Document:

ex10_3.htm

    
       

      
        REGISTRATION RIGHTS
AGREEMENT

         

        THIS REGISTRATION RIGHTS
AGREEMENT (this “Agreement”), dated as
of June 30, 2008, by and among
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 “Investor”).

         

        WHEREAS:

         

        A.           In
connection with the Securities Purchase Agreement by and among the parties
hereto of even date herewith (the “Securities Purchase
Agreement”), the Company has agreed, upon the terms and subject to the
conditions of the Securities Purchase Agreement, to issue and sell to the
Investor secured convertible redeemable debentures (the “Convertible
Debentures”) which shall be convertible into that number of shares of the
Company’s common stock, par value US$0.001 per share (the “Common Stock”),
pursuant to the terms of the Securities Purchase Agreement for an aggregate
purchase price of up to Six Million U.S.
Dollars ($6,000,000).  Capitalized terms not defined herein shall
have the meaning ascribed to them in the Securities Purchase
Agreement.

         

        B.           To
induce the Investor to execute and deliver the Securities Purchase Agreement,
the Company has agreed to provide certain registration rights under the
Securities Act of 1933, as amended, and the rules and regulations there under,
or any similar successor statute (collectively, the “1933 Act”), and
applicable state securities laws.

         

        NOW, THEREFORE, in
consideration of the premises and the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company and the Investor hereby agree as
follows:

         

        1. DEFINITIONS.

         

        As used
in this Agreement, the following terms shall have the following
meanings:

         

        (a) “Person” means a
corporation, a limited liability company, an association, a partnership, an
organization, a business, an individual, a governmental or political subdivision
thereof or a governmental agency.

         

        (b) “Register,” “registered,” and
“registration”
refer to a registration effected by preparing and filing one or more
Registration Statements (as defined below) in compliance with the 1933 Act and
pursuant to Rule 415 under the 1933 Act or any successor rule providing for
offering securities on a continuous or delayed basis (“Rule 415”), and the
declaration or ordering of effectiveness of such Registration Statement(s) by
the United States Securities and Exchange SEC (the “SEC”).

         

        (c) “Registrable
Securities” means the shares of Common Stock issuable to Investor upon
conversion of the Convertible Debentures pursuant to the Securities Purchase
Agreement.  As to any particular Registrable Securities, such
securities will cease to be Registrable Securities when (a) they have been
effectively registered under the 1933 Act and disposed of in accordance with the
registration statement covering them, (b) they have been sold, or may be sold
without volume restrictions pursuant to Rule 144(b)(1) promulgated by the SEC
under the 1933 Act, or (c) they have been otherwise transferred and new
certificates for them not bearing a restrictive legend have been issued by the
Company and the Company shall not have “stop transfer” instructions against
them.

         

        (d) “Registration
Statement” means a registration statement under the 1933 Act which covers
the Registrable Securities.

         

        (e) “Rule 144” means Rule
144 promulgated under the 1933 Act or any similar rule or regulation of the SEC
that may at any time permit the Investor to sell securities of the Company to
the public without registration.

         

        2. REGISTRATION.

         

        (a) Subject
to the terms and conditions of this Agreement, the Company shall prepare and
file, no later than thirty (30) days from the date hereof (the “Scheduled Filing
Deadline”),  with the SEC a registration statement on Form S-1
(or, if the Company is then eligible, on Form S-3) under the 1933 Act (the
“Initial Registration
Statement”) for the registration for the resale by the Investor at least
five (5) times the number of shares which are anticipated to be issued upon
conversion of the Convertible Debentures issued pursuant to the Securities
Purchase Agreement (subject to Rule 415 restrictions).  The Company
shall cause the Registration Statement to remain effective until all of the
Registrable Securities have been sold by the Investor.  Prior to the
filing of the Registration Statement with the SEC, the Company shall furnish a
copy (which may be in electronic form) of the Initial Registration Statement to
the Investor and The Law Office of James G. Dodrill II, P.A. for their review
and comment.  The Investor and James G. Dodrill II, P.A. shall furnish
comments on the Initial Registration Statement to the Company by the later of:
(a) seventy-two (72) hours of the receipt thereof from the Company and (b) the
close of the second business day following receipt thereof from the
Company.

