<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 APRIL 30, 1997
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 June 1, 1997
- -------------------------------- ---------------------------
Common Stock, $.10 par value 2,005,906
Page 1 of 16 consecutive pages
Exhibit Index appears on Page 20.
<PAGE> 2
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS Page No.
<S> <C>
Consolidated Balance Sheets - April 30, 1997 3
and October 31, 1996
Consolidated Statements of Operations - For the 4
Six months ending April 30, 1997 and 1997
Consolidated Statements of Shareholder's Equity - 5
November 1, 1996 through April 30, 1997
Consolidated Statements of Cash Flows - For the 6
Six months ending April 30, 1997 and 1996
Notes to Consolidated Financial Statements 7
</TABLE>
<PAGE> 3
XETA CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
April 30, 1997 October 31, 1996
---------------- ----------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,887,510 $ 3,549,101
Current portion of net investment in
sales-type leases 2,119,987 2,217,672
Other receivables, net 1,966,241 1,516,479
Inventories, net (Note 4) 1,704,485 1,041,496
Current deferred tax asset, net (Note 7) 83,867 92,897
Prepaid expenses and other assets 246,628 156,233
Prepaid taxes -- 173,785
---------------- ----------------
Total current assets 10,008,718 8,747,663
---------------- ----------------
Noncurrent Assets:
Net investment in sales-type leases,
less current portion above 1,908,569 2,737,358
Purchased long distance contracts (Note 2) 960,418 --
Property, plant, & equipment, net (Note 5) 491,613 394,906
Capitalized software production costs, net of
accumulated amortization of $300,066 at April
30, 1997 and $268,914 at Oct. 31, 1996 446,592 325,816
Other assets 126,806 158,677
---------------- ----------------
Total noncurrent assets 3,933,998 3,616,757
---------------- ----------------
Total assets $ 13,942,716 $ 12,364,420
================ ================
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 865,521 $ 371,473
Unearned revenue (Note 6) 2,776,630 2,274,294
Accrued liabilities 737,792 666,838
Accrued federal and state income taxes 122,455 --
---------------- ----------------
Total current liabilities 4,502,398 3,312,605
---------------- ----------------
Unearned service revenue (Note 6) 914,358 1,388,998
---------------- ----------------
Noncurrent deferred tax liability, net (Note 7) 506,361 591,984
---------------- ----------------
Commitments (Note 2)
Shareholders' equity:
Common stock; $.10 par value; 10,000,000
shares authorized, 2,192,653 and
2,182,653 issued at April 30, 1997 and
October 31, 1996, respectively 219,265 218,265
Paid-in capital 4,788,450 4,736,413
Retained earnings 3,271,624 2,375,895
---------------- ----------------
8,279,339 7,330,573
Less treasury stock, at cost (259,740) (259,740)
---------------- ----------------
Total shareholders' equity 8,019,599 7,070,833
---------------- ----------------
Total liabilities & shareholders' equity $ 13,942,716 $ 12,364,420
================ ================
</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 Six Months
Ending April 30, Ending April 30,
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales of systems $ 2,949,858 1,990,880 4,032,650 4,030,096
Installation and service revenues 2,245,930 1,703,625 4,063,867 3,246,406
----------- ----------- ----------- -----------
Net sales and service revenues 5,195,788 3,694,505 8,096,517 7,276,502
----------- ----------- ----------- -----------
Cost of sales 1,926,809 1,224,743 2,572,003 2,467,557
Installation and service cost 1,447,696 1,130,886 2,590,967 2,120,287
----------- ----------- ----------- -----------
Total cost of sales and service 3,374,505 2,355,629 5,162,970 4,587,844
----------- ----------- ----------- -----------
Gross profit 1,821,283 1,338,876 2,933,547 2,688,658
----------- ----------- ----------- -----------
Operating expenses:
Selling, general and administrative 997,146 755,454 1,671,524 1,444,739
Engineering, research and development,
and amortization of capitalized
software production costs 105,796 98,181 204,664 195,538
----------- ----------- ----------- -----------
Total operating expenses 1,102,942 853,635 1,876,188 1,640,277
----------- ----------- ----------- -----------
Income from operations 718,341 485,241 1,057,359 1,048,381
Interest and other income 167,548 149,958 335,370 289,861
----------- ----------- ----------- -----------
Income before provision for income
taxes 885,889 635,199 1,392,729 1,338,242
Provision for income taxes 321,000 239,000 497,000 500,000
----------- ----------- ----------- -----------
Net income $ 564,889 $ 396,199 $ 895,729 $ 838,242
=========== =========== =========== ===========
Income per common and common
equivalent share
Primary and fully diluted $ .24 $ .17 $ .38 $ .36
=========== =========== =========== ===========
Weighted average shares outstanding 2,002,681 1,980,638 1,998,956 1,951,624
=========== =========== =========== ===========
Weighted average shares equivalents 2,357,796 2,349,036 2,349,708 2,338,797
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of these statements.
4
<PAGE> 5
XETA CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
NOVEMBER 1, 1996 THROUGH April 30, 1997
(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, 1996 2,182,653 $218,265 (189,747) $(259,740) $4,736,413 $2,375,895
Stock options
exercised 10,000 1,000 12,125
Tax benefit of
stock options 39,912
Net Income 895,729
--------- -------- -------- --------- ---------- ----------
Balance -
April 30, 1997 2,192,653 $219,265 (189,747) $(259,740) $4,788,450 $3,271,624
========= ======== ======== ========= ========== ==========
</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 Six Months Ending
------------------------------------
April 30, 1997 April 30, 1996
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 895,729 $ 838,242
---------------- ----------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 95,721 78,283
Amortization of capitalized software
production costs 31,152 27,456
(Gain) loss on sale of assets -- (14,076)
Provision for doubtful accounts receivable 18,000 30,000
Change in assets and liabilities:
(Increase) decrease in net investment in
sales-type leases 926,474 (1,162,694)
(Increase) in other receivables (467,762) 313,855
(Increase) decrease in inventories (662,989) 124,535
Decrease in prepaid income taxes 173,785 --
(Increase) decrease in deferred tax asset 9,030 33,381
(Increase) in prepaid expenses and
other assets (58,524) (106,600)
Increase (decrease) in accounts payable 494,048 (24,187)
Increase in unearned revenue 27,696 553,899
Increase in accrued income taxes 162,367 24,209
(Decrease) in accrued liabilities 70,954 (147,799)
Increase (decrease) in deferred tax liabilities (85,623) 61,821
---------------- ----------------
Total adjustments 734,329 (207,917)
---------------- ----------------
Net cash provided by (used in)
operating activities 1,630,058 630,325
---------------- ----------------
Cash flows from investing activities:
Purchases of long distance contracts (960,418) --
Additions to capitalized software (151,928) (90,681)
Additions to property, plant & equipment (192,428) (118,088)
Proceeds from sale of assets -- 28,948
---------------- ----------------
Net cash used in
investing activities (1,304,774) (179,821)
---------------- ----------------
Cash flows from financing activities:
Exercise of stock options 13,125 167,541
---------------- ----------------
Net cash provided by financing activities 13,125 167,541
---------------- ----------------
Net increase (decrease) in cash and
cash equivalents 338,409 618,045
Cash and cash equivalents, beginning of period 3,549,101 2,788,709
---------------- ----------------
Cash and cash equivalents, end of period $ 3,887,510 $ 3,406,754
================ ================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 471 $ 739
Cash paid during the period for income taxes $ 455,454 $ 55,000
</TABLE>
The accompanying notes are an integral
part of these statements.
6
<PAGE> 7
XETA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997
(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) OPERATOR SERVICES BUSINESS AND PURCHASED LONG DISTANCE CONTRACTS
Effective April 1, 1997, the Company became a sub-agent of MCI to
market, on a non-exclusive basis, a wide variety of long distance services to
commercial customers, including the hospitality industry. Simultaneously, the
Company entered into a marketing alliance with Americom Communications
Services, Inc. ("ACSI") to jointly market these MCI services to the hotel
industry. The two companies will share equally in the "Net Commissions" earned
from those services. "Net Commissions" are defined as those revenues earned
from the long distance contracts after deductions for commissions paid to the
customer hotels and payments to XETA for equipment and service fees relating to
any equipment provided by XETA.
Also effective April 1, 1997, the Company purchased ACSI's interest in
existing long distance contracts at 71 hotels for $1,108,000. The purchase
price included a payment for the contracts of $960,000, which has been
capitalized, and reimbursement of certain equipment fees on installed
equipment. The capitalized costs will be amortized ratably over the three year
life of the long distance contract at each hotel. A majority of these 71 hotels
receive long distance services jointly from MCI and another carrier. The
remaining hotels are served exclusively by MCI. The purchase agreement includes
ACSI's interest in commissions earned from both carriers. Under the terms of
the purchase agreement, the Net Commissions earned each month from these 71
properties are divided as follows: the first $40,000 are paid to XETA, the next
$45,000 are paid to ACSI and any remaining Net Commissions are shared equally.
After April 1, 2000, all Net Commissions are shared equally.
7
<PAGE> 8
Previous to the purchase agreement, ACSI had obtained loans from one
of the carriers secured by future commissions to be earned under various long
distance contracts, including those contracts purchased by the Company. To
effect the transfer of ACCI's interest in the 71 hotel contracts, which were
collateralized by the loans, the Company guaranteed ACSI's indebtedness. The
amount of the guarantee at April 30, 1997 was $567,194. The Company believes
that ACSI's earnings from its share of Net Commissions as well as other revenue
sources pledged by ACSI will be sufficient to retire the indebtedness in
accordance with the terms of the loans, therefore no liability has been
recorded related to the guarantee.
(3) REVOLVING CREDIT AGREEMENT
The company maintains a $1,000,000 revolving line of credit with its
bank. There are no outstanding advances under the credit agreement.
