THIS SECURED DEBENTURE (THE “SECURITIES”) HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE
SECURITIES HAVE BEEN ACQUIRED SOLELY FOR INVESTMENT PURPOSES AND NOT WITH A VIEW
TOWARD RESALE AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR AN
OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS.
 
SENIOR SECURED CONVERTIBLE REDEEMABLE DEBENTURE
 
ENVIRONMENT ECOLOGY HOLDING CO. OF CHINA
 
June, 30, 2008
 

No.  EEHC - 1
US$2,500,000

This Senior Secured Convertible Redeemable Debenture (the “Debenture”) is issued
on June 30, 2008 (the “Closing Date”) Environment Ecology Holding Co. of China a
Florida corporation, with headquarters located at 391 Hun Yu Lane, Dong Xin
Street, Xi’an, Shaanxi Province, P.R. China (the “Company”), to Trafalgar
Capital Specialized Investment Fund, Luxembourg (together with its permitted
successors and assigns, the “Holder”) pursuant to exemptions from registration
under the Securities Act of 1933, as amended.
 
ARTICLE I.
 
Section 1.01 Principal and Interest.  For value received, the Company hereby
promises to pay to the order of the Holder by June 30, 2010 (the “Maturity
Date”) in lawful money of the United States of America and in immediately
available funds the unpaid principal sum of Two Million Five Hundred Thousand
U.S. Dollars (US$2,500,000) together with interest on the unpaid principal of
this Debenture at the rate of ten percent (10%) per annum (the “Interest Rate”)
payable monthly in cash on the outstanding balance commencing one (1) month from
the date hereof.  Interest shall be computed on the basis of a 360-day year and
the actual days elapsed and the Holder shall deduct the first two (2) interest
payments at the Closing (as defined in the Securities Purchase Agreement).  Any
unpaid interest shall be compounded monthly.  Additionally, upon the occurrence
of an Event of Default (as defined herein) the Interest Rate shall be increased
to a rate of eighteen percent (18%) per annum.
 
Section 1.02 Optional Conversion.  The Holder is entitled, at its option,
subject to the limitations set forth herein, to convert, and sell on the same
day or at any subsequent time, at any time and from time to time, until payment
in full of the remaining outstanding principal balance of this Debenture, plus
any interest, all or any part of the principal amount of the Debenture, plus
accrued interest, into shares (the “Conversion Shares”) of Common Stock at the
price per share equal to: the lesser of (a) an amount equal to one hundred
twenty-five percent (125%) of the Volume Weighted Average Price (“VWAP”) as
quoted by Bloomberg L.P. on the date hereof (the “Fixed Price”), or (b) an
amount equal to eighty-five percent (85%) of the lowest daily closing VWAP as
quoted by Bloomberg L.P. during the five (5)  trading days immediately preceding
the Conversion Date (as defined herein) (the “Conversion Price”).  No fraction
of shares or scrip representing fractions of shares will be issued on
conversion, but the number of shares issuable shall be rounded to the nearest
whole share.  To convert this Debenture, the Holder hereof shall deliver written
notice thereof, substantially in the form of Exhibit “A” to this Debenture, with
appropriate insertions (the “Conversion Notice”), to the Company at its address
as set forth herein.  The date upon which the conversion shall be effective (the
“Conversion Date”) shall be deemed to be the date set forth in the Conversion
Notice.  Conversions hereunder shall have the effect of lowering the outstanding
principal amount of this Debenture in an amount equal to the applicable
conversion.  The Holder and the Company shall maintain records showing the
principal amount converted and the date of such conversions. In no event shall
the Holder be entitled to convert this Debenture for a number of shares of
Common Stock in excess of that number of shares of Common Stock which, upon
giving effect to such conversion, would cause the aggregate number of shares of
Common Stock beneficially owned by the Holder and its affiliates to exceed 4.99%
of the outstanding shares of the Common Stock following such conversion without
the approval of the Company.
 
Section 1.03  Reservation of Common Stock.  The Company shall reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of effecting the conversion of this Debenture, such number of shares
of Common Stock as shall from time to time be sufficient to effect such
conversion, based upon the Conversion Price.  If at any time the Company does
not have a sufficient number of Conversion Shares authorized and available, then
the Company shall file a preliminary proxy statement with the Securities and
Exchange Commission within ten (10) business day after such occurrence  and
shall call and hold a special meeting of its stockholders as soon as practicable
after such occurrence for the sole purpose of increasing the number of
authorized shares of Common Stock.
 
