ex101.htm


    PLACEMENT
      AGENCY AGREEMENT

     

    This
      Placement Agency Agreement (this “Agreement”) is made and entered into as of
      December 21, 2007 (the “Effective Date”), by and between Coates International,
      Ltd. a Delaware corporation (the “Company”), and Stonegate Securities, Inc., a
      Texas corporation (“Stonegate”).

     

    WHEREAS,
      the Company desires to retain Stonegate as its placement agent, and Stonegate
      is
      willing to act in such capacity, in each case subject to the terms and
      conditions of this Agreement.

     

    NOW,
      THEREFORE, in consideration of the premises and the mutual covenants herein
      contained, the Company and Stonegate (each a “Party” and collectively, the
“Parties”) hereby agree as follows:

     

    
      	
              1.  

            	
              RETENTION
                OF STONEGATE; SCOPE OF SERVICES.

            


    

     

    
      	
              (a)  

            	
              Subject
                to the terms and conditions set forth herein, the Company hereby
                retains
                Stonegate to act as the placement agent to the Company during the
                Contract
                Period (as defined in Section 2 below), and Stonegate hereby agrees
                to be
                so retained.

            


    

     

    
      	
              (b)  

            	
              During
                the Exclusivity Period (as defined in Section 2(a) below), as the
                exclusive placement agent to the Company, Stonegate will have the
                exclusive right to identify for the Company prospective purchasers
                (collectively, the “Purchasers” and each individually, a “Purchaser”) in
                one or more placements  (each, a “Placement” and collectively,
                the “Placements”) of debt and/or equity securities to be issued by the
                Company, the type and dollar amount being as mutually agreed to by
                the
                Parties (the “Securities”).  During the period of exclusivity
                Stonegate shall be the Company’s sole and only placement agent as to
                Securities. This provision shall not in any way prevent the Company
                from
                issuing new shares of capital stock or convertible securities in
                connection with (i) private transactions directly with individuals
                introduced by the Company and its management, (ii) ongoing sales
                of shares
                of common stock registered for resale to Dutchess Private Equities
                Fund,
                Ltd. (“Dutchess”) or its affiliates, or (iii) transactions with affiliates
                as defined by the Securities and Exchange Commission (“SEC”) rules and
                regulations, (iv) in connection with the conversion of convertible
                securities, or (v) granting of stock options and/or warrants to employees
                and other third parties pursuant to the Company’s 2006 Stock Option and
                Incentive Plan (the “Stock Option
                Plan”).

            


    

     

    
      	
              (c)  

            	
              After
                the Exclusivity Period, as the non-exclusive placement agent to the
                Company, Stonegate will have the non-exclusive right during the Contract
                Period to identify for the Company prospective Purchasers in one
                or more
                Placements of Securities, the type and dollar amount being as mutually
                agreed to by the Parties.

            


    

     

    
      	
              (d)  

            	
              Terms
                of the Placements shall be as set forth in subscription documents,
                including any stock purchase or subscription agreement, escrow agreement,
                registration rights agreement, warrant agreement and/or other documents
                to
                be executed and delivered in connection with each Placement (collectively,
                the “Subscription Documents”).  The Placements are intended to
                be exempt from the registration requirements of the Securities Act
                of
                1933, as amended (the “Securities Act”), pursuant to Regulation D
                (“Regulation D”) of the rules and regulations of the Securities and
                Exchange Commission (the “SEC”) promulgated under the Securities
                Act.

            


    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              (e)  

            	
              Stonegate
                will act on a best efforts basis and will have no obligation to purchase
                any of the Securities offered in any Placement. During the Contract
                Period, Stonegate shall have the right to arrange for all sales of
                Securities in the Placements, including without limitation the exclusive
                right to identify potential buyers for the Securities.  All
                sales of Securities in the Placements shall be subject to the approval
                of
                the Company, which approval may be withheld in the Company’s sole
                discretion for any reason.

