DEFA14A

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 8, 2011

XETA TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

Oklahoma	0-16231	73-1130045
(State or other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

1814 West Tacoma, Broken Arrow, Oklahoma	74012
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: 918-664-8200

Not Applicable

(Former name or former address if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

þ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 8.01. Other Events.

On February 9, 2011, XETA Technologies, Inc., an Oklahoma corporation (“XETA”), and PAETEC Holding Corp., a Delaware corporation (“PAETEC”), issued a joint press release announcing that they had entered into an Agreement and Plan of Merger dated February 8, 2011 (the “Merger Agreement”). Under the Merger Agreement, Hera Corporation, an Oklahoma corporation and an indirect wholly-owned subsidiary of PAETEC will merge with and into XETA, and as a result of the merger, XETA will become an indirect wholly-owned subsidiary of PAETEC. The merger consideration to XETA shareholders for their shares will be $5.50 cash per share. Concurrently with the execution and delivery of the Merger Agreement, Greg D. Forrest, XETA’s chief executive officer and a director, and Ronald L. Siegenthaler and Ozarslan A. Tangun, directors of XETA, who together represent in the aggregate ownership of approximately 16% of XETA’s outstanding common shares, entered into separate voting agreements with PAETEC whereby each shareholder committed, among other things, and subject to the terms and conditions of their respective voting agreements, to vote all of their respective shares in favor of the merger.

Completion of the merger is subject to the approval of XETA’s shareholders and other closing conditions.

XETA will file a preliminary proxy statement with the Securities and Exchange Commission, which will contain detailed information about the merger. Once the SEC completes its review of the preliminary proxy statement, XETA will file a definitive proxy statement with the SEC and distribute it to its shareholders.

A copy of the press release announcing the merger is attached as Exhibit 99.1 to this Current Report on Form 8-K, which is incorporated herein by reference. In addition, on February 9, 2011, Greg D. Forrest, Chief Executive Officer of XETA, sent a letter to XETA employees, which is attached hereto as Exhibit 99.2 and is incorporated herein by reference.

Additional Information About the Proposed Transaction and Where to Find It

In connection with the proposed transaction, XETA will file proxy materials (including a proxy statement and other relevant materials) with the Securities and Exchange Commission. Before making any voting decision, investors and shareholders are advised to read the definitive proxy statement regarding the merger and any other relevant documents filed by XETA with the SEC when they become available. The proxy statement and these documents will contain important information about the merger and XETA.

Investors and shareholders may obtain free copies of the proxy statement and other documents filed by XETA (when available) at the SEC’s website at http://www.sec.gov, or at the company’s website at http://www.xeta.com. The proxy statement and other documents may also be obtained, when available, for free from XETA by directing such request to XETA Technologies, Inc., 1814 W. Tacoma Street, Broken Arrow, Oklahoma 74102.

XETA and its directors, executive officers and other members of its management and employees may be deemed to be participants in the solicitation of proxies from XETA’s shareholders in connection with the proposed merger transaction. Information concerning the interests of those persons is set forth in XETA’s proxy statement relating to its 2010 annual shareholders meeting and in its annual report on Form 10-K for the fiscal year ended October 31, 2010, both filed with the SEC, and will also be set forth in the proxy statement relating to the merger transaction when it is filed and becomes available.

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Forward-Looking Statements

This Current Report on Form 8-K and the exhibits filed herewith contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements concerning XETA’s estimated revenues for fiscal 2011, estimated combined companies’ headcount, estimated closing date of the merger and future performance expectations. These and other forward-looking statements (generally identified by such words as “expects,” “plans,” “believes,” “likely,” “anticipates” and similar words or expressions) reflect management’s current expectations, assumptions and beliefs based upon information currently available to management. Investors are cautioned that all forward-looking statements are subject to certain risks and uncertainties which are difficult to predict and that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to: failure to obtain shareholder approval or failure to satisfy other conditions required for the consummation of the merger; failure or delay in consummation of the merger for other reasons; changes in laws or regulations; the condition of the U.S. economy and its impact on capital spending in XETA’s markets; the successful integration of recently acquired businesses into that of XETA and realization of anticipated synergies and growth opportunities from these transactions; changes in Avaya’s strategies regarding the provision of equipment and services to its customers; unpredictable quarter to quarter revenues; continuing success of XETA’s Mitel product and service offerings; XETA’s ability to maintain and improve upon current gross profit margins; intense competition and industry consolidation; dependence upon a few large wholesale customers for the recent growth in XETA’s Managed Services offering; and the availability and retention of revenue professionals and certified technicians. Additional factors that could affect actual results are described in the “Risk Factors” sections of XETA’s Form 10-K and Form 10-Q filings with the SEC.

