Document:

Exhibit 10.17

                              EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated October 18, 2006

By and Between:

      COATES INTERNATIONAL, LTD., a Delaware corporation (the "Company" or the
      "Employer"),

                                       AND

      BARRY C. KAYE, an individual having an address at 15 Susan Drive,
      Marlboro, New Jersey 07746 ("Executive")

WHEREAS, the Company desires to hire the Executive and employ him in the
position of its Chief Financial Officer; and

WHEREAS, Executive has agreed to serve as the Company's Treasurer and Chief
Financial Officer pursuant to the terms and conditions set forth herein.

NOW THEREFORE THIS AGREEMENT WITNESSETH THAT in consideration of the premises
and the mutual covenants, agreements, representations and warranties contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Executive and the Company hereby agree as
follows:

                                    ARTICLE 1
                                   EMPLOYMENT

1.1 Employer hereby hires the Executive as the Treasurer and Chief Financial
Officer of the Company and Executive hereby affirms and accepts such positions
and employment by Employer for the Term (as defined in Article 3 below), upon
the terms and conditions set forth herein.

1.2 The Employer shall utilize its best efforts to cause its Board of Directors
to appoint the Executive as a member of the Employer's Board of Directors
throughout the Term.

                                    ARTICLE 2
                                     DUTIES

During the Term, Executive shall serve Employer faithfully, diligently and to
the best of his ability, under the direction and supervision of the Board of
Directors of Employer ("Board of Directors") and the Company's Chief Executive
Officer and shall use his best efforts to promote the interests and goodwill of
Employer and any affiliates, successors, assigns, parent corporations,
subsidiaries, and/or future purchasers of Employer. Executive shall render such
services during the Term at Employer's principal place of business or at such
other place of business as may be determined by the Board of Directors, as
Employer may from time to time reasonably require of him, and shall devote all
of his business time to the performance thereof. Executive shall have those
duties and powers as generally pertain to each of the offices of which he holds,
as the case may be, subject to the control of the Board of Directors.

<PAGE>

                                    ARTICLE 3
                                      TERM

The term of this Agreement (the "Term") shall commence on the date hereof (the
"Effective Date"), and continue thereafter for a term of three (3) years, as may
be extended or earlier terminated pursuant to the terms and conditions of this
Agreement. The Term is renewable upon the agreement of the parties hereto.

                                    ARTICLE 4
                                  COMPENSATION

4.1 Compensation

      (a) In consideration of Executive's services to Employer, Employer shall
pay to Executive an annual salary (the "Salary") of One Hundred and Twenty Five
Thousand Dollars ($125,000), payable in equal installments at the end of each
regular payroll accounting period as established by Employer, or in such other
installments upon which the parties hereto shall mutually agree, and in
accordance with Employer's usual payroll procedures, but no less frequently than
monthly. Notwithstanding the above, payment of the Salary will be deferred until
the earlier to occur of: (I) the closing by the Company of an equity investment
of at least $10,000,000; or (II) December 31, 2006.

      (b) In addition to the Salary, Employer shall issue to Executive a Stock
Option to purchase 25,000 shares of the Employer's common stock, at an exercise
price equal to Employer's common stock fair market value as of the date of
issuance, as determined by the Board (the "Stock Option"). The Stock Option
shall vest (i.e., become exercisable) in three equal installments, as follows:
One third of the Stock Options shall vest on the Effective Date; an additional
third of the Stock Option shall vest on each of the first and second
anniversaries of the Effective Date. Executive must be continuously a full-time
employee of the Company through the time he exercises part or all of the Stock
Option, except, however, in the event this Agreement is terminated by the
Executive for a Good Reason, as defined in Article 10.1 and 10.2 below, or by
the Employer without Cause, as defined in Article 10.3 below, in which cases the
Stock Option shall immediately and fully vest upon such termination provided
further that the events surrounding any such termination have not been the
subject of any claim, proceeding or lawsuit by either the Executive or the
Company in which further case the Stock Option shall only vest upon final
adjudication, determining that such termination was a valid termination by the
Executive for Good Reason or by the Employer without Cause pursuant to the
applicable above referenced articles of this Agreement. The Stock Option shall
be deemed a non-qualified stock option (i.e., not an ISO). The Stock Option will
be issued out of the Employer's stock incentive plan, and subject to such
incentive plan.

      (c) Executive hereby acknowledges that the Stock Option and the shares
issuable upon the exercise thereof shall be "restricted securities" as such term
is defined under Rule 144, unless and until an effective registration covering
these shares takes place, promulgated under the Securities Act of 1933, as
amended (the "1933 Act"); that the Executive hereby represents that he shall
accept such compensation and has no present intent to distribute or transfer
such securities; that such securities shall bear the appropriate restrictive
legend providing that they may not be transferred except pursuant to the
registration requirements of the 1933 Act or pursuant to exemptions therefrom,
and; the Executive further acknowledges that he may be required to hold such
securities for an indeterminable amount of time.

                                       2
<PAGE>

4.2 Benefits

Upon the earlier to occur of: (I) the closing by the Company of an equity
investment of at least $10,000,000; or (II) December 31, 2006, and thereafter
during the Term, Executive shall be entitled to participate in all medical and
other executive benefit plans, including vacation, sick leave, retirement
accounts and other executive benefits provided by Employer to any of the other
senior officers of Employer on terms and conditions no less favorable than those
offered to such senior officers. Such participation shall be subject to the
terms of the applicable plan documents and Employer's generally applicable
policies.

