Document:

exv10w43

EXHIBIT 10.43

COMMITMENT LETTER

FROM EQUITY 11, LTD. TO ECOLOGY COATINGS, INC.

August 25, 2008

Ecology Coatings, Inc.

1238 Brittain Road

Akron Ohio 44310

Re: Commitment Letter for Proposed Convertible Preferred Securities

Dear Rich;

Equity 11, Ltd., a Michigan corporation (“Equity 11”) offers the following commitment for
convertible preferred securities (the “Convertible Preferred Securities”) to Ecology Coatings,
Inc., a Nevada corporation (“ECOC”), subject to the terms and conditions set forth below. ECOC will
use the proceeds of the Convertible Preferred Securities exclusively to operate the company in
accordance with the terms and conditions of this commitment letter.

     1. Convertible Preferred Securities Terms. The Convertible Preferred Securities
offered under this commitment are described as follows and are subject to the following terms and
conditions:

     a.
Commitment. Equity 11 commits up to five million ($5,000,000.00) dollars to ECOC.
The amounts contributed by Equity 11 to ECOC under this commitment letter are not
guaranteed and will be subject to Equity 11’s sole and absolute discretion. The
anticipated commitment payments to ECOC are as follows:

	 	i.	 	One million Two Sixty Thousand($1,260,000.00)
dollars at closing;
	 
	 	ii.	 	Seven hundred fifty thousand ($750,000.00)
dollars within thirty (30) days at Equity 11’s sole and absolute
discretion as Equity 11 may determine from ECOC’s cash flow or other
financials;
	 
	 	iii.	 	Seven hundred fifty thousand ($750,000.00)
dollars within sixty (60) days at Equity 11’s sole and absolute
discretion as Equity 11 may determine from ECOC’s cash flow or other
financials;
	 
	 	iv.	 	One million five hundred thousand ($1,500,000.00)
dollars within one hundred eighty (180) days at Equity 11’s sole and
absolute discretion as Equity 11 may
determine from ECOC’s cash flow or
other financials; and

	 	v.	 	Seven Hundred Forty Thousand ($740,000.00)
dollars within two hundred forty (240) days at Equity 11’s sole and
absolute

			
	 	 	 
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	 	 	 	discretion as Equity 11 may determine from ECOC’s cash flow or
other financials.

     b.
Type of Securities. In exchange for Equity 11’s commitment, Equity 11 shall
receive convertible preferred stock in ECOC which may be converted at the option of Equity
11 (“Convertible Preferred Stock”).

     c.
Amount of Securities.

	 	i.	 	Convertible Preferred Stock. ECOC will issue one
(1) share of Convertible Preferred Stock for each One thousand
($1,000.00) dollars received from Equity 11 under this commitment
letter. If Equity 11, at its sole and absolute discretion, decides to
make all payments as anticipated above, Equity 11 will receive the
following shares of Convertible Preferred Stock:

	 	1.	 	One Thousand two hundred sixty
(1,260) shares of Convertible Preferred Stock upon execution;
	 
	 	2.	 	Additional Seven Hundred Fifty
(750) shares of Convertible Preferred Stock within thirty (30)
days;
	 
	 	3.	 	Additional Seven Hundred Fifty
(750) shares of Convertible Preferred Stock within sixty (60)
days;
	 
	 	4.	 	Additional One Thousand Five
Hundred(1,500) shares of Convertible Preferred Stock within one
hundred eight (180) days; and
	 
	 	5.	 	Additional Seven hundred forty
(740) shares of Convertible Preferred Stock within two hundred
forty (240) days.

	 	ii.	 	Common Stock. Assuming (i) Equity 11 commits the
entire Five Million ($5,000,000.00) dollars; (ii) all dividend payments
are made to Equity 11 by ECOC and (iii) the stated value remains One
Thousand ($1,000.00) dollars per share of Convertible Preferred Stock,
then Equity 11 shall be entitled to convert its Convertible Preferred
Stock into Ten Million (10,000,000) shares of common stock.

     d.
Dividends. Dividends will cumulative and will accrue daily from the date of this
commitment letter at the rate of five (5%) percent of the stated value of the Convertible
Preferred Stock. Dividends shall be paid semi-annually on each June 1 and December 1,
commencing December 1, 2008. The initial stated value of the Convertible Preferred Stock
is One Thousand ($1,000) dollars per share. Any dividends must be declared by ECOC’s board
of directors and must come from funds that are legally available for dividend payments. In
the event that funds are not legally available to pay any dividend on the Convertible
Preferred

			
	 	 	 
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Stock, or if ECOC chooses to not pay the dividend in cash, the amount of the
stated value of the stock shall be increased by the amount of such unpaid dividend.
Dividends on the Convertible Preferred Stock will accrue regardless of whether or not
earned or declared and regardless of whether or not ECOC has profits, surplus or other
funds legally available for the payment of dividends.

     e. Conversion of Securities.

	 	i.	 	Optional. The Convertible Preferred Stock can be
converted at Equity 11’s option at any time into shares of the ECOC’s
common stock at a conversion price of fifty ($0.50) cents per share (the
“Conversion Price”). The number of common shares will be determined by
dividing the stated value of the Convertible Preferred Stock to be
converted by the Conversion Price.
	 
	 	ii.	 	Mandatory. On or after August 25, 2009, ECOC may
require Equity 11 to convert up to 100% of its shares of Convertible
Preferred Stock if the volume weighted average price of the ECOC’s
common stock price exceeds Three ($3.00) dollars per share for a
continuous 30-day period.

     f. Liquidation Preference: The Convertible Preferred Securities shall have
preferential liquidation rights over any and all registered and unregistered common stock
of ECOC. In the event of a voluntary or involuntary dissolution, liquidation or winding up
of ECOC, Equity 11 will be entitled to be paid a liquidation preference equal to the stated
value of the Convertible Preferred Stock, plus accrued and unpaid dividends and any other
payments that may be due on such shares, before any distribution of assets may be made to
holders of capital stock ranking junior to the Convertible Preferred Stock.

     g. Optional Redemption: On or after August 25, 2013, ECOC may redeem the Convertible
Preferred Stock, in whole or in part, at its option for the stated value at the time of
such redemption, together with accrued but unpaid dividends and other payments that may be
due on such shares. On or after August 25, 2015, Equity 11 may redeem the Convertible
Preferred Stock, in whole or in part, at its option for the stated value at the time of
such redemption, together with accrued but unpaid dividends and other payments that may be
due on such shares.

     h. Voting Rights: The Convertible Preferred Stock will vote on an as-converted basis
with the common stock. However, ECOC cannot alter or adversely change the rights of the
Convertible Preferred Stock, authorize or create any class of senior or parity preferred
stock, amend its articles of incorporation or other charter documents in such a way that it
would adversely

			
	 	 	 
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affect the rights of the Convertible Preferred Stock, or increase the
number of authorized shares of the Convertible Preferred Stock without the prior written
approval of Equity 11.

     i. Description of Warrants: Equity 11 shall receive Five Hundred (500) warrants to
purchase common stock of ECOC for every one (1) share of Convertible Preferred Stock issued
to Equity 11. The warrants are exercisable at an exercise price of seventy-five ($0.75)
cents per share of ECOC’s common stock at any time on or after August 25, 2008 for a period
of five years from the date the warrants become exercisable. In total, Equity 11 will
receive two million five hundred thousand (2,500,000) warrants assuming Equity 11 commits
the entire five million ($5,000,000.00) dollars to ECOC.

     j. Market for Securities: There is no established public trading market for the
offered Convertible Preferred Stock or warrants, and ECOC does not expect a market to
develop. In addition, ECOC does not intend to apply for listing the Convertible Preferred
Stock or warrants on any securities exchange.

     k. Governance of ECOC: The board of directors will establish a five (5) member board.
Equity 11 shall appoint three (3) directors to ECOC’s board of directors.

     l. Piggyback Registration for first six (6) months. If the Conversion Shares have not
been otherwise registered within the first six (6) months of this agreement and at any time
ECOC proposes to file a registration statement, whether or not for sale for the ECOC’s own
account, on a form and in a manner that would also permit registration of shares (other
than in connection with a registration statement on Forms S-4 or S-8 or any similar or
successor form) ECOC shall give to Equity 11, written notice of such proposed filing
promptly, but in any case at least twenty (20) days before the anticipated filing. The
notice referred to in the preceding sentence shall offer the holder(s) holding the
Conversion Shares the opportunity to register such amount of the Conversion Shares as he
may request (a “Piggyback Registration”). Subject to this Section, ECOC will include in
each such Piggyback Registration (and any related qualification under state blue sky laws
and other compliance filings, and in any underwriting involved therein) that portion of the
Conversion Shares with respect to which ECOC has received written requests for inclusion
therein within twenty (20) days after the written notice from ECOC is given. The holders
holding any portion of the Conversion Shares will be permitted to withdraw all or part of
the Conversion Shares from a Piggyback Registration at any time prior to the effective date
of such Piggyback Registration.

			
	 	 	 
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     m. Registration on March 11, 2009. ECOC agrees to have a registration on March 11,
2009. The shares of stock owned by Equity 11 and entitled to registration will be
registered.

     n. Exclusivity Period: For a period of 30 days following the mutual signing of this
commitment letter (the “Exclusivity Period”) ECOC may not accept a financing proposal
offered by any other party, unless approved by Equity 11 after Equity 11 is offered to fund
on the same terms, and ECOC and Equity 11 agree to work diligently, in good faith, to
negotiate, complete and enter into definitive agreements and related closing documents,
reflecting the terms and conditions hereof.

     o. Equity 11 has already advanced $210,000.00 to ECOC. Upon closing of the
transaction these funds will be used as a portion of the first traunch of financing.
Should the transaction not close, the value of this advance will convert to senior notes on
similar terms to the notes issued by ECOC to Hayden Capital USA on February 5, 2008.

     p. Upon execution of this commitment letter, Equity 11 will advance an additional
fifty thousand ($50,000.00) dollars to ECOC. In consideration of this additional fifty
thousand ($50,000.00) dollars advanced by Equity 11, ECOC shall not entertain any other
equity financing offers prior to 6:00 pm Friday, August 29, 2008, so that this financing
agreement may be completed. Upon closing of the transaction these funds will be used as a
portion of the first traunch of financing. Should the transaction not close, the value of
this advance will convert to senior notes on similar terms to the notes issued by ECOC to
Hayden Capital USA on February 5, 2008.

