U. S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended August 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from . . . . . . . . . . . . . . . . . .
Commission file number 1-12556
TOWER TECH, INC.
(Exact name of small business issuer as specified in its charter)
Oklahoma 73-1210013
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
11935 South I-44 Service Road, Oklahoma City, Oklahoma 73173
(Address of principal executive offices) (Zip Code)
Issuer's telephone number 405/290-7788
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practical date.
Common Stock $.001 par value
3,576,311 shares as of October 15, 1999
Transitional Small business Disclosure Format Yes [ ] No [ X ]
<PAGE>
INDEX
TOWER TECH, INC.
Part I. Financial Information
Page
Item 1. Financial Statements (Unaudited)
Balance Sheet August 31, 1999 F-1
Statements of Operations Three months ended August 31, 1999
and 1998 F-2
Nine months ended August 31, 1999
and 1998 F-3
Statements of Cash Flows Nine months ended August 31, 1999
and 1998 F-4
Notes to Financial Statements August 31, 1999 F-5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 3
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 14
-2-
<PAGE>
TOWER TECH, INC.
BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
August 31, 1999
Assets
Current assets:
Cash $ 84,331
Accounts receivable, net of allowance
for doubtful accounts of $500,000 3,248,204
Notes receivable, current 1,488,145
Receivables from officers and employees 115,361
Costs and estimated earnings in excess of
billings on uncompleted contracts 55,010
Inventory 8,199,229
Restricted assets-current 158,284
Prepaid expenses 215,434
Deferred tax asset 310,811
---------------
Total current assets 13,874,809
Property, plant and equipment, net 18,445,625
Patents, net 230,572
Goodwill 394,882
Deferred tax asset 2,513,984
Notes receivable, non-current,
net of unamortized discount of $24,792 572,919
Other assets 449,347
---------------
$ 36,482,138
=============
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 15,336,194
Current maturities of obligations under
capital lease 197,563
Accounts payable 7,006,252
Accrued liabilities 948,190
Interest payable 261,434
Customer deposits 198,108
---------------
Total current liabilities 23,947,741
Long-term debt, net 8,507,235
Obligations under capital lease, net 347,955
Stockholders' equity:
Common stock, $.001 par value;
10,000,000 shares authorized;
3,576,311 shares issued and outstanding 3,577
Capital in excess of par 8,278,561
Deficit (4,602,931)
---------------
Total stockholders' equity 3,679,207
Total liabilities and stockholders' equity $ 36,482,138
============
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-1
<PAGE>
Tower Tech, Inc.
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
August 31, August 31,
1999 1998
<S> <C> <C>
Sales and other operating revenue:
Tower sales $ 2,488,709 $ 2,723,161
Concrete tower sales - 1,108,455
Tower rentals - 3,849,941
Other tower revenue 148,503 381,398
------------- -------------
Total tower revenue 2,637,212 8,062,955
Other operating revenue 166,638 -
------------- -------------
Total revenue 2,803,850 8,062,955
------------ ------------
Costs and expenses:
Cost of goods sold and constructed 3,872,399 5,276,083
General and administrative 708,655 658,111
Selling expenses 368,638 499,702
Research and development 1,155,810 375,446
------------ -------------
Total costs and expenses 6,105,502 6,809,342
------------ ------------
(Loss) income from operations (3,301,652) 1,253,613
------------ ------------
Other income (expense):
Interest, net (677,934) (265,901)
Miscellaneous - 15,624
Loss on sale (27,400) -
--------------- -------------
Total other income (expense) (705,334) (250,277)
------------- -------------
(Loss) income before income taxes (4,006,986) 1,003,336
Income tax benefit (expense) 1,593,926 (401,334)
------------- -------------
Net (loss) income ($2,413,060) $ 602,002
=========== =============
Weighted average shares outstanding-basic 3,576,311 3,526,311
============ =============
Net (loss) income per common share-basic $ (.68) $ .17
============= ============
Weighted average shares outstanding-diluted 3,576,311 3,526,311
=============
Net (loss) income per common share-diluted $ (.68) $ .17
============= =============
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-2
<PAGE>
Tower Tech, Inc.
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
August 31, August 31,
1999 1998
<S> <C> <C>
Sales and other operating revenue:
Tower sales $ 9,915,991 $ 6,798,284
Concrete tower sales 1,028,575 5,467,676
Tower rentals 31,239 5,030,374
Other tower revenue 670,654 682,443
------------- --------------
Total tower revenue 11,646,459 17,978,777
Other operating revenue 260,743 -
-------------- -------------
11,907,202 17,978,777
------------ -----------
Costs and expenses:
Cost of goods sold and constructed 13,227,576 14,397,302
General and administrative 1,726,661 1,732,415
Selling expenses 1,108,005 1,388,052
Research and development 2,033,385 570,617
------------- -------------
18,095,627 18,088,386
---------- -----------
Loss from operation (6,188,425) (109,609)
------------ ------------
Other income (expense):
Interest (1,746,655) (726,508)
Loss on investment-TTSE 21,205 -
Net gain on sale 6,661,270 -
Miscellaneous - 86,631
-------------- --------------
4,935,820 (639,877)
------------ -------------
Loss before income taxes (1,252,605) (749,486)
Income tax benefit 492,046 299,794
------------- -------------
Net loss $ (760,559) $ (449,692)
============= =============
Weighted average shares outstanding-basic 3,576,311 3,532,355
============== ==============
Net loss per common share-basic $ (.21) $ (.13)
============== ==============
Weighted average shares outstanding-diluted 3,576,311 3,532,355
============ ============
Net loss per common share-diluted $ (.21) $ (.13)
============== ==============
</TABLE>
The accompanying notes are an integral part of
these financial statements.
F-3
<PAGE>
TOWER TECH, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
August 31, August 31,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (760,559) $ (449,692)
Adjustments to reconcile net
loss to net cash
(used) provided by operating activities:
Depreciation and amortization 822,539 600,534
Net gain on disposal of equipme (6,661,270) -
Equity share of loss of investe (21,205) -
Bad debt expense 131,052 125,000
Increase in deferred taxes (509,687) (299,794)
Decrease (increase) in accounts
receivable 1,287,687 (518,687)
Decrease (increase) in accounts
receivable-affiliate 17,215 (58,451)
Decrease in costs in excess of billings 382,197 32,447
Increase in inventory 2,722,682) (2,992,746)
Increase in prepaid expenses (39,004) (132,694)
Decrease in other assets 166,988 59,202
Increase in accounts payable 1,910,446 3,073,309
Increase (decrease) in accounts
payable-affiliate 26,583 (8,842)
(Decrease) increase in interest
payable and accrued liabilities (367,051) 488,393
Decrease in income tax payable - (38,222)
Increase in deposits 62,662 492,451
-------------- -------------
Net cash (used) provided by operating
activities (6,274,089) 372,208
------------ -------------
Cash flows from investing activities:
Cash paid for acquisition of joint
venture, net (99,096) -
Purchase of property and equipment (2,636,199) (5,501,708)
Decrease in notes receivable 17,000 49,931
Decrease in restricted assets 510 2,133
Additions to rental fleet - (5,043,665)
Increase in patent costs (48,240) (25,811)
Proceeds from sale of rental operations 12,150,000 -
----------- -------------
Net cash provided (used) by investing
activities 9,383,975 (10,519,120)
------------ ------------
Cash flows from financing activities:
Proceeds from borrowings, net of costs 21,391,079 28,028,096
Repayments of long-term debt and capital
lease obligations (24,185,114) (18,247,128)
Proceeds from exercise of warrants
and options - 225,000
Decrease in book overdraft (235,318) (193,999)
------------ -------------
Net cash (used) provided by financing
activities (3,029,353) 9,811,969
------------ ------------
Net increase (decrease) in cash 80,533 (334,943)
Cash at beginning of period 3,798 551,954
--------------- -------------
Cash at end of period $ 84,331 $ 217,011
============== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
TOWER TECH, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. Interim Financial Statements
The balance sheet as of August 31, 1999, and the related statements of
operations for the three and nine month periods ended August 31, 1999 and
1998 and the statements of cash flows for the nine month periods ended
August 31, 1999 and 1998 are unaudited; in the opinion of management, all
adjustments necessary for a fair presentation of such financial statements
have been included. These financial statements and notes are presented as
permitted by Form 10-QSB and should be read in conjunction with the
Company's financial statements and notes included in the annual report on
Form 10-KSB.
2. Earnings Per Share
The Company has adopted FAS 128. FAS 128 requires a reconciliation of the
numerators and denominators of the basic and diluted EPS computations.
Options to purchase 295,474 and 382,556 shares of common stock at weighted
average prices of $6.41 and $6.91 were outstanding during the three month
and nine month periods ended August 31, 1999 and 1998, respectively, but
were not included in the computation of diluted EPS because the effect of
these outstanding options would be antidilutive.
During the three and nine month periods ended August 31, 1999 and 1998,
respectively, the Company had outstanding $6,000,000 of convertible
debentures which could be converted into common stock at a price of $8.75
per share. These securities were not included in the computation of diluted
EPS because they would be antidilutive.
3. Sale of Rental Operations
In December 1998, the company consummated the sale of its industrial
cooling tower rental operations (the "Rental Operations") to Aggreko Inc.,
an unrelated party, for $13,500,000, with $12,150,000 paid in cash at
closing and the remaining $1,350,000 paid by delivery of Aggreko Inc.'s
promissory note (the "Note"). The Note bears interest at 1% above prime. The
outstanding principal balance of the Note, together with accrued interest,
is due and payable in December 1999. The assets sold included the modular
cooling tower rental fleet, other rental fleet equipment, and certain assets
used in the operation of the Rental Operations. Accordingly, the Company
recorded a pre-tax gain of $6,688,670 for the three months ended February
28, 1999. Proceeds were used to reduce debt and for working capital.