Item 9.01. Exhibits.

(d) Exhibits

Exhibit No.	Description
Exhibit 99.1	Joint press release of XETA and PAETEC dated February 9, 2011.
Exhibit 99.2	Letter to XETA employees dated February 9, 2011.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	XETA TECHNOLOGIES, INC.
Dated: February 9, 2011	By:	/s/ Robert Wagner
		Robert Wagner
		Chief Financial Officer

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EXHIBIT INDEX

Exhibit No.	Description
Exhibit 99.1	Joint press release of XETA and PAETEC dated February 9, 2011.
Exhibit 99.2	Letter to XETA employees dated February 9, 2011.

EX-99.1

Exhibit 99.1

PAETEC Media Contact	PAETEC Investor Contact
Chris Muller	Pete Connoy
585.340.8218	585.340.2649
christopher.muller@paetec.com	peter.connoy@paetec.com
XETA Technologies Media Contact	XETA Technologies Investor Contact
Waller & Company Public Relations	Three Part Advisors, LLC
Barrett Waller	Dave Mossberg
918.587.1909	817.310.0051
barrett@wallerpr.com	dmossberg@threepa.com

FOR IMMEDIATE RELEASE

PAETEC Holding Corp. to Acquire XETA Technologies

Acquisition builds on PAETEC’s strategy of offering comprehensive, managed service
solutions to meet the diverse needs of Chief Information Officers

Enhances and strengthens the complete communication solutions for both XETA and
PAETEC customers nationwide

Transaction combines XETA’s strength as a one of the nation’s largest solutions services
providers for Managed Information Technology with PAETEC’s coast-to-coast network,
strong enterprise customer base, and deep product portfolio

FAIRPORT, N.Y. and BROKEN ARROW, Okla. — February 9, 2011 — PAETEC Holding Corp. (NASDAQ GS: PAET) today announced that it has signed a definitive agreement to acquire XETA Technologies, Inc. (NASDAQ GM: XETA) for $5.50 per share in cash valued at approximately $61 million.

Founded in 1981, XETA Technologies sells, installs and services advanced communication technologies for enterprise customers. XETA is among the largest full-service, providers of advanced communications solutions with 32 locations and redundant 24/7 customer contact and data network operating centers. At the time of the Avaya and Nortel merger, XETA was the only national provider with the highest accreditations from both companies, and will expand on those relationships with PAETEC’s existing platinum partnership with Avaya. XETA’s national coverage is ideally suited to serve large, multi-locations organizations such as PAETEC’s enterprise network customer base.

Consistent with PAETEC’s vertical strategy for over a decade, XETA has a strong focus on vertical industries including the Hospitality, Education, Healthcare, and Government sectors. As part of that focus, XETA has developed customized products and services including software solutions, proactive monitoring and remediation, guest and back-of-the-house support services for hospitality customers, as well as professional services.

XETA will also become part of PAETEC’s robust Managed Services portfolio, consisting of products such as hosted services, service lifecycle management software and Allworx IP-PBXs.

“This transaction highlights our strategy to increase our capabilities to service enterprise CIOs beyond traditional telecom products with advanced managed services and cloud computing solutions,” said Arunas A. Chesonis, chairman and CEO of PAETEC. “PAETEC and XETA have a consistent national footprint and customer base while offering complementary services. As a result of this transaction and combined portfolios, both companies will have far stronger value propositions for our customers.”

For XETA Technologies’ 2010 fiscal year ended Oct. 31, 2010, the company reported revenue of $85.7 million. For fiscal year 2011, XETA expects to generate over $100 million in revenue. After the closing of the transaction, PAETEC plans to have approximately 5,100 employees nationwide.

“After a thorough review of our strategic alternatives, our Board of Directors has unanimously determined that this transaction provides XETA shareholders a superior and certain value,” said Greg Forrest, CEO and president of XETA Technologies. “We have a 30 year history of delivering best in class services to our customers. With the expanded scale and scope of PAETEC, the value proposition to our customers, vendors and business partners has never been stronger.”

Transaction Terms and Structure

Under the terms of the merger agreement, which was approved by the boards of directors of both companies, XETA Technologies, Inc. will become an indirect wholly-owned subsidiary of PAETEC Holding Corp. Neither the merger agreement nor the merger is subject to the approval of PAETEC’s stockholders. The merger agreement is subject to the approval of XETA’s shareholders and other customary closing conditions. The companies expect that the transaction will close within three months.

