AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 31, 1995
REGISTRATION NO.33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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INTER-TEL, INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Arizona 86-0220994
- ------------------------------ --------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

7300 West Boston Street
Chandler, Arizona 85226-3224
(602) 961-9000
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

---------------
STEVEN G. MIHAYLO
Chairman of the Board of Directors
and Chief Executive Officer
Inter-Tel, Incorporated
7300 West Boston Street
Chandler, Arizona 85226-3224
(602) 961-9000

(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
Jeffrey D. Saper, Esq.
Patrick J. Schultheis, Esq. Stanton D. Wong, Esq.
Robert G. Day, Esq. Karen A. Dempsey, Esq.
Wilson, Sonsini, Goodrich & Rosati Pillsbury Madison & Sutro
Professional Corporation P. O. Box 7880
650 Page Mill Road San Francisco, California 94120
Palo Alto, California 94304-1050 (415) 493-9300
(415) 983-1000
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
---------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

---------------
CALCULATION OF REGISTRATION FEE

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Title of each class of securities Amount to be Proposed maximum offering Proposed maximum agregate Amount of
to be registered registered(1) price per share(2) offering price(2) registration fee
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Common Stock, no par value ....... 3,277,500 shares $15.9375 $52,235,156 $18,013
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<FN>
(1) INCLUDES 427,500 SHARES WHICH THE UNDERWRITERS HAVE THE OPTION TO
PURCHASE TO COVER OVER-ALLOTMENTS, IF ANY.
(2) ESTIMATED SOLELY FOR THE PURPOSE OF COMPUTING THE AMOUNT OF THE REGISTRATION
FEE, BASED ON THE AVERAGE OF THE HIGH AND LOW PRICES FOR THE COMMON STOCK AS
REPORTED ON THE NASDAQ NATIONAL MARKET ON JULY 25, 1995, IN ACCORDANCE WITH
RULE 457(C) PROMULGATED UNDER THE SECURITIES ACT OF 1933.
</FN>

----------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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- --------------------------------------------------------------------------------

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURUTIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED JULY 31, 1995

2,850,000 SHARES

#############################################################################

IMAGE OMITTED
(SEE NARRATIVE DESCRIPTION BELOW OR IN "APPENDIX FOR GRAPHICS AND IMAGES".)
PICKUP: "P1"
=============================================================================
IMAGE: "INTER-TEL"
=============================================================================
#############################################################################

COMMON STOCK

Of the 2,850,000 shares of Common Stock offered hereby, 2,000,000 shares are
being sold by Inter-Tel, Incorporated ("Inter-Tel" or the "Company") and 850,000
shares are being sold by the Selling Shareholders. The Company will not receive
any of the proceeds from the sale of shares by the Selling Shareholders. The
Company's Common Stock is traded on the Nasdaq National Market under the symbol
INTL. On July 28, 1995, the last reported sale price of the Common Stock on the
Nasdaq National Market was $17.375 per share. See "Price Range of Common Stock."

SEE "RISK FACTORS" COMMENCING ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

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

Proceeds to
Price to Underwriting Proceeds to Selling
Public Discount(1) Company(2) Shareholders(2)

Per Share ... $ $ $ $
Total(3) .... $ $ $ $

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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $700,000.
(3) A Selling Shareholder has granted to the Underwriters a 30-day option to
purchase up to 427,500 additional shares of Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the Price to Public will total $ , the Underwriting Discount will total
$ and the Proceeds to Selling Shareholders will total $ . See
"Underwriting."

The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of Montgomery Securities on or about , 1995.
----------
MONTGOMERY SECURITIES
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SUTRO & CO. INCORPORATED

, 1995

AXXESS is a fully-digital, software-
intensive system which incorporates
DSP components and open architecture
interfaces. The AxxessLink interface
enables the AXXESS telephone system
to interact with applications and
databases on attached computers.

{PICTURE-GRAPHIC}

The schematic below illustrates certain
ways in which the AXXESS system can
enhance productivity through the
AxxessLink interface.

{SCHEMATIC-GRAPHIC}

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

This Prospectus includes trademarks of the Company and other companies.

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including notes thereto,
appearing elsewhere in, or incorporated by reference into, this Prospectus.
Unless otherwise indicated, the information contained in this Prospectus assumes
no exercise of the Underwriters' over- allotment option.

THE COMPANY

Inter-Tel is a single point of contact, full service provider of business
telephone systems, telecommunications software applications, computer telephony
integration (CTI), voice processing software and long distance calling services,
as well as maintenance, leasing and support services. Because of the modular
design and high level of software content in the Company's products, including
its AXXESS and Inter-Tel Axxent systems, customers can readily increase the size
and functionality of their systems as their future telecommunications needs
change. The Company believes that it is a leading supplier of small to medium
size business telephone systems.

The Company has developed a distribution network of direct sales offices and
dealers which sells the Company's products to small to medium size organizations
and to divisions or departments of larger organizations, including Fortune 500
companies, large service organizations and governmental agencies. In the United
States, the Company has 25 direct sales offices and a growing network of
hundreds of dealers who purchase directly from the Company. The Company is also
in the process of expanding its international dealer network.

THE OFFERING

Common Stock offered by the Company ................... 2,000,000 shares
Common Stock offered by the Selling Shareholders ..... 850,000 shares
Common Stock to be outstanding after the Offering .... 12,750,231 shares(1)
Use of Proceeds ....................................... For potential acquisitions, strategic alliances,
working capital, infrastructure and general
corporate purposes
Nasdaq National Market Symbol ......................... INTL

SUMMARY CONSOLIDATED FINANCIAL DATA(2)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------- -----------------------
1990 1991 1992 1993 1994 1994 1995
------- ------- ------- -------- -------- ------- --------

STATEMENT OF OPERATIONS DATA:
Net sales ........................ $70,785 $71,509 $87,211 $102,377 $122,617 $58,465 $70,894
Gross profit ..................... 26,421 27,280 33,626 39,586 49,135 22,957 29,064
Operating income ................. 4,106 2,121 5,153 6,440 8,813 4,053 4,527(3)
Net income (loss):
Continuing operations ............ $ 1,964 $ 1,016 $ 3,189 $ 3,896 $ 5,949 $ 2,650 $ 3,109(3)
Discontinued operations .......... (523) (5,148) -- -- -- -- --
------- ------- ------- -------- -------- ------- -------
Net income (loss) ................ $ 1,441 $(4,132) $ 3,189 $ 3,896 $ 5,949 $ 2,650 $ 3,109(3)
======= ======= ======= ======== ======== ======= =======
Income (loss) per share:
Continuing operations ............ $ .23 $ .12 $ .37 $ .43 $ .55 $ .24 $ .28(3)
Discontinued operations .......... (.06) (.61) -- -- -- -- --
------- ------- ------- -------- -------- ------- -------
Net income (loss) ................ $ .17 $ (.49) $ .37 $ .43 $ .55 $ .24 $ .28(3)
======= ======= ======= ======== ======== ======= ========
Weighted average shares and share
equivalents ...................... 8,731 8,405 8,612 8,982 10,852 10,848 11,129

JUNE 30, 1995
------------------------
AS
ACTUAL ADJUSTED(4)
--------- --------------
BALANCE SHEET DATA:
Working capital ................. $38,890 $ 71,081
Total assets ..................... 75,249 107,440
Shareholders' equity ............. 48,682 80,873

- ---------------------
(1) Based upon shares outstanding as of June 30, 1995. Excludes (i) 863,200
shares issuable upon exercise of stock options outstanding as of June 30,
1995, (ii) 524,488 additional shares reserved for future issuance
pursuant to the Company's stock option plans and (iii) 50,000 shares
issuable upon exercise of an outstanding warrant. See "Capitalization."
(2) Financial data for all periods have been restated to reflect two
acquisitions in May 1995, each accounted for as a pooling of interests.
See "Selected Consolidated Financial Data."
(3) Operating income includes a special charge of $1,315,000, which reduced net
income by $815,000, or $.07 per share. This special charge reflects the
costs associated with integrating the operations of the two acquired
companies. Without this special charge, the Company would have reported
operating income of approximately $5,842,000 and net income of approximately
$3,924,000, or $.35 per share, in the six months ended June 30, 1995.
(4) Adjusted to give effect to the sale of 2,000,000 shares of Common Stock
offered by the Company hereby at an assumed public offering price of
$17.375 per share and the application of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."

RISK FACTORS

In evaluating the Company's business, prospective investors should carefully
consider the following factors in addition to the other information presented in
this Prospectus and the documents incorporated by reference herein.

RAPID TECHNOLOGICAL CHANGE AND DEPENDENCE ON NEW AND TIMELY PRODUCT
INTRODUCTIONS

The market for the Company's systems, products and services is characterized
by rapid technological change and continuing demand for new products, features
and applications. Current competitors or new market entrants may develop new
products or product features that could adversely affect the competitive
position of the Company's products. Accordingly, the timely introduction of new
products and product features, as well as new telecommunications applications,
will be a key factor in the Company's future success. Occasionally, new products
contain undetected errors or "bugs" when released. Such bugs may result from
bugs contained in software products offered by the Company's suppliers or other
third parties that are intended to be compatible with the Company's products,
over which the Company has little or no control. Although the Company seeks to
minimize the number of bugs in its products by its test procedures and strict
quality control, there can be no assurance that its new products will be error
free when introduced. Any significant delay in the commercial introduction of
the Company's products due to bugs, any design modifications required to correct
bugs or any impairment of customer satisfaction as a result of bugs could have a
material adverse effect on the Company's business and operating results. In
addition, new products often take several months before their manufacturing
costs stabilize, which may adversely affect operating results for a period of
time following introduction. The Company recently announced its new Inter-Tel
Axxent telephone system, an OS/2 version of its voice processing software, and a
number of upgrades to its existing AXXESS systems. In the event that the Company
were to fail to successfully introduce new systems, products or services or
upgrades to its existing systems or products on a regular and timely basis,
demand for the Company's existing systems, products and services could decline,
which could have a material adverse effect on the Company's business and
operating results. There can be no assurance that the Company will be able to
successfully develop new systems, products, services, technologies and
applications on a timely basis as required by changing market needs or that new
systems or products or enhancements thereto, including its recently announced
products and upgrades, when introduced by the Company will achieve market
acceptance. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

The Company has recently developed and continues to develop products designed
to address the emerging market for the convergence of voice and data
applications, or computer telephony integration. If the CTI market fails to
develop or grows more slowly than the Company anticipates, or if the Company is
unable for any reason to capitalize on this emerging market opportunity, the
Company's business and operating results could be materially adversely affected.

DEPENDENCE UPON CONTRACT MANUFACTURERS AND COMPONENT SUPPLIERS

Certain components used in the Company's systems, including certain
microprocessors, integrated circuits, power supplies and voice processing
interface cards, are currently available from a single source or limited sources
of supply, and certain of these components, including integrated circuits, are
currently in limited supply. In addition, the Company currently manufactures its
products through a limited number of contract manufacturers located in the
United States, the Philippines and the People's Republic of China. Foreign
manufacturing facilities are subject to changes in governmental policies,
imposition of tariffs and import restrictions and other factors beyond the
Company's control. Varian Associates, Inc. ("Varian") currently manufactures a
significant portion of the Company's products at Varian's Tempe, Arizona
facility, including substantially all of the printed circuit boards used in the
AXXESS and Inter-Tel Axxent systems. From time to time, the Company has
experienced delays in the supply of components and finished goods and there can
be no assurance that the Company will not experience such delays in the future.
The Company's reliance on third party manufacturers involves a number of
additional risks, including reduced control over delivery schedules, quality
assurance and costs. Any delay in delivery or shortage of supply of components
or finished goods from Varian or any other supplier, or the Company's

inability to develop in a timely manner alternative or additional sources if and
when required, could damage the Company's relationships with current and
prospective customers and could materially and adversely affect the Company's
business and operating results. The Company has no long term agreements with its
suppliers that require the suppliers to provide fixed quantities of components
or finished goods at set prices. There can be no assurance that the Company will
be able to continue to obtain components or finished goods in sufficient
quantities or quality or on favorable pricing and delivery terms in the future.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Manufacturing."

