marquezpromnote.htm


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    ECOLOGY
COATINGS, INC.

     

    CONVERTIBLE
PROMISSORY NOTE

     

    $300,000                                                                                                Note
Number:

     

    February 26, 2006

     

    FOR VALUE RECEIVED, ECOLOGY COATINGS,
INC., a California corporation (“Company”), promises to pay to Chris L.
Marquez (“Holder”), or its registered assigns, in lawful money of the United
States of America the principal sum of THREE HUNDRED THOUSAND DOLLARS
($300,000), or such lesser amount as shall equal the outstanding principal
amount hereof, together with interest from the date of this Convertible
Promissory Note (the “Note”) on the unpaid principal balance at a rate equal to
fifteen percent (15%) per annum, computed on the basis of the actual number of
days elapsed and a year of 365 days.  All unpaid principal, together
with any then unpaid and accrued interest and other amounts payable hereunder,
shall be due and payable on the earlier of (i) August 26, 2007 (the “Maturity
Date”), or (ii) when, upon or after the occurrence of an Event of Default (as
defined below), such amounts are declared due and payable by Holder or made
automatically due and payable in accordance with the terms
hereof.  This Note is one of a duly authorized series of Convertible
Promissory Notes of the Company that may be issued by the Company from time to
time of like tenor and effect (except for such variations as may be necessary to
express the name of the payee, the number, the date, and the principal amount of
each note) each dated on or after February 28, 2006 (the “Bridge
Notes”).

    


    The
following is a statement of the rights of Holder and the conditions to which
this Note is subject, and to which Holder, by the acceptance of this Note,
agrees:

    


    
      	
              1.  

            	
              Definitions.  As
      used in this Note, the following capitalized terms have the following
      meanings:

            


    

    


    
      	
              (a)  

            	
              “Business
      Day” means each Monday, Tuesday, Wednesday, Thursday and Friday which is
      not a day on which banking institutions in the State of Ohio are
      authorized or obligated by law or executive order to
  close.

            


    

    
      	
              (b)  

            	
              “Company”
      includes the corporation initially executing this Note and any Person
      which shall succeed to or assume the Obligations of Company under this
      Note.

            


    

    
      	
              (c)  

            	
              “Event
      of Default” has the meaning given in Section 4
  hereof.

            


    

    
      	
              (d)  

            	
              “Holder”
      means the Person specified in the introductory paragraph of this Note or
      any Person who shall at the time be the registered Holder of this Note,
      and “Bridge Holders” shall refer to all such Persons holding
      then-outstanding Bridge Notes.

            


    

    
      	
              (e)  

            	
              “Lien”
      means with respect to any property, any security interest, mortgage,
      pledge, lien, claim, charge or other encumbrance in, of, or on such
      property or the income therefrom, including, without limitation, the
      interest of a vendor or lessor under a conditional sale agreement, capital
      lease or other title retention agreement, or any agreement to provide any
      of the foregoing, and filing of any financing statement or similar
      instrument under the Uniform Commercial Code or comparable law of any
      jurisdiction.

            


    

    
      	
              (f)  

            	
              “Majority-in-Interest
      of the Bridge Holders” means Bridge Holders holding more than fifty
      percent (50%) of the aggregate outstanding principal amount of the
      then-outstanding Bridge Notes.

            


    

    
      	
              (g)  

            	
              “Material
      Adverse Effect” shall mean a material adverse effect on (a) the business,
      assets, operations, prospects or financial or other condition of the
      Company; (b) the ability of the Company to pay or perform the Obligation
      in accordance with the terms of this Note and each of the other Bridge
      Notes and to avoid an Event of Default, or an event which, with the giving
      of notice or the passage of time or both, would constitute an Event of
      Default, under any Bridge Notes; or (c) the rights and remedies of Holder
      under this Note or any related documents, instrument or
      agreement.

            


    

    
      	
              (h)  

            	
              “Obligations”
      means and includes all loans, advances, debts, liabilities and obligation
      howsoever arising, owned by Company to the Bridge Holders of every kind
      and description (whether or not evidenced by any note or instrument and
      whether or not for the payment of money), now existing or hereafter
      arising under or pursuant to the terms of the Bridge Notes, including all
      interest, fees, charges, expenses, attorneys’ fees and costs and
      accountants’ fees and costs chargeable to and payable by Company hereunder
      and thereunder, in each case, whether direct or indirect, absolute or
      contingent, due or to become due, and whether or not arising after the
      commencement of a proceeding under Title 11 of the United State Code 17
      USC Section 101 et. Seq.) as amended from time to time (including
      post-petition interest) and whether or not allowed or allowable as a claim
      in any such proceeding.