In connection with the sale of assets described above, Aggreko Inc., the
Company, and Harold D. Curtis, the Company's Chief Executive Officer,
entered into a Noncompetition Agreement. The Noncompetition Agreement
generally prohibits the Company and Mr. Curtis from conducting any business
in competition with the Rental Operations, as well as hiring certain of the
Company's prior employees who worked in the Rental Operations.
Additionally, in connection with the sale of assets described above, the
Company and Aggreko Inc. entered into a License Agreement and a Supply
Agreement. The License Agreement grants to Aggreko Inc. an exclusive license
to use for a limited time period the patents, trademarks, trade names and
other proprietary rights related to the Rental Operations. The Supply
Agreement describes the terms upon which the Company has agreed to sell to
Aggreko Inc., and Aggreko Inc. has agreed to purchase from the Company, all
modular cooling tower units and replacement parts necessary for future
operations of the Rental Operations.
F-5
<PAGE>
4. Debt
In April 1999, the Company increased its line of credit with a financial
institution from $4,000,000 to $6,500,000 for working capital requirements.
Interest is payable monthly at a variable rate of 2.0% over national prime.
This line of credit matures in June 2000. This credit facility is
collateralized by certain accounts/note receivable, inventory and general
intangibles and as of August 31, 1999, $6,043,642 was outstanding. The
agreement contains a financial covenant that provides for a minimum tangible
net worth of $12,000,000 for the first three quarters of 1999. Tangible net
worth includes the $6,000,000 of subordinated convertible debentures. At
August 31, 1999, the Company was not in compliance with this covenant, but
is currently negotiating a waiver of this covenant.
5. Acquisition and Dissolution of Joint Venture
On December 29, 1995, Tower Tech entered into a joint venture agreement
with J-Tech Enterprises, Inc. ("J-Tech") to form Tower Tech SE ("TTSE"). The
original joint venture gave TTSE the sole and exclusive right to use certain
Tower Tech technology in Alabama, Florida, and Georgia. On April 30, 1999,
Tower Tech entered into an agreement and plan of dissolution to acquire
J-Tech's interest and dissolve the joint venture. The aggregate purchase
price of $430,677 was comprised of $100,000 in cash and $330,677 of net
receivables owed to the Company by TTSE. Tower Tech also received all cash,
accounts receivable, inventory, accounts payable, and other current
liabilities of TTSE. The transaction resulted in goodwill to Tower Tech of
$398,200, which will be amortized on a straight-line basis over its
estimated useful life.
F-6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Three Months Ended August 31, 1999 Compared to Three Months
Ended August 31, 1998
From February 1999 to May 1999, the Company shipped approximately 145
of the first TTEF factory assembled cooling towers with all in-house extruded
wall panels. When put into service, a significant number of these units
contained unforeseen design or quality defects that caused water leaks and the
larger size units had an additional undetected structural deficiency. To effect
permanent solutions to these problems, the Company ceased its assembly
operations for forty-two days during the third quarter 1999 so extrusion and
injection molding tools could be modified. As a result, third quarter 1999 tower
sales, cost of goods sold, and research and development costs were negatively
impacted. The design deficiencies have been corrected and towers are again bein
shipped.
Total tower revenues were $2,637,212 for the three months ended August
31, 1999, compared to $8,062,955 in the same period in the prior year. During
the current three month period, 94 percent of total tower revenues was derived
from sales of 70 modular fiberglass cooling towers, and 6 percent of total tower
revenues was derived from other revenues. In the comparable three month period
of 1998, 34 percent of total tower revenues was derived from sales of 84 modular
fiberglass cooling towers, 14 percent of total tower revenues was derived from
construction of modular concrete towers, 48 percent of total tower revenues was
derived from rental of modular cooling towers, and 4 percent of total tower
revenues was derived from other tower revenues. Other tower revenues consist
primarily of sales of modular tower parts and service, accessory equipment and
water treatment equipment. The decrease in factory assembled tower sales for
1999 is due to the decrease in the quantity of units sold. The reason for the
decrease is explained above. The decrease in concrete revenues is due to the
decrease in the number and size of jobs completed and in process. For the three
months ended August 31, 1998, 51% of concrete tower sales was generated from two
international projects as compared to no international projects for the
three-months ended August 31, 1999. However, the Company has seen some
improvement in certain international markets with orders from Mexico, Brazil,
Austria and Singapore for concrete cooling tower projects and factory assembled
cooling towers. The Company has restructured its pricing on its precast concrete
cooling tower and has redesigned certain proprietary parts which management
believes will lower costs as well as increase thermal capability of its concrete
cooling tower. Management is optimistic that concrete tower revenues will
improve with continued improvement in the international market economies, and
domestically with aggressive marketing of its redesigned precast concrete
cooling towers. Current backlog includes two concrete tower projects totaling
$1,535,000 (see below). Decreased tower rentals is due to the sale of the rental
operations as below described. No licensing agreements were finalized in the
third quarter of 1999 although discussions are continuing for agreements for
Spain, Peru, New Zealand, Australia, and the United Kingdom. The Company is in
the business of developing technology for the cooling tower industry and
marketing that technology either directly or in the form of products such as its
modular cooling tower.
Other operating revenue for the three months ended August 31, 1999 consists
of royalties and interest related to the sale of the Rental Operations (see
below).
The Company's cost of goods sold and constructed during the three month
period ended August 31, 1999 was $3,872,399 or 147 percent of total tower
revenues, as compared to $5,276,083 or 65 percent of total tower revenues during
the comparable period in 1998. The decrease in cost of goods sold and
constructed during the third quarter of 1999 resulted mainly from no sales of
concrete cooling towers. Overall margin decreased as a result of concrete
cooling tower cost overruns on certain jobs, and decreased tower rentals which
carried a higher margin. In an effort to control costs on future concrete
cooling tower projects, the Company will utilize precast panels in lieu of
"tilt-up" on site construction. Margins in the factory assembled cooling tower
line continue to be hampered by the refinements required for completion of the
manufacturing processes, equipment, and tooling. Although substantially complete
at August 31, 1999 these refinements will continue to have a negative, although
lessening, impact on fourth quarter 1999 cost of goods sold.
Included in the cost of goods sold for the third quarter 1999 is $523,396
to retrofit and service towers previously sold. This compares to expenditures of
$131,000 during the comparable period in the prior year. The increase is due to
design deficiencies as described above and includes $150,000 to increase the
reserve to $350,000 to cover future costs to retrofit and service towers
previously sold.
The three month period ended August 31, 1999 reflected an 8 percent
increase in general and administrative expenses from $658,111 in 1998 to
$708,655 in 1999. The increase is due mainly to an increase in bad debt expense.
Selling expenses decreased from $499,702 to $368,638 due to a reduction in
expenses related primarily to the opening of direct domestic and international
sales offices in 1998. Research and development expenses increased from $375,446
in the third quarter of 1998 to $1,155,810 in the third quarter of 1999. A
significant portion of the increase is related to the redesign of the TTMT
Series tower to the TTEF Series tower in order to lower production costs. See
also the discussion related to design deficiencies in the first production run
of the TTEF tower. Although the Company has no research and development budget,
such future costs are anticipated to be substantially less than that incurred in
the third quarter 1999.
The Company's loss from operations for the three months ended August
31, 1999 was $3,301,652 as compared to income of $1,253,613 for the comparable
period in the prior year. After interest expense, miscellaneous items, loss on
sale, and income tax expense, the Company's net loss was $2,413,060 compared to
net income of $602,002 for the quarter ended August 31, 1998. Interest expense
increased from $265,901 for the three months ended August 31, 1998 to $677,934
for the three months ended August 31, 1999. The increase is due to the increase
in debt related primarily to the OKC manufacturing facility and equipment, and
the fact that interest on such debt was capitalized during 1998.
The Company recognized an income tax benefit of $1,593,926 for the
three months ended August 31, 1999, compared to income tax expense of $401,334
for the three months ended August 31, 1998. FAS 109 requires that the Company
record a valuation allowance when it is more likely than not that some portion
or all of the deferred tax assets will not be realized. The ultimate realization
of the deferred income tax assets depends on the Company's ability to generate
sufficient taxable income in the future. Management believes that it is more
likely than not that the Company will realize the deferred tax assets.
Currently, the estimated backlog is $4.9 million including two
contracts for the modular concrete cooling towers totaling $1.5 million. One
project is scheduled to start and complete in the fourth quarter and the other
project is scheduled for completion in the second quarter of 2000. Estimated
backlog for the modular fiberglass cooling towers is $3.3 million. $3.2 million
is scheduled for delivery in the fourth quarter 1999, with the balance scheduled
for delivery in the first quarter of fiscal year 2000.
Nine Months Ended August 31, 1999 Compared to Nine Months Ended August 31, 1998
Tower sales, cost of goods sold, and research and development costs for the
nine months ended August 31, 1999 were negatively impacted due to design
deficiencies in the initial production of the first TTEF factory assembled
cooling towers with all in-house extruded wall panels. See the discussion above
for the three months ended August 31, 1999.
For the nine months ended August 31, 1999, total tower revenues decreased
to $11,646,459 from $17,978,777 for the comparable period in the prior year.
During the current nine month period, 85 percent of total tower revenues was
derived from sales of 306 modular fiberglass cooling towers, 9 percent of total
tower revenues was derived from construction of the modular concrete cooling
towers, less than 1 percent of total tower revenues was derived from rental of
modular fiberglass cooling towers, and 6 percent of total tower revenues was
derived from other tower revenue. In the comparable nine month period in 1998,
38 percent of total tower revenues was derived from sales of 202 modular cooling
towers, 30 percent of total tower revenues was derived from design and
construction of modular concrete towers, 28 percent of total tower revenues was
derived from rental of modular cooling towers, and 4 percent of total tower
revenues were derived from other tower revenue. The increase in factory
assembled tower sales for 1999 is due to the increase in the quantity of units
sold. Such increase is due to marketing efforts for the newly designed TTEF
Series tower and a price reduction related to significant completion of the
manufacturing processes for TTEF Series component parts at the OKC facility. The
decrease in concrete revenues is due to the decrease in the number and size of
jobs completed and in process. Other tower revenue is down from the previous
year due to fewer sales of proprietary parts to licensees. No licensing
agreements were finalized in the third quarter of 1999.