         

        (b) Effectiveness of the Initial
Registration Statement.  The Company shall use its best its
best efforts (i) to have the Initial Registration Statement declared effective
by the SEC no later than one hundred twenty (120) days after the First Closing
Date (the “Scheduled
Effective Deadline”) and (ii) to insure that the Initial Registration
Statement and any subsequent Registration Statement remains in effect until all
of the Registrable Securities have been sold, subject to the terms and
conditions of this Agreement.

         

        (c) Failure to File or Obtain
Effectiveness of the Registration Statement.  In the event the
Registration Statement is not filed with the SEC by the Scheduled Filing
Deadline or is not declared effective by the SEC on or before the Scheduled
Effective Date, or if after the Registration Statement has been declared
effective by the SEC, sales cannot be made pursuant to the Registration
Statement (whether because of a failure to keep the Registration Statement
effective, failure to disclose such information as is necessary for sales to be
made pursuant to the Registration Statement, failure to register sufficient
shares of Common Stock or otherwise then as partial relief for the damages to
any holder of Registrable Securities by reason of any such delay in or reduction
of its ability to sell the underlying shares of Common Stock (which remedy shall
not be exclusive of any other remedies at law or in equity), the Company will
pay as liquidated damages (the “Liquidated Damages”)
to the holder, at the holder’s option, either a cash amount or shares of the
Company’s Common Stock within three (3) business days, after demand therefore,
equal to two percent (2%) of the liquidated value of the Convertible Debentures
outstanding as Liquidated Damages for each thirty (30) day period (or any part
thereof) after the Scheduled Filing Deadline or the Scheduled Effective Date as
the case may be.  Notwithstanding anything herein to the contrary, to
the extent that the registration of any or all of the Registrable Securities by
the Company on a registration statement is prohibited (the “Non-Registered
Shares”) as a result of rules, regulations, positions or releases issued
or actions taken by the SEC pursuant to its authority with respect to Rule 415
under the 1933 Act and the Company has registered at such time the maximum
number of Registrable Securities permissible upon consultation with the SEC,
then the liquidated damages described herein shall not be applicable to such
Non-Registered Shares.  The Liquidated Damages payable hereunder shall
not be required provided that: (a) the Registration Statement is filed by the
Scheduled Filing Deadline, (b) the Company is current in its cash payments to
the Investor and (c) when shares of Common Stock are being issued to Investor in
lieu of cash (as agreed by the Investor), the Company is able to and does
deliver to Investor shares of Common Stock that are freely transferable by the
Investor.

         

        (d) Liquidated
Damages.  The Company and the Investor hereto acknowledge and
agree that the sums payable under subsection 2(c) above shall constitute
liquidated damages and not penalties and are in addition to all other rights of
the Investor, including the right to call a default.  The parties
further acknowledge that (i) the amount of loss or damages likely to be incurred
is incapable or is difficult to precisely estimate, (ii) the amounts specified
in such subsections bear a reasonable relationship to, and are not plainly or
grossly disproportionate to, the probable loss likely to be incurred in
connection with any failure by the Company to obtain or maintain the
effectiveness of a Registration Statement, (iii) one of the reasons for the
Company and the Investor reaching an agreement as to such amounts was the
uncertainty and cost of litigation regarding the question of actual damages, and
(iv) the Company and the Investor are sophisticated business parties and have
been represented by sophisticated and able legal counsel and negotiated this
Agreement at arm’s length.

         

        (e) Choice of law firm.
The Company shall use a law firm recommended by the Buyers.

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        3. RELATED
OBLIGATIONS.

         

        (a) The
Company shall keep the Registration Statement effective pursuant to
Rule 415 at all times until all Registrable Securities covered by such
Registration Statement have been sold  (the “Registration
Period”), which Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein, or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.

         

        (b) The
Company shall prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to a Registration Statement and the
prospectus used in connection with such Registration Statement, which prospectus
is to be filed pursuant to Rule 424 promulgated under the 1933 Act, as may be
necessary to keep such Registration Statement effective at all times during the
Registration Period, and, during such period, comply with the provisions of the
1933 Act with respect to the disposition of all Registrable Securities of the
Company covered by such Registration Statement until such time as all of such
Registrable Securities shall have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof as set forth in
such Registration Statement.  In the case of amendments and
supplements to a Registration Statement which are required to be filed pursuant
to this Agreement (including pursuant to this Section 3(b)) by reason of the
Company’s filing a report on Form 10-K, Form 10-Q, or Form 8-K or any analogous
report under the Securities Exchange Act of 1934, as amended (the “1934 Act”), the
Company shall incorporate such report by reference into the Registration
Statement, if applicable, or shall file such amendments or supplements with the
SEC on the same day on which the 1934 Act report is filed which created the
requirement for the Company to amend or supplement the Registration
Statement.

