1997 LONG-TERM INCENTIVE PLAN
     1.1.  GENERAL.  The  purpose  of  the  Inter-Tel,   Incorporated  Long-Term
Incentive Plan (the "Plan") is to promote the success, and enhance the value, of
Inter-Tel,  Incorporated,  (the "Company") by linking the personal  interests of
its key  employees to those of Company  shareholders  and by  providing  its key
employees  with an incentive for  outstanding  performance.  The Plan is further
intended  to provide  flexibility  to the  Company in its  ability to  motivate,
attract, and retain the services of employees upon whose judgment, interest, and
special  effort the  successful  conduct of the  Company's  operation is largely
dependent. Accordingly, the Plan permits the grant of incentive awards from time
to  time  to  selected  officers  and  key  employees  of the  Company  and  its
     2.1.  EFFECTIVE  DATE.  The Plan is  effective as of February 24, 1997 (the
"Effective  Date").  Within one year after the Effective Date, the Plan shall be
submitted to the  shareholders of the Company for their approval.  The Plan will
be deemed to be approved by the shareholders if it receives the affirmative vote
of the holders of a majority of the shares of stock of the Company  present,  or
represented,  and  entitled  to vote at a meeting  duly held (or by the  written
consent  of the  holders of a  majority  of the  shares of stock of the  Company
entitled to vote) in accordance  with the  applicable  provisions of the Arizona
Corporation  Law and the  Company's  Bylaws and Articles of  Incorporation.  Any
Awards granted under the Plan prior to  shareholder  approval are effective when
made (unless the  Committee  specifies  otherwise at the time of grant),  but no
Award may be exercised or settled and no restrictions  relating to any Award may
lapse before shareholder approval. If the shareholders fail to approve the Plan,
any Award  previously made shall be  automatically  canceled without any further
     3.1.  DEFINITIONS.  When a word or  phrase  appears  in this  Plan with the
initial letter capitalized, and the word or phrase does not commence a sentence,
the word or phrase shall  generally be given the meaning  ascribed to it in this
Section or in Sections 1.1 or 2.1 unless a clearly different meaning is required
by the  context.  The  following  words and  phrases  shall  have the  following
     (a) "Award" means any Option,  Stock Appreciation  Right,  Restricted Stock
Award,  Performance Share Award, Dividend Equivalent Award, or Other Stock-Based
Award,  or any other right or interest  relating to Stock or cash,  granted to a
Participant under the Plan.
     (b) "Award  Agreement"  means any  written  agreement,  contract,  or other
instrument or document evidencing an Award.
     (c) "Board" means the Board of Directors of the Company.
     (d) "Change of Control" means and includes each of the following:
          (1) A change of  control  of the  Company  of a nature  that  would be
required to be reported in response to Item 6(e) of Schedule 14A of the 1934 Act
regardless of whether the Company is subject to such reporting requirement;
          (2) A change of control of the Company through a transaction or series
of  transactions,  such that any  person (as that term is used in Section 13 and
14(d)(2)  of the  1934  Act),  excluding  affiliates  of the  Company  as of the
Effective  Date,  is or becomes  the  beneficial  owner (as that term is used in
Section  13(d) of the 1934 Act)  directly or  indirectly,  of  securities of the
Company  representing  20% or more of the combined voting power of the Company's
then outstanding securities;
          (3) Any  merger,  consolidation,  dissolution  or  liquidation  of the
Company in which the Company is not the  continuing or surviving  corporation or
pursuant to which  Shares  would be  converted  into cash,  securities  or other
property,  other than a merger of the Company in which the holders of the Shares
immediately  before the merger have the same  proportionate  ownership of common
stock of the surviving corporation immediately after the merger;
          (4) The  shareholders  of the Company approve any plan or proposal for
the liquidation or dissolution of the Company; or
          (5)  Substantially  all of the  assets  of the  Company  are  sold  or
otherwise  transferred  to parties  that are not within a  "controlled  group of
corporations" (as defined in Section 1563 of the Code) in which the Company is a
          (6) A  majority  of  the  Board  in  office  at the  beginning  of any
thirty-six  (36) month period is replaced  during the course of such  thirty-six
(36) month period (other than by voluntary  resignation of individual  directors
in the ordinary  course of business) and such  replacement  was not initiated by
the Board as constituted at the beginning of such thirty-six (36) month period.
The  foregoing  events  shall not be deemed  to be a Change  in  Control  if the
transaction or transactions  causing such change shall have been approved by the
affirmative vote of at least a majority of the members of the Board in office as
of the Effective  Date  ("Incumbents"),  those serving on the Board  pursuant to
nomination or  appointment  thereto by a majority of Incumbents  ("Successors"),
and those serving on the Board pursuant to nomination or appointment  thereto by
a majority of a Board composed of Incumbents and/or Successors.
