Document:

exhibit10-1ethos.htm

    
      

      

    

    
      SECURED
PROMISSORY NOTE

       

      
        
          
            	 	 
	 	 
	
                    PRINCIPAL
      AMOUNT:

                  	
                    $1,000,000.00

                  
	 	 
	
                    INTEREST
      RATE:

                  	
                    12.0%

                  
	 	 
	
                    BORROWER:

                  	
                    Ethos
      Environmental, Inc., a Nevada corporation

                  
	 	 
	
                    LENDER:

                  	
                    Patricia
      Applegate

                  
	 	 
	
                    DUE
DATE:

                  	
                    July
      30, 2008

                  
	 	 
	
                    PAYMENT:

                  	
                    BALLOON
      PAYMENT OF PRINCIPAL AND ACCRUED INTEREST DUE AND PAYABLE ON OR BEFORE
      JULY 30, 2008.

                  
	 	 
	 	 

          
THIS
SECURED PROMISSORY NOTE IS EXECUTED IN CONJUNCTION WITH AND IS TO BE CONSTRUED
IN ACCORDANCE WITH THAT CERTAIN SECURITY AGREEMENT (“SECURITY AGREEMENT”)
BY  AND  BETWEEN THE PARTIES HERETO EXECUTED ON EVEN DATE
HEREOF.

      

      

      1. Principal
Repayment.   For value received, Borrower hereby promises to
pay to Lender, or to order, the principal amount of $1,000,000, together with
simple interest thereon at the rate of twelve percent (12.0%) per annum
commencing from the Effective Date as that term is defined in the Security
Agreement. Accrued simple interest shall be calculated for the actual days
elapsed on the basis on a 360-day year and shall apply before and after maturity
and judgment.

      

      2. Payment Terms. 
Borrower shall pay the principal and unpaid accrued simple interest in full on
or before July 30, 2008 (“Maturity Date”).

      

      3. Affirmative and Negative
Covenants of the Borrower.  The Borrower hereby covenants and
agrees, as the case may be, as follows:

      

      (a) Event of
Default.  Within five (5) days of any officer of the Borrower
obtaining knowledge of any Event of Default (as defined in Section 4 hereof), if
such Event of Default is then continuing, the Borrower shall furnish to the
Lender a certificate of the chief financial or accounting officer of the
Borrower setting forth the details thereof and the action which the Borrower is
taking or proposes to take with respect thereto.

      

      (b) Performance. 
The Borrower will not, by any voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Borrower, but will at all times in good faith assist in the
carrying out of the provisions of this Note and in the taking of all such action
as may be necessary or appropriate in order to protect the rights of the Lender
of this Note against impairment.

      

      4. Events of
Default.  This Note shall become immediately due and payable upon
any one or more of the following events or occurrences (“Events of
Default”):

      

      (a) if this
Note is not paid on or before the Maturity Date;

      
        
          
          

        

        
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      (b) upon a
“Change in
Control” of the Borrower, meaning: (i) an acquisition of any voting
securities of the Borrower (the “Voting Securities”)
by any “person” (as the term “person” is used for purposes of Section 13(d) or
Section 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”))
immediately after which such person has “beneficial ownership” (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) (“Beneficial
Ownership”) of 30% or more of the combined voting power of the Borrower’s
then outstanding Voting Securities without the approval of the Borrower’s Board
of Directors (the “Board”); (ii) a
merger or consolidation that results in more than 50% of the combined voting
power of the Borrower’s then outstanding Voting Securities of the Borrower or
its successor changing ownership(whether or not approved by the Board); (iii)
the sale of all or substantially all of the Borrower’s assets in one or a series
of related transactions; (iv) approval by the stockLenders of the Borrower of a
plan of complete liquidation of the Borrower; or (v) the individuals
constituting the Board as of the date hereof (the “Incumbent Board”)
cease for any reason to constitute at least one half (1/2 of the members of the
Board; provided,
however, that if the election, or nomination for election by the
Borrower’s stockLenders, of any new director was approved by a vote of the
Incumbent Board, such new director shall be considered a member of the Incumbent
Board.  The Borrower shall give the Lender no less than thirty (30)
days written notice of a potential Change in Control;

      

      (c) if any
final judgment for the payment of money is rendered against the Borrower and the
Borrower does not discharge the same or cause it to be discharged or vacated
within ninety (90) days from the entry thereof, or does not appeal therefrom or
from the order, decree or process upon which or pursuant to which said judgment
was granted, based or entered, and does not secure a stay of execution pending
such appeal within ninety (90)  days after the entry
thereof;

      

      (d) if the
Borrower makes an assignment for the benefit of creditors or if the Borrower
generally does not pay its debts as they become due;

      

      (e) if a
receiver, liquidator or trustee of the Borrower is appointed or if the Borrower
is adjudicated a bankrupt or insolvent, or if any petition for bankruptcy,
reorganization or arrangement pursuant to federal bankruptcy law, or any similar
federal or state law, is filed by or against, consented to, or acquiesced in, by
the Borrower or if any proceeding for the dissolution or liquidation of the
Borrower is instituted; however, if such appointment, adjudication, petition or
proceeding is involuntary and is not consented to by the Borrower, upon the same
not being discharged, stayed or dismissed within sixty (60) days;