Based on the 10,762,191¹ common and restricted shares issued and outstanding and the cashing-out of certain issued stock options and warrants, the aggregate equity value of this transaction is approximately $61 million. Based on net debt as of October 31, 2010 of $1.5 million, the aggregate enterprise value of this transaction is approximately $63 million.

Additional information about the transaction will be contained in public filings of XETA or PAETEC filed with the SEC.

Advisors

Stephens Inc. is acting as financial advisor to PAETEC and Harter, Secrest & Emery is acting as legal counsel to PAETEC. Stifel Nicolaus Weisel is acting as financial advisor and Barber & Bartz and Mayer Brown are acting as legal counsel to XETA.

About PAETEC

PAETEC (NASDAQ: PAET), a FORTUNE 1000 company, is personalizing business communications for medium and large businesses, enterprise organizations and institutions across the United States. We offer a comprehensive suite of IP, voice, data, and Internet services, as well as enterprise communications management software, network security solutions, CPE, and managed services. For more information, visit www.paetec.com.

¹ This amount was incorrectly listed as 19,730,236 shares as of December 17, 2010 in XETA Technologies’ most recent Annual Report on Form 10-K.

About XETA Technologies, Inc.

XETA Technologies, Inc., sells, installs and services advanced communication technologies for small, medium and Fortune 1000 enterprise customers. XETA maintains the highest level of technical competencies with multiple vendors, including Avaya/Nortel, Mitel, Hitachi, Samsung, HP, Polycom, Microsoft, Alcatel-Lucent, ShoreTel, LifeSize and Juniper. With a 29-year operating history and over 16,000 customers from coast to coast, XETA has maintained a commitment to extraordinary customer service. XETA’s in-house 24/7/365 contact center, combined with a nationwide service footprint, offers customers comprehensive equipment service programs that ensure network reliability and maximized network up-time. More information about XETA Technologies (Nasdaq GM:XETA) is available at www.xeta.com. Click on the following link to join our e-mail alert list: http://www.b2i.us/irpass.asp?BzID=1585&to=ea&s=0.

Forward-Looking Statements

Except for statements that present historical facts, this release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. In some cases, you can identify these statements by such forward-looking words as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will” and “would,” or similar expressions. The forward-looking statements reflect preliminary estimates based on current information and assumptions, and represent PAETEC’s and XETA’s judgment only as of the date of this press release. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual operating results, financial position, levels of activity or performance to be materially different from those expressed or implied by such forward-looking statements. The risks include those related to PAETEC’s acquisition and integration of XETA, such as the ability of PAETEC and XETA to consummate the acquisition, and PAETEC’s ability to integrate the operations of XETA without greater than expected costs and burdens on management . Some of the other risks, uncertainties and factors are discussed under the caption “Risk Factors” in PAETEC’s 2009 Annual Report on Form 10-K and in PAETEC’s subsequently filed SEC reports, and under the caption “Risk Factors” in XETA’s Annual Report on Form 10-K for the fiscal year ended October 31, 2010, as amended, and in XETA’s other SEC reports. They include, but are not limited to, the following risks,

uncertainties and other factors: general economic conditions and trends; the continued availability of necessary network elements at acceptable cost from competitors; changes in regulation and the regulatory environment; industry consolidation; the companies’ ability to manage their businesses effectively; competition in the markets in which PAETEC operates; failure to adapt product and service offerings to changes in customer preferences and in technology; PAETEC’s ability to integrate the operations of acquired businesses; PAETEC’s ability to implement its acquisition strategy; any significant impairment of PAETEC’s goodwill; future sales of PAETEC’s common stock in the public market and PAETEC’s ability to raise capital in the future; interest rate risks and compliance with covenants under PAETEC’s debt agreements; the companies’ ability to attract and retain qualified personnel and sales agents; the companies’ failure to obtain and maintain network permits and rights-of-way; their involvement in disputes and legal proceedings; PAETEC’s ability to maintain and enhance its back office systems; and effects of network failures, system breaches, natural catastrophes and other service interruptions. PAETEC and XETA each disclaim any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Additional Information About the Proposed Transaction and Where to Find It

In connection with the proposed transaction, XETA will file proxy materials (including a proxy statement and other relevant materials) with the Securities and Exchange Commission. Before making any voting decision, investors and shareholders are advised to read the proxy statement regarding the merger and any other relevant documents filed with the SEC when they become available. Those documents will contain important information about the proposed merger and XETA.

