<PAGE> 1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from _______ to ________
Commission File No.: 0-26276
R.H. PHILLIPS, INC.
(Exact name of small business issuer in its charter)
California 68-0313739
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
26836 County Road 12A, Esparto, California 95627
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(Address of principal executive offices)
(530) 662-3215
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Number of shares outstanding of each of the issuer's classes of
common equity as of April 30, 1999: 6,582,559
Transitional Small Business Disclosure Format: Yes No X
--- ---
This document consists of 17 pages, excluding exhibits. The Exhibit
Index is on page 17.
<PAGE> 2
R.H. PHILLIPS, INC.
INDEX
Part I. Financial Information
Item 1. Financial Statements ..................................3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K......................15
Signatures ........................................................16
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<PAGE> 4
<TABLE>
R.H. Phillips, Inc.
Balance Sheet
(In thousands, except share information)
March
31, 1999
--------
(Unaudited)
<S> <C>
Assets
Current assets:
Cash $ 226
Accounts receivable 2,808
Inventories 13,329
Prepaid expenses and other current assets 1,304
-------
Total current assets 17,667
Property, plant and equipment, net 33,821
Other assets 703
-------
$52,191
=======
Liabilities and shareholders' equity
Current liabilities:
Current maturities of long-term debt $ 1,808
Accounts payable 1,081
Accrued payroll and related 236
Accrued selling expenses 549
Accrued income taxes 318
Other accrued liabilities 424
-------
Total current liabilities 4,416
Long-term debt 22,513
Subordinated debt 2,282
Deferred income taxes 2,082
Deferred gain and vineyard development costs 103
Commitments and contingencies
Redeemable preferred stock,
redeemable at $2,500,000 2,282
Shareholders' equity:
Non-redeemable preferred stock, no par value,
4,750,000 shares authorized, none issued
and outstanding --
Common stock, no par value, 12,500,000 shares
authorized, 6,582,559 shares issued and
outstanding 14,491
Additional paid-in capital 337
Retained earnings 3,685
-------
Total shareholders' equity 18,513
-------
$52,191
=======
</TABLE>
[FN]
See accompanying notes.
<PAGE> 5
<TABLE>
R.H. Phillips, Inc.
Statements of Income
(In thousands, except share information)
<CAPTION>
Three months ended
March 31,
---------
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Net sales $5,001 $3,988
Cost of sales 2,338 2,000
------ ------
Gross profit 2,663 1,988
Selling expenses 1,311 1,018
General and administrative expenses 260 262
------ ------
Operating income 1,092 708
Interest expense (378) (278)
Other income, net 63 48
------ ------
Income before provision for income taxes 777 478
Provision for income taxes (313) (192)
------ ------
Net income $ 464 $ 286
====== ======
Net income $ 464 $ 286
Dividends and accretion on Redeemable Preferred Stock (85) (85)
------ ------
Net income applicable to Common Shareholders $ 379 $ 201
====== ======
Net income per share - basic and diluted $ .06 $ .03
====== ======
Shares used in per share calculations:
- Basic 6,582,559 6,582,559
- Diluted 6,582,559 6,582,656
</TABLE>
[FN]
See accompanying notes.
<PAGE> 6
<TABLE>
R.H. Phillips, Inc.
Statements of Cash Flows
(In thousands)
<CAPTION>
Three months ended
March 31,
---------
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 464 $ 286
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 669 484
Gain on disposal of property, plant and equipment (5)
Net changes in assets and liabilities:
Accounts receivable 174 65
Inventories (655) (759)
Prepaid expenses and other current assets (187) 102
Other assets (21) (36)
Accounts payable 23 (223)
Accrued payroll and related (97) (1)
Accrued selling expenses 67 142
Accrued income taxes 318 123
Other accrued liabilities 27 (31)
------- -------
Net cash provided by operating activities 782 147
Cash flows from investing activities:
Purchase of property, plant and equipment (1,247) (1,011)
Proceeds from sale of property, plant and equipment -- 5
------- -------
Net cash used in investing activities (1,247) (1,006)
Cash flows from financing activities:
Cash dividends paid (150) (150)
Proceeds from long-term debt and notes payable 3,243 3,434
Principal payments on long-term debt and notes payable (2,444) (2,297)
Payment for development of leased vineyards
and related fees (109) (96)
Other financing activities, net -- (4)
------- -------
Net cash provided by financing activities 540 887
Increase in cash 75 28
Cash at beginning of period 151 109
------- -------
Cash at end of period $ 226 $ 137
======= =======
Other cash flow information:
Interest paid (including capitalized interest of
$85 and $121 in 1999 and 1998, respectively) $ 432 $ 300
Income taxes paid $ -- $ 69
Noncash transactions:
Issuance of notes payable to finance inventory,
property, plant and equipment purchased $ -- $ 4
Issuance of stock dividend $ 150 $ 150
Accretion of redeemable preferred stock $ 10 $ 10
Conversion of preferred stock to subordinated debt $ 2,281 $ --
</TABLE>
[FN]
See accompanying notes.
<PAGE> 7
R.H. Phillips, Inc.
Notes to Financial Statements
March 31, 1999
1. Summary of Significant Accounting Policies
The interim financial statements as of March 31, 1999 and for each
of the three month periods ended March 31, 1999 and 1998 have
been prepared by R.H. Phillips, Inc. ("R.H. Phillips"), and are
unaudited. In the opinion of management, the financial statements
include all adjustments (which include only normal recurring entries)
necessary for a fair presentation. The operating results for the three
month periods ended March 31, 1999 and 1998 are not necessarily
indicative of the results which might be realized for the full year.
Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to generally accepted accounting principles applicable for
interim periods. These statements should be read in conjunction with
the financial statements and notes included in R.H. Phillips' Annual
Report on Form 10-KSB for the fiscal year ended December 31,
1998.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statemetns and accompanying notes. Actual results could
differ from those estimates.
2. Computation of Net Income per Share
Basic net income per share for the three month periods ended March
31, 1999 and 1998 was computed using the weighted average
number of common shares outstanding during each period. Diluted
net income per share was computed using the weighted average
number of common shares and dilutive potential common shares
outstanding during each period. There were no dilutive potential
common shares outstanding for the three month period ended March
31, 1999. Potential common shares outstanding which could have a
dilutive effect in the future, but were anti-dilutive for the three month
period ended March 31, 1999, totaled 2,333,598. Basic and diluted
net income per share and the weighted average number of common
shares outstanding for the three month period ended March 31, 1998
have been restated to reflect stock dividends of 48,071 shares issued
in September 1998 and 50,728 shares issued in March 1999.
3. Long-term Debt
R.H. Phillips obtained two long-term loans from General Electric
Capital Corporation during the three month period ended March 31,
1999. The first loan bears interest at annual rate of 7.41%, and
principal and interest are due in 84 monthly installments. The second
loan bears interest at annual rate of 7.23%, and principal and interest
are due in 60 monthly installments. Both loans are collateralized by
equipment.
4. Subordinated Debt and Preferred Stock
In March 1999, R.H. Phillips exchanged, at par, 500,000 shares of
Senior Redeemable Preferred Stock for unsecured subordinated debt
with a principal amount of $2,500,000 and 250,000 shares of
Redeemable Exchangeable Preferred Stock ("Exchangeable
Preferred"). The subordinated debt carries an annual interest rate of
14%, payable semi-annually. The Exchangeable Preferred bears a
cumulative annual dividend of $1.20 per share payable semiannually
in shares of Common Stock at a price equal to the lower of the
average daily market price over a period of twenty consecutive
trading days before the dividend payment date or $4.00 per share.
After March 15, 2000, R.H. Phillips has the option to convert the
Exchangeable Preferred to unsecured subordinated debt at an interest
rate to be determined at the time of conversion. If the Exchangeable
Preferred is not converted at March 15, 2000, the $1.20 per share
dividend will become payable in cash. The
<PAGE> 8
subordinated debt,
including any amount converted from Exchangeable Preferred, can
be paid, at R.H. Phillips' option, after March 15, 2001. R.H. Phillips
is required to make principal payments (including redemption
payments if the Exchangeable Preferred is not converted to
subordinated debt) of $1,666,666 in 2004, $1,666,667 in 2005 and
$1,666,667 in 2006.
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
In reviewing the following management's discussion and
analysis, the reader should refer to the historical financial statements
of R.H. Phillips, Inc. The discussion of the results and trends does
not necessarily imply that these results and trends will continue. For
the following discussion, a "case" means a 9-liter case of wine. All
numbers are approximate.
Forward-Looking Statements
R.H. Phillips provides in this report and elsewhere from time
to time forward-looking statements regarding R.H. Phillips, its
products, the wine business, and general business and economic
conditions. Examples of forward-looking statements include
projections regarding future expansion, trends in the wine industry,
sources of supply, costs of production, profit margins, and
availability and sources of financing. The actual results of R.H.
Phillips may vary due to a variety of factors, including the following:
Availability of Future Financing. R.H. Phillips may continue
to heavily depend upon its ability to raise additional debt or equity
financing for its working capital and capital expansion needs. The
ability to raise financing is in turn dependent upon a variety of
factors, some of which are outside the control of R.H. Phillips.
These factors include, but are not limited to, interest rates, the
availability of financing sources, and general economic conditions.
