ELECTROPURE INC, PRE 14A, 1999-05-24

ELECTROPURE INC
PRE 14A, 1999-05-24
PATENT OWNERS & LESSORS

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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:

[X] Preliminary Proxy Statement

[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))

[ ] Definitive Proxy Statement

[ ] Definitive Additional Materials

[ ] Soliciting Material Pursuant to Section 2.14a-11(c) or Rule 2.14a-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)(1) 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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(2) Form, Schedule or Registration Statement No.:

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(3) Filing Party:

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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

Laguna Hills, California Catherine Patterson
May 28, 1999 Secretary

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 May 28, 1999.

YOU ARE REQUESTED TO COMPLETE AND SIGN THE ACCOMPANY 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 at the close of business on May 28, 1999, will be entitled to
notice of and to vote at the Annual Meeting. On such date, there were
outstanding 8,618,925 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.

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With respect to election of directors, assuming a quorum is present,
the five candidates receiving the highest number of votes are elected.

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.

PRINCIPAL SHAREHOLDERS

The following table sets forth information as of May 28, 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. Farman 116,918 1.0% -- -- -- -- -- -- *

Anthony M. Frank
320 Meadowood Court
Pleasant Hill, CA 94523 2,479,742 20.6% -- -- 1,000,000 100% -- -- 33.6%

Randall P. Frank 403,898 3.4% -- -- -- -- -- -- 2.1%

Randolph S. Heidmann 20,000 * -- -- -- -- -- -- *

Arthur Lipper III -- -- -- -- -- -- -- -- --

Harry M. O'Hare, Sr
2035 Huntington Dr., #1
S. Pasadena, CA 91030 2,500 * 83,983 100% -- -- 931,629 35.8% 8.3%
</TABLE>

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<PAGE> 5

Catherine Patterson 210,112 1.7% -- -- -- -- 2,906 * 1.1%

Clifford D. Wyatt 10,000 * -- -- -- -- -- -- *

Wyatt Technology Corp.
30 S. La Patera Lne, Ste B-7
Santa Barbara, CA 93117 1,950,000 16.2% -- -- -- -- -- -- 10.1%

All officers, directors and
nominees as a group
(6 persons) 1,587,720 13.2% -- -- -- -- 10,406 * 8.3%
</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 (13.1%)
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 3,289,834 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.

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

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<PAGE> 6

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.

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.

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<PAGE> 7

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 1998 87,346 -- 250,000(2)
President and 1997 12,000 -- 125,000(3)
Chief Executive
Officer
</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.

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

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<PAGE> 8

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:

YEAR OF PERCENT
TERMINATION OF SALARY
----------- ---------
1 60%
2 70%
3 80%
4 90%
5 100%
6 0%
7 0%

(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 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.

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<PAGE> 9

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>
Form 4 - Statement of Changes in 1
Anthony M. Frank Beneficial Ownership
Form 4 - Statement of Changes in
Randall P. Frank Beneficial Ownership 2
Form 4 - Statement of Changes in
Randolph S. Heidmann Beneficial Ownership 1
Form 4 - Statement of Changes in
Floyd H. Panning Beneficial Ownership 2
Form 4 - Statement of Changes in
Catherine Patterson Beneficial Ownership 1
Form 3 - Initial Statement of
Clifford D. Wyatt(1) Beneficial Ownership 1
</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.

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<PAGE> 11

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:

(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 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

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<PAGE> 12

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.

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.

SECURITIES SUBJECT TO THE PLAN

The Plan authorizes the issuance thereunder of 1,000,000 shares of the
Company's Common Stock.

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<PAGE> 13

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 a
non-qualified option be exercisable for 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 option 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, as that term is defined in the Plan. Non-qualified
stock options may be granted to employees, consultants and advisors. 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

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<PAGE> 14

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.

FEDERAL INCOME TAX CONSEQUENCES

Non-qualified Stock Options. Generally, no income will be recognized by
an optionee at the time a non-qualified option is granted. At the time of
exercise of a non-qualified 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 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 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 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 options
granted under the Plan will qualify as incentive stock options within the
purview of Section 422 of the Internal Revenue Code of 1986. The following is a
summary of the principal federal income tax aspects of incentive stock options.

