Document:

exv10w7

 

Exhibit 10.7

REVOLVING CREDIT AND TERM LOAN AGREEMENT

     This Revolving Credit and Term Loan Agreement is dated as of October 1,
2003, between XETA TECHNOLOGIES, INC., an Oklahoma corporation (“Borrower”),
and BANK OF OKLAHOMA, N.A. (“Bank”).

RECITALS

     A.     Subject to the terms and conditions set forth below, Bank has agreed to
make the following loans to Borrower: (i) a three million three hundred
seventy-four thousand seven hundred thirty-four and 33/100 dollar term loan
($3,374,734.33) (“Term Loan”), (ii) a two million two hundred thirty-eight
thousand three hundred thirty-three and 48/100 dollar term loan ($2,238,333.48)
(“Real Estate Loan”), and (iii) a seven million five hundred thousand and
no/100 dollar revolving line of credit ($7,500,000) (“Revolving Line”).

     For valuable consideration received, it is agreed as follows:

     1.     DEFINED TERMS. As used in this Agreement, the following terms have the
following meanings (terms defined in the singular to have the same meaning when
used in the plural and vice versa).

		
	 	     1.1. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP consistent with
those applied in the preparation of the financial statements referred to
in Section 6.8. All financial data submitted pursuant to Section 6.8
shall be prepared in accordance with such principles. From time-to-time
or as requested by the Bank, the Borrower may provide the Bank with
financial or operating information about the Borrower which has been
prepared primarily for the Borrower’s internal use or in direct response
to a request from the Bank. Borrower will use its best efforts to ensure
that such information is prepared consistently with previous versions of
such information and is not misleading, but does not represent that such
information will be consistent with GAAP.

		
	 	     1.2. “Acquisition Term Deduction” means the amount to be deducted
from Borrower’s availability under the Borrowing Base to support the Term
Loan; provided, however, that, so long as no Event of Default exists at
the time of the request, the Acquisition Term Deduction may be
temporarily waived by Borrower, in Borrower’s sole discretion, for a
period not to exceed ninety (90) days during any fiscal year of the
Borrower, upon the written request of Borrower to Bank, to cover working
capital needs. The amount of the Acquisition Term Deduction is
$1,000,000 at inception of this Agreement and shall be reduced
dollar-for-dollar as the Term Loan is reduced through principal payments.

		
	 	     1.3. “Affiliate” means any Person: (i) which directly or indirectly
controls, or is controlled by, or is under common control with, Borrower;
(ii) which directly or indirectly beneficially owns or holds five percent
(5%) or more of any class of voting stock of either Borrower; or (iii)
five percent (5%) or more of the voting stock of which is directly or
indirectly beneficially owned or held by either Borrower. The term
“control” means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and

 

 

		
	 	policies of a Person,
whether through the ownership of voting securities, by contract, or
otherwise.
	 
	 	     1.4. “Agreement” means this Revolving Credit and Term Loan
Agreement, as amended, supplemented, or modified from time to time.

		
	 	     1.5. “Borrowing Base” means, at any date of determination
thereof, the sum of eighty percent (80%) of Borrower’s Qualified
Receivables at such date, plus forty percent (40%) of Borrower’s
Qualified Inventory at such date, minus the Acquisition Term Deduction,
as determined by Bank based upon the most recent information relating
thereto provided to Bank pursuant to Section 2.2.

		
	 	     1.6. “Borrowing Base Certificate” means each certificate from
Borrower to Bank relating to the Borrowing Base, substantially in the
form of Schedule “1.6” hereto.

		
	 	     1.7. “Borrowing Resolutions” means certified Resolutions from the
Secretary of Borrower, in form and content as set forth on Schedule “1.7”
attached hereto.

		
	 	     1.8. “Business Day” means any day other than a Saturday, Sunday, or
other day on which commercial banks in Oklahoma are authorized or
required to close under the laws of the State of Oklahoma.

		
	 	     1.9. “Capital Lease” means all leases which have been or should be
capitalized on the books of the lessee in accordance with GAAP.

		
	 	     1.10. “Cash Taxes” means taxes which are paid each year as required
by the Internal Revenue Service, as shown on the tax returns of Borrower.

		
	 	     1.11. “Certificates of Good Standing” means a Certificate of Good
Standing issued by the Secretary of State of incorporation for the
Borrower and each Guarantor and such other states in which Borrower and
each Guarantor does business and is required to domesticate or otherwise
register, indicating that Borrower and each Guarantor is in good standing
with the laws of such state(s).

		
	 	     1.12. “Code” means the Internal Revenue Code of 1986, as amended
from time to time, and the regulations and published interpretations
thereof.

		
	 	     1.13. “Collateral” means all property in which Bank is intended to
have a security interest, as described in Section 3.

		
	 	     1.14. “Commitment” means the Bank’s obligation to make loans to the
Borrower pursuant to this Agreement.

		
	 	     1.15. “Commitment Fee” means the amount payable by the Borrower to
the Bank from the date hereof to the Termination Date, computed at a rate
equal to one-quarter of one percent (.25%) per annum on the average daily
amount of the unused portion of the Revolving Line payable quarterly on
the 1st day of each January, April, July and October and on the
Termination Date or such earlier date as the Revolving Line shall
terminate as provided herein, commencing October 1, 2003.

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	 	     1.16. “Commonly Controlled Entity” means an entity, whether or not
incorporated, which is under common control with the Borrower within the
meaning of Section 414(b) or 414(c) of the Code.
	 
	 	     1.17. “Debt” means, including but not limited to: (i) indebtedness
or liability for borrowed money; (ii) obligations evidenced by bonds,
debentures, notes, or other similar instruments; (iii) obligations for
the deferred purchase price of property or services (including trade
obligations); (iv) obligations under letters of credit; (v) obligations
under acceptance facilities; (vi) all guaranties, endorsements (other
than for collection or deposit in the ordinary course of business), and
other contingent obligations to purchase, to provide funds for payment,
to supply funds to invest in any Person or entity, or otherwise to assure
a creditor against loss; and (vii) obligations secured by any Liens,
whether or not the obligations have been assumed.

		
	 	     1.18. “Debt Service Coverage Ratio” shall mean the ratio of (i)
EBITDA for the preceding four (4) consecutive fiscal quarters of
Borrower, to (ii) Borrower’s Debt Service Requirement for the same
period.

		
	 	     1.19. “Debt Service Requirement” shall mean, on any given date, the
sum of (i) interest expense (whether paid or accrued and including
interest attributable to Capital Leases) for the immediately preceding
four (4) consecutive quarters, (ii) scheduled principal payments on
borrowed money for (a) during the first year of the Loan, the immediately
following four (4) consecutive quarters, and (b) thereafter for the
immediately preceding four (4) consecutive quarters, and (iii) scheduled
capitalized lease expenditures for (a) during the first year of the Loan,
the immediately following four (4) consecutive quarters, and (b)
thereafter for the immediately preceding four (4) consecutive quarters,
all determined without duplication and in accordance with GAAP,
consistently applied. For purposes of computing the scheduled principal
payments on borrowed money, the entire principal balance of the Revolving
Line shall be excluded.

		
	 	     1.20. “EBITDA” shall mean net income plus (i) interest expense, (ii)
depreciation, depletion, obsolescence, amortization of property, and tax
amortization of goodwill (iii) capitalized lease expense, and (iv) tax
expense, all determined in accordance with generally accepted accounting
principles, consistently applied, and for a particular period.

		
	 	     1.21. ERISA” means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations and published
interpretations thereof.

		
	 	     1.22. “Funded Debt” means any obligations of the Borrower and its
Subsidiaries which are considered to constitute debt in accordance with
GAAP, including indebtedness for borrowed money, interest bearing
liabilities, subordinated debt, and indebtedness secured by
purchase-money security interests; but excluding accounts payable and
other short term non-interest bearing liabilities, future income taxes
(both current and long-term), obligations under covenants not to compete
and accrued liabilities.

		
	 	     1.23. “Funded Debt to EBITDA Ratio” means, on any date of
determination, the ratio of (i) Funded Debt on the last day of the most
recently completed fiscal quarter of the Borrower to (ii) EBITDA for the
period of four (4) consecutive fiscal quarters most recently ended on or
prior to such date.

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	 	     1.24. “GAAP” means generally accepted accounting principles in the
United States, applied on a consistent basis.
	 
	 	     1.25. “Initial Default” means any of the events specified in Section
9, whether or not any requirement for the giving of notice, the lapse of
time, or both, or any other condition has been satisfied.

		
	 	     1.26. “Letter of Credit” means any letter of credit issued pursuant
to Sections 2.2 and 2.3, for which, when issued, a Letter of Credit Fee
should be paid.

		
	 	     1.27. “Letter of Credit Fee” means a fee of one and seventy-five
hundredths percent (1.75%) per annum on the face amount of any Letter of
Credit issued or renewed after the date hereof.

		
	 	     1.28. “Lien” means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), or
preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of
the foregoing, and the filing of any financing statement under the
Uniform Commercial Code or comparable law of any jurisdiction in respect
of any of the foregoing.)

		
	 	     1.29. “Loan” means advances under the Revolving Line, the Term Loan,
or the Real Estate Loan.

		
	 	     1.30. “Loan Documents” means this Agreement, the Notes, the Security
Agreement, the Mortgage, the UCC-1 Financing Statement and all other
instruments, documents or agreements required under this Agreement.

		
	 	     1.31. “Matured Default” means any of the events specified in Section
9, provided that any requirement for the giving of notice, the lapse of
time, or both, or any other condition has been satisfied.

		
	 	     1.32. “Mortgage” means a first and prior real estate Mortgage,
Assignment of Rents and Leases, Security Agreement and Financing
Statement in favor of Bank on the Mortgaged Property, in form and content
substantially as set forth on Schedule “1.32” hereto.

		
	 	     1.33. “Mortgaged Property” means the property set forth on Schedule
“1.33” hereto.

		
	 	     1.34. “Mortgage Related Documents” means, with regard to the
Mortgaged Property:

		
	 	     (i) the Title Insurance Binder prior to closing, and Title
Insurance Policy within twenty (20) days of the Closing to Bank,
evidencing only those exceptions acceptable to Bank;

		
	 	     (ii) an appraisal on the Mortgaged Property, in form and
content satisfactory to Bank, evidencing an aggregate minimum value
reasonably acceptable to Bank;

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	 	     (iii) if required by Bank, a Phase I Environmental Audit from
an auditor and in form and content acceptable to Bank; and

		
	 	     (iv) evidence that flood insurance is not required of Bank.

		
	 	     1.35. “Multiemployer Plan” means a Plan described in Section
4001(a)(3) of ERISA.

		
	 	     1.36. “Notes” means, separately and collectively, the Term Note, the
Real Estate Note, and the Revolving Line Note.

		
	 	     1.37. “Obligations” means the Obligations defined in Section 3.

		
	 	     1.38. “Opinion of Borrower’s Counsel” means a legal opinion from
Borrower’s legal counsel including, without limitation, the opinions
relating to Borrower and this loan transaction as set forth on Schedule
“1.38” attached hereto.

		
	 	     1.39. “PBGC” means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.

		
	 	     1.40. “Permitted Liens” means, as to Borrower and all Subsidiaries:

		
	 	     (1) Liens in favor of the Bank;

		
	 	     (2) Liens for taxes or assessments or other government charges
or levies if not yet due and payable or, if due and payable or, if
they are being contested in good faith by appropriate proceedings
and for which appropriate reserves are maintained;

		
	 	     (3) Liens imposed by law, such as mechanics’, materialmen’s,
landlords’, warehousemen’s, and carriers’ liens, and other similar
Liens, securing obligations incurred in the ordinary course of
business which are not past due for more than thirty (30) days or
which are being contested in good faith by appropriate proceedings
and for which appropriate reserves have been established;

		
	 	     (4) Liens under workers’ compensation, unemployment insurance,
Social Security, or similar legislation;

		
	 	     (5) Liens, deposits, or pledges to secure the performance of
bids, tenders, contracts (other than contracts for the payment of
money), leases (permitted under the terms of this Agreement),
public or statutory obligations, surety, stay, appeal, indemnity,
performance or other similar bonds, or other similar obligations
arising in the ordinary course of business;

		
	 	     (6) The liens described on Schedule “1.40(6)”;

		
	 	     (7) Judgment and other similar liens arising in connection
with court proceedings, provided the execution or other enforcement
of such Liens is effectively bonded, stayed and the claims secured
thereby are being actively contested in good faith and by
appropriate proceedings;

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	 	     (8) Easements, rights-of-way, restrictions, and other similar
encumbrances which, in the aggregate, do not materially interfere
with the occupation, use and enjoyment by the Borrower of the
property or assets encumbered thereby in the normal course of its
business or materially impair the value of the property subject
thereto; and
	 
	 	     (9) Purchase-money liens on any property hereafter acquired or
the assumption of any lien on property existing at the time of such
acquisition (and not created in contemplation of such acquisition),
or a lien incurred in connection with any conditional sale or other
title retention agreement or a Capital Lease; provided that:

		
	 	     (a) Any property subject to any of the foregoing is
acquired by the Borrower or any subsidiary in the ordinary
course of its business; and

		
	 	     (b) Each such lien shall attach only to the property so
acquired and fixed improvements thereon.

		
	 	     1.41. “Person” means an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association,
joint venture, governmental authority, or other entity of whatever
nature.

		
	 	     1.42. “Plan” means any pension plan which is covered by Title IV of
ERISA and in respect of which the Borrower or a Commonly Controlled
Entity is an “employer” as defined in Section 3(5) of ERISA.

		
	 	     1.43. “Principal Office” means the Bank’s main office located at
Seven East Second Street, BOk Tower-8th Floor, Tulsa, Oklahoma 74102.

		
	 	     1.44. “Prohibited Transaction” means any transaction set forth in
Section 406 of ERISA or Section 4975 of the Code.

		
	 	     1.45. “Qualified Inventory” means the amount of inventory of
Borrower located in the United States of America or Canada that is not
subject to any Lien or adverse claim and that conforms to the
representations and warranties contained in this Agreement and that is
acceptable to the Bank in its sole discretion, less any packaging
materials and supplies, damaged or unsalvageable goods returned or
rejected by its customers, goods to be returned to its suppliers, goods
in transit to third parties (other than its agent or warehouses) and
goods out at contractors, and less any reserves required by the Bank in
its sole discretion for special order goods, market value declines and
bill and hold (deferred shipment) sales. Qualified Inventory includes
spare parts owned by the Borrower for use in supporting its customers.

		
	 	     1.46. “Qualified Receivables” means and includes only accounts
receivable of Borrower which meet the following specifications at the
time they came into existence and continue to meet the same until
collected in full.

		
	 	     1.46.1. The account is due and payable. No account shall be
outstanding for more than ninety (90) days from the date of the
applicable invoice.

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	 	     1.46.2. The account arose from a bona fide outright sale of
goods previously made or from the performance of services, but not
from leasing, and the applicable Borrower has possession of or has
delivered to Bank shipping and delivery receipts evidencing
shipment of the goods or, if representing services, the services
have been fully performed for the respective account debtor.
	 
