10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2010

OR

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-16231

XETA Technologies, Inc.

(Exact name of registrant as specified in its charter)

Oklahoma	73-1130045
(State or other jurisdiction of	(I.R.S. Employee
incorporation or organization)	Identification No.)

1814 W. Tacoma Street, Broken Arrow, OK	74012-1406
(Address of principal executive offices)	(Zip Code)

918-664-8200

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes o No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined by Rule 12b-2 of the Exchange Act).

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o No x

As of August 23, 2010 there were 10,699,186 shares of the registrant’s common stock, par value $0.001, outstanding.

INDEX

			PAGE
PART I. FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS (Unaudited)
		Consolidated Balance Sheets - July 31, 2010 and October 31, 2009	3
		Consolidated Statements of Operations - For the Three and Nine Months Ended July 31, 2010 and 2009	4
		Consolidated Statement of Shareholders’ Equity - For the Nine Months Ended July 31, 2010	5
		Consolidated Statements of Cash Flows - For the Nine Months Ended July 31, 2010 and 2009	6
		Notes to Consolidated Financial Statements	7
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS		15
	ITEM 4. CONTROLS AND PROCEDURES		19
PART II. OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS		19
	ITEM 1A. RISK FACTORS		19
	ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		21
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES		21
	ITEM 5. OTHER INFORMATION		21
	ITEM 6. EXHIBITS		21

2

XETA TECHNOLOGIES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

	(UNAUDITED)
	July 31, 2010			October 31, 2009
ASSETS
Current assets:
Cash and cash equivalents	$	3,765,276		$	4,731,926
Current portion of net investment in sales-type leases and other receivables	1,207,697			470,025
Trade accounts receivable, net	14,540,631			13,832,452
Inventories, net	4,864,340			5,036,198
Deferred tax asset	1,325,200			1,136,351
Prepaid taxes	65,613			39,784
Prepaid expenses and other assets	2,271,230			2,057,514
Total current assets	28,039,987			27,304,250
Noncurrent assets:
Goodwill	14,303,926			12,031,975
Intangible assets, net	1,032,017			570,740
Net investment in sales-type leases and other receivables, less current portion above	327,404			335,413
Property, plant & equipment, net	6,655,190			6,825,916
Deferred tax asset	—			739,216
Total noncurrent assets	22,318,537			20,503,260
Total assets	$	50,358,524		$	47,807,510
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	—		$	1,183,475
Accounts payable	5,997,032			5,785,225
Current portion of obligations under capital lease	145,155			154,072
Current unearned services revenue	4,729,261			5,194,601
Accrued liabilities	3,950,248			3,444,396
Total current liabilities	14,821,696			15,761,769
Noncurrent liabilities:
Accrued long-term liability	144,100			144,100
Long-term portion of obligations under capital lease	—			106,076
Noncurrent unearned services revenue	49,215			36,691
Noncurrent deferred tax liability	222,417			—
Total noncurrent liabilities	415,732			286,867
Contingencies
Shareholders’ equity:
Preferred stock; $.10 par value; 50,000 shares authorized, 0 issued	—			—
Common stock; $.001 par value; 50,000,000 shares authorized, 11,654,071 issued at July 31, 2010 and 11,256,193 issued at October 31, 2009	11,653			11,255
Paid-in capital	15,623,224			13,704,460
Retained earnings	21,581,086			20,223,169
Less treasury stock, at cost (954,885 shares at July 31, 2010 and 993,763 shares at October 31, 2009)	(2,094,867		)	(2,180,010		)
Total shareholders’ equity	35,121,096			31,758,874
Total liabilities and shareholders’ equity	$	50,358,524		$	47,807,510

The accompanying notes are an integral part of these consolidated financial statements.

3

XETA TECHNOLOGIES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	For the Three Months						For the Nine Months
	Ended July  31,						Ended July  31,
	2010			2009			2010			2009
Systems sales	$	8,536,584		$	6,522,569		$	25,146,279		$	22,897,460
Services	12,166,889			10,524,397			35,661,654			30,359,279
Other revenues	188,300			136,271			325,980			263,126
Net sales and services revenues	20,891,773			17,183,237			61,133,913			53,519,865
Cost of systems sales	6,021,390			4,639,749			18,270,980			16,791,637
Services costs	8,223,095			7,505,892			24,236,849			21,258,445
Cost of other revenues & corporate COGS	434,436			425,480			1,287,991			1,308,525
Total cost of sales and services	14,678,921			12,571,121			43,795,820			39,358,607
Gross profit	6,212,852			4,612,116			17,338,093			14,161,258
Operating expenses
Selling, general and administrative	5,178,574			4,388,488			14,566,200			12,925,794
Amortization	206,386			344,727			580,471			1,001,984
Impairment of goodwill & other assets	—			14,000,000			—			14,000,000
Total operating expenses	5,384,960			18,733,215			15,146,671			27,927,778
Income (loss) from operations	827,892			(14,121,099		)	2,191,422			(13,766,520		)
Interest expense	(4,372		)	(20,810		)	(15,286		)	(79,211		)
Interest and other income (expense)	20,254			(1,159		)	58,781			14,219
Net interest and other income (expense)	15,882			(21,969		)	43,495			(64,992		)
Income (loss) before provision for income taxes	843,774			(14,143,068		)	2,234,917			(13,831,512		)
Provision (benefit) for income taxes	331,000			(5,544,000		)	877,000			(5,418,000		)
Net income (loss)	$	512,774		$	(8,599,068	)	$	1,357,917		$	(8,413,512	)
Earnings (loss) per share
Basic	$	0.05		$	(0.84	)	$	0.13		$	(0.82	)
Diluted	$	0.05		$	(0.84	)	$	0.13		$	(0.82	)
Weighted average shares outstanding	10,533,335			10,223,753			10,328,689			10,223,881
Weighted average equivalent shares	10,611,403			10,223,753			10,386,218			10,223,881

The accompanying notes are an integral part of these consolidated financial statements.

4

XETA TECHNOLOGIES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

	Common Stock			Treasury Stock
	Shares Issued	Par Value		Shares		Amount			Paid-in Capital			Retained Earnings		Total
Balance- October 31, 2009	11,256,193	$	11,255	993,763		$	(2,180,010	)	$	13,704,460		$	20,223,169	$	31,758,874
Issuance of restricted common stock from treasury	—	—		(38,878	)	85,143			(85,143		)	—		—
Issuance of common stock	397,878	398		—		—			1,499,602			—		1,500,000
Issuance of warrants	—	—		—		—			279,000			—		279,000
Stock-based compensation	—	—		—		—			225,305			—		225,305
Net income	—	—		—		—			—			1,357,917		1,357,917
Balance- July 31, 2010	11,654,071	$	11,653	954,885		$	(2,094,867	)	$	15,623,224		$	21,581,086	$	35,121,096

The accompanying notes are an integral part of these consolidated financial statements.

5

XETA TECHNOLOGIES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the Nine Months
	Ended July 31,
	2010			2009
Cash flows from operating activities:
Net income (loss)	$	1,357,917		$	(8,413,512	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation	906,435			722,944
Amortization	580,471			1,001,984
Impairment of goodwill & other assets	—			14,000,000
Stock-based compensation	200,240			219,476
Loss on sale of assets	—			3,764
Provision for returns & doubtful accounts receivable	45,000			395,000
Provision for excess and obsolete inventory	76,500			76,500
Deferred taxes	814,466			(5,547,052		)
Change in assets and liabilities:
Increase in net investment in sales-type leases & other receivables	(729,663		)	(7,440		)
(Increase) decrease in trade accounts receivable	(323,541		)	8,628,795
Decrease in inventories	338,080			295,968
(Increase) decrease in prepaid expenses and other assets	(200,708		)	109,831
(Increase) decrease in prepaid taxes	(25,829		)	31,219
Decrease in accounts payable	(589,907		)	(2,739,735		)
Decrease in unearned revenue	(554,824		)	(446,734		)
Increase (decrease) in accrued liabilities	483,251			(408,020		)
Total adjustments	1,019,971			16,336,500
Net cash provided by operating activities	2,377,888			7,922,988
Cash flows from investing activities:
Additions to property, plant & equipment	(1,046,070		)	(636,586		)
Proceeds from sale of assets	—			5,064
Acquisitions, net of cash acquired	(1,000,000		)	(802,887		)
Investment in capitalized service contracts	—			(750,000		)
Net cash used in investing activities	(2,046,070		)	(2,184,409		)
Cash flows from financing activities:
Principal payments on debt	(1,183,475		)	(128,317		)
Net payments on revolving line of credit	—			(2,524,130		)
Payments on capital lease obligations	(114,993		)	(110,630		)
Payments to acquire treasury stock	—			(58,157		)
Net cash used in financing activities	(1,298,468		)	(2,821,234		)
Net (decrease) increase in cash and cash equivalents	(966,650		)	2,917,345
Cash and cash equivalents, beginning of period	4,731,926			63,639
Cash and cash equivalents, end of period	$	3,765,276		$	2,980,984
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	22,679		$	87,523
Cash paid during the period for income taxes	$	47,582		$	102,095
Non-cash investing and financing activity:
Issuance of common stock for acquisition	$	1,500,000		$	—
Issuance of warrants for acquisition	$	279,000		$	—

The accompanying notes are an integral part of these consolidated financial statements.

6

XETA TECHNOLOGIES, INC. AND SUBSIDIARY

Notes to Consolidated Financial Statements

July 31, 2010

(Unaudited)

1.  BASIS OF PRESENTATION:

XETA Technologies, Inc. (“XETA”, the “Company”, “we”, “us”, or “our”), an Oklahoma corporation formed in 1981, is a leading integrator of advanced communications technologies with nationwide sales and service.  XETA provides sales, design, project management, implementation, and maintenance services in support of the products it represents.  The Company sells and/or supports products produced by several manufacturers including Avaya, Inc. (“Avaya”), Mitel Corporation (“Mitel”), and Samsung Business Communications Systems (“Samsung”).  Through its recent acquisition of the assets of Hotel Technology Solutions, Inc. (“Lorica”) the Company provides high speed internet access, network monitoring services, and guest help desk services to the hospitality industry.  The Company also manufactures and markets a line of proprietary call accounting systems to the hospitality industry.

The Company prepared the accompanying unaudited consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “Commission”).  Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to those rules and regulations.  The Company believes that the disclosures are reasonably adequate to ensure the information is not misleading.  Management suggests that these condensed financial statements be read in conjunction with the consolidated financial statements and the notes thereto made a part of the Company’s Annual Report on Form 10-K.  The Company filed the 10-K as Commission File No. 0-16231, with the Commission on January 8, 2010.  Management believes that the financial statements contain the necessary adjustments for a fair statement of the results for the interim periods presented.  All adjustments were of a normal recurring nature.  The results of operations for the interim period are not necessarily indicative of the results for the entire fiscal year.

Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate the value:

The carrying value of cash and cash equivalents, customer deposits, trade accounts receivable, sales-type leases, accounts payable and short-term debt approximate their respective fair values due to their short maturities.

Based upon the borrowing rates currently available to the Company for bank loans with similar terms and average maturities, the fair value of the long-term debt approximates the carrying value.

Segment Information

The Company has three reportable segments: services, commercial system sales, and hospitality system sales.  Services revenues represent revenues earned from installing and maintaining systems for customers in both the commercial and hospitality segments.  The Company defines commercial system sales as sales to the non-hospitality industry.

The reporting segments follow the same accounting policies used for the Company’s consolidated financial statements and are described in the Summary of Significant Accounting Policies in the Company’s Form 10-K described above.  Company management evaluates a segment’s performance based on gross margins.  Assets are not allocated to the segments.  Sales outside of the U.S. are immaterial.

7

The following is a tabulation of business segment information for the three months ended July 31, 2010 and 2009:

	Services Revenues			Commercial Systems Sales			Hospitality Systems Sales			Other Revenue			Total
2010
Sales	$	12,166,889		$	7,296,428		$	1,240,156		$	188,300		$	20,891,773
Cost of sales	(8,223,095		)	(5,136,934		)	(884,456		)	(434,436		)	(14,678,921		)
Gross profit	$	3,943,794		$	2,159,494		$	355,700		$	(246,136	)	$	6,212,852
2009
Sales	$	10,524,397		$	4,032,103		$	2,490,466		$	136,271		$	17,183,237
Cost of sales	(7,505,892		)	(2,828,437		)	(1,811,312		)	(425,480		)	(12,571,121		)
Gross profit	$	3,018,505		$	1,203,666		$	679,154		$	(289,209	)	$	4,612,116

The following is a tabulation of business segment information for the nine months ended July 31, 2010 and 2009:

	Services Revenues			Commercial Systems Sales			Hospitality Systems Sales			Other Revenue			Total
2010
Sales	$	35,661,654		$	22,062,341		$	3,083,938		$	325,980		$	61,133,913
Cost of sales	(24,236,849		)	(16,134,299		)	(2,136,681		)	(1,287,991		)	(43,795,820		)
Gross profit	$	11,424,805		$	5,928,042		$	947,257		$	(962,011	)	$	17,338,093
2009
Sales	$	30,359,279		$	15,608,586		$	7,288,874		$	263,126		$	53,519,865
Cost of sales	(21,258,445		)	(11,591,536		)	(5,200,101		)	(1,308,525		)	(39,358,607		)
Gross profit	$	9,100,834		$	4,017,050		$	2,088,773		$	(1,045,399	)	$	14,161,258

Stock-Based Compensation Plans

The Company applies the provisions of ASC 718, “Compensation — Stock Compensation”, which requires companies to measure all employee stock-based compensation awards using a fair value method and recognize compensation cost in its financial statements.  The Company recognizes the fair value of stock-based compensation awards as selling, general and administrative expense in the consolidated statements of operations on a straight-line basis over the vesting period.  Compensation expense was recognized in the statements of operations as follows:

	2010		2009
Three months ended July 31,	$	65,510	$	74,878
Nine months ended July 31,	$	200,240	$	219,476

Use of Estimates

The preparation of the financial statements conforms to the accounting principles generally accepted in the U.S., and requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities: disclosure of contingent assets and liabilities at the date of the financial statements; and the reported amounts of revenues and expenses during the reporting period.  Actual results may differ from these estimates.

8

New Accounting Pronouncements

In July 2010 the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-20, “Receivables (Topic 310): Disclosure about the Credit Quality of Financing Receivables and the Allowance for Credit Losses”.  ASU 2010-20 requires disclosures designed to enhance transparency regarding credit losses and the credit quality of loan and lease receivables.   Disclosures include an evaluation of the nature of credit risk inherent in the entity’s financing receivables; how the risk is analyzed to arrive at the allowance for credit losses and the changes and reasons for changes in the allowance for credit losses.  Under this guidance, the allowance for credit losses and fair value are to be disclosed by portfolio segment.  ASU 2010-20 will be effective for fiscal years beginning on or after December 31, 2010.  The adoption of this guidance is not expected to have an impact on the Company’s consolidated financial statements.

In February 2010 the FASB issued ASU 2010-09, “Subsequent Events: Amendments to Certain Recognition and Disclosure Requirements”.  The guidance in ASU 2010-09 removes the requirement for SEC filers to disclose the date through which subsequent events have been evaluated.  The adoption of this update did not have a material impact on the Company’s financial position or results of operations.

In November 2009 the Company adopted Accounting Standards Codification (“ASC”) 810, “Consolidation”.  ASC 810 changes the accounting and reporting for minority interests, which are now recharacterized as non-controlling interests and classified as a component of equity.   The Company does not have any minority interests; therefore the adoption of this statement did not have an impact on the Company’s consolidated financial statements.

In November 2009 the Company adopted ASC 805, “Business Combinations”.  Under ASC 805, an entity is required to recognize the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date.  It further requires that acquisition-related costs are recognized separately from the acquisition and expensed as incurred, restructuring costs generally expensed in periods subsequent to the acquisition date, and changes in accounting for deferred tax asset valuation allowances and acquired income tax uncertainties after the measurement period impact income tax expense.  The Company began applying the guidance to business combinations in fiscal 2010.

In November 2009 the Company adopted ASC 350 “Intangibles — Goodwill and Other”.  The guidance amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of intangible assets.  The intent of the guidance is to improve the consistency between the useful life of a recognized intangible asset under the accounting standards and the period of the expected cash flows used to measure the fair value of the asset.  The Company began applying the guidance to intangible assets acquired in fiscal 2010.

In October 2009 the FASB issued ASU 2009-13, “Revenue Recognition - Multiple-Deliverable Revenue Arrangements”.  The guidance in ASU 2009-13 amends the criteria for separating consideration in multiple-deliverable arrangements.  The guidance eliminates the estimated fair value approach for revenue allocation between the separate units of accounting and replaces it with a sales-based approach referred so as the relative-selling-price method. ASU 2009-13 expands required disclosures related to a company’s multiple-deliverable revenue arrangements.  ASU 2009-13 is effective prospectively for fiscal years beginning on or after June 15, 2010.  The Company is currently assessing the impact that adoption will have on required disclosures, its financial position and results of operations.

Other accounting standards that have been issued or proposed that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.

9

2.  ACCOUNTS RECEIVABLE:

Trade accounts receivable consist of the following:

	July 31, 2010			(Audited) October 31, 2009
Trade accounts receivable	$	15,090,558		$	14,393,681
Less- reserve for doubtful accounts	(549,927		)	(561,229		)
Net trade accounts receivable	$	14,540,631		$	13,832,452

On January 14, 2009, Nortel Networks Corporation filed for bankruptcy protection in the United States Bankruptcy Court for the District of Delaware.  Subsequent to the filing the administrators of the bankruptcy adopted a business disposal strategy.  Under the strategy, the administrators segmented Nortel into three primary business units: Virtual Service Switches, CDMA businesses and Enterprise Solutions. We conducted all of our Nortel business through the Enterprise Solutions unit.

On December 18, 2009, Avaya completed the purchase of Nortel’s Enterprise Solutions business unit.  Nortel owes XETA approximately $700,000 in pre-petition accounts receivable.  On July 17, 2009 the bankruptcy court granted XETA’s request for offset of $116,000 in charges owed to Nortel at the time of the filing.  In fiscal year 2009, the Company recorded $350,000 as a reserve against possible Nortel bad debts.  Nortel filed its plan of reorganization on July 12, 2010 (the “Nortel Plan”).  XETA’s claim is classified as a Class 3 claim, “General Unsecured Claims”.  The Nortel Plan states that priority non-tax claims and secured claims will be paid in full, but that Class 3 claims will be impaired.  No indication or estimate is given as to the potential extent of the impairment.  According to the Nortel Plan, XETA and other Class 3 claimants will receive a pro rata share of the assets of Nortel at the time the Nortel Plan goes into affect.  The next significant action in this matter is expected to be Nortel’s filing of a Disclosure Statement in mid-September providing more information regarding Nortel’s assets and potentially an estimate of payouts to Class 3 creditors.  Based on the information presently available, the Company can make no further determination regarding the adequacy of its reserve in this matter.  The Company will continue to carefully follow developments associated with the bankruptcy case and will assert its legal rights and defenses as appropriate.

3.  INVENTORIES:

Inventories are stated at the lower of average cost or market and consist of the following:

	July 31, 2010			(Audited) October 31, 2009
Finished goods and spare parts	$	5,899,077		$	5,977,703
Less- reserve for excess and obsolete inventories	(1,034,737		)	(941,505		)
Total inventories, net	$	4,864,340		$	5,036,198

10

4.  PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment consist of the following:

	Estimated Useful Lives	July 31,  2010			(Audited) October 31,  2009
Building and building improvements	3-20	$	3,378,035		$	3,253,693
Data processing and computer field equipment	2-7	3,977,439			3,248,126
Software development costs, work-in-process	N/A	227,862			197,097
Software development costs of components placed into service	3-10	2,731,310			2,697,806
Hardware	3-5	643,635			643,635
Land	—	611,582			611,582
Office furniture	5-7	813,556			779,588
Auto	5	545,548			537,300
Other	3-7	145,779			149,484
Total property, plant and equipment		13,074,746			12,118,311
Less- accumulated depreciation and amortization		(6,419,556		)	(5,292,395		)
Total property, plant and equipment, net		$	6,655,190		$	6,825,916

5.  INCOME TAXES:

The tax provision reflects the effective Federal tax rate plus the composite state income tax rates adjusted for states that require minimum tax payments even if tax losses are incurred.  Generally, we expect our tax provision rate to be approximately 40%.

6.  CREDIT AGREEMENTS:

In November 2009, the Company entered into a one-year loan agreement with a new financial institution. This agreement replaced our previous credit facility, which was scheduled to mature on November 30, 2009.  The loan agreement consists of an $8.5 million revolving credit facility collateralized by trade accounts receivable, inventories, and real estate.

At July 31, 2010, the Company did not have an outstanding balance on the revolving line of credit.  The Company had approximately $8.5 million available under the revolving line of credit at July 31, 2010.  The advance rates are defined in the agreement, but are generally at the rate of 75% on qualified trade accounts receivable and 50% of qualified inventories and real estate, subject to a maximum of $2.0 million each.  Long term debt consisted of the following:

	July 31,  2010		(Audited)  October 31,  2009
Term note, payable with a fixed payment of $1,183,475 due November 30, 2009, collateralized by a first mortgage on the Company’s building	$	—	$	1,183,475
Less-current maturities	—		1,183,475
Total long-term debt, less current maturities	$	—	$	—

Interest on all outstanding debt under the credit facility accrues at the greater of either the London Interbank Offered Rate (“LIBOR”) (0.305% at July 31, 2010) plus 3.0% or 4.5%.  The credit facility contains several financial covenants common in such agreements including tangible net worth requirements, limitations on the amount of funded debt to annual earnings before interest, taxes, depreciation and amortization, limitations on cash dividends, and debt service coverage requirements.  At July 31, 2010 the Company was in compliance with the covenants of the credit facility.

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7.  EARNINGS PER SHARE:

The Company computes basic earnings per common share by dividing net income by the weighted average number of shares of common stock outstanding during the reporting periods.  Dividing net income by the weighted average number of shares of common stock and dilutive potential common stock outstanding during the reporting periods computes diluted earnings per common share.  A reconciliation of net income and weighted average shares used in computing basic and diluted earnings per share is as follows:

	For the Three Months Ended July 31, 2010
	Income (Numerator)		Shares (Denominator)	Per Share Amount
Basic EPS
Net income	$	512,774	10,533,335	$	0.05
Dilutive effect of stock options			78,068
Diluted EPS
Net income	$	512,774	10,611,403	$	0.05

	For the Three Months Ended July 31, 2009
	Loss (Numerator)			Shares (Denominator)	Per Share Amount
Basic EPS
Net loss	$	(8,599,068	)	10,223,753	$	(0.84	)
Dilutive effect of stock options				—
Diluted EPS
Net loss	$	(8,599,068	)	10,223,753	$	(0.84	)

	For the Nine Months Ended July 31, 2010
	Income (Numerator)		Shares (Denominator)	Per Share Amount
Basic EPS
Net income	$	1,357,917	10,328,689	$	0.13
Dilutive effect of stock options			57,529
Diluted EPS
Net income	$	1,357,917	10,386,218	$	0.13

	For the Nine Months Ended July 31, 2009
	Loss (Numerator)			Shares (Denominator)	Per Share Amount
Basic EPS
Net loss	$	(8,413,512	)	10,223,881	$	(0.82	)
Dilutive effect of stock options				—
Diluted EPS
Net loss	$	(8,413,512	)	10,223,881	$	(0.82	)

Options to purchase 712,450 shares of common stock at an average exercise price of $5.82 and 1,269,900 shares of common stock at an average exercise price of $6.42 were not included in the computation of diluted earnings per share for the three months ended July 31, 2010 and 2009, respectively, because inclusion of these options would be antidilutive.  Options to purchase 834,595 shares of common stock at an average exercise price of $5.23 and 1,269,900 shares of common stock at an average exercise price of $6.42 were not included in the computation of diluted earnings per share for the nine months ended July 31, 2010 and 2009, respectively, because inclusion of these options would be antidilutive.

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8.  CONTINGENCIES:

In addition to potential losses related to Nortel’s pre-petition receivables, the Company may be subject to preference payment claims asserted by Nortel.  It is routine in bankruptcy proceedings for the debtor in possession or bankruptcy trustee to assert a statutory “preference claim” to seek to recover payments made by the bankrupt entity to creditors during the 90-day period immediately preceding the filing of the bankruptcy petition.  This period is known as the “preference period”.  Although the debtor is entitled to make a claim based solely upon when the payments were made, the payments are not recoverable if they were made in the debtor’s ordinary course of dealings with the creditor.  Nortel has filed a schedule showing approximately $1.6 million in payments made to the Company during the preference period.  To date Nortel has not asserted a preference claim against the Company.  However, if a preference claim is brought, the Company believes it has good defenses to any such potential claim against it, including that the subject payments were made in the ordinary course of the Company’s business dealings with Nortel.  These defenses must be argued on each individual Company invoice paid during the preference period.  The Company is unable at this time to determine the extent, if any, of any material loss that might occur if a claim to recover preference payments is asserted.  Therefore, no provision for loss has been made beyond the amount discussed above related to unpaid invoices at the time of the bankruptcy filing.

9.  CAPITAL LEASES:

During 2008 the Company leased software licenses under an agreement that is classified as a capital lease. The book value of the licenses is included in the balance sheet as property, plant and equipment and was $139,492 at July 31, 2010.  Accumulated amortization of the leased licenses at July 31, 2010 was $317,028.  Amortization under the capital lease is included in depreciation expense.  The future minimum lease payments required under the capital lease and the present value of the net minimum lease payments as of July 31, 2010, are as follows:

	Capital  Lease Payments
Total minimum lease payments	$	147,982
Less- imputed interest	2,827
Present value of minimum payments	145,155
Less-current maturities of capital lease obligation	145,155
Long-term capital lease obligation	$	—

10.  ACQUISITIONS:

On May 24, 2010, the Company completed the purchase of the operating assets of Hotel Technologies Solutions, Inc., d/b/a Lorica Solutions (“Lorica”), a privately-held company headquartered in Buffalo, New York.  Lorica is an emerging leader in the delivery of high-speed internet access and network administration to the hospitality industry.  Under the terms of the purchase agreement, total consideration to be paid by the Company is $2.8 million plus certain assumed liabilities.  The purchase price included $833,000 paid in cash at closing; 397,878 shares of XETA common stock valued at $1.5 million based on the May 21, 2010 closing price of $3.77; five year warrants to purchase 150,000 shares of XETA common stock at $3.77 valued at $279,000; and $167,000 in cash deposited into an escrow account as required under the purchase agreement.  The acquisition is not material to the Company’s financial position or results of operations.

The fair values of the assets acquired and liabilities assumed for Lorica are provisional and are based on the information available as of the acquisition date.  The Company believes that the information available provides a reasonable basis for estimating the fair value but additional information may be necessary to finalize the valuation.  The provisional measurements of fair value are subject to change.  The Company expects to finalize the valuation and complete the purchase price allocation as soon as practicable but no later than one year from the acquisition date.

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11.  SUBSEQUENT EVENTS:

On August 2, 2010, the Company completed the purchase of 100% of the voting stock of Pyramid Communications Services, Inc., (“Pyramid”) a Dallas, Texas based privately held company providing communications equipment and related services.  Pyramid’s 2009 revenues exceeded $10.0 million.  The purchase price included $1.8 million paid in cash at closing; $675,000 in subordinated promissory notes payable to the sellers in eight quarterly installments bearing interest at three percent per year; $200,000 in cash deposited into an escrow account as required under the purchase agreement; and $100,000 payable to the former CEO of Pyramid in thirty six monthly installments under personal goodwill and non-compete agreements.  Additionally, the Company retired $648,222 in principal and accrued interest on Pyramid’s outstanding line of credit with its bank.  The Company used $2.65 million from existing cash balances to fund the purchase price.  The acquisition is not material to the Company’s financial position or results of operations.