COMPETITION

The market for the Company's telephone system products is highly competitive
and in recent periods has been characterized by pricing pressures and business
consolidations. The Company's competitors include AT&T Corp. ("AT&T") and
Northern Telecom Limited ("NorTel"), as well as Comdial Corporation ("Comdial"),
EXECUTONE Information Systems, Inc. ("Executone"), Mitel Corporation ("Mitel"),
Panasonic, Siemens ROLM Communications Inc. ("ROLM"), Toshiba and others. The
Company also competes against the regional Bell operating companies (RBOCs),
which offer systems produced by one or more of the aforementioned competitors
and also offer Centrex systems in which automatic calling facilities are
provided through equipment located in the telephone company's central office.
Competition by the RBOCs could increase significantly if the RBOCs are granted
the right to manufacture telephone systems and equipment themselves and/or to
bundle the sale of equipment with telephone calling services, activities which
to date they have been restricted from undertaking. Recent legislative
initiatives would have the effect of increasing competition from the RBOCs.

In the market for voice processing applications, including voice mail, the
Company competes against Centigram Communications Corporation ("Centigram"),
Octel Communications Corporation ("Octel"), Active Voice Corporation ("Active
Voice"), Applied Voice Technology, Inc. ("AVT") and other competitors, including
telephone systems manufacturers such as AT&T, NorTel and ROLM, which offer
integrated voice processing systems under their own label as well as through
various OEM arrangements. Certain of the Company's competitors may achieve
marketing advantages by bundling their voice processing equipment with sales of
telephone systems, or by designing their telephone systems so that they do not
readily integrate with independent voice processing systems. Inter-Tel expects
that the development of industry standards and the acceptance of open systems
architectures in the voice processing market will reduce technical barriers to
market entry and lead to increased competition.

In the market for long distance services, the Company competes against AT&T,
MCI Telecommunications Corporation ("MCI"), Sprint Corporation ("Sprint") and
other suppliers, certain of which also supply the long distance calling and
network services that the Company resells. Although the Company acquires a
variety of long distance calling services in bulk from certain long distance
carriers, there can be no assurance that the Company will be able to purchase
long distance calling services on favorable terms from one or more of such
providers in the future. In addition, a substantial majority of prospective new
long distance customers for the Company currently purchase long distance calling
services from the Company's competitors. The Company believes that it is likely
to face increased competition in the long distance calling services market to
the extent that telecommunications deregulation enables RBOCs to supply long
distance calling and network services or enables RBOCs and others to bundle long
distance, local telephone and wireless services. Moreover, the Company expects
to face increased competition in the future because low technical barriers to
entry will allow new market entrants.

Many of the Company's competitors have significantly greater financial and
technical resources, name recognition and marketing and distribution
capabilities than the Company. The Company expects that competition will
continue to be intense in the markets addressed by its products and services,
and there can be no assurance that the Company will be able to compete
successfully in the future. See "Business--Competition."

PRODUCT PROTECTION AND INFRINGEMENT

The Company's future success is dependent in part upon its proprietary
technology. The Company has no patents and relies principally on copyright and
trade secret law and contractual provisions to

protect its intellectual property. There can be no assurance that any copyright
owned by the Company will not be invalidated, circumvented or challenged or that
the rights granted thereunder will provide competitive advantages to the
Company. Further, there can be no assurance that others will not develop
technologies that are similar or superior to the Company's technology or that
duplicate the Company's technology. As the Company expands its international
operations, effective intellectual property protection may be unavailable or
limited in certain foreign countries. There can be no assurance that the steps
taken by the Company will prevent misappropriation of its technology. Litigation
may be necessary in the future to enforce the Company's intellectual property
rights, to protect the Company's trade secrets, to determine the validity and
scope of the proprietary rights of others, or to defend against claims of
infringement or invalidity. Such litigation could result in substantial costs
and diversion of resources and could have a material adverse effect on the
Company's business and operating results.

From time to time, the Company is subject to proceedings alleging
infringement by the Company of intellectual property rights of others. If any
such claim is asserted against the Company, the Company may seek to obtain a
license under the third party's intellectual property rights. There can be no
assurance that a license will be available on terms acceptable to the Company or
at all. In the alternative, the Company could resort to litigation to challenge
any such claim, and the Company is currently engaged in one such proceeding. See
"Business--Legal Proceedings." Any such litigation could require the Company to
expend significant sums and could require the Company to pay significant
damages, develop non- infringing technology or acquire licenses to the
technology which is the subject of the asserted infringement, any of which could
have a material adverse effect on the Company's business and operating results.
In the event that the Company is unable or chooses not to license such
technology or decides not to challenge such third party's rights, the Company
could encounter substantial and costly delays in product introductions while
attempting to design around such third party rights, or could find that the
development, manufacture or sale of products requiring such licenses could be
foreclosed.

POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; LIMITED BACKLOG

The Company's quarterly operating results depend upon a variety of factors,
including the volume and timing of orders received during the quarter, the mix
of products sold and mix of distribution channels, general economic conditions,
patterns of capital spending by customers, the timing of new product
announcements and releases by the Company and its competitors, pricing pressures
and the availability and cost of products and components from the Company's
suppliers. The Company's customers typically require the immediate shipment and
installation of systems. As a result, the Company has historically operated with
a relatively small backlog, and sales and operating results in any quarter are
principally dependent on orders booked and shipped in that quarter. Moreover,
market demand for investment in capital equipment such as telephone systems and
applications is largely dependent on general economic conditions, and can vary
significantly as a result of changing conditions in the economy as a whole. The
Company's expense levels are based in part on expectations as to future sales
and, if sales levels do not meet expectations, operating results could be
adversely affected. Because sales of systems through the Company's dealers
produce lower gross margins than sales through the Company's direct sales
organization, operating results will vary based upon the mix of sales through
direct and indirect channels. Although the Company to date has been able to
resell the rental streams from leases under its Totalease program profitably and
on a substantially current basis, the timing and profitability of lease resales
from quarter to quarter could impact operating results, particularly in an
environment of fluctuating interest rates. Long distance sales have, in recent
periods, grown at a faster rate than the Company's overall net sales and such
sales have lower gross margins than the Company's core business. As a result,
gross margins could be adversely affected in the event that long distance
calling services continue to increase as a percentage of net sales. In addition,
the Company is subject to seasonality in its operating results, as net sales for
the first and third quarters are frequently less than those experienced in the
fourth and second quarters, respectively. As a result of these and other
factors, the Company has in the past and could in the future experience
fluctuations in sales and operating results on a quarterly basis. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

MANAGEMENT OF GROWTH; IMPLEMENTATION OF NEW MANAGEMENT INFORMATION SYSTEMS

The growth in the Company's business has placed, and is expected to continue
to place, a significant strain on the Company's personnel, management and other
resources. The Company's ability to manage any future growth effectively will
require it to attract, train, motivate and manage new employees successfully, to
integrate new employees into its overall operations and to continue to improve
its operational, financial and management information systems. In particular, in
1995 the Company expects to begin implementation of new management information
systems (MIS). The Company believes the new MIS systems will significantly
affect many aspects of its business, including its accounting, operations,
purchasing, sales and marketing functions. The successful implementation of such
systems is expected to be crucial to the Company's provision of services and to
enable future growth. There can be no assurance that the Company will implement
its new MIS systems in an efficient and timely manner or that the new systems
will be adequate to support the Company's operations. Following the initial
implementation of the new MIS systems, the Company's corporate offices are
expected to be moved to another location in Phoenix, Arizona. There can be no
assurance that such move will be accomplished in an orderly and efficient
manner.

The Company has made strategic acquisitions in the past and expects to
continue to do so in the future. Acquisitions require a significant amount of
the Company's management attention and financial and operational resources, all
of which are limited. The integration of acquired entities may also result in
unexpected costs and disruptions, and significant fluctuations in, or reduced
predictability of, operating results from period to period. There can be no
assurance that an acquisition will not adversely affect the business
relationships of the Company or the acquired entity with their respective
suppliers or customers. Further, there can be no assurance that the Company will
successfully integrate the acquired operations or achieve any of the intended
benefits of an acquisition. The Company's failure to manage its growth
effectively could have a material adverse effect on its business and operating
results. See "Use of Proceeds."

RELIANCE ON DEALER NETWORK

A substantial portion of the Company's net sales are made through its network
of independent dealers. The Company faces intense competition from other
telephone system and voice processing system manufacturers for such dealers'
attention, as most of the Company's dealers carry products which compete with
the Company's products. The Company has no long term agreements with any of its
dealers, and there can be no assurance that any such dealer will not promote the
products of the Company's competitors to the detriment of the Company's
products. The loss of any significant dealer or group of dealers, or any event
or condition adversely affecting the Company's dealer network, could have a
material adverse effect on the Company's business and operating results. In
recent years the Company has effected a number of strategic acquisitions of
resellers of telephony products and integrated these operations with its
existing direct sales operations in the same geographic areas and in other
strategic markets. There can be no assurance that one or more of the Company's
dealers will not be acquired by a competitor and that the loss of any such
dealer so acquired will not adversely affect the Company's business and
operating results. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--Sales and Distribution."

RISKS OF PROVIDING LONG DISTANCE SERVICES

Inter-Tel depends on a reliable supply of telecommunications services and
information from several long distance carriers. Because it does not own
transmission facilities, the Company relies on long distance carriers for the
provision of network services to the Company's customers and for billing
information. Long distance services are subject to extensive and uncertain
governmental regulation on both the federal and state level. There can be no
assurance that the promulgation of certain regulations, such as regulations
requiring the reduction of direct-dial billing rates, will not adversely affect
the Company's business and operating results. The Company currently resells long
distance services pursuant to contracts with three of the six largest long
distance carriers with U.S. networks, and is negotiating a similar contract with
a fourth. These contracts typically have a multi-year term in which the
Company's prices are relatively fixed and have minimum use requirements. There
can be no assurance that the Company will meet

minimum use commitments, will be able to negotiate lower rates with carriers in
the event of any decrease in end user rates or will be able to extend its
contracts with long distance carriers at prices favorable to the Company. The
Company's ability to continue to expand its long distance service operations
will depend on its ability to continue to secure reliable long distance services
from a number of long distance carriers and the willingness of such carriers to
continue to make telecommunications services and billing information available
to the Company on favorable terms. See "Business--Products and Services."

DEPENDENCE ON KEY PERSONNEL

The Company is dependent on the continued service of, and its ability to
attract and retain, qualified technical, marketing, sales and managerial
personnel. The competition for such personnel is intense, and the loss of any of
such persons, as well as the failure to recruit additional key technical and
sales personnel in a timely manner, would have a material adverse effect on the
Company's business and operating results. There can be no assurance that the
Company will be able to continue to attract and retain the qualified personnel
necessary for the development of its business. The Company currently does not
have employment contracts with any of its employees. See "Business--Employees."

POSSIBLE VOLATILITY OF STOCK PRICE

The Company believes that factors such as announcements of developments
relating to the Company's business, fluctuations in the Company's operating
results, general conditions in the telecommunications industry or the worldwide
economy, changes in legislation or regulation affecting the telecommunications
industry, an outbreak of hostilities, a shortfall in revenue or earnings from
securities analysts' expectations, announcements of technological innovations or
new products or enhancements by the Company or its competitors, developments in
intellectual property rights and developments in the Company's relationships
with its customers and suppliers could cause the price of the Company's Common
Stock to fluctuate, perhaps substantially. In addition, in recent years the
stock market in general, and the market for shares of technology stocks in
particular, have experienced extreme price fluctuations, which have often been
unrelated to the operating performance of affected companies. There can be no
assurance that the market price of the Company's Common Stock will not
experience significant fluctuations in the future, including fluctuations that
are unrelated to the Company's performance. See "Price Range of Common Stock."

CONCENTRATION OF OWNERSHIP

Immediately following this offering, the Company's Chairman of the Board of
Directors and Chief Executive Officer will beneficially own approximately 25% of
the outstanding shares of the Common Stock (approximately 22% if the
Underwriters' over-allotment option is exercised in full). As a result, he will
have the ability to exercise significant influence over all matters requiring
shareholder approval. In addition, the concentration of ownership could have the
effect of delaying or preventing a change in control of the Company. See
"Selling Shareholders."

