<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by 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 Materials Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
R.H. PHILLIPS, INC.
- ----------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Board of Directors -- R.H. Phillips, Inc.
- ----------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
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:
2) Aggregate number of securities to which transaction
applies:
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):
4) Proposed maximum aggregate value of transaction:
5) Total fee Paid:
[ ] 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:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE> 2
R.H. PHILLIPS, INC.
26836 County Road 12A
Esparto, California 95627
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS:
The 1997 Annual Meeting of Shareholders of R.H. Phillips,
Inc. will be held on Thursday, May 22, 1997 at 10:00am at The
R.H. Phillips Winery, located at 26836 County Road 12A, Esparto,
California, for the following purposes:
1. To elect directors, with the following persons to be
presented at the meeting by the current Board of
Directors for election to the Board of Directors:
John E. Giguiere, Karl E. Giguiere, Lane C.
Giguiere, R. Ken Coit and Victor L. Motto;
2. To consider and act upon an amendment to the R.H.
Phillips, Inc. 1995 Stock Option Plan;
3. To consider and act upon the appointment of
KPMG Peat Marwick LLP as the independent
public accountants of R.H. Phillips, Inc.; and
4. To take action upon any other matters that may
properly come before the meeting or any
adjournments thereof.
The foregoing proposals are more fully described in the
accompanying Proxy Statement to which your attention is invited.
In accordance with the Bylaws and the action of the Board
of Directors, only shareholders of record at the close of business
on April 24, 1997 are entitled to notice of and to vote at the
meeting.
BY ORDER OF THE BOARD OF DIRECTORS
//s// Robert T. Moore
Robert T. Moore,
Secretary, Chief Financial Officer
April 21, 1997
<PAGE> 3
R.H. PHILLIPS, INC.
26836 County Road 12A
Esparto, California 95627
PROXY STATEMENT
For the Annual Meeting of Shareholders
to be held on Thursday, May 22, 1997
This Proxy Statement and the accompanying proxy are
furnished to the shareholders of R.H. Phillips, Inc. (the
"Company") in connection with the solicitation of proxies by the
Board of Directors for use at the 1997 Annual Meeting of
Shareholders (the "Annual Meeting"). The Annual Meeting will
be held on Thursday, May 22, 1997 beginning at 10:00am at the
Company's headquarters, located at 26836 County Road 12A,
Esparto, California, and at any postponements or adjournments of
the Annual Meeting. The Annual Report of the Company for the
year ended December 31, 1996, the Notice of Annual Meeting, this
Proxy Statement and the enclosed proxy were initially mailed to
the shareholders on or about April 25, 1997. The enclosed proxy
is being solicited by the Board of Directors of the Company.
The Company is paying all costs of preparing, assembling
and mailing this Proxy Statement. The Company has made
arrangements to forward copies of proxy materials to brokerage
houses, custodians, nominees and fiduciaries for forwarding of
proxy soliciting material to the beneficial owners of the Common
Stock of the Company at the Company's expense. In addition to
the solicitation of proxies by mail, some of the officers, directors
and regular employees of the Company may without additional
compensation solicit proxies by telephone or personal interview.
The Company will bear the costs of these solicitations.
Voting and Revocability of Proxies
Shareholders are encouraged to complete the enclosed
proxy and return it to the Company as soon as possible. Any
person who completes the enclosed proxy may revoke it at any
time prior to its exercise by delivering to the Secretary of the
Company either a signed statement revoking the proxy or a
properly executed proxy bearing a later date. A shareholder may
also revoke a proxy by attending the Annual Meeting and voting
his or her shares personally. Proxies that have been properly
dated, signed and returned will be voted in accordance with the
instructions given by the shareholder. If a proxy is signed and
returned but no voting instructions are given, each valid proxy will
be voted in the election of directors FOR those nominees presented
by the Board of Directors, FOR approval of the proposed
amendment to the Company's Stock Option Plan and FOR
approval of KPMG Peat Marwick LLP as the independent auditors
of the Company. Should any other business properly come before
the Annual Meeting, the person or persons named as the proxy
shall be allowed to vote on such matter as that person or those
persons determine in his, her or their sole discretion.
Abstentions and broker non-votes will be counted as shares
present or represented and entitled to vote for the purposes of
determining whether a quorum exists at the Annual Meeting.
Shareholders of record as of the close of business on April
24, 1997 are entitled to notice of the Annual Meeting and to vote
in person or by proxy. The Common Stock of the Company (the
"Common Stock") is the only class of outstanding securities
entitled to vote at the Annual Meeting. As of the close of business
on April 24, 1997 there were 6,002,902 shares of Common Stock
outstanding and entitled to vote.
<PAGE> 4
The presence of a majority of the outstanding shares of Common Stock,
either in person or by proxy, will constitute a quorum at the Annual Meeting.
PROPOSAL NUMBER 1
ELECTION OF DIRECTORS
The Company's Bylaws provide that the Board of Directors
shall consist of between four and seven members, with the exact
number of directors between four and seven to be determined by
the Board of Directors. The Board of Directors has set the number
of directors at five, and there are currently five members of the
Board of Directors.
Persons may be nominated for election to the Board of
Directors by the shareholders upon the making of a proper motion
at the Annual Meeting.
Five directors are to be elected at the Annual Meeting to
serve until the following annual meeting of shareholders. The
Board of Directors will present at the Annual Meeting for
election and recommends a vote FOR the following nominees:
John E. Giguiere, Karl E. Giguiere, Lane C. Giguiere, R. Ken
Coit and Victor L. Motto. Each nominee was recommended
unanimously by the Board of Directors for presentation to the
shareholders for election at the Annual Meeting. Each nominee is
currently a member of the Board of Directors.
Persons receiving a plurality of the votes cast at the Annual
Meeting will be elected to the Board of Directors. A "plurality"
means that the individuals who receive the largest number of votes
cast are elected as directors up to the maximum number of
directors to be chosen. Votes against any candidate and any shares
not voted (such as by abstention or broker non-votes) will have no
impact on the election of directors. All proxies will be voted FOR
the election of each of these nominees unless authority to vote for
the election of any nominee or nominees is withheld by the
shareholder giving the proxy. If any nominee should unexpectedly
decline or be unable to act as a director, the proxies may be voted
for a substitute nominee to be designated by the Board of
Directors. The Board of Directors does not believe that any
nominee will decline to serve.
Shareholders are entitled to one vote for each share held;
however, in the election of directors, each shareholder has
cumulative voting rights if those rights are properly exercised at
the Annual Meeting. If a shareholder wishes to vote shares
cumulatively, that shareholder is entitled to as many votes as the
number of shares held multiplied by the number of directors to be
elected. Under cumulative voting, each shareholder may cast all
of his or her votes for a single candidate or distribute those votes
among any or all candidates he or she chooses. No shareholder
will be entitled to cumulate votes for any candidate unless that
candidate's name has been placed in nomination prior to the voting
and the shareholder has given notice at the Annual Meeting of an
intention to cumulate votes. If any shareholder has given such a
notice, all shareholders may cumulate their votes for candidates
who have been nominated. Shareholders will be given an
opportunity to announce their intention to cumulate their votes
prior to voting. Proxy holders are given discretionary authority to
cumulate votes on shares for which they hold a proxy.
