SECURITY AGREEMENT
 
THIS SECURITY AGREEMENT (the “Agreement”), is entered into and made effective as
of June 30, 2008, by and between 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”), and Trafalgar
Capital Specialized Investment Fund, Luxembourg (the “Secured
Party”).  Capitalized words which are otherwise undefined in this Agreement
shall have the same definition as in the Securities Purchase Agreement entered
into by the parties hereto on the date hereof.
 
WHEREAS, the Company shall issue and sell to the Secured Party, as provided in
the Securities Purchase Agreement dated the date hereof, and the Secured Party
shall purchase up to Six Million U.S. Dollars ($6,000,000) of secured
convertible redeemable debentures (the “Debentures”) in the respective amounts
set forth opposite each Buyer(s) name on Schedule I attached to the Securities
Purchase Agreement;
 
WHEREAS, to induce the Secured Party to enter into the transaction contemplated
by the Securities Purchase Agreement, the Debentures, the Registration Rights
Agreement and the Escrow Agreement (collectively referred to as the “Transaction
Documents”), the Company hereby grants to the Secured Party a first priority
security interest in and to the pledged property identified on Exhibit “A”
hereto (collectively referred to as the “Pledged Property”) until the
satisfaction of the Obligations, as defined herein below.
 
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein
contained, and for other good and valuable consideration, the adequacy and
receipt of which are hereby acknowledged, the parties hereto hereby agree as
follows:
 
ARTICLE 1.
 
DEFINITIONS AND INTERPRETATIONS
 
Section 1.1.
Recitals.

 
The above recitals are true and correct and are incorporated herein, in their
entirety, by this reference.
 
Section 1.2.
Interpretations.

 
Nothing herein expressed or implied is intended or shall be construed to confer
upon any person other than the Secured Party any right, remedy or claim under or
by reason hereof.
 
Section 1.3.
Obligations Secured.

 
The obligations secured hereby are any and all obligations of the Company to the
Secured Party now existing or hereinafter incurred to the Secured Party, whether
oral or written and whether arising before, on or after the date hereof
including, without limitation, those obligations of the Company to the Secured
Party under the Securities Purchase Agreement and the Debenture and any other
amounts now or hereafter owed to the Secured Party by the Company thereunder or
hereunder (collectively, the “Obligations”).
 
ARTICLE 2.
 
PLEDGED PROPERTY, ADMINISTRATION OF COLLATERAL
 
 
AND TERMINATION OF SECURITY INTEREST
 
Section 2.1.
Grant of Security Interest.

 
1.           Company hereby pledges to the Secured Party and creates in the
Secured Party for its benefit a security interest for such time until the
Obligations are paid in full, in and to all of in the property described in
“Exhibit A” hereto, whether now existing or hereafter from time to time acquired
(collectively, the  “Pledged Property.”).
 
(a)           Simultaneously with the execution and delivery of this Agreement,
the Company shall make, execute, acknowledge, file, record and deliver to the
Secured Party any documents reasonably requested by the Secured Party to perfect
its security interest in the Pledged Property.  Simultaneously with the
execution and delivery of this Agreement, the Company shall make, execute,
acknowledge and deliver to the Secured Party such documents and instruments,
including, without limitation, financing statements, certificates, affidavits
and forms as may, in the Secured Party’s reasonable judgment, be necessary to
effectuate, complete or perfect, or to continue and preserve, the security
interest of the Secured Party in the Pledged Property, and the Secured Party
shall hold such documents and instruments as secured party, subject to the terms
and conditions contained herein.
 
Section 2.2.
Rights; Interests; Etc.

 
(a)           So long as no Event of Default (as hereinafter defined) shall have
occurred and be continuing:
 
(i)           the Company shall be entitled to exercise any and all rights
pertaining to the Pledged Property or any part thereof for any purpose not
inconsistent with the terms hereof; and
 
(ii)           the Company shall be entitled to receive and retain any and all
payments paid or made in respect of the Pledged Property.
 
