<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
ELECTROPURE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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4) Date Filed:
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<PAGE> 2
ELECTROPURE, INC.
23456 South Pointe Drive
Laguna Hills, California 92653
Telephone: (949) 770-9347
NOTICE OF ANNUAL SHAREHOLDERS' MEETING
To be held June 26, 1999
TO THE SHAREHOLDERS:
The Annual Meeting of the Shareholders of ELECTROPURE, INC. will be held
at the corporate offices at 23456 South Pointe Drive, Laguna Hills, California
92653, on Saturday, June 26, 1999 at 10:00 a.m. Pacific Daylight Time, for the
following purposes:
(1) To elect five members to the Board of Directors to serve until the
next Annual Meeting of Shareholders or until their respective
successors shall be elected and qualify. The Board of Directors has
nominated the following individuals:
William F. Farnam
Randall P. Frank
Randolph S. Heidmann
Arthur Lipper III
Floyd H. Panning
(2) To consider a proposal to adopt the Company's 1999 Stock Option
Plan.
(3) To consider a proposal to approve an Agreement with Harry O'Hare.
(4) To transact such other business and to consider and take action
upon any and all matters that may properly come before the Annual
Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on May 26, 1999 as the
record date for the determination of the shareholders entitled to notice of and
to vote at the Annual Meeting.
All shareholders are invited to attend the Annual Meeting in person.
By Order of the Board of Directors
/s/ CATHERINE PATTERSON
----------------------------------
Catherine Patterson
Secretary
Laguna Hills, California
June 2, 1999
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE MARK, SIGN AND RETURN
THE ENCLOSED PROXY AS SOON AS POSSIBLE.
<PAGE> 3
ELECTROPURE, INC.
-------------------------------
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
The enclosed proxy is solicited by and on behalf of the Board of
Directors of the Company and in connection with the Annual Shareholders' Meeting
to be held June 26, 1999 at the corporate offices at 23456 South Pointe Drive,
Laguna Hills, California 92653, at 10:00 a.m., Pacific Daylight Time.
Shareholders are requested to complete, date and sign the accompanying
proxy and return it promptly to the Company. Any proxy given may be revoked by a
shareholder at any time before it is voted at the Annual Meeting and all
adjournments thereof by filing with the Secretary of the Company a notice in
writing revoking it, or by duly executing and submitting a proxy bearing a later
date. Proxies may also be revoked by any shareholder present at the Annual
Meeting who expresses a desire to vote such shares in person. Subject to such
revocation, all proxies duly executed and received prior to, or at the time of,
the Annual Meeting will be voted in accordance with the specification on the
proxy card. If no specification is made, proxies will be voted in favor of the
proposals therein.
The Company will bear the cost of the solicitation of proxies, including
the charges and expenses of brokerage firms and others forwarding the
solicitation of material to beneficial owners of stock. In addition to use of
the mails: directors, officers, regular employees and certain shareholders of
the Company may solicit proxies personally, by telephone, by fax or by e-mail.
The Company's executive offices are located at 23456 South Pointe Drive,
Laguna Hills, California 92653, telephone number (949) 770-9347. It is expected
that this Proxy Statement and accompanying Proxy will first be mailed to
shareholders on or about June 8, 1999.
YOU ARE REQUESTED TO COMPLETE AND SIGN THE ACCOMPANYING PROXY AND RETURN IT
PROMPTLY IN THE ENVELOPE PROVIDED FOR THAT PURPOSE.
SHAREHOLDERS' VOTING RIGHTS
Only holders of record of the Company's Common Stock, $0.01 par value;
the Company's Class B Common Stock, $0.01 par value; the Company's Convertible
Preferred Stock, $0.01 par value; and the Company's Class B Preferred Stock,
$1.00 par value, at the close of business on May 26, 1999, will be entitled to
notice of and to vote at the Annual Meeting. On such date, there were
outstanding 8,838,925 shares of Common Stock; 83,983 shares of Class B Common
Stock; and 2,600,000 shares of Convertible Preferred Stock; and 1,000,000 shares
of Class B Preferred Stock, the only classes of stock issued by the Company.
Each share of Common Stock and Convertible Preferred Stock entitles the holder
thereof to one vote upon each matter to be voted upon at the Annual Meeting,
each share of Class B Common Stock entitles the holder thereof to eight votes
upon each matter to be voted upon at the Annual Meeting, and each share of Class
B Convertible Preferred Stock entitles the holder thereof to four votes per
share upon each matter to be voted upon at the Annual Meeting. For all matters
the Common Stock, the Class B Common Stock, the Convertible Preferred Stock and
the Class B Preferred Stock vote as one class.
Under California law, if, prior to the election of directors, any
shareholder has given notice that he intends to cumulate his votes, then for the
election of directors, each shareholder may cumulate his votes for any nominee
if the nominee's name was placed in nomination prior to he voting. In cumulative
voting, each shareholder is entitled to one vote for each share held by him
multiplied by the number of directors to be elected, and he may cast all of such
votes for a single nominee or may distribute them among any two or more nominees
as he sees fit.
With respect to election of directors, assuming a quorum is present, the
five candidates receiving the highest number of votes are elected.
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<PAGE> 4
To approve the adoption of 1999 Stock Option Plan and the Agreement with
Harry O'Hare, assuming a quorum is present, the affirmative vote of a majority
of the shareholders represented and voting at the meeting is required, provided
that the shares voting affirmatively also must constitute a majority of the
required quorum and provided that to approve the Agreement with Mr. O'Hare, the
shares owned by Mr. O'Hare will be disregarded. A quorum is the presence in
person or by proxy of shares representing a majority of the outstanding shares
of Common Stock.
Under California law, shares represented by proxies that reflect
abstentions or "broker non-votes" (i.e., shares held by broker or nominee which
are represented at the Annual Meeting, but for which such broker or nominee is
not empowered to vote on a particular proposal) will be counted as shares that
are present and entitled to vote for purposes of determining the presence of a
quorum. Any shares not voted (whether by abstention, broker non-vote or
otherwise) will have no impact on the election of directors, except to the
extent that the failure to vote for an individual results in another individual
receiving a larger proportion of votes. Shares represented at the Annual Meeting
but not voted (whether by abstention, broker non-vote or otherwise) with respect
to the proposals to approve the 1999 Stock Option Plan or the Agreement with Mr.
O'Hare will have no effect on the vote for such proposals except to the extent
the number of abstentions causes the number of shares voted in favor of the
proposal not to equal or exceed a majority of the quorum required for the Annual
Meeting.
Your execution of the enclosed proxy will not affect your right as a
shareholder to attend the Annual Meeting and to vote in person.