	 	     1.46.3. The account is not subject to any assignment, claim,
lien or security interest of any character or subject to any
attachment, levy, garnishment or other judicial process, except the
security interest of Bank.

		
	 	     1.46.4. The account is not subject to any claim for credit,
setoff, allowance, adjustment by the account debtor or
counterclaim, and no Borrower has received any notice of any such
claim for credit, setoff, allowance, adjustment or counterclaim
from or on behalf of the account debtor.

		
	 	     1.46.5. The account arose in the ordinary course of each
Borrower’s business and no notice of the bankruptcy, insolvency or
adverse change in the financial condition of the account debtor has
been received by any Borrower or Bank.

		
	 	     1.46.6. Bank has not previously notified any Borrower that the
account or the account debtor is or has become unsatisfactory,
based upon reasonable credit standards, or the account debtor has
been adjudicated bankrupt or is subject to a similar proceeding.

		
	 	     1.46.7. The account is not evidenced by a judgment, an
instrument or chattel paper.

		
	 	     1.46.8. The account debtor is not a governmental entity except
that up to $1,000,000 of the total Qualified Receivables may be
from governmental entities.

		
	 	     1.46.9. The account debtor is not a foreign (i.e., residing or
incorporated in or organized under a jurisdiction outside the
United States) person or company and is not a parent, subsidiary,
officer, employee, director, agent or Affiliate of Borrower, and
the account debtor and Borrower do not have common shareholders,
officers or directors; provided that Bank specifically excludes any
Bank Approved Account Debtor (defined below) from this subsection.

		
	 	     1.46.10. All receivables of one account debtor shall become
ineligible if more than 10% of such receivables are over ninety
(90) days past due from the invoice.

		
	 	     1.46.11. The account debtor (excluding any Bank Approved
Account Debtor) cannot exceed 25% of the total accounts receivable,
and any amounts over 25% will be excluded from the Borrowing Base
unless specifically waived in writing in each instance by Bank in
its sole discretion.

		
	 	     1.46.12. With regard only to Sections 1.46.10 and 1.46.11, the
term “Bank Approved Account Debtor” means an express written
designation given by Bank in its discretion as to an account debtor
on a semi-annual basis, effective January and

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	 	July of each calendar
year. Borrower shall submit a proposed list of account debtors to
Bank at least ten (10) days prior to the semi-annual designation
date, which list must be accompanied by such information relating
to the proposed account debtor as Bank may reasonably require.
Bank shall advise Borrower on or before the applicable semi-annual
effective date whether any or all of the proposed account debtors
has been designated as a Bank Approved Account Debtor. Any such
designation shall be effective only for the ensuing six (6) month
period, and any designation by Bank shall have no relevance with
regard to subsequent designations.
The initially approved Bank Approved Account Debtors are Host
Marriott Corporation, Marriott International, Hilton Hotels
Corporation, Avaya Financial Leasing, Time Warner, Texas Cable
Partners, and Union Electric Company (Ameren).

		
	 	     1.46.13. Qualified Receivables also include accrued accounts
receivable that represent the Borrower’s legally billable, but not
yet billed materials which have been shipped to its customer(s).

		
	 	     1.47. “Real Estate Note” shall mean the $2,238,333.48 Promissory
Note in form and content as set forth on Schedule “1.47” attached hereto.

		
	 	     1.48. “Reportable Event” means any of the events set forth in
Section 4043 of ERISA.

		
	 	     1.49. Revolving Line Note” shall mean the $7,500,000 Promissory Note
in form and content as set forth on Schedule “1.49” attached hereto.

		
	 	     1.50. “Security Agreement” means the Security Agreement and other
Collateral documents described in Section 3.

		
	 	     1.51. “Subsidiaries” means, separately and collectively, any
corporation of which shares of stock having ordinary voting power (other
than stock having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other
managers of such corporation are at the time owned, or the management of
which is otherwise controlled, directly or indirectly through one or more
intermediaries, or both, by the Borrower.

		
	 	     1.52. “Tangible Net Worth” means, without duplication, as at any
time of determination thereof, net worth less (a) all intangible items,
including without limitation, goodwill, licenses, organizational expense,
unamortized debt discount and expense carried as an asset, all reserves
and any write-up in the book value of assets, and (b) all reserves for
depreciation and other asset valuation reserves (but excluding reserves
for federal, state, and other income taxes), net of accumulated
amortization.

		
	 	     1.53. “Termination Date” means December 31, 2004.

		
	 	     1.54. “Term Note” shall mean the $3,374,734.33 Promissory Note in
form and content as set forth on Schedule “1.53” attached hereto.

		
	 	     1.55. “Title Insurance Binder” means an original mortgagee’s title
guaranty binder or commitment in favor of Bank issued by a title insurer
and agent satisfactory to Bank,

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	 	committing to issue an ALTA mortgagee’s
title guaranty policy insuring the Mortgage to be a first and prior lien
on the Mortgaged Property and improvements, containing only such
exceptions which are acceptable to Bank.

		
	 	     1.56. “Title Insurance Policy” means an original fully paid ALTA
mortgage title insurance policy issued pursuant to the Title Insurance
Binder in an amount acceptable to Bank and insuring the Mortgage to be a
first and prior lien on Borrower’s fee simple ownership interests (or
leasehold, as applicable) in the Mortgaged Property and improvements,
with no exceptions from coverage as to mechanics’ and materialmen’s
liens,
matters shown by a current survey, right of parties in possession,
or such other exceptions as Bank shall approve.

		
	 	     1.57. “UCC” shall mean the Uniform Commercial Code of the State of
Oklahoma.

		
	 	     1.58. “UCC-1 Chattel Check” means a UCC Information and/or Copy
Request as to Borrower from the Chattel Records Division of the Oklahoma
County Clerk, and from any other office deemed necessary or advisable by
Bank, which chattel checks must evidence no conflicting security
interests, except the Permitted Liens.

		
	 	     1.59. “UCC-1 Financing Statement” means a financing statement in
form and content substantially as set forth on Schedule “1.59” attached
hereto, which will be filed with the appropriate office and shall
evidence perfection of a first and prior security interest in the
collateral described in the Security Agreements in favor of Bank, except
for the Permitted Liens.

     2.     AMOUNT AND TERMS OF THE LOANS.

		
	 	     2.1. Term Loan. Subject to the terms and conditions of this
Agreement, the Bank agrees to loan Borrower $3,374,734.33, to be further
evidenced by the Term Note. The purpose of the advance under the Term
Note is to enable Borrower to refinance Borrower’s debt with Bank One.

		
	 	     2.2. Real Estate Loan. Subject to the terms and conditions of this
Agreement, the Bank agrees to loan Borrower $2,238,333.48, to be further
evidenced by the Real Estate Note. The purpose of the advance under the
Real Estate Note is to enable Borrower to refinance Borrower’s debt with
Bank One.

		
	 	     2.3. Revolving Line. Subject to the terms and conditions of this
Agreement, and so long as no Initial Default or Matured Default has
occurred, Bank agrees to loan to Borrower (by advancing funds or issuing
Letters of Credit in amounts not to exceed $7,500,000 in the aggregate),
such amounts up to $7,500,000 as Borrower may request from time to time
on or before the maturity of the Revolving Line Note, provided that the
aggregate principal amount of advances at any time outstanding shall not
exceed the lesser of (i) $7,500,000 or (ii) the Borrowing Base. Such
Borrowing Base shall be computed on a monthly basis, and Borrower agrees
to provide Bank on the 10th day of each month with regard to the
immediately preceding month all information requested in connection
therewith, including without limitation a Borrowing Base Certificate. In
the event Bank shall make advances in excess of the formula set forth
above, any such advance shall, nevertheless, be secured by all
Collateral. In the event outstanding advances with respect to Qualified
Receivables or Qualified Inventory fail to comply with such formula, by
reason of any

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	 	accounts receivable or inventory ceasing to be so
qualified, for whatever reason, then Borrower shall immediately notify
Bank of such situation and shall, within five (5) Business Days of the
imbalance, either (i) reduce the amount of the outstanding balances to
bring such amounts within the formulas prescribed, or (ii) provide
additional Qualified Receivable or Qualified Inventory, without any
additional advance being made by Bank with respect thereto, necessary to
comply with the formulas required herein. Within the limits set forth in
this Section 2.2, Borrower may borrow, repay and reborrow at any one time
and from time to time.
	 
	 	     2.4. Notice and Manner of Borrowing. The Borrower shall give the
Bank at least one (1) Business Day’s notice of any Loans under this
Agreement, specifying the date and amount thereof. Such notice shall be
in writing or via telephone (with voice verification by the appropriate
officer), no later than 10:00 a.m. (Tulsa time) on the date of such Loan
and upon fulfillment of the applicable conditions, the Bank will make
such Loan available to the Borrower in immediately available funds by
crediting the amount thereof to the following account with the Bank:
Account styled Xeta Corporation, No. 209909011.

     3.     SECURITY. As security for any and all indebtedness, obligations or
liabilities of every kind and description of Borrower to Bank, including,
without limitation, all advances and Loans evidenced by the Notes, and any
other advances or loans made pursuant to this Agreement or any other
instrument, document, agreement executed and/or delivered by Borrower to Bank
in connection herewith, including any extensions, renewals or changes in form
of any of the Notes, and any other obligations or liabilities now existing or
hereafter arising, direct or indirect, absolute or contingent, joint and/or
several, howsoever created or obtained (separately and collectively, the
“Obligations”), Borrower grants to Bank the following liens and security
interests and also agrees as follows:

		
	 	     3.1. A first and prior security interest in all assets of Borrower
including, without limitation, accounts, inventory, equipment, software,
general intangibles and chattel paper of Borrower, whether now owned or
hereafter acquired, howsoever arising or wheresoever located, all as
evidenced by the Security Agreement set forth on Schedule “3.1” attached
hereto.

		
	 	     3.2. A first and prior mortgage lien against the Mortgaged Property,
as evidenced by the Mortgage.

		
	 	     3.3. All proceeds and products of the foregoing.

		
	 	     3.4. Borrower also agrees to execute and deliver all financing
statements or other instruments, documents or agreements required by Bank
in order to effectuate the intent of the parties in connection herewith,
including without limitation documents necessary for proper perfection as
deemed necessary and/or advisable by Bank and legal counsel.

     4.     CONDITIONS PRECEDENT.

		
	 	     4.1. Closing. The commitment of Bank to advance funds under the
Notes shall be conditioned upon the following being satisfied:

		
	 	     4.1.1. Borrower shall execute and /or deliver to Bank the following:

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	 	     4.1.1.1. This Agreement;

		
	 	     4.1.1.2. Revolving Line Note;

		
	 	     4.1.1.3. Term Note;

		
	 	     4.1.1.4. Real Estate Note;

		
	 	     4.1.1.5. Mortgage;

		
	 	     4.1.1.6. Security Agreement;

		
	 	     4.1.1.7. Financing Statement;

		
	 	     4.1.1.8. Opinion of Borrower’s Counsel;

		
	 	     4.1.1.9. Borrowing Resolutions;

		
	 	     4.1.1.10. Certificates of Good Standing;

		
	 	     4.1.1.11. Chattel Check;

		
	 	     4.1.1.12. Mortgage Related Documents;

		
	 	     4.1.1.13. All schedules to this Agreement;

		
	 	     4.1.1.14. Any other instruments, documents or agreements
reasonably requested by Bank in connection herewith.

		
	 	     4.1.2. The following statements shall be true and correct.

		
	 	     A. The representations and warranties contained in this
Agreement and the other Loan Documents shall be true and
correct; and

		
	 	     B. No Initial Default or Matured Default has occurred and is
continuing or will occur as a result of the execution,
delivery and/or performance by Borrower under any of the Loan
Documents.

		
	 	     4.1.3. The Bank shall have received such other approvals,
opinions, instruments, documents and/or agreements which it may
reasonably request.

     5.     REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants
to the Bank that:

		
	 	     5.1. Incorporation, Good Standing, and Due Qualification. Borrower
is a corporation duly incorporated, validly existing, and in good
standing under the laws of the State in which it is incorporated; has the
corporate power and authority to own its assets and to transact the
business in which it is now engaged or proposed to be engaged; and is
duly qualified as a foreign corporation and in good standing under the
laws of each other jurisdiction in which such qualification is required.

11

 

		
	 	     5.2. Corporate Power and Authority. The execution, delivery, and
performance by Borrower of the Loan Documents have been duly authorized
by all necessary corporate action and do not and will not (1) require any
consent or approval of the stockholders which has not been given; (2)
contravene Borrower’s charter or bylaws; (3) violate any provision of any
law, rule, regulation (including, without limitation, Regulations U and X
of the Board of Governors of the Federal Reserve System), order, writ,
judgment, injunction, decree, determination, or award presently in effect
having applicability to Borrower; (4) result in a breach of or constitute
a default under any indenture or loan or credit agreement or any other
agreement, lease, or instrument to which Borrower is a party or by which
it or its properties may be bound or affected; (5) result in, or require,
the creation or imposition of any lien, upon
or with respect to any of the properties now owned or hereafter
acquired by Borrower; or (6) cause Borrower to be in default under any
such law, rule, regulation, order, writ, judgment, injunction, decree,
determination, or award or any such indenture, agreement, lease, or
instrument.

		
	 	     5.3. Legally Enforceable Agreement. This Agreement is, and each of
the other Loan documents when delivered under this Agreement will be,
legal, valid, and binding obligations of Borrower, enforceable against
Borrower in accordance with their respective terms, except to the extent
that such enforcement may be limited by applicable bankruptcy,
insolvency, and other similar laws affecting creditors’ rights generally.

		
	 	     5.4. Financial Statements. The balance sheet of Borrower as of July
31, 2003, the related statements of income and retained earnings of
Borrower for the nine (9) months then ended, are complete and correct and
fairly present the financial condition of Borrower at such dates and the
results of the operations of Borrower for the periods covered by such
statements, all in accordance with GAAP consistently applied (subject to
year-end adjustments in the case of the interim financial statements),
and since July 31, 2003, there has been no material adverse change in the
condition (financial or otherwise), business or operations of Borrower.
There are no liabilities of Borrower, fixed or contingent, which are
material but not reflected in such financial statements or in the notes
thereto, other than liabilities arising in the ordinary course of
business since July 31, 2003. No information, exhibit, or report
furnished by the Borrower to the Bank in connection with the negotiation
of this Agreement contains any material misstatement of fact or omits to
state a material fact or any fact necessary to make the statement
contained therein not materially misleading.

		
	 	     5.5. Labor Disputes and Acts of God. Neither the business nor the
properties of Borrower is affected by any fire, explosion, accident,
strike, lockout or other labor dispute, drought, storm, hail, earthquake,
embargo, act of God or other casualty (whether or not covered by
insurance), materially adversely affecting such business or the operation
of Borrower.

		
	 	     5.6. Other Agreements. Borrower is not a party to any indenture,
loan, or credit agreement, or to any lease or other agreement or
instrument, or subject to any charter or corporate restriction, which
could have a material adverse effect on the business, properties, assets,
operations, or condition, financial or otherwise, of Borrower or the
ability of Borrower to carry out its obligations under the Loan
Documents. Borrower is not in material default in any respect in the
performance, observance, or fulfillment of any of the obligations,
covenants, or conditions contained in any agreement or instrument
material to its business to which it is a party.

