collaborationagreement.htm


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    


    COLLABORATION
AGREEMENT

    


    The Agreement is by and between
Reynolds Innovations Inc. (hereinafter “RII”) and Ecology Coatings Inc.
(hereinafter “Supplier”).  The effective date of this Agreement
is April 1st,
2009.

    


    Whereas RII is a manufacturer and
seller of tobacco products, including cigarettes, snus, and other smokeless
tobacco products;

    


    Whereas Supplier has expertise and
capabilities regarding coatings, including UV curable products;

    


    Whereas RII and Supplier desire to
discuss with one another projects, products, needs and ideas of RII relating to
coatings having application as components of tobacco products;

    


    Whereas RII and Supplier deem it
desirable to collaborate on a project directed toward Supplier’s development for
RII of coatings and associated technologies for RII’s use in tobacco
products;

    


    Now therefore, RII and Supplier deem it
mutually beneficial to engage in collaborative activities with one another, to
become parties to this Agreement, and to agree as follows:

    


    SECTION
1.                           DEFINITIONS

    


    1.1           Defined Terms.  The
following terms have the following meanings:

    


    "Affiliate" means, as to a party to
this Agreement, any corporation, company, partnership, joint venture or other
entity which controls, is controlled by, or is under common control with, such
party.  For purposes of this definition, the term “control” shall mean
the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a person or entity, whether through
ownership of voting securities, by contract, or otherwise.

    


    "Confidential Information" means (i)
any proprietary information of either party or of a third party with whom either
party has an obligation of confidence, (ii) any other information or data
relating to any aspect of the collaboration or any research project, work in
progress, tests, scientific information, technical information, engineering
information, manufacturing information, marketing plan, business plan, proposal,
financial or personnel matter relating to either party or to a third party with
whom either party has an obligation of confidence, or (iii) the present or
future products, sales, suppliers, customers, employees, investors or business
of either party or a third party with whom either party has an obligation of
confidence; whether any of the foregoing is observed or in oral, written,
graphic or electronic form.

    


    “Coatings” means materials capable of
being applied to components of tobacco products, and including materials and
formulations.

    


    “Intellectual Property” means
information, concepts, ideas, discoveries, inventions (whether conceived or
reduced to practice, and whether or not patentable), specifications,
requirements, prototypical products, prototypical product components, data,
codes, programs, designs, blueprints, sketches, graphics, drawings, photographs,
developments, processes, methods, know-how, trade secrets, patent applications,
patents, and other intellectual property of any type, and enhancements and
improvements of the foregoing.

    


    “Receiving Party” has the meaning set
forth in Section 5.2.

    


    SECTION
2.                           COLLABORATION

    


    2.1           Collaboration.  RII
and Supplier will cooperate towards engaging in research and development efforts
for the purpose of developing Coatings and evaluating tobacco product components
having Coatings applied thereto.  Details of the types and
specifications of Coatings intended to be produced by Supplier pursuant to the
collaboration, are set forth in Attachment A, (Collaboration
Activities including Descriptions of Coatings), which is attached hereto and
becomes part of this Agreement.  The content of Attachment A may be amended in
writing, by mutual consent of the Parties.

    


    2.2           RII’s
Responsibilities.  RII shall have primary responsibility for
identifying the overall goals of the collaboration, and for evaluating Coatings
provided to it by Supplier.  RII shall disclose to Supplier
information, concepts, ideas, specifications, and requirements (to the extent
available and at RII’s sole discretion) regarding RII’s needs relating to the
Coatings.

    


    2.3           Supplier’s
Responsibilities.  Supplier shall have primary responsibility
for designing, manufacturing and supplying to RII Coatings that meet
specifications and requirements set by RII and are acceptable to
RII.  Supplier shall have the responsibility of providing adequate
non-commercial quantities of Coatings to RII solely for the purpose of allowing
RII to conduct evaluation of the Coatings for research and development
purposes.  Supplier shall have the responsibility of providing to RII
information regarding: (i) Coatings and the components of those Coatings, (ii)
all process conditions regarding preparation of those Coatings.

    


    2.4           Periodic
Meetings.  Supplier and RII shall arrange periodic meetings, to
be held periodically at mutually agreeable times and locations to discuss with
one another the status of the project, project timing, design review, changes
relating to the Coatings, and other relevant topics relating to the
collaboration and the Coatings.

    


    2.5           Visit of
Facilities.  Representatives of either party may, upon
reasonable notice and at times reasonably acceptable to the other party, (i)
visit the facilities where the activities relating to the collaboration are
being conducted; and (ii) consult informally, during such visits and by
telephone, with personnel of the other party performing such
activities.  Each party shall bear its own expenses with regard to any
such visits, unless otherwise agreed upon in writing by the
parties.  If requested by the other party, the parties each shall
cause appropriate individuals working on the activities relating to the
collaboration to be available for meetings at the location of the facilities
where such individuals are employed at times reasonably convenient to each
party.