         

        (c) The
Company shall furnish to the Investor, (i) such number of copies of the
Registration Statement as declared effective by the SEC and any amendment(s)
thereto, including financial statements and schedules, all documents
incorporated therein by reference, all exhibits and each preliminary prospectus
as Investor may reasonably request, (ii) such number of copies of the final
prospectus included in such Registration Statement and all amendments and
supplements thereto (or such other number of copies as such Investor may
reasonably request in writing) as Investor may reasonably request and (iii) such
other documents as such Investor may reasonably request in writing from time to
time in order to facilitate the disposition of the Registrable Securities owned
by such Investor.  Unless otherwise specified by the Investor, the
Company may furnish copies of all such documents to the Investor in electronic
form.  The Investor acknowledges that any obligation under section
5(b)(2) of the 1933 Act to have a prospectus that satisfies the requirements of
section 10(a) of the 1933 Act precede or accompany the carrying or delivery of a
security in a registered offering is satisfied if the conditions in Rule 172(c)
under the 1933 Act have been met.

         

        (d) The
Company shall use its best efforts to (i) register and qualify the Registrable
Securities covered by a Registration Statement under such other securities or
“blue sky” laws of such jurisdictions in the United States as any Investor
reasonably requests, (ii) prepare and file in those jurisdictions, such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (w) make any
change to its certificate of incorporation or by-laws, (x) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (y) subject itself to general taxation in any such
jurisdiction, or (z) file a general consent to service of process in any such
jurisdiction.  The Company shall promptly notify the Investor of the
receipt by the Company of any notification with respect to the suspension of the
registration or qualification of any of the Registrable Securities for sale
under the securities or “blue sky” laws of any jurisdiction in the United States
or its receipt of actual notice of the initiation or threat of any proceeding
for such purpose.

         

        (e) As
promptly as practicable after becoming aware of such event or development, the
Company shall notify the Investor in writing of the happening of any event as a
result of which the prospectus included in a Registration Statement, as then in
effect, includes an untrue statement of a material fact or omission to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading (provided that in no event shall such notice contain any material,
nonpublic information), and promptly prepare a supplement or amendment to such
Registration Statement to correct such untrue statement or omission, and deliver
ten (10) copies of such supplement or amendment to the Investor.  The
Company shall also promptly notify the Investor in writing (i) when a prospectus
or any prospectus supplement or post-effective amendment has been filed, and
when a Registration Statement or any post-effective amendment has become
effective (notification of such effectiveness shall be delivered to the Investor
by facsimile on the same day of such effectiveness), (ii) of any request by the
SEC for amendments or supplements to a Registration Statement or related
prospectus or related information, and (iii) of the Company’s reasonable
determination that a post-effective amendment to a Registration Statement would
be appropriate.

         

        (f) The
Company shall use its best efforts to prevent the issuance of any stop order or
other suspension of effectiveness of a Registration Statement, or the suspension
of the qualification of any of the Registrable Securities for sale in any
jurisdiction within the United States of America and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify the Investor of such order and the
resolution thereof or its receipt of actual notice of the initiation or threat
of any proceeding for such purpose.

         

        (g) Upon
written request, the Company shall make available for inspection by (i) any
Investor and (ii) one (1) firm of accountants or other agents retained by
the Investor (collectively, the “Inspectors”) all
pertinent financial and other records, and pertinent corporate documents and
properties of the Company (collectively, the “Records”), as shall
be reasonably deemed necessary by each Inspector, and cause the Company’s
officers, directors and employees to supply all information which any Inspector
may reasonably request in writing; provided, however, that each Inspector shall
agree, and the Investor hereby agrees, to hold in strict confidence and shall
not make any disclosure (except to an Investor) or use  any Record or
other information which the Company determines in good faith to be confidential,
and of which determination the Inspectors are so notified, unless (a) the
disclosure of such Records is necessary to avoid or correct a misstatement or
omission in any Registration Statement or is otherwise required under the 1933
Act, (b) the release of such Records is ordered pursuant to a final,
non-appealable subpoena or order from a court or government body of competent
jurisdiction, or (c) the information in such Records has been made generally
available to the public other than by disclosure in violation of this or any
other agreement of which the Inspector and the Investor has
knowledge.  The Investor agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt notice to the Company
and allow the Company, at its expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, the Records deemed
confidential.