12

 

		
	 	     5.7. Litigation. There is no pending or threatened action or
proceeding against or affecting Borrower before any court, governmental
agency or arbitrator, which may, in any one case or in the aggregate,
materially adversely affect the financial condition, operations,
properties, or business of Borrower or the ability of Borrower to perform
its obligations under the Loan Documents. Any litigation which does
exist is set forth in detail satisfactory to Bank on Schedule “5.7”
hereto, but Borrower represents to Bank that such litigation does not
violate this Section 5.7.

		
	 	     5.8. Ownership and Liens. Borrower has title to, or valid leasehold
interests in, all of its properties and assets, real and personal,
including the properties and assets and leasehold interest reflected in
the financial statements referred to in Section 5.4, and none of
the properties and assets owned by Borrower, and none of its
leasehold interests, are subject to any lien, except the Permitted Liens.

		
	 	     5.9. ERISA. Borrower is in compliance in all material respects with
all applicable provisions of ERISA. Neither a Reportable Event nor a
Prohibited Transaction has occurred and is continuing with respect to any
Plan; no notice of intent to terminate a Plan has been filed, nor has any
Plan been terminated; no circumstances exist which constitute grounds
entitling the PBGC to institute proceedings to terminate, or appoint a
trustee to administer, a Plan, nor has the PBGC instituted any such
proceedings; neither Borrower nor any Commonly Controlled Entity has
completely or partially withdrawn from a Multiemployer Plan; Borrower and
each Commonly Controlled Entity have met their minimum funding
requirements under ERISA with respect to all of their Plans and the
present value of all vested benefits under each Plan exceeds the fair
market value of all Plan assets allocable to such benefits, as determined
on the most recent valuation date of the Plan and in accordance with the
provisions of ERISA; and neither Borrower nor any Commonly Controlled
Entity has incurred any liability to the PBGC under ERISA.

		
	 	     5.10. Operation of Business. To the best of its knowledge, Borrower
possesses all licenses, permits, franchises, patents, copyrights,
trademarks, and trade names, or rights thereto, to conduct its business
substantially as now conducted and as presently proposed to be conducted,
and Borrower is not in violation of any valid rights of others with
respect to any of the foregoing.

		
	 	     5.11. Taxes. Borrower has filed all tax returns (federal, state and
local) required to be filed and have paid all taxes, assessments, and
governmental charges and levies thereon to be due, including interest and
penalties.

		
	 	     5.12. Debt. Schedule “5.12” is a complete and correct list of all
credit agreements, indentures, purchase agreements, guaranties, Capital
Leases, and other investments, agreements, and arrangements presently in
effect providing for or relating to extensions of credit (including
agreements and arrangements for the issuance of letters of credit or for
acceptance financing) in respect of which Borrower is in any manner
directly or contingently obligated; and the maximum principal or face
amounts of the debt in question, which are outstanding and which can be
outstanding, are correctly stated, and all liens of any nature given or
agreed to be given as security therefor are correctly described or
indicated in such Schedule. With regard to any guaranty or other
contingent obligation of Borrower, Borrower shall promptly notify Bank in
the event any such obligation becomes non-contingent.

13

 

		
	 	     5.13. Environment. Borrower has duly complied with, and its
business, operations, assets, equipment, property, leaseholds, or other
facilities are in compliance with, the provisions of all federal, state,
and local environmental, health and safety laws, codes and ordinances,
and all rules and regulations promulgated thereunder. Borrower has been
issued and will maintain all required federal, state, and local permits,
licenses, certificates and approvals relating to (1) air emissions; (2)
discharges to surface or groundwater; (3) noise emissions; (4) solid or
liquid waste disposal; (5) the use, generation, storage, transportation
or disposal or toxic or hazardous substances or wastes (intended hereby
and hereafter to include any and all such materials listed in any
federal, state, or local law, code or ordinance, and all rules and
regulations promulgated thereunder as hazardous or potentially
hazardous); or (6) other environmental, health or safety matters.
Borrower has not received notice of, nor to its best knowledge knows of
or suspects, facts which might constitute any violations of any federal,
state or local environmental, health, or safety laws,
codes or ordinances, and any rules or regulations promulgated
thereunder with respect to its business, operations, assets, equipment,
property, leaseholds, or other facilities. To Borrower’s best knowledge,
there has been no emission, spill, release, or discharge into or upon (1)
the air; (2) soils, or any improvements located thereon; (3) surface
water or groundwater; or (4) the sewer, septic system or waste treatment,
storage or disposal system servicing the premises, of any toxic or
hazardous substances or wastes at or from the premises; and accordingly
the premises of the Borrower is free of all such toxic or hazardous
substances or wastes. Except as disclosed in writing to Bank, there has
been no complaint, order, directive, claim, citation, or notice by any
governmental authority or any person or entity with respect to (1) air
emissions; (2) spills, releases, or discharges to soils or improvements
located thereon, surface water, groundwater or the sewer, septic system
or waste treatment, storage or disposal systems servicing the premises;
(3) noise emissions; (4) solid or liquid waste disposal; (5) the use,
generation, storage, transportation, or disposal of toxic or hazardous
substances or waste; or (6) other environmental, health, or safety
matters affecting Borrower or its business, operations, assets,
equipment, property, leaseholds, or other facilities. Borrower has no
indebtedness, obligation, or liability, absolute or contingent, matured
or not matured, with respect to the storage, treatment, cleanup or
disposal of any solid wastes, hazardous wastes or other toxic or
hazardous substances (including without limitation any such indebtedness,
obligation, or liability with respect to any current regulation, law, or
statute regarding such storage, treatment, cleanup or disposal).

     6.     AFFIRMATIVE COVENANTS. So long as any Note shall remain unpaid or the
Bank shall have any Commitment under this Agreement, Borrower will comply with
the following:

		
	 	     6.1. Maintenance of Existence. Preserve and maintain its corporate
existence and good standing in the states in which it does business, and
qualify and remain qualified as a foreign corporation in each
jurisdiction in which such qualification is required.

		
	 	     6.2. Maintenance of Records. Keep adequate records and books of
account, in which complete entries will be made in accordance with GAAP
consistently applied, reflecting all financial transactions.

		
	 	     6.3. Maintenance of Properties. Maintain, keep, and preserve all of
its properties (tangible and intangible) necessary or useful in the
proper conduct of its business in good working order and condition,
ordinary wear and tear excepted.

14

 

		
	 	     6.4. Conduct of Business. Continue to engage in an efficient and
economical manner in a business of the same general type as conducted by
it on the date of this Agreement.

		
	 	     6.5. Maintenance of Insurance. Borrower will keep or cause to be
kept adequately insured by financially sound and reputable insurers its
plant, equipment, motor vehicles, and all other property of a character
usually insured by businesses engaged in the same or similar businesses.
Upon demand by the Bank, any insurance policies covering the Collateral
shall be endorsed to provide for payment of losses to the Bank as its
interest may appear, to provide that such policies may not be canceled,
reduced or affected in any manner for any reason without thirty days
prior notice to the Bank, and to provide for any other matters which the
Bank may reasonably require; and such insurance shall be against fire,
casualty and any other hazards normally insured against and shall be in
the amount of the full value (less a reasonable deductible not to exceed
amounts customary in the industry
for similarly situated businesses and properties) of the property
insured. The Borrower shall at all times maintain adequate insurance
against damage to persons or property, which insurance shall be by
financially sound and reputable insurers and shall, without limitation,
provide the following coverages: comprehensive general liability
(including, without limitation, coverage, where applicable, damage caused
by explosion, broad form property damage coverage, broad form coverage
for contractually independent contractors), worker’s compensation,
products liability and automobile liability.

		
	 	     6.6. Compliance with Laws. Comply in all material respects with all
applicable laws, rules, regulations, and orders, such compliance to
include, without limitation, paying before the same become delinquent all
taxes, assessments, and governmental charges imposed upon it or upon its
property.

		
	 	     6.7. Right of Inspection. At any reasonable time and from time to
time, and following reasonable prior written notice, permit the Bank or
any agent or representative thereof, to reasonably examine and make
copies of and abstracts from the records and books of account of, and
visit the properties of, Borrower, and to discuss the affairs, finances,
and accounts of Borrower with any of its officers and directors and
Borrower’s independent accountants. Bank contemplates conducting at
least semi-annual field audits of the Borrower’s property. Such
inspections and field audits shall be conducted at the Bank’s expense.

		
	 	     6.8. Reporting Requirements. Furnish to Bank:

		
	 	     6.8.1. Quarterly Financial Statements. As soon as available
and in any event within forty-five (45) days after the end of each
fiscal quarter of Borrower, Borrower shall deliver to Bank a copy
of its Form 10Q that has been or will be filed with the Securities
and Exchange Commission.

		
	 	     6.8.2. Annual Financial Statements. As soon as available and
in any event within ninety (90) days after the end of each fiscal
year of Borrower, commencing with the fiscal year ending October
31, 2003, a copy of its Form 10K that has been or will be filed
with the Securities and Exchange Commission. Such filing shall
include an unqualified opinion on the Borrower’s financial
statements acceptable to the Bank by independent accountants
selected by Borrower and acceptable to the Bank;

15

 

		
	 	     6.8.3. Management Letters. Promptly upon receipt thereof,
copies of any reports submitted to Borrower by independent
certified public accountants in connection with examination of the
financial statements of Borrower made by such accountants;

		
	 	     6.8.4. Certificate of No Default. Within twenty (20) days
after the end of each of the quarters of each fiscal year of
Borrower a certificate of the chief financial officer of Borrower
(a) certifying that to the best of his knowledge no Initial Default
or Matured Default has occurred and is continuing, or if an Initial
Default or Matured Default has occurred and is continuing, a
statement as to the nature thereof and the action which is proposed
to be taken with respect thereto, and (b) with computations
demonstrating compliance with the covenants contained in Section
8.;

		
	 	     6.8.5. Notice of Litigation. Promptly after the commencement
thereof, notice of all actions, suits, and proceedings before any
court or governmental department,
commission, board, bureau, agency, or instrumentality,
domestic or foreign, affecting Borrower, which, if determined
adversely to Borrower, could have a material adverse effect on the
financial condition, properties, or operations of Borrower;

		
	 	     6.8.6. Notice of Initial Defaults and Matured Defaults. As
soon as possible and in any event within five (5) days after the
occurrence of each Initial Default or Matured Default, a written
notice setting forth the details of such Initial Default or Matured
Default and the action which is proposed to be taken by the
Borrower with respect thereto;

		
	 	     6.8.7. ERISA Reports. As soon as possible, and in any event
within thirty (30) days after Borrower knows or has reason to know
that any circumstances exist that constitute grounds entitling the
PBGC to institute proceedings to terminate a Plan subject to ERISA
with respect to Borrower or any commonly controlled Entity, and
promptly but in any event within two (2) Business Days of receipt
by the Borrower or any Commonly Controlled Entity of notice that
the PBGC intends to terminate a Plan or appoint a trustee to
administer the same, and promptly but in any event within five (5)
Business Days of the receipt of notice concerning the imposition of
withdrawal liability with respect to Borrower or any Commonly
Controlled Entity, the Borrower will deliver to the Bank a
certificate of the chief financial officer of the Borrower setting
forth all relevant details and the action which the Borrower
proposes to take with respect thereto;

		
	 	     6.8.8. Reports to Other Creditors. Promptly after the
furnishing thereof, copies of any statement or report furnished to
any other party pursuant to the terms of any indenture, loan,
credit, or similar agreement and not otherwise required to be
furnished to the Bank pursuant to any other clause of this Section
6.;

		
	 	     6.8.9. Proxy Statements, etc. Promptly after the sending or
filing thereof, copies of all proxy statements, financial
statements, and reports which each Borrower sends to its
stockholders, and copies of all regular, periodic, and special
reports, and all registration statements which Borrower files with
the Securities and Exchange Commission or any governmental
authority which may be substituted therefor, or with any national
securities exchange; and

16

 

		
	 	     6.8.10. General Information. Such other information
respecting the condition or operations, financial or otherwise, of
Borrower as the Bank may from time to time reasonably request.

		
	 	     6.9. Environment. Be and remain in material compliance with the
provisions of all federal, state, and local environmental, health and
safety laws, codes and ordinances, and all rules and regulations issued
thereunder; notify the Bank immediately of any notice of a hazardous
discharge or environmental complaint received from any governmental
agency or any other party; notify the Bank immediately of any hazardous
discharge from or affecting its premises; promptly contain and remove the
same, in compliance with all applicable laws; promptly pay any fine or
penalty assessed in connection therewith; permit the Bank to inspect the
premises, to conduct tests thereon, and to inspect all books,
correspondence, and records pertaining thereto; and at the Bank’s
request, and at Borrower’s expense, provide a report of a qualified
environmental engineer, satisfactory in scope, form, and content to the
Bank, and such other and further assurances reasonably satisfactory to
the Bank that the condition has been corrected.
	 
	 	     6.10. Operating Accounts. Maintain its primary operating accounts
at Bank.

		
	 	     6.11. Guarantee of Subsidiaries. Cause any future Subsidiaries of
Borrower to guarantee the Loan, and to execute any and all documentation
required by Bank to evidence same.

     7.     NEGATIVE COVENANTS. So long as any Notes shall remain unpaid or the
Bank shall have any Commitment under this Agreement or any letter of credit
issued in connection herewith, Borrower will not:

		
	 	     7.1. Negative Pledge. Create, incur, permit or suffer to exist any
Liens upon any of its assets or properties, now owned or hereafter
acquired, except for the Permitted Liens.

		
	 	     7.2. Debt. Create, incur, assume, or suffer to exist any Debt,
except:

		
	 	     (1) Indebtedness arising out of this Agreement;

		
	 	     (2) Purchase money indebtedness not to exceed $500,000 in the
aggregate for any given fiscal year;

		
	 	     (3) Current liabilities for taxes and assessments incurred in
the ordinary course of business;

		
	 	     (4) Indebtedness in respect of current accounts payable or
accrued (other than for borrowed funds or purchase money
obligations) and incurred in the ordinary course of business,
provided that all such liabilities, accounts and claims shall be
promptly paid and discharged when due or in conformity with
customary trade terms;

		
	 	     (5) Debt described in Schedule “5.12” but no voluntary
prepayment, renewals, extensions, or refinancings thereof;

17

 

		
	 	     (6) Unsecured non-Bank Debt in addition to the debt described
in Schedule “5.12” not to exceed $100,000 for the Borrower in the
aggregate in any given fiscal year; and

		
	 	     (7) Accounts payable to trade creditors for goods or services
which are not past due more than ninety (90) days from the billing
date, in each case incurred in the ordinary course of business, as
presently conducted, and paid within the specified time, unless
contested in good faith and by appropriate proceedings.

		
	 	     7.3. Mergers, etc. Wind up, liquidate or dissolve itself,
reorganize, merge or consolidate with or into, or convey, sell, assign,
transfer, lease, or otherwise dispose of (whether in one transaction or
in a series of transactions) all or substantially all of its assets
(whether now owned or hereafter acquired) to any Person.