    


    2.6           Supplier’s Limited Exclusivity of
Efforts.  Supplier represents and warrants that, as of the
effective date of this Agreement, it is not in any way conducting any activities
with any third party relating to the development, manufacture, supply, or sale
of any Coatings for use in connection with tobacco products or for use within
the tobacco industry.  Until the later of December 1st, 2011 or future
date that the parties enter into a Commercial Agreement of the type set forth in
Attachment B (Detailed
Project Stages, Compensation, and Success Criteria), which is attached
hereto and becomes part of this Agreement, Supplier shall not, without
RII’s prior written approval, solicit orders, initiate any orders, cooperate in
the fulfillment of orders, or conduct any activities with any third party
relating to the development, manufacture, supply, or sale of any Coatings for
use in connection with tobacco products or for use within the tobacco
industry.

    


    2.7           RII’s Non-Exclusivity of
Efforts.  RII makes no representation or warranty that, it has
not entered into any agreement with any third party (or that it will not enter
into any agreement with any third party) that obligates RII to (i) collaborate
with any third party towards the development, manufacture, supply or sale of
Coatings (or coatings of any type) to RII, or (ii) purchase Coatings (or
coatings of any type) from any third party.  During the collaboration
period, RII shall remain entitled to place orders or conduct any activities with
any third party relating to the development, manufacture, supply, or sale of any
type of coatings (including Coatings).  Nothing contained in this
Agreement shall be construed as requiring RII to (i) use any Coatings or
associated technology resulting from this Agreement or from the efforts of
Company, or (ii) stop obtaining any types of coatings from other sources,
including RII’s current source of coatings or coated papers for use associated
with tobacco product manufacture.

    


    SECTION
3.                           COMMERCIAL ASPECTS OF
COLLABORATION

    


    3.1           Acceptance.  Provided
that the Coatings perform in accordance with the specifications, meets those
qualifications, and performs in accordance with the general criteria set forth
in Attachments A, which
is attached hereto and becomes part of this Agreement, RII shall notify Supplier
of its acceptance of the Coatings.

    


    3.2           Delivery.  Supplier
shall supply RII with Coatings for evaluation pursuant to Suppliers’ consent,
which is attached hereto as Attachment B and becomes part
of this Agreement.  The party may mutually agree in writing to amend
each element of Attachment B
during the term of this Agreement.

    


    3.3           Payment
Terms.  Payment terms shall be those set forth in Attachment B.  In no
event shall RII be responsible for payment of more that those amounts set forth
in Attachment B, without
its prior written consent.

    


    3.4           Costs of
Collaboration.  Direct costs associated with the collaboration
during the development and application of Coatings shall be but limited to the
extent set forth in Attachment
B.

    


    3.5           Further Commercial
Relationship.  In the event that RII, in its sole discretion,
determines that any Coatings provided by Supplier are satisfactory for use in
applications in conjunction with any tobacco product component, the parties each
shall negotiate in good faith towards arriving at terms and conditions of a
separate Commercial Agreement to exclusively license Supplier’s
Coatings.  This Commercial Agreement would provide for RII’s or its
Affiliates ability to employ for commercial purposes any and all formulations
and technologies associates with Coatings provided by Supplier and for
Supplier's ability to be reasonably compensated for RII's commercial use of such
formulations, technologies and materials.  The ranges of Commercial
costs have been estimated by the parties in accordance set forth in, Attachment C. (Proposed
Commercial Terms of Collaboration).  Nothing contained in this
Agreement shall be construed as obligating RII to employ Coatings in commercial
applications or to enter into any type of commercial agreement with Supplier;
and any commercial relationship with Supplier shall be at RII’s sole
discretion.

    


    SECTION
4.                           INTELLECTUAL PROPERTY
RIGHTS

    


    4.1           Ownership.

    


    (a)  All
Intellectual Property resulting solely from RII or its representatives shall be
solely owned by RII.  All Intellectual Property resulting from
activities of RII unrelated to the Coatings, this Agreement or the collaboration
contemplated thereby, whether or not those activities involved a third party,
shall be owned (as between RII and Supplier) by RII.  Disclosure of
Intellectual Property of RII to Supplier by RII shall not in any way affect
RII’s ownership rights with respect to RII’s Intellectual Property, absent a
written agreement to the contrary.

    


    (b)                           All
Intellectual Property relating to the Coatings resulting solely from Supplier or
its representatives, whether or not those activities involved a third party,
shall be owned (as between RII and Supplier) by Supplier. provided that, all such
Intellectual Property results from activities of Supplier related to the
Coatings, this Agreement or the collaboration contemplated thereby.

    


    (c) With regards to 4.1 (b)
Supplier agrees to license to RII and its Affiliates such Intellectual Property
on both a non-exclusive and exclusive basis, subject to mutually acceptable
commercial terms.

    


    4.2           Intellectual Property from Joint
Activities.

    


    (a) Intellectual Property
that results from the joint activities of the parties by their respective
employees or representatives shall be owned by (i) Supplier if the Intellectual
Property relates to the Coatings, and (ii) RII if the Intellectual Property
relates to any product resulting from the use of the Coatings and processes
associated with the use of the Coatings for production of any such product
containing tobacco components.  (iii) both parties if the Intellectual
Property relates to any product resulting from the use of the Coatings and
processes associated with the application of the Coatings for production of any
such product other than those containing tobacco components.

