Exhibit 10.57
 Loan and Security Agreement dated March 4, 1997 between Bank One, Arizona, N.A.
         and Registrant and Modification Agreement dated July 25, 1997.

                             MODIFICATION AGREEMENT
                             ----------------------

DATE:         July 25, 1997
-----

PARTIES:      Borrower:    INTER-TEL, INCORPORATED,
--------                   an Arizona corporation

              Bank:        BANK ONE, ARIZONA, NA, a national banking association

RECITALS:
---------

     A. Bank has extended to Borrower credit ("Loan") in the principal amount of
$7,000,000.00  pursuant  to the  Loan  Agreement,  dated  March 4,  1997  ("Loan
Agreement"), and evidenced by the Promissory Note, dated March 4, 1997 ("Note").
The unpaid principal of the Loan as of the date hereof is $0.00.

     B. The Loan and/or guaranty of Loan is unsecured.

     C. The Note, the Loan Agreement, any arbitration resolution,  and all other
agreements,  documents,  and  instruments  evidencing,  securing,  or  otherwise
relating to the Loan, are sometimes referred to individually and collectively as
the "Loan Documents".

     D. Borrower has requested  that Bank modify the Loan and the Loan Documents
as  provided  herein.  Bank is  willing  to so  modify  the  Loan  and the  Loan
Documents, subject to the terms and conditions herein.

AGREEMENT:
----------

For good and valuable  consideration,  the receipt and  sufficiency of which are
hereby acknowledged, Borrower and Bank agree as follows:

1.   ACCURACY OF RECITALS.
     ---------------------

Borrower acknowledges the accuracy of the Recitals.

2.   MODIFICATION OF LOAN DOCUMENTS.
     -------------------------------

     2.1 The Loan Documents are modified as follows:

              2.1.1 The  maturity  date of the Loan and the Note is changed from
July 31, 1997, to July 31, 1998. On the maturity date Borrower shall pay to Bank
the unpaid principal, accrued and unpaid interest, and all other amounts payable
by Borrower under the Loan Documents as modified herein.

              2.1.2  The  reference  to  Section  3.1 in  Section  1 of the Loan
Agreement is modified to read in its entirety as follows:

3.1  Scheduled Commitment expiration date:       July 31, 1998

              2.1.3 The  reference  to  Section  6.11.1 in Section 1 of the Loan
Agreement is modified to read in its entirety as follows:

6.11.1   Minimum Tangible Net Worth:        $30,000,000.00
<PAGE>
              2.1.4 The  reference  to  Section  6.11.3 in Section 1 of the Loan
Agreement is modified to read in its entirety as follows:

6.11.3   Minimum Fixed Coverage Ratio:  1.75 to 1.0

              2.1.5 The  reference  to  Section  6.11.4 in Section 1 of the Loan
Agreement is modified to read in its entirety as follows:

6.11.4   Debt to Worth Ratio:  3.0 to 1.0

              2.1.6  The  reference  to  Section  7.7 in  Section  1 of the Loan
Agreement is modified to read in its entirety as follows:

7.7      Capital Expenditures Limit:    $10,000,000.00

              2.1.7 Section  6.11.1 of the Loan Agreement is modified to read in
its entirety as follows:

6.11.1 Tangible Net Worth. Tangible Net Worth,  calculated as of the end of each
fiscal quarter, of not less than the sum of (i) the amount for "Minimum Tangible
Net Worth" set forth in  Section 1, plus (ii) an amount  equal to fifty  percent
(50%) of the  aggregate  net  income  (not less than zero) of  Borrower  and its
Subsidiaries for each fiscal quarter ending during the period (the  "Calculation
Period") commencing on July 1, 1997 and ending on the date of calculation,  plus
(iii) all net proceeds of any equity  financing  entered into by Borrower or any
of its Subsidiaries during the Calculation Period.

         2.2 Each of the Loan  Documents is modified to provide that it shall be
a default or an event of default  thereunder  if  Borrower  shall fail to comply
with  any of the  covenants  of  Borrower  herein  or if any  representation  or
warranty by Borrower herein is materially incomplete,  incorrect,  or misleading
as of the date hereof.

         2.3 Each  reference in the Loan  Documents to any of the Loan Documents
shall be a reference to such document as modified herein.

3.  RATIFICATION OF LOAN DOCUMENTS AND COLLATERAL.
    ----------------------------------------------

The Loan  Documents  are  ratified  and affirmed by Borrower and shall remain in
full force and effect as modified herein. Any property or rights to or interests
in property  granted as security in the Loan Documents  shall remain as security
for the Loan and the obligations of Borrower in the Loan Documents.

4.  BORROWER REPRESENTATIONS AND WARRANTIES.
    ----------------------------------------

Borrower represents and warrants to Bank:

         4.1 No default or event of default  under any of the Loan  Documents as
modified herein,  nor any event,  that, with the giving of notice or the passage
of time or both,  would be a  default  or an event  of  default  under  the Loan
Documents as modified herein has occurred and is continuing.

         4.2  There  has  been  no  material  adverse  change  in the  financial
condition  of Borrower or any other person whose  financial  statement  has been
delivered  to Bank in  connection  with the Loan from the most recent  financial
statement received by Bank.

         4.3 Each and all representations and warranties of Borrower in the Loan
Documents are accurate on the date hereof.

         4.4 Borrower has no claims,  counterclaims,  defenses, or set-offs with
respect to the Loan or
<PAGE>
the Loan Documents as modified herein.

         4.5 The Loan  Documents as modified  herein are the legal,  valid,  and
binding obligations of Borrower, enforceable against Borrower in accordance with
their terms.

         4.6  Borrower  is validly  existing  under the laws of the State of its
formation or  organization  and has the requisite power and authority to execute
and deliver this Agreement and to perform the Loan Documents as modified herein.
The execution and delivery of this  Agreement  and the  performance  of the Loan
Documents as modified herein have been duly  authorized by all requisite  action
by or on behalf of Borrower. This Agreement has been duly executed and delivered
on behalf of Borrower.

5.  BORROWER COVENANTS.
    -------------------

Borrower covenants with Bank:

         5.1  Borrower  shall  execute,   deliver,  and  provide  to  Bank  such
additional agreements, documents, and instruments as reasonably required by Bank
to effectuate the intent of this Agreement.

         5.2 Borrower fully,  finally,  and forever releases and discharges Bank
and  its  successors,  assigns,  directors,  officers,  employees,  agents,  and
representatives  from any and all  actions,  causes of  action,  claims,  debts,
demands, liabilities, obligations, and suits, of whatever kind or nature, in law
or equity of Borrower,  whether now known or unknown to Borrower, (i) in respect
of the Loan, the Loan Documents,  or the actions or omissions of Bank in respect
of the Loan or the Loan Documents and (ii) arising from events  occurring  prior
to the date of this Agreement.

         5.3   Contemporaneously   with  the  execution  and  delivery  of  this
Agreement, Borrower has paid to Bank:

              5.3.1  All  accrued  and  unpaid  interest  under the Note and all
amounts,  other than interest and  principal,  due and payable by Borrower under
the Loan Documents as of the date hereof.