If interest rates increase or other financing becomes unavailable or
more costly to obtain, R.H. Phillips may not be able to raise sufficient
capital to supply its needs.
Costs of Expansion. Management has based its assumptions
concerning the costs of expansion on assumptions which it believes
are reasonable. However, there can be no assurance that R.H.
Phillips' estimates will prove to be correct. If costs are higher than
anticipated, R.H. Phillips may be required to raise an even greater
amount of financing or reduce the rate of expansion.
Costs of Production. Statements with respect to the general
decline in R.H. Phillips' cost of production are based on
management's assumptions concerning the likely levels of future sales
by R.H. Phillips, projected yields from R.H. Phillips' vineyards and
the cost and availability of bulk wine and grapes from the spot
market. For example, if R.H. Phillips' sales increase at a faster rate
than anticipated or R.H. Phillips' grape production is lower than
projected, R.H. Phillips could be forced to make additional purchases
of grapes and wine on the spot market. Management believes that
such events could increase R.H. Phillips' costs of production.
Market Conditions. Assumptions as to the desirability of
expansion are based to a great extent on management's beliefs
concerning the current status of and trends within the wine industry.
Market conditions in the wine industry have changed substantially
from time to time. To the extent market conditions change
substantially in the future, the rate at which R.H. Phillips deems it
advisable to expand its vineyard and winery facilities may be
adjusted.
Other Factors. A variety of other factors could affect the
actual results of R.H. Phillips. These include changes in economic
conditions, unexpected adverse weather or growing conditions,
reduction or increases in consumer demand, changes in governmental
regulation concerning the production and sale of wine, and increased
competition from foreign or domestic wine producers.
Seasonality
R.H. Phillips usually experiences substantial seasonal
fluctuations in revenue and expenditures. Sales volumes generally
increase during the holiday season, which causes a large percentage
of sales to occur during the last three months of each year. R.H.
Phillips' expenditures fluctuate throughout the year based on
vineyard and winery activities. Expenditures typically peak during
the summer and early autumn.
<PAGE> 10
Costs of Production
R.H. Phillips' vineyards produced 7,700 tons of grapes in
1998, compared to 5,100 tons in 1997. The increase was primarily
due to production from new vineyards. R.H. Phillips has expanded
the size of its vineyards to lessen its dependence on outside sources
of bulk wines and grapes and reduce its cost of goods. Management
anticipates that the full benefit of the vineyard expansion should
continue to be realized over the next several years as the vines
mature.
The Dunnigan Hills region experienced an unusual period of
below freezing weather during early April 1999. The cold weather
damaged some of the fruit producing buds in R.H. Phillips'
Chardonnay vineyards. Management believes that the 1999
Chardonnay yield per acre may be as much as 35% below average,
which will negatively affect Chardonnay product margins in 2000.
Management believes that production from recently planted
Chardonnay vineyards will partially offset the crop damage, and that
overall Chardonnay yields will be approximately 11% less than 1998.
Management believes that other varietals were not significantly
affected. Despite the anticipated lower Chardonnay yields, the total
1999 crop for all varietals combined should be larger than the 1998
crop due to production from recently planted vineyards.
Results of Operations
Net Sales
Net sales for the three month period ended March 31, 1999
were $5,001,000, a 25% increase over net sales of $3,988,000 for the
corresponding period of the prior year. Net sales included sales of
bulk wines and other items totaling $246,000 for the three month
period ended March 31, 1999, compared to $46,000 for the
corresponding period in 1998. The increase in net sales was
primarily due to a greater proportion of higher priced, super premium
wines. Sales of super premium wines increased from 7,000 cases for
the three month period ended March 31, 1998 to 15,000 cases for the
same period in 1999. This resulted in an average price per case of
$54.24 for the three month period ended March 31, 1999, compared
to $49.03 for the same period in 1998. Higher sales volumes also
contributed to the increase in net sales. R.H. Phillips sold 88,000
cases during the three month period ended March 31, 1999,
compared to 80,000 in the corresponding period of the prior year.
Gross profit
Gross profit was $2,663,000 for the three month period
ended March 31, 1999, a 34% increase over $1,988,000 for the same
period in 1998. Excluding sales of bulk wines and other items, gross
profit was $2,635,000 in 1999, compared to $1,948,000 in 1998.
Gross margins were 53% for the three month period ended March
31, 1999, compared to 50% for the same period in 1998. The
increase in 1999 gross margins is primarily attributable to the higher
average selling prices discussed above and, to a lesser degree, to a
decrease in the average cost per case. The average cost per case for
the three month period ended March 31, 1999 was $24.18, compared
to $24.80 for the same period in 1998.
Selling Expenses
Selling expenses were $1,311,000, or 26% of net sales, for
the three month period ended March 31, 1999, an increase from
$1,018,000, or 26% of net sales, for the same period in 1998. The
$293,000 increase is primarily due to increased sales promotion
costs.
<PAGE> 11
General and Administrative Expenses
General and administrative expenses were $260,000, or 5%
of net sales, for the three month period ended March 31, 1999.
General and administrative expenses were $262,000, or 7% of sales,
for the three month period ended March 31, 1998.
Interest Expense
Interest expense for the three month period ended March 31,
1999 was $378,000, compared to $278,000 for the same period in
1998. R.H. Phillips capitalized $85,000 of additional interest
pertaining to vineyard and winery development during the three
month period ended March 31, 1999, and $121,000 during the same
period in 1998. R.H. Phillips had fewer vineyards under development
during the first three months of 1999 than during the same period in
1998, causing capitalized interest to decrease. The increase in total
interest cost is primarily due to borrowings to fund capital
improvements during 1998. The interest is attributable to R.H.
Phillips' debt obligations and bank line of credit.
Other Income, net
Other income, net for the three month period ended March
31, 1999 was $63,000, compared to $48,000 for the same period in
1998. The income was primarily from crop subsidies and vineyard
management fees.
Provision for income taxes
Provision for income taxes for the three month period ended
March 31, 1999 was $313,000, compared to $192,000 for the same
period in 1998. The $121,000 increase is due to higher income.
Net Income
R.H. Phillips generated net income of $464,000 for the three
month period ended March 31, 1999, compared to $286,000 for the
same period in 1998. The $178,000 increase was primarily due to
higher gross profit, which was partially offset by increased selling
expenses.
Liquidity and Capital Resources
R.H. Phillips has financed its working capital and capital
expansion needs through internally generated funds, outside credit
facilities, equity financing, and the sale and leaseback of certain
assets. R.H. Phillips has made substantial capital expenditures to
expand its vineyards and winery facilities, obtain production
efficiencies, and raise wine quality. R.H. Phillips' cash flows from
operations have not been sufficient to satisfy all of the working
capital and capital expenditure requirements needed to keep pace
with its growth.
R.H. Phillips had cash totaling $226,000 on March 31, 1999,
an increase from $151,000 on December 31, 1998. Sources of cash
during the three month period ended March 31, 1999 included cash
from operations of $782,000 and proceeds from long-term debt of
$3,243,000. Cash used during that period included $1,247,000
invested in property, plant and equipment and $2,444,000 to repay
debt.
Current assets increased by $743,000 during the three month
period ended March 31, 1999, primarily due to an increase in
inventories from $12,674,000 on December 31, 1998 to $13,329,000
on March 31, 1999. The increase is primarily due to inventoried
work in progress pertaining to the 1999 grape crop. Current
liabilities increased by $277,000 during the three month period ended
March 31, 1999, primarily due to accrued income taxes. These
factors caused net working capital to increase $466,000, from
$12,785,000 on December 31, 1998 to $13,251,000 on March 31,
1999.
<PAGE> 12
R.H. Phillips has several long-term loans, the largest of which
was obtained from Metropolitan Life Insurance Company
("Metropolitan"). R.H. Phillips has borrowed $11,000,000 from
Metropolitan, of which $10,160,000 was outstanding at March 31,
1999. The unpaid principal under the loan accrues interest at an
annual rate of 8.04%. The interest rate is subject to adjustment by
Metropolitan every three years, beginning on January 1, 2001. R.H.
Phillips is required to make monthly principal payments of $60,000
plus accrued interest. The loan matures in January 2013, at which
time R.H. Phillips will be required to make a balloon payment of
$200,000.
R.H. Phillips has a line of credit of $10,000,000 with U.S.
Bank National Association ("U.S. Bank") to finance its working
capital requirements. The line of credit is secured by accounts
receivable, inventory, the grape crop, and unencumbered farm
equipment. The annual interest rate on the line is either U.S. Bank's
prime rate or IBOR plus 150 basis points, at R.H. Phillips' option.
The balance on the line at March 31, 1999 was $8,738,000. R.H.
Phillips is in the process of renegotiating the line to increase the limit
to $15,000,000 and extend the maturity date from April 2000 to
April 2001. Management believes that the new line of credit will be
finalized by late May 1999.
In addition to loans with Metropolitan and U.S. Bank, R.H.
Phillips has several smaller loans, which are generally secured by
equipment, and capital leases. The maturity dates range from May
1999 to April 2006 and, excluding capital leases, the interest rates
range from 7.0% to 10.9%. The balances due on these items totaled
$5,423,000 at March 31, 1999.