Shareholders who do not wish to cumulate their votes in elections
of directors will be entitled to cast one vote per share held for any
candidate.
Background information with respect to the five nominees
for election to the Board of Directors is set forth below.
2
<PAGE> 5
NOMINEES FOR ELECTION TO BOARD OF DIRECTORS
John E. Giguiere. John Giguiere is the Co-President, Co-
Chief Executive Officer and Chairman of the Board of Directors of
the Company, in which capacities he has served since the
Company was incorporated in 1994. Prior to that time, Mr.
Giguiere was Co-President of R.H. Phillips Partners, a limited
partnership that operated the R.H. Phillips vineyard and winery
business prior to its merger into the Company, from 1989 until
1994. Raised on the Giguiere family farm where the R.H. Phillips
winery is located, John Giguiere has spent his entire professional
life in agribusiness. Together with his brother Karl, John Giguiere
founded the R.H. Phillips vineyard and winery business in 1981.
John Giguiere is the President of The R.H. Phillips Vineyard, Inc.,
the second largest shareholder of the Company, and he has
managed the sales and marketing aspects of R.H. Phillips since
1983. John Giguiere attended Willamette University in Salem,
Oregon and California State University at San Jose. He is 45 years
old.
Karl E. Giguiere. Karl Giguiere is the Co-President, Co-
Chief Executive Officer and Vice-Chairman of the Board of
Directors of the Company, in which capacities he has served since
1994. Karl Giguiere was the Co-President of R.H. Phillips
Partners from 1989 through 1994. Karl Giguiere was also raised
on the Giguiere family farm and has spent his entire career in
agribusiness. He has managed the farming and vineyard
operations of R.H. Phillips since it was founded in 1981. Karl
Giguiere is the President of RHP Vineyards, Inc., the largest
shareholder of the Company. Karl Giguiere graduated from
California State Polytechnic University with a B.A. in
Agribusiness. He is 51 years old.
Lane C. Giguiere. Ms. Giguiere has served on the Board
of Directors and has been Vice-President, Sales Administration of
the Company since its incorporation in 1994. She was Sales
Administration Manager of R.H. Phillips Partners beginning in
1989 and has managed sales of the R.H. Phillips vineyard and
winery business since 1983. Ms. Giguiere attended California
State University at San Jose and California State University at
Chico. Ms. Giguiere is 43 years old.
R. Ken Coit. Mr. Coit was elected a director of the
Company soon after its incorporation in 1994 and served on the
limited partners' Advisory Committee of R.H. Phillips Partners
from 1989 through 1994. Mr. Coit is the owner of Coit Financial
Group, a firm which specializes in real estate investments. Mr.
Coit is also a licensed broker-dealer affiliated with Sequoia Equity
Securities Corporation of Walnut Creek, California and is a
registered representative of American Investors Company of
Hayward, California. Mr. Coit received an M.B.A. from
Pepperdine University and a B.S. in Pharmacy from the University
of Arizona. Mr. Coit is 53 years old.
Victor L. Motto. Mr. Motto was elected to the Board of
Directors in June, 1996. Mr. Motto is a founding partner of Motto,
Kryla & Fischer, an accounting and business consulting firm
devoted exclusively to the wine industry. Mr. Motto is also
partner of MKF Systems, a wine industry computer systems
business. Mr. Motto serves as a director of the American Wine
Alliance for Research and Education, as financial advisor to the
board of directors of the Napa Valley Vintners Association and as
an advisor to the California Senate Select Committee on the Wine
Industry. Mr. Motto also teaches university courses and is a
frequent lecturer on wine industry issues. Mr. Motto is a frequent
contributor to Wine Business Update, a quarterly newsletter
published by Motto, Kryla & Fisher, as well as to various other
wine industry publications. Mr. Motto is a Certified Public
Accountant and has received a B.A. in Business from the
University of South Florida. Mr. Motto is 57 years old.
Directors are elected at annual meetings of the
shareholders to terms which extend until the following annual
meeting. Officers are appointed by, and serve at the discretion of,
the Board of Directors.
3
<PAGE> 6
The Board of Directors met six times in 1996. Each
director has attended at least 75% of all meetings of the Board of
Directors during such period as that director has been a member of
the Board of Directors.
Mr. Motto received a retainer of $5,000 for agreeing to
serve on the Board of Directors and receives a fee of $1,000 for
each Board of Directors meeting he attends. No other members of
the Board of Directors are currently compensated for attending
meetings of the Board of Directors or Board Committees.
There are no agreements between the Company and any of
its officers or directors which concern changes of control of the
Company; however, under the terms of the Company's agreements
with three of its major creditors, all principal and interest owing to
those creditors shall be due and payable, at the creditors' option, if
any person or group other than John or Karl Giguiere or their
immediate families control a majority of the Board of Directors.
This provision will be eliminated if and when the Company enters
into employment agreements with John and Karl Giguiere which
obligate them to remain employed by the Company for at least five
years.
Board Committees, Meetings
The Board of Directors has an Audit Committee, a
Compensation Committee and a Stock Option Committee. The
members of the committees are selected by the full Board of
Directors and serve until they are replaced by the Board of
Directors or until their earlier resignation or removal from such
committee or the Board of Directors.
Audit Committee. The Board of Directors created the
Audit Committee in May 1996. The Audit Committee is to review
the financial results of the Company with the Company's outside
auditors and to discuss with the outside auditors the scope of the
annual audit and the other services the Company's outside auditors
are to perform. The members of the Audit Committee are John
Giguiere, Victor Motto and R. Ken Coit. The Audit Committee
has not yet held any meetings to date.
Compensation Committee. The Compensation Committee
was created in May 1996 at the same time as the Audit Committee.
The Compensation Committee is to make recommendations
concerning salaries and incentive compensation for the Company's
officers and employees. The members of the Compensation
Committee are John Giguiere, Victor Motto and R. Ken Coit. The
Compensation Committee did not meet in 1996.
Stock Option Committee. The Stock Option Committee
was formed in July 1995 to administer the Company's 1995 Stock
Option Plan. The Stock Option Committee consists of R. Ken
Coit and Victor Motto. Insofar as no stock options were granted in
1996, the Stock Option Committee did not meet during that year.
Transactions Concerning Board of Directors
John and Lane Giguiere held a promissory note in the
principal amount of $57,000 payable by the Company. The note
was granted to reimburse Mr. and Mrs. Giguiere for expenses they
incurred in repairing and renovating the farm house located on the
Company's property. The Company repaid the note on March 31,
1995.
R. Ken Coit received commission payments for his services
in connection with the Company's initial public offering in early
1995 and the Company second public offering of Common Stock,
completed in July 1996. Mr. Coit's commissions in connection
with the Company's initial and second public offerings on terms
4
<PAGE> 7
similar to those granted to other participating broker-dealers in the
offerings. The commissions were payable by Capitol Bay
Securities, the underwriter of the initial public offering, and Van
Kasper & Company, the underwriter of the second public offering.