     2. Terms and conditions. The following terms and conditions shall apply to this transaction:

     a. Miscellaneous Representations, Agreements and Employee Matters.

	 	i.	 	For the length of time that Equity 11 shall have
Convertible Preferred Stock outstanding, ECOC may not accept a financing
proposal offered by any other party, unless approved by Equity 11 after
Equity 11 is offered to fund on the same terms, and ECOC and Equity 11
agree to work diligently, in good faith, to negotiate, complete and
enter into definitive agreements and related closing documents,
reflecting the terms and conditions hereof.
	 
	 	ii.	 	ECOC will engage Sales Attack LC, a Michigan
limited liability company (“Sales Attack”) as a marketing company.
	 
	 	iii.	 	ECOC shall decrease the salary of Kevin P. Stolz
to seventy thousand ($70,000.00) dollars. Upon successful completion of
the agreement with Alcoa, ECOC will restore Kevin P. Stolz to his
current salary.

			
	 	 	 
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	 	iv.	 	David W. Morgan, the Chief Financial Officer,
shall temporarily fill and take over the duties of the company
controller. A new controller will not be appointed by ECOC until Equity
11 has determined that the company can support two (2) financial
positions.
	 
	 	v.	 	Equity 11 shall have complete authority to
appoint the new Chief Executive Officer of ECOC.
	 
	 	vi.	 	ECOC has received waivers for any and all change
in control provisions in existing employment contracts.

     b. ECOC shall execute and deliver documents in a form and substance satisfactory to
Equity 11 that shall contain customary covenants satisfactory to Equity 11, including
(without limitation) the following:

	 	i.	 	There shall be no material adverse change in the
assets, financial condition, or business of ECOC.
	 
	 	ii.	 	Until there is an additional financing exceeding
five million ($5,000,000.00) dollars, ECOC shall not make any capital
acquisitions or expenditures over ten thousand ($10,000.00) dollars
without the prior written consent of Equity 11.
	 
	 	iii.	 	Except as stated in this commitment letter, ECOC
shall not issue or declare any dividends with respect to any class of
its respective capital stock or purchase, acquire, or redeem any such
stock, without the prior written consent of Equity 11.
	 
	 	iv.	 	ECOC shall not make any payments or transfers of
property to any shareholder, officer, director, or key employee other
than (A) salaries, bonuses, and compensation for actual services
rendered, as approved by Equity 11; and (B) reasonable and customary
directors’ fees for directors, without the prior written consent of
Equity 11.

     c. ECOC shall cause the following periodic financial information to be provided Equity
11 within the times indicated:

	 	i.	 	Monthly management-prepared financial statements
for ECOC shall be provided to Equity 11 within 10 days of each month
end.
	 
	 	ii.	 	Monthly management-certified accounts receivable
agings and accounts payable agings for the ECOC shall be provided to the
Equity 11 within 10 days of each month end.
	 
	 	iii.	 	All financial information for ECOC shall be
prepared in accordance with generally accepted accounting principles,
consistently applied.

			
	 	 	 
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     d. Equity 11 may assign, transfer or delegate any and all performance or obligations
in this commitment letter to any of its affiliate companies.

     e. ECOC shall agree to allow Equity 11 access, at all reasonable times, to its books,
records, properties, and business premises, for Equity 11 to conduct any requested review
or inspection of the entity’s assets, operations, and collateral.

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

     3. Conditions to closing. Equity 11’s commitment to close and fund the Convertible Preferred
Securities shall be subject to prior satisfaction of each of the following conditions:

     a. Equity 11 shall have received, all in form and substance satisfactory to Equity 11,
evidence of the due organization, existence, and good standing of ECOC and of ECOC’s
authority to execute and deliver documents with respect to the Convertible Preferred
Securities.

     b. There shall have been no material adverse change to ECOC or their businesses,
assets, operations, or financial condition since the date of the most recent financial
statements provided to Equity 11 as of the date of this commitment letter.

     4. Expiration of the commitment; miscellaneous.

     a. To be effective, this commitment must be accepted by the undersigned in writing and
delivered to us, not later than 10:00 pm, August 25, 2008. Equity 11 reserves the right to
modify or terminate this commitment unilaterally (i) if the closing of the Convertible
Preferred Securities has not occurred by August 29, 2008; (ii) if on or before that date
ECOC has failed to comply with any of the terms or conditions of this letter; (iii) if any
adverse material change occurs in the business, assets, operations, or financial condition
of ECOC; or (iv) if any representation or information supplied by ECOC to Equity 11 proves
to be untrue, incomplete, or misleading in any material respect.
ECOC’s rights and interest
in this commitment shall not be assignable in whole or in part to any other person or
entity.

			
	 	 	 
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     b. The specific terms of this term sheet are confidential to Equity 11 and may not be
disclosed by ECOC except as may be approved by Equity 11, it being understood that certain
public disclosure will be required upon the closing of this transaction.

     c. This commitment letter shall be governed by the laws of the State of Michigan.

     d. Titles and Subtitles. The titles of the paragraphs and subparagraphs of this
Commitment letter are for the convenience of reference only and are not be considered in
construing this agreement.

     e. This commitment letter, when signed by all of the parties, shall represent the
complete agreement of the parties concerning the subject matter and shall supersede any and
all prior written or oral agreements or understandings respecting the matter. This
commitment letter may be amended only by means of a writing executed by all of the parties.

          Please acknowledge your acceptance of this commitment by executing this letter in the space
provided below and by returning an executed copy to me at the address of 2701 Cambridge Court,
Suite 420, Auburn Hills, MI 48326.

	 	 	 
	 

	 	Equity 11, Ltd.,

a Michigan corporation
	 
	 	 
	 

	 	/s/ JB Smith
	 

	 	 
	 

	 	By: JB Smith

Its: CEO

Agreed and Accepted:

ECOLOGY COATINGS, INC.,

a Nevada corporation

/s/ Richard D. Stromback                                        

By: Richard D. Stromback

Its: Chairman & CEO

Date: 8/27/08

			
	 	 	 
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	 	Page 8exv10w44

EXHIBIT 10.44

SECURITIES PURCHASE AGREEMENT

DATED AS OF AUGUST 28, 2008

between

ECOLOGY COATINGS, INC.

and

EQUITY 11, Ltd.

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     SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of August  , 2008, between
Ecology Coatings, Inc., a corporation organized under the laws of the state of Nevada (the
“Company”), and Equity 11, Ltd., a corporation organized under the laws of the state of
Michigan (the “Purchaser”).

RECITALS

     WHEREAS, the Company desires to sell to the Purchaser, and the Purchaser desires to purchase
from the Company, up to 5,000 5.0% Cumulative Convertible Preferred Shares of the Company at a
price per share of $1000 (the “Convertible Preferred Shares”) containing the terms set
forth in the Certificate of Designation attached as Exhibit A hereto (the “Certificate
of Designation”).

     NOW, THEREFORE, in consideration of the mutual promises herein made, and in consideration of
the representations, warranties, and covenants herein contained, the Company and the Purchaser
agree as follows:

     All capitalized terms used and not otherwise defined in this Agreement shall have the
definitions set forth on Annex I.

ARTICLE I

Sale of the Convertible Preferred Shares

     Section 1.1 Authorization of Issuance and Sale and Delivery of the Convertible
Preferred Shares.

     Subject to the terms and conditions hereof, the Purchaser agrees to purchase at the Closing
(as defined below), and the Company agrees to sell and issue to the Purchaser at the Closings, the
Convertible Preferred Shares at an aggregate purchase price of up to $5,000,000 (the “Aggregate
Purchase Price”), representing a price per Convertible Preferred Share of $1,000.

     Section 1.2 The Closing of the Sale of the Convertible Preferred Shares.

     The closings (the “Closings”) shall take place at the offices of Purchaser, at 8:00
p.m., New York time, on the date hereof, or such other time and date as the parties may agree upon
(the date that the Closing occurs, the “Closing Date”). At the Closing, on the terms and
subject to the conditions contained herein, the Company shall issue and deliver the Convertible
Preferred Shares against receipt by the Company of the Aggregate Purchase Price by wire transfer of
immediately available funds to an account, which the Company shall designate to the Purchaser prior
to the Closing in writing. The Convertible Preferred Shares shall be evidenced by certificates.

ARTICLE II

The Initial Closing

     Section 2.1 Closing Requirements.

          (1) Within two (2) business days, the Company shall deliver to the Purchaser:

          (a) a duly executed share certificate registered in the name of the Purchaser,
representing 1,260 Convertible Preferred Shares being purchased by the Purchaser pursuant to this
Agreement;

          (b) a Secretary’s Certificate, duly executed by the Secretary of the Company,
appending certified copies of the Company’s Fundamental Documents and minutes/resolutions of the
Board of Directors of the Company (the “Board”) (and, if applicable, any committee)
approving the Documents and the transactions contemplated thereby (including, without limitation,
the Certificate of Designation );

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          (c) an Incumbency Certificate, duly executed by an authorized officer of the
Company, certifying with respect to the incumbency of the officers listed thereon and the
genuineness of such officers’ respective signatures;

          (2) At the initial closing, the Company shall deliver a duly executed counterpart signature
page to a cross-receipt (the “Cross-Receipt”) with respect to the Company’s receipt of the
Aggregate Purchase Price of $1,260,000 and the Purchaser’s
receipt of the 1,260 Convertible
Preferred Shares; and

          (3) At the Initial Closing, the Purchaser shall deliver to the Company:

          (a) the Aggregate Purchase Price of $1,260,000 for the Convertible Preferred
Shares being purchased by the Purchaser pursuant to this Agreement, less amounts previously
advanced to the Company; and

          (b) a duly executed counterpart signature page to the Cross-Receipt.