(4) INVENTORIES
The following are the components of inventories:
<TABLE>
<CAPTION>
April 30, October 31,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Raw materials $ 737,381 $ 577,054
Finished goods and spare parts 1,126,352 623,690
----------- -----------
1,863,733 1,200,744
Less reserve for excess and
obsolete inventory (159,248) (159,248)
----------- -----------
$ 1,704,485 $ 1,041,496
=========== ===========
</TABLE>
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
April 30, October 31,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Computer field equipment $ 960,299 $ 797,825
Office furniture 116,564 112,976
Other 161,964 147,001
----------- -----------
1,238,827 1,057,802
Less accumulated depreciation (747,214) (662,896)
----------- -----------
$ 491,613 $ 394,906
=========== ===========
</TABLE>
8
<PAGE> 9
(6) UNEARNED INCOME
Unearned income consists of the following:
<TABLE>
<CAPTION>
April 30, October 31,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Service contracts $ 1,491,972 $ 1,570,872
Warranty service 501,072 379,753
Systems shipped, but not installed 278,207 63,829
Customer deposits 460,960 209,357
Other deferred revenue 44,419 50,483
----------- -----------
Total current deferred revenue 2,776,630 2,274,294
Noncurrent unearned service revenues 914,359 1,388,998
----------- -----------
$ 3,690,989 $ 3,663,292
=========== ===========
</TABLE>
(7) 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>
April 30, October 31,
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Deferred tax assets:
Prepaid service contracts $ 32,748 $ 51,083
Nondeductible reserves 213,430 198,822
Book depreciation in excess of tax 8,991 15,902
Other 34,716 50,675
----------- -----------
Total deferred tax asset 289,885 316,482
----------- -----------
Deferred tax liabilities:
Unamortized capitalized software
development costs (151,842) (110,778)
Tax income to be recognized on sales-type
lease contracts (494,577) (638,831)
Other (65,960) (65,960)
----------- -----------
Total deferred tax liability (712,379) (815,569)
----------- -----------
Net deferred tax liability $ (422,494) $ (499,087)
=========== ===========
</TABLE>
(8) INTEREST AND OTHER INCOME
Interest and other income recorded in the accompanying financial
statements, consists primarily of interest income earned from sales-type leases
and cash investments.
9
<PAGE> 10
(9) FOOTNOTES INCORPORATED BY REFERENCE
Certain footnotes are applicable to the consolidated financial
statements, but would be substantially unchanged from those presented in the
Company's Annual Report on Form 10-KSB, Commission File No. 0-16231, filed with
the Securities and Exchange Commission on January 29, 1997. Accordingly,
reference should be made to those statements for the following:
<TABLE>
<CAPTION>
Note Description
---- -----------
<S> <C>
1 Business and summary of significant accounting policies
3 Cash and cash equivalents
4 Income taxes
6 Accrued liabilities
8 Stock options
9 Commitments
10 Major customers and concentrations of credit risk
11 Employment agreements
12 Contingency
13 Earnings per share
15 Retirement plan
</TABLE>
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
During the second quarter of fiscal 1997, XETA Corporation (the "Company"),
earned net income of $565,000 on net sales of $5,196,000, both record quarterly
results. For the six months ending April 30, 1997, the Company earned net
income of $896,000 on net sales of $8,097,000. Additional analysis of these
results is presented under "Results of Operations" below.
During the second quarter, the Company became a sub-agent of MCI to market, on
a non-exclusive basis, a wide variety of long distance services to commercial
customers, including the hotel industry. These services include direct dial,
operator assisted and calling card long distance calls which are marketed under
a variety of MCI tradenames. As an MCI sub-agent, the Company will earn
commissions on MCI calls made from customer locations. The Company believes
that it will enjoy a competitive advantage in the hotel industry by offering a
unique package of industry-leading equipment and services. In addition to long
distance service from MCI, one of the three major long distance carriers, this
package will include XETA call accounting equipment and services at no
additional operating expense or capital commitment to the hotel. The primary
target for this service will be medium to large hotel management groups which
control the long distance contracts for multiple properties.
Concurrent with becoming an MCI sub-agent, the Company entered into a marketing
alliance with Americom Communications Services, Inc. ("ACSI") in which ACSI
will market MCI services exclusively for XETA. ACSI has been a sales agent of
the Company since 1989 representing call accounting products to some of the
Company's major customers. ACSI is owned and controlled by Bob Jones, a former
executive officer and founder of XETA. Under the terms of the marketing
alliance with ACSI, the two companies will share equally in the "Net
Commissions" earned from customers contracting for its long distance package.
Net Commissions are defined as commissions earned from MCI less deductions for
commissions paid to customer hotels and fees paid to the Company for equipment
and services provided by XETA to the hotel.
In conjunction with the sub-agency and marketing alliance agreements, the
Company purchased ACSI's interest in existing long distance contracts at 71
hotels for $1,108,000. The purchase price included payment for the contracts of
$960,000. The remainder of the purchase price represents reimbursement of
certain fees for equipment installed at the hotels. The majority of these 71
hotels receive long distance services jointly from MCI and another carrier. The
remaining hotels are served exclusively by MCI. The purchase agreement includes
ACSI's interest in revenues from both carriers. Under the terms of the purchase
agreement, the Net Commissions earned each month from these properties will be
divided as follows: the first $40,000 is paid to the Company, the next $45,000
is paid to ACSI and the remainder is shared equally. After April 1, 2000, all
Net Commissions are shared equally.
The effective date of the sub-agency, marketing alliance and purchase
agreements was April 1, 1997. However, because of the normal delay in reporting
of commissions earned from the long distance carriers, there
11
<PAGE> 12
were no revenues or expenses recorded for these activities during the second
quarter of fiscal 1997. Management expects the revenues earned from the
purchased contracts to begin making contributions to earnings during the third
quarter. For a further discussion of the risk factors associated with this new
service offering and the purchase of the long distance contracts, please see
the "Outlook and Risk Factors" section below.
The discussion which follows provides analysis of the major factors and trends
which management believes had the most significant impact on the financial
condition of the Company as of April 30, 1997 and the results of its operations
for the quarter and six months ending April 30, 1997 as compared to those same
periods one year ago. Also included in this discussion are the major factors,
trends and risks which management believes will affect the outlook for the
Company. This analysis should be read in conjunction with the Consolidated
Financial Statements and Notes thereto contained in this report.
FINANCIAL CONDITION
For the six months ending April 30, 1997, the Company's cash balances have
increased $338,000. This increase consists of cash generated from operations of
$1,630,000 and cash from exercises of stock options of $13,000. The largest
single use of cash was the purchase of long distance contracts with 71 hotels
for $1.1 million, requiring $960,000 in cash. Other uses of cash were
investments in equipment of $192,000 and investments in capitalized software
production costs of $152,000. The equipment investment is primarily to support
the placement of call accounting systems in the field to support PBX service
locations and long distance service contracts. Under both of these service
offerings, customers generally receive a call accounting system for their use
during the duration of the contract. The investment in capitalized software
production costs relates to continued development of the Company's XPANDER
system which is more fully described below.
Management considers the Company's financial condition to be strong despite the
use of nearly $1 million to purchase long distance contracts under its new MCI
long distances services business. Cash balances still represent approximately
28% of total assets, working capital exceeds $5.5 million, and the current
ratio is 2.2. Management believes that present working capital and future
operating cash flows will be sufficient to meet anticipated operating needs and
planned capital expenditures. These planned operating and capital needs include
continued expansion of the Company's service staff to maintain the Company's
commitment to high quality service over the rapidly increasing customer base
and placement of additional call accounting systems under PBX and long distance
service contracts.
Beyond these anticipated needs to support the expansion of current operations,
management continually evaluates other alternatives to effectively utilize cash
balances and other available assets. The purchase of long distance contracts
from ACSI was the result of those evaluations. Other possibilities include the
purchase of additional long distance contracts, synergistic acquisitions,
further expansion of the Company's XETAPLAN program and renewal of the
Company's stock
12
<PAGE> 13
repurchase program. Some of these alternatives have been utilized effectively
in the past three years to expand the Company's business and enhance
shareholder value. To assist the Company in these evaluations, management has
engaged a member of the board of directors to locate and evaluate potential
opportunities which would make effective use of the Company's strong financial
condition to enhance long term shareholder value.
RESULTS OF OPERATIONS
Net sales and service revenues increased $1,501,000 or 41% in the second
quarter of fiscal 1997 compared to the second quarter of fiscal 1996. This
increase included a 48% increase in systems sales and 32% increase in
installation and service revenues. For the first six months of fiscal 1997, net
sales and service revenues increased $820,000 or 11% compared to the first six
months of fiscal 1996. This smaller increase consisted of an unchanged level of
systems sales together with a 25% increase in installation and service
revenues.
The increase in systems sales during the second quarter is due to an increase
in sales of PBX systems. Although sales of new PBX's were down significantly in
the first quarter, the amount of orders received for future installations
surged during that quarter. This surge of new orders resulted in record second
quarter PBX sales of $2.7 million, an increase of 110% over the second quarter
of fiscal 1996, and brought the year to date sales of PBX systems to $3.3
million, a 26% increase over the first six months of fiscal 1996. Offsetting
these increases has been the decline in sales of call accounting systems from
the inflated levels experienced during the first and second quarters of fiscal
1996. Those inflated call accounting sales were related to the mandated changes
in the North American Numbering Plan ("NANP") which required most of the
Company's customers to purchase new systems or upgrade their existing systems.
The second quarter is the final quarter in which call accounting sales will
have to compare against NANP inflated levels. The Company continues to enjoy
healthy call accounting sales, albeit at more historical levels.
The increases in installation and service revenues are due primarily to
increases in installations of new PBX systems and in expansion of the base of
customers under PBX service contracts. Revenues from PBX service related
activities now represent more than 50% of total installation and service
revenues, and like most of the Company's service revenues, are recurring in
nature. Revenues earned from installation and service activities related to
call accounting products declined 5% during the second quarter of fiscal 1997
and declined 1% for the first six months of the year compared to the prior
year. This decline was expected given the decline in installations of new call
accounting systems during fiscal 1997 to date versus fiscal 1996.
Gross margins earned on net sales and service revenues were 35% in the second
quarter of fiscal 1997 compared to 36% for the same period in the prior year
and were 36% for the first six months of fiscal 1997 compared to 37% for the
first six months of fiscal 1996. Gross margins earned on systems sales, which
vary greatly by product line, were 35% in the second quarter of fiscal 1997
compared to 38% in the second quarter of
13
<PAGE> 14
fiscal 1996, reflecting a greater percentage of lower margin PBX sales during
the quarter as compared to last year. Gross margins earned on systems sales
during the first six months of fiscal 1997 were 36% compared to 39% for the
previous year also reflecting a higher percentage of PBX's sold compared to
call accounting systems. Gross margins earned on installation and service
revenues were 36% in both the second quarter and first half of fiscal 1997
which represents a slight improvement over the previous year.
Operating expenses increased 29% in the second quarter of fiscal 1997 compared
to last year and increased 14% for the first six months of fiscal 1997 compared
to last year. These increases relate primarily to increased legal costs
associated with pending litigation and increases in commissions and executive
bonuses which are directly related to the increases in sales and profitability.
Interest and other income increased $18,000 or 12% during the second quarter of
fiscal 1997 and increased $46,000 or 16% during the first half of fiscal 1997,
compared to the same periods a year ago. This increase resulted primarily from
increases in cash balances on hand. The majority of the Company's interest
income is derived from its sales-type lease program, marketed under the name,
XETAPLAN. Many of the NANP related call accounting sales made during fiscal
years 1994, 1995 and 1996 were made under the XETAPLAN program, and as a
result, the Company's interest income from those sales-type leases grew
steadily during that period. As those contracts mature, less of each customer's
monthly payment represents payment of interest, therefore interest income from
this source will begin to decline.
