Document:

EXHIBIT 10.61

 

8% CONVERTIBLE TERM NOTE

 

	
  $50,000

  	
   

  	
  April 21, 2005

  

 

ELECTROPURE, INC., a
California corporation, (the “Company”), for
the value received, hereby unconditionally and absolutely promises to pay to
the order of ANTHONY M. FRANK, or holder (collectively,
the “Holder”), upon presentation and
surrender of this Note at its office at 23456 South Pointe Drive, Laguna Hills,
California 92653, or such other place as the Company may, from time to time,
designate, the sum of Fifty Thousand ($50,000)
Dollars, in lawful money of the United States, on or before August
18, 2005 (the “Maturity Date”).

 

1.             CONVERSION.

 

The Holder of this Note shall have the right, at its
option, at any time up until 5:00 P.M. Los Angeles time on the fifth (5th) day
immediately before the Maturity Date (except that, with respect to any portion
of this Note which shall be called for prepayment, such right shall as to such
portion terminate at 5:00 P.M. Los Angeles time on the fifth (5th) day
immediately prior to the Prepayment Date (as defined in Section 2 hereof)), to
convert all or any portion of the principal amount of this Note, including
interest accrued thereon, subject to the terms and provisions of this Section
1, into common stock of Electropure, Inc. at the then fair market value
(closing bid price) on the date of such conversion.

 

2.             PAYMENTS AND PREPAYMENTS.

 

(a)           All
payments and prepayments of principal and interest shall be made in immediately
available funds on or before the Maturity Date to the Holder at 1 Maritime Plaza,
Suite 825, San Francisco, California 94111.

 

(b)           The
unpaid principal amount of the Note from time to time outstanding shall bear
interest from the date of this Note at the rate of Eight Percent (8%) per annum
until paid.  Interest shall be computed for
the actual number of days elapsed on the basis of a year consisting of 360
days.

 

(c)           The
Company may prepay at any time in advance of the Maturity Date all or any part
of this Note, plus accrued interest on the portion of the principal being
prepaid.  Interest on the portion of the
Note prepaid shall cease to accrue on and after the date of such prepayment.

 

3.             NOTICES TO NOTEHOLDER.

 

So long as this Note shall be outstanding, if the
Company (i) shall pay any dividend or make any distribution upon the Company
Stock or (ii) shall effect a capital reorganization, reclassification of
capital stock, consolidation or merger with or into another corporation, sale,
lease or transfer of all or substantially all of the property and assets of the

 

1EXHIBIT
10.62

 

SECOND
DEED OF TRUST AND SECURITY AGREEMENT

 

THIS SECOND DEED OF TRUST AND SECURITY AGREEMENT (“Security
Instrument”) is made as of the 21st day of April, 2005, by ELECTROPURE,
INC., a California corporation (“ELTP”), ELECTROPURE HOLDINGS, LLC, a
California limited liability company ( “LLC”), to and
for the benefit of ANTHONY M. FRANK  (“Lender”).

 

As used herein, the term “Borrower” shall mean
Electropure, Inc. and its wholly-owned subsidiary, Electropure Holdings, LLC,
jointly and severally.

 

ELTP owes Lender the principal sum of Fifty Thousand
Dollars ($50,000.00), evidenced by that certain 8% Convertible Term Note dated
April 21, 2005 (the “Note”), a copy of which is attached hereto as Exhibit “A”.  The Note provides that the full debt, if not
paid earlier, shall be due and payable on August 18, 2005, the “Maturity Date”
of the Note.

 

LLC obtained a Two Million Dollar ($2,425,000) deed of
trust loan (the “First Deed of Trust Loan”) from Farmers Insurance Group
Federal Credit Union c/o Business Partners, LLC (the “Senior Lien Holder”) on
or about May 5, 2004, which loan is secured by a first deed of trust lien on
the Property (the “First Deed of Trust”) and is also guaranteed by ELTP.  The documents evidencing or securing the
First Deed of Trust Loan are collectively referred to herein as the First Deed
of Trust Loan Documents.

 

This Security Instrument secures to Lender:

 

(a)               the repayment of
the debt evidenced by the Note, with interest as provided in the Note, and all
renewals, extensions and modifications of the Note;

 

(b)              the payment of all
other sums, with interest as provided in the Note, advanced under paragraph 6
hereof to protect the security of this Security Instrument; and

 

(c)               the performance of
Borrower’s covenants and agreements under this Security Instrument and the
Note.

 

For these purposes, Borrower irrevocably grants and conveys to Lender,
with power of sale, subject to the rights of the Senior Lien Holder under the
First Deed of Trust, the property located in Orange County, California which
has the address of 23456 South Pointe Drive, Laguna Hills, California 92653 and
is further described below (“Property Address”):

 

ALL THAT CERTAIN REAL
PROPERTY SITUATED IN THE COUNTY OF ORANGE, STATE OF CALIFORNIA, AND DESCRIBED
AS:  PARCEL 12, IN THE CITY OF LAGUNA
HILLS, COUNTY OF ORANGE, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 120,
PAGES 17 TO 21 OF PARCEL MAPS, RECORDS OF ORANGE COUNTY, CALIFORNIA.

 

EXCEPTING ALL OIL, GAS
AND OTHER MINERALS THAT MAY BE WITHIN OR UNDER THE LAND ABOVE DESCRIBED AND ALL
DRILLING AND OTHER RIGHTS WITH RESPECT THERETO EXCEPT THE RIGHT TO DRILL, MINE,
OF

 

1EXHIBIT 10.63

 

AGREEMENT FOR PURCHASE AND SALE
OF ASSETS

 

This Agreement is made as of April 15, 2005 at San
Diego, California, among SnowPure, LLC, (Buyer), a Nevada Limited Liability
Company, having its principal office at P.O. Box 8157, Rancho Santa Fe,
California; Electropure Inc. (Corporation), a California corporation, having
its principal office at 23456 South Pointe Drive, Laguna Hills, California; and
Electropure EDI, Inc. (Subsidiary), a Nevada corporation, having its principal
office at 23456 South Pointe Drive, Laguna Hills, California. Corporation and
Subsidiary are collectively referred to in this Agreement as Selling Parties.

 

RECITALS:

 

A.                                   Buyer
desires to purchase from Corporation and Corporation desires to sell to Buyer,
on the terms and subject to the conditions of this Agreement, substantially all
the assets, business, and properties of Subsidiary and the Membrane Division of
Corporation (collectively Subsidiary) in exchange for the consideration and
assumption of certain liabilities described in paragraphs 3.0 and 4.0;
Subsidiary desires this transaction to be consummated.

 

AGREEMENT:

 

In consideration of the mutual covenants, agreements,
representations, and warranties contained in this Agreement, the parties agree
as follows:

 

1.0                                 Definitions.
As used in this Agreement, the following defined terms have the following
meanings:

 

1.1                                 “Encumbrance”
means any lien, pledge, hypothecation, charge, mortgage, deed of trust,
security interest, encumbrance, claim, infringement, option, right of first
refusal, preemptive right, community property interest, or restriction of any
nature on any asset. “Encumbrance,” as used herein, specifically excludes the
UCC-1 Financing Statement filed in connection with the Promissory Note
described in Section 14.4 of this Agreement, lessor and licensor interests in
the Assets, and any lien arising under bulk sales laws in connection with the
Assumed Liabilities;

 

1.2                                 “Entity”
means a Person other than an individual;

 

1.3                                 “Governmental
Authority” means any federal, state, local, or foreign court, administrative
agency or commission, or other governmental authority or instrumentality;

 

1.4                                 “Intellectual
Property Rights” means, collectively, all of the following worldwide intangible
legal rights, acquired by ownership, license, or other legal operation:
(1) all patents, patent applications, and patent rights, including all
continuations, continuations-in-part, divisions, reissues, reexaminations, and
extensions of them, (2) all trademarks, trade names, logos, and service marks,
registered or not; (3) all rights associated with works of authorship,

 

 

including copyrights (registered or not), copyright applications,
copyright registrations; (4) all inventions (patentable or not), know-how,
show-how, formulas, processes, techniques, confidential business information,
trade secrets, and other proprietary information, technology, and intellectual
property rights, and (5) all rights to sue or make any claims for any
past, present, or future misappropriation or unauthorized use of any of the
foregoing rights and the right to receive income, royalties, damages, or
payments that are now or will later become due with regard to the foregoing
rights.

 

1.5                                 “Person”
means any individual, corporation, partnership, estate, trust, company (including
any limited liability company), firm, or other enterprise, association,
organization, or Governmental Authority;

 

1.6                                 “Proceeding”
means any claim, action, suit, investigation, or administrative or other
Proceeding before any Governmental Authority or any arbitration or mediation;

 

1.7                                 “Taxes”
means any and all federal, state, local, or foreign taxes, assessments, and
other governmental charges, duties, impositions, and liabilities relating to
taxes of any kind, together with all interest, penalties, and additions imposed
with respect to such amounts.

