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exh10-2_agmt.htm

     

    
      

      

    

     

     

    
 

     

     

    EXHIBIT
      10.2

     

    SUBORDINATION
      AGREEMENT DATED DECEMBER 31, 2007

     

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SUBORDINATION
      AGREEMENT

     

    This
      SUBORDINATION AGREEMENT (this
“Agreement”), dated as
      of December 31, 2007 is among GALAXY ENERGY CORPORATION, a Colorado
      corporation (“Borrower”), DOLPHIN ENERGY
      CORPORATION, a Nevada corporation, and PANNONIAN INTERNATIONAL, LTD., a Colorado
      corporation (each such corporation, including Borrower, and together with each
      other obligor who becomes a party to this Agreement each an “Obligor” and, together, “Obligors”),
      BRUNER FAMILY
      TRUST UTD MARCH 28, 2005 (“Bruner Trust”, together with
      any transferees or holders from time to time of the Subordinated Note (as
      defined below), each a “Subordinated Creditor”,
and collectively
      the “Subordinated Creditors”), and
      HFTP INVESTMENTS LLC, PROMETHEAN II MASTER, L.P., PROMETHEAN I MASTER LTD.,
      CAERUS PARTNERS LLC, AG OFFSHORE CONVERTIBLES, LTD., and LEONARDO, L.P.,
      (collectively, and together with any transferees or holders from time to time
      of
      the Notes (as defined below), hereinafter, the “Lenders”), and PROMETHEAN
      ASSET MANAGEMENT L.L.C., a Delaware limited liability company, in its capacity
      as collateral agent for itself and for the Lenders (including any successor
      agent, hereinafter, the “Agent”).

     

     

    R
      E C I T A L S

     

    A.  Borrower
      has executed and delivered to each of the Lenders those certain senior secured
      convertible notes each made by Borrower and dated as of August 19, 2004, October
      27, 2004, and May 31, 2005 (as the same have been and may hereafter be amended,
      restated, supplemented or modified and in effect from time to time, and
      including any notes issued in exchange or substitution therefor, individually
      a
“Note” and collectively
      the “Notes”).  The Notes
      were issued pursuant to a certain Securities Purchase Agreement dated as of
      August 19, 2004 (as the same has been and hereafter may be amended, modified,
      supplemented or restated, the “2004 Purchase Agreement”),
      and a certain Securities Purchase Agreement dated as of May 31, 2005 (as the
      same has been and hereafter may be amended, modified, supplemented or restated,
      the “2005 Purchase
      Agreement”, and together with the 2004 Purchase Agreement, collectively,
      the “Purchase
      Agreement”), in each case by and among, inter alia, Borrower and the
      Lenders, and pursuant to which the Lenders have made certain loans (“Loans”) to
      Borrower.

     

    B.  DOLPHIN
      ENERGY CORPORATION, a Nevada corporation, and PANNONIAN INTERNATIONAL, LTD,
      a
      Colorado corporation (each such entity, together with each other person or
      entity who becomes a party to the Guaranty (as defined herein) by execution
      of a
      joinder in the form of Exhibit A attached
      thereto, is referred to individually as a “Guarantor” and collectively
      as the “Guarantors”)
      have executed a Guaranty dated as of August 19, 2004 (as the same has been
      and
      may hereafter be amended, restated, supplemented or modified and in effect
      from
      time to time, the “Guaranty”) in favor of the
      Agent in respect of Borrower’s obligations under the Purchase Agreement and the
      Notes.

     

    C.  Borrower
      (the “Subordinated
      Obligor”) and Bruner Trust have entered into that certain Subordinated
      Promissory Note dated as of December 31, 2007 in the original principal
      amount of $600,000 (as the same has been and may hereafter be amended, restated,
      supplemented, replaced, substituted, divided, increased or otherwise modified
      from time to time

     

    
      
        
        

      

      
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    as
      permitted hereunder, individually and collectively, the “Subordinated Note”) pursuant
      to which, among other things, Subordinated Creditors have made a loan to the
      Subordinated Obligor in the original principal amount of $600,000 and pursuant
      to which Subordinated Obligor has incurred certain obligations and liabilities
      to Subordinated Creditors.

     

    NOW,
      THEREFORE, in reliance upon this Agreement, and for other good and valuable
      consideration, the receipt and sufficiency of which hereby are acknowledged,
      the
      parties hereto hereby agree as follows:

     

    1.  
Definitions.  All
      capitalized terms used but not elsewhere defined in this Agreement shall have
      the respective meanings ascribed to such terms in the Purchase Agreement and
      the
      Notes.  The following terms shall have the following meanings in this
      Agreement:

     

    Enforcement
      Action is defined in subsection 2.7.

     

    Lender
      or
      Lenders shall mean any holder of Senior Indebtedness including,
      without limitation, any holder of any Senior Indebtedness after the consummation
      of any Permitted Refinancing.

     

    Loan
      Documents
      means the collective reference to the Purchase Agreement, the Notes, the
      Warrants, Registration Rights Agreement, the Irrevocable Transfer Agent
      Instructions, the Conveyances of Overriding Royalty Interests, the USBIT Account
      Control Agreement, the ANB Amendment and the ANB Account Control Agreement
      as
      amended thereby, the First Amendment and the Security Agreement as amended
      thereby, the Guaranty as amended thereby and the Pledge Agreement as amended
      thereby, the 2004 Amendment, the Mortgage Amendments and the Mortgages as
      amended thereby, the Colorado Mortgage and each of the other agreements to
      which
      any Obligor is a party or is bound in connection with the transactions
      contemplated under the Purchase Agreement and the Notes.

     

    Paid
      in Full
      or Payment
      in
      Full shall mean the indefeasible payment in full in cash of all
      Senior Indebtedness and termination of all commitments to lend under the Loan
      Documents and Permitted Refinancing Loan Documents.

    

    Permitted
      Refinancing means any refinancing of the Senior
      Indebtedness.

     

    Permitted
      Refinancing Loan
      Documents means any and all agreements, documents and instruments
      executed in connection with a Permitted Refinancing of Senior
      Indebtedness.

     

    Proceeding
      is
      defined in subsection 2.3.

     

    Senior
      Indebtedness shall mean the obligations, liabilities and other
      amounts owed under the Purchase Agreement, the Notes or any other Loan Document
      including all interest, fees, expenses, indemnities and enforcements costs,
      whether before or after the commencement of a Proceeding and without regard
      to
      whether or not an allowed claim, and all obligations and liabilities incurred
      with respect to Permitted Refinancings,

     

    
      
        
        

      

      
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    together
      with any amendments, restatements, modifications, renewals or extensions of
      any
      thereof.

     

    Subordinated
      Creditor shall mean Bruner Trust, each “Subordinated Creditor”
which is signatory to this Agreement from time to time and any
      other holders of
      a Subordinated Note or any other Subordinated Indebtedness from time to
      time.

     

    Subordinated
      Default shall mean a default in the payment of the Subordinated
      Indebtedness, or performance of any term, covenant or condition contained in
      the
      Subordinated Indebtedness Documents or the occurrence of any event or condition,
      which default, event or condition permits any Subordinated Creditor to
      accelerate or demand payment of all or any portion of the Subordinated
      Indebtedness.

     

    Subordinated
      Default
      Notice shall mean a written notice to Agent pursuant to which
      Agent is notified of the existence of a Subordinated Default, which notice
      incorporates a reasonably detailed description of such Subordinated
      Default.

     

    Subordinated
      Indebtedness shall mean all of the obligations of Obligors
      (including Subordinated Obligor) to Subordinated Creditors pursuant to or
      evidenced by the Subordinated Note and the other Subordinated Indebtedness
      Documents.

     

    Subordinated
      Indebtedness
      Documents shall mean the Subordinated Note and all other documents
      and instruments executed in connection with the Subordinated Note or otherwise
      evidencing or pertaining to any portion of the Subordinated Indebtedness, as
      amended, supplemented, restated or otherwise modified from time to time as
      permitted hereunder.

     

    2.  Subordination
      of
      Subordinated Indebtedness to Senior Indebtedness.

     

    2.1  Subordination.  The
      payment of any and all of the Subordinated Indebtedness hereby expressly is
      subordinated, to the extent and in the manner set forth herein, to the Payment
      in Full of the Senior Indebtedness.  Each holder of Senior
      Indebtedness, whether now outstanding or hereafter arising, shall be deemed
      to
      have acquired Senior Indebtedness in reliance upon the provisions contained
      herein.

     

    2.2  Restriction
      on
      Payments.  Notwithstanding any provision of the
      Subordinated Indebtedness Documents to the contrary and in addition to any
      other
      limitations set forth herein or therein, no payment (whether made in cash,
      securities or other property or by set-off) of principal, interest or any other
      amount due with respect to the Subordinated Indebtedness shall be made or
      received, and no Subordinated Creditor shall exercise any right of set-off
      or
      recoupment with respect to any Subordinated Indebtedness, until all of the
      Senior Indebtedness is Paid in Full, provided however:
      subject to
      any adjustments or rights set forth in the Notes, any warrant for the capital
      stock of Borrower or Borrower’s charter, bylaws and similar constituent
      documents, Subordinated Obligor shall be permitted to make interest payments
      by
      means of the issuance to any Subordinated Creditor of common stock of the
      Borrower.