     (e) "Code" means the Internal Revenue Code of 1986, as amended from time to
     (f) "Committee" means the committee of the Board described in Article 4.
     (g) "Consultant" means any natural person, including an advisor, engaged by
the Company or a parent or Subsidiary to render services to such entity.
     (h) "Disability" shall mean a total and permanent  disability as defined in
Section 22(e)(3) of the Code.
     (i) "Dividend  Equivalent"  means a right  granted to a  Participant  under
Article 11.
     (j) "Employee" means any person, including officers employed by the Company
or any parent or  Subsidiary of the Company.  Neither  service as a Director nor
payment of a director's  fee by the Company  shall be  sufficient  to constitute
"employment" by the Company.
     (k) "Fair Market Value" means with respect to Stock or any other  property,
the fair  market  value of such Stock or other  property  as  determined  by the
Committee in its discretion, under one of the following methods: (1) the average
of the  closing  bid and asked  prices for the Stock as  reported  on the NASDAQ
National Market System (or any other national  securities  exchange on which the
Stock is then  listed) for that date or, if no prices are so  reported  for that
date,  such prices on the next  preceding  date for which  closing bid and asked
prices  were  reported;  or (2) the  price  as  determined  by such  methods  or
procedures as may be established from time to time by the Committee.
     (l)  "Incentive  Stock Option" means an Option that is intended to meet the
requirements of Section 422 of the Code or any successor provision thereto.
     (m) "Non-Qualified Stock Option" means an Option that is not intended to be
an Incentive Stock Option.
     (n) "Option" means a right granted to a Participant  under Article 7 of the
Plan to purchase Stock at a specified  price during  specified time periods.  An
Option may be either an Incentive Stock Option or a Non-Qualified Stock Option.
     (o) "Other Stock-Based Award" means a right, granted to a Participant under
Article 12, that  relates to or is valued by  reference to Stock or other Awards
relating to Stock.
     (p) "Participant"  means a person who, as an officer or key employee of the
Company or any Subsidiary, has been granted an Award under the Plan.
     (q)  "Performance  Share"  means a right  granted  to a  Participant  under
Article 9, to receive  cash,  Stock,  or other  Awards,  the payment of which is
contingent  upon  achieving   certain   performance  goals  established  by  the
     (r) "Plan" means the Inter-Tel, Incorporated 1997 Long-Term Incentive Plan,
as amended from time to time.
     (s)  "Restricted  Stock Award" means Stock granted to a  participant  under
Article 10 that is subject to certain restrictions and to risk of forfeiture.
     (t) "Service Provider" means an Employee or Consultant.
     (u) "Stock" means the common stock of the Company and such other securities
of the Company that may be substituted for Stock pursuant to Article 13.
     (v)  "Stock  Appreciation  Right"  or  "SAR"  means  a right  granted  to a
Participant under Article 8 to receive a payment equal to the difference between
the Fair Market  Value of a share of Stock as of the date of exercise of the SAR
over the grant price of the SAR, all as determined pursuant to Article 8.
     (w)  "Subsidiary"  means any corporation,  domestic or foreign,  of which a
majority of the outstanding  voting stock or voting power is beneficially  owned
directly or indirectly by the Company.
     4.l. COMMITTEE.  The Plan shall be administered by the Board or one or more
Committees  appointed by, and serving at the  discretion of the Board  (referred
herein collectively as the "Administrator").
     (a)  MULTIPLE  ADMINISTRATIVE  BODIES.  The  Plan  may be  administered  by
different Committees with respect to different groups of employees.
     (b)  SECTION  162(M).  To the  extent  that the Board  determines  it to be
desirable  to  qualify   Options   granted   hereunder   as   "performance-based
compensation"  within the meaning of Section  162(m) of the Code, the Plan shall
be  administered  by a Committee of two or more "outside  directors"  within the
meaning of Section 162(m) of the Code.
     (c) RULE 16B-3. To the extent desirable to qualify  transactions  hereunder
as exempt  under  Rule 16b-3  promulgated  under  Section  16 of the  Securities
Exchange Act of 1934 ("Rule 16b-3"),  the  transactions  contemplated  hereunder
shall be structured to satisfy the requirements for exemption under Rule 16b-3.
