Exhibit 10.3

 

SECURITY AGREEMENT

 

THIS SECURITY AGREEMENT (this "Agreement"), is entered into as of February 16,
2018, by and between Ocean Thermal Energy Corporation, a Nevada corporation (the
"Borrower"), and L2 Capital, LLC, a Kansas limited liability company (the
"Secured Party" or "Secured Parties"). All capitalized terms not otherwise
defined herein shall the meanings ascribed to them in that certain Securities
Purchase Agreement and Note (as defined below) by and between Borrower and the
Secured Party of even date (the "Note Purchase Agreement").

 

RECITALS

 

WHEREAS, the Secured Parties have loaned monies to Borrower, as more
particularly described in the Note Purchase Agreement and as evidenced by the 8%
Senior Secured Promissory Note in the principal amount of $565,555.00 issued by
Borrower to the Secured Party (the "Note");

 

WHEREAS, the term "Secured Party" as used in this Agreement shall mean,
collectively, all holders of the Note, including those persons who become
holders of Note subsequent to the date hereof; and

 

WHEREAS, this Agreement is being executed and delivered by Borrower to secure
the Note.

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, each of the parties hereto hereby agrees as
follows:

 

1.      Obligations Secured. This Agreement secures, in part, the prompt payment
and performance of all obligations of Borrower under the Note, and all renewals,
extensions, modifications, amendments, and/or supplements thereto (collectively,
the "Secured Obligations").

 

2.      Grant of Security.

 

a.     Collateral. Borrower hereby grants, pledges, and assigns for the benefit
of the Secured Parties, and there is hereby created in favor of each of the
Secured Parties, a security interest in and to all of Borrower’s (inclusive of
all of borrower’s subsidiaries) right, title, and interest in, to, and under all
of the collateral set forth on Exhibit A hereto (collectively, "Collateral").

 

b.     Effective Date. This grant of security shall be effective as of the date
hereof.

 

c.     Subordination. The Note and the Secured Obligations shall not be
subordinated, or junior in interest, to any other obligations of Borrower.

 

d.     Filings to Perfect Security. The Company will (and is hereby authorized
to) file with any filing office such financing statements, amendments, addenda,
continuations, terminations, assignments and other records (whether or not
executed by Borrower) to perfect and to maintain perfected security interests in
the Collateral by the Secured Parties, whereby (a) promptly upon the execution
of this Agreement, a Financing Statement on Form UCC-1 (the "Financing
Statement'') shall be filed on behalf of the Secured Parties with respect to the
Collateral; The Financing Statement shall designate each of the Secured Parties
as a Secured Party and Borrower as the debtor, shall identify the security
interest in the Collateral, and contain any other items required by law.

 

 

 

 

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The Financing Statement shall contain a description of collateral consistent
with the description set forth herein and shall not describe the collateral as
"all assets" or "all personal property."

 

3.     Transfers and Other Liens. Except as set forth herein or in the Note,
Borrower shall not, without the prior written consent of all of the Secured
Parties, at their sole and absolute discretion:

 

a.     Sell, transfer, assign, or dispose of (by operation of law or otherwise),
any of the Collateral outside of the ordinary course of business;

 

b.     Create or suffer to exist any lien, security interest, or other charge or
encumbrance upon or with respect to any of the Collateral, except the security
interests created hereby; or

 

c.     Permit any of the Collateral to be levied upon under any legal process.

 

4.     Representations and Warranties. Borrower hereby represents and warrants
to the Secured Parties as follows: (a) to Borrower' s knowledge, Borrower is the
owner of the Collateral (or, in the case of after-acquired Collateral, at the
time Borrower acquires rights in the Collateral, will be the owner thereat) and
that, except as expressly provided herein, no other person has (or, in the case
of after-acquired Collateral, at the time Borrower acquires rights therein, will
have) any right, title, claim or interest (by way of Lien or otherwise) in,
against or to the Collateral; (b) to Borrower's knowledge, except as expressly
provided herein, upon the filing of a Financing Statement as provided herein,
the Secured Parties (or in the case of after-acquired Collateral, at the time
Borrower acquires rights therein, will have) will have a perfected security
interest in the Collateral to the extent that a security interest in the
Collateral can be perfected by such filing; (c) all Accounts Receivable (as
defined in Exhibit A) are genuine and enforceable against the party obligated to
pay the same; (d) Borrower has full power and authority to enter into the
transactions provided for in this Agreement and the Note; (e) this Agreement and
the Note, when executed and delivered by Borrower, will constitute the legal,
valid and binding obligations of Borrower enforceable in accordance with their
terms; (t) the execution and delivery by Borrower of this Agreement and the Note
and the performance and consummation of the transactions contemplated hereby and
thereby do not and will not violate Borrower's Certificate of Incorporation or
Bylaws or any material judgment, order, writ, decree, statute, rule or
regulation applicable to Borrower (g) there does not exist any default or
violation by Borrower of or under any of the terms, conditions or obligations of
(i) any indenture, mortgage, deed of trust, franchise, permit, contract,
agreement, or other instrument to which Borrower is a party or by which Borrower
is bound, or (ii) any law, ordinance, regulation, ruling, order, injunction,
decree, condition or other requirement applicable to or imposed upon Borrower by
any law, the action of any court or any governmental authority or agency; and
the execution, delivery and performance of this Agreement will not result in any
such default or violation; (h) there is no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand pending or, to the knowledge
of Borrower, threatened which adversely affects Borrower's business or financial
condition and there is no basis known to Borrower for any action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand which
could result in the same; and (i) this Agreement and the Note do not contain any
untrue statement of material fact or omit to state a material fact necessary in
order to make the statements contained in this Agreement and the Note not
misleading.

