-----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, TNxsGnhefKKQHAAKl1lCCX4+WGvTgYWjnXmjgnINAAnKFY1I7cCbWYOj18wUg3Fi 6L+pyRBjbKVrRXNVckNFhQ== 0000950134-96-004819.txt : 19960913 0000950134-96-004819.hdr.sgml : 19960913 ACCESSION NUMBER: 0000950134-96-004819 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960731 FILED AS OF DATE: 19960912 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: XETA CORP 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: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-16231 FILM NUMBER: 96629212 BUSINESS ADDRESS: STREET 1: 4500 S GARNETT STE 1000 CITY: TULSA STATE: OK ZIP: 74146 BUSINESS PHONE: 9186648200 MAIL ADDRESS: STREET 1: 4500 S GARNETT SUITE 1000 CITY: TULSA STATE: OK ZIP: 74146 10QSB 1 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED JULY 31, 1996 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-16231 XETA Corporation - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Oklahoma 73-1130045 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4500 S. Garnett, Suite 1000, Tulsa, Oklahoma 74146 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) 918-664-8200 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the registrant (1) 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 --- --- Number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Class Outstanding at August 1, 1996 - -------------------------------- ----------------------------- Common Stock, $.10 par value 2,182,653 Page 1 of 25 consecutive pages Exhibit Index appears on Page 15. 2 PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS Page No. -------- Consolidated Balance Sheets - July 31, 1996 3 and October 31, 1995 Consolidated Statements of Operations - For the 4 Three and Nine Months Ended July 31, 1996 and 1995 Consolidated Statements of Shareholders' Equity - 5 November 1, 1995 through July 31, 1996 Consolidated Statements of Cash Flows - For the 6 Nine Months Ended July 31, 1996 and 1995 Notes to Consolidated Financial Statements 7
2 3 XETA CORPORATION CONSOLIDATED BALANCE SHEETS ASSETS ------
July 31, 1996 October 31, 1995 ------------- ---------------- (Unaudited) Current Assets: Cash and cash equivalents $ 3,187,277 $ 2,788,709 Current portion of net investment in sales-type leases 2,202,287 1,472,249 Other receivables, net 1,440,263 1,328,445 Inventories, net (Note 3) 782,276 884,764 Current deferred tax asset, net (Note 6) 269,100 282,185 Prepaid expenses and other assets 178,288 94,755 ------------ ------------ Total current assets 8,059,491 6,851,107 ------------ ------------ Noncurrent Assets: Net investment in sales-type leases, less current portion above 3,158,088 3,018,142 Property, plant, & equipment, net (Note 4) 370,023 329,525 Capitalized software production costs, net of accumulated amortization of $255,185 at July 31, 1996 and $214,002 at Oct. 31, 1995 285,560 184,013 Other assets 181,894 213,917 ------------ ------------ Total noncurrent assets 3,995,565 3,745,597 ------------ ------------ Total assets $ 12,055,056 $ 10,596,704 ============ ============ LIABILITIES & SHAREHOLDERS' EQUITY ---------------------------------- Current liabilities: Accounts payable $ 335,149 $ 441,581 Unearned revenue (Note 5) 2,258,139 1,968,019 Accrued liabilities 507,516 661,363 Accrued federal and state income taxes 165,162 538,566 ------------ ------------ Total current liabilities 3,265,966 3,609,529 ------------ ------------ Unearned service revenue (Note 5) 1,613,716 1,687,817 ------------ ------------ Noncurrent deferred tax liability, net (Note 6) 516,939 475,921 ------------ ------------ Commitments (Note 10) Shareholders' equity: Common stock; $.10 par value; 10,000,000 shares authorized, 2,182,653 and 2,003,320 issued at July 31, 1996 and October 31, 1995, respectively 218,266 200,332 Paid-in capital 4,736,413 4,092,291 Retained earnings 1,963,496 790,554 ------------ ------------ 6,918,175 5,083,177 Less treasury stock, at cost (259,740) (259,740) ------------ ------------ Total shareholders' equity 6,658,435 4,823,437 ------------ ------------ Total liabilities & shareholders' equity $ 12,055,056 $ 10,596,704 ============ ============
The accompanying notes are an integral part of these statements. 3 4 XETA CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
For the Three Months For the Nine Months July 31 July 31, 1996 1995 1996 1995 ---------- ---------- ---------- ---------- Sales of systems $1,185,027 1,640,995 5,215,123 5,263,402 Installation and service revenues 1,781,685 1,290,838 5,028,091 3,773,088 ---------- ---------- ---------- ---------- Net sales and service revenues 2,966,712 2,931,833 10,243,214 9,036,490 ---------- ---------- ---------- ---------- Cost of sales 735,422 924,053 3,202,979 2,853,826 Installation and service cost 1,119,482 832,886 3,239,769 2,386,423 ---------- ---------- ---------- ---------- Total cost of sales and service 1,854,904 1,756,939 6,442,748 5,240,249 ---------- ---------- ---------- ---------- Gross profit 1,111,808 1,174,894 3,800,466 3,796,241 ---------- ---------- ---------- ---------- Operating expenses: Selling, general and administrative 647,839 636,709 2,092,578 1,936,920 Engineering, research and development, and amortization of capitalized software production costs 110,599 120,942 306,137 373,179 ---------- ---------- ---------- ---------- Total operating expenses 758,438 757,651 2,398,715 2,310,099 ---------- ---------- ---------- ---------- Income from operations 353,370 417,243 1,401,751 1,486,142 Interest and other income 181,330 101,636 471,191 275,524 ---------- ---------- ---------- ---------- Income before provision for income taxes 534,700 518,879 1,872,942 1,761,666 Provision for income taxes 200,000 218,610 700,000 633,000 ---------- ---------- ---------- ---------- Net income $ 334,700 $ 300,269 $1,172,942 $1,128,666 ========== ========== ========== ========== Income per common and common equivalent share Primary and fully diluted $ .14 $ .13 $ .50 $ .52 ========== ========== ========== ========== Weighted average shares outstanding 1,987,667 1,809,873 1,963,726 1,795,196 ========== ========== ========== ========== Weighted average shares equivalents 2,350,818 2,237,390 2,348,448 2,191,027 ========== ========== ========== ==========
The accompanying notes are an integral part of these statements. 4 5 XETA CORPORATION CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY NOVEMBER 1, 1995 THROUGH July 31, 1996 (Unaudited)
Common Stock Treasury Stock --------------------------- ---------------------- Number of Shares Issued Paid-in Retained & Outstanding Par Value Shares Amount Capital Earnings ------------- --------- ------ ------ ------- --------- Balance - October 31, 1995 2,003,320 $200,332 (189,747) $(259,740) $4,092,291 $790,554 Stock options exercised 179,333 17,934 182,666 Tax benefit of stock options 461,456 Net Income 1,172,942 --------- -------- -------- --------- ---------- ---------- Balance - July 31, 1996 2,182,653 $218,266 (189,747) $(259,740) $4,736,413 $1,963,496 ========= ======== ======== ========= ========== ==========
The accompanying notes are an integral part of these statements. 5 6 XETA CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For The Nine Months Ending ----------------------------- July 31, 1996 July 31, 1995 ------------- ------------- Cash flows from operating activities: Net income $1,172,942 $ 828,397 ---------- ---------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 115,845 79,553 Amortization of capitalized software production costs 41,184 27,456 (Gain) loss on sale of assets (14,076) (23,061) Provision for doubtful accounts receivable 35,000 30,000 Provision for excess and obsolete inventory -- 15,330 Change in assets and liabilities: (Increase) in net investment in sales-type leases (869,984) (991,934) (Increase) decrease in other receivables (146,818) (900,168) (Increase) decrease in inventories 102,488 114,038 (Increase) decrease in prepaid income taxes -- 188,714 (Increase) decrease in deferred tax asset 13,085 (119,361) (Increase) decrease in prepaid expenses and other assets (51,510) (107,222) Increase (decrease) in accounts payable (106,432) 159,279 Increase (decrease) in unearned revenue 216,021 536,370 Increase (decrease) in accrued liabilities (153,847) 109,114 Increase (decrease) in accrued income taxes 105,986 503,673 Increase (decrease) in deferred tax liabilities 41,018 (93,716) ---------- ---------- Total adjustments (672,040) (471,935) ---------- ---------- Net cash provided by (used in) operating activities 500,902 356,462 ---------- ---------- Cash flows from investing activities: Additions to capitalized software (142,733) (35,237) Additions to property, plant & equipment (171,215) (59,380) Proceeds from sale of assets 28,948 34,259 ---------- ---------- Net cash provided by (used in) investing activities (285,000) (60,358) ---------- ---------- Cash flows from financing activities: Exercise of stock options 182,666 42,813 ---------- ---------- Net cash from financing activities 182,666 42,813 ---------- ---------- Net increase (decrease) in cash and cash equivalents 398,568 338,917 Cash and cash equivalents, beginning of period 2,788,709 1,630,531 ---------- ---------- Cash and cash equivalents, end of period $3,187,277 $1,969,448 ========== ========== Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 244 $ 739 Cash paid during the period for income taxes $ 156,750 $ 55,000
The accompanying notes are an integral part of these statements. 6 7 XETA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS July 31, 1996 (Unaudited) (1) BASIS OF PRESENTATION The consolidated financial statements included herein include the accounts of XETA Corporation and its wholly-owned subsidiary, Xetacom, Inc. Xetacom's operations have been insignificant to date. All significant intercompany accounts and transactions have been eliminated. The 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 financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures made in these financial statements 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-KSB, 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. (2) REVOLVING CREDIT AGREEMENT In June, 1996 the Company increased its line of credit with its bank to $1,000,000 on essentially the same terms and conditions as its previous line of credit. To date, no advances have been made under this agreement. (3) INVENTORIES The following are the components of inventories:
July 31, October 31, 1996 1995 ---------- ---------- (Unaudited) Raw materials $ 412,032 $ 447,090 Finished goods and spare parts 528,351 573,307 ---------- ---------- 940,383 1,020,397 Less reserve for excess and obsolete inventory 158,107 135,633 ---------- ---------- $ 782,276 $ 884,764 ========== ==========
7 8 (4) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following:
July 31, October 31, 1996 1995 ----------- ----------- (Unaudited) Computer field equipment $ 755,911 $ 661,473 Office furniture 112,975 108,731 Other 135,770 106,277 ----------- ----------- 1,004,656 876,481 Less accumulated depreciation (634,633) (546,956) ----------- ----------- $ 370,023 $ 329,525 =========== ===========
(5) UNEARNED INCOME Unearned income consists of the following:
July 31, October 31, 1996 1995 ---------- ---------- (Unaudited) Service contracts $1,649,498 $1,177,599 Warranty service 433,280 487,673 Systems shipped, but not installed 22,283 44,305 Customer deposits 102,726 208,065 Other deferred revenues 50,352 50,377 ---------- ---------- Total current deferred revenue 2,258,139 1,968,019 Noncurrent unearned service revenues 1,613,716 1,687,817 ---------- ---------- $3,871,855 $3,655,836 ========== ==========
(6) INCOME TAXES The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
July 31, October 31, 1996 1995 ---------- ---------- (Unaudited) Deferred tax assets: Prepaid service contracts $ 71,318 $ 128,397 Nondeductible reserves 333,746 299,873 Book depreciation in excess of tax 5,716 23,780 Other 26,549 44,036 ---------- ---------- Total deferred tax asset 437,329 496,086 ---------- ---------- Deferred tax liabilities: Unamortized capitalized software development costs (97,091) (62,564) Tax income to be recognized on sales-type lease contracts (496,628) (535,808) Other (91,449) (91,450) ---------- ---------- Total deferred tax liability (685,168) (689,822) ---------- ---------- Net deferred tax liability $ (247,839) $ (193,736) ========== ==========
8 9 (7) INTEREST AND OTHER INCOME Interest and other income for the six months ending July 31, 1996, consists primarily of interest income earned from sales-type leases and cash investments. (8) 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-KSB, Commission File No. 0-16231, filed with the Securities and Exchange Commission on January 29, 1996. Accordingly, reference should be made to those statements for the following: Note Description ---- ----------- 1 Business and summary of significant accounting policies 3 Cash and cash equivalents 4 Income taxes 5 Xeta Reservation Systems, Inc. 7 Accrued liabilities 9 Stock options 10 Commitments 11 Major customers 13 Other receivables 14 Employment agreements 15 Contingency 16 Earnings per share 18 Retirement plan 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS During the third quarter of fiscal 1996, XETA Corporation (the "Company") earned net income of $335,000, an 11% increase over the third quarter of fiscal 1995. Sales for the third quarter of fiscal 1996 increased 1% to $2,967,000 over the third quarter of fiscal 1995. The increase in sales was the result of continued increases in revenues from the Company's PBX sales and service revenues which offset the expected decline in sales of call accounting systems. From the fourth quarter of fiscal 1994 through the second quarter of fiscal 1996, the Company enjoyed a surge in sales of call accounting systems due to the mandated changes in the North American Numbering Plan ("NANP"). During these seven quarters, the Company's PBX related activities gained steady momentum and during the third quarter, the increase in PBX revenues was sufficient to offset the decline in call accounting systems sales and produce the modest increase in sales discussed above. Another significant development during the third quarter was the successful installation of the Company's first XPANDER system. This system was installed in late July and has been operating successfully since that time. Management hopes to install two additional XPANDER systems by the end of the calendar year and then begin selling full production units by the second quarter of fiscal 1997. The first installation of the system has been successful to date and management believes that market demand for this product is continuing to grow. Since the market for XPANDER is just emerging, it is difficult to predict its near term effect on operating results. In any event, it is not likely that revenues from sales of XPANDER will become significant before middle to late fiscal 1997. The forward looking statements contained in this report are estimates by the Company's management of future performance and are subject to a variety of risks and uncertainties, some of which are discussed herein or in previous reports, which could cause actual results to differ materially from management's current expectations. FINANCIAL CONDITION During fiscal 1996, the Company's already strong financial condition has continued to improve. Cash balances have increased 14%, working capital is up 30% and shareholders' equity has increased 38% during the year. In addition, as a result of the increased utilization of the Company's XETAPLAN program since December, 1994, the Company currently has over $5,000,000 in sales-type lease receivables which will continue to generate cash flows for the next three years. This financial strength has played a significant role in the Company's success during the past two years. The ability to offer the XETAPLAN program at favorable lease rates was an important factor in the Company's successful upgrade of almost all of the call accounting systems of one of its major customers. The Company's strong financial position has also played an important role in the rapid growth of the PBX product and service offerings. One of the competitive advantages the Company enjoys is to be able to provide a XETA call accounting system essentially free of charge to customers who sign up for PBX service. To do this, the Company internally finances the hardware and installation costs of the call accounting system thereby making a significant up front investment in the service contract. This investment, coupled with the Company's ability to finance additional sales and service locations and increases in inventory has enabled the Company to make a successful entry into the highly competitive PBX product and service market. 10 11 The Company's financial strength also enables it to continue to invest heavily in research and development activities. These projects, which include the XPANDER product, will form the basis for continued expansion of the Company in the future. Management anticipates that investment in engineering and research and development activities will continue at the current pace for the foreseeable future. In addition to the activities described above, the Company continues to actively evaluate various strategies for the effective use of its cash reserves and strong balance sheet. These strategies include, but are not limited to, synergistic acquisitions, stock repurchases and continued expansion of the XETAPLAN program possibly to include PBX or XPANDER systems. RESULTS OF OPERATIONS While net income increased for both the three and nine month periods, respectively, ending July 31, 1996, compared to the same periods in fiscal 1995, there were important changes in the composition of the operating results during the third quarter which are more fully discussed below. Total net sales and service revenues for the third quarter ending July 31, 1996 increased 1% or $35,000 compared to the third quarter of fiscal 1995. This increase consisted of a 28% decrease in sales of new systems offset by a 38% increase in installation and service revenues. Year to date, net sales and service revenues have increased 13% or $1,207,000 compared to the first nine months of fiscal 1995 consisting of a 1% decrease in systems sales offset by a 33% increase in installation and service revenues. The major changes in sales are discussed in more detail below and relate to trends in call accounting systems sales compared to trends in PBX related revenues which include both sales of new PBX's and PBX installation and service revenues. As discussed above, the third quarter of fiscal 1996 was the first reporting period since the fourth quarter of fiscal 1994 which was not impacted by sales of new call accounting systems related to the mandated changes in the NANP. These NANP related sales have been declining on a quarter to quarter basis for about one year. The third quarter was the first full quarter unaffected by NANP related orders resulting in a decline of 53% in sales of new call accounting systems compared to the third quarter a year ago. While the market for new call accounting systems is mature, management believes that the Company's sales of call accounting systems will continue at historical levels for the foreseeable future. Note that revenues earned from service contracts on call accounting systems has increased throughout fiscal 1996 as the Company has expanded its installed base of call accounting customers during the year. Management expects this substantial base of recurring revenues to remain stable or increase slightly in conjunction with sales of new call accounting systems since most customers elect to purchase service contracts on these systems. Offsetting the trend in sales of new call accounting systems has been the growth in sales from all PBX related activities. Revenues earned from both sales of new PBX systems and PBX related service revenues increased 27% in the third quarter of fiscal 1996 compared to the third quarter of fiscal 1995 and have increased 49% for fiscal 1996 to date compared to the first nine months of fiscal 1995. Dominating the increase in PBX related revenues has been the increase in service revenues earned from PBX customers. These