            


    

    
      	
              (i)  

            	
              “Person”
      means and includes an individual, a partnership, a corporation (including
      a business trust), a joint stock company, a limited liability company, an
      unincorporated association, a joint venture or other entity or a
      governmental authority.

            


    

    
      	
              (j)  

            	
              “Securities
      Act” means the Securities Act of 1933, as
  amended.

            


    

    


    2. Interest.  Subject
to Section 3 and 8 of this Note, accrued interest on this Note shall be first
payable on the Maturity Date.

    


    3. Prepayment.  Company
may prepay this Note in whole or in part only upon the prior written consent of
the Bridge Holder.

    


     

    4. Events of
Default.  The occurrence of any of the following shall constitute an
“Event of Default under this Note:

    


     

    
      	
              (a)  

            	
              Failure
      to Pay.  The Company shall fail to pay when due any principal or
      interest payment on the date
hereunder;

            


    

    
      	
              (b)  

            	
              Voluntary
      Bankruptcy or Insolvency Proceedings.  The Company shall (i)
      apply for or consent to the appointment of a receiver, trustee, liquidator
      or custodian of itself of all or a substantial part of its property, (ii)
      be unable, or admit in writing its inability, to pay its debts general as
      they mature, (iii) make a general assignment for the benefit of its or any
      of its creditors, (iv) be dissolved or liquidated, (v) become insolvent
      (as such term may be defined or interpreted under any applicable statute),
      (vi) commence a voluntary case or other proceeding seeking liquidation,
      reorganization or other relief with respect to itself or its debts under
      any bankruptcy, insolvency or other similar law now or hereafter in effect
      or consent to any such relief or to the appointment of or taking
      possession of its property by any official in an involuntary case or other
      proceeding commenced against it, or (vii) take any action for the purpose
      of effecting any of the foregoing;
or

            


    

    
      	
              (c)  

            	
              Involuntary
      Bankruptcy or Insolvency Proceedings.  Proceedings for the
      appointment of a receiver, trustee, liquidator or custodian of the Company
      or of all or a substantial part of the property thereof, or an involuntary
      case or other proceedings seeking liquidation, reorganization or other
      relief with respect to the Company or the debts thereof under any
      bankruptcy, insolvency or other similar law now or hereafter in effect
      shall be commenced and an order for relief entered or such proceeding
      shall not be dismissed or discharged within thirty (30) days of
      commencement.

            


    

    


    5. Rights of
Holder Upon Default.  Upon the occurrence or existence of any Event of
Default (other than an Event of Default described in Sections 4(b) or 4(c)) and
at any time thereafter during the continuance of such Event of Default, Holder
may, with the consent of a Majority-in-Interest of the Bridge Holders, by
written notice to the Company, declare all outstanding Obligation payable by
Company hereunder to be immediately due and payable without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly
waived.  Upon the occurrence or existence of any Event of Default
described in Sections 4(b) and 4(c), immediately and without notice, all
outstanding Obligations payable by the Company hereunder shall automatically
become immediately due and payable, without presentment, demand, protest or any
other notice of any kind, all of which are hereby expressly waived.

    


    
      	
              6.  

            	
              Representations
      and Warranties of the Company.  The Company represents and
      warrants to Holder that:

            


    

    


     

    
      	
              (a)  

            	
              Due
      Incorporation, Qualification, etc.  The Company (i) is a
      corporation duly organized, validly existing and in good standing under
      the laws of its state of incorporation; (ii) has the power and authority
      to own, lease and operate its properties and carry on its business as now
      conducted; and (iii) is duly qualified, licensed to do business and in
      good standing as a foreign corporation in each jurisdiction where the
      failure to be so qualified or licensed could reasonably be expected to
      have a Material Adverse Effect.

            


    

    
      	
              (b)  

            	
              Authority.  The
      execution, delivery and performance by the Company of this Note (i) are
      within the power of the Company and (ii) have been duly authorized by all
      necessary actions on the part of the
Company.