In December 1998, the company consummated the sale of its industrial
cooling tower rental operations (the "Rental Operations") to Aggreko Inc., an
unrelated party, for $13,500,000, with $12,150,000 paid in cash at closing and
the remaining $1,350,000 paid by delivery of Aggreko Inc.'s promissory note (the
"Note"). The Note bears interest at 1% above prime. The outstanding principal
balance of the Note, together with accrued interest, is due and payable in
December 1999. The assets sold included the modular cooling tower rental fleet,
other rental fleet equipment, and certain assets used in the operation of the
Rental Operations. Accordingly, the Company recorded a pre-tax gain of
$6,688,670 for the three months ended February 28, 1999. Proceeds were used to
reduce debt and for working capital.
In connection with the sale of assets described above, Aggreko Inc.,
the Company, and Harold D. Curtis, the Company's Chief Executive Officer,
entered into a Noncompetition Agreement. The Noncompetition Agreement generally
prohibits the Company and Mr. Curtis from conducting any business in competition
with the Rental Operations, as well as hiring certain of the Company's prior
employees who worked in the Rental Operations.
Additionally, in connection with the sale of assets described above,
the Company and Aggreko Inc. entered into a License Agreement and a Supply
Agreement. The License Agreement grants to Aggreko Inc. an exclusive license to
use for a limited time period the patents, trademarks, trade names and other
proprietary rights related to the Rental Operations. The Supply Agreement
describes the terms upon which the Company has agreed to sell to Aggreko Inc.,
and Aggreko Inc. has agreed to purchase from the Company, all modular cooling
tower units and replacement parts necessary for future operations of the Rental
Operations.
Other operating revenue for the nine months ended August 31, 1999 consists
of royalties and interest related to the sale of the Rental Operations.
The Company's cost of goods sold and constructed during the nine month
period ended August 31, 1999, was $13,227,576 or 114 percent of total tower
revenues as compared to $14,397,302 or 80 percent during the comparable period
in 1998. Lower margins in the factory assembled cooling tower line are due to
the delays in the completion and occupancy of the Oklahoma City (OKC) plant
combined with delays in the delivery of the manufacturing equipment and tooling
for the first three months of 1999, and continued refinements required for the
completion of the manufacturing processes, equipment, and tooling for the last
six months of 1999 (see discussion above). Although substantially complete at
August 31, 1999, these refinements will continue to have a negative, although
lessening, impact on fourth quarter 1999 cost of goods sold and constructed.
Included in cost of goods sold for the nine month period ended August 31, 1999
is $977,000 to retrofit and service towers previously sold. This compares to
nine month retrofit and warranty costs of $303,000 during the same period in
1998. The increase is due to design deficiencies as described above and includes
$150,000 to increase the reserve to $350,000 to cover future costs to retrofit
and service towers previously sold.
The nine month period ended August 31, 1999 reflected a slight decrease in
general and administrative expenses from $1,732,415 in 1998 to $1,726,661 in
1999. The decrease is due mainly to the reduction in expenses related to the OKC
facility offset by an increase in bad debt expense. Selling expenses decreased
from $1,388,052 to $1,108,005. The decrease is due to reduction in expenses
related primarily to the opening of direct domestic and international sales
offices in 1998. Research and development expenses increased from $570,617 in
the first nine months of 1998 to $2,033,385 for the first nine months of 1999. A
significant portion of the increase is related to the redesign of the TTMT
Series tower to the TTEF Series tower in order to lower production costs. With
the redesign of the tower combined with manufacturing of component parts
in-house, management believes that the Company has positioned itself to grow its
share of the cooling tower market. See discussion above related to design flaw
in the first production run of the TTEF tower. Although the Company has no
research and development budget, such future costs are anticipated to be
significantly less than those incurred in the nine months ended August 31, 1999.
The Company's loss from operations for the nine months ended August 31,
1999, was $6,188,425 as compared to loss from operations of $109,609 for the
comparable period in the prior year. After interest expense, loss on investment,
gain on sale and income taxes, the Company's net loss was $760,559 compared to a
net loss of $449,692 for the nine months ended August 31, 1998.
Interest expense increased from $726,508 for the nine months ended
August 31, 1998 to $1,746,655 for the nine months ended August 31, 1999. The
increase is due to the increase in debt related primarily to the OKC
manufacturing facility and equipment, and the fact that interest on such debt
was capitalized during 1998.
The Company recognized an income tax benefit of $492,046 for the nine
months ended August 31, 1999, compared to an income tax benefit of $299,794 for
the comparable period in 1998. The ultimate realization of the deferred tax
assets at August 31, 1999 depends on the Company's ability to generate
sufficient taxable income in the future. Management believes that it is more
likely than not that the Company will realize the deferred tax assets.
Liquidity and Capital Resources
At August 31, 1999, the Company had a working capital deficit of
$10,072,932 as compared to a working capital deficit of $3,890,374 at November
30, 1998. The Company's cash flow provided by (used in) its operating, investing
and financing activities for the nine months ended August 31, 1999 and 1998 are
as follows:
<TABLE>
<S> <C> <C>
1999 1998
---- ----
Operating activities $(6,274,089) $372,208
Investing activities $9,383,975 ($10,519,120)
Financing activities $(3,029,353) $9,811,969
</TABLE>
The Company's capital requirements for its continuing operations consist
of its general working capital needs, scheduled payments on its debt obligations
and capital expenditures. The Company tries to minimize its inventory of
component parts, although minimum order requirements of some suppliers can cause
inventory levels to fluctuate significantly from period to period. Although
bringing the manufacturing processes in-house has taken substantially longer
than expected and has cost significantly more than anticipated, it will enable
the Company to better manage inventory levels and reduce costs when the new
manufacturing facility is fully efficient. However, fluctuations in inventory
levels are still expected due to the size of planned production runs of
components. Management also attempts to manage accounts receivable to increase
cash flow, but it is anticipated that accounts receivable will increase as sales
increase. Other significant variances in working capital items can also be
expected. Also, the Company's concrete construction projects have an effect on
working capital requirements. At August 31, 1999, costs and estimated earnings
in excess of billings on uncompleted contracts were $55,010 as compared to costs
and estimated earnings in excess of billings on uncompleted contracts of
$687,000 at August 31, 1998. Normally, concrete construction projects provide
for progress payments of the contract price with a retainage of 10 to 15 percent
payable after completion of the project.
Scheduled principal payments on capital leases will total $197,563 over
the next twelve months. In addition, $15,336,194 of principal payments will
become due on the Company's debt during the next twelve months.
Substantially all of the Company's planned capital expenditures during
1999 have been related to additional equipment and tooling for the new
manufacturing facility. Management estimates the Company's total investment in
the new manufacturing facility will be $11.5 million, including $6.0 million to
equip the facility. As of August 31, 1999, the Company had incurred
approximately $11.3 million related to the manufacturing facility. The
manufacturing facility includes equipment to allow the Company to produce parts
used in the modular cooling towers which previously had been purchased from
outside vendors. Management believes that product costs can be reduced by
producing these parts in-house. However, the Company may continue to incur
unforeseen costs and production problems, particularly in the short term, in
bringing these processes in-house.
The new manufacturing facility has been partially financed with a $4.4
million loan from the Oklahoma Industries Authority (the "OIA") and a portion of
the proceeds of a private placement of $6 million, 10% Convertible Subordinated
Debentures (the "Debentures"). The industrial revenue bonds were issued by the
OIA in October 1996. The bonds are payable in quarterly installments of
principal and interest in the amount of approximately $157,000. A debt service
reserve fund of $157,000 was also set aside from the bond proceeds. This reserve
fund was used to pay the October 1, 1999 principal and interest payment. The OIA
holds a mortgage on the facility to collateralize the bond indebtedness.
The Debentures were issued by the Company during the third quarter of
1997, providing net proceeds of approximately $5,467,000. The Debentures bear
interest at 10 percent, which is payable semiannually, and mature on June 30,
2000. The principal balance of each Debenture is convertible into shares of
common stock at a price of $8.75 per share at the option of each Debenture
holder or at the option of the Company if the closing price of the common stock
is at least 175% of the conversion price for 20 of 30 consecutive trading days
and certain other conditions are satisfied.
In September 1997, the Company entered into a loan agreement with the
City of Oklahoma City in the form of a HUD Section 108 loan in the amount of
$1,250,000 for start-up expenses of the manufacturing facility and associated
working capital requirements. As of August 31, 1999, all of these funds had been
advanced to the Company. The loan bears interest at 5.5%. Principal and interest
payments are due annually August 1 in the amount of $140,000. An interest only
payment is due each February 1 until maturity on August 1, 2008. The loan is
collateralized by a second mortgage on the manufacturing facility.
The Company has entered into an agreement with a lending institution for
a total funding of $1,775,815 for equipment and tooling for the new
manufacturing facility. Principal and interest, at 9.25%, is paid monthly with
the final payment due in July 2004 and is collateralized by equipment. The
outstanding balance at August 31, 1999, was $1,502,867.
Effective December 31, 1997, the Company entered into a $3,500,000 line
of credit agreement with a financial institution for working capital
requirements and completion of the Company's manufacturing facility in Oklahoma
City. This line was increased to $8,500,000 to help fund increases in the
Company's rental fleet. This credit facility was paid off in December 1998 with
proceeds from the sale of the rental operations.