THE COMPANY

The Company was incorporated in Arizona in July 1969. Its principal offices
are located at 7300 West Boston Street, Chandler, Arizona 85226 and its
telephone number at that address is (601) 961-9000. As used in this Prospectus,
"Inter-Tel" or the "Company" refers to Inter-Tel, Incorporated and its
subsidiaries.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by it hereby are estimated to be $32.2 million, based on an
assumed public offering price of $17.375 per share and after deduction of the
estimated underwriting discount and offering expenses. A portion of the net
proceeds may be used to finance acquisitions of resellers of telephony products,
other strategic acquisitions or corporate alliances. The Company considers such
acquisitions on an ongoing basis, but has no current commitments for any
acquisition which would have a material impact on the Company's results of
operations or financial condition. The Company intends to use the balance of the
net proceeds primarily for working capital, capital expenditures relating to the
upgrade of infrastructure and other general corporate purposes. In particular,
the Company expects to use up to $5.0 million of the net proceeds of the
offering for capital expenditures relating to the implementation of new MIS
systems. Pending such uses, the Company will invest the net proceeds in
investment grade short term income producing investments. The Company will not
receive any proceeds from the sale of shares by the Selling Shareholders.

DIVIDEND POLICY

The Company has paid no cash dividends on its Common Stock since its
incorporation and anticipates that for the foreseeable future it will continue
to retain any earnings for use in its business. The Company's credit agreement
limits the Company's ability to pay cash dividends on its Common Stock.

PRICE RANGE OF COMMON STOCK

The Company's Common Stock is traded on the Nasdaq National Market under the
symbol INTL. The following table sets forth, for the periods indicated, high and
low reported sale prices per share of the Common Stock as reported on the Nasdaq
National Market.

HIGH LOW
-------- --------

1993

First Quarter ...................... $ 5 1/8 $ 4
Second Quarter ..................... 8 4 1/2
Third Quarter ...................... 7 3/8 5 1/8
Fourth Quarter ..................... 12 6

1994

First Quarter ...................... 12 1/8 8 5/8
Second Quarter ..................... 11 8 1/2
Third Quarter ...................... 10 1/8 7
Fourth Quarter ..................... 9 3/4 6

1995

First Quarter ...................... 13 6 7/8
Second Quarter ..................... 16 1/8 11 9/16
Third Quarter (through July 28) ... 17 3/4 14 7/8

On July 28, 1995, the last reported sale price of the Common Stock on the
Nasdaq National Market was $17.375 per share. As of June 30, 1995, the Company
had approximately 752 holders of record of its Common Stock.

CAPITALIZATION

The following table sets forth the short term debt and capitalization of the
Company at June 30, 1995 and as adjusted to give effect to the issuance and sale
by the Company of 2,000,000 shares of Common Stock offered hereby at an assumed
public offering price of $17.375 per share, and the application of the estimated
net proceeds therefrom.

JUNE 30, 1995
-----------------------
ACTUAL AS ADJUSTED
--------- -------------
(IN THOUSANDS)

Short term debt ........................................... $ -- $ --
========= =============
Long term debt ............................................ $ -- $ --
Shareholders' equity:
Common stock, no par value, 30,000,000 shares authorized,
10,750,231 shares issued and outstanding, 12,750,231
shares issued and outstanding as adjusted(1) .............. 27,739 59,930
Retained earnings ......................................... 21,160 21,160
Equity adjustment for foreign currency translation ....... (5) (5)
Receivable from Employee Stock Ownership Trust ........... (212) (212)
--------- -------------
Total shareholders' equity ................................ 48,682 80,873
--------- -------------
Total capitalization ...................................... $48,682 $80,873
========= =============

<FN>
- ----------
(1) Excludes (i) 863,200 shares issuable upon exercise of stock options
outstanding as of June 30, 1995, (ii) 524,488 additional shares reserved for
future issuance pursuant to the Company's stock option plans and (iii)
50,000 shares issuable upon exercise of an outstanding warrant at an
exercise price of $4.25 per share.
</FN>

SELECTED CONSOLIDATED FINANCIAL DATA

The following table summarizes certain selected consolidated financial data
of the Company and its subsidiaries. The selected consolidated financial data as
of and for each of the five years ended December 31, 1994 and the six months
ended June 30, 1994 and 1995 have been restated to include the financial results
of American Telcom Corp. of Georgia, Inc. and Access West, Inc., which were both
acquired in May 1995 in transactions accounted for as poolings of interests.
Such acquisitions did not constitute "significant business combinations" within
the meaning of the rules of the Securities and Exchange Commission. The selected
consolidated financial data, exclusive of the acquisitions, as of December 31,
1993 and 1994, and for each of the years in the three-year period ended December
31, 1994, are derived from consolidated financial statements that have been
audited by Ernst & Young LLP, independent auditors, which are incorporated by
reference into this Prospectus. The selected consolidated financial data,
exclusive of the acquisitions, as of December 31, 1990, 1991 and 1992 and for
each of the years in the two-year period ended December 31, 1991 are derived
from audited consolidated financial statements not included in this Prospectus.
The selected consolidated financial data as of June 30, 1995 and for the
six-month periods ended June 30, 1994 and 1995 are derived from unaudited
consolidated financial statements which are incorporated by reference into this
Prospectus. The unaudited consolidated financial statements include all
adjustments, consisting of normal recurring accruals, which the Company
considers necessary for a fair presentation of the financial position and the
results of operations for these periods. Operating results for six months ended
June 30, 1995 are not necessarily indicative of the results that may be expected
for the entire fiscal year ending December 31, 1995 or future periods. The data
presented below should be read in conjunction with the Consolidated Financial
Statements and Notes thereto and other financial information incorporated by
reference into this Prospectus.

SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------------- ----------------------
1990 1991 1992 1993 1994 1994 1995
--------- ---------- --------- ---------- ---------- --------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Net sales .................... $70,785 $71,509 $87,211 $102,377 $122,617 $58,465 $ 70,894
Cost of sales ................ 44,364 44,229 53,585 62,791 73,482 35,508 41,830
--------- ---------- --------- ---------- ---------- --------- ------------
Gross profit ................. 26,421 27,280 33,626 39,586 49,135 22,957 29,064
Research and development .... 3,380 3,638 3,928 4,114 4,537 2,135 2,880
Selling, general and
administrative ............... 18,935 21,521 24,545 29,032 35,785 16,769 20,342
Special charge ............... -- -- -- -- -- -- 1,315(1)
--------- ---------- --------- ---------- ---------- --------- ------------
Operating income ............. 4,106 2,121 5,153 6,440 8,813 4,053 4,527
Interest and other income ... 550 515 664 282 904 285 565
Interest expense ............. 1,106 944 727 445 120 62 77
Income taxes ................. 1,586 676 1,901 2,381 3,648 1,626 1,906
--------- ---------- --------- ---------- ---------- --------- ------------
Net income (loss):
Continuing operations ........ 1,964 1,016 3,189 3,896 5,949 2,650 3,109(1)
Discontinued operations ..... (523) (5,148) -- -- -- -- --
--------- ---------- --------- ---------- ---------- --------- ------------
Net income (loss) ............ $ 1,441 $(4,132) $ 3,189 $ 3,896 $ 5,949 $ 2,650 $ 3,109(1)
========= ========== ========= ========== ========== ========= ============
Income (loss) per share:
Continuing operations ........ $ .23 $ .12 $ .37 $ .43 $ .55 $ .24 $ .28(1)
Discontinued operations ..... (.06) (.61) -- -- -- -- --
--------- ---------- --------- ---------- ---------- --------- ------------
Net income (loss) ............ $ .17 $ (.49) $ .37 $ .43 $ .55 $ .24 $ .28(1)
========= ========== ========= ========== ========== ========= ============
Weighted average shares and
share equivalents ............ 8,731 8,405 8,612 8,982 10,852 10,848 11,129

DECEMBER 31, JUNE 30,
1990 1991 1992 1993 1994 1995
--------- --------- --------- ---------- ---------- ----------
(IN THOUSANDS)

BALANCE SHEET DATA:
Working capital .... $10,285 $ 8,228 $12,514 $ 34,198 $ 37,245 $38,890
Total assets ........ 42,095 41,118 37,568 57,270 67,418 75,249
Shareholders' equity 21,025 16,806 19,382 38,542 45,098 48,682

<FN>

- ----------
(1) Operating income includes a special charge of $1,315,000, which reduced net
income by $815,000, or $.07 per share. This special charge reflects costs
associated with integrating the operations of the two acquired companies.
Without this special charge, the Company would have reported operating
income of approximately $5,842,000 and net income of approximately
$3,924,000, or $.35 per share, in the six months ended June 30, 1995.

</FN>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

GENERAL

Inter-Tel is a single point of contact, full service provider of business
telephone systems, telecommunications software applications, computer telephony
integration, voice processing software and long distance calling services, as
well as maintenance, leasing and support services.

The Company has developed a network of direct sales offices and dealers which
sells the Company's products, and in recent periods the Company has focused on
expanding its direct sales capabilities and its dealer network. The Company has
effected a number of strategic acquisitions of resellers of telephony products
and integrated these operations with its existing direct sales operations in the
same geographic areas and in other strategic markets.

Sales of systems through the Company's dealers typically generate lower gross
margins than sales through the Company's direct sales organization, although
direct sales typically require higher levels of selling, general and
administrative expenses. In addition, the Company's long distance and network
services typically generate lower gross margins than sales of system products.
Accordingly, the Company's margins may vary from period to period depending upon
distribution channel and product mix. In the event that sales through dealers or
sales of long distance services increase as a percentage of net sales, the
Company's overall gross margin would decline.

The Company's operating results depend upon a variety of factors, including
the volume and timing of orders received during a period, the mix of products
sold and mix of distribution channels, general economic conditions, patterns of
capital spending by customers, the timing of new product announcements and
releases by the Company and its competitors, pricing pressures and the
availability and cost of products and components from the Company's suppliers.
In addition, the Company is subject to seasonality in its operating results, as
net sales for the first and third quarters are frequently less than those
experienced during the fourth and second quarters, respectively.

All periods have been restated to reflect the acquisitions of American
Telcom Corp. of Georgia, Inc. and Access West, Inc. in May 1995. Each
transaction was accounted for as a pooling of interests.

RESULTS OF OPERATIONS

The following table sets forth certain statement of operations data of the
Company expressed as a percentage of net sales for the periods indicated:

SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------- -----------------
1992 1993 1994 1994 1995
-------- -------- -------- -------- --------
Net sales ................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales ............ 61.5 61.3 59.9 60.7 59.0
-------- -------- -------- -------- --------
Gross profit ............. 38.5 38.7 40.1 39.3 41.0
Research and development 4.5 4.0 3.7 3.7 4.0
Selling, general and
administrative .......... 28.1 28.5 29.2 28.7 28.7
Special charge ........... -- -- -- -- 1.9
-------- -------- -------- -------- --------
Operating income ......... 5.9 6.2 7.2 6.9 6.4
Interest and other income 0.8 0.3 0.7 0.5 0.8
Interest expense ......... 0.8 0.4 0.1 0.1 0.1
Income taxes ............. 2.2 2.3 3.0 2.8 2.7
-------- -------- -------- -------- --------
Net income ............... 3.7% 3.8% 4.8% 4.5% 4.4%
======== ======== ======== ======== ========

SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO SIX MONTHS ENDED JUNE 30, 1994

Net sales increased 21.3% to $70.9 million in the first six months of 1995
from $58.5 million in the first six months of 1994. The increase was primarily
attributable to increased shipments of AXXESS systems and software products
through the Company's dealer network and direct sales offices, and an increase
in sales of long distance services.

Gross profit increased to $29.1 million, or 41.0% of net sales, in the first
six months of 1995 from $23.0 million, or 39.3% of net sales, in the first six
months of 1994. The increase in gross margin was primarily due to a higher
percentage of sales derived from AXXESS systems and software, which was offset
in part by a higher percentage of sales through dealers and increased sales of
the Company's long distance services.

