exv10w40






Exhibit 10.40




No. 1




			
	 	 	 
	US $3,333
	 	July 10, 2008






PROMISSORY NOTE




     FOR VALUE RECEIVED, the undersigned, Ecology Coatings, Inc., a Nevada corporation (the “The
Maker”), promises to pay to the order of Richard D. Stromback (the “Holder”), the principal amount
of Three Thousand three hundred and thirty-three dollars and 00/100 ($3,333), together with
interest thereon as provided below.



ARTICLE I




TERMS OF REPAYMENT




     1. Interest. The Note shall bear interest (“Interest”) equal to twenty-five (25%) percent per
annum on the unpaid principal balance, computed on a three hundred and sixty-five (365) day year,
during the term of the Note. The Maker shall pay all Interest on or before the Maturity Date. In no
event shall the rate of Interest payable on this Note exceed the maximum rate of interest permitted
to be charged under applicable law.



     2. Payments. All payments by the Maker under this Note shall first be credited against costs
and expenses provided for hereunder, second to the payment of any penalties, third to the payment
of accrued and unpaid interest, if any, and the remainder shall be credited against principal. All
payments due hereunder shall be payable in legal tender of the United States of America, and in
same day funds delivered to the Holder by cashier’s check, certified check, or any other means of
guaranteed funds to the mailing address provided below, or at such other place as the Holder or any
holder hereof shall designate in writing for such purpose from time to time. If a payment hereunder
otherwise would become due and payable on a Saturday, Sunday or legal holiday, the due date thereof
shall be extended to the next succeeding business day, and Interest, if any, shall be payable
thereon during such extension.



     3. Maturity Date. All outstanding principal and interest shall be payable on August 10, 2008
(the “Maturity Date”).



     4. Pre-Payment Demand. If at any time before the Maturity Date the Maker completes an
underwritten public offering of its common stock or other form of security convertible into common
stock pursuant to an effective registration statement under the Securities Act of 1933 (the “Act”),
as amended, or a managed private offering exempt from registration under Section 4(2) of the Act
and Regulation D promulgated thereunder (collectively, a “New Offering”) which results in proceeds
received by the Maker net of underwriting discounts and commissions, of at least One Million and
00/100 dollars ($1,000,000.00) (a “Pre-Payment Event”), then at the sole and absolute discretion of
the Holder, and upon written demand to the Maker (the “Pre-Payment Notice”), all amounts owed under this



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Note shall become due and payable within fifteen (15) days following Maker’s receipt of the
Pre-Payment Notice.




     5. Exemption from Restrictions. It is the intent of the Maker and the Holder in the execution
of this Note that the indebtedness hereunder be exempt from the restrictions of the usury laws of
any applicable jurisdiction. The Maker and the Holder agree that none of the terms and provisions
contained herein shall be construed to create a contract for the use, forbearance or detention of
money requiring payment of interest at a rate in excess of the maximum interest rate permitted to
be charged by the laws of any applicable jurisdiction. In such event, if any holder of this Note
shall collect monies which are deemed to constitute interest which would otherwise increase the
effective interest rate on this Note to a rate in excess of the maximum rate permitted to be
charged by the laws of any applicable jurisdiction, all such sums deemed to constitute interest in
excess of such maximum rate shall, at the option of such holder, be credited to the payment of this
principal amount due hereunder or returned to the Maker.



     6. The indebtedness evidenced by this Note is hereby expressly subordinated, to the extent and
in the manner hereinafter set forth, in right of payment to the prior payment in full of all the
Maker’s Senior Indebtedness, as hereinafter defined.




	 	a.	 	As used in this Note, the term “Senior Indebtedness” shall mean
the principal of an unpaid accrued interest on: (i) indebtedness of the Maker
or with respect to which the Maker is a guarantor, in excess of Fifty Thousand
and 00/100 dollars ($50,000.00), to banks, insurance companies, or other
financial institutions regularly engaged in the business of lending money,
which is for money borrowed by the Maker in the ordinary course of business;
(ii) any of the three (3) promissory notes made by the Maker in favor of Hayden
Capital USA, LLC, a Delaware limited liability company, on February 4, 2008 and
May 20, 2008, (the “Senior Notes”); (iii) any of the two (2) promissory notes
made by the Maker dated March 1, 2008; (iv) any of the two (2) promissory notes
made by the Maker in favor of Mitch Shaheen, or; (v) any such indebtedness or
any debentures, notes or other evidence of indebtedness issued in exchange for
such Senior Indebtedness, or any indebtedness arising from the satisfaction of
such Senior Indebtedness by a guarantor.
	 
