EXHIBIT 10.55


 


INSTALLMENT
NOTE
INSTALLMENT INTEREST INCLUDED


 


Escrow No:
            


 


	
  $300,000.00

  	
  Mission Viejo, California 

  
	
   

  	
  March 12, 2004

  



 


1.             PROMISE TO PAY: In installments as herein
stated, for value received, ELECTROPURE HOLDINGS, LLC, a California limited
liability company, a wholly owned subsidiary of ELECTROPURE, INC., a California
corporation, (hereinafter referred to as Debtor)  promises to pay to Holder/Payee,
PUROVIDA, LLC, a California limited liability company, or order, at
a place designated by the beneficiary as 969-G Edgewater Blvd., #177, Foster
City, California 94404, the sum of $300,000.00 U.S. Dollars OR SUCH SUM AS MAY
BE ADVANCED BY HOLDER UP TO AN ADDITIONAL $100,000.00, with interest thereon
from March 18, 2004, on the unpaid principal, at the rate of twelve
(12%) per cent  per annum in quarterly installments of
                
Dollars ($42,736.92)  OR MORE
on the 18th day of each and every quarter, beginning on June 18, and continuing
until March 18, 2006 at which time the entire balance of unpaid principal and
accrued interest shall become all due and payable.


 


2.             ADVANCES OF FUNDS:   The sum of up to $400,000.00 shall be
advanced to Debtor in two installments as follows: (a) the first installment of
$300,000.00 upon the date of close of escrow of this transaction and (b) the
second installment of up to $100,000.00 no later than 60 days from the date of
close of escrow of this transaction. 
Interest shall accrue upon the principal balance from the date such
principal is advanced to the Debtor.


 


3.             MORTGAGE BROKERAGE FEE: At close of escrow
Debtor hereby irrevocably assigns to Mortgage Brokers (William F. Garlock &
Company, Inc. and Pacific First Group) the following fees from the loan
proceeds advanced to Debtor:


(a) $55,000.00 to be paid to William F. Garlock & Company, Inc.
(one-half of which shall be paid to Andrew Litton as a Finder’s Fee) ;


(b) $5,000.00 to Pacific First Group.


(c)  Warrants for Common Stock
in Electropure, Inc. to purchase up to 80,000 shares at $0.20 per share
(one-half of which will be in the name of Andrew Litton and one-half of which
will be in the name of William F. Garlock & Company, Inc.)


 


4.             GUARANTY: ELECTROPURE, INC. and ANTHONY FRANK,
(hereinafter referred to as Guarantors) herein promise unconditionally to
jointly and severally personally guaranty the performances due hereunder.  Guarantors jointly and severally agree that
the financial statements and credit reports of each of them have been provided
to the Holder for the purposes of inducing the Holder to enter into this
transaction, and each does hereby agree and acknowledge that the Holder is
entitled to rely and does rely on such financial statements and credit reports
as have been provided to Holder as of the date of execution of this Note.  Guarantors hereby irrevocably waive
his/her/their rights and defenses against this obligation under the law,
including without limitation the following: the provisions of


 

















 


Cal. Civ. Code §2845 (requiring the creditor to proceed against the
principal); §2850 (requiring the creditor to proceed against the property of
the principal first); §2849 (surety entitled to benefits of securities held by
creditor); any rights he/she/they may have by reason of an election of remedies
by the Holder even though that election of remedies, such as nonjudicial
foreclosure with respect to security for a guaranteed obligation has destroyed
the guarantor’s rights of subrogation and reimbursement against the principal
by the operation of law including without limitation C.C.P. §580d; any
disability or defense of Debtor; any modification or change in the terms of the
indebtedness whatsoever, including without limitation, the renewal, extension,
acceleration, or other change in the time payment of the indebtedness is due
and any change in the interest rate; and any rights or defenses he/she/they may
have because the obligations herein are secured by real property of the
Guarantors.  Guarantors understand and
agree that the foregoing waivers are unconditional and irrevocable waivers of
substantive rights and defenses to which Guarantors might otherwise be entitled
under state and federal law.  Guarantors
acknowledge that he/she/they have provided these waivers of rights and defenses
with the intention that they be fully relied upon by Holder.  Until all indebtedness is paid in full,
Guarantors waive any right to enforce any remedy Guarantors may have against
Debtor or any other guarantor, surety, or other person, and further Guarantors
waive any right to participate in any collateral for the indebtedness now or
hereafter held by Holder.  Guarantors
agree that Holder may proceed against the Guarantors without first proceeding
against the Borrower, and may proceed against the Guarantors personally without
first resorting to the security for the Second Note, Assignment of Rents, or
UCC-1 Financing Statement.  The
obligations under this Note and its related documents shall survive termination
of the Note.


