Document:

exv10w11

 

Exhibit 10.11

PROMISSORY NOTE

	 	 	 
	$3,374,734.33	 	
October 1, 2003
	 	 	
Tulsa, Oklahoma

     FOR VALUE RECEIVED, the undersigned, XETA TECHNOLOGIES, INC., an Oklahoma
corporation (“Maker”), promises to pay to the order of BANK OF OKLAHOMA, N.A.
(“Lender”), at its offices in Tulsa, Oklahoma, the principal sum of Three
Million Three Hundred Seventy-Four Thousand Seven Hundred Thirty-Four and
33/100 Dollars ($3,374,734.33) under the terms of the Revolving Credit and Term
Loan Agreement (“Credit Agreement”) between Maker and Lender of even date
herewith, payable as follows (all capitalized terms used but not defined herein
shall have the meanings given in the Credit Agreement):

	 	 	Principal. Principal shall be shall be payable in consecutive monthly
installments on the 1st day of each month, commencing November, 2003,
with each installment except the last equal to $86,524.26. The last
installment, due September 30, 2006, shall equal the remaining balance of
principal hereunder.
	 
	 	 	Interest. Interest shall be payable on the first day of each month,
commencing the 1st day of November, 2003, and at maturity. Interest
shall accrue on the principal balance outstanding hereunder and on any
past due interest hereunder at a rate at all times equal to the Note Rate
(defined below).

        “Note Rate” shall mean a rate at all times equal to the Adjusted Prime
Rate or the Adjusted LIBOR Rate, as elected by Maker pursuant to a properly
made Interest Rate Election (defined below); provided, that at the end of any
applicable Interest Period (defined below), the Note Rate shall revert to the
Adjusted Prime Rate unless a new Interest Rate Election has been properly made
by Maker. The Adjusted Prime Rate and the Adjusted LIBOR Rate shall be
calculated, on any date of determination thereof, as follows:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	Funded Debt to Cash Flow	 	Adjusted LIBOR Rate	Adjusted Prime Rate	 
	
	 	
	 	
	 
	Greater than or equal to 2.50 to 1
	 	LIBOR Rate plus 2.75%	 	Prime Rate plus .25%	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Greater than or equal to 2.0 to 1 but less than 2.5 to 1
	 	LIBOR Rate plus 2.25%	 	Prime Rate	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Greater than or equal to 1.50 to 1 but less than 2.0 to 1
	 	LIBOR Rate plus 2.00%	 	Prime Rate minus .25%	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Greater than or equal to 1.0 to 1 but less than 1.5 to 1
	 	LIBOR Rate plus 1.75%	 	Prime Rate minus .50%	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	Less than 1.0 to 1
	 	LIBOR Rate plus 1.50%	 	Prime Rate minus .75%	 	 

The Adjusted LIBOR Rate and Adjusted Prime Rate shall be recalculated on not
less than a quarterly basis, on the date on which the Lender is in receipt of
Maker’s most recent financial

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statements (and, in the case of the year-end financial statements, audit
report) for the fiscal quarter then ended (“Pricing Date”). From the date of
this Agreement to the first recalculation, the Adjusted LIBOR Rate shall be set
at the LIBOR Rate plus 2 percent (2.00%), and the Adjusted Prime Rate shall be
set at the Prime Rate minus .5 percent (-.50%). The Note Rate shall be
established based on the ratio of Funded Debt to Cash Flow for the most
recently completed fiscal quarter and the Note Rate established on a Pricing
Date shall remain in effect until the next Pricing Date. If the Maker has not
delivered its financial statements by the date such financial statements (and,
in the case of the year-end financial statements, audit report) are required to
be delivered under the Credit Agreement, until such financial statements and
audit report are delivered, the Note Rate shall be the LIBOR Rate plus one and
three quarters of one percent (1.75%). If the Maker subsequently delivers such
financial statements before the next Pricing Date, the Note Rate established by
such late delivered financial statements shall take effect from the date of
delivery until the next Pricing Date. In all other circumstances, the Note
Rate established by such financial statements shall be in effect from the
Pricing Date that occurs immediately after the end of the fiscal quarter
covered by such financial statements until the next Pricing Date. Each
determination of the Note Rate made by the Lender in accordance with the
foregoing shall be conclusive and binding on the Maker and the Lender if
reasonably determined. Any change in the Note Rate resulting from a change in
the Prime Rate shall be effective as of the opening of business on the day on
which such change in the Prime Rate becomes effective.

     “Funded Debt” (for purposes of this Note) shall mean all interest bearing
debt.

     “Cash Flow” (for purposes of this Note) shall mean EBITDA less Cash Taxes.

     “Interest Rate Election” means written notice from Maker to Lender no
earlier than twenty (20) days and no later than five (5) days prior to the
contemplated effective date, substantially in form and content as set forth on
Exhibit “A” hereto, whereby Maker may elect from time to time that interest
shall accrue hereunder at the Adjusted Prime Rate or the Adjusted LIBOR Rate.

     “LIBOR Rate” means the London Interbank Offered Rate composite rate per
annum for U.S. Dollars for the applicable Interest Period which appears on the
LIBOR 01 page of the Reuters information service on the day the Interest Rate
Election is received by Lender. The LIBOR Rate shall remain fixed during the
applicable Interest Period.

     “Interest Period” shall mean a period of time equal to the lesser of: (i)
at the election of the Maker, thirty (30), sixty (60), or ninety (90) days; or
(ii) the number of days between the contemplated effective date specified by
the Maker in the applicable Interest Rate Election and the maturity date
hereunder.

     “Prime Rate” shall mean a fluctuating interest rate per annum as in effect
from time to time, which interest rate per annum shall at all times be equal to
the rate of interest announced publicly from time to time (whether or not
charged in each instance), by JP Morgan Chase Bank, at New York, New York
(“Rate Bank”), as its base rate or general reference rate. Each change in the
Prime Rate (or any component thereof) shall become effective hereunder without
notice to Maker (which notice is hereby expressly waived by Maker), on the
effective date of each such change. Should the Rate Bank abolish or abandon
the practice of announcing or publishing a Prime Rate, then the Prime Rate used
during the remaining term of this Note shall be that interest rate or other
general reference rate then in effect at the Rate Bank which, from time to
time, in the reasonable judgment of Bank, most effectively approximates the
initial definition of
the “Prime Rate.” Maker acknowledges that Lender may, from time to time,
extend credit to other borrowers at rates of interest varying from, and having
no relationship to, the Prime Rate. The rate of interest payable

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upon the
indebtedness evidenced by this Note shall not, however, at any time exceed the
maximum rate of interest permitted under the laws of the State of Oklahoma for
loans of the type and character evidenced by this Note.