            


    

     

    
      	
              (f)  

            	
              The
                Company may disclose the terms and conditions of this Agreement,
                including
                all exhibits and attachments hereto, if any in connection with any
                press
                release of document filed with the Securities and Exchange Commission
                such
                as Forms 8-K, 10-KSB, 10-QSB or registration statements, among others
                (“SEC Filings”).  The Company may file this Agreement, including
                all exhibits and attachments hereto, as Exhibits to any SEC
                filings.   However, unless required to do so by law or to
                comply with rules and regulations of the SEC, the Company shall keep
                confidential this Agreement, its terms and conditions, and all other
                information and documents provided to the Company by Stonegate, including,
                but not limited to, the identity of any potential investor, and the
                contents of any term sheet, solicitation, investor list, investor
                indication of interest, road show list, and any similar
                document.

            


    

     

    
      	
              (g)  

            	
              The
                Company shall notify Stonegate of any solicitations the Company receives
                from a third party in regard to prospective Purchasers or prospective
                Placements during the Exclusivity Period (the “Exclusivity Period
                Contacts”).  The foregoing applies only in the event the
                solicitation contains proposed or possible terms of a potential
                agreement.  Additionally, for a period of one (1) year after the
                end of the Contract Period, in the event that the Company enters
                into any
                agreement, transaction or arrangement with any Exclusivity Period
                Contact,
                the Company shall notify Stonegate in writing of the agreement,
                transaction or arrangement, and pay Stonegate a fee equal to the
                Agency
                Fee plus all other compensation under Section 6 of this Agreement
                for
                securities of the Company sold to the Exclusivity Period
                Contacts.  The foregoing shall apply to all Exclusivity Period
                Contacts, regardless as to when the agreement, transaction or arrangement
                is ultimately consummated and regardless as to whether the same occurs
                during or within one (1) year after the Contract
                Period.

            


    

     

    
      	
              (h)  

            	
              The
                terms and provisions of Sections 1(f) and 1(g) specifically shall
                survive
                the Contract Period.

            


    

     

    
      	
              2.  

            	
              CONTRACT
                PERIOD AND TERMINATION.

            


    

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    
      	
              (a)  

            	
              Stonegate
                shall act as the Company’s exclusive placement agent under this Agreement
                for a period commencing on the Effective Date and continuing for
                a period
                of ninety (90) days (the “Exclusivity Period”); thereafter, Stonegate
                shall act as the Company’s non-exclusive placement agent under this
                Agreement continuing until terminated by either Party upon 10 days
                notice
                to the other Party (the “Contract Period”).  Provided, however,
                that the Company shall not be allowed to terminate this Agreement
                during
                the period that Stonegate is the exclusive placement
                agent.

            


    

     

    
      	
              (b)  

            	
              Upon
                termination, neither party will have any further obligation under
                this
                Agreement, except as provided in Sections 5, 6, 7, 8, 9, 10, and
                11
                hereof.

            


    

     

    
      	
              (c)  

            	
              In
                the event that Stonegate is a placement agent in regard to a Placement
                with gross proceeds from the sale of Securities in excess of
                $10,000,000.00 within ninety (90) days from the Effective Date, then
                the
                Exclusivity Period shall be automatically extended for a period of
                one (1)
                year from the Effective Date. However, the parties hereby mutually
                agree
                that this provision shall not prevent the Company from engaging investment
                bankers, broker/dealers or other placement agents in the event that
                the
                Company’s capital requirements reach a level that would outpace
                Stonegate’s ability to arrange for sufficient sales in the
                Placement.    To be clear, neither party intends for
                this provision to prevent and/or delay the Company’s efforts to pursue and
                develop new business opportunities and fulfilling its resulting
                obligations in connection therewith, during the Period of
                Exclusivity.  In addition, the Company is specifically permitted
                to pursue a large capital raise in which either Morgan Stanley and/or
                Merrill Lynch, or any of their affiliates act in the capacity of
                Investment Banker, broker/dealer or placement agent and in such event
                Stonegate shall be entitled to sell up to  twenty-five (25%)
                percent of the funding transaction.

            


    

     

    
      	
              3.  

            	
              REPRESENTATIONS
                AND WARRANTIES OF THE COMPANY.

