Document:

EXHIBIT
10.59

 

8%
CONVERTIBLE TERM NOTE

 

	
  $200,000

  	
  February
  18, 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 Two Hundred Thousand
($200,000) 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

 

1

 

Company to another corporation, or voluntary or involuntary dissolution,
liquidation or winding up of the Company, then in any such case, the Company
shall cause to be mailed by certified mail to the Holder, at least fifteen days
prior to the date specified in (x) or (y) below, as the case may be, a notice
containing a brief description of the proposed action and stating the date on
which (x) a record is to be taken for the purpose of such dividend or distribution,
or (y) such reclassification, reorganization, consolidation, merger,
conveyance, lease, dissolution, liquidation or winding up is to take place and
the date, if any is to be fixed, as of which the holders of Common Stock or
other securities shall receive cash or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.

 

4.             EVENTS OF DEFAULT.  If one or more of the
following described events shall occur (each an “Event of Default”):

 

(a)           The Company shall fail to pay the
principal of, or interest on, this Note within five (5) days after the Holder
has given written notice to the Company that the same has become due; or

 

(b)           The Company shall fail to perform or
observe any of the provisions contained in any Section of this Note and such
failure shall continue for more than thirty (30) days after the Holder has
given written notice to the Company; or

 

(c)           Any material representation or
warranty made in writing by or on behalf of the Company in this Note shall
prove to have been false or incorrect in any material respect, or omits to
state a material fact required to be stated therein in order to make the
statements contained therein, in the light of the circumstances under which
made, not misleading, on the date as of which made, and the Company shall have
failed to cure such false or incorrect statement within thirty (30) days after
the Holder has given written notice to Borrower; or

 

(d)           The Company shall be adjudicated a bankrupt
or insolvent, or admit in writing its inability to pay its debts as they
mature, or make an assignment for the benefit of creditors; or the Company
shall apply for or consent to the appointment of a receiver, trustee, or
similar officer for it or for all or any substantial part of its property; or
such receiver, trustee or similar officer shall be appointed without the
application or consent of the Company and such appointment shall continue
undischarged for a period of thirty (30) days; or the Company shall institute
(by petition, application, answer, consent or otherwise) any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt, dissolution,
liquidation or similar proceeding relating to it under the laws of any
jurisdiction; or any such proceeding shall be instituted (by petition,
application or otherwise) against the Company and shall remain undismissed for
a period of ninety (90) days; or any judgment, writ, warrant of attachment or
execution or similar process shall be issued or levied against a substantial
part of the property of the Company and such judgment, writ, or similar process
shall not be released, vacated or fully bonded within ninety (90) days after
its issue or levy; or

 

2

 

(e)           The Company shall be enjoined,
restrained or in any way prevented by a court order from continuing to conduct
all or any material part of its business affairs;

 

(f)            Any suit, action or other proceeding
(judicial or administrative) commenced against the Company, or with respect to
any assets of the Company, shall threaten to have a material adverse effect on
their future operations, including, without limitation a final judgment or
settlement in excess of $25,000 in excess of insurance shall be entered in, or
agreed to in respect of any such suit, action or proceeding.

 

THEN, or at any time thereafter, and in each and every
case:

 

(1)           Where the Company is in default under
the provisions of Section 3(d) hereof, the entire unpaid principal amount of
the Note, all interest accrued and unpaid thereon, and all other amounts
payable to the Holder hereunder shall automatically become and be forthwith due
and payable without offset or counterclaim of any kind and without presentment,
demand, protest or notice of any kind, and without regard to the running of the
statute of limitations, all of which are hereby expressly waived by the
Company; and

 

(2)           In any other case referred to in this
Section 3, the Holder may, by written notice to the Company, as the case may
be, declare the entire unpaid principal amount of this Note, all interest
accrued and unpaid hereon, and all other amounts payable hereunder to be
forthwith due and payable, whereupon the same shall become immediately due and
payable, without offset or counterclaim of any kind and without presentment,
demand, or protest, and without regard to the running of any statutes of
limitation, all of which are hereby expressly waived by the Company.