     If any payment shall be due on a Saturday or Sunday or upon any other day
on which state or national banks in the State of Oklahoma are closed for
business by virtue of a legal holiday for such banks, such payment shall be due
and payable on the next succeeding banking day and interest shall accrue to
such day. All interest due hereon shall be computed on the actual number of
days elapsed (365 or 366) based upon a 360-day year.

     All payments under this Note shall be made in legal tender of the United
States of America or in other immediately available funds at Lender’s office
described above, and no credit shall be given for any payment received by
check, draft or other instrument or item until such time as the holder hereof
shall have received credit therefor from the holder’s collecting agent or, in
the event no collecting agent is used, from the bank or other financial
institution upon which said check, draft or other instrument or item is drawn.

     From time to time the maturity date of this Note may be extended or this
Note may be renewed, in whole or in part, or a new note of different form may
be substituted for this Note and/or the rate of interest may be changed, or
changes may be made in consideration of loan extensions, and the holder, from
time to time, may waive or surrender, either in whole or in part, any rights,
guarantees, security interests or liens given for the benefit of the holder in
connection herewith; but no such occurrences shall in any manner affect, limit,
modify or otherwise impair any rights, guarantees or security of the holder not
specifically waived, released or surrendered in writing, nor shall any maker,
guarantor, endorser or any person who is or might be liable hereon, either
primarily or contingently, be released from such liability by reason of the
occurrence of any such event. The holder hereof, from time to time, shall have
the unlimited right to release any person who might be liable hereon; and such
release shall not affect or discharge the liability of any other person who is
or might be liable hereon.

     If any payment required by this Note to be made is not made when due, or
if any default occurs under any loan agreement or under the provisions of any
mortgage, security agreement, assignment, pledge or other document or agreement
which provides security for the indebtedness evidenced by this Note, the holder
hereof may, at its option, without notice or demand, declare this Note in
default and all indebtedness due and owing hereunder immediately due and
payable. Interest from the date of default on such principal balance and on
any past due interest hereunder shall accrue at the rate of five percent (5%)
per annum above the nondefault interest rate accruing hereunder. The Maker and
any endorsers, guarantors and sureties hereby severally waive protest,
presentment, demand, and notice of protest and nonpayment in case this Note or
any payment due hereunder is not paid when due; and they agree to any renewal,
extension, acceleration, postponement of the time of payment, substitution,
exchange or release of collateral and to the release of any party or person
primarily or contingently liable without prejudice to the holder and without
notice to the Maker or any endorser, guarantor or surety. Maker and any
guarantor, endorser, surety or any other person who is or may become liable
hereon will, on demand, pay all costs of collection, including reasonable
attorney fees of the holder hereof in attempting to enforce payment of this
Note and reasonable attorney fees for defending the validity of any document
securing this Note as a valid first and prior lien.

     Upon the occurrence of any default hereunder, Lender shall have the right,
immediately and without further action by it, to set off against this Note all
money owed by Lender in any capacity to the Maker or any guarantor, endorser or
other person who is or might be liable for payment hereof,

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whether or not due,
and also to set off against all other liabilities of Maker to Lender all money
owed by Lender in any capacity to Maker; and Lender shall be deemed to have
exercised such right of setoff and to have made a charge against such money
immediately upon the occurrence of such default even though such charge is made
or entered into the books of Lender subsequently thereto.

     The holder of this Note may collect a late charge not to exceed an amount
equal to five percent (5%) of the amount of any payment which is not paid
within ten (10) days from the due date thereof, for the purposes of covering
the extra expenses involved in handling delinquent payments. This late charge
provision shall not be applicable in the event the holder hereof, at its
option, elects to receive interest at the increased rate as provided hereunder
in the event of default.

     This Note is given for an actual loan of money for business purposes and
not for personal, agricultural or residential purposes, and is executed and
delivered in the State of Oklahoma and shall be governed by and construed in
accordance with the laws of the State of Oklahoma.

	 	 	 	 	 
	 	 	
XETA TECHNOLOGIES, INC.
	 
	 	 	
By
	 	/s/ Robert B. Wagner
	 	 	 	 	

	 	 	
Name
	 	Robert B. Wagner
	 	 	
Title
	 	CFO

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EXHIBIT “A”

(Interest Rate Election Notice)

Bank of Oklahoma, N.A.

P. O. Box 2300

Tulsa, Oklahoma 74192-2300

Attn: Mr. Stephen R. Wright, Senior Vice President

	 	 	 
	Re:	 	
Revolving Credit and Term Loan Agreement (“Loan Agreement”)
dated
October 1, 2003, between XETA TECHNOLOGIES, INC. (“Borrower”) and
BANK OF OKLAHOMA, N.A. — Interest Rate Election

Ladies and Gentlemen:

     Please be advised that no Initial Default or Matured Default exists under
the Loan Agreement, and the Borrower hereby provides the following interest
rate election:

     A.     Revolving Line. (Insert applicable information as to the (i) Adjusted
Prime Rate or (ii) Adjusted LIBOR Rate, including requested interest rate
period)

     B.     Term Loan. (Insert applicable information as to the (i) Adjusted Prime
Rate or (ii) Adjusted LIBOR Rate, including requested interest rate period)

     C.     Real Estate Loan. (Insert applicable information as to the (i)
Adjusted Prime Rate or (ii) Adjusted LIBOR Rate, including requested interest
rate period)

	 	 	 	 	 
	 	 	
“Borrower”
	 
	 	 	
XETA CORPORATION., an Oklahoma
corporation
	 
	 	 	
By	 	 
	 	 	 	 	

	 	 	
Name:	 	 
	 	 	 	 	

	 	 	
Title:	 	 
	 	 	 	 	

	 	 	 
	Date Received by Bank of
Oklahoma:	 	 
	 	 	

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Exhibit 10.12

SECURITY AGREEMENT

     SECURITY AGREEMENT, dated as of October 1, 2003, between XETA
TECHNOLOGIES, INC., an Oklahoma corporation (the “Debtor”), and BANK OF
OKLAHOMA, N.A. (the “Secured Party”).