4.3 Expense Reimbursement

Employer shall reimburse Executive for reasonable and necessary expenses
incurred by him on behalf of Employer in the performance of his duties hereunder
during the Term, including any and all travel and entertainment expenses related
to the Employer's business in accordance with Employer's then customary
policies, provided that such expenses are adequately documented.

4.4 Bonus

In addition to the compensation payable under Section 4.1, Executive shall be
entitled to receive during the Term an annual bonus, the amount of which shall
be determined by the Board of Directors ("Bonus"). Each year's Bonus shall be
paid to the Executive within 110 days of the Employer's calendar year end.

                                    ARTICLE 5
                                OTHER EMPLOYMENT

During the Term, Executive shall devote all of his business and professional
time and effort attention, knowledge, and skill to the management, supervision
and direction of Employer's business and affairs as Executive's highest
professional priority. Employer shall be entitled to all benefits, profits or
other remuneration arising from or incidental to all work, services and advice
performed or provided by Executive. Nothing in this Agreement shall preclude
Executive from:

      (a)   serving as a director or member of a committee of any organization
            or corporation involving no conflict of interest with the interests
            of Employer, provided that Executive must obtain the prior written
            approval of the independent members of the Board;

      (b)   serving as a consultant in his area of expertise (in areas other
            than in connection with the business of Employer), to government,
            industrial, and academic panels provided that only de minimis time
            shall be devoted thereto and Executive must obtain the prior written
            approval of the independent members of the Board of Employer and
            where it does not conflict with the interests of Employer, provided
            that such written consent shall not be unreasonably withheld,
            delayed or conditioned; and

      (c)   managing his personal investments or engaging in any other
            non-competing business; provided that such activities do not
            materially interfere with the regular performance of his duties and
            responsibilities under this Agreement.

                                       3
<PAGE>

                                    ARTICLE 6
                       CONFIDENTIAL INFORMATION/INVENTIONS

Confidential Information

6.1 Executive shall not, in any manner, for any reasons, either directly or
indirectly, divulge or communicate to any person, firm or corporation, any
confidential information concerning any matters not generally known in the
internal combustion engine industry (the "Engine Industry") or otherwise made
public by Employer which affects or relates to Employer's business, finances,
marketing and/or operations, research, development, inventions, products,
designs, plans, procedures, or other data (collectively, "Confidential
Information") except in the ordinary course of business or as required by
applicable law. Without regard to whether any item of Confidential Information
is deemed or considered confidential, material, or important, the parties hereto
stipulate that as between them, to the extent such item is not generally known
in the Engine Industry, such item is important, material, and confidential and
affects the successful conduct of Employer's business and goodwill, and that any
breach of the terms of this Section 6.1 shall be a material and incurable breach
of this Agreement. Confidential Information shall not include: information in
the public domain other than because of a breach of this Agreement.

Documents

6.2 Executive further agrees that all documents and materials furnished to
Executive by Employer and relating to Employer's business or prospective
business are and shall remain the exclusive property of Employer. Executive
shall deliver all such documents and materials, and all copies thereof and
extracts therefrom, to Employer upon demand therefore and in any event upon
expiration or earlier termination of this Agreement. Any payment of sums due and
owing to Executive by Employer upon such expiration or earlier termination shall
be conditioned upon returning all such documents and materials, and Executive
expressly authorizes Employer to withhold any payments due and owing pending
return of such documents and materials.

Inventions

6.3 All ideas, inventions, and other developments or improvements conceived or
reduced to practice by Executive, alone or with others, during the Term of this
Agreement, whether or not during working hours, that are within the scope of the
business of Employer or that relate to or result from any of Employer's work or
projects or the services provided by Executive to Employer pursuant to this
Agreement, shall be the exclusive property of Employer. Executive agrees to
assist Employer, at Employer's expense, to obtain patents and copyrights on any
such ideas, inventions, writings, and other developments, and agrees to execute
all documents necessary to obtain such patents and copyrights in the name of
Employer.

Disclosure

6.4 During the Term, Executive will promptly disclose to the Board of Directors
full information concerning any interest, direct or indirect, of Executive (as
owner, shareholder, partner, lender or other investor, director, officer,
executive, consultant or otherwise) or any member of his immediate family in any
business that is reasonably known to Executive to purchase or otherwise obtain
services or products from, or to sell or otherwise provide services or products
to, Employer or any of their suppliers or customers.

                                       4
<PAGE>

                                    ARTICLE 7
                             COVENANT NOT TO COMPETE

7.1 No Competitive Activities. Except as expressly permitted in Article 5 above,
during the Term, Executive shall not engage in any activities that are
competitive with the actual or prospective business of the Company, including
without limitation: (a) engaging directly or indirectly in any business
substantially similar to any business or activity engaged in (or proposed to be
engaged in) by Employer, including and not limited to business that relates to
internal combustion engines; (b) engaging directly or indirectly in any business
or activity competitive with any business or activity engaged in (or proposed to
be engaged in) by Employer; (c) soliciting or taking away any executive,
employee, agent, representative, contractor, supplier, vendor, customer,
franchisee, lender or investor of Employer, or attempting to so solicit or take
away; (d) interfering with any contractual or other relationship between
Employer and any executive, employee, agent, representative, contractor,
supplier, vendor, customer, franchisee, lender or investor; or (e) using, for
the benefit of any person or entity other than Employer any Confidential
Information of Employer.