(b)           Upon the occurrence and during the continuance of an Event of
Default:
 
(i)           All rights of the Company to exercise the rights which it would
otherwise be entitled to exercise pursuant to Section 2.2(a)(i) hereof and to
receive payments which it would otherwise be authorized to receive and retain
pursuant to Section 2.2(a)(ii) hereof shall be suspended, and all such rights
shall thereupon become vested in the Secured Party who shall thereupon have the
sole right to exercise such rights and to receive and hold as Pledged Property
such payments; provided, however, that if the Secured Party shall become
entitled and shall elect to exercise its right to realize on the Pledged
Property pursuant to Article 5 hereof, then all cash sums received by the
Secured Party, or held by Company for the benefit of the Secured Party and paid
over pursuant to Section 2.2(b)(ii) hereof, shall be applied against any
outstanding Obligations; and
 
(ii)           All interest, dividends, income and other payments and
distributions which are received by the Company contrary to the provisions of
Section 2.2(b)(i) hereof shall be received in trust for the benefit of the
Secured Party, shall be segregated from other property of the Company and shall
be forthwith paid over to the Secured Party; or
 
(iii)           The Secured Party in its sole discretion shall be authorized to
sell any or all of the Pledged Property at public or private sale in order to
recoup all of the outstanding principal plus accrued interest owed pursuant to
the Debenture as described herein
 
(c)           Each of the following events, subject to the lapse of applicable
cure periods, shall constitute a default under this Agreement (each an “Event of
Default”):
 
(i)           any default, whether in whole or in part, shall occur in the
payment to the Secured Party of principal, interest or other item comprising the
Obligations as and when due or with respect to any other debt or obligation of
the Company to a party other than the Secured Party;
 
(ii)           any default, whether in whole or in part, shall occur in the due
observance or performance of any obligations or other covenants, terms or
provisions to be performed under this Agreement or the Transaction Documents;
 
(iii)           the Company shall:  (1) make a general assignment for the
benefit of its creditors; (2) apply for or consent to the appointment of a
receiver, trustee, assignee, custodian, sequestrator, liquidator or similar
official for itself or any of its assets and properties; (3) commence a
voluntary case for relief as a debtor under the United States Bankruptcy Code;
(4) file with or otherwise submit to any governmental authority any petition,
answer or other document seeking:  (A) reorganization, (B) an arrangement with
creditors or (C) to take advantage of any other present or future applicable law
respecting bankruptcy, reorganization, insolvency, readjustment of debts, relief
of debtors, dissolution or liquidation; (5) file or otherwise submit any answer
or other document admitting or failing to contest the material allegations of a
petition or other document filed or otherwise submitted against it in any of the
proceedings set forth in this Section 2.2(c)(iii) under any such applicable law,
or (6) be adjudicated a bankrupt or insolvent by a court of competent
jurisdiction; or
 
(iv)           any case, proceeding or other action shall be commenced against
the Company for the purpose of effecting, or an order, judgment or decree shall
be entered by any court of competent jurisdiction approving (in whole or in
part) anything specified in Section 2.2(c)(iii) hereof, or any receiver,
trustee, assignee, custodian, sequestrator, liquidator or other official shall
be appointed with respect to the Company, or shall be appointed to take or shall
otherwise acquire possession or control of all or a substantial part of the
assets and properties of the Company, and any of the foregoing shall continue
unstayed and in effect for any period of thirty (30) days.
 

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ARTICLE 3.
 
ATTORNEY-IN-FACT; PERFORMANCE
 
Section 3.1.
Secured Party Appointed Attorney-In-Fact.

 
Upon the occurrence of an Event of Default, the Company hereby appoints the
Secured Party as its attorney-in-fact, with full authority in the place and
stead of the Company and in the name of the Company or otherwise, from time to
time in the Secured Party’s discretion to take any action and to execute any
instrument which the Secured Party may reasonably deem necessary to accomplish
the purposes of this Agreement, including, without limitation, to receive and
collect all instruments made payable to the Company representing any payments in
respect of the Pledged Property or any part thereof and to give full discharge
for the same.  The Secured Party may demand, collect, receipt for, settle,
compromise, adjust, sue for, foreclose, or realize on the Pledged Property as
and when the Secured Party may determine.  To facilitate collection, the Secured
Party may notify account debtors and obligors on any Pledged Property or Pledged
Property to make payments directly to the Secured Party.
 
Section 3.2.
Secured Party May Perform.

 
If the Company fails to perform any agreement contained herein, the Secured
Party, at its option, may itself perform, or cause performance of, such
agreement, and the expenses of the Secured Party incurred in connection
therewith shall be included in the Obligations secured hereby and payable by the
Company under Section 8.3.
 
ARTICLE 4.
 
REPRESENTATIONS AND WARRANTIES
 
Section 4.1.
Authorization; Enforceability.

 
Each of the parties hereto represents and warrants that it has taken all action
necessary to authorize the execution, delivery and performance of this Agreement
and the transactions contemplated hereby; and upon execution and delivery, this
Agreement shall constitute a valid and binding obligation of the respective
party, subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors’ rights or by the principles governing the
availability of equitable remedies.
 