The Company has recorded a provision for federal and state income taxes of
$321,000 in the second quarter of fiscal 1997 and $497,000 for the first six
months of fiscal 1997, representing an effective tax rate of 36% for both
periods. This compares to an effective tax rate of 37% for those same periods
in 1996. The slightly lower tax rate reflects a reduction in the estimated
state tax provision for fiscal 1997.
OUTLOOK AND RISK FACTORS
The statements contained in this section entitled "Outlook and Risk Factors"
are based on current expectations. The statements are forward-looking and
actual results may differ materially.
Management believes that as a result of favorable second quarter results and
sales orders received for installations during the last half of the fiscal
year, the Company is well-positioned to exceed last year's sales and net income
levels. This belief is founded on the favorable results in the second quarter
as well as the order activity for third and fourth quarter installations.
Additionally, since the Company earns recurring service revenues from nearly
all installed systems, the increased sales of new PBX systems in the second
quarter will provide immediate increases in service revenues for the remainder
of the year.
As discussed above, during the second quarter, the Company became a sub-agent
of MCI to provide long distance services to commercial customers, primarily
hotels. Also, the Company paid nearly $1 million to ACSI for
14
<PAGE> 15
existing long distance contracts which include services provided by MCI and
another carrier, U.S. Long Distance Corp. ("USLD"). Prior to entering into
these agreements, the Company reviewed the available past history of revenues
from these contracts and believes that it will earn an acceptable rate of
return on this investment and that this new service line will be accretive to
earnings immediately. However, because the majority of the contracts were with
customers only recently secured under MCI contracts by ACSI, there were no
historical revenues available for review on the majority of sites. To provide
additional security for its investment in these contracts, the Company will
receive the first $40,000 of Net Commissions earned each month prior to ACSI
receiving any revenue from these sites.
Prior to the Company's acquisition of the revenues earned from the 71 purchased
long distance contracts, these revenues were pledged as collateral by ACSI to
secure loans from USLD to Americom. These loans were secured by commissions
earned and to be earned from these contracts as well as other contracts not
part of the Purchase Agreement between ACSI and the Company. In order to obtain
these revenues free and clear of USLD's security interest, the Company
guaranteed approximately $567,000 in ACSI's indebtedness to USLD in exchange
for a release of USLD's security interest against ACSI's USLD commissions. The
Company has, in turn, taken a security interest in all of ACSI's revenues from
USLD as well as all commissions due ACSI under the marketing alliance and from
other sales of Company products, to secure any amount which may become due from
ACSI to the Company under the Purchase Agreement. While no assurance can be
given, management believes that future commissions from the carrier will be
sufficient to liquidate ACSI's indebtedness to USLD according to its payment
terms At June 1, 1997, the Company had not recorded any portion of this
guarantee as a liability in its financial statements.
The Company's annual distributorship agreement with Hitachi Telecom (USA), Inc.
("Hitachi") expired on March 31, 1997. The Company is currently reviewing the
renewal contract proposed by Hitachi. The Company considers its relationship
with Hitachi to be very good and strongly believes that the agreement will be
renewed on mutually beneficial terms. In the interim, both parties are
continuing to operate under the same procedures and terms of the existing
agreement. If for some reason, however, a renewal cannot be achieved, the
Company's operating results could be lower than those expected.
The Company continues to commit the majority of its research and development
resources into development of XPANDER, its first PBX related proprietary
product. Management believes the market for XPANDER is continuing to grow, but
that it is still too early to predict when demand will be strong enough to
forecast significant revenues from sales of this product. The Company has
applied for a patent on XPANDER, but it is too early in the application process
to determine whether the Company will receive a patent and the protections
associated therewith.
The Company is involved in two matters of pending litigation (See "Legal
Proceedings" in Part II below). In both cases, management believes its legal
position is strong and no loss contingencies have been recorded in the
financial statements. Should the outcome of either of these matters be
unfavorable however, the Company may have to record expenses which
15
<PAGE> 16
might cause operating results to be materially lower than those expected.
The Company's Form 10KSB for the year ended October 31, 1996 contains an
expanded discussion of risk factors which should be read in conjunction with
this report.
16
<PAGE> 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
ABTS
In June 1995, Associated Business Telephone Systems, ("ABTS")
initiated an action against the Company which is currently pending in
the United States District Court for the Northern District of
Oklahoma. ABTS claims' are based upon allegations of breach of
warranty, breach of contract, and tortious interference with ABTS'
relationship with certain of its customers, arising in connection with
(i) a Distributor's Agreement entered into between the Company and D &
P Investments in 1986, pursuant to which the Company sold to D & P
Investments certain call accounting systems, and (ii) a Maintenance
Agreement between the Company and ABTS pursuant to which the company
furnished maintenance services for such systems. D & P Investments has
allegedly assigned its claim for breach of the Distributor's Agreement
to ABTS. The Company has filed a counterclaim against ABTS and a
third-party claim against D & P Investments and Communication
Equipment Brokers based upon breach of contract. Both ABTS and the
Company seek money damages. During this past fiscal quarter, the trial
date in this action was rescheduled for December, 1997. The discovery
phase of this litigation is scheduled to terminate in September, 1997.
PHONOMETRICS
Phonometrics Inc., a Florida based corporation, has filed numerous
lawsuits against telecommunications equipment manufacturers and hotels
who use such equipment (e.g., PBX, call accounting and answer
confirmation systems), in various federal courts throughout the
country, most notably the Southern District of Florida (the "Florida
litigation") and the Northern District of California (the California
litigation"), alleging infringement of a patent held by Phonometrics.
While the Company has not been named as a defendant in any of these
cases, several of its customers are named defendants in the Florida
and California litigation and have notified the Company that they seek
indemnification under the terms of their contracts with the Company.
The cases brought against these customers were filed between June,
1994 and April, 1996. Because there are other equipment vendors
implicated along with the Company in the cases filed against its
customers, the Company has not assumed the outright defense of its
customers in any of these actions.
In each of these lawsuits, the plaintiff is seeking damages of an
unspecified amount, based upon a reasonable royalty of the hotels'
profits derived from use of the allegedly infringing equipment during
a
17
<PAGE> 18
period commencing six years prior to the filing of each lawsuit and
ending October 30,1990.
The Florida litigation has been stayed (i.e., suspended) pending the
outcome of an appeal by Phonometrics of the lower court's decision
against Phonometrics in its case against Northern Telecom. Because the
issues in the Florida litigation are substantively similar to those
presented in the Northern Telecom case, the court in the Florida
litigation has stated that it will enter final judgment in favor of
all of the hotels sued by Phonometrics in the event of a decision by
the appeals court in favor of Northern Telecom. At present, a hearing
date for oral arguments in the Northern Telecom appeal has not yet
been scheduled.
The California litigation has been stayed pending the outcome of the
Florida litigation.
Items 2 and 3 of Part II have been omitted because they are inapplicable or the
response thereto is negative.
Item 4.
At the regularly scheduled annual shareholders' meeting held on March
20, 1997, management's nominees for election to the Board of Directors
were elected to office without contest by votes cast as follows:
<TABLE>
<CAPTION>
Name of Director For Against
---------------- --- -------
<S> <C> <C>
Ron Barber 1,759,758 8,920
Donald Duke 1,759,458 8,720
Robert Hisrich 1,750,758 17,820
Jack Ingram 1,759,758 9,020
Ron Siegenthaler 1,759,308 9,770
Robert Wagner 1,759,458 9,220
</TABLE>
Shareholders' at the annual meeting also voted upon a proposal to
grant the Board of Directors discretion to declare a stock split on a
basis of 5-to-4, 4-to-3, 3-to-2, or 2-to-1, if at all, and to amend
the Company's Certificate of Incorporation to effect a corresponding
reduction in the par value of the stock, if the Board deems it to be
appropriate and in the best interests of the Company to do so at any
time prior to the next annual meeting of shareholders. The proposal
was passed by an affirmative vote of 1,531,701 shares (76.66%) of
outstanding voting stock in favor, 42,064 shares (2.11%) against, and
129,788 shares (6.50%) shares abstaining.
18
<PAGE> 19
Item 5 of Part II has been omitted because it is 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.
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: June 11, 1997 By: /s/ JACK R. INGRAM
---------------------------------
Jack R. Ingram
President
Dated: June 11, 1997 By: /s/ ROBERT B. WAGNER
---------------------------------
Robert B. Wagner
Vice President of Finance
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEC. NO. Description
- -------- -----------
<S> <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.
(10) Material Contracts
10.1 Authorized Sales Subagent Agreement dated April 1,
1997 between L.D. Communications, Inc. and XETA
Corporation
10.2 L.D. Communications Operator Services Plan dated
April 1, 1997 between L.D. Communications, Inc. and
XETA Corporation
10.3 Marketing Alliance dated April 1, 1997 between
Americom Communications Services, Inc. and XETA
Corporation
10.4 Purchase Agreement dated April 1, 1997 between
Americom Communications Services, Inc. and XETA
Corporation
10.5 Release and Consent to Assignment dated April 18,
1997 by U.S. Long Distance, Inc. for the benefit of
XETA Corporation
10.6 Guaranty Agreement dated April, 1997 by XETA
Corporation for the benefit of U.S. Long Distance,
Inc.
(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
23.1 Consent of Arthur Andersen LLP
(24) Power of attorney - None.
(27) Financial Data Schedule
(99) Additional exhibits - None.
</TABLE>
<PAGE> 1
EXHIBIT 10.1
AUTHORIZED SALES SUBAGENT AGREEMENT
AGREEMENT made this 1 day of April 1997 by and between L.D.
COMMUNICATIONS, INC. ("LDCI"), 6575 West Loop South, Suite 420, Bellaire, TX
77401 a Texas Corporation and XETA Corporation ("Subagent"), An Oklahoma
Corporation, with principal offices located at 4500 S Garnett, Suite 1000,
Tulsa OK 74146.
WHEREAS, LDCI wishes to expand all commercial entities' access to MCI
Commercial Dial "1" Long Distance Service, MCI Prism Plus, MCI Prism I, MCI
Preferred, MCI Vision, MCI 800, MCI Card, MCI Corporate Account Service, MCI
Corporate Account Service Plus, MCI Hospitality Services, Dedicated Leased Line
Services and MCI Forum (the "MCI Services"), as described in MCI Tariff FCC No
1, any state tariff, and amendments thereto or successor tariffs (together, the
"Tariff"); and
WHEREAS, Subagent desires to market the MCI Services set forth herein as
an independent Authorized Sales Subagent of LDCI;
NOW, THEREFORE, the parties agree as follows:
1. Grant of Subagency. Subject to the terms of this agreement, Subagent is
hereby appointed an independent subagent authorized to solicit, on
behalf of MCI, commercial customers (as distinguished from residential
customers) for MCI Services.
