Exhibit 10.1
 
 
[bslogo.jpg]
 
Black Swan Capital Group
 
 
May 2nd, 2011
 
Mr. George Coates
 
Chief Executive Officer
Coates International, Ltd.
2100 Highway 34 and Ridgewood Road Wall Township, NJ 07719-9738
 
Dear Mr. Coates:
 
Black Swan Capital Group, Inc. ("Lender") is pleased to offer financing for a
term debt as described in this commitment letter to Coates International, Ltd.
("Borrower"). This Commitment Letter shall supersede all prior correspondences,
commitments, all other communications relating to this financing arrangement
between the Borrower and the Lender. The outline of this offer is as follows:
 
Borrower: Coates International, Ltd.
 
Lender: Black Swan Capital Group, Inc.
 
Use of Proceeds: Proceeds of the Loan will be used as outlined in the use of
proceeds statement. Anticipated Closing Date: The Closing Date(s) is anticipated
to be no later than May 23rd, 2011.
 
Loan Amount: Not to exceed $10,000,000; Black Swan will initially fund $5
million at closing and borrower agrees to drawdown the remaining balance within
nine months after closing, upon a 30-day written notice.
 
Collateral: To secure the loan, Lender will require a perfected first lien and
security interest in all assets of Borrower, now owned or hereafter acquired,
including
cash, accounts receivable, inventory, machinery, equipment, furniture,
fixtures, tools, copyrights, licenses, patents, trademarks, trade-names, other
intellectual property, leases, leasehold improvements, general intangibles, and
all other assets.
 
Subject to the right of first offer set forth below, Lender agrees it will
subordinate its interest in accounts receivable and inventory of Borrower and
proceeds thereof , if required by another lender in connection with a working
capital line of credit subject to a subordination agreement acceptable to
Lender.
 
Interest Rate: 10.00% per annum.
 
Closing Fee: 3.5%
 
Loan Payments: Payments of principal and interest will be due on a monthly
basis.
 
Right of First Offer: If and when, during the term of the Loan, Borrower seeks a
revolving working capital financing secured by its accounts receivable, Borrower
will so notify Lender and permit Lender to make a proposal to provide such
financing. Lender must reply to Borrower's notice within 15 days of the date of
such notice, indicating whether Lender accepts for declines to make such
proposal. Borrower will be required to accept Lender's proposal if the terms and
conditions of the proposal are no less favorable to Borrower than any other
proposal received by Borrower.
 
 
1

--------------------------------------------------------------------------------

 
 
[bslogo.jpg]
 
Black Swan Capital Group
 
Loan Prepayment: Borrower may prepay the Loan any time. There would be a
prepayment penalty according to the following:
 
5% if prepaid during the first twelve month period post-closing. 4% if prepaid
during the second twelve month period post-closing.
 
Conditions Precedent to Funding: 1. No material adverse change in the financial
condition, operations or prospects of the Borrower prior to funding. 2.
Completion of the documentation and final terms of the proposed financing
satisfactory to Lender and Lender's counsel. 3. Results of all legal due
diligence, including lien, judgment and tax search and other matters Lenders may
request shall be satisfactory to Lender and Lender's counsel. 4. Borrower must
be on track to produce at least $15MM in Revenue after the production and sale
of product. 5. Lender shall receive a valid and perfected first priority lien
and security interest in all Assets of the company and Lender shall have
received satisfactory evidence there are no liens on the Assets except as
expressly permitted herein.
 
Fees and Expenses: The Borrower will be responsible for the Lender's reasonable
expenses in connection with the transaction up to $25,000.00
 
Law: This letter and the proposed Loan are intended to be governed by and
constructed in accordance with Colorado law without regard to its conflict of
law provisions.
 
Indemnity: Borrower agrees to indemnify and to hold harmless Lender, and its
officers, directors and employees against all claims, damages, liabilities and
expenses which may be incurred by or asserted against any such person in
connection with or arising out of this letter and the transactions contemplated
hereby, other than claims, damages, liability, and expense resulting from such
person's gross negligence or willful misconduct.
 
Confidentiality: This letter is delivered to you with the understanding neither
it nor its substance shall be disclosed publicly or privately to any third
person except those who are in a confidential relationship to you (such as your
legal counsel and accounts), or where the same is required by law (including all
applicable federal and state securities laws), which conditions Borrower and its
agents agree to be bound by upon acceptance of this letter.
 
Conditions of Acceptance: This Commitment Letter is intended to be a summary of
the most important elements of the agreement to enter into a loan transaction
with Borrower and it is subject to all requirements and conditions contained in
Loan documentation proposed by Lender or its counsel in the course of closing
the loan described herein. Not every provision imposes duties, obligations,
burdens, or limitations on Borrower is contained herein, but shall be contained
in the final Loan documentation satisfactory to Lender and its counsel.
 