The Company has a line of credit at Chickasha Bank in the amount of
$380,000 for short-term cash flow needs, of which $380,000 was outstanding at
August 31, 1999. This line of credit matures November 30, 1999.
In April 1998, the Company finalized a $2,000,000 construction loan for
the Oklahoma City office facility which cost approximately $2.4 million. This
loan was converted to a permanent loan in June 1999 in the amount of $2,010,000.
Initially, the loan bears interest at 8.25%. Principal and interest payments of
$17,127 are due monthly. The note matures in June 2002. Also, in June 1999, a
second mortgage in the amount of $253,000 was finalized. Initially, the loan
bears interest at 8.25%. Principal and interest payments of $3,103 are due
monthly. The note matures in June 2002. The interest rates on both of these
notes are variable at Wall Street Journal prime rate plus .5%. The balances on
the loans at August 31, 1999, are $2,003,362 and $250,263 respectively.
In April 1999, the Company increased its line of credit with a financial
institution from $4,000,000 to $6,500,000 for working capital requirements.
Interest is payable monthly at a variable rate of 2.0% over national prime. This
line of credit matures in June 2000. This credit facility is collateralized by
certain accounts/note receivable, inventory and general intangibles and as of
August 31, 1999, $6,043,642 was outstanding. The agreement contains a financial
covenant that provides for a minimum tangible net worth of $12,000,000 for the
first three quarters of 1999. Tangible net worth includes the $6,000,000 of
subordinated convertible debentures. At August 31, 1999, the Company was not in
compliance with this covenant, but is currently negotiating a waiver of this
covenant.
On December 29, 1995, Tower Tech entered into a joint venture agreement
with J-Tech Enterprises, Inc. ("J-Tech") to form Tower Tech SE ("TTSE"). The
original joint venture gave TTSE the sole and exclusive right to use certain
Tower Tech technology in Alabama, Florida, and Georgia. On April 30, 1999, Tower
Tech entered into an agreement and plan of dissolution to acquire J-Tech's
interest and dissolve the joint venture. The aggregate purchase price of
$430,677 was comprised of $100,000 in cash and $330,677 of net receivables owed
to the Company by TTSE. Tower Tech also received all cash, accounts receivable,
inventory, accounts payable, and other current liabilities of TTSE. The
transaction resulted in goodwill to Tower Tech of $398,200, which will be
amortized on a straight-line basis over its estimated useful life.
The Company does not have sufficient capital resources to fund its
capital requirements for the next four quarters. Continued operating losses have
increased the Company's funding requirements and require it to obtain additional
capital. Accordingly, management is negotiating for increases in its credit
facilities, as well as term extensions. The Company has also engaged an
investment banker to seek additional sources of capital which could include a
total refinance package.
Year 2000 Compliance
Approximately two years ago the Company developed a plan to address the
Year 2000 (Y2K) issue. The plan consists of the following steps and is ongoing:
Testing of all computer equipment, plant production equipment, hardware
and/or software. Upgrading or replacing, as needed, any component found to not
be Y2K compliant.
Contacting our vendors, customers and business partners to ensure that they
are also addressing the Y2K issue. And, if any are found to not be addressing
the Y2K issue, establish alternative sources for those goods and/or services
supplied by the non-Y2K compliant party.
Accordingly, the Company has upgraded its accounting systems and main
application software to the latest versions available from the software
developers at a cost of approximately $100,000. Each of these various software
developers has stated that the version(s) of software to which the Company
upgraded is or will be Y2K compliant.
Any computer equipment, plant production equipment, hardware or software
found to not be Y2K compliant has been, or will be upgraded or replaced as
needed in order to insure uninterrupted normal operation of production and
office processes. As a result of our Y2K plan and information furnished to us by
our business partners, the Company does not expect to be materially affected by
the Y2K problem.
<PAGE>
Forward Looking Statements
Statements of the Company's or management's intentions, beliefs,
anticipations, expectations and similar expressions concerning future events
contained in this report constitute "forward looking statements" as defined in
the Private Securities Litigation Reform Act of 1995. As with any future event,
there can be no assurance that the events described in forward looking
statements made in this report will occur or that the results of future events
will not vary materially from those described in the forward looking statements
made in this report. Important factors that could cause the Company's actual
performance and operating results to differ materially from the forward looking
statements include, but are not limited to, changes in the general level of
economic activity in both domestic and international markets served by the
Company, competition in the cooling tower industry and the introduction of new
products by competitors, delays in refining the Company's manufacturing and
construction techniques, cost overruns on particular projects, availability of
capital sufficient to support the Company's level of activity and the ability of
the Company to implement its business strategy, including timely and efficient
production of its products and utilization of the new OKC plant.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) The following exhibits have been filed as part of this registration
statement:
Exhibit No. Description
----------- -----------
3.1-1 Amended and Restated Certificate of Incorporation
of Tower Tech, Inc.
3.2-1 Amended Bylaws of Tower Tech, Inc.
3.3-1 Amendment to Bylaws
4.1-7 Form of 10% Subordinated Convertible Debenture
4.2 Omitted
4.3-1 Form of Stock Certificate
4.4 Omitted
4.5-8 Form of Placement Agent Warrants
10.1-3 Promissory Note between Tower Tech, Inc., and Local
Federal Bank, dated June 24, 1998.
10.2-9 Loan Agreement between Tower Tech, Inc., and the
City of Oklahoma City, dated September 8, 1997.
10.3-11 Form of Deferral Agreement between Tower Tech,
Inc., and Chickasha Bank & Trust, dated June 16,
1999.
10.4-6 Loan Agreement between Tower Tech, Inc., and
Oklahoma Industries Authority dated October 1, 1997.
10.5-7 Form of Debenture Purchase Agreement among the
Company, Taglich Brothers, D'Amadeo Wagner &
Company, Incorporated and various lenders.
10.6-9 Promissory Note between Tower Tech, Inc. and
Electrical Constructors, dated May 8, 1996
<PAGE>
10.7-9 Promissory Note between Tower Tech, Inc., as Maker,
and Electrical Constructors, as Payee, dated May 8,
1997, and amendment extending maturity date.
10.8-9 Promissory Note between Tower Tech, Inc., and
Electrical Constructors, dated March 25, 1997, and
amendment extending maturity date.
10.9-12 Master Lease Agreement between Tower Tech, Inc. and
HPM Corporation, dated June 16, 1999.
10.10-1 U. S. Patent No. 5,143,657 entitled FLUID
DISTRIBUTOR issued September 1, 1992
10.11-1 U. S. Patent No. 5,152,458 entitled AUTOMATICALLY
ADJUSTABLE FLUID DISTRIBUTOR issued October 6, 1992
10.12-1 U. S. Patent No. 5,227,095 entitled MODULAR COOLING
TOWER issued July 13, 1993
10.13-1 Exclusive License Agreement by and between Harold
D. Curtis and Tower Tech, Inc.
10.14-1 Assignment by and between Harold D. Curtis, as
Assignor, and Tower Tech, Inc., as Assignee
10.15-1 Assignment of Invention Contained in PCT
Application by and between Harold D. Curtis, as
Assignor, and Tower Tech, Inc., as Assignee
10.16-1 Assignment of Patent by and between Harold D.
Curtis, as Assignor, and Tower Tech, Inc., as
Assignee, of Patent No. 5,227,095
10.17-4 1993 Stock Option Plan, as amended.
10.18-11 Amended and Restated Loan Agreement between Tower
Tech, Inc. and People First Bank dated April 23,
1999.
10.19-6 Water Line Agreement between the City of Oklahoma
City and Tower Tech, Inc. dated November 1997
10.20-6 Master Security Agreement between CIT
Group/Equipment Financing, Inc. and Tower Tech,
Inc. dated October 31, 1997
<PAGE>
10.21-11 Modification and Extension Agreement between Tower
Tech, Inc. and First United Bank and Trust Company,
dated June 17, 1999.
10.22-11 Commercial Mortgage, Security Agreement, Financing
Statement and Assignment of Rents between Tower
Tech, Inc. and First United Bank and Trust Company,
dated June 17, 1999.
10.23-11 Commercial Promissory Note between Tower Tech, Inc.
and First United Bank and Trust Company, dated June
17, 1999.
10.24-2 Promissory Note between Tower Tech, Inc. and Local
Federal Bank, dated June 10, 1998
10.25-2 Promissory Note between Tower Tech, Inc. and Local
Federal Bank, dated February 18, 1998
10.26-10 Promissory Note dated as of December 4, 1998 to the
Company from Aggreko Inc.
10.27-10 Noncompetition Agreement dated as of December 4,
1998 between the Company, Harold D. Curtis and
Aggreko Inc.
10.28-10 License Agreement dated as of December 4, 1998
between the Company and Aggreko Inc.
10.29-10 Supply Agreement dated as of December 4, 1998
between the Company and Aggreko Inc.
10.30-5 Asset Purchase Agreement dated as of December 4, 1998
between the Company and Aggreko Inc.
10.31-11 Agreement and Plan of Dissolution between the Company
and J-Tech Enterprises dated April 30,.
1999.
10.32-12 Security Agreement between Tower Tech, Inc. and HPM
Corporation dated June 16, 1999.
<PAGE>
1 Incorporated by reference from the same numbered exhibit to
Registration Statement No. 33-69574-FW, as filed with the
Commission on September 29, 1993, and as amended.
2 Incorporated by reference from the same numbered exhibit to Form 10-QSB
for the quarter ended May 31, 1998.
3 Incorporated by reference from the same numbered exhibit to Form 10-QSB
for the quarter ended August 31, 1998.
4 Incorporated by reference from the same numbered exhibit to Registration
Statement No. 333-07337 on Form S-8.
5 Incorporated by reference from exhibit number 99.1 to Form 8-K filed
December 18, 1998.
6 Incorporated by reference from the same numbered exhibit to Form 10-KSB
for the year ended November 30, 1997.