Research and development expenses increased to $2.9 million, or 4.0% of net
sales, in the first six months of 1995 from $2.1 million, or 3.7% of net sales,
in the first six months of 1994. This increase was primarily attributable to
expenses relating to the introduction of new products, including the AXXESS
version 3.0, the Inter-Tel Axxent and AxxessoryTalk version 3.0. The Company
expects that research and development expenses will continue to increase in
absolute dollars as the Company continues to develop and enhance existing and
new technologies and products. These expenses may vary, however, as a percentage
of net sales.

Selling, general and administrative expenses increased to $20.3 million, or
28.7% of net sales, in the first six months of 1995 from $16.8 million, or 28.7%
of net sales, in the first six months of 1994. This increase in absolute dollars
was primarily attributable to the costs associated with hiring and training
approximately 40 sales personnel throughout Inter-Tel's 25 direct sales offices.
Higher sales commissions were also paid based upon increased levels of net
sales. The Company expects that selling, general and administrative expenses
will increase in absolute dollars, but may vary as a percentage of net sales.

Interest and other income in both periods consisted primarily of interest
income.

Net income increased 17.3% to $3.1 million, or $.28 per share, in the first
six months of 1995 from $2.7 million, or $.24 per share, in the first six months
of 1994. Net income includes a special charge of approximately $815,000, or $.07
per share, reflecting the costs associated with integrating the operations of
the two acquired companies. The special charge principally includes costs
associated with redundancy in inventories, equipment abandonment, the
combination and relocation of business operations, employee terminations, and
the write-off of intangible assets. Without this special charge, the Company
would have reported net income of $3.9 million, or $.35 per share, in the six
months ended June 30, 1995, an increase of 48.1% over net income of $2.7 million
in the first six months of 1994.

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

Net sales increased 19.8% to $122.6 million in 1994 from $102.4 million in
1993. The increase in net sales was primarily attributable to increased sales of
telephone systems through the Company's direct sales offices and its dealer
network. The remaining increases occurred in long distance sales and other
operations. Shipments to the expanded dealer network more than offset decreased
shipments to Premier Telecom Products, Inc. ("Premier"), previously the
Company's private label distributor. Shipments to Premier are no longer
significant.

Gross profit increased to $49.1 million, or 40.1% of net sales, in 1994 from
$39.6 million, or 38.7% of net sales, in 1993. This increase in gross margins
reflected the transition from Premier and other distributors to the direct
dealer network and the expansion of AXXESS system and software sales.

Research and development expenses increased to $4.5 million, or 3.7% of net
sales, in 1994 from $4.1 million, or 4.0% of net sales, in 1993. These expenses
in both 1994 and 1993 were directed principally to the continued development of
the AXXESS and Inter-Tel Axxent software and systems and voice processing
software applications.

Selling, general and administrative expenses increased to $35.8 million, or
29.2% of net sales in 1994, from $29.0 million, or 28.5% of net sales, in 1993.
This reflected increased incentive and other compensation, additional personnel
to support the direct dealer network and expenses associated with the start up
of the Company's Asian subsidiary.

Interest and other income increased in 1994 principally from the investment
for a full year of the funds received in a public offering of the Company's
Common Stock in November 1993 and funds generated through operating cash flow.

Net income increased 52.7% to $5.9 million, or $.55 per share, in 1994 from
$3.9 million, or $.43 per share, in 1993. Net income per share in 1994 is based
on an additional 1.8 million average shares outstanding in 1994, reflecting the
1993 public offering.

YEAR ENDED DECEMBER 31, 1993 COMPARED TO YEAR ENDED DECEMBER 31, 1992

Net sales increased 17.4% in 1993 to $102.4 million from $87.2 million in
1992. The increase in net sales primarily reflected increased sales through the
Company's direct sales offices, including new customer sales and higher sales
through the Company's Totalease program. Sales to the Company's network of
direct dealers following the transition in the distribution channel, which
commenced in April 1993, offset a decline in sales to Premier. Sales to Premier
decreased to $10.1 million, or 9.9% of net sales, in 1993 from $17.1 million, or
19.6% of net sales, in 1992.

In 1993, gross profit increased to $39.6 million, or 38.7% of net sales, from
$33.6 million, or 38.5% of net sales, in 1992. Gross margins improved in 1993
because of higher sales through the Company's direct sales channel and increased
sales through the Company's Totalease program, as well as higher gross margins
on sales to direct dealers following the transition away from Premier.

Research and development expenses increased to $4.1 million in 1993 from $3.9
million in 1992 and were 4.0% and 4.5% of net sales, respectively. These
expenses in both periods were directed principally to continued development of
the Company's new AXXESS system.

Selling, general and administrative expenses increased to $29.0 million, or
28.5% of net sales, in 1993, from $24.5 million, or 28.1% of net sales, in 1992.
This increase reflected increased compensation, additional personnel to support
the Company's direct dealer network and a one-time expense associated with the
Company's move into its new headquarters. Such increases were partially offset
by reductions in key executive incentive compensation.

Interest and other income in 1993 consisted primarily of interest income.
Interest and other income in 1992 was derived principally from a gain on the
sale of the Company's headquarters, as well as interest income relating to the
refund of import duties. Interest expense during 1993 decreased principally
because of lower interest rates and reduced long and short term borrowings.

Net income in 1993 increased to $3.9 million, or $.43 per share, from $3.2
million, or $.37 per share, in 1992.

INFLATION/CURRENCY FLUCTUATION

Inflation and currency fluctuations have not previously had a material impact
on Inter-Tel's operations. International sales and procurement agreements have
traditionally been denominated in U.S. currency. Moreover, a significant amount
of contract manufacturing has been or is expected to be moved to domestic
sources. The expansion of international operations in the United Kingdom and
Europe and anticipated increased sales in Japan and Asia and elsewhere could
result in higher international sales as a percentage of total revenues, but
international revenues are currently not significant.

LIQUIDITY AND CAPITAL RESOURCES

The Company continues to expand its dealer network, which has required and is
expected to continue to require working capital for increased accounts
receivable and inventories. During the first six months of 1995, accounts
receivable and inventories increased approximately $9.1 million. This increase
was principally funded by operating cash flow and existing cash balances. The
Company also expended approximately $3.9 million during the first six months of
1995 for property and equipment. The Company intends to continue to make
significant capital expenditures through the end of 1995, principally relating
to the implementation of the Company's new MIS systems. At June 30, 1995, the
Company had $10.4 million in cash and equivalents, which represents a decrease
of approximately $5.0 million from December 31, 1994.

The Company has a loan agreement with Bank One, Arizona, N.A. This agreement
provides for a $5.0 million, unsecured, revolving line of credit, which is being
used primarily to support international letters of credit to suppliers.
Outstanding balances bear interest at the bank's prime rate. In the fourth
quarter of 1993, the Company repaid all long and short term debt from a portion
of the net proceeds received from its 1993 public offering. The remaining
proceeds were added to working capital.

The Company offers to its customers lease financing and other services,
including its Totalease program, through its Inter-Tel Leasing subsidiary. The
Company funds its Totalease program in part through the sale to financial
institutions of rental income streams under the leases. Resold Totalease rentals
totaling $27.0 million and $19.9 million remain unbilled at June 30, 1995 and
December 31, 1994, respectively. The Company is obligated to repurchase such
income streams in the event of defaults by lease customers and, accordingly,
maintains reserves based upon loss experience and past due accounts. Although
the Company to date has been able to resell the rental streams from leases under
the Totalease program profitably and on a substantially current basis, the
timing and profitability of lease resales could impact the Company's business
and operating results, particularly in an environment of fluctuating interest
rates. If the Company is required to repurchase rental streams and realize
losses thereon in amounts exceeding its reserves, its operating results will be
adversely affected.

The Company believes that the net proceeds from this offering and its working
capital and credit facilities, together with cash generated from operations,
will be sufficient to fund purchases of capital equipment, finance any cash
acquisitions which the Company may consider and provide adequate working capital
for the foreseeable future. However, to the extent that additional funds are
required in the future to address working capital needs and to provide funding
for capital expenditures, expansion of the business or additional acquisitions,
the Company will seek additional financing. There can be no assurance that
additional financing will be available when required or on acceptable terms.

BUSINESS

The Company has developed a distribution network of direct sales offices and
dealers which sells the Company's products to small to medium size organizations
and to divisions or departments of larger organizations, including Fortune 500
companies, large service organizations and governmental agencies. In the United
States, the Company has 25 direct sales offices and a growing network of
hundreds of dealers that purchase directly from the Company. The Company is also
in the process of expanding its international dealer network.

INDUSTRY BACKGROUND

In recent years, advances in telecommunications technologies have facilitated
the development of increasingly sophisticated telephone systems and
applications. Telecommunications systems have evolved from simple analog
telephones to sophisticated digital systems and applications. Users increasingly
rely upon a variety of applications, including conference calling,
speakerphones, voice processing and automated attendant, to improve
communications within their organizations and with customers and vendors.
Digital technology has facilitated the integration of computing and
telecommunications technologies, also known as computer telephony integration,
which has made possible a number of new applications that further enhance
productivity. Examples of these applications include automatic call distribution
(which provides for queuing and prioritization of incoming calls), call
accounting (which permits accounting for telephone usage and toll calls),
facsimile storage and forwarding, electronic data interchange between customers
and vendors and the use of automatic number identification coupled with
"database look-up," where customer information is retrieved automatically from a
computerized database when the customer calls.

Historically, advanced technologies and applications have been initially
introduced in large telecommunications systems. However, small to medium size
businesses and other organizations, as well as small to medium size facilities
of larger organizations, are increasingly requiring advanced features and
applications at a more effective price-performance point, in order to improve
efficiency and enhance competitiveness.

Following the breakup of the Bell telephone system in 1984, which removed
restrictions on the ability of the RBOCs to purchase telephone systems and
equipment from independent suppliers and to resell such systems and equipment to
end users, the market for telecommunications systems and applications became
increasingly fragmented. The number of independent suppliers and distributors of
telecommunications equipment initially increased, but increased levels of
competition led to consolidation among suppliers and distributors. In addition,
different telecommunications systems and applications were often available from
only one or a limited number of suppliers, which required businesses seeking
complete telecommunications systems to work with a number of different
suppliers. A business seeking a telephone system, voice mail and long distance
services would most likely purchase the products and services from three
separate vendors.

As businesses' telecommunications requirements have become more advanced, the
integration of the different parts of a system has become increasingly
difficult. The system integration, service and support capabilities of
telecommunications suppliers have become significant competitive factors. In
order to meet the needs of end users, suppliers have been increasingly required
to develop close relationships with end users.