            


    

     

    The
      representations and warranties of the Company made to the Purchasers as set
      forth in the Subscription Documents are hereby incorporated by reference as
      of
      the date of consummation of the sale of the Securities (the “Closing”) and all
      such representations and warranties are hereby deemed made by the Company
      directly to Stonegate as though set forth in full herein.  The Company
      represents and warrants that it has full power and authority to enter into
      this
      Agreement and to perform its obligations hereunder.  This Agreement is
      enforceable against the Company in accordance with its terms, subject to
      applicable laws governing bankruptcy, insolvency and creditors’ rights
      generally.  The Agreement does not conflict with, violate, cause a
      default, right of termination, or acceleration (whether through the passage
      of
      time or otherwise) under any contract, agreement, or understanding binding
      upon
      the Company or any subsidiary of the Company.

     

    
      	
              4.  

            	
              COVENANTS
                OF THE COMPANY.

            


    

     

    The
      Company covenants and agrees as follows:

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    
      	
              (a)  

            	
              Neither
                the Company nor any affiliate of the Company (as defined in Rule
                501(b) of
                Regulation D) will sell, offer for sale, or solicit offers to buy,
                or
                otherwise negotiate in respect of any security (as defined in the
                Securities Act) of the Company which will be integrated with the
                sale of
                the Securities and cause the Placement to be a deemed a public offering
                requiring registration under the Securities
                Act.

            


    

     

    
      	
              (b)  

            	
              Any
                and all filings and documents required to be filed in connection
                with or
                as a result of the Placements pursuant to federal and state securities
                laws are the responsibility of the Company and will be filed by the
                Company.

            


    

     

    
      	
              (c)  

            	
              Any
                press release to be issued by the Company announcing or referring
                to any
                Placement in which Stonegate serves as the placement agent shall
                be
                subject to the prior review of Stonegate, and each such press release
                shall, at the request of Stonegate, identify Stonegate as the placement
                agent.  Stonegate shall be permitted to publish a tombstone or
                similar advertisement upon completion of each Placement identifying
                itself
                as the Company’s placement agent with respect thereto.  This
                Agreement shall not be filed publicly by the Company without the
                prior
                written consent of Stonegate, unless required by applicable law or
                regulation.

            


    

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    
      	
              5.  

            	
              FURNISHING
                OF COMPANY INFORMATION;
                CONFIDENTIALITY.

            


    

     

    
      	
              (a)  

            	
              In
                connection with Stonegate’s activities hereunder on the Company’s behalf,
                the Company shall furnish Stonegate with all reasonable information
                concerning the Company and its operations that Stonegate deems necessary
                or appropriate (the “Company Information”) and shall provide Stonegate
                with reasonable access to the Company’s books, records, officers,
                directors, employees, accountants and counsel.  The Company
                acknowledges and agrees that, in rendering its services hereunder,
                Stonegate will be using and relying upon the Company Information
                without
                independent verification thereof or independent appraisal of any
                of the
                Company’s assets and may, in its sole discretion, use additional
                information contained in public reports or other information furnished
                by
                the Company or third parties.

            


    

     

    
      	
              (b)  

            	
              Stonegate
                agrees that the Company Information will be used solely for the purpose
                of
                performing its services hereunder.  Subject to the limitations
                set forth in subsection (c) below, Stonegate will keep the Company
                Information provided hereunder confidential and will not disclose
                such
                Company Information or any portion thereof, except (i) to a third
                party
                contacted by Stonegate on behalf of, and with the prior approval
                of, the
                Company pursuant hereto who has prior thereto executed a confidentiality
                agreement satisfactory in form and substance to the Company, or (ii)
                to
                any other person for which the Company’s consent to disclose such Company
                Information has been obtained.