Section 4.2.
Ownership of Pledged Property.

 
The Company warrants and represents that it is the legal and beneficial owner of
the Pledged Property free and clear of any lien, security interest, option or
other charge or encumbrance except for the security interest created by this
Agreement and for the Permitted Liens.  For purposes hereof, “Permitted Liens”
shall mean (i) liens for taxes or other governmental charges which are not yet
delinquent or are being contested in good faith by appropriate proceedings, (ii)
liens for carriers, contractors, warehousemen, mechanics, materialmen, laborers,
employees, suppliers or other similar persons arising by operation of law and
incurred in the ordinary course of business for sums not yet delinquent or being
contested in good faith, (iii) liens relating to deposits made in the ordinary
course of business in connection with workers’ compensation, unemployment
insurance and other types of social security or to secure the performance of
leases, trade contracts or other similar agreements; and (iv) in the case of
real property, any matters, restrictions, covenants, conditions, limitations,
rights, rights of way, encumbrances, encroachments, reservations, easements,
agreements and other matters of record, such state of facts of which an accurate
survey or inspection of the property would reveal and do not materially
interfere with the use or value of the property.
 
ARTICLE 5.
 
DEFAULT; REMEDIES; SUBSTITUTE COLLATERAL
 
Section 5.1.
Default and Remedies.

 
(a)           If an Event of Default described in Section 2.2(c)(i) or
(ii) occurs, then in each such case the Secured Party may declare the
Obligations to be due and payable immediately, by a notice in writing to the
Company, and upon any such declaration, the Obligations shall become immediately
due and payable.  If an Event of Default described in Sections 2.2(c)(iii) or
(iv) occurs and is continuing for the period set forth therein, then the
Obligations shall automatically become immediately due and payable without
declaration or other act on the part of the Secured Party.
 
(b)           Upon the occurrence of an Event of Default, the Secured Party
shall: (i) be entitled to receive all distributions with respect to the Pledged
Collateral, (ii) to cause the Pledged Property to be transferred into the name
of the Secured Party or its nominee, (iii) to dispose of the Pledged Property,
and (iv) to realize upon any and all rights in the Pledged Property then held by
the Secured Party as provided herein.
 
Section 5.2.
Method of Realizing Upon the Pledged Property: Other Remedies.

 
Upon the occurrence of an Event of Default, in addition to any rights and
remedies available at law or in equity, the following provisions shall govern
the Secured Party’s right to realize upon the Pledged Property:
 
(a)           Any item of the Pledged Property may be sold for cash or other
value in any number of lots at brokers board, public auction or private sale and
may be sold without demand, advertisement or notice (except that the Secured
Party shall give the Company ten (10) days’ prior written notice of the time and
place or of the time after which a private sale may be made (the “Sale
Notice”)), which notice period is hereby agreed to be commercially
reasonable.  At any sale or sales of the Pledged Property, the Company may bid
for and purchase the whole or any part of the Pledged Property and, upon
compliance with the terms of such sale, may hold, exploit and dispose of the
same without further accountability to the Secured Party.  The Company will
execute and deliver, or cause to be executed and delivered, such instruments,
documents, assignments, waivers, certificates, and affidavits and supply or
cause to be supplied such further information and take such further action as
the Secured Party reasonably shall require in connection with any such sale.
 
(b)           Any cash being held by the Secured Party as Pledged Property and
all cash proceeds received by the Secured Party in respect of, sale of,
collection from, or other realization upon all or any part of the Pledged
Property shall be applied as follows:
 
(i)           to the payment of all amounts due the Secured Party for the
expenses reimbursable to it hereunder or owed to it pursuant to Section 8.3
hereof;
 
(ii)           to the payment of the Obligations then due and unpaid.
 
(iii)           the balance, if any, to the person or persons entitled thereto,
including, without limitation, the Company.
 
(c)           In addition to all of the rights and remedies which the Secured
Party may have pursuant to this Agreement, the Secured Party shall have all of
the rights and remedies provided by law, including, without limitation, those
under the Uniform Commercial Code.
 
(d)           If the Company fails to pay such amounts due upon the occurrence
of an Event of Default which is continuing, then the Secured Party may institute
a judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company and collect the monies adjudged or decreed to be payable in
the manner provided by law out of the property of Company, wherever situated.
 
(e)           The Company agrees that it shall be liable for any reasonable
fees, expenses and costs incurred by the Secured Party in connection with
enforcement, collection and preservation of the Transaction Documents,
including, without limitation, reasonable legal fees and expenses, and such
amounts shall be deemed included as Obligations secured hereby and payable as
set forth in Section 8.3 hereof.
 