Section 1.04 Conversion Cap.  Except as provided in the next sentence, unless
otherwise waived by the Company, the Holder shall not convert more than
twenty-five thousand dollars ($25,000) principal amount of this Debenture in any
week.  During any week in which the Company’s Common Stock trades at a price per
share in excess of thirty cents ($0.30), the Holder shall be permitted to
convert up to one hundred thousand dollars ($100,000) principal amount of this
Debenture.
 
Section 1.05 Mandatory Redemption.  The Company shall redeem this Debenture in
twenty four (24) equal installments of principal and accrued interest monthly
beginning on the one (1) month anniversary following the First Closing
Date.  The Company shall pay a ten percent (10%) redemption premium on the
principal redeemed each month.  For the avoidance of doubt, redemptions shall
follow the schedule as set out in Exhibit B subject to adjustment pursuant to
Section 1.02 Optional Conversion.
 
Section 1.06 Interest Payments.  Holder shall deduct the first two (2) interest
payments at the Closing.  Upon the occurrence of an Event of Default (as defined
in Section 3.01 below) by the Company, the Holder has the option to elect that
the interest due and payable hereunder be paid in cash (via wire transfer or
certified funds) or in the form of Common Stock.  If paid in the form of Common
Stock, that number of shares of Common Stock with a value equal to the amount of
interest due shall be issued. The amount of stock to be issued will be
calculated as follows: the value of the stock shall be eighty-five percent of
the lower of:  (i) the VWAP as quoted by Bloomberg L.P. on the date the interest
payment is due; or (ii) if the interest payment is not made when due, the VWAP
as quoted by Bloomberg L.P. on the date the interest payment is made.  No
fractional shares will be issued; therefore, in the event that the value of the
Common Stock per share does not equal the total interest due, the Company will
pay the balance in cash.
 
Section 1.07 Paying Agent and Registrar.  Initially, the Company will act as
paying agent and registrar.  The Company may change any paying agent, registrar,
or Company-registrar by giving the Holder not less than ten (10) business days’
written notice of its election to do so, specifying the name, address, telephone
number and facsimile number of the paying agent or registrar.  The Company may
act in any such capacity.
 
Section 1.08 Secured Nature of Debenture.  This Debenture is secured by all of
the assets and property of the Company and its subsidiaries as set forth on
Exhibit A to the Security Agreement dated the date hereof between the Company
and the Holder (the “Security Agreement”).  As set forth in the Security
Agreement, Holder’s security interest shall terminate upon the occurrence of an
Expiration Event as defined in the Security Agreement.
 

--------------------------------------------------------------------------------

 
Section 1.09                                                   Currency Exchange
Rate Protections.
 
 (a) “Closing Date Exchange Rate” means the Euro to US dollar spot exchange rate
as converted by the Holder’s Custodian on the date funds are transferred into
escrow.
 
(b)            “Repayment Exchange Rate” means in relation to each date of a
Conversion or Redemption, the Euro to US dollar spot exchange rate as quoted by
Bloomberg or Proquote on such date.
 
(c)           If on the date of any Conversion Notice, the Repayment Exchange
Rate is more than the Closing Date Exchange Rate then the number of Shares to be
issued shall be increased by the same percentage as results from dividing the
Repayment Exchange Rate by the relevant Closing Date Exchange Rate.  By way of
example, if the number of Shares to be issued in respect of a particular
Conversion Notice would, but for this Section 1.08, be 1,000 and if the Closing
Date Exchange Rate is 1.75 and the relevant Repayment Exchange Rate is 1.80,
then 1,029 Shares will be issued in relation to that Conversion Notice, as the
case may be.  For the avoidance of doubt, the formula for such calculation, by
way of example for this Section, equals ((1.80 /1.75)-1)*1000 = 29 additional
shares.
 
