Document:

ex1003form10.htm

 

11

OCEAN
THERMAL ENERGY CORPORATION

Employment
Agreement

 

This Employment
Agreement (“Agreement”) is effective January 1, 2011
and is entered into by and between Ocean Thermal Energy
Corporation, a Delaware corporation having an office at 800 South
Queen Street, Lancaster, Pennsylvania (hereinafter referred to as
“Company”), and Jeremy P. Feakins, an individual whose
address is [private] (“Executive”).

 

In consideration of
the premises and the mutual covenants and agreements herein
contained, and intending to be legally bound hereby, the Company
and Executive hereby agree as follows:

 

1.           Employment

Company agrees to
employ Executive and Executive agrees to enter the employment of
the Company upon the terms and subject to the conditions herein
provided.

 

2.           Effective
Date

This Agreement is
effective immediately upon the date first written above (the
“Effective Date”).

 

3.           Location

Executive’s
principal office shall be located in Company’s corporate
offices at 800 South Queen Street, Lancaster,
Pennsylvania. 

 

4.           Duties
and Responsibilities

(a)

The Company hereby
agrees that Executive shall serve as Chief Executive Officer
(“CEO“) of the Company and its subsidiaries, reporting
directly to the Company’s Board of Directors
(“Board”). In this capacity, Executive shall be
responsible for the daily operation and management of all of the
Company’s business affairs and personnel.

 

(b)

During the term of
this Agreement, Executive shall devote substantially full time and
attention to the execution of the duties and responsibilities
hereunder. Notwithstanding the above, Executive may hold a seat on
the board of directors of one or more other companies, engage in
passive personal investments and in other business, industry, civic
and charitable activities that do not materially conflict with the
business affairs of Company or materially interfere with the
performance of Executive’s duties and responsibilities
hereunder.

 

5.           Compensation

(a)

Salary. The Company
acknowledges the compensation provided to the Executive hereunder
is significantly less than would normally be commanded by the
Executive or other such executives with similar experience and
credentials for these services. Executive shall be paid a base
annual salary (“Salary”) of $350,000 payable in
bi-weekly installments beginning the Effective Date; provided,
however, that in consequence of the Company’s limited
immediate available cash resources and as an accommodation thereto
(the “Accommodation”), except as otherwise provided
herein, Executive shall receive for the period beginning the
Effective Date and continuing until the Company’s first
financial close on a project with a capital cost of $25 million or
more (“Financial Close”), $180,000 per annum. Within
five (5) business days of such first Financial Close, the Executive
shall be paid the sum of $350,000, as a bonus, plus the difference
between the amount that otherwise would have been paid to the
Executive absent the Accommodation and the amount received by the
Executive pursuant to the Accommodation.

 

1

 

 

 

 

(b)

Salary Adjustment. The Board
will review Executive’s compensation on an annual basis and
consider whether to increase (but not decrease) the
Executive’s Salary. Any increased Salary granted by the Board
shall become the new Salary until subsequently increased by the
Board.

 

(c)

Share Award. The Company may
make an award of the Company’s Common Stock to the Executive
in such number of shares, at such time or times, and subject to
such terms and conditions as the Board shall in its sole and
absolute discretion determine.

 

(d)

Options. Immediately upon the
Company’s adoption of a stock plan (the “Plan”),
as an additional retention incentive, the Company shall issue to
Executive a five-year option, including provision for a
“cashless exercise,” to purchase one million
(1,000,000) shares of the Company’s Common Stock (the
“Option”) pursuant to the terms of the Plan, which
Option shall constitute, to the extent allowable under Section 422
of the Internal Revenue Code (the “Code”), an Incentive
Stock Option. One-half of the Option shares shall vest one
year from the grant date, and twenty-five percent of the Option
shares shall vest on the second and third year anniversary dates of
the grant date, respectively; provided, however, that all of the
Option shares shall vest immediately upon an Exit. The term
“Exit,” as used herein, shall mean a Change in Control,
as defined in Exhibit A attached hereto, or, any issuance of
preferred stock by the Company. The Option will be issued pursuant
to the Plan and in accordance with the following
terms:

 

I.

The Option shall
not be exercisable after the expiration of five (5) years from the
grant date (the “Option Term”).

 

II.

In the event
Executive’s employment is terminated by the Company for any
reason other than for Cause, all unvested portions of the Option
shall immediately vest and the entire Option will remain valid
throughout the Option Term; and

 

III.

In the event
Executive’s employment is voluntarily terminated by Executive
all unvested portions of the Option are forfeited and the remaining
time to exercise the vested portion of the Option remains
valid.

 

IV.

Notwithstanding any
provision in this Section 5(d) to the contrary, the Option will be
granted subject to the requirements of Section 422 of the Code, and
to the extent that the Option fails to satisfy such provision, the
Option will be treated as a stock option that is not an incentive
stock option.

 

6.           Plan
Registration

With respect to any
Plan under which Executive is granted shares of Company Common
Stock, or options to purchase shares of Company Common Stock, at
any time when such stock is publicly traded, prior to such time as
shares become vested (e.g., in the case of an award of restricted
stock) or options granted to Executive under the Plan are first
exercisable, if such shares must be registered in order to be sold,
the Company shall have registered the interests in the Plan and the
shares of Company’s Common Stock reserved thereunder prior to
the date on which the shares vest or the options first become
exercisable, in accordance with all applicable securities
laws.

 

2

 

 

 

7.           Bonuses

(a)

Project Bonus. At the time of
contract signing by all parties to any energy services agreement;
power purchase agreement; build, own, operate and transfer
agreement; or other similar or related agreement or agreements,
where such agreement, or such agreements in the aggregate, provide
for $25 million or more in revenue to the Company, the Company will
pay the Executive a cash bonus equal to 100% of the
Executive’s Salary in effect at the time of such signing plus
500,000 shares of the Company’s Common
Stock.

 

(b)

Other Bonuses. The Executive
will also be entitled to other annual bonuses consisting of cash,
stock, restricted stock, options stock appreciation rights
(“SARS”) or other forms of awards based upon his
performance and Company’s overall achievement of its
corporate goals. The types and amounts of such awards, if any,
shall be determined solely in the discretion of and upon the
recommendation of the Board; provided, however, that the present
value of all such awards to the Executive in a year shall be
adjusted, as necessary, to equal an amount not less than the
present value of all such awards given to the executive employee of
the Company receiving the highest present value of all similar
awards in a year multiplied by a fraction, the numerator of which
shall be the Executive’s Salary for the year and the
denominator of which shall be such other executive’s annual
base salary for the year.

 

8.           Executive
Benefits

During
Executive’s employment with the Company:

 

(a)

Executive will be
entitled to four (4) weeks paid vacation time during each
twelve-month period, with such vacation accruing until used. Any
vacation time not used at the end of the Executive’s
employment shall be paid out in cash equivalent based on the
Executive’s Salary in effect at the time of the
Executive’s termination and shall be paid not later than
thirty (30) days thereafter; provided, however, that such amount
shall be forfeited in the event that the Executive is terminated
for Cause.

 

(b)

The Company will
pay the health care, prescription drug, dental and/or vision
insurance premiums for coverage of the Executive, his spouse and
dependents under the standard Company plan or plans, if any, in
effect from time to time during Executive’s employment with
the Company.

 

(c)

Provided the
Company obtains a policy of group life insurance and Executive
complies with and satisfies all underwriting and other requirements
of the insurer, the Company will pay the life insurance premiums
for a term life insurance policy with a death benefit equal to four
(4) times the Executive’s Salary in effect at the time the
Executive first becomes eligible for such
insurance.

 

(d)

The Company shall
provide Executive with a monthly automobile allowance of $1,000.00,
which amount shall be taxable to the Executive.

 

3

 

 

 

(e)

Wherever possible,
Executive will be entitled to travel First Class, or Business Class
if available, for all methods of travel on Company business or at
the convenience or request of the Company, on the carrier of his
choice. At the request of the Executive, the Company will purchase
the tickets on behalf of Executive in advance of such travel. Upon
submission to the Company of usual and customary documentation,
Executive will be reimbursed within five (5) business days for all
reasonable out of pocket expenses that are incurred in connection
with job related activities, as well as travel on behalf of the
Company. The Executive will be provided with a Company credit card
for use in business-related travel and other business expenses,
which uses the Executive shall support with appropriate
documentation as to their business purpose.

 

(f)

For each thirty-day
period that the Executive is required to spend anywhere other than
the Executive’s principal office as set forth in Section 3
hereof, the Company will provide a minimum of two (2) round-trip
First Class, or Business Class when available, airfare tickets for
Executive and/or Executive’s spouse or dependents to travel
between such location and the Executive’s principal office as
set forth in Section 3 hereof. The Executive shall be responsible
for any income taxes attributable to the provision of airfare
tickets, as applicable.

 

9.           Executive
Kidnapping and Medical Evacuation Program(s)

The Company will
provide at no cost to Executive, an Executive Kidnapping and
Medical Evacuation program(s) and/or insurance policy, under which
Executive will be provided coverage subject to such policies,
terms, conditions and limitations as the Board shall approve in its
sole discretion.

 

10.         Term
of Employment

The term of
employment hereunder shall be for a period of five (5) years
commencing from the Effective Date (the “Term”).
Commencing on the fifth anniversary of the Effective Date and on
each successive one (1) year anniversary date thereafter, the term
of employment hereunder shall be extended for a period of one (1)
year (“Renewal Term”) unless either party gives the
other notice of termination at least one hundred (100) days prior
to the end of the Term or any Renewal Term. In such event,
employment will terminate at the end of the Term or Renewal Term
during which such notice was given.

 

(a)

Termination. Company may
terminate Executive’s employment during the Term or any
Renewal Term for any reason, but if such termination is for any
reason other than for Cause, such termination shall be in
accordance with the provisions of Section 12 hereof. If Executive
is terminated for Cause, then Executive shall be paid within thirty
(30) days of such termination the unpaid portion of
Executive’s Salary then earned and due to Executive, and all
compensation otherwise payable to Executive, including any and all
unvested Plan awards and vested but unexercised Plan awards, under
this Agreement shall be forfeited. As used herein,
“Cause” means final conviction of a
felony.