STRATEGY

The Company's strategy is to offer to its customers, through a broad
distribution network, a single source for their full range of telecommunications
requirements, and to provide to its market segment, on a cost-effective basis,
advanced technologies and services that have achieved acceptance in the market
for larger systems.

o Offer Total Telephony Solution
The Company offers a broad range of products and services that provides
customers with a single source to fulfill their current and future
telecommunications and telephony needs. Inter-Tel couples this solution-oriented
approach with a high level of customer service and a commitment to quality
throughout the Company's operations. The Company's telephone switches and
telephones can be integrated with the Company's long distance calling services,
voice mail, automated attendant and other telecommunications applications,
support for interactive voice response and leasing and support services. Because
of the modular design of the Company's systems and the high level of software
content in its products, customers can readily increase the size and
functionality of their systems as their telephony needs change by purchasing
additional equipment, applications or services or by upgrading to new systems or
advanced versions of existing systems. The Company believes that many of its
customers prefer to purchase telephony equipment and services from a single
source because of the convenience, consistency of service, ease of upgrade and
confidence in the performance of integrated systems and services.

o Provide Advanced Products
The Company seeks to provide its customers with advanced telecommunications
technologies on a cost-effective basis. In many cases, the Company develops new
technologies as software upgrades or add-ons to existing products. Ongoing
research and development efforts are directed to the development of new
products, applications and services for sale into the Company's existing
customer base and to new customers. The Company's AXXESS telephone system is a
fully-digital, software-intensive system which incorporates digital signal
processing (DSP) components and open architecture interfaces. These interfaces
enable the AXXESS telephone system to interact with applications and databases
on attached computers, and permit customers to integrate their telephone systems
with a number of computer-based applications, including automatic database
look-up, call accounting, automatic call distribution, facsimile storage and
forwarding and exchange of electronic data between customers and vendors. The
Company recently announced the introduction of the Inter-Tel Axxent telephone
system, which is intended to bring many of the advanced features and
functionality of the AXXESS system to smaller businesses. The Inter-Tel Axxent
is expected to have a high level of computer telephony integration and full
function plug-in voicemail. Through CTI and advanced network services, Inter-Tel
provides technology that is designed to enable its customers to improve their
efficiency and enhance their competitiveness.

o Broaden Range of Services
The Company seeks to expand the range of telephony services it offers to end
users. In addition to its telephone systems and software, Inter-Tel offers a
variety of long distance calling services, including domestic and international
calling services, 800 calling services, dedicated services, voice and video
conferencing and customized billing. Inter-Tel's strategy is to increase the
volume of its long distance services, which the Company expects will enable it
to become increasingly price competitive. The Company's Totalease program
enables an end user to acquire a full range of telephony systems, applications,
maintenance and support services, as well as lease financing, from a single
source. In addition, the Company resells to end users a number of the industry's
leading telecommunications products, including voice and video conferencing
equipment, headsets, paging equipment and wireless communications equipment.

o Expand Distribution Channels
The Company continues to expand its distribution channels through a growing
network of dealers, expansion of the Company's direct sales force and extension
into international markets. The Company has established sales relationships with
hundreds of dealers and continues to expand this network. The Company believes
that expansion of this network and the Company's direct sales offices will
facilitate the

expansion of the Company's overall distribution network and enhance the
Company's access to end user customers, thereby enabling the Company to better
satisfy customer requirements. The Company is in the process of establishing
dealer networks in Japan and Asia and is expanding its dealer network in the
United Kingdom and Europe. The Company has expanded its direct sales activity in
recent periods through strategic acquisitions of resellers of telephony products
and services in areas where the Company has existing direct sales offices and
other strategic markets, and considers additional acquisition opportunities on
an ongoing basis. The Company also intends to expand its distribution channels
by selling certain of its CTI products and services through computer equipment
dealers and software resellers.

PRODUCTS AND SERVICES

The Company has a broad range of products designed to support the needs of
businesses and other organizations requiring telephone system installations. The
Company's principal products are telephone systems which support installations
of 5 to 500 telephones, CTI, voice processing software and long distance calling
services. The Company's principal system sales consist of systems supporting 11
to 200 telephones with suggested retail prices of up to $200,000 per system
depending on configuration. The Company also offers maintenance, leasing and
support services, and resells other telecommunications products.

TELEPHONE SYSTEMS

AXXESS. The Company's AXXESS version 2.0 supports a total of 12 to 160
telephones and trunk lines, and has a suggested retail price ranging from
approximately $8,000 to $70,000. The system incorporates fully-digital
processing and transmission to the desktop and several open architecture
interfaces which allow the system to be integrated with and controlled by
attached personal computers (PCs) and workstations. The system incorporates over
one million lines of proprietary, object-oriented C++ software developed by the
Company, which facilitates upgrades and incorporation of additional features and
functionality.

The Company recently announced the introduction of AXXESS version 3.0, a
system that expands the system capacity to 256 telephones and trunk lines and
enhances the open architecture capabilities of the system. In addition, version
3.0 will port the software to faster microprocessors, which is expected to
permit the AXXESS system to continue to expand and to enhance the functionality
and performance of these larger systems as a customer's system requirements
increase. Commercial shipments are expected to begin in the third quarter of
1995.

AXXESS "Executive" telephones incorporate user-friendly, 6x16 character LCD
displays with menu keys that permit the user to select from multiple menu
choices or access additional menu screens. AxxessoryTalk, the Company's
integrated voice processing application, permits pushbutton selection of voice
processing commands appearing on the LCD display, as well as voice-prompted
selections through the telephone keypad. The system is multi-lingual, offering
multiple voice prompts and LCD displays and allowing the user to switch from one
language to the other. The Company expects to add additional languages in the
future.

The AXXESS system supports several open architecture interfaces that allow
external computers to interact and control the AXXESS system through industry
standard interfaces. The AXXESS system supports an RS-232 system-level
interface, an RS-232 Hayes-based desktop interface and a Windows Dynamic Data
Exchange (DDE) interface through the AxxessoryConnect product. The Company has
Developer Toolkits available that include the detailed interface specifications,
application notes and development tools to assist third party software
developers to develop vertical market applications for the AXXESS products.
AXXESS applications include database look-up (which utilizes caller-ID
information to retrieve customer information automatically from a computerized
database), automated attendant, call center applications, interactive voice
response, automatic call distribution (which queues and prioritizes incoming
calls) and call accounting (which permits the monitoring of telephone usage and
toll cost). The Company recently announced support of the Microsoft Telephone
Application Programming Interface (TAPI) in AxxessoryConnect version 2.0, which
is currently scheduled for release in the third quarter of 1995, and support of
the Novell Telephony Services Application Programming Interface (TSAPI), which
is currently scheduled for release in the fourth quarter of 1995. The AXXESS
system is managed through a Windows-based interface on a PC, to facilitate
installation, system configuration and programming.

The AXXESS system utilizes advanced software to configure and utilize
real-time DSP semiconductor components incorporated into the system hardware.
The use of DSPs and related software lowers system costs, permits higher
functionality and increases system flexibility. For example, DSPs can be
configured by the system manager for different combinations of speakerphones,
conference capabilities and other DSP-based facilities. The system's
speakerphones incorporate full-duplex technology, which permits the telephone to
transmit in both directions at the same time without the necessity to override
one speaker's voice to prevent feedback interference.

The AXXESS software is written in a high-level, object-oriented language
which can operate on many commonly used microprocessors.

Inter-Tel Axxent. The Company recently announced the introduction of the
Inter-Tel Axxent telephone system, which is expected to begin commercial
shipment in the third quarter of 1995. The Inter-Tel Axxent system incorporates
fully-digital processing and transmission to the desktop and several open
architecture interfaces. Small businesses are demanding additional telephony
applications such as voicemail, speakerphones, conferencing and caller ID.
Inter-Tel Axxent is designed to bring many of the advanced features and
functionality of the AXXESS system to smaller installations on a cost-effective
basis while enabling users to migrate to an AXXESS system as their
telecommunications needs evolve.

Inter-Tel Axxent supports a total of 4 to 16 telephones and 8 trunk lines,
and is expected to have a suggested retail price ranging from approximately
$3,000 to $13,000. Inter-Tel Axxent system telephones, like those of the AXXESS
system, incorporate user-friendly LCD displays with menu keys. Inter-Tel Axxent
contains the same open architecture interfaces as AXXESS, which permit
integrated connection to a PC or workstation and enable a number of CTI
features. The Inter-Tel Axxent system is housed in a standard PC mid-tower
chassis, which is expected to enhance the upgradeability of the system.

IMX 1224/2460, IMX 256 and IMX 416/832. The IMX line of products offers a
broad range of features including extensive call control and system management
capabilities. The analog IMX 1224/2460 systems support up to 60 telephones and
24 trunk lines, with a modular design that allows capacity to be increased in
increments of 6 telephones and 6 trunk lines. The digital IMX 256 and IMX
416/832 systems are currently the Company's largest systems. The IMX 256
supports as many as 256 ports, which may be allocated by the end user among
telephones and trunk lines in order to best meet the end user's needs. IMX 416
supports up to 416 ports and the IMX 832 supports up to 832 ports. Each of the
IMX 256, IMX 416 and IMX 832 is expandable using insertable modules (which are
common to each of these platforms) in increments of 8 or 16 telephones, 8 trunk
lines or 24 digital-connection T-1 trunk lines. The suggested retail price per
system of the IMX 1224/2460 ranges from approximately $5,000 to $30,000, the
suggested retail price per system of the IMX 256 ranges from approximately
$25,000 to $75,000, and the suggested retail price per system of the IMX 416/832
ranges from approximately $40,000 to $200,000.

GLX and GLX+/GMX 48. The Company's GLX and GLX+ analog product lines support
up to 12 telephones and 6 outside trunk lines. They are designed for small
businesses such as restaurants, shops and professional offices. The GLX and GLX+
systems feature internal speakerphones, call forwarding capability and an
optional data port for modems and data connections. In addition, the GLX+ has an
LCD display and supports single line telephones and voice processing.

The analog GMX 48 supports up to 48 telephones and 24 trunk lines. The system
is modular and permits expansion in increments of 8 telephones and 4 trunk
lines. The GMX product offers many features found on larger systems, including
advanced messaging capabilities. The GMX 48 is used by professional offices,
manufacturing operations, large retail stores and financial institutions. The
Company sells these systems primarily through dealers and direct sales offices.
The suggested retail price per system of the GLX ranges from approximately
$1,500 to $5,000; the suggested retail price per system of the GMX ranges from
approximately $3,000 to $20,000.

Product Features. The Company's telephone systems provide a broad range of
standard features, including automated attendant, call forward, off premises
notification and day/night toll restrictions. The AXXESS system incorporates
more advanced features, certain of which are described below.

o Automatic call distribution (ACD). Incoming calls are distributed evenly
over a service group and customers hear pre-recorded announcements telling
them they will be handled by the next available agent. ACD supervisors
receive real time and historical reports on the status of the group(s).

o Automatic database retrieval ("screen pop"). Based on the calling number,
the system accepts a modem tone prior to accepting the customer call. This
modem tone is used to identify the customer and to retrieve (or "pop")
information from the customer's database to the user's computer screen.

o Multi-lingual feature operation. The AXXESS system can be readily adapted
to other languages by changing the voiced prompts and the menus on the LCD
displays. The AXXESS system currently offers English and Japanese
versions.

o Caller ID. In areas where this service is offered by the telephone
utility, the AXXESS LCD display enables the name and telephone number of
the calling party to be displayed to the called party.

o Integrated voice processing. Tight integration between the voice
processing system and the telephone system allows telephones to display
each waiting message and provides a means for the user to randomly select
among messages by pressing a single button. Features such as play, record,
pause, skip and delete appear on the LCD display of the AXXESS executive
telephone for rapid access and instant processing.

o Personal computer programming. Allows service personnel to connect a
laptop computer and program the system using a Microsoft Windows based
graphical user interface.

o Integrated SMDR/SMDA. Systems feature an internal Station Message Detail
Recording (SMDR) report generator which summarizes calling patterns in a
variety of ways to assist in management of system usage. Further reports
may be generated by transferring call details to a specialized computer
using the SMDR. Station Message Detail Accounting (SMDA) enables the end
user to format and manipulate the information received by the system.

o Single database management. Many systems require attached computer
applications such as voice processing and call accounting systems to be
programmed and administrated separately. The single database management
capability of the AXXESS system allows the installer to program a variety
of options on both the telephone system and attached computer
simultaneously in a single programming session.

CTI AND SOFTWARE PRODUCTS

The Company has developed the AxxessoryConnect software application that
provides a Windows interface for the AXXESS telephones. The enhanced graphical
interface uses the AXXESS Desktop Interface and provides DDE and Microsoft TAPI
interfaces to allow integration with other Windows applications. Using the DDE
interface, customer records can be automatically displayed on the PC screen when
a new call starts to ring the telephone. The AxxessoryConnect application allows
integration with many personal information managers and contact management
applications such as DayTimer Organizer, Lotus Organizer and Commence.

The Company has also developed the Inside Track call accounting application.
The Inside Track application is a Windows program that works with all of
Inter-Tel's telephone systems and provides detailed call accounting reports
which allow customers to track telephone costs, monitor for toll fraud and
abuse, and allocate costs across departments.

VOICE PROCESSING PRODUCTS AND APPLICATIONS

The Company has developed AxxessoryTalk, its own voice processing product for
the AXXESS system. This voice processing product is integrated with the AXXESS
system via the Company's AxxessLink software. It supports up to 500 mailboxes,
up to 16 simultaneous voice ports and up to 30 hours of messages.
The system also incorporates a paging application.

The Company has incorporated the features of AxxessoryTalk into its new IVX
500 voice processing platform. This product provides enhanced voice processing
capabilities to the GLX/GMX/IMX products. The Company's products also support
interactive voice response applications through industry-standard protocols.