		
	 	     7.4. Leases. Without Bank’s prior written consent, create, incur,
assume, or suffer to exist, any obligation as lessee for the rental or
hire of any real or personal property, except (1) leases existing on the
date of this Agreement and any extensions or renewals thereof and (2)
leases (other than Capital Leases) which do not in the aggregate require
Borrower to make payments (including taxes, insurance, maintenance, and
similar expenses which the
Borrower is required to pay under the terms of any lease) in any
fiscal year of Borrower in excess of One Hundred Thousand and no/100ths
Dollars ($100,000). Bank agrees not to unreasonably withhold its consent
and will endeavor to respond within ten (10) days to Borrower’s request
therefor.

		
	 	     7.5. Sale and Leaseback. Sell, transfer, or otherwise dispose of
any real or personal property to any Person and thereafter directly or
indirectly lease back the same or similar property.

		
	 	     7.6. Dividends. Declare or pay any dividends; or purchase, redeem,
retire, or otherwise acquire for value any of its capital stock now or
hereafter outstanding; or make any distribution of assets to its
stockholders as such whether in cash, assets, or in obligations of the
Borrower; or allocate or otherwise set apart any sum for the payment of
any dividend or distribution on, or for the purchase, redemption, or
retirement of any shares of its capital stock; or make any distribution
by reduction of capital or otherwise in respect of any shares of its
capital stock.

		
	 	     7.7. Sale of Assets. Sell, lease, assign, transfer, or otherwise
dispose of, any of its now owned or hereafter acquired assets (including,
without limitation, shares of stock, receivables, and leasehold
interests), except: (1) inventory disposed of or leased in the ordinary
course of business; (2) the sale or other disposition of assets no longer
used or useful in the conduct of its business; and (3) treasury stock.

		
	 	     7.8. Guaranties, etc. Assume, guaranty, endorse, or otherwise be or
become directly or contingently responsible or liable (including, but not
limited to, an agreement to purchase any obligation, stock, assets,
goods, or services, or to supply or advance any funds, assets, goods, or
services, or an agreement to maintain or cause such Person to maintain a
minimum working capital net worth, or otherwise to assure the creditors
of any Person against loss), for obligations of any Person, except 1)
guaranties by endorsement of negotiable instruments for deposits or
collection or similar transactions in the ordinary course of business,
and 2) aggregate guarantees less than $100,000.

18

 

		
	 	     7.9. Transactions with Affiliates. Enter into any transaction,
including, without limitation, the purchase, sale, or exchange of
property or the rendering of any service, with any Affiliate, except in
the ordinary course of and pursuant to the reasonable requirements of
each Borrower’s business and upon fair and reasonable terms no less
favorable to the Borrower than would obtain in a comparable arm’s-length
transaction with a Person not an Affiliate.

		
	 	     7.10. Fiscal Year. Not change its fiscal year end.

     8.     FINANCIAL COVENANTS. So long as any Notes shall remain unpaid or the
Bank shall have any Commitment under this Agreement, Borrower shall comply with
the following on a consolidated basis:

		
	 	     8.1. Funded Debt to EBITDA Ratio. Maintain at all times a Funded
Debt to EBITDA Ratio of not greater than 3.5 to 1.

		
	 	     8.2. Minimum Tangible Net Worth. Maintain at all times a Tangible
Net Worth of not less than Seven Million Five Hundred Thousand and No/100
Dollars ($7,500,000).

		
	 	     8.3. Debt Service Coverage Ratio. Maintain at all times a Debt
Service Coverage Ratio not less than 1.25 to 1.

		
	 	     8.4. Capital Expenditures. Not make expenditures for fixed or
capital assets if, after giving effect thereto, the aggregate of all such
expenditures would exceed $900,000 during any fiscal year of the
Borrower.

     9.     EVENTS OF DEFAULT.

		
	 	     9.1. Events of Default. For purposes of this Agreement, the
occurrence of any of the following events shall constitute an “Event of
Default”:

		
	 	     (1) Borrower’s failure to pay the principal of, or interest
on, the Notes, or any amount of a commitment or other fee within
five (5) days after the date on which any such payment is due and
payable;

		
	 	     (2) Borrower’s failure, inability or admission in writing of
its inability generally to pay, its debts as such debts become due;
or;

		
	 	     (3) Borrower’s making of an assignment for the benefit of
creditors, or its filing of an application for the appointment by
any tribunal of a custodian, receiver, or trustee for it or a
substantial part of its assets or the commencement of any
proceeding by or against Borrower under any bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution, or
liquidation law or statute of any jurisdiction, whether now or
hereafter in effect in which an order for relief is entered or an
adjudication or appointment is made, and which remains undismissed
for a period of thirty (30) days or more, or the taking by Borrower
of any corporate action indicating its consent to, approval of, or
acquiescence in any such petition, application, proceeding, or
order for relief or the appointment of a custodian, receiver, or
trustee for all or any substantial part of its properties; or its
sufferance of

19

 

		
	 	such custodianship, receivership, or trusteeship to
continue undischarged for a period of thirty (30) days or more.

		
	 	     (4) The rendering against Borrower of one or more judgments,
decrees, or orders for the payment of money in excess of Five
Hundred Thousand and no/100ths Dollars ($500,000.00) in the
aggregate, and the continuance of such judgments, decrees, or order
in effect for a period of thirty (30) consecutive days without
being vacated, discharged, satisfied, or stayed or bonded pending
appeal;

		
	 	     (5) The occurrence of any of the following events and the
Borrower’s failure to cure same to the Bank’s reasonable
satisfaction within forty-five (45) Business Days after receiving
from the Bank written notice of the occurrence of such event and a
demand for its cure:

		
	 	     (a) Any representation or warranty made by Borrower in
this Agreement or the Security Agreement or which is
contained in any certificate, document, opinion, or financial
or other statement furnished at any time under or in
connection with any Loan Document shall prove to have been
incorrect, incomplete, or misleading in any material respect
on or as of the date made or deemed made;
	 
	 	     (b) Borrower’s failure to perform or observe any term,
covenant, or agreement contained in this Agreement or any
Loan Documents;

		
	 	     (c) Borrower’s failure (i) to pay any indebtedness for
borrowed money (other than the Notes) or any interest or
premium thereon, when due (whether by scheduled maturity,
required prepayment, acceleration, demand, or otherwise); or
(ii) to perform or observe any term, covenant, or condition
on its part required to be performed or observed under any
agreement or instrument relating to any such indebtedness,
when required to be performed or observed, if the effect of
such failure to perform or observe is to accelerate, or to
permit the acceleration of, after the giving of any
applicable notice or passage of time, or both, the maturity
of such indebtedness, whether or not such failure to perform
or observe shall be waived by the holder of such
indebtedness, or any such indebtedness shall be declared to
be due and payable or required to be prepaid (other than by a
regularly scheduled required prepayment) prior to the stated
maturity thereof;

		
	 	     (d) The Borrower shall (i) contest the validity or
enforceability of the Collateral documents (ii) deny that it
has any further liability or obligation thereunder, or (iii)
fail to perform any of its obligations thereunder;

		
	 	     (e) The Collateral documents shall cease, at any time
after their execution and delivery and for any reason, (i) to
create a valid and perfected first priority security interest
in and to the property purported to be subject to such
Collateral documents; or (ii) to be in full force and effect;
or shall be declared null and void;;

20

 

		
	 	     (f) With respect to the Borrower and any commonly
Controlled Entity under ERISA, there shall occur or exist (i)
any Reportable Event or a complete or partial withdrawal
from any Multiemployer Plans; (ii) any Prohibited
Transaction; (iii) the filing of a notice of intent to
terminate a Plan or a Plan is terminated; or (iv)
circumstances which constitute grounds entitling the PBGC to
institute proceedings to terminate a Plan, or the PBGC’s
institution of such proceedings; and in each case above, such
event or condition, together with all other events or
conditions, if any, could subject Borrower to any tax,
penalty, or other liability which in the aggregate may exceed
Two Hundred Fifty Thousand and no/100ths Dollars
($250,000.00); or

		
	 	     (g) The Bank receives notice of a hazardous discharge or
an environmental complaint; or any federal, state, or local
agency asserts or creates a Lien upon any or all of the
assets, equipment, property, leaseholds, or other facilities
of the Borrower by reason of the occurrence of a hazardous
discharge or an environmental complaint; or any federal,
state, or local agency asserts a claim against Borrower
and/or its assets, equipment, property, leaseholds, or other
facilities for damages or cleanup costs relating to a
hazardous discharge or an environmental complaint; unless,
within five (5) Business Days of the occurrence giving rise
to the claim, (i) the Borrower can prove to the Bank’s
satisfaction that the Borrower has commenced and is
diligently pursuing either: (x) a cure or correction of the
event which constitutes the basis for the claim, and
continues diligently to pursue such cure or correction to
completion or (y) proceedings for an injunction, a
restraining order, or other appropriate relief preventing
such agency or agencies from asserting such claim, which
relief is granted within ten (10) Business Days of the
occurrence giving rise to the claim and the injunction,
order, or relief is not thereafter resolved or reversed on
appeal; and (ii) in either of the foregoing events, the
Borrower has posted a bond, letter of credit, or other
security satisfactory in form, substance, and amount to both
the Bank and the agency or entity asserting the claim to
secure the proper and complete cure or correction of the
event which constitutes the basis for the claim;

		
	 	provided, however, that immediately upon the occurrence of any such
event the Bank may suspend its commitment to make advances under
the Revolving Line pending satisfactory cure of the default that
said event will constitute upon expiration of the time provided for
cure.

		
	 	Upon the occurrence of any of the foregoing Events of Default
under Section 9.1(1), 9.1(2), 9.1(3) and 9.1(4) or 9.1(5), which is
not cured within the time provided for cure (if any), the Bank may
exercise any or all of the following remedies: (a) declare its
obligation to make loans to be terminated, whereupon the same shall
forthwith terminate; (b) declare the outstanding Notes, all
interest thereon, and all other amounts payable under this
Agreement to be forthwith due and payable, whereupon the Notes, all
such interest, and all such amounts shall become and be forthwith
due and payable, without presentment, demand, protest, or further
notice of any kind, all of which are hereby expressly waived by the
Borrower. Additionally, the Bank is hereby authorized at any time
and from time to time, without further notice to

21

 

		
	 	Borrower (any such
notice being expressly waived by the Borrower), to set off and
apply any and all deposits (general or special, time or demand,
provisional or final) at
any time held and other indebtedness at any time owing by the Bank
to or for the credit or the account of the Borrower against any and
all of the obligations of the Borrower now or hereafter existing
under this Agreement or the Notes or other Loan Documents,
irrespective of whether or not the Bank shall have made any demand
under this Agreement or the Notes or such other Loan document and
although such obligations may be unmatured. The rights of the Bank
under this Section are in addition to other rights and remedies
(including, without limitation, other rights of setoff) which the
Bank may have, in this Agreement, any other loan document or at law
or equity, including without limitation the right to accelerate the
Notes upon the occurrence of a Matured Default.

     10.     MISCELLANEOUS.

		
	 	     10.1. Material Information: The Bank acknowledges that the Borrower
is a public company subject to state and federal securities laws and
regulations regarding the dissemination of material, non-public
information. The Bank also acknowledges that it will, from time-to-time
be in possession of material information about the Borrower’s financial
condition or financial results which has not been disclosed publicly by
the Borrower; that the deliberate or inadvertent dissemination of such
information could cause irreparable harm to the Borrower; and it shall
use all reasonable care to safeguard such information from unauthorized
disclosure. Furthermore, to facilitate the Borrower’s compliance with
Regulation FD, in the event that such information is disclosed, the Bank
agrees to notify Borrower of any disclosure of such information within 24
hours of the Bank’s knowledge that such disclosure has occurred.

		
	 	     10.2. Amendments, etc. No amendment, modification, termination, or
waiver of any provision of any Loan Document to which the Borrower is a
party, nor consent to any departure by the Borrower from any Loan
Document to which it is a party, shall in any event be effective unless
the same shall be in writing and signed by the Bank, and then such waiver
or consent shall be effective only in the specific instance and for the
specific purpose for which given.

		
	 	     10.3. Notices, etc. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed
to have been duly given when (a) delivered by hand (with written
confirmation of receipt), (b) sent by telecopier (with written
confirmation of receipt), provided that a copy is mailed by registered
mail, return receipt requested, or (c) when received by the addressee, if
sent by a nationally recognized overnight delivery service (receipt
requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier
numbers as a party may designate by notice to the other parties):

		
	 	     If to the Borrower:

		
	 	     XETA TECHNOLOGIES, INC.
     1814
W. Tacoma
     Broken
Arrow, OK 74012
     ATTN:
Robert Wagner, Chief Financial Officer
     Facsimile
No.: 918.664.6876

22

 

		
	 	     If to Bank:

		
	 	     BANK OF OKLAHOMA, N.A.
     P.O.
Box 2300
     Tulsa,
Oklahoma 74192
     Attn:
Stephen R. Wright, Senior Vice President
     Facsimile
No.: (918) 295-0400

		
	 	or at such other address as shall be designated by such party in a
written notice to the other party complying as to delivery with the terms
of this Section 10.2. Except as is otherwise provided in this Agreement,
all such notices and communications shall be effective when deposited in
the mails addressed as aforesaid, except that notices for advances to the
Bank pursuant to the provisions of § 2.4 shall not be effective until
received by the Bank.

		
	 	     10.4. No Waiver. No failure or delay on the part of the Bank in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right,
power, or remedy preclude any other or further exercise thereof or the
exercise of any other right, power, or remedy hereunder. The rights and
remedies provided herein are cumulative, and are not exclusive of any
other rights, powers, privileges, or remedies, now or hereafter existing,
at law or in equity or otherwise.

		
	 	     10.5. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the Borrower and the Bank and their
respective successors and assigns, except that the Borrower may not
assign or transfer any of its rights under any Loan Document to which the
Borrower is a party without the prior written consent of the Bank.

		
	 	     10.6. Costs, Expenses and Taxes. The Borrower agrees to pay on
demand all costs and expenses incurred by the Bank in connection with the
preparation, execution, delivery, filing, and initial administration of
the Loan Documents, including without limitation the fees of Riggs,
Abney, Neal, Turpen, Orbison & Lewis, and of any amendment, modification,
or supplement to the Loan Documents, including, without limitation, the
fees and out-of-pocket expenses of counsel for the Bank, incurred in
connection with advising the Bank as to its rights and responsibilities
hereunder. If Bank is required to pursue enforcement action to collect
the Obligations due to a default by Borrower hereunder or under any of
the Loan Documents, Borrower also agrees to pay all costs, expenses and
fees, including court costs, incurred in connection with such enforcement
action, whether by negotiation, legal proceedings, or otherwise. In
addition, the Borrower shall pay any and all stamp and other taxes (but
not mortgage registration taxes where local law prohibits Borrower from
doing so) and fees payable or determined to be payable in connection with
the execution, delivery, filing, and recording of any of the Loan
Documents and the other documents to be delivered under any such Loan
Documents, and agrees to hold the Bank harmless from and against any and
all liabilities with respect to or resulting from any delay in paying or
omission to pay such taxes and fees. This provision shall survive
termination of this Agreement.