 

(b)

Notice. Should the Company
terminate Executive’s employment for Cause, no advance notice
from the Company will be required, and all of the Executive’s
unvested Plan awards and vested Plan awards that have not been
exercised as of the date of the termination will be forfeited
immediately.

 

(c)

Shares and Options. Should the
Company elect not to renew this Agreement after the Term or any
Renewal Term, or should Executive voluntarily terminate his
employment, then Executive shall retain the vested portion of any
Plan award and the unvested portion will expire immediately upon
Executive’s termination of employment. In each such case, all
vested Plan awards shall be non-forfeitable and shall retain their
original expiration date.

 

4

 

 

 

11.         Change
in Control

The provision for a
Change in Control Payment as described in Exhibit A attached hereto
shall be applicable to Executive so long as Executive is employed
by Company and thereafter, to the extent provided in such Exhibit
A.

 

12.         Severance

Other than in the
case of a timely noticed non-renewal of Executive’s
employment hereunder pursuant to Section 10, if Executive’s
employment is terminated by Company without Cause for any reason
during the Term or Renewal Term, Executive shall be entitled to
receive from Company (i) a cash severance payment equal to three
times the amount of the Executive’s then applicable Salary,
if the termination occurs on or before the third anniversary of the
Effective Date, (ii) a cash severance payment equal to the unpaid
portion of the Executive’s then applicable Salary for the
remainder of the Term or Renewal Term plus an amount equal to twice
the Executive’s then applicable Salary, if the termination
occurs after the third anniversary of the Effective Date but before
the fifth anniversary of the Effective Date, or (iii) a cash
severance payment equal to the unpaid portion of the
Executive’s then applicable Salary for the remainder of the
Term or Renewal Term if the termination occurs after the fifth
anniversary of the Effective Date (each, a “Severance
Payment”). In the event that the Executive is terminated by
Company without cause, then all of Executive’s outstanding
Plan awards shall immediately and fully vest. Other than any Change
in Control Payment to which Executive may also be entitled in
accordance with Section 11; any bonus to which Executive may be
entitled under Section 7; or any payment or benefit to which
Executive may be entitled under any separate agreement between
Executive and the Company, the Company shall have no further
obligation to Executive in the event of Executive’s
termination by the Company without Cause beyond those obligations
described in this Section 12. If the Company fails to make any
payment when due under this Section 12, and Executive initiates
arbitration pursuant to Section 17 to enforce his rights under this
Agreement, and Company is found to have violated this Agreement,
then Company shall be obligated to pay Executive, in addition to
the Severance Payment and other sums owed under this Agreement, an
additional payment (“Enforcement Payment”) equal to the
Severance Payment plus the sum of all of the costs incurred by
Executive, including attorneys’, fees, to enforce this
Agreement. It is explicitly agreed that the Enforcement Payment is
a reasonable estimate of the value of time and expense that would
be incurred by the Executive to enforce this Agreement and in no
case shall be considered a penalty. Any payments due under this
Section 12 shall be paid by wire transfer to a bank account
specified by Executive no later than three (3) business days after
the Executive’s termination, except that the Enforcement
Payment shall be due and payable in the same manner to Executive
within ten (10) days of the date the Company is found to have
violated this Agreement.

 

13.         Ownership
of Information

All documents,
drawings, memoranda, notes, records, file correspondence, manuals,
models, specifications, computer programs, E-mail, voice mail,
electronic databases, maps, and all other writings or materials of
any type embodying any information pertaining to the business of
Company which Executive has developed, utilized or had access to
during his employment with Company, are and shall be the sole and
exclusive property of Company. Upon termination of
Executive’s employment with Company for any reason, Executive
shall promptly deliver this property and all copies thereof to
Company.

 

5

 

 

 

14.         Non-Solicitation

During the term of
Executive’s employment and for a period of two (2) years
thereafter, Executive will not, directly or indirectly, solicit or
contact any employee of Company with a view to inducing or
encouraging such employee to leave the employ of Company for the
purpose of being hired by Executive or an employer affiliated with
Executive. Executive agrees that money damages would not be a
sufficient remedy for any breach of this Section 14 by Executive,
and that, in addition to all other remedies to which the Company
may be entitled, the Company shall be entitled to injunctive or
other equitable relief as a remedy for any such breach or
threatened breach. Nothing in this Agreement shall be construed as
prohibiting the Company from pursuing any other remedies that may
be available to it, whether at law or in equity, for any breach or
threatened breach hereof by Executive, including the recovery of
damages. In addition, Executive agrees that the Company shall be
entitled to recover from the Executive its reasonable
attorneys’ fees incurred in connection with obtaining any
relief.

 

15.         D&O
Insurance and Indemnification

As soon as
practicable, the Company shall purchase a directors and officers
liability insurance policy, the terms of which shall be approved by
the Board, and will provide Executive with directors and officers
liability insurance necessary to protect Executive from any and all
expenses, obligations, liabilities, actions, suits or proceedings
that may occur as the result of Executive’s employment by the
Company. In addition, if at any time Executive is a party or is
threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that
Executive is or was a director, officer, executive or agent of
Company and/or of any of its affiliates, or is or was serving at
the request of Company as a director, officer, executive or agent
of any other corporation, partnership, joint venture, trust,
executive benefit plan or other enterprise, Company shall indemnify
Executive and hold Executive harmless against expenses (including
court costs and reasonable attorneys’ fees), judgments,
fines, penalties, amounts paid in settlement and any other
liabilities actually and reasonably incurred by Executive in
connection with such action, suit or proceeding to the full extent
permitted by law. Expenses (including court costs and reasonable
attorneys’ fees) incurred by Executive in appearing at,
participating in, or defending any threatened, pending or completed
action, suit or proceeding whether civil, criminal, administrative
or investigative, shall be paid by Company at reasonable intervals
in advance of the final disposition of such action, suit or
proceeding promptly following receipt of Executive’s written
claim, including supporting documentation. The indemnification
provided under this Section 15 shall apply whether or not the
negligence of any party is alleged or proved. Nothing in this
Section 15 shall be deemed to provide Executive with a right to
indemnification in excess of the authority of the Company to
provide indemnification granted by applicable law, and all
limitations on indemnification set forth in such law shall be
deemed to govern this Section 15.

 

16.         Miscellaneous

 

(a)

All payments
required to be made by Company hereunder shall be subject to any
withholding pursuant to any applicable law or
regulation.

 

(b)

This Agreement is
binding upon, and shall inure to the benefit of, the parties hereto
and their respective successors, heirs, administrators, executors
and assigns.

 

(c)

This Agreement,
including any exhibits hereto, contains the entire agreement
between the parties concerning the subject matter hereof; any prior
or contemporaneous agreements or understandings, oral or written,
not contained in this Agreement, are superseded and of no effect;
and this Agreement may not be amended or modified except by a
writing signed by both parties.

 

6

 

 

 

(d)

Should one party
waive compliance by the other party to any term or provision of
this Agreement, such waiver shall be limited to the facts or
circumstances giving rise to the noncompliance and shall not be
deemed either a general waiver or modification with respect to the
term or provision, or part thereof, being waived, or as to any
other term or provision of this agreement, nor shall it be deemed a
waiver of compliance with respect to any other facts or
circumstances then or thereafter occurring.

 

(e)

Any notice given
hereunder shall be in writing and shall be deemed given when
actually received or two (2) business days after tender to an
overnight courier with a national reputation, duly addressed to the
party concerned at the address specified in the preamble of this
Agreement or such other address as a party shall provide in writing
from time to time to the other party.

 

(f)

In the event that
any provision or portion of this Agreement shall be determined to
be invalid or unenforceable for any reason, the remaining
provisions or portions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest
extent permitted by law. The respective rights and obligations of
the parties shall survive any termination of this Agreement to the
extent necessary to preserve such rights and
obligations.

 

17.         Applicable
Law

This Agreement
shall be governed by and construed in accordance with the laws of
the Commonwealth of Pennsylvania, except to the extent that federal
laws supersede such laws, without regard to principles regarding
conflicts of laws. Executive and Company agree that if any claim,
action, dispute or controversy of any kind arises out of or relates
to this Agreement or concerns any aspect of performance by any
party under the terms of this Agreement, other than as may be
enforced by way of injunctive relief pursuant to Section 14, prior
to seeking any other remedies, the aggrieved party shall give
written notice to the other party describing the disputed issue.
Within ten (10) business days after the receipt of such a notice
the parties shall attempt to resolve the dispute amicably through
direct good faith negotiation. If the parties cannot so
resolve the matter, the parties shall apply to the American
Arbitration Association (“AAA”) for a single arbitrator
to be appointed to arbitrate the dispute in accordance with the AAA
rules applicable to employment disputes. Arbitration shall take
place in Lancaster, Pennsylvania. The decision of the AAA
arbitrator shall be final and binding on all parties. The parties
agree not to litigate the matter except to the extent necessary to
enforce the arbitration award. The costs and expenses of any
litigation to enforce the arbitration award shall be borne by the
non-prevailing party. Executive and Company hereby acknowledge that
they are waiving their rights to a jury trial with respect to any
matter within the scope of this Section 17. In addition, to the
extent that this Agreement permits any matter to be litigated,
Executive and Company irrevocably submit in any suit, action or
proceeding arising out of or relating to this Agreement to the
jurisdiction and venue of the United States District Court for the
Eastern District of Pennsylvania or, if such court has no
jurisdiction in the matter, then to the jurisdiction and venue of
the Court of Common Pleas for Lancaster County, Pennsylvania, and
each hereby waives any and all objections to jurisdiction or venue
that Company or Executive may have under the laws of Pennsylvania
or of the United States.

