Document:

EXHIBIT
10.57

 

LOAN
AGREEMENT

 

This Loan Agreement is
made this 9th day of December, 2004, by and between Electropure, Inc., a
California corporation, its subsidiary, Electropure EDI, Inc., a Nevada
corporation (together referenced as “Borrower”) and SnowPure, LLC, a Nevada
Limited Liability Company (“Lender”). Borrower wishes to borrow, and Lender
wishes to lend to Borrower, the sum of One Hundred Thousand Dollars
($100,000.00) under the terms and conditions which follow.

 

1.                                       Loan,
Security.  Lender hereby agrees to
loan to Borrow the principal sum of One Hundred Thousand and 00/100ths Dollars
($100,000.00), plus simple interest accruing from the date above at the rate of
ten percent (10%) per annum, payable within ninety (90) days, with no
prepayment penalty for full payment of principal and interest accrued to the
date of payment before the 90th day. Payment shall be secured by
Borrower’s Collateral, specified in that certain Security Agreement between the
parties of even date with this Loan Agreement (the “Security Agreement”), but
which is identifiable as all equipment used for the manufacture and development
of Borrower’s ion exchange membrane technology, all product (inclusive of the
membrane itself) in production and unshipped, and all intellectual property
rights in such technology and product(s).

 

2.                                       Priority
of Loan, Subordination of Other Debt. 
Borrower agrees that Lender’s loan to Borrower and its corresponding
security interest in the Collateral shall be given priority and first-in-line
status among Borrower’s creditors. Borrower owns good and marketable title to
each item constituting the Collateral in this transaction, and such is free
from all liens, levies, pledges or encumbrances of any nature whatsoever.
Borrower agrees to take all actions necessary to subordinate such debt
including, at Lender’s election, a Subordination Agreement satisfactory to
Lender. During the Term of this Loan Agreement, Borrower shall not incur any
new debt superior to, or modify the status of any existing debt to make it
superior to Lender’s loan to Borrower and its corresponding security interest
in the Collateral.

 

3.                                       Identification
and Coordination with Other Instruments. 
The Parties have memorialized their agreement in several documents,
which include a Secured Promissory Note and a Security Agreement, all of even
date with this Loan Agreement (the “Note” and “Security Agreement,”
respectively, and together the “Ancillary Agreements”), the terms of which are
hereby incorporated by this reference as though set forth here fully. In the
case of conflict between the terms of the agreements, this Loan Agreement shall
control over both the Note and the Security Agreement, and the Security
Agreement shall control over the Note.

 

3.                                       Borrower’s
Covenants.  Borrower promises:

 

A.                                   To
timely meet its obligations to Lender under this Loan Agreement, the Security
Agreement and the Note.

 

1

 

B.                                     To
cooperate as between themselves, and to take all actions necessary, to meet
Borrower’s obligation to pledge the Collateral as security for this
transaction.

 

C.                                     To
pay all expenses, including attorneys’ fees, incurred by Lender in the
perfection, preservation, realization, enforcement, and exercise of its rights
under this agreement and the Ancillary Agreements.

 

D.                                    To
indemnify, defend and hold harmless Lender against loss of any kind, including
attorneys’ fees, caused to Lender by reason of its interest in the Collateral
(and as specified in more detail below).

 

E.                                      To
conduct Borrower’s business efficiently and without voluntary interruption, and
to vigorously defend Borrower’s intellectual property rights as relating to the
Collateral.

 

F.                                      To
pay all taxes when due.

 

G.                                     To
give Lender notice of any litigation that may have a material adverse effect on
the business or the Collateral.

 

H.                                    Not
to sell, lease, license, transfer, or otherwise impair or dispose of the
Collateral.

 

I.                                         Not
to pledge, hypothecate or otherwise encumber in any way, or permit liens on the
Collateral.

 

J.                                        To
maintain fire and all other insurance coverage normally purchased to cover the
business and the Collateral in the amounts and under policies acceptable to
Lender, naming Lender under a lender’s loss payable clause, and to provide
Lender with the original policies and certificates at Lender’s request.

 

K.                                    Not
to use the Collateral for any unlawful purpose or in any way that would void
any effective insurance.

 

L.                                      To
perform all acts necessary to maintain, preserve, and protect the Borrower’s
business and the Collateral.

 

M.                                 To
refrain from any change in Borrower’s business plan or its use of company
resources in any manner inconsistent with Borrower’s business plan, policy, and
usual and customary practices in place as of the date of this Loan Agreement,
except by prior written consent or recorded authorization or ratification by
Borrower’s Board of Directors.

 

N.                                    To
notify Lender promptly in writing of any default, potential default, or any
development that might have a material adverse effect on the business or the
Collateral.

 

2

 

O.                                    To
execute and deliver to Lender all financing statements and other documents that
Lender requests, in order to maintain a first perfected security interest in
the Collateral.