On September 2, 2010, the Company completed the purchase of the operating assets of Data-Com Telecomunications, Inc., (“Data-Com”) a New Jersey based privately held company providing communications equipment and related services to the greater New York City area.  The purchase price was $3.070 million cash.  Of this amount, $604,000 was put into escrow until certain tax liabilities are determined; customer overpayments are resolved; and the final value of the net assets purchased is established.  The acquisition is not material to the Company’s financial position or results of operations.

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Preliminary Note Regarding Forward-Looking Statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, relating to future events and our future performance and results.  Many of these statements appear in the discussions under the headings “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  All statements other than those that are purely historical may be forward-looking statements.  Forward-looking statements can generally be identified by words such as “expects,” “anticipates,” “may,” “likely,” “plans,” “believes,” “intends,” “projects,” “estimates,” and similar words or expressions.  Forward-looking statements are not guarantees of performance, but rather reflect management’s current expectations, estimates, and forecasts about the industry and markets in which we operate, and our assumptions and beliefs based upon information currently available to management.  Investors are cautioned that all forward-looking statements are subject to certain risks and uncertainties which are difficult to predict or which we are unable to control, and that could cause actual results to differ materially from those projected, including but not limited to such factors as the condition of the U.S. economy and its impact on capital spending trends in the Company’s markets; whether the integration of recently acquired businesses into that of the Company and realization of anticipated synergies and growth opportunities from such transactions are successful; success in our overall strategy; the financial condition of our suppliers and changes by them in their distribution strategies and support; the Nortel Networks bankruptcy filing and the potential negative impact that it may have on the Company’s prepetition accounts receivable claim against Nortel or if Nortel succeeds in bringing a preference claim against the Company; unpredictable quarter to quarter revenues; changes in Avaya’s strategies regarding the provision of equipment and services to its customers, and in its policies regarding the availability of tier IV hardware and software support; inconsistent gross profit margins; availability of credit to finance growth; intense competition and industry consolidation; dependence upon a few large wholesale customers in the Company’s Managed Services offering; and the availability and retention of revenue professionals and certified technicians.  These and other risks and uncertainties are discussed under the heading “Risk Factors” under Part I of the Company’s Form 10-K for the fiscal year ended October 31, 2009 (filed with the Commission on January 8, 2010) and in updates to such risk factors set forth in Item 1A of Part II of this quarterly report.  As a result of these risks and uncertainties, actual results may differ materially and adversely from those expressed in forward-looking statements.  Consequently, investors are cautioned to read and consider all forward-looking statements in conjunction with such risk factors and uncertainties.  The Private Securities Litigation Reform Act of 1995 provides a safe-harbor for forward-looking statements made by the Company.

Overview

Strategy.

In advance of fiscal 2010, senior management conducted its periodic review of the strategic direction of the Company.  This review resulted in a threefold refinement of the strategic focus and direction of the organization including: continued emphasis on aggressive growth in our managed services business; use of our unique position to search out and pursue organic and acquisitive growth opportunities resulting from Avaya’s acquisition of Nortel’s enterprise business (NES); and advance a longer-term business initiative focused on the sales, design, integration and maintenance and repair of collaborative technologies and advanced applications.

Management believes these strategies are appropriate to fully realize the benefits of our investments in high value talent and competencies, to capitalize on the market realignment resulting from Avaya’s acquisition of NES and to ready ourselves in anticipation of growth in demand for advanced applications and collaborative technologies.

Even though we are experiencing growth in our services revenue, the overall market for our products and services remains challenging.  While some of our customers are enjoying improvements in their business and are therefore purchasing and implementing new communications systems, many others remain

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cautiously optimistic about near-term economic improvement and are continuing to limit new spending and are furthering their efforts to reduce ongoing operating costs.  Consequently, we have not experienced an overall improvement in purchases of new systems and related services.  Additionally, some of our major customers have faced unique challenges in their operations which have slowed expected orders.  Finally, the acquisition of NES by Avaya has created a pause in some customers’ normal buying patterns as they evaluate Avaya’s technology roadmap and service strategies.

On May 24, 2010, the Company completed the purchase of the operating assets of Hotel Technologies Solutions, Inc., d/b/a Lorica Solutions (“Lorica”), a privately-held company headquartered in Buffalo, New York.  Lorica is an emerging leader in the delivery of high-speed internet access and network administration to the hospitality industry.  The terms of the purchase agreement are described in Note 10 of the Notes to Consolidated Financial Statements.

On August 2, 2010, the Company completed the purchase of the stock of Pyramid Communications Services, Inc. (“Pyramid”), a privately held company headquartered in Dallas, Texas.  Pyramid provides communications equipment and related services with 2009 revenues in excess of $10.0 million.  The terms of the purchase agreement are described in Note 11 of the Notes to Consolidated Financial Statements.

Operating Summary.

In the third quarter of fiscal 2010, we recorded net income of $513,000 on revenues of $20.9 million compared to a net loss of $8.6 million on revenues of $17.2 million in the third quarter of last year.  For the first nine months of fiscal 2010, we earned $1.4 million in net income on revenues of $61.1 million compared to a net loss of $8.4 million on revenues of $53.5 million for the first nine months of last year.  In the third quarter of fiscal 2009, we recorded an impairment charge on goodwill and other assets of $14.0 million and related tax benefit of $5.5 million.  Our non-GAAP net income was $98,000 for the first nine months of last year.  Apart from the impairment charges recorded in 2009, the improved 2010 results primarily reflect an increase in revenues and gross profits partially offset by increased selling, general and administrative costs.  We discuss this and other contributing factors in more detail under “Results of Operations” below.

Financial Position Summary.

Since October 31, 2009, we have generated positive cash flows from operations of $2.4 million and we primarily used these cash flows to reduce borrowings, purchase the net operating assets of Lorica and make capital expenditures to support our operations.  We have improved our working capital approximately 15%.  We discuss these and other financial items in more detail under “Financial Condition” below.

The following discussion presents additional information regarding our financial condition and results of operations for the three- and nine-month periods ended July 31, 2010 and 2009 and should be considered in conjunction with our above comments as well as the “Risk Factors” section below.

Financial Condition

During the first three fiscal quarters of 2010 our working capital increased by 15% to $13.2 million.  We generated $2.4 million in cash flows from operations.  These cash flows included earnings and non-cash charges of $3.2 million; a decrease in inventory of $338,000; an increase in accrued liabilities of $483,000; and a decrease in deferred taxes of $814,000.  These positive cash flow items were partially offset by an increase in accounts receivable of $324,000; a decrease in unearned revenue of $555,000; a decrease in accounts payable of $590,000; and other changes in working capital items.  These items netted to a decrease in cash of $956,000.  Non-cash charges included amortization of $580,000; depreciation of $906,000; provisions for doubtful accounts receivable and obsolete inventories of $122,000; and stock-based compensation of $200,000.

We used these positive cash flows to pay off term debt of $1.2 million; to purchases the net operating assets of Lorica of $1.0 million, acquire capital assets of $1.1 million; and fund other financing and investing activities of $115,000.  The acquisition of capital assets was part of normal replacement of Information Technology infrastructure and headquarters facility improvements.

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At July 31, 2010, our cash balance was $3.8 million and there was no outstanding balance on our working capital revolver.  In accordance with the collateral base defined in the credit facility, $8.5 million was available for borrowing on the $8.5 million facility at the end of the quarter.  The working capital revolver is scheduled to mature on November 5, 2010.  We expect to renew this instrument for a 12-month or longer period prior to the expiration.  It is possible that the renewal could result in higher borrowing costs and/or reduced availability for unsecured borrowings.

We expect to utilize a variety of common financing tools to fund acquisitions.  We believe our cash balances, expected free cash flows from operations, and available borrowing capacity will be our primary sources of capital.  However, we also expect to employ seller financing in the form of subordinated notes, earn-out agreements, indemnity hold-backs, and occasionally restricted stock and/or warrants.  The level to which we employ these various methods, particularly the use of our equity, will depend upon a multitude of factors which are unique to each negotiation.  In addition to the available capacity under our working capital line of credit, we believe we have access to a variety of capital sources such as private placements of subordinated debt, and public or private sales of equity to finance investments beyond our current needs.

Results of Operations

In the third quarter of fiscal 2010 revenues were $20.9 million compared to $17.2 million in the third quarter 2009.  Our net income in the third quarter of fiscal 2010 was $513,000, compared to a net loss of $8.6 million in the same quarter a year ago.  Apart from the impairment charges on goodwill and other assets of $14.0 million recorded in the third quarter of fiscal 2009, these results primarily reflect increased services and equipment revenues partially offset by higher selling, general and administrative costs.  In the first nine months of the year, revenues were $61.1 million compared to $53.5 million for the first nine months of fiscal 2009.  Our net income for the first nine months of fiscal 2010 was $1.4 million compared to a net loss of $8.4 million in the first nine months of fiscal 2009.  The year-to-date results, excluding the impairment charge recorded in 2009, primarily reflect our strong first and third quarter results in all of our major revenue and gross profit categories.  The narrative below provides further explanation of these results.

Systems Sales.

In the third quarter of fiscal 2010 systems sales increased approximately $2.0 million or 31% compared to the same period last year.  This increase includes a $3.3 million or 81% increase in sales of systems to commercial customers and a $1.3 million or 50% decrease in sales of systems to hospitality customers.  Year-to-date systems sales increased $2.2 million or 10% compared to last year.  This increase includes an increase in sales of systems to commercial customers of $6.5 million or 41% which was offset by a decrease in sales of systems to hospitality customers of $4.2 million or 58%.  The third quarter increase in systems sales reflects a large project with one of our major customers in the education vertical market.  Orders for systems to other commercial customers are above last year’s pace but reflect the general unpredictable nature of this segment of our business and reluctance on the part of some customers to make significant new investments in technology.  In addition, uncertain U.S. economic conditions continue to present complex challenges to our hospitality customers as evidenced by the decline in revenues in this sector.  The hospitality industry as a whole is experiencing cyclical weakness in demand and has limited its spending on new communications equipment and solutions.

Services Revenues.

Services revenues consist of the following:

	For the Three Months Ended July 31,				For the Nine Months Ended July 31,
	2010		2009		2010		2009
Maintenance & repair	$	8,253,000	$	7,358,000	$	23,984,000	$	21,384,000
Implementation	3,164,000		2,469,000		9,453,000		6,926,000
Cabling	750,000		697,000		2,225,000		2,049,000
Total Services revenues	$	12,167,000	$	10,524,000	$	35,662,000	$	30,359,000

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Maintenance and repair revenues increased 12% in the third quarter and year-to-date periods.  This year-to-date performance reflects the continued success of our wholesale services programs and repair revenues as well as the addition to our base of maintenance customers associated with the purchase of Lorica in the third quarter of fiscal 2010.  We continue to aggressively market our national service footprint and multi-product line technical capabilities to existing and potential wholesale service partners such as network service providers, and large voice and data integrators.  We also continue to market our service capabilities to end-users.  We expect growth in these programs to positively impact our maintenance and repair revenues for the foreseeable future.

Implementation revenues increased 28% in the third fiscal quarter reflecting an increase in revenues from our Professional Services Organization (“PSO”) and relatively flat installation revenues.  For the year-to-date period, Implementation revenues increased 36% reflecting an increase in revenues from PSO.  We attribute this to increasing demand for more complex communications systems requiring significant fee-generating design and engineering services.  In the near term, Implementation revenues will continue to be closely aligned with the sale of new systems.  From a long term perspective, however, as customers displace conventional communications platforms and adopt more complex systems, we anticipate growth in this area of our business through the fee-based utilization of these highly skilled technical resources.

Cabling revenues increased 8% and 9%, respectively in the third fiscal quarter and year-to-date periods.  These increases are primarily from a new wholesale service program added late in fiscal 2009.

Gross Margins.

The table below presents the gross margins earned on our primary revenue streams:

	For the Three Months Ended July 31,				For the Nine Months Ended July 31,
Gross Margins	2010		2009		2010		2009
Systems sales	29.5	%	28.9	%	27.3	%	26.7	%
Services revenues	32.4	%	28.7	%	32.0	%	30.0	%
Other revenues	70.7	%	41.4	%	42.6	%	9.6	%
Corporate cost of goods sold	-1.8	%	-2.0	%	-1.8	%	-2.0	%
Total	29.7	%	26.8	%	28.4	%	26.5	%

Gross margins on systems sales in the third quarter and the year-to-date periods are above our target of 23% to 25% for systems revenues.  Our consistent performance above our expected targets in this area is due to disciplined pricing practices and pricing support received from our manufacturers in the form of project-specific discounts and incentive rebates which are recorded as reductions to cost of goods sold.  These discounts and incentives are material to our gross margins.

Gross margins earned on Services revenues primarily reflect an increase in recurring service revenues combined with improved cost controls, the use of third party Quality Service Partners, and improved utilization of our professional services personnel for consulting and fee-based engagements.  These items contributed to gross Services margins in our target range of 30-35%.

The final component of our gross margins is the margins earned on other revenues and our corporate cost of goods sold.  We earn the majority of other revenues from the sale of Avaya maintenance contracts on which we earn either a commission or gross profit.  We have no continuing service obligation associated with these revenues and gross profits.  This is an unpredictable revenue stream that depends on the expiration dates of existing contracts, installation dates of new systems, customer type as defined by Avaya, and number of years that customers contract for services.  Other revenues may also include sales and cost of goods sold on equipment or services sold outside our normal provisioning processes.  These revenues vary in both sales volume and gross margins earned.  Corporate cost of goods sold represents our material logistics and purchasing functions that support all of our revenue segments.

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Operating Expenses.

Our total operating expenses in the third quarter were $5.4 million or 25.8% of revenues compared to$4.7 million or 27.5% of revenues in the third quarter of fiscal 2009 excluding $14.0 million in impairment charges recorded in the third quarter of fiscal 2009.   Our operating expenses were 24.8% of revenues in the first three quarters of fiscal 2010 compared to 26.0% last year, excluding the impairment charges.    As discussed in the overview above, we have made strategic choices to focus on aggressively expanding our managed services business and on expanding through acquisitions.  We have increased our expenditures to support these strategies.  These expenditures coupled with slower than expected growth in our systems sales and increased investments in our Information Technology group to increase efficiencies and improve customer satisfaction has resulted in our operating expenses as a percentage of revenues to continue to exceed our targets.  We consider it tactically appropriate, given our strong cash flows, to support operating expenses above our targets in the near term to capitalize on these opportunities to expand our revenues and increase our net profit margins.

Interest Expense and Other Income.

Net interest and other income was $16,000 in the third quarter of fiscal 2010 compared to $22,000 in net other expense in the third quarter of fiscal 2009.  Net interest and other income was $43,000 for the nine-month period ended July 31, 2010 compared to $65,000 in net other expense in the same period last year.  This reflects both reduced debt levels and lower interest rates.

Tax Provision.

The tax provision reflects the effective Federal tax rate plus the composite state income tax rates adjusted for states that require minimum tax payments even if tax losses are incurred.  Generally, we expect our tax provision rate to be approximately 40%.

ITEM 4.   CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.  Based on an evaluation conducted as of July 31, 2010 by our management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”), our CEO and CFO have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are effective to reasonably ensure that information required to be disclosed in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls.  There were no changes in our internal controls during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, these controls over financial reporting.

PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

None.

ITEM 1A.  RISK FACTORS.

The information presented below is an update to the “Risk Factors” included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2009 and should be read in conjunction therewith.  Except as set forth below, the Risk Factors included in the Company’s Form 10-K for its 2009 fiscal year have not materially changed.

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Avaya’s recently implemented requirements regarding minimum level service agreements and hardware and software upgrade requirements could have a material, negative impact on our services gross margins.

Avaya implemented new policies, effective July 1, 2010, requiring all customers to contract with Avaya for minimum service levels to access Tier IV support, and to maintain their software at no more than two trailing major version releases than the current version.  The impact of these changes to our business will be negative, but the materiality of the impact is uncertain at this time.  These impacts could include a significant decline in our services gross margins if we are required to purchase Avaya service contracts on behalf of all of our customers.  Conversely, if we chose to forego such purchases on behalf of our customers, we risk reduced customer satisfaction due to the lack of access to Avaya’s Tier IV support. We might also experience reduced sales of new Avaya systems if customers choose to abandon the product line due to increased costs for the mandatory Avaya maintenance contract.  Avaya has provided some transition relief in the form of blanket contracts and other exceptions to its stated policy, but it is too early to determine with confidence the long-term impact of these changes on our business.  At this time, no assurance can be given that these policy changes will not have a material, adverse impact on our operating results beginning as soon as fiscal 2011.

Nortel’s Chapter 11 Bankruptcy filing and subsequent sale of its enterprise solution business to Avaya may negatively impact our revenues and/or financial condition.

Nortel filed a voluntary petition for Chapter 11 bankruptcy protection on January 14, 2009.  On July 12, 2010 Nortel filed its plan of reorganization which was essentially a plan of liquidation.  This matter poses a variety of risks to our business, as follows:

· Uncertainty surrounding Nortel’s bankruptcy has significantly dampened demand for equipment in this product line as existing Nortel customers evaluate costs and risks associated with maintaining their commitment to the Nortel platform and the associated Avaya product roadmap versus transitioning their installed based to other manufacturers’ platform.

· We are owed approximately $717,000 in pre-petition accounts receivable less approximately $116,000 in approved offsets for amounts we owed to Nortel at the time of the filing. Nortel’s July 12 filing classifies our claim as a Class 3 “General Unsecured” claim. As such, our claim will be impaired and any distribution made by Nortel to Class 3 unsecured creditors will be shared among such creditors on a pro-rata basis. We do not know the extent to which this receivable will be impaired but it is apparent we will not collect the full amount. If this claim is not collectible in large part, we could experience material, negative operating results in the near term.

· Nortel has filed a statement of financial affairs under which it shows payments to the Company against multiple invoices of approximately $1.6 million which were made during the 90-day statutory “preference period” under bankruptcy law. XETA’s figure for these payments is $1.14 million. As such, these payments are considered “preference payments” and are subject to a “preference claim” which can be asserted by Nortel. Bankruptcy law allows the debtor to recover these payments unless the creditor successfully establishes that the payments were made in the ordinary course of business between the debtor and creditor or if the payments were offset by subsequent new value given by XETA in the form of goods or services. If Nortel elects to assert a preference claim against the Company for this amount or any portion thereof and the Company is unable to successfully defend the claim, the Company would have to return any such amounts to Nortel.

· Avaya’s purchase of the Nortel enterprise solution business (“NES”) may result in a significant disruption and/or material decline in our revenues and gross profits. NES is both one of our major suppliers and is an important customer in that NES outsources significant volumes of service calls to us under various managed services programs that NES has with end-user customers. Avaya and NES are large, complex companies with global operations. They have had very different marketing strategies and both have long, deep cultural traditions. The integration of these two companies will be challenging and disruptive to the market. There can be no assurance given that the combination of Avaya and NES will not have near-term and/or long-term material, negative impact on our operating results, financial position, market position, and overall reputation.

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The acquisition and integration of businesses by the Company may not produce the desired financial and/or operating results.

We have recently completed the acquisition of the operating assets of Lorica Solutions and the stock of Pyramid Communication Services, Inc.  These developments are a part of our stated strategy to take advantage of the current disruption in our market by acquiring assets that increase our market share and establish a presence in the advanced communications applications market segment.  Integrating new operating assets into an existing organization is a complex business proposition.   Expected synergies and growth often do not materialize as planned.  We used existing cash balances to fund the acquisitions and their integration costs.  Furthermore, we will devote significant time and effort to improve the probability of success for these investments.  However, no assurance can be given that these acquisitions will meet our expectations for revenues and operating results, or that our capital could have been used more efficiently to improve our financial condition or operating results.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 5.  OTHER INFORMATION.

None.

ITEM 6.   EXHIBITS.

Exhibits (filed herewith):

SEC Exhibit No.	Description
2.1	Asset Purchase Agreement dated May 10, 2010 between XETA Technologies, Inc. as Purchaser, Hotel Technology Solutions, Inc. as Seller, and Seller Principals.*
	PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION WITH THE REGISTRANT’S APPLICATION FOR CONFIDENTIAL TREATMENT.
2.2	Stock Purchase Agreement dated July 9, 2010 by and among Sellers, Pyramid Communications Services, Inc. and XETA Technologies, Inc.*
	PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION WITH THE REGISTRANT’S APPLICATION FOR CONFIDENTIAL TREATMENT.
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer

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32.1	Certification of Chief Executive Officer Pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer Pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* The schedules to this Exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K.  A list of the omitted schedules appears at the end of the Exhibit.  The Registrant hereby agrees to furnish a copy of any omitted schedules to the Commission upon request.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	XETA Technologies, Inc.
	(Registrant)
Dated:  September 3, 2010	By:	/s/ Greg D. Forrest
		Greg D. Forrest
		Chief Executive Officer
Dated:  September 3, 2010	By:	/s/ Robert B. Wagner
		Robert B. Wagner
		Chief Financial Officer

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EXHIBIT INDEX

SEC Exhibit No.	Description
2.1	Asset Purchase Agreement dated May 10, 2010 between XETA Technologies, Inc. as Purchaser, Hotel Technology Solutions, Inc. as Seller, and Seller Principals.*
	PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION WITH THE COMPANY’S APPLICATION FOR CONFIDENTIAL TREATMENT.
2.2	Stock Purchase Agreement dated July 9, 2010 by and among Sellers, Pyramid Communications Services, Inc. and XETA Technologies, Inc.*
	PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST. SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE COMMISSION WITH THE COMPANY’S APPLICATION FOR CONFIDENTIAL TREATMENT.
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1	Certification of Chief Executive Officer Pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer Pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* The schedules to this Exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K.  A list of the omitted schedules appears at the end of the Exhibit.  The Registrant hereby agrees to furnish a copy of any omitted schedules to the Commission upon request.

EX-2.1

Exhibit 2.1

ASSET PURCHASE AGREEMENT

THIS ASSET PURCHASE AGREEMENT (“Agreement”) is made and entered into as of the 10th day of May, 2010, by and among XETA TECHNOLOGIES, INC., an Oklahoma corporation (“Purchaser”), HOTEL TECHNOLOGY SOLUTIONS, INC., a Delaware corporation d/b/a Lorica Solutions (“Seller”) and ENHANCED CAPITAL NEW YORK FUND III, LLC, ENHANCED CAPITAL NEW YORK FUND II, LLC, STONEHENGE CAPITAL FUND NEW YORK, LLC, SEABURY CAPITAL LLC, and MARK HOLZBERG (collectively, the “Seller Principals”) (joining solely for purpose of certain representations and warranties made by them pursuant to Article V hereof).

Recitals:

A.Seller is engaged in the design, installation and maintenance of converged managed networks for hotels such as Starwood, Marriott, Hilton, Mandarin-Oriental, Choice, Intercontinental and Radisson, including deployment, monitoring, and support for wired and wireless high speed Internet and proactive management of in-room legacy networks (the “Business”).

B.Seller desires to sell and convey to Purchaser, and Purchaser desires to purchase and acquire from Seller as a going concern all or substantially all of the assets of Seller used or useful in the Business (including all accounts and notes receivable, chattel paper, inventory, software, pre-paid expenses, equipment, real property and leasehold estates, all subsisting service contracts and contract rights, intellectual property, permits, licenses and general intangibles, including the Lorica Solutions trade name, and all other material assets which are necessary to successfully operate the Business), together with all associated goodwill, on the terms more particularly hereinafter set forth.

Terms and Conditions

In consideration of the foregoing premises, which are hereby incorporated by reference herein as operative terms of this Agreement, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, Seller and Purchaser agree as follows:

ARTICLE I

DEFINED TERMS AND INTERPRETATION

1.1Definitions.  Capitalized terms used in this Agreement shall have the following meanings:

“Act” means the Securities Act of 1933, as the same may be amended from time to time.

Affiliate” of, or “Affiliated” with, a specified person or entity means a person or entity that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the specified person or entity.

“Asserting Party” has the meaning set forth in Section 10.6.

“Assets” has the meaning set forth in Section 2.1.

“Assumed Liabilities” has the meaning assigned in Section 2.3.

“Base Valuation Date” means March 31, 2010.

“Base Value Balance Sheet” means Seller’s balance sheet dated as of the Base Valuation Date.

“Business Day” means a day other than a Saturday, Sunday or U.S. federal or Oklahoma or New York state holiday on which banks are generally closed for business.

“Closing” has the meaning set forth in Section 3.1.

“Closing Date” has the meaning set forth in Section 3.1.

“Code” means the Internal Revenue Code of 1986, as amended.

“Damages” has the meaning set forth in Section 10.2.

“Effective Time” has the meaning set forth in Section 3.1.

“Encumbrances” means all liens, mortgages, pledges, security interests, conditional sales agreements, charges, options, preemptive rights, rights of first refusal, reservations, restrictions or other encumbrances or material defects in title.

“Escrow Amount” has the meaning set forth in Section 2.2(a).

“Excluded Assets” means only such contracts, agreements and other assets and properties as identified in Schedule 1 hereto attached.

“Final Determination” has the meaning set forth in Section 10.8.

“GAAP” means generally accepted accounting principles in the United States, applied on a basis consistent with prior periods.

“Governmental Authority” means any federal, state, local or foreign government, political subdivision or governmental or regulatory authority, agency, board, bureau, commission, instrumentality or court or quasi-governmental authority.

“Indemnification Period” has the meaning set forth in Section 10.1.

“Law” or “Laws” means any and all federal, state, local or foreign statutes, laws, ordinances, proclamations, codes, regulations, licenses, permits, authorizations, approvals, consents, legal doctrines, published requirements, orders, decrees, judgments, injunctions and rules of any Governmental Authority, including, without limitation, those covering environmental, Tax, energy, safety, health, transportation, bribery, record keeping, zoning, discrimination, antitrust and wage and hour matters, in each case as amended and in effect from time to time.

“Loss” or “Losses” means all liabilities, losses, claims, damages, actions, suits, proceedings, demands, assessments, adjustments, fees, costs and expenses (including specifically, but without limitation, reasonable attorneys’ fees and costs and expenses of investigation), net of (i) income Tax effects with respect thereto (including, without

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limitation, income Tax benefits recognized in connection therewith and income Taxes upon any indemnification recovery thereof) and (ii) insurance proceeds.

“Material Contracts” has the meaning set forth in Section 5.9.

“Permitted Encumbrances” means Encumbrances (a) for Taxes or other governmental charges not yet due and payable or which are being contested in good faith and by appropriate proceedings, (b) securing obligations incurred in the ordinary course of business which are not past due and are included among the Assumed Liabilities (including those imposed by law, UCC-1 financing statements filed under the Uniform Commercial Code, mechanics’, materialmens’, landlords’, warehousemens’ and carriers’ liens) or are being contested in good faith, (c) that are reflected, reserved against or otherwise disclosed in the Required Financial Information and are included among the Assumed Liabilities, or which are created under the Material Contracts or leases, (d)  purchase money security interests incurred in connection with the purchase of assets in the ordinary course of business and are included among the Assumed Liabilities, (e) arising under zoning, building codes, and other land use laws regulating the use or occupancy of such real property used by Seller or the activities conducted thereon that are imposed by any Governmental Authority having jurisdiction over such real property, excluding existing violations of such codes, laws or regulations, (f) easements, covenants, conditions, restrictions, and other similar matters of record affecting title to real property leased by the Seller and other title defects that do not or would not materially impair the value, use or occupancy of such real property, (g) that are related to immaterial properties or assets or otherwise would not materially detract from the value, or interfere with the present use, of the property subject thereto or affected thereby, (h) rights and licenses granted to others in any intellectual property or software of the Seller, or (ix) restrictions placed on any intellectual property or software of the Seller licensed by any third party.

“Purchase Consideration” shall have the meaning assigned in Section 2.2 hereof.

“RDC” means the Buffalo and Erie County Regional Development Corporation.

“Required Financial Information” shall have the meaning assigned in Section 5.6 hereof.