Section 5.3.
Proofs of Claim.

 
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relating to the Company or the property of the Company or of
such other obligor or its creditors, the Secured Party (irrespective of whether
the Obligations shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Secured Party shall
have made any demand on the Company for the payment of the Obligations), shall
be entitled and empowered, by intervention in such proceeding or otherwise:
 
(i)           to file and prove a claim for the whole amount of the Obligations
and to file such other papers or documents as may be necessary or advisable in
order to have the claims of the Secured Party (including any claim for the
reasonable legal fees and expenses and other expenses paid or incurred by the
Secured Party permitted hereunder and of the Secured Party allowed in such
judicial proceeding), and
 
(ii)           to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same; and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or other similar official
in any such judicial proceeding is hereby authorized by the Secured Party to
make such payments to the Secured Party and, in the event that the Secured Party
shall consent to the making of such payments directed to the Secured Party, to
pay to the Secured Party any amounts for expenses due it hereunder.
 
Section 5.4.
Duties Regarding Pledged Property.

 
The Secured Party shall have no duty as to the collection or protection of the
Pledged Property or any income thereon or as to the preservation of any rights
pertaining thereto, beyond the safe custody and reasonable care of any of the
Pledged Property actually in the Secured Party’s possession.
 

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ARTICLE 6.
 
AFFIRMATIVE COVENANTS
 
The Company covenants and agrees that, from the date hereof and until the
Obligations have been fully paid and satisfied, unless the Secured Party shall
consent otherwise in writing (as provided in Section 8.4 hereof):
 
Section 6.1.
Existence, Properties, Etc.

 
(a)           The Company shall do, or cause to be done, all things, or proceed
with due diligence with any actions or courses of action, that may be reasonably
necessary (i) to maintain Company’s due organization, valid existence and good
standing under the laws of its state of incorporation, and (ii) to preserve and
keep in full force and effect all qualifications, licenses and registrations in
those jurisdictions in which the failure to do so could have a Material Adverse
Effect (as defined below); and (b) the Company shall not do, or cause to be
done, any act impairing the Company’s corporate power or authority (i) to carry
on the Company’s business as now conducted, and (ii) to execute or deliver this
Agreement or any other document delivered in connection herewith, including,
without limitation, any UCC-1 Financing Statements required by the Secured
Party to which it is or will be a party, or perform any of its obligations
hereunder or thereunder.  For purpose of this Agreement, the term “Material
Adverse Effect” shall mean any material and adverse affect, whether individually
or in the aggregate, upon (a) the Company’s assets, business, operations,
properties or condition, financial or otherwise or results of operations of the
Company, taken as a whole, excluding any change, event, circumstance or effect
that is caused by changes in general economic conditions or changes generally
affecting the industry in which the Company operates (provided that such changes
do not affect the Company in a materially disproportionate manner); or (b) the
Company’s ability to make payment as and when due of all or any part of the
Obligations; or (c) the Pledged Property.
 
Section 6.2
Accounts and Reports.

 
The Company shall maintain a standard system of accounting in accordance with
generally accepted accounting principles consistently applied and provide, at
its sole expense, to the Secured Party the following:
 
(b)           as soon as available, a copy of any notice or other communication
alleging any nonpayment or other material breach or default, or any foreclosure
or other action respecting any material portion of its assets and properties,
received respecting any of the indebtedness of the Company in excess of $25,000
(other than the Obligations), or any demand or other request for payment under
any guaranty, assumption, purchase agreement or similar agreement or arrangement
respecting the indebtedness or obligations of others in excess of $25,000,
including any received from any person acting on behalf of the Secured Party or
beneficiary thereof, except for supplier requests in the normal course of
business for payment of past due accounts payable invoices so long as such past
due amounts do not exceed in the aggregate $50,000 at any time; and
 
(c)           within fifteen (15) days after the making of each submission or
filing, a copy of any report, financial statement, notice or other document,
whether periodic or otherwise, submitted to the shareholders of the Company, or
submitted to or filed by the Company with any governmental authority involving
or affecting (i) the Company that could have a Material Adverse Effect; (ii) the
Obligations; or (iii) any part of the Pledged Property.
 
Section 6.2.
Maintenance of Books and Records; Inspection.

 
The Company shall maintain its books, accounts and records in accordance with
United States generally accepted accounting principles consistently applied, and
permit the Secured Party, its officers and employees and any professionals
designated by the Secured Party in writing, during business hours and upon
reasonable notice to visit and inspect any of its properties (including but not
limited to the Pledged Property), corporate books and financial records, and to
discuss its accounts, affairs and finances with any employee, officer or
director thereof.
 