(d)           If on any Redemption Date, the Cash Payment Date Exchange Rate, as
defined below is more than the Closing Date Exchange Rate then the amount of
cash required to satisfy the amounts due at such time shall be increased by the
same percentage as results from dividing the Cash Payment Date Exchange Rate by
the relevant Closing Date Exchange Rate. “Cash Payment Date Exchange
Rate” means in relation to each Redemption Date the Euro to US dollar spot
exchange rate as quoted by Bloomberg or Proquote on such date.  By way of
example, if the amount of cash required to repay all amounts due on such date
would, but for this Section 1.08, be $1,000 and if the Closing Date Exchange
Rate is 1.75 and the relevant Repayment Date Exchange Rate is 1.80 then the
amount of cash from the Cash Payment required to repay all amounts due on such
date will be $1,028.57.  For the avoidance of doubt, the formula for such
calculation, by way of example for this Section, equals ((1.80/1.75)-1)*$1000 =
$28.57 additional dollars.
 
ARTICLE II.
 
Section 2.01 Amendments and Waiver of Default.  The Debenture may not be amended
without the written consent of both the Holder and the Company.  Notwithstanding
the above, without the consent of the Holder, the Debenture may be amended to
cure any ambiguity, defect or inconsistency, or to provide for assumption of the
Company obligations to the Holder.
 
ARTICLE III.
 
Section 3.01 Events of Default.  An Event of Default is defined as follows:
(a) failure by the Company to pay amounts due hereunder, including any
installment payment of interest or principal redemption, and the balance due
upon the maturity of the Company’s obligations to pay all amounts in full,
within five (5) business days of the date such payment is due under this
Debenture, without notice or demand, (b) after the Registration Statement
required by the Registration Rights Agreement has been declared effective,
failure by the Company’s transfer agent to issue freely tradeable Common Stock
(including Common Stock tradeable under Rule 144) to the Holder within three (3)
days of the Company’s receipt of a Notice of Conversion or Notice of Exercise
from Holder; (c) failure by the Company for five (5) business days after notice
to it to comply with any of its other agreements in the Debenture; (d) events of
bankruptcy or insolvency or (e) a breach by the Company of any material
obligation under the Securities Purchase Agreement which is not cured by the
Company within five (5) business days after receipt of written notice thereof,
(f) a breach by the Company of any of the Covenants under the Securities
Purchase Agreement which is not cured within five (5) business days of the
Company’s receipt of written notice thereof.  Upon the occurrence of an Event of
Default, the Holder may, in its sole discretion, accelerate full repayment of
all debentures outstanding and accrued interest thereon notwithstanding any
limitations contained in this Debenture and/or the Securities Purchase Agreement
dated the date hereof between the Company and Trafalgar Capital Specialized
Investment Fund, Luxembourg (the “Securities Purchase Agreement”).
 
Section 3.02 Failure to Issue Unrestricted Common Stock. As indicated in
Article III Section 3.01, a breach by the Company of its obligations under the
Securities Purchase Agreement shall be deemed an Event of Default, which if not
cured within the periods specified in Section 3.01, shall entitle the Holder to
accelerate full repayment of the Debentures together with accrued interest
thereon or, notwithstanding any limitations contained in this Debenture and/or
the Securities Purchase Agreement, to convert all amounts outstanding under the
Debentures together with accrued interest thereon into shares of Common Stock
pursuant to Section 1.02 herein.  The Company acknowledges that failure to honor
a Notice of Conversion except as set forth herein, shall cause irreparable harm
to the Holder.
 
Section 3.03 Re-issuance of Debenture.  When the Holder elects to convert a part
of the Debenture, upon the Holder’s request, the Company shall reissue a new
Debenture in the same form as this Debenture to reflect the new principal
amount.  Upon Company’s request, Holder shall surrender this Debenture prior to
the issuance of such new Debenture.
 
ARTICLE IV.
 
Section 4.01 [Reserved]
 
ARTICLE V.
 
Section 5.01 Anti-dilution.  In the event that the Company shall at any time
subdivide the outstanding shares of Common Stock, or shall issue a stock
dividend on the outstanding Common Stock, the Conversion Price in effect
immediately prior to such subdivision or the issuance of such dividend shall be
proportionately decreased, and in the event that the Company shall at any time
combine the outstanding shares of Common Stock, the Conversion Price in effect
immediately prior to such combination shall be proportionately increased,
effective at the close of business on the date of such subdivision, dividend or
combination as the case may be.
 