For regular income tax purposes, no income will be recognized by an
optionee at the time the incentive option is granted, and no 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.

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<PAGE> 15

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.

Vote Required And Board Of Directors' Recommendation

To approve the adoption of 1999 Stock Option Plan 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 electrode ionization 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

o 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;

o 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
$___ per share; and

o the Company is to cancel $9,105 indebtedness owed by Mr. O'Hare
to the Company.

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<PAGE> 16

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 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
judgement, 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.

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<PAGE> 17

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.

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.

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<PAGE> 18

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.

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 3, 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.

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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

CATHERINE PATTERSON
Secretary
Laguna Hills, California
May 26, 1999

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<PAGE> 20

ELECTROPURE, INC.

1999 STOCK OPTION PLAN

SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.

The name of this plan is the Electropure, Inc. 1999 Stock Option Plan
(the "Plan"). The Plan was adopted by the Board (defined below) on May 7, 1999
subject to the approval of the shareholders of the Company (defined below),
which approval was obtained on June 26, 1999. The purpose of the Plan is to
enable the Company to attract and retain highly qualified personnel who will
contribute to the Company's success and to provide incentives to Participants
(defined below) that are linked directly to increases in shareholder value and
will therefore inure to the benefit of all shareholders of the Company.

For purposes of the Plan, the following terms shall be defined as set
forth below:

(1) "Administrator" means the Board, or if and to the extent the Board
does not administer the Plan, the Committee in accordance with Section 2 below.

(2) "Board" means the Board of Directors of the Company.

(3) "Code" means the Internal Revenue Code of 1986, as amended from time
to time, or any successor thereto.

(4) "Committee" means any committee the Board may appoint to administer
the Plan. To the extent necessary and desirable, the Committee shall be composed
entirely of individuals who meet the qualifications referred to in Section
162(m) of the Code and Rule 16b-3 under the Exchange Act. If at any time or to
any extent the Board shall not administer the Plan, then the functions of the
Board specified in the Plan shall be exercised by the Committee.

(5) "Company" means Electropure, Inc., a California corporation (or any
successor corporation).

<PAGE> 21

(6) "Disability" means the inability of a Participant to perform
substantially his or her duties and responsibilities to the Company or to any
Parent or Subsidiary by reason of a physical or mental disability or infirmity
(i) for a continuous period of six months, or (ii) at such earlier time as the
Participant submits medical evidence satisfactory to the Administrator that the
Participant has a physical or mental disability or infirmity that will likely
prevent the Participant from returning to the performance of the Participant's
work duties for six months or longer. The date of such Disability shall be the
last day of such six-month period or the day on which the Participant submits
such satisfactory medical evidence, as the case may be.

(7) "Eligible Recipient" means an officer, director, employee,
consultant or advisor of the Company or of any Parent or Subsidiary.

(8) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.

(9) "Fair Market Value" means, as of any given date, with respect to any
Stock Option granted hereunder, (A) if the Stock is publicly traded, the closing
sale price of a share of Stock on such date as reported in the Western Edition
of the Wall Street Journal or (B) the fair market value of a share of Stock as
otherwise determined by the Administrator in the good faith exercise of its
discretion.

(10) "Incentive Stock Option" means any Stock Option intended to be
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.

(11) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option, including any Stock Option that provides (as of the time
such Stock Option is granted) that it will not be treated as an Incentive Stock
Option.

(12) "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations in the chain (other than the Company) owns stock possessing 50% or
more of the combined voting power of all classes of stock in one of the other
corporations in the chain.

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<PAGE> 22

(13) "Participant" means any Eligible Recipient selected by the
Administrator, pursuant to the Administrator's authority in Section 2 below, to
receive grants of Stock Options.

(14) "Stock" means the common stock, par value $0.01 per share, of the
Company.

(15) "Stock Option" means an option to purchase shares of Stock granted
pursuant to Section 5 below.