              5.3.2 All the internal and external costs and expenses incurred by
Bank in connection with this Agreement  (including,  without limitation,  inside
and outside attorneys, title, filing, and recording costs, expenses, and fees).

              5.3.3  A commitment fee of $17,500.00.

6. EXECUTION AND DELIVERY OF AGREEMENT BY BANK.
   --------------------------------------------

Bank  shall  not be bound by this  Agreement  until  (i) Bank has  executed  and
delivered this Agreement,  (ii) Borrower has performed all of the obligations of
Borrower  under  this  Agreement  to be  performed  contemporaneously  with  the
execution and delivery of this  Agreement,  (iii) if required by Bank,  Borrower
and  any  guarantor(s)  of the  Loan  have  executed  and  delivered  to Bank an
arbitration  resolution,  and (iv) each  guarantor  of the Loan has executed the
Consent of Guarantor(s) below.

7. INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR WAIVER.
   -------------------------------------------------------------------------

The Loan  Documents as modified  herein contain the complete  understanding  and
agreement  of Borrower and Bank in respect of the Loan and  supersede  all prior
representations,   warranties,  agreements,  arrangements,  understandings,  and
negotiations.  No  provision  of the Loan  Documents  as modified  herein may be
changed,  discharged,  supplemented,  terminated,  or waived except in a writing
signed by the parties thereto.

8. BINDING  EFFECT.
   ----------------

The Loan  Documents as modified  herein shall be binding upon and shall inure to
the benefit of Borrower
<PAGE>
and Bank and their respective successors and assigns.

9.   CHOICE OF LAW.
     --------------

This Agreement shall be governed by and construed in accordance with the laws of
the State of Arizona, without giving effect to conflicts of law principles.

10.  COUNTERPART EXECUTION.
     ----------------------

This Agreement may be executed in one or more counterparts,  each of which shall
be deemed an original and all of which  together  shall  constitute  one and the
same  document.  Signature  pages  may be  detached  from the  counterparts  and
attached to a single copy of this Agreement to physically form one document.

DATED as of the date first above stated.

                                 INTER-TEL, INCORPORATED, an Arizona corporation

                                 By  __________________________
                                 Name Kurt R. Kneip
                                 Title  Vice President, Chief Financial Officer,
                                        Secretary, and Assistant Treasurer

                                 BANK ONE, ARIZONA, NA,
                                 a national banking association
                                 By  __________________________
                                 Name  Craig S. Hoskin
                                 Title    Vice President
<PAGE>
                                 LOAN AGREEMENT
                                 --------------


DATE:    March 4, 1997
-----

PARTIES: Borrower:    INTER-TEL, INCORPORATED, an Arizona corporation
-------- ---------

         Bank:        BANK ONE, ARIZONA, NA, a national banking association
         -----

AGREEMENT:  For good and valuable consideration,  the receipt and sufficiency of
which are hereby acknowledged, Borrower and Bank agree as follows:

1. SCHEDULE OF TERMS.  The terms in Section 1 relate to the designated  sections
   of this Agreement.

     2.  Commitment Amount:         $7,000,000.00.

     3.1 Scheduled Commitment expiration date:   July 31, 1997

     3.3 Each of the  following  Persons  acting alone is  authorized to request
         Advances:

Steven G. Mihaylo, Chairman and Chief Executive Officer
Kurt R. Kneip, Vice President, Chief Financial Officer, Secretary, and Assistant
  Treasurer
John C. Abbott, Treasurer
Margaret Hollingsed, Assistant Treasurer

     Each of the following Persons acting alone is authorized to request Letters
of Credit and to execute Letter of Credit Agreements:

Steven G. Mihaylo, Chairman and Chief Executive Officer
Kurt R. Kneip, Vice President, Chief Financial Officer, Secretary, and Assistant
  Treasurer
John C. Abbott, Treasurer
Margaret Hollingsed, Assistant Treasurer

     3.5.1    Commitment fee:       $5,143.91.

     3.5.2    Letter of Credit Issuance Fee:Rate:    1.00% per annum.

     5.1 and 6.1 Purpose of Advances  and Letters of Credit:  Advances are to be
used to pay  reimbursement  Amounts  under  Letter of Credit  Agreements  and to
support working capital.  Letters of Credit are to be used to finance  inventory
purchases.

     5.1.2    Fiscal year of Borrower: From January 1 to December 31.

     6.4.1    Financial  statements  due  within  45 days  after the end of each
fiscal quarter, except the last in each fiscal year.

              Financial statements requirements: Accrual Basis and GAAP.

              Certification    requirements:    Borrower   prepared    financial
statements.

              Person(s) to sign financial statements on behalf of Borrower:

              Name:  Kurt  R.  Kneip  Title:  Vice  President,  Chief  Financial
              Officer, Secretary, and Asst. Treasurer
<PAGE>
     6.4.2    Financial  statements  due  within  90  days after the end of each
fiscal year of Borrower.

              Financial statements requirements: Accrual Basis and GAAP.

              Certification    requirements:    Independent   certified   public
              accountant  satisfactory to Bank to audit financial statements and
              deliver an unqualified opinion on the financial statements.

     6.11.1   Minimum Tangible Net Worth:                 $40,000,000.00

     6.11.2   Current Ratio:                              1.5 to 1.0

     6.11.3   Minimum Fixed Coverage Ratio                2.0 to 1.0

     6.11.4   Debt to Worth Ratio                         0.8 to 1.0

     7.7      Capital expenditures limit:                 $8,000,000.00

     7.8      Indebtedness limit:                         $1,000,000.00

     7.9      Maximum Net Loss:                           $1,250,000.00

2. DEFINITIONS.  In this Agreement, the following terms shall have the following
meanings  and all  capitalized  financial  terms  used and not  defined  in this
Agreement shall have the meanings determined in accordance with GAAP:

"Advance" means an advance by Bank to Borrower hereunder.

"Agreement" means this Loan Agreement as it may be amended, modified,  extended,
renewed, restated, or supplemented from time to time.

"Approvals  and Permits" means each and all  approvals,  authorizations,  bonds,
consents,   certificates,    franchises,   licenses,   permits,   registrations,
qualifications,  and other  actions  and rights  granted by or filings  with any
Persons  necessary,  appropriate,  or desirable for ownership,  lease, or use by
Borrower  of its assets and  property  or for the  conduct of the  business  and
operations of Borrower.

"Borrower  Loan  Documents"  means the Loan  Documents  executed or delivered by
Borrower from time to time.

"Business  Day"  means a day of the  year on which  banks  are not  required  or
authorized to close in Phoenix, Arizona.

"Collateral" means the property,  interests in property,  and rights to property
securing any or all Obligations from time to time.

"Commitment"  means  the  agreement  of Bank in  Sections  3.1 and 3.2 to  issue
Letters of Credit and to make Advances  pursuant to the terms and  conditions in
Letter of Credit Agreements and herein.

"Commitment Amount" means the amount specified in Section  1.