 

Any declaration made
pursuant to Section 3(2) hereof is subject to the condition that, if at any
time after the principal of this Note shall have become due and payable, and
before any judgment or decree for the payment of the moneys so due, or any
thereof, shall have been entered, all arrears of principal and interest upon
this Note (except that principal of this Note which by such declaration shall
have become payable) shall have been duly paid, and every Event of Default
shall have been made good, waived or cured, then and in every such case the
Holder shall be deemed to have rescinded and annulled such declaration and its
consequences; but no such rescission or annulment shall extend to or affect any
subsequent Event of Default or impair any right consequent thereon.

 

5.             CORPORATE OBLIGATION.         It is expressly understood that this
Note is solely a corporate obligation of the Company and that any and all
personal liability, either at common law or in equity, or by constitution or
statute, of, and any and all rights and claims against, every stockholder,
officer, or director, as such, past, present or future, are expressly waived
and released by the Holder as a part of the consideration for the issuance
hereof.

 

6.             AUTHORIZATION; NO CONFLICT.             The borrowings hereunder, the
execution and delivery of the Note and the performance by the Company of its
obligations under this Agreement and the Note are within the corporate powers
of the Company, have been

 

3

 

authorized by all necessary corporate action, have received all necessary
governmental approval (if any shall be required) and do not and will not
contravene or conflict with any provision of law or of the charter or by-laws
of the Company or of any agreement binding upon the Company.

 

7.             TRANSFER.          
Subject to the appropriate provisions hereof, this Note or any portion
of the principal amount hereof (or any remaining balance if any pre-payments
have occurred pursuant to Section 1 hereof) is transferable on the records of
the Company upon presentation of this Note, properly endorsed, at its principal
office; upon such presentation and transfer a new Note or Notes will be
issued.  For the purposes of payment and
all other purposes, the Company shall deem and treat the person in whose name
this Note is registered as the absolute owner hereof and the Company shall not
be affected by any notice to the contrary.

 

8.             MISCELLANEOUS.

 

(a)           Notwithstanding the foregoing, the
Company promises to pay interest after maturity (whether by acceleration or
otherwise, and before as well as after judgment) at the same rate as above
provided prior to maturity on balances, if any, then outstanding.

 

(b)           Interest under this Note shall be
computed on the basis of a thirty (30) day month and a year of 360 days for the
actual number of days elapsed.

 

IN WITNESS WHEREOF, the Company has caused this Note
to be executed in Laguna Hills, California as of the day and year first above
written.

 

	
  COMPANY:

  	
  HOLDER:

  
	
   

  	
   

  
	
  ELECTROPURE, INC.

  	
   

  
	
   

  	
   

  
	
  By

  	
  /S/ Floyd H. Panning

  	
   

  	
  By

  	
  /s/
  Anthony M. Frank

  	
   

  
	
   

  	
   Floyd H.
  Panning, President

  	
   

  	
   Anthony
  M. Frank

  
	
   

  	
   23456 South Pointe Drive

  	
   

  	
   1 Maritime Plaza, Suite 825

  
	
   

  	
   Laguna Hills, CA 92653

  	
   

  	
   San Francisco, CA 94111

  
						

 

4EXHIBIT 10.60

 

SECOND
DEED OF TRUST AND SECURITY AGREEMENT

 

THIS SECOND DEED OF TRUST AND SECURITY AGREEMENT (“Security
Instrument”) is made as of the 18th day of February, 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 Two Hundred
Thousand Dollars ($200,000.00), evidenced by that certain 8% Convertible Term
Note dated February 18, 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 SAID LAND, AS

 

1

 

RESERVED IN DEEDS
RECORDED NOVEMBER 20, 1961 IN BOOK 5917, PAGE 12 AND MAY 9, 1962 IN BOOK 6102,
PAGE 647 OF OFFICIAL RECORDS.

 

together with all the
improvements now or hereafter erected on the property, and all easements,
appurtenances, and fixtures now or hereafter a part of the property.  All replacements and additions shall also be
covered by this Security Instrument.  All
of the foregoing is referred to in this Security Instrument as the “Property.”

 

BORROWER COVENANTS that Borrower is lawfully possessed
of the estate hereby conveyed and has the right to grant and convey the
Property and, except for the First Deed of Trust and other encumbrances of
record acceptable to the Senior Lien Holder, the Property is unencumbered.  Borrower warrants and will defend generally
the title to the Property against all claims and demands, subject to such
encumbrances of record.

 

THIS SECURITY INSTRUMENT combines uniform covenants
for national use and non-uniform covenants with limited variations by
jurisdiction to constitute a uniform security instrument covering real
property.