            


    

     

    
      	
              (c)  

            	
              Stonegate’s
                confidentiality obligations under this Agreement shall not apply
                to any
                portion of the Company Information which (i) at the time of disclosure
                to
                Stonegate or thereafter is generally available to and known by the
                public
                (other than as a result of a disclosure directly or indirectly by
                Stonegate in violation of this Agreement); (ii) was available to
                Stonegate
                on a non-confidential basis from a source other than the Company,
                provided
                that such source is not and was not bound by a confidentiality agreement
                with the Company; (iii) has been independently acquired or developed
                by
                Stonegate without violating any of its obligations under this Agreement;
                or (iv) the disclosure of which is legally compelled (whether by
                deposition, interrogatory, request for documents, subpoena, civil
                or
                administrative investigative demand or other similar
                process).  In the event that Stonegate becomes legally compelled
                to disclose any of the Company Information, Stonegate shall provide
                the
                Company with prompt prior written notice of such requirement so that
                the
                Company may seek a protective order or other appropriate remedy and/or
                waive compliance with the terms of this
                Agreement.

            


    

     

    
      	
              (d)  

            	
              The
                obligations of the Parties under this Section 5 shall survive the
                termination of this Agreement for 12
                months.

            


    

     

    
      	
              6.  

            	
              FEES
                AND EXPENSES.

            


    

     

    
      	
              (a)  

            	
              As
                compensation for services rendered by Stonegate in connection with
                the
                Placements, the Company agrees to pay Stonegate a fee (the “Agency Fee”)
                of eight percent (8%) of the gross proceeds from the sale of Securities
                in
                the Placements.  The Agency Fee shall be paid immediately upon
                the closing of each sale of Securities by the Company. Except during
                the
                Exclusivity Period, or any extension of same, no fees shall be due
                and
                payable in connections with sales of Securities in the Placement
                to
                investors not introduced to the Company by Stonegate or by a direct
                or
                indirect party previously introduced to the Company as a result of
                the
                efforts of Stonegate.

            


    

     

    
      
        
        

      

      
        5

        
          

        

      

      
        
        

      

    

     

    
      	
              (b)  

            	
              In
                the event that any Placement includes warrants that are subsequently
                exercised, any sums received by the Company as a result of such exercise
                shall be included in and added to the gross proceeds from the sale
                of
                Securities in the Placements.  Upon the exercise of any such
                warrant, regardless as to the timing of same, the Company shall
                immediately notify Stonegate of the exercise and shall pay to Stonegate
                all fees, including the above Agency Fee, associated with the exercise
                of
                the warrants.

            


    

     

    
      	
              (c)  

            	
              In
                order to compensate Stonegate for its initial due diligence efforts,
                the
                Company shall deliver to Stonegate (or Stonegate’s designee) 200,000
                shares of fully paid non-assessable shares of common stock of the
                Company
                (the “Shares”), such shares to vest immediately upon the execution of this
                Agreement.  The Shares will be issued pursuant to an exemption
                from the registration requirements of the Securities Act of 1933,
                as
                amended.  Under any circumstance, the shares shall have
                piggy-back registration rights (including those as specifically provided
                herein) and be transferable.  The Company will issue the Shares
                to such affiliates of Stonegate and in such denominations as will
                be
                designated by Stonegate.

            


    

     

    
      	
              (d)  

            	
              The
                Company shall also promptly, but not more often than monthly, reimburse
                Stonegate for reasonable, actual out-of-pocket expenses incurred
                by
                Stonegate and its directors, officers and employees in connection
                with the
                performance of Stonegate’s services under this Agreement, provided,
                however, that such amount in total shall not exceed one percent (1%)
                of
                the gross proceeds of securities placed pursuant to this Placement
                Agreement.  Stonegate agrees to endeavor in good faith to
                minimize its expenditures for out-of-pocket expenses hereunder. For
                these
                purposes, “out-of-pocket expenses” shall include, but not be limited to,
                attorneys’ fees and costs, telephone conference charges, courier, mail,
                supplies, travel, lodging, transportation, and similar
                expenses.