revenues, earned from monthly 11 12 contract fees, sales of parts and from labor charges are generally recurring in nature and provide a stable base from which to grow. Management expects to be able to continue to gain market share as the Company's reputation for reliable PBX installation and service grows and as the Company introduces its own PBX products, such as XPANDER. Gross margins earned on net sales and service revenues have declined slightly during fiscal 1996 compared to fiscal 1995 reflecting the trend toward sales of lower margin PBX systems sales. Gross margins earned on systems sales during the third quarter of fiscal 1996 were 38% compared to 44% for the third quarter of fiscal 1995 and were 39% for the year to date period ending July 31, 1996 compared to 46% compared to the year to date period ending July 31, 1995. Gross margins earned on installation and service activities have remained relatively stable between 36% and 37% during the periods under comparison. Operating expenses increased less than 1% for the third quarter of fiscal 1996 compared to the third quarter of last year and increased 4% for the nine months ending July 31, 1996 compared to the first nine months of 1995. The increases in operating costs for both periods under comparison reflect increases in sales and marketing costs related to additional sales staff and sales locations and to increased marketing necessary to introduce the XPANDER product. These increases were partially offset by decreases in commissions costs related to the decreases in sales of call accounting systems and decreases in bad debt costs reflecting the healthy condition of the lodging industry. Also partially offsetting the increased sales and marketing costs were declines in the expenses related to engineering, research and development and amortization of capitalized software development costs reflecting the fact that a greater portion of these expenses incurred during fiscal 1996 qualified for capitalization under the applicable accounting rules. Interest and other income increased 78% and 71% for the three and nine month periods, respectively, ending July 31, 1996, compared to the same periods in 1995. This increase is primarily related to increases in interest income earned from sales-type leases and cash investments. As discussed above, many of the call accounting systems sales made during the surge in sales related to the NANP changes were installed under the Company's XETAPLAN program. As a result, the Company is recording interest income on these sales-type leases as amortization occurs. The Company recorded a provision for federal and state income taxes of $200,000 for the third quarter of fiscal 1996 and $700,000 for the first nine months of fiscal 1996. This provision for taxes represents an effective tax rate of approximately 37%. This compares with an effective tax rate of 42% during the third quarter of fiscal 1995 and 36% for the first nine months of fiscal 1995. The decrease in the tax rate during the third quarter relates to a reduction in the estimated state tax provision for fiscal 1996. The slight increase in the year to date rate reflects the fact that fiscal 1995's first quarter tax provision was reduced by $107,000 in tax benefits relating to reversing timing differences. Management expects the effective tax rate recorded so far to be indicative of the rate required for the remainder of the year. 12 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings PHONOMETRICS On July 1, 1996, the court entered an order in the patent infringement lawsuit filed by Phonometrics, Inc. against multiple hotel defendants in the United States District Court for the Northern District of California, staying these proceedings pending the outcome of the Phonometrics litigation in Florida which is proceeding against various telephone equipment manufacturers. As reported in the Company's last quarterly report, all of the Florida Phonometrics litigation has been stayed with the exception of the cases filed against equipment manufacturers, which are being heard by a special master. Phonometrics is proceeding with its appeal of the Florida court's decision granting Northern Telecom's motion for summary judgment against Phonometrics. The court's decision was based upon its conclusion that, as a matter of law, there was no infringement of Phonometrics' patent by Northern Telecom. This appeal is in the very earliest stages. The Company has also learned that another equipment manufacturer has prevailed in Florida on its motion for summary judgment against Phonometrics before the special master. As a result of the stay of proceedings ordered in both the Florida and California litigation, none of the cases filed against the Company's customers are moving forward at this point. The Company will continue to monitor the status of the Florida cases against the equipment manufacturers. ABTS A status conference was held on June 28, 1996 in this breach of contract action brought by Associated Business Telephone Systems, Inc. ("ABTS") against the Company. Discovery deadlines were established and a spring, 1997 trial date was set by the court at such conference. The parties are currently in the early stages of discovery in this case. The Company intends to vigorously defend this matter Items 2 through 5 of Part II have been omitted because they are inapplicable or the response thereto is negative. Item 6. (a) Exhibits - See the Exhibit Index at Page 15. (b) Reports on Form 8-K - During the quarter for which this report is filed, the Registrant did not file any reports with the Securities and Exchange Commission on Form 8-K. 13 14 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 CORPORATION (Registrant) Dated: September 12, 1996 By: /s/ JACK R. INGRAM ------------------------- Jack R. Ingram President Dated: September 12, 1996 By: /s/ ROBERT B. WAGNER ------------------------- Robert B. Wagner Vice President of Finance 14 15 EXHIBIT INDEX
SEC. NO. Description Page - -------- ----------- ---- (2) Plan of acquisition, reorganization, arrangement, liquidation or succession - None. - (3) Articles of Incorporation and Bylaws - previously filed as Exhibits 3.1, 3.2, and 3.3 to the Registrant's Registration Statement on Form 5.1, Registration No. 33-7841. - (4) Instruments defining rights of security holders, including indentures - previously filed as Exhibits 3.1, 3.2 and 3.3 to the Registrant's Registration Statement on Form S-1, Registration No. 33-7841. - (11) Material Contracts - 10.1 Loan Agreement 16 10.2 Promissory Note 22 (11) Statement re: computation of per share earnings - Inapplicable. - (15) Letter re: unaudited interim financial information - Inapplicable. - (18) Letter re: change in accounting principles - Inapplicable. - (19) Report furnished to security holders - None. - (22) Published report regarding matters submitted to a vote of security holders - None. - (23) Consents of experts and counsel 24 23.1 Consent of Arthur Andersen LLP (24) Power of attorney - None. - (27) Financial Data Schedule 25 (99) Additional exhibits - None. -
15
EX-10.1 2 LOAN AGREEMENT 1 [BANCFIRST LOGO] LOAN AGREEMENT
- ---------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS $1,000,000.00 04-01-1996 04-01-1997 0550010373 220111 18 1104629 REL /s/ PNB - ----------------------------------------------------------------------------------------------------------------------------------- References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. - ----------------------------------------------------------------------------------------------------------------------------------- BORROWER: XETA CORPORATION (TIN: 73-1130045) LENDER: BANCFIRST 4500 S. GARNETT TULSA TULSA, OK 74146 7625 EAST 51ST STREET P.O. BOX 680 TULSA, OK 74101 ===================================================================================================================================
THIS LOAN AGREEMENT BETWEEN XETA CORPORATION ("BORROWER") AND BANCFIRST ("LENDER") IS MADE AND EXECUTED ON THE FOLLOWING TERMS AND CONDITIONS. BORROWER HAS RECEIVED PRIOR COMMERCIAL LOANS FROM LENDER OR HAS APPLIED TO LENDER FOR A COMMERCIAL LOAN OR LOANS AND OTHER FINANCIAL ACCOMODATIONS, INCLUDING THOSE WHICH MAY BE DESCRIBED ON ANY EXHIBIT OR SCHEDULE ATTACHED TO THIS AGREEMENT. ALL SUCH LOANS AND FINANCIAL ACCOMODATIONS, TOGETHER WITH ALL FUTURE LOANS AND FINANCIAL ACCOMODATIONS FROM LENDER TO BORROWER, ARE REFERRED TO IN THIS AGREEMENT INDIVIDUALLY AS THE "LOAN" AND COLLECTIVELY AS THE "LOANS." BORROWER UNDERSTANDS AND AGREES THAT: (a) IN GRANTING, RENEWING, OR EXTENDING ANY LOAN, LENDER IS RELYING UPON BORROWER'S REPRESENTATIONS, WARRANTIES, AND AGREEMENTS, AS SET FORTH IN THIS AGREEMENT; (b) THE GRANTING, REENEWING, OR EXTENDING ANY LOAN, LENDER IS RELYING UPON BORROWER'S REPRESENTATIONS, WARRANTIES, AND AGREEMENTS, AS SET FORTH IN THIS AGREEMENT; (b) THE GRANTING, RENEWING, OR EXTENDING OF ANY LOAN BY LENDER AT ALL TIMES SHALL BE SUBJECT TO LENDER'S SOLE JUDGMENT AND DISCRETION; AND (c) ALL SUCH LOANS SHALL BE AND SHALL REMAIN SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS OF THIS AGREEMENT. TERM. This Agreement shall be effective as of APRIL 1, 1996, and shall continue thereafter until all indebtedness of Borrower to Lender has been performed in full and the parties terminate this Agreement in writing. DEFINITIONS. The following words shall have the following meanings when used in this Agreement. Terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform commercial code. All references to dollar amounts shall mean amounts in lawful money of the United States of America. AGREEMENT. The word "Agreement" means this Loan Agreement, as this Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Loan Agreement from time to time. ACCOUNT. The word "Account" means a trade account, account receivable, or other right to payment for goods sold or services rendered owing to Borrower (or a third party grantor acceptable to Lender). ACCOUNT DEBTOR. The words "Account Debtor" mean the person or entity obligated upon an Account. ADVANCE. The word "Advance" means a disbursement of Loan funds under this Agreement. BORROWER. The