     

    
      
        
        

      

      
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    2.3  Proceedings.  In
      the event of any insolvency, bankruptcy, receivership, custodianship,
      liquidation, reorganization, assignment for the benefit of creditors or other
      proceeding for the liquidation, dissolution or other winding up of any Obligor
      or any of its Subsidiaries or any of their respective properties (a “Proceeding”):

     

    (i)           the
      Lenders shall be entitled to receive Payment in Full in cash of the Senior
      Indebtedness before any Subordinated Creditor is entitled to receive any payment
      upon the Subordinated Indebtedness, and Lenders shall be entitled to receive
      for
      application in payment of such Senior Indebtedness any payment or distribution
      of any kind or character, whether in cash, property or securities or by set-off
      or otherwise, which may be payable or deliverable in any such Proceedings in
      respect of the Subordinated Indebtedness;

     

    (ii)           any
      payment or distribution of assets of any Obligor of any kind or character,
      whether in cash, property or securities, by set-off or otherwise, to which
      any
      Subordinated Creditor would be entitled pursuant to the Subordinated
      Indebtedness but for the provisions hereof shall be paid by the liquidating
      trustee or agent or other Person making such payment or distribution, whether
      a
      trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly
      to the Lenders until the Senior Indebtedness shall have been Paid in Full,
      and
      each Subordinated Creditor acknowledges and agrees that such payment or
      distribution may, particularly with respect to interest on Senior Indebtedness
      after the commencement of a Proceeding, result in such Subordinated Creditor
      receiving less than it would otherwise receive;

     

    (iii)          each
      Subordinated Creditor hereby irrevocably (x) authorizes, empowers and directs
      all receivers, trustees, debtors in possession, liquidators, custodians,
      conservators and others having authority in the premises to effect all such
      payments and deliveries, and each Subordinated Creditor also irrevocably
      authorizes, empowers and directs, the Agent and the Lenders until the Senior
      Indebtedness shall have been Paid in Full, to demand, sue for, collect and
      receive every such payment or distribution, and (y) agrees to execute and
      deliver to the Agent and the Lenders all such further instruments confirming
      the
      authorization referred to in the foregoing clause (x); and

     

    (iv)           each
      Subordinated Creditor hereby irrevocably authorizes, empowers and appoints
      Agent
      and the Lenders (until the Senior Indebtedness shall have been Paid in Full)
      as
      its agent and attorney in fact to (x) execute, verify, deliver and file such
      proofs of claim upon the failure of any Subordinated Creditor promptly to do
      so
      (and in any event prior to thirty (30) days before the expiration of the time
      to
      file any proof) and (y) vote such claims in any such Proceeding; provided that
      no holder of Senior Indebtedness shall have any obligation to execute, verify,
      deliver and/or file any such proof of claim or vote such claim.  In
      the event the

     

    
      
        
        

      

      
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    Agent
      or
      any Lender (or any agent, designee or nominee thereof) votes any claim in
      accordance with the authority granted hereby, such Subordinated Creditor shall
      not be entitled to change or withdraw such vote.

     

    The
      Senior Indebtedness shall continue to be treated as Senior Indebtedness and
      the
      provisions hereof shall continue to govern the relative rights and priorities
      of
      Lenders and the Subordinated Creditors even if all or part of the Senior
      Indebtedness or the security interests securing the Senior Indebtedness are
      subordinated, set aside, avoided or disallowed in connection with any such
      Proceeding and the provisions hereof shall be reinstated if at any time any
      payment of any of the Senior Indebtedness is rescinded or must otherwise be
      returned by Agent, any Lender or any agent, designee or nominee of such
      holder.

     

    2.4  Incorrect
      Payments.  If any payment (whether made in cash,
      securities or other property) not permitted under this Agreement is received
      by
      any Subordinated Creditor on account of the Subordinated Indebtedness before
      all
      Senior Indebtedness is Paid in Full, such payment shall not be commingled with
      any asset of such Subordinated Creditor, shall be held in trust by such
      Subordinated Creditor for the benefit of the Lenders and shall promptly be
      paid
      over to the Lenders, or their respective designated representatives, for
      application (in accordance with the Purchase Agreement, the Notes or the
      Permitted Refinancing Loan Documents) to the payment of the Senior Indebtedness
      then remaining unpaid, until all of the Senior Indebtedness is Paid in
      Full.

     

    2.5  Sale,
      Transfer.  No Subordinated Creditor shall sell, assign,
      dispose of or otherwise transfer all or any portion of the Subordinated
      Indebtedness or any Subordinated Note or other Subordinated Indebtedness
      Document (a) without giving prior written notice of such action to Agent, (b)
      unless prior to the consummation of any such action, the transferee thereof
      shall execute and deliver to Agent and the Lenders a joinder to this Agreement,
      or an agreement substantially identical to this Agreement and acceptable to
      Agent and the Lenders, in either case providing for the continued subordination
      and forbearance of the Subordinated Indebtedness to the Senior Indebtedness
      as
      provided herein and for the continued effectiveness of all of the rights of
      Agent and Lenders arising under this Agreement and (c) unless following such
      sale, assignment, pledge, disposition or other transfer, there shall either
      be
      (i) no more than two more than the number of  holders of Subordinated
      Indebtedness on the date hereof or (ii) one Person acting as agent for all
      holders of the Subordinated Indebtedness pursuant to documentation reasonably
      satisfactory to Agent, such that any notices and communications to be delivered
      to Subordinated Creditors hereunder and any consents required by Subordinated
      Creditors shall be made to or obtained from such agent and shall be binding
      on
      each Subordinated Creditor as if directly obtained from such Subordinated
      Creditor.  In the event of a permitted sale, assignment, disposition
      or other transfer, each Subordinated Creditor engaging in such sale, assignment,
      disposition or other transfer, prior to the consummation of any such action,
      shall cause the transferee thereof to execute and deliver to Agent and the
      Lenders a joinder to this Agreement, or an agreement substantially identical
      to
      this Agreement and acceptable to the Lenders, in either case providing for
      the
      continued subordination and forbearance of the

     

    
      
        
        

      

      
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    Subordinated
      Indebtedness to the Senior Indebtedness as provided herein and for the continued
      effectiveness of all of the rights of Lenders and Agent arising under this
      Agreement.  Notwithstanding the failure to execute or deliver any such
      agreement, the subordination effected hereby shall survive any sale, assignment,
      disposition or other transfer of all or any portion of the Subordinated
      Indebtedness, and the terms of this Agreement shall be binding upon the
      successors and assigns of each Subordinated Creditor, as provided in Section
      10
      below.

     

    2.6  Legends.  Until
      the Senior Indebtedness is Paid in Full, each of the Subordinated Indebtedness
      Documents at all times shall contain in a conspicuous manner the following
      legend:

     

    “This
      [
      Promissory Note ] and the indebtedness evidenced hereby are subordinate in
      the
      manner and to the extent set forth in that certain Subordination Agreement
      dated
      as of December 14, 2007 (the “Subordination Agreement”) among Galaxy Energy
      Corporation, the Subordinated Creditors named therein, the Lenders named
      therein, and Promethean Asset Management L.L.C., to the Senior Indebtedness
      (as
      defined in the Subordination Agreement); and each holder of this Promissory
      Note, by its acceptance hereof, shall be bound by the provisions of the
      Subordination Agreement.”

     

    2.7  Restriction
      on Action by
      Subordinated Creditors.

     

    (a)  Until
      the
      Senior Indebtedness is Paid in Full and notwithstanding anything contained
      in
      the Subordinated Indebtedness Documents, the Purchase Agreement, the other
      Loan
      Documents or the Permitted Refinancing Loan Documents to the contrary, no
      Subordinated Creditor shall, without the prior written consent of Agent, agree
      to any amendment, modification or supplement to the Subordinated Indebtedness
      Documents, the effect of which is to (i) increase the maximum principal amount
      of the Subordinated Indebtedness or rate of interest (or cash pay rate of
      interest) on any of the Subordinated Indebtedness, (ii) change to an earlier
      date, any date upon which payments of principal or interest on the Subordinated
      Indebtedness are due or otherwise front load the amortization of any of the
      Subordinated Indebtedness, (iii) change in a manner adverse to any Obligor
      or
      add any event of default or add or make more restrictive any covenant with
      respect to the Subordinated Indebtedness, (iv) change the redemption, prepayment
      or put provisions of the Subordinated Indebtedness, (v) alter the subordination
      provisions with respect to the Subordinated Indebtedness, including, without
      limitation, subordinating the Subordinated Indebtedness to any other debt,
      (vi)
      shorten the maturity date of any of the Subordinated Indebtedness or otherwise
      alter the repayment terms of the Subordinated Indebtedness in a manner adverse
      to any Obligor, (vii) take any liens in any assets of any Obligor or any of
      its
      Subsidiaries or any other assets securing the Senior Indebtedness or (viii)
      obtain any guaranties or credit support from any Person which is an affiliate
      of
      any Obligor, or (ix) change or amend any other term of the Subordinated
      Indebtedness Documents if such change or amendment would increase the
      obligations of any Obligor or confer additional material rights on
      any

     

    
      
        
        

      

      
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    Subordinated
      Creditor or any other holder of the Subordinated Indebtedness in a manner
      adverse to any Obligor, Agent or Lenders.

     

    (b)  Until
      the
      Senior Indebtedness is Paid in Full, no Subordinated Creditor shall, without
      the
      prior written consent of Agent, take or continue any action, or exercise any
      rights, remedies or powers in respect of the Subordinated Indebtedness or any
      Subordinated Indebtedness Document, or exercise or continue to exercise any
      other right or remedy at law or in equity that such Subordinated Creditor might
      otherwise possess, to collect any amount due and payable in respect of any
      Subordinated Indebtedness, including, without limitation, the acceleration
      of
      the Subordinated Indebtedness, the commencement of any action to enforce payment
      or foreclosure on any lien or security interest, the filing of any petition
      in
      bankruptcy or the taking advantage of any other insolvency law of any
      jurisdiction (any of the foregoing, an “Enforcement
      Action”).  If any Subordinated Creditor shall attempt to take
      any Enforcement Action or otherwise seek to collect or realize upon any of
      the
      Subordinated Indebtedness in violation of the terms hereof, the holders of
      the
      Senior Indebtedness may, by virtue of the terms hereof, restrain any such
      Enforcement Action or other action, either in its own name or in the name of
      the
      applicable Obligor.

     

    (c)           Until
      the Senior Indebtedness is Paid in Full, any Liens of Subordinated Creditors
      in
      the Collateral which may exist in breach of each Subordinated Creditor's
      agreement pursuant to subsection 2.7(a)(vii) or Section 18 of this Agreement
      shall be and hereby are subordinated for all purposes and in all respects to
      the
      Liens of Agent and Lenders in the Collateral, regardless of the time, manner
      or
      order of perfection of any such Liens.  In the event that any
      Subordinated Creditor obtains any Liens in the Collateral in violation of
      subsection 2.7(a)(vii) or Section 18 of this Agreement, Subordinated Creditors
      (i) shall (or shall cause their agent to) promptly execute and deliver to Agent
      such termination statements and releases as Agent shall request to effect the
      release of the Liens of such Subordinated Creditor in such Collateral and (ii)
      shall be deemed to have authorized Agent to file any and all termination
      statements required by Agent in respect of such Liens. In furtherance of the
      foregoing, each Subordinated Creditor hereby irrevocably appoints Agent its
      attorney-in-fact, with full authority in the place and stead of such
      Subordinated Creditor and in the name of such Subordinated Creditor or
      otherwise, to execute and deliver any document or instrument which such
      Subordinated Creditor may be required to deliver pursuant to this subsection
      2.7(c).

