EXHIBIT 10.1

 

COATES INTERNATIONAL, LTD.

10% CONVERTIBLE REDEEMABLE PROMISSORY NOTE

 

Effective Date January 4, 2016 US $33,000.00

 

Due January 4, 2016

 

 

THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN AND WILL NOT BE REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION
FROM REGISTRATION PROVIDED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE
RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT”)

 

 

FOR VALUE RECEIVED, Coates International, Ltd., (the “Company”) promises to pay
to the order of GW Holdings Group, LLC, and its authorized successors and
permitted assigns ("Holder"), the aggregate principal face amount of Thirty
Three Thousand Dollars exactly (U.S. $33,000.00) on January 4, 2017 ("Maturity
Date"). The Company will pay interest on the principal amount outstanding at the
rate of 10% per annum, which will commence on January 4, 2016. The interest will
be paid to the Holder in whose name this Note is registered on the records of
the Company regarding registration and transfers of this Note. The principal of,
and interest on, this Note are payable at 137 Montague Street, Suite 291,
Brooklyn, NY 11201, initially, and if changed, last appearing on the records of
the Company as designated, in writing, by the Holder hereof from time to time.
The Company will pay each interest payment and the outstanding principal due
upon this Note before or on the Maturity Date, less any amounts required by law
to be deducted or withheld, to the Holder of this Note by check or wire transfer
addressed to such Holder at the last address appearing on the records of the
Company. The forwarding of such check or wire transfer shall constitute a
payment of outstanding principal hereunder and shall satisfy and discharge the
liability for principal on this Note to the extent of the sum represented by
such check or wire transfer. Interest shall be payable in Common Stock (as
defined below) pursuant to paragraph 4(b) herein.

 

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This Note is subject to the following additional provisions:

 

1.            This Note is exchangeable for an equal aggregate principal amount
of Notes of different authorized denominations, as requested by the Holder
surrendering the same. No service charge will be made for such registration or
transfer or exchange, except that Holder shall pay any tax or other governmental
charges payable in connection therewith.

 

2.           Under all applicable laws, the Company shall be entitled to
withhold any amounts from all payments it is entitled to.

 

3.           This Note may only be transferred or exchanged in compliance with
the Securities Act of 1933, as amended ("Act") and any applicable state
securities laws. Any transfer or exchange shall require the prior written
consent of the Company; which consent shall not be unreasonably withheld. All
attempts to transfer to a non-qualifying party shall be treated by the Company
as void. Prior to due presentment for transfer of this Note, the Company and any
agent of the Company may treat the person in whose name this Note is duly
registered on the Company's records as the owner hereof for all other purposes,
whether or not this Note be overdue, and neither the Company nor any such agent
shall be affected or bound by notice to the contrary. Any Holder of this Note
electing to exercise the right of conversion set forth in Section 4(a) hereof,
in addition to the requirements set forth in Section 4(a), and any prospective
transferee of this Note, also is required to give the Company written
confirmation that this Note is being converted ("Notice of Conversion") in the
form annexed hereto as Exhibit A. The date of receipt (including receipt by
telecopy) of such Notice of Conversion shall be the Conversion Date.

  

