Exhibit 10.25
 
NEITHER THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE HAVE
BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE.  THESE SECURITIES HAVE BEEN SOLD IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.
 
Coates International, Ltd.
 
Convertible Note
 
Issuance Date: January 14, 2014
Original Principal Amount:  $100,000
Note No. COTE-1
Consideration Paid at Close:  $33,333

FOR VALUE RECEIVED, Coates International, Ltd., a Delaware corporation (the
"Company"), hereby promises to pay to the order of Black Mountain Equities, Inc.
or registered assigns (the "Holder") the amount set out above as the Original
Principal Amount (as reduced pursuant to the terms hereof pursuant to
redemption, conversion or otherwise, the "Principal") when due, whether upon the
Maturity Date (as defined below), acceleration, redemption or otherwise (in each
case in accordance with the terms hereof) and to pay interest ("Interest") on
any outstanding Principal at the applicable Interest Rate from the Funding Date,
as hereinafter defined, until the same becomes due and payable, upon the
Maturity Date or acceleration, conversion, redemption or otherwise (in each case
in accordance with the terms hereof).
 
The Original Principal Amount is $100,000 (one hundred thousand) plus accrued
and unpaid interest and any other fees.  The Consideration is $95,000 (ninety
five thousand dollars) payable by wire transfer (there exists a $5,000 original
issue discount (the “OID”)).  The Holder shall pay $33,333 of Consideration upon
closing of this Note (the “Initial Tranche”).  The Holder may pay additional
Consideration to the Company in such amounts and at such dates as Holder may
choose in its sole discretion (“Subsequent Tranches”). For purposes hereof, the
term “Outstanding Balance” means the Original Principal Amount, as reduced or
increased, as the case may be, pursuant to the terms hereof for conversion,
breach hereof or otherwise, plus any accrued but unpaid interest, collection and
enforcements costs, and any other fees or charges incurred under this Note. The
Principal Sum due to Holder shall be prorated based on the Consideration paid by
Holder (plus an approximate 10% Original Issue Discount that is prorated based
on the Consideration paid by the Holder as well as any other interest or fees)
such that the Company is only required to repay the amount funded and the
Company is not required to repay any unfunded portion of this Note.
 
 
 

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(1)           GENERAL TERMS
 
(a)           Payment of Principal.  The "Maturity Date" shall be one year from
the date of each payment of Consideration, as may be extended at the option of
the Holder in the event that, and for so long as, an Event of Default (as
defined below) shall not have occurred and be continuing on the Maturity Date
(as may be extended pursuant to this Section 1) or any event shall have occurred
and be continuing on the Maturity Date (as may be extended pursuant to this
Section 1) that with the passage of time and the failure to cure would result in
an Event of Default.
 
(b)           Interest.  Interest on the funded portion of the Convertible Note
shall accrued on the outstanding balance at the rate of 12% per annum. Interest
hereunder shall be paid on the Maturity Date or acceleration, conversion,
redemption or otherwise (or sooner as provided herein) to the Holder or its
assignee in whose name this Note is registered on the records of the Company
regarding registration and transfers of Notes in cash or converted into Common
Stock at the Conversion Price provided the Equity Conditions are satisfied.
 
(c)           Security.  This Note shall not be secured by any collateral or any
assets pledged to the Holder
 
(2)           EVENTS OF DEFAULT.
 
(a)           An “Event of Default”, wherever used herein, means any one of the
following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
 
(i)          The Company's failure to pay to the Holder any amount of Principal,
Interest, or other amounts when and as due under this Note (including, without
limitation, the Company's failure to pay any redemption payments or amounts
hereunder) or any other Transaction Document;
 
(ii)         A Conversion Failure as defined in section 3(b)(ii)
 
