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Item 1.01
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Entry into a Material Definitive Agreement.
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On February 16, 2018, Ocean Thermal Energy
Corporation, a Nevada corporation (the “Company”), entered into a securities purchase agreement (the “Securities
Purchase Agreement”) with an accredited investor (the “Investor”) pursuant to which the Company issued and sold
a senior secured promissory note to the Investor in the aggregate principal amount of up to $565,555.00 (the “Note”),
which is convertible into shares of common stock of the Company, subject to the terms, conditions and limitations set forth in
the Note.
The Note accrues interest at a rate of 8%
per annum. The aggregate principal amount of up to $565,555.00 consists of a prorated original issuance discount of up to
$55,555.00 and a $10,000 credit to Investor for transactional expenses with net consideration to the Company of up to
$500,000 which will be funded in tranches. The maturity date of each tranche funded shall be six (6) months from the
effective date of each payment and is the date upon which the principal sum, as well as any accrued and unpaid interest and
other fees for each tranche, shall be due and payable. The Investor shall have the right at any time to convert all or any
part of the funded portion of the Note into fully paid and non-assessable shares of common stock of the Company at the
Conversion Price, which is equal to $0.50 per share (the “Fixed Conversion Price”), provided, however, that at
any time on or after the occurrence of any Event of Default (as defined therein) under the Note, the Conversion Price shall
mean the lesser of the (i) Fixed Conversion Price and (ii) 65% multiplied by the lowest VWAP of the common stock during the
twenty (20) Trading Day (as defined therein) period ending, in Investor’s sole discretion on each conversion, on either
(i) the last complete Trading Day prior to the conversion date (each a “Conversion Date”) or (ii) the Conversion
Date (subject to adjustment as provided in the Note).
The Company’s obligations under
the Note are secured by a security agreement (the “Security Agreement”) whereby the Company granted a senior
secured interest to the Investor in and to all of the Company’s right, title, and interest in, to, and under all of the
Company’s collateral set forth in the Security Agreement.
In connection with the issuance of the
Note and funding of the initial tranche of $121,111.00 on the Note, the Company also issued a common stock purchase warrant
to the Investor to purchase up to 242,222 shares of the Company’s common stock pursuant to the terms therein (the
“Investor Warrant”) as a commitment fee. At the time that each subsequent tranche under the Note is funded by the
Investor in cash, then on such funding date, the warrant shares shall immediately and automatically be increased by the
quotient of 50% of the face value of the respective tranche and 110% of the VWAP of the common stock on the Trading Day
immediately prior to the funding date of the respective tranche. The Investor Warrant is exercisable for a period of five (5)
years from date of issuance. The Investor Warrant includes a cashless net exercise provision whereby the investor can elect
to receive shares equal to the value of the Investor Warrant minus the fair market value of shares being surrendered to pay
for the exercise.
The Company also issued a common stock purchase
warrant (the “Craft Warrant”) to its placement agent Craft Capital Management, LLC to purchase up to 12,000 shares
of the Company’s common stock on similar terms as the Investor Warrant. The Craft Warrant, issued pursuant to the Company’s
engagement with Craft, represents a broker fee of 8% of the funded proceeds available to the Company in the Note. At the time that
each subsequent tranche under the Note is funded by the Investor in cash, then on such funding date, the warrant shares in the
Craft Warrant shall immediately and automatically be increased by the quotient of 3% of the face value of the respective tranche
and 110% of the VWAP of the common stock on the Trading Day immediately prior to the funding date of the respective tranche.
The foregoing description of the terms of the
Securities Purchase Agreement, Note, Security Agreement, Investor Warrant and Craft Warrant does not purport to be complete and
is subject to and qualified in its entirety by reference to the agreements and instruments themselves, copies of which are filed
as Exhibits 10.1, 10.2, 10.3, 10.4 and 10.5 to this Current Report on Form 8-K and incorporated herein by reference.