     (d) OTHER  ADMINISTRATION.  Other than as provided above, the Plan shall be
administered by the Board or a Committee serving at the discretion of the Board,
which committee shall be constituted to satisfy all applicable laws. -
     4.2.  ACTION BY  COMMITTEE.  A majority of a Committee  shall  constitute a
quorum.  The acts of a majority of the members present at any meeting at which a
quorum is present and acts  approved in writing by a majority of a Committee  in
lieu of a meeting shall be deemed the acts of such  Committee.  Each member of a
Committee  is entitled  to, in good faith,  rely or act upon any report or other
information  furnished  to that member by any  officer or other  employee of the
Company  or  any  Subsidiary,   the  Company's   independent   certified  public
accountants,  or any executive  compensation  consultant  or other  professional
retained by the Company to assist in the administration of the Plan.
     4.3. AUTHORITY OF ADMINISTRATOR. The Administrator has the exclusive power,
authority and discretion to:
     (a) Designate Participants;
     (b)  Determine  the  type  or  types  of  Awards  to  be  granted  to  each
     (c)  Determine  the number of Awards to be granted and the number of shares
of Stock to which an Award will relate;
     (d) Determine the terms and  conditions of any Award granted under the Plan
including  but not limited to, the  exercise  price,  grant  price,  or purchase
price,  any  restrictions or limitations on the Award, any schedule for lapse of
forfeiture  restrictions or restrictions on the  exercisability of an Award, and
accelerations or waivers thereof,  based in each case on such  considerations as
the Administrator in its sole discretion determines;
     (e) Determine  whether,  to what extent,  and under what  circumstances  an
Award may be settled in, or the exercise price of an Award may be paid in, cash,
Stock, other Awards, or other property, or an Award may be canceled,  forfeited,
or surrendered;
     (f) Prescribe the form of each Award Agreement, which need not be identical
for each Participant;
     (g) Decide all other matters that must be determined in connection  with an
     (h)  Establish,  adopt or revise any rules and  regulations  as it may deem
necessary or advisable to administer the Plan; and
     (i) Make all other decisions and determinations  that may be required under
the Plan or as the Administrator  deems necessary or advisable to administer the
     4.4. DECISIONS BINDING. The Administrator's interpretation of the Plan, any
Awards  granted  under  the Plan,  any Award  Agreement  and all  decisions  and
determinations by the Administrator with respect to the Plan are final, binding,
and conclusive on all parties.
     5.1. NUMBER OF SHARES. Subject to adjustment provided in Section 1 5.1, the
aggregate  number of shares of Stock  reserved and available for Awards or which
may be used to provide a basis of  measurement  for or to determine the value of
an Award (such as with a Stock  Appreciation  Right or Performance  Share Award)
shall be four  million two hundred  thousand  fifty-four  one hundred  sixty-one
     5.2. AUTOMATIC  INCREASE.  On the first day of each Company fiscal year the
amount of shares  reserved  under the Plan will  automatically  increase  by the
lesser of (a) 2.5% of the  outstanding  shares on that date,  (b) 750,000 shares
(subject  to   appropriate   adjustment   for  all  stock   splits,   dividends,
subdivisions,  combinations,  recapitalizations  and like transactions) or (c) a
lesser amount as determined by the Board.
     5.3.  LAPSED  AWARDS.  To the extent that an Award  terminates,  expires or
lapses for any  reason,  any shares of Stock  subject to the Award will again be
available for the grant of an Award under the Plan and shares subject to SARs or
other Awards  settled in cash will be available  for the grant of an Award under
the Plan.
     5.4.  STOCK  DISTRIBUTED.  Any Stock  distributed  pursuant to an Award may
consist,  in whole or in part, of authorized and unissued Stock,  treasury Stock
or Stock purchased on the open market.
provision  in the Plan to the  contrary,  the maximum  number of shares of Stock
with  respect to one or more Awards  that may be granted to any one  Participant
over the term of the Plan shall be five hundred thousand (500,000).
     6.1. GENERAL. Awards may be granted only to individuals who are officers or
other key employees  (including employees who also are Directors or officers) of
the Company or a Subsidiary, as determined by the Administrator.
     7.1.  GENERAL.   The  Administrator  is  authorized  to  grant  Options  to
Participants on the following terms and conditions:
     (a) EXERCISE  PRICE.  The exercise price per share of Stock under an Option
shall be determined by the Administrator.
     (b) TIME AND CONDITIONS OF EXERCISE.  The Administrator shall determine the
time or times at which an Option may be exercised in whole or in part,  provided
that no Option may be exercisable  prior to six (6) months following the date of
the grant of such Option. The Administrator also shall determine the performance
or other  conditions,  if any,  that must be satisfied  before all or part of an
Option may be exercised.
