UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the
fiscal year ended December 31, 2018
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the
transition period from _____________ to
___________________
Commission File No. 033-19411-C
OCEAN THERMAL ENERGY CORPORATION
(Exact
name of registrant as specified in its charter)
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Nevada
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20-5081381
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(State
or other jurisdiction of incorporation or
organization)
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(I.R.S.
Employer Identification No.)
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800 South Queen Street, Lancaster, PA 17603
(Address
of principal executive offices, including Zip Code)
717-299-1344
(Registrant’s
telephone number, including area code)
Securities
Registered pursuant to Section 12(b) of the Act: None
Securities
Registered pursuant to Section 12(g) of the Exchange Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes
☐ No ☒
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
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 preceding 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 ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted 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
☒ No ☐
Indicate
by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ☒
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated
filer,” “smaller reporting company,” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act.
|
Large
accelerated filer
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☐
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Accelerated
filer
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☐
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Non-accelerated
filer
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☒
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Smaller
reporting company
|
☒
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|
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Emerging growth
company
|
☐
|
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Act). Yes ☐ No ☒
State
the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at
which the common equity was last sold, or the average bid and asked
price of such common equity, as of the last business day of the
registrant’s most recently completed second fiscal quarter.
The aggregate market value of the
voting and nonvoting common equity held by nonaffiliates computed
as of the price at which the common equity was last sold on the
last business day of the registrant’s most recently completed
second fiscal quarter was $11,359,319.
Indicate
the number of shares outstanding of each of the registrant’s
classes of common stock, as of the latest practicable date.
As of March 15, 2019, there were
132,838,944 shares of the registrant’s common stock
outstanding, par value $0.001.
DOCUMENTS
INCORPORATED BY REFERENCE: None
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Throughout
this report, unless otherwise designated, the terms
“we,” “us,” “our,” and
“our company” refer to Ocean Thermal Energy
Corporation, a Nevada corporation. All amounts in this report are
in U.S. dollars, unless otherwise indicated.
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
This
report may contain certain “forward-looking” statements
as such term is defined by the U.S. Securities and Exchange
Commission (“SEC”) in its rules, regulations, and
releases, which represent our expectations or beliefs, including
statements concerning our operations, economic performance,
financial condition, growth and acquisition strategies,
investments, and future operational plans. For this purpose, any
statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without
limiting the generality of the foregoing, words such as
“may,” “expect,” “believe,”
“anticipate,” “intent,”
“could,” “estimate,” “might,”
“plan,” “predict,” or
“continue,” or the negative or other variations thereof
or comparable terminology, are intended to identify forward-looking
statements. These statements by their nature involve substantial
risks and uncertainties, certain of which are beyond our control,
and actual results may differ materially depending on a variety of
important factors, including uncertainty related to acquisitions,
governmental regulation, management and maintenance of growth, the
operations of the company and its subsidiaries, volatility of stock
price, commercial viability of OTEC systems, and any other factors
discussed in this and our other filings with the SEC.
These
risks, uncertainties, and other factors include those set forth
under “Risk
Factors” of this report. Given these risks and
uncertainties, readers are cautioned not to place undue reliance on
our forward-looking statements. All subsequent written and oral
forward-looking statements attributable to us or to persons acting
on our behalf are expressly qualified in their entirety by these
cautionary statements. Except as otherwise required by applicable
law, we undertake no obligation to publicly update or revise any
forward-looking statements or the risk factors described in this
report or in the documents we incorporate by reference, whether as
a result of new information, future events, changed circumstances,
or any other reason after the date of this report.
This
report contains forward-looking statements, including statements
regarding, among other things:
●
our ability to
continue as a going concern;
●
our anticipated
needs for working capital
●
our ability to
secure financing
●
the possibility
that actual capital costs, operating costs, production, and
economic returns may differ significantly from those that we have
anticipated;
●
the financial model
for our proposed projects has not been tested and may not be
successful;
●
we are subject to
changing attitudes about environmental risks;
●
our projects will
be subject to substantial regulation;
●
our efforts to
develop OTEC and SWAC/LWAC plants are subject to many financial,
technical, managerial, and sales risks that may make us
unsuccessful;
●
our exposure to
political and legal risks in developing or emerging markets where
we propose to locate our plants;
●
technological
advances may render our technologies obsolete; and
●
operational
problems, natural events or catastrophes, casualty loss, or other
events may impair the commercial operation of our
projects.
Actual
events or results may differ materially from those discussed in
forward-looking statements as a result of various factors,
including the risks outlined under “Risk Factors,” and matters
described in this report generally. In light of these risks and
uncertainties, we cannot assure that the forward-looking statements
contained in this report will in fact occur. In addition to the
information expressly required to be included in this report, we
will provide such further material information, if any, as may be
necessary to make the required statements, in light of the
circumstances under which they are made, not
misleading.
Overview
OCEES
International Inc. (“OCEES”) was formed under the laws
of Hawaii on January 21, 1998. Ocean Thermal Energy Corporation
(“OTE Delaware”) was a Delaware corporation formed on
October 18, 2010. In 2011, OCEES and OTE Delaware entered into a
share exchange agreement. The transaction was treated as a merger
of entities under common control as 100% of the stockholders of
OCEES exchanged their shares for 100% of the outstanding shares of
OTE Delaware.
OTE
Delaware used its proprietary technology to develop, build, own,
and operate renewable energy systems, primarily in the Eastern and
Western Caribbean Islands.
On
December 17, 2013, Broadband Network Affiliates, Inc.
(“BBNA”), a Nevada corporation, changed its state
domicile and became a Delaware corporation. On December 23, 2013,
BBNA entered into a merger agreement with OTE Delaware, which was
effective December 31, 2013. Upon completion of the merger, BBNA
changed its name to Ocean Thermal Energy Corporation
(“OTE”) and the former OTE Delaware ceased to exist.
The transaction was treated as a reverse merger and
recapitalization by OTE Delaware.
We
previously operated under the corporate name of TetriDyn Solutions,
Inc. (“TetriDyn”). On March 10, 2017, TetriDyn entered
into an Agreement and Plan of Merger (the “Merger
Agreement”) with OTE. On May 9, 2017, TetriDyn consummated
the acquisition of all outstanding equity interests of OTE pursuant
to the terms of the Merger Agreement, with a newly created Delaware
corporation that is wholly owned by TetriDyn (“TetriDyn
Merger Sub”), merging with and into OTE (the
“Merger”) and OTE continuing as the surviving
corporation and a wholly owned subsidiary of TetriDyn. Effective
upon the consummation of the Merger (the “Closing”),
the OTE stock issued and outstanding or existing immediately prior
to the Closing was converted at the Closing into the right to
receive newly issued shares of TetriDyn common stock. As a result
of the Merger, TetriDyn succeeded to the business and operations of
OTE. In connection with the consummation of the Merger and upon the
consent of the holders of a majority of the outstanding common
shares, TetriDyn filed with the Nevada Secretary of State an
amendment to its articles of incorporation changing its name to
“Ocean Thermal Energy Corporation.”
Our Business
We
develop projects for renewable power generation, desalinated water
production, and air conditioning using proprietary intellectual
property designed and developed by our own experienced
oceanographers, engineers, and marine scientists. Plants using our
technologies are designed to extract energy from the temperature
difference between warm surface ocean water and cold deep seawater
at a depth of approximately 3,000 feet. We believe these
technologies provide practical solutions to mankind’s
fundamental needs for sustainable, affordable energy; desalinated
water for domestic, agricultural, and aquaculture uses; and
cooling, all without the use of fossil fuels.
●
Ocean Thermal
Electrical Conversion, known in the industry as “OTEC,”
power plants are designed to produce electricity. In addition, some
of the seawater running through an OTEC plant can be desalinated
efficiently, producing fresh water for agriculture and human
consumption.
●
Seawater Air
Conditioning, known in its industry as SWAC/LWAC, plants are
designed to use cold water from ocean depths to provide air
conditioning for large commercial buildings or other facilities.
This same technology can also use deep cold water from lakes, known
as Lakewater Air Conditioning or LWAC.
Both
OTEC and SWAC/LWAC systems can be engineered to produce desalinated
water for potable, agricultural, and fish farming/aquaculture
uses.
Many applications of technologies based on ocean
temperature differences between surface and deep seawater have been
developed at the Natural Energy Laboratory of Hawaii Authority, or
NELHA, test facility (http://nelha.hawaii.gov), including
applications for desalinated seawater, fish-farming, and
agriculture. We believe our proprietary advances to existing
technologies developed by others in the industry enhance their
commercialization for the plants we propose to develop.
We
have recruited a scientific and engineering team that includes
oceanographers, engineers, and marine scientists who have worked
for a variety of organizations since the 1970s on several systems
based on extracting the energy from the temperature differences
between surface and deep seawater, including projects by NELHA, the
Argonne National Laboratory (http://www.anl.gov), and others. Note:
All URL addresses in this report are inactive textual references
only. Our executive team members have complementary experience in
leading engineering and technical companies and projects from
start-up to commercialization.
In
addition, we expect to use our technology in the development of an
OTEC EcoVillage, which should add significant value to our
business. We will facilitate the development of sustainable living
communities by creating an ecologically sustainable “OTEC
EcoVillage” powered by 100% fossil-fuel free electricity. In
the development, buildings will be cooled by energy-efficient and
chemical-free systems, and water for drinking, aquaculture, and
agriculture will be produced onsite. The OTEC EcoVillage project
consists, in part, of an OTEC plant that will provide all power and
water to about 400 residences, a hotel, and a shopping center, as
well as models of sustainable agriculture, food production, and
other economic developments. Each sale of luxury EcoVillage
residences will support the development of environmentally
responsible affordable communities in tropical and subtropical
regions of the world currently in development. Our OTEC EcoVillage
will be the first development in the world offering a net-zero
carbon footprint. This will be our pilot project, launched to prove
the viability of OTEC technology to provide affordable renewable
energy for entire communities. We believe this project could be
highly profitable and generate significant value for our
shareholders. The U.S. Virgin Islands’ Public Service
Commission has granted regulatory approval to us for an OTEC plant,
and we have identified the specific plots of land for the site. The
first draft of the master plan for the entire development has been
completed.
Our Vision
Our
vision is to bring these technologies to tropical and subtropical
regions of the world where about three billion people live. Our
market includes 68 countries and 29 territories with suitable sea
depth, shore configuration, and market need; we plan to be the
first company in the world to design and build a commercial scale
OTEC plant and, to that end, have several projects in the planning
stages. Our initial markets and potential projects include several
U.S. Department of Defense bases situated in the Asia Pacific and
other regions where energy independence is crucial. Currently, we
have projects in the planning and development stages in Puerto Rico
and the U.S. Virgin Islands.
Our Technology
OTEC
is a self-sustaining energy source, with no supplemental power
required to generate continuous (24/7) electricity. It works by
converting heat from the sun, which has warmed ocean surface water,
into electric power, and then completing the process by cooling the
plant with cold water from deep in the ocean. The cold water can
also be used for very efficient air conditioning and desalinated to
produce fresh water. OTEC has worked in test settings where there
exists a natural temperature gradient of 20 degrees Celsius or
greater in the ocean. We believe OTEC can deliver sustainable
electricity in tropical and subtropical regions of the world at
rates approximately 20-40% lower than typical costs for electricity
produced by fossil fuels in those markets.
Further,
we believe that a small, commercial OTEC plant could offer
competitive returns even in a market where the cost of electricity
is as low as $0.30 per kilowatt-hour, or kWh. For example, the
Inter-American Development Bank, an international bank providing
development financing in Latin America and the Caribbean, reports
that energy prices for hydrocarbon-generated power during 2010-2012
for 15 Caribbean countries averaged $0.33 per kWh, with a high of
$0.43 per kWh in Antigua and Barbados. For the U.S. Virgin Islands,
the Water and Power Authority of the Virgin Islands reported that
as of February 1, 2017, the average price for electricity for
commercial customers was nearly $0.40 per kWh. We believe that we
have an opportunity to offer base-load energy (the amount of energy
required to meet minimum requirements) pricing that is better than
our customer’s next best alternative in the markets where
electricity costs are $0.30 or more per kWh.
Technology
advancements have significantly brought the capital costs of OTEC
down to make it competitive compared to traditional energy sources.
Technology improvements include larger diameter seawater pipes
manufactured with improved materials, increased pumping
capabilities from OTEC depths, better understanding of material
requirements in the deep ocean environment, more experience in deep
water pipeline and cable installation techniques, and more accurate
sea bottom mapping technology, which is required for platform
positioning and pipe installation. The cold-water pipes at a
demonstration site in Hawaii have been in continuous operation for
more than 20 years, and the technology has improved significantly
since the Hawaiian installation.
We
estimate that a small OTEC plant that delivers 13 megawatts (MWs)
per hour for 30 years would currently cost approximately $350
million. This is the plant size that we typically propose for our
initial target markets to meet 20% or more of their current demand
for electricity and a large portion of their need for fresh
drinking water and agricultural water. OTEC has been proven in test
settings at NELHA, where a Department of Energy-sponsored OTEC
plant operated successfully throughout the 1990s to produce
continuous, affordable electricity from the sea without the use of
fossil fuels. Spin-off technologies of desalination and seawater
cooling, developed from the OTEC plant at NELHA, have also become
economically and technically feasible.
Finally,
we believe the decreasing supply and increasing cost of
fossil-fuel-based energy has intensified the search for renewable
alternatives. We further believe that renewable energy sources,
although traditionally more expensive than comparable fossil-fuel
plants, have many advantages, including increased national energy
security, decreased carbon emissions, and compliance with renewable
energy mandates and air quality regulations. We believe these
market forces will continue and potentially increase. In remote
islands where shipping costs and limited economies of scale
substantially increase fossil-fuel-based energy, renewable energy
sources may be attractive. Many islands contain strategic military
bases with high-energy demands that we believe would greatly
benefit from a less expensive, reliable source of energy that is
produced locally, such as OTEC.
SWAC/LWAC
is a process that uses cold water from locations such as the ocean
or deep lakes to provide the cooling capacity to replace
traditional electrical chillers in an air conditioning system.
SWAC/LWAC applications can reduce the energy consumption of a
traditional air-conditioning system by as much as 90%. Even when
the capital cost amortization of building a typically sized
SWAC/LWAC system providing 9,800 tons of cooling ($140-$150
million) are taken into account, SWAC/LWAC can save the customer
approximately 25-40% when compared to conventional systems—we
estimate savings can be as high as 50% in locations where air
temperatures and electricity costs are high. Cooling systems using
seawater or groundwater for large commercial structures are in use
at numerous locations developed and operated by others worldwide,
including Heathrow Airport, UK; Finland (Google Data Center);
Cornell University, NY; Stockholm, Sweden; and the City of Toronto,
Canada.
How Our Technology Works
OTEC
uses the natural temperature difference between cooler deep ocean
water at a depth of approximately 3,000 feet and warmer shallow or
surface water to create energy. An OTEC plant project involves
installing about 6.0 feet diameter, deep-ocean intake pipes (which
can readily be purchased), together with surface water pipes, to
bring seawater onshore. OTEC uses a heat pump cycle to generate
power. In this application, an array of heat exchangers transfer
the energy from the warm ocean surface water as an energy source to
vaporize a liquid in a closed loop, driving a turbine, which in
turn drives a generator to produce electricity. The cold deep ocean
water provides the required temperature to condense vapor back into
a liquid, thus completing the thermodynamic cycle, which is
constantly and continuously repeated. The working fluid is
typically ammonia, as it has a low boiling point. Its high hydrogen
density makes ammonia a very promising green energy storage and
distribution media. Among practical fuels, ammonia has the highest
hydrogen density, including hydrogen itself, in either its low
temperature, or cryogenic, and compressed forms. Moreover, since
the ammonia molecule is free of carbon atoms (unlike many other
practical fuels), combustion of ammonia does not result in any
carbon dioxide emissions. The fact that ammonia is already a widely
produced and used commodity with well-established distribution and
handling procedures allows for its use as an alternative fuel. This
same general principle is used in steam turbines, internal
combustion engines, and, in reverse, refrigerators. Rather than
using heat energy from the burning of fossil fuels, OTEC power
draws on temperature differences of the ocean caused by the
sun’s warming of the ocean’s surface, providing an
unlimited and free source of energy.
OTEC
and SWAC/LWAC infrastructure offers a modular design that
facilitates adding components to satisfy customer requirements and
access to a sufficient supply of cold water. These components
include reverse-osmosis desalination plants to produce drinkable
water, bottling plants to commercialize the drinkable water, and
off-take solutions for aquaculture uses (such as fish farms), which
benefit from the enhanced nutrient content of deep ocean water. A
further advantage of a modular design is that, depending on the
patterns of electricity demand and output of the OTEC plant, a
desalination plant can be run using the excess electricity
capacity.
Currently,
OTEC requires a minimum temperature difference of approximately 20
degrees Celsius to operate, with each degree greater than this
increasing output by approximately 10-15%. OTEC has potential
applications in tropical and subtropical zones. OTEC is
particularly well suited for tropical islands and coastal areas
with proximate access to both deep water and warm surface water.
These communities are typically subject to high and fluctuating
energy costs ranging from $0.28-$0.75 per kWh, as they rely on
importing fossil fuels for power generation. Data from the National
Renewable Energy Laboratory of the U.S. Department of Energy
website indicated that at least 68 countries and 29 territories
around the globe appear to meet these criteria.
The
world’s largest OTEC power plant to date is operational at
the NELHA facility in Hawaii and is connected to the electrical
grid. It provides base-load electricity produced by OTEC to about
150 homes. Around the world, a couple of other successful
developmental and experimental plants have been built, and the U.S.
National Oceanic and Atmospheric Administration, or NOAA, has
stated that: “The qualitative analysis of the technical
readiness of OTEC by experts at this workshop suggest that a <10
MWe floating, closed-cycle OTEC facility is technically feasible
using current design, manufacturing, deployment techniques and
materials.” We believe that we have sufficient skill and
knowledge to now commercialize 5-MW to 30-MW land-based OTEC
plants, using off-the-shelf components, including the cold-water
piping.
SWAC/LWAC
is a significantly more cost-effective and environmentally friendly
way to implement air-conditioning using cold water sourced from
lakes or, analogous with OTEC, deep ocean water, rather than from
an electric chiller. Comparing Federal Energy Management Program
engineering efficiency requirements of approximately 0.94 kilowatts
of electricity per ton of cooling capacity with our own engineering
estimates of 0.09 kilowatts of electricity per ton of cooling
capacity, as calculated by DCO Energy, our engineering,
procurement, and construction partner, we estimate that SWAC/LWAC
systems can reduce electricity consumption by up to 80-90% when
compared to conventional systems. Therefore, we believe energy
reductions may make SWAC/LWAC systems well-suited for large
structures, such as office complexes, medical centers, resorts,
data centers, airports, and shopping malls. We believe that other
SWAC/LWAC plants we may develop will likely achieve similar
efficiencies. There are examples of proven successful SWAC/LWAC
systems in use, including a large 79,000-ton system used to cool
buildings in the downtown area of the City of Toronto, Canada;
Google’s data center in Finland operates a SWAC/LWAC system
that uses waters from the Baltic Sea to keep servers cool and a
system with more than 18,000 tons of cooling is in operation at
Cornell University, Ithaca, New York. On January 10, 2018, William
S. (Lanny) Joyce joined our board of advisors. Mr. Joyce was the
Director of Utilities and Energy Management in the Energy and
Sustainability Department at Cornell University, Ithaca, New York.
Mr. Joyce initiated and was project manager for the LWAC deep lake
water cooling project, an innovative and award-winning project
completed in 2000 that provides all of the chilled water production
on the central campus utilizing a renewable resource and 86% less
energy.
OTEC Versus Other Energy Sources
The
construction costs of power plants using any technology are much
higher in remote locations, such as tropical islands, than on the
mainland of the United States, principally due to the need to
transport materials, components, other construction supplies, and
labor not available locally. There are also considerations that
make those other technologies less attractive in those areas. We
believe the consistency of OTEC over its life provides clear
advantages over other power-generation technology in the tropical
and subtropical markets, because its base-load power (available at
all times and not subject to fluctuations throughout the day) is an
important asset to the small transmission grid, which is typical in
these regions.
Combined-cycle
natural gas plants typically need to be capable of generating
several hundred MWs to attain the lower cost per kilowatt installed
values to make the plant economically feasible. Tropical locations
do not have large enough grids and market demand to make that plant
size reasonable. Further, tropical locations frequently do not have
domestic fuel supplies, requiring fuel to be imported. In order to
import natural gas, it must be liquefied for shipment and then
vaporized at the location. There are initial cost and public safety
concerns with such facilities. In addition, gas-fired plants emit
undesirable nitrogen oxide, carbon dioxide, and volatile organic
compounds.
Solar
applications continue to increase as the cost and effectiveness of
photovoltaic panels improve. However, we estimate that the cost to
install solar panels in tropical regions remains high. Beyond the
issues with shipping and labor costs that all construction must
overcome, the design and building code requirements are tougher in
storm-prone areas subject to potential wind damage from hurricanes,
earthquakes, and typhoons than are typically encountered in
mainland nontropical installations. Support structures must be more
substantial in order to hold the solar panels in place in case of
hurricane-force winds. Solar power, like wind power, places
substantial stress on an electrical grid. Since the input of both
of these sources is subject to weather conditions, they cannot be
considered a reliable supply of power, and back-up capacity is
necessary. Further, instantaneous changes in output due to sporadic
cloud cover create transient power flow to the grid, creating
difficulties in maintaining proper voltages and stability. OTEC is
a stabilizing source to the grid, providing constant and
predictable power, and has no emissions. The ability of OTEC to
provide constant, continuous power is a large benefit as compared
to any of the other renewable options available.
Our
estimated price for OTEC-generated power of approximately $0.30 per
kWh under current economic conditions, which can be as low as $0.18
net per kWh with maximum efficiency and revenue from water
production, is also constant both throughout the year and over a
plant’s life. OTEC’s power price, determined almost
entirely by the amortization of its initial cost, is a protection
against inflation and rising interest rates, which greatly affect
coal and oil. Customers in our target markets currently pay from
$0.35 to as high as $0.60 per kWh for power from coal and
oil-fueled power plants. However, imported fuels are subject to
price volatility, which has a direct impact on the cost of
electricity and adds operating risk during the life of a plant. The
fuel handling to allow for the shipping, storage, and local
transport is expensive, a potential source of damaging fuel spills
and a basis for environmental concerns. Fossil-fuel plants create
pollution, emit carbon dioxide, and are visually unappealing, which
is of particular concern in tropical areas renowned for their
clear, pristine air and beauty. We project OTEC can save these
markets up to 40%, compared to their current electrical costs, and
when revenues from fresh drinking water, aquaculture, and
agriculture production are considered, the justification is even
more compelling.
Overview of the Market and the Feasibility of OTEC in Current
Market Conditions
We
believe that OTEC is now an economically, technologically, and
environmentally competitive power source, especially for developing
or emerging countries in certain tropical and subtropical regions
contiguous to oceans. Our natural target markets are communities in
countries around the Caribbean, Asia, and the Pacific. These
locations are typically characterized by limited infrastructure,
high-energy costs, mostly imported or expensively generated
electricity, and frequently with significant fresh water and food
shortages. These are serious limitations on economic development,
which we believe our OTEC technology can address.
Data presented to the Sustainable Use of Oceans in
the Context of the Green Economy and the Eradication of
Poverty workshop in Monaco in
2011 by Whitney Blanchard of the Office of Ocean and Coastal
Resource Management, National Oceanic and Atmospheric
Administration, show that at least 98 nations and territories using
an estimated five terawatts of potential OTEC net power are
candidates for OTEC-power systems. Blanchard specifically notes
that Hawaii, Guam, Florida, Puerto Rico, and the U.S. Virgin
Islands are suitable for OTEC.
Over
the past decade, there have been substantial changes in many areas
that have now made the commercialization of OTEC a reality. First
and foremost is the price of oil, which until 2006/2007 had been
relatively inexpensive.
Recent
oil prices have been volatile, owing in large part to political
instability in the Middle East and elsewhere. Crude oil prices
averaged $71.40 in 2018. Oil prices are almost triple the 13-year
low of $26.55/bbl on January 20, 2016. Six months before that, oil
had been $60/bbl (June 2015). A year earlier, it had been
$100.26/bbl (June 2014).
Facts
like these have resulted in increased attention and interest in
OTEC in the commercial sector and among candidates. With OTEC
power, customers can decouple the price of electricity from the
price of oil.
The
International Energy Agency’s World Energy Outlook expects
liquid natural gas export capacity to grow rapidly in the short
term, with major new sources of supply coming mostly from Australia
and the United States.
Liquid
natural gas prices have collapsed, in part because demand is
turning out to be weaker than some previously anticipated.
Additionally, many rules and regulations are in effect to mitigate
the environmental issues associated with liquid natural gas
extraction, transportation, and storage, adding significant
costs.
According to the
U.S. Environmental Protection Agency, in the United States, nearly
28.5% of 2016 greenhouse gas emissions was generated primarily
from burning fossil fuel for our cars, trucks, ships, trains, and
planes. Over 90% of the fuel used for transportation is
petroleum-based, which includes gasoline and diesel.
The
electric power sector accounted for 28.4% of total greenhouse gas
emissions in 2016.
According to the
U.S. Environmental Protection Agency: “Global carbon
emissions from fossil fuels have significantly increased since
1900. Since 1970, CO2 emissions have increased by about 90%, with
emissions from fossil fuel combustion and industrial processes
contributing about 78% of the total greenhouse gas emissions
increase from 1970 to 2011.”
Greenhouse gas
emissions from electricity have increased by about 12% since 1990
as electricity demand has grown and fossil fuels have remained the
dominant source for generations.
Fossil-fuel-fired
power plants are a significant source of domestic carbon dioxide
emissions, the primary cause of global warming. To generate
electricity, fossil-fuel-fired power plants use natural gas,
petroleum, coal, or any form of solid, liquid, or gaseous fuel
derived from such materials.
The
U.S. Energy Information Administration states that renewable energy
plays an important role in reducing greenhouse gas emissions. Using
renewable energy can reduce the use of fossil fuels, which are
major sources of U.S. carbon dioxide emissions. The
consumption of biofuels and other nonhydroelectric renewable energy
sources more than doubled from 2000 to 2017, mainly because of
state and federal government requirements and incentives to use
renewable energy. The U.S. Energy Information Administration
projects that U.S. renewable energy consumption will continue to
increase through 2050.
People
in many countries today, including the United States, are concerned
with environmental issues caused by fossil-fuel-generated power.
Gallup surveys find public acceptance of climate change is rising.
The number of Americans that the organization terms
“concerned believers” on climate change has risen from
37% in 2015 to 47% in 2016 and to 50% in the spring of 2017. NASA
has long confirmed the scientific consensus that the Earth’s
climate is warming.
The
international concern about the harmful effects of climate change
led to the negotiation of the Paris Agreement in December 2015 as
the culmination of the 2015 United Nations Climate Change
Conference. The agreement provides for members to reduce their
carbon output as soon as possible and to do their best to keep
global warming to no more than two degrees Celsius, or 3.6 degrees
Fahrenheit. In order to achieve the desired results, there would
have to be a worldwide reduction in emissions from fossil fuels and
a shift to renewable resources. President Donald Trump has pulled
the United States out of the Paris accord, but other Americans are
standing with the world to help fight the ‘existential
crisis’ of global warming, A coalition of 14 U.S. states,
including California and New York, have said they are on track to
meet the U.S. target of a 26-28% reduction in greenhouse gas
emissions by 2025, compared to 2005 level.
In
November 2017, the United Nations Climate Conference opened in
Bonn, Germany, with the aim of a greater ambition for climate
action, as the world body’s weather agency issued a stark
warning that 2017 was set to be among the three hottest years on
record.
We
believe the ongoing concern about environmental issues and the
price instability of fossil-fuel prices are motivation for
increased commercial interest in OTEC, renewed activity in the
commercial sector, and increased interest among communities and
agencies that recognize the potential benefits of this technology,
including the U.S. Department of Defense and U.S. Department of the
Interior territories.
In
the last four years, several large companies have used their OTEC
technology experience to introduce OTEC systems worldwide,
supporting the argument that the technology is now at the point
where it can be introduced at a commercial level:
●
In June 2014, the
French companies, Akuo Energy and DCNS (now Naval Energies), were
funded to construct and install a number of OTEC plants adding up
to 16 MWs of power generation outside the coastline of Martinique
in the Caribbean. This is by far the biggest OTEC project announced
to date, and the European Union has allocated €72 million
(about $82 million at current exchange rates) for this purpose.
DCNS (now Naval Energies) is our teaming partner for potential
projects in the Caribbean.
●
Since early 2014,
we have been working with several industrialized and developing
countries, including U.S. Virgin Islands, The Bahamas, Cayman
Islands, and others, and investigating suitable OTEC sites,
infrastructural solutions, and funding opportunities.
●
Two nongovernmental
organizations promoting OTEC have been created: OTEC Foundation
(based in The Netherlands) and OTEC Africa (based in
Sweden)
●
New technological
advances for larger and more robust deep seawater pipes and more
efficient and cost-effective heat exchangers, pumps, and other
components have, in our opinion, further improved the economics for
OTEC.
●
Many countries,
including a large number of Caribbean nations, now have renewable
energy standards and are looking at ways to reduce their carbon
footprint, decouple the price of electricity from the volatile
price of oil, and increase energy security. Along with these
countries, we are aware that Hawaii, U.S. territories, and the U.S.
Department of Defense are looking at OTEC as a possible source of
renewable energy and water for drinking, fish farming, and
agriculture.
●
The NELHA
demonstration OTEC plant in Hawaii is producing 100 kilowatts of
sustainable, continuous electricity annually and is powering a
neighborhood of 120 homes. A potential next phase for OTEC
development at NELHA is being considered by an international
consortium under 2010 Okinawa-Hawaii clean energy agreement, which
was extended in 2015.
●
BARDOT Group, a
French SME specialized in subsea engineering and equipment
manufacturing for offshore energy, stated it has signed a contract
for the first commercial OTEC system to be installed in an
eco-resort in Maldives.
Global
acceptance of man’s influence on climate change may also
contribute to a shift in the demand for OTEC. As evidenced by the
Paris Agreement reached in December 2015 to combat climate change,
195 nations expressly recognized that conventional fossil-fuel
powered energy technologies affect global climate change and the
need to embrace a sustainable future in energy and water. Low-lying
coastal countries (sometimes referred to as small island developing
states) that tend to share similar sustainable development
challenges, including small but growing populations, limited
resources, remoteness, susceptibility to natural disasters,
vulnerability to external shocks, excessive dependence on
international trade, and fragile environments, have embraced this
recognition and are keenly aware that they are on the frontline of
early impact of sea level rise and are aggressively trying to
embrace sustainable-energy alternatives. This is a major driving
force for OTEC in primary early markets.
Recent
international political instability in fossil-fuel-producing
regions and oil price volatility have exposed the criticality of
energy security and independence for all countries. The need to
have a tighter control of domestic energy requirements is a matter
of increasing international concern. Continued reliance on other
countries (particularly those in oil-producing regions) is not a
favorable option any longer. We believe these considerations will
continue to drive renewable research and commercialization efforts
that benefit technologies with global potential to replace
fossil-fuel-based energy systems and benefit from base-load
capabilities like OTEC.
Our
current management team has led the development of the business
since 2010 and has established a pipeline of potential projects,
which include one signed 20-year energy services agreement, six
signed memoranda of understanding, and a written agreement to
support Lockheed Martin Corporation in proposing to the U.S. Navy a
SWAC/LWAC system for a military base in the Indian Ocean. The
projects under these agreements included the designs for OTEC,
SWAC/LWAC, or a combination of both plants in the U.S. Virgin
Islands, Bahamas, an island in the Indian Ocean, and in East
Africa. The Public Services Commission of the U.S. Virgin Islands
has approved our application to be a “qualified
facility” and build a 15MW OTEC plant on the island of St.
Croix. In addition to the OTEC plant, we are negotiating additional
opportunities to supply potable water to the U.S. Virgin Islands
government.
Discussions
are ongoing with Lockheed Martin Corporation to continue our
relationship with it for the SWAC/LWAC project for the U.S.
Department of Defense, Department of the Navy. We are discussing
both OTEC and SWAC/LWAC projects with the U.S. Department of
Agriculture and the Secretary of Commerce for Puerto Rico.
Currently, two projects are in the planning and discussion
phase:
●
EcoVillage powered
by an OTEC plant for Puerto Rico; and
●
Eco Village powered
by an OTEC plant for the U.S. Virgin Islands.
We
have provided a detailed study and designs for OTEC and/or
SWAC/LWAC to:
●
Lockheed Martin
Corporation for an SWAC/LWAC system to be built for the U.S. Navy
Base in Diego Garcia. We completed our preliminary assessment and
in early 2018, we briefed the preliminary assessment to the U.S.
Navy at a design charrette meeting.
●
The U.S. Department
of Agriculture for a combined OTEC/SWAC/LWAC plant for
Guam.
●
The Legislature of
the U.S. Virgin Islands for an OTEC plant for the island of St.
Croix.
Having
successfully developed this pipeline of opportunities, we believe
that it is now appropriate to seek additional funding to further
progress and build up our engineering and technical teams, develop
our intellectual property, file patents for several OTEC technical
systems, and advance our pipeline of current opportunities to
support our growth strategy.
Our Competition
We
compete in the development, construction, and operation of OTEC and
SWAC/LWAC plants with other operators that develop similar
facilities powered by other energy sources, primarily oil, natural
gas, nuclear energy, and solar power. These traditional energy
sources have well-established infrastructures for production,
delivery, and supply, with well-known commercial terms. In
developing our OTEC and SWAC/LWAC plants, we will need to satisfy
our customers that these technologies are sound and economical,
which may be a challenge until and unless we have an established
successful operating history. The energy industry is dominated by
an array of companies of all sizes that have proven technologies
and well-established fuel sources from a number of
suppliers.
We expect that we will encounter increasing
competition for OTEC and SWAC/LWAC plants. Other firms with greater
financial and technical resources are focusing commercialization of
these technologies. This includes, for example, Akuo Energy and
DCNS (now Naval Energies) and Bardot Energy of Paris, France. Our
competitors may benefit from collaborative relationships with
countries, including a large number of Caribbean nations that now
have renewable-energy standards and are looking at ways to reduce
their carbon footprint, decouple the price of electricity from the
volatile price of oil, and increase energy security. Other
competitors may have advantageous relationships with authorities
such as Hawaii, U.S. territories, and the U.S. Department of
Defense, which are looking at OTEC as a possible source of
renewable energy and water for drinking, fish farming, and
agriculture.
We
cannot assure that we will be able to compete effectively as the
industry grows and becomes more established and as OTEC and
SWAC/LWAC plants become more accepted as viable and economic energy
solutions.
We
believe competition in this industry is and will be based on
technical soundness and viability, the economics of plant outputs
as compared to other energy sources, developmental reputation and
expertise, financial capability, and ability to develop
relationships with potential customers. All of these factors are
outside our control.
Our Operational Strategy and Economic Models
We
have developed economic models of costs and potential revenue
structures that we will seek to implement as we develop OTEC and
SWAC/LWAC projects.
OTEC Projects
The
estimated construction costs for a 20-MW plant are approximately
$445 million. The hard costs of approximately $301 million consist
of the power system and platform construction and piping, which
make up 68% of the total. The remaining 32% consists of other
construction costs and the deployment of the cold water pipe and
soft costs of approximately $58 million for design, permits and
licensing, environmental impact assessment, bathymetry, contractor
fees, and insurance.
Once
operational, the capacity factor, which is the projected percent of
time that a power system will be fully operational, considering
maintenance, inspections, and estimated unforeseen events, is
expected to be 95% annually. This factor is used in our financial
calculations, which means the plant will not be generating revenue
for 5% of the year. Most fossil-fuel plants have capacity factors
around 90%, as a result of the major maintenance for
high-temperature boilers, fossil-fuel feed in systems, safety
inspections, cleaning, etc. The normal maintenance cycle for the
pumps, turbine, and generators used in the OTEC plant is typically
every five years. This includes the cleaning of the heat exchangers
and installation of new seals.
We
anticipate that project returns will be comprised of two
components: First, as the project developer, we will seek a
lump-sum payment as a development fee at the time of closing the
project financing for each project. These payments will be
allocated toward reimbursement of development costs and perhaps a
financial return at the early stage of each project. The
development fee will vary, but initially we will seek a fee of
approximately 3% of the project cost, payable upon closing project
financing. Second, we will retain a percentage of equity in the
project, with a goal to retain a minimum of 51% of the equity in
any OTEC project in order to participate in operating
revenues.
We
will seek to generate revenue from OTEC plants from contract
pricing charged on an energy-only price per kWh or on the basis of
a generating capacity payment priced per kilowatt per month and an
energy usage price per kWh. In many of the countries of the world
where we intend to build OTEC and SWAC/LWAC plants, water is in
short supply. In some locations, water is considered the more
important commodity. Depending on the part of the world in which
the plant is built, in addition to revenue from power generation,
supplying water for drinking, fish farming, and agriculture would
significantly increase plant revenue.
We
cannot assure that we can maintain the revenue points noted above,
that any fees received will offset development costs incurred to
date, or that any operating plant will generate
revenue.
SWAC/LWAC
Projects
The
estimated construction costs are approximately $150 million. The
hard costs of approximately $91 million consist of piping and
installation, which make up 60% of the total. The remaining 40%
consists of the pump house, central utility plant (CUP), mechanical
and engineering equipment, design, and other contingency costs and
soft costs of approximately $30 million consist of the CUP license,
permits, environmental impact assessment, bathymetry, and
insurance.
Under
our economic model, we will seek to generate revenue at two stages
of the project. First, as the project developer, we will seek a
lump-sum payment of a development fee equal to approximately 3% of
the project cost at the time of closing the project financing for
each project. These payments would provide us with income at the
early stage of each project. If we are able to negotiate a
development fee, we estimate that it will vary, but typically will
be in the $2,500,000-$3,500,000 range. The second component of
project returns is based upon the percentage of equity we will
retain in the project.
SWAC/LWAC
contract revenue will be based typically on three
charges:
●
Fixed
Price–this is based upon the capital costs of the project
paid over the term of the debt and with the intention of covering
the costs of debt.
●
Operation and
Maintenance–this payment covers the cost of the labor and
fixed overhead needed to run the SWAC/LWAC system, as well as any
traditional chiller plant operating to fulfill back-up or peak-load
requirements.
●
Chilled Water
Payment–this is a variable charge based on the actual chilled
water use and chilled water generated both by the SWAC/LWAC and
conventional system at the agreed upon conversion factors of
kilowatt/ton and current electricity costs in U.S. dollars per
kWh.
We
will seek to structure project financing with the goal of retaining
100% of the equity in any SWAC/LWAC project. We cannot assure that
we will recover project development costs or realize a financial
return over the life of the project.
Our Project Timeline
We
have not developed, designed, constructed, and placed into
operation any OTEC or SWAC/LWAC plants. However, based on our
planning process and early development experience to date, we
estimate that it will take approximately two to four years or more,
depending on local conditions, including regulatory and permitting
requirements, to take a project from a preliminary memorandum of
understanding with a potential power or other product purchaser to
completion and commencement of operation.
Our Strategic Relationships
We
have strategic relationships with each of the following parties for
potential plant construction, design and architectural services,
and the funding of projects.
●
DCO Energy, LLC,
Mays Landing, New Jersey, is an American energy development company
specializing in the development, engineering, construction,
start-up, commissioning, operation, maintenance and management, as
well as ownership of central energy centers, renewable energy
projects, and combined heat, chilling, and power-production
facilities. DCO Energy was formed in 2000 and has independently
developed and/or operated energy producing facilities of
approximately 275 MW of electric, 400 MMBtu/hr of heat recovery,
1,500 MMBtu/hr of boiler capacity, and 130,000 tons of chilled
water capacity, totaling over $1 billion of assets. DCO Energy
provides financing, engineering and design, construction
management, start-up and commissioning resources, and long-term
operating and maintenance services for its own projects as well as
third-party clients.
●
Naval Energies
(f/k/a DCNS) Paris, France, is a French naval defense company and
one of Europe’s largest ship builders. It employs 12,500
people and generates annual revenues of around $3.9 billion. In
2009, Naval Energies set up an incubator dedicated to marine
renewable energies and has stated its intention to be a leader in
this market, which includes marine turbines, floating wind
turbines, OTEC, and tidal stream turbines.
●
The Sky Institute
for the Future seeks to implement pragmatic and sustainable
strategies in design, energy, town planning, and agricultural
production, and to create and incubate transformational ideas that
will nourish healthy communities and educate current and future
generations.
Our Construction and Components
Once
we have designed the system, we will review the design with our
engineering, procurement, and construction partner to maximize the
chances that the project can be delivered according to plan and on
budget. We expect our construction contracts to be at a fixed price
and to include penalties if the construction timetable is missed.
We may, but are not obligated to, engage DCO Energy to construct
our plants or serve as our owners’ engineer.
In our systems, the two most important components
are heat exchangers and deep-water intake pipes. Although there are
multiple providers of each of these components, the supply of the
best components comes from just a few companies globally. We expect
to source our deep-water intake pipes from Pipelife of Norway, the
only company we know of that makes pipes of sufficient
quality, strength, and diameter (2.5
meters) to support our planned OTEC plants. However, we expect that
we could work around a lack of supply from Pipelife by using
multiple smaller pipes that are widely available on the market,
although this would increase our construction
costs.
We
will also need the highest quality, large heat exchangers for our
systems; heat exchangers represent a large percentage of the
projected costs of our OTEC and SWAC/LWAC systems and also account
for a significant portion of the design complexity inherent in
commercial OTEC and SWAC/LWAC designs. Our relationship with Alfa
Laval for heat exchangers provides us with the size and quality
heat exchangers that we expect to need, although we believe there
are several other companies that could provide us with adequate
supply of these devices meeting our specifications if we need to
source from them.
Other
major components, such as ammonia turbines, generators, and pumps,
are manufactured by several multinational companies, including
General Electric and Siemens.
Our Operations
For
OTEC electricity-generating facilities, we intend to enter into 20-
to 30-year power purchase agreements, or PPAs, pursuant to which
the project would supply fixed-price, baseload electricity to
satisfy the minimum demand of the purchaser’s customers. This
PPA structure allows customers to plan and budget their energy
costs over the life of the contract. For our SWAC/LWAC systems, we
intend to enter into 20- to 30-year energy service agreements, or
ESAs, to supply minimum quantities of chilled water for use in a
customer’s air conditioning system.
We
anticipate that operations of OTEC and SWAC/LWAC plants will be
subcontracted to third parties that will take responsibility for
ensuring the efficient operation of the plants. These arrangements
may reduce our exposure to operational risk, although they may
reduce our financial return if actual operating costs are less than
the subcontract payments. We cannot assure that any OTEC and
SWAC/LWAC plants will permit the PPAs and ESAs to yield minimum
target internal rates of return. Our first projects are likely to
have lower returns than subsequent projects. Variances in internal
rates of return may occur due to a range of factors, including
availability and structure of project financing and localized
issues such as taxes, some of which may be outside of our
control.
We expect our OTEC contract pricing will be
charged either on an energy-only price per kWh or on the basis of a
capacity payment priced per kilowatt per month and an energy usage
price per kWh. We cannot assure that this pricing will enable us to
recoup our funding costs and capital repayments and allow us to
earn a profit.
Marketing Strategies
Our marketing and sales efforts are managed and
directed by our
chairman and chief executive officer,
Jeremy P. Feakins, who has 35 years’ experience of
senior-level sales in both commercial and governmental markets. Our
marketing campaign has focused on explaining to potential customers
the economic, environmental, and other benefits of OTEC and
SWAC/LWAC through personal contacts, industry interactions, and our
website.
Our
target markets are comprised of large institutional customers that
typically include governments, utilities, large resorts, hospitals,
educational institutions, and municipalities. We market to them
directly through personal meetings and contact by our chief
executive officer and other key members of our team. We also make
extensive use of centers of influence either to heighten awareness
of our products in the minds of key customers’
decision-makers or to secure face-to-face meetings and preliminary
agreements between our customers and our chief executive
officer.
Sales
cycles in our business are extremely long and complex and often
involve multiple meetings with governmental, regulatory, electric
utility, and corporate entities. Therefore, we cannot predict when
or if any of the projects we currently have under development will
progress to the signed contract or operational phase and generate
revenue. We do not expect sales to be seasonal or
cyclical.
Material Regulation
Our
business and products are subject to material regulation. However,
because we contemplate offering our products and services in
different countries, the specific nature of the regulatory
requirements will be wholly dependent on the nation where the
project will be located and the national, state, and local
regulations that apply at that location.
In
all cases, we expect the level of regulation will be material and
will require significant permitting and ongoing compliance during
the life of the project. The most significant regulations will
likely be environmental and will include mitigating possible
adverse effects during both the construction and operational phases
of the project.
However,
we believe that the limited plant site disturbance of both
SWAC/LWAC and OTEC projects, together with the significantly lower
emissions that result from these projects as compared to
fossil-fuel electrical generation, will make compliance with all
such regulation manageable in the normal course.
The
second most significant regulations will likely involve
coordination with existing infrastructure. We believe compliance
with this type of regulation is a routine civil engineering
coordination process that exists for all new buildings and
infrastructure projects of all types. Again, we believe that the
design of both SWAC/LWAC and OTEC projects can readily be modified
to avoid interference with existing infrastructure in most
cases.
Facilities
Our
principal executive offices are located at 800 South Queen Street,
Lancaster, Pennsylvania 17603. Our telephone number at that address
is (717) 299-1344.
Intellectual Property
We
use, or intend to employ in the performance of our material
contracts, intellectual property rights in relation to the design
and development of OTEC plants. Our intellectual property rights
can be categorized broadly as proprietary know-how, technical
databases, and trade secrets comprising concept designs, plant
design, and economic models. Additionally, we have applied to
register the trademark TOO DEEP® at the U.S. Patent and
Trademark Office for the provision of desalinated deep ocean water
for consumption. The trademark has been “published for
opposition” as of February 12, 2019.
We
may apply for patents for components of our intellectual property
for OTEC and SWAC/LWAC systems, including novel or new
methodologies for cold-water piping, heat exchanges, and
computer-aided design programs. We cannot assure that any patents
we seek will be granted.
Our
intellectual property has been developed by our employees and is
protected under employee agreements confirming that the rights in
the inventions and developments made by the employees are our
property. Confidential information is protected by nondisclosure
agreements we entered into with prospective partners or other third
parties with which we do business.
We
have not received any notification from third parties that our
processes or designs infringe any third-party rights, and we are
not aware of any valid and enforceable third-party intellectual
property rights that infringe our intellectual property rights.
Currently, there is no patent for any company for OTEC
technology.
Employees
We
currently have five employees, consisting of one officer, three
engineers/technicians, and one general and administrative employee,
and three consultants. There are no collective-bargaining
agreements with our employees, and we have not experienced work
interruptions or strikes. We believe our relationship with
employees is good, and we provide health and life insurance for all
employees.
Investing in our common stock involves a high degree of risk.
Investors should carefully consider the risks described below, as
well as the other information in this report, including our
financial statements and the related notes and
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” before deciding whether
to invest in our common stock. The occurrence of any of the events
or developments described below could harm our business, financial
condition, operating results, and growth prospects. In such an
event, the market price of our common stock could decline, and
investors may lose all or part of their investment. Additional
risks and uncertainties not presently known to us or that we
currently deem immaterial also may impair our business
operations.
Risks Related to Our Financial Condition
The auditors’ report for the years ended December 31, 2018
and 2017, contains an explanatory paragraph about our ability to
continue as a going concern.
The
report of our auditors on our consolidated financial statements for
the years ended December 31, 2018 and 2017, as well as for prior
years, contains an explanatory paragraph raising substantial doubt
about our ability to continue as a going concern. We had a net loss
of $7,880,013 and $14,591,675, respectively; used cash in
operations of $1,638,582 and $1,469,169, respectively; and had a
working capital deficiency of $17,601,515 and $10,716,255,
respectively, and an accumulated deficit of $75,583,231 and
$67,703,218, respectively, at December 31, 2018 and 2017. This
raises substantial doubt about our ability to continue as a going
concern. Our ability to continue as a going concern beyond December
31, 2019, is dependent on our ability to raise additional capital
through the sale of debt or equity securities or stockholder loans
and to implement our business plan during the next 12 months. The
financial statements do not include any adjustments that might be
necessary if we are unable to continue as a going concern.
Management believes that actions presently being taken to obtain
additional funding through implementing our strategic plans,
broadly based marketing strategy, and sales incentives to expand
operations will provide the opportunity for us to continue as a
going concern.
We have no current project that will generate revenues in the near
future.
None of
our several projects is to the development stage at which it will
generate revenues in the near future. Our project development
cycles are relatively long, extending over several years as we
identify a potential project site, complete negotiations with third
parties, complete permitting, obtain financing, complete
construction, and place a plant into service. We expect to receive
a development fee of approximately 3% of the project cost from our
projects, payable upon the close of project financing. Operating
revenues from projects are expected to be received when the plant
has been built and placed into operation. We are currently focusing
on developing a U.S. Virgin Island project, but even if we develop
it successfully, it will not generate revenues until several years
in the future. Until we receive revenues from this or another
project, we will be dependent on raising funds from external
sources.
We will require substantial amounts of additional capital from
external sources.
We do
not have any current source of revenues or sufficient cash or other
liquid resources to fund our planned activities until we receive
development fees from new contracts. Accordingly, as in the past,
we will need substantial amounts of capital from external sources
to fund day-to-day operations and project development. We have no
arrangements or commitment for such capital. We plan to continue
our practice of seeking external capital through the sale of debt
or equity, although we cannot assure that such efforts will be
successful. Any new investments will dilute the interest of the
current stockholders. Further, new investors may require
preferential financial returns, security, voting rights, or other
preferences that will be superior to the rights of the holders of
common stock. Alternatively, as project development advances, we
may be required to sell all or a portion of our interest in one or
more projects, which could reduce our retained financial interest
and potential return.
Risks Related to Our Business
Our efforts to develop OTEC and SWAC/LWAC plants are subject to
many financial, technical, managerial, and sales risks that may
make us unsuccessful.
We
incur substantial costs that we may not recover developing a new
project that we may not build, operate, or sell. The identification
of suitable locations, the investigation of the applicable
regulatory and economic framework, the identification of potential
purchasers, the completion of preliminary engineering and planning,
and the funding of related administrative and support costs
ordinarily require several years to complete before we determine to
further develop or abandon a project. Each of these steps is
fraught with risks and uncertainties, such as:
●
limited market due
to low demand, existing competitive energy sources, low power
costs, or the absence of a single or few large potential output
purchasers;
●
a regulatory scheme
suggesting that the development and operation of a plant would be
subject to excessively stringent utility regulations or
environmental requirements, burdensome zoning or permitting
practices and requirements, or similar factors;
●
shortage of
suitable onshore locations, lack of available cold water with
near-shore accessibility, sea wave and current conditions, and
exposure to hurricanes, typhoons, earthquakes, or similar extreme
events;
●
the unavailability
of favorable tax or other incentives or excessively stringent
applicable incentive requirements;
●
the high cost and
potential regulatory difficulties in integrating into new
markets;
●
the possibility
that new markets may be limited or unstable or exposed to
competition from other sources of existing or potentially new
energy sources;
●
difficulties in
negotiating power purchase agreements (PPAs) with potential
customers, including in some instances, the necessity to assist in
the formation of a power purchasing group; and
●
the need to educate
the market as well as investors regarding the reliability and
economical and environmental benefits of ocean thermal
technologies.
We
cannot assure that we will be able to overcome these risks as we
initiate the development of a project. We may incur substantial
costs in advancing a project through the early stages, only to
conclude eventually that the project is not economically or
technically feasible, in which case we may be unable to recover the
costs that we have then incurred. When we elect to proceed with a
project, we may continue to incur substantial costs and be unable
to complete the development, sell the project, or otherwise recover
our investment. Even when a project is developed, constructed, and
placed into operation, we cannot assure that we will be able to
operate at a profit sufficient to recover our total
investment.
We are dependent on the
performance of counterparties to our
agreements.
Our
projects are and will be complex, with a number of agreements among
several parties that purchase plant outputs; provide financing;
complete design, construction, and other services; design and
perform regulatory compliance; and fulfill other requirements. The
failure of any participant in one of our projects due to its own
management, financial, operating, or other deficiencies, all of
which may be outside our control, can materially and adversely
affect our operations and financial results. In circumstances in
which we are not the prime developer of a large-scale project
involving many large components in addition to our OTEC, SWAC/LWAC,
or other components, we would have little ability to address
problems resulting from performance failures by others or implement
project-wide remedial measures. The foregoing is illustrated in our
Baha Mar project, which is now on hold because of contract
performance and financing disputes by others and may never
resume.
Ongoing world economic, currency-exchange, energy-price, and
political circumstances adversely affect our project development
activities.
Recent
and ongoing world events outside of our control or influence
adversely affect our development activities. Economic uncertainties
have resulted in the unpredictable availability of credit, debt,
and equity financing; volatile interest rates; currency
exchange-rate fluctuations that add risk to international projects;
restrictions on the availability of borrowing; concerns respecting
inflation and deflation; economic turmoil resulting from
unpredictable political events and tensions in international
relations; substantial reductions in hydrocarbon energy prices and
the impact of such declines on the cost of energy generally; shifts
in the economic feasibility of competitive energy sources; and
similar factors. These adverse factors frequently have a
particularly intense effect on emerging markets and developing
countries, which we believe provide the greatest opportunity for
our development of our projects. The possibility that principal
energy prices will continue at current or even higher levels, which
could reduce the projected cost at which power could be generated
by hydrocarbon-fueled power plants, could make our relatively
higher-cost plants less competitive. These emerging and developing
markets are particularly vulnerable to the negative impacts of
these adverse circumstances. The economic feasibility of
alternative energy, including theprocess we develop and propose to
operate, as compared to hydrocarbon energy is adversely affected as
the prices for hydrocarbon fuels decline. Accordingly, possible
continuing low hydrocarbon prices may retard the potential increase
in the economic feasibility of alternative energy. The decline in
crude oil prices from over $100 per barrel several years ago to
approximately half that in mid-2016 has adversely affected
alternative energy development. Our ability to develop and operate
alternative energy plants and our ability to generate revenue will
be adversely affected by continuing, relatively soft hydrocarbon
energy prices. Further, alternative energy development may be
adversely affected by uncertainty in hydrocarbon prices or public
expectations that hydrocarbon prices may decline
again.
We require substantial amounts of capital for all phases of our
proposed activities.
We
require substantial amounts of capital to fund efforts to identify,
research, preliminarily engineer, permit, and design our projects
and to negotiate PPAs for them. These costs may not be recovered,
because we may not elect to complete the development of the project
or because the development and operation of the project are not
successful. We will rely on external capital to fund all of our
operations, and we cannot assure that such capital will be
available. Our efforts to access capital markets willbe limited,
particularly at the outset, because we have not yet developed and
placed into operation our first plant. Accordingly, we expect that
we will have to provide the potential for a significant economic
return for the initial capital we obtain, which will likely dilute
the interests of our existing stockholders. We expect that each
project that we are able to fully develop, construct, and place
into operation will require several stages and levels of debt and
equity financing. For example, we expect that a 20-MW OTEC plant
may require total capital expenditures of approximately $445
million, consisting of $365 million in project debt financing and
$80 million in equity. We cannot assure that we will be able to
obtain financing, and if obtained, such financing may be on terms
that we will retain only a minority financial interest in the
completed project and its operations. Our inability to obtain
required financing for any activity or project could have a
material adverse effect on our activities and
operations.
We are reliant on our key executives and personnel.
Our
business, development, and prospects are highly dependent upon the
continued services and performance of our directors and other key
personnel, on whom we rely for experience, technical skills, and
commercial relationships. We believe that the loss of services of
any existing key executives, for any reason, or failure to attract
and retain necessary personnel, could have a material adverse
impact on our business, development, financial condition, results
of operations, and prospects. Although we have entered into
employment agreements with our key executives, we may not be able
to retain our key executives. We do not maintain key-man life
insurance on any of our executive employees.
Regulations and policies governing energy projects, power
generation, desalinated water sales, and other aspects of our OTEC
and SWAC/LWAC plants may adversely affect our ability to develop
projects, and any changes in the applicable regulatory schemes may
adversely affect projects that we are constructing or have
constructed and are operating.
In
identifying possible plant locations and undertaking preliminary
development, an important factor in the overall economic
feasibility of a project will be the governing regulatory regime.
Such regulation includes the way the local jurisdiction regulates
the power, cooling energy, or water output from a plant. Any change
in that regulatory scheme after we determine to develop a plant
based on existing circumstances could have a material adverse
effect on our proposed operations. Generally, we will seek to
structure plant output sales agreements as privately negotiated
contracts not subject to utility or similar regulation, but we
cannot assure that we will be able to do so. Some PPAs that we may
seek to enter into may be subject to public utility commission
approval, which may not be obtained or may be delayed. In some
jurisdictions, the sale of output from a plant may be subject to
public service commission or regulation by a similar authority as a
public utility, even though we attempt to negotiate a private
purchaser agreement for that output. In these circumstances, we may
encounter delays in obtaining any required approval, approval may
be conditioned on specified prices or other operating conditions,
or the existence of the regulatory framework may delay or limit our
ability to seek price increases.
The financial model for our proposed projects has not been tested
and may not be successful.
We are
proposing a financial model for the development of individual
projects that includes development financing provided by us,
construction financing provided by equity investors in the specific
projects, and project debt financing; the payment of a development
fee to us at the time of construction; and continuing equity
participation by us throughout the plant’s operation. We have
not used this model in the financing or completion of any plant,
and we cannot assure that the financial model and, therefore, the
anticipated financial return to us will be acceptable to those that
might provide the requisite external capital.
We may
need to revise extensively our financing structure for each
project, and we cannot assure that any restructured proposal would
not substantially reduce our financial return or increase our risk.
The financial, investment, and credit community are generally
unfamiliar with OTEC and SWAC/LWAC projects, which will adversely
affect our financing efforts. We have no existing relationships
with potential sources of debt or equity capital, and any financing
sources that we may develop may be inadequate to support the
anticipated capital needs of our business. Our efforts to obtain
financing may be adversely affected by the fact that our projects
will likely be located in developing or emerging markets. Our
inability to obtain financing may force us to abandon projects in
which we have invested substantial costs, which we may be unable to
recover. The process of identifying new sources of debt and equity
financing and agreeing on all relevant business and legal terms
could be lengthy and could require us to limit the rate at which we
can develop projects or reduce our financial return.
We may be exposed to political and legal risks in the developing or
emerging markets in which we propose to locate plants.
Many of
the markets that may be suitable for a potential OTEC or SWAC/LWAC
plants are located in emerging or developing countries that may
have evolving and untested regulatory and legal environments for
large-scale, international, commercial enterprises. Further,
political instability, regime change, or other factors may increase
uncertainty and instability, which in turn may adversely affect our
ability to secure necessary regulatory approvals and obtain
required project financing, which increases related costs and
reduces our financial return. Any changes in applicable laws and
regulations, including any governmental incentives, environmental
requirements or restrictions, safety requirements, and similar
matters, and the risk or likelihood of such a change could
adversely affect the availability and cost of financing. Further,
in some jurisdictions, applicable legal requirements may not have
been fully tested and are still being developed in the face of
modern international commercial transactions and environmental
requirements, which may lead to changes in interpretation or
application that may be adverse to us. Our expectations regarding
the size of the potential OTEC and SWAC/LWAC markets and the number
of possible suitable locations may not be accurate.
Our
business plan and models are based on our identification of
potential suitable locations for OTEC or SWAC/LWAC plants based on
a preliminary evaluation of public information respecting
demographic data, current power-generation costs, and local
seafloor contours and seawater temperatures, which may be
inaccurate. Any material inaccuracy could substantially reduce the
total market available to us for plant development.
We may
be unable to arrange or complete future construction projects on
time, within expected budgets, or without interruption due to
materials availability and disruptions in supply, labor, or other
factors. If any project reaches the point at which we undertake
construction, such construction may be subject to actual prices
higher than the amount budgeted, the limited or delayed
availability of components or materials, shortages or interruptions
of labor or materials, or similar circumstances. In the case we
have insufficient budget flexibility to pay increased construction
costs, corresponding delays could result to construction completion
and the commencement of operations.
Emerging markets
are often associated with growth rates that may not be sustainable
and may be accompanied by periods of high inflation. Rising
inflation or related government monetary and economic policies in
certain project jurisdictions may affect our ability to obtain
external financing and reduce our ability to implement our
expansion strategy. We can give no assurances that a local
government will not implement general or project-specific measures
to tighten external financing standards, or that if any such
measure is implemented, it will not adversely affect our future
operating results and profitability.
We are subject to changing attitudes about environmental
risks.
Our
projects may face opposition from environmental groups that may
oppose our development, construction, or operation of OTEC or
SWAC/LWAC plants. Each project is expected to have different
environmental issues, especially as many of our projects are based
in different settings having a wide range of environmental
standards. We intend to solicit input from environmental
organizations and activists early in our design process for our
projects in an effort to consider appropriately these
organizations’ recommendations in order to mitigate
subsequent conflict or opposition, but we cannot assure that such
outreach will be effective in all cases, and if it is not,
opposition to our projects could increase our cost and adversely
affect the results of our operations.
We may be unable to find land suitable for our
projects.
Each
project site requires land of differing characteristics to permit
the cost-effective construction of OTEC or SWAC/LWAC plants, and
suitable land may not always be available. Even if available, such
land may be difficult to obtain in a timely or cost-effective
manner. For example, we would prefer to place OTEC power systems
and facilities as close to the ocean as possible. We hope to
mitigate this risk by using land owned by local governments, rather
than private individuals or entities, as targeting local
governments with favorable energy policies or mandates should
reduce land rights risks. Our inability to secure appropriate land
at a reasonable cost may render certain of our future projects
economically unfeasible.
We have a limited number of suppliers for certain materials, which
could increase our costs or delay completion of
projects.
In our
systems, the two most important components are heat exchangers and
deep-water intake pipes. Although there are multiple providers of
each of these components, the supply of the best components comes
from just a few companies globally. Should these resources become
unavailable for any reason or too costly, we would be required to
seek alternative suppliers. The products from such suppliers could
be of a lower quality or more costly, in any event requiring us to
expend additional monies or time to complete our projects as
planned. This could result in financial penalties or other costs to
us.
There may be greater cost in building OTEC plants that generate
over 10 MWs of electricity.
In
order to successfully obtain debt financing for OTEC facilities, we
must find engineering, procurement, and construction contractors
willing to enter into fixed-price contracts at a pricing that is
economically viable for us. Based on our preliminary discussions,
we believe that engineering, procurement, and construction
contractors may be willing to consider fixed-price arrangements for
up to 10-MW OTEC facilities, but we have not yet discussed
performance risk guarantees for OTEC plants greater than 10 MWs.
The cost of construction for larger OTEC power systems may vary
considerably, and these variances could include increased costs for
construction, design, and component procurement. As we gain more
experience, we may improve upon efficiencies and accuracy in
pricing. Failure to procure engineering, procurement, and
construction contractors willing to perform fixed-price contracts
on facilities that produce more than 20 MWs may have a material
adverse effect on our operations.
Technological advances may render our technologies, products, and
services obsolete.
We
operate in a fast-moving sector in which new forms of power
generation and new energy sources are continuously being
researched. New technologies may be able to provide power, coolant,
desalinated seawater, or other outputs at a lower cost, including
amortization of capital costs, or with less environmental impact.
We will remain subject to these risks for the useful life of our
projects, which could extend for 20 to 30 years or more. Any such
technological improvements could render our projects
obsolete.
We may not successfully manage growth.
We
intend to continue to develop the projects in our project pipeline
and to construct and operate plants as we deem warranted and as we
are able to finance. This is an ambitious growth strategy. Our
growth and future success will depend on the successfulcompletion
of the expansion strategies and the sufficiency of demand for our
energy products. The execution of our expansion strategies may also
place a strain on our managerial, operational, and financial
reserves. Should we fail to effectively implement such expansion
strategies or should there be insufficient demand for our products
and services, our business operations, financial performance, and
prospects would be adversely affected.
There will likely be a single or limited number of power purchasers
from each plant, so we will be dependent on their economic
viability and stability and continued operations.
We
expect that any plant that we operate will provide power, cooling,
desalinated water, or other products to a few or a limited number
of key power purchasers that will use the power for specific
commercial enterprises, such as resorts, manufacturing or
processing plants, or similar large-scale operations. Accordingly,
our ability to sell power and other outputs will be dependent on
the economicviability of these purchasers. If one or more key
purchasers were to fail, we would be required to obtain alternative
purchasers for our power and other outputs, and there may be no or
a limited number of alternative purchasers in the merging and
developing markets where we anticipate our plants may be located.
Accordingly, a failure of an output purchaser may result in the
failure of our power plant project. We do not anticipate that we
will be able to obtain insurance to protect us against such a loss
onacceptable terms. Further, our project output purchasers may not
comply with contractual payment obligations or may otherwise fail
to perform their contracts, and they may have greater economic
bargaining power and negotiating leverage as we seek to enforce our
contractual rights. To the extent that any of our project power
purchasers are, or are controlled by, governmental entities, our
projects may also be subject to legislative, administrative, or
other political action or policies that impair their contractual
performance. Any failure of any key power purchasers to meet their
contractual obligations for any reason could have a material
adverse effect on our business and operations.
Operational problems, natural events or catastrophes, casualty
loss, or other events may impair the commercial operation of our
projects.
Our
ability to meet our delivery obligations under power-generation
contracts, as well as our ability to meet economic projections,
will depend on our ability to maintain the efficient working order
of our plants. Severe weather, natural disasters, accidents,
failure of significant equipment components, inability to obtain
replacement parts, failure of power transmission facilities, or
other catastrophes or occurrences could materially interrupt our
activities and consequently reduce our economic return. Since all
of our plants will be located on the shore within close proximity
to deep-ocean or lake water, our plants will be subject to
extraordinary natural occurrences, such as wave surges from
hurricanes or typhoons, tsunamis, earthquakes, and other events,
over which we will have absolutely no control. We cannot assure
that we can obtain sufficient insurance to protect us from all
risks resulting from such catastrophes. Further, we cannot assure
that any design features or operating policies that we may use will
mitigate the risks to which our plants may be exposed. Any
threatened or actual events could expose us to plant shutdowns,
substantial repairs, interruptions of operations, damages to our
power purchasers, and similar events that could require us to incur
substantial costs and significantly impair our revenues and results
of operations.
We may be adversely affected by climate change.
Climate
change may result in changes in ocean currents and water
temperatures that could have a material adverse effect on our
results of operations. These changes may require additional capital
costs or impair the efficiency of our operations. Because of the
size and cost of major components of ourpower plants, we typically
will not inventory spare components, so that any substantial damage
may require that we await the custom manufacture and delivery of
such items, which may involve substantial delays. Significant
changes may render any plant inefficient and
uneconomical.
Our projects will be subject to substantial
regulation.
Our
projects likely will be significant commercial or industrial
enterprises in each of their locations and, as such, will be
subject to numerous environmental, health and safety,
antidiscrimination, and similar laws and regulations in each of the
jurisdictions governing our locations. These laws and regulations
will require our projects to obtain and maintain permits and
approvals; complete environmental impact assessments or statements
prior to construction; and review processes and operations to
implement environmental, health and safety, antidiscrimination, and
other programs and procedures to control risks associated with our
operations.
Our
in-water facilities and operations may be deemed to threaten living
coral, sea plants and animals, shoreline contours, and similar
items. In some circumstances, we may encounter environmental
problems that we may unable to overcome, which may force us to
relocate our facilities, at considerable additional
costs.
If our
projects do not comply with applicable laws, regulations, or permit
conditions, or if there are endangered or threatened species
fatalities on our projects, we may be required to pay penalties or
fines or curtail or cease operations of the affected projects. In
addition, violations of environmental and other laws, including
certain violations of laws protecting wetlands, shorelines and
land, and sea plant and animal life, may result in civil fines,
criminal sanctions, or injunctions.
Some
environmental laws impose liability on current and previous owners
and operators of real property for the cost of removal or
remediation of hazardous substances, without regard to whether the
owner or operator knew of, or was responsible for, the release of
such hazardous substance. In some jurisdictions, private plaintiffs
may also bring claims arising from the presence of hazardous
substances or their unlawful release or exposure. We will likely be
unable to purchase insurance against these risks at all or on
acceptable terms.
Environmental
health and safety laws, regulations, and permit requirements
applicable to any specific project at the time of construction may
change or become more stringent during the life of the operation.
Any such changes could require that our projects incur substantial
additional costs, alter their operations, or limit or curtail their
operations in order to comply, which would have a material adverse
effect on our operations. We may not be able to pass on any
additional costs that we incur to our power purchasers,
particularly in those cases in which we sell power pursuant to a
long-term, fixed-price agreement. The OTEC and SWAC/LWAC industry
may be subject to increased regulatory oversight.
As the
OTEC and SWAC/LWAC industries develop, new regulatory schemes may
be adopted by one or more jurisdictions in which we develop or
operate plants in order to address actual or perceived threats or
problems. In addition to more stringent environmental, safety, and
other regulations that may be applicable to usgenerally under the
current regulatory scheme, whole new areas of regulation may be
adopted, which could have a material adverse effect on our results
of operations. New regulations may specifically regulate, for
example, the price at which power that is generated from different
seawater temperatures may be sold, even to private purchasers. We
may have plants in various locations subject to different governing
jurisdictions, so the complexity of this developing and expanding
regulatory pattern may be particularly cumbersome and
expensive.
Insurance to cover anticipated risks may become more
expensive.
There
are no known commercial OTEC and SWAC/LWAC plants in operation, so
the nature and cost of insurance is difficult to predict. Insurance
costs may substantially exceed the costs forecast during the
planning process or budgeted during actual operations. We cannot
assure that adequate insurance coverage will be available to
protect us against all risks or that any related costs will be
economical. Accordingly, if we are unable or cannot afford to
purchase insurance against specific risks, our projects may be
fully exposed to those risks, which also could have a material
adverse effect on the viability of any affected plant.
Risks Related to Our International Operations
Certain risks of loss arise from our need to conduct transactions
in foreign currencies.
Our
business activities outside the United States and its territories
may be conducted in foreign currencies. In the future, our capital
costs and financial results may be affected by fluctuations in
exchange rates between the applicable currency and the dollar.
Other currencies used by us may not be convertible at satisfactory
rates. In addition, the official conversion rates between a
particular foreign currency and the U.S. dollar may not accurately
reflect the relative value of goods and services available or
required in other countries. Further, inflation may lead to the
devaluation of such other currencies.
Foreign governmental entities may have the authority to alter the
terms of our rights or agreements if we do not comply with the
terms and obligations indicated in such agreements.
Pursuant to the
laws in some jurisdictions in which we may develop or operate
plants, foreign governmental entities may have the authority to
alter the terms of our contractual or financial rights or override
the terms of privately negotiated agreements. In extreme
circumstances, some foreign governments have taken the step of
confiscating private property on theassertion that such action is
necessary in the public interest of the country. If this were to
occur, we may not be compensated fairly or at all. We cannot assure
that we have complied, and will comply, with all the terms and
obligations imposed on us under all foreign laws to which one or
more of our operations and assets may be subject.
Our operations will require our compliance with the Foreign Corrupt
Practices Act.
We must
conduct our activities in or related to foreign companies in
compliance with the U.S. Foreign Corrupt Practices Act, or FCPA,
and similar anti-bribery laws that generally prohibit companies and
their intermediaries from making improper payments to foreign
government officials for the purpose of obtaining or retaining
business. Enforcement officials interpret the FCPA’s
prohibition on improper payments to government officials to apply
to officials of state-owned enterprises, including state-owned
enterprises with which we may develop or operate projects or to
which we may sell plant outputs. While our employees and agents are
required to acknowledge and comply with these laws, we cannot
assure that our internal policies and procedures will always
protect us from violations of these laws, despite our commitment to
legal compliance and corporate ethics. The occurrence or allegation
of these activities may adversely affect our business, performance,
prospects, value, financial condition, reputation, and results of
operations.
Our competitors may not be subject to laws similar to the FCPA,
which may give them an advantage in negotiating with underdeveloped
countries and the government agencies.
Our
competitors outside the United States may not be subject to
anti-bribery or corruption laws as encompassing or stringent as the
U.S. laws to which we are subject, which may place us at a
competitive disadvantage.
We may encounter difficulties repatriating income from foreign
jurisdictions.
As we
develop and place plants into operation, we intend to enter into
revenue-generating agreements in which we are paid only in U.S.
dollars directly to our U.S. banks or through countries in which
repatriation of the funds to our U.S. accounts is unrestricted.
However, situations could arise in which we agree to accept payment
in foreign jurisdictions and for which restrictions make it
difficult or costly to transfer these funds to our U.S. accounts.
In this event, we could incur costs and expenses from our U.S.
assets for which we cannot recover income directly. This could
require us to obtain additional working capital from other sources,
which may not be readily available, resulting in increased costs
and decreased profits, if any.
Risks Related to Our Common Stock
Our common stock is thinly traded, and there is no guarantee of the
prices at which the shares will trade.
Our
common stock is quoted on the OTCQB Marketplace operated by the OTC
Markets Group, Inc., under the ticker symbol “CPWR.”
Not being listed on an established securities exchange has an
adverse effect on the liquidity of our common stock, not only in
terms of the number of shares that can be bought and sold at a
given price, but also through delays in the timing of transactions
and reduction in security analysts’ and the media’s
coverage of our company. This may result in lower prices for our
common stock than might otherwise be obtained and could also result
in a larger spread between the bid and asked prices for our common
stock. Historically, our common stock has been thinly traded, and
there is no guarantee of the prices at which the shares will trade
or of the ability of stockholders to sell their shares without
having an adverse effect on market prices.
We have never paid dividends on our common stock and we do not
anticipate paying any dividends in the foreseeable
future.
We have
not paid dividends on our common stock to date, and we may not be
in a position to pay dividends in the foreseeable future. Our
ability to pay dividends depends on our ability to successfully
develop our OTEC business and generate revenue from future
operations. Further, our initial earnings, if any, will likely be
retained to finance our growth. Any future dividends will depend
upon our earnings, our then-existing financial requirements, and
other factors and will be at the discretion of our board of
directors.
Because our common stock is a “penny stock,” it may be
difficult to sell shares of our common stock at times and prices
that are acceptable.
Our
common stock is a “penny stock.” Broker-dealers that
sell penny stocks must provide purchasers of these stocks with a
standardized risk disclosure document prepared by the U.S.
Securities and Exchange Commission (“SEC”). This
document provides information about penny stocks and the nature and
level of risks involved in investing in the penny stock market. A
broker must also give a purchaser, orally or in writing, bid and
offer quotations and information regarding broker and salesperson
compensation, make a written determination that the penny stock is
a suitable investment for the purchaser, and obtain the
purchaser’s written agreement to the purchase. The penny
stock rules may make it difficult for investors to sell their
shares of our common stock. Because of these rules, many brokers
choose not to participate in penny stock transactions and there is
less trading in penny stocks. Accordingly, investors may not always
be able to resell shares of our common stock publicly at times and
prices that they feel are appropriate.
In
addition to the “penny stock” rules described above,
the Financial Industry Regulatory Authority (known as
“FINRA”) has adopted rules that require that in
recommending an investment to a customer, a broker-dealer must have
reasonable grounds for believing that the investment is suitable
for that customer. Prior to recommending speculative, low-priced
securities to their noninstitutional customers, broker-dealers must
make reasonable efforts to obtain information about the
customer’s financial status, tax status, investment
objectives, and other information. Under interpretations of these
rules, FINRA believes that there is a high probability that
speculative, low-priced securities will not be suitable for at
least some customers. FINRA requirements make it more difficult for
broker-dealers to recommend that their customers buy our common
shares, which may limit an investor’s ability to buy and sell
our stock and have an adverse effect on the market for our
shares.
Our management concluded that our internal control over financial
reporting was not effective as of December 31, 2018. Compliance
with public company regulatory requirements, including those
relating to our internal control over financial reporting, have and
will likely continue to result in significant expenses and, if we
are unable to maintain effective internal control over financial
reporting in the future, investors may lose confidence in the
accuracy and completeness of our financial reports and the market
price of our common stock may be negatively affected.
As a
public reporting company, we are subject to the Sarbanes-Oxley Act
of 2002 as well as to the information and reporting requirements of
the Securities Exchange Act of 1934, as amended, and other federal
securities laws. As a result, we incur significant legal,
accounting, and other expenses, including costs associated with our
public company reporting requirements and corporate governance
requirements. As an example of public reporting company
requirements, we evaluate the effectiveness of disclosure controls
and procedures and of our internal control over financing reporting
in order to allow management to report on such
controls.
Our
management concluded that our internal control over financial
reporting was not effective as of December 31, 2018, due to a
failure to maintain an effective control environment, failure of
segregation of duties, failure of entity-level controls, and our
sole executive’s access to cash.
If
significant deficiencies or other material weaknesses are
identified in our internal control over financial reporting that we
cannot remediate in a timely manner, investors and others may lose
confidence in the reliability of our financial statements. This
would likely have an adverse effect on the trading price of our
common stock and our ability to secure any necessary additional
equity or debt financing.
ITEM 1B. UNRESOLVED
STAFF COMMENTS
None.
Our
principal corporate offices located at 800 South Queen Street,
Lancaster, PA contain approximately 28,000 square feet and are
leased from Queen Street Development Partners 1, LP at $10,000 per
month. Our lease is a month-to-month basis. Queen Street
Development Partners 1, LP is owned by our chief executive officer
and director. We believe the terms of this lease are similar to
those that we could negotiate in an arm’s-length transaction
with an unrelated third party. The facilities and equipment
described above are generally in good condition, well maintained,
and suitable and adequate for our current and projected operating
needs.
ITEM 3.
LEGAL
PROCEEDINGS
From
time to time, we are involved in legal proceedings and regulatory
proceedings arising from operations. We establish reserves for
specific liabilities in connection with legal actions that
management deems to be probable and estimable.
On May
4, 2018, we reached a settlement of the claims at issue in
Ocean Thermal Energy Corp. v.
Robert Coe, et al., Case No. 2:17-cv-02343SHL-cgc, before
the United States District Court for the Western District of
Tennessee. On August 8, 2018, an $8 million judgment was entered
against the defendants and in our favor. We have reason to believe
the defendants have adequate assets to satisfy this judgment in
full. Between May 30 and July 19, 2018, we received three
payments totaling $100,000 from the defendants. This process is ongoing. Information will be
updated as it progresses.
ITEM 4. MINE SAFETY
DISCLOSURES
Not
applicable.