      

      (f) if the
Borrower defaults in any material respect under any other secured or unsecured
indebtedness for borrowed money, other than any indebtedness owed to officers,
directors or shareLenders of the Borrower;

      

      (g) except
for specific defaults set forth in this Section 4, if the Borrower defaults in
the observance or performance of any material term, agreement or condition of
the Note; and

      

      (h) if the
Borrower fails to provide the Lender with the written certifications and
evidence referred to in this Note, and fails to remedy such default
within  fifteen (15) days following written notice to the
Borrower:

      

      5. Usury.  In no
event shall the amount of interest paid or agreed to be paid hereunder exceed
the highest lawful rate permissible under applicable law.  Any excess
amount of deemed interest shall be null and void and shall not interfere with or
affect the Borrower’s obligation to repay the principal of and interest on the
Note.

      

      6. Mutilated, Destroyed, Lost
or Stolen Notes.  In case this Note shall become mutilated or
defaced, or be destroyed, lost or stolen, the Borrower shall execute and deliver
a new note of like principal amount in exchange and substitution for the
mutilated or defaced Note, or in lieu of and in substitution for the destroyed,
lost or stolen Note. In the case of a mutilated or defaced Note, the Lender
shall surrender such Note to the Borrower.  In the case of any
destroyed, lost or stolen Note, the Lender shall furnish to the Borrower: (a)
evidence to its satisfaction of the destruction, loss or theft of such Note and
(b) such security or indemnity as may be reasonably required by the Borrower to
hold the Borrower harmless.

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      7. Waiver of Demand,
Presentment, etc.  The Borrower hereby expressly waives demand and
presentment for payment, notice of nonpayment, protest, notice of protest,
notice of dishonor, notice of acceleration or intent to accelerate, bringing of
suit and diligence in taking any action to collect amounts called for hereunder
and shall be directly and primarily liable for the payment of all sums owing and
to be owing hereunder, regardless of and without any notice, diligence, act or
omission as or with respect to the collection of any amount called for
hereunder.

      

      8. Payment.

      

      (a) Except as
otherwise provided for herein, all payments with respect to this Note shall be
made in lawful currency of the United States of America by check or wire
transfer of immediately available funds, at the option of the Lender, at the
principal office of the Lender or such other place or places or designated
accounts as may be reasonably specified by the Lender of this Note in a written
notice to the Borrower at least one (1) business day prior to payment. Payment
shall be credited first to the accrued interest then due and payable and the
remainder applied to principal.

      

      (b) This Note
and all accrued interest hereunder may be prepaid by the Borrower without
penalty on five (5) days written notice to the Lender and in the manner called
for in Section 8(a) hereof (it being agreed by the Borrower that if the Borrower
elects to prepay this Note in accordance with this Section 8(b), the Borrower
shall simultaneously prepay all principal and accrued interest under all of the
Notes in the Series in the same manner and at the same time).

      

      9. Security
Interest. 
This Note is secured by a security interest in all of the assets of the Borrower
in accordance with a separate security agreement (the “Security Agreement”)
of even date herewith between the Borrower and the Lender.  The
security interest granted in the Security Agreement shall be junior only to the
Borrower’s existing Senior Secured Notes. In case of an Event of Default (as
defined in the Security Agreement), the Lender shall have the rights set forth
in the Security Agreement.

      

      10. Assignment.  The
rights and obligations of the Borrower and the Lender of this Note shall be
binding upon, and inure to the benefit of, the permitted successors, assigns,
heirs, administrators and transferees of the parties hereto.

      

      11. Waiver and
Amendment.  Any provision of this Note, including, without
limitation, the due date hereof, and the observance of any term hereof, may be
amended, waived or modified (either generally or in a particular instance and
either retroactively or prospectively) only with the written consent of the
Borrower and the Lender

      

      12. Notices.  Any
notice, request or other communication required or permitted hereunder shall be
in writing and shall be deemed to have been duly given if personally delivered
or mailed by registered or certified mail, postage prepaid, or delivered by
facsimile transmission, to the Borrower at the address or facsimile number set
forth herein or to the Lender at its address or facsimile number set forth in
the records of the Borrower.  Any party hereto may by notice so given
change its address for future notice hereunder.  Notice shall
conclusively be deemed to have been given when personally delivered or when
deposited in the mail in the manner set forth above and shall be deemed to have
been received when delivered or, if notice is given by facsimile transmission,
when delivered with confirmation of receipt.

      
        
          
          

        

        
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      13. Governing Law; Jurisdiction;
Waiver of Jury Trial.

      

      (a) THIS NOTE
SHALL BE ENFORCED, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF CALIFORNIA APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY
WITHIN SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF
LAW.

      

      (b) THE
BORROWER HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE STATE OF CALIFORNIA
OR UNITED STATES FEDERAL COURTS LOCATED IN SAN DIEGO, CALIFORNIA WITH RESPECT TO
ANY DISPUTE ARISING UNDER THIS NOTE.  THE BORROWER IRREVOCABLY WAIVES
THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR
PROCEEDING.  THE BORROWER FURTHER AGREES THAT SERVICE OF PROCESS UPON
IT MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE
OF PROCESS UPON THE BORROWER IN ANY SUCH SUIT OR PROCEEDING.  NOTHING
HEREIN SHALL AFFECT THE LENDER’S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW.  THE BORROWER AGREES THAT A FINAL NON-APPEALABLE
JUDGMENT IN ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED
IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL
MANNER.