 

P.                                      To
cooperate fully and completely in preparing, executing, filing and otherwise
handling all documentation required by Lender to perfect its security interest
in the Collateral as Borrower’s prioritized, first-in-line creditor.

 

4.                                       Lender’s
Covenants.  Lender promises:

 

A.                                   To
provide funding of the loan funds promptly upon the satisfactory execution of
this Loan Agreement, the Ancillary Agreements, and any other documents
necessary for the completion of this transaction.

 

B.                                     To
provide within a reasonable time a proper and satisfactory release of it
security interest in the Collateral upon its receipt of full payment or
principal and accrued interest as specified in this Loan Agreement and the
Ancillary Agreements.

 

5.                                       Borrower’s
Warranties and Representations. 
Borrower covenants, warrants, and represents as follows:

 

A.                                   Borrower
is a Corporation, duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its organization, and has all necessary
authority to conduct its business and defend or prosecute its rights wherever
it is conducted.

 

B.                                     Borrower
is aware that Electropure EDI, Inc., is the actual holder of the Collateral
being pledged as security under this transaction, and that Electropure EDI,
Inc. is a wholly-owned subsidiary of Electropure, Inc.

 

C.                                     All
actions by Borrower, its directors, and stockholders that are necessary for the
authorization execution, delivery, and performance of this Agreement, and of
the Ancillary Agreements, have been duly taken. Borrower has been duly authorized
to execute and deliver this Loan Agreement, the Ancillary Agreements, and all
other corresponding documents, as evidencing a valid and binding obligation of
Borrower.

 

D.                                    Borrower
owns good and marketable title to each item constituting the Collateral in this
transaction, and such is free from all liens, levies, pledges or encumbrances
of any nature whatsoever.

 

E.                                      Borrower
is aware that Michael Snow, Lender’s President, is a former officer of
Electropure, Inc., could be considered an “insider,” and that, nonetheless, the
negotiation of this Loan Agreement and all Ancillary Agreements has occurred
entirely at arm’s length, with Borrower and Lender each receiving independent
legal counsel.

 

3

 

F.                                      The
officers or representatives of Borrower executing this Loan Agreement and the
Ancillary Agreements are duly and properly in office or acting as
representatives and are fully authorized to execute the same.

 

G.                                     The
Loan Agreement and Security Agreement create a perfected, first priority
security interest in Lender’s favor, enforceable against the Collateral in
which Borrower now has rights, and will create a perfected, first priority
security interest enforceable against the Collateral in which Borrower later acquires
rights, if and when Borrower acquires those rights during the Term of this
agreement.

 

H.                                    There
is no character, bylaw, or capital stock provision of Borrower, and no
provision of any indenture instrument, or agreement, written or oral, to which
Borrower is a party or which governs the action of Borrower or which is
otherwise binding upon Borrower or Borrower’s property, nor is there any
statute, rule or regulation, or any judgment, decree, or order of any court or
agency binding on Borrower or Borrower’s property which would be contravened by
the execution, delivery or performance of this Agreement or of the Related
Documents.

 

I.                                         There
is no action, suit, or proceeding at law or in equity or by or before any
governmental instrumentality or other agency now pending, or, to the knowledge
of Borrower, threatened against or affecting Borrower, or any properties or
rights of Borrower, which, if adversely determined, would materially impair the
right of Borrower to carry on the Business substantially as now conducted or
would materially adversely affect the financial condition of Borrower.

 

J.                                        Borrower
shall pay all of its obligations when due and discharge all of its liabilities
when finally determined.

 

K.                                    Borrower
shall not, in the operation of its business, incur other indebtedness for
borrowed money, or act as guarantor for any indebtedness of others, or lend
money, lease, sell, contract to sell or lease, transfer, mortgage, assign,
hypothecate or encumber any assets except in the ordinary course of business.  (For the purpose of this provision, sale of
accounts receivable shall be deemed the incurring of indebtedness for borrowed
money.)

 

L.                                      Borrower
shall not pay any dividends on any of its outstanding shares, issue, purchase
or retire any of its shares or interests, reorganize, merge or be the subject
of change or control, or otherwise alter or amend its capital structure.

 

M.                                 No
default or potential default exists, except as specified in Schedule A hereto.

 

6.                                       Further
Consideration.  As further consideration
and incentive to Lender to make this loan, Borrower agrees to pay $10,000 as
the agreed cost of legal and documentation fees for the preparation of this
Loan Agreement, the Ancillary Agreements, and any other related agreements and
documents which may be necessary. Borrower has remitted $4,000 with or before
the execution of this Loan Agreement, and agrees to remit the remaining balance
of $6,000

 

4

 

concurrently with, and
upon full payment of the principal and all accrued interest, whether occurring
before or on conclusion of the 90-day term specified below. Similarly, and
notwithstanding any reading of subsequent sections of this Loan Agreement to
the contrary, upon any default declared by the lender under section 7, below,
the remaining balance of $6,000 shall be added to and considered to be one with
the unpaid principal and accrued interest then owing.