(16) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations (other than the last corporation) in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.

SECTION 2. ADMINISTRATION.

The Plan shall be administered in accordance with the requirements of
Section 162(m) of the Code (but only to the extent necessary and desirable to
maintain qualification of awards under the Plan under Section 162(m) of the
Code) and, to the extent applicable, Rule 16b-3 under the Exchange Act ("Rule
16b-3"), by the Board or, at the Board's sole discretion, by the Committee,
which shall be appointed by the Board, and which shall serve at the pleasure of
the Board.

Pursuant to the terms of the Plan, the Administrator shall have the
power and authority to grant Stock Options to Eligible Recipients pursuant to
the terms of the Plan. In particular, the Administrator shall have the
authority:

(a) to select those Eligible Recipients who shall be Partici
pants;

(b) to determine whether and to what extent Stock Options, are to
be granted hereunder to Participants;

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<PAGE> 23

(d) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of Stock Options granted hereunder;

(e) to determine the terms and conditions, not inconsistent with
the terms of the Plan, which shall govern all written instruments evidencing the
Stock Options; and

(f) to reduce the option price of any Stock Option to the then
current Fair Market Value if the Fair Market Value of the Stock covered by such
Stock Option has declined since the date such Stock Option was granted.

The Administrator shall have the authority, in its sole discretion, to
adopt, alter and repeal such administrative rules, guidelines and practices
governing the Plan as it shall from time to time deem advisable; to interpret
the terms and provisions of the Plan and any Stock Option issued under the Plan
(and any agreements relating thereto); and to otherwise supervise the
administration of the Plan.

All decisions made by the Administrator pursuant to the provisions of
the Plan shall be final, conclusive and binding on all persons, including, but
not limited to, the Company and the Participants.

SECTION 3. STOCK SUBJECT TO PLAN.

The total number of shares of Stock reserved and available for issuance
under the Plan shall be 1,000,000 shares. Such shares may consist, in whole or
in part, of authorized and unissued shares or treasury shares. The aggregate
number of shares of Stock as to which Stock Options may be granted to any
Participant during any calendar year may not, subject to adjustment as provided
in this Section 3, exceed 80% of the shares of Stock reserved for the purposes
of the Plan.

Consistent with the provisions of Section 162(m) of the Code, as from
time to time applicable, to the extent that a Stock Option expires or is
otherwise terminated without being exercised, such shares of Stock shall again
be available for issuance in connection with future Stock Options granted under
the Plan. If any shares of Stock have been pledged as collateral for
indebtedness incurred by a Participant in connection with the exercise of a
Stock Option and such shares of Stock are returned to the Company in
satisfaction of such indebtedness, such shares of stock shall again be available
for issuance in connection with future grants of Stock Options under the Plan.

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<PAGE> 24

In the event of any merger, reorganization, consolidation, recapital
ization, stock dividend or other change in corporate structure affecting the
Stock, an equitable substitution or proportionate adjustment shall be made (i)
in the aggregate number of shares of Stock reserved for issuance under the Plan
and (ii) in the kind, number and option price of shares of Stock subject to
outstanding Stock Options granted under the Plan, in each case as may be
determined by the Administrator, in its sole discretion. Such other
substitutions or adjustments shall be made as may be determined by the
Administrator, in its sole discretion. In connection with any event described in
this paragraph, the Administrator may provide, in its sole discretion, for the
cancellation of any outstanding Stock Option and payment in cash or other
property therefor.

SECTION 4. ELIGIBILITY.

Eligible Recipients who are responsible for, or are in a position to
contribute to the management, growth and/or profitability of the business of the
Company or any Parent or Subsidiary, shall be eligible to be granted Stock
Options. The Participants under the Plan shall be selected from time to time by
the Administrator, in its sole discretion, from among the Eligible Recipients,
and the Administrator shall determine, in its sole discretion, the number of
shares of Stock covered by each Stock Option.