     

    3.  Continued
      Effectiveness of
      this Agreement; Modifications to Senior Indebtedness.

     

    (a)
      The
      terms of this Agreement, the subordination effected hereby, and the rights
      and
      the obligations of Subordinated Creditors, Agent and Lenders arising hereunder,
      shall not be affected, modified or impaired in any manner or to any extent
      by:
      (i) any amendment or modification of or supplement to the Purchase Agreement,
      any other Loan Document or any Permitted Refinancing Loan Document or any
      Subordinated Indebtedness Document; (ii) the validity or enforceability of
      any
      of such documents; or (iii) any exercise or non-exercise of any right, power
      or
      remedy under or in respect of the

     

    
      
        
        

      

      
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    Senior
      Indebtedness or the Subordinated Indebtedness or any of the instruments or
      documents referred to in clause (i) above.

     

    (b)  Agent
      and Lenders may at any time and from time to time in their sole discretion,
      renew, amend, refinance, extend or otherwise modify the terms and provisions
      of
      Senior Indebtedness (including, without limitation, the terms and provisions
      relating to the principal amount outstanding thereunder, the rate of interest
      thereof, the payment terms thereof and the provisions thereof regarding default
      or any other matter) or exercise (or refrain from exercising) any of their
      rights under the Loan Documents, all without notice to or consent from the
      Subordinated Creditors and without incurring liability to any Subordinated
      Creditor and without impairing or releasing the obligations of any Subordinated
      Creditor under this Agreement.  No compromise, alteration, amendment,
      renewal, restatement, refinancing or other change of, or waiver, consent or
      other action in respect of any liability or obligation under or in respect
      of,
      any terms, covenants or conditions of Senior Indebtedness or the Loan Documents,
      whether or not in accordance with the provisions of the Senior Indebtedness,
      shall in any way alter or affect any of the subordination provisions
      hereof.

    

    4.  Representations
      and
      Warranties.

     

    (a)           Each
      Subordinated Creditor hereby represents and warrants (as to itself and not
      as to
      any other Subordinated Creditor) to Agent and Lenders as follows:

     

    4.1  Existence
      and
      Power.  If an entity, such Subordinated Creditor is duly
      organized, validly existing and in good standing under the laws of the state
      of
      its organization.

     

    4.2  Authority.  Such
      Subordinated Creditor has full power and authority to enter into, execute,
      deliver and carry out the terms of this Agreement and to incur the obligations
      provided for herein, all of which have been duly authorized by all proper and
      necessary action and are not prohibited by the organizational documents of
      such
      Subordinated Creditor.

     

    4.3  Binding
      Agreements.  This Agreement, when executed and
      delivered, will constitute the valid and legally binding obligation of such
      Subordinated Creditor enforceable in accordance with its terms.

     

    4.4  Conflicting
      Agreements;
      Litigation.  No provisions of any mortgage, indenture,
      contract, agreement, statute, rule, regulation, judgment, decree or order
      binding on such Subordinated Creditor or affecting the property of such
      Subordinated Creditor conflicts with, or requires any consent which has not
      already been obtained under, or would in any way prevent the execution, delivery
      or performance of the terms of this Agreement.  The execution,
      delivery and carrying out of the terms of this Agreement will not constitute
      a
      default under, or result in the creation or imposition of, or obligation to
      create, any Lien upon the property of such Subordinated Creditor pursuant to
      the
      terms of any such mortgage, indenture, contract or agreement.  No
      pending or, to the best of such

     

    
      
        
        

      

      
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    Subordinated
      Creditor’s knowledge, threatened, litigation, arbitration or other proceedings
      if adversely determined would in any way prevent the performance of the terms
      of
      this Agreement.

     

    4.5  No
      Divestiture.  On the date hereof, such Subordinated
      Creditor which is signatory hereto is the current owner and holder of its
      Subordinated Note and all other Subordinated Indebtedness Documents (if
      any).

     

    4.6  Default
      under Subordinated
      Indebtedness Documents.  On the date hereof, no default
      exists under or with respect to the Subordinated Note held by Subordinated
      Creditor or any of the other Subordinated Indebtedness Documents applicable
      to
      such Subordinated Note.

     

    (b)           Each
      Obligor hereby represents and warrants to Agent and Lenders that the signatory
      to this Agreement under the heading “Subordinated Creditor” constitutes the only
      holder of the Subordinated Note and the other Subordinated
      Indebtedness.

     

    5.  Cumulative
      Rights, No
      Waivers.  Each and every right, remedy and power granted
      to Agent or Lenders hereunder shall be cumulative and in addition to any other
      right, remedy or power specifically granted herein, in the Purchase Agreement,
      the other Loan Documents or Permitted Refinancing Loan Documents or now or
      hereafter existing in equity, at law, by virtue of statute or otherwise, and
      may
      be exercised by Agent or Lenders, from time to time, concurrently or
      independently and as often and in such order as Agent or Lenders may deem
      expedient.  Any failure or delay on the part of Agent or Lenders in
      exercising any such right, remedy or power, or abandonment or discontinuance
      of
      steps to enforce the same, shall not operate as a waiver thereof or affect
      Agent’s or Lenders’ right thereafter to exercise the same, and any single or
      partial exercise of any such right, remedy or power shall not preclude any
      other
      or further exercise thereof or the exercise of any other right, remedy or power,
      and no such failure, delay, abandonment or single or partial exercise of Agent’s
      or Lenders’ rights hereunder shall be deemed to establish a custom or course of
      dealing or performance among the parties hereto.

     

    6.  Modification.  Any
      modification or waiver of any provision of this Agreement, or any consent to
      any
      departure by Agent or any Subordinated Creditor therefrom, shall not be
      effective in any event unless the same is in writing and signed by Agent and
      the
      holders of at least 51% of the then outstanding principal balance of the
      Subordinated Note and then such modification, waiver or consent shall be
      effective only in the specific instance and for the specific instance and for
      the specific purpose given.  Any notice to or demand on any
      Subordinated Creditor in any event not specifically required of Agent hereunder
      shall not entitle any Subordinated Creditor to any other or further notice
      or
      demand in the same, similar or other circumstances unless specifically required
      hereunder.

     

    7.  Additional
      Documents and
      Actions.  Each Subordinated Creditor at any time, and
      from time to time, after the execution and delivery of this Agreement, upon
      the
      request of Agent and at the expense of Borrower, will promptly execute and
      deliver such further documents and do such further acts and things as Agent
      may
      request in order to effect fully the purposes of this Agreement.

     

    
      
        
        

      

      
        9

        
          

        

      

      
        
        

      

    

    8.  Notices.  Any
      notices, consents, waivers or other communications required or permitted to
      be
      given under the terms of this Agreement must be in writing and will be deemed
      to
      have been delivered:  (i) upon receipt, when delivered personally;
      (ii) upon receipt, when sent by facsimile (provided confirmation of transmission
      is mechanically or electronically generated and kept on file by the sending
      party); or (iii) one (1) Business Day after deposit with a nationally recognized
      overnight delivery service, in each case properly addressed to the party to
      receive the same.  The addresses and facsimile numbers for such
      communications shall be:

     

    
      	
                           
                If to Bruner Trust:

            	
              Bruner
                Family Trust UTD March 28, 2005

              Cynthia
                L. Gausvik, Trustee

              Patton
                Boggs LLP

              8484
                Westpark Drive, Suite 900

              McLean,
                Virginia 22102

              Telecopy:  (703)
                744-8001

               

            
	 	 
	
                            If
                to any other Subordinated

                            Creditor:

            	
              To
                the address of such Subordinated Creditor set forth on the joinder
                to this
                Agreement executed by such Subordinated Creditor

            
	 	 
	
                           
                If to any Obligor:

            	
              Galaxy
                Energy Corporation

              1331
                17th Street, Suite 1050

              Denver,
                Colorado 80202

              Attention:  Marc
                E. Bruner

              Telecopy:
                (303) 293-2417

               

            
	 	 
	
                           
                with a copy to:

            	
              Dill
                Dill Carr Stonbraker & Hutchings, P.C.

              455
                Sherman Street, Suite 300

              Denver,
                Colorado 80203

              Attention:  Fay
                M. Matsukage

              Telecopy:
                (303) 777-3823

            
	 	 
	
                           
                If to Agent:

            	
              Promethean
                Asset Management L.L.C.

              55
                Fifth Avenue, 17th Floor

              New
                York, New York 10003

              Attention:
                James F. O’Brien

              Telephone:
                (212) 702-5200

              Facsimile:
                (212) 758-9334

            
	 	 
	
                           
                with a copy to:

            	
              Katten
                Muchin Rosenman LLP

              525
                West Monroe Street

              Chicago,
                Illinois 60661-3693

              Attn:
                Mark D. Wood, Esq.

              Telecopy:
                (312) 902-1061

            

    

     

     

     

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    
 

    
      	 	 
	
                             If
                to a Lender:

            	
              To
                the address of such Lender set forth on the Schedule I
                hereto

            

    

    

    or,
      in
      the case of party named above, at such other address and/or facsimile number
      and/or to the attention of such other person as the recipient party has
      specified by written notice given to each other party five (5) days prior to
      the
      effectiveness of such change.  Written confirmation of receipt (A)
      given by the recipient of such notice, consent, waiver or other communication,
      (B) mechanically or electronically generated by the sender’s facsimile machine
      containing the time, date, recipient facsimile number and an image of the first
      page of such transmission or (C) provided by a nationally recognized overnight
      delivery service shall be rebuttable evidence of personal service, receipt
      by
      facsimile or deposit with a nationally recognized overnight delivery service
      in
      accordance with clause (i), (ii) or (iii) above, respectively.

     

    9.  Severability.  In
      the event that any provision of this Agreement is deemed to be invalid by reason
      of the operation of any law or by reason of the interpretation placed thereon
      by
      any court or governmental authority, this Agreement shall be construed as not
      containing such provision and the invalidity of such provision shall not affect
      the validity of any other provisions hereof, and any and all other provisions
      hereof which otherwise are lawful and valid shall remain in full force and
      effect.