“Responding Party” has the meaning set forth in Section 10.6.

“SEC” means the United States Securities and Exchange Commission.

“Taxes” means all taxes, charges, fees, levies or other assessments including, without limitation, income, gross receipts, excise, property, sales, withholding, social security, unemployment, occupation, use, service, service use, license, payroll, franchise, transfer and recording taxes, fees and charges, imposed by the United States or any state, local or foreign government or subdivision or agency thereof, whether computed on a separate, consolidated, unitary, combined or any other basis; and such term shall include any interest, fines, penalties or additional amounts attributable to or imposed with respect to any such taxes, charges, fees, levies or other assessments.

“UCC” means the Uniform Commercial Code as the same is in force in the jurisdiction implicated in any particular reference herein.

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“Valuation Review Period” shall have the meaning assigned in Section 2.5.

“Warrants” shall have the meaning assigned in Section 2.2(c).

“XETA Stock” shall have the meaning assigned in Section 2.2(b).

1.2.Interpretation.  For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:

(a)The terms defined in Article I and elsewhere in this Agreement include the plural as well as the singular;

(b)Words of the masculine gender in this Agreement shall be deemed and construed to include correlative words of the feminine and neuter genders and words of the neuter gender shall be deemed and construed to include correlative words of the masculine and feminine genders;

(c)The words “herein,” “hereof,” and “hereunder” and other words of similar import refer to this Agreement as a whole, including all Schedules and Exhibits, and not to any particular Article, Section or other subdivision;

(d)The terms “include,” “includes” and “including” are not limiting and the term “or” has, except where otherwise indicated, the inclusive meaning represented by the phrase “and/or;”

(e)The term “material adverse effect”, or any variations thereof, shall mean any change, circumstance, fact, event or effect that is adverse and material (i) to the Business, the Assets (taken as a whole), the condition (financial or otherwise) or results of operations of Seller, or the ability of Seller to perform its obligations hereunder, or (ii) the ability of Purchaser to conduct the Business after the Closing Date substantially as the Business has been conducted by Seller prior to the Closing Date; and

(f)Whenever a statement of any party is qualified by that party’s knowledge, “knowledge” means the actual personal knowledge of the person making such statement at the time or times that such statement is made, and a knowledge or awareness of facts, circumstances or other matters contained or referred to in such statements of which the person making the statement would or should be aware with the exercise of reasonable care. If the statement is made by a corporation, the knowledge of the corporation’s officers and directors shall be imputed to the corporation.  Notwithstanding the foregoing, as used in Section 8.6 with respect to the opinion of counsel to Seller, “knowledge” shall be as defined in such opinion, and the definition in the foregoing sentence shall not apply thereto.  Such opinion will provide that when any opinion set forth therein is given to [such counsel’s] “knowledge,” “or to the best of [such counsel’s] knowledge,” or with reference to matters of which [such counsel] is “aware” or which are “known” to [such counsel], or with a similar qualification, that knowledge is limited to the actual knowledge of the individual lawyers in the firm rendering such opinion who have participated directly and substantively in the specific transactions to which the opinion relates and without any special or additional investigation undertaken for the purposes of such opinion, other than reasonable reliance on representations and warranties made by the Seller and the Seller Principals in the Transaction Documents (as defined in Section 8.6(c) hereof) and statements and certifications obtained, when [such counsel] has

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deemed it to be necessary, from public officials and officers of the Seller, including its Chairman and Chief Executive Officer and its corporate secretary.

ARTICLE II

TERMS OF PURCHASE

2.1Acquisition of the Assets.  Upon the terms and subject to the conditions of this Agreement, Seller agrees to sell, convey, transfer, assign and deliver to Purchaser at the Closing, and Purchaser agrees to purchase from Seller, free and clear of all Encumbrances other than Permitted Encumbrances, all of the assets of Seller used or useful in the Business, which are not Excluded Assets (including all accounts and notes receivable, instruments and chattel paper, all inventory, software, all pre-paid expenses (to the extent assignable), equipment, real property and leasehold estates, all subsisting service contracts and contract rights and open orders (to the extent assignable), all intellectual property, permits, licenses and all general intangibles, including the Lorica Solutions trade name and related logos, and all other material assets which are necessary to successfully operate the Business), together with all documents, files and records containing financial, Tax, technical support and other information pertinent to the operation of the Business, and all associated goodwill (collectively, the “Assets”), specifically including but limited to:

(a)all accounts and notes receivable, instruments and chattel paper identified or described in Schedule 2.1 (a) hereto attached;

(b)rights, title and interest of the Business in, to and under all material existing contracts and agreements, written and verbal to which the Seller is a party, specifically including but not limited to the service, support and maintenance agreements more particularly identified in Schedule 2.1(b) (the “Major Assigned Contracts”);

(c)all inventory (including, without limitation, supplies, spare parts and components) listed in Schedule 2.1(c), including but not limited to all telephony systems, parts, components, implements and other tangible personal property of every kind and description specifically used in connection with the Business (“Inventory”);

(d)all customer lists, sales records, credit data and other information relating to customers of the Business;

(e)all equipment identified or described by item or type in Schedule 2.1(e) hereto attached;

(f)all real property and leaseholds described in Schedule 2.1(f) hereto attached;

(g)all software and intellectual property, including patents, trademarks and copyrights, and all permits and licenses, described in Schedule 2.1(g) hereto attached; and

(h)copies of all relevant books, records, papers and instruments of whatever nature and wherever located that relate to the Business or which are required or necessary for Purchaser to conduct the Business from and after the

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Closing in the manner in which it was being conducted by Seller before the Closing and all sales funnels, open orders, files and records containing financial, Tax, technical support and other information pertinent to the operation of the Business.

2.2Purchase Consideration.  The purchase consideration for the Assets shall be $2,750,000 (subject to the conditions and adjustments hereinafter set forth) plus the amount of any and all Assumed Liabilities (the “Purchase Consideration”).  The portion of the Purchase Consideration to be paid to Seller shall be comprised of the following components:

(a)$1,000,000 in cash, $850,000 of which shall be paid at Closing, less accrued amounts disclosed to Purchaser as being payable to the RDC and to legal counsel to Seller, or either of them (which amounts shall be paid directly by Purchaser), via wire transfer of immediately available U.S. funds to an account(s) designated by the Seller, with the $150,000 balance (“Escrow Amount”) to be deposited into escrow pursuant to the terms of an Escrow Agreement in the form of Exhibit B hereto attached, pending final valuation of Acquired Assets net of Assumed Liabilities, as determined in accordance with Sections 2.5(a) and (b) hereof, with payment pursuant to Section 2.5 hereof;

(b)$1,500,000, in Purchaser’s common stock (“XETA Stock”) valued at the “Previous Close Price” per share for such stock as reflected on the nasdaq.com website as of the Closing Date ($3.83 per share as of the date hereof), which XETA Stock will be issued to Seller and shall be “restricted stock”, as that term is defined in Rule 144 of the regulations to the Act: and

(c)Warrants to purchase 150,000 shares of XETA Stock at an exercise price per share valued at the “Previous Close Price” per share for such stock as reflected on the nasdaq.com website as of the Closing Date ($3.83 per share as of the date hereof) (the “Warrants”), which Warrants will be issued to Seller in the form of Exhibit C hereto attached, and will be exercisable (subject to applicable SEC registration and holding period requirements and transfer restrictions) at any time after the Closing Date and prior to the fifth (5th) anniversary of the Closing Date.

Provided, however, that Seller hereby acknowledges, represents and agrees that the issuance of such XETA Stock and Warrants will be effected by Purchaser as a transaction exempt from registration under the Act and, accordingly, that the XETA Stock and Warrants will not have been registered under the Act at the time of Closing, nor shall XETA have any obligation to effect the registration thereof at any time after Closing. Seller further acknowledges, represents and agrees, that it is acquiring the XETA Stock and Warrants for investment purposes only and not with a view to or for resale in connection with any distribution of the XETA Stock or Warrants, or with any present intention of distribution (within the meaning of the Act) of the XETA Stock or Warrants, or any portion thereof.  Seller understands that because none of the XETA Stock or the Warrants will have been registered under the Act, Purchaser will not transfer any of the XETA Stock or the Warrants without registration under the Act, which is not contemplated by this Agreement, except upon the issuance to Purchaser of a favorable opinion from Purchaser’s counsel or upon the submission to Purchaser of such other evidence as may be satisfactory to Purchaser’s counsel to the effect, in either case, that any such transfer, whether pursuant to Rule 144, or otherwise, shall not be in violation of the Act, and any applicable state

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securities laws, and all share certificates and warrants representing the XETA Stock and the Warrants, or any portion thereof, will be issued with a restrictive legend affording conspicuous notice of such restriction.

2.3Assumed Liabilities.  As further consideration for the purchase of the Assets to be effected hereby, Purchaser shall assume and discharge only the following liabilities and obligations of Seller (the “Assumed Liabilities”):  those liabilities of Seller which are properly reflected in Seller’s Closing Date Balance Sheet (as defined in Section 2.5) and, with respect to any Tax liabilities assumed, those which are not past due or subject to any uncertain Tax positions within meaning of ASC 740, “Income Taxes.” The Assumed Liabilities shall include only (a) accounts payable (including commissions currently payable and sales taxes currently payable), (b) operating lease obligations for property used by Seller in its conduct of the Business, (c) customer deposit obligations that have not been applied towards inventory purchases or any other aspect of a customer installation and with respect to which Seller has not yet performed any services for the customer, and (d) any deferred revenue under service contracts which are assignable and delegable and are assigned to and assumed by Purchaser (with any necessary consents from the customer-obligee and any other necessary third party); provided that the Assumed Liabilities shall expressly exclude (i) all undisclosed, unrecorded and unwritten liabilities of every type and character, (ii) all accounts payable owed to Littler Mendelson PC and (iii) any and all indebtedness for borrowed funds, including indebtedness, obligations and liabilities, if any, of Seller to (A) the RDC, (B)        *       , (C) Seller’s investors, and (D) Seller’s capital option holders, or any of them.

2.4Allocation of Purchase Consideration.  Subject to any post-Closing adjustments required by Section 2.5 hereof, the parties to this Agreement shall initially allocate the Purchase Consideration among the Assets and associated goodwill, which allocation will be based upon the following categories:

Accounts Receivable & prepaid expenses	$	*
Inventory	$	*
Equipment	$	*
Goodwill	$	*
Total ($2,750,000 + Assumed Liabilities)	$	3,769,000

The figures above are preliminary and based upon the Base Value Balance Sheet and will be updated after Closing (but not later than the close of the Valuation Review Period) based upon the Closing Date Balance Sheet and adjustments, if any, made in accordance with Section 2.5 hereof.  The parties agree to file any and all applicable tax returns and other required related tax schedules in accordance with such allocation and Section 1060 of the Internal Revenue Code and will not adopt or otherwise assert tax positions inconsistent therewith.  Purchaser and Seller shall each prepare and file its Form 8594 for the taxable year in which the Closing takes place, consistent with the requirements set forth in this Section 2.4.

2.5Purchase Consideration Adjustment; Valuation Review Period.  Within thirty (30) days after the Closing Date, Seller will provide Purchaser with Seller’s balance sheet as of the Closing Date (“Closing Date Balance Sheet”), which Closing Date Balance Sheet shall have

*The asterisk (*) indicates that material has been omitted pursuant to a request for confidential treatment.  The omitted material has been filed separately with the Securities and Exchange Commission pursuant to rule 24b-2 of the rules to the Securities and Exchange Act of 1934, as amended.

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been prepared in accordance with GAAP, reviewed by Seller’s independent certified public accountant (who must be satisfactory to Purchaser) and warranted as accurate and materially complete by Seller, with contents acceptable to Purchaser in reliance upon such warranties.  Purchaser shall have ninety (90) days after the Closing Date (the “Valuation Review Period”) to verify the existence, condition, value and status of the Assets and the Assumed Liabilities and to conduct such other valuation and due diligence procedures as Purchaser shall deem reasonably necessary to confirm that the carrying values of the Assets and Assumed Liabilities as reflected in the Base Valuation Date Balance Sheet were materially correct and that no material adverse changes have occurred in the Assets or the Business since the Base Valuation Date.  The Escrow Amount will be payable at the end of the Valuation Review Period; provided that such cash component shall be reduced by:

(a)the amount of accounts receivable included in the Assets which Purchaser determines, in its sole discretion, to be uncollectible (which uncollectible receivables will be re-assigned by Purchaser to Seller), and

(b)the amount, if any, by which, as of the Closing Date, Seller’s current liabilities included in the Assumed Liabilities are determined by Purchaser to have exceeded the value of its current assets as of the Closing Date by more than $170,000.

The balance of the Escrow Amount, if any, after payment of all funds due to Seller shall be returned to Purchaser.

2.6Transition Items.  The Assumed Liabilities shall become the responsibility of the Purchaser as of the Effective Time (which term is defined in Section 3.1 hereof)  Seller and Purchaser hereby agree to the following terms in relation to this transition of responsibility:

(a)Seller will cooperate with Purchaser’s sales and service representatives to ensure a smooth transition of the Business to Seller.  This cooperation shall include but not be limited to participating in joint conference calls with customers and Purchaser’s sales and/or services representatives as reasonably requested by Purchaser.

(b)Purchaser will not be responsible for any costs associated with discharging the duties inherent in the Assumed Liabilities until the Effective Time.

(c)All sales funnels, active quotations, and order backlogs are part of the Assets, and Seller will cooperate with Purchaser and customers to transition these assets to Purchaser.

2.7Warranty Work.  In the event that claims under outstanding warranties are asserted by a customer of Seller, who, by virtue of this Agreement, has become a customer of Purchaser, Purchaser and Seller shall cooperate in good faith with such customer to determine whether a valid warranty claim exists and, if so, whether it relates to labor and materials furnished by Seller or by Purchaser.  If by Purchaser, Purchaser will bear the responsibility for resolving such claim; if by Seller, then, Seller shall promptly resolve such claim to the customer’s satisfaction, failing which Purchaser may do so and shall be entitled to prompt reimbursement by Seller at the rate of $     *     per hour for labor, plus travel and expenses and replacement parts at cost.

*The asterisk (*) indicates that material has been omitted pursuant to a request for confidential treatment.  The omitted material has been filed separately with the Securities and Exchange Commission pursuant to rule 24b-2 of the rules to the Securities and Exchange Act of 1934, as amended.

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ARTICLE III

THE CLOSING

3.1Closing Time and Place.  The consummation of the transactions contemplated by this Agreement (“Closing”) shall take place as soon as reasonably practicable after every party to this Agreement shall have indicated to the other that it has satisfied or stands ready to satisfy all conditions of Closing for which it is responsible, or at such other time and place as Seller and Purchaser shall mutually agree, but not later than May 24, 2010.  The Closing shall take place at Purchaser’s offices in Broken Arrow, Oklahoma 74012 or by the electronic delivery or other mutually agreeable transmission of all duly executed required documentation, and the date on which the Closing shall occur is hereinafter called the “Closing Date” and the Closing shall be deemed effective for all purposes as of 12:01 a.m., Eastern Daylight Time, on the Closing Date (“Effective Time”).

3.2Seller’s Deliveries.  At the Closing, Seller will deliver to Purchaser all of the items described in Section 8.9 hereof.  At or after the Closing, Seller shall execute and deliver to Purchaser such other instruments of transfer as shall be reasonably necessary or appropriate to vest in Purchaser good title to the Assets, free and clear of all Encumbrances other than Permitted Encumbrances and to comply with the purposes and intent of this Agreement.

3.3Purchaser’s Deliveries.  At the Closing, Purchaser will deliver to Seller all of the items described in Section 9.4 hereof.

3.4Further Assurances.  Seller and Purchaser agree that they shall, at any time and from time to time after the Closing, upon request of the other party, do, execute, acknowledge and deliver, or will cause to be done, executed, acknowledged and delivered, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may reasonably be required to carry out the purposes and intents of this Agreement.  No action taken or document executed pursuant to this section shall increase the liability of Seller or Purchaser beyond that contemplated by any other provision of this Agreement.

3.5Consents.  To the extent that the assignment or transfer of any Major Assigned Contract to be assigned or transferred to Purchaser as provided in this Agreement shall require the consent of another party thereto, this Agreement shall not constitute an agreement to assign or transfer the same if any attempted assignment would constitute a breach thereof.  Seller agrees that it will use commercially reasonable efforts to obtain the consent of the other parties to all Material Contracts to the assignment or transfer thereof to Purchaser.  Seller shall have no liability to Purchaser for failure to obtain any such third-party consent provided Seller complies with its obligations under this section.  Purchaser will cooperate with and assist Seller in its efforts to obtain any such consents; provided, however, that in the interim, pending such assignment or transfer with any necessary consents, Seller shall subcontract all work under each such contract to Purchaser so as to effectively transfer the economic benefit of such contract to Purchaser; provided further that should Purchaser determine prior to Closing that Seller will be unable to obtain and deliver any necessary consent to the assignment of any Major Assigned Contract or any other Material Contract, then, Purchaser shall have the right to terminate this Agreement pursuant to Section 11.1, without penalty or premium.

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ARTICLE IV

EMPLOYMENT MATTERS

4.1Employees.  Neither Purchaser nor any of its Affiliates shall have any liability in respect of any salary, severance, health, welfare, retirement, or any other benefits relating to employment of such employees with Seller, its predecessors or successors, before or after Closing.  Purchaser and/or its Affiliates agrees to offer employment to all Sellers’ employees deemed by Purchaser as key to the successful continuation of the Business and listed on Schedule 4.1 attached hereto, conditioned on the consummation of the sale of the Assets pursuant hereto.  Seller hereby authorizes Purchaser to offer such employment to such employees, waives any rights Seller may have to prohibit such employees from being employed by Purchaser, and shall not offer new employment to any such employees who accept such employment with Purchaser.  Any employees of Seller hired by Purchaser after the Closing will be hired as employees of Purchaser on such terms as Purchaser may elect in its sole discretion.  Nothing in this Section 4.1 shall be deemed to be a contract for the benefit of any employee.

4.2Medical Coverage.  Seller shall retain, in accordance with its applicable employee plans, responsibility for and continue to pay all hospital, medical, life insurance, disability and other employee welfare benefit plan expenses and benefits for each Seller employee to be hired by Purchaser to the extent of Seller’s responsibility to employees and their covered dependents (or the applicable requirements under COBRA) for the period prior to the Closing Date.

4.3Indemnification.  Seller shall defend, indemnify and hold harmless Purchaser, its corporate affiliates, and their respective directors, officers and employees, successors and assigns against and in respect of any of the following, to the extent arising prior to the Closing Date: (i) any claim for wrongful discharge or breach of any written employment contract or written plan or policy arising from any termination of the employment of any employee by Seller; (ii) any claim for severance benefits or termination pay or continued employment arising out of or resulting from any employee’s employment by Seller; (iii) any claims relating to Purchaser’s obligations as a “successor” to the Business and claims for withdrawal liability, each with respect to any multi-employer pension plans; and (iv) any liability that may arise as a result of Seller or any of its subsidiaries being a member of a “controlled group” or an “affiliated service group” (within the meaning of Sections 414(b), (c), (m) or (o) of the Code), or being under “common control” (within the meaning of Section 4001 of the Employee Retirement Insurance Security Act).

ARTICLE V

REPRESENTATIONS AND WARRANTIES

OF SELLER AND THE SELLER PRINCIPALS

Seller and, solely with respect to, and to the extent described in, Sections 5.9, 5.12, 5.13, 5.17 and 5.20 hereof, the Seller Principals hereby represent and warrant to Purchaser as follows:

5.1Organization and Qualification.  Seller is a corporation duly organized, validly existing and in good standing under the Laws of the State of Delaware.  Attached as Schedule 5.1 are true, correct, and complete copies of Seller’s Certificate of Incorporation and Bylaws, and all

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amendments thereto.  Seller has the requisite power and authority to own, lease and operate its assets and properties and to carry on the Business as currently being conducted, and is in good standing in the State of New York and in each other jurisdiction in which the operation of the Business requires it to be registered unless the failure to be so registered would not have a material adverse effect on Seller.

5.2Authority.  Seller has the requisite corporate power and authority to enter into this Agreement and to effect the transactions contemplated hereby.  The execution, delivery and performance of this Agreement have been duly approved by Seller’s Board of Directors and its stockholders.  No additional corporate proceeding on the part of Seller is necessary to authorize the execution and delivery of this Agreement and the consummation by Seller of the transactions contemplated hereby.

5.3Enforceability.  This Agreement has been duly and validly executed and delivered by Seller and, assuming the due authorization, execution and delivery hereof by Purchaser, constitutes, to the best of Seller’s knowledge, a valid and binding agreement of Seller, enforceable against Seller in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally and subject, as to enforceability, to general principles of equity.

5.4Non-Contravention.  The execution and delivery of this Agreement by Seller do not, and the consummation by Seller of the transactions contemplated hereby will not, (i) violate or result in a breach of any provision of, (ii) constitute a default under, (iii) result in the termination of, (iv) accelerate the performance required by, (v) result in a right of termination or acceleration under, or (vi) result in the creation of any Encumbrance (other than Permitted Encumbrances) upon any of the Assets under any of the terms, conditions or provisions of, (X) Seller’s Certificate of Incorporation or Bylaws, (Y) any Laws applicable to Seller or any of the Assets, or (Z) any material instrument or agreement to which Seller is now a party or by which Seller or any of the Assets may be bound or affected, other than violations that would not result in a material adverse effect on Seller.

5.5Consents.  No declaration, filing or registration with, notice to, or authorization, consent or approval of, any Governmental Authority or third party is necessary for the execution and delivery of this Agreement by Seller, or the consummation by Seller of the transactions contemplated hereby, except as set forth in Schedule 5.5 and such authorizations, consents or approvals which, if not made or obtained, as the case may be, would not have a material adverse affect.

5.6Financial Information.  Seller has delivered to Purchaser all financial information requested by Purchaser regarding the Business, including but not limited to Seller’s Base Value Balance Sheet and accompanying financial statement for the period then ending and its financial statements for the years ended December 31, 2007, 2008 and 2009 (“Required Financial Information”).

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5.7Assets.  Except as set forth in Schedule 5.7, Seller has good and marketable title to all of the Assets, whether real, personal, mixed, tangible or intangible.  All the Assets are free and clear of restrictions on or conditions to transfer or assignment, and free and clear of Encumbrances other than Permitted Encumbrances.  The Assets are all the assets and properties necessary to permit the Seller to operate the Business as currently operated.

5.8Inventories.  The items of Inventory being sold under this Agreement exist in fact, and were purchased in the ordinary course of business, are in good and usable condition, and are not stale or obsolete.

5.9Contracts.  The Major Assigned Contracts, and the other contracts, leases, licenses and agreements set forth in Schedule 5.9 constitute all material contracts, agreements, instruments, leases and licenses relating to the Business and to which Seller is a party, or to which any of the Assets is subject (collectively, “Material Contracts”), all of which are valid and binding obligations of Seller in all material respects and, to the best of Seller’s knowledge, of the other parties thereto in accordance with their respective terms and conditions.  True and correct copies of all Material Contracts have been made available or delivered to Purchaser.  Except as otherwise indicated in Schedule 5.5 or Schedule 5.9, (i) neither Seller nor, to Seller’s or any Seller Principal’s knowledge based on reasonable inquiry, any other party to any such Major Assigned Contract or other Material Contract has given notice of termination or taken any action inconsistent with the continuance of, is now in violation or breach of, or in default in complying with, any material provision thereof and (ii) the consent of any other party to such contract, agreement, instrument, lease or license is not required to validly effect the assignment, transfer or conveyance thereof from Seller to Purchaser.

5.10Permits.  Schedule 5.10 contains an accurate list of all material licenses, franchises, permits and other governmental authorizations held by Seller (the “Permits”).  The Permits are valid, and Seller has not received any written notice that any Governmental Authority intends to cancel, terminate or decline to renew any such Permit.  The Permits are all the permits that are required by Law for the operation of the Business as currently conducted and the ownership of the Assets by Purchaser after the Closing Date, except any Permit the lack or loss of which to have would not have a material adverse effect on the Business.  Seller has conducted and is conducting the Business in substantial compliance with the requirements, standards, criteria and conditions set forth in the Permits.

5.11Trade Restrictions and Confidentiality Agreements.  Schedule 5.11 sets forth all agreements containing covenants not to compete or solicit employees or to maintain the confidentiality of information to which Seller or, to Seller’s knowledge, any of Seller’s employees, is bound or under which Seller has any rights or obligations.

5.12Litigation and Legal Compliance.  Except as set forth in Schedule 5.12, there is no material claim, action, suit or proceeding, pending or, to the knowledge of the Seller or the Seller Principals based on reasonable inquiry, threatened against or affecting Seller, at law or in equity, or before or by any Governmental Authority having jurisdiction over Seller which, if successful, would reasonably be expected to have a material adverse effect on Seller.  No written notice of any claim, action, suit or proceeding, whether pending or threatened, has been received by the

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Seller and, to Seller’s knowledge, there is no basis therefor.  Seller has conducted and is conducting the Business in compliance with all Laws applicable to Seller, the Assets or the operation of the Business, other than any noncompliance that would not reasonably be expected to have a material adverse effect on the Business.

5.13Taxes.   Seller has timely filed all requisite federal, state, local and other Tax returns for all fiscal periods for which the applicable statute of limitations has not expired, and has duly paid in full or made adequate provision in the Base Value Balance Sheet and other Required Financial Information for the payment of all Taxes for all periods for which the applicable statute of limitations has not expired.  Seller has duly withheld and paid or remitted all Taxes required to have been withheld and paid prior to the Closing Date in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder or other person or entity that required withholding under any applicable Law, including, without limitation, any amounts required to be withheld or collected with respect to social security, unemployment compensation, sales or use Taxes or workers’ compensation.  To the best of Seller’s and the Seller Principals’ knowledge, there are no examinations in progress or claims against Seller relating to Taxes for any period or periods prior to and including the Closing Date and no written notice of any claim for Taxes, whether pending or threatened, has been received.  Seller has not granted or been requested to grant any extension of the limitation period applicable to any claim for Taxes or assessments with respect to Taxes.  Seller is not a party to any Tax allocation or sharing agreement and is not otherwise liable or obligated to indemnify any person or entity with respect to any Taxes.

5.14Solvency.  Seller is currently able to pay, and is paying, its debts in general as they come due, and will not be rendered unable to pay such debts generally as they come due by the transfer contemplated by this Agreement.

5.15Change of Name and Location.  During the past five (5) years, except as described in Schedule 5.15, Seller has not conducted the Business under any name or been legally located at any location other than as follows:

Name	Legal Location
Hotel Technology Solutions	500 Brisbane Building
or Lorica Solutions.	403 Main Street
	Buffalo, New York 14203
	275 Northpointe Parkway
	Amherst, New York 14228

5.16Books and Records.  The books of account, record books, and other records of Seller, are complete and correct in all material respects, have been maintained in accordance with sound business practices, and all of them have been made available for inspection by Purchaser.

5.17Disclosure.   Seller has fully provided Purchaser or its representatives with all the information that Purchaser has requested in analyzing whether to consummate its purchase of the Assets.  None of the information so provided nor any representation or warranty of Seller contained in this Agreement contains any untrue statement of a material fact, or omits to state a

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material fact necessary to make such representation, warranty or statement, in light of the circumstances under which they were made, not misleading.  To the best of Seller’s and the Seller Principals’ knowledge based on reasonable inquiry, there is nothing which has not been set forth or disclosed in this Agreement and the attached exhibits which currently materially adversely affects the Business or the Assets.

5.18Locations.  Except as to items that may be out for service or repair or with sales representatives for marketing purposes, all tangible personal property included in the Assets is currently found at the locations set forth in Schedule 5.15.

5.19Warranty Claims.  Except as set forth in Schedule 5.19, there are no material warranty claims for defective work completed by the Business existing, pending or, to the best knowledge of Seller, threatened against the Business or Seller.