 
2

--------------------------------------------------------------------------------

 
 
[bslogo.jpg]
 
Black Swan Capital Group
 
 
Commitment Expiration: This commitment shall expire on May 9th, 2011, unless
prior thereto either extended in writing by the Lender or accepted as provided
below by the Borrower. Should you have any questions, please call me. If you
wish to accept this Commitment, please so indicate by signing and returning the
enclosed duplicate copy of this letter to me by May 9th, 2011.
 
Yours truly,
 
 
Black Swan Capital Group, Inc.
            By: /s/ Elliott Boston      
Elliott Boston
     
Managing Director
           
Agreed and Accepted Coates International, Ltd.
           
By:
/s/ George Coates      
George Coates
     
Chief Executive Officer
   

 
 
 
3

--------------------------------------------------------------------------------

 
 
[bslogo.jpg]
 
Black Swan Capital Group
 
 
SUMMARY OF TERMS AND CONDITIONS
 
$10,000,000 TERM DEBT CREDIT FACILITY
 
May 2nd, 2011
 
BORROWER: Coates International, Ltd. (the "Borrower"). LENDERS: Black Swan
Capital Group, Inc.
 
FACILITY: A $10,000,000 term debt credit facility (the "Facility").
 
MATURITY DATE: The Facility shall terminate and all amounts outstanding
thereunder shall be due and payable in full upon the second (2nd) anniversary of
the closing date of the Facility (the "Maturity Date").
 
PURPOSE: The Facility shall be used (i) for general corporate purposes of the
Borrower and its subsidiaries, including, without limitation, working capital,
capital expenditures in the ordinary course of business and permitted
acquisitions, and (ii) to pay fees and expenses related to the Facility.
 
INTEREST AND EXPENSES: See Addendum I.
 
FINANCIAL REPORTING: Borrower shall timely file all annual and quarterly reports
with the SEC. Upon request from the lender, Borrower shall provide Lender with
Key Performance Indicators such as number of units shipped and gross revenues
within 30-Days of closing of its financial books and records. All information
furnished by Borrower shall be strictly confidential "Insider Information"
 
CONDITIONS PRECEDENT TO CLOSING: Customary for facilities of this nature,
including, but not limited to, credit documentation consistent with the terms
herein or otherwise reasonably satisfactory to the Lender; legal opinions and
other closing documentation consistent with the terms herein or otherwise
reasonably satisfactory to the Lender; all governmental, shareholder, corporate
and third party consents shall have been obtained or waived; no material
financial adverse change in the company, including no new material pending or
threatened litigation the Company has not disclosed, bankruptcy, or other
proceeding; satisfactory review of all corporate documentation and other legal
due diligence.
 
REPRESENTATIONS AND WARRANTIES: Customary for facilities of this nature,
including, but not limited to, corporate existence; corporate and governmental
authorization; enforceability; financial information; no material adverse
changes; compliance with laws and agreements (including environmental
laws);compliance with ERISA; solvency; title to assets; material contracts; no
material litigation; payment of taxes; financial condition; and full disclosure.
 
AFFIRMATIVE COVENANTS: Customary for facilities of this nature, including, but
not limited to, receipt of financial information; notification of litigation,
investigations, and other adverse changes; payment and performance of
obligations; conduct of business; maintenance of existence; maintenance of
property and insurance (including hazard and business interruption coverage);
maintenance of records and accounts; inspection of property and books and
records; compliance with laws (including environmental laws); payment of taxes;
and ERISA.
 
 
4

--------------------------------------------------------------------------------

 
 
[bslogo.jpg]
 
Black Swan Capital Group
 
 
FINANCIAL COVENANTS: Financial covenants will be finalized upon the issuance of
the loan documents and will include the following:
 
(i) a minimum Tangible Net Worth shall be maintained in the amount; Tangible Net
Worth shall mean the sum of the following: Capital, Capital Surplus and Retained
Earnings, less the sum of the value on Borrower's books of all intangible
assets, including, but not limited to, goodwill, patents, franchises,
trademarks, copyrights and the write-up in the book value of any assets
resulting there from after acquisition;
 
(ii) a minimum current ratio, calculated by dividing Borrower's Current Assets
by Borrower's Current Liabilities, shall be maintained;
 
(iii) a minimum Working Capital shall be maintained, where “Working Capital”
shall mean Borrower's Current Assets less Borrower's Current Liabilities; and
 
(iv) a minimum interest coverage ratio calculated by dividing Borrower's Total
Earnings before interest and taxes by Borrower's Total Interest Expense.
 