      

      (c) THE
BORROWER 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 WITH OR ARISING OUT OF THIS NOTE.

      

      14. Severability. 
If one or more provisions of this Note are held to be unenforceable under
applicable law, such provisions shall be excluded from this Note, and the
balance of this Note shall be interpreted as if such provisions were so excluded
and shall be enforceable in accordance with its terms.

      

      15. Headings. 
Section headings in this Note are for convenience only, and shall not be used in
the construction of this Note.

      

      IN WITNESS WHEREOF, the
Borrower has caused this Note to be issued as of the date first above
written.

      
        
          	 	ETHOS ENVIRONMENTAL,
      INC.	 
	 	 	 	 
	
                   

                	
                  By

                	 	 
	 	 	Name:	 
	 	 	Title:	 
	 	 	 	 

        

      

      
        
           

        

        
          4exhibit10-2ethos.htm

     

    
      

      

    

    
      SECURITY
AGREEMENT

       

      This
Security Agreement (the “Agreement”) is
entered into on this 26th day of
March, 2008, with an effective date of January 30, 2008 (the “Effective Date”),
by and between Ethos Environmental, Inc., a Nevada corporation (the “Debtor”), in favor of
Patricia Applegate (the “Secured
Party”).

       

      RECITALS

       

      The
Secured Party and Debtor are parties to a Secured Promissory Note (the “Promissory Note”)
dated even herewith, whereby Secured Party loaned the Debtor
$1,000,000.00.  The parties intend that the Debtor’s obligations to
repay the Notes be secured by all of the assets of the Debtor.

       

      AGREEMENT

      

      In
consideration of the loan to Debtor, the above stated Recitals and for other
good and valuable consideration, the Debtor hereby agrees with the Secured Party
as follows:

       

      1.           Grant of Security
Interest.

       

      (a)           To
secure the Debtor’s full and timely performance of all of the Debtor’s
obligations and liabilities to the Secured Party pursuant to the Promissory Note
(including, without limitation, Debtor’s to timely pay the principal amount of,
and interest on, the Promissory Note and any other amounts payable with respect
to the Promissory Note) (the “Obligations”), hereby
grants to the Secured Party a lien on and security interest (the “Security Interest”)
in, all of the Debtor’s right, title and interest in and to its personal
property and assets (both tangible and intangible), including, without
limitation, the following, whether now owned or hereafter acquired and wherever
located: (a) all Receivables; (b) all Equipment; (c) all Fixtures; (d) all
General Intangibles; (e) all Inventory; (f) all Investment Property; (g) all
Deposit Accounts; (h) all Cash;  (i) all other Goods of the Debtor;
(j) all Intellectual Property and (k) all Proceeds of each of the foregoing and
all accessions to, and replacements for, each of the foregoing (collectively,
the “Collateral”). The
Security Interest shall be a first and prior interest in all of the
Collateral.

       

      (b)           The
following terms shall have the following meanings for purposes of this
Agreement:

       

      “Account” means any
“account,” as such term is defined in the UCC (as defined below), now owned or
hereafter acquired by Debtor or in which Debtor now holds or hereafter acquires
any interest and, in any event, shall include, without limitation, all accounts
receivable, book debts, rights to payment and other forms of obligations (other
than forms of obligations evidenced by Chattel Paper, Documents or Instruments)
now owned or hereafter received or acquired by or belonging or owing to Debtor
whether or not arising out of goods or software sold or services rendered by
Debtor or from any other transaction, whether or not the same involves the sale
of goods or services by Debtor and all of Debtor’s rights in, to and under all
purchase orders or receipts now owned or hereafter acquired by it for goods or
services, and all of Debtor’s rights to any goods represented by any of the
foregoing, and all monies due or to become due to Debtor under all purchase
orders and contracts for the sale of goods or the performance of services or
both by Debtor or in connection with any other transaction (whether or not yet
earned by performance on the part of Debtor), now in existence or hereafter
occurring, including, without limitation, the right to receive the proceeds of
said purchase orders and contracts, and all collateral security and guarantees
of any kind given by any Person with respect to any of the
foregoing.

      
        
          
          

        

        
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      “Cash” means all cash,
money, currency, and liquid funds, wherever held, in which Debtor now or
hereafter acquires any right, title, or interest.

       

      “Chattel Paper” means
any “chattel paper,” as such term is defined in the UCC, now owned or hereafter
acquired by Debtor or in which Debtor now holds or hereafter acquires any
interest.

       

      “Deposit Accounts”
means any “deposit accounts,” as such term is defined in the UCC, and includes
any checking account, savings account, or certificate of deposit, now owned or
hereafter acquired by Debtor or in which Debtor now holds or hereafter acquires
any interest.

       

      “Documents” means any
“documents,” as such term is defined in the UCC, now owned or hereafter acquired
by Debtor or in which Debtor now holds or hereafter acquires any
interest.