 

UNIFORM COVENANTS.  Borrower and Lender covenant and agree as
follows:

 

1.             Payment of Principal and Interest; Prepayment.  Borrower shall promptly pay when due the
principal of and interest on the debt evidenced by the Note.

 

2.             Prior Deed of Trust; Charges; Liens.  The Borrower shall perform all of the
Borrower’s obligations under the First Deed of Trust, including Borrower’s
covenants to make payments when due. 
Borrower shall pay all taxes, assessments, charges, fines and
impositions attributable to the Property which may attain priority over this
Security Instrument, and leasehold payments or ground rents, if any.

 

Except for the lien of the First Deed of Trust,
Borrower shall promptly discharge any other lien which shall have attained
priority over this Security Instrument unless Borrower: (a) agrees in writing
to the payment of the obligation secured by the lien in a manner acceptable to
Lender; (b) contests in good faith the lien by, or defends against enforcement
of the lien in, legal proceedings which in the Lender’s opinion operate to
prevent the enforcement of the lien; or (c) secures from the holder of the lien
an agreement satisfactory to Lender subordinating the lien to this Security
Instrument.  Except for the lien of the
First Deed of Trust, if Lender determines that any part of the Property is
subject to a lien which may attain priority over this Security Instrument,
Lender may give Borrower a notice identifying the lien.  Borrower shall satisfy such lien or take one
or more of the actions set forth above within 10 days of the giving of notice.

 

3.             Subordination.  Lender
and Borrower acknowledge and agree that this Security Instrument is subject and
subordinate in all respects to the liens, terms, covenants and conditions of
the First Deed of Trust and to all advances heretofore made or which may
hereafter be made pursuant to the First Deed of Trust including all sums
advanced for the purpose of (a) protecting or further securing the lien of the
First Deed of Trust, curing defaults by the Borrower under the First Deed of
Trust or for any other purpose expressly permitted by the First Deed of Trust
or (b) constructing, renovating, repairing, furnishing, fixturing or equipping
the Property.  The terms and provisions
of the First Deed of Trust are paramount and controlling, and they supersede
any other terms and provisions hereof in conflict therewith.  In the event of a foreclosure or deed in lieu
of foreclosure of the First Deed of Trust, any provisions herein or any provisions
in any other collateral agreement restricting the use of the Property or
otherwise restricting the Borrower’s

 

2

 

ability to sell the Property shall have no further force or effect on
subsequent owners or purchasers of the Property.  Any person, including his successors or
assigns (other than the Borrower or a related entity of the Borrower),
receiving title to the Property through a foreclosure or deed in lieu of
foreclosure of the First Deed of Trust shall receive title to the Property free
and clear from such restrictions.

 

Further, if the Senior Lien Holder acquires title to
the Property pursuant to a deed in lieu of foreclosure, the lien of this
Security Instrument shall automatically terminate upon the Senior Lien Holder’s
acquisition of title, provided that (i) the Lender has been given written
notice of a default under the First Deed of Trust and (ii) the Lender shall not
have cured the default under the First Deed of Trust, or diligently pursued
curing the default as determined by the Senior Lien Holder, within the period
provided in such notice sent to the Lender.

 

4.             Hazard or Property Insurance.  Borrower shall keep the improvements now
existing or hereafter erected on the Property insured against loss by fire,
hazards included within the term “extended coverage” and any other hazards,
including floods or flooding, for which Lender requires insurance.  This insurance shall be maintained in the
amounts and for the periods that Lender requires.  The insurance carrier providing the insurance
shall be chosen by Borrower.  If Borrower
fails to maintain coverage described above, Lender may, at Lender’s option,
obtain coverage to protect Lender’s rights in the Property in accordance with
paragraph 6.

 

All insurance policies and renewals shall be
acceptable to Lender and shall include a standard mortgagee clause.  All requirements hereof pertaining to
insurance shall be deemed satisfied if the Borrower complies with the insurance
requirements under the First Deed of Trust. 
All original policies of insurance required pursuant to the First Deed
of Trust shall be held by the Senior Lien Holder; provided, however, Lender may
be named as a loss payee as its interest may appear and may be named as an
additional insured.  If Lender requires,
Borrower shall promptly give to Lender copies of all receipts of paid premiums
and renewal notices.  In the event of
loss, Borrower shall give prompt notice to the insurance carrier, the Senior
Lien Holder and Lender.  Lender may make
proof of loss if not made promptly by the Senior Lien Holder or the Borrower.