Section 5.02 Consent  of Holder to Sell Capital Stock, Incur Debt or Grant
Security Interests.  Except for the Securities Purchase Agreement dated the date
hereof between the Company and Trafalgar Capital Specialized Investment Fund,
Luxembourg, so long as any of the principal of or interest on this Debenture
remains unpaid, the Company shall not, without the prior consent of the Holder,
(i) issue or sell shares of Common Stock or Preferred Stock without
consideration or for a consideration per share less than the bid price of the
Common Stock determined immediately prior to its issuance provided that upon
such sale with Holder’s consent, the Fixed Conversion Price in the Debentures
shall be reset to an amount equal to eighty-five percent of such sales price
(the “Reset Price”) if such Reset Price would be lower than the then current
Fixed Conversion Price, (ii) issue or sell any warrant, option, right, contract,
call, or other security instrument granting the holder thereof, the right to
acquire Common Stock without consideration or for a consideration less than such
Common Stock’s bid price value determined immediately prior to it’s issuance,
(iii) enter into any security instrument granting the holder a security interest
in any and all assets of the Company or any subsidiary of the Company (whether
now owned or acquired in the future while the Debentures are outstanding) unless
such security interest is junior to the security interest held by the Holder
hereunder and under the Security Agreement and in no way or manner diminishes
Holder’s rights hereunder or under the Security Agreement,, (iv) permit any
subsidiary of the Company (whether now owned or acquired in the future while the
Debentures are outstanding) to enter into any security instrument granting the
holder a security interest in any and all assets of such subsidiary (v) file any
registration statement on Form S-8 or (vi) incur any additional secured debt or
permit any subsidiary of the Company to incur any additional secured debt
without the Holder’s prior written consent unless the security interest on such
secured debt is junior to the security interest held by the Holder hereunder and
under the Security Agreement.  Notwithstanding anything to the contrary herein
or in any other Transaction Document, the Company shall be permitted to issue up
to seventy five thousand dollars ($75,000) worth of Common Stock per year as
compensation to key employees.
 

--------------------------------------------------------------------------------

 
ARTICLE VI.
 
Section 6.01 Notice.  Notices regarding this Debenture shall be sent to the
parties at the following addresses, unless a party notifies the other parties,
in writing, of a change of address:
 
If to the Company, to:
Environment Ecology Holding Co. of China
 
391 Hun Yu Lane, Dong Xin Street
 
Xi’an Shaanxi Province, P.R. China
 
Attention:  Mr. Liu Sheng Li, President
 
Telephone:
 
Facsimile:
   
With a copy to:
JPF Securities Law, LLC
 
17111 Kenton Drive, Suite 100B
 
Cornelius, NC 28031
 
Attention:  Jared P. Febbroriello, Esq. LLM
 
Telephone: (704) 897-8334
 
Facsimile:  (888) 606-5705
   
If to the Holder:
Trafalgar Capital Specialized Investment Fund
 
8-10 Rue Mathias Hardt
 
BP 3023
 
L-1030 Luxembourg
 
Attention:   Andrew Garai, Chairman of the Board of
 
Facsimile:   011-44-207-405-0161 and
                  001-786-323-1651
   
With a copy to:
James G. Dodrill II, P.A.
 
5800 Hamilton Way
 
Boca Raton, FL  33496
 
Attention:                                James Dodrill, Esq.
 
Telephone:                              (561) 862-0529
 
Facsimile:                                (561) 892-7787
   

Section 6.02 Governing Law.  This Debenture shall be deemed to be made under and
shall be construed in accordance with the laws of the State of Florida without
giving effect to the principals of conflict of laws thereof.  Each of the
parties consents to the jurisdiction of the U.S. District Court sitting in the
Southern District of the State of Florida or the state courts of the State of
Florida sitting in Broward County, Florida in connection with any dispute
arising under this Debenture and hereby waives, to the maximum extent permitted
by law, any objection, including any objection based on forum non conveniens to
the bringing of any such proceeding in such jurisdictions.
 
Section 6.03 Severability.  The invalidity of any of the provisions of this
Debenture shall not invalidate or otherwise affect any of the other provisions
of this Debenture, which shall remain in full force and effect.
 
Section 6.04 Entire Agreement and Amendments.  This Debenture represents the
entire agreement between the parties hereto with respect to the subject matter
hereof and there are no representations, warranties or commitments, except as
set forth herein.  This Debenture may be amended only by an instrument in
writing executed by the parties hereto.
 