            


    

     

    
      	
              (e)  

            	
              Upon
                closing of the Placement, the Company agrees to issue to Stonegate
                shares
                of common stock of the Company that is equal to two percent (2%)
                of the
                total number of shares of common stock sold, and/or in the event
                of a sale
                of convertible securities, the number of shares of common stock that
                would
                be potentially received upon a conversion of any convertible securities
                sold in the Placement.  Provided, however, the number of shares
                to be issued to Stonegate shall be reduced by the number of shares
                previously issued to Stonegate pursuant to Section 6(c)
                above.  The Company will issue the shares described in this
                subsection to such affiliates of Stonegate and in such denominations
                as
                will be designated by Stonegate; furthermore, the said shares shall
                have
                piggy-back registration rights (including those as specifically provided
                herein) and be transferable.

            


    

     

    
      
        
        

      

      
        6

        
          

        

      

      
        
        

      

    

     

    
      	
              (f)  

            	
              The
                fees payable to Stonegate under this Agreement are separate from
                and do
                not include fees that may be charged by or owed to other entities,
                as
                agreed to by the Company. In the event that Stonegate, arranges for
                a
                placement of securities that is ultimately consummate with a prospective
                purchaser introduced to the Company by Stonegate, Stonegate shall
                pay any
                additional broker’s fees, transaction fees, finder’s fees or other similar
                fees claimed and finally determined to be payable to any third parties
                unless, the Company agrees prior to the consummation of such transaction
                to pay for a portion of or all of such additionally claimed
                fees.

            


    

     

    
      	
              (g)  

            	
              The
                obligations of the Parties under this Section 6 shall survive the
                termination of this Agreement for any
                reason.

            


    

     

    
      	
              7.  

            	
              INDEMNIFICATION.

            


    

     

    
      	
              (a)  

            	
              The
                Company agrees to indemnify and hold Stonegate harmless from and
                against
                any and all losses, claims, damages or liabilities (or actions, including
                securityholder actions, in respect thereof) related to or arising
                out of
                Stonegate’s engagement hereunder or its role in connection herewith, and
                will reimburse Stonegate for all reasonable expenses (including reasonable
                costs, expenses, awards and counsel fees and/or judgments) as they
                are
                incurred, but not more frequently than monthly, by Stonegate in connection
                with investigating, preparing for or defending any such action or
                claim,
                whether or not in connection with pending or threatened litigation
                in
                which Stonegate is a party.  In such case, the Company reserves
                the right to approve the selection of legal counsel for Stonegate;
                provided, however, such approval shall not be unreasonably withheld.
                In
                addition, Stonegate shall provide general, updated, monthly estimates
                of
                future costs anticipated in mounting a defense against any pending
                or
                threatened claims against it under the provisions of the Indemnification.
                The Company will not, however, be responsible for any claims, liabilities,
                losses, damages or expenses which are finally judicially determined
                to
                have resulted primarily from the bad faith, gross negligence, willful
                misconduct or failure to perform reasonable due diligence background
                checks and provide proper training and oversight of the selling practices
                of its officers, directors, employees, agents or other third parties
                engaged to assist Stonegate in its efforts to solicit prospective
                investors for the Company.  The Company also agrees that
                Stonegate shall not have any liability to the Company for or in connection
                with such engagement, except for any such liability for losses, claims,
                damages, liabilities or expenses incurred by the Company that result
                primarily from the bad faith, gross negligence or willful misconduct
                of
                Stonegate.  In the event that the foregoing indemnity is
                unavailable (except by reason of the bad faith or gross negligence
                of
                Stonegate), then the Company shall contribute to amounts paid or
                payable
                by Stonegate in respect of its losses, claims, damages and liabilities
                in
                such proportion as appropriately reflects the relative benefits received
                by, and fault of, the Company and Stonegate in connection with the
                matters
                as to which such losses, claims, damages or liabilities relate, and
                other
                equitable considerations.  The foregoing shall be in addition to
                any rights that Stonegate may have at common law or otherwise and
                shall
                extend upon the same terms to and inure to the benefit of any director,
                officer, employee, agent or controlling person of
                Stonegate.  The Company hereby consents to personal
                jurisdiction, service and venue in any court in which any claim which
                is
                subject to this agreement is brought against Stonegate or any other
                person
                entitled to indemnification or contribution under this subsection
                (a).