         

        (h) The
Company shall hold in confidence and not make any disclosure of information
concerning an Investor provided to the Company unless (i) disclosure of such
information is necessary to comply with federal or state securities laws, (ii)
the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement.  The Company agrees that it shall, upon learning that
disclosure of such information concerning an Investor is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt written notice to such Investor and allow such Investor, at the
Investor’s expense, to undertake appropriate action to prevent disclosure of, or
to obtain a protective order for, such information.

         

        (i) The
Company shall use its best efforts either to cause all the Registrable
Securities covered by a Registration Statement (i) to be listed on each
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange or (ii) the
inclusion for quotation on the OTC Bulletin Board for such Registrable
Securities.  The Company shall pay all fees and expenses in connection
with satisfying its obligation under this Section 3(j).

         

        (j) The
Company shall cooperate with the Investor, to the extent applicable, to
facilitate the timely preparation and delivery of certificates (not bearing any
restrictive legend) representing the Registrable Securities to be offered
pursuant to a Registration Statement and enable such certificates to be in such
denominations or amounts, as the case may be, as the Investor may reasonably
request in writing and registered in such names as the Investor may
request.

         

        (k) The
Company shall use its best efforts to cause the Registrable Securities covered
by the applicable Registration Statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to
consummate the disposition of such Registrable Securities.

         

        (l) The
Company shall make generally available to its security holders as soon as
practical, but not later than ninety (90) days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions of
Rule 158 under the 1933 Act) covering a twelve (12) month period beginning not
later than the first day of the Company’s fiscal quarter next following the
effective date of the Registration Statement.

         

        (m) The
Company shall otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC in connection with any registration
hereunder.

         

        (n) Within
two (2) business days after a Registration Statement which covers Registrable
Securities is declared effective by the SEC, the Company shall deliver, and
shall cause legal counsel for the Company to deliver, to the transfer agent for
such Registrable Securities (with copies to the Investor) confirmation that such
Registration Statement has been declared effective by the SEC in the form
attached hereto as Exhibit
A.

         

        (o) The
Company shall take all other reasonable actions necessary to expedite and
facilitate the lawful disposition by the Investor of Registrable Securities
pursuant to a Registration Statement.

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        4. OBLIGATIONS OF THE
INVESTOR.

         

        The
Investor agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 3(f) or the first
sentence of 3(e), such Investor will immediately discontinue disposition of
Registrable Securities pursuant to any Registration Statement(s) covering such
Registrable Securities until such Investor’s receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e) or receipt of
notice that no supplement or amendment is required.  Notwithstanding
anything to the contrary, the Company shall cause its transfer agent to deliver
unlegended certificates for shares of Common Stock to a transferee of an
Investor in accordance with the terms of the Securities Purchase Agreement in
connection with any sale of Registrable Securities with respect to which an
Investor has entered into a contract for sale prior to the Investor’s receipt of
a notice from the Company of the happening of any event of the kind described in
Section 3(f) or the first sentence of 3(e) and for which the Investor has not
yet settled.

         

        5. EXPENSES OF
REGISTRATION.

         

        All
expenses incurred in connection with registrations, filings or qualifications
pursuant to Sections 2 and 3, including, without limitation, all registration,
listing and qualifications fees, printers, legal and accounting fees shall be
paid by the Company.

         

        6. INDEMNIFICATION.

         

        With
respect to Registrable Securities which are included in a Registration Statement
under this Agreement:

         

