-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QBWeqslMvi7gNt7wqgYS/9OZuMMHP02ltoXKqmsyMqSjlT8JYs9rd7cWI9e38Xf7 E6ZulX1kHN++9qBXwctNNQ== 0000950134-03-009163.txt : 20030613 0000950134-03-009163.hdr.sgml : 20030613 20030613123214 ACCESSION NUMBER: 0000950134-03-009163 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030430 FILED AS OF DATE: 20030613 FILER: COMPANY DATA: COMPANY CONFORMED NAME: XETA TECHNOLOGIES INC CENTRAL INDEX KEY: 0000742550 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 731130045 STATE OF INCORPORATION: OK FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16231 FILM NUMBER: 03743257 BUSINESS ADDRESS: STREET 1: 1814 WEST TACOMA CITY: BROKEN ARROW STATE: OK ZIP: 74012 BUSINESS PHONE: 9186648200 MAIL ADDRESS: STREET 1: 1814 WEST TACOMA CITY: BROKEN ARROW STATE: OK ZIP: 74012 FORMER COMPANY: FORMER CONFORMED NAME: XETA CORP DATE OF NAME CHANGE: 19920703 10-Q 1 d06765e10vq.txt FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-16231 XETA Technologies, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Oklahoma 73-1130045 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employee incorporation or organization) Identification No.) 1814 W. Tacoma, Broken Arrow, OK 74012-1406 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) 918-664-8200 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] Number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Class Outstanding at May 31, 2003 - ------------------------------ --------------------------------------- Common Stock, $.001 par value 9,752,952 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets - April 30, 2003 and October 31, 2002 Consolidated Statements of Operations - For the Three and six months ended April 30, 2003 and 2002 Consolidated Statement of Shareholders' Equity - For the Six Months Ended April 30, 2003 Consolidated Statements of Cash Flows - For the Six months ended April 30, 2003 and 2002 Notes to Consolidated Financial Statements 2 XETA TECHNOLOGIES, INC. CONSOLIDATED BALANCE SHEETS
April 30, 2003 October 31, 2002 -------------- ---------------- (Unaudited) ASSETS Current Assets: Cash and cash equivalents $ 4,935,871 $ 1,966,734 Current portion of net investment in sales-type leases and other receivables 615,278 1,015,096 Trade accounts receivable, net 7,489,328 9,478,706 Inventories, net 6,563,794 7,801,781 Deferred tax asset, net 740,466 592,643 Prepaid taxes - 1,195,539 Prepaid expenses and other assets 325,471 165,657 ------------ ------------ Total current assets 20,670,208 22,216,156 ------------ ------------ Noncurrent Assets: Goodwill, net of accumulated amortization prior to adoption of SFAS 142 25,754,674 25,782,462 Net investment in sales-type leases, less current portion above 447,274 519,270 Property, plant & equipment, net 10,434,147 10,457,718 Capitalized software production costs, net of accumulated amortization of $1,143,065 and $1,053,066 147,956 237,955 Other assets 148,619 170,424 ------------ ------------ Total noncurrent assets 36,932,670 37,167,829 ------------ ------------ Total assets $ 57,602,878 $ 59,383,985 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 3,288,337 $ 3,288,337 Revolving line of credit 2,000,000 - Accounts payable 2,308,530 6,119,135 Unearned revenue 2,382,973 2,078,741 Accrued taxes 209,196 - Accrued liabilities 1,962,573 1,968,771 Other Liabilities 174,702 181,501 ------------ ------------ Total current liabilities 12,326,311 13,636,485 ------------ ------------ Noncurrent liabilities: Long-term debt, less current portion above 9,920,844 11,565,012 Accrued long-term liabilities 192,181 240,955 Unearned service revenue 216,375 233,859 Noncurrent deferred tax liability, net 1,567,362 1,186,680 ------------ ------------ 11,896,762 13,226,506 ------------ ------------ Commitments and contingencies Shareholders' equity: Preferred stock; $.10 par value; 50,000 shares authorized, 0 issued - - Common stock; $.001 par value; 50,000,000 shares authorized, 10,771,740 and 10,721,740 issued at April 30, 2003 and October 31, 2002, respectively 10,771 10,721 Paid-in capital 12,243,111 12,193,029 Retained earnings 23,476,801 22,672,256 Accumulated other comprehensive loss (106,219) (110,353) Less treasury stock, at cost (2,244,659) (2,244,659) ------------ ------------ Total shareholders' equity 33,379,805 32,520,994 ------------ ------------ Total liabilities and shareholders' equity $ 57,602,878 $ 59,383,985 ============ ============
The accompanying notes are an integral part of these consolidated balance sheets. 3 XETA TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED
For the Three Months For the Six Months Ended April 30, Ended April 30, 2003 2002 2003 2002 ---- ---- ---- ---- Systems sales $ 6,009,696 $ 6,172,320 $ 14,734,805 $ 13,517,361 Installation and service revenues 5,605,114 6,322,735 11,721,619 12,389,574 Other revenues 150,687 64,054 740,478 415,238 ------------ ------------ ------------ ------------ Net sales and service revenues 11,765,497 12,559,109 27,196,902 26,322,173 ------------ ------------ ------------ ------------ Cost of systems sales 3,965,590 4,410,582 10,393,802 9,445,968 Installation and services costs 3,970,932 4,822,877 8,331,339 9,549,927 Cost of other revenues & corporate COGS 392,322 411,220 1,116,013 1,152,472 ------------ ------------ ------------ ------------ Total cost of sales and service 8,328,844 9,644,679 19,841,154 20,148,367 ------------ ------------ ------------ ------------ Gross profit 3,436,653 2,914,430 7,355,748 6,173,806 ------------ ------------ ------------ ------------ Operating expenses: Selling, general and administrative 2,755,118 2,715,783 5,692,473 5,330,590 Amortization 45,000 45,000 90,000 90,000 ------------ ------------ ------------ ------------ Total operating expenses 2,800,118 2,760,783 5,782,473 5,420,590 ------------ ------------ ------------ ------------ Income from operations 636,535 153,647 1,573,275 753,216 Interest expense (160,895) (229,891) (340,572) (484,851) Interest and other income 39,670 86,824 89,842 198,455 ------------ ------------ ------------ ------------ Subtotal (121,225) (143,067) (250,730) (286,396) Income before provision for income taxes 515,310 10,580 1,322,545 466,820 Provision for income taxes 202,000 4,000 518,000 184,000 ------------ ------------ ------------ ------------ Net income $ 313,310 $ 6,580 $ 804,545 $ 282,820 ============ ============ ============ ============ Earnings per share Basic $ 0.03 $ 0.00 $ 0.08 $ 0.03 ============ ============ ============ ============ Diluted $ 0.03 $ 0.00 $ 0.08 $ 0.03 ============ ============ ============ ============ Weighted average shares outstanding 9,723,709 9,237,952 9,713,143 9,237,952 ============ ============ ============ ============ Weighted average equivalent shares 9,936,926 9,917,943 9,940,279 9,883,122 ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated statements. 4 XETA TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY UNAUDITED
Common Stock Treasury Stock -------------------------- ---------------------------- Shares Issued Par Value Shares Amount Paid-in Capital ---------- ----------- --------- ------------ --------------- Balance-October 31, 2002 10,721,740 $ 10,721 1,018,788 $(2,244,659) $12,193,029 Stock options exercised $.001 par value 50,000 50 - - 12,450 Tax benefit of stock options - - - - 37,632 Components of comprehensive income: Net income - - - - - Unrealized gain on hedge, net of tax of $2,665 - - - - - Total comprehensive income ---------- ----------- --------- ----------- ----------- Balance-April 30, 2003 10,771,740 $ 10,771 1,018,788 $(2,244,659) $12,243,111 ========== =========== ========= =========== =========== Accumulated Other Comprehensive Retained Loss Earnings Total ----------------- -------- ----- Balance-October 31, 2002 $ (110,353) $22,672,256 $32,520,994 Stock options exercised $.001 par value - - 12,500 Tax benefit of stock options - - 37,632 Components of comprehensive income: Net income - 804,545 804,545 Unrealized gain on hedge, net of tax of $2,665 4,134 - 4,134 ----------- Total comprehensive income 808,679 ----------- ----------- ----------- Balance-April 30, 2003 $ (106,219) $23,476,801 $33,379,805 =========== =========== ===========
5 XETA TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended April 30, 2003 2002 ------------ ------------ Cash flows from operating activities: Net income $ 804,545 $ 282,820 ------------ ------------ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 489,434 542,810 Amortization 90,000 90,000 Loss (gain) on sale of assets (750) 4,851 Provision for (reversal of) returns & doubtful accounts receivable - (48,200) Provision for excess and obsolete inventory 81,082 105,709 Change in assets and liabilities, net of acquisitions: Decrease in net investment in sales-type leases & other receivables 471,814 1,285,226 Decrease in trade receivables 1,989,378 7,904,321 Decrease in inventories 1,156,905 815,304 (Increase) decrease in deferred tax asset (147,823) 499,516 (Increase) decrease in prepaid expenses and other assets (138,009) 15,449 (Increase) decrease in prepaid taxes 1,195,539 (1,022,032) Decrease in accounts payable (3,810,605) (1,204,076) Increase (Decrease) in unearned revenue 286,748 (712,902) Increase in accrued income taxes 228,306 92,375 Decrease in accrued liabilities (54,972) (902,716) Increase in deferred tax liabilities 424,327 311,190 ------------ ------------ Total adjustments 2,261,374 7,776,825 ------------ ------------ Net cash provided by operating activities 3,065,919 8,059,645 ------------ ------------ Cash flows from investing activities: Additions to property, plant & equipment (467,682) (1,120,807) Proceeds from sale of assets 2,568 - ------------ ------------ Net cash used in investing activities (465,114) (1,120,807) ------------ ------------ Cash flows from financing activities: Proceeds from draws on revolving line of credit 2,000,000 14,250,000 Principal payments on debt (1,644,168) (2,644,171) Payments on revolving line of credit - (18,750,000) Exercise of stock options 12,500 - ------------ ------------ Net cash provided by (used in) financing activities 368,332 (7,144,171) ------------ ------------ Net increase (decrease) in cash and cash equivalents 2,969,137 (205,333) Cash and cash equivalents, beginning of period 1,966,734 597,889 ------------ ------------ Cash and cash equivalents, end of period $ 4,935,871 $ 392,556 ============ ============ Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 486,003 $ 712,834 Cash paid during the period for income taxes $ 107,388 $ 300,163 Contingent consideration paid to target shareholder $ - $ 1,000,000
The accompanying notes are an integral part of these consolidated statements. 6 XETA TECHNOLOGIES, INC. APRIL 30, 2003 (Unaudited) 1. BASIS OF PRESENTATION The consolidated financial statements herein include the accounts of XETA Technologies, Inc. and its wholly-owned subsidiaries, U.S. Technologies Systems, Inc. and Xetacom, Inc. (the "Company" or "XETA"). Xetacom's operations have been insignificant to date. All significant intercompany accounts and transactions have been eliminated. Effective May 1, 2003, the Company effected a statutory merger of UST into XETA. The purpose of the merger was to reduce costs associated with the filing of income tax and other regulatory forms. There was no effect on the operations of the Company associated with the merger. The accompanying consolidated financial statements have been prepared by the Company, without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures, normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States, have been condensed or omitted pursuant to those rules and regulations. However, the Company believes that the disclosures made are adequate to make the information presented not misleading when read in conjunction with the consolidated financial statements and the notes thereto included in the Company's latest financial statements filed as part of the Company's Annual Report on Form 10-K, Commission File No. 0-16231. Management believes that the financial statements contain all adjustments necessary for a fair statement of the results for the interim periods presented. All adjustments made were of a normal recurring nature. The results of operations for the interim period is not necessarily indicative of the results for the entire fiscal year. These statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Annual Report on Form 10-K, which was filed with the SEC on January 29, 2003, reflecting the operating results of the Company. 2. INVENTORIES: Inventories are stated at the lower of cost (first-in, first-out or average) or market and consist of the following components:
April 30, October 31, 2003 2002 ------------ ---------- (Unaudited) Finished goods and spare parts $ 7,218,897 $ 8,234,020 Raw materials 335,781 354,380 ------------ ------------ 7,554,678 8,588,400 Less- reserve for excess and obsolete inventories 990,884 786,619 ------------ ------------ Total inventories, net $ 6,563,794 $ 7,801,781 ============ ============
7 3. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment consist of the following:
Estimated Useful April 30, October 31, Lives 2003 2002 --------- ------------ ------------ (Unaudited) Building 20 $ 2,397,954 $ 2,397,954 Data processing and computer field equipment 3-5 4,121,607 4,121,640 Land - 611,582 611,582 Office furniture 5 1,103,652 1,073,851 Auto 5 126,743 126,743 Other 3-7 620,810 634,213 ------------ ------------ Total property, plant and equipment 8,982,348 8,965,983 Less- accumulated depreciation 4,835,413 4,397,821 ------------ ------------ Net property, plant and equipment 4,146,935 4,568,162 Construction in progress 6,287,212 5,889,556 Total property, plant and equipment, net $ 10,434,147 $ 10,457,718 ============ ============
Construction in progress includes capitalized interest of $572,000 and $408,000 for the periods ended April 30, 2003 and October 31, 2002, respectively. Upon completion of the project, the total cost is expected to be depreciated over an average life of 7 years. 4. ACCRUED LIABILITIES: Accrued liabilities consist of the following:
April 30, October 31, 2003 2002 ------------- ----------- (Unaudited) Commissions $ 492,834 $ 428,460 Vacation 453,803 481,228 Payroll 421,817 417,171 Bonuses 205,416 213,735 Interest 12,064 11,265 Other 376,639 416,912 ------------- ------------- Total current 1,962,573 1,968,771 Noncurrent liabilities 192,181 240,955 ------------- ------------- Total accrued liabilities $ 2,154,754 $ 2,209,726 ============= =============
5. UNEARNED REVENUE: Unearned revenue consists of the following:
April 30, October 31, 2003 2002 ------------ ------------ (Unaudited) Customer deposits $ 1,036,442 $ 897,171 Service contracts 889,921 785,067 Warranty service 295,730 366,586 Systems shipped but not installed 118,071 28,866 Other 42,809 1,051 ----------- ----------- Total current unearned revenue 2,382,973 2,078,741 Noncurrent unearned service contract revenue 216,375 233,859 ----------- ----------- Total unearned revenue $ 2,599,348 $ 2,312,600 =========== ===========
8 6. INCOME TAXES: Income tax expense is based on pretax financial accounting income. Deferred income taxes are computed using the asset-liability method in accordance with SFAS No. 109, "Accounting for Income Taxes" and are provided on all temporary differences between the financial basis and the tax basis of the Company's assets and liabilities. The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
April 30, October 31, 2003 2002 ----------- ----------- (Unaudited) Deferred tax assets: Nondeductible reserves $ 636,935 $ 466,292 Prepaid service contracts 127,345 168,210 Unamortized cost of service contracts 33,995 52,788 Other 146,491 119,418 ----------- ----------- Total deferred tax asset 944,766 806,708 ----------- ----------- Deferred tax liabilities: Intangible assets and other 1,667,064 1,257,404 Tax income to be recognized on sales-type lease contracts 46,600 50,062 Unamortized capitalized software development costs 57,998 93,279 ----------- ----------- Total deferred tax liability 1,771,662 1,400,745 ----------- ----------- Net deferred liability $ (826,896) $ (594,037) =========== ===========
7. CREDIT AGREEMENTS: On May 16, 2003, the Company and its banking partners executed a restructuring of the Company's credit facility. Under the restructuring agreement, the line of credit supported by a borrowing base of accounts receivables and inventories was expanded to $7,500,000 and the term loan was reduced by $6,500,000. This reduction in the term loan was effected by using $4,000,000 million in cash on hand and borrowing an additional $2,500,000 under the expanded line of credit. The Company will continue to make the same monthly principal payments on the term loan. Also, certain financial covenants contained in the credit facility were modified to reflect the adjustments in the structure of the facility and the Company's current levels of profitability. Specifically, the debt service coverage ratio was replaced with an EBIDA requirement of $700,000 per quarter. After the restructuring, the Company's total debt was $11.2 million which included $4.4 million in term debt, $2.3 million owed on a mortgage note, and $4.5 million owed under the working capital revolver. The Company is currently in compliance with all of the financial covenants contained in the new credit agreement. Prior to the restructuring discussed above, long-term debt consisted of the following:
April 30, October 31, 2003 2002 ----------- ----------- (Unaudited) Bank line of credit, due December 31, 2003, secured by a borrowing base of accounts receivable and inventories. $ 2,000,000 $ - Term loan, payable in monthly installments of $259,861, due December 31, 2003 collateralized by all assets of the Company. 10,914,181 12,473,349 Real estate term note, payable in monthly installments of $14,166, due December 31, 2003, secured by a first mortgage on the Company's headquarters building. 2,295,000 2,380,000 ----------- ----------- 15,209,181 14,853,349 Less-current maturities 5,288,337 3,288,337 ----------- ----------- $ 9,920,844 $11,565,012 =========== ===========
9 Interest on all outstanding debt under the credit facility accrues at either a) the London Interbank Offered Rate (which was 1.32% at April 30, 2003) plus 3.75% or b) the bank's prime rate (which was 4.25% at January 31, 2003) plus 1%. The credit facility requires, among other things, that the Company maintain a minimum net worth, working capital and debt service coverage ratio and limits capital expenditures. At April 30, 2003, the Company was either in compliance with the covenants of the credit facility or had received the appropriate waivers from its bank. Based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities, the fair value of the long-term debt approximates the carrying value. 8. STOCK OPTIONS: Accounting for stock options issued to employees is governed by SFAS 123, "Accounting for Stock Based Compensation." Generally, SFAS 123 requires companies to record in their financial statements the compensation expense, if any, related to stock options issued to employees. Under an alternative accounting method adopted by the Company, SFAS 123 allows the Company to only disclose the impact of issued stock options as if the expense had been recorded in the financial statements. Had the Company recorded compensation expense related to its stock option plans in accordance with SFAS 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
For the Three Months For the Six Months Ended April 30, Ended April 30, --------------------------- --------------------------- 2003 2002 2003 2002 ---- ---- ---- ---- Net income as reported $ 313,310 $ 6,580 $ 804,545 $ 282,820 Less: total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects 179,187 160,315 358,375 320,629 ----------- ----------- ----------- Pro forma net income (loss) $ 134,123 $ (153,735) $ 446,170 $ (37,809) =========== =========== =========== =========== EARNINGS PER SHARE: As reported - Basic $ .03 $ .00 $ .08 $ .03 As reported - Diluted $ .03 $ .00 $ .08 $ .03 Pro forma - Basic $ .01 $ (.02) $ .05 $ .00 Pro forma - Diluted $ .01 $ (.02) $ .04 $ .00
The fair value of the options granted was estimated at the date of grant using the Modified Black-Scholes European pricing model with the following assumptions: risk free interest rate (4.46% to 5.78%), dividend yield (0.00%), expected volatility (80.50% to 86.31%), and expected life (6 years). 9. FOOTNOTES INCORPORATED BY REFERENCE: Certain footnotes are applicable to the consolidated financial statements, but would be substantially unchanged from those presented in the Company's Annual Report on Form 10-K, Commission File No. 0-16231, filed with the Securities and Exchange Commission on January 29, 2003. Accordingly, reference should be made to those statements for the following: 10
Note Description - ---- ----------- 1 Business and Summary of Significant Accounting Policies 2 Acquisitions 3 Accounts Receivable 8 Income Taxes 10 Stock Options 11 Earnings Per Share 12 Commitments 13 Major Customers and Concentrations of Credit Risk 14 Employment Agreements 15 Contingencies 16 Retirement Plan
11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS, WHICH ARE SUBJECT TO THE PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THESE STATEMENTS INCLUDE, WITHOUT LIMITATION, STATEMENTS CONCERNING EXPECTATIONS REGARDING: OUR FINANCIAL POSITION INCLUDING SALES, REVENUES, GROSS MARGINS, OPERATING MARGINS AND EXPENSES, AND EARNINGS FOR THE THIRD QUARTER; TRENDS AND CONDITIONS IN THE U.S. ECONOMY AND IN THE COMMUNICATIONS TECHNOLOGY INDUSTRY; AND OUR ABILITY TO IMPLEMENT OUR CURRENT BUSINESS PLAN. THESE AND OTHER FORWARD-LOOKING STATEMENTS (GENERALLY IDENTIFIED BY SUCH WORDS AS "EXPECTS," "PLANS," "BELIEVES," "ANTICIPATES" "FORECASTS," "PREDICTS," AND SIMILAR WORDS OR EXPRESSIONS) ARE NOT GUARANTEES OF PERFORMANCE BUT RATHER REFLECT OUR CURRENT EXPECTATIONS, ASSUMPTIONS AND BELIEFS BASED UPON INFORMATION CURRENTLY AVAILABLE TO US. 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. MANY OF THESE RISKS AND UNCERTAINTIES ARE DESCRIBED UNDER THE HEADING "OUTLOOK AND RISK FACTORS" BELOW. CONSEQUENTLY, ALL FORWARD-LOOKING STATEMENTS SHOULD BE READ IN CONJUNCTION WITH THE RISK FACTORS DISCUSSED HEREIN AND THROUGHOUT THIS REPORT TOGETHER WITH THE RISK FACTORS IDENTIFIED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K, WHICH WAS FILED ON JANUARY 29, 2003. GENERAL For the quarter ending April 30, 2003, we earned $313,000 on revenues of $11.8 million compared to earnings of $7,000 on revenues of $12.6 million for the same quarter a year ago. This dramatic increase in our earnings despite a 6% decrease in revenues reflects the strict cost controls and improved efficiencies that we have put in place over the past 24 months and improved profit margins earned on all of our revenue streams. For the year to date period, we earned $805,000 on revenues of $27.2 million in fiscal 2003 compared to earnings of $283,000 on revenues of $26.3 million in the prior year. The second quarter also included strong cash flows. We generated $4.5 million in cash from operations through earnings and reductions in receivables and inventories. We used these cash flows to reduce our debt by $822,000 in scheduled principal reductions during the quarter. More significantly, subsequent to the close of the second quarter, we signed an amendment to restructure our credit facility which allowed us to reduce our total debt by an additional $4 million and expand our available line of credit to $7.5 million. The restructuring agreement is discussed further below under "Financial Condition". Despite the improvements in our earnings and cash flows, capital spending in the U.S., especially in the technology sector, remains sluggish. A pall of pessimism continues to mark most customers' attitudes despite recent signs of improvements in consumer confidence and partial resolution of geopolitical concerns in the Middle East, specifically with regards to the U.S.' confrontation with Iraq. Nevertheless, we do not see any tangible signals of increased capital spending that would significantly affect our near-term operating results. Therefore, we will continue to operate cautiously and we expect our third quarter results to be similar to the quarter just ended with earnings to fall in the 1 to 5 cent range. Notwithstanding the continuing macro-economic conditions, we continue to firmly believe in the strategic vision that we began pursuing three and a half years ago. That strategy was based in large part on the technological changes that were emerging at the time, specifically the convergence of voice and data technologies. We also believed that by expanding from our roots in the lodging industry to the general commercial market, we were entering a larger market that would provide us with large potential growth rates even if the overall market grew only modestly. From a research and development viewpoint, the development of convergence communications products has continued unabated despite slow economic conditions during the past two years. During that time, Avaya has released a raft of new products, all of which are Internet Protocol-based technology. Customer acceptance of this technology is increasing as well. With few exceptions, customers who are making purchasing decisions are opting for the new technology in an effort to not be "left behind" with traditional voice switches. 12 In summary, we believe that we are strategically positioned to take advantage of the dramatic technological changes that are occurring in our industry. We believe we have built an operating infrastructure that will provide us with both a competitive advantage and a leveraged operating statement that will generate higher rates of growth in earnings on lower revenue growth rates as our market recovers. However, current macro-economic conditions present us with significant short-term challenges. We believe that it is in the best long-term interest of our shareholders to preserve the technical competence and market position that we have built in the last three years. However, should the current economic conditions continue or worsen in the short-term, we may be forced to take actions which could set us back in the pursuit of our long-term strategy. The following discussion presents additional information regarding our financial condition and results of operations for the quarter ending April 30, 2003 and should be read in conjunction with our comments above as well as the Outlook and Risk Factors discussion contained at the end of this section of the report. FINANCIAL CONDITION During the first six months of the year, we generated cash from operations of $3.1 million. These positive cash flows were primarily generated during the quarter just completed as we continued to earn modest profits and reduced receivables and inventories. Our receivables and inventories are near three-year lows reflecting the close management of these balances coupled with the poor economic conditions we are currently experiencing. We used these cash flows primarily to reduce our debt. Through April 30, and prior to our debt restructuring, we reduced our term debt and mortgage by a combined $1.6 million dollars. Net borrowings on our line of credit have been $2 million and we have spent $468,000 on capital expenditures in the first half of the year. As discussed above, subsequent to the close of our second quarter, we closed on a debt restructuring agreement with our banks. Under the agreement, our total debt was reduced by $4 million, availability under our revolving line of credit was increased to $7.5 million, and a new EBIDA requirement was instituted to replace the debt service coverage ratio. Finally, the term debt that was incurred to finance our expansion into the commercial market during fiscal 2000 and 2001 has been reduced by $6.5 million and is now expected to be retired in 18 months. This reduction was accomplished by using $4 million in cash on hand plus drawing an additional $2.5 million under the line of credit. We will continue the previous debt service requirements on the term loan which will result in an acceleration of previous amortization period. We believe that this restructuring is a significant and positive milestone as we seek to move to a traditional capital structure in which our financing needs are supported primarily by current assets and real estate. We are currently in compliance with all of the financial covenants contained in our new credit agreement and while no assurance can be given, we expect to continue to be in compliance the remainder of the fiscal year under the restructured credit agreement. RESULTS OF OPERATIONS For the quarter ending April 30, 2003, our revenues were $11.8 million, compared to $12.6 million in the second quarter of last year. Despite the decline in revenues, however, a significant increase in our profit margins enabled us to report net income of $313,000, a substantial increase over the $7,000 reported in the second quarter of last year. Year-to-date revenues were $27.2 million, compared to $26.3 million in the first half of last year. Year-to-date net income was $805,000, compared to net income of $283,000 first half of fiscal 2002. This increase in net income was also largely fueled by improvements in gross margins. Discussed below are the major revenue, gross margin, and operating expense items that affected our financial results during the first quarter of fiscal 2003. Systems Sales. Systems sales for the second quarter were $6.0 million compared to $6.2 million last year. Year-to-date systems revenues were $14.7 million compared to $13.5 million last year. These mixed results reflect the continued fragile economic conditions in which we operate. U.S. businesses continue to demonstrate a strong aversion to capital spending commitments and we see no significant signs that this trend will change in the near future. A bright spot in our systems sales in the second quarter was our sales of systems to lodging customers which were up 68% over last year and were nearly double first quarter sales. 