7.2 The foregoing covenant prohibiting competitive activities shall survive the
termination of this Agreement and shall extend, and shall remain enforceable
against Executive, for the period of two (2) years following the date this
Agreement is terminated. In addition, during the two-year period following such
expiration or earlier termination, neither Executive nor Employer shall make or
permit the making of any negative statement of any kind concerning Employer or
their affiliates, or their directors, officers or agents or Executive.

                                    ARTICLE 8
                                    SURVIVAL

Except as otherwise provided, Executive agrees that the provisions of Articles
6, 7, 8 and 9 shall survive expiration or earlier termination of this Agreement
for any reasons whether voluntary or involuntary, with or without Cause, and
shall remain in full force and effect thereafter.

                                    ARTICLE 9
                                INJUNCTIVE RELIEF

Executive acknowledges and agrees that the covenants and obligations of
Executive set forth in Articles 6 and 7 with respect to non-competition,
non-solicitation, confidentiality and Employer's property relate to special,
unique and extraordinary matters and that a violation of any of the terms of
such covenants and obligations will cause Employer irreparable injury for which
adequate remedies are not available at law. Therefore, Executive agrees that if
Executive breaches this Agreement than Employer shall be entitled to apply for
an injunction, restraining order or such other equitable relief as a court of
competent jurisdiction as limited by Section 13.3 may deem necessary or
appropriate to restrain Executive from committing any violation of the covenants
and obligations referred to in this Article 9. Executive shall have the right to
appeal from such injunction or order and to seek reconsideration, These
injunctive remedies are cumulative and in addition to any other rights and
remedies Employer may have at law or in equity.

                                   ARTICLE 10
                                   TERMINATION

Termination by Executive

                                       5
<PAGE>

10.1 Executive may terminate this Agreement for Good Reason at any time upon 30
days' written notice to Employer, provided the Good Reason has not been cured
within such period of time. In addition, Executive may terminate this agreement
anytime, upon providing a 60 days' written notice.

Good Reason

10.2 In this Agreement, "Good Reason" means, without Executive's prior written
consent, the occurrence of any of the following events, unless Employer shall
have fully cured all grounds for such termination within thirty (30) days after
Executive gives notice thereof:

      (i) any reduction in his then-current Salary or benefits, other than in
connection with a percentage pay cut that is applicable to all senior executives
and which is the same percentage for all such persons or in connection with a
general reduction in benefits;

      (ii) any material failure to timely grant, or timely honor the Stock
Option set forth in Article 4.1;

      (iii) failure to pay or provide required expenses;

      (iv) Any diminution in authority or responsibility to a non-executive
position;

      The written notice given for Good Reason by Executive to Employer shall
      specify in reasonable detail the cause for termination, and such
      termination notice shall not be effective until thirty (30) days after
      Employer's receipt of such notice, during which time Employer shall have
      the right to respond to Executive's notice and cure the breach or other
      event giving rise to the termination.

Termination by Employer

10.3 Employer may terminate its employment of Executive under this Agreement
with or without Cause at any time by written notice to Executive. For purposes
of this Agreement, the term Cause for termination by Employer shall be (a) a
conviction of or plea of guilty or nolo contendere by Executive to a felony, or
any crime involving fraud, securities laws violations, embezzlement or moral
turpitude; (b) the refusal by Executive to perform his material duties and
obligations hereunder or to follow the proper instructions of the Board of
Directors; (c) Executive's willful or intentional misconduct in the performance
of his duties and obligations; (d) conduct that is known or that should have
been known by Executive to be detrimental to the best interests of the Company,
as determined by the independent members of the Board; (e) if Executive or any
member of his family makes any personal profit arising out of or in connection
with a transaction to which Employer is a party or with which it is associated
without making disclosure to and obtaining the prior written consent of the
independent members of the Board; or (f) the entry by the Securities and
Exchange Commission or a self-regulatory organization of a consent decree
relating to a securities law violation by Executive. The written notice given
hereunder by Employer to Executive shall specify that it is without Cause or if
it is with Cause shall specify in reasonable detail the cause for termination.
For purposes of this Agreement, "family" shall mean "immediate family" as
defined in the rules of the Securities and Exchange Commission. In the case of a
termination for the causes described in (a), (d) and (e) above, such termination
shall be effective upon receipt of the written notice. In the case of the causes
described in (b) and (c) above, such termination notice shall not be effective
until thirty (30) days after Executive's receipt of such notice, during which
time Executive shall have the right to respond to Employer's notice and cure (if
curable) the breach or other event giving rise to the termination. In the case
of termination without Cause, such termination notice shall not be effective
until thirty (30) days after Executive's receipt of such notice.

                                       6
<PAGE>

Severance

10.4 Upon a termination of this Agreement with Good Reason by Executive or
without cause by Employer, Employer shall pay to Executive all accrued and
unpaid compensation and expense reimbursement, as of the date of such
termination and the "Severance Payment." The Severance Payment shall be payable
in a lump sum, subject to Employer's statutory and customary withholdings. The
Severance Payment shall be paid by Employer within thirty (30) business days of
the expiration of any applicable cure period. The "Severance Payment" shall
equal the total amount of the Salary payable to Executive under Section 4.1 of
this Agreement for a period of one (1) year.