In May 1997, R.H. Phillips sold 371 acres of land partially
developed into vineyard to John Hancock Mutual Life Insurance
Company ("Hancock"). In connection with the transaction, R.H.
Phillips now manages, operates and leases the land and vineyards
from a subtenant of Hancock, Farmland Management Services, for
a term that expires on December 31, 2012. R.H. Phillips received
proceeds of $5,384,000 from the sale. R.H. Phillips began paying
rent of $161,000 per calendar quarter in January 1999. The lease is
accounted for as an operating lease.
In March 1996, R.H. Phillips sold 500,000 shares of Senior
Redeemable Preferred Stock (the "Senior Preferred Stock") and
warrants to purchase up to 1,346,788 shares of Common Stock to
Hancock. The net proceeds R.H. Phillips derived from the sale of the
Senior Preferred Stock and the warrants, after payment of offering
expenses, were $4,785,000. The Senior Preferred Stock bore a
cumulative annual dividend of $1.20 per share, payable semiannually.
During the first four years after issuance, 50% of the dividend was
payable in cash and 50% of the dividend was payable in shares of
Common Stock at a price equal to the lower of the average daily
market price over a period of twenty consecutive trading days before
the dividend payment date or $4.00 per share.
In March 1999, R.H. Phillips exchanged, at par, all shares of
the Senior Preferred Stock for unsecured subordinated debt with a
principal amount of $2,500,000 and 250,000 shares of Redeemable
Exchangeable Preferred Stock ("Exchangeable Preferred"). The
subordinated debt carries an annual interest rate of 14%, payable
semi-annually. The Exchangeable Preferred bears a cumulative
annual dividend of $1.20 per share payable semiannually in shares of
Common Stock at a price equal to the lower of the average daily
market price over a period of twenty consecutive trading days before
the dividend payment date or $4.00 per share. After March 15,
2000, R.H. Phillips has the option to convert the Exchangeable
Preferred to unsecured subordinated debt at an interest rate to be
determined at the time of conversion. If the Exchangeable Preferred
is not converted at March 15, 2000, the $1.20 per share dividend will
become payable in cash. The subordinated debt, including any
amount converted from Exchangeable Preferred, can be paid, at R.H.
Phillips' option, after March 15, 2001. R.H. Phillips is required to
make principal payments (including redemption payments if the
Exchangeable Preferred is not converted to subordinated debt) of
$1,666,666 in 2004, $1,666,667 in 2005 and $1,666,667 in 2006.
<PAGE> 13
R.H. Phillips has invested in substantial improvements to its
winery facility and vineyards over the past several years, and plans to
continue the expansion. R.H. Phillips plans to invest approximately
$5,000,000 in tanks, barrels and other equipment during 1999.
Additional winery expansion projects are planned for the future to
handle the increased production from R.H. Phillips' recently planted
vineyards. R.H. Phillips plans to invest approximately $800,000 in
farm equipment and the continued development of recently planted
vineyards during 1999. R.H. Phillips plans to fund 1999 capital
projects with internally generated funds, proceeds from the U.S.
Bank line of credit increase, and long-term lease financing.
Phylloxera infestation may have a negative impact on R.H.
Phillips' future grape production. Phylloxera is a root louse which
feeds on grape roots, causing reduced production and eventual vine
death. Of R.H. Phillips' 1,555 acres of vineyard, 187 acres have root
stock which is susceptible to Phylloxera. Management estimates
these vineyards will be commercially productive for ten years (until
2004), as compared with twenty-five years generally estimated for
vineyards without Phylloxera. The reduction in vineyard useful life
causes an increase in depreciation and maintenance expense. The
increased expenses are added to the cost of grapes harvested, thus
increasing cost of sales. R.H. Phillips has replaced the majority of
Phylloxera-infested or susceptible vines with rootstock believed to be
resistant to Phylloxera.
R.H. Phillips expects that cash flows generated from
operations, together with borrowing availability, will be adequate to
fund R.H. Phillips' operations, capital expansion efforts and debt
service requirements over the next twelve months. However, a
significant decline in R.H. Phillips' expected operating performance
could have a material adverse effect on R.H. Phillips' liquidity. In
such case, R.H. Phillips would adjust its level of capital expenditures
as necessary, obtain additional debt financing or issue equity
securities. However, there can be no assurance that such financing
will be available and, if available, that it could be obtained in terms
favorable to R.H. Phillips.
Year 2000
R.H. Phillips is reviewing its potential exposure to the "Year
2000 Problem", which results from computer programs being written
using two digits rather than four to define the applicable year. As a
result of this problem, computer programs that are not "Year 2000
compliant" may recognize a date using "00" as the year 1900 rather
than 2000. The impact of the Year 2000 Problem on R.H. Phillips is
difficult to assess at this time, but the Year 2000 Problem could
result in a system failure or miscalculation causing disruptions of
operations, including a temporary inability to process sales, send
invoices, retain accurate data or engage in normal business activities.
The Year 2000 Problem may also affect the operations of suppliers,
distributors, vendors and others with whom R.H. Phillips does
business, thereby adversely affecting R.H. Phillips as well.
R.H. Phillips has completed its internal assessment of its own
information technology systems and non-information technology
systems to ascertain whether they are Year 2000 compliant. R.H.
Phillips is also in the process of assessing the potential effect upon its
operations of Year 2000 Problems encountered by its suppliers,
customers, bank and others with whom it does business. Although
R.H. Phillips is implementing measures to reduce its potential
exposure to the Year 2000 Problem, due to the general uncertainty
over the Year 2000 readiness of third parties, R.H. Phillips is unable
to determine at this time whether the consequences of Year 2000
failures will have a material impact.
R.H. Phillips uses several information technology systems,
some of which may be affected by the Year 2000 Problem.
Management has reviewed its critical computer systems in order to
determine whether any software requires updating or replacement,
and has determined that its primary financial and operating software
is not Year 2000 compliant. The software supplier is in the process
of making the software Year 2000 compliant, and has advised R.H.
Phillips that it will bear the costs of the modification. Although the
supplier has informed R.H. Phillips that the software will be Year
2000 compliant by mid 1999, R.H. Phillips cannot be certain that the
supplier will be able to meet this deadline. R.H. Phillips has also
agreed to provide personnel to assist in software testing scheduled
for the first half of 1999. The costs incurred by R.H. Phillips
<PAGE> 14
in connection with this testing will be expensed as incurred.
Management does not believe that these costs will have a material
impact on R.H. Phillips' financial condition. If the supplier does not
make the software Year 2000 compliant within a reasonable time, it
may be necessary for R.H. Phillips to purchase alternate financial and
operating software. Management believes that the cost of purchasing
and installing new financial and operating software will not have a
material impact on R.H. Phillips' financial condition, results of
operations or cash flows.
R.H. Phillips is also reviewing its non-information technology
systems for potential exposure to the Year 2000 Problem. Although
the review is not complete, management expects to complete its
review and any necessary corrections or replacements to its non-
information technology systems by mid 1999. The costs to correct
or modify these systems will be expensed as incurred, while any
replacement costs will be capitalized. Management does not believe
that the total cost of making these systems Year 2000 compliant will
be material.
Outside parties whose exposure to Year 2000 Problems may
have a material impact on R.H. Phillips' operations include its bank,
major customers, and major suppliers. Management has reviewed the
issue with bank representatives, and believes that the Year 2000
Problem will not materially affect R.H. Phillips' banking operations.
Management believes that one or more of R.H. Phillips' customers
could have their operations interrupted or terminated by Year 2000
problems. Such an event could result in the delay of payments to
R.H. Phillips. Management believes that it would be impractical to
attempt to measure the potential risk of such an occurrence, and that
correction of Year 2000 Problems R.H. Phillips' customers
experience is outside of R.H. Phillips' control. Similarly, R.H.
Phillips' major suppliers may experience Year 2000 Problems,
potentially delaying the shipment of necessary materials.
Management believes that it would be able to find alternate suppliers
should this occur.
The costs of the project and the date on which R.H. Phillips
believes it will complete the Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of
certain resources and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results
could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to,
the availability and cost of personnel trained in this area, the ability
to locate and correct all relevant computer codes, and similar
uncertainties.
<PAGE> 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
3.1 Articles of Incorporation
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to the
signed on its behalf by the undersigned, thereunto duly authorized.
R.H. PHILLIPS, INC.
(Registrant)
Date: May 13, 1999
By//s//Karl E. Giguiere
_________________________
Karl E. Giguiere, Co-President
Co-Chief Executive Officer
By//s//Michael J. Motroni
___________________________
Michael J. Motroni, Chief Financial Officer
Principal Financial Officer
<PAGE> 17
EXHIBIT INDEX
Exhibit No. Description
3.1 Articles of Incorporation
27.1 Financial Data Schedules
ARTICLES OF INCORPORATION
OF
R.H. PHILLIPS, INC.
I. The name of this corporation is R.H. PHILLIPS, INC..
II. The purpose of this corporation is to engage in any
lawful act or activity for which a corporation may be organized
under the General Corporation Law of California, other than
the banking business, the trust company business or the practice
of a profession permitted to be incorporated by the California
Corporations Code.