        (a) To the
fullest extent permitted by law, the Company will, and hereby does, indemnify,
hold harmless and defend the Investor, Investor’s directors, officers, partners,
employees, agents, representatives of, and each Person, if any, who controls the
Investor within the meaning of the 1933 Act or the 1934 Act (each, an “Indemnified Person”),
against any losses, claims, damages, liabilities, judgments, fines, penalties,
charges, costs, reasonable attorneys’ fees, amounts paid in settlement or
expenses, joint or several (collectively, “Claims”) incurred in
investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an indemnified party is or
may be a party thereto (“Indemnified
Damages”), to which any of them may become subject insofar as such Claims
(or actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon: (i) any untrue statement or alleged untrue
statement of a material fact in a Registration Statement or any post-effective
amendment thereto or in any filing made in connection with the qualification of
the offering under the securities or other “blue sky” laws of any jurisdiction
in which Registrable Securities are offered (“Blue Sky Filing”), or
the omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; (ii) any
untrue statement or alleged untrue statement of a material fact contained in any
final prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading; or (iii) any violation or alleged violation by the Company
of the 1933 Act, the 1934 Act, any other law, including, without limitation, any
state securities law, or any rule or regulation there under relating to the
offer or sale of the Registrable Securities pursuant to a Registration Statement
(the matters in the foregoing clauses (i) through (iii) being, collectively,
“Violations”).  The
Company shall reimburse the Investor and each such controlling person promptly
as such expenses are incurred and are due and payable, for any legal fees or
disbursements or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim.  Notwithstanding anything
to the contrary contained herein, the indemnification agreement contained in
this Section 6(a): (x) shall not apply to a Claim by an Indemnified Person
arising out of or based upon a Violation which occurs in reliance upon and in
conformity with information furnished in writing to the Company by such
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto; (y)
shall not be available to the extent such Claim is based on a failure of the
Investor to deliver or to cause to be delivered the prospectus made available by
the Company, if such prospectus was timely made available by the Company
pursuant to Section 3(c); and (z) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer of
the Registrable Securities by the Investor pursuant to Section 9
hereof.

         

        (b) In
connection with a Registration Statement, the Investor agrees to indemnify, hold
harmless and defend, to the same extent and in the same manner as is set forth
in Section 6(a), the Company, each of its directors, each of its officers,
employees, representatives, or agents and each Person, if any, who controls the
Company within the meaning of the 1933 Act or the 1934 Act (each an “Indemnified Party”),
against any Claim or Indemnified Damages to which any of them may become
subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or
Indemnified Damages arise out of or is based upon any Violation, in each case to
the extent, and only to the extent, that such Violation occurs in reliance upon
and in conformity with written information furnished to the Company by such
Investor expressly for use in connection with such Registration Statement; and,
subject to Section 6(d), such Investor will reimburse any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution
contained in Section 7 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of such
Investor, which consent shall not be unreasonably withheld; provided, further,
however, that the Investor shall be liable under this Section 6(b) for only that
amount of a Claim or Indemnified Damages as does not exceed the net proceeds to
such Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement.  Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such Indemnified
Party and shall survive the transfer of the Registrable Securities by the
Investor pursuant to Section 9.  Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(b) with respect to any prospectus shall not inure to the benefit of
any Indemnified Party if the untrue statement or omission of material fact
contained in the prospectus was corrected and such new prospectus was delivered
to the Investor prior to the Investor’s use of the prospectus to which the Claim
relates.

         

        (c) Promptly
after receipt by an Indemnified Person or Indemnified Party under this Section 6
of notice of the commencement of any action or proceeding (including any
governmental action or proceeding) involving a Claim, such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses of not
more than one (1) counsel for such Indemnified Person or Indemnified Party to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing  interests between
such Indemnified Person or Indemnified Party and any other party represented by
such counsel in such proceeding.  The Indemnified Party or Indemnified
Person shall cooperate fully with the indemnifying party in connection with any
negotiation or defense of any such action or claim by the indemnifying party and
shall furnish to the indemnifying party all information reasonably available to
the Indemnified Party or Indemnified Person which relates to such action or
claim.  The indemnifying party shall keep the Indemnified Party or
Indemnified Person fully apprised at all times as to the status of the defense
or any settlement negotiations with respect thereto.  No indemnifying
party shall be liable for any settlement of any action, claim or proceeding
effected without its prior written consent; provided, however, that the
indemnifying party shall not unreasonably withhold, delay or condition its
consent.  No indemnifying party shall, without the prior written
consent of the Indemnified Party or Indemnified Person, consent to entry of any
judgment or enter into any settlement or other compromise which does not include
as an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party or Indemnified Person of a release from all liability in
respect to such claim or litigation.  Following indemnification as
provided for hereunder, the indemnifying party shall be subrogated to all rights
of the Indemnified Party or Indemnified Person with respect to all third
parties, firms or corporations relating to the matter for which indemnification
has been made.  The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action.