     WHEREAS, the Debtor has entered into a Revolving Credit and Term Loan
Agreement dated as of October 1, 2003 (as amended and in effect from time to
time, the “Credit Agreement”), with the Secured Party, pursuant to which the
Secured Party, subject to the terms and conditions contained therein, is to
make loans or otherwise to extend credit to the Debtor; and

     WHEREAS, it is a condition precedent to the Secured Party’s making any
loans or otherwise extending credit to the Debtor under the Credit Agreement
that the Debtor execute and deliver to the Secured Party a security agreement
in substantially the form hereof; and

     WHEREAS, the Debtor wishes to grant a security interest in favor of the
Secured Party as herein provided;

     NOW, THEREFORE, in consideration of the promises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:

1.     Definitions. All capitalized terms used herein without definitions shall
have the respective meanings provided therefor in the Credit Agreement. The
term “State,” as used herein, means the State of Oklahoma. All terms defined in
the Uniform Commercial Code of the State and used herein shall have the same
definitions herein as specified therein. However, if a term is defined in
Article 9 of the Uniform Commercial Code of the State differently than in
another Article of the Uniform Commercial Code of the State, the term has the
meaning specified in Article 9.

2.     Grant of Security Interest. The Debtor hereby grants to the Secured Party,
to secure the payment and performance in full of all of the Obligations, a
security interest in and so pledges and assigns to the Secured Party the
following properties, assets and rights of the Debtor, wherever located,
whether now owned or hereafter acquired or arising, and all proceeds and
products thereof (all of the same being hereinafter called the “Collateral”):
all personal and fixture property of every kind and nature including without
limitation all goods (including inventory, equipment and any accessions
thereto), instruments (including promissory notes), documents, accounts
(including health-care-insurance receivables), chattel paper (whether tangible
or electronic), deposit accounts, letter-of-credit rights (whether or not the
letter of credit is evidenced by a writing), commercial tort claims, securities
and all other investment property, supporting obligations, any other contract
rights or rights to the payment of money, insurance claims and proceeds, and
all general intangibles (including all payment intangibles). The Secured Party
acknowledges that the attachment of its security interest in any additional
commercial tort claim as original collateral is subject to the Debtor’s
compliance with Section 4.7.

3.     Authorization to File Financing Statements. The Debtor hereby irrevocably
authorizes the Secured Party at any time and from time to time to file in any
filing office in any Uniform Commercial Code jurisdiction any initial financing
statements and amendments thereto that (a) indicate the Collateral (i) as all
assets of the Debtor or words of similar effect, regardless of whether any
particular asset comprised in the Collateral falls within the scope of Article
9 of the Uniform Commercial Code of the State or such jurisdiction, or (ii) as
being of an equal or lesser

 

 

scope or with greater detail, and (b) provide any other information required by
part 5 of Article 9 of the Uniform Commercial Code of the State, or such other
jurisdiction, for the sufficiency or filing office acceptance of any financing
statement or amendment, including (i) whether the Debtor is an organization,
the type of organization and any organizational identification number issued to
the Debtor and, (ii) in the case of a financing statement filed as a fixture
filing or indicating Collateral as as-extracted collateral or timber to be cut,
a sufficient description of real property to which the Collateral relates. The
Debtor agrees to furnish any such information to the Secured Party promptly
upon the Secured Party’s request.

4.     Other Actions. To further the attachment, perfection and first priority of,
and the ability of the Secured Party to enforce, the Secured Party’s security
interest in the Collateral, and without limitation on the Debtor’s other
obligations in this Agreement, the Debtor agrees, in each case at the Debtor’s
expense, to take the following actions with respect to the following
Collateral:

     4.1. Promissory Notes and Tangible Chattel Paper. If the Debtor shall at
any time hold or acquire any promissory notes or tangible chattel paper, the
Debtor shall forthwith endorse, assign and deliver the same to the Secured
Party, accompanied by such instruments of transfer or assignment duly executed
in blank as the Secured Party may from time to time specify.

     4.2. Deposit Accounts. For each deposit account that the Debtor at any
time opens or maintains, the Debtor shall, at the Secured Party’s request and
option, pursuant to an agreement in form and substance satisfactory to the
Secured Party, either (a) cause the depositary bank to comply at any time with
instructions from the Secured Party to such depositary bank directing the
disposition of funds from time to time credited to such deposit account,
without further consent of the Debtor, or (b) arrange for the Secured Party to
become the customer of the depositary bank with respect to the deposit account,
with the Debtor being permitted, only with the consent of the Secured Party, to
exercise rights to withdraw funds from such deposit account. The Secured Party
agrees with the Debtor that the Secured Party shall not give any such
instructions or withhold any withdrawal rights from the Debtor, unless an Event
of Default has occurred and is continuing, or would occur, if effect were given
to any withdrawal not otherwise permitted by the Loan Documents. The provisions
of this paragraph shall not apply to (i) any deposit account for which the
Debtor, the depositary bank and the Secured Party have entered into a cash
collateral agreement specially negotiated among the Debtor, the depositary bank
and the Secured Party for the specific purpose set forth therein, (ii) a
deposit account for which the Secured Party is the depositary bank and is in
automatic control, and (iii) deposit accounts specially and exclusively used
for payroll, payroll taxes and other employee wage and benefit payments to or
for the benefit of the Debtor’s salaried employees.