III. The name and address in the State of California of this
corporation's initial agent for service of process is:
John E. Giguiere
26836 County Road 12A
Esparto, California 95627
IV. (a) This corporation is authorized to issue two classes of
shares designated "Preferred Stock" and "Common Stock,"
respectively. The number of shares of Preferred Stock autho
rized to be issued is five million (5,000,000) and the number of
shares of Common Stock authorized to be issued is seven
million five hundred thousand (7,500,000).
(b) The Preferred Stock may be divided into such number of
series as the board of directors may determine. The board of
directors is authorized to determine and alter the rights,
preferences, privileges and restrictions granted to or imposed
upon any wholly unissued series of Preferred Stock, and to fix
the number of shares of any series of Preferred Stock and the
designation of any such series of Preferred Stock. The board of
directors, within the limits and restrictions stated in any
resolution or resolutions of the board of directors originally
fixing the number of shares constituting any series, may increase
or decrease (but not below the number of shares of such series
then outstanding) the number of shares of any series subsequent
to the issue of shares of that series.
V. The liability of the directors of this corporation for
monetary damages shall be eliminated to the fullest extent
permissible under California law.
VI. This corporation is authorized, through bylaw provi
sions, agreements with agents, vote of shareholders or other
wise, to indemnify its agents for breach of duty to this corpora
tion and its shareholders in excess of the indemnification
otherwise permitted by Section 317 of the California Corpora
tions Code, subject to the limits on such indemnification set
forth in Section 204 of the California Corporations Code.
Date: January 13, 1994 //s//John E. Giguiere
---------------------
John E. Giguiere
Sole Proprietor
CERTIFICATE OF AMENDMENT OF
THE ARTICLES OF INCORPORATION OF
R.H. PHILLIPS, INC.
John E. Giguiere and Robert T. Moore certify that:
7. They are the President and Secretary, respectively, of
R.H. Phillips, Inc., a California corporation.
8. Paragraph (a) of Article "IV" of the Articles of Incorpora
tion of the corporation is amended to read as follows:
"This corporation is authorized to issue two classes of
shares, designated "Preferred Stock" and "Common
Stock," respectively. The number of shares of Preferred
Stock authorized to be issued is five million (5,000,000)
and the number of shares of Common Stock authorized
to be issued is twelve million five hundred thousand
(12,500,000)."
9. The amendment to the Articles of Incorporation has been
duly approved by the Board of Directors.
10. The amendment to the Articles of Incorporation has been
duly approved by the required vote of shareholders in
accordance with Section 902 of the Corporations Code.
The total number of outstanding shares of the corpora
tion is 4,632,985 shares of Common Stock and 0 shares
of Preferred Stock. The number of shares voting in favor
of the amendment equaled or exceeded the vote required.
The percentage vote required was more than 50%.
We further declare under penalty of perjury under the laws of
the State of California that the matters set forth in this certificate
are true and correct of our own knowledge.
Date: November 27, 1995
//s//John E. Giguiere
John E. Giguiere, President
//s//Robert T. Moore
Robert T. Moore, Secretary
CERTIFICATE OF DETERMINATION
OF
12% SENIOR REDEEMABLE PREFERRED STOCK
OF
R.H. PHILLIPS, INC.
(Pursuant to Section 401 of the Corporations Code of the
State of California)
John E. Giguiere and Robert T. Moore hereby certify that:
I. They are the President and the Secretary, respectively, of R.H.
PHILLIPS, INC., a corporation organized and existing under the
laws of the State of California (the "Corporation").
II. The Articles of Incorporation of the Corporation authorize the
Corporation to issue up to 5,000,000 shares of Preferred Stock, none
of which is presently outstanding.
III. The Articles of Incorporation of the Corporation allow the board
of Directors to create and determine the rights, preferences, privi
leges and restrictions granted to or imposed upon any wholly
unissued series of Preferred Stock and to fix the authorized number
of shares of such series of stock.
IV. The Board of Directors of the Corporation has authorized the
issuance of up to 500,000 shares of a series of Preferred Stock
designated the 12% Senior Redeemable Preferred Stock of the
Corporation (the "Senior Preferred Stock").
V. No shares of Senior Preferred Stock have been issued prior to the
date hereof.
VI. The following resolution was duly adopted on March 13, 1996
by the Board of Directors of the Corporation pursuant to the
authority conferred upon the Board of Directors of the Corporation
by the Articles of Incorporation of the Corporation and by the
Corporations Code of the State of California, which resolution
remains in full force and effect as of the date hereof:
RESOLVED, that the Board of Directors of the Corporation
(the "Board of Directors"), pursuant to authority conferred upon the
Board of Directors by the provisions of the Articles of Incorporation
of the Corporation, which authorize the issuance of up to 5,000,000
shares of Preferred Stock, does hereby create and provide for the
issuance of up to 500,000 shares of a series of Preferred Stock
designated the 12% Senior Redeemable Preferred Stock, no par
value (the "Senior Preferred Stock"), and does hereby fix and
determine the voting powers, designations, preferences and relative,
participating, optional and other special rights, and the qualifications,
limitations and restrictions of such series of Senior Preferred Stock
as follow:
1. Rank. All shares of Senior Preferred Stock shall, with
respect to payments of dividends and distributions of assets upon
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, rank prior to all of the Corporation's other
series of Preferred Stock and Common Stock and any other class or
series of stock authorized and issued by the Corporation (collec
tively, "Junior Stock").
2. Cumulative Annual Dividends.
(a) The holders of Senior Preferred Stock shall be entitled to
receive, when, as and if declared by the Board of Directors out of
funds at the time legally available therefor, annual dividends at the
rate (the "Dividend Rate") of $1.20 per annum per share, which shall
be fully cumulative, shall accrue on a daily basis without interest with
respect to each share of Senior Preferred Stock from the date of first
issuance of such share and shall be payable semi-annually in arrears
on March 15 and September 15 of each year (except that if any such
date is a Saturday, Sunday or legal holiday, then such dividend shall
be payable on the next day that is not a Saturday, Sunday or legal
holiday) (a "Dividend Payment Date") to holders of record as they
appear on the stock transfer books of the Corporation on such record
date, not more than 60 days nor less than 10 days preceding the
relevant Dividend Payment Date, as is fixed by the Board of
Directors (or, to the extent permitted by applicable law, a duly
authorized committee thereof) at the time such dividend is declared.
For purposes hereof, the term "legal holiday" shall mean any day on
which banking institutions are authorized to close in San Francisco,
California, or Boston, Massachusetts.
(b) Unpaid dividends in arrears for any past dividend period
may be declared and paid at any time, without reference to any
regular Dividend Payment Date.
(c) The semi-annual dividend amount shall be computed by
dividing the annual dividend amount by two. The amount of
dividends payable for the initial dividend period and any period
shorter than a full semi-annual dividend period shall be computed on
the basis of a 360-day year of twelve 30-day months. The first
Dividend Payment Date shall be September 15, 1996.
(d) On each of the Dividend Payment Dates specified below,
one-half of the semi-annual dividend shall be payable n cash and the
remainder shall be payable in shares of Common Stock of the
Corporation valued at the lesser of $4.00 per share or the Fair
Market Value thereof; provided, however, that the Corporation shall
not be required to issue any fractional shares but shall pay to holders
of the Senior Preferred Stock in lieu thereof cash based on the Fair
Market Value of any resulting fractional shares:
September 15, 1996
March 15, 1997
September 15,1997
March 15, 1998
September 15, 1998
March 15, 1999
September 15,1999
March 15, 2000
(e) as used herein, the "Fair Market Value" of a share of
Common Stock on any Dividend Payment Date shall mean the
following:
(i) If the Common Stock is regularly traded in the organized
securities markets, the price per share of Common Stock equal to the
average of the daily market prices over a period of twenty (20)
consecutive business days before such date. The market price for
each such business day shall be the last sale price on such day on the
principal securities exchange on which the Common Stock is then
listed or admitted to trading, or, if no sale takes place on such day on
any such exchange, the average of the closing bid and asked prices
on such day as officially quoted on any such exchange, or it the
Common Stock is not then listed or admitted on any stock exchange,
the market price for each such business day shall be the last sale price
on such day, or, if no sale takes place on such day, the average of the
closing bid and asked prices on such day in the over-the-counter
market, in either case as reported through NASDAQ, or, if such
prices are not at the time so reported, as furnished by any member of
the National Association of Securities Dealers, Inc. selected by the
Corporation.