 
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(iii)        The Company or any subsidiary of the Company shall commence, or
there shall be commenced against the Company or any subsidiary of the Company
under any applicable bankruptcy or insolvency laws as now or hereafter in effect
or any successor thereto, or the Company or any subsidiary of the Company
commences any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or similar
law of any jurisdiction whether now or hereafter in effect relating to the
Company or any subsidiary of the Company or there is commenced against the
Company or any subsidiary of the Company any such bankruptcy, insolvency or
other proceeding which remains undismissed for a period of 61 days; or the
Company or any subsidiary of the Company is adjudicated insolvent or bankrupt;
or any order of relief or other order approving any such case or proceeding is
entered; or the Company or any subsidiary of the Company suffers any appointment
of any custodian, private or court appointed receiver or the like for it or any
substantial part of its property which continues undischarged or unstayed for a
period of sixty one (61) days; or the Company or any subsidiary of the Company
makes a general assignment for the benefit of creditors; or the Company or any
subsidiary of the Company shall fail to pay, or shall state that it is unable to
pay, or shall be unable to pay, its debts generally as they become due; or the
Company or any subsidiary of the Company shall call a meeting of its creditors
with a view to arranging a composition, adjustment or restructuring of its
debts; or the Company or any subsidiary of the Company shall by any act or
failure to act expressly indicate its consent to, approval of or acquiescence in
any of the foregoing; or any corporate or other action is taken by the Company
or any subsidiary of the Company for the purpose of effecting any of the
foregoing;
 
(iv)        The Company or any subsidiary of the Company shall default in any of
its obligations under any other Note or any mortgage, credit agreement or other
facility, indenture agreement, factoring agreement or other instrument under
which there may be issued, or by which there may be secured or evidenced any
indebtedness for borrowed money or money due under any long term leasing or
factoring arrangement of the Company or any subsidiary of the Company in an
amount exceeding $100,000, whether such indebtedness now exists or shall
hereafter be created; and
 
(v)         The Common Stock is suspended or delisted for trading on the Over
the Counter Bulletin Board market (the “Primary Market”).
 
(vi)        The Company loses its ability to deliver shares via “DWAC/FAST”
electronic transfer.
 
(vii)       The Company loses its status as “DTC Eligible.”
 
(viii)      The Company shall become late or delinquent in its filing
requirements as a fully-reporting issuer registered with the Securities &
Exchange Commission.
 
(b)           Upon the occurrence of any Event of Default, the Outstanding
Balance shall immediately increase to 120% of the Outstanding Balance
immediately prior to the occurrence of the Event of Default (the “Default
Effect”). The Default Effect shall automatically apply upon the occurrence of an
Event of Default without the need for any party to give any notice or take any
other action.
 
 
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(3)           CONVERSION OF NOTE. This Note shall be convertible into shares of
the Company's Common Stock, on the terms and conditions set forth in this
Section 3.
 
(a)           Conversion Right.  Subject to the provisions of Section 3(c),
commencing 180 days after the date of each funding of this note (the “Funding
Date”) , with the respect to the pro rata portion of this Note funded on that
Funding Date (the “Funded Tranche”), the Holder shall be entitled to convert
all, or any portion of the Funded Tranche outstanding and unpaid Conversion
Amount (as defined below) at any time or times, into fully paid and
nonassessable shares of Common Stock in accordance with Section 3(b), at the
Conversion Price (as defined below).  The number of shares of Common Stock
issuable upon conversion of any Conversion Amount pursuant to this Section 3(a)
shall be equal to the quotient of dividing the Conversion Amount by the
Conversion Price. The Company shall not issue any fraction of a share of Common
Stock upon any conversion.  If the issuance would result in the issuance of a
fraction of a share of Common Stock, the Company shall round such fraction of a
share of Common Stock up to the nearest whole share.  The Company shall pay any
and all transfer agent fees, legal fees, costs and any other fees or costs that
may be incurred or charged in connection with the issuance of shares of the
Company’s Common Stock to the Holder arising out of or relating to the
conversion of this Note.
 
(i)          "Conversion Amount" means the portion of the Original Principal
Amount and Interest to be converted, plus any penalties, redeemed or otherwise
with respect to which this determination is being made.
 
(ii)         "Conversion Price" shall equal the lesser of (a) $0.05 or (b) 70%
of the lowest trade occurring during the twenty (20) consecutive Trading Days
immediately preceding the applicable Conversion Date on which the Holder elects
to convert all or part of this Note, subject to adjustment as provided in this
Note. The Conversion Price shall be adjusted accordingly, to properly account
for any forward and reverse stock splits, stock dividends, capital stock
reorganizations and the like.
 
(b)           Mechanics of Conversion.
 