     4.3. Investment Property. If the Debtor shall at any time hold or acquire
any certificated securities, the Debtor shall forthwith endorse, assign and
deliver the same to the Secured Party, accompanied by such instruments of
transfer or assignment duly executed in blank as the Secured Party may from
time to time specify. If any securities now or hereafter acquired by the Debtor
are uncertificated and are issued to the Debtor or its nominee directly by the
issuer thereof, the Debtor shall immediately notify the Secured Party thereof
and, at the Secured Party’s request and option, pursuant to an agreement in
form and substance satisfactory to the Secured Party, either (a) cause the
issuer to agree to comply with instructions from the Secured Party as to such
securities, without further consent of the Debtor or such nominee, or (b)
arrange for the Secured Party to become the registered owner of the securities.
If any securities, whether certificated or uncertificated, or other investment
property now or hereafter acquired by the Debtor are held by the Debtor or its
nominee through a securities intermediary or commodity intermediary, the Debtor
shall immediately notify the Secured Party thereof and, at the Secured Party’s
request and option,

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pursuant to an agreement in form and substance satisfactory to the Secured
Party, either (i) cause such securities intermediary or (as the case may be)
commodity intermediary to agree to comply with entitlement orders or other
instructions from the Secured Party to such securities intermediary as to such
securities or other investment property, or (as the case may be) to apply any
value distributed on account of any commodity contract as directed by the
Secured Party to such commodity intermediary, in each case without further
consent of the Debtor or such nominee, or (ii) in the case of financial assets
or other investment property held through a securities intermediary, arrange
for the Secured Party to become the entitlement holder with respect to such
investment property, with the Debtor being permitted, only with the consent of
the Secured Party, to exercise rights to withdraw or otherwise deal with such
investment property. The Secured Party agrees with the Debtor that the Secured
Party shall not give any such entitlement orders or instructions or directions
to any such issuer, securities intermediary or commodity intermediary, and
shall not withhold its consent to the exercise of any withdrawal or dealing
rights by the Debtor, unless an Event of Default has occurred and is
continuing, or, after giving effect to any such investment and withdrawal
rights not otherwise permitted by the Loan Documents, would occur. The
provisions of this paragraph shall not apply to any financial assets credited
to a securities account for which the Secured Party is the securities
intermediary.

     4.4. Collateral in the Possession of a Bailee. If any Collateral is at any
time in the possession of a bailee, the Debtor shall promptly notify the
Secured Party thereof and, at the Secured Party’s request and option, shall
promptly obtain an acknowledgement from the bailee, in form and substance
satisfactory to the Secured Party, that the bailee holds such Collateral for
the benefit of the Secured Party, and that such bailee agrees to comply,
without further consent of the Debtor, with instructions from the Secured Party
as to such Collateral. The Secured Party agrees with the Debtor that the
Secured Party shall not give any such instructions unless an Event of Default
has occurred and is continuing or would occur after taking into account any
action by the Debtor with respect to the bailee.

     4.5. Electronic Chattel Paper and Transferable Records. If the Debtor at
any time holds or acquires an interest in any electronic chattel paper or any
“transferable record,” as that term is defined in Section 201 of the federal
Electronic Signatures in Global and National Commerce Act, or in Section 16 of
the Uniform Electronic Transactions Act as in effect in any relevant
jurisdiction, the Debtor shall promptly notify the Secured Party thereof and,
at the request and option of the Secured Party, shall take such action as the
Secured Party may reasonably request to vest in the Secured Party control,
under Section 9-105 of the Uniform Commercial Code, of such electronic chattel
paper or control under Section 201 of the federal Electronic Signatures in
Global and National Commerce Act or, as the case may be, Section 16 of the
Uniform Electronic Transactions Act, as so in effect in such jurisdiction, of
such transferable record. The Secured Party agrees with the Debtor that the
Secured Party will arrange, pursuant to procedures satisfactory to the Secured
Party and so long as such procedures will not result in the Secured Party’s
loss of control, for the Debtor to make alterations to the electronic chattel
paper or transferable record permitted under UCC Section 9-105 or, as the case
may be, Section 201 of the federal Electronic Signatures in Global and National
Commerce Act or Section 16 of the Uniform Electronic Transactions Act for a
party in control to make without loss of control, unless an Event of Default
has occurred and is continuing or would occur after taking into account any
action by the Debtor with respect to such electronic chattel paper or
transferable record.

     4.6. Letter-of-Credit Rights. If the Debtor is at any time a beneficiary
under a letter of credit, the Debtor shall promptly notify the Secured Party
thereof and, at the request and option of the Secured Party, the Debtor shall,
pursuant to an agreement in form and substance satisfactory to the Secured
Party, either (i) arrange for the issuer and any confirmer or other nominated
person

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of such letter of credit to consent to an assignment to the Secured Party of
the proceeds of the letter of credit, or (ii) arrange for the Secured Party to
become the transferee beneficiary of the letter of credit.

     4.7 Commercial Tort Claims. If the Debtor shall at any time hold or
acquire a commercial tort claim, the Debtor shall immediately notify the
Secured Party in a writing signed by the Debtor of the particulars thereof and
grant to the Secured Party in such writing a security interest therein and in
the proceeds thereof, all upon the terms of this Agreement, with such writing
to be in form and substance satisfactory to the Secured Party.

     4.8. Other Actions as to Any and All Collateral. The Debtor further
agrees, at the request and option of the Secured Party, to take any and all
other actions the Secured Party may determine to be necessary or useful for the
attachment, perfection and first priority of, and the ability of the Secured
Party to enforce, the Secured Party’s security interest in any and all of the
Collateral, including, without limitation, (a) executing, delivering and, where
appropriate, filing financing statements and amendments relating thereto under
the Uniform Commercial Code, to the extent, if any, that the Debtor’s signature
thereon is required therefor, (b) causing the Secured Party’s name to be noted
as secured party on any certificate of title for a titled good if such notation
is a condition to attachment, perfection or priority of, or ability of the
Secured Party to enforce, the Secured Party’s security interest in such
Collateral, (c) complying with any provision of any statute, regulation or
treaty of the United States as to any Collateral if compliance with such
provision is a condition to attachment, perfection or priority of, or ability
of the Secured Party to enforce, the Secured Party’s security interest in such
Collateral, (d) obtaining governmental and other third party waivers, consents
and approvals in form and substance satisfactory to Secured Party, including,
without limitation, any consent of any licensor, lessor or other person
obligated on Collateral, (e) obtaining waivers from mortgagees and landlords in
form and substance satisfactory to the Secured Party and (f) taking all actions
under any earlier versions of the Uniform Commercial Code or under any other
law, as reasonably determined by the Secured Party to be applicable in any
relevant Uniform Commercial Code or other jurisdiction, including any foreign
jurisdiction.