 

6.                                       Term
and Termination.  This agreement
shall be in effect for a Term of 90 days, or until full payment is made by
Borrower under the Loan Agreement and Note (if earlier than 90 days), plus such
time as may be necessary (A) to execute and file a proper release of Lender’s
interest in the Collateral upon the successful repayment of the loan shown by this
Loan Agreement and the Note, or (B) if Lender acts to enforce its rights under
this Loan Agreement or the Ancillary Agreements, for whatever length of time is
required to fully implement such enforcement and effect Lender’s satisfaction.
This Loan Agreement will terminate upon the successful and complete conclusion
of either alternative above.

 

7.                                       Events
of Default and Acceleration.  On the occurrence of any of the following
events or circumstances, Lender at its election may terminate any or all commitments,
and other obligations of Lender to Borrower and declare all amounts outstanding
in respect of this loan to be immediately due and payable without demand or
notice to Borrower.

 

A.                                   Any
failure on the part of Borrower to pay all amounts due under this Loan
Agreement by 5:00 pm on the 90th day following the date of this Loan
Agreement, above.

 

B.                                     Any
breach or default by Borrower of or under any term, condition, provision,
warranty; or representation made herein or in the Ancillary Agreements, or any
present or future rider or supplement to any or all such agreements.

 

C.                                     Borrower
dissolves, becomes inactive, becomes insolvent, becomes unable to meet its
ordinary obligations as they come due, a receiver is appointed for any part of
Borrower’s property, Borrower makes an assignment for the benefit of creditors,
or any proceeding is commenced either by Borrower or against Borrower under any
bankruptcy or insolvency laws.

 

D.                                    Borrower
has issued against it or its property any writ of attachment, execution, or
other legal process involving an amount or risk deemed material by Lender.

 

E.                                      Borrower
has filed or recorded against it or its property any notice of levy, notice to
withhold, or claim for taxes other than real property taxes not yet delinquent
involving an amount deemed material by Lender.

 

F.                                      Borrower
becomes involved in an actively-pending funding event, the pending sale or
licensing of Borrower’s intellectual property rights in the Collateral (with
Lender’s prior approval), the pending sale of Borrower’s assets or its business
or a substantial portion of its outstanding stock (with lender’s prior
approval).

 

5

 

There shall be no
prepayment penalty, either for Borrower’s early payment of the principal and
all accrued interest, or upon Lender’s election to declare Borrower in default
under this section. However, upon Borrower’s failure to immediately pay all
amounts owing in full, such outstanding amounts shall bear interest at the rate
of ten percent (10%) per annum from the date of the default until the date such
amount is paid in full whether or not beyond the 90-day term.

 

8.                                       
Insurance.  Borrower shall
maintain, with financially sound and reputable insurers, insurance with respect
to its assets and business against such casualties and contingencies, of such
types (as fire and public liability, including products liability) and in such
amounts as is customary in the case of businesses of established reputations
engaged in the same or similar business and similarly situated (but not less
than, in the case of casualty insurance, the fair value of the insured
property). Borrower shall, upon request of Lender, deliver to it copies of the
policies concerned, and, in any event, Borrower shall promptly notify Lender of
cancellation or modification of any insurance coverage requires hereby.

 

9.                                       Other
Acts, Other Instruments.  Borrower
agrees to do all acts reasonably necessary to effectuate the intent of this
Loan Agreement, inclusive of assisting in the preparation of, and effecting the
execution of such other documents and instruments which Lender may deem
necessary, inclusive of the Security Agreement, the Note, and a UCC-1 Financing
Statement.

 

10.                                 Collection
Costs.  If Lender incurs any legal or
other expense in protecting or enforcing its rights hereunder or under any of
the Ancillary Agreements, in addition to any other sum which Borrower may be
required to pay, Borrower shall pay to Lender the amount of all attorneys’
fees, legal expenses and collection costs incurred by Lender. Such amounts
shall include any and all appeals, or petitions therefrom; fees associated with
bankruptcy proceedings; and post-judgment collection services or costs.  As used herein, the term “attorneys’ fees”
means the full costs of legal services performed in connection with the matters
involved, calculated on the basis of usual fees charged by an attorney
performing those services, and not limited to “reasonable attorneys’ fees” as
defined in any statute or rule of the court.

 

11.                                 Indemnity.  Borrower agrees to indemnify, defend and hold
lender harmless from any and all complaints, suits, actions and claims of any
kind, and the consequences of such claims, inclusive of costs, attorneys’ fees,
penalties, fines, damages, judgments, or settlements, arising from the
transaction recorded by this Loan Agreement and the Ancillary Agreements,
including any shareholder suits or actions.