            


    

     

    
      
        
        

      

      
        7

        
          

        

      

      
        
        

      

    

     

    
      	
              (b)  

            	
              Stonegate
                agrees to indemnify and hold the Company harmless from and against
                any and
                all losses, claims, damages or liabilities (or actions, including
                securityholder actions, in respect thereof) which are finally judicially
                determined to have resulted primarily from the bad faith, gross negligence
                or willful misconduct of Stonegate, and will reimburse the Company
                for all
                reasonable expenses (including reasonable costs, expenses, awards
                and
                counsel fees and/or judgments) as they are incurred by the Company
                in
                connection with investigating, preparing for or defending any such
                action
                or claim, whether or not in connection with pending or threatened
                litigation in which the Company is a party.  In the event that
                the foregoing indemnity is unavailable, then Stonegate shall contribute
                to
                amounts paid or payable by the Company in respect of its losses,
                claims,
                damages and liabilities in such proportion as appropriately reflects
                the
                relative benefits received by, and fault of, the Company and Stonegate
                in
                connection with the matters as to which such losses, claims, damages
                or
                liabilities relate, and other equitable considerations.  The
                foregoing shall be in addition to any rights that the Company may
                have at
                common law or otherwise and shall extend upon the same terms to and
                inure
                to the benefit of any director, officer, employee, agent or controlling
                person of the Company.  Stonegate hereby consents to personal
                jurisdiction, service and venue in any court in which any claim,
                which is
                subject to this agreement, is brought against the Company or any
                other
                person entitled to indemnification or contribution under this subsection
                (b).

            


    

     

    
      	
              (c)  

            	
              The
                obligations of the Parties under this Section 7 shall survive the
                termination of this Agreement.

            


    

     

    
      	
              8.  

            	
              NON-CIRCUMVENTION.

            


    

     

    The
      Company hereby agrees that, for a period of one year from the end of the
      Contract Period or other termination of this Agreement, the Company will not
      enter into any agreement, transaction or arrangement with any of the
      institutions (including their agents, principals and affiliates and the accounts
      and funds which they manage or advise) which Stonegate has introduced, directly
      or indirectly, to the Company pursuant to a direct meeting, or telephone call
      as
      prospective purchasers of the Securities in the Placements (collectively, the
      “Stonegate Contacts”), regardless of whether a transaction is consummated with
      such prospective purchasers, unless the Company notifies Stonegate in writing
      of
      the agreement, transaction or arrangement, and pays Stonegate a fee equal to
      the
      Agency Fee plus all other compensation under Section 6 of this Agreement for
      securities of the Company sold to Stonegate Contacts.  Except during
      the initial ninety (90) day Exclusivity Period, this provision shall not apply
      to sales of securities in transactions entered into where Morgan Stanley and/or
      Merrill Lynch, or any of their affiliates act in the capacity of Investment
      Banker, broker/dealer or placement agent.

     

    
      
        
        

      

      
        8

        
          

        

      

      
        
        

      

    

     

    
      	
              9.  

            	
              CERTAIN
                PIGGY-BACK REGISTRATION RIGHTS

            


    

     

