<PAGE> 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.
<PAGE> 2
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS Page No.
--------
<S> <C>
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
</TABLE>
2
<PAGE> 3
XETA CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
------
<TABLE>
<CAPTION>
July 31, 1996 October 31, 1995
------------- ----------------
(Unaudited)
<S> <C> <C>
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
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
XETA CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
July 31 July 31,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
XETA CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
NOVEMBER 1, 1995 THROUGH July 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Treasury Stock
--------------------------- ----------------------
Number of
Shares Issued Paid-in Retained
& Outstanding Par Value Shares Amount Capital Earnings
------------- --------- ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
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
========= ======== ======== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
XETA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For The Nine Months Ending
-----------------------------
July 31, 1996 July 31, 1995
------------- -------------
<S> <C> <C>
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
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 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:
<TABLE>
<CAPTION>
July 31, October 31,
1996 1995
---------- ----------
(Unaudited)
<S> <C> <C>
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
========== ==========
</TABLE>
7
<PAGE> 8
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
July 31, October 31,
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
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
=========== ===========
</TABLE>
(5) UNEARNED INCOME
Unearned income consists of the following:
<TABLE>
<CAPTION>
July 31, October 31,
1996 1995
---------- ----------
(Unaudited)
<S> <C> <C>
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
========== ==========
</TABLE>
(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:
<TABLE>
<CAPTION>
July 31, October 31,
1996 1995
---------- ----------
(Unaudited)
<S> <C> <C>
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)
========== ==========
</TABLE>
8
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEC. NO. Description Page
- -------- ----------- ----
<S> <C> <C>
(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. -
</TABLE>
15
<PAGE> 1
[BANCFIRST LOGO]
LOAN AGREEMENT
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$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
===================================================================================================================================
</TABLE>
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
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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
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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
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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
<PAGE> 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
<PAGE> 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
<PAGE> 1
[BANCFIRST LOGO]
PROMISSORY NOTE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$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
</TABLE>
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
<PAGE> 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
<PAGE> 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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> JUL-31-1996
<CASH> 3,187,277
<SECURITIES> 0
<RECEIVABLES> 1,440,263
<ALLOWANCES> 0
<INVENTORY> 782,276
<CURRENT-ASSETS> 8,059,491
<PP&E> 370,023
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,055,056
<CURRENT-LIABILITIES> 3,265,966
<BONDS> 0
<COMMON> 218,266
0
0
<OTHER-SE> 6,699,909
<TOTAL-LIABILITY-AND-EQUITY> 12,055,056
<SALES> 2,966,712
<TOTAL-REVENUES> 2,966,712
<CGS> 1,854,904
<TOTAL-COSTS> 1,854,904
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 534,700
<INCOME-TAX> 200,000
<INCOME-CONTINUING> 334,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 334,700
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