2. Sales Subagency.
a) Subagent hereby accepts the appointment by LDCI as its authorized
representative to solicit orders from commercial customer for MCI
Services subject to the terms and conditions of this Agreement.
b) LDCI shall pay subagent a commission on monthly usage revenues
from orders for Services solicited by Agency and accepted by MCI,
based on the commission table below. Commission percentage is
based on total monthly revenues.
<TABLE>
<S> <C>
$ 0 - XX9,999 XX %
$ X00,000 - X99,999 XX %
$ X00,000 - X99,999 XX %
$ X00,000 - X99,999 XX %
$ X00,000 and above XX %
</TABLE>
The monthly usage revenues eligible for commission hereunder include
monthly recurring usage revenue from services sold by Subagent but do
not include: 1) any MCI charges for goods or services that are not
tariffed; 2) pass through access/egress (or related) charges imposed by
third parties; 3) any non-recurring charge imposed in MCI Tariff FCC
No.1; 4) MCI Directory Assistance Services; 5) any taxes or surcharges
applicable to services; and 6) any promotional or other credits granted
by MCI.
The effective rate of commissions hereunder will be derived by applying
the applicable commission rate set forth above to eligible charges
incurred under MCI Tariff FCC No. 1 during a monthly billing period.
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CONFIDENTIAL AGENT INFORMATION LDCI 3/97
AGENT INITIAL____________ LDCI INITIAL____________
<PAGE> 2
c) Unless otherwise agreed in writing by LDCI, commission shall not
be payable for monthly usage derived from any person or entity
that was an MCI customer at the time of order solicitation or
within thirty (30) days prior thereto. Commission shall not be
payable on monthly usage derived from any person or entity that
is an MCI National account. Commission shall not be payable on
any usage derived from any person or entity controlled by
Subagent.
d) Subagent shall not solicit orders by means of telemarketing
without prior written consent of LDCI. If Subagent solicits by
means of telemarketing, Subagent shall coordinate with LDCI to
ensure that no PIC change order resulting from telemarketing is
submitted without confirmation by one of the means required by
FCC regulations. MCI may take steps to confirm compliance with
this provision including without limitation contacting MCI
customers solicited by Subagent.
e) Subagent may not delegate all or any portion of the Subagency
appointment under this Agreement to any third party without prior
express written consent of LDCI and under a written agreement
satisfactory to LDCI. Breach of this provision shall be deemed
an irregular marketing activity. LDCI shall not be liable to pay
commissions under this Agreement or otherwise for revenue
generated by any unauthorized subagent.
3. Relationship Of Parties.
a) Subagent will have no authority to bind LDCI or MCI by contract
or otherwise or to make representations as to the policies or
procedures of LDCI/MCI other than as specifically authorized by
the Agreement. LDCI/MCI and Subagent acknowledge and agree that
their Subagency relationship arising from this Agreement does not
constitute or create a general agency, joint venture,
partnership, employee relationship or franchise between them and
that Subagent is an independent contractor with respect to the
services provided by it under this Agreement.
b) Subagent will identify itself as an Authorized Sales Agent of MCI
only with respect to the MCI Services and will otherwise identify
itself as an independent business. Unless specifically
authorized in writing, neither LDCI/MCI nor Subagent will make
any express or implied agreement, guarantees or representations,
or incur any debt, in the name of or on behalf of the other.
c) Subagent's employees will not be deemed to be LDCI/MCI employees
or joint employees and for their supervision, daily direction and
control. LDCI/MCI will not be responsible for worker's
compensation, disability benefits, unemployment insurance,
withholding taxes, social security and other taxed and benefits
for Subagent's employees.
4. Training And Certification.
a) MCI shall provide product sales training for each of the MCI
services as provided for in this agreement. Subagent and
Subagent employees may not solicit orders for any MCI Services
until trained in product sales for that product by MCI.
5. Sales Aids.
a) Subagent shall us LDCI/MCI-approved marketing materials and order
forms only.
2
CONFIDENTIAL AGENT INFORMATION LDCI 3/97
AGENT INITIAL____________ LDCI INITIAL____________
<PAGE> 3
b) SUBAGENT SHALL MAKE NO REPRESENTATION OR WARRANTIES RELATING TO
THE SERVICES EXCEPT AS SET FORTH IN SALES LITERATURE APPROVED IN
WRITING BY LDCI/MCI OR AS SET FORTH IN THE FORM OR FORMS OF
ORDERS PROVIDED BY SUBAGENT BY LDCI/MCI, OR AS OTHERWISE
EXPRESSLY PERMITTED BY LDCI/MCI.
6. Reporting; Payment.
a) LDCI will provide Subagent with monthly commission reporting,
which will include the usage of each customer solicited by
Subagent and for which commission is due hereunder.
b) LDCI will pay commissions monthly. LDCI will use reasonable
efforts to calculate and pay commissions within ten (10) days
following payment to LDCI by MCI, which is approximately sixty
(60) days after the close of an applicable billing month.
7. Order Acceptance.
Subagent expressly acknowledges that its appointment hereunder is as a
sales representative for MCI Services offered through LDCI, that any
solicitation by Subagent of orders from customers for the MCI services
will be subject to MCI's acceptance, in its sole discretion, of such
orders and the availability, from time to time, of the MCI Services, and
that LDCI will have no responsibility or liability whatsoever to
Subagent with respect to continued availability or operation of the MCI
Services or MCI's acceptance or, or failure to accept, orders therefore
from customers solicited by Subagent.
8. Standards Of Conduct.
In performing duties under this Agreement, Subagent will observe the
highest standard of integrity and fair dealing with members of the
public. Subagent will do nothing which would tend to discredit,
dishonor, reflect adversely upon or in any manner injure the reputation
of LDCI or MCI.
9. Tradenames And Trademarks.
a) During the term of this Agreement, unless otherwise instructed by
MCI, Subagent may refer to itself as an MCI Authorized Sales
Agent, but solely in connection with the marketing of MCI
Services to commercial customers hereunder. Subagent may use
only such other MCI trademarks, tradenames, and services marks
("Marks") as may be authorized by MCI in writing, subject to any
and all limitations contained in the grant of the right of such
use.
b) Upon termination of this Agreement, any permission or right to
Marks granted hereunder will cease to exist and Subagent will
immediately cease any use of such marks and immediately cease
referring to itself as an MCI Authorized Sales Agent
10. Non-Competition/Confidentiality.
a) During the term of this agreement and for as long as LDCI is
paying commission under this Agreement but in no event for fewer
than ninety (90) days after termination of the Agreement subagent
will not promote, sell or provide leads for the services to
3
CONFIDENTIAL AGENT INFORMATION LDCI 3/97
AGENT INITIAL____________ LDCI INITIAL____________
<PAGE> 4
commercial customer, of any other person or entity that offers
services identical or similar to any one or more of the MCI
services.
b) Any confidential specifications, drawing, sketches, data or
technical material ("Information"), furnished or disclosed by
LDCI/MCI to Subagent hereunder, will be deemed the exclusive
property of LDCI/MCI. In addition, any customer names or lists
identifying MCI customer as such and related information or data
("Customer Information") are the exclusive property of LDCI/MCI,
and are to be used by Subagent solely in the performance of its
obligations and duties hereunder and are to be returned to
LDCI/MCI upon termination of this Agreement.
c) During the term of this Agreement and for a period of three (3)
years after termination of this Agreement, Subagent agrees not to
reveal, divulge, make known, sell, exchange, lease or in any
other way transfer any Information or Customer Information to any
third party or to utilize such Information or Customer
Information in direct or indirect competition with MCI or any of
its other Agents. Subagent agrees that monetary damages for
breach of its obligations under this section may not be adequate
and that LDCI/MCI will be entitled to injunctive relief with
respect thereto. Notwithstanding the foregoing, it is understood
and agreed that nothing herein shall prohibit the Subagent from
selling either during or after the term of this Agreement,
telecommunications systems (e.g., call accounting, voice mail,
answer detection, PBX systems and related products) to hotels and
other customers, including the MCI Services customers. Moreover,
upon termination of this agreement nothing herein shall prohibit
Subagent from selling services offered by any other carrier that
are similar or identical to the MCI services, to any MCI customer
upon the expiration of such customer's contract for the MCI
services.
d) LDCI hereby agrees to keep confidential all information
concerning Subagent's activities under this Agreement and the
amount of commissions paid to the Subagent hereunder or to the
Subagent's customers, and will not disclose any such information
to any third party (except MCI as may be necessary to enable MCI
and/or LDCI to perform under this Agreement) or any other
subagent of LDCI, except as may otherwise be required by law.
11. Term And Termination.
a) The term of this Agreement is (3) three years and will thereafter
be renewed automatically for an additional term of one (1) year
unless either party notifies the other in writing of its desire
to terminate the Agreement at least ninety (90) days prior to the
expiration of the initial term. This Agreement may be
terminated: (a) immediately upon written notice from LDCI that
LDCI's contract with MCI has been terminated; (b) for breach by
Subagent of any provision of this Agreement provided that written
notice of such breach has been given to Subagent and such breach
has not been cured within thirty (30) days after delivery of such
notice; (c) immediately upon notice by LDCI/MCI in the event
LDCI/MCI discovers any irregular marketing activity by Subagent
or irregular customer activity by customers solicited by
Subagent.
b) After normal expiration of the term LDCI shall (a) continue to
pay commission for a period of six (6) months at the commission
rate applicable under Section 2.b. hereof (direct sales
commission) for the last full month prior to expiration on
monthly usage revenues calculated in accordance with Section 2.b.
If LDCI terminated this Agreement pursuant to Section 11.a.(a)
hereof, LDCI's commission payment obligations shall survive
termination for a number of monthly equal to the number of
completed calendar
4
CONFIDENTIAL AGENT INFORMATION LDCI 3/97
AGENT INITIAL____________ LDCI INITIAL____________
<PAGE> 5
months of the term of this Agreement prior to termination not to
exceed six (6) months. Upon termination for any other reason,
LDCI's commission payment obligations shall cease.