The Company recently announced AxxessoryTalk version 3.0, which runs on the
OS/2 operating system and supports 500 mailboxes and up to 32 simultaneous port
connections. AxxessoryTalk 3.0 also supports a Fax Back feature that allows
customers to call in and have documents faxed back to them. Commercial shipments
are expected to commence in the third quarter of 1995. Both the AxxessoryTalk
and IVX 500 products include the open, industry-standard multi-vendor interface
protocol (MVIP). MVIP is a standard for connecting multi-vendor PC-based boards
in voice processing, data switching and video applications.

OTHER SERVICES AND PRODUCTS

Long Distance Calling and Network Services. The Company, through its
Inter-Tel Netsolutions, Inc. subsidiary, resells a variety of popular long
distance calling services, including domestic and international calling
services, 800 calling services, dedicated services, voice and video
conferencing, customized billing and a variety of other telecommunication
services. The Company believes that certain of its customers desire the
convenience of acquiring long distance calling services through the same vendor
that the customer uses to purchase its other telephony equipment and services.
The Company currently resells long distance services pursuant to contracts with
three of the six largest U.S. long distance carriers, and is negotiating a
similar contract with a fourth. These contracts typically have a multi-year
term, during which the Company's prices are relatively fixed, and have minimum
use requirements. There can be no assurance that the Company will meet its
minimum use commitments, will be able to negotiate lower rates with carriers in
the event of any decrease in end user rates or will be able to extend its
contracts with long distance carriers on prices favorable to the Company. The
Company is currently tariffed to resell long distance services in 20 states, and
intends to become tariffed in all 50 states.

The Company markets its long distance calling and network services through
its direct sales force. The Company provides training to the sales force to
increase the knowledge and expertise required to sell long distance services.

Inter-Tel's sales force sells long distance calling and network services
together with its other products to the same customers, which the Company
believes offers it a competitive advantage over certain of its competitors. The
Company also allows selected dealers to sell long distance calling and network
services. The Company utilizes a combination of long distance carriers to
provide competitive rates and services for dealers and customers using these
long distance network services. The Company seeks to increase the number of its
long distance calling customers and the volume of its long distance services, in
order to obtain more favorable pricing from its vendors.

Leasing Services. The Company offers its Totalease program through its
Inter-Tel Leasing, Inc. subsidiary. Totalease enables an end user to acquire a
full range of telephony systems, applications, maintenance and support services,
as well as lease financing, from a single vendor. The Totalease contract
provides a total system solution to the customer at a set monthly cost, with
system expansion available at predictable additional fees. The typical Totalease
contract has a term of 60 months, with the customer entitled to renew at a
specified price for up to an additional 36 months. The Company intends to
introduce single invoice billing, which will enable customers to manage all
telephone related payables, including lease payments, maintenance obligations,
upgrades, system expansion and long distance calling services through a single
monthly bill from Inter-Tel.

Inter-Tel also offers a full line of lease purchase financing to enable
customers to acquire Inter-Tel equipment. This leasing is available through the
Company's direct offices and dealers. The lease terms range from 24 to 84 months
with $1.00 and fair market value purchase options. By offering this type of
financing to acquire Inter-Tel equipment, the customer is able to lease directly
from the manufacturer. In

addition, Inter-Tel, or the Inter-Tel dealer, gains an additional competitive
advantage in the marketplace by maintaining a close customer relationship. The
payment streams from these leases are sold from time to time to financial
institutions in conjunction with the leases from the Totalease program.

Other Products. Inter-Tel established its factored products division in 1994
to provide "single sourcing" of the industry's leading telecommunications
products. The factored products division resells products that Inter-Tel has
endorsed as the leading communications peripherals needed in many day-to-day
functions. Many of these products interface with Inter-Tel telephone systems.
Inter-Tel's product selection consists of voice and video conferencing, battery
backup, headsets, surge protection, paging equipment, wireless communications
and data multiplexers. The Company represents leading manufacturers such as
Compression Labs, Inc., Tandberg Telecom, American Power Conversion Corp., ACS
Enterprises, Inc., Ditek Industries, Inc., Valcom, Inc., Kentrox Industries,
Inc. and other leading telecommunications vendors.

SALES AND DISTRIBUTION

The Company has developed a network of direct sales offices and dealers which
sells the Company's products. In the United States, the Company has 25 direct
sales offices and a growing network of hundreds of dealers who purchase systems
directly from the Company. Dealers are typically located in geographic areas in
which the Company does not maintain direct sales offices. The Company is in the
process of expanding its international dealer network.

The Company believes that its success depends in part upon the strength of
its distribution channels and the ability of the Company to maintain close
access to end user customers. In recent periods, the Company has sought to
improve its access to end user customers by effecting strategic acquisitions of
resellers of telephony products and services in markets in which the Company has
existing direct sales offices and in other strategic markets. The Company
intends to further expand its distribution channels by selling certain of its
CTI products and services through computer equipment dealers and software
resellers.

The Company typically enters into non-exclusive contracts with its dealers
for a term of one or more years. Inter-Tel generally provides support and other
services to the dealer pursuant to the terms of the agreement. The agreements
often include requirements that the dealer meet or use its best efforts to meet
minimum annual purchase quotas. The Company's experience is that dealers
maintain low inventories of the Company's products and, accordingly, the Company
has experienced insignificant stock rotation returns and price protection
credits to date. The Company faces intense competition from other telephone
system and voice processing system manufacturers for its dealers' attention, as
most of the Company's dealers carry products which compete with the Company's
products. There can be no assurance that any such dealer will not promote the
products of the Company's competitors to the detriment of the Company's
products. The loss of any significant dealer or group of dealers, or any event
or condition adversely affecting the Company's dealer network, could have a
material adverse effect on the Company's business and operating results. See
"Risk Factors--Reliance on Dealer Network."

International sales have not been significant to date, and have been made
through the Company's United Kingdom and Japan subsidiaries. In order to sell
its products to customers in other countries, the Company must comply with local
telecommunications standards. The AXXESS system can be readily altered through
software modifications, which the Company believes will facilitate compliance
with local regulations. In addition, the AXXESS system has been designed to
support multi-lingual functionality, and currently supports English and
Japanese. The Company is presently establishing dealer networks in Japan and
Asia and is expanding its dealer network in the United Kingdom and Europe. The
Inter-Tel Axxent system is currently awaiting regulatory approval
internationally. International sales are subject to a number of risks, including
changes in foreign government regulations and telecommunications standards,
export license requirements, tariffs and taxes, other trade barriers,
fluctuations in currency exchange rates, difficulty in collecting accounts
receivable, difficulty in staffing and managing foreign operations and political
and economic instability. Fluctuations in currency exchange rates could cause
the

Company's products to become relatively more expensive to customers in a
particular country, leading to a reduction in sales or profitability in that
country. In addition, the costs associated with developing international sales
may not be offset by increased sales in the short term, or at all.

CUSTOMER SERVICE AND SUPPORT

The Company believes that service and support is a critical component of
customer satisfaction and the success of the Company's business. Inter-Tel's
telecommunications expertise enables it to provide its customers with a variety
of systems consulting services. The Company assists customers in evaluating
their system requirements and in integrating the hardware, software and network
components of the customers' systems.

The Company operates a Technical Support "hotline" to provide a full range of
telephone support to its distributors, dealers and end user customers, free of
charge through a toll free number. The Company also provides on-site customer
support and, through remote diagnostic procedures, has the ability to detect and
correct system problems from its Technical Support facilities.

Information taken from customer call records allows feedback into Inter-Tel's
Quality First continuous improvement process, thus providing a road map for
continuous product and service enhancements. Each direct sales office is given a
periodic service activity report summarizing the reasons that technicians are
asking for assistance and common issues that give rise to technical inquiries.
This allows them to analyze trends in their service operations and provide
better customer service.

RESEARCH AND DEVELOPMENT

The Company's research and development efforts over the last several years
have been focused primarily on development and improvement of the AXXESS system
as well as the development of CTI and other advanced applications. Current
efforts are related to porting AXXESS software to smaller (Inter-Tel Axxent) and
larger (AXXESS version 3.0) versions of hardware, supporting additional
industry-standard open architecture interfaces (including TAPI and TSAPI, among
others), supporting facsimile features using MVIP, developing multi-system
networking capabilities, developing fiber optic interfaces on the AXXESS
product, enhancing the functionality of the AxxessoryTalk and IVX-500 (voice
processing) products, adapting the AXXESS and AxxessoryTalk products to
international markets and developing additional switch applications and features
that enhance the integration with advanced NetSolutions services and products.

The Company had a total of 91 personnel engaged in research and development
as of June 30, 1995. Research and development expenses were $3.9 million, $4.1
million, $4.5 million and $2.9 million in 1992, 1993, 1994 and the first six
months of 1995, respectively.

MANUFACTURING

The Company manufactures substantially all of its systems through third party
subcontractors located in the United States, the Philippines and the People's
Republic of China. These subcontractors use both standard and proprietary
integrated circuits and other electronic devices and components to produce
telephone switches, telephones and printed circuit boards to the Company's
engineering specifications and designs. The suppliers also inspect and test the
equipment before delivering them to the Company, which performs systems
integration, software loading, final testing and shipment. Inter-Tel is
increasing its use of domestic subcontractors. Varian, a multinational
electronics company, currently manufactures a significant portion of the
Company's products, including substantially all of the printed circuit boards
used in the AXXESS and Inter-Tel Axxent systems, at Varian's Tempe, Arizona
facility. If Varian or any of the Company's other manufacturers were unable or
unwilling to manufacture the Company's products in the future, the Company could
experience substantial delays in finding alternative sources, which could have a
material adverse effect on the Company's business and operating results.

While the Company maintains written agreements with its principal suppliers,
none of such agreements requires the suppliers to provide fixed quantities of
components or finished goods at set prices on a long term basis. The Company
provides rolling forecast schedules to its suppliers and revises the forecast on
a periodic basis.

Foreign manufacturing facilities are subject to changes in governmental
policies, imposition of tariffs and import restrictions, and other factors
beyond the Company's control. Certain of the microprocessors, integrated
circuits and voice processing interface cards used in the Company's systems are
currently available from a single or limited sources of supply. The Company's
reliance on third party manufacturers involves a number of additional risks,
including reduced control over delivery schedules, quality assurance and costs.
From time to time, the Company has experienced delays in the supply of
components and finished goods, and there can be no assurance that the Company
will not experience such delays in the future. Any delay in delivery or shortage
of supply of components or finished goods from existing suppliers, or the
Company's inability to develop in a timely manner alternative or additional
sources if and when required, could materially and adversely affect the
Company's business and operating results. There can be no assurance that the
Company will be able to continue to obtain components or finished goods in
sufficient quantities or quality or on favorable pricing and delivery terms in
the future. See "Risk Factors--Dependence Upon Contract Manufacturers and
Component Suppliers."

QUALITY

The Company believes that the quality of its systems, customer service and
support, and other aspects of its organization is a critical element of meeting
the needs of its customers. Through its Quality First continuous improvement
process, Inter-Tel implements quality processes throughout its operations. The
Company has established formal procedures to ensure responsiveness to customer
requests, to monitor response times and to measure customer satisfaction. The
Company has also established means by which all end users, including customers
of the Company's resellers, can make product enhancement requests directly to
the Company. The Company supports its dealers through an extensive training
program at the Company's facility and at dealer sites, a toll free telephone
number for sales and technical support and the provision of end user marketing
materials. The Company typically provides one to two year warranties on its
systems to end users. In manufacturing, the Company continuously monitors the
quality of the products produced on its behalf by the Company's manufacturing
subcontractors, and is extending the Company's Quality First continuous
improvement process to its suppliers.

COMPETITION

The market for the Company's telephone system products is highly competitive
and in recent periods has been characterized by pricing pressures and business
consolidations. The Company's competitors include AT&T and NorTel, as well as
Comdial, Executone, Mitel, Panasonic, ROLM, Toshiba and others. The Company also
competes against the RBOCs, which offer systems produced by one or more of the
aforementioned competitors and also offer Centrex systems in which automatic
calling facilities are provided through equipment located in the telephone
company's central office. Competition by the RBOCs could increase significantly
if the RBOCs are granted the right to manufacture telephone systems and
equipment themselves and/or to bundle the sale of equipment with telephone
calling services, activities which to date they have been restricted from
undertaking. Recent legislative initiatives would have the effect of increasing
competition from the RBOCs. Key competitive factors in the sale of telephone
systems and related applications include performance, features, reliability,
service and support, name recognition, distribution capability and price.