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<PAGE> 5
PRINCIPAL SHAREHOLDERS
The following table sets forth information as of May 26, 1999 with respect to
the Common Stock, the Class B Common Stock, the Convertible Preferred Stock and
the Class B Preferred Stock ownership by the only persons known by the Company
to own beneficially 5% or more of its Common Stock, Class B Common Stock,
Convertible Preferred Stock and Class B Preferred Stock, and by all current
directors, nominees for directors and executive officers.
<TABLE>
<CAPTION>
COMMON CLASS B SERIES B CONVERTIBLE PERCENT
STOCK PERCENT COMMON PERCENT PREFERRED PERCENT PREFERRED PERCENT OF VOTING
NAME (1)(2) OF CLASS STOCK OF CLASS STOCK(3) OF CLASS STOCK(4) OF CLASS POWER(5)
---- --------- -------- ------- -------- --------- -------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
William F. Farnam 116,918 1.0% - - - - - - *
Anthony M. Frank 2,479,742 20.3% - - 1,000,000 100% - - 33.3%
320 Meadowood Court
Pleasant Hill, CA 94523
Randall P. Frank 403,898 3.3% - - - - - - 2.1%
Randolph S. Heidmann 20,000 * - - - - - - *
Arthur Lipper III - - - - - - - - -
Harry M. O'Hare, Sr. 2,500 * 83,983 100% - - 931,629 35.8% 8.3%
2035 Huntington Dr., #1
S. Pasadena, CA 91030
Floyd H. Panning 826,792 6.8% - - - - 7,500 * 4.3%
23456 South Pointe Drive
Laguna Hills, CA 92653
Catherine Patterson 210,112 1.7% - - - - 2,906 * 1.1%
Clifford D. Wyatt 10,000 * - - - - - - *
Wyatt Technology Corp. 1,950,000 16.0% - - - - - - 10.0%
30 S. La Patera Ln.,
Ste. B-7
Santa Barbara, CA 93117
All officers, and 1,587,720 13.0% - - - - 10,406 * 8.2%
directors and
nominees as a
group (6 persons)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Less than 1%
** Includes address of five percent or more shareholders of any class.
(1) Excludes shares of Common Stock issuable upon conversion of Class B Common
Stock, which carry eight (8) votes per share. If such shares of Common
Stock were included, Mr. O'Hare and all officers and directors, as a group
would own 86,483 shares (1.0%) and 1,587,720 shares (12.9%) of Common
Stock, respectively.
(2) Includes currently exercisable warrants or options or warrants and options
exercisable within sixty days of May 26, 1999 to purchase an aggregate of
3,349,834 shares of Common Stock.
(3) The Series B Convertible Preferred Stock is convertible into Common Stock,
on a share-for-share basis, at the option of the holder or automatically if
(a) the Company shall make a public offering of its securities, or (2) if
the Company's securities are listed on NASDAQ or a national securities
exchange market system.
(4) The Convertible Preferred Stock was convertible into Common Stock only if
certain earnings or market prices of the Common Stock were achieved prior
to October 31, 1990. Such earnings and market prices were not achieved and
commencing January 31, 1991, the Company was required to redeem such shares
at $0.01 per share. The Company intends to redeem the Convertible Preferred
Stock during fiscal 1999.
(5) Reflects the voting rights of the Common Stock and Convertible Preferred
Stock, each of which carries one (1) vote per share; the Class B Common
Stock, which carries eight (8) votes per share; and the Series B
Convertible Preferred Stock, which carries four (4) votes per share.
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<PAGE> 6
ELECTION OF DIRECTORS
Five directors, constituting the entire Board of Directors, are to be
elected at the Annual Meeting to hold office until the next Annual Meeting of
Shareholders and until their respective successors have been elected and shall
qualify. The Board of Directors nominees are the five individuals named below,
all of whom currently serve on the Board of Directors except for Mr. Lipper. It
is the intention of the persons named in the enclosed proxy to vote the shares
covered by each proxy for the election of all the nominees named in the table
below. Although the Board of Directors does not anticipate that any nominees
will be unavailable for election, in the event of such occurrence the proxies
will be voted for such substitute, if any, as the Board of Directors may
designate.
The following table sets forth information with respect to nominees:
William F. Farnam Director
Randall P. Frank Director
Randolph S. Heidmann Director
Arthur Lipper, II Nominee
Floyd H. Panning Director
WILLIAM F. FARNAM, 78, was named to the Board of Directors on August 5,
1997. Mr. Farnam spent 1967 through 1968 as General Manager on construction of
The Forum (Los Angeles) for sports entrepreneur Jack Kent Cooke. He served the
City of Inglewood, California for 20 (cumulative) years, as Public Works
Director and City Engineer and went on to become the Assistant City Manager
there from 1980 to 1982. Between 1983 and 1984, he served as Project Engineer
for the Park Place Associates Poker Casino in Southern California. He provided
engineering consulting services for various municipalities from 1985 through
1990 when he retired. Mr. Farnam is a Registered Professional Civil Engineer in
the State of California and received a Bachelor of Science Degree in Electrical
Engineering from the University of Southern California and is a Management
Studies Graduate from the University of California, Los Angeles.
RANDALL P. FRANK, 36, joined the Board of Directors on October 25, 1997.
Mr. Frank, is the son of Anthony M. Frank, who is the former Postmaster General
of the United States and is a substantial shareholder in the Company. Between
1992 and 1995, he worked in sales and marketing for Sonnet Systems, a Northern
California firm which offers computerized currency exchange services. Randall
Frank has been engaged since 1995 as an insurance underwriter with Five Star
Managers, LLC in San Francisco, California, an insurance firm whose primary
business is underwriting trustees for union and corporate employee benefit
plans. Mr. Frank received a B.A. degree from the University of California,
Berkeley and a Masters degree in International Management from the American
Graduate School of International Management ("Thunderbird").
RANDOLPH S. HEIDMANN, 48, was employed by the Company between September,
1990 and November, 1991 as an electronics instrumentation design engineer to
continue development work on innovative electronic components which the Company
planned to engineer into its product line. He was named to the Company's Board
of Directors in September, 1991. Prior to joining the Company, he spent nine
years with Teledyne Electronics where he was responsible for data acquisition
subsystems design for telemetry products. He has participated in the development
of a variety of consumer electronics products and custom production test
equipment. Since 1991, Mr. Heidmann has served as an electrical engineer for
Photonic Detectors, Inc. in Simi Valley, California. He holds a B.S. degree in
Physics from the University of California, Davis.