Section 6.3.
Maintenance and Insurance.

 
(a)           The Company shall maintain or cause to be maintained, at its own
expense, all of its assets and properties in good working order and condition,
making all necessary repairs thereto and renewals and replacements thereof.
 
(b)           The Company shall maintain or cause to be maintained, at its own
expense, insurance in form, substance and amounts (including deductibles), which
the Company deems reasonably necessary to the Company’s business, (i) adequate
to insure all assets and properties of the Company, which assets and properties
are of a character usually insured by persons engaged in the same or similar
business against loss or damage resulting from fire or other risks included in
an extended coverage policy; (ii) against public liability and other tort claims
that may be incurred by the Company; (iii) as may be required by the Transaction
Documents and/or applicable law and (iv) as may be reasonably requested by
Secured Party, all with adequate, financially sound and reputable insurers.
 
Section 6.4.
Contracts and Other Collateral.

 
The Company shall perform all of its obligations under or with respect to each
instrument, receivable, contract and other intangible included in the Pledged
Property to which the Company is now or hereafter will be party on a timely
basis and in the manner therein required, including, without limitation, this
Agreement.
 
Section 6.5.
Defense of Collateral, Etc.

 
The Company shall defend and enforce its right, title and interest in and to any
part of:  (a) the Pledged Property; and (b) if not included within the Pledged
Property, those assets and properties whose loss could have a Material Adverse
Effect, the Company shall defend the Secured Party’s right, title and interest
in and to each and every part of the Pledged Property, each against all manner
of claims and demands on a timely basis to the full extent permitted by
applicable law.
 
Section 6.6.
Payment of Debts, Taxes, Etc.

 
The Company shall pay, or cause to be paid, all of its indebtedness and other
liabilities and perform, or cause to be performed, all of its obligations in
accordance with the respective terms thereof, and pay and discharge, or cause to
be paid or discharged, all taxes, assessments and other governmental charges and
levies imposed upon it (other than those being contested by the Company in good
faith), upon any of its assets and properties on or before the last day on which
the same may be paid without penalty, as well as pay all other lawful claims
(whether for services, labor, materials, supplies or otherwise) as and when due
 
Section 6.7.
Taxes and Assessments; Tax Indemnity.

 
The Company shall (a) file all tax returns and appropriate schedules thereto
that are required to be filed under applicable law, prior to the date of
delinquency, (b) pay and discharge all taxes, assessments and governmental
charges or levies imposed upon the Company, upon its income and profits or upon
any properties belonging to it, prior to the date on which penalties attach
thereto, and (c) pay all taxes, assessments and governmental charges or levies
that, if unpaid, might become a lien or charge upon any of its properties;
provided, however, that the Company in good faith may contest any such tax,
assessment, governmental charge or levy described in the foregoing clauses (b)
and (c) so long as appropriate reserves are maintained with respect thereto.
 
Section 6.8.
Compliance with Law and Other Agreements.

 
The Company shall maintain its business operations and property owned or used in
connection therewith in compliance with (a) all applicable federal, state and
local laws, regulations and ordinances governing such business operations and
the use and ownership of such property, and (b) all agreements, licenses,
franchises, indentures and mortgages to which the Company is a party or by which
the Company or any of its properties is bound.  Without limiting the foregoing,
the Company shall pay all of its indebtedness promptly in accordance with the
terms thereof.
 
Section 6.9.
Notice of Default.

 
The Company shall give written notice to the Secured Party of the occurrence of
any default or Event of Default under this Agreement or the Transaction
Documents, promptly upon the occurrence thereof.
 
Section 6.10.
Notice of Litigation.

 
The Company shall give notice, in writing, to the Secured Party of (a) any
actions, suits or proceedings wherein the amount at issue is in excess of
$50,000, instituted by any persons against the Company, or affecting any of the
assets of the Company, and (b) any dispute, not resolved within fifteen (15)
days of the commencement thereof, between the Company on the one hand and any
governmental or regulatory body on the other hand, which might reasonably be
expected to have a Material Adverse Effect on the business operations or
financial condition of the Company.
 

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ARTICLE 7.
 
NEGATIVE COVENANTS
 
The Company covenants and agrees that, from the date hereof until the
Obligations have been fully paid and satisfied, the Company shall not, unless
the Secured Party shall consent otherwise in writing:
 
Section 7.1.
Indebtedness.