word "Borrower" means XETA CORPORATION. The word "Borrower" also includes, as applicable, all subsidiaries and affiliates of Borrower as provided below in the paragraph titled "Subsidiaries and Affiliates." BORROWING BASE. The words "Borrowing Base" mean, as detetmined by Lender from time to time, the lesser of (a) $1,000,000.00; or (b) (i) 80.000% of the aggregate amount of Eligible Accounts. BUSINESS DAY. The words "Business Day" mean a day on which commercial banks are open for business in the State of Oklahoma. CERCLA. The word "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended. CASH FLOW. The words "Cash Flow" mean net income after taxes, and exclusive of extraordinary gains and income, plus depreciation and amortization. COLLATERAL. The word "Collateral" means and includes without limitation all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise. The word "Collateral" includes without limitation all collateral described below in the section titled "COLLATERAL." DEBT. The word "Debt" means all of Borrower's liabilities excluding Subordinated Debt. ELIGIBLE ACCOUNTS. The words "Eligible Accounts" mean, at any time, all of Borrower's Acocunts which contain selling terms and conditions acceptable to Lender. The net amount of any Eligible Account against which Borrower may borrow shall exclude all returns, discounts, credits, and offsets of any nature. Unless otherwise agreed to by Lender in writing, Eligible Accounts do not include: (a) Accounts with respect to which the Account Debtor is an officer, an employee or agent of Borrower. (b) Accounts with respect to which the Account Debtor is a subsidiary of, or affiliated with or related to Borrower or its shareholders, officers, or directors. (c) Accounts with respect to which goods are placed on consignment, guaranteed sale, or other terms by reason of which the payment by the Account Debtor may be conditional. (d) Accounts with respect to which the Account Debtor is not a resident of the United States, except to the extent such Accounts are supported by insurance, bonds or other assurances satisfactory to Lender. (e) Accounts with respect to which Borrower is or may become liable to the Account Debtor for goods sold or services rendered by the Account Debtor to Borrower. (f) Accounts which are subject to dispute, counterclaim, or setoff. (g) Accounts with respect to which the goods have not been shipped or delivered, or the services have not been rendered, to the Account Debtor. (h) Accounts with respect to which Lender, in its sole discretion, deems the creditworthiness or financial condition of the Account Debtor to be unsatisfactory. (i) Accounts of any Account Debtor who has had filed against it a petition in bankruptcy or an application for relief under any provision of any state or federal bankruptcy, insolvency, or debtor-in-relief acts; or who has had appointed a trustee, custodian, or receiver for the assets of such Account Debtor; or who has made an assignment for the benefit of creditors or has become insolvent or fails generally to pay its debts (including its payrolls) as such debts become due. (j) Accounts with respect to which the Account Debtor is the United States government or any department or agency of the United States. (k) Accounts which have not been paid in full within 90 DAYS from the invoice date. The entire balance of any Account of any single Account debtor will be ineligible whenever the portion of the Account which has not been paid within 90 DAYS from the invoice date is in excess of 10.000% of the total amount outstanding on the Account. (l) That portion of the Accounts of any single Account Debtor which exceeds 20.000% of all of Borrower's Accounts. ELIGIBLE INVENTORY. The words "Eligible Inventory" mean, at any time, all of Borrower's inventory as defined below except: (a) Inventory which is not owned by Borrower free and clear of all security interests, liens, encumbrances, and claims of third parties. (b) Inventory which Lender, in its sole discretion, deems to be obsolete, unsalable, damaged, defective, or unfit for further processing. ERISA. The word "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. EVENT OF DEFAULT. The words "Event of Default" mean and include without limitation any of the Events of Default set forth below in the section titled "EVENTS OF DEFAULT." EXPIRATION DATE. The words "Expiration Date" mean the date of termination of Lender's commitment to lend under this Agreement. GRANTOR. The word "Grantor" means and includes without limitation each and all of the persons or entities granting a Security Interest in any Collateral for the Indebtedness, including without limitation all Borrowers granting such a Security Interest. GUARANTOR. The word "Guarantor" means and includes without limitation each and all of the guarantors, sureties, and accommodation parties in connection with any indebtness. 16 2 04-01-1996 LOAN AGREEMENT Page 2 Loan No 0550010373 (Continued) ================================================================================ INDEBTEDNESS. The word "Indebtedness" means and includes without limitation all Loans, together with all other obligations, debts and liabilities of Borrower to Lender, or any one or more of them, as well as all claims by Lender against Borrower, or any one or more of them; whether now or hereafter existing, voluntary or involuntary, due or not due, absolute or contingent, liquidated or unliquidated; whether Borrower may be liable individually or jointly with others; whether Borrower may be obligated as a guarantor, surety, or otherwise; whether recovery upon such Indebtedness may be or hereafter may become barred by any statute of limitations; and whether such Indebtedness may be or hereafter may become otherwise unenforceable. INVENTORY. The word "Inventory" means all of Borrower's raw materials, work in process, finished goods, merchandise, parts and supplies, of every kind and description, and goods held for sale or lease or furnished under contracts of service in which Borrower now has or hereafter acquires any right, whether held by Borrower or others, and all documents of title, warehouse receipts, bills of lading, and all other documents of every type covering all or any part of the foregoing. Inventory includes inventory temporarily out of Borrower's custody or possession and all returns on Accounts. LENDER. The word "Lender" means BancFirst, its successors and assigns. LINE OF CREDIT. The words "Line of Credit" mean the credit facility described in the Section titled "LINE OF CREDIT" below. LIQUID ASSETS. The words "Liquid Assets" mean Borrower's cash on hand plus Borrower's readily marketable securities. LOAN. The word "Loan" or "Loans" means and includes without limitation any and all commercial loans and financial accommodations from Lender to Borrower, whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time. NOTE. The word "Note" means and includes without limitation Borrower's promissory note or notes, if any, evidencing Borrower's Loan obligations in favor of Lender, as well as any substitute, replacement or refinancing note or notes therefor. PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security interests securing Indebtedness owed by Borrower to Lender; (b) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith; (c) liens of materialmen, mechanics, warehousemen, or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (d) purchase money liens or purchase money security interests upon or in any property acquired or held by Borrower in the ordinary course of business to secure indebtedness outstanding on the date of this Agreement or permitted to be incurred under the paragraph of this Agreement titled "Indebtedness and Liens"; (e) liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by the Lender in writing; and (f) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of Borrower's assets. RELATED DOCUMENTS. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness. SECURITY AGREEMENT. The words "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest. SECURITY INTEREST. The words "Security Interest" mean and include without limitation any type of collateral security, whether in the form of a lien, charge, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise. SARA. The word "SARA" means the Superfund Amendments and Reauthorization Act of 1986 as now or hereafter amended. SUBORDINATED DEBT. The words "Subordinated Debt" mean indebtedness and liabilities of Borrower which have been subordinated by written agreement to indebtedness owed by Borrower to Lender in form and substance acceptable to Lender. TANGIBLE NET WORTH. The words "Tangible Net Worth" mean Borrower's total assets excluding all intangible assets (i.e., goodwill, trademarks, patents, copyrights, organizational expenses, and similar intangible items, but including leaseholds and leasehold improvements) less total Debt. WORKING CAPITAL. The words "Working Capital" mean Borrower's current assets, excluding prepaid expenses, less Borrower's current liabilities. LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time from the date of this Agreement to the Expiration Date, provided the aggregate amount of such Advances outstanding at any time does not exceed the Borrowing Base. Within the foregoing limits, Borrower may borrow, partially or wholly prepay, and reborrow under this Agreement as follows. CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make any Advance to or for the account of Borrower under this Agreement is subject to the following conditions precedent, with all documents, instruments, opinions, reports, and other items required under this Agreement to be in form and substance satisfactory to Lender: (a) Lender shall have received evidence that this Agreement and all Related Documents have been duly authorized, executed, and delivered by Borrower to Lender. (b) Lender shall have received such opinions of counsel, supplemental opinions, and documents as Lender may request. (c) The security interests in the Collateral shall have been duly authorized, created, and perfected with first lien priority and shall be in full force and effect. (d) All