ARTHUR LIPPER, III, 67 , has for over the last five years been Chairman
of the Board of British Far East Holdings Ltd. and President of Communications
Management Associates, both of which provide and arrange financing and offer
financial and management advisory services. Mr. Lipper has published articles in
financial and investment related periodicals. He has also provided consulting
services to the Company.
4
<PAGE> 7
FLOYD H. PANNING,, 70, joined the Board of Directors and was engaged by
the Company as President and Chief Executive Officer in August, 1997. Mr.
Panning came out of retirement in April, 1992 to establish EDI Components, which
entered into a license relationship with the Company to manufacture and market
the EDI technology. He has been the president of EDI Components since 1992.
Prior to forming EDI Components, Mr. Panning had founded two million-dollar
businesses which were sold in 1982. In 1972, he founded Formatron, Inc., a
manufacturer of rotational molded plastic products such as plating and chemical
storage tanks, and many other polyethylene and polypropylene containers. In
1963, he acquired Mills Engineering Co., a manufacturer of high quality aluminum
products. As owner/operator he expanded the firm from a limited local sales
organization by establishing major national and international accounts with
Fortune 100 companies and major municipalities.
Information Concerning the Board of Directors and Certain Committees Thereof
The Board of Directors has no audit committee or compensation committee.
The Board of Directors held a total of four meetings during the fiscal
year ended October 31, 1998. Each Director attended more than 75% of the
aggregate number of meetings of the Board and the committees on which he or she
served.
REMUNERATION
The Company had no executive officer whose annual compensation was more
than $100,000 per year for the fiscal years ended October 31, 1998 and 1997.
Floyd Panning, who joined the Company as Chief Executive Officer in August,
1997, is being compensated at the rate set forth in his Employment Agreement
with the Company. The Company has no stock option or other forms of compensation
plans.
The following table sets forth summary information regarding
compensation paid by the Company for the years ended October 31, 1998 and 1997
to the chief executive officer of the Company.
<TABLE>
<CAPTION>
OTHER ANNUAL AWARDS
NAME AND COMPENSATION -----------
PRINCIPAL POSITION YEAR SALARY ($) ($)(1) OPTIONS (#)
------------------ ---- ---------- ------------ -----------
<S> <C> <C> <C> <C>
FLOYD H. PANNING
President and 1998 87,346 - 250,000(2)
Chief Executive Officer 1997 12,000 - 125,000(3)
</TABLE>
- --------------------
(1) The aggregate value of personal benefits for 1998 was less than 10 percent
of the executive officer's salary and bonus or $50,000, whichever is less.
(2) In March, 1998, the Company granted Mr. Panning 250,000 options to purchase
Common Stock at an exercise price of $1.125 per share. The options, which
expire in March, 2008, vest in increments of 50,000 over a five-year period
commencing on the grant date.
(3) See "Remuneration - Employment Agreement."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not have a compensation committee or other committees
of the Board of Directors performing similar functions. Compensation of
executive officers is determined by the Board of Directors. The Board of
Directors negotiated Mr. Floyd Panning's Employment Agreement, whereby he became
President and Chief Executive Officer of the Company, in connection with the
License Termination Agreement with EDI Components and Mr. Panning assuming such
positions with the Company.
5
<PAGE> 8
EMPLOYMENT AGREEMENT
On August 14, 1997, the Company entered into a five-year Employment
Agreement (effective August 5, 1997) with Floyd Panning whereby he became the
Company's President and Chief Executive Officer. Mr. Panning has the unilateral
option to extend such employment for a period of two (2) years. The Employment
Agreement provides Mr. Panning with five weeks' vacation, the use of a Company
car and cellular telephone and participation in any benefit programs offered by
the Company (none at this time). Pursuant to the terms of the Employment
Agreement, Mr. Panning was granted 125,000 warrants to purchase Common Stock at
$0.28125 per share. Such warrants are exercisable in increments of 25,000
annually commencing with the date of the Employment Agreement. The Employment
Agreement also provides for the following:
(a) A base monthly salary of $6,500 increasing to $8,000 per month once
the Company has realized a minimum of $1 million in financing. Each
year thereafter, the base salary shall automatically increase by an
amount equal to five (5%) percent. Mr. Panning's base salary
increased to $8,000 per month effective in April, 1998 pursuant to
meeting the minimum financing requirement.
(b) Upon realizing the above minimum financing, the Company has agreed
to reimburse Mr. Panning for certain wages deferred while he was
employed at EDI Components (a total of $63,700 was deferred). A
$25,000 promissory note issued by Mr. Panning, in consideration for
his exercise of 50,000 warrants to purchase Common Stock at $0.50
per share, will be satisfied (including accrued interest) with such
deferred wages, net of normal Federal, state and local income and
payroll taxes. Mr. Panning agreed to waive any remaining balance of
deferred wages after payment of such promissory note.
(c) Mr. Panning has the right to nominate, subject to shareholder
approval, one person to the Company's Board of Directors during the
term of his employment. In the meantime, Mr. Panning has been named
to the Company's Board of Directors as his nominee.
(d) Mr. Panning may, without cause, terminate his employment and retain
the right to the following percentage of his base monthly salary:
<TABLE>
<CAPTION>
YEAR OF PERCENT
TERMINATION OF SALARY
----------- ---------
<S> <C>
1 60%
2 70%
3 80%
4 90%
5 100%
6 0%
7 0%
</TABLE>
(e) Any termination of employment by the Company shall immediately vest
all 125,000 warrants granted to Mr. Panning under the employment
agreement. In addition, termination by the Company of Mr. Panning's
employment without cause, shall automatically accelerate the
issuance of any additional shares due EDI's investors under their
License Termination Agreement with the Company at the then fair
market value; provided, however, Mr. Panning's successor has not
been approved by simple majority vote of such EDI Components'
investors (excluding Mr. Panning).
COMPENSATION OF DIRECTORS
In August, 1997, the Company authorized an annual issuance of 10,000
ten-year warrants to purchase Common Stock to each Director for service to the
Company at a 25% discount to the fair market value of the Common Stock as of the
date of grant. In August, 1997, 10,000 warrants to purchase Common Stock were
issued to each of the
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<PAGE> 9
then five (5) Directors of the Company (including Mr. Floyd Panning, who joined
the Board in August) at an exercise price of $0.375 per share. An additional
10,000 ten-year warrants were issued, at an exercise price of $0.68 per share,
to Randall P. Frank, who joined the Board of Directors in October, 1997.
In August, 1998, pursuant to the above resolution, the Company issued
10,000 ten-year warrants to purchase Common Stock to each of the Company's five
Directors at an exercise price of $1.375 per share.