 

12.                                 Effect
of Sale of Assets.  If during the
Term of this Loan Agreement the Parties agree on the terms and conditions for
the purchase by SnowPure, LLC of all or substantially all the assets of
Electropure EDI, Inc., and such is memorialized by at least an executed and
binding Letter of Intent, then in consideration for a 45-day exclusive, no-shop
period in the favor of SnowPure, LLC, the Term of this Loan Agreement, and of
all Ancillary Agreements, may be extended for an additional 45 days, by a valid
writing executed by all Parties, while a Purchase and Sale Agreement is drafted
and executed. Such an agreement for the purchase by SnowPure, LLC of all or
substantially all the assets of Electropure EDI, Inc., shall include a
provision whereby Lender’s forgiveness of Borrower’s obligation under this Loan
Agreement and the Ancillary

 

6

 

Agreements shall be
credited to Lender in the purchase and sale transaction in the amount of the
principal and accrued interest remaining to be paid by Borrower at that time.

 

13.                                 Dispute
Resolution.  The Parties agree that
the resolution of any conflict or dispute arising between them based on this
transaction or its documentation shall be first attempted informally. If such
is not successful, if such is not successful, then the resolution of the
dispute shall be next by submission to mediation, before a mediator chosen by
an arbitration or mediation services provider local to San Diego County. Should
mediation fail to produce a resolution of the dispute, the dispute shall be
decided by binding arbitration before an arbitrator chosen by an arbitration
services provider local to San Diego County. 
The result or finding of arbitration shall be binding on all parties,
and the resolution produced by mediation, or the result or finding produced by
arbitration, shall be fully enforceable. Recognizing that submission of the
dispute to binding arbitration restricts their right to sue in court, the
parties willingly waive any rights they may have to bring the dispute before a
judge or jury.

 

14.                                 Waiver by
Lender.  No waiver by Lender of any
breach or default will be a waiver of any breach or default occurring
later.  A waiver will be valid only if it
is in writing and signed by Lender.

 

15.                                 Survival
of Representations and Warranties. 
Borrower’s representations and warranties made in this Loan Agreement
and the Ancillary Agreements shall survive their execution, delivery, and
termination.

 

16.                                 Interpretation,
Severability.  Titles and headings
appearing in this Loan Agreement are for convenience only and shall have no
interpretive effect on the terms. If any term or phrase or provision of this
agreement is found by a court or arbitrator to be invalid it shall be severed
from the agreement but its absence shall not affect the remaining terms, which
shall retain full force and effect.

 

17.                                 Assignment,
Governing Law, Entire Agreement. 
This agreement will bind and benefit the successors and assignees of the
parties. Neither party may assign its rights or obligations under this Loan
Agreement, nor under any of the Ancillary Agreements, without the prior written
consent of the other. This agreement shall bind and benefit Lender’s successors
and assigns as well as Borrower’s heirs, legatees, personal representatives and
successors. This contract will be governed by the law of California. This Loan
Agreement and the Ancillary Agreements represent the entire agreement, and
supersedes any prior agreement or understandings, between Lender and Borrower
relating to its subject matter.

 

18.                                 Notice.  All notices to be given under this agreement
shall be given in writing by United States registered or certified mail, return
receipt requested, by personal delivery, by facsimile (if receipt thereof is
confirmed and if a fax number is available) or by express courier service to
the address or, as applicable, facsimile number for the respective parties
given below, provided that if any party gives notice of a change of name or
address, notices to that party shall hereafter be given as demanded in that
notice. Except as otherwise set forth herein, all notices and

 

7

 

demands given by mail
shall be effective on the second business day after mailing; and all notices
and demands otherwise given as provided above shall be effective upon
transmission. Notice to Borrower, below, shall be deemed to be notice to both
entities constituting Borrower in this transaction.

 

	
  If to Borrower:

  	
   

  	
  If to Lender:

  
	
   

  	
   

  	
   

  
	
  Mr. Floyd H. Panning

  Electropure, Inc.

  23456 South Pointe Drive

  Laguna Hills, CA 92653

  Fax: 949 - 770 - 9209

  	
   

  	
  Mr. Michael Snow

  SnowPure, LLC

  PO Box 8157

  Rancho Santa Fe, CA 92067-8157

  

 

19.                                 Joint
and Several Liability. As multiple signatories and co-Borrowers under this
Loan Agreement, Electropure, Inc. and Electropure EDI, Inc. (the “Debtor
Entities” for this section) are each jointly and severally liable for all
obligations and a breach of the terms of this Loan Agreement and the Ancillary
Agreements by one Debtor Entity shall be deemed a breach by both. Any discharge
of one Debtor Entity, except for full payment, shall not affect the continuing
liability of the other. The Debtor Entities each waive all of the following:

 

A.                                   Any
right to require Lender to proceed against either Debtor Entity before the
other, or to pursue any other remedy; and

 

B.                                     Any
right to the benefit or to direct the application of any Collateral, except in
the ordinary course of business, until the obligations of this Loan Agreement
and the Ancillary Agreements are fully discharged.