 

2.0                                 Sale
and Transfer of Assets. Subject to the terms and conditions set forth in
this Agreement, at the Closing, Selling Parties will sell, convey, transfer,
assign, and deliver to Buyer, and Buyer will purchase from Selling Parties, all
rights and title to, and interest in, the assets, properties, and business of
Subsidiary of every kind, character, and description, whether tangible,
intangible, or personal, and wherever located, but only to the extent solely
relating to the business of the Subsidiary (other than any assets or rights
that are specifically excluded from the definition of Assets, as set forth on
Exhibit B, and that are not being sold to Buyer under this Agreement) (all of
which are sometimes collectively referred to as the Assets), free and clear of
all Encumbrances, including specifically, all those assets set forth on Exhibit
A (A-1, A-2, and A-3) hereto.

 

3.0                                 Consideration
from Buyer at Closing and Post-Closing Adjustments. As full cash payment
for the transfer of the Assets to Buyer, Buyer will deliver to Corporation at
the Closing, in accordance with the provisions of paragraph 15.0, a bank
cashier’s check or wire transfer, payable to the order of Corporation in the
amount of the difference between $800,000 and (a) the Assumed Liabilities set
forth on Exhibit C, plus evidence of the assumption of the Liabilities as set
forth in Section 4.0 (collectively, the Purchase Price) in the form of an
Assignment and Assumption Agreement plus (b) the accrued payroll and
unreimbursed expenses set forth on Exhibit D which are due and payable to Buyer
by the Selling Parties and are being discharged as partial payment of the
Purchase Price. If Selling Parties elect to be paid by wire transfer, it shall
be at Selling Parties’ expense.

 

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4.0                                 Assumption
of Liabilities. From and after the Closing, Buyer will assume all of
Selling Parties’ rights and obligations arising after the Closing under those
contracts (and only those contracts), and accounts payable listed in Exhibit C
(the “Assumed Liabilities”). Corporation or Subsidiary, as the circumstances
require, shall remain liable for all obligations arising from pre-Closing
breaches under such contracts arising before the Closing. Subsidiary will have
the right to require Buyer to complete any prepaid customer sales order not
assumed by Buyer in that exhibit for Subsidiary’s account at a price to
Subsidiary equal to Buyer’s cost (“cost” to be defined as materials plus labor
at rates not to exceed current labor rates). Buyer shall also assume the
obligations for all warranty work for products sold before the Closing. It is
expressly understood and agreed that Buyer will not be liable for any of the
debts, obligations, or liabilities of Selling Parties of any kind other than
those specifically assumed by Buyer under this paragraph and that Corporation
or Subsidiary, as the case may be, shall remain liable and responsible for any
and all of its debts, obligations, and liabilities not expressly assumed by
Buyer under this Agreement. Buyer agrees to discharge the Assumed Liabilities
and warranty obligations in accordance with their terms from and after the
Closing.

 

4.1                                 The
assumption by Buyer of the debts, liabilities, and obligations of Selling
Parties expressly exclude (1) 50% of any sales and use Tax imposed on
Selling Parties because of the sale of its assets and business; (2) all other
Tax except as set forth in (1) hereinabove; (3) any liabilities or expenses
Selling Parties incurred in negotiating and carrying out its obligations, or
its dissolution and liquidation, under this Agreement (including attorney fees
or accountant fees); (4) any obligations incurred by Selling Parties after the
Closing Date; (5) any liabilities or obligations incurred by Selling Parties in
violation of, or as a result of Corporation’s or Subsidiary’s violation of,
this Agreement, except for unprocured, required consents to permit the
assumption of liabilities by Buyer; (6) any obligations or liabilities of
Selling Parties under any Environmental Laws (as defined in Section 4.2; (7)
any obligations or liabilities of Selling Parties for, or arising out of, any
Proceeding pending against Corporation or Subsidiary, except for liabilities
specifically assumed hereunder, or any tortious, unlawful fraudulent conduct on
the part of Selling Parties or either of them; and (8) any billed or unbilled
fees or expenses for attorneys, accountants or other consultants of Selling
Parties. It is the intent of this provision that Buyer shall pay one-half and
Selling Parties the remaining portion of any sales tax arising from the sale of
Assets hereunder and that payment for such sales and use tax shall be payable
and collected from Buyer at the Closing.

 

4.2                                 For
purposes of this Agreement, “Environmental Law” means all federal, state,
local, and foreign laws and regulations, relating to pollution, the protection
of human health, or the environment, including ambient air, surface water,
ground water, land surface, or subsurface strata, including those regulations
relating to the emission, discharge, release or threatened release,
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of Hazardous Materials. “Hazardous Material” means any
pollutant, contaminant, toxic, hazardous, or noxious substance or waste that
is, or becomes before Closing, regulated by any Governmental Authority under
any Environmental Law, including (1) oil or petroleum compounds, flammable
substances, explosives, radioactive materials, or other materials that pose a
hazard to human beings or cause any real property to be in violation of any

 

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Environmental Law; (2) to the extent regulated, asbestos and
asbestos-containing materials; (3) any materials regulated under the Toxic
Substance Act (15 USC §2601), (4) any materials designated as “hazardous
substances” under the Clean Water Act (33 USC §1251), or under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(42 USC §9601), and (5) any “hazardous waste” under Resource Conservation
and Recovery Act (42 USC §6901).

 

5.0                                 Purchase
Price and Allocation. The exact Purchase Price of the Assets will be
$800,000 allocated as follows:

 

5.1                                 Physical
Assets - actual amount at Closing as determined by mutual agreement of the
parties;

 

5.2                                 Inventory
- actual amount at Closing;

 

5.3                                 Accounts
Receivable - actual amount at Closing; and

 

5.4                                 Intellectual
Property - (balance of $800,000 less 5.1, 5.2 and 5.3)

 

Each of the parties agrees to report the transactions
contemplated by this Agreement for all Tax purposes (including in Tax returns)
in a manner that is consistent with the foregoing allocation of the Purchase
Price and not to take any position inconsistent with such allocation in any Tax
return, refund claim, or any litigation relating to Taxes.

 

6.0                                 Excise
and Property Taxes. Buyer shall pay one-half and Selling Parties the
remaining portion of all sales, use, and similar Taxes arising from the
transfer of the Assets (other than Taxes on a party’s income) and Selling
Parties will pay all state and local personal property Taxes of the business
due for the personal property reported on Corporation’s Business Property
Statement as of January 1, 2005. Buyer will be responsible to pay all state and
local personal property Taxes from and after that date on the Assets to be
transferred hereunder. Notwithstanding the foregoing, if Buyer fails to provide
a reseller’s certificate to Selling Parties on or prior to the Closing, Buyer
shall be solely responsible for all sales, use, and similar taxes arising in
respect of the sale of the Inventory to Buyer. Buyer will not be responsible
for any business, occupation, withholding, or similar Tax, or any Taxes of any
kind incurred by Corporation or Subsidiary related to any period before the
Closing Date.

 

7.0                                 Representations
and Warranties of Selling Parties. Except as set forth in the Disclosure
Schedule attached as Exhibit E from Selling Parties to Buyer delivered to Buyer
in connection with the execution of this Agreement (the “Disclosure Schedule”),
Selling Parties, as of the date of this Agreement and as of the Closing,
jointly and severally, warrant that:

 

7.1                                 Corporate
Status. Corporation is a corporation duly organized, validly existing, and
in good standing under the laws of California and has all necessary corporate
powers to own its properties and operate its business as now owned and operated
by it.

 

5

 

7.2                                 Subsidiaries.
Subsidiary is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Nevada; has all necessary corporate
power to own its properties and to carry on its business as now owned and operated
by it; and is duly qualified to do intrastate business as a foreign corporation
and is in good standing in California. All the issued and outstanding shares of
capital stock of Subsidiary are validly issued, fully paid, and nonassessable,
and are owned by Corporation, free and clear of all options, warrants, rights
of refusal, preemptive rights, claims, charges, and restrictions and other
Encumbrances.

 

7.3                                 Financial
Statements. Corporation represents that it has filed and has made available
to Buyer a Form 10-KSB for the fiscal years ended October 31, 2001, 2002 and
2003, each of which contain the consolidated balance sheets of the Corporation,
the related consolidated statements of income, changes in shareholders’ equity
and cash flows for the fiscal years ending on those dates, audited by Hein
& Associates, Corporation’s independent public accountants.