12. Limitation Of Liability.
a) Subagent agrees to hold LDCI free and harmless from any loss,
damage, or cost, including legal expenses and counsel fees, that
LDCI becomes liable for by reason of an act of Subagent in
marketing in the Services, including but not limited to
misrepresenting to customers the Services or the terms under
which the Services are made available by LDCI. LDCI agrees to
hold Subagent free and harmless from any loss, damage, or cost,
including legal expenses and counsel fees, that Subagent becomes
liable for to third persons by reason of any negligent or
wrongful act of LDCI in the performance of this Agreement.
b) LDCI will have no liability to Subagent for commissions that
might have been earned hereunder but for the inability or failure
of MCI to provide Services to any person solicited by Subagent or
in the event of discontinuation or modification of the Services.
c) Subagent acknowledges and agrees that LDCI directly or through
other sales agents may offer MCI Services and that Subagent will
be entitled to no compensation for sales make through such other
channels. In the event LDCI received conflicting orders for
services from different subagents or MCI employees, LDCI/MCI may
in its sole discretion determine who will receive credit for such
orders. In the event of such conflicts relating to orders for
MCI Services, LDCI/MCI may in its discretion compensate Subagent
as if the order were for a service subject to commission.
d) NEITHER PARTY WILL BE LIABLE TO THE OTHER FOR SPECIAL INDIRECT,
CONSEQUENTIAL DAMAGES, WHETHER OR NOT FORESEEABLE, OR PUNITIVE
DAMAGES.
e) In the event LDCI is required to enforce or preserve its rights
hereunder, Subagent will pay all of LDCI's reasonable attorney's
fees and costs, including allocable costs of in-house counsel,
incurred in connection with any such successful action.
13. Notices.
Notices to be given pursuant to this Agreement will be in writing and
will be deemed to have been duly and properly given on the earlier of
(a) the date such notice has been received or (b) five (5) days after
deposit of such notice in the United States Mail, postage prepaid, to be
delivered by certified mail, return receipt requested addressed to the
Subagent at the address given above or at such address as it may
designate in writing from time to time and addressed to LDCI at:
Mr. Richard Akers, President & CEO
L.D Communications, Inc.
6575 West Loop South, Suite 420
Bellaire, TX 77401
or at such address it may designate in writing from time to time.
5
CONFIDENTIAL AGENT INFORMATION LDCI 3/97
AGENT INITIAL____________ LDCI INITIAL____________
<PAGE> 6
14. Compliance With Law.
a) Subagent will, at its own expense, operate in full compliance
with all laws, rules and regulations applicable to, and maintain
in force all licenses and permits required for, its performance
under this Agreement.
b) Subagent will notify LDCI in writing immediately of the
commencement or threatened commencement or any action, suite or
proceeding, and if the issuance or threatened issuance of any
order, writ, injunction, award of decree of any court, agency or
other governmental instrumentality, involving Subagent's
activities under this Agreement or which may affect Subagent's
ability to perform its obligations hereunder.
15. Non-Waiver.
No failure by either party to take action on account of any default by
the other will constitute a waiver of any such default or of the
performance required of the other.
16. Impossibility Of Performance.
Neither LDCI/MCI nor Subagent will be liable for loss or damage or
deemed to be in breach of this Agreement if its failure to perform its
obligations results from (a) compliance with any law, ruling, order,
regulation, requirement of federal, state or municipal government or
department or agency thereof or court of competent jurisdiction; (b)
acts of God; (c) acts of omissions of the other party; (d) fires,
strikes, war, insurrection or riot; (e) or any other cause beyond its
reasonable control. Any delay resulting therefrom will extend
performance accordingly or excuse performance, in whole or in part, as
may be reasonable.
17. Binding Effect.
This Agreement will be binding upon and inure to the benefit of the
parties their successors and assigns; provided, however, that Subagent
may not assign or otherwise transfer this Agreement or any of its
interest herein without the prior and express written consent thereto by
LDCI. Neither the whole nor any part of the interest of Subagent in
this appointment will be transferred or assigned by operation of law.
18. Severability.
No provision of this Agreement which may be deemed unenforceable will in
any way invalidate any other provision of this Agreement, all of which
will remain in full force and effect.
19. Controlling Law And Entire Agreement.
This Agreement, with Attachments, will be governed by the domestic laws
of the State of Texas; constitutes the entire Agreement between
Subagent and LDCI with respect to the subject matter hereof; and
supersedes all prior Agreements and representations, written or oral,
concerning the subject matter herein. This Agreement cannot be changed
or modified except by written amendment signed by Subagent and LDCI.
6
CONFIDENTIAL AGENT INFORMATION LDCI 3/97
AGENT INITIAL____________ LDCI INITIAL____________
<PAGE> 7
20. Heading.
This section numbers and captions appearing in this Agreement are
insured only as a matter of convenience and are in no way intended to
define, limit, construe or describe the scope or intent of such sections
of this Agreement, or in any way affect this Agreement.
IN WITNESS THEREOF, the parties have executed this Agreement this 1st
day of April, 1997.
XETA Corporation L.D. Communications, Inc.
----------------------------
(Subagent)
/s/ Jack R. Ingram /s/ Greg Fallin
---------------------------- ----------------------------
(Authorized Signature) Greg Fallin
President Vice President - Sales
---------------------------- -----------------------------
(Title) (Title)
4/1/97 4/1/97
---------------------------- ----------------------------
(Date) (Date)
7
CONFIDENTIAL AGENT INFORMATION LDCI 3/97
AGENT INITIAL____________ LDCI INITIAL____________
<PAGE> 1
EXHIBIT 10.2
L.D. COMMUNICATIONS OPERATOR SERVICES PLAN
1. DEFINITION The word "you" in this Plan refers to the undersigned agent
authorized by premise owner to select the operator services
MCI/Telecom*USA for its telephone(s).
2. PREMISES TELEPHONES This plan covers the telephone lines submitted in
writing to L.D. Communications to be included in L.D. Communications
operator service agreement with MCI/Telecom*USA.
3. COMMISSION L.D. Communications will pay the commission on all operator
services revenues as reported by MCI/Telecom*USA and specified in
Exhibits, "Commission Schedules". L.D. Communication's obligation to
pay commissions will commence on the date that MCI/Telecom*USA first
implements the selection of MCI/Telecom*USA through L.D. Communication's
agreement with MCI/Telecom*USA as the 10XXX, 0-, 0+, 01+, 00- provider
on covered telephone lines. L.D. Communications will direct
MCI/Telecom*USA to remit such commissions directly to you.
4. TERM This plan begins on the date it is fully executed by you and L.D.
Communications and will remain effective for a period of 36 months,
unless terminated earlier. This agreement may be terminated without
liability (except for obligations incurred before the termination date)
upon ninety (90) days written notice in the event L.D. Communication's
contract with MCI/Telecom*USA is terminated for any reason.
5. AUTHORITY You warrant that you are the party authorized to select
MCI/Telecom*USA operator services for the telephones submitted under
this agreement. You represent and warrant that the telephones which are
provided the Services are not subject to any contract for Operator
Services. You also agree that if any other party claims against L.D.
Communications or MCI/Telecom*USA for commissions from such telephones,
you will be responsible for any such claim (that is, indemnify L.D.
Communications or MCI/Telecom*USA and hold L.D. Communications or
MCI/Telecom*USA harmless from any loss, cost, or expense resulting from
such claim) and will pay L.D. Communications or MCI/Telecom*USA's
reasonable attorneys' fees resulting from any such claim.
6. REPORTS L.D. Communications will furnish you with monthly statements
showing Commissionable Revenue generated from Premises Telephones as
reported by MCI/Telecom*USA to L.D. Communications.
7. COMPLIANCE You will comply with applicable state law relating to
operator services.
8. PAYMENT DATE MCI/Telecom*USA will provide you commission payments
approximately forty-five (45) days following the end of a billing month.
9. CONFIDENTIALITY L.D. Communications agrees that it will keep
confidential all information concerning the agent's activities under
this Plan and the amount of commissions paid to the agent hereunder or
the agent's customers, and will not disclose any such information to any
third party (except MCI as many be necessary to enable MCI and/or L.D.
Communications to perform under this Plan) or any other agent of L.D.
Communications, except as may otherwise be required by law.
10. LIABILITY L.D. Communications, Inc. may off set against commissions
due Agent/Owner any obligations Agent/Owner may have to MCI/Telecom*USA
under this or any other arrangement with MCI/Telecom*USA or L.D.
Communications, Inc.
Agent Initial LDCI Initial
-------- ---------
CONFIDENTIAL AGENT INFORMATION
<PAGE> 2
11. GENERAL Except in cases involving willful or wanton conduct, L.D.
Communications and MCI/Telecom*USA's liability to you is limited to its
obligations to pay commissions as described herein. L.D. COMMUNICATIONS
SHALL NOT BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL
OR PUNITIVE LOSS OR DAMAGE OF ANY KIND, INCLUDING LOST PROFITS (WHETHER
OR NOT L.D. COMMUNICATIONS WAS ADVISED OF THE POSSIBILITY OF SUCH LOSS
OR DAMAGE), BY REASON OF ANY ACT OR OMISSION IN ITS PERFORMANCE UNDER
THIS AGREEMENT. This is the entire agreement of the parties with
respect to its subject matter and supersedes all prior agreements
concerning the subject matter. This agreement cannot be amended except
by a signed written agreement.
Authorized Agent L.D. Communications Company
XETA Corporation
- -----------------------------------
(Company Name)
By: /a/ Jack R. Ingram By: /s/ Greg Falin
-------------------------------- --------------------------------
(Authorized Signature) (Authorized Signature)
Name: Jack R. Ingram Name: Greg Fallin
-------------------------------- -------------------------------
(Please Print) (Please Print)
Date: 4/1/97 Date: 4/1/97
-------------------------------- -------------------------------
Offer Expires:
Contract Number:
CONFIDENTIAL AGENT INFORMATION LDCI 2/97
<PAGE> 3
EXHIBIT A
REVISED
COMMISSION SCHEDULE
Total monthly commissionable revenue(1) of Agent will determine the
applicable commission rate for that month as specified in the following
commission schedule.(2) The percentage rate will be applied to the total
monthly commissionable revenue to determine the commission for that particular
month.
<TABLE>
<S> <C>
$ 0 - XXXXX XX% + (100% OF PIF, Telecom*USA Only)(3)
$XXXXX - XXXXXX XX% + (100% OF PIF, Telecom* USA Only)(3)
$XXXXX - XXXXXX XX% + (100% OF PIF, Telecom*USA Only)(3)
</TABLE>
(1) Billed Revenue Net of Optional Owner Surcharge
(2) Less any bad debt holdback as determined and withheld by MCI/Telecom*USA.
The current bad debt withholding for MCI Premier Operator Services is xxxx
(XX). The current bad debt withholding for Telecom*USA Operator Services is
xxxx percent(XX%).
(3) Less any commission paid to subaccounts as determined by authorized agent.