 

 

	
  Borrower:

  	
   

  
	
  Electropure, Inc.

  	
  Electropure EDI, Inc.

  
	
  A California
  corporation

  	
  A Nevada corporation

  

 

 

	
  By:

  	
  /S/
  FLOYD H. PANNING

  	
   

  	
  By:

  	
  /S/
  FLOYD H. PANNING

  	
   

  
	
   

  	
  Floyd
  H. Panning, President / CEO

  	
   

  	
  Floyd
  H. Panning, President / CEO

  

 

 

Lender:

SnowPure, LLC

A Nevada Limited Liability Company

 

 

	
  By:

  	
  /S/
  MICHAEL SNOW

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Michael
  Snow, President

  	
   

  	
   

  

 

8

 

Schedule A to Loan
Agreement

 

Electropure, Inc.
is currently in default of payment on the following loans made to the Company
by Anthony M. Frank:

 

1)                                      $50,000
principal loan dated December 2, 2003, bearing 8% annual interest, with a due
date of December 2, 2004.

 

2)                                      $100,000
principal loan dated November 21, 2003, bearing 8% annual interest, with a due
date of November 21, 2004.

 

The Company intends and expects to negotiate with Mr.
Frank for extensions on each of these loans, as well as on additional loans
made by Mr. Frank which are maturing over the next 90 days.

 

All of the loans in question are collateralized by a
security interest granted in the intellectual property owned by the Company’s
subsidiary, Micro Imaging Technology.

 

9Exhibit
10.58

 

SECURITY
AGREEMENT

 

December 9, 2004

 

This Security Agreement
is made this day by and between Electropure, Inc., a California corporation,
its subsidiary, Electropure EDI, Inc., a Nevada corporation (together
referenced as “Debtor”) and SnowPure, LLC, a Nevada Limited Liability Company (“Secured
Party”) to specify their respective rights and obligations regarding the
collateral described below, given as security by Debtor under that certain Loan
Agreement and that Secured Promissory Note, both of even date with this
Security Agreement (the “Loan Agreement” and the “Note,” respectively).

 

1.                                       Grant
Of Security Interest.  Debtor hereby
irrevocably grants Secured Party a security interest in the Collateral, as
defined below, for the agreement Term, to secure Debtor’s payment under the
Loan Agreement and Note, the terms of which are hereby incorporated by this
reference as though set forth here fully.

 

2.                                       Collateral.  As specified in more detail in Schedule A,
attached to this agreement, the Collateral which is subject to Secured Party’s
rights under this agreement is all equipment used for the manufacture and
development of Debtor’s ion exchange membrane technology, all product
(inclusive of the membrane itself) in production and which has not been shipped
to Debtor’s customers at the time of Secured Party’s exercise of its rights
under this agreement, and all intellectual property rights whatsoever,
inclusive of ownership, possession and control, held by Debtor in such
technology and product(s).

 

3.                                       Debtor’s
Covenants.  Debtor promises:

 

A.                                   To
timely meet its obligations to Secured Party under the Loan Agreement and Note.

 

B.                                     To
cooperate as between themselves, and to take all actions necessary, to meet
Debtor’s obligation to pledge the Collateral as security for this transaction.

 

C.                                     To
pay all expenses, including attorneys’ fees, incurred by Secured Party in the
perfection, preservation, realization, enforcement, and exercise of its rights
under this agreement (except as may be specified in the Loan Agreement).

 

D.                                    To
indemnify Secured Party against loss of any kind, including attorneys’ fees,
caused to Secured Party by reason of its interest in the Collateral.

 

E.                                      To
conduct debtor’s business efficiently and without voluntary interruption, and
to vigorously defend Debtor’s intellectual property rights as relating to the
Collateral.

 

F.                                      To
pay all taxes when due.

 

G.                                     To
give secured party notice of any litigation that may have a material adverse
effect on the business or the Collateral.

 

1

 

H.                                    Not
to sell, lease, transfer, license, or otherwise impair or dispose of the
Collateral.

 

I.                                         Not
to pledge, hypothecate or otherwise encumber in any way, or permit liens on the
Collateral, except existing liens or current tax liens.

 

J.                                        To
maintain fire and all other insurance coverage normally purchased to cover the
Collateral in the amounts and under policies acceptable to Secured Party,
naming Secured Party under a lender’s loss payable clause, and to provide Secured
Party with the original policies and certificates at Secured Party’s request.

 

K.                                    Not
to use the Collateral for any unlawful purpose or in any way that would void
any effective insurance.