ITEM 5. MARKET FOR
REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our
common stock is quoted on the OTCQB Marketplace operated by the OTC
Markets Group, Inc., under the ticker symbol “CPWR.”
The following table sets forth the range of high and low closing
prices of our common stock per quarter as reported by the OTCQB for
the past two fiscal years ended December 31, 2018 and 2017,
respectively, and subsequent fiscal quarter ending March 31, 2019
(through March 14, 2019). All quoted prices reflect interdealer
prices without retail mark-up, mark-down, or commission, adjusted
to account for past stock splits, and may not necessarily represent
actual transactions:
|
|
|
|
|
Year
Ending December 31, 2019
|
|
First Quarter
(through March 14, 2019)
|
$0.038
|
$0.055
|
|
|
|
|
|
Year
Ended December 31, 2018
|
|
|
|
Fourth
Quarter
|
$0.04
|
$0.08
|
|
Third
Quarter
|
$0.055
|
$0.12
|
|
Second
Quarter
|
$0.107
|
$0.30
|
|
First
Quarter
|
$0.12
|
$0.52
|
|
|
|
|
|
Year
Ended December 31, 2017
|
|
|
|
Fourth
Quarter
|
$0.05
|
$2.25
|
|
Third
Quarter
|
$1.00
|
$7.00
|
|
Second
Quarter
|
$3.00
|
$12.25
|
|
First
Quarter
|
$1.70
|
$17.50
|
On
March 14, 2019, the closing price per share of our common stock as
quoted on the OTCQB was $0.0479. As of March 15, 2019, there were
approximately 1,508 stockholders of record of our common
stock.
Dividends
We have
not paid or declared any cash dividends since our inception and do
not intend to declare or pay any such dividends in the foreseeable
future. Our ability to pay cash dividends is subject to limitations
imposed by state law.
Equity Compensation Plan
We do
not have any securities authorized under equity compensation
plans.
Recent Sales of Unregistered Securities
For the
three months ended December 31, 2018, we issued 393,512 shares of
common stock for $13,980 in cash.
In
November 2018, we issued 190,840 shares of common stock to our
chief executive officer for $5,000 in cash.
In
November and December 2018, we issued 2,700,000 shares of common
stock to L2 Capital for the conversion of a portion of our notes
payable to L2 Capital in the amount of $70,690.
In
December 2018, we issued 400,000 shares of common stock to L2
Capital as a commitment fee for $21,200 to purchase our outstanding
note payable from Collier Investments LLC.
In
January and February 2019, we issued 1,800,000 shares of common
stock to L2 Capital for the conversion of a portion of our notes
payable to L2 Capital in the amount of $49,614.
These
securities were issued in reliance on the exemption from
registration provided in Section 4(a)(2) of the Securities Act of
1933, as amended, for transactions not involving any public
offering. Each investor is an “accredited investor,” as
that term is defined in Rule 501(a) of Regulation D, and confirmed
the foregoing and acknowledged, in writing, that the securities
were acquired and will be held for investment. No underwriter
participated in the offer and sale of these securities, and no
commission or other remuneration was paid or given directly or
indirectly in connection therewith.
ITEM
6. SELECTED FINANCIAL
DATA
Not
applicable.
ITEM
7. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of our financial condition
and operating results should be read together with our financial
statements and related notes included elsewhere in this report.
This discussion and analysis and other parts of this report contain
forward-looking statements based upon current beliefs, plans, and
expectations that involve risks, uncertainties, and assumptions.
Our actual results may differ materially from those anticipated in
these forward-looking statements as a result of various factors,
including those set forth under “Risk Factors” or in
other parts of this report. Our fiscal quarters end on March 31,
June 30, September 30, and December 31, and our current fiscal year
ended on December 31, 2018.
Overview
We
develop projects for renewable power generation, desalinated water
production, and air conditioning using our proprietary technologies
designed to extract energy from the temperature differences between
warm surface water and cold deep water. In addition, our projects
provide ancillary products such as potable/bottle water and
high-profit aquaculture, mariculture, and agriculture
opportunities.
We
currently have no source of revenue, so as we continue to incur
costs we are dependent on external funding in order to continue. We
cannot assure that such funding will be available or, if available,
can be obtained on acceptable or favorable terms.
Our
operating expenses consist principally of expenses associated with
the development of our projects until we determine that a
particular project is feasible. Salaries and wages consist
primarily of employee salaries and wages, payroll taxes, and health
insurance. Our professional fees are related to consulting,
engineering, legal, investor relations, outside accounting, and
auditing expenses. General and administrative expenses include
travel, insurance, rent, marketing, and miscellaneous office
expenses. The interest expense includes interest and discounts
related to our loans and notes payable.
Description of Expenses
General
and administrative expenses consist primarily of salaries and
related costs for accounting, administration, finance, human
resources, and information systems. Professional fees expenses
consist primarily of fees related to legal, outside accounting,
auditing, and investor relations services.
Results of Operations
Comparison of Years Ended December 31, 2018 and 2017
We had
no revenue in the years ended December 31, 2018 and
2017.
During
the year ended December 31, 2018, we had salaries and wages of
$1,361,706, compared to salaries and wages of $2,044,882 during the
same period for 2017, a decrease of 33.4%, which is attributable to
a reduction in staff because of cost-cutting measures due to our
lack of revenue and funding.
During
the years ended December 31, 2018 and 2017, we recorded
professional fees of $1,201,956 and $1,669,202, respectively, a
decrease of 28% year over year, which is attributable to a decrease
in the use of outside consultants due to our lack of revenue and
funding.
General
and administrative expenses were $595,306 during the year ended
December 31, 2018, compared to $2,169,577 for the same period in
2017, a decrease of 72.6%. This decrease was the result of a
concerted effort to reduce all expenses during 2018. In 2017, we
incurred additional travel expenses for due diligence on a
potential acquisition and increased marketing expense to increase
our visibility.
Our
interest expense was $1,281,134 for the year ended December 31,
2018, compared to $614,749 for the same period of the previous
year, an increase of 108%. In addition to interest of $810,455 on
our notes payable, we also incurred liquidated damages of $56,250
on the replacement of one of our notes and a note default penalty
of $414,429.
During
the year ended December 31, 2017, we repriced warrants to purchase
14,692,500 shares of common stock and options to purchase 100,000
shares of common stock to $0. The warrants and options were then
exercised, and we issued 14,792,500 shares of common stock. These
warrants had a fair value of $6,769,562, which we recognized as an
expense in operations. There was no similar activity in
2018.
Our
amortization of debt discount and loan fee expenses was $1,160,983
for the year ended December 31, 2018, compared to $44,960 for the
same period of the previous year. This increase is due to our
payments of original discount fees and transaction fees for L2
Capital, LLC and Collier Investments, LLC. The expense also
reflects the fair value of warrants issued with notes payable and
recorded as discount, which we amortized during the year. In
addition, there was change in the fair value of the derivative
liability of $1,206,857 during the year ended December 31, 2018,
and $0 for the same period in 2017. We incurred a loss on the
extinguishment of debt of $279,432 in 2018, as compared to a loss
on settlement of debt $1,105,203 in 2017.
Our
operations used net cash of $1,638,582 during the year ended
December 31, 2018, as compared to using net cash of $1,469,169
during the year ended December 31, 2017. The change was primarily
due to the $1,206,857 of change in the derivative liability in
2018. The recognition of the impairment of assets under
construction of $892,639 also impacted the cash flow in
2018.
Investing
activities for the years ended December 31, 2018 and 2017, used
cash of $0 and $140,613, respectively. Of cash used in the year of
2017, $95,352 was an increase in our assets under construction and
the balance represents cash paid in connection with the
Merger.
Financing
activities provided cash of $1,221,965 for our operations during
the year ended December 31, 2018, as compared to $2,027,302, a
decrease of 39.7%. One of the major factors was the decrease in
proceeds of approximately $748,535 from warrants that were
exercised in 2017. In 2018, we received $165,885 in cash for the
sale of stock and received $615,086 in cash from the issuance of
convertible notes.
Liquidity and Capital Resources
At
December 31, 2018, our principal source of liquidity consisted of
$8,398 of cash, as compared to $425,015 of cash at December 31,
2017. At December 31, 2018, we had negative working capital
(current assets minus current liabilities) of $17,601,515. In
addition, our stockholders’ deficiency was $17,769,177 at
December 31, 2018, compared to stockholders’ deficiency of
$10,509,554 at December 31, 2017, an increase in the deficiency of
$7,259,623. We are now
focusing our efforts on promoting and marketing our technology by
developing and executing contracts. We are exploring external
funding alternatives, as our current cash is insufficient to fund
operations for the next 12 months.
On May
4, 2018, we reached a settlement of the claims at issue in
Ocean Thermal Energy Corp. v.
Robert Coe, et al., Case No. 2:17-cv-02343SHL-cgc, before
the United States District Court for the Western District of
Tennessee. On August 8, 2018, an $8 million federal court judgment
was entered against the defendants and in our favor. We believe the
defendants have adequate assets to satisfy this judgment in full.
Between May 30 and July 19, 2018, we received three payments
totaling $100,000 from the defendants. This process is ongoing.
Our
consolidated financial statements have been prepared assuming we
will continue as a going concern. We have experienced recurring
losses from operations and have an accumulated deficit. Our ability
to continue our operations as a going concern is dependent on
management’s plans, which include the raising of capital
through debt and/or equity markets until such time that funds
provided by operations are sufficient to fund working capital
requirements. We will require additional funding to finance the
growth of our current and expected future operations as well as to
achieve our strategic objectives. If we are unable to access the
equity line pursuant to the Equity Purchase Agreement of December
2017 with L2 Capital, LLC, we believe our current available cash
may be insufficient to meet our cash needs for the near future. We
cannot assure that the L2 Capital equity line or other financing
will be available in amounts or terms acceptable to us, if at all.
Further, we cannot assure that we will be able to collect all or
any portion of our judgment against third parties as discussed
above. The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. These consolidated financial statements
do not include any adjustments relating to the recovery of the
recorded assets or the classification of the liabilities that might
be necessary should we be unable to continue as a going
concern.
We have
no significant contractual obligations or commercial commitments
not reflected on our balance sheet as of this date.
Off-Balance Sheet Arrangements
We do
not have any off-balance sheet arrangements, financings, or other
relationships with unconsolidated entities or other persons, also
known as “special purpose entities.
Critical Accounting Policies
We have
identified the policies outlined below as critical to our business
operations and an understanding of our results of operations. The
list is not intended to be a comprehensive list of all of our
accounting policies. In many cases, the accounting treatment of a
particular transaction is specifically dictated by accounting
principles generally accepted in the United States, with no need
for management’s judgment in their application. The impact
and any associated risks related to these policies on our business
operations is discussed throughout Management’s Discussion
and Analysis of Financial Condition and Results of Operations when
such policies affect our reported and expected financial results.
For a detailed discussion on the application of these and other
accounting policies, see the notes to our consolidated financial
statements for the year ended December 31, 2018. Note that our
preparation of the consolidated financial statements requires us to
make estimates and assumptions that affect the reported amount of
assets and liabilities, disclosure of contingent assets and
liabilities at the date of our consolidated financial statements,
and the reported amounts of revenue and expenses during the
reporting period. We cannot assure that actual results will not
differ from those estimates.
Revenue Recognition
In May
2014, the Financial Accounting Standards Board (“FASB”)
issued Accounting Standard Update (“ASU”) 2014-09,
Revenue from Contracts with
Customers (Topic 606). This ASU is a comprehensive new
revenue recognition model that requires a company to recognize
revenue to depict the transfer of goods or services to a customer
at an amount that reflects the consideration it expects to receive
in exchange for those goods or services. We adopted the ASU on
January 1, 2018. The adoption of the ASU did not have an impact on
our consolidated financial statements during the years ended
December 31, 2018 and 2017.
Income Taxes
We use
the liability method of accounting for income taxes. Under the
liability method, deferred tax assets and liabilities are
determined based on temporary differences between financial
reporting and tax bases of assets and liabilities and on the amount
of operating loss carry-forwards and are measured using the enacted
tax rates and laws that will be in effect when the temporary
differences and carry-forwards are expected to reverse. An
allowance against deferred tax assets is recorded when it is more
likely than not that such tax benefits will not be
realized.
Capitalization Policy
Furniture,
vehicles, equipment, and software are recorded at cost and include
major expenditures, which increase productivity or substantially
increase useful lives. Maintenance, repairs, and minor replacements
are charged to expenses when incurred. When furniture, vehicles,
and equipment are sold or otherwise disposed of, the asset and
related accumulated depreciation are removed from this account, and
any gain or loss is included in the statement of operations. The
cost of furniture, vehicles, equipment, and software is depreciated
over the estimated useful lives of the related assets.
Assets
under construction represent costs incurred by us for our renewable
energy systems currently in process. We capitalize costs incurred
once the project has met the project feasibility stage. Costs
include environmental engineering, permits, government approval
costs, and site engineering costs. We currently have several
projects in the development stage. We capitalize direct interest
costs associated with the projects.
Recent Accounting Pronouncements
In June
2018, the FASB issued ASU 2018-07, Compensation–Stock Compensation (Topic
718): Improvements to Nonemployee Share-Based Payment
Accounting. This ASU relates to the accounting for
nonemployee share-based payments. The amendment in this update
expands the scope of Topic 718 to include all share-based payment
transactions in which a grantor acquired goods or services to be
used or consumed in a grantor’s own operations by issuing
share-based payment awards. The ASU excludes share-based payment
awards that relate to: (1) financing to the issuer; or (2) awards
granted in conjunction with selling goods or services to customers
as part of a contract accounted for under Topic 606, Revenue from Contracts from Customers.
The share-based payments are to be measured at grant-date fair
value of the equity instruments that the entity is obligated to
issue when the good or service has been delivered or rendered and
all other conditions necessary to earn the right to benefit from
the equity instruments have been satisfied. This standard will be
effective forpublic business entities for fiscal years beginning
after December 15, 2018, including interim periods within that
fiscal year. For all other entities, the amendments are effective
for fiscal years beginning after December 15, 2019, and interim
periods within fiscal years beginning after December 15, 2020.
Early adoption is permitted, but no earlier than an entity’s
adoption of Topic 606. We are currently reviewing the provisions of
this ASU to determine if there will be any impact on our results of
operations, cash flows, or financial condition.
We have
reviewed all recently issued, but not yet adopted, accounting
standards in order to determine their effects, if any, on our
consolidated results of operations, financial position, and cash
flows. Based on that review, we believe that none of these
pronouncements will have a significant effect on current or future
earnings or operations.
ITEM
7A. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable.
ITEM
8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
Our
consolidated financial statements, including the Report of
Independent Registered Public Accounting Firm on our consolidated
financial statements, are included beginning on page F-1 of this
report, which are incorporated herein by reference.
ITEM 9. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND
PROCEDURES
Evaluation of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed by us, in the
reports that we file or submit to the SEC under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”),
is recorded, processed, summarized, and reported within the periods
specified by the SEC’s rules and forms and that information
is accumulated and communicated to our management, including our
principal executive and principal financial officer (whom we refer
to in this periodic report as our Certifying Officer), as
appropriate to allow timely decisions regarding required
disclosure. Our management is responsible for establishing and
maintaining adequate internal control over financial reporting. Our
management evaluated, with the participation of our Certifying
Officer, the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Exchange Act) as
of December 31, 2018, pursuant to Rule 13a-15(b) under the Exchange
Act. Based upon that evaluation, our Certifying Officer concluded
that, as of December 31, 2018, our disclosure controls and
procedures were not effective to provide reasonable assurance
because certain deficiencies involving internal controls
constituted material weaknesses, as discussed below. The material
weaknesses identified did not result in the restatement of any
previously reported financial statements or any other related
financial disclosure, and management does not believe that the
material weaknesses had any effect on the accuracy of our financial
statements for the current reporting period.
Limitations on Effectiveness of Controls
A
system of controls, however well designed and operated, can provide
only reasonable, and not absolute, assurance that the system will
meet its objectives. The design of a control system is based, in
part, upon the benefits of the control system relative to its
costs. Control systems can be circumvented by the individual acts
of some persons, by collusion of two or more people, or by
management override of the control. In addition, over time,
controls may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may
deteriorate. In addition, the design of any control system is based
in part upon assumptions about the likelihood of future
events.
Changes in Internal Control over Financial Reporting
There
were no changes in our internal control over financial reporting
that occurred during the fourth quarter of fiscal year 2018 that
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
Management’s Annual Report on Internal Control over Financial
Reporting
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rule
13a-15(f) under the Exchange Act. We have assessed the
effectiveness of those internal controls as of December 31, 2018,
using the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) Internal Control—Integrated
Framework (2013) as a basis for our assessment.
Because
of inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Therefore, even those
systems determined to be effective can provide only reasonable
assurance respecting financial statement preparation and
presentation. Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs.
A
material weakness in internal controls is a deficiency in internal
control, or combination of control deficiencies, that adversely
affects our ability to initiate, authorize, record, process, or
report external financial data reliably in accordance with
accounting principles generally accepted in the United States of
America such that there is more than a remote likelihood that a
material misstatement of our annual or interim financial statements
that is more than inconsequential will not be prevented or
detected.
Based
on our evaluation of internal control over financial reporting, our
management concluded that our internal control over financial
reporting was not effective as of December 31, 2018.
As of
December 31, 2018, management identified the following material
weaknesses:
●
Control Environment
- We did not maintain an effective control environment for internal
control over financial reporting.
●
Segregation of
Duties - As a result of limited resources and staff, we did
not maintain proper segregation of incompatible duties. The effect
of the lack of segregation of duties potentially affects multiple
processes and procedures.
●
Entity Level
Controls - We failed to maintain certain entity-level
controls as defined by the 2013 framework issued by COSO.
Specifically, our lack of staff does not allow us to effectively
maintain a sufficient number of adequately trained personnel
necessary to anticipate and identify risks critical to financial
reporting. There is a risk that a material misstatement of the
financial statements could be caused, or at least not be detected
in a timely manner, due to lack of adequate staff with such
expertise.
●
Access to Cash - One
executive had the ability to transfer from our bank
accounts.
These
weaknesses are continuing. Management and the board of directors
are aware of these weaknesses that result because of limited
resources and staff. Management has begun the process of formally
documenting our key processes as a starting point for improved
internal control over financial reporting. Efforts to fully
implement the processes we have designed have been put on hold due
to limited resources, but we anticipate a renewed focus on this
effort in the near future. Due to our limited financial and
managerial resources, we cannot assure when we will be able to
implement effective internal controls over financial
reporting.
This
annual report does not include an attestation report of our
registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to
attestation by our registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission that
permit us to provide only management’s report in this annual
report.
ITEM 9B. OTHER
INFORMATION
None.
ITEM 10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The
following table sets forth the names, ages, and positions of our
executive officers and directors as of December 31,
2018:
|
Name
|
Age
|
Position
|
|
Jeremy
P. Feakins
|
65
|
Chairman
of the Board, Chief Executive Officer, Chief Financial Officer and
Secretary/Treasurer
|
|
Peter
H. Wolfson
|
54
|
Director
|
|
Antoinette
K. Hempstead
|
54
|
Director
|
Jeremy P. Feakins
has served as our chief executive
officer, chief financial officer, and secretary/treasurer since
March 2015. Mr. Feakins has over 35 years of experience as an
entrepreneur and investor, having founded two technology-based
companies. Between 1990 and 2006, Mr. Feakins was the chairman and
chief executive officer of Medical Technology & Innovations,
Inc. (MTI), a developer and manufacturer of a microprocessor-based,
vision-screening device and other medical devices located in
Lancaster, PA. In 1996, he managed the public listing of MTI on the
over-the-counter markets and subsequently structured the sale of
the rights to MTI’s vision-screening product to a major
international eyewear company. Between 1998 and 2006, he was a
managing member of Growth Capital Resources LLC, a venture capital
company located in Lancaster, PA, where he successfully managed the
public listings for four small companies on the over-the-counter
market. Between 2005 and 2008, he served as executive vice chairman
and member of the board of directors of Caspian International Oil
Corporation (OTC: COIC), an oil exploration and services company
located in Houston, TX and Almaty, KZ, where he managed its public
listing. Since 2008, Mr. Feakins has been the chairman and managing
partner of the JPF Venture Fund 1, LP, an early-stage venture
capital company located in Lancaster, PA, focused on companies
involved with humanitarian and/or sustainability projects. Since
2014, Mr. Feakins has been chairman and chief executive officer of
JPF Venture Group, Inc. JPF Venture Group, Inc., provides strategic
and operational business assistance to start-up, early-stage, and
middle-market high-growth businesses and is a principal stockholder
of our stock. Mr. Feakins graduated from the Defence College of
Logistics and Personnel Administration, Shrivenham, UK, and served
seven years in the British Royal Navy. He is a member of the
Institute of Directors in the United Kingdom and the British
American Business Council in the United States. Based on his
background in the technology industry and his financial and
management background, the board of directors has concluded that
Mr. Feakins is qualified to serve as a
director.
Peter Wolfson
has served as one of our directors
since March 2015. Mr. Wolfson is also the founder, president, and
chief executive officer of Hans Construction, a developer and
builder of upscale homes located in Lancaster, PA. Mr. Wolfson is a
qualified commercial pilot at a major U.S.-owned international
airline company and has over 30 years’ experience in the
aviation business. He also has 10 years’ experience as a
financial consultant with a subsidiary of Mass Mutual, developing
financial strategies and tax planning. Based on his financial
background, the board of directors has concluded that Mr. Wolfson
is qualified to serve as director.
Antoinette Knapp
Hempstead was appointed as a
director in February 2017. Prior to that, Ms. Hempstead served as
our chief executive officer and president from April 2013 until
March 2015 and as our deputy chief executive officer and vice
president since August 2002. Ms. Hempstead has over 30 years’
experience in management, software management, software
development, and finance. Ms. Hempstead has also served as adjunct
faculty for University of Idaho where she taught Computer Science
courses. Ms. Hempstead has a Master’s degree in Computer
Science from the University of Idaho and a Bachelor’s of
Science Degree in Applied Mathematics from the University of Idaho.
Ms. Hempstead provides experience in software development and
project management, as well as experience in financial statement
preparation and regulatory reporting, to our board of directors.
Based on her technical background, the board of directors has
concluded that Ms. Hempstead is qualified to serve as a
director.
Family Relationships
There
are no family relationships between any director and executive
officer.
Involvement in Certain Legal Proceedings
During
the past 10 years, none of our directors and executive officers has
been involved in any of the events described in Item 401(f) of
Regulation S-K.
Shareholder Nominations to the Board
Our
board of directors, acting as the nominating committee, will
consider shareholder nominations to the board of
directors.
Committees of the Board
We
currently do not have nominating, compensation, or audit committees
or committees performing similar functions and we do not have a
written nominating, compensation, or audit committee charter. Our
board of directors believes that it is not necessary to have these
committees, at this time, because the directors can adequately
perform the functions of such committees.
Code of Ethics
We have
adopted a code of ethics that applies to all of our employees,
including our executive officers, a copy of which is included as an
exhibit to this report.
ITEM 11. EXECUTIVE
COMPENSATION
The
following table sets forth, for the fiscal years ended December 31,
2018 and 2017, the dollar value of all cash and noncash
compensation earned by any person that was our principal executive
officer, or PEO, during the preceding fiscal year:
|
Name and
Principal Position
|
Year
Ended
Dec
31
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|
Jeremy
Feakins
|
2018
|
388,320
(1)
|
0
|
0
|
0
|
0
|
0
|
0
|
388,320
|
|
Principal
Executive Officer
|
2017
|
381,110
(2)
|
0
|
581,571
|
0
|
0
|
0
|
0
|
962,681
|
|
Principal
Financial Officer
|
|
|
|
|
|
|
|
|
|
_______________________
(1) For
the fiscal year ended December 31, 2018, $194,110 of Mr.
Feakins’ salary was accrued but unpaid.
(2) For
the fiscal year ended December 31, 2017, $205,807 of Mr.
Feakins’ salary was accrued but unpaid.
The
table above does not include prerequisites and other personal
benefits in amounts less than 10% of the total annual salary and
other compensation.
Narrative Disclosure to Summary Compensation Table
On
January 1, 2011, we entered into a five-year employment agreement
with an individual to serve as our chief executive officer. The
employment agreement provides for successive one-year term renewals
unless it is expressly cancelled by either party 100 days prior to
the end of the term. Under the agreement, the chief executive
officer will receive an annual salary of $350,000, a car allowance
of $12,000, and company-paid health insurance. The agreement also
provides for bonuses equal to one times annual salary plus 500,000
shares of common stock for each additional project that generates
$25 million or more revenue to us. The chief executive officer is
entitled to receive severance pay in the lesser amount of three
years’ salary or 100% of the remaining salary if the
remaining term is less than three years. As of December 31, 2017,
we issued 258,476 shares of common stock, with a fair value of
$581,571, to compensate the chief executive officer for his
performance.
On June
29, 2017, the board of directors approved extending the employment
agreement for the chief executive officer for an additional five
years. The salary and other compensation will be increased to
account for inflation since the original employment agreement was
executed.
Outstanding Equity Awards at Fiscal Year-End
No stock option awards were exercisable or unexercisable as of
December 31, 2018, for any executive officer.
Director Compensation
For
the year ended December 31, 2018, no compensation was awarded to,
earned by, or paid to our nonemployee directors. Mr. Feakins, who
is our chief executive officer, did not receive compensation for
his service as a director. The compensation received by Mr. Feakins
as an officer is presented in the above summary compensation
table.
ITEM
12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The following table sets forth certain information
regarding the beneficial ownership of our outstanding common stock,
as of March 15, 2019, by:
(i) each of our directors; (ii) each of our named
executive officers (as defined by Item 402(a)(3) of Regulation S-K
promulgated under the Exchange Act); (iii) all of our
directors and named executive officers as a group; and
(iv) each person known to us to beneficially own more than 5%
of our outstanding common stock.
|
Name and Address
of Person or Group (1)
|
Number of Shares of
Common
Stock Beneficially
Owned
|
Percent
of Common
Stock Beneficially
Owned
|
|
|
|
|
|
Principal Stockholders:
|
|
|
|
Steve
Oney
|
7,648,000
|
5.8%
|
|
Jeremy P. Feakins
(2)
|
18,405,285
|
13.9
|
|
|
|
|
|
Directors and Executive Officers:
|
|
|
|
Jeremy P. Feakins
(2)
|
18,405,285
|
13.9
|
|
Antoinette
Hempstead (3)
|
115,151
|
*
|
|
Peter H. Wolfson
(4)
|
2,089,012
|
1.6%
|
|
|
|
|
|
Executive Officers
and Directors as a Group (3 persons):
|
20,609,448
|
15.5%
|
_______________
|
*
|
Less than 1%
|
|
(1)
|
800
South Queen Street, Lancaster, PA 17603, is the address for all
stockholders in the table. Applicable percentages are based on
132,838,944 shares of our common stock outstanding on March 15,
2019, and are calculated as required by rules promulgated by the
SEC.
|
|
(2)
|
Consists
of (i) 8,288,051 shares of common stock owned of record by
Jeremy P. Feakins; (ii) 3,901,645 shares of common stock owned
of record by JPF Venture Group, Inc., which is an investment entity
that is majority-owned and controlled by Jeremy P. Feakins, and, as
such, is deemed to be beneficially owned by Mr. Feakins; and
(iii) 6,215,589 shares of common stock issuable to JPF Venture
Group, Inc. on the conversion of $75,000 in promissory notes,
convertible at $0.01384 per share. All calculations in this
footnote are based on conversion of the principal
only.
|
|
(3)
|
Consists
of: (i) 452 shares of common stock owned of record by
Antoinette Hempstead; and (ii) 114,699 shares of common stock
owned of record by A.R. Hempstead Revocable Trust, which is owned
and controlled by Ms. Hempstead and, as such, is deemed to be the
beneficial owner of record. Ms. Hempstead is a member of the board
of directors.
|
|
(4)
|
Consists
of: (i) 1,185,833 shares of common stock owned of record by
Peter H. Wolfson; and (ii) 976,921 shares of common stock
issuable to Mr. Wolfson on the conversion of a $12,500 promissory
note dated October 2016, convertible at $0.01384 per share into
shares of common stock. Mr. Wolfson is a member of the board of
directors.
|
Beneficial
ownership has been determined in accordance with Rule 13d-3 under
the Exchange Act. The percentages in the table have been calculated
on the basis of treating as outstanding for a particular person,
all shares of our common stock outstanding on that date and all
shares of our common stock issuable to that holder in the event of
exercise of outstanding options, warrants, rights, or conversion
privileges owned by that person at that date which are exercisable
within 60 days of that date. Except as otherwise indicated, the
persons listed below have sole voting and investment power with
respect to all shares of our common stock owned by them, except to
the extent that power may be shared with a spouse. We do not know
of any arrangements the operation of which may at a subsequent date
result in a change of control of our company.
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED PERSONS, AND DIRECTOR INDEPENDENCE
Related-Party Transactions
We pay
rent to Queen Street Development Partners 1, LP, a company
controlled by our chief executive officer, under an operating lease
agreement. For the years ended December 31, 2018 and 2017, we paid
rent of $120,000 and $95,000, respectively.
On
October 20, 2016, we borrowed $12,500 from Peter Wolfson, an
independent director, pursuant to a promissory note. The terms of
the note are as follows: (i) interest is payable at 6% per
annum; (ii) the note is payable 90 days after demand; and
(iii) the payee is authorized to convert part or all of the
note balance and accrued interest, if any, into shares of our
common stock at the rate of one share for each $0.03 of principal
amount of the note. This conversion share price was adjusted to
$0.01384 for the reverse stock splits. As of December 31, 2018, the
outstanding balance was $12,500, plus accrued interest of $1,754.
As of December 31, 2018, we have recorded a debt discount of
$12,500 for the fair value of derivative liability and fully
amortized the debt discount.
On
March 9, 2017, we issued a promissory note payable of $200,000 to
Jeremy P. Feakins & Associates, LLC, an entity in which our
chief executive officer is an officer and director. The note bears
interest of 10% and is due and payable within 90 days after demand.
During the year ended December 31, 2017, we received an additional
$2,000 and repaid $25,000. The outstanding balance was $177,000 and
accrued interest was $32,851 as of December 31, 2018.
On May
8, 2017, JPF Venture Group, Inc., an investment entity that is
majority-owned by our director, chief executive officer, and chief
financial officer, transferred 148,558 shares of common stock for
$111,440 to us to fulfill an over-commitment of Series D
warrants.
We
remain liable for the loans made to us by JPF Venture Group, Inc.
before the merger on May 9, 2017. As of December 31, 2018, the
outstanding balance of these loans was $581,880 and the accrued
interest was $125,381. All of these notes are in
default.
On June
5, 2017, a shareholder elected to convert $25,000 of a convertible
note payable balance into 1,806,298 shares of our common stock
($0.014 per share).
On
September 8, 2017, JPF Venture Group, Inc., elected to convert
$50,000 of a note payable balance into 3,612,596 shares of our
common stock at a conversion rate of $0.014 per share. In addition,
accrued interest of $6,342 was converted into 458,198 shares of our
common stock.
On
November 6, 2017, we entered into an agreement and promissory note
with JPF Venture Group, Inc. to loan up to $2,000,000 to us. The
terms of the note are as follows: (i) interest is payable at
10% per annum; (ii) all unpaid principal and all accrued and
unpaid interest is due and payable at the earliest of resolution of
the Memphis litigation (as defined therein), December 31, 2018, or
when we are otherwise able to pay. As of December 31, 2018, the
outstanding balance was $612,093 and the accrued interest was
$80,568. For the years ended December 31, 2018 and 2017, we repaid
$29,474 and $39,432, respectively. On September 30, 2018, the note
was amended to extend the maturity date to the earliest of a
resolution of the Memphis litigation, December 31, 2018, or when we
are otherwise able to pay. This note is in default.
On
November 8, 2017, Jeremy P. Feakins & Associates. LLC, a Series
B note holder, elected to convert $50,000 in notes payable for
50,000 shares of our common stock at a conversion rate of $1.00. In
addition, it converted accrued interest in the amount of $16,263
for 16,263 shares of our common stock.
On
January 18, 2018, Jeremy P. Feakins & Associates, LLC agreed to
extend the due date for repayment of a $2,265,000 note issued in
2014 to the earlier of December 31, 2018, or the date of the
financial closings of our Baha Mar Project (or any other project of
$25 million or more), whichever occurs first. During 2016, we
repaid $5,000. On August 15, 2017, principal of $618,500 and
accrued interest of $207,731 were converted to 826,231 shares at
$1.00 per share, which was ratified by a disinterested majority of
the board of directors. The conversion was recorded at historical
cost due to the related-party nature of the transaction. For the
year ended December 31 2018, we repaid $35,000. As of
December 31, 2018, the note balance was $1,102,500 and the
accrued interest was $511,818. This note is in
default.
For the
year ended December 31, 2018, we sold 240,840 shares of common
stock for $10,000 in cash to our chief executive officer and an
independent director.
On
December 17 and December 29, 2018, our chief executive officer
provided two short-term advances totaling $4,600 to us for working
capital, which was repaid on January 23, 2019.
Director Independence
Other
than Peter Wolfson, none of our directors is considered to be an
independent member of our board of directors under the rules of
Nasdaq.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND
SERVICES
Principal Accountant Fees and Services
The
aggregate fees for professional services rendered to us by Liggett
& Webb, P.A., our independent registered public accounting
firm, for the fiscal years ended December 31, 2018 and 2017, were
as follows:
|
|
|
|
|
|
|
|
Audit
fees (1)
|
$46,200
|
$37,800
|
|
Audit-Related
fees (2)
|
3,500
|
-
|
|
Tax
fees
|
-
|
-
|
|
Other
fees
|
-
|
-
|
|
Total fees
|
$49,700
|
$37,800
|
_____________________
|
(1)
|
Includes
fees for (i) audits of our consolidated financial statements for
the fiscal years ended December 31, 2018 and 2017; (ii) review of
our interim period financial statements for fiscal year 2018; and
(iii) fees related to services normally provided by the accountant
in connection with statutory and regulatory filings or
engagements.
|
|
(2)
|
Includes
fees for review of our registration statements filed with U.S.
Securities and Exchange Commission.
|
Audit and Non-Audit Service Preapproval Policy
In
accordance with the requirements of the Sarbanes-Oxley Act of 2002
and the rules and regulations promulgated thereunder, our board of
directors has adopted an informal approval policy that it believes
will result in an effective and efficient procedure to preapprove
services performed by the independent registered public accounting
firm.
Audit Services. Audit services include
the annual financial statement audit (including quarterly reviews)
and other procedures required to be performed by the independent
registered public accounting firm to be able to form an opinion on
our consolidated financial statements. The board of directors
preapproves specified annual audit services engagement terms and
fees and other specified audit fees. All other audit services must
be specifically preapproved by the board of directors. The board of
directors monitors the audit services engagement and may approve,
if necessary, any changes in terms, conditions, and fees resulting
from changes in audit scope or other items.
Audit-Related Services. Audit-related
services are assurance and related services that are reasonably
related to the performance of the audit or review of our
consolidated financial statements, which historically have been
provided to us by the independent registered public accounting firm
and are consistent with the SEC’s rules on auditor
independence. The board of directors has approved specified
audit-related services within preapproved fee levels. All other
audit-related services must be preapproved by the board of
directors.
Tax Services. The board of directors
preapproves specified tax services that the it believes would not
impair the independence of the independent registered public
accounting firm and that are consistent with Securities and
Exchange Commission’s rules and guidance. The board of
directors must specifically approve all other tax
services.
All Other Services. Other services are
services provided by the independent registered public accounting
firm that do not fall within the established audit, audit-related,
and tax services categories. The board of directors preapproves
specified other services that do not fall within any of the
specified prohibited categories of services.
Procedures. All proposals for services
to be provided by the independent registered public accounting
firm, which must include a detailed description of the services to
be rendered and the amount of corresponding fees, are submitted to
the chairman of the board of directors and the chief financial
officer. The chief financial officer authorizes services that have
been preapproved by the board of directors. The chief financial
officer submits requests or applications to provide services that
have not been preapproved by the board of directors, which must
include an affirmation by the chief financial officer and the
independent registered public accounting firm that the request or
application is consistent with the Securities and Exchange
Commission’s rules on auditor independence, to the board of
directors (or its chair or any of its other members pursuant to
delegated authority) for approval.
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT
SCHEDULES
(a)
The following
financial statements are filed as part of this report:
|
|
Page
|
|
|
|
|
Audited
Consolidated Financial Statements for the Years
|
|
|
Ended
December 31, 2018 and 2017:
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
Consolidated
Balance Sheets as of December 31, 2018 and 2017
|
F-3
|
|
Consolidated
Statements of Operations for the Years Ended
|
|
|
December
31, 2018 and 2017
|
F-4
|
|
Consolidated
Statements of Changes in Stockholders’
Deficiency
|
|
|
Years
Ended December 31, 2018 and 2017
|
F-5
|
|
Consolidated
Statements of Cash Flows for the Years Ended
|
|
|
December
31, 2018 and 2017
|
F-6
|
|
Notes
to the Consolidated Financial Statements
|
F-7
|
(b)
The following
exhibits are filed as part of this report:
|
Exhibit Number*
|
|
Title of Document
|
|
Location
|
|
|
|
|
|
|
|
Item 3
|
|
Articles
of Incorporation and Bylaws
|
|
|
|
|
|
Articles of
Incorporation of TetriDyn Solutions, Inc., dated May 15,
2006
|
|
Incorporated
by reference from the Current Report on Form 8-K filed June 7,
2006
|
|
|
|
Bylaws
|
|
Incorporated
by reference from the Current Report on Form 8-K filed June 7,
2006
|
|
|
|
Designation of
Rights, Privileges, and Preferences of Series A Preferred
Stock
|
|
Incorporated
by reference from the Annual Report on Form 10-K for the year ended
December 31, 2009, filed March 31, 2010
|
|
|
|
Certificate of
Change Pursuant to NRS 78.209 of TetriDyn Solutions, Inc., filed
with the Nevada Secretary of State on December 6, 2016
|
|
Incorporated
by reference from the Current Report on Form 8-K filed December 12,
2016
|
|
|
|
Certificate of
Correction of TetriDyn Solutions, Inc., filed with the Nevada
Secretary of State on December 15, 2016
|
|
Incorporated
by reference from the Current Report on Form 8-K filed December 12,
2016
|
|
|
|
Certificate of
Amendment to Articles of Incorporation dated May 8,
2017
|
|
Incorporated
by reference from the Current Report on Form 8-K filed May 12,
2017
|
|
Item 4
|
|
Instruments
Defining the Rights of Security Holders, including
indentures
|
|
|
|
|
|
Specimen Stock
Certificate
|
|
Incorporated
by reference from the Registration Statement on Form S-8 filed
August 25, 2017
|
|
Item 10
|
|
Material
Contracts
|
|
|
|
|
|
Loan
Agreement between TetriDyn Solutions, Inc., and Southeast Idaho
Council of Governments, Inc., together with related promissory
notes, dated December 23, 2009
|
|
Incorporated
by reference from the Annual Report on Form 10-K for the year ended
December 31, 2009, filed March 31, 2010
|
|
|
|
Consolidated
Promissory Note for $394,350 dated December 31, 2014
|
|
Incorporated
by reference from the Current Report on Form 8-K filed June 8,
2015
|
|
|
|
Promissory Note
dated February 25, 2016
|
|
Incorporated
by reference from the Current Report on Form 8-K filed March 1,
2016
|
|
|
|
Promissory Note
dated November 23, 2015
|
|
Incorporated
by reference from the Annual Report on Form 10-K for the year ended
December 31, 2015, filed March 30, 2016
|
|
|
|
Asset
Purchase Agreement between TetriDyn Solutions, Inc. and JPF Venture
Group, Inc. dated December 8, 2016
|
|
Incorporated
by reference from the Current Report on Form 8-K filed December 12,
2016
|
|
|
|
Promissory Note
dated October 20, 2016
|
|
Incorporated
by reference from the Current Report on Form 8-K filed October 20,
2016
|
|
|
|
Promissory Note
dated May 20, 2016
|
|
Incorporated
by reference from the Current Report on Form 8-K filed May 24,
2016
|
|
|
|
Amendment to
Convertible Promissory Notes dated February 24, 2017
|
|
Incorporated
by reference from the Current Report on Form 8-K filed March 2,
2017
|
|
|
|
Agreement and Plan
of Merger between TetriDyn Solutions, Inc. and Ocean Thermal Energy
Corporation dated March 1, 2017
|
|
Incorporated
by reference from the Current Report on Form 8-K filed March 10,
2017
|
|
|
|
Equity
Purchase Agreement with L2 Capital, LLC dated December 18,
2017
|
|
Incorporated
by reference from the Current Report on Form 8-K filed December 21,
2017
|
|
|
|
Registration Rights
Agreement with L2 Capital, LLC dated December 18, 2017
|
|
Incorporated
by reference from the Current Report on Form 8-K filed December 21,
2017
|
|
|
|
Common
Stock Purchase Warrant (L2 Capital, LLC) dated December 18,
2017
|
|
Incorporated
by reference from the Current Report on Form 8-K filed December 21,
2017
|
|
|
|
Note
and Warrant Purchase Agreement dated December 28, 2017
|
|
Incorporated
by reference from the Current Report on Form 8-K filed January 3,
2018
|
|
|
|
Form of
Unsecured Promissory Note
|
|
Incorporated
by reference from the Current Report on Form 8-K filed January 3,
2018
|
|
|
|
Form of
Unsecured Common Stock Purchase Warrant
|
|
Incorporated
by reference from the Current Report on Form 8-K filed January 3,
2018
|
|
|
|
Securities Purchase
Agreement dated May 22, 2018, between Ocean Thermal Energy
Corporation and Collier Investments, LLC
|
|
Incorporated
by reference from the Current Report on Form 8-K filed June 1,
2018
|
|
|
|
Convertible Note
dated May 22, 2018, issued to Collier Investments, LLC
|
|
Incorporated
by reference from the Current Report on Form 8-K filed June 1,
2018
|
|
|
|
Security Agreement
dated May 22, 2018, between Ocean Thermal Energy Corporation and
Collier Investments, LLC
|
|
Incorporated
by reference from the Current Report on Form 8-K filed June 1,
2018
|
|
|
|
Securities Purchase
Agreement dated February 16, 2018, between Ocean Thermal Energy
Corporation and L2 Capital, LLC
|
|
Incorporated
by reference from the Current Report on Form 8-K filed February 23,
2018
|
|
|
|
Senior
Secured Promissory Note dated February 16, 2018, issued to L2
Capital, LLC
|
|
Incorporated
by reference from the Current Report on Form 8-K filed February 23,
2018
|
|
|
|
Security Agreement
dated February 16, 2018, between Ocean Thermal Energy Corporation
and L2 Capital, LLC
|
|
Incorporated
by reference from the Current Report on Form 8-K filed February 23,
2018
|
|
|
|
Common
Stock Purchase Warrant dated February 16, 2018, issued to L2
Capital, LLC
|
|
Incorporated
by reference from the Current Report on Form 8-K filed February 23,
2018
|
|
|
|
Common
Stock Purchase Warrant dated February 16, 2018, issued to
Craft Capital Management, LLC
|
|
Incorporated
by reference from the Current Report on Form 8-K filed February 23,
2018
|
|
|
|
Lease
Agreement between Ocean Thermal Energy Corporation and Queen Street
Development Partners 1, LP, as amended
|
|
This
filing.
|
|
|
|
Employment
Agreement with Jeremy P. Feakins dated January 1,
2011**
|
|
This
filing.
|
|
|
|
Loan
Agreement, Promissory Note, and Warrant to Purchase up to 3,295,761
Shares of Common Stock between Ocean Thermal Energy Corporation and
DCO Energy, LLC, dated February 10, 2012, including Forbearance and
Loan Extension Agreement dated April 1, 2016
|
|
This
filing.
|
|
|
|
Form of
Loan Agreement, Promissory Note (Series B), Security Agreement, and
Warrant (with related schedule) [2013]
|
|
This
filing
|
|
|
|
Promissory Note for
$290,000 payable to Theodore Herman dated December 31,
2013
|
|
This
filing.
|
|
|
|
Loan Agreement,
Promissory Note, and Warrant to Purchase up to 12,912,500 Shares of
Common Stock between Ocean Thermal Energy Corporation and Jeremy P.
Feakins & Associates, LLC, dated April 1, 2014, including
Forbearance and Loan Extension Agreement (Revised and Reformed)
dated April 1, 2016
|
|
This
filing.
|
|
|
|
Loan
Agreement, Promissory Note, and Warrant to Purchase up to 200,000
Shares of Common Stock between Ocean Thermal Energy Corporation and
Mart Inn, Inc., dated December 22, 2014
|
|
This
filing.
|
|
|
|
Loan
Agreement, Promissory Note, and Warrant to Purchase up to 100,000
Shares of Common Stock between Ocean Thermal Energy Corporation and
James G. Garner, Jr., dated December 26, 2014
|
|
This
filing.
|
|
|
|
Promissory Note
dated April 17, 2015, with extensions
|
|
This
filing.
|
|
|
|
Promissory Note
dated October 20, 2016, to Peter Wolfson
|
|
Incorporated by reference from the Current Report on Form 8-K filed
October 20, 2016.
|
|
|
|
Promissory Note
dated December 21, 2016, to JPF Venture Group
|
|
This
filing.
|
|
|
|
Promissory Note
dated March 9, 2017, to Jeremy P. Feakins & Associates,
LLC
|
|
This
filing.
|
|
|
|
Loan
Agreement and Promissory Note with JPF Venture Group, Inc., dated
November 6, 2017
|
|
This
filing.
|
|
|
|
Form of
Bridge Loan, Warrant, and Promissory Note for December 2017,
together with schedule of investors
|
|
This
filing.
|
|
|
|
Replacement Convertible Promissory Note to L2 Capital, LLC, dated
December 14, 2018
|
|
This
filing.
|
|
Item 14
|
|
Code
of Ethics
|
|
|
|
|
|
TetriDyn Solutions,
Inc. Code of Ethics
|
|
Incorporated
by reference from the annual report on Form 10-KSB for the year
ended December 31, 2006, filed April 2, 2007
|
|
Item 21
|
|
Subsidiaries
of the Registrant
|
|
|
|
|
|
Schedule of
Subsidiaries
|
|
Incorporated
by reference from Post-Effective Amendment No. 1/A to the
Registration Statement on Form S-1 (Amendment No. 1) filed
January 10, 2019
|
|
Item 23
|
|
Consents of Experts and Counsel
|
|
|
|
|
|
Consent
of Liggett & Webb, P.A.
|
|
This
filing
|
|
Item 31
|
|
Rule 13a-14(a)/15d-14(a) Certifications
|
|
|
|
|
|
Certification of
Principal Executive and Principal Financial Officer Pursuant to
Rule 13a-14
|
|
This
filing
|
|
Item 32
|
|
Section 1350 Certifications
|
|
|
|
|
|
Certification of
Chief Executive Officer and Chief Financial Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|
|
This
filing
|
|
Item 101
|
|
Interactive
Data Files***
|
|
|
|
101.INS
|
|
XBRL
Instance Document
|
|
This
filing
|
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema
|
|
This
filing
|
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase
|
|
This
filing
|
|
101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase
|
|
This
filing
|
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase
|
|
This
filing
|
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase
|
|
This
filing
|
___________________________
|
*
|
All
exhibits are numbered with the number preceding the decimal
indicating the applicable SEC reference number in Item 601 and the
number following the decimal indicating the sequence of the
particular document. Omitted numbers in the sequence refer to
documents previously filed as an exhibit.
|
|
**
|
Identifies
each management contract or compensatory plan or arrangement
required to be filed as an exhibit, as required by Item 15(a)(3) of
Form 10-K.
|
|
***
|
The
XBRL related information in Exhibit 101 shall not be deemed
“filed” for purposes of Section 18 of the Securities
Exchange Act of 1934, as amended, or otherwise subject to liability
of that section and shall not be incorporated by reference into any
filing or other document pursuant to the Securities Act of 1933, as
amended, except as shall be expressly set forth by specific
reference in such filing or document.
|
Pursuant to the
requirements of Section 13 or 15(d) 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.
|
|
OCEAN
THERMAL ENERGY CORPORATION
|
|
Dated:
March 22, 2019
|
By:
|
/s/
Jeremy P. Feakins
|
|
|
|
Jeremy
P. Feakins
|
|
|
|
Principal
Executive Officer and
|
|
|
|
Principal
Financial Officer
|
Pursuant to the
requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates
indicated.
|
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Jeremy
P. Feakins
|
|
Director,
Chief Executive Officer and Chief
|
|
March
22, 2019
|
|
Jeremy
P. Feakins
|
|
Financial
Officer (Principal Executive Officer and
|
|
|
|
|
|
Principal
Financial Officer)
|
|
|
|
|
|
|
|
|
|
/s/ Peter
Wolfson
|
|
Director
|
|
March
22, 2019
|
|
Peter
Wolfson
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Antoinette
K. Hempstead
|
|
Director
|
|
March
22, 2019
|
|
Antoinette
K. Hempstead
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT
TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT
REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT
We will
furnish to the Securities and Exchange Commission, at the same time
that it is sent to stockholders, any proxy or information statement
that we send to our stockholders in connection with any annual
stockholders’ meeting.
OCEAN THERMAL ENERGY CORPORATION
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
AND
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018 and 2017
|
Report of Independent Registered Public Accounting
Firm
|
|
F-2
|
|
|
|
|
|
Consolidated Balance Sheets as of December 31, 2018 and December
31, 2017
|
|
F-3
|
|
|
|
|
|
Consolidated Statements of Operations for the Years Ended December
31, 2018 and 2017
|
|
F-4
|
|
|
|
|
|
Consolidated Statements of Stockholders’ Deficiency for the
Years Ended December 31, 2018 and 2017
|
|
F-5
|
|
|
|
|
|
Consolidated Statements of Cash Flows for the Years Ended December
31, 2018 and 2017
|
|
F-6
|
|
|
|
|
|
Notes to Consolidated Financial Statements
|
|
F-7
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Shareholders and Board of Directors of:
Ocean
Thermal Energy Corporation
Opinion on the Financial Statements
We have
audited the accompanying consolidated balance sheets of Ocean
Thermal Energy Corporation and Subsidiaries (the
“Company”) as of December 31, 2018 and 2017, the
related consolidated statements of operations, changes in
stockholders’ deficiency and cash flows for each of the two
years in the period ended December 31, 2018, and the related notes.
In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the
Company as of December 31, 2018 and 2017, and the results of its
operations and its cash flows for the years ended December 31, 2018
and 2017, in conformity with accounting principles generally
accepted in the United States of America.
Explanatory Paragraph – Going Concern
The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 2 to the financial statements, the Company has a
net loss of $7,880,013, a working capital deficiency of
$17,601,515, and an accumulated deficit of $75,583,231. These
factors raise substantial doubt about the Company's ability to
continue as a going concern. Management’s plans in regard to
these matters are described in Note 2. The consolidated financial
statements do not include any adjustments that might result from
the outcome of this uncertainty
Basis for Opinion
These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a
public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal controls over financial
reporting. Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
/s/
Liggett & Webb, P.A.
LIGGETT
& WEBB, P.A.
Certified
Public Accountants
We have
served as the Company’s auditor since 2008
Boynton
Beach, Florida
March
22, 2019
OCEAN
THERMAL ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2018 AND DECEMBER 31, 2017
|
|
|
|
|
ASSETS
|
|
|
|
Current
Assets
|
|
|
|
Cash
|
$8,398
|
$425,015
|
|
Prepaid
expenses
|
-
|
25,000
|
|
Total
Current Assets
|
8,398
|
450,015
|
|
|
|
|
|
Property
and Equipment
|
|
|
|
Property
and equipment, net
|
672
|
1,352
|
|
Assets
under construction
|
-
|
892,639
|
|
Property
and Equipment, net
|
672
|
893,991
|
|
|
|
|
|
Total
Assets
|
$9,070
|
$1,344,006
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
Accounts
payables and accrued expense
|
$8,876,222
|
$6,846,010
|
|
Notes payable
- related party, net
|
2,398,473
|
3,592,948
|
|
Convertible notes
payable - related party, net
|
87,500
|
87,500
|
|
Notes
payable, net
|
2,671,640
|
589,812
|
|
Convertible notes
payable, net
|
1,283,824
|
50,000
|
|
Derivative
Liability
|
2,292,254
|
-
|
|
Total
Current Liabilities
|
17,609,913
|
11,166,270
|
|
|
|
|
|
Notes
payable, net
|
168,334
|
607,290
|
|
Notes
payable, convertible
|
-
|
80,000
|
|
Total
Liabilities
|
17,778,247
|
11,853,560
|
|
|
|
|
|
Stockholders'
deficiency
|
|
|
|
Preferred
Stock, $0.001 par value; 5,000,000 shares authorized,
|
-
|
-
|
|
0
and 0 shares issued and outstanding, respectively
|
|
|
|
Common
stock, $0.001 par value; 200,000,000 shares
authorized,
|
|
|
|
131,038,944
and 122,642,247 shares issued and outstanding,
respectively
|
131,039
|
122,642
|
|
Additional
paid-in capital
|
57,683,015
|
57,071,022
|
|
Accumulated
deficit
|
(75,583,231)
|
(67,703,218)
|
|
Total
Stockholders' Deficiency
|
(17,769,177)
|
(10,509,554)
|
|
|
|
|
|
Total
Liabilities and Stockholders' Deficiency
|
$9,070
|
$1,344,006
|
The
accompanying notes are an integral part of these consolidated
financial statements.
OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND DECEMBER 31,
2017
|
|
|
|
|
Operating
Expenses
|
|
|
|
Salaries
and wages
|
$1,361,706
|
$2,044,882
|
|
Professional
fees
|
1,201,956
|
1,669,202
|
|
General
and administrative
|
595,306
|
2,169,577
|
|
Warrant
expense
|
-
|
6,769,562
|
|
Impairment
of assets under construction
|
892,639
|
48,998
|
|
Total
Operating Expenses
|
4,051,607
|
12,702,221
|
|
|
|
|
|
Loss
from Operations
|
(4,051,607)
|
(12,702,221)
|
|
|
|
|
|
Other
Income & Expenses
|
|
|
|
Interest
expense, net
|
(1,281,134)
|
(614,749)
|
|
Amortization
of debt discount
|
(1,160,983)
|
(44,960)
|
|
Loss on
settlement of debt
|
(279,432)
|
(1,105,203)
|
|
Change
in fair value of liability
|
-
|
(124,542)
|
|
Change
in fair value of derivative liability
|
(1,206,857)
|
-
|
|
Income
from legal settlement
|
100,000
|
-
|
|
Total
other income & expenses
|
(3,828,406)
|
(1,889,454)
|
|
|
|
|
|
Loss
Before Income Taxes
|
(7,880,013)
|
(14,591,675)
|
|
|
|
|
|
Provision
for Income Taxes
|
-
|
-
|
|
|
|
|
|
Net
Loss
|
$(7,880,013)
|
$(14,591,675)
|
|
|
|
|
|
Net
Loss per Common Share
|
|
|
|
Basic
and Diluted
|
$(0.06)
|
$(0.13)
|
|
|
|
|
|
Weighted
Average Number of Common Shares Outstanding - Basic and
Diluted
|
124,725,638
|
111,735,383
|
The
accompanying notes are an integral part of these consolidated
financial statements.
OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
DEFICIENCY
FOR THE YEARS ENDED DECEMBER 31, 2018 AND DECEMBER 31,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
-
|
$-
|
94,343,776
|
$94,344
|
$44,352,962
|
$(53,111,543)
|
$(8,664,237)
|
|
Warrants and
options exercised at $0.00: 1/1/17 to 5/8/17 (prior to
merger)
|
|
|
14,792,500
|
14,793
|
(14,793)
|
-
|
-
|
|
D Warrants
exercised at $0.75: 1/1/17 to 5/8/17 (prior to
merger)
|
|
|
998,079
|
998
|
747,537
|
-
|
748,535
|
|
Stock issued for services and commitment fee
|
|
|
3,887,802
|
3,888
|
2,898,876
|
-
|
2,902,764
|
|
Stock issued for cash
|
|
|
11,250
|
11
|
44,989
|
-
|
45,000
|
|
Stock issued
for conversion of note payable and accrued
interest
|
|
|
7,386,872
|
7,387
|
2,348,008
|
-
|
2,355,395
|
|
Stock repurchased from related parties
|
|
|
(148,588)
|
(149)
|
(111,291)
|
-
|
(111,440)
|
|
Stock issued for conversion of accounts payable
|
|
|
425,000
|
425
|
702,700
|
-
|
703,125
|
|
Stock issued for employee bonuses
|
|
|
409,066
|
409
|
919,990
|
-
|
920,399
|
|
Stock issued for TetriDyn Solutions, Inc.
|
|
|
536,490
|
536
|
(1,628,562)
|
|
(1,628,026)
|
|
FV of warrant modifications
|
|
|
-
|
-
|
6,769,562
|
-
|
6,769,562
|
|
Beneficial conversion feature on notes payable
|
|
|
-
|
-
|
41,044
|
-
|
41,044
|
|
Net
Loss
|
|
|
-
|
-
|
-
|
(14,591,675)
|
(14,591,675)
|
|
Balance,
December 31, 2017
|
-
|
$-
|
122,642,247
|
$122,642
|
$57,071,022
|
$(67,703,218)
|
$(10,509,554)
|
|
Stock issued for
warrants
|
|
|
39,000
|
39
|
9,481
|
-
|
9,520
|
|
Stock issued for services
|
|
|
673,345
|
673
|
138,313
|
-
|
138,986
|
|
Stock issued for conversions of notes payable
|
|
|
4,000,000
|
4,000
|
110,078
|
-
|
114,078
|
|
Shares issued as a commitment fee
|
|
|
400,000
|
400
|
20,800
|
-
|
21,200
|
|
Beneficial conversion features
|
|
|
-
|
-
|
13,248
|
-
|
13,248
|
|
Reclassification of derivative liabilities
|
|
|
-
|
-
|
157,473
|
-
|
157,473
|
|
Stock issued
for cash under equity agreement, net of offering
costs
|
|
|
2,300,000
|
2,300
|
104,605
|
|
106,905
|
|
Stock issued for cash
|
|
|
743,512
|
744
|
48,236
|
|
48,980
|
|
Stock issued for cash to related parties
|
|
|
240,840
|
241
|
9,759
|
|
10,000
|
|
Net
Loss
|
|
|
-
|
-
|
-
|
(7,880,013)
|
(7,880,013)
|
|
Balance, December 31, 2018
|
-
|
$-
|
131,038,944
|
$131,039
|
$57,683,015
|
$(75,583,231)
|
$(17,769,177)
|
The
accompanying notes are an integral part of these consolidated
financial statements.
OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND DECEMBER 31,
2017
|
|
|
|
|
Cash
Flows From Operating Activities:
|
|
|
|
Net
loss
|
$(7,880,013)
|
$(14,591,675)
|
|
Adjustments to
reconcile net loss to net cash used in operating
activities
|
|
|
|
Depreciation
|
680
|
1,014
|
|
Impairment of
assets under construction
|
892,639
|
48,998
|
|
Stock issued for
services
|
138,986
|
2,902,764
|
|
Stock issued for
bonuses
|
-
|
920,399
|
|
Penalties upon
default
|
470,679
|
-
|
|
Change in fair
value of liability
|
-
|
124,542
|
|
Change in
derivative liability
|
1,206,857
|
-
|
|
Loss on settlement
of debt
|
-
|
1,105,203
|
|
Warrant
expense
|
-
|
6,769,562
|
|
Amortization of
debt discounts
|
1,160,983
|
44,960
|
|
Loss on
extinguishment of debt
|
279,432
|
-
|
|
Changes in assets
and liabilities:
|
|
|
|
Other
current assets
|
-
|
-
|
|
Prepaid
expenses
|
25,000
|
5,549
|
|
Accounts
payable and accrued expenses
|
2,066,175
|
1,199,515
|
|
Net
Cash Used In Operating Activities
|
(1,638,582)
|
(1,469,169)
|
|
|
|
|
|
Cash
Flow From Investing Activities:
|
|
|
|
Cash
acquired in acquisition
|
-
|
4,512
|
|
Assets
under construction
|
-
|
(95,352)
|
|
Payments
for acquisition
|
-
|
(49,773)
|
|
Net
Cash Used In Investing Activities
|
-
|
(140,613)
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
Repayment
of notes payable - related party
|
(64,474)
|
(64,432)
|
|
Repayment
of government loans
|
(3,208)
|
(4,539)
|
|
Proceeds
from notes payable
|
499,156
|
490,000
|
|
Proceeds
from notes payable, convertible
|
615,086
|
80,000
|
|
Proceeds
from issuance of common stock for cash
|
155,885
|
45,000
|
|
Proceeds
from notes payable - related party
|
-
|
844,178
|
|
Stock
repurchased from related parties
|
-
|
(111,440)
|
|
Stock
issued for exercise of warrants for cash
|
9,520
|
748,535
|
|
Stock
issued for cash - related party
|
10,000
|
-
|
|
Net
Cash Provided by Financing Activities
|
1,221,965
|
2,027,302
|
|
|
|
|
|
Net increase in
cash and cash equivalents
|
(416,617)
|
417,520
|
|
Cash
and cash equivalents at beginning of year
|
425,015
|
7,495
|
|
Cash
and Cash Equivalents at End of Year
|
$8,398
|
$425,015
|
|
|
|
|
|
Supplemental disclosure of cash flow
information
|
|
|
|
Cash
paid for interest expense
|
$26,342
|
$17,162
|
|
Cash
paid for income taxes
|
$-
|
$-
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing
activities:
|
|
|
|
Convertible note
payable and accrued interest - related party converted to common
stock
|
$114,078
|
$80,275
|
|
Note payable and
accrued interest - related party converted into common
stock
|
$-
|
$668,500
|
|
Note payable and
accrued interest converted into common stock
|
$878,292
|
$-
|
|
Penalties upon
default on notes payable
|
$470,680
|
$-
|
|
Due to related
party, converted into note payable - related party
|
$-
|
$38,822
|
|
Accounts payable
converted into common stock
|
$-
|
$326,250
|
|
Stock issued for
commitment fee on issuance of note payable
|
$21,200
|
$-
|
|
Debt discount on
notes payable
|
$13,248
|
$41,044
|
|
Reclassification of
derivative liability
|
$157,473
|
$-
|
|
|
|
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
OCEAN THERMAL ENERGY CORPORATION AND SUBSIDIARIES
(FORMERLY KNOWN AS TETRIDYN SOLUTIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2018 AND DECEMBER 31,
2017
NOTE 1 – NATURE OF BUSINESS AND BASIS OF
PRESENTATION
Ocean
Thermal Energy Corporation is currently in the businesses
of:
●
OTEC and SWAC/LWAC—designing ocean thermal energy
conversion (“OTEC”) power plants and seawater air
conditioning (“SWAC/LWAC”) plants for large commercial
properties, utilities, and municipalities. These technologies
provide practical solutions to mankind’s three oldest and
most fundamental needs: clean drinking water, plentiful food, and
sustainable, affordable energy without the use of fossil fuels.
OTEC is a clean technology that continuously extracts energy from
the temperature difference between warm surface ocean water and
cold deep seawater. In addition to producing electricity, some of
the seawater running through an OTEC plant can be efficiently
desalinated using the power generated by the OTEC technology,
producing thousands of cubic meters of fresh water every day for
use in agriculture and human consumption in the communities served
by its plants. This cold, deep, nutrient-rich water can also be
used to cool buildings (SWAC/LWAC) and for fish
farming/aquaculture. In short, it is a technology with many
benefits, and its versatility makes OTEC unique.
●
EcoVillages—developing
and commercializing our EcoVillages, as well as working to develop
or acquire new complementary assets. EcoVillages are communities
whose goal is to become more socially, economically, and
ecologically sustainable. EcoVillages are communities whose
inhabitants seek to live according to ecological principles,
causing as little impact on the environment as possible. We expect
that our EcoVillage communities will range from a population of 50
to 150 individuals, although some may be smaller. We may also form
larger EcoVillages, of up to 2,000 individuals, as networks of
smaller subcommunities. We expect that our EcoVillages will grow by
the addition of individuals, families, or other small
groups.
We expect to use our technology in the development
of our EcoVillages, which should add significant value to our
existing line of business.
On
May 9, 2017, TetriDyn Solutions, Inc. (“TDYS”) acquired
Ocean Thermal Energy Corporation (“OTE”) in a merger
(the “Merger”), in which outstanding securities of OTE
were converted into securities of TDYS, which changed its name to
Ocean Thermal Energy Corporation. For accounting purposes, this
transaction was accounted for as a reverse merger and has been
treated as a recapitalization of TDYS with OTE as the accounting
acquirer. The historical financial statements of the accounting
acquirer became the financial statements of the company. We did not
recognize goodwill or any intangible assets in connection with the
transaction. The 110,273,767 shares issued to the shareholders of
the accounting acquirer in conjunction with the share exchange
transaction have been presented as outstanding for all periods. The
historical financial statements include the operations of the
accounting acquirer for all periods presented and the accounting
acquiree for the period from May 9, 2017, through December 31,
2017. Our accounting year end is December 31, which was the
year-end of the accounting acquirer.
On
May 25, 2017, we received approval from the Financial Industry
Regulatory Authority, Inc. (“FINRA”) to change the
trading symbol for our common stock to “CPWR,”
pronounced “sea power” to reflect our core technology,
from “TDYS.” Our common stock began formally trading
under the symbol “CPWR” on June 21, 2017.
The
consolidated financial statements include the accounts of the
company and our wholly owned subsidiaries. Intercompany accounts
and transactions have been eliminated in consolidation. In the
opinion of management, our financial statements reflect all
adjustments that are of a normal recurring nature necessary for
presentation of financial statements in accordance with U.S.
generally accepted accounting principles (GAAP).
Principal Subsidiary Undertakings
Our
consolidated financial statements for the years ended December 31,
2018 and 2017, include the following subsidiaries:
|
Name
|
Place of Incorporation / Establishment
|
Principal Activities
|
Date Formed
|
|
Ocean
Thermal Energy Bahamas Ltd.
|
Bahamas
|
Intermediate
holding company of OTE BM Ltd. and OTE Bahamas O&M
Ltd.
|
07/04/2011
|
|
|
|
|
|
|
OTE BM
Ltd.
|
Bahamas
|
OTEC/SDC
development in the Bahamas
|
09/07/2011
|
|
|
|
|
|
|
OCEES
International Inc.
|
Hawaii,
USA
|
Research and
development for the Pacific Rim
|
01/21/1998
|
|
|
|
|
|
|
Ocean
Thermal Energy UK Limited
|
England
and Wales
|
Dormant
|
07/22/2010
|
|
|
|
|
|
|
OTEC
Innovation Group Inc.
|
Delaware,
USA
|
Dormant
|
06/02/2011
|
|
|
|
|
|
|
OTE-BM
Energy Partners LLC
|
Delaware,
USA
|
Dormant
|
06/02/2011
|
|
|
|
|
|
|
OTE
Bahamas O&M Ltd.
|
Bahamas
|
Dormant
|
09/07/2011
|
|
|
|
|
|
|
Ocean
Thermal Energy Holdings Ltd.
|
Bahamas
|
Dormant
|
03/05/2012
|
|
|
|
|
|
|
Ocean
Thermal Energy Cayman Ltd.
|
Caymans
|
Dormant
|
03/26/2013
|
|
|
|
|
|
|
OTE HC
Ltd.
|
Caymans
|
Dormant
|
03/26/2013
|
|
|
|
|
|
|
Ocean
Thermal Energy USVI, Inc.
|
Virgin
Islands
|
Dormant
|
07/12/2016
|
We have
an effective interest of 100% in each of our
subsidiaries.
Use of Estimates
In
preparing financial statements in conformity with GAAP, management
is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reported period.
Actual results could differ from those estimates. Significant
estimates include the assumptions used in valuing equity
investments and issuances, valuation of deferred tax assets, and
depreciable lives of property and equipment.
Cash and Cash Equivalents
We
consider all highly liquid temporary cash investments with an
original maturity of three months or less to be cash equivalents.
At December 31, 2018 and 2017, we had no cash
equivalents.
Income Taxes
On
December 22, 2017, the Tax Cuts and Jobs Act (the “Jobs
Act”) was enacted. The Jobs Act significantly revised the
U.S. corporate income tax law by lowering the corporate federal
income tax rate from 35% to 21%.
We use
the liability method of accounting for income taxes. Under the
liability method, deferred tax assets and liabilities are
determined based on temporary differences between financial
reporting and tax bases of assets and liabilities and on the amount
of operating loss carry-forwards and are measured using the enacted
tax rates and laws that will be in effect when the temporary
differences and carry-forwards are expected to reverse. An
allowance against deferred tax assets is recorded when it is more
likely than not that such tax benefits will not be
realized.
Our
ability to use our net operating loss carryforwards may be
substantially limited due to ownership change limitations that may
have occurred or that could occur in the future, as required by
Section 382 of the Internal Revenue Code of 1986, as amended (the
“Code”), as well as similar state provisions. These
ownership changes may limit the amount of net operating loss that
can be utilized annually to offset future taxable income and tax,
respectively. In general, an “ownership change” as
defined by Section 382 of the Code results from a transaction or
series of transactions over a three-year period resulting in an
ownership change of more than 50.0% of the outstanding stock of a
company by certain stockholders or public groups.
We have
not completed a study to assess whether an ownership change has
occurred or whether there have been multiple ownership changes
since we became a “loss corporation” under the
definition of Section 382. If we have experienced an ownership
change, utilization of the net operating loss carryforwards would
be subject to an annual limitation under Section 382 of the Code,
which is determined by first multiplying the value of our stock at
the time of the ownership change by the applicable long-term,
tax-exempt rate, and then could be subject to additional
adjustments, as required. Any limitation may result in expiration
of a portion of the net operating loss carryforwards before
utilization. Further, until a study is completed and any limitation
known, no positions related to limitations are being considered as
an uncertain tax position or disclosed as an unrecognized tax
benefit. Any carryforwards that expire prior to utilization as a
result of such limitations will be removed from deferred tax assets
with a corresponding reduction of the valuation allowance. Due to
the existence of the valuation allowance, it is not expected that
any possible limitation will have an impact on our results of
operations or financial position.
Business Segments
We
conduct operations in various foreign jurisdictions where we are
developing projects to use our technology. Our segments were based
on the location of these projects. The U.S. territories segment
consists of projects in the U.S. Virgin Islands and Guam; and the
other segment currently consists of projects in the Cayman Islands.
Direct revenues and costs, depreciation, depletion, and
amortization costs, general and administrative costs, and other
income directly associated with their respective segments are
detailed within the following discussion. Identifiable net property
and equipment are reported by business segment for management
reporting and reportable business segment disclosure purposes.
Current assets, other assets, current liabilities, and long-term
debt are not allocated to business segments for management
reporting or business segment disclosure purposes.
Reportable
business segment information is as follows:
|
|
|
|
|
|
|
|
|
Revenue
|
$-
|
$-
|
$-
|
$-
|
|
Assets
|
$9,070
|
$-
|
$-
|
$9,070
|
|
Net
Loss
|
$(6,987,374)
|
$(892,639)
|
$-
|
$(7,880,013)
|
|
Property
and equipment
|
$672
|
$-
|
$-
|
$672
|
|
Depreciation
|
$680
|
$-
|
$-
|
$680
|
|
Addtions
to Property and equipment
|
$-
|
$-
|
$-
|
$-
|
|
Impairment
of assets under construction
|
$-
|
$892,639
|
$-
|
$892,639
|
|
|
|
|
|
|
|
|
|
Revenue
|
$-
|
$-
|
$-
|
$-
|
|
Assets
|
$451,367
|
$892,639
|
$-
|
$1,344,006
|
|
Net
loss
|
$(14,542,677)
|
$-
|
$(48,998)
|
$(14,591,675)
|
|
Property
and equipment
|
$1,352
|
$-
|
$-
|
$1,352
|
|
Assets
under construction
|
$-
|
$892,639
|
$-
|
$892,639
|
|
Depreciation
|
$1,014
|
$-
|
$-
|
$1,014
|
|
Additions
to assets under construction
|
$-
|
$95,352
|
$-
|
$95,352
|
|
Impairment
of assets under construction
|
$-
|
$-
|
$48,998
|
$48,998
|
During
the year ended December 31, 2018, $892,639 of Guam and U.S. Virgin
Islands assets under construction were considered to be impaired
due to the uncertainty of the project and were written
off.
For the
year ended December 31, 2017, the U.S. territories are comprised of
U.S. Virgin Islands project (approx. $728,000) and Guam project
(approx. $165,000). Other territories are comprised of Cayman
Islands project); however, during the year ended December 31, 2017,
$48,998 of Cayman Islands assets under construction was considered
to be impaired due to the uncertainty of the project and were
written off. The additions to assets under construction in 2017
were primarily salaries and consulting services.
Property and Equipment
Furniture,
equipment, and software are recorded at cost and include major
expenditures that increase productivity or substantially increase
useful lives.
Maintenance,
repairs, and minor replacements are charged to expenses when
incurred. When furniture, vehicles, or equipment is sold or
otherwise disposed of, the asset and related accumulated
depreciation are removed from this account, and any gain or loss is
included in the statement of operations.
Assets
under construction represent costs incurred by us for our renewable
energy systems currently in process. Generally, all costs incurred
during the development stage of our projects are capitalized and
tracked on an individual project basis and are included in
construction in progress until the project has been placed into
service. If a project is abandoned, the associated costs that have
been capitalized are charged to expense in the year of abandonment.
Expenditures for repairs and maintenance are charged to expense as
incurred. Interest costs incurred during the construction period of
defined major projects from debt that is specifically incurred for
those projects are capitalized.
Direct
labor costs incurred for specific major projects expected to have
long-term benefits are capitalized. Direct labor costs subject to
capitalization include employee salaries, as well as related
payroll taxes and benefits. With respect to the allocation of
salaries to projects, salaries are allocated based on the
percentage of hours that our key managers, engineers, and
scientists work on each project. These individuals track their time
worked at each project. Major projects are generally defined as
projects expected to exceed $500,000. Direct labor includes all of
the time incurred by employees directly involved with construction
and development activities. Time spent in general and indirect
management and in evaluating the feasibility of potential projects
is expensed when incurred.
We
capitalize costs incurred once the project has met the project
feasibility stage. Costs include environmental engineering,
permits, government approval, and site engineering costs. We
currently have several EcoVillage projects in the development
stage. We capitalize direct interest costs associated with the
projects. As of December 31, 2018 and 2017, we have no interest
costs capitalized for any of these projects.
The
cost of furniture, vehicles, equipment, and software is depreciated
over the estimated useful lives of the related assets.
Depreciation is
computed using the straight-line method for financial reporting
purposes. The estimated useful lives and accumulated depreciation
for land, buildings, furniture, vehicles, equipment, and software
are as follows:
|
|
|
|
Computer
Equipment
|
3
|
|
Software
|
5
|
Fair Value
Financial
Accounting Standards Board (“FASB”) Accounting Standard
Codification (“ASC”) Topic 820, Fair Value Measurements and
Disclosures, defines fair value, establishes a framework for
measuring fair value under GAAP, and enhances disclosures about
fair value measurements. ASC 820 describes a fair value hierarchy
based on three levels of inputs, of which the first two are
considered observable and the last unobservable, that may be used
to measure fair value, which are the following:
●
Level
1–Pricing inputs are quoted prices available in active
markets for identical assets or liabilities as of the reporting
date.
●
Level
2–Pricing inputs are quoted for similar assets or inputs that
are observable, either directly or indirectly, for substantially
the full term through corroboration with observable market data.
Level 2 includes assets or liabilities valued at quoted prices
adjusted for legal or contractual restrictions specific to these
investments.
●
Level
3–Pricing inputs are unobservable for the assets or
liabilities; that is, the inputs reflect the reporting
entity’s own assumptions about the assumptions market
participants would use in pricing the asset or
liability.
Management believes
the carrying amounts of the short-term financial instruments,
including cash and cash equivalents, prepaid expense and other
assets, accounts payable, accrued liabilities, notes payable,
deferred compensation, and other liabilities reflected in the
accompanying balance sheets approximate fair value at
December 31, 2018, and December 31, 2017, due to the
relatively short-term nature of these instruments.
We
account for derivative liability at fair value on a recurring basis
under level 3 at December 31, 2018 (see Note 5).
Concentrations
Cash,
cash equivalents, and restricted cash are deposited with major
financial institutions, and at times, such balances with any one
financial institution may be in excess of FDIC-insured limits. As
of December 31, 2018, and 2017, $0 and $179,855, respectively, were
deposited in excess of FDIC-insured limits. Management believes the
risk in these situations to be minimal.
Loss per Share
The
basic loss per share is calculated by dividing our net loss
available to common shareholders by the weighted average number of
common shares during the period. The diluted loss per share is
calculated by dividing our net loss by the diluted weighted average
number of shares outstanding during the period. The diluted
weighted average number of shares outstanding is the basic weighted
number of shares adjusted for any potentially dilutive debt or
equity. We have 350,073 and 134,000 shares issuable upon the
exercise of warrants and 47,046,431 and 7,056,721 shares issuable
upon the conversion of convertible notes that were not included in
the computation of dilutive loss per share because their inclusion
is antidilutive for the years ended December 31, 2018 and 2017,
respectively.
Revenue Recognition
In May
2014, the FASB issued Accounting Standard Update
(“ASU”) 2014-09, Revenue from Contracts with Customers (Topic
606). This ASU is a comprehensive new revenue recognition
model that requires a company to recognize revenue to depict the
transfer of goods or services to a customer at an amount that
reflects the consideration it expects to receive in exchange for
those goods or services. We adopted the ASU on January 1, 2018. The
adoption of the ASU did not have an impact on our consolidated
financial statements during the years ended December 31, 2018 and
2017.
Recent Accounting Pronouncements
In June
2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic
718): Improvements to Nonemployee Share-Based Payment
Accounting. This ASU relates to the accounting for
non-employee share-based payments. The amendment in this update
expands the scope of Topic 718 to include all share-based payment
transactions in which a grantor acquired goods or services to be
used or consumed in a grantor’s own operations by issuing
share-based payment awards. The ASU excludes share-based payment
awards that relate to: (1) financing to the issuer; or (2) awards
granted in conjunction with selling goods or services to customers
as part of a contract accounted for under Topic 606, Revenue from Contracts from Customers.
The share-based payments are to be measured at grant-date fair
value of the equity instruments that the entity is obligated to
issue when the goods or service has been delivered or rendered and
all other conditions necessary to earn the right to benefit from
the equity instruments have been satisfied. This standard will be
effective for public business entities for fiscal years beginning
after December 15, 2018, including interim periods within that
fiscal year. For all other entities, the amendments are effective
for fiscal years beginning after December 15, 2019, and interim
periods within fiscal years beginning after December 15, 2020.