Section 16(a) Beneficial Ownership Reporting Compliance
As of the date of this report, all directors, officers and beneficial
owners of more than 10 percent of any class of equity securities of the Company
have filed all reports required by Section 16(a) of the Securities Exchange Act
of 1934. The following table provides information regarding any of such reports
which were filed on a delinquent basis:
<TABLE>
<CAPTION>
NAME OF TYPE OF NO. OF TRANSACTIONS
REPORTING PERSON REPORT FILED LATE REPORTED LATE
---------------- -------------------------------- -------------------
<S> <C> <C>
Anthony M. Frank Form 4 - Statement of Changes in 1
Beneficial Ownership
Randall P. Frank Form 4 - Statement of Changes in 2
Beneficial Ownership
Randolph S. Heidmann Form 4 - Statement of Changes in 1
Beneficial Ownership
Floyd H. Panning Form 4 - Statement of Changes in 2
Beneficial Ownership
Catherine Patterson Form 4 - Statement of Changes in 1
Beneficial Ownership
Clifford D. Wyatt(1) Form 3 - Initial Statement of 1
Beneficial Ownership
</TABLE>
- --------------------
(1) Clifford D. Wyatt resigned from the Company's Board of Directors on April
14, 1999.
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<PAGE> 10
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MR. WILLIAM FARNAM
On October 1, 1997, Mr. Farnam exercised 44,000 warrants to purchase
Common Stock at $0.50 per share. Such warrants, which were scheduled to expire
at 5:00 P.M. on October 1, 1997, had been assigned to Mr. Farnam by various
investors of EDI Components.
On October 8, 1998, Mr. Farnam exercised 1,250 and 1,668 warrants to
purchase Common Stock which had been assigned to him by the original holder of
such warrants on October 2, 1998. Pursuant to a private placement offering
authorized by the Company in September, 1998, the original exercise price of
such warrants ($9.00 and $15.00, respectively) had been reduced to $1.00 per
share.
MR. ANTHONY FRANK
In February, 1996, Mr. Frank loaned EDI Components $500,000 and
received, as partial consideration therefor, a security interest in the
Company's patents and 300,000 warrants to purchase the Company's Common Stock at
$2.25. Such warrants are exercisable until February, 2001. Mr. Frank had the
right and elected on June 2, 1997 to convert such loan, plus $38,056 in accrued
but unpaid interest, into the Common Stock at a 25% discount to Fair Market
Value (as defined) for the thirty consecutive trading days prior to conversion.
Such conversion resulted in the issuance of 1,717,484 shares of the Common
Stock, 319,202 of which shares were sold by Mr. Frank to Floyd Panning,
President of EDI Components, at his cost of $100,000. An additional 319,202 of
such shares were sold by Mr. Frank to his son, Randall Frank, a Director of the
Company, at cost.
Between December, 1996 and April, 1997, Mr. Frank loaned EDI Components
an additional $150,000 at 10% interest. Mr. Frank had the right to convert said
loans into common stock of the Company and in August, 1997 converted such loans,
plus $7,110 in accrued interest, into 418,960 shares of the Company's Common
Stock at the rate of $0.375 per share. On October 7, 1997, Mr. Frank sold, at
his cost, 200,000 of such shares to his adult daughter, Tracy F. Frank (100,000
shares), and to Ronald J. O'Hare (50,000 shares) and Catherine Patterson (50,000
shares). Ronald J. O'Hare is currently employed by the Company and formerly
served as a Director until August 14, 1997. Ms. Patterson currently serves as
Corporate Secretary and Chief Financial Officer of the Company.
On August 14, 1997, Mr. Frank received 25,000 shares of Common Stock,
valued at $2.00 per share, as part of an initial issuance of shares to the
investors of EDI Components in accordance with the terms of the License
Termination Agreement entered into between Electropure and that company.
On October 1, 1997, Mr. Frank assigned, at no cost, warrants to purchase
4,000 shares of the Company's Common Stock at $0.50 per share to Mr. William
Farnam, a Director of the Company, who subsequently exercised same. Such
warrants were scheduled to expire at 5:00 P.M. on October 1, 1997.
On January 26, 1998, Mr. Frank loaned the Company, at 10% annual
interest, the sum of $200,000 and on January 29, 1998, he converted such loan
into 206,186 shares of the Company's Common Stock at $0.97 per share. Conversion
of such debt to equity resulted in an expense to the Company as of October 31,
1998 in the sum of $7,217. On February 4, 1998, Mr. Frank loaned the Company an
additional $200,000 under a two-year note which also carried the right to
convert the principal and interest accrued thereon into Common Stock at a 25%
discount to the fair market value. On March 25, 1998, Mr. Frank converted the
additional $200,000 loan, together with $2,630 in accrued interest, into 136,473
shares of Common Stock. Under the loan agreements with Mr. Frank, fair market
value is determined as the mean of the bid and asked prices of the Common Stock
for the thirty (30) consecutive trading days prior to the conversion date.
On January 15, 1999, Mr. Frank purchased 1,000,000 shares of the
Company's Series B Preferred Stock, $1 par value, and paid therefor the sum of
$1 million. Each share of Series B Preferred Stock carries four (4) votes per
share and is convertible into Common Stock, on a share-for-share basis, at any
time at Mr. Frank's option. Such Series B Preferred Stock is also automatically
convertible, however, if either of the following events occur:
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<PAGE> 11
(1) Electropure shall make a public offering of any of its securities
under the terms of an Underwriting Agreement with a securities
dealer or underwriter; or
(2) Electropure's securities shall be admitted for listing on a
national securities exchange market system or the NASDAQ System
where its Common Stock may then be traded.
MR. RANDALL FRANK
On August 14, 1997, Mr. Frank received 25,000 shares of Common Stock,
valued at $2.00 per share, as part of an initial issuance of shares to the
investors of EDI Components in accordance with the terms of the License
Termination Agreement entered into between Electropure and that company.
On September 21, 1998, Mr. Frank exercised 1,250 and 1,112 warrants to
purchase Common Stock at $1.00 per share pursuant to the Company's private
placement offering to temporarily reduce the exercise price (originally $9.00
and $15.00, respectively) of such warrants.
MR. RANDOLPH S. HEIDMANN
On August 12, 1998, the Company loaned Mr. Heidmann the sum of $3,500.
The loan, which bears interest at the lowest rate permitted, matured on October
1, 1998 and currently remains outstanding. If the parties mutually agree in the
future, the loan may be utilized as partial payment to acquire certain
proprietary technology under development by Mr. Heidmann. The technology in
question relates to a new design of a power supply which may be used with the
Company's EDI water treatment product.