     (c) PAYMENT.  The  Administrator  shall  determine the methods by which the
exercise price of an Option may be paid, the form of payment, including, without
limitation,  cash, shares of Stock, or other property (including net issuance or
other  "cashless"  exercise  arrangements),  and the methods by which  shares of
Stock shall be  delivered or deemed to be  delivered  to  Participants.  Without
limiting the power and discretion conferred on the Administrator pursuant to the
preceding  sentence,  the Administrator  may, in the exercise of its discretion,
but need not,  allow a  Participant  to pay the Option  price by  directing  the
Company to withhold from the shares of Stock that would otherwise be issued upon
exercise of the Option that number of shares  having a Fair Market  Value on the
exercise date equal to the Option price, all as determined pursuant to rules and
procedures established by the Administrator.
     (d) EVIDENCE OF GRANT.  All Options  shall be evidenced by a written  Award
Agreement  between the Company and the  Participant.  The Award  Agreement shall
include such provisions as may be specified by the Administrator.
     7.2.  INCENTIVE  STOCK  OPTIONS.  The terms of any Incentive  Stock Options
granted under the Plan must comply with the following additional rules:
     (a) EXERCISE  PRICE.  The exercise price per share of Stock shall be set by
the  Administrator,  provided that the exercise  price for any  Incentive  Stock
Option may not be less than the Fair Market Value as of the date of the grant.
     (b) EXERCISE.  In no event,  may any Incentive  Stock Option be exercisable
for more than ten (10) years from the date of its grant.
     (c) LAPSE OF OPTION.  An  Incentive  Stock  Option  shall  lapse  under the
following circumstances:
          (1) The Incentive  Stock Option shall lapse ten (10) years after it is
granted, unless an earlier time is set in the Award Agreement.
          (2) The  Incentive  Stock  Option  shall lapse upon  termination  of a
Participant's  status as a Service  Provider  for any  reason,  except  that the
Administrator  may in its discretion permit a Participant to exercise all or any
portion of the  Incentive  Stock  Option for a period of up to ninety  (90) days
after the termination of a Participant's status as a Service Provider, except in
the case of the Participant's termination of status as a Service Provider due to
Disability,  in which case the  Incentive  Stock  Option shall lapse twelve (12)
months after the date the Participant terminates status as a Service Provider.
          (3) If the  Participant  dies  before the Option  lapses  pursuant  to
paragraph (1) or (2), above,  the Incentive Stock Option shall lapse,  unless it
is  previously  exercised,  on the  earlier  of (i) the date on which the Option
would  have  lapsed  had the  Participant  lived and had his status as a Service
Provider (i.e., whether the Participant was providing services to the Company on
the date of his death or had previously terminated status as a Service Provider)
remained  unchanged;  or  (ii)  fifteen  (15)  months  after  the  date  of  the
Participant's  death.  Upon the  Participant's  death,  any vested and otherwise
exercisable  Incentive Stock Options may be exercised by the Participant's legal
representative  or  representatives,  by the person or persons entitled to do so
under the  Participant's  last will and testament,  or, if the Participant shall
fail to make  testamentary  disposition of such Incentive  Stock Option or shall
die intestate, by the person or persons entitled to receive said Incentive Stock
Option under the applicable laws of descent and distribution.
     (d) INCENTIVE STOCK OPTION LIMITATION.  Notwithstanding  the designation of
an Option as an Incentive  Stock Option,  to the extent that the aggregate  Fair
Market  Value of the  shares of Stock  with  respect  to which  Incentive  Stock
Options are  exercisable  for the first time by the Optionee during any calendar
year (under all plans of the Company and any  Subsidiary)  exceeds  $100,000.00,
such Options shall be treated as  Non-Qualified  Stock Options.  For purposes of
this Section 7.2(d),  Incentive Stock Options shall be taken into account in the
order in which they were  granted.  The Fair Market Value of the shares of Stock
shall be  determined  as of the time the Option  with  respect to such shares of
Stock is granted.
     (e) TEN PERCENT  OWNERS.  An Incentive Stock Option shall not be granted to
any individual  who, at the date of grant,  owns stock  possessing more than ten
percent (10%) of the total combined  voting power of all classes of Stock of the
     (f) EXPIRATION OF INCENTIVE  STOCK OPTIONS.  No Award of an Incentive Stock
Option may be made pursuant to this Plan after April 23, 2007.
     (g) RIGHT TO EXERCISE.  During a Participant's lifetime, an Incentive Stock
Option may be exercised only by the Participant.