5.     Relation to Other Security Documents. The provisions of this Agreement
supplement the provisions of any real estate mortgage or deed of trust granted
by the Debtor to the Secured Party which secures the payment or performance of
any of the Obligations. Nothing contained in any such real estate mortgage or
deed of trust shall derogate from any of the rights or remedies of the Secured
Party hereunder.

6.     Representations and Warranties Concerning Debtor’s Legal Status. The Debtor
represents and warrants to the Secured Party as follows: (a) the Debtor’s exact
legal name is that indicated on the signature page hereof, (b) the Debtor is a
corporation and is organized in the State of Oklahoma, (c) the Debtor’s place
of business or, if more than one, its chief executive office, as well as the
Debtor’s mailing address, if different, is accurately set forth on Schedule “6”
hereto, (d) all other information provided by Debtor to Secured Party
pertaining to the Debtor is accurate, complete and unchanged.

7.     Covenants Concerning Debtor’s Legal Status. The Debtor covenants with the
Secured Party as follows: (a) without providing at least 30 days prior written
notice to the Secured Party, the Debtor will not change its name, its place of
business or, if more than one, chief executive office, or its mailing address
or organizational identification number if it has one, (b) if the Debtor does
not have an organizational identification number and later obtains one, the
Debtor shall forthwith notify

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the Secured Party of such organizational identification number, and (c) the
Debtor will not change its type of organization, jurisdiction of organization
or other legal structure.

8.     Representations and Warranties Concerning Collateral, etc. The Debtor
further represents and warrants to the Secured Party as follows: (a) the Debtor
is the owner of the Collateral, free from any right or claim or any person or
any adverse lien, security interest or other encumbrance, except for the
security interest created by this Agreement and other liens permitted by the
Credit Agreement, (b) none of the Collateral constitutes, or is the proceeds
of, “farm products” as defined in Section 9-102(a)(34) of the Uniform
Commercial Code of the State, (c) the Debtor holds no commercial tort claim
except as set forth on Schedule “8” hereto, and (d) the Debtor has at all times
operated its business in compliance with all applicable provisions of the
federal Fair Labor Standards Act, as amended, and with all applicable
provisions of federal, state and local statutes and ordinances dealing with the
control, shipment, storage or disposal of hazardous materials or substances,
(e) all other information provided by Debtor to Secured Party pertaining to the
Collateral is accurate, complete, and unchanged.

9.     Covenants Concerning Collateral, etc. The Debtor further covenants with the
Secured Party as follows: (a) the Collateral, to the extent not delivered to
the Secured Party pursuant to Section 4, will be kept at those locations set
forth on Schedule “9” hereto and the Debtor will not remove the Collateral from
such locations, without providing at least thirty days prior written notice to
the Secured Party, (b) except for the security interest herein granted and
liens permitted by the Credit Agreement, the Debtor shall be the owner of the
Collateral free from any right or claim of any other person, lien, security
interest or other encumbrance, and the Debtor shall defend the same against all
claims and demands of all persons at any time claiming the same or any
interests therein adverse to the Secured Party, (c) the Debtor shall not
pledge, mortgage or create, or suffer to exist any right of any person in or
claim by any person to the Collateral, or any security interest, lien or
encumbrance in the Collateral in favor of any person, other than the Secured
Party except for liens permitted by the Credit Agreement, (d) the Debtor will
keep the Collateral in good order and repair and will not use the same in
violation of law or any policy of insurance thereon, (e) as provided in the
Credit Agreement, the Debtor will permit the Secured Party, or its designee, to
inspect the Collateral at any reasonable time, wherever located, (f) the Debtor
will pay promptly when due all taxes, assessments, governmental charges and
levies upon the Collateral or incurred in connection with the use or operation
of such Collateral or incurred in connection with this Agreement, (g) the
Debtor will continue to operate, its business in compliance with all applicable
provisions of the federal Fair Labor Standards Act, as amended, and with all
applicable provisions of federal, state and local statutes and ordinances
dealing with the control, shipment, storage or disposal of hazardous materials
or substances, and (h) the Debtor will not sell or otherwise dispose, or offer
to sell or otherwise dispose, of the Collateral or any interest therein except
for (i) sales of inventory in the ordinary course of business and (ii) so long
as no Event of Default has occurred and is continuing, sales or other
dispositions of obsolescent items of equipment consistent with past practices.

10.     Insurance.

     10.1. Maintenance of Insurance. The Debtor will maintain with financially
sound and reputable insurers insurance with respect to its properties and
business against such casualties and contingencies as shall be in accordance
with general practices of businesses engaged in similar activities in similar
geographic areas. Such insurance shall be in such minimum amounts that the
Debtor will not be deemed a co-insurer under applicable insurance laws,
regulations and policies and otherwise shall be in such amounts, contain such
terms, be in such forms and be for such periods as may be reasonably
satisfactory to the Secured Party. In addition, all such

5

 

insurance shall be payable to the Secured Party as loss payee. Without limiting
the foregoing, the Debtor will (i) keep all of its physical property insured
with casualty or physical hazard insurance on an “all risks” basis, with broad
form flood and earthquake coverages and electronic data processing coverage,
with a full replacement cost endorsement and an “agreed amount” clause in an
amount equal to 100% of the full replacement cost of such property, (ii)
maintain all such workers’ compensation or similar insurance as may be required
by law, and (iii) maintain, in amounts equal to those generally maintained by
businesses engaged in similar activities in similar geographic areas, general
public liability insurance against claims of bodily injury, death or property
damage occurring, on, in or about the properties of the Debtor; business
interruption insurance; and product liability insurance.