     Section 2.2 Purchases of Additional Preferred Shares.

     (1) Purchaser, in Purchaser’s sole and absolute discretion, may purchase up to 3740 additional
Convertible Preferred Shares by the dates and not less than the amounts as shown below:

	 	 	 	 	 	 	 	 	 
	Days from Initial Closing	 	Number of Shares	 	Aggregate Purchase Price
	 
	30

	 	 	750	 	 	$	750,000	 
	 
	60

	 	 	750	 	 	$	750,000	 
	 
	180

	 	 	1500	 	 	$	1,500,000	 
	 
	240

	 	 	740	 	 	$	740,000	 

     (2) For each such additional purchase, Company shall deliver to Purchaser:

          (a) a duly executed share certificate registered in the name of the Purchaser,
representing the number of additional Convertible Preferred Shares being purchased by the Purchaser
pursuant to this Agreement;

          (b) a Secretary’s Certificate, duly executed by the Secretary of the Company,
appending certified copies of the Company’s Fundamental Documents and minutes/resolutions of the
Board of Directors of the Company (the “Board”) (and, if applicable, any committee)
approving the Documents and the transactions contemplated thereby (including, without limitation,
the Certificate of Designation);

          (c) an Incumbency Certificate, duly executed by an authorized officer of the
Company, certifying with respect to the incumbency of the officers listed thereon and the
genuineness of such officers’ respective signatures;

          (d) a duly executed counterpart signature page to a cross-receipt (the
“Cross-Receipt”) with respect to the Company’s receipt of the Aggregate Purchase Price and
the Purchaser’s receipt of the additional Convertible Preferred Shares.

     (3) For each purchase of additional Convertible Preferred Shares, the Purchaser
shall deliver to the Company:

3

 

          (a) the Aggregate Purchase Price for the additional Convertible Preferred Shares
being purchased by the Purchaser pursuant to this Agreement; and

          (b) a duly executed counterpart signature page to the Cross-Receipt.

     Section 2.3 Restrictive Legend.

     The certificate representing each of the Convertible Preferred Shares shall be stamped or
otherwise imprinted with a legend substantially in the following form (in addition to any legend
required by applicable state securities Laws), upon issuance thereof, and until such time as the
same is no longer required under the applicable requirements of the Securities Act:

     THE 5% CUMULATIVE CONVERTIBLE PREFERRED SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS
OR ANY OTHER APPLICABLE SECURITIES LAWS, AND ECOLOGY COATINGS, INC. (THE “COMPANY”) HAS NOT BEEN
REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED (THE “INVESTMENT COMPANY
ACT”). NEITHER SUCH 5% CUMULATIVE CONVERTIBLE PREFERRED SHARES NOR ANY INTEREST OR PARTICIPATION
HEREIN MAY BE OFFERED, RESOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.

     THE HOLDER, BY ITS ACCEPTANCE HEREOF, AGREES TO OFFER, RESELL OR OTHERWISE TRANSFER THE 5%
CUMULATIVE CONVERTIBLE PREFERRED SHARES REPRESENTED HEREBY, UNLESS SUCH 5% CUMULATIVE CONVERTIBLE
PREFERRED SHARES NO LONGER CONSTITUTE “RESTRICTED SECURITIES” WITHIN THE MEANING OF RULE 144 UNDER
THE SECURITIES ACT, ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) TO ONE OR MORE PERSONS, EACH OF WHICH IS AN
“ACCREDITED INVESTOR” (AS DEFINED IN RULE 501 UNDER THE SECURITIES ACT) THAT IS ACQUIRING SUCH 5%
CUMULATIVE CONVERTIBLE PREFERRED SHARES FOR ITS OWN ACCOUNT FOR INVESTMENT AND NOT WITH A VIEW TO,
OR FOR OFFER OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR
OTHER APPLICABLE SECURITIES LAWS OR (D) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, IN EACH CASE SUBJECT TO ANY REQUIREMENT OF LAW
THAT THE DISPOSITION OF ITS PROPERTY OR THE PROPERTY OF SUCH ACCREDITED INVESTOR BE AT ALL TIMES
WITHIN ITS OR THEIR CONTROL.

     TO THE FULLEST EXTENT PERMITTED BY LAW, ANY TRANSFER IN VIOLATION OF THE FOREGOING WILL BE OF
NO FORCE AND EFFECT, WILL BE VOID AB INITIO, AND WILL NOT OPERATE TO TRANSFER ANY RIGHTS TO THE
TRANSFEREE, NOTWITHSTANDING ANY INSTRUCTION TO THE CONTRARY TO THE COMPANY, THE TRANSFER AGENT OR
ANY INTERMEDIARY.

     Furthermore, the Convertible Preferred Share certificate will contain a legend substantially
to the following effect:

     THE COMPANY WILL FURNISH TO ANY SHAREHOLDER ON REQUEST AND WITHOUT CHARGE A FULL STATEMENT OF
(1) ANY RESTRICTIONS, LIMITATIONS, PREFERENCES OR REDEMPTION PROVISIONS CONCERNING THE 5%
CUMULATIVE CONVERTIBLE PREFERRED

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SHARES AND (2) THE DESIGNATIONS AND ANY PREFERENCES, CONVERSION AND OTHER RIGHTS, VOTING
POWERS, RESTRICTIONS, LIMITATIONS AS TO DISTRIBUTIONS, AND OTHER QUALIFICATIONS AND TERMS AND
CONDITIONS OF REDEMPTION OF THE 5% CUMULATIVE CONVERTIBLE PREFERRED SHARES, THE DIFFERENCES IN THE
RELATIVE RIGHTS AND PREFERENCES BETWEEN THE SHARES OF EACH SERIES OF SUCH CLASS TO THE EXTENT THEY
HAVE BEEN SET, AND THE AUTHORITY OF THE BOARD OF DIRECTORS OF THE COMPANY TO SET THE RELATIVE
RIGHTS AND PREFERENCES OF SUBSEQUENT SERIES OF 5% CUMULATIVE CONVERTIBLE PREFERRED SHARES. 5%
CUMULATIVE CONVERTIBLE PREFERRED SHARES WILL BE ISSUED AND MAY BE TRANSFERRED ONLY IN WHOLE SHARES.

ARTICLE III

Representations and Warranties of the Company

     As a material inducement to the Purchaser to enter into and perform its
obligations under this Agreement, the Company hereby represents and warrants to the Purchaser as
follows:

     Section 3.1 Due Creation, Good Standing and Due Qualification. The Company has
been duly created and is validly existing corporation in good standing under the laws of the state
of Nevada, and pursuant to the resolutions of the Board (or a duly authorized committee thereof)
has full power and authority to own, lease and operate its properties and conduct its business as
presently being conducted and to enter into and perform its obligations under, or as contemplated
under, this Agreement; and the Company is duly qualified to transact business as a foreign entity
and is in good standing in each jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of business, except where the failure
so to qualify or to be in good standing would not result in a material adverse change in the
business, Assets, liabilities, operations, condition (financial or otherwise) or operating results
of the Company and its Subsidiaries (as defined herein), taken as a whole (a “Material Adverse
Effect”).

     Section 3.2 Authorization; Enforceability; Corporate and Other
Proceedings. 

          (1) The Company has all requisite power and authority to execute and deliver each
Document to which it is a party and to perform its obligations under each such Document. Each
Document to which the Company is a party has been duly authorized by all necessary action on the
part of the Company, and each Document to which the Company is a party has been duly executed and
delivered by the Company, and, assuming the due authorization, execution and delivery by the other
parties thereto, constitutes the valid and legally binding obligation of the Company, enforceable
in accordance with its terms and conditions, except that the enforcement thereof may be subject to
(i) bankruptcy, insolvency, reorganization, receivership, moratorium, fraudulent conveyance or
other similar laws now or hereafter in effect relating to creditors’ rights generally and (ii)
general principles of equity (whether applied by a court of law or equity) and the discretion of
the court before which any proceeding therefor may be brought.

          (2) The authorization, issuance, sale and delivery of the Convertible Preferred
Shares have been duly authorized by all requisite action of the Board. Notwithstanding anything
contained on the schedules attached hereto, the Convertible Preferred Shares being issued as of the
Closing Date, if and when issued, will be duly and validly issued and outstanding, fully paid and
nonassessable interests in the Company, with no personal liability attaching to the ownership
thereof, free and clear of any Liens and will not be subject to preemptive rights or other similar
rights of any security holder of the Company. The underlying Common Shares issuable upon
conversion of the Convertible Preferred Shares have been duly authorized by all requisite action of
the Board and, when issued upon such conversion and delivered against surrender of the Convertible
Preferred Shares, will be duly and validly issued, fully paid and nonassessable interests in the
Company and will not be subject to any preemptive right, resale right, right of first refusal or
other similar rights of any security holder of the Company.

5

 

     Section 3.3 Non Contravention.  Notwithstanding anything contained on the
schedules attached hereto, the execution, delivery and performance by the Company of the Documents,
the consummation of the transactions contemplated hereby and thereby and compliance with the
provisions hereof and thereof, including the issuance, sale and delivery of the Convertible
Preferred Shares have not, do not and shall not (whether with or without the giving of notice or
passage of time or both), (a) violate any Law to which the Company or any of its Subsidiaries is
subject, (b) violate any provision of the Fundamental Documents of the Company or the Fundamental
Documents of the Company’s Subsidiaries, (c) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to accelerate, require
the repurchase, redemption or repayment of, terminate, modify or cancel, or require any notice
under any material contract to which the Company or any of its Subsidiaries is a party, or (d)
result in the imposition of any Lien upon any of the Assets of the Company or any of its
Subsidiaries.

     Section 3.4 Absence of Defaults. Except as disclosed in SEC filings, the Company
is not in violation of its respective Fundamental Documents and neither the Company nor any of its
Subsidiaries are in default in the performance or observance of any obligation, agreement, covenant
or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, lease or other agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which any of them may be bound or to which any of the property or
assets of the Company or any of its Subsidiaries is subject, except for such violations or defaults
that would not result in a Material Adverse Effect.