     8.1.  GRANT OF SARS.  The  Administrator  is  authorized  to grant  SARs to
Participants on the following terms and conditions:
     (a) RIGHT TO PAYMENT.  Upon the exercise of a Stock Appreciation Right, the
Participant  to whom it is granted has the right to receive the excess,  if any,
          (1) The  Fair  Market  Value  of one  share  of  Stock  on the date of
exercise; over
          (2) The grant price of the Stock  Appreciation  Right as determined by
the  Administrator,  which shall not be less than the Fair  Market  Value of one
share of Stock  on the  date of  grant  in the  case of any SAR  related  to any
Incentive Stock Option.
     (b) OTHER TERMS. All awards of Stock Appreciation Rights shall be evidenced
by an Award Agreement.  The terms,  methods of exercise,  methods of settlement,
form of consideration payable in settlement,  and any other terms and conditions
of any Stock  Appreciation Right shall be determined by the Administrator at the
time of the grant of the Award and shall be reflected in the Award Agreement.
     9.1. GRANT OF PERFORMANCE  SHARES. The Administrator is authorized to grant
Performance  Shares  to  Participants  on such  terms and  conditions  as may be
selected  by the  Administrator.  The  Administrator  shall  have  the  complete
discretion  to  determine  the  number of  Performance  Shares  granted  to each
Participant.  All Awards of  Performance  Shares  shall be evidenced by an Award
     9.2. RIGHT TO PAYMENT.  A grant of Performance Shares gives the Participant
rights,  valued  as  determined  by  the  Administrator,   and  payable  to,  or
exercisable by, the Participant to whom the Performance  Shares are granted,  in
whole or in part, as the  Administrator  shall establish at grant or thereafter.
The  Administrator  shall set performance goals and other terms or conditions to
payment of the  Performance  Shares in its  discretion  which,  depending on the
extent to which they are met, will determine the number and value of Performance
Shares that will be paid to the Participant.
     9.3.  OTHER TERMS.  Performance  Shares may be payable in cash,  Stock,  or
other  property,  and have such other terms and  conditions as determined by the
Administrator and reflected in the Award Agreement.
     10.1. GRANT OF RESTRICTED  STOCK.  The  Administrator is authorized to make
Awards of Restricted  Stock to  Participants in such amounts and subject to such
terms and  conditions  as may be  selected by the  Administrator.  All Awards of
Restricted Stock shall be evidenced by a Restricted Stock Award Agreement.
     10.2. ISSUANCE AND RESTRICTIONS.  Restricted Stock shall be subject to such
restrictions on transferability  and other restrictions as the Administrator may
impose  (including,  without  limitation,  limitations  on  the  right  to  vote
Restricted  Stock or the right to receive  dividends on the  Restricted  stock).
These  restrictions may lapse separately or in combination at such times,  under
such  circumstances,  in such installments,  or otherwise,  as the Administrator
determines at the time of the grant of the Award or thereafter.
     10.3.  FORFEITURE.  Except as otherwise  determined by the Administrator at
the time of the grant of the Award or thereafter,  upon termination of status as
a Service Provider during the applicable  restriction  period,  Restricted Stock
that is at that time subject to  restrictions  shall be forfeited and reacquired
by the Company,  provided,  however,  that the  Administrator may provide in any
Award  Agreement  that  restrictions  or  forfeiture   conditions   relating  to
Restricted Stock will be waived in whole or in part in the event of terminations
resulting from specified causes,  and the Administrator may in other cases waive
in whole or in part restrictions or forfeiture conditions relating to Restricted
     10.4. CERTIFICATES FOR RESTRICTED STOCK. Restricted Stock granted under the
Plan may be evidenced in such manner as the  Administrator  shall determine.  If
certificates  representing shares of Restricted Stock are registered in the name
of the Participant,  certificates  must bear an appropriate  legend referring to
the terms, conditions, and restrictions applicable to such Restricted Stock, and
the Company shall retain physical  possession of the certificate until such time
as all applicable restrictions lapse.
     11.1.  GRANT OF DIVIDEND  EQUIVALENTS.  The  Administrator is authorized to
grant Dividend  Equivalents to Participants subject to such terms and conditions
as may be selected by the Administrator.  Dividend Equivalents shall entitle the
Participant  to receive  payments  equal to  dividends  with respect to all or a
portion  of the  number  of shares of Stock  subject  to an Option  Award or SAR
Award, as determined by the  Administrator.  The  Administrator may provide that
Dividend  Equivalents be paid or  distributed  when accrued or be deemed to have
been reinvested in additional shares of Stock, or otherwise reinvested.