(ii) If the Common Stock is not regularly traded in the
organized securities markets, the fair market value of the equity of
the Corporation taken as a whole after deducting the value of all
preferred stock outstanding, as determined in good faith by the Board
of Directors of the Corporation at the time it authorizes each semi-
annual dividend, divided by the aggregate number of shares of
Common Stock (A) outstanding on such date, assuming the conver
sion on the last day of the quarter next preceding the date of
determination of all securities convertible into shares of Common
Stock or (B) issuable upon exercise of any warrants, options and
other rights then outstanding, assuming the exercise on such date of
all then outstanding warrants, options and similar rights to acquire
shares of Common Stock exercisable on such date, and assuming the
receipt by the Corporation of any consideration required in connec
tion with any such conversion or exercise without premium for
control or discount for minority interests or restrictions on transfer;
provided, however, that, at the election of holders of a majority of
the outstanding Senior Preferred Stock, the Fair Market Value of a
share of Common Stock shall be determined as follows:
For a period of thirty (30) days after each Dividend Payment Date
(the "Negotiation Period"), the Corporation and the holders of the
Senior Preferred Stock agree to negotiate in good faith to reach
agreement upon the Fair Market Value of a share of the Common
Stock as of the Dividend Payment Date. If the parties are unable to
agree upon the fair Market Value of a share of the Common Stock
by the end of the Negotiation Period, then the Corporation, on the
one hand, and such holders of Senior Preferred Stock, on the other,
shall each designate an independent investment bank or accounting
firm of recognized national standing (any such Person, an "Ap
praiser"), which shall attempt in good faith to agree on the Fair
Market Value of the Common Stock within forty-five (45) days after
the end of the Negotiation Period. The Corporation and the holders
of Senior Preferred Stock agree to disclose to each other all material
business or personal relationships with such investment banks or
accounting firms. If the two Appraisers fail to agree on the Fair
Market Value of such securities or other Property before the end of
such 45-day period, they shall expeditiously agree upon a third
Appraiser which shall determine the Fair Market Value of such
securities within thirty (30) days of the endo of such 45-day period,
taking into account the work and opinions of the two original
Appraisers. The agreement of the investment banks and accounting
firms or, failing such agreement, the determination of the third
investment bank or accounting firm, shall be conclusive and binding
on the Corporation and the holders of Senior Preferred Stock. The
fees and expenses of the Appraisers shall be borne by the Corpora
tion.
In no event shall the Fair Market Value of the Common Stock be less
than the per share consideration received or receivable with respect
to the Common Stock in connection with a pending transaction
involving a sale, merger, or liquidation of the Corporation, a sale of
all or substantially all of its assets, or similar transaction.
(f) On the Dividend Payment Date occurring on September
15, 2000 and on each Dividend Payment thereafter, all dividends on
the Senior Preferred Stock shall be payable entirely in cash.
(g) After payment of each dividend set forth in this Section
2 (and, to the extent applicable, any increased amount due to a
Missed Payment as described in Section 4) is made in full on or prior
to the applicable Dividend Payment Date, the Senior Preferred Stock
shall not participate with the Junior Stock in any additional dividends
which the Board of Directors may from time to time declare and pay.
3. Effect of Payment Default. If (a) any dividends accumu
lated on the Senior Preferred Stock are in arrears (any semi-annual
dividend or unpaid portion thereof, a "Missed Dividend"), or (b) the
Corporation is in default with respect to any of the redemption
provisions of Section 6 of this Certificate of Determination, then:
(i) The Corporation may not, and may not permit any
corporation or entity directly or indirectly controlled by the Corpora
tion to, declare or pay any cash dividend or make any distributions in
cash on, or directly or indirectly redeem or satisfy any sinking
obligation in respect of, any Junior Stock or any warrants, rights or
options exercisable for or convertible into any of the Junior Stock.
(ii) The Corporation may not, and may not permit any
corporation or other entity directly or indirectly controlled by the
Corporation to, acquire, redeem (pursuant to a sinking fund or
otherwise), purchase or otherwise acquire any Junior Stock.
(iii) The provisions of Section 4 and Section 8 hereof shall
apply.
4. Increase in Dividend Rate Upon Default.
(a) If one Missed Dividend or any redemption price payable
under Section 6(a) hereof (either of such amounts, a "Missed
Payment") is outstanding, the Dividend Rate payable on the Senior
Preferred Stock shall be increased to $1.25, effective on the date
when such Missed Payment was due, until the earlier of such time as
all Missed Payments, along with the additional amount payable as a
result of the increased Dividend Rate, are paid in full or the time whin
Section 4(b) applies. Unless Section 4(b) applies, whin all Missed
Payments, along with the additional amount payable as a result of the
increased Dividend Rate, have been paid in full, the Dividend Rate
shall be decreased to $1.20.
(b) If two or more consecutive Missed Payments are
outstanding, then the Dividend Rate payable on the Senior Preferred
Stock shall be increased to $1.30, effective on the date when the
second Missed Payment was due, until such time as (i) all Missed
Payments, along with the additional amount payable as a result of the
increased Dividend Rate, are paid in full or (ii) only one Missed
Payment is outstanding, in which case the Dividend Rate shall be
decreased to $1.25.
5. Liquidation Preference. In the event of a liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, the holders of Senior Preferred Stock shall be entitled to
receive out of the assets of the Corporation available for distribution
to stockholders, whether such assets are stated capital or surplus of
any nature, an amount in cash equal to the sum of (a) the amount of
dividends accrued and unpaid thereon to the date of final distribution
to such holders, whether or not declared to the date of such final
distribution, (b) Ten Dollars ($) per share and (c) the Optional
Redemption Premium (as defined in Section 7(B)), before any
payment shall be made or any assets distributed of the holders of
Junior Stock. After payment in full of the foregoing amounts, is
made, the Senior Preferred Stock shall not participate in any
additional payments or distributions of assets made to the Junior
Stock upon liquidation, dissolution or winding up of the Corporation.
6. Mandatory Redemption.
(a) To the extent that funds are legally available, the Corpora
tion shall redeem on each date set forth below (a "Mandatory
Redemption Date"), the specified number of shares of Senior
Preferred Stock set forth opposite the respective Mandatory
Redemption Dates at the redemption price of Ten Dollars ($10) per
share, payable in cash, plus all dividends accrued and unpaid on such
Senior Preferred Stock up to the Mandatory Redemption Date:
Mandatory Redemption Date Number of Shares
to be Redeemed
March 15, 2004 166,666
March 15, 2005 166,666
March 15, 2006 166,667
(b) In determining the ability of the Corporation to redeem
the Senior Preferred Stock under Section 500 of the General
Corporation Law of the State of California, the Corporation shall
value its assets at the highest amount permissible under applicable
law. If the Corporation has insufficient funds to discharge its
mandatory redemption obligation pursuant to Section 6(a) above, the
shares to be redeemed shall be selected pro rata based on the
holdings as of such record date for the redemption, not more than 60
days nor less than 10 days preceding the Mandatory Redemption
Date, as the Board of Directors, shall determine. The Corporation
shall give at least 30 days' but not more than 60 days' prior written
notice of each holder whose shares are to be redeemed pursuant to
this Section 6 of the record date of redemption and the shares to be
redeemed.
(c) If, for any reason, the Corporation fails to discharge its
mandatory redemption obligation pursuant to Section 6(a) above,
such mandatory redemption obligation shall be discharged as soon as
the Corporation is able to discharge such obligation.
(d) On each Mandatory Redemption Date, the shares to be
redeemed shall be selected pro rata based on the holdings as of the
record date for the redemption, which shall be not more than 60 days
nor less than 10 days preceding the Mandatory Redemption Date,
and the Board of Directors shall determine.
7. Optional Redemption.
(a) Upon the terms and subject to the conditions hereinafter
set forth, the Corporation, at its option, upon notice as provided in
Section 7(c) hereof, may redeem the Senior Preferred Stock, at any
time after March 15, 2001, either in whole or from time to time in
any part (but, if in part, then with respect to at lease 10,000 shares at
any one time) at a redemption price equal to the sum of Ten Dollars
($10) per share (the "Liquidation Value") and the "Optional
Redemption Premium" (as defined below) for such Liquidation
Value, together with accrued and unpaid dividends with respect to
the shares on Senior Preferred Stock so to be redeemed to the date
fixed for redemption (collectively, the "Optional Redemption Price").
(b) The "Optional Redemption Premium" for any Liquidation
Value shall equal the net present value (if positive) of the payment
stream equal to the difference between (i) each payment of dividends
and mandatory redemption price the holders of Senior Preferred
Stock would have received through the date of mandatory redemp
tion on account of such Liquidation Value at an annual 12% per
annum dividend rate and (ii) each corresponding payment of
dividends and mandatory redemption price the holders of Senior
Preferred Stock would have received through the date of mandatory
redemption on account of such Liquidation Value at an annual
dividend rate equal to the rate, on the date of the redemption, being
paid on United States Treasury Notes with maturities equal to the
Weighted Average Life to Maturity (as defined below) of the
remaining aggregate Liquidation Value of Senior Preferred Stock at
the time of prepayment (the "Treasury Rate"), discounted at the
Treasure Rate.
For purposes hereof,, the term "Weighted Average Life to
Maturity" means, with respect to the remaining aggregate Liquida
tion Value of Senior Preferred Stock, as of the date of the determina
tion thereof, the number of years obtained by dividing the then
Remaining Dollar-years of such amount by the then outstanding
principal amount thereof. The term "Remaining Dollar-years" of
such amount means the amount obtained by (i) multiplying the
amount of each then remaining mandatory redemption price by the
number of years (calculated to the nearest one-twelfth) which will
elapse between the time in question and the date of the redemption
and (ii) totaling all of the products obtained in clause (i).