     10.2. Insurance Proceeds. The proceeds of any casualty insurance in
respect of any casualty loss of any of the Collateral shall, subject to the
rights, if any, of other parties with an interest having priority in the
property covered thereby, (i) so long as no Default or Event of Default has
occurred and is continuing and in the discretion of Secured Party, be disbursed
to the Debtor for direct application by the Debtor solely to the repair or
replacement of the Debtor’s property so damaged or destroyed, and (ii) in all
other circumstances, be held by the Secured Party as cash collateral for the
Obligations. The Secured Party may, at its sole option, disburse from time to
time all or any part of such proceeds so held as cash collateral, upon such
terms and conditions as the Secured Party may reasonably prescribe, for direct
application by the Debtor solely to the repair or replacement of the Debtor’s
property so damaged or destroyed, or the Secured Party may apply all or any
part of such proceeds to the Obligations.

     10.3. Continuation of Insurance. All policies of insurance shall provide
for at least thirty (30) days prior written cancellation notice to the Secured
Party. In the event of failure by the Debtor to provide and maintain insurance
as herein provided, the Secured Party may, at its option, provide such
insurance and charge the amount thereof to the Debtor. The Debtor shall furnish
the Secured Party with certificates of insurance and policies evidencing
compliance with the foregoing insurance provision.

11.     Collateral Protection Expenses; Preservation of Collateral.

     11.1. Expenses Incurred by Secured Party. In the Secured Party’s
discretion, if the Debtor fails to do so, the Secured Party may discharge taxes
and other encumbrances at any time levied or placed on any of the Collateral,
maintain any of the Collateral, make repairs thereto and pay any necessary
filing fees or insurance premiums. The Debtor agrees to reimburse the Secured
Party on demand for all expenditures so made. The Secured Party shall have no
obligation to the Debtor to make any such expenditures, nor shall the making
thereof be construed as the waiver or cure of any Default or Event of Default.

     11.2. Secured Party’s Obligations and Duties. Anything herein to the
contrary notwithstanding, the Debtor shall remain obligated and liable under
each contract or agreement comprised in the Collateral to be observed or
performed by the Debtor thereunder. The Secured Party shall not have any
obligation or liability under any such contract or agreement by reason of or
arising out of this Agreement or the receipt by the Secured Party of any
payment relating to any of the Collateral, nor shall the Secured Party be
obligated in any manner to perform any of the obligations of the Debtor under
or pursuant to any such contract or agreement, to make inquiry as to the nature
or sufficiency of any payment received by the Secured Party in respect of the
Collateral or as to the sufficiency of any performance by any party under any
such contract or agreement, to present or file any claim, to take any action to
enforce any performance or to collect the payment of any amounts which may have
been assigned to the Secured Party or to which the

6

 

Secured Party may be entitled at any time or times. The Secured Party’s sole
duty with respect to the custody, safe keeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the Uniform Commercial
Code of the State or otherwise, shall be to deal with such Collateral in the
same manner as the Secured Party deals with similar property for its own
account.

12.     Securities and Deposits. The Secured Party may at any time following and
during the continuance of an Event of Default, at its option, transfer to
itself or any nominee any securities constituting Collateral, receive any
income thereon and hold such income as additional Collateral or apply it to the
Obligations. Whether or not any Obligations are due, the Secured Party may
following and during the continuance of an Event of Default demand, sue for,
collect, or make any settlement or compromise which it deems desirable with
respect to the Collateral. Regardless of the adequacy of Collateral or any
other security for the Obligations, any deposits or other sums at any time
credited by or due from the Secured Party to the Debtor may at any time be
applied to or set off against any of the Obligations.

13.     Notification to Account Debtors and Other Persons Obligated on Collateral.
If an Event of Default shall have occurred and be continuing, the Debtor shall,
at the request and option of the Secured Party, notify account debtors and
other persons obligated on any of the Collateral of the security interest of
the Secured Party in any account, chattel paper, general intangible, instrument
or other Collateral and that payment thereof is to be made directly to the
Secured Party or to any financial institution designated by the Secured Party
as the Secured Party’s agent therefor, and the Secured Party may itself, if a
Default or an Event of Default shall have occurred and be continuing, without
notice to or demand upon the Debtor, so notify account debtors and other
persons obligated on Collateral. After the making of such a request or the
giving of any such notification, the Debtor shall hold any proceeds of
collection of accounts, chattel paper, general intangibles, instruments and
other Collateral received by the Debtor as trustee for the Secured Party
without commingling the same with other funds of the Debtor and shall turn the
same over to the Secured Party in the identical form received, together with
any necessary endorsements or assignments. The Secured Party shall apply the
proceeds of collection of accounts, chattel paper, general intangibles,
instruments and other Collateral received by the Secured Party to the
Obligations, such proceeds to be immediately credited after final payment in
cash or other immediately available funds of the items giving rise to them.

14.     Power of Attorney.

     14.1. Appointment and Powers of Secured Party. The Debtor hereby
irrevocably constitutes and appoints the Secured Party and any officer or agent
thereof, with full power of substitution, as its true and lawful
attorneys-in-fact with full irrevocable power and authority in the place and
stead of the Debtor or in the Secured Party’s own name, for the purpose of
carrying out the terms of this Agreement, to take any and all appropriate
action and to execute any and all documents and instruments that may be
necessary or useful to accomplish the purposes of this Agreement and, without
limiting the generality of the foregoing, hereby gives said attorneys the power
and right, on behalf of the Debtor, without notice to or assent by the Debtor,
to do the following:

          (a) upon the occurrence and during the continuance of an Event of Default,
generally to sell, transfer, pledge, make any agreement with respect to or
otherwise dispose of or deal with any of the Collateral in such manner as is
consistent with the Uniform Commercial Code of the State and as fully and
completely as though the Secured Party were the absolute owner thereof for all
purposes, and to do, at the Debtor’s expense, at any time, or from time to
time, all

7

 

acts and things which the Secured Party deems necessary or useful to protect,
preserve or realize upon the Collateral and the Secured Party’s security
interest therein, in order to effect the intent of this Agreement, all at least
as fully and effectively as the Debtor might do, including, without limitation,
(i) the filing and prosecuting of registration and transfer applications with
the appropriate federal, state, local or other agencies or authorities with
respect to trademarks, copyrights and patentable inventions and processes, (ii)
upon written notice to the Debtor, the exercise of voting rights with respect
to voting securities, which rights may be exercised, if the Secured Party so
elects, with a view to causing the liquidation of assets of the issuer of any
such securities, and (iii) the execution, delivery and recording, in connection
with any sale or other disposition of any Collateral, of the endorsements,
assignments or other instruments of conveyance or transfer with respect to such
Collateral; and

          (b) to the extent that the Debtor’s authorization given in Section 3 is
not sufficient, to file such financing statements with respect hereto, with or
without the Debtor’s signature, or a photocopy of this Agreement in
substitution for a financing statement, as the Secured Party may deem
appropriate and to execute in the Debtor’s name such financing statements and
amendments thereto and continuation statements which may require the Debtor’s
signature.