The Administrator shall have the authority to grant to any officer or
employee of the Company or of any Parent or Subsidiary (including directors who
are also officers of the Company) Incentive Stock Options, Non-Qualified Stock
Options, or both types of Stock Options. Directors who are not also officers of
the Company or of any Parent or Subsidiary, consultants or advisors to the
Company or to any Parent or Subsidiary may only be granted Non-Qualified Stock
Options. To the extent that any Stock Option does not qualify as an Incentive
Stock Option, it shall constitute a separate Non-Qualified Stock Option. More
than one Stock Option may be granted to the same Participant and be outstanding
concurrently hereunder.

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<PAGE> 25

SECTION 5. TERMS OF STOCK OPTIONS.

The Stock Options granted under the Plan may be of two types: (i)
Incentive Stock Options and (ii) Non-Qualified Stock Options. The provisions of
Stock Options granted hereunder need not be the same with respect to each
Participant. Participants who are granted Stock Options shall enter into an
agreement with the Company, in such form as the Administrator shall determine,
which agreement shall set forth, among other things, the option price of the
Stock Option, the term of the Stock Option and provisions regarding
exercisability of the Stock Option granted thereunder. The Administrator may
require the surrender of all or a portion of any Stock Option granted under the
Plan as a condition prece dent to the grant of a new Stock Option. Subject to
the provisions of the Plan, such new Stock Option shall be exercisable at the
price, during such period and on such other terms and conditions as are
specified by the Administrator at the time the new Stock Option is granted.
Consistent with the provisions of Section 162(m), to the extent applicable, upon
their surrender, Stock Options shall be canceled and the shares of Stock
previously subject to such canceled Stock Options shall again be available for
grants of Stock Options and other awards hereunder.

Stock Options granted under the Plan shall be subject to the follow ing
terms and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Administrator shall deem
desirable:

(1) Option Price. The option price per share of Stock purchasable under
a Stock Option shall be determined by the Administrator in its sole discre tion
at the time of grant but shall not, (i) in the case of Incentive Stock Options,
be less than 100% of the Fair Market Value of the Stock on such date, (ii) in
the case of Non-Qualified Stock Options intended to qualify as
"performance-based com pensation" within the meaning of Section 162(m) of the
Code, be less than 100% of the Fair Market Value of the Stock on such date and
(iii) in any event, be less than the par value (if any) of the Stock. If an
employee owns or is deemed to own (by reason of the attribution rules applicable
under Section 424(d) of the Code) more than 10% of the combined voting power of
all classes of stock of the Com pany or of any Parent or Subsidiary and an
Incentive Stock Option is granted to such employee, the option price of such
Incentive Stock Option (to the extent required at the time of grant by the Code)
shall be no less than 110% of the Fair Market Value of the Stock on the date
such Incentive Stock Option is granted.

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<PAGE> 26

(2) Option Term. The term of each Stock Option shall be fixed by the
Administrator, but no Stock Option shall be exercisable more than ten years
after the date such Stock Option is granted; provided, however, that if an
employee owns or is deemed to own (by reason of the attribution rules of Section
424(d) of the Code) more than 10% of the combined voting power of all classes of
stock of the Company or of any Parent or Subsidiary and an Incentive Stock
Option is granted to such employee, the term of such Incentive Stock Option (to
the extent required by the Code at the time of grant) shall be no more than five
years from the date of grant.

(3) Exercisability. Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by the
Administrator at or after the time of grant. The Administrator may provide at
the time of grant, in its sole discretion, that any Stock Option shall be
exercisable only in installments, and the Administrator may waive such
installment exercise provisions at any time, in whole or in part, based on such
factors as the Adminis trator may determine, in its sole discretion, including,
but not limited to, in connection with any "Change in Control" of the Company as
defined in the agreement evidencing such Stock Option.