guaranties required by Lender for the Line of Credit shall have been executed by each Guarantor, delivered to Lender, and be in full force and effect. (e) Lender, at its option and for its sole benefit, shall have conducted an audit of Borrower's Accounts, Inventory, books, records, and operations, and Lender shall be satisfied as to their condition. (f) Borrower shall have paid to Lender all fees, costs, and expenses specified in this Agreement and the Related Documents as are then due and payable. (g) There shall not exist at the time of any Advance a condition which would constitute an Event of Default under this Agreement, and Borrower shall have delivered to Lender the compliance certificate called for in the paragraph below titled "Compliance Certificate." MAKING LOAN ADVANCES. Advances under the Line of Credit may be requested orally by authorized persons. Lender may, but need not, require that all oral requests be confirmed in writing. Each Advance shall be conclusively deemed to have been made at the request of and for the benefit of Borrower (a) when credited to any deposit account of Borrower maintained with Lender or (b) when advanced in accordance with the instructions of an authorized person. Lender, at its option, may set a cutoff time, after which all requests for Advances will be treated as having been requested on the next succeeding Business Day. MANDATORY LOAN REPAYMENTS. If at any time the aggregate principal amount of the outstanding Advances shall exceed the applicable Borrowing Base, Borrower, immediately upon written or oral notice from Lender, shall pay to Lender an amount equal to the difference between the outstanding principal balance of the Advances and the Borrowing Base. On the Expiration Date, Borrower shall pay to Lender in full the aggregate unpaid principal amount of all Advances then outstanding and all accrued unpaid interest, together with all other applicable fees, costs and charges, if any, not yet paid. LOAN ACCOUNT. Lender shall maintain on its books a record of account in which Lender shall make entries for each Advance and such other debits and credits as shall be appropriate in connection with the credit facility. Lender shall provide Borrower with periodic statements of Borrower's account, which statements shall be considered to be correct and conclusively binding on Borrower unless Borrower notifies Lender to the contrary within thirty (30) days after Borrower's receipt of any such statement which Borrower deems to be incorrect. COLLATERAL. To secure payment of the Line of Credit and performance of all other Loans, obligations and duties owed by Borrower to Lender, Borrower (and others, if required) shall grant to Lender Security Interests in such property and assets as Lender may require (the "Collateral"), including without limitation Borrower's present and future Accounts, general intangibles, and Inventory. Lender's Security Interests in the Collateral shall be continuing liens and shall include the proceeds and products of the Collateral, including without limitation the proceeds of any insurance. With respect to the Collateral, Borrower agrees and represents and warrants to Lender: PERFECTION OF SECURITY INTERESTS. Borrower agrees to execute such financing statements and to take whatever other actions are requested by Lender to perfect and continue Lender's Security Interests in the Collateral. Upon request of Lender, Borrower will deliver to Lender any and all of the documents evidencing or constituting the Collateral, and Borrower will note Lender's interest upon any and all chattel paper if not delivered to Lender for possession by Lender. Contemporaneous with the execution of this Agreement, Borrower will execute one or more UCC financing statements and any similar statements as may be required by applicable law, and will file such financing statements and all such similar statements in the appropriate location or locations. Borrower hereby appoints Lender as its irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect or to continue any Security Interest. Lender may at any time and without further authorization from Borrower, file a carbon, photograph, facsimile, or other reproduction of any financing statement for use as a financing statement. Borrower will reimburse 17 3 04-01-1996 LOAN AGREEMENT Page 3 Loan No 0550010373 (Continued) ================================================================================ Lender for all expenses for the perfection, termination, and the continuation of the perfection of Lender's security interest in the Collateral. Borrower promptly will notify Lender of any change in Borrower's name including any change to the assumed business names of Borrower. Borrower also promptly will notify Lender of any change in Borrower's Social Security Number or Employer Identification Number. Borrower further agrees to notify Lender in writing prior to any change in address or location of Borrower's principal governance office or should Borrower merge or consolidate with any other entity. COLLATERAL RECORDS. Borrower does now, and at all times hereafter shall, keep correct and accurate records of the Collateral, all of which records shall be available to Lender or Lender's representative upon demand for inspection and copying at any reasonable time. With respect to the Accounts, Borrower agrees to keep and maintain such records as Lender may require, including without limitation information concerning Eligible Accounts and Account balances and agings. With respect to the Inventory, Borrower agrees to keep and maintain such records as Lender may require, including without limitation information concerning Eligible Inventory and records itemizing and describing the kind, type, quality, and quantity of inventory, Borrower's Inventory costs and selling prices, and the daily withdrawals and additions to Inventory. COLLATERAL SCHEDULES. Concurrently with the execution and delivery of this Agreement, Borrower shall execute and deliver to Lender schedules of Accounts and Inventory and Eligible Accounts and Eligible Inventory, in form and substance satisfactory to the Lender. Thereafter Borrower shall execute and deliver to Lender such supplemental schedules of Eligible Accounts and Eligible Inventory and such other matters and information relating to the Accounts and Inventory as Lender may request. Supplemental schedules shall be delivered according to the following schedule: MONTHLY. REPRESENTATIONS AND WARRANTIES CONCERNING ACCOUNTS. With respect to the Accounts, Borrower represents and warrants to Lender: (a) Each Account represented by Borrower to be an Eligible Account for purposes of this Agreement conforms to the requirements of the definition of an Eligible Account; (b) All Account information listed on schedules delivered to Lender will be true and correct, subject to immaterial variance; and (c) Lender, its assigns, or agents shall have the right at any time and at Borrower's expense to inspect, examine, and audit Borrower's records and to confirm with Account Debtors the accuracy of such Accounts. REPRESENTATIONS AND WARRANTIES CONCERNING INVENTORY. With respect to the Inventory, Borrower represents and warrants to Lender: (a) All Inventory represented by Borrower to be Eligible Inventory for purposes of this Agreement conforms to the requirements of the definition of Eligible Inventory; (b) All Inventory values listed on schedules delivered to Lender will be true and correct, subject to immaterial variance; (c) The value of the Inventory will be determined on a consistent accounting basis; (d) Except as agreed to the contrary by Lender in writing, all Eligible Inventory is now and at all times hereafter will be in Borrower's physical possession and shall not be held by others on consignment, sale on approval, or sale or return; (e) Except as reflected in the Inventory schedules delivered to Lender, all Eligible Inventory is now and at all times hereafter will be of good and merchantable quality, free from defects; (f) Eligible Inventory is not now and will not at any time hereafter be stored with a bailee, warehouseman, or similar party without Lender's prior written consent, and, in such event, Borrower will concurrently at the time of bailment cause any such bailee, warehouseman, or similar party to issue and deliver to Lender, in form acceptable to Lender, warehouse receipts in Lender's name evidencing the storage of Inventory; and (g) Lender, its assigns, or agents shall have the right at any time and at Borrower's expense to inspect and examine the Inventory and to check and test the same as to quality, quantity, value, and condition. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of Loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any Indebtedness exists: ORGANIZATION. Borrower is a corporation which is duly organized, validly existing, and in good standing under the laws of the State of Oklahoma and is validly existing and in good standing in all states in which Borrower is doing business. Borrower has the full power and authority to own its properties and to transact the businesses in which it is presently engaged or presently proposes to engage. Borrower also is duly qualified as a foreign corporation and is in good standing in all states in which the failure to so qualify would have a material adverse effect on its businesses or financial condition. AUTHORIZATION. The execution, delivery, and performance of this Agreement and all Related Documents by Borrower, to the extent to be executed, delivered or performed by Borrower, have been duly authorized by all necessary action by Borrower; do not require the consent or approval of any other person, regulatory authority or governmental body; and do not conflict with, result in a violation of, or constitute a default under (a) any provision of its articles of incorporation or organization, or bylaws, or any agreement or other instrument binding upon Borrower or (b) any law, governmental regulation, court decree, or order applicable to Borrower. FINANCIAL INFORMATION. Each financial statement of Borrower supplied to Lender truly and completely disclosed Borrower's financial condition as of the date of the statement, and there has been no material adverse change in Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements. LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement required hereunder to be given by Borrower when delivered will constitute, legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms. PROPERTIES. Except for Permitted Liens, Borrower owns and has good title to all of Borrower's properties free and clear of all Security Interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower's properties are titled in Borrower's legal name, and Borrower has not used, or filed a financing statement under, any other name for at least the last five (5) years. HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance," "disposal," "release," and "threatened release," as used in this Agreement, shall have the same meanings as set forth in the "CERCLA," "SARA," the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable state or Federal laws, rules, or regulations adopted pursuant to any of the foregoing. Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (a) During the period of Borrower's ownership of the properties, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any hazardous waste or substance by any person on, under, about or from any of the properties. (b) Borrower has no knowledge of, or reason to believe that there has been (i) any use, generation, manufacture, storage, treatment, disposal, release, or threatened release of any hazardous waste or substance on, under, about or from the properties by any prior owners or occupants of any of the properties, or (ii) any actual or threatened litigation or claims of any kind by any person relating to such matters. (c) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the properties shall use, generate, manufacture, store, treat, dispose of, or release any hazardous waste or substance on, under, about or from any of the properties; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation those laws, regulations and ordinances described above. Borrower authorizes Lender and its agents to enter upon the properties to make such inspections and tests as Lender may deem appropriate to determine compliance of the properties with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower's expense and for Lender's purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower's due diligence in investigating the properties for hazardous waste and hazardous substances. Borrower hereby (a) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any such laws, and (b) agrees to indemnify and hold harmless Lender against any and all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release occurring prior to Borrower's ownership or interest in the properties, whether or not the same was or should have been known to Borrower. The provisions of this section of the Agreement, including the obligation to indemnify, shall survive the payment of the Indebtedness and the termination or expiration of this Agreement and shall not be affected by Lender's acquisition of any interest in any of the properties, whether by foreclosure or otherwise. LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower's financial condition or properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing. TAXES. To the best of Borrower's knowledge, all tax returns and reports of Borrower that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided. LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower's Loan and Note, that would be prior or that may in any way be superior to Lender's Security Interests and rights in and to such Collateral. BINDING EFFECT. This Agreement, the Note, all Security Agreements directly or indirectly securing repayment of Borrower's Loan and Note and all of the Related Documents are binding upon Borrower as well as upon Borrower's successors, representatives and assigns, and are legally enforceable in accordance with their respective terms. COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for business or commercial related purposes. EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower may have any liability complies in all material respects with all applicable requirements of law and regulations, and (i) no Reportable Event nor Prohibited Transaction (as defined in ERISA) has occurred with respect to any such plan, (ii) Borrower has not withdrawn from any such plan or initiated steps to do so, (iii) no steps have been taken to terminate any such plan, and (iv) there are no unfunded liabilities other than those previously disclosed to Lender in writing. 18 4 04-01-1996 LOAN AGREEMENT Page 4 Loan No 0550010373 (Continued) ================================================================================ LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business, or Borrower's Chief executive office, if Borrower has more than one place of business, is located at 4500 S. Garnett, Tulsa, OK 74146. Unless Borrower has designated otherwise in writing this location is also the office or offices where Borrower keeps its records concerning the Collateral. INFORMATION. All information heretofore or contemporaneously herewith furnished by Borrower to Lender for the purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all information hereafter furnished by or on behalf of Borrower to Lender will be, true and accurate in every material respect on the date as of which such information is dated or certified; and none of such information is or will be incomplete by omitting to state any material fact necessary to make such information not misleading. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and agrees that Lender, without independent investigation, is relying upon the above representations and warranties in extending Loan Advances to Borrower. Borrower further agrees that the foregoing representations and warranties shall be continuing in nature and shall remain in full force and effect until such time as Borrower's Indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur. AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while this Agreement is in effect, Borrower will: LITIGATION. Promptly inform Lender in writing of (a) all material adverse changes in Borrower's financial condition, and (b) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor, FINANCIAL RECORDS. Maintain its books and records in accordance with generally accepted accounting principles, applied on a consistent basis, and permit Lender to examine and audit Borrower's books and records at all reasonable times. FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in no event later than ninety (90) days after the end of each fiscal year, Borrower's balance sheet and income statement for the year ended, audited by a certified public accountant satisfactory to Lender, and, as soon as available, but in no event later than forty five (45) days after the end of each fiscal quarter, Borrower's balance sheet and profit and loss statement for the period ended, prepared and certified as correct to the best knowledge and belief by Borrower's chief financial officer or other officer or person acceptable to Lender. All financial reports required to be provided under this Agreement shall be prepared in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct. ADDITIONAL INFORMATION. Furnish such additional information and statements, lists of assets and liabilities, agings of receivables and payables, inventory schedules, budgets, forecasts, tax returns, and other reports with respect to Borrower's financial condition and business operations as Lender may request from time to time. FINANCIAL COVENANTS AND RATIOS. Comply with the following covenants and ratios: TANGIBLE NET WORTH. Maintain a minimum Tangible Net Worth of not less than $4,500,000.00. NET WORTH RATIO. Maintain a ratio of Total Liabilities to Tangible Net Worth of less than 1.50 to 1.00. WORKING CAPITAL. Maintain Working Capital in excess of $1,000,000.00. CURRENT RATIO. Maintain a ratio of Current Assets to Current Liabilities in excess of 1.25 to 1.00. Except as provided above, all computations made to determine compliance with the requirements contained in this paragraph shall be made in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct. INSURANCE. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower's properties and operations, in form, amounts, coverages and with insurance companies reasonably acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least ten (10) days' prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest for the Loans, Borrower will provide Lender with such loss payable or other endorsements as Lender may require. INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonably request, including without limitation the following: (a) the name of the insurer; (b) the risks insured; (c) the amount of the policy; (d) the properties insured; (e) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (f) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower. OTHER AGREEMENTS. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements. LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business operations, unless specifically consented to the contrary by Lender in writing. TAXES, CHARGES AND LIENS. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower's properties, income, or profits. Provided however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as (a) the legality of the same shall be contested in good faith by appropriate proceedings, and (b) Borrower shall have established on its books adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with generally accepted accounting practices. Borrower, upon demand of Lender, will furnish to Lender evidence of payment of the assessments, taxes, charges, levies, liens and claims and will authorize the appropriate governmental official to deliver to Lender at any time a written statement of any assessments, taxes, charges, levies, liens and claims against Borrower's properties, income, or profits. PERFORMANCE. Perform and comply with all terms, conditions, and provisions set forth in this Agreement and in the Related Documents in a timely manner, and promptly notify Lender if Borrower learns of the occurrence of any event which constitutes an Event of Default under this Agreement or under any of the Related Documents. OPERATIONS. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner and in compliance with all applicable federal, state and municipal laws, ordinances, rules and regulations respecting its properties, charters, businesses and operations, including without limitation, compliance with the Americans With Disabilities Act and with all minimum funding standards and other requirements of ERISA and other laws applicable to Borrower's employee benefit plans. INSPECTION. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower's other properties and to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of Borrower's books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower's expense. COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender at least annually and at the time of each disbursement of Loan proceeds with a certificate executed by Borrower's chief financial officer, or other officer or person acceptable to Lender, certifying that the representations and warranties set forth in this Agreement are true and correct as of the date of the certificate and further certifying that, as of the date of the certificate, no Event of Default exists under this Agreement. ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respects with all environmental protection federal, state and local laws, statutes, regulations and ordinances; not cause or permit to exist, as a result of an intentional or unintentional action or omission on its part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower's part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources. ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests. 19 5 04-01-1996 LOAN AGREEMENT Page 5 Loan No 0550010373 (Continued) ================================================================================ NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender: INDEBTEDNESS AND LIENS.(a) Except for trade debt incurred in the normal course of business and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, including capital leases, (b) except as allowed as a Permitted Lien, sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of Borrower's assets, or (c) sell with recourse any of Borrower's accounts, except to Lender. CONTINUITY OF OPERATIONS. (a) Engage in any business activities substantially different than those in which Borrower is presently engaged, (b) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change ownership, change its name, dissolve or transfer or sell Collateral out of the ordinary course of business, (c) pay any dividends on Borrower's stock (other than dividends payable in its stock), provided, however that notwithstanding the foregoing, but only so long as no Event of Default has occurred and is continuing or would result from the payment of dividends, if Borrower is a "Subchapter S Corporation" (as defined in the Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends on its stock to its shareholders from time to time in amounts necessary to enable the shareholders to pay income taxes and make estimated income tax payments to satisfy their liabilities under federal and state law which arise solely from their status as Shareholders of a Subchapter S Corporation because of their ownership of shares of stock of Borrower, or (d) purchase or retire any of Borrower's outstanding shares or alter or amend Borrower's capital structure. LOANS, ACQUISITIONS AND GUARANTIES.(a) Loan, invest in or advance money or assets, (b) purchase, create or acquire any interest in any other enterprise or entity, or (c) incur any obligation as surety or guarantor other than in the ordinary course of business. CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if: (a) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender; (b) Borrower or any Guarantor becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (c) there occurs a material adverse change in Borrower's financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan with Lender; or (e) Lender in good faith deems itself insecure, even though no Event of Default shall have occurred. ADDITIONAL COVENANTS. Borrower warrants and agrees with Lender that while this agreement is in effect: 1) Borrower WILL NOT PURCHASE OR REDEEM ANY OF ITS STOCK or purchase or redeem any stock held by others of any subidiary or affiliate in an amount in excess of $500,000.00 in the aggregate. 2) Borrower will NOT MAKE ANY LOANS OR ADVANCES TO ANY OFFICER OR EMPLOYEE of Borrower or to any officer or employee of an affiliate or subsidiary greater than $100,000.00 in the aggregate. 3) Borrower WILL NOT PERMIT THE EXISTENCE OF ANY JUDGEMENTS against it which exceed $250,000 in the aggregate. BORROWING BASE CERTIFICATE. By the tenth (10th) business day of each month and when there is a balance owing on the Note, Borrower will deliver to Lender a Borrowing Base Certificate in the form of Exhibit "A" attached hereto, and completed as of the last day of the preceding month. RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the Indebtedness against any and all such accounts. EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due on the Loans. OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to perform when due any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents, or failure of Borrower to comply with or to perform any other term, obligation, covenant or condition contained in any other agreement between Lender and Borrower. DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents. FALSE STATEMENTS. Any warranty, representation or statement made or furnished to Lender by or on behalf of Borrower or any Grantor under this Agreement or the Related Documents is false or misleading in any material respect at the time made or furnished, or becomes false or misleading at any time thereafter. DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any Security Agreement to create a valid and perfected Security Interest) at any time and for any reason. INSOLVENCY. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower. CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower, any creditor of any Grantor against any collateral securing the Indebtedness, or by any governmental agency. This includes a garnishment, attachment, or levy on or of any of Borrower's deposit accounts with Lender. CHANGE IN OWNERSHIP. Any change in ownership of twent-five percent (25%) or more of the common stock of Borrower. ADVERSE CHANGE. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired. INSECURITY. Lender, in good faith, deems itself insecure. EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement or the Related Documents or any other agreement immediately will terminate (including any obligation to make Loan Advances or disbursements), and, at Lender's option, all Indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not affect Lender's right to declare a default and to exercise its rights and remedies. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement: AMENDMENTS. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE STATE OF OKLAHOMA. IF THERE IS A LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF TULSA COUNTY, THE STATE OF OKLAHOMA THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OKLAHOMA. CAPTION HEADINGS. Caption Headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Borrower under this Agreement shall be joint and several, and all references to Borrower shall mean each and every Borrower. This means that each of the Borrowers signing below is responsible for ALL obligations in this Agreement. CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's sale or transfer, whether now or later, of one or more participation interests in the Loans to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy it may have with respect to such matters. Borrower additionally waives any 20 6 04-01-1996 LOAN AGREEMENT Page 6 Loan No 0550010373 (Continued) ================================================================================ and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loans and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower's obligation under the Loans irrespective of the failure or insolvency of any holder of any interest in the Loans. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender. COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's expenses, including without limitation attorneys' fees, incurred in connection with the preparation, execution, enforcement, modification and collection of this Agreement or in connection with the Loans made pursuant to this Agreement. Lender may pay someone else to help collect the Loans and to enforce this Agreement, and Borrower will pay that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit, including attorneys' fees for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also will pay any court costs, in addition to all other sums provided by law. NOTICES. All notices required to be given under this Agreement shall be given in writing, may be sent by telefacsimilie, and shall be effective when actually delivered or when deposited with a nationally recognized overnight courier or deposited in the United States mail, first class, postage prepaid, addressed to the party to whom the notice is to be given at the address shown above. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. To the extent permitted by applicable law, if there is more than one Borrower, notice to any Borrower will constitute notice to all Borrowers. For notice purposes, Borrower will keep Lender informed at all times of Borrower's current address(es). SEVERABILITY. If a court of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances. If feasible, any such offending provision shall be deemed to be modified to be within the limits of enforceability or validity; however, if the offending provision cannot be so modified, it shall be stricken and all other provisions of this Agreement in all other respects shall remain valid and enforceable. SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the word "Borrower" as used herein shall include all subsidiaries and affiliates of Borrower. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any subsidiary or affiliate of Borrower. SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on behalf of Borrower shall bind its successors and assigns and shall inure to the benefit of Lender, its successors and assigns. Borrower shall not, however, have the right to assign its rights under this Agreement or any interest therein, without the prior written consent of Lender. SURVIVAL. All warranties, representations, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement shall be considered to have been relied upon by Lender and will survive the making of the Loan and delivery to Lender of the Related Documents, regardless of any investigation made by Lender or on Lender's behalf. TIME IS OF THE ESSENCE. Time is of the essence in the performance of this Agreement. WAIVER. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any of Lender's rights or of any obligations of Borrower or of any Grantor as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent in subsequent instances where such consent is required, and in all cases such consent may be granted or withheld in the sole discretion of Lender. BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF APRIL 1, 1996. BORROWER: XETA CORPORATION BY: /s/ JACK R. INGRAM BY: /s/ ROBERT B. WAGNER ------------------------------- ------------------------- JACK R. INGRAM, PRESIDENT ROBERT B. WAGNER, VICE PRESIDENT LENDER: BancFirst BY: /s/ ROBERT H. REINS ------------------------------ AUTHORIZED OFFICER ================================================================================ 21
EX-10.2 3 PROMISSORY NOTE 1 [BANCFIRST LOGO] PROMISSORY NOTE
- ---------------------------------------------------------------------------------------------------------------------------------- PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS $1,000,000.00 04-01-1996 04-01-1997 0550010373 220111 18 1104629 REL - ----------------------------------------------------------------------------------------------------------------------------------- References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. - ----------------------------------------------------------------------------------------------------------------------------------- BORROWER: XETA CORPORATION (TIN: 73-1130045) LENDER: BANCFIRST 4500 S. GARNETT TULSA TULSA, OK 74146 7625 EAST 51ST STREET P.O. BOX 680 TULSA, OK 74101 =================================================================================================================================== PRINCIPAL AMOUNT: $1,000,000.00 INITIAL RATE: 8.750% DATE OF NOTE: APRIL 1, 1996
PROMISE TO PAY. XETA CORPORATION ("BORROWER") PROMISES TO PAY TO BANCFIRST ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES OF AMERICA, THE PRINCIPAL AMOUNT OF ONE MILLION & 00/100 DOLLARS ($1,000,000.00) OR SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH INTEREST ON THE UNPAID OUTSTANDING PRINCIPAL BALANCE OF EACH ADVANCE. INTEREST SHALL BE CALCULATED FROM THE DATE OF EACH ADVANCE UNTIL REPAYMENT OF EACH ADVANCE. PAYMENT. BORROWER WILL PAY THIS LOAN IN ONE PAYMENT OF ALL OUTSTANDING PRINCIPAL PLUS ALL ACCRUED UNPAID INTEREST ON APRIL 1, 1997. IN ADDITION, BORROWER WILL PAY REGULAR MONTHLY PAYMENTS OF ACCRUED UNPAID INTEREST BEGINNING MAY 1, 1996, AND ALL SUBSEQUENT INTEREST PAYMENTS ARE DUE ON THE SAME DAY OF EACH MONTH AFTER THAT. Interest on this Note is computed on a 365/360 simple interest basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to accrued unpaid interest, then to principal, and any remaining amount to any unpaid collection costs and late charges. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an independent index which is the CHASE NEW YORK PRIME RATE (the "Index"). The Index is not necessarily the lowest rate charged by Lender on its loans. If the Index becomes unavailable during the term of this loan, Lender may designate a substitute index after notice to Borrower. Lender will tell Borrower the current Index rate upon Borrower's request. Borrower understands that Lender may make loans based on other rates as well. The interest rate change will not occur more often than each DAY. THE INDEX CURRENTLY IS 8.250% PER ANNUM. THE INTEREST RATE TO BE APPLIED TO THE UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE OF 0.500 PERCENTAGE POINTS OVER THE INDEX, RESULTING IN AN INITIAL RATE OF 8.750% PER ANNUM. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Except for the foregoing, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments of accrued unpaid interest. Rather, they will reduce the principal balance due. DEFAULT. Borrower will be in default if any of the following happens: (a) Borrower fails to make any payment when due. (b) Borrower breaks any promise Borrower has made to Lender, or Borrower fails to comply with or to perform when due any other term, obligation, covenant, or condition contained in this Note or any agreement related to this Note, or in any other agreement or loan Borrower has with Lender. (c) Borrower defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the Related Documents. (d) Any representation or statement made or furnished to Lender by Borrower or on Borrower's behalf is false or misleading in any material respect either now or at the time made or furnished. (a) Borrower becomes insolvent, a receiver is appointed for any part of Borrower's property, Borrower makes an assignment for the benefit of creditors, or any proceeding is commenced either by Borrower or against Borrower under any bankruptcy or insolvency laws. (f) Any creditor tries to take any of Borrower's property on or in which Lender has a lien or security interest. This includes a garnishment of any of Borrower's accounts with Lender. (g) Any guarantor dies or any of the other events described in this default section occurs with respect to any guarantor of this Note or any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor's guarantee of this Note. (h) A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired. (i) Lender in good faith deems itself insecure. LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance on this Note and all accrued unpaid interest immediately due, without notice, and then Borrower will pay that amount. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower also will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. If not prohibited by applicable law, Borrower also will pay any court costs, in addition to all other sums provided by law. THIS NOTE HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE STATE OF OKLAHOMA. IF THERE IS A LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF TULSA COUNTY,THE STATE OF OKLAHOMA. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OKLAHOMA. RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on this Note against any and all such accounts. LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note may be requested orally by Borrower or by an authorized person. Lender may, but need not, require that all oral requests be confirmed in writing. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender's office shown above. The following party or parties are authorized to request advances under the line of credit until Lender receives from Borrower at Lender's address shown above written notice of revocation of their authority: JACK R. INGRAM, PRESIDENT. Borrower agrees to be liable for all sums either: (a) advanced in accordance with the instructions of an authorized person or (b) credited to any of Borrower's accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender's internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (a) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note; (b) Borrower or any guarantor ceases doing business or is insolvent; (c) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor's guarantee of this Note or any other loan with Lender; (d) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender; or (a) Lender in good faith deems itself insecure under this Note or any other agreement between Lender and Borrower. PRIOR NOTE. This note constitutes an extension, renewal and/or change in form of a promissory note in the name of the Borrower hereof dated 5/31/94, in the original amount of $350,000.00 from such Borrower to BancFirst. GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorses this Note, to the extent allowed by law, waive presentment, demand for payment, protest and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. 22 2 04-01-1996 PROMISSORY NOTE Page 2 Loan No 0550010373 (Continued) ================================================================================ PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE. BORROWER: XETA CORPORATION BY: BY: ---------------------------- ----------------------------------- JACK R. INGRAM, PRESIDENT ROBERT B. WAGNER, VICE PRESIDENT ================================================================================ Variable Rate. Line of Credit. LASER PRO, Reg. U.S. Pat. & T.M. Off., Ver. 3.21 (c) 1996 CFI ProServices, Inc. All rights reserved. [OK-D20 XETA.LN C21.OVL] 23
EX-23.1 4 CONSENT OF ARTHUR ANDERSEN 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report and to all references to our Firm included in or made a part of the Form S-8 made by Xeta Corporation on August 28, 1995. It should be noted that we have not audited any financial statements of the Company subsequent to October 31, 1995 or performed any audit procedures subsequent to the date of our report. ARTHUR ANDERSEN LLP Tulsa, Oklahoma September 9, 1996 24 EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON PAGES 3 AND 4 OF COMPANY'S 10-QSB FOR THE YEAR TO DATE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS OCT-31-1996 JUL-31-1996 3,187,277 0 1,440,263 0 782,276 8,059,491 370,023 0 12,055,056 3,265,966 0 218,266 0 0 6,699,909 12,055,056 2,966,712 2,966,712 1,854,904 1,854,904 0 0 0 534,700 200,000 334,700 0 0 0 334,700 .14 .14
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