Document:

compensationcommttcharter.htm

  

  

  

October 18, 2007

ECOLOGY COATINGS, INC.

COMPENSATION COMMITTEE CHARTER

This Compensation Committee Charter was adopted by the Board of Directors of Ecology Coatings, Inc. on October 18, 2007.

	
I.  

	
Statement of Purpose

The purpose of the Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) of Ecology Coatings, Inc. (the “Company”) is to (i) facilitate the Board’s discharge of its responsibilities relating to the evaluation and compensation of the Company’s executives, (ii) oversee the administration of the Company’s compensation plans, (iii) review and determine director compensation and (iv) prepare any report on executive compensation required by the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”).

	
II.  

	
Membership

The Committee shall be composed of at least two directors as determined by the Board, none of whom shall be an employee of the Company and each of whom shall (1) satisfy the independence requirements of the Nasdaq Stock Market, (2) be a “non-employee director” within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the “1934 Act”), and (3) be an “outside director” under the regulations promulgated under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).

Vacancies on the Committee shall be filled by a vote of the Board. The Board may remove a member of the Committee. Any member of the Committee may resign therefrom at any time by delivering a letter of resignation to the chairman of the Board with a copy to the Secretary. Any such resignation shall take effect at the time specified therein, or, if the time when it shall become effective has not been specified therein, then it shall take effect immediately upon its receipt by the chairman of the Board; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

	
III.  

	
Committee Authority and Responsibilities

The Committee shall have the following specific authority and responsibilities (in addition to any other authority or responsibility which the Board may from time to time delegate to the Committee), in each case subject to the requirements of law and the Company’s bylaws:

	
A.  

	
The Committee shall, at least annually, review the compensation philosphy of the Company.

	
B.  

	
The Committee shall, at least annually, review and approve corporate goals and objectives relating to the compensation of the chief executive officer, evaluate the performance of the chief executive officer in light of those goals and objectives and determine and approve the compensation of the chief executive officer based on such evaluation. The Committee shall have sole authority to determine the chief executive officer’s compensation.

 

	
C.  

	
The Committee shall, at least annually, review and approve all compensation for all executive officers, other officers (as such term is defined in Rule 16a-1, promulgated under the 1934 Act), vice presidents and all other employees of the Company or its subsidiaries with a base salary greater than or equal to $150,000. The Committee shall also review and approve all officers’ employment agreements and severance arrangements.

 

	
D.  

	
The Committee shall, at least annually, review and recommend to the board all compensation for any director (i.e., member of the Board) of the Company.

 

	
E.  

	
The Committee shall periodically engage in a general review of base compensation levels for all other employees of the Company.

 

	
F.  

	
The Committee shall periodically review and approve all annual bonus, long-term incentive compensation, stock option, employee pension and welfare benefit plans (including 401(k), employee stock purchase plan and others), and with respect to each plan shall have responsibility for:

 

	
1.  

	
general administration;

	
2.  

	
setting performance targets under all annual bonus and long-term incentive compensation plans as appropriate and committing to writing any and all performance targets for all executive officers who may be “covered employees” under Section 162(m) of the Code within the first 90 days of the performance period to which such target relates or, if shorter, within the period provided by Section 162(m) of the Code in order for such target to be “pre-established” within the meaning of Section 162(m);

 

	
3.  

	
certifying that any and all performance targets used for any performance- based equity compensation plans have been met before payment of any executive bonus or compensation or exercise of any executive award granted under any such plan(s);

 

	
4.  

	
approving all amendments to, and terminations of, all compensation plans and any awards under such plans;

 

	
5.  

	
granting any awards, under any performance-based annual bonus, long-term incentive compensation and equity compensation plans to executive officers or current employees with the potential to become the chief executive officer or an executive officer, including stock options and other equity rights (e.g., restricted stock, stock purchase rights);

 

	
6.  

	
making recommendations to the Board with respect to awards for the Company’s directors under the Company’s equity incentive plan(s); and

 

	
7.  

	
repurchasing securities from terminated employees, other than ordinary course repurchases of shares issued upon the early exercise of stock options in connection with the termination of an employee’s employment.

 

	
G.  

	
The Committee shall establish and periodically review policies concerning perquisite benefits.

	
H.  

	
The Committee shall periodically review the need for a Company policy regarding compensation paid to the Company’s executive officers in excess of limits deductible under Section 162(m) of the Code.

 

	
I.  

	
The Committee shall determine the Company’s policy with respect to change of control or “parachute” payments.