In the market for voice processing applications, including voice mail, the
Company competes against Centigram, Octel, Active Voice, AVT and other
competitors, including telephone systems manufacturers such as AT&T, NorTel and
ROLM, which offer integrated voice processing systems under their own label as
well as through various OEM arrangements. Certain of the Company's competitors
may achieve marketing advantages by bundling their voice processing equipment
with sales of telephone systems, or by designing their telephone systems so that
they do not readily integrate with independent voice processing systems.
Inter-Tel expects that the development of industry standards and the acceptance
of open systems architectures in the voice processing market will reduce
technical barriers to market entry and lead to increased competition. Key
competitive factors in the sale of voice processing applications include
performance, features, name recognition and price.

In the market for long distance services, the Company competes against AT&T,
MCI, Sprint and other suppliers, certain of which also supply the long distance
calling and network services that the Company resells. Although the Company
acquires a variety of long distance calling services in bulk from certain long
distance carriers, there can be no assurance that the Company will be able to
purchase long distance calling services on favorable terms from one or more of
such providers in the future. In addition, a substantial majority of prospective
new long distance customers for the Company currently purchase long distance
calling services from the Company's competitors. The Company believes that it is
likely to face increased competition in the long distance calling services
market to the extent that telecommunications deregulation enables RBOCs to
supply long distance calling and network services or enables RBOCs and others to
bundle long distance, local telephone and wireless services. Moreover, the
Company expects to face increased competition in the future because of low
technical barriers to entry will allow new market entrants. Key competitive
factors in the sale of long distance services include name recognition, price
and performance.

Many of the Company's competitors have significantly greater financial and
technical resources, name recognition and marketing and distribution
capabilities than the Company. The Company expects that competition will
continue to be intense in the markets addressed by the Company, and there can be
no assurance that the Company will be able to compete successfully in the
future.

INTELLECTUAL PROPERTY RIGHTS

In addition to the factors discussed above, the Company's ability to compete
successfully depends on its ability to protect the proprietary technology
contained in its products. The Company has no patents and relies principally on
copyright and trade secret law and contractual provisions to protect its
intellectual property. There can be no assurance that any copyright owned by the
Company will not be invalidated, circumvented or challenged or that the rights
granted thereunder will provide competitive advantages to the Company. Further,
there can be no assurance that others will not develop technologies that are
similar or superior to the Company's technology or duplicate the Company's
technology. As the Company expands its international operations, effective
intellectual property protection may be unavailable or limited in certain
foreign countries. There can be no assurance that the steps taken by the Company
will prevent misappropriation of its technology. Litigation may be necessary in
the future to enforce the Company's intellectual property rights, to protect the
Company's trade secrets, to determine the validity and scope of the proprietary
rights of others, or to defend against claims of infringement or invalidity.
Such litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business and operating
results.

From time to time, the Company is subject to proceedings alleging
infringement by the Company of intellectual property rights of others. If any
such claim is asserted against the Company, the Company may seek to obtain a
license under the third party's intellectual property rights. There can be no
assurance that a license will be available on terms acceptable to the Company or
at all. In the alternative, the Company could resort to litigation to challenge
any such claim, and the Company is currently engaged in one such proceeding. See
"Business--Legal Proceedings." Any such proceedings could require the Company to
expend significant sums in litigation and could require the Company to pay
significant damages, develop non-infringing technology or acquire licenses to
the technology which is the subject of the asserted infringement, any of which
could have a material adverse effect on the Company's business and operating
results. See "Risk Factors--Product Protection and Infringement."

EMPLOYEES

As of June 30, 1995, the Company had a total of 896 employees, including 237
engaged in sales, marketing and customer support, 92 in quality, manufacturing
and related operations, 91 in research and development and 36 in finance and
administration. The Company's future success will depend upon its ability to
attract, retain and motivate highly qualified employees, who are in great
demand. None of the

Company's employees is represented by a labor union with respect to their
employment by the Company, and the Company believes that its employee relations
are good. See "Risk Factors--Dependence on Key Personnel."

PROPERTIES

The Company maintains its corporate headquarters in an 85,000 square foot
building located in Chandler, Arizona pursuant to a lease that expires in 2008.
The Company also leases sales and support offices in a total of 25 locations in
the United States and two locations overseas. The Company expects to move its
corporate offices to another location in Phoenix, Arizona in the fourth quarter
of 1995. Following such move, the Company believes that its facilities will be
adequate to meet its current needs and that additional or alternative space will
be available as necessary in the future on commercially reasonable terms. See
"Risk Factors--Management of Growth; Implementation of Management Information
Systems."

LEGAL PROCEEDINGS

The Company is involved from time to time in litigation incidental to its
business. The Company believes that the outcome of current litigation will not
have a material adverse effect upon its results of operations or financial
condition and will not disrupt the normal operations of the Company.

MANAGEMENT

The executive officers and directors of the Company are as follows:

NAME AGE POSITION
- -------------------- ----- ----------------------------------------------------
Steven G. Mihaylo .. 51 Chairman of the Board of Directors and Chief
Executive Officer
Thomas C. Parise ... 40 President and Chief Operating Officer
Craig W. Rauchle ... 40 Executive Vice President
W. Kris Brown ....... 41 Vice President
Michael J. Sargent . 45 Vice President, Marketing and Strategic Programs
Hiroshige Sugihara . 35 Vice President, Asia/Pacific
Kurt R. Kneip ....... 33 Vice President, Secretary, Treasurer and Chief
Financial Officer
Gary D. Edens ....... 53 Director
Maurice H. Esperseth 70 Director
C. Roland Haden .... 54 Director
Norman Stout ........ 37 Director
Kathleen R. Wade ... 42 Director

Mr. Mihaylo, the founder of the Company, has served as Chairman of the Board
of Directors of the Company since September 1983 and as Chief Executive Officer
of the Company since its formation in July 1969. Mr. Mihaylo also served as
President of the Company from July 1969 until September 1983 and again from
March 1984 until December 1994, and as Chairman of the Board of Directors from
July 1969 to October 1982. Mr. Mihaylo also is a director of MicroAge, Inc. and
Microtest, Inc.

Mr. Parise was elected President and Chief Operating Officer of the Company
in December 1994. He has been Senior Vice President of the Company since 1986.
He is also President of Inter-Tel Integrated Services, Inc., a wholly owned
research and development, manufacturing and distribution subsidiary of the
Company. Mr. Parise joined the Company in 1981 and became Branch General Manager
of the Phoenix direct sales office in 1982. In 1983, he became the Mountain
Regional Vice President, and in January 1985 he was appointed Vice President of
Operations and Sales Support.

Mr. Rauchle was elected Executive Vice President in December 1994. He had
been Senior Vice President of the Company and continues as President of
Inter-Tel DataCom, Inc., a wholly owned sales subsidiary of the Company. In
addition, he currently serves the Company and all subsidiaries in corporate
strategic planning and mergers and acquisitions activities. Mr. Rauchle joined
the Company in 1979 as Branch General Manager of the Denver direct sales office
and in 1983 was appointed the Central Region Vice President and subsequently the
Western Regional Vice President. From 1990 to 1992, Mr. Rauchle served as
President of Inter-Tel Communications, Inc.

Mr. Brown became a Vice President of the Company in December 1994, when he
was promoted to President of Inter-Tel Communications, which is one of the
Company's Regional Direct Sales Subsidiaries. In 1987, he was promoted to
Regional Vice President of the Southeast Region. Mr. Brown joined the Company in
1985 as the General Manager of the Tampa direct sales office.

Mr. Sargent was promoted to Vice President, Marketing and Strategic Programs,
in January 1995. In this position, he is responsible for business development
and strategic analysis of current practices with the goal of attaining
substantial corporate growth. Mr. Sargent joined Inter-Tel in 1984 as a software
design engineer and progressed through sales engineering and sales management,
serving as the Director of Sales and Marketing for the past four years.

Mr. Sugihara has been Vice President of the Company and President of
Inter-Tel Japan, Inc. since June 1993. Born in Osaka, Japan, Mr. Sugihara was
with Forval Corporation, a publicly traded Japanese company, from 1984 to 1992
and in 1989 established Forval America, Inc., where he served as Vice
President/Secretary/Treasurer and member of the Board of Directors.

Mr. Kneip has served as Vice President and Chief Financial Officer of the
Company since September 1993. He was elected Secretary and Treasurer in October
1994. He joined the Company in May 1992 as Director of Corporate Tax, after
seven years in public accounting, including six years with the accounting firm
of Ernst & Young. Mr. Kneip is a certified public accountant.

Mr. Edens was elected as a director of the Company in October 1994. He was a
broadcasting media executive from 1970 to 1994, serving as Chairman and Chief
Executive Officer of Edens Broadcasting, Inc. from 1984 to 1994 when that
corporation's nine radio stations were sold. He presently is President of The
Hanover Companies, Inc., an investment firm.

Mr. Esperseth has been a director of the Company since October 1986. Mr.
Esperseth joined the Company in January 1983 as Senior Vice President-Research
and Development, after a 32-year career with GTE, and served as Executive Vice
President of Inter-Tel from 1986 to 1988. Mr. Esperseth retired as an officer of
the Company on December 31, 1989.

Dr. Haden has been a director of the Company since 1983. Dr. Haden has been
Vice Chancellor and Dean of Engineering of Texas A&M University since 1993.
Previously, he served as Vice Chancellor of Louisiana State University from 1991
to 1993, Dean of the College of Engineering and Applied Sciences at Arizona
State University from 1989 to 1991, Vice President for Academic Affairs at
Arizona State University from 1987 to 1988, and Dean of the College of
Engineering and Applied Sciences at Arizona State University from 1978 to 1987.

Mr. Stout was elected a director of the Company in October 1994. Mr. Stout
has been President of Superlite Block, a manufacturer of concrete block since
February 1993. Prior thereto he was employed by Bouhem-Fields, Inc. of Dallas,
Texas, a manufacturer of crushed stone, as Chief Executive Officer from 1990 to
1993 and as Chief Financial Officer from 1986 to 1990. Previously, Mr. Stout was
a certified public accountant with Coopers & Lybrand.

Ms. Wade was elected a director of the Company in April 1994. Ms. Wade is
also a director and Co-Chief Executive Officer of Continental Homes Holding
Corporation, having been employed by this multi-market production homebuilder
and mortgage company and its predecessor since 1978. Prior thereto, Ms. Wade, a
certified public accountant, was employed by Ernst & Ernst, an international
accounting firm.

SELLING SHAREHOLDERS

The following table sets forth certain information as of June 30, 1995
regarding the beneficial ownership of the Company's Common Stock, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, of
each Selling Shareholder:

SHARES BENEFICIALLY NUMBER OF SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING SHARES BEING OWNED AFTER OFFERING
------------------------ -------------- ------------------------
NAME NUMBER PERCENTAGE SOLD NUMBER PERCENTAGE
- ------------------------- ----------- ------------ -------------- ----------- ------------

Steven G. Mihaylo(1) .... 3,801,000 35.4% 610,000 3,191,000 25.0%
Sarah N. Mihaylo Trust(2) 100,000 * 100,000 -- *
Emily N. Mihaylo Trust(3) 100,000 * 100,000 -- *
Ray Ryan ................. 71,265 * 23,745 47,520 *
Thomas C. Parise(4) ..... 61,250 * 10,310 50,940 *
Keith Benfield ........... 17,816 * 5,945 11,871 *

<FN>
- ----------
* Less than 1%
(1) Includes 1,250,000 shares held by ALA MOANA-95, L.L.C., an Arizona limited
liability company controlled by Mr. Mihaylo, 610,000 of which are being sold
in this offering (1,037,500 if the Underwriters' over-allotment option is
exercised in full). If the Underwriters' over-allotment option is exercised
in full, Mr. Mihaylo will own beneficially 2,763,500 shares, or 21.7% of the
outstanding shares after this offering. Mr. Mihaylo is the Chairman of the
Board of Directors and Chief Executive Officer of the Company.
(2) Sarah N. Mihalyo, the beneficiary of the trust, is the daughter of Mr.
Mihaylo.
(3) Emily N. Mihaylo, the beneficiary of the trust, is the daughter of Mr.
Mihaylo.
(4) Mr. Parise is the President and Chief Operating Officer of the Company.