 


5.             WARRANTIES AND REPRESENTATIONS: Debtor
warrants and represents that at the time of closing this transaction there
shall be no other debt outstanding which shall have priority over this Note
other than the First Note and deed of trust in the amount of $2,000,000.00 owed
to Universal Bank.  Debtor understands
and acknowledges that these representations and warranties are a material
consideration without which Holder would not have advanced funds for this Note,
and that Debtor has provided these representations and warranties with the
intention that they be fully relied upon by Holder.  Debtor shall fully indemnify and hold harmless Holder against any
claims of third parties that such third parties have priority rights as against
Holder.  Guarantor does hereby agree
that Guarantor’s guaranty of the Debtor’s obligations under this Note shall apply
to the obligations set forth in this paragraph, as well as to the other
obligations set forth in this agreement.


 


6.             INDEMNITY BY DEBTOR AND GUARANTORS: Debtor
and Guarantors, jointly and severally, shall indemnify and hold harmless the
Holder against any and all third party claims or demands arising out of those
certain exceptions to title as described in the Declaration of Covenants,
Conditions, Restrictions and Reservation of Easements for Plaza Pointe”
recorded August 9, 1978, in Book 12791, Page #1893, and that certain Third
Revised Laguna Hills Business Center Planned Community Development Plan”
recorded May 15, 1992 as document #92-324522 in the official records of Orange
County, California This obligation shall survive termination of this Note.


 

















 


7.             HOLDER SUBORDINATION: Holder agrees that
this Note and deed of trust may be subordinated to a new First Note and Deed of
Trust not to exceed $2,340,000.00 (the Replacement First Note) provided that
the Subordination Agreement attached hereto and incorporated herein by
reference has been executed by Holder and Debtor, and provided that the sums
advanced above $2,275,000.00, up to the sum of $65,000.00 from such Replacement
First Note (“Excess Fund”), shall be reserved in an escrow account to be converted
to an irrevocable Letter of Credit within 30 days of close of escrow of the
Replacement First Note, which shall be drawn upon each quarter by Holder to be
applied to the payments to be made on this Second Note as such payments become
due.  Debtor shall pay for all costs and
expenses associated with the said escrow account and with the purchase of the
Letter of Credit.  Notwithstanding the
foregoing, in the event that the amount in the said Excess Fund is not sufficient
to pay the payments due under this Note, Debtor promises to pay timely all of
such sums due under this Note, and Guarantor acknowledges such promise.


 


8.             PRE-PAYMENT PRIVILEGE: Privilege is
reserved to pay more than the sum due at any time by pre-paying principal and
accrued interest during the term of the Note.


 


9.             LATE CHARGE: In the event that any
payment, or portion thereof, due hereunder is not received by the Payee within
10 days after the due date thereof, the parties hereto agree that it would be
difficult to fix the actual damages for such breach and therefore the
undersigned agrees to pay to Payee, in addition to the regular quarterly
payment, a late charge of 10% of the payment due the first time such payment is
late, a late charge of 12% of the payment due the second time such payment is
late, a late charge of 15% of the payment due each successive time the payment
is late.


 


10.           ANNUAL OPERATING STATEMENT: Debtor will
provide Beneficiary (Holder) at the address set forth herein with a copy of
his/her/its Annual Operating Statement within 45 days of close of business
(December 31st) of each year.