     14.2. Ratification by Debtor. To the extent permitted by law, the Debtor
hereby ratifies all that said attorneys shall lawfully do or cause to be done
by virtue hereof. This power of attorney is a power coupled with an interest
and is irrevocable.

     14.3. No Duty on Secured Party. The powers conferred on the Secured Party
hereunder are solely to protect its interests in the Collateral and shall not
impose any duty upon it to exercise any such powers. The Secured Party shall be
accountable only for the amounts that it actually receives as a result of the
exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Debtor for any act or failure
to act, except for the Secured Party’s own gross negligence or willful
misconduct.

15.     Rights and Remedies. If an Event of Default shall have occurred and be
continuing, the Secured Party, without any other notice to or demand upon the
Debtor have in any jurisdiction in which enforcement hereof is sought, in
addition to all other rights and remedies, the rights and remedies of a secured
party under the Uniform Commercial Code of the State and any additional rights
and remedies which may be provided to a secured party in any jurisdiction in
which Collateral is located, including, without limitation, the right to take
possession of the Collateral, and for that purpose the Secured Party may, so
far as the Debtor can give authority therefor, enter upon any premises on which
the Collateral may be situated and remove the same therefrom. The Secured Party
may in its discretion require the Debtor to assemble all or any part of the
Collateral at such location or locations within the jurisdiction(s) of the
Debtor’s principal office(s) or at such other locations as the Secured Party
may reasonably designate. Unless the Collateral is perishable or threatens to
decline speedily in value or is of a type customarily sold on a recognized
market, the Secured Party shall give to the Debtor at least ten (10) Business
Days’ prior written notice of the time and place of any public sale of
Collateral or of the time after which any private sale or any other intended
disposition is to be made. The Debtor hereby acknowledges that ten (10)
Business Days’ prior written notice of such sale or sales shall be reasonable
notice. In addition, the Debtor waives any and all rights that it may have to a
judicial hearing in advance of the enforcement of any of the Secured Party’s
rights and remedies hereunder, including, without limitation, its right
following an Event of Default to take immediate possession of the Collateral
and to exercise its rights and remedies with respect thereto.

8

 

16.     Standards for Exercising Rights and Remedies. To the extent that applicable
law imposes duties on the Secured Party to exercise remedies in a commercially
reasonable manner, the Debtor acknowledges and agrees that it is not
commercially unreasonable for the Secured Party (a) to fail to incur expenses
reasonably deemed significant by the Secured Party to prepare Collateral for
disposition or otherwise to fail to complete raw material or work in process
into finished goods or other finished products for disposition, (b) to fail to
obtain third party consents for access to Collateral to be disposed of, or to
obtain or, if not required by other law, to fail to obtain governmental or
third party consents for the collection or disposition of Collateral to be
collected or disposed of, (c) to fail to exercise collection remedies against
account debtors or other persons obligated on Collateral or to fail to remove
liens or encumbrances on or any adverse claims against Collateral, (d) to
exercise collection remedies against account debtors and other persons
obligated on Collateral directly or through the use of collection agencies and
other collection specialists, (e) to advertise dispositions of Collateral
through publications or media of general circulation, whether or not the
Collateral is of a specialized nature, (f) to contact other persons, whether or
not in the same business as the Debtor, for expressions of interest in
acquiring all or any portion of the Collateral, (g) to hire one or more
professional auctioneers to assist in the disposition of Collateral, whether or
not the collateral is of a specialized nature, (h) to dispose of Collateral by
utilizing Internet sites that provide for the auction of assets of the types
included in the Collateral or that have the reasonable capability of doing so,
or that match buyers and sellers of assets, (i) to dispose of assets in
wholesale rather than retail markets, (j) to disclaim disposition warranties,
(k) to purchase insurance or credit enhancements to insure the Secured Party
against risks of loss, collection or disposition of Collateral or to provide to
the Secured Party a guaranteed return from the collection or disposition of
Collateral, or (l) to the extent deemed appropriate by the Secured Party, to
obtain the services of other brokers, investment bankers, consultants and other
professionals to assist the Secured Party in the collection or disposition of
any of the Collateral. The Debtor acknowledges that the purpose of this Section
16 is to provide non-exhaustive indications of what actions or omissions by the
Secured Party would fulfill the Secured Party’s duties under the Uniform
Commercial Code or other law of the State or any other relevant jurisdiction in
the Secured Party’s exercise of remedies against the Collateral and that other
actions or omissions by the Secured Party shall not be deemed to fail to
fulfill such duties solely on account of not being indicated in this Section
16. Without limitation upon the foregoing, nothing contained in this Section 16
shall be construed to grant any rights to the Debtor or to impose any duties on
the Secured Party that would not have been granted or imposed by this Agreement
or by applicable law in the absence of this Section 16.

17.     No Waiver by Secured Party, etc. The Secured Party shall not be deemed to
have waived any of its rights or remedies in respect of the Obligations or the
Collateral unless such waiver shall be in writing and signed by the Secured
Party. No delay or omission on the part of the Secured Party in exercising any
right or remedy shall operate as a waiver of such right or remedy or any other
right or remedy. A waiver on any one occasion shall not be construed as a bar
to or waiver of any right or remedy on any future occasion. All rights and
remedies of the Secured Party with respect to the Obligations or the
Collateral, whether evidenced hereby or by any other instrument or papers,
shall be cumulative and may be exercised singularly, alternatively,
successively or concurrently at such time or at such times as the Secured Party
deems expedient.