Section 6.05 Counterparts.  This Debenture may be executed in multiple
counterparts, each of which shall be an original, but all of which shall be
deemed to constitute on instrument.
 
IN WITNESS WHEREOF, with the intent to be legally bound hereby, the Company as
executed this Debenture as of the date first written above.
 

 
ENVIRONMENT ECOLOGY HOLDING CO. OF CHINA
     
By:                                                                
 
Name:  Liu Sheng Li
 
Title:     President

 
 
 

--------------------------------------------------------------------------------

 
 
EXHIBIT “A”
 
NOTICE OF CONVERSION
 
(To be executed by the Holder in order to Convert the Debenture)
 

TO:
 

The undersigned hereby irrevocably elects to convert US$ of the principal amount
of the above Debenture into Shares of Common Stock of Environment Ecology
Holding Co. of China, according to the conditions stated therein, as of the
Conversion Date written below.
 
Conversion Date:
 
Applicable Conversion Price:
 
Signature:
 
Name:
 
Address:
 
Amount to be converted:
US$                                                                                      
Amount of Debenture unconverted:
US$                                                                                      
Conversion Price per share:
US$                                                                                      
Number of shares of Common Stock to be issued:
 
Please issue the shares of Common Stock in the following name and to the
following address:
 
Issue to:
 
Authorized Signature:
 
Name:
 
Title:
 
Phone Number:
 
Broker DTC Participant Code:
 
Account Number:
 

 

--------------------------------------------------------------------------------

 
EXHIBIT B

             
Environmental Ecology
     
Loan Amount
2,500,000
         
Annual Interest rate
10%
         
Term
24
                     
Redemption
Redemption
Total
No
Ending Balance
Interest
Principal due
Premium
Premium Amount
Payable
0
$2,500,000
         
1
$2,395,833.33
Paid at close
$104,166.67
10%
$10,416.67
$114,583.33
2
$2,291,666.67
Paid at close
$104,166.67
10%
$10,416.67
$114,583.33
3
$2,187,500.00
$19,097.22
$104,166.67
10%
$10,416.67
$133,680.56
4
$2,083,333.33
$18,229.17
$104,166.67
10%
$10,416.67
$132,812.50
5
$1,979,166.67
$17,361.11
$104,166.67
10%
$10,416.67
$131,944.44
6
$1,875,000.00
$16,493.06
$104,166.67
10%
$10,416.67
$131,076.39
7
$1,770,833.33
$15,625.00
$104,166.67
10%
$10,416.67
$130,208.33
8
$1,666,666.67
$14,756.94
$104,166.67
10%
$10,416.67
$129,340.28
9
$1,562,500.00
$13,888.89
$104,166.67
10%
$10,416.67
$128,472.22
10
$1,458,333.33
$13,020.83
$104,166.67
10%
$10,416.67
$127,604.17
11
$1,354,166.67
$12,152.78
$104,166.67
10%
$10,416.67
$126,736.11
12
$1,250,000.00
$11,284.72
$104,166.67
10%
$10,416.67
$125,868.06
13
$1,145,833.33
$10,416.67
$104,166.67
10%
$10,416.67
$125,000.00
14
$1,041,666.67
$9,548.61
$104,166.67
10%
$10,416.67
$124,131.94
15
$937,500.00
$8,680.56
$104,166.67
10%
$10,416.67
$123,263.89
16
$833,333.33
$7,812.50
$104,166.67
10%
$10,416.67
$122,395.83
17
$729,166.67
$6,944.44
$104,166.67
10%
$10,416.67
$121,527.78
18
$625,000.00
$6,076.39
$104,166.67
10%
$10,416.67
$120,659.72
19
$520,833.33
$5,208.33
$104,166.67
10%
$10,416.67
$119,791.67
20
$416,666.67
$4,340.28
$104,166.67
10%
$10,416.67
$118,923.61
21
$312,500.00
$3,472.22
$104,166.67
10%
$10,416.67
$118,055.56
22
$208,333.33
$2,604.17
$104,166.67
10%
$10,416.67
$117,187.50
23
$104,166.67
$1,736.11
$104,166.67
10%
$10,416.67
$116,319.44
24
($0.00)
$868.06
$104,166.67
10%
$10,416.67
$115,451.39