     Section 3.5 Capitalization of the Company. 

          (1) All of the issued and outstanding beneficial interests in the Company have been
duly and validly authorized and issued and are fully paid and nonassessable interests in the
Company, have been issued in compliance with all federal and state securities laws and were not
issued in violation of any preemptive right, resale right, right of first refusal or other similar
right.

          (2) Except as contemplated by the Documents, the Certificate of Designation or as
otherwise disclosed in the SEC Reports, there are, and immediately after consummation of any
Closing there will be, no (i) except for the First Closing, outstanding warrants, options,
agreements, convertible securities or other commitments or instruments pursuant to which the
Company is or may become obligated to issue or sell any shares of the Company’s capital stock or
other securities (or securities convertible into securities of the Company), (ii) preemptive
rights, resale rights, rights of first refusal or similar rights to purchase or otherwise acquire
shares of the capital stock or other securities of the Company pursuant to any provision of Law,
the Company’s Fundamental Documents or any contract, “shareholders’ rights plan”, “poison pill” or
similar plan, arrangement or scheme to which the Company is a party or (iii) right, contractual or
otherwise, to cause the Company to register pursuant to the Securities Act, any beneficial
interests in the Company upon the issue and sale of the Convertible Preferred Shares, in each case,
other than those rights that have been expressly waived, fully and unconditionally, prior to the
date hereof; immediately following the Closing hereunder, the Convertible Preferred Shares will
represent 23.7% of the Company’s Common Shares on a fully diluted basis, assuming vesting of all
outstanding restricted Common Shares and conversion or exchange of all outstanding vested options
exercisable for Common Shares.

     Section 3.6 Offering Exemption.  Based upon and assuming the accuracy of
the representations of the Purchaser in Article VI, the offering, sale and issuance of the
Convertible Preferred Shares do not require registration under the Securities Act or applicable
state securities and “blue sky” Laws. The Company has made or shall make all requisite filings and
has taken or will take all action necessary to be taken to comply with such federal and state
securities or “blue sky” Laws.

     Section 3.7 SEC Reports. The Company’s Annual Report on Form 10-KSB most recently
filed with the SEC (the “Annual Report”) and (ii) each subsequent report filed with the SEC
pursuant to the Exchange Act (together with the Annual Report, the “SEC Reports”), as of
their respective dates, did not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of

6

 

the circumstances under which they were made, not misleading. Such documents, when they were
filed with the SEC, conformed in all material respects to the requirements of the Exchange Act and
the rules and regulations of the SEC thereunder. Since the date of the filing of the Annual Report
with the SEC, the Company has made all filings with the SEC required to be made by the Company
under the Exchange Act.

     Section 3.8 Financial Statements. The consolidated financial statements of the
Company contained in the SEC Reports (the “Financial Statements”) complied as to form in
all material respects with the published rules and regulations of the SEC with respect thereto,
were prepared in accordance with GAAP applied on a consistent basis during the periods involved and
fairly present, in all material respects, in conformity with GAAP, the consolidated financial
position of the Company and its consolidated Subsidiaries as of the dates thereof and their
consolidated results of operations and changes in financial position for the periods then ended
(except, in each case, as may be indicated in the notes thereto and subject, in each case, to
normal year-end adjustments in the case of any unaudited interim financial statements).

     Section 3.9 No Material Adverse Change. Since June 30, 2008 (the date of the most
recent financial statements of the Company filed with the SEC), except as otherwise stated therein
or in the SEC Reports, there has not been (i) any change resulting in a Material Adverse Effect,
(ii) any transaction which is material to the Company or its Subsidiaries, except transactions in
the ordinary course of business, (iii) any obligation, direct or contingent, which is material to
the Company and its Subsidiaries taken as a whole, incurred by the Company or its Subsidiaries,
except obligations incurred in the, ordinary course of business, (iv) any change in the beneficial
interests in or outstanding indebtedness of the Company or its Subsidiaries, except changes in the
ordinary course of business or (v) except for regular quarterly dividends on the beneficial
interests in the Company or its Subsidiaries, in amounts per share that are consistent with past
practice, there has been no dividend or distribution of any kind declared, paid or made on the
beneficial interests in the Company or its Subsidiaries. Neither the Company nor its
Subsidiaries has any material contingent obligation which is not disclosed in this Agreement or the
SEC Reports.

     Section 3.10 No Consent or Approval Required. No consent, approval or
authorization of, or declaration to or filing with, any Person, including pursuant to the Hart
Scott Rodino Antitrust Improvements Act of 1976, as amended, is required by the Company for the
valid authorization, execution and delivery by the Company of any Document or for its consummation
of the transactions contemplated thereby or for the valid authorization, issuance and delivery of
the Convertible Preferred Shares, other than those consents, approvals, authorizations,
declarations or filings which have been obtained or made, as the case may be, and such as may be
required under state securities or “blue sky” laws in connection with the purchase and resale of
the Convertible Preferred Shares.

     Section 3.11 Absence of Proceedings. Except as disclosed in the SEC Reports, there
is no Proceeding now pending, or, to the knowledge of the Company, threatened, against or affecting
the Company or any of its Subsidiaries which, singly or in the aggregate, would result in a
Material Adverse Effect, or which might reasonably be expected to materially and adversely affect
the consummation of the transactions contemplated herein or the performance by the Company of its
obligations hereunder.

     Section 3.12 Possession of Licenses and Permits. The Company and its Subsidiaries
possess such permits, licenses, approvals, consents and other authorizations (collectively,
“Governmental Licenses”) issued by the appropriate federal, state, local or foreign,
regulatory agencies or bodies necessary to conduct the businesses now operated by them; the
Company and its Subsidiaries are in compliance with the terms and conditions of all such
Governmental Licenses, except where the failure so to comply would not, singly or in the aggregate,
result in a Material Adverse Effect; all of the Governmental Licenses are valid and in full force
and effect, except where the invalidity of Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not, singly or in the aggregate, result
in a Material Adverse Effect; and neither the Company nor any of its Subsidiaries has received any
notice of proceedings relating to the revocation or modification of any Governmental Licenses
which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding,
would result in a Material Adverse Effect.

7

 

     Section 3.13 Title to Property. The Company and its Subsidiaries do not own any
real property nor do they have any leases or subleases with respect to any real property; the
Company and its Subsidiaries have good and marketable title to the investments described in the SEC
Reports, in each case, free and clear of all Liens of any kind except such as (i) are described in
the SEC Reports or (ii) do not, singly or in the aggregate, materially affect the value of any such
investments; and neither the Company nor any of its Subsidiaries has any notice of any material
claim of any sort that has been asserted by anyone adverse to the rights of the Company or any of
its Subsidiaries under any of such investments, or affecting or questioning the rights of the
Company or any Subsidiary thereof to the continued possession of the investments.

     Section
35.14 Investment Company Act. The Company is not, and upon the issuance and
sale of the Convertible Preferred Shares as herein contemplated and the application of the net
proceeds therefrom will not be, an “investment company” or an entity “controlled” by an “investment
company”, as such terms are defined in the Investment Company Act of 1940, as amended.

     Section 3.15 Limitation of Personal Liability. The holders of the Convertible
Preferred Shares will be entitled to the same limitation of personal liability as that extended to
stockholders of private corporations for profit organized under the General Corporation Law of the
State of Nevada; provided, however, that pursuant to the terms of this Agreement, the Purchaser
will indemnify the Company against any liability resulting from any inaccuracy in or breach of any
such investor’s representations and warranties in accordance with the terms hereof; and provided.

     Section 3.16 Similar Offerings. None of the Company, its Affiliates, or any Person
acting on its or any of their behalf (in each case other than the Purchaser, as to which the
Company makes no representation), has, directly or indirectly, solicited any offer to buy, sold or
offered to sell or otherwise negotiated in respect of, or will solicit any offer to buy, sell or
offer to sell or otherwise negotiate in respect of, in the United States or to any United States
citizen or resident, any security which is or would be integrated with the sale of the Convertible
Preferred Shares in a manner that would require the Convertible Preferred Shares to be registered
under the Securities Act.

     Section 3.17 No General Solicitation. None of the Company, its Affiliates or any
person acting on its or any of their behalf (in each case other than the Purchaser, as to whom the
Company makes no representation) has engaged or will engage, in connection with the offering of the
Convertible Preferred Shares, in any form of general solicitation or general advertising within the
meaning of Rule 502(c) under the Securities Act.

     Section 3.18 Maintenance of Controls and Procedures. The Company has established
and maintains “disclosure controls and procedures” (as such term is defined in Rules 13a-15 and
15d-15 under the Exchange Act) that (A) are designed to ensure that material information relating
to the Company , including its Subsidiaries, is made known to the Company ‘s Chief Executive
Officer and its Chief Financial Officer by others within those entities, particularly during the
periods in which the filings made by the Company with the SEC which it may make under Section
13(a), 13(c), 14 or 15(d) of the Exchange Act are being prepared and (B) have been evaluated for
effectiveness as of the end of the Company ‘s most recent quarterly report on Form 10-QSB filed
with the SEC. The Company’s accountants and the audit committee of the Board have been advised of
(x) any significant deficiencies in the design or operation of internal controls that could
adversely affect the Company’s ability to record, process, summarize, and report financial data and
(y) any fraud, whether or not material, that involves management or other employees who have a role
in the Company’s internal controls.

     Section 3.19 Brokers or Finders. The Company has not retained any investment
banker, broker or finder in connection with this Agreement or the transactions contemplated hereby
(including the sale of the Convertible Preferred Shares) or incurred any liability for any
brokerage or finders’ fees, agent commissions or any similar charges in connection with this
Agreement or the transactions contemplated hereby.