 

7

 

 

 

18.         Section
409A Compliance

This Agreement
shall be interpreted and performed so as to comply with any
applicable provisions of Section 409A of the Code (“Section
409A”) and the regulations and official guidance issued
pursuant thereto such as will avoid any inclusion of income by
Executive under Section 409A of any payment or benefit under this
Agreement or under any arrangement required to be aggregated with
this Agreement. Terms defined in this Agreement will have the
meanings given such terms under Section 409A if and to the extent
required to comply with Section 409A. Any payments that are due
within the “short term deferral period” as defined in
Section 409A or that are paid in a manner covered by Treas. Reg.
Section 1.409A-1(b)(9)(iii) will not be treated as deferred
compensation unless applicable law requires otherwise. Neither the
Company nor Executive will have the right to accelerate or defer
the delivery of any such payments or benefits except to the extent
specifically permitted or required by Section 409A. In any event,
the Company makes no representations or warranty and will have no
liability to the Executive or any other person, other than with
respect to payments made by the Company in violation of the
provisions of this Agreement, if any provisions of or payments
under this Agreement are determined to constitute deferred
compensation subject to Section 409A but not to satisfy the
conditions of that section. For purposes of this Agreement, a
termination of employment with the Company shall mean a
“separation from service” as defined in Section 409A.
If and to the extent any portion of any payment, compensation or
other benefit provided to Executive in connection with
Executive’s separation from service (as defined in Section
409A) is determined to constitute “nonqualified deferred
compensation” within the meaning of Section 409A and
Executive is at such time a specified employee as defined in
Section 409A(a)(2)(B)(i) of the Code, as determined by the Company
in accordance with its procedures, by which determination Executive
hereby agrees to be bound, such portion of the payment,
compensation or other benefit will not be paid before the day that
is six months plus one day after the date of separation from
service (as determined under Section 409A) (the “New Payment
Date”). The aggregate of any payments that otherwise would
have been paid to Executive during the period between the date of
separation from service and the New Payment Date will be paid to
Executive in a lump sum on the first payroll date after such New
Payment Date, and any remaining payments will be paid on their
original schedule.

 

19.         Excess
Parachute Payments

 

(a)

In the event that
the Executive is entitled to payments and/or benefits (i) in
connection with Executive's employment with the Company or
termination thereof or (ii) from the Company, any person whose
actions result in a change of ownership or effective control
covered by Section[Missing Graphic Reference]280G[Missing Graphic
Reference](b)(2) of the Code, or any person affiliated with the
Company or such person as a result of such change in ownership or
effective control (collectively the “Company
Payments”), and if such Company Payments will be subject to
the tax (the “Excise Tax”) imposed by Section 4999 of
the Code, the Company shall pay to or for the benefit of the
Executive at the time specified in subsection (c) below an
additional amount (the “Gross-Up Payment”) such that
the net amount retained by the Executive, after deduction of any
Excise Tax on the Company Payments and any U. S. federal, state,
and local income or payroll tax upon the Gross-Up Payment, but
before deduction for any U.S. federal, state, and local income or
payroll tax on the Company Payments, shall be equal to the Company
Payments. For purposes of calculating the Gross-Up Payment, the
Executive shall be deemed to pay income taxes at the highest
applicable marginal rate of federal, state or local income taxation
for the calendar year in which the Gross-Up Payment is to be
made.

 

8

 

 

 

 (b)

Subject to any
determinations made by the Internal Revenue Service (the
“IRS”), all determinations as to whether a Gross-Up
Payment is required and the amount of Gross-Up Payment and the
assumptions to be used in arriving at the determination shall be
made by the Company's independent certified public accountants,
appointed prior to any change in ownership (as defined under
Section 280G[Missing Graphic Reference](b)(2) of the Code) (the
“Accountants”), in accordance with the principles of
Section [Missing Graphic Reference]280G[Missing Graphic Reference]
of the Code. All fees and expenses of the Accountants will be borne
by the Company. Subject to any determinations made by the IRS,
determinations of the Accountants under this Agreement with respect
to (i) the initial amount of any Gross-Up Payment and (ii) any
subsequent adjustment of such payment shall be binding on the
Company and the Executive.

 

 (c)

The Gross-Up
Payment calculated pursuant to this Section 19 shall be paid no
later than the thirtieth (30th) day following an event occurring
which subjects the Executive to the Excise Tax; provided, however,
that if the amount of such Gross-Up Payment or portion thereof
cannot be reasonably determined on or before such day, the Company
shall pay to the Executive the amount of the Gross-Up Payment no
later than 10 days following the determination of the Gross-Up
Payment by the Accountants. Notwithstanding the foregoing, the
Gross-Up Payment shall be paid to or for the benefit of the
Executive no later than 15 business days prior to the date by which
the Executive is required to pay the Excise Tax or any portion of
the Gross-Up Payment to any federal, state or local taxing
authority, without regard to extensions.

 

 (d)

In the event that
the Excise Tax is subsequently determined by the Accountants to be
less than the amount taken into account hereunder at the time the
Gross-Up Payment is made, the Executive shall repay to the Company,
at the time that the amount of such reduction in Excise Tax is
finally determined, the portion of the prior Gross-Up Payment
attributable to such reduction (plus the portion of the Gross-Up
Payment attributable to the Excise Tax and U.S. federal, state and
local income tax imposed on the portion of the Gross-Up Payment
being repaid by the Executive if such repayment results in a
reduction in Excise Tax or a U.S. federal, state and local income
tax deduction), plus interest on the amount of such repayment at
the rate provided in Section 1274(b)(2)(B) of the Code.
Notwithstanding the foregoing, in the event any portion of the
Gross-up Payment to be refunded to the Company has been paid to any
U.S. federal, state and local tax authority, repayment thereof (and
related amounts) shall not be required until actual refund or
credit of such portion has been made to the Executive, and interest
payable to the Company shall not exceed the interest received or
credited to the Executive by such tax authority for the period it
held such portion. The Executive and the Company shall cooperate in
good faith in determining the course of action to be pursued (and
the method of allocating the expense thereof) if the Executive's
claim for refund or credit is denied. However, if agreement cannot
be reached, the Company shall decide the appropriate course of
action to pursue provided that the action does not adversely impact
any issues Executive may have with respect to his tax return, other
than the Excise Tax.

 

 (e)

In the event that
the Excise Tax is later determined by the Accountants or the IRS to
exceed the amount taken into account hereunder at the time the
Gross-Up Payment is made (including by reason of any payment the
existence or amount of which cannot be determined at the time of
the Gross-Up Payment), the Company shall make an additional
Gross-Up Payment to or for the benefit of the Executive in respect
of such excess (plus any interest or penalties payable with respect
to such excess) at the time that the amount of such excess is
finally determined.

 

9

 

 

 

 (f)

In the event of any
controversy with the IRS (or other taxing authority) with regard to
the Excise Tax, the Executive shall permit the Company to control
issues related to the Excise Tax (at its expense), provided that
such issues do not potentially materially adversely affect the
Executive. In the event issues are interrelated, the Executive and
the Company shall in good faith cooperate so as not to jeopardize
resolution of either issue. In the event of any conference with any
taxing authority as to the Excise Tax or associated income taxes,
the Executive shall permit the representative of the Company to
accompany the Executive, and the Executive and the Executive's
representative shall cooperate with the Company and its
representative.

 

 (g)

The Company shall
be responsible for all charges of the
Accountant.

 

 (h)

The Company and the
Executive shall promptly deliver to each other copies of any
written communications, and summaries of any verbal communications,
with any taxing authority regarding the Excise
Tax.

 

20.         Counterparts

This Agreement may
be executed in counterparts, each of which shall be an original and
all of which together shall constitute one and the same
agreement.

 

IN WITNESS WHEREOF,
the Parties hereto have caused this Agreement to be executed on the
date first written above.

 

OCEAN
THERMAL ENERGY CORPORATION

 

Signature: /s/
James D. Greenberg

 

Printed Name: James
D. Greenberg

 

Title:
Director

 

EXECUTIVE

 

 

Signature: /s/
Jeremy Feakins

 

Printed Name:
Jeremy Feakins

 

10

 

 

 

EXHIBIT
A

 

Change in Control

 

If, within three
(3) months following the occurrence of a Change in Control (as
defined below), the Executive elects, by written notice to the
Company, to terminate his employment with the Company then, in
addition to any severance payments due under Executive’s
Employment Agreement with the Company, the Company shall pay to the
Executive, within 10 days after his termination of employment, a
lump sum cash payment in an amount equal to the Change in Control
Payment (as defined below). If the Executive’s employment is
terminated prior to the date he elects to terminate but there is
reasonable evidence that such termination (a) was at the request of
a third party who has taken steps reasonably calculated to effect a
Change in Control or (b) otherwise arose in connection with or in
anticipation of a Change in Control, then for all purposes of this
paragraph, such termination shall be considered to have occurred
immediately following the Change in Control and the
Executive’s election to terminate his employment as of the
date of the Change in Control. As used herein, the following terms
shall mean:

 

 (a)           A
“Change in Control” shall be deemed to have occurred
upon: (i) the date of acquisition by any one person, or more than
one person acting as a group (as defined in Treasury Regulations
Section 1.409A-3(i)(5)(v)(B)), of stock of the Company that,
together with stock held by such person or group, constitutes more
than fifty percent (50%) of the total fair market value or total
voting power of the stock of the Company; provided, however, that
if any one person, or more than one person acting as a group, is
considered to own more than fifty percent (50%) of the total fair
market value or total voting power of the stock of the Company, the
acquisition of additional stock by the same person or persons shall
not be deemed to be a Change of Control; (ii) the date any one
person, or more than one person acting as a group, acquires (or has
acquired during the 12-month period ending on the date of the most
recent acquisition by such person or persons) ownership of stock of
the Company possessing thirty percent (30%) or more of the total
voting power of the stock of the Company; or (iii) the date that
any one person, or more than one person acting as a group, acquires
(or has acquired during the 12-month period ending on the date of
the most recent acquisition by such person or persons) assets from
the Company that have a total gross fair market value of more than
forty percent (40%) of the total gross fair market value of all of
the assets of the Company immediately before such acquisition or
acquisitions; provided, however, that transfers of assets of the
Company of any value to a related person or entity as described in
Treasury Regulations Section 1.409A-3(i)(5)(vii)(B) shall not
result in a Change in Control. For purposes of (i) and (ii) above,
a person shall be deemed to be the beneficial owner of any shares
the person is deemed to own under the stock attribution rules of
Section 318(a) of the Code.

 

 (b)           “Change
in Control Payment” shall mean an amount equal to three (3)
times the Executive’s Salary in effect on the date of a
Change in Control.ex1009form10.htm

 

 LOAN
AGREEMENT

 

This Loan Agreement
(the “Loan Agreement”) is made as of February 10,
2012, by and between DCO Energy, LLC, a New Jersey limited
liability company with offices at 5429 Harding Highway, Building
500, Mays Landing, New Jersey 08330 (the “Lender”) and
Ocean Thermal Energy Corporation, a Delaware Corporation with
offices at 800 South Queen Street, Lancaster, Pennsylvania 17603
(the “Borrower”).