 
Other than in the ordinary course of business consistent with past practice or
as otherwise permitted herein, without the prior written consent of the Secured
Party, the Company shall not directly or indirectly permit, create, incur,
assume, permit to exist, increase, renew or extend on or after the date hereof
any indebtedness on its part, including commitments, contingencies and credit
availabilities, or apply for or offer or agree to do any of the foregoing unless
any security interest on such indebtedness is junior to the security interest
held by the Secured Party hereunder.
 
Section 7.2.
Liens and Encumbrances.

 
Except for Permitted Liens and for transfers in the ordinary course of
business,  and except for such assignment, transfer, pledge, mortgage, security
interest or other lien or encumbrance as is outstanding on the date of this
Agreement, the Company shall not directly or indirectly make, create, incur,
assume or permit to exist any assignment, transfer, pledge, mortgage, security
interest or other lien or encumbrance of any nature in, to or against any part
of the Pledged Property or of the Company’s capital stock, or offer or agree to
do so, or own or acquire or agree to acquire any asset or property of any
character subject to any of the foregoing encumbrances (including any
conditional sale contract or other title retention agreement), or assign, pledge
or in any way transfer or encumber its right to receive any income or other
distribution or proceeds from any part of the Pledged Property; or enter into
any sale-leaseback financing respecting any part of the Pledged Property as
lessee, or cause or assist the inception or continuation of any of the
foregoing.
 
Section 7.3.
Certificate of Incorporation, By-Laws, Mergers, Consolidations, Acquisitions and
Sales, Sales of Capital Stock, Incurrence of Debt.

 
Other than in the ordinary course of business, without the prior express written
consent of the Secured Party, the Company shall not:  (a) Amend its Articles of
Incorporation or By-Laws; (b) issue or sell its common stock without
consideration or for a consideration per share less than the bid price of the
common stock determined immediately prior to its issuance, (c) 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 Secured
Party’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,
(d) 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, (e)  incur any
additional secured debt or permit any subsidiary of the Company to incur any
additional secured debt without the Secured Party’s prior written consent unless
the security interest on such secured debt is junior to the security interest
held by the Secured Party, (f) be a party to any merger, consolidation or
corporate reorganization, (g) purchase or otherwise acquire all or substantially
all of the assets or stock of, or any partnership or joint venture interest in,
any other person, firm or entity, (e) sell, transfer, convey, grant a security
interest in (except for Permitted Liens) or lease all or any substantial part of
its assets, nor (h) create any new subsidiaries nor convey any of its assets to
any subsidiary.  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.
 
Section 7.4.
Management, Ownership.

 
The Company shall not materially change its ownership, executive staff or
management without the prior written consent of the Secured Party.  The
ownership, executive staff and management of the Company are material factors in
the Secured Party's willingness to institute and maintain a lending relationship
with the Company.
 
Section 7.5.
Dividends, Etc.

 
The Company shall not declare or pay any dividend of any kind, in cash or in
property, on any class of its capital stock, nor purchase, redeem, retire or
otherwise acquire for value any shares of such stock, nor make any distribution
of any kind in respect thereof, nor make any return of capital to shareholders,
nor make any payments in respect of any pension, profit sharing, retirement,
stock option, stock bonus, incentive compensation or similar plan (except as
required or permitted hereunder), without the prior written consent of the
Secured Party.
 
Section 7.6.
Guaranties; Loans.

 
Other than in the ordinary course of business, and except for such guarantees or
liabilities as are outstanding on the date of this Agreement, the Company shall
not guarantee nor be liable in any manner, whether directly or indirectly, or
become contingently liable after the date of this Agreement in connection with
the obligations or indebtedness of any person or persons, except for (i) the
indebtedness currently secured by the liens identified on the Pledged Property
identified on Exhibit A hereto and (ii) the endorsement of negotiable
instruments payable to the Company for deposit or collection in the ordinary
course of business.  The Company shall not make any loan, advance or extension
of credit to any person other than in the normal course of its business.
 
Section 7.7.
Debt.

 
Other than in the ordinary course of business, and except for such indebtedness
as is outstanding on the date of this Agreement, without the prior written
approval of Secured Party, the Company shall not create, incur, assume or suffer
to exist any additional indebtedness of any description whatsoever in an
aggregate amount in excess of $50,000 (excluding any indebtedness of the Company
to the Secured Party, indebtedness otherwise permitted by the terms of this
Agreement, trade accounts payable and accrued expenses incurred in the ordinary
course of business and the endorsement of negotiable instruments payable to the
Company, respectively for deposit or collection in the ordinary course of
business).
 