	 	b.	 	If there should occur any receivership, insolvency, assignment
for the benefit of creditors, bankruptcy, reorganization or arrangements with
creditors (whether or not pursuant to bankruptcy or other insolvency laws) sale
of all or substantially all of the assets, dissolution, liquidation or nay
other marshaling of the assets and liabilities of the Maker, or if this Note
shall be declared due and payable upon the occurrence of any Event of Default
with respect to any Senior Indebtedness, then: (i) no amount shall be paid by
the Maker in respect to the principal of and interest on this Note at the time
outstanding, unless and until the principal of an interest on the Senior
Indebtedness then outstanding
shall be paid in full; (ii) no claim or proof of claim shall be filed with the
Maker by or on behalf of the Holder that shall assert any right to receive




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	 	 	 	payments in respect of the principal of and interest on this Note, except
subject to the payment in full of the principal of and interest on all of the
Senior Indebtedness then outstanding. If there occurs an Event of Default that
has been declared in writing with respect to any Senior Indebtedness, or in the
instrument under which any Senior Indebtedness is outstanding, permitting the
holder of such Senior Indebtedness to accelerate the maturity thereof, then,
unless and until such Event of Default shall have been cured or waived or shall
have ceased to exist, or all Senior Indebtedness shall have been paid in full,
no payment shall be made in respect of the principal of or interest on this
Note, unless within thirty (30) days after the happening of such event of
default, the maturity of such Senior Indebtedness shall not have been
accelerated.
	 
	 	c.	 	Subject to the rights, if any, of the holders of Senior
Indebtedness under this Section 6 to receive cash, securities or other
properties otherwise payable or deliverable to the Holder of this Note, nothing
contained in this Section 6 shall impair, as between the Company and the
Holder, the obligation of the Company, subject to the terms and conditions
hereof, to pay to the Holder the principal hereof and interest hereon as and
when the same become due and payable, or shall prevent the Holder of this Note,
upon default hereunder, from exercising all rights, powers and remedies
otherwise provided herein or by applicable law.
	 
	 	d.	 	Subject to the payment in full of all Senior Indebtedness and
until this Note shall be paid in full, the Holder shall be subrogated to the
rights of the holders of Senior Indebtedness (to the extent of payments or
distributions previously made to such holders of Senior Indebtedness pursuant
to the provisions of Section 6 above) to receive payments or distributions of
assets of the Maker applicable to the Senior Indebtedness. No such payments or
distributions applicable to the Senior Indebtedness shall, as between the
Company and its creditors, other than the holders of Senior Indebtedness and
the Holder, be deemed to be a payment by the Company to or on account of this
Note; and for the purposes of such subrogation, no payments or distributions to
the holders of Senior Indebtedness to which the Holder would be entitled except
for the provisions of this Section 6 shall, as between the company and its
creditors, other than the holders of Senior Indebtedness and the Holder, be
deemed to be a payment by the Company to or on account of the Senior
Indebtedness.





ARTICLE II




COVENANTS




     7. Conversion. If at any time before the Maturity Date, the Maker completes a New Offering,
the Maker shall give the Holder the option to convert this Note, in whole or in part, into a number
of the same type of Maker’s securities issued in the New Offering (the “Issued



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Securities”). The
number of Issued Securities issued upon conversion of this Note shall be determined by dividing the
principal amount of the Note by the price per share at which the Issued Securities were sold in the
New Offering (the “Conversion Price”), rounding any fractional result down to the near whole share.
No fractional shares shall be issued upon conversation of this Note. In lieu of fractional shares,
the Holder shall pay cash (based on the Conversion Price) equal to any fraction of a share
remaining (the “Cash Payment”). Notwithstanding the foregoing, should the Company fail to complete
a New Offering, the Holder may elect to convert this Note, in whole or part, into shares of the
Maker’s Common Stock at a price of zero and 50/100 dollars ($.50) per share.




     8. Options. In partial consideration of this Note, the Maker shall issue to Holder a option to
purchase Three Thousand three hundred and thirty-three (3,333) shares of the Maker’s Common Stock
(the “Consideration Option”). The Consideration Option will be immediately exercisable, in whole or
part, into the “Underlying Shares.” The Options will have an exercise price equal to Zero and
50/100 dollars ($.50). The Options will be delivered in a form acceptable to Holder.