 

WITNESSETH:

 

WHEREAS, the
Borrower desires to obtain certain credit facilities, as set forth
in this Loan Agreement, and the Lender is willing to provide such
credit facilities on the terms and conditions set forth
herein;

 

NOW, THEREFORE, the
Lender and the Borrower, intending to be legally bound, hereby
agree as follows:

 

1.        
    The Loan. The Lender agrees,
pursuant to the terms and conditions of this Loan Agreement and the
other Loan Documents (as defined below), to make a loan to the
Borrower in the original principal amount of One Million Dollars
($1,000,000) (the “Loan”). The Loan shall be evidenced
by a Note (the “Note”) and shall be made in accordance
with and subject to the terms and conditions of this Loan
Agreement, the Note, and other Loan Documents.

 

2.         
   The Loan
Documents. The following documents and materials (together
with this Loan Agreement and any other accessory documents executed
in connection herewith, such documents and materials, as they may
be amended, restated, renewed and extended, are collectively
referred to herein as the “Loan Documents”) have been
or will be executed in connection with the Loan:

 

(a)           Note;

 

(b)           Security
Agreement, of even date herewith, between Lender and Borrower (the
“Security Agreement”);

 

(c)           A
warrant, of even date herewith, granting to Lender, as additional
consideration for making the Loan to Borrower, the right to
purchase 3,295,761 shares of the Borrower’s common stock at a
price of $0.50 per share.

 

3.       
     Interest Rate. The Loan shall
bear interest as set forth in the Note.

 

4.      
      Repayment. Repayment of the
Loan shall be made as set forth in the Note, and pre-payment shall
be permitted as therein specified.

 

5.           
 Use of
Proceeds. The proceeds of the Loan shall be utilized by
Borrower for fifty percent (50%) of the pre-development work and
studies relative to the Baha Mar Project with the balance to be
used for other development work and additional projects. Borrower
shall provide Lender with a commercially reasonable accounting of
the use of the funds upon request.

 

6.    
        Collateral. The Loan will be
secured by a first lien security interest in all assets of Borrower
now owned or hereafter acquired as more specifically set forth in
the Security Agreement.

 

1

 

 

 

 

 

7.     
       Expenses and Fees. The Borrower
and Lender each agree to pay their own expenses and fees of every
nature related to their execution and carrying out of this Loan
Agreement and the other Loan Documents.

 

8.       
     Representations and Warranties.
The Borrower, in order to induce the Lender to make the Loan, makes
the following representations, warranties, and
promises:

 

(a)     
      Good Standing. The Borrower is
a corporation, duly organized, validly existing and in good
standing under the laws of the state of its incorporate, with
powers adequate to own its properties, and to carry on its business
as presently conducted by it.

 

(b)           Authority;
Binding Agreement. The execution, delivery, and performance
of the Loan Documents are within the corporate power of the
Borrower, have been duly authorized by the Borrower, and are not in
contravention of law or the terms of the Borrower’s Articles
of Incorporation and By-Laws. The execution, delivery and
performance of the Loan Documents does not and will not contravene
any documents, agreements or undertakings to which the Borrower is
a party or by which it is bound. No approval of any person,
corporation, governmental body or other entity is a prerequisite to
the execution, delivery, validity or enforceability and performance
of the Loan Documents. When executed by the Borrower, the Loan
Documents to which the Borrower is a party will constitute the
legally binding obligations of the Borrower, enforceable in
accordance with their terms except as the enforceability may be
limited by bankruptcy, insolvency or other similar laws affecting
the enforcement of creditors’ rights generally.

 

(c)     
      Financial Information. Subject
to any limitation stated therein or in connection therewith, all
balance sheets, earning statements, accounts receivable lists and
aging schedules and other financial data which have been or shall
be furnished to the Lender by the Borrower to induce the Lender to
enter into this Loan Agreement or otherwise in connection herewith,
do or will fairly represent the financial condition of the Borrower
in all material respects, are accurate, complete and correct in all
material respects insofar as completeness may be necessary to give
the Lender a true and accurate knowledge of the subject matter as
of the date hereof. There are no material liabilities, direct or
indirect, fixed or contingent, of the Borrower as of the date of
such financial statements, which are not reflected therein or in
the notes thereto. There has been no material adverse change in the
financial condition or operations of the Borrower since the date of
said financial statements or since the respective dates on which
the Borrower furnished the Lender with other financial data or
other representations about its financial condition.

 

(d)           Solvency.
Any borrowings to be made by the Borrower under this Loan Agreement
do not and will not render Borrower insolvent. The Borrower is not
contemplating either the filing of a petition under any state or
federal bankruptcy or insolvency laws, or the liquidation of all or
a major portion of its property, and the Borrower has no knowledge
or any reason to know of any person contemplating the filing of any
such petition against it.

 

9.   
         Covenants. The Borrower agrees
with the Lender that during the term of this Agreement and the
other Loan Documents, and any extensions, replacements or renewals
thereof (except as otherwise agreed by the Lender in
writing):

 

(a)   
        Insurance. The Borrower shall
maintain adequate fire and extended coverage insurance, with the
Lender named as lender loss payee, as well as general liability,
business interruption and other insurance policies as are
customary. All such insurance:

 

(i)     
      Shall be issued in such amounts
and by such companies as are satisfactory to the Lender;
and

 

2

 

 

 

 

(ii)           Shall
contain provisions providing for thirty (30) days’ prior
written notice to the Lender of any intended change or cancellation
and providing that no such change or cancellation shall be
effective as to the Lender in the absence of such
notice.

 

(b)           Notice
of Default; Litigation. The Borrower shall notify the Lender
in writing immediately upon becoming aware of any default
hereunder, or of any actions, suits, investigations, or proceedings
at law, in equity or before any governmental authority that may
have a material adverse effect on the Borrower, pending or
threatened, against or affecting the Borrower or any collateral
securing the Loan or involving the validity or enforceability of
the Loan Documents or the priority of the liens created
thereunder.

 

(c)     
      Financial Information. The
Borrower shall furnish or cause to be furnished to the Lender:
(i) on an annual basis, federal income tax returns of the
Borrower and annual financial statements of the Borrower, compiled
by certified public accountants, within one hundred twenty (120)
days after the end of each fiscal year; and (ii) on a fiscal
quarter basis, internally-prepared interim financial statements of
the Borrower in a form satisfactory to Lender within thirty (30)
days of the close of each fiscal quarter.

 

(d)           Expenses.
The Borrower shall pay all costs and expenses (including, but not
limited to, attorneys’ fees) incidental to the preservation
and priority of the Lender’s liens and security interests
under the Loan Documents and to the collection of all obligations
pursuant to the Loan Documents.

 

(e)    
       Sale of Assets, etc. The
Borrower shall not sell, lease, assign, transfer, or otherwise
dispose of any of its now owned or hereafter acquired assets,
expect: (1) inventory disposed of in the ordinary course of
business; and (2) the sale or other disposition of assets no longer
used or useful in the conduct of its business.

 

(f)     
      Mergers, etc. The Borrower
shall not wind up, liquidated or dissolve, reorganize, merge or
consolidate with or into, or convey, sell, assign, transfer, lease
or otherwise dispose of (whether in one transaction or in a series
of transactions) all or substantially all of its assets (whether
now owned or hereafter acquired) to any person, or acquire all or
substantially all of the assets or the business of any
person.

 

(g)           Loans
and Advances. The Borrower shall not make any additional
loans or advances to any individual, firm, or
corporation.

 

(h)           Further
Assurances. Each Party shall execute such documents as the
other Party may reasonably request relating to the
Loan.

 

10.           Conditions
Precedent. The obligation of the Lender to make the Loan is
subject to the satisfaction by the Borrower of the following
conditions precedent:

 

(a)           The
Borrower’s representations and warranties as contained herein
shall be accurate and complete as of the date of
closing;

 

(b)           The
Borrower shall not be in default under any of the covenants
contained herein as of the date of closing;

 

(c)           The
Borrower shall have executed and delivered all of the Loan
Documents to which it is a party.

 

3

 

 

 

11.           Events
of Default; Acceleration; Remedies. The occurrence of any
one or more of the following events shall constitute a default (an
“Event of Default”) under this Agreement:

 

(a)      
     If any statement, representation or
warranty made by the Borrower in the Loan Documents, in connection
therewith or any financial statement, report, schedule, or
certificate furnished to the Lender by the Borrower, any of its
representatives, employees or accountants during the term of this
Agreement shall prove to have been false or misleading when made,
or subsequently becomes false or misleading, in any material
respect;

 

(b)           Default
by the Borrower in payment within five (5) days of the due date of
any principal or interest or other amounts called for under the
Loan Documents;

 

(c)           Default
by the Borrower in the performance or observance of any of its
respective obligations under the provisions, terms, conditions,
warranties or covenants of the Loan Documents and such failure
shall continue for a period of thirty (30) days or more following
receipt of written notice thereof from the Lender;

 

(d)           The
occurrence of an event of default not cured within any applicable
remedy period, under any other obligation of the Borrower in an
aggregate amount of Ten Thousand Dollars ($10,000) or more, for
borrowed money or under any lease;

 

(e)           The
dissolution, terminate of existence, merger or consolidation of the
Borrower, or a sale of all or substantially all of the assets of
the Borrower out of the ordinary course of business;

 

(f)           A
change in the beneficial ownership of fifty percent (50%) or more
(in the aggregate) of the issued and outstanding voting capital
stock of the Borrower from the ownership on the date of this Loan
Agreement, whether through transfer, issuance of stock or
membership interest or otherwise;

 

(g)           The
occurrence of an event of default not cured within any applicable
remedy period, under any obligations of the Borrower to the Lender
other than under the Loan Documents, whether created prior to,
concurrent with, or subsequent to obligations arising out of the
Loan Documents;

 

(h)           The
Borrower shall: (i) apply for or consent to the appointment of a
receiver, trustee or liquidator of any of its property, (ii) admit
in writing its inability to pay its debts as they mature, (iii)
make a general assignment for the benefit of creditors, (iv) be
adjudicated a bankrupt or insolvent, (v) file a voluntary petition
in bankruptcy, or a petition or an answer seeking reorganization to
take advantage of any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation law or
statute, or an answer admitting the material allegations of a
petition filed against it or he in any proceeding under any such
law or (vi) offer or enter into any compromise, extension or
arrangement seeking relief or extension of its debts;

 

(i)            In
the event that proceedings shall be commenced or an order, judgment
or decree shall be entered against the Borrower, without the
application, approval or consent of the Borrower in or by any court
of competent jurisdiction, relating to the bankruptcy, dissolution,
liquidation, reorganization or the appointment of a receiver,
trustee or liquidator of the Borrower of all or a substantial part
of their or its assets, and such proceedings, order, judgment or
decree shall continue undischarged or unstayed for a period of 90
days;

 

4

 

 

 

 

(j)       
    A final and unappealable judgment for the
payment of money in excess of Ten Thousand Dollars ($10,000) shall
be rendered against the Borrower and the same shall remain
undischarged for a period of 60 days, during which period of
execution shall not be effectively stayed.