The Company is the holder of a promissory note payable by
RHP Vineyards, Inc. The note evidences a loan to that corporation
by R.H. Phillips Partners and the assumption in 1993 of payment
obligations of certain persons to R.H. Phillips Partners. The
amount payable under the note as of December 31, 1995 was
$192,340. Unpaid amounts under the note bear interest at a rate of
7% per annum. The note and other obligations are payable in full
on June 30, 1999.
The Board of Directors has adopted a policy pursuant to
which all future material transactions and loans with affiliated
parties will be made or entered into on terms no less favorable
than those that can be obtained from unaffiliated third parties. All
future material affiliated transactions and loans, and any
forgiveness thereof, must be approved by a majority of
independent outside members of the Board of Directors who do
not have an interest in the transaction.
Relationships Between Directors and Executive Officers
John and Karl Giguiere are brothers. John and Lane
Giguiere are husband and wife. There are no other familial
relationships between the directors and executive officers of the
Company.
Reports under Section 16(a) of the Exchange Act
Based on its review of all filings on Form 3, 4 and 5 the
Company received from its directors, executive officers and
principal shareholders, the Company is unaware of any such
person who was required to file any of these forms pursuant to
Section 16 of the Securities Exchange Act of 1934 who did not do
so in a timely manner.
EXECUTIVE COMPENSATION
Compensation of Executive Officers
The following is a summary of all compensation paid for
services rendered to R.H. Phillips during 1994, 1995 and 1996 by
John and Karl Giguiere, the Company's current Co-Chief
Executive Officers (the "Named Executive Officers"). Other than
the Named Executive Officers, no employee or officer received a
salary and bonus in excess of $100,000 in 1996.
5
<PAGE> 8
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
Annual Compensation Awards
-----------------------
Restricted Securities
Name and Other Annual Stock Underlying
Principal Position Year Salary($) Bonus($) Compensation($) Awards(#) Options(#)
<S> <C> <C> <C> <C> <C> <C>
John Giguiere, Co- 1996 80,625 26,662 20,000(1) 0 0
President, Co-
Chief Executive 1995 80,625 662 20,000(1) 0 0
Officer
1994 87,394 16,258 20,000(1) 0 0
Karl Giguiere, Co- 1996 80,625 26,662 0 0 0
President, Co-
Chief Executive 1995 80,625 662 0 0 0
Officer
1994 87,394 16,258 0 0
</TABLE>
(1) The amounts listed under "Other Compensation" consist of
a $500 per month automobile allowance for John Giguiere
and the fair rental value of the farm house located at the
R.H. Phillips' winery where John and Lane Giguiere reside
on a rent-free basis. The Company estimates that the fair
rental value of the housing is approximately $14,000 per
year.
The following table provides information with respect to the
Named Executive Officers concerning unexercised options held as of
December 31, 1996.
Aggregated Option Exercises in Last Fiscal year and FY-End Option Values
Underlying Unexercised In-the-Money Options
Options at FY-End At FY-End(1)
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized Unexercisable Unexercisable
John Giguiere -- -- 13,620 $0.00(2)
40,860
Karl Giguiere -- -- 20,430 $0.00(2)
61,290
(1) Based upon the closing price of the Common Stock on
December 31, 1996, as reported by the Nasdaq National
Market ($2.88 per share).
(2) The closing price of the Common Stock on December 31,
1996 was below the exercise price per share.
6
<PAGE> 9
Victor Motto receives compensation of $1,000 per meeting and
travel expenses for attending meetings of the Board of Directors. He is
also to receive options to purchase a maximum of 20,000 shares of
Common Stock at a price equal to the fair market value of the
Company's Common Stock, subject to approval of a final stock option
agreement by Mr. Motto and the Board of Directors. The total
compensation paid Victor Motto in 1996 for attending meetings of the
Board of Directors was $8,000. No other members of the Board of
Directors are currently compensated for attending meetings of the Board
of Directors or Board committees. The Board of Directors may institute
a policy of compensating directors for attending such meetings in the near
future.
SECURITIES OWNERSHIP OF MANAGEMENT AND CERTAIN
BENEFICIAL OWNERS
The following table sets forth certain information regarding the
number of shares of the voting securities which each director, each
nominee for election to the Board of Directors the percentage of shares
which the executive officers and directors owned as a group as of March
18, 1997. The only class of equity securities which has a present right to
vote in elections of directors is the Common Stock.
Name and Address of Position Amount and Nature of Percent of
Beneficial Owner(1) Beneficial Owner Class
John E. Giguiere(2)(3) Co-President, Co-Chief 1,618,324 27.2
26836 County Road 12A Executive Officer,
Esparto, CA 95627 Chairman of the Board,
Director
Karl E. Giguiere(2)(4) Co-President, Co-Chief 1,600,306 26.9
26836 County Road 12A Executive Officer, Vice-
Esparto, CA 95627 Chairman of the Board,
Director
Lane C. Giguiere(2)(5) Vice-President 1,614,919 27.1
26836 County Road 12A Operations, Marketing,
Esparto, CA 95627 Director
R. Ken Coit(6) Director 300,322 5.0
1655 North Main Street
Suite 270
Walnut Creek, CA 94596
Victor L. Motto Director 0 0.0
899 Adams Street
St. Helena, CA 94574
All Executive Officers and Directors(7) 1,949,291 32.7
(1) This table is based upon information supplied by officers,
directors and principal shareholders and Schedules 13D
and 13G filed with the Securities and Exchange
Commission (the "Commission"). Unless otherwise
indicated in the footnotes to this table and subject to
community property laws where applicable, the Company
believes that each of the shareholders named in this table
has sole voting and investment power with respect to the
shares indicated as beneficially owned. Percentages are
based on 5,957,750 shares of Common Stock outstanding
on March 18, 1997, adjusted as required by the rules of the
Commission.
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<PAGE> 10
(2) Includes 865,773 shares of Common Stock owned by RHP
Vineyards and 714,103 shares of Common Stock owned by
R.H. Phillips Vineyard. John and Karl Giguiere each own
33.33% of the outstanding stock of RHP Vineyards, Inc.,
constitute two of the three members of the Board of
Directors, and are the Secretary and President, respectively,
of that corporation. John and Karl Giguiere also own a
majority of the outstanding shares of R.H. Phillips
Vineyard, constitute two of the three members of the Board
of Directors and serve as the President and Secretary,
respectively, of that corporation. Because they share
majority ownership of the stock of those corporations and
constitute a majority of those corporations' directors, John
and Karl Giguiere may be deemed beneficial owners of the
shares held by those two corporations.
(3) Also includes 16,552 shares held as joint tenants with Lane
Giguiere, a warrant to purchase 8,276 shares which he
holds as joint tenants with Lane Giguiere, and 13,620
shares subject to that portion of a stock option which is
exercisable within 60 days of the date of this Proxy
Statement.
(4) Also includes 20,430 shares subject to that portion of a
stock option which is exercisable within 60 days of the date
of this Proxy Statement.