     12.1. GRANT OF OTHER STOCK-BASED  AWARDS.  The Administrator is authorized,
subject to limitations under applicable law, to grant to Participants such other
Awards  that are  payable  in,  valued in whole or in part by  reference  to, or
otherwise based on or related to shares of Stock, as deemed by the Administrator
to be consistent  with the purposes of the Plan,  including  without  limitation
shares of Stock awarded purely as a "bonus" and not subject to any  restrictions
or  conditions,  convertible  or  exchangeable  debt  securities,  other  rights
convertible or exchangeable into shares of Stock, and Awards valued by reference
to  book  value  of  shares  of  Stock  or the  value  of  securities  of or the
performance of specified  Subsidiaries.  The  Administrator  shall determine the
terms and conditions of such Awards.
     13.1. STAND-ALONE,  TANDEM, AND SUBSTITUTE AWARDS. Awards granted under the
Plan may, in the discretion of the Administrator,  be granted either alone or in
addition to, in tandem with,  or in  substitution  for, any other Award  granted
under the Plan. If an Award is granted in  substitution  for another Award,  the
Administrator  may require the surrender of such other Award in consideration of
the grant of the new Award.  Awards  granted in  addition  to or in tandem  with
other  Awards may be granted  either at the same time as or at a different  time
from the grant of such other Awards.
     13.2.  EXCHANGE  PROVISIONS.  The  Administrator  may at any time  offer to
exchange or buy out any previously  granted Award for a payment in cash,  Stock,
or another Award  (subject to Section  13.1),  based on the terms and conditions
the Administrator determines and communicates to the Participant at the time the
offer is made.
     13.3.  TERM OF AWARD.  The term of each  Award  shall be for the  period as
determined by the Administrator, provided that in no event shall the term of any
Incentive Stock Option or a Stock  Appreciation Right granted in tandem with the
Incentive  Stock  Option  exceed a period of ten (10) years from the date of its
     13.4. FORM OF PAYMENT FOR AWARDS.  Subject to the terms of the Plan and any
applicable  law or Award  Agreement,  payments  or  transfers  to be made by the
Company or a Subsidiary on the grant or exercise of an Award may be made in such
forms as the Administrator  determines at or after the time of grant,  including
without  limitation,  cash,  Stock,  other  Awards,  or other  property,  or any
combination,  and may be made in a single payment or transfer,  in installments,
or on a deferred basis, in each case determined in accordance with rules adopted
by, and at the  discretion of, the  Administrator.  The  Administrator  may also
authorize payment in the exercise of an Option by net issuance or other cashless
exercise methods.
     13.5 LIMITS ON TRANSFER. No right or interest of a Participant in any Award
may be pledged,  encumbered,  or  hypothecated to or in favor of any party other
than the Company or a Subsidiary,  or shall be subject to any lien,  obligation,
or liability of such  Participant to any other party other than the Company or a
Subsidiary.  Except as otherwise provided below, no Award shall be assignable or
transferable  by a  Participant  other than by will or the laws of  descent  and
distribution.  In the Award  Agreement  for any Award  other  than an Award that
includes an Incentive Stock Option, the Administrator may allow a Participant to
assign or otherwise  transfer all or a portion of the rights  represented by the
Award  to  specified  individuals  or  classes  of  individuals,  or to a  trust
benefiting  such  individuals,  subject to such  restrictions,  limitations,  or
conditions as the Administrator deems to be appropriate.
     13.6.  BENEFICIARIES.  Notwithstanding  Section 13.5, a Participant may, in
the manner determined by the Administrator,  designate a beneficiary to exercise
the rights of the  Participant and to receive any  distribution  with respect to
any Award upon the  Participant's  death. A beneficiary,  legal guardian,  legal
representative, or other person claiming any rights under the Plan is subject to
all terms and conditions of the Plan and any Award  Agreement  applicable to the
Participant,  except  to the  extent  the Plan  and  Award  Agreement  otherwise
provide,  and to any additional  restrictions deemed necessary or appropriate by
the  Administrator.  If the Participant is married and resides in a jurisdiction
in which community property laws apply, a designation of a person other than the
Participant's  spouse as his beneficiary with respect to more than fifty percent
(50%) of the Participant's  interest in the Award shall not be effective without
the written  consent of the  Participant's  spouse.  If no beneficiary  has been
designated  or survives  the  Participant,  payment  shall be made to the person
entitled  thereto  under  the  Participant's  will or the  laws of  descent  and
distribution. Subject to the foregoing, a beneficiary designation may be changed
or revoked by a  Participant  at any time  provided the change or  revocation is
filed with the Administrator.