       

      “Equipment” means any
“equipment,” as such term is defined in the UCC, now owned or hereafter acquired
by Debtor or in which Debtor now holds or hereafter acquires any interest and
any and all additions, upgrades, substitutions and replacements of any of the
foregoing, together with all attachments, components, parts, equipment and
accessories installed thereon or affixed thereto, now owned or hereafter
acquired by Debtor or in which Debtor now holds or hereafter acquires
interest.

       

      “Fixtures” means any
“fixtures,” as such term is defined in the UCC, together with all right, title
and interest of Debtor in and to all extensions, improvements, betterments,
accessions, renewals, substitutes, and replacements of, and all additions and
appurtenances to any of the foregoing property, and all conversions of the
security constituted thereby, immediately upon any acquisition or release
thereof or any such conversion, as the case may be, now owned or hereafter
acquired by Debtor or in which Debtor now holds or hereafter acquires any
interest.

       

      “General Intangibles”
means any “general intangibles,” as such term is defined in the UCC, now owned
or hereafter acquired by Debtor or in which Debtor now holds or hereafter
acquires any interest and, in any event, shall include, without limitation, all
right, title and interest that Debtor may now or hereafter have in or under any
contracts, rights to payment, payment intangibles, confidential information,
interests in partnerships, limited liability companies, corporations, joint
ventures and other business associations, permits, goodwill, claims in or under
insurance policies, including unearned premiums and premium adjustments,
uncertificated securities, deposit, checking and other bank accounts, but shall
not include any Intellectual Property.

       

      “Goods” means any
“goods,” as such term is defined in the UCC, now owned or hereafter acquired by
Debtor or in which Debtor now holds or hereafter acquires any
interest.

       

      “Instruments” means
any “instrument,” as such term is defined in the UCC, now owned or hereafter
acquired by Debtor or in which Debtor now holds or hereafter acquires any
interest.

       

      “Intellectual
Property” means, collectively, all rights, priorities and privileges of
the Debtor relating to intellectual property, whether arising under United
States, multinational or foreign laws or otherwise, including copyrights,
copyright licenses, inventions, patents, patent licenses, trademarks, trademark
licenses and trade secrets (including customer lists), domain names, Web sites
and know-how, and all rights to sue at law or in equity for past, present and
future infringement or impairment of Intellectual Property (including the right
to receive all proceeds and damages therefrom), rights to receive tax refunds
and other payments and rights of indemnification.  Set forth on
Exhibit C to this Agreement is a true and correct listing of all (i) patents
(including title, issues date and number); (ii) trademark and service mark
registrations (including mark, registration date and registration number) and
pending applications (including mark, filing date and series number); (iii)
unregistered trademarks, service marks and tradenames (including mark and/or
name, and date of first use); (iv) copyright registrations or foreign
equivalents (including title, registration date and number); and (v)
unregistered works of authorship (including title and date of
creation.

      
        
          
          

        

        
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       “Inventory” means any
“inventory,” as such term is defined in the UCC, now owned or hereafter acquired
by Debtor or in which Debtor now holds or hereafter acquires any interest, and,
in any event, shall include, without limitation, all inventory, goods and other
personal property that are held by or on behalf of Debtor for sale or lease or
are furnished or are to be furnished under a contract of service or that
constitute raw materials, work in process or materials used or consumed or to be
used or consumed in Debtor’s business, or the processing, packaging, promotion,
delivery or shipping of the same, and all finished goods, whether or not the
same is in transit or in the constructive, actual or exclusive possession of
Debtor or is held by others for Debtor’s account, including, without limitation,
all goods covered by purchase orders and contracts with suppliers and all goods
billed and held by suppliers and all such property that may be in the possession
or custody of any carriers, forwarding agents, truckers, warehousemen, vendors,
selling agents or other Persons.

       

      “Investment Property”
means any “investment property,” as such term is defined in the UCC, and
includes certificated securities, uncertificated securities, money market funds
and U.S. Treasury bills or notes, now owned or hereafter acquired by Debtor or
in which Debtor now holds or hereafter acquires any interest.

       

       “Lien” means any
mortgage, deed of trust, pledge, hypothecation, assignment for security,
security interest, encumbrance, levy, lien or charge of any kind, whether
voluntarily incurred or arising by operation of law or otherwise, against any
property, any conditional sale or other title retention agreement, any lease in
the nature of a security interest, and the filing of any financing statement
(other than a precautionary financing statement with respect to a lease that is
not in the nature of a security interest) under the UCC or comparable law of any
jurisdiction.

       

      “Person” means any
individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, limited liability
company, institution, public benefit corporation, other entity or government
(whether federal, state, county, city, municipal, local, foreign, or otherwise,
including any instrumentality, division, agency, body or department
thereof).

