EXHIBIT 10.10.BN


 


SECURITY AGREEMENT


 


This Security
Agreement (the “Agreement”) is entered into as of this 20th day of
May, 2004 by and between the Anthony M. Frank Keogh Plan UTA Charles Schwab
& Co., Inc. as the secured party hereunder, ELECTROPURE, INC., a California
corporation, and its subsidiary, MICRO IMAGING TECHNOLOGY, a Nevada corporation
(collectively referred to herein as “ELTP”), as the company granting the
security interest hereunder, with reference to the following facts:


 


A.                                   On
the dates indicated below, Secured Party has made various loans to ELTP in the
amounts listed below.  For each such
loan, the parties have entered into 8% Term Notes upon terms and conditions set
forth in each respective Term Note (collectively, the “Notes”).


 


THE
NOTES:


 


	
  ORIGINAL

  LOAN DATE

  	
   

  	
  ORIGINAL

  LOAN

  AMOUNT

  	
   

  	
  ORIGINAL

  MATURITY

  DATE

  	
   

  	
  AMENDED

  MATURITY

  DATE

  	
   

  	
  PRINCIPAL

  AND INTEREST

  DUE AS AT

  04/30/04

  	
   

  
	
  01/17/01

  	
   

  	
  600,000

  	
   

  	
  01/17/04

  	
   

  	
  01/17/06

  	
   

  	
  604,000

  	
   

  
	
  12/02/02

  	
   

  	
  50,000

  	
   

  	
  12/02/03

  	
   

  	
  12/02/04

  	
   

  	
  55,333

  	
   

  
	
  12/18/02

  	
   

  	
  100,000

  	
  *

  	
  12/18/03

  	
   

  	
  12/18/04

  	
   

  	
  6,094

  	
   

  
	
  01/09/03

  	
   

  	
  100,000

  	
  *

  	
  01/09/04

  	
   

  	
  01/09/05

  	
   

  	
  5,582

  	
   

  
	
  01/23/03

  	
   

  	
  100,000

  	
   

  	
  01/23/04

  	
   

  	
  01/23/05

  	
   

  	
  110,000

  	
   

  
	
  02/23/03

  	
   

  	
  100,000

  	
   

  	
  02/23/04

  	
   

  	
  02/23/05

  	
   

  	
  109,333

  	
   

  
	
  11/04/03

  	
   

  	
  100,000

  	
   

  	
  11/04/04

  	
   

  	
  N/A

  	
   

  	
  103,333

  	
   

  
	
   

  	
   

  	
  950,000

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  993,675

  	
   

  



 


B.                                     Electropure,
Inc. is the parent company and majority owner of Micro Imaging Technology, the
owner of record of the Collateral (as defined below).


 


C.                                     In
order to induce Secured Party to extend the payment dates for the Notes, ELTP
desires to grant to Secured Party a security interest in the Collateral upon
the terms and subject to the conditions hereinafter provided.


 


Now, therefore, in
consideration of the foregoing recitals of facts and the mutual agreements set
forth below, the parties hereto agree as follows:


 


SECTION 1  - 
DEFINITIONS


 


1.1                                 “Collateral”
means all of that property identified on Exhibit “A” attached hereto and all
proceeds arising out of the sale, lease, license, exchange, collection or other
disposition thereof.


 


1.2                                 “Secured
Party Indebtedness” means all indebtedness and obligations of ELTP
to the Secured Party described or referred to in Section 3.


 


1

















 


1.3                                 “Security
Interest” means that security interest in the Collateral granted to
the Secured Party pursuant to Section 2.


 


SECTION 2 – GRANT OF
SECURITY INTEREST


 


To secure the
payment of all Secured Party Indebtedness and the due and punctual performance
by ELTP of all the obligations described in Section 3, ELTP hereby creates,
grants and assigns to the Secured Party a continuing security interest in and
to all the Collateral.


 


SECTION 3 –
OBLIGATIONS SECURED


 


3.1                                 The
performance and payment of the Notes.


 


3.2                                 Payment
of all amounts spent by the Secured Party to preserve or to protect the
Collateral, including, but not limited to, taxes, maintenance fees and
reasonable attorneys’ fees.