     

    10.  Successors
      and
      Assigns.  This Agreement shall inure to the benefit of
      the successors and assigns of Agent and Lenders and shall be binding upon the
      successors and assigns of Subordinated Creditors and Obligors.

     

    11.  Counterparts.  This
      Agreement may be executed in two or more identical counterparts, all of which
      shall be considered one and the same agreement and shall become effective when
      counterparts have been signed by each party and delivered to each other party;
      provided that a facsimile signature shall be considered due execution and shall
      be binding upon the signatory thereto with the same force and effect as if
      the
      signature were an original, not a facsimile signature.

     

    12.  Defines
      Rights of Creditors;
      Subrogation.

     

    (a)  The
      provisions of this Agreement are solely for the purpose of defining the relative
      rights of Subordinated Creditors, Agent and Lenders and shall not be deemed
      to
      (i) create any rights or priorities in favor of any other Person, including,
      without limitation, any Obligor, (ii) amend any of the Loan Documents or in
      any
      way waive any of the rights that the Agent and the Lenders have against any
      Obligor under the Loan Documents, or (iii) waive any Event of Default or
      Triggering Event under any of the Loan Documents.

     

    (b)  Subject
      to the Payment in Full of the Senior Indebtedness, in the event and to the
      extent cash, property or securities otherwise payable or deliverable to the
      holders of the Subordinated Indebtedness shall have been applied pursuant to
      this Agreement to the payment of Senior Indebtedness, then and in each such
      event, the holders of the Subordinated Indebtedness shall be subrogated to
      the
      rights of each holder

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    of
      Senior
      Indebtedness to receive any further payment or distribution in respect of or
      applicable to the Senior Indebtedness; and, for the purposes of such
      subrogation, no payment or distribution to the holders of Senior Indebtedness
      of
      any cash, property or securities to which any holder of Subordinated
      Indebtedness would be entitled except for the provisions of this Agreement
      shall, and no payment over pursuant to the provisions of this Agreement to
      the
      holders of Senior Indebtedness by the holders of the Subordinated Indebtedness
      shall, as between any Obligor, its creditors other than the holders of Senior
      Indebtedness and the holders of Subordinated Indebtedness, be deemed to be
      a
      payment by such Obligor to or on account of Senior Indebtedness.

     

    13.  Conflict.  In
      the event of any conflict between any term, covenant or condition of this
      Agreement and any term, covenant or condition of any of the Subordinated
      Indebtedness Documents, the provisions of this Agreement shall control and
      govern.  For purposes of this Section 13, to the extent that any
      provisions of any of the Subordinated Indebtedness Documents provide rights,
      remedies and benefits to Agent or Lenders that exceed the rights, remedies
      and
      benefits provided to Agent or Lenders under this Agreement, such provisions
      of
      the applicable Subordinated Indebtedness Documents shall be deemed to supplement
      (and not to conflict with) the provisions hereof.

     

    14.  Statement
      of Indebtedness to
      Subordinated Creditors.  Borrower will furnish to Agent
      upon demand, a statement of the indebtedness owing from Obligors to Subordinated
      Creditors, and will give Agent access to the books of Obligors in accordance
      with the Purchase Agreement so that Agent can make a full examination of the
      status of such indebtedness.

     

    15.  Headings.  The
      paragraph headings used in this Agreement are for convenience only and shall
      not
      affect the interpretation of any of the provisions hereof.

     

    16.  Termination.  This
      Agreement shall terminate upon the Payment in Full of the Senior
      Indebtedness.

     

    17.  Subordinated
      Default
      Notice.  Subordinated Creditors and Borrower each shall
      provide Agent with a Subordinated Default Notice upon the occurrence of each
      Subordinated Default, and Subordinated Creditors shall notify Agent in the
      event
      such Subordinated Default is cured or waived.

     

    18.  No
      Contest of Senior
      Indebtedness or Liens; No Security for Subordinated
      Indebtedness.  Each Subordinated Creditor agrees that it
      will not, and will not encourage any other Person to, at any time, contest
      the
      validity, perfection, priority or enforceability of the Senior Indebtedness
      or
      Liens in the Collateral granted to Agent and the Lenders pursuant to the
      Purchase Agreement, the other Loan Documents or the Permitted Refinancing Loan
      Documents or accept or take any collateral security for the Subordinated
      Indebtedness.  In furtherance of the foregoing, on the date hereof,
      each Subordinated Creditor hereby represents and warrants that it has not taken
      or received a security interest in, or lien upon, any asset of any Obligor,
      whether in respect of the Subordinated Indebtedness or otherwise.

     

    
      19.  Governing
        Law, Jurisdiction
        Waiver of Jury Trial.  All
        questions
        concerning the construction, validity, enforcement and interpretation of
        this
        Agreement shall be governed by 

    

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

     

    the
      internal laws of the State of New York, without giving effect to any choice
      of
      law or conflict of law provision or rule (whether of the State of New York
      or
      any other jurisdiction) that would cause the application of the laws of any
      jurisdiction other than the State of New York.  Each party hereby
      irrevocably submits to the exclusive jurisdiction of the state and federal
      courts sitting in the City of New York, borough of Manhattan, for the
      adjudication of any dispute hereunder or in connection herewith or with any
      transaction contemplated hereby or discussed herein, and hereby irrevocably
      waives, and agrees not to assert in any suit, action or proceeding, any claim
      that it is not personally subject to the jurisdiction of any such court, that
      such suit, action or proceeding is brought in an inconvenient forum or that
      the
      venue of such suit, action or proceeding is improper.  Each party
      hereby irrevocably waives personal service of process and consents to process
      being served in any such suit, action or proceeding by mailing a copy thereof
      to
      such party at the address for such notices to it under this Agreement and agrees
      that such service shall constitute good and sufficient service of process and
      notice thereof.  Nothing contained herein shall be deemed to limit in
      any way any right to serve process in any manner permitted by
      law.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND
      AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
      HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY
      TRANSACTION CONTEMPLATED HEREBY.

     

    20.  Waiver
      of
      Consolidation.  Each Subordinated Creditor acknowledges
      and agrees that (i) Obligors are each separate and distinct entities; and (ii)
      it will not at any time insist upon, plead or seek advantage of any substantive
      consolidation, piercing the corporate veil or any other order or judgment that
      causes an effective combination of the assets and liabilities of Obligors in
      any
      case or proceeding under Title 11 of the United States Code or other similar
      proceeding.

     

    [remainder
      of page intentionally left
      blank; signature pages follow]

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF,
      Subordinated Creditor, each Obligor, Agent and each Lender has caused this
      Agreement to be executed as of the date first above written.

     

    
      	 	SUBORDINATED
              CREDITOR:	 
	 	 	 	 
	 	BRUNER
              FAMILY TRUST UTD MARCH 28, 2005 	 
	 	 	 	 
	
               

            	
              By:
                

            	/s/ Marc
              E. Bruner	 
	 	 	Name: 
Marc
              E.
              Bruner 	 
	 	 	Title:   
              Trustee 	 
	 	 	 	 

    

     

    
      	 	 	 
	 	 	 	 
	
               

            	
              By:
                

            	/s/ 
              Cynthia L. Gausvik	 
	 	 	Name: 
              Cynthia L. Gausvik	 
	 	 	Title:   
              Trustee	 
	 	 	 	 

    

     

    

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	 	OBLIGORS:	 
	 	 	 	 
	 	GALAXY
              ENERGY CORPORATION, a Colorado corporation 	 
	 	 	 	 
	
               

            	
              By:
                

            	/s/ 
              Christopher S. Hardesty 	 
	 	 	Name: 
              Christopher S. Hardesty	 
	 	 	Title:  
              SVP & CFO	 
	 	 	 	 

    

     

    
      	 	 	 
	 	DOLPHIN
              ENERGY CORPORATION, a Nevada corporation  	 
	 	 	 	 
	
               

            	
              By:
                

            	/s/ Christopher
              S. Hardesty	 
	 	 	Name:  Christopher
              S. Hardesty	 
	 	 	Title:
              Secretary & Treasurer	 
	 	 	 	 

    

     

    
      	 	 	 
	 	PANNONIAN
              INTERNATIONAL, LTD., a Colorado corporation  	 
	 	 	 	 
	
               

            	
              By:
                

            	/s/ 
              Cecil D. Gritz	 
	 	 	Name: 
              Cecil D. Gritz	 
	 	 	Title: 
              COO	 
	 	 	 	 

    

     

    
      	 	AGENT:	 
	 	 	 	 
	 	PROMETHEAN
              ASSET MANAGEMENT L.L.C. in its capacity as agent for all
              Lenders  	 
	 	 	 	 
	
               

            	
              By:
                

            	 	 
	 	 	Name:
              	 
	 	 	Title: 
              	 
	 	 	 	 

    

     

    
      	 	LENDERS:	 
	 	 	 	 
	 	HFTP
              INVESTMENTS, LLC  	 
	 	 	 	 
	
               

            	
              By:
                

            	 	 
	 	 	Name: 
              	 
	 	 	Title: 
              	 
	 	 	 	 

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	 	PROMETHEAN
              II MASTER,
              L.P.	 
	 	By:	Promethean
              Asset Management L.L.C. 	 
	 	Its: 	Investment
              Manager 	 
	 	 	 	 
	
               

            	
              By:
                

            	 	 
	 	 	Name: 
              	 
	 	 	Title: 
              	 
	 	 	 	 

    

     

    
       

      
        	 	PROMETHEAN
                I MASTER,
                LTD.	 
	 	By:	Promethean
                Asset Management L.L.C. 	 
	 	Its: 	Investment
                Manager 	 
	 	 	 	 
	
                 

              	
                By:
                  

              	
                 

              	 
	 	 	Name: 
                	 
	 	 	Title:
                	 
	 	 	 	 

      

       

       

      
        	 	CAERUS
                PARTNERS
                LLC	 
	 	By:	Promethean
                Asset Management L.L.C. 	 
	 	Its: 	Investment
                Manager 	 
	 	 	 	 
	
                 

              	
                By:
                  

              	 	 
	 	 	Name: 
                	 
	 	 	Title: 
                	 
	 	 	 	 

      

       

       

      
        	 	AG
                OFFSHORE CONVERTIBLES,
                LTD.	 
	 	By:	Promethean
                Asset Management L.L.C. 	 
	 	Its: 	Investment
                Manager 	 
	 	 	 	 
	
                 

              	
                By:
                  

              	 	 
	 	 	Name: 
                	 
	 	 	Title: 
                	 
	 	 	 	 

      

       

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

       

      
         

        
          	 	LEONARDO,
                  L.P.	 
	 	By:	Leonardo
                  Capital Management, Inc. 	 
	 	Its: 	General
                  Partner	 
	 	By: 	Angelo,
                  Gordon & Co., L.P. 	 
	 	Its:
                   	Director 	 
	 	 	 	 
	
                   

                	
                  By:
                    

                	 	 
	 	 	Name: 
                  	 
	 	 	Title: 
                  	 
	 	 	 	 

        

      

    

    

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    SCHEDULE
      I

    NOTICE
      ADDRESS FOR
      LENDERS

    

    
      	
               

              Buyer’s
                Name

            	
               

              Buyer
                Address

              and
                Facsimile
                Number

            	
               

              Investor’s
                Legal
                Representative’s

              Address
                and Facsimile
                Number

            
	 	 	 
	
               

              HFTP
                Investments LLC

            	
               

              c/oPromethean
                Asset Management L.L.C.