       

      “Proceeds” means
“proceeds,” as such term is defined in the UCC and, in any event, shall include,
without limitation, (a) any and all Accounts, Chattel Paper, Instruments, cash
or other forms of money or currency or other proceeds payable to Debtor from
time to time in respect of the Collateral, (b) any and all proceeds of any
insurance, indemnity, warranty or guaranty payable to Debtor from time to time
with respect to any of the Collateral, (c) any and all payments (in any form
whatsoever) made or due and payable to Debtor from time to time in connection
with any requisition, confiscation, condemnation, seizure or forfeiture of all
or any part of the Collateral by any governmental authority (or any Person
acting under color of governmental authority), (d) the proceeds, damages, or
recovery based on any claim of Debtor against third parties (i) for past,
present or future infringement of any copyright, patent or patent license or
(ii) for past, present or future infringement or dilution of any trademark or
trademark license or for injury to the goodwill associated with any trademark,
trademark registration or trademark licensed under any trademark license and (e)
any and all other amounts from time to time paid or payable under or in
connection with any of the Collateral.

       

       “Receivables” means
all of Debtor’s Accounts, Instruments, Documents, Chattel Paper, Supporting
Obligations, and letters of credit and Letter of Credit Rights.

       

      “Supporting
Obligations” means any “supporting obligations,” as such term is defined
in the UCC, now owned or hereafter acquired by Debtor or in which Debtor now
holds or hereafter acquires any interest.

      
        
          
          

        

        
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      “UCC” means the
Uniform Commercial Code as the same may, from time to time, be in effect in the
State of Nevada; provided, that in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of, or remedies with respect to, Secured
Party’s Lien on any Collateral is governed by the Uniform Commercial Code as
enacted and in effect in a jurisdiction other than the State of Nevada, the term
“UCC” shall mean the Uniform Commercial Code as enacted and in effect, from time
to time, in such other jurisdiction solely for purposes of the provisions
thereof relating to such attachment, perfection, priority or remedies and for
purposes of definitions related to such provisions.  Unless otherwise
defined herein, terms that are defined in the UCC and used herein shall have the
meanings given to them in the UCC.

      

      2.           Representations and
Warranties.  The Debtor hereby represents and warrants to the
Secured Party that:

       

      (a)           Ownership of
Collateral.  Except for the Security Interest granted to the
Secured Parties pursuant to this Agreement, the Debtor has rights in or the
power to transfer the Collateral free and clear of any adverse lien, security
interest or encumbrance except as created by this Security Interest. No
financing statements covering any Collateral or any proceeds thereof are on file
in any public office (other than filings, if any, listing Secured Party as the
secured party).

       

      (b)           Valid Security
Interest.  The Security Interest granted pursuant to this
Agreement will constitute a valid and continuing perfected security interest in
favor of the Secured Party in the Collateral for which perfection is governed by
the UCC.

       

      (c)           Organization and Good
Standing.  The Debtor has been duly incorporated, and is
validly existing and in good standing, under the laws of the State of
Nevada.

       

      (d)           Location, State of
Incorporation and Name of Debtor. Debtor’s chief executive office is
located at 6800 Gateway Park Drive, San Diego, CA 92154. Debtor’s state of
incorporation is Nevada and the exact legal name of the organization is as set
forth in the first paragraph of this Agreement.

      

      3.           [INTENTIONALLY
OMITTED]

      

      4.           Covenants.  The
Debtor covenants and agrees with the Secured Party that, from and after the date
of this Agreement until the Obligations are paid in full:

      

      (a)           Other Liens. Except
for the Security Interest, the Debtor has rights in or the power to transfer the
Collateral and its title and will be able to do so hereafter free from any
adverse lien, security interest or encumbrance (other than purchase money
security interests that will be discharged upon Debtor’s payment of the purchase
price for the applicable property), and the Debtor will defend the Collateral
against the claims and demands of all persons at any time claiming the same or
any interest therein.

       

      (b)           Further
Documentation.  At any time and from time to time, upon the
writ­ten request of a Secured Party, and at the sole expense of the Debtor,
the Debtor will promptly and duly authenticate and deliver such further
instruments and documents and take such further action as the Secured Party may
reasonably request for the purpose of obtaining or preserving the full benefits
of this Agreement and of the rights and powers herein granted (with the
exception of filing any financing or continuation statements under the UCC in
effect with respect to the Liens created hereby, which shall be the
responsibility of the Secured Party), including, with­out limitation, filing
any financing or continuation statements under the UCC in effect with respect to
the Liens created hereby, obtaining acknowledgment (as reasonably acceptable to
the Secured Party) of any bailee having possession of any Collateral that it
holds the Collateral for the benefit of the Secured Party, and obtaining control
of any Investment Property or Deposit Accounts.  The Debtor also
hereby authorizes the Secured Party file any such financing or continuation
statement without the authentication of the Debtor to the extent permitted by
applicable law, and to describe the collateral covered by any such statements as
“all assets of the Debtor,” “all personal property of the Debtor” or words of
similar effect. A reproduction of this Agreement shall be sufficient as a
financing statement (or as an exhibit to a financing statement on form UCC-1)
for filing by the Secured Party any jurisdiction.