(5) Also includes 16,552 shares held as joint tenants with John
Giguiere, a warrant to purchase 8,276 shares which she
holds as joint tenants with John Giguiere, and 10,215
shares subject to that portion of a stock option exercisable
within 60 days of the date of this Proxy Statement.
(6) Mr. Coit holds 252,527 shares as a joint tenant with Donna
Coit, his wife, and 47,688 shares are held individually by
Mr. Coit.
(7) Includes shares purchasable upon exercise of stock options
within 60 days of the date of this Proxy Statement.
The following table sets forth information with respect to
persons, in addition to those listed above, who are known by the
Company to own 5% or more of the Common Stock as of March 18,
1997:
Name and Address of Shareholder Amount and Nature of Percent of Class
Beneficial Owner(1)
John Hancock Mutual Life Insurance 1,462,173(2) 19.8
Company
200 Clarendon Street
Boston, MA 02117
RHP Vineyards, Inc. 865,773 14.5
26836 County Road 12A
Esparto, CA 95627 (3)
The R.H. Phillips Vineyard, Inc. 714,103 12.0
26836 County Road 12A
Esparto, CA 95627 (3)
(1) This table is based on information and assumptions set
forth in Footnote (1) to the previous table.
(2) This includes 1,381,321 shares of Common Stock
purchasable at $3.90 per share under the terms of stock
purchase warrants. The warrants are presently exercisable
and expire on March 27, 2006.
(3) John and Karl Giguiere own a majority of the outstanding
shares of RHP Vineyards, Inc. and The R.H. Phillips
Vineyard, Inc. and constitute a majority of those
corporations' boards of directors. See footnote 2 of the
previous table for further information regarding these
corporations.
8
<PAGE> 11
PROPOSAL NUMBER 2
AMENDMENT TO STOCK OPTION PLAN
Reason for Proposal
The Company proposes to amend its 1995 Stock Option Plan
(the "Plan") to allow for the Company to issue options to purchase its
Common Stock to members of the Company's Stock Option Committee
(the "Committee").
Under the Plan as presently in effect, the Company is authorized
to issue stock options to its employees, directors and consultants.
However, the Plan provides that the Company may not issue stock
options under the Plan to members of the Committee. This restriction
was originally placed into the Plan so that grants of stock options would
be exempt from the application of certain short-swing profits rules under
Rule 16b-3 of the Securities and Exchange Commission. A recent
change to this rule by the Securities and Exchange Commission makes
this restriction no longer necessary.
Insofar as the Committee currently consists of the Company's
non-employee directors, the Plan in its present form effectively prevents
the Company from issuing stock options to these directors unless a new
stock option plan were adopted specifically for those persons.
Management believes that it is important for the Company to be able to
be able to grant options to these persons to act as an incentive for them to
serve on the Board of Directors and as an inducement to attract additional
qualified candidates to serve on the Board of Directors if necessary.
Management believes that it would be more cost effective for the
Company to amend the current plan in the manner proposed than to adopt
an entirely new plan for these directors.
Description of Amendment
The proposed amendment will change the Plan to allow members
of the Committee to receive options under the Plan. Each proposed grant
of options to members of the Committee must be approved by a majority
of the members of the full Board of Directors, without counting the votes
of any members of the Committee.
Description of Plan
The following is a summary of the major provisions of the Plan,
as it is proposed to be amended. The full text of the Plan is attached to
this Proxy Statement as Exhibit A and this discussion is qualified in its
entirety by the full text of the Plan.
Purpose. The Board of Directors of the Company created the
Plan in 1995 to provide non-cash incentives to its key employees,
directors and consultants. The Plan gives these employees, directors and
consultants the ability to acquire shares of R.H. Phillips Common Stock
at a predetermined price for a period of time specified in an agreement
between the person who is given the option (the "option holder") and the
Company. The Plan is designed to encourage key employees, directors
and consultants to contribute to the Company's success by giving them a
common interest with the shareholders in increasing the value of the
Common Stock. The Board of Directors also believes that options issued
under the Plan may be used to attract additional capable employees,
directors and consultants to join the Company.
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<PAGE> 12
Administration The Plan is administered by the Committee.
The Committee is currently composed of Messrs. Coit and Motto, who
are two non-employee directors of the Company. The Committee is
appointed by the full Board of Directors and serves for such a period of
time as the Board of Directors determines. The Committee makes
determinations as to the number of options each option holder will
receive, the exercise price, the duration of the vesting schedule and the
other terms of the options, subject to limitations set forth in the Plan.
However, as the Plan is proposed to be amended, only the full Board of
Directors may approve a grant of options to members of the Committee
without counting the votes of the members of the Committee.
In addition to these powers, the Committee has the authority to
interpret the Plan and to take all actions which the Committee deems
necessary to administer the Plan. All decisions, determinations and
interpretations of the Committee regarding the Plan are final and binding
upon the Company and all participants in the Plan.
Eligible Participants. The Plan allows for the grant of incentive
stock options ("ISOs"), which are options that qualify as incentive stock
options under the Internal Revenue Code of 1986, to employees of the
Company. The Plan also allows for the grant of non-statutory stock
options ("NSOs"), which do not qualify as incentive stock options, to
directors, employees and consultants of the Company. As it is proposed
to be amended, the Plan will allow for the grant of options to members of
the Committee as well.
The Committee determines which of the eligible persons will
receive options. The Committee may apply whatever criteria it deems
appropriate in choosing who will receive options as well as the number of
shares each person may purchase and the period over which the options
vest, subject to the limitations imposed by the Plan.
Shares Subject to Plan. The Company may grant options to
purchase a maximum of 815,000 shares of the Company's Common
Stock under the Plan. The number of shares set aside for issuance under
the Plan is subject to adjustments in the event of mergers,
reorganizations, stock dividends, stock splits, reverse stock splits and
certain other changes in the outstanding shares of the Company. If
options are not exercised in full by the time they expire, or if shares are
surrendered in payment for exercising options, the shares which were
subject to those options or which were surrendered may be reissued under
options or other awards.
There is no limit as to the number of options which any one
individual may receive. There are certain limitations under the Internal
Revenue Code and the regulations of the Department of the Treasury
concerning the number of ISOs which may be issued to certain major
shareholders in one year.
The Company's Common Stock is currently traded on the Nasdaq
National Market. On April 15, 1997, the last reported sale of the
Common Stock was quoted at $3.88 per share on the Nasdaq National
Market.
Stock Option Agreement. If the Committee wishes to grant an
option to an eligible person, that person will be given a stock option
agreement. Both the Company and the prospective option holder must
sign the stock option agreement before any option grant will be deemed
effective.
Purchase Price. Each stock option agreement will set forth the
price at which the holder of the option may purchase Common Stock,
commonly referred to as the "exercise price." Subject to the discussion
set forth below, the Committee has the authority to determine what the
option exercise price will be. The Plan states that in the case of ISOs the
exercise price must be no less than 100% of the fair market value of the
Common Stock as of the date the option is granted. For other options
granted under the Plan, the exercise price may
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<PAGE> 13
be as low as 85% of fair market value as of the date of grant, although
the Committee will not normally approve grants of options with an
exercise price of less than 100% of fair market value as of the date
of grant.