NEGATIVE COVENANTS: Customary for facilities of this nature, including but not
limited to, restrictions and limitations (subject to customary exceptions and
baskets to be mutually agreed upon) on: indebtedness; liens; guaranty
obligations; changes in business; mergers; sales of assets; acquisitions (other
than permitted acquisitions as described below); loans, advances and
investments; transactions with affiliates-(with the exception of the normal
course of business); sale and leaseback transactions; prepayments of or material
amendments to indebtedness (including, without limitation, repayment of any
subordinated debt; except Borrower may make prepayments of outstanding
convertible notes in an amount up to $275,000); restrictive agreements;
dividends and repurchases of the stock of the Borrower (other than permitted
dividends and stock repurchases as described below and changes in fiscal year or
accounting method. So long as (1) no default or event of default shall have
occurred and be continuing; (2) the Borrower will have at least $250,000 of cash
on hand after giving effect to any dividend payments or any repurchases of stock
of the Borrower, the Borrower may pay dividends and make stock repurchases at
any time.
 
ADDITIONAL INDEBTEDNESS: No additional debt (except for Payables) in the normal
course shall be incurred by Coates International, Ltd. without written approval
of Lender. Coats will be permitted to make capital expenditures in connection
with expending its manufacturing capacity by means of acquiring or building a
facility in order to increase its productions capacity.
 
EVENTS OF DEFAULT: Customary events of default (and cure periods) for facilities
of this nature, including, but not limited to: failure to pay any interest,
principal or fees under the Facility when due; failure to perform any covenant
or agreement; inaccurate or false representation or warranties; cross defaults
(including cross-defaults to defaults under material contracts such that it
results in a lien ); actual or asserted invalidity (by the Borrower or any other
loan party) the Lenders; insolvency or bankruptcy; ERISA; judgment defaults;
change in control; and any other events of default deemed reasonably necessary
by the Lenders in the context of the proposed transaction.
 
WAIVERS AND AMENDMENTS: Amendments and waivers of the provisions of the credit
agreement and other definitive credit documentation will require the approval of
the Borrower and the Required Lenders, except that the consent of all the
Lenders affected thereby shall be required with respect to (i) increases in the
commitment of such Lenders, (ii) reductions of principal, interest or fees
(other than the permitted reductions described herein), (iii) extensions of
scheduled maturities or times for payment, and (iv) releases of guarantees of
the Facility, if any.
 
 
5

--------------------------------------------------------------------------------

 
 
[bslogo.jpg]
 
Black Swan Capital Group
 
 
INDEMNIFICATION: Consistent with customary practice for transactions of this
nature, the Borrower shall indemnify the Lender and their respective affiliates
from and against all losses, liabilities, claims, damages or expenses arising
out of or relating to the Facility, the Borrower's use of the loan proceeds or
the commitments, including, but not limited to, reasonable attorney's fees and
settlement costs; provided, the Borrower shall not be required to reimburse any
lender for legal or other fees and expenses incurred in connection with the
negotiation and closing of the definitive closing documentation executed and
delivered at closing. This indemnification shall survive and continue for the
benefit of the indemnitees at all times after the Borrower's acceptance of the
Lenders' commitments for the Facility, notwithstanding any failure of the
Facility to close.
 
STOCK PLEDGE: Company will pledge unregistered and restricted common shares of
stock equal to the value of the term debt facility in an escrow account.
Pursuant to Rule 144 of the Securities Act of 1933, these shares shall generally
be eligible to be traded on the open market in reliance on an exemption
thereunder from registration after satisfaction of a six-month holding period.
 
WAIVER OF JURY TRIAL AND GOVERNING LAW: Waiver of jury trial, submission to
jurisdiction in Denver, Colorado and mandatory binding arbitration in Denver,
Colorado; Colorado law (without reference to choice of law provisions) to
govern.
 
MISCELLANEOUS: This summary of terms and conditions does not purport to
summarize all the conditions, covenants, representations, warranties and other
provisions which would be contained in definitive credit documentation for the
Facility contemplated hereby.
 
 
 
6

--------------------------------------------------------------------------------

 
 
[bslogo.jpg]
 
Black Swan Capital Group
 
ADDENDUM I
 
INTEREST AND EXPENSES
 
INTEREST RATE: The Borrower's Interest Rate will be 10.00% for the term of the
loan.
 
DEFAULT RATE INTEREST: Upon the occurrence and during the continuance of any
payment event of default or, at the option of the Lender, upon the occurrence
and during the continuance of any other event of default, (i) the Borrower shall
no longer have the option to request the base rate of 10%, (ii) all amounts due
and payable with respect to the base rate shall bear interest at a rate per
annum of five-percent (5%) in excess of the rate after the cure period has
expired.
 
EXPENSES: The Borrower shall be responsible for all reasonable legal and other
out-of-pocket expenses incurred by the Lender related to due diligence performed
by the Lender in connection with the transaction, the execution of the loan
documentation, and future administration of the definitive credit documentation
up to $25,000.00
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7