 


SECTION 4 –
COLLATERAL COVENANTS


 


ELTP hereby represents and
warrants to, and agrees with, the Secured Party, that:


 


4.1                                 It
will properly maintain and care for the Collateral, including the payment of
any maintenance fee required to continue in force any of the Collateral, and
defend the Collateral against any adverse lien, charge, encumbrance, claim or
demand;


 


4.2                                 It
will notify the Secured Party in writing prior to any change in its business
office or the office or offices where books and records concerning the
Collateral are kept;


 


4.3                                 Except
for the security interest granted above and security interests granted
concurrently herewith by separate agreement to (a) Anthony M. Frank, an
individual, and (b) the Anthony M. Frank Defined Benefit Pension Plan, UA DTD
12/01/98, FBO Shirley M. Pegg, ELTP has not granted and will not grant any
security interest in any of the Collateral to any person with a preference over
the security interest granted hereby to the Secured Party, it has not executed
and will not execute any security agreement or financing statement or other
documents which can be filed with the U.S. Patent and Trademark Office and other
foreign patent offices covering any Collateral and the Secured Party will have,
so long as any Secured Party Indebtedness remains unpaid, a first priority,
perfected security interest in all of the Collateral, concurrent with the first
priority, perfected security interests granted to Anthony M. Frank as an
individual and as Trustee of the above-described Pension Plan;


 


4.4                                 It
will not sell, contract for sale or otherwise dispose of any of the Collateral;


 


4.5                                 It
will notify the Secured Party of any event which adversely affects the value of
the Collateral as a whole, the ability of it or the Secured Party to dispose of
the Collateral, or the rights and remedies of the Secured Party in relation
thereto, including, but not limited to, the levy of any legal process against
the Collateral or any portion thereof, whether governmental or otherwise;


 


2

















 


4.6                                 It
will execute and deliver to the Secured Party all documents and instruments
necessary or advisable, in the opinion of the Secured Party, to perfect and
maintain the Security Interest in favor of the Secured Party in and to all
Collateral, including, but not limited to, delivery to Secured Party of
financing statements and other documents which can be filed in the U.S. Patent
and Trademark Office and other foreign patent offices and amendments thereto
pursuant to the Uniform Commercial Code, the United States Code or any other
applicable law, all in form and substance acceptable to the Secured Party; and
the Secured Party may file in the appropriate public office any such document
or instrument; and


 


4.7                                 It
will pay when due or prior to delinquency, as the case may be, all debts
relating to or affecting the Collateral and all taxes, charges, encumbrances
and assessments against the Collateral, and upon the failure of ELTP to make
such payments, the Secured Party, at its option, may pay any of them and shall
be the judge of the legality or validity thereof and the amount necessary to
discharge the same.  Any amounts so paid
by the Secured Party shall be immediately due and payable by ELTP to the
Secured Party and shall become a part of the Secured Party Indebtedness secured
hereunder.


 


SECTION 5 – EVENTS OF
DEFAULT


 


An “Event of Default” as used
in this Agreement shall mean any of the following events:


 


A.                                   The
failure by ELTP to pay the Secured Party Indebtedness or any portion thereof
when the same is due or to perform any covenant, agreement or duty relating to
the Secured Party Indebtedness;


 


B.                                     Any
representation or warranty of ELTP in any agreement or document relating to the
Secured Party Indebtedness shall prove to have been false or misleading in any
material respect when made or when deemed to have been made;


 


C.                                     Secured
Party shall fail to have a valid and enforceable first priority perfected
security interest in any Collateral, except where such failure results from
Secured Party’s action or failure to act with respect to the filing of
financing statements;


 


D.                                    A
judgment or judgments shall be entered against ELTP in the aggregate amount of
Fifty Thousand Dollars ($50,000) or more on a claim or claims not substantially
covered by insurance other than such judgments that are being contested in good
faith and as to which, in Secured Party’s reasonable judgment, an adequate
reserve has been provided on financial statements;


 


E.                                      ELTP
shall file any petition or action for relief under any bankruptcy,
reorganization, insolvency or moratorium law, or any other law or laws for the
relief of debtors;


 


F.                                      An
involuntary petition shall be filed under any bankruptcy statute against ELTP
or a custodian, receiver, trustee, assignee for the benefit of creditors (or
other similar official) shall be appointed to take possession, custody, or
control of the properties of ELTP, unless such petition or appointment is set
aside or withdrawn or ceases to be in effect within sixty (60) days from the
date of said filing or appointment;


 


3

















 


G.                                     ELTP
shall fail to fund the prompt and timely payment and maintenance fee to
maintain the Collateral in force; or


 


H.                                    A
“Change of Control” (as defined in Section 8 hereof) of ELTP shall have
occurred.