 

Unless Lender and Borrower otherwise agree in writing,
insurance proceeds shall be applied to restoration or repair of the Property
damaged, if the restoration or repair is economically feasible and Lender’s
security is not lessened.  If the
restoration or repair is not economically feasible or Lender’s security would
be lessened, the insurance proceeds shall be applied to the sums secured by
this Security Instrument, whether or not then due, with any excess paid to
Borrower.  If Borrower abandons the
Property, or does not answer within 30 days a notice from Lender that the
insurance carrier has offered to settle a claim, then Lender may collect the
insurance proceeds.  Lender may use the
proceeds to repair or restore the Property or to pay sums secured by this
Security Instrument, whether or not then due. 
The 30-day period will begin when the notice is given.

 

Unless Lender and Borrower otherwise agree in writing,
any application of proceeds to principal shall not extend or postpone the due
date of the payments referred to in paragraph 1 or change the amount of the
payments.  If under paragraph 17 the
Property is acquired by Lender, Borrower’s right to any insurance policies and
proceeds resulting from damage to the Property prior to the acquisition shall
pass to Lender to the extent of the sums secured by this Security Instrument
immediately prior to the acquisition.

 

Notwithstanding the above, the Lender’s rights to
collect and apply the insurance proceeds hereunder shall be subject and
subordinate to the rights of the Senior Lien Holder to collect and apply such
proceeds in accordance with the First Deed of Trust.

 

3

 

5.             Maintenance and Protection of the Property.  Borrower shall not destroy, damage or impair
the Property, allow the Property to deteriorate, or commit waste on the
Property.  Borrower shall be in default
if any forfeiture action or proceeding, whether civil or criminal, is begun
that in Lender’s good faith judgment could result in forfeiture of the Property
or otherwise materially impair the lien created by this Security Instrument or
Lender’s security interest.  Borrower may
cure such a default and reinstate, as provided in paragraph 14, by causing the
action or proceeding to be dismissed with a ruling that, in Lender’s good faith
determination, precludes forfeiture of the Borrower’s interest in the Property
or other material impairment of the lien created by this Security Instrument or
Lender’s security interest.

 

6.             Protection of Lender’s Rights in the Property.  If Borrower fails to perform the covenants
and agreements contained in this Security Instrument, or there is a legal
proceeding that may significantly affect Lender’s rights in the Property (such
as a proceeding in bankruptcy, for condemnation or forfeiture or to enforce
laws or regulations), then Lender may do and pay for whatever is necessary to
protect the value of the Property and Lender’s rights in the Property.  Lender’s actions may include paying any sums
secured by a lien, which has priority over this Security Instrument (including
sums secured by the First Deed of Trust), appearing in court, paying reasonable
attorneys’ fees and entering on the Property to make repairs.  Although Lender may take action under this
paragraph 6, Lender does not have to do so.

 

Any amounts disbursed by Lender under this paragraph 6
shall become additional debt of Borrower secured by this Security
Instrument.  Unless Borrower and Lender
agree to other terms of payment, these amounts shall bear interest from the
date of disbursement at the Note rate and shall be payable, with interest, upon
notice from Lender to Borrower requesting payment.

 

Prior to taking any actions under this Section 6,
however, Lender shall notify the Senior Lien Holder of such default in the
manner provided in Section 17 of this Security Instrument, and shall provide
the Senior Lien Holder with the opportunity to cure any such default under this
Security Instrument.  All amounts advanced
by the Senior Lien Holder to cure a default hereunder shall be deemed advanced
by the Senior Lien Holder and shall be secured by the First Deed of Trust.  In addition, the Lender agrees that it will
not commence foreclosure proceedings or accept a deed in lieu of foreclosure,
or exercise any other rights or remedies hereunder until it has given the
Senior Lien Holder at least 60 days’ prior written notice.  Any action by Lender hereunder to foreclosure
or accept a deed in lieu of foreclosure shall be subject to the “due on sale”
provisions of the First Deed of Trust.

 

Lender and Borrower further agree that a default
hereunder shall constitute a default under the First Deed of Trust.  In the event of a default hereunder, the
Senior Lien Holder shall have the right to exercise all rights and remedies
under the First Deed of Trust.