         

        (d) The
indemnification required by this Section 6 shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as and
when bills are received or Indemnified Damages are incurred.

         

        (e) The
indemnity agreements contained herein shall be in addition to (i) any cause
of action or similar right of the Indemnified Party or Indemnified Person
against the indemnifying party or others, and (ii) any liabilities the
indemnifying party may be subject to pursuant to the law.

         

        7. CONTRIBUTION.

         

        To the
extent any indemnification by an indemnifying party is prohibited or limited by
law, the indemnifying party agrees to make the maximum contribution with respect
to any amounts for which it would otherwise be liable under Section 6 to the
fullest extent permitted by law; provided, however, that:  (i) no
seller of Registrable Securities guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any seller of Registrable Securities who was not guilty of fraudulent
misrepresentation; and (ii) contribution by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        8. REPORTS UNDER THE 1934
ACT.

         

        With a
view to making available to the Investor the benefits of Rule 144 the Company
agrees to:

         

        (a) make and
keep public information available, as those terms are understood and defined in
Rule 144;

         

        (b) file with
the SEC in a timely manner all reports and other documents required of the
Company under the 1933 Act and the 1934 Act so long as the Company remains
subject to such requirements (it being understood that nothing herein shall
limit the Company’s obligations under Section 4(c) of the Securities Purchase
Agreement) and the filing of such reports and other documents as are required by
the applicable provisions of Rule 144; and

         

        (c) furnish
to the Investor so long as the Investor owns Registrable Securities, promptly
upon written request, (i) a written statement by the Company that it has
complied with the public information requirements of Rule 144, the 1933 Act and
the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested to permit the Investor to
sell such securities pursuant to Rule 144(b)(1) without
registration.

         

        9. AMENDMENT OF REGISTRATION
RIGHTS.

         

        Provisions
of this Agreement may be amended and the observance thereof may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and
Investor.  Any amendment or waiver effected in accordance with this
Section 9 shall be binding upon the Investor and the Company.  No
such amendment shall be effective to the extent that it applies to fewer than
all of the holders of the Registrable Securities.  No consideration
shall be offered or paid to any Person to amend or consent to a waiver or
modification of any provision of any of this Agreement unless the same
consideration also is offered to all of the parties to this
Agreement.

         

        10. MISCELLANEOUS.

         

        (a) A Person
is deemed to be a holder of Registrable Securities whenever such Person owns or
is deemed to own of record such Registrable Securities.  If the
Company receives conflicting instructions, notices or elections from two (2) or
more Persons with respect to the same Registrable Securities, the Company shall
act upon the basis of instructions, notice or election received from the
registered owner of such Registrable Securities.

         

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

         

        
          	
                  If
      to 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 Investor, to:

                	
                  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

                
	 
      	 
      
	 
      	 
      

        

        

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

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

         

        (c) Failure
of any party to exercise any right or remedy under this Agreement or otherwise,
or delay by a party in exercising such right or remedy, shall not operate as a
waiver thereof.

         

        (d) The laws
of the State of Florida shall govern all issues concerning the relative rights
of the Company and the Investor as its stockholders.  All other
questions concerning the construction, validity, enforcement and interpretation
of this Agreement shall be governed by the internal laws of the State of Florida
without giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Florida or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of
Florida  Each party hereby irrevocably submits to the non-exclusive
jurisdiction of the State Courts of the State of Florida sitting in Broward
County, Florida and federal courts for the Southern District of Florida for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper.  Each party
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof to
such party at the address for such notices to it under this Agreement and agrees
that such service shall constitute good and sufficient service of process and
notice thereof.  Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law.  If
any provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.  EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY
HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY
DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR
ANY TRANSACTION CONTEMPLATED HEREBY.

         

        (e) This
Agreement, the Irrevocable Transfer Agent Instructions, the Securities Purchase
Agreement and related documents including the Convertible Debenture and the
Escrow Agreement dated the date hereof by and among the Company, the Investor,
and The Law Office of James G. Dodrill II, P.A. (the “Escrow Agreement”)
and the Security Agreement dated the date hereof (the “Security Agreement”)
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof.  There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and therein.  This Agreement, the Irrevocable Transfer Agent
Instructions, the Securities Purchase Agreement and related documents including
the Convertible Debenture, the Escrow Agreement and the Security Agreement
supersede all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof and thereof.