 

7.4                                 Real
Property Interests. Subsidiary and the Membrane Division of Corporation
currently occupy and conduct operations in a certain portion of the building
located at 23456 South Pointe Drive, Laguna Hills, CA. Such building is owned
by Electropure Holdings, LLC (“LLC”), a subsidiary of Corporation, and neither
Subsidiary nor the membrane division have been charged or owe a fee for
its occupancy. It being understood, however, that the parties to this Agreement
intend, but are not required, to enter into a subsequent arrangement, at or
after Closing, to rent or lease space in the building to the Buyer under terms
to be negotiated in good faith. Selling Parties shall only be obligated to
negotiate in good faith with Buyer for a period of 30 days after the Closing.
Buyer acknowledges that the LLC intends to sell the building, and agrees to
cooperate with LLC and Selling Parties in permitting the LLC to show the
building to potential buyers, and otherwise as is reasonably requested by the
LLC and Selling Parties. Buyer further agrees that any rental or lease
agreement entered into with LLC must permit termination upon sale of the
building.

 

7.5                                 Inventory.
Except for sales made in the ordinary course of business, all the inventories
are the property of Corporation or Subsidiary. No item included in the
inventories is subject to any Encumbrance, except as set forth in Section 7.5
of the Disclosure Schedule. Corporation warrants that it has conducted an
internal physical count of the Material Inventories as at March 31, 2005 and
has provided Buyer with the results of such physical count. For the purposes of
this section, the term Material Inventories means all items of $500.00 or more
in book value.

 

7.6                                 Tangible
Personal Property. The books and records of Corporation and Subsidiary
contain a materially correct description of, and the location of, all
capitalized trucks, forklifts, automobiles, other vehicles, machinery,
equipment, furniture, fixtures, and other fixed assets owned by, in the
possession of, or used by Subsidiary in connection with its business, work in
process, and finished goods. No personal property used by either Corporation or
Subsidiary in connection with Subsidiary’s business is held under any lease or
subject to any

 

6

 

Encumbrance or held by Corporation or Subsidiary on consignment from
others (except as stated in Section 7.6 of the Disclosure Schedule).

 

7.7                                 Accounts
Receivable. All accounts receivable of Subsidiary to be purchased by Buyer
under this Agreement (as identified in Exhibit F) arose from valid sales in the
ordinary course of business.

 

7.8                                 Intellectual
Property Rights. Corporation has no actual notice of any claims that would
impede the Corporation’s ownership of, or its right to use, all Intellectual
Property Rights necessary for the operation of the business of Subsidiary as
presently conducted.

 

7.9                                 Other
Intangible Property. Exhibit A-3 to this Agreement is a complete and
accurate list of all patents, patent applications, logos, servicemarks, and
trademarks, other than those specifically referred to elsewhere in this
Agreement.

 

7.10                           Title
to Assets. Corporation and Subsidiary have good and marketable title in and
to all of the Assets free and clear of all Encumbrances.

 

7.11                           Authority
and Consents. Subject to obtaining approval of a majority vote of the
shareholders of the Selling Parties in accordance with the Selling Parties’
respective charter documents and compliance with the securities laws and other
SEC instructions directed to the Corporation, Selling Parties have the right,
power, legal capacity, and authority to enter into and perform their respective
obligations under this Agreement (including the sale of the Assets to Buyer),
and no approvals or consents of any Persons other than Selling Parties are
necessary in connection with the sale of the Assets to Buyer and the
performance by Corporation and Subsidiary of their respective obligations under
this Agreement. Subject to obtaining approval of a majority vote of the
shareholders of the Selling Parties in accordance with their respective charter
documents and compliance with the securities laws and other SEC instructions
directed to the Corporation, the execution, delivery, and performance of this
Agreement by Corporation and Subsidiary and the consummation of the
transactions contemplated have been duly authorized by all necessary corporate
action on the part of Corporation and Subsidiary.

 

8.0                                 Buyer’s
Representations and Warranties. Buyer warrants that:

 

8.1                                 Buyer
is a limited liability company duly organized, existing, and in good standing
under the laws of Nevada. The execution and delivery of this Agreement and the
consummation of this transaction by Buyer have been duly authorized, and no
further company authorization is necessary on the part of Buyer.

 

8.2                                 No
consent, approval, or authorization of, or declaration, filing, or registration
with, any Governmental Authority is required to be made or obtained by Buyer in
connection with the execution, delivery, and performance of this Agreement and
the consummation of the transactions contemplated by this Agreement.

 

7

 

8.3                                 Buyer
acknowledges that except for the express representations and warranties made
hereunder by Selling Parties, the Assets are being sold “as is.” Buyer further
represents that it has not relied on any information or documents other than as
set forth in this Agreement and the Disclosure Schedules hereto and Buyer’s
independent investigation of the business. Buyer acknowledges that its sole
member, Michael Snow, is the general manager of the Subsidiary, and is very
familiar with business and operations being acquired hereby. Buyer agrees and
acknowledges that it has also conducted, and will continue to conduct through
the Closing, its own, independent, due diligence review of the Assets and the
business being acquired. Buyer agrees that notwithstanding anything contained
herein to the contrary, Selling Parties shall not be liable for any breach of
any representation or warranty of which the underlying facts or circumstances
Michael Snow has actual knowledge.

 

8.4                                 Buyer
represents that he is not an officer of the Corporation or the Subsidiary or
equivalent position with policy making authority.

 

8.5                                 Buyer
represents and acknowledges that it is aware that the Selling Parties are under
financial duress, have not been able to meet their respective obligations as they
come due, and the Corporation is not in compliance with its reporting
obligations under the securities laws.

 

9.0                                 Pre-Closing
Obligations. The parties agree that from the date of this Agreement until
the earlier to occur of the Closing or the termination of this Agreement in
accordance with its terms:

 

9.1                                 
Buyer’s Access to Premises. Buyer and its counsel, accountants, and
other representatives will have full access during normal business hours to all
properties, books, accounts, records, contracts, and documents of or relating
to Subsidiary. Selling Parties will furnish or cause to be furnished to Buyer
and its representatives all data and information concerning the business,
finances, and properties of Subsidiary that may reasonably be requested.

 

9.2                                 Conduct
of Business in Normal Course. Subject to Selling Parties’ available cash,
which all parties acknowledge is severely limited, Selling Parties will not
make or institute any unusual or novel methods of manufacture, purchase, sale,
lease, management, accounting, or operation that vary materially from those
methods used by Corporation and Subsidiary on the date of this Agreement.

 

9.3                                 No
Change in Business Relationships. Subject to available cash flow, Selling
Parties will use reasonable efforts under the circumstances to preserve their
respective business organizations intact, to keep available to Corporation and
Subsidiary their present officers and employees, and to preserve their present
relationships with suppliers, customers, and others having business
relationships with them.

 

8

 

9.4                                 No
Change in Corporate Structures. Subsidiary will not (1) amend its articles
of incorporation or bylaws, except as contemplated by this Agreement; (2) issue
any shares of its capital stock; (3) issue or create any warrants, obligations,
subscriptions, options, convertible securities, or other commitments under
which any additional shares of its capital stock of any class might be directly
or indirectly authorized, issued, or transferred from treasury; or (4) agree to
do any of the acts listed above.

 

9.5                                 Maintenance
of Insurance. Subject to available cash flow, Selling Parties will continue
to carry their existing insurance.

 

9.6                                 Employees
and Compensation. Unless Selling Parties and Buyer first mutually agree,
Subsidiary will neither do, nor agree to do, any of the following acts: (1)
make any increase in compensation payable, or to become payable, by Subsidiary
to any officer, employee (including membrane employees), sales agent, or
representative; or (2) make any increase in benefits payable to any officer,
employee, sales agent, or representative under any bonus or pension plan or
other contract or commitment.

 

9.7                                 New
Transactions. Prior to Closing, neither Corporation nor Subsidiary will,
without Buyer’s written consent, do or agree to do any of the following acts as
they pertain to Subsidiary and the membrane operation:

 

(1) Enter into any contract, commitment, or
transaction not in the usual and ordinary course of its business or not
consistent with its past practices;

 

(2) Make any capital expenditures, or enter into any
leases of capital equipment or property;

 

(3) Sell or dispose of any capital assets, or place or
allow to be imposed any Encumbrance on any of the Assets;

 

(4) Enter into any blanket purchase orders in excess
of $5,000;

 

(5) Enter into any licenses; or

 

(6) Take any steps toward the dissolution or winding
up of Subsidiary, except as contemplated by this Agreement.

 

Notwithstanding the foregoing, the Selling Parties may take any action,
including without limitation any of the above, necessary or appropriate to
fulfill the fiduciary duties of the board of directors to the Corporation’s
shareholders and the Selling Parties’ creditors, upon the concurring advice of
Corporation’s counsel, including without limitation the termination of this
Agreement.