              55
                Fifth Avenue

               17th
                Floor

              New
                York, New York 10003

              Attention:
                James F. O’Brien

              Telephone:
                (212) 702-5200

              Facsimile:
                (212) 758-9334

              Residence:
                Delaware

            	
               

              Katten
                Muchin Rosenman LLP

              525
                W. Monroe Street

              Chicago,
                Illinois 60661-3693

              Attention:
                Mark D. Wood, Esq.

              Telephone:
                (312) 902-5200

              Facsimile:
                (312) 902-1061

            
	
               

              Promethean
                II Master, L.P.

            	
               

              c/oPromethean
                Asset Management L.L.C.

              55
                Fifth Avenue

               17th
                Floor

              New
                York, New York 10003

              Attention:
                James F. O’Brien

              Telephone:
                (212) 702-5200

              Facsimile:
                (212) 758-9334

              Residence:
                Cayman Islands

            	
               

              Katten
                Muchin Rosenman LLP

              525
                W. Monroe Street

              Chicago,
                Illinois 60661-3693

              Attention:
                Mark D. Wood, Esq.

              Telephone:
                (312) 902-5200

              Facsimile:
                (312) 902-1061

            
	
               

              Promethean
                I Master Ltd.

            	
               

              c/oPromethean
                Asset Management L.L.C.

              55
                Fifth Avenue

               17th
                Floor

              New
                York, New York 10003

              Attention:
                James F. O’Brien

              Telephone:
                (212) 702-5200

              Facsimile:
                (212) 758-9334

              Residence:
                Cayman Islands

            	
               

              Katten
                Muchin Rosenman LLP

              525
                W. Monroe Street

              Chicago,
                Illinois 60661-3693

              Attention:
                Mark D. Wood, Esq.

              Telephone:
                (312) 902-5200

              Facsimile:
                (312) 902-1061

            
	
               

              Caerus
                Partners LLC

            	
               

              c/oPromethean
                Asset Management L.L.C.

              55
                Fifth Avenue

              17th
                Floor

              New
                York, New York 10003

              Attention:
                James F. O’Brien

              Telephone:
                (212) 702-5200

              Facsimile:
                (212) 758-9334

              Residence:
                Delaware

            	
               

              Katten
                Muchin Rosenman LLP

              525
                W. Monroe Street

              Chicago,
                Illinois 60661-3693

              Attention:
                Mark D. Wood, Esq.

              Telephone:
                (312) 902-5200

              Facsimile:
                (312) 902-1061

            
	
               

              AG
                Offshore Convertibles, Ltd.

            	
               

              c/o
                Angelo, Gordon & Co.

              245
                Park Avenue

              New
                York, New York 10167

              Attention:  Gary
                I. Wolf

              Telephone:
                (212) 692-2058

              Facsimile:  (212)
                867-6449

              Residence:  Cayman
                Islands

            	
               

              Paul,
                Weiss, Rifkind, Wharton & Garrison LLP

              1285
                Avenue of the Americas

              New
                York, New York 10019-6064

              Attention:  Douglas
                A. Cifu, Esq.

              Telephone:
                (212) 373-3000

              Facsimile:   (212)  759-3990

            

    

     

     

    
 

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	
               

               Buyer's
                Name

            	
              Buyer
                Address

              and
                Facsimile
                Number

            	
              Investor's
                Legal
                Representative's

              Address
                and Facsimile
                Number 

            
	
               

              Leonardo,
                L.P.

            	
               

              c/o
                Angelo, Gordon & Co.

              245
                Park Avenue

              New
                York, New York 10167

              Attention:  Gary
                I. Wolf

              Telephone:
                (212) 692-2058

              Facsimile:  (212)
                867-6449

              Residence:  Cayman
                Islands

            	
               

              Paul,
                Weiss, Rifkind, Wharton & Garrison LLP

              1285
                Avenue of the Americas

              New
                York, New York 10019-6064

              Attention:  Douglas
                A. Cifu, Esq.

              Telephone:
                (212) 373-3000

              Facsimile:   (212)  759-3990exv10w1

 

Exhibit 10.1

EMPLOYMENT AGREEMENT

     THIS AGREEMENT is by and between Ecology Coatings, Inc., a Nevada corporation (the “Company”),
and Richard D. Stromback (the “Executive”) and is entered into on December 28, 2007, to be
effective as of January 1, 2008 (the “Effective Date”).

RECITALS

     WHEREAS, the Board of Directors of the Company (the “Board”) has determined that it is in the
best interests of the Company and its shareholders to assure that the Company will have the
continued employment and dedication of the Executive; and

     WHEREAS, the Board has further determined that it is desirable to provide the Executive with
compensation and benefits terms which adequately compensate the Executive for the services he
renders to the Company, and to ensure that such compensation and benefits are consistent with those
of like executives of other public companies.

AGREEMENT

     Now, therefore, it is hereby agreed as follows:

     1. EMPLOYMENT PERIOD. The term of this Agreement shall commence as of the Effective Date and
shall expire, subject to earlier termination of employment as hereinafter provided, on August 8,
2010 (the “Employment Period”); provided, however, that on any day prior to and including August 8,
2010, the Employment Period may be extended by the Company for an additional year unless prior
thereto either party has given written notice to the other that such party does not wish to extend
the term of this Agreement. This Agreement may be terminated prior to or on the last day of the
Employment Period by (i) the Company for Cause, (as defined in Section 3.2 below), (ii) the
Executive for Good Reason (as defined in Section 3.4 below), or (iii) (the “Company” or the
“Executive”) upon thirty (30) days written notice given by one party to the other party for any
reason except Death or Disability.

     2. TERMS OF EMPLOYMENT.

          2.1 Position and Duties.

                    2.1.1 Position. During the Employment Period, the Executive will be employed in
executive capacities in the position of Chief Executive Officer of the Company, or in other
such positions as designated by the Board, at its office in Bloomfield Hills, Michigan, or
any such other place designated by the Board.

               2.1.2 Duties.

                    2.1.2.1 During the Employment Period, Executive shall serve as Chief Executive Officer
of the Company and shall have the normal duties, responsibilities, functions and authority
of such position, subject to the powers of the Board to expand or limit such duties,
responsibilities, functions and authority, limited

 

 

only to those duties, responsibilities, functions and authority commensurate with a chief executive officer position, and to
override actions of officers of the Company. Without limiting the foregoing: Executive
shall: (i) formulate and implement relevant policies, procedures and strategies to ensure
the realization of the Company’s business strategy; (ii) establish a strong management
system and strict internal control mechanism; (iii) supervise all operational and financial
activities to ensure their compliance with applicable law and the Company’s policies; (iv)
participate in business development and strategic planning; (v) supervise and direct the
work of the CFO, COO and other high-level managerial personnel; (vi) provide comments and
periodic reports to the Board of Directors on operational issues of the Company; and (vii)
perform any and all other duties so stipulated by the Board of Directors.

                    2.1.2.2 Executive shall report to the Board of Directors and shall devote his best
efforts to the business and affairs of the Company and its Subsidiaries. Executive shall
perform his duties, functions and responsibilities to the Company to the best of his
abilities in a diligent, trustworthy, businesslike and efficient manner. Executive will
conduct his primary business activities from within the Company’s principal place of
business, currently in the Bloomfield Hills, Michigan area, other than while Executive is
engaged in business travel for the Company.

               2.2 Compensation.

                    2.2.1 Base Salary. The Executive shall receive an annual base salary of three hundred twenty
thousand and 00/100 dollars ($320,000) from the Effective Date through August 8, 2010. Thereafter,
the Board or the Compensation Committee of the Board (the “Committee”) may review the Executive’s
salary and total cash compensation within one hundred twenty (120) days of the end of each of the
Company’s fiscal years during the Employment Period to determine what, if any, increases shall be
made thereto. The base salary payable to the Executive in any given year is hereafter referred to
as the “Annual Base Salary.” Any increase in the Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Agreement. The Annual Base Salary shall
not be reduced after any increase and the term “Annual Base Salary,” as used in this Agreement,
shall refer to the Annual Base Salary as increased. The Annual Base Salary shall in all instances
be payable in twenty-four (24) equal bi-monthly installments.

                    2.2.2 Annual Bonus and Option Plans. The Executive shall also be eligible to participate in
any applicable Company bonus plan or program, stock option, restricted stock, educational
reimbursement, or other plan or program in effect immediately prior to the Effective Date, or put
into effect by the Board at any time after the Effective Date or the Amendment Effective Date.

                    2.2.3 Incentive, Savings and Retirement Plans. During the Employment Period, the Executive
shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other executives of the
Company, as the same may be amended from time to time, but in no event shall such plans, practices,
policies and programs provide the Executive with incentive opportunities, savings opportunities and
retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most

-2-

 

favorable of those provided by the Company to other executives of the Company; provided, however,
the dollar value awarded Executive in the reasonable discretion of management need not be equal to
that awarded to all other executives.