Optional Conversion.  To convert any Conversion Amount into shares of Common
Stock on any date (a "Conversion Date"), the Holder shall (A) transmit by email,
facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., New
York, NY Time, on such date, a copy of an executed notice of conversion in the
form attached hereto as Exhibit A (the "Conversion Notice") to the Company. The
shares of Common Stock issuable upon conversion of this Note may not be sold or
transferred unless (i) such shares are sold pursuant to an effective
registration statement under the 1933 Securities Act, as amended or (ii) the
Holder or its transfer agent shall have been furnished with an opinion of
Holder’s counsel (which opinion shall be in form, substance and scope customary
for opinions of counsel in comparable transactions) to the effect that the
shares to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration or (iii) such shares are sold or transferred
pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv)
such shares are transferred to an “affiliate” (as defined in Rule 144) of the
Company who agrees to sell or otherwise transfer the shares only in accordance
with this Section 3(b) and who is an Accredited Investor. Subject to the removal
provisions set forth below, until such time as the shares of Common Stock
issuable upon conversion of this Note have been registered under the Act or
otherwise may be sold pursuant to Rule 144 without any restriction as to the
number of securities as of a particular date that can then be immediately sold,
each certificate for shares of Common Stock issuable upon conversion of this
Note that has not been so included in an effective registration statement or
that has not been sold pursuant to an effective registration statement or an
exemption that permits removal of the legend, shall bear a legend substantially
in the following form, as appropriate:

“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
 
 
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The legend set forth above shall be removed and the Company shall issue to the
Holder a new certificate therefore free of any transfer legend if (i) the
Company or its transfer agent shall have received an opinion of counsel, in
form, substance and scope customary for opinions of counsel in comparable
transactions, to the effect that a public sale or transfer of such Common Stock
may be made without registration under the Act and the shares are so sold or
transferred, (ii) such Holder provides the Company or its transfer agent with
reasonable assurances that the Common Stock issuable upon conversion of this
Note (to the extent such securities are deemed to have been acquired on the same
date) can be sold pursuant to Rule 144 or (iii) in the case of the Common Stock
issuable upon conversion of this Note, such security is registered for sale by
the Holder under an effective registration statement filed under the Act or
otherwise may be sold pursuant to Rule 144 without any restriction as to the
number of securities as of a particular date that can then be immediately sold.
 
(i)          On or before the third Business Day following the date of receipt
of a Conversion Notice (the "Share Delivery Date"), the Company shall (A) if
legends are not required to be placed on certificates of Common Stock pursuant
to the then existing provisions of Rule 144 of the Securities Act of 1933 (“Rule
144”) and provided that the Transfer Agent is participating in the Depository
Trust Company's ("DTC") Fast Automated Securities Transfer Program, credit such
aggregate number of shares of Common Stock to which the Holder shall be entitled
to the Holder's or its designee's balance account with DTC through its Deposit
Withdrawal Agent Commission system or (B) if the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer Program, issue and
deliver to the address as specified in the Conversion Notice, a certificate,
registered in the name of the Holder or its designee, for the number of shares
of Common Stock to which the Holder shall be entitled which certificates shall
not bear any restrictive legends unless required pursuant the Rule 144. If this
Note is physically surrendered for conversion and the outstanding Principal of
this Note is greater than the Principal portion of the Conversion Amount being
converted, then the Company shall, upon request of the Holder, as soon as
practicable and in no event later than three (3) Business Days after receipt of
this Note and at its own expense, issue and deliver to the holder a new Note
representing the outstanding Principal not converted.  The Person or Persons
entitled to receive the shares of Common Stock issuable upon a conversion of
this Note shall be treated for all purposes as the record holder or holders of
such shares of Common Stock upon the transmission of a Conversion Notice.
 
 
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(ii)         Company's Failure to Timely Convert.  If within two (2) Trading
Days after the Company's receipt of the facsimile or email copy of a Conversion
Notice the Company shall fail to issue and deliver to Holder via “DWAC/FAST”
electronic transfer the number of shares of Common Stock to which the Holder is
entitled upon such holder's conversion of any Conversion Amount (a "Conversion
Failure"), the Original Principal Amount of the Note shall increase by $2,000
per day until the Company issues and delivers a certificate to the Holder or
credit the Holder's balance account with DTC for the number of shares of Common
Stock to which the Holder is entitled upon such holder's conversion of any
Conversion Amount (under Holder’s and Company’s expectation that any penalty
amounts will tack back to the Issuance Date). Company will not be subject to any
penalties (i) once its transfer agent processes the shares to the DWAC system,
or (ii) due to delays caused by the Holder’s failure to timely furnish an
opinion of its counsel in accordance with the provisions of Section 3(b). If the
Company fails to deliver shares in accordance with the timeframe stated in this
Section, resulting in a Conversion Failure, the Holder, at any time prior to
selling all of those shares, may rescind any portion, in whole or in part, of
that particular conversion attributable to the unsold shares and have the
rescinded conversion amount returned to the Principal Sum with the rescinded
conversion shares returned to the Company (under Holder’s and Company’s
expectations that any returned conversion amounts will tack back to the original
date of the Note).
 