Early adoption is permitted, but no earlier than an entity’s
adoption of Topic 606. We are currently reviewing the provisions of
this ASU to determine if there will be any impact on our results of
operations, cash flows, or financial condition.
We have
reviewed all recently issued, but not yet adopted, accounting
standards in order to determine their effects, if any, on our
consolidated results of operations, financial position, and cash
flows. Based on that review, we believe that none of these
pronouncements will have a significant effect on current or future
earnings or operations.
NOTE 2 – GOING CONCERN
The
accompanying consolidated financial statements have been prepared
on the assumption that we will continue as a going concern. As
reflected in the accompanying consolidated financial statements, we
had a net loss of $7,880,013 and used cash of $1,638,582 in
operating activities for the year ended December 31, 2018. We had a
working capital deficiency of $17,601,515 and a stockholders’
deficiency of $17,769,177 as of December 31, 2018. These factors
raise substantial doubt about our ability to continue as a going
concern. Our ability to continue as a going concern is dependent on
our ability to increase sales and obtain external funding for our
projects under development. The financial statements do not include
any adjustments that may result from the outcome of this
uncertainty.
NOTE 3 – PROPERTY AND EQUIPMENT
Property and
equipment as of December 31, 2018, consist of the
following:
|
Property & Equipment as of December 31, 2018
|
|
|
|
|
|
|
Useful Life
|
|
|
|
|
|
Life
|
|
Computer
& Office Equipment
|
$13,751
|
$13,079
|
$672
|
3
Years
|
|
Software
(Video System)
|
19,061
|
19,061
|
-
|
5
Years
|
|
|
$32,812
|
$32,140
|
$672
|
|
Property and
equipment as of December 31, 2017, consist of the
following:
|
|
|
|
|
Useful Life
|
|
|
|
|
|
Life
|
|
Computer
& Office Equipment
|
$13,751
|
$12,399
|
$1,352
|
3
Years
|
|
Software
(Video System)
|
19,061
|
19,061
|
-
|
5
Years
|
|
Construction
in Process
|
892,639
|
|
892,639
|
|
|
|
$925,451
|
$31,460
|
$893,991
|
|
Depreciation
expense for the years ended December 31, 2018 and 2017, was $680
and $1,014, respectively. During the
year ended December 31, 2018, $892,639 of Guam and U.S. Virgin
Islands assets under construction were considered to be impaired
due to the uncertainty of the projects and written-off. During the
year ended December 31, 2017, $48,998 of Cayman Islands assets
under construction was considered to be impaired due to the
uncertainty of the project and were written
off.
NOTE 4 – CONVERTIBLE NOTES AND NOTES PAYABLE
On
December 12, 2006, we borrowed funds from the Southeast Idaho
Council of Governments (SICOG), the EDA-#180 loan. The interest
rate is 6.25%, and the maturity date was January 5, 2013. During
the year ended December 31, 2018, we made a repayment of $3,208.
The loan principal was $9,379 with accrued interest of $186 as of
December 31, 2018. This note is in default.
On
December 23, 2009, we borrowed funds from SICOG, the EDA-#273 loan.
The interest rate is 7%, and the maturity date was December 23,
2014. The loan principal was $94,480 with accrued interest of
$22,864 as of December 31, 2018. This note is in
default.
On
December 23, 2009, we borrowed funds from SICOG, the MICRO I-#274
loan and MICRO II-#275 loan. The interest rate is 7%, and the
maturity date was December 23, 2014. The loan principal was $47,239
with accrued interest of $11,349 as of December 31, 2018. These
notes are in default.
On
December 1, 2007, we borrowed funds from the Eastern Idaho
Development Corporation and the Economic Development Corporation.
The interest rate is 7%, and the maturity date was September 1,
2015. The loan principal was $85,821 with accrued interest of
$39,414 as of December 31, 2018. This note is in
default.
On
September 25, 2009, we borrowed funds from the Pocatello
Development Authority. The interest rate is 5%, and the maturity
date was October 25, 2011. The loan principal was $50,000 with
accrued interest of $20,740 as of December 31, 2018. This note is
in default.
On
March 12, 2015, we combined convertible notes issued in 2010, 2011,
and 2012, payable to our officers and directors in the aggregate
principal amount of $320,246, plus accrued but unpaid interest of
$74,134, into a single, $394,380 consolidated convertible note (the
“Consolidated Note”). The Consolidated Note was
assigned to JPF Venture Group, Inc., an investment entity that is
majority-owned by Jeremy Feakins, our director, chief executive
officer, and chief financial officer. The Consolidated Note was
convertible to common stock at $0.025 per share, the approximate
market price of our common stock as of the date of the issuance. On
February 24, 2017, the Consolidated Note was amended to eliminate
the conversion feature. The Consolidated Note bears interest at 6%
per annum and is due and payable within 90 days after demand. As of
December 31, 2018, the outstanding loan balance was $394,380 and
the accrued but unpaid interest was $95,011 on the Consolidated
Note. This note is in default.
During
2016 and 2015, we borrowed $75,000 from JPF Venture Group, Inc.
pursuant to promissory notes. The terms of the notes are as
follows: (i) interest is payable at 6% per annum;
(ii) the notes are payable 90 days after demand; and
(iii) payee is authorized to convert part or all of the note
balance and accrued interest, if any, into shares of our common
stock at the rate of one share each for $0.03 of principal amount
of the note. This conversion share price was adjusted to $0.01384
for the reverse stock splits. As of December 31, 2018, the
outstanding balance was $75,000, plus accrued interest of $12,173.
As of December 31, 2018, we have recorded a debt discount of
$75,000 for the fair value derivative liability and fully amortized
the debt discount.
During
2016, we borrowed $112,500 from JPF Venture Group, Inc. pursuant to
promissory notes. The terms of the notes are as follows:
(i) interest is payable at 6% per annum; (ii) the note
are payable 90 days after demand; and (iii) payee is
authorized to convert part or all of the note balance and accrued
interest, if any, into shares of our common stock at the rate of
one share for each $0.03 of principal amount of the note. This
conversion price is not required to adjust for the reverse stock
split as per the note agreement. On February 24, 2017, the notes
were amended to eliminate the conversion features. As of December
31, 2018, the outstanding balance was $112,500, plus accrued
interest of $18,197.
On
October 20, 2016, we borrowed $12,500 from an independent director
pursuant to a promissory note. The terms of the note are as
follows: (i) interest is payable at 6% per annum;
(ii) the note is payable 90 days after demand; and
(iii) the payee is authorized to convert part or all of the
note balance and accrued interest, if any, into shares of our
common stock at the rate of one share for each $0.03 of principal
amount of the note. This conversion share price was adjusted to
$0.01384 for the reverse stock splits. As of December 31, 2018, the
outstanding balance was $12,500, plus accrued interest of $1,754.
As of December 31, 2018, we have recorded a debt discount of
$12,500 for the fair value of derivative liability and fully
amortized the debt discount.
On
October 20, 2016, we borrowed $25,000 from a stockholder pursuant
to a promissory note. The terms of the note are as follows:
(i) interest is payable at 6% per annum; (ii) the note is
payable 90 days after demand; and (iii) the payee is
authorized to convert part or all of the note balance and accrued
interest, if any, into shares of our common stock at the rate of
one share for each $0.03 of principal amount of the note. This
conversion share price was adjusted to $0.01384 for the reverse
stock splits. As of September 5, 2017, the note holder converted
the note principal of $25,000 into 1,806,298 shares common stock.
As of December 31, 2018, there was an outstanding balance of
accrued interest of $904.
During
2012, we issued a note payable for $1,000,000 and three-year
warrants to purchase 3,295,761 shares of common stock with an
exercise price of $0.50 per share. The note had an interest rate of
10% per annum, was secured by a first lien in all of our assets,
and was due on February 3, 2015. We determined the warrants had a
fair value of $378,500 based on the Black-Scholes option-pricing
model. The fair value was recorded as a discount on the note
payable and was being amortized over the life of the note. We
repriced the warrants during 2013 and took an additional charge to
earnings of $1,269,380 related to the repricing. The warrants were
exercised upon the repricing. On March 6, 2018, the note was
amended to extend the due date to December 31, 2018. As of
December 31, 2018, the outstanding balance was $1,000,000,
plus accrued interest of $636,948. This note is in
default.
During
2013, we issued Series B units. Each unit is comprised of a note
agreement, a $50,000 promissory note that matures on September 30,
2023, and bears interest at 10% per annum payable annually in
arrears, a security agreement, and a warrant to purchase 10,000
shares of common stock at an exercise price to be determined
pursuant to a specified formula and expires on September 30, 2023.
During 2013, we issued $525,000 of 10% promissory notes and
warrants to purchase 105,000 shares of common stock. We determined
the warrants had a fair value of $60,068 based on the Black-Scholes
option-pricing model. As part of our agreement with a proposed
external financing source, the board repriced the warrants to
$0.00, exercised the warrants, and issued shares of common stock.
On August 15, 2017, loans of $316,666 and accrued interest of
$120,898 were converted to 437,564 shares at $1.00 per share, which
was ratified by a disinterested majority of the board of directors.
The shares were recorded at fair value of $1,165,892, which
resulted in a loss on settlement of debt of $728,328 on the
conversion date. As of December 31, 2018, the loan balance was
$158,334 and the accrued interest was $84,947.
During
2013, we issued a note payable for $290,000 in connection with the
reverse merger transaction with Broadband Network Affiliates, Inc.,
or BBNA. We have determined that no further payment of principal or
interest on this note should be made because the note holder failed
to perform his underlying obligations giving rise to this note. As
such, we are confident that if the note holder were to seek legal
redress, a court would decide in our favor by either voiding the
note or awarding damages sufficient to offset the note value. As of
December 31, 2018, the balance outstanding was $130,000, and the
accrued interest as of that date was $50,857. This note is in
default.
On
January 18, 2018, Jeremy P. Feakins & Associates, LLC, an
investment entity owned by our chief executive, chief financial
officer, and a director, agreed to extend the due date for
repayment of a $2,265,000 note issued in 2014 to the earlier of
December 31, 2018, or the date of the financial closings of our
Baha Mar project (or any other project of $25 million or more),
whichever occurs first. On August 15, 2017, principal of $618,500
and accrued interest of $207,731 were converted to 826,231 shares
at $1.00 per share, which was ratified by a disinterested majority
of the board of directors. The conversion was recorded at
historical cost due to the related-party nature of the transaction.
For the year ended December 31, 2018, we repaid $35,000. As of
December 31, 2018, the note balance was $1,102,500 and the accrued
interest was $511,818. This note is in default.
We have
$300,000 in principal amount of outstanding notes due to unrelated
parties, issued in 2014, in default since 2015, accruing interest
at a default rate of 22%. We intend to repay the notes and accrued
interest upon the Baha Mar SWAC/LWAC project’s financial
closing. Accrued interest totaled $247,045 as of December 31,
2018.
The due
date of April 7, 2017, on a $50,000 promissory note with an
unaffiliated investor, has been extended to April 7, 2019. The note
and accrued interest can be converted into our common stock at a
conversion rate of $0.75 per share at any time prior to the
repayment. This conversion price is not required to adjust for the
reverse stock split as per the note agreement. Accrued interest
totaled $18,917 as of December 31, 2018.
On
March 9, 2017, an entity owned and controlled by our chief
executive officer agreed to provide up to $200,000 in working
capital. The note bears interest of 10% and is due and payable
within 90 days of demand. During the year ended December 31,
2017, we received an additional $2,000 and repaid $25,000. As of
December 31, 2018, the balance outstanding was $177,000, plus
accrued interest of $32,851.
During
the third quarter of 2017, we completed a $2,000,000 convertible
promissory note private placement offering. The terms of the note
are as follows: (i) interest is payable at 6% per annum;
(ii) the note is payable two years after purchase; and (iii)
all principal and interest on each note automatically converts on
the conversion maturity date into shares of our common stock at a
conversion price of $4.00 per share, as long as the closing share
price of our common stock on the trading day immediately preceding
the conversion maturity date is at least $4.00, as adjusted for
stock splits, stock dividends, reclassification, and the like. If
the price of our shares on such date is less than $4.00 per share,
the note (principal and interest) will be repaid in full. As of
December 31, 2018, the outstanding balance for all four notes was
$80,000, plus accrued interest of $7,003.
On
November 6, 2017, we entered into an agreement and promissory note
with JPF Venture Group, Inc. to loan up to $2,000,000 to us. The
terms of the note are as follows: (i) interest is payable at
10% per annum; (ii) all unpaid principal and all accrued and
unpaid interest is due and payable at the earliest of a resolution
of the Memphis litigation, September 30, 2018, or when we are
otherwise able to pay. For the year ended December 31, 2018 and
2017, we repaid $29,474 and $39,432 respectively. As of December
31, 2018, the outstanding balance was $612,093 and the accrued
interest was $80,568. On September 30, 2018, the note was amended
to extend the maturity date to the earliest of a resolution of the
Memphis litigation, December 31, 2018, or when we are otherwise
able to pay. This note is in default.
In
December 2017, we entered into a note and warrant purchase
agreement pursuant to which we issued a series of unsecured
promissory notes to accredited investors, in the aggregate
principal amount of $979,156 as of December 31, 2018. These notes
accrue interest at a rate of 10% per annum payable on a quarterly
basis and are not convertible into shares of our capital stock. The
notes are payable within five business days after receipt of gross
proceeds of at least $1,500,000 from L2 Capital, LLC, an
unaffiliated Kansas limited liability company (“L2 Capital).
We may prepay the notes in whole or in part, without penalty or
premium, on or before the maturity date of July 30, 2019. In
connection with the issuance of the notes, for each note purchased,
the note holder will receive a warrant as follows:
●
$10,000 note with a
warrant to purchase 2,000 shares
●
$20,000 note with a
warrant to purchase 5,000 shares
●
$25,000 note with a
warrant to purchase 6,500 shares
●
$30,000 note with a
warrant to purchase 8,000 shares
●
$40,000 note with a
warrant to purchase 10,000 shares
●
$50,000 note with a
warrant to purchase 14,000 shares
The
exercise price per share of the warrants is equal to 85% of the
closing price of our common stock on the day immediately preceding
the exercise of the relevant warrant, subject to adjustment as
provided in the warrant. The warrant includes a cashless net
exercise provision whereby the holder can elect to receive shares
equal to the value of the warrant minus the fair market value of
shares being surrendered to pay the exercise price. As of December
31, 2018, and December 31, 2017, the balance outstanding was
$979,156 and $490,000, respectively. As of December 31, 2018, and
December 31, 2017, the accrued interest was $71,542 and $613,
respectively. As of December 31, 2018, and December 31, 2017, we
had issued warrants to purchase 262,000 and 134,000 shares of
common stock, respectively. As of December 31, 2018, and December
31, 2017, we determined that the warrants had a fair value of
$34,975 and $41,044, respectively, based on the Black-Scholes
pricing model. The fair value was recorded as a discount on the
notes payable and is being amortized over the life of the notes
payable. As of December 31, 2018, we have amortized $51,584 of debt
discount. As of December 31, 2018, warrants to purchase 39,000
shares have been exercised (see Note 6), and the debt discount
related to the exercised warrants has been fully expensed. As of
December 31, 2018, $21,367 of the principal payments of two notes
are due and in default.
On
February 15, 2018, we entered into an agreement with L2 Capital for
a loan of up to $565,555, together with interest at the rate of 8%
per annum, which consists of up to $500,000 to us and a prorated
original issuance discount of $55,555 and $10,000 for transactional
expenses to L2 Capital. L2 Capital has the right at any time to
convert all or any part of the note into fully paid and
nonassessable shares of our common stock at the fixed conversion
price, which is equal to $0.50 per share; however, at any time on or after the
occurrence of any event of default under the note, the conversion
price will adjust to the lesser of $0.50 or 65% multiplied by the
lowest volume weighted average price of the common stock during the
20-trading-day period ending, in L2 Capital’s sole discretion
on each conversion, on either the last complete trading day prior
to the conversion date or the conversion date. As of December 31,
2018, we have received five tranches totaling $482,222 with debt
issuance cost of $91,222. The debt issuance cost is amortized over
the life of the note. In addition, we also issued warrants to
purchase 56,073 shares of common stock in accordance with a
non-exclusive finder’s fee arrangement (see Note 6). These
warrants have a fair value of $13,280 based on the Black-Scholes
option-pricing model. The fair value was recorded as a discount on
the notes payable and is being amortized over the life of the notes
payable. As of December 31, 2018, we have fully amortized $91,222
of the debt issuance cost. During the year ended December 31, 2018,
L2 Capital converted $114,078 of the note into 4,000,000 shares of
common stock at an average conversion price of $0.0285 per share.
As of December 31, 2018, we have recorded a debt discount of
$475,481 for the fair value of derivative liability and fully
amortized the debt discount. As of December 31, 2018, the
outstanding balance of the original loan was $368,145 plus a
default penalty of $261,306 for a total of $629,451. The accrued
interest was $59,938. The note is in default as of December 31,
2018.
On May
22, 2018, we executed a convertible note with Collier Investments,
LLC, an unaffiliated California company, in the amount of $281,250
with an interest rate of 12% per annum. The maturity date of the
note is the earlier of: (i) seven months after the issuance date;
or (ii) the date on which we consummate a capital-raising
transaction for $6,000,000 or more primarily from the sale of
equity in the company. The note, or any portion of it, can be
convertible by the holder into shares of our common stock at any
time after the issuance date. The conversion price is equal to the
lesser of 80% multiplied by the price per share paid by the
investors in a “qualified financing” (as defined in the
note) or $0.20, subject to certain adjustments. At any time within
a 90-day period following the issuance date, we have the option to
prepay 145% of the outstanding balance. There were an original
issue discount and transaction fees of $36,250, yielding net
proceeds of $245,000 to us. In addition, we paid a finder’s
fee of $20,914. The original issue discount and transaction finder
fees are being amortized over the life of the note payable as debt
issuance cost. As of December 31, 2018, we have fully amortized the
debt issuance cost. As of December 31, 2018, we have recorded a
debt discount of $5,267 for the fair value of derivative liability
and fully amortized the debt discount. On December 14, 2018, L2
Capital LLC purchased this note payable from Collier Investments,
LLC. The total consideration was $371,250, including the
outstanding note balance, the accrued interest, and liquidated
damages (see below for convertible note issued to L2 Capital on
December 14, 2018). We recorded the loss on the extinguishment of
debt of $279,432.
On
September 19, 2018, we executed a note payable for $10,000 with an
unrelated party that bears interest at 6% per annum, which is due
quarterly beginning as of September 30, 2018. The maturity date for
the note is three years after date of issuance. In addition, the
lender received warrants to purchase 2,000 shares of common stock
upon signing the promissory note. The warrant can be exercised at a
price per share equal to a 15% discount from the price of common
stock on the last trading day before such purchase. As of December
31, 2018, the balance outstanding was $10,000 and the accrued
interest was $172.
On
December 14, 2018, L2 Capital LLC purchased our note payable from
Collier Investments, LLC. The total consideration was $371,250,
including the outstanding note balance of $281,250, the accrued
interest of $33,750, and liquidated damages of $56,250. There was
also a default penalty of $153,123. In addition, we issued 400,000
shares of common stock to L2 Capital, LLC as commitment shares with
a fair value of $21,200 in connection with the purchase of the
note. We executed a convertible note with L2 Capital in the amount
of $371,250 with an interest rate of 12% per annum. The maturity
date of the note is December 22, 2018. The holder of the note can
convert the note, or any portion of it, into shares of common stock
at any time after the issuance date. The conversion price is 65% of
the market price, which is defined as the lowest trading price for
our common stock during the 20-trading-day period prior to the
conversion date. As of December 31, 2018, we have recorded a debt
discount of $371,250 for the fair value of derivative liability and
fully amortized the debt discount. On December 31, 2018, the
outstanding balance was $524,373, which includes a default penalty,
and the accrued interest was $4,183. This note is in
default.
The
following convertible note and notes payable were outstanding at
December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
at
December
31,
2018
|
Discount
at
December
31,
2018
|
Carrying
Amount at December 31,
2018
|
|
|
|
|
|
12/12/06
|
|
6.25%
|
Yes
|
58,670
|
9,379
|
-
|
9,379
|
-
|
-
|
9,379
|
-
|
|
12/01/07
|
|
7.00%
|
Yes
|
125,000
|
85,821
|
-
|
85,821
|
-
|
-
|
85,821
|
-
|
|
09/25/09
|
|
5.00%
|
Yes
|
50,000
|
50,000
|
-
|
50,000
|
-
|
-
|
50,000
|
-
|
|
12/23/09
|
|
7.00%
|
Yes
|
100,000
|
94,480
|
-
|
94,480
|
-
|
-
|
94,480
|
-
|
|
12/23/09
|
|
7.00%
|
Yes
|
25,000
|
23,619
|
-
|
23,619
|
-
|
-
|
23,619
|
-
|
|
12/23/09
|
|
7.00%
|
Yes
|
25,000
|
23,620
|
-
|
23,620
|
-
|
-
|
23,620
|
-
|
|
02/10/18
|
|
10.00%
|
Yes
|
1,000,000
|
1,000,000
|
-
|
1,000,000
|
|
-
|
1,000,000
|
-
|
|
08/15/13
|
|
10.00%
|
No
|
525,000
|
158,334
|
-
|
158,334
|
-
|
-
|
-
|
158,334
|
|
12/31/13
|
|
8.00%
|
Yes
|
290,000
|
130,000
|
-
|
130,000
|
-
|
-
|
130,000
|
-
|
|
04/01/14
|
|
10.00%
|
Yes
|
2,265,000
|
1,102,500
|
-
|
1,102,500
|
1,102,500
|
-
|
-
|
-
|
|
12/22/14
|
|
22.00%*
|
Yes
|
200,000
|
200,000
|
-
|
200,000
|
-
|
-
|
200,000
|
-
|
|
12/26/14
|
|
22.00%*
|
Yes
|
100,000
|
100,000
|
-
|
100,000
|
-
|
-
|
100,000
|
-
|
|
03/12/15
|
(1)
|
6.00%
|
No
|
394,380
|
394,380
|
-
|
394,380
|
394,380
|
-
|
-
|
-
|
|
04/07/15
|
|
10.00%
|
Yes
|
50,000
|
50,000
|
-
|
50,000
|
-
|
-
|
50,000
|
-
|
|
11/23/15
|
(1)
|
6.00%
|
No
|
50,000
|
50,000
|
-
|
50,000
|
50,000
|
-
|
-
|
-
|
|
02/25/16
|
(1)
|
6.00%
|
No
|
50,000
|
50,000
|
-
|
50,000
|
50,000
|
-
|
-
|
-
|
|
05/20/16
|
(1)
|
6.00%
|
No
|
50,000
|
50,000
|
-
|
50,000
|
50,000
|
-
|
-
|
-
|
|
10/20/16
|
(1)
|
6.00%
|
No
|
50,000
|
12,500
|
-
|
12,500
|
12,500
|
-
|
-
|
-
|
|
10/20/16
|
(1)
|
6.00%
|
No
|
12,500
|
12,500
|
-
|
12,500
|
12,500
|
-
|
-
|
-
|
|
12/21/16
|
(1)
|
6.00%
|
No
|
25,000
|
25,000
|
-
|
25,000
|
25,000
|
-
|
-
|
-
|
|
03/09/17
|
(1)
|
10.00%
|
No
|
200,000
|
177,000
|
-
|
177,000
|
177,000
|
-
|
-
|
-
|
|
07/13/17
|
|
6.00%
|
No
|
25,000
|
25,000
|
-
|
25,000
|
-
|
-
|
25,000
|
-
|
|
07/18/17
|
|
6.00%
|
No
|
25,000
|
25,000
|
-
|
25,000
|
-
|
-
|
25,000
|
-
|
|
07/26/17
|
|
6.00%
|
No
|
15,000
|
15,000
|
-
|
15,000
|
-
|
-
|
15,000
|
-
|
|
07/27/17
|
|
6.00%
|
No
|
15,000
|
15,000
|
-
|
15,000
|
-
|
-
|
15,000
|
-
|
|
12/20/17
|
(2)
|
10.00%
|
Yes**
|
979,156
|
979,156
|
24,435
|
954,721
|
-
|
-
|
954,721
|
-
|
|
11/06/17
|
|
10.00%
|
Yes
|
646,568
|
612,093
|
-
|
612,093
|
612,093
|
-
|
-
|
-
|
|
02/19/18
|
|
18.00%*
|
Yes
|
629,451
|
629,451
|
-
|
629,451
|
-
|
-
|
629,451
|
-
|
|
09/19/18
|
|
6.00%
|
No
|
10,000
|
10,000
|
-
|
10,000
|
-
|
-
|
-
|
10,000
|
|
12/14/18
|
|
24.00%*
|
Yes
|
524,373
|
524,373
|
-
|
524,373
|
-
|
-
|
524,373
|
-
|
|
|
|
|
$8,515,098
|
$6,634,206
|
$24,435
|
$6,609,771
|
$2,485,973
|
$-
|
$3,955,464
|
$168,334
|
(1)
Maturity
date is 90 days after demand.
(2)
Bridge
loans were issued at dates between December 2017 and May 2018.
Principal is due on the earlier of 18 months from the anniversary
date or the completion of L2 financing with a gross proceeds of a
minimum of $1.5 million.
(3)
L2
- Note was drawn down in five traunches between 02/16/18 and
05/02/18.
**
Partially
in default as of December 31, 2018
The following convertible notes and notes payable were outstanding
at December 31, 2017:
|
|
|
|
|
|
|
|
|
Related Party
|
|
|
Date of Issuance
|
|
|
In Default
|
|
Principal at
December 31,
2017
|
Discount at
December 31
2017
|
Carrying Amount at
December 31,
2017
|
|
|
|
|
|
12/12/06
|
|
6.25%
|
Yes
|
58,670
|
12,272
|
-
|
12,272
|
-
|
-
|
12,272
|
-
|
|
12/01/07
|
|
7.00%
|
Yes
|
125,000
|
85,821
|
-
|
85,821
|
-
|
-
|
85,821
|
-
|
|
09/25/09
|
|
5.00%
|
Yes
|
50,000
|
50,000
|
-
|
50,000
|
-
|
-
|
50,000
|
-
|
|
12/23/09
|
|
7.00%
|
Yes
|
100,000
|
94,480
|
-
|
94,480
|
-
|
-
|
94,480
|
-
|
|
12/23/09
|
|
7.00%
|
Yes
|
25,000
|
23,619
|
-
|
23,619
|
-
|
-
|
23,619
|
-
|
|
12/23/09
|
|
7.00%
|
Yes
|
25,000
|
23,620
|
-
|
23,620
|
-
|
-
|
23,620
|
-
|
|
02/03/12
|
|
10.00%
|
No
|
1,000,000
|
1,000,000
|
-
|
1,000,000
|
1,000,000
|
-
|
-
|
-
|
|
08/15/13
|
|
10.00%
|
No
|
525,000
|
158,334
|
-
|
158,334
|
-
|
|
-
|
158,334
|
|
12/31/13
|
|
8.00%
|
Yes
|
290,000
|
130,000
|
-
|
130,000
|
130,000
|
-
|
-
|
-
|
|
04/01/14
|
|
10.00%
|
No
|
2,265,000
|
1,137,500
|
-
|
1,137,500
|
1,137,500
|
-
|
-
|
-
|
|
12/22/14
|
|
22.00%*
|
Yes
|
200,000
|
200,000
|
-
|
200,000
|
-
|
-
|
200,000
|
-
|
|
12/26/14
|
|
22.00%*
|
Yes
|
100,000
|
100,000
|
-
|
100,000
|
-
|
-
|
100,000
|
-
|
|
03/12/15
|
(1)
|
6.00%
|
No
|
394,380
|
394,380
|
-
|
394,380
|
394,380
|
-
|
-
|
-
|
|
04/07/15
|
|
10.00%
|
No
|
50,000
|
50,000
|
-
|
50,000
|
-
|
-
|
50,000
|
|
|
11/23/15
|
(1)
|
6.00%
|
No
|
50,000
|
50,000
|
-
|
50,000
|
50,000
|
-
|
-
|
-
|
|
02/25/16
|
(1)
|
6.00%
|
No
|
50,000
|
50,000
|
-
|
50,000
|
50,000
|
-
|
-
|
-
|
|
05/20/16
|
(1)
|
6.00%
|
No
|
50,000
|
50,000
|
-
|
50,000
|
50,000
|
-
|
-
|
-
|
|
10/20/16
|
(1)
|
6.00%
|
No
|
50,000
|
12,500
|
-
|
12,500
|
12,500
|
-
|
-
|
-
|
|
10/20/16
|
(1)
|
6.00%
|
No
|
12,500
|
12,500
|
-
|
12,500
|
12,500
|
-
|
-
|
-
|
|
12/21/16
|
(1)
|
6.00%
|
No
|
25,000
|
25,000
|
-
|
25,000
|
25,000
|
-
|
-
|
-
|
|
03/09/17
|
(1)
|
10.00%
|
No
|
200,000
|
177,000
|
-
|
177,000
|
177,000
|
-
|
-
|
-
|
|
07/13/17
|
|
6.00%
|
No
|
25,000
|
25,000
|
-
|
25,000
|
-
|
-
|
-
|
25,000
|
|
07/18/17
|
|
6.00%
|
No
|
25,000
|
25,000
|
-
|
25,000
|
-
|
-
|
-
|
25,000
|
|
07/26/17
|
|
6.00%
|
No
|
15,000
|
15,000
|
-
|
15,000
|
-
|
-
|
-
|
15,000
|
|
07/27/17
|
|
6.00%
|
No
|
15,000
|
15,000
|
-
|
15,000
|
-
|
-
|
-
|
15,000
|
|
12/20/17
|
(2)
|
10.00%
|
No
|
490,000
|
490,000
|
41,044
|
448,956
|
-
|
-
|
-
|
448,956
|
|
11/06/17
|
|
10.00%
|
No
|
646,568
|
641,568
|
-
|
641,568
|
641,568
|
-
|
-
|
-
|
|
|
|
|
|
$5,048,594
|
$41,044
|
$5,007,550
|
$3,680,448
|
$-
|
$639,812
|
$687,290
|
(1)
Maturity
date is 90 days after demand.
(2)
Bridge
loans were issued at dates between December 2017 and May 2018.
Principal is due on the earlier of 18 months from the anniversary
date or the completion of L2 financing with a gross proceeds of a
minimum of $1.5 million.
(3)
Principal
and accrued interest will be due and payable at the earliest of A)
resolution of Memphis litigation; B) December 31, 2018 , or C) when
OTE is able to pay.
Maturities of Long-Term Obligations for Five Years and
Beyond
The
minimum principal payments of convertible notes and notes payable
at December 31, 2018:
|
2019
|
$6,441,437
|
|
2020
|
-
|
|
2021
|
10,000
|
|
2022
and thereafter
|
158,334
|
|
Total
|
$6,609,771
|
NOTE 5 – DERIVATIVE LIABILITY
We measure the fair value of our assets and
liabilities under the guidance of ASC 820, Fair Value Measurements and
Disclosures, which defines fair
value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles, and
expands disclosures about fair value measurements. ASC 820 does not
require any new fair value measurements, but its provisions apply
to all other accounting pronouncements that require or permit fair
value measurement.
On August 19, 2018, the note issued to L2 Capital
on February 19, 2018, went into default. In accordance with the
terms of the note, at any time on or after the occurrence of
any event of default, the conversion price per share would adjust
to the lesser of $0.50 or 65% multiplied by the lowest volume
weighted average price of the common stock during the
20-trading-day period ending, in L2 Capital’s sole discretion
on each conversion, on either the last complete trading day prior
to the conversion date or the conversion date. We identified conversion features embedded within
convertible debt issued. We have determined that the features
associated with the embedded conversion option should be accounted
for at fair value as a derivative liability. We have elected to
account for these instruments together with fixed conversion price
instruments as derivative liabilities as we cannot determine if a
sufficient number of shares would be available to settle all
potential future conversion transactions.
Following
is a description of the valuation methodologies used to determine
the fair value of our financial liabilities, including the general
classification of such instruments pursuant to the valuation
hierarchy:
|
|
Fair value
at
December
31,
2018
|
Quoted
prices in active markets for
identical
assets/liabilities
(Level
1)
|
Significant
other
observable
inputs
(Level
2)
|
Significant
unobservable
inputs
(Level
3)
|
|
|
|
|
|
|
|
Derivative
Liability
|
$2,292,254
|
$-
|
$-
|
$2,292,254
|
The
tables below set forth a summary of changes in fair value of our
Level 3 financial liabilities for the year ended December 31, 2018.
The tables reflect changes for all financial liabilities at fair
value categorized as Level 3 as of December 31, 2018:
|
|
|
|
Derivative
liability as of December 31, 2017
|
$-
|
|
Fair
value at the commitment date for convertible
instruments
|
1,690,124
|
|
Change
in fair value of derivative liability
|
759,603
|
|
Reclassification
to additional paid-in capital for financial instruments that ceased
to be a derivative liability
|
(157,473)
|
|
Derivative
liability as of December 31, 2018
|
$2,292,254
|
|
|
|
|
|
|
|
Change
in fair value of derivative liability at the beginning of
year
|
$-
|
|
Day
one gains/(losses) on valuation
|
441,865
|
|
Gains/(losses)
from the change in fair value of derivative liability
|
764,992
|
|
Change
in fair value of derivative liability at the end of
year
|
$1,206,857
|
_______________
*
Gains/(losses)
related to the revaluation of Level 3 financial liabilities is
included in “Change in fair value of derivative
liability” in the accompanying consolidated audited statement
of operations.
The
fair value of the derivative liability was estimated using the
income approach and the Black-Scholes option-pricing model. The
fair values at the commitment and remeasurement dates for our
derivative liabilities were based upon the following management
assumptions:
|
|
Commitment Date
|
|
Remeasurement Date**
|
|
Expected dividends
|
0%
|
|
0%
|
|
Expected volatility
|
81% to 503%
|
|
87% to 515%
|
|
Risk free interest rate
|
2.05% to 3.07%
|
|
2.19% to 2.60%
|
|
Expected term (in years)
|
0.25 to 5.0
|
|
0.23 to 4.81
|
_______________
**
The
fair value at the remeasurement date is equal to the carrying value
on the balance sheet.
NOTE 6 – STOCKHOLDERS’ EQUITY
Common Stock
For the
year ended December 31, 2017, individuals exercised Series D
warrants to purchase 998,079 shares of common stock at a price of
$0.75 per share for cash totaling $748,535. These warrants were
related to the BBNA merger.
For the
year ended December 31, 2017, we issued 2,173,517 shares of common
stock for services performed with a fair value of
$2,388,478.
For the
year ended December 31, 2017, we issued 1,714,285 shares of common
stock to L2 Capital, LLC with a fair value of $514,286 under the
equity purchase agreement.
For the
year ended December 31, 2017, we issued 11,250 shares of common
stock pursuant to our private placement memorandum with a fair
value of $45,000 ($4.00 per share).
As part
of the Merger, 94,343,776 shares of common stock were issued to the
shareholders of OTE in exchange for common stock in the merged
company.
As a
part of our agreement with the Memphis Investors, the board
repriced 14,792,500 warrants and 100,000 options to $0.00 per
share, the Memphis Investors exercised the warrants and options,
and we issued 14,792,500 shares of common stock. These warrants had
a fair value of $6,769,562. Per ASC Topic 718, this exchange is
treated as a modification. The incremental value of $6,769,562
measured as the excess of the fair value of the modified award over
the fair value of the original award immediately before the
modification using the Black-Scholes option pricing model was
expensed fully when they were exercised.
On May
8, 2017, JPF Venture Group, Inc., an investment entity that is
majority-owned by our director, chief executive officer, and chief
financial officer, transferred 148,588 shares of common stock for
$111,440 to us to fulfill an overcommitment of Series D
warrants.
On May
9, 2017, we issued 536,490 shares of common stock to the former
shareholders of TetriDyn Solutions, Inc. for the assumption of
$617,032 of accrued expenses and $1,015,506 of convertible notes
and notes payable from related and unrelated parties. We recorded a
debit of $1,628,026 to additional paid-in capital as part of the
recapitalization.
On June
5, 2017, a note holder elected to convert a $25,000 convertible
note payable for 1,806,298 shares of common stock ($0.014 per
share).
On June
29, 2017, the board of directors approved a stock bonus for our
chief executive officer and and our senior financial advisor of
258,476 and 150,590 shares of common stock, respectively, at fair
value of $920,399. These shares were issued on November 1,
2017.
On
August 3, 2017, we entered into a compensation agreement with our
former legal counsel wherein we agreed to pay an outstanding legal
bill in the amount of $197,950 by issuance of 65,000 shares covered
by a registration statement on Form S-8, filed with the Securities
and Exchange Commission on August 25, 2017. The former legal
counsel may, at any time and from time to time following the filing
of the Form S-8, elect to call for the issuance of shares as
payment for the outstanding legal bill. As the shares are sold into
the market, the outstanding balance will be reduced. On October 17,
2017, we issued 65,000 shares of common stock pursuant to the
agreement with a fair value of $146,250. As of December 31, 2017,
our former legal counsel had sold 704 shares with total proceeds of
$1,133. As of December 31, 2017, the fair value of the 64,296
shares of common stock was $20,575 and $124,542 was recorded as a
change in fair value of liability. As of December 31, 2018, our
former legal counsel has sold the remaining 64,296 shares with
total proceeds of $14,367. The legal fees balance of $182,450
remains outstanding as of December 31, 2018.
On
August 15, 2017, Series B note holders elected to convert $316,666
in notes payable for 316,666 shares of common stock at a conversion
rate of $1.00. In addition, they converted accrued interest in the
amount of $120,898 for 120,898 shares of common stock. The shares
were recorded at fair value of $1,165,892. We recorded a loss on
the settlement of debt of $728,328 on the conversion
date.
On
August 15, 2017, Clean Energy note holders elected to convert
$166,800 in notes payable for 139,000 shares of common stock at a
conversion rate of $1.20. In addition, they converted accrued
interest in the amount of $48,866 for 40,722 shares of common
stock.
On
August 15, 2017, Jeremy P. Feakins & Associates, LLC, an
investment entity that is majority-owned by our director, chief
executive officer, and chief financial officer, elected to convert
$618,500 in notes payable for 618,500 shares of common stock at a
conversion rate of $1.00. In addition, it converted accrued
interest in the amount of $207,731 for 207,731 shares of common
stock.
On
September 8, 2017, JPF Venture Group, Inc., an investment entity
that is majority-owned by our director, chief executive officer,
and chief financial officer, elected to convert $50,000 in notes
payable for 3,612,596 shares of common stock at a conversion rate
of $0.014. In addition, it converted accrued interest in the amount
of $6,342 for 458,198 shares of common stock.
We
entered into a settlement agreement to convert an outstanding
payable balance totaling $180,000 into 360,000 shares of common
stock. The shares were recorded at fair value of $556,875. We
recorded a loss on settlement of debt of $376,875 on settlement
date.
On
November 8, 2017, Jeremy P. Feakins & Associates LLC, an
investment entity that is majority-owned by our director, chief
executive officer, and chief financial officer, elected to convert
$50,000 of Series B notes payable into 50,000 shares of common
stock at a conversion rate of $1.00. In addition, accrued interest
of $16,263 was converted into 16,263 shares of common
stock.
For the
year ended December 31, 2018, we issued 673,345 shares of common
stock for services performed with a fair value of
$138,986.
For the
year ended December 31, 2018, we issued 2,300,000 shares of common
stock for financing to L2 Capital with a fair value of $106,905 in
cash, net of offering cost.
For the
year ended December 31, 2018, we issued 4,000,000 shares of common
stock to L2 Capital for the conversion of a portion of our notes
payable to L2 Capital in the amount of $114,078.
For the
year ended December 31, 2018, note holders elected to exercise
warrants to purchase 39,000 shares of common stock for $9,520 in
cash.
For the
year ended December 31, 2018, we sold 984,352 shares of common
stock for $58,980 in cash. This includes 240,840 shares of common
stock for $10,000 that were issued to our chief executive officer
and an independent director.
For the
year ended December 31, 2018, we issued 400,000 shares to L2
Capital as a commitment fee for $21,200 to purchase our outstanding
note payable from Collier Investments LLC.
Warrants and Options
We used
the following assumptions for options during the year ended
December 31, 2018:
|
Expected
volatility:
|
462% -
509%
|
|
Expected
lives:
|
3
years
|
|
Risk-free
interest rate:
|
2.01% -
2.85%
|
|
Expected
dividend yield:
|
None
|
We used
the following assumptions for options during the year ended
December 31, 2017:
|
Expected
volatility:
|
485%
|
|
Expected
lives:
|
3
Years
|
|
Risk-free
interest rate:
|
1.98% -
2.01%
|
|
Expected
dividend yield:
|
None
|
During
2012, we issued warrants to purchase 1,075,000 shares of common
stock in conjunction with Series A notes payable that were
exercisable at a price of $3.00 per share and expired on March 31,
2017. The warrants were fully exercised at $0.00 per share upon
board of directors’ approval during the year ended December
31, 2017.
During
2013, we issued warrants to purchase 105,000 shares of common stock
in conjunction with Series B notes payable that were exercisable at
a price to be determined pursuant to a specified formula. Effective
July 21, 2014, our common stock was approved for listing on the GXG
Markets First Quote platform with an $0.85 per share price,
establishing a price of $0.68 per share for the warrants and making
them all exercisable. The warrants were fully exercised at $0.00
per share upon board of directors’ approval during the year
ended December 31, 2017.
During
2013, we issued warrants to purchase 300,000 shares of common
stock, with an exercise price equal to the greater of a 50%
discount of the stock price at our initial public offering of
shares or $0.425 per share (subject to adjustment), in conjunction
with a note payable to Jeremy P. Feakins & Associates, LLC, an
entity owned by our chief executive officer, in the amount of
$100,000. Effective July 21, 2014, we were approved for listing on
the GXG Markets First Quote platform with an $0.85 per share price,
establishing a price of $0.425 per share for the warrants and
making them all exercisable. The warrants were fully exercised at
$0.00 upon board of directors’ approval during the year ended
December 31, 2017.
As part
of the merger with BBNA, we assumed outstanding warrants to
purchase 10,000,000 shares of common stock with an expiration date
of December 31, 2018. These warrants are grouped into five tranches
of 2,000,000 shares. The pricing for each tranche was as follows:
Series A and Series B were $0.50 per share; Series C was $0.75 per
share; Series D was $1.00 per share; and Series E was $1.25 per
share. During 2014, 5,786,635 of these warrants were exercised and
1,157,989 were exercised during 2015. In addition, we repriced the
Series D warrants to $0.75 per share and Series E warrants to $0.50
per share. During the year ended December 31, 2017, 998,079 were
exercised.
During
2014, we issued warrants to purchase 12,912,500 shares of common
stock, with an exercise price of $0.425 per share (subject to
adjustment) in conjunction with a note payable to Jeremy P. Feakins
& Associates, LLC, an entity owned by our chief executive
officer, in the amount of $2,265,000. On April 4, 2016, the note
holder agreed to amend the note to extend the due date of the note
to December 31, 2017. We did not modify the terms of the warrants.
The warrants were fully exercised at $0.00 per share upon board of
directors’ approval during the year ended December 31,
2017.
During
2014, we issued warrants to purchase 300,000 shares of common
stock, with an exercise price of $1.00 per share and an expiration
date of December 31, 2018, in conjunction with notes payable to
individuals, including a then-related party, in the amount of
$300,000. The warrants were fully exercised at $0.00 per share upon
board of directors’ approval during the year ended December
31, 2017.
The
following table summarizes all warrants outstanding and exercisable
for the years ended December 31, 2018 and 2017:
|
Warrants
|
|
Weighted Average Exercise
Price
|
|
Balance at December
31, 2016
|
15,912,210
|
$0.76
|
|
Granted
|
134,000
|
*
|
|
Exercised
|
(998,079)
|
$0.31
|
|
Exercised
(re-priced to $0.00)
|
(14,692,500)
|
$0.00
|
|
Forfeited
|
(221,631)
|
$0.00
|
|
Balance at December
31, 2017
|
134,000
|
$0.76
|
|
Granted
|
255,073
|
$0.21
|
|
Exercised
|
(39,000)
|
$0.24
|
|
Forfeited
|
-
|
$0.00
|
|
Balance
at December 31, 2018
|
350,073
|
$0.18
|
|
Exercisable
December 31, 2018
|
350,073
|
$0.18
|
__________
*Discount of 15% of
CPWR closing price on OTCQB the day before the warrant is
exercised.
The
aggregate intrinsic value represents the excess amount over the
exercise price that optionees would have received if all options
had been exercised on the last business day of the period
indicated, based on our closing stock price of $0.06 per share on
December 31, 2018. The intrinsic value of warrants to purchase
350,073 shares on that date was $3,408.
During
the year ended December 31, 2018, we issued warrants to purchase
125,073 shares of our common stock, none of which has been
exercised, to Craft Capital Management, LLC, as a finder’s
fee for debt and equity transactions between L2 Capital and
us.
As of
December 31, 2017, we issued warrants to purchase 134,000 shares of
our common stock to note holders. During 2018, we issued additional
warrants to purchase 128,000 shares of our common stock (see Note
4). During 2018, the note holders elected to exercise warrants and
purchase 39,000 shares of common stock for $9,520 in cash (see Note
6). As of December 31, 2018, we have outstanding warrants to
purchase 223,000 shares of our common stock.
On,
January 1, 2015, we issued to our independent director, who was
then vice president shareholder relations, three-year options to
purchase an aggregate of 100,000 shares of common stock at $0.75
per share, which would expire on January 1, 2018. The options vest
in four segments of 25,000 shares per quarter commencing on: March
31, 2015; June 30, 2015; September 30, 2015, and December 31, 2015.
We calculated the fair value of the options by using the
Black-Scholes option-pricing model with the following weighted
average assumptions: no dividend yield for all the years; expected
volatility of 54%; risk-free interest rate of 0.25%; and an
expected life of one year. The fair value of the options was
$22,440 or $0.2244 per option. These options were fully exercised
at $0.00 upon approval by our board of directors during the year
ended December 31, 2017.
The
following table summarizes all options outstanding and exercisable
for the years ended December 31, 2018 and 2017:
|
|
Number
of
|
Weighted
Average
Exercise
|
|
|
Options
|
Price
|
|
Balance
at December 31, 2016
|
100,000
|
$0.75
|
|
Granted
|
-
|
-
|
|
Exercised
|
(100,000)
|
$0.75
|
|
Forfeited
|
-
|
-
|
|
Balance at December 31, 2017
|
-
|
-
|
|
Granted
|
-
|
-
|
|
Exercised
|
-
|
-
|
|
Forfeited
|
-
|
-
|
|
Balance at December 31, 2018
|
-
|
-
|
|
Exercisable December 31, 2018
|
-
|
-
|
NOTE 7 – INCOME TAX
The
Jobs Act significantly revised the U.S. corporate income tax law by
lowering the corporate federal income tax rate from 35% to
21%.
Our
ability to use our net operating loss carryforwards may be
substantially limited due to ownership change limitations that may
have occurred or that could occur in the future, as required by
Section 382 of the Code, as well as similar state provisions. These
ownership changes may limit the amount of net operating loss that
can be utilized annually to offset future taxable income and tax,
respectively. In general, an “ownership change” as
defined by Section 382 of the Code results from a transaction or
series of transactions over a three-year period resulting in an
ownership change of more than 50.0% of the outstanding stock of a
company by certain stockholders or public groups.
We have
not completed a study to assess whether an ownership change has
occurred or whether there have been multiple ownership changes
since we became a “loss corporation” under the
definition of Section 382. If we have experienced an ownership
change, utilization of the net operating loss carryforwards would
be subject to an annual limitation under Section 382 of the Code,
which is determined by first multiplying the value of our stock at
the time of the ownership change by the applicable long-term,
tax-exempt rate, and then could be subject to additional
adjustments, as required. Any limitation may result in expiration
of a portion of the net operating loss carryforwards before
utilization. Further, until a study is completed, and any
limitation known, no positions related to limitations are being
considered as an uncertain tax position or disclosed as an
unrecognized tax benefit. Any carryforwards that expire prior to
utilization as a result of such limitations will be removed from
deferred tax assets with a corresponding reduction of the valuation
allowance. Due to the existence of the valuation allowance, it is
not expected that any possible limitation will have an impact on
our results of operations or financial position.
A
reconciliation of income tax expense and the amount computed by
applying the statutory federal income tax rate of 18.9% to the
income before provision for income taxes is as
follows:
|
|
For the Years
Ended December 31
|
|
|
|
|
|
Statutory rate
applied to loss before income taxes
|
$(2,276,031)
|
$(5,903,355)
|
|
Increase (decrease)
in income taxes results from:
|
|
|
|
Nondeductible
permanent differences
|
806,885
|
4,446,014
|
|
Change
in tax rate estimates
|
-
|
3,566,781
|
|
Change
in valuation allowance
|
1,469,146
|
(2,109,440)
|
|
Income
tax expense (benefit)
|
$-
|
$-
|
Deferred
income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. Significant components of our deferred tax assets and
liabilities are as follows:
|
|
For the Years
Ended December 31
|
|
|
|
|
|
Depreciation
and impairment
|
$2,358,860
|
$2,100,958
|
|
Operating loss
carryforwards
|
7,917,151
|
6,705,907
|
|
Gross deferred tax
assets
|
10,276,011
|
8,806,865
|
|
Valuation
allowance
|
(10,276,011)
|
(8,806,865)
|
|
Net
deferred income tax asset
|
$-
|
$-
|
We have
net operating loss carryforwards for income tax purposes of
approximately $27,400,000. This loss is allowed to be offset
against future income. The tax benefits relating to all timing
differences have been fully reserved for in the valuation allowance
account due to the substantial losses incurred through December 31,
2018. The change in the valuation allowance for the years ended
December 31, 2018 and 2017 was an increase (decrease) of $1,469,146
and $(2,109,440), respectively.
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Commitments
On
December 11, 2017, we entered into an equity purchase agreement
with L2 Capital, LLC, for up to $15,000,000. As provided in the
agreement, we may require L2 Capital to purchase shares of common
stock from time to time by delivering a “put” notice to
L2 Capital specifying the total number of shares to be purchased.
L2 Capital will pay a purchase price equal to 85% of the
“market price,” which is defined as the lowest traded
price on the OTCQB marketplace during the five consecutive trading
days following the “Put Date,” or the date on which the
applicable shares are delivered to L2 Capital. The number of shares
may not exceed 300% of the average daily trading volume for our
common stock during the five trading days preceding the date on
which we deliver the applicable put notice. Additionally, such
amount may not be lower than $10,000 or higher than $1,000,000. L2
Capital has no obligation to purchase shares under this agreement
to the extent that such purchase would cause L2 Capital to own more
than 4.99% of our common stock.
Upon
the execution of this agreement, we issued 1,714,285 shares of
common stock valued at $514,286 as a commitment fee in connection
with the agreement. The shares to be issued pursuant to this
agreement were covered by a Registration Statement on Form S-1
effective on January 29, 2018. During the year ended December 31,
2018, we executed 12 put options for L2 Capital to purchase
2,300,000 shares of common stock.
On June
26, 2017, we entered a nonexclusive finder’s arrangement with
Craft Capital Management LLC (“Craft”) in the event
that proceeds with a debt or equity transaction or to finance a
merger/acquisition or another transaction are arranged by Craft. We
have no obligation to consummate any transaction, and we can choose
to accept or reject any transaction in our sole and absolute
discretion. Upon the successful completion of a placement, we will
pay to Craft 8% of the gross proceeds from an equity placement and
3% for a debt placement. In addition, we will issue to Craft, at
the time of closing, warrants with an aggregate exercise price
equal to 3% of the amount raised. These warrants have a fair value
of $13,280 based on the Black-Scholes option-pricing model. The
warrants have an exercise price ranging from $0.0425 to $0.25 per
share and are exercisable for a period of five years after the
closing of the placement. If we, at any time while these warrants
are outstanding, sell, grant any option to purchase or sell, grant
any right to reprice, or otherwise dispose of or issue any common
stock or securities entitling any person or entity to acquire
shares of common stock, at an effective price per share less than
the then-exercise price, then the exercise price will be reduced to
equal the lower share price, at the option of Craft. Such
adjustment will be made whenever such common stock is issued. We
will notify Craft in writing, no later than the trading day
following the issuance of any common stock, of the applicable
issuance price or applicable reset price, exchange price,
conversion price, and other pricing terms. As of December 31, 2018,
we have issued to Craft warrants to purchase 125,073 shares of
common stock, none of which has been exercised, as a finder’s
fee for debt and equity transactions between L2 Capital and
us.
On
August 7, 2018, we signed a non-binding letter of intent proposing
to acquire a heavy-duty commercial air conditioning company. We
believe that the acquisition will help support our existing
projects and enable us to enter new markets. Closing is subject to
additional due diligence, the negotiation of definitive agreements,
satisfaction of agreed conditions, and financing. We continue to
focus our efforts on satisfying the above conditions.
Litigation
From
time to time, we are involved in legal proceedings and regulatory
proceedings arising from operations. We establish reserves for
specific liabilities in connection with legal actions that
management deems to be probable and estimable.
On May
4, 2018, we reached a settlement of the claims at issue in
Ocean Thermal Energy Corp. v.
Robert Coe, et al., Case No. 2:17-cv-02343SHL-cgc, before
the United States District Court for the Western District of
Tennessee. On August 8, 2018, an $8 million judgment was entered
against the defendants and in our favor. We have reason to believe
the defendants have adequate assets to satisfy this judgment in
full. The collection process is ongoing. Between May 30 and July
19, 2018, we received three payments totaling $100,000 from the
defendants.
NOTE 9 – CONSULTING AGREEMENTS
For the
year ended December 31, 2018, we issued 673,345 shares of common
stock for services performed with a fair value of
$138,986.
On June
4, 2018, we entered into a consulting agreement to pay 20,000
shares of common stock when one of the conditions of the contract
was satisfied. Although this condition was satisfied on August 31,
2018, we have not issued the shares. As of December 31, 2018, we
have accrued the share compensation at fair value totaling
$1,600.
On
August 14, 2018, we entered into a consulting agreement to pay
$40,000 by issuing shares of common stock. As of December 31, 2018,
we have not issued the shares and have accrued the
amount.
NOTE 10 – EMPLOYMENT AGREEMENTS
On
January 1, 2011, we entered into a five-year employment agreement
with our chief executive officer, which provides for successive
one-year term renewals unless it is expressly cancelled by either
party 100 days prior to the end of the term. Under the agreement,
our chief executive officer will receive an annual salary of
$350,000, a car allowance of $12,000, and company-paid health
insurance. The agreement also provides for bonuses equal to one
times his annual salary plus 500,000 shares of common stock for
each additional project that generates $25 million or more in
revenue to us. Our chief executive officer is entitled to receive
severance pay in the lesser amount of three years’ salary or
100% of the remaining salary if the remaining term is less than
three years.
On June
29, 2017, the board of directors approved extending the employment
agreements for the chief executive officer and the senior financial
advisor for an additional five years. The salary and other
compensation were increased to account for inflation since the
original employment agreements were executed and became effective
June 30, 2017. These modifications were never reduced to
writing.
NOTE 11 – RELATED-PARTY TRANSACTIONS
For the
years ended December 31, 2018 and 2017, we paid rent of $120,000
and $95,000, respectively, to a company controlled by our chief
executive officer under an operating lease agreement.
On
January 18, 2018, Jeremy P. Feakins & Associates, LLC, an
investment entity owned by our chief executive, chief financial
officer, and a director, agreed to extend the due date for
repayment of a $2,265,000 note issued in 2014 to the earlier of
December 31, 2018, or the date of the financial closings of our
Baha Mar project (or any other project of $25 million or more),
whichever occurs first. On August 15, 2017, principal of $618,500
and accrued interest of $207,731 were converted to 826,231 shares
at $1.00 per share, which was ratified by a disinterested majority
of the board of directors. The conversion was recorded at
historical cost due to the related-party nature of the transaction.
For the year ended December 31, 2018, we repaid $35,000. As of
December 31, 2018, the note balance was $1,102,500 and the accrued
interest was $511,818. This note is in default.
During
the year ended December 31, 2017, we made a repayment of note
payable to a related party in the amount of $64,432.
On
March 9, 2017, we issued a promissory note payable of $200,000 to a
related party in which our chief executive officer is an officer
and director. The note bears interest of 10% and is due and payable
within 90 days after demand. During the year ended December 31,
2017, we received an additional $2,000 and repaid $25,000. The
outstanding balance was $177,000 and accrued interest was $32,851
as of December 31, 2018.
On May
8, 2017, JPF Venture Group. Inc., an investment entity that is
majority-owned by Jeremy Feakins, our director, chief executive
officer, and chief financial officer transferred 148,558 shares of
common stock for $111,440 to us to fulfill an over commitment of
"D'" warrants.
On June
5, 2017, a note holder and a shareholder elected to convert a
$25,000 convertible note payable for 1,806,298 shares of common
stock ($0.014 per share).
On
September 8, 2017, JPF Venture Group, Inc., an investment entity
that is majority-owned by our director, chief executive officer,
and chief financial officer elected to convert $50,000 in notes
payable for 3,612,596 shares of common stock at a conversion rate
of $0.014 per share. In addition, accrued interest in the amount of
$6,342 was converted to 458,198 shares.
On
November 6, 2017, we entered into an agreement and promissory note
with JPF Venture Group, Inc. to loan up to $2,000,000 to us. The
terms of the note are as follows: (i) interest is payable at
10% per annum; (ii) all unpaid principal and all accrued and
unpaid interest is due and payable at the earliest of resolution of
the Memphis litigation (as defined therein), December 31, 2018, or
when we are otherwise able to pay. As of December 31, 2018, the
outstanding balance was $612,093 and the accrued interest was
$80,568. For the year ended December 31, 2018 and 2017, we repaid
$29,474 and $39,432, respectively. On September 30, 2018, the note
was amended to extend the maturity date to the earliest of a
resolution of the Memphis litigation, December 31, 2018, or when we
are otherwise able to pay. This note is in default.
On
November 8, 2017, Jeremy P. Feakins & Associates. LLC, an
investment entity that is majority-owned by Jeremy Feakins, our
director, chief executive officer and chief financial officer, a
Series B note holder, elected to convert $50,000 in notes payable
for 50,000 shares of common stock at a conversion rate of $1.00. In
addition it converted accrued interest in the amount of $16,263 for
16,263 shares.
We
remain liable for the loans made to us by JPF Venture Group, Inc.
before the 2017 Merger. As of December 31, 2018, the outstanding
balance of these loans was $581,880 and the accrued interest was
$125,381. All of these notes are in default.
In
December 2018, Jeremy P. Feakins, our chief executive officer, made
two advances to us totaling $4,600. The total amount was repaid on
January 23, 2019.
For the
year ended December 31, 2018, we sold 240,840 shares of common
stock for $10,000 in cash to our chief executive officer and an
independent director.
On
October 20, 2016, we borrowed $12,500 from an independent director
pursuant to a promissory note. The terms of the note are as
follows: (i) interest is payable at 6% per annum;
(ii) the note is payable 90 days after demand; and
(iii) the payee is authorized to convert part or all of the
note balance and accrued interest, if any, into shares of our
common stock at the rate of one share for each $0.03 of principal
amount of the note. This conversion share price was adjusted to
$0.01384 for the reverse stock splits. As of December 31, 2018, the
outstanding balance was $12,500, plus accrued interest of
$1,754.
NOTE 12 – SUBSEQUENT EVENTS
On
January 2, 2019, we initiated a promissory note agreement pursuant
to which we issued a series of promissory notes in the amount of
$10,000 to accredited investors. Proceeds from these notes will be
used to support the administrative and legal expenses of our
lawsuit before the United District Court for the Western District
of Tennessee: Ocean Thermal Energy
Corporation v. Robert Coe, el al., Case No.
2:17-cv-02343SHL-cgc; and any subsequent actions brought about as a
result of or in connection with this litigation. These notes are
secured against the proceeds from the litigation. The notes bear an
interest rate of 17%, plus one quarter of one percent of the actual
funds received from the litigation. The repayment of the principal,
accrued interest, and the percentage of the litigation funds
received will be paid immediately following the receipt of
sufficient funds from this litigation. As of March 22, 2019, the outstanding balance
of these loans is $290,000.
Subsequent to
December 31, 2018, L2 Capital LLC exercised four loan conversions
totaling $49,614 and was issued 1,800,000 shares.
On
January 23, 2019, we repaid advances totaling $4,600 to Jeremy P.
Feakins, our chief executive officer.
Exhibit 10.47
LEASE AGREEMENT
THIS
LEASE, made this First day of March, 2015, by and between Queen
Street Development Partners 1, LP of 1200 West Penn Grant Rd,
Lancaster, Pennsylvania (hereinafter called Lessor) and TetriDyn
Solutions, Inc., a Nevada Corporation (hereinafter called
"Lessee"), with a current mailing address of 1651 Alvin Ricken
Drive, Pocatello, ID 83201
W I T N
E S S E T H
WHEREAS, Lessor is
the owner of a certain parcel of land and building known and
numbered as 800 South Queen Street, Lancaster, Pennsylvania;
and
WHEREAS, Lessor
desires to let and Lessee desires to take one workspace of the
subject premises plus all certain furnishings and office equipment
currently situate within said workspace upon the terms and
conditions herein set forth.
NOW,
THEREFORE, in consideration of the promises and mutual covenants
herein contained, and the rent reserved to be paid by Lessee to
Lessor, the parties, intending to be legally bound, agree as
follows:
1. PREMISES/PROPERTY.
Lessor hereby lets to Lessee, and Lessee hereby takes from Lessor,
one workspace at 800 South Queen Street, Lancaster, Pennsylvania,
together with all rights of ingress and egress within Lessor's
building and all furnishings and office equipment currently situate
within the said workspace (hereinafter called the "Leased
Premises/Property").
2. TERM.
The term of this Lease shall be one (1) year commencing March 1,
2015, and ending February 28, 2016. Unless either party shall give
to the other written notice of termination in accordance with the
provisions of Paragraph 15 of this Lease, the term hereof shall
continue for a further period of one (1) year, and so on from year
to year until terminated pursuant to the provisions
hereof.
3. POSSESSION.
Possession of the Leased Premises/Property by Lessee shall begin,
and the rent provided for hereunder shall be payable from March 1,
2015, which date shall be the effective date of this
Lease.
4. RENT.
The rent due and owing for each month of Lessee's occupancy shall
be Two Thousand Five Hundred Dollars ($2,500.00), due and payable
in advance on the first day of each month. The first such monthly
payment shall be due on March 1, 2015, and each succeeding payment
shall be due on the first day of each succeeding month, without
prior demand thereof by Lessor. Rent shall be payable at Lessor's
place of business, or such other place as Lessor may direct from
time to time.
5. UTILITIES
AND SERVICES. Lessee agrees to pay for all utilities and
other like services, including but limited to telephone, gas,
electric, water, sewer rental, insurance, air conditioning, light,
heat, power, trash removal and janitorial services which may be
used, consumed or contracted for in connection with the Leased
Premises/Property. Lessor shall not be responsible in any way in
the event that the supply of utility service or services, or like
service or services, is or are cut off by reason of any cause and
Lessee does hereby release Lessor from any damage which may result
to it by reason of any such failure. Should Lessee fail to pay for
any such utilities or services or maintenance or insurance when
due, Lessor shall have the right to pay the same, and the amount as
paid shall be chargeable to Lessee as additional rent.
6. MAINTENANCE
AND REPAIR. Lessee shall keep and maintain the Leased
Premises/Property in good and serviceable repair and condition,
natural wear and tear excepted. Lessee shall provide normal
maintenance of the Leased Premises/Property during the term of this
Lease, including lawn care and maintenance, snow removal, and
janitorial service in order that the Leased Premises shall be
maintained in a neat and clear condition at all times; and Lessee
further agrees to provide janitorial supplies, paper towels, toilet
paper, soap, cleaning materials and any other items necessary for
the proper cleaning and maintenance of the interior of said Leased
Premises. Interior decoration of the Leased Premises shall also be
the responsibility of Lessee from and after the effective date
hereof. Damage to the Leased Premises/Property occasioned by the
negligence of Lessee, its agents, contractors, guests, sub-tenants
or invitees shall be repaired or corrected by Lessee.
Lessor
covenants and agrees that they will repair or correct any accident
to, or defects in, the roof or other structural elements of the
Leased Premises, or in the water or drain pipes, electric circuits,
heating system or air conditioning system, with due diligence;
Lessee will replace all office furniture, office equipment,
electric fixtures, bulbs, lights, plumbing fixtures, or other parts
or accessories of the building, broken or damaged by Lessee or by
servants, employees or agents of Lessee; and Lessee hereby assumes
all responsibility for the injury, or damages, to persons or
property, caused by the use of any office furniture, office
equipment, fixtures, apparatus or appliances, in, or upon the
Leased Premises which are the subject of this Lease.
7. ALTERATIONS
AND CHANGES. All additions to the Leased Premises by Lessee,
including but not limited to furniture, furnishings, draperies,
carpeting, lighting, telephone facilities, equipment, and wiring
shall be provided at the sole cost and expense of Lessee. Except as
hereinafter expressly provided, changes in original plans and
alterations to the Leased Premises shall not be permitted without
the prior written consent of Lessor and may, at Lessor's option, be
performed under Lessor's control, although at all times at the cost
of Lessee. Lessee may remove such alterations, additions, or
improvements upon the termination hereof to the extent such removal
can be accomplished without substantial damage to the Leased
Premises.
8. QUIET
ENJOYMENT. Lessor covenants to allow Lessee quiet and
peaceably to enjoy possession of the Leased Premises, free from
interference or interruption of Lessor or any other person claiming
under or through Lessor.
9. USE
OF THE PREMISES. Lessee hereby releases Lessor from any
future liability for any and all injuries or damages which may be
suffered by Lessee, its successors or assigns, in Lessee's use of
the Leased Premises. Lessee covenants and agrees that it will bear,
pay and discharge, when and as the same become due and payable, all
judgments and lawful claims for damages or otherwise against Lessor
arising from Lessee's use or occupancy of said Leased Premises, and
will assume the burden and expense of defending all such suits,
whether brought before the expiration of this Lease, or otherwise
and will protect, indemnify and save harmless Lessor, their agents,
servants, employees, heirs and personal representatives by reason
of or on account of the use or misuse of the said Leased Premises
hereby leased, or any part thereof, due to the negligence of
Lessee, or of its agents, servants or employees.
10. DESTRUCTION
OF THE PREMISES. In the event of damage to or destruction of
the Leased Premises for whatever reason, Lessor shall have no
obligation to rebuild the Leased Premises and this Lease shall
thereupon terminate.
11. CONDEMNATION.
In the event the Leased Premises or any substantial portion thereof
are taken or sold pursuant to the exercise of the right of eminent
domain by any authority having or claiming to have the same, this
Lease shall thereupon terminate. In no event shall Lessee be
entitled to or receive any part of the award or price paid to
Lessor in connection therewith. Lessee hereby assigns to Lessor all
such awards, compensation and agreed settlements and authorizes
payment thereof by the condemnor directly to Lessor.
12. LESSOR'S
RIGHT OF ENTRY. Lessee shall permit Lessor and their agents
to enter into and upon said Leased Premises at all reasonable times
for the purpose of inspecting the same, or for the purpose of
showing the Leased Premises for sale or lease to third parties, or
for the purpose of making repairs, alterations or additions to said
building, or for any other reasonable business purpose without any
rebate of rent to Lessee or damages for any loss of occupation or
quiet enjoyment of the Leased Premises thereby
occasioned.
13. DEFAULT.
The following events shall constitute default
hereunder:
(a) Nonpayment
of rent for a period of thirty (30) days from its due
date.
(b) Assignment
by Lessee for the benefit of creditors, issuance of execution
against Lessee, appointment of a receiver of the assets of Lessee,
the filing for, by, or against Lessee of any action under the
Federal Bankruptcy Act or comparable state or local
legislation.
(c) Violation
of any of the terms or conditions of this Lease.
(d) Abandonment
of the Premises by Lessee.
14. LESSOR'S
REMEDIES ON DEFAULT. Upon default by Lessee hereunder,
Lessor may, without limiting their rights in law or in equity,
forfeit and annul any unexpired portion of this Lease and enter
upon and repossess the Leased Premises with or without process of
law. Lessee agrees that upon Lessee=s default Lessor may, as
liquidation damages, recover from Lessee an amount equal to one (1)
year rent without mitigation by Lessor.
l5. TERMINATION.
Either party may terminate this Lease at the end of the initial
five (5) year term by giving ninety (90) days' advance written
notice to the other party. In such event, this Lease shall expire
on the last day of Lessee's term of occupancy and Lessee shall
surrender, and the Lessor shall immediately be entitled to recover
possession of the Leased Premises.
16. ASSIGNMENT
AND SUBLETTING. Lessee shall not assign or sublet the Leased
Premises or any part thereof without the written consent of
Lessor.
17. WAIVER.
The waiver by Lessor of any breach of any term, covenant, or
condition herein contained shall not be deemed to be a waiver of
such term, covenant, or condition or any subsequent breach of the
same or any other term, covenant or condition herein
contained.
18. CONSTRUCTION.
Paragraph headings are for convenience only and do not constitute a
part of this Lease. This Lease is made and executed in the
Commonwealth of Pennsylvania and shall be construed and enforced in
accordance with the laws thereof.
19. NOTICES.
All notices or other communication pursuant hereto to any party
shall be deemed given when deposited in the United States mail,
certified mail postage prepaid, return receipt requested, addressed
to the parties at the last known address, or to such other
addresses the parties may in writing direct.
20. ENTIRE
AGREEMENT. This Lease contains the entire understanding
between the parties hereto and supersedes any prior written or oral
agreements between them respecting the within subject matter. There
are no representations, agreements, arrangements, or
understandings, oral or written, between or among the parties
hereto relating to the subject matter of this Lease which are not
fully expressed herein.
21. SUCCESSORS.
Except as herein otherwise specified, this Lease shall legally
benefit and bind the parties hereto, their respective heirs,
beneficiaries, executors, personal representatives, successors and
assigns.
IN
WITNESS WHEREOF, the parties hereto have set their hands and seals
the day and year first above written.
WITNESSES:
TetriDyn Solutions,
Inc.
By: /s/
Peter Wolfson
Peter
Wolfson, Director
Attest:
Queen
Street Development Partners, 1 LP
By: /s/
Jeremy P. Feakins
Jeremy
P. Feakins, Managing Partner
LEASE AMENDMENT
This
Lease Amending Agreement dated June 1, 2017 between Queen Street
Development Partners 1, LP (the “landlord”) AND Ocean
Thermal Energy Corporation (formerly TetriDyn Solutions, Inc.) (the
“Tenant”).
Background
A.
The landlord and
the Tenant entered into the Lease (the “Lease”) dated
March 1, 2015, for the premises located at 800 South Queen Street,
Lancaster, PA 17603.
B.
The Landlord and
the Tenant desire to amend the Lease on the terms and conditions
set forth in this lease amending agreement (the
“Agreement”).
C.
This Agreement is
the second amendment to the Lease.
In Consideration Of the Landlord and Tenant agreeing to
amend their existing Lease, both parties agree to keep, perform,
and fulfill the promises, conditions, and agreements
below:
A.
Amendment - The Lease is amended to
increase the monthly rental from $5,000.00 per month to $10,000.00
per month beginning on June 1, 2017.
B.
No Other Changes – Except as
otherwise expressly provided in this agreement, all of the terms
and conditions of the Lease remain unchanged and in full force and
effect.
|
Landlord:
|
Queen
Street Development Partners, 1 LP
|
|
|
|
|
|
By: /s/
Jeremy P. Feakins
|
|
|
Jeremy
P. Feakins, Managing Partner
|
|
|
|
|
Tenant:
|
Ocean
Thermal Energy Corporation
|
|
|
(TetriDyn
Solutions, Inc.)
|
|
|
|
|
|
By: /s/
Peter Wolfson
|
LEASE AMENDMENT
This
Lease Amending Agreement dated January 1, 2017 between Queen Street
Development Partners I, LP (the "landlord") AND TetriDyn Solutions,
Inc. (the "Tenant").
Background
A.
The landlord and
the Tenant entered into the Lease (the "Lease") dated March 1,
2015, for the premises located at 800 South Queen Street,
Lancaster, PA 17603.
B.
The Landlord and
the Tenant desire to amend the Lease on the terms and conditions
set forth in this lease amending agreement (the
"Agreement").
C.
This Agreement is
the first amendment to the Lease.
In Consideration Of the Landlord and Tenant agreeing to
amend their existing Lease, both parties agree to keep, perform,
and fulfill the promises, conditions, and agreements
below:
A.
Amendment - The Lease is amended to
increase the monthly rental from $2,500.00 per month to $5,000.00
per month beginning on January l, 2017.
B.
No Other Changes - Except as otherwise
expressly provided in this agreement, all of the terms and
conditions of the Lease remain unchanged and in full force and
effect.
|
Landlord:
|
Queen
Street Development Partners, 1 LP
|
|
|
|
|
|
By: /s/
Jeremy P. Feakins
|
|
|
Jeremy
P. Feakins, Managing Partner
|
|
|
|
|
Tenant:
|
Ocean
Thermal Energy Corporation
|
|
|
(TetriDyn
Solutions, Inc.)
|
|
|
|
|
|
By: /s/
Peter Wolfson
|
Exhibit 10.58
|
|
PROMISSORY NOTE
|
|
|
|
|
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$200,000
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Lancaster, PA
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March 9, 2017
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FOR
VALUE RECEIVED, the undersigned, OCEAN THERMAL ENERGY CORPORATION.,
a Delaware corporation (“Maker”), whose mailing address
and principal office is 800 South Queen Street, Lancaster, PA
17603, USA, hereby promises to pay to JEREMY P. FEAKINS &
ASSOCIATES LLC., a Delaware corporation (“Payee”),
whose mailing address is 800 South Queen Street, Lancaster, PA
17603, up to the principal sum of TWO HUNDRED THOUSAND DOLLARS AND
NO CENTS ($200,000), as represented by advances from time to time,
in lawful money of the United States of America for payment of
private debts, together with interest (calculated on the basis of
the actual number of days elapsed but computed as if each year
consisted of 360 days) on the unpaid principal balance from time to
time outstanding at a rate, except as otherwise provided in this
Note, of Ten percent (10%) per annum.
1.
Payments. All unpaid principal
and all accrued and unpaid interest shall be due and payable within
90 days after demand.
2.
Time and Place of Payment. If
any payment falls due on a day that is considered a legal holiday
in the state of Delaware, Maker shall be entitled to delay such
payment until the next succeeding regular business day, but
interest shall continue to accrue until the payment is in fact
made. Each payment or prepayment hereon must be paid at the office
of Payee set forth above or at such other place as the Payee or
other holder hereof may, from time to time, designate in
writing.
3.
Prepayment. Maker reserves the
right and privilege of prepaying this Note in whole or in part, at
any time or from time to time, upon 30 days’ written notice,
without premium, charge, or penalty. Prepayments on this Note shall
be applied first to accrued and unpaid interest to the date of such
prepayment, next to expenses for which Payee is due to be
reimbursed under the terms of this Note, and then to the unpaid
principal balance hereof
(a)
Without notice or
demand (which are hereby waived), the entire unpaid principal
balance of, and all accrued interest on, this Note shall
immediately become due and payable at Payee’s option upon the
occurrence of one or more of the following events of default
(“Events of Default”):
(i)
the failure or
refusal of Maker to pay principal or interest on this Note within
10 days of when the same becomes due in accordance with the terms
hereof;
(ii)
the failure or
refusal of Maker punctually and properly to perform, observe, and
comply with any covenant or agreement contained herein, and such
failure or refusal continues for a period of 30 days after Maker
has (or, with the exercise of reasonable investigation, should
have) notice hereof;
(iii)
Maker shall: (1)
voluntarily seek, consent to, or acquiesce in the benefit or
benefits of any Debtor Relief Law (defined hereinafter); or (2)
become a party to (or be made the subject of) any proceeding
provided for by any Debtor Relief Law, other than as a creditor or
claimant, that could suspend or otherwise adversely affect the
Rights (defined hereinafter) of Payee granted herein (unless, in
the event such proceeding is involuntary, the petition instituting
same is dismissed within 60 days of the filing of same).
“Debtor Relief Law” means the Bankruptcy Code of the
United States of America and all other applicable liquidation,
conservatorship, bankruptcy, moratorium, rearrangement,
receivership, insolvency, reorganization, suspension of payments,
or similar Laws from time to time in effect affecting the Rights of
creditors generally. “Rights” means rights, remedies,
powers, and privileges. “Laws” means all applicable
statutes, laws, ordinances, regulations, orders, writs,
injunctions, or decrees of any state, commonwealth, nation,
territory, possession, county, parish, municipality, or Tribunal.
“Tribunal” means any court or governmental department,
commission, board, bureau, agency, or instrumentality of the United
States or of any state, commonwealth, nation, territory,
possession, county, parish, or municipality, whether now or
hereafter constituted and/or existing;
(iv)
the failure to have
discharged within a period of 30 days after the commencement
thereof any attachment, sequestration, or similar proceeding
against any of the assets of Maker, or the loss, theft, or
destruction of, or occurrence of substantial damage to, a material
part of the assets of Maker, except to the extent adequately
covered by insurance; and
(v)
Maker fails to pay
any money judgment against it at least 10 days prior to the date on
which any of Maker’s assets may be lawfully sold to satisfy
such judgment.
(b)
If any one or more
of the Events of Default specified above shall have happened, Payee
may, at its option: (i) declare the entire unpaid balance of
principal and accrued interest on this Note to be immediately due
and payable without notice or demand; (ii) offset against this Note
any sum or sums owed by Payee to Maker; (iii) reduce any claim to
judgment; (iv) foreclose all liens and security interests securing
payment thereof or any part thereof; and (v) proceed to protect and
enforce its rights by suit in equity, action of law, or other
appropriate proceedings, whether for the specific performance of
any covenant or agreement contained in this Note, in aid of the
exercise granted by this Note of any right, or to enforce any other
legal or equitable right or remedy of Payee.
5.
Cumulative Rights. No delay on
Payee’s part in the exercise of any power or right, or single
partial exercise of any such power or right, under this Note or
under any other instrument executed pursuant hereto shall operate
as a waiver thereof. Enforcement by Payee of any security for the
payment hereof shall not constitute any election by it of remedies,
so as to preclude the exercise of any other remedy available to
it.
6.
Collection Costs. If this Note
is placed in the hands of an attorney for collection, or if it is
collected through any legal proceeding at law or in equity or in
bankruptcy, receivership, or other court proceedings, Maker agrees
to pay all costs of collection, including Payee’s court costs
and reasonable attorney’s fees.