 

Upon the occurrence
of any Event of Default, automatically upon an Event of Default
under subsection (h) or (i) of this Section or otherwise at the
election of the Lender, (i) all of the obligations of the Borrower
to the Lender, under this Loan Agreement or the Loan Documents,
will immediately become due and payable without further demand,
notice or protest, all of which are hereby expressly waived; (ii)
the Lender may proceed to protect and enforce its rights, at law,
in equity, or otherwise, against the Borrower and may proceed to
liquidate and realize upon any of its collateral in accordance with
the rights of a mortgagee or a security party under the Uniform
Commercial Code, any other applicable law, any Loan Document;
and/or (iii) the Lender’s commitment to make further loans
under this Agreement or any other agreement with the Borrower will
immediately cease and terminate.

 

12.           General
Provisions. The Lender and the Borrower agree as follows
with respect to the Loan Documents:

 

(a)           Waivers:

 

(i)           The
Borrower hereby waives, to the fullest extent permitted by law,
presentment, notice, protest and all other demands and notices of
any description and assent (1) to any extension of the time of
payment or any other indulgence, (2) to any substitution, exchange
or release of collateral, and (3) to the release of any other
person primarily or secondarily liable for the obligations
evidenced hereby.

 

(ii)           No
delay or omission on the part of the Lender in exercising any
right, privilege, or remedy hereunder shall operate as a waiver of
such right, privilege, or remedy or of any other right, privilege,
or remedy under the Loan Documents. No waiver of any right,
privilege or remedy or any amendment to the Loan Documents shall be
effective unless made in writing and signed by the Lender. A waiver
on any one occasion shall not be construed as a bar to or waiver of
any such right, privilege and/or remedy on any future occasion. No
single or partial exercise of any power hereunder shall preclude
other or future exercise thereof or the exercise of any other
right. The acceptance by the Lender of any payment after any
default under the Loan Documents shall not operate to extend the
time of payment of any amount then remaining unpaid hereunder or
constitute a waiver of any rights of the Lender hereof under the
Loan Documents.

 

(b)           Binding
Agreement. The Loan Documents shall inure to the benefit of
and shall be binding upon the parties hereto and their respective
heirs, legal representatives, successors, and assigns.

 

(c)           Entire
Agreement and Amendment. The Loan Documents constitute the
entire agreement between the Lender and the Borrower with respect
to the Loan and shall not be changed in any respect except by
written instrument signed by the parties thereto.

 

(d)           Governing
Law. The Loan Documents and all rights and obligations
thereunder, including matters of construction, validity, and
performance, shall be governed by the laws of the Commonwealth of
Pennsylvania.

 

5

 

 

 

 

(e)           Severability.
If any term, condition, or provision of the Loan Documents or the
application thereof to any person or circumstance shall, to any
extent, be held invalid or unenforceable according to law, then the
remaining terms, conditions, and provisions of the Loan Documents,
or the application of any such invalid or unenforceable term,
condition or provision to persons or circumstances other than those
to which it is held invalid or unenforceable, shall not be affected
thereby, and each term, condition, and provision of the Loan
Documents shall be valid and enforced to the fullest extent
permitted by law.

 

(f)           Notice.
Any demand or notice required or permitted under the Loan Documents
shall be effective if either: (i) hand-delivered to the addressee,
or (ii) deposited in the mail, registered or certified, return
receipt requested and postage prepaid, or delivered to a private
express company addressed to the addressee: (A) at the address
shown below, or (B) if such party has provided the other in writing
with a change of address, at the last address so provided. Any
notice or demand mailed as provided in this paragraph shall be
deemed given and received on the earlier of: (i) the date received;
(ii) or the date of delivery, refusal, or non-delivery as indicated
on the return receipt, if sent by mail or private express as
provided above.

 

	
Borrower:

	
Lender:

	
Ocean Thermal
Energy Corporation

	
DCO Energy,
LLC

	
Attention: Jeremy
Feakins,

	
Attention: Frank
DiCola,

	
Chairman &
CEO

	
President &
CEO

	
800 South Queen
Street

	
5429 Harding
Highway, Bldg. 500

	
Lancaster, PA
17603

	
Mays Landing, NJ
08330

	
Phone:
717-299-1344

	
Phone:
609-837-8010

	
E-mail:
jeremy@otecorporation.com

	
Email:
fdicola@dcoenergy.com

	
 

	
 

	
With a copy
to:

	
With copy
to:

	
Ocean Thermal
Energy Corporation

	
Chief Financial
Officer, DCO Energy, LLC

	
Attention: Gerald
Koenig, General Counsel

	
Attention: Michael
Jingoli

	
8220 Crestwood
Heights Drive, #1105

	
100 Lenox Drive,
Suite 100

	
McLean VA
22102

	
Lawrenceville, NJ
08648

	
Phone:
703-725-4002

	
Phone:
609-896-3111

	
Email:
gskoenig@aol.com

	
Email:
mjingoli@jingoli.com

 

(g)           Conflict
Among Loan Documents. In the event of any conflict between
the terms, covenants, conditions and restrictions contained in the
Loan Documents, the term, covenant and condition or restriction
which grants the greater benefit upon the Lender shall control. The
determination as to which term, covenant, condition, or restriction
is the more beneficial shall be made by the Lender in its sole
discretion.

 

(h)           Costs
of Collection. The Borrower agrees to pay on demand all
reasonable out-of-pocket costs of collection under the Loan
Documents, including reasonable attorneys’ fees, whether or
not any foreclosure or other action is instituted by the Lender in
its discretion.

 

(i)          
  Set-Off,
etc. As additional collateral, the Borrower grants (1) a
security interest in, or pledges, assigns and delivers, to Lender,
as appropriate, all deposits, credit and other property now or
hereafter due from the Lender to the Borrower and (2) the right to
set-off and apply ( and a security interest in said right), from
time to time hereafter and without demand or notice of any nature,
all, or any portion, of such deposits, credits and other property,
against the indebtedness evidenced by any of the Notes, whether the
other collateral, if any, is deemed adequate or not.

 

6

 

 

 

 

(j)    
       Rights Cumulative. All
rights and remedies of the Lender, whether granted herein or
otherwise, shall be cumulative and may be exercised singularly or
concurrently and the Lender shall have, in addition to all other
rights and remedies, the rights and remedies of a secured party
under the Uniform Commercial Code of Pennsylvania. Except as
otherwise provided by law, the Lender shall have no duty as to the
collection or protection of the collateral or of any income thereon
or as the preservation of any rights pertaining thereto beyond the
safe custody thereof.

 

IN WITNESS WHEREOF,
the Borrower and the Lender have executed this Loan Agreement as of
the date first written above.

 

 

	
 

	
OCEAN THERMAL
ENERGY CORPORATION

 

By: /s/ Stephen
Oney

Name: Stephen Oney,
PhD

Title: Director
& Chief Science Officer

 

DCO ENERGY,
LLC

 

By: /s/ Frank
DiCola

Name: Frank
DiCola

Title: President
& CEO

 

7

 

 

 

PROMISSORY
NOTE

 

	
$1,000,000

	
February 10,
2012

 

FOR VALUE RECEIVED,
Ocean Thermal Energy Corporation, a Delaware corporation with an
address of 800 South Queen Street, Lancaster, PA 17603 (the
“Borrower”), hereby promise to pay to the order of DCO
Energy, LLC, a New Jersey limited liability company with offices at
5429 Harding Highway, Building 500, Mays Landing, New Jersey 08330
(the “Lender”), at 5429 Harding Highway, Building 500,
Mays Landing, New Jersey 08330, or at any other place designated to
the Borrower by the Lender in writing, the principal sum of One
Million Dollars ($1,000,000), with interest as herein specified,
and under the terms and conditions stated herein.

 

1.     
       Repayment of Principal and
Interest. Principal and interest shall be repaid by Borrower
to Lender as follows: Commencing on March 3, 2012, Borrower shall
make monthly payment of interest only, in arrears, with subsequent
payments being made on the corresponding day of each succeeding
month. The Borrower shall repay the principal amount of this Note
ON DEMAND; provided, however, that if demand is not sooner made, on
February 3, 2015 (the “Maturity Date”), the Borrower
shall pay to the Lender the unpaid principal balance of the Loan,
all accrued and unpaid interest thereon, and all other costs and
amounts payable to the Lender hereunder.

 

All amounts payable
hereunder are payable in lawful money of the United States of
America at the address of the Lender set forth above in immediately
available funds. Prior to a Default, all payments shall be applied
first on account of other charges, second to accrued interest due
on the unpaid balance of principal and finally the remainder of
such payments shall be applied to unpaid principal. If a Default
occurs, payments and monies received may be applied in any manner
and order deemed appropriate by the Lender.

 

2.       
     Rates and Calculation of
Interest. Interest on the outstanding and unpaid principal
balance of the Loan shall be calculated for the actual number of
days in the then current calendar year that principal is
outstanding, based upon a year of three hundred sixty (360) days,
accrue and shall be paid at the fixed rate of interest per annum
equal to ten percent (10%).

 

In no event shall
the rate of interest hereunder be in excess of the maximum amount
permitted by law. In the event the rate of interest hereunder is
determined to be in excess of the maximum amount permitted by law,
such interest rate shall be automatically decreased to the maximum
rate permitted by law.