 

9.8                                 No
Dividends Distributions or Acquisitions of Stock. Subsidiary will not:

 

9

 

(1) Declare, set aside, or pay any dividend or make
any distribution in respect of its capital stock;

 

(2) Directly or indirectly purchase, redeem, or
otherwise acquire any shares of its capital stock; or

 

(3) Enter into any agreement obligating it to do any
of the foregoing prohibited acts.

 

9.9                                 Restrictions
on Payment of Liabilities and Waiver of Claims. Subsidiary will not do, or
agree to do, any of the following acts: (1) pay any obligation or liability,
fixed or contingent, other than in the ordinary course of business; (2) waive
or compromise any right or claim; or (3) cancel, without full payment, any
note, loan, or other obligation owing to Subsidiary.

 

9.10                           No
Change in Existing Agreements. Neither Corporation nor Subsidiary will
modify, amend, cancel, or terminate any of its existing contracts or agreements
related to the Assets listed in Exhibit A hereto, or agree to do any of those
acts without prior approval by Buyer, other than in the ordinary course of
business.

 

9.11                           Consents
of Third Parties. As soon as reasonably practical after the execution and
delivery of this Agreement, and in any event on or before the Closing Date,
Selling Parties will obtain the necessary written consents to permit the
assumption of liabilities by Buyer, with the reasonable assistance and cooperation
of Buyer pre-Closing, and will furnish to Buyer executed copies of those
consents. Buyer and Selling Parties will exercise reasonable efforts and
promptly execute and deliver any documents and instruments that may be
reasonably required to assist in obtaining such consents. Selling Parties shall
have no liability to Buyer for the failure to obtain any consent prior to
Closing if Buyer elects to close the transactions contemplated hereby without
such consent.

 

9.12                           Approval
of Governmental Authorities. As promptly as practicable after the execution
of this Agreement, Corporation and Buyer will each prepare and file any filings
required to be filed by it under the Securities Exchange Act of 1934, the
Securities Act, or any other federal, state, or foreign laws relating to the
transactions contemplated by this Agreement (“Other Filings”). Corporation and
Buyer each shall promptly supply the other with any information that may be
required to effectuate any filings under this paragraph.

 

9.13                           Corporate
and Shareholder Approvals. Corporation and Subsidiary will deliver to
Buyer, on or before the Closing Date, a written consent of a majority in
interest of its shareholders, or such other approvals as is required in
accordance with Selling Parties’ respective charter documents (“Shareholders”),
authorizing and approving the Corporation’s and Subsidiary’s execution,
delivery, and performance of its obligations under this Agreement (including
the sale of substantially all of Subsidiary’s assets to Buyer under this Agreement).
The

 

10

 

record date for Shareholders entitled to notice of and to vote as per
this section shall be the date of the execution of this Agreement, or earlier.

 

9.14                           Seller
to Hold Information in Confidence. From and after the Closing, Selling
Parties and their respective officers, directors, and other representatives
will each hold in strict confidence all information of a confidential nature
and not generally known to the public with respect to the business of
Corporation and Subsidiary or the Assets except when that disclosure of such
information may be required by law or by any Governmental Authority or in any
Proceeding. If any of the Selling Parties believe that such disclosure is
required, that party will give Buyer advance notice of the disclosure and the
basis for it, and permit Buyer a reasonable opportunity to eliminate the need
for or to narrow such disclosure. Buyer acknowledges that a copy of this
Agreement may be required to be filed as an Exhibit to Form 8-K with the
Securities and Exchange Commission upon execution hereof, and subsequently as
an Exhibit to an Information Statement pursuant to Rule 14C of the Securities
Exchange Act of 1934 in connection with approvals required by Section 9.14
above.

 

9.15                           No
Disparagement. From and after the date of execution of this Agreement, none
of the parties hereto, nor any of their officers, directors, managers or key
employees, as that term is generally understood, shall disparage the other in
any communications, whether oral or written.

 

10.0                           Buyer’s
Obligations.

 

10.1                           Obligation
to Maintain Confidence. Unless and until the Closing has been consummated,
Buyer and its officers, directors, and other representatives will hold in
strict confidence, and will not use to the detriment of Selling Parties, all
data and information with respect to the business of Corporation and Subsidiary
obtained in connection with this transaction or Agreement, unless disclosure of
such information is otherwise required by law or by any Governmental Authority
or in any Proceeding.

 

10.2                           Waiver
of Compliance with Bulk Sales Law. Buyer waives compliance with the
provisions of Article 6 of the California Uniform Commercial Code relating to
bulk sale in connection with this sale of assets, subject to the indemnities of
Selling Parties contained in this Agreement. Nothing in this paragraph will
stop or prevent either Buyer or Subsidiary from asserting as a bar or defense
to any Proceeding brought under the bulk sale law that such law does not apply
to the sale contemplated under this Agreement.

 

11.0                           Conditions
Precedent to Buyer’s Performance. The obligations of Buyer to purchase the
Assets under this Agreement are subject to the satisfaction, at or before the
Closing, of all the conditions set out below in this Section 11. Buyer may
waive any or all of these conditions in whole or in part in writing, and such
waiver shall be a waiver for all purposes hereunder.

 

11

 

11.1                           Accuracy
of Selling Parties’ Warranties. All representations and warranties by each
of the Selling Parties in Section 7 of this Agreement, or in any written
statement that will be delivered to Buyer by any of the Selling Parties under
this Agreement must be true and correct in all material respects on and as of
the Closing Date, as though such representations and warranties were made on
and as of that date. Selling Parties shall update the Exhibits and Disclosure
Schedules as of the Closing to reflect any changes to the information provided
therein after the date of execution of this Agreement.

 

11.2                           Performance
by Selling Parties. On or before the Closing Date, each of the Selling
Parties will have performed, satisfied, and complied in all material respects
with all covenants, agreements, and conditions that they are required by this
Agreement to perform, comply with, or satisfy, before or at the Closing.

 

11.3                           
Certification of Certain Conditions. Buyer will have received a
certificate, dated the Closing Date, signed and verified by Corporation’s and
Subsidiary’s respective presidents and their respective treasurers or chief
financial officers, stating, in such detail as Buyer and its counsel may
reasonably request, that to the best of their knowledge the conditions specified
in sections 11.1, 11.2, and 11.5 through 11.7 have been fulfilled.

 

11.4                           Absence
of Litigation. No Proceeding before any Governmental Authority pertaining
to the transaction contemplated by this Agreement or to its consummation, or
that could reasonably be expected to have a material adverse effect on
Subsidiary, its business, assets, or financial conditions, or the Assets will
have been instituted or threatened before the Closing Date.

 

11.5                           Corporate
Approval. The execution, delivery, and performance of this Agreement by
Corporation and Subsidiary and the consummation of the transactions
contemplated will have been duly authorized by all necessary corporate action
by the board of directors and shareholders of each of Corporation and
Subsidiary, and Buyer will have received copies of all resolutions of the board
of directors and shareholders of the Corporation and Subsidiary pertaining to
that authorization, certified by their respective secretaries.

 

11.6                           Consents.
All necessary agreements and consents of any parties to the consummation of the
transactions contemplated in this Agreement, or otherwise pertaining to the
matters covered by it, will have been obtained by Selling Parties.

 

11.7                           Closing
Actions and Approvals. Selling Parties shall have delivered to Buyer all
documents and taken all actions required to be taken by such parties under
Sections 9 and 11 of this Agreement. The form and substance of all
certificates, instruments, and other documents delivered to Buyer under this
Agreement must be satisfactory in all reasonable respects to Buyer and its
counsel.

 

11.8                           Due
Diligence. Buyer shall be satisfied, in its sole and absolute discretion,
with the results of its due diligence review of Corporation and Subsidiary.

 

12

 

12.0                           Conditions
Precedent to Sellers’ Performance. The obligations of Corporation and
Subsidiary to sell and transfer the Assets under this Agreement are subject to
the satisfaction, at or before Closing, of all the following conditions.
Selling Parties may waive any or all of these conditions in whole or in part in
writing for all purposes hereunder.

 

12.1                           Accuracy
of Buyer’s Warranties. All representations and warranties by Buyer in
Section 8 of this Agreement or in any written statement that will be delivered
to any of the Selling Parties by Buyer under this Agreement must be true in all
material respects on and as of the Closing Date as though such warranties were
made on and as of that date.

 

12.2                           Buyer’s
Performance. On or before the Closing Date, Buyer will have performed,
satisfied, and complied in all material respects with all covenants,
agreements, and conditions that it is required by this Agreement to perform,
comply with, or satisfy, before or at the Closing.

 

12.3                           Buyer’s
Approval. The execution, delivery, and performance of this Agreement by
Buyer and the consummation of the transactions contemplated will have been duly
authorized by all necessary action by Buyer. The parties understand and
acknowledge that Buyer is a member managed limited liability company and that
no approvals other than the sole member manager are required.