     13.7. STOCK CERTIFICATES.  All Stock certificates  delivered under the Plan
are  subject  to  any  stop-transfer   orders  and  other  restrictions  as  the
Administrator  deems  necessary  or  advisable  to comply with  federal or state
securities laws, rules and regulations and the rules of any national  securities
exchange or automated quotation system on which the Stock is listed,  quoted, or
traded.  The  Administrator  may  place  legends  on any  Stock  certificate  to
reference restrictions applicable to the Stock.
     13.8. TENDER OFFERS. In the event of a public tender for all or any portion
of the  Stock,  or in the  event  that a  proposal  to  merge,  consolidate,  or
otherwise  combine with another company is submitted for  shareholder  approval,
the Administrator may in its sole discretion  declare previously granted Options
to be  immediately  exercisable.  To  the  extent  that  this  provision  causes
Incentive  Stock  Options to exceed the dollar  limitation  set forth in Section
7.2(d), the excess Options shall be deemed to be Non-Qualified Stock Options.
     13.9  ACCELERATION  UPON  DEATH OR  DISABILITY.  Notwithstanding  any other
provision in the Plan or any Participant's Award Agreement to the contrary, upon
the  Participant's  death  or  Disability,   all  outstanding   Options,   Stock
Appreciation  Rights,  and  other  Awards in the  nature  of rights  that may be
exercised  shall become fully  exercisable  and all  restrictions on outstanding
Awards shall lapse.  Any Option or Stock  Appreciation  Rights Awards shall then
lapse in  accordance  with  the  other  provisions  of this  Plan and the  Award
     13.10 ACCELERATION UPON A CHANGE OF CONTROL. If a Change of Control occurs,
all outstanding  Options,  Stock  Appreciation  Rights,  and other Awards in the
nature of rights that may be exercised  shall become fully  vested,  exercisable
and all restrictions on outstanding Awards shall lapse; provided,  however, that
with respect to any Change of Control in which the  outstanding  Options,  Stock
Appreciation  Rights,  and  other  Awards in the  nature  of rights  that may be
exercised  shall  terminate upon the  occurrence of the Change of Control,  each
Participant  shall  fully vest and have  exercisable  such  Awards  prior to the
occurrence of such Change of Control.
     14.1.  GENERAL.  In the event a stock  dividend is declared upon the Stock,
the shares of Stock then subject to each Award (and the number of shares subject
thereto) shall be increased  proportionately without any change in the aggregate
purchase  price  therefor.  In the  event  the Stock  shall be  changed  into or
exchanged  for a  different  number or class of  shares  of Stock or of  another
corporation, whether through reorganization,  recapitalization,  stock split-up,
combination of shares,  merger or consolidation,  there shall be substituted for
each such share of Stock then subject to each Award (and for each share of Stock
then  subject  thereto)  the number and class of shares of Stock into which each
outstanding share of Stock shall be so exchanged,  all without any change in the
aggregate purchase price for the shares then subject to each Award.
     15.1.  AMENDMENT,  MODIFICATION AND  TERMINATION.  With the approval of the
Board, at any time and from time to time, the Administrator may terminate, amend
or modify the Plan. However, without approval of the shareholders of the Company
(as may be required by the Code,  a national  securities  exchange or  quotation
system on which the stock can be listed or reported or any other  applicable law
or regulation), no such termination, amendment, or modification may:
     (a)  Materially  increase  the total  number of shares of Stock that may be
issued under the Plan, except as provided in Section 14.1;
     (b) Materially modify the eligibility requirements for participation in the
Plan; or
     (c) reprice outstanding options under the Plan,  including the reduction of
the  exercise  price of any option,  the grant of new  options in  exchange  for
outstanding  options where the new options have an exercise price per share less
than the  exercise  price per share of the  outstanding  options or the grant or
amendment of options which would be  considered a repricing of such options,  as
determined by the Board  utilizing  the rules under item 402 of  Regulation  S-K
promulgated under the Securities Act of 1933.
     15.2. AWARDS PREVIOUSLY GRANTED. No termination, amendment, or modification
of the Plan shall  adversely  affect in any  material  way any Award  previously
granted under the Plan, without the written consent of the Participant.
     16.1. NO RIGHTS TO AWARDS.  No Participant or employee shall have any claim
to be  granted  any Award  under the  Plan,  and  neither  the  Company  nor the
Administrator is obligated to treat Participants and employees uniformly.
     16.2. NO  STOCKHOLDERS  RIGHTS.  No Award gives the  Participant any of the
rights of a shareholder  of the Company  unless and until shares of Stock are in
fact issued to such person in connection with such Award.