 

L.                                      To
perform all acts necessary to maintain, preserve, and protect the Collateral.

 

M.                                 To
refrain from any change in Debtor’s business plan or its use of company
resources in any manner inconsistent with Debtor’s business plan, policy, and
usual and customary practices in place as of the date of this agreement, except
by prior written consent or recorded authorization or ratification by Debtor’s
Board of Directors.

 

N.                                    To
notify Secured Party promptly in writing of any default, potential default, or
any development that might have a material adverse effect on the Collateral.

 

O.                                    To
execute and deliver to Secured Party all financing statements and other
documents that Secured Party requests, in order to maintain a first perfected
security interest in the Collateral.

 

P.                                      To
cooperate fully and completely in preparing, executing, filing and otherwise
handling all documentation required by Secured party to perfect its security
interest in the Collateral  as Debtor’s prioritized, first-in-line
creditor.

 

4.                                       Secured
Party’s Covenants.  Secured Party
promises:

 

A.                                   To
provide funding of the loan funds, the repayment of which the Collateral
secures, promptly upon the satisfactory execution of all documents related to
the transaction evidenced by the Loan Agreement, Note and this agreement.

 

B.                                     To
provide within a reasonable time a proper and satisfactory release of it
security interest in the Collateral upon its receipt of full payment or
principal and accrued interest as specified in the Loan Agreement and Note.

 

5.                                      Debtor’s
Warranties and Representations. 
Debtor covenants, warrants, and represents as follows:

 

A.                                   Debtor
is a Corporation, duly organized, validly existing, and in good standing under
the laws of the jurisdiction of its organization, and has all necessary
authority to conduct its business and defend or prosecute its rights wherever
it is conducted.

 

2

 

B.                                     Borrower
is aware that Electropure EDI, Inc., is the actual holder of the Collateral
being pledged as security under this transaction, and that Electropure EDI,
Inc. is a wholly-owned subsidiary of Electropure, Inc. Debtor has been
authorized by its respective Boards to execute and deliver this agreement as a
valid and binding obligation of Debtor.

 

C.                                     Debtor
owns good and marketable title to each item constituting the Collateral in this
transaction, and such is free from all liens, levies, pledges or encumbrances
of any nature whatsoever.

 

D.                                    This
agreement creates a perfected, first priority security interest in Secured
Party’s favor, enforceable against the Collateral in which Debtor now has
rights, and will create a perfected, first priority security interest
enforceable against the Collateral in which Debtor later acquires rights, if
and when debtor acquires those rights during the Term of this agreement.

 

E.                                      Neither
the execution and delivery of this agreement nor the taking of any action in
compliance with it will (i) violate or breach any law, regulation, rule, order,
or judicial action binding on Debtor, any agreement to which Debtor is a party,
Debtor’s Articles of Incorporation or Bylaws; or (ii) result in; the creation
of a lien against the Collateral except that created by this security
agreement.

 

F.                                      No
default or potential default exists.

 

6.                                       Term
and Termination.  This agreement
shall be in effect for a Term of 90 days, or until full payment is made by
Debtor under the Loan Agreement and Note (if earlier than 90 days), plus such
time as may be necessary (A) to execute and file a proper release of Secured
Party’s interest in the Collateral upon the successful repayment of the loan
shown by the Loan Agreement and Note, or (B) if Secured Party acts to enforce
its rights under this agreement, the Loan Agreement, or the Note, for whatever
length of time is required to fully implement such enforcement and effect Secured
Party’s satisfaction. The agreement will terminate upon the successful and
complete conclusion of either alternative above.

 

7.                                       Default.  Debtor will be in Default under this
agreement if:

 

A.                                   Debtor
fails to pay its entire indebtedness to Secured Party when due, at maturity as
stated in the Loan Agreement and Note.

B.                                     Debtor
commits any breach of this agreement, or any present or future rider or
supplement to this agreement, or any other agreement between debtor and Secured
Party evidencing the obligation or securing it.

 

C.                                     Any
warranty, representation, or statement, made by or on behalf of Debtor in or
with respect to the agreement, is false.

 

D.                                    The
Collateral is lost, stolen or damaged.

 

E.                                      There
is a seizure or attachment of, or a levy on, the Collateral.

 

F.                                      Debtor
dissolves, becomes inactive, becomes insolvent, becomes unable to meet its
ordinary obligations as they come due, a receiver is appointed for any part of
Debtor’s

 

3

 

property, Debtor makes an assignment for the benefit of creditors, or
any proceeding is commenced either by Debtor or against Debtor under any
bankruptcy or insolvency laws.

 

G.                                     Debtor’s
sale, conveyance, lease, license, assignment or other transfer of all or any
part of the Collateral without Secured Party’s prior consent.