 

In addition to all
other rights contained in this Note, if a Default (defined herein)
occurs and as long as a Default continues, all outstanding sums
hereunder shall bear interest at the interest rate otherwise
prevailing under the preceding paragraph, plus 3% (the
“Default Rate”). The Default Rate shall also apply from
acceleration until all unpaid sums and obligations (whether matured
or contingent) hereunder and any judgment thereon are paid in
full.

 

3.        
    Prepayment. This Note may be
prepaid in whole or in part at any time at the option of the
Borrower without premium or penalty. Each prepayment shall be
applied first to the payment in full of other charges payable
hereunder, then to accrued interest and the remainder of such
payment, if any, shall be applied to the reduction of the unpaid
principal balance.

 

1

 

 

 

 

4.       
     Loan Agreement. This Note is
the Note referred to in the agreements between the Borrower, the
Lender, and any surety executed in connection with this Note,
including, but not limited to the Loan Agreement of even date
herewith (the “Loan Agreement”) and the Loan Documents
referenced therein (the “Loan Documents”). The failure
of the Borrower and/or any surety to execute any such agreement or
other document shall not affect the validity of this Note. This
Note shall evidence all obligations of the Borrower to the Lender
under the Loan Agreement and Loan Documents.

 

5.      
      Integration. The terms and
conditions of this Note, together with the terms and conditions of
the Loan Agreement and the Loan Documents, contains the entire
understanding between the Borrower and the Lender with respect to
the indebtedness evidenced hereby. Such understanding may not be
amended, modified, or terminated except in writing duly executed by
the parties hereto.

 

6.     
       Default and Remedies. The
occurrence of any default or event of default
(“Default”), as defined in the Loan Agreement and/or
the Loan Documents, shall constitute a Default of and under this
Note.

 

When a Default
occurs, the Lender, at its option, may declare the entire unpaid
balance of principal of this Note, unpaid interest thereon and all
other charges, costs and expenses provided for herein, in the Loan
Agreement and/or any of the Loan Documents, and/or pursuant to any
other agreements between Borrower and Lender, immediately due and
payable without notice to or demand upon the Borrower. Upon the
occurrence of a Default, the Lender shall have all of the rights
and remedies with respect to this Note and with respect to all of
the Lender’s collateral and security as described or in the
Loan Agreement, the Loan Documents, in this Note, and/or otherwise
as provided for by law, in equity, mid otherwise, including the
rights of a secured party under the Uniform Commercial Code of
Pennsylvania.

 

7.     
       Security. As security for the
payment of this Note and for all other indebtedness, obligations,
and undertakings of the Borrower under the Loan Agreement and the
Loan Documents, the Borrower acknowledges that it has granted to
Lender a security interest, mortgage and/or other liens and rights
in all of the collateral and security described in the Loan
Agreement and/or in the Loan Documents. The Lender shall have no
duty or obligation to the Borrower, or to any endorser, guarantor,
surety, or other party, to perfect any lien or security interest of
the Lender in the Lender’s collateral and security. In
addition, the Lender shall not be required to marshal any
collateral or security or guaranties or to resort to the same in
any particular order.

 

8.     
      Waiver. The undersigned hereby
waives presentment for payment, demand, notice of nonpayment,
notice of protest, and protest of this Note, and all of the notices
in connection with delivery, acceptance, performance, default, or
enforcement of the payment of this Note. The failure by the Lender
to exercise any right or remedy shall not be taken to waive the
exercise of the same thereafter for the same or any subsequent
Default. The Borrower waives any claim of set-off, recoupment
and/or counterclaim. All notices to the Borrower shall be
adequately given if mailed postage prepaid to the address appearing
in the Lender’s records. The Borrower intends this Note to be
a sealed instrument and to be legally bound hereby.

 

9.      
      Holder. The references to
“Lender” herein shall be deemed to be references to any
subsequent assignee, transferee, or other holder of this
Note.

 

10.           Governing
Law. This Note shall be construed in accordance with the
domestic internal laws of the Commonwealth of Pennsylvania, without
reference to any conflict of laws provisions, as a Note made,
delivered and to be wholly performed within the Commonwealth of
Pennsylvania.

 

2

 

 

 

 

11.           Judicial
Proceedings. Any suit, action, or proceeding, whether claim
or counterclaim, brought or instituted by the Borrower or the
Lender, or any of their successors or assigns, on or with respect
to this Note or the dealings of the Borrower or the Lender with
respect hereto, shall be tried only by a court and not by a jury.
THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY
WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION, OR
PROCEEDING. In connection therewith, the Borrower agrees that any
suit, action, or proceeding arising hereunder or with respect
hereto will be instituted in the Court of Common Pleas of York
County, Pennsylvania, or the United States District Court for the
Middle District of Pennsylvania, and irrevocably and
unconditionally submits to the jurisdiction of each such Court for
such purpose. Further, the Borrower waives any right it may have to
claim or recover, in any such suit, action or proceeding, any
special, exemplary, punitive, or consequential damages or any
damages other than, or in addition to, actual damages. THE BORROWER
ACKNOWLEDGES AND AGREES THAT THIS PARAGRAPH IS A SPECIFIC AND
MATERIAL ASPECT OF THIS NOTE AND THAT THE LENDER WOULD NOT EXTEND
CREDIT IF THE WAIVERS SET FORTH IN THIS PARAGRAPH WERE NOT A PART
OF THIS NOTE.

 

12.           Confession
of Judgment. Upon Default, the Borrower hereby irrevocably
authorizes the Prothonotary or any attorney of any court of record
in Pennsylvania or elsewhere to appear for and confess judgment
against the Borrower for any and all amounts unpaid hereunder,
together with any other charges, costs and expenses for which
Borrower is liable under this Note, and together with fees of
counsel in the reasonable amount of five percent (5%) of all of the
foregoing (but in no event less than $5,000.00) and costs of suit,
releasing all errors and waiving all rights of appeal. If a copy of
this Note, verified by affidavit, shall have been filed in such
proceeding, it shall not be necessary to file the original as a
warrant of attorney. The Borrower hereby waives the right to any
stay of execution and the benefit of all exemption laws now or
hereafter in effect. No single exercise of this warrant and power
to confess judgment shall be deemed to exhaust this power, whether
or not any such exercise shall be held by any court to be invalid,
voidable or void, but this power shall continue undiminished and
may be exercised from time to time as often as the Lender shall
elect until all sums due hereunder shall have been paid in full.
Interest shall continue to accrue after entry of judgment
hereunder, by confession, default, or otherwise, at the higher of
the prevailing rate of interest under this Note, or the judgment
rate of interest under applicable law. All waivers granted in this
paragraph are given to the extent permitted by the Pennsylvania
Rules of Civil Procedure.

 

13.           NOTICE:
THIS NOTE CONTAINS, AT PARAGRAPH 12, A WARRANT OF ATTORNEY TO
CONFESS JUDGMENT AGAINST THE BORROWER. IN GRANTING THIS WARRANT OF
ATTORNEY TO CONFESS JUDGMENT AGAINST THE BORROWER, THE BORROWER
HEREBY KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY, AND ON THE ADVICE
OF SEPARATE COUNSEL OF THE BORROWER, UNCONDITIONALLY WAIVES ANY AND
ALL RIGHTS THE BORROWER HAS OR MAY HAVE TO PRIOR NOTICE AND AN
OPPORTUNITY FOR HEARING UNDER THE RESPECTIVE CONSTITUTIONS AND LAWS
OF THE UNITED STATES, THE COMMONWEALTH OF PENNSYLVANIA, OR OF ANY
OTHER STATE.

 

BORROWER:

 

OCEAN THERMAL
ENERGY CORPORATION

 

By: /s/ Stephen
Oney, PhD

Name: Stephen Oney,
PhD

Title: Director
& Chief Science Officer

 

3

 

 

 

 

DISCLOSURE FOR
CONFESSION OF

JUDGMENT AND
EXECUTION FOR NON-INDIVIDUALS

 

DATE: February 10,
2012

 

1.      
      TODAY, THE UNDERSIGNED FIRM IS
EXECUTING A PROMISSORY NOTE AND OTHER RELATED INSTRUMENTS FOR
$1,000,000, OBLIGATING THE UNDERSIGNED FIRM TO PAY THAT
AMOUNT.

 

2.   
         A
REPRESENTATIVE OF THE LENDER (OR OUR INDEPENDENT LEGAL COUNSEL)
(THE “REPRESENTATIVE”) HAS EXPLAINED TO US IN OUR
CAPACITIES AS A REPRESENTATIVE OF THE UNDERSIGNED FIRM THAT THE
NOTE THE UNDERSIGNED FIRM IS SIGNING CONTAINS WORDING THAT WOULD
PERMIT THE LENDER TO OBTAIN A JUDGMENT AGAINST THE UNDERSIGNED FIRM
AT THE COURTHOUSE. THE REPRESENTATIVE HAS ALSO EXPLAINED TO US IN
OUR CAPACITIES OF PRESIDENT AND SECRETARY RESPECTIVELY OF THE
UNDERSIGNED FIRM THAT THE JUDGMENT MAY BE OBTAINED AGAINST THE
UNDERSIGNED FIRM WITHOUT NOTICE TO THE UNDERSIGNED FIRM AND WITHOUT
OFFERING THE UNDERSIGNED FIRM AN OPPORTUNITY TO DEFEND AGAINST THE
ENTRY OF THE JUDGMENT, AND THAT THE JUDGMENT MAY BE COLLECTED BY
ANY LEGAL MEANS.

 

3.       
     THE REPRESENTATIVE HAS ALSO EXPLAINED
TO US IN OUR CAPACITIES AS A REPRESENTATIVE OF THE UNDERSIGNED FIRM
THAT COLLECTION OF THE JUDGMENT MAY BE ACCOMPLISHED BY THE ISSUANCE
OF A WRIT OF EXECUTION, GARNISHMENT, LEVY AND/OR OTHER EXECUTION
PROCEEDINGS WHICH MAY BE COMMENCED AGAINST THE UNDERSIGNED FIRM BY
THE LENDER WITHOUT PRIOR NOTICE AND HEARING AND THAT EXECUTION
PROCEEDINGS MAY INVOLVE THE SEIZURE AND SALE OF THE UNDERSIGNED
FIRM’S PROPERTY BY A SHERIFF, MARSHALL OR OTHER
AUTHORITY.