 


11.           MONTHLY PROOF OF PAYMENT OF FIRST LOAN:
Guarantor shall provide Beneficiary (Holder) at the address set forth herein
monthly copies of the check or other instrument issued to the Holder of the
First Note or the replacement First Note showing proof of payment of the First
Note.


 


12.           PAYMENTS OF AMOUNTS DUE: Each payment shall
be credited on interest then due, and the remainder on principal, and interest
shall thereupon cease upon the principal so credited.  Should default be made in payment of any installment when due the
whole sum of principal and interest shall be due at the option of the holder of
this Note.  Principal and interest shall
be paid in lawful money of the United States of America.  In any action to enforce this Note, or the
obligations set forth in its related documents, Debtor and Guarantor jointly
and severally promise to pay the Holder of this Note all attorneys fees and
costs incurred in such action.


 


13.           DEED OF TRUST AND OTHER SECURITY: This Note
is secured by a Deed of Trust in which the Holder is the Beneficiary and First
American Title Company is the Trustee, and


 

















 


Debtor is the Trustor, which Deed of Trust shall be recorded at close
of escrow of this transaction..  This
Note is also secured by said Second Assignment of Rents and a Second UCC-1
Financing Statement (together with the Second Deed of Trust, collectively
hereinafter referred to as the Second Note Documents), all of which shall be
incorporated herein by reference, which shall be recorded at close of
escrow.  Guarantors agree and
acknowledge that all of the security instruments referred to herein shall be
construed to have been perfected as of the date of execution of this Second
Note.  Guarantors agree to indemnify and
hold harmless Holder against any third party claims of priority interests in
and to the secured collateral, other than those claims of the First Note Holder
arising under the First Note and the First Note Documents.


 


14.           CONVERSION OF DEBT TO STOCK: At the sole
discretion of the Holder, at any time during the term of this Note, Holder may
convert all or part of this Debt obligation to equity in the Debtor by purchase
of the Debtor’s common stock of any series then authorized but as yet not issued,
at the purchase price then prevailing at the time of said conversion..


 


15.           WARRANTS EXERCISABLE BY HOLDER FOR PURCHASE
OF STOCK:   In addition to the security
referenced in this Second Note, Debtor shall issue to Holder Stock Warrants, in
substantially the form attached hereto as Exhibit B, for 160,000 shares of
Common Stock to be exercised at $0.20 per share to be purchased by the Holder.


 


16.           HOLDER’S RIGHT TO APPROVE ONE DIRECTOR:
Holder shall have the right to approve one member of the Board of Directors of
Electropure, Inc., a California corporation


 


17.           WAIVER OF RIGHT TO NOTICE OF BALLOON
PAYMENT:   Debtor and Guarantors do
hereby waive any rights it/he/she/they may have under Cal. Civ. Code §2924i
and/or §2966 or any successor statute to notice of final payment of a balloon
payment of the outstanding principal due.


 


18.           SEVERABILITY: If a court of competent
jurisdiction finds any provision of this agreement to be illegal, invalid, or
unenforceable as to any person, entity or circumstance, that finding shall not
make the offending provision illegal, invalid or unenforceable as to any other
person, entity or circumstance.  If
feasible, the offending provision shall be considered modified so that it
becomes legal, valid, and enforceable. 
If the offending provision cannot be so modified it shall be considered
deleted from this agreement.  Unless
otherwise required by law, the illegality, invalidity or enforceability of any
provision of this agreement shall not affect the legality, validity or enforceability
of any other provision of this agreement.


 


19.           SUCCESSORS AND ASSIGNS: Subject to any
limitations on transfers of interest of any party or Guarantor of this Note,
this agreement shall be binding upon and inure to the benefit of the parties,
their successors and assigns.


 


20.           SURVIVAL OF REPRESENTATIONS AND WARRANTIES:
All representations, warranties, and agreements made by Debtor and/or by
Guarantors in this agreement shall survive the execution and delivery of this
Second Note and its related Second Note


 

















 


Documents, shall be continuing in nature, and shall remain in full
force and effect until Debtor’s indebtedness shall be paid in full.