 


SECTION
6 – REMEDIES ON DEFAULT


 


Notwithstanding any provision
to the contrary in any of the Notes, upon the occurrence of any Event of
Default hereunder, the Secured Party shall notify ELTP in writing of the nature
and extent of such default and of the period of time, which shall be not less
than thirty (30) days, during which ELTP will be expected to remedy such
default or defaults; provided, of course, that a remedy is available.  If, at the expiration of the period
specified in such notice, such default or defaults have not been substantially
remedied, Secured Party shall be entitled to:


 


6.1                                 Enforce
the Security Interest pursuant to the applicable Uniform Commercial Code, the
United States Code, or any other applicable law, and for purposes hereof ten
(10) days notice shall be deemed to be reasonable notice of any intent to sell
the Collateral at public or private sale;


 


6.2                                 Require
ELTP to assemble the Collateral and the records pertaining thereto and make
them available to the Secured Party at a place designated by the Secured Party;


 


6.3                                 To
the fullest extent permitted by law, enter any premises of ELTP and take
possession of the Collateral and of the records pertaining to the Collateral;


 


6.4                                 Grant
extensions, compromise claims and settle accounts for less than the face value
thereof in good faith and in a commercially reasonable manner, all without
prior notice to ELTP;


 


6.5                                 Use,
in connection with any assembly or disposition of the Collateral, any
trademark, trade name, trade style, copyright, patent right or technical
process used or utilized by ELTP, including “Micro Imaging Technology” and “MIT;”


 


6.6                                 Take
such measures as the Secured Party shall deem necessary or advisable to
preserve, process, develop, maintain, protect, care for or insure the
Collateral or any portion thereof, and ELTP hereby irrevocably constitutes and
appoints the Secured Party as its attorney-in-fact to perform all acts and
things in connection therewith;


 


6.7                                 Cause
the Collateral to be transferred to the Secured Party’s name or to the name of
its nominee;


 


6.8                                 Exercise
as to the Collateral all the rights, powers and remedies of any owner necessary
to the exercise of its rights under this Agreement; and


 


6.9                                 In
addition to being entitled to proceed to exercise with respect to the
Collateral all of the rights and remedies available to a secured party upon
default under the applicable Uniform Commercial Code, the United States Code or
applicable law, the Secured Party shall have those other rights and remedies
provided herein and such other rights and remedies as may be provided by law.


 


4

















 


Each purchase
at any sale of the Collateral shall hold such Collateral absolutely free from
any claim or right on the part of ELTP. 
To the full extent permitted by law, ELTP hereby waives (i) all rights
of redemption, stay or appraisal which it now has or may at any time in the
future have under any rule of law or statute now existing or hereafter enacted
and (ii) any right which it may have to demand a hearing or other judicial or
administrative proceeding prior to the enforcement of the Secured Party of any
of its rights and remedies hereunder. 
Any public or private sale of the Collateral or any portion thereof
shall be held at such time or times within ordinary business hours and at such
place or places as the Secured Party may fix in the notice of sale, and at any
such sale the Collateral, or the portion thereof to be sold, may be sold in one
block, as an entirety or separately, as the Secured Party may determine.  Any sale may be conducted by an auctioneer
or by an officer, attorney or agent of the Secured Party.  The Secured Party may be a purchaser at any
public or private sale.  The Secured
Party shall not be obligated to make any sale of the Collateral or any portion
thereof if it determines not to do so, regardless of the fact that notice of
sale of the Collateral may have been given. 
The Secured Party may, without notice or publication, adjourn a public
or private sale of the Collateral or cause the same to be adjourned from time
to time by announcement, at the time and place fixed for sale, and such sale
may, without further notice, be made at the time and place to which the same
was so adjourned.