"Current Ratio" means the ratio calculated by dividing Current Assets by Current
Liabilities.

"Customer" means a customer of Borrower.

"Debt to Worth  Ratio"  means the ratio  calculated  by dividing  (i) the sum of
Total  Liabilities  plus  outstanding  Letters of Credit,  by (ii)  Tangible Net
Worth.
<PAGE>
"ERISA"  means  the  Employee  Retirement  Income  Security  Act of 1974 and the
regulations and published interpretations  thereunder, as in effect from time to
time.

"Event of  Default"  has the  meaning  specified  in the Note and the other Loan
Documents.

"Existing  Letter(s) of Credit"  means any and all letter(s) of credit issued by
Bank at the request of Borrower prior to the date of this Agreement, as to which
letter(s) of credit the date that is the Standard  Number of Days after the last
date for payment of drafts drawn or drawn and accepted  thereunder  is after the
date of this Agreement.

"Fixed  Coverage  Ratio" means the ratio  calculated  by dividing (i) Net Income
before  Interest,  Lease and Tax Expense,  by (ii)  Interest,  Lease and Current
Maturities Long Term Debt on a rolling four quarter basis.

"GAAP" means generally accepted accounting principles consistently applied.

"Governmental  Authority"  means any  government,  any  court,  and any  agency,
authority, body, bureau, department, or instrumentality of any government.

"Letter  of  Credit  Agreement"  means  Bank's  standard  form  Application  and
Agreement for Commercial Letter of Credit,  Bank's standard form Application for
Standby  Letter of Credit  and  Standby  Letter  of Credit  Agreement,  or other
standard  application  and  agreement  for letters of credit in use by Bank from
time to time.

"Letters  of Credit"  means the letters of credit in Bank's  standard  form from
time to time issued pursuant to Section 3.1 and any Existing Letters of Credit.

"Lien or Encumbrance" and "Liens and Encumbrances" mean, respectively,  each and
all of the  following:  (i) any lease or other right to use; (ii) any assignment
as security,  conditional sale, grant in trust, lien, mortgage, pledge, security
interest, title retention arrangement,  other encumbrance,  or other interest or
right securing the payment of money or the performance of any other liability or
obligation,  whether voluntarily or involuntarily created and whether arising by
agreement,  document, or instrument,  under any law, ordinance,  regulation,  or
rule (federal,  state, local, or foreign),  or otherwise;  and (iii) any option,
right of first refusal, other right to acquire, or other interest, or right.

"Loan Documents" means this Agreement, the Note, the Letter of Credit Agreements
executed  and  delivered by Borrower in  connection  with Letters of Credit from
time to time, and any other agreements,  documents,  or instruments from time to
time evidencing,  guarantying,  securing,  or otherwise relating to the Note, as
they may be amended, modified,  extended,  renewed, or supplemented from time to
time.

"Loan Party"  means  Borrower and each other Person that from time to time is or
becomes obligated to Bank under any Loan Document or grants any Collateral.

"Material  Adverse Change" means any change in the assets,  business,  financial
condition, operations,  prospects, or results of operations of any Loan Party or
any other event or  condition  that (i)  materially  and  adversely  affects the
likelihood  of  performance  by any Loan Party of any of the  Obligations,  (ii)
materially and adversely affects the ability of any Loan Party to perform any of
the Obligations,  (iii) materially and adversely affects the legality, validity,
or binding nature of any of the Obligations or any Lien or Encumbrance  securing
any of the Obligations, or (iv) materially and adversely affects the priority of
any Lien or Encumbrance securing any of the Obligations.

"Note"  means the  Promissory  Note,  dated of even date  herewith,  of Borrower
payable to Bank, as it may be amended, modified, extended, renewed, restated, or
supplemented from time to time.

"Obligations" means the obligations of the Loan Parties under the Loan Documents
(including, without limitation, the obligation to pay Reimbursement Amounts).
<PAGE>
"Permitted  Exceptions" means Liens and Encumbrances in favor of Bank, leases of
inventory for fair consideration in the ordinary course of Borrower's  business,
Liens and Encumbrances  shown on financial  statements of Borrower  delivered to
Bank  prior to the date of this  Agreement,  Liens  and  Encumbrances  otherwise
disclosed to Bank in writing  prior to the date of this  Agreement,  other Liens
and  Encumbrances  consented  to by Bank  in  writing  from  time to time in its
absolute and sole discretion and purchase money security interests.

"Person"  means  a  natural  person,   a  partnership,   a  joint  venture,   an
unincorporated association, a limited liability company, a corporation, a trust,
any other legal entity, or any Governmental Authority.

"Reimbursement  Amount"  means the amount  Borrower is  obligated to pay to Bank
under a Letter of Credit  Agreement  in  respect  of a draft  drawn or drawn and
accepted under the respective Letter of Credit, which amount shall be the amount
of the draft or acceptance and all costs, expenses, fees, and other amounts then
payable by Borrower to Bank under the Letter of Credit Agreement.

"Standard  Number of Days" means the standard number of days established by Bank
from time to time to allow for delivery to Bank of drafts drawn under letters of
credit  issued by Bank and presented to financial  institutions  other than Bank
for  delivery to Bank.  Bank may change such number of days at any time and from
time to time in its absolute and sole discretion  without notice to Borrower and
may have a different number of days for commercial letters of credit and standby
letters of credit.

"Subsidiary" means any company, foreign or domestic, more than 50% of the voting
shares of which are owned by Borrower.

"Tangible Net Worth" means Total Assets less the sum of total Intangible  Assets
and Total Liabilities.

"Total Assets"  means all assets calculated in accordance with GAAP.

"Total Liabilities"  means all liabilities calculated in accordance with GAAP.

"Unmatured  Event of Default"  means any  condition  or event that with  notice,
passage of time, or both would be an Event of Default.

3.   LETTERS OF CREDIT AND LOAN FACILITY

     3.1 Letters of Credit.

         3.1.1  Issuance  of  Letters  of  Credit.  Subject  to  the  terms  and
conditions of this Agreement and the Letter of Credit  Agreements and subject to
the policies,  procedures,  and requirements of Bank in effect from time to time
for issuance of Letters of Credit  (including,  without  limitation,  payment of
letter of credit fees), Bank agrees to issue, from time to time on or before the
scheduled  Commitment  expiration date set forth in Section 1, Letters of Credit
upon  request  by and for the  account  of  Borrower,  provided  that as to each
requested  Letter of Credit  Borrower  has  delivered  to Bank a  completed  and
executed Letter of Credit Agreement,  and provided further that the date that is
the  Standard  Number of Days after the last date for payment of drafts drawn or
drawn and accepted  under a requested  Letter of Credit is before the  scheduled
Commitment  expiration  date set  forth in  Section  1. Each  reference  in this
Agreement to "issue" or  "issuance"  or other forms of such words in relation to
Letters of Credit  shall also  include any  extension  or renewal of a Letter of
Credit. Upon occurrence of an Event of Default or an Unmatured Event of Default,
Bank, in its absolute and sole  discretion and without  notice,  may suspend the
commitment to issue Letters of Credit. In addition,  upon occurrence of an Event
of Default,  Bank, in its absolute and sole discretion and without  notice,  may
terminate the commitment to issue Letters of Credit.