(iii)        DWAC/FAST Eligibility. If the Company fails for any reason to
deliver to the Holder the Shares by DWAC/FAST electronic transfer (such as by
delivering a physical stock certificate), or if there is a Conversion Failure as
defined in Section 3(b)(ii), and if the Holder incurs a Market Price Loss, then
at any time subsequent to incurring the loss the Holder may provide the Company
written notice indicating the amounts payable to the Holder in respect of the
Market Price Loss and the Company must make the Holder whole by either of the
following options at Holder’s election:
 
Market Price Loss = [(High trade price for the period between the day of
conversion and the day the shares clear in the Holder’s brokerage account) x
(Number of shares receivable from the conversion)] – [(Net Sales price realized
by Holder) x (Number of shares receivable from the conversion)].
 
Option A – Pay Market Price Loss in Cash. The Company must pay the Market Price
Loss by cash payment, and any such cash payment must be made by the third
business day from the time of the Holder’s written notice to the Company.
 
Option B – Add Market Price Loss to Principal Sum. The Company must pay the
Market Price Loss by adding the Market Price Loss to the balance of the
Principal Sum (under Holder’s and the Company’s expectation that any Market
Price Loss amounts will tack back to the Issuance Date).
 
In the case that conversion shares are not deliverable by DWAC/FAST electronic
transfer an additional 10% discount to the Conversion Price will apply.
 
(iv)        DTC Eligibility. If the Company fails to maintain its status as “DTC
Eligible” for any reason, the Principal Amount of the Note shall increase by ten
thousand dollars ($10,000) (under Holder’s and Company’s expectation that any
Principal Amount increase will tack back to the Issuance Date). In addition, the
Conversion Price shall be redefined to equal the lesser of (a) $0.025 or (b) 50%
of the lowest trade occurring during the twenty five (25) consecutive Trading
Days immediately preceding the applicable Conversion Date on which the Holder
elects to convert all or part of this Note, subject to adjustment as provided in
this Note.
 
 
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(v)         Book-Entry. Notwithstanding anything to the contrary set forth
herein, upon conversion of any portion of this Note in accordance with the terms
hereof, the Holder shall not be required to physically surrender this Note to
the Company unless (A) the full Conversion Amount represented by this Note is
being converted or (B) the Holder has provided the Company with prior written
notice (which notice may be included in a Conversion Notice) requesting
reissuance of this Note upon physical surrender of this Note.  The Holder and
the Company shall maintain records showing the Principal and Interest converted
and the dates of such conversions or shall use such other method, reasonably
satisfactory to the Holder and the Company, so as not to require physical
surrender of this Note upon conversion.
 
(c)           Limitations on Conversions or Trading.
 
(i)          Beneficial Ownership.  The Company shall not effect any conversions
of this Note and the Holder shall not have the right to convert any portion of
this Note or receive shares of Common Stock as payment of interest hereunder to
the extent that after giving effect to such conversion or receipt of such
interest payment, the Holder, together with any affiliate thereof, would
beneficially own (as determined in accordance with Section 13(d) of the Exchange
Act and the rules promulgated thereunder) in excess of 4.99% of the number of
shares of Common Stock outstanding immediately after giving effect to such
conversion or receipt of shares as payment of interest.    Since the Holder will
not be obligated to report to the Company the number of shares of Common Stock
it may hold at the time of a conversion hereunder, unless the conversion at
issue would result in the issuance of shares of Common Stock in excess of 4.99%
of the then outstanding shares of Common Stock without regard to any other
shares which may be beneficially owned by the Holder or an affiliate thereof,
the Holder shall have the authority and obligation to determine whether the
restriction contained in this Section will limit any particular conversion
hereunder and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which portion of the
principal amount of this Note is convertible shall be the responsibility and
obligation of the Holder.  If the Holder has delivered a Conversion Notice for a
principal amount of this Note that, without regard to any other shares that the
Holder or its affiliates may beneficially own, would result in the issuance in
excess of the permitted amount hereunder, the Company shall notify the Holder of
this fact and shall honor the conversion for the maximum principal amount
permitted to be converted on such Conversion Date in accordance with Section
3(a) and, any principal amount tendered for conversion in excess of the
permitted amount hereunder shall remain outstanding under this Note. The
provisions of this Section may be waived by a Holder (but only as to itself and
not to any other Holder) upon not less than 65 days prior notice to the Company.
Other Holders shall be unaffected by any such waiver.
 