5.20No Other Representations.  Except for the representations and warranties of Seller and the Seller Principals specifically contained in this Article V, Seller and the Seller Principals hereby make no representation or warranty of any kind whatsoever, express or implied, with respect to either the transactions contemplated hereby or the condition of, or any other matter involving, Seller or as to the accuracy or completeness of any information regarding Seller furnished or made available to Purchaser.  Seller shall not have or be subject to any liability to Purchaser or any other person arising from the distribution to Purchaser, or Purchaser’s use or reliance upon, any such information or any information, documents or materials made available to Purchaser in any “data rooms” (virtual or otherwise), management presentations or in any other form in expectation of, or in connection with, the transactions contemplated hereby.

ARTICLE VI

REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser represents and warrants to Seller as follows:

6.1Organization.  Purchaser is a corporation duly organized, validly existing and in good standing under the Laws of the State of Oklahoma.  Attached as Schedule 6.1 are true, correct, and complete copies of Purchaser’s Certificate of Incorporation and Bylaws.

6.2Authority.  Purchaser has the full legal right, power and authority to enter into this Agreement and to consummate the transactions contemplated hereby.  Once approved by Purchaser’s Board of Directors, which is generally aware of the transactions contemplated by this Agreement and the basic terms hereof as set forth in the Letter of Intent between Seller and Purchaser dated as of March 26, 2010, no additional corporate proceedings on the part of Purchaser will be necessary to authorize the execution and delivery of this Agreement and the consummation by Purchaser of the transactions contemplated hereby.  In executing this Agreement, Purchaser’s President and Chief Executive Officer has no reason to believe that such Board approval will not be obtained.

6.3Enforceability.  This Agreement has been duly and validly executed and delivered by Purchaser, and, assuming the due authorization, execution and delivery by Seller and the valid

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and binding agreement of Purchaser, enforceable against Purchaser in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally and subject, as to enforceability, to general principles of equity.

6.4Non-Contravention.  The execution and delivery of this Agreement by Purchaser do not, and the consummation by Purchaser of the transactions contemplated hereby will not, violate or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the termination of, or accelerate the performance required by, or result in a right of termination or acceleration under any of the terms, conditions or provisions of (i) Purchaser’s Certificate of Incorporation or Bylaws, (ii) any Law applicable to Purchaser or any of its properties or assets or (iii) any note, bond, mortgage, indenture, deed of trust, license, franchise, permit, concession, contract, lease or other instrument, obligation or agreement of any kind to which Purchaser is now a party or by which Purchaser or any of its properties or assets may be bound or affected.

6.5Consents.  No declaration, filing or registration with, or notice to, or authorization, consent or approval of, any Governmental Authority or other third party (except the consent of Commerce Bank, N.A.) is necessary for the execution and delivery of this Agreement by Purchaser or the consummation by Purchaser of the transactions contemplated hereby.  Commerce Bank, N.A. is aware of the transactions contemplated by this Agreement and Purchaser has no reason to believe that its consent will not be obtained.

6.6No Implied Representations.  Notwithstanding anything to the contrary contained in this Agreement, Purchaser has not made any representation or warranty whatsoever, express or implied, other than those representations and warranties of Purchaser expressly set forth in this Agreement.

6.7Litigation.  There is no suit, action, administrative proceeding or other proceeding or governmental investigation pending, or to Purchaser’s knowledge, threatened against Purchaser that, if adversely determined to Purchaser could have a material adverse effect on the ability of Purchaser to perform its obligations hereunder.

6.8Disclosure.  Purchaser has fully provided Seller or its representatives with all the information that Seller has requested, and which, while not contained in publicly available documents filed with the SEC, would otherwise be material to Seller in analyzing whether to consummate this Agreement pursuant to the terms and conditions set forth herein.  None of the information so provided nor any representation or warranty of Purchaser contained in this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements herein or therein, in light of the circumstances under which they were made, not misleading.  To Purchaser’s knowledge, there is nothing which has not been set forth or disclosed in this Agreement that could have a material adverse effect on Purchaser’s ability to perform its obligations hereunder.

6.9XETA Stock and Warrants.  The shares of XETA Stock to be issued pursuant to Section 2.2(b) have been duly and validly reserved and, upon issuance in accordance with the

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terms of this Agreement, will constitute validly issued, fully paid and non-assessable shares of common stock of Purchaser, free of restrictions on transfer other than restrictions on transfer contained herein, or arising under or by virtue of applicable state and federal securities laws and Encumbrances created by or imposed by a recipient thereof.  Purchaser has duly and validly reserved the shares of XETA Stock issuable upon exercise of the Warrants, and such shares shall, when issued pursuant to the terms of the Warrants, constitute validly issued, fully paid and non-assessable shares of common stock of Purchaser, free of restrictions on transfer, other than restrictions on transfer contained herein, or arising under or by virtue of applicable state and federal securities laws and Encumbrances created by or imposed by a recipient thereof.  The Warrants, when issued, sold and delivered in accordance with the terms set forth in this Agreement, will be validly issued, fully paid and nonassessable and free of restrictions on transfer other than restrictions on transfer contained herein, or arising under or by virtue of applicable state and federal securities laws and Encumbrances created by or imposed by a recipient thereof.  Assuming the accuracy of the representations in Section 2.2, the shares of XETA Stock to be issued pursuant to Section 2.2(b), the Warrants and the shares of XETA Stock issuable upon exercise thereof will be issued in compliance with all applicable federal and state securities laws.

6.10Availability of Funds.  Purchaser has cash available or borrowing facilities that are sufficient to enable it to consummate the transactions contemplated by this Agreement.

6.11No Competing Transactions Pending.  Purchaser is not currently involved in negotiations for the acquisition, whether by purchase of stock or of assets, of any other business engaged in the provision of high speed internet access services or products to the lodging industry.

ARTICLE VII

CERTAIN COVENANTS

7.1Conduct of Business.  Seller shall conduct the Business up to the Closing Date in its normal and regular manner, and will not enter into any contract except as may be required in the ordinary course of business.  Except with respect to disclosure to their respective attorneys, financial advisors and officers and employees with a need to know, or as otherwise required by Law, the parties shall insure that the existence of this Agreement is kept in strictest confidence prior to Closing, and no party shall disclose the terms hereof to any person, before Closing, without each other party’s prior written consent and prior review of such proposed disclosure (including, but not limited to, Purchaser’s news release and SEC filings).

7.2Future Cooperation; Tax Matters.  Seller and Purchaser shall each deliver or cause to be delivered to the other following the Closing such additional instruments as the other may reasonably request for the purpose of fully carrying out this Agreement.  Seller will cooperate and use commercially reasonable efforts to cause its officers, directors and employees to cooperate with Purchaser at and after the Closing Date in furnishing information, evidence, testimony and other assistance in connection with any actions, proceedings, arrangements or disputes of any nature with respect to matters pertaining to all Tax periods prior to the Closing Date.  Purchaser will provide Seller with access to such of Seller’s books and records relative to

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the Business as may be reasonably requested by Seller in connection with federal, state and local Tax matters relating to Tax periods ending prior to the Closing Date.  The party requesting cooperation, information or actions under this Section 7.2 shall reimburse the other party for all reasonable out-of-pocket costs and expenses actually paid or incurred in connection therewith, which costs and expenses shall not, however, include per diem charges for employees or allocations of overhead charges.

7.3Access; Due Diligence Examination.  Between the date of this Agreement and the Closing Date, Seller shall give Purchaser and its authorized representatives access upon reasonable notice during business hours and in such manner as shall not unduly to disrupt Seller’s normal business activities, to any and all premises, properties, contracts, commitments, books, records and affairs of the Business and shall cause its officers and employees to furnish Purchaser any and all financial, technical and operating data, all accounting and business records and all legal documents and other information pertaining to the Business as Purchaser, its representatives and advisors, may from time to time request to verify the existence, condition, value and ownership of the Assets, the amount, nature and scope of the Assumed Liabilities, and the prospects of the Business (“Due Diligence Information”).  Purchaser shall be entitled to rely on the accuracy of all Due Diligence Information.  Purchaser shall also have the right to interview Seller’s key employees, customers and vendors/suppliers, and to review all customer credit histories and profiles as Purchaser, its representatives and advisors may deem necessary.

7.4Preservation and Continuity of Representations.  Seller hereby covenants with Purchaser that from and after the date of this Agreement and through the Closing Date or the earlier termination of the Agreement, Seller shall use its best efforts to ensure that all of its representations and warranties set forth in Article V hereof shall be true in all material respects as of the Closing Date as if repeated at and as of such time, and shall notify Purchaser promptly of any material adverse change or deviation in or from any of the representations and warranties herein from the date of this Agreement through the Closing Date.

7.5Effect of Purchaser’s Due Diligence.  Purchaser’s due diligence review shall not relieve Seller or a Seller Principal (as and to the extent applicable) of any duties concerning their respective representations, or warranties, or Seller’s covenants and agreements contained in this Agreement.

7.6Filings with SEC.  Between the date of this Agreement and the Closing Date, or promptly thereafter, Purchaser may choose to make certain news releases or filings with the SEC.  To the extent that information concerning Seller is required to be included in such filings as required by applicable Law or SEC rules, Seller shall supply or cause Seller’s auditors and other advisors to supply such information, in the manner and form reasonably requested by Purchaser, at Purchaser’s cost, promptly and in any event not later than twenty (20) days after receipt of such request.  Until such time as Purchaser shall have filed its Current Report on Form 8-K disclosing the consummation of the transactions to be effected by this Agreement, Seller shall be afforded the opportunity to review, in advance, and to propose for Purchaser’s consideration reasonable additions to, and modifications in, the information and disclosures to be contained in any such news release or SEC filing relating to such transactions, and in furtherance of such opportunity Seller shall be afforded reasonable notice and time (not to exceed one Business Day) to review drafts of

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each such news release or filing, and to consult with Seller’s legal counsel, auditors and other advisors relative thereto.

ARTICLE VIII

CONDITIONS TO PURCHASER’S OBLIGATION TO CLOSE;

SELLER’S DELIVERIES

Each and every obligation of Purchaser under this Agreement that has to be performed on or after the date hereof shall be subject to the satisfaction or waiver by Purchaser on or before the Closing Date of the following conditions:

8.1Representations.  The representations and warranties made by Seller and the Seller Principals in this Agreement shall be correct in all material respects on and as of the Closing Date, except for representations and warranties that by their terms can speak only as of a specified date, with the same force and effect as though such representations and warranties had been made on the Closing Date.  If requested by Purchaser, Seller and, as applicable, the Seller Principals shall have delivered to Purchaser a certificate to that effect dated the Closing Date and signed by an officer of Seller.

8.2Performance.  All the terms, covenants and conditions of this Agreement to be complied with or performed by Seller on or before the Closing Date shall have been fully complied with or performed in all material respects or waived by Purchaser.

8.3Waiting Periods; Governmental Approvals.  All other governmental or regulatory approvals the absence of which would have a material adverse effect upon the conduct of the Business by Purchaser or Purchaser’s ownership or control of the Assets or the Business shall have been obtained, and (x) no suit, action or proceeding by any Governmental Authority shall be pending and (y) Purchaser shall not have been advised in writing by any Governmental Authority that such Governmental Authority intends to file or commence any suit, action or proceeding, which, in either case, seeks to enjoin, restrain or prohibit the consummation of the transactions contemplated by this Agreement or to impose limitations on the ability of Purchaser to exercise full rights of ownership of the Assets or require the divestiture by Purchaser of any of the Assets.  Purchaser shall deliver to Seller copies of any writing referred to in this section promptly upon receipt, but in no event less than ten (10) days following receipt.

8.4Proceedings.  Prior to the Closing Date, no material litigation shall have been initiated or threatened by any Governmental Authority or any other person questioning the legality of the transactions contemplated by this Agreement or which, in the reasonable opinion of counsel to Purchaser, could have a material adverse effect on the Business or make it undesirable to proceed with such transactions.

8.5Business and Legal Matters.  Seller shall have furnished or Purchaser shall have obtained:

(a)from each of Seller’s customers which is a party to any of the Major Assigned Contracts, such customer’s written acknowledgement of and, where necessary to the validity and effectiveness of Purchaser’s contemplated acquisition and assumption

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of any such Major Assigned Contract, its consent to the assignment thereof to Purchaser, which acknowledgment and consent shall have been sought by Seller and Purchaser by means of letter notification introducing Purchaser to each such customer and notifying each of Seller’s intended assignment of such Major Assigned Contract to Purchaser;

(b)all certificates, permits and approvals, if any, that may be required in connection with Purchaser’s acquisition and contemplated operation of the Business after Closing;

(c)acceptance of employment by Purchaser from all of Seller’s employees identified by Purchaser as key to the successful continuation of the Business and listed on Schedule 4.1 attached hereto;

(d)mutually acceptable extensions, as deemed reasonably necessary by Purchaser, of any and all contracts or agreements with all key suppliers and vendors of the Business;

(e)legal authority satisfactory to Purchaser and its counsel, obtained by Purchaser or such counsel as they shall deem necessary, without cost to Seller, that the sale of Assets to be effected by the Agreement is in compliance with the provisions of any applicable bulk sales or similar law in effect in the State of New York; and

(f)all governmental approvals and third-party consents (if any), including but not limited to the consent of Commerce Bank, N.A., deemed reasonably necessary by Purchaser for Purchaser’s performance of its obligations under this Agreement or its continued operation of the Business after Closing; provided, that Purchaser shall use its best efforts to obtain the consent of Commerce Bank, N.A. within not more than five (5) business days following the execution of this Agreement; and provided, further, that Purchaser agrees to give Seller prompt notice of the giving of, or refusal to give, such consent.

8.6Opinion of Counsel.  Purchaser shall have been provided with an opinion, containing customary qualifications and other limitations, from counsel to Seller substantially to the effect that:

(a)Seller is a corporation validly existing and in good standing under the laws of the State of Delaware.  Seller has all requisite corporate power and authority to carry on its business operations and to own and operate the business in which it is engaged.  Seller is duly qualified to transact the business in which it is engaged and is in good standing as a foreign corporation in the State of New York and, to such counsel’s knowledge, in each other jurisdiction in which the operation of the Business requires it to be registered unless the failure to be so registered would not have a material adverse effect on Seller.

(b)The authorized and outstanding shares of capital stock of Seller, and the holders thereof, are as set forth in Schedule 2.2(c) hereof, and all of such outstanding shares of capital stock are validly authorized and issued, fully paid and nonassessable.

(c)Seller has all requisite power and authority to execute, deliver, and perform the Agreement, Bill of Sale and all other documents and instruments contemplated by the Agreement (“Transaction Documents”) to which Seller is a party,

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and to consummate the transaction contemplated thereby.  The execution and delivery of the Transaction Documents to which Seller is a party, and the consummation of the transactions contemplated thereby, have been duly and validly authorized by all requisite corporate action taken on the part of Seller, its Board of Directors and stockholders, and no other corporate proceeding on the part of Seller, its Board of Directors or stockholders is necessary to authorize the Transaction Documents or the consummation of the transactions contemplated thereby.

(d)Each of the Transaction Documents to which Seller is a party has been duly executed and delivered by Seller, and such Transaction Documents constitute the valid and binding obligations of Seller, to the extent Seller is a party thereto, enforceable against Seller in accordance with their respective terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally and subject, as to enforceability, to general principles of equity.

(e)The execution, delivery, and performance of the Transaction Documents by Seller will not violate or result in a breach of any term of Seller’s Certificate of Incorporation or Bylaws.  To such counsel’s knowledge, neither (i) the execution and delivery of the Transaction Documents by Seller, nor (ii) its carrying out of the transactions contemplated thereby, will result in a breach of any of the Major Assigned Contracts set forth in Schedule 2.1(b) of the Agreement or other Material Contracts identified in the Agreement.

(f)To such counsel’s knowledge, the sale of Assets to be effected by the Agreement is in compliance with the provisions of any applicable bulk sales or similar law in effect with the State of New York, and neither the execution nor delivery of the Transaction Documents by Seller nor Seller’s compliance with the terms and provisions thereof has violated or will violate (a) any law, statute, rule, or regulation of the United States or, to such counsel’s knowledge, the State of New York, nor (b) any injunction, order, or decree of any court or governmental agency or authority binding upon Seller of which such counsel has knowledge.

(g)Except as disclosed in the Schedules to the Agreement, to such counsel’s knowledge, there is not now pending any suit, action, claim, investigation, arbitration, administrative or legal or other proceeding or governmental inquiry of any kind against or relating to Seller not covered by insurance and which if adversely determined might have a material adverse effect on the Business nor, to such counsel’s knowledge, has any such suit, action, claim, investigation, arbitration or administrative, judicial or other proceeding or governmental inquiry been threatened involving Seller.

(h)To such counsel’s knowledge, Seller has not been cited for any violation or violations of any order, writs, injunction, judgment, or decree of any court or federal, state or local government department, official, commission, authority, board, bureau, agency or other instrumentality, which has been issued or is pending against Seller and which could have a material adverse effect on the Business; and (b) such counsel has no knowledge of, nor has such counsel been consulted by Seller with a view to obtaining, substantive legal advice with regard to any matter involving, the violation or alleged

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violation of any law by Seller, which violation or alleged violation, if proven, might have a material adverse effect on the Business.

(i)To such counsel’s knowledge, except as disclosed in Schedules to the Agreement, no authorization, approval or consent of any United States or State of New York government agency or authority is required to be obtained by Seller in order to permit consummation of the transactions contemplated by the Transaction Documents.

8.7No Material Adverse Change.  Purchaser shall have completed its due diligence examination and determined (a) that there has been no material adverse change in the Assets, Assumed Liabilities, Business condition or operation of the Business since the date of the Base Value Balance Sheet, (b) that Seller has not made capital expenditures since the Base Valuation Date in the aggregate amount of more than $25,000, and (c) that the Escrow Amount will be sufficient to absorb any and all deductions in the Purchase Price which are, in Purchaser’s reasonable opinion, likely to be required pursuant to Section 2.5.

8.8Corporate Approvals.

(a)Purchaser’s performance of this Agreement and the transactions to be effected hereby shall have been approved by Resolutions duly adopted by Purchaser’s Board of Directors authorizing the transactions to be effected by Purchaser pursuant to this Agreement; and

(b)Seller’s performance of this Agreement and the transactions to be effected hereby shall have been approved by Resolutions duly adopted by Seller’s Board of Directors and stockholders authorizing the transactions to be effected by Seller pursuant to this Agreement.

8.9Closing Items.  Seller shall have delivered the Escrow Amount into escrow with a title company or bank mutually satisfactory to Purchaser and Seller, and Purchaser shall have received all of the following items:

(a)a duly executed the Bill of Sale and Assignment in the form of Exhibit A conveying title to the Assets to Purchaser and any assignments of motor vehicle certificates of title as shall be necessary to convey title to such vehicles to Purchaser;

(b)such documents as Purchaser may reasonably request with respect the Major Assigned Contracts, executed by the Seller and reflecting the consent of the other parties thereto to the assignment each such contract to Purchaser;

(c)evidence satisfactory to Purchaser to the effect that all outstanding security interests and other liens covering any of the Assets and all outstanding UCC financing statements, amendments and assignments covering any of the Assets, have been released and/or terminated as of the Closing Date, or will be promptly thereafter;

(d)true and correct copies of Resolutions duly adopted and approved by Seller’s Board of Directors and its stockholders, authorizing the transactions to be effected by Seller pursuant to this Agreement ; and

(e)all such other certificates and documents consistent with this Agreement as Purchaser or its counsel shall have reasonably requested.

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ARTICLE IX

CONDITIONS TO SELLER’S OBLIGATION TO CLOSE;

PURCHASER’S DELIVERIES

Each and every obligation of Seller under this Agreement to be performed on or after the date hereof shall be subject to the satisfaction or waiver by Seller on or before the Closing Date of the following conditions:

9.1Representations.  The representations and warranties made by Purchaser in this Agreement shall be correct in all material respects on and as of the Closing Date, with the same force and effect as though such representations and warranties had been made on the Closing Date. If requested by Seller, Purchaser shall have delivered to Seller a certificate to that effect dated the Closing Date and signed by an officer of Purchaser.

9.2Performance.  All the terms, covenants and conditions of this Agreement to be complied with or performed by Purchaser on or before the Closing Date shall have been fully complied with or performed in all material respects or waived by Seller.  Purchaser shall have delivered to Seller a certificate to that effect dated the Closing Date and signed by an officer of Purchaser.

9.3Proceedings.  Prior to the Closing Date, no material litigation shall have been initiated or threatened by any Governmental Authority or any other person questioning the legality of the transactions contemplated by this Agreement which, in the reasonable opinion of counsel to Seller, makes it undesirable to proceed with such transactions.

9.4Closing Documents.  Seller shall have received from Purchaser the following items:

(a)In a form and content reasonably satisfactory to Seller, a certificate of the Secretary or an Assistant Secretary of Purchaser, dated as of the Closing Date and certifying the resolutions of Purchaser’s Board of Directors attached thereto duly approving and authorizing the execution, delivery and performance of this Agreement and the transactions and agreements contemplated by or referred to herein;

(b)the cash component of the Purchase Consideration minus the Escrow Amount;

(c)a certificate or certificates for the XETA Stock registered in Seller’s name

(d)The Warrants registered in Seller’s name; and

(e)all such other certificates and documents consistent with this Agreement as Seller or its counsel shall have reasonably requested.

ARTICLE X

INDEMNIFICATION

10.1Survival of Representations and Warranties.  The parties hereto agree that their respective representations, warranties, covenants and agreements contained herein shall survive the Closing for a period of twenty-four (24) months after the Closing Date, except that those

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covenants, representatives and warranties made by Seller with respect to Taxes (Section 5.13) shall survive the Closing until the expiration of the applicable statute of limitations (the “Indemnification Period”).

10.2Indemnification by the Seller.  Subject to the other provisions of this Article X, Seller agrees to save and indemnify Purchaser against, and hold it harmless from, any and all liabilities, of every kind, nature and description, fixed or contingent, including without limitation reasonable attorney fees and expenses incurred in connection with any action, claim or proceeding relating to such liabilities (“Damages”), arising from the breach of any of Seller’s representations, warranties, covenants, or agreements, contained herein, a claim for which is asserted in writing by Purchaser during the applicable Indemnification Period.

10.3Indemnification by Purchaser.  Purchaser agrees to save and indemnify Seller against and to hold it harmless from any and all Damages arising from the breach of any of Purchaser’s representations, warranties, covenants or agreements contained herein or the Exhibits hereto or from the operation of the Business after the Closing Date, a claim for which is asserted in writing by Seller during the Indemnification Period.

10.4Limitations on Recoverable Damages.  Claims for Damages under Section 10.1 (a) may be made only with respect to claims arising during the applicable Indemnification Period; (b) must be made, if at all, by giving the written notice described in Section 10.6 within ten (10) days after the close of the Indemnification Period applicable with respect to such claim; (c) may be made only after the aggregate amount of such Damages exceeds $   *    (the “Basket”);      *     ; provided, that to the extent that such Damages shall exceed the sum of:

(A)that portion of the Purchase Consideration actually paid to Seller in cash at the Closing (i.e. $850,000), plus

(B)amounts released to Seller from the Escrow Amount (max. $150,000), plus

(C)amounts received by Seller from the sale of any XETA Stock issued to Seller (x) as part of the Purchase Consideration, or (y) upon its exercise of the Warrants issued to Seller as part of the Purchase Consideration, then,

before pursuing Seller for further cash recovery, Purchaser shall provide Seller, by written notice, the option to satisfy the balance of such Damages not already satisfied by (A), (B) and (C), above, in cash, payable within three (3) Business Days after the giving of such notice (“Option Period”).  In the event that Seller elects not to exercise the option set forth in the preceding sentence, or fails to exercise and consummate such option before the end of the Option Period, then, Purchaser shall first satisfy the balance of such Damages not already satisfied by (A), (B) and (C), above, by cancellation of:

(I)any unsold shares of XETA Stock issued to Seller as part of the Purchase Consideration (“Unsold Shares”),

(II)any unexercised portion of the Warrants issued to Seller as part of the Purchase Consideration (“Unexercised Warrants”), and

*The asterisk (*) indicates that material has been omitted pursuant to a request for confidential treatment.  The omitted material has been filed separately with the Securities and Exchange Commission pursuant to rule 24b-2 of the rules to the Securities and Exchange Act of 1934, as amended.

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(III)any unsold shares of XETA Stock issued upon exercise thereof (“Unsold Warrant Shares”), or any or all thereof;

provided, that the aggregate fair market value at the time of cancellation of such Unsold Shares, Unexercised Warrants and Unsold Warrant Shares cancelled pursuant to this provision shall not exceed the aggregate amount of the balance of such Damages.  If Purchaser shall have been unable to satisfy such Damages because the aggregate fair market value at the time of cancellation of such Unsold Shares, Unexercised Warrants and Unsold Warrant Shares proves insufficient to satisfy the balance of Purchaser’s Damages, Purchaser may then proceed to seek recovery of the balance of such Damages from Seller in cash,       *      , by such appropriate legal action as shall be necessary and available.

Any cancellation pursuant to this Section 10.4 shall, under such circumstances, be deemed automatic, rendering such Unsold Shares and Unsold Warrant Shares immediately null and void, and such Unexercised Warrants of no further force or effect.  Purchaser shall provide written notice to Seller of any Damages which Purchaser deems to count against the Basket.  Notwithstanding the foregoing, nothing herein shall prevent a party from bringing an action for fraud or intentional misrepresentation against the other party, where such fraud or intentional misrepresentation has caused such party to incur Damages with respect to any claim or right to indemnification hereunder.

10.5Claims.  All claims for indemnification hereunder shall be computed net of the present value of all readily ascertainable future Tax benefits associated therewith.  No claim for indemnification shall be made for matters adequately covered by insurance.

10.6Defense of Claims.  Each party asserting a right to indemnification under this Article X (the “Asserting Party”) agrees to notify the party putatively required to provide indemnification (the “Responding Party”) with reasonable promptness of any claim for Damages asserted against it in respect of which the Responding Party may be liable under this Agreement, which notification shall be accompanied by a written statement setting forth the basis of such claim and the manner of calculation thereof.  The Responding Party shall have the right, at its election, to defend or compromise any such claim at its own expense with counsel of its choice; provided, however, that (i) such counsel shall have been approved by the Asserting Party, which approval shall not be unreasonably withheld or delayed; (ii) the Asserting Party may participate in such defense if it so chooses with its own counsel and at its own expense; and (iii) any such defense or compromise shall be conducted in a manner which is reasonable and not prejudicial to the Asserting Party’s interest in such matter.  In the event the Responding Party does not undertake to defend or compromise the claim, the Responding Party shall promptly notify the Asserting Party of its intention not to undertake to defend or compromise the claim, and the Responding Party shall be bound by (a) the final decree of any court of competent jurisdiction deciding the validity and amount of the claim asserted against the Asserting Party, and (b) any compromise of such claim made with the prior consent of the Responding Party, which shall not be unreasonably withheld or delayed.

*The asterisk (*) indicates that material has been omitted pursuant to a request for confidential treatment.  The omitted material has been filed separately with the Securities and Exchange Commission pursuant to rule 24b-2 of the rules to the Securities and Exchange Act of 1934, as amended.

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10.7Extension of Time.  To the extent that an Asserting Party delivers written notice of a claim for Damages against a Responding Party prior to the expiration of the applicable Indemnification Period, reasonably identifying the basis for the claim and the amount of any reasonably ascertainable Damages, the Indemnification Period shall be extended for such claim until such claim is resolved by a Final Determination (as defined below).

10.8Final Determination.  For the purposes of this Agreement, a “Final Determination” shall exist when (i) the Asserting Party and the Responding Party agree in writing upon the amount, or (ii) a court of competent jurisdiction shall have made a determination on the merits with respect thereto and appeal therefrom shall not have been taken within a timely fashion from the date of such determination. The Asserting Party will assign to the Responding Party any claims against which the Asserting Party has been indemnified and paid as provided herein, and the Responding Party shall in all respects be subrogated to the rights of the Asserting Party in connection therewith.