    Whenever
      the Company proposes to register any of its Common Shares or any other common
      shares of the Company under the Securities Act (other than a registration (a)
      on
      Form S-8 or S-4 or any successor or similar forms, (b) relating to Common Shares
      or any other common shares of the Company issuable upon exercise of employee
      or
      consultant share options or in connection with any employee benefit or similar
      plan of the Company or (c) in connection with a direct or indirect acquisition
      by the Company of another person or any transaction with respect to which Rule
      145 (or any successor provision) under the Securities Act applies), whether
      or
      not for sale for its own account, it shall automatically include in such
      registration statement all registrable securities held by Stonegate and/or
      its
      affiliates.  Additionally, at such time, the Company shall give prompt
      written notice at least 20 days prior to the anticipated filing date of the
      registration statement relating to such registration to the holders, which
      notice shall set forth such holders’ rights under this section and shall
      identify the number of registrable securities of the holders to be included
      in
      the registration statement.  The Company will use its best efforts to
      effect the registration under the Securities Act of all registrable securities
      of the holders, to the extent requisite to permit the disposition of the
      registrable securities to be so registered; provided, however, that (a) if
      such
      registration involves a public offering, the holders must sell their registrable
      securities to the underwriters on the same terms and conditions as apply to
      the
      Company and (b) if, at any time after giving written notice of its intention
      to
      register any registrable securities pursuant to this Section and prior to the
      effective date of the registration statement filed in connection with such
      registration, the Company shall determine for any reason not to register any
      registrable securities, the Company shall give written notice to the holders
      and, thereupon, shall be relieved of its obligation to register any registrable
      securities in connection with such registration.  The Company’s
      obligations under this Section shall terminate on the date that the registration
      statement to be filed is declared effective by the
      Commission.  Notwithstanding the foregoing, any holder of registrable
      securities may elect not to have said holder’s securities included in a
      registration statement by providing written notice of such election within
      10
      days after the receipt of the above referenced notice of registration from
      the
      Company.

     

    
      	
              10.  

            	
              GOVERNING
                LAW.

            


    

     

    IN
      THE
      EVENT OF DISPUTES BETWEEN THE PARTIES HERETO THAT RESULTS IN AN ACTION BEING
      INITIATED BY STONEGATE, THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
      AND
      GOVERNED BY THE LAWS OF THE STATE OF NEW JERSEY, WITHOUT GIVING EFFECT TO ANY
      CONFLICT OF LAWS PROVISIONS THEREOF.

     

    IN
      THE
      EVENT OF DISPUTES BETWEEN THE PARTIES HERETO THAT RESULTS IN AN ACTION BEING
      INITIATED BY THE COMPANY, THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH
      AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS , WITHOUT GIVING EFFECT TO ANY
      CONFLICT OF LAWS PROVISIONS THEREOF.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

     

    
      	
              11.  

            	
              ARBITRATION.

            


    

     

    Stonegate
      and the Company will attempt to settle any claim or controversy arising out
      of
      this Agreement through consultation and negotiation in good faith and a spirit
      of mutual cooperation.  Any dispute which the parties cannot resolve
      may then be submitted by either party to binding arbitration in Dallas, Texas
      under the rules of the American Arbitration Association for
      resolution.  Nothing in this paragraph will prevent either party from
      resorting to judicial proceedings if (a) good faith efforts to resolve the
      dispute under these procedures have been unsuccessful or (b) interim relief
      from
      a court is necessary to prevent serious and irreparable injury.

     

    
      	
              12.  

            	
              NO
                WAIVER.

            


    

     

    The
      failure or neglect of any party hereto to insist, in any one or more instances,
      upon the strict performance of any of the terms or conditions of this Agreement,
      or waiver by any party of strict performance of any of the terms or conditions
      of this Agreement, shall not be construed as a waiver or relinquishment in
      the
      future of such term or condition, but the same shall continue in full force
      and
      effect.

     

    
      	
              13.  

            	
              SUCCESSORS
                AND ASSIGNS.

            


    

     

    The
      benefits of this Agreement shall inure to the benefit of the Parties, their
      respective successors, assigns and representatives, and the obligations and
      liabilities assumed in this Agreement by the Parties shall be binding upon
      their
      respective successors and assigns.  This Agreement may not be assigned
      by either Party without the express written consent of the other Party, which
      consent shall not be unreasonably withheld.

     

    
      	
              14.  

            	
              NOTICES.

            


    

     

    All
      notices and other communications required or permitted to be given under this
      Agreement shall be in writing and shall be delivered personally or sent by
      certified mail, return receipt requested, recognized overnight delivery service,
      or facsimile (with copy by first class mail) as follows:

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

     

    
      	
              If
                to the Company:

              
              

              Coates
                International, Ltd.

              Highway
                34 & Ridgewood Road

              Wall
                Township, New Jersey 07719

              Facsimile:
                ()

              Attention:
                George J. Coates, CEO

            


    

    


     

    
      	
              If
                to Stonegate:

              
              

              Stonegate
                Securities, Inc.

