Document:

ex1012form10.htm

 

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.

 

	
Loan
Agreement

	
 1

	
 

 

 

 

 

 

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.

 

	
Loan
Agreement

	
 2

	
 

 

 

 

 

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.

 

	
Loan
Agreement

	
 3

	
 

 

 

 

 

 

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.

 

	
Loan
Agreement

	
 4

	
 

 

 

 

 

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:

 

a.

Waivers.

 

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.

 

	
Loan
Agreement

	
 5

	
 

 

 

 

 

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

 

	
Loan
Agreement

	
 6

	
 

 

 

 

 

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]

 

	
Loan
Agreement

	
 7

	
 

 

 

 

 

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.

 

	
Promissory
Note

	
 1

	
 

 

 

 

 

 

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

 

	
Promissory
Note

	
 2

	
 

 

 

 

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.

 

	
Security
Agreement

	
 1

	
 

 

 

 

 

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.

 

	
Security
Agreement

	
 2

	
 

 

 

 

 

 

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.

 

	
Security
Agreement

	
 3

	
 

 

 

 

 

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.

 

	
Security
Agreement

	
 4

	
 

 

 

 

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.

 

	
Security
Agreement

	
 5

	
 

 

 

 

 

 

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.

 

	
Security
Agreement

	
 6

	
 

 

 

 

 

 

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.

 

	
Security
Agreement

	
 7

	
 

 

 

 

 

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.

 

	
 

	
If to
Debtor:

	
Ocean Thermal
Energy Corporation

	
 

	
 

	
 

	
ATTN: Jeremy P.
Feakins, President

	
 

	
 

	
 

	
800 South Queen
Street

	
 

	
 

	
 

	
Lancaster,
Pennsylvania 17603-5818

	
 

	
 

	
 

	
 

	
 

	
 

	
With a copy
to:

	
Gerald Koenig,
General Counsel

	
 

	
 

	
 

	
Ocean Thermal
Energy Corporation

	
 

	
 

	
 

	
822 Crestwood
Heights Drive, #1105

	
 

	
 

	
 

	
McLean, VA
22102

	
 

	
 

	
 

	
 

	
 

	
 

	
If to Lender
at:

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
With a copy
to:

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

 

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.

 

	
Security
Agreement

	
 8

	
 

 

 

 

 

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.

 

	
Security
Agreement

	
 9

	
 

 

 

 

 

IN WITNESS WHEREOF,
the Debtor has caused this Agreement to be executed as of the date
first above written.

 

 

 

	
 

	
DEBTOR:

 

Ocean Thermal
Energy Corporation

 

By: /s/ Jeremy
Feakins

Name: Jeremy
Feakins

Title: Chairman
& CEO

 

 

 

	
Security
Agreement

	
 10

	
 

 

 

 

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.

 

	
Warrant

	
 1

	
 

 

 

 

 

a.

Stock Dividends,
etc.

 

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.

 

	
Warrant

	
 2

	
 

 

 

 

 

 

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.

 

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
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

 

 

	
 

	
Ocean Thermal
Energy Corporation

 

By: /s/ Jeremy
Feakins

Name: Jeremy
Feakins

Title: Chairman
& CEO

 

	
Warrant

	
 3

	
 

 

 

 

 

 

	
Series
B Promissory Notes and Warrants

	
 

	

Name

	

 Note Amount

	

# of Warrants

	

Exercise Price

	

Expiration

	
 

	
 

	
 

	
 

	
 

	
Joseph
Layman

	
 $          50,000.00

	
10,000

	
20% Disc off
Opening Price

	
9/30/2023

	
Soloman Edwards
Group

	
 $          50,000.00

	
10,000

	
20% Disc off
Opening Price

	
9/30/2023

	
Donald &
Kathleen Lindman

	
 $          50,000.00

	
10,000

	
20% Disc off
Opening Price

	
9/30/2023

	
Greg
Crumling

	
 $          50,000.00

	
10,000

	
20% Disc off
Opening Price

	
9/30/2023

	
Patricia
Benedict

	
 $          50,000.00

	
10,000

	
20% Disc off
Opening Price

	
9/30/2023

	
Bernieri Family
Trust

	
 $          50,000.00

	
10,000

	
20% Disc off
Opening Price

	
9/30/2023

	
Bernieri Family
Trust

	
 $          50,000.00

	
10,000

	
20% Disc off
Opening Price

	
9/30/2023

	
Pensco Trust FBO
Charles Hartman IRA

	
 $          25,000.00

	
5,000

	
20% Disc off
Opening Price

	
9/30/2023

	
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
Scheduleex1015form10.htm

 

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

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