 

H.                                    Secured
Party for any reason deems itself insecure.

 

8.                                       Power
of Attorney.  Debtor hereby appoints
Michael Snow, or any other person whom Secured Party may designate, as debtor’s
attorney in fact, with the following powers:

 

A.                                   To
perform any of Debtor’s obligations under this agreement, the Loan Agreement or
the Note in Debtor’s name or otherwise.

 

B.                                     To
give notice of Debtor’s right to payment from third parties, to enforce that
right, and to make extension agreements with respect to it.

 

C.                                     To
release persons liable on rights to payment in order to compromise disputes
with those persons, and to surrender security, all as Secured Party determines
in its sole discretion when acting in good faith based on information known to
it when it acts.

 

D.                                    To
prepare and file financing statements, termination statements, and the like, as
necessary to perfect, protect, preserve, or release Secured Party’s interest in
the Collateral.

 

E.                                      To
endorse Debtor’s name on instruments, documents, or other forms of payment or
security that come into Secured Party’s possession.

 

F.                                      To
take cash in payment of obligations.

 

G.                                     To
verify information concerning rights to payment by inquiry in its own name or
in a fictitious name.

 

H.                                    To
prepare, execute, and deliver insurance forms, adjust insurance claims, receive
payment under insurance claims, and apply such payment to reduce Debtor’s
obligation.

 

9.                                       Remedies.  When an event of Default occurs, Secured
Party may:

 

A.                                   Declare
the Debtor’s obligations in this transaction immediately due and payable,
without demand, presentment, protest, or notice to debtor, all of which Debtor
expressly waives.

 

B.                                     Exercise
all rights and remedies available to a secured creditor after default,
including but not limited to the rights and remedies of secured creditors under
the California Uniform Commercial Code.

 

Debtor must assemble the
Collateral and make it and all records relating to it available to Secured
Party as Secured Party directs, and allow Secured Party, its representatives,
and its agents to enter the premises where all or any part of the Collateral,
the records, or both may be, and remove any or all of it. Debtor must execute
all documents reasonably required to transfer possession, title and control of
the Collateral without requiring that Secured Party resort to

 

4

 

court authority. Debtor
expressly agrees that upon its failure to cooperate as per this section,
Secured Party may act under the authority provided in section 8.A, above, and
that Debtor will be liable for the costs of collection and enforcement, as per
terms elsewhere in this agreement.

 

10.                                 Joint
and Several Liability. As multiple signatories and co-Debtors under this
agreement,  Electropure, Inc. and
Electropure EDI, Inc. (the “Debtor Entities” for this section) are each jointly
and severally liable for all obligations and a breach of the terms of this
agreement by one Debtor Entity shall be deemed a breach by both. Any discharge of
one Debtor Entity, except for full payment, shall not affect the continuing
liability of the other. The Debtor Entities each waive all of the following:

 

A.                                   Any
right to require Secured Party to proceed against either Debtor Entity before
the other, or to pursue any other remedy; and

 

B.                                     Any
right to the benefit or to direct the application of any Collateral, except in
the ordinary course of business, until the obligations of this agreement, the
Loan Agreement and the Note are fully discharged.

 

11.                                 Costs
and Attorneys’ Fees.  Debtor will pay
all attorneys’ fees, legal expenses and collection costs incurred in Secured
Party’s legal efforts to enforce its rights under this agreement in each and
every action, suit, or other proceeding. Such amounts shall include any and all
appeals, or petitions therefrom; fees associated with bankruptcy proceedings;
and post-judgment collection services or costs. 
As used herein, the term “attorneys’ fees” means the full costs of legal
services performed in connection with the matters involved, calculated on the
basis of usual fees charged by an attorney performing those services, and not
limited to “reasonable attorneys’ fees” as defined in any statute or rule of
the court.

 

12.                                 Waiver by
Secured Party.  No waiver by Secured
Party of any breach or default will be a waiver of any breach or default
occurring later.  A waiver will be valid
only if it is in writing and signed by Secured Party.

 

13.                                 Survival
of Representations and Warranties. 
Debtor’s representations and warranties made in this security agreement
will survive its execution, delivery, and termination.

 

14.                                 Interpretation,
Severability.  Titles and headings
appearing in this agreement are for convenience only and shall have no
interpretive effect on the terms. If any term or phrase or provision of this
agreement is found by a court or arbitrator to be invalid it shall be severed
from the agreement but its absence shall not affect the remaining terms, which
shall retain full force and effect.

 

15.                                 Assignment,
Governing Law, Entire Agreement. 
This agreement will bind and benefit the successors and assignees of the
parties. Neither party may assign its rights or obligations under this Security
Agreement, the Loan Agreement, or the Note, without the prior written consent
of the other. This contract will be governed by the law of California. This
agreement is the entire agreement, and supersedes any prior agreement or
understandings, between Secured Party and Debtor relating to the Collateral,
except as may be specified in the Loan Agreement

 

5

 

or Note. In the case of
conflict between the terms of the agreements, the Loan Agreement shall control
over both the Note and this agreement, and the Note shall control over this
agreement.