(d)           Other Provisions.
 
(i)          Share Reservation. The Company shall at all times reserve and keep
available out of its authorized Common Stock the full number of shares of Common
Stock issuable upon conversion of all outstanding amounts under this Note; and
within five (5) Business Days following the receipt by the Company of a Holder's
notice that such minimum number of Underlying Shares is not so reserved, the
Company shall promptly reserve a sufficient number of shares of Common Stock to
comply with such requirement. The Company will at all times reserve at least
6,500,000 shares of Common Stock for conversion.
 
 
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(ii)         Prepayment. At any time within the 180 day period immediately
following the Funding Date, the Company shall have the option, upon 3 business
days’ notice to Holder, to pre-pay the entire remaining outstanding principal
amount of this Note in cash, provided that (i) the Company shall pay the Holder
130% of the Outstanding Balance, (ii) such amount must be paid in cash on the
next business day following such 3 business day notice period, and (iii) the
Holder may still convert this Note pursuant to the terms hereof at all times
until such prepayment amount has been received in full.  Except as set forth in
this Section the Company may not prepay this Note in whole or in part.
 
(iii)        Terms of Future Financings.  So long as this Note is outstanding,
upon any issuance by the Company or any of its subsidiaries of any security with
any term more favorable to the holder of such security or with a term in favor
of the holder of such security that was not similarly provided to the Holder in
this Note, then the Company shall notify the Holder of such additional or more
favorable term and such term, at Holder’s option, shall become a part of the
transaction documents with the Holder.  The types of terms contained in another
security that may be more favorable to the holder of such security include, but
are not limited to, terms addressing conversion discounts, conversion lookback
periods, interest rates, original issue discounts, stock sale price, private
placement price per share, and warrant coverage.
 
(iv)        All calculations under this Section 3 shall be rounded up to the
nearest $0.00001 or whole share.
 
(v)         Nothing herein shall limit a Holder's right to pursue actual damages
or declare an Event of Default pursuant to Section 2 herein for the Company's
failure to deliver certificates representing shares of Common Stock upon
conversion within the period specified herein and such Holder shall have the
right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief,
in each case without the need to post a bond or provide other security. The
exercise of any such rights shall not prohibit the Holder from seeking to
enforce damages pursuant to any other Section hereof or under applicable law.
 
(vi)        PIGGYBACK REGISTRATION RIGHTS.  The Company shall include on the
next registration statement the Company files with SEC in connection with a
secondary public offering for distribution by an underwriter (pursuant to an
underwriting agreement between the underwriter and the Company) to the general
public (or on the subsequent registration statement if such registration
statement is withdrawn) all shares issuable upon conversion of this Note, to the
extent the underwriter determines there is enough demand for the shares being
offered without affecting the success of the offering, and, provided that the
inclusion of such shares issuable upon conversion will not cause the number of
shares originally intended to be offered to be reduced in order for the
registration statement to be declared effective.  Failure to do so will result
in liquidated damages of 25% of the outstanding principal balance of this Note,
but not less than $25,000, being immediately due and payable to the Holder at
its election in the form of cash payment or addition to the balance of this
Note.
 
 
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(4)           REISSUANCE OF THIS NOTE.
 
(a)           Assignability. The Company may not assign this Note.  This Note
will be binding upon the Company and its successors and will inure to the
benefit of the Holder and its successors and assigns and may be assigned by the
Holder to anyone of its choosing without Company’s approval, provided, however,
that such assignee must have an established track record of selling the
conversion shares issued to it from conversion of similar notes with other
issuers in an orderly manner so as to minimize stock price declines resulting
from the practice of rapidly selling high volumes of the conversion shares so
received. For this purpose, prior to effecting such an assignment, the Holder
shall arrange for the Company to make inquiries of at least two other prior
issuers of similar convertible notes to the intended assignee, to gain an
understanding of their experience with such assignee’s approach to disposition
of the shares received upon conversion.
 