Termination Upon Death

10.5 If Executive dies during the Term of this Agreement, this Agreement shall
terminate, except that Executive's legal representatives shall be entitled to
receive any earned but unpaid compensation or expense reimbursement due
hereunder through the date of death.

Termination Upon Disability

10.6 If, during the Term, Executive suffers and continues to suffer from a
"Disability" (as defined below), then Employer may terminate this Agreement by
delivering to Executive ten (10) calendar days' prior written notice of
termination based on such Disability, setting forth with specificity the nature
of such Disability and the determination of Disability by Employer. For purposes
hereof, "Disability" means "permanent and total disability" as defined in
Section 22(e)(3) of the Internal Revenue Code. Upon any such termination for
Disability, Executive shall be entitled to receive any earned but unpaid
compensation or expense reimbursement due hereunder through the date of
termination and the Severance Payment.

                                   ARTICLE 11
                  PERSONNEL POLICIES, CONDITIONS, AND BENEFITS

      Except as otherwise provided herein, Executive's employment shall be
subject to the personnel policies and benefit plans which apply generally to
Employer's Executives as the same may be interpreted, adopted, revised or
deleted from time to time, during the Term of this Agreement, by Employer in its
sole discretion. During the Term hereof, Executive shall be entitled to vacation
during each year of the Term at the rate of four (4) weeks per year. Within 30
days after the end of each year of the Term, Employer shall elect to (a) carry
over and allow Executive the right to use any accrued and unused vacation of
Executive, or (ii) pay Executive for such vacation in a lump sum in accordance
with its standard payroll practices. Executive shall take such vacation at a
time approved in advance by the Board of Directors of Employer, which approval
will not be unreasonably withheld but will take into account the staffing
requirements of Employer and the need for the timely performance of Executive's
responsibilities.

                                   ARTICLE 12
                           BENEFICIARIES OF AGREEMENT

This Agreement shall inure to the benefit of the parties hereto, their
respective heirs, successors and permitted assigns.

                                       7
<PAGE>

                                   ARTICLE 13
                               GENERAL PROVISIONS

No Waiver

13.1 No failure by either party to declare a default based on any breach by the
other party of any provisions of this Agreement, nor failure of such party to
act quickly with regard thereto, shall be considered to be a waiver of any such
breach, or of any future breach.

Modification

13.2 No waiver or modification of this Agreement or of any covenant, condition,
or limitation herein contained shall be valid unless in writing and duly
executed by the parties to be charged therewith.

Submission to Jurisdiction; Consent to Service of Process.

13.3 Submission to Jurisdiction; Consent to Service of Process. This Agreement
shall be governed in all respects, by the laws of the State of New York,
including validity, interpretation and effect, without regard to principles of
conflicts of law. The parties hereto irrevocably and unconditionally consent to
submit to the exclusive jurisdiction of the state and federal courts in the
State of New Jersey for any lawsuits, actions or other proceedings arising out
of or related to this Agreement and agree not to commence any lawsuit, action or
other proceeding except in such courts. The parties hereto further agree that
service of process, summons, notice or document by mail to their addresses set
forth above shall be effective service of process for any lawsuit, action or
other proceeding brought against them in any such court. The parties hereto
irrevocably and unconditionally waive any objection to the laying of venue of
any lawsuit, action or other proceeding arising out of or related to this
Agreement in such courts, and hereby further irrevocably and unconditionally
waive and agree not to plead or claim in any such court that any such lawsuit,
action or proceeding brought in any such court has been brought in an
inconvenient forum.

Entire Agreement

13.4 This Agreement embodies the whole agreement between the parties hereto
regarding the subject matter hereof and there are no inducements, promises,
terms, conditions, or obligations made or entered into by Employer or Executive
other than contained herein.

Severability

13.5 In the event a court of competent jurisdiction determines that a term or
provisions contained in this Agreement is overly broad in scope, time
geographical location or otherwise, the parties hereto authorize such Court to
modify and reduce any such term or provision deemed overly broad in scope, time,
geographic location or otherwise so that it complies with then applicable law.

Headings

13.6 The headings contained herein are for the convenience of reference and are
not to be used in interpreting this Agreement.

                                       8
<PAGE>

Independent Legal Advice

13.7 Employer and Executive each acknowledge that he or it has obtained legal
advice concerning this Agreement.

No Assignment

13.8 No party may pledge or encumber its respective interests in this Agreement
nor assign any of its rights or duties under this Agreement without the prior
written consent of the other party.

                                       9
<PAGE>

      IN WITNESS WHEREOF the parties have executed this Agreement as of the day
and year first above written.

                                        COATES INTERNATIONAL, LTD.