Commissionable revenue is revenue generated, reported and commissioned
under L.D. Communication's billing agreement with MCI/Telecom*USA from operator
services calls generated by MCI/Telecom*USA's operator services carried on
MCI/Telecom*USA's network.
Operator services calls means long distance calls dialed with the 10XXX,
0-, 0+, 01, or 00- dialing pattern (and excluding calls dialed with the 950-
XXXX and 800 dialing patterns), such as collect calls, billed to third party
calls, telephone calling card calls and other forms of credit card billed
calls. Notwithstanding, MCI 800COLLECT and MCI CARD revenues shall be
commissionable under this agreement on a month to month basis for as long as
MCI/Telecom*USA continues to include such revenues and under such terms and
revenue calculations as MCI/Telecom*USA (in there sole Discretion) reports and
pays commission under L.D. Communications agreement with MCI/Telecom*USA. The
commission percentage will be applied to the total monthly commissionable
revenue as reported and paid by MCI/Telecom*USA.
Authorized Agent L.D. Communications Company
XETA Corporation
- ----------------------------------
(Company Name)
By: /s/ Jack R. Ingram By: /s/ Greg Fallin
------------------------------- ----------------------------
(Authorized Signature) (Authorized Signature)
Name: Jack R. Ingram Name: Greg Fallin
----------------------------- --------------------------
(Please Print) (Please Print)
Date: 5/28/97 Date: 6/2/97
--------------------------- --------------------------
Fed. Tax ID# 73-113-0045
----------------------
CONFIDENTIAL AGENT INFORMATION LDCI 2/97
<PAGE> 1
EXHIBIT 10.3
MARKETING ALLIANCE AGREEMENT
This Agreement is made and entered into this 1st day of April, 1997, by
and between XETA Corporation, an Oklahoma corporation, whose principal office
is located at 4500 S. Garnett, Suite 1000, Tulsa, Oklahoma 74146 ("XETA") and
Americom Communications Services, Inc., an Oklahoma corporation, whose
principal office is located at 1325 E. 35th Place, Suite 200, Tulsa, OK 74105
("Americom").
RECITALS
WHEREAS, XETA and Americom have each separately entered into an "L.D.
Communications Operator Services Plan" and an "Authorized Sales Subagent
Agreement" with L.D. Communications, Inc. ("LDCI") (collectively the "LDCI
Agreements") pursuant to which XETA and Americom are each authorized by LDCI to
promote, market and sell to commercial entities operator services ("0+") and
direct dial long distance services ("1+") offered by MCI as such services are
more specifically described in the LDCI Agreements (the "MCI Services"); and
WHEREAS, XETA and Americom desire to market the MCI Services to
commercial customers, including without limitation hotels, pay phone operators
and time-share owners/operators; and
WHEREAS, XETA and Americom believe that by joining forces in the
marketing of the MCI Services, they will each benefit from the other's
expertise and contacts in the hotel telecommunications industry and maximize
their return under the LDCI Agreements; and
WHEREAS, XETA and Americom therefore desire to enter into an alliance by
which they solicit customers for the MCI Services under a service offering
which includes XETA equipment (where appropriate) and is marketed under the
"XETA" name, subject to the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. SCOPE OF AGREEMENT; CONDITION PRECEDENT. This Agreement shall
apply to all sales activities conducted and generated by either party from and
after the date of this Agreement pursuant to its authority under the LDCI
Agreements, and to all commission revenues generated therefrom (provided,
however, that sales of the MCI Services to XETA or Americom for use by them in
their own businesses shall be exempt from this Agreement). In addition, all
commission revenues generated by Americom's existing MCI Services customers, as
identified in Schedule "I(a)" attached hereto and incorporated herein (the
"Existing Accounts"), shall be subject to the terms of this Agreement. XETA
shall pay Americom a sum as set forth in that certain Purchase Agreement of
even date herewith between the parties hereto (the "Purchase Agreement") in
exchange for the incorporation of the Existing Accounts into this Agreement.
Notwithstanding anything herein to the contrary, this Agreement shall be
conditional upon and shall have no force and effect until such time as the
purchase price for the Existing Accounts is paid by XETA to Americom pursuant
to the terms of the Purchase Agreement.
<PAGE> 2
2. MARKETING ALLIANCE. The parties agree that any offering of MCI
Services to be made by XETA or Americom pursuant to the LDCI Agreements shall
be marketed to the customer under marketing plans jointly developed by XETA and
Americom (the "MCI Services offering"). All contracts with the customer for
the MCI Services offering developed hereunder (the "customer contracts") shall
be entered into between XETA and the customer regardless of whether XETA or
Americom is responsible for the sale. The commissions payable by MCI as
generated by such contracts shall be shared by XETA and Americom in accordance
with the terms of Section 7 below.
3. XETA EQUIPMENT. Any call accounting or related equipment to be
included in the MCI Services offering shall be provided by XETA. Title to all
such equipment shall remain in XETA until such time as the customer contract
provides, if at all, for the passage of title to the customer. It is
understood and agreed that no commission will be paid to Americom by XETA for
any XETA equipment which may be included in the MCI Services offering, and that
any such equipment is hereby specifically excluded from the terms of any other
agreement between XETA and Americom for the payment of commissions to Americom
on the sale of XETA equipment.
4. TERM OF AGREEMENT.
(a) Unless terminated earlier in accordance with Section 4(b) below,
this Agreement shall be for an initial term of three (3) years from the date
hereof (the "Initial Term") and shall automatically be renewed for one year
terms annually thereafter (the "Renewal Terms"), unless either party shall
notify the other in writing at least 90 days prior to the expiration of the
Initial Term or any Renewal Term of its desire to terminate the Agreement at
the end of such term. The Initial Term and any Renewal Term are collectively
referred to herein as the "Term."
(b) This Agreement shall terminate automatically and without notice
upon the death of Robert A. Jones.
5. EXCLUSIVITY.
(a) During the Term of this Agreement, Americom shall not promote or
sell 0+ or 1+ services to any entity, or provide leads for such services to
commercial customers, except for the MCI Services marketed pursuant to the LDCI
Agreements. Notwithstanding the foregoing, nothing herein shall prohibit
Americom from servicing its existing accounts for similar services offered
through U.S. Long Distance as identified on Schedule I(b) attached hereto and
incorporated herein (the "USLD Accounts"). Upon the expiration of the USLD
Accounts, Americom shall promote the MCI Services to such customers, which
accounts would then be subject to the terms of this Agreement.
(b) During the Term of this Agreement, XETA shall not promote or sell
0+ or 1+ services to any entity, or provide leads for such services to
commercial customers, except for the MCI Services marketed pursuant to the LDCI
Agreements.
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<PAGE> 3
6. RESPONSIBILITIES OF THE PARTIES. The parties shall be
responsible for the following:
(a) Americom shall use its best efforts to market the MCI Services
throughout the term of this Agreement.
(b) XETA shall receive from MCI and/or LDCI all commission payments
earned under the LDCI Agreements and shall disburse such commission revenue to
the customer, Americom and XETA respectively, in accordance with the terms of
the customer's contract with XETA and the terms of Section 7 below. XETA
shall also (i) produce and distribute to the customer any reports which may be
required under the customer contract to account to the customer for its portion
of the commission revenue, and (ii) generate the "war room reports" set forth
on Schedule II as may be required by the customer contract and submit such
reports to Americom.
(c) Americom shall deliver the war room reports produced by XETA to
the customer and will provide the customer with an analysis of such report and
will otherwise consult with and assist the customer in its evaluation and
understanding of such report as may be requested by the customer or determined
by XETA or Americom to be necessary and appropriate.
(d) The responsibilities described in (b) and (c) above shall
continue to be performed by the parties for as long as any customer contract
signed during the Term hereof remains in effect, notwithstanding the
termination of this Agreement.
(e) Each party shall be responsible for its own costs and expenses
incurred in connection with the performance of its marketing activities and
duties under this Agreement (e.g., compensation of employees, marketing costs,
travel, etc.), except as otherwise provided under Section 7(b)(v) below.
7. COMMISSION REVENUES AND DIVISION.
(a) All revenues generated by (i) commission payments made by MCI
and/or LDCI pursuant to the LDCI Agreements, including without limitation the
PIF and all per call commissions, (ii) any start-up fees paid by the customer
pursuant to the terms of the customer contract, and (iii) any other charges or
fees paid by the customer pursuant to the terms of its customer contract, shall
constitute and be referred to herein as the "Gross Commission Pool".
(b) The following charges shall be deducted from the Gross Commission
Pool on a monthly basis, and the balance remaining shall constitute the "Net
Commission Pool":
(i) Equipment charges as described in detail on Schedule III
attached hereto and incorporated herein;
(ii) Credits, if any, granted to the customer for future XETA
equipment and/or services;
3
<PAGE> 4
(iii) Commissions paid to the customer pursuant to the customer
contract, net of any amounts deducted from such commission payments
pursuant to the terms of such contract;
(iv) A war room report generation fee consisting of a one-time
start-up fee per customer equal to $65.00 and a monthly fee per customer
as determined in accordance with Schedule II attached hereto and
incorporated herein; and
(v) Any specific costs or expenses which the parties mutually
agree to share and deduct from the Gross Commission Pool, such as those
associated with specially designed marketing brochures, etc.
(c) The Net Commission Pool shall be divided equally between XETA and
Americom on a monthly basis, except as otherwise specifically provided pursuant
to the terms of Section 4 of the Purchase Agreement.
(d) XETA shall remit a check to Americom for its share of the Net
Commission Pool by the 15th day of the month following the month during which
Gross Commission revenues are actually received by XETA. Such check shall be
accompanied by a written report detailing the calculation of the Net Commission
Pool. In the event the Net Commission Pool is a negative number at the end of
any month, one-half of such debit shall be deducted from Americom's share of
future Net Commission Pool revenues; provided, however, that Americom shall not
be liable to XETA for its share of any cumulative debit except from commissions
earned by Americom pursuant to the terms of this Agreement.
(e) Commission revenues generated by any customer contract signed
during the Term of this Agreement and payable by MCI and/or LDCI pursuant to
the LDCI Agreements shall continue to be collected and disbursed in accordance
with the terms of this Section 7 notwithstanding the termination of this
Agreement.
8. STANDARDS OF CONDUCT. In performing marketing activities under
this Agreement, the parties shall observe the highest standard of integrity and
fair dealing with members of the public. Neither party will do anything which
would tend to discredit, dishonor, reflect adversely upon or in any manner
injure the reputation of the other.