     9. Piggyback Registration. If the Conversion Shares and the Underlying Shares (collectively,
the “Shares”) have not been otherwise registered and at any time the Maker proposes to file a
registration statement, whether or not for sale for the Maker’s own account, on a form and in a
manner that would also permit registration of shares (other than in connection with a registration
statement on Forms S-4 or S-8 or any similar or successor form) the Maker shall give to Holder,
written notice of such proposed filing promptly, but in any case at least twenty (20) days before
the anticipated filing. The notice referred to in the preceding sentence shall offer the holder(s)
holding the Shares the opportunity to register such amount of the Shares as he may request (a
“Piggyback Registration”). Subject to this Section, the Maker will include in each such Piggyback
Registration (and any related qualification under state blue sky laws and other compliance filings,
and in any underwriting involved therein) that portion of the Shares with respect to which the
Maker has received written requests for inclusion therein within twenty (20) days after the written
notice from the Maker is given. The holders holding any portion of the Shares will be permitted to
withdraw all or part of the Shares from a Piggyback Registration at any time prior to the effective
date of such Piggyback Registration. Notwithstanding the foregoing, the Maker will not be obligated
to effect any registration of shares under this Paragraph 7 as a result of the registration of any
of its securities solely in connection with mergers effected pursuant to a Form S-4 Filing.



     10. Covenants Regarding Registration




	 	a.	 	The Maker shall use its best efforts to have any registration
statement declared effective at the earliest possible time, and shall furnish
such number of prospectuses as shall be reasonably required.
	 
	 	b.	 	The Maker shall bear all costs, fees and expenses in connection
with a Piggyback Registration,




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	 	c.	 	The Maker will take all necessary action which may be required
in qualifying qualifying or registering the Shares included in any Piggyback
Registration for offering and sale under the securities or blue sky laws of
such states as are requested by the holders of such Shares, provided that the
Maker shall not be obligated to execute or file any general consent to service
or process or to qualify as a foreign corporation to do business under the laws
of any such jurisdiction.





     11. Indemnification. The Maker shall, at The Maker’s expense, protect, defend, indemnify, save
and hold Holder harmless against any and all claims, demands, losses, expenses, damages, causes of
action (whether legal or equitable in nature) asserted by any person or entity arising out of,
caused by or relating to the Note, including without limitation the construction of the Note and
the use or application of the proceeds of the Note, and The Maker shall pay Holder upon demand all
claims, judgments, damages, losses and expenses (including court costs and reasonable attorneys’
fees and expenses) incurred by Holder as a result of any legal or other action arising out of the
Note as aforesaid.



     12. Attorneys Fees. The Maker shall reimburse Holder for all reasonable costs, attorney’s
fees, and all other expenses in connection with this Note.



     13. Notice of Default. So long as any amount under this Note shall remain unpaid, the Holder
will, unless the Maker otherwise consents in writing, promptly give written notice to the Maker in
reasonable detail of the occurrence of any Event of Default, or any condition, event or act which
with the giving of notice or the passage of time or both would constitute an Event of Default.



ARTICLE III




DEFAULT




     14. Events of Default. Any of the following events shall constitute an “Event of Default”
hereunder:




	 	a.	 	Failure by the Maker to pay the principal or Interest, if any,
of this Note when due and payable on the Maturity Date.
	 
	 	b.	 	The entry of an order for relief under Federal Bankruptcy Code
as to the Maker or approving a petition in reorganization or other similar
relief under bankruptcy or similar laws in the United States of America or any
other competent jurisdiction, and if such order, if involuntary, is not
satisfied or
withdrawn within sixty (60) days after entry thereof; or the filing of a
petition by the Maker seeking any of the foregoing, or consenting thereto; or
the filing of a petition to take advantage of any debtor’s act; or making a
general assignment for the benefit of creditors; or admitting in writing
inability to pay debts as they mature; or




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	 	c.	 	Failure by the Maker to pay the principal and Interest, if any,
of this Note concurrent with a Pre-Payment Event; or
	 
	 	d.	 	The breach of any covenant made by the Maker in this Note.





     15. Acceleration. Upon any Event of Default (in addition to any other rights or remedies
provided for under this Note), at the option of the Holder or any holder hereof, all sums evidenced
hereby, including all principal, accrued but unpaid Interest, fees and all other amounts due
hereunder, shall become immediately due and payable. If an Event of Default relating to certain
events of bankruptcy or insolvency of the Maker occurs and is continuing, the principal of and
interest, if any, on this Note will become and be immediately due and payable without any
declaration or other act on the part of the Holder or any holder hereof. This Note shall bear
interest at the rate of twenty-five (25%) percent per annum upon the occurrence of an Event of
Default (“Default Interest”). Payments of the Default Interest shall be due every thirty (30) days
following the occurrence Event of Default.