                                        THE COMPANY

                                        By: ______________________

                                        Name: ____________________

                                        Title: _____________________

                                        EXECUTIVE

                                        -----------------------
                                           Barry C. Kaye

                                       10Exhibit 10.18

                              EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated October 23, 2006

by and between:

      COATES INTERNATIONAL, LTD.., a Delaware corporation (the "Company" or the
      "Employer"),

      AND

      GEORGE J. COATES, an individual having an address at

      1811 Murray Drive

      Wall Township, New Jersey  07719

      "Employee")

WHEREAS, Employee served as the Company's President, CEO, Treasurer and
Principal Financial Officer for more than eighteen (18) years; and

WHEREAS, Employee has terminated from all the positions he held with the Company
as a director and an officer, and the Company desires to continue to employ
Employee; and

WHEREAS, Employee has agreed to continue to be employed by the Company pursuant
to the terms and conditions set forth herein.

NOW THEREFORE THIS AGREEMENT WITNESSETH THAT in consideration of the premises
and the mutual covenants, agreements, representations and warranties contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Employee and the Company hereby agree as
follows:

                                    ARTICLE 1

                                   EMPLOYMENT

Employee shall continue to be employed with the Company and Employee hereby
affirms and accepts such employment by Employer for the Term (as defined in
Article 3 below), upon the terms and conditions set forth herein.

<PAGE>

                                    ARTICLE 2

                                     DUTIES

During the Term, Employee shall serve Employer faithfully, diligently and to the
best of his ability, under the direction and supervision of the Board of
Directors of Employer ("Board of Directors") and shall use his best efforts to
promote the interests and goodwill of Employer and any affiliates, successors,
assigns, parent corporations, subsidiaries, and/or future purchasers of
Employer. Employee shall render such services during the Term at Employer's
principal place of business or at such other place of business as may be
determined by the Board of Directors, as Employer may from time to time
reasonably require of him, and shall devote all of his business time to the
performance thereof. Employee shall have those duties and powers as are assigned
to him from time to time by the Board of Directors.

                                    ARTICLE 3

                                      TERM

The term of this Agreement (the "Term") shall commence on the date hereof (the
"Effective Date"), and continue thereafter for a term of five (5) years, as may
be extended or earlier terminated pursuant to the terms and conditions of this
Agreement. The Term is renewable upon the agreement of the parties hereto.

                                    ARTICLE 4

                           GOVERNANCE AND COMPENSATION

4.1 Governance. During the term of this Agreement, Employee agrees to vote all
shares of the Company's Common Stock owned by him or as to which he had voting
power to elect to the Company's Board of Directors at least two directors who
qualify as "independent directors" under the rules of the Securities Exchange
Commission and Nasdaq.

4.2 Compensation.

      (a) In consideration of Employee's services to Employer, Employer shall
pay to Employee an annual salary (the "Salary") of Three Hundred Thousand
Dollars ($300,000.00), payable in equal installments at the end of each regular
payroll accounting period as established by Employer, or in such other
installments upon which the parties hereto shall mutually agree, and in
accordance with Employer's usual payroll procedures, but no less frequently than
monthly. Notwithstanding the above, payment of the Salary will be deferred until
the earlier to occur of: (I) the closing by the Company of an equity investment
of at least $10,000,000; or (II) December 31, 2006.

      (b) In addition to the Salary, Employer shall issue to Employee a Stock
Option to purchase 3,000,000 shares of the Employer's common stock, at an
exercise price equal to Employer's common stock fair market value as of the date
of issuance, as determined by the independent members of the Board (the "Stock
Option"). The Stock Option shall vest (i.e., become exercisable) in three equal
installments, as follows: One third of the Stock Options shall vest on the
Effective Date; an additional third of the Stock Option shall vest on each of
the first and second anniversaries of the Effective Date. Employee must be
continuously a full-time employee of the Company through the time he exercises
part or all of the Stock Option, except, however, in the event this Agreement is
terminated by the Employee for a Good Reason, as defined in Article 10.1 and
10.2 below, or by the Employer without Cause, as defined in Article 10.3 below,
in which cases the Stock Option shall immediately and fully vest upon such
termination provided further that the events surrounding any such termination
have not been the subject of any claim, proceeding or lawsuit by either the
Employee or the Company in which further case the Stock Option shall only vest
upon final adjudication, determining that such termination was a valid
termination by the Employee for Good Reason or by the Employer without Cause
pursuant to the applicable above referenced articles of this Agreement. The
Stock Option shall be deemed a non-qualified stock option (i.e., not an ISO).
The Stock Option will be issued out of the Employer's stock incentive plan, and
subject to such incentive plan.

                                       2
<PAGE>

      (c) Employee hereby acknowledges that the Stock Option and the shares
issuable upon the exercise thereof shall be "restricted securities" as such term
is defined under Rule 144, unless and until an effective registration covering
these shares takes place, promulgated under the Securities Act of 1933, as
amended (the "1933 Act"); that the Employee hereby represents that he shall
accept such compensation and has no present intent to distribute or transfer
such securities; that such securities shall bear the appropriate restrictive
legend providing that they may not be transferred except pursuant to the
registration requirements of the 1933 Act or pursuant to exemptions there from,
and; the Employee further acknowledges that he may be required to hold such
securities for an indeterminable amount of time.

      (d) The Company undertakes, that it shall file a Form S-8, that will cover
the shares issuable upon exercise of the Stock Option, within a reasonable time
after a registration statement covering the securities issued in connection with
the Investment becomes effective.

      (e) Employee shall not be entitled to any other compensation from the
Company unless they have been unanimously approved by the independent directors
of the Board.