    


    (b) For inventions (whether or
not patentable), inventorship shall be determined in accordance with the rules
of inventorship under the laws of the United States of America), and inventions
that are jointly invented by the parties shall be owned by (i) Supplier if the
inventions relate to the Coatings and processes associated with the manufacture
of the Coatings, and (ii) RII if the inventions relate to any product resulting
from the use of the Coatings and processes associated with the use of the
Coatings for production of any such product containing tobacco components.
(iii) both parties if the inventions relate to any product resulting from the
use of the Coatings and processes associated with the application of the
Coatings for production of any such product other than those containing
tobacco components.  The parties each shall enter into (or shall
have entered into) agreements with their respective employees and
representatives providing that, to the extent permitted by applicable law, such
employees and representatives shall assign (or be obligated to assign) to the
party hereto which acts as their employer or applicable contracting party, the
ownership and control of all inventions conceived or reduced to practice by such
employees and representatives in the course of their employment for, or within
the scope of the relevant relationship with, each party hereto.

    


               (c) From the effective date of
this Agreement and for a period of 3 years thereafter, Supplier shall
grant to RII an exclusive license under the Intellectual Property that arises
from Joint Activities owned by the Supplier in accordance with Section 4.2
(a).and a non-exclusive license under the Intellectual Property that arises from
Joint Activities owned by the Supplier in accordance with Section 4.2 (a),
thereafter subject to mutually acceptable commercial terms.

    


    4.3           Prosecution of
Patents.  Supplier shall be solely responsible for preparing,
filing, prosecuting and maintaining (at its discretion) patents and or patent
applications for inventions for which it has ownership rights pursuant to Sub-Section
4.1(b).  RII shall be solely responsible for preparing, filing,
prosecuting and maintaining (at its discretion) patents and patent applications
for inventions for which it has ownership rights pursuant to Sub-Sections 4.1(a) and 4.2
(b).  Each party shall cooperate with the other with regard to
the preparation, filing, and prosecution of patent applications directed toward
inventions that name at least one inventor of Supplier and/or that otherwise
result from activities of Supplier pursuant to this Agreement.  The
parties shall ensure that their respective employees and representative who are
named as on patent applications as inventors on jointly owned patent
applications have executed assignments to the appropriate party.

    


    4.4           Infringement
Actions.  If a party receives any notice, suit or claim
alleging that the conduct or activities of either or both of the parties in
accordance with this Agreement infringes Intellectual Property rights of a third
party, the party receiving such notice shall promptly inform the other, and the
parties shall promptly discuss and decide on an appropriate action and response
to such notice, suit or claim.

    


    4.5           Documents.  RII
shall have sole ownership rights of all documents that originate by or through
it, its employees, or its representatives.  Supplier shall have sole
ownership rights of all documents that originate by or through it, its
employees, or its representatives.

    


    4.6           No Other
Licenses.  Except as expressly set forth in this Agreement or
as required by law, nothing in this Agreement shall be construed to grant any
right or license under any Intellectual Property of either party to the other,
including any patent, trademark or trade secret.

    


    SECTION
5.                                      CONFIDENTIALITY

    


    5.1           Confidentiality
Obligation.  For a period that extends for seven years beyond
termination, each party shall maintain in confidence all Confidential
Information disclosed to it by the other party.  Neither party will
use, disclose or grant the use of such Confidential Information except as
expressly authorized by this Agreement.  To the extent that disclosure
is authorized by this Agreement, the party receiving the Confidential
Information (the "Receiving Party") shall obtain prior agreement from its
employees, representatives and contracting parties to whom disclosure is to be
made to hold in confidence and not make use of such information for any purpose
other than those permitted by this Agreement.  Each party will use at
least the same standard of care as it uses to protect its own proprietary and
trade secret information to ensure that such employees, representatives and
contracting parties do not disclose or make any unauthorized use of such
Confidential Information.  Each party will promptly notify the other
upon discovery of any unauthorized use or disclosure of the Confidential
Information.  The Receiving Party shall be responsible to the other
party for any loss of Confidential Information of the other party or breach of
the provisions of this Section 5 by any
employee, representative or contracting party of the Receiving Party that
received such Confidential Information from the Receiving Party.

    


               5.2           Exceptions.  The
obligations of confidentiality contained in Sub-Section 5.1 will
not apply to the extent that it can be established by the Receiving Party by
competent proof that such Confidential Information:

    


    
      	
               
      

            	
              (i)

            	
              was
      already known to the Receiving Party, other than under an obligation of
      confidentiality, at the time of receipt from the other
    party;

            


    

    


    
      	
               
      

            	
              (ii)

            	
              was
      generally available to the public or otherwise part of the public domain
      at the time of its receipt from the other
party;

            


    

    


    
      	
               
      

            	
              (iii)

            	
              becomes
      generally available to the public or otherwise part of the public domain
      after its disclosure and other than through any act or omission of the
      Receiving Party in breach of this Agreement;
or

            


    

    


    
      	
               
      

            	
              (iv)

            	
              was
      received by the Receiving Party, other than under an obligation of
      confidentiality, by a third party lawfully in possession of the
      information.