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

      (c)           Indemnification.  The
Debtor agrees to defend, indemnify and hold harmless the Secured Party against
any and all liabilities, costs and expenses (including, without limitation,
legal fees and expenses) (“Liabilities”):
(i) with respect to, or resulting from, any delay in paying, any and all
excise, sales or other taxes which may be payable or determined to be payable
with respect to any of the Collateral, (ii) with respect to, or resulting
from, any delay in complying with any law, rule, regu­lation or order of any
governmental authority applicable to any of the Collateral or (iii) in
connection with any of the transactions contemplated by this
Agreement.  However, Debtor shall have no obligation hereunder to
indemnify or hold harmless the Secured Party for any Liabilities that have
arisen as a result of the Secured Party’s negligence, willful misconduct or
gross negligence.

       

      (d)           Maintenance of
Records.  The Debtor will keep and maintain at its own expense
complete and satisfactory records of the Collateral.

       

      (e)           Inspection
Rights.  The Secured Party shall have full access during normal
business hours, and upon reasonable prior notice, to all the books,
corre­spondence and other records of the Debtor relating to the
Collateral.  The Secured Party or their repre­sentatives may
examine such records and make photocopies or otherwise take extracts from such
records.  The Debtor agrees to render to the Secured Party, at the
Debtor’s expense, such clerical and other assistance as may be reasonably
requested with regard to the exercise of its rights pursuant to this
paragraph.

       

      (f)           Compliance with Laws,
etc.  The Debtor will comply in all material respects with all
laws, rules, regulations and orders of any governmental authority applicable to
any part of the Collateral or to the operation of the Debtor’s business; provided, however, that the
Debtor may contest any such law, rule, regulation or order in any reasonable
manner which does not, in the reasonable opinion of the Debtor, adversely affect
the Secured Party’ rights or the priority of its liens on the
Collateral.

       

      (g)           Payment of
Obligations.  The Debtor will pay promptly when due all taxes,
assessments and governmental charges or levies imposed upon the Collateral or
with respect to any its income or profits derived from the Collateral, as well
as all claims of any kind (including, without limitation, claims for labor,
materials and supplies) against or with respect to the Collateral, except that
no such charge need be paid if (i) the validity of such charge is being
contested in good faith by appropriate pro­ceedings, (ii) such
proceedings do not involve any material danger of the sale, forfeiture or loss
of any of the Collateral or any interest in the Collateral and (iii) such
charge is adequately reserved against on the Debtor’s books in accordance with
generally accepted accounting principles.

       

      (h)           Limitation on Liens on
Collateral.  The Debtor will not create, incur or permit to
exist, will defend the Collateral against, and will take such other action as is
necessary to remove, any lien or claim on or to the Collateral, other than the
Security Interest, and will defend the right, title and interest of the Secured
Parties in and to any of the Collateral against the claims and demands of all
other persons.

       

      (i)           Limitations on Dispositions
of Collateral.  The Debtor will not sell, transfer, lease, or
otherwise dispose of any of the Collateral, or attempt, offer or contract to do
so; provided,
however that
Debtor will be allowed to grant licenses to its products and related
documentation in the ordinary course of business and to establish or provide for
escrows of related intellectual property in connection therewith.

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

      (j)           Further Identification of
Collateral.  The Debtor will furnish to the Secured Party from
time to time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as the
Secured Party may reasonably request, all in reasonable detail.  If
Debtor shall obtain rights to any new Intellectual Property, the provisions of
this Agreement shall automatically apply thereto.  Debtor shall give
prompt notice in writing to Secured Party with respect to any such new
Intellectual Property, or renewal or extension of any patent, trademark or
copyright registration.

       

      (k)           Notice of Change of State of
Incorporation.  The Debtor will provide written notice to the
Secured Party at least 30 days prior to a change of the Debtor’s state of
incorporation. The Debtor will provide written notice to the Secured Party at
least 30 days prior to a change in the location of its chief executive
office.

       

      (l)           No
Merger.  The Debtor will not merge or consolidate into or
transfer any of the Collateral to any other Person without the prior written
consent of the Secured Party.

       

      (m)           Change of Debtor’s
Name.  The Debtor will provide written notice to the Secured
Party at least 20 days prior to a change in the Debtor’s name.

       

      5.           Event of Default; Secured
Party’s Appointment as Attorney-in-Fact.

       

      (a)           Event of
Default.  For purposes of this Agreement, the occurrence of any
one of the following events (each, an “Event of Default”)
shall constitute a default hereunder and under the Note:

       

      (i)           The
Debtor’s failure to pay or discharge the Obligations in full in accordance with
the terms of the Note;

       

      (ii)           A
material breach of a representation or warranty made by the Debtor under the
Promissory Note as of the date thereof;

       

      (iii)           The
insolvency of the Debtor, the commission of any act of bankruptcy by the Debtor,
the execution by the Debtor of a general assignment for the benefit of
creditors, the filing by or against the Debtor of a petition in bankruptcy or
any petition for relief under the federal bankruptcy act or the continuation of
such petition without dismissal for a period of ninety (90) days or more, or the
appointment of a receiver or trustee to take possession of the property or
assets of the Debtor; or

       

      (iv)           If
any amendment to or termination of a financing statement naming the Debtor as
debtor and the Secured Party as secured party, or any correction statement with
respect thereto, is filed in any jurisdiction by any party other than the
Secured Party or their counsel, without the prior written consent of the Secured
Party.