In January, 1999, the Company loaned Mr. Heidmann an additional $5,000
for the purposes set forth above and is in the process of negotiating a more
definitive arrangement relating to the referenced acquisition.
MR. PANNING
On August 14, 1997, Mr. Panning received 50,000 shares of Common Stock,
valued at $2.00 per share, as part of an initial issuance of shares to the
investors of EDI Components, in accordance with the terms of the License
Termination Agreement between the Company and EDI Components. Mr. Panning was
the founder, the President and a principal shareholder of EDI Components.
Also on August 14, 1997, pursuant to the terms of a five-year Employment
Agreement entered into with the Company, Mr. Panning was granted 125,000
ten-years warrants to purchase Common Stock at the below fair market value of
$0.28125 per share. See "Remuneration - Employment Agreement." The warrants are
exercisable in increments of 25,000 each year on a cumulative basis.
Concurrent with the execution of the above employment agreement, Mr.
Panning was named to the Company's Board of Directors.
On August 22, 1997, Mr. Panning exercised his right to purchase 50,000
shares of the Company's Common Stock at $0.50 per share. Mr. Panning issued a
full recourse promissory note for the $25,000 purchase price, secured by the
shares, payable once the Company has reimbursed Mr. Panning for wages he
deferred while employed by EDI Components. Of the warrants exercised, 40,000 had
been issued pursuant to the July, 1992 license arrangement between the Company
and EDI Components whereby the Company issued warrants to all investors in EDI
Components in conjunction with their capital investment in that entity. The
balance of 10,000 warrants exercised had been issued to Mr. Panning in February,
1993 as a bonus for services rendered to the Company.
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<PAGE> 12
On March 25, 1998, Mr. Panning was granted 250,000 ten-year warrants to
purchase Common Stock at $1.125 per share. Such warrants are exercisable in
annual increments of 50,000, commencing on the grant date, to vest over a
five-year period; provided, however, that Mr. Panning is employed by the Company
on the exercise date.
WYATT TECHNOLOGY CORPORATION
The Company issued 2,100,000 shares of Common Stock to Wyatt Technology
Corporation pursuant to a Technology Transfer Agreement entered into on October
25, 1997. On March 5, 1998, Wyatt Technology Corporation sold, in private
transactions at $1.00 per share, 100,000 shares of such Common Stock to Mr.
Anthony Frank and 50,000 to Mr. William F. Farnam, a principal shareholder and a
Director of the Company, respectively. The Company has sued Wyatt Technology
Corporation and Wyatt Technology Corporation has counter-sued the Company in
connection with such Technology Transfer Agreement.
MISCELLANEOUS
The Company's Board of Directors has adopted a policy that no
transaction between the Company and any officer, director, employee or members
of their family shall be entered into without the full disclosure of such
transaction to and the approval of such transaction by the non-interested
members of the Board of Directors. Furthermore, no agreements will be entered
into regarding royalties, distributorships, supply agreements, sales agreements,
the borrowing of money or the sale or granting of securities or options or the
leasing or buying of property by the Company (exclusive of routine supply or
sales agreements not exceeding $25,000), or any other type of contract over
three months or $50,000 without the approval of the Board of Directors.
PROPOSAL TO ADOPT THE 1999 STOCK OPTION PLAN
GENERAL
The 1999 Stock Option Plan, as amended, (the "Plan") provides for the
grant of incentive stock options and non-qualified stock options. The Board of
Directors approved the Plan on May 7, 1999, subject to shareholder approval.
The Board of Directors believes that the approval of the Plan is in the
best interests of the Company and its shareholders, as the ability to grant
stock options is an important factor in attracting, motivating, and retaining
qualified personnel essential to the success of the Company. As of the current
time, the Board of Directors have not determined to grant any options or whom
they may be granted to.
At the Annual Meeting the Shareholders are being requested to:
(i) approve the Plan and reservation of 1,000,000 shares for issuance
thereunder; and
(ii) quality the Plan for purposes of Section 162(m) and 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
In 1993, Section 162(m) was added to the Code. Section 162(m) may limit
the Company's ability to deduct for United States Federal income tax purposes
compensation in excess of $1,000,000 paid to each of the Company's Chief
Executive Officer and its four other highest paid executive officers in any one
fiscal year unless such compensation qualifies as "performance-based
compensation." One of the requirements of "performance-based compensation" is
that the shareholders of the Company approve the material terms of the Plan.
The summary that follows is subject to the actual terms of the Plan.
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SECURITIES SUBJECT TO THE PLAN
The Plan authorizes the issuance thereunder of 1,000,000 shares of the
Company's Common Stock.
TERMS AND CONDITIONS OF THE OPTIONS
Incentive options issued to employees under the Plan expire in all
instances not more than ten years after the date of grant (five years if the
optionee at the time of grant owns or is considered to own more than 10% of the
outstanding Common Stock). Non-qualified options issued to employees under the
Plan shall expire not more than ten years from the date of grant.
The exercise price for shares to be issued to an employee is determined
on the date the option is granted by the Board of Directors or a Stock
Compensation Committee appointed by the Board of Directors, but in no case may
the exercise price of a non-qualified option intended to qualify as
"performanced-based compensation" within the meaning of Section 162(m) of the
Code be less than 100% of the fair market value (as defined in the Plan) of the
Common Stock on the date of the grant. For incentive stock options, the exercise
price will be not less than 100% of the fair market value of the Common Stock on
the date of grant (110% of the fair market value if the optionee at the time of
grant owns or is considered to own more than 10% of the outstanding Common
Stock). The exercise price is payable in full in cash when the option is
exercised. The exercise price may be paid, at the discretion of the Board of
Directors, or the Stock Option Committee, in the form of a cashless exercise or
in shares of Common Stock of the Company, provided that for Incentive Options,
the right to make payment in stock must be set forth in the original grant of
the option. Further in the discretion of the Board of Directors, loans may be
made, secured by shares equal to the value of the loan, may be made to pay the
exercise price and any income taxes related to the exercise. Upon the exercise
of an option, an optionee may be required to pay an amount equal to any
applicable Federal, state and local withholding taxes.
Options granted under the Plan are not transferable or assignable other
than by will or the laws of descent and distribution. However, an optionee may
transfer non-qualified stock options to a trust controlled by the optionee for
estate planning purposes. Upon termination of an optionee's employment or
rendering services to the Company, or the death or disability (as defined) of
the optionee, the option may be exercised to the extent provided for in the
option agreement or as the Board of Directors otherwise provides. These and
other terms and conditions of the options are set forth in a Stock Option
Agreement to be executed by each employee at the time an option is granted to
such employee or at the time an option is amended.