            


    

    


    5.3           Authorized
Disclosure.  Each party (and third parties as applicable) may
disclose the Confidential Information to the extent such disclosure is
reasonably necessary in filing or prosecuting patent applications, prosecuting
or defending litigation, complying with court orders, or complying with
applicable governmental regulations, provided that if such party is required to
make any such disclosure of the Confidential Information it will to the extent
practicable give reasonable advance notice to the other party of such disclosure
requirement and, except to the extent inappropriate in the case of patent
applications, will use its best efforts to secure confidential treatment of such
information required to be disclosed.

    


    5.4                           Further Authorized
Disclosure.  In no event shall RII be restricted in its ability
to use any information provided to it by Supplier pursuant to Sub-Section
2.3.

    



    
      
         


      

      
         


        
          

        

      

      
         


      

    


    SECTION
6.                                      TERM AND
TERMINATION

    


    6.1           Term of
Collaboration.  Unless earlier terminated as provided herein,
the period over which the collaboration set forth in Section 2 extends
shall commence on the effective date of this Agreement and shall continue for a
term that ends on or before December 31, 2011.  The term of the
collaboration may end prior to December 31, 2011 in the event that the parties
agree in writing that collaborative activities are complete.  That
term may be extended by mutual agreement of the parties following written notice
by one party to the other of its desire to extend that term; provided such
notice is received by the other party at least 90 days prior to the date of
expiration of that term.  Upon expiration of such term, this Agreement
shall terminate.

    


    6.2                 Termination.

    


    
      	
               
      

            	
              (a)

            	
              The
      parties may mutually agree in writing at any time to terminate the
      collaboration or terminate this
Agreement.

            


    

    


    
      	
               
      

            	
              (b)

            	
              Each
      party will have the right to terminate this Agreement (i) in the event of
      insolvency or bankruptcy of the other party, or (ii) after appropriate
      written notice to the other that the other is in breach of any material
      term of this Agreement, unless the other party cures the breach before the
      expiration of 60 days from the date of receipt of such
    notice.

            


    

    


    
      	
               
      

            	
              (c)

            	
              Either
      party may elect to terminate the collaboration or this Agreement prior to
      expiration of this Agreement by providing to the other 90 days’ written
      notice to the other.  Such termination of this Agreement shall
      not relieve the parties of any obligation accruing prior to such
      termination, even if such obligation extends beyond such
      termination.

            


    

    


    
      	
               
      

            	
              (d)

            	
              In
      the event that this Agreement is terminated for any reason, the parties
      shall cooperate toward arriving at a final accounting for amounts due by
      one party to the other; including amounts due to Supplier for direct costs
      incurred and non-cancelable commitments made in the performance of this
      Agreement for which RII has agreed to be responsible (not to exceed the
      amount for which RII has agree to be responsible), and amounts due to RII
      for pre-paid amounts to Supplier for activities and expenses not yet
      performed or incurred by Supplier.

            


    

    


    6.3                 Other
Agreements.  Termination of this Agreement for any reason shall
not have any effect upon projects, activities, collaborations, commercial
arrangements, or service arrangements that the parties may have with one another
and that do not relate to the Equipment or this Agreement.

    


    6.4                 Survival.  Section 4, Section 5, Sub-Section 6.2(d),
Sub-Section
7.7, and Sub-Section 7.11
shall survive termination of this Agreement for any reason.

    


    


    



    
      
         


      

      
         


        
          

        

      

      
         


      

    


    SECTION
7.                           MISCELLANEOUS
PROVISIONS

    


    7.1                 Representation of
Authority.  Each party hereby represents and warrants to the
other party that it is lawfully constituted in accordance with the laws of its
state or country of incorporation and that its signatory to this Agreement has
full power and authority to enter into this Agreement.

    


    7.2                 Notices.

    


    (a)           All
notices sent under this Agreement are to be sent by overnight courier or
facsimile addressed to such party at the address or facsimile number set forth
below or to such other address or facsimile number as either party has
designated by notice given to the other party.

    


    (b)  All notices are
effective when received.  The parties agree that service of any
process, summons, notice, or documents by registered mail in compliance with
this Sub-Section
7.2 shall be effective service of process for any action, suit, or
proceeding brought against a party in any court.  Absent a notice
designating another address or facsimile number, the addresses and facsimile
numbers shall be as follows:

    


    If to
RII, to:

    Reynolds Innovations
Inc.

    401 North Main Street

    Winston-Salem, NC 27102

    Attention:  Dennis
Potter 

    


    If to
Supplier,
to:                                Ecology
Coatings Inc.

    2701 Cambridge Court, Suite
100

    Auburn Hills,
MI  48326

    Attention:  CEO &
General Counsel

    


    


    7.3                 Force
Majeure.  Neither party shall be held liable or responsible to
the other party nor be deemed to have defaulted under or breached this Agreement
for failure or delay in fulfilling or performing any term of this Agreement
(other than payment of monies due) when such failure or delay is caused by or
results from causes beyond reasonable control of the affected party, including
but not limited to acts of God, fire, flood, storm, earthquake, explosion,
epidemic, embargo, war, acts of war (whether war be declared or not),
insurrection, riot, civil commotion, strike, lockout or other labor
disturbances, shortage of labor, shortage of materials, or acts, omissions or
delays in acting by any governmental authority.