23

 

		
	 	     10.7. Integration. This Agreement and the Loan Documents contain
the entire agreement between the parties relating to the subject matter
hereof and supersede all prior and contemporaneous oral statements and
writings with respect thereto.
	 
	 	     10.8. Indemnity. The Borrower hereby agrees to defend, indemnify,
and hold the Bank harmless from and against any and all claims, damages,
judgments, penalties, costs, and expenses (including attorney fees and
court costs now or hereafter arising from the aforesaid enforcement of
this clause) arising directly or indirectly from the activities of the
Borrower, its predecessors in interest, or third parties with whom they
have a contractual relationship, or arising directly or indirectly from
the violation of any environmental protection, health or safety law,
whether such claims are asserted by any governmental agency or any other
Person. This indemnity shall survive termination of this Agreement.

		
	 	     10.9. Governing Law, Jurisdiction and Venue. This Agreement and the
Notes shall be governed by, and construed in accordance with, the laws of
the State of Oklahoma applicable to agreements made and to be performed
entirely within the State of Oklahoma, without giving effect to its
conflicts of laws provisions. The parties agree that, in any dispute
between them relating to this Agreement or the Notes, exclusive
jurisdiction shall be in the trial courts, Federal or State, sitting in
the City of Tulsa, Oklahoma, or in Tulsa County, Oklahoma, and that venue
shall lie only in such courts; and any and all objections as to such
jurisdiction and venue are hereby expressly waived by each party.

		
	 	     10.10. Severability of Provisions. Any provision of any Loan
Documents which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining provisions of such
Loan Document or affecting the validity or enforceability of such
provision in any other jurisdiction.

		
	 	     10.11. Headings. Article and Section headings in the Loan Documents
are included in such Loan Documents for the convenience of reference only
and shall not constitute a part of the applicable Loan Documents for any
other purpose.

		
	 	     10.12. Conflicts. To the extent any conflict exists under any of
the Loan Documents, this Credit Agreement shall be controlling.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.

	 	 	 	 	 
	 	 	“Borrower”
	 	 	 	 	 
	 	 	XETA TECHNOLOGIES, INC.
	 	 	 	 	 
	 	 	
By
	 	/s/ Robert B. Wagner
	 	 	 	 	

	 	 	
Name
	 	Robert B. Wagner
	 	 	
Title
	 	CFO

24

 

	 	 	 	 	 
	 	 	“Bank”
	 	 	 	 	 
	 	 	BANK OF OKLAHOMA, N.A.
	 	 	 	 	 
	 	 	
By
	 	     /s/ Stephen R. Wright
	 	 	 	 	

	 	 	 	 	Stephen R. Wright, Senior Vice President

25

 

Schedule “1.6”

(Borrowing Base Certificate)

26

 

Schedule “1.7”

(Corporate Borrowing Resolutions)

 

 

Schedule “1.32”

(Mortgage)

 

 

Schedule “1.33”

(Mortgaged Property)

Part of Lot One (1), Block One (1), GREENWAY BUSINESS PARK III, an Addition to
the City of Broken Arrow, Tulsa County, State of Oklahoma, according to the
Recorded Plat No. 4796, being more particularly described as follows:

Beginning at a point 466 feet East of the Northwest corner of said Lot 1;
thence S 89°53’46” E 643.85 feet; thence N 35°58’48” E 170 feet; thence
Southeasterly 52.65 feet along a curve to the left with a radius of 717.36 feet
and a tangent bearing of S 54°01“12” E; thence S 58°13’32” E 156.16 feet;
thence Southeasterly 161.88 feet along a curve to the left with a radius of
441.39 feet; thence S 41°03’02” W 393.26 feet; thence South 60.20 feet; thence
S 00°02’00” W 263.30 feet; to a point on the North right-of-way line of West
Tacoma Street; thence continuing along said right-of-way the following: N
89°55’59” W 155.22 feet; Northwesterly 118.36 feet along a curve to the right
with a radius of 276.21 feet; N 65°20’27” W 14.17 feet; Westerly 137.44 feet
along a curve to the left with a radius of 320.21 feet; N 89°55’59” W 260 feet;
Southwesterly 140.56 feet along a curve to the left with a radius of 540.65
feet; thence N 00°18’14: E 610.86 feet to the point of beginning.

 

 

Schedule “1.38”

(Opinion of Borrower’s Counsel)

 

 

Schedule “1.40(6)”

(Permitted Liens)

General Electric Credit Corporation, under that certain Business Lease
Agreement No. 4185891-001, evidenced by UCC Financing Statement no.
2003004178732, filed April 9, 2003, in the UCC records of the County Clerk of
Oklahoma County, Oklahoma.

 

 

Schedule “1.47”

(Real Estate Note)

 

 

Schedule “1.49”

(Revolving Line Note)

 

 

Schedule “1.54”

(Term Note)

 

 

Schedule “1.59”

(UCC-1 Financing Statement)

 

 

Schedule “3.1”

(Security Agreement)

 

 

Schedule “5.7”

(Pending or Threatened Litigation)

 

 

Schedule “5.12”

(Debt)

     (i)  Renewal Term Note – May 1, 2003, with U.S. Bank National
Association for $1,986,381.24 due December 31, 2003

     (ii)  Renewal Term Note – May 1, 2003, with Bank One, Oklahoma, NA
for $2,427,799.30 due December 31, 2003

		
	 	     (These two term notes are being replaced by the Term Loan with
BOk in the amount of $3,374,734.33)

     (iii)  Renewal Real Estate Term Note – May 1, 2003, with Bank One,
Oklahoma, NA for $1,262,250.12 due December 31, 2003

     (iv)  Renewal Real Estate Term Note – May 1, 2003, with U.S. Bank
National Association for $1,032,750.00 due December 31, 2003

		
	 	     (These two real estate notes are being replaced by the Real
Estate Note with BOk in the amount of $2,238,333.48)

     (v)  Renewal Revolving Note – May 1, 2003, with Bank One, Oklahoma,
NA for $4,125,000.00 due December 31, 2003

     (vi)  Renewal Revolving Note – May 1, 2003, with U.S. Bank National
Association for $3,375,000.00 due December 31, 2003

		
	 	     (These two revolving notes are being replaced by the Revolving
Note with BOk in the amount of $7,500,000.00)

     (vii)  Lease Agreement with Avaya Financial Services, 1 CIT Drive,
Livingston, NJ 07039; Lease #X562270, Schedule #00030; 12 monthly lease
payments of $21,416.26 secured by equipment installed at GMAC, One
National General, Hazelwood, MO 63045 (Xeta Customer location).exv10w8

 

Exhibit 10.8

PREPARED BY:

Janet G. Mallow, Esq.

WHEN RECORDED RETURN TO:

Riggs, Abney, Neal, Turpen, Orbison & Lewis

Attention: Wendy Walls

502 West Sixth Street

Tulsa, OK 74119-1010

MORTGAGE, ASSIGNMENT OF LEASES AND RENTS,

SECURITY AGREEMENT AND FINANCING STATEMENT

[Oklahoma]

A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A POWER OF SALE MAY ALLOW
THE MORTGAGEE TO TAKE THE MORTGAGED PROPERTY AND SELL IT WITHOUT GOING TO COURT
IN A FORECLOSURE ACTION UPON DEFAULT BY THE MORTGAGOR UNDER THIS MORTGAGE.

     THIS MORTGAGE is made on October 1, 2003 from XETA TECHNOLOGIES, INC.,
f/k/a XETA Corporation, an Oklahoma corporation, whose address is 1814 W.
Tacoma, Broken Arrow, Oklahoma 74012 (the “Mortgagor”), and BANK OF OKLAHOMA,
N.A., whose address is P.O. Box 2300, Tulsa, Oklahoma 74192, and its successors
and assigns (the “Mortgagee”).

     1.     Specific
Definitions. In this Mortgage, the following terms shall have
the meanings given below:

		
	 	     1.1 “Borrower” means XETA TECHNOLOGIES, INC., an Oklahoma
corporation.

		
	 	     1.2 “Liabilities” means all obligations, indebtedness and
liabilities of the Borrower to any one or more of the Mortgagee, and any
of its subsidiaries, affiliates or successors, now existing or later
arising, including, without limitation, all loans, advances, interest,
costs, overdraft indebtedness, credit card indebtedness, lease
obligations, or obligations relating to any Rate Management Transaction,
all monetary obligations incurred or accrued during the pendency of any
bankruptcy, insolvency, receivership or other similar proceedings,
regardless of whether allowed or allowable in such proceeding, and all
renewals, extensions, modifications, consolidations or substitutions of
any of the foregoing, whether the Borrower may be liable jointly with
others or individually liable as a debtor, maker, co-maker, drawer,
endorser, guarantor, surety or otherwise, and whether voluntarily or
involuntarily incurred, due or not due, absolute or contingent, direct or
indirect, liquidated or unliquidated. The term “Liabilities” includes,
without limitation, the following:

		
	 	     (i) Separately and collectively, those certain Promissory
Notes, dated October 1, 2003 in the original principal amounts of
$7,500,000 (maturing September 30, 2004), and $3,374,734.33 and
$2,238,333.48 (both maturing

 

 

		
	 	September 30, 2006), each executed and delivered by the
Borrower to the Mortgagee;

		
	 	     (ii) The performance of all of the promises and agreements
contained in the Mortgage and all Related Documents.

		
	 	     1.3. “Premises” means and includes the following:

		
	 	     (i) The real property, and all the existing or subsequently
affixed or erected buildings, structures and improvements on it,
described as set forth on Exhibit “A” attached hereto and made a
part hereof for all purposes intended, commonly known as 1814 W.
Tacoma, Broken Arrow, OK;
	 
	 	     (ii) All easements, rights-of-way, licenses, privileges and
hereditaments appurtenant to or used in connection with the
Premises;
	 
	 	     (iii) All land lying in the bed of any road, street, alley or
the like, opened, proposed or vacated, public or private, or any
strip or gore, adjoining the Premises;
	 
	 	     (v) All mineral, coal, oil, gas and water rights, royalties,
water courses, ditch rights, water and water stock, timber and
timber rights, if any;
	 
	 	     (vi) All insurance, condemnation and other awards or payments,
including interest, made as a result of: (a) the exercise of the
right of eminent domain, (b) the alteration of the grade of any
street, (c) any loss of or damage to any building or other
improvement on the Premises, (d) any other injury to or decrease in
the value of the Premises, (e) any refund due on account of the
payment of real estate taxes, assessments or other charges levied
against or imposed upon the Premises and (f) the reasonable
attorneys’ and fees and court costs;
	 
	 	     (vii) All present and future (a) leases, subleases, licenses
and other agreements for the use and/or occupancy of the Premises,
oral or written, including, without limitation, all extensions,
renewals, replacements and holdovers (collectively, the “Leases”)
and (b) rents, revenues, income, issues, royalties, profits,
bonuses, accounts, cash, security deposits, advance rents and other
payments and/or benefits, of every kind or nature, derived from the
Leases and/or the Premises, including, without limitation, the
Mortgagor’s right to enforce the Leases and to receive and collect
all payments and proceeds under the Leases (collectively, the
“Rents”);
	 
	 	     (viii) All rights to make divisions of the real estate
comprising the Premises that are exempt from the platting
requirements of all applicable land division or platting acts, as
amended from time to time; and
	 
	 	     (ix) All licenses, contracts, permits and agreements required
or used in connection with the ownership, maintenance or operation
of the Premises.

		
	 	     1.4. “Rate Management Transaction” means any transaction, (including
an agreement with respect thereto) now existing or hereafter entered into
by the Borrower,

2

 

		
	 	and the Mortgagee, or any of its subsidiaries or affiliates or their
successors, which is a rate swap, basis swap, forward rate transaction,
commodity swap, commodity option, equity or equity index swap, equity or
equity index option, bond option, interest rate option, foreign exchange
transaction, cap transaction, floor transaction, collar transaction,
forward transaction, currency swap transaction, cross-currency rate swap
transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions) or any combination
thereof, whether linked to one or more interest rates, foreign
currencies, commodity prices, equity prices or other financial measures.

		
	 	     1.5. “Related Documents” means all loan agreements, credit
agreements, reimbursement agreements, security agreements, mortgages,
deeds of trust, pledge agreements, assignments, guaranties, or any other
instrument or document executed in connection with any of the
Liabilities.

     2.     Grant. To secure payment of the Liabilities, and for other good and
valuable consideration, Mortgagor hereby GRANTS, BARGAINS, SELLS, CONVEYS AND
MORTGAGES to the Mortgagee all of the Mortgagor’s right, title and interest,
now owned or hereafter acquired, in the “Premises”, and warrants title to the
same.

     3.     Secured
Indebtedness. The maximum principal sum secured by this
Mortgage shall not exceed two million two hundred thirty-eight thousand three
hundred thirty-three and 48/100 dollar ($2,238,333.48) at any one time
outstanding. This Mortgage shall not apply to any obligation or debt incurred
for personal, household or family purposes unless the note or guaranty
evidencing such personal, household or family debt expressly states that it is
secured by this Mortgage.

     4.     Covenants. The Mortgagor promises and agrees as follows:

		
	 	     4.1 Payment of Liabilities; Performance of Obligations. The
Mortgagor shall promptly pay when due, whether by acceleration or
otherwise, the Liabilities for which the Mortgagor is liable, and shall
promptly perform all obligations to which the Mortgagor has agreed under
the terms of this Mortgage and any of the other Related Documents.

		
	 	     4.2 Taxes and Liens. The Mortgagor shall pay, when due, before any
interest, collection fees or penalties shall accrue, all taxes,
assessments, fines, impositions, and other charges which may become a
lien prior to this Mortgage. Should the Mortgagor fail to make those
payments, the Mortgagee may at its option and at the expense of the
Mortgagor, pay the amounts due for the account of the Mortgagor. Upon the
request of the Mortgagee, the Mortgagor shall immediately furnish to the
Mortgagee all notices of amounts due and receipts evidencing payment. The
Mortgagor shall promptly notify’ the Mortgagee of any lien on all or any
part of the Premises and shall promptly discharge any unpermitted lien or
encumbrance.

		
	 	     4.3 Change in Taxes. In the event of the passage of any law or
regulation, state, federal or municipal, subsequent to the date of this
Mortgage, which changes or modifies the laws now in force governing the
taxation of mortgages or debts secured by mortgages, or the manner of
collecting those taxes, the Liabilities shall become due and payable
immediately at the option of the Mortgagee.