(c) Written notice of any redemption of Senior Preferred
Stock pursuant to this Section 7 shall be given to each holder of the
Senior Preferred Stock by overnight delivery service not less than 30
nor more than 60 days before the date fixed for redemption (the
"Optional Redemption Date) and shall be accompanied by an
officer's certificate of the Corporation certifying as to: (i) the
Optional Redemption Date;, (ii) the aggregate Liquidation Value of
all of the shares of Senior Preferred Stock to be so redeemed on such
Optional Redemption Date; (iii) the number of shares of Senior
Preferred Stock held by such holder to be redeemed on such Optional
Redemption Date; (iv) the Optional Redemption Price to be paid in
respect of each share of Senior Preferred Stock held by such holder
on such Optional Redemption Date and an estimate of such Optional
Redemption Premium; and (v) the amount of accrued and unpaid
dividends to be paid to such holder on such Optional Redemption
Date. Any notice of redemption pursuant to this Section 7 having
been so give, the aggregate Optional Redemption Price payable in
respect of the shares of Senior Preferred Stock specified in such
notice shall become due and redeemable on such Optional Redemp
tion Date.
(d) If less than all of the outstanding shares of Senior
Preferred Stock are to be redeemed pursuant to this Section 7, the
shares to be redeemed shall be selected pro rata based onte holdings
as of the record date for the redemption, which shall be not more
than 60 days nor less than 30 days preceding the Optional Redemp
tion Date, as the Board of Directors shall determine.
(e) Notwithstanding the foregoing provisions of the Section
7 an optional redemption of Senior Preferred Stock pursuant to this
Section 7 may only be made if, on the Optional Redemption Date,
such optional redemption is permitted by applicable law.
(f) If any shares of Senior Preferred Stock are redeemed other
than on a Mandatory Redemption Date (other than as a result of a
failure to redeem on a Mandatory Redemption Date), the number of
such shares so redeemed shall be applied first to reduce the number
of shared redeemable on March 15, 2006 until such number equals
zero, then to the number of shares redeemable on March 15, 2005
until such number equal zero, then to the number of shares redeem
able on March 15, 2004.
8. Voting Rights
(a) General. The holders of Senior Preferred Stock shall not
have any voting rights except as set forth below or as otherwise from
time to time required by law. In connection with any right to vote,
each holder of Senior Preferred Stock shall have one vote for each
share of Senior Preferred Stock held. Shares of Senior Preferred
Stock held by the Corporation shall not ahve voting rights hereunder
and shall not be counted in determining the presence of a quorum.
(b) Default Voting Rights.
(i) If at any time two consecutive Missed Payments are
outstanding, then the holders of the Senior Preferred Stock, voting
as a class, shall immediately thereafter have the exclusive right to
elect one member of the Board of Directors of the Corporation. such
director or any successor elected by holders of the Senior Preferred
Stock shall have the right to serve on the Board of Directors of the
Corporation until the latest of (A) one year from the date of election
of such director, (B) the date when no Missed Payments are
outstanding and (C) the date when a successor director is elected
pursuant to Section 8(b)(v). The right of the holders of the Senior
Preferred Stock to elect such additional director shall continue until
the later of (x) one year from the date of election of such director and
(y) the date when no Missed Payments are outstanding.
(ii) If at any time three consecutive Missed Payments are
outstanding, then the holders of the Senior Preferred Stock, voting
as a class, shall immediately thereafter have the exclusive right to
elect an additional member of the Board of Directors of the Corpora
tion, in addition to the member elected pursuant to Section 8(b)(i).
Such director or any successor elected by holders of the Senior
Preferred Stock shall have the right to serve on the Board of
Directors of the Corporation until the latest of (A) one year from the
date of election of such director, (B) the date when no Missed
Payments are outstanding and (C) the date when a successor director
is elected pursuant to Section 8(B)(V). The right of the holders of
the Senior Preferred Stock to elect such additional director shall
continue until the later of (x) one year from the date of election of
such director and (y) the date when no Missed Payments are
outstanding.
(iii) If at any time four consecutive Missed Payments are
outstanding, then the holders of the Senior Preferred Stock, voting
as a class, to have the exclusive right to elect a majority of the
members of the Board of Directors of the Corporation, in addition to
the member elected pursuant to Section 8(b)(i). Such directors or
any successors elected by holders of the Senior Preferred Stock shall
have the right to serve on the Board of Directors of the Corporation
until the latest of (A) one year from the date of election of such
director, (B) the date when no Missed Payments are outstanding and
(C) the date when successors directors are elected pursuant to
Section 8(B)(V). The right of the holders of the Senior Preferred
Stock to elect a majority of the directors shall continue until the later
of (x) one year from the date of election of such directors and (y) the
date when no Missed Payments are outstanding.
(iv) At any time after (A) the exclusive right to elect a
director or directors is vested in the holders of the Senior Preferred
Stock or (B) the term of all directors elected by the Senior Preferred
Stock shall end and the exclusive right to elect directors reverts to
the holders of the Common Stock, then the holders of 10% or more
of the Senior Preferred Stock or Common Stock, as the case may be,
shall have the right to call a special meeting of shareholders for the
purpose of electing members of the Board of Directors by delivering
a request in writing for the calling of the special meeting to the
Secretary of the Corporation. The Secretary shall forthwith cause a
notice to be given to the shareholders entitled to vote at that meeting,
which shall be held at a time requested by those shareholders calling
the meeting not less than 35 nor more than 60 days after the receipt
of the request. Notwithstanding the foregoing, any action to be
taken by holders of Senior Preferred Stock with respect to the
election of such directors may be taken without a meeting, without
prior notice and without a vote, if taken by the written consent of the
holders of a majority of Senior Preferred Stock pursuant to Section
603 of the General Corporation Law of the State of California or any
successor statute.
(v) Upon the election of the directors by the holders of the
Senior Preferred Stock as provided in Section 8(b)(iv), the terms of
all persons who were directors immediately prior thereto shall
terminate. If directors are elected by means of the written consent of
the Senior Preferred Stock without a meeting, the remaining
directors shall be elected by the Common Stock at a special or annual
meeting of the holders of Common Stock or by the written consent
of the holders of a majority of the Common Stock. Upon the
election of directors by the holders of Common Stock at a special
meeting after the exclusive right to elect directors shall have reverted
to the Common Stock, the terms of all persons who were directors
immediately prior thereto shall terminate and the directors elected by
the Common Stock at the special meeting shall constitute the
directors of the Corporation until the next annual meeting.
(vi) The holders of the Senior Preferred Stock, voting as a
class, shall have the sole right to remove, with or without cause, at
any time and from time to time and to replace any director such
holders have elected pursuant to this Section 8 by electing a new
director pursuant to this Section 8.
(vii) Directors elected by the holders of the Senior Preferred
Stock shall be entitled to receive the same compensation as other
directors of the Corporation. The Corporation shall pay the
reasonable expenses of all directors elected by holders of the Senior
Preferred Stock incurred in connection with attending meetings or
performing other duties as directors of the Corporation.
(c) Class Voting Rights. So long as any of the Senior
Preferred Stock is outstanding, the Corporation (and, where
applicable, the Board of Directors) shall not, without the affirmative
vote or consent of the holders of at least 51% of all then outstanding
Senior Preferred Stock voting separately as a class, (i) amen, alter or
repeal any provision of the Articles of Incorporation, Certificated of
Determination or Bylaws of the Corporation (A) increasing or
decreasing the authorized number of shares of the Senior Preferred
Stock, (B) granting voting rights to holders of any bonds, debentures
or other debt obligations of the Corporation or (C) otherwise
adversely affecting the relative rights, preferences, qualifications,
limitations, restrictions, powers or rights of the Senior Preferred
Stock; (ii) effect any reclassification of the Senior Preferred Stock;
(iii) effect a voluntary liquidation, dissolution or winding up of the
Corporation; or (iv) merge or consolidate into any corporation where
the Corporation is not the survivor of such merger or consolidation.
9. Outstanding Shares. For purposes of the Certificate of
Determination, shares of Senior Preferred Stock shall be deemed
outstanding upon issuance except (i) from the date fixed for redemp
tion pursuant to Section 6 or Section 7 hereof, all shares of Senior
Preferred Stock that have been so called for redemption under any of
such provisions; and (ii) from the date of registration of transfer, all
shares of Senior Preferred Stock held of record by the Corporation
or any subsidiary of the Corporation.
10. Status of Acquired Shares. Shares of Senior Preferred
Stock redeemed by the Corporation or otherwise acquired by the
Corporation shall be retired and canceled and shall not be restored to
the status of authorized but unissued shares of Senior Preferred
Stock or reissued thereafter.
11. Severability of Provisions. Whenever possible, each
provision hereof shall be interpreted in a manner as to be effective
and valid under applicable law, but if any provision of this Certificate
of Determination is held to be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent
of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of
competent jurisdiction should determine that a provision hereof
would be valid or enforceable if a period of time were extended or
shortened or a particular percentage were increased or decreased,
then such court may make such change as shall be necessary to
render the provision in question effective and valid under applicable
law.
We further declare under penalty of perjury under the laws of
the State of California that the matters set forth in this certificate are
true and correct of our own knowledge.
Date: 5/18/96
//s//John E. Giguiere
Name: John E. Giguiere
Title: President
//s//Robert T. Moore
Name: Robert T. Moore
Title: Secretary
CERTIFICATE OF DETERMINATION
OF
12% SERIES A SENIOR REDEEMABLE EXCHANGEABLE PREFERRED STOCK
OF
R.H. PHILLIPS, INC.