The Plan provides that options may be exercised through
payment of cash or by check. The Plan also gives the Committee the
discretion to allow certain other forms of payment to exercise options.
These other forms of payment include full recourse promissory notes
given by the option holder to the Company, the exchange of Common
Stock held by the option holder with a value equal to the exercise price
for the options and by the assignment of the proceeds of the sale of some
of the shares acquired on exercise of the option with the assistance of a
broker.
Vesting. Options granted under the Plan will typically be subject
to vesting. This means that initially the option holder will able to
purchase none or only some of the shares for which he or she has been
given an option. The number of shares the option holder may purchase
increases over time while the holder is employed by the Company until,
if the holder remains with the Company for a sufficient period, the holder
is eligible to purchase all of the shares for which the holder was given an
option. The rate by which the options vest will be stated in the stock
option agreement between the Company and the option holder. The Plan
provides that vesting shall occur at a rate of no less than 20% of the total
number of shares granted under the option agreement per year and that all
options will become fully vested by no later than five years after the date
the options are granted.
Term. With certain exceptions for shareholders who own 10%
or more of the Company's stock, whose ISOs expire after five years, the
term of each option is ten years from the date of grant unless a shorter
period is specified in the stock option agreement. The period of time
during which an option may be exercised may be reduced, however,
under certain circumstances. If an option holder ceases being employed
or providing services to the Company for any reason (other than death or
disability), the option holder will have thirty days (or three months in the
case of an ISO) following the effective date of termination to exercise the
option before the option expires. If the option holder dies or suffers a
disability that makes him or her substantially unable to perform his or her
duties for any 12 month period, the option holder, the holder's qualified
representative or estate may for a period of six months (or twelve months
in the case of an ISO) following the date of such death or disability
exercise the option. The number of shares the option holder (or guardian
or estate, as the case may be) may purchase will equal the number of
shares the option holder was entitled to purchase on the date of
termination, disability or death and all vesting will cease on that date.
Stock options will also be terminated two days prior to certain
types of reorganizations of the Company. These are: (i) a merger,
whether or not the Company is the surviving corporation, if the beneficial
owners of the Company's securities immediately prior to the merger as a
group own less than 50% of the surviving entity's outstanding voting
securities after the merger; (ii) the sale or exchange of all or substantially
all of the outstanding voting securities of the Company; (iii) the sale,
exchange or transfer of all or substantially all of the assets of the
Company other than in the ordinary course of business; and (iv) the
dissolution or liquidation of the Company.
Term of Plan. The Plan will terminate by no later than May 17,
2005. No options may be granted under the Plan after that time, although
options granted prior to that time may be exercised by the holders after
the Plan terminates if their option agreements so allow.
The Board of Directors may amend or terminate the Plan at any
time, and the Board of Directors or the Committee may discontinue
granting options under the Plan at any time. All material amendments to
the Plan will require approval of the shareholders. Amendments to the
Plan or the termination of the Plan will
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<PAGE> 14
not adversely affect the rights of option holders under their stock
option agreements unless the individual option holders consent to
the amendment or termination of their options.
Federal Income Tax Consequences. The following is a general
discussion of the federal income tax consequences related to the issuance
and exercise of the options and the sale of the shares of Common Stock
acquired on exercise of the options. The discussion is not a complete
analysis of all federal income tax consequences and does not cover all
specific transactions which may occur.
Non-Statutory Stock Options. Under existing
Department of Treasury Regulations, option holders do not recognize any
taxable income upon receipt of an NSO. Upon the exercise of an NSO,
the difference between the exercise price of the option and the fair market
value of the shares as of the date of exercise is taxable to the option
holder as ordinary income. This difference between the exercise price
and the fair market value of the shares when purchased, or "spread," is
treated as compensation to the holder for federal income tax purposes and
is subject to income tax withholding. The Company receives a business
deduction for federal tax purposes on the amount of the spread in the year
in which the option is exercised.
When shares purchased upon exercise of the NSO are
sold, gain or loss on the shares is taxed as short or long term gain, based
on the length of time the shares were held. The option holder's tax basis
in shares purchased solely for cash on exercise of an NSO will be equal
to the fair market value of the shares on the date of exercise. If the option
holder exercises his or her option by surrendering Common Stock of the
Company which the option holder already owns, the tax basis in the
surrendered shares will be carried over to the shares received on exercise
of the option, plus the amount of the spread.
Incentive Stock Options. A person who receives an ISO
is not subject to federal income taxation either upon receipt of the option
or upon exercise of that option. In turn, the Company does not receive a
tax deduction upon the option holder's exercise of an ISO. Upon the sale
of the stock purchased upon the exercise of an ISO, all gain or loss
realized on the sale of the shares is treated as long term capital gain or
loss. However, if the sale takes place within one year following the
issuance of shares purchased through the exercise of the ISO or within
two years following the grant of the option, the holder of the ISO will be
taxed as if he or she had received an NSO and the Company will receive
the tax deduction described in the section discussing NSOs.
An option holder's tax basis in shares issued upon
exercise of an ISO will be equal to the amount of cash paid for the shares.
If some or all of the payment of the exercise price is made in the form of
an exchange of other Common Stock of the Company held by the option
holder, the option holder's tax basis in the surrendered shares will be
carried over to the shares received upon exercise of the ISO, increased by
the amount of cash, if any, paid to exercise the option.
The aggregate fair market value (as determined on the
date the option is granted) of the shares which may become exercisable
by an employee under an ISO during any calendar year under the Plan (or
any other stock option plan which may be in existence) may not exceed
$100,000. To the extent that the fair market value exceeds that amount,
the option is treated as an NSO.
Although the holder of an ISO is not taxed upon the
exercise of the option for federal income tax purposes, the spread is
treated as an adjustment to the alternative minimum tax of that option
holder in the year of exercise. As a consequence, an option holder may
be subject to alternative minimum tax from exercising an ISO.
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<PAGE> 15
Accounting Treatment. Under present accounting rules, grants
and exercises of non-transferable stock options with an exercise price not
less than the fair market value of the underlying Common Stock do not
result in any charge to the Company's earnings. However, the Company's
financial statements contain a footnote setting forth the difference
between the fair market value of the Common Stock as of the date of the
financial statements and the exercise price of unexercised options as of
that date.
Awards of Options to Date/Approval of Plan
The Board of Directors approved the Plan in May, 1995 and on
July 11, 1995 the Committee approved the first awards of options under
the Plan. The Plan was approved by the shareholders of the Company at
their 1995 Annual Meeting, held on November 10, 1995.
The following is a list of the number of options outstanding
which are held by or the Company presently intends to issue to: 1) each
of the Named Executive Officers; 2) all current directors who are not
executive officers as a group; 3) all executive officers as a group; and 4)
all employees, including all current officers who are not executive
officers, as a group.