13 Our backlog of lodging customer orders remains strong beginning the third quarter. However, we believe these increases represent isolated cases of capital spending in this market sector as the lodging sector as a whole continues to suffer as one of the hardest hit in the U.S. economy. Sales of systems to commercial customers were down 18% in the second quarter compared to last year, but are up 14% for the year-to-date period. To combat the current capital spending environment, we will continue to operate in a cautious manner with a primary goal of maintaining the personnel and infrastructure that provides our competitive advantage in the market. In addition, we have initiated a few, limited growth tactics. Specifically, we are hiring additional sales personnel to focus on mid-market opportunities in strategic cities in the United States. We define midmarket as a customer who generally has more than 100 employees, but is not a large, multi-national or "Fortune 500" type customer. Furthermore, our emphasis is on midmarket companies that have a need for multi-site, networked communications systems that fit well with our nationwide implementation capabilities. From a long-term perspective, we believe that such customers are key to our success since we should have the opportunity to sell our full-range of services, including recurring maintenance services to them. Currently, much of our equipment sales in the commercial segment are to Avaya "named" accounts. Many times, in these cases, Avaya invites us into the account to provide the equipment and installation as part of their Business Partner program. However, we are often not permitted to sell our own service plans to these "named" customers and therefore our ability to generate recurring revenue from this customer base is limited. By broadening our customer focus through this Mid-market initiative, we expect to begin building a base of recurring revenue. Our efforts to expand in this area are being funded largely by cash incentives received from Avaya under market development programs available to their certified dealers. Given our present low level of earnings and limited access to working capital, these initiatives must gain traction and quickly produce gross profit contributions for us to continue to pursue them. Installation and Service Revenues. Installation and service revenues consist of the following:
For the Three Months For the Six Months Ended April 30, Ended April 30, ------------------------- -------------------------- 2003 2002 2003 2002 ---- ---- ---- ---- Contract & Time and Materials (T&M) $4,147,000 $4,714,000 $ 8,389,000 $ 9,257,000 Commercial installations 551,000 757,000 1,307,000 1,372,000 Lodging installations 483,000 373,000 908,000 795,000 Consulting 424,000 479,000 1,118,000 965,000 ---------- ---------- ----------- ----------- Total installation and service revenue $5,605,000 $6,323,000 $11,722,000 $12,389,000 ========== ========== =========== ===========
The decline in contract and T&M revenues resulted almost entirely from a decline in T&M revenues. This revenue stream represents work orders from customers due to equipment failures or adds, moves, and changes to systems originated by customers. The overall demand for hourly services has declined as fewer customers are expanding their employee bases or moving employees which generates service billings for us. To ensure our competitive position, we re-instituted lower hourly pricing for our services earlier in the fiscal year. By doing so, our rates will compare favorably to smaller, regional service providers even though we have nationwide capabilities. Contract revenues were relatively unchanged for the three and six month periods. Installation revenues tend to track in the same direction as our systems sales, therefore the decline in commercial installation revenue in the second quarter reflects the decline in commercial systems sales. The increase in lodging installation revenues reflects the increases in the sales of those systems as well. We recognize revenues from installation activities upon completion of the installation, which for larger systems often means that the equipment is shipped and systems revenues are recognized in one month and installation revenues on that system are recognized in a subsequent month. Consulting revenues decreased 11% in the second quarter compared to last year, but were 16% higher for the year-to-date period comparison. These revenues reflect professional design fees and project management fees associated with complex, commercial systems implementations and the decline in the second quarter reflects lower commercial systems sales in the quarter. Consulting revenues also includes revenues earned from our boutique consulting firm which specializes in Microsoft application implementations and network 14 administration. During the second quarter, a significant customer of this group curtailed its spending, resulting in a decline in revenues. We expect revenues from this portion of our consulting effort to remain at second quarter levels for the near future as customers continue to strictly control nearly all discretionary spending on IT related projects.. Gross Margins. The gross margin earned on total sales and service revenues in the second quarter was 29.2% compared to 23.2% for the same period last year and was 27.0% for the first half of fiscal 2003 compared to 23.5% for the first half of fiscal 2002. These increases reflect improvements in gross margins for nearly all major revenue streams and are discussed in more detail below. The gross margins on systems sales were 34.0% in the second quarter compared to 28.5% for the second quarter of last year and were 29.5% for the first half of the year, down slightly from 30.1% for the first half of fiscal 2002. The improvements in second quarter systems gross margins reflect improved margins on commercial systems sold and higher levels of manufacturer rebates received in the quarter. The rebate levels are dependent upon product mix, sales volumes, and specific programs being offered by the manufacturers and it is therefore difficult to predict their impact on our gross margins with precision. These improvements were partially offset by lower margins earned on systems sales to lodging customers. These lower margins on sales to lodging customers were due primarily to a lower mix of high margin products sold during the quarter compared to last year. The gross margins earned on service revenues were 29.2% in the second quarter compared to 23.7% last year and was 28.9% for the first half of the year compared to 22.9% for the same period last year. These improvements reflect cost controls put in place in our professional services and installation departments to more closely match their manpower levels and cost structures with our current revenue levels for those activities. Throughout the current downturn in the economy, we have strived to properly size our business to our revenue run-rates without impairing our technical capabilities that are a key differentiator for us in the market. This challenge has been most acute in the professional services and installation areas as they house our key technical talent. We believe that despite the cost containment measures we have initiated, we have not handicapped our overall capabilities nor our ability to respond to a market turnaround when it occurs. A final component to our gross margins is the margins earned on other revenues and its corporate cost of goods sold expenses. Other revenues typically represent sales and cost of goods sold on equipment or services outside our normal provisioning processes and was dominated by the sale of a large data maintenance contract that occurred in the first quarter. In this transaction, which is an annual contract directly between Avaya and the customer, the service obligations are borne entirely by Avaya and we serve as a sales agent. Corporate cost of goods sold represents our material logistics and purchasing functions that support all of our revenue streams. These expenses have declined approximately 10% in the first half of the year compared to last year reflecting the effects of our tight cost controls. Operating Expenses. Operating expenses increased 1% in the second quarter compared to last year and 7% for the first half of the year compared to the prior year. This increase is entirely related to the loss of certain financial incentive programs previously offered by Avaya as actual expenditures for selling expenses and G&A costs have declined during the year. These incentive programs, which have been material to our operating results in the past, have been curtailed and/or replaced by Avaya. Beginning in our second fiscal quarter, we began receiving new financial incentives that have been approved and paid by Avaya to support our sales expansion initiatives into a few new markets (see discussion under "Systems Sales" above regarding these sales initiatives). Under these new programs, Avaya grants specific requests for cost reimbursements based on a business plan submitted by us. Previously, we earned financial incentives based on a combination of the volume of our purchases and our marketing-related expenditures. These new incentives, while substantially supporting this new sales initiative, are less than the incentives received in prior years under the old programs. Interest Expense and Other Income. Interest and other expense was $121,000 in the second quarter of this year compared to $143,000 in the second quarter of last year and was $251,000 for the six months ending April 30, 2003 compared to $286,000 in the same period last year. Interest expense is presented net of interest capitalized on construction in progress. Interest costs capitalized in the second quarter of this year were $83,000 compared to $66,000 last year. Year-to-date interest costs capitalized were $165,000 15 compared to $125,000 for the year-to-date period last year. The decrease in interest and other expenses reflects decreases in interest expense partially offset by decreases in interest and other income. The decrease in interest expense reflects lower average debt outstanding during the periods under comparison. The lower interest income is due to a decrease in the average amount of sales-type lease receivables outstanding. Both interest expense and interest income are expected to continue to decline. Tax Provision. The Company has recorded a combined federal and state tax provision of 39% in all periods presented reflecting the effective federal tax rate plus the estimated composite state income tax rate. Operating Margins. Net income as a percent of revenues was 3% for the three and six months ending April 30, 2003, respectively compared to 0% and 1% for the same periods last year. We believe that our current business model and current debt levels will support a target operating margin of 8%. However, we will have to realize sustained growth in systems sales to reach that target. OUTLOOK AND RISK FACTORS The following discussion is an update to the "Outlook and Risk Factors" discussed in the Company's Annual Report on Form 10-K for the year ended October 31, 2002. The discussions in the report regarding "Dealer Agreements", "Dependence Upon Avaya", "Dependence Upon a Few Suppliers", "Hiring and Retaining Key Personnel", "Competition", "Lodging Industry", and "Stock Market Volatility" are still considered current and should be given equal consideration together with the matters discussed below. We continue to experience a lackluster capital spending environment and there are no clear signals that this environment will improve for the balance of the fiscal year. Our systems sales and installation revenues are largely tied to capital spending by our customers. Over the past 27 months, there have been a series of events which have cast a pall of pessimism over the U.S. economy which has resulted in an unwillingness by the general business community to make investments in new technologies. We have met this challenge by operating in a very cautious and cost-conscience manner which has enabled us to remain profitable and protect our cash flows. We plan to continue to operate in this manner until we see reliable signs of a recovery in capital spending. We may not be able to meet our debt service requirements if present levels of profitability continue. Subsequent to the end of the second quarter, we completed the restructuring of our debt agreement with our banks. This restructuring is discussed in detail under "Financial Condition" above. The new agreement maintains the same debt service requirements that we have met since November 2001. While we have never missed or been late on our debt service obligations, we have generated much of our cash available for debt service through reductions in working capital and to a lesser degree through earnings and non-cash charges. Currently, our receivables and inventory levels are at their lowest levels in three years, so it is unlikely we will continue to generate similar levels of cash through these sources. Therefore, it is important that our earnings be sufficient to provide cash for our minimum debt service requirements. If we fail to earn approximately $500,000 per quarter in earnings, we will likely have to meet our debt service requirements through additional working capital improvements, borrowings on our revolving line of credit, or reductions in capital spending. Our sales initiative directed at the "mid-market" may not be successful and may produce operating losses. As discussed above, we are adding sales personnel in a few targeted cities to focus on potential "midmarket" customers. In the short-term however, our ability to fund the necessary operating and capital expenditures to expand our sales force is largely dependent upon Avaya's financial support of this project. The projected time frame of available funding is approximately six months. Therefore if this initiative is not contributing to our profitability within six to eight months, it is likely we will have to abandon this initiative. 