8

 

ARTICLE IV

Representations and Warranties of the Purchaser

     As a material inducement to the Company to enter into and perform its obligations under this
Agreement, the Purchaser represents, warrants and covenants to the Company as follows:

     Section 4.1 Experience. The Purchaser is an “accredited investor” within the
meaning of Regulation D promulgated under the Securities Act and, by virtue of its experience in
evaluating and investing
in private placement transactions of securities in companies similar to the Company, the Purchaser
is capable of evaluating the merits and risks of its investment in the Company and has the capacity
to protect its own interests. The Purchaser has had access to the Company’s senior management and
has had the opportunity to conduct such due diligence review as it has deemed appropriate.

     Section 4.2 Investment. The Purchaser has not been formed solely for the purpose
of making this investment and is not making this investment with the view to, or for resale in
connection with, any distribution of any part thereof in violation of, or in a manner that would
require registration of the Convertible Preferred Shares being purchased hereby under, the
Securities Act. The Purchaser understands that the Convertible Preferred Shares have not been
registered under the Securities Act or applicable state securities or “blue sky” Laws by reason of
a specific exemption from the registration provisions of the Securities Act and applicable state
securities or “blue sky” Laws, the availability of which depends upon, among other things, the bona
fide nature of the investment intent and the accuracy of the Purchaser’s representations as
expressed herein and the Purchaser will not take any actions that would have caused the Convertible
Preferred Shares being purchased hereby to be registered under the Securities Act. Notwithstanding
the foregoing, the use of the proceeds thereof shall not be deemed to be a violation of this
representation, warranty and covenant.

     Section 4.3 Transfer Restrictions. The Purchaser acknowledges and understands that
it must bear the economic risk of this investment for an indefinite period of time because the
Convertible Preferred Shares must be held indefinitely unless subsequently registered under the
Securities Act and applicable state securities or “blue sky” Laws or unless an exemption from such
registration is available. The Purchaser understands that any transfer agent of the Company will
be issued stop transfer instructions with respect to the Convertible Preferred Shares unless any
transfer thereof is subsequently registered under the Securities Act and applicable state
securities or “blue sky” Laws or unless an exemption from such registration is available.

     Section 4.4 Brokers or Finders. The Purchaser has not retained any investment
banker, broker or finder in connection with this Agreement or the transactions contemplated hereby
(including the sale of the Convertible Preferred Shares) or incurred any liability for any
brokerage or finders’ fees, agent commissions or any similar charges in connection with this
Agreement or the transactions contemplated hereby.

     Section 4.5 Organization; Good Standing; Qualification and Power. The Purchaser is
duly organized, validly existing and in good standing under the Laws of its jurisdiction of
formation, has all requisite power to carry on its business as presently being conducted and is
qualified to do business and in good standing in every jurisdiction in which the failure so to
qualify or be in good standing could reasonably be expected to have a material adverse effect on
the business, Assets, liabilities, operations, condition (financial or otherwise) or operating
results of the Purchaser and its subsidiaries, taken as a whole (a “Purchaser Material Adverse
Effect”).

     Section 4.6 Authorization; Enforceability; Corporate and Other Proceedings. The
Purchaser has all requisite power and authority to execute and deliver each Document to which it is
a party and to perform its obligations under each such Document. Each Document to which the
Purchaser is a party has been duly authorized by all necessary action on the part of the Purchaser,
and each Document to which the Purchaser is a party has been duly executed and delivered by the
Purchaser, and assuming the due authorization, execution and delivery by the other parties thereto
constitutes the valid and legally binding obligation of the Purchaser, enforceable in accordance
with its terms and conditions, except that the enforcement thereof may be subject to (i)
bankruptcy, insolvency, reorganization, receivership, moratorium, fraudulent conveyance or other
similar laws now or hereafter in effect

9

 

relating to creditors’ rights generally and (ii) general principles of equity (whether applied
by a court of law or equity) and the discretion of the court before which any proceeding therefor
may be brought.

     Section 4.7 Non Contravention. The execution, delivery and performance by the
Purchaser of the Documents, the consummation of the transactions contemplated thereby and
compliance with the provisions thereof, including the purchase of the Convertible Preferred Shares
have not, do not and shall not, (a) violate any Law to which the Purchaser or any of its
subsidiaries is subject, (b) violate any provision of the Fundamental Documents of the Purchaser or
any of its subsidiaries, (c) conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate, require the repurchase
of, terminate, modify or cancel, or require any notice under any material contract to which the
Purchaser or any of its subsidiaries is a party or (d) result in the imposition of any Lien upon
any of the Assets of the Purchaser or any of its subsidiaries, except in the case of (a), (c) and
(d), as would not have a Purchaser Material Adverse Effect.

     Section 4.8 No Consent or Approval Required. No consent, approval or authorization
of, or declaration to or filing with, any Person is required by the Purchaser for the valid
authorization, execution and delivery by the Purchaser of any Document or for its consummation of
the transactions contemplated thereby or for the purchase of the Convertible Preferred Shares,
other than those consents, approvals, authorizations, declarations or filings which have been
obtained or made, as the case may be, and such as may be required under state securities or “blue
sky” laws in connection with the purchase and resale of the Convertible Preferred Shares.

     Section 4.9 Similar Offerings. None of the Purchaser, its Affiliates or any Person
acting on its or any of their behalf (in each case other than the Company( as to which the
Purchaser makes no representation), has, directly or indirectly, solicited any offer to buy, sold
or offered to sell or otherwise negotiated in respect of, or will solicit any offer to buy, sell or
offer to sell or otherwise negotiate in respect of, in the United States or to any United States
citizen or resident, any security which is or would be integrated with the sale of the Convertible
Preferred Shares in a manner that would require the Convertible Preferred Shares to be registered
under the Securities Act.

     Section 4.10 No General Solicitation. None of the Purchaser, its Affiliates or any
person acting on its or any of their behalf (in each case other than the Company, as to whom the
Purchaser makes no representation) has engaged or will engage, in connection with the offering of
the Convertible Preferred Shares, in any form of general solicitation or general advertising within
the meaning of Rule 502(c) under the Securities Act.

ARTICLE V

Covenants

     Section 5.1 Governance Rights.

          (1) For a period of three years, the Company shall, acting through the Board,
consistent with and subject to its duties under Nevada law, take all actions necessary allow the
Purchaser to elect three (3) Board members. The number of seats on the Board shall be five. If
there is an amendment to the Articles of Incorporation or Bylaws of Company to increase the number
of board seats greater than 5, the Company will increase the number of Board members to be elected
by Purchaser sufficient that the number of directors appointed by Purchaser shall be a majority of
Board seats. Of the three members designated by Purchaser for election to the Board of Directors,
at least one shall qualify as “independent” in accordance with the applicable listing standards of
the NYSE or any other national or regional securities exchange or system of automated dissemination
of securities prices in the United States on which the common shares are then traded or quoted,
each as amended from time to time at least one of the three directors and will also qualify as a
“financial expert” under Section 407 of Sarbanes-Oxley and SEC Rules (17 CFR § 229.401).
Notwithstanding the foregoing, if after three (3) years after the Effective Date of this Agreement,
Purchaser does not hold at least 5,000 Convertible Preferred Shares, Purchaser

10

 

shall obtain the required number of resignations from members of the Board of Directors that
Purchaser has elected in accordance with the following:

	 	 	 	 	 
	Number of Convertible Shares Held	 	Number of Directors to Elect
	 
	0

	 	 	0	 
	 
	1 — 1,667

	 	 	1	 
	 
	1,668 — 3,334

	 	 	2	 
	 
	3,335 — 5,000

	 	 	3	 

          (2) The Purchaser shall provide written notice (the “Designation Notice”)
to the Board identifying each Designee. Upon receiving a Designation Notice, the Board shall take
such actions as may reasonably be within their power, consistent with and subject to their duties
under Nevada law, to cause the Board to nominate for appointment to the Board, the Designee(s), to
include the Designee(s) in the Company’s next election for directors to its Board and to recommend
that the shareholders of the Company vote for the Designee(s) for election to the Board.

          (3) To the extent that a Designee is unable to stand for election for any reason,
the Purchaser shall promptly provide to the Board a written notice of the name of the person to be
designated by them in substitution of such prior Designee.

          (4) In the event that a Designee ceases to serve as a Board member of the Company
due to death, resignation or removal of said director, the Purchaser may submit written notice to
the Board designating an individual to replace said Designee. The Board shall, consistent with and
subject to their duties under Nevada law, promptly recommend that the Board appoint such
replacement designee as a Board member of the Company to fill any vacancy resulting from the death,
resignation or removal of the Designee and to include the Designee in the Company’s next election
to its Board and recommend that the shareholders of the Company vote for the Designee for election
to the Board. If any such Designee is elected at an Annual Meeting of Shareholders of the Company,
the Designee will be nominated to the Board as a member of the class of directors whose office have
expired in that year.

          (5) So long as Purchaser retains at least 1,260 of the Convertible Preferred Shares, the
Company shall, acting through the Board, consistent with and subject to their duties under Nevada
law, take all actions necessary to cause the nomination and election by the Board of a Chief
Executive Officer designated by Purchaser.

     Section 5.2 Dividends. Dividends will be cumulative and will accrue daily from the
date of each Closing of this offering at the annual rate of 5% of the stated value of the
Convertible Preferred Shares, payable semi-annually on each June 1 and December 1, commencing
December 1, 2008. The initial stated value of the preferred stock is $1,000 per share. Any
dividends must be declared by the Company’s Board of Directors and

11

 

must come from funds that are legally available for dividend payments. In the event that
funds are not legally available to pay any dividend on the convertible preferred stock, or if the
Company chooses to not pay the dividend in cash, the amount of the stated value of the stock shall
be increased by the amount of such unpaid dividend. Dividends on the Convertible Preferred Shares
will accrue regardless of whether or not earned or declared and regardless of whether or not the
Company has profits, surplus or other funds legally available for the payment of dividends. Except
as stated in this Agreement, Company shall not issue or declare any dividends with respect to any
class of its respective capital stock or purchase, acquire, or redeem any such stock, without the
prior written consent of Purchaser.

     Section 5.3 Conversion.