ARTICLE XI

TERMINATION

11.1General.  Anything herein or elsewhere to the contrary notwithstanding, this Agreement may be terminated at any time prior to the Closing Date:

(a)By mutual written consent of Seller and Purchaser;

(b)By Purchaser if, through no fault of Purchaser, any of the conditions set forth in Article VIII shall not have been fulfilled, or shall become incapable of fulfillment, on or prior to June 15, 2010, and shall not have been waived;

(c)By Seller if, through no fault of Seller, any of the conditions set forth in Article IX shall not have been fulfilled, or shall become incapable of fulfillment, on or prior to June 15, 2010, and shall not have been waived;

(d)By Purchaser or Seller, if the Closing Date shall not have occurred on or prior to June 15, 2010 (or such later date as shall have been approved by the parties), unless such failure of such occurrence shall be due to the failure of the party seeking to terminate this Agreement to perform or observe in good faith the covenants, agreements and conditions hereof to be performed or observed by such party at or before the Closing Date;

(e)By Purchaser or Seller, if any court of competent jurisdiction or other Governmental Authority shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall not have been withdrawn within thirty (30) days after the date on which such order, decree, ruling or other action was first issued or taken, or by reason of any litigation or proceeding pending or threatened to be instituted by any person or governmental body, which, in either case in the good faith judgment of its Board of Directors will in all likelihood result in an order, decree or ruling enjoining or otherwise prohibiting the transactions contemplated by this Agreement; or

(f)By Purchaser or Seller, if any representation or warranty given or made in this Agreement or any attachment by the other was untrue in any material respect as of the

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Closing Date, or as of the date given, in light of the circumstances under which such representation or warranty was given or made, or if any covenant given or made in or pursuant to this Agreement by one party, and performable by the other before and as a condition to the Closing, is breached and such breach is not promptly cured after notice.

11.2Effect.

(a)In the event of termination or abandonment by reason of Section 11.1, this Agreement shall forthwith become void and there shall be no liability of one party to the other by reason of this Agreement unless the reason for termination or abandonment was caused by the action, the failure to act, the misrepresentation, omission or breach by the party to be charged with such liability with respect to a material aspect of the contemplated transaction.

(b)In the event that this Agreement is terminated by Purchaser as the result of a failure by its Board of Directors to approve the transactions set forth in this Agreement (other than due to the failure by Seller to satisfy the conditions set forth in Article VIII through no fault of Purchaser), then, Purchaser shall not, within ninety (90) days after the effective date of such termination, enter into any agreement for the acquisition, whether by purchase of stock or of assets, of any other business engaged in the provision of high-speed internet access services and products to the lodging industry.

ARTICLE XII

MISCELLANEOUS

12.1Entire Agreement.  This Agreement (including the Schedules and Exhibits hereto) and the documents delivered pursuant hereto constitute the entire agreement and understanding among Seller, the Seller Principals and Purchaser, superseding any prior agreement and understanding relating to the subject matter of this Agreement.  This Agreement may be modified or amended only by a written instrument executed by Seller, and Purchaser, acting through their respective officers and duly authorized by their respective Boards of Directors.

12.2Counterparts.  This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute but one and the same instrument.  Facsimile or e-mail transmission of any signed original document and/or retransmission of any signed facsimile or e-mail transmission will be deemed the same as delivery of an original.  At the request of any party, the parties will confirm facsimile or e-mail transmissions by signing a duplicate original document.

12.3Brokers and Agents.  Other than the Seller’s investment advisors, SeaCap Securities, LLC, each party hereto represents and warrants that it employed no broker or agent in connection with the transactions contemplated by this Agreement.  Each party agrees to indemnify each other party against all loss, cost, damages or expense arising out of claims for fees or commissions of brokers employed or alleged to have been employed by such indemnifying party.  Purchaser represents that no such arrangements exist.

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12.4Notices.  Any notice or other communication hereunder may be sent by any means (including facsimile or email or other electronic means, provided that receipt thereof is acknowledged and confirmed by the recipient) and shall be effective upon receipt; except that, if sent via domestic certified mail or via overnight courier such as Federal Express, said notice shall be conclusively deemed to have been received by a party hereto and be effective on the earlier of (a) the actual date of receipt, or, if earlier, (b) the third Business Day following the date given to the post office or courier for delivery.  Such notices and communications shall be addressed to such party at the address set forth below:

If to Purchaser, addressed to them at:

XETA Technologies, Inc.

1814 West Tacoma

Broken Arrow, Oklahoma  74012-1406

Attn:  Greg D. Forrest, President and Chief Executive Officer

Ph.:   (918) 664-8200  Fax: (918) 664-6876

With copy to:Barber & Bartz, P.C.

525 S. Main, Suite 800

Tulsa, Oklahoma 74103-4511

Attention:  Robert L. Bearer, Esq.

Phone:  (918) 599-7755  Fax:  (918) 599-7756)

If to Seller or the Seller Principals, addressed as follows:

c/o Hotel Technology Solutions, Inc. d/b/a Lorica Solutions

Attn:Mr. Mark Holzberg,

Chairman and Chief Executive Officer

500 Brisbane Building

403 Main Street

Buffalo, New York 14203

Phone:  (201) 788-4880  Fax:  (716) 636-0727

With copy to:Andrew J. Merken, Esq.

Burns & Levinson LLP

125 Summer Street

Boston, Massachusetts 02110

Phone: (617) 345-3740  Fax:  (617) 345-3299

or such other address as any party hereto shall specify pursuant to this Section 12.4 from time to time.

12.5Rights and Remedies.  Except as otherwise provided herein, no delay of or omission in the exercise of any right, power or remedy accruing to any party as a result of any breach or default by any other party under this Agreement shall impair any such right, power or remedy, nor shall it be construed as a waiver of or acquiescence in any such breach or default, or of any similar breach or default occurring later; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default occurring before or after that waiver.

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12.6Reformation and Severability.  In case any provision of this Agreement shall be invalid, illegal or unenforceable, it shall, to the extent possible, be modified in such manner as to be valid, legal and enforceable, but so as to most nearly retain the intent of the parties, and if such modification is not possible, such provision shall be severed from this Agreement, and in either case, the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby.

12.7Governing Law.  This Agreement shall be construed in accordance with the laws of the State of Oklahoma applicable to contracts to be entered into and fully performed in the State of Oklahoma.

12.8Further Assurances.  Each party will, upon reasonable request of the other party, from time to time after the Closing, execute and deliver to the other all such further documents and instruments, and will do or use its reasonable best efforts to cause to be done such other acts, as such other party may reasonably request more completely to consummate and make effective the contemplated transactions.

12.9Expenses.  Each party shall pay its own expenses in connection with this Agreement and the transactions contemplated by this Agreement.  All sales, use or other Tax, duty or recording cost, if any, imposed upon the transfer of the Assets and Business to be acquired by Purchaser pursuant to this Agreement shall be paid by Seller.  The fees of the Escrow Agent shall be paid solely by Purchaser.

12.10Confidential Information.  Each party agrees that it and its representatives shall hold in strict confidence, and shall not use for its own account or for the account of others, nor divulge or disclose to any person without a need to know, any information and documents received from the other party and, if the transactions herein contemplated are not consummated, each party will continue to hold such information and documents in strict confidence and shall return to such other party all such documents then in such receiving party’s possession (including the Schedules and Exhibits to this Agreement) without retaining copies thereof.  Purchaser will use all information provided to it or gathered by it during its due diligence review and evaluation of Seller and the Business solely for the purpose of such review and evaluation, and will disclose such information only to such of its directors, officers, employees, representatives, advisors and agents as have a need to know the same in order to perform their professional and managerial duties to Purchaser and for the purpose of evaluating and consummating the transaction contemplated hereby.  In the event this transaction is not consummated, Purchaser will return to Seller all materials containing any such received from Seller and will certify to Seller in writing that all copies of such materials have been destroyed.  Purchaser will not use any such information to compete with Seller in the event the transaction is not consummated or for any purpose other than as set forth above.  The provisions of this Section 12.10, shall survive termination of this Agreement; provided, that each party’s obligations under this Section 12.10 to refrain from such use and to maintain such confidentiality shall not apply to any information or documents that are (a) in the public domain when furnished by the other, or (b) required to be disclosed by applicable Law, where the party whose information is to be disclosed has had notice thereof and a reasonable opportunity to appear and object to such disclosure.

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12.11Publicity.  Seller and Purchaser each agree that, without the written consent of the other, neither will independently issue a news release or otherwise publicly disclose the nature or existence of the transactions contemplated by this Agreement (including but not limited to the Purchase Consideration) except as may be required by Law.  Any public announcement of this Agreement or the purchase of the Assets hereunder will be made by Purchaser and Seller jointly and simultaneously, and the wording of any such announcement will be mutually agreed upon unless, in the reasonable judgment of counsel for Purchaser, any laws, rules or regulations to which Purchaser is subject (including the rules of NASDAQ and of the SEC) mandate other wording, in which event such other Laws, rules or regulations as interpreted by Purchaser and its counsel shall control subject to Seller’s reasonable opportunity to review and propose changes as set forth in Section 7.6hereof

12.12Equitable Relief.  Each party recognizes that the other is likely to suffer irreparable damage if the provisions of Sections 12.10 or 12.11 are not specifically enforced.  In the event of a dispute concerning any of these sections, each party agrees that the other may, without posting bond or security, obtain an temporary or permanent injunction restraining the consummation of any action or transaction prohibited thereby pending determination of such dispute.  The provisions of Sections 12.10 and 12.11 shall likewise be enforceable by a decree of specific performance.  In the event of litigation relating to such sections, if the court determines that either party or any of its employees, agents or representatives has breached any provisions thereof, the injured party shall be entitled to recover from the breaching party its reasonable fees, costs, and expenses (including reasonable attorneys’ fees) incurred in connection with the prosecution of any equitable or legal proceedings and any appeal therefrom.

12.13Dispute Resolution.  Subject to Section 12.12, any dispute under this Agreement which is not settled by mutual agreement among the parties hereto, shall be finally settled by binding arbitration, conducted by and in accordance with the rules then in effect of the American Arbitration Association.  The costs of the arbitration, including administrative and arbitrators’ fees, shall be shared equally by the parties.  Each party shall bear its own expenses and attorneys’ and witness’ fees.  The prevailing party in any arbitration, as determined by the arbitration panel, shall be entitled to an award against the other party in the amount of the prevailing party’s costs and reasonable attorneys’ fees.  In making any such award, the arbitration panel shall take into consideration the outcome of the proceeding and the reasonableness of the conduct of each such party in connection with the dispute, in light of the facts known to such party at the time such party engaged in such conduct.  The arbitration panel shall not have authority to award punitive damages. The arbitration shall be held in Tulsa, Oklahoma.

12.14Captions.  The captions and headings in this Agreement are for convenience only and will not be considered in interpreting any provision of this Agreement.  Unless otherwise indicated, all article and section references are to the articles and sections of this Agreement and all references to day are to calendar days.  Whenever under the terms of this Agreement, the time for performance of a covenant or condition falls upon a Saturday, Sunday or U.S. federal or Oklahoma or New York state holiday, such time for performance will be extended to the next Business Day.

12.15Pronouns and Plurals.  Whenever the context may require, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular

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form of nouns, pronouns and verbs shall include the plural and vice versa.

12.16Successors.  This Agreement and all of the provisions of this Agreement shall be binding upon and inure to the benefit of Purchaser, Seller, and their respective successors and permitted assigns.  Neither this Agreement nor any of the rights, interests or obligations under this Agreement may be assigned by any of the parties to this Agreement without the prior written consent of the other parties.  Nothing contained in this Agreement, express or implied, is intended to confer upon any person or entity other than the parties to this Agreement and their successors in interest and permitted assignees (if any), any rights or remedies under or by reason of this Agreement.

12.17Waiver.  Either Purchaser or Seller shall have the right to waive any one or more conditions precedent to Closing and to proceed with the transactions contemplated by this Agreement, without, however, releasing the other of its obligations from any liability for loss or damage sustained by reason of any such breach of any representation, warranty or covenant.

12.18Exhibits.  The Schedules and Exhibits referred to in this Agreement are incorporated by reference into this Agreement.

[Remainder of page left blank intentionally.]

[Signatures appear on next page.]

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above.

“Purchaser”		“Seller”
XETA TECHNOLOGIES, INC.		HOTEL TECHNOLOGY SOLUTIONS, INC.
By	/s/ Greg D. Forrest	By	/s/ Mark Holzberg
	Greg D. Forrest, President and		Mark Holzberg, Chairman, President and
	Chief Executive Officer		Chief Executive Officer

“Seller Principals”

(joining solely with respect to, and to the extent described in, Sections 5.9, 5.12, 5.13, 5.17 and 5.20 hereof)

ENHANCED CAPITAL		STONEHENGE CAPITAL FUND
NEW YORK FUND II, LLC		NEW YORK, LLC
By	/s/ Michael Korengold	By	/s/ David B. Webber
Its		Its	Vice President
ENHANCED CAPITAL		SEABURY CAPITAL LLC
NEW YORK FUND III, LLC
By	/s/ Michael Korengold	By	/s/ John Luth
Its		Its
MARK HOLZBERG
/s/ Mark Holzberg

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List of Schedules and Exhibits

Schedules
Schedule 1	Excluded Assets
Schedule 2.1(a)	Accounts, Notes Receivable, Etc.
Schedule 2.1(b)	Major Assigned Contracts
Schedule 2.1(c)	Inventory
Schedule 2.1(e)	Equipment
Schedule 2.1(f)	Real Property and Leaseholds
Schedule 2.1(g)	Software and Intellectual Property
Schedule 2.2(c)	Outstanding Ownership of Seller
Schedule 4.1	Key Employees
Schedule 5.1	Seller’s Organization and Qualification
Schedule 5.5	Consents
Schedule 5.7	Assets
Schedule 5.9	Contracts
Schedule 5.10	Permits
Schedule 5.11	Trade Restrictions and Confidentiality Agreements
Schedule 5.12	Litigation and Legal Compliance
Schedule 5.15	Change of Name and Location
Schedule 5.19	Warranty Claims
Schedule 6.1	Purchaser’s Corporate Documents
Exhibits
Exhibit A	Bill of Sale and Assignment
Exhibit B	Escrow Agreement
Exhibit C	Common Stock Purchase Warrant

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EX-2.2

Exhibit 2.2

STOCK PURCHASE AGREEMENT

dated July 9, 2010

by and among

WADE GRIFFIN, ALLAN SANDERS, LISA OETKEN, TRACY TAYLOR, DAVID HAGEN and ART EVANS

(each, individually, a “Seller” and, collectively, the “Sellers”)

PYRAMID COMMUNICATION SERVICES, INC., a Texas corporation (the “Company”)

and

XETA TECHNOLOGIES, INC., an Oklahoma corporation

(“Purchaser”)

STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT (this “Agreement”), which is to be effective as of the 9th day of July, 2010 (the “Effective Date”), is entered into by and among WADE GRIFFIN, ALLAN SANDERS, LISA OETKEN, TRACY TAYLOR, DAVID HAGEN AND ART EVANS (collectively, the “Sellers”), PYRAMID COMMUNICATION SERVICES, INC., a Texas corporation (the “Company” or “Pyramid”) and XETA TECHNOLOGIES, INC., an Oklahoma corporation (“Purchaser” or “XETA”).

RECITALS:

A.Sellers own, collectively, all of the issued and outstanding common stock (the “Shares”) of Pyramid Communication Services, Inc., a Texas corporation (the “Company”).

B.Purchaser desires to acquire from Sellers, and Sellers desire to sell to Purchaser, all of the Shares and all associated goodwill.

NOW, THEREFORE, in consideration of the mutual benefits to be derived hereby, the representations, warranties, covenants, and agreements herein contained, and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, Purchaser, and Seller do hereby agree as follows:

ARTICLE I

Purchase of Shares

1.1Acquisition of Shares.  Upon the terms of, and subject to the conditions set forth in this Agreement at the Closing, Sellers shall convey to Purchaser and Purchaser shall acquire all of the Shares and associated goodwill from Sellers, free and clear of all manner of liens, charges, encumbrances and claims, but subject to generally applicable laws and regulations with respect to unregistered securities (the “Acquisition”).  The Shares shall constitute all of the Company’s capital stock issued and outstanding as of the date of Closing.

1.2Financial Condition; Profit and Loss.  The Purchase Consideration (as defined in Section 1.3 below) is subject to adjustment as set forth in Section 1.5 below based upon the Company’s cumulative net income or cumulative net losses from the Base Valuation Date to the Closing Date as duly reflected in the Company’s financial statements for the period June 1, 2010 through the Closing Date (“Closing Date Financial Statement”).  The Closing Date Financial Statements shall be prepared in accordance with GAAP by Purchaser’s Accountant, and made available for review by Sellers and their independent public accountant (“Sellers’ Accountant”) within forty-five (45) days after the Closing Date.

1

1.3Purchase Consideration.  The purchase consideration for the Shares (“Purchase Consideration”) shall be comprised of the following components:

(a)$2,000,000 in cash (“Cash Portion of the Purchase Consideration”), $1,800,000 of which would be paid to the Sellers at Closing, pro rata, according to their relative ownership of the Company —viz.:

Wade Griffin	*	%	$	*
Allan Sanders	*	%	$	*
Lisa Oetken	*	%	$	*
Tracy Taylor	*	%	$	*
David Hagen	*	%	$	*
Art Evans	*	%	$	*
Total:	100.0000	%	$	1,800,000.00

or as they shall otherwise unanimously direct, with the $200,000 balance (“Escrow Amount”) to be deposited at Closing into escrow with Triad Bank, N. A. pursuant to an Escrow Agreement in the form of Exhibit 1.3(a) hereto attached (“Escrow Agreement”), pending final determination of the Company’s the amount of any cumulative net income or loss realized by the Company since the Base Valuation Date, with payment pursuant to Section 1.5 hereof.

(b)$675,000 in the form of XETA’s subordinated promissory notes in the form of Exhibit 1.3(b) hereto attached, with appropriate insertions (the “Subordinated Notes”), payable to the Sellers pro rata in that aggregate amount—viz.:

Wade Griffin	*	%	$	*
Allan Sanders	*	%	$	*
Lisa Oetken	*	%	$	*
Tracy Taylor	*	%	$	*
David Hagen	*	%	$	*
Art Evans	*	%	$	*
Total:	100.00	%	$	675,000.00

each dated as of the Closing Date, bearing interest at the rate of       *       and payable in eight (8) quarterly installments of principal and interest in the aggregate amount of $      *       each, commencing on the last day of the third (3rd) full calendar month after Closing and on the last day of every third (3rd) calendar month thereafter until paid in full provided such promissory notes shall provide that payments thereunder shall be permitted so long as none of XETA’s bank lenders (currently, Commerce Bank, N. A.) has accelerated payment under XETA’s debt to such lender.

1.4Additional Consideration to Wade Griffin.  As additional consideration for the acquisition of the Shares from Seller Wade Griffin, Purchaser will pay the sum of $100,000 to Wade Griffin for his personal goodwill and $50,000 in consideration of his three-year non-compete and non-solicitation agreement in the forms attached as Exhibits 1.4(a) and 1.4(b) hereto (the “Goodwill Acquisition Agreement” and the “Non-Competition Agreement,”

*The asterisk (*) indicates that material has been omitted pursuant to a request for confidential treatment.  The omitted material has been filed separately with the Securities and Exchange Commission pursuant to rule 24b-2 of the rules to the Securities and Exchange Act of 1934, as amended.

2

respectively, and, collectively referred to as the “Griffin Agreements”). The Griffin Agreements will provide for payment in thirty-six (36) consecutive monthly installments in the aggregate amount of $4,166.67 each, commencing on the last day of the first full calendar month after Closing and on the last day of each month thereafter until paid in full.

1.5Purchase Consideration Adjustment; Review Period; Income/Loss Determination; Release from Escrow.

(a)Within forty-five (45) days after the Closing Date, Purchaser will provide Sellers and Sellers’ Accountant c/o of Wade Griffin with a copy of the Company’s Closing Date Financial Statements, prepared in accordance with GAAP.  Sellers and Sellers’ Accountant shall have thirty (30) days after delivery of the Closing Date Financial Statements (the “Review Period”) to verify the amount of any cumulative net income or loss realized by the Company since the Base Valuation Date.

(b)Subject to the provisions of Section 1.6 below, the Escrow Amount will be payable, within five (5) days after the close of the Review Period as follows:

(i)To the extent that the Company shall have realized cumulative net income from the Base Valuation Date through the Closing Date an equivalent amount shall be distributed by the Escrow Agent to the Sellers pro rata in accordance with the their respective ownership percentages set forth in Section 1.3(a); the balance of the Escrow Amount, if any, shall be distributed by the Escrow Agent to Purchaser and shall constitute a reduction in the total Purchase Consideration for the Shares.

(ii)To the extent that the Company shall have realized cumulative net losses from the Base Valuation Date through the Closing Date the amount of such cumulative net losses (“Purchase Consideration Offset Claim”) shall be allocated among the Subordinated Notes pro rata based on the ownership percentages set forth in Section 1.3(a), and Purchaser shall be entitled to offset the amount of such Purchase Consideration Offset Claim against the next payment or payments due under the Subordinated Notes.  In addition, the entire Escrow Amount shall be distributed by the Escrow Agent to Purchaser, in which case the sum of the Escrow Amount and the Purchase Consideration Offset Claim shall constitute a reduction the total Purchase Consideration for the Shares.

1.6Disagreement.  Notwithstanding Sections 1.5(b)(i) and (ii) above, Sellers and their representatives shall have the right for a period of thirty (30) days after Sellers’ receipt of written notice setting forth Purchaser’s determination of the Company’s cumulative net income or cumulative net loss since the Base Valuation Date to review the Company’s books and records as of the Closing Date and, if Sellers agree among themselves to do so, to have Sellers’ Accountant examine such book and records, including accounting work papers, for up to an additional sixty (60) days, to verify Purchaser’s calculation of such cumulative net income or loss.  If Sellers’ Accountant does not agree with Purchaser’s determination of the Company’s cumulative net income or loss, the parties shall negotiate in good faith to agree upon the proper amount thereof.  If Purchaser and a majority of the Sellers (based upon equity ownership in the Company immediately prior to Closing) cannot agree upon such amounts, then, Purchaser’s Accountant, and Sellers’ Accountant shall select a third certified public accountant to arbitrate the matter

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(“Evaluator”) and make a final determination of such cumulative net income or loss, in which case Purchaser shall pay one-half (1/2) of the Evaluator’s fee and Seller shall pay the other half (1/2) thereof.

ARTICLE II

Representations and Warranties

of the Seller

To induce the Purchaser to enter into the Agreement, the Company jointly and severally with the Sellers makes the following representations and warranties to Purchaser on the understanding that, assuming the Closing occurs, each representation, warranty and covenant contained herein shall be deemed material to the Purchaser’s agreement to purchase the Shares, and the Sellers and the Company hereby acknowledge that, in executing, delivering, and consummating the Agreement, the Purchaser has relied and will rely upon the correctness and completeness of each of such representations and warranties:

2.1Corporate Existence; Qualification.  The Company is duly organized, validly existing and in good standing under the laws of the State of Texas.  The Company has the corporate power to carry on its business as now conducted and to own its assets, and is duly qualified to conduct business and is in good standing as a foreign corporation in those jurisdictions set forth on Schedule 2.1, and in those jurisdictions in which such qualification is required in order to own its assets or properties or to carry on its business as now conducted, except as set forth in Schedule 2.1 or where the failure to qualify would not have a Material Adverse Effect on the Company, and there has not been any claim by any other jurisdiction to the effect that the Company is required to qualify or otherwise be authorized to do business as a foreign corporation therein.  The copies of the Company’s good standing certificates or certificates of existence (issued by the appropriate authority), Articles of Incorporation (certified by the appropriate authority) and Bylaws (certified by the Company’s Secretary), as amended to date, which constitute a part of Schedule 2.1 are true and complete copies of those documents as now in effect. The minute book of the Company contains accurate records of all official meetings and written consents of the Board of Directors and shareholders since the date of the Company’s incorporation, and accurately reflects all material transactions referred to therein.

2.2Capitalization.  The authorized capital stock of the Company consists of 1,000,000 shares of preferred stock, none of which is issued and outstanding and 1,000,000 shares of common stock, 695,000 shares of which are issued and outstanding as follows:

Wade Griffin	275,000 shares
Allan Sanders	265,000 shares
Lisa Oetken	45,000 shares
Tracy Taylor	45,000 shares
David Hagen	35,000 shares
Art Evans	30,000 shares

All of such outstanding shares are validly issued, fully paid and non-assessable.  There are no subscriptions, options, warrants, rights or calls or other commitments or agreements to which the

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Company or any of the Sellers is a party or by which such persons are bound, calling for the issuance, transfer, sale or other disposition of any class of securities of the Company, other than for certain buy-sell rights and rights of first refusal and other transfer restrictions and rights set forth in that certain Stock Purchase and Redemption Agreement, dated January 3, 2009, among the Company and the Sellers (the “Buy-Sell Agreement”). There are no outstanding securities of the Company, convertible or exchangeable, actually or contingently, into shares of Common Stock, or any other securities, of the Company. There are currently 45,000 shares of the Company’s common stock held as treasury shares, said shares being the 45,000 shares previously redeemed by the Company from Tracy Taylor and representing one-half of the shares owned by Tracy Taylor immediately prior to such redemption.

2.3No Subsidiaries.  Except as set forth on Schedule 2.3, there are no corporations, partnerships or other business entities controlled by the Company (collectively, “Subsidiaries”).  As used herein, “controlled by” means (i) the ownership of not less than fifty percent (50%) of the voting securities or other interests of a corporation, partnership or other business entity, or (ii) the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a corporation, partnership or other business entity, whether through the ownership of voting shares, by contract or otherwise.  The Company has not made any investment in, and does not own, any capital stock of, or any other proprietary interest in, any other corporation, partnership or other business entity.

2.4Consents.  Except as set forth on Schedule 2.4, there are no consents of governmental or other regulatory agencies, foreign or domestic or of other parties required to be received by, or on the part of, the Company or any of the Sellers to enable each of them to enter into and carry out the Agreement in all material respects.

2.5Authority.  Each of the Sellers has the power, right and authority to enter into the Agreement and to carry out his obligations thereunder.  The execution and delivery of the Agreement and the consummation of the transaction contemplated thereby have been duly authorized by all necessary action on the part of each of the Sellers, and the Company’s Board of Directors, and no other corporate proceeding on the part of the Sellers or the Company is necessary to authorize the execution and delivery hereof.

2.6Binding Nature.  The Agreement constitutes the valid and binding agreement of each of the Sellers and, where applicable, the Company, and, assuming that it constitutes the legal, valid and binding agreement of the Purchaser, the Agreement is enforceable in accordance with its terms subject to applicable bankruptcy, reorganization, insolvency and similar laws affecting the rights of creditors and subject to general principles of equity.

2.7Title to Shares.  Each of the Sellers represents and warrants with respect to the Shares owned or attributed to him that (a) he is and at Closing will be the sole record and beneficial owner of the Shares free and clear of all manner of liens, charges, encumbrances and claims (but subject to generally applicable restrictions on the sale of unregistered securities) and (b) he has and at Closing will have good title to the Shares and the absolute and unqualified right to sell, transfer and deliver the Shares to the Purchaser; in each case subject to the community property rights, if any, of Seller’s spouse, if any, each such spouse having executed this Agreement for the sole

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purpose of consenting to the sale of the Shares owned by his spouse pursuant to the terms of this Agreement.