Karl E. Giguiere (Co-CEO, Co-President) 81,720
John E. Giguiere (Co-CEO, Co-President) 54,480
All directors who are not executive officers as a group(1) 20,000
All executive officers as a group 323,984
All employees as a group (excluding executive officers) 111,684
(1) None of the non-management directors has received any
grants of stock options to date. However, the Company
has tentatively agreed to grant Victor Motto, a non-
employee director who is a member of the Committee, an
option to purchase 20,000 shares of Common Stock. The
Company intends to issue the option under the Plan,
subject to approval of the amendment and to agreement on
the other terms and conditions of the grant. In addition, if
the amendment is approved, the Board of Directors intends
to grant options to other members of the Committee. The
number, price and other terms under which the options may
be granted has yet to be determined.
Vote Required For Approval
Approval of the amendment to the Plan will require the
affirmative vote of shareholders holding a majority of the Company's
shares present in person or by proxy and entitled to vote at the Annual
Meeting. Each share is entitled to one vote. Proxies solicited by the
Board of Directors will be voted FOR this proposal unless the
shareholders specify to the contrary in their proxies or specifically abstain
from voting on this matter. Abstention votes and broker non-votes are
counted in determining the total number of votes cast on this proposal
and, consequently, have the effect of a vote against the proposal.
Recommendation
The Board of Directors recommends a vote "FOR"
approving the amendment to the Plan.
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<PAGE> 16
PROPOSAL NUMBER 3
APPROVAL OF INDEPENDENT AUDITORS
The Board of Directors has selected KPMG Peat Marwick LLP
("KPMG Peat Marwick") as the independent auditors for the Company
for the fiscal year ending December 31, 1997.
The accounting firm of Deloitte & Touche LLP ("Deloitte &
Touche") served as the Company's independent auditors for the year
ended December 31, 1994. On August 1, 1995, the Board of Directors
determined to dismiss Deloitte & Touche and to select KPMG Peat
Marwick as the Company's independent auditors for the year ended
December 31, 1995. The Board of Directors made this determination
after receiving proposals from various accounting firms, including
KPMG Peat Marwick and Deloitte & Touche. Following a review of
these proposals, the Board of Directors concluded that the change in
auditors would allow the Company to receive auditing and tax services on
a more cost effective basis.
The report of Deloitte & Touche for the year ended December
31, 1994 did not contain any adverse opinion or disclaimer of opinion
and were not modified as to any uncertainty, audit scope or accounting
principles. There were no disagreements with Deloitte & Touche on any
matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which, if not resolved to
Deloitte & Touche's satisfaction, would have caused it to make reference
to the subject matter of the disagreement in connection with its reports.
It is not anticipated that representatives of KPMG Peat Marwick
or Deloitte & Touche will be present at the Annual Meeting. If
representatives are present, they will be provided an opportunity to make
a statement should they wish to do so and to respond to appropriate
questions.
The Board of Directors recommends a vote "FOR" approval
of KPMG Peat Marwick as the Company's independent auditors for
the fiscal year ending December 31, 1997.
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<PAGE> 17
SUBMISSION OF SHAREHOLDER PROPOSALS FOR
1998 ANNUAL MEETING OF SHAREHOLDERS
The 1998 Annual Meeting of Shareholders has been scheduled to
take place on May 21, 1998. Shareholder proposals for presentation at
that meeting must be received by the Company by no later than January
20, 1998.
OTHER BUSINESS
It is not intended that any business other than that set forth in the
Notice of Annual Meeting and more specifically described in this Proxy
Statement will be brought before the Annual Meeting. If any other
business should properly come before the Annual Meeting, it is the
intention of the persons named in the enclosed form of proxy to vote in
accordance with their best judgment on that business or any matters
dealing with the conduct of the Annual Meeting pursuant to the
discretionary authority granted in the proxy.
By Order of the Board of Directors,
//s// Robert T. Moore
Robert T. Moore,
Secretary
April 21, 1997
Upon written request of any person whose proxy is being solicited
hereby, the Company will provide without charge a copy of the
Company's Annual Report on Form 10-KSB for the year ended
December 31, 1996, which was filed with the Securities and
Exchange Commission under the Securities Exchange Act of 1934,
including the financial statements and schedules thereto, but without
exhibits. All such requests may be directed to: Robert T. Moore,
Secretary, R.H. Phillips, Inc., 26836 County Road 12A, Esparto,
California 95627.
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<PAGE> 18
Exhibit A
R.H. PHILLIPS, INC.
1995 STOCK OPTION PLAN
AS AMENDED
1. PURPOSE
The purpose of this R.H. Phillips, Inc. 1995 Stock Option Plan
("Plan") is to offer strong incentives to key employees, directors and
consultants of R.H. Phillips, Inc. (the "Company") who are primarily
responsible for the management and growth of the Company's business
and to encourage those persons to continue in the Company's service,
thereby advancing the interests of the Company and its shareholders.
The word "affiliate" shall mean any corporation in an unbroken
chain of corporations beginning or ending with the Company of which
each corporation, other than the last in that chain, directly or indirectly
beneficially owns stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in the chain.
2. OPTIONS
Options granted under this Plan shall be either: (i) incentive stock
options, as that term is defined in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"); or (ii) nonstatutory stock options,
which consist of options which are not incentive stock options. To the extent
that the aggregate fair market value of the shares exercisable for the first
time during a calendar year under all incentive stock options held by an
optionee exceeds $100,000, those options shall be treated as nonstatutory
stock options to the extent of such excess.
3. ADMINISTRATION
This Plan shall be administered by the Board of Directors of the
Company (the "Board"). The Board may designate a committee of for
the purpose of administering the Plan, composed of not less than two (2)
members of the Board (the "Committee"). If the Committee is appointed,
the Committee will have all powers described in this Plan as belonging to
the Board in administering the Plan and the Board shall not in any way
administer the Plan. The foregoing sentence notwithstanding, if any
options are proposed to be granted to members of the Committee, such a
grant shall require the approval of the full Board without including the
vote of the members of the Committee.
Subject to the express terms and conditions of this Plan, the
Board shall have full power to construe this Plan and the terms of any
option granted under this Plan, to prescribe, amend and rescind rules and
regulations relating to this Plan or such options and to make all other
determinations necessary or advisable for this Plan's administration. All
determinations by the Board with respect to these matters shall be final
and binding upon any persons having an interest in this Plan or any
options granted thereunder.
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4. ELIGIBILITY
The persons eligible to receive nonstatutory options under this
Plan shall be the directors, employees and consultants of the Company or
its affiliates. Only employees of the Company shall be eligible to receive
incentive stock options.
5. THE SHARES
The Company may issue a maximum of 815,000 shares of its
Common Stock upon the exercise of options under this Plan. The
number and kind of shares of stock or other securities issuable upon the
exercise of options shall be subject to adjustment as provided in Section 7
of this Plan. If any outstanding option which has not been exercised in
full terminates or expires, all unissued shares thereunder shall become
available for the grant of further options under this Plan.