            


    

    
      	
              (c)  

            	
              Enforceability.  This
      Note has been or will be, duly executed and delivered by the Company and
      constitutes, or will constitute, a legal, valid and binding obligation of
      the Company, enforceable against the Company in accordance with its terms,
      except as limited by bankruptcy, insolvency or other laws of general
      application relating to or affecting the enforcement of creditors’ rights
      generally and general principles of
equity.

            


    

    
      	
              (d)  

            	
              Non-Contravention.  The
      execution and delivery by the Company of this Note and the performance and
      consummation of the transactions contemplated thereby do no and will not
      (i) violate the Company’s Articles of Incorporation or Bylaws (“Charter
      Documents”) or any material judgment, order, writ, decree, statute, rule
      or regulation applicable to the Company; (ii) violated any provision of,
      or result in the breach of the acceleration of, or entitle any other
      Person to accelerate (whether after the giving of notice or lapse of time
      or both), any material mortgage, indenture, agreement, instrument or
      contract to which the Company is a party or by which it is bound; or (iii)
      result in the creation or imposition of any Lien upon any property, asset
      or revenue of the Company or the suspension, revocation, impairment,
      forfeiture, or nonrenewal of any material permit, license, authorization
      or approval applicable to the Company, its business or operations, or any
      of its assets or properties.

            


    

    
      	
              (e)  

            	
              Approvals.  No
      consent, approval, order or authorization of, or registration, declaration
      or filing with, any governmental authority or other Person (including,
      without limitation, the shareholders of any person) is required in
      connection with the execution and delivery of this Note and the
      performance and consummation of the transactions contemplated
      thereby.

            


    

    
      	
              (f)  

            	
              No
      Violation of Default.  The Company is not in violation of or in
      default with respect to (i) its Charter Documents or any material
      judgment, order, writ, decree, statute, rule or regulation applicable to
      such Person; or (ii) any material mortgage, indenture, agreement,
      instrument or contract to which such Person is a party or by which it is
      bound (no is there any waiver in effect which, if not in effect, would
      result in such a violation or default), where, in each case, such
      violation or default, individually, or together with all such violations
      or defaults, could reasonably be expected to have a Material Adverse
      Effect.

            


    

    


    7. Representations
and Warranties of Holder.  Holder represents and warrants to the
Company upon the acquisition of this Note as follows:

    


    
      	
              (a)  

            	
              Binding
      Obligation.  Holder has full legal capacity, power and authority
      to execute and deliver this Note and to perform its obligations
      hereunder.  This Note is a valid and binding obligation of
      Holder, enforceable in accordance with its terms, except as limited by
      bankruptcy, insolvency or other laws of general application relating to or
      affecting the enforcement of creditors’ rights generally and general
      principles of equity.

            


    

    
      	
              (b)  

            	
              Securities
      Law Compliance.  Holder has been advised that this Note and the
      underlying securities have not been registered under the Securities Act,
      or any state securities laws and, therefore, cannot be resold unless they
      are registered under the Securities Act, and applicable state securities
      laws or unless an exemption from such registration requirements is
      available.  Holder is aware that the Company is under no
      obligation to effect any such registration with respect to this Note or
      the underlying securities or to file for or comply with any exemption from
      registration.  Holder has not been formed solely for the purpose
      of making this investment and is purchasing this Note for its own account
      for investment, not as a nominee or agent, and not with a view to, or for
      resale in connection with, the distribution thereof.  Holder has
      such knowledge and experience in financial and business matters that
      Holder is capable of evaluating the merits and risks of such investment,
      is able to incur a complete loss of such investment and is able to bear
      the economic risk of such investment for an indefinite period of
      time.  Holder is an accredited investor as such term is defined
      in Rule 501 of Regulation D under the Securities
  Act.

            


    

    
      	
              (c)  

            	
              Tax
      Advisors.  Holder acknowledges that it has had the opportunity
      to review with its own tax advisors the federal, state, local and foreign
      tax consequences of this investment and the transactions contemplated by
      this Note.  Holder further acknowledges and agrees that Holder
      (and not the Company) shall be responsible for its own tax liability that
      may arise as a result of this investment or the transactions contemplated
      by this Note.

            


    

    


    
      	
              8.  

            	
              Acceleration
      of Payment/Optional Conversion.