                                       3
<PAGE>

4.3 Benefits

Upon the earlier to occur of: (I) the closing by the Company of an equity
investment of at least $10,000,000; or (II) December 31, 2006, and thereafter
during the Term, Employee shall be entitled to participate in all medical and
other executive benefit plans, including vacation, sick leave, retirement
accounts and other executive benefits provided by Employer to any of the other
senior officers of Employer on terms and conditions no less favorable than those
offered to such senior officers. Such participation shall be subject to the
terms of the applicable plan documents and Employer's generally applicable
policies. In addition, upon the earlier to occur of: (I) the closing by the
Company of an equity investment of at least $10,000,000; or (II) December 31,
2006, Employer shall pay the premiums for : (A) Executive's disability
insurance; and (B) life insurance in the amount of $2,000,000, but only to the
extent that the cost thereof is determined to be reasonable by the independent
directors of the Board. The beneficiary of the life insurance policy shall be
Bernadette Coates, Employee's spouse. Employee also agrees to cooperate with the
Company in obtaining for the benefit of the Company "key man" life insurance on
Employee's life in the amount of at least $2,000,000. The amount of such
insurance shall be approved by the independent directors of the Board.

4.4 Expense Reimbursement

Employer shall reimburse Employee for reasonable and necessary expenses incurred
by him on behalf of Employer in the performance of his duties hereunder during
the Term, including any and all travel and entertainment expenses related to the
Employer's business in accordance with Employer's then customary policies,
provided that such expenses are adequately documented.

4.5 Bonus

In addition to the compensation payable under Section 4.1, Employee shall be
entitled to receive during the Term an annual bonus, the amount of which shall
be determined by the unanimous vote of the independent members of the Board of
Directors ("Bonus"). Each year's Bonus shall be paid to the Employee within 110
days of the Employer's calendar year end.

4.6 Other Compensation

Employer shall provide Employee with a leased automobile for his exclusive use
throughout the Term, including costs for gasoline, maintenance and comprehensive
insurance including an "umbrella" policy.

                                    ARTICLE 5

                                OTHER EMPLOYMENT

During the Term, Employee shall devote all of his business and professional time
and effort attention, knowledge, and skill to the management, supervision and
direction of Employer's business and affairs as Employee's highest professional
priority. Employer shall be entitled to all benefits, profits or other
remuneration arising from or incidental to all work, services and advice
performed or provided by Employee. Nothing in this Agreement shall preclude
Employee from:

      (a)   serving as a director or member of a committee of any organization
            or corporation involving no conflict of interest with the interests
            of Employer, provided that Employee must obtain the prior written
            approval of the independent members of the Board;;

                                       4
<PAGE>

      (b)   serving as a consultant in his area of expertise (in areas other
            than in connection with the business of Employer), to government,
            industrial, and academic panels provided that only de minimis time
            shall be devoted thereto and Employee must obtain the prior written
            approval of the independent members of the Board consent of Employer
            and where it does not conflict with the interests of Employer,
            provided that such written consent shall not be unreasonably
            withheld, delayed or conditioned; and

      (c)   managing his personal investments or engaging in any other
            non-competing business;

            provided that such activities do not materially interfere with the
            regular performance of his duties and responsibilities under this
            Agreement.

                                    ARTICLE 6

                       CONFIDENTIAL INFORMATION/INVENTIONS

6.1 Confidential Information

Employee shall not, in any manner, for any reasons, either directly or
indirectly, divulge or communicate to any person, firm or corporation, any
confidential information concerning any matters not generally known in the
internal combustion engine industry (the "Engine Industry") or otherwise made
public by Employer which affects or relates to Employer's business, finances,
marketing and/or operations, research, development, inventions, products,
designs, plans, procedures, or other data (collectively, "Confidential
Information") except in the ordinary course of business or as required by
applicable law. Without regard to whether any item of Confidential Information
is deemed or considered confidential, material, or important, the parties hereto
stipulate that as between them, to the extent such item is not generally known
in the Engine Industry, such item is important, material, and confidential and
affects the successful conduct of Employer's business and goodwill, and that any
breach of the terms of this Section 6.1 shall be a material and incurable breach
of this Agreement. Confidential Information shall not include: information in
the public domain other than because of a breach of this Agreement.

6.2 Documents. Employee further agrees that all documents and materials
furnished to Employee by Employer and relating to Employer's business or
prospective business are and shall remain the exclusive property of Employer.
Employee shall deliver all such documents and materials, and all copies thereof
and extracts there from, to Employer upon demand therefore and in any event upon
expiration or earlier termination of this Agreement.

6.3 Inventions and Intellectual Property. The Company's rights in patents,
ideas, inventions, and other intellectual property rights, including with
respect to the CSRV engine, shall be as set forth in the License Agreement
executed by the parties of even date herewith (the "License Agreement"). The
Company shall have no rights to any intellectual property developed by Employee
that (i) do not relate to and are not useful in the conduct of the Company's
business; and (ii) were not developed with the use of any Company facilities.

6.4 Disclosure. During the Term, Employee will promptly disclose to the Board of
Directors full information concerning any interest, direct or indirect, of
Employee (as owner, shareholder, partner, lender or other investor, director,
officer, executive, consultant or otherwise) or any member of his immediate
family in any business that is reasonably known to Employee to purchase or
otherwise obtain services or products from, or to sell or otherwise provide
services or products to, Employer or any of their suppliers or customers.