7 Incorporated by reference from the same numbered exhibit to Form 10-QSB
for the quarter ended May 31, 1997.
8 Incorporated by reference from the same numbered exhibit to
Registration Statement No. 333-36501, Form S-3, as filed with the
Commission on September 26, 1997.
9 Incorporated by reference from the same numbered exhibit to Form 10-QSB
for the quarter ended August 31, 1997.
10 Incorporated by reference from the same numbered exhibit to Form 8-K
filed December 18, 1998.
11 Incorporated by reference from the same numbered exhibit to Form 10-QSB
for the quarter ended May 31, 1999.
12 Filed herewith.
b. The company has not filed any reports on Form 8-K during the quarter for
which this report is filed.
<PAGE>
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.
TOWER TECH, INC.
(Registrant)
Date: October 15, 1999 ss/ HAROLD CURTIS
- ---------------------- --------------------------------------------
Harold Curtis, Chief Executive Officer
Date: October 15, 1999 ss/ROBERT BRINK
- ---------------------- --------------------------------------------
Robert Brink, President
Date: October 15, 1999 ss/CHARLES D. WHITSITT
- ---------------------- --------------------------------------------
Charles D. Whitsitt, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Consolidated statements of operations found on pages F-2 to F-4 of the
Company's Form 10QSB for the period ended August 31, 1999 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Nov-30-1999
<PERIOD-START> Jun-01-1999
<PERIOD-END> Aug-31-1999
<CASH> 84,331
<SECURITIES> 0
<RECEIVABLES> 3,248,204
<ALLOWANCES> 500,000
<INVENTORY> 8,199,229
<CURRENT-ASSETS> 13,874,809
<PP&E> 18,445,625
<DEPRECIATION> 822,539
<TOTAL-ASSETS> 36,482,138
<CURRENT-LIABILITIES> 23,947,741
<BONDS> 0
0
0
<COMMON> 3,577
<OTHER-SE> 3,679,207
<TOTAL-LIABILITY-AND-EQUITY> 36,482,138
<SALES> 2,637,212
<TOTAL-REVENUES> 2,803,850
<CGS> 3,872,399
<TOTAL-COSTS> 6,105,502
<OTHER-EXPENSES> 2,233,103
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (677,934)
<INCOME-PRETAX> (4,006,986)
<INCOME-TAX> (1,593,926)
<INCOME-CONTINUING> (4,006,986)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,413,060)
<EPS-BASIC> (.68)
<EPS-DILUTED> (.68)
</TABLE>
MASTER LEASE AGREEMENT US BANCORP
THIS LEASE, dated as of AUGUST 4, 1999, is made by and between U.S.
Bancorp Leasing & Financial Machine Tool Finance Group, hereafter referred to as
"Lessor," and TOWER TECH, INC., hereafter referred to as "Lessee."
LESSOR AND LESSEE COVENANT AND AGREE AS FOLLOWS:
1. PROPERTY LEASED. Lessor agrees to lease to Lessee and Lessee agrees
to lease from Lessor the personal property ("Property") together with any
replacements, additions, repairs, now or hereafter incorporated therein as
described in any Schedule to Master Lease Agreement ("Schedule") now or
hereafter executed by the parties hereto, the terms of which are incorporated
herein.
2. TERM. This Lease shall become effective on the execution hereof by
Lessor. The Term of this Lease may consist of an "Interim Term" and a "Base
Term" in regard to each Schedule. The Interim Term for each Schedule shall begin
on the date that Lessee executes a Delivery and Acceptance Certificate in
Connection with any item of Property or provides to Lessor written approval for
payment for such item of Property. Each Interim Term shall continue until the
Base Term Commencement Date set forth in each Schedule. The Base Term for each
Schedule shall begin on the Base Term Commencement Date and shall continue for
the period specified in each Schedule. During each interim Term, if any, Lessee
shall pay rental ("Interim Rental") in the amount set forth in each Schedule
plus applicable tax thereon.
3. RENT, PAYMENT AND TAXES. Rental payments are specified in each
Schedule. All rents shall be payable by Lessee each month on or before the
payment date shown in each Schedule at Lessor's address herein, or as otherwise
directed by Lessor, without notice or demand and without abatement, set-off or
deduction of any amount whatsoever. Lessee shall pay when due all taxes, fees,
assessments, or other charges, however designated, now or hereafter levied or
based upon the rentals, ownership, use, possession, leasing, operation, control,
or maintenance of the Property, whether or not paid or payable by Lessor,
excluding Lessor's income, franchise and business and occupation taxes, and
shall supply Lessor with proof of payment satisfactory to Lessor at least seven
(7) days before delinquency. At its option, Lessor may pay any tax, assessment,
insurance premium, expense, repair, release, confiscation expense, lien,
encumbrance, or other charge or fee payable hereunder by Lessee, and any amount
so paid shall be repayable by Lessee on demand.
For any payment due hereunder which is not paid within ten (10) days
after the date such payment is due, Lessee agrees to pay a late charge
calculated thereon at a rate of five percent (5.0%) of such overdue amount. The
parties hereto agree that: a) the amount of such late charge represents a
reasonable estimate of the cost that Lessor would incur in processing each
delinquent payment by Lessee and that such late charge shall be paid as
liquidated damages for each delinquent payment; and, b) the payment of late
charges and the payment of Default Interest are distinct and separate from one
another. Acceptance of any late charge or interest shall not constitute a waiver
of default with respect to the overdue amount or prevent Lessor from exercising
any other available rights and remedies. Payments received shall be applied
f'irst to delinquent amounts due, including late charges, then to current
installments. If any such rental payment is made by check and such check is
returned to Lessor for any reason, including without limitation, insufficient
funds in Lessee's account, then Lessee shall be assessed a fee of $25.00 in
addition to any other late charge or any other fee which may be applicable.
If the Property is located in a jurisdiction which imposes any "Sales,"
"Use," or "Rental" tax, Lessor shall collect such tax from Lessee and remit such
tax to the appropriate taxing authority or Lessee shall remit such tax directly
to the appropriate taxing authority. Such requirement may only be waived if
Lessee is exempt from such tax under applicable laws or regulations. Lessee is
responsible for ensuring that such exemption is properly documented in
accordance with such laws and regulations and that such documentation is
provided to Lessor at the inception of each Schedule.
If the Property is subject to Personal Property Taxes, both Lessee and
Lessor are required to advise the proper taxing authorities of all leased
property. Lessee agrees that it will report the Property as having an original
cost as set forth on each Schedule and as Property leased from U.S. BANCORP
LEASING & FINANCIAL. If Lessor receives an invoice from the taxing authorities
for applicable Personal Property Taxes, Lessor shall pay any such taxes directly
and Lessee agrees to reimburse Lessor for all such taxes paid by Lessor. If
Lessee receives such invoice, Lessee agrees to promptly remit such tax directly
to the taxing authority and maintain proof of payment. Upon termination of each
Schedule, Lessor will, if applicable, estimate Personal Property Taxes on the
Property based upon the most recent tax assessment of the Property or on the tax
rates and taxable value calculations as available from the appropriate taxing
jurisdiction. In the event that the actual personal property tax bill is within
$500.00 of such estimate, then Lessor shall not seek reimbursement from Lessee
for any underpayment, and Lessor may retain any overpayment. If the difference
between such estimate and the actual tax bill exceeds $500.00, Lessor shall
refund or Lessee shall remit the entire difference.
4. LOSS OR DAMAGE, No loss or damage to the Property, or any part of
it, shall impair any obligation of Lessee hereunder. Lessee assumes all risk of
damage to or loss of the Property, however caused, while in transit and during
the term hereof. If any Property is totally destroyed, Lessee's liability to pay
rent for it may be discharged by paying Lessor the Stipulated Loss Value of the
Property if such a Value is provided in the applicable Schedule or, the amount
specified in Section 14(e) of this Lease, less the amount of any recovery
received by Lessor from any insurance or other source.
5. OWNERSHIP, LOCATION, MAINTENANCE AND USE. Lessee transfers to Lessor
all right, title and interest, including any and all ownership interest, which
Lessee may have in or to the Property. Lessee represents and warrants that it
has the legal right to make such transfer and that such transfer does not
constitute a transfer of all or substantially all of the assets of Lessee, and
that such transfer does not constitute all or a portion of a "bulk transfer"
under the Uniform Commercial Code. It is agreed between the parties hereto that
Lessor shall be the owner of, and hold title to, the Property for all purposes
throughout each Schedule. At its own risk, Lessee shall use or permit the use of
the Property primarily at the location specified in the Schedule and, without
Lessor's prior written consent, shall not loan, sublet, remove from such
location, part with possession or otherwise dispose of the Property. Lessee
shall at its sole expense maintain the Property in good repair, appearance and
functional order and in compliance with any manufacturer's and regulatory
maintenance and performance standards, shall keep complete records and documents
regarding its use, maintenance and repair, shall not use or permit the use of
the Property in any unintended, injurious or unlawful manner, shall not permit
use or operation of the Property by any one other than Lessee's qualified
employees and shall not change or alter the Property without Lessor's written
consent. Lessee shall not create, cause, or permit any kind of claim, levy. lien
or legal process on the Property, and shall forthwith satisfy, remove and
procure the release thereof. The Property is and always shall remain personal
property. Lessee shall not cause or permit the Property to be used or located in
such a manner that it might be deemed a fixture. Lessee shall secure from each
person not a party hereto who might secure an interest, lien or other claim in
the Property, a waiver thereof. Lessee shall affix and maintain, at its expense,
in a prominent and visible location, all ownership notices supplied by Lessor.
Lessee shall permit Lessor to mark the Property in a manner sufficient to
identity the Property as Lessor's Property.