7.
Waiver. Maker, and each surety,
endorser, guarantor, and other party liable for the payment of any
sums of money payable on this Note, jointly and severally waive
presentment and demand for payment, protest, and notice of protest
and nonpayment, or other notice of default, except as specified
herein, and agree that their liability on this Note shall not be
affected by any renewal or extension in the time of payment hereof,
indulgences, partial payment, release, or change in any security
for the payment of this Note, before or after maturity, regardless
of the number of such renewals, extensions, indulgences, releases,
or changes.
8.
Notices. Any notice, demand,
request, or other communication permitted or required under this
Note shall be in writing and shall be deemed to have been given as
of the date so delivered, if personally served; as of the date so
sent, if sent by electronic mail and receipt is acknowledged by the
recipient; one day after the date so sent, if delivered by
overnight courier service; or three days after the date so mailed,
if mailed by certified mail, return receipt requested, addressed to
Maker at its address on the first page.
9.
Successor and Assigns. All of
the covenants, stipulations, promises, and agreements in this Note
contained by or on behalf of Maker shall bind its successors and
assigns, whether so expressed or not; provided, however, that neither Maker nor Payee
may, without the prior written consent of the other, assign any
rights, powers, duties, or obligations under this
Note.
11.
Headings. The headings of the
sections of this Note are inserted for convenience only and shall
not be deemed to constitute a part hereof.
12.
Applicable Law. This Note is
being executed and delivered, and is intended to be performed, in
the state of Delaware, and the substantive laws of such state shall
govern the validity, construction, enforcement, and interpretation
of this Note, except insofar as federal laws shall have
application.
13.
Security. This Note is
unsecured.
EXECUTED effective
the year and date first above written.
OCEAN
THERMAL ENERGY CORPORATION.
By:
/s/ Frank
DiCola
Frank
DiCola, Director
TetriDyn
Solutions, Inc.
800
South Queen Street
Lancaster,
PA 17603, USA
Gentlemen:
The
undersigned owner of this Note hereby irrevocably exercises the
option to convert this Note or the portion hereof designated, into
shares of common stock, par value $0.001 per share, of TetriDyn
Solutions, Inc., in accordance with the terms of this Note, and
directs that the shares issuable and deliverable upon the
conversion, together with any check in payment for fractional
shares, be issued in the name of and delivered to the undersigned
unless a different name has been indicated below. If shares are to
be issued in the name of a person other than the undersigned, the
undersigned will pay any transfer taxes payable with respect
thereto.
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(Signature)
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Dated:
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FILL IN
FOR REGISTRATION
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OF
SHARES:
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(Printed
Name)
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(Social
Security or Other Identifying Number)
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(Street
Address)
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(City/State/Zip
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Portion
to be converted (if less than all)
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Exhibit 10.59
LOAN AGREEMENT
This Loan Agreement (the
“Loan
Agreement”) is made as of
November 6, 2017, by and between JPF Venture Group, Inc. (the
“Lender”) and Ocean Thermal Energy Corporation (the
“Borrower”).
W I T N E S S E T H:
WHEREAS,
the Borrower desires to obtain certain credit facilities, as set
forth in this Loan Agreement, and the Lender is willing to provide
such credit facilities on the terms and conditions set forth
herein;
NOW,
THEREFORE, the Lender and the Borrower, intending to be legally
bound, hereby agree as follows:
1. The
Credit Facilities. The Lender
agrees, pursuant to the terms and conditions of this Loan Agreement
and the other Loan Documents (as defined below), to make a loan to
the Borrower in the original principal amount of up to Two Million
Dollars ($2,000,000) (the “Loan”), with the specific amount to be
determined at its sole discretion of the Lender. The Loan shall be
evidenced by a Note (the “Note”) and shall be made in accordance with and
subject to the terms and conditions of this Loan Agreement, the
Note and the other Loan Documents.
2. The
Loan Documents. The following
documents and materials (together with this Loan Agreement and any
other accessory documents executed in connection herewith, such
documents and materials, as they may be amended, restated, renewed
and extended, are collectively referred to herein as the
“Loan
Documents”) have been or
will be executed in connection with the Loan:
a. Note.
3. Interest
Rate. The Loan shall bear
interest as set forth in the Note.
4. Repayment.
Repayment of the Loan shall be made as set forth in the Note, and
pre-payment shall be permitted as therein
specified.
5. Use
of Proceeds. The proceeds of
the Loan shall be used to finance Sales, Marketing, Engineering,
Legal, Consulting and Administrative Expenses associated with the
Baha Mar, and/or other Projects/Activities, as well as Office &
Staffing Expenses.
6. Collateral.
The Loan will be secured by a first lien security interest in all
assets of Borrower now owned or hereafter acquired as more
specifically set forth in the Security Agreement. The Loan shall be
cross-collateralized and cross- defaulted with all other
obligations due from Borrower to Lender.
7. Expenses
and Fees. The Borrower agrees
to pay the Lender for all reasonable out-of-pocket expenses of
every nature related to their respective credit facilities,
including, but not limited to, attorneys' fees (not to exceed
$5,000) and out-of-pocket expenses which the Lender may incur in
connection with the execution or carrying out of this Loan
Agreement and the other Loan Documents, or its rights hereunder and
thereunder, and the Lender may pay any or all such expenses and add
the amount thereof to the indebtedness secured or assured pursuant
to the Loan Documents.
8. Representations
and Warranties. The Borrower,
in order to induce the Lender to make the Loan, makes the following
representations, warranties and promises:
a. Good
Standing. The Borrower is a
corporation, duly organized, validly existing and in good standing
under the laws of the state of its incorporation, with powers
adequate to own its properties, and to carry on its business as
presently conducted by it.
b. Authority;
Binding Agreement. The
execution, delivery and performance of the Loan Documents are
within the corporate power of the Borrower, have been duly
authorized by the Borrower and are not in contravention of law or
the terms of the Borrower’s Articles of Incorporation and
By-Laws. The execution, delivery and performance of the Loan
Documents does not and will not contravene any documents,
agreements or undertakings to which the Borrower is a party or by
which the Borrower is bound. No approval of any person,
corporation, governmental body or other entity is a prerequisite to
the execution, delivery, validity or enforceability and performance
of the Loan Documents. When executed by the Borrower, the Loan
Documents to which the Borrower is a party will constitute the
legally binding obligations of the Borrower, enforceable in
accordance with their terms except as the enforceability may be
limited by bankruptcy, insolvency or other similar laws affecting
the enforcement of creditors' rights generally.
c. Financial
Information. Subject to any
limitation stated therein or in connection therewith, all balance
sheets, earning statements, accounts receivable lists and aging
schedules and other financial data which have been or shall be
furnished to the Lender by the Borrower to induce the Lender to
enter into this Loan Agreement or otherwise in connection herewith,
do or will fairly represent the financial condition of the Borrower
in all material respects, are accurate, complete and correct in all
material respects insofar as completeness may be necessary to give
the Lender a true and accurate knowledge of the subject matter as
of the date hereof. There are no material liabilities, direct or
indirect, fixed or contingent, of the Borrower as of the date of
such financial statements which are not reflected therein or in the
notes thereto. There has been no material adverse change in the
financial condition or operations of the Borrower since the date of
said financial statements or since the respective dates on which
the Borrower furnished the Lender with other financial data or
other representations about their financial
condition.
d. Solvency.
Any borrowings to be made by Borrower under this Loan Agreement do
not and will not render Borrower insolvent. The Borrower is not
contemplating either the filing of a petition under any state or
federal bankruptcy or insolvency laws, or the liquidation of all or
a major portion of its property, and the Borrower has no knowledge
or any reason to know of any person contemplating the filing of any
such petition against it.
9. Covenants.
The Borrower agrees with the Lender that during the term of this
Agreement and the other Loan Documents, and any extensions,
replacements or renewals thereof (except as otherwise agreed by the
Lender in writing):
a. Insurance.
The Borrower shall maintain adequate fire and extended coverage
insurance, with the Lender named as lender loss payee, as well as
general liability, business interruption and other insurance
policies as are customary. All such insurance:
i. Shall
be issued in such amounts and by such companies as are satisfactory
to the Lender; and
ii. Shall
contain provisions providing for thirty (30) days' prior written
notice to the Lender of any intended change or cancellation and
providing that no such change or cancellation shall be effective as
to the Lender in the absence of such notice.
b. Notice
of Default; Litigation. The
Borrower shall notify the Lender in writing immediately upon
becoming aware of any default hereunder, or of any actions, suits,
investigations, or proceedings at law, in equity or before any
governmental authority that may have a material adverse effect on
such Borrower, pending or threatened, against or affecting the
Borrower or any collateral securing the Loan or involving the
validity or enforceability of the Loan Documents or the priority of
the liens created thereunder.
c. Financial
Information. The Borrower shall
furnish or cause to be furnished to the Lender (i) on an annual
basis, federal income tax returns of the Borrower and annual
financial statements of the Borrower, compiled by certified public
accountants, within one hundred twenty (120) days after the end of
each fiscal year; and (ii) on a fiscal quarter basis,
internally-prepared interim financial statements of the Borrower in
a form satisfactory to Lender within thirty (30) days of the close
of each fiscal quarter.
d. Expenses.
The Borrower shall pay all costs and expenses (including, but not
limited to, attorneys' fees) incidental to the Loan, to the
preservation and priority of the Lender's liens and security
interests under the Loan Documents and to the collection of all
obligations pursuant to the Loan Documents.
e. Deposit
Relationship. The Borrower
shall establish and maintain their primary deposit relationship
with a bank reasonably acceptable to the
Lender.
f. Further
Assurances. The Borrower shall
execute such documents as the Lender may reasonably request
relating to the Loan.
g. Nature
of Business. The Borrower shall
not enter into any type of business other than that in which it is
presently engaged, or otherwise significantly change the scope or
nature of its business.
h. Mergers,
Etc. The Borrower shall not
wind up, liquidate or dissolve, reorganize, merge or consolidate
with or into, or convey, sell, assign, transfer, lease, or
otherwise dispose of (whether in one transaction or in a series of
transactions) all or substantially all of its assets (whether now
owned or hereafter acquired) to any person, or acquire all or
substantially all of the assets or the business of any person,
except as may occur in connection with the currently contemplated
Memphis investment group.
i. Sale
of Assets, Etc. The Borrower
shall not sell, lease, assign, transfer, or otherwise dispose of
any of its now owned or hereafter acquired assets, except: (1)
inventory disposed of in the ordinary course of business; and (2)
the sale or other disposition of assets no longer used or useful in
the conduct of its business, except as may occur in connection with
the currently contemplated Memphis investment
group.
j. Additional
Borrowings. Borrower shall not
create, incur, assume, or suffer to exist, any indebtedness,
except: (i) borrowings pursuant to this Agreement; (ii) unsecured
trade credit incurred in the ordinary course of business which are
paid in a timely manner; (iii) other obligations to the Lender; and
(iv) borrowings used to prepay in full the Borrower’s
obligations under the Loan Documents.
k. Guaranties,
Etc. The Borrower shall not
assume, guaranty, endorse, or otherwise be or become directly or
contingently responsible or liable (including, but not limited to,
an agreement to purchase any obligation, stock, assets, goods, or
services, or to supply or advance any funds, assets, goods, or
services, or an agreement to maintain or cause such person to
maintain a minimum working capital or net worth, or otherwise to
assure the creditors of any person against loss) for obligations of
any person, except (i) guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in
the ordinary course of business and (ii) guaranties in favor of the
Lender.
l. Liens,
Etc. Borrower shall not create,
incur, assume or suffer to exist, any mortgage, security interest,
pledge, lien, charge or other encumbrance of any nature whatsoever
on any of their respective assets, now or hereafter owned, other
than (i) liens in favor of the Lender; (ii) liens under workmen's
compensation, unemployment insurance and social security or similar
laws; and (iii) liens imposed by law, such as carriers,
warehousemen's or mechanic's liens, incurred in good faith in the
ordinary course of business which are not past due for more than
thirty (30) days (other than to the extent a longer period is
permitted by their creditors in the ordinary course of business) or
which are being contested in good faith by appropriate proceedings,
a stay of execution having been served.
m. Loan
and Advances. The Borrower
shall not make any additional loans or advances to any individual,
firm or corporation.
10. Conditions
Precedent. The obligation of
the Lender to make the Loan is subject to the satisfaction by the
Borrower of the following conditions precedent:
a. The
Borrower’s representations and warranties as contained herein
shall be accurate and complete as of the date of
closing;
b. The
Borrower shall not be in default under any of the covenants
contained herein as of the date of closing;
c. The
Borrower shall have executed and delivered all of the Loan
Documents to which they are parties;
d. The
Borrower shall have delivered to the Lender all of the documents
(fully executed) and materials and satisfied all of the
requirements reasonably requested by Lender to evidence the
obligations of Borrower with respect to the Loan in such form and
substance as may be reasonably acceptable to the
Lender.
e. The
Borrower shall have paid all costs incurred in connection with the
closing of the Loan, including without limitation, the attorneys'
fees of the Lender's counsel (up to a maximum of $5,000) and all
filing fees. To the extent that such costs are not paid at closing,
the Borrower hereby authorizes the Lender to pay the same from the
proceeds of the Loan; and
f. The
Borrower shall provide the Lender with written confirmation that
there are no known disputes or pending actions between such
Borrower and the Internal Revenue Service.
g. The
Borrower shall furnish the Lender with such other documents,
opinions, certificates, evidence and other matters as may be
requested by the Lender at or prior to closing.
11. Events
of Default; Acceleration; Remedies. The occurrence of any one or more of the
following events shall constitute a default (an
“Event
of Default”) under this
Agreement:
a. If
any statement, representation or warranty made by the Borrower in
the Loan Documents, in connection therewith or any financial
statement, report, schedule, or certificate furnished to the Lender
by the Borrower, any of its representatives, employees or
accountants during the term of this Agreement shall prove to have
been false or misleading when made, or subsequently becomes false
or misleading, in any material respect;
b. Default
by the Borrower in payment within five (5) days of the due date of
any principal or interest or other amounts called for under the
Loan Documents;
c. Default
by the Borrower in the performance or observance of any of its
respective obligations under the provisions, terms, conditions,
warranties or covenants of the Loan Documents and such failure
shall continue for a period of thirty (30) days or more following
receipt of written notice thereof from the
Lender.
d. The
occurrence of an event of default not cured within any applicable
remedy period, under any obligations of the Borrower to the Lender
other than under the Loan Documents, whether created prior to,
concurrent with, or subsequent to obligations arising out of the
Loan Documents;
e. The
occurrence of an event of default not cured within any applicable
remedy period, under any other obligation of the Borrower in an
aggregate amount of Ten Thousand Dollars ($10,000.00) or more, for
borrowed money or under any lease;
f. The
dissolution, termination of existence, merger or consolidation of
the Borrower, or a sale of all or substantially all of the assets
of the Borrower out of the ordinary course of business, except as
may occur in connection with the currently contemplated Memphis
investment group;
g. A
change in the beneficial ownership of fifty percent (50%) or more
(in the aggregate) of the issued and outstanding voting capital
stock of the Borrower from the ownership on the date of this Loan
Agreement, whether through transfer, issuance of stock or
membership interests or otherwise.
h. The
Borrower shall (i) apply for or consent to the appointment of a
receiver, trustee or liquidator of any of their or its property,
(ii) admit in writing their or its inability to pay their or its
debts as they mature, (iii) make a general assignment for the
benefit of creditors, (iv) be adjudicated a bankrupt or insolvent,
(v) file a voluntary petition in bankruptcy, or a petition or an
answer seeking reorganization to take advantage of any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law or statute, or an answer admitting
the material allegations of a petition filed against it or he in
any proceeding under any such law or (vi) offer or enter into any
compromise, extension or arrangement seeking relief or extension of
their or its debts;
i. In
the event that proceedings shall be commenced or an order, judgment
or decree shall be entered against the Borrower, without the
application, approval or consent of such Borrower (as the case may
be) in or by any court of competent jurisdiction, relating to the
bankruptcy, dissolution, liquidation, reorganization or the
appointment of a receiver, trustee or liquidator of such Borrower
of all or a substantial part of their or its assets, and such
proceedings, order, judgment or decree shall continue undischarged
or unstayed for a period of 90 days;
j. A
final and unappealable judgment for the payment of money in excess
of Ten Thousand Dollars ($10,000.00) shall be rendered against the
Borrower and the same shall remain undischarged for a period of 60
days, during which period execution shall not be effectively
stayed; or
Upon
the occurrence of any Event of Default, automatically upon an Event
of Default under subsection (h) or (i) of this Section or otherwise
at the election of the Lender, (i) all of the obligations of the
Borrower to the Lender, either under this Loan Agreement or
otherwise, will immediately become due and payable without further
demand, notice or protest, all of which are hereby expressly
waived; (ii) the Lender may proceed to protect and enforce its
rights, at law, in equity, or otherwise, against the Borrower and
may proceed to liquidate and realize upon any of its collateral in
accordance with the rights of a mortgagee or a secured party under
the Uniform Commercial Code, any other applicable law, any Loan
Document, any agreement between the Borrowers and the Lender;
and/or (iii) the Lender's commitment to make further loans under
this Agreement or any other agreement with either of the Borrowers
will immediately cease and terminate.
12. General
Provisions. The Lender and the
Borrowers agree as follows with respect to the Loan
Documents:
a. Waivers.
i. The
Borrowers hereby waive, to the fullest extent permitted by law,
presentment, notice, protest and all other demands and notices of
any description and assent (1) to any extension of the time of
payment or any other indulgence, (2) to any substitution, exchange
or release of collateral, and (3) to the release of any other
person primarily or secondarily liable for the obligations
evidenced hereby.
ii. No
delay or omission on the part of the Lender in exercising any
right, privilege or remedy hereunder shall operate as a waiver of
such right, privilege or remedy or of any other right, privilege or
remedy under the Loan Documents. No waiver of any right, privilege
or remedy or any amendment to the Loan Documents shall be effective
unless made in writing and signed by the Lender. A waiver on any
one occasion shall not be construed as a bar to or waiver of any
such right, privilege and/or remedy on any future occasion. No
single or partial exercise of any power hereunder shall preclude
other or future exercise thereof or the exercise of any other
right. The acceptance by the Lender of any payment after any
default under the Loan Documents shall not operate to extend the
time of payment of any amount then remaining unpaid hereunder or
constitute a waiver of any rights of the Lender hereof under the
Loan Documents.
b. Binding
Agreement. The Loan Documents
shall inure to the benefit of and shall be binding upon the parties
hereto and their respective heirs, legal representatives,
successors, and assigns;
c. Entire
Agreement and Amendment. The
Loan Documents constitute the entire agreement between the Lender
and the Borrowers with respect to the Loan and shall not be changed
in any respect except by written instrument signed by the parties
thereto;
d. Governing
Law. The Loan Documents and all
rights and obligations thereunder, including matters of
construction, validity, and performance, shall be governed by the
laws of the Commonwealth of Pennsylvania;
e. Severability.
If any term, condition, or provision of the Loan Documents or the
application thereof to any person or circumstance shall, to any
extent, be held invalid or unenforceable according to law, then the
remaining terms, conditions, and provisions of the Loan Documents,
or the application of any such invalid or unenforceable term,
condition or provision to persons or circumstances other than those
to which it is held invalid or unenforceable, shall not be affected
thereby, and each term, condition, and provision of the Loan
Documents shall be valid and enforced to the fullest extent
permitted by law;
f. Notice.
Any demand or notice required or permitted under the Loan Documents
shall be effective if either: (i) hand-delivered to the addressee,
or (ii) deposited in the mail, registered or certified, return
receipt requested and postage prepaid, or delivered to a private
express company addressed to the addressee: (A) at the address
shown below, or (B) if such party has provided the other in writing
with a change of address, at the last address so provided. Any
notice or demand mailed as provided in this paragraph shall be
deemed given and received on the earlier of: (i) the date received;
(ii) or the date of delivery, refusal or non-delivery as indicated
on the return receipt, if sent by mail or private express as
provided above.
|
Borrowers:
|
Lender:
|
|
Ocean Thermal Energy Corporation
OCEES International, Inc.
800 South Queen Street
Lancaster, PA 17603
With a copy to:
Gerald Koenig
8220 Crestwood Heights Drive, #1105
McLean VA 22102
|
JPF Venture Group, Inc.
800 South Queen Street
Lancaster, PA 17603
With copy to:
Jeremy P. Feakins
1200 West Penn Grant Road
Lancaster, PA 17603
|
g. Conflict
Among Loan Documents. In the
event of any conflict between the terms, covenants, conditions and
restrictions contained in the Loan Documents, the term, covenant
and condition or restriction which grants the greater benefit upon
the Lender shall control. The determination as to which term,
covenant, condition or restriction is the more beneficial shall be
made by the Lender in its sole discretion.
h. Costs
of Collection. The Borrowers
agree to pay on demand all reasonable out-of-pocket costs of
collection under the Loan Documents, including reasonable
attorneys' fees, whether or not any foreclosure or other action is
instituted by the Lender in its discretion.
i. Set-Off,
Etc. As additional collateral,
the Borrowers grant (1) a security interest in, or pledges, assigns
and delivers, to the Lender, as appropriate, all deposits, credits
and other property now or hereafter due from the Lender to the
Borrowers and (2) the right to set-off and apply (and a security
interest in said right), from time to time hereafter and without
demand or notice of any nature, all, or any portion, of such
deposits, credits and other property, against the indebtedness
evidenced by any of the Notes, whether the other collateral, if
any, is deemed adequate or not.
j. Rights
Cumulative. All rights and
remedies of the Lender, whether granted herein or otherwise, shall
be cumulative and may be exercised singularly or concurrently, and
the Lender shall have, in addition to all other rights and
remedies, the rights and remedies of a secured party under the
Uniform Commercial Code of Pennsylvania. Except as otherwise
provided by law, the Lender shall have no duty as to the collection
or protection of the collateral or of any income thereon, or as to
the preservation of any rights pertaining thereto beyond the safe
custody thereof.
[SIGNATURE PAGE FOLLOWS]
IN
WITNESS WHEREOF, the Borrowers and the Lender have executed this
Loan Agreement as of the date indicated above.
OCEAN
THERMAL ENERGY CORPORATION
By:/s/ Gerald
Koenig
Name:
Gerald Koenig
Title:
General Counsel
JPF
VENTURE GROUP, INC.
By:/s/ Edward
Baer
Name:
Edward Baer
Title:
Partner & CFO
PROMISSORY
NOTE
|
$2,000,000
|
Lancaster,
PA
|
November
6, 2017
|
FOR
VALUE RECEIVED, the undersigned, OCEAN THERMAL ENERGY CORPORATION.,
a Delaware corporation (“Maker”), whose mailing address
and principal office is 800 South Queen Street, Lancaster, PA
17603, USA, hereby promises to pay to JPF VENTURE GROUP, INC., a
Delaware corporation (“Payee”), whose mailing address
is 800 South Queen Street, Lancaster, PA 17603, up to the principal
sum of TWO MILLION DOLLARS AND NO CENTS ($2,000,000), as
represented by advances from time to time, in lawful money of the
United States of America for payment of private debts, together
with interest (calculated on the basis of the actual number of days
elapsed but computed as if each year consisted of 360 days) on the
unpaid principal balance from time to time outstanding at a rate,
except as otherwise provided in this Note, of Ten percent (10%) per
annum.
1. Payments.
All unpaid principal and all accrued and unpaid interest shall be
due and payable at the earliest of A) resolution of the Memphis
litigation; B) June 30, 2018; or, C) when Maker is otherwise able
to pay.
2. Time
and Place of Payment. If any payment falls due on a day that
is considered a legal holiday in the state of Delaware, Maker shall
be entitled to delay such payment until the next succeeding regular
business day, but interest shall continue to accrue until the
payment is in fact made. Each payment or prepayment hereon must be
paid at the office of Payee set forth above or at such other place
as the Payee or other holder hereof may, from time to time,
designate in writing.
3. Prepayment.
Maker reserves the right and privilege of prepaying this Note in
whole or in part, at any time or from time to time, upon 30
days’ written notice, without premium, charge, or penalty.
Prepayments on this Note shall be applied first to accrued and
unpaid interest to the date of such prepayment, next to expenses
for which Payee is due to be reimbursed under the terms of this
Note, and then to the unpaid principal balance hereof
(a) Without
notice or demand (which are hereby waived), the entire unpaid
principal balance of, and all accrued interest on, this Note shall
immediately become due and payable at Payee’s option upon the
occurrence of one or more of the following events of default
(“Events of Default”):
(i) the
failure or refusal of Maker to pay principal or interest on this
Note within 10 days of when the same becomes due in accordance with
the terms hereof;
(ii) the
failure or refusal of Maker punctually and properly to perform,
observe, and comply with any covenant or agreement contained
herein, and such failure or refusal continues for a period of 30
days after Maker has (or, with the exercise of reasonable
investigation, should have) notice hereof;
(iii) Maker
shall: (1) voluntarily seek, consent to, or acquiesce in the
benefit or benefits of any Debtor Relief Law (defined hereinafter);
or (2) become a party to (or be made the subject of) any proceeding
provided for by any Debtor Relief Law, other than as a creditor or
claimant, that could suspend or otherwise adversely affect the
Rights (defined hereinafter) of Payee granted herein (unless, in
the event such proceeding is involuntary, the petition instituting
same is dismissed within 60 days of the filing of same).
“Debtor Relief Law” means the Bankruptcy Code of the
United States of America and all other applicable liquidation,
conservatorship, bankruptcy, moratorium, rearrangement,
receivership, insolvency, reorganization, suspension of payments,
or similar Laws from time to time in effect affecting the Rights of
creditors generally. “Rights” means rights, remedies,
powers, and privileges. “Laws” means all applicable
statutes, laws, ordinances, regulations, orders, writs,
injunctions, or decrees of any state, commonwealth, nation,
territory, possession, county, parish, municipality, or Tribunal.
“Tribunal” means any court or governmental department,
commission, board, bureau, agency, or instrumentality of the United
States or of any state, commonwealth, nation, territory,
possession, county, parish, or municipality, whether now or
hereafter constituted and/or existing;
(iv) the
failure to have discharged within a period of 30 days after the
commencement thereof any attachment, sequestration, or similar
proceeding against any of the assets of Maker, or the loss, theft,
or destruction of, or occurrence of substantial damage to, a
material part of the assets of Maker, except to the extent
adequately covered by insurance; and
(v) Maker
fails to pay any money judgment against it at least 10 days prior
to the date on which any of Maker’s assets may be lawfully
sold to satisfy such judgment.
(b) If
any one or more of the Events of Default specified above shall have
happened, Payee may, at its option: (i) declare the entire unpaid
balance of principal and accrued interest on this Note to be
immediately due and payable without notice or demand; (ii) offset
against this Note any sum or sums owed by Payee to Maker; (iii)
reduce any claim to judgment; (iv) foreclose all liens and security
interests securing payment thereof or any part thereof; and (v)
proceed to protect and enforce its rights by suit in equity, action
of law, or other appropriate proceedings, whether for the specific
performance of any covenant or agreement contained in this Note, in
aid of the exercise granted by this Note of any right, or to
enforce any other legal or equitable right or remedy of
Payee.
5. Cumulative
Rights. No delay on Payee’s part in the exercise of
any power or right, or single partial exercise of any such power or
right, under this Note or under any other instrument executed
pursuant hereto shall operate as a waiver thereof. Enforcement by
Payee of any security for the payment hereof shall not constitute
any election by it of remedies, so as to preclude the exercise of
any other remedy available to it.
6. Collection
Costs. If this Note is placed in the hands of an attorney
for collection, or if it is collected through any legal proceeding
at law or in equity or in bankruptcy, receivership, or other court
proceedings, Maker agrees to pay all costs of collection, including
Payee’s court costs and reasonable attorney’s
fees.
7. Waiver.
Maker, and each surety, endorser, guarantor, and other party liable
for the payment of any sums of money payable on this Note, jointly
and severally waive presentment and demand for payment, protest,
and notice of protest and nonpayment, or other notice of default,
except as specified herein, and agree that their liability on this
Note shall not be affected by any renewal or extension in the time
of payment hereof, indulgences, partial payment, release, or change
in any security for the payment of this Note, before or after
maturity, regardless of the number of such renewals, extensions,
indulgences, releases, or changes.
8. Notices.
Any notice, demand, request, or other communication permitted or
required under this Note shall be in writing and shall be deemed to
have been given as of the date so delivered, if personally served;
as of the date so sent, if sent by electronic mail and receipt is
acknowledged by the recipient; one day after the date so sent, if
delivered by overnight courier service; or three days after the
date so mailed, if mailed by certified mail, return receipt
requested, addressed to Maker at its address on the first
page.
9. Successor
and Assigns. All of the covenants, stipulations, promises,
and agreements in this Note contained by or on behalf of Maker
shall bind its successors and assigns, whether so expressed or not;
provided, however, that neither Maker nor Payee
may, without the prior written consent of the other, assign any
rights, powers, duties, or obligations under this
Note.
10. Headings.
The headings of the sections of this Note are inserted for
convenience only and shall not be deemed to constitute a part
hereof.
11. Applicable
Law. This Note is being executed and delivered, and is
intended to be performed, in the state of Delaware, and the
substantive laws of such state shall govern the validity,
construction, enforcement, and interpretation of this Note, except
insofar as federal laws shall have application.
12.
Security. This Note is
unsecured.
EXECUTED effective
the year and date first above written.
OCEAN
THERMAL ENERGY CORPORATION.
By:
/s/ Gerald S.
Koenig
Gerald
S. Koenig, General Counsel
Exhibit 10.60
BRIDGE LOAN AGREEMENT
This Loan Agreement (the "Loan Agreement")
is made as of
________________________, by and
between ___________________________________________(the
"Lender")
and Ocean Thermal Energy Corporation
(the "Borrower").
WITNESSETH:
WHEREAS, the Borrower
desires to obtain certain credit facilities, as set forth in this
Loan Agreement,
and the Lender is willing to provide
such credit facilities on the terms and conditions set forth
herein;
NOW,
THEREFORE, the Lender and the
Borrower, intending to be legally bound, hereby agree
as follows:
1. The Credit
Facilities. The Lender
agrees, pursuant to the terms and conditions of this Loan
Agreement and the other Loan Documents (as defined
below), to make a loan to the Borrower in the original
principal amount of up to ____________________________Dollars
($____________) (the "Loan"), with the specific amount to be determined at its
sole discretion of the Lender. The Loan shall be evidenced by a
Note (the "Note") and shall be made in accordance with and subject
to the terms and conditions of this Loan Agreement, the Note and
the other Loan Documents.
2. The Loan
Documents. The following documents and materials (together
with this Loan Agreement and any other accessory documents executed
in connection herewith, such documents and materials, as they may
be amended, restated,
renewed and
extended, are collectively referred to herein as the
"Loan
Documents") have been or will be executed in connection with
the Loan:
a. Note;
and,
b. A
warrant, of even date herewith, granting to
Lender the right to acquire shares of Ocean Thermal
Energy Corporation common stock, calculated
at a 15% discount the Borrower’s common shares on the day
prior to Lender exercising the warrant.
3. Interest
Rate. The Loan shall bear interest as set forth in the
Note.
4. Repayment.
Repayment of the Loan shall be made as
set forth in the Note, and pre payment shall be permitted as
therein specified.
5. Use
of Proceeds.
The proceeds of the Loan shall be used
to finance Borrower’s acquisition costs for a
revenue-producing Ocean Thermal Energy Conversion
(“OTEC”) and Seawater Air Conditioning
(“SWAC”) engineering company with patented technology,
contracts including two large OTEC contracts worth more than $75
million to the Company, and several technology contracts with
tier-1 oil and gas companies.
6. Security.
The Loan will be
unsecured.
7. Expenses and
Fees. The Borrower agrees to
pay the Lender for
all reasonable out-of pocket expenses of every nature related to their
respective credit facilities, including, but not limited to,
attorneys' fees (not to exceed $5,000) and
out-of-pocket expenses which the Lender may
incur in connection with the execution or carrying out of this Loan
Agreement and the other Loan Documents, or its rights
hereunder and thereunder, and the Lender may pay any
or all such expenses
and add the amount thereof to the indebtedness secured or assured
pursuant to the Loan Documents.
8. Representations and
Warranties. The Borrower, in
order to induce the Lender to make the Loan, makes the following
representations, warranties and promises:
a. Good
Standing. The Borrower is a
corporation, duly organized, validly
existing and in good standing under the laws of the
state of its incorporation, with powers adequate to own
its properties,
and to carry on its business as presently conducted by
it.
b. Authority; Binding
Agreement. The execution,
delivery and performance of
the Loan Documents are within
the corporate power of the Borrower, have been duly authorized by
the Borrower and are not in contravention of law or the
terms of the Borrower's Articles of Incorporation and
By-Laws. The execution, delivery and performance of the Loan
Documents does not and will not
contravene any documents, agreements or
undertakings to which the Borrower is a party or by which
the Borrower is bound. No approval of
any person, corporation,
governmental body or other
entity is a prerequisite to the execution, delivery,
validity or enforceability
and performance of the Loan
Documents. When executed by the Borrower, the Loan
Documents to which
the Borrower is a party will
constitute the legally binding obligations of the
Borrower, enforceable in accordance with their terms except as the
enforceability may be limited by bankruptcy, insolvency or
other similar
laws affecting the enforcement of
creditors' rights
generally.
c. Financial
Information. Subject to any
limitation stated
therein or in connection therewith,
all balance sheets, earning statements, accounts receivable lists
and aging schedules and other financial data which have been or
shall be furnished to the Lender by the Borrower to
induce the Lender
to enter into this Loan Agreement or
otherwise in connection herewith, do or will fairly represent the
financial condition of the Borrower in all material respects, are
accurate, complete and correct in all material respects
insofar as completeness may be necessary to give the Lender a
true and accurate knowledge of the
subject matter as of the date hereof. There are no
material liabilities, direct or indirect, fixed
or contingent, of the Borrower as of the date of
such financial
statements which are not
reflected therein or in the notes thereto.
There has been no material adverse change
in the financial condition or operations of the Borrower since the
date of said
financial statements or since the respective dates on which the
Borrower furnished the Lender with other financial data
or other representations about their financial
condition.
d. Solvency.
Any borrowings to be made by Borrower
under this Loan Agreement do not and will not render Borrower
insolvent. The Borrower is not contemplating either the filing of a
petition under any state or federal bankruptcy or insolvency laws,
or the liquidation of all or a major portion of its property, and
the Borrower has no knowledge or any reason to know of any person
contemplating the filing of any such petition against
it.
9. Covenants.
The Borrower agrees with the Lender
that during the term of this Agreement and the other Loan
Documents, and any extensions, replacements
or renewals thereof (except as otherwise agreed by the Lender in
writing):
a. Insurance.
The Borrower shall maintain adequate
fire and extended coverage insurance, with the Lender named as
lender loss payee, as well as general liability, business
interruption and other insurance policies as are customary. All
such insurance:
i. Shall
be issued in such amounts and by such companies as are satisfactory
to the Lender; and
ii. Shall
contain provisions providing for thirty (30) days' prior written
notice to the Lender of any intended change or cancellation and
providing that no such change or cancellation shall be effective as
to the Lender in the absence of such notice.
b. Notice of
Default; Litigation.
The Borrower shall notify the Lender
in writing immediately upon becoming aware of any default
hereunder, or of any actions, suits, investigations, or
proceedings at law,
in equity or before any governmental
authority that may have a material adverse effect on such Borrower,
pending or threatened, against or affecting the Borrower or
involving the validity or enforceability of the Loan
Documents.
c. Financial
Information.
At the request of Lender, the Borrower
shall furnish or cause to be furnished to the Lender (i) on an
annual basis,
federal income tax returns of the
Borrower and annual financial statements of the Borrower, compiled
by certified public accountants, within one
hundred twenty (120) days after the end of each fiscal year; and
(ii) on a fiscal quarter basis, internally-prepared interim
financial statements of the Borrower in a form satisfactory to
Lender within thirty (30) days of the close of each fiscal quarter.
For the sake of clarity, required public filings of
Borrower’s financial information shall be deemed to satisfy
the obligation of the Borrower under this
provision.
d. Expenses.
The Borrower shall pay all costs and
expenses (including,
but not limited to, attorneys' fees)
incidental to the Loan and to
the collection of all obligations pursuant to the Loan
Documents.
e. Deposit
Relationship.
The Borrower shall establish and
maintain their primary deposit relationship with a bank reasonably
acceptable to the Lender.
f. Further
Assurances. The Borrower shall
execute such documents as the Lender may reasonably request
relating to the Loan.
g. Nature of
Business. The Borrower shall
not enter into any type of business other than that in
which it is presently engaged, or
otherwise significantly
change the scope or
nature of its business.
h. Mergers,
Etc. The Borrower
shall not wind up, liquidate or dissolve, reorganize, merge or
consolidate with
or into,
or convey, sell, assign,
transfer, lease, or otherwise dispose of (whether in one transaction or in
a series of transactions) all or substantially all of its
assets (whether now owned or hereafter acquired) to
any person, or acquire all or substantially all of the assets or the
business of any
person.
i. Sale
of Assets, Etc.
The Borrower shall not
sell, lease, assign, transfer, or otherwise dispose of
any of its now owned or hereafter acquired
assets, except: (1) inventory disposed of in the ordinary course of business;
and (2) the sale
or other disposition of assets no
longer used or useful in the conduct of its
business.
j. Additional
Borrowings. Borrower shall not
create, incur, assume,
or suffer to
exist, any indebtedness, except: (i) borrowings pursuant
to this Agreement or other agreements with other lenders that
substantially conform to the attached Term Sheet; (ii) unsecured
trade credit incurred in the ordinary course of business which are
paid in a timely manner; (iii) other obligations to the
Lender; and
(iv) borrowings used to prepay in full the Borrower's
obligations under the Loan Documents, including project
revenue.
k. Guaranties,
Etc. The Borrower shall not
assume, guaranty,
endorse, or otherwise be or become
directly or contingently responsible or liable (including, but
not limited to, an agreement to purchase any obligation, stock,
assets, goods, or services, or to supply or advance any funds,
assets, goods, or services, or an
agreement to maintain or cause such person to
maintain a minimum working capital or net worth,
or otherwise to
assure the creditors of any person against loss) for obligations of
any person, except (i) guaranties by endorsement of
negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business
and (ii) guaranties
in favor of the
Lender.
1. Liens,
Etc. Borrower
shall not create, incur , assume or
suffer to exist, any mortgage, security interest, pledge, lien, charge or
other encumbrance of any nature whatsoever on any of their
respective assets,
now or hereafter owned, other than (i)
liens in favor of the Lender; (ii) liens under workmen's
compensation, unemployment insurance and social security or similar laws;
and (iii) liens imposed by law, such
as carriers, warehousemen's or
mechanic's liens,
incurred in good faith
in the ordinary course of business which are not
past due for more than thirty (30) days (other than to the extent a
longer period is permitted by their creditors in the ordinary
course of business) or
which are being contested in good
faith by appropriate proceedings, a stay of
execution having been served.
m. Loan and
Advances. The Borrower shall
not make any additional loans or advances to any
individual, firm or
corporation.
10. Conditions
Precedent. The obligation of
the Lender to make the Loan is subject to the satisfaction by the
Borrower of the following conditions precedent:
a. The
Borrower' s representations and warranties as contained
herein shall be accurate and complete as of the date of
closing;
b. The
Borrower shall not be in default under any of the covenants
contained herein as of the date of closing;
c. The
Borrower shall have executed and delivered all of the Loan
Documents to which they are parties;
d. The
Borrower shall have delivered to the Lender all of the documents
(fully executed) and materials and satisfied all of the
requirements reasonably requested by Lender to evidence the
obligations of Borrower with respect to the Loan in such form and
substance as may be reasonably acceptable to the
Lender.
e. The
Borrower shall provide the Lender with confirmation that there are
no known disputes or pending actions between such Borrower and the
Internal Revenue Service.
f. The
Borrower shall furnish the Lender with such other
documents, opinions, certificates, evidence
and other matters as may be reasonably requested by the Lender at
or prior to closing.
11. Events of Default;
Acceleration; Remedies. The
occurrence of any one or more of the following events shall
constitute a default (an "Event of
Default") under this Agreement:
a. If any
statement, representation or warranty made by the Borrower in the
Loan Documents, in connection therewith or any financial
statement, report, schedule, or certificate furnished to the
Lender by the Borrower, any of its
representatives,
employees or accountants during the
term of this Agreement shall prove to have been false or misleading
when made, or subsequently becomes false or misleading, in
any material respect;
b. Default by the Borrower in payment within five (5)
days of the due date of any principal or
interest or other amounts called for under the Loan
Documents;
c. Default by the Borrower in the performance or
observance of any of its respective obligations under the
provisions, terms, conditions, warranties
or covenants of the Loan Documents and such failure shall continue
for a period of thirty (30) days or more following receipt of
written notice thereof from the Lender.
d. The
occurrence of an event of default not cured within
any applicable remedy period, under any
obligations of the Borrower to the Lender other than under the
Loan Documents, whether created prior to, concurrent
with, or subsequent to obligations arising out of the Loan
Documents;
e. The
occurrence of an event of default not cured within any applicable
remedy period, under any other obligation of the Borrower in an
aggregate amount of Ten Thousand Dollars ($10,000.00) or more, for
borrowed money or under any lease;
f. The
dissolution, termination of existence, merger or consolidation of
the Borrower,
or a sale of all or substantially all
of the assets of the Borrower out of the ordinary course of
business;
g. A
change in the beneficial ownership of fifty percent (50%) or more
(in the aggregate) of the issued and outstanding voting capital
stock of the Borrower from the ownership on the date of this Loan
Agreement, whether through transfer, issuance of stock or
membership interests or otherwise.
h. The
Borrower shall (i) apply for or consent to the appointment of a
receiver, trustee or liquidator of any of their or its property,
(ii) admit in writing their or its inability to pay their or its
debts as they mature, (iii) make a general assignment for the
benefit of creditors, (iv) be adjudicated a bankrupt or
insolvent, (v) file a voluntary petition in
bankruptcy, or a petition or an answer seeking reorganization
to take advantage of any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation
law or statute, or an answer admitting the material allegations of
a petition filed against it or he in any proceeding under any such
law or (vi) offer or enter into any compromise, extension or
arrangement seeking relief or extension of their or its
debts;
i. In the
event that proceedings shall be commenced or an
order, judgment or decree shall be entered against the
Borrower, without the application, approval or
consent of such Borrower (as the case may be) in or by any court of
competent jurisdiction,
relating to the
bankruptcy, dissolution, liquidation,
reorganization or the appointment of a
receiver, trustee or liquidator of such Borrower of all or a
substantial part of their or its assets, and such proceedings,
order, judgment or decree shall continue undischarged or unstayed
for a period of 90 days;
j. A
final and unappealable judgment for the payment of money in excess
of Ten Thousand Dollars ($10,000.00) shall be
rendered against the Borrower and the same shall remain
undischarged for a period of 60 days, during which
period execution shall not be effectively stayed;
or
Upon the occurrence of any Event of
Default, automatically upon an Event of Default under
subsection (h) or (i) of this Section or otherwise at the election
of the Lender, (i) all of the obligations of the Borrower to the
Lender, either under this Loan Agreement or
otherwise, will immediately become due and payable without
further demand, notice or protest, all
of which are hereby expressly
waived; (ii) the Lender may proceed to protect and enforce
its rights, at law, in equity, or otherwise, against
the Borrower and may proceed to liquidate and realize upon any of
its collateral in accordance with the rights of a mortgagee or a
secured pai1y under the Uniform Commercial Code, any other
applicable law,
any Loan Document, any agreement
between the Borrower and the Lender; and/or (iii) the
Lender's commitment to make further loans under this Agreement or
any other agreement with the Borrower will
immediately cease and terminate.
12. General
Provisions. The Lender and the
Borrower agree as follows with respect to the Loan
Documents:
a. Waivers.
i. The
Borrower hereby waives,
to the fullest extent permitted by
law, presentment,
notice, protest and
all other demands and notices of any description and assent (1) to
any extension of the time of payment or any other
indulgence, (2) to any substitution, exchange or release of
collateral, and (3) to the release of any
other person primarily or secondarily liable for the obligations
evidenced hereby.
ii. No
delay or omission on the part of the Lender in exercising any
right, privilege or remedy hereunder shall operate as a waiver of
such right, privilege or remedy or of any other right,
privilege or remedy under the Loan Documents. No waiver of any
right, privilege or remedy or any amendment to the Loan Documents
shall be effective unless made in writing and signed by the Lender.
A waiver on any one occasion shall not be construed as a bar to or
waiver of any such right, privilege
and/or remedy on any future occasion. No single
or partial exercise of any power hereunder shall
preclude other or future exercise thereof or the exercise of any
other right. The acceptance by the Lender of any payment after any
default under the Loan Documents shall not operate to extend the
time of payment of any amount then remaining unpaid hereunder or
constitute a waiver of any rights of the Lender hereof under the
Loan Documents.
b. Binding
Agreement. The Loan Documents
shall inure to the benefit of and shall be binding upon the parties
hereto and their respective heirs, legal
representatives,
successors, and
assigns;
c. Entire Agreement and
Amendment. The Loan Documents
constitute the entire agreement between the Lender and the Borrower
with respect to the Loan and shall not be changed in any respect
except by written instrument signed by the parties
thereto;
d. Governing
Law. The Loan Documents and all
rights and obligations thereunder, including
matters of construction,
validity, and
performance, shall be governed by the laws of the Commonwealth of
Pennsylvania;
e. Severability.
If any term,
condition, or provision of the Loan Documents or the
application thereof to any person or circumstance
shall, to any extent, be held
invalid or unenforceable according to law, then the
remaining terms,
conditions, and
provisions of the Loan Documents, or the
application of any such invalid or unenforceable term, condition or
provision to persons or circumstances other than those to which it
is held invalid or unenforceable, shall not be
affected thereby, and
each term, condition, and provision of
the Loan Documents shall be valid and enforced to
the fullest extent permitted by law;
f. Notice. Any
demand or notice required or permitted under the Loan
Documents shall be effective if either: (i) hand-delivered to the
addressee, or (ii) deposited in the mail,
registered or certified, return receipt requested and postage
prepaid, or delivered to a private express company addressed to
the addressee:
(A) at the address
shown below, or
(B) if such party has provided the other in writing
with a change
of address, at the last
address so provided. Any notice or demand mailed as provided
in this paragraph shall
be deemed given and received on the
earlier of: (i) the date received; (ii) or the date of
delivery, refusal or non-delivery as indicated on the return
receipt, if sent
by mail or private express as
provided above.
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Borrower:
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Lender:
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Ocean
Thermal Energy Corporation
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800
South Queen Street Lancaster, PA 17603
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With a copy to:
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Gerald
Koenig, Esq.
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With
copy to:
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8220 Crestwood Heights Drive, #1105
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McLean,
VA 22102
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g. Conflict
Among
Loan
Documents. In the event of any
conflict between the terms, covenants, conditions and restrictions
contained in the Loan Documents, the term, covenant and condition
or restriction which grants the greater benefit upon the Lender shall control. The
determination as to which term, covenant, condition or restriction
is the more beneficial shall be made
by the Lender in its sole
discretion.
h. Costs of
Collection. The Borrower agree
to pay on demand all reasonable out of-pocket costs of
collection under the Loan Documents, including reasonable
attorneys' fees, whether or not any foreclosure or other action
is instituted
by the Lender in its
discretion.
i. Set-Off,
Etc. As
additional collateral, the
Borrower grants (1) a security
interest in, or pledges, assigns and delivers, to the
Lender, as appropriate, all deposits, credits and
other property now or hereafter due from the Lender to
the Borrower and (2) the right to set-off and
apply (and a security
interest in said right), from time to
time hereafter and without demand or notice of any nature, all, or
any portion, of such deposits, credits and other property, against the
indebtedness evidenced by any of the Notes, whether the
other collateral, if
any, is deemed adequate or not.
j. Rights
Cumulative. All rights and
remedies of the Lender, whether granted herein or otherwise, shall
be cumulative and may be exercised singularly or
concurrently,
and the Lender shall
have, in addition to all other rights and remedies, the
rights and remedies of a secured party under the Uniform Commercial
Code of Pennsylvania. Except as otherwise provided by
law, the Lender shall have no duty as to the collection
or protection of the collateral or of any income
thereon, or as to the preservation of any rights pertaining
thereto beyond the safe custody thereof.
IN WITNESS WHEREOF, the Borrower and the Lender have executed this
Loan Agreement as of the date indicated above.
OCEAN THERMAL ENERGY CORPORATION
By:
______________________________________
Name:
Jeremy P Feakins
Title:
Chairman and CEO
LENDER:
By:
_______________________________________
Name:
____________________________
Title:
_______________________________
Address:
___________________________
___________________________________
Phone Number:
____________________
Email
address: _____________________
WARRANT
to Purchase up to _____________ Shares of Common Stock
$ - 0 -
Par Value Per Share, of
OCEAN THERMAL ENERGY CORPORATION
This is to certify that, for value received,
_____________________________ ("Lender") or any permitted transferee (Lender or such
transferee being hereinafter called the "Holder") is entitled to purchase, subject
to the provisions of this Warrant,
from Ocean Thermal Energy Corporation, a Nevada
corporation ("OTEC"), at any time on or after the date
hereof, an aggregate of up to __________________ fully
paid and non-assessable shares of common stock, $
-0- par value (the "Common Stock"), of OTEC at a price per share equal
to a 15% discount from the price of the Common Stock
on the last trading day before such purchase, subject to
adjustment as herein provided (the "Exercise
Price").
1. Exercise of
Warrant. Subject
to the provisions hereof,
this Warrant may be
exercised, in whole or in part, or sold,
assigned or transferred at any time or from time to time on or
after the date hereof.
This Warrant shall be exercised by
presentation and surrender hereof to OTEC
at the principal office of OTEC, accompanied by (i) a written
notice of exercise,
(ii) payment to OTEC,
for the account of OTEC, of
the Exercise Price for the number of shares of Common
Stock specified in such notice, and
(iii) a certificate of the Holder
specifying the
event or events which
have occurred and entitle the Holder to exercise this Warrant.
The Exercise Price for the number of
shares of Common Stock specified in the
notice shall be payable in immediately available funds or
in the form of an offset to amount owed by OTEC to
Lender.
Upon such presentation and
surrender, OTEC shall issue promptly (and within
one business day if
reasonably requested by
the Holder) to the Holder or
its assignee, transferee
or designee the number
of shares of Common Stock to which the Holder is
entitled hereunder.
OTEC covenants and warrants
that such shares of Common Stock, when so
issued, will be duly authorized, validly issued, fully
paid and non-assessable, and free and clear of all
liens and
encumbrances.
If this Warrant is exercised in part
only, OTEC shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the
rights of the Holder thereof to purchase the balance of the
shares of Common Stock issuable hereunder. Upon receipt by OTEC of
this Warrant, in proper
form for exercise, the Holder shall be
deemed to be the
holder of record of the shares of
Common Stock issuable
upon such exercise,
notwithstanding that the
stock transfer books of OTEC may
then be closed or that certificates representing such shares of Common
Stock shall not then be actually delivered to the Holder. OTEC
shall pay all expenses, and any and
all United States federal, state and local taxes and other charges,
that may be payable in connection with the
preparation,
issuance and delivery of stock
certificates pursuant to this
Paragraph 1 in
the name of the Holder or
its assignee, transferee or
designee.
2. Reservation of Shares;
Preservation of Rights of Holder.
OTEC shall at all
times while this Warrant is outstanding and
unexercised, maintain and reserve, free from
preemptive rights, such number of authorized but unissued shares of
Common Stock as may be necessary so that this Warrant
may be exercised without any additional authorization
of Common Stock after giving effect to all other options,
warrants, convertible securities and
other rights to acquire shares of Common Stock at the time
outstanding. OTEC further agrees that (i) it will
not, by charter amendment or through reorganization,
consolidation,
merger, dissolution or sale of
assets, or by any other voluntary act or
omission, avoid or seek to avoid the observance
or performance of any of the
covenants, stipulations or conditions to be observed or performed
hereunder, and (ii) it will
promptly take all
action reasonably necessary to
protect the rights of the Holder as provided
herein.
3. Fractional
Shares. OTEC shall not be
required to issue any fractional shares of
Common Stock upon exercise of
this Warrant. In lieu of any fractional shares, the
Holder shall
be entitled to receive
an amount in cash equal to the amount of such
fraction multiplied by the Exercise Price.
4. Exchange
or
Loss of
Warrant. This Warrant is
exchangeable,
without expense, at the
option of the Holder, upon presentation and surrender hereof at the principal office of OTEC for other
warrants of different denominations entitling the
Holder to purchase, in the aggregate, the same
number of shares of Common Stock issuable hereunder. The
term " Warrant" as used herein includes any warrants for
which this Warrant may be exchanged. Upon receipt
by OTEC of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if
mutilated, OTEC will execute and deliver a new Warrant
of like tenor and date.
5. Adjustment.
The number of shares of Common Stock
issuable upon the exercise of this
Warrant and the Exercise
Price shall be subject to adjustment
from time to time as provided in this Paragraph.
(A) Stock Dividends,
etc.
(1) Stock
Dividends. In case OTEC shall
pay or make a dividend or other distribution on
any class of capital stock of OTEC payable in Common Stock,
the number of shares
of Common Stock issuable upon exercise
of this Warrant shall be increased by multiplying
such number of shares by a fraction of
which the denominator shall be the
number of shares
of Common Stock outstanding at the
close of business on the day immediately preceding the
date of such distribution and the numerator shall be the sum of such number of shares and the total
number of shares of Common Stock constituting such dividend or
other distribution,
such increase to become effective
immediately after the opening of business on the day
following such
distribution.
(2) Subdivisions.
In case outstanding
shares of Common Stock shall be
subdivided into a
greater number of shares
of Common Stock,
the number of shares of Common Stock
issuable upon exercise of
this Warrant
at the opening of business on the day following the
day upon which
such subdivision becomes effective shall be
proportionately increased, and, conversely, in
case outstanding shares
of Common Stock shall each be
combined into a smaller
number of shares of
Common Stock, the number of shares of
Common Stock issuable
upon exercise of this Warrant
at the opening of business on the day following the
day upon which such combination becomes effective shall be
proportionately decreased, such increase
or decrease,
as the case may be, to become
effective immediately
after the opening of business on the
day following the date upon which such subdivision or
combination becomes effective.
(3) Reclassifications.
The reclassification of
Common Stock into securities (other than
Common Stock) and/or
cash and/or other
consideration shall be deemed to
involve a subdivision
or combination, as the
case may be, of the number of shares of Common Stock outstanding immediately prior
to such reclassification into the number or amount
of securities
and/or cash and/or
other consideration outstanding immediately thereafter
and the effective date of such reclassification shall be deemed to
be "the day upon which such subdivision becomes effective," or "the day upon
which such combination becomes effective," as the case
may be, within the meaning of clause (2) above.
(4) Optional
Adjustments. OTEC may
make such increases in the number of shares of
Common Stock issuable upon exercise of this
Warrant, in addition to those required by this
subparagraph (A), as shall be
determined by its Board of Directors to be advisable in order to
avoid taxation so far as practicable of any dividend of stock
or stock rights or any
event treated as
such for federal income tax
purposes to the recipients.
(5) Adjustment to
Exercise
Price.
Whenever the number of
shares of Common Stock issuable upon exercise of this Warrant is
adjusted as provided in this Paragraph
5(A), the Exercise Price shall be
adjusted by a
fraction in which the numerator
is equal to the number of shares
of Common Stock issuable prior to the adjustment and the
denominator is equal to the number of shares of Common Stock
issuable after
the adjustment, rounded to the nearest cent.
6. Right
of the
Holder.
(A) Without limiting the foregoing or any remedies
available to the Holder, it is specifically acknowledged that the
Holder would not have an adequate remedy at law for any breach of
the provisions of this Warrant and shall be entitled to specific
performance of OTEC' s
obligations under, and injunctive relief against any actual or
threatened violation of the obligations of any person subject
to, this Warrant.
(B) The
Holder shall not, by its status as Holder, be entitled
to any rights of a stockholder in OTEC.
7. Termination.
This Warrant and the rights conferred
hereby shall terminate on December 31, 2020.
8. Goyerning
Law. This Warrant shall be deemed to
have been delivered in,
and shall be governed by and
interpreted in accordance with the substantive laws of, the
Commonwealth of Pennsylvania, except to the extent that Nevada law
may govern certain aspects of this Warrant as it relates to
OTEC.
Dated:
_______________________
OCEAN
THERMAL ENERGY CORPORATION
By:
____________________________
Name: Jeremy Feakins Title: CEO
PROMISSORY NOTE
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$____________
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Date:__________________
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FOR VALUE RECEIVED, Ocean Thermal Energy Corporation, a
Nevada corporation
with an address of 800 South Queen
Street, Lancaster,
PA 17603 (the "Borrower"),
hereby promises to pay to the
order of ____________________________________(the
"Lender"),
at 800 South Queen Street,
Lancaster, PA 17603, or
at any other place
designated to the Borrower by the Lender in writing, the
principal sum
of ___________________ Dollars
($______________), with interest
as herein specified, and
under the terms and
conditions stated
herein.
1. Repayment
of
Principal
and Interest. Principal
and interest shall
be repaid by Borrower to
Lender as follows: The
Borrower shall
repay the principal amount of
$_____________________
on the earlier of (i)
July 30, 2019, or (ii) any time after October 31st,
2018, if the Lender demands early repayment (the "Maturity Date"), the Borrower shall pay to
the Lender the unpaid principal balance of the Loan, all
accrued and unpaid interest thereon, and all
other costs and amounts payable to the Lender hereunder. Prior to the Maturity Date,
interest-only payments made quarterly in arrears, commencing on May
15, 2018.
All amounts payable hereunder are payable in
lawful money of the United States
of America at
the address of the
Lender set forth
above in immediately
available funds. Prior to a Default, all payments
shall be applied first on account of other charges,
second to accrued interest due on the unpaid balance of
principal and finally the remainder of such payments shall be
applied to unpaid principal. If a Default
occurs, payments and monies received may
be applied in any
manner and order deemed appropriate by
the Lender.
2. Rates and Calculation
of lnterest. Interest on
the outstanding
and unpaid principal balance of
the Loan shall
be calculated for the actual number of
days in the then current
calendar year that
principal is
outstanding, based upon
a year of three hundred sixty (360) days, accrue and shall be paid at
the fixed rate of interest per annum
equal to ten percent (10%).
In no event shall
the rate of interest hereunder be in excess of the
maximum amount permitted by law. In the event the rate of interest
hereunder is determined to be in excess of the maximum amount
permitted by law, such
interest rate shall be
automatically decreased to the maximum rate permitted by
law.
In addition to all other rights
contained in this Note, if
a Default (defined herein) occurs and as
long as a Default
continues, all outstanding sums hereunder
shall bear interest at
the interest rate otherwise prevailing under the preceding paragraph, plus
10% (the "Default Rate"). The Default Rate shall also apply from acceleration until all unpaid
sums and obligations (whether matured or
contingent) hereunder and any
judgments thereon are
paid in
full.
3. Prepayment.
This Note may be
prepaid in whole or in part at any time at the option of the
Borrower without
premium or penalty.
Each prepayment shall be
applied first
to the payment in full of other
charges payable hereunder, then to accrued interest and the
remainder of such payment, if any, shall be
applied to the reduction of the unpaid
principal balance. The Lender may demand early repayment any time
after October 31st,
2018.
4. Loan Agreement.
This Note is the Note referred to in
the agreements between the Borrower and the Lender, including, but
not limited to the Loan Agreement of even date herewith (the
"Loan Agreement") and the Loan Documents referenced
therein (the "Loan Documents").
The failure of the Borrower to execute
any such agreement or other document shall not affect the validity
of this Note.
This Note shall evidence all
obligations of the Borrower to the Lender under
the Loan Agreement and Loan Documents.
5. Integration.
The terms and conditions of this
Note, together with the terms and conditions of the Loan
Agreement and the Loan Documents, contains the
entire understanding between the Borrower and the Lender with
respect to the indebtedness evidenced hereby. Such understanding
may not be amended,
modified, or terminated except in
writing duly executed by the parties hereto.
6. Security.
This Note is unsecured.
7. Default and
Remedies. The occurrence of any
default or event of default ("Default”,)
as defined in the Loan Agreement
and/or the Loan Documents, shall
constitute a Default of and under this Note.
When a Default occurs, the
Lender, at its option, may declare
the entire unpaid balance of principal of this Note, unpaid
interest thereon and all other charges, costs and
expenses provided for herein, in the Loan
Agreement and/or any of the
Loan Documents, and/or pursuant
to any other agreements between Borrower and
Lender, immediately due and payable without notice to or
demand upon the Borrower. Upon the occurrence of a
Default, the Lender shall have all of the rights and
remedies with respect the Loan Agreement, the Loan
Documents, this Note, and/or
otherwise provided for by law, in
equity, and otherwise.
8. Waiver.
The undersigned hereby waives
presentment for payment, demand, notice of
nonpayment, notice of protest, and protest
of this Note, and all of the notices in connection with
delivery, acceptance, performance, default, or
enforcement of the payment of this Note. The failure
by the Lender to exercise any right or remedy shall not be taken to
waive the exercise of the same thereafter for the same or any
subsequent Default. The Borrower waives any claim of
set-off, recoupment and/or
counterclaim. All notices to the Borrower shall be adequately given
if mailed postage prepaid to the address appearing in the
Lender' s records. The
Borrower intends this Note to be a sealed instrument and to be
legally bound hereby.
9. Holder. The
references to "Lender"
herein shall be deemed to be references to any subsequent
assignee, transferee, or other holder of this Note.
Notwithstanding anything to the contrary herein, this Note shall be
nontransferable, except by operation of law.
10. Governing
Law. This Note shall be
construed in accordance with the domestic internal laws of the
Commonwealth of Pennsylvania, without reference to any conflict of
laws provisions, as a Note made, delivered
and to be wholly performed within the Commonwealth of
Pennsy1vnia.
11. Judicial Proceedings.
Any suit, action, or
proceeding, whether claim or counterclaim, brought or
instituted by the Borrower or the Lender, or any of
their successors or assigns, on or with respect to this Note or the
dealings of the Borrower or the Lender with respect hereto, shall
be tried only by a court and not by a jury. THE BORROWER HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO
A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR
PROCEEDING. In connection therewith, the Borrower
agrees that any suit, action or proceeding arising hereunder or
with respect hereto will
be instituted in the Court of
Common Pleas of York County, Pennsylvania, or the
United States District Court for the
Middle District of Pennsylvania, and irrevocably and
unconditionally submits
to the jurisdiction of
each such Court for such
purpose. Further, the Borrower
waives any right it may have to claim or recover, in
any such
suit, action or proceeding, any
special, exemplary, punitive or consequential damages or any damages
other than, or in addition to, actual damages. THE
BORROWER ACKNOWLEDGES
AND AGREES THAT THIS PARAGRAPH IS A
SPECIFIC AND MATERIAL ASPECT OF THIS NOTE AND THAT
THE LENDER WOULD NOT EXTEND CREDIT
IF THE WAIVERS SET FORTH IN THIS PARAGRAPH WERE NOT A PART OF THIS
NOTE.
LENDER:
_____________________________
OCEAN THERMAL ENERGY CORPORATION
By:
_______________________
Name:
Jeremy Feakins
Title:
CEO
11
OCEAN
THERMAL ENERGY CORPORATION
Employment
Agreement
This Employment
Agreement (“Agreement”) is effective January 1, 2011
and is entered into by and between Ocean Thermal Energy
Corporation, a Delaware corporation having an office at 800 South
Queen Street, Lancaster, Pennsylvania (hereinafter referred to as
“Company”), and Jeremy P. Feakins, an individual whose
address is [private] (“Executive”).
In consideration of
the premises and the mutual covenants and agreements herein
contained, and intending to be legally bound hereby, the Company
and Executive hereby agree as follows:
1. Employment
Company agrees to
employ Executive and Executive agrees to enter the employment of
the Company upon the terms and subject to the conditions herein
provided.
2. Effective
Date
This Agreement is
effective immediately upon the date first written above (the
“Effective Date”).
3. Location
Executive’s
principal office shall be located in Company’s corporate
offices at 800 South Queen Street, Lancaster,
Pennsylvania.
4. Duties
and Responsibilities
(a)
The Company hereby
agrees that Executive shall serve as Chief Executive Officer
(“CEO“) of the Company and its subsidiaries, reporting
directly to the Company’s Board of Directors
(“Board”). In this capacity, Executive shall be
responsible for the daily operation and management of all of the
Company’s business affairs and personnel.
(b)
During the term of
this Agreement, Executive shall devote substantially full time and
attention to the execution of the duties and responsibilities
hereunder. Notwithstanding the above, Executive may hold a seat on
the board of directors of one or more other companies, engage in
passive personal investments and in other business, industry, civic
and charitable activities that do not materially conflict with the
business affairs of Company or materially interfere with the
performance of Executive’s duties and responsibilities
hereunder.
5. Compensation
(a)
Salary. The Company
acknowledges the compensation provided to the Executive hereunder
is significantly less than would normally be commanded by the
Executive or other such executives with similar experience and
credentials for these services. Executive shall be paid a base
annual salary (“Salary”) of $350,000 payable in
bi-weekly installments beginning the Effective Date; provided,
however, that in consequence of the Company’s limited
immediate available cash resources and as an accommodation thereto
(the “Accommodation”), except as otherwise provided
herein, Executive shall receive for the period beginning the
Effective Date and continuing until the Company’s first
financial close on a project with a capital cost of $25 million or
more (“Financial Close”), $180,000 per annum. Within
five (5) business days of such first Financial Close, the Executive
shall be paid the sum of $350,000, as a bonus, plus the difference
between the amount that otherwise would have been paid to the
Executive absent the Accommodation and the amount received by the
Executive pursuant to the Accommodation.
1
(b)
Salary Adjustment. The Board
will review Executive’s compensation on an annual basis and
consider whether to increase (but not decrease) the
Executive’s Salary. Any increased Salary granted by the Board
shall become the new Salary until subsequently increased by the
Board.
(c)
Share Award. The Company may
make an award of the Company’s Common Stock to the Executive
in such number of shares, at such time or times, and subject to
such terms and conditions as the Board shall in its sole and
absolute discretion determine.
(d)
Options. Immediately upon the
Company’s adoption of a stock plan (the “Plan”),
as an additional retention incentive, the Company shall issue to
Executive a five-year option, including provision for a
“cashless exercise,” to purchase one million
(1,000,000) shares of the Company’s Common Stock (the
“Option”) pursuant to the terms of the Plan, which
Option shall constitute, to the extent allowable under Section 422
of the Internal Revenue Code (the “Code”), an Incentive
Stock Option. One-half of the Option shares shall vest one
year from the grant date, and twenty-five percent of the Option
shares shall vest on the second and third year anniversary dates of
the grant date, respectively; provided, however, that all of the
Option shares shall vest immediately upon an Exit. The term
“Exit,” as used herein, shall mean a Change in Control,
as defined in Exhibit A attached hereto, or, any issuance of
preferred stock by the Company. The Option will be issued pursuant
to the Plan and in accordance with the following
terms:
I.
The Option shall
not be exercisable after the expiration of five (5) years from the
grant date (the “Option Term”).
II.
In the event
Executive’s employment is terminated by the Company for any
reason other than for Cause, all unvested portions of the Option
shall immediately vest and the entire Option will remain valid
throughout the Option Term; and
III.
In the event
Executive’s employment is voluntarily terminated by Executive
all unvested portions of the Option are forfeited and the remaining
time to exercise the vested portion of the Option remains
valid.
IV.
Notwithstanding any
provision in this Section 5(d) to the contrary, the Option will be
granted subject to the requirements of Section 422 of the Code, and
to the extent that the Option fails to satisfy such provision, the
Option will be treated as a stock option that is not an incentive
stock option.
6. Plan
Registration
With respect to any
Plan under which Executive is granted shares of Company Common
Stock, or options to purchase shares of Company Common Stock, at
any time when such stock is publicly traded, prior to such time as
shares become vested (e.g., in the case of an award of restricted
stock) or options granted to Executive under the Plan are first
exercisable, if such shares must be registered in order to be sold,
the Company shall have registered the interests in the Plan and the
shares of Company’s Common Stock reserved thereunder prior to
the date on which the shares vest or the options first become
exercisable, in accordance with all applicable securities
laws.
2
7. Bonuses
(a)
Project Bonus. At the time of
contract signing by all parties to any energy services agreement;
power purchase agreement; build, own, operate and transfer
agreement; or other similar or related agreement or agreements,
where such agreement, or such agreements in the aggregate, provide
for $25 million or more in revenue to the Company, the Company will
pay the Executive a cash bonus equal to 100% of the
Executive’s Salary in effect at the time of such signing plus
500,000 shares of the Company’s Common
Stock.
(b)
Other Bonuses. The Executive
will also be entitled to other annual bonuses consisting of cash,
stock, restricted stock, options stock appreciation rights
(“SARS”) or other forms of awards based upon his
performance and Company’s overall achievement of its
corporate goals. The types and amounts of such awards, if any,
shall be determined solely in the discretion of and upon the
recommendation of the Board; provided, however, that the present
value of all such awards to the Executive in a year shall be
adjusted, as necessary, to equal an amount not less than the
present value of all such awards given to the executive employee of
the Company receiving the highest present value of all similar
awards in a year multiplied by a fraction, the numerator of which
shall be the Executive’s Salary for the year and the
denominator of which shall be such other executive’s annual
base salary for the year.
8. Executive
Benefits
During
Executive’s employment with the Company:
(a)
Executive will be
entitled to four (4) weeks paid vacation time during each
twelve-month period, with such vacation accruing until used. Any
vacation time not used at the end of the Executive’s
employment shall be paid out in cash equivalent based on the
Executive’s Salary in effect at the time of the
Executive’s termination and shall be paid not later than
thirty (30) days thereafter; provided, however, that such amount
shall be forfeited in the event that the Executive is terminated
for Cause.
(b)
The Company will
pay the health care, prescription drug, dental and/or vision
insurance premiums for coverage of the Executive, his spouse and
dependents under the standard Company plan or plans, if any, in
effect from time to time during Executive’s employment with
the Company.
(c)
Provided the
Company obtains a policy of group life insurance and Executive
complies with and satisfies all underwriting and other requirements
of the insurer, the Company will pay the life insurance premiums
for a term life insurance policy with a death benefit equal to four
(4) times the Executive’s Salary in effect at the time the
Executive first becomes eligible for such
insurance.
(d)
The Company shall
provide Executive with a monthly automobile allowance of $1,000.00,
which amount shall be taxable to the Executive.
3
(e)
Wherever possible,
Executive will be entitled to travel First Class, or Business Class
if available, for all methods of travel on Company business or at
the convenience or request of the Company, on the carrier of his
choice. At the request of the Executive, the Company will purchase
the tickets on behalf of Executive in advance of such travel. Upon
submission to the Company of usual and customary documentation,
Executive will be reimbursed within five (5) business days for all
reasonable out of pocket expenses that are incurred in connection
with job related activities, as well as travel on behalf of the
Company. The Executive will be provided with a Company credit card
for use in business-related travel and other business expenses,
which uses the Executive shall support with appropriate
documentation as to their business purpose.
(f)
For each thirty-day
period that the Executive is required to spend anywhere other than
the Executive’s principal office as set forth in Section 3
hereof, the Company will provide a minimum of two (2) round-trip
First Class, or Business Class when available, airfare tickets for
Executive and/or Executive’s spouse or dependents to travel
between such location and the Executive’s principal office as
set forth in Section 3 hereof. The Executive shall be responsible
for any income taxes attributable to the provision of airfare
tickets, as applicable.
9. Executive
Kidnapping and Medical Evacuation Program(s)
The Company will
provide at no cost to Executive, an Executive Kidnapping and
Medical Evacuation program(s) and/or insurance policy, under which
Executive will be provided coverage subject to such policies,
terms, conditions and limitations as the Board shall approve in its
sole discretion.
10. Term
of Employment
The term of
employment hereunder shall be for a period of five (5) years
commencing from the Effective Date (the “Term”).
Commencing on the fifth anniversary of the Effective Date and on
each successive one (1) year anniversary date thereafter, the term
of employment hereunder shall be extended for a period of one (1)
year (“Renewal Term”) unless either party gives the
other notice of termination at least one hundred (100) days prior
to the end of the Term or any Renewal Term. In such event,
employment will terminate at the end of the Term or Renewal Term
during which such notice was given.
(a)
Termination. Company may
terminate Executive’s employment during the Term or any
Renewal Term for any reason, but if such termination is for any
reason other than for Cause, such termination shall be in
accordance with the provisions of Section 12 hereof. If Executive
is terminated for Cause, then Executive shall be paid within thirty
(30) days of such termination the unpaid portion of
Executive’s Salary then earned and due to Executive, and all
compensation otherwise payable to Executive, including any and all
unvested Plan awards and vested but unexercised Plan awards, under
this Agreement shall be forfeited. As used herein,
“Cause” means final conviction of a
felony.
(b)
Notice. Should the Company
terminate Executive’s employment for Cause, no advance notice
from the Company will be required, and all of the Executive’s
unvested Plan awards and vested Plan awards that have not been
exercised as of the date of the termination will be forfeited
immediately.
(c)
Shares and Options. Should the
Company elect not to renew this Agreement after the Term or any
Renewal Term, or should Executive voluntarily terminate his
employment, then Executive shall retain the vested portion of any
Plan award and the unvested portion will expire immediately upon
Executive’s termination of employment. In each such case, all
vested Plan awards shall be non-forfeitable and shall retain their
original expiration date.
4
11. Change
in Control
The provision for a
Change in Control Payment as described in Exhibit A attached hereto
shall be applicable to Executive so long as Executive is employed
by Company and thereafter, to the extent provided in such Exhibit
A.
12. Severance
Other than in the
case of a timely noticed non-renewal of Executive’s
employment hereunder pursuant to Section 10, if Executive’s
employment is terminated by Company without Cause for any reason
during the Term or Renewal Term, Executive shall be entitled to
receive from Company (i) a cash severance payment equal to three
times the amount of the Executive’s then applicable Salary,
if the termination occurs on or before the third anniversary of the
Effective Date, (ii) a cash severance payment equal to the unpaid
portion of the Executive’s then applicable Salary for the
remainder of the Term or Renewal Term plus an amount equal to twice
the Executive’s then applicable Salary, if the termination
occurs after the third anniversary of the Effective Date but before
the fifth anniversary of the Effective Date, or (iii) a cash
severance payment equal to the unpaid portion of the
Executive’s then applicable Salary for the remainder of the
Term or Renewal Term if the termination occurs after the fifth
anniversary of the Effective Date (each, a “Severance
Payment”). In the event that the Executive is terminated by
Company without cause, then all of Executive’s outstanding
Plan awards shall immediately and fully vest. Other than any Change
in Control Payment to which Executive may also be entitled in
accordance with Section 11; any bonus to which Executive may be
entitled under Section 7; or any payment or benefit to which
Executive may be entitled under any separate agreement between
Executive and the Company, the Company shall have no further
obligation to Executive in the event of Executive’s
termination by the Company without Cause beyond those obligations
described in this Section 12. If the Company fails to make any
payment when due under this Section 12, and Executive initiates
arbitration pursuant to Section 17 to enforce his rights under this
Agreement, and Company is found to have violated this Agreement,
then Company shall be obligated to pay Executive, in addition to
the Severance Payment and other sums owed under this Agreement, an
additional payment (“Enforcement Payment”) equal to the
Severance Payment plus the sum of all of the costs incurred by
Executive, including attorneys’, fees, to enforce this
Agreement. It is explicitly agreed that the Enforcement Payment is
a reasonable estimate of the value of time and expense that would
be incurred by the Executive to enforce this Agreement and in no
case shall be considered a penalty. Any payments due under this
Section 12 shall be paid by wire transfer to a bank account
specified by Executive no later than three (3) business days after
the Executive’s termination, except that the Enforcement
Payment shall be due and payable in the same manner to Executive
within ten (10) days of the date the Company is found to have
violated this Agreement.
13. Ownership
of Information
All documents,
drawings, memoranda, notes, records, file correspondence, manuals,
models, specifications, computer programs, E-mail, voice mail,
electronic databases, maps, and all other writings or materials of
any type embodying any information pertaining to the business of
Company which Executive has developed, utilized or had access to
during his employment with Company, are and shall be the sole and
exclusive property of Company. Upon termination of
Executive’s employment with Company for any reason, Executive
shall promptly deliver this property and all copies thereof to
Company.
5
14. Non-Solicitation
During the term of
Executive’s employment and for a period of two (2) years
thereafter, Executive will not, directly or indirectly, solicit or
contact any employee of Company with a view to inducing or
encouraging such employee to leave the employ of Company for the
purpose of being hired by Executive or an employer affiliated with
Executive. Executive agrees that money damages would not be a
sufficient remedy for any breach of this Section 14 by Executive,
and that, in addition to all other remedies to which the Company
may be entitled, the Company shall be entitled to injunctive or
other equitable relief as a remedy for any such breach or
threatened breach. Nothing in this Agreement shall be construed as
prohibiting the Company from pursuing any other remedies that may
be available to it, whether at law or in equity, for any breach or
threatened breach hereof by Executive, including the recovery of
damages. In addition, Executive agrees that the Company shall be
entitled to recover from the Executive its reasonable
attorneys’ fees incurred in connection with obtaining any
relief.
15. D&O
Insurance and Indemnification
As soon as
practicable, the Company shall purchase a directors and officers
liability insurance policy, the terms of which shall be approved by
the Board, and will provide Executive with directors and officers
liability insurance necessary to protect Executive from any and all
expenses, obligations, liabilities, actions, suits or proceedings
that may occur as the result of Executive’s employment by the
Company. In addition, if at any time Executive is a party or is
threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that
Executive is or was a director, officer, executive or agent of
Company and/or of any of its affiliates, or is or was serving at
the request of Company as a director, officer, executive or agent
of any other corporation, partnership, joint venture, trust,
executive benefit plan or other enterprise, Company shall indemnify
Executive and hold Executive harmless against expenses (including
court costs and reasonable attorneys’ fees), judgments,
fines, penalties, amounts paid in settlement and any other
liabilities actually and reasonably incurred by Executive in
connection with such action, suit or proceeding to the full extent
permitted by law. Expenses (including court costs and reasonable
attorneys’ fees) incurred by Executive in appearing at,
participating in, or defending any threatened, pending or completed
action, suit or proceeding whether civil, criminal, administrative
or investigative, shall be paid by Company at reasonable intervals
in advance of the final disposition of such action, suit or
proceeding promptly following receipt of Executive’s written
claim, including supporting documentation. The indemnification
provided under this Section 15 shall apply whether or not the
negligence of any party is alleged or proved. Nothing in this
Section 15 shall be deemed to provide Executive with a right to
indemnification in excess of the authority of the Company to
provide indemnification granted by applicable law, and all
limitations on indemnification set forth in such law shall be
deemed to govern this Section 15.