     (1) The Convertible Preferred Shares can be converted at the Purchaser’s option at any time
into shares of the Company’s common stock at a conversion price of $0.50 per share (the “Conversion
Price”). The number of common shares will be determined by dividing the stated value of the
Convertible Preferred Shares to be converted by the Conversion Price. On or after August 25, 2009,
the Company may require the Purchaser to convert up to 100% of its shares of convertible preferred
stock if the volume weighted average price of the Company’s common stock price exceeds $3.00 per
share for a continuous 30-day period.

     (2) Assuming (i) Purchaser purchases and retains ownership of 5,000 Convertible Preferred
Shares, (ii) all dividend payments are made to Purchaser by Company, and (iii) the stated value
remains One Thousand ($1,000.00) dollars per share of Convertible Preferred Stock, then Purchaser
shall be entitled to convert its Convertible Preferred Stock into Ten Million (10,000,000) shares
of common stock of the Company.

     Section 5.4 Liquidation Preference. In the event of a voluntary or involuntary
dissolution, liquidation or winding up of the Company, the Purchaser will be entitled to be paid a
liquidation preference equal to the stated value of the Convertible Preferred Shares, plus accrued
and unpaid dividends and any other payments that may be due on such shares, before any distribution
of assets may be made to holders of capital stock ranking junior to the Convertible Preferred
Shares.

     Section 5.5 Optional Redemption. On or after August 25, 2013 the Company may redeem
the Convertible Preferred Shares, in whole or in part, at its option for the stated value at the
time of such redemption, together with accrued but unpaid dividends and other payments that may be
due on such shares. On or after August 25, 2015 the Purchaser may redeem the Convertible Preferred
Shares, in whole or in part, at its option for the stated value at the time of such redemption,
together with accrued but unpaid dividends and other payments that may be due on such shares.

     Section 5.6 Voting Rights. The Convertible Preferred Shares will vote on an
as-converted basis with the common stock. However, the Company cannot alter or adversely change
the rights of the convertible preferred stock, authorize or create any class of senior or parity
preferred stock, amend its articles of incorporation or other charter documents in such a way that
it would adversely affect the rights of the convertible preferred stock, or increase the number of
authorized shares of the convertible preferred stock without the approval of holders of a majority
of the convertible preferred stock.

     Section 5.7 Distributions Upon Redemption. Upon redemption of the Purchaser’s
Convertible Preferred Shares, the Company hereby confirms that the Purchaser shall beentitled to
accrued and unpaid distributions at an annual rate of 5% (computed on the basis of a 360-day year
consisting of twelve 30-day months as provided in the Certificate of Designation) from the issue
date thereof to, but excluding, the redemption date, whether or not declared by the Board, as set
forth in the Certificate of Designation.

12

 

     Section 5.8 Registration Rights.

     (1) If Purchaser has converted its Convertible Preferred Shares to common stock of the Company
and such shares have not been otherwise registered within the first six (6) months of this
Agreement and at any time the Company proposes to file a registration statement with the SEC,
whether or not for sale for the Company’s own account, on a form and in a manner that would also
permit registration of shares (other than in connection with a registration statement on Forms S-4
or S-8 or any similar or successor form), Company shall give to Purchaser, written notice of such
proposed filing promptly, but in any case at least twenty (20) days before the anticipated filing.
The notice referred to in the preceding sentence shall offer the holder(s) holding the Conversion
Shares the opportunity to register such amount of the Conversion Shares as he may request (a
“Piggyback Registration”). Subject to this Section, Company will include in each such Piggyback
Registration (and any related qualification under state blue sky laws and other compliance filings,
and in any underwriting involved therein) that portion of the Conversion Shares with respect to
which Company has received written requests for inclusion therein within twenty (20) days after the
written notice from Company is given. The holders holding any portion of the Conversion Shares will
be permitted to withdraw all or part of the Conversion Shares from a Piggyback Registration at any
time prior to the effective date of such Piggyback Registration.

     (2) The Company will file for a registration of its common stock with the SEC on or before
March 11, 2009. To the extent Purchaser converts its Convertible Preferred Shares into common
stock of the Company and/or exercise warrants to purchase common stock of the Company, such common
shares will be included in the shares for which the Company will seek registration. Company shall
bear all costs, fees and expenses associated with the registration filing.

     Section 5.9 Exclusivity Period. During the time that Purchaser retains ownership of
at least 1,260 Convertible Preferred Shares (the “Exclusivity Period”), the Company may not accept
a financing proposal offered by any other party, unless approved by Purchaser after Purchaser is
offered to fund on the same terms, and Company and Purchaser agree to work diligently, in good
faith, to negotiate, complete and enter into definitive agreements and related closing documents,
reflecting the terms and conditions hereof.

     Section 5.10 Exclusive Equity Offer. Company will not entertain any other equity
financing offers prior to 6:00 pm Friday, August 29, 2008, so that this Agreement may be completed
and executed.

     Section 5.11 Marketing Engagement. Within thirty (30) days of execution of this
Agreement, Company will engage Sales Attack, LLC to provide marketing services on behalf of Company
under customary terms and conditions.

     Section 5.12 Employment Agreements.

     (1) Company will execute amendments to all of its employment contracts with its employees to
ensure that the provisions of this Agreement will not trigger the “change in control” provisions in
those contracts.

     (2) Company will execute an amendment to the employment contract of Kevin P. Stolz reducing
his compensation to $70,000 until Company executes a new agreement with a potential customer
currently testing Company’s technology that results in new annual revenue of at least $100,000 per
year.

     Section 5.13 Capital Expenditures and Transfers. For 240 days after the Effective
Date of this Agreement, Company shall not make any capital acquisitions or expenditures over ten
thousand ($10,000.00) dollars without the prior written consent of Purchaser. This period may be
extended for an additional 240 days by a vote of he entire Board , including the Board members
designated by Purchaser. Company shall not make any payments or transfers of property to any
shareholder, officer, director, or key employee other than (A) salaries, bonuses, and compensation
for actual services rendered, as approved by Purchaser; and (B) reasonable and customary directors’
fees for directors, without the prior written consent of Purchaser.

13

 

     Section 5.14 Non-Disclosure. Purchaser agrees to treat all material,
non-public information received from Company as confidential information and not disclose such
information to any third party. Purchaser agrees that it will not trade in Company’s stock based
on any material, non-public information.

ARTICLE VI

Indemnification

     Section 6.1 Indemnification Generally. The Company shall indemnify the Purchaser
and its Affiliates, and their respective directors, officers, shareholders and other equity
holders, partners, members, attorneys, accountants, agents, advisors, representatives and employees
and, as applicable, their respective heirs, successors and permitted assigns (each of the
foregoing, in such capacity (as applicable), a “Purchaser Indemnified Party”) from and
against any and all losses, damages, liabilities, fines, costs, claims, charges, actions,
proceedings, demands, judgments, settlement costs and expenses of any nature whatsoever (including,
without limitation, reasonable attorneys’ fees and out-of-pocket expenses), whether joint or
several (any of the foregoing, a “Loss”) resulting from any breach of a representation,
warranty or covenant by the Company. The Purchaser shall indemnify the Company and its Affiliates,
and their respective directors, trustees, officers, shareholders and other equity holders,
partners, members, attorneys, accountants, agents, advisors, representatives and employees and, as
applicable, their respective heirs, successors and permitted assigns (each of the foregoing, in
such capacity (as applicable), a “Company Indemnified Party”; each Company Indemnified
Party and Purchaser Indemnified Party, (an “Indemnified Party”) from and against any and
all Losses resulting from any breach of a representation, warranty or covenant by the Purchaser.

     Section 6.2 Indemnification Procedures For Third-Party Claims. If a claim by a
third party (including claims for breaches of fiduciary duties) is made against an Indemnified
Party and such Indemnified Party intends to seek indemnity with respect thereto from the Company
(in the case of a Purchaser Indemnified Party seeking such indemnity) or the Purchaser (in the case
of a Company Indemnified Party seeking indemnity) (each of the Company or the Purchaser, as the
case may be, in such capacity, an “Indemnifying Party”), such Indemnified Party shall give
notice in writing as promptly as reasonably practicable to such Indemnifying Party of any
Proceeding commenced against or by it in respect of which indemnity may be sought hereunder, but
failure to so notify such Indemnifying Party shall not relieve such Indemnifying Party from any
liability that it may have on account of this Article VI, so long as such failure shall not have
materially prejudiced the position of such Indemnifying Party. Upon such notification, the
Indemnifying Party shall assume the defense of such Proceeding brought by a third party, and, after
such assumption, the Indemnified Party shall not be entitled to reimbursement of any expenses
thereafter incurred by it in connection with such Proceeding, except as described below. In any
such Proceeding, any Indemnified Party shall have the right to retain its own counsel (including
local counsel), but the fees and expenses of such counsel shall be at the expense of such
Indemnified Party unless (i) the Indemnifying Party shall have failed to promptly assume and
thereafter conduct such defense, (ii) the Indemnifying Party and the Indemnified Party shall have
mutually agreed to the contrary, (iii) in the reasonable determination of counsel for the
Indemnified Party, representation of such Indemnified Party by counsel obtained by the Indemnifying
Party would be inappropriate due to actual or potential conflicting interests between such
Indemnified Party and any other party represented by such counsel in such proceeding. No
Indemnifying Party, in the defense of a third-party claim, shall, except with the consent of the
Indemnified Party, consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of such claim. The Indemnifying Party
shall not be liable for any settlement of any Proceeding effected without its written consent
(which shall not be unreasonably withheld, delayed or conditioned by such Indemnifying Party), but
if settled with such consent or if there be final judgment for the plaintiff, the Indemnifying
Party shall indemnify the Indemnified Party from and against any Loss by reason of such settlement
or judgment. The Indemnifying Party will advance expenses to an Indemnified Party as reasonably
incurred so long as such indemnified party shall have provided the indemnifying party with a
written undertaking to reimburse the indemnifying party for all amounts so advanced if it is
ultimately determined that the indemnified party is not entitled to indemnification hereunder
(which shall include breaches of fiduciary duty if permitted above).