9. INDEMNIFICATION. Each party (the "Indemnifying Party") shall
indemnify, defend and hold the other (the "Indemnified Party") harmless from
and against any claim, liability, obligation, loss, damage, assessment,
judgment, cost and expense of any kind or character arising out of or
attributed to (i) a breach or default by the Indemnifying Party under its LDCI
Agreements, (ii) any negligent or wrongful act or omission of the Indemnifying
Party in the performance of its marketing activities which are the subject of
this Agreement or in the performance of its other responsibilities hereunder,
or (iii) misrepresenting to customers the MCI Services or the XETA equipment or
the terms under which the MCI Services and the XETA equipment are provided to
the customer; provided, however, that the Indemnified Party shall within a
reasonable time of becoming aware of any such claim, suit or proceeding, give
notice of same to the Indemnifying Party. The Indemnifying Party shall be
entitled to assume the defense thereof with counsel of its choice. The
Indemnified Party shall have the right to employ its own
4
<PAGE> 5
counsel in any such case, but the fees and expenses of such counsel shall be at
the expense of the Indemnified Party unless: (i) the Indemnifying Party has
failed to assume the defense thereof and employ counsel; or (ii) the named
parties to any such action (including impleaded parties) include XETA and
Americom, and the Indemnifying Party shall have been advised by the Indemnified
Party's counsel that there may be one or more legal defenses available to the
Indemnified Party that may be different from or additional to those available
to the Indemnifying Party. In the event that the Indemnifying Party fails to
assume the defense of the Indemnified Party within twenty (20) days of being
notified of the existence of a claim, the Indemnified Party shall have the
right to undertake the defense, compromise or settlement of such action;
provided, however, that the Indemnified Party shall not pay, settle or
compromise any such matter without prior consultation with the consent of the
Indemnifying Party, which consent shall not be unreasonably withheld. NEITHER
PARTY SHALL BE LIABLE TO THE OTHER FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGES, WHETHER OR NOT FORESEEABLE.
10. NOTICES. Notices to be given pursuant to this Agreement shall be
in writing and shall be deemed to have been duly and properly given on the
earlier of (a) the date such notice has been received or (b) five (5) days
after deposit of such notice in the United States Mail, postage prepaid, to be
delivered by certified mail, return receipt requested, addressed to the
recipient party at the address given above or at such address as it may
designate in writing from time to time.
11. BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and assigns; provided,
however, that neither party may assign or otherwise transfer this Agreement or
any of its interest herein without the prior and express written consent of the
other party.
12. CONTROLLING LAW AND ENTIRE AGREEMENT. This Agreement and the
Schedules attached shall be governed by the laws of the State of Oklahoma.
This Agreement (including the attached Schedules) and the Purchase Agreement
constitutes the entire Agreement between XETA and Americom with respect to the
subject matter hereof; and supersedes all prior Agreements and representations,
written or oral, concerning the subject matter herein. This Agreement cannot
be changed or modified except by written amendment signed by both parties.
IN WITNESS THEREOF, the parties have executed this Agreement on the day
and year first written above.
"XETA" "Americom"
XETA Corporation, an Oklahoma Americom Communications Services, Inc.,
corporation an Oklahoma corporation
By /s/ Jack R. Ingram By /s/ Robert A. Jones
-------------------------- ---------------------------
Jack R. Ingram, President Robert A. Jones, President
5
<PAGE> 1
EXHIBIT 10.4
PURCHASE AGREEMENT
This Agreement is entered into effective the 1st day of April, 1997 by
and between XETA Corporation, an Oklahoma corporation ("XETA") and Americom
Communications Services, Inc., an Oklahoma corporation ("Americom").
RECITALS
WHEREAS, Americom, pursuant to agreements with L.D. Communications, Inc.
("LDCI"), has previously marketed MCI's Telecom/USA long distance services to
71 Starwood Lodging Corporation hotel properties, which properties generate
commissions paid to Americom by MCI and/or LDCI; and
WHEREAS, Americom and XETA have entered into a Marketing Alliance
Agreement of even date herewith (the "Marketing Agreement"), pursuant to which
they have agreed to pool their efforts in marketing MCI long distance services
to commercial customers; and
WHEREAS, XETA and Americom desire to include Americom's existing
Starwood Lodging Corporation customer accounts in the marketing alliance formed
pursuant to the terms of the Marketing Agreement, including commission revenues
paid by U.S. Long Distance, Inc. ("USLD") on specific zero-plus long distance
calls pursuant to the terms of an agreement dated September 4, 1996 among USLD,
Americom and Starwood Lodging Corporation, as amended (the "USLD/Starwood
Agreement"); and
WHEREAS, in furtherance thereof, Americom desires to transfer such
customer accounts to XETA upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. PURCHASE OF CONTRACT RIGHTS. Americom hereby sells, assigns and
transfers to XETA and XETA hereby purchases from Americom all of Americom's
right, title and interest in and to commissions from MCI and/or LDCI and from
USLD, earned by Americom from and after April 1, 1997 (the "Effective Date")
with respect to the 71 Starwood Lodging Corporation hotel properties listed on
Schedule I attached hereto and incorporated herein, together with the contracts
underlying the generation of such commissions (the "Existing Accounts"). The
parties specifically acknowledge and agree that from and after the Effective
Date, the Existing Accounts and the parties' respective rights and obligations
with respect thereto shall be governed by the terms of the Marketing Agreement
(which is incorporated herein by this reference), except as otherwise
specifically provided in Section 4 below.
<PAGE> 2
2. PURCHASE PRICE. The purchase price to be paid by XETA for the
Existing Accounts shall be One Million One Hundred Seven Thousand Nine Hundred
Sixty One Dollars and No Cents ($1,107,961.00). The purchase price shall be
paid in cash (or cash equivalent) upon satisfaction of the conditions set
forth in Section 5 below. Americom hereby acknowledges and agrees that all
commissions it received and/or earned from XETA on the sale of equipment under
XETAPLAN Contracts to the Existing Accounts are hereby reversed and cancelled,
and that the purchase price stated above reflects adjustments made for the
reversal and cancellation of such commissions, the refunding to Americom of all
XETAPLAN down payments made by Americom on the Existing Accounts, and the
sharing by XETA and Americom of any start-up fees imposed pursuant to customer
contracts executed by the Existing Accounts. Americom further acknowledges and
agrees that all XETAPLAN Contracts executed by it in connection with the
Existing Accounts shall be cancelled as of the Effective Date upon satisfactory
completion of the due diligence condition set forth in Section 5 below, and
that Americom shall remain liable to XETA for any XETAPLAN payments due under
such contracts prior to their cancellation.
3. REPRESENTATIONS AND COVENANTS OF AMERICOM. Americom hereby makes
the following representations and enters into the following covenants:
(a) Except as otherwise provided in the next sentence, all of
the Existing Accounts are currently under contract with Americom to
receive MCI long distance services. The Existing Accounts listed on
Schedule II attached hereto and incorporated herein are currently also
under contract with USLD to receive operator services from USLD only on
interstate calling card calls which go out through dialer equipment
provided by USLD.
(b) Provided that USLD consents to the assignment of rights by
Americom hereunder, neither the execution of this Agreement nor the
consummation of the transactions contemplated hereby will constitute a
breach of or default under any agreement between Americom and U.S. Long
Distance ("USLD"), or Americom and LDCI.
(c) Immediately upon execution of this Agreement, Americom
will, in cooperation with XETA, take all action as may be necessary to
cause MCI and USLD to pay the respective commissions generated by the
Existing Accounts to XETA.
(d) Neither Americom nor Starwood Lodging Corporation are in
default under any of the customer contracts underlying the Existing
Accounts.
(e) Except for the claim of USLD against commissions paid or
to be paid by USLD on those of the Existing Accounts listed on Schedule
II attached hereto, all of the accounts and contract rights transferred
hereby to XETA are free and clear of all liens, claims and encumbrances
of any nature whatsoever.
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<PAGE> 3
(f) Americom shall execute any and all other documentation
that XETA may reasonably request to effect the transfer of the Existing
Accounts to XETA as contemplated herein, including without limitation an
Assignment and General Conveyance in form and substance satisfactory to
XETA. Americom shall also cooperate with XETA in obtaining any and all
consents or approvals as XETA may deem necessary to effect the
transactions contemplated hereby.
4. DIVISION OF COMMISSIONS. The Net Commission Pool (as that term
is defined under the Marketing Agreement) generated each month by the Existing
Accounts from April 1, 1997 through March 31, 2000 shall be divided by XETA and
Americom on a monthly basis as follows:
(a) The first $40,000 collected shall be paid 100% to XETA;
(b) The next $45,000 collected shall be paid 100% to Americom;
and
(c) Thereafter the remaining dollars collected shall be shared
equally by the parties hereto.
From and after April 1, 2000, the monthly Net Commission Pool shall be divided
equally between the parties.
In the event that USLD withholds payment of the commissions or any
portion thereof earned by Americom under the USLD/Starwood Agreement, which
commissions have been assigned to XETA hereunder, Americom hereby agrees to pay
to XETA for contribution to the Gross Commission Pool under the Marketing
Agreement, an amount equal to the amount withheld by USLD. Such payment shall
be made no later than five (5) business days after the date such amount would
have been remitted by USLD. In order to secure its obligation hereunder,
Americom hereby creates and grants to XETA a security interest in any and all
commissions or other payments that are now or may hereafter be due and owing to
Americom by (i) XETA under any sales agreement with Americom, oral or written,
whether now existing or hereafter created, including without limitation the
Marketing Agreement, and (ii) USLD under any agreement, oral or written,
between Americom and USLD. Americom hereby agrees to sign and deliver to XETA
at any time or from time to time as XETA may reasonably request, one or more
Financing Statements pursuant to the applicable sections of the Oklahoma
Uniform Commercial Code in form satisfactory to XETA, in order to create,
perfect and maintain a valid security interest in the foregoing collateral.
5. DUE DILIGENCE CONDITION PRECEDENT. Americom shall promptly
provide XETA for its review with access to and/or copies of all financial
records, agreements and contracts relating to the provision of
telecommunication and/or long distance services to Americom's USLD customers
and to the Existing Accounts, as well as such other documentation that
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<PAGE> 4
XETA may reasonably request (including without limitation all agreements
between Americom and USLD) to satisfy itself (i) as to the economic and
financial aspects of the business underlying the marketing alliance, and as to
the legal aspects of the transactions contemplated herein, (ii) that the
marketing by Americom of MCI long distance services to the Existing Accounts or
to any other customers does not violate the terms of any agreement between
Americom and USLD, (iii) that no third party has or will have any claim to the
commissions generated by the Existing Accounts, except for any claim by USLD
against the commissions paid or to be paid by USLD on the Existing Accounts,
(iv) that all consents and approvals that may be required from USLD, LDCI, MCI
and/or Starwood Lodging Corporation, to the transfer of the Existing Accounts
to XETA have been obtained (specifically including, without limitation, the
written consent of USLD to the assignment by Americom of Americom's rights
under the Master Agency Agreement with USLD dated November, 1992, as amended,
as they relate to those of the Existing Accounts listed on Schedule II hereto),
(v) that the transfer of the Existing Accounts to XETA shall not violate the
terms of or result in a breach of any agreement between Americom and the
Existing Accounts, including without limitation the USLD/Starwood Agreement, or
between Americom and USLD, including without limitation any loan agreement,
note or security agreement. In addition, Americom shall deliver the following
to XETA, all of which shall be in form and substance satisfactory to XETA: (a)
confirmation from MCI that MCI will pay commissions on the Existing Accounts
directly to XETA, (b) copies of signed written contracts between Americom and
Starwood Lodging Corporation as to the provision of MCI services to the
Existing Accounts, (c) an amendment to the USLD/Starwood Agreement, signed by
Starwood Lodging Corporation, relating to (among other things) the provision of
MCI/Telecom*USA services. The purchase price to be paid by XETA for the
Existing Accounts shall not be paid until the foregoing due diligence
conditions have been met to XETA's reasonable satisfaction in its sole
discretion.