16. Miscellaneous
(a)
All payments
required to be made by Company hereunder shall be subject to any
withholding pursuant to any applicable law or
regulation.
(b)
This Agreement is
binding upon, and shall inure to the benefit of, the parties hereto
and their respective successors, heirs, administrators, executors
and assigns.
(c)
This Agreement,
including any exhibits hereto, contains the entire agreement
between the parties concerning the subject matter hereof; any prior
or contemporaneous agreements or understandings, oral or written,
not contained in this Agreement, are superseded and of no effect;
and this Agreement may not be amended or modified except by a
writing signed by both parties.
6
(d)
Should one party
waive compliance by the other party to any term or provision of
this Agreement, such waiver shall be limited to the facts or
circumstances giving rise to the noncompliance and shall not be
deemed either a general waiver or modification with respect to the
term or provision, or part thereof, being waived, or as to any
other term or provision of this agreement, nor shall it be deemed a
waiver of compliance with respect to any other facts or
circumstances then or thereafter occurring.
(e)
Any notice given
hereunder shall be in writing and shall be deemed given when
actually received or two (2) business days after tender to an
overnight courier with a national reputation, duly addressed to the
party concerned at the address specified in the preamble of this
Agreement or such other address as a party shall provide in writing
from time to time to the other party.
(f)
In the event that
any provision or portion of this Agreement shall be determined to
be invalid or unenforceable for any reason, the remaining
provisions or portions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest
extent permitted by law. The respective rights and obligations of
the parties shall survive any termination of this Agreement to the
extent necessary to preserve such rights and
obligations.
17. Applicable
Law
This Agreement
shall be governed by and construed in accordance with the laws of
the Commonwealth of Pennsylvania, except to the extent that federal
laws supersede such laws, without regard to principles regarding
conflicts of laws. Executive and Company agree that if any claim,
action, dispute or controversy of any kind arises out of or relates
to this Agreement or concerns any aspect of performance by any
party under the terms of this Agreement, other than as may be
enforced by way of injunctive relief pursuant to Section 14, prior
to seeking any other remedies, the aggrieved party shall give
written notice to the other party describing the disputed issue.
Within ten (10) business days after the receipt of such a notice
the parties shall attempt to resolve the dispute amicably through
direct good faith negotiation. If the parties cannot so
resolve the matter, the parties shall apply to the American
Arbitration Association (“AAA”) for a single arbitrator
to be appointed to arbitrate the dispute in accordance with the AAA
rules applicable to employment disputes. Arbitration shall take
place in Lancaster, Pennsylvania. The decision of the AAA
arbitrator shall be final and binding on all parties. The parties
agree not to litigate the matter except to the extent necessary to
enforce the arbitration award. The costs and expenses of any
litigation to enforce the arbitration award shall be borne by the
non-prevailing party. Executive and Company hereby acknowledge that
they are waiving their rights to a jury trial with respect to any
matter within the scope of this Section 17. In addition, to the
extent that this Agreement permits any matter to be litigated,
Executive and Company irrevocably submit in any suit, action or
proceeding arising out of or relating to this Agreement to the
jurisdiction and venue of the United States District Court for the
Eastern District of Pennsylvania or, if such court has no
jurisdiction in the matter, then to the jurisdiction and venue of
the Court of Common Pleas for Lancaster County, Pennsylvania, and
each hereby waives any and all objections to jurisdiction or venue
that Company or Executive may have under the laws of Pennsylvania
or of the United States.
7
18. Section
409A Compliance
This Agreement
shall be interpreted and performed so as to comply with any
applicable provisions of Section 409A of the Code (“Section
409A”) and the regulations and official guidance issued
pursuant thereto such as will avoid any inclusion of income by
Executive under Section 409A of any payment or benefit under this
Agreement or under any arrangement required to be aggregated with
this Agreement. Terms defined in this Agreement will have the
meanings given such terms under Section 409A if and to the extent
required to comply with Section 409A. Any payments that are due
within the “short term deferral period” as defined in
Section 409A or that are paid in a manner covered by Treas. Reg.
Section 1.409A-1(b)(9)(iii) will not be treated as deferred
compensation unless applicable law requires otherwise. Neither the
Company nor Executive will have the right to accelerate or defer
the delivery of any such payments or benefits except to the extent
specifically permitted or required by Section 409A. In any event,
the Company makes no representations or warranty and will have no
liability to the Executive or any other person, other than with
respect to payments made by the Company in violation of the
provisions of this Agreement, if any provisions of or payments
under this Agreement are determined to constitute deferred
compensation subject to Section 409A but not to satisfy the
conditions of that section. For purposes of this Agreement, a
termination of employment with the Company shall mean a
“separation from service” as defined in Section 409A.
If and to the extent any portion of any payment, compensation or
other benefit provided to Executive in connection with
Executive’s separation from service (as defined in Section
409A) is determined to constitute “nonqualified deferred
compensation” within the meaning of Section 409A and
Executive is at such time a specified employee as defined in
Section 409A(a)(2)(B)(i) of the Code, as determined by the Company
in accordance with its procedures, by which determination Executive
hereby agrees to be bound, such portion of the payment,
compensation or other benefit will not be paid before the day that
is six months plus one day after the date of separation from
service (as determined under Section 409A) (the “New Payment
Date”). The aggregate of any payments that otherwise would
have been paid to Executive during the period between the date of
separation from service and the New Payment Date will be paid to
Executive in a lump sum on the first payroll date after such New
Payment Date, and any remaining payments will be paid on their
original schedule.
19. Excess
Parachute Payments
(a)
In the event that
the Executive is entitled to payments and/or benefits (i) in
connection with Executive's employment with the Company or
termination thereof or (ii) from the Company, any person whose
actions result in a change of ownership or effective control
covered by Section[Missing Graphic Reference]280G[Missing Graphic
Reference](b)(2) of the Code, or any person affiliated with the
Company or such person as a result of such change in ownership or
effective control (collectively the “Company
Payments”), and if such Company Payments will be subject to
the tax (the “Excise Tax”) imposed by Section 4999 of
the Code, the Company shall pay to or for the benefit of the
Executive at the time specified in subsection (c) below an
additional amount (the “Gross-Up Payment”) such that
the net amount retained by the Executive, after deduction of any
Excise Tax on the Company Payments and any U. S. federal, state,
and local income or payroll tax upon the Gross-Up Payment, but
before deduction for any U.S. federal, state, and local income or
payroll tax on the Company Payments, shall be equal to the Company
Payments. For purposes of calculating the Gross-Up Payment, the
Executive shall be deemed to pay income taxes at the highest
applicable marginal rate of federal, state or local income taxation
for the calendar year in which the Gross-Up Payment is to be
made.
8
Subject to any
determinations made by the Internal Revenue Service (the
“IRS”), all determinations as to whether a Gross-Up
Payment is required and the amount of Gross-Up Payment and the
assumptions to be used in arriving at the determination shall be
made by the Company's independent certified public accountants,
appointed prior to any change in ownership (as defined under
Section 280G[Missing Graphic Reference](b)(2) of the Code) (the
“Accountants”), in accordance with the principles of
Section [Missing Graphic Reference]280G[Missing Graphic Reference]
of the Code. All fees and expenses of the Accountants will be borne
by the Company. Subject to any determinations made by the IRS,
determinations of the Accountants under this Agreement with respect
to (i) the initial amount of any Gross-Up Payment and (ii) any
subsequent adjustment of such payment shall be binding on the
Company and the Executive.
The Gross-Up
Payment calculated pursuant to this Section 19 shall be paid no
later than the thirtieth (30th) day following an event occurring
which subjects the Executive to the Excise Tax; provided, however,
that if the amount of such Gross-Up Payment or portion thereof
cannot be reasonably determined on or before such day, the Company
shall pay to the Executive the amount of the Gross-Up Payment no
later than 10 days following the determination of the Gross-Up
Payment by the Accountants. Notwithstanding the foregoing, the
Gross-Up Payment shall be paid to or for the benefit of the
Executive no later than 15 business days prior to the date by which
the Executive is required to pay the Excise Tax or any portion of
the Gross-Up Payment to any federal, state or local taxing
authority, without regard to extensions.
In the event that
the Excise Tax is subsequently determined by the Accountants to be
less than the amount taken into account hereunder at the time the
Gross-Up Payment is made, the Executive shall repay to the Company,
at the time that the amount of such reduction in Excise Tax is
finally determined, the portion of the prior Gross-Up Payment
attributable to such reduction (plus the portion of the Gross-Up
Payment attributable to the Excise Tax and U.S. federal, state and
local income tax imposed on the portion of the Gross-Up Payment
being repaid by the Executive if such repayment results in a
reduction in Excise Tax or a U.S. federal, state and local income
tax deduction), plus interest on the amount of such repayment at
the rate provided in Section 1274(b)(2)(B) of the Code.
Notwithstanding the foregoing, in the event any portion of the
Gross-up Payment to be refunded to the Company has been paid to any
U.S. federal, state and local tax authority, repayment thereof (and
related amounts) shall not be required until actual refund or
credit of such portion has been made to the Executive, and interest
payable to the Company shall not exceed the interest received or
credited to the Executive by such tax authority for the period it
held such portion. The Executive and the Company shall cooperate in
good faith in determining the course of action to be pursued (and
the method of allocating the expense thereof) if the Executive's
claim for refund or credit is denied. However, if agreement cannot
be reached, the Company shall decide the appropriate course of
action to pursue provided that the action does not adversely impact
any issues Executive may have with respect to his tax return, other
than the Excise Tax.
In the event that
the Excise Tax is later determined by the Accountants or the IRS to
exceed the amount taken into account hereunder at the time the
Gross-Up Payment is made (including by reason of any payment the
existence or amount of which cannot be determined at the time of
the Gross-Up Payment), the Company shall make an additional
Gross-Up Payment to or for the benefit of the Executive in respect
of such excess (plus any interest or penalties payable with respect
to such excess) at the time that the amount of such excess is
finally determined.
9
In the event of any
controversy with the IRS (or other taxing authority) with regard to
the Excise Tax, the Executive shall permit the Company to control
issues related to the Excise Tax (at its expense), provided that
such issues do not potentially materially adversely affect the
Executive. In the event issues are interrelated, the Executive and
the Company shall in good faith cooperate so as not to jeopardize
resolution of either issue. In the event of any conference with any
taxing authority as to the Excise Tax or associated income taxes,
the Executive shall permit the representative of the Company to
accompany the Executive, and the Executive and the Executive's
representative shall cooperate with the Company and its
representative.
The Company shall
be responsible for all charges of the
Accountant.
The Company and the
Executive shall promptly deliver to each other copies of any
written communications, and summaries of any verbal communications,
with any taxing authority regarding the Excise
Tax.
20. Counterparts
This Agreement may
be executed in counterparts, each of which shall be an original and
all of which together shall constitute one and the same
agreement.
IN WITNESS WHEREOF,
the Parties hereto have caused this Agreement to be executed on the
date first written above.
OCEAN
THERMAL ENERGY CORPORATION
Signature: /s/
James D. Greenberg
Printed Name: James
D. Greenberg
Title:
Director
EXECUTIVE
Signature: /s/
Jeremy Feakins
Printed Name:
Jeremy Feakins
10
EXHIBIT
A
Change in Control
If, within three
(3) months following the occurrence of a Change in Control (as
defined below), the Executive elects, by written notice to the
Company, to terminate his employment with the Company then, in
addition to any severance payments due under Executive’s
Employment Agreement with the Company, the Company shall pay to the
Executive, within 10 days after his termination of employment, a
lump sum cash payment in an amount equal to the Change in Control
Payment (as defined below). If the Executive’s employment is
terminated prior to the date he elects to terminate but there is
reasonable evidence that such termination (a) was at the request of
a third party who has taken steps reasonably calculated to effect a
Change in Control or (b) otherwise arose in connection with or in
anticipation of a Change in Control, then for all purposes of this
paragraph, such termination shall be considered to have occurred
immediately following the Change in Control and the
Executive’s election to terminate his employment as of the
date of the Change in Control. As used herein, the following terms
shall mean:
(a) A
“Change in Control” shall be deemed to have occurred
upon: (i) the date of acquisition by any one person, or more than
one person acting as a group (as defined in Treasury Regulations
Section 1.409A-3(i)(5)(v)(B)), of stock of the Company that,
together with stock held by such person or group, constitutes more
than fifty percent (50%) of the total fair market value or total
voting power of the stock of the Company; provided, however, that
if any one person, or more than one person acting as a group, is
considered to own more than fifty percent (50%) of the total fair
market value or total voting power of the stock of the Company, the
acquisition of additional stock by the same person or persons shall
not be deemed to be a Change of Control; (ii) the date any one
person, or more than one person acting as a group, acquires (or has
acquired during the 12-month period ending on the date of the most
recent acquisition by such person or persons) ownership of stock of
the Company possessing thirty percent (30%) or more of the total
voting power of the stock of the Company; or (iii) the date that
any one person, or more than one person acting as a group, acquires
(or has acquired during the 12-month period ending on the date of
the most recent acquisition by such person or persons) assets from
the Company that have a total gross fair market value of more than
forty percent (40%) of the total gross fair market value of all of
the assets of the Company immediately before such acquisition or
acquisitions; provided, however, that transfers of assets of the
Company of any value to a related person or entity as described in
Treasury Regulations Section 1.409A-3(i)(5)(vii)(B) shall not
result in a Change in Control. For purposes of (i) and (ii) above,
a person shall be deemed to be the beneficial owner of any shares
the person is deemed to own under the stock attribution rules of
Section 318(a) of the Code.
(b) “Change
in Control Payment” shall mean an amount equal to three (3)
times the Executive’s Salary in effect on the date of a
Change in Control.
LOAN
AGREEMENT
This Loan Agreement
(the “Loan Agreement”) is made as of February 10,
2012, by and between DCO Energy, LLC, a New Jersey limited
liability company with offices at 5429 Harding Highway, Building
500, Mays Landing, New Jersey 08330 (the “Lender”) and
Ocean Thermal Energy Corporation, a Delaware Corporation with
offices at 800 South Queen Street, Lancaster, Pennsylvania 17603
(the “Borrower”).
WITNESSETH:
WHEREAS, the
Borrower desires to obtain certain credit facilities, as set forth
in this Loan Agreement, and the Lender is willing to provide such
credit facilities on the terms and conditions set forth
herein;
NOW, THEREFORE, the
Lender and the Borrower, intending to be legally bound, hereby
agree as follows:
1.
The Loan. The Lender agrees,
pursuant to the terms and conditions of this Loan Agreement and the
other Loan Documents (as defined below), to make a loan to the
Borrower in the original principal amount of One Million Dollars
($1,000,000) (the “Loan”). The Loan shall be evidenced
by a Note (the “Note”) and shall be made in accordance
with and subject to the terms and conditions of this Loan
Agreement, the Note, and other Loan Documents.
2.
The Loan
Documents. The following documents and materials (together
with this Loan Agreement and any other accessory documents executed
in connection herewith, such documents and materials, as they may
be amended, restated, renewed and extended, are collectively
referred to herein as the “Loan Documents”) have been
or will be executed in connection with the Loan:
(a) Note;
(b) Security
Agreement, of even date herewith, between Lender and Borrower (the
“Security Agreement”);
(c) A
warrant, of even date herewith, granting to Lender, as additional
consideration for making the Loan to Borrower, the right to
purchase 3,295,761 shares of the Borrower’s common stock at a
price of $0.50 per share.
3.
Interest Rate. The Loan shall
bear interest as set forth in the Note.
4.
Repayment. Repayment of the
Loan shall be made as set forth in the Note, and pre-payment shall
be permitted as therein specified.
5.
Use of
Proceeds. The proceeds of the Loan shall be utilized by
Borrower for fifty percent (50%) of the pre-development work and
studies relative to the Baha Mar Project with the balance to be
used for other development work and additional projects. Borrower
shall provide Lender with a commercially reasonable accounting of
the use of the funds upon request.
6.
Collateral. The Loan will be
secured by a first lien security interest in all assets of Borrower
now owned or hereafter acquired as more specifically set forth in
the Security Agreement.
1
7.
Expenses and Fees. The Borrower
and Lender each agree to pay their own expenses and fees of every
nature related to their execution and carrying out of this Loan
Agreement and the other Loan Documents.
8.
Representations and Warranties.
The Borrower, in order to induce the Lender to make the Loan, makes
the following representations, warranties, and
promises:
(a)
Good Standing. The Borrower is
a corporation, duly organized, validly existing and in good
standing under the laws of the state of its incorporate, with
powers adequate to own its properties, and to carry on its business
as presently conducted by it.
(b) Authority;
Binding Agreement. The execution, delivery, and performance
of the Loan Documents are within the corporate power of the
Borrower, have been duly authorized by the Borrower, and are not in
contravention of law or the terms of the Borrower’s Articles
of Incorporation and By-Laws. The execution, delivery and
performance of the Loan Documents does not and will not contravene
any documents, agreements or undertakings to which the Borrower is
a party or by which it is bound. No approval of any person,
corporation, governmental body or other entity is a prerequisite to
the execution, delivery, validity or enforceability and performance
of the Loan Documents. When executed by the Borrower, the Loan
Documents to which the Borrower is a party will constitute the
legally binding obligations of the Borrower, enforceable in
accordance with their terms except as the enforceability may be
limited by bankruptcy, insolvency or other similar laws affecting
the enforcement of creditors’ rights generally.
(c)
Financial Information. Subject
to any limitation stated therein or in connection therewith, all
balance sheets, earning statements, accounts receivable lists and
aging schedules and other financial data which have been or shall
be furnished to the Lender by the Borrower to induce the Lender to
enter into this Loan Agreement or otherwise in connection herewith,
do or will fairly represent the financial condition of the Borrower
in all material respects, are accurate, complete and correct in all
material respects insofar as completeness may be necessary to give
the Lender a true and accurate knowledge of the subject matter as
of the date hereof. There are no material liabilities, direct or
indirect, fixed or contingent, of the Borrower as of the date of
such financial statements, which are not reflected therein or in
the notes thereto. There has been no material adverse change in the
financial condition or operations of the Borrower since the date of
said financial statements or since the respective dates on which
the Borrower furnished the Lender with other financial data or
other representations about its financial condition.
(d) Solvency.
Any borrowings to be made by the Borrower under this Loan Agreement
do not and will not render Borrower insolvent. The Borrower is not
contemplating either the filing of a petition under any state or
federal bankruptcy or insolvency laws, or the liquidation of all or
a major portion of its property, and the Borrower has no knowledge
or any reason to know of any person contemplating the filing of any
such petition against it.
9.
Covenants. The Borrower agrees
with the Lender that during the term of this Agreement and the
other Loan Documents, and any extensions, replacements or renewals
thereof (except as otherwise agreed by the Lender in
writing):
(a)
Insurance. The Borrower shall
maintain adequate fire and extended coverage insurance, with the
Lender named as lender loss payee, as well as general liability,
business interruption and other insurance policies as are
customary. All such insurance:
(i)
Shall be issued in such amounts
and by such companies as are satisfactory to the Lender;
and
2
(ii) Shall
contain provisions providing for thirty (30) days’ prior
written notice to the Lender of any intended change or cancellation
and providing that no such change or cancellation shall be
effective as to the Lender in the absence of such
notice.
(b) Notice
of Default; Litigation. The Borrower shall notify the Lender
in writing immediately upon becoming aware of any default
hereunder, or of any actions, suits, investigations, or proceedings
at law, in equity or before any governmental authority that may
have a material adverse effect on the Borrower, pending or
threatened, against or affecting the Borrower or any collateral
securing the Loan or involving the validity or enforceability of
the Loan Documents or the priority of the liens created
thereunder.
(c)
Financial Information. The
Borrower shall furnish or cause to be furnished to the Lender:
(i) on an annual basis, federal income tax returns of the
Borrower and annual financial statements of the Borrower, compiled
by certified public accountants, within one hundred twenty (120)
days after the end of each fiscal year; and (ii) on a fiscal
quarter basis, internally-prepared interim financial statements of
the Borrower in a form satisfactory to Lender within thirty (30)
days of the close of each fiscal quarter.
(d) Expenses.
The Borrower shall pay all costs and expenses (including, but not
limited to, attorneys’ fees) incidental to the preservation
and priority of the Lender’s liens and security interests
under the Loan Documents and to the collection of all obligations
pursuant to the Loan Documents.
(e)
Sale of Assets, etc. The
Borrower shall not sell, lease, assign, transfer, or otherwise
dispose of any of its now owned or hereafter acquired assets,
expect: (1) inventory disposed of in the ordinary course of
business; and (2) the sale or other disposition of assets no longer
used or useful in the conduct of its business.
(f)
Mergers, etc. The Borrower
shall not wind up, liquidated or dissolve, reorganize, merge or
consolidate with or into, or convey, sell, assign, transfer, lease
or otherwise dispose of (whether in one transaction or in a series
of transactions) all or substantially all of its assets (whether
now owned or hereafter acquired) to any person, or acquire all or
substantially all of the assets or the business of any
person.
(g) Loans
and Advances. The Borrower shall not make any additional
loans or advances to any individual, firm, or
corporation.
(h) Further
Assurances. Each Party shall execute such documents as the
other Party may reasonably request relating to the
Loan.
10. Conditions
Precedent. The obligation of the Lender to make the Loan is
subject to the satisfaction by the Borrower of the following
conditions precedent:
(a) The
Borrower’s representations and warranties as contained herein
shall be accurate and complete as of the date of
closing;
(b) The
Borrower shall not be in default under any of the covenants
contained herein as of the date of closing;
(c) The
Borrower shall have executed and delivered all of the Loan
Documents to which it is a party.
3
11. Events
of Default; Acceleration; Remedies. The occurrence of any
one or more of the following events shall constitute a default (an
“Event of Default”) under this Agreement:
(a)
If any statement, representation or
warranty made by the Borrower in the Loan Documents, in connection
therewith or any financial statement, report, schedule, or
certificate furnished to the Lender by the Borrower, any of its
representatives, employees or accountants during the term of this
Agreement shall prove to have been false or misleading when made,
or subsequently becomes false or misleading, in any material
respect;
(b) Default
by the Borrower in payment within five (5) days of the due date of
any principal or interest or other amounts called for under the
Loan Documents;
(c) Default
by the Borrower in the performance or observance of any of its
respective obligations under the provisions, terms, conditions,
warranties or covenants of the Loan Documents and such failure
shall continue for a period of thirty (30) days or more following
receipt of written notice thereof from the Lender;
(d) The
occurrence of an event of default not cured within any applicable
remedy period, under any other obligation of the Borrower in an
aggregate amount of Ten Thousand Dollars ($10,000) or more, for
borrowed money or under any lease;
(e) The
dissolution, terminate of existence, merger or consolidation of the
Borrower, or a sale of all or substantially all of the assets of
the Borrower out of the ordinary course of business;
(f) A
change in the beneficial ownership of fifty percent (50%) or more
(in the aggregate) of the issued and outstanding voting capital
stock of the Borrower from the ownership on the date of this Loan
Agreement, whether through transfer, issuance of stock or
membership interest or otherwise;
(g) The
occurrence of an event of default not cured within any applicable
remedy period, under any obligations of the Borrower to the Lender
other than under the Loan Documents, whether created prior to,
concurrent with, or subsequent to obligations arising out of the
Loan Documents;
(h) The
Borrower shall: (i) apply for or consent to the appointment of a
receiver, trustee or liquidator of any of its property, (ii) admit
in writing its inability to pay its debts as they mature, (iii)
make a general assignment for the benefit of creditors, (iv) be
adjudicated a bankrupt or insolvent, (v) file a voluntary petition
in bankruptcy, or a petition or an answer seeking reorganization to
take advantage of any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation law or
statute, or an answer admitting the material allegations of a
petition filed against it or he in any proceeding under any such
law or (vi) offer or enter into any compromise, extension or
arrangement seeking relief or extension of its debts;
(i) In
the event that proceedings shall be commenced or an order, judgment
or decree shall be entered against the Borrower, without the
application, approval or consent of the Borrower in or by any court
of competent jurisdiction, relating to the bankruptcy, dissolution,
liquidation, reorganization or the appointment of a receiver,
trustee or liquidator of the Borrower of all or a substantial part
of their or its assets, and such proceedings, order, judgment or
decree shall continue undischarged or unstayed for a period of 90
days;
4
(j)
A final and unappealable judgment for the
payment of money in excess of Ten Thousand Dollars ($10,000) shall
be rendered against the Borrower and the same shall remain
undischarged for a period of 60 days, during which period of
execution shall not be effectively stayed.
Upon the occurrence
of any Event of Default, automatically upon an Event of Default
under subsection (h) or (i) of this Section or otherwise at the
election of the Lender, (i) all of the obligations of the Borrower
to the Lender, under this Loan Agreement or the Loan Documents,
will immediately become due and payable without further demand,
notice or protest, all of which are hereby expressly waived; (ii)
the Lender may proceed to protect and enforce its rights, at law,
in equity, or otherwise, against the Borrower and may proceed to
liquidate and realize upon any of its collateral in accordance with
the rights of a mortgagee or a security party under the Uniform
Commercial Code, any other applicable law, any Loan Document;
and/or (iii) the Lender’s commitment to make further loans
under this Agreement or any other agreement with the Borrower will
immediately cease and terminate.
12. General
Provisions. The Lender and the Borrower agree as follows
with respect to the Loan Documents:
(a) Waivers:
(i) The
Borrower hereby waives, to the fullest extent permitted by law,
presentment, notice, protest and all other demands and notices of
any description and assent (1) to any extension of the time of
payment or any other indulgence, (2) to any substitution, exchange
or release of collateral, and (3) to the release of any other
person primarily or secondarily liable for the obligations
evidenced hereby.
(ii) No
delay or omission on the part of the Lender in exercising any
right, privilege, or remedy hereunder shall operate as a waiver of
such right, privilege, or remedy or of any other right, privilege,
or remedy under the Loan Documents. No waiver of any right,
privilege or remedy or any amendment to the Loan Documents shall be
effective unless made in writing and signed by the Lender. A waiver
on any one occasion shall not be construed as a bar to or waiver of
any such right, privilege and/or remedy on any future occasion. No
single or partial exercise of any power hereunder shall preclude
other or future exercise thereof or the exercise of any other
right. The acceptance by the Lender of any payment after any
default under the Loan Documents shall not operate to extend the
time of payment of any amount then remaining unpaid hereunder or
constitute a waiver of any rights of the Lender hereof under the
Loan Documents.
(b) Binding
Agreement. The Loan Documents shall inure to the benefit of
and shall be binding upon the parties hereto and their respective
heirs, legal representatives, successors, and assigns.
(c) Entire
Agreement and Amendment. The Loan Documents constitute the
entire agreement between the Lender and the Borrower with respect
to the Loan and shall not be changed in any respect except by
written instrument signed by the parties thereto.
(d) Governing
Law. The Loan Documents and all rights and obligations
thereunder, including matters of construction, validity, and
performance, shall be governed by the laws of the Commonwealth of
Pennsylvania.
5
(e) Severability.
If any term, condition, or provision of the Loan Documents or the
application thereof to any person or circumstance shall, to any
extent, be held invalid or unenforceable according to law, then the
remaining terms, conditions, and provisions of the Loan Documents,
or the application of any such invalid or unenforceable term,
condition or provision to persons or circumstances other than those
to which it is held invalid or unenforceable, shall not be affected
thereby, and each term, condition, and provision of the Loan
Documents shall be valid and enforced to the fullest extent
permitted by law.
(f) Notice.
Any demand or notice required or permitted under the Loan Documents
shall be effective if either: (i) hand-delivered to the addressee,
or (ii) deposited in the mail, registered or certified, return
receipt requested and postage prepaid, or delivered to a private
express company addressed to the addressee: (A) at the address
shown below, or (B) if such party has provided the other in writing
with a change of address, at the last address so provided. Any
notice or demand mailed as provided in this paragraph shall be
deemed given and received on the earlier of: (i) the date received;
(ii) or the date of delivery, refusal, or non-delivery as indicated
on the return receipt, if sent by mail or private express as
provided above.
|
Borrower:
|
Lender:
|
|
Ocean Thermal
Energy Corporation
|
DCO Energy,
LLC
|
|
Attention: Jeremy
Feakins,
|
Attention: Frank
DiCola,
|
|
Chairman &
CEO
|
President &
CEO
|
|
800 South Queen
Street
|
5429 Harding
Highway, Bldg. 500
|
|
Lancaster, PA
17603
|
Mays Landing, NJ
08330
|
|
Phone:
717-299-1344
|
Phone:
609-837-8010
|
|
E-mail:
jeremy@otecorporation.com
|
Email:
fdicola@dcoenergy.com
|
|
|
|
|
With a copy
to:
|
With copy
to:
|
|
Ocean Thermal
Energy Corporation
|
Chief Financial
Officer, DCO Energy, LLC
|
|
Attention: Gerald
Koenig, General Counsel
|
Attention: Michael
Jingoli
|
|
8220 Crestwood
Heights Drive, #1105
|
100 Lenox Drive,
Suite 100
|
|
McLean VA
22102
|
Lawrenceville, NJ
08648
|
|
Phone:
703-725-4002
|
Phone:
609-896-3111
|
|
Email:
gskoenig@aol.com
|
Email:
mjingoli@jingoli.com
|
(g) Conflict
Among Loan Documents. In the event of any conflict between
the terms, covenants, conditions and restrictions contained in the
Loan Documents, the term, covenant and condition or restriction
which grants the greater benefit upon the Lender shall control. The
determination as to which term, covenant, condition, or restriction
is the more beneficial shall be made by the Lender in its sole
discretion.
(h) Costs
of Collection. The Borrower agrees to pay on demand all
reasonable out-of-pocket costs of collection under the Loan
Documents, including reasonable attorneys’ fees, whether or
not any foreclosure or other action is instituted by the Lender in
its discretion.
(i)
Set-Off,
etc. As additional collateral, the Borrower grants (1) a
security interest in, or pledges, assigns and delivers, to Lender,
as appropriate, all deposits, credit and other property now or
hereafter due from the Lender to the Borrower and (2) the right to
set-off and apply ( and a security interest in said right), from
time to time hereafter and without demand or notice of any nature,
all, or any portion, of such deposits, credits and other property,
against the indebtedness evidenced by any of the Notes, whether the
other collateral, if any, is deemed adequate or not.
6
(j)
Rights Cumulative. All
rights and remedies of the Lender, whether granted herein or
otherwise, shall be cumulative and may be exercised singularly or
concurrently and the Lender shall have, in addition to all other
rights and remedies, the rights and remedies of a secured party
under the Uniform Commercial Code of Pennsylvania. Except as
otherwise provided by law, the Lender shall have no duty as to the
collection or protection of the collateral or of any income thereon
or as the preservation of any rights pertaining thereto beyond the
safe custody thereof.
IN WITNESS WHEREOF,
the Borrower and the Lender have executed this Loan Agreement as of
the date first written above.
|
|
OCEAN THERMAL
ENERGY CORPORATION
By: /s/ Stephen
Oney
Name: Stephen Oney,
PhD
Title: Director
& Chief Science Officer
DCO ENERGY,
LLC
By: /s/ Frank
DiCola
Name: Frank
DiCola
Title: President
& CEO
|
7
PROMISSORY
NOTE
|
$1,000,000
|
February 10,
2012
|
FOR VALUE RECEIVED,
Ocean Thermal Energy Corporation, a Delaware corporation with an
address of 800 South Queen Street, Lancaster, PA 17603 (the
“Borrower”), hereby promise to pay to the order of DCO
Energy, LLC, a New Jersey limited liability company with offices at
5429 Harding Highway, Building 500, Mays Landing, New Jersey 08330
(the “Lender”), at 5429 Harding Highway, Building 500,
Mays Landing, New Jersey 08330, or at any other place designated to
the Borrower by the Lender in writing, the principal sum of One
Million Dollars ($1,000,000), with interest as herein specified,
and under the terms and conditions stated herein.
1.
Repayment of Principal and
Interest. Principal and interest shall be repaid by Borrower
to Lender as follows: Commencing on March 3, 2012, Borrower shall
make monthly payment of interest only, in arrears, with subsequent
payments being made on the corresponding day of each succeeding
month. The Borrower shall repay the principal amount of this Note
ON DEMAND; provided, however, that if demand is not sooner made, on
February 3, 2015 (the “Maturity Date”), the Borrower
shall pay to the Lender the unpaid principal balance of the Loan,
all accrued and unpaid interest thereon, and all other costs and
amounts payable to the Lender hereunder.
All amounts payable
hereunder are payable in lawful money of the United States of
America at the address of the Lender set forth above in immediately
available funds. Prior to a Default, all payments shall be applied
first on account of other charges, second to accrued interest due
on the unpaid balance of principal and finally the remainder of
such payments shall be applied to unpaid principal. If a Default
occurs, payments and monies received may be applied in any manner
and order deemed appropriate by the Lender.
2.
Rates and Calculation of
Interest. Interest on the outstanding and unpaid principal
balance of the Loan shall be calculated for the actual number of
days in the then current calendar year that principal is
outstanding, based upon a year of three hundred sixty (360) days,
accrue and shall be paid at the fixed rate of interest per annum
equal to ten percent (10%).
In no event shall
the rate of interest hereunder be in excess of the maximum amount
permitted by law. In the event the rate of interest hereunder is
determined to be in excess of the maximum amount permitted by law,
such interest rate shall be automatically decreased to the maximum
rate permitted by law.
In addition to all
other rights contained in this Note, if a Default (defined herein)
occurs and as long as a Default continues, all outstanding sums
hereunder shall bear interest at the interest rate otherwise
prevailing under the preceding paragraph, plus 3% (the
“Default Rate”). The Default Rate shall also apply from
acceleration until all unpaid sums and obligations (whether matured
or contingent) hereunder and any judgment thereon are paid in
full.
3.
Prepayment. This Note may be
prepaid in whole or in part at any time at the option of the
Borrower without premium or penalty. Each prepayment shall be
applied first to the payment in full of other charges payable
hereunder, then to accrued interest and the remainder of such
payment, if any, shall be applied to the reduction of the unpaid
principal balance.
1
4.
Loan Agreement. This Note is
the Note referred to in the agreements between the Borrower, the
Lender, and any surety executed in connection with this Note,
including, but not limited to the Loan Agreement of even date
herewith (the “Loan Agreement”) and the Loan Documents
referenced therein (the “Loan Documents”). The failure
of the Borrower and/or any surety to execute any such agreement or
other document shall not affect the validity of this Note. This
Note shall evidence all obligations of the Borrower to the Lender
under the Loan Agreement and Loan Documents.
5.
Integration. The terms and
conditions of this Note, together with the terms and conditions of
the Loan Agreement and the Loan Documents, contains the entire
understanding between the Borrower and the Lender with respect to
the indebtedness evidenced hereby. Such understanding may not be
amended, modified, or terminated except in writing duly executed by
the parties hereto.
6.
Default and Remedies. The
occurrence of any default or event of default
(“Default”), as defined in the Loan Agreement and/or
the Loan Documents, shall constitute a Default of and under this
Note.
When a Default
occurs, the Lender, at its option, may declare the entire unpaid
balance of principal of this Note, unpaid interest thereon and all
other charges, costs and expenses provided for herein, in the Loan
Agreement and/or any of the Loan Documents, and/or pursuant to any
other agreements between Borrower and Lender, immediately due and
payable without notice to or demand upon the Borrower. Upon the
occurrence of a Default, the Lender shall have all of the rights
and remedies with respect to this Note and with respect to all of
the Lender’s collateral and security as described or in the
Loan Agreement, the Loan Documents, in this Note, and/or otherwise
as provided for by law, in equity, mid otherwise, including the
rights of a secured party under the Uniform Commercial Code of
Pennsylvania.
7.
Security. As security for the
payment of this Note and for all other indebtedness, obligations,
and undertakings of the Borrower under the Loan Agreement and the
Loan Documents, the Borrower acknowledges that it has granted to
Lender a security interest, mortgage and/or other liens and rights
in all of the collateral and security described in the Loan
Agreement and/or in the Loan Documents. The Lender shall have no
duty or obligation to the Borrower, or to any endorser, guarantor,
surety, or other party, to perfect any lien or security interest of
the Lender in the Lender’s collateral and security. In
addition, the Lender shall not be required to marshal any
collateral or security or guaranties or to resort to the same in
any particular order.
8.
Waiver. The undersigned hereby
waives presentment for payment, demand, notice of nonpayment,
notice of protest, and protest of this Note, and all of the notices
in connection with delivery, acceptance, performance, default, or
enforcement of the payment of this Note. The failure by the Lender
to exercise any right or remedy shall not be taken to waive the
exercise of the same thereafter for the same or any subsequent
Default. The Borrower waives any claim of set-off, recoupment
and/or counterclaim. All notices to the Borrower shall be
adequately given if mailed postage prepaid to the address appearing
in the Lender’s records. The Borrower intends this Note to be
a sealed instrument and to be legally bound hereby.
9.
Holder. The references to
“Lender” herein shall be deemed to be references to any
subsequent assignee, transferee, or other holder of this
Note.
10. Governing
Law. This Note shall be construed in accordance with the
domestic internal laws of the Commonwealth of Pennsylvania, without
reference to any conflict of laws provisions, as a Note made,
delivered and to be wholly performed within the Commonwealth of
Pennsylvania.
2
11. Judicial
Proceedings. Any suit, action, or proceeding, whether claim
or counterclaim, brought or instituted by the Borrower or the
Lender, or any of their successors or assigns, on or with respect
to this Note or the dealings of the Borrower or the Lender with
respect hereto, shall be tried only by a court and not by a jury.
THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY
WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION, OR
PROCEEDING. In connection therewith, the Borrower agrees that any
suit, action, or proceeding arising hereunder or with respect
hereto will be instituted in the Court of Common Pleas of York
County, Pennsylvania, or the United States District Court for the
Middle District of Pennsylvania, and irrevocably and
unconditionally submits to the jurisdiction of each such Court for
such purpose. Further, the Borrower waives any right it may have to
claim or recover, in any such suit, action or proceeding, any
special, exemplary, punitive, or consequential damages or any
damages other than, or in addition to, actual damages. THE BORROWER
ACKNOWLEDGES AND AGREES THAT THIS PARAGRAPH IS A SPECIFIC AND
MATERIAL ASPECT OF THIS NOTE AND THAT THE LENDER WOULD NOT EXTEND
CREDIT IF THE WAIVERS SET FORTH IN THIS PARAGRAPH WERE NOT A PART
OF THIS NOTE.
12. Confession
of Judgment. Upon Default, the Borrower hereby irrevocably
authorizes the Prothonotary or any attorney of any court of record
in Pennsylvania or elsewhere to appear for and confess judgment
against the Borrower for any and all amounts unpaid hereunder,
together with any other charges, costs and expenses for which
Borrower is liable under this Note, and together with fees of
counsel in the reasonable amount of five percent (5%) of all of the
foregoing (but in no event less than $5,000.00) and costs of suit,
releasing all errors and waiving all rights of appeal. If a copy of
this Note, verified by affidavit, shall have been filed in such
proceeding, it shall not be necessary to file the original as a
warrant of attorney. The Borrower hereby waives the right to any
stay of execution and the benefit of all exemption laws now or
hereafter in effect. No single exercise of this warrant and power
to confess judgment shall be deemed to exhaust this power, whether
or not any such exercise shall be held by any court to be invalid,
voidable or void, but this power shall continue undiminished and
may be exercised from time to time as often as the Lender shall
elect until all sums due hereunder shall have been paid in full.
Interest shall continue to accrue after entry of judgment
hereunder, by confession, default, or otherwise, at the higher of
the prevailing rate of interest under this Note, or the judgment
rate of interest under applicable law. All waivers granted in this
paragraph are given to the extent permitted by the Pennsylvania
Rules of Civil Procedure.
13. NOTICE:
THIS NOTE CONTAINS, AT PARAGRAPH 12, A WARRANT OF ATTORNEY TO
CONFESS JUDGMENT AGAINST THE BORROWER. IN GRANTING THIS WARRANT OF
ATTORNEY TO CONFESS JUDGMENT AGAINST THE BORROWER, THE BORROWER
HEREBY KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY, AND ON THE ADVICE
OF SEPARATE COUNSEL OF THE BORROWER, UNCONDITIONALLY WAIVES ANY AND
ALL RIGHTS THE BORROWER HAS OR MAY HAVE TO PRIOR NOTICE AND AN
OPPORTUNITY FOR HEARING UNDER THE RESPECTIVE CONSTITUTIONS AND LAWS
OF THE UNITED STATES, THE COMMONWEALTH OF PENNSYLVANIA, OR OF ANY
OTHER STATE.
BORROWER:
OCEAN THERMAL
ENERGY CORPORATION
By: /s/ Stephen
Oney, PhD
Name: Stephen Oney,
PhD
Title: Director
& Chief Science Officer
3
DISCLOSURE FOR
CONFESSION OF
JUDGMENT AND
EXECUTION FOR NON-INDIVIDUALS
DATE: February 10,
2012
1.
TODAY, THE UNDERSIGNED FIRM IS
EXECUTING A PROMISSORY NOTE AND OTHER RELATED INSTRUMENTS FOR
$1,000,000, OBLIGATING THE UNDERSIGNED FIRM TO PAY THAT
AMOUNT.
2.
A
REPRESENTATIVE OF THE LENDER (OR OUR INDEPENDENT LEGAL COUNSEL)
(THE “REPRESENTATIVE”) HAS EXPLAINED TO US IN OUR
CAPACITIES AS A REPRESENTATIVE OF THE UNDERSIGNED FIRM THAT THE
NOTE THE UNDERSIGNED FIRM IS SIGNING CONTAINS WORDING THAT WOULD
PERMIT THE LENDER TO OBTAIN A JUDGMENT AGAINST THE UNDERSIGNED FIRM
AT THE COURTHOUSE. THE REPRESENTATIVE HAS ALSO EXPLAINED TO US IN
OUR CAPACITIES OF PRESIDENT AND SECRETARY RESPECTIVELY OF THE
UNDERSIGNED FIRM THAT THE JUDGMENT MAY BE OBTAINED AGAINST THE
UNDERSIGNED FIRM WITHOUT NOTICE TO THE UNDERSIGNED FIRM AND WITHOUT
OFFERING THE UNDERSIGNED FIRM AN OPPORTUNITY TO DEFEND AGAINST THE
ENTRY OF THE JUDGMENT, AND THAT THE JUDGMENT MAY BE COLLECTED BY
ANY LEGAL MEANS.
3.
THE REPRESENTATIVE HAS ALSO EXPLAINED
TO US IN OUR CAPACITIES AS A REPRESENTATIVE OF THE UNDERSIGNED FIRM
THAT COLLECTION OF THE JUDGMENT MAY BE ACCOMPLISHED BY THE ISSUANCE
OF A WRIT OF EXECUTION, GARNISHMENT, LEVY AND/OR OTHER EXECUTION
PROCEEDINGS WHICH MAY BE COMMENCED AGAINST THE UNDERSIGNED FIRM BY
THE LENDER WITHOUT PRIOR NOTICE AND HEARING AND THAT EXECUTION
PROCEEDINGS MAY INVOLVE THE SEIZURE AND SALE OF THE UNDERSIGNED
FIRM’S PROPERTY BY A SHERIFF, MARSHALL OR OTHER
AUTHORITY.
4.
IN SIGNING THE NOTE, THE UNDERSIGNED
FIRM IS KNOWINGLY, UNDERSTANDINGLY AND VOLUNTARILY CONSENTING TO
THE CONFESSION OF JUDGMENT AND THE UNDERSIGNED FIRM IS WAIVING THE
UNDERSIGNED FIRM’S RIGHTS, TO THE EXTENT PERMITTED BY LAW, TO
RESIST THE ENTRY OF JUDGMENT AGAINST THE UNDERSIGNED FIRM AT THE
COURTHOUSE INCLUDING:
(a) THE
RIGHT TO NOTICE AND A HEARING;
(b) THE
RIGHT TO REDUCE OR SET-OFF A CLAIM BY DEDUCTING A CLAIM THE
UNDERSIGNED FIRM MAY HAVE AGAINST THE LENDER (CALLED THE
“RIGHT OF DEFALCATION”);
(c) RELEASE
OF ERROR;
(d) INQUEST
(THE RIGHT TO ASCERTAIN WHETHER THE RENTS AND PROFITS OF THE
UNDERSIGNED FIRM’S REAL ESTATE WILL BE SUFFICIENT TO SATISFY
THE JUDGMENT WITHIN SEVEN YEARS);
(e) STAY
OF EXECUTION;
(f)
EXEMPTION LAWS NOW IN FORCE OR
HEREAFTER TO BE PASSED;
(g) THE
RIGHT TO DEFEND AGAINST THE ENTRY OF JUDGMENT AGAINST THE
UNDERSIGNED FIRM.
5.
IN SIGNING THE NOTE, THE
UNDERSIGNED FIRM IS KNOWINGLY, UNDERSTANDINGLY AND VOLUNTARILY
CONSENTING TO THE ISSUANCE AND PURSUIT AGAINST THE UNDERSIGNED FIRM
OF EXECUTION, GARNISHMENT, LEVY AND/OR OTHER EXECUTION PROCEEDINGS
AND WAIVING THE UNDERSIGNED FIRM’S RIGHTS, TO THE EXTENT
PERMITTED BY LAW, TO NOTICE AND A HEARING PRIOR TO THE ISSUANCE AND
PURSUIT OF EXECUTION, GARNISHMENT, LEVY AND/OR OTHER EXECUTION
PROCEEDINGS.
6.
THE UNDERSIGNED FIRM CERTIFIES THAT THE
UNDERSIGNED FIRM HAS DISCUSSED THIS DISCLOSURE WITH THE UNDERSIGNED
FIRM’S ATTORNEY-AT-LAW AND THE ATTORNEY-AT-LAW FULLY
EXPLAINED TO THE UNDERSIGNED FIRM THE CONTENTS AND MEANING OF THIS
DISCLOSURE.
4
THE UNDERSIGNED
FIRM IS A CORPORATION WHICH IS INCORPORATED UNDER THE LAWS OF THE
STATE OF DELAWARE AND THE UNDERSIGNED INDIVIDUALS ARE THE
REPRESENTATIVES OF THE UNDERSIGNED FIRM DULY AUTHORIZED TO EXECUTE
THIS DISCLOSURE ON BEHALF OF THE UNDERSIGNED FIRM. WE CERTIFY THAT
THE BLANKS IN THIS DISCLOSURE WERE FILLED IN WHEN WE INITIALED AND
SIGNED IT, AND THAT THE UNDERSIGNED FIRM RECEIVED A COPY OF THE
DISCLOSURE AT THE TIME OF SIGNING.
TERMS USED HEREIN
SHALL BE CONSTRUED AS USED AND/OR DEFINED IN THE NOTE.
|
NAME OF
FIRM:
|
OCEAN THERMAL
ENERGY CORPORATION
|
|
|
|
|
|
By: /s/ Stephen
Oney, PhD
|
|
|
Name: Stephen Oney,
PhD
|
|
|
Title: Director
& Chief Science Officer
|
|
STATE OF
HAWAII
|
)
|
|
|
ss.
|
|
CITY AND COUNTY OF
HONOLULU
|
)
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On this 13th day of
February, 2012, before me appeared STEPHEN ONEY, PHD, to me
personally known, who being by me duly sworn, did say that he is
the Director & Chief Science Officer of OCEAN THERMAL ENERGY
CORPORATION, a Delaware corporation; and that said instrument was
signed on behalf of OCEAN THERMAL ENERGY CORPORATION, and that said
officer acknowledged said instrument to be the fee act and deed of
OCEAN THERMAL ENERGY CORPORATION.
|
/s/ Luz D.
Casiles
|
|
Print Name: Luz D.
Casiles
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Notary Public,
State of Hawaii
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|
My commission
expires: 6/2/2014
|
NOTARY
CERTIFICATION STATEMENT
Document
Identification or Description:
DISCLOSURE FOR
CONFESSION OF JUDGMENT AND EXECUTION FOR
NON-INDIVIDUALS
(Put title of
document, together with Apt. No. and Name of Project)
Document Date:
2/13/2012
No. of Pages: 7
Jurisdiction: First Circuit (in which notarial act is
performed)
/s/ Luz D.
Casiles
Signature of
Notary
Date of
Notarization and Certification Statement
[notary
stamp]
(Official Stamp or
Seal)
Printed Name of
Notary: Luz D. Casiles
5
WARRANT
to Purchase up to
3,295,761 Shares of the
Common Stock, $-0-
Par Value Per Share,
of
OCEAN
THERMAL ENERGY CORPORATION
This is to certify
that, for value received, DCO Energy, LLC (“Lender”) or
any permitted transferee (Lender or such transferee being
hereinafter called the “Holder”) is entitled to
purchase, subject to the provisions of this Warrant, from Ocean
Thermal Energy Corporation, a Delaware corporation
(“OTEC”), at any time on or after the date hereof, an
aggregate of up to 3,295,761 fully paid and non-assessable shares
of common stock, $ -0- par value (the “Common Stock”),
of OTEC at a price per share equal to $0.50, subject to adjustment
as herein provided (the “Exercise Price”).
1.
Exercise of Warrant. Subject to
the provisions hereof, this Warrant may be exercised, in whole or
in part, or sold, assigned or transferred at any time or from time
to time on or after the date hereof. This Warrant shall be
exercised by presentation and surrender hereof to OTEC at the
principal office of OTEC, accompanied by (i) a written notice of
exercise and (ii) payment to OTEC, for the account of OTEC, of the
Exercise Price for the number of shares of Common Stock specified
in such notice. . The Exercise Price for the number of shares of
Common Stock specified in the notice shall be payable in
immediately available funds.
Upon such
presentation and surrender, OTEC shall issue promptly (and within
one business day if reasonably requested by the Holder) to the
Holder or its assignee, transferee or designee the number of shares
of Common Stock to which the Holder is entitled hereunder. OTEC
covenants and warrants that such shares of Common Stock, when so
issued, will be duly authorized, validly issued, fully paid and
non-assessable, and free and clear of all liens and
encumbrances.
If this Warrant is
exercised in part only, OTEC shall, upon surrender of this Warrant
for cancellation, execute and deliver a new Warrant evidencing the
rights of the Holder thereof to purchase the balance of the shares
of Common Stock issuable hereunder. Upon receipt by OTEC of this
Warrant, in proper form for exercise, the Holder shall be deemed to
be the holder of record of the shares of Common Stock issuable upon
such exercise, notwithstanding that the stock transfer books of
OTEC may then be closed or that certificates representing such
shares of Common Stock shall not then be actually delivered to the
Holder. OTEC shall pay all expenses, and any and all United States
federal, state and local taxes and other charges, that may be
payable in connection with the preparation, issuance and delivery
of stock certificates pursuant to this Paragraph 1 in the name of
the Holder or its assignee, transferee or designee.
2.
Reservation of Shares; Preservation of
Rights of Holder. OTEC shall at all times while this Warrant
is outstanding and unexercised, maintain and reserve, free from
preemptive rights, such number of authorized but unissued shares of
Common Stock as may be necessary so that this Warrant may be
exercised without any additional authorization of Common Stock
after giving effect to all other options, warrants, convertible
securities and other rights to acquire shares of Common Stock at
the time outstanding. OTEC further agrees that (i) it will not, by
charter amendment or through reorganization, consolidation, merger,
dissolution or sale of assets, or by any other voluntary act or
omission, avoid or seek to avoid the observance or performance of
any of the covenants, stipulations or conditions to be observed or
performed hereunder, and (ii) it will promptly take all action
reasonably necessary to protect the rights of the Holder against
dilution as provided herein.
1
3.
Fractional Shares. OTEC shall
not be required to issue any fractional shares of Common Stock upon
exercise of this Warrant. In lieu of any fractional shares, the
Holder shall be entitled to receive an amount in cash equal to the
amount of such fraction multiplied by the Exercise
Price.
4.
Exchange or Loss of Warrant.
This Warrant is exchangeable, without expense, at the option of the
Holder, upon presentation and surrender hereof at the principal
office of OTEC for other warrants of different denominations
entitling the Holder to purchase, in the aggregate, the same number
of shares of Common Stock issuable hereunder. The term
“Warrant” as used herein includes any warrants for
which this Warrant may be exchanged. Upon receipt by OTEC of
evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, OTEC will execute and deliver a new Warrant
of like tenor and date.
5.
Adjustment. The number of
shares of Common Stock issuable upon the exercise of this Warrant
and the Exercise Price shall be subject to adjustment from time to
time as provided in this Paragraph.
(A) Stock
Dividends, etc.
(1) Stock
Dividends. In case OTEC shall pay or make a dividend or
other distribution on any class of capital stock of OTEC payable in
Common Stock, the number of shares of Common Stock issuable upon
exercise of this Warrant shall be increased by multiplying such
number of shares by a fraction of which the denominator shall be
the number of shares of Common Stock outstanding at the close of
business on the day immediately preceding the date of such
distribution and the numerator shall be the sum of such number of
shares and the total number of shares of Common Stock constituting
such dividend or other distribution, such increase to become
effective immediately after the opening of business on the day
following such distribution.
(2) Subdivisions.
In case outstanding shares of Common Stock shall be subdivided into
a greater number of shares of Common Stock, the number of shares of
Common Stock issuable upon exercise of this Warrant at the opening
of business on the day following the day upon which such
subdivision becomes effective shall be proportionately increased,
and, conversely, in case outstanding shares of Common Stock shall
each be combined into a smaller number of shares of Common Stock,
the number of shares of Common Stock issuable upon exercise of this
Warrant at the opening of business on the day following the day
upon which such combination becomes effective shall be
proportionately decreased, such increase or decrease, as the case
may be, to become effective immediately after the opening of
business on the day following the date upon which such subdivision
or combination becomes effective.
(3) Reclassifications.
The reclassification of Common Stock into securities (other than
Common Stock) and/or cash and/or other consideration shall be
deemed to involve a subdivision or combination, as the case may be,
of the number of shares of Common Stock outstanding immediately
prior to such reclassification into the number or amount of
securities and/or cash and/or other consideration outstanding
immediately thereafter and the effective date of such
reclassification shall be deemed to be “the day upon which
such subdivision becomes effective,” or “the day upon
which such combination becomes effective,” as the case may
be, within the meaning of clause (2) above.
2
(4) Optional
Adjustments. OTEC may make such increases in the number of
shares of Common Stock issuable upon exercise of this Warrant, in
addition to those required by this subparagraph (A), as shall be
determined by its Board of Directors to be advisable in order to
avoid taxation so far as practicable of any dividend of stock or
stock rights or any event treated as such for federal income tax
purposes to the recipients.
(5) Adjustment
to Exercise Price. Whenever the number of shares of Common
Stock issuable upon exercise of this Warrant is adjusted as
provided in this Paragraph 5(A), the Exercise Price shall be
adjusted by a fraction in which the numerator is equal to the
number of shares of Common Stock issuable prior to the adjustment
and the denominator is equal to the number of shares of Common
Stock issuable after the adjustment, rounded to the nearest
cent.
(B) Certain
Sales of Common Stock.
(1) Adjustment
to Shares Issuable. If and whenever OTEC sells or otherwise
issues (other than under circumstances in which Paragraph 5(A)
applies) any shares of Common Stock, the number of shares of Common
Stock issuable upon exercise of this Warrant shall be increased by
multiplying such number of shares by a fraction, the denominator of
which shall be the number shares of Common Stock outstanding at the
close of business on the day immediately preceding the date of such
sale or issuance and the numerator of which shall be the sum of
such number of shares and the total number of shares constituting
such sale or other issuance, such increase to become effective
immediately after the opening of business on the day following such
sale or issuance.
(2) Adjustment
to Exercise Price. If and whenever OTEC sells or otherwise
issues any shares of Common Stock (excluding any stock dividend or
other issuance not for consideration to which Paragraph 5(A)
applies or shares of Common Stock issued or issuable in connection
with awards granted under the OTEC Stock Option Plans) for a
consideration per share which is less than the Exercise Price at
the time of such sale or other issuance, then in each such case the
Exercise Price shall be forthwith changed (but only if a reduction
would result) to the price (calculated to the nearest cent)
determined by dividing: (i) an amount equal to the sum of (aa) the
number of shares of Common Stock outstanding immediately prior to
such issue or sale, multiplied by the then effective Exercise
Price, plus (bb) the total consideration, if any, received and
deemed received by OTEC upon such issue or sale, by (ii) the total
number of shares of Common Stock outstanding immediately after such
issue or sale.
(C) Definition.
For purposes of this Paragraph 5, the term “Common
Stock” shall include (1) any shares of OTEC of any class or
series which has no preference or priority in the payment of
dividends or in the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding up of OTEC and
which is not subject to redemption by OTEC, and (2) any rights or
options to subscribe for or to purchase shares of Common Stock or
any stock or securities convertible into or exchangeable for shares
of Common Stock (such convertible or exchangeable stock or
securities being hereinafter called “Convertible
Securities”), whether or not such rights or options or the
right to convert or exchange any such Convertible Securities are
immediately exercisable. For purposes of any adjustments made under
Paragraph 5(A) or 5(B) as a result of the distribution, sale or
other issuance of rights or options or Convertible Securities, the
number of shares of Common Stock outstanding after or as a result
of the occurrence of events described in Paragraph 5(A)(1) or
5(B)(1) shall be calculated by assuming that all such rights,
options or Convertible Securities have been exercised for the
maximum number of shares issuable thereunder.
3
6.
Notice. Whenever the number of
shares of Common Stock for which this Warrant is exercisable is
adjusted as provided in Paragraph 5, OTEC shall promptly compute
such adjustment and mail to the Holder a certificate, signed by the
principal financial officer of OTEC, setting forth the number of
shares of Common Stock for which this Warrant is exercisable as a
result of such adjustment having become effective.
7.
Rights of the
Holder.
(A) Without
limiting the foregoing or any remedies available to the Holder, it
is specifically acknowledged that the Holder would not have an
adequate remedy at law for any breach of the provisions of this
Warrant and shall be entitled to specific performance of
OTEC’s obligations under, and injunctive relief against any
actual or threatened violation of the obligations of any person
subject to, this Warrant.
(B) The
Holder shall not, by virtue of its status as Holder, be entitled to
any rights of a stockholder in OTEC.
8.
Termination. This Warrant and
the rights conferred hereby shall terminate on February 3,
2015.
9.
Governing Law. This Warrant
shall be deemed to have been delivered in, and shall be governed by
and interpreted in accordance with the substantive laws of, the
Commonwealth of Pennsylvania, except to the extent that Delaware
law may govern certain aspects of this Warrant as it relates to
OTEC.
|
Dated: February 10,
2012
|
OCEAN THERMAL
ENERGY CORPORATION
|
|
|
|
|
|
By: /s/ Stephen
Oney, PhD
|
|
|
Name: Stephen Oney,
PhD
|
|
|
Title: Director
& Chief Science Officer
|
FORBEARANCE
AND LOAN EXTENSION AGREEMENT
This FORBEARANCE AND LOAN
EXTENSION AGREEMENT (this “Amendment”), is entered into this
1st day
of April, 2016, by and between OCEAN THERMAL ENERGY CORPORATION, a
Delaware corporation with an address of 800 South Queen Street,
Lancaster, PA 17603 (the “Borrower”), and DCO ENERGY, LLC, a
New Jersey limited liability company with offices at 5429 Harding
Highway, Building 500, Mays Landing, New Jersey 08330 (the
“Lender”), on
the following:
Premises
Borrower and Lender entered
into that certain Loan Agreement as of February 10, 2012 (the
“Loan
Agreement”), providing for a loan of $1,000,000 from
Lender to Borrower (the “Loan”). The obligation to repay
the Loan is evidenced by that certain Promissory Note of even date
executed and delivered by Borrower to Lender (the
“Note”). The
obligations evidenced by the Loan Agreement and Note are secured by
a lien created under a Security Agreement dated as of the date of
the Note and Loan Agreement. As additional consideration for the
Loan, Borrower granted to Lender a warrant to purchase 3,295,761
shares of Borrower’s common stock at a price of $0.50 per
share at any time on or before February 3, 2015 (the
“Warrant”). The
Loan Agreement, the Note, the Security Agreement, and the Warrant
are together referred to as the “Loan Documents.” Pursuant to the
terms of the Loan Documents, the Note was payable in full on or
before February 3, 2015. The Note was not paid when due and is now
in default.
Lender desires to forbear
from seeking collection of the Note and exercising its remedies
under the Loan Documents in order to enhance its financial recovery
and obtain an extension of the Warrant.
Agreement
NOW THEREFORE, for and in
consideration of the foregoing premises, which are incorporated
herein by reference, the mutual promises and covenants set forth
herein, and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree
as follows.
1. Confirmation
of Indebtedness. Borrower confirms the indebtedness due
Lender under the Loan Documents.
2. Waiver
of Default. Lender waives Borrower’s default as of the
date of this Amendment under the Loan Documents and agrees not to
take any action or seek any remedy or relief under any of the Loan
Documents arising from the non-payment by Borrower of the Note and
Loan as of the date hereof.
3. Forbearance
and Extension. Lender shall forbear from collecting the Loan
and Note under the Loan Documents or exercising any right or remedy
thereunder as of the date hereof and extends the due date for
repayment of the Loan and the payment of the Note to February 3,
2017. The Lender shall mark conspicuously on the original of the
Note in Lender’s possession the foregoing extension or, at
the request of the Borrower, execute and deliver to Borrower an
amendment or allonge to be affixed to the Note further evidencing
such extension.
4. Extension
of Warrant. Borrower extends the expiration date of the
Warrant so that it evidences the right of the Lender to purchase
3,295,761 shares of Borrower’s common stock at a price of
$0.50 per share at any time on or before February 3, 2017. At the
request of Lender, Borrower will execute and deliver to Lender a
new replacement Warrant reflecting these revised terms against
surrender of the original Warrant.
5. Confirmation
of Loan Documents. Except as expressly modified by the terms
of this Amendment, the terms, covenants, conditions,
representations, and warranties, and each of them, shall remain in
full force and effect.
6. Signature.
This Amendment may be executed in multiple counterparts of like
tenor, each of which shall be deemed an original and all of which
taken together will constitute one and the same instrument.
Counterpart signatures of this Amendment that are manually signed
and delivered by a uniquely marked, computer-generated signature in
portable document format (PDF) or other electronic method shall be
deemed to constitute signed original counterparts hereof and shall
bind the parties signing and delivering in such manner and shall be
the same as the delivery of an original.
DATED as of the year and date first
above written by the undersigned duly authorized
signatories.
BORROWER:
OCEAN THERMAL
ENERGY CORPORATION
By: /s/ Jeremy
Feakins
Name: Jeremy
Feakins
Title: Chairman
& CEO
LENDER
DCO ENERGY,
LLC
By: /s/ Frank
DiCola
Name: Frank
DiCola
Title: President
& CEO
LOAN
AGREEMENT
This Loan Agreement
(the “Loan
Agreement”) is made as of [date], 2013, by and between
[name of lender] (the “Lender”) and Ocean Thermal Energy
Corporation, a Delaware corporation with its registered offices at
800 South Queen Street, Lancaster, PA 17603 (the
“Borrower”).
WITNESSETH:
WHEREAS, the
Borrower desires to obtain certain credit facilities, as set forth
in this Loan Agreement, and the Lender is willing to provide such
credit facilities on the terms and conditions set forth
herein;
NOW, THEREFORE, the
Lender and the Borrower, intending to be legally bound, hereby
agree as follows:
1.
The Credit
Facilities. The Lender agrees, pursuant to the terms ark conditions
of this Loan Agreement and the other Loan Documents (as defined
below), to make a loan to the Borrower in the original principal
amount of [note amount] ($[note amount]) (the “Loan”). The Loan shall be
evidenced by a Note (the “Note”) and shall be made in
accordance with and subject to the terms and conditions of this
Loan Agreement, the Note and the other Loan
Documents.
2.
The Loan Documents.
The following documents and materials (together with this Loan
Agreement and any other accessory documents executed in connection
herewith, such documents and materials, as they may be amended,
restated, renewed and extended, are collectively referred to herein
as the “Loan
Documents”) have been or will be executed in
connection with the Loan:
a.
Note;
b.
Security Agreement,
of even date herewith, between Lender and Borrower (the
“Security
Agreement”).
A warrant, of even
date herewith, granting to Lender, as additional consideration for
making the Loan to Borrower, the right to purchase [warrant share
number] fully paid and nonassessable shares of common stock of
Ocean Thermal Energy Corporation (“OTE”) at a price per share equal
to a 10% discount off the price of OTE’s common stock as at
the time of the IPO of OTE on either the Alternative Investment
Market (AIM) of the London Stock Exchange, or the opening share
price of the Reverse Merger on the US Over the Counter (OTC) or
NASDAQ market.
3
Interest Rate. The Loan shall
bear interest as set forth in the Note.
4.
Repayment. Repayment of the
Loan shall be made as set forth in the Note, and pre-payment shall
be permitted as therein specified.
5.
Use of Proceeds. The proceeds
of the Loan shall be used to support the operational, development
and construction costs for the Baha Mar SDC
prefect.
6.
Collateral. The Loan will be
secured by a first lien security interest in the assets of Borrower
now owned or hereafter acquired as more specified set forth in the
Security Agreement.
7.
Representations and Warranties.
The Borrower, in order to induce the Lender to make the Loan, make
the following representations, warranties and
promises:
a.
Good Standing. Each
Borrower is a corporation, duly organized, validly existing and in
good standing under the laws of the place of its incorporation,
with powers adequate to own its properties, and to carry on its
business as presently conducted by it.
b.
Authority; Binding
Agreement. The execution, delivery and performance of the Loan
Documents are within the corporate power of the Borrower, have been
duly authorized by the Borrower and are not in contravention of law
or the terms of the Borrower’s Articles of Incorporation and
By-Laws. The execution, delivery and performance of the Loan
Documents does not and will not contravene any documents,
agreements or undertakings to which the Borrower or either of them
is a party or by which either is bound. No approval of any person,
corporation, governmental body or other entity is a prerequisite to
the execution, delivery, validity or enforceability and performance
of the Loan Documents. When executed by the Borrower, the Loan
Documents to which the Borrower is a party will constitute the
legally binding obligations of the Borrower, enforceable in
accordance with their terms except as the enforceability may be
limited by bankruptcy, insolvency or other similar laws affecting
the enforcement of creditors’ rights
generally.
c.
Financial
Information. Subject to any limitation stated therein or in
connection therewith, all balance sheets, earning statements,
accounts receivable lists and aging schedules and other financial
data which have been or shall be furnished to the Lender by the
Borrower to induce the Lender to enter into this Loan Agreement or
otherwise in connection herewith, do or will fairly represent the
financial condition of the Borrower in all material respects, are
accurate, complete and correct in all material respects insofar as
completeness may be necessary to give the Lender a true and
accurate knowledge of the subject matter as of the date hereof.
There are no material liabilities, direct or indirect, fixed or
contingent, of the Borrower as of the date of such financial
statements which are not reflected therein or in the notes thereto.
There has been no material adverse change in the financial
condition or operations of the Borrower since the date of said
financial statements or since the respective dates on which either
furnished the Lender with other financial data or other
representations about their financial
condition.
d.
Solvency. Any
borrowings to be made by Borrower under this Loan Agreement do not
and will not render Borrower, or either of them, insolvent. Neither
of the Borrower is contemplating either the filing of a petition
under any state or federal bankruptcy or insolvency laws, or the
liquidation of all or a major portion of its property, and neither
of the Borrower has any knowledge or any reason to know of any
person contemplating the filing of any such petition against
it.
8.
Covenants. The Borrower agrees
with the Lender that during the term of this Agreement and the
other Loan Documents, and any extensions, replacements or renewals
thereof (except as otherwise agreed by the Lender in
writing):
a.
Insurance. The
Borrower shall maintain adequate fire and extended coverage
insurance, with the Lender named as lender loss payee, as well as
general liability, business interruption and other insurance
policies as are customary. All such insurance:
i.
Shall be issued in
such amounts and by such companies as are satisfactory to the
Lender; and
ii.
Shall contain
provisions providing for thirty (30) days’ prior written
notice to the Lender of any intended change or cancellation and
providing that no such change or cancellation shall be effective as
to the Lender in the absence of such notice.
b.
Notice of Default;
Litigation. The Borrower shall notify the Lender in writing
immediately upon becoming aware of any default hereunder, or of any
actions, suits, investigations, or proceedings at law, in equity or
before any governmental authority that may have a material adverse
effect on the Borrower, pending or threatened, against or affecting
the Borrower or any collateral securing the Loan or involving the
validity or enforceability of the Loan Documents or the priority of
the liens created thereunder.
c.
Financial
Information. The Borrower shall make available upon request to the
Lender on an annual basis, annual financial statements of the
Borrower, compiled by certified public accountants, within one
hundred twenty (120) days after the end of each fiscal
year.
d.
Expenses. The
Borrower shall pay all costs and expenses (including, but not
limited to, attorneys’ fees) incidental to the Loan, to the
preservation and priority of the Lender’s liens and security
interests under the Loan Documents and to the collection of all
obligations pursuant to the Loan Documents.
e.
Deposit
Relationship. The Borrower shall establish and maintain their
primary deposit relationship with a reputable financial
institution.
f.
Further Assurances.
The Borrower shall execute such documents as the Lender may
reasonably request relating to the Loan.
g.
Nature of Business.
Neither Borrower shall enter into any type of business other than
that in which it is presently engaged, or otherwise significantly
change the scope or nature of its business.
h.
Mergers, Etc.
Neither Borrower shall wind up, liquidate or dissolve, reorganize,
merge or consolidate with or into, or convey, sell, assign,
transfer, lease, or otherwise dispose of (whether in one
transaction or in a series of transactions) all or substantially
all of its assets (whether now owned or hereafter acquired) to any
person, or acquire all or substantially all of the assets or the
business of any person except as part of a purchase of the
completed Seawater District Cooling project by Baha Mar,
Ltd.
i.
Sale of Assets,
Etc. The Borrower shall not sell, lease, assign, transfer, or
otherwise dispose of any of its now owned or hereafter acquired
assets, except: (1) inventory disposed of in the ordinary
course of business; (2) the sale or other disposition of
assets no longer used or useful in the conduct of its business; and
(3) as part of a purchase of the completed Seawater District
Cooling project by Baha Mar, Ltd.
j.
Additional
Borrowings. Borrower shall not create, incur, assume, or suffer to
exist, any indebtedness, except: (i) borrowings pursuant to
this Agreement; (ii) unsecured trade credit incurred in the
ordinary course of business which are paid in a timely manner;
(iii) other obligations to the Lender; (iv) borrowings
used to prepay in full the Borrower’ obligations under the
Loan Documents; and (v) other permitted borrowings set forth
on Schedule 10(j)
hereto.
k.
Guaranties, Etc.
The Borrower shall not assume, guaranty, endorse, or otherwise be
or become directly or contingently responsible or liable
(including, but not limited to, an agreement to purchase any
obligation, stock, assets, goods, or services, or to supply or
advance any funds, assets, goods, or services, or an agreement to
maintain or cause such person to maintain a minimum working capital
or net worth, or otherwise to assure the creditors of any person
against loss) for obligations of any person, except
(i) guaranties by endorsement of negotiable instruments for
deposit or collection or similar transactions in the ordinary
course of business and (ii) guaranties in favor of the
Lender.
l.
Liens, Etc.
Borrower shall not create, incur, assume or suffer to exist, any
mortgage, security interest, pledge, lien, charge or other
encumbrance of any nature whatsoever on any of their respective
assets, now or hereafter owned, other than (i) liens in favor
of the Lender; (ii) liens under workmen’s compensation,
unemployment insurance and social security or similar laws;
(iii) liens imposed by law, such as carriers,
warehousemen’s or mechanic’s liens, incurred in good
faith in the ordinary course of business which are not past due for
more than thirty (30) days (other than to the extent a longer
period is permitted by their creditors in the ordinary course of
business) or which are being contested in good faith by appropriate
proceedings, a stay of execution having been served; and
(iv) other permitted liens set forth on Schedule 10(l)
hereto.
m.
Loan and Advances.
The Borrower shall not make any additional loans or advances to any
individual, firm or corporation.
n.
Notwithstanding
anything to the contrary herein or in the Loan Documents, the
Borrower shall be permitted to provide security interests to Baha
Mar, Ltd. and /or the Senior Baha Mar Project Lender (as that term
is defined in the Loan Documents).
9.
Conditions Precedent. The
obligation of the Lender to make the Loan is subject to the
satisfaction by the Borrower of the following conditions
precedent:
a.
The Borrower’
representations and warranties as contained herein shall be
accurate and complete as of the date of
closing.
b.
The Borrower shall
not be in default under any of the covenants contained herein as of
the date of closing.
c.
The Borrower shall
have executed and delivered all of the Loan Documents to which it
is a party.
10.
Events of Default; Acceleration;
Remedies. The occurrence of any one or more of the following
events shall constitute a default (an “Event of Default”) under this
Agreement:
a.
If any statement,
representation or warranty made by the Borrower in the Loan
Documents, in connection therewith or any financial statement,
report, schedule, or certificate furnished to the Lender by the
Borrower, any of its representatives, employees or accountants
during the term of this Agreement shall prove to have been false or
misleading when made in any material respect.
b.
Default by the
Borrower in payment within thirty (30) days of the due date of any
principal or interest or other amounts called for under the Loan
Documents.
c.
Default by the
Borrower in the performance or observance of any of its obligations
under the provisions, terms, conditions, warranties or covenants of
the Loan Documents and such failure shall continue for a period of
thirty (30) days or more following receipt of written notice
thereof from the Lender.
d.
Either of the
Borrower shall (i) apply for or consent to the appointment of
a receiver, trustee or liquidator of any of their or its property,
(ii) admit in writing their or its inability to pay their or
its debts as they mature, (iii) make a general assignment for
the benefit of creditors, (iv) be adjudicated a bankrupt or
insolvent, (v) file a voluntary petition in bankruptcy, or a
petition or an answer seeking reorganization to take advantage of
any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law or statute, or
an answer admitting the material allegations of a petition filed
against it or he in any proceeding under any such law or
(vi) offer or enter into any compromise, extension or
arrangement seeking relief or extension of their or its
debts.
e.
In the event that
proceedings shall be commenced or an order, judgment or decree
shall be entered against either of the Borrower, without the
application, approval or consent of such Borrower (as the case may
be) in or by any court of competent jurisdiction, relating to the
bankruptcy, dissolution, liquidation, reorganization or the
appointment of a receiver, trustee or liquidator of such Borrower
of all or a substantial part of their or its assets, and such
proceedings, order, judgment or decree shall continue undischarged
or unstayed for a period of 90 days.
Upon the occurrence
of any Event of Default, automatically upon an Event of Default
under subsection (h) or (i) of this Section or otherwise at the
election of the Lender, (i) all of the obligations of the
Borrower to the Lender, either under this Loan Agreement or
otherwise, will immediately become due and payable without further
demand, notice or protest, all of which are hereby expressly
waived; (ii) the Lender may proceed to protect and enforce its
rights, at law, in equity, or otherwise, against the Borrower,
either jointly or severally, and may proceed to liquidate and
realize upon any of its collateral in accordance with the rights of
a mortgagee or a secured party under the Uniform Commercial Code,
any other applicable law, any Loan Document, any agreement between
the Borrower and the Lender; and/or (iii) the Lender’s
commitment to make further loans under this Agreement or any other
agreement with either of the Borrower will immediately cease and
terminate.
11.
General Provisions. The Lender
and the Borrower agree as follows with respect to the Loan
Documents:
i.
The Borrower hereby
waive, to the fullest extent permitted by law, presentment, notice,
protest and all other demands and notices of any description and
assent (1) to any extension of the time of payment or any
other indulgence, (2) to any substitution, exchange or release
of collateral, and (3) to the release of any other person
primarily or secondarily liable for the obligations evidenced
hereby.
ii.
No delay or
omission on the part of the Lender in exercising any right,
privilege or remedy hereunder shall operate as a waiver of such
right, privilege or remedy or of any other right, privilege or
remedy under the Loan Documents. No waiver of any right, privilege
or remedy or any amendment to the Loan Documents shall be effective
unless made in writing and signed by the Lender. A waiver on any
one occasion shall not be construed as a bar to or waiver of any
such right, privilege and/or remedy on any future occasion. No
single or partial exercise of any power hereunder shall preclude
other or future exercise thereof or the exercise of any other
right. The acceptance by the Lender of any payment after any
default under the Loan Documents shall not operate to extend the
time of payment of any amount then remaining unpaid hereunder or
constitute a waiver of any rights of the Lender hereof under the
Loan Documents.
b.
Binding Agreement.
The Loan Documents shall inure to the benefit of and shall be
binding upon the parties hereto and their respective heirs, legal
representatives, successors, and assigns.
c.
Entire Agreement
and Amendment. The Loan Documents constitute the entire agreement
between the Lender and the Borrower with respect to the Loan and
shall not be changed in any respect except by written instrument
signed by the parties thereto.
d.
Governing Law. The
Loan Documents and all rights and obligations thereunder, including
matters of construction, validity, and performance, shall be
governed by and interpreted in accordance with the substantive laws
of, the Commonwealth of Pennsylvania.
e.
Severability. If
any term, condition, or provision of the Loan Documents or the
application thereof to any person or circumstance shall, to any
extent, be held invalid or unenforceable according to law, then the
remaining terms, conditions, and provisions of the Loan Documents,
or the application of any such invalid or unenforceable term,
condition or provision to persons or circumstances other than those
to which it is held invalid or unenforceable, shall not be affected
thereby, and each term, condition, and provision of the Loan
Documents shall be valid and enforced to the fullest extent
permitted by law.
f.
Notice. Any demand
or notice required or permitted under the Loan Documents shall be
effective if either: (i) hand-delivered to the addressee, or (ii)
five days after delivered to a private express company addressed to
the addressee; (A) at the address shown below, or (B) if
such party has provided the other in writing with a change of
address, at the last address so provided. Any notice or demand
mailed as provided in this paragraph shall be deemed given and
received on the earlier of: (i) the date received;
(ii) or the dote of refusal or non-delivery as indicated on
the return receipt, if sent by private express as provided
above.
Lender: [lender
name]
Company: [company
name]
Name:
[name]
Address:
[address]
Telephone:
[telephone]
Email:
[email]
SS# or Fed EIN#:
[number]
Borrower:
Ocean Thermal
Energy Corporation
800 South Queen
Street
Lancaster, PA
17603
Telephone: (717)
299-1344
Email:
jeremy@otecorporation.com
With a copy
to:
Gerald
Koenig
General
Counsel
Ocean Thermal
Energy Corporation
8220 Crestwood
Heights Drive, #1105
McLean, VA
22102
Telephone: (703)
725-4002
Email:gerald@otecorporation.com
g.
