xterm not using .Xresources

In your script

#!/usr/bin/env bash
xrdb -merge ~/.Xresources &
xset r rate 200 30 &
xterm & #fixme: xterm is not reading loaded .Xresources
exec /etc/alternatives/x-window-manager

the line with xterm needs to run in the background, using "&" because the window manager has to run to manage the xterm (and if xterm were not put in the background, it would block the script from proceeding to invoke the window manager). The xrdb and xset commands both should complete before starting other programs, because they will complete (and exit) rapidly, and because they initialize things for you:

• xrdb sets up resource values in the root window which can be read by xterm, and
• xset (less important) is changing the key repeat rate.

Further reading:

• About X: Frequently Asked Questions
• 7) How do I set resources?
• 14) What is the precedence for resource files?