6. INDEMNITY. Americom hereby agrees to indemnify and hold XETA
harmless from and against any claim, liability, obligation, loss, damage,
judgment, cost and expense of any kind or character arising out of or
attributed to any claim by USLD or any other third party to any commission or
portion thereof generated by the Existing Accounts from and after the Effective
Date.
7. BINDING EFFECT; MODIFICATIONS. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns;
provided, however, that neither party may assign or otherwise transfer this
Agreement or any of its interest herein without the prior and express written
consent of the other party. This Agreement cannot be changed or modified
except by written amendment signed by both parties.
8. CONTROLLING LAW. This Agreement shall be governed by the laws of
the State of Oklahoma.
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IN WITNESS THEREOF, the parties have executed this Agreement on the day
and year first written above.
"XETA" "Americom"
XETA Corporation, an Oklahoma Americom Communications Services, Inc.,
corporation an Oklahoma corporation
By /s/ Jack R. Ingram By /s/ Robert A. Jones
--------------------------------- --------------------------------------
Jack R. Ingram, President Robert A. Jones, President
5
<PAGE> 1
EXHIBIT 10.5
RELEASE AND CONSENT TO ASSIGNMENT
This Consent to Assignment and Release is made and entered into this
18th day of April, 1997 by U.S. Long Distance, Inc., a Texas corporation
("USLD") to and for the benefit of XETA Corporation, an Oklahoma corporation
("XETA").
FOR good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, USLD agrees to and does hereby release any and
all liens, security interests, claims, rights of set off, and other rights of
any nature whatsoever, against any and all assets of Americom Communications
Services, Inc., an Oklahoma corporation (Borrower), including without
limitation any present or future commissions earned by Borrower from USLD or
any other person or entity, any revenues or rights of Borrower to payment, any
contract rights held by Borrower, and any equipment of Borrower, which USLD
holds or claims as collateral security or otherwise for the payment of the
following indebtedness of Borrower to USLD: (i) that certain Renewal and
Extension of Promissory Notes dated October 1, 1996 in the original principal
amount of $166,716.76, and (ii) that certain loan against future commissions in
the amount of $520,000 evidenced by that certain Promissory Note dated
September 11, 1996 in the amount of $520,000, made pursuant to the Addendum No.
2 dated September 11, 1996 to Master Agency Agreement dated November 20, 1992
by and between Borrower and USLD. This release is given in exchange for, and
all of USLDs collateral rights are being replaced by, that certain Guaranty
Agreement of even date herewith made by XETA Corporation for the benefit of
USLD, a copy of which is attached hereto as Exhibit "A." In furtherance of the
foregoing release, USLD agrees to promptly file UCC termination statements
where necessary to terminate its security interests in assets of Borrower.
USLD further consents to the assignment by Borrower to XETA of all
present and future commissions owing by USLD to Borrower, together with the
contract rights underlying such commissions, set forth in the Assignment from
Borrower to XETA, a copy of which is attached hereto as Exhibit "B."
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Release and Consent to Assignment the day and year first above written.
U. S. Long Distance, Inc.
By: /s/ Larry M. Jones
----------------------------
Title:
-------------------------
<PAGE> 1
EXHIBIT 10.6
GUARANTY AGREEMENT
This Guaranty Agreement is made and entered into this _____ day of April,
1997, by XETA Corporation, an Oklahoma corporation ("XETA" or the "Guarantor"),
to and for the benefit of U.S. Long Distance, Inc., a Texas corporation
("USLD").
RECITALS
WHEREAS, USLD has extended two loans to Americom Communications Services,
Inc., an Oklahoma corporation ("Americom" or the "Borrower"), as follows: (i)
a loan in the amount of $166,716.76, as evidenced by a promissory note entitled
"Renewal and Extension of Promissory Notes" in the original principal amount of
$166,716.76 dated October 1, 1996, and (ii) a loan in the amount of $520,000,
as evidenced by a promissory note in the amount of $520,000 dated September 11,
1996 (which loan is further described in that certain Addendum No. 2 dated
September 11, 1996 to Master Agency Agreement between Americom and USLD), such
evidences of indebtedness being collectively referred to herein as the "Notes";
and
WHEREAS, as an inducement for and in consideration of USLD agreeing to
release all rights, liens, and security interests in or other claims against
the assets of Borrower as collateral for payment of the Notes, including
without limitation claims against present or future commissions or other
revenues of any kind earned by Borrower, XETA has agreed to guarantee the
Notes.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, XETA agrees as follows:
1. XETA hereby absolutely and unconditionally guarantees the prompt
payment, as and when due, whether at maturity, by acceleration or otherwise, of
the Notes, together with any and all renewals, extensions and changes in form
thereof (collectively the "Guaranteed Indebtedness").
2. Extensions and renewals of the Guaranteed Indebtedness may be
made from time to time without notice of any kind. Such extensions, renewals
and changes in form shall be binding on Guarantor and shall in no way reduce
the Guarantor's liabilities hereunder.
3. Presentment, demand, protest, notice of protest and notice of
dishonor of the Guaranteed Indebtedness and also notice of acceptance by USLD
of this Guaranty Agreement (this "GUARANTY") are hereby expressly waived.
4. USLD may, without notice and without affecting the liability of
the Guarantor hereunder, take and hold security for the payment of this
Guaranty or the Guaranteed Indebtedness and may exchange, enforce, waive, add
to or release security and may apply such
<PAGE> 2
security and direct the order or manner of sale thereof as USLD, in its
discretion, may determine.
5. Before proceeding hereunder against the Guarantor, USLD shall not
be required to: (a) proceed against the Borrower or any other guarantor or
party, whether a party to this Guaranty or otherwise; (b) proceed against or
exhaust any other security securing the Guaranteed Indebtedness; or (c) pursue
any other remedy whatsoever.
6. Until all the Guaranteed Indebtedness shall have been paid in
full, the Guarantor shall not have any right of subrogation or right to
participate in any security now or hereafter held by USLD.
7. If the maturity of the Guaranteed Indebtedness is accelerated
either in accordance with the terms of the Notes or any other agreement or
writing pertaining to or securing the Guaranteed Indebtedness, this Guaranty
shall also be accelerated without demand or notice of any kind.
8. This Guaranty is binding upon the Guarantor's successors and
assigns.
9. The obligations of the Guarantor hereunder shall constitute a
present and continuing guaranty of payment and not of collectibility only,
shall be absolute and unconditional, shall not be subject to any counterclaim,
setoff, deduction or defense the Guarantor may at any time have against the
Borrower or any other person, and shall remain in full force and effect without
regard to any event whatsoever (whether or not the Guarantor shall have any
knowledge or notice thereof or shall have consented thereto), including without
limitation:
(a) Any extensions, renewals or changes in form of the Notes,
any assignment or transfer of any part thereof, any renewals or
extension of the terms of payment of the Notes or the granting of time
in respect of the payment thereof, or any furnishing or acceptance of
security or any release of any security so furnished or accepted for the
Notes;
(b) Any waiver, consent, extension, forbearance or other
action or inaction under or in respect of this Guaranty or the Notes, or
any exercise of or failure to exercise any right, remedy or power in
respect hereof or thereof;
(c) Any failure, neglect or omission of USLD to protect, in
any manner, the collection of the Guaranteed Indebtedness, or any
portion thereof, or any security given therefor;
(d) Any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or similar proceedings with
respect to the Borrower or the Guarantor;
2
<PAGE> 3
(e) Any default by the Borrower, the Guarantor or the
invalidity or any unenforceability of, or any misrepresentation,
irregularity or other defect in, the Notes or this Guaranty.
10. In the event payment of the Indebtedness, or any part thereof, is
held to constitute a preference or other avoidable transfer under the
Bankruptcy Code, 11 U.S.C. Section 101 et seq., as amended, or other similar
bankruptcy laws, or if for any other reason USLD is required to refund any such
payment or pay the amount thereof to any other party, such payment shall be
deemed not to have been made and shall not constitute a release of Guarantor
from any liability hereunder, but Guarantor agrees to pay such amount to USLD
upon demand and this Guaranty shall continue to be effective or shall be
reinstated, as the case may be, to the extent of any such payment or payments.
11. To induce USLD to accept this Guaranty, Guarantor represents and
warrants to USLD that all balance sheets, income statements and other financial
statements or data which have been furnished by Guarantor to USLD fairly and
accurately represent Guarantor's financial condition as of the dates for which
such statements and information are furnished, on a consistent basis.
12. This Guaranty shall be a contract made under and governed by the
laws of the State of Oklahoma.
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Guaranty to USLD as of the ____ day of April, 1997.
"Guarantor"
XETA CORPORATION
By: /s/ Jack R. Ingram
------------------------------------------
Jack R. Ingram, President
3
<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,
1996 or performed any audit procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Tulsa, Oklahoma
June 11, 1997
<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 THE COMPANY'S 10QSB FOR THE YEAR TO DATE AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> APR-30-1997
<CASH> 3,887,510
<SECURITIES> 0
<RECEIVABLES> 1,966,241
<ALLOWANCES> 0
<INVENTORY> 1,704,485
<CURRENT-ASSETS> 10,008,718
<PP&E> 491,613
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,942,716
<CURRENT-LIABILITIES> 4,502,398
<BONDS> 0
0
0
<COMMON> 219,265
<OTHER-SE> 8,060,074
<TOTAL-LIABILITY-AND-EQUITY> 13,942,716
<SALES> 5,195,788
<TOTAL-REVENUES> 5,195,788
<CGS> 3,374,505
<TOTAL-COSTS> 3,374,505
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 885,889
<INCOME-TAX> 321,000
<INCOME-CONTINUING> 564,889
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 564,889
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