(Pursuant to Section 401 of the
Corporations Code of the State of California)
John E. Giguiere and Lane C. Giguiere hereby certify
that:
I. They are the President and the Secretary,
respectively, of R.H. PHILLIPS, INC., a corporation organized and
existing under the laws of the State of California (the "Corporation").
II. The Articles of Incorporation of the Corpora
tion authorize the Corporation to issue up to 5,000,000 shares of
Preferred Stock, of which 500,000 shares of a single series of 12%
Senior Redeemable Preferred Stock (the "12% Senior Stock") are
presently outstanding.
III. The Articles of Incorporation of the Corpora
tion allow the Board of Directors to create and determine the rights,
preferences, privileges and restrictions granted to or imposed upon
any wholly unissued series of Preferred Stock and to fix the autho
rized number of shares of such series of stock.
IV. The Board of Directors of the Corporation has
authorized the issuance of up to 250,000 shares of a series of
Preferred Stock designated the 12% Series A Senior Redeemable
Exchangeable Preferred Stock of the Corporation (the "Series A
Preferred Stock").
V. The holders of all of the outstanding shares of
12% Senior Stock have approved the issuance of the Series A
Preferred Stock upon the terms specified herein.
VI. No shares of Series A Preferred Stock have
been issued prior to the date hereof.
VII. The following resolution was duly adopted on
March 2, 1999 by the Board of Directors of the Corporation
pursuant to the authority conferred upon the Board of Directors of
the Corporation by the Articles of Incorporation of the Corporation
and by the Corporations Code of the State of California, which
resolution remains in full force and effect as of the date hereof:
RESOLVED, that the Board of Directors of
the Corporation (the "Board of Directors"), pursuant to
authority conferred upon the Board of Directors by the
provisions of the Articles of Incorporation of the Corpora
tion, which authorize the issuance of up to 5,000,000 shares
of Preferred Stock, does hereby create and provide for the
issuance of up to 250,000 shares of a series of Preferred
Stock designated the 12% Series A Senior Redeemable
Exchangeable Preferred Stock, no par value (the "Series A
Preferred Stock"), and does hereby fix and determine the
voting powers, designations, preferences and relative,
participating, optional and other special rights, and the
qualifications, limitations and restrictions of such series of
Series A Preferred Stock as follows:
1. Rank. All shares of Series A Preferred Stock
shall, with respect to payments of dividends and distributions of
assets upon liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, rank prior to all of the Corpora
tion's other series of Preferred Stock and Common Stock and any
other class or series of stock authorized and issued by the Corpora
tion (collectively, "Junior Stock"). The foregoing notwithstanding,
the Series A Preferred Stock will rank subordinate to the 12% Senior
Stock with respect to payments of dividends and distributions.
2. Cumulative Annual Dividends.
(a) The holders of Series A Preferred Stock shall
be entitled to receive, when, as and if declared by the Board of
Directors out of funds at the time legally available therefor, annual
dividends at the rate (the "Dividend Rate") of $1.20 per annum per
share, which shall be fully cumulative, shall accrue on a daily basis
without interest with respect to each share of Series A Preferred
Stock from the date of first issuance of such share and shall be
payable semi-annually in arrears on March 15 and September 15 of
each year (except that if any such date is a Saturday, Sunday or legal
holiday, then such dividend shall be payable on the next day that is
not a Saturday, Sunday or legal holiday) (a "Dividend Payment
Date") to holders of record as they appear on the stock transfer
books of the Corporation on such record date, not more than 60 days
nor less than 10 days preceding the relevant Dividend Payment Date,
as is fixed by the Board of Directors (or, to the extent permitted by
applicable law, a duly authorized committee thereof) at the time such
dividend is declared. For purposes hereof, the term "legal holiday"
shall mean any day on which banking institutions are authorized to
close in San Francisco, California, or Boston, Massachusetts.
(b) Unpaid dividends in arrears for any past
dividend period may be declared and paid at any time, without
reference to any regular Dividend Payment Date.
(c) The semi-annual dividend amount shall be
computed by dividing the annual dividend amount by two. The
amount of dividends payable for the initial dividend period and any
period shorter than a full semi-annual dividend period shall be
computed on the basis of a 360-day year of twelve 30-day months.
The first Dividend Payment Date shall be March 15, 1999.
(d) On each of the Dividend Payment Dates
specified below, the semi-annual dividend shall be payable in shares
of Common Stock of the Corporation valued at the lesser of $4.00
per share or the Fair Market Value thereof; provided, however, that
the Corporation shall not be required to issue any fractional shares
but shall pay to holders of the Series A Preferred Stock in lieu
thereof cash based on the Fair Market Value of any resulting
fractional shares:
March 15, 1999
September 15, 1999
March 15, 2000
(e) As used herein, the "Fair Market Value" of a
share of Common Stock on any Dividend Payment Date shall mean
the following:
(i) If the Common Stock is regularly
traded in the organized securities markets, the price per share of
Common Stock equal to the average of the daily market prices over
a period of twenty (20) consecutive business days before such date.
The market price for each such business day shall be the last sale
price on such day on the principal securities exchange on which the
Common Stock is then listed or admitted to trading, or, if no sale
takes place on such day on any such exchange, the average of the
closing bid and asked prices on such day as officially quoted on any
such exchange, or if the Common Stock is not then listed or admitted
on any stock exchange, the market price for each such business day
shall be the last sale price on such day, or, if no sale takes place on
such day, the average of the closing bid and asked prices on such day
in the over-the-counter market, in either case as reported through
NASDAQ, or, if such prices are not at the time so reported, as
furnished by any member of the National Association of Securities
Dealers, Inc. selected by the Corporation.
(ii) If the Common Stock is not regularly
traded in the organized securities markets, the fair market value of
the equity of the Corporation taken as a whole after deducting the
value of all preferred stock outstanding, as determined in good faith
by the Board of Directors of the Corporation at the time it authorizes
each semi-annual dividend, divided by the aggregate number of
shares of Common Stock (A) outstanding on such date, assuming the
conversion on the last day of the quarter next preceding the date of
determination of all securities convertible into shares of Common
Stock or (B) issuable upon exercise of any warrants, options and
other rights then outstanding, assuming the exercise on such date of
all then outstanding warrants, options and similar rights to acquire
shares of Common Stock exercisable on such date, and assuming the
receipt by the Corporation of any consideration required in connec
tion with any such conversion or exercise without premium for
control or discount for minority interests or restrictions on transfer;
provided, however, that, at the election of holders of a majority of
the outstanding Series A Preferred Stock, the Fair Market Value of
a share of Common Stock shall be determined as follows:
For a period of thirty (30) days after each Dividend Payment
Date (the "Negotiation Period"), the Corporation and the
holders of the Series A Preferred Stock agree to negotiate in
good faith to reach agreement upon the Fair Market Value of
a share of the Common Stock as of the Dividend Payment
Date. If the parties are unable to agree upon the Fair Market
Value of a share of the Common Stock by the end of the
Negotiation Period, then the Corporation, on the one hand,
and such holders of Series A Preferred Stock, on the other,
shall each designate an independent investment bank or
accounting firm of recognized national standing (any such
Person, an "Appraiser"), which shall attempt in good faith to
agree on the Fair Market Value of the Common Stock within
forty-five (45) days after the end of the Negotiation Period.
The Corporation and the holders of Series A Preferred Stock
agree to disclose to each other all material business or
personal relationships with such investment banks or ac
counting firms. If the two Appraisers fail to agree on the Fair
Market Value of such securities or other property before the
end of such 45-day period, they shall expeditiously agree
upon a third Appraiser which shall determine the Fair Market
Value of such securities within thirty (30) days of the end of
such 45-day period, taking into account the work and
opinions of the two original Appraisers. The agreement of
the investment banks and accounting firms or, failing such
agreement, the determination of the third investment bank or
accounting firm, shall be conclusive and binding on the
Corporation and the holders of Series A Preferred Stock.
The fees and expenses of the Appraisers shall be borne by the
Corporation.
In no event shall the Fair Market Value of the Common Stock be less
than the per share consideration received or receivable with respect
to the Common Stock in connection with a pending transaction
involving a sale, merger, or liquidation of the Corporation, a sale of
all or substantially all of its assets, or similar transaction.
(f) On the Dividend Payment Date occurring on
September 15, 2000 and on each Dividend Payment Date thereafter,
all dividends on the Series A Preferred Stock shall be payable entirely
in cash.
(g) After payment of each dividend set forth in
this Section 2 (and, to the extent applicable, any increased amount
due to a Missed Payment as described in Section 4) is made in full on
or prior to the applicable Dividend Payment Date, the Series A
Preferred Stock shall not participate with the Junior Stock in any
additional dividends which the Board of Directors may from time to
time declare and pay.
3. Effect of Payment Default. If (a) any
dividends accumulated on the Series A Preferred Stock are in arrears
(any semi-annual dividend or unpaid portion thereof, a "Missed
Dividend"), or (b) the Corporation is in default with respect to any
of the redemption provisions of Section 6 of this Certificate of
Determination, then:
(i) The Corporation may not, and may not
permit any corporation or entity directly or indirectly controlled by
the Corporation to, declare or pay any cash dividend or make any
distributions in cash on, or directly or indirectly redeem or satisfy any
sinking obligation in respect of, any Junior Stock or any warrants,
rights or options exercisable for or convertible into any of the Junior
Stock.