4.           (a)           The Holder of this Note has the option, at any time
beginning six months after the funding date of this note, to convert all or any
amount of the principal face amount of this Note then outstanding into shares of
the Company's common stock (the "Common Stock") at a price ("Conversion Price")
for each share of Common Stock will be equal to the Market Price (“Market
Price”) on the date of conversion. The Market Price of the Common Stock will be
equal to 62% of the lowest trading price of the Common Stock as reported on the
National Quotations Bureau OTC Pink on which the Company’s shares are traded or
any exchange upon which the Common Stock may be traded in the future
("Exchange"), for the twenty-five prior trading days, including the day upon
which a Notice of Conversion is received by the Company (provided such Notice of
Conversion is delivered by fax or other electronic method of communication to
the Company after 4 P.M. Eastern Standard or Daylight Savings Time if the Holder
wishes to include the same day closing price). The Notice of Conversion may be
rescinded if the shares have not been delivered within 3 business days. The
Company shall deliver the shares of Common Stock to the Holder within 3 business
days of receipt by the Company of the Notice of Conversion. Upon full
satisfaction of this Note, the Holder shall surrender this Note to the Company.
Accrued but unpaid interest shall be subject to conversion. The number of
issuable shares will be rounded to the nearest whole share, and no fractional
shares or scrip representing fractions of shares will be issued on conversion.
In the event the Company experiences a DTC “Chill” on its shares, the conversion
price shall decrease to 40% while that “Chill” is in effect. Notwithstanding
anything to the contrary contained in the Note (except as set forth below in
this Section), the Note shall not be convertible by Investor, and Company shall
not effect any conversion of the Note or otherwise issue any shares of Common
Stock to the extent (but only to the extent) that Investor together with any of
its affiliates would beneficially own in excess of 9.99% (the “Maximum
Percentage”) of the Common Stock outstanding. To the extent the foregoing
limitation applies, the determination of whether a Note shall be convertible
(vis-à-vis other convertible, exercisable or exchangeable securities owned by
Investor or any of its affiliates) and of which such securities shall be
convertible, exercisable or exchangeable (as among all such securities owned by
Investor and its affiliates) shall, subject to such Maximum Percentage
limitation, be determined on the basis of the first submission to Company for
conversion, exercise or exchange (as the case may be). No prior inability to
convert a Note, or to issue shares of Common Stock, pursuant to this Section
shall have any effect on the applicability of the provisions of this Section
with respect to any subsequent determination of convertibility. For purposes of
this Section, beneficial ownership and all determinations and calculations
(including, without limitation, with respect to calculations of percentage
ownership) shall be determined in accordance with Section 13(e) of the 1934 Act
(as defined below) and the rules and regulations promulgated thereunder. The
provisions of this Section shall be implemented in a manner otherwise than in
strict conformity with the terms of this Section to correct this Section (or any
portion hereof) which may be defective or inconsistent with the intended Maximum
Percentage beneficial ownership limitation herein contained or to make changes
or supplements necessary or desirable to properly give effect to such Maximum
Percentage limitation. The limitations contained in this Section shall apply to
a successor holder of this Note and shall be unconditional, irrevocable and
non-waivable. For any reason at any time, upon the written or oral request of
Investor, Company shall within one (1) business day confirm orally and in
writing to Investor the number of shares of Common Stock then outstanding,
including by virtue of any prior conversion or exercise of convertible or
exercisable securities into Common Stock, including, without limitation,
pursuant to this Note. During the first six months, this Note is in effect, the
Investor may not convert this Note pursuant to this paragraph.

 

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(b)           Interest on any unpaid principal balance of this Note shall be
paid at the rate of 10% per annum. Interest shall be paid by the Company in
Common Stock ("Interest Shares"). Holder may send in a Notice of Conversion to
the Company for Interest Shares based on the formula provided in Section 4(a)
above. The dollar amount converted into Interest Shares shall be all or a
portion of the accrued interest calculated on the unpaid principal balance of
this Note to the date of such notice.

 

(c)           During the first 180 days this Note is in effect, the Company may
redeem this Note at any time at an amount equal to 150% of the outstanding
principal and the accrued and unpaid interest. This Note may not be redeemed
after 180 days. The redemption must be closed and paid for within 3 business
days of the Company sending the redemption demand or the redemption will be
invalid and the Company may not redeem this Note.

 

(d)           Upon (i) a transfer of all or substantially all of the assets of
the Company to any person in a single transaction or series of related
transactions, (ii) a reclassification, capital reorganization or other change or
exchange of outstanding shares of the Common Stock, other than a forward or
reverse stock split or stock dividend, or (iii) any consolidation or merger of
the Company with or into another person or entity in which the Company is not
the surviving entity (other than a merger which is effected solely to change the
jurisdiction of incorporation of the Company and results in a reclassification,
conversion or exchange of outstanding shares of Common Stock solely into shares
of Common Stock) (each of items (i), (ii) and (iii) being referred to as a "Sale
Event"), then, in each case, the Company shall, upon request of the Holder,
redeem this Note, at the option of the Company in cash or Common Stock for 150%
of the principal amount, plus accrued but unpaid interest through the date of
redemption, or at the election of the Holder, such Holder may convert the unpaid
principal amount of this Note (together with the amount of accrued but unpaid
interest) into shares of Common Stock immediately prior to such Sale Event at
the Conversion Price.

 

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(e)           In case of any Sale Event (not to include a sale of all or
substantially all of the Company’s assets) in connection with which this Note is
not redeemed or converted, the Company shall cause effective provision to be
made so that the Holder of this Note shall have the right thereafter, by
converting this Note, to purchase or convert this Note into the kind and number
of shares of stock or other securities or property (including cash) receivable
upon such reclassification, capital reorganization or other change,
consolidation or merger by a holder of the number of shares of Common Stock that
could have been purchased upon exercise of the Note and at the same Conversion
Price, as defined in this Note, immediately prior to such Sale Event. The
foregoing provisions shall similarly apply to successive Sale Events. If the
consideration received by the holders of Common Stock is other than cash, the
value shall be as determined by the Board of Directors of the Company or
successor person or entity acting in good faith.