 


21.           DEBTOR TO PAY HOLDER’S EXPENSES: Debtor
shall pay Holder’s expenses, including all escrow and title insurance fees, and
Holder’s attorneys fees and costs, pursuant to that certain Retainer Agreement
executed by Electropure, LLC on February 3, 2004 in which Electropure, LLC
acknowledged that Holder’s attorney is representing Holder in this transaction.  Mortgage Brokers shall reimburse Debtor for
up to $5,000.00 in said attorneys fees and costs at close of escrow.


 


22.           MISCELLANEOUS:


 


22.1  Time is on the essence in
the performance of this agreement.


 


22.2   Holder shall not be
deemed to have waived any rights under this agreement unless such waiver is
given in a writing and signed by Holder. 
No delay or omission on the part of Holder in enforcing any right shall
operate as a waiver of such right or any other right.  A waiver of any provision or right shall not constitute a waiver
of the Holder’s right otherwise to demand strict compliance with that provision
or any provision of this agreement.  No
prior waiver by Holder, nor any course of dealing between Holder and Debtor
shall constitute a waiver of any of Holder’s rights or Debtor’s obligations as
to any future transactions.


 


22.3   This agreement shall be
governed by, construed and enforced in accordance with the laws of the State of
California.  Debtor and Guarantors each
agree that the Superior Court of San Mateo County shall have jurisdiction over
any matter arising out of this agreement, and that venue shall be proper in
Superior Court of San Mateo County, California.  In any dispute arising out of this agreement the prevailing
party, whether by judgment, arbitration award or settlement, shall be entitled
to an award of its costs and attorneys fees.


 


22.4   This agreement together
with the related Second Note Documents all of which are incorporated herein by
reference, constitute the entire understanding and agreement of the parties as
to the matters set forth in this agreement. 
No alteration of or amendment to this agreement shall be effective
unless given in writing and signed by the party or parties sought to be charged
or bound by the alteration or amendment.


 


22.5   The parties executing
this document covenant and warrant that the person executing this document is
fully authorized to do so, and that this agreement shall be construed as a
fully binding contract between the parties referenced herein.  The signatories hereto warrant on behalf of
the entity for which he/she is authorized to act that execution of this
agreement does not and shall not with the passage of time violate any
provisions of law, of their respective corporate documents or of their
respective trust documents.


 

















 


The foregoing is hereby acknowledged and agreed to as of the date first
written above:


 


	
   

  	
  DEBTOR:

  
	
   

  	
  BY: ELECTROPURE HOLDINGS, LLC., a California limited liability
  company

  
	
   

  	
  By :

  	
  /S/ CATHERINE PATTERSON

  	
   

  
	
   

  	
  Its:

  	
    CFO of Managing Member

  	
   

  
	
   

  	
   

  	
  ELECTROPURE, INC., a California corporation its sole Member

  
	
   

  	
   

  	
  BY:

  	
    /s/  CATHERINE
  PATTERSON

  	
   

  
	
   

  	
   

  	
  Its:

  	
    Chief Financial Officer

  	
   

  
											



 


	
   

  	
  GUARANTOR:

  
	
   

  	
   

  
	
   

  	
  BY: ELECTROPURE, INC., a California corporation

  
	
   

  	
  BY:

  	
  /s/ 
  CATHERINE PATTERSON

  	
   

  
	
   

  	
  Its:

  	
  Chief Financial Officer

  	
   

  
	
   

  	
   

  
	
   

  	
  BY:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GUARANTOR:

  
	
   

  	
   

  
	
   

  	
  /s/ 
  ANTHONY M. FRANK

  	
   

  
	
   

  	
  ANTHONY FRANK

  
								



 


HOLDER:  DO NOT DESTROY THIS
NOTE: When paid, this Note and its related Deed of Trust must be surrendered to
Trustee for cancellation before reconveyance will be made.