14

 

     Section 6.3 Survival of Representations, Warranties and Covenants. All
representations and warranties and covenants contained in this Agreement or made in writing by or
on behalf of the Company or the Purchaser in connection with the transactions contemplated by this
Agreement shall survive, for the duration of any statutes of limitation applicable thereto, the
execution and delivery of this Agreement, any investigation at any time made by the Company, the
Purchaser or on such party’s behalf, the purchase of the Convertible Preferred Shares by the
Purchaser under this Agreement and any disposition of or payment on the Convertible Preferred
Shares. All statements contained in any certificate or other instrument delivered to the Purchaser
or the Company by or on behalf of the Company or the Purchaser pursuant to this Agreement shall be
deemed representations and warranties of the Company or the Purchaser, respectively, under this
Agreement.

ARTICLE VII

Miscellaneous

     Section 7.1 Expenses and Taxes.

          (1) Each party to this Agreement shall bear its own respective costs and expenses
incurred in connection with the preparation, execution and delivery of this Agreement and the
agreements and transactions contemplated hereby, except that the Company shall reimburse the
Purchaser for its reasonable legal fees and disbursements incurred in connection with the
negotiation and documentation of the purchase of the Convertible Preferred Shares.

          (2) All transfer, stamp (including documentary stamp taxes, if any), and other
similar taxes (including, in each case, any penalties, interest or additions thereto) with respect
to the initial purchase and sale of the Convertible Preferred Shares, shall be borne by the
Company.

     Section 7.2 Further Assurances. Purchaser and the Company shall
duly execute and deliver, or cause to be duly executed and delivered, at its own cost and expense,
such further instruments and documents and to take all such action, in each case as may be
necessary or proper in the reasonable judgment of each Company or the Purchaser, respectively, upon
the reasonable advice of counsel, to carry out the provisions and purposes of this Agreement and
the other Documents.

     Section 7.3 Securities Law Disclosure; Public Announcement. The Company shall issue
a current report on Form 8-K within the time periods required thereby disclosing the material terms
of the transactions contemplated hereby and attaching this Agreement and the Warrant as exhibits
thereto. Except as set forth below, no public release or announcement concerning the transactions
contemplated hereby shall be issued by the Company or any of its Subsidiaries without the prior
consent of the Purchasers (which consents shall not be unreasonably withheld), except as such
release or announcement may be required by law or the applicable rules or regulations of any
securities exchange or securities market, in which case the Company shall allow the Purchaser to
the extent reasonably practicable under the circumstances, reasonable time to comment on such
release or announcement in advance of such issuance.

     Section 7.4 No Third-Party Beneficiaries. Except as expressly provided herein, this
Agreement shall not confer any rights or remedies upon any Person other than the parties hereto and
their respective successors and permitted assigns.

     Section 7.5 Entire Agreement. This Agreement, the August 25, 2008 commitment
letter, the warrants and the other Documents constitute the entire agreement among the parties
hereto and supersede any prior understandings, agreements or representations by or among such
parties, written or oral, that may have related in any way to the subject matter of any Document.

15

 

     Section 7.6 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and permitted assigns. The
Company may not assign either this Agreement or any of its rights, interests, or obligations
hereunder without the prior written approval of the Purchaser. The rights and obligations of the
Purchaser hereunder shall be binding upon and inure to the benefit of any and all Persons to whom
the Purchaser transfers any Convertible Preferred Shares in each case with the same force and
effect as if the foregoing Persons were named herein as Purchaser parties hereto; provided, that
any such transferee of the Convertible Preferred Shares has executed and delivered to the Company
an Instrument of Accession in the form of Exhibit E. References herein to Convertible
Preferred Shares sold by the Company and purchased by the Purchaser shall be deemed to include
Convertible Preferred Shares held or owned by any transferees of the Purchaser, and references to
the Purchaser herein (including, without limitation, such references contained in Article VI) shall
be deemed to include such transferees. Notwithstanding the foregoing, the Purchaser may not
transfer or assign any of its rights or obligations hereunder or the Convertible Preferred Shares
in violation of the provisions of the Certificate of Designation (including the restrictive legends
contained therein) or in violation of the Securities Act or any other manner that would have
resulted in a requirement to register the Convertible Preferred Shares purchased on the date
hereof. Purchaser may assign, transfer or delegate its obligations and rights under this Agreement
to any affiliate.

     Section 7.7 Counterparts. This Agreement may be executed in one or more
counterparts (including via facsimile or similar instantaneous electronic transmission devices
pursuant to which the signature of or on behalf of such party can be seen), each of which shall be
deemed an original but all of which together shall constitute one and the same instrument.

     Section 7.8 Notices. All notices, requests, demands, claims and other
communications hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally, telecopied, sent by internationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the parties at the
following addresses (or at such other address for a party as shall be specified by like notice):

If to the Company, to:

Ecology Coatings, Inc.

2701 Cambridge Court

Suite 100

Auburn Hills, MI 48326

Telephone: (248) 736-6200

Telecopy: (866)750-2489

Attention: General Counsel

If to the Purchaser, to:

Equity 11, Ltd.

2701 Cambridge Court

#420

Auburn Hills, MI 48326

Telephone: (248) 377-8012

Telecopy: (248) 377-6302

Attention: JB Smith

     All such notices and other communications shall be deemed to have been given and received (i)
in the case of personal delivery, on the date of such delivery, (ii) in the case of delivery by
telecopy, on the date of such

16

 

delivery, (iii) in the case of delivery by internationally-recognized overnight courier, on
the third Business Day following dispatch and (iv) in the case of mailing, on the seventh Business
Day following such mailing.

     Section 7.9 Governing Law. This agreement shall be governed by and construed in
accordance with the internal laws of the state of Michigan, without regard to the principles of
conflicts of laws thereof.

     Section 7.10 Submission to Jurisdiction. Except as otherwise set forth in this
Section 7.10, no claim under this Agreement by a party against the other party may be commenced,
prosecuted or continued in any court other than the courts of the State of Michigan located in
Pontiac, Michigan in Oakland County or in the United States District Court for the Southern
District of Michigan located in the City of Detroit, Michigan, which courts shall have
exclusive jurisdiction over the adjudication of such matters, and the parties hereto consent to
personal jurisdiction, service and venue in any court in which any claim arising out of or in any
way relating to this Agreement is brought by any third party against the Company or any Indemnified
Party. The parties hereto agree that a final judgment in any such action, proceeding or
counterclaim brought in any such court shall be conclusive and binding upon the parties and may be
enforced in any other courts in the jurisdiction of which the parties is or may be subject, by suit
upon such judgment.

     Section 7.11 Specific Performance. The parties hereto acknowledge that there would
be no adequate remedy at law if any party fails to perform any of its obligations hereunder, and
accordingly agree that each party, in addition to any other remedy to which it may be entitled at
law or in equity, shall be entitled to compel specific performance of the obligations of any other
party under this Agreement in accordance with the terms and conditions of this Agreement and
immediate injunctive relief, without the necessity of proving the inadequacy of money damages as a
remedy, in any court of the United States or any State thereof having jurisdiction.

     Section 7.12 Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by both parties hereto. No
waiver by any party of any default, misrepresentation, or breach of representation, warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or
subsequent default, misrepresentation, or breach of representation, warranty or covenant hereunder
or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. No
such waiver shall be effective unless signed by the party against which the waiver is to be
effective.

     Section 7.13 Incorporation of Schedules and Exhibits. The Annex, Schedules and
Exhibits identified in this Agreement are incorporated herein by reference and made a part hereof.

     Section 7.14 Construction. Where specific language is used to clarify by example a
general statement contained herein, such specific language shall not be deemed to modify, limit or
restrict in any manner the construction of the general statement to which it relates. The use in
this Agreement of the term “including” means “including, without limitation.” The
language used in this Agreement shall be deemed to be the language chosen by the parties to express
their mutual intent, and no rule of strict construction shall be applied against any party.

     Section 7.15 Interpretation. Unless otherwise indicated, references to “$”
are references to the U.S. dollar. Accounting terms used but not otherwise defined herein shall
have the meanings given to them under GAAP. As used in this Agreement (including
all Annexes, Schedules, Exhibits and amendments hereto), the masculine, feminine and neuter gender
and the singular or plural number shall be deemed to include the others whenever the context so
requires. References to Articles and Sections refer to articles and sections of this
Agreement. Similarly, references to Annexes, Schedules and Exhibits refer to schedules and
exhibits, respectively, attached to this Agreement. Unless the content requires otherwise, words
such as “hereby,” “herein,” “hereinafter,” “hereof,”
“hereto,” “hereunder” and words of like import refer to this Agreement. The
article and section headings contained in this Agreement are inserted for convenience only and
shall not affect in any way the meaning or interpretation of this Agreement.

17

 

     Section 7.16 Severability. It is the desire and intent of the parties that the
provisions of this Agreement be enforced to the fullest extent permissible under the Laws and
public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any
particular provision of this Agreement shall be adjudicated by a court of competent jurisdiction to
be invalid, prohibited or unenforceable for any reason, such provision, as to such jurisdiction,
shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting
the validity or enforceability of this Agreement or affecting the validity or enforceability of
such provision in any other jurisdiction. Notwithstanding the foregoing, if such provision could
be more narrowly written so as not to be invalid, prohibited or unenforceable in such jurisdiction,
it shall, as to such jurisdiction, be deemed to be so narrowly written, to the minimum extent
necessary to prevent the rendering of such provision from being invalid or unenforceable, without
invalidating the remaining provisions of this Agreement or affecting the validity or enforceability
of such provision in any other jurisdiction.

     Section 7.17 Waiver of Jury Trial.

     EACH OF THE PARTIES HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER DOCUMENT.

     IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above
written.

	 	 	 	 	 	 	 
	 	 	ECOLOGY COATINGS, INC.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Richard Stromback
 

Richard D. Stromback
	 	 
	 

	 	Its:
	 	Chairman & CEO	 	 
	 
	 	 	 	 	 	 
	 	 	EQUITY 11, LTD.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ JB Smith	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	JB Smith	 	 
	 

	 	Its:
	 	CEO	 	 

18

 

Annex I

CERTAIN DEFINITIONS

          “Assets” means, with respect to any Person, all of the assets, rights, interests and
other properties, real, personal and mixed, tangible and intangible, owned by such Person.