     16.3.  WITHHOLDING.  The Company or any Subsidiary shall have the authority
and the right to deduct or withhold,  or require a  Participant  to remit to the
Company, an amount sufficient to satisfy United States Federal, state, and local
taxes  (including  the   Participant's   FICA  obligation  and  any  withholding
obligation  imposed by any  country  other  than the United  States in which the
Participant  resides) required by law to be withheld with respect to any taxable
event  arising as a result of this Plan.  With respect to  withholding  required
upon any taxable event under the Plan,  the  Administrator  may, in its sole and
absolute   discretion,   permit  a  Participant   to  satisfy  the   withholding
requirement,  in whole or in part,  by  having  the  Company  or any  Subsidiary
withhold  shares of Stock having a Fair Market Value on the date of  withholding
equal to the amount to be  withheld  for tax  purposes in  accordance  with such
procedures as the Administrator establishes.  The Administrator may, at the time
any  Award is  granted,  require  that any and all  applicable  tax  withholding
requirements  be  satisfied by the  withholding  of shares of Stock as set forth
     16.4. NO RIGHT TO  EMPLOYMENT.  Nothing in the Plan or any Award  Agreement
shall  interfere  with or  limit  in any way the  right  of the  Company  or any
Subsidiary to terminate  any  Participant's  employment at any time,  nor confer
upon any  Participant  any right to continue in the employ of the Company or any
     16.5.  UNFUNDED STATUS OF AWARDS.  The Plan is intended to be an "unfunded"
plan for incentive and deferred  compensation.  With respect to any payments not
yet made to a Participant pursuant to an Award, nothing contained in the Plan or
any Award  Agreement shall give the Participant any rights that are greater than
those of a general creditor of the Company or any Subsidiary.
     16.6.  INDEMNIFICATION.  To the extent allowable under applicable law, each
member  of the  Administrator  or of the  Board  shall be  indemnified  and held
harmless by the Company from any loss, cost,  liability,  or expense that may be
imposed  upon or  reasonably  incurred  by such  member  in  connection  with or
resulting from any claim,  action, suit, or proceeding to which he or she may be
a party or in which he or she may be involved by reason of any action or failure
to act under the Plan and against  and from any and all  amounts  paid by him or
her in satisfaction of judgment in such action,  suit, or proceeding against him
or her provided he or she gives the Company an opportunity,  at its own expense,
to handle and defend the same before he or she  undertakes  to handle and defend
it on his or her own behalf. The foregoing right of indemnification shall not be
exclusive  of any other rights of  indemnification  to which such persons may be
entitled under the Company's  Articles of Incorporation or By-Laws,  as a matter
of law, or otherwise,  or any power that the Company may have to indemnify  them
or hold them harmless.
     16.7.  RELATIONSHIP TO OTHER  BENEFITS.  No payment under the Plan shall be
taken into account in determining  any benefits  under any pension,  retirement,
savings,  profit sharing, group insurance,  welfare or other benefit plan of the
Company or any Subsidiary.
     16.8.  EXPENSES.  The expenses of administering  the Plan shall be borne by
the Company and its Subsidiaries.
     16.9.  TITLES AND HEADINGS.  The titles and headings of the Sections in the
Plan are for  convenience  of reference  only, and in the event of any conflict,
the text of the Plan, rather than such titles or headings, shall control.
     16.10. FRACTIONAL SHARES. No fractional shares of stock shall be issued and
the  Administrator  shall  determine,  in its discretion,  whether cash shall be
given in lieu of fractional  shares or whether such  fractional  shares shall be
eliminated by rounding up.
     16.11. SECURITIES LAW COMPLIANCE. With respect to any person who is, on the
relevant  date,  obligated  to file  reports  under  Section 16 of the 1934 Act,
transactions  under  this  Plan are  intended  to  comply  with  all  applicable
conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent any
provision  of the Plan or action by the  Administrator  fails to so  comply,  it
shall be void to the extent permitted by law and voidable as deemed advisable by
the Administrator.
     16.12.  GOVERNMENT AND OTHER REGULATIONS.  The obligation of the Company to
make payment of awards in Stock or otherwise  shall be subject to all applicable
laws,  rules, and regulations,  and to such approvals by government  agencies as
may be required.  The Company shall be under no obligation to register under the
Securities Act of 1933, as amended (the "1933 Act"),  any of the shares of Stock
paid  under  the  Plan.  If the  shares  paid  under  the  Plan  may in  certain
circumstances  be exempt from  registration  under the 1933 Act, the Company may
restrict  the  transfer of such shares in such manner as it deems  advisable  to
ensure the availability of any such exemption.
     16.13.  GOVERNING LAW. The Plan and all Award Agreements shall be construed
in accordance with and governed by the laws of the State of Arizona.