 

12.4                           Absence
of Litigation. No Proceeding, pertaining to the transaction contemplated by
this Agreement or to its consummation, will have been instituted or threatened
on or before the Closing Date.

 

12.5                           Closing
Actions and Approval. Buyer shall have delivered to Selling Parties all
documents and taken all actions required to be taken by such parties under
Sections 10 and 12 of this Agreement. The form and substance of all
certificates, instruments, opinions, and other documents delivered to Selling
Parties under this Agreement must be satisfactory in all reasonable respects to
them and their counsel.

 

13.0                           Time
and Place of Closing. The sale and transfer of the Assets by Selling
Parties to Buyer (the Closing) will take place at the offices of the
Subsidiary, 23456 South Pointe Drive, Laguna Hills, California at 5:00 p.m.
local time, on May 27, 2005, or at such other time and place, as the parties may
agree to in writing (the Closing Date). The effective time of the Closing shall
be 11:59 p.m. on the Closing Date.

 

14.0                           Selling
Parties’ Obligations at Closing. At the Closing, Corporation and Subsidiary
must deliver or cause to be delivered to Buyer:

 

13

 

14.1                           Instruments
of assignment and transfer of all the Assets being transferred hereunder of
every kind and description and wherever situated.

 

14.2                           Simultaneously
with the consummation of the transfer, Corporation, through its officers,
agents, and employees, will put Buyer into full possession and enjoyment of all
properties and assets to be conveyed and transferred by this Agreement.

 

14.3                           Corporation
shall immediately take all action required to (1) change its name from
Electropure to a name unrelated to the Electropure or EDI business or market;
and (2) as soon as practicable after the Closing Date, shall take all action
required to liquidate completely and terminate Subsidiary’s corporate existence
in accordance with applicable law. Buyer shall be provided with a certified
copy of the Certificate of Amendment to the Articles of Incorporation of
Corporation reflecting its new corporate name and a certified copy of the
dissolution documents of Subsidiary filed with the Nevada Secretary of State,
as soon as practicable after Closing.

 

14.4                           Selling
Parties shall pay to Buyer, the full amount of interest and principal and
remaining fees due to Buyer under that certain Promissory Note between the
parties dated December 9, 2004, in the face amount of $100,000.

 

14.5                           Selling
Parties, at any time on or after the Closing Date, will execute, acknowledge,
and deliver any further deeds, assignments, conveyances, and other assurances,
documents, and instruments of transfer, reasonably requested by Buyer, and will
take any other action consistent with the terms of this Agreement that may
reasonably be requested by Buyer for the purpose of assigning, transferring,
granting, conveying, and confirming to Buyer, or reducing to possession, any or
all property to be conveyed and transferred under this Agreement.

 

14.6                           In
further consideration for the payments made by Buyer hereunder, neither Selling
Parties will, at any time within the five (5) year period immediately following
the Closing Date, directly or indirectly engage in, or have any interest in any
Entity (whether as an employee, officer, director, agent, security holder,
creditor, consultant, or otherwise) that engages in any activity in the world
that is the same as, similar to, or competitive with any activity now engaged
in by Subsidiary (or any successor or successors of either), especially but not
limited to all electrically-driven and electrochemical separation or
purification technology and products, as long as Buyer (or any successor)
engages in the activity.

 

The parties intend that the covenant contained in the
preceding portion of this section be construed as a series of separate
covenants, one for each country in the world. Except for geographic coverage, each
such separate covenant will be considered identical in terms to the covenant
contained in the preceding paragraph. If, in any Proceeding, a court refuses to
enforce any of the separate covenants included in this paragraph, the
unenforceable covenant will be considered eliminated from these provisions for
the purpose of those Proceedings to the extent necessary to permit the
remaining separate covenants to be enforced.

 

14

 

14.7                           As
soon as reasonably possible, but not more than three (3) business days
following the Closing, Selling Parties shall pay all trade payables of
Subsidiary which were not assumed by Buyer.

 

14.8                           A
certificate executed by the president of Selling Parties certifying that all
Selling Parties’ representations and warranties under Section 7 of this
Agreement are true as of the Closing Date, as though each of those warranties
had been made on that date, and that all of Selling Parties obligations
hereunder have been fulfilled.

 

15.0                           Buyer’s
Obligations at Closing. At the Closing, Buyer must deliver to Corporation
the following instruments and documents against delivery of the items specified
in paragraph 14.0:

 

15.1                           A
bank cashier’s check, or wire transfer in the amount of the difference between
the Purchase Price of $800,000 and the Assumed Liabilities and accrued expenses
and payroll as set forth in Section 3.0.

 

15.2                           A
certificate executed by the president of Buyer certifying that all Buyer’s
representations and warranties under Section 8 of this Agreement are true as of
the Closing Date, as though each of those warranties had been made on that
date, and that all of Buyer’s obligations hereunder have been fulfilled,
including without limitation the satisfactory conclusion of Buyer’s due diligence
review;

 

15.3                           Instruments
of assumption of the liabilities of Selling Parties to be assumed hereunder
executed by Buyer.

 

15.4                           Documents
releasing and terminating the UCC-1 Financing Statement filed in connection
with the Promissory Note described in Section 14.4 above.

 

16.0                           Selling
Parties’ Indemnity. Corporation will indemnify, defend, and hold harmless
Buyer against and in respect of claims, demands, losses, costs, expenses,
obligations, liabilities, damages, recoveries, and deficiencies, including
interest, penalties, and reasonable attorney fees (each a Loss), that Buyer,
its directors, officers, employees, consultants, managers, or shareholders
(each an indemnified party) will incur or suffer that arise from any breach of
or failure by Selling Parties to perform any of their representations,
warranties, covenants, or agreements in this Agreement or in any schedule,
certificate, exhibit, or other instrument furnished or to be furnished by
Selling Parties under this Agreement, or any action brought by shareholders,
officers, or directors of Corporation or Subsidiary with respect to this
transaction. Despite any other provision of this Agreement, Corporation will
not be liable to any indemnified party on any warranty, representation,
covenant, or agreement made by Selling Parties in this Agreement, or under any
of their indemnities in this Agreement, until such time as all claims of Losses
cumulatively exceed $5,000; if and when the aggregate amount of all such claims
of Losses cumulatively exceed such amount, Corporation will thereafter only be
liable for the Losses from those breaches and indemnities and regarding all
those Losses. In no event shall the Corporation be liable for any indemnity
obligation, and in the aggregate, in excess of 20% of the Purchase Price.

 

15

 

Buyer will promptly notify Selling Parties of the
existence of any claim asserted by a third party against any indemnified party
on which Buyer intends to assert an indemnification claim for Loss (a third
party claims notice), and will give Selling Parties a reasonable opportunity to
defend the same at their own expense and with counsel of their own selection;
provided that Buyer will at all times also have the right to participate fully in
the defense at its own expense. If, within thirty days after Buyer has given
the third party claim notice, Corporation fails to undertake the defense of
that third party claim, Buyer will have the right, but not the obligation, to
undertake the defense of, and to compromise or settle (exercising reasonable
business judgment), the claim or other matter on behalf and at the risk of
Corporation and Subsidiary. If the claim is one that cannot by its nature be
defended solely by Corporation and Subsidiary (including any federal or state
Tax Proceeding), Buyer will make available all information and assistance that
Corporation and Subsidiary may reasonably request.

 

17.0                           Buyer’s
Indemnity. Buyer must indemnify, defend and hold harmless Corporation and
Subsidiary against, and in respect of, Losses they may incur by reason of Buyer’s
breach of or failure to perform any of its representations, warranties.
covenants, agreements or commitments in this Agreement, or by reason of any act
or omission of Buyer, or any of its successors or assigns, after the Closing
Date, that constitutes a breach or default under, or a failure to perform, any
obligation or liability of any of the Selling Parties under any loan agreement,
lease, contract, order, or other agreement to which it is a party or by which
it is bound at the Closing Date, but only to the extent to which Buyer
expressly assumes these obligations, duties, and liabilities under this
Agreement, or with respect to the liabilities and obligations of the business
being acquired arising after the Closing Date, other than liabilities which are
not assumed by Buyer.  Despite any other
provision of this Agreement, Buyer will not be liable to any indemnified party
on any warranty, representation, covenant, or agreement made by Buyer in this
Agreement, or under any of their indemnities in this Agreement, until such time
as all claims of Losses cumulatively exceed $5,000; if and when the aggregate
amount of all such claims of Losses cumulatively exceed such amount, Buyer will
thereafter only be liable for the Losses from those breaches and indemnities
and regarding all those Losses. In no event shall the Buyer be liable for any
indemnity obligation, and in the aggregate, in excess of the total amount of
the liabilities assumed under in Section 4.0 hereof.