                                       5
<PAGE>

                                    ARTICLE 7

                             COVENANT NOT TO COMPETE

7.1 No Competitive Activities. Except as expressly permitted in Article 5 above,
during the Term, Employee shall not engage in any activities that are
competitive with the actual or prospective business of the Company, including
without limitation: (a) engaging directly or indirectly in any business
substantially similar to any business or activity engaged in (or proposed to be
engaged in) by Employer, including and not limited to business that relates to
internal combustion engines; (b) engaging directly or indirectly in any business
or activity competitive with any business or activity engaged in (or proposed to
be engaged in) by Employer; (c) soliciting or taking away any executive,
employee, agent, representative, contractor, supplier, vendor, customer,
franchisee, lender or investor of Employer, or attempting to so solicit or take
away; (d) interfering with any contractual or other relationship between
Employer and any executive, employee, agent, representative, contractor,
supplier, vendor, customer, franchisee, lender or investor; or (e) using, for
the benefit of any person or entity other than Employer any Confidential
Information of Employer.

7.2 Results of Termination. In the event that the employment of Employee is
terminated for Cause, or if Employee terminates his employment with Company
without Good Reason prior to the Threshold Date (as defined in the License
Agreement), then the foregoing covenant prohibiting competitive activities shall
survive the termination of this Agreement, and shall extend, and shall remain
enforceable against Employee, for the period of two (2) years following the date
of termination of employment. In addition, during the two-year period following
such termination, neither Employee nor Employer shall make or permit the making
of any negative statement of any kind concerning Employer or their affiliates,
or their directors, officers or agents or Employee.

                                    ARTICLE 8

                                    SURVIVAL

Except as otherwise provided, Employee agrees that the provisions of Articles 6,
7, 8 and 9 shall survive expiration or earlier termination of this Agreement for
any reasons whether voluntary or involuntary, with or without Cause, and shall
remain in full force and effect thereafter.

                                       6
<PAGE>

                                    ARTICLE 9

                                INJUNCTIVE RELIEF

Employee acknowledges and agrees that the covenants and obligations of Employee
set forth in Articles 6 and 7 with respect to non-competition, non-solicitation,
confidentiality and Employer's property relate to special, unique and
extraordinary matters and that a violation of any of the terms of such covenants
and obligations will cause Employer irreparable injury for which adequate
remedies are not available at law. Therefore, Employee agrees that if Employee
breaches this Agreement than Employer shall be entitled to apply for an
injunction, restraining order or such other equitable relief as a court of
competent jurisdiction as limited by Section 13.3 may deem necessary or
appropriate to restrain Employee from committing any violation of the covenants
and obligations referred to in this Article 9. Employee shall have the right to
appeal from such injunction or order and to seek reconsideration, These
injunctive remedies are cumulative and in addition to any other rights and
remedies Employer may have at law or in equity.

                                   ARTICLE 10

                                   TERMINATION

10.1 Termination by Employee. Employee shall be entitled to terminate this
Agreement, for any, or no reason, upon providing a 60 days' written notice, only
upon the earlier to occur of: (i) the fifth (5th) anniversary of this Agreement;
or (ii) the Threshold Date. Employee may terminate this Agreement for Good
Reason at any time upon 30 days' written notice to Employer, provided the Good
Reason has not been cured within such period of time.

10.2 Good Reason. In this Agreement, "Good Reason" means, without Employee's
prior written consent, the occurrence of any of the following events, unless
Employer shall have fully cured all grounds for such termination within thirty
(30) days after Employee gives notice thereof:

      (i)   any reduction in his then-current Salary or benefits, other than in
            connection a percentage pay cut that is applicable to all senior
            executives and which is the same percentage for all such persons or
            in connection with a general reduction in benefits;

      (ii)  any material failure to timely grant, or timely honor, the Stock
            Option set forth in Article 4.1;

      (iii) failure to pay or provide required expenses;

The written notice given for Good Reason by Employee to Employer shall specify
in reasonable detail the cause for termination, and such termination notice
shall not be effective until thirty (30) days after Employer's receipt of such
notice, during which time Employer shall have the right to respond to Employee's
notice and cure the breach or other event giving rise to the termination.

                                       7
<PAGE>

10.3 Termination by Employer. Employer may terminate its employment of Employee
under this Agreement only with Cause and only by written notice to Employee For
purposes of this Agreement, the term Cause for termination by Employer shall be
(a) a conviction of or plea of guilty or nolo contendere by Employee to a
felony, or any crime involving fraud, securities laws violations, embezzlement
or moral turpitude; (b) the refusal by Employee to perform his material duties
and obligations hereunder or to follow the proper instructions of the Board of
Directors after a written warning with respect thereto; (c) Employee's willful
or intentional misconduct in the performance of his duties and obligations; (d)
conduct that is known or that should have been known by Employee to be
detrimental to the best interests of the Company, as determined by the
independent members of the Board; (e) if Employee or any member of his family
makes any personal profit arising out of or in connection with a transaction to
which Employer is a party or with which it is associated without making
disclosure to and obtaining the prior written consent of the independent members
of the Board.; or (f) the entry by the Securities and Exchange Commission or a
self-regulatory organization of a consent decree relating to a securities law
violation by Employee. The written notice given hereunder by Employer to
Employee shall specify that it is with Cause shall specify in reasonable detail
the cause for termination. For purposes of this Agreement, "family" shall mean
"immediate family" as defined in the rules of the Securities and Exchange
Commission. In the case of a termination for the causes described in (a), (d)
and (e) above, such termination shall be effective upon receipt of the written
notice. In the case of the causes described in (b) and (c) above, such
termination notice shall not be effective until thirty (30) days after
Employee's receipt of such notice, during which time Employee shall have the
right to respond to Employer's notice and cure (if curable) the breach or other
event giving rise to the termination.