     16. No Waiver. Failure of the Holder or any holder hereof to exercise any option hereunder
shall not constitute a waiver of the right to exercise the same in the event of any subsequent
Event of Default, or in the event of continuance of any existing Event of Default after demand or
performance thereof.



     17. Pursuit of any Remedy. The Holder or holder hereof may pursue any remedy under this Note
without notice or presentment. The Holder or any holder hereof has the right to direct the time,
method and place of conducting any proceeding for exercising any remedy available to the Holder or
any such holder hereof under this Note.



ARTICLE IV




MISCELLANEOUS




     18. Amendments. No amendment or waiver of any provision of this Note, nor consent to any
departure by the Maker herefrom, shall in any event be effective unless the same shall be in
writing and signed by the Holder, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.



     19. Notices. All notices and other communications provided for hereunder shall be in writing
(including telecopier communication) and mailed, telecopied, or delivered, to the Maker or the
Holder, as applicable, at their respective addresses specified on the signature pages hereof, or,
as to each party, at such other address as shall be designated by such party in a written notice to
the other party. All such notices and communications shall, when mailed or telecopied, be effective
when deposited in the mails or telecopied with receipt confirmed, respectively.



     20. No Waiver; Remedies. No failure on the part of the Holder to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise thereof or the



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exercise of
any other right. All rights, powers and remedies of the Holder in connection with this Note are
cumulative and not exclusive, and shall be in addition to any other rights, powers or remedies
provided by law or equity.




     21. Severability; Headings. If any one or more provisions of this Note shall be held to be
illegal, invalid or otherwise unenforceable, the same shall not affect any other provisions of this
Note and the remaining provisions of this Note shall remain in full force and effect. Article and
paragraph headings in this Note are included herein for convenience of reference only and shall not
constitute a part of this Note for any other purpose or be given any substantive effect.



     22. Binding Effect; Transfer. This Note shall be binding upon and inure to the benefit of the
Maker and the Holder and their respective successors and assigns. The Holder may not assign or
otherwise transfer, or grant participations in, this Note or all or any portion of its rights
hereunder or its interest herein to any person or entity, without the prior written consent of the
Maker which consent shall not be unreasonably withheld. The Maker may not assign or otherwise
transfer its rights or obligations hereunder or any interest herein without the prior written
consent of the Holder. Any attempted assignment by the Maker or the Holder in contravention of this
paragraph shall be null and void and of no force or effect.



     23. Enforcement. It is agreed that time is of the essence of this Note and in the event of
default of the terms of this Note, the Maker agrees to pay all costs of collection or enforcement,
including reasonable attorneys’ fees and if there is a default in payment of any sum due hereunder.



     24. Governing Law. This Note shall be governed by, and shall be construed and enforced in
accordance with, the internal laws of the State of New York without regard to conflicts of laws
principles. The venue of any legal proceeding taken in connection with this Note will be Detroit,
Michigan.



     25. Independence of Covenants. All covenants hereunder shall be given independent effect so
that if a particular action or condition is not permitted by any of such covenants, the fact
that it would be permitted by an exception to, or be otherwise within the limitations of,
another covenant shall not avoid the occurrence of an Event of Default or event which with notice
or lapse of time or both would become an Event of Default if such action is taken or condition
exists.



     26. Interpretation. The Holder and the Maker hereby waive the benefit of any statute or rule
of law or judicial decision which would otherwise require that the provisions of this Note be
construed or interpreted more strongly against the party responsible for the drafting thereof.



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     IN WITNESS WHEREOF, this Note has been issued as of date first written above.



	 	 	 	 	 
	 	MAKER:
 	 
	 	 	 
	 	Ecology Coatings, Inc.

 	 
	 	/s/ Adam S. Tracy, Esq.
 	 
	 	Adam S. Tracy, Esq. 	 
	 	Vice President, General Counsel & Secretary 	 
	 



Mailing Address of Holder:




Richard D. Stromback

1050 Northover Dr.

Bloomfield Hills, MI 48304




Mailing Address of Maker:




Ecology Coatings, Inc.

c/o Adam S. Tracy, General Counsel

35980 Woodward Avenue, Suite 200

Bloomfield Hills, Michigan 48304





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