2.8Financial Statements.  The unaudited financial statements of the Company for the last three (3) fiscal years ended December 31, 2007, December 31, 2008, and December 31, 2009, respectively, and the interim financial statements for the five-month period ended as of the Base Valuation Date, copies of which are attached hereto as Schedule 2.8, taken as a whole, fairly present, in all material respects, the financial position of the Company as of such dates and the results of its operations for such fiscal years and fiscal period, and, except as set forth therein or in Schedule 2.8, were prepared, in conformity with GAAP (and except that the interim statements lack footnote disclosures, and are subject to year-end adjustments consistent with past practice which will not result in any Material Adverse Change in the Company’s financial condition as reflected by such interim financial statements).

2.9Liabilities.  As of the Base Valuation Date, the Company had no material debts, liabilities or obligations, contingent or absolute, that would be required by GAAP to be reflected as a liability on the books of the Company (including, without limitation, any contingent tax liabilities, which should be accrued under ASC 450, “Contingencies” or which should be accrued under any other ASC or similar applicable pronouncement), other than those debts, liabilities and obligations reflected or reserved against in the Base Value Balance Sheet.

2.10Subsequent Actions.  Except as set forth in Schedule 2.10, since the Base Valuation Date, the Company has not: (i) issued or sold, or agreed to issue or sell any of its capital stock, options, warrants, rights or calls to purchase such stock, any securities convertible or exchangeable into such capital stock or other corporate securities, or effected any subdivision or other recapitalization affecting its capital stock; (ii) incurred any material absolute obligation or liability, except those arising in the ordinary and usual course of its business that would normally be reflected on the books of the Company; (iii) incurred any material contingent obligation or liability, except those arising in the ordinary and usual course of its business; (iv) paid or satisfied any liability, absolute or contingent, other than in the ordinary and usual course of business; (v) made any wage or salary increases or granted any bonuses, except in the ordinary course of business consistent with past practices and listed in Schedule 2.10; (vi) mortgaged, pledged or subjected to any lien or other encumbrance any of its properties or assets, or permitted any of its properties or assets to be subjected to any lien or other encumbrance, except in the ordinary and usual course of business; (vii) sold, assigned or transferred any of its properties or assets, except in the ordinary and usual course of business or as approved by Purchaser in writing; (viii) entered into any material transaction not in the ordinary and usual course of business; (ix) waived any rights of material value, or cancelled, modified or waived any indebtedness for borrowed money held by it, except in the ordinary and usual course of business; (x) except in the ordinary and usual course of business, made any loans or advances to any person, or assumed, guaranteed, or otherwise become responsible for the obligations of any person (except for endorsement, for collection or deposit of negotiable instruments received in the ordinary and usual course of business); or (xi) incurred any indebtedness for borrowed money.  To the extent that any moneys are outstanding under any line of credit of the Company, all such funds were utilized in the ordinary and usual course of business.  Since December 31, 2009, the Company has not declared, paid or set aside any dividends or other distributions or payments on its capital stock, or redeemed or repurchased, or agreed to redeem or repurchase, any shares of its capital stock.

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2.11Absence of Material Changes.  Except as set forth in Schedule 2.11, there has not been any Material Adverse Change in the assets, properties, operations or financial condition of the Company since the Base Valuation Date.   Since the Base Valuation Date no event has occurred, other than in the ordinary and usual course of business or as set forth in such Schedule 2.11, which could be reasonably expected to have a Material Adverse Effect upon the business of the Company, and neither the Company nor any of the Sellers knows of any development or threatened development of a nature that will have, or which could be reasonably expected to have, within the next six (6) months, a Material Adverse Effect upon the business of the Company or upon any of its assets, properties, operations or financial condition, taken as a whole, including, without limitation, the loss of any licenses or permits, suppliers, customers or employees, which loss would be of a material nature.

2.12Taxes.  Sellers have delivered to Purchaser true and complete copies of the federal income tax returns of the Company as filed with the Internal Revenue Service for each of the fiscal years ended December 31, 2008, and December 31, 2007, respectively.  Each of such returns was prepared, in conformity with information contained in the books and records of the Company.  The Company’s Federal corporate income tax return for the year ended December 31, 2009, (the “2009 Tax Return”) has not yet been filed, but the Company has timely filed an extension to file same and, when prepared such 2009 Tax Return will have been prepared in conformity with information contained in the books and records of the Company.  Except as set forth in Schedule 2.12 consistent with the requirements of ASC 740, the Company has taken no uncertain tax positions, all taxes, including, without limitation, income, property, sales, use, franchise, capital stock, excise, added value, employees’ income withholding, social security and unemployment taxes imposed by the United States, any state or any foreign country, or by any other taxing authority, which have become due or payable by the Company and all interest and penalties thereon, whether disputed or not, have been paid in full or adequately provided for by reserves shown in its books of account; all deposits required by law to be made by the Company with respect to estimated income, franchise and employees’ withholding taxes have been duly made; and all tax returns, including estimated tax returns, required to be filed have been duly filed.  Except as set forth in Schedule 2.12, the federal and state income tax returns of the Company have never been audited.  Schedule 2.12 also sets forth a list of those states in which income, franchise or sales and use tax returns were filed by the Company during the last five (5) franchise tax years.

2.13Ownership of Assets; Trademarks, etc. Except as set forth in Schedule 2.13, the Company owns outright, and has good and marketable title to all of its assets, properties and businesses (including all assets reflected in the Balance Sheet, except as the same may have been disposed of in the ordinary course of business since the Base Valuation Date), free and clear of all liens, mortgages, pledges, conditional sales agreements, restrictions on transfer or other encumbrances or charges.

Schedule 2.13 sets forth a true and complete list and brief description of all registered patents, copyrights, trademarks, and trade names that are either owned by the Company or in which it has an interest as owner or licensee.  Except as set forth in said Schedule 2.13, (a) the Company has not granted to any other person, firm or corporation any proprietary, or other interest, in any such intangible assets; (b) such assets so owned or licensed are, in the reasonable business judgment of the Company, sufficient to permit the Company to conduct its business as now

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conducted; (c) except as set forth in Schedule 2.13, the Company is not a party to or bound by any license or agreement requiring the payment to any person, firm or corporation of any royalty; (d) neither the Company nor any of the Sellers knows of any violation by others of the trademark, trade name or patent rights of the Company; and (e) to each Seller’s and the Company’s knowledge, the Company is not infringing upon any patent, copyright, trade name or trademark or otherwise violating the rights of any third party with respect thereto, and no proceedings have been instituted or are threatened and no claim has been received by the Company or any of the Sellers alleging any such violation.

2.14Insurance.  Schedule 2.14 sets forth a list and brief description of all policies of fire, liability and other forms of insurance held by the Company as of the date hereof.  Except as set forth in Schedule 2.14, such policies are presently in effect, with all premiums paid currently, and are carried on an “occurrence basis” with respect to the Company’s insurance for general liability and errors and omissions, and on a “claims made basis” with respect to the Company’s insurance policies pertaining to (i) employee benefit liability, (ii) information and network technology errors and omissions, and (iii) directors and officers, EPLI, and fiduciary liability.  Such policies will be in full force and effect for all periods up to and including the Closing, and no notice of cancellation or termination, or indication of an intention not to renew, has been received with respect to any of the policies.  There are no claims filed under or relating to any of the Policies. Neither the Company nor any of the Sellers been notified by any insurance carrier of a material increase in insurance premiums of the Company on a retroactive or prospective basis. Neither the Company nor any of the Sellers knows of any state of facts concerning any claim which an employee may have against the Company that is not covered by insurance (including any medically related illness.

2.15Litigation and Legal Compliance.  Except as set forth in Schedule 2.15, there are no actions, suits, proceedings or governmental investigations relating to the Company or to any of its properties, assets or businesses filed or commenced and pending or, to the knowledge of the Company or any of the Sellers threatened, nor any order, injunction, award or decree outstanding, against the Company or against or relating to any of its properties, assets or businesses, and neither the Company nor any of the Sellers knows of any basis for any such action, suits or proceedings within the past two (2) years which could reasonably be expected to have a Material Adverse Effect on the business, financial condition or operations of the Company.  Except as set forth in Schedule 2.15, to each Seller’s knowledge, the Company is not in material violation of any federal, state, local or foreign law, regulation, ordinance, order, injunction, decree, award, or other requirement of any governmental body, court or arbitrator relating to its properties, assets or business, including without limitation, the Foreign Corrupt Practices Act and any applicable wage and hour laws, rules and regulations, the violation of which would have a Material Adverse Effect on the Company.

2.16Real Property.  The Company does not own any real property.  Schedule 2.16 sets forth a brief description of all real properties which are leased to or used by the Company (such premises being referred to herein as the “Property”), including all material structures located thereon (the “Structures”) and all related leases and occupancy agreements to which the Company is a party (“Leases”), copies of which are attached hereto and included as part of Schedule 2.16; and (a) the Leases are in full force and effect, and all amounts currently payable by the Company thereunder have been paid; (b) to each Seller’s and the Company’s knowledge, all uses of Property

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by the Company conform, in all material respects, to all applicable building, fire and zoning ordinances, laws, codes and regulations (including, without limitation, the Americans’ with Disabilities Act) and, to all terms of any applicable Leases; (c) except as otherwise described in Schedule 2.16, to each Seller’s and the Company’s knowledge all of the Property and Structures are in usable and operating condition without the necessity of any major repairs, and can currently be used for their intended purposes; (d) the Company has not received any notice of, and has no knowledge that, any Property or Structure is or will be affected by any special assessments, condemnation, eminent domain, off-site improvements to be constructed, change in grade of public streets or similar proceedings; (e) no person other than the Company is in possession of any of the Property; (f) there exists dedicated access to all of the Property and Structures sufficient for the Company’s present use; and (g) to each Seller’s and the Company’s knowledge, the heating, cooling, electrical, plumbing systems and machinery at all of the Property and Structures are in good working condition. Notwithstanding the preceding, Purchaser, by executing this Agreement understands and acknowledges that the Company is only one tenant in each of the Structures which are multi-tenant buildings occupied by other tenants, and consequently, neither the Company nor any of the Sellers has any material knowledge about the other parts of the Structures occupied by other tenants and neither the Company nor any of the Sellers receives any notices that are sent to the owners of the Structures and thus cannot make, and do not make, any representations pertaining to the foregoing matters in so far as they relate to that part of the Structures not occupied by the Company or the common areas of such Structures.

2.17Material Agreements.  Except as listed and briefly described in Schedule 2.17, the Company is not a party to nor bound by:  (i) any written or oral contract, arrangement, commitment or understanding which involves aggregate payments or obligations in excess of Fifteen Thousand Dollars ($15,000) and which cannot be cancelled on thirty (30) days or less notice without penalty, premium or any continuing obligation or liability; (ii) any contractual obligation or contractual liability of any kind to any of the Sellers or any other shareholder of the Company (except for normal salary and benefits); (iii) any contract, arrangement, commitment or understanding with its customers, any of the Sellers or any officer, employee, shareholder, director, representative or agent of the Company for the repurchase of products (other than warranty liability), sharing of fees, the rebating of charges to such customers, bribes or kickbacks from such customers, or other similar arrangements; (iv) any contract for the purchase or sale of any materials, products or supplies which contains, or which commits or will commit the Company for, a fixed term; (v) any contract of employment with any officer or employee that is not terminable at will without penalty, premium or any continuing obligation or liability; (vi) any deferred compensation bonus or incentive plan or agreement that is not cancelable at will without penalty, premium or any continuing obligation or liability; (vii) any union or other collective bargaining agreement; (viii) any agreement, commitment or understanding relating to indebtedness for borrowed money other than trade payables incurred in the ordinary course of business and reflected on the books and records of the Company; (ix) any contract containing covenants limiting the freedom of the Company to engage or compete in any line of business or with any person in any geographical area; (x) any contract or option relating to the acquisition or sale of any business; (xi) any voting trust agreement or shareholder agreement other than for the Buy-Sell Agreement; (xii) any option for the purchase of any asset or assets, tangible or intangible, valued in excess of Fifteen Thousand Dollars ($15,000) individually or in the aggregate; or (xiii) any other contract, agreement, commitment or understanding which materially and adversely affects any of its properties, assets or business, whether directly or indirectly, or which was entered into other than in the ordinary course of

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business.  (The contracts, arrangements, commitments or understandings described in items (i) through (xiii) of the preceding sentence are referred to herein as the “Material Agreements.”)  Except as set forth in said Schedule 2.17, the Company has not, during the last thirty-six (36) months, entered into any of the types of contracts, arrangements, commitments or understandings with any of its suppliers or customers referred to in item (iii) of this Section 2.17.  A true and correct copy of each of the written Material Agreements has been delivered to the Purchaser.  Except as set forth in Schedule 2.17, none of the Material Agreements requires the consent of any party thereto to the consummation of the transactions contemplated by this Agreement.  Except as disclosed in Schedule 2.17, the Company has in all material respects performed all obligations required to be performed by it to date under all of the Material Agreements, is not in default in any material respect under any thereof, and has received no notice of any default or alleged default thereunder which has not heretofore been cured or which notice has not heretofore been withdrawn; and neither the Company nor any of the Sellers knows of any material default under any of the Material Agreements by any other party thereto or by any other person, firm or corporation bound thereunder.

2.18Condition of Assets.  To each Seller’s and the Company’s knowledge, except as set forth in Schedule 2.18, and other than for normal breakdowns and servicing requirements, all material items of machinery and equipment regularly used by the Company in the conduct of its business have been maintained and repaired in accordance with the Company’s maintenance standards, all such material items of machinery and equipment are in good operating condition relative to their years in service, and the inventories of the Company, taken as a whole, are, and on the Closing Date will be, in usable and saleable condition in the ordinary and usual course of business for the purposes for which they are intended, net of the reserves reflected on the Company’s books and records.

2.19Accounts and Notes Receivable.  Except as set forth on Schedule 2.19, all of the accounts and notes receivable reflected in the Company’s financial statements were or will have been created from the sale of services or goods in the ordinary course of its business, and neither the Company nor any of the Sellers knows of any dispute, valid defense or right of set-off to the rights of the Company to collect such accounts and notes receivable in the full amounts shown net of the reserve or allowance for bad debts as reflected in the Company’s financial statements; provided, however, Sellers are not guaranteeing that such receivables will be collected in the amount shown and, unless Sellers have breached the foregoing representations in this Section, Sellers shall have no liability to Purchaser in the event the payor of such receivable fails to pay such amount or any part thereof for any reason.  Schedule 2.19 contains a true and correct copy of all notes receivable of the Company as of the Effective Date (to be updated as of the Closing Date) of the Agreement.

2.20Permits and Licenses.  Schedule 2.20 sets forth all permits, licenses, orders, franchises and approvals from all federal, state, local and foreign governmental regulatory bodies held by the Company.  The Company has all permits, licenses, orders, franchises and approvals of all federal, state, local and foreign governmental or regulatory bodies, the lack of which would materially and adversely affect the Company’s ability to carry on its business as presently conducted.  Such permits, licenses, orders, franchises and approvals are in full force and effect, and no suspension or cancellation of any of such other permits, licenses, etc. is pending or, to the knowledge of the Company or the Sellers, threatened; and to each Seller’s and the Company’s knowledge, the Company is in compliance in all material respects with all requirements, standards

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and procedures of the federal, state, local and foreign governmental bodies which have issued such permits, licenses, orders, franchises and approvals.

2.21Motor Vehicles.  Schedule 2.21 sets forth a brief description (including all vehicle identification numbers) of all vans, automobiles, trucks and other vehicles owned or leased by the Company and the jurisdiction in which each owned vehicle is titled. Sellers make no representations as to the condition of the motor vehicles, and Purchaser by its signature hereto, agrees to inspect such vehicles prior to Closing and accept them in their “as is” condition.

2.22Banking Arrangements.  Schedule 2.22 sets forth the name of each bank in or with which the Company has an account, credit line or safety deposit box, and a brief description of each such account, credit line and safety deposit box, including the names of all persons currently authorized to draw thereon or having access thereto, and the names of all persons, if any, now holding powers of attorney from the Company with a summary of the terms thereof.

2.23Sellers’ Interests in Company Assets.  Except as set forth in Schedule 2.23, none of the Sellers nor any of his affiliates owns any property or rights, tangible or intangible, used in or related, directly or indirectly, to the business of the Company.  As used herein, “affiliate of a Seller” means any person, corporation or other entity (other than the Company) which directly or indirectly is controlled by or under common control with the Seller.

2.24Salary Information.  Sellers have delivered to Purchaser a complete list of the names and current salary rates of and bonus commitments to all present officers of the Company and the names and current annual salary rates of all other persons employed by the Company.

2.25Employee Benefit Plans.  To each Seller’s and the Company’s knowledge, the Company is in compliance in all material respects with all reporting and disclosure requirements applicable to it and its Pension Plans and Welfare Plans under the Code, the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and all Department of Labor and Internal Revenue Service regulations promulgated thereunder.  For purposes of this Section, Pension Plans means and includes each “employee pension benefit plan” maintained by the Company (within the meaning of Section 3(2)(A) of ERISA) and Welfare Plans means and includes each “employee welfare benefit plan” maintained by the Company (within the meaning of Section 3(1) of ERISA).  No civil or criminal action brought pursuant to the provisions of Title I, Subtitle B, Part 5 of ERISA or any other federal or state law is pending or, to the Company’s or each Seller’s knowledge threatened, against any fiduciary of the Pension Plans or the Welfare Plans.  To each Seller’s knowledge, no Pension Plan or Welfare Plan, or any fiduciary thereof, has been, or is currently, the direct or indirect subject of an audit, investigation or examination by any governmental or quasi-governmental agency.

2.25.1Pension Plans; Claims.  All of the Pension Plans maintained by the Company are listed and described in Schedule 2.25.1. There are no outstanding liabilities of the Company to the Pension Plan (other than payroll deduction contributions not yet remitted to the Plan Trustee), and neither the Company nor any Seller knows of any potential liabilities in connection therewith.  There are no actions, suits or claims pending (other than for benefits in the normal course), pending, or to the knowledge of the Company or the Sellers threatened, and neither the Company nor any of the Sellers has any knowledge

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of any facts which could give rise to any action, suit or claim, against the Pension Plan or the Company, which might subject the Company to any material liability.

2.25.2Welfare Plans; Claims.  All of the Welfare Plans maintained by the Company or to which it makes employer contributions with respect to its employees are listed in Schedule 2.25.2.  There are no actions, suits or claims (other than for benefits in the ordinary course) pending or to the knowledge of the Company or the Sellers threatened, and neither the Company nor any of the Sellers has any knowledge of any facts which could give rise to any actions, suits or claims against any of the Welfare Plans or the Company, which might subject the Company to any material liability.

2.25.3Pension Plan and Welfare Plans; Prohibited Transactions.  To Sellers’ and the Company’s knowledge, none of the Welfare Plans nor the Pension Plan, nor any of their related trusts, nor the Company or any trustee, administrator or other “party in interest” or “disqualified person” (within the meaning of Section 3(14) of ERISA or Section 4975(e)(2) of the Code, respectively) with respect to the Pension Plan and the Welfare Plans, has engaged in any non-exempt “prohibited transaction” (within the meaning of Section 406 of ERISA or Section 4975(c) of the Code, respectively) with respect to the participation of the Company therein, which could subject the Pension Plan or any of the Welfare Plans, their related trusts, any trustee, administrator or other fiduciary of any such Pension Plan or Welfare Plans, the Company, the Purchaser, or any other party dealing with the Pension Plan or the Welfare Plans, to the penalties or excise tax imposed on prohibited transactions by Section 502 of ERISA or Section 4975 of the Code or which could have a Material Adverse Effect on the assets, business or financial condition of the Company.

2.25.4Compliance with Rules, Regulations, etc.  To the knowledge of the Company and the Sellers, (a) the Pension Plan and each of the Welfare Plans complies currently, and has complied in the past, both as to form and operation, in all material respects with its own terms and with the provisions of ERISA and the Code, and all other applicable laws, rules and regulations; (b) all necessary governmental approvals and determinations for the Pension Plan have been obtained, including where applicable, a favorable determination as to the qualification of such plans under Sections 401(a), and 501(a) of the Code; and (c) nothing has occurred since the date of each such determination or recognition letter that would adversely affect such qualification.  To the knowledge of the Company and the Sellers, all amounts that are currently owing to plan participants, or contributions required to be made to the Pension Plans or any of the Welfare Plans have been paid or contributed with respect to all periods prior to the Closing Date or have been provided for by adequate reserves on the Balance Sheet.

2.25.5COBRA.  To the knowledge of Sellers and the Company, except as set forth in Schedule 2.25.5, the Company has complied in all material respects with the “continuation coverage requirements of group health plans” provided in Section 4980B of the Code, Sections 601 et. seq. of ERISA, the Family and Medical Leave Act of 1994, and all regulations promulgated thereunder.

2.25.6Miscellaneous Benefit Plan Matters.  Neither the Company nor any other entity, whether or not incorporated, which is deemed to be under “common control” (as defined in Section 414 of the Code, or 4001(b) of ERISA) with the Company (“Commonly Controlled Entity”) maintains or contributes to any “employee pension benefit plan” (within the meaning of Section 3(2)(A) of ERISA) ) that (a) is a “defined contribution

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plan” described in Section 3(34) of ERISA or Section 414(i) of the Code, or a “defined benefit plan” described in Section 3(35) of ERISA or Section 414(j) of the Code, and (b) gives rise, or will give rise, to any liability of the Company for (i) any delinquent premium payments due under Section 4007 or ERISA with respect to any such defined benefit plan, or (ii) any unpaid minimum funding contributions that would result in the imposition of a lien on any assets of the Company pursuant to Section 412(c)(11) of the Code or Section 302(c)(11) of ERISA.  Neither the Company nor any Commonly Controlled Entity sponsors or sponsored, or maintains or maintained, any defined benefit plan that has been, or will be, terminated in a manner that would result in any liability of the Company to the Pension Benefit Guaranty Corporation or that would result in the imposition of a lien on any assets of the Company pursuant to Section 4068 of ERISA.  At no time during the five-year period immediately preceding the first day of the year in which the Closing Date occurs has the Company or any Commonly Controlled Entity participated in or contributed to any “multi-employer plan” (within the meaning of Section 4001(a)(3) of ERISA or Section 414(f) of the Code), or had an obligation to participate in or contribute to any such multi-employer plan. No agreement subject to Section 4204 of ERISA has been entered into in connection with the transaction contemplated in the Agreement.  None of the Welfare Plans provides for or promises retiree medical, disability or life insurance benefits to any current or former employee, officer, or director of the Company.

2.26No Breach.  Except as set forth in Schedule 2.26 neither the execution and delivery of the Agreement, compliance by the Company and the Sellers with any of the provisions hereof, nor the consummation of the transactions contemplated by the Agreement, will:

(a)violate or conflict with any provision of the Articles of Incorporation or By-laws of the Company;

(b)violate or result, alone or with notice or the passage of time, in the material breach or termination of, or otherwise give any contracting party the right to terminate or declare a default under, the terms of any of the Material Agreements to which the Company is a party or by which it or any of its properties or assets may be bound;

(c)result in the creation of any material lien, security interest, charge or encumbrance upon any of the material properties or assets of the Company or any of the Sellers;

(d)violate any judgment, order, injunction, decree or award against, or binding upon, the Company, the Sellers, or any of their respective properties or assets; or

(e)violate any law or regulation of any jurisdiction relating to the Company, the Sellers, or any of their securities, assets or properties.

2.27Brokers.  Except as described in Schedule 2.27 all negotiations relative to the Agreement and the transactions contemplated thereby have been carried on directly with the Purchaser by the Company and the Sellers without the intervention of any broker, finder, investment banker or other third party. Except as described in Schedule 2.27, neither the Company nor any of the Sellers has engaged, consented to, or authorized any broker, finder, investment banker or other third party to act on its or his behalf, directly or indirectly, as a broker or finder in connection with the transactions contemplated by the Agreement, and each of the Sellers agrees to indemnify the Purchaser against, and to hold it harmless from any claim for brokerage or similar

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commission or other compensation which may be made against the Purchaser by any third party in connection with any transaction contemplated thereby, which claim is based upon any action by the Company or any of the Sellers.

2.28Labor Agreements.  Except with respect to the agreements listed in Schedule 2.17 as a Material Agreement pursuant to Section 2.17 (vii), or as otherwise set forth in Schedule 2.28 (in either case “Labor Agreements”) the Company is not, and during the past five (5) years has not been, involved in any labor discussions with any labor union or group seeking to become the bargaining unit for any of its employees.  With respect to said Labor Agreements, Schedule 2.28 sets forth a description of the status thereof, including any demands or proposals with respect to the renewal, extension or replacement thereof.

2.29Change of Name.  The Company has not conducted business under any name during the past five (5) years except those set forth on Schedule 2.29.

2.30Environmental Matters.  Except as set forth in Schedule 2.30 attached hereto, to Sellers’ knowledge and the Company’s knowledge, the Company has not, except in accordance with applicable laws, generated, operated, processed, distributed, transported, used, treated, stored, handled, emitted, discharged, released or disposed of (or caused any person or entity to do any of the foregoing or assisted any person or entity in doing any of the foregoing) any oil, gasoline, petroleum-related products, hazardous substances, hazardous waste, or pollutants or contaminants or any product which may give rise to Hazardous Materials Liabilities (all as defined in or governed by the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendments and Reauthorization Act, 42 U.S.C. § 9601 et seq., as so amended, “CERCLA”), including, without limitation, asbestos or asbestos-containing materials, polychlorinated biphenyls (“PCBs”) or urea formaldehyde.  For purposes of this Section 2.29:

(a)“Hazardous Materials Liabilities” means any and all damages, losses, liabilities, disabilities, fines, penalties, costs or expenses (including reasonable attorney fees) incurred or to be incurred in connection with the handling, storage, transportation, or disposal of any Hazardous Materials, whether such liabilities be absolute, fixed or contingent, civil or criminal, and whether arising under federal or state law;

(b)“Hazardous Materials” means and includes (a) hazardous materials, contaminants, constituents, medical, hazardous or infectious wastes and other hazardous substances (as those terms are defined in any Environmental Law), (b) petroleum, including crude oil and any fractions thereof, (c) natural gas, synthetic gas and any mixtures thereof, (d) asbestos and/or asbestos-containing materials, and (e) PCBs or materials or fluids containing PCBs in excess of 50 parts per million; and

(c)“Environmental Law” means any statute, law, ordinance or code, and any rule, regulation, permit, consent, approval, license, judgment, order, writ, decree or authorization established or enacted by any administrative agency or court, for or relating to the protection of the environment or the health and safety of any Person (including, without limitation, those relating to (a) the Hazardous Materials Transportation Act, 49 U.S.C. § 1801 et seq.,  the Clean Water Act, 33 U.S.C. § 1251 et seq., the Clean Air Act, 42 U.S.C. § 7401 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. §6903 et seq. or CERCLA, (b) emissions, discharges, releases or threatened releases of Hazardous Materials into the environment, including, without limitation, into ambient air, soil, sediments, land

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surface or subsurface, buildings or facilities, surface water, groundwater, publicly-owned treatment works, septic systems or land; or (c) the generation, treatment, storage, disposal, use, handling, manufacturing, transportation or shipment of Hazardous Materials.

2.31Value.  In deciding to sell the Shares at the price provided herein, each of the Sellers represent and warrant to Purchaser that he has relied on his own financial, tax, business and legal advisors, has had full and complete access to all documents, records and books of the Company and has had a reasonable opportunity to obtain such other information as he has deemed necessary to determine the value of the Shares, and has not relied on any express or implied representation by Purchaser or any other person or entity as to the value thereof.

2.32Untrue or Omitted Facts.  To each Seller’s knowledge, no representation, warranty or statement by the Company or the Sellers in the Agreement contains any untrue statement of a material fact, or omits or will omit to state a fact necessary to make such representations, warranties or statements not materially misleading.  Without limitation of the foregoing, there is no fact known to the Company or the Sellers that has had, or may be reasonably expected to have, a Material Adverse Effect on the Company or any of its assets, properties, operations or business, and that has not been disclosed in writing to the Purchaser.