         

        (f) This
Agreement shall inure to the benefit of and be binding upon the permitted
successors and assigns of each of the parties hereto.

         

        (g) The
headings in this Agreement are for convenience of reference only and shall not
limit or otherwise affect the meaning hereof.

         

        (h) This
Agreement may be executed in identical counterparts, each of which shall be
deemed an original but all of which shall constitute one and the same
agreement.  This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.

         

        (i) Each
party 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 other party may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated
hereby.

         

        The
language used in this Agreement will be deemed to be the language chosen by the
parties to express their mutual intent and no rules of strict construction will
be applied against any party.

         

        (j) This
Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other Person.

         

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

         

        [REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]

        

        IN WITNESS WHEREOF, the
parties have caused this Registration Rights Agreement to be duly executed as of
day and year first above written.

         

        

        
          	 
      	
                  COMPANY:

                
	 
      	
                  ENVIRONMENT
      ECOLOGY HOLDING CO. OF CHINA

                
	 
      	 
      
	 
      	
                  By:                                                                

                
	 
      	
                  Name:     Liu
      Sheng Li

                
	 
      	
                  Title:        President

                
	 
      	 
      

        

        

        
          	 
      	
                  BUYER:

                
	 
      	
                  TRAFALGAR
      CAPITAL SPECIALIZED

                
	 
      	
                  INVESTMENT
      FUND, LUXEMBOURG

                
	 
      	
                  By:           Trafalgar
      Capital Sarl

                
	 
      	
                  Its:           General
      Partner

                
	 
      	 
      
	 
      	
                  By:                                                                

                
	 
      	
                  Name: 
      Andrew Garai

                
	 
      	
                  Title:    Chairman
      of the Board

                

        

        

        
          
            
            

          

          
            
            

            
              

            

          

          
            
            

          

        

        

        EXHIBIT
A

         

        FORM
OF NOTICE OF EFFECTIVENESS

         

         

        OF REGISTRATION
STATEMENT

         

        

        Attention:

        

        
          	
                   
      

                	
                  Re:

                	
                  Environment
      Ecology Holding Co. of China

                

        

        

        Ladies
and Gentlemen:

        

        We are
counsel to Environment Ecology Holding Co. of China, a ________________
corporation (the “Company”), and have
represented the Company in connection with that certain Securities Purchase
Agreement (the “Securities Purchase
Agreement”) entered into by and among the Company and Trafalgar Capital
Specialized Investment Fund, Luxembourg (the “Investor”) pursuant
to which the Company issued to the Investor shares of its Common Stock, par
value US$_______ per share (the “Common
Stock”).  Pursuant to the Purchase Agreement, the Company also
has entered into a Registration Rights Agreement with the Investor (the “Registration Rights
Agreement”) pursuant to which the Company agreed, among other things, to
register the Registrable Securities (as defined in the Registration Rights
Agreement) under the Securities Act of 1933, as amended (the “1933
Act”).  In connection with the Company’s obligations under the
Registration Rights Agreement, on ____________ ____, the Company filed a
Registration Statement on Form ________ (File No. 333-_____________) (the
“Registration
Statement”) with the Securities and Exchange SEC (the “SEC”) relating to the
Registrable Securities which names each of the Investor as a selling stockholder
there under.

         

        In
connection with the foregoing, we advise you that a member of the SEC’s staff
has advised us by telephone that the SEC has entered an order declaring the
Registration Statement effective under the 1933 Act at [ENTER TIME OF EFFECTIVENESS]
on [ENTER DATE OF
EFFECTIVENESS] and we have no knowledge, after telephonic inquiry of a
member of the SEC’s staff, that any stop order suspending its effectiveness has
been issued or that any proceedings for that purpose are pending before, or
threatened by, the SEC and the Registrable Securities are available for resale
under the 1933 Act pursuant to the Registration Statement.

         

        Very
truly yours,

        

        [INSERT
NAME OF COMPANY COUNSEL]

        

        By:                                                                 

        

        cc:           
Trafalgar Capital Specialized Investment Fund, Luxembourgex10_4.htm

     

    
      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.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      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.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      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.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      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.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      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.

       

      
        
          
          

        

        
          
          

          
            

          

        

        
          
          

        

      

       

      [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

              

      

       

      
        

      

       

      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).

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