18.     Suretyship Waivers by Debtor. The Debtor waives demand, notice, protest,
notice of acceptance of this Agreement, notice of loans made, credit extended,
Collateral received or delivered or other action taken in reliance hereon and
all other demands and notices of any description. With respect to both the
Obligations and the Collateral, the Debtor assents to any extension or
postponement of the time of payment or any other indulgence, to any
substitution, exchange or release of or failure to perfect any security
interest in any Collateral, to the addition or

9

 

release of any party or person primarily or secondarily liable, to the
acceptance of partial payment thereon and the settlement, compromising or
adjusting of any thereof, all in such manner and at such time or times as the
Secured Party may deem advisable. The Secured Party shall have no duty as to
the collection or protection of the Collateral or any income therefrom, the
preservation of rights against prior parties, or the preservation of any rights
pertaining thereto beyond the safe custody thereof as set forth in Section
11.2. The Debtor further waives any and all other suretyship defenses.

19.     Marshalling. The Secured Party shall not be required to marshal any present
or future collateral security (including but not limited to the Collateral)
for, or other assurances of payment of, the Obligations or any of them or to
resort to such collateral security or other assurances of payment in any
particular order, and all of its rights and remedies hereunder and in respect
of such collateral security and other assurances of payment shall be cumulative
and in addition to all other rights and remedies, however existing or arising.
To the extent that it lawfully may, the Debtor hereby agrees that it will not
invoke any law relating to the marshalling of collateral which might cause
delay in or impede the enforcement of the Secured Party’s rights and remedies
under this Agreement or under any other instrument creating or evidencing any
of the Obligations or under which any of the Obligations is outstanding or by
which any of the Obligations is secured or payment thereof is otherwise
assured, and, to the extent that it lawfully may, the Debtor hereby irrevocably
waives the benefits of all such laws.

20.     Proceeds of Dispositions; Expenses. The Debtor shall pay to the Secured
Party on demand any and all expenses, including reasonable attorneys’ fees and
disbursements, incurred or paid by the Secured Party in protecting, preserving
or enforcing the Secured Party’s rights and remedies under or in respect of any
of the Obligations or any of the Collateral. After deducting all of said
expenses, the residue of any proceeds of collection or sale or other
disposition of the Collateral shall, to the extent actually received in cash,
be applied to the payment of the Obligations in such order or preference as the
Secured Party may determine, proper allowance and provision being made for any
Obligations not then due. Upon the final payment and satisfaction in full of
all of the Obligations and after making any payments required by Sections
9-608(a)(1)(C) or 9-615(a)(3) of the Uniform Commercial Code of the State, any
excess shall be returned to the Debtor. In the absence of final payment and
satisfaction in full of all of the Obligations, the Debtor shall remain liable
for any deficiency.

21.     Overdue Amounts. Until paid, all amounts due and payable by the Debtor
hereunder shall be a debt secured by the Collateral and shall bear, whether
before or after judgment, interest at the default rate set forth in the Note.

22.     Governing Law; Consent to Jurisdiction. THIS AGREEMENT IS INTENDED TO TAKE
EFFECT AS A SEALED INSTRUMENT AND SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF OKLAHOMA. The parties agree that any
action or claim arising out of, or any dispute in connection with, this
Agreement, any rights, remedies, obligations, or duties hereunder, or the
performance or enforcement hereof or thereof, shall be brought exclusively in
the courts of the State or any federal court sitting in Tulsa County of the
State and that proper venue shall lie only in such courts. Each party hereby
consents to the exclusive jurisdiction of such courts and to service of process
in any such suit being made upon the Debtor by mail at the address specified in
Section 10.2 of the Credit Agreement. Each party hereby waives any objection
that it may now or hereafter have to the venue of any such suit or any such
court or that such suit is brought in an inconvenient court.

10

 

23.     Miscellaneous. The headings of each section of this Agreement are for
convenience only and shall not define or limit the provisions thereof. This
Agreement and all rights and obligations hereunder shall be binding upon the
Debtor and its respective successors and assigns, and shall inure to the
benefit of the Secured Party and its successors and assigns. If any term of
this Agreement shall be held to be invalid, illegal or unenforceable, the
validity of all other terms hereof shall in no way be affected thereby, and
this Agreement shall be construed and be enforceable as if such invalid,
illegal or unenforceable term had not been included herein. The Debtor
acknowledges receipt of a copy of this Agreement.

     IN WITNESS WHEREOF, intending to be legally bound, the Debtor has caused
this Agreement to be duly executed as of the date first above written.

	 	 	 
	 	 	
XETA TECHNOLOGIES, INC.
	 	 	 
	 	 	
By /s/ Robert B. Wagner

	 	 	
Name Robert B. Wagner
	 	 	
Title   CFO

STATE OF Oklahoma )

                                     ) ss.

COUNTY OF Tulsa    )

     Before me, the undersigned, a Notary Public in and for the county
aforesaid, on this 1st day of October, 2003, personally appeared Robert
Wagner to me known personally, and who, being by me duly sworn, deposes and
says that he is the CFO of XETA TECHNOLOGIES, INC., and that said
instrument was signed on behalf of said corporation by authority of its Board
of Directors, and said CFO acknowledged said instrument to be the free
act and deed of said corporation.

Notary Public LaTisha O’Neal

My commission expires: 05/04/07

Commission No.: 03005686

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SCHEDULE “6”

	1.	 	Debtor’s place of business or, if more than one, its chief executive
office:
	 
	 	 	1814 W. Tacoma

Broken Arrow, Oklahoma 74012
	 
	2.	 	Debtor’s mailing address (if different from above):
	 
	 	 	Same

12

 

SCHEDULE “8”

	1.	 	Debtor’s Commercial Tort Claims:
	 
	 	 	None

13

 

SCHEDULE “9”

	1.	 	Locations of Collateral:
	 
	 	 	Boulder

5350 Manhattan Circle, Suite 210

Boulder, Colorado
	 
	 	 	Fenton-Office

1749 Larkin Williams

Fenton, Missouri
	 
	 	 	Fenton-Warehouse

1111 Horan Drive, Suite 1 & J

Fenton, Missouri
	 
	 	 	Seattle-Office

3425 S. 116th Street, Suite 101

Tukwila, Washington
	 
	 	 	Seattle-KMI

10617 N.E. Second Street

Bellevue, Washington

14

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