Costs of
Collection. The Borrower agrees to pay on demand all reasonable
out-of-pocket costs of collection under the Loan Documents,
including reasonable attorneys’ fees, whether or not any
foreclosure or other action is instituted by the Lender in its
discretion.
h.
Rights Cumulative.
All rights and remedies of the Lender, whether granted herein or
otherwise, shall be cumulative and may be exercised singularly or
concurrently, and the Lender shall have, in addition to all other
rights and remedies, the rights and remedies of a secured party
under the Uniform Commercial Code of Pennsylvania. Except as
otherwise provided by law, the Lender shall have no duty as to the
collection or protection of the collateral or of any income
thereon, or as to the preservation of any rights pertaining thereto
beyond the safe custody thereof.
IN WITNESS WHEREOF,
the Borrower and the Lender have executed this Loan Agreement as of
the date indicated above.
|
|
Ocean Thermal
Energy Corporation
By: /s/ Jeremy
Feakins
Name: Jeremy
Feakins
Title: Chairman
& CEO
[Lender]
By: /s/
[name]
Name:
[name]
Title:
[title]
|
PROMISSORY
NOTE
|
$[note
amount]
|
[note date],
2013
|
FOR VALUE RECEIVED,
Ocean Thermal Energy Corporation, a Delaware Corporation with its
registered offices at 800 South Queen Street, Lancaster, PA 17603
(the “Borrower”), hereby promise to pay
to the order of [lender name], a [type of person], at
[lender’s address] (the “Lender), or at any other place
designated to the Borrower by the Lender in writing, the principal
sum of [note amount] ($[note amount]), with interest as herein
specified, and under the terms and conditions stated
herein.
1.
Repayment of Principal and
Interest. Principal and interest shall be repaid by Borrower
to Lender as follows: Commencing on [date], 2014, Borrower shall
make annual interest only payments in arrears (the
“Payment
Amounts”) with subsequent payments being made on the
corresponding day of each of succeeding year until [date], 2023, at
which time the principal shall be repaid together with the final
interest payment.
All amounts payable
hereunder are payable in United States Dollars at the address of
the Lender set forth above in immediately available funds. Prior to
a Default, all payments shall be applied first on account of other
charges, second to accrued interest due on the unpaid balance of
principal and finally the remainder of such payments shall be
applied to unpaid principal. If a Default occurs, payments and
monies received may be applied in any manner and order deemed
appropriate by the Lender.
2.
Rates and Calculation of
Interest. Interest on the outstanding and unpaid principal
balance of the Loan shall be calculated for the actual number of
days in the then current calendar year that principal is
outstanding, based upon a year of three hundred sixty (360) days,
accrue and shell, be paid at the fixed rate of interest per annum
equal to ten percent (10%).
In no event shall
the rate of interest hereunder be in excess of the maximum amount
permitted by law. In the event the rate of Interest hereunder is
determined to be in excess of the maximum amount permitted by law,
such interest rate shall be automatically decreased to the maximum
rate permitted by law.
In addition to all
other rights contained in the Note, if a Default (defined herein)
occurs and as long as a Default continues, all outstanding sums
hereunder shall bear interest at the interest rate otherwise
prevailing under the preceding paragraph, plus 3% (the
“Default Rate”). The Default Rate shall also apply from
acceleration until all unpaid sums and obligations (whether matured
or contingent) hereunder and any judgment thereon are paid in
full.
3.
Prepayment. This Note may be
prepaid in whole or in part at any time at the option of the
Borrower without premium or penalty. Each prepayment shall be
applied first to the payment in full of other charges payable
hereunder, then to accrued interest and the remainder of such
payment, if any, shall be applied 7.3 the reduction of the unpaid
principal balance.
4.
Loan Agreement. This Note is
the Note referred to in the agreements between the Borrower, the
Lender, and any surety executed in connection with this Note,
including, but not limited to the Loan Agreement of even date
herewith (the “Loan
Agreement”) and the Loan Documents referenced therein
(the “Loan
Documents”). The failure of the Borrower and/or any
surety to execute any such agreement or other document shall not
affect the validity of this Note. This Note shall evidence all
obligations of the Borrower to the Lender under the Loan Agreement
and Loan Documents.
5.
Integration. The terms and
conditions of this Note, together with the terms and conditions of
the Loan Agreement and the Loan Documents, contains the entire
understanding between the Borrower and the Lender with respect to
the indebtedness evidenced hereby. Such understanding may not be
amended, modified, or terminated except in writing duly executed by
the parties hereto.
6.
Default and Remedies. The
occurrence of any default or event of default (“Default”), as defined in the Loan
Agreement and/or the Loan Documents, shall constitute a Default of
and under this Note.
When a Default
occurs, the Lender, at its option, may declare the entire unpaid
balance of principal of this Note, unpaid interest thereon and all
other charges, costs and expenses provided for herein, in the Loan
Agreement and/or any of the Loan Documents, and/or pursuant to any
other agreements between Borrower and Lender, immediately due and
payable without notice to or demand upon the Borrower. Upon the
occurrence of a Default, the Lender shall have all of the rights
and remedies with respect to this Note and with respect to all of
the Lender’s collateral and security as described or in the
Loan Agreement, the Loan Documents, in this Note, and/or otherwise
as provided for by law, in equity, and otherwise, including the
rights of a secured party under the law of
Pennsylvania.
7.
Security. As security for the
payment of this Note and for all other indebtedness, obligations,
and undertakings of the Borrower under the Loan Agreement and the
Loan Documents, the Borrower acknowledges that it has granted to
Lender a security interest, mortgage and/or other liens and rights
in all of the collateral and security described in the Loan
Agreement and/or in the Loan Documents. The Lender shall have no
duty or obligation to the Borrower, or to any endorser, guarantor,
surety, or other party, to perfect any lien or security interest of
the Lender in the Lender’s collateral and security. In
addition, the Lender shall not be required to marshal any
collateral or security or guaranties or to resort to the same in
any particular order.
8.
Debt Service Reserve. The
Company will create a Debt Service Reserve (the “DSR”) for the benefit of the
holders of these Notes. The DSR will be funded with cash flow
received by the Company from OTE BM Ltd. Monies deposited in the
DSR can only be used for any Payment Amount. The DSR shall not
exceed an amount equal to the outstanding Payment
Amounts.
9.
Warrants. The holder of the
Note will have the option to acquire from the Company up to
[number] shares of common stock of Company at a price per share and
subject to the conditions described in the Warrant
Document.
10.
Waiver. The undersigned hereby
waives presentment for payment, demand, notice of nonpayment,
notice of protest, and protest of this Note, and all of the notices
in connection with delivery, acceptance, performance, default, or
enforcement of the payment of this Note. The failure by the Lender
to exercise any right or remedy shall not be taken to waive the
exercise of the same thereafter for the same or any subsequent
Default. The Borrower waives any claim of set-off, recoupment
and/or counterclaim. All notices to the Borrower shall be
adequately given if mailed postage prepaid to the address appearing
in the Lender’s records. The Borrower intends this Note to be
a sealed instrument and to be legally bound
hereby.
11.
Holder. The references to
“Lender” herein shall be deemed to be references to any
subsequent assignee, transferee, or other holder of this
Note.
12.
Governing Law. This Note shall
be construed in accordance with the laws of Pennsylvania, without
reference to any conflict of laws provisions, as a Note made,
delivered and to be wholly performed within
Pennsylvania.
|
|
BORROWER:
Ocean Thermal
Energy Corporation
By: /s/ Jeremy
Feakins
Name: Jeremy
Feakins
Title: Chairman
& CEO
|
SECURITY
AGREEMENT
THIS SECURITY
AGREEMENT (this “Agreement”) made this ____ day of
_____________ 2013, by Ocean Thermal Energy Corporation, a Delaware
corporation with its registered offices at 800 South Queen Street,
Lancaster, PA 17603 (hereinafter referred to as the
“Debtor”).
TO AND IN FAVOR
OF:
__________________________________________________________________
having an office
at:
__________________________________________________________________
(hereinafter
referred-to as the “Lender”).
WITNESSETH:
WHEREAS, on or
about even date herewith, Debtor has borrowed the sum of [note
amount] ($[note amount]) from the Lender (the “Loan”), such loan to be evidenced
by, among other things, a certain promissory note dated on or about
even date herewith given by the Debtor in favor of Lender (the
“Note”), a
certain loan agreement dated on or about even date herewith and
executed by and between the Debtor and Lender (the
“Loan
Agreement”), and certain other documents and
instruments given in connection said Loan and referred to in the
Loan Agreement as the “Loan
Documents”; and
WHEREAS, to secure
the payment of all sums due or which may become due under or in
connection with the Note, Loan Agreement and the other Loan
Documents, (all of such obligations secured hereby, hereinafter
called the “Obligation(s)”), Lender has
required that Debtor grant Lender a security interest in all
business assets of the Debtor, including those assets at or related
to the Premises, and Debtor has agreed to execute this
Agreement.
NOW, THEREFORE, in
consideration of the foregoing recitals, and in consideration of
the Loan, the Obligations, and any extensions of credit made or to
be made by the Lender to the Debtor, and intending to be legally
bound hereby, the Debtor hereby agrees to and with Lender as
follows:
1.
Definitions. As used in this
Agreement, the following words and terms shall have the following
meanings respectively, unless the context hereof clearly requires
otherwise:
a.
“Accounts”
shall have the meaning given to that term in the Code and shall
include without limitation all rights of the Debtor, whenever
acquired, to payment for goods sold or leased or for services
rendered in connection with the Premises, whether or not earned by
performance, and other obligations or indebtedness owed to the
Debtor from whatever source arising; all rights of the Debtor to
receive any payments in money or kind; all guarantees of the
foregoing and security therefor; all of the right, title and
interest of the Debtor in and with respect to the goods, services
or other property that gave rise to or that secure any of the
foregoing, and insurance policies and proceeds relating thereto,
and all rights of the Debtor as an unpaid seller of goods and
services, including, but not limited to, the rights of stoppage in
transit, replevin, reclamation and resale; payment obligations
arising out of the sale, lease or license of tangible or intangible
property; credit card receivables; health care receivables; and all
of the foregoing, whether now owned or existing or hereafter create
or acquired.
b.
“Agreement”
shall mean this Security Agreement as the same may be supplemented
or amended from time to time.
c.
“Debtor’s
Address” shall mean the address set forth in the first part
of this Agreement.
d.
“Chattel
Paper” shall have the meaning given to that term in the Code
and shall include without limitation all tangible and electronic
chattel paper owned by the Debtor in connection with the Premises,
whenever acquired, which evidence both a monetary obligation and a
security interest in or a lease of specific
goods.
e.
“Code”
shall mean the applicable law now or hereafter in force in The
Bahamas.
f.
“Collateral”
shall mean any of the collateral described in Section 2 of this
Agreement.
g.
“Commercial
Tort Claims” shall mean those commercial tort claims more
specifically described on Exhibit A attached hereto and
made a part hereof.
h.
“Costs and
Expenses” shall mean any and all sums, fees, costs, expenses
and charges which the Lender may pay or incur (i) pursuant to any
provision of this Agreement, or (ii) in connection with the
preparation, execution, effectuation and administration of this
Agreement or any other agreement or instrument executed in
connection herewith, or (iii) in defending, protecting, preserving
or enforcing its security interest or the Collateral or any other
agreement or instrument executed in connection herewith, or (iv)
otherwise in connection the provisions of this Agreement.
“Costs and Expenses” shall include, but is not limited
to, all search, filing and recording fees; taxes; attorneys’
fees and legal expenses; all fees and expenses for the service and
filing of papers; premiums on insurance, bonds, and undertakings;
fees of marshals, sheriffs, custodians, auctioneers, warehousemen,
and others; travel expenses; all court costs and collection charges
and all expenses of retaking, holding, assembling, cleaning and/or
preparing any Collateral for sale or lease, selling, leasing and
the like.
i.
“Deposit
Accounts” shall have the meaning given to that term in the
Code.
j.
“Documents”
shall have the meaning given to that term in the Code and shall
include without limitation all warehouse receipts (as defined by
the Code) and other documents of title (as defined by the Code)
owned by the Debtor, whenever acquired.
k.
“Event of
Default” shall mean any of the Events of Default described in
Section 4 of this Agreement.
l.
“Fixtures”
shall have the meaning given to that term in the Code, and shall
include without limitation leasehold
improvements.
m.
“General
Intangibles” shall have the meaning given to that term in the
Code and shall include without limitation all leases under which
the Debtor now or in the future leases and/or obtains a right to
occupy or use real or personal property in connection with the
Premises, or both, and all of the Debtor’s other contract
rights, whenever acquired, and customer lists, choses in action,
claims (including claims for indemnification), books, records,
patents and patent applications, copyrights and copyright
applications, trademarks, trade names, trade styles, trademark
applications, blueprints, drawings, designs and plans, trade
secrets, methods, processes, contracts, licenses, license
agreements, formulae, tax and any other types of refunds, returned
and unearned insurance premiums, rights and claims under insurance
policies, and computer information, software, records and data,
whenever acquired.
n.
“Goods”
shall have the meaning given to that term in the Code and shall
include without limitation, any computer program imbedded in such
goods.
o.
“Instruments”
shall have the meaning given to that term in the Code and shall
include without limitation all negotiable instruments (as defined
in the Code), all certificated securities (as defined in the Code)
and all other writings which evidence a right to the payment of
money, now or after the date of this Agreement, owned by the Debtor
in connection with the Premises, whenever
acquired.
p.
“Inventory”
shall have the meaning given to that term in the Code and shall
include without limitation all goods owned by the Debtor in
connection with the Premises, whenever acquired and wherever
located, held for sale or lease or furnished or to be furnished
under contracts of service, and all raw materials, work in process
and materials owned by the Debtor and used or consumed in the
Debtor’s business, whenever acquired and wherever located,
and all products thereof, and all substitutions, replacements,
additions, or accessions therefor and thereto.
q.
“Investment
Property” shall have the meaning given to that term in the
Code.
r.
“Letter of
Credit Rights” shall have the meaning given to that term in
the Code.
s.
“Premises”
shall mean 800 South Queen Street, Lancaster, PA
17603.
t.
“Proceeds”
shall have the meaning given to that term in the Code and shall
include without limitation whatever is received when Collateral or
Proceeds is sold, exchanged, collected or otherwise disposed of,
whether cash or non-cash, and includes without limitation proceeds
of insurance payable by reason of loss of, or damage to,
Collateral.
u.
“Supporting
obligations” shall have the meaning set forth in the
Code.
v.
“Senior Baha
Mar Project Lender” shall mean any debt financier providing
capital for that certain Seawater District Cooling project for the
Baha Mar resort complex in The Bahamas.
To the extent not
defined in this Section 1, unless the context requires otherwise,
all other terms contained in this Agreement shall have the meanings
attributed to them by the Code, to the extent the same are used or
defined therein.
2.
Grant of Security Interest. As
security for payment to Lender of all the Obligations, and as
security for performance of the agreements, conditions, covenants,
provisions and stipulations contained herein, and in any renewal,
extension, or modification hereof and in all other agreements and
instruments made and given by Debtor to Lender in connection with
any of the Obligations, the Debtor agrees that the Lender shall
have, and the Debtor grants to and creates in favor of the Lender,
a security interest under the Code in and to such of the Collateral
as is now or in the future owned or acquired by the Debtor. Upon
Borrower’s full satisfaction of the Obligations under the
Loan Agreement and the Loan Documents, this security interest shall
terminate.
“Collateral”
shall mean collectively the Accounts, Chattel Paper, Commercial
Tort Claims, Documents, Deposit Accounts, Goods, Equipment,
Fixtures, General Intangibles, Instruments, Investment Property,
Inventory, Letter of Credit Rights, Supporting Obligations and the
Proceeds of each of them.
3.
Representations, Warranties and
Covenants. The Debtor represents and warrants to and
covenants with the Lender, and such representations, warranties and
covenants shall be continuing so long as any of the Obligations
remain outstanding, as follows:
a.
The Debtor utilizes
no trade names in the conduct of its business, except the names set
forth above in the first part of this Agreement, nor has Debtor
been the surviving entity in a merger, or acquired any
business.
b.
The security
interest in the Collateral granted to the Lender in this Agreement
is and shall be a perfected first priority security interest in the
Collateral and prior and superior to the rights of all third
parties in the Collateral existing on the date of this Agreement or
arising after the date of this Agreement, except for those
interests which Debtor grants to other lenders under the same
Series B Note issuance as this Loan and except for those interests
which Debtor grants to the Senior Baha Mar Project Lender (the
“Permitted Security
Interests”).
c.
The Debtor is the
owner of the Collateral free and clear of all security interests,
mortgages, liens or encumbrances, except for liens that arise by
operation of law with respect to obligations of the Debtor that are
not yet due and payable; and the Debtor will defend the Collateral
against all claims and demands of all persons at any time claiming
an interest therein.
d.
Except with respect
to financing undertaken as part of the project financing for the
Seawater District Cooling project with Baha Mar, Ltd., the Debtor
shall not mortgage, pledge, grant or permit to exist any new
security interest in, or lien or encumbrance upon, any of the
Collateral except for the security interests to which the Lender
may give its prior consent.
e.
The Debtor shall
maintain casualty insurance coverage on the Collateral in such
amounts and of such types as may be required by Lender, and, in any
event, as are ordinarily carried by similar
businesses.
f.
The Debtor shall
permit the Lender, through its authorized employees, agents and
representatives, to inspect and examine the annual financial
statements of the Debtor upon reasonable
notice.
g.
The Debtor shall
pay or deposit promptly when due all sales, use, excise, personal
property, income withholding corporate, franchise, and other taxes,
assessments and governmental charges upon or relating to its
ownership or use of any of the Collateral.
h.
The Debtor
authorizes the Lender to file financing statements describing the
Collateral in such public offices as Lender may require, without
Debtor’s signature. Said financing statements may describe
the personal property set forth herein (i) by specific or general
description, (ii) by collateral classification or category, (iii)
by general reference to all of Debtor’s assets, or (iv) by
such other manner as Lender may elect. If the law of the
jurisdiction in which such instruments are filed requires
Debtor’s signature, Debtor agrees to sign such financing
statements, continuation statements, or other security agreements
Lender may require. In addition, the Debtor shall, at any time and
from time to time upon request of the Lender, execute and deliver
to the Lender, in form and substance satisfactory to the Lender,
such documents as Lender shall deem necessary or desirable to
perfect or maintain perfected the security interest of the Lender
in the Collateral or which may be necessary to comply with the law
of the Commonwealth of The Bahamas, or the law of any other
jurisdiction in which Debtor was formed or in which the Debtor may
then be conducting business, or in which Debtor’s principal
residence or chief executive office is located, or in which any of
the Collateral may be located. Debtor hereby ratifies all financing
statements filed by Lender prior to Debtor’s execution
hereof.
i.
The Debtor shall
pay any and all Costs and Expenses within thirty (30) days after
written notice from Lender and submit to the Lender proof
satisfactory to the Lender that such payment(s) have been made, or
reimburse the Lender therefor.
j.
The Debtor, without
first obtaining the prior written consent and approval of the
Lender, will not sell, assign, lease or otherwise dispose of
(whether in one transaction or in a series of transactions), any of
its assets (whether now owned or hereafter acquired) except in the
ordinary course of business.
k.
If and to the
extent that Equipment is part of the
Collateral:
i.
All Equipment now
owned is and all Equipment acquired in the future will be, in the
possession of the Debtor at the Debtor’s Address. If such
locations(s) is/are not owned by the Debtor, of if any of the
Equipment is or shall be affixed to any real estate, including any
buildings owned or leased by the Debtor in the operation of its
business, the Debtor shall provide the Lender with waivers
necessary to make the security interest in the Equipment valid
against the Debtor and other persons holding an interest in such
real estate. The Debtor shall notify the Lender at least thirty
(30) days prior to any change of any location where any of the
Equipment is or may be kept.
ii.
The Debtor shall
keep and maintain all Equipment in good operating condition and
repair and make all necessary repairs thereto and replace parts
thereof so that the value and operating efficiency thereof shall at
all times be maintained and preserved; and the Debtor shall keep
complete and accurate books and records with respect to all
Equipment, including maintenance records.
iii.
The Debtor shall
retain and keep secure any and all evidence of ownership and
certificates of origin and/or title to any and all of the
Equipment.
iv.
The Debtor shall
not, without the prior written consent of the Lender, sell, offer
to sell, lease, offer to lease, or in any other manner dispose of
any of the Equipment, except in the ordinary course of business, or
as part of a purchase of the completed Seawater District Cooling
project by Baha Mar, Ltd.
l.
If and to the
extent that Accounts are a part of the
Collateral:
i.
The Debtor has no
other places of business except at Debtor’s Address. All
records pertaining to the Accounts (including, but not limited to,
computer records) and all returns of Inventory are kept at
Debtor’s Address; and the Debtor will notify the Lender at
least thirty (30) days prior to any change in the address where
records pertaining to Accounts or Inventory are
kept.
ii.
All books, records
and documents relating to any of the Accounts (including, but not
limited to, computer records) are and will be genuine and in all
respects what they purport to be; and the amount of each Accounts
shown on the books and records of the Debtor and will be the
correct amount actually owing for, or to be owing at maturity of,
each of the Accounts.
iii.
Until the Lender
directs otherwise, the Debtor shall collect the Accounts, subject
to the directions and control of the Lender at all times. Any
proceeds of Accounts collected by the Debtor after an Event of
Default shall not be co-mingled with other funds of the Debtor and
shall at the Lender’s request be immediately delivered to the
Lender in the form received except for necessary endorsements to
permit collection. The Lender in its sole discretion may allow the
Debtor to use such proceeds to such extent and for such periods, if
any, as the Lender elects.
iv.
The Debtor shall,
at the Lender’s request, furnish to the Lender within thirty
(30) days after the end of each calendar month an aged analysis of
all outstanding Accounts, in form and substance satisfactory to the
Lender.
v.
The Debtor shall
provide the Lender, at the Lender’s request, with copies of
all invoices relating to the Accounts, evidence of shipment or
delivery of Inventory, and such further information as the Lender
may require, all in form satisfactory to the
Lender.
m.
The Debtor will not
change its fiscal years or accounting and/or depreciation
methods.
n.
The Debtor will not
change its state of incorporation, formation or,
organization.
o.
Debtor will not
change its state organizational identification number or taxpayer
identification number.
4.
Events of Default. As used in
this Agreement, the term “Event of Default” shall mean
any one or more of the following at the option of
Lender:
a.
The occurrence of
one or more of the events defined in the Loan Agreement or in any
other document evidencing or securing any of the Obligations as an
Event of Default;
b.
The failure of the
Debtor to comply fully with all of the terms, conditions,
representations, or covenants of this Agreement, including the
covenants set forth in Paragraph 3 hereof, and such default shall
have continued for a period of thirty (30) days after notice
specifying such default and demanding that the same be cured shall
have been given to Debtor, or if the default cannot reasonably be
remedied within such period, if Debtor fails to commence to remedy
the same within thirty (30) days and diligently thereafter to carry
the same to completion;
c.
Any loss, theft,
damage, or destruction of any material portion of the Collateral
for which there is either no insurance coverage, or for which in
the opinion of the Lender there is insufficient insurance
coverage;
d.
The creation of any
new security interest, mortgage, lien or encumbrance in favor of
any person other than the Lender against the real or personal
property of the Debtor (including, but not limited to, the
Collateral), without the prior consent of the Lender;
or
e.
The sale or other
disposition of all or substantially all of the property or assets
of the Debtor, any subsidiary of the Debtor or any accommodation
party of the Debtor, other than in the ordinary course of
business.
5.
Rights and Remedies. The Lender
shall have, by way of example and not of limitation, the rights and
remedies set forth in this Section 5 after the occurrence of any
Event of Default:
a.
The Lender and any
officer or agent of the Lender is hereby constituted and appointed
as true and lawful attorney-in-fact of the Debtor with
power:
i.
If and to the
extent that Accounts are part of the Collateral, to notify or
require the Debtor to notify any and all account debtors or parties
against which the Debtor has a claim that such Accounts have been
assigned to the Lender and/or that the Lender has a security
interest therein and that all payments should be made to the
Lender.
ii.
To endorse the name
of the Debtor upon any instruments or payments (including but not
limited to, payments made under any policy of insurance) that may
come into the possession of the Lender in full or partial payment
of any amount owing to the Lender.
iii.
To sign and endorse
the name of the Debtor upon any invoice, freight or express bill,
bill of lading, storage or warehouse receipt, or drafts against
account debtors or other obligors, and, if and to the extent that
Accounts are part of the Collateral to sign and endorse the name of
the Debtor on any assignments, verifications and notices in
connection with such Accounts, and any instrument or document
relating thereto or to the rights of the Debtor
therein.
iv.
To notify post
office authorities to change the address for delivery of mail of
the Debtor to an address designated by the Lender and to receive,
open and dispose of all mail addressed to the
Debtor.
v.
If and to the
extent that Accounts are part of the Collateral, to send requests
for verification to account debtors or other
obligors.
vi.
To sell, assign,
sue for, collect, or compromise payment of all or any part of the
Collateral in the name of the Debtor or in its own name, or make
any other disposition of the Collateral, or any part thereof, which
disposition may be for cash, credit or any combination thereof; and
the Lender may purchase all or any part of the collateral at
public, or, if permitted by law, private sale, and, in lieu of
actual payment of such purchase price, may set off the amount of
such price against the Obligations.
vii.
The Debtor grants
to the Lender, as the attorney-in-fact of the Debtor, full power of
substitution and full power to do any and all things necessary to
be done as fully and effectually as the Debtor might or could do
but for this appointment and hereby ratifying all that said
attorney-in-fact shall lawfully do or cause to be done by virtue
hereof. Neither the Lender nor its officers and agents shall be
liable for any acts or omissions or any error of judgment or
mistake of fact or law in its capacity as such attorney-in-fact.
This power of attorney is coupled with an interest and shall be
irrevocable so long as any of the sums becoming due under this
Agreement, or any of the Obligations, and/or performance under all
the other provisions contained herein and therein, shall remain
outstanding.
b.
The Lender shall
have the right to enter and/or remain upon the premises of the
Debtor without any obligation to pay rent to the Debtor or others,
or any other place or places where any of the Collateral is located
and kept, and:
i.
Remove Collateral
therefrom to the premises of the Lender or any of its agents, for
such time as the Lender may desire, in order to maintain, sell,
collect and/or liquidate the Collateral; or
ii.
Use such premises,
together with materials, supplies, books and records of the Debtor,
to maintain possession and/or the condition of the Collateral, and
to prepare the Collateral for selling, liquidation or
collecting.
c.
The Lender may
require the Debtor to assemble the Collateral at the Mortgaged
Premises (as such term is defined in the Loan
Agreement).
d.
Any notice required
to be given by the Lender of a sale or other disposition by the
Lender of any of the Collateral, made in accordance with this
Agreement, which is mailed or delivered at least fifteen (15) days
prior to such proposed action, shall constitute fair and reasonable
notice to the Debtor of any such action. In the event that any of
the Collateral is used in conjunction with any real estate, the
sale of the Collateral with and as one parcel of any such real
estate of the Debtor shall be deemed to be a commercially
reasonable manner of sale. Lender has no obligation to clean up or
otherwise prepare the Collateral for sale, and Lender may
specifically disclaim warranties of title or the like. The net
proceeds realized by the Lender upon any such sale or other
disposition, after deduction of the Costs and Expenses, shall be
applied toward satisfaction of the remaining Obligations. If the
Lender sells any of the Collateral upon credit, only the payments
actually made by the purchaser and received by Lender are to be
applied to the Obligations. In the event the purchaser fails to pay
for the Collateral, Lender may resell the collateral and Debtor
shall be credited with the proceeds of the sale. The Lender shall
account to the Debtor for any surplus realized upon such sales or
other disposition and the Debtor shall remain liable for any
deficiency. The commencement of any action, legal or equitable,
shall not affect the security interest of the Lender in the
Collateral until the Obligations or any judgment(s) therefor are
fully paid.
e.
Lender may exercise
an immediate right of setoff against any accounts or deposits the
Debtor may have with Lender. This subsection shall not be construed
as a limitation on any rights the Lender may have against Debtor,
any other parties or any other accounts or
deposits.
f.
The Lender shall
have, in addition to any other rights and remedies contained in
this Agreement and any other agreements, instruments, and documents
heretofore, now, or hereafter executed by the Debtor and delivered
to the Lender all of the rights and remedies of a secured party
under the Code, all of which rights and remedies shall be
cumulative and nonexclusive, to the extent permitted by
law.
6. General
Provisions.
a.
No delay or failure
of the Lender in exercising any right, power, or privilege under
this Agreement shall affect such right, power or privilege; nor
shall any single or partial exercise thereof or any abandonment or
discontinuance of steps to enforce such a right, power of privilege
preclude any further exercise thereof or of any other right, power
or privilege. The rights and remedies of the Lender are cumulative.
Any waiver, permit, consent or approval of any kind or character on
the part of the Lender of any breach or default under this
Agreement or any such waiver of any provisions or condition of this
Agreement, must be in writing and shall be effective only to the
extent specifically set forth in such writing.
b.
The Debtor hereby
confirms the Lender’s right of Lender’s lien and
setoff, and nothing in this Agreement shall be deemed a waiver or
prohibition of the Lender’s right
thereto.
c.
All notices,
statements, requests and demands given to or made upon the Debtor
or the Lender in accordance with the provisions of this Agreement
shall be given as follows.
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If to
Debtor:
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Ocean Thermal
Energy Corporation
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ATTN: Jeremy P.
Feakins, President
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800 South Queen
Street
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Lancaster,
Pennsylvania 17603-5818
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With a copy
to:
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Gerald Koenig,
General Counsel
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Ocean Thermal
Energy Corporation
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822 Crestwood
Heights Drive, #1105
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McLean, VA
22102
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If to Lender
at:
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With a copy
to:
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All notices
hereunder shall be in writing and shall be deemed to have been duly
given for all purposes when (i) delivered in person, or (ii) when
deposited in the mail as registered or certified, return receipt
requested, postage prepaid, or (iii) when sent for delivery by any
overnight delivery service which requires the signature of the
party who accepts delivery. All notices shall be directed to the
party to receive the same at its address stated above or at such
other address as may be substituted by notice given as herein
provided.
d.
The provisions of
this Agreement may from time to time be amended in writing signed
by the Debtor and the Lender.
e.
This Agreement
shall be governed by and construed and enforced under the laws of
the Commonwealth of The Bahamas.
f.
If any provision of
this Agreement shall for any reason be held invalid or
unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement or any other agreement
between the Debtor and the Lender; but this Agreement shall be
construed as if such invalid or unenforceable provision had never
been contained herein.
g.
All paragraph
headings in this Agreement are included for convenience only and
are not to be construed as a part hereof or in any way as limiting
or amplifying the terms hereof.
h.
This Agreement may
be executed in as many counterparts as may be deemed necessary and
convenient, and each of which when so executed shall be deemed an
original but all such counterparts shall constitute but one and the
same writing.
i.
The provisions of
this Agreement shall be binding upon and shall inure to the benefit
of the successors and assigns of the Lender and the Debtor;
provided, however, that the Debtor may not assign any of their
rights or delegate any of its obligations hereunder without the
prior written consent of the Lender.
j.
Debtor gives Lender
and its affiliates a continuing lien on, and security interest in,
all present and future property of Debtor held by Lender and/or its
affiliates, including special and general
deposits.
k.
Each reference in
this Agreement to the Lender shall be deemed to include its
successors and assigns. Any pronouns used in this Agreement shall
be construed in the masculine, feminine, neuter, singular, or
plural as the context may require. The agreements and obligations
on any part of the Debtor herein contained shall remain in force
and applicable notwithstanding any changes in the individuals
comprising the limited liability company or corporation and the
terms “Debtor” shall include any altered or successive
limited liability companies or corporations; provided, however,
that the predecessor limited liability companies or corporations
shall not thereby be released from any of their obligations and
liabilities hereunder.
l.
The Lender may from
time to time, without notice to the Debtor, sell, assign, transfer
or otherwise dispose of all or any part of its right, title and
interest in the Loan, in any of the Obligations and/or the
Collateral therefor. In such event, each and every immediate and
successive purchaser, assignee, transferee, or holder of any or any
part of the Loan, the Obligations and/or the Collateral shall have
the right to enforce this Agreement, by legal or equitable action
or otherwise, for its own benefit, as fully as if such purchaser,
transferee, or holder were in this Agreement by name specifically
given such rights. Lender shall have an unimpaired right to enforce
this Agreement, for its own benefit, for the portion of the Loan
and/or Obligations and/or the Collateral which the Lender has not
sold, assigned, transferred or otherwise disposed
of.
IN WITNESS WHEREOF,
the Debtor has caused this Agreement to be executed as of the date
first above written.
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DEBTOR:
Ocean Thermal
Energy Corporation
By: /s/ Jeremy
Feakins
Name: Jeremy
Feakins
Title: Chairman
& CEO
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WARRANT
To Purchase up to
[number] Shares of the
Common Stock,
$0.001 - Par Value Per Share,
of
Ocean Thermal
Energy Corporation
This is to certify
that, for value received, [lender name] (“Lender”) or any permitted
transferee (Lender or such transferee being hereinafter called the
“Holder”) is
entitled to purchase, subject to the provisions of this Warrant,
from Ocean Thermal Energy Corporation, a Delaware corporation
(“OTE”). at any
time on or after the date hereof, an aggregate of up to [number]
fully paid and nonassessable shares of common stock, $0.001 par
value (the “Common
Stock”), of OTE at a price per share equal to 10%
discount off the price of OTE’s common stock as at the time
of the IPO of OTE on the Alternative Investment Market (AIM) of the
London Stock Exchange or the opening share price of the Reverse
Merger on the Over the Counter (OTC) market, subject to adjustment
as herein provided (the “Exercise Price”).
1.
Exercise of Warrant. Subject to
the provisions hereof, this Warrant may be exercised, in whole or
in part, or sold, assigned or transferred at any time or from time
to time on or after the date hereof but not later than September
30. 2023. This Warrant shall be exercised by presentation and
surrender hereof to OTE at the principal office of OTE, accompanied
by (i) a written notice of exercise, (ii) payment to OTE, for the
account of OTE, of the Exercise Price for the number of shares of
Common Stock specified in such notice, and (iii) a certificate of
the Holder specifying the event or events which have occurred and
entitle the Holder to exercise this Warrant. The Exercise Price for
the number of shares of Common Stock specified in the notice shall
be payable in immediately available funds.
Upon such
presentation and surrender, OTE shall issue promptly (and within
one business day if reasonably requested by the Holder) to the
Holder or its assignee, transferee or designee the number of shares
of Common Stock to which the Holder is entitled to hereunder.
Partial exercise of this Warrant is not authorized. OTE covenants
and warrants that such shares of Common Stock, when so issued, will
be duly authorized, validly issued, fully paid and nonassessable,
and free and clear of all liens and encumbrances.
2.
Reservation of Shares; Preservation of
Rights of Holder. OTE shall at all times while this Warrant
is outstanding and unexercised, maintain and reserve such number of
authorized but unissued shares of Common Stock as may
be necessary so that this Warrant may be
exercised.
3.
Fractional Shares. OTE shall
not be required to issue any fractional shares of Common Stock upon
exercise of this Warrant. In lieu of any fractional shares, the
Holder shall be entitled to receive an amount in cash equal to the
amount of such fraction multiplied by the Exercise
Price.
4.
Exchange or Loss of Warrant.
This Warrant is exchangeable, without expense, at the option of the
Holder, upon presentation and surrender hereof at the principal
office of OTE for other warrants of different denominations
entitling the Holder to purchase, in the aggregate, the same number
of shares of Common Stock issuable hereunder. The term
“Warrant” as used herein includes any warrants for
which this Warrant may be exchanged. Upon receipt by OTE of
evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, OTE will execute and deliver a new Warrant
of like tenor and date.
5.
Adjustment. The
number of shares of Common Stock issuable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment from
time to time as provided in this Paragraph.
i.
Stock Dividends. In
case OTE shall pay or make a dividend or other distribution on any
class of capital stock of OTE payable in Common Stock, the number
of shares of Common Stock issuable upon exercise of this Warrant
shall be increased by multiplying such number of shares by a
fraction of which the denominator shall be the number of shares of
Common Stock outstanding at the close of business on the day
immediately preceding the date of such distribution and the
numerator shall be the sum of such number of shares and the total
number of shares of Common Stock constituting such dividend or
other distribution, such increase to become effective immediately
after the opening of business on the day following such
distribution.
ii.
Subdivisions. In
case outstanding shares of Common Stock shall be subdivided into a
greater number of shares of Common Stock, the number of shares of
Common Stock issuable upon exercise of this Warrant at the opening
of business on the day following the day upon which such
subdivision becomes effective shall be proportionately increased,
and, conversely, in case outstanding shares of Common Stock shall
each be combined into a smaller number of shares of Common Stock,
the number of shares of Common Stock issuable upon exercise of this
Warrant at the opening of business on the day following the day
upon which such combination becomes effective shall be
proportionately decreased, such increase or decrease, as the case
may be, to become effective immediately after the opening of
business on the day following the date upon which such subdivision
or combination becomes effective.
iii.
Reclassifications.
The reclassification of Common Stock into securities (other than
Common Stock) and/or cash and/or other consideration shall be
deemed to involve a subdivision or combination, as the case may be,
of the number of shares of Common Stock outstanding immediately
prior to such reclassification into the number or amount of
securities and/or cash and/or other consideration outstanding
immediately thereafter and the effective date of such
reclassification shall be deemed to be “the day upon which
such subdivision becomes effective,” or “the day upon
which such combination becomes effective,” as the case may
be, within the meaning of clause (2) above.
iv.
Optional
Adjustments. OTE may make such increases in the number of shares of
Common Stock issuable upon exercise of this Warrant, in addition to
those required by this Subparagraph (A), as shall be determined by
its Board of Directors to be advisable in order to avoid taxation
so far as practicable of any dividend of stock or stock rights or
any event treated as such for tax purposes to the
recipients.
v.
Adjustment to
Exercise Price. Whenever the number of shares of Common Stock
issuable upon exercise of this Warrant is adjusted as provided in
this Subparagraph (A), the Exercise Price shall be adjusted by a
fraction in which the numerator is equal to the number of shares of
Common Stock issuable prior to the adjustment and the denominator
is equal to the number of shares of Common Stock issuable after the
adjustment, rounded to the nearest cent.
b.
Definition. For
purposes of this Paragraph 5, the term “Common Stock”
shall include (1) any shares of OTE of any class or series which
has no preference or priority in the payment of dividends or in the
distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of OTE and which is not
subject to redemption by OTE and (2) any rights or options to
subscribe for or to purchase shares of Common Stock or any stock or
securities convertible into or exchangeable for shares of Common
Stock (such convertible or exchangeable stock or securities being
hereinafter called “Convertible Securities”), whether
or not such rights or options or the right to convert or exchange
any such Convertible Securities are immediately exercisable. For
purposes of any adjustments made under this Paragraph 5 as a result
of the distribution, sale or other issuance of rights or options or
Convertible Securities, the number of shares of Common Stock
outstanding after or as a result of the occurrence of events
described in Paragraph 5 shall be calculated by assuming that all
such rights, options or Convertible Securities have been exercised
for the maximum number of shares issuable
thereunder.
6.
Notice. Whenever the number of
shares of Common Stock for which this Warrant is exercisable is
adjusted as provided in Paragraph 5, OTE shall promptly compute
such adjustment and mail to the Holder a certificate, signed by the
principal financial officer of OTE setting forth the number of
shares of Common Stock for which this Warrant is exercisable as a
result of such adjustment having become
effective.
a.
Without limiting
the foregoing or any remedies available to the Holder, it is
specifically acknowledged that the Holder would not have an
adequate remedy at law for any breach of the provisions of this
Warrant and shall be entitled to specific performance of
OTE’s obligations under, and injunctive relief against any
actual or threatened violation of the obligations of any person
subject to, this Warrant.
b.
The Holder shall
not, by virtue of its status as Holder, be entitled to any rights
of a stockholder in OTE.
8.
Termination. This Warrant and
the rights conferred hereby shall terminate on September 30,
2023.
9.
Governing Law. This Warrant
shall be deemed to have been delivered in, and shall be governed by
and interpreted in accordance with the substantive laws of, the
Commonwealth of Pennsylvania.
Dated: [warrant
date], 2013
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Ocean Thermal
Energy Corporation
By: /s/ Jeremy
Feakins
Name: Jeremy
Feakins
Title: Chairman
& CEO
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Series
B Promissory Notes and Warrants
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Name
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Note Amount
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# of Warrants
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Exercise Price
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Expiration
|
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Joseph
Layman
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$ 50,000.00
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10,000
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20% Disc off
Opening Price
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9/30/2023
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Soloman Edwards
Group
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$ 50,000.00
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10,000
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20% Disc off
Opening Price
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9/30/2023
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Donald &
Kathleen Lindman
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$ 50,000.00
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10,000
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20% Disc off
Opening Price
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9/30/2023
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Greg
Crumling
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$ 50,000.00
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10,000
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20% Disc off
Opening Price
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9/30/2023
|
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Patricia
Benedict
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$ 50,000.00
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10,000
|
20% Disc off
Opening Price
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9/30/2023
|
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Bernieri Family
Trust
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$ 50,000.00
|
10,000
|
20% Disc off
Opening Price
|
9/30/2023
|
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Bernieri Family
Trust
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$ 50,000.00
|
10,000
|
20% Disc off
Opening Price
|
9/30/2023
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Pensco Trust FBO
Charles Hartman IRA
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$ 25,000.00
|
5,000
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20% Disc off
Opening Price
|
9/30/2023
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Gary
Gilbert
|
$ 50,000.00
|
10,000
|
20% Disc off
Opening Price
|
9/30/2023
|
|
Pensco Trust FBO
Paul Ogurcak
|
$ 25,000.00
|
5,000
|
20% Disc off
Opening Price
|
9/30/2023
|
|
Charles
Hartman
|
$ 50,000.00
|
10,000
|
20% Disc off
Opening Price
|
9/30/2023
|
|
Jeff & Lori
Martin
|
$ 25,000.00
|
5,000
|
20% Disc off
Opening Price
|
9/30/2023
|
|
|
$ 525,000.00
|
105,000
|
|
|
Warrant
Schedule
OCEAN
THERMAL ENERGY CORPORATION
PROMISSORY
NOTE
|
US$290,000.00
|
December 31,
2013
|
FOR VALUE RECEIVED,
the undersigned, OCEAN THERMAL
ENERGY CORPORATION, a Delaware corporation (the
“Company”), or its
successors or assigns, hereby promises to pay to the order of
THEODORE HERMAN, an individual, or his assigns (collectively, the
“Holder”), the principal
amount of Two Hundred Ninety Thousand Dollars (US $290,000),
together with any accrued and unpaid interest thereon as described
herein. The Company and the Holder may hereinafter be referred to
individually as a “Party” and collectively
as “Parties.”
1.
Definitions. In addition to the
terms defined elsewhere in this Promissory Note (this
“Note”), the following terms have the meanings
indicated:
“BBNA” means Broadband
Network Affiliates, Inc., a Delaware corporation.
“Business Day” means any
day other than a Saturday, Sunday or other day on which banks in
New York, New York are required to be closed.
“Maturity Date” means
December 31, 2015.
“Merger Agreement” means
the Agreement and Plan of Merger among BBNA, the Company and
Theodore Herman dated December 24, 2013, as amended.
“Reverse Merger” means a
business combination transaction involving the Company and BBNA
after which BBNA continues and survives but less than five percent
(5%) of the combined voting power of the then-outstanding
securities of BBNA immediately after such transaction are held,
directly or indirectly, in the aggregate by the holders of
securities entitled to vote generally in the election of directors
of BBNA immediately prior to such transaction, as described in the
Merger Agreement.
“Warrants” means those
warrants of BBNA, the form of which is attached as Exhibit A, and that were issued
to the holders referred in Schedule 2 of the Merger Agreement to
purchase up to an aggregate of 10,000,000 shares of the
Company’s common stock with a Class A of 2,000,000 warrants
at a warrant exercise price of $0.50 per share; with a Class B of
2,000,000 warrants at a warrant exercise price of $0.50 per share;
with a Class C of 2,000,000 warrants at a warrant exercise price of
$0.75 per share; with a Class D of 2,000,000 warrants at a warrant
exercise price of $1.00 per share; with a Class E of 2,000,000
warrants at a warrant exercise price of $1.25 per
share.
2.
Principal Amount. The principal
amount represented by this Note is Two Hundred and Ninety Thousand
Dollars (US$290,000).
3.
Interest. The unpaid principal
balance from time to time outstanding hereunder shall bear interest
from the date of the Reverse Merger until paid in full at a fixed
rate of eight percent (8%) per annum. Interest will accrue on this
Note from the date of the Reverse Merger on the basis of a 360-day
year consisting of twelve 30-day months.
1
4.
Payment of Principal and
Interest.
(a) Payment.
Subject to reduced payment as provided for in Section 9 of this
Note, the Company shall pay to the Holder the principal amount of
this Note, and all accrued and unpaid interest thereon, upon the
earlier to occur of (i) the Maturity Date, or (ii) as set forth in
Sections 4(b)(i), (ii), (iii), (iv) or (v), considered separately.
Principal and interest due hereunder shall be paid in lawful money
of the United States of America in immediately available federal
funds or the equivalent at the address of the Holder set forth in
Section 5 below or at such other address as the Holder may
designate. All payments made hereunder shall first be applied to
interest then due and payable and any excess payment shall then be
applied to reduce the principal amount then due and payable. Upon
payment in full of all principal and interest payable hereunder,
the Holder shall surrender this Note to the Company for
cancellation.
(b) Amount
and Timing of Payment. Subject to reduced payment as
provided for in Section 9 of this Note, the Company shall pay
principal under this Note on the following schedule:
(i)
$50,000 triggered
by receipt by the Company of cash in connection with the exercise
of Class A Warrants;
(ii)
$50,000 triggered
by receipt by the Company of cash in connection with the exercise
of Class B Warrants;
(iii)
$60,000 triggered
by receipt by the Company of cash in connection with the exercise
of Class C Warrants;
(iv)
$60,000 triggered
by receipt by the Company of cash in connection with the exercise
of Class D Warrants; and
(v)
$70,000 triggered
by receipt by the Company of cash in connection with the exercise
of Class E Warrants.
5.
Notices. All notices and other
communications required or permitted hereunder to be given to a
Party to this Note shall be in writing and shall be faxed, mailed
by registered or certified mail postage prepaid, delivered by a
national overnight delivery service, or otherwise delivered by
hand, electronically (including by email) or by messenger,
addressed to such Party’s address as set forth
below:
|
If to the
Company:
|
Ocean Thermal
Energy Corporation
|
|
|
Attention: Jeremy
Feakins, Chief Executive Officer
|
|
|
800 South Queen
Street
|
|
|
Lancaster, PA
17603
|
|
|
Facsimile: (717)
299-1336
|
|
|
Email:
jeremv.feakins@otecorporation.com
|
|
|
|
|
|
With a copy (not
constituting notice) to:
|
|
|
|
|
|
Procopio, Cory,
Hargreaves & Savitch, LLP
|
|
|
Attention: John P.
Cleary, Esq.
|
|
|
12544 High Bluff
Drive, Suite 300
|
|
|
San Diego, CA
92130
|
|
|
Email:
john.cleary@procopio.com
|
2
|
|
|
|
If to the
Holder:
|
Theodore
Herman
|
|
|
9909 Topanga Canyon
Boulevard, Suite 122
|
|
|
Chatsworth, CA
91311
|
or such other
address with respect to a Party as such Party shall notify each
other Party in writing as above provided. Any notice sent in
accordance with this Section 5 shall be effective upon the earlier
of: (i) if mailed, seven (7) Business Days after mailing; (ii) if
sent by messenger, upon delivery; (iii) if sent by a nationally
recognized overnight delivery service, one Business Day after
having been dispatched; (iv) if sent electronically (including by
email), upon transmission and electronic confirmation of
transmission or (if transmitted and received on a non-Business Day)
on the first Business Day following transmission and electronic
confirmation of transmission; and, (v) upon the actual receipt
thereof.
6.
Default and
Remedies.
(a) An
“Event of
Default” under this Note shall mean the occurrence of
any of the following events:
(i)
If the Company
shall fail to make any payment when required by this Note;
or
(ii)
The commencement by
the Company of any bankruptcy, insolvency, receivership or similar
proceedings under any federal or applicable state law; or the
commencement against the Company of any bankruptcy, insolvency,
receivership or similar proceeding under any federal or applicable
state law by creditors of the Company or other similar law of any
jurisdiction, provided, that such proceeding shall not be deemed an
Event of Default if such proceeding is dismissed within ninety (90)
days of commencement.
(b) Upon
and during the continuation of an Event of Default, the Holder may
declare the outstanding principal amount, and all accrued and
unpaid interest on such principal amount, immediately due and
payable, and such amount shall be collectible immediately or at any
time after such Event of Default. The rights and remedies provided
by this Note shall be cumulative, and shall be in addition to, and
not exclusive of, any other rights and remedies available at law or
in equity.
7.
Assignability. Neither Party
may assign this Note without prior notice to the other Party. No
such assignment shall constitute a novation or release of either
Party of their obligations hereunder.
8.
Usury Laws. It is the intention
of the Company and the Holder to conform strictly to all applicable
usury laws now or hereafter in force, arid any interest payable
under this Note shall be subject to reduction to an amount that is
the maximum legal amount allowed under the applicable usury laws as
now or hereafter construed by the courts having jurisdiction over
such matters. The aggregate of all interest (whether designated as
interest, service charges, points or otherwise) contracted for,
chargeable, or receivable under this Note shall under no
circumstances exceed the maximum legal rate upon the principal
amount remaining unpaid from time to time. If such interest does
exceed the maximum legal rate, it shall be deemed a mistake and
such excess shall be canceled automatically and, if theretofore
paid, rebated to the Company or credited on the principal amount,
or if this Note has been repaid, then such excess shall be rebated
to the Company.
3
9.
Offset. The Company shall be
entitled to deduct from any amount of principal or interest that is
or may become otherwise due under this Note any and all amounts due
and owing from Theodore Herman pursuant to the Herman Obligations
(as defined in the Merger Agreement).
10. Miscellaneous.
(a) Any
amendment hereto or waiver of any provision hereof must be in
writing and signed by both the Company and the Holder.
(b) Wherever
in this Note reference is made to the Company or the Holder, such
reference shall be deemed to include, as applicable, a reference to
their respective successors and permitted assigns, and the
provisions of this Note shall be binding upon and shall inure to
the benefit of such successors and permitted assigns.
(c) This
Note shall in all respects be governed by and construed in
accordance with the laws of the State of Delaware without regard to
conflict of laws principles of any jurisdiction to the
contrary.
(d) The
captions of the Sections of this Note are inserted solely for ease
of reference and shall not be considered in the interpretation or
construction of this Note.
(e) The
Holder, by acceptance of this Note, hereby represents and warrants
that (i) the Holder has been offered the opportunity to obtain
information from the Company, to verify the accuracy of the
information received by it and to evaluate the merits and risks of
its investment in the Company, and to ask questions of and receive
satisfactory answers concerning the terms and conditions of its
investment in the Company, and (ii) the Holder has acquired this
Note for investment only and not for resale or distribution. The
Holder, by acceptance of this Note, further understands, covenants
and agrees that the Company is under no obligation and has made no
commitment to provide for registration of this Note.
(f) The
Company waives presentment, notice and demand, notice of protest,
notice of demand and dishonor, and notice of nonpayment of this
Note.
(g) In
the event that any provision of this Note is invalid or
unenforceable under any applicable statute or rule of law, then
such provision shalt be deemed inoperative to the extent that it
may conflict therewith and shall be deemed modified to conform with
such statute or rule of law. Any such provision which may prove
invalid or unenforceable under any law shall not affect the
validity or enforceability of any other provision of this Note. THE
PARTIES HEREBY IRREVOCABLY WAIVE ANY RIGHT EITHER MAY HAVE, AND
AGREE NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY
DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE
OR ANY TRANSACTION CONTEMPLATED HEREBY.
(h) No
delay in the exercise of any right or remedy of any Party shall
operate as a waiver thereof, and no single or partial exercise of
any such right or remedy shall preclude other or future exercise
thereof or the exercise of any other right or remedy.
(i) It
is expressly understood and agreed by the Parties hereto that if it
is necessary to enforce payment of this Note through the engagement
or efforts of an attorney or by suit, the Company shall pay
reasonable attorneys’ fees, expenses of counsel, and other
costs of collection incurred by the Holder.
4
(j) This
Note may be executed in counterparts, each of which shall be deemed
an original, but both of which shall constitute one and the same
Note.
IN WITNESS WHEREOF,
the Company has executed, acknowledged and delivered this Note as
of the day and year first above written.
|
|
OCEAN THERMAL
ENERGY CORPORATION
By: /s/ Jeremy P.
Feakins
Name: Jeremy P.
Feakins
Its: Chief
Executive Officer
|
AGREED TO AND
ACCEPTED BY:
By: /s/ Theodore
Herman
Name: Theodore
Herman
Exhibits
Exhibit
A Form of Warrants
LOAN
AGREEMENT
This Loan Agreement
(the “Loan
Agreement”) is made as of April 1, 2014, by and
between Jeremy P. Feakins & Associates, LLC (the
“Lender”) and
Ocean Thermal Energy Corporation (the “Borrower”).
WITNESSETH:
WHEREAS, the
Borrower desires to obtain certain credit facilities, as set forth
in this Loan Agreement, and the Lender is willing to provide such
credit facilities on the terms and conditions set forth
herein;
NOW, THEREFORE, the
Lender and the Borrower, intending to be legally bound, hereby
agree as follows:
1. The
Credit Facilities. The Lender agrees, pursuant to the terms
and conditions of this Loan Agreement and the other Loan Documents
(as defined below), to make a loan to the Borrower in a principal
amount of up to Two Million Two Hundred Sixty-five Thousand Dollars
($2,265,000) (the “Loan”). The Loan shall be
evidenced by a Note (the “Note”) and shall be made in
accordance with and subject to the terms and conditions of this
Loan Agreement, the Note and the other Loan Documents.
2. The
Loan Documents. The following documents and materials
(together with this Loan Agreement and any other accessory
documents executed in connection herewith, such documents and
materials, as they may be amended, restated, renewed and extended,
are collectively referred to herein as the “Loan Documents”) have been or will
be executed in connection with the Loan:
a. Note;
b. Warrants,
of even date herewith, granting to Lender, as additional
consideration for making the Loan to the Borrower, the right to
purchase up to 12,912,500 shares of Ocean Thermal Energy Corp.
common stock at a price of $0.425 per share.
3. Interest
Rate. The Loan shall bear interest as set forth in the
Note.
4. Repayment.
Repayment of the Loan shall be made as set forth in the Note, and
pre-payment shall be permitted as therein specified.
5. Use
of Proceeds. The proceeds of the Loan shall be used to
support the development and construction costs for the
Borrower’s Baha Mar Resort Seawater Air-conditioning project
and general overhead expenses including costs associated with the
Borrower’s public listing.
6. Expenses
and Fees. The Borrower agrees to pay the Lender a Facility
Fee of $25,000.00 payable to the Lender upon execution of this Loan
Agreement.
7. Representations
and Warranties. The Borrower, in order to induce the Lender
to make the Loan, make the following representations, warranties
and promises:
a. Good
Standing. The Borrower is a corporation, duly organized,
validly existing and in good standing under the laws of the state
of its incorporation, with powers adequate to own its properties,
and to carry on its business as presently conducted by
it.
b. Authority;
Binding Agreement. The execution, delivery and performance
of the Loan Documents are within the corporate power of the
Borrower, have been duly authorized by the Borrower and are not in
contravention of law or the terms of the Borrower’s
Certificate of Incorporation and By-Laws. The execution, delivery
and performance of the Loan Documents does not and will not
contravene any documents, agreements or undertakings to which the
Borrower is a party or by which it is bound. No approval of any
person, corporation, governmental body or other entity is a
prerequisite to the execution, delivery, validity or enforceability
and performance of the Loan Documents. When executed by the
Borrower, the Loan Documents to which the Borrower is a party will
constitute the legally binding obligations of the Borrower,
enforceable in accordance with their terms except as the
enforceability may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors’ rights
generally.
c. Financial
Information. Subject to any limitation stated therein or in
connection therewith, all balance sheets, earning statements,
accounts receivable lists and aging schedules and other financial
data which have been or shall be furnished to the Lender by the
Borrower to induce the Lender to enter into this Loan Agreement or
otherwise in connection herewith, do or will fairly represent the
financial condition of the Borrower in all material respects, are
accurate, complete and correct in all material respects insofar as
completeness may be necessary to give the Lender a true and
accurate knowledge of the subject matter as of the date hereof.
There are no material liabilities, direct or indirect, fixed or
contingent, of the Borrower as of the date of such financial
statements which are not reflected therein or in the notes thereto.
There has been no material adverse change in the financial
condition or operations of the Borrower since the date of said
financial statements or since the respective dates on which either
furnished the Lender with other financial data or other
representations about their financial condition.
d. Solvency.
Any borrowings to be made by Borrower under this Loan Agreement do
not and will not render Borrower insolvent. The Borrower is
contemplating neither the filing of a petition under any state or
federal bankruptcy or insolvency laws, nor the liquidation of all
or a major portion of its property, and the Borrower has no
knowledge or any reason to know of any person contemplating the
filing of any such petition against it.
8. Covenants.
The Borrower agrees with the Lender that during the term of this
Agreement and the other Loan Documents, and any extensions,
replacements or renewals thereof (except as otherwise agreed by the
Lender in writing):
a. Insurance.
The Borrower shall maintain adequate fire and extended coverage
insurance, with the Lender named as lender loss payee, as well as
general liability, business interruption and other insurance
policies as are customary. All such insurance:
i. Shall
be issued in such amounts and by such companies as are satisfactory
to the Lender; and
ii. Shall
contain provisions providing for thirty (30) days’ prior
written notice to the Lender of any intended change or cancellation
and providing that no such change or cancellation shall be
effective as to the Lender in the absence of such
notice.
b. Notice
of Default; Litigation. The Borrower shall notify the Lender
in writing immediately upon becoming aware of any default
hereunder, or of any actions, suits, investigations, or proceedings
at law, in equity or before any governmental authority that may
have a material adverse effect on the Borrower, pending or
threatened, against or affecting the Borrower or involving the
validity or enforceability of the Loan Documents.
c. Financial
Information. The Borrower shall furnish or cause to be
furnished to the Lender (i) on an annual basis, federal income tax
returns of the Borrower and annual financial statements of the
Borrower, compiled by certified public accountants, within one
hundred twenty (120) days after the end of each fiscal year; and
(ii) on a fiscal quarter basis, internally-prepared interim
financial statements of the Borrower in a form satisfactory to
Lender within thirty (30) days of the close of each fiscal
quarter.
d. Expenses.
The Borrower shall pay all costs and expenses (including, but not
limited to, attorneys’ fees) incidental to the Loan, to the
preservation the Lender’s interests under the Loan Documents
and to the collection of all obligations pursuant to the Loan
Documents.
e. Further
Assurances. The Borrower shall execute such documents as the
Lender may reasonably request relating to the Loan.
9. Conditions
Precedent. The obligation of the Lender to make the Loan is
subject to the satisfaction by the Borrower of the following
conditions precedent:
a. The
Borrower’s representations and warranties as contained herein
shall be accurate and complete as of the date of
closing;
b. The
Borrower shall not be in default under any of the covenants
contained herein as of the date of closing;
c. The
Borrower shall have executed and delivered all of the Loan
Documents to which it is a party;
d. The
Borrower shall have delivered to the Lender all of the documents
(fully executed) and materials and satisfied all of the
requirements reasonably requested by Lender to evidence the
obligations of Borrower with respect to the Loan in such form and
substance as may be reasonably acceptable to the
Lender.
e. The
Borrower shall have paid all costs incurred in connection with the
closing of the Loan, including without limitation, the
attorneys’ fees of the Lender’s counsel (up to a
maximum of $5,000) and all filing fees. To the extent that such
costs are not paid at closing, the Borrower hereby authorizes the
Lender to pay the same from the proceeds of the Loan;
and
f. The
Borrower shall provide the Lender with written confirmation that
there are no known disputes or pending actions between the Borrower
and the Internal Revenue Service.
g. The
Borrower shall furnish the Lender with such other documents,
opinions, certificates, evidence and other matters as may be
reasonably requested by the Lender at or prior to
closing.
10. Events
of Default; Acceleration; Remedies. The occurrence of any
one or more of the following events shall constitute a default (an
“Event of
Default”) under this Agreement:
a. If
any statement, representation or warranty made by the Borrower in
the Loan Documents, in connection therewith or any financial
statement, report, schedule, or certificate furnished to the Lender
by the Borrower, any of its representatives, employees or
accountants during the term of this Agreement shall prove to have
been false or misleading when made, or subsequently becomes false
or misleading, in any material respect;
b. Default
by the Borrower in payment within five (5) days of the due date of
any principal or interest or other amounts called for under the
Loan Documents;
c. Default
by the Borrower in the performance or observance of any of its
obligations under the provisions, terms, conditions, warranties or
covenants of the Loan Documents and such failure shall continue for
a period of thirty (30) days or more following receipt of written
notice thereof from the Lender.
d. The
occurrence of an event of default not cured within any applicable
remedy period, under any obligations of the Borrower to the Lender
other than under the Loan Documents, whether created prior to,
concurrent with, or subsequent to obligations arising out of the
Loan Documents;
e. The
occurrence of an event of default not cured within any applicable
remedy period, under any other obligation of the Borrower in an
aggregate amount of Ten Thousand Dollars ($10,000.00) or more, for
borrowed money or under any lease;
f. The
dissolution, termination of existence, merger or consolidation of
the Borrower, or a sale of all or substantially all of the assets
of the Borrower out of the ordinary course of
business;
g. A
change in the beneficial ownership of fifty percent (50%) or more
(in the aggregate) of the issued and outstanding voting capital
stock of the Borrower from the ownership on the date of this Loan
Agreement, whether through transfer, issuance of stock or
membership interests or otherwise.
h. The
Borrowers shall (i) apply for or consent to the appointment of a
receiver, trustee or liquidator of any of their or its property,
(ii) admit in writing their or its inability to pay their or its
debts as they mature, (iii) make a general assignment for the
benefit of creditors, (iv) be adjudicated a bankrupt or insolvent,
(v) file a voluntary petition in bankruptcy, or a petition or an
answer seeking reorganization to take advantage of any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law or statute, or an answer admitting
the material allegations of a petition filed against it or he in
any proceeding under any such law or (vi) offer or enter into any
compromise, extension or arrangement seeking relief or extension of
their or its debts;
i. In
the event that proceedings shall be commenced or an order, judgment
or decree shall be entered against the Borrower, without the
application, approval or consent of the Borrower (as the case may
be) in or by any court of competent jurisdiction, relating to the
bankruptcy, dissolution, liquidation, reorganization or the
appointment of a receiver, trustee or liquidator of the Borrower of
all or a substantial part of their or its assets, and such
proceedings, order, judgment or decree shall continue undischarged
or unstayed for a period of 90 days;
j. A
final and unappealable judgment for the payment of money in excess
of Ten Thousand Dollars ($10,000.00) shall be rendered against the
Borrower and the same shall remain undischarged for a period of 60
days, during which period execution shall not be effectively
stayed; or
Upon the occurrence
of any Event of Default, automatically upon an Event of Default
under subsection (h) or (i) of this Section or otherwise at the
election of the Lender, (i) all of the obligations of the Borrower
to the Lender, either under this Loan Agreement or otherwise, will
immediately become due and payable without further demand, notice
or protest, all of which are hereby expressly waived; (ii) the
Lender may proceed to protect and enforce its rights, at law, in
equity, or otherwise, against the Borrower under the Uniform
Commercial Code, any other applicable law, any Loan Document, any
agreement between the Borrower and the Lender; and/or (iii) the
Lender’s commitment to make further loans under this
Agreement or any other agreement with the Borrower will immediately
cease and terminate.
11. General
Provisions. The Lender and the Borrower agree as follows
with respect to the Loan Documents:
a. Waivers.
i. The
Borrower hereby waives, to the fullest extent permitted by law,
presentment, notice, protest and all other demands and notices of
any description and assent (1) to any extension of the time of
payment or any other indulgence, and (2) to the release of any
other person primarily or secondarily liable for the obligations
evidenced hereby.
ii. No
delay or omission on the part of the Lender in exercising any
right, privilege or remedy hereunder shall operate as a waiver of
such right, privilege or remedy or of any other right, privilege or
remedy under the Loan Documents. No waiver of any right, privilege
or remedy or any amendment to the Loan Documents shall be effective
unless made in writing and signed by the Lender. A waiver on any
one occasion shall not be construed as a bar to or waiver of any
such right, privilege and/or remedy on any future occasion. No
single or partial exercise of any power hereunder shall preclude
other or future exercise thereof or the exercise of any other
right. The acceptance by the Lender of any payment after any
default under the Loan Documents shall not operate to extend the
time of payment of any amount then remaining unpaid hereunder or
constitute a waiver of any rights of the Lender hereof under the
Loan Documents.
b. Binding
Agreement. The Loan Documents shall inure to the benefit of
and shall be binding upon the parties hereto and their respective
heirs, legal representatives, successors, and assigns;
c. Entire
Agreement and Amendment. The Loan Documents constitute the
entire agreement between the Lender and the Borrower with respect
to the Loan and shall not be changed in any respect except by
written instrument signed by the parties thereto;
d. Governing
Law. The Loan Documents and all rights and obligations
thereunder, including matters of construction, validity, and
performance, shall be governed by the laws of the Commonwealth of
Pennsylvania;
e. Severability.
If any term, condition, or provision of the Loan Documents or the
application thereof to any person or circumstance shall, to any
extent, be held invalid or unenforceable according to law, then the
remaining terms, conditions, and provisions of the Loan Documents,
or the application of any such invalid or unenforceable term,
condition or provision to persons or circumstances other than those
to which it is held invalid or unenforceable, shall not be affected
thereby, and each term, condition, and provision of the Loan
Documents shall be valid and enforced to the fullest extent
permitted by law;
f.
Notice. Any demand or notice
required or permitted under the Loan Documents shall be effective
if either: (i) hand-delivered to the addressee, or (ii) deposited
in the mail, registered or certified, return receipt requested and
postage prepaid, or delivered to a private express company
addressed to the addressee: (A) at the address shown below, or (B)
if such party has provided the other in writing with a change of
address, at the last address so provided. Any notice or demand
mailed as provided in this paragraph shall be deemed given and
received on the earlier of: (i) the date received; (ii) or the date
of delivery, refusal or non-delivery as indicated on the return
receipt, if sent by mail or private express as provided
above.
|
Borrower:
|
Lender:
|
|
Ocean Thermal
Energy Corporation
|
Jeremy P. Feakins
& Associates LLC
|
|
800 South Queen
Street
|
800 South Queen
Street
|
|
Lancaster, PA
17603
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Lancaster, PA
17603
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|
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With a copy
to:
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With copy
to:
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Gerald
Koenig
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Jeremy P.
Feakins
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8220 Crestwood
Heights Drive, #1105
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1200 West Penn
Grant Road
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McLean VA
22102
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Lancaster, PA
17603
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g. Conflict
Among Loan Documents. In the event of any conflict between
the terms, covenants, conditions and restrictions contained in the
Loan Documents, the term, covenant and condition or restriction
which grants the greater benefit upon the Lender shall control. The
determination as to which term, covenant, condition or restriction
is the more beneficial shall be made by the Lender in its sole
discretion.
h. Costs
of Collection. The Borrower agrees to pay on demand all
reasonable out-of-pocket costs of collection under the Loan
Documents, including reasonable attorneys’ fees, whether or
not any foreclosure or other action is instituted by the Lender in
its discretion.
i.
Set-Off, Etc. As additional
collateral, the Borrower grants (1) a security interest in, or
pledges, assigns and delivers, to the Lender, as appropriate, all
deposits, credits and other property now or hereafter due from the
Lender to the Borrower and (2) the right to set-off and apply (and
a security interest in said right), from time to time hereafter and
without demand or notice of any nature, all, or any portion, of
such deposits, credits and other property, against the indebtedness
evidenced by any of the Notes, whether the other collateral, if
any, is deemed adequate or not.
j.
Rights
Cumulative. All rights and remedies of the Lender, whether
granted herein or otherwise, shall be cumulative and may be
exercised singularly or concurrently.
IN WITNESS WHEREOF,
the Borrowers and the Lender have executed this Loan Agreement as
of the date indicated above.
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OCEAN THERMAL
ENERGY CORPORATION
By: /s/ Jeremy P.
Feakins
Name: Jeremy P.
Feakins
Title: Group
Executive Chairman
JEREMY P. FEAKINS
& ASSOCIATES, LLC
By: /s/ Edward M.
Baer
Name: Edward M.
Baer
Title: Partner
& Chief Administrative Officer
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WARRANT
to Purchase up to
12,912,500 Shares of the
Common Stock,
$0.0001 Par Value Per Share,
of
OCEAN
THERMAL ENERGY CORPORATION
This is to certify
that, for value received, Jeremy P. Feakins & Associates, LLC
(“Lender”) or
any permitted transferee (Lender or such transferee being
hereinafter called the “Holder”) is entitled to purchase,
subject to the provisions of this Warrant, from Ocean Thermal
Energy Corporation, a Delaware corporation (“OTEC”), at any time on or after
the date hereof, an aggregate of up to 12,912,500 fully paid and
non-assessable shares of common stock, $0.0001 par value (the
“Common Stock”),
of OTEC at a price per share equal to $0.425, subject to adjustment
as herein provided (the “Exercise Price”).
1. Exercise
of Warrant. Subject to the provisions hereof, this Warrant
may be exercised, in whole or in part, or sold, assigned or
transferred at any time or from time to time on or after the date
hereof This Warrant shall be exercised by presentation and
surrender hereof to OTEC at the principal office of OTEC,
accompanied by (i) a written notice of exercise, (ii) payment to
OTEC, for the account of OTEC, of the Exercise Price for the number
of shares of Common Stock specified in such notice, and (iii) a
certificate of the Holder specifying the event or events which have
occurred and entitle the Holder to exercise this Warrant. The
Exercise Price for the number of shares of Common Stock specified
in the notice shall be payable in immediately available
funds.
Upon such
presentation and surrender, OTEC shall issue promptly (and within
one business day if reasonably requested by the Holder) to the
Holder or its assignee, transferee or designee the number of shares
of Common Stock to which the Holder is entitled hereunder. OTEC
covenants and warrants that such shares of Common Stock, when so
issued, will be duly authorized, validly issued, fully paid and
non-assessable, and free and clear of all liens and
encumbrances.
If this Warrant is
exercised in part only, OTEC shall, upon surrender of this Warrant
for cancellation, execute and deliver a new Warrant evidencing the
rights of the Holder thereof to purchase the balance of the shares
of Common Stock issuable hereunder. Upon receipt by OTEC of this
Warrant, in proper form for exercise, the Holder shall be deemed to
be the holder of record of the shares of Common Stock issuable upon
such exercise, notwithstanding that the stock transfer books of
OTEC may then be closed or that certificates representing such
shares of Common Stock shall not then be actually delivered to the
Holder. OTEC shall pay all expenses, and any and all United States
federal, state and local taxes and other charges, that may be
payable in connection with the preparation, issuance and delivery
of stock certificates pursuant to this Paragraph 1 in the name of
the Holder or its assignee, transferee or designee.
2. Reservation
of Shares; Preservation of Rights of Holder.
OTEC shall at all
times while this Warrant is outstanding and unexercised, maintain
and reserve, free from preemptive rights, such number of authorized
but unissued shares of Common Stock as may be necessary so that
this Warrant may be exercised without any additional authorization
of Common Stock after giving effect to all other options, warrants,
convertible securities and other rights to acquire shares of Common
Stock at the time outstanding. OTEC further agrees that (i) it will
not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary
act or omission, avoid or seek to avoid the observance or
performance of any of the covenants, stipulations or conditions to
be observed or performed hereunder, and (ii) it will promptly take
all action reasonably necessary to protect the rights of the Holder
against dilution as provided herein.
3. Fractional
Shares. OTEC shall not be required to issue any fractional
shares of Common Stock upon exercise of this Warrant. In lieu of
any fractional shares, the Holder shall be entitled to receive an
amount in cash equal to the amount of such fraction multiplied by
the Exercise Price.
4. Exchange
or Loss of Warrant. This Warrant is exchangeable, without
expense, at the option of the Holder, upon presentation and
surrender hereof at the principal office of OTEC for other warrants
of different denominations entitling the Holder to purchase, in the
aggregate, the same number of shares of Common Stock issuable
hereunder. The term “Warrant” as used herein includes
any warrants for which this Warrant may be exchanged. Upon receipt
by OTEC of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and (in the case
of loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, OTEC will execute and deliver a new Warrant
of like tenor and date.
5. Adjustment.
The number of shares of Common Stock issuable upon the exercise of
this Warrant and the Exercise Price shall be subject to adjustment
from time to time as provided in this Paragraph.
(A) Stock
Dividends, etc.
(1) Stock
Dividends. In case OTEC shall pay or make a dividend or
other distribution on any class of capital stock of OTEC payable in
Common Stock, the number of shares of Common Stock issuable upon
exercise of this Warrant shall be increased by multiplying such
number of shares by a fraction of which the denominator shall be
the number of shares of Common Stock outstanding at the close of
business on the day immediately preceding the date of such
distribution and the numerator shall be the sum of such number of
shares and the total number of shares of Common Stock constituting
such dividend or other distribution, such increase to become
effective immediately after the opening of business on the day
following such distribution.
(2) Subdivisions.
In case outstanding shares of Common Stock shall be subdivided into
a greater number of shares of Common Stock, the number of shares of
Common Stock issuable upon exercise of this Warrant at the opening
of business on the day following the day upon which such
subdivision becomes effective shall be proportionately increased,
and, conversely, in case outstanding shares of Common Stock shall
each be combined into a smaller number of shares of Common Stock,
the number of shares of Common Stock issuable upon exercise of this
Warrant at the opening of business on the day following the day
upon which such combination becomes effective shall be
proportionately decreased, such increase or decrease, as the case
may be, to become effective immediately after the opening of
business on the day following the date upon which such subdivision
or combination becomes effective.
(3) Reclassifications.
The reclassification of Common Stock into securities (other than
Common Stock) and/or cash and/or other consideration shall be
deemed to involve a subdivision or combination, as the case may be,
of the number of shares of Common Stock outstanding immediately
prior to such reclassification into the number or amount of
securities and/or cash and/or other consideration outstanding
immediately thereafter and the effective date of such
reclassification shall be deemed to be “the day upon which
such subdivision becomes effective,” or “the day upon
which such combination becomes effective,” as the case may
be, within the meaning of clause (2) above.
(4) Optional
Adjustments. OTEC may make such increases in the number of
shares of Common Stock issuable upon exercise of this Warrant, in
addition to those required by this subparagraph (A), as shall be
determined by its Board of Directors to be advisable in order to
avoid taxation so far as practicable of any dividend of stock or
stock rights or any event treated as such for federal income tax
purposes to the recipients.
(5) Adjustment
to Exercise Price. Whenever the number of shares of Common
Stock issuable upon exercise of this Warrant is adjusted as
provided in this Paragraph 5(A), the Exercise Price shall be
adjusted by a fraction in which the numerator is equal to the
number of shares of Common Stock issuable prior to the adjustment
and the denominator is equal to the number of shares of Common
Stock issuable after the adjustment, rounded to the nearest
cent.
(B) Certain
Sales of Common Stock.
(1) Adjustment
to Shares Issuable. If and whenever OTEC sells or otherwise
issues (other than under circumstances in which Paragraph 5(A)
applies) any shares of Common Stock, the number of shares of Common
Stock issuable upon exercise of this Warrant shall be increased by
multiplying such number of shares by a fraction, the denominator of
which shall be the number shares of Common Stock outstanding at the
close of business on the day immediately preceding the date of such
sale or issuance and the numerator of which shall be the sum of
such number of shares and the total number of shares constituting
such sale or other issuance, such increase to become effective
immediately after the opening of business on the day following such
sale or issuance.
(2) Adjustment
to Exercise Price. If and whenever OTEC sells or otherwise
issues any shares of Common Stock (excluding any stock dividend or
other issuance not for consideration to which Paragraph 5(A)
applies or shares of Common Stock issued or issuable in connection
with awards granted under the OTEC Stock Option Plans) for a
consideration per share which is less than the Exercise Price at
the time of such sale or other issuance, then in each such case the
Exercise Price shall be forthwith changed (but only if a reduction
would result) to the price (calculated to the nearest cent)
determined by dividing: (i) an amount equal to the sum of (aa) the
number of shares of Common Stock outstanding immediately prior to
such issue or sale, multiplied by the then effective Exercise
Price, plus (bb) the total consideration, if any, received and
deemed received by OTEC upon such issue or sale, by (ii) the total
number of shares of Common Stock outstanding immediately after such
issue or sale.
(C) Definition.
For purposes of this Paragraph 5, the term “Common
Stock” shall include (1) any shares of OTEC of any class or
series which has no preference or priority in the payment of
dividends or in the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding up of OTEC and
which is not subject to redemption by OTEC, and (2) any rights or
options to subscribe for or to purchase shares of Common Stock or
any stock or securities convertible into or exchangeable for shares
of Common Stock (such convertible or exchangeable stock or
securities being hereinafter called “Convertible Securities”), whether
or not such rights or options or the right to convert or exchange
any such Convertible Securities are immediately exercisable. For
purposes of any adjustments made under Paragraph 5(A) or 5(B) as a
result of the distribution, sale or other issuance of rights or
options or Convertible Securities, the number of shares of Common
Stock outstanding after or as a result of the occurrence of events
described in Paragraph 5(A)(1) or 5(B)(1) shall be calculated by
assuming that all such rights, options or Convertible Securities
have been exercised for the maximum number of shares issuable
thereunder.
6. Notice.
Whenever the number of shares of Common Stock for which this
Warrant is exercisable is adjusted as provided in Paragraph 5, OTEC
shall promptly compute such adjustment and mail to the Holder a
certificate, signed by the principal financial officer of OTEC,
setting forth the number of shares of Common Stock for which this
Warrant is exercisable as a result of such adjustment having become
effective.
7. Rights
of the Holder.