                    2.2.4 Welfare Benefit Plans. During the Employment Period, the Executive and/or the
Executive’s family, as the case may be, shall be eligible for participation in and shall receive
all benefits under welfare benefit plans, practices, policies and programs provided by the Company
(including, without limitation, medical, prescription, dental, disability, salary continuance,
employee life, group life, accidental death and travel accident insurance plans and programs,
collectively referred to in this Section 2.2.4 as the “Welfare Benefit Plans”) to the extent
applicable generally to other executives of the Company, but in no event shall such Welfare Benefit
Plans, programs provide the Executive with benefits which are less favorable, in the aggregate,
than the most favorable of such Welfare Benefit Plans provided generally at any time after the
Effective Date to other executives of the Company. If the Executive elects to opt out of any or
all of the foregoing Welfare Benefit Plans that the Company offers because Executive has his own
coverage in such areas, the Company will reimburse the Executive for the reasonable cost of such
coverage, but only to the extent that such cost does not exceed cost of the Company providing
coverage under its own Welfare Benefit Plans directly to the Executive.

                    2.2.5 Expenses. During the Employment Period, the Executive shall be entitled to receive
prompt reimbursement for all reasonable expenses incurred by the Executive in the conduct of
Company business.

                    2.2.6 Automobile Allowance. During the Employment Period, the Company shall also pay the
Executive an automobile allowance of Five Hundred dollars 00/100 ($500.00) per month, or as
otherwise increased by the Board or Committee.

                    2.2.7 Vacation. During the Employment Period, the Executive shall be entitled to paid
vacation of four (4) weeks annually and otherwise be in accordance with the plans, policies,
programs and practices of the Company in all respects as in effect for the Executive during the one
hundred twenty (120) day period immediately preceding the Effective Date or, if more favorable to
the Executive, as in effect generally at any time after the Effective Date with respect to other
executives of the Company.

                    2.2.8 No Management Fees. In no event shall the Executive be entitled to receive any
additional compensation for serving as a member and/or manager of the Company or any affiliate of
the Company.

     3. TERMINATION OF EMPLOYMENT.

          3.1 Death or Disability. The Executive’s employment shall terminate automatically upon the
Executive’s death during the Employment Period. If the Company determines in good faith that any
Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to
the Executive written notice in accordance with Section 10.2, of its intention to terminate the
Executive’s employment. In such event, the Executive’s employment with the Company shall terminate
effective on the thirtieth (30th) day after receipt of such notice by the Executive (the

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“Disability Effective Date”), provided that, within the thirty (30) days after such receipt, the
Executive shall not have returned to full-time performance of the Executive’s duties. For purposes
of this Agreement, the term “Disability” shall mean the absence of the Executive from the
Executive’s duties with the Company on a full-time basis for one hundred eighty (180) consecutive
business days as a result of incapacity due to mental or physical illness certified by a physician
selected by the Company or its insurers and acceptable to the Executive or the Executive’s legal
representative.

          3.2 Cause. The Company may terminate the Executive’s employment during the Employment Period
for Cause. For purposes of this Agreement, the term “Cause” shall mean: (i) the willful and
continued failure of the Executive to perform substantially the Executive’s duties with the Company
as set forth in Section 2.1.2, “Duties,” (other than any such failure resulting from incapacity due
to physical or mental illness), after a written demand for substantial performance is delivered to
the Executive by the Board, accompanied by a resolution adopted by the vote of two-thirds (2/3) of
the entire Board, excluding the Executive, at a meeting of the Board held for such purpose, which
resolution specifically identifies the manner in which the Board believes that the Executive has
not substantially performed the Executive’s duties and Executive has not cured any such failure to
perform within thirty (30) business days of such demand; or (ii) dishonest or fraudulent conduct, a
deliberate attempt to do injury to the Company, or other conduct, past or present, that materially
discredits the Company or is materially detrimental to the reputation of the Company including the
Executive’s conviction of or plea of guilty or no contest to a felony under any state or federal
statute, which is materially injurious to the Company as determined by a resolution adopted by the
vote of three-fourths (3/4) of the entire Board, excluding the Executive, at a meeting of the Board
held for such purpose, which resolution specifically identifies the alleged illegal conduct or
gross misconduct. For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered “willful” unless it is done, or omitted to be done, by the Executive
in bad faith. The vote of the Board on the resolutions contemplated in (i) and (ii) of this
Section 3.2 will not be taken until after written notice of not less than five (5) business days to
the Executive of the meeting and an opportunity for Executive to be heard before the Board at such
meeting.

          3.3 Good Reason. The Executive may terminate his employment for Good Reason at any time
within ninety (90) days after the Executive first has actual knowledge of the occurrence of such
Good Reason. For purposes of this Agreement, the term “Good Reason” shall mean:

               3.3.1 the assignment to the Executive of any duties that are not consistent with the duties
set forth in Section 2.1.2, “Duties,” or any other action by the Company that results in a material
diminution in any of the Executive’s positions as set forth in Section 2.1.1, “Position,” or in the
Executive’s authority, duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;

               3.3.2 any failure by the Company to comply with any of the provisions of Section 2.2,
“Compensation,” other than an isolated, insubstantial and inadvertent failure not occurring in bad
faith and which is remedied by the Company promptly after receipt of notice thereof given by the
Executive;

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               3.3.3 the Company’s requiring the Executive, without the Executive’s consent and full
agreement, to be based at any office other than in the Detroit, Michigan metropolitan area or a
position other than as provided in Section 2.1.1;

               3.3.4 any purported termination by the Company of the Executive’s employment otherwise than as
expressly permitted by this Agreement;

               3.3.5 any action taken by the Company or its Board of Directors in connection with a “Change
in Control,” as defined in Section 4.5, “Change in Control,” that results in the Executive being
removed as the Chief Financial Officer of the Company without the Executive’s consent; or

               3.3.6 any failure by the Company to comply with and satisfy Section 9.3.

          3.4 Notice of Termination. Any termination by the Company for Cause, or by the Executive for
Good Reason, shall be communicated by Notice of Termination to the other party hereto given in
accordance with Section 10.2 of this Agreement. For purposes of this Agreement, the term “Notice
of Termination” means a written notice that:

               3.4.1 indicates the specific termination provision in this Agreement relied upon;

               3.4.2 to the extent applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive’s employment under the provision so
indicated; and

               3.4.3 if the Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date, which date shall be not more than thirty (30) days after
the giving of such notice. The failure by the Executive or the Company to set forth in the Notice
of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the
Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the
rights of the Executive or the Company under this Agreement.

          3.5 Date of Termination. The term “Date of Termination” means:

               3.5.1 if the Executive’s employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or any later date
specified therein, as the case may be;

               3.5.2 if the Executive’s employment is terminated by the Company other than for Cause or
Disability, the date on which the Company notifies the Executive of such termination; and

               3.5.3 if the Executive’s employment is terminated by reason of death or Disability, the date
of death of the Executive or the Disability Effective Date, as the case may be.

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     4. OBLIGATIONS OF THE COMPANY UPON TERMINATION.

          4.1 Termination for Good Reason, Other Than for Cause, Death or Disability. If, during the
Employment Period, the Company shall terminate the Executive’s employment other than for Cause,
Death or Disability, or the Executive shall terminate employment for Good Reason, the Company shall
pay to the Executive, or Executive’s beneficiary as designated by him in writing to the Company,
within thirty (30) days after the Date of Termination the aggregate of the amounts set forth in
Section 4.1.2 through Section 4.1.5 in a lump sum in cash and shall pay the amounts due under
Section 4.1.1 and Section 4.1.6 as provided in those Sections:

               4.1.1 the amount of Annual Base Salary compensation that would be payable to the Executive
over a twenty-four (24) month period, provided that the Company will pay such amount to the
Executive over the period that the compensation would have been due had the termination not
occurred;

               4.1.2 any declared and accrued, but as of then unpaid, bonus or stock options grant (whether
or not vested) to which the Execute would have received but for such termination. Additionally,
any stock options owned or granted shall be deemed immediately vested, not forfeitable, and shall
be the property of Executive, exercisable according to their terms for the balance of the term of
years of the options;

               4.1.3 any accrued vacation pay;

               4.1.4 any amounts payable pursuant to the Company’s Defined Benefit Pension Plan, 401(k) plan,
including such amounts which would have accrued (whether or not vested) if the Executive’s
employment had continued after the Date of Termination for the period then remaining under this
Agreement, as it may have been renewed as provided for in Section 1, “Employment Period”;

               4.1.5 any other amounts or benefits required to be paid or provided or which the Executive is
eligible to receive under any plan, program, policy or practice or contract or agreement of the
Company (such other amounts and benefits shall be referred to as the “Other Benefits”);

               4.1.6 for the remaining term of this Agreement, as it may have been renewed pursuant to
Section 1, “Employment Period,” or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive
and/or the Executive’s family at least equal to those which would have been provided to them in
accordance with Section 2.2.4, “Welfare Benefit Plans,” of this Agreement if the Executive’s
employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other executives of
the Company and their families, provided, however, that if the Executive becomes re-employed with
another employer and is eligible to receive medical or other welfare benefits under another
employer-provided plan, the medical and other welfare benefits described herein shall be secondary
to those provided under such other plan during such applicable period of eligibility, and for
purposes of determining eligibility (but not the time of commencement of benefits) of the

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Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall
be considered to have remained employed for the remaining term of this Agreement, as it may have
been renewed pursuant to Section 1, “Employment Period,” and to have retired on the last day of
such period.

          4.2 Death. If the Executive’s employment is terminated by reason of the Executive’s death
during the Employment Period, this Agreement shall terminate without further obligations to the
Executive’s legal representatives under this Agreement, other than for (i) payment of any death
benefit compensation under other contracts; (ii) payment of the amounts due under the term life
insurance policy described in Section 2.2.3, “Incentive Savings and Retirement Plans”; (iii) full
vesting and non-forfeiture of stock options granted to Executive; and (iv) the timely payment or
provision of Other Benefits. Such amounts shall be paid to the Executive’s estate or beneficiary,
as applicable, in a lump sum in cash within thirty (30) days of the Date of Termination. The term
“Other Benefits” as utilized in this Section 4.2 shall include, without limitation, and the
Executive’s estate and/or beneficiaries shall be entitled to receive, benefits at least equal to
the most favorable benefits provided by the Company to the estates and beneficiaries of other
executives of the Company under such plans, programs, practices and policies relating to death
benefits, if any, as in effect with respect to other executives and their beneficiaries at any time
during the one hundred twenty (120) day period immediately preceding the Effective Date or, if more
favorable to the Executive’s estate and/or the Executive’s beneficiaries, as in effect on the date
of the Executive’s death with respect to other executives of the Company and their beneficiaries.