16 Other Risk Factors. In addition to the specific risk factors discussed above, the following general factors can also impact our overall performance and results of operations: the threat of additional acts of terrorism within the United States and the impact of those threats on the overall economy, financial markets and customer spending attitudes; future growth of the IP networking market; uncertainties inherent with rapidly changing technologies and customer demand; the cost and effects of legal claims and proceedings; and relationships with suppliers, vendors and customers. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risks relating to our operations result primarily from changes in interest rates. In November 2001, we entered into interest rate swap agreements with each of its banking partners for the purpose of hedging against future increases in interest rates. The interest rate swap agreements allow us to pay a fixed interest rate of 3.32% (before application of the bank's pricing margin) on a portion of its outstanding debt. At April 30, 2003, we had $6.2 million of outstanding debt subject to interest rate fluctuations. A hypothetical 10 percent change in such interest rates would not have a material effect upon our consolidated results of operations or cash flows. ITEM 4. CONTROLS AND PROCEDURES. (a) Evaluation of Disclosure Controls and Procedures. Based on their evaluation as of a date within 90 days of the filing date of this Quarterly Report on Form 10-Q, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-14 (c) and 15d-14 (c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) are effective to ensure that information required to be disclosed by the Company in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. (b) Changes in Internal Controls. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. There were no significant deficiencies or material weaknesses, and therefore there were no corrective actions taken. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. The Phonometrics' litigation, which we are monitoring, appears to be winding down, with orders finally dismissing the action with prejudice entered in November, 2002 and awards of attorneys' fees having been granted in favor of numerous hotel defendants in February, 2003. A detailed description of the Phonometrics' cases is contained in our Annual Report on Form 10-K for the fiscal year ended October 31, 2002 filed with the Commission on January 29, 2003. ITEMS 2 - 5 have been omitted because they are not applicable. 17 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits (filed herewith):
SEC Exhibit No. Description - --------------- ----------- 10(a) Fourth Amendment to Amended and Restated Credit Agreement dated effective as of March 1, 2003 among XETA Technologies, Inc., the Lenders and the Agent. 10(b) Fifth Amendment to Amended and Restated Credit Agreement dated effective as of May 1, 2003 among XETA Technologies, Inc., the Lenders and the Agent. 99.1 Certification of Chief Executive Officer Pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certificate of Chief Financial Officer Pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K - During the quarter for which this report is filed, the Company filed no reports on Form 8-K. SIGNATURES 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. (Registrant) Dated: June 11, 2003 By: /s/ Jack R. Ingram ------------------------- Jack R. Ingram Chief Executive Officer Dated: June 11, 2003 By: /s/ Robert B. Wagner ------------------------- Robert B. Wagner Chief Financial Officer 18 PRINCIPAL EXECUTIVE OFFICER CERTIFICATION I, Jack R. Ingram, certify that: 1. I have reviewed this quarterly report on Form 10-Q of XETA Technologies, Inc; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: June 11, 2003 /s/ Jack R. Ingram - -------------------------------- Jack R. Ingram Chief Executive Officer 19 PRINCIPAL FINANCIAL OFFICER CERTIFICATION I, Robert B. Wagner, certify that: 1. I have reviewed this quarterly report on Form 10-Q of XETA Technologies, Inc; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Dated: June 11, 2003 /s/ Robert B. Wagner - -------------------------------- Robert B. Wagner Chief Financial Officer 20 EXHIBIT INDEX
SEC Exhibit No. Description - --------------- ----------- 10(a) Fourth Amendment to Amended and Restated Credit Agreement dated effective as of March 1, 2003 among XETA Technologies, Inc., the Lenders and the Agent. 10(b) Fifth Amendment to Amended and Restated Credit Agreement dated effective as of May 1, 2003 among XETA Technologies, Inc., the Lenders and the Agent. 99.1 Certification of Chief Executive Officer Pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certificate of Chief Financial Officer Pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
EX-10.(A) 3 d06765exv10wxay.txt 4TH AMENDMENT TO AMENDED/RESTATED CREDIT AGRMT. EXHIBIT 10(a) FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT THIS FOURTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT ("Amendment") is made and entered into this _____ day of March, 2003, but effective as of March 1, 2003 (the "Amendment Date"), by and among XETA Technologies, Inc., an Oklahoma corporation (the "Borrower"), Bank One, Oklahoma, N.A., and U.S. Bank National Association, as Lenders under the Credit Agreement referred to below (the "Lenders"), and Bank One, Oklahoma, N.A., as Agent (in such capacity, the "Agent"), with reference to the following: A. The Borrower, the Lenders and the Agent are parties to that certain Amended and Restated Credit Agreement dated as of October 31, 2001, as amended by that certain First Amendment to Amended and Restated Credit Agreement dated effective as of June 1, 2002, as further amended by that certain Second Amendment to Amended and Restated Credit Agreement dated effective as of September 10, 2002 and as further amended by that certain Third Amendment to Amended and Restated Credit Agreement dated effective as of December 1, 2002 (the "Credit Agreement"). B. The Borrower has requested that the Lenders and the Agent (i) extend the availability of the Revolving Credit Facility and the maturity of the Revolving Loans, and (ii) waive certain Defaults arising by virtue of the Borrower's failure to comply with certain financial covenants set forth in the Credit Agreement. The Lenders and the Agent have agreed to the foregoing requests, subject to the terms and conditions set forth in this Amendment. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby amend the Credit Agreement, effective as of the Amendment Date, as follows: 1. DEFINITIONS. Capitalized terms used herein (including capitalized terms used in the recitals above) but not otherwise defined have the respective meanings assigned to them in the Credit Agreement. 2. WAIVERS. Effective as of the Amendment Date, and subject to the Borrower's satisfaction of the conditions precedent set forth in Section 4 of this Amendment, the Lenders and the Agent agree to waive the Borrower's non-compliance with Section 6.24.2 (Debt Service Coverage Ratio) and Section 6.24.3 (Leverage Ratio) of the Credit Agreement at January 31, 2003, and any consequences of such non-compliance (other than as set forth in this Amendment). The foregoing waivers do not extend to any other existing Default or Unmatured Default (whether or not known to the Borrower, the Lenders or the Agent) or to any Default or Unmatured Default that may arise or occur after the Amendment Date. Nothing contained in this Amendment shall be construed as waiving any other term or condition of the Credit Agreement or any of the other Loan Documents or as obligating the Lenders or the Agent to waive any future noncompliance or Default. 3. MODIFICATION OF FACILITIES. Effective as of the Amendment Date, and subject to the Borrower's satisfaction of the conditions precedent set forth in this Amendment: A. Extension of Revolving Credit Facility. The availability of the Revolving Credit Facility and the maturity of the Revolving Loans are hereby extended from March 31, 2003 to May 1, 2003. Accordingly, the definition of the term "Revolving Credit Facility Termination Date" appearing in Section 1.1 of the Credit Agreement is hereby amended by replacing the reference to the date "October 31, 2002" (as subsequently amended to "November 30, 2002" and "March 31, 2003") with the date "May 1, 2003." B. No Obligation to Grant Further Extensions. The Borrower acknowledges that, notwithstanding the references in the Credit Agreement and this Amendment to dates or periods of time subsequent to May 1, 2003, (i) the Lenders will not be obligated to further extend the availability of the Revolving Credit Facility, (ii) the Lenders have given no assurances or commitment that any extension request will be approved, (iii) the Lenders may refuse any extension request in the exercise of their sole and absolute discretion, and (iv) if any extension request is approved, the Lenders may condition such approval on the Borrower's satisfaction of certain requirements, including the making of further modifications to the Credit Agreement and/or the terms of the Facilities. C. Renewal Note. The Borrower agrees to make, execute and deliver to each Lender a renewal Revolving Note (each, a "Renewal Revolving Note"), substantially in the form attached hereto as Exhibit "F-1B." The Renewal Revolving Notes are hereinafter collectively referred to as the "Renewal Notes." The Renewal Notes shall be in renewal, extension and replacement of, but not in satisfaction or as a novation of, the respective Notes delivered pursuant to the Credit Agreement, and from and after the Amendment Date, unless the context otherwise requires, all references to the "Revolving Notes" appearing in the Credit Agreement or any other Loan Documents shall mean and refer to the Renewal Revolving Notes. D. Cross Collateralization and Cross Default of Notes. Notwithstanding language to the contrary or consistent with the same, the Borrower agrees and acknowledges that all assets pledged as collateral for any one term or revolving credit facility hereby collateralizes all and any other credit facility in favor of Lenders. Additionally, Borrower agrees and acknowledges that any default on any one term or revolving credit facility is a default on all and any other credit facility. 4. CONDITIONS PRECEDENT. This Amendment shall become effective as of the Amendment Date, subject to the Borrower's satisfaction of the following conditions precedent (in addition to the conditions precedent set forth in Article IV of the Credit Agreement): A. Execution of Documents. The Borrower shall have duly and validly authorized, executed and delivered to the Agent and the Lenders the following documents, each in form and substance satisfactory to the Lenders: (i) this Amendment; and 2 (ii) the Renewal Revolving Notes; B. Resolutions. The Agent shall have received a copy of the resolutions of the Board of Directors of the Borrower authorizing the execution and delivery of this Amendment and the performance by the Borrower of its obligations under this Amendment, the Credit Agreement (as amended by this Amendment) and the Renewal Notes. C. Consent of Guarantor. The "Consent of Guarantor" appearing after the Borrower's signature to this Amendment shall have been duly and validly authorized, executed and delivered to the Lender by the Guarantor. D. Accuracy of Representations and Warranties. All representations and warranties made by the Borrower in the Credit Agreement and the other Loan Documents shall be true and correct in all material respects as of the Amendment Date (except to the extent any of such representations and warranties with respect to the financial condition of the Borrower refer to an earlier specified date). E. No Default. There shall not have occurred any additional Default or Unmatured Default as of the Amendment Date, and the Borrower shall be current in payment of all principal, interest and fees due and owing to the Agent or the Lenders as of the Amendment Date. F. Waiver/Amendment Fee. The Borrower shall have paid to the Agent, for the account of each Lender in accordance with each Lender' Pro Rata Share, a waiver/amendment fee of $10,000.00. 5. REPRESENTATIONS AND WARRANTIES. All representations and warranties of Borrower contained in Article V of the Credit Agreement remain true and correct (except to the extent any representations and warranties as to the Borrower's financial condition relate solely to an earlier specified date) and are hereby remade and restated as the date hereof and shall survive the execution and delivery of this Amendment. The Borrower further represents and warrants as follows: A. Authority. The Borrower has all requisite power and authority and has been duly authorized to execute, deliver and perform its obligations under this Amendment, the Credit Agreement (as amended by this Amendment) and the Renewal Notes. B. Binding Obligations; Enforceability. This Amendment, the Credit Agreement (as amended by this Amendment) and the Renewal Notes are valid and legally binding obligations of the Borrower, enforceable in accordance with their respective terms, except as limited by applicable bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally. C. No Conflict; Government Consent. Neither the execution and delivery by the Borrower of this Amendment and the Renewal Notes, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof, will violate (i) any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on the Borrower or any of 3 its Subsidiaries, or (ii) the Borrower's or any Subsidiary's articles or certificate of incorporation, partnership agreement, certificate of partnership, articles or certificate of organization, by-laws, or operating or other management agreement, as the case may be, or (iii) the provisions of any indenture, instrument or agreement to which the Borrower or any of its Subsidiaries is a party or is subject, or by which it, or its Property, is bound, or conflict with or constitute a default thereunder, or result in, or require, the creation or imposition of any Lien in, of or on the Property of the Borrower or any of its Subsidiaries pursuant to the terms of any such indenture, instrument or agreement. No order, consent, adjudication, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, or other action in respect of any governmental or public body or authority, or any subdivision thereof, which has not been obtained by the Borrower or any of its Subsidiaries, is required to be obtained by the Borrower or any of its Subsidiaries in connection with the execution and delivery of this Amendment, the borrowings under the Credit Agreement (as amended hereby), the payment and performance by the Borrower of the Obligations, or the legality, validity, binding effect or enforceability of this Amendment, the Credit Agreement (as amended by this Amendment) or the Renewal Notes. D. No Material Adverse Change. Since January 31, 2003 (the date of the latest financial statements of the Borrower which have been delivered to the Agent and the Lenders), there has been no adverse change in the business, Property, prospects, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries which could reasonably be expected to have a Material Adverse Effect. 