          “Business Day” means any day that is not a Saturday, Sunday, legal holiday or other
day on which banks are required to be closed in New York, New York.

          “Documents” means this Agreement and the Certificate of Designation, collectively.

          “Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder.

          “Fundamental Documents” means, with respect to a corporation, the charter and bylaws
(each as amended) or, with respect to any other Person, the documents by which such Person (other
than an individual) establishes its legal existence or which govern its internal affairs.

          “GAAP” means, at any time, generally accepted accounting principles in the
jurisdiction in which the Person to which such principles are applied is organized at such time.

          “Governmental Entity” means any court, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, federal, state or local.

          “Law” means any constitution, law, statute, treaty, rule, directive, requirement or
regulation or Order, domestic or foreign, of any Governmental Entity or any rules or regulations of
any self-regulatory organization.

          “Lien” means any security interest, pledge, bailment (in the nature of a pledge or for
purposes of security), mortgage, deed of trust, the grant of a power to confess judgment,
conditional sale, trust receipt or other title retention agreement (including any lease in the
nature thereof), lien, charge, encumbrance, claim, equity, easement, reservation, restriction,
cloud, right of first refusal or first offer, option, equity or adverse claim or other similar
arrangement or interest in real or personal property.

          “Order” means any order, writ, judgment, injunction, decree, determination or award
issued by a Governmental Entity.

          “Person” means any individual, corporation, partnership, limited liability company,
trust, estate, or unincorporated organization, or other entity or Governmental Entity or other
juridical entity.

          “Proceeding” means any action, suit, claim, inquiry, investigation or proceeding by
or before any Governmental Entity.

          “Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

          “Subsidiary” means any entity in which the Company directly or indirectly, through
one or more intermediaries, (a) holds beneficially or of record securities that would entitle the
Company to exercise 50% or more of the votes that could be cast in the election of members to the
board of directors, board of managers or other

19

 

governing body of such entity, or (b) possesses, directly or indirectly, power (whether
through the ownership of voting securities or, through membership on the board of directors,
managers or other governing body, by contract (including, without limitation, a limited partnership
agreement or general partnership agreement) or otherwise) to direct or cause the direction of the
management and policies of such entity.

20

 

EXHIBIT A

CERTIFICATE OF DESIGNATION

of

5% CUMULATIVE CONVERTIBLE PREFERRED SHARES

of

ECOLOGY COATINGS, INC.

          ECOLOGY COATINGS, INC. is a Nevada corporation created and existing under the laws of the
state of Nevada (the “Company”), and

          DOES HEREBY CERTIFY:

Section 1. Designation; Number.

     This series of Convertible Preferred Stock is designated as the “Convertible Preferred
Shares” (“Convertible Preferred Shares”). The number of shares constituting the Convertible
Preferred Stock is 5,000 shares, par value $0.001 per share.

Section 2. Conversion.

	 	(a)	 	The Convertible Preferred Shares can be converted at the Purchaser’s option at any time
into shares of the Company’s common stock at a conversion price of $0.50 per share (the
“Conversion Price”). The number of common shares will be determined by dividing the stated
value of the Convertible Preferred Shares to be converted by the Conversion Price.
	 
	 	(b)	 	If requested by the Company, each holder of record of a share of Convertible Preferred
Stock must convert any whole number or all of such holder’s shares of Convertible Preferred
Stock into fully paid and nonassessable shares of Common Stock at the Conversion Price if,
on or after August 25, 2009, the Company’s common stock price exceeds $3.00 per share for a
continuous 30-day period
	 
	 	(c)	 	Any such conversion may be effected by the holder of Convertible Preferred Shares by
surrendering such holder’s certificate or certificates for the shares of Convertible
Preferred Shares to be converted, duly endorsed, at the office of the Corporation or the
office of any transfer agent for the Common Stock, together with a written notice to the
Corporation at such office that such holder elects to convert all or a specified number of
such shares of Convertible Preferred Stock. Promptly thereafter, the Corporation shall issue
and deliver to such holder a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled as aforesaid. Such conversion shall be made at
the close of business on the date of such surrender and the person entitled to receive the
            shares of Common Stock issuable on such conversion shall be treated for all purposes as the
record holder of such shares of Common Stock on such date.

Section 3. Voting Rights.

     Each holder thereof shall be entitled to vote, together with the holders of the shares of
Common Stock (and any other class or series that may similarly be entitled to vote with the shares
of Common Stock) as a single class, upon all matters upon which holders of Common Stock are
entitled to vote, with each share of Convertible Preferred Stock entitled to one vote on such
matters. The Company cannot alter or adversely change the rights of the Convertible Preferred
Shares, authorize or create any class of senior or parity preferred stock, amend its articles of
incorporation or other charter documents in such a way that it would adversely affect the rights of
the Convertible Preferred Shares or increase the number of authorized share of convertible
preferred stock without the approval of holders of a majority of the Convertible Preferred Shares.

Section 4. Dividends.

     The holders of shares of Series A Convertible Preferred Stock shall receive cumulative
dividends of 5% payable semi-annually on June 1 and December 1 commencing December 1, 2008.

21

 

Section 5. Redemption.

     In the event of any liquidation, dissolution, winding up or insolvency of the
Corporation, whether voluntary or involuntary, before any distribution or payment is made to any
holders of shares of Common Shares or any other class or series of capital stock of the Company
designated to be junior to the Convertible Preferred Stock, and subject to the liquidation rights
and preferences of any class or series of preferred stock designated in the future to be senior to,
or on a parity with, the Convertible Preferred Stock with respect to liquidation preferences, the
holders of Convertible Preferred Stock shall be entitled to be paid first out of the assets of the
Corporation available for distribution to holders of capital stock of all classes whether such
assets are capital, surplus or earnings together with the amount of any accrued or capitalized
dividends in respect thereof (the “Liquidation Preference”). After payment in full to the
holders of Convertible Preferred Stock of the Liquidation Preference, holders of the Convertible
Preferred Stock shall, as such, have no right or claim to any of the remaining Available Assets.

Section 6. Optional Redemption.

On or after August 25, 2013 the Company may redeem the convertible preferred stock, in whole or in
part, at its option for the stated value at the time of such redemption, together with accrued but
unpaid dividends and other payments that may be due on such shares. On or after August 25, 2015
the Purchaser may redeem the convertible preferred stock, in whole or in part, at its option for
the stated value at the time of such redemption, together with accrued but unpaid dividends and
other payments that may be due on such shares.

Section 7. Additional Definitions. For purposes of these resolutions, the following terms
shall have the following meanings:

     “Common Stock” refers to the common stock of the Corporation, par value $0.001
per share.

     IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designations to be
executed by a duly authorized officer of the Corporation as of this day of August, 2008.

	 	 	 	 	 	 	 
	 	 	ECOLOGY COATINGS, INC.	 	 
	 

	 	By:
	 	/s/
 

Name:
	 	 
	 

	 	 	 	Title:	 	 

22

 

ANNEX TO

CERTIFICATE OF DESIGNATION

NOTICE OF CONVERSION

To: Ecology Coatings, Inc.

     Reference is made to that certain Certificate of Designation of 5% Cumulative Convertible
Preferred Shares (the “5% Designation”). Capitalized terms used but not defined herein
have the meanings set forth in the 5% Designation. Pursuant to the 5% Designation, the
undersigned, being a holder of 5% Cumulative Convertible Preferred Shares (an “Exercising
Holder”), hereby elects to exercise its conversion rights as to a portion or portions of its 5%
Cumulative Convertible Preferred Shares, all as specified opposite its signature below:

Dated:

	 	 	 	 	 
	 

	 	 	 	NUMBER OF 5%
	 

	 	EXERCISING HOLDER
	 	CUMULATIVE
	 

	 	 	 	CONVERTIBLE
	 

	 	 	 	PREFERRED SHARES,
	 

	 	 	 	SERIES A-1 TO BE
	 

	 	 	 	CONVERTED TO
	Name

	 	Signature
	 	COMMON SHARES

23

 

EXHIBIT E

Instrument of Accession

Reference is made to the Securities Purchase Agreement (the “Purchase Agreement”), dated as
of August  , 2008, between Ecology Coatings, Inc., a statutory corporation created under the laws
of the state of Nevada, and Equity 11, Ltd., a Michigan corporation. Capitalized terms used herein
and not otherwise defined herein shall have the meanings ascribed to them in the Purchase
Agreement.

The undersigned,                                        , as a condition precedent to becoming the owner or holder
of record of                     (___) Convertible Preferred Shares hereby agrees to become a
Purchaser party to and to be bound by all of the obligations of the Purchaser under the Purchase
Agreement (other than with respect to Section 2.1 thereof), and shall be the recipient of all the
rights of the Purchaser under the Purchase Agreement (other than with respect to Sections 7.1, 9.1
and 9.3 thereof). The undersigned hereby makes to the Company (as of the date written below) the
representations and warranties of the Purchaser contained in Article VI of the Purchase
Agreement. The Company hereby makes (as of the date of the Purchase Agreement) the representations
and warranties of the Company contained in Article V of the Purchase Agreement, and the Company
hereby agrees that the undersigned shall have all of the rights of the Purchaser under the Purchase
Agreement (other than any rights provided to the Purchaser under Sections 2.1, 7.1, 9.1 and 9.3
thereof). This Instrument of Accession shall take effect and shall become an integral part of the
Purchase Agreement immediately upon execution and delivery to the Company of this Instrument of
Accession.

The address for notification to the undersigned for purposes of Section 7.8 of the Purchase
Agreement is as follows:

Telephone:                     

Telecopy:                     

Attention:                     

IN WITNESS WHEREOF, the undersigned has caused this Instrument of Accession to be signed as of the
date below written.

By:
                                        

Name:

Title:

Agreed to and Accepted

ECOLOGY COATINGS, INC.

By:                                                             

Name:

Tit

24

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