 

7.             Inspection.  Lender or
its agent may make reasonable entries upon and inspection of the Property.  Lender shall give Borrower notice at the time
of or prior to an inspection specifying reasonable cause for the inspection.

 

8.             Condemnation.  The
proceeds of any award or claim for damages, direct or consequential, in
connection with any condemnation or other taking of any part of the Property,
or for conveyance in lieu of condemnation, are hereby assigned and shall be
paid to Lender, subject to the terms of the First Deed of Trust.

 

In the event of a total taking of the Property, the
proceeds shall be applied to the sums secured by this Security Instrument,
whether or not then due, with any excess paid to Borrower.  In the event of a partial taking of the
Property in which the fair market value of the Property immediately before the
taking is equal to or greater than the amount of the sums secured by this
Security Instrument immediately before

 

4

 

the taking, unless Borrower and Lender otherwise agree in writing, the
sums secured by this Security Instrument shall be reduced by the amount of the
proceeds multiplied by the following fraction: 
(a) the total amount of the sums secured immediately before the taking,
divided by (b) the fair market value of the Property immediately before the
taking.  Any balance shall be paid to
Borrower.  In the event of a partial
taking of the Property in which the fair market value of the Property
immediately before the taking is less than the amount of the sums secured
immediately before the taking, unless Borrower and Lender otherwise agree in
writing or unless applicable law otherwise provides, the proceeds shall be
applied to the sums secured by this Security Instrument whether or not the sums
are then due.

 

If the Property is abandoned by Borrower, or if, after
notice by Lender to Borrower that the condemnor offers to make an award or
settle a claim for damages, Borrower fails to respond to Lender within 30 days
after the date the notice is given, Lender is authorized to collect and apply
the proceeds, at its option, either to restoration or repair of the Property or
to the sums secured by this Security Instrument, whether or not then due.

 

Unless Lender and Borrower otherwise agree in writing,
any application of proceeds to principal shall not extend or postpone the due
date of the payments referred to in paragraph 1 or change the amount of such
payments.

 

9.             Borrower Not Released; Forbearance By Lender Not a Waiver.  Extension of the time for payment or
modification of amortization of the sums secured by this Security Instrument
granted by Lender to any successor in interest of Borrower shall not operate to
release the liability of the original Borrower or Borrower’s successors in
interest.  Lender shall not be required
to commence proceedings against any successor in interest or refuse to extend
time for payment or otherwise modify amortization of the sums secured by this
Security Instrument by reason of any demand made by the original Borrower or
Borrower’s successor in interest.  Any
forbearance by Lender in exercising any right or remedy shall not be a waiver
of or preclude the exercise of any right or remedy.

 

10.           Successors and Assigns Bound; Joint and Several Liability; Co-signers.  The covenants and agreements of
this Security Instrument shall bind and benefit the successors and assigns of
Lender and Borrower, subject to the provisions of paragraph 13.  Borrower’s covenants and agreements shall be
joint and several.  Any Borrower who
co-signs this Security Instrument but does not execute the Note: (a) is
co-signing this Security Instrument only to mortgage, grant and convey the
Borrower’s interest in the Property under the terms of this Security
Instrument; (b) is not personally obligated to pay the sums secured by this
Security Instrument; and (c) agrees that Lender and any other Borrower may
agree to extend, modify, forbear or make any accommodations with regard to the
terms of this Security Instrument or the Note without that Borrower’s consent;
provided, however, that such modification or accommodation shall not be made
without the prior written consent of the Senior Lien Holder.

 

11.           Notices.  Any notice
to Borrower provided for in this Security Instrument shall be given by
delivering it or by mailing it by first class mail unless applicable law
requires use of another method.  The
notice shall be directed to the Property Address or any other address Borrower
designates by notice to Lender.  Any
notice to Lender shall be given by first class mail to Lender’s address stated
herein or any other address Lender designates by notice to Borrower.  Any notice required to be given to the Senior
Lien Holder shall be given by first class mail to the following address:

 

Farmers Insurance Group
Federal Credit Union

c/o Business Partners,
LLC

9301 Winnetka Avenue

Chatsworth, CA 91311

 

5

 

or such other address the
Senior Lien Holder designated by notice to the Borrower.  Any notice provided for in this Security
Instrument shall be deemed to have been given to Borrower or Lender when given
as provided in this paragraph.