    


    7.4                 Assignment.  This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective legal successors and assigns.

    This
Agreement may not be assigned or otherwise transferred, nor, except as expressly
provided hereunder, may any right or obligations hereunder be assigned or
transferred by either party without the written consent of the other party;
provided, however, that either party may, without such consent, assign this
Agreement and its rights and obligations hereunder (i) in connection with the
transfer or sale of all or substantially all of its business, if such assets
include substantially all of the assets relating to its performance of its
respective obligations hereunder, (ii) to a wholly owned subsidiary or, (iii) in
the event of its merger or consolidation with another company at any time during
the term of this Agreement.  Any permitted assignee shall assume all
obligations of its assignor under this Agreement.

    


    7.5                 Publicity.  Except
for a press release announcing this Agreement, Exhibit 3, (Approved Press
Release Announcing Collaboration Agreement) that shall require the written
approval of the other party, neither party shall originate any news release or
other public announcement, written or oral, or otherwise make any disclosure
relating to the existence or terms of or performance under this Agreement
without the prior written approval of the other party, except as may otherwise
be required by law.

    


    7.6                 Export Laws.  No
technology or information licensed from the other, and no product thereof, will
be made available or re-exported, directly or indirectly, except in compliance
with all applicable export laws and regulations.

    


    7.7                 Applicable
Law.  This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia, without regard to its
choice of law provisions, and any applicable laws of the United
States.  The parties also agree that any suit concerning the subject
matter of this Agreement shall be filed in the Commonwealth of
Virginia.

    


    7.8                 Compliance with
Laws.  RII and Supplier shall comply with, and shall ensure
that their respective employees and Affiliates shall comply with, all laws,
regulations, agreements, licenses and consents applicable to or otherwise
relating to the subject matter of this Agreement.

    


    7.9                 Waiver.  No waiver
by either party of any of the provisions of this Agreement will be effective
unless explicitly set forth in writing and executed by that
party.  Any waiver by either party of a breach of this Agreement will
not operate or be construed as a waiver of any subsequent breach.

    


    7.10                 Severability.  If
any provision of this Agreement shall be held to be unlawful, the same shall be
deemed to be deleted from this Agreement, but this Agreement shall remain in
full force and effect as if the deleted provision had never been contained in
it.  The parties shall negotiate in good faith as to the terms of a
mutually acceptable and satisfactory provision in place of any deleted
provision, and if such terms shall be agreed, this Agreement shall be amended
accordingly.

    


    7.11Entire Agreement;
Amendment.  This Agreement contains the entire understanding of
the parties with respect to the subject matter hereof.  All express or
implied agreements and understandings, either oral or written, heretofore made
are expressly merged in and made a part of this Agreement.  The
parties shall remain bound by their previous Confidentiality Agreement # 5212,
dated May 5, 2008 and Ingredient and Formula Confidentiality Agreement #
08-33740-074, dated September 5, 2008, which incorporated herein by reference in
its entirety, and except as expressly amended by this Agreement all the terms
and conditions thereof remain in full force and effect.  This
Agreement may be amended, or any term hereof modified, only by a written
instrument duly executed by both parties hereto.

    


    7.12                 Independent
Contractors.  RII and Supplier are independent contractors, and
that the relationship between them shall not constitute a partnership,
franchise, joint venture or agency of any kind.  Neither party shall
have the authority to make any statements, representations nor commitments of
any kind (whether express or implied), or to take any action, which shall be
binding on the other or create any liability or obligation on behalf of the
other, without the prior written authorization of the other party to do
so.

    


    7.13                 Warranties.  Each
party warrants that it has the right and capacity to enter into this Agreement
and that it has no obligation to any third party that affects its ability to
enter into or to perform its obligations of this Agreement.

    


    7.14                 Further
Assurances.  Each of the parties agrees to enter into or
execute, or procure the entering into or execution of such agreements,
assignments or further assurances, or do such other acts as the other party may
reasonably request to carry out the terms and conditions of this
Agreement.

    


    7.15                 Counterparts.  This
Agreement and any amendment thereto may be executed in multiple counterparts,
each of which is an original and all which constitute one agreement or
amendment, as the case may be, notwithstanding that all of the parties are not
signatories to the original or the same counterpart, or that signature pages
from different counterparts are combined, and the signature of any party to any
counterpart in a signature to and may be appended to any other
counterpart.

    


    



    
      
         


      

      
         


        
          

        

      

      
         


      

    


    In
Witness Whereof, the parties hereto have duly executed this
Agreement.