6. LEASE. This is a non-cancelable contract of lease only and nothing
herein or in any other document executed in conjunction herewith shall be
construed as conveying or granting to Lessee any option to acquire any right,
title or interest, legal or equitable, in or to the Property, other than use,
possession and quiet enjoyment of the Property, subject to and upon full
compliance with the provisions hereof. Lessee and Lessor agree that this Lease
is a "Finance Lease" as defined by the Uniform Commercial Code Article 2A, the
Uniform Personal Property Leasing Act. Notwithstanding the foregoing, Lessee
hereby grants to Lessor a security interest in and to the Property as security
for all Lessee's obligations to Lessor of every kind and nature.
Lessee hereby acknowledges that all of the leased Property was selected
by Lessee from Supplier(s) chosen by Lessee. Lessee is familiar with all Supply
Contract rights provided by the Supplier(s) and is aware that the Supplier(s)
may be contacted for a full description of any rights Lessee may have under any
Supply Contract. Providing Lessee is not in Default under this Lease, Lessor
hereby assigns to Lessee without recourse, all rights arising under any
warranties applicable to the Property provided by the manufacturer or any other
person. All proceeds of any warranty claim from the manufacturer or any other
person shall first be used to repair the affected Property.
7. GENERAL INDEMNIFICATION AND INSURANCE. Lessee assumes liability for,
and agrees to defend, indemnify and hold Lessor harmless from any claim,
liability. loss, cost, expense, or damage of every nature (including, without
limitation, fines, forfeitures, penalties, settlements, and attorneys' fees) by
or to any person whomsoever, regardless of the basis, including wrongful,
negligent or improper act or misuse by Lessor, which directly or indirectly
results from or pertains to the leasing, manufacture, delivery, ownership, use,
possession, selection, performance, operation, inspection, condition (including
without limitation, latent or other defects, and whether or not discoverable),
improvements, removal, return or storage of the Property, except arising while
the Property is in the possession of Lessor
Upon request of Lessor, Lessee shall assume the defense of all demands,
claims, or actions, suits and all proceedings against Lessor for which indemnity
is provided and shall allow Lessor to participate in the defense thereof. Lessor
shall be subrogated to all rights of Lessee for any manner which Lessor has
assumed obligation hereunder, and may settle any such demand, claim, or action
without Lessee's prior consent, and without prejudice to Lessors right to
indemnification hereunder.
At its expense, Lessee shall maintain in force, at all times from
shipment of the Property to Lessee until surrender thereof, property damage
insurance and liability insurance with such deductibles and from such insurance
carriers as shall be satisfactory to Lessor. The Property must be insured
against all risks which are customarily insured against on the type of property
leased hereunder. The amount of Lessee's liability insurance shall not be less
than $500,000.00. Such insurance policies must name Lessor as an additional
insured and loss payee, and provide for ten (10) days advance written notice to
Lessor of modification or cancellation. Lessee shall, upon request, deliver to
Lessor satisfactory evidence of the insurance coverage. In the event Lessee
falls to do so, Lessor may, at Lessor's option, in addition to any other rights
available to Lessor, obtain coverage, and any sum paid therefor by Lessor
(including any charges assessed by Lessor for such service) shall be immediately
due and payable to Lessor by Lessee.
8. INCOME TAX INDEMNITY. Lessee hereby represents. warrants, and
covenants to Lessor as follows:
(a) This Lease will be a lease for Federal and Oregon state income tax
purposes; Lessor will be treated as the purchaser, owner, lessor, and original
user of the Property and Lessee will be treated as the lessee of the Property
for such purposes.
Lessor shall be entitled to depreciation deductions with respect to
each item of Property as provided by Section 167(a) of the Internal Revenue Code
of 1986, as amended (the "Code"), determined under Section 168 of the Code by
using the applicable depreciation method, the applicable recovery period, and
the applicable convention, all as may be specified on the applicable Schedule
for the Property, and Lessor shall also be entitled to corresponding Oregon
depreciation deductions.
(c) For purposes of determining depreciation deductions, the Property
shall have an income tax basis equal to Lessor's cost for the Property specified
on the applicable Schedule, plus such expenses of the transaction incurred by
Lessor as may be included in basis under Section 1012 of the Code.
(d) The maximum federal and Oregon income tax rates applicable to
Lessor in effect on the date of execution and delivery of a Schedule with
respect to an item or items of Property will not change during the lease term
applicable to such Property.
If for any reason whatsoever any of the representations, warranties, or
covenants of Lessee contained in this Lease or in any other agreement relating
to the Property shall prove to be incorrect and (i) Lessor shall determine that
it is not entitled to claim all or any portion of the depreciation deductions in
the amounts and in the taxable years determined as specified in (b) and (c),
above, or (ii) such depreciation deductions are disallowed, adjusted,
recomputed. reduced, or recaptured, in whole or in part, by the lnternal Revenue
Service or Oregon Department of Revenue (such determination, disallowance,
adjustment, recomputation, reduction, or recapture being herein called a
"Loss"), then Lessee shall pay to Lessor as an indemnity and as additional rent
such amount as shall, in the reasonable opinion of Lessor, cause Lessor's
after-tax economic yield (the "Net Economic Return") to equal the Net Economic
Return that would have been realired by Lessor if such Loss had riot occurred.
The amount payable to Lessor pursuant to this section shall be payable on the
next succeeding rental payment date alter written demand therefor from Lessor
accompanied by a written statement describing in reasonable detail such Loss and
the computation of the amount so payable.
Further, in the event (i) there shall be any change, amendment,
addition, or modification of any provision of Oregon law or of the Code or
regulations thereunder or interpretation thereof with respect to the matters set
forth in this section effective prior to the commencement date of the term of
this Lease with respect to any Property or (ii) if at any time there shall be
any change, amendment, addition, or modification of any provision of Oregon law
or of the Code or regulations thereunder or interpretation thereof with respect
to the maximum applicable federal and state income tax rates as set forth in (d)
above, which results in a decrease in Lessor's Net Economic Return, then Lessor
shall recalculate and submit to Lessee the modified rental rate required to
provide Lessor with the same Net Economic Return as it would have realized
absent such change and the lease shall thereupon automatically be deemed to be
amended to adopt such rental rate and values.
9. INSPECTION AND REPORTS. Lessor shall have the right, at any
reasonable time, to enter on Lessee's premises or elsewhere and inspect the
Property and any records and documents regarding its use, maintenance and
repair. Upon Lessor's request, but in no event later than thirty (30) days after
such request, Lessee will deliver all information requested by Lessor which
Lessor deems necessary to determine Lessee's current financial condition or
faithful performance of the terms hereof. Lessee shall give Lessor immediate
notice and copy of all tax notices, reports, or inquiries, and of all seizure,
attachment, or judicial process affecting or relating to the use, maintenance,
operation, possession, or ownership of the Property.
10. LESSEE'S REPRESENTATIONS AND WARRANTIES. Lessee represents and
warrants to Lessor that as of the date of this Lease and of each Schedule:
(a) Lessee has adequate power and capacity to enter into this Lease,
any Schedule, and any other documents required to be delivered in connection
with this Lease (collectively, the "Documents"); the Documents have been duly
authorized, executed and delivered by Lessee and constitute valid, legal and
binding agreements, enforceable in accordance with their terms; there are no
proceedings presently pending or threatened against Lessee which will impair its
ability to perform under the Lease; and all information supplied to Lessor is
accurate and complete.
(b( Lessee's entering into the Lease and leasing the Property does not
and will not; (i) violate any judgment, order, or law applicable to the Lease,
Lessee or Lessee's organizational documents; or (ii) result in the creation of
any lien, security interest or other encumbrance upon the Property, other than
as granted hereunder.
(c) All information and representations furnished by Lessee to Lessor
concerning the Property are accurate and correct.
(d) All financial data of Lessee or of any consolidated group of
companies of which Lessee is a member ("Lessee Group"), delivered to Lessor have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis with prior periods and fairly present the
financial position and results from operations of Lessee, or of the Lessee
Group, as of the stated date and period(s). Since the date of the most recently
delivered financial data, there has been no material adverse change in the
financial or operating condition of Lessee or of the Lessee Group.
(e) If Lessee is a business entity, it is and will be validly existing
and in good standing under laws of the state of its organization; the persons
signing the Documents are acting with all necessary authority and hold the
offices indicated below their signatures, which are genuine.
11. ASSIGNMENT. LESSEE SHALL NOT ASSIGN OR IN ANY WAY DISPOSE OF ALL OR
ANY OF ITS RIGHTS OR OBLIGATIONS UNDER THIS LEASE OR ENTER INTO ANY SUBLEASE OF
ALL OR ANY PART OF THE LEASED PROPERTY WITHOUT THE PRIOR WRITTEN CONSENT OF
LESSOR WHICH SHALL NOT BE UNREASONABLY WITHHELD. IN CONNECTION WITH THE GRANTING
OF SUCH CONSENT AND THE PREPARATION OF NECESSARY DOCUMENTATION, A FEE SHALL BE
ASSESSED EQUAL TO ONE PERCENT (1%) OF THE TOTAL REMAINING BALANCE THEN DUE
HEREUNDER.