 

18.0                           Publicity.
All notices to third parties and all other publicity concerning the
transactions contemplated in this Agreement will be jointly planned and
coordinated by and between Buyer and Selling Parties. No party will act unilaterally
in this regard without the prior written approval of the others; however, this
approval will not be unreasonably withheld. Notwithstanding the foregoing,
Buyer shall have no participation, approval or consent rights with respect to
any matters requiring public disclosure pursuant to the securities laws.

 

19.0                           Brokers.
Each party warrants that it has dealt with no broker or finder in connection
with any transaction contemplated by this Agreement, and, as far as it knows,
no broker or other Person is entitled to any commission or finder’s fee in
connection with any of these transactions.

 

16

 

20.0                           Expenses.
Each party will pay all costs and expenses, including its attorney fees and
expenses, incurred or to be incurred by it in negotiating and preparing this
Agreement and in Closing and carrying out the transactions contemplated in this
Agreement.

 

21.0                           Effect
of Headings. The subject headings of the paragraphs and subparagraphs of
this Agreement are included for convenience only and will not affect the
construction or interpretation of any of its provisions.

 

22.0                           Entire
Agreement. This Agreement constitutes the entire agreement between the
parties pertaining to the subject matter contained in it and supersedes all
prior and contemporaneous agreements, representations, and understandings of
the parties. No supplement, modification, or amendment of this Agreement will
be binding unless executed in writing by all the parties. No waiver of any of
the provisions of this Agreement will be considered, or will constitute, a
waiver of any other provision, and no waiver will constitute a continuing
waiver. No waiver will be binding unless executed in writing by the party
making the waiver.

 

23.0                           Counterparts.
This Agreement may be executed in one or more counterparts, each of which will
be considered an original, but all of which together will constitute one and
the same instrument.

 

24.0                           Parties
in Interest. Nothing in this Agreement, whether express or implied, is
intended to confer any rights or remedies under, or by reason of, this
Agreement on any Persons other than the parties to it and their respective
successors and assigns; nothing in this Agreement is intended to relieve or
discharge the obligation or liability of any third party to any party to this
Agreement; and no provision will give any third party any right of subrogation
or claim against any party to this Agreement.

 

25.0                           Assignment.
This Agreement will be binding on, and will inure to the benefit of, the
parties to it and their respective heirs, legal representatives, successors,
and assigns, provided that the Selling Parties may not assign their obligations
under this Agreement pre-Closing, and before the Closing, Buyer may not assign
any of its rights under this Agreement except to a wholly owned subsidiary of
Buyer.

 

26.0                           Arbitration.
Any controversy or claim arising from or relating to this Agreement, or its
making, performance, or interpretation, will be settled by arbitration in San
Diego County, California under the commercial arbitration rules of the American
Arbitration Association then existing. Judgment on the arbitration award may be
entered in any court having jurisdiction over the subject matter of the
controversy.

 

27.0                           Specific
Performance. Each party’s obligation under this Agreement is unique. If any
party should default in its obligations under this Agreement, the parties each
acknowledge that it would be extremely impracticable to measure the resulting
damages; accordingly, the non-defaulting party or parties, in addition to any
other available rights or remedies, may sue in equity for specific performance,
and the parties each expressly waive the defense that a remedy in damages will
be adequate.

 

17

 

28.0                           Recovery
of Litigation Costs. If any legal Proceeding is brought for the enforcement
of this Agreement, or brought because of an alleged dispute, breach, default,
or misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party or parties will be entitled to recover
reasonable attorney fees and other costs incurred in that Proceeding, in
addition to any other relief to which they may be entitled.

 

29.0                           Conditions
Permitting Termination. This Agreement may be terminated at any time before
completion of the Closing:

 

29.1                           by
mutual written consent of the parties, duly authorized by the boards of
directors or managers, as appropriate, of Buyer, Corporation, and Subsidiary;

 

29.2                           by
either party if the Closing has not occurred on or before June 30, 2005 for any
reason, provided, however, that the right to terminate this Agreement under
this paragraph (2) shall not be available to any party whose action or failure
to act has been a principal cause of or resulted in the failure of the Closing
to occur on or before such date and such action or failure to act constitutes a
breach of this Agreement;

 

29.3                           by
either party if any bona fide Proceeding is pending against any party on the
Closing Date that could result in an unfavorable judgment, decree, or order
that would prevent or make unlawful the performance of this Agreement;

 

29.4                           by
Corporation or Subsidiary if Selling Parties, or either of them, receive a bona
fide offer to acquire substantially all of the assets of Subsidiary, whether by
purchase of the subsidiary’s assets directly, by stock purchase of either
Subsidiary or Corporation, by purchase of substantially all of Corporation’s
assets, or by merger with either Subsidiary or Corporation, on terms materially
more favorable to Selling Parties than those set forth herein, and, with the
advice of counsel, the failure to consider and accept such offer would result
in the breach of the Corporation’s or Subsidiary’s respective boards’ of
directors fiduciary duties to the Selling Parties’ respective shareholders and
creditors. In the event of a termination under this section 29.4, Corporation
shall pay to Buyer an amount equal to five percent (5%) of the gross amount of
the offer made by that third party allocated to the assets of Subsidiary (in no
case less than Purchase Price), said sum to be paid no later than on the
Closing of the third party purchase;

 

29.5                           by
Corporation or Subsidiary if Selling Parties, or either of them, take any
action contemplated in section 9.7 that leads to the termination of this
Agreement (as being necessary or appropriate to fulfill the fiduciary duties of
the board of directors to the Corporation’s shareholders and the Selling
Parties’ creditors, with the concurring advice of Corporation’s counsel).  In the event of a termination under this
section 29.5, Corporation shall reimburse Buyer for all reasonable expenses
associated with actions taken in furtherance of this Agreement, up to a maximum
reimbursement of $15,000, said sum to be paid no later than ten (10) days from
the date of termination.

 

18

 

29.6                           by
either party if Corporation or Subsidiary shall file for protection from
creditors in the United States Bankruptcy Court.

 

29.7                           by
either party if Corporation or Subsidiary decides to close the Subsidiary’s
operation.

 

30.                                 Defaults
Permitting Termination. If, before the Closing, either Buyer or Selling
Parties materially default in the due and timely performance of any of their
covenants, or agreements under this Agreement, or if any representation or
warranty becomes materially untrue, the non-defaulting party or parties may
terminate this Agreement, provided that, if the default or breach of the
covenant or agreement, or untruth in the representation, can be cured,
termination will not be effective for fifteen days after delivery of written
notice of intent to terminate, and if the breach is cured within that time, the
non-defaulting party will have no right to terminate this Agreement on account
of that breach.

 

31.                                 Effect
of Termination. Any proper termination of this Agreement in accordance with
its terms will be effective immediately on delivery of written notice by the
terminating party to the other parties (unless a provision of this Agreement
permits a party a cure period, and then on the expiration of that cure period
without cure). In the event of termination of this Agreement as provided in
Section 29, then this Agreement shall be of no further force or effect, except
sections 9.15, 10.1, 18, 20, 26, 28, 31, 33 and 34, and nothing in this
Agreement shall relieve any party from liability for any willful breach of any
covenant of this Agreement or for any intentional or willful act or omission by
a party that renders any representation or warranties of such party untrue.
Upon termination of this Agreement for any reason, Selling Parties shall pay to
Buyer an amount equal to Buyer’s expenses incurred to date in connection with
the negotiation and implementation of this Agreement and the transactions
reflected herein, up to a maximum of $10,000, said sum to be paid within 30
days of termination.

 

32.                                 Survival
of Representations and Warranties. Only the representations and warranties
made by Selling Parties pursuant to Sections 7.8, 7.10 and 7.11 will survive
the Closing, and will expire 180 days after the Closing. This limitation period
for the survival of these specified warranties of Selling Parties will not
apply in the case of fraud.

 

33.                                 Notices.
All notices, requests, demands, and other communications under this Agreement
must be in writing and will be considered to have been duly given on the date
of service if served personally on the party to whom notice is to be given, or
on the second day after mailing if mailed to the party to whom notice is to be
given, by first class mail, registered or certified, postage prepaid, and
properly addressed as follows:

 

	
  To Selling Parties at:

  	
  Electropure, Inc.

  
	
   

  	
  23456 South Pointe Drive

  
	
   

  	
  Laguna Hills, CA 92653

  
	
  To Buyer at:

  	
  SnowPure, LLC

  
	
   

  	
  P.O. Box 8157

  
	
   

  	
  Rancho Santa Fe, CA 92067

  

 

19

 

	
  with copy to:

  	
  Pauline H. G. Getz

  
	
   

  	
  Getz & Associates

  
	
   

  	
  13025 Danielson St., Suite 107

  
	
   

  	
  Poway, CA 92064

  

 

Any party may change its address for purposes of this
paragraph by giving the other parties written notice of the new address in the
manner set forth above.