Section 7.8.
Conduct of Business.

 
The Company will continue to engage in a business of the general type as
conducted by it on the date of this Agreement.
 
Section 7.9.
Places of Business.

 
The location of the Company’s chief place of business is at the address set
forth in Section 8.1 hereof.  The Company shall not change the location of its
chief place of business, chief executive office or any place of business
disclosed to the Secured Party or move any of the Pledged Property from its
current location without thirty (30) days' prior written notice to the Secured
Party in each instance.
 

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ARTICLE 8.
 
MISCELLANEOUS
 
Section 8.1.
Notices.

 
All notices or other communications required or permitted to be given pursuant
to this Agreement shall be in writing and shall be considered as duly given
on:  (a) the date of delivery, if delivered in person, by nationally recognized
overnight delivery service or (b) five (5) days after mailing if mailed from
within the continental United States by certified mail, return receipt requested
to the party entitled to receive the same:
 

 
If to the Secured Party:
Trafalgar Capital Specialized Investment Fund
   
8-10 Rue Mathias Hardt
   
BP 3023
   
L-1030 Luxembourg
   
Attention: Andrew Garai, Chairman of the Board of
   
Trafalgar Capital Sarl, General Partner
   
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
             
And if to the Company:
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
     

Any party may change its address by giving notice to the other party stating its
new address.  Commencing on the tenth (10th) day after the giving of such
notice, such newly designated address shall be such party’s address for the
purpose of all notices or other communications required or permitted to be given
pursuant to this Agreement.
 
Section 8.2.
Severability.

 
If any provision of this Agreement shall be held invalid or unenforceable, such
invalidity or unenforceability shall attach only to such provision and shall not
in any manner affect or render invalid or unenforceable any other severable
provision of this Agreement, and this Agreement shall be carried out as if any
such invalid or unenforceable provision were not contained herein.
 
Section 8.3.
Expenses.

 
In the event of an Event of Default, the Company will pay to the Secured Party
the amount of any and all reasonable expenses, including the reasonable fees and
expenses of its counsel, which the Secured Party may incur in connection
with:  (i) the custody or preservation of, or the sale, collection from, or
other realization upon, any of the Pledged Property; (ii) the exercise or
enforcement of any of the rights of the Secured Party hereunder or (iii) the
failure by the Company to perform or observe any of the provisions hereof.
 
Section 8.4.
Waivers, Amendments, Etc.

 
The Secured Party’s delay or failure at any time or times hereafter to require
strict performance by Company of any undertakings, agreements or covenants shall
not waiver, affect, or diminish any right of the Secured Party under this
Agreement to demand strict compliance and performance herewith.  Any waiver by
the Secured Party of any Event of Default shall not waive or affect any other
Event of Default, whether such Event of Default is prior or subsequent thereto
and whether of the same or a different type.  None of the undertakings,
agreements and covenants of the Company contained in this Agreement, and no
Event of Default, shall be deemed to have been waived by the Secured Party, nor
may this Agreement be amended, changed or modified, unless such waiver,
amendment, change or modification is evidenced by an instrument in writing
specifying such waiver, amendment, change or modification and signed by the
Secured Party.
 
Section 8.5.
Continuing Security Interest.

 
This Agreement shall create a continuing security interest in the Pledged
Property and shall: (i) remain in full force and effect until payment in full of
the Obligations (whether by payment of cash, redemption or conversion); and
(ii) be binding upon the Company and its successors and heirs and (iii) inure to
the benefit of the Secured Party and its successors and assigns.  Upon the
payment or satisfaction in full of the Obligations, the Company shall be
entitled to the return, at its expense, of such of the Pledged Property as shall
not have been sold in accordance with Section 5.2 hereof or otherwise applied
pursuant to the terms hereof. Upon payment in full of all Obligations, the
Secured Party shall execute and deliver to the Company all instruments and other
documents as may be necessary or proper to release the lien on and security
interest in the Pledged Property which has been granted hereunder.
 
Section 8.6.
Independent Representation.

 
Each party hereto acknowledges and agrees that it has received or has had the
opportunity to receive independent legal counsel of its own choice and that it
has been sufficiently apprised of its rights and responsibilities with regard to
the substance of this Agreement.
 
Section 8.7.
Applicable Law:  Jurisdiction.

 
This Agreement shall be governed by and interpreted in accordance with the laws
of the State of Florida without regard to the principles of conflict of
laws.  The parties further agree that any action between them shall be heard in
Florida and expressly consent to the jurisdiction and venue of the Florida State
Court sitting in Broward County, Florida or the United States District Court for
the Southern District of Florida, for the adjudication of any civil action
asserted pursuant to this Paragraph.
 