LESSEE AGREES THAT LESSOR MAY ASSIGN OR TRANSFER THIS LEASE OR LESSOR'S
INTEREST IN THE LEASED PROPERTY WITHOUT NOTICE TO LESSEE. Any assignee of Lessor
shall have all of the rights, but none of the obligations, of Lessor under this
Lease and Lessee will not assert against any assignee of Lessor any defense,
counter claim or offset that Lessee may have against Lessor. Lessee acknowledges
that any assignment or transfer by Lessor will not materially change Lessee's
duties or obligations under this Lease nor materially increase the burdens or
risks imposed on Lessee. Lessee shall cooperate with Lessor in executing any
documentation reasonably required by Lessor or any assignee of Lessor to
effectuate any such assignment
12. SURRENDER. On the expiration or termination of the term specified
in each Schedule, Lessee shall, at its risk and expense and according to
manufacturer's recommendations, assemble, prepare for delivery, and deliver the
applicable Property and all manuals, records, certificates and documents
regarding its use, maintenance and repair to any location specified by Lessor
within the continental United States. Upon return of the Property any upgrades
and improvements shall become the property of Lessor. Any upgrades, parts or
improvements may only be removed from the Property if their removal shall not
impair the Property's ability to operate according to any manufacturer's and
regulatory performance standards and specifications. The Property shall be
delivered unencumbered and free of any liens, charges, or other obligations
(including delivery expense and sales or use taxes, if any, arising from such
delivery) and shall he in good working order, in the same condition, appearance,
and ftinctional order as when first leased hereunder, reasonable wear excepted,
and in the condition specified or described in the applicable Schedule. At
Lessor's request, Lessee shall at Lessee's expense provide Lessor with a written
certification by an independent engineer or other recognized expert acceptable
to Lessor to the effect that the Property is in the condition required
hereunder. In lieu of delivery, Lessor may, at its option, direct Lessee to
dispose of all or a portion of the Property in a proper and lawful manner at a
recognized disposal site at Lessee's sole cost and responsibility.
13. DEFAULT. Time is of the essence under this Lease, and Lessee shall
be in default in the event of any of the following ("Event of Default"): (a) any
failure to pay when due the full amount of any payment required hereunder,
including, without limitation, rent, taxes, liens, insurance, indemnification,
repair or other charge; (b) any misstatement or false statement in connection
with, or non-performance of any of Lessee's obligations, agreements, or
alfinnations under or emanating from, this Lease; (c) Lessee's death,
dissolution, termination of existence; (d) if any of the following sections or
proceedings are not dismissed within sixty (60) days alter commencement:
Lessee's insolvency, becoming the subject of a petition in bankruptcy, either
voluntary or involuntary, or in any other proceeding under federal bankruptcy
laws; making an assignment for benefit of creditors; or being named in, or the
Property being subjected to a suit for the appointment of a receiver; (e) any
failure to pay, as and when due, any obligation of Lessee, whether or not to
Lessor, arising independently of this Lease; (f) any removal, sale, transfer,
sublease, encumbrance, seizure or levy of or upon the Property; or (g)
bankruptcy, insolvency, termination, death, dissolutions, or default of any
guarantor for Lessee.
14. REMEDIES. Upon the occurrence of any Event of Default which
continues for more than ten (10) days and at any time thereafter, Lessor shall
have all remedies provided by law; and, without limiting the generality of the
foregoing and without terminating this Lease, Lessor, at its sole option, shall
have the right at any time to exercise concurrently, or separately, without
notice to Lessee (unless specifically stated), any one or all of the following
remedies:
(a) Request Lessee to assemble the Property and make it available to
Lessor at a reasonable place designated by Lessor and put Lessor in possession
thereof on demand;
(b) Immediately and without legal proceedings or notice to Lessee,
enter the premises, take possession of, remove and retain the Property or render
it unusable (any such taking shall not terminate this Lease);
(c) Declare the entire amount of rent and other sums payable hereunder
immediately due and payable; however, in no event shall Lessor be entitled to
recover any amount in excess of the maximum permitted by applicable law;
(d) Terminate the leasing of any or all items of Property. Such
termination shall occur only upon notice by Lessor and only as to such items of
Property as Lessor specifically elects to terminate. This Lease shall continue
in full force and effect as to any remaining items;
(e) Recover the sum of: (i) any accrued and unpaid rent, plus (ii) the
present value of all fixture rentals reserved in the Lease and contracted to be
paid over the unexpired term of the Lease, discounted at the rate of six percent
(6%); plus, (iii) the anticipated residual value of the Property as of the
expiration of this Lease or any renewal thereof; (iv) any indemnity payment, if
then determinable; (v) all commercially reasonable costs and expenses incurred
by Lessor in any repossession, recovery, storage, repair, sale, re-lease or
other disposition of the Property, including reasonable attorneys' fees and
costs incurred in connection therewith or otherwise resulting from Lessee's
default (including any incurred at trial, on appeal or in any other proceeding);
and, (vi) the value of all tax benefits lost to Lessor as a result of Lessee's
default or the enforcement by Lessor of any remedy; plus interest on each of the
foregoing at a rate of fifteen percent (15.0%) per annum ("Default Interest");
and,
(f) Lessor may, but is not required to, re-lease or sell any or all of
the Property at a public or private sale on such terms and notice as Lessor
shall deem reasonable. The proceeds of any sale or lease shall be applied in the
following order of priorities: (i) to pay all of Lessor's expenses in taking,
removing, holding, repairing and disposing of Property; then (ii) to pay any
late charges and interest accrued; then (iii) to pay accrued but unpaid rent
together with the anticipated residual value, fixture rent, interest and all
other due but unpaid sums (including any indemnification and sums due under
other Leases or agreements in default). Any remaining proceeds will reimburse
Lessee for payments which it made to reduce the amounts owed to Lessor in the
preceding sentence. Lessor shall keep any excess. If the proceeds of any sale or
lease are not enough to pay the amounts owed to Lessor under this Section,
Lessee shall pay the deficiency.
No remedy referred to in this paragraph is intended to be exclusive,
but shall be cumulative and in addition to any other remedy referred to above or
otherwise available to Lessor at law or in equity.
15. LESSEE'S WAIVER. To the extent permitted by applicable law, Lessee
hereby waives any and all rights and remedies now or hereafter conferred by
statute or otherwise including but not limited to Lessee's rights to: (i) cancel
or repudiate this Lease; (ii) reject or revoke acceptance of the Property; (iii)
recover damages from Lessor for any breaches of warranty; (iv) claim, grant or
permit a security interest in the Property in Lessee's possession or control for
any reason; (v) deduct all or past of any claimed damages resulting from
Lessor's default, if any, under this Lease; (vi) accept any partial delivery of
the property; (vii) "cover" by making any purchase or lease of or contract to
purchase or lease property in substitution for the Property; (viii) commence
legal action against Lessor for specific performance, replevin, sequestration,
claim and delivery or the like for the Property.
16. NOTICES, PAYMENTS AND GOVERNING LAW. All notices and payments shall
be mailed or delivered to the respective parties at the below address, or such
other address as a party may provide in writing from time to time. This Lease
shall be considered to have been made in the State of Oregon and shall be
interpreted, and the rights and liabilities of the parties determined, in
accordance with applicable federal law and the laws of the State of Oregon. In
the event of suit enforcing this Lease, Lessee agrees that venue may, at
Lessor's option, be laid in the county of Lessor's address below. LESSOR AND
LESSEE EACH WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY LITIGATION ARISING FROM OR
RELATED TO THIS LEASE.
17. SEVERABILITY. If any of the provisions of this Lease are contrary
to, prohibited by, or held invalid under applicable laws, regulations or public
policy of any jurisdiction in which it is sought to be enforced, then that
provision shall be considered inapplicable and omitted but shall not invalidate
the remaining provisions. In no event shall this Lease be enforced in any way
which permits Lessor to charge or collect interest in excess of the maximum
lawful rate. Should interest collected exceed such Rate, Lessor shall refund
such excess interest to Lessee. In such event, Lessee agrees that Lessor shall
not be subject to any penalties provided by law for contracaing for or
collecting interest in excess of the maximum lawful rate.
18. SURVIVAL. All of Lessor's rights, privileges and indemnities
contained herein shall survive the expiration or other termination of the Lease
and any Schedules, and the rights, privileges and indemnities contained herein
are expressly made for the benefit of, and shall be enforceable by, Lessor, its
successors and assigns.
19. LESSOR'S DISCLAIMERS. Lessor has obtained the Property based on
specifications furnished by the Lessee. Lessor does not deal in property of this
kind or otherwise hold itself or its agents out as having knowledge or skill
peculiar to the Property. Lessee acknowledges that it has relied on its own
skill and experience in selecting property suitable to the Lessee's particular
needs or purposes and has neither relied upon the skill or judgment of Lessor
nor believes that Lessor or its agents possess any special skill or judgment in
the selection of Property for Lessee's particular purposes. Further, Lessee has
not notified Lessor of Lessee's particular needs in using the Property.
Lessee understands and agrees that neither the Supplier(s) nor any
salesman or any agent of the Supplier(s) is an agent of Lessor. No salesman or
agent of supplier is authorized to waive or alter any term or condition of this
Lease, and no representation as to the Property or any other matter by the
Supplier shall in any way affect Lessee's duty to pay the rent and perform its
obligations as set forth in this Lease. Lessor shall not be liable to Lessee for
any incidental, consequential, or indirect damages or for any act, neglect,
omission, breach or default by any third patty.
LESSOR ASSUMES NO RESPONSIBILITY FOR AND MAKES NO REPRESENTATIONS OR
WARRANTIES, EXPRESS OR IMPLIED, AS TO THE TITLE, DESIGN, COMPLIANCE WITH
SPECIFICATIONS, CONDITION, QUALITY, WORKMANSHIP, OR THE SUITABILITY, SAFETY,
ADEQUACY, OPERATION, USE OR PERFORMANCE OF THE PROPERTY OR AS TO ITS
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR AS TO PATENT, TRADEMARK
OR COPYRIGHT INFR]INGEMENT. ANY DELAY IN DELIVERY SHALL NOT AFFECT THE VALIDITY
OF THIS LEASE. LESSOR SHALL NOT BE LIABLE TO LESSEE FOR ANY REPRESENTATION,
CLAIM, BREACH OF WARRANTY, EXPENSE OR LOSS DIRECTLY OR INDIRECTLY CAUSED BY ANY
PERSON, INCLUDING LESSOR, OR LN ANY WAY RELATED TO THE PROPERTY.