 

	
J.  

	
The Committee shall review and approve executive officer and director indemnification and insurance matters.

 

	
K.  

	
The Committee shall review and approve any employee loans in an amount equal to or greater than $10,000.

 

	
L.  

	
The Committee shall prepare and approve the Compensation Committee report to be included as part of the Company’s annual proxy statement (the “Proxy Statement Report”).

 

	
M.  

	
The Committee shall evaluate its own performance on an annual basis, including its compliance with this Charter, and report to the Board with respect to such evaluation, including any recommendations for changes in procedures or policies governing the Committee. The Committee shall conduct such evaluation and review in such manner as it deems appropriate.

 

	
N.  

	
The Committee shall review and reassess this Charter at least annually and submit any recommended changes to the Board for its consideration.

	
IV.  

	
Delegation

In fulfilling its responsibilities, the Committee shall be entitled to delegate any or all of its responsibilities to a subcommittee of the Committee, except that it shall not delegate its responsibilities set forth in paragraphs III or V or for any matters that involve executive compensation or any matters where it has determined such compensation is intended to comply with Section 162(m) of the Code by virtue of being approved by a committee of “outside directors” or is intended to be exempt from Section 16(b) under the 1934 Act pursuant to Rule 16b-3 by virtue of being approved by a committee of “non-employee directors.”

The Committee may delegate and grant authority to the chief executive officer to grant awards under the Company’s equity incentive plan(s) to the Company’s employees holding positions below the level of vice president.

	
V.  

	
Committee Reports

The Committee shall produce the following reports and provide them to the Board:

	
A.  

	
An annual performance evaluation of the Committee, which evaluation measures the performance of the Committee against the requirements of this Charter and sets forth the goals and objectives of the Committee for the upcoming year. The performance evaluation should also contain any recommendations for changes to this Charter arising out of the Committee's annual review.

	
B.  

	
The Committee shall maintain minutes. A summary of the actions taken at each Committee meeting, which shall be presented to the Board at the next Board meeting following such Committee meeting.

 

	
C.  

	
Any other reports which the Board may from time to time specify.

Except in the case of the reports specified in paragraph 1, these reports may take the form of an oral report by the chairperson of the Committee or any other member of the Committee designated by it to give such oral report.

	
VI.  

	
Retention of Consultants and Advisors

The Committee shall have authority to retain and terminate any compensation consultant to be used to assist in the evaluation of director, CEO or senior management compensation and shall have sole authority to approve the consultant’s fees and other retention terms. The Committee shall also have authority, without having to seek Board approval, to obtain, at the expense of the Company, advice and assistance from internal or external legal, accounting or other advisors. The Committee shall have the authority to conduct or authorize investigations into or studies of any matters within the Committee’s scope of responsibilities.

	
VII.  

	
Duties and Responsibilities of the Board

The Board shall:

	
A.  

	
elect members to the Committee and conduct oversight of the activities of the Committee;

	
B.  

	
ensure that adequate resources are available to the Committee for proper discharge of its duties and responsibilities;

	
C.  

	
provide timely written disclosure to the applicable governing or administrative forums of any determination that the Board has made regarding  the independence of the members of the Committee;  the financial literacy of the members of the Committee; the accounting or related financial management expertise of the financial expert of the Committee; and the annual review and reassessment of the adequacy of this Charter as well as an annual self-evaluation.

 

	
D.  

	
ensure this Charter is posted on the Company’s Web site.auditcommttcharter.htm

  

  

  

October 18, 2007

ECOLOGY COATINGS, INC.

AUDIT COMMITTEE CHARTER

This Compensation Committee Charter was adopted by the Board of Directors of Ecology

Coatings, Inc. on October 18, 2007.

I. Statement of Purpose

     

The Committee shall assist the Board in fulfilling its responsibility for oversight of: (1) the integrity of the Company’s financial statements, (2) the Company’s compliance with legal and regulatory requirements, (3) the independent auditor’s qualifications and independence, (4) the performance of the Company’s internal audit function and independent auditors and (5) such other duties as directed by the Board.

II. Membership

    

The Committee shall be composed of at least two directors as determined by the Board, none of whom shall be an employee of the Company and each of whom shall (1) satisfy the independence requirements of the Nasdaq Stock Market, (2) be a “non-employee director” within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as amended (the “1934 Act”), and (3) be an “outside director” under the regulations promulgated under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).