 

5.         No provision of this Note shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of, and
interest on, this Note at the time, place, and rate, and in the form, herein
prescribed.

 

6.         The Company hereby expressly waives demand and presentment for
payment, notice of non-payment, protest, notice of protest, notice of dishonor,
notice of acceleration or intent to accelerate, and diligence in taking any
action to collect amounts called for hereunder and shall be directly and
primarily liable for the payment of all sums owing and to be owing hereto.

 

7.         The Company agrees to pay all costs and expenses, including
reasonable attorneys' fees and expenses, which may be incurred by the Holder in
collecting any amount due under this Note.

 

8.         If one or more of the following described "Events of Default" shall
occur:

 

(a)           The Company shall default in the payment of principal or interest
on this Note or any other note issued to the Holder by the Company; or

 

(b)           Any of the representations or warranties made by the Company
herein or in any certificate or financial or other written statements heretofore
or hereafter furnished by or on behalf of the Company in connection with the
execution and delivery of this Note, or the Securities Purchase Agreement under
which this note was issued shall be false or misleading in any respect; or

 

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 (c)           The Company shall fail to perform or observe, in any respect, any
covenant, term, provision, condition, agreement or obligation of the Company
under this Note or any other note issued to the Holder; or

 

 (d)           The Company shall (1) become insolvent; (2) admit in writing its
inability to pay its debts generally as they mature; (3) make an assignment for
the benefit of creditors or commence proceedings for its dissolution; (4) apply
for or consent to the appointment of a trustee, liquidator or receiver for its
or for a substantial part of its property or business; (5) file a petition for
relief, consent to the filing of such petition or have filed against it an
involuntary petition for bankruptcy relief, all under federal or state laws as
applicable; or

 

 (e)           A trustee, liquidator or receiver shall be appointed for the
Company or for a substantial part of its property or business without its
consent and shall not be discharged within sixty (60) days after such
appointment; or

 

(f)            Any governmental agency or any court of competent jurisdiction at
the instance of any governmental agency shall assume custody or control of the
whole or any substantial portion of the properties or assets of the Company; or

 

 (g)         One or more money judgments, writs or warrants of attachment, or
similar process, in excess of One Hundred thousand dollars ($100,000) in the
aggregate, shall be entered or filed against the Company or any of its
properties or other assets and shall remain unpaid, unvacated, unbonded or
unstayed for a period of fifteen (15) days or in any event later than five (5)
days prior to the date of any proposed sale thereunder; or

 

 (h)         The Company shall have defaulted on or breached any term of any
other note of similar debt instrument into which the Company has entered and
failed to cure such default within the appropriate grace period; or

 

 (i)          The Company shall have its Common Stock delisted from an exchange
(including the OTCBB exchange) or, if the Common Stock trades on an exchange,
then trading in the Common Stock shall be suspended for more than 10 consecutive
days;

 

 (j)          If a majority of the members of the Board of Directors of the
Company on the date hereof are no longer serving as members of the Board;

 

 (k)         The Company shall not deliver to the Holder the Common Stock
pursuant to paragraph 4 herein without restrictive legend within 3 business days
of its receipt of a Notice of Conversion. The Company must replenish the reserve
set forth in section 12, promptly; or

 

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 (l)           The Company shall not replenish the reserve set forth in Section
12, within 3 business days of the request of the Holder. If the Company does not
replenish the reserve set forth in Section 12, within 5 business days of the
request of the Holder then the conversion discount set forth in Section 4(a)
shall be increased from a 38% conversion discount to a 60% conversion discount;
or

 

 (m)         The Company shall not be “current” in its filings with the
Securities and Exchange Commission; or

 

 (n)          The Company shall lose the “bid” price for its stock in a market
(including the OTC Pink marketplace or other exchange); or

 

 (o)          A default has been declared against the Company which has not been
cured in any other loan or Note agreement.

 

Then, or at any time thereafter, unless cured within 5 days, and in each and
every such case, unless such Event of Default shall have been waived in writing
by the Holder (which waiver shall not be deemed to be a waiver of any subsequent
default) at the option of the Holder and in the Holder's sole discretion, the
Holder may consider this Note immediately due and payable, without presentment,
demand, protest or (further) notice of any kind (other than notice of
acceleration), all of which are hereby expressly waived, anything herein or in
any note or other instruments contained to the contrary notwithstanding, and the
Holder may immediately, and without expiration of any period of grace, enforce
any and all of the Holder's rights and remedies provided herein or any other
rights or remedies afforded by law. Upon an Event of Default, interest shall
accrue at a default interest rate of 24% per annum or, if such rate is usurious
or not permitted by current law, then at the highest rate of interest permitted
by law. In the event of a breach of Section 8(k) the penalty shall be $250 per
day the shares are not issued beginning on the 4th day after the conversion
notice was delivered to the Company. This penalty shall increase to $500 per day
beginning on the 10th day. The penalty for a breach of Section 8(n) shall be an
increase of the outstanding principal amounts by 20%. In case of a breach of
Section 8(i), (k) or (l), the outstanding principal due under this Note shall
increase by 50%. If this Note is not paid at maturity, the outstanding principal
due under this Note shall increase by 10%.