 

5.     Events of Default. For purposes of this Agreement, the term "Event of
Default" shall mean and refer to any of the following:

 

a.      Failure of Borrower to perform or observe any covenant set forth in this
Agreement, or to perform or observe any other term, condition, covenant,
warranty, agreement or other provision contained in this Agreement, where such
failure continues for fifteen (15) days after receipt of written notice from
Lender specifying such failure;

 

b.     Any representation or warranty made or furnished by Borrower in writing
in connection with this Agreement and the Note or any statement or
representation made in any certificate, report or opinion delivered pursuant to
this Agreement or in connection with this Agreement is false, incorrect or
incomplete in any material respect at the time it is furnished; or

 

 

 

 

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c.      Occurrence of any Event of Default as defined in the Note.

 

6.     Remedies. Upon the occurrence and during the continuance of an Event of
Default (subject to the notice and cure provisions provided for herein, if any),
each Secured Party shall have the rights of a secured creditor, all rights
granted by the Note, this Security Agreement and by law, including the right to
require Borrower to assemble the Collateral and make it available to the Secured
Parties at a place to be designated by Borrower. The rights and remedies
provided in this Agreement and the Note are cumulative and may be exercised
independently or concurrently, and are not exclusive of any other right or
remedy provided at law or in equity. No failure to exercise or delay by the
Secured Parties in exercising any right or remedy under this Agreement or the
Note shall impair or prohibit the exercise of any such rights or remedies in the
future or be deemed to constitute a waiver or limitation of any such right or
remedy or acquiescence therein. Every right and remedy granted to the Secured
Parties under this Agreement and the Note or by law or in equity may be
exercised by any Secured Party at any time and from time to time.

 

7.     Further Assurances. Borrower agrees that, from time to time, at its own
expense, it will:

 

a.      Protect and defend the Collateral against all claims and demands of all
persons at any time claiming the same or any interest therein, and preserve and
protect Secured Party's security interest in the Collateral.

 

b.     Promptly execute and deliver to Secured Parties all instruments and
documents, and take all further action necessary or desirable, as any Secured
Party may reasonably request to (i) continue, perfect, or protect any security
interest granted or purported to be granted hereby, and (ii) enable a Secured
Party to exercise and enforce any of Secured Party's rights and remedies
hereunder with respect to any Collateral.

 

c.      Permit a Secured Party's representatives to inspect and make copies of
all books and records relating to the Collateral, wherever such books and
records are located, and to conduct an audit relating to the Collateral at any
reasonable time or times.

 

8.     Notices. All notices required or permitted hereunder shall be in writing
and shall be deemed effectively given: (a) upon personal delivery to the party
to be notified, (b) when sent by confirmed telex, e-mail or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day, (c) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (d) one (1) day after deposit with
a nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent as follows:

 

If to the Borrower, to:

 

OCEAN THERMAL ENERGY CORPORATION

800 South Queen Street

Lancaster, PA 17603

E-mail: info@otecorporation.com

 

If to the Secured Party:

 

L2 CAPITAL, LLC

8900 State Line Rd., Suite 410

Leawood, KS 66206

e-mail: investments@ltwocapital.com

 

 

 

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or to such other address or telecopy number as the party to whom notice is to be
given may have furnished to the other party in writing in accordance herewith.

 

10.    Amendments and Waivers. No modification, amendment or waiver of any
provision of, or consent required by, this Agreement, nor any consent to any
departure herefrom, shall be effective unless it is in writing and signed by
each of the parties hereto. Such modification, amendment, waiver or consent
shall be effective only in the specific instance and for the purpose for which
given.

 

11.    Exclusivity and Waiver of Rights. No failure to exercise and no delay in
exercising on the part of any party, any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege preclude any other right, power or privilege. The
rights and remedies herein provided are cumulative and are not exclusive of any
other rights or remedies provided by law.

 

12.    Invalidity. Any term or provision of this Agreement shall be ineffective
to the extent it is declared invalid or unenforceable, without rendering invalid
or enforceable the remaining terms and provisions of this Agreement.

 

13.    Headings. Headings used in this Agreement are inserted for convenience
only and shall not affect the meaning of any term or provision of this
Agreement.

 

14.    Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original instrument, but all of which
collectively shall constitute one and the same agreement.