DURATION OF THE PLAN
Options can be granted under the Plan through May 6, 2009. The Board of
Directors is empowered to terminate the granting of options under the Plan at an
earlier date or to amend or otherwise modify the Plan. Except for adjustments
made necessary by changes in the Company's Common Stock, the Board of Directors
may not increase the total number of shares to be offered under the Plan without
shareholder approval.
ADMINISTRATION OF THE PLAN
The Board of Directors or the Compensation Committee, if any, may,
subject to the provisions of the Plan, grant to amend options thereunder,
establish rules and regulations which it may deem appropriate for the proper
administration of the Plan, and interpret and make determinations under the
Plan.
ELIGIBILITY
The persons eligible to receive incentive options under the Plan are
employees of the Company, or any parent or subsidiary of the Company.
Non-qualified stock options may be granted to employees, consultants and
advisors of the Company or any parent or subsidiary of the Company. An employee
who is also a member of the Board of Directors of the Company may be granted
options under the Plan. For incentive stock options, no optionee may be granted
incentive stock options to purchase more than $100,000 (as of the date of grant)
of options that the optionee can first exercise in any one year. Further,
options in any one year may not be granted to an optionee in excess of 80% of
the shares that may still be issued under the Plan.
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<PAGE> 14
FEDERAL INCOME TAX CONSEQUENCES
Non-qualified Stock Options. Generally, no income will be recognized by
an optionee at the time a non-qualified stock option is granted. At the time of
exercise of a non-qualified stock option, the optionee will recognize ordinary
income in an amount equal to the excess of the fair market value of the shares
on the date of exercise over the exercise price, unless the recipient is subject
to the provisions of Section 16(b) ("Section 16(b)") of the Securities Exchange
Act of 1934 (the option holder is an officer, director or more than 10%
shareholder). In such a case, ordinary income will be recognized at such time as
a sale of the shares at a profit would not subject the optionee to suit under
Section 16(b) and will be recognized in an amount equal to the excess of the
fair market value of the shares on such date over the exercise price. The
optionee may, however, make an election under Section 83(b) of the Code to
recognize ordinary income at the time of exercise as if the provisions of
Section 16(b) did not apply. The Company will be entitled to a deduction for
Federal income tax purposes, generally in the year and in the same amount as the
optionee is considered to have recognized ordinary income in connection with the
exercise of a non-qualified stock option, provided that the Company makes
provision for withholding of income taxes, where applicable.
An optionee will recognize gain or loss on the subsequent sale of shares
acquired upon exercise of a non-qualified stock option in an amount equal to the
difference between the amount realized and the tax basis of such shares, which
basis will equal the option price paid, plus the amount included in the
employee's income by reason of the exercise of the option. Provided such shares
are held as a capital asset, such gain or loss will be long-term or short-term
capital gain or loss, depending upon whether the shares have been held for more
than one year.
The Company has the right to deduct from an optionee's other
compensation any sums required by Federal, state or local tax laws to be
withheld with respect to the exercise of any non-qualified stock option from
sums owing to the person exercising the option or, in the alternative, may
require the person exercising the option to pay such sums to the Company prior
to or in connection with such exercise.
Incentive Stock Options. The Company believes that incentive stock
options granted under the Plan will qualify as incentive stock options within
the purview of Section 422 of the Code. The following is a summary of the
principal Federal income tax aspects of incentive stock options.
For ordinary income tax purposes, no income will be recognized by an
optionee at the time the incentive stock option is granted, and no ordinary
income will be recognized by an optionee upon his exercise of the option. If the
optionee makes no premature disposition of the shares received upon exercise of
the option, he will recognize long-term capital gain or loss when he disposes of
the shares and such gain or loss will be measured by the difference between the
option price and the amount realized for the shares at the time of disposition.
For this purpose a disposition is premature if it occurs within two years after
the option is granted, or within one year after the option is exercised.
If the optionee makes a premature disposition of shares acquired upon
exercise of an incentive option, any amount realized from such disqualifying
disposition will be taxable as ordinary income in the year of disposition to the
extent that the option price is exceeded by the lesser of the fair market value
of the shares on the date the option was exercised or the amount realized from
such disposition. Any gain in excess of the fair market value of the shares on
the date of exercise will be treated as long-term or short-term capital gain,
depending upon whether the shares have been held for more than one year.
The Company will not be allowed a deduction for Federal income tax
purposes at the time of exercise of an incentive stock option. At the time of
any disqualifying disposition by an optionee, the Company will generally be
entitled to a deduction to the extent that the optionee recognizes ordinary
income.
Upon exercise of an incentive stock option, the excess of the fair
market value of the stock over the option prices constitutes an item of tax
preferences for purposes of the alternative minimum tax. Whether an optionee
will be subject to the alternative minimum tax will depend upon his individual
tax circumstances.
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<PAGE> 15
Vote Required And Board Of Directors' Recommendation
To approve the adoption of 1999 Stock Option Plan for purposes of
Sections 162(m) and 422 of the Code, assuming a quorum is present, the
affirmative vote of a majority of the shareholders represented and voting at the
meeting is required, provided that the shares voting affirmatively also must
constitute a majority of the required quorum.
The Board of Directors believes that the Plan is in the best interest of
the Company and the shareholders for the reasons stated above. THEREFORE, THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE 1999
STOCK OPTION PLAN.
APPROVAL OF AGREEMENT WITH HARRY O'HARE
On October 18, 1998, the Company and Mr. Harry M. O'Hare, Sr. entered
into an Agreement and Mutual Release. Mr. O'Hare is the founder of the Company
and the inventor of the electrodeionization technology used in the Company' s
primary product. He currently is the owner of 83,983 shares of Class B Common
Stock (100%), which has eight votes per share; 2,500 shares of Common Stock,
which has one vote per share; and 931,629 shares of Convertible Preferred Stock,
which has one vote per share. Mr. O'Hare controls 8.3% of the voting power of
all classes of outstanding stock. Mr. O'Hare has not been an officer, director
or employee of the Company for over the last eight years.
THE AGREEMENT
The Agreement provides that Mr. O'Hare shall transfer to the Company all
of his 931,629 shares of Convertible Preferred Stock, 31,205 shares of his Class
B Common Stock and 2,500 shares of his Common Stock currently pledged to the
Company to secure payment of $9,105 he owes to the Company. In consideration of
the transfer of such shares Mr. O'Hare has agreed to waive any claims he may
have to any royalties for technology the Company is using and
the Company is to deposit, upon the closing of the transfer of the
shares, $1,000 per month in a special account until the earlier of the 120th
such payment or the death of Mr. O'Hare, although the Company can continue, in
its discretion, payments after Mr. O'Hare's death. The funds in such special
account are to be accessible only by Mr. O'Hare's wife, or if she predeceases
him or is no longer married to him, by a person selected by the Company;
the Company shall issue to Mr. O'Hare's wife a warrant for 10,000 shares
of Common Stock, exercisable for 10 years, unless extended by the Company and
exercisable at the closing bid price on the date of the closing. On May 26,
1999, the closing bid price of the Common Stock on the Electronic Bulletin Board
was $0.50 per share; and
the Company is to cancel $9,105 indebtedness owed by Mr. O'Hare to the Company.