(4) Method of Exercise. Subject to paragraph (3) of this Section 5,
Stock Options may be exercised in whole or in part at any time during the option
period, by giving written notice of exercise to the Company specifying the
number of shares of Stock to be purchased, accompanied by payment in full of the
pur chase price in cash or its equivalent, as determined by the Administrator.
As determined by the Administrator, in its sole discretion, payment in whole or
in part may also be made (i) by means of any cashless exercise procedure
approved by the Administrator, (ii) in the form of unrestricted Stock already
owned by the Partici pant which, (x) in the case of unrestricted Stock acquired
upon exercise of an option, have been owned by the Participant for more than six
months on the date of surrender, and (y) has a Fair Market Value on the date of
surrender equal to the aggregate option price of the Stock as to which such
Stock Option shall be exer cised; provided, however, that in the case of an
Incentive Stock Option, the right to make payment in the form of already owned
shares of Stock may be authorized only at the time of grant.

(5) Loans. The Company or any Parent or Subsidiary may make loans
available to Stock Option holders in connection with the exercise of outstand
ing Stock Options, as the Administrator, in its sole discretion, may determine.

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<PAGE> 27

Such loans shall (i) be evidenced by promissory notes entered into by the Stock
Option holders in favor of the Company or any Parent or Subsidiary, (ii) be
subject to the terms and conditions set forth in this Section 5(5) and such
other terms and conditions, not inconsistent with the Plan, as the Administrator
shall determine, (iii) bear interest at the applicable Federal interest rate or
such other rate as the Administrator shall determine, and (iv) be subject to
Board approval (or to approval by the Administrator to the extent the Board may
delegate such authority). In no event may the principal amount of any such loan
exceed the sum of (x) the option price less the par value (if any) of the shares
of Stock covered by the Stock Option, or portion thereof, exercised by the
holder, and (y) any Federal, state, and local income tax attributable to such
exercise. The initial term of the loan, the schedule of payments of principal
and interest under the loan, the extent to which the loan is to be with or
without recourse against the holder with respect to principal and/or interest
and the conditions upon which the loan will become payable in the event of the
holder's termination of service to the Company or to any Parent or Subsidiary
shall be determined by the Administrator. Unless the Administrator determines
otherwise, when a loan is made, shares of Stock having a Fair Market Value at
least equal to the principal amount of the loan shall be pledged by the holder
to the Company as security for payment of the unpaid balance of the loan, and
such pledge shall be evidenced by a pledge agreement, the terms of which shall
be determined by the Administrator, in its sole discretion; provided, however,
that each loan shall comply with all applicable laws, regula tions and rules of
the Board of Governors of the Federal Reserve System and any other governmental
agency having jurisdiction.

(6) Non-Transferability of Options. Except under the laws of descent
and distribution, unless otherwise determined by the Administrator, the
Participant shall not be permitted to sell, transfer, pledge or assign any Stock
Option, and all Stock Options shall be exercisable, during the Participant's
lifetime, only by the Participant; provided, however, that the Participant shall
be permitted to transfer one or more Non-Qualified Stock Options to a trust
controlled by the Participant during the Participant's lifetime for estate
planning purposes.

(7) Termination of Employment or Service. If a Participant's employment
with or service as a director, consultant or advisor to the Company or to any
Parent or Subsidiary terminates by reason of his or her death, Disability or for
any other reason, the Stock Option may thereafter be exercised to the extent
provided in the agreement evidencing such Stock Option, or as otherwise deter
mined by the Administrator.

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<PAGE> 28

(8) Annual Limit on Incentive Stock Options. To the extent that the
aggregate Fair Market Value (determined as of the date the Incentive Stock
Option is granted) of shares of Stock with respect to which Incentive Stock
Options granted to a Participant under this Plan and all other option plans of
the Company or of any Parent or Subsidiary become exercisable for the first time
by the Partici pant during any calendar year exceeds $100,000, the portion of
such Incentive Stock Options in excess of $100,000 shall be treated as
Non-Qualified Stock Options.

SECTION 6. AMENDMENT AND TERMINATION.

The Board may amend, alter or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made that would impair the rights of a
Participant under any Stock Option theretofore granted without such
Participant's consent, or that, without the approval of the shareholders (as de
scribed below), would:

(1) except as provided in Section 3 of the Plan, increase the total
number of shares of Stock reserved for issuance under the Plan;

(2) change the class of officers, directors, employees, consultants and
advisors eligible to participate in the Plan; or

(3) extend the maximum option period under paragraph (2) of Section 5 of
the Plan.