          4.3 Disability. If the Executive’s employment is terminated by reason of the Executive’s
Disability under Section 3.1, “Death or Disability,” during the Employment Period, this Agreement
shall terminate without further obligations to the Company, other than for the timely payment or
provision of (i) Base Salary through the Termination Date; (ii) accrued bonus through the
Termination Date; (iii) payment of pension, 401(k) and Other Disability Benefits; (iv) full vesting
and non-forfeiture of stock options; and (v) the receipt of fully-paid Welfare Benefit Plans under
Section 2.2.4, “Welfare Benefit Plans,” for the balance of the term of this Agreement. In
addition, Executive shall be paid for the term of this Agreement at regular pay periods that amount
equal to the difference between his Annual Base Salary and the disability insurance payment
received by the disabled Executive under the Company’s disability insurance program. The term
“Other Benefits” as utilized in this Section 4.3 shall include, and the Executive shall be entitled
after the Disability Effective Date to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company to disabled executives and/or their
families in accordance with such plans, programs, practices and policies relating to disability, if
any, as in effect generally with respect to other executives and their families at any time during
the one hundred twenty (120) day period immediately preceding the Effective Date or, if more
favorable to the Executive and/or the Executive’s family, as in effect at any time thereafter generally with respect to other executives of the Company and
their families.

          4.4 Termination by the Company for Cause; and Termination by the Executive for Other than for
Good Reason. If the Executive’s employment shall be terminated for Cause during the Employment
Period, this Agreement shall terminate without further obligations to the Company other than the
obligation to pay to the Executive: (i) the Annual Base Salary through

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the Date of Termination; (ii) the amount of any compensation previously deferred by the Executive; and (iii) Other Benefits
under Sections 4.2, “Death,” and Section 4.3, “Disability,” in each case to the extent therefore
unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding
a termination for Good Reason by the Executive, this Agreement shall terminate without further
obligations to the Company, other than for items (i), (ii) and (iii) of this paragraph, accrued but
unpaid vacation leave, and the timely payment or provision of Other Benefits. In such case, all
accrued obligations shall be paid to the Executive in a lump sum in cash within thirty (30) days of
the Date of Termination. A termination of the Executive by the Company for Cause or a termination
by the Executive for other than Good Reason shall not affect the status of any vested stock
options.

          4.5 Change in Control. If, during the term of this Agreement and within one year after a
“Change in Control,” as defined below, the Company shall terminate the Executive’s employment other
than for Cause, Death or Disability or the Executive shall terminate employment for Good Reason,
the Company shall (i) pay to the Executive the amount of compensation that would have been payable
to the Executive over the period then remaining under this Agreement and on the same schedule as
such payments would have been due had the termination not occurred, provided that the Company shall
pay the Executive for a minimum of twenty-four (24) months on this basis; and (ii) cause all stock
options issued to the Executive that have not vested as of the termination to be immediately
vested.

               4.5.1 The term “Change in Control” shall mean an event or the last of a series of related
events by which:

               4.5.2 the Company merges or consolidates with or into another entity or completes any other
corporate reorganization, if more than fifty percent (50%) of the combined voting power of the
continuing or surviving entity’s securities outstanding immediately after such merger,
consolidation or other reorganization is owned by persons who were not stockholders of the Company
immediately prior to such merger, consolidation or other reorganization; or

               4.5.3 the Company sells, transfers or otherwise disposes of all or substantially all of the
consolidated assets of the Company or its subsidiaries and the Company does not own stock in the
purchaser or purchasers having more than fifty percent (50%) of the voting power in elections for
directors; or

               4.5.4 the composition of the Board changes, as a result of which fewer than one half of the
incumbent directors are directors who either:

	 	(i)	 	had been directors of the Company
twenty-four (24) months prior to such change; or
	 
	 	(ii)	 	were elected, or nominated for
election, to the Board with the affirmative votes of at least a
majority of the directors who had been directors of the Company
twenty-four (24) months prior to such change and who were still
in office at the time of the election or nomination.

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A transaction shall not constitute a Change of Control if (i) its sole purpose is to change the
state of the Company’s incorporation or to create a holding company that will be owned in
substantially the same proportions by the Persons who held the Company’s securities immediately
before such transaction or (ii) the Company acquires another corporation or entity through the
purchase or other acquisition of control of the voting stock or assets of such corporation or
entity; or

               4.5.5 any Person acquires direct or indirect beneficial ownership of more than thirty-three
percent (33%) of the voting power of the Company, whether in a single transaction or a series of
transactions.

               4.5.6 As used in this Agreement, a “Person” means any “person,” as that term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, together with all of
that person’s “affiliates” and “associates,” as those terms are defined in Rule 12b-2 of such Act.

     5. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the
Executive’s continuing or future participation in any plan, program, policy or practice provided by
the Company and for which the Executive may qualify, nor, subject to Section 4, “Obligations of the
Company Upon Termination,” shall anything herein limit or otherwise affect such rights as the
Executive may have under any other contract or agreement with the Company. Amounts which are
vested benefits or which the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company at or subsequent to the Date
of Termination shall be payable in accordance with such plan, policy, practice or program or
contract or agreement except as explicitly modified by this Agreement. Executive is currently a
party to, and in the future may be a party to other, employment arrangements, agreements, and
incentive plans, including but not limited to, a death benefit plan, stock option agreements, and a
change of control agreement. This Agreement shall not supersede any of the terms or conditions of
such other agreements. To the extent of any inconsistency in these agreements, the agreements
shall be interpreted and applied in the way to confer upon the Executive the greatest benefits.
The agreements shall be read and applied consistent with each other, but in the event of a
conflict, the terms most favorable to the Executive will be applied from the various provisions of
the agreements in the aggregate.

     6. FULL SETTLEMENT; LEGAL FEES. The Company’s obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be subject to any
set-off, counterclaim, recoupment, defense or other claim, right or action that the Company may
have against the Executive. In no event shall the Executive be obligated to seek other employment
or take any other action by way of mitigation of the amounts payable to the Executive under any of
the provisions of this Agreement and except as specifically provided in Section 4.1.6, such amounts
shall not be reduced whether or not the Executive obtains other employment. Provided that the Executive is the prevailing party, the
Company will reimburse the Executive to the full extent permitted by law, all legal fees and
expenses that the Executive may reasonably incur as a result of any contest by the Company, the
Executive or others of the validity or enforceability of, or liability or entitlement under, any
provision of this Agreement or any guarantee of performance thereof (whether such contest is
between the Company and the Executive or between either of them and any third party, and

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including as a result of any contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable Federal rate
(“Applicable Federal Rate”) provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of
1986, as amended (the “Code”).

     7. CONFIDENTIAL INFORMATION; NONCOMPETITION.

          7.1 Nondisclosure. The Executive shall hold in fiduciary capacity for the benefit of the
Company all secret, proprietary or Confidential Information, knowledge or data relating to the
Company and its businesses, which shall have been obtained by the Executive during the Executive’s
employment by the Company. During the period the Executive is employed with the Company, and after
termination of the Executive’s employment with the Company, the Executive shall not, without the
prior written consent of the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone other than the Company and
those designated by it. The restrictions set forth in this Section 7 will not apply to information
which is generally known to the public or in the trade, unless such knowledge results from an
unauthorized disclosure by the Executive or representatives of the Executive in violation of this
Agreement. This exception will not affect the application of any other provisions of this
Agreement to such information in accordance with the terms of such provision. All documents and
tangible things embodying or containing Confidential Information are the Company’s exclusive
property. The Executive will protect the confidentiality of their content and will return all
copies, facsimiles and specimens of them and any other form of Confidential Information in the
Executive’s possession, custody or control to the Company before leaving the employment with the
Company.

          7.2 Definition of Confidential Information. The term “Confidential Information” includes all
information of any nature and in any form which at the time or times concerned is not generally
known to the public, other than by act or acts of an employee not authorized by Company to disclose
such information, and which relates to any one or more of the aspects of the present and past
business of Company or any of its predecessors, including, but not limited to, patents and patent
applications, inventions and improvements, whether patentable or not, development projects,
policies, processes, formulas, techniques, know-how and other facts relating to sales, advertising,
franchising, promotions, financial matters, customers, customer lists, customer purchases or
requirements, licenses or trade secrets.

          7.3 Competition. During the term of the Executive’s employment with the Company, and for the
period during which he receives compensation from the Company under Section 4.1.1 after the
termination of his employment with the Company, the Executive will not, directly or indirectly,
engage, participate or invest in or be employed by any business anywhere in the world which:

               7.3.1 develops or manufactures products that are competitive with or similar to products
developed or manufactured by the Company; or

               7.3.2 distributes, markets or otherwise sells products manufactured by others which are
competitive with or similar to products distributed, marketed or sold by the Company; or provides
services which are competitive with or similar to services provided by the

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Company, including, in each case, any products or services the Company has under development or which are the subject of
active planning at any time during the term of the Executive’s employment.

          The foregoing restriction shall apply regardless of the capacity in which the Executive
engages or engaged, participates or participated, or invests or invested in or is employed by a
given business, whether as owner, partner, shareholder, consultant, agent, Executive, co-venturer
or otherwise. In addition, during the term of the Executive’s employment with the Company, and for
a period of twelve (12) months thereafter, the Executive will not, directly or indirectly, without
the prior written consent of the Company, solicit for hire with any business any person who is
employed by the Company at such time or was employed by the Company within the preceding twelve
(12) months. The provisions of this Section 7 shall not prevent the Executive from acquiring or
holding publicly traded stock or other publicly traded securities of a business, so long as the
Executive’s ownership does not exceed ten percent (10%) of the outstanding securities of such
company of the same class as those held by the Executive or from engaging in any activity or having
an ownership interest in any business that is reviewed by the Board. The Executive understands
that the restrictions set out in this Section 7 are intended to protect the Company’s interest in
its secret, proprietary or Confidential Information and established customer relationships and
goodwill, and agrees that such restrictions are reasonable and appropriate for this purpose.