6. MISCELLANEOUS. A. Effect of Amendment. The terms of this Amendment shall be incorporated into and form a part of the Credit Agreement. Except as amended, modified and supplemented by this Amendment, the Credit Agreement shall continue in full force and effect in accordance with its original stated terms, all of which are hereby reaffirmed in every respect as of the date hereof. In the event of any irreconcilable inconsistency between the terms of this Amendment and the terms of the Credit Agreement, the terms of this Amendment shall control and govern, and the agreements shall be interpreted so as to carry out and give full effect to the intent of this Amendment. All references to the "Credit Agreement" appearing in any of the Loan Documents shall hereafter be deemed references to the Credit Agreement as amended, modified and supplemented by this Amendment. B. Descriptive Headings. The descriptive headings of the several sections of this Amendment are inserted for convenience only and shall not be used in the construction of the content of this Amendment. C. Governing Law. This Amendment shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of Oklahoma. D. Reimbursement of Expenses. The Borrower agrees to pay the reasonable fees and out-of-pocket expenses of The Drummond Law Firm, counsel to the Agent, incurred in connection with the preparation of this Amendment in the amount of $500.00 and the consummation of the transactions contemplated hereby. 4 E. Release by Borrower. In consideration of the waivers and other agreements of the Lenders and the Agent contained herein, the Borrower, for itself and its officers, directors, agents, employees, successors and assigns, hereby releases, acquits and forever discharges each of the Lenders and the Agent, and each of their respective parent, subsidiary and affiliated companies and each of their respective officers, directors, agents, employees, successors, and assigns, and all other persons acting for or on behalf of the Lenders and/or the Agent, of and from any and all manner of actions, causes of actions, suits, debts, accounts, conveyances, agreements, damages, claims, demands, liabilities, costs, and expenses of whatsoever kind or nature, including attorney's fees, in law or in equity, known or unknown, anticipated or unanticipated and howsoever arising or accruing, which the Borrower may now have or may claim to have against the parties released or any of them, including, without limitation, those arising out of or relating in any way to the Credit Agreement or the administration of the Facilities thereunder, any other Loan Document or any other agreement or document relating to the Facilities. It is understood and agreed by the Borrower that this is a full and final release covering any and all of the Borrower's actions, claims, debts, judgment, damages, objections, costs, attorney's fees, demands or liabilities, whether known or unknown, undisclosed and/or unanticipated, which may have arisen, or may arise from any act or omission, prior to the date of the execution and delivery of this Amendment. F. No Course of Dealing. This Amendment shall not establish a course of dealing or be construed as evidence of any willingness or commitment on the part of the Agent or the Lenders to grant other or future waivers or consents, should any be requested, or to agree to other or future amendments to or modifications of the Credit Agreement or the terms and conditions applicable to the Facilities. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK. SIGNATURES APPEAR ON FOLLOWING PAGE.] 5 IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have executed and delivered this Amendment on the day and year first set forth above. XETA TECHNOLOGIES, INC. By: __________________________________ Name: Robert B. Wagner Title: Secretary and Chief Financial Officer Revolving Loan Commitment BANK ONE, OKLAHOMA, N.A., from and after Amendment Date: Individually and as Agent $1,100,000.00 By: __________________________________ Name: Brett Hatchett Title: Vice President Revolving Loan Commitment U.S. BANK NATIONAL ASSOCIATION from and after Amendment Date: (formerly known as Firstar Bank, N.A., $900,000.00 successor by merger to Firstar Bank Missouri, National Association) By: __________________________________ Name: David L. Orf Title: Vice President EXHIBITS Exhibit F-1B - Form of Renewal Revolving Note 6 CONSENT OF GUARANTOR The undersigned hereby (i) acknowledges and consents to the execution and delivery of the above and foregoing Third Amendment to Credit Agreement, (ii) confirms that the Subsidiary Guaranty of the undersigned will continue in full force and effect as security for payment and performance of all of the "Guaranteed Obligations," as such term is used in the Subsidiary Guaranty, and (iii) ratifies and reaffirms the Subsidiary Guaranty. No inference shall be drawn from the undersigned's execution of this Consent that consent or approval of the undersigned is required for this or any future modification or amendment of or supplement to the Credit Agreement or other Loan Document, or for this or any future increase, decrease, extension or renewal of the Guaranteed Obligations. Capitalized terms used in this Consent and not otherwise defined have the respective meanings assigned to them in the Credit Agreement referred to in the above and foregoing Second Amendment to Credit Agreement. U.S. TECHNOLOGIES SYSTEMS, INC. By: ___________________________ Name: _________________________ Title: ________________________ RENEWAL REVOLVING NOTE (Exhibit F-1B) $900,000 March 1, 2003 Tulsa, Oklahoma XETA Technologies, Inc., an Oklahoma corporation (the "Borrower"), promises to pay to the order of U.S. BANK NATIONAL ASSOCIATION (the "Lender"), the aggregate unpaid principal amount of all Revolving Loans made by the Lender to the Borrower pursuant to Section 2.1.1 of the Agreement (as hereinafter defined), in immediately available funds at the main office of Bank One, Oklahoma, N.A., Tulsa, Oklahoma, as Agent, together with interest on the unpaid principal amount hereof at the rates and on the dates set forth in the Agreement. The Borrower shall pay the principal of and accrued and unpaid interest on the Revolving Loans in full on the Revolving Credit Facility Termination Date and shall make such mandatory payments as are required to be made under the terms of Article II of the Agreement. The Lender shall, and is hereby authorized to, record on the schedule attached hereto, or to otherwise record in accordance with its usual practice, the date and amount of each Revolving Loan and the date and amount of each principal payment hereunder. This Note is one of the Revolving Notes issued pursuant to, and is entitled to the benefits of, the Amended and Restated Credit Agreement dated as of October 31, 2001, as amended by that certain First Amendment to Amended and Restated Credit Agreement dated effective as of June 1, 2002, as further amended by that certain Second Amendment to Amended and Restated Credit Agreement dated effective as of September 10, 2002, as further amended by that certain Third Amendment to Amended and Restated Credit Agreement dated effective as of December 1, 2002 and as further amended by that certain Fourth Amendment to Amended and Restated Credit Agreement dated effective as of March 1, 2003 (which, as it may be further amended or modified and in effect from time to time, is herein called the "Agreement"), among the Borrower, the lenders party thereto, including the Lender, and Bank One, Oklahoma, N.A., as Agent. Capitalized terms used herein and not otherwise defined herein are used with the meanings attributed to them in the Agreement. Reference is made to the Agreement for a statement of the terms and conditions governing this Note, including the terms and conditions under which this Note may be prepaid or its maturity date accelerated. This Note is secured pursuant to the Collateral Documents, as more specifically described in the Agreement, and reference is made thereto for a statement of the terms and provisions thereof. All assets of Borrower are cross-pledged to all other facilities of the Lender and default on one facility is a default on all or any other facility. This Note is made, executed and delivered by the Borrower and delivered to the Lender in renewal, extension and decrease of and replacement for that certain Revolving Note dated as of October 31, 2001, executed by the Borrower payable to the order of the Lender in the stated principal amount of $2,250,000 (the "Prior Note"). All liens and security interests in Property securing payment of the Prior Note shall continue in full force and effect, uninterrupted and unabated, as security for payment of this Note. XETA TECHNOLOGIES, INC., an Oklahoma corporation By: ____________________________________________ Print Name: Robert B. Wagner Title: Secretary and Chief Financial Officer SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL TO RENEWAL REVOLVING NOTE OF XETA TECHNOLOGIES, INC. DATED MARCH 1, 2003
Principal Maturity Principal Amount of of Interest Amount Unpaid Date Loan Period Paid Balance - ---------------------------------------------------------------------------------------------- March 1, 2003
RENEWAL REVOLVING NOTE $1,100,000.00 March 1, 2003 Tulsa, Oklahoma XETA Technologies, Inc., an Oklahoma corporation (the "Borrower"), promises to pay to the order of BANK ONE, OKLAHOMA, N.A. (the "Lender"), the aggregate unpaid principal amount of all Revolving Loans made by the Lender to the Borrower pursuant to Section 2.1.1 of the Agreement (as hereinafter defined), in immediately available funds at the main office of Bank One, Oklahoma, N.A., Tulsa, Oklahoma, as Agent, together with interest on the unpaid principal amount hereof at the rates and on the dates set forth in the Agreement. The Borrower shall pay the principal of and accrued and unpaid interest on the Revolving Loans in full on the Revolving Credit Facility Termination Date and shall make such mandatory payments as are required to be made under the terms of Article II of the Agreement. The Lender shall, and is hereby authorized to, record on the schedule attached hereto, or to otherwise record in accordance with its usual practice, the date and amount of each Revolving Loan and the date and amount of each principal payment hereunder. This Note is one of the Revolving Notes issued pursuant to, and is entitled to the benefits of, the Amended and Restated Credit Agreement dated as of October 31, 2001, as amended by that certain First Amendment to Amended and Restated Credit Agreement dated effective as of June 1, 2002, as further amended by that certain Second Amendment to Amended and Restated Credit Agreement dated effective as of September 10, 2002, as further amended by that certain Third Amendment to Amended and Restated Credit Agreement dated effective as of December 1, 2002 and as further amended by that certain Fourth Amendment to Amended and Restated Credit Agreement dated effective as of March 1, 2003 (which, as it may be further amended or modified and in effect from time to time, is herein called the "Agreement"), among the Borrower, the lenders party thereto, including the Lender, and Bank One, Oklahoma, N.A., as Agent. Capitalized terms used herein and not otherwise defined herein are used with the meanings attributed to them in the Agreement. Reference is made to the Agreement for a statement of the terms and conditions governing this Note, including the terms and conditions under which this Note may be prepaid or its maturity date accelerated. This Note is secured pursuant to the Collateral Documents, as more specifically described in the Agreement, and reference is made thereto for a statement of the terms and provisions thereof. All assets of Borrower are cross-pledged to all other facilities of the Lender and default on one facility is a default on all or any other facility. This Note is made, executed and delivered by the Borrower and delivered to the Lender in renewal, extension and decrease of and replacement for that certain Revolving Note dated as of October 31, 2001, executed by the Borrower payable to the order of the Lender in the stated principal amount of $2,750,000.00 (the "Prior Note"). All liens and security interests in Property securing payment of the Prior Note shall continue in full force and effect, uninterrupted and unabated, as security for payment of this Note. XETA TECHNOLOGIES, INC., an Oklahoma corporation By: ____________________________________________ Print Name: Robert B. Wagner Title: Secretary and Chief Financial Officer SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL TO RENEWAL REVOLVING NOTE OF XETA TECHNOLOGIES, INC. DATED MARCH 1, 2003
Principal Maturity Principal Amount of of Interest Amount Unpaid Date Loan Period Paid Balance - ------------------------------------------------------------------------------------------------------- March 1, 2003