     

At least one member shall have accounting or related financial management expertise to meet the requirements of a financial expert and each other member shall be financially literate and able to read and understand financial statements at the time of their appointment. Committee members shall not simultaneously serve on the audit committees of more than four other public companies.

     

Vacancies on the Committee shall be filled by a vote of the Board. The Board may remove a member of the Committee. Any member of the Committee may resign therefrom at any time by delivering a letter of resignation to the chairman of the Board with a copy to the Secretary. Any such resignation shall take effect at the time specified therein, or, if the time when it shall become effective has not been specified therein, then it shall take effect immediately upon its receipt by the chairman of the Board; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

III. Committee Authority and Responsibilities

     The Committee shall have the following specific authority and responsibilities (in addition to any other authority or responsibility which the Board may from time to time delegate to the Committee), in each case subject to the requirements of law and the Company’s bylaws:

  

  

  

 

	  	
A.

	  	
to exercise its ultimate authority over appointment, compensation, retention, replacement and oversight of the registered public accounting firm engaged (including resolution of any disagreements between management and the auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or performing other audit, review, or attest services for the issuer and the registered public accounting firm shall report directly to the Committee. In exercising this authority, the Committee will (A) discuss and consider the auditor’s written affirmation that the auditor is in fact independent; (B) discuss the nature and conduct of the audit process; (C) receive and review all reports; and (D) provide the independent accountant with full access to the Committee and the Board to enable him to report on any and all appropriate matters.

	  	  	  	  
	  	
B.

	  	
to approve in advance all auditing services and permitted non-audit services to be performed by the registered public accounting firm. Under no circumstances is the Committee allowed to engage the registered public accounting firm to perform prohibited services as outlined in Securities and Exchange Commission rules.

	  	  	  	  
	  	
C.

	  	
to establish procedures for the receipt, retention, and treatment of complaints regarding accounting, internal accounting controls, or auditing matters, including procedures for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.

	  	  	  	  
	  	
D.

	  	
to establish hiring policies, compliant with governing laws and regulations, for employees or former employees of the Company’s registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review, or attest services for the issuer.

	  	  	  	  
	  	
E.

	  	
to discuss with management and the auditors the quality and adequacy of the Company’s internal controls, including management’s report on internal controls and the independent auditor’s attestation on management’s assertions as required by Securities and Exchange Commission rules.

	  	  	  	  
	  	
F.

	  	
to establish an internal audit function and provide guidance and oversight to the internal audit function of the Company, including review of the organization, plans and results of such activity.

  

  

  

 

	  	
G.

	  	
to maintain free and open communication (including private executive sessions at least annually) with the independent accountants, the internal audit function and the management of the Company. In discharging this oversight role or as it otherwise deems necessary or appropriate, the Committee is empowered to investigate any matter brought to its attention, with full power to retain independent legal, accounting or other advisors for this purpose.

	  	  	  	  
	  	
H.

	  	
at least annually, to obtain and review a report by the independent auditor, describing the audit firm’s internal quality-control procedures; any material issues raised by the most recent internal quality-control review, or peer review, of the audit firm, or by any inquiry or investigation by governmental or professional authorities, within the preceding five years, respecting one or more independent audits carried out by the firm, and any steps taken to deal with any such issues, and delineating all relationships between the outside auditor and the Company as required by Independent Standards Board Standard No. 1, and also to present its conclusions with respect to the independent auditor to the full Board.

	  	  	  	  
	  	
I.

	  	
to further seek to ensure that the outside auditor remains independent by:

	  	
1.

	  	
discussing with the outside auditor its independence, including by regularly engaging the outside auditor in a dialogue regarding any disclosed relationships or services between the Company and management which may impact the objectivity and independence of the outside auditor;

	  	  	  	  
	  	
2.

	  	
recommending that the Board take appropriate action in response to the outside auditor’s report to satisfy itself of the outside auditor’s independence, and;

	  	  	  	  
	  	
3.

	  	
otherwise discussing with the outside auditor all matters required to be discussed by SAS 61.

	  	
J.

	  	
to review and update this Charter at least annually and recommend any proposed changes to the Board for approval.

	  	  	  	  
	  	
K.

	  	
to discuss with management the status of pending litigation, taxation matters and other areas of oversight as may be appropriate.

	  	  	  	  
	  	
L.

	  	
to assist the Board in its oversight of the Company’s compliance with legal and regulatory requirements.