(A) Without
limiting the foregoing or any remedies available to the Holder, it
is specifically acknowledged that the Holder would not have an
adequate remedy at law for any breach of the provisions of this
Warrant and shall be entitled to specific performance of
OTEC’s obligations under, and injunctive relief against any
actual or threatened violation of the obligations of any person
subject to, this Warrant.
(B) The
Holder shall not, by virtue of its status as Holder, be entitled to
any rights of a stockholder in OTEC.
8. Termination.
This Warrant and the rights conferred hereby shall terminate one
year from the date of OTEC’s initial public offering on a
public exchange.
9. Governing
Law. This Warrant shall be deemed to have been delivered in,
and shall be governed by and interpreted in accordance with the
substantive laws of, the Commonwealth of Pennsylvania, except to
the extent that Delaware law may govern certain aspects of this
Warrant as it relates to OTEC.
Dated: April 1,
2014
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OCEAN THERMAL
ENERGY CORPORATION
By: /s/ Jeremy P.
Feakins
Name: Jeremy P.
Feakins
Title: Group
Executive Chairman
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PROMISSORY
NOTE
FOR VALUE RECEIVED,
Ocean Thermal Energy Corporation, a Delaware corporation with an
address of 800 South Queen Street, Lancaster, PA 17603 (the
“Borrower”),
hereby promises to pay to the order of Jeremy P. Feakins &
Associates, LLC (the “Lender”), at 800 South Queen
Street, Lancaster, PA 17603, or at any other place designated to
the Borrower by the Lender in writing, the principal sum of Two
Million Two Hundred Sixty-five Thousand Dollars ($2,265,000), with
interest as herein specified, and under the terms and conditions
stated herein.
1. Repayment
of Principal and Interest. Principal and interest shall be
repaid by Borrower to Lender as follows: The Borrower shall repay
the principal amount of $550,000.00 on October 31, 2014;
$990,000.00 on November 30, 2014; $450,000.00 on December 31, 2014;
and $275,000.00 on January 31, 2015 (the “Maturity Dates”), the Borrower
shall pay to the Lender the unpaid principal balance of the Loan,
all accrued and unpaid interest thereon, and all other costs and
amounts payable to the Lender hereunder.
All amounts payable
hereunder are payable in lawful money of the United States of
America at the address of the Lender set forth above in immediately
available funds. Prior to a Default, all payments shall be applied
first on account of other charges, second to accrued interest due
on the unpaid balance of principal and finally the remainder of
such payments shall be applied to unpaid principal. If a Default
occurs, payments and monies received may be applied in any manner
and order deemed appropriate by the Lender.
2. Rates
and Calculation of Interest. Interest on the outstanding and
unpaid principal balance of the Loan shall be calculated for the
actual number of days in the then current calendar year that
principal is outstanding, based upon a year of three hundred sixty
(360) days, accrue and shall be paid at the fixed rate of interest
per annum equal to ten percent (10%).
In no event shall
the rate of interest hereunder be in excess of the maximum amount
permitted by law. In the event the rate of interest hereunder is
determined to be in excess of the maximum amount permitted by law,
such interest rate shall be automatically decreased to the maximum
rate permitted by law.
In addition to all
other rights contained in this Note, if a Default (defined herein)
occurs and as long as a Default continues, all outstanding sums
hereunder shall bear interest at the interest rate otherwise
prevailing under the preceding paragraph, plus 3% (the
“Default Rate”).
The Default Rate shall also apply from acceleration until all
unpaid sums and obligations (whether matured or contingent)
hereunder and any judgments thereon are paid in full.
3. Prepayment.
This Note may be prepaid in whole or in part at any time at the
option of the Borrower without premium or penalty. Each prepayment
shall be applied first to the payment in full of other charges
payable hereunder, then to accrued interest and the remainder of
such payment, if any, shall be applied to the reduction of the
unpaid principal balance.
4. Loan
Agreement. This Note is the Note referred to in the
agreements between the Borrower and the Lender, including, but not
limited to the Loan Agreement of even date herewith (the
“Loan
Agreement”) and the Loan Documents referenced therein
(the “Loan
Documents”). The failure of the Borrower to execute
any such agreement or other document shall not affect the validity
of this Note. This Note shall evidence all obligations of the
Borrower to the Lender under the Loan Agreement and Loan
Documents.
5. Integration.
The terms and conditions of this Note, together with the terms and
conditions of the Loan Agreement and the Loan Documents, contains
the entire understanding between the Borrower and the Lender with
respect to the indebtedness evidenced hereby. Such understanding
may not be amended, modified, or terminated except in writing duly
executed by the parties hereto.
6. Security.
This Note is unsecured.
7. Default
and Remedies. The occurrence of any default or event of
default (“Default”), as defined in the Loan
Agreement and/or the Loan Documents, shall constitute a Default of
and under this Note.
When a Default
occurs, the Lender, at its option, may declare the entire unpaid
balance of principal of this Note, unpaid interest thereon and all
other charges, costs and expenses provided for herein, in the Loan
Agreement and/or any of the Loan Documents, and/or pursuant to any
other agreements between Borrower and Lender, immediately due and
payable without notice to or demand upon the Borrower. Upon the
occurrence of a Default, the Lender shall have all of the rights
and remedies with respect the Loan Agreement, the Loan Documents,
this Note, and/or otherwise provided for by law, in equity, and
otherwise.
8. Waiver.
The undersigned hereby waives presentment for payment, demand,
notice of nonpayment, notice of protest, and protest of this Note,
and all of the notices in connection with delivery, acceptance,
performance, default, or enforcement of the payment of this Note.
The failure by the Lender to exercise any right or remedy shall not
be taken to waive the exercise of the same thereafter for the same
or any subsequent Default. The Borrower waives any claim of
set-off, recoupment and/or counterclaim. All notices to the
Borrower shall be adequately given if mailed postage prepaid to the
address appearing in the Lender’s records. The Borrower
intends this Note to be a sealed instrument and to be legally bound
hereby.
9. Holder.
The references to “Lender” herein shall be deemed to be
references to any subsequent assignee, transferee, or other holder
of this Note.
10. Governing
Law. This Note shall be construed in accordance with the
domestic internal laws of the Commonwealth of Pennsylvania, without
reference to any conflict of laws provisions, as a Note made,
delivered and to be wholly performed within the Commonwealth of
Pennsylvania.
11. Judicial
Proceedings. Any suit, action, or proceeding, whether claim
or counterclaim, brought or instituted by the Borrower or the
Lender, or any of their successors or assigns, on or with respect
to this Note or the dealings of the Borrower or the Lender with
respect hereto, shall be tried only by a court and not by a jury.
THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES
ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR
PROCEEDING. In connection therewith, the Borrower agrees that any
suit, action or proceeding arising hereunder or with respect hereto
will be instituted in the Court of Common Pleas of York County,
Pennsylvania, or the United States District Court for the Middle
District of Pennsylvania, and irrevocably and unconditionally
submits to the jurisdiction of each such Court for such purpose.
Further, the Borrower waives any right it may have to claim or
recover, in any such suit, action or proceeding, any special,
exemplary, punitive or consequential damages or any damages other
than, or in addition to, actual damages. THE BORROWER ACKNOWLEDGES
AND AGREES THAT THIS PARAGRAPH IS A SPECIFIC AND MATERIAL ASPECT OF
THIS NOTE AND THAT THE LENDER WOULD NOT EXTEND CREDIT IF THE
WAIVERS SET FORTH IN THIS PARAGRAPH WERE NOT A PART OF THIS
NOTE.
12. Confession
of Judgment. Upon Default, the Borrower hereby irrevocably
authorizes the Prothonotary or any attorney of any court of record
in Pennsylvania or elsewhere to appear for and confess judgment
against the Borrower for any and all amounts unpaid hereunder,
together with any other charges, costs and expenses for which
Borrower is liable under this Note, and together with fees of
counsel in the reasonable amount of five percent (5%) of all of the
foregoing (but in no event less than $5,000.00) and costs of suit,
releasing all errors and waiving all rights of appeal. If a copy of
this Note, verified by affidavit, shall have been filed in such
proceeding, it shall not be necessary to file the original as a
warrant of attorney. The Borrower hereby waives the right to any
stay of execution and the benefit of all exemption laws now or
hereafter in effect. No single exercise of this warrant and power
to confess judgment shall be deemed to exhaust this power, whether
or not any such exercise shall be held by any court to be invalid,
voidable or void, but this power shall continue undiminished and
may be exercised from time to time as often as the Lender shall
elect until all sums due hereunder shall have been paid in full.
Interest shall continue to accrue after entry of judgment
hereunder, by confession, default, or otherwise, at the higher of
the prevailing rate of interest under this Note, or the judgment
rate of interest under applicable law. All waivers granted in this
paragraph are given to the extent permitted by the Pennsylvania
Rules of Civil Procedure.
13. NOTICE:
THIS NOTE CONTAINS, AT PARAGRAPH 12, A WARRANT OF ATTORNEY TO
CONFESS JUDGMENT AGAINST THE BORROWER. IN GRANTING THIS WARRANT OF
ATTORNEY TO CONFESS JUDGMENT AGAINST THE BORROWER, THE BORROWER
HEREBY KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY, AND ON THE ADVICE
OF SEPARATE COUNSEL OF THE BORROWER, UNCONDITIONALLY WAIVES ANY AND
ALL RIGHTS THE BORROWER HAS OR MAY HAVE TO PRIOR NOTICE AND AN
OPPORTUNITY FOR HEARING UNDER THE RESPECTIVE CONSTITUTIONS AND LAWS
OF THE UNITED STATES, THE COMMONWEALTH OF PENNSYLVANIA, OR OF ANY
OTHER STATE.
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BORROWER:
OCEAN THERMAL
ENERGY CORPORATION
By: /s/ Jeremy P.
Feakins
Name: Jeremy P.
Feakins
Title: Group
Executive Chairman
Taxpayer I.D. No.:
80-0968237
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DISCLOSURE FOR
CONFESSION OF
JUDGMENT AND EXECUTION FOR
NON-INDIVIDUALS
DATE: April 1,
2014
1. TODAY,
THE UNDERSIGNED FIRM IS EXECUTING A PROMISSORY NOTE AND OTHER
RELATED INSTRUMENTS FOR $2,265,000, OBLIGATING THE UNDERSIGNED FIRM
TO PAY THAT AMOUNT.
2. A
REPRESENTATIVE OF THE LENDER (OR OUR INDEPENDENT LEGAL COUNSEL)
(THE “REPRESENTATIVE”) HAS EXPLAINED TO US IN OUR
CAPACITIES AS A REPRESENTATIVE OF THE UNDERSIGNED FIRM THAT THE
NOTE THE UNDERSIGNED FIRM IS SIGNING CONTAINS WORDING THAT WOULD
PERMIT THE LENDER TO OBTAIN A JUDGMENT AGAINST THE UNDERSIGNED FIRM
AT THE COURTHOUSE. THE REPRESENTATIVE HAS ALSO EXPLAINED TO US IN
OUR CAPACITIES OF PRESIDENT AND SECRETARY RESPECTIVELY OF THE
UNDERSIGNED FIRM THAT THE JUDGMENT MAY BE OBTAINED AGAINST THE
UNDERSIGNED FIRM WITHOUT NOTICE TO THE UNDERSIGNED FIRM AND WITHOUT
OFFERING THE UNDERSIGNED FIRM AN OPPORTUNITY TO DEFEND AGAINST THE
ENTRY OF THE JUDGMENT, AND THAT THE JUDGMENT MAY BE COLLECTED BY
ANY LEGAL MEANS.
3. THE
REPRESENTATIVE HAS ALSO EXPLAINED TO US IN OUR CAPACITIES AS A
REPRESENTATIVE OF THE UNDERSIGNED FIRM THAT COLLECTION OF THE
JUDGMENT MAY BE ACCOMPLISHED BY THE ISSUANCE OF A WRIT OF
EXECUTION, GARNISHMENT, LEVY AND/OR OTHER EXECUTION PROCEEDINGS
WHICH MAY BE COMMENCED AGAINST THE UNDERSIGNED FIRM BY THE LENDER
WITHOUT PRIOR NOTICE AND HEARING AND THAT EXECUTION PROCEEDINGS MAY
INVOLVE THE SEIZURE AND SALE OF THE UNDERSIGNED FIRM’S
PROPERTY BY A SHERIFF, MARSHALL OR OTHER AUTHORITY.
4. IN
SIGNING THE NOTE, THE UNDERSIGNED FIRM IS KNOWINGLY,
UNDERSTANDINGLY AND VOLUNTARILY CONSENTING TO THE CONFESSION OF
JUDGMENT AND THE UNDERSIGNED FIRM IS WAIVING THE UNDERSIGNED
FIRM’S RIGHTS, TO THE EXTENT PERMITTED BY LAW, TO RESIST THE
ENTRY OF JUDGMENT AGAINST THE UNDERSIGNED FIRM AT THE COURTHOUSE
INCLUDING:
(a)
THE RIGHT TO NOTICE
AND A HEARING;
(b)
THE RIGHT TO REDUCE
OR SET-OFF A CLAIM BY DEDUCTING A CLAIM THE UNDERSIGNED FIRM MAY
HAVE AGAINST THE LENDER (CALLED THE “RIGHT OF
DEFALCATION”);
(d)
INQUEST (THE RIGHT
TO ASCERTAIN WHETHER THE RENTS AND PROFITS OF THE UNDERSIGNED
FIRM’S REAL ESTATE WILL BE SUFFICIENT TO SATISFY THE JUDGMENT
WITHIN SEVEN YEARS);
(f)
EXEMPTION LAWS NOW
IN FORCE OR HEREAFTER TO BE PASSED;
(g)
THE RIGHT TO DEFEND
AGAINST THE ENTRY OF JUDGMENT AGAINST THE UNDERSIGNED
FIRM.
5. IN
SIGNING THE NOTE, THE UNDERSIGNED FIRM IS KNOWINGLY,
UNDERSTANDINGLY AND VOLUNTARILY CONSENTING TO THE ISSUANCE AND
PURSUIT AGAINST THE UNDERSIGNED FIRM OF EXECUTION, GARNISHMENT,
LEVY AND/OR OTHER EXECUTION PROCEEDINGS AND WAIVING THE UNDERSIGNED
FIRM’S RIGHTS, TO THE EXTENT PERMITTED BY LAW, TO NOTICE AND
A HEARING PRIOR TO THE ISSUANCE AND PURSUIT OF EXECUTION,
GARNISHMENT, LEVY AND/OR OTHER EXECUTION PROCEEDINGS.
6. THE
UNDERSIGNED FIRM CERTIFIES THAT THE UNDERSIGNED FIRM HAS DISCUSSED
THIS DISCLOSURE WITH THE UNDERSIGNED FIRM’S ATTORNEY-AT-LAW
AND THE ATTORNEY-AT-LAW FULLY EXPLAINED TO THE UNDERSIGNED FIRM THE
CONTENTS AND MEANING OF THIS DISCLOSURE.
THE UNDERSIGNED
FIRM IS A CORPORATION WHICH IS INCORPORATED UNDER THE LAWS OF THE
STATE OF DELAWARE AND THE UNDERSIGNED INDIVIDUALS ARE THE
REPRESENTATIVES OF THE UNDERSIGNED FIRM DULY AUTHORIZED TO EXECUTE
THIS DISCLOSURE ON BEHALF OF THE UNDERSIGNED FIRM. WE CERTIFY THAT
THE BLANKS IN THIS DISCLOSURE WERE FILLED IN WHEN WE INITIALED AND
SIGNED IT, AND THAT THE UNDERSIGNED FIRM RECEIVED A COPY OF THE
DISCLOSURE AT THE TIME OF SIGNING.
TERMS USED HEREIN
SHALL BE CONSTRUED AS USED AND/OR DEFINED IN THE NOTE.
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NAME OF
FIRM:
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OCEAN THERMAL
ENERGY CORPORATION
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By:/s/ Jeremy P.
Feakins
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Name: Jeremy P.
Feakins
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Title: Group
Executive Chairman
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The foregoing Note
and Disclosure sworn to and subscribed before me this 21st day of
April, 2015.
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/s/ George A.
Duncan
Notary
Public
My Commission
Expires: July 11, 2015
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Commonwealth of
Pennsylvania
County of
Lancaster
[Notarial
Seal]
FORBEARANCE
AND LOAN EXTENSION AGREEMENT
This FORBEARANCE AND LOAN
EXTENSION AGREEMENT (this “Amendment”), is entered into this
4th day of April, 2016, by and between OCEAN THERMAL ENERGY
CORPORATION (“OTE”), a Delaware corporation with an
address of 800 South Queen Street, Lancaster, PA 17603 (the
“Borrower”), and
JEREMY P. FEAKINS & ASSOCIATES, LLC, a Delaware limited
liability company with an address of 800 South Queen Street,
Lancaster, PA 17603 (the “Lender”), on the
following:
Premises
Borrower and Lender entered
into that certain Loan Agreement as of April 1, 2014 (the
“Loan
Agreement”), providing for a loan of $2,265,000 from
Lender to Borrower (the “Loan”). The obligation to repay
the Loan is evidenced by that certain Promissory Note of even date
executed and delivered by Borrower to Lender (the
“Note”). As
additional consideration for the Loan, Borrower granted to Lender a
warrant to purchase 12,912,500 shares of Borrower’s common
stock at a price of $0.425 per share at any time on or before one
year from the date of OTE’s initial public offering on a
public exchange (the “Warrant”). The Loan Agreement, the
Note, and the Warrant are together referred to as the
“Loan
Documents.” Pursuant to the terms of the Loan
Documents, the Note was payable in full on or before January 31,
2015. The Note was not paid when due and is now in
default.
Lender desires to forbear
from seeking collection of the Note and exercising its remedies
under the Loan Documents in order to enhance its financial recovery
and obtain an extension of the Warrant.
Agreement
NOW THEREFORE, for and in
consideration of the foregoing premises, which are incorporated
herein by reference, the mutual promises and covenants set forth
herein, and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree
as follows.
1. Confirmation
of Indebtedness. Borrower confirms the indebtedness due
Lender under the Loan Documents.
2. Waiver
of Default. Lender waives Borrower’s default as of the
date of this Amendment under the Loan Documents and agrees not to
take any action or seek any remedy or relief under any of the Loan
Documents arising from the non-payment by Borrower of the Note and
Loan as of the date hereof.
3. Forbearance
and Extension. Lender shall forbear from collecting the Loan
and Note under the Loan Documents or exercising any right or remedy
thereunder as of the date hereof and extends the due date for
repayment of the Loan and the payment of the Note to January 31,
2017. The Lender shall mark conspicuously on the original of the
Note in Lender’s possession the foregoing extension or, at
the request of the Borrower, execute and deliver to Borrower an
amendment or allonge to be affixed to the Note further evidencing
such extension.
4. Extension
of Warrant. Borrower extends the expiration date of the
Warrant so that it evidences the right of the Lender to purchase
12,912,500 shares of Borrower’s common stock at a price of
$0.425 per share at any time on or before the later of January 31,
2017 or before one year from the date of OTE’s initial public
offering on a public exchange. At the request of Lender, Borrower
will execute and deliver to Lender a new replacement Warrant
reflecting these revised terms against surrender of the original
Warrant.
1
5. Confirmation
of Loan Documents. Except as expressly modified by the terms
of this Amendment, the terms, covenants, conditions,
representations, and warranties, and each of them, shall remain in
full force and effect.
6. Signature.
This Amendment may be executed in multiple counterparts of like
tenor, each of which shall be deemed an original and all of which
taken together will constitute one and the same instrument.
Counterpart signatures of this Amendment that are manually signed
and delivered by a uniquely marked, computer-generated signature in
portable document format (PDF) or other electronic method shall be
deemed to constitute signed original counterparts hereof and shall
bind the parties signing and delivering in such manner and shall be
the same as the delivery of an original.
DATED as of the year and date first
above written by the undersigned duly authorized
signatories.
BORROWER:
OCEAN THERMAL
ENERGY CORPORATION
By: /s/ Jeremy
Feakins
Name: Jeremy
Feakins
Title: Chairman
& CEO
LENDER
JEREMY P. FEAKINS
& ASSOCIATES LLC
By: /s/ Edward M.
Baer
Name: Edward M.
Baer
Title: Partner
& CFO
2
LOAN
AGREEMENT
This Loan Agreement (the
“Loan
Agreement”) is made as of December 22, 2014, by and
between Mart Inn, Inc. (a New York Corporation) (the
“Lender”) and
Ocean Thermal Energy Corporation (the “Borrower”).
W
I T N E S S E T H:
WHEREAS, the Borrower
desires to obtain certain credit facilities, as set forth in this
Loan Agreement, and the Lender is willing to provide such credit
facilities on the terms and conditions set forth
herein;
NOW, THEREFORE, the Lender
and the Borrower, intending to be legally bound, hereby agree as
follows:
1. The
Credit Facilities. The Lender agrees, pursuant to the terms
and conditions of this Loan Agreement and the other Loan Documents
(as defined below), to make a loan to the Borrower in a principal
amount of Two Hundred Thousand Dollars ($200,000.00) (the
“Loan”). The
Loan shall be evidenced by a Note (the “Note”) and shall be made in
accordance with and subject to the terms and conditions of this
Loan Agreement, the Note, and the other Loan
Documents.
2. The
Loan Documents. The following documents and materials
(together with this Loan Agreement and any other accessory
documents executed in connection herewith, such documents and
materials, as they may be amended, restated, renewed and extended,
are collectively referred to herein as the “Loan Documents”) have been or will
be executed in connection with the Loan:
a. Note;
b. Warrants,
of even date herewith, granting to Lender, as additional
consideration for making the Loan to the Borrower, the right to
purchase up to 200,000 shares of Ocean Thermal Energy Corp. common
stock at a price of $1.00 per share.
3. Interest
Rate. The Loan shall bear interest as set forth in the
Note.
4. Repayment.
Repayment of the Loan shall be made as set forth in the Note, and
pre-payment shall be permitted as therein specified.
5. Use
of Proceeds. The proceeds of the Loan shall be used to
support the development and construction costs for the
Borrower’s Baha Mar Resort Seawater Air-conditioning project
and general overhead expenses including costs associated with the
Borrower’s public listing.
6. Expenses
and Fees. The Borrower and Lender agree that each shall bear
its own expenses and fees related to this transaction.
7. Representations
and Warranties. The Borrower, in order to induce the Lender
to make the Loan, make the following representations, warranties,
and promises:
a. Good
Standing. The Borrower is a corporation, duly organized,
validly existing and in good standing under the laws of the state
of its incorporation, with powers adequate to own its properties,
and to carry on its business as presently conducted by
it.
b. Authority;
Binding Agreement. The execution, delivery, and performance
of the Loan Documents are within the corporate power of the
Borrower, have been duly authorized by the Borrower, and are not in
contravention of law or the terms of the Borrower’s
Certificate of Incorporation and By-Laws. The execution, delivery
and performance of the Loan Documents does not and will not
contravene any documents, agreements or undertakings to which the
Borrower is a party or by which it is bound. No approval of any
person, corporation, governmental body or other entity is a
prerequisite to the execution, delivery, validity or enforceability
and performance of the Loan Documents. When executed by the
Borrower, the Loan Documents to which the Borrower is a party will
constitute the legally binding obligations of the Borrower,
enforceable in accordance with their terms except as the
enforceability may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors’ rights
generally.
c. Financial
Information. Subject to any limitation stated therein or in
connection therewith, all balance sheets, earning statements,
accounts receivable lists and aging schedules and other financial
data which have been or shall be furnished to the Lender by the
Borrower to induce the Lender to enter into this Loan Agreement or
otherwise in connection herewith, do or will fairly represent the
financial condition of the Borrower in all material respects, are
accurate, complete and correct in all material respects insofar as
completeness may be necessary to give the Lender a true and
accurate knowledge of the subject matter as of the date hereof.
There are no material liabilities, direct or indirect, fixed or
contingent, of the Borrower as of the date of such financial
statements which are not reflected therein or in the notes thereto.
There has been no material adverse change in the financial
condition or operations of the Borrower since the date of said
financial statements or since the respective dates on which either
furnished the Lender with other financial data or other
representations about their financial condition.
d. Solvency.
Any borrowings to be made by Borrower under this Loan Agreement do
not and will not render Borrower insolvent. The Borrower is
contemplating neither the filing of a petition under any state or
federal bankruptcy or insolvency laws, nor the liquidation of all
or a major portion of its property, and the Borrower has no
knowledge or any reason to know of any person contemplating the
filing of any such petition against it.
8. Covenants.
The Borrower agrees with the Lender that during the term of this
Agreement and the other Loan Documents, and any extensions,
replacements or renewals thereof (except as otherwise agreed by the
Lender in writing):
a. Insurance.
The Borrower shall maintain adequate insurance policies as are
customary.
b. Notice
of Default; Litigation. The Borrower shall notify the Lender
in writing immediately upon becoming aware of any default
hereunder, or of any actions, suits, investigations, or proceedings
at law, in equity or before any governmental authority that may
have a material adverse effect on the Borrower, pending or
threatened, against or affecting the Borrower or involving the
validity or enforceability of the Loan Documents.
c. Financial
Information. The Borrower shall furnish, upon request, to
the Lender on an annual basis, federal income tax returns of the
Borrower and annual financial statements of the Borrower, compiled
by certified public accountants, within one hundred twenty (120)
days after the end of each fiscal year; and (ii) on a fiscal
quarter basis, internally-prepared interim financial statements of
the Borrower in a form satisfactory to Lender within thirty (30)
days of the close of each fiscal quarter.
d. Expenses.
Each Party shall pay its own costs and expenses (including, but not
limited to, attorneys’ fees) incidental to the Loan, to the
preservation the Lender’s interests under the Loan Documents
and to the collection of all obligations pursuant to the Loan
Documents.
e. Further
Assurances. Each Party shall execute such documents as the
as the other Party may reasonably request relating to the
Loan.
9. Conditions
Precedent. The obligation of the Lender to make the Loan is
subject to the reasonable satisfaction by the Lender of the
following conditions precedent:
a. The
Borrower’s representations and warranties as contained herein
shall be accurate and complete as of the date of
closing;
b. The
Borrower shall not be in default under any of the covenants
contained herein as of the date of closing;
c. The
Borrower shall have executed and delivered all of the Loan
Documents to which it is a party;
d. The
Borrower shall have delivered to the Lender all of the documents
(fully executed) and materials and satisfied all of the
requirements reasonably requested by Lender to evidence the
obligations of Borrower with respect to the Loan in such form and
substance as may be reasonably acceptable to the Lender;
and
e. The
Borrower shall provide the Lender with written confirmation that
there are no known disputes or pending actions between the Borrower
and the Internal Revenue Service.
10. Events
of Default; Acceleration; Remedies. The occurrence of any
one or more of the following events shall constitute a default (an
“Event of
Default”) under this Agreement:
a. If
any statement, representation or warranty made by the Borrower in
the Loan Documents, in connection therewith or any financial
statement, report, schedule, or certificate furnished to the Lender
by the Borrower, any of its representatives, employees or
accountants during the term of this Agreement shall prove to have
been false or misleading when made, or subsequently becomes false
or misleading, in any material respect;
b. Default
by the Borrower in payment within five (5) days of the due date of
any principal or interest or other amounts called for under the
Loan Documents;
c. Default
by the Borrower in the performance or observance of any of its
obligations under the provisions, terms, conditions, warranties or
covenants of the Loan Documents and such failure shall continue for
a period of thirty (30) days or more following receipt of written
notice thereof from the Lender.
d. The
occurrence of an event of default not cured within any applicable
remedy period, under any obligations of the Borrower to the Lender
other than under the Loan Documents, whether created prior to,
concurrent with, or subsequent to obligations arising out of the
Loan Documents;
e. The
Borrowers shall (i) apply for or consent to the appointment of a
receiver, trustee or liquidator of any of their or its property,
(ii) admit in writing their or its inability to pay their or its
debts as they mature, (iii) make a general assignment for the
benefit of creditors, (iv) be adjudicated a bankrupt or insolvent,
(v) file a voluntary petition in bankruptcy, or a petition or an
answer seeking reorganization to take advantage of any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law or statute, or an answer admitting
the material allegations of a petition filed against it or he in
any proceeding under any such law or (vi) offer or enter into any
compromise, extension or arrangement seeking relief or extension of
their or its debts;
f. In
the event that proceedings shall be commenced or an order, judgment
or decree shall be entered against the Borrower, without the
application, approval or consent of the Borrower (as the case may
be) in or by any court of competent jurisdiction, relating to the
bankruptcy, dissolution, liquidation, reorganization or the
appointment of a receiver, trustee or liquidator of the Borrower of
all or a substantial part of their or its assets, and such
proceedings, order, judgment or decree shall continue undischarged
or unstayed for a period of 90 days.
Upon the occurrence
of any Event of Default, (i) all of the obligations of the Borrower
to the Lender under this Loan Agreement will immediately become due
and payable without further demand, notice or protest, all of which
are hereby expressly waived; (ii) the Lender may proceed to protect
and enforce its rights, at law, in equity, or otherwise, against
the Borrower under the Uniform Commercial Code, any other
applicable law, any Loan Document, any agreement between the
Borrower and the Lender; and/or (iii) the Lender’s commitment
to make further loans under this Agreement or any other agreement
with the Borrower will immediately cease and
terminate.
11. General
Provisions. The Lender and the Borrower agree as follows
with respect to the Loan Documents:
a. Waivers.
i. The
Borrower hereby waives, to the fullest extent permitted by law,
presentment, notice, protest and all other demands and notices of
any description and assent (1) to any extension of the time of
payment or any other indulgence, and (2) to the release of any
other person primarily or secondarily liable for the obligations
evidenced hereby.
ii. No
delay or omission on the part of the Lender in exercising any
right, privilege, or remedy hereunder shall operate as a waiver of
such right, privilege, or remedy or of any other right, privilege,
or remedy under the Loan Documents. No waiver of any right,
privilege or remedy or any amendment to the Loan Documents shall be
effective unless made in writing and signed by the Lender. A waiver
on any one occasion shall not be construed as a bar to or waiver of
any such right, privilege and/or remedy on any future occasion. No
single or partial exercise of any power hereunder shall preclude
other or future exercise thereof or the exercise of any other
right. The acceptance by the Lender of any payment after any
default under the Loan Documents shall not operate to extend the
time of payment of any amount then remaining unpaid hereunder or
constitute a waiver of any rights of the Lender hereof under the
Loan Documents.
b. Binding
Agreement. The Loan Documents shall inure to the benefit of
and shall be binding upon the parties hereto and their respective
heirs, legal representatives, successors, and assigns;
c. Entire
Agreement and Amendment. The Loan Documents constitute the
entire agreement between the Lender and the Borrower with respect
to the Loan and shall not be changed in any respect except by
written instrument signed by the parties thereto;
d. Governing
Law. The Loan Documents and all rights and obligations
thereunder, including matters of construction, validity, and
performance, shall be governed by the laws of the Commonwealth of
Pennsylvania;
e. Severability.
If any term, condition, or provision of the Loan Documents or the
application thereof to any person or circumstance shall, to any
extent, be held invalid or unenforceable according to law, then the
remaining terms, conditions, and provisions of the Loan Documents,
or the application of any such invalid or unenforceable term,
condition or provision to persons or circumstances other than those
to which it is held invalid or unenforceable, shall not be affected
thereby, and each term, condition, and provision of the Loan
Documents shall be valid and enforced to the fullest extent
permitted by law;
f. Notice.
Any demand or notice required or permitted under the Loan Documents
shall be effective if either: (i) hand-delivered to the addressee,
or (ii) deposited in the mail, registered or certified, return
receipt requested and postage prepaid, or delivered to a private
express company addressed to the addressee: (A) at the address
shown below, or (B) if such party has provided the other in writing
with a change of address, at the last address so provided. Any
notice or demand mailed as provided in this paragraph shall be
deemed given and received on the earlier of: (i) the date received;
(ii) or the date of delivery, refusal, or non-delivery as indicated
on the return receipt, if sent by mail or private express as
provided above.
|
Borrower:
|
Lender:
|
|
Ocean Thermal
Energy Corporation
|
Mart Inn,
Inc.
|
|
800 South Queen
Street
|
c/o LaDelfa,
Schoder & Walker PC
|
|
Lancaster, PA
17603
|
112 Main
Street
|
|
|
PO Box
100
|
|
|
Mount Morris, NY
14510
|
|
With a copy
to:
|
|
|
Gerald
Koenig
|
|
|
1629 K Street,
NW
|
|
|
Suite
300
|
|
|
Washington, DC
20006
|
|
|
|
|
g. Conflict
Among Loan Documents. In the event of any conflict between
the terms, covenants, conditions and restrictions contained in the
Loan Documents, the term, covenant and condition or restriction
which grants the greater benefit upon the Lender shall control. The
determination as to which term, covenant, condition, or restriction
is the more beneficial shall be made by the Lender in its sole
discretion.
h. Costs
of Collection. The Borrower agrees to pay on demand all
reasonable out-of-pocket costs of collection under the Loan
Documents, including reasonable attorneys’ fees, whether or
not any foreclosure or other action is instituted by the Lender in
its discretion.
i. Rights
Cumulative. All rights and remedies of the Lender, whether
granted herein or otherwise, shall be cumulative and may be
exercised singularly or concurrently.
[SIGNATURE PAGE
FOLLOWS]
IN WITNESS WHEREOF, the
Borrowers and the Lender have executed this Loan Agreement as of
the date indicated above.
OCEAN THERMAL
ENERGY CORPORATION
By: /s/ Jeremy P.
Feakins
Name: Jeremy P.
Feakins
Title: Group
Executive Chairman
MART INN,
INC.
By: /s/ Martin
Estruch
Name: Martin
Estruch
Title:
President
PROMISSORY
NOTE
|
$200,000.00
|
December 22,
2014
|
FOR VALUE RECEIVED,
Ocean Thermal Energy Corporation, a Delaware corporation with an
address of 800 South Queen Street, Lancaster, PA 17603 (the
“Borrower”),
hereby promises to pay to the order of Mart Inn, Inc. (the
“Lender”), at
c/o LaDelfa, Schoder & Walker PC, 112 Main Street, PO Box 100,
Mount Morris, NY 14510, or at any other place designated to the
Borrower by the Lender in writing, the principal sum of Two Hundred
Thousand Dollars ($200,000.00), with interest as herein specified,
and under the terms and conditions stated herein.
1. Repayment
of Principal and Interest. Principal and interest shall be
repaid by Borrower to Lender as follows: The Borrower shall repay
the principal amount of $200,000.00 on the earlier of (i) March 31,
2015, or (ii) the completion by the Company of equity financing
resulting in the Company’s receipt of gross proceeds of at
least $2,000,000, or (iii) the Financial Closing of the Baha Mar
Project and release of funds by Deutsche Bank; (the
“Maturity
Date”), the Borrower shall pay to the Lender the
unpaid principal balance of the Loan, all accrued and unpaid
interest thereon, and all other costs and amounts payable to the
Lender hereunder.
All amounts payable
hereunder are payable in lawful money of the United States of
America at the address of the Lender set forth above in immediately
available funds. Prior to a Default, all payments shall be applied
first on account of other charges, second to accrued interest due
on the unpaid balance of principal and finally the remainder of
such payments shall be applied to unpaid principal. If a Default
occurs, payments and monies received may be applied in any manner
and order deemed appropriate by the Lender.
2. Rates
and Calculation of Interest. Interest on the outstanding and
unpaid principal balance of the Loan shall be calculated for the
actual number of days in the then current calendar year that
principal is outstanding, based upon a year of three hundred sixty
(360) days, accrue and shall be paid at the fixed rate of interest
per annum equal to twelve percent (12%).
In no event shall
the rate of interest hereunder be in excess of the maximum amount
permitted by law. In the event the rate of interest hereunder is
determined to be in excess of the maximum amount permitted by law,
such interest rate shall be automatically decreased to the maximum
rate permitted by law.
In addition to all
other rights contained in this Note, if a Default (defined herein)
occurs and as long as a Default continues, all outstanding sums
hereunder shall bear interest at the interest rate otherwise
prevailing under the preceding paragraph, plus 10% (the
“Default Rate”).
The Default Rate shall also apply from acceleration until all
unpaid sums and obligations (whether matured or contingent)
hereunder and any judgments thereon are paid in full.
3. Prepayment.
This Note may be prepaid in whole or in part at any time at the
option of the Borrower without premium or penalty. Each prepayment
shall be applied first to the payment in full of other charges
payable hereunder, then to accrued interest and the remainder of
such payment, if any, shall be applied to the reduction of the
unpaid principal balance.
4. Loan
Agreement. This Note is the Note referred to in the
agreements between the Borrower and the Lender, including, but not
limited to the Loan Agreement of even date herewith (the
“Loan Agreement”) and the Loan Documents referenced
therein (the “Loan Documents”). The failure of the
Borrower to execute any such agreement or other document shall not
affect the validity of this Note. This Note shall evidence all
obligations of the Borrower to the Lender under the Loan Agreement
and Loan Documents.
5. Integration.
The terms and conditions of this Note, together with the terms and
conditions of the Loan Agreement and the Loan Documents, contains
the entire understanding between the Borrower and the Lender with
respect to the indebtedness evidenced hereby. Such understanding
may not be amended, modified, or terminated except in writing duly
executed by the parties hereto.
6. Security.
This Note is unsecured.
7. Default
and Remedies. The occurrence of any default or event of
default (“Default”), as defined in the Loan
Agreement and/or the Loan Documents, shall constitute a Default of
and under this Note.
When a Default
occurs, the Lender, at its option, may declare the entire unpaid
balance of principal of this Note, unpaid interest thereon and all
other charges, costs and expenses provided for herein, in the Loan
Agreement and/or any of the Loan Documents, and/or pursuant to any
other agreements between Borrower and Lender, immediately due and
payable without notice to or demand upon the Borrower. Upon the
occurrence of a Default, the Lender shall have all of the rights
and remedies with respect the Loan Agreement, the Loan Documents,
this Note, and/or otherwise provided for by law, in equity, and
otherwise.
8. Waiver.
The undersigned hereby waives presentment for payment, demand,
notice of nonpayment, notice of protest, and protest of this Note,
and all of the notices in connection with delivery, acceptance,
performance, default, or enforcement of the payment of this Note.
The failure by the Lender to exercise any right or remedy shall not
be taken to waive the exercise of the same thereafter for the same
or any subsequent Default. The Borrower waives any claim of
set-off, recoupment and/or counterclaim. All notices to the
Borrower shall be adequately given if mailed postage prepaid to the
address appearing in the Lender’s records. The Borrower
intends this Note to be a sealed instrument and to be legally bound
hereby.
9. Holder.
The references to “Lender” herein shall be deemed to be
references to any subsequent assignee, transferee, or other holder
of this Note.
10. Governing
Law. This Note shall be construed in accordance with the
domestic internal laws of the Commonwealth of Pennsylvania, without
reference to any conflict of laws provisions, as a Note made,
delivered and to be wholly performed within the Commonwealth of
Pennsylvania.
11. Judicial
Proceedings. Any suit, action, or proceeding, whether claim
or counterclaim, brought or instituted by the Borrower or the
Lender, or any of their successors or assigns, on or with respect
to this Note or the dealings of the Borrower or the Lender with
respect hereto, shall be tried only by a court and not by a jury.
THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY
WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION, OR
PROCEEDING. In connection therewith, the Borrower agrees that any
suit, action, or proceeding arising hereunder or with respect
hereto will be instituted in the Court of Common Pleas of York
County, Pennsylvania, or the United States District Court for the
Middle District of Pennsylvania, and irrevocably and
unconditionally submits to the jurisdiction of each such Court for
such purpose. Further, the Borrower waives any right it may have to
claim or recover, in any such suit, action or proceeding, any
special, exemplary, punitive, or consequential damages or any
damages other than, or in addition to, actual damages. THE BORROWER
ACKNOWLEDGES AND AGREES THAT THIS PARAGRAPH IS A SPECIFIC AND
MATERIAL ASPECT OF THIS NOTE AND THAT THE LENDER WOULD NOT EXTEND
CREDIT IF THE WAIVERS SET FORTH IN THIS PARAGRAPH WERE NOT A PART
OF THIS NOTE.
12. Confession
of Judgment. Upon Default, the Borrower hereby irrevocably
authorizes the Prothonotary or any attorney of any court of record
in Pennsylvania or elsewhere to appear for and confess judgment
against the Borrower for any and all amounts unpaid hereunder,
together with any other charges, costs and expenses for which
Borrower is liable under this Note, and together with fees of
counsel in the reasonable amount of five percent (5%) of all of the
foregoing (but in no event less than $5,000.00) and costs of suit,
releasing all errors and waiving all rights of appeal. If a copy of
this Note, verified by affidavit, shall have been filed in such
proceeding, it shall not be necessary to file the original as a
warrant of attorney. The Borrower hereby waives the right to any
stay of execution and the benefit of all exemption laws now or
hereafter in effect. No single exercise of this warrant and power
to confess judgment shall be deemed to exhaust this power, whether
or not any such exercise shall be held by any court to be invalid,
voidable or void, but this power shall continue undiminished and
may be exercised from time to time as often as the Lender shall
elect until all sums due hereunder shall have been paid in full.
Interest shall continue to accrue after entry of judgment
hereunder, by confession, default, or otherwise, at the higher of
the prevailing rate of interest under this Note, or the judgment
rate of interest under applicable law. All waivers granted in this
paragraph are given to the extent permitted by the Pennsylvania
Rules of Civil Procedure.
13. NOTICE:
THIS NOTE CONTAINS, AT PARAGRAPH 12, A WARRANT OF ATTORNEY TO
CONFESS JUDGMENT AGAINST THE BORROWER. IN GRANTING THIS WARRANT OF
ATTORNEY TO CONFESS JUDGMENT AGAINST THE BORROWER, THE BORROWER
HEREBY KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY, AND ON THE ADVICE
OF SEPARATE COUNSEL OF THE BORROWER, UNCONDITIONALLY WAIVES ANY AND
ALL RIGHTS THE BORROWER HAS OR MAY HAVE TO PRIOR NOTICE AND AN
OPPORTUNITY FOR HEARING UNDER THE RESPECTIVE CONSTITUTIONS AND LAWS
OF THE UNITED STATES, THE COMMONWEALTH OF PENNSYLVANIA, OR OF ANY
OTHER STATE.
BORROWER:
OCEAN THERMAL
ENERGY CORPORATION
By: /s/ Jeremy P.
Feakins
Name: Jeremy P.
Feakins
Title: Group
Executive Chairman
WARRANT
to Purchase up to
200,000 Shares of the
Common Stock,
$0.0001 Par Value Per Share,
of
OCEAN
THERMAL ENERGY CORPORATION
This is to certify
that, for value received, Mart Inn, Inc. (“Lender”) or any permitted
transferee (Lender or such transferee being hereinafter called the
“Holder”) is
entitled to purchase, subject to the provisions of this Warrant,
from Ocean Thermal Energy Corporation, a Delaware corporation
(“OTEC”), at any
time on or after the date hereof, an aggregate of up to 200,000
fully paid and non-assessable shares of common stock, $0.0001 par
value (the “Common
Stock”), of OTEC at a price per share equal to $1.00,
subject to adjustment as herein provided (the “Exercise Price”).
1. Exercise
of Warrant. Subject to the provisions hereof, this Warrant
may be exercised, in whole or in part, or sold, assigned or
transferred at any time or from time to time up to four years
hereafter. This Warrant shall be exercised by presentation and
surrender hereof to OTEC at the principal office of OTEC,
accompanied by (i) a written notice of exercise, (ii) payment to
OTEC, for the account of OTEC, of the Exercise Price for the number
of shares of Common Stock specified in such notice, and (iii) a
certificate of the Holder specifying the event or events, which
have occurred and entitle the Holder to exercise this Warrant. The
Exercise Price for the number of shares of Common Stock specified
in the notice shall be payable in immediately available
funds.
Upon such
presentation and surrender, OTEC shall issue promptly (and within
one business day if reasonably requested by the Holder) to the
Holder or its assignee, transferee or designee the number of shares
of Common Stock to which the Holder is entitled hereunder. OTEC
covenants and warrants that such shares of Common Stock, when so
issued, will be duly authorized, validly issued, fully paid and
non-assessable, and free and clear of all liens and
encumbrances.
If this Warrant is
exercised in part only, OTEC shall, upon surrender of this Warrant
for cancellation, execute and deliver a new Warrant evidencing the
rights of the Holder thereof to purchase the balance of the shares
of Common Stock issuable hereunder. Upon receipt by OTEC of this
Warrant, in proper form for exercise, the Holder shall be deemed to
be the holder of record of the shares of Common Stock issuable upon
such exercise, notwithstanding that the stock transfer books of
OTEC may then be closed or that certificates representing such
shares of Common Stock shall not then be actually delivered to the
Holder. OTEC shall pay all expenses, and any and all United States
federal, state and local taxes and other charges, that may be
payable in connection with the preparation, issuance and delivery
of stock certificates pursuant to this Paragraph 1 in the name of
the Holder or its assignee, transferee or designee.
2. Reservation
of Shares; Preservation of Rights of Holder.
OTEC shall at all
times while this Warrant is outstanding and unexercised, maintain
and reserve, free from preemptive rights, such number of authorized
but unissued shares of Common Stock as may be necessary so that
this Warrant may be exercised without any additional authorization
of Common Stock after giving effect to all other options, warrants,
convertible securities and other rights to acquire shares of Common
Stock at the time outstanding. OTEC further agrees that (i) it will
not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary
act or omission, avoid or seek to avoid the observance or
performance of any of the covenants, stipulations or conditions to
be observed or performed hereunder, and (ii) it will promptly take
all action reasonably necessary to protect the rights of the Holder
against dilution as provided herein.
3. Fractional
Shares. OTEC shall not be required to issue any fractional
shares of Common Stock upon exercise of this Warrant. In lieu of
any fractional shares, the Holder shall be entitled to receive an
amount in cash equal to the amount of such fraction multiplied by
the Exercise Price.
4. Exchange
or Loss of Warrant. This Warrant is exchangeable, without
expense, at the option of the Holder, upon presentation and
surrender hereof at the principal office of OTEC for other warrants
of different denominations entitling the Holder to purchase, in the
aggregate, the same number of shares of Common Stock issuable
hereunder. The term “Warrant” as used herein includes
any warrants for which this Warrant may be exchanged. Upon receipt
by OTEC of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and (in the case
of loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, OTEC will execute and deliver a new Warrant
of like tenor and date.
5. Adjustment.
The number of shares of Common Stock issuable upon the exercise of
this Warrant and the Exercise Price shall be subject to adjustment
from time to time as provided in this Paragraph.
(A) Stock
Dividends, etc.
(1) Stock
Dividends. In case OTEC shall pay or make a dividend or
other distribution on any class of capital stock of OTEC payable in
Common Stock, the number of shares of Common Stock issuable upon
exercise of this Warrant shall be increased by multiplying such
number of shares by a fraction of which the denominator shall be
the number of shares of Common Stock outstanding at the close of
business on the day immediately preceding the date of such
distribution and the numerator shall be the sum of such number of
shares and the total number of shares of Common Stock constituting
such dividend or other distribution, such increase to become
effective immediately after the opening of business on the day
following such distribution.
(2) Subdivisions.
In case outstanding shares of Common Stock shall be subdivided into
a greater number of shares of Common Stock, the number of shares of
Common Stock issuable upon exercise of this Warrant at the opening
of business on the day following the day upon which such
subdivision becomes effective shall be proportionately increased,
and, conversely, in case outstanding shares of Common Stock shall
each be combined into a smaller number of shares of Common Stock,
the number of shares of Common Stock issuable upon exercise of this
Warrant at the opening of business on the day following the day
upon which such combination becomes effective shall be
proportionately decreased, such increase or decrease, as the case
may be, to become effective immediately after the opening of
business on the day following the date upon which such subdivision
or combination becomes effective.
(3) Reclassifications.
The reclassification of Common Stock into securities (other than
Common Stock) and/or cash and/or other consideration shall be
deemed to involve a subdivision or combination, as the case may be,
of the number of shares of Common Stock outstanding immediately
prior to such reclassification into the number or amount of
securities and/or cash and/or other consideration outstanding
immediately thereafter and the effective date of such
reclassification shall be deemed to be “the day upon which
such subdivision becomes effective,” or “the day upon
which such combination becomes effective,” as the case may
be, within the meaning of clause (2) above.
(4) Optional
Adjustments. OTEC may make such increases in the number of
shares of Common Stock issuable upon exercise of this Warrant, in
addition to those required by this subparagraph (A), as shall be
determined by its Board of Directors to be advisable in order to
avoid taxation so far as practicable of any dividend of stock or
stock rights or any event treated as such for federal income tax
purposes to the recipients.
(5) Adjustment
to Exercise Price. Whenever the number of shares of Common
Stock issuable upon exercise of this Warrant is adjusted as
provided in this Paragraph 5(A), the Exercise Price shall be
adjusted by a fraction in which the numerator is equal to the
number of shares of Common Stock issuable prior to the adjustment
and the denominator is equal to the number of shares of Common
Stock issuable after the adjustment, rounded to the nearest
cent.
(B) Certain
Sales of Common Stock.
(1) Adjustment
to Shares Issuable. If and whenever OTEC sells or otherwise
issues (other than under circumstances in which Paragraph 5(A)
applies) any shares of Common Stock, the number of shares of Common
Stock issuable upon exercise of this Warrant shall be increased by
multiplying such number of shares by a fraction, the denominator of
which shall be the number shares of Common Stock outstanding at the
close of business on the day immediately preceding the date of such
sale or issuance and the numerator of which shall be the sum of
such number of shares and the total number of shares constituting
such sale or other issuance, such increase to become effective
immediately after the opening of business on the day following such
sale or issuance.
(2) Adjustment
to Exercise Price. If and whenever OTEC sells or otherwise
issues any shares of Common Stock (excluding any stock dividend or
other issuance not for consideration to which Paragraph 5(A)
applies or shares of Common Stock issued or issuable in connection
with awards granted under the OTEC Stock Option Plans) for a
consideration per share which is less than the Exercise Price at
the time of such sale or other issuance, then in each such case the
Exercise Price shall be forthwith changed (but only if a reduction
would result) to the price (calculated to the nearest cent)
determined by dividing: (i) an amount equal to the sum of (aa) the
number of shares of Common Stock outstanding immediately prior to
such issue or sale, multiplied by the then effective Exercise
Price, plus (bb) the total consideration, if any, received and
deemed received by OTEC upon such issue or sale, by (ii) the total
number of shares of Common Stock outstanding immediately after such
issue or sale.
(C) Definition.
For purposes of this Paragraph 5, the term “Common
Stock” shall include (1) any shares of OTEC of any class or
series which has no preference or priority in the payment of
dividends or in the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding up of OTEC and
which is not subject to redemption by OTEC, and (2) any rights or
options to subscribe for or to purchase shares of Common Stock or
any stock or securities convertible into or exchangeable for shares
of Common Stock (such convertible or exchangeable stock or
securities being hereinafter called “Convertible
Securities”), whether or not such rights or options or the
right to convert or exchange any such Convertible Securities are
immediately exercisable. For purposes of any adjustments made under
Paragraph 5(A) or 5(B) as a result of the distribution, sale or
other issuance of rights or options or Convertible Securities, the
number of shares of Common Stock outstanding after or as a result
of the occurrence of events described in Paragraph 5(A)(1) or
5(B)(1) shall be calculated by assuming that all such rights,
options or Convertible Securities have been exercised for the
maximum number of shares issuable thereunder.
6. Notice.
Whenever the number of shares of Common Stock for which this
Warrant is exercisable is adjusted as provided in Paragraph 5, OTEC
shall promptly compute such adjustment and mail to the Holder a
certificate, signed by the principal financial officer of OTEC,
setting forth the number of shares of Common Stock for which this
Warrant is exercisable as a result of such adjustment having become
effective.
7. Rights
of the Holder.
(A) Without
limiting the foregoing or any remedies available to the Holder, it
is specifically acknowledged that the Holder would not have an
adequate remedy at law for any breach of the provisions of this
Warrant and shall be entitled to specific performance of
OTEC’s obligations under, and injunctive relief against any
actual or threatened violation of the obligations of any person
subject to, this Warrant.
(B) The
Holder shall not, by virtue of its status as Holder, be entitled to
any rights of a stockholder in OTEC.
8. Termination.
This Warrant and the rights conferred hereby shall terminate four
years hereafter.
9. Governing
Law. This Warrant shall be deemed to have been delivered in,
and shall be governed by and interpreted in accordance with the
substantive laws of, the Commonwealth of Pennsylvania, except to
the extent that Delaware law may govern certain aspects of this
Warrant as it relates to OTEC.
Dated: December 22,
2014
OCEAN
THERMAL ENERGY CORPORATION
By: /s/ Jeremy P.
Feakins
Name: Jeremy P.
Feakins
Title: Group
Executive Chairman
LOAN
AGREEMENT
This Loan Agreement
(the “Loan
Agreement”) is made as of December 26, 2014, by and
between James G. Garner, Jr. (the “Lender”) and Ocean Thermal Energy
Corporation (the “Borrower”).
WITNESSETH:
WHEREAS, the
Borrower desires to obtain certain credit facilities, as set forth
in this Loan Agreement, and the Lender is willing to provide such
credit facilities on the terms and conditions set forth
herein;
NOW, THEREFORE, the
Lender and the Borrower, intending to be legally bound, hereby
agree as follows:
1. The
Credit Facilities. The Lender agrees, pursuant to the terms
and conditions of this Loan Agreement and the other Loan Documents
(as defined below), to make a loan to the Borrower in a principal
amount of up to One Hundred Thousand Dollars ($100,000) (the
“Loan”). The
Loan shall be evidenced by a Note (the “Note”) and shall be made in
accordance with and subject to the terms and conditions of this
Loan Agreement, the Note and the other Loan Documents.
2. The
Loan Documents. The following documents and materials
(together with this Loan Agreement and any other accessory
documents executed in connection herewith, such documents and
materials, as they may be amended, restated, renewed and extended,
are collectively referred to herein as the “Loan Documents”) have been or will
be executed in connection with the Loan:
a. Note;
b. Warrants,
of even date herewith, granting to Lender, as additional
consideration for making the Loan to the Borrower, the right to
purchase up to 100,000 shares of Ocean Thermal Energy Corp. common
stock at a price of $1.00 per share.
3. Interest
Rate. The Loan shall bear interest as set forth in the
Note.
4. Repayment.
Repayment of the Loan shall be made as set forth in the Note, and
pre-payment shall be permitted as therein specified.
5. Use
of Proceeds. The proceeds of the Loan shall be used to
support the development and construction costs for the
Borrower’s Baha Mar Resort Seawater Air-conditioning project
and general overhead expenses including costs associated with the
Borrower’s public listing.
6. Expenses
and Fees. The Borrower and Lender agree that each shall bear
its own expenses and fees related to this transaction.
7. Representations
and Warranties. The Borrower, in order to induce the Lender
to make the Loan, make the following representations, warranties
and promises:
a. Good
Standing. The Borrower is a corporation, duly organized,
validly existing and in good standing under the laws of the state
of its incorporation, with powers adequate to own its properties,
and to carry on its business as presently conducted by
it.
b. Authority;
Binding Agreement. The execution, delivery and performance
of the Loan Documents are within the corporate power of the
Borrower, have been duly authorized by the Borrower and are not in
contravention of law or the terms of the Borrower’s
Certificate of Incorporation and By-Laws. The execution, delivery
and performance of the Loan Documents does not and will not
contravene any documents, agreements or undertakings to which the
Borrower is a party or by which it is bound. No approval of any
person, corporation, governmental body or other entity is a
prerequisite to the execution, delivery, validity or enforceability
and performance of the Loan Documents. When executed by the
Borrower, the Loan Documents to which the Borrower is a party will
constitute the legally binding obligations of the Borrower,
enforceable in accordance with their terms except as the
enforceability may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors’ rights
generally.
c. Financial
Information. Subject to any limitation stated therein or in
connection therewith, all balance sheets, earning statements,
accounts receivable lists and aging schedules and other financial
data which have been or shall be furnished to the Lender by the
Borrower to induce the Lender to enter into this Loan Agreement or
otherwise in connection herewith, do or will fairly represent the
financial condition of the Borrower in all material respects, are
accurate, complete and correct in all material respects insofar as
completeness may be necessary to give the Lender a true and
accurate knowledge of the subject matter as of the date hereof.
There are no material liabilities, direct or indirect, fixed or
contingent, of the Borrower as of the date of such financial
statements which are not reflected therein or in the notes thereto.
There has been no material adverse change in the financial
condition or operations of the Borrower since the date of said
financial statements or since the respective dates on which either
furnished the Lender with other financial data or other
representations about their financial
condition.
d. Solvency.
Any borrowings to be made by Borrower under this Loan Agreement do
not and will not render Borrower insolvent. The Borrower is
contemplating neither the filing of a petition under any state or
federal bankruptcy or insolvency laws, nor the liquidation of all
or a major portion of its property, and the Borrower has no
knowledge or any reason to know of any person contemplating the
filing of any such petition against it.
8. Covenants.
The Borrower agrees with the Lender that during the term of this
Agreement and the other Loan Documents, and any extensions,
replacements or renewals thereof (except as otherwise agreed by the
Lender in writing):
a. Insurance.
The Borrower shall maintain adequate insurance policies as are
customary.
b. Notice
of Default; Litigation. The Borrower shall notify the Lender
in writing immediately upon becoming aware of any default
hereunder, or of any actions, suits, investigations, or proceedings
at law, in equity or before any governmental authority that may
have a material adverse effect on the Borrower, pending or
threatened, against or affecting the Borrower or involving the
validity or enforceability of the Loan Documents.
c. Financial
Information. The Borrower shall furnish, upon request, to
the Lender (i) on an annual basis, federal income tax returns of
the Borrower and annual financial statements of the Borrower,
compiled by certified public accountants, within one hundred twenty
(120) days after the end of each fiscal year; and (ii) on a fiscal
quarter basis, internally-prepared interim financial statements of
the Borrower in a form satisfactory to Lender within thirty (30)
days of the close of each fiscal quarter.
d. Expenses.
Each party shall pay its own costs and expenses (including, but not
limited to, attorneys’ fees) incidental to the Loan, to the
preservation the Lender’s interests under the Loan Documents
and to the collection of all obligations pursuant to the Loan
Documents.
e. Further
Assurances. Each party shall execute such documents as the
other Party may reasonably request relating to the
Loan.
9. Conditions
Precedent. The obligation of the Lender to make the Loan is
subject to the reasonable satisfaction by the Lender of the
following conditions precedent:
a. The
Borrower’s representations and warranties as contained herein
shall be accurate and complete as of the date of
closing;
b. The
Borrower shall not be in default under any of the covenants
contained herein as of the date of closing;
c. The
Borrower shall have executed and delivered all of the Loan
Documents to which it is a party;
d. The
Borrower shall have delivered to the Lender all of the documents
(fully executed) and materials and satisfied all of the
requirements reasonably requested by Lender to evidence the
obligations of Borrower with respect to the Loan in such form and
substance as may be reasonably acceptable to the
Lender.
e. The
Borrower shall provide the Lender with written confirmation that
there are no known disputes or pending actions between the Borrower
and the Internal Revenue Service.
10. Events
of Default; Acceleration; Remedies. The occurrence of any
one or more of the following events shall constitute a default (an
“Event of
Default”) under this Agreement:
a. If
any statement, representation or warranty made by the Borrower in
the Loan Documents, in connection therewith or any financial
statement, report, schedule, or certificate furnished to the Lender
by the Borrower, any of its representatives, employees or
accountants during the term of this Agreement shall prove to have
been false or misleading when made, or subsequently becomes false
or misleading, in any material respect;
b. Default
by the Borrower in payment within five (5) days of the due date of
any principal or interest or other amounts called for under the
Loan Documents;
c. Default
by the Borrower in the performance or observance of any of its
obligations under the provisions, terms, conditions, warranties or
covenants of the Loan Documents and such failure shall continue for
a period of thirty (30) days or more following receipt of written
notice thereof from the Lender.
d. The
occurrence of an event of default not cured within any applicable
remedy period, under any obligations of the Borrower to the Lender
other than under the Loan Documents, whether created prior to,
concurrent with, or subsequent to obligations arising out of the
Loan Documents;
e. The
Borrowers shall (i) apply for or consent to the appointment of a
receiver, trustee or liquidator of any of their or its property,
(ii) admit in writing their or its inability to pay their or its
debts as they mature, (iii) make a general assignment for the
benefit of creditors, (iv) be adjudicated a bankrupt or insolvent,
(v) file a voluntary petition in bankruptcy, or a petition or an
answer seeking reorganization to take advantage of any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law or statute, or an answer admitting
the material allegations of a petition filed against it or he in
any proceeding under any such law or (vi) offer or enter into any
compromise, extension or arrangement seeking relief or extension of
their or its debts;
f. In
the event that proceedings shall be commenced or an order, judgment
or decree shall be entered against the Borrower, without the
application, approval or consent of the Borrower (as the case may
be) in or by any court of competent jurisdiction, relating to the
bankruptcy, dissolution, liquidation, reorganization or the
appointment of a receiver, trustee or liquidator of the Borrower of
all or a substantial part of their or its assets, and such
proceedings, order, judgment or decree shall continue undischarged
or unstayed for a period of 90 days.
Upon the occurrence
of any Event of Default, (i) all of the obligations of the Borrower
to the Lender under this Loan Agreement will immediately become due
and payable without further demand, notice or protest, all of which
are hereby expressly waived; (ii) the Lender may proceed to protect
and enforce its rights, at law, in equity, or otherwise, against
the Borrower under the Uniform Commercial Code, any other
applicable law, any Loan Document, any agreement between the
Borrower and the Lender; and/or (iii) the Lender’s commitment
to make further loans under this Agreement or any other agreement
with the Borrower will immediately cease and
terminate.
11. General
Provisions. The Lender and the Borrower agree as follows
with respect to the Loan Documents:
a. Waivers.
i. The
Borrower hereby waives, to the fullest extent permitted by law,
presentment, notice, protest and all other demands and notices of
any description and assent (1) to any extension of the time of
payment or any other indulgence, and (2) to the release of any
other person primarily or secondarily liable for the obligations
evidenced hereby.
ii. No
delay or omission on the part of the Lender in exercising any
right, privilege or remedy hereunder shall operate as a waiver of
such right, privilege or remedy or of any other right, privilege or
remedy under the Loan Documents. No waiver of any right, privilege
or remedy or any amendment to the Loan Documents shall be effective
unless made in writing and signed by the Lender. A waiver on any
one occasion shall not be construed as a bar to or waiver of any
such right, privilege and/or remedy on any future occasion. No
single or partial exercise of any power hereunder shall preclude
other or future exercise thereof or the exercise of any other
right. The acceptance by the Lender of any payment after any
default under the Loan Documents shall not operate to extend the
time of payment of any amount then remaining unpaid hereunder or
constitute a waiver of any rights of the Lender hereof under the
Loan Documents.
b. Binding
Agreement. The Loan Documents shall inure to the benefit of
and shall be binding upon the parties hereto and their respective
heirs, legal representatives, successors, and assigns;
c. Entire
Agreement and Amendment. The Loan Documents constitute the
entire agreement between the Lender and the Borrower with respect
to the Loan and shall not be changed in any respect except by
written instrument signed by the parties thereto;
d. Governing
Law. The Loan Documents and all rights and obligations
thereunder, including matters of construction, validity, and
performance, shall be governed by the laws of the Commonwealth of
Pennsylvania;
e. Severability.
If any term, condition, or provision of the Loan Documents or the
application thereof to any person or circumstance shall, to any
extent, be held invalid or unenforceable according to law, then the
remaining terms, conditions, and provisions of the Loan Documents,
or the application of any such invalid or unenforceable term,
condition or provision to persons or circumstances other than those
to which it is held invalid or unenforceable, shall not be affected
thereby, and each term, condition, and provision of the Loan
Documents shall be valid and enforced to the fullest extent
permitted by law;
f. Notice.
Any demand or notice required or permitted under the Loan Documents
shall be effective if either: (i) hand-delivered to the addressee,
or (ii) deposited in the mail, registered or certified, return
receipt requested and postage prepaid, or delivered to a private
express company addressed to the addressee: (A) at the address
shown below, or (B) if such party has provided the other in writing
with a change of address, at the last address so provided. Any
notice or demand mailed as provided in this paragraph shall be
deemed given and received on the earlier of: (i) the date received;
(ii) or the date of delivery, refusal or non-delivery as indicated
on the return receipt, if sent by mail or private express as
provided above.
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Borrower:
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Lender:
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Ocean Thermal
Energy Corporation
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James G. Garner,
Jr.
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800 South Queen
Street
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Lancaster, PA
17603
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With a copy
to:
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With copy
to:
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Gerald
Koenig
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8220 Crestwood
Heights Drive, #1105
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McLean VA
22102
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g. Conflict
Among Loan Documents. In the event of any conflict between
the terms, covenants, conditions and restrictions contained in the
Loan Documents, the term, covenant and condition or restriction
which grants the greater benefit upon the Lender shall control. The
determination as to which term, covenant, condition or restriction
is the more beneficial shall be made by the Lender in its sole
discretion.
h. Costs
of Collection. The Borrower agrees to pay on demand all
reasonable out-of-pocket costs of collection under the Loan
Documents, including reasonable attorneys’ fees, whether or
not any foreclosure or other action is instituted by the Lender in
its discretion.
i. Rights
Cumulative. All rights and remedies of the Lender, whether
granted herein or otherwise, shall be cumulative and may be
exercised singularly or concurrently.
IN WITNESS WHEREOF,
the Borrowers and the Lender have executed this Loan Agreement as
of the date indicated above.
OCEAN THERMAL
ENERGY CORPORATION
By: /s/ Jeremy P.
Feakins
Name: Jeremy P.
Feakins
Title: Group
Executive Chairman
Lender
By: /s/ James G.
Garner, Jr.
Name: James G.
Garner, Jr.
Title:
PROMISSORY
NOTE
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$100,000
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December 26,
2014
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FOR VALUE RECEIVED,
Ocean Thermal Energy Corporation, a Delaware corporation with an
address of 800 South Queen Street, Lancaster, PA 17603 (the
“Borrower”),
hereby promises to pay to the order of James G. Garner, Jr. (the
“Lender”), at
______________________, or at any other place designated to the
Borrower by the Lender in writing, the principal sum of One Hundred
Thousand Dollars ($100,000), with interest as herein specified, and
under the terms and conditions stated herein.
1. Repayment
of Principal and Interest. Principal and interest shall be
repaid by Borrower to Lender as follows: The Borrower shall repay
the principal amount of $100,000 on earlier of (i) the first
twelve-month anniversary of the date of issuance, or (ii) the
completion by the Company of equity financing resulting in the
Company's receipt of gross proceeds of at least $2,000,000, or
(iii) the Financial Closing of the Baha Mar Project and release of
funds by Deutsche Bank; (the "Maturity Date"), the Borrower
shall pay to the Lender the unpaid principal balance of the Loan,
all accrued and unpaid interest thereon, and all other costs and
amounts payable to the Lender hereunder.
All amounts payable
hereunder are payable in lawful money of the United States of
America at the address of the Lender set forth above in immediately
available funds. Prior to a Default, all payments shall be applied
first on account of other charges, second to accrued interest due
on the unpaid balance of principal and finally the remainder of
such payments shall be applied to unpaid principal. If a Default
occurs, payments and monies received may be applied in any manner
and order deemed appropriate by the Lender.
2. Rates
and Calculation of Interest. Interest on the outstanding and
unpaid principal balance of the Loan shall be calculated for the
actual number of days in the then current calendar year that
principal is outstanding, based upon a year of three hundred sixty
(360) days, accrue and shall be paid at the fixed rate of interest
per annum equal to twelve percent (12%).
In no event shall
the rate of interest hereunder be in excess of the maximum amount
permitted by law. In the event the rate of interest hereunder is
determined to be in excess of the maximum amount permitted by law,
such interest rate shall be automatically decreased to the maximum
rate permitted by law.
In addition to all
other rights contained in this Note, if a Default (defined herein)
occurs and as long as a Default continues, all outstanding sums
hereunder shall bear interest at the interest rate otherwise
prevailing under the preceding paragraph, plus 10% (the
“Default Rate”).
The Default Rate shall also apply from acceleration until all
unpaid sums and obligations (whether matured or contingent)
hereunder and any judgments thereon are paid in full.
3. Prepayment.
This Note may be prepaid in whole or in part at any time at the
option of the Borrower without premium or penalty. Each prepayment
shall be applied first to the payment in full of other charges
payable hereunder, then to accrued interest and the remainder of
such payment, if any, shall be applied to the reduction of the
unpaid principal balance.
4. Loan
Agreement. This Note is the Note referred to in the
agreements between the Borrower and the Lender, including, but not
limited to the Loan Agreement of even date herewith (the
“Loan
Agreement”) and the Loan Documents referenced therein
(the “Loan
Documents”). The failure of the Borrower to execute
any such agreement or other document shall not affect the validity
of this Note. This Note shall evidence all obligations of the
Borrower to the Lender under the Loan Agreement and Loan
Documents.
5. Integration.
The terms and conditions of this Note, together with the terms and
conditions of the Loan Agreement and the Loan Documents, contains
the entire understanding between the Borrower and the Lender with
respect to the indebtedness evidenced hereby. Such understanding
may not be amended, modified, or terminated except in writing duly
executed by the parties hereto.
6. Security.
This Note is unsecured.
7. Default
and Remedies. The occurrence of any default or event of
default (“Default”), as defined in the Loan
Agreement and/or the Loan Documents, shall constitute a Default of
and under this Note.
When a Default
occurs, the Lender, at its option, may declare the entire unpaid
balance of principal of this Note, unpaid interest thereon and all
other charges, costs and expenses provided for herein, in the Loan
Agreement and/or any of the Loan Documents, and/or pursuant to any
other agreements between Borrower and Lender, immediately due and
payable without notice to or demand upon the Borrower. Upon the
occurrence of a Default, the Lender shall have all of the rights
and remedies with respect the Loan Agreement, the Loan Documents,
this Note, and/or otherwise provided for by law, in equity, and
otherwise.
8. Waiver.
The undersigned hereby waives presentment for payment, demand,
notice of nonpayment, notice of protest, and protest of this Note,
and all of the notices in connection with delivery, acceptance,
performance, default, or enforcement of the payment of this Note.
The failure by the Lender to exercise any right or remedy shall not
be taken to waive the exercise of the same thereafter for the same
or any subsequent Default. The Borrower waives any claim of
set-off, recoupment and/or counterclaim. All notices to the
Borrower shall be adequately given if mailed postage prepaid to the
address appearing in the Lender’s records. The Borrower
intends this Note to be a sealed instrument and to be legally bound
hereby.
9. Holder.
The references to “Lender” herein shall be deemed to be
references to any subsequent assignee, transferee, or other holder
of this Note.
10. Governing
Law. This Note shall be construed in accordance with the
domestic internal laws of the Commonwealth of Pennsylvania, without
reference to any conflict of laws provisions, as a Note made,
delivered and to be wholly performed within the Commonwealth of
Pennsylvania.
11. Judicial
Proceedings. Any suit, action, or proceeding, whether claim
or counterclaim, brought or instituted by the Borrower or the
Lender, or any of their successors or assigns, on or with respect
to this Note or the dealings of the Borrower or the Lender with
respect hereto, shall be tried only by a court and not by a jury.
THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES
ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR
PROCEEDING. In connection therewith, the Borrower agrees that any
suit, action or proceeding arising hereunder or with respect hereto
will be instituted in the Court of Common Pleas of York County,
Pennsylvania, or the United States District Court for the Middle
District of Pennsylvania, and irrevocably and unconditionally
submits to the jurisdiction of each such Court for such purpose.
Further, the Borrower waives any right it may have to claim or
recover, in any such suit, action or proceeding, any special,
exemplary, punitive or consequential damages or any damages other
than, or in addition to, actual damages. THE BORROWER ACKNOWLEDGES
AND AGREES THAT THIS PARAGRAPH IS A SPECIFIC AND MATERIAL ASPECT OF
THIS NOTE AND THAT THE LENDER WOULD NOT EXTEND CREDIT IF THE
WAIVERS SET FORTH IN THIS PARAGRAPH WERE NOT A PART OF THIS
NOTE.
12. Confession
of Judgment. Upon Default, the Borrower hereby irrevocably
authorizes the Prothonotary or any attorney of any court of record
in Pennsylvania or elsewhere to appear for and confess judgment
against the Borrower for any and all amounts unpaid hereunder,
together with any other charges, costs and expenses for which
Borrower is liable under this Note, and together with fees of
counsel in the reasonable amount of five percent (5%) of all of the
foregoing (but in no event less than $5,000.00) and costs of suit,
releasing all errors and waiving all rights of appeal. If a copy of
this Note, verified by affidavit, shall have been filed in such
proceeding, it shall not be necessary to file the original as a
warrant of attorney. The Borrower hereby waives the right to any
stay of execution and the benefit of all exemption laws now or
hereafter in effect. No single exercise of this warrant and power
to confess judgment shall be deemed to exhaust this power, whether
or not any such exercise shall be held by any court to be invalid,
voidable or void, but this power shall continue undiminished and
may be exercised from time to time as often as the Lender shall
elect until all sums due hereunder shall have been paid in full.
Interest shall continue to accrue after entry of judgment
hereunder, by confession, default, or otherwise, at the higher of
the prevailing rate of interest under this Note, or the judgment
rate of interest under applicable law. All waivers granted in this
paragraph are given to the extent permitted by the Pennsylvania
Rules of Civil Procedure.
13. NOTICE:
THIS NOTE CONTAINS, AT PARAGRAPH 12, A WARRANT OF ATTORNEY TO
CONFESS JUDGMENT AGAINST THE BORROWER. IN GRANTING THIS WARRANT OF
ATTORNEY TO CONFESS JUDGMENT AGAINST THE BORROWER, THE BORROWER
HEREBY KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY, AND ON THE ADVICE
OF SEPARATE COUNSEL OF THE BORROWER, UNCONDITIONALLY WAIVES ANY AND
ALL RIGHTS THE BORROWER HAS OR MAY HAVE TO PRIOR NOTICE AND AN
OPPORTUNITY FOR HEARING UNDER THE RESPECTIVE CONSTITUTIONS AND LAWS
OF THE UNITED STATES, THE COMMONWEALTH OF PENNSYLVANIA, OR OF ANY
OTHER STATE.
BORROWER:
OCEAN THERMAL
ENERGY CORPORATION
By: /s/ Jeremy P.
Feakins
Name: Jeremy P.
Feakins
Title: Group
Executive Chairman
WARRANT
to Purchase up to
100,000 Shares of the
Common Stock,
$0.0001 Par Value Per Share,
of
OCEAN
THERMAL ENERGY CORPORATION
This is to certify
that, for value received, James G. Garner, Jr. (“Lender”) or any permitted
transferee (Lender or such transferee being hereinafter called the
“Holder”) is
entitled to purchase, subject to the provisions of this Warrant,
from Ocean Thermal Energy Corporation, a Delaware corporation
(“OTEC”), at any
time on or after the date hereof, an aggregate of up to 100,000
fully paid and non-assessable shares of common stock, $0.0001 par
value (the “Common
Stock”), of OTEC at a price per share equal to $1.00,
subject to adjustment as herein provided (the “Exercise Price”).
1. Exercise
of Warrant. Subject to the provisions hereof, this Warrant
may be exercised, in whole or in part, or sold, assigned or
transferred at any time or from time to time up to four years
hereafter. This Warrant shall be exercised by presentation and
surrender hereof to OTEC at the principal office of OTEC,
accompanied by (i) a written notice of exercise, (ii) payment to
OTEC, for the account of OTEC, of the Exercise Price for the number
of shares of Common Stock specified in such notice, and (iii) a
certificate of the Holder specifying the event or events which have
occurred and entitle the Holder to exercise this Warrant. The
Exercise Price for the number of shares of Common Stock specified
in the notice shall be payable in immediately available
funds.
Upon such
presentation and surrender, OTEC shall issue promptly (and within
one business day if reasonably requested by the Holder) to the
Holder or its assignee, transferee or designee the number of shares
of Common Stock to which the Holder is entitled hereunder. OTEC
covenants and warrants that such shares of Common Stock, when so
issued, will be duly authorized, validly issued, fully paid and
non-assessable, and free and clear of all liens and
encumbrances.
If this Warrant is
exercised in part only, OTEC shall, upon surrender of this Warrant
for cancellation, execute and deliver a new Warrant evidencing the
rights of the Holder thereof to purchase the balance of the shares
of Common Stock issuable hereunder. Upon receipt by OTEC of this
Warrant, in proper form for exercise, the Holder shall be deemed to
be the holder of record of the shares of Common Stock issuable upon
such exercise, notwithstanding that the stock transfer books of
OTEC may then be closed or that certificates representing such
shares of Common Stock shall not then be actually delivered to the
Holder. OTEC shall pay all expenses, and any and all United States
federal, state and local taxes and other charges, that may be
payable in connection with the preparation, issuance and delivery
of stock certificates pursuant to this Paragraph 1 in the name of
the Holder or its assignee, transferee or designee.
2. Reservation
of Shares; Preservation of Rights of Holder.
OTEC shall at all
times while this Warrant is outstanding and unexercised, maintain
and reserve, free from preemptive rights, such number of authorized
but unissued shares of Common Stock as may be necessary so that
this Warrant may be exercised without any additional authorization
of Common Stock after giving effect to all other options, warrants,
convertible securities and other rights to acquire shares of Common
Stock at the time outstanding. OTEC further agrees that (i) it will
not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary
act or omission, avoid or seek to avoid the observance or
performance of any of the covenants, stipulations or conditions to
be observed or performed hereunder, and (ii) it will promptly take
all action reasonably necessary to protect the rights of the Holder
against dilution as provided herein.
3. Fractional
Shares. OTEC shall not be required to issue any fractional
shares of Common Stock upon exercise of this Warrant. In lieu of
any fractional shares, the Holder shall be entitled to receive an
amount in cash equal to the amount of such fraction multiplied by
the Exercise Price.
4. Exchange
or Loss of Warrant. This Warrant is exchangeable, without
expense, at the option of the Holder, upon presentation and
surrender hereof at the principal office of OTEC for other warrants
of different denominations entitling the Holder to purchase, in the
aggregate, the same number of shares of Common Stock issuable
hereunder. The term “Warrant” as used herein includes
any warrants for which this Warrant may be exchanged. Upon receipt
by OTEC of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and (in the case
of loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, OTEC will execute and deliver a new Warrant
of like tenor and date.
5. Adjustment.
The number of shares of Common Stock issuable upon the exercise of
this Warrant and the Exercise Price shall be subject to adjustment
from time to time as provided in this Paragraph.
(A) Stock
Dividends, etc.