6. GRANT, TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to this Plan shall be subject to the
following terms and conditions:
a. Option Price. The exercise price under each option shall be
determined by the Board, subject to the following limitations:
i. The exercise price of a nonstatutory stock option shall
not be less than eighty-five percent (85%) of the fair market value of the
shares subject thereto on the date the option is granted (the "date of
grant").
ii. The exercise price of an incentive stock option shall
not be less than one hundred percent (100%) of the fair market value of
the shares subject thereto on the date of grant.
iii. Any option granted to a person who beneficially
owns securities with more than ten (10%) of the voting power of the
Company or its affiliates shall have an exercise price equal to one
hundred ten percent (110%) of the fair market value of the shares subject
thereto on the date of grant.
b. Determination of Fair Market Value. The fair market value of
the shares shall be determined by the Board in accordance with the
following procedures:
i. If the Common Stock of the Company is listed on any
national stock exchange, the Nasdaq National Market System or the
Nasdaq SmallCap Market, the fair market value of the stock shall be the
closing sales price for the stock (or the mean between the closing bid and
ask prices if no sales were reported), as quoted on that system or
exchange for the last trading day prior to the time of determination) as
reported in the Wall Street Journal or such other source as the Board
deems reliable.
ii. If there is no established market for the Common
Stock of the Company, the fair market value shall be determined by the
Board in accordance with any reasonable valuation method selected by
the Board, including those described in Treasury Regulation Section 20.2031-2.
c. Duration and Vesting of Options. The duration of each option
shall be determined by the Board; provided, however, that no option may
be exercisable after one hundred twenty (120) months following its date
of grant and provided that no incentive stock option granted to any
person described in subsection 6.a.iii above
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<PAGE> 20
may be exercisable after sixty (60) months after its date of grant.
Each option shall vest in a manner that the Board shall determine;
provided, however, that if compliance with the terms of SEC
Rule 16b-3, as promulgated under the Exchange Act, otherwise requires,
no option may vest prior to six (6) months after the date of grant.
In addition, in no event shall an option vest at a rate of less
than twenty percent (20%) per year during the first five (5)
years following the date of grant.
d. Exercise of Options. Optionees may exercise their options by
delivering payment in the form of cash, certified or cashier's check,
personal bank check, or the equivalent thereof acceptable to the Board,
together with written notice to the Secretary of the Company identifying
the option being exercised and specifying the number of shares being
purchased. In addition, the Board may allow the optionee to use the
following forms of payment of the purchase price, under terms which the
Board deems to be acceptable:
i. The surrender of shares of the Company's stock owned
by the optionee having a value, as determined by the Board, equal to the
exercise price, provided that if the optionee is subject to short-swing
profit liability under Section 16 of the Exchange Act, the timing of the
exercise must satisfy the requirements of Rule 16b-3 of the SEC;
ii. The optionee's recourse promissory note, provided
that the promissory note shall be due and payable not more than four (4)
years after the option is exercised and that interest shall be payable at
least annually at a rate not less than that necessary to avoid assessment of
imputed interest under the Code; or
iii. The assignment of the proceeds of the sale of some
or all of the shares being acquired upon exercise of the option.
iv. Any other method of payment to the extent permitted
by applicable laws.
No method of exercising an option shall be permitted if that
method would result in the violation of any applicable law, the
Company's articles of incorporation or bylaws or any agreement
restricting the redemption or repurchase of the Company's stock.
e. Termination of Status. Unless the Board allows the optionee
(or the optionee's personal representative or estate, as the case may be)
more time to exercise an option, an optionee's rights to exercise an option
shall be limited as follows upon the termination of his status as an
employee, director or consultant of the Company:
i. Death or Disability. If an optionee's status is
terminated by death or disability, the optionee, the optionee's qualified
representative (in the event of the optionee's mental disability) or the
optionee's estate (in the event of optionee's death) shall have the right for
a period of six (6) months (or twelve (12) months in the case of an
incentive stock option) following the date of such death or disability to
exercise the option to the extent the optionee was entitled to do so on the
date of the optionee died or became disabled; provided the date of
exercise is in no event after the expiration of the term of the option. An
optionee's "estate" shall mean the optionee's legal representative or any
person who acquires the right to exercise an option by reason of the
optionee's death.
ii. Other Reasons. If an optionee's status is terminated
for any reason other than those mentioned above under "Death or
Disability", the optionee may within thirty (30) days (or three (3) months
in the case of an incentive stock option) following the effective date of
his termination exercise the option to
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<PAGE> 21
the extent the option was exercisable by the optionee on the effective
date of termination; provided the date of exercise is in no event
after the expiration of the term of the option.
f. Transferability of Option. Each option shall be transferrable
only by will or the laws of descent and distribution. To the extent
permitted by the rules of the California Commissioner of Corporations,
options may be assigned pursuant to a qualified domestic relations order
as defined in Title I of the Employee Retirement Income Security Act or
the rules promulgated under that Act. All other transfers or purported
transfers of an option or any interest therein shall be void. Only the
optionee may exercise an option during the optionee's lifetime.
g. Rights as a Shareholder. The optionee shall have no rights as
a shareholder by virtue of possessing an option and no such rights with
respect to any shares of stock issuable upon exercise of the option until
the date the optionee is issued a stock certificate evidencing the optionee's
ownership of the shares. No adjustment shall be made for dividends or
other rights for which the record date is prior to the date of such issuance,
except as provided in Section 7 hereof.
h. Written Agreement. The terms and conditions of each option
granted under this Plan shall be contained in written agreements between
the Company and the optionee. Except to the extent that the Board
otherwise determines, incentive stock options granted under this Plan
shall be subject to the terms and conditions of the standard form of
Incentive Stock Option Agreement attached to this Plan as Exhibit A and
nonstatutory stock options so granted shall be subject to the terms and
conditions set forth in the standard form of agreement attached to this
Plan as Exhibit B. The Board may vary or amend the terms of any
individual option agreement or the standard form agreements, provided
that all variations and amendments must be in accordance with this Plan.
No option shall be deemed granted until the Board approves the grant and
the Company and optionee execute a written agreement with respect to
that option.
7. ADJUSTMENT OF, AND CHANGES IN, THE SHARES
a. Adjustments. If the shares of the Company's Common
Stock are changed into a different number of shares by reason of
reorganization, recapitalization, combination of shares, stock split,
reverse stock split or reclassification, or if the Company declares and
pays a stock dividend on the Common Stock, the Board shall add to the
shares issuable under this Plan the appropriate number of shares to which
each share of Common Stock is entitled. If the Company's Common
Stock is changed into or exchanged for a different type of security due to
any reorganization, recapitalization, reclassification or similar event, the
Board shall substitute an appropriate number of those securities for
issuance under this Plan into which or for which the Common Stock has
been changed or exchanged. The Board shall make appropriate
adjustments in the number of shares or kind of securities which may be
purchased upon exercise of any outstanding option so that the optionee's
proportionate shareholding interest in the Company represented by the
unexercised portion shall be maintained as before the event. Adjustments
in outstanding options shall be made without change to the total price of
the unexercised portion of the option and with a corresponding
adjustment in the option price per share.
b. Termination. Except as provided in this subsection 7.b, all
options shall terminate immediately, notwithstanding the fact that the
options could otherwise be exercised, no later than two business days
prior to the occurrence of any of the following events:
i. The merger or consolidation of the Company, whether
or not the Company is the surviving corporation, if the beneficial owners
of the Company's securities immediately prior to the merger or
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<PAGE> 22
consolidation as a group are the beneficial owners of less than 50% of the
surviving entity's outstanding voting securities immediately after the
merger or consolidation;
ii. The sale or exchange of all or substantially all of the
outstanding voting securities of the Company;
iii. The sale, exchange or transfer of all or substantially
all of the assets of the Company other than in the ordinary course of
business; or
iv. The dissolution or liquidation of the Company.