Investors and shareholders may obtain free copies of the proxy statement and other documents filed by XETA (when available) at a website maintained by the SEC at http://www.sec.gov. In addition, documents filed by XETA with the SEC will be available free of charge at the investor relations portion of the company’s website at http://www.xeta.com. The proxy statement and such other documents may also be obtained, when available, for free from XETA by directing such request to XETA Technologies, Inc., 1814 W. Tacoma Street, Broken Arrow, Oklahoma 74102.

Participants in the Solicitation

XETA and its directors, executive officers and other members of its management and employees may be deemed to be participants in the solicitation of proxies from XETA’s shareholders in connection with the proposed merger transaction. The names of the company’s directors and executive officers and a description of their interest in the company are set forth in XETA’s proxy statement relating to its 2010 annual shareholder meeting which was filed with the SEC on February 26, 2010 and in its annual report on Form 10-K for the fiscal year ended October 31, 2010 which was filed with the SEC on January 25, 2011 and amended on January 28, 2011. Investors and shareholders can obtain more detailed information regarding the direct and indirect interests of the company directors and executive officers in the merger transaction by reading the proxy statement when it becomes available.

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EX-99.2

Exhibit 99.2

Greg Forrest
CEO and President

February 9, 2011

From: Greg Forrest
To: All XETA Employees

In a press release issued this morning, XETA announced that we have entered into a merger agreement with PAETEC Holding Corp. (NASDAQ GS: PAET) (www.paetec.com). PAETEC is a Fortune 1000 full service communications provider headquartered outside of Rochester, New York. The company will have over $2 billion in annual revenue and over 5,000 employees after the completion of the acquisition of XETA. PAETEC’s primary business is providing voice and data services to business customers in most of the top 100 metropolitan markets in the U.S. Additionally, PAETEC has expanded its breadth of offerings to include other related services and products to fulfill the needs of CIOs.

This combination provides for a terrific platform for XETA to continue to evolve. For well over a year now we have executed our growth plans, added significant talent and broadened our product and service offerings. Considering the obvious benefits to our shareholders, this merger provides many benefits to all our stakeholders. As an employee, you will soon be part of a much larger business with greater opportunities to learn and grow. Our customers will benefit from new product and service offerings such as carrier & data center services, proprietary business intelligence software and a proprietary IP PBX switch. Our vendors will additionally benefit from the new scale and scope of our company.

I’d like to give you some background on what has occurred up until this point. As you know from XETA’s own evolution and growth in the last 12 months, we believed our company needed to be larger and broader to continue to be relevant to our customers and to maintain our long-standing brand as the high quality service provider in our markets. Our organization made great strides in carrying out our strategies and accomplishing our goals. As we evolved, many companies in the market took notice and our company became attractive to various organizations. Our board of directors went through a comprehensive and time consuming process of examining various alternatives and collectively, with the respective management teams, felt there was a strong strategic fit between XETA and PAETEC.

We believe this transaction is a good example of how the whole is greater than the sum of all its parts. Combined, PAETEC and XETA will have a stronger overall value proposition to customers. Both of our organizations have focused on customer industry verticals, such as hospitality, retail, healthcare, education and government.

We realize you will have questions regarding this proposed transaction and we will do our best to keep you informed as information becomes available. We have created a FAQ (frequently asked questions) page here https://sp.xeta.com for you to view posted materials and to submit your questions pertaining to this proposed merger. All questions will be kept in confidence.

It is highly important for us to continue to operate as business as usual, realizing this is easier said than done. We expect the completion of this transaction to take up to three months to close.

I am very proud of what the XETA team has accomplished over the last few years, and I truly believe the next chapter of our organization will be an even greater success for our employees, customers, vendors and all other stakeholders.

Regards,

Greg Forrest
CEO and President

Additional Information. In connection with the proposed transaction, XETA will file a proxy statement and other relevant materials with the Securities and Exchange Commission. Before making any voting decision on the proposed merger, you should read the proxy statement and other materials regarding the merger, and any other relevant documents filed with the SEC when they become available. Those documents will contain important information about the proposed merger. You will be able to obtain copies of the proxy statement when it is available and other documents filed by XETA for free at the SEC’s website at http://www.sec.gov or at the company’s website at http://www.xeta.com. XETA and its directors, executive officers and other members of its management and employees may be deemed to be participants in the solicitation of proxies from XETA’s shareholders in connection with the proposed merger transaction. Information concerning the interests of those persons is contained in XETA’s proxy statement relating to its 2010 annual shareholders meeting and in its annual report on Form 10-K for the fiscal year ended October 31, 2010, both filed with the SEC, and will also be contained in the proxy statement relating to the merger transaction when it is filed and becomes available.