    


    


    Reynolds
Innovations
Inc.                                                                                     Ecology
Coatings

    


    


    By:  /s/
Dennis
Potter                                                                            By:  /s/
Robert G. Crockett

    
 

    Title:  VP                                                                Title:  CEO

    


    Date:  8/18/2009                                                                           Date:
8/21/2009

    


    Attachments:  Attachment
A, Attachment B, and Attachment C

    


    Attachment
A

    


    Collaboration
Activities including Descriptions of Coatings

    


    
      	
              Project
      Name:

            	
              Ecology
      Coatings FSC Cigarette Development

            
	
              Project
      Manager:

            	
              Matt
      Reddick

            
	
              Project
      Objective:

            	
              Develop
      a process whereby Ecology Coatings proprietary Coatings can be
      applied in an online method for use in the commercial manufacture of
      FSC cigarettes.

            
	
              Descriptions
      of types and specifications of coatings intended to be provided by
      Supplier:

            	
              Coating
      criteria includes but is not limited to:

              · Passes
      SRA stewardship requirements

              · Does
      not impart off tastes or odors

              · Successfully
      passes FSC requirements

              · Has
      capability to be applied on-line and at full machine speed without
      excessive loss in productivity

              · Is
      cost effective

              · Meets
      operational health and safety requirements

              · Exceeds
      benefits of alternative
solutions

            


    


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    Attachment
B

    


    Detailed
Project Stages, Compensation, and Success Criteria

    


    
      	
              Stage
      1) Formula Release to RJRT Product Integrity & Legal
      Review

            	
              August
      2009

            	
              No
      Cost

            
	
              Success: Collaboration
      Agreement negotiated and signed

            
	
              Stage
      2) Product Integrity & Legal Approval  to Make & Test
      Cigarettes

            	
              August
      2009

            	
              $25,000

            
	
              Success: S&RA
      reviews the formulations and gives the approval to make cigarettes in the
      pilot plant to be tested for chemical, sensory, and FSC
      analysis

            
	
              Stage
      3) Cigarettes Made & Tested (FSC, Chemistry, Sensory)

               

            	
              Late
      September  2009

            	
              $25,000

            
	
              Success: Cigarettes are
      made, tested, and have passed the following minimum testing
      requirements:

              · Testing
      of cigarettes that have been manufactured with Coatings shall be conducted
      pursuant to the American Society of Testing and Materials Standard ASTM
      E2187-04, "Standard Test Method for Measuring the Ignition Strength of
      Cigarettes " and fully meet the performance requirements of the
      standard.

               

              · Chemistry
      – Using RJRT’s internal document, “Mainstream Smoke Target Compound List”,
      cigarettes that have been manufactured with Coatings will have specific
      cigarette deliveries reviewed to determine if they are within one standard
      deviation of permissible limits to be acceptable relative to control*
      (does not include full stewardship testing requirements) Exhibit 1

               

              · Sensory
      – Using RJRT’s internal scorecard, “Unstructured Time Ballot with Revised
      Breaks”, cigarettes that have been manufactured with Coatings will be
      scored to determine if they remain at parity or better by internal expert
      smoking panels relative to control* Exhibit 2

               

              Step
      3 may include iterative testing before final testing is
      complete

            
	
              Stage
      4) Approval to Proceed To Prototype Online Machine

               

            	
              Earliest
      Start Date:

              October
      2009

            	
              Latest
      Completion Date:

              December
      1, 2009

            	
              $50,000

            
	
              Success:  Business
      case analysis determines that the proposal to use Coatings for the
      manufacture of FSC compliant cigarettes meets preliminary ROI hurdle(s)
      with respect to CapEx, machine de-rate, engineering feasibility
      assessment, footprint impact, etc.

              Success:  Commercial
      Agreement for the use of Coatings is Signed

            
	
              Stage
      5) Prototype System Operational & Online Testing Begins

               

               

               

               

               

               

            	
              Earliest
      Start Date:

              August
      2010

            	
              Latest
      Completion Date:

              December
      1, 2010

            	
              $250,000

            
	
              Success: Prototype system
      has been installed on a production cigarette complex and performance
      testing proves that the use of Coatings in an online band application
      meets the success criteria as outlined in the business case proposal (Step
      4)

              Success: Quality
      Control’s evaluation of cigarette performance through statistical
      sampling (product quip) begins and cigarettes manufactured with Coatings
      to produce FSC compliant cigarettes are approved by Product
      Integrity as acceptable for sale.

            
	
              Stage
      6) Production Approval

            	
              Earliest
      Start Date:

              August
      2011

            	
              Latest
      Completion Date:

              December
      1, 2011

            	
              $350,000

            
	
              Success: Quality
      Control’s evaluation of cigarette performance through statistical
      sampling is complete; Stewardship requirements are fully met; and FSC
      compliant cigarettes manufactured with Coatings have been sold to a
      cigarette wholesaler.

            
	
              *Control
      – cigarettes that reflect current market product format (i.e. Camel
      Lights) that meet internal guidelines and/or specifications for all areas
      of testing.

            
	
              Payment
      Terms:

            	
              Net
      30 Days post-Stage Success

            
	
              Payment
      Release Date:

            	
              Completion
      of success criteria as identified in each Stage or the inception of work
      on a subsequent Stage begins and the parties have mutual agreement
      that progress towards completion of current Stage has been effectively
      achieved.