         3.1.2 Issuance Procedure.  To obtain a Letter of Credit, Borrower shall
complete and execute a Letter of Credit Agreement and submit it to the letter of
credit  department of Bank.  Upon receipt of a completed and executed  Letter of
Credit  Agreement,  Bank will process the  application  in  accordance  with the
policies, procedures,
<PAGE>
and  requirements  of  Bank  then  in  effect.  If  the  application  meets  the
requirements  of Bank and is within the  policies  of Bank then in effect,  Bank
will issue the requested Letter of Credit.

         3.1.3  Reimbursement  of Bank for Payment of Drafts  Drawn or Drawn and
Accepted  Under Letters of Credit.  The obligation of Borrower to reimburse Bank
for  payment  by Bank of drafts  drawn or drawn and  accepted  under a Letter of
Credit shall be as provided in the respective Letter of Credit  Agreement.  Bank
will notify  Borrower of payment by Bank of a draft drawn or drawn and  accepted
under a Letter of Credit  and of the  respective  Reimbursement  Amount and will
give Borrower the election (i) to pay the  Reimbursement  Amount pursuant to the
respective Letter of Credit Agreement or (ii) to pay the Reimbursement Amount by
Bank making an Advance subject to the terms and conditions of this Agreement and
applying  the  proceeds  of the  Advance  to pay the  Reimbursement  Amount.  If
Borrower  does not  communicate  to Bank its election  within two Business  Days
after notification by Bank of payment of the draft or acceptance, Borrower shall
be deemed to have  elected  to pay the  Reimbursement  Amount by Bank  making an
Advance  hereunder,  provided that if the terms and conditions in this Agreement
for an Advance  hereunder are not  satisfied,  Borrower  shall be deemed to have
elected  to pay the  Reimbursement  Amount  pursuant  to the  Letter  of  Credit
Agreement.  Each Advance to pay a  Reimbursement  Amount shall be dated the date
that Bank pays the respective draft or acceptance and shall accrue interest from
and after such date. If Borrower is to pay the Reimbursement  Amount pursuant to
the Letter of Credit Agreement,  Borrower shall also pay to Bank interest on the
Reimbursement  Amount from and including the date Bank pays the respective draft
or acceptance at the Interest Rate (defined in the Note) until the Reimbursement
Amount and such interest are paid in full,  provided  that if Borrower  fails to
pay the  Reimbursement  Amount and accrued interest thereon within five (5) days
after  notification  by Bank to Borrower of payment of the  respective  draft or
acceptance,  interest  thereafter shall accrue at the Default Rate (as such term
is defined in the  Note).  Such  interest  shall be  computed  on the basis of a
360-day year and accrue on a daily basis for the actual  number of days elapsed.
Notwithstanding  the above,  if Borrower  elects or is deemed to have elected to
pay the  Reimbursement  Amount  pursuant to the Letter of Credit  Agreement  and
fails to pay the Reimbursement  Amount and interest thereon within five (5) days
after  notification  by  Bank  to  Borrower,  Bank,  in its  absolute  and  sole
discretion  and without  notice to Borrower and  regardless of whether the terms
and conditions in this Agreement for Advances are satisfied, may make an Advance
under this  Agreement  in the  amount of the  Reimbursement  Amount and  accrued
interest thereon and apply the proceeds of such Advance to pay the Reimbursement
Amount and accrued interest.

     3.2 Loan Facility.  Subject to the terms and conditions of this  Agreement,
Bank  agrees to make  Advances  to  Borrower  from time to time on or before the
scheduled  Commitment  expiration date specified in Section 1. Advances shall be
on a revolving  basis.  Advances repaid may be re-borrowed  subject to the terms
and conditions  herein.  Although the  outstanding  principal of the Note may be
zero from time to time, the Loan Documents shall remain in full force and effect
until the Commitment  terminates and all  Obligations  are paid and performed in
full.  Upon  occurrence of an Event of Default or an Unmatured Event of Default,
Bank, in its absolute and sole  discretion and without  notice,  may suspend the
commitment  to make  Advances.  In  addition,  upon  occurrence  of an  Event of
Default,  Bank,  in its absolute and sole  discretion  and without  notice,  may
terminate the commitment to make  Advances.  The obligation of Borrower to repay
Advances is evidenced by the Note.

     3.3  Letters  of Credit and  Advances.  Letters of Credit may be issued and
Advances  may be made by Bank at the oral or written  request of the  respective
Person or Persons  designated  in Section 1. Such  Person or Persons  are hereby
authorized by Borrower to request Letters of Credit and Advances, to execute and
deliver  Letter  of Credit  Agreements  on  behalf  of  Borrower,  and to direct
disposition  of the proceeds of Advances  until written notice of the revocation
of such  authority  is  received  from  Borrower  by  Bank  and  Bank  has had a
reasonable time to act upon such notice.  Bank shall have no duty to monitor for
Borrower  or to report to  Borrower  the use of Letters or Credit or proceeds of
Advances.  Advances shall be disbursed by Bank in the manner agreed upon by Bank
and Borrower from time to time.

     3.4 Limit on Letters of Credit and Advances. Anything in the Loan Documents
to the contrary notwithstanding,  the sum from time to time of (i) the aggregate
amount of outstanding and undrawn Letters of Credit,  (ii) the aggregate  amount
of  outstanding  and unpaid drafts drawn or drawn and accepted  under Letters of
Credit, (iii) the aggregate amount of unpaid Reimbursement Amounts, and (iv) the
amount of  outstanding  and unpaid  Advances  shall not  exceed  the  Commitment
Amount.
<PAGE>
     3.5 Fees. Borrower agrees to pay to Bank the following fees, which shall be
earned  by  Bank  on the  date  due  under  the  Loan  Documents  and  shall  be
non-refundable to Borrower:

         3.5.1  Commitment Fee. A fee for the Commitment in the amount set forth
in Section 1, payable on or before the date hereof.

         3.5.2 Attorneys' Costs,  Expenses, and Fees. Attorneys costs, expenses,
and fees for  Bank's  counsel  in the amount  specified  by Bank,  payable on or
before the date hereof.

         3.5.3  Letter of Credit  Issuance  Fee. A fee for the  issuance  of the
Letter of Credit  computed on the amount of the Letter of Credit and at the rate
per annum set forth in Section 1, payable upon issuance of the Letter of Credit.

     3.6 Mandatory Prepayments. If for any reason at any time the sum of (i) the
aggregate  amount  of  outstanding  and  undrawn  Letters  of  Credit,  (ii) the
aggregate  amount of  outstanding  and unpaid drafts drawn or drawn and accepted
under  Letters of Credit,  (iii) the  aggregate  amount of unpaid  Reimbursement
Amounts,  and (iv) the amount of  outstanding  and unpaid  Advances  exceeds the
Commitment Amount, Borrower,  without notice or demand, shall immediately make a
payment to Bank in an amount equal to the sum of (A) such excess and (B) accrued
and unpaid interest thereon.