2.33Continuity of Representations and Update of Schedules.  Each of the Sellers and the Company covenants and agrees to advise Purchaser promptly of any Material Adverse Change or deviation in or from any of the foregoing representations and warranties from the Effective Date through the Closing Date.  Each of the Sellers and the Company agrees that, with respect to the representations and warranties of such party contained in this Agreement, such party shall supplement or amend the Schedules to this Agreement as of the Closing Date with respect to any matter hereafter arising or discovered which, if existing or known at the date of this Agreement, would have been required to be set forth or described. For purposes of determining whether the conditions set forth in Article V hereof have been fulfilled, the Schedules to this Agreement shall be deemed to include only that information contained therein on the date of this Agreement and shall be deemed to exclude all information contained in any supplement or amendment thereto; provided, however, that if the Closing shall occur, then the Disclosure Schedule shall be deemed for all purposes hereunder to have been amended to include all supplements and amendments thereto up to and including the time of Closing and Purchaser shall have no claim against Sellers with respect to any such new matters disclosed in the Schedules or which is otherwise known to Purchaser prior to the Closing.

ARTICLE III

Representations and Warranties of Purchaser

Purchaser makes the following representations and warranties to Sellers, on the understanding that Sellers, in executing, delivering and consummating this Agreement, have relied and will rely upon the correctness and completeness of each of such representations and warranties:

3.1Corporate Existence and Qualification.  Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Oklahoma.  Purchaser has the corporate power to own its assets and properties and to carry on its business as now conducted,

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and is duly qualified and is in good standing as a foreign corporation in those jurisdictions in which it is required to qualify in order to own its assets or properties or to carry on its business as now conducted.

3.2Consents.  No consent of any governmental or other regulatory agency, foreign or domestic, or any other party is required to be received by or on the part of Purchaser to enable it to enter into and carry out this Agreement in all material respects.

3.3Corporate Authority.  Purchaser has the power to enter into this Agreement and to carry out its obligations hereunder.  The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by Purchaser’s Board of Directors, and no other corporate proceeding on the part of Purchaser will be necessary to authorize the execution and delivery of this Agreement or the consummation of such transactions.  This Agreement constitutes the legal, valid and binding agreement of Purchaser and, assuming that this Agreement constitutes the legal, valid and binding agreement of Sellers, it is enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting the rights of creditors and to general principles of equity.

3.4No Breach.   Once approved by Purchaser’s commercial lender, Commerce Bank, N. A., neither the execution or delivery of this Agreement nor Purchaser’s compliance with any of the provisions hereof or its consummation of the transactions contemplated hereby, will:

(a)violate or conflict with any provision of its Certificate of Incorporation or Bylaws;

(b)violate or result, alone or with the passage of time, in the material breach or termination of, or otherwise give any contracting party the right to terminate or declare a default under, the terms of any Material Agreement, document or undertaking, oral or written, to which Purchaser is a party, or by which it or any of its properties or assets may be bound (except for such violations, conflicts, breaches or defaults as to which required waivers or consents by other parties have been or, prior to Closing, will be obtained);

(c)result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of Purchaser;

(d)violate any judgment, order, injunction, decree, or award against or binding upon Purchaser, its properties or assets; or

(e)violate any law or regulation of any jurisdiction relating to Purchaser or any of its securities, assets or properties.

3.5Brokers.  Purchaser has not engaged, consented to, or authorized any broker, finder, investment banker or other third party to act on its behalf, directly or indirectly, as a broker or finder in connection with the transactions contemplated by this Agreement, and Purchaser agrees to indemnify the Sellers against, and to hold them harmless from, any claim for brokerage or similar commission or other compensation, which may be made against any Sellers, or any of them, by any third party in connection with the transactions contemplated hereby based upon any action by Purchaser.

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3.6Value.  In deciding to acquire the Shares for the Purchase Consideration, Purchaser represents and warrants that it has relied on its own financial, tax, business and legal advisors and on the representations and warranties of Sellers and Company in this Agreement.  Purchaser has not relied on any express or implied representation by Sellers or any other person or entity as to the value of the Shares.

3.7SEC Filings Complete.   Purchaser’s most recent Annual Report on Form 10-K, all intervening 8-Ks and Form 10-Qs (if any), and Purchaser’s most recent annual meeting proxy statement (collectively, “Purchaser Disclosure Documents”), all as filed with the Securities and Exchange Commission (“SEC”), and as of the time when any such Purchaser Disclosure Document was so filed:  (a) did not contain a misstatement of a material fact or an omission of a material fact required to be stated therein or necessary to make the statements therein not misleading; and (b) complied in all material respects with the requirements of the Securities Exchange Act of 1934, as amended, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such documents.

3.8Litigation.  Except as disclosed in the Purchaser Disclosure Documents, there is no action, suit, litigation, arbitration or other proceeding pending or, to the knowledge of Purchaser threatened, against Purchaser or any of its subsidiaries which would have a Material Adverse Effect on its properties, assets or business, or which would prevent or hinder the consummation of the transactions contemplated by this Agreement or its obligations thereunder.

3.9Generally.  To Purchaser’s knowledge, no representation or warranty by Purchaser in the Agreement or in any exhibit, schedule or closing certificate furnished or to be furnished to Sellers pursuant to this Agreement or in connection with the transactions contemplated hereby contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact, necessarily to make the statements herein or therein, in light of the circumstances in which they were made, not misleading.

ARTICLE IV

Covenants

4.1Access; Due Diligence Examination.  From the Effective Date through the Closing Date, the Sellers shall cause the Company to give Purchaser and its authorized representatives access upon reasonable notice during business hours and in such manner as shall not unduly disrupt the Company’s normal business activities, to any and all premises, properties, contracts, commitments, books, records and affairs of the Company and shall cause its officers and employees to furnish Purchaser any and all financial, technical and operating data, all accounting and business records and all legal documents and other information pertaining to the Company as Purchaser, its representatives and advisors, may from time to time request to verify the existence, condition, value and ownership of Seller’s assets, the amount, nature and scope of its liabilities, and the prospects of the Company (“Due Diligence Information”).  Purchaser shall be entitled to rely on the accuracy of all Due Diligence Information.  Purchaser shall also have the right to interview Seller’s key employees, customers and vendors/suppliers, and to review all customer credit histories and profiles as Purchaser, its representatives and advisors may deem necessary.

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4.2Pre-Closing Covenants of Sellers and the Company.   Sellers covenant and agree that from the Effective Date through the Closing Date they shall not:

(a)permit the Company to conduct its business other than in the ordinary course consistent with past practice;

(b)permit the Company, its employees, agents or representatives, directly or indirectly, to solicit, encourage or participate in discussions concerning, or to supply information relating to, any other sale of any material portion of the Company’s assets or capital stock; or

(c)permit the Company to make any distributions or payments of any kind to its shareholders, whether of operating profits or in payment of any debt due to any such shareholder(s), or any interest thereon, other than normal salary payable for services rendered.

4.3Pre-Closing Covenants of Purchaser.  Purchaser hereby covenants that, from and after the Execution Date until the Closing or the earlier termination of this Agreement, Purchaser will use its best efforts to insure that all of its representations and warranties contained herein are true in all material respects as of the Closing as if repeated at and as of such time. Purchaser shall promptly notify the Seller of any event or fact constituting or which is likely to cause a breach or default of its covenants, representations or warranties herein.

4.4Confidentiality.  At the Closing, the Sellers shall execute and deliver to the Purchaser a Confidentiality Agreement in the form of Exhibit 4.4 hereto attached (“Confidentiality Agreement”) containing covenants prohibiting Sellers, for the period described therein (the “Restricted Period”) from disclosing any confidential or proprietary information of or concerning the Company to any third party.

4.5Retention of Business Records.  For a period of six (6) years after the Closing, the Purchaser shall retain, or cause the Company to retain, all business records of the Company in its possession as of the Closing or otherwise relating to periods prior to Closing.  Purchaser shall afford Sellers and their authorized representatives access to such records upon reasonable prior notice for any proper purpose.

4.6Tax Covenants.  Prior to Closing none of the Sellers shall, without the prior written consent of Purchaser, permit Company to make or change any election, change an annual tax accounting period, adopt or change any tax accounting method, file any amended return, enter into any closing agreement, settle any tax claim or assessment, surrender any right to claim a refund of taxes, consent to any extension or waiver of the limitation period applicable to any tax claim or assessment, or take any other action that may have the effect of increasing the tax liability of Purchaser or Company.  After the Closing Purchaser shall not, without the prior written consent of a majority of the Sellers (based on stock ownership), make or change any tax election, change an annual tax accounting period (except that Purchaser may change the Company’s taxable year to a year ending October 31, commencing with the year ending October 31, 2010), adopt or change any tax accounting method, file any amended return, enter into any closing agreements, settle any tax claim or assessment, surrender any right to claim a refund of taxes, consent to any extension or waiver of the limitation period applicable to any tax claim or

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assessment, or take any other action that may have the effect of increasing the tax liability of any Seller.

4.7Tax Records.  Each party hereto shall provide, and shall cause its accountants and other representatives to provide, to the other parties on a timely basis, the information (including but not limited to all work papers and records) that the former or its accountants or other representatives has or have within its or their control and that may be reasonably necessary in connection with the preparation of any and all returns required to be filed by such other parties or any other examination by any taxing authority or other administrative or judicial proceeding relating to taxes of the Company or Purchaser.  Sellers and Purchaser shall retain or cause to be retained, until the applicable statutes of limitations (including any extensions) have expired, copies of all tax returns for all taxable periods of the Company beginning before the Closing Date, together with supporting work schedules and other records or information that may be relevant to such returns.

ARTICLE V

Conditions Precedent to the

Obligation of Purchaser to Close

The obligation of Purchaser to close is subject to the fulfillment, prior to or on the Closing Date, of each of the following conditions, any one or more of which may be waived in writing by Sellers:

5.1Representations and Warranties.  All of the representations and warranties of the Company and the Sellers contained in this Agreement and in any Exhibit, Schedule or certificate delivered to Purchaser pursuant hereto or in connection with the transactions contemplated hereby shall be true and correct in all material respects at the Closing and as of the Closing Date, with the same force and effect as though such representations and warranties had been made on the Closing Date.

5.2Covenants.  The Company and the Sellers shall have in all material respects performed and complied with all covenants and agreements required by this Agreement to be performed or complied with by each of them prior to or at the Closing.

5.3No Actions.  No action, suit, proceeding or investigation shall have been instituted, and be continuing before a court or before or by a governmental body or agency, or shall have been threatened and be unresolved, to restrain or to prevent or to obtain damages in respect of, the carrying out of the transactions contemplated hereby, or which, if successful, would materially affect the right of Purchaser to own the Shares, or which, if successful, would have a Material Adverse Effect on such right, the prospects or net worth of the Company, or the value of the Shares.

5.4Consents; Licenses and Permits.  The Company and the Sellers shall have each obtained all consents, licenses and permits of third parties to any of the Material Agreements and such other consents, if any, as shall, in Purchaser’s sole discretion be necessary (a) to prevent (i) any agreements of the Company from terminating, the termination of which, in the aggregate, would have a Material Adverse Effect on the business, financial condition or assets of the

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Company, or (ii) any material indebtedness of the Company from becoming due then, or with notice or the passage of time as a result of the performance of this Agreement, or (b) to enable Sellers and the Company to perform all of their respective obligations under this Agreement.

5.5No Material Change.  There shall have been no Material Adverse Change in the financial condition of the Company or its business since the Base Valuation Date, the Company’s assets, liabilities and stockholders’ equity as of the Closing Date shall be, in Purchaser’s sole determination, substantially similar in amount and composition to such items as reported in the Base Value Balance Sheet and the Company’s net funded debt (i.e. amounts owed under bank lines of credit and notes payable, other than $95,000 for a disputed tax liability represented by a note payable, minus cash on hand) shall not exceed $450,000.

5.6Due Diligence.  Purchaser shall have been afforded the access and due diligence opportunities set forth in Section 4.1 hereof and shall have completed its due diligence examination of the Company and the Due Diligence Information set forth therein, and found the Company and the Shares and the Acquisition contemplated hereby to be in all respects entirely satisfactory to Purchaser and its legal counsel.

5.7Certificate.  Purchaser shall have received a certificate in the form of Exhibit 5.7 hereto attached, dated as of the Closing Date and signed by Seller Wade Griffin and the Company, verifying the satisfaction of the conditions set forth in Sections 5.1 through 5.5.

5.8Employment of Key Personnel. All employees of the Company identified by Purchaser as key to the successful continuation of the Company’s business, including but not limited to Sellers Art Evans and Lisa Oetken and also Chris Griffin, shall have agreed to accept continued employment with the Company or Purchaser on terms satisfactory to Purchaser to be set forth in offers of employment to be conveyed by letter, including but not limited to       *       and non-solicitation provisions extending at least one (1) year after the last payment of compensation thereunder (the “Employment Arrangements”).

5.9Supplier/Vendor Relationships; Consents.  The negotiation and execution of mutually acceptable extensions, as deemed necessary by Purchaser, of any and all contracts or agreements with all key suppliers and vendors of the Company and the delivery of all customer and other consents determined by Purchaser to be necessary to maintain in force all of the Company’s existing contracts, leases and other agreements in light of the change in the Company’s control to be effected by Purchaser’s acquisition of the Shares.

5.10Government and Regulatory Approvals; Lender Consents.  Receipt by XETA of all governmental approvals and investor consents (if any), and compliance with all relevant government and third-party registrations and notices (including those imposed by the SEC and NASDAQ) deemed necessary by Purchaser’s legal counsel to Purchaser’s acquisition of the Shares and its continued operation of the Company and its business after Closing, free of burdensome conditions or restrictions, including the consent of Commerce Bank, N. A.

*The asterisk (*) indicates that material has been omitted pursuant to a request for confidential treatment.  The omitted material has been filed separately with the Securities and Exchange Commission pursuant to rule 24b-2 of the rules to the Securities and Exchange Act of 1934, as amended.

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5.11Capital Expenditures.  The Company shall have not incurred or made capital expenditures since the Base Valuation Date in the aggregate amount of more than $      *      .

5.12Opinion.  Purchaser shall have been provided with an opinion from counsel to the Company stating, subject to customary qualifications and limitations, that:

(a)The Company is duly organized, validly existing and in good standing under the laws of the State of Texas.  The Company has the corporate power to carry on its business as now conducted and to own its assets, and is duly qualified to conduct business and is in good standing as a foreign corporation in those jurisdictions set forth on Schedule 2.1., which include all jurisdictions in which qualification is required in order for the Company to own its assets or properties or to carry on its business as now conducted, except as otherwise set forth in Schedule 2.1 or where the failure to qualify would not have a Material Adverse Effect on the business of the Company, and, to such counsel’s knowledge, there has not been any claim by any other jurisdiction to the effect that the Company is required to qualify or otherwise be authorized to do business as a foreign corporation therein.

(b)The authorized capital stock of the Company consists of 2,000,000 shares of which 1,000,000 shares are common stock, and 1,000,000 shares are preferred stock.  There are no shares of Preferred Stock issued and outstanding. There are 695,000 shares of common stock issued and outstanding, as follows:

Wade Griffin	275,000 shares
Allan Sanders	265,000 shares
Lisa Oetken	45,000 shares
Tracy Taylor	45,000 shares
David Hagen	35,000 shares
Art Evans	30,000 shares

All of such outstanding shares are validly issued, fully paid and non-assessable.  To counsel’s knowledge, there are no subscriptions, options, warrants, rights or calls or other commitments or agreements to which the Company or the Seller is a party or by which such persons are bound, calling for the issuance, transfer, sale or other disposition of any class of securities of the Company other than the Buy-Sell Agreement. To counsel’s knowledge, there are no outstanding securities of the Company convertible or exchangeable, actually or contingently, into shares of Common Stock, or any other securities, of the Company.

(c)The Company has all requisite corporate power and authority to execute, deliver, and perform this Agreement to the extent of its joinder herein.  The execution and delivery of the Agreement have been duly and validly authorized by all requisite corporate action taken on the part of the Company, and its directors, and no other corporate proceeding on the part of the Company, its directors or its shareholders is

*The asterisk (*) indicates that material has been omitted pursuant to a request for confidential treatment.  The omitted material has been filed separately with the Securities and Exchange Commission pursuant to rule 24b-2 of the rules to the Securities and Exchange Act of 1934, as amended.

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necessary to authorize the Company’s execution, delivery and performance of the Agreement.

(d)The Agreement has been duly executed and delivered by the Company, and constitutes the valid and binding obligation of the Company, to the extent of its joinder herein, enforceable against the Company in accordance with its terms.

(e)The Company’s execution, delivery, and performance of the Agreement will not violate or result in a breach of any term of the Company’s Articles of Incorporation or Bylaws, and to counsel’s knowledge, the Company’s execution and delivery of the Agreement will not result in a breach of any instrument, permit, license or agreement of which the Company is a beneficiary or to which it is a party.

(f)To counsel’s knowledge, the Company’s execution and delivery of the Agreement does not violate any applicable law, statute, rule, or regulation of the United States or State of Texas, nor, to counsel’s knowledge, any injunction, order, or decree of any court or governmental agency or authority binding upon the Company and to counsel’s knowledge the Acquisition, if consummated, will not violate of any such law, statue, rule or regulation to which the Sellers or the Company are subject.

(g)To counsel’s knowledge, except as otherwise set forth in Schedule 2.15 to the Agreement, there is not now pending any suit, action, claim, investigation, arbitration, administrative or legal or other proceeding or governmental inquiry of any kind against or relating to the Company which could have a Material Adverse Effect on the Company, nor, to such counsel’s knowledge, has any such suit, action, claim, investigation, arbitration or administrative, judicial or other proceeding or governmental inquiry been threatened involving, the Company, nor has the Company consulted with such counsel with a view to obtaining substantive legal advice with respect to any such matter.

(h)To such counsel’s knowledge, the Company has not been cited for any violation or violations of any order, writ, injunction, judgment or decree of any court or federal, state or local government department, official, commission, authority, board, bureau, agency or other instrumentality, which has been issued or is pending against, and which could have a Material Adverse Effect on, the Company; and counsel has no knowledge of, nor has such counsel been consulted by the Company with a view to obtaining substantive legal advice, with regard to any matter involving, the violation or alleged violation of any law by the Company, which violation or alleged violation, if proven, would likely have a Material Adverse Effect on the Company.

(i)Each Seller has full power and authority to enter into and perform such Seller’s obligations under the Agreement. The Agreement is a legal, valid and binding obligation of such Seller, and enforceable against such Seller in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally.

When any of such counsel’s opinions shall be qualified “to such counsel’s knowledge,” the opinion may provide that is limited to the actual knowledge of the individual lawyers in the firm rendering such opinion based upon reasonable investigation of the facts or in reasonable reliance upon representations made by the Sellers in this Agreement or in statements and certifications

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duly obtained, when counsel has deemed it to be necessary, from public officials and officers of the Company.

5.13No Contingencies or Litigation.  There shall exist no contingency or any threatened or pending litigation which could, in Purchaser’s reasonable judgment, have a Material Adverse Effect on the Company or its business, or the consummation of the Acquisition.

5.14Termination of Buy-Sell Agreement.  The Company and the Sellers shall have executed and delivered a written termination of Buy-Sell Agreement and provided Purchaser with a copy of such termination.

5.15Non-Competition and Consulting Agreements.  At the Closing, Seller Wade Griffin shall have executed and delivered the Non-Compete Agreement and a written consulting agreement in the form of Exhibit 5.15 hereto attached (“Consulting Agreement”) extending for a term of       *       after the Closing Date pursuant to which Mr. Griffin agrees to make himself available to the Company, if an as requested, for       *       of ongoing consulting       *       in consideration of Purchaser’s agreement to pay, or cause the Company to pay, Mr. Griffin a consulting fee in the sum of       *      .        *      .

5.162009 Tax Return.  Sellers shall cause the Company to provide Purchaser with a final draft of its 2009 Tax Return prior to its filing with the IRS and shall Purchaser five (5) business days to review the final draft prior to its filing with the IRS.  The 2009 Tax Return shall have been filed with the IRS as a condition precedent to Purchaser’s obligation to close.

5.17Board Approval.  Purchaser shall have determined, after consultation with its legal counsel, that the risks associated with asserted and unasserted claims and contingencies relative to the Company and its business are acceptable and the consummation of the Acquisition pursuant to this Agreement shall have been approved by Purchaser’s Board of Directors.

5.18Additional Documents.  The Sellers and the Company shall have delivered all such other certificates and documents consistent with this Agreement as Purchaser or its counsel shall have reasonably requested, together with all disclosure schedules and any exception schedules desired by Sellers, which schedules (hereinafter referred to, collectively, as the “Schedules”) shall be satisfactory to Purchaser in form and content.

ARTICLE VI

Conditions Precedent to the Obligation of Sellers to Close

The Sellers’ obligation to close is subject to the fulfillment, prior to or on the Closing Date, of each of the following conditions, any one or more of which may be waived in writing by the Purchaser:

*The asterisk (*) indicates that material has been omitted pursuant to a request for confidential treatment.  The omitted material has been filed separately with the Securities and Exchange Commission pursuant to rule 24b-2 of the rules to the Securities and Exchange Act of 1934, as amended.

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6.1Representations and Warranties.  All representations and warranties of Purchaser contained in this Agreement and in any Exhibit, Schedule or certificate delivered pursuant hereto or in connection with the transactions contemplated hereby shall be true and correct in all material respects at the Closing and as of the Closing Date, with the same force and effect as though such representations and warranties had been made on the Closing Date.

6.2Covenants.  Purchaser shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by it prior to or at the Closing.

6.3No Actions.  No action, suit, proceeding or investigation shall have been instituted, and be continuing, before a court or before or by a governmental body or agency, or shall have been threatened, and be unresolved, by any governmental body or agency to restrain or prevent, or obtain damages in respect of, the carrying out of the Acquisition.

6.4Certificate.  The Sellers shall have received a certificate in the form annexed hereto as Exhibit 6.4 dated as of the Closing Date, signed by the Purchaser verifying the satisfaction of the conditions contained in Sections 6.1 through 6.3.

6.5Release of Personal Liability on Company Debt. Purchaser shall have either (i) paid off all existing bank loans of the Company, or (ii) otherwise obtained the release of the personal guarantees of Sellers of such bank indebtedness.  In addition, Purchaser shall have either (a) obtained the release of any personal guaranty of Sellers of any lease or other contract or agreement to which the Company is a party and which has been personally guaranteed by one or more Sellers, or (b) shall have given the Sellers indemnification from such liability.

6.6Additional Documents.  Purchaser shall have delivered to Sellers all such other certificates and documents consistent with this Agreement as Sellers or their counsel shall have reasonably requested.

ARTICLE VII

Closing

7.1The Closing.  The closing of the sale and acquisition of the Shares contemplated by this Agreement (the “Closing”) shall occur upon satisfaction of all of the conditions precedent to the obligations of the parties to close as set forth in Articles V and VI and upon the delivery by the parties of all of the items to be delivered by them pursuant to Sections 7.3 and 7.4 hereof.

7.2Location, Time and Date.  The Closing shall be held in the offices of Barber & Bartz, 525 South Main Street, Suite 800, Tulsa, Oklahoma, 74103, at 10:00 o’clock a.m. on July 30, 2010, subject to postponement by Purchaser as may be reasonably necessary to satisfy the conditions precedent to Purchaser’s obligation to close hereunder, or at such other time and place as may be actually agreed to by the parties hereto.  (The date on which the Closing shall occur is referred to in this Agreement as the “Closing Date”).

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7.3Sellers’ Deliveries.  At the Closing, the Sellers will deliver or cause to be delivered to Purchaser:

(a)All original certificates representing the Shares, constituting all of the issued and outstanding shares of the Company immediately prior to the Closing, duly endorsed by the registered owner(s) thereof;

(b)The Escrow Agreement;

(c)The Goodwill Acquisition Agreement and the Non-Competition Agreement;

(d)The Employment Arrangements, including non-solicitation agreement from Lisa Oetken, Art Evans and Chris Griffin and the Consulting Agreement with Wade Griffin;

(e)The Confidentiality Agreement;

(f)The certificate required by Section 5.7;

(g)The opinion of counsel required by Section 5.12;

(h)Each Seller’s resignation as a director and officer of the Company, to the extent requested by Purchaser; and

(i)Such other certified resolutions, releases, documents, Schedules and certificates, as are required to be delivered by any Seller and/or the Company pursuant to the provisions of this Agreement.

7.4Purchaser’s Deliveries.  At the Closing, Purchaser will deliver or cause to be delivered to the applicable Seller or Sellers:

(a)The Cash Portion of the Purchase Consideration and promissory notes contemplated by Sections 1.3(b), less the Escrow Amount (which shall be deposited into escrow with a Triad Bank, N. A. pursuant to the Escrow Agreement;

(b)The Escrow Agreement;

(c)The Goodwill Acquisition Agreement, the Non-Competition Agreement and the Consulting Agreement;

(d)The offers of employment in connection with the Employment Arrangements;

(e)The certificate required by Section 6.4; and

(f)Such other certified resolutions, documents and certificates as are required to be delivered by Purchaser pursuant to the provisions of this Agreement.

7.5Transfer of Possession.  As of the Closing Date, the Sellers shall give Purchaser full possession and ownership of the Shares.

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ARTICLE VIII

Survival of Representations; Indemnification

8.1Survival.  The parties hereto agree that their respective representations, warranties, covenants, and agreements contained herein shall survive the Closing for a period of two (2) years after the Closing Date except that those covenants, representatives and warranties made by the Sellers and/or the Company in Section 2.7 shall survive for three (3) years after the Closing Date and that those made by them with respect to Taxes, Employee Benefit Plans and Environmental Matters (Sections 2.12, 2.25, and 2.30) shall survive the Closing for such periods of time that the government agencies having jurisdiction over the subject matter of those covenants, representations and warranties may be empowered to assess a liability or deficiency with respect to any of the matters covered thereby (the “Indemnification Period”).

8.2Indemnification by Sellers.  Subject to the other provisions of this Article VIII, each of the Sellers agrees to save and indemnify Purchaser against, and hold it harmless from, (a) any and all liabilities, of every kind, nature and description, fixed or contingent, including without limitation reasonable attorney fees and expenses incurred in connection with any action, claim or proceeding relating to such liabilities (“Damages”), arising from the breach of any of such Seller’s representations, warranties, covenants or agreements contained herein or in the Schedules hereto, a claim for which is asserted in writing by Purchaser during the Indemnification Period and (b) any indebtedness and liability for sales taxes, penalties and interest (“Sales Tax Claims”) owed or hereafter to be owed to the State of New Mexico or any other state in which the Company has done business with in the past three (3) years with respect to business transacted by the Company prior to the Closing Date  (collectively, “Purchaser Claims”).

8.3Indemnification by Purchaser.  Purchaser agrees to save and indemnify the Sellers against, and to hold them harmless from, any and all Damages arising from the breach of any of Purchaser’s representations, warranties, covenants or agreements contained herein or the Exhibits hereto, a claim for which is asserted in writing by a majority of the Sellers during the applicable Indemnification Period (“Sellers Claims”).

8.4Limitation of Liability.  The indemnification obligations of the parties pursuant to this Article VIII shall be subject to the following limitations and conditions:

(a)No indemnification shall be required to be made by Sellers pursuant to this Article VIII with respect to any Purchaser Claims, unless and until the aggregate amount of Damages incurred by Purchaser with respect to all Purchaser Claims, including Purchaser Claims cut off by certain of the limitations periods set forth in Section 8.1 hereof,

exceeds $      *      , provided that any claims asserted against Purchaser or the Company after the Closing Date for Sellers’ unpaid attorney’s fees or brokerage fees, if any, incurred in connection with the negotiation and consummation of the transactions contemplated by this Agreement or for unpaid taxes for periods ending on or before the

*The asterisk (*) indicates that material has been omitted pursuant to a request for confidential treatment.  The omitted material has been filed separately with the Securities and Exchange Commission pursuant to rule 24b-2 of the rules to the Securities and Exchange Act of 1934, as amended.