            


    

    



    
      
         


      

      
         


        
          

        

      

      
         


      

    


     Attachment
C

    


    Proposed
Commercial Licensing Agreement Terms

    


    
      	
              Assumptions
      for arriving at a fixed Price per Unit of Coatings:

            	
              RJRT
      has made some assumptions when formulating our initial valuation but feel
      confident the royalty fee we are offering remains competitive to the
      existing FSC paper alternatives.

              · RJRT
      possesses an intimate working knowledge of the FSC paper
      market.  We routinely demonstrate mastery in negotiating with
      our existing supply chain base of FSC paper providers.

              · RJRT
      analyzed the Ecology Coatings standard Royalties fee structure which is
      based on a 30/70 net total benefit (NTB) formula where 30% of NTB paid to
      Ecology Coatings, and 70% NTB retained by customer and concluded that by
      using our market intelligence and the projections listed
      below.

            
	
              RJRT
      FSC Projections:

            	
              2010

            	
              2011

            	
              2012

            	
              2013

            	
              2014

            	
              2015

            
	
              72.3
      bil/yr

            	
              67.2
      bil/yr

            	
              63.9
      bil/yr

            	
              60.9
      bil/yr

            	
              58.5
      bil/yr

            	
              56.5
      bil/yr

            
	
              FSC
      Paper $

              Projections:

            	
              $60/100K

            	
              $45/100K

            	
              $40/100K

            	
              $35/100K

            	
              $30/100K

            	
              $??/100K

            
	
              RJRT
      Initial Valuation of Royalty Fee:

            	
              Actual
      results from project phases 1-3 will form the basis for the RJRT Business
      Case to justify the project which will include a detailed value analysis
      and plan for conversion to the new process.  The conversion plan
      will entail a phased machine conversion and implementation of the process
      which may span over several quarters.

              Based
      on the business, as we know it today RJRT has arrived at the valuation of
      the royalty fee to be $0.02/TH cigarettes.

              Finally,
      RJRT will recapture all success dollars paid out to Ecology Coatings
      through the write down of the first few years’ royalty
    fees.

            
	
              EC
      Initial Valuation of Royalty Fee:

            	
              Ecology’s
      coatings are disruptive, game changing technologies exclusively available
      to RJRT.  Ecology Coatings has analyzed industry cost
      information associated with currently available FSC solutions and has
      determined that RJRT has an opportunity to achieve significant NTB cost
      savings over traditional off-line FSC processes.  Ecology
      believes the total savings to be as much as $0.01/cigarette or $60 million
      annual NTB based on projected 2011 cigarette sales.  EC’s
      benefit sharing model is consistent with other industries where disruptive
      patented inventions succeed in changing the manufacturing process
      resulting in significant cost savings.  A successful
      collaboration will ensure very large savings is enjoyed by RJRT (70%) with
      the remainder (30%) paid to EC in licensing royalties.  In this
      application, EC analysis estimates the royalties to be as much as
      $0.003/cigarette, approximately $18.0 million annually.

            
	
              Finalization
      of Further Commercial Agreement – Royalties

            	
              A
      full commercial license agreement is to be approved as part of Stage 4,
      attachment B.  Success at this stage includes RJR management
      approval of the initial business case and preliminary ROI with both
      parties approval of royalty fees.

            


    

    


    


    


    


    



    
      
         


      

      
         


        
          

        

      

      
         


      

    


     

    Exhibit
1

     

     

    Mainstream Smoke Target
Compound List

     

    


    
      	
              Chemical

            	
              Short
      Term Exposure

            	
              Long
      Term Exposure

            
	
              Aromatic
      Amines

            	 
      	 
      
	
              2-Aminonaphthalene

            	 
      	
              X

            
	
              4-Aminobiphenyl

            	 
      	
              X

            
	
              Volatile
      Carbonyls

            	 
      	 
      
	
              Formaldehyde

            	
              X

            	
              X

            
	
              Acetaldehyde

            	
              X

            	
              X

            
	
              Acrolein

            	
              X

            	
              X

            
	
              Trace
      metals

            	 
      	 
      
	
              Cadmium

            	 
      	
              X

            
	
              Arsenic

            	 
      	
              X

            
	
              N-Nitrosamines

            	 
      	 
      
	
              N-Nitrosonornicotine
      (NNN)

            	 
      	
              X

            
	
              4-(N-Nitrosomethylamino)-1-(3-pyridinyl)-1-butanone
      (NNK)

            	 
      	
              X

            
	
              N-Nitrosoanatabine
      (NAT)

            	 
      	
              X

            
	
              Semi-Volatiles

            	 
      	 
      
	
              Quinoline

            	 
      	
              X

            
	
              Phenols

            	 
      	 
      
	
              Hydroquinone

            	
              X

            	
              X

            
	
              Catechol

            	
              X

            	
              X

            
	
              Phenol

            	
              X

            	
              X

            
	
              m+p-Cresol

            	
              X

            	
              X

            
	
              o-Cresol

            	
              X

            	
              X

            
	
              Volatiles

            	 
      	 
      
	
              1,3-butadiene

            	 
      	
              X

            
	
              Isoprene

            	 
      	
              X

            
	
              Acrylonitrile

            	 
      	
              X

            
	
              Benzene

            	 
      	