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

      (b)           Powers.  The
Debtor hereby appoints the Secured Party and any officer or agent of the Secured
Party, with full power of substitution, as its attorney-in-fact with full
irrevocable power and authority in the place of the Debtor and in the name of
the Debtor or its own name, from time to time in the Secured Party’ discretion
so long as an Event of Default has occurred and is continuing, for the purpose
of carrying out the terms of this Agreement, to take any appropriate action and
to authenticate any instrument which may be necessary or desirable to accomplish
the purposes of this Agreement.  Without limiting the foregoing, so
long as an Event of Default has occurred and is continuing, the Secured Party
shall have the right, without notice to, or the consent of, the Debtor, to do
any of the following on the Debtor’s behalf:

       

      (i)           to
pay or discharge any taxes or liens levied or placed on or threatened against
the Collateral;

       

      (ii)           to
direct any party liable for any payment under any of the Collateral to make
payment of any and all amounts due or to become due thereunder directly to the
Secured Party or as the Secured Party directs;

       

      (iii)           to
ask for or demand, collect, and receive payment of and receipt for, any payments
due or to become due at any time in respect of or arising out of any
Collateral;

       

      (iv)           to
commence and prosecute any suits, actions or proceedings at law or in equity in
any court of competent jurisdiction to enforce any right in respect of any
Collateral;

       

      (v)           to
defend any suit, action or proceeding brought against the Debtor with respect to
any Collateral;

       

      (vi)           to
settle, compromise or adjust any suit, action or proceeding described in
subsection (v) above and to give such discharges or releases in connection
therewith as the Secured Party may deem appropriate;

       

      (vii)           to
assign any patent right included in the Collateral of Debtor (along with the
goodwill of the business to which any such patent right pertains), throughout
the world for such term or terms, on such conditions, and in such manner, as the
Secured Party shall in its sole discretion determine; and

       

      (viii)           generally,
to sell, transfer, pledge and make any agreement with respect to or otherwise
deal with any of the Collateral and to take, at the Secured Party’s option and
the Debtor’s expense, any actions which the Secured Party deem necessary to
protect, preserve or realize upon the Collateral and the Secured Party’s liens
on the Collateral and to carry out the intent of this Agreement, in each case to
the same extent as if the Secured Party were the absolute owner of the
Collateral for all purposes.

       

      The
Debtor hereby ratifies whatever actions the Secured Party shall lawfully do or
cause to be done in accordance with this Section 5.  This power of
attorney shall be a power coupled with an interest and shall be
irrevocable.

       

      (c)           No Duty on Secured Party’s
Part.  The powers conferred on the Secured Party by this
Section 5 are solely to protect the Secured Party’s interests in the Collateral
and shall not impose any duty upon it to exercise any such
powers.  The Secured Party shall be accountable only for amounts that
it actually receives as a result of the exercise of such powers, and neither the
Secured Party nor any of their officers, directors, employees or agents shall,
in the absence of negligence, willful misconduct or gross negligence, be
responsible to the Debtor for any act or failure to act pursuant to this Section
5.

       

      6.           Performance by Secured Party
Debtor’s Obligations.  If the Debtor fails to per­form or
comply with any of its agreements or covenants contained in this Agreement and
the Secured Party perform or comply, or otherwise cause performance or
compliance, with such agreement or covenant in accordance with the terms of this
Agreement, then the reasonable expenses of the Secured Party incurred in
connection with such performance or compliance shall be payable by the Debtor to
the Secured Party on demand and shall constitute Obligations secured by this
Agreement.

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

      7.           Remedies.  If
an Event of Default has occurred and is continuing, the Secured Party may
exercise, in addition to all other rights and remedies granted to it in this
Agreement and in any other instrument or agreement relating to the Obligations,
all rights and remedies of a secured party under the UCC.  Without
limiting the foregoing, the Secured Party, without demand of performance or
other demand, present­ment, protest, advertisement or notice of any kind
(except any notice required by law) to or upon the Debtor or any other person
(all of which demands, defenses, advertisements and notices are hereby waived),
may in such circumstances collect, receive, appropriate and realize upon any or
all of the Collateral, and/or may sell, lease, assign, give an option or options
to purchase, or otherwise dispose of and deliver any or all of the Collateral
(or contract to do any of the foregoing), in one or more parcels at a public or
private sale or sales, at any exchange, broker’s board or office of any Secured
Party or elsewhere upon such terms and conditions as the Secured Party may deem
advisable, for cash or on credit or for future delivery without assumption of
any credit risk.  The Secured Party shall have the right upon any such
public sale or sales and, to the extent permitted by law, upon any such private
sale or sales, to purchase all or any part of the Collateral so sold, free of
any right or equity of redemption in the Debtor, which right or equity is hereby
waived or released. To the extent permitted by applicable law, the Debtor waives
all claims, damages and demands it may acquire against the Secured Party arising
out of the exercise by the Secured Party of any of its rights
hereunder.  If any notice of a proposed sale or other disposition of
Collateral shall be required by law, such notice shall be deemed reasonable and
proper if given at least five (5) days before such sale or other
disposition.  The Debtor shall remain liable for any deficiency if the
proceeds of any sale or other disposition of the Collateral are insufficient to
pay the Obligations and the fees and disbursements of any attorneys employed by
the Secured Party to collect such deficiency.