EX-10.(B) 4 d06765exv10wxby.txt 5TH AMENDMENT TO AMENDED/RESTATED CREDIT AGRMT. EXHIBIT 10(b) FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT THIS FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT ("Amendment") is made and entered into and effective this 1st day of May, 2003 (the "Amendment Date"), by and among XETA Technologies, Inc., an Oklahoma corporation (the "Borrower"), Bank One, Oklahoma, N.A., and U.S. Bank National Association, as Lenders under the Credit Agreement referred to below (the "Lenders"), and Bank One, Oklahoma, N.A., as Agent (in such capacity, the "Agent"), with reference to the following: A. The Borrower, the Lenders and the Agent are parties to that certain Amended and Restated Credit Agreement dated as of October 31, 2001, as amended by that certain First Amendment to Amended and Restated Credit Agreement dated effective as of June 1, 2002, as further amended by that certain Second Amendment to Amended and Restated Credit Agreement dated effective as of September 10, 2002, as further amended by that certain Third Amendment to Amended and Restated Credit Agreement dated effective as of December 1, 2002, and as further amended by that certain Fourth Amendment to Amended and Restated Credit Agreement dated effective as of March 1, 2003 (the "Credit Agreement"). B. The Borrower has requested that the Lenders and the Agent (i) extend the availability of the Revolving Credit Facility and the maturity of the Revolving Loans from May 1, 2003 until December 31, 2003, (ii) extend the maturity of the Term Loan Facilities from November 30, 2003 until December 31, 2003, and extend the maturity of the R/E Term Loan Facilities from November 30, 2003 until December 31, 2003, (iii) amend and restate the Revolving Credit Facilities so as to increase the facilities' cumulative amount from $2,000,000.00 to $7,500,000.00, (iv) reduce the Term Loan Facilities by a cumulative amount of $6,500,000.00 after Borrower reduces its obligations under these facilities by applying certain funds from the Revolving Loans and from existing cash reserves, (v) modify the term "Eligible Accounts" for the Borrowing Base to include within "Accrued Accounts Receivable" all Inventory shipped to the Borrower's customer(s) that are legally billable but not yet billed, (vi) modify the Borrowing Base by including the Service Inventory located at Borrower's Tulsa Warehouse, (vii) modify and reduce the advance rate for Accrued Receivables from 80% to 40%, (viii) modify the Borrowing Base Calculation by eliminating eligible funding based on the then current outstanding principal balance of the unsecured term loan and (ix) waive certain Defaults arising by virtue of the Borrower's failure to comply with the fixed charge coverage financial covenant set forth in the Credit Agreement through and until December 31, 2003 in return for maintaining a quarterly Consolidated EBIDA of a minimum of $700,000.00. The Lenders and the Agent have agreed to the foregoing requests, subject to the terms and conditions set forth in this Amendment. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby amend the Credit Agreement, effective as of the Amendment Date, as follows: 1. DEFINITIONS. Capitalized terms used herein (including capitalized terms used in the recitals above) but not otherwise defined have the respective meanings assigned to them in the Credit Agreement. 2. WAIVERS. Effective as of the Amendment Date, and subject to the Borrower's satisfaction of the conditions precedent set forth in Section 4 (Conditions Precedent) of this Amendment, the Lenders and the Agent agree to waive the Borrower's non-compliance with its fixed charge coverage covenant generally associated with Section 6.24.2 (Debt Service Coverage Ratio) of the Credit Agreement, and any consequences of such non-compliance (other than as set forth in this Amendment). In lieu of this waiver, Borrower shall maintain a quarterly Consolidated EBIDA of a minimum of $700,000.00; however, Borrower may include the tax deduction for the amortization of goodwill in its calculation of EBIDA. As such, the definition of the term "Consolidated EBIDA " appearing in Section 1.1 of the Credit Agreement is hereby amended by permitting this goodwill amortization deduction. The foregoing waivers do not extend to any other existing Default or Unmatured Default (whether or not known to the Borrower, the Lenders or the Agent) or to any Default or Unmatured Default that may arise or occur after the Amendment Date. Nothing contained in this Amendment shall be construed as waiving any other term or condition of the Credit Agreement or any of the other Loan Documents or as obligating the Lenders or the Agent to waive any future noncompliance or Default. 3. MODIFICATION OF FACILITIES. Effective as of the Amendment Date, and subject to the Borrower's satisfaction of the conditions precedent set forth in this Amendment: A. Extension of Revolving Credit Facility. The availability of the Revolving Credit Facility and the maturity of the Revolving Loans are hereby extended from May 1, 2003 to December 31, 2003. Accordingly, the definition of the term "Revolving Credit Facility Termination Date" appearing in Section 1.1 of the Credit Agreement is hereby amended by replacing the reference to the date "October 31, 2002" (as subsequently amended to "November 30, 2002," "March 31, 2003" and "May 1, 2003") with the date "December 31, 2003." B. Amended and Restated, as well as renewed, Revolving Note. The Borrower agrees to make, execute and deliver to each Lender an amended and restated Revolving Note (each, a "Renewal Revolving Note"), substantially in the form attached hereto as Exhibit "F-1C." The Amended and Restated Revolving Notes are hereinafter collectively referred to as the "Renewal Notes." The Renewal Notes shall be in renewal, extension, replacement, amended and restatement of, but not in satisfaction or as a novation of, the respective Notes delivered pursuant to the Credit Agreement, and from and after the Amendment Date, unless the context otherwise requires, all references to the "Revolving Notes" appearing in the Credit Agreement or any other Loan Documents shall mean and refer to the Renewal Revolving Notes. The Revolving Notes shall increase in a cumulative amount from $2,000,000.00 to $7,500,000.00. Of this new funding, Borrower shall apply $2,500,000.00 to reduction in principal of the Term Note, and Borrower shall apply an additional $4,000,000.00 of existing cash reserves toward the reduction in principal of the Term Note. 2 C. Extension of Term Loan Facility and R/E Term Loan Facility. The availability of the Term Loan Facility and the maturity of the Term Loans are hereby extended from November 30, 2003 to December 31, 2003, and Borrower agrees to simultaneously pay down of the same in the cumulative amount of $6,500,000.00 from the Revolving Loans and from accumulated cash reserves. The availability of the R/E Term Loan Facility and the maturity of the R/E Term Loans are hereby extended from November 30, 2003 to December 31, 2003, substantially in the form attached hereto as Exhibit "F-3C" which the Borrower agrees to make, execute and deliver to each Lender. D. Renewal of Term Note. The Borrower agrees to make, execute and deliver to each Lender a renewal Term Note (each, a "Renewal Term Note"), substantially in the form attached hereto as Exhibit "F-2C." The Renewal Term Notes are hereinafter collectively referred to as the "Renewal Notes." The Renewal Notes shall be in renewal, extension and replacement of, but not in satisfaction or as a novation of, the respective Notes delivered pursuant to the Credit Agreement, and from and after the Amendment Date, unless the context otherwise requires, all references to the "Term Notes" appearing in the Credit Agreement or any other Loan Documents shall mean and refer to the Renewal Term Notes. The Borrower shall pay down the Term Notes in the cumulative amount of $6,500,000.00, resulting in a cumulative Term Note obligation of $4,674,041 with monthly payments continuing on the last day of each calendar month to and including November 30, 2003, with each installment (except the final installment due at maturity) to be in the aggregate principal amount of $259,861.44 and with the final installment due at maturity to be equal to the then outstanding principal balance of the Term Loans and all other unpaid Obligations arising under or relating to the Term Loan Facility. E. No Obligation to Grant Further Extensions. The Borrower acknowledges that, notwithstanding the references in the Credit Agreement and this Amendment to dates or periods of time subsequent to December 31, 2003, (i) the Lenders will not be obligated to further extend the availability of the Revolving Credit Facility or the Term Loan Facility, (ii) the Lenders have given no assurances or commitment that any extension request will be approved, (iii) the Lenders may refuse any extension request in the exercise of their sole and absolute discretion, and (iv) if any extension request is approved, the Lenders may condition such approval on the Borrower's satisfaction of certain requirements, including the making of further modifications to the Credit Agreement and/or the terms of the Facilities. F. Cross Collateralization of Notes. Notwithstanding language to the contrary or consistent with the same, the Borrower agrees and acknowledges that all assets pledged as collateral for any one term, real estate or revolving credit facility hereby collateralizes all and any other credit facility in favor of Lenders. G. Modification of Terms. The Borrower agrees to certain modification of terms as follows: (1) Eligible Accounts. The Borrower may broaden and include within its Borrowing Base's "Eligible Accounts" all "Accrued Accounts Receivable" that represent its legally billable but not yet billed inventory shipped by Borrower to its customer(s). Accordingly, the definition of the term "Eligible Account " appearing in Section 1.1 of the Credit Agreement 3 is hereby amended by including at the end of subparagraph (d) "or is legally billable but has not yet been billed." (2) Service Inventory. The Borrower may broaden and include within its Borrowing Base's "Eligible Inventory" all "Service Inventory" that is located at Borrower's Tulsa Warehouse. Accordingly, the definition of the term "Eligible Inventory" appearing in Section 1.1 of the Credit Agreement is hereby amended by including at the end of subparagraph (b) ", inclusive of the Service Inventory located at Borrower's Tulsa Warehouse." (3) Advance Rate for Accrued Receivables. The Borrower's ability to receive advance rate funding on its Accrued Accounts Receivables shall be reduced from 80% to 40%. Accordingly, the definition of the term "Borrowing Base" appearing in Section 1.1 of the Credit Agreement is hereby amended within subparagraph (i) by replacing the reference to the advance rate of "80%" with the rate of "40%". (4) Removal of Funding Restriction. The Borrower is presently limited in its eligible funding within the Borrowing Base calculation based on the then current outstanding principal balance of the unsecured term loan. The restriction is hereby removed, and the Borrowing Base Calculation Worksheet is modified accordingly. 4. CONDITIONS PRECEDENT. This Amendment shall become effective as of the Amendment Date, subject to the Borrower's satisfaction of the following conditions precedent (in addition to the conditions precedent set forth in Article IV of the Credit Agreement): A. Execution of Documents. The Borrower shall have duly and validly authorized, executed and delivered to the Agent and the Lenders the following documents, each in form and substance satisfactory to the Lenders: (i) this Amendment; (ii) the Amended and Restated Revolving Notes; and, (iii) the Renewal Terms Notes; B. Resolutions. The Agent shall have received a copy of the resolutions of the Board of Directors of the Borrower authorizing the execution and delivery of this Amendment and the performance by the Borrower of its obligations under this Amendment, the Credit Agreement (as amended by this Amendment) and the Renewal Notes, both Term and Revolving. C. Consent of Guarantor. The "Consent of Guarantor" appearing after the Borrower's signature to this Amendment shall have been duly and validly authorized, executed and delivered to the Lender by the Guarantor. D. Accuracy of Representations and Warranties. All representations and warranties made by the Borrower in the Credit Agreement and the other Loan Documents shall be true and correct in all material respects as of the Amendment Date (except to the extent any of such 4 representations and warranties with respect to the financial condition of the Borrower refer to an earlier specified date). E. No Default. There shall not have occurred any additional Default or Unmatured Default as of the Amendment Date, and the Borrower shall be current in payment of all principal, interest and fees due and owing to the Agent or the Lenders as of the Amendment Date. F. Restructuring Fee. The Borrower shall have paid to the Agent, for the account of each Lender in accordance with each Lender's Pro Rata Share, a restructuring fee of $15,000.00. 5. REPRESENTATIONS AND WARRANTIES. All representations and warranties of Borrower contained in Article V of the Credit Agreement remain true and correct (except to the extent any representations and warranties as to the Borrower's financial condition relate solely to an earlier specified date) and are hereby remade and restated as the date hereof and shall survive the execution and delivery of this Amendment. The Borrower further represents and warrants as follows: A. Authority. The Borrower has all requisite power and authority and has been duly authorized to execute, deliver and perform its obligations under this Amendment, the Credit Agreement (as amended by this Amendment) and the Renewal Notes, both Term and Revolving. B. Binding Obligations; Enforceability. This Amendment, the Credit Agreement (as amended by this Amendment) and the Renewal Notes are valid and legally binding obligations of the Borrower, enforceable in accordance with their respective terms, except as limited by applicable bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally. C. No Conflict; Government Consent. Neither the execution and delivery by the Borrower of this Amendment and the Renewal Notes, nor the consummation of the transactions therein contemplated, nor compliance with the provisions thereof, will violate (i) any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on the Borrower or any of its Subsidiaries, or (ii) the Borrower's or any Subsidiary's articles or certificate of incorporation, partnership agreement, certificate of partnership, articles or certificate of organization, by-laws, or operating or other management agreement, as the case may be, or (iii) the provisions of any indenture, instrument or agreement to which the Borrower or any of its Subsidiaries is a party or is subject, or by which it, or its Property, is bound, or conflict with or constitute a default thereunder, or result in, or require, the creation or imposition of any Lien in, of or on the Property of the Borrower or any of its Subsidiaries pursuant to the terms of any such indenture, instrument or agreement. No order, consent, adjudication, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, or other action in respect of any governmental or public body or authority, or any subdivision thereof, which has not been obtained by the Borrower or any of its Subsidiaries, is required to be obtained by the Borrower or any of its Subsidiaries in connection with the execution and delivery of this Amendment, the borrowings under the Credit Agreement (as amended hereby), the payment and performance by 5 the Borrower of the Obligations, or the legality, validity, binding effect or enforceability of this Amendment, the Credit Agreement (as amended by this Amendment) or the Renewal Notes. D. No Material Adverse Change. Since March 31, 2003 (the date of the latest financial statements of the Borrower which have been delivered to the Agent and the Lenders), there has been no adverse change in the business, Property, prospects, condition (financial or otherwise) or results of operations of the Borrower and its Subsidiaries which could reasonably be expected to have a Material Adverse Effect. 