 

34.                                 Governing
Law. This Agreement will be construed in accordance with, and governed by,
the laws of the State of California as applied to contracts that are executed
and performed entirely in California.

 

35.                                 Severability.
If any provision of this Agreement is held invalid or unenforceable by any
court of jurisdiction, it is the intent of the parties that all other
provisions of this Agreement be construed to remain fully valid, enforceable,
and binding on the parties.

 

IN WITNESS WHEREOF, the parties to this Agreement have
duly executed it on the day and year first above written.

 

	
  BUYER

  	
  SnowPure, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael Snow

  	
   

  
	
   

  	
   

  	
  Michael Snow,
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
  CORPORATION

  	
  Electropure, Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Floyd
  Panning

  	
   

  
	
   

  	
   

  	
  Floyd Panning,
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  [Seal]

  
	
   

  	
   

  
	
  SUBSIDIARY

  	
   

  	
  Electropure EDI, Inc.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Floyd
  Panning

  	
   

  
	
   

  	
   

  	
  Floyd Panning,
  President

  
					

 

20

 

EXHIBIT A-1

to Agreement for Purchase
and Sale of Assets

 

Assets

 

All assets currently used in Subsidiary’s business, of
any and all kinds and nature, as more specifically described below, but
excluding those identified in Exhibit B:

 

1.                                       All
Accounts Receivables, inclusive of those listed in Exhibit F.

 

2.                                       All
raw material, inventory, finished goods, supplies, materials, and works in
progress.

 

3.                                       All
claims and rights under contracts and notes specifically assumed by Buyer and
reflected on Exhibit C.

 

4.                                       All
software programs (excluding Business Works) and related manuals,
documentation, licenses and rights that are currently utilized on each of the
computers being transferred to Buyer under the Agreement.  Buyer shall be entitled to use the Business
Works software program and license until such time as the Selling Parties no
longer require such software program for their continued operation, jointly or
severally, at which time the license for the BusinessWorks software program
will be transferred to Buyer.

 

5.                                       The
TSMS software program (for the membrane equipment), related manuals,
documentation, licenses and rights.

 

6.                                       All
copies and tangible embodiments of software programs and computer data
currently utilized by Subsidiary.

 

7.                                       All
Intellectual Property rights and holdings exercisable or available in any
jurisdiction of the world, inclusive of, but not limited to, the items
specified in Exhibit A-2, and the exclusive right of Buyer to hold itself out
to be the successor to the business of Subsidiary.

 

8.                                       All
claims, causes of action, royalty rights, deposits, and rights and claims to
refunds and adjustments of any kind (including rights to set-off and
recoupment), and insurance proceeds arising after Closing.

 

9.                                       All
business records and information relating to Subsidiary’s business (whether
owned by Corporation or Subsidiary), whether in tangible or electronic form,
including general and financial records (but excluding corporate governance
records), marketing and sales information, operational records (but excluding
employee files), customer lists and customer files, vendor lists and vendor
files, plans, and pricing information, inclusive of archive accounting files
and records for the last three (3) full fiscal years prior to the date of
closing.   Buyer will provide Selling
Parties with unfettered access to any files transferred hereby upon reasonable
notice and request.

 

21

 

10.                                 All
physical assets purchased for, or currently used in, the making and expansion
of the Ion Exchange Membrane which is the basis for Subsidiary’s business.

 

11.                                 All
physical assets purchased for, or currently used in, the assembly, testing, and
shipping of EDI Modules, including, without limitation:

 

(a)  Injection
Molding Tools

(i)  Resin Chamber

(ii)  RC Covers

(iii)  Manifold

 

(b)  Vacuum Form
Tool

(i)  XL Covers

 

(c)  Gasket
Tools

(i)  Old RF tool

(ii)  New RF tool

(iii)  Steel Rule Dies

(iv)  Zap RF and dies

(v)  Zap prototype tools

 

(d)  Endplate
Tool

(i)  Aluminum Die Cast tool

 

(e)  Steel Rule
Dies

(i)  Misc dies

(ii)  Adhesive dies

 

(f)  Resin
Chamber Assembly Equipment

(i)  Membrane Conversion Tanks and associated
safety and ventilation equipment, including leasehold improvement fan and
curtains.

(ii)  Membrane Rinsing Equipment and sinks and
tanks and heaters.

(iii)  Resin Weighing Equipment and Scales

(iv)  Resin Mixing Equipment and scales

(v)  Other Resin Equipment, and local controls and
switches.

(vi)  Membrane Application Equipment

(vii)  Refrigerator for filled RC’s

(viii)  Safety shower and eyewash

 

(g)  Plastic
Preparation Equipment

(i)  Ultrasonic welder

(ii)  Associated horns, jigs

(iii)  Testing equipment

 

(h)  Module
Assembly Equipment

(i)  Jigs

(ii)  Pneumatic tools and EDI pneumatic oiling and
filtering devices.

(iii)  Press

(iv)  Bolt preparation ovens

(v)  Heat sealing equipment

(vi)  Soldering equipment

(vii)  EDI Tools & Toolbox

(viii)  Zap assembly tools and jigs

(ix)  Benches and stools associated with assembly

 

22

 

(i)  Module
Testing Equipment

(i)  Testing stations & associated plumbing
(non-building)

(ii)  Testing bench

(iii)  DC Power supplies (production)

(iv)  Hot water treatment cart

(v)   Instruments

(vi)  Carts

(vii) Off-site testing
equipment in Netherlands

(viii) Off-site testing
equipment in Japan

 

12.                                 Other
EDI and Membrane Support Utilities

 

(a)  Carbon Tank

(b)  Water
Softeners

(c)  RO room
portable sink (not part of building)

(d)  RO #1

(e)  RO #2

(f)  RO/EDI #3

(g)  RO Tank #1
& recirculation pump & related circulation plumbing, not part of the
building plumbing system.

(h)  RO Tank #2
(testing room) & recirculation pump & related circulation plumbing, not
part of the building plumbing system.

(i)  RO Tank #3
(testing room) & recirculation pump & related circulation plumbing, not
part of the building plumbing system.

(j)  Inventory
racks (gray, orange, green), small and large

Air Compressor (leave behind building copper lines
& fittings)

(k)  Timeclock

(l)  EDI Water
cooler

(m)  Portable
air circulation Fans

(n)  Storage
racks in break room

(o)  Storage
racks in welder room, including all spare parts, plumbing, electrical, etc.

(p)  Packing and
shipping equipment and scales, and handtrucks

(q) 
Miscellaneous “non-inventory” palleted items on storage racks

 

13.                                 R&D
Equipment

(a)  Hach 5000

(b)  Hach
Portable Analysis Kit

(c)  Meters

(d)  R&D
testing bench & resistivity meters

(e)  R&D
XL-100 skid for long term testing

(f)  R&D
Portable Carts

(g)  R&D DC
power supplies

(h)  R&D Tools
& Toolbox

(i)  R&D
Benches & Tables

(j)  R&D
fume hood

 

23

 

(k)  Production
engineering prototypes, including

(i)  Heat sealer

(ii)  Auto resin filler

 

14.                                 Other
Tools

(a)  Lathe

(b)  Drill Press

(c)  Saw

(d)  Sander

(e)  Grinder

(f)  Vises

 

15.                                 Marketing
Equipment

(a)  Show booth

(b)  Gateway
Monitor used for EDI Customer Presentations, TV, and VCR

(c)  Electropure
building sign

(d)  Epson
Durabrite printer

 

16.                                 Furniture

(a)  Training
room table & chairs, including whiteboards, excluding built-in benches and
cabinets.

(b)  Production
Manager furniture & computer, including white boards and benches (not
built-in or part of building).

(c)  Desks,
deskchairs, guestchairs, file cabinets, bookshelves, books, computers, all
upstairs furniture and computers and printers, except from Floyd Panning
office, HR office, GF office, corporate Board Room, and kitchen.

(d)  Various
empty filing cabinets to be determined

(e)  Customer
service computer

(f)  EDI
photocopier

(g)  1 4-drawer
lateral filing cabinet located in the downstairs reception area and shared by
Corp, EDI, Memb, and MIT.

(h)  Break room
furniture

(i)  Desk
currently utilized at the first reception area nearest the front door

 

17.                                 Historical
Assets

(a)  Physical
prototypes & prior art

(b)  Historical
physical samples of components (gaskets, membranes, endplates, etc.

(c)  Historical
physical samples of membranes, both from Electropure and competitors.

(d)  Competitors
products used for analysis, both complete and disassembled.