 

If the Holder shall commence an action or proceeding to enforce any provisions
of this Note, including, without limitation, engaging an attorney, then if the
Holder prevails in such action, the Holder shall be reimbursed by the Company
for its attorneys’ fees and other costs and expenses incurred in the
investigation, preparation and prosecution of such action or proceeding.

 

At the Holder’s election, if the Company fails for any reason to deliver to the
Holder the conversion shares by the by the 3rd business day following the
delivery of a Notice of Conversion to the Company and if the Holder incurs a
Failure to Deliver Loss, then at any time the Holder may provide the Company
written notice indicating the amounts payable to the Holder in respect of the
Failure to Deliver Loss and the Company must make the Holder whole as follows:

 

Failure to Deliver Loss = [(High trade price at any time on or after the day of
exercise) x (Number of conversion shares)]

 

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The Company must pay the Failure to Deliver 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.

 

9.           In case any provision of this Note is held by a court of competent
jurisdiction to be excessive in scope or otherwise invalid or unenforceable,
such provision shall be adjusted rather than voided, if possible, so that it is
enforceable to the maximum extent possible, and the validity and enforceability
of the remaining provisions of this Note will not in any way be affected or
impaired thereby.

 

10.         Neither this Note nor any term hereof may be amended, waived,
discharged or terminated other than by a written instrument signed by the
Company and the Holder.

 

11.         The Company represents that it is not a “shell” issuer and has never
been a “shell” issuer or that if it previously has been a “shell” issuer that at
least 12 months have passed since the Company has reported form 10 type
information indicating it is no longer a “shell issuer. Further. The Company
will instruct its counsel to either (i) write a 144- 3(a)(9) opinion to allow
for salability of the conversion shares or (ii) accept such opinion from
Holder’s counsel.

 

12.         The Company shall reserve 93,000,000 shares of its Common Stock for
conversions under this Note (the “Share Reserve”). The Investor shall have the
right to periodically request that the number of Reserved Shares be increased so
that the number of Reserved Shares at least equals 400% of the number of shares
of Company common stock issuable upon conversion of the Note. Upon full
conversion of this Note, any shares remaining in the Share Reserve shall be
cancelled. The Company shall pay all costs associated with issuing and
delivering the shares. At all times, the reserve shall be maintained at four
times the amount of shares required if the Note would be fully converted.

 

13.         The Company will give the Holder direct notice of any corporate
actions, including but not limited to name changes, stock splits,
recapitalizations etc. This notice shall be given to the Holder as soon as
possible under law.

 

14.         This Note shall be governed by and construed in accordance with the
laws of New York applicable to contracts made and wholly to be performed within
the State of New York and shall be binding upon the successors and assigns of
each party hereto. The Holder and the Company hereby mutually waive trial by
jury and consent to exclusive jurisdiction and venue in the courts of the State
of New York. This Agreement may be executed in counterparts, and the facsimile
transmission of an executed counterpart to this Agreement shall be effective as
an original.

 

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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by an
officer thereunto duly authorized.

 

Dated: January 4, 2016

 

  COATES INTERNATIONAL, LTD.         By: /s/   Barry C. Kaye    Name: Barry C.
Kaye    Title: Chief Financial Officer

 

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EXHIBIT A

 

NOTICE OF CONVERSION

 

(To be Executed by the Registered Holder in order to Convert the Note)

 

The undersigned hereby irrevocably elects to convert $___________ of the above
Note into _________ Shares of Common Stock of Coats International, Ltd.
(“Shares”) according to the conditions set forth in such Note, as of the date
written below.

 

If Shares are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer and other taxes and charges payable with
respect thereto.

 

Date of Conversion: ________________________________________________________

Applicable Conversion Price: _________________________________________________

Signature: _______________________________________________________________

                                [Print Name of Holder and Title of Signer]

Address: _________________________________________________________________

               _________________________________________________________________

 

SSN or EIN: _______________________

Shares are to be registered in the following name:
________________________________________________________

 

Name: ____________________________________________________________________

Address: __________________________________________________________________

Tel: ___________________________

Fax: ___________________________

SSN or EIN: ____________________

 

Shares are to be sent or delivered to the following account:

 

Account Name: _____________________________________________________________

Address: ___________________________________________________________________

 

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