          7.4 Damages. The Executive agrees that it would be difficult to measure any damages caused to
the Company which might result from any breach by the Executive of the promises set forth in this
Agreement, and that in any event money damages would be an inadequate remedy for any such breach.
Accordingly, the Executive agrees that in the case of breach, or proposed breach, of any portion of
this Agreement, the Company shall be entitled, in addition to all other remedies that it may have,
to an injunction or other appropriate equitable relief to restrain any such breach without showing
or proving any actual damage to the Company.

     8. DISPUTE RESOLUTION. If there shall be any dispute between the Company and the Executive
(i) in the event of any termination of the Executive’s employment by the Company, provided such
termination was not for Cause, or (ii) otherwise arising out of this Agreement, the dispute will be
resolved in accordance with the dispute resolution procedures set forth in Exhibit A attached to
this Agreement, the provisions of which are incorporated as a part of this Agreement, and the
parties of this Agreement agree that such dispute resolution procedures will be the exclusive
method for resolution of disputes under this Agreement; provided, however, that (a) either party
may seek preliminary judicial relief if, in such party’s judgment, such action is necessary to
avoid irreparable injury during the pendency of such procedures, and (b) nothing in Exhibit A will
prevent either party from exercising the rights of termination set forth in this Agreement. IT IS
EXPRESSLY UNDERSTOOD THAT BY SIGNING THIS AGREEMENT, WHICH INCORPORATES BINDING ARBITRATION, THE COMPANY AND EXECUTIVE
AGREE, EXCEPT AS SPECIFICALLY PROVIDED OTHERWISE IN SECTION 7, “CONFIDENTIAL INFORMATION;
NONCOMPETITION,” AND THIS SECTION 8, TO WAIVE COURT OR JURY TRIAL AND TO WAIVE PUNITIVE, STATUTORY,
CONSEQUENTIAL, AND ANY DAMAGES, OTHER THAN COMPENSATORY DAMAGES.

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     9. SUCCESSORS.

          9.1 This Agreement is personal to the Executive and without the prior written consent of the
Company shall not be assigned by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s
legal representatives.

          9.2 This Agreement shall inure to the benefit of and be binding upon the Company and its
successors and assigns.

          9.3 The Company will require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession had taken place. As
used in this Agreement, the term “Company” shall mean the Company as defined above and any
successor to its business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.

     10. MISCELLANEOUS.

          10.1 This Agreement shall be governed by and construed in accordance with the laws of the
State of Michigan, without reference to principles of conflict of laws. The captions of this
Agreement are set forth for convenience only and shall have no separate force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.

          10.2 All notices and other communications hereunder shall be in writing and shall be given by
hand delivery to the other party or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:

	 	 	 
	 

	 	If to the Executive:
	 
	 	 
	 

	 	Richard D. Stromback

1050 Northover Drive

Bloomfield Hills, Michigan 48304
	 
	 	 
	 

	 	If to the Company:
	 
	 	 
	 

	 	Ecology Coatings, Inc.

Adam S. Tracy, Esq, General Counsel

35980 Woodward Avenue, Suite 200

Bloomfield Hills, Michigan 48304

	 
	 	 
	 

	 	With a copy to:
	 
	 	 
	 

	 	Chairman – Compensation Committee of

the Board of Directors

c/o Ecology Coatings, Inc.
	 

	 	35980 Woodward Avenue, Suite 200

Bloomfield Hills, Michigan 48304

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or to such other address as either party shall have furnished to the other in writing in accordance
herewith. Notice and communications shall be effective when actually received by the addressee.

          10.3 The invalidity or unenforceability of any provision of this Agreement shall not affect
the validity or enforceability of any other provision of this Agreement.

          10.4 The Company may withhold from any amounts payable under this Agreement such Federal,
state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or
regulation.

          10.5 The failure of the Executive or the Company to insist upon strict compliance with any
provision hereof or any other provision of this Agreement or the failure to assert any right the
Executive or the Company may have hereunder, including, without limitation, shall not be deemed to
be a waiver of such provision or right or any other provision or right of this Agreement, except
that if the Executive chooses to terminate employment for Good Reason pursuant to Section 3.3,
“Good Reason,” and complies with the provisions of Section 3, “Termination of Employment,” the
Executive shall only be entitled to compensation and benefits applicable to such event of
termination.

     IN WITNESS WHEREOF, pursuant to the authorization from its Compensation Committee and Board of
Directors, the Company has caused this Agreement to be executed in its name on its behalf, as of
the dates first above written.

	 	 	 
	 

	 	COMPANY:
	 
	 	 
	 

	 	ECOLOGY COATINGS, INC.
	 
	 	 
	 
	 

	 	 
	 

	 	Robert Liebig,

Chairman, Compensation Committee of

the Board of Directors of Ecology Coatings, Inc.
	 
	 	 
	 

	 	EXECUTIVE:
	 
	 
	 	 
	 

	 	 
	 

	 	Richard D. Stromback

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EXHIBIT A

DISPUTE RESOLUTION PROCEDURES

     1. If a controversy arises that is covered by Section 8, “Dispute Resolution,” of the
Agreement, then not later than twelve (12) months from the date of the event that is the subject of
dispute either party may serve on the other a written notice specifying the existence of such
controversy and setting forth in reasonably specific detail the grounds of the notice (“Notice of
Controversy”); provided that, in any event, the other party will have at least thirty (30) days
from and after the date of the Notice of Controversy to serve a written notice of any counterclaim
(“Notice of Counterclaim”). The Notice of Counterclaim will specify the claim or claims in
reasonably specific detail. If the Notice of Controversy or the Notice of Counterclaim, as the
case may be, is not served within the applicable period, the claim set forth therein will be deemed
to have been waived, abandoned and rendered unenforceable.

     2. For a three (3) week period following receipt of the Notice of Controversy or the Notice of
Counterclaim, as the case may be, the parties will make a good faith effort to resolve the dispute
through negotiation (“Period of Negotiation”). Neither party will take any action during the
Period of Negotiation to initiate arbitration proceedings.

     3. If the parties agree during the Period of Negotiation to mediate the dispute, then the
Period of Negotiation will be extended by an amount of time to be agreed upon by the parties to
permit such mediation. In no event, however, may the Period of Negotiation be extended by more
than five weeks or, stated differently, in no event may the Period of Negotiation be extended to
encompass more than a total of eight weeks.

     4. If the parties agree to mediate the dispute but are thereafter unable to agree within a
week on the format and procedures for the mediation, then the effort to mediate will cease, and the
period of Negotiation will terminate four weeks from the Notice of Controversy or the Notice of
Counterclaim, as the case may be.

     5. Following the termination of the Period of Negotiation, the dispute, including the main
claim and counterclaim, if any, will be settled by arbitration, governed by the Federal Arbitration
Act, 9 U.S.C. §1 et seq. (“FAA”), and judgment upon the award may be entered in any court having
jurisdiction. The format and procedures of the arbitration are set forth below (referred to below
as the “Arbitration Agreement”).

     6. A notice of intention to arbitrate (“Notice of Arbitration”) will be served within
forty-five (45) days of the termination of the Period of Negotiation. If the Notice of Arbitration
is not served within this period, the claim set forth in the Notice of Controversy or the Notice of
Counterclaim, as the case may be, will be deemed to have been waived, abandoned and rendered
unenforceable.

     7. The arbitration, including the Notice of Arbitration, will be governed by the Commercial
Rules of the American Arbitration Association (“AAA”) in effect on the date of the Notice of
Arbitration, except that the terms of this Arbitration Agreement will control in the

 

 

event of any difference or conflict between such Rules and the terms of this Arbitration
Agreement.

     8. The arbitrator will reach a decision on the merits on the basis of applicable legal
principles as embodied in the law of the State of Michigan. The arbitration hearing will take
place in Detroit, Michigan.

     9. There will be one arbitrator, regardless of the amount in controversy. The arbitrator
selected, in order to be eligible to serve, will be a lawyer in Detroit, Michigan with at least
fifteen (15) years experience specializing in either general commercial litigation or general
corporate and commercial matters. In the event the parties cannot agree on a mutually acceptable
single arbitrator from the list submitted by the AAA, the AAA will appoint the arbitrator who will
meet the foregoing criteria.

     10. At the time of appointment and as a condition of the appointment, the arbitrator will be
apprised of the time limitations and other provisions of this Arbitration Agreement and will
indicate such dispute resolver’s agreement to the Tribunal Administrator to comply with such
provisions and time limitations.

     11. During the thirty (30) day period following appointment of the arbitrator, either party
may serve on the other a request for limited numbers of documents directly related to the dispute.
Such documents will be produced within seven (7) days of the request.

     12. Following the thirty-day period of document production, there will be a forty-five (45)
day period during which limited depositions will be permissible. Neither party will take more than
five (5) depositions, and no deposition will exceed three (3) hours of direct testimony.

     13. Disputes as to discovery or prehearing matters of a procedural nature will be promptly
submitted to the arbitrator pursuant to telephone conference call or otherwise. The arbitrator
will make every effort to render a ruling on such interim matters at the time of the hearing (or
conference call) or within five (5) business days thereafter.

     14. Following the period of depositions, the arbitration hearing will promptly commence. The
arbitrator will make every effort to commence the hearing within thirty (30) days of the conclusion
of the deposition period and, in addition, will make every effort to conduct the hearing on
consecutive business days to conclusion.

     15. An award will be rendered, at the latest, within nine (9) months of the date of the Notice
of Arbitration and within thirty (30) days of the close of the arbitration hearing. The award will
set forth the grounds for the decision (findings of fact and conclusions of law) in reasonably
specific detail. The award will be final and nonappealable except as provided in the FAA and
except that a court of competent jurisdiction will have the power to review whether, as a matter of
law, based upon the findings of fact by the arbitrator, the award should be confirmed or should be
modified or vacated in order to correct any errors of law made by the arbitrator. Such judicial
review will be limited to issues of law, and the parties agree that the findings of fact made by
the arbitrator will be final and binding on the parties and will serve as the facts to

-2-

 

be relied upon by the court in determining the extent to which the award should be confirmed,
modified or vacated.

     The award may only be made for compensatory damages, and if any other damages (whether
exemplary, punitive, consequential, statutory or other) are included, the award will be vacated and
remanded, or modified or corrected, as appropriate to promote this damage limitation.

-3-

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