(b)           Lost, Stolen or Mutilated Note.  Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Note, and, in the case of loss, theft or destruction, of
any indemnification undertaking by the Holder to the Company in customary form
and, in the case of mutilation, upon surrender and cancellation of this Note,
the Company shall execute and deliver to the Holder a new Note representing the
outstanding Principal.
 
(5)           NOTICES. Any notices, consents, waivers or other communications
required or permitted to be given under the terms hereof must be in writing and
will be deemed to have been delivered:  (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile (provided confirmation of
transmission is mechanically or electronically generated and kept on file by the
sending party) (iii) upon receipt, when sent by email; or (iv) one (1) Trading
Day after deposit with a nationally recognized overnight delivery service, in
each case properly addressed to the party to receive the same.  The addresses
and facsimile numbers for such communications shall be those set forth in the
communications and documents that each party has provided the other immediately
preceding the issuance of this Note or at such other address and/or facsimile
number and/or to the attention of such other person as the recipient party has
specified by written notice given to each other party three (3) Business Days
prior to the effectiveness of such change.  Written confirmation of receipt (i)
given by the recipient of such notice, consent, waiver or other communication,
(ii) mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (iii) provided by a nationally recognized overnight
delivery service, shall be rebuttable evidence of personal service, receipt by
facsimile or receipt from a nationally recognized overnight delivery service in
accordance with clause (i), (ii) or (iii) above, respectively.
 
The addresses for such communications shall be:

If to the Company, to:

Coates International, Ltd.
2100 Highway 34
Wall, NJ 07719
Attn: Barry C. Kaye, Chief Financial Officer
Email: bk@coatesengine.com
 
 
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If to the Holder:
 
                                                                
 
                                                                
 
                                                                
 
                                                                
 
Attn:
Email:

(6)           APPLICABLE LAW AND VENUE. This Note shall be governed by and
construed in accordance with the laws of the State of California, without giving
effect to conflicts of laws thereof.  Any action brought by either party against
the other concerning the transactions contemplated by this Agreement shall be
brought only in the state courts of California or in the federal courts located
in the city and county of San Diego, in the State of California. Both parties
and the individuals signing this Agreement agree to submit to the jurisdiction
of such courts.
 
(a)           WAIVER.  Any waiver by the Holder of a breach of any provision of
this Note shall not operate as or be construed to be a waiver of any other
breach of such provision or of any breach of any other provision of this Note.
The failure of the Holder to insist upon strict adherence to any term of this
Note on one or more occasions shall not be considered a waiver or deprive that
party of the right thereafter to insist upon strict adherence to that term or
any other term of this Note. Any waiver must be in writing.
 
[Signature Page Follows]
 
 
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IN WITNESS WHEREOF, the Company has caused this Convertible Note to be duly
executed by a duly authorized officer as of the date set forth above.

 
COMPANY:
 
 
Coates International, Ltd.
       
By:
/s/ Barry C. Kaye
 
Name:
Barry C. Kaye
 
Title:
Chief Financial Officer
       
HOLDER:
       
Black Mountain Equities, Inc.
       
By:
/s/ Adam Baker
 
Name:
Adam Baker
 
Title:
President

 
[Signature Page to Convertible Note No. COTE-1]
 
 
 

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EXHIBIT A
 
NOTICE OF CONVERSION
 
[Company Contact,
Position]                                                                                                                                            
[Company
Name]                                                                                                                                              
[Company
Address]                                                                                                                                              
[Contact Email
Address}                                                                                                                                            
 
The undersigned hereby elects to convert a portion of the $________ Convertible
Note _______ issued to Black Mountain Equities, Inc. on ____________ into Shares
of Common Stock of ____________ according to the conditions set forth in such
Note as of the date written below.
 
By accepting this notice of conversion, you are acknowledging that the number of
shares to be delivered represents less than 5% (five percent) of the common
stock outstanding.  If the number of shares to be delivered represents more than
4.99% of the common stock outstanding, this conversion notice shall immediately
automatically extinguish and debenture Holder must be immediately notified.

Date of Conversion:
   
Conversion Amount:
   
Conversion Price:
   
Shares to be Delivered:
   

 
Shares delivered in name of:
 
BLACK MOUNTAIN EQUITIES, INC.
 
Signature:
           
By:
 
 
Title:
 
  Black Mountain Equities, Inc.

 
 

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