 

15.    Assignment. This Agreement and the rights and obligations hereunder shall
not be assignable or transferable by the any of the parties without the prior
written consent of all Secured Parties, at their sole and absolute discretion.

 

16.    Survival. Unless otherwise expressly provided herein, all representations
warranties, agreements and covenants contained in this Agreement shall survive
the execution hereof and shall remain in full force and effect until the
earliest to occur of (a) the payment in full of the Note, and (b) the conversion
of the principal and accrued and unpaid interest and all other amounts owing
under the Note into common stock of Borrower.

 

17.    Miscellaneous. This Agreement shall inure to the benefit of each of the
parties hereto and all their respective successors and permitted assigns.
Nothing in this Agreement is intended or shall be construed to give to any other
person, firm or corporation any legal or equitable right, remedy or claim under
or in respect of this Agreement or any provision herein contained.

 

18.    GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF KANSAS (WITHOUT GIVING EFFECT TO ANY
CHOICE OR CONFLICT OF LAWS PROVISIONS).

 

19.    CONSENT TO JURISDICTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
AND UNCONDITIONALLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF
THE STATE OF KANSAS AND COUNTY OF JOHNSON. EACH OF THE PARTIES HERETO AGREES
THAT ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY MUST BE LITIGATED EXCLUSIVELY IN ANY SUCH
STATE OR FEDERAL COURT, AND ACCORDINGLY, EACH OF THE PARTIES HERETO IRREVOCABLY
WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE
VENUE OF ANY SUCH LITIGATION IN ANY SUCH COURT.

 

 

 

 

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20.    WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH THISAGREEMENT. EACH OF THE PARTIES HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
AND EACH OF THE OTHER PARTIES HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 20.

 

21.    Attorneys' Fees. In the event that any suit or action is instituted to
enforce any provision in this Agreement, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.

 

22.    Entire Agreement. This Agreement contains the entire agreement among the
parties with respect to the transactions contemplated by this Agreement and
supersedes all prior agreements or understandings among the parties with respect
to the subject matter hereof.

 

[SIGNATURE PAGE(S) FOLLOW]

 

 

 

 

 

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IN WITNESS WHEREOF, this Security Agreement has been executed as of the date
first set written above.

 

 

 

“SECURED PARTY”

 

L2 CAPITAL, LLC

 

 

By: /s/ Adam Long    

Name: Adam Long

    Title: Managing Partner  

 

 

 

"BORROWER" 

 

OCEAN THERMAL ENERGY CORPORATION

 

 

By: /s/ Jeremy Feakins     Name: Jeremy Feakins     Title: Chief Executive
Officer  

 

 

 

 

 

 

 

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EXHIBIT A COLLATERAL

 

Borrower hereby grants, pledges, and assigns for the benefit of each Secured
Party, and there is hereby created in favor of the Secured Parties, a security
interest in and to all of Borrower's right, title, and interest in, to, and
under all assets and all personal property of Borrower, whether now or hereafter
existing, or now owned or hereafter acquired, exclusively located in the United
States of America, including but not limited to the following (collectively,
"Collateral"):

 

1.     All accounts, chattel paper, contracts, contract rights, accounts
receivable, tax refunds, Note receivable, documents, other choses in action and
general intangibles, including, but not limited to, proceeds of inventory and
returned goods and proceeds from the sale of goods and services, and all rights,
liens, securities, guaranties, remedies and privileges related thereto,
including the right of stoppage in transit and rights and property of any kind
forming the subject matter of any of the foregoing ("Accounts Receivable");

 

2.     All time, savings, demand, certificate of deposit or other accounts in
the name of Borrower or in which Borrower has any right, title or interest,
including but not limited to all sums now or at any time hereafter on deposit,
and any renewals, extensions or replacements of and all other property which may
from time to time be acquired directly or indirectly using the proceeds of any
of the foregoing;

 

3.     All inventory and equipment of every type or description wherever
located, including, but not limited to all raw materials, parts, containers,
work in process, finished goods, goods in transit, wares, merchandise furniture,
fixtures, hardware, machinery, tools, parts, supplies, automobiles, trucks,
other intangible property of whatever kind and wherever located associated with
the Borrower's business, tools and goods returned for credit, repossessed,
reclaimed or otherwise reacquired by Borrower;

 

4.     All documents of title and other property from time to time received,
receivable or otherwise distributed in respect of, exchange or substitution for
or addition to any of the foregoing including, but not limited to, any documents
of title;

 

5.     All know-how, information, permits, patents, copyrights, goodwill,
trademarks, trade names, licenses and approvals held by Borrower, including all
other intangible property of Borrower;

 

6.     All assets of any type or description that may at any time be assigned or
delivered to or come into possession of Borrower for any purpose for the account
of Borrower or as to which Borrower may have any right, title, interest or
power, and property in the possession or custody of or in transit to anyone for
the account of Borrower, as well as all proceeds and products thereof and
accessions and annexations thereto; and

 

7.     All proceeds (including but not limited to insurance proceeds) and
products of and accessions and annexations to any of the foregoing.

 

 

 

 

 

 

 

 

 

 

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