit 6).

~ ~ ~~~~ ~

understanding that one-half of the shares held by Globe (a company owned by Getz) were to be included in the option. In connection with the exercise of the option, Getz advised Worsley of Getz’s understanding that, under the terms of the Worsley/Getz Agreement, the Globe shares were not included in the option, and Worsley determined not to dispute that interpretation.

Library: Phoenix; Document If: 4 4 1 3 7 ~ 3

Samuel H. Rudman. Esq. Page 4

March 15. 1999

11. The Law -- Section 16(b) and related rules of the Securities and Exchange Act of 1934 (the “Act”)

Section 16(b) of the Act is designed to, prevent the unfair use of information obtained by a 10% owner, director, or officer by reason of his relationship to the issuer by requiring that any profit realized by such person from any sale and purchase or purchase and sale of any equity security of such issuer within any period of less than six months. be recoverable by the issuer. The intent of such owner, director or officer is irrelevant. The issuer or the owner of any security of the issuer on behalf of the issuer may file a suit to recover such profit.

The analysis of whether Worsley’s December 28 open market sale and subsequent option exercises violated Section 16(b) is governed by the SEC rules under Section 16 relating to “derivative securities.” Rule 16a-1 (c) defines “derivative securities” as meaning “any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege at a price related to an equity security.. .” Rule 16a-1 (b) defines one type of derivative security, a “call equivalent position,” as a “derivative security position that increases in value as the value of the underlying security increases, including.. .a long call option.. . .” The options granted by Ashton and Getz to Worsley are “derivative securities” and “call equivalent positions” under the foregoing definitions.

The effect of the grant and exercise of the Ashton and Getz options for purposes of Section 16(b) is controlled by Rule 16b-6, which deals with derivative securities. Under Rule 16b-6(a) the establishment of a call equivalent position is deemed a purchase of the underlying securities for purposes of Section 16(b). The options granted under the Worsley/Ashton Agreement and the Worsley/Getz Agreement constitute call equivalent positions which were established in October 1996, and their terms were fixed as of the [PO closing date, i.e. December 16, 1996. As a result, under Rule 16b-6(a), Worsley was deemed to have purchased the shares subject to the Worsley/Ashton Agreement and the Worsley/Getz Agreement no later than December 16, 1996 for purposes of Section 16(b).

Similarly, Rule 16b-6(b) provides that the closing of a derivative security position as a result of its exercise is exempt from the operation of Section 16(b) and the acquisition of underlying securities at a fixed exercise price due to the exercise of a call equivalent position is exempt from Section 16(b). As a result, the purchase of shares from Ashton and Getz, pursuant to the exercise of the options under the Worsley/Ashton Agreement and the Worsley/Getz

The First Amendment to Worsley/Getz Agreement, entered into on June 19, 1998, extended the expiration of the Getz option from June 30, 1998 to December 3 1, 1998. Assuming this extension could be characterized as the grant of a new option for purposes of Section 16(b), any resulting “purchase” under Rule 16b-6(a) would have occurred more than six months prior to M r . Worsley’s December 28, 1998 sales.

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Samuel H. Rudman, Esq. Page 5

March 15. 1999

L- Agreement, as amended, cannot be matched with the open market sale of shares by Mr. Worsley on December 28, 1998 to create a Section 16(b) violation, or result in recoverable short-swing profits.

111. surnmarv Based on the facts and relevant law, it is clear that Mr. Worsley’s December 1998

transactions do not constitute a violation of Section 16(b). Consequently, there are no resulting short-swing profits that SkyMall is required to recover. In light of this conclusion, were you to file a lawsuit or pursue any other action against our client premised on an alleged violation of Section 16(b) of the Act, we would consider such a lawsuit frivolous and potentially subject to Rule 11 sanctions. We ask that you provide us with any information or legal analysis you have developed which would in any way support a contrary conclusion.

Very yours,

Christopher D. Johnson

Ann-Marie Anderson

Enclosures

Copy: Board of Directors, SkyMall, Inc. Christine A. Aguilera, Esq.

Library: Phoenix; Document Y: 44137~3