  

  

  

	  

	  	
M.

	  	
to review the financial statements with management and the independent auditor, including quarterly reviews. Such reviews should include discussions of significant accounting policies, estimates and judgments, any changes in the Company’s selection and application of accounting principles and major financial and accounting risk exposures and the steps management has taken to control them (including off-balance sheet structures).

	  	  	  	  
	  	
N.

	  	
to make recommendations to the Board as to whether the Company’s audited financial statements should be included in its annual report on Form 10-K on the basis of (A) the Committee’s review of such audited financial statements; (B) its discussion with management regarding such audited financial statements; (C) its discussion with the outside auditor regarding the independence of the outside auditor and the matters required to be discussed under SAS 61; and (D) its review of the outside auditor’s written statement as required by Independent Standards Board Standard No. 1.

	  	  	  	  
	  	
O.

	  	
to prepare annually a report for enclosure with the proxy statement that reports to the shareholders on such matters as are required under the rules of the Securities and Exchange Commission as in effect from time to time.

	  	  	  	  
	  	
P.

	  	
to monitor and assure that the lead and concurring partner of the Company’s independent auditor complies with the five-year rotation requirements and the other rotation requirements of the Securities and Exchange Commission.

	  	  	  	  
	  	
Q.

	  	
to evaluate its performance annually and report its findings to the Board; and

IV. Committee Meetings and Action

	  	
A.

	  	
The Committee, in its entirety, shall meet at least quarterly, or more frequently as circumstances warrant.

	  	  	  	  
	  	
B.

	  	
The Committee shall meet with the outside auditor and with management to review the results of the audit of the Company’s annual audited financial statements, including disclosures made in management’s discussion and analysis, prior to the issuance of such annual financial statements to the public; such review will include a discussion of earnings press releases, including pro-forma or adjusted non-GAAP information, and other information or earnings guidance given to analysts and ratings agencies as required by New York Stock Exchange rules.

	  	  	  	  
	  	
C.

	  	
The Committee shall meet with the outside auditor and with management to review the Company’s quarterly reports on Form 10-Q prior to their filing with

 

  

  

  

 

	  

October 18, 2007

	  	  	  	
the Securities and Exchange Commission; such review will include a discussion of earnings press releases, including pro-forma or adjusted non-GAAP information, and other information or earnings guidance given to analysts and ratings agencies.

	  	  	  	  
	  	
D.

	  	
The Committee shall meet at least once annually or upon the request of any Board member in separate sessions, with any member of management, the internal audit function and the outside auditor to discuss any matter brought forth by any of such parties.

	  	  	  	  
	  	
E.

	  	
In its meetings with the independent auditor, the Committee shall regularly review with the auditor any audit problems or difficulties encountered in the course of the audit work, as well as management’s response.

V. Committee Reports

	  	
A.

	  	
The Committee shall provide at least one written report annually to the Board describing:

	  	
1.

	  	
the Committee’s historical and planned activities for carrying out the Committee’s duties and responsibilities;

	  	  	  	  
	  	
2.

	  	
appraisal of the financial reporting processes and systems of internal accounting controls;

	  	  	  	  
	  	
3.

	  	
selection, appointment and engagement of the outside auditor, and;

	  	  	  	  
	  	
4.

	  	
assessment of the adequacy of this Charter.

	  	
B.

	  	
The Committee shall maintain minutes. A summary of the actions taken at each Committee meeting, which shall be presented to the Board at the next Board meeting following such Committee meeting.

	  	  	  	  
	  	
C.

	  	
Any other reports which the Board may from time to time specify.

VI. Duties and Responsibilities of the Board

     The Board shall:

	  	
A.

	  	
elect members to the Committee and conduct oversight of the activities of the Committee;

	  	
B.

	  	
ensure that adequate resources are available to the Committee for proper discharge of its duties and responsibilities;

	  	  	  	  
	  	
C.

	  	
provide timely written disclosure to the applicable governing or administrative forums of any determination that the Board has made regarding the independence of the members of the Committee; the financial literacy of the members of the Committee; the accounting or related financial management expertise of the financial expert of the Committee; and the annual review and reassessment of the adequacy of this Charter as well as an annual self-evaluation.

	  	  	  	  
	  	
D.

	  	
ensure this Charter is posted on the Company’s Web site.

VII. Limitation of Committee’s Role

     While the Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Committee to plan or conduct audits or to determine that the Company’s financial statements and disclosures are complete and accurate and are in accordance with generally accepted accounting principles and applicable rules and regulations. These are the responsibilities of management and the independent auditor.

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