Notwithstanding the foregoing, shareholder approval under this Section 6
shall only be required at such time and under such circumstances as shareholder
approval would be required under Section 162(m) of the Code or other applicable
law, rule or regulation with respect to any material amendment to any employee
benefit plan of the Company.

The Administrator may amend the terms of any Stock Option theretofore
granted, prospectively or retroactively, but, subject to Section 3 of Plan, no
such amendment shall impair the rights of any Participant without his or her
consent.

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<PAGE> 29

SECTION 7. UNFUNDED STATUS OF PLAN.

The Plan is intended to constitute an "unfunded" plan for incentive
compensation. With respect to any payments not yet made to a Participant by the
Company, nothing contained herein shall give any such Participant any rights
that are greater than those of a general creditor of the Company.

SECTION 8. GENERAL PROVISIONS.

(1) Shares of Stock shall not be issued pursuant to the exercise of any
Stock Option granted hereunder unless the exercise of such Stock Option and the
issuance and delivery of such shares of Stock pursuant thereto shall comply with
all relevant provisions of law, including, without limitation, the Securities
Act of 1933, as amended, the Exchange Act and the requirements of any stock ex
change upon which the Stock may then be listed, and shall be further subject to
the approval of counsel for the Company with respect to such compliance.

(2) A Participant shall generally have the rights to dividends and any
other rights of a shareholder with respect to the Stock subject to the Stock
Option only after the Participant has given written notice of exercise, has paid
in full for such shares, and, if requested, has given the representation
described in paragraph (3) below.

(3) The Administrator may require each Participant acquiring shares of
Stock hereunder to represent to and agree with the Company in writing that such
Participant is acquiring the shares of Stock without a view to distribution
thereof. The certificates for such shares of Stock may include any legend which
the Administrator deems appropriate to reflect any restrictions on transfer.

All certificates for shares of Stock delivered under the Plan shall be
subject to such stock-transfer orders and other restrictions as the
Administrator may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the Stock is then listed, and any applicable Federal or state securities
law, and the Administra tor may cause a legend or legends to be placed on any
such certificates to make appropriate reference to such restrictions.

(4) Nothing contained in the Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to shareholder

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<PAGE> 30

approval, if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of the
Plan shall not confer upon any Eligible Recipient any right to continued
employment or service with the Company or any Parent or Subsidiary, as the case
may be, nor shall it interfere in any way with the right of the Company or any
Parent or Subsidiary to terminate the employment or service of any of its
Eligible Recipients at any time.

(5) Each Participant shall, no later than the date as of which the
value of a Stock Option first becomes includible in the gross income of the
Participant for Federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Administrator regarding payment of, any
Federal, state, or local taxes of any kind required by law to be withheld with
respect to the Stock Option. The obligations of the Company under the Plan shall
be conditional on the making of such payments or arrangements, and the Company
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the Participant.

(6) No member of the Board or the Administrator, nor any officer or
employee of the Company acting on behalf of the Board or the Administrator,
shall be personally liable for any action, determination, or interpretation
taken or made in good faith with respect to the Plan, and all members of the
Board or the Administrator and each and any officer or employee of the Company
acting on their behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company in respect of any such action,
determination or interpretation.

SECTION 9. SHAREHOLDER APPROVAL; EFFECTIVE DATE OF PLAN.

(1) The grant of any Stock Option hereunder shall be contingent upon
shareholder approval of the Plan being obtained within 12 months before or after
the date the Board adopts the Plan.

(2) Subject to the approval of the Plan by the shareholders of the
Company within twelve (12) months before or after the date the Plan is adopted
by the Board, the Plan shall be effective as of May 7, 1999 (the "Effective
Date").

SECTION 20. TERM OF PLAN.

No Stock Option shall be granted pursuant to the Plan on or after the
tenth anniversary of the Effective Date, but Stock Options theretofore granted
may extend beyond that date.

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<PAGE> 31

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> 32

(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.