            


    

    


    
      	
              (a)  

            	
              Automatic
      Conversion.  In the event the Company consummates, prior to the
      Maturity Date an equity financing pursuant to which it sells shares of its
      Stock (the “Stock”) with the principal purpose of raising capital and with
      aggregate gross proceeds to the Company of at least $5,000,000 (including
      the principal amount of any Bridge Notes that convert into Stock in such
      financing)(the “Qualified Equity Financing”), the Holder may, at its sole
      option, (i) elect to have the Company pay to Holder the entire outstanding
      principal amount of and all accrued interest under this Note upon the
      consummation of the Qualified Equity Financing or (ii) elect to have the
      outstanding principal amount of and all accrued interest under this Note
      convert into shares of Stock on the same terms and conditions (except for
      price) as the other investors that purchase the Stock in the Qualified
      Equity Financing at a conversion price per share equal to eighty percent
      (80%) of the price per share paid by the other investors that purchase the
      Stock in the Qualified Equity Financing (the “Discount
      Price”).

            


    

    
      	
              (b)  

            	
              Conversion
      Procedure.  In the event Holder elects to convert this Note
      pursuant to Section 8(a), Holder agrees to deliver the original of this
      Note (or a notice to the effect that the original Note has been lost,
      stolen or destroyed and an agreement acceptable to the Company whereby
      Holder agrees to indemnify the Company from any loss incurred by it in
      connection with this Note) at the closing of the Qualified Equity
      Financing for cancellation.  In addition, upon conversion of
      this Note in connection with a Qualified Equity Financing, Holder hereby
      further agrees to execute and deliver to the Company all transaction
      documents related to the Qualified Equity Financing, including a purchase
      agreement and other ancillary agreements, with customary representations
      and warranties and transfer restrictions (including a 180-day, or such
      shorter period established by the lead underwriter, lock-up agreement in
      connection with an initial public offering), and having the same terms as
      those agreements entered into by the other investors that purchase the
      Stock.

            


    

    
      	
              (c)  

            	
              Delivery
      of Stock Certificate; No Fractional Shares.  In the event of the
      conversion of this Note pursuant to Section 8(a), Company shall deliver to
      Holder not more than ten (10) Business Days after delivery by Holder of
      this Note to Company a certificate representing the shares of Stock issued
      upon conversion of this Note and cash in lieu of any fractional shares
      pursuant to the next sentence.  No fractions of shares or scrip
      representing fractions of shares will be issued upon conversion, but
      instead of any fractional interest, Company shall pay a cash adjustment,
      computed on the basis of the Discount
Price.

            


    

    


    9. Successors
and Assigns.  Subject to the restrictions on transfer described in
Section 11 and 12 below, the rights and Obligation of Company and Holder of this
Note shall be binding upon and benefit the successors, assigns, heirs,
administrators and transferees of the parties.

    


    10. Waiver
and Amendment.  Any provision of this Note may be amended, waived or
modified upon the written consent of Company and a Majority-in-Interest of the
Bridge Holders.

    


     

    11. Transfer
of this Note or Securities Issuable on Conversion Hereof.  Holder
agrees that this Note and the securities issuable upon conversion of this Note
may not be offered, sold, transferred or disposed of in any other way without
the prior written consent of the Company.  With respect to any offer,
sale or other disposition of this Note or securities into which such Note may be
converted, Holder will give written notice to Company prior thereto, describing
briefly the manner thereof, together, if requested, with a written opinion of
Holder’s counsel, or other evidence if reasonably satisfactory to the Company,
to the effect that such offer, sale or other distribution may be effected
without registration or qualification (under any federal or state law then in
effect).  Upon receiving such written notice and reasonably
satisfactory opinion, if so requested, or other evidence, Company, as promptly
as practicable, shall notify Holder whether or not Holder may sell or otherwise
dispose of this Note or such securities, all in accordance with the terms of the
notice delivered to Company.  If a determination has been made
pursuant to this Section 11 that the opinion of counsel for Holder, or other
evidence, is not reasonably satisfactory to Company, Company shall so notify
Holder promptly after such determination has been made.  After Holder
ahs been notified in writing that the Company consents to the offer, sale, or
other disposition of this Note or such securities, Holder may sell or otherwise
dispose of this Note or such securities in accordance with the terms of the
notice delivered to Company.  Each Note thus transferred and each
certificate representing the securities thus transferred shall bear a legend as
to the applicable restrictions on transferability in order to ensure compliance
with the Securities Act, unless in the opinion of counsel for Company such
legend is not required in order to ensure compliance with the Securities
Act.  Company may issue stop transfer instructions to its transfer
agent in connection with such restrictions.  Subject to the foregoing,
transfers of this Note shall be registered upon registration books maintained
for such purpose by or on behalf of Company.  Prior to presentation of
this Note for registration of transfer, Company shall treat the registered
Holder hereof as the owner and Holder of this Note for the purpose of receiving
all payments of principal and interest hereon and for all other purposes
whatsoever, whether or not this Note shall be overdue and Company shall not be
affected by notice to the contrary.