(ii) The Corporation may not, and may not
permit any corporation or other entity directly or indirectly controlled
by the Corporation to, acquire, redeem (pursuant to a sinking fund
or otherwise), purchase or otherwise acquire any Junior Stock.
(iii) The provisions of Section 4 and
Section 8 hereof shall apply.
4. Increase in Dividend Rate Upon Default.
(a) If one Missed Dividend or any redemption
price payable under Section 6(a) hereof (either of such amounts, a
"Missed Payment") is outstanding, the Dividend Rate payable on the
Series A Preferred Stock shall be increased to $1.25, effective on the
date when such Missed Payment was due, until the earlier of such
time as all Missed Payments, along with the additional amount
payable as a result of the increased Dividend Rate, are paid in full or
the time when Section 4(b) applies. Unless Section 4(b) applies,
when all Missed Payments, along with the additional amount payable
as a result of the increased Dividend Rate, have been paid in full, the
Dividend Rate shall be decreased to $1.20.
(b) If two or more consecutive Missed Payments
are outstanding, then the Dividend Rate payable on the Series A
Preferred Stock shall be increased to $1.30, effective on the date
when the second Missed Payment was due, until such time as (i) all
Missed Payments, along with the additional amount payable as a
result of the increased Dividend Rate, are paid in full or (ii) only one
Missed Payment is outstanding, in which case the Dividend Rate shall
be decreased to $1.25.
5. Liquidation Preference. In the event of a
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the holders of Series A Preferred Stock
shall be entitled to receive out of the assets of the Corporation
available for distribution to stockholders, whether such assets are
stated capital or surplus of any nature, an amount in cash equal to the
sum of (a) the amount of dividends accrued and unpaid thereon to
the date of final distribution to such holders, whether or not declared
to the date of such final distribution, (b) Ten Dollars ($10) per share
and (c) the Optional Redemption Premium (as defined in Section
7(b)), before any payment shall be made or any assets distributed to
the holders of Junior Stock. After payment in full of the foregoing
amounts is made, the Series A Preferred Stock shall not participate
in any additional payments or distributions of assets made to the
Junior Stock upon liquidation, dissolution or winding up of the
Corporation.
6. Mandatory Redemption.
(a) To the extent that funds are legally available,
the Corporation shall redeem on each date set forth below (a
"Mandatory Redemption Date"), the applicable specified number of
shares of Series A Preferred Stock set forth opposite the respective
Mandatory Redemption Dates at the redemption price of Ten Dollars
($10) per share, payable in cash, plus all dividends accrued and
unpaid on such Series A Preferred Stock up to the Mandatory
Redemption Date:
Mandatory Redemption Date Number of Shares
to be Redeemed
- ------------------------- -----------------
March 15, 2004 83,333
March 15, 2005 83,333
March 15, 2006 83,334
(b) In determining the ability of the Corporation
to redeem the Series A Preferred Stock under Section 500 of the
General Corporation Law of the State of California, the Corporation
shall value its assets at the highest amount permissible under
applicable law. If the Corporation has insufficient funds to discharge
its mandatory redemption obligation pursuant to Section 6(a) above,
the shares to be redeemed shall be selected pro rata based on the
holdings as of such record date for the redemption, not more than 60
days nor less than 10 days preceding the Mandatory Redemption
Date, as the Board of Directors shall determine. The Corporation
shall give at least 30 days' but not more than 60 days' prior written
notice to each holder whose shares are to be redeemed pursuant to
this Section 6 of the record date of redemption and the shares to be
redeemed.
(c) If, for any reason, the Corporation fails to
discharge its mandatory redemption obligation pursuant to Section
6(a) above, such mandatory redemption obligation shall be dis
charged as soon as the Corporation is able to discharge such
obligation.
(d) On each Mandatory Redemption Date, the
shares to be redeemed shall be selected pro rata based on the
holdings as of the record date for the redemption, which shall be not
more than 60 days nor less than 10 days preceding the Mandatory
Redemption Date, as the Board of Directors shall determine.
7. Optional Redemption.
(a) Upon the terms and subject to the conditions
hereinafter set forth, the Corporation, at its option, upon notice as
provided in Section 7(c) hereof, may redeem the Series A Preferred
Stock, at any time after March 15, 2001, either in whole or from time
to time in any part (but, if in part, then with respect to at least 10,000
shares at any one time) at a redemption price equal to the sum of Ten
Dollars ($10) per share (the "Liquidation Value") and the Optional
Redemption Premium (as defined below) for such Liquidation Value,
together with accrued and unpaid dividends with respect to the
shares of Series A Preferred Stock so to be redeemed to the date
fixed for redemption (collectively, the "Optional Redemption Price").
(b) The "Optional Redemption Premium" for any
Liquidation Value shall equal the net present value (if positive) of the
payment stream equal to the difference between (i) each payment of
dividends and mandatory redemption price the holders of Series A
Preferred Stock would have received through the date of mandatory
redemption on account of such Liquidation Value at an annual 12%
per annum dividend rate and (ii) each corresponding payment of
dividends and mandatory redemption price the holders of Series A
Preferred Stock would have received through the date of mandatory
redemption on account of such Liquidation Value at an annual
dividend rate equal to the rate, on the date of the redemption, being
paid on United States Treasury Notes with maturities equal to the
Weighted Average Life to Maturity (as defined below) of the
remaining aggregate Liquidation Value of Series A Preferred Stock
at the time of prepayment (the "Treasury Rate"), discounted at the
Treasury Rate.
For purposes hereof, the term "Weighted Average
Life to Maturity" means, with respect to the remaining aggregate
Liquidation Value of Series A Preferred Stock, as of the date of the
determination thereof, the number of years obtained by dividing the
then Remaining Dollar-years of such amount by the then outstanding
principal amount thereof. The term "Remaining Dollar-years" of
such amount means the amount obtained by (i) multiplying the
amount of each then remaining mandatory redemption price by the
number of years (calculated to the nearest one-twelfth) which will
elapse between the time in question and the date of the redemption
and (ii) totaling all of the products obtained in clause (i).
(c) Written notice of any redemption of Series A
Preferred Stock pursuant to this Section 7 shall be given to each
holder of the Series A Preferred Stock by overnight delivery service
not less than 30 nor more than 60 days before the date fixed for
redemption (the "Optional Redemption Date") and shall be accompa
nied by an officer's certificate of the Corporation certifying as to: (i)
the Optional Redemption Date; (ii) the aggregate Liquidation Value
of all of the shares of Series A Preferred Stock to be so redeemed on
such Optional Redemption Date; (iii) the number of shares of
Series A Preferred Stock held by such holder to be redeemed on such
Optional Redemption Date; (iv) the Optional Redemption Price to be
paid in respect of each share of Series A Preferred Stock held by such
holder on such Optional Redemption Date and an estimate of such
Optional Redemption Premium; and (v) the amount of accrued and
unpaid dividends to be paid to such holder on such Optional
Redemption Date. Any notice of redemption pursuant to this Section
7 having been so given, the aggregate Optional Redemption Price
payable in respect of the shares of Series A Preferred Stock specified
in such notice shall become due and redeemable on such Optional
Redemption Date.
(d) If less than all of the outstanding shares of
Series A Preferred Stock are to be redeemed pursuant to this Section
7, the shares to be redeemed shall be selected pro rata based on the
holdings as of the record date for the redemption, which shall be not
more than 60 days nor less than 30 days preceding the Optional
Redemption Date, as the Board of Directors shall determine.
(e) Notwithstanding the foregoing provisions of
this Section 7 an optional redemption of Series A Preferred Stock
pursuant to this Section 7 may only be made if, on the Optional
Redemption Date, such optional redemption is permitted by applica
ble law.
(f) If any shares of Series A Preferred Stock are
redeemed other than on a Mandatory Redemption Date (other than
as a result of a failure to redeem on a Mandatory Redemption Date),
the number of such shares so redeemed shall be applied first to
reduce the number of shares redeemable on March 15, 2006 until
such number equals zero, then to the number of shares redeemable
on March 15, 2005 until such number equals zero, and then to the
number of shares redeemable on March 15, 2004.
8. Voting Rights.
(a) General. The holders of Series A Preferred
Stock shall not have any voting rights except as set forth below or as
otherwise from time to time required by law. In connection with any
right to vote, each holder of Series A Preferred Stock shall have one
vote for each share of Series A Preferred Stock held. Shares of
Series A Preferred Stock held by the Corporation or any entity
controlled by the Corporation shall not have voting rights hereunder
and shall not be counted in determining the presence of a quorum.
(b) Default Voting Rights.
(i) If at any time two consecutive Missed
Payments are outstanding, then the holders of the Series A Preferred
Stock, voting as a class, shall immediately thereafter have the
exclusive right to elect one member of the Board of Directors of the
Corporation. Such director or any successor elected by holders of
the Series A Preferred Stock shall have the right to serve on the
Board of Directors of the Corporation until the latest of (A) one year
from the date of election of such director, (B) the date when no
Missed Payments are outstanding and (C) the date when a successor
director is elected pursuant to Section 8(b)(v). The right of the
holders of the Series A Preferred Stock to elect such additional
director shall continue until the later of (x) one year from the date of
election of