6. MISCELLANEOUS. A. Effect of Amendment. The terms of this Amendment shall be incorporated into and form a part of the Credit Agreement. Except as amended, modified and supplemented by this Amendment, the Credit Agreement shall continue in full force and effect in accordance with its original stated terms, all of which are hereby reaffirmed in every respect as of the date hereof. In the event of any irreconcilable inconsistency between the terms of this Amendment and the terms of the Credit Agreement, the terms of this Amendment shall control and govern, and the agreements shall be interpreted so as to carry out and give full effect to the intent of this Amendment. All references to the "Credit Agreement" appearing in any of the Loan Documents shall hereafter be deemed references to the Credit Agreement as amended, modified and supplemented by this Amendment. B. Descriptive Headings. The descriptive headings of the several sections of this Amendment are inserted for convenience only and shall not be used in the construction of the content of this Amendment. C. Governing Law. This Amendment shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of Oklahoma. D. Reimbursement of Expenses. The Borrower agrees to pay the reasonable fees and out-of-pocket expenses of The Drummond Law Firm, counsel to the Agent, incurred in connection with the preparation of this Amendment in the amount of $2,500.00 and the consummation of the transactions contemplated hereby. E. Release by Borrower. In consideration of the waivers and other agreements of the Lenders and the Agent contained herein, the Borrower, for itself and its officers, directors, agents, employees, successors and assigns, hereby releases, acquits and forever discharges each of the Lenders and the Agent, and each of their respective parent, subsidiary and affiliated companies and each of their respective officers, directors, agents, employees, successors, and assigns, and all other persons acting for or on behalf of the Lenders and/or the Agent, of and from any and all manner of actions, causes of actions, suits, debts, accounts, conveyances, agreements, damages, claims, demands, liabilities, costs, and expenses of whatsoever kind or nature, including attorney's fees, in law or in equity, known or unknown, anticipated or unanticipated and howsoever arising or accruing, which the Borrower may now have or may claim to have against the parties released or any of them, including, without limitation, those arising out of or relating in any way to the Credit Agreement or the administration of the 6 Facilities thereunder, any other Loan Document or any other agreement or document relating to the Facilities. It is understood and agreed by the Borrower that this is a full and final release covering any and all of the Borrower's actions, claims, debts, judgment, damages, objections, costs, attorney's fees, demands or liabilities, whether known or unknown, undisclosed and/or unanticipated, which may have arisen, or may arise from any act or omission, prior to the date of the execution and delivery of this Amendment. F. No Course of Dealing. This Amendment shall not establish a course of dealing or be construed as evidence of any willingness or commitment on the part of the Agent or the Lenders to grant other or future waivers or consents, should any be requested, or to agree to other or future amendments to or modifications of the Credit Agreement or the terms and conditions applicable to the Facilities. IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have executed and delivered this Amendment on the day and year first set forth above. XETA TECHNOLOGIES, INC. By: __________________________________ Name: Robert B. Wagner Title: Secretary and Chief Financial Officer Revolving Loan Commitment BANK ONE, OKLAHOMA, N.A., from and after Amendment Date: Individually and as Agent $4,125,000.00 Term Loan Commitment By: __________________________________ from and after Amendment Date: Name: Tipton J. Burch $2,427,799.30 Title: First Vice President Revolving Loan Commitment U.S. BANK NATIONAL ASSOCIATION from and after Amendment Date: (formerly known as Firstar Bank, N.A., $3,375,000.00 successor by merger to Firstar Bank Missouri, National Association) Term Loan Commitment From and after Amendment Date: By: __________________________________ $1,986,381.24 Name: David L. Orf Title: Vice President 7 EXHIBITS Exhibit F-1C - Form of Renewal Revolving Note (in two forms) Exhibit F-2C - Form of Renewal Term Note (in two forms) Exhibit F-3C Form of Renewal R/E Term Note (in two forms) CONSENT OF GUARANTOR The undersigned hereby (i) acknowledges and consents to the execution and delivery of the above and foregoing Third Amendment to Credit Agreement, (ii) confirms that the Subsidiary Guaranty of the undersigned will continue in full force and effect as security for payment and performance of all of the "Guaranteed Obligations," as such term is used in the Subsidiary Guaranty, and (iii) ratifies and reaffirms the Subsidiary Guaranty. No inference shall be drawn from the undersigned's execution of this Consent that consent or approval of the undersigned is required for this or any future modification or amendment of or supplement to the Credit Agreement or other Loan Document, or for this or any future increase, decrease, extension or renewal of the Guaranteed Obligations. Capitalized terms used in this Consent and not otherwise defined have the respective meanings assigned to them in the Credit Agreement referred to in the above and foregoing Second Amendment to Credit Agreement. U.S. TECHNOLOGIES SYSTEMS, INC. By: _____________________________ Name: ___________________________ Title: __________________________ AMENDED AND RESTATED REVOLVING NOTE (Exhibit F-1C) $3,375,000 May 1, 2003 Tulsa, Oklahoma XETA Technologies, Inc., an Oklahoma corporation (the "Borrower"), promises to pay to the order of U.S. BANK NATIONAL ASSOCIATION (the "Lender"), the aggregate unpaid principal amount of all Revolving Loans made by the Lender to the Borrower pursuant to Section 2.1.1 of the Agreement (as hereinafter defined), in immediately available funds at the main office of Bank One, Oklahoma, N.A., Tulsa, Oklahoma, as Agent, together with interest on the unpaid principal amount hereof at the rates and on the dates set forth in the Agreement. The Borrower shall pay the principal of and accrued and unpaid interest on the Revolving Loans in full on the Revolving Credit Facility Termination Date and shall make such mandatory payments as are required to be made under the terms of Article II of the Agreement. The Lender shall, and is hereby authorized to, record on the schedule attached hereto, or to otherwise record in accordance with its usual practice, the date and amount of each Revolving Loan and the date and amount of each principal payment hereunder. This Note is one of the Revolving Notes issued pursuant to, and is entitled to the benefits of, the Amended and Restated Credit Agreement dated as of October 31, 2001, as amended by that certain First Amendment to Amended and Restated Credit Agreement dated effective as of June 1, 2002, as further amended by that certain Second Amendment to Amended and Restated Credit Agreement dated effective as of September 10, 2002, as further amended by that certain Third Amendment to Amended and Restated Credit Agreement dated effective as of December 1, 2002, as further amended by that certain Fourth Amendment to Amended and Restated Credit Agreement dated effective as of March 1, 2003 and as further amended by that certain Fifth Amendment to Amended and Restated Credit Agreement dated effective May 1, 2003 (which, as it may be further amended or modified and in effect from time to time, is herein called the "Agreement"), among the Borrower, the lenders party thereto, including the Lender, and Bank One, Oklahoma, N.A., as Agent. Capitalized terms used herein and not otherwise defined herein are used with the meanings attributed to them in the Agreement. Reference is made to the Agreement for a statement of the terms and conditions governing this Note, including the terms and conditions under which this Note may be prepaid or its maturity date accelerated. This Note is secured pursuant to the Collateral Documents, as more specifically described in the Agreement, and reference is made thereto for a statement of the terms and provisions thereof. All assets of Borrower are cross-pledged to all other facilities in the Credit Agreement. This Note is made, executed and delivered by the Borrower and delivered to the Lender in renewal, extension, replacement, amendment, restatement and increase of that certain Revolving Note dated as of October 31, 2001, executed by the Borrower payable to the order of the Lender in the stated principal amount of $2,250,000 (the "Prior Note"). All liens and security interests in Property securing payment of the Prior Note shall continue in full force and effect, uninterrupted and unabated, as security for payment of this Note. XETA TECHNOLOGIES, INC., an Oklahoma corporation By: ____________________________________________ Print Name: Robert B. Wagner Title: Secretary and Chief Financial Officer SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL TO AMENDED AND RESTATED REVOLVING NOTE OF XETA TECHNOLOGIES, INC. DATED MAY 1, 2003
Principal Maturity Principal Amount of of Interest Amount Unpaid Date Loan Period Paid Balance - -------------------------------------------------------------------------------------------------------- May 1, 2003
RENEWAL REVOLVING NOTE (Exhibit F-1C) $4,125,000.00 May 1, 2003 Tulsa, Oklahoma XETA Technologies, Inc., an Oklahoma corporation (the "Borrower"), promises to pay to the order of BANK ONE, OKLAHOMA, N.A. (the "Lender"), the aggregate unpaid principal amount of all Revolving Loans made by the Lender to the Borrower pursuant to Section 2.1.1 of the Agreement (as hereinafter defined), in immediately available funds at the main office of Bank One, Oklahoma, N.A., Tulsa, Oklahoma, as Agent, together with interest on the unpaid principal amount hereof at the rates and on the dates set forth in the Agreement. The Borrower shall pay the principal of and accrued and unpaid interest on the Revolving Loans in full on the Revolving Credit Facility Termination Date and shall make such mandatory payments as are required to be made under the terms of Article II of the Agreement. The Lender shall, and is hereby authorized to, record on the schedule attached hereto, or to otherwise record in accordance with its usual practice, the date and amount of each Revolving Loan and the date and amount of each principal payment hereunder. This Note is one of the Revolving Notes issued pursuant to, and is entitled to the benefits of, the Amended and Restated Credit Agreement dated as of October 31, 2001, as amended by that certain First Amendment to Amended and Restated Credit Agreement dated effective as of June 1, 2002, as further amended by that certain Second Amendment to Amended and Restated Credit Agreement dated effective as of September 10, 2002, as further amended by that certain Third Amendment to Amended and Restated Credit Agreement dated effective as of December 1, 2002, as further amended by that certain Fourth Amendment to Amended and Restated Credit Agreement dated effective as of March 1, 2003 and as further amended by that certain Fifth Amendment to Amended and Restated Credit Agreement dated effective May 1, 2003 (which, as it may be further amended or modified and in effect from time to time, is herein called the "Agreement"), among the Borrower, the lenders party thereto, including the Lender, and Bank One, Oklahoma, N.A., as Agent. Capitalized terms used herein and not otherwise defined herein are used with the meanings attributed to them in the Agreement. Reference is made to the Agreement for a statement of the terms and conditions governing this Note, including the terms and conditions under which this Note may be prepaid or its maturity date accelerated. This Note is secured pursuant to the Collateral Documents, as more specifically described in the Agreement, and reference is made thereto for a statement of the terms and provisions thereof. All assets of Borrower are cross-pledged to all other facilities in the Credit Agreement. This Note is made, executed and delivered by the Borrower and delivered to the Lender in renewal, extension, replacement, amendment, restatement and increase of that certain Revolving Note dated as of October 31, 2001, executed by the Borrower payable to the order of the Lender in the stated principal amount of $2,750,000.00 (the "Prior Note"). All liens and security interests in Property securing payment of the Prior Note shall continue in full force and effect, uninterrupted and unabated, as security for payment of this Note. XETA TECHNOLOGIES, INC., an Oklahoma corporation By: ____________________________________________ Print Name: Robert B. Wagner Title: Secretary and Chief Financial Officer SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL TO AMENDED AND RESTATED REVOLVING NOTE OF XETA TECHNOLOGIES, INC. DATED MAY 1, 2003
Principal Maturity Principal Amount of of Interest Amount Unpaid Date Loan Period Paid Balance - ------------------------------------------------------------------------------------------------------- May 1, 2003