</FN>

UNDERWRITING

Montgomery Securities, Donaldson, Lufkin & Jenrette Securities Corporation
and Sutro & Co. Incorporated (the "Underwriters") have severally agreed, subject
to the terms and conditions set forth in the Underwriting Agreement, to purchase
from the Company and the Selling Shareholders the number of shares of Common
Stock indicated below opposite their respective names at the public offering
price less the underwriting discount set forth on the cover page of this
Prospectus. The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, and that the
Underwriters are committed to purchase all of such shares if any are purchased.

UNDERWRITER NUMBER OF SHARES
--------------------------------------------------- ----------------
Montgomery Securities ..............................
Donaldson, Lufkin & Jenrette Securities Corporation
Sutro & Co. Incorporated ...........................
----------------
Total .............................................. 2,850,000
================

The Underwriters have advised the Company and the Selling Shareholders that
they initially propose to offer the shares of Common Stock to the public on the
terms set forth on the cover page of this Prospectus. The Underwriters may allow
to selected dealers a concession of not more than $ per share, and the
Underwriters may allow, and such dealers may reallow, a concession not more than
$ per share to certain other dealers. After the offering, the price and other
selling terms may be changed by the Underwriters. The Common Stock is offered
subject to receipt and acceptance by the Underwriters, and to certain other
conditions, including the right to reject orders in whole or part.

A Selling Shareholder has granted an option to the Underwriters, exercisable
during the 30-day period after the date of this Prospectus, to purchase up to a
maximum of 427,500 additional shares of Common Stock to cover over-allotments,
if any, at the same price per share as the initial 2,850,000 shares to be
purchased by the Underwriters. To the extent that the Underwriters exercise this
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this offering.

The Underwriting Agreement provides that the Company and certain Selling
Shareholders will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act of 1933, as amended (the
"Securities Act"), or will contribute to payments the Underwriters may be
required to make in respect thereof.

The Company's executive officers and the Selling Shareholders, who will
collectively beneficially own an aggregate of approximately 3,300,000 shares of
Common Stock following the offering (2,900,000 shares if the Underwriters'
over-allotment option is exercised in full), have agreed that without the
consent of the Underwriters acting jointly, they will not, directly or
indirectly offer, sell, contract to sell or otherwise dispose of any shares of
Common Stock or any securities convertible into or exchangeable therefor for a
period of 90 days from the date of this Prospectus. The Company has agreed that,
for a period of 90 days from the date of this Prospectus, it will not, without
the written consent of the Underwriters acting jointly, directly or indirectly,
offer, sell, contract to sell or otherwise dispose of any shares of Common Stock
or any securities, convertible or exchangeable therefor, subject to limited
exceptions.

From time to time, certain of the Underwriters or their affiliates have
provided, and may continue to provide, investment banking services to the
Company.

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock offered hereby and
certain other matters relating to Arizona law will be passed upon for the
Company by Kristi S. Bonfiglio, the Company's General Counsel. Certain other
legal matters are being passed upon for the Company and certain Selling
Shareholders by Wilson, Sonsini, Goodrich & Rosati, Professional Corporation,
Palo Alto, California. Pillsbury Madison & Sutro, San Francisco, California, are
acting as counsel for the Underwriters in connection with certain legal matters
relating to the shares of Common Stock offered hereby.

AVAILABLE INFORMATION

The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information may be inspected and copied (at prescribed
rates) at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material also can be obtained from the Public Reference Branch of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.

The Company has filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act. This Prospectus does not
contain all of the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. For further information, reference is hereby made to the
Registration Statement.

INFORMATION INCORPORATED BY REFERENCE

The following documents filed with the Commission (File No. 0-10211) pursuant
to the Exchange Act are incorporated herein by reference:

1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 filed pursuant to Section 13 of the Exchange Act.

2. The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1995.

3. The description of the Company's Common Stock contained in its
Registration Statement on Form 8-A filed with the Commission on February
26, 1982 pursuant to Section 12(g) of the Exchange Act.

4. All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date
of this Prospectus and prior to the termination of this offering.

Any statement incorporated herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein, in a Prospectus Supplement or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of the Registration Statement or this Prospectus.

The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon the written or oral
request of such person, a copy of any and all of the documents which are
incorporated herein by reference (other than exhibits to such documents, unless
such exhibits are specifically incorporated by reference into such document).
Requests for such documents should be directed to Inter-Tel, Incorporated, 7300
West Boston Street, Chandler, Arizona 85226- 3224, or by calling (602) 961-9000.

EXPERTS

The consolidated financial statements of the Company appearing in the
Company's Annual Report on Form 10-K for the year ended December 31, 1994 have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.

{INTER-TEL AXXENT SYSTEM GRAPHIC}

The Company's new Inter-Tel Axxent system, expected to commence commercial
shipment in the third quarter of 1995, is designed to bring many of the advanced
features and functionality of the AXXESS system to smaller installations on a
cost-effective basis.

No dealer, sales representative
or any other person has been
authorized to give any information
or to make any representations in
connection with this offering other
than those contained in this
Prospectus, and, if given or made, 2,850,000 SHARES
such information or representations
must not be relied upon as having
been authorized by the Company, any
Selling Shareholder or any Underwriter.
This Prospectus does not constitute an
offer to sell or a solicitation of any
offer to buy any securities other than
the shares of Common Stock to which it IMAGE: "INTER-TEL"
relates or an offer to,or a solicitation
of, any person in any jurisdiction where
such an offer or solicitation would be
unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder
shall, under any circumstances, create
an implication that there has been no
change in the affairs of the Company
or that information contained herein is
correct as of any time subsequent to the COMMON STOCK
date hereof.
---------- ----------
TABLE OF CONTENTS PROSPECTUS
---------- ----------

PAGE
--------
Prospectus Summary .....................3
Risk Factors ...........................4
The Company ............................8
Use of Proceeds ........................9
Dividend Policy ........................9
Price Range of Common Stock ............9
Capitalization .........................10
Selected Consolidated Financial Data ..11 MONTGOMERY SECURITIES
Management's Discussion and Analysis
of Financial Condition and Results of
Operations ............................12 DONALDSON, LUFKIN & JENRETTE
Business ...............................16 SECURITIES CORPORATION
Management .............................27
Selling Shareholders ...................28 SUTRO & CO. INCORPORATED
Underwriting ...........................29
Legal Matters ..........................29
Available Information ..................30 , 1995
Information Incorporated by Reference .30
Experts ................................30

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the various costs and expenses payable by the
Company, other than underwriting discounts and commissions, of the sale and
distribution of the securities being registered. All of the amounts shown are
estimates except the Securities and Exchange Commission registration fee, the
Nasdaq National Market listing fee and the NASD filing fee.

SEC Registration Fee .............. $ 18,013
NASD Filing Fee ................... 5,949
Nasdaq National Market Listing Fee 17,500
Blue Sky Fees and Expenses ........ 7,500
Legal Fees and Expenses ........... 105,000
Accounting Fees and Expenses ..... 35,000
Directors' and Officers' Insurance 400,000
Printing .......................... 75,000
Transfer Agent and Registrar Fees 5,000
Miscellaneous ..................... 31,038
---------
Total ......................... $700,000
=========

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company's Articles of Incorporation limit, to the maximum extent
permitted by Arizona law, the personal liability of directors for monetary
damages for breach of their fiduciary duties as a director. The Company's Bylaws
provide that the Company shall indemnify its officers and directors and may
indemnify its employees and other agents to the fullest extent permitted by law.
The Company has entered into indemnification agreements with its officers and
directors containing provisions which are in some respects broader than the
specific indemnification provisions contained in the Arizona General Corporation
Law. The indemnification agreements may require the Company, among other things,
to indemnify such officers and directors against certain liabilities that may
arise by reason of their status or service as directors or officers (other than
liabilities arising from willful misconduct of a culpable nature), to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified, and to obtain directors' and officers' insurance, if
available on reasonable terms. The Company believes that these agreements are
necessary to attract and retain qualified persons as directors and officers.

At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding which may result in a claim for such indemnification.

The Company currently maintains directors' and officers' liability insurance.

Reference is also made to Section 11 of the Underwriting Agreement contained
in Exhibit 1.1 hereto, indemnifying officers and directors of the Registrant
against certain liabilities.

II-1

ITEM 16. EXHIBITS

EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------
1.1 Underwriting Agreement.
4.1 Articles of Incorporation of the Company.*
5.1 Opinion of Kristi S. Bonfiglio, General Counsel, regarding legality
of securities being 5.1 registered.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Kristi S. Bonfiglio, General Counsel (included in
Exhibit 5.1).
24.1 Power of Attorney (see page II-3).

- ----------
* Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1988 (File No. 0-10211).

ITEM 17. UNDERTAKINGS

The undersigned Company hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1993, each filing of the Company's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the Registration
Statement shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to provisions of the Company's Articles of Incorporation and
Bylaws, the Arizona General Corporation Law, the Underwriting Agreement or
otherwise, the Company has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Company of expenses incurred or paid by a director, officer or
controlling person of the Company in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered hereunder, the Company will,
unless in the opinion of its counsel the question has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act of 1993 and will be governed by the final
adjudication of such issue.

The undersigned Company hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act of 1933 shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of Prospectus shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

II-2

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant, Inter-Tel, Incorporated, a corporation organized and existing under
the law of the State of Arizona, certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form S-3 and has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chandler, State of
Arizona, on the 31st day of July, 1995.

Inter-Tel, Incorporated

By: /s/ Steven G. Mihaylo
-------------------------------
Steven G. Mihaylo,
Chairman and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Steven G. Mihaylo and Kurt R. Kneip, jointly and
severally, his attorneys-in-fact, each with power of substitution, for him in
any and all capacities, to sign any amendments to this Registration Statement
(including post-effective amendments), and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:

SIGNATURE TITLE DATE
- ------------------------ ------------------------------------ ------------

/s/ STEVEN G. MIHAYLO Chairman and Chief Executive Officer
----------------------- (Principal Executive Officer) July 31, 1995
Steven G. Mihaylo

/s/ KURT R. KNEIP
----------------------- Chief Financial Officer (Principal
Kurt R. Kneip Financial Officer and Principal July 31, 1995
Accounting Officer)

/s/ GARY D. EDENS
-----------------------
Gary D. Edens Director July 31, 1995

/s/MAURICE H. ESPERSETH
-----------------------
Maurice H. Esperseth Director July 31, 1995

/s/ C. ROLAND HADEN
-----------------------
C. Roland Haden Director July 31, 1995

/s/ NORMAN STOUT
-----------------------
Norman Stout Director July 31, 1995

/s/ KATHLEEN WADE
-----------------------
Kathleen Wade Director July 31, 1995

II-3

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" in the Registration Statement (Form
S-3) and the related Prospectus of Inter-Tel, Incorporated for the registration
of 3,277,500 shares of its common stock and to the incorporation by reference
therein of our report dated January 27, 1995 with respect to the consolidated
financial statements and schedules of Inter-Tel, Incorporated included in its
Annual Report on Form 10-K for the year ended December 31, 1994, filed with the
Securities and Exchange Commission.

ERNST & YOUNG LLP
July 25, 1995
Phoenix, Arizona

II-4

INTER-TEL, INCORPORATED
REGISTRATION STATEMENT ON FORM S-3
EXHIBIT INDEX

SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ----------- --------------------------------------------------- ----------------

1.1 Form of Underwriting Agreement.
4.1 Articles of Incorporation of the Company.*
5.1 Opinion of Kristi S. Bonfiglio, General Counsel,
regarding legality of securities being registered.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Kristi S. Bonfiglio, General Counsel
(included in Exhibit 5.1).
24.1 Power of Attorney (see page II-3).

- ----------
* Incorporated by reference.

II-5