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Closing Date, including but not limited to any Sales Tax Claims, shall not be subject to the foregoing $      *       threshold amount.

(b)No indemnification shall be required to be made by Purchaser pursuant to this Article VIII with respect to any Sellers Claims, unless and until the aggregate amount of Damages incurred by the Sellers with respect to all Sellers Claims exceeds $      *      .

(c)      *      .

(d)The indemnification obligations of Seller and Purchaser pursuant to this Article VIII shall be limited to actual damages and shall not include incidental, consequential, indirect, or (except on grounds of fraud or reckless disregard) punitive or exemplary damages; provided, however, for purposes of this Agreement, actual Damages shall include incidental, consequential, indirect, punitive or exemplary damages awarded against an indemnified party by a court of competent jurisdiction or pursuant to binding arbitration to a third-party (other than a party claiming through the party seeking indemnification hereunder).

(e)Notwithstanding anything to the contrary herein, the maximum aggregate indemnification obligation of Sellers pursuant to this Article VIII shall be limited with respect to Purchaser Claims other than Sales Tax Claims as follows:

(i)*      ,

(ii)*      , and

(iii)*      .

8.5Claims.  All claims for Damages shall be computed net of the present value of all readily ascertainable future tax benefits associated therewith.  No claim shall be made for matters adequately covered by insurance.

8.6Defense of Claims.  Each party asserting a right to indemnification under this Article VIII (the “Asserting Party”) agrees to notify the party putatively required to provide indemnification (the “Responding Party”) with reasonable promptness of any claim asserted against it in respect of which the Responding Party may be liable under this Agreement, which notification shall be accompanied by a written statement setting forth the basis of such claim and the manner of calculation thereof.  The Responding Party shall have the right, at its election, to defend or compromise any such claim at its own expense with counsel of its choice; provided, however, that (i) such counsel shall have been approved by the Asserting Party, which approval shall not be unreasonably withheld or delayed; (ii) the Asserting Party may participate in such defense if it so chooses with its own counsel and at its own expense; and (iii) any such defense or compromise shall be conducted in a manner which is reasonable and not prejudicial to the Asserting Party’s interest in such matter.  In the event the Responding Party does not undertake to defend or compromise the claim, the Responding Party shall promptly notify the Asserting Party of its intention not to undertake to defend or compromise the claim, and the Responding Party shall be bound by (a) the final decree of any court of competent jurisdiction deciding the validity and amount of the claim asserted against the Asserting Party, and (b) any compromise of

*The asterisk (*) indicates that material has been omitted pursuant to a request for confidential treatment.  The omitted material has been filed separately with the Securities and Exchange Commission pursuant to rule 24b-2 of the rules to the Securities and Exchange Act of 1934, as amended.

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such claim made with the prior consent of the Responding Party, which shall not be unreasonably withheld or delayed.

8.7Extension of Time.  To the extent that an Asserting Party delivers written notice of a claim for Damages against a Responding Party prior to the expiration of the applicable Indemnification Period, reasonably identifying the basis for the claim and the amount of any reasonably ascertainable Damages, the applicable Indemnification Period shall be extended for such claim until such claim is resolved by a Final Determination, subject to the limitations hereinabove provided.

8.8Final Determination.  For the purposes of this Agreement, a “Final Determination” shall exist when (i) the parties agree in writing upon the amount, or (ii) a court of competent jurisdiction shall have made a determination on the merits with respect thereto and appeal therefrom shall not have been taken within a timely fashion from the date of such determination. The indemnified party will assign to the party providing indemnification any claims against which the indemnified party has been indemnified and paid as provided herein, as to which there may be claims against persons other than the Company, and the party providing indemnification shall in all respects be subrogated to the rights of the indemnified party in connection therewith.

8.9Exclusive Remedy After Closing. Except as hereinafter set forth in this Section 8.9, as a material inducement to Sellers and Purchaser to enter into this Agreement and perform their respective obligations hereunder, each party hereby agrees and acknowledges on behalf of itself and its respective heirs, personal representatives, successors and assigns, that, in relation to any breach, default or nonperformance of any representation, warranty, covenant or agreement made or entered into by a party hereto pursuant to this Agreement (a “Breaching Party”), the sole and exclusive remedy available to the aggrieved party after the Closing Date in respect of said breach, default or nonperformance shall be to seek indemnification from the Breaching Party to the extent properly claimable and limited pursuant to the provisions of this Article VIII. Notwithstanding the preceding, nothing contained herein shall limit the remedies of Purchaser in the event of the fraud of any Seller or Purchaser’s right to seek injunctive relief for a Seller’s breach of the confidentiality provisions of this Agreement, nor shall the provision of this Article VIII supersede or impair Purchaser’s right to exercise any available right of offset against any of its own obligations arising pursuant to this Agreement or any instruments or agreement entered into by Purchaser with the Sellers or any of them pursuant to this Agreement; provided that payments, if any, not made to Sellers, or any of them, by reason of this provision shall be made into an escrow account established at the time for receipt of such funds pending a Final Determination under Section 8.8.  Notwithstanding the preceding, in the event there is a default under the Subordinated Notes, the provisions of Article VIII shall not apply to the Subordinated Note(s) and the remedies for a default under the Subordinated Note(s) shall be governed by the provisions of the Subordinated Notes.

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ARTICLE IX

Termination and Waiver

9.1Termination.  Anything herein or elsewhere to the contrary notwithstanding, this Agreement may be terminated and the transactions provided for herein abandoned at any time prior to the Closing Date:

(a)By mutual consent of the parties;

(b)By Purchaser if, through no fault of Purchaser, any of the conditions set forth in Article V or deliveries set forth in Section 7.3 hereof shall not have been fulfilled on or prior to July 30, 2010, or shall become incapable of fulfillment, and shall not have been waived;

(c)By a majority of the Sellers if, through no fault of the Sellers, any of the conditions set forth in Article VI or deliveries set forth in Section 7.4 hereof shall not have been fulfilled on or prior to July 30, 2010, or shall have become incapable of fulfillment, and shall not have been waived; or

(d)By either party, if any legal action or proceeding shall have been instituted or threatened seeking to restrain, prohibit, invalidate or otherwise affect the consummation of the transactions contemplated by this Agreement which makes it inadvisable, in the judgment of such party, to consummate same.

If terminated as described above, this Agreement shall terminate, without any liability or obligation on the part of either party hereto to proceed to the Closing, except for any liability (i) arising from a breach prior to or in connection with such termination, or (ii) under any covenant that survives termination. 

9.2Waivers.  Any condition to performance by the Seller or Purchaser which may be legally waived on or before the Closing Date may be waived by the party entitled to the benefit of such condition by duly authorized instrument in writing executed by the waiving party.  The failure of any party at any time or times to require performance of any provision hereof shall not affect or impair the right of such party to require such performance at a later time.  No waiver of any nature, whether by conduct or otherwise, in any one or more instances, shall be construed as, or be deemed to be, a further or continuing waiver either of any such condition or of any breach of any other term, covenant, representation or warranty contained in this Agreement.

ARTICLE X

Miscellaneous Provisions

10.1Expenses.  Each party shall bear its own legal, accounting and other professional fees, costs and expenses incurred in connection with this Agreement and the transactions hereby intended to be effected.

10.2Confidential Information.  Each party agrees that it and its representatives shall hold in strict confidence, and shall not divulge or disclose to any person without a need to know, any information and documents received from the other party and, if the transactions herein contemplated are not consummated, each party will continue to hold such information and documents in strict confidence and shall return to such other party all such documents then in

29

such receiving party’s possession (including the Exhibits and Schedules to this Agreement) without retaining copies thereof; provided, that each party’s obligations under this Section 10.2 to maintain such confidentiality shall not apply to any information or documents that are in the public domain when furnished by the other or to be disclosed required by applicable law.  In the event of a breach or threatened breach under this Section 10.2, the parties to this Agreement acknowledge that the person harmed or threatened to be harmed thereby will not have an adequate remedy at law, and shall be entitled to such equitable and injunctive relief as may be available to restrain such breach; provided, that nothing herein shall be construed as prohibiting such person from pursuing any other remedies available for such breach or threatened breach, including the recovery of damages.

10.3Publicity.  Sellers and Purchaser each agree that, without the written consent of the other, neither will independently issue a press release or otherwise publicly disclose the nature or existence of the transactions contemplated by this Agreement (including but not limited to the Purchase Consideration) except as may be required by law.  Any public announcement of this stock purchase will be made by Purchaser and Sellers jointly and simultaneously, and the wording of any such announcement will be mutually agreed upon unless, in the reasonable judgment of counsel for Purchaser, any laws, rules or regulations to which Purchaser is subject (including the rules of NASDAQ and of the U.S. Securities and Exchange Commission) mandate other wording, in which event such other laws, rules or regulations as interpreted by Purchaser and its counsel shall control; provided, however, that from and after the Closing, Purchaser shall be entitled to issue press releases or otherwise publicly disclose its acquisition of the Company.

10.4Modification or Waiver.  This Agreement may be amended, modified or superseded, and any of the terms, covenants, representations, warranties or conditions hereof may be waived, only by a written instrument executed by both parties.  The failure of any party at any time or times to require performance of any provision hereof shall in no manner affect the right of such party at a later time to enforce the same.

10.5Notices.  Any notice or other communication required or which may be given hereunder shall be in writing and shall be either (a) delivered personally, (b) sent by U. S. Mail, certified or registered mail with postage prepaid, return receipt requested, or by overnight courier service with shipping fees prepaid, receipt requested, or (c) transmitted by telefacsimile to a telephone number as to which the intended recipient notifies the other.  Notice shall be deemed given when so delivered personally, or if mailed or sent by courier service, five (5) days after the date of mailing or deposited with the courier service, addressed as follows:

If to Purchaser, to:	XETA Technologies, Inc.
	1814 West Tacoma
	Broken Arrow, OK 74012
	Attn:	Greg Forrest, President
		and Chief Executive Officer
With a copy to:	Barber and Bartz
	525 South Main, Suite 800
	Tulsa, OK 74103-4511
	Attn:	Robert L. Bearer, Esquire

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If to the Sellers:	Wade Griffin, Allan Sanders,
	Lisa Oetken, Tracy Taylor, David Hagen
	and Art Evans
	c/o Wade Griffin
	170 East Kings Road
	Double Oak TX 75077
With a copy to:	Snell Wylie & Tibbals, P.C.
	8150 N. Central Expressway, Suite 1800
	Dallas, Texas 75206
	Attn: William F. Pyne, Esquire

If notice is provided by facsimile it shall be deemed given upon confirmation of transmission. Either party may change the person and/or address to which notices or other communications are to be sent by giving written notice of any such change to the other in the manner herein provided.

10.6Binding Effect and Assignment.  This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the parties hereto; provided, however, that no voluntary assignment of any rights or delegation of any obligations provided for herein may be made by any party without the express written consent of the other.

10.7Exhibits and Schedules.  All exhibits hereto (the “Exhibits”) and all Schedules annexed hereto or thereto at or prior to Closing are expressly made a part of this Agreement as fully as though completely set forth herein, and all references to this Agreement herein or in any of such Exhibits or Schedules shall be deemed to refer to and include all such Exhibits and Schedules.

10.8Entire Agreement.  This Agreement represents the entire understanding and agreement between the parties with respect to the subject matter hereof, and supersedes all of the negotiations, understandings and representations (if any) made by and between such parties.

10.9Governing Law.  This Agreement shall be construed and enforced in accordance with the local laws of the State of Oklahoma applicable to agreements to be executed and performed wholly within said State without giving effect to its conflicts of law provisions.  The parties further agree that in any dispute between them relating to this Agreement, jurisdiction and venue shall lie solely in the trial courts located within Tulsa County, Oklahoma or Dallas County, Texas, at the election of the party plaintiff, any objections as to jurisdiction or venue in such court being expressly waived.

10.10Section Headings.  The section headings contained in this Agreement are inserted for convenience of reference only and shall not affect the meaning or interpretation of this Agreement.

10.11Gender.  Words of the masculine gender in this Agreement shall be deemed and construed to include correlative words of the feminine and neuter genders and words of the

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neuter gender shall be deemed and construed to include correlative words of the masculine and feminine genders.

10.12Severability.  The invalidity or unenforceability of any term or provision of this Agreement shall in no way impair or affect the balance thereof, which shall remain in full force and effect.

10.13Attorney Fees.  In the event of any litigation or controversy arising out of or in connection with this Agreement between the parties hereto, the prevailing party in such litigation or controversy shall be entitled to recover from the other party all reasonable attorney fees, expenses and suit costs, including those associated with any appellate or post-judgment collection proceeding.

10.14Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but which together shall constitute one and the same instrument.

10.15Recitals.  The recitals set forth at the beginning of this Agreement are true and correct and incorporated by reference into the body of this Agreement.

10.16Equitable Relief.  Each party recognizes that the other is likely to suffer irreparable damage if the provisions of Sections 10.2 or 10.3 are not specifically enforced.  In the event of a dispute concerning any of these sections, each party agrees that the other may, without posting bond or security, obtain an temporary or permanent injunction restraining the consummation of any action or transaction prohibited thereby pending determination of such dispute.  The provisions of Sections 10.2 and 10.3 shall likewise be enforceable by a decree of specific performance.  In the event of litigation relating to such provisions, if the court determines that either party or any of its employees, agents or representatives has breached any thereof, the injured party shall be entitled to recover from the breaching party its reasonable fees, costs, and expenses (including attorney fees) incurred in connection with the negotiation of this Agreement, any related due diligence review, and/or the prosecution of any equitable or legal proceedings and any appeal therefrom.

10.17Definitions.  Capitalized terms used in this Agreement shall have the following meanings:

“Acquisition” has the meaning set forth in Section 1.1.

“Adjusted Purchase Consideration” has the meaning set forth in Section 8.4(e).

“Asserting Party” has the meaning set forth in Section 8.5.

“Base Valuation Date” means May 31, 2010.

“Base Value Balance Sheet” means the Company’s Balance Sheet dated as of the Base Valuation Date.

“Buy-Sell Agreement” has the meaning set forth in Section 2.2.

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“Cash Portion of the Purchase Consideration” has the meaning set forth in Section 1.3(a).

“CERCLA” has the meaning set forth in Section 2.30.

“Closing” has the meaning set forth in Section 7.1.

“Closing Date” has the meaning set forth in Section 7.2.

“Closing Date Financial Statements” has the meaning set forth in Section 1.2.

“Commonly Controlled Entity” has the meaning set forth in Section 2.25.7.

“Confidentiality Agreement” has the meaning set forth in Section 4.4.

“Consulting Agreement” has the meaning set forth in Section 5.13.

“Damages” has the meaning set forth in Section 8.2.

“Due Diligence Information” has the meaning set forth in Section 4.1.

“Employment Arrangements” has the meaning set forth in Section 5.8.

“Environmental Law” has the meaning set forth in Section 2.30(iii).

“ERISA” has the meaning set forth in Section 2.25.

“Escrow Agreement” has the meaning set forth in Section 1.3(a).

“Escrow Amount” has the meaning set forth in Section 1.3(a).

“Evaluator” has the meaning set forth in Section 1.5(c).

“Exhibits” has the meaning set forth in Section 10.7.

“Final Determination” has the meaning set forth in Section 8.8.

“GAAP” means generally accepted accounting principles applied on a basis consistent with prior periods.

“Goodwill Acquisition Agreement” has the meaning set forth in Section 1.4.

“Griffin Agreements” has the meaning set forth in Section 1.4

“Hazardous Materials” has the meaning set forth in Section 2.30(ii).

“Hazardous Materials Liabilities” has the meaning set forth in Section 2.30(i).

“Indemnification Period” has the meaning set forth in Section 8.1.

“Labor Agreements” has the meaning set forth in Section 2.28.

“Leases” has the meaning set forth in Section 2.16.

“Material Adverse Change” or “Material Adverse Effect” means any result, occurrence, fact, change, event or effect that has, or could reasonably be expected to (a) have, an adverse effect in the amount of $50,000 or more on the business, assets, results of operations, or condition (financial or otherwise) of the Company or Purchaser, as the case may be (the “Adversely Affected Party”), or (b) otherwise materially impair the

33

Adversely Affected Party’s ability to perform its obligations under this Agreement on a timely basis unless such change or event is due to causes beyond the Adversely Affected Party’s reasonable control, including changes in (i) general economic conditions, (ii) the industries or markets in which the Adversely Affected Party operates and (ii) applicable laws or accounting rules or principles.

“Material Agreements” has the meaning set forth in Section 2.17.

“Non-Competition Agreement” has the meaning set forth in Section 1.4.

“PCBs” has the meaning set forth in Section 2.30.

“Property” has the meaning set forth in Section 2.16.

“Purchase Consideration” has the meaning set forth in Section 1.3.

“Purchase Consideration Offset Claim” has the meaning set forth in Section 1.5(b)(ii).

“Purchaser Disclosure Documents” has the meaning set forth in Section 3.7.

“Purchaser’s Accountant” means HoganTaylor, LLP.

“Responding Party” has the meaning set forth in Section 8.5.

“Restricted Period” has the meaning set forth in Section 4.4.

“Review Period” has the meaning set forth in Section 1.5(a).

“Schedules” has the meaning set forth in Section 5.18.

“Sellers’ Accountant” has the meaning set forth in Section 1.2.

“SEC” has the meaning set forth in Section 3.7.

“Structures” has the meaning set forth in Section 2.16.

“Subordinated Notes” has the meaning set forth in Section 1.3(b).

“Subsidiaries” has the meaning set forth in Section 2.3.

“2009 Tax Return” has the meaning assigned in Section 2.17.

[Remainder of the page left blank intentionally.

Signatures appear on following page.]

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

“Sellers”		“Purchaser”
/s/ Wade Griffin		XETA TECHNOLOGIES, INC.
Wade Griffin
/s/ Allan Sanders		By	/s/ Greg Forrest
Allan Sanders			Greg Forrest, President and
			Chief Executive Officer
/s/ Lisa Oetken
Lisa Oetken
/s/ Tracy Taylor
Tracy Taylor
/s/ David Hagen
David Hagen
/s/ Art Evans
Art Evans
“Company”
PYRAMID COMMUNICATION SERVICES, INC.
By	/s/ Wade Griffin
	Wade Griffin, President

[Remainder of page left blank intentionally.

Consents of Spouses appear on following page.]

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CONSENT AND AGREEMENT OF SPOUSES

We, the undersigned, do severally certify that we are the respective spouses of Sellers, being all of the shareholders of Pyramid Communication Services, Inc. (the “Company”), which said Sellers entered into and signed the foregoing Stock Purchase Agreement (the “Agreement”).  Each of us has read the Agreement and the exhibits thereto, and we understand their respective provisions, purposes and effect.

We acknowledge that we have been advised by Purchaser and our respective spouse to engage separate legal counsel to review the Agreement on our behalf, that we have been adequately advised as to the legal ramifications and effects of entering into the Agreement, and that we are doing so with full knowledge and of our own free will and volition.

We severally approve and consent to the foregoing Agreement and the exhibits thereto and the sale of the Company Shares upon the terms and conditions set forth in the Agreement.  We disclaim any ownership interest, whether legal or beneficial, either in the Shares or the assets of the Company other than to the extent of our respective community property or spousal interest, if any, in the property transferred to our respective spouses pursuant to the Agreement.

We severally approve, consent to and join in the foregoing Agreement and agree to be bound by its provisions, and we shall execute any and all documents required as a result thereof.

Executed as of the day and year first above written.

/s/ Rebecca R. Hagen		/s/ Melissa R. Taylor
Printed Name:	Rebecca Rene Hagen	Printed Name:	Melissa R. Taylor
/s/ Brenda Evans
Printed Name:	Brenda Evans	Printed Name:
Printed Name:		Printed Name:

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List of Exhibits and Schedules

Exhibit	Description
1.3(a)	Escrow Agreement
1.3(b)	Form of Subordinate Promissory Note
1.4(a)	Goodwill Acquisition Agreement
1.4(b)	Non-Competition Agreement
4.4	Confidentiality Agreement
5.7	Certificate of Wade Griffin and the Company
5.15	Consulting Agreement
6.4	Certificate of the Purchaser

Schedule	Description
2.1	Company’s Corporate Organizational Documents
2.3	Subsidiaries (if any)
2.4	Required Consents (exception issues, if any)
2.8	Financial Statements (attachments and GAAP exceptions)
2.10	Subsequent Actions (exceptions, if any)
2.11	Material Changes (exceptions, if any)
2.12	Taxes (exception issues, if any; list of state returns)
2.13	Ownership; Trademarks (exception issues; and list)
2.14	Insurance (list of policies; exceptions, if any)
2.15	Litigation; Compliance (exceptions, if any)
2.16	Real Property (description; copies; exceptions)
2.17	Material Agreements (list; exceptions)
2.18	Condition of Assets (exceptions)
2.19	Accounts and Receivables (copies; exceptions)
2.20	Permits and Licenses (list)
2.21	Motor Vehicles (list)
2.22	Banking Arrangements (list of bank depositories)
2.23	Sellers’ Interests in Company Assets (list)
2.25.1	Pension Plans; Claims (list)
2.25.2	Welfare Plans; Claims (list)
2.25.5	COBRA exceptions
2.26	No Breach
2.27	Brokers (exception issues)
2.28	Labor Agreements (list)
2.29	Change of Name (list)
2.30	Environmental Matters (exception issues)

TABLE OF CONTENTS

Section of Agreement		Page No.
ARTICLE I - Purchase of Shares		1
1.1	Acquisition of Shares	1
1.2	Financial Condition; Profit and Loss	1
1.3	Purchase Consideration	2
1.4	Additional Consideration to Wade Griffin	2
1.5	Purchase Consideration Adjustment; Review Period; Income/Loss Determination; Release from Escrow	3
1.6	Disagreement	3
ARTICLE II - Representations and Warranties of the Seller		4
2.1	Valid Corporate Existence; Qualification	4
2.2	Capitalization	4
2.3	No Subsidiaries	5
2.4	Consents	5
2.5	Authority	5
2.6	Binding Nature	5
2.7	Title to Shares	5
2.8	Financial Statements	6
2.9	Liabilities	6
2.10	Subsequent Actions	6
2.11	Absence of Material Changes	7
2.12	Taxes	7
2.13	Ownership of Assets; Trademarks, etc.	7
2.14	Insurance	8
2.15	Litigation and Legal Compliance	8
2.16	Real Property	8
2.17	Material Agreements	9
2.18	Condition of Assets	10
2.19	Accounts and Notes Receivable	10
2.20	Permits and Licenses	10
2.21	Motor Vehicles	11
2.22	Banking Arrangements	11
2.23	Sellers’ Interests in Company Assets	11
2.24	Salary Information	11
2.25	Employee Benefit Plans	11
	2.25.1 Pension Plans; Claims	11
	2.25.2 Welfare Plans; Claims	12
	2.25.3 Pension Plan and Welfare Plans; Prohibited Transactions	12
	2.25.4 Compliance with Rules, Regulations, etc.	12
	2.25.5 COBRA	12
	2.25.6 Miscellaneous Benefit Plan Matters	12
2.26	No Breach	13
2.27	Brokers	13
2.28	Labor Agreements	14
2.29	Change of Name	14
2.30	Environmental Matters	14
2.31	Value	15

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2.32	Untrue or Omitted Facts	15
2.33	Continuity of Representations and Updates of Schedules	15
Article III - Representations and Warranties of Purchaser		15
3.1	Corporate Existence and Qualification	15
3.2	Consents	16
3.3	Corporate Authority	16
3.4	No Breach	16
3.5	Brokers	16
3.6	Value	17
3.7	SEC Filings Complete	17
3.8	Litigation	17
3.9	Generally	17
ARTICLE IV - Covenants		17
4.1	Access; Due Diligence Examination	17
4.2	Pre-Closing Covenants of Sellers and the Company	18
4.3	Pre-Closing Covenants of Purchaser	18
4.4	Confidentiality	18
4.5	Retention of Business Records	18
4.6	Tax Covenants	18
4.7	Tax Records	19
ARTICLE V - Conditions Precedent to the Obligation of Purchaser to Close		19
5.1	Representations and Warranties	19
5.2	Covenants	19
5.3	No Actions	19
5.4	Consents; Licenses and Permits	19
5.5	No Material Change	20
5.6	Due Diligence	20
5.7	Certificate	20
5.8	Employment of Key Personnel	20
5.9	Supplier/Vendor Relationships; Consents	20
5.10	Government and Regulatory Approvals; Lender Consents	20
5.11	Capital Expenditures	21
5.12	Opinion	21
5.13	No Contingencies or Litigation	23
5.14	Termination of Buy-Sell Agreement	23
5.15	Non-Competition and Consulting Agreements	23
5.16	2009 Tax Return	23
5.17	Board Approval	23
5.18	Additional Documents	23
ARTICLE VI - Conditions Precedent to the Obligation of the Seller to Close		23
6.1	Representations and Warranties	24
6.2	Covenants	24
6.3	No Actions	24
6.4	Certificate	24
6.5	Release of Personal Liability on Company Debt	24
6.6	Additional Documents	24

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ARTICLE VII - Closing		24
7.1	The Closing	24
7.2	Location, Time and Date	24
7.3	Sellers’ Deliveries	25
7.4	Purchaser’s Deliveries	25
7.5	Transfer of Possession	25
ARTICLE VIII - Survival of Representations; Indemnification		26
8.1	Survival	26
8.2	Indemnification by the Sellers	26
8.3	Indemnification by Purchaser	26
8.4	Limitation of Liability	26
8.5	Claims	27
8.6	Defense of Claims	27
8.7	Extension of Time	28
8.8	Final Determination	28
8.9	Exclusive Remedy After Closing	28
ARTICLE IX - Termination and Waiver		29
9.1	Termination	29
9.2	Waivers	29
ARTICLE X - Miscellaneous Provisions		29
10.1	Expenses	29
10.2	Confidential Information	29
10.3	Publicity	30
10.4	Modification or Waiver	30
10.5	Notices	30
10.6	Binding Effect and Assignment	31
10.7	Exhibits and Schedules	31
10.8	Entire Agreement	31
10.9	Governing Law	31
10.10	Section Headings	31
10.11	Gender	31
10.12	Severability	32
10.13	Attorney Fees	32
10.14	Counterparts	32
10.15	Recitals	32
10.16	Equitable Relief	32
10.17	Definitions	32

iii

EX-31.1

Exhibit 31.1

PRINCIPAL EXECUTIVE OFFICER CERTIFICATION

Under Rule 13a-14 (a) / 15d-14 (a)

I, Greg D. Forrest, certify that:

1.I have reviewed this quarterly report on Form 10-Q of XETA Technologies, Inc;

2.Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))  for the registrant and we have:

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:  September 3, 2010

/s/ Greg D. Forrest

Greg D. Forrest

Chief Executive Officer

EX-31.2

Exhibit 31.2

PRINCIPAL FINANCIAL OFFICER CERTIFICATION

Under Rule 13a-14 (a) / 15d-14 (a)

I, Robert B. Wagner, certify that:

1.I have reviewed this quarterly report on Form 10-Q of XETA Technologies, Inc;

2.Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

(b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated:  September 3, 2010

/s/ Robert B. Wagner

Robert B. Wagner

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. Section 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of XETA Technologies, Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended July 31, 2010, as filed with the Securities and Exchange Commission (the “Report”), I, Greg D. Forrest, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Greg D. Forrest

Greg D. Forrest

Chief Executive Officer

September 3, 2010

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. Section 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of XETA Technologies, Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended July 31, 2010, as filed with the Securities and Exchange Commission (the “Report”), I, Robert B. Wagner, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Robert B. Wagner

Robert B. Wagner

Chief Financial Officer

September 3, 2010