 

12.           Governing Law; Severability. 
This Security Instrument shall be governed by federal law and the law of
the jurisdiction in which the Property is located.  In the event that any provision or clause of
this Security Instrument or the Note conflicts with applicable law, such
conflict shall not affect other provisions of this Security Instrument or the
Note which can be given effect without the conflicting provision.  To this end the provisions of this Security
Instrument and the Note are declared to be severable.

 

13.           Transfer of the Property or a Beneficial Interest in Borrower.  Except for a conveyance to the
trustee under the First Deed of Trust, if all or any part of the Property or
any interest in it is sold or transferred without Lender’s prior written
consent, Lender may, at its option, require immediate payment in full of all
sums secured by this Security Instrument. 
However, this option shall not be exercised by Lender if exercise is
prohibited by federal law as of the date of this Security Instrument.

 

If Lender exercises this option, Lender shall give
Borrower and the Senior Lien Holder prior written notice of acceleration.  The notice shall provide a period of not less
than 30 days from the date the notice is delivered or mailed within which
Borrower must pay all sums secured by this Security Instrument.  If Borrower fails to pay these sums prior to
the expiration of this period, Lender may invoke any remedies permitted by this
Security Instrument without further notice or demand on Borrower.

 

Notwithstanding Lender’s right to invoke any remedies
hereunder, as provided in Section 6 above, Lender agrees that it will not
commence foreclosure proceedings or accept a deed in lieu of foreclosure, or
exercise any other rights or remedies hereunder until it has given the Senior
Lien Holder at least 60 days’ prior written notice.

 

The Borrower and the Lender agree that whenever the
Note or this Security Instrument gives the Lender the right to approve or
consent with respect to any matter affecting the Property (or the construction
of any improvements thereon) or otherwise (including the exercise of any “due
on sale” clause), and a right of approval or consent with regard to the same
matter is also granted to the Senior Lien Holder pursuant to the First Deed of
Trust, the senior Lien Holder’s approval or consent or failure to approve or
consent, as the case may be, shall be binding on the Borrower and the Lender.

 

14.           Borrower’s Right to Reinstate.  If Borrower meets certain conditions,
Borrower shall have the right to have enforcement of this Security Instrument
discontinued at any time prior to the earlier of: (a) 5 days (or such other
period as applicable law may specify for reinstatement) before sale of the
Property pursuant to any power of sale contained in this Security Instrument,
or (b) entry of a judgment enforcing this Security Instrument.  Those conditions are that Borrower: (a) pays
Lender all sums which then would be due under this Security Instrument and the
Note as if no acceleration had occurred; (b) cures any default of any other
covenants or agreements; (c) pays all expenses incurred in enforcing this
Security Instrument, including, but not limited to, reasonable attorneys’ fees;
and (d) takes such action as Lender may reasonably require to assure that the
lien of this Security Instrument, Lender’s rights in the Property and Borrower’s
obligation to pay the sums secured by this Security Instrument shall continue
unchanged.  Upon reinstatement by
Borrower, this Security Instrument and the obligations secured hereby shall
remain fully effective as if no acceleration had occurred.  However, this right to reinstate shall not
apply in the case of acceleration under paragraph 13.

 

6

 

15.           Sale of Note; Change of Loan Servicer.  The Note or a partial interest in the Note
(together with this Security Instrument) may be sold one or more times without
prior notice to Borrower.  A sale may
result in a change in the entity (known as the “Loan Servicer”) that collects
payments due under the Note and this Security Instrument.  There also may be one or more changes of the
Loan Servicer unrelated to a sale of the Note. 
If there is a change of the Loan Servicer, Borrower will be given written
notice of the change in accordance with paragraph 11 above and applicable
law.  The notice will state the name and
address of the new Loan Servicer and the address to which payments should be
made.  The notice will also contain any
other information required by applicable law.

 

16.           No Assignment.  Until
the loan secured by the First Deed of Trust has been satisfied in full, the
Lender and the Borrower agree that the Note and the Security Instrument will
not be assigned without the Senior Lien Holder’s prior written consent.