The Board may attempt to arrange with the surviving, continuing,
successor or acquiring corporation or entity, as the case may be, (the
"Acquiror") for the Acquiror to assume the obligations of the Company
with respect to any outstanding options or to provide substitute options,
provided that the Board shall be under no obligation to do so and that,
unless the Acquiror agrees otherwise, the Acquiror shall not be required
to assume these obligations or to provide substitute options. There shall
be no cancellation of options under this subsection 7.b if the Acquiror
was an affiliate of the Company immediately prior to the event described
in (i), (ii) or (iii) above or is a person, group or other entity which
beneficially owned over 10% of the Company's outstanding voting stock
immediately prior to the event.
c. No Other Adjustments. Except for any issuance described in
subsection 7.a, no issuance by the Company of shares of stock of any
class or securities convertible into shares of any class of stock, or the
conversion of such securities into shares of any class of stock, shall affect
the number or price of shares of Common Stock subject to the option,
and no adjustment by reason thereof shall be made.
d. No Limitation on Company's Rights. Nothing in this Plan
shall affect the right or power of the Company to adjust, reclassify,
reorganize or change its capital or business structure or to merge,
consolidate, dissolve, liquidate, sell or transfer all or any part of its
business or assets.
8. LEGAL COMPLIANCE: LISTING OR QUALIFICATION OF
SHARES
The grant of any option under this Plan and the exercise thereof
shall be conditioned upon the prior registration and/or qualification of the
options and underlying shares under applicable federal and state securities
laws, or the availability of exemptions therefrom. If at any time the
Board shall determine that the listing or qualification of shares subject to
any option on any securities exchange or under any applicable law, or the
consent or approval of any governmental regulatory body, is necessary or
desirable, the option may not be exercised in whole or in part unless that
listing, qualification, consent or approval shall have been effected or
obtained, free of any condition not acceptable to the Board.
9. AMENDMENT AND TERMINATION
The Board shall have complete power and authority to terminate
or amend this Plan; provided, however, that the Board shall not, without
the approval of the shareholders of the Company, amend this Plan in a
manner that requires shareholder approval for continued compliance with,
if applicable to this Plan or the Company, the rules of the California
Commissioner of Corporations, Rule 16b-3 of the SEC, Section 422 of the
Code or any successor law or regulation. Except as provided in Section
7, no termination, modification or amendment of this Plan shall affect
any option outstanding as of the date of that termination or amendment
without the consent of the optionee. Unless sooner terminated, this Plan
shall terminate on the date which
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<PAGE> 23
is ten (10) years after the Board adopted this Plan. No option may
be granted under this Plan after this Plan is terminated.
10. EFFECTIVENESS
This Plan shall become effective immediately following the
adoption of this Plan by the Board of Directors, provided that this Plan
shall terminate if it is not approved by the shareholders of the Company
within twelve (12) months of its adoption by the Board of Directors.
Options granted under this Plan shall terminate and not be exercisable
unless the shareholders of the Company approve this Plan within that
twelve (12) month period.
11. INFORMATION TO OPTIONEES
The Company shall provide the optionees with copies of all
annual reports and other information given to the Company's
shareholders. In addition, the Company shall provide the optionees with
that information which it is required to give them by law or pursuant to
the rules of the California Commissioner of Corporations.
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R.H. PHILLIPS, INC.
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned holder(s) of the stock of R.H. Phillips,
Inc. (the "Corporation") hereby acknowledge(s) receipt of the
Notice of Annual Meeting of Shareholders of the Corporation,
dated April 21, 1997, and a Proxy Statement of the Board of
Directors of the same date. The undersigned hereby appoint(s)
John E. Giguiere and Karl E. Giguiere, and each of them, with full
power of substitution, as proxies to appear and vote all of the
shares of the Common Stock of the Corporation standing in the
name of the undersigned which the undersigned could vote if
personally present and acting at the 1997 Annual Meeting of
Shareholders of the Corporation, to be held at The R.H. Phillips
Winery, 26836 County Road 12A, Esparto, California at 10:00am
Pacific Time on May 22, 1997, and at any adjournments thereof,
upon the following items as set forth in the Notice of Annual
Meeting and Proxy Statement, and to vote according to their
discretion on all other matters which may be properly presented
for action at that meeting and at any adjournments thereof,
including but not limited to all matters related to the conduct of
the meeting. The above-named proxy holders are granted
discretionary authority to cumulate votes in the election of
directors among those nominees for whom the undersigned
has(have) granted the authority to vote.
1. To elect as directors the nominees set forth below.
FOR all nominees listed below (except as marked to the
contrary below).
WITHHOLD AUTHORITY to vote for all of the nominees
listed below.
(INSTRUCTION): To withhold authority to vote for any
individual nominee, strike a line through the nominee's name in
the list below:
JOHN E. GIGUIERE, KARL E. GIGUIERE, LANE C.
GIGUIERE, R. KEN COIT, VICTOR L. MOTTO.
2. To approve the amendment to the R.H. Phillips, Inc. 1995
Stock Option Plan.
FOR AGAINST ABSTAIN
3. To approve KPMG Peat Marwick LLP as the independent
auditors of the Corporation.
FOR AGAINST ABSTAIN
By executing this proxy, I(we) hereby revoke all previous proxies
with regard to any matter to be voted upon at the Annual Meeting.
COMPLETE, DATE AND SIGN PROXY ON REVERSE SIDE
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Date: _______________________, 1997
Signature of Shareholder
Signature of Joint Shareholder
INSTRUCTIONS
Please date and sign exactly as your name(s) appear(s)
above. When signing as attorney, executor, administrator, trustee
or guardian or as an officer of a corporation, partnership or other
business entity, please give your full title. If there is more than
one trustee, all should sign. All joint owners should sign.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR EACH OF THE PERSONS NOMINATED BY THE
BOARD OF DIRECTORS, FOR APPROVAL OF THE
AMENDMENT TO THE 1995 STOCK OPTION PLAN AND
FOR APPROVAL OF KPMG PEAT MARWICK LLP AS
THE INDEPENDENT AUDITORS OF THE
CORPORATION. THIS PROXY WHEN PROPERLY
EXECUTED WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR EACH OF THE PERSONS NOMINATED BY THE
BOARD OF DIRECTORS AND FOR APPROVAL, FOR
APPROVAL OF THE AMENDMENT TO THE 1995 STOCK
OPTION PLAN AND FOR APPROVAL OF KPMG PEAT
MARWICK LLP AS THE INDEPENDENT AUDITORS OF
THE CORPORATION.
THIS PROXY MAY BE REVOKED AT ANY TIME PRIOR TO ITS EXERCISE