       

      8.           Limitation on Duties
Regarding Preservation of Collateral.  The Secured Party’s sole
duty with respect to the custody, safekeeping and preservation of the
Collateral, under Sec­tion 9-207 of the UCC or otherwise, shall be to
deal with it in the same manner as the Secured Party deal with similar property
for their own account.  Neither the Secured Party nor any of their
directors, officers, employees or agents shall be liable for failure to demand,
collect or realize upon all or any part of the Collateral or for any delay in
doing so or shall be under any obligation to sell or otherwise dispose of any
Collateral upon the request of the Debtor or otherwise.

       

      9.           Powers Coupled with an
Interest.  All authorizations and agencies contained in this
Agreement with respect to the Collateral are irrevocable and are powers coupled
with an interest.

       

      10.         No Waiver; Cumulative
Remedies.  The Secured Party shall not by any act (except by a
written instrument pursuant to Section 12(f) hereof), delay, indulgence,
omission or otherwise be deemed to have waived any right or remedy hereunder or
to have acquiesced in any default under the Promissory Note or in any breach of
any of the terms and conditions of this Agreement.  No failure to
exer­cise, nor any delay in exercising, on the part of the Secured Party,
any right, power or privilege hereunder shall operate as a waiver
thereof.  No single or partial exercise of any right, power or
privilege hereunder shall preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.  A waiver by the
Secured Party of any right or remedy under this Agreement on any one occasion
shall not be construed as a bar to any right or remedy which the Secured Party
would otherwise have on any subsequent occasion.  The rights and
remedies provided in this Agreement are cumulative, may be exercised singly or
concurrently and are not exclusive of any rights or remedies provided by
law.

       

      11.           Termination of Security
Interest.  Upon satisfaction of the Debtor’s obligations
pursuant to the Note, or conversion of the Promissory Note into shares of the
Company’s equity securities pursuant to the terms of the Promissory Note, the
security interest granted herein shall terminate and all rights to the
Collateral shall revert to the Debtor.  Upon any such termination, the
Secured Party shall authenticate and deliver to the Debtor such documents as the
Debtor may reasonably request to evidence such termination.

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

      12.           Miscellaneous.

       

      (a)           Successors and
Assigns.  The terms and conditions of this Agreement shall be
binding upon the Debtor and its successors and assigns, as well as all persons
who become bound as a debtor to this Agreement and inure to the benefit of the
Secured Party and its successors and assigns.  Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the Party hereto or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.

       

      (b)           Governing
Law.  This Agreement and all acts and transactions pursuant
hereto and the rights and obligations of the Party hereto shall be governed,
construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of
law.

       

      (c)           Counterparts.  This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original and all of which together shall constitute one
instrument.

       

      (d)           Titles and
Subtitles.  The titles and subtitles used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.

       

      (e)           Notices.  Any
notice required or permitted by this Agreement shall be in writing and shall be
deemed sufficient upon receipt, when delivered personally or by courier,
overnight delivery service or confirmed facsimile, or 48 hours after being
deposited in the U.S. mail as certified or registered mail with postage prepaid,
if such notice is addressed to the party to be notified at such party’s address
or facsimile number as set forth below or as subsequently modified by written
notice.

       

      (f)           Amendments and
Waivers.  Any term of this Agreement may be amended with the
written consent of the Party or their respective successors and
assigns.  Any amendment or waiver effected in accordance with this
Section 12(f) shall be binding upon the Party and their respective
successors and assigns.

       

      (g)           Severability.  If
one or more provisions of this Agreement are held to be unenforceable under
applicable law, the Parties agree to renegotiate such provision in good faith,
in order to maintain the economic position enjoyed by each party as close as
possible to that under the provision rendered unenforceable.  In the
event that the Parties cannot reach a mutually agreeable and enforceable
replacement for such provision, then (i) such provision shall be excluded
from this Agreement, (ii) the balance of the Agreement shall be interpreted
as if such provision were so excluded and (iii) the balance of the
Agreement shall be enforceable in accordance with its terms.

       

      (h)           Entire
Agreement.  This Agreement, and the documents referred to
herein constitute the entire agreement between the Parties hereto pertaining to
the subject matter hereof, and any and all other written or oral agreements
existing between the Parties hereto concerning such subject matter are expressly
canceled.

      
         

      

       

      IN WITNESS WHEREOF, the Debtor
and Secured Party have caused this Agreement to be duly executed and delivered
as of the date first above written.

      
        
          	 	DEBTOR:	 
	 	 	 
	 	ETHOS
      ENVIRONMENTAL, INC.	 
	 	 	 	 
	
                   

                	
                  By:
      

                	 	 
	 	 	Enrique
      de Vilmorin, President & CEO	 
	 	 	 	 
	 	

                  Address:

                	

                  6800
      Gateway Park Drive

                	 
	 	 	

                  San
      Diego, CA 92154

                	 
	 	 	 	 
	 	SECURED
  PARTY:
	 	 
	 	Patricia
      Applegate
	 	 	 
	 	By:	 	 
	 	Its:	 	 
	 	 	 	 
	 	

                  Address:

                	 	 

        

      

       

      
        
           

        

        
          9

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