    


    12. Assignment
by Company.  Neither this Note nor any of the rights, interests or
Obligations hereunder may be assigned, by operation of law or otherwise, in
whole or in part, by Company without the prior written consent of a
Majority-in-Interest of the Bridge Holders.

    


     

    
      	
              (a)  

            	
              Notices.  All
      notices, request, demands, consent, instructions or other communications
      required or permitted hereunder shall be in writing and faxed, mailed or
      delivered to each party as follows:  (i) if to Holder, at
      Holder’s address of facsimile number set forth on the signature page
      hereto, or at such other address as Holder shall have furnish the Company
      in writing, or (ii) if to the Company, at the following address of
      facsimile number (or at such other address or facsimile number as the
      Company shall have furnished to the Investors in
  writing):

            


    

    


    Company:                      Ecology
Coatings, Inc.

    1238 Brittain Road

    Akron,
Ohio  44310

    Telephone:  (33)
633-3500

    Facsimile:   (330)
633-3464

    Attn:  Chief Financial
Officer

    


    All such
notices and communications shall be effective (a) when sent by Federal Express
or other overnight service of recognized standing, on the business day following
the deposit with such service; (b) when mailed, by registered or certified mail,
first class postage prepaid and addressed as aforesaid through the United States
Postal Service, four days after being deposited in the mail; (c) when delivered
by hand, upon delivery; and (d) when faced, upon confirmation of
receipt.

    


    13. Withholding
Rights.  The Company shall be entitled to deduct and withhold from any
payments made pursuant to this Note such amounts as the Company is required to
deduct and withhold with respect to the making of such payment under the
Internal Revenue Code of 1986, as amended, or any provision of state or local
tax law.  To the extent that amounts are so withheld by the Company,
such withheld amounts shall be treated for all purposes of this Note as having
been paid to Holder in respect of which such deduction and withholding was made
by Company.

    


    14. Pari
Passu Notes.  Holder acknowledges and agrees that the payment of all
or any portion of the outstanding principal amount of this Note and all interest
hereon shall be pari
passu in right of payment and in all other respects to the other Bridge
Notes.  In the event Holder receives payments in excess of its pro
rata share of Company’s payments to the Bridge Holder holding the other Bridge
Notes, then Holder shall hold in trust and such excess payments for the benefit
of the Bridge Holders holding the other Bridge Notes and shall pay such amounts
held in trust to such other Bridge Holders upon demand by such
Investors.

    


     

    15. Usury.  In
the event any interest is paid on this Note which is deemed to be in excess of
the then legal maximum rate, then that portion of the interest payment
representing an amount in excess of the then legal maximum rate shall be deemed
a payment of principal and applied against the principal of this
Note.

    


     

    16. Waivers.  Company
hereby waives notice of default, presentment or demand for payment, protest or
notice of nonpayment or dishonor and all other notices or demands relative to
this instrument.

    


     

    17. Partial
Invalidity.  If at any time any provision of this Note is or becomes
illegal, invalid or unenforceable in any respect under the law of any
jurisdiction, neither the legality, validity or enforceability of the remaining
provisions of this Note nor the legality, validity or enforceability of such
provision under the law of any other jurisdiction shall in any way be affected
or impaired thereby.

    


     

    18. Governing
Law.  This Note and all actions arising out of or in connection with
this Note shall be governed by and construed in accordance with the laws of the
State of California, without regard to the conflicts of law provisions of the
State of California, or of any other state.

    


     

    IN
WITNESS WHEREOF, the Company and Holder have caused this Second Allonge to be
executed and delivered as of the date and year first above written.

     

    


     

    ECOLOGY COATINGS, INC.

     

    


     

    


     

    


     

    By:  /s/ Richard
Stromback

     

    Richard Stromback

     

    Its:           CEO

     

    


     

    


     

    Accepted and agreed to:

     

    


     

    


     

    /s/ Chris L
Marquez

     

    CHRIS L. MARQUEZ