 

4.       
     IN SIGNING THE NOTE, THE UNDERSIGNED
FIRM IS KNOWINGLY, UNDERSTANDINGLY AND VOLUNTARILY CONSENTING TO
THE CONFESSION OF JUDGMENT AND THE UNDERSIGNED FIRM IS WAIVING THE
UNDERSIGNED FIRM’S RIGHTS, TO THE EXTENT PERMITTED BY LAW, TO
RESIST THE ENTRY OF JUDGMENT AGAINST THE UNDERSIGNED FIRM AT THE
COURTHOUSE INCLUDING:

 

(a)           THE
RIGHT TO NOTICE AND A HEARING;

(b)           THE
RIGHT TO REDUCE OR SET-OFF A CLAIM BY DEDUCTING A CLAIM THE
UNDERSIGNED FIRM MAY HAVE AGAINST THE LENDER (CALLED THE
“RIGHT OF DEFALCATION”);

(c)           RELEASE
OF ERROR;

(d)           INQUEST
(THE RIGHT TO ASCERTAIN WHETHER THE RENTS AND PROFITS OF THE
UNDERSIGNED FIRM’S REAL ESTATE WILL BE SUFFICIENT TO SATISFY
THE JUDGMENT WITHIN SEVEN YEARS);

(e)           STAY
OF EXECUTION;

(f)     
      EXEMPTION LAWS NOW IN FORCE OR
HEREAFTER TO BE PASSED;

(g)           THE
RIGHT TO DEFEND AGAINST THE ENTRY OF JUDGMENT AGAINST THE
UNDERSIGNED FIRM.

 

5.      
      IN SIGNING THE NOTE, THE
UNDERSIGNED FIRM IS KNOWINGLY, UNDERSTANDINGLY AND VOLUNTARILY
CONSENTING TO THE ISSUANCE AND PURSUIT AGAINST THE UNDERSIGNED FIRM
OF EXECUTION, GARNISHMENT, LEVY AND/OR OTHER EXECUTION PROCEEDINGS
AND WAIVING THE UNDERSIGNED FIRM’S RIGHTS, TO THE EXTENT
PERMITTED BY LAW, TO NOTICE AND A HEARING PRIOR TO THE ISSUANCE AND
PURSUIT OF EXECUTION, GARNISHMENT, LEVY AND/OR OTHER EXECUTION
PROCEEDINGS.

 

6.        
    THE UNDERSIGNED FIRM CERTIFIES THAT THE
UNDERSIGNED FIRM HAS DISCUSSED THIS DISCLOSURE WITH THE UNDERSIGNED
FIRM’S ATTORNEY-AT-LAW AND THE ATTORNEY-AT-LAW FULLY
EXPLAINED TO THE UNDERSIGNED FIRM THE CONTENTS AND MEANING OF THIS
DISCLOSURE.

 

4

 

 

 

 

THE UNDERSIGNED
FIRM IS A CORPORATION WHICH IS INCORPORATED UNDER THE LAWS OF THE
STATE OF DELAWARE AND THE UNDERSIGNED INDIVIDUALS ARE THE
REPRESENTATIVES OF THE UNDERSIGNED FIRM DULY AUTHORIZED TO EXECUTE
THIS DISCLOSURE ON BEHALF OF THE UNDERSIGNED FIRM. WE CERTIFY THAT
THE BLANKS IN THIS DISCLOSURE WERE FILLED IN WHEN WE INITIALED AND
SIGNED IT, AND THAT THE UNDERSIGNED FIRM RECEIVED A COPY OF THE
DISCLOSURE AT THE TIME OF SIGNING.

 

TERMS USED HEREIN
SHALL BE CONSTRUED AS USED AND/OR DEFINED IN THE NOTE.

 

	
NAME OF
FIRM:

	
OCEAN THERMAL
ENERGY CORPORATION

	
 

	
 

	
 

	
By: /s/ Stephen
Oney, PhD

	
 

	
Name: Stephen Oney,
PhD

	
 

	
Title: Director
& Chief Science Officer

 

	
STATE OF
HAWAII

	
)

	
 

	
ss.

	
CITY AND COUNTY OF
HONOLULU

	
)

 

On this 13th day of
February, 2012, before me appeared STEPHEN ONEY, PHD, to me
personally known, who being by me duly sworn, did say that he is
the Director & Chief Science Officer of OCEAN THERMAL ENERGY
CORPORATION, a Delaware corporation; and that said instrument was
signed on behalf of OCEAN THERMAL ENERGY CORPORATION, and that said
officer acknowledged said instrument to be the fee act and deed of
OCEAN THERMAL ENERGY CORPORATION.

 

	
/s/ Luz D.
Casiles

	
Print Name: Luz D.
Casiles

	
Notary Public,
State of Hawaii

	
My commission
expires: 6/2/2014

 

NOTARY
CERTIFICATION STATEMENT

 

Document
Identification or Description:

DISCLOSURE FOR
CONFESSION OF JUDGMENT AND EXECUTION FOR
NON-INDIVIDUALS

(Put title of
document, together with Apt. No. and Name of Project)

Document Date:
2/13/2012

No. of Pages: 7
Jurisdiction: First Circuit (in which notarial act is
performed)

/s/ Luz D.
Casiles

Signature of
Notary

Date of
Notarization and Certification Statement

[notary
stamp]

(Official Stamp or
Seal)

Printed Name of
Notary: Luz D. Casiles

 

5

 

 

 

WARRANT

 

to Purchase up to
3,295,761 Shares of the

 

Common Stock, $-0-
Par Value Per Share,

 

of

 

OCEAN
THERMAL ENERGY CORPORATION

 

This is to certify
that, for value received, DCO Energy, LLC (“Lender”) or
any permitted transferee (Lender or such transferee being
hereinafter called the “Holder”) is entitled to
purchase, subject to the provisions of this Warrant, from Ocean
Thermal Energy Corporation, a Delaware corporation
(“OTEC”), at any time on or after the date hereof, an
aggregate of up to 3,295,761 fully paid and non-assessable shares
of common stock, $ -0- par value (the “Common Stock”),
of OTEC at a price per share equal to $0.50, subject to adjustment
as herein provided (the “Exercise Price”).

 

1.       
     Exercise of Warrant. Subject to
the provisions hereof, this Warrant may be exercised, in whole or
in part, or sold, assigned or transferred at any time or from time
to time on or after the date hereof. This Warrant shall be
exercised by presentation and surrender hereof to OTEC at the
principal office of OTEC, accompanied by (i) a written notice of
exercise and (ii) payment to OTEC, for the account of OTEC, of the
Exercise Price for the number of shares of Common Stock specified
in such notice. . The Exercise Price for the number of shares of
Common Stock specified in the notice shall be payable in
immediately available funds.

 

Upon such
presentation and surrender, OTEC shall issue promptly (and within
one business day if reasonably requested by the Holder) to the
Holder or its assignee, transferee or designee the number of shares
of Common Stock to which the Holder is entitled hereunder. OTEC
covenants and warrants that such shares of Common Stock, when so
issued, will be duly authorized, validly issued, fully paid and
non-assessable, and free and clear of all liens and
encumbrances.

 

If this Warrant is
exercised in part only, OTEC shall, upon surrender of this Warrant
for cancellation, execute and deliver a new Warrant evidencing the
rights of the Holder thereof to purchase the balance of the shares
of Common Stock issuable hereunder. Upon receipt by OTEC of this
Warrant, in proper form for exercise, the Holder shall be deemed to
be the holder of record of the shares of Common Stock issuable upon
such exercise, notwithstanding that the stock transfer books of
OTEC may then be closed or that certificates representing such
shares of Common Stock shall not then be actually delivered to the
Holder. OTEC shall pay all expenses, and any and all United States
federal, state and local taxes and other charges, that may be
payable in connection with the preparation, issuance and delivery
of stock certificates pursuant to this Paragraph 1 in the name of
the Holder or its assignee, transferee or designee.

 

2.       
     Reservation of Shares; Preservation of
Rights of Holder. OTEC shall at all times while this Warrant
is outstanding and unexercised, maintain and reserve, free from
preemptive rights, such number of authorized but unissued shares of
Common Stock as may be necessary so that this Warrant may be
exercised without any additional authorization of Common Stock
after giving effect to all other options, warrants, convertible
securities and other rights to acquire shares of Common Stock at
the time outstanding. OTEC further agrees that (i) it will not, by
charter amendment or through reorganization, consolidation, merger,
dissolution or sale of assets, or by any other voluntary act or
omission, avoid or seek to avoid the observance or performance of
any of the covenants, stipulations or conditions to be observed or
performed hereunder, and (ii) it will promptly take all action
reasonably necessary to protect the rights of the Holder against
dilution as provided herein.

 

1

 

 

 

 

3.      
      Fractional Shares. OTEC shall
not be required to issue any fractional shares of Common Stock upon
exercise of this Warrant. In lieu of any fractional shares, the
Holder shall be entitled to receive an amount in cash equal to the
amount of such fraction multiplied by the Exercise
Price.

 

4.     
       Exchange or Loss of Warrant.
This Warrant is exchangeable, without expense, at the option of the
Holder, upon presentation and surrender hereof at the principal
office of OTEC for other warrants of different denominations
entitling the Holder to purchase, in the aggregate, the same number
of shares of Common Stock issuable hereunder. The term
“Warrant” as used herein includes any warrants for
which this Warrant may be exchanged. Upon receipt by OTEC of
evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, OTEC will execute and deliver a new Warrant
of like tenor and date.

 

5.       
     Adjustment. The number of
shares of Common Stock issuable upon the exercise of this Warrant
and the Exercise Price shall be subject to adjustment from time to
time as provided in this Paragraph.

 

(A)           Stock
Dividends, etc.

 

(1)           Stock
Dividends. In case OTEC shall pay or make a dividend or
other distribution on any class of capital stock of OTEC payable in
Common Stock, the number of shares of Common Stock issuable upon
exercise of this Warrant shall be increased by multiplying such
number of shares by a fraction of which the denominator shall be
the number of shares of Common Stock outstanding at the close of
business on the day immediately preceding the date of such
distribution and the numerator shall be the sum of such number of
shares and the total number of shares of Common Stock constituting
such dividend or other distribution, such increase to become
effective immediately after the opening of business on the day
following such distribution.