RENEWAL TERM NOTE (Exhibit F-2C) $1,986,381.24 May 1, 2003 Tulsa, Oklahoma XETA Technologies, Inc., an Oklahoma corporation (the "Borrower"), promises to pay to the order of U.S. BANK NATIONAL ASSOCIATION (the "Lender"), the aggregate unpaid principal amount of the Term Loans made by the Lender to the Borrower pursuant to Section 2.1.2 of the Agreement (as hereinafter defined), in immediately available funds at the main office of Bank One, Oklahoma, N.A., Tulsa, Oklahoma, as Agent, together with interest on the unpaid principal amount hereof at the rates and on the dates set forth in the Agreement. The Borrower shall pay the principal of and accrued and unpaid interest on the Term Loans in full on December 31, 2003, and prior to maturity shall make such payments, including mandatory prepayments, as are required to by made under the terms of Article II of the Agreement. The Lender shall, and is hereby authorized to, record on the schedule attached hereto, or to otherwise record in accordance with its usual practice, the date and amount of each Term Loan and the date and amount of each principal payment hereunder. This Note is one of the Term Notes issued pursuant to, and is entitled to the benefits of, the Amended and Restated Credit Agreement dated as of October 31, 2001, as amended by that certain First Amendment to Amended and Restated Credit Agreement dated effective as of June 1, 2002, as further amended by that certain Second Amendment to Amended and Restated Credit Agreement dated effective as of September 10, 2002, as further amended by that certain Third Amendment to Amended and Restated Credit Agreement dated effective as of December 1, 2002, as further amended by that certain Fourth Amendment to Amended and Restated Credit Agreement dated effective as of March 1, 2003 and as further amended by that certain Fifth Amendment to Amended and Restated Credit Agreement dated effective May 1, 2003 (which, as it may be further amended or modified and in effect from time to time, is herein called the "Agreement"), among the Borrower, the lenders party thereto, including the Lender, and Bank One, Oklahoma, N.A., as Agent. Capitalized terms used herein and not otherwise defined herein are used with the meanings attributed to them in the Agreement. Reference is made to the Agreement for a statement of the terms and conditions governing this Note, including the terms and conditions under which this Note may be prepaid or its maturity date accelerated. This Note is secured pursuant to the Collateral Documents, as more specifically described in the Agreement, and reference is made thereto for a statement of the terms and provisions thereof. All assets of Borrower are cross-pledged to all other facilities in the Credit Agreement. This Note is made, executed and delivered by the Borrower and delivered to the Lender in renewal, extension and replacement of that certain Term Note dated as of October 31, 2001, executed by the Borrower payable to the order of the Lender in the stated principal amount (the "Prior Note"). All liens and security interests in Property securing payment of the Prior Note shall continue in full force and effect, uninterrupted and unabated, as security for payment of this Note. XETA TECHNOLOGIES, INC., an Oklahoma corporation By: ______________________________________________ Print Name: Robert B. Wagner Title: Secretary and Chief Financial Officer 2 RENEWAL TERM NOTE (Exhibit F-2C) $2,427,799.30 May 1, 2003 Tulsa, Oklahoma XETA Technologies, Inc., an Oklahoma corporation (the "Borrower"), promises to pay to the order of U.S. BANK NATIONAL ASSOCIATION (the "Lender"), the aggregate unpaid principal amount of the Term Loans made by the Lender to the Borrower pursuant to Section 2.1.2 of the Agreement (as hereinafter defined), in immediately available funds at the main office of Bank One, Oklahoma, N.A., Tulsa, Oklahoma, as Agent, together with interest on the unpaid principal amount hereof at the rates and on the dates set forth in the Agreement. The Borrower shall pay the principal of and accrued and unpaid interest on the Term Loans in full on December 31, 2003, and prior to maturity shall make such payments, including mandatory prepayments, as are required to by made under the terms of Article II of the Agreement. The Lender shall, and is hereby authorized to, record on the schedule attached hereto, or to otherwise record in accordance with its usual practice, the date and amount of each Term Loan and the date and amount of each principal payment hereunder. This Note is one of the Term Notes issued pursuant to, and is entitled to the benefits of, the Amended and Restated Credit Agreement dated as of October 31, 2001, as amended by that certain First Amendment to Amended and Restated Credit Agreement dated effective as of June 1, 2002, as further amended by that certain Second Amendment to Amended and Restated Credit Agreement dated effective as of September 10, 2002, as further amended by that certain Third Amendment to Amended and Restated Credit Agreement dated effective as of December 1, 2002, as further amended by that certain Fourth Amendment to Amended and Restated Credit Agreement dated effective as of March 1, 2003 and as further amended by that certain Fifth Amendment to Amended and Restated Credit Agreement dated effective May 1, 2003 (which, as it may be further amended or modified and in effect from time to time, is herein called the "Agreement"), among the Borrower, the lenders party thereto, including the Lender, and Bank One, Oklahoma, N.A., as Agent. Capitalized terms used herein and not otherwise defined herein are used with the meanings attributed to them in the Agreement. Reference is made to the Agreement for a statement of the terms and conditions governing this Note, including the terms and conditions under which this Note may be prepaid or its maturity date accelerated. This Note is secured pursuant to the Collateral Documents, as more specifically described in the Agreement, and reference is made thereto for a statement of the terms and provisions thereof. All assets of Borrower are cross-pledged to all other facilities in the Credit Agreement. This Note is made, executed and delivered by the Borrower and delivered to the Lender in renewal, extension and replacement of that certain Term Note dated as of October 31, 2001, executed by the Borrower payable to the order of the Lender in the stated principal amount (the "Prior Note"). All liens and security interests in Property securing payment of the Prior Note shall continue in full force and effect, uninterrupted and unabated, as security for payment of this Note. XETA TECHNOLOGIES, INC., an Oklahoma corporation By: ____________________________________________ Print Name: Robert B. Wagner Title: Secretary and Chief Financial Officer 3 RENEWAL R/E TERM NOTE (Exhibit F-3C) $1,262,250.12 May 1, 2003 Tulsa, Oklahoma XETA Technologies, Inc., an Oklahoma corporation (the "Borrower"), promises to pay to the order of BANK ONE, OKLAHOMA, N.A. (the "Lender") the aggregate unpaid principal amount of the R/E Term Loan made by the Lender to the undersigned pursuant to Section 2.1.3 of the Agreement (as hereinafter defined), in immediately available funds at the main office of Bank One, Oklahoma, N.A., Tulsa, Oklahoma, as Agent, together with interest on the unpaid principal amount hereof at the rates and on the dates set forth in the Agreement. The undersigned shall pay the principal of and accrued and unpaid interest on the R/E Term Loan in full on the December 31, 2003, and prior to maturity shall make such payments, including mandatory prepayments, as are required to be made under the terms of Article II of the Agreement. The Lender shall, and is hereby authorized to, record on the schedule attached hereto, or to otherwise record in accordance with its usual practice, the date and amount of the R/E Term Loan and the date and amount of each principal payment hereunder. This Note is one of the R/E Term Notes issued pursuant to, and is entitled to the benefits of, the Amended and Restated Credit Agreement dated as of October 31, 2001 as amended by that certain First Amendment to Amended and Restated Credit Agreement dated effective as of June 1, 2002, as further amended by that certain Second Amendment to Amended and Restated Credit Agreement dated effective as of September 10, 2002, as further amended by that certain Third Amendment to Amended and Restated Credit Agreement dated effective as of December 1, 2002, as further amended by that certain Fourth Amendment to Amended and Restated Credit Agreement dated effective as of March 1, 2003 and as further amended by that certain Fifth Amendment to Amended and Restated Credit Agreement dated effective May 1, 2003 (which, as it may be further amended or modified and in effect from time to time, is herein called the "Agreement"), among the Borrower, the lenders party thereto, including the Lender, and Bank One, Oklahoma, N.A., as Agent, to which Agreement reference is hereby made for a statement of the terms and conditions governing this Note, including the terms and conditions under which this Note may be prepaid or its maturity date accelerated. Capitalized terms used herein and not otherwise defined herein are used with the meanings attributed to them in the Agreement. This Note is secured pursuant to the Collateral Documents, all as more specifically described in the Agreement, and reference is made thereto for a statement of the terms and provisions thereof. All assets of the Borrower are cross-pledged to all other facilities in the Credit Agreement. This Note is made, executed and delivered by the Borrower and delivered to the Lender to evidence a portion of the indebtedness outstanding under that certain Acquisition Term Note dated November 30, 2000, executed by the Borrower payable to the order of the Lender (the "Prior Note"). All liens and security interests in Property securing payment of the Prior Note shall continue in full force and effect, uninterrupted and unabated, as security for this Note. XETA TECHNOLOGIES, INC., an Oklahoma corporation By: ________________________________________ Print Name: Robert B. Wagner Title: Secretary and Chief Financial Officer RENEWAL R/E TERM NOTE (Exhibit F-3C) $1,032,750.00 May 1, 2003 Tulsa, Oklahoma XETA Technologies, Inc., an Oklahoma corporation (the "Borrower"), promises to pay to the order of U.S. BANK NATIONAL ASSOCIATION (the "Lender") the aggregate unpaid principal amount of the R/E Term Loan made by the Lender to the undersigned pursuant to Section 2.1.3 of the Agreement (as hereinafter defined), in immediately available funds at the main office of Bank One, Oklahoma, N.A., Tulsa, Oklahoma, as Agent, together with interest on the unpaid principal amount hereof at the rates and on the dates set forth in the Agreement. The undersigned shall pay the principal of and accrued and unpaid interest on the R/E Term Loan in full on the December 31, 2003, and prior to maturity shall make such payments, including mandatory prepayments, as are required to be made under the terms of Article II of the Agreement. The Lender shall, and is hereby authorized to, record on the schedule attached hereto, or to otherwise record in accordance with its usual practice, the date and amount of the R/E Term Loan and the date and amount of each principal payment hereunder. This Note is one of the R/E Term Notes issued pursuant to, and is entitled to the benefits of, the Amended and Restated Credit Agreement dated as of October 31, 2001 as amended by that certain First Amendment to Amended and Restated Credit Agreement dated effective as of June 1, 2002, as further amended by that certain Second Amendment to Amended and Restated Credit Agreement dated effective as of September 10, 2002, as further amended by that certain Third Amendment to Amended and Restated Credit Agreement dated effective as of December 1, 2002, as further amended by that certain Fourth Amendment to Amended and Restated Credit Agreement dated effective as of March 1, 2003 and as further amended by that certain Fifth Amendment to Amended and Restated Credit Agreement dated effective May 1, 2003 (which, as it may be further amended or modified and in effect from time to time, is herein called the "Agreement"), among the Borrower, the lenders party thereto, including the Lender, and Bank One, Oklahoma, N.A., as Agent, to which Agreement reference is hereby made for a statement of the terms and conditions governing this Note, including the terms and conditions under which this Note may be prepaid or its maturity date accelerated. Capitalized terms used herein and not otherwise defined herein are used with the meanings attributed to them in the Agreement. This Note is secured pursuant to the Collateral Documents, all as more specifically described in the Agreement, and reference is made thereto for a statement of the terms and provisions thereof. All assets of the Borrower are cross-pledged to all other facilities in the Credit Agreement. This Note is made, executed and delivered by the Borrower and delivered to the Lender to evidence a portion of the indebtedness outstanding under that certain Acquisition Term Note dated November 30, 2000, executed by the Borrower payable to the order of the Lender (the "Prior Note"). All liens and security interests in Property securing payment of the Prior Note shall continue in full force and effect, uninterrupted and unabated, as security for this Note. XETA TECHNOLOGIES, INC., an Oklahoma corporation By: ________________________________________ Print Name: Robert B. Wagner Title: Secretary and Chief Financial Officer EX-99.1 5 d06765exv99w1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. Section 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of XETA Technologies, Inc. (the "Company") on Form 10-Q for the fiscal quarter ended April 30, 2003, as filed with the Securities and Exchange Commission (the "Report"), I, Jack R. Ingram, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Jack R. Ingram --------------------------------- Jack R. Ingram Chief Executive Officer June 11, 2003 EX-99.2 6 d06765exv99w2.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. Section 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of XETA Technologies, Inc. (the "Company") on Form 10-Q for the fiscal quarter ended April 30, 2003, as filed with the Securities and Exchange Commission (the "Report"), I, Robert B. Wagner, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Robert B. Wagner --------------------------------- Robert B. Wagner Chief Financial Officer June 11, 2003 -----END PRIVACY-ENHANCED MESSAGE-----