              5950
                Sherry Lane, Suite 410

              Dallas,
                Texas  75225

              Facsimile:
                (214) 987-1981

              Attention:
                Scott Griffith, President

            


    

     

    Either
      Party may change its address or facsimile number set forth above by giving
      the
      other Party notice of such change in accordance with the provisions of this
      Section. A notice shall be deemed given (a) if by personal delivery, on the
      date
      of such delivery, (b) if by certified mail, on the date shown on the applicable
      return receipt, (c) if by overnight delivery service, on the day after the
      date
      delivered to the service, or (d) if by facsimile, on the date of
      transmission.

     

    
      	
              15.  

            	
              NATURE
                OF RELATIONSHIP.

            


    

     

    The
      Parties intend that Stonegate’s relationship to the Company and the relationship
      of each director, officer, employee or agent of Stonegate to the Company shall
      be that of an independent contractor and not as an employee of the Company
      or an
      affiliate thereof.  Nothing contained in this Agreement shall
      constitute or be construed to be or create a partnership or joint venture
      between Stonegate and the Company or their respective successors or
      assigns.  Neither Stonegate nor any director, officer, employee or
      agent of Stonegate shall be considered to be an employee of the Company by
      virtue of the services provided hereunder.

     

    
      	
              16.  

            	
              MISCELLANEOUS

            


    

     

    Stonegate’s
      obligations under this Agreement are subject to the following general
      conditions:

     

    
      	
              (a)  

            	
              All
                relevant terms, conditions, and circumstances relating to the Placements
                will be reasonably satisfactory to Stonegate and its
                counsel.

            


    

     

    
      	
              (b)  

            	
              Stonegate
                reserves the right to solicit the assistance of outside dealers
                (“Dealers”) to assist in the offer and sale of the Placements; provided,
                however, that any such Dealers agree in writing to be bound by the
                terms
                of the applicable Placement. It is understood that Stonegate, in
                its sole
                discretion, shall be entitled to pay over to any such Dealers any
                portion
                of the compensation received by Stonegate hereunder.  The
                Company shall have no financial liability for any fees or expenses
                of any
                such Dealers.

            


    

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    
      	
              17.  

            	
              CAPTIONS.

            


    

     

    The
      Section titles herein are for reference purposes only and do not control or
      affect the meaning or interpretation of any term or provision
      hereof.

     

    
      	
              18.  

            	
              AMENDMENTS.

            


    

     

    No
      alteration, amendment, change or addition hereto shall be binding or effective
      unless the same is set forth in a writing signed by a duly authorized
      representative of each Party.

     

    
      	
              19.  

            	
              PARTIAL
                INVALIDITY.

            


    

     

    If
      it is
      finally determined that any term or provision hereof is invalid or
      unenforceable, (a) the remaining terms and provisions hereof shall be
      unimpaired, and (b) the invalid or unenforceable term or provision shall be
      replaced by a term or provision that is valid and enforceable and that comes
      as
      close as possible to expressing the intention of the invalid or unenforceable
      term or provision.

     

    
      	
              20.  

            	
              ENTIRE
                AGREEMENT.

            


    

     

    This
      Agreement embodies the entire agreement and understanding of the Parties and
      supersedes any and all prior agreements, arrangements and understandings
      relating to the matters provided for herein.

    
       

      
        	
                21.  

              	
                COUNTERPARTS.

              

        
        

    

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

     

    [Remainder
      of Page Intentionally Left Blank]

     

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    IN
      WITNESS WHEREOF, this Agreement has been executed as of the date first written
      above by duly authorized representatives of the Company and
      Stonegate.

     

    
      	
              COATES
                INTERNATIONAL, LTD.

              
              

              
              

              
              

              By:                                                                
                

              Title:                                                                
                

              
              

            


    

    


     

    
      	
              STONEGATE
                SECURITIES, INC.

              
              

              
              

              
              

              By:                                                             
                

              Title:                                                             
                

              
              

            


    

    


     

    
 

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