 

(2)           Subdivisions.
In case outstanding shares of Common Stock shall be subdivided into
a greater number of shares of Common Stock, the number of shares of
Common Stock issuable upon exercise of this Warrant at the opening
of business on the day following the day upon which such
subdivision becomes effective shall be proportionately increased,
and, conversely, in case outstanding shares of Common Stock shall
each be combined into a smaller number of shares of Common Stock,
the number of shares of Common Stock issuable upon exercise of this
Warrant at the opening of business on the day following the day
upon which such combination becomes effective shall be
proportionately decreased, such increase or decrease, as the case
may be, to become effective immediately after the opening of
business on the day following the date upon which such subdivision
or combination becomes effective.

 

(3)           Reclassifications.
The reclassification of Common Stock into securities (other than
Common Stock) and/or cash and/or other consideration shall be
deemed to involve a subdivision or combination, as the case may be,
of the number of shares of Common Stock outstanding immediately
prior to such reclassification into the number or amount of
securities and/or cash and/or other consideration outstanding
immediately thereafter and the effective date of such
reclassification shall be deemed to be “the day upon which
such subdivision becomes effective,” or “the day upon
which such combination becomes effective,” as the case may
be, within the meaning of clause (2) above.

 

2

 

 

 

 

(4)           Optional
Adjustments. OTEC may make such increases in the number of
shares of Common Stock issuable upon exercise of this Warrant, in
addition to those required by this subparagraph (A), as shall be
determined by its Board of Directors to be advisable in order to
avoid taxation so far as practicable of any dividend of stock or
stock rights or any event treated as such for federal income tax
purposes to the recipients.

 

(5)           Adjustment
to Exercise Price. Whenever the number of shares of Common
Stock issuable upon exercise of this Warrant is adjusted as
provided in this Paragraph 5(A), the Exercise Price shall be
adjusted by a fraction in which the numerator is equal to the
number of shares of Common Stock issuable prior to the adjustment
and the denominator is equal to the number of shares of Common
Stock issuable after the adjustment, rounded to the nearest
cent.

 

(B)           Certain
Sales of Common Stock.

 

(1)           Adjustment
to Shares Issuable. If and whenever OTEC sells or otherwise
issues (other than under circumstances in which Paragraph 5(A)
applies) any shares of Common Stock, the number of shares of Common
Stock issuable upon exercise of this Warrant shall be increased by
multiplying such number of shares by a fraction, the denominator of
which shall be the number shares of Common Stock outstanding at the
close of business on the day immediately preceding the date of such
sale or issuance and the numerator of which shall be the sum of
such number of shares and the total number of shares constituting
such sale or other issuance, such increase to become effective
immediately after the opening of business on the day following such
sale or issuance.

 

(2)           Adjustment
to Exercise Price. If and whenever OTEC sells or otherwise
issues any shares of Common Stock (excluding any stock dividend or
other issuance not for consideration to which Paragraph 5(A)
applies or shares of Common Stock issued or issuable in connection
with awards granted under the OTEC Stock Option Plans) for a
consideration per share which is less than the Exercise Price at
the time of such sale or other issuance, then in each such case the
Exercise Price shall be forthwith changed (but only if a reduction
would result) to the price (calculated to the nearest cent)
determined by dividing: (i) an amount equal to the sum of (aa) the
number of shares of Common Stock outstanding immediately prior to
such issue or sale, multiplied by the then effective Exercise
Price, plus (bb) the total consideration, if any, received and
deemed received by OTEC upon such issue or sale, by (ii) the total
number of shares of Common Stock outstanding immediately after such
issue or sale.

 

(C)           Definition.
For purposes of this Paragraph 5, the term “Common
Stock” shall include (1) any shares of OTEC of any class or
series which has no preference or priority in the payment of
dividends or in the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding up of OTEC and
which is not subject to redemption by OTEC, and (2) any rights or
options to subscribe for or to purchase shares of Common Stock or
any stock or securities convertible into or exchangeable for shares
of Common Stock (such convertible or exchangeable stock or
securities being hereinafter called “Convertible
Securities”), whether or not such rights or options or the
right to convert or exchange any such Convertible Securities are
immediately exercisable. For purposes of any adjustments made under
Paragraph 5(A) or 5(B) as a result of the distribution, sale or
other issuance of rights or options or Convertible Securities, the
number of shares of Common Stock outstanding after or as a result
of the occurrence of events described in Paragraph 5(A)(1) or
5(B)(1) shall be calculated by assuming that all such rights,
options or Convertible Securities have been exercised for the
maximum number of shares issuable thereunder.

 

3

 

 

 

 

6.      
      Notice. Whenever the number of
shares of Common Stock for which this Warrant is exercisable is
adjusted as provided in Paragraph 5, OTEC shall promptly compute
such adjustment and mail to the Holder a certificate, signed by the
principal financial officer of OTEC, setting forth the number of
shares of Common Stock for which this Warrant is exercisable as a
result of such adjustment having become effective.

 

7.   
         Rights of the
Holder.

 

(A)          Without
limiting the foregoing or any remedies available to the Holder, it
is specifically acknowledged that the Holder would not have an
adequate remedy at law for any breach of the provisions of this
Warrant and shall be entitled to specific performance of
OTEC’s obligations under, and injunctive relief against any
actual or threatened violation of the obligations of any person
subject to, this Warrant.

 

(B)           The
Holder shall not, by virtue of its status as Holder, be entitled to
any rights of a stockholder in OTEC.

 

8.     
       Termination. This Warrant and
the rights conferred hereby shall terminate on February 3,
2015.

 

9.       
     Governing Law. This Warrant
shall be deemed to have been delivered in, and shall be governed by
and interpreted in accordance with the substantive laws of, the
Commonwealth of Pennsylvania, except to the extent that Delaware
law may govern certain aspects of this Warrant as it relates to
OTEC.

 

	
Dated: February 10,
2012

	
OCEAN THERMAL
ENERGY CORPORATION

	
 

	
 

	
 

	
By: /s/ Stephen
Oney, PhD

	
 

	
Name: Stephen Oney,
PhD

	
 

	
Title: Director
& Chief Science Officer

FORBEARANCE
AND LOAN EXTENSION AGREEMENT

 

 This FORBEARANCE AND LOAN
EXTENSION AGREEMENT (this “Amendment”), is entered into this
1st day
of April, 2016, by and between OCEAN THERMAL ENERGY CORPORATION, a
Delaware corporation with an address of 800 South Queen Street,
Lancaster, PA 17603 (the “Borrower”), and DCO ENERGY, LLC, a
New Jersey limited liability company with offices at 5429 Harding
Highway, Building 500, Mays Landing, New Jersey 08330 (the
“Lender”), on
the following:

 

Premises

 

 Borrower and Lender entered
into that certain Loan Agreement as of February 10, 2012 (the
“Loan
Agreement”), providing for a loan of $1,000,000 from
Lender to Borrower (the “Loan”). The obligation to repay
the Loan is evidenced by that certain Promissory Note of even date
executed and delivered by Borrower to Lender (the
“Note”). The
obligations evidenced by the Loan Agreement and Note are secured by
a lien created under a Security Agreement dated as of the date of
the Note and Loan Agreement. As additional consideration for the
Loan, Borrower granted to Lender a warrant to purchase 3,295,761
shares of Borrower’s common stock at a price of $0.50 per
share at any time on or before February 3, 2015 (the
“Warrant”). The
Loan Agreement, the Note, the Security Agreement, and the Warrant
are together referred to as the “Loan Documents.” Pursuant to the
terms of the Loan Documents, the Note was payable in full on or
before February 3, 2015. The Note was not paid when due and is now
in default.

 

 Lender desires to forbear
from seeking collection of the Note and exercising its remedies
under the Loan Documents in order to enhance its financial recovery
and obtain an extension of the Warrant.

 

Agreement

 

 NOW THEREFORE, for and in
consideration of the foregoing premises, which are incorporated
herein by reference, the mutual promises and covenants set forth
herein, and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree
as follows.

 

 1.           Confirmation
of Indebtedness. Borrower confirms the indebtedness due
Lender under the Loan Documents.

 

 2.           Waiver
of Default. Lender waives Borrower’s default as of the
date of this Amendment under the Loan Documents and agrees not to
take any action or seek any remedy or relief under any of the Loan
Documents arising from the non-payment by Borrower of the Note and
Loan as of the date hereof.

 

 3.           Forbearance
and Extension. Lender shall forbear from collecting the Loan
and Note under the Loan Documents or exercising any right or remedy
thereunder as of the date hereof and extends the due date for
repayment of the Loan and the payment of the Note to February 3,
2017. The Lender shall mark conspicuously on the original of the
Note in Lender’s possession the foregoing extension or, at
the request of the Borrower, execute and deliver to Borrower an
amendment or allonge to be affixed to the Note further evidencing
such extension.

 

 4.           Extension
of Warrant. Borrower extends the expiration date of the
Warrant so that it evidences the right of the Lender to purchase
3,295,761 shares of Borrower’s common stock at a price of
$0.50 per share at any time on or before February 3, 2017. At the
request of Lender, Borrower will execute and deliver to Lender a
new replacement Warrant reflecting these revised terms against
surrender of the original Warrant.

 

 

 

 

 

 

 5.           Confirmation
of Loan Documents. Except as expressly modified by the terms
of this Amendment, the terms, covenants, conditions,
representations, and warranties, and each of them, shall remain in
full force and effect.

 

 6.           Signature.
This Amendment may be executed in multiple counterparts of like
tenor, each of which shall be deemed an original and all of which
taken together will constitute one and the same instrument.
Counterpart signatures of this Amendment that are manually signed
and delivered by a uniquely marked, computer-generated signature in
portable document format (PDF) or other electronic method shall be
deemed to constitute signed original counterparts hereof and shall
bind the parties signing and delivering in such manner and shall be
the same as the delivery of an original.

 

 DATED as of the year and date first
above written by the undersigned duly authorized
signatories.

 

BORROWER:

 

OCEAN THERMAL
ENERGY CORPORATION

 

By: /s/ Jeremy
Feakins

Name: Jeremy
Feakins

Title: Chairman
& CEO

 

LENDER

 

DCO ENERGY,
LLC

 

By: /s/ Frank
DiCola

Name: Frank
DiCola

Title: President
& CEO

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