              X

            
	
              Polyaromatic
      Hydrocarbons (PAHs)

            	 
      	 
      
	
              Benzo[a]pyrene

            	 
      	
              X

            
	
              Benzo[a]anthracene

            	 
      	
              X

            
	
              Benzo[b]fluoranthene

            	 
      	
              X

            
	
              Benzo[j]fluoranthene

            	 
      	
              X

            
	
              Benzo[k]fluoranthene

            	 
      	
              X

            
	
              Dibenz[a,h]anthracene

            	 
      	
              X

            
	
              Indeno[1,2,3-cd]pyrene

            	 
      	
              X

            
	
              Fluorene

            	 
      	
              X

            
	
              Acenaphthylene

            	 
      	
              X

            
	
              Fluoranthene

            	 
      	
              X

            
	
              Acenaphthene

            	 
      	
              X

            
	
              Naphthalene

            	 
      	
              X

            
	
              Others

            	 
      	 
      
	
              Tar

            	
              X

            	
              X

            
	
              Nicotine

            	
              X

            	
              X

            
	
              CO

            	
              X

            	
              X

            
	
              HCN

            	
              X

            	
              X

            
	
              NOx

            	
              X

            	
              X

            


    

    



    
      
         


      

      
         


        
          

        

      

      
         


      

    


    Exhibit
2

     

    Unstructured Time Ballot
with Revised Breaks

     

    

 

     

    
       

    

    


    




    
       

    

    Exhibit
3

    


    Approved Press Release
Announcing Collaboration Agreement

    


     

    
      


      

    

    


    


    


    Investor
and Media Relations

    McCloud
Communications, LLC

    Marty
Tullio, Managing Member 

    949.553.9748

    Marty@McCloudCommunications.com

    


    


    


    Ecology
Coatings Signs Development Agreement with Major U.S. Tobacco
Company

    


            Market
Size (2007):  Five Trillion Cigarettes Produced
Worldwide;

                                                330
Billion Cigarettes Produced Within the U.S.
(1)

    


    Auburn Hills, MI – August 24,
2009 – Ecology Coatings,
Inc. (OTCBB:ECOC), a leader in the discovery and development of
nanotechnology-enabled, ultraviolet-curable advanced coatings, today announced
that it has signed a collaboration agreement with a major tobacco company for
the application of its technology for producing “fire standard compliant” (FSC)
cigarettes. FSC cigarettes are designed to meet government reduced ignition
propensity testing standards. Ecoloiogy has filed a patent application with the
U.S. Patent and Trademark Office for its technology.

    


    The
agreement establishes the framework under which the two companies plan to test
and commercialize FSC cigarettes using Ecology Coatings’ unique paper coating
technology. Milestone payments will be made to Ecology Coatings as predefined
development and testing milestones are met. If those payments are met, royalty
payments will commence with market introduction and product sales.

    


    “The goal
of our collaboration with this tobacco company is to meet government
requirements for FSC cigarettes while at the same time allowing the manufacturer
to produce at full production speeds,” said Ecology Coatings CEO Bob Crockett.
“Our solution has the potential to allow manufacturers to be self-reliant and
eliminate the need for specialty paper. Our uniqueness resides in our ability to
cure UV coatings at high speeds at substantial cost savings.”

    


    Crockett
continued, “This application is an outgrowth of our patented disruptive paper
barrier coating technologies. By designing the solution as part of the
manufacturing process, manufacturers can reduce their costs. We believe this is
an exciting opportunity that could be very rewarding to our company and its
shareholders.”

    


    The
Coalition for Fire-Safe Cigarettes reports that approximately 40 states in the
U.S. and Washington, D.C., have passed legislation calling for the production of
FSC cigarettes (http://firesafecigarettes.org/).
The Coalition’s goal is to save lives and prevent injuries due to
cigarette-induced fires. The Coalition reports that 99.8 percent of the U.S.
population is now or soon will be governed by state fire-safe cigarette
legislation.

    


    (1)  The source of this information is the
U.S. Department of Agriculture

     

    


     

    About Ecology Coatings,
Inc.

    Ecology
Coatings, Inc. (OTCBB:ECOC) is a world leader in the development and licensing
of cleantech ultra-

    


    - more
-

    Ecology Coatings Signs Development
Agreement with Major U.S. Tobacco Company

    Page
2

    


    


    violet
(UV) curable coatings — coatings that improve the products we use daily.
Ecology’s technology platform allows manufacturers to enhance the durability and
performance of their products, while significantly reducing energy costs and
increasing manufacturing throughput. The company produces solid coatings which
eliminate the escape of harmful solvents into the atmosphere during application.
Headquartered in Auburn Hills, Michigan, Ecology Coatings has a development and
prototype lab in Akron, Ohio. For additional information, visit the company's
website at http://www.ecologycoatings.com.

    


    Forward-looking
Statements

    Except
for the historical information contained herein, the matters discussed are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995, as amended. These statements
involve risks and uncertainties which are specified in Ecology's filings with
the Securities and Exchange Commission. These risks and uncertainties could
cause actual results to differ materially from any forward-looking statements
made herein.

    


    


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