 

16.                                 Notice.  All notices to be given under this agreement
shall be given in writing by United States registered or certified mail, return
receipt requested, by personal delivery, by facsimile (if receipt thereof is
confirmed) or by express courier service to the address or, as applicable,
facsimile number for the respective parties given in the Loan Agreement,
provided that if any party gives notice of a change of name or address, notices
to that party shall hereafter be given as demanded in that notice. Except as
otherwise set forth herein, all notices and demands given by mail shall be
effective on the second business day after mailing; and all notices and demands
otherwise given as provided above shall be effective upon transmission. Notice
to Debtor, below, shall be deemed to be notice to both entities constituting
Debtor in this transaction.

 

17.                                 Dispute
Resolution.  The Parties agree that
the resolution of any conflict or dispute arising between them based on this
transaction or its documentation shall be first attempted informally. If such
is not successful, if such is not successful, then the resolution of the
dispute shall be next by submission to mediation, before a mediator chosen by
an arbitration or mediation services provider local to San Diego County. Should
mediation fail to produce a resolution of the dispute, the dispute shall be
decided by binding arbitration before an arbitrator chosen by an arbitration
services provider local to San Diego County. 
The result or finding of arbitration shall be binding on all parties,
and the resolution produced by mediation, or the result or finding produced by
arbitration, shall be fully enforceable. 
Recognizing that submission of the dispute to binding arbitration
restricts their right to sue in court, the parties willingly waive any rights
they may have to bring the dispute before a judge or jury.

 

 

	
  Debtor:

  	
   

  	
   

  
	
  Electropure, Inc.

  	
   

  	
  Electropure EDI, Inc.

  
	
  A California
  corporation

  	
   

  	
  A Nevada corporation

  

 

 

	
  By:

  	
  /S/
  Floyd H. Panning

  	
   

  	
  By:

  	
  /s/
  Floyd H. Panning

  	
   

  
	
   

  	
    Floyd H. Panning, President / CEO

  	
   

  	
    Floyd H. Panning, President / CEO

  

 

 

Secured Party:

SnowPure, LLC

A California Limited
Liability Company

 

 

	
  By:

  	
  /s/
  Michael Snow

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
    Michael Snow, President

  	
   

  	
   

  	
   

  	
   

  

 

6

 

Schedule
A

 

	
  1.               Forming
  Equipment

  •                  Extruder,
  Leistritz

  •                  Gear
  Pump

  •                  Glycerine
  Metering Pump

  •                  Extrusion
  Die, EDI

  •                  3-Roll
  Stack

  •                  Roll
  Take-up

  •                  Vacuum
  Pump

  •                  Heat
  Exchangers (3)

  •                  Loss
  in Weight Feeders (2)

  •                  LIW
  Controllers (2)

  a.               TSMS
  Data Collection with PC and software

  	
   

  	
  2.               Testing
  Equipment

  a.               Test
  Cell

  b.              Voltage
  Power Supply

  c.               Ohmmeter

  d.              Conductivity
  Meter

  e.               Lab
  Oven

  f.                 Scale

  g.              Laboratory
  Glassware

  h.              Crock
  pots

  
	
   

  	
   

  	
   

  
	
  3.               Converting
  Equipment

  a.               CPVC
  tank & Cart

  b.              High
  temp Pumps

  c.               Heaters
  & Controllers

  d.              Older
  tanks & Heaters

  	
   

  	
  4.               Infrastructure

  a.               Chiller

  b.              Voltage
  Transformers (2)

  c.               Dust
  Collector

  d.              Ozone
  odor control

  e.               Fume
  extraction

  f.                 Laboratory
  Cabinets & Sink

  g.              Tables,
  Cabinet

  h.              Chrome
  storage racks

  i.                  Membrane
  Tools & Toolbox

  
	
   

  	
   

  	
   

  
	
  5.               Materials

  a.    Raw
  materials present at the time of Secured Party’s exercise of its rights under
  this Security Agreement of December 8, 2004.

  b.    Finished
  Goods unshipped at the time of Secured Party’s exercise of its rights under
  this Security Agreement of December 8, 2004. .

  	
   

  	
  6.                                       Intellectual
  Property

  a. US Patent Nos.
  6503957 and 6716888

  b. European Patent No.
  EP1101790

  c. Other patents
  pending at the time of execution of loan documents, including Patent applied
  for in Japan, JP2001220454A Patent applied for in Israel, IL139737D Patent
  applied for in Taiwan, TW496767B Patent applied for in Canada, CA2325938A1

  d. All trademark, trade
  secrets, copyright, proprietary information (inclusive of customer lists,
  manufacturing procedures, Know-how,” etc.), and all documents tending to
  reflect the same.

  

 

7

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