 


SECTION 7 – APPLICATION OF THE PROCEEDS


 


All proceeds of any sale of the
Collateral by the Secured Party pursuant to Section 6 shall be applied as
follows:


 


First:                                                              to
the payment of all fees and expenses incurred by the Secured Party in
connection with any such sale including, but not limited to, all court costs
and fees of counsel to the Secured Party in connection therewith;


 


Second:                                                    to
the payment of any amounts owing to the Secured Party on the Secured Party
Indebtedness; and


 


Third:                                                              to
ELTP.


 


SECTION 8 – CHANGE IN
CONTROL


 


For purposes of this Agreement,
a Change in Control of ELTP shall be deemed to have occurred if:


 


A.                                   there
shall be consummated:


 


(1)                                  any
consolidation or merger of ELTP in which ELTP is not the continuing or
surviving corporation or pursuant to which shares of ELTP’s Common Stock would
be converted into cash, securities or other property, other than a merger of ELTP
in which the holders of ELTP Common Stock immediately prior to the merger have
the same proportionate ownership of common stock of the surviving corporation
immediately after the merger, or


 


(2)                                  any
sale, lease, exchange or other transfer (in one transaction or a series or
related transactions) of all, or substantially all, of the assets of ELTP, or


 


5

















 


B.                                     the
stockholders of ELTP approved any plan or proposal for the liquidation or
dissolution of ELTP, or


 


C.                                     any
person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”) other than Anthony M.
Frank, shall become the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of twenty percent (20%) or more of ELTP’s outstanding
Common Stock (except upon the conversion of Class B Common Stock into Common
Stock), or


 


D.                                    during
any period of two (2) consecutive years, individuals who at the beginning of
such period constitute the entire Board of Directors shall cease for any reason
to constitute a majority thereof unless the election, or the nomination for
election by ELTP’s stockholders, or each new director was approved by a vote of
at least two-thirds (2/3) of the directors then still in office who were
directors at the beginning of the period.


 


SECTION 9 –
MISCELLANEIOUS PROVISIONS


 


9.1                                 All
advances, charges, costs and expenses, including reasonable attorneys’ fees,
incurred or paid by the Secured Party in exercising any right, power or remedy
conferred by this Agreement or in the enforcement hereof, shall become a part
of the Secured Party Indebtedness secured hereunder and shall be paid to the
Secured Party by ELTP immediately and without demand, with interest thereon at
the rate provided in the Notes.


 


9.2                                 Certain
Waivers.     ELTP, to the extent permitted by law,
waives any right to require the Secured Party to (a) proceed again person, (b)
proceed again or exhaust the Collateral, or (c) pursue any other remedy in the
Secured Party’s power, and waives  any
defense arising by reason of any disability or any other defense of ELTP, or
any other person, or by reason of the cessation from any cause whatsoever of
the liability of ELTP or any other person. 
Until such times as full payment is made to the Secured Party of all
Secured Party Indebtedness and full performance of all obligations relating to
the Secured Party Indebtedness, ELTP shall have no right of subrogation and
waives any right to enforce any remedy which the Secured Party now has or may
hereafter have against any other person and waives any benefit of and any right
to participate in the Collateral now or hereafter held by the Secured
Party.  ELTP authorizes the Secured Party,
without notice or demand and without affecting ELTP’s liability hereunder or on
the Secured Party Indebtedness, from time to time to: (1) renew, extend,
accelerate or otherwise change the time for payment or, or otherwise change the
terms of, the Secured Party Indebtedness or any part thereof, including,
without limitation, to increase or decrease the rate of interest thereon; (2)
take and hold security, other than the Collateral herein described or any part
thereof or any such other security; and (3) release or substitute any
guarantors of the Secured Party Indebtedness or any part thereof, or any other
parties thereto.


 


9.3                                 Amendments,
Waivers and Consents.     No amendment to,
modification or waiver of, or consent with respect to, any provision of this
Agreement shall be effective unless the 


 


6

















 


same shall be
in writing and signed by the party against whom enforcement of the amendment,
modification, waiver or consent is sought.


 


9.4                                 Notices.     All
notices, requests, demands and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered or mailed by
first class mail, postage prepaid, to the address set forth below, or to such
other address as any party may specify in writing to all other parties:


 


If to the
Secured Party, to:


 


Anthony M.
Frank, Trustee


Anthony M.
Frank Keogh Plan UTA Charles Schwab & Co.