3

 

		
	 	     4.4 Insurance. Until the Liabilities are fully paid, the Mortgagor
shall keep the Premises and the present and future buildings and other
improvements on the Premises constantly insured for the benefit of the
Mortgagee, at replacement cost for the full insurable value, without any
reduction based upon the Mortgagor’s acts, against fire and such other
hazards and risks customarily covered by the standard form of extended
coverage endorsement available in the state where the Premises is
located, including risks of vandalism and malicious mischief, and shall
further provide flood insurance (if the Premises are situated in an area
designated as a flood risk area by the Director of the Federal Emergency
Management Agency or as otherwise required by the Flood Disaster
Protection Act of 1973 and regulations issued under it), and such other
appropriate insurance as the Mortgagee may require from time to time. All
insurance policies and renewals must be acceptable to the Mortgagee, must
provide for payment to the Mortgagee in the event of loss, regardless of
any act or omission by the Mortgagor, must require thirty (30) days
notice to the Mortgagee in the event of nonrenewal or cancellation and
must be delivered to the Mortgagee within thirty (30) days prior to their
respective effective dates. Should the Mortgagor fail to insure or fail
to pay the premiums on any insurance or fail to deliver the policies or
certificates or renewals to the Mortgagee, then the Mortgagee, at its
option, may have the insurance written or renewed, and may pay the
premiums, for the account of the Mortgagor. In the event of loss or
damage, the proceeds of the insurance shall be paid to the Mortgagee
alone. No loss or damage shall itself reduce the Liabilities. The
Mortgagee is authorized to adjust and compromise a loss without the
consent of the Mortgagor, to collect, receive and receipt for any
proceeds in the name of the Mortgagee and the Mortgagor and to endorse
the Mortgagor’s name upon any check in payment of proceeds. The proceeds
shall be applied first toward reimbursement of all costs and expenses of
the Mortgagee in collecting the proceeds and then toward payment of the
Liabilities or any portion of it, whether or not then due or payable, or
the Mortgagee, at its option, may apply the proceeds, or any part of the
proceeds, to the repair or rebuilding of the Premises provided that the
Mortgagor (a) is not then or at any time during the course of restoration
of the Premises in default under this Mortgage and (b) has complied with
all requirements for application of the proceeds to restoration of the
Premises as the Mortgagee, in its sole discretion may establish. The
Mortgagor shall also provide and maintain comprehensive general liability
insurance in such coverage amounts as the Mortgagee may request, with the
Mortgagee being named as an additional insured on such policies. Evidence
of the renewal of such liability insurance shall be delivered to the
Mortgagee at the same time as evidence of the renewal of the property
insurance required above must be delivered to the Mortgagee. If the
Mortgagor fails to provide such liability insurance, and/or the renewals
thereof, or fails to pay the premiums on such liability insurance when
such premiums are due, then the Mortgagee may have such liability
insurance written or renewed, and may pay the premiums, for the account
of the Mortgagor.

		
	 	     4.6 Waste, Abandonment. The Mortgagor shall not abandon the
Premises, commit or permit waste on the Premises, or do any other act
causing the Premises to become less valuable. The Mortgagor will keep the
Premises in good order and repair and in compliance in all material
respects with any law, regulation, ordinance or contract affecting the
Premises and, from time to time, will make all needful and proper
replacements so that all fixtures, improvements and Equipment will at all
times be in good condition, fit and proper for their respective purposes.
Without limitation of the foregoing, nonpayment of the Charges shall
constitute waste. Should the Mortgagor fail to effect any necessary
repairs, the Mortgagee may, at its option and at the expense of

4

 

		
	 	the Mortgagor, make the repairs for the account of the Mortgagor.
The Mortgagor shall use and maintain the Premises in conformance with all
applicable laws, ordinances and regulations. The Mortgagee or its
authorized agent shall have the right to enter upon and inspect the
Premises at all reasonable times. The Mortgagor unconditionally agrees to
pay timely all fees with respect to inspections of the Premises.

		
	 	     4.7 Alterations, Removal. No building, structure, improvement,
fixture, personal property or Equipment constituting any part of the
Premises shall be removed, demolished or substantially altered without
the prior written consent of the Mortgagee.

		
	 	     4.8 Payment of Other Obligations. The Mortgagor shall also pay all
other obligations which may become liens or charges against the Premises
for any present or future repairs or improvements made on the Premises,
or for any other goods, services, or utilities furnished to the Premises
and shall not permit any lien or charge of any kind securing the
repayment of borrowed funds (including the deferred purchase price for
any property) to accrue and remain outstanding against the Premises.

     5.     Assignment of Leases and Rents. As additional security for the
Liabilities, the Mortgagor assigns to the Mortgagee all the Leases and the
Rents of, from or in connection with the Premises and the buildings and
improvements thereon and such assignment is effective immediately upon the
execution of this Mortgage. This assignment includes an assignment of the
right, but not the obligation, to collect, receive, demand, sue for and recover
the Rents when due and payable. The Mortgagee shall not exercise any of its
rights and remedies under this section until the occurrence of any default
under the Liabilities. This assignment shall be operative during any
foreclosure or other proceeding taken to enforce this Mortgage and during any
redemption period. The Mortgagor will comply with all terms of all the Leases.
Upon request of the Mortgagee, the Mortgagor shall deliver to the Mortgagee
copies of all the Leases and similar agreements assigned to the Mortgagee
pursuant to this section, including all renewals and amendments thereof.

     6.     Assignment of Interest as Tenant or Purchaser. If the Mortgagor’s
interest in the Premises is that of a tenant or a purchaser, the Mortgagor also
assigns, mortgages and warrants to the Mortgagee, as additional security for
the Liabilities, all of the Mortgagor’s right, title and interest in and to any
Leases, land contracts or other agreements by which the Mortgagor is leasing or
purchasing all or any part of the Premises, including all modifications,
renewals and extensions, and all of the Mortgagor’s right, title and interest
in and to any purchase options contained in any such Leases or other
agreements. The Mortgagor agrees to pay each installment of rent, principal and
interest required to be paid by it under any such Lease, land contract or other
agreement when each installment becomes due and payable, whether by
acceleration or otherwise. The Mortgagor further agrees to pay and perform all
of its other obligations under any such Lease, land contract or other
agreement.

     If the Mortgagor defaults in the payment of any installment of rent,
principal or interest, or in the payment or performance of any other
obligation, under any such Lease, land contract or other agreement, the
Mortgagee shall have the right, but not the obligation, to pay the installment
or installments and to pay or perform the other obligations on behalf of and at
the expense of the Mortgagor. If the Mortgagee receives a written notice of the
Mortgagor’s default under any such Lease, land contract or other agreement, the
Mortgagee may rely on that notice as cause to take any action it deems
necessary or reasonable to cure the default, even if the Mortgagor questions or
denies the existence or nature of the default.

5

 

     7.     Security Agreement. This Mortgage also constitutes a security agreement
within the meaning of the Uniform Commercial Code as in effect from time to
time in the state in which the Premises is located (the “UCC”) and the
Mortgagor grants to the Mortgagee a security interest in any Equipment or other
personal property included within the definition of the Premises, and all
proceeds, products and supporting obligations of any of the foregoing (the
“Collateral”). Accordingly, the Mortgagee shall have all of the rights and
remedies available to a secured party under the UCC. Upon the occurrence of any
default under this Mortgage, the Mortgagee shall have, in addition to the
remedies provided by this Mortgage, the right to use any method of disposition
of collateral authorized by the UCC with respect to any portion of the Premises
subject to the UCC. The Mortgagee shall have the right to require the Mortgagor
to assemble the Collateral and make it available to the Mortgagee at a place
designated by the Mortgagee which is reasonably convenient to both parties, the
right to take possession of the Collateral with or without demand and with or
without process of law, and the right to sell and dispose of the Collateral and
distribute the proceeds according to law. Should a default occur, the Mortgagor
will pay to the Mortgagee all costs reasonably incurred by the Mortgagee for
the purpose of enforcing its rights hereunder, to the extent not prohibited by
law, including, without limitation: costs of foreclosure; costs of obtaining
money damages; and a reasonable fee for the services of internal and outside
attorneys employed or engaged by the Mortgagee for any purpose related to this
security agreement, including, without limitation, consultation, drafting
documents, sending notices or instituting, prosecuting or defending litigation
or any proceeding. The Mortgagor agrees that upon default the Mortgagee may
dispose of any of the Collateral in its then present condition, that the
Mortgagee has no duty to repair or clean the Collateral prior to sale, and that
the disposal of the Collateral in its present condition or without repair or
clean-up shall not affect the commercial reasonableness of such sale or
disposition. The Mortgagee’s compliance with any applicable state or federal
law requirements in connection with the disposition of the Collateral will not
adversely affect the commercial reasonableness of any sale of the Collateral.
In connection with the right of the Mortgagee to take possession of the
Collateral, the Mortgagee may, without liability on the part of the Mortgagee,
take possession of any other items of property in or on the Collateral at the
time of taking possession and hold them for the Mortgagor. If there is any
statutory requirement for notice, that requirement shall be met if the
Mortgagee sends notice to the Mortgagor at least ten (10) days prior to the
date of the sale, disposition, or other event giving rise to the required
notice. Upon the request of the Mortgagee, the Mortgagor shall execute and file
such financing statements and shall take any other action requested by the
Mortgagee to perfect and continue as perfected the Mortgagee’s security
interests in the Equipment and other personal property included in the
definition of the Premises. The Mortgagor shall pay (and shall reimburse the
Mortgagee for) all costs, including attorneys’ fees and court costs, of the
preparation and filing of any financing statements and the taking of any such
other actions. A carbon, photographic or other reproduction of this Mortgage is
sufficient as, and can be filed as, a financing statement. The Mortgagee is
irrevocably appointed the Mortgagor’s attorney-in-fact to execute any financing
statement on the Mortgagor’s behalf covering the Equipment and other personal
property, tangible or intangible, that is included within the definition of
Premises. Additionally, if permitted by applicable law, the Mortgagor
authorizes the Mortgagee to file one or more financing statements related to
the security interests created by this Mortgage and further authorizes the
Mortgagee, instead of the Mortgagor, to sign such financing statements. The
Mortgagor shall execute and deliver, or cause to be executed and delivered,
such other documents as the Mortgagee may from time to time request to perfect
or to further evidence the security interest created in the Collateral by this
Mortgage. The Mortgagor further represents and warrants to the Mortgagee that
(a) its principal residence or chief executive office is at the address shown
above and (b) the Mortgagor’s name as it appears in this Mortgage is identical
to the name of the Mortgagor appearing in the Mortgagor’s organizational
documents, as amended, including trust

6

 

documents. The Mortgagor will not, without the Mortgagee’s prior written
consent, change (a) the Mortgagor’s name, (b) the Mortgagor’s business
organization, (c) the jurisdiction under which the Mortgagor’s business
organization is formed or organized, or (d) the address of the Mortgagor’s
chief executive office or principal residence or of any additional places of
the Mortgagor’s business.

     8.     Fixture
Financing Statement. A part of the Premises constitutes goods
which are or are to become fixtures related to the Premises, and it is intended
that, as to those goods, this Mortgage shall be effective as a financing
statement filed as a fixture filing from the date of its filing for record in
the real estate records of the county in which the Premises is situated.
Information concerning the security interest created by this instrument may be
obtained from Mortgagee, as secured party, at the address of Mortgagee stated
above. The mailing address of Mortgagor, as debtor, is as stated above.

     9.     Reimbursement of Advances. If the Mortgagor fails to perform any of its
obligations under this Mortgage, or if any action or proceeding is commenced
which materially affects the Mortgagee’s interest in the Premises (including
but not limited to a lien priority dispute, eminent domain, code enforcement,
insolvency, bankruptcy or probate proceedings), then the Mortgagee at its sole
option may make appearances, disburse sums and take any action it deems
necessary to protect its interest (including but not limited to disbursement of
reasonable attorneys’ fees and court costs and entry upon the Premises to make
repairs). Any amounts disbursed shall become additional Liabilities, shall be
immediately due and payable upon notice from the Mortgagee to the Mortgagor,
and shall bear interest at the highest rate permitted under any of the
instruments evidencing any of the Liabilities. The Mortgagee’s rights under
this section shall be in addition to all other rights and remedies of the
Mortgagee under this Mortgage and the other Related Documents. Any action taken
by the Mortgagee under this section shall not be construed as curing any
default that gave rise to such action by the Mortgagee.

     10.     Due on Transfer. If all or any part of the Premises or any interest in
the Premises is transferred without the Mortgagee’s prior written consent, the
Mortgagee may, at its sole option, declare the Liabilities to be immediately
due and payable.

     11.     No Additional Lien. The Mortgagor covenants not to execute any
mortgage, security agreement, assignment of leases and rentals or other
agreement granting a lien against the interest of the Mortgagor in the Premises
without the prior written consent of the Mortgagee, and then only when the
document granting that lien expressly provides that it shall be subject to the
lien of this Mortgage for the full amount secured by this Mortgage and shall
also be subject and subordinate to all present and future leases affecting the
Premises.

     12.     Eminent Domain. Notwithstanding any taking under the power of eminent
domain, alteration of the grade of any road, alley, or the like, or other
injury or damage to or decrease in value of the Premises by any public or
quasi-public authority or corporation, the Mortgagor shall continue to pay the
Liabilities in accordance with the terms of the Related Documents. By executing
this Mortgage, the Mortgagor assigns the entire proceeds of any award or
payment and any interest to the Mortgagee. The Mortgagor will notify the
Mortgagee of any action or proceeding related to any taking of all or any part
of the Premises, shall defend that action or proceeding in consultation with
the Mortgagee and shall, if requested by the Mortgagee, deliver to the
Mortgagee all documents and instruments that may be required to allow the
Mortgagee to directly participate in or control such action or proceeding. The
proceeds of any taking or grant in lieu of any taking shall be applied first
toward reimbursement of all

7

 

costs and expenses of the Mortgagee in collecting the proceeds, including
reasonable attorneys’ fees and court costs, and then toward payment of the
Liabilities, whether or not then due or payable, or the Mortgagee, at its
option, may apply the proceeds, or any part, to the alteration, restoration or
rebuilding of the Premises.

     13.     Environmental Provisions. As used herein: the term “Hazardous
Substance” shall mean any substance, material, or waste that is (a) included
within the definitions of “hazardous substances,” “hazardous materials,”
“hazardous waste,” “toxic substances,” “toxic materials,” “toxic waste,” or
words of similar import in any Environmental Law, (b) listed as hazardous
substances by the United States Department of Transportation or by the
Environmental Protection Agency, or (c) petroleum, petroleum-related, or a
petroleum by-product, asbestos or asbestos-containing material, polychlorinated
biphenyls, flammable, explosive, radioactive, freon gas, radon, or a pesticide,
herbicide, or any other agricultural chemical; and the term “Environmental Law”
shall mean any federal, state or local law, rule, regulation, decision, policy
or guideline, pertaining to Hazardous Substances, or protection of the
environment, and all present and future amendments thereto. Except as disclosed
in writing by the Mortgagor to the Mortgagee, the Mortgagor represents and
warrants to the Mortgagee that (i) neither the Premises nor the Mortgagor are
in violation of any Environmental Law applicable to the Premises, or are
subject to any existing, pending or threatened governmental investigation
pertaining to the Premises, or are subject to any remedial obligation or lien
under or in connection with any Environmental Law, (ii) the Mortgagor has no
actual knowledge or notice of the presence or release of Hazardous Substances
in, on or around any part of the Premises or the soil, groundwater or soil
vapor on or under the Premises, or the migration of any Hazardous Substance,
from or to any other property in the vicinity of the Premises; and (iii) the
Mortgagor’s intended future use of the Premises will not result in the release
of any Hazardous Substance in, on or around any part of the Premises or in the
soil, groundwater or soil vapor on or under the Premises, or the migration of
any Hazardous Substance from or to any other property in the vicinity of the
Premises.