(1) Stock
Dividends. In case OTEC shall pay or make a dividend or
other distribution on any class of capital stock of OTEC payable in
Common Stock, the number of shares of Common Stock issuable upon
exercise of this Warrant shall be increased by multiplying such
number of shares by a fraction of which the denominator shall be
the number of shares of Common Stock outstanding at the close of
business on the day immediately preceding the date of such
distribution and the numerator shall be the sum of such number of
shares and the total number of shares of Common Stock constituting
such dividend or other distribution, such increase to become
effective immediately after the opening of business on the day
following such distribution.
(2) Subdivisions.
In case outstanding shares of Common Stock shall be subdivided into
a greater number of shares of Common Stock, the number of shares of
Common Stock issuable upon exercise of this Warrant at the opening
of business on the day following the day upon which such
subdivision becomes effective shall be proportionately increased,
and, conversely, in case outstanding shares of Common Stock shall
each be combined into a smaller number of shares of Common Stock,
the number of shares of Common Stock issuable upon exercise of this
Warrant at the opening of business on the day following the day
upon which such combination becomes effective shall be
proportionately decreased, such increase or decrease, as the case
may be, to become effective immediately after the opening of
business on the day following the date upon which such subdivision
or combination becomes effective.
(3) Reclassifications.
The reclassification of Common Stock into securities (other than
Common Stock) and/or cash and/or other consideration shall be
deemed to involve a subdivision or combination, as the case may be,
of the number of shares of Common Stock outstanding immediately
prior to such reclassification into the number or amount of
securities and/or cash and/or other consideration outstanding
immediately thereafter and the effective date of such
reclassification shall be deemed to be “the day upon which
such subdivision becomes effective,” or “the day upon
which such combination becomes effective,” as the case may
be, within the meaning of clause (2) above.
(4) Optional
Adjustments. OTEC may make such increases in the number of
shares of Common Stock issuable upon exercise of this Warrant, in
addition to those required by this subparagraph (A), as shall be
determined by its Board of Directors to be advisable in order to
avoid taxation so far as practicable of any dividend of stock or
stock rights or any event treated as such for federal income tax
purposes to the recipients.
(5) Adjustment
to Exercise Price. Whenever the number of shares of Common
Stock issuable upon exercise of this Warrant is adjusted as
provided in this Paragraph 5(A), the Exercise Price shall be
adjusted by a fraction in which the numerator is equal to the
number of shares of Common Stock issuable prior to the adjustment
and the denominator is equal to the number of shares of Common
Stock issuable after the adjustment, rounded to the nearest
cent.
(B) Certain
Sales of Common Stock.
(1) Adjustment
to Shares Issuable. If and whenever OTEC sells or otherwise
issues (other than under circumstances in which Paragraph 5(A)
applies) any shares of Common Stock, the number of shares of Common
Stock issuable upon exercise of this Warrant shall be increased by
multiplying such number of shares by a fraction, the denominator of
which shall be the number shares of Common Stock outstanding at the
close of business on the day immediately preceding the date of such
sale or issuance and the numerator of which shall be the sum of
such number of shares and the total number of shares constituting
such sale or other issuance, such increase to become effective
immediately after the opening of business on the day following such
sale or issuance.
(2) Adjustment
to Exercise Price. If and whenever OTEC sells or otherwise
issues any shares of Common Stock (excluding any stock dividend or
other issuance not for consideration to which Paragraph 5(A)
applies or shares of Common Stock issued or issuable in connection
with awards granted under the OTEC Stock Option Plans) for a
consideration per share which is less than the Exercise Price at
the time of such sale or other issuance, then in each such case the
Exercise Price shall be forthwith changed (but only if a reduction
would result) to the price (calculated to the nearest cent)
determined by dividing: (i) an amount equal to the sum of (aa) the
number of shares of Common Stock outstanding immediately prior to
such issue or sale, multiplied by the then effective Exercise
Price, plus (bb) the total consideration, if any, received and
deemed received by OTEC upon such issue or sale, by (ii) the total
number of shares of Common Stock outstanding immediately after such
issue or sale.
(C) Definition.
For purposes of this Paragraph 5, the term “Common
Stock” shall include (1) any shares of OTEC of any class or
series which has no preference or priority in the payment of
dividends or in the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding up of OTEC and
which is not subject to redemption by OTEC, and (2) any rights or
options to subscribe for or to purchase shares of Common Stock or
any stock or securities convertible into or exchangeable for shares
of Common Stock (such convertible or exchangeable stock or
securities being hereinafter called “Convertible Securities”), whether
or not such rights or options or the right to convert or exchange
any such Convertible Securities are immediately exercisable. For
purposes of any adjustments made under Paragraph 5(A) or 5(B) as a
result of the distribution, sale or other issuance of rights or
options or Convertible Securities, the number of shares of Common
Stock outstanding after or as a result of the occurrence of events
described in Paragraph 5(A)(1) or 5(B)(1) shall be calculated by
assuming that all such rights, options or Convertible Securities
have been exercised for the maximum number of shares issuable
thereunder.
6. Notice.
Whenever the number of shares of Common Stock for which this
Warrant is exercisable is adjusted as provided in Paragraph 5, OTEC
shall promptly compute such adjustment and mail to the Holder a
certificate, signed by the principal financial officer of OTEC,
setting forth the number of shares of Common Stock for which this
Warrant is exercisable as a result of such adjustment having become
effective.
7. Rights
of the Holder.
(A) Without
limiting the foregoing or any remedies available to the Holder, it
is specifically acknowledged that the Holder would not have an
adequate remedy at law for any breach of the provisions of this
Warrant and shall be entitled to specific performance of
OTEC’s obligations under, and injunctive relief against any
actual or threatened violation of the obligations of any person
subject to, this Warrant.
(B) The
Holder shall not, by virtue of its status as Holder, be entitled to
any rights of a stockholder in OTEC.
8. Termination.
This Warrant and the rights conferred hereby shall terminate four
years hereafter.
9. Governing
Law. This Warrant shall be deemed to have been delivered in,
and shall be governed by and interpreted in accordance with the
substantive laws of, the Commonwealth of Pennsylvania, except to
the extent that Delaware law may govern certain aspects of this
Warrant as it relates to OTEC.
Dated: December 26,
2014
OCEAN THERMAL
ENERGY CORPORATION
By: /s/ Jeremy P.
Feakins
Name: Jeremy P.
Feakins
Title: Group
Executive Chairman
PROMISSORY NOTE
FOR VALUE RECEIVED, Ocean Thermal Energy
Corporation, a Delaware corporation with an address of 800 South
Queen Street, Lancaster, PA 17603 (the “Borrower”), hereby promises to pay to the order of
Charles Hartman (the “Lender”) at 834 Spruce Street, Columbia PA 17512
or at any other place designated to the Borrower by the Lender in
writing, the principal sum of Fifty Thousand Dollars ($50,000.00),
with interest as herein specified, and under the terms and
conditions stated herein.
1. Repayment
of Principal and Interest.
Principal and interest shall be repaid by Borrower to Lender as
follows: The Borrower shall repay the principal amount of $50,000
on April 7, 2017; (the “Maturity
Date”), the Borrower
shall pay to the Lender the unpaid principal balance of the Loan,
all accrued and unpaid interest thereon, and all other costs and
amounts payable to the Lender hereunder. At the lender’s
discretion, at anytime prior to the repayment of note, any unpaid
principal and interest can be converted to common shares of the
Company (Exhibit A). The determination of the necessary shares
required to settle the obligation will be based on a $0.75 share
price.
All
amounts payable hereunder are payable in lawful money of the United
States of America at the address of the Lender set forth above in
immediately available funds, unless directed by the lender to
satisfy the obligation in Company shares. Prior to a Default, all
payments shall be applied first on account of other charges, second
to accrued interest due on the unpaid balance of principal and
finally the remainder of such payments shall be applied to unpaid
principal. If a Default occurs, payments and monies received may be
applied in any manner and order deemed appropriate by the
Lender.
2. Rates
and Calculation of Interest.
Interest on the outstanding and unpaid principal balance of the
Loan shall be calculated for the actual number of days in the then
current calendar year that principal is outstanding, based upon a
year of three hundred sixty (360) days, accrue and shall be paid at
the fixed rate of interest per annum equal to ten percent (10%).
Interest shall be paid annually in arrears.
In
no event shall the rate of interest hereunder be in excess of the
maximum amount permitted by law. In the event the rate of interest
hereunder is determined to be in excess of the maximum amount
permitted by law, such interest rate shall be automatically
decreased to the maximum rate permitted by law.
In addition to all other rights contained in this
Note, if a Default (defined herein) occurs and as long as a Default
continues, all outstanding sums hereunder shall bear interest at
the interest rate otherwise prevailing under the preceding
paragraph, plus 10% (the "Default Rate"). The Default Rate shall also apply from
acceleration until all unpaid sums and obligations (whether matured
or contingent) hereunder and any judgment, thereon are paid in
full.
3. Prepayment.
This Note may be prepaid in whole or in part at any time at the
option of the Borrower without premium or penalty. Each prepayment
shall be applied first to the payment in full of other charges
payable hereunder, then to accrued interest and the remainder of
such payment, if any, shall be applied to the reduction of the
unpaid principal balance.
4. Integration.
The terms and conditions of this Note constitute the entire
understanding between the Borrower and the Lender with respect to
the indebtedness evidenced hereby. Such understanding may not be
amended, modified, or terminated except in writing duly executed by
the parties hereto.
5. Security.
This Note is unsecured.
6. Waiver.
The undersigned hereby waives presentment for payment, demand,
notice of nonpayment, notice of protest, and protest of this Note,
and all of the notices in connection with delivery, acceptance,
performance, default, or enforcement of the payment of this Note.
The failure by the Lender to exercise any right or remedy shall not
be taken to waive the exercise of the same thereafter for the same
or any subsequent Default. The Borrower waives any claim of
set-off, recoupment and/or counterclaim. All notices to the
Borrower shall be adequately given if mailed postage prepaid to the
address appearing in the Lender’s records. The Borrower
intends this Note to be a sealed instrument and to be legally bound
hereby.
7. Holder.
The references to “Lender” herein shall be deemed to be
references to any subsequent assignee, transferee, or other holder
of this Note.
8. Governing
Law. This Note shall be
construed in accordance with the domestic internal laws of the
Commonwealth of Pennsylvania, without reference to any conflict of
laws provisions, as a Note made, delivered and to be wholly
performed within the Commonwealth of
Pennsylvania.
9. Judicial
Proceedings. Any suit, action,
or proceeding, whether claim or counterclaim, brought or instituted
by the Borrower or the Lender, or any of their successors or
assigns, on or with respect to this Note or the dealings of the
Borrower or the Lender with respect hereto, shall be tried only by
a court and not by a jury. THE BORROWER HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO A TRIAL BY JURY
IN ANY SUCH SUIT, ACTION OR PROCEEDING. In connection therewith,
the Borrower agrees that any suit, action or proceeding arising
hereunder or with respect hereto will be instituted in the Court of
Common Pleas of York County, Pennsylvania, or the United States
District Court for the Middle District of Pennsylvania, and
irrevocably and unconditionally submits to the jurisdiction of each
such Court for such purpose. Further, the Borrower waives any right
it may have to claim or recover, in any such suit, action or
proceeding, any special, exemplary, punitive or consequential
damages or any damages other than, or in addition to, actual
damages. THE BORROWER ACKNOWLEDGES AND AGREES THAT THIS PARAGRAPH
IS A SPECIFIC AND MATERIAL ASPECT OF THIS NOTE AND THAT THE LENDER
WOULD NOT EXTEND CREDIT IF THE WAIVERS SET FORTH IN THIS PARAGRAPH
WERE NOT A PART OF THIS NOTE.
10. Confession
of Judgment. Upon Default, the
Borrower hereby irrevocably authorizes the Prothonotary or any
attorney of any court of record in Pennsylvania or elsewhere to
appear for and confess judgment against the Borrower for any and
all amounts unpaid hereunder, together with any other charges,
costs and expenses for which Borrower is liable under this Note,
and together with fees of counsel in the reasonable amount of five
percent (5%) of all of the foregoing (but in no event less than
$2,500.00) and costs of suit, releasing all errors and waiving all
rights of appeal. If a copy of this Note, verified by affidavit,
shall have been filed in such proceeding, it shall not be necessary
to file the original as a warrant of attorney. The Borrower hereby
waives the right to any stay of execution and the benefit of all
exemption laws now or hereafter in effect. No single exercise of
this warrant and power to confess judgment shall be deemed to
exhaust this power, whether or not any such exercise shall be held
by any court to be invalid, voidable or void, but this power shall
continue undiminished and may be exercised from time to time as
often as the Lender shall elect until all sums due hereunder shall
have been paid in full. Interest shall continue to accrue after
entry of judgment hereunder, by confession, default, or otherwise,
at the higher of the prevailing rate of interest under this Note,
or the judgment rate of interest under applicable law. All waivers
granted in this paragraph are given to the extent permitted by the
Pennsylvania Rules of Civil Procedure.
11. NOTICE:
THIS NOTE CONTAINS, AT PARAGRAPH 10, A WARRANT OF ATTORNEY TO
CONFESS JUDGMENT AGAINST THE BORROWER. IN GRANTING THIS WARRANT OF
ATTORNEY TO CONFESS JUDGMENT AGAINST THE BORROWER, THE BORROWER
HEREBY KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY, AND ON THE ADVICE
OF SEPARATE COUNSEL OF THE BORROWER, UNCONDITIONALLY WAIVES ANY AND
ALL RIGHTS THE BORROWER HAS OR MAY HAVE TO PRIOR NOTICE AND AN
OPPORTUNITY FOR HEARING UNDER THE RESPECTIVE CONSTITUTIONS AND LAWS
OF THE UNITED STATES, THE COMMONWEALTH OF PENNSYLVANIA, OR OF ANY
OTHER STATE.
BORROWER:
OCEAN
THERMAL ENERGY CORPORATION
By: /s/
Jeremy Feakins________________________
Name:
Jeremy P. Feakins
Title:
Group Executive Chairman
EXHIBIT A
CONVERSION NOTICE
NAME OF INVESTOR:
_____________________________________________
ADDRESS:
_______________________________________________________
_________________________________________________________________
Ocean
Thermal Energy Corporation Date:
___________________
Attn:
Chief Executive Officer
800
South Queen Street
Lancaster,
PA 17603
CONVERSION NOTICE
The
above-captioned Investor hereby gives notice to Ocean Thermal
Energy Corporation, a Delaware corporation (the “Company”),
pursuant to that certain Promissory Note held by the Investor (the
“Note”), that
the Investor elects to convert the balance set forth below into
fully-paid and non-assessable shares of Common Stock of the Company
as of the date of conversion specified below. Capitalized terms
used in this notice without definition shall have the meanings
given to them in the Note.
A. Date of
conversion:
B. Conversion
Amount:
C. Conversion
Shares:
Sincerely,
Investor:
By:
Name
(print):
LOAN
EXTENSION AGREEMENT
This
LOAN EXTENSION AGREEMENT (this "Amendment"), is
entered into this 6th day of April, 2017, by and between OCEAN
THERMAL ENERGY CORPORATION ("OTE"), a Delaware corporation with an
address of 800 South Queen Street, Lancaster, PA 17603 (the
"Borrower"), and
CHARLES HARTMAN at 834 Spruce Street, Columbia PA 17512 (the
"Lender"),
on the following
Premises
Borrower and Lender
entered into that certain Loan Agreement as of April 7, 2015 (the
"Loan
Agreement"), providing for a loan of $50,000 from Lender to
Borrower (the "Loan"). The obligation
to repay the Loan is evidenced by that certain Promissory Note of
even date executed and delivered by Borrower to Lender (the
"Note").
Pursuant to the terms of the Loan Documents, the Note was payable
in full on or before April 7, 2017. In addition, at the lender's
discretion, at anytime prior to the repayment of note, any unpaid
principal and interest can be converted to common shares of the
Company. The determination of the necessary shares required to
settle the obligation will be based on a $0.75 share
price.
Agreement
NOW
THEREFOR, for and in consideration of the foregoing premises, which
are incorporated herein by reference, the mutual promises and
covenants set forth herein, and other good and valuable
consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereby agree as follows.
1. Confirmation of Indebtedness.
Borrower confirms the indebtedness
due Lender under the Loan Documents.
2. Extension. Lender shall
extend the due date for repayment of the Loan and the payment of
the Note to April 7, 2018. The Lender shall mark conspicuously on
the original of the Note in Lender's possession the foregoing
extension or, at the request of the Borrower, execute and deliver
to Borrower an amendment to be affixed to the Note further
evidencing such extension.
3. Extension of
Conversion. The Conversion Privilege will also be extended
to April 7,2018.
4. Confirmation of Loan
Documents. Except as expressly modified by the terms of this
Amendment, the terms, covenants, conditions, representations, and
warranties, and each of them, shall remain in full force and
effect.
5. Signature. This
Amendment may be executed in multiple counterparts of like tenor,
each of which shall be deemed an original and all of which taken
together will constitute one and the same instrument. Counterpart
signatures of this Amendment that are manually signed and delivered
by a uniquely marked, computer-generated signature in portable
document
format
(PDF) or other electronic method shall be deemed to constitute
signed original counterparts hereof and shall bind the parties
signing and delivering in such manner and shall be the same as the
delivery of an original.
DATED
as of the year and date first above written by the undersigned duly
authorized signatories.
BORROWER:
OCEAN
THERMAL ENERGY CORPORATION
By:/s/
Jeremy Feakins
Name:
Jeremy Feakins Title: Chairman & CEO
LENDER:
By:/s/
Charles Hartman
Name:
Charles Hartman
LOAN
EXTENSION AGREEMENT
This LOAN EXTENSION AGREEMENT (this
“Amendment”), is
entered into this 16th day of April, 2018, by and between
OCEAN THERMAL ENERGY CORPORATION
(”OTE”), a Delaware corporation with an address of 800
South Queen Street, Lancaster, PA 17603 (the
“Borrower”), and CHARLES HARTMAN at 834 Spruce
Street, Columbia PA 17512 (the “Lender”), on the following
Premises
Borrower and Lender
entered into that certain Loan Agreement as of April 7, 2015 (the
“Loan
Agreement”), providing for a loan of $50,000 from
Lender to Borrower (the “Loan”). The obligation to repay
the Loan is evidenced by that certain Promissory Note of even date
executed and delivered by Borrower to Lender (the
“Note”).
Pursuant to the terms of the Loan Documents, the Note was payable
in full on or before April 7, 2017. In
addition, at the lender’s discretion, at anytime prior to the
repayment of note, any unpaid principal and interest can be
converted to common shares of the Company. The determination of the
necessary shares required to settle the obligation will be based on
a $0.75 share price.
Agreement
NOW
THEREFOR, for and in consideration of the foregoing premises, which
are incorporated herein by reference, the mutual promises and
covenants set forth herein, and other good and valuable
consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereby agree as follows.
1. Confirmation of Indebtedness. Borrower
confirms the indebtedness due Lender under the Loan
Documents.
2. Extension. Lender shall extend the due
date for repayment of the Loan and the payment of the Note to April
7, 2019. The Lender shall mark conspicuously on the original of the
Note in Lender’s possession the foregoing extension or, at
the request of the Borrower, execute and deliver to Borrower an
amendment to be affixed to the Note further evidencing such
extension.
3. Extension of Conversion. The Conversion
Privilege will also be extended to April 7, 2019.
4. Confirmation of Loan Documents. Except
as expressly modified by the terms of this Amendment, the terms,
covenants, conditions, representations, and warranties, and each of
them, shall remain in full force and effect.
5. Signature. This Amendment may be
executed in multiple counterparts of like tenor, each of which
shall be deemed an original and all of which taken together will
constitute one and the same instrument. Counterpart signatures of
this Amendment that are manually signed and delivered by a uniquely
marked, computer-generated signature in portable document format
(PDF) or other electronic method shall be deemed to constitute
signed original counterparts hereof and shall bind the parties
signing and delivering in such manner and shall be the same as the
delivery of an original.
DATED
as of the year and date first above written by the undersigned duly
authorized signatories.
BORROWER:
OCEAN
THERMAL ENERGY CORPORATION
By: _/s/
Jeremy Feakins___________________
Name: Jeremy Feakins
Title: Chairman & CEO
LENDER:
By: _/s/
Charles Hartman__________________
Name:
Charles Hartman
|
|
PROMISSORY NOTE
|
|
|
|
|
|
|
$25,000
|
Lancaster, PA
|
December 21, 2016
|
FOR
VALUE RECEIVED, the undersigned, TETRIDYN SOLUTIONS, INC., a Nevada
corporation (“Maker”), whose mailing address and
principal office is 800 South Queen Street, Lancaster, PA 17603,
USA, hereby promises to pay to JPF VENTURE GROUP, INC., a Delaware
corporation (“Payee”), whose mailing address is 800
South Queen Street, Lancaster, PA 17603, up to the principal sum of
TWENTY FIVE THOUSAND DOLLARS AND NO CENTS ($25,000), as represented
by advances from time to time, in lawful money of the United States
of America for payment of private debts, together with interest
(calculated on the basis of the actual number of days elapsed but
computed as if each year consisted of 360 days) on the unpaid
principal balance from time to time outstanding at a rate, except
as otherwise provided in this Note, of six percent (6%) per
annum.
1.
Payments. All unpaid principal
and all accrued and unpaid interest shall be due and payable within
90 days after demand.
2.
Time and Place of Payment. If
any payment falls due on a day that is considered a legal holiday
in the state of Delaware, Maker shall be entitled to delay such
payment until the next succeeding regular business day, but
interest shall continue to accrue until the payment is in fact
made. Each payment or prepayment hereon must be paid at the office
of Payee set forth above or at such other place as the Payee or
other holder hereof may, from time to time, designate in
writing.
3.
Prepayment. Maker reserves the
right and privilege of prepaying this Note in whole or in part, at
any time or from time to time, upon 30 days’ written notice,
without premium, charge, or penalty. Prepayments on this Note shall
be applied first to accrued and unpaid interest to the date of such
prepayment, next to expenses for which Payee is due to be
reimbursed under the terms of this Note, and then to the unpaid
principal balance hereof.
4.
Conversion. Subject to and in
compliance with the provisions contained herein, Payee is entitled,
at its option, at any time prior to maturity, or in the case this
Note or some portion hereof shall have been called for prepayment
before such date, then for this Note or such portion hereof, until
and including, but not after, the close of business within 30 days
after the date of notice of prepayment, to convert this Note (or
any portion of the principal amount hereof or accrued and unpaid
interest hereon) into fully paid and nonassessable shares
(calculated as to each conversion to the nearest share) of common
stock, par value $0.001 per share, of Maker (the
“Shares”) at the rate of one share for each $0.03 of
principal amount of this Note, by surrender of this Note, duly
endorsed (if so required by Maker) or assigned to Maker or in
blank, to Maker at its offices, accompanied by written notice to
Maker, in the form attached hereto, that Payee elects to convert
this Note or, if less than the entire principal amount hereof is to
be converted, the portion thereof to be converted. On conversion,
Payee shall be entitled to payment of accrued interest on this Note
through the date of conversion. No fractions of Shares will be
issued on conversion, but instead of any fractional interest, Maker
will pay cash. Payee is entitled, at its option, to require that
the exercise price be appropriately adjusted in the event of any
stock splits, reverse-split, merger, consolidation, conversion, or
any similar change in Maker’s common stock. Payee is also
entitled, at its option, to require that the conversion price and
number of shares issuable on conversion of this Note be
appropriately adjusted in the event of any stock splits,
reverse-split, merger, consolidation, conversion, or similar change
in Maker’s common stock. For the avoidance of doubt, it is
explicitly agreed that if the Payee does not exercise these
options, the exercise price, conversion price, and number of shares
shall remain unchanged after any stock splits, reverse-split,
merger, consolidation, conversion, or any similar change in
Maker’s common stock.
(a)
Without notice or
demand (which are hereby waived), the entire unpaid principal
balance of, and all accrued interest on, this Note shall
immediately become due and payable at Payee’s option upon the
occurrence of one or more of the following events of default
(“Events of Default”):
(i)
the failure or
refusal of Maker to pay principal or interest on this Note within
10 days of when the same becomes due in accordance with the terms
hereof;
(ii)
the failure or
refusal of Maker punctually and properly to perform, observe, and
comply with any covenant or agreement contained herein, and such
failure or refusal continues for a period of 30 days after Maker
has (or, with the exercise of reasonable investigation, should
have) notice hereof;
(iii)
Maker shall: (1)
voluntarily seek, consent to, or acquiesce in the benefit or
benefits of any Debtor Relief Law (defined hereinafter); or (2)
become a party to (or be made the subject of) any proceeding
provided for by any Debtor Relief Law, other than as a creditor or
claimant, that could suspend or otherwise adversely affect the
Rights (defined hereinafter) of Payee granted herein (unless, in
the event such proceeding is involuntary, the petition instituting
same is dismissed within 60 days of the filing of same).
“Debtor Relief Law” means the Bankruptcy Code of the
United States of America and all other applicable liquidation,
conservatorship, bankruptcy, moratorium, rearrangement,
receivership, insolvency, reorganization, suspension of payments,
or similar Laws from time to time in effect affecting the Rights of
creditors generally. “Rights” means rights, remedies,
powers, and privileges. “Laws” means all applicable
statutes, laws, ordinances, regulations, orders, writs,
injunctions, or decrees of any state, commonwealth, nation,
territory, possession, county, parish, municipality, or Tribunal.
“Tribunal” means any court or governmental department,
commission, board, bureau, agency, or instrumentality of the United
States or of any state, commonwealth, nation, territory,
possession, county, parish, or municipality, whether now or
hereafter constituted and/or existing;
(iv)
the failure to have
discharged within a period of 30 days after the commencement
thereof any attachment, sequestration, or similar proceeding
against any of the assets of Maker, or the loss, theft, or
destruction of, or occurrence of substantial damage to, a material
part of the assets of Maker, except to the extent adequately
covered by insurance; and
(v)
Maker fails to pay
any money judgment against it at least 10 days prior to the date on
which any of Maker’s assets may be lawfully sold to satisfy
such judgment.
(b)
If any one or more
of the Events of Default specified above shall have happened, Payee
may, at its option: (i) declare the entire unpaid balance of
principal and accrued interest on this Note to be immediately due
and payable without notice or demand; (ii) offset against this Note
any sum or sums owed by Payee to Maker; (iii) reduce any claim to
judgment; (iv) foreclose all liens and security interests securing
payment thereof or any part thereof; and (v) proceed to protect and
enforce its rights by suit in equity, action of law, or other
appropriate proceedings, whether for the specific performance of
any covenant or agreement contained in this Note, in aid of the
exercise granted by this Note of any right, or to enforce any other
legal or equitable right or remedy of Payee.
6.
Cumulative Rights. No delay on
Payee’s part in the exercise of any power or right, or single
partial exercise of any such power or right, under this Note or
under any other instrument executed pursuant hereto shall operate
as a waiver thereof. Enforcement by Payee of any security for the
payment hereof shall not constitute any election by it of remedies,
so as to preclude the exercise of any other remedy available to
it.
7.
Collection Costs. If this Note
is placed in the hands of an attorney for collection, or if it is
collected through any legal proceeding at law or in equity or in
bankruptcy, receivership, or other court proceedings, Maker agrees
to pay all costs of collection, including Payee’s court costs
and reasonable attorney’s fees.
8.
Waiver. Maker, and each surety,
endorser, guarantor, and other party liable for the payment of any
sums of money payable on this Note, jointly and severally waive
presentment and demand for payment, protest, and notice of protest
and nonpayment, or other notice of default, except as specified
herein, and agree that their liability on this Note shall not be
affected by any renewal or extension in the time of payment hereof,
indulgences, partial payment, release, or change in any security
for the payment of this Note, before or after maturity, regardless
of the number of such renewals, extensions, indulgences, releases,
or changes.
9.
Notices. Any notice, demand,
request, or other communication permitted or required under this
Note shall be in writing and shall be deemed to have been given as
of the date so delivered, if personally served; as of the date so
sent, if sent by electronic mail and receipt is acknowledged by the
recipient; one day after the date so sent, if delivered by
overnight courier service; or three days after the date so mailed,
if mailed by certified mail, return receipt requested, addressed to
Maker at its address on the first page.
10.
Successor and Assigns. All of
the covenants, stipulations, promises, and agreements in this Note
contained by or on behalf of Maker shall bind its successors and
assigns, whether so expressed or not; provided, however, that neither Maker nor Payee
may, without the prior written consent of the other, assign any
rights, powers, duties, or obligations under this
Note.
11.
Headings. The headings of the
sections of this Note are inserted for convenience only and shall
not be deemed to constitute a part hereof.
12.
Applicable Law. This Note is
being executed and delivered, and is intended to be performed, in
the state of Delaware, and the substantive laws of such state shall
govern the validity, construction, enforcement, and interpretation
of this Note, except insofar as federal laws shall have
application.
13.
Security. This Note is
unsecured.
EXECUTED effective
the year and date first above written.
TETRIDYN SOLUTIONS,
INC.
Peter
Wolfson, Director
TetriDyn
Solutions, Inc.
800
South Queen Street
Lancaster,
PA 17603, USA
Gentlemen:
The
undersigned owner of this Note hereby irrevocably exercises the
option to convert this Note or the portion hereof designated, into
shares of common stock, par value $0.001 per share, of TetriDyn
Solutions, Inc., in accordance with the terms of this Note, and
directs that the shares issuable and deliverable upon the
conversion, together with any check in payment for fractional
shares, be issued in the name of and delivered to the undersigned
unless a different name has been indicated below. If shares are to
be issued in the name of a person other than the undersigned, the
undersigned will pay any transfer taxes payable with respect
thereto.
(Signature)
FILL IN
FOR REGISTRATION
OF
SHARES:
JPF VENTURE GROUP,
INC
47-1973424_____________________________
(Printed
Name)
(Social Security or
Other Identifying Number)
800 South Queen
Street
Lancaster, PA
17603
(Street
Address)
(City/State/Zip
Code)
Portion
to be converted (if less than all)
NEITHER
THE ISSUANCE NOR SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF
(A)
AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES FILED
PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN
OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER),
IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES
MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.
Principal
Amount:
$371,250.00
Issue
Date: December 14, 2018
REPLACEMENT CONVERTIBLE PROMISSORY NOTE
FOR VALUE RECEIVED, OCEAN THERMAL ENERGY CORPORATION, a
Nevada
corporation
(hereinafter called the “Borrower”), hereby
promises to pay to the order of L2
CAPITAL, LLC, a Kansas limited liability company, or its
registered assigns (the “Holder”) the principal
sum of
$371,250.00 (the “Principal Amount”),
together with interest at the rate of twelve percent (12%) per
annum on the aggregate unconverted and then outstanding Principal
Amount of this Note, at maturity or upon acceleration or otherwise,
as set forth herein (this “Note”) (with the
understanding that the initial six months of such interest shall be
guaranteed). This Note is being
issued by the Borrower to the Holder to evidence the assignment by
Collier Investments, LLC, a California limited liability company
(the “Seller”),
of that certain Convertible Note (the “Original
Note”) issued by the
Borrower to the Seller on May 22, 2018, in the original principal
amount of $281,250.00, pursuant to that certain Note Purchase and
Assignment Agreement (the “Note Purchase
Agreement”) entered
into on December 14, 2018 (the “Issue
Date”), which such
amount evidencing the principal amount of the Original Note was
fully funded and earned by the Seller on or before the date of
issuance of the Original Note. The Principal Amount of this Note
outstanding will initially be $371,250.00 on the Issue Date.
The maturity date of this Note shall be December 22, 2018 (the
“Maturity
Date”), and is the date upon which the Principal
Amount, as well as any accrued and unpaid interest and other fees,
shall be due and payable. This Note may not be repaid in whole or
in part except as otherwise explicitly set forth herein. Any amount
of principal or interest on this Note, which is not paid by the
applicable Maturity Date, shall bear interest at the rate of the
lesser of (i) twenty-four percent (24%) per annum or (ii) the
maximum amount allowed by law, from the due date thereof until the
same is paid (“Default Interest”).
Interest shall commence accruing on the date that this Note is
issued and shall be computed on the basis of a 365-day year and the
actual number of days elapsed. All payments due hereunder (to the
extent not converted into the Borrower’s common stock (the
“Common
Stock”) in accordance with the terms hereof) shall be
made in lawful money of the United States of America. All payments
shall be made at such address as the Holder shall hereafter give to
the Borrower by written notice made in accordance with the
provisions of this Note. Whenever any amount expressed to be due by
the terms of this Note is due on any day which is not a business
day, the same shall instead be due on the next succeeding day which
is a business day and, in the case of any interest payment date
which is not the date on which this Note is paid in full, the
extension of the due date thereof shall not be taken into account
for purposes of determining the amount of interest due on such
date. As used in this Note, the term “business day”
shall mean any day other than a Saturday, Sunday or a day on which
commercial banks in the city of New York, New York are authorized
or required by law or executive order to remain
closed.
This
Note is free from all taxes, liens, claims and encumbrances with
respect to the issue thereof and shall not be subject to preemptive
rights or other similar rights of shareholders of the Borrower and
will not impose personal liability upon the holder
thereof.
The
following additional terms shall also apply to this
Note:
ARTICLE I. CONVERSION RIGHTS
1.1
Conversion Right. The Holder
shall have the right at any time on or after the Issue Date, to
convert all or any part of the outstanding and unpaid Principal
Amount and accrued and unpaid interest of this Note into fully paid
and non-assessable shares of Common Stock, as such Common Stock
exists on the Issue Date, or any shares of capital stock or other
securities of the Borrower into which such Common Stock shall
hereafter be changed or reclassified at the Conversion Price
determined as provided herein (a “Conversion”);
provided,
however, that in no
event shall the Holder be entitled to convert any portion of this
Note in excess of that portion of this Note upon conversion of
which the sum of (1) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned
through the ownership of the unconverted portion of this Note or
the unexercised or unconverted portion of any other security of the
Borrower subject to a limitation on conversion or exercise
analogous to the limitations contained herein) and (2) the number
of shares of Common Stock issuable upon the conversion of the
portion of this Note with respect to which the determination of
this proviso is being made, would result in beneficial ownership by
the Holder and its affiliates of more than 4.99% of the outstanding
shares of Common Stock (the “Maximum Share Amount”).
The Holder, upon not less than 61 days’ prior written notice
to the Borrower, may increase the Maximum Share Amount, provided
that the Maximum Share Amount shall never exceed 9.99% of the
number of shares of Common Stock outstanding immediately after
giving effect to the issuance of shares of Common Stock upon
conversion of this Note held by the Holder and the provisions of
this Section 1.1
shall continue to apply. Any such increase will not be effective
until the 61st day after such notice is delivered to the Borrower.
The Maximum Share Amount provisions of this paragraph shall be
construed and implemented in a manner otherwise than in strict
conformity with the terms of this Section 1.1 to correct this
paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Maximum Share Amount provisions
contained herein or to make changes or supplements necessary or
desirable to properly give effect to such limitation. The
limitations contained in this paragraph shall apply to a successor
holder of this Note. For purposes of this Section 1.1, beneficial
ownership shall be determined in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended (the
“Exchange
Act”), and Regulations 13D-G thereunder, except as
otherwise provided in clause (1) of such proviso. The number of
shares of Common Stock to be issued upon each conversion of this
Note shall be determined by dividing the Conversion Amount (as
defined below) by the applicable Conversion Price then in effect on
the date specified in the notice of conversion, in the form
attached hereto as Exhibit
A (the “Notice of Conversion”),
delivered to the Borrower by the Holder in accordance with
Section 1.3 below;
provided that the Notice of Conversion is submitted by facsimile or
e-mail (or by other means resulting in, or reasonably expected to
result in, notice) to the Borrower before 6:00 p.m., New York, New
York time on such conversion date (the “Conversion Date”). The
term “Conversion
Amount” means, with respect to any conversion of this
Note, the sum of (1) the Principal Amount of this Note to be
converted in such conversion plus (2) at the Holder’s option,
accrued and unpaid interest, if any, on such Principal Amount at
the interest rates provided in this Note to the Conversion Date,
plus (3) at the Holder’s option, Default Interest, if any, on
the amounts referred to in the immediately preceding clauses (1)
and/or (2) plus (4) at the Holder’s option, any amounts owed
to the Holder pursuant to Sections 1.2, 1.3(g),
4.11, 4.12 and/or 4.13 and/or Article III
hereof.
(a) Calculation of Conversion
Price. The “Conversion Price” per
share shall be the Variable Conversion Price (as defined herein)
(subject to adjustment as further described herein). The
“Variable Conversion
Price” shall mean 65% multiplied by the Market Price
(as defined herein) (representing a discount rate of 35%).
“Market
Price” means the lowest Trading Price (as defined
below) for the Common Stock during the twenty (20) Trading Day
period ending on the last complete Trading Day prior to the
Conversion Date. “Trading Price” or
“Trading
Prices” means, for any security as of any date, the
lowest VWAP price on the Over-the-Counter Pink Marketplace, OTCQB,
or applicable trading market (the “Trading Market”) as
reported by a reliable reporting service designated by the Holder
(i.e. www.Nasdaq.com) or, if the Trading Market is not the
principal trading market for such security, on the principal
securities exchange or trading market where such security is listed
or traded or, if the lowest intraday trading price of such security
is not available in any of the foregoing manners, the lowest
intraday price of any market makers for such security that are
quoted on the OTC Markets. If the Conversion Price on the date in
which the Holder actually receives the Conversion Shares (each a
“Share Delivery
Date”) is less than the Conversion Price in the
respective Notice of Conversion, then the Conversion Price in the
respective Notice of Conversion shall be retroactively adjusted
downward to equal the Conversion Price on the Share Delivery Date.
If the Trading Price cannot be calculated for such security on such
date in the manner provided above, the Trading Price shall be the
fair market value as mutually determined by the Borrower and the
Holder in order to determine the Conversion Price of this Note.
“Trading
Day” shall mean any day on which the Common Stock is
tradable for any period on the Trading Market, or on the principal
securities exchange or other securities market on which the Common
Stock is then being traded. Each time an Event of Default (as
defined herein) occurs while this Note is outstanding, an
additional discount of five percent (5%) shall be factored into the
Conversion Price (in addition to the base 40% discount rate). All
expenses incurred by Holder, for the issuance and clearing of the
Common Stock into which this Note is convertible into, shall
immediately and automatically be added to the balance of this Note
at such time as the expenses are incurred by Holder pursuant to
written notice regarding the same from the Holder to the
Borrower.
Each
time, while this Note is outstanding, the Borrower enters into a
Section 3(a)(9) Transaction (as defined herein) (including but not
limited to the issuance of new promissory notes or of a replacement
promissory note), or Section 3(a)(10) Transaction (as defined
herein), in which any 3rd party has the right
to convert monies owed to that 3rd party (or receive
shares pursuant to a settlement or otherwise) at a discount to
market greater than the Variable Conversion Price in effect at that
time (prior to all other applicable adjustments in this Note), then
the Conversion Price may be adjusted at the option of the Holder to
such greater discount percentage (prior to all applicable
adjustments in this Note) until this Note is no longer outstanding.
Each time, while this Note is outstanding, the Borrower enters into
a Section 3(a)(9) Transaction (including but not limited to the
issuance of new promissory notes or of a replacement promissory
note), or Section 3(a)(10) Transaction, in which any 3rd party has a look
back/holding period greater than the look back/holding period in
effect under this Note at that time, then the Holder’s look
back/holding period may be adjusted at the option of the Holder to
such greater number of days until this Note is no longer
outstanding. The Borrower shall give written notice to the Holder,
with the adjusted Conversion Price and/or adjusted look
back/holding period (each adjustment that is applicable due to the
triggering event), within one (1) business day of an event that
requires any adjustment described in the two immediately preceding
sentences, and the Holder shall have the sole discretion in
determining whether to utilize the adjusted term pursuant to this
section. So long as this Note is outstanding, if any security of
the Borrower contains any term more favorable to the holder of such
security or with a term in favor of the holder of such security
that was not similarly provided to the Holder in this Note, then
the Borrower shall notify the Holder of such additional or more
favorable term and such term, at Holder’s option, shall
become a part of the transaction documents with the Holder pursuant
to the amendment thereof at the Holder’s
direction.
If at
any time the Conversion Price as determined hereunder for any
Conversion would be less than the par value of the Common Stock,
then at the sole discretion of the Holder, the Conversion Price
hereunder may equal such par value for such conversion and the
Conversion Amount for such conversion may be increased (at the
option of the Holder) to include Additional Principal (without a
reduction in the amount owed under this Note), where
“Additional
Principal” means such additional amount to be added to
the Conversion Amount to the extent necessary to cause the number
of conversion shares issuable upon such conversion to equal the
same number of conversion shares as would have been issued had the
Conversion Price not been adjusted by the Holder to the par value
price.
If, at
any time when this Note is issued and outstanding, the Borrower
issues or sells, or is deemed to have issued or sold (in the sole
determination of the Holder), any shares of Common Stock for a
consideration per share less than the Conversion Price in effect on
the date of such issuance (or deemed issuance) of such shares of
Common Stock (a “Dilutive Issuance”), then
the Holder shall have the right, in Holder’s sole discretion
on each conversion after such Dilutive Issuance, to utilize the
price per share of the Dilutive Issuance as the Conversion Price
for such conversion.
(b) Authorized Shares. The Borrower
covenants that during the period the conversion right exists, the
Borrower will reserve from its authorized and unissued Common Stock
a sufficient number of shares, free from preemptive rights, to
provide for the issuance of Common Stock upon the full conversion
of this Note. The Borrower is required at all times to have
authorized and reserved three times (300%) the number of shares
that is actually issuable upon full conversion of this Note (based
on the Conversion Price of this Note in effect from time to time)
(the “Reserved
Amount”). The Reserved Amount shall be increased from
time to time in accordance with the Borrower’s obligations
hereunder. The Borrower represents that upon issuance, such shares
of Common Stock will be duly and validly issued, fully paid and
non-assessable. In addition, if the Borrower shall issue any
securities or make any change to its capital structure which would
change the number of shares of Common Stock into which this Note
shall be convertible at the then current Conversion Price, the
Borrower shall at the same time make proper provision so that
thereafter there shall be a sufficient number of shares of Common
Stock authorized and reserved, free from preemptive rights, for
conversion of the outstanding Note. The Borrower acknowledges that
it has irrevocably instructed its transfer agent to issue
certificates for the Common Stock issuable upon conversion of this
Note, and agrees that its issuance of this Note shall constitute
full authority to its officers and agents who are charged with the
duty of executing stock certificates to execute and issue the
necessary certificates for shares of Common Stock in accordance
with the terms and conditions of this Note.
If, at
any time the Borrower does not maintain the Reserved Amount it will
be considered an Event of Default under Section 3.2 of this
Note.
1.3
Method of
Conversion.
(a) Mechanics of Conversion.
Subject to Section
1.1, this Note may be converted by the Holder in whole or in
part at any time on or after the Issue Date, (A) by submitting to
the Borrower a Notice of Conversion (by facsimile, e-mail or other
reasonable means of communication dispatched on the Conversion Date
prior to 6:00 p.m., New York, New York time) and (B) subject to
Section 1.3(b),
surrendering this Note at the principal office of the
Borrower.
(b) Surrender of Note Upon
Conversion. The Holder and the Borrower shall maintain
records showing the updated current unpaid and unconverted
Principal Amount of the Note in connection with each Tranche
Purchase. Notwithstanding anything to the contrary set forth
herein, upon conversion of this Note in accordance with the terms
hereof, the Holder shall not be required to physically surrender
this Note to the Borrower unless the entire unpaid Principal Amount
of this Note is so
converted. The
Holder and the Borrower shall maintain records showing the
Principal Amount so converted and the dates of such conversions or
shall use such other method, reasonably satisfactory to the Holder
and the Borrower, so as not to require physical surrender of this
Note upon each such conversion. In the event of any dispute or
discrepancy, such records of the Borrower shall, prima facie, be controlling and
determinative in the absence of manifest error. Notwithstanding the
foregoing, if any portion of this Note is converted as aforesaid,
the Holder may not transfer this Note unless the Holder first
physically surrenders this Note to the Borrower, whereupon the
Borrower will forthwith issue and deliver upon the order of the
Holder a new Note of like tenor, registered as the Holder (upon
payment by the Holder of any applicable transfer taxes) may
request, representing in the aggregate the remaining unpaid
Principal Amount of this Note. The Holder and any assignee, by
acceptance of this Note, acknowledge and agree that, by reason of
the provisions of this paragraph, following conversion of a portion
of this Note, the unpaid and unconverted Principal Amount of this
Note represented by this Note may be less than the amount stated on
the face hereof.
(c) Payment of Taxes. The Borrower
shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issue and delivery of
shares of Common Stock or other securities or property on
conversion of this Note in a name other than that of the Holder (or
in street name), and the Borrower shall not be required to issue or
deliver any such shares or other securities or property unless and
until the person or persons (other than the Holder or the custodian
in whose street name such shares are to be held for the
Holder’s account) requesting the issuance thereof shall have
paid to the Borrower the amount of any such tax or shall have
established to the satisfaction of the Borrower that such tax has
been paid.
(d) Delivery of Common Stock Upon
Conversion. Upon receipt by the Borrower from the Holder of
a facsimile transmission or e-mail (or other reasonable means of
communication) of a Notice of Conversion meeting the requirements
for conversion as provided in this Section 1.3, the Borrower shall
issue and deliver or cause to be issued and delivered to or upon
the order of the Holder certificates for the Common Stock issuable
upon such conversion within two (2) business days after such
receipt (the “Deadline”) (and, solely
in the case of conversion of the entire unpaid Principal Amount
hereof, surrender of this Note) in accordance with the terms
hereof.
(e) Obligation of Borrower to Deliver
Common Stock. Upon receipt by the Borrower of a Notice of
Conversion, the Holder shall be deemed to be the holder of record
of the Common Stock issuable upon such conversion, the outstanding
Principal Amount and the amount of accrued and unpaid interest on
this Note shall be reduced to reflect such conversion, and, unless
the Borrower defaults on its obligations under this Article I, all rights with
respect to the portion of this Note being so converted shall
forthwith terminate except the right to receive the Common Stock or
other securities, cash or other assets, as herein provided, on such
conversion. If the Holder shall have given a Notice of Conversion
as provided herein, the Borrower’s obligation to issue and
deliver the certificates for Common Stock shall be absolute and
unconditional, irrespective of the absence of any action by the
Holder to enforce the same, any waiver or consent with respect to
any provision thereof, the recovery of any judgment against any
person or any action to enforce the same, any failure or delay in
the enforcement of any other obligation of the Borrower to the
holder of record, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the
Holder of any obligation to the Borrower, and irrespective of any
other circumstance which might otherwise limit such obligation of
the Borrower to the Holder in connection with such conversion. The
Conversion Date specified in the Notice of Conversion shall be the
Conversion Date so long as the Notice of Conversion is received by
the Borrower before 6:00 p.m., New York, New York time, on such
date.
(f) Delivery of Common Stock by Electronic
Transfer. In lieu of delivering physical certificates
representing the Common Stock issuable upon conversion, provided
the Borrower is
participating in
the Depository Trust Company (“DTC”) Fast Automated
Securities Transfer (“FAST”) program, upon
request of the Holder and its compliance with the provisions
contained in Sections
1.1 and
1.2 and in this Section 1.3, the Borrower shall
use its best efforts to cause its transfer agent to electronically
transmit the Common Stock issuable upon conversion to the Holder by
crediting the account of Holder’s Prime Broker with DTC
through its Deposit Withdrawal Agent Commission
(“DWAC”)
system.
(g) Failure to Deliver Common Stock Prior
to Deadline. Without in any way limiting the Holder’s
right to pursue other remedies, including actual damages and/or
equitable relief, the parties agree that if delivery of the Common
Stock issuable upon conversion of this Note is not delivered by the
Deadline the Borrower shall pay to the Holder $3,000 per day in
cash, for each day beyond the Deadline that the Borrower fails to
deliver such Common Stock (unless such failure results from war,
acts of terrorism, an epidemic, or natural disaster)
(“Conversion Default
Payments”). Such cash amount shall be paid to Holder
in cash by the fifth day of the month following the month in which
it has accrued or, at the option of the Holder (by written notice
to the Borrower by the first day of the month following the month
in which it has accrued), shall be added to the Principal Amount of
this Note on the fifth day of the month following the month in
which it has accrued, in which event interest shall accrue thereon
in accordance with the terms of this Note and such additional
Principal Amount shall be convertible into Common Stock in
accordance with the terms of this Note. The Borrower agrees that
the right to convert is a valuable right to the Holder. The damages
resulting from a failure of, attempt to frustrate or interference
with such conversion right are difficult if not impossible to
qualify. Accordingly the parties acknowledge that the liquidated
damages provision contained in this Section 1.3(g) are
justified.
1.4 Concerning the Shares. The
shares of Common Stock issuable upon conversion of this Note may
not be sold or transferred unless (i) such shares are sold pursuant
to an effective registration statement under the Securities Act of
1933, as amended (the “Securities Act”), or (ii)
the Borrower or its transfer agent shall have been furnished with
an opinion of counsel (which opinion shall be in form, substance
and scope customary for opinions of counsel in comparable
transactions) to the effect that the shares to be sold or
transferred may be sold or transferred pursuant to an exemption
from such registration or (iii) such shares are sold or transferred
pursuant to Rule 144 under the Securities Act (or a successor rule)
(“Rule
144”) or (iv) such shares are transferred to an
“affiliate” (as defined in Rule 144) of the Borrower
who agrees to sell or otherwise transfer the shares only in
accordance with this Section 1.4 and who is an
“accredited investor” (as defined in Rule 501(a) of the
Securities Act). Except as otherwise provided (and subject to the
removal provisions set forth below), until such time as the shares
of Common Stock issuable upon conversion of this Note have been
registered under the Securities Act or otherwise may be sold
pursuant to Rule 144 without any restriction as to the number of
securities as of a particular date that can then be immediately
sold, each certificate for shares of Common Stock issuable upon
conversion of this Note that has not been so included in an
effective registration statement or that has not been sold pursuant
to an effective registration statement or an exemption that permits
removal of the legend, shall bear a legend substantially in the
following form, as appropriate:
“THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT
AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, UNLESS SOLD PURSUANT TO: (1) RULE
144 UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (2) AN OPINION
OF COUNSEL IN A CUSTOMARY FORM, THAT REGISTRATION IS
NOT
REQUIRED
UNDER SAID ACT OR APPLICABLE STATE SECURITIES
LAWS.”
The
legend set forth above shall be removed and the Borrower shall
issue to the Holder a new certificate therefore free of any
transfer legend if (i) the Borrower or its transfer agent shall
have received an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions, to
the effect that a public sale or transfer of such Common Stock may
be made without registration under the Securities Act, which
opinion shall be accepted by the Borrower so that the sale or
transfer is effected or (ii) in the case of the Common Stock
issuable upon conversion of this Note, such security is registered
for sale by the Holder under an effective registration statement
filed under the Securities Act or otherwise may be sold pursuant to
Rule 144 without any restriction as to the number of securities as
of a particular date that can then be immediately sold. In the
event that the Borrower does not accept the opinion of counsel
provided by the Holder with respect to the transfer of Securities
pursuant to an exemption from registration, such as Rule 144 or
Regulation S, at the Deadline, it will be considered an Event of
Default pursuant to Section 3.2 of this
Note.
1.5 Status as Shareholder. Upon
submission of a Notice of Conversion by a Holder, (i) the shares
covered thereby (other than the shares, if any, which cannot be
issued because their issuance would exceed such Holder’s
allocated portion of the Reserved Amount or non-waived Maximum
Share Amount) shall be deemed converted into shares of Common Stock
and (ii) the Holder’s rights as a Holder of such converted
portion of this Note shall cease and terminate, excepting only the
right to receive certificates for such shares of Common Stock and
to any remedies provided herein or otherwise available at law or in
equity to such Holder because of a failure by the Borrower to
comply with the terms of this Note. Notwithstanding the foregoing,
if a Holder has not received certificates or transmission of such
shares pursuant to Section
1.3(f) for all shares of Common Stock prior to the tenth
(10th) business day after the expiration of the Deadline with
respect to a conversion of any portion of this Note for any reason,
then (unless the Holder otherwise elects to retain its status as a
holder of Common Stock by so notifying the Borrower) the Holder
shall regain the rights of a Holder of this Note with respect to
such unconverted portions of this Note and the Borrower shall, as
soon as practicable, return such unconverted Note to the Holder or,
if this Note has not been surrendered, adjust its records to
reflect that such portion of this Note has not been converted. In
all cases, the Holder shall retain all of its rights and remedies
(including, without limitation, (i) the right to receive Conversion
Default Payments pursuant to Section 1.3(g) to the extent
required thereby for such conversion default and any subsequent
conversion default and (ii) the right to have the Conversion Price
with respect to subsequent conversions determined in accordance
with Section 1.2)
for the Borrower’s failure to convert this Note.
ARTICLE II. CERTAIN COVENANTS
2.1 Distributions on Capital Stock.
So long as the Borrower shall have any obligation under this Note,
the Borrower shall not without the Holder’s written consent
(a) pay, declare or set apart for such payment, any dividend or
other distribution (whether in cash, property or other securities)
on shares of capital stock other than dividends on shares of Common
Stock solely in the form of additional shares of Common Stock or
(b) directly or indirectly or through any subsidiary make any other
payment or distribution in respect of its capital stock except for
distributions pursuant to any shareholders’ rights plan which
is approved by a majority of the Borrower’s disinterested
directors.
2.2 Restriction on Stock
Repurchases. So long as the Borrower shall have any
obligation under this Note, the Borrower shall not without the
Holder’s written consent redeem, repurchase or otherwise
acquire (whether for cash or in exchange for property or other
securities or otherwise) in any one transaction or series of
related transactions any shares of capital stock of the Borrower or
any warrants, rights or options to purchase or acquire any such
shares.
ARTICLE III. EVENTS OF DEFAULT
The
occurrence of any of the following events of default shall each be
an “Event of Default”, with no right to notice or right
to cure except as specifically stated:
3.1 Failure to Pay Principal or
Interest. The Borrower fails to pay the principal hereof or
interest thereon when due on this Note, whether at the Maturity
Date, upon acceleration, or otherwise.
3.2 Conversion and the Shares. The
Borrower fails to reserve a sufficient amount of shares of Common
Stock as required under the terms of this Note (including without
limitation, Sections
1.2 and
1.3 of this Note), fails to
issue shares of Common Stock to the Holder (or announces or
threatens in writing that it will not honor its obligation to do
so) upon exercise by the Holder of the conversion rights of the
Holder in accordance with the terms of this Note, fails to transfer
or cause its transfer agent to transfer (issue) (electronically or
in certificated form) shares of Common Stock issued to the Holder
upon conversion of or otherwise pursuant to this Note as and when
required by this Note, the Borrower directs its transfer agent not
to transfer or delays, impairs, and/or hinders its transfer agent
in transferring (or issuing) (electronically or in certificated
form) shares of Common Stock to be issued to the Holder upon
conversion of or otherwise pursuant to this Note as and when
required by this Note, or fails to remove (or directs its transfer
agent not to remove or impairs, delays, and/or hinders its transfer
agent from removing) any restrictive legend (or to withdraw any
stop transfer instructions in respect thereof) on any shares of
Common Stock issued to the Holder upon conversion of or otherwise
pursuant to this Note as and when required by this Note (or makes
any written announcement, statement or threat that it does not
intend to honor the obligations described in this paragraph) and
any such failure shall continue uncured (or any written
announcement, statement or threat not to honor its obligations
shall not be rescinded in writing) for two (2) business days after
the Holder shall have delivered a Notice of Conversion. It is an
obligation of the Borrower to remain current in its obligations to
its transfer agent. It shall be an Event of Default of this Note,
if a conversion of this Note is delayed, hindered or frustrated due
to a balance owed by the Borrower to its transfer agent. If at the
option of the Holder, the Holder advances any funds to the
Borrower’s transfer agent in order to process a conversion,
such advanced funds shall be paid by the Borrower to the Holder
within five (5) business days, either in cash or as an addition to
the balance of this Note, and such choice of payment method is at
the discretion of the Borrower.
3.3 Breach of Covenants. The
Borrower breaches any material covenant or other material term or
condition contained in this Note or any other documents entered
into between the Holder and Borrower, and such breach continues for
a period of three (3) days after written notice thereof to the
Borrower from the Holder or after five (5) days after the Borrower
should have been aware of the breach.
3.4 Breach of Representations and
Warranties. Any representation or warranty of the Borrower
made herein or in any agreement, statement or certificate given in
writing pursuant hereto or in connection herewith, shall be false
or misleading in any material respect when made and the breach of
which has (or with the passage of time will have) a material
adverse effect on the rights of the Holder with respect to this
Note.
3.5 Receiver or Trustee. The
Borrower or any subsidiary of the Borrower shall make an assignment
for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial
part of its property or business, or such a receiver or trustee
shall otherwise be appointed.
3.6 Judgments. Any money judgment,
writ or similar process shall be entered or filed against the
Borrower or any subsidiary of the Borrower or any of its property
or other assets for more than
$100,000, and shall
remain unvacated, unbonded or unstayed for a period of ten (10)
days unless otherwise consented to by the Holder, which consent
will not be unreasonably withheld.
3.7 Bankruptcy. Bankruptcy,
insolvency, reorganization or liquidation proceedings or other
proceedings, voluntary or involuntary, for relief under any
bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Borrower or any subsidiary of the
Borrower.
3.8 Delisting of Common Stock. The
Borrower shall fail to maintain the listing or quotation of the
Common Stock on the Trading Market or an equivalent replacement
exchange, the Nasdaq Global Market, the Nasdaq Capital Market, the
New York Stock Exchange, or the NYSE American.
3.9 Failure to Comply with the Exchange
Act. The Borrower shall fail to comply with the reporting
requirements of the Exchange Act (including but not limited to
becoming delinquent in its filings), and/or the Borrower shall
cease to be subject to the reporting requirements of the Exchange
Act.
3.10 Liquidation.
The Borrower commences any dissolution, liquidation or winding up
of Borrower or any substantial portion of its
business.
3.11 Cessation
of Operations. The Borrower ceases operations or Borrower
admits it is otherwise generally unable to pay its debts as such
debts become due, provided, however, that any disclosure of the
Borrower’s ability to continue as a “going
concern” shall not be an admission that the Borrower cannot
pay its debts as they become due.
3.12 Financial
Statement Restatement. The Borrower replaces its auditor, or
any restatement of any financial statements filed by the Borrower
with the SEC for any date or period from two years prior to the
Issue Date of this Note and until this Note is no longer
outstanding, if the result of such restatement would, by comparison
to the unrestated financial statements, have constituted a material
adverse effect on the Borrower or the rights of the Holder with
respect to this Note.
3.13 Reverse
Splits. The Borrower effectuates a reverse split of its
Common Stock without twenty (20) days prior written notice to the
Holder.
3.14 Replacement
of Transfer Agent. In the event that the Borrower replaces
its transfer agent, and the Borrower fails to provide prior to the
effective date of such replacement, a fully executed Irrevocable
Transfer Agent Instructions (including but not limited to the
provision to irrevocably reserve shares of Common Stock in the
Reserved Amount) signed by the successor transfer agent to Borrower
and the Borrower that reserves the greater of the (i) total amount
of shares previously held in reserve for this Note with the
Borrower’s immediately preceding transfer agent and (ii)
Reserved Amount.
3.15 Cross-Default.
Notwithstanding anything to the contrary contained in this Note or
the other related or companion documents, a breach or default by
the Borrower of any covenant or other term or condition contained
in any of the other financial instruments, including but not
limited to all convertible promissory notes, currently issued, or
hereafter issued, by the Borrower, to the Holder or any
3rd party
(the “Other
Agreements”), shall, at the option of the Holder, be
considered a default under this Note, in which event the Holder
shall be entitled to apply all rights and remedies of the Holder
under the terms of this Note by reason of a default under said
Other Agreement or hereunder.
3.16 Inside
Information. Any attempt by the Borrower or its officers,
directors, and/or affiliates to transmit, convey or disclose, or
any actual transmittal, conveyance or disclosure by the Borrower or
its officers, directors, and/or affiliates of, material non-public
information concerning the
Borrower, to the
Holder or its successors and assigns, which is not immediately
cured by Borrower’s filing of a Form 8-K pursuant to
Regulation FD on that same date.
3.17 No
bid. At any time while this Note is outstanding, the lowest
Trading Price on the Trading Market or other applicable principal
trading market for the Common Stock is equal to or less
than
$0.01.
3.18 Prohibition
on Debt and Variable Securities. So long as this Note is
outstanding, the Borrower shall not, without written consent of the
Holder, issue any Variable Security (as defined herein), unless (i)
the Borrower is permitted to pay off this Note in cash at the time
of the issuance of the respective Variable Security and (ii) the
Borrower pays off this Note, pursuant to the terms of this Note, in
cash at the time of the issuance of the respective Variable
Security. A “Variable Security” shall
mean any security issued by the Borrower that (a) has or may have
conversion rights of any kind, contingent, conditional or otherwise
in which the number of shares that may be issued pursuant to such
conversion right varies with the market price of the Common Stock;
(b) is or may become convertible into Common Stock (including
without limitation convertible debt, warrants or convertible
preferred stock), with a conversion or exercise price that varies
with the market price of the Common Stock, even if such security
only becomes convertible or exercisable following an Event of
Default, the passage of time, or another trigger event or
condition; or (c) was issued or may be issued in the future in
exchange for or in connection with any contract, security, or
instrument, whether convertible or not, where the number of shares
of Common Stock issued or to be issued is based upon or related in
any way to the market price of the Common Stock, including, but not
limited to, Common Stock issued in connection with a Section
3(a)(9) exchange, a Section 3(a)(10) settlement, or any other
similar settlement or exchange.
3.19 Failure
to Repay Upon Qualified Offering. The Borrower fails to
repay this Note, in its entirety, pursuant to the terms of this
Note, with funds received from its next completed offering
of
$1,000,000.00 or
more (consummated on or after the Issue Date).
UPON
THE OCCURRENCE OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THIS NOTE SHALL
BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO
THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN
AMOUNT EQUAL TO: (Y) THE DEFAULT AMOUNT (AS DEFINED HEREIN);
MULTIPLIED
BY (Z)
TWO (2). Upon the occurrence of any Event of Default specified in
Sections 3.1,
3.3, 3.4, 3.5, 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 3.14, 3.15, 3.16, 3.17, 3.18, and/or this 3.19, this Note
shall
become
immediately due and payable and the Borrower shall pay to the
Holder, in full satisfaction of its obligations hereunder, an
amount equal to 140% (plus an additional 5% per each additional
Event of Default that occurs hereunder) multiplied by the then
outstanding entire balance of this Note (including principal and
accrued and unpaid interest) plus Default Interest, if any,
plus any amounts
owed to the Holder pursuant to Sections 1.3(g) hereof
(collectively, in the aggregate of all of the above, the
“Default
Amount”), and
all other amounts payable hereunder shall immediately become due
and payable, all without demand, presentment or notice, all of
which hereby are expressly waived, together with all costs,
including, without limitation, legal fees and expenses, of
collection, and the Holder shall be entitled to exercise all other
rights and remedies available at law or in equity. Each time an
Event of Default occurs while this Note is outstanding, an
additional discount of five percent (5%) discount shall be factored
into the Conversion Price.
The
Holder shall have the right at any time, to require the Borrower,
to immediately issue, in lieu of the Default Amount, the number of
shares of Common Stock of the Borrower equal to the Default Amount
divided by the Conversion Price then in effect, subject to issuance
in tranches due to the beneficial ownership limitations contained
in this Note.
ARTICLE IV. MISCELLANEOUS
4.1 Failure or Indulgence Not
Waiver. No failure or delay on the part of the Holder in the
exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privileges. All
rights and remedies existing hereunder are cumulative to, and not
exclusive of, any rights or remedies otherwise
available.
4.2 Notices. All notices, demands,
requests, consents, approvals, and other communications required or
permitted hereunder shall be in writing and, unless otherwise
specified herein, shall be
(i)
personally served, (ii) deposited in the mail, registered or
certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or
(iv) transmitted by hand delivery, telegram, facsimile, or
electronic mail addressed as set forth below or to such other
address as such party shall have specified most recently by written
notice. Any notice or other communication required or permitted to
be given hereunder shall be deemed effective (a) upon hand
delivery, upon electronic mail delivery or upon delivery by
facsimile, with accurate confirmation generated by the transmitting
facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such
notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the
second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The
addresses for such communications shall be:
If to
the Borrower, to:
Ocean
Thermal Energy Corporation 800 South Queen Street
Lancaster, PA
17603
Attention: Jeremy
Feakins, CEO
e-mail:
jeremy.feakins@otecorporation.com If to the Holder:
L2
CAPITAL, LLC
208
Ponce de Leon Ave. Ste. 1600
San
Juan, PR 00918
Attention: Adam
Long, Managing Partner e-mail:
investments@ltwocapital.com
with a
copy to that shall not constitute notice:
K&L
Gates LLP
200 S.
Biscayne Blvd., Ste. 3900
Miami,
FL 33131
Attention: John D.
Owens, III, Esq. e-mail: john.owens@klgates.com
4.3 Amendments. This Note and any
provision hereof may only be amended by an instrument in writing
signed by the Borrower and the Holder. The term “Note”
and all reference thereto,
as used
throughout this instrument, shall mean this instrument as
originally executed, or if later amended or supplemented, then as
so amended or supplemented.
4.4 Assignability. This Note shall
be binding upon the Borrower and its successors and assigns, and
shall inure to be the benefit of the Holder and its successors and
assigns. Notwithstanding anything to the contrary herein, the
rights, interests or obligations of the Borrower hereunder may not
be assigned, by operation of law or otherwise, in whole or in part,
by the Borrower without the prior signed written consent of the
Holder, which consent may be withheld at the sole discretion of the
Holder (any such assignment or transfer shall be null and void if
the Borrower does not obtain the prior signed written consent of
the Holder). This Note or any of the severable rights and
obligations inuring to the benefit of or to be performed by Holder
hereunder may be assigned by Holder to a third party, in whole or
in part, without the need to obtain the Borrower’s consent
thereto. Each transferee of this Note must be an “accredited
investor” (as defined in Rule 501(a) of the Securities Act).
Notwithstanding anything in this Note to the contrary, this Note
may be pledged as collateral in connection with a bona fide margin
account or other lending arrangement.
4.5 Cost of Collection. If default
is made in the payment of this Note, the Borrower shall pay the
Holder hereof costs of collection, including reasonable
attorneys’ fees.
4.6 Governing Law. This Note shall
be governed by and interpreted in accordance with the laws of the
State of Kansas without regard to the principles of conflicts of
law (whether of the State of Kansas or any other
jurisdiction).
4.7 Arbitration. Any disputes,
claims or controversies arising out of or relating to this Note, or
the transactions contemplated hereby, or the breach, termination,
enforcement, interpretation or validity thereof, including the
determination of the scope or applicability of this Note to
arbitrate, shall be referred to and resolved solely and exclusively
by binding arbitration to be conducted before the Judicial
Arbitration and Mediation Service (“JAMS” ), or its successor
pursuant the expedited procedures set forth in the JAMS
Comprehensive Arbitration Rules and Procedures (the
“Rules”
), including Rules 16.1 and
16.2 of
those Rules. The arbitration shall be held in New York, New York,
before a tribunal consisting of three (3) arbitrators each of whom
will be selected in accordance “strike and rank”
methodology set forth in Rule 15. Either party to this Note may,
without waiving any remedy under this Note, seek from any court
sitting in the County of Johnson, State of Kansas any interim or
provisional relief that is necessary to protect the rights or
property of that party, pending the establishment of the arbitral
tribunal. The costs and expenses of such arbitration shall be paid
by and be the sole responsibility of the Borrower, including but
not limited to the Holder’s attorneys’ fees and each
arbitrator’s fees. The arbitrators’ decision must set
forth a reasoned basis for any award of damages or finding of
liability. The arbitrators’ decision and award will be made
and delivered as soon as reasonably possible and in any case within
sixty (60) days following the conclusion of the arbitration hearing
and shall be final and binding on the parties and may be entered by
any court having jurisdiction thereof.
4.8 JURY
TRIAL WAIVER. THE BORROWER AND THE HOLDER HEREBY WAIVE A
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY
EITHER OF THE PARTIES HERETO AGAINST THE OTHER IN RESPECT OF ANY
MATTER ARISING OUT OF OR IN CONNECTION WITH THIS NOTE.
4.9 Certain Amounts. Whenever
pursuant to this Note the Borrower is required to pay an amount in
excess of the outstanding Principal Amount (or the portion thereof
required to be paid at that time) plus accrued and unpaid interest
plus Default Interest on such interest, the Borrower and the Holder
agree that the actual damages to the Holder from the receipt of
cash payment on this Note may be difficult to determine and the
amount to be so paid by the Borrower represents stipulated damages
and not
a
penalty and is intended to compensate the Holder in part for loss
of the opportunity to convert this Note and to earn a return from
the sale of shares of Common Stock acquired upon conversion of this
Note at a price in excess of the price paid for such shares
pursuant to this Note. The Borrower and the Holder hereby agree
that such amount of stipulated damages is not plainly
disproportionate to the possible loss to the Holder from the
receipt of a cash payment without the opportunity to convert this
Note into shares of Common Stock.
4.10 Remedies.
The Borrower acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder, by vitiating
the intent and purpose of the transaction contemplated hereby.
Accordingly, the Borrower acknowledges that the remedy at law for a
breach of its obligations under this Note will be inadequate and
agrees, in the event of a breach or threatened breach by the
Borrower of the provisions of this Note, that the Holder shall be
entitled, in addition to all other available remedies at law or in
equity, and in addition to the penalties assessable herein, to an
injunction or injunctions restraining, preventing or curing any
breach of this Note and to enforce specifically the terms and
provisions thereof, without the necessity of showing economic loss
and without any bond or other security being required.
4.11 Section
3(a)(10) Transactions. If at any time while this Note is
outstanding, the Borrower enters into a transaction structured in
accordance with, based upon, or related or pursuant to, in whole or
in part, Section 3(a)(10) of the Securities Act (a
“3(a)(10)
Transaction”), then a liquidated damages charge of
100% of the outstanding principal balance of this Note at that
time, will be assessed and will become immediately due and payable
to the Holder, either in the form of cash payment, an addition to
the balance of this Note, or a combination of both forms of
payment, as determined by the Holder. The liquidated damages charge
in this Section 4.11 shall be in addition to, and not in
substitution of, any of the other rights of the Holder under this
Note.
4.12 Reverse
Split Penalty. If at any time while this Note is
outstanding, the Borrower effectuates a reverse split with respect
to the Common Stock, then a liquidated damages charge of 30% of the
outstanding principal balance of this Note at that time, will be
assessed and will become immediately due and payable to the Holder,
either in the form of cash payment, an addition to the balance of
this Note, or a combination of both forms of payment, as determined
by the Holder. The liquidated damages charge in this Section 4.12 shall be in
addition to, and not in substitution of, any of the other rights of
the Holder under this Note.
4.13 Restriction
on Section 3(a)(9) Transactions. So long as this Note is
outstanding, the Borrower shall not enter into any 3(a)(9)
Transaction with any party other than the Holder, without prior
written consent of the Holder. In the event that the Borrower does
enter into, or makes any issuance of Common Stock related to, a
3(a)(9) Transaction while this Note is outstanding, a liquidated
damages charge of 25% of the outstanding principal balance of this
Note, but not less than $15,000, will be assessed and will become
immediately due and payable to the Holder at its election in the
form of cash payment, an addition to the balance of this Note or a
combination of both forms of payment, as determined by the Holder.
“3(a)(9)
Transaction” means a transaction structured in
accordance with, based upon, or related or pursuant to, in whole or
in part, Section 3(a)(9) of the Securities Act. The liquidated
damages charge in this Section 4.13 shall be in
addition to, and not in substitution of, any of the other rights of
the Holder under this Note.
4.14 Terms
of Future Financings. So long as this Note is outstanding,
upon any issuance by the Borrower or any of its subsidiaries of any
security with any term more favorable to the holder of such
security or with a term in favor of the holder of such security
that was not similarly provided to the Holder in this Note, then
the Borrower shall notify the Holder of such additional or more
favorable term and such term, at Holder’s option, shall
become a part of the transaction documents with the Holder.
The
types
of terms contained in another security that may be more favorable
to the holder of such security include, but are not limited to,
terms addressing conversion discounts, prepayment rate, conversion
look back/holding periods, interest rates, original issue
discounts, stock sale price, private placement price per share, and
warrant coverage.
4.15 Usury.
If it shall be found that any interest or other amount deemed
interest due hereunder violates the applicable law governing usury,
the applicable rate of interest due hereunder shall automatically
be lowered to equal the maximum rate of interest permitted under
applicable law. The Borrower covenants (to the extent that it may
lawfully do so) that it shall not at any time insist upon, plead,
or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension or usury law or other law which would
prohibit or forgive the Borrower from paying all or any portion of
the principal of or interest on this Note as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which
may affect the covenants or the performance of this Note, and the
Borrower (to the extent it may lawfully do so) hereby expressly
waives all benefits or advantage of any such law, and covenants
that it will not, by resort to any such law, hinder, delay or
impede the execution of any power herein granted to the Holder, but
will suffer and permit the execution of every such as though no
such law has been enacted.
4.16 Right
of First Refusal. If at any time after the Issue Date and
until this Note is satisfied in full, the Borrower has a bona fide
offer of capital or financing from any 3rd party, that the
Borrower intends to act upon, then the Borrower must first offer
such opportunity to the Holder to provide such capital or financing
to the Borrower on the same or similar terms as each respective
3rd
party’s terms, and the Holder may in its sole discretion
determine whether the Holder will provide all or a portion of such
capital or financing. Except as otherwise provided in this Note,
should the Holder be unwilling or unable to provide such capital or
financing to the Borrower within 10 trading days from
Holder’s receipt of written notice of the offer (the
“Offer
Notice”) from the Borrower, then the Borrower may
obtain such capital or financing from that respective 3rd party upon the
exact same terms and conditions offered by the Borrower to the
Holder, which transaction must be completed within 15 days after
the date of the Offer Notice. Borrower shall, within two (2)
business days of the respective closing, utilize 50% of all
proceeds received by Borrower by each respective 3rd party that provides
capital or financing to the Borrower, to repay this Note. If the
Borrower does not receive the capital or financing from the
respective 3rd party within 15
days after the date of the respective Offer Notice, then the
Borrower must again offer the capital or financing opportunity to
the Holder as described above, and the process detailed above shall
be repeated. The Offer Notice must be sent via electronic mail to
investments@ltwocapital.com.
** signature page to follow **
IN
WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its duly authorized officer on the Issue Date.
Ocean
Thermal Energy Corporation
By:/s/ Jeremy Feakins
Name:
Jeremy Feakins
Title:
Chief Executive Officer
302826908
v4
SIGNATURE PAGE TO REPLACEMENT CONVERTIBLE PROMISSORY NOTE
EXHIBIT
A NOTICE OF CONVERSION
The
undersigned hereby elects to convert
$ principal
amount of the Note (defined below) into that number of shares of
Common Stock to be issued pursuant to the conversion of the Note
(“Common Stock”) as set forth below, of Ocean Thermal
Energy Corporation, a Nevada corporation (the
“Borrower”), according to the conditions of the
replacement convertible promissory note of the Borrower dated as of
December 14, 2018 (the “Note”), as of the date written
below. No fee will be charged to the Holder for any conversion,
except for transfer taxes, if any.
Box
Checked as to applicable instructions:
[ ] The
Borrower shall electronically transmit the Common Stock issuable
pursuant to this Notice of Conversion to the account of the
undersigned or its nominee with DTC through its Deposit Withdrawal
Agent Commission system (“DWAC Transfer”).
Name of
DTC Prime Broker: Account Number:
[ ] The
undersigned hereby requests that the Borrower issue a certificate
or certificates for the number of shares of Common Stock set forth
below (which numbers are based on the Holder’s calculation
attached hereto) in the name(s) specified immediately below or, if
additional space is necessary, on an attachment
hereto:
L2
CAPITAL, LLC
208
Ponce de Leon Ave. Ste. 1600
San
Juan, PR 00918
e-mail:
investments@ltwocapital.com
|
Date of
Conversion:
|
|
|
Applicable
Conversion Price:
|
$
|
|
Number
of Shares of Common Stock to be Issued Pursuant to Conversion of
this
Note:
|
|
|
Amount
of Principal Balance Due remaining Under this Note after
this
conversion:
|
|
L2
CAPITAL, LLC
302826908
v4
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-1 (No. 333-222529), as
amended, and Form S-8 (No.
333-210640) of our report dated March 22, 2019, with respect to
December 31, 2018 and December 31, 2017 consolidated financial
statements of Ocean Thermal Energy Corporation included in its
Annual Report (Form 10-K).
We also consent to the reference to our Firm under the caption
"Experts" in the Registration Statements.
/s/
Liggett & Webb, P.A.
LIGGETT
& WEBB, P.A.
Certified Public Accountants
Boynton
Beach, Florida
March
22, 2019
EXHIBIT 31.1
CERTIFICATION PURSUANT TO RULES 13a-14(a) AND 15d-14(a) UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I,
Jeremy Feakins, certify that:
1.
I have
reviewed this Form 10-K of Ocean Thermal Energy Corporation for the
year ended December 31, 2018.
2.
Based
on my knowledge, this 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 report;
3.
Based
on my knowledge, the financial statements, and other financial
information included in this 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 report;
4.
The
registrant's other certifying officer(s) 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 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 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 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 evaluations;
and
d)
Disclosed in this
report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) 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(s) and I have disclosed,
based on our most recent evaluation, 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:
March 22, 2019
|
/s/
Jeremy P. Feakins
|
|
|
Jeremy
P. Feakins
Chief
Executive Officer and
|
|
|
Chief
Financial Officer
|
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 Annual Report on Form 10-K of Ocean Thermal
Energy Corporation (the “Company”) for the year ending
December 31, 2018, as filed with the Securities and Exchange
Commission on the date hereof (the “Report”), Jeremy P.
Feakins, Chief Executive Officer and Chief Financial Officer of the
Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that to his knowledge:
(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.
|
Dated:
March 22, 2019
|
By: /s/
|
Jeremy
P. Feakins
|
|
|
|
Jeremy
P. Feakins
|
|
|
|
Chief
Executive Officer, Chief Financial Officer
|
This
certification accompanies each Report pursuant to § 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent
required by the Sarbanes-Oxley Act of 2002, be deemed filed by the
Company for purposes of §18 of the Securities Exchange Act of
1934, as amended.
A
signed original of this written statement required by
Section 906 has been provided to the Company and will be
retained by the Company and furnished to the Securities and
Exchange Commission or its staff upon request.