Mr. O'Hare has also agreed that he will not in any way involve himself
with the Company or its officers and directors, request any other payments from
the Company or request any modification of the Agreement.
Finally, the Agreement provides for a full mutual release of any and all
claims between the Company and Mr. O'Hare.
CALIFORNIA COMMISSIONER OF CORPORATIONS
In order to comply with conditions imposed by the California Commissioner of
Corporations (the "Commissioner"), in connection with the public offering of
units by the Company June, 1987, Mr. O'Hare, and his former late wife agreed
that until such conditions are lifted by order of the Commissioner, all the
shares of Class B Common Stock and Convertible Preferred Stock held by them
(except for 107,848 shares of Convertible Preferred Stock issued in July, 1988
to Mr. O'Hare) and any Common Stock received upon conversion of the Class B
Common Stock and Convertible
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<PAGE> 16
Preferred Stock, will be subject to the following conditions (which are
referenced in a legend on the certificates for such shares):
o such shares will not participate in dividends, other than stock
dividends
o such shares will not participate in any distribution of assets in
the event of liquidation; and
o such shares may not be transferred without prior consent of the
Commissioner except for transfer pursuant to order or process of
the court.
The issuance of an order lifting such conditions is in the sole discretion of
the Commissioner. However, under the Commissioner's Rules, such an order will
generally be issued when the Company has demonstrated a satisfactory earnings
record, as defined in such Rules, and the Company understands that in practice
such an order will also be issued in the event of a merger, consolidation, or
liquidation in which the holders of the Common Stock have received a
satisfactory return on such shares.
In order to close the transactions contemplated by the Agreement, Mr.
O'Hare needs an order from the Commissioner removing the conditions. The Company
and Mr. O'Hare are to prepare an application to seek such an order. The closing
of the transactions will take place after any such order is issued by the
Commissioner. However, no assurances can be given that any such order will be
issued or a closing will take place.
One of the reasons for requesting that the shareholders, exclusive of
Mr. O'Hare, approve the Agreement is to improve the chances of obtaining an
order from the Commissioner.
RELATED TRANSACTIONS
As part of the Agreement, Mr. O'Hare is to transfer 4,106 shares of
Class B Common Stock to John Malec in satisfaction of a $14,371 default
judgment, plus interests, and is to transfer 48,572 shares of Class B Common
Stock to Dr. Paul Ovando in cancellation of an approximately $75,000 default
judgment, plus interest. Upon such transfers, which also requires the consent of
the Commissioner, the Class B Common Stock will automatically convert into
Common Stock, with one vote per share. The Company has also agreed to include
the shares transferred to Mr. Malec and Dr. Ovando for resale in the next
registration statement filed by the Company
BOARD OF DIRECTORS RECOMMENDS APPROVAL OF THE AGREEMENT
The Agreement was negotiated between Mr. O'Hare and the Company and its
attorneys and was reviewed, commented upon and approved unanimously by the Board
of Directors. No member of the Board of Directors has any relationship with Mr.
O' Hare. Ronald O'Hare, Mr. O'Hare's son, is currently employed by the Company
and was formerly an officer and director of the Company.
The Board of Directors believes that the Agreement is in the best
interests of the Company since
o it will settle any and all outstanding claims for royalties and
compensation by Mr. O'Hare and any other claims;
o it will eliminate the outstanding Class B Common Stock which has
eight votes per share and, thus the disproportionate voting power
Mr. O'Hare currently has;
o it will provide Mr. O'Hare's family with a modest monthly
retirement payment in light of the fact that Mr. O'Hare founded the
Company and is the inventor of the electrodeionization technology;
and
o it will settle a $9,015 debt owed by Mr. O'Hare to the Company.
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<PAGE> 17
IN LIGHT OF THE ABOVE, THE BOARD OF DIRECTORS RECOMMENDS THAT THE
SHAREHOLDERS VOTE "FOR" THE AGREEMENT WITH MR. O'HARE.
VOTE REQUIRED
The Board of Directors believes that it has the power to approve the
Agreement without a vote of the shareholders but has nevertheless decided to
submit the Agreement to the shareholders for their approval. The vote of the
holders of a majority of the shares represented in person or by proxy at the
Annual Meeting is required to approve the Agreement, provided that the shares
voting affirmatively also must constitute a majority of the required quorum and,
provided a quorum is present. However, for the purpose of determining such
majority, Mr. O'Hare's shares shall be disregarded.
INDEPENDENT AUDITORS
Kelly & Company has been selected as independent auditors for the
Company for the current fiscal year. Kelly & Company does not have and has not
had at any time any direct or indirect financial interest in the Company or any
of its subsidiaries and does not have and has not had at any time any connection
with the Company or any of its subsidiaries in the capacity of promoter,
underwriter, voting trustee, director, officer, or employee. Neither the Company
nor any officer or director of the Company has or has had any interest in Kelly
& Company.
The Board of Directors of the Company has approved Kelly & Company as
its independent auditors. Prior thereto, they have questioned partners of that
firm about its methods of operation and have received assurances that any
litigation or other matters involving it do not affect its ability to perform as
the Company's independent auditors.
Representatives of Kelly & Company will [not] be present at the Annual
Meeting, will have an opportunity to make statements if they so desire, and will
be available to respond to appropriate questions.
On June 16, 1998, the Company retained the independent accounting firm
of Kelly & Company to conduct an audit of its financial statements for the
fiscal years ended October 31, 1997 and 1998. For the Company's fiscal years
ended October 31, 1996 and 1997, the financial statements were subject to going
concern qualifications and an uncertainty as to the outcome of certain
litigation and claims, but were not otherwise qualified or modified as to audit
scope, or accounting principles by Alex N. Chaplan & Associates. During the two
fiscal years ended October 31, 1996 and 1997, and since October 31, 1997, there
were not any disagreements with Alex N. Chaplan & Associates on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
Alex N. Chaplan & Associates, would have caused it to make a reference to the
subject matter of the disagreements in connection with its report, nor were
there any "reportable events" as defined in Item 304(a)(1)(v) of Regulation S-K.