     The Mortgagor shall neither use nor permit any third party to use,
generate, manufacture, produce, store, or release, on, under or about the
Premises, or transfer to or from the Premises, any Hazardous Substance, except
in compliance with all Environmental Laws, and shall otherwise comply, at the
Mortgagor’s sole expense and responsibility, with all Environmental Laws,
provided that if any such occurrence shall nevertheless happen, the Mortgagor
shall promptly remedy such condition, at its sole expense and responsibility.
The Mortgagor shall not permit any environmental liens to be placed on any
portion of the Premises. The Mortgagor shall promptly notify the Mortgagee in
writing if (a) any of the representations and warranties herein are no longer
accurate, (b) there may be any Hazardous Substance in, on or around the
Premises or the soil, groundwater or soil vapor on or under the Premises, or
(c) any violation of any Environmental Law on or affecting or otherwise in
respect of the Premises has occurred. The Mortgagee and its agents shall have
the right, and are hereby authorized, at any reasonable time to enter upon the
Premises for the purposes of observing the Premises, taking and removing soil
or groundwater samples, and conducting tests and/or site assessments on the
Premises, or taking such other actions as the Mortgagee deems necessary or
advisable to clean up, remove, resolve, or minimize the impact of, or otherwise
deal with, any Hazardous Substances on or affecting the Premises following
receipt of any notice from any person or entity asserting the existence or
possible existence of any Hazardous Substances pertaining to the Premises,
that, if true, could jeopardize the Mortgagee’s security for the Liabilities.
All reasonable costs and expenses paid or incurred by the Mortgagee in the
exercise of any such rights shall be secured hereby and shall be payable by the
Mortgagor upon demand.

8

 

     The Mortgagor shall indemnify and hold the Mortgagee harmless from, for
and against any and all actions, causes of action, claims, liabilities, damages
(including foreseeable and unforeseeable consequential damages), losses, fines,
penalties, judgments, awards, settlements, and costs and expenses (including,
without limitation, reasonable attorneys’ fees, experts’, engineers’ and
consultants’ fees, and costs and expenses of investigation, testing,
remediation and dispute resolution) (collectively referred to as “Environmental
Costs”) that directly or indirectly arise out of or relate in any way to: (a)
Any investigation, cleanup, removal, remediation, or restoration work of site
conditions of the Premises relating to Hazardous Substances; (b) Any resulting
damages, harm, or injuries to the person or property of any third parties or to
any natural resources involving Hazardous Substances relating to the Premises;
(c) Any actual or alleged past or present disposal, generation, manufacture,
presence, processing, production, release, storage, transportation, treatment,
or use of any Hazardous Substance on, under, or about the Premises; (d) Any
actual or alleged past or present violation of any Environmental Law relating
to the Premises; (e) Any lien on any part of the Premises under any
Environmental Law; or (f) Breach of any representation or warranty by or
covenant of the Mortgagor herein. Notwithstanding anything contained herein to
the contrary, the foregoing indemnity shall not apply to (i) matters resulting
from the gross negligence or willful misconduct of the Mortgagee, or (ii)
matters resulting solely from the actions of the Mortgagee taken after the
Mortgagee has taken title to, or exclusive possession of the Premises, provided
that, in both cases, such matters shall not arise from or be accumulated with
any condition of the Premises, which condition was not caused by the Mortgagee.
The foregoing indemnity is expressly intended to include, and does include, any
Environmental Costs arising as a result of any strict liability imposed or
threatened to be imposed on the Mortgagee in connection with any of the
indemnified matters described in this Section or arising as a result of the
negligence of the Mortgagee in connection with such matters. This indemnity
shall continue in full force and effect and shall survive the payment and
performance of the Liabilities, the release of record of the lien, or any
foreclosure (or action in lieu thereof), of this Mortgage, the exercise by the
Mortgagee of any other remedy under this Mortgage or any other document or
instrument evidencing or securing the Liabilities, and any suit, proceeding or
judgment against the Mortgagor by the Mortgagee hereon.

     14.     Events of Default; Remedies. If any of the Liabilities are not paid at
maturity, whether by acceleration or otherwise, or if a default occurs by
anyone under the terms of this Mortgage or any Related Document, then the
Mortgagee may exercise all of the rights, powers and remedies expressly or
impliedly conferred on or reserved to it under this Mortgage or any other
Related Document, or now or later existing at law or in equity, including
without limitation the following: (i) the Mortgagee may declare the Liabilities
to be immediately due, (ii) the Mortgagee may proceed at law or in equity to
collect the Liabilities, foreclose this Mortgage or otherwise pursue any of its
rights or remedies available at law, in equity, pursuant to this Mortgage or
pursuant to any of the other Related Documents and (iii) the Mortgagee may
exercise any of its rights, powers or remedies pursuant to the 13CC.

		
	 	     14.1 Power of Sale. The Mortgagor hereby confers on the Mortgagee
the power to sell the Premises described in this Mortgage and the
interests of persons therein in the manner provided in the Oklahoma Power
of Sale Mortgage Foreclosure Act [Title 46, Okla. Stat. (1991), § 40, et
seq.] as the same may be amended from time to time (the “Act”) or other
applicable statutory authority. Such power of sale shall be exercised by
giving the Mortgagor Notice of Intent to Foreclose by Power of Sale and
setting forth, among other things, the nature of the breach(es) or
default(s) and the action required to effect a cure thereof and the time
period within which such cure may

9

 

		
	 	be effected, all in compliance with and as may be required by the
Act or other applicable statutory authority. If no cure is effected
within the statutory time limits, the Mortgagee may accelerate the
indebtedness secured hereby without further notice (the aforementioned
statutory cure period shall run concurrently with any contractual
provisions for notice and opportunity to cure), and the Mortgagee may
then proceed in the manner and subject to and as required by the
conditions of the Act or other applicable statutory authority to send to
the Mortgagor and other necessary parties a Notice of Sale and to sell
and convey the Premises in accordance with the Act or other applicable
statutory authority. The sale shall be made at one or more sales, as an
entirety or in parcels, upon such notice, at such time and places,
subject to all conditions and with the proceeds thereof to be applied all
as provided in said Act or other applicable statutory authority. No
action of the Mortgagee based upon the provisions contained herein or
contained in the Act, including, without limitation, the giving of the
Notice of Intent to Foreclose by Power of Sale or the Notice of Sale,
shall constitute an election of remedies which would preclude the
Mortgagee from pursuing judicial foreclosure before or at any time after
commencement of the power of sale foreclosure procedure.

		
	 	     14.2 Judicial Foreclosure. Whether or not proceedings have been
commenced by the exercise of the power of sale above given, the
Mortgagee, in lieu of proceeding with the power of sale, may at its
option declare the whole amount of the indebtedness secured by this
Mortgage remaining unpaid, immediately due and payable without notice,
and the Mortgagee may then proceed by suit or suits in equity or at law
to foreclose this Mortgage remaining unpaid, immediately due and payable
without notice, and the Mortgagee may then proceed by suit or suits in
equity or at law to foreclose this Mortgage. Appraisement of the Premises
is hereby waived or not waived at the option of the Mortgagee, such
option to be exercised at or prior to the time judgment is rendered in
such judicial foreclosure.

		
	 	     14.3 Appointment of Receiver. The Mortgagee shall have the immediate
and continuing right to appointment of a receiver for the Mortgaged
Property as provided by law [Title 12, Okla. Stat. (1991), § 1551, et
seq.] as amended, and the Mortgagor specifically consents and agrees to
appointment of a receiver for the Premises after any default hereunder.
Without limitation, the receiver shall have the power to protect and
preserve the Premises, operate the Premises prior to and during any
foreclosure proceedings, to collect the Rents and apply the proceeds,
over and above the costs of the receivership, to the Liabilities. The
receiver shall serve without bond, if permitted by law.

		
	 	     14.4 Foreclosure of Security Interest. In addition to all other
remedies described or referenced in this Mortgage, the Mortgagee, at its
sole subjective discretion, may have all or any part of the personal
property combined with the Premises covered hereby and sold together with
such Premises as an entirety at any foreclosure sale, or the Mortgagee,
at its option, may proceed solely or separately against the personal
property or any part thereof and have the same sold separately as
provided by the Uniform Commercial Code of the State of Oklahoma, either
in one parcel or in such parcels, manner or order as the Mortgagee, in
its sole subjective discretion may elect; the Mortgagee shall have the
right to take immediate and exclusive possession of the personal property
or any part thereof and for that purpose may, with or without judicial
process, enter upon any premises on which the personal property or any
part thereof may be situated and remove the same therefrom; the Mortgagee
shall be entitled to

10

 

		
	 	hold, maintain, preserve and prepare the personal property for sale
until disposed of, or may propose to retain the personal property subject
to the Mortgagor’s right of redemption in partial or total satisfaction
of the Mortgagor’s obligations as provided in the Uniform Commercial Code
of the State of Oklahoma; the Mortgagee without removal may render the
personal property unusable and dispose of the personal property on the
Mortgagor’s premises; the Mortgagee may require the Mortgagor to assemble
the personal property and make it available to the Mortgagee for its
possession at a place to be designated by the Mortgagee which is
reasonably convenient to both parties; unless the personal property is
perishable or threatens to decline speedily in value or is of a type
customarily sold on a recognized market, the Mortgagee shall give the
Mortgagor at least ten (10) days notice of the time and place of any
public sale or any personal property or of the time after which any
private sale or other intended dispositions thereof is to be made, by
United States registered or certified mail, postage prepaid, addressed to
the Mortgagor at the address provided in this Mortgage, which provisions
for notice the Mortgagor and the Mortgagee agree are reasonable; the
Mortgagee may buy all or part of the personal property at any public
sale, and if the personal property is of a type which is subject to
widely distributed standard price quotations. The Mortgagee may buy at
private sale; and further, the Mortgagee shall have all of the rights and
remedies of a Secured Party under the Uniform Commercial Code of the
State of Oklahoma. The Mortgagee shall be entitled to exercise any and
all other rights and remedies available by applicable laws and judicial
decisions.

		
	 	     14.5 No Waiver. In the event the Mortgagee shall elect to
selectively and successfully enforce its rights under this Mortgage or
any other documents or instruments securing payment of the Liabilities,
such action shall not be deemed a waiver or discharge of any other lien,
encumbrance or security interest securing payment of the Liabilities. The
foreclosure of any lien provided pursuant to this Mortgage without the
simultaneous foreclosure of all such liens shall not merge the liens
granted which are not foreclosed with any interest which the Mortgagee
might obtain as a result of such selective and successive foreclosure.

		
	 	     14.6 Sale of Parcels. In case of any sale under this Mortgage, by
virtue of judicial proceedings or otherwise, the Premises may be sold in
one parcel and as an entity or in such parcels, manner or order as the
Mortgagee in its sole discretion may elect.

By executing this Mortgage, the Mortgagor waives, in the event of a foreclosure
of this Mortgage or the enforcement by the Mortgagee of any other rights and
remedies in this Mortgage, any right otherwise available in respect to
marshalling of assets which secure the Liabilities or to require the Mortgagee
to pursue its remedies against any other such assets. The Mortgagor waives all
errors and imperfections in any proceedings instituted by the Mortgagee to
enforce any of its rights and remedies. The exercise of any one right or remedy
by the Mortgagee under this Mortgage or any of the other Related Documents
shall not impair or waive the Mortgagee’s right to exercise any other rights or
remedies available to it at law, in equity, under this Mortgage or under any of
the other Related Documents, all such rights and remedies being cumulative. All
fees, costs and expenses incurred by the Mortgagee in pursuing or enforcing its
rights and remedies at law, in equity, under this Mortgage or under any of the
other Related Documents, whether or not a lawsuit or legal action is filed,
including attorneys’ fees and court costs, shall be payable by the Mortgagor to
the Mortgagee on demand and shall be secured by this Mortgage.

11

 

     15.     Pledge. If the Mortgagor is not liable for all or any part of the
Liabilities, then the Mortgagor agrees that:

		
	 	     15.1 If any moneys become available from any source other than the
Premises that the Mortgagee can apply to the Liabilities, the Mortgagee
may apply them in any manner it chooses, including but not limited to
applying them against obligations, indebtedness or liabilities which are
not secured by this Mortgage.
	 
	 	     15.2 The Mortgagee may take any action against the Borrower, the
Premises or any other collateral for the Liabilities, or any other person
liable for any of the Liabilities.
	 
	 	     15.3 The Mortgagee may release the Borrower or anyone else from the
Liabilities, either in whole or in part, or release the Premises in whole
or in part or any other collateral for the Liabilities, and need not
perfect a security interest in the Premises or any other collateral for
the Liabilities.
	 
	 	     15.4 The Mortgagee does not have to exercise any rights that it has
against the Borrower or anyone else, or make any effort to realize on the
Premises or any other collateral for the Liabilities, or exercise any
right of setoff.
	 
	 	     15.5 Without notice or demand and without affecting the Mortgagor’s
obligations hereunder, from time to time, the Mortgagee is authorized to:
(a) renew, modify, compromise, extend, accelerate or otherwise change the
time for payment of, or otherwise change the terms of the Liabilities or
any part thereof, including increasing or decreasing the rate of interest
thereon; (b) release, substitute or add any one or more sureties,
endorsers, or guarantors; (c) take and hold other collateral for the
payment of the Liabilities, and enforce, exchange, substitute,
subordinate, waive or release any such collateral; (d) proceed against
the Premises or any other collateral for the Liabilities and direct the
order or manner of sale as the Mortgagee in its discretion may determine;
and (e) apply any and all payments received by the Mortgagee in
connection with the Liabilities, or recoveries from the Premises or any
other collateral for the Liabilities, in such order or manner as the
Mortgagee in its discretion may determine.
	 
	 	     15.6 The Mortgagor’s obligations hereunder shall not be released,
diminished or affected by (a) any act or omission of the Mortgagee, (b)
the voluntary or involuntary liquidation, sale or other disposition of
all or substantially all of the assets of the Borrower, or any
receivership, insolvency, bankruptcy, reorganization, or other similar
proceedings affecting the Borrower or any of its assets, (c) any change
in the composition or structure of the Borrower, including a merger or
consolidation with any other person or entity, or (d) any payments made
upon the Liabilities.
	 
	 	     15.7 The Mortgagor expressly consents to any impairment of any other
collateral for the Liabilities, including, but not limited to, failure to
perfect a security interest and release of any other collateral for the
Liabilities and any such impairment or release shall not affect the
Mortgagor’s obligations hereunder.
	 
	 	     15.8 The Mortgagor waives and agrees not to enforce any rights of
subrogation, contribution or indemnification that it may have against the
Borrower, any person liable on the Liabilities, or the Premises, until
the Borrower and the Mortgagor

12

 

		
	 	have fully performed all their obligations to the Mortgagee, even if
those obligations are not covered by this Mortgage.
	 