 

NON-UNIFORM COVENANTS.  Borrower and Lender further covenant and
agree as follows:

 

17.           Acceleration; Remedies. 
Lender shall give notice to Borrower and the Senior Lien Holder prior to
acceleration following Borrower’s breach of any covenant or agreement in this
Security Instrument.  The notice shall
specify: (a) the default; (b) the action required to cure the default; (c) a
date, not less than 30 days from the date the notice is given to Borrower (and
with respect to the Senior Lien Holder, 60 days from the date the notice is
given to the Senior Lien Holder), by which the default must be cured; and (d)
that failure to cure the default on or before the date specified in the notice
may result in acceleration of the sums secured by this Security Instrument and
sale of the Property.  The notice shall
further inform Borrower of the right to reinstate after acceleration and the
right to bring a court action to assert the non-existence of a default or any
other defense of Borrower to acceleration and sale.  If the default is not cured by the Borrower
on or before the date specified in the notice, and the Senior Lien Holder has
not exercised its right to cure the default, then Lender at its option may
require immediate payment in full of all sums secured by this Security
Instrument without further demand and may invoke the power of sale and any
other remedies permitted by applicable law. 
Notwithstanding Lender’s right to invoke any remedies hereunder, as
provided in Section 6 above, the Lender agrees that it will not commence
foreclosure proceedings or accept a deed in lieu of foreclosure, or exercise
any other rights or remedies hereunder until it has given the Senior Lien
Holder at least 60 days’ prior written notice. 
Lender shall be entitled to collect all expenses incurred in pursuing
the remedies provided in this paragraph 17, including, but not limited to,
reasonable attorneys’ fees and costs of title evidence.

 

If Lender invokes the power of sale, Lender shall mail
copies of a notice of sale in the manner prescribed by applicable law to
Borrower, the Senior Lien Holder and to the other persons prescribed by
applicable law.  Lender shall give notice
of sale by public advertisement for the time and in the manner prescribed by
applicable law.  Lender, without demand
on Borrower, shall sell the Property, at public auction to the highest bidder
for cash at the time and place and under the terms designated in the notice of
sale in one or more parcels and in any order Lender determines.  Lender may postpone sale of all or any parcel
of the Property to any later time on the same date by public announcement at
the time and place of any previously scheduled sale.  Lender or its designee may purchase the
Property at any sale.

 

Lender shall deliver to the purchaser Lender’s deed
conveying the Property without any covenant or warranty, expressed or
implied.  The recitals in the Lender’s
deed shall be prima facie evidence of the truth of the statements made
therein.  Lender shall apply the proceeds
of the sale in the following order: (a) to all expenses of the sale, including,
but not limited to, reasonable Lender’s and attorneys’ fees; (b) to all sums
secured by this Security Instrument; and (c) any excess to the person or
persons legally entitled to it.

 

7

 

18.           Release.  Upon payment
of all sums secured by this Security Instrument, Lender shall release this
Security Instrument without charge to Borrower. 
Borrower shall pay any recordation costs.

 

19.           Trustee.  Lender, at
its option, may from time to time appoint a Trustee by an instrument recorded
in the county in which this Security Instrument is recorded.  Without conveyance of the Property, the
trustee shall succeed to all the title, power and duties conferred upon Lender
herein and by applicable law.

 

20.           Modification of First Deed of Trust Loan Documents.  The Lender consents to any agreement or
arrangement in which the Senior Lien Holder waives, postpones, extends, reduces
or modifies any provisions of the First Deed of Trust Loan Documents, including
any provisions requiring the payment of money.

 

BY SIGNING BELOW, the Borrower and the Lender accept
and agree to the terms and covenants contained in this Security Instrument.

 

	
  ELTP:

  	
  LENDER:

  
	
   

  	
   

  
	
  ELECTROPURE, INC.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
  /S/ Floyd H.
  Panning

  	
   

  	
  By

  	
  /s/ Anthony M.
  Frank

  	
   

  
	
   

  	
  Floyd
  H. Panning, President

  	
   

  	
  Anthony
  M. Frank

  
	
   

  	
  23456 South
  Pointe Drive

  	
   

  	
  1 Maritime
  Plaza, Suite 825

  
	
   

  	
  Laguna Hills, CA
  92653

  	
   

  	
  San Francisco,
  CA 94111

  
	
   

  	
   

  
	
   

  	
   

  
	
  LLC:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By

  	
  /s/
  Floyd H. Panning

  	
   

  	
   

  
	
   

  	
  Floyd
  H. Panning, President

  	
   

  
	
   

  	
  23456 South
  Pointe Drive

  	
   

  
	
   

  	
  Laguna Hills, CA
  92653

  	
   

  
							

 

8

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