During the two fiscal years ended October 31, 1996 and 1997, and between October
31, 1997 and June 16, 1998, the Company did not consult with Kelly & Company on
the application of accounting principles to a specified transaction, or the type
of audit opinion that might be rendered on the Registrant's financial statements
or any disagreements (as defined in Item 304(a)(1)(iv) of Regulation S-K) or a
reportable event (as defined above).
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS FOR THE 2000 ANNUAL MEETING
Any proposal relating to a proper subject which a shareholder may intend
to be presented for action at the next Annual Meeting of Shareholders and to be
included in the Company's proxy statement must be received by the Company no
later than January 29, 2000, to be considered for inclusion in the proxy
material to be disseminated by the Board in accordance with the provisions of
Rule 14a-8 promulgated under the Exchange Act. Copies of such proposals should
be sent to the Company's Secretary at the Company's principal executive offices.
To be eligible for inclusion in such proxy materials, such proposals must
conform to the requirements set forth in Regulation 14A under the Exchange Act.
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<PAGE> 18
OTHER SHAREHOLDER PROPOSALS FOR PRESENTATION
AT THE NEXT MEETING
For any proposal that is not submitted for inclusion in next year's
Proxy Statement, but is instead sought to be presented directly at the 2000
Annual Meeting, management will be able to vote proxies in its discretion if the
Company: (1) receives notice of the proposal before the close of business on
April 10, 2000, and advises shareholders in the 2000 Proxy Statement about the
nature of the matter and how management intends to vote on such matters; or (2)
does not receive notice of the proposal prior to the close of business on April
3, 2000. Notices of intention to present proposals at the 2000 Annual Meeting
should be sent to the Company's Corporate Secretary at the Company's principal
executive offices.
ANNUAL REPORT
The Company's Annual Report to Shareholders containing its financial
statements for the fiscal year ended October 31, 1999, will be mailed to all
shareholders of record as of May 26, 1999. The Annual Report to Shareholders
does not constitute any part of this Proxy Statement. Any shareholder who does
not receive a copy of such Annual Report to Shareholders may obtain one by
writing to the Company.
REPORTS FILED WITH SECURITIES AND EXCHANGE COMMISSION
ANY BENEFICIAL OWNER OF SECURITIES OF THE COMPANY WHOSE PROXY IS HEREBY
SOLICITED MAY REQUEST AND RECEIVE WITHOUT CHARGE A COPY OF THE COMPANY'S ANNUAL
REPORT ON FORM 10-KSB, INCLUDING THE FINANCIAL STATEMENTS AND THE SCHEDULES
THERETO, BUT EXCLUDING EXHIBITS, FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. SUCH REQUEST SHOULD BE ADDRESSED TO: ELECTROPURE, INC., 23456 SOUTH
POINTE DRIVE, LAGUNA HILLS, CALIFORNIA 926053, ATTENTION: CORPORATE SECRETARY.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors does not
know of any other matter which will be brought before the Annual Meeting.
However, if any other matter properly comes before the Meeting, or any
adjournment thereof, the person or persons voting the proxies will vote on such
matters in accordance with their best judgment and discretion.
By Order of the Board of Directors
/s/ CATHERINE PATTERSON
-------------------------------------
Catherine Patterson
Secretary
Laguna Hills, California
June 2, 1999
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<PAGE> 19
ELECTROPURE, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF SHAREHOLDERS ON JUNE 26, 1999.
THE UNDERSIGNED HEREBY APPOINTS FLOYD PANNING AND CATHERINE PATTERSON OR ANY OF
THEM WITH FULL POWER OF SUBSTITUTION TO EACH OF THEM, AS PROXIES TO REPRESENT
THE UNDERSIGNED AT THE ANNUAL MEETING OF SHAREHOLDERS OF ELECTROPURE, INC. TO BE
HELD AT 10:00 A.M. PACIFIC DAYLIGHT TIME, ON JUNE 26, 1999, AT 23456 SOUTH
POINTE DRIVE, LAGUNA HILLS, CALIFORNIA 92653 AND AT ANY ADJOURNMENT, THEREOF AND
TO VOTE ALL SHARES OF STOCK WHICH THE UNDERSIGNED MAY BE ENTITLED TO VOTE AT
SUCH MEETING AS FOLLOWS:
(1) ELECTION OF DIRECTORS: [ ] FOR ALL NOMINEES LISTED BELOW (EXCEPT AS MARKED
TO CONTRARY BELOW.)
[ ] WITHHOLDING AUTHORITY TO VOTE FOR ALL NOMINEES
LISTED BELOW
[ ] NAME OF INDIVIDUAL NOMINEES WITHHELD
William F. Farnam, Randall P. Frank, Randolph S. Heidmann, Arthur Lipper, III
and Floyd H. Panning
(INSTRUCTIONS: TO WITHHOLD AUTHORITY FOR ANY INDIVIDUAL NOMINEE, MARK THE
"NAME OF INDIVIDUAL NOMINEES WITHHELD" BOX AND WRITE THE NOMINEE'S NAME ON
THE SPACE PROVIDED BELOW:)
-----------------------------------------------------------------
(2) TO APPROVE THE 1999 STOCK OPTION PLAN.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) TO APPROVE THE AGREEMENT WITH MR. O'HARE.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(4) TO VOTE WITH DISCRETIONARY AUTHORITY UPON ANY OTHER BUSINESS WHICH MAY
PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF.
(Continued and to be Signed on the Other Side)
<PAGE> 20
(Continued from Reverse Side)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN.
IF NO SPECIFICATION IS MADE, IT WILL BE VOTED FOR THE BOARD OF DIRECTORS, FOR
THE APPROVAL OF THE 1999 STOCK OPTION PLAN AND FOR THE AGREEMENT WITH MR.
O'HARE.
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
ELECTROPURE, INC.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL
MEETING OF SHAREHOLDERS AND PROXY STATEMENT DATED MAY 26, 1999.
DATED: ___________ , 1999,
______________________________
______________________________
SIGNATURE(S) OF SHAREHOLDER(S)
THIS PROXY SHOULD BE SIGNED EXACTLY AS YOUR NAME APPEARS HEREON.
JOINT OWNERS SHOULD BOTH SIGN. IF SIGNED BY EXECUTORS,
ADMINISTRATORS, TRUSTEES AND OTHER PERSONS SIGNING IN REPRESENTATIVE
CAPACITY SHOULD GIVE FULL TITLES.
PLEASE COMPLETE, DATE, AND SIGN THIS PROXY AND RETURN IT IN THE
ENCLOSED ENVELOPE.