	 	     15.9 The Mortgagor waives (a) to the extent permitted by law, all
rights and benefits under any laws or statutes regarding sureties, as may
be amended, (b) any right the Mortgagor may have to receive notice of the
following matters before the Mortgagee enforces any of its rights: (i)
the Mortgagee’s acceptance of this Mortgage, (ii) any credit that the
Mortgagee extends to the Borrower, (iii) the Borrower’s default, (iv) any
demand, diligence, presentment, dishonor and protest, or (v) any action
that the Mortgagee takes regarding the Borrower, anyone else, any other
collateral for the Liabilities, or any of the Liabilities, which it might
be entitled to by law or under any other agreement, (c) any right it may
have to require the Mortgagee to proceed against the Borrower, any other
obligor or guarantor of the Liabilities, the Premises or any other
collateral for the Liabilities, or pursue any remedy in the Mortgagee’s
power to pursue, (d) any defense based on any claim that the Mortgagor’s
obligations exceed or are more burdensome than those of the Borrower, (e)
the benefit of any statute of limitations affecting the Mortgagor’s
obligations hereunder or the enforcement hereof, (f) any defense arising
by reason of any disability or other defense of the Borrower or by reason
of the cessation from any cause whatsoever (other than payment in full)
of the obligation of the Borrower for the Liabilities, and (g) any
defense based on or arising out of any defense that the Borrower may have
to the payment or performance of the Liabilities or any portion thereof.
The Mortgagee may waive or delay enforcing any of its rights without
losing them. Any waiver affects only the specific terms and time period
stated in the waiver.
	 
	 	     15.10 The Mortgagor agrees that to the extent any payment is
received by the Mortgagee in connection with the Liabilities, and all or
any part of such payment is subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid by the
Mortgagee or paid over to a trustee, receiver or any other entity,
whether under any bankruptcy act or otherwise (any such payment is
hereinafter referred to as a “Preferential Payment”), then this Mortgage
shall continue to be effective or shall be reinstated, as the case may
be, and whether or not the Mortgagee is in possession of this Mortgage,
and, to the extent of such payment or repayment by the Mortgagee, the
Liabilities or part thereof intended to be satisfied by such Preferential
Payment shall be revived and continued in full force and effect as if
said Preferential Payment had not been made. If this Mortgage must be
reinstated, the Mortgagor agrees to execute and deliver to the Mortgagee
any new mortgages and agreements, if necessary or if requested by the
Mortgagee, in form and substance acceptable to the Mortgagee, covering
the Premises.
	 
	 	     15.11 Any rights of the Mortgagor, whether now existing or hereafter
arising, to receive payment on account of any indebtedness (including
interest) owed to the Mortgagor by the Borrower, or to withdraw capital
invested by the Mortgagor in the Borrower, or to receive distributions
from the Borrower, shall at all times be subordinate to the full and
prior repayment to the Mortgagee of the Liabilities. The Mortgagor shall
not be entitled to enforce or receive payment of any sums hereby
subordinated until the Liabilities have been paid in full and any such
sums received in violation of this Mortgage shall be received by the
Mortgagor in trust for the Mortgagee. The Mortgagor agrees to fully
cooperate with the Mortgagee and not to delay, impede or otherwise
interfere with the efforts of the Mortgagee to secure payment from the
assets which secure the Liabilities including actions, proceedings,
motions, orders, agreements or other matters relating to relief from
automatic stay, abandonment of property, use of cash collateral

13

 

		
	 	and sale of the Mortgagee’s collateral free and clear of all liens.
The foregoing notwithstanding, until the occurrence of any default, the
Mortgagor is not prohibited from receiving distributions from the
Borrower in an amount equal to any income tax liability imposed on the
Mortgagor attributable to the Mortgagor’s ownership interest in the
Borrower, if any.

     16.     Representations
by the Mortgagor. Each Mortgagor represents that: (a)
it is well and truly seized of good and marketable fee simple title to the real
property comprising the Premises and it is the lawful owner of the personal
property comprising the Premises, subject only to Permitted Encumbrances; (b)
the execution and delivery of this Mortgage and the performance of the
obligations it imposes do not violate any law, conflict with any agreement by
which it is bound or require the consent or approval of any governmental
authority or any third party; (c) this Mortgage is a valid and binding
agreement enforceable according to its terms; (d) any balance sheets, profit
and loss statements, and other financial statements furnished to the Mortgagee
in connection with the Liabilities are accurate and fairly reflect the
financial condition of the organizations and persons to which they apply on
their effective dates, including contingent liabilities of every type, which
financial condition has not changed materially and adversely since those dates;
and (e) it shall not permit any proceedings in foreclosure or otherwise that
would affect the Premises. Each Mortgagor, other than a natural person, further
represents that: (i) it is duly organized, existing and in good standing
pursuant to the laws under which it is organized and (ii) the execution and
delivery of this Mortgage and the performance of the obligations it imposes (A)
are within its powers and have been duly authorized by all necessary action of
its governing body and (B) do not contravene the terms of its articles of
incorporation or organization, its by-laws, or any partnership, operating or
other agreement governing its affairs.

     17.     Notice. Any notices and demands under or related to this document
shall be in writing and delivered to the intended party at its address stated
herein, and if to the Mortgagee, at its main office if no other address of the
Mortgagee is specified herein, by one of the following means: (a) by hand, (b)
by a nationally recognized overnight courier service, or (c) by certified mail,
postage prepaid, with return receipt requested. Notice shall be deemed given:
(a) upon receipt if delivered by hand, (b) on the Delivery Day after the day of
deposit with a nationally recognized courier service, or (c) on the third
Delivery Day after the notice is deposited in the mail. “Delivery Day” means a
day other than a Saturday, a Sunday or any other day on which national banking
associations are authorized to be closed. Any party may change its address for
purposes of the receipt of notices and demands by giving notice of such change
in the manner provided in this provision. This notice provision shall be
inapplicable to any judicial or non-judicial proceeding where state law governs
the manner and timing of notices in foreclosure or receivership proceedings.

     18.     Miscellaneous. If any provision of this Mortgage is in conflict with
any statute or rule of law or is otherwise unenforceable for any reason
whatsoever, then that provision is null and void to the extent of the conflict
or unenforceability and shall be severed from but shall not invalidate any
other provision of this Mortgage. No waiver by the Mortgagee of any right or
remedy granted or failure to insist on strict performance by the Mortgagor
waives any other right or remedy of the Mortgagee or waives or bars the
subsequent exercise of the same right or remedy by the Mortgagee for any
subsequent default by the Mortgagor. All rights and remedies of the Mortgagee
are cumulative.

     These promises and agreements bind and these rights benefit the parties
and their respective successors and assigns. If there is more than one
Mortgagor, the obligations under

14

 

this Mortgage are joint and several. The Mortgagor agrees that the
Mortgagee may at any time sell or transfer one or more participation interests
in all or any part of the Liabilities to one or more purchasers whether or not
related to the Mortgagee.

     This Mortgage and the Related Documents constitute the entire
understanding of the parties hereto and may not be amended or altered except by
a written instrument that has been signed by the party(ies) against which
enforcement of the amendment or alteration is sought.

     Captions in this Mortgage are for convenience of reference only and do not
limit the provisions of this Mortgage.

     Time is of the essence in this Mortgage.

     19.     Governing Law and Venue. This Mortgage is delivered in the State of
Oklahoma and governed by Oklahoma law (without giving effect to its laws of
conflicts); provided, however, that if the real estate that is the subject of
this Mortgage is located in another state, the laws of such other state shall
govern the validity, enforceability, perfection, priority, construction,
effect, enforcement and remedies with respect to this Mortgage, but nothing
herein shall be construed to provide that the laws of any state other than the
State of Oklahoma shall apply to the obligations and indebtedness secured by
this Mortgage. The parties agree that any legal action or proceeding with
respect to any of its obligations under this Mortgage shall be brought by the
Mortgagee exclusively in state or federal court located in Tulsa County of the
State of Oklahoma and that proper venue shall lie only in such courts. By the
execution and delivery of this Mortgage, the Mortgagor submits to and accepts,
for itself and in respect of its property, generally and unconditionally, the
exclusive jurisdiction of those courts. The Mortgagor waives any claim that the
State of Oklahoma is not a convenient forum or the proper venue for any such
suit, action or proceeding.

     20.     Indemnification. In addition to the indemnification provisions
described in the section captioned “Environmental Provisions” of this Mortgage,
the Mortgagor agrees to indemnify, defend and hold the Mortgagee, or any of its
subsidiaries or affiliates or their successors, and each of their respective
shareholders, directors, officers, employees and agents (collectively, the
“Indemnified Persons”) harmless from any and all obligations, claims,
liabilities, losses, damages, penalties, fines, forfeitures, actions,
judgments, suits, costs, expenses and disbursements of any kind or nature
(including, without limitation, any Indemnified Person’s attorneys’ fees)
(collectively, the “Claims”) which may be imposed upon, incurred by or assessed
against any Indemnified Person (whether or not caused by any Indemnified
Person’s sole, concurrent, or contributory negligence) arising out of or
relating to this Mortgage; the Mortgagor’s use of the property covered by this
Mortgage; the exercise of the rights and remedies granted under this Mortgage
(including, without limitation, the enforcement of this Mortgage and the
defense of any Indemnified Person’s action or inaction in connection with this
Mortgage); and in connection with the Mortgagor’s failure to perform all of the
Mortgagor’s obligations under this Mortgage, except to the limited extent that
the Claims against any such Indemnified Person are proximately caused by such
Indemnified Person’s gross negligence or willful misconduct. The
indemnification provided for in this section shall survive the termination of
this Mortgage and shall extend to and continue to benefit each individual or
entity who is or has at any time been an Indemnified Person. The Mortgagor’s
indemnity obligations under this section shall not in any way be affected by
the presence or absence of covering insurance, or by the amount of such
insurance or by the failure or refusal of any insurance earner to perform any
obligation on its part under any insurance policy or policies affecting the
Mortgagor’s assets or the Mortgagor’s business activities. Should any Claim be
made or brought against any

15

 

Indemnified Person by reason of any event as to which the Mortgagor’s
indemnification obligations apply, then, upon any Indemnified Person’s demand,
the Mortgagor, at its sole cost and expense, shall defend such Claim in the
Mortgagor’s name, if necessary, by the attorneys for the Mortgagor’s insurance
carrier (if such Claim is covered by insurance), or otherwise by such attorneys
as any Indemnified Person shall approve. Any Indemnified Person may also engage
its own attorneys at its reasonable discretion to defend the Mortgagor and to
assist in its defense and the Mortgagor agrees to pay the fees and
disbursements of such attorneys.

     21.     Material
Information. The Mortgagee acknowledges Section 10.1 of the
Revolving Credit and Term Loan Agreement, dated of even date herewith between
the parties, regarding its obligations surrounding the possession of material,
non-public information. , the Mortgagor agrees that the Mortgagee may, subject
to such obligations, provide any information or knowledge the Mortgagee may
have about the Mortgagor or about any matter relating to this Mortgage or the
Related Documents to any of its subsidiaries or affiliates or their successors.
Any dissemination of material, non-public information to any party not listed
in the foregoing sentence shall only be made subsequent to such party signing a
non-disclosure agreement in a form satisfactory to Mortgagee.

     22.     Relationship
of the Parties. This Mortgage is given as an incentive to
a lending transaction between the Mortgagee and the Mortgagor, and in no event
shall the Mortgagee be construed or held to be a partner, joint venturer or
associate of the Mortgagor in the conduct of business of the Mortgagor on or
about the Premises or otherwise, nor shall the Mortgagee be liable for any
debts or obligations incurred by the Mortgagor in the conduct of such business,
it being understood and agreed that the relationship of the parties is and at
all times shall remain that of lender and borrower.

     23.     Mineral
Interests. The Mortgagor acknowledges that any exploration or
drilling for oil, gas or other minerals in, on, about, or through the Premises
would waste and impair the value of the Premises as security for the payment of
the Liabilities, and the Mortgagor covenants and agrees that it will not
explore or drill for any oil, gas or other minerals, or consent, permit,
authorize or otherwise agree to any exploration or drilling of any oil, gas or
other minerals in, on or through the Premises, without first obtaining from the
Mortgagee written permission, which permission may be granted or withheld on
such terms as the Mortgagee, in its sole subjective discretion, deems
appropriate and shall not be valid until recorded. However, the Mortgagor does
not own any of such oil, gas and other minerals, and the Mortgagor may not be
able to prevent third party owners and lessees thereof from exercising their
rights to explore or drill for such oil, gas and other minerals. If any other
mineral owner, mineral lessee or other third party explores or drills or
undertakes to explore or drill for any oil, gas or other minerals in, on, under
or through the Premises which exploration or drilling would, in the reasonable
judgment of the Mortgagee, waste or impair the value of the Premises as
security for the payment of the Liabilities, then the Mortgagor further
covenants and agrees to pay over unto the Mortgagee any and all moneys,
proceeds, awards or judgments received by the Mortgagor representing damages or
payment in lieu thereof occasioned by such exploration or drilling, which
moneys, proceeds, awards or judgments when received by the Mortgagee shall be
applied towards the Liabilities.

16

 

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

	 	 	
Name: Robert B. Wagner
	 	 	
Title: CFO

ACKNOWLEDGMENT

	 	 	 	 	 	 	 
	STATE OF OKLAHOMA	 	 	 	)	 	 
	 	 	 	 	)	 	ss.
	COUNTY OF TULSA	 	 	 	)	 	 

     This
instrument was acknowledged before me on this 1st day of October,
2003 by Robert B. Wagner, as CFO of XETA TECHNOLOGIES,
INC., an Oklahoma corporation.

	 	 	 
	 	 	
/s/ LaTisha O’Neal
	 	 	

	 	 	
Notary Public

My Commission Expires: 05/04/07
	 	 	
Commission No. 03005686

(SEAL)

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Exhibit “A”

(Legal Description)

Part of Lot One (1), Block One (1), GREENWAY BUSINESS PARK III, an Addition to
the City of Broken Arrow, Tulsa County, State of Oklahoma, according to the
Recorded Plat No. 4796, being more particularly described as follows:

Beginning at a point 466 feet East of the Northwest corner of said Lot 1;
thence S 89°53’46” E 643.85 feet; thence N 35°58’48” E 170 feet; thence
Southeasterly 52.65 feet along a curve to the left with a radius of 717.36 feet
and a tangent bearing of S 54°01“12” E; thence S 58°13’32” E 156.16 feet;
thence Southeasterly 161.88 feet along a curve to the left with a radius of
441.39 feet; thence S 41°03’02” W 393.26 feet; thence South 60.20 feet; thence
S 00°02’00” W 263.30 feet; to a point on the North right-of-way line of West
Tacoma Street; thence continuing along said right-of-way the following: N
89°55’59” W 155.22 feet; Northwesterly 118.36 feet along a curve to the right
with a radius of 276.21 feet; N 65°20’27” W 14.17 feet; Westerly 137.44 feet
along a curve to the left with a radius of 320.21 feet; N 89°55’59” W 260 feet;
Southwesterly 140.56 feet along a curve to the left with a radius of 540.65
feet; thence N 00°18’14” E 610.86 feet to the point of beginning.

18

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