10.4 Severance. Upon a termination of this Agreement with Good Reason by
Employee, Employer shall pay to Employee all accrued and unpaid compensation and
expense reimbursement, as of the date of such termination and the "Severance
Payment." The Severance Payment shall be payable in a lump sum, subject to
Employer's statutory and customary withholdings. The Severance Payment shall be
paid by Employer within thirty (30) business days of the expiration of any
applicable cure period. The "Severance Payment" shall equal the total amount of
the Salary payable to Employee under Section 4.1 of this Agreement for a period
of one year, or if the Threshold Date has been achieved, two years.

10.5 Termination Upon Death. If Employee dies during the Term, this Agreement
shall terminate, except that Employee's legal representatives shall be entitled
to receive any earned but unpaid compensation or expense reimbursement due
hereunder through the date of death. a

10.6 Termination Upon Disability. If, during the Term, Employee suffers and
continues to suffer from a "Disability" (as defined below), then Employer may
terminate this Agreement by delivering to Employee ten (10) calendar days' prior
written notice of termination based on such Disability, setting forth with
specificity the nature of such Disability and the determination of Disability by
Employer. For purposes hereof, "Disability" means "permanent and total
disability" as defined in Section 22(e)(3) of the Internal Revenue Code. Upon
any such termination for Disability, Employee shall be entitled to receive any
earned but unpaid compensation or expense reimbursement due hereunder through
the date of termination and the Severance Payment.

                                       8
<PAGE>

                                   ARTICLE 11

                  PERSONNEL POLICIES, CONDITIONS, AND BENEFITS

During the Term, Employee shall be entitled to vacation during each year of the
Term at the rate of four (4) weeks per year. Within 30 days after the end of
each year of the Term, Employer shall elect to (a) carry over and allow Employee
the right to use any accrued and unused vacation of Employee, or (ii) pay
Employee for such vacation in a lump sum in accordance with its standard payroll
practices.

                                   ARTICLE 12

                           BENEFICIARIES OF AGREEMENT

This Agreement shall inure to the benefit of the parties hereto, their
respective heirs, successors and permitted assigns.

                                   ARTICLE 13

                               GENERAL PROVISIONS

13.1 No Waiver. No failure by either party to declare a default based on any
breach by the other party of any provisions of this Agreement, nor failure of
such party to act quickly with regard thereto, shall be considered to be a
waiver of any such breach , or of any future breach.

13.2 Modification. No waiver or modification of this Agreement or of any
covenant, condition, or limitation herein contained shall be valid unless in
writing and duly executed by the parties to be charged therewith.

13.3 Submission to Jurisdiction; Consent to Service of Process. This Agreement
shall be governed in all respects, by the laws of the State of New York,
including validity, interpretation and effect, without regard to principles of
conflicts of law. The parties hereto irrevocably and unconditionally consent to
submit to the exclusive jurisdiction of the state and federal courts in the
State of New Jersey for any lawsuits, actions or other proceedings arising out
of or related to this Agreement and agree not to commence any lawsuit, action or
other proceeding except in such courts. The parties hereto further agree that
service of process, summons, notice or document by mail to their addresses set
forth above shall be effective service of process for any lawsuit, action or
other proceeding brought against them in any such court. The parties hereto
irrevocably and unconditionally waive any objection to the laying of venue of
any lawsuit, action or other proceeding arising out of or related to this
Agreement in such courts, and hereby further irrevocably and unconditionally
waive and agree not to plead or claim in any such court that any such lawsuit,
action or proceeding brought in any such court has been brought in an
inconvenient forum.

13.4 Entire Agreement. This Agreement embodies the whole agreement between the
parties hereto regarding the subject matter hereof and there are no inducements,
promises, terms, conditions, or obligations made or entered into by Employer or
Employee other than contained herein and except for the License Agreement.

13.5 Severability. In the event a court of competent jurisdiction determines
that a term or provision contained in this Agreement is overly broad in scope,
time, geographical location or otherwise, the parties hereto authorize such
Court to modify and reduce any such term or provision deemed overly broad in
scope, time, geographic location or otherwise so that it complies with then
applicable law.

                                       9
<PAGE>

13.6 Headings. The headings contained herein are for the convenience of
reference and are not to be used in interpreting this Agreement.

13.7 Independent Legal Advice. Employer and Employee each acknowledge that he or
it has obtained legal advice concerning this Agreement.

13.8 No Assignment. No party may pledge or encumber its respective interests in
this Agreement nor assign any of its rights or duties under this Agreement
without the prior written consent of the other party.

IN WITNESS WHEREOF the parties have executed this Agreement as of the day and
year first above written.

                                        --------------------------------
COATES INTERNATIONAL, LTD.              George J. Coates

By: __________________________

Name: _______________________

Title: ________________________

                                       10

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