(e)  Drawings,
sketches, binders, drawing file cabinet (generally upstairs storage room)

 

18.                                 Vehicles

(a)  1992
Chevrolet Astro van bearing vehicle ID number: 
1GCDM19Z5NB231520

(b)  Forklift
truck, Towmotor Type G, Model 4024, Serial Number 660935

 

24

 

EXHIBIT A-2

to Agreement for Purchase
and Sale of Assets

 

Intellectual Property

 

1.                                       Patents:

 

(a)  “Methods and apparatus for the formation of
heterogeneous ion-exchange membranes”, United States Patent 6,503,957

Bernatowicz, Snow, et al., Issued January 7, 2003

 

(b)  “Methods
and apparatus for the formation of heterogeneous ion-exchange membranes”,
United States Patent 6,716,888

Bernatowicz, Snow, et al., Issued April 6, 2004

 

(c)  “Methods
and apparatus for the formation of heterogeneous ion-exchange membranes”,
European Patent (Austria, Switzerland, Germany, France, UK), EP1101790

O’Hare, Snow, et al., Issued October 8, 2004

 

(d)   “Methods
and apparatus for the formation of heterogeneous ion-exchange membranes”,
Taiwanese Patent No. 160344, Serial No. 89124477

Bernatowicz, Snow, et al., Issued November 21, 2002

 

(e)  Same Patent
applied for in Japan, JP2001220454A, pending

 

(f)  Same Patent
applied for in Israel, IL139737D, abandoned

 

(g)  Same Patent
applied for in Canada, CA2325938A1, pending

 

(h)  Same Patent
applied for in Mexico, pending

 

(i)  Same Patent
applied for in Korea, pending

 

(j) 
Device/Apparatus patent applied for in US, pending, 2003.

 

2.                                       Trademarks
and trade names:

 

	
  ElectropureTM

  XLTM

  XL by ElectropureTM

  EPM, EPX, EPH

  	
  ZapTM,

  ZapwaterTM

  ExcellionTM

  HOH Water Technology

  Watergizer, Eric, Erid

  	
  

  	
  

  

 

3.                                       Service
marks:

 

High Technology Water SM                                                Water
Too Pure to Drink SM

 

25

 

EXHIBIT A-3

to Agreement for Purchase
and Sale of Assets

 

Intangible Assets

 

1.                                       All
ownership and registration rights in all web sites, inclusive of:

 

www.electropure.com

www.electropure-inc.com

 

2.                                       All
rights to use, disseminate and maintain business telephone numbers, inclusive
of:

 

949.770.9347

949.770.9209 fax

 

3.                                       All
“good will” associated with Subsidiary’s business and assets.

 

4.                                       All
rights in all other forms of intangible business assets, inclusive of “know-how,”
required for or otherwise used in and associated with Subsidiary’s business.

 

26

 

EXHIBIT B

to Agreement for Purchase
and Sale of Assets

 

Excluded Assets

 

The following items, and only they, are excluded from
the Agreement for Purchase and Sale of Assets:

 

All assets which are not specifically identified on
Exhibit A-1, A-2, and A-3 to the Agreement including, but not limited to:

 

1.                                       Excluded
from the item “Training room table & chairs, including whiteboards” in
Exhibit A-1 are built-in benches and cabinets.

 

2.                                       Excluded
from the item “Desks, deskchairs, guestchairs, file cabinets, bookshelves,
books, computers, all upstairs furniture and computers and printers” in Exhibit
A-1 are the Floyd Panning office, HR office, GF office, corporate Board Room,
and kitchen, together with all furniture, equipment, computers and supplies
located in the downstairs reception area, waiting area and MIT area and four
(4) of the ten (10) guestchairs referred to in Exhibit A-1.

 

3.                                       All
of Subsidiary’s employee files and corporate governance files.

 

4.                                       Cash
currently held in the possession of Selling Parties.

 

5.                                       Insurance
policies in the name of the Selling Parties

 

6.                                       Real
Estate held in the possession of Electropure Holdings, LLC, a subsidiary of
Corporation

 

7.                                       Employee
Benefit Plans

 

8.                                       Right
to tax refunds on payments or transactions arising prior to Closing

 

9.                                       Any
stock equity instrument in the Corporation or any of its subsidiaries,
including the Subsidiary.

 

10.                                 All
telephones and telephone equipment located throughout the building at 23456
South Pointe Drive, Laguna Hills, CA, which Buyer shall be permitted to utilize
at the location.

 

11.                                 All
business licenses and permits of any kind issued to the Corporation or any of
its subsidiaries.

 

12.                                 All
capitalized or organizational costs (but not the tangible capitalized
equipment) on the books of the Corporation and its subsidiaries.

 

13.                                 All
Intellectual Property relating to Micro Imaging Technology.

 

Note:  Also excluded from the
Agreement for Purchase and Sale of Assets is customer inventory, raw and
finished, which is kept in storage for customers as per ongoing agreements for
the same. Such items exist on-site but do not belong to Corporation or
Subsidiary, and so are excluded from the asset purchase and sale, and Buyer shall
maintain possession and control of the same.

 

27

 

EXHIBIT C

to Agreement for Purchase
and Sale of Assets

 

Assumed Liabilities

 

The exact amount of the contracts and trade payables to be assumed by
Buyer will be determined at Closing. 
Such contracts and trade payables are currently estimated to aggregate
$290,632 as of the date of this Agreement.

 

28

 

EXHIBIT D

to Agreement for Purchase
and Sale of Assets

 

Accrued Payroll and Expenses

 

The exact amount of the accrued payroll and expenses to be offset
against the purchase price will be determined at Closing.  Such accrued payroll and expenses are
currently estimated to aggregate $53,001.35 as of the date of this Agreement.

 

29

 

EXHIBIT E

to Agreement for Purchase
and Sale of Assets

 

Disclosure Schedule

 

The following information is disclosed by Selling
Parties to Buyer, pursuant to section 7.0:

 

Section 7.3 -                             Financial
Statements.  Corporation represents
that it has made available to Buyer its Form 10-KSB for the fiscal years ended
October 31, 2001, 2002 and 2003 via access to such filings on the Corporation’s
website (www.electropure-inc.com) and/or the Securities and Exchange Commission
website (www.sec.gov).

 

Section 7.5 -                               Inventory.  Customer inventory, raw and finished, which
is kept in storage for customers as per ongoing agreements for the same, do not
belong to the Selling Parties and are excluded from the assets being
transferred to Buyer.

 

Raw materials listed in the inventories may be in the temporary
possession of certain vendors during the conduct of ordinary business.

 

Obligations or contingent liabilities may arise as a result of the
following certain agreements:

 

•                   MIHAMA:              Business Agreement
dated February 7, 2003 by and between Electropure, Inc. and Mihama Corporation
and its affiliate, AMP Ionex Corporation.

 

•                   EVERGREEN:                                          Non-Exclusive
Distributorship Agreement dated December 5, 2002 by and between Electropure
EDI, Inc. and Evergreen Technologies, Pvt., Ltd.

 

Addendum to Non-Exclusive Distributorship Agreement,
created on May 20, 2004.

 

•                   MAGNA POWER:                  Strategic
Alliance Agreement dated October 25, 2002 by and between Electropure EDI, Inc.
and Magna-Power Electronics.

 

•                   ECOLOCHEM:                                   Loan
and Supply Agreement dated April 24, 2003 by and between Electropure, Inc.,
Electropure EDI, Inc. and Ecolochem, Inc.

 

Amended and
Restated Loan and Supply Agreement dated April 24, 2003.

 

•                   GLEGG:                         Technology
Licence Agreement dated July 2, 1994 by and between Electropure, Inc., HOH
Water Technology Corporation and Glegg Water Conditioning, Inc.

 

Amended and Restated Technology Licence Agreement
dated May 22, 1997.

 

30

 

•                   POLYMETRICS:                         License
Agreement dated May 3, 1995 by and between Electropure, Inc., HOH Water
Technology Corporation and Polymetrics.

 

•                   ROYALTY:       License Agreement dated
October 30, 1986 by and between Harry M. O’Hare, HOH Water Tech, Inc. and HOH,
Inc.

 

•                   BLANKET PURCHASE ORDERS issued to certain Vendors to be
determined at Closing..

 

Section 7.6 – Tangible Personal Property.                     
The information set forth in Section 7.5 above is incorporated by reference as
though fully set forth herein.

 

Any tangible personal property which may currently be in the possession
of vendors, i.e., molds and dies,  may be
construed to be encumbered by any outstanding balance due the vendor holding
such property.

 

The software programs identified in Exhibit A-1 may be subject to
license agreements, the terms and conditions of which are dictated by the
respective manufacturer of each such software program.

 

31

 

EXHIBIT F

to Agreement for Purchase
and Sale of Assets

 

Accounts Receivable

 

The exact amount of the accounts receivable to be transferred to Buyer
will be determined at Closing.  Such
accounts receivable are currently estimated to aggregate $26,882 as of the date
of this Agreement.

 

32

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