     3.7 Collateral  Upon Event of Default.  Upon an Event of Default and demand
by Bank in its absolute and sole discretion,  Borrower shall immediately deliver
to Bank as security for all Obligations immediately available funds in an amount
equal to the sum of (i) aggregate  amount of outstanding  and undrawn letters of
Credit,  and (ii) the aggregate amount of outstanding and unpaid drafts drawn or
drawn and accepted  under  Letters of Credit.  Borrower  hereby grants to Bank a
security  interest  in all such funds  delivered  to Bank to secure  payment and
performance of the Obligations.

4.  CONDITIONS  PRECEDENT  TO EACH  ADVANCE AND LETTER OF CREDIT.  Bank shall be
obligated  to issue a Letter of  Credit or make an  Advance  when  requested  by
Borrower only if the  representations  and warranties by the Loan Parties in the
Loan  Documents  are accurate on and as of this  Agreement  and on and as of the
date of  issuance  of the Letter of Credit or of making the  Advance  before and
after giving  effect to the Letter of Credit or the Advance and the  application
of the  proceeds  of the  Advance.  Delay  or  failure  by  Bank  to  insist  on
satisfaction  of any  condition  of  issuance of a Letter of Credit or making an
Advance shall not be a waiver of such condition precedent or any other condition
precedent.  If Borrower is unable to satisfy any condition precedent of issuance
of a Letter of Credit or making an Advance, the issuance of the Letter of Credit
or the making of the Advance shall not preclude Bank from  thereafter  declaring
the condition or event causing such inability to be an Event of Default.

5.   BORROWER REPRESENTATIONS AND WARRANTIES.

     5.1  Closing  Representations  and  Warranties.   Borrower  represents  and
warrants to Bank as of the date of this Agreement:

         5.1.1  Purpose of Advances and Letters of Credit.  Borrower  intends to
use Advances and Letters of Credit only for the purposes described in Section 1.

         5.1.2 Accurate  Information.  All information in any loan  application,
financial  statement,  certificate,  or other document and all other information
delivered by or on behalf of Borrower to Bank in  obtaining  the  Commitment  is
correct and complete.  There are no omissions  therefrom that result in any such
information being incomplete,  incorrect,  or misleading as of the date thereof.
There has been no Material  Adverse Change as to Borrower since the date of such
information.  All financial statements  heretofore delivered to Bank by Borrower
accurately present the financial condition and results of operations of Borrower
as at the dates thereof and for the periods covered thereby.  The fiscal year of
Borrower is as set forth in Section 1.
<PAGE>
         5.1.3  Legal  Proceedings;  Hearings,  Inquiries,  and  Investigations.
Except as disclosed to Bank in writing prior to the date of this Agreement,  (i)
no legal proceeding is pending or, to the best knowledge of Borrower, threatened
before any arbitrator,  other private adjudicator,  or Governmental Authority to
which  Borrower  is a party or by which  Borrower  or any assets or  property of
Borrower may be bound or affected that if resolved  adversely to Borrower  could
result  in  a  Material  Adverse  Change,  and  (ii)  no  hearing,  inquiry,  or
investigation  relating  to  Borrower  or any assets or  property of Borrower is
pending or, to the best  knowledge of Borrower,  threatened by any  Governmental
Authority.

         5.1.4  Taxes.  Borrower has filed or caused to be filed all tax returns
(federal,  state,  local, and foreign)  required to be filed by Borrower and has
paid all taxes and other  amounts shown  thereon to be due  (including,  without
limitation, any interest and penalties).

         5.1.5 No Event of Default or  Unmatured  Event of Default.  No Event of
Default and no Unmatured Event of Default has occurred and is continuing.

         5.1.6  No  Approvals.  No  approval,   authorization,   bond,  consent,
certificate,  franchise, license, permit, registration,  qualification, or other
action or grant by or filing with any Person is required in connection  with the
execution, delivery, or performance by Borrower of the Borrower Loan Documents.

         5.1.7  No  Conflicts.  The  execution,  delivery,  and  performance  by
Borrower of the Borrower Loan  Documents  will not conflict with, or result in a
violation of or a default under: any applicable law, ordinance,  regulation,  or
rule  (federal,  state,  or  local);  any  judgment,  order,  or  decree  of any
arbitrator,  other  private  adjudicator,  or  Governmental  Authority  to which
Borrower  is a party or by which  Borrower  or any of the assets or  property of
Borrower is bound; any of the Approvals or Permits; or any agreement,  document,
or  instrument to which  Borrower is a party or by which  Borrower or any of the
assets or property of Borrower is bound.

         5.1.8  Execution  and  Delivery  and Binding  Nature of  Borrower  Loan
Documents.  The Borrower Loan Documents have been duly executed and delivered by
or on behalf of Borrower.  The Borrower  Loan  Documents are legal,  valid,  and
binding  obligations  of Borrower,  enforceable  in accordance  with their terms
against Borrower,  except as such  enforceability  may be limited by bankruptcy,
insolvency,  moratorium,  reorganization,  or  similar  laws  and  by  equitable
principles of general application.

         5.1.9 Approvals and Permits; Assets and Property. Borrower has obtained
and there are in full force and effect all Approvals and Permits.  Borrower owns
or leases all assets and  property  necessary  for conduct of the  business  and
operations  of  Borrower.  Such assets and property are not subject to any Liens
and Encumbrances, other than Permitted Exceptions.

         5.1.10 ERISA. Borrower is in compliance with ERISA. No Reportable Event
or Prohibited  Transaction  (as defined in ERISA) or termination of any plan has
occurred  and no notice of  termination  has been filed with respect to any plan
established  or  maintained  by Borrower and subject to ERISA.  Borrower has not
incurred  any  material  funding  deficiency  within the meaning of ERISA or any
material  liability to the Pension  Benefit  Guaranty  Corporation in connection
with any such plan  established  or  maintained  by Borrower.  Borrower is not a
party to any Multiemployer Plan (as defined in ERISA).

         5.1.11  Environmental  Matters. To the best knowledge of Borrower after
due  investigation,  Borrower is in compliance in all material respects with all
environmental,  all health, and all safety laws,  ordinances,  regulations,  and
rules (federal, state, and local) applicable to Borrower, the assets or property
of Borrower, the business or operations of Borrower, or the products or services
of  Borrower.  Borrower  does not  have  any  material  existing  or  contingent
liability in connection with any disposal, generation, manufacture,  processing,
production, release, storage, transportation, treatment, or use of any hazardous
or toxic substance or waste.