Section 8.8.
Waiver of Jury Trial.

 
AS A FURTHER INDUCEMENT FOR THE SECURED PARTY TO ENTER INTO THIS AGREEMENT AND
TO MAKE THE FINANCIAL ACCOMMODATIONS TO THE COMPANY, THE COMPANY HEREBY WAIVES
ANY RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING RELATED IN ANY WAY TO THIS
AGREEMENT AND/OR ANY AND ALL OTHER DOCUMENTS RELATED TO THIS TRANSACTION.
 
Section 8.9.
Entire Agreement.

 
This Agreement constitutes the entire agreement among the parties and supersedes
any prior agreement or understanding among them with respect to the subject
matter hereof.
 
Section 8.10                                Further Assurances.
 
The Company shall do and perform, or cause to be done and performed, all such
further acts and things, and shall execute and deliver all such other
agreements, certificates, instruments and documents, as the Secured Party may
reasonably request in order to carry out the intent and accomplish the purposes
of   Furthermore, the Company agrees to execute such other documents as are
reasonably required by the Secured Party.  It shall be deemed a default of this
Agreement if the Company fails to sign any such agreement within one business
day of the date of request by Secured Party.
 

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[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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

 
COMPANY:
 
ENVIRONMENT ECOLOGY HOLDING CO. OF CHINA
     
By:                                                                
 
Name:       Liu Sheng Li
 
Title:          President
         
SECURED PARTY:
 
TRAFALGAR CAPITAL SPECIALIZED
 
INVESTMENT FUND, LUXEMBOURG
 
By:           Trafalgar Capital Sarl
 
Its:           General Partner
     
By:                                                                
 
Name:                      
 
Title:          Portfolio Manager

 

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EXHIBIT A
 
DEFINITION OF PLEDGED PROPERTY
 
 
For the purpose of securing prompt and complete payment and performance by the
Company of all of the Obligations, the Company unconditionally and irrevocably
hereby grants to the Secured Party a continuing security interest in and to, and
lien upon, all of the Company’s and its current or future acquired subsidiaries’
assets, including specifically the following Pledged Property of the Company and
its current or future acquired subsidiaries:
 
 
(a)           all goods of the Company, including, without limitation,
machinery, equipment, furniture, furnishings, fixtures, signs, lights, tools,
parts, supplies and motor vehicles of every kind and description, now or
hereafter owned by the Company or in which the Company may have or may hereafter
acquire any interest, and all replacements, additions, accessions, substitutions
and proceeds thereof, arising from the sale or disposition thereof, and where
applicable, the proceeds of insurance and of any tort claims involving any of
the foregoing;
 
(b)           all inventory of the Company, including, but not limited to, all
goods, wares, merchandise, parts, supplies, finished products, other tangible
personal property, including such inventory as is temporarily out of Company’s
custody or possession and including any returns upon any accounts or other
proceeds, including insurance proceeds, resulting from the sale or disposition
of any of the foregoing;
 
(c)           all contract rights and general intangibles of the Company,
including, without limitation, goodwill, trademarks, trade styles, trade names,
leasehold interests, partnership or joint venture interests, patents and patent
applications, copyrights, deposit accounts whether now owned or hereafter
created;
 
(d)           all documents, warehouse receipts, instruments and chattel paper
of the Company whether now owned or hereafter created;
 
(e)           all accounts and other receivables, instruments or other forms of
obligations and rights to payment of the Company, including specifically an
assignment of the receivables from ABB (herein collectively referred to as
“Accounts”), together with the proceeds thereof, all goods represented by such
Accounts and all such goods that may be returned by the Company’s customers, and
all proceeds of any insurance thereon, and all guarantees, securities and liens
which the Company may hold for the payment of any such Accounts including,
without limitation, all rights of stoppage in transit, replevin and reclamation
and as an unpaid vendor and/or lienor, all of which the Company represents and
warrants will be bona fide and existing obligations of its respective customers,
arising out of the sale of goods by the Company in the ordinary course of
business;
 
(f)           to the extent assignable, all of the Company’s rights under all
present and future authorizations, permits, licenses and franchises issued or
granted in connection with the operations of any of its facilities;
 
(g)           all products and proceeds (including, without limitation,
insurance proceeds) from the above-described Pledged Property; and
 
(h)           all equity interests, securities or other instruments in other
companies, including, without limitation, any subsidiaries, investments or other
entities (whether or not controlled).