20. ENTIRE AGREEMENT, WAIVERS, SUCCESSORS, NOTICE. This Lease and any
Schedule expressly referring hereto (each, a "Transaction") contain the entire
agreement of the parties and shall not be qualified or supplemented by course of
dealing. However, in any case where the Lessor takes an assignment from a vendor
of its security interest in the same Property, the terms of the Transaction
shall be incorporated into the assigned agreement and shall prevail over any
inconsistent terms therein but shall not be construed to create a new contract.
No waiver or modification by Lessor of any of the terms or conditions hereof
shall be effective unless in writing signed by an officer of Lessor. No waiver
or indulgence by Lessor of any default or deviation by Lessee of any required
performance shall be a waiver of Lessor's right to subsequent or other lull and
timely performance. This Lease shall be binding on the parties hereto and their
respective successors and assigns and shall inure to the benefit of such
successors and assigns. Paragraph headings shall not be considered a part of
this Lease.
Under Oregon law, most assessments, promises and commitments made by
Lessor after October 3,1989, concerning loans and other credit extensions which
are not for personal, family or household purposes or secured solely by the
Lessee's residence must he in writing, express consideration and be signed by
Lessor to be enforceable
<PAGE>
BY INITIALING THIS SECTION, LESSEE ACKNOWLEDGES THAT LESSEE HAS READ THE ABOVE
PARAGRAPHS UNDER SECTION 19, LESSOR'S DISCLAIMERS, AND SECTION 20, ENTIRE
AGREEMENT, AND FULLY UNDERSTANDS THEIR CONTENT.
INITIALED: ss/ HC
-------
21. POWER OF ATTORNEY. LESSEE HEREBY AUTHORIZES AND APPOINTS LESSOR AS
ITS ATTORNEY-IN-FACT TO COMPLETE, AMEND AND EXECUTE ON LESSEE'S BEHALF FINANCING
STATEMENTS INCONNECTION WITH THIS LEASE AND TO CONFORM THE DESCRIPTION OF THE
PROPERTY (INCLUDING SERIAL NUMBERS) IN ANY SUCH FINANCING STATEMENTS OR OTHER
DOCUMENTATION. LESSEE WILL ALSO PROMPTLY EXECUTE AND DELIVER TO LESSOR SUCH
FURTHER DOCUMENTS AND TAKE FURTHER ACTION AS LESSOR MAY REQUEST TO MORE
EFFECTIVELY CARRY OUT THE INTENT AND PURPOSE OF THIS LEASE.
IN WITNESS WHEREOF, Lessor and Lessee have each caused this Master
Lease Agreement to be duly executed as of the day and year first above written.
TOWER TECH, INC. (LESSEE)
By: ss/HAROLD CURTIS
---------------------
Harold Curtis
PRESIDENT
U.S. BANCORP LEASING & FINANCIAL -
MACHINE TOOL FINANCE GROUP (LESSOR)
By: _____________________
An Authorized Officer Thereof
Address for All Notices:
U.S. BANCORP LEASING & FINANCIAL
P.O. Box 2177, 7659 S.W. Mohawk Street
Tualatin, Oregon 97062-2177
SECURITY AGREEMENT
TOWER TECH, INC., an Oklahoma corporation, with its principal place of
business located 11935 S. 1-44 Service Road, Oklahoma City, Oklahoma 73170
("Debtor"), for valuable consideration, receipt whereof is hereby acknowledged,
does hereby grant unto HPM CORPORATION, with its principal place of business
located at 820 Marion Road, Mount Gilead, Morrow County, Ohio 43338 ("Secured
Party"), a security interest in the following property (hereinafter called the
"Collateral"):
Whether now owned or hereafter acquired, all of the Equipment
identified on Schedule 1, which is attached hereto and incorporated by
this reference herein, to be used by Debtor in the conduct of its
business together with all replacements, permanent additions,
accessions, substitutions and proceeds (including any claims or
insurance payable by reason of loss or damage thereto),
to secure the payment of Two Hundred Seventy-Eight Thousand, Six Hundred
Thirty-Five and 00/100 Dollars ($278,635.00) (all hereinafter called the
"Obligations").
Debtor hereby warrants and covenants that:
1. The Collateral will be kept at 11935 S. 1-44 Service Road, Oklahoma
City, Oklahoma 73170. Debtor will notice Secured Party of any change in location
of the Collateral within Ohio and will not remove the Collateral from Ohio
without the written consent of Secured Party. Secured Party may examine and
inspect the Collateral at any time, wherever located.
2. The Collateral is or is to be used primarily in business.
3. Debtor's chief executive office is located at 11935 S. 1-4
Service Road, Oklahoma City, Oklahoma 73170.
4. Except for the security interest granted hereby, Debtor is the owner
of the Collateral free from any prior lien, security interest or encumbrances,
and Debtor will defend the Collateral against all claims and demands of all
persons at any time calling the same or any interest therein.
5. Debtor will not sell or offer to sell or otherwise transfer or
encumber the Collateral without the written consent of Secured Party, will keep
the Collateral in good order and repair and will not waste or destroy the
Collateral.
6. No financing statement covering the Collateral is on file in any
public office, and at the request of Secured Patty Debtor will join with Secured
Party in executing one or more financing statements pursuant to the Uniform
Commercial Code in form satisfactory to Secured Party and will pay the cost of
filing the same in all public offices wherever filing is deemed necessary or
desirable by Secured Party.
7. Debtor will keep the Collateral insured at all times against loss by
fire and/or other hazards concerning which, in the judgment of Secured Party,
insurance protection is reasonably necessary, in a company or companies
satisfactory to the Secured Party and in amounts sufficient to protect Secured
Party against loss or damage to the Collateral; and a loss payee certificate,
with loss payable clauses in favor of the Secured Party as its interest may
appear, in form satisfactory to Secured Party, will be delivered to Secured
Party.
8. At its option, Secured Party may discharge taxes, liens, or security
interests or other encumbrances at any time levies are placed on the Collateral,
may pay for insurance on the Collateral and may pay for the maintenance and
preservation of the Collateral. Debtor agrees to reimburse Secured Party on
demand for any reasonable payment made, or any reasonable expense incurred, by
Secured Party pursuant to the foregoing authorization. Until default, Debtor may
have possession of the Collateral and use it in any lawful manner not
inconsistent with this Security Agreement and not inconsistent with any policy
of insurance thereon.
9. Upon the happening of any of the following events or conditions,
namely: (a) default in the payment or performance of any of the Obligations or
of any covenant or liability contained or referred to herein or in any note
evidencing any of the Obligations; (b)) any warranty, representation or
statement made or furnished to Secured Party by or on behalf of Debtor in
connection with this Security Agreement or to induce Secured Party to make a
loan to Debtor proves to have been false in any material respect when made or
furnished; (c) loss, theft, substantial damage, destruction, sale or encumbrance
to or of any of the Collateral, or the making of any levy, seizure or attachment
thereof or thereon; or (d) death, dissolution, termination of existence,
insolvency, business failure, appointment of a receiver of any part of the
Collateral of; assignment for the benefit of creditors by, or the commencement
of any proceeding under any bankruptcy or insolvency laws by or against, Debtor
or any guarantor or surety for Debtor; thereupon, or at any time thereafter
(such default not having previously been cured) Secured Party at its option may
declare all of the Obligations to be immediately due and payable and shall then
have the remedies for a secured party under the laws of the state where the
Collateral is located and the State of Ohio, including, without limitation
thereto, the right to take possession of the Collateral, and for that purpose
Secured Party may, so far as Debtor can give authority therefor, enter upon any
premises on which the Collateral or any part thereof may be situated and remove
the same therefrom. Secured Party may require Debtor to make the Collateral
available to Secured Party at a place to be designated by Secured Party which is
reasonably convenient to both parties. Secured Party will give Debtor ten (10)
days prior written notice of the time and place of any public sale thereof or of
the time atter which any private sale or any other intended disposition thereof
is to be made, and at any such public or private sale Secured Party may purchase
the Collateral.
10. This Security Agreement and the security interest in the Collateral
created hereby shall terminate when the Obligations have been paid in full. No
waiver by Secured Party of any default shall be effective unless in writing or
operate as a waiver of any other default or of the same default on a fliture
occasion. Secured Party is authorized to fill in any blank spaces herein and to
date this Security Agreement as of the date the loan is made. All rights of
Secured Party hereunder shall inure to the benefit of the heirs, executors,
administrators, successors and assigns of Secured Party; and all other
obligations of Debtor shall bind the heirs, executors, administrators,
successors and assigns of Debtor. If there be more than one Debtor, their
obligations hereunder shall be joint and several. This Security Agreement shall
take effect when signed by Debtor.
11. This Security Agreement contains the entire agreement between the
parties, and no representations, inducements, promises or agreements, oral or
written, shall be of any force and effect.
12. This Security Agreement shall be deemed to have been made and
entered into in the State of Ohio, and all rights and obligations of the parties
hereto shall be governed by and construed in accordance with the laws of the
State of Ohio.
13. No failure by either party to exercise any power given to it or to
insist upon strict compliance by the other party of any obligation hereunder
shall affect either party's rights concerning such default or any subsequent
default.
Secured Party:
Debtor:
TOWER TECH, INC.
By: ss/CHARLES D. WHITSITT
- -------------------------------
Print: Charles D. Whitsitt
Its: Chief Financial Officer
Date: June 16, 1999
HPM CORPORATION
By: ___________________
Print: ___________________
Its: ___________________
Date: ___________________
<PAGE>
SCHEDULE 1
Debtor: TOWER TECH, INC.
Secured Party: HPM CORPORATION
Property Description (continued)
One HPM Corporation Model MLH73O-WP-160 "Modular" Injection Molding Machine with
the following options: 460v power, dual core pull, wide platen, cycle counter,
wedgemounts, oil alarms, robot interface, motion/no motion, platform & ladder,
air bags, Filtroil pkg, "B" (160 oz) barrel & screw, power pivot, 12" ram
spacter, PVC modifications.
Serial Number: 97445. Year of Manufacture: 1999.