101 Montgomery
Street


San Francisco,
CA  94104


 


With a copy
to:


 


Anthony M.
Frank


320 Meadowood
Court


Pleasant Hill,
CA  94523


 


If to
Electropure, to:


 


Floyd H.
Panning,


23456 South
Pointe Drive


Laguna Hills,
CA  92653


 


 


9.5                                 Applicable
Law.     This Agreement shall be construed and
enforced in accordance with the laws of the State of California, except to the
extent the security interest in the Collateral is governed by United States law
or the law of any other jurisdiction.


 


9.6                                 Section
Headings.     The section headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of the Agreement.


 


9.7                                 Successors
and Assigns.     This Agreement shall be binding
upon ELTP and its permitted successors and assigns.


 


9.8                                 Survival.     All
covenants, agreements, representations and warranties made by ELTP herein shall
survive the execution and delivery of this Agreement and such covenants,
agreements, representations and warranties shall continue in full force and
effect until all Secured Party Indebtedness is paid and performed in full.


 


9.9.                              Severability.     In
case any one or more provision or portions hereof should be determined to be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any
way be affected or impaired thereby.


 


9.10.                        Attorney’s
Fees.     In the event of any dispute regarding
the obligations or the respective rights and interests of the parties
hereunder, the prevailing party shall recover, upon demand, from the other
party, all reasonable fees, costs and expenses (including, without limitation,
such fees, 


 


7

















 


costs and
expenses of litigation and appeals) incurred by such prevailing party in
enforcing any provision hereof, whether or not litigation has commenced with
respect thereto and without regard to any schedule or the determination by a
court as to the fees, costs and expenses of such enforcement.


 


9.11.                        Complete
Agreement.     The foregoing constitutes the full
and complete agreement between the parties with respect to the subject matter
hereof, or contemplated hereby, and there are no other oral or written
agreements in relation to the subject matter hereof.


 


9.12.                        Waivers
and Consents.     To the fullest extent permitted
by law, the Secured Party reserves the right in the exercise of its discretion
to refuse to (a) waive any of its rights hereunder or (b) consent to the taking
of any action (or to failure to take any action) on the part of ELTP which, if
taken (or upon the failure to so act), will result with or without giving
notice, the passage of time or both in the occurrence of an Event of Default
under this Agreement.  Where any of the
provisions of this Agreement provide that any matter, document, instrument,
item or thing is subject to the discretion, consent, satisfaction, waiver,
approval or determination of the Secured Party, then (unless expressly
otherwise provided herein), such discretion, consent, satisfaction, waiver,
approval or determination may be exercised, and or withheld by the Secured
Party in the exercise of its reasonable good faith discretion.


 


IN WITNESS
WHEREOF, the parties hereto have signed this Agreement on the date first above
written.


 


	
   

  	
  ANTHONY M. FRANK KEOGH PLAN

  
	
   

  	
  UTA CHARLES SCHWAB & CO., INC.

  
	
   

  	
   

  
	
   

  	
  By

  	
  /S/ ANTHONY M. FRANK

  
	
   

  	
   

  	
  ANTHONY M. FRANK, TRUSTEE

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ELECTROPURE, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /S/ FLOYD H. PANNING

  
	
   

  	
   

  	
  FLOYD H. PANNING

  
	
   

  	
   

  	
  PRESIDENT

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  MICRO IMAGING TECHNOLOGY

  
	
   

  	
   

  	
   

  
	
   

  	
  By

  	
  /S/ FLOYD H. PANNING

  
	
   

  	
   

  	
  FLOYD H. PANNING

  
	
   

  	
   

  	
  PRESIDENT

  



 


8

















 


EXHIBIT “A”


 


DESCRIPTION OF THE
COLLATERAL


 


All rights, title and interest
of Electropure, Inc. and its Nevada subsidiary, Micro Imaging Technology,
including any and all agreements (whether purchase, royalty, license or
otherwise), relating to the ownership of all Patents, trademarks and other
intellectual property rights, including without limitation:  (a) United States Patent No. 6,421,121 B1,
issued July 16, 2002 (b) United States Patent No. 6,639,672 B2, issued October
28, 2003, (c) any and all patents (foreign or domestic) obtained as they relate
to the “Method and Apparatus for Rapid Particle Identification Utilizing
Scattered Light Histograms” while the Notes are outstanding and unpaid
(collectively, the “Collateral”).


 


9