         5.1.12  Investment  Company Act;  Public Utility  Holding  Company Act.
Borrower  is  not  an  "investment  company"  or  a  company  controlled  by  an
"investment  company" within the meaning of the Investment  Company Act of 1940,
as amended. Borrower is not a "holding company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
<PAGE>
         5.1.13  Margin  Securities.  Borrower is not engaged in the business of
extending  credit for the purpose of purchasing or carrying margin stock (within
the  meaning of  Regulation  U issued by the Board of  Governors  of the Federal
Reserve  System).  No proceeds of any Advance  will be used to purchase or carry
any margin  stock or extend  credit to others for the purpose of  purchasing  or
carrying margin stock or for any purpose that violates or is  inconsistent  with
Regulation X of the Board of Governors.

         5.1.14   Corporation,   Limited  Liability   Company,   or  Partnership
Existence, Authority, and Authorization. If Borrower is a corporation, a limited
liability company,  or a partnership,  Borrower is validly existing,  and in the
case of a corporation or limited  liability  company is in good standing,  under
the  laws of the  jurisdiction  of its  formation  or  organization  and has the
requisite power and authority to execute, deliver, and perform the Borrower Loan
Documents. The execution,  delivery, and performance by Borrower of the Borrower
Loan Documents have been duly authorized by all requisite action by or on behalf
of Borrower and will not conflict with, or result in a violation of or a default
under, the certificate of incorporation or bylaws, the limited liability company
operating agreement,  or the partnership  agreement of Borrower, as the case may
be.  If  Borrower  is not  formed  or  organized  under  the law of the State of
Arizona, Borrower is qualified to do business as a foreign corporation,  limited
liability  company,  or  partnership,  as the case may be,  and in the case of a
corporation or limited liability  company is in good standing,  under the law of
the State of Arizona.

     5.2 Representations and Warranties Upon Requests for Advances or Letters of
Credit.  Each  request  for  an  Advance  or  a  Letter  of  Credit  shall  be a
representation  and  warranty by Borrower to Bank that the  representations  and
warranties  in this  Section 5 are  correct  and  complete as of the date of the
Advance or Letter of Credit and that the  conditions  precedent in Section 4 are
satisfied as of the date of the Advance or Letter of Credit.

     5.3 Representations  and Warranties Upon Delivery of Financial  Statements,
Documents, and Other Information. Each delivery by Borrower to Bank of financial
statements,  other  documents,  or information  after the date of this Agreement
(including, without limitation, documents and information delivered in obtaining
an  Advance)  shall  be  a  representation  and  warranty  that  such  financial
statements,  other documents, or information is correct and complete, that there
are no  omissions  therefrom  that result in such  financial  statements,  other
documents,  or information being incomplete,  incorrect, or misleading as of the
date  thereof,  and  that  such  financial  statements  accurately  present  the
financial  condition  and  results of  operations  of  Borrower  as at the dates
thereof and for the periods covered thereby.

6. BORROWER  AFFIRMATIVE  COVENANTS.  Until the  Commitment  terminates in full,
until all Letters of Credit expire or are drawn in full,  until all drafts drawn
under or drawn and accepted  under Letters of Credit are paid in full, and until
the Obligations are paid and performed in full, Borrower agrees that:

     6.1 Use of  Advances.  Borrower  shall use  Advances  only for the purposes
described in Section 1.

     6.2 Further  Assurances,  Costs and Expenses of Borrower's  Performance  of
Covenants and  Satisfaction  of Conditions.  Borrower shall  promptly,  or shall
cause each  Subsidiary to promptly,  execute,  acknowledge,  and deliver and, as
appropriate,  cause to be duly filed and recorded  such  additional  agreements,
documents,  and  instruments  and do or cause to be done such other acts as Bank
may reasonably  request from time to time to better assure,  perfect,  preserve,
and protect the rights and remedies of Bank under the Loan  Documents.  Borrower
shall,  or shall cause each  Subsidiary to, perform all of its  obligations  and
satisfy all conditions under the Loan Documents at its sole cost and expense.

     6.3 Books and Records;  Access By Bank. Borrower shall, or shall cause each
Subsidiary  to,  maintain  a  single,  standard,  modern  system  of  accounting
(including,  without limitation,  a single,  complete, and accurate set of books
and  records  of  its  assets,  business,   financial  condition,   liabilities,
operations,  property,  prospects, and results of operations) in accordance with
good accounting practices.  Borrower shall furnish, or cause to be furnished, to
Bank all  information  concerning  Borrower and each  Subsidiary and the assets,
business, financial condition, liabilities, operations, property, prospects, and
results of operation of Borrower and each Subsidiary as Bank reasonably requests
from time to time.  During  business  hours  Borrower  shall give, or cause each
Subsidiary to give,
<PAGE>
representatives  of  Bank  access  to  all  assets,  property,  books,  records,
documents  and personnel of Borrower and each  Subsidiary  and shall permit Bank
representatives to inspect such assets and property,  to audit,  copy,  examine,
and make excerpts from the books, records, and documents, and to make inquiry of
Borrower  and  Borrower's  personnel,   and  each  Subsidiary  and  Subsidiary's
personnel, and receive answers. Borrower shall, and shall cause the personnel of
Borrower  and  each  Subsidiary  to,   cooperate  and  assist  Bank  and  Bank's
representatives.  In this regard, without limitation,  Bank shall have the right
to conduct semi-annual  inspections of the receivables and inventory of Borrower
and each  Subsidiary.  In  addition,  Bank  shall  have the right to verify  any
information  provided by Borrower and each  Subsidiary to Bank by inquiry to any
appropriate third Persons.

     6.4 Information and Statements. Borrower shall furnish to Bank:

         6.4.1 Fiscal Period Financial  Statements.  As soon as available and in
any event within the number of days set forth in Section 1 after the end of each
fiscal period of Borrower set forth in Section 1, except the last period in each
fiscal  year of  Borrower,  copies of the  balance  sheet of  Borrower  and each
Subsidiary  on a  consolidated  basis as of the end of such  fiscal  period  and
statements  of income and  retained  earnings  and a  statement  of cash flow of
Borrower and each Subsidiary on a consolidated  basis for such fiscal period and
for the portion of the fiscal year of Borrower and each  Subsidiary  ending with
such fiscal period,  in each case setting forth in comparative  form the figures
for the  corresponding  period for the preceding  fiscal year, all in reasonable
detail,  prepared in accordance  with the  requirements in Section 1, containing
the  certifications  specified in Section 1 and signed on behalf of Borrower and
each Subsidiary by the person(s) named in Section 1.

         6.4.2 Annual  Financial  Statements.  As soon as  available  and in any
event  within  the  number of days set forth in  Section 1 after the end of each
fiscal  year of Borrower  and each  Subsidiary,  copies of the balance  sheet of
Borrower  and  each  Subsidiary  on a  consolidated  basis as of the end of such
fiscal year and  statements  of income and retained  earnings and a statement of
cash flow of  Borrower  and each  Subsidiary  on a  consolidated  basis for such
fiscal year, in each case setting forth in comparative  form the figures for the
preceding fiscal year of Borrower and each Subsidiary,  all in reasonable detail
and prepared in accordance  with the  requirements  in Section 1, containing the
certifications specified in Section 1.

     6.5 Law; Judgments;  Material Agreements;  Approvals and Permits.  Borrower
shall  comply,  or shall  cause  each  Subsidiary  to  comply,  with  all  laws,
ordinances,  regulations, and rules (federal, state, local, and foreign) and all
judgments,  orders, and decrees of any arbitrator, other private adjudicator, or
Government  Authority  relating to Borrower and each  Subsidiary  or the assets,
business,  operations,  or property of Borrower  and each  Subsidiary.  Borrower
shall comply, or shall cause each Subsidiary to comply, in all material respects
with all material agreements,  documents,  and instruments to which Borrower and
each  Subsidiary is a party or by which  Borrower and each  Subsidiary or any of
the assets or property of Borrower  and each  Subsidiary  is bound or  affected.
Borrower  shall,  or shall cause each Subsidiary to, obtain and maintain in full
force and effect all Approvals and Permits and shall comply with all  conditions
and requirements of all Approvals and Permits.

     6.6 Taxes and Other  Indebtedness.  Borrower  shall,  or shall  cause  each
Subsidiary to, pay and discharge (i) before delinquency all taxes,  assessments,
and governmental  charges or levies imposed upon it, upon its income or profits,
or  upon  any of its  assets  or  property,  (ii)  when  due all  lawful  claims
(including,  without  limitation,  claims for labor,  materials,  and supplies),
that, if unpaid,  might become a Lien or  Encumbrance  upon any of its assets or
property, and (iii) when due, all its other indebtedness.

     6.7 Assets and Property. Borrower shall, or shall cause each Subsidiary to,
maintain,  keep,  and  preserve  all of its assets and  property  (tangible  and
intangible)  necessary  or useful in the  proper  conduct  of its  business  and
operations in good working order and condition, ordinary wear and tear excepted.

     6.8 Insurance. In addition to any insurance required under any of the other
Loan  Documents,  Borrower  shall  maintain  workmen's  compensation  insurance,
product and public liability insurance, insurance on its assets and property now
or  hereafter  owned,  and such other forms of  insurance as is customary in the
industry of Borrower, against such casualties, risks, and contingencies, in such
amounts, and with such insurance companies as are
<PAGE>
satisfactory  to Bank, in its reasonable  discretion.  Borrower shall deliver to
Bank  from  time to time  as Bank  may  request,  schedules  setting  forth  all
insurance then in effect and copies of the policies.

     6.9  Environmental  Laws.  Without  limiting the generality of Section 6.5,
Borrower  shall  comply,  or shall  cause each  Subsidiary  to comply,  with all
environmental,  all health, and all safety laws,  ordinances,  regulations,  and
rules  (federal,  state,  local,  and foreign)  applicable  to Borrower and each
Subsidiary,  the business or  operations  of Borrower and each  Subsidiary,  the
assets or property of Borrower and each Subsidiary,  or the products or services
of Borrower and each Subsidiary.  Borrower and each Subsidiary may use and store
for its own use hazardous or toxic substances. Borrower shall not, and shall not
permit each Subsidiary to, dispose of, generate, manufacture,  process, produce,
release,  transport,  or treat or otherwise  store or use any hazardous or toxic
substances or wastes.  Borrower shall notify,  or shall cause each Subsidiary to
notify,  Bank  immediately  of any  environmental  inquiry  or  claim  from  any
Governmental  Authority or other Person relating to Borrower and each Subsidiary
or any assets, property, business,  operations,  product, or service of Borrower
and each Subsidiary.

     6.10ERISA.  Borrower  shall fund,  or shall cause each  Subsidiary to fund,
each  Defined  Benefit  Plan and  Defined  Contribution  Plan (as such terms are
defined  in  ERISA)  established  or  maintained  by or for  Borrower  and  each
Subsidiary so that there is never an Accumulated  Funding Deficiency (as defined
in Section 412 of the Internal Revenue Code of 1986, as amended).

     6.11Financial   Covenants.   Except  as  otherwise   noted,  all  financial
computations  shall  be made in  accordance  with  GAAP.  Until  the  Commitment
terminates in full and until the Obligations are paid and performed in full, or,
if so specified in Section 1, for the respective  period(s) specified in Section
1,  Borrower  agrees  that  Borrower  and each  Subsidiary  shall  maintain on a
consolidated basis:

         6.11.1  Tangible  Net  Worth.  Tangible  Net Worth of not less than the
amount set forth in Section 1.

         6.11.2  Current  Ratio.  A Current Ratio of not less than the ratio set
forth in Section 1.

         6.11.3 Fixed  Coverage  Ratio.  A Fixed Coverage Ratio of not less than
the amount set forth in Section 1.

         6.11.4  Debt to Worth  Ratio.  A Debt to Worth  ratio not to exceed the
amount set forth in Section 1.

     6.12Corporation,  Limited Liability Company, or Partnership  Existence.  If
Borrower and any Subsidiary is a corporation,  a limited liability company, or a
partnership,  Borrower  and each such  Subsidiary  shall  continue to be validly
existing,  and in the case of a corporation  or a limited  liability  company in
good  standing,  under  the  law of the  jurisdiction  of  its  organization  or
formation.  If any  Subsidiary is not formed or organized  under the laws of the
State of Arizona,  each such  Subsidiary  shall  continue to be  qualified to do
business as a foreign corporation, limited liability company, or partnership, as
the case may be, and in the case of a corporation or limited liability  company,
to be in good standing, under the law of the jurisdiction of its organization or
formation.

7. BORROWER NEGATIVE COVENANTS.  Until the Commitment  terminates in full, until
all  Letters of Credit  expire or are drawn in full,  until all drafts  drawn or
drawn and  accepted  under  Letters  of Credit  are paid in full,  and until the
Obligations  are paid and  performed in full,  Borrower  agrees,  without  first
obtaining Bank's written consent:

     7.1 Corporation,  Limited Liability Company, and Partnership  Restrictions.
If Borrower and any Subsidiary is a corporation, a limited liability company, or
a partnership,  Borrower shall not, and shall not permit any such Subsidiary to,
issue any material amount of capital stock or other securities of or any limited
liability  company  interest  or  partnership  interest  in  Borrower  and  each
Subsidiary or grant any material  amount of  option(s),  right-of-first-refusal,
warrant,  or other  right to  purchase  or acquire  any  capital  stock or other
securities of or any limited liability company interest or partnership  interest
in Borrower and each Subsidiary.  Borrower shall not be dissolved or liquidated.
Borrower  shall  not  amend,  modify,  restate,  supplement,  or  terminate  its
certificate of incorporation or bylaws,  its limited liability company operating
agreement, or its partnership agreement, as the case
<PAGE>
may be. If a corporation,  Borrower  shall not reorganize  itself or consolidate
with or merge into any other  corporation  or any limited  liability  company or
permit any other  corporation or any limited liability company to be merged into
Borrower; provided that a merger of any Subsidiary into another Subsidiary shall
not constitute a violation of this restriction. With respect to any transactions
described in this  paragraph  between or among  Borrower  and its  Subsidiaries,
Bank's consent shall not be  unreasonably  withheld or delayed.  Anything in the
foregoing to the contrary notwithstanding, Borrower may make such changes to its
certificate  of  incorporation  and by-laws  without Bank's prior consent as may
from time to time be required by a governmental authority with jurisdiction over
Borrower,  so long as such  changes  do not result in a change of  ownership  or
control of Borrower,  or any other change which may materially  adversely affect
Bank's rights under the Loan Documents.

     7.2 Change in or  Reacquisition  of Ownership  Interests  in  Borrower.  In
addition to any  requirement  in any other Loan  Document,  if Borrower  and any
Subsidiary is a  corporation,  a limited  liability  company,  or a partnership,
Borrower shall not, and shall not permit any such Subsidiary to,  repurchase any
material amount of capital stock of or any limited liability company interest or
partnership  interest in Borrower and each  Subsidiary or any material amount of
option(s),  right-of-first  refusal,  warrant  or other  right to  purchase  any
material amount of capital stock or other securities of or any limited liability
company  interest or partnership  interest in Borrower and each  Subsidiary.  In
addition,  Borrower  shall not,  and shall not permit  any such  Subsidiary  to,
suffer to occur or exist, whether occurring voluntarily or involuntarily,  after
the date of this  Agreement any change in the legal or  beneficial  ownership of
any  capital  stock of or limited  liability  company  interest  or  partnership
interest in Borrower and each  Subsidiary,  without the prior written consent of
Bank in its absolute and sole discretion.

For the purposes of the  foregoing,  repurchase by Borrower  during any calendar
year of an amount  of its  capital  stock not in excess of 15% of its  aggregate
issued and outstanding capital stock shall not be considered a "material amount"
of the capital stock of Borrower.

     7.3 Name, Fiscal Year,  Accounting Method, and Lines of Business.  Borrower
shall not,  and shall not permit each  Subsidiary  to,  change its name  (Bank's
consent to such change not to be  unreasonably  withhold or  delayed).  Borrower
shall not, and shall not permit each  Subsidiary  to, change its fiscal year, or
method of accounting.  Borrower shall not, and shall not permit each  Subsidiary
to,  directly  or  indirectly,  engage in any  business  other than the  telecom
products,  telecom networks,  voice processing software, long distance services,
specialized   computer-telephone   software  applications,   telephone  systems,
telephonic switches and telephones,  maintenance,  leasing and support services,
long  distance  calling  services,  and voice mail and other  telecommunications
applications  business,  discontinue  any  material  lines(s)  of  business,  or
substantially alter its method of doing business.

     7.4 Acquisitions, Loans, Investments, Guaranties, Subordinations.  Borrower
shall not, and shall not permit each  Subsidiary to,  directly or indirectly (i)
acquire by purchase,  lease, or otherwise all or substantially all the assets of
any other  Person,  (ii) make any loan or  advance  to any other  Person,  (iii)
purchase or otherwise acquire any capital stock or other securities of any other
Person,  any limited liability  company interest or partnership  interest in any
other Person,  or any warrants or other options or rights to acquire any capital
stock or  securities  of any  other  Person  or any  limited  liability  company
interest  or  partnership  interest in any other  Person,  (iv) make any capital
contribution  to any  other  Person,  (v)  otherwise  invest in or  acquire  any
interest in any other  Person,  (vi) guaranty or otherwise  become  obligated in
respect of any indebtedness of any other Person,  or (vii) subordinate any claim
against or obligation of any other Person to Borrower to any other  indebtedness
of such Person. For purposes of clarification as used in this paragraph 7.4, the
term  "Person"  shall  include,   without   limitation,   Borrower  and/or  each
Subsidiary,  as the case may be. With respect to any  transactions  described in
this paragraph  between or among Borrower and its  Subsidiaries,  Bank's consent
shall not be unreasonably withheld or delayed.

Notwithstanding  the above,  Borrower  may  otherwise  invest in or acquire  any
interest in any other Person,  not to exceed  $10,000,000.00 in any one instance
or $30,000,000.00 in the aggregate in any one year.

     7.5 Disposition of All or Substantially All Assets. Borrower shall not, and
shall not permit each Subsidiary to, sell, transfer, lease, or otherwise dispose
of all or any substantial part of the assets, business,  operations, or property
of Borrower or each Subsidiary.  With respect to any  transactions  described in
this paragraph  between or among Borrower and its  Subsidiaries,  Bank's consent
shall not be unreasonably withheld or delayed.
<PAGE>
     7.6 Negative Pledge. Except for Permitted  Exceptions,  Borrower shall not,
and shall not permit each  Subsidiary  to,  grant or suffer to exist any Lien or
Encumbrance upon any assets or property of Borrower or each Subsidiary.

     7.7 Capital  Expenditures.  Borrower  shall not,  and shall not permit each
Subsidiary to, in any twelve (12) month period,  acquire additional fixed assets
that have an aggregate total cost to Borrower and  Subsidiaries in excess of the
amount set forth in  Section  1,  excluding  acquisitions.  Compliance  with the
foregoing  covenant shall be measured annually as of the end of each fiscal year
of Borrower.

     7.8 Indebtedness.  Borrower shall not, and shall not permit each Subsidiary
to,  assume,  create,  incur,  or permit to exist any  indebtedness,  except (i)
existing indebtedness  disclosed on financial statements delivered to Bank prior
to  the  date  of  this  Agreement,  (ii)  the  Obligations,   and  (iii)  other
indebtedness and trade obligations and normal accruals in the ordinary course of
business not yet due and payable,  in the case of (i), (ii), and (iii) in excess
in the aggregate of the amount set forth in Section 1.

     7.9 Maximum Net Loss. The maximum net loss for any quarter,  cumulative for
any  four  quarters  or any  two  consecutive  quarters  shall  not  exceed  the
amount-set forth in Section 1.

8. BANK'S  OBLIGATIONS  TO BORROWER  ONLY.  The  obligations  of Bank under this
Agreement  are for the benefit of Borrower  only. No other Person shall have any
rights hereunder or be a third-party beneficiary hereof.

9.  PROVISIONS  IN NOTE  GOVERN THIS  AGREEMENT.  This  Agreement  is subject to
certain  terms and  provisions  in the Note,  to which  reference  is made for a
statement of such terms and provisions.

10. COUNTERPART EXECUTION AND FACSIMILE DELIVERY. This Agreement may be executed
in one or more  counterparts,  each of which shall be deemed an original and all
of which together shall  constitute one and the same document.  Signature  pages
may be  detached  from the  counterparts  and  attached to a single copy of this
Agreement to physically  form one document.  Delivery of executed copies of this
Agreement may be made by facsimile transmission with the same effect as delivery
of executed originals of this Agreement.

DATED as of the date first above stated.

BANK ONE, ARIZONA, NA,
a national banking association

By:____________________________________
Name:    Craig S. Hoskin
Title:   Vice President


INTER-TEL, INCORPORATED,
an Arizona corporation

By:_____________________________________
Name:    Kurt R. Kneip
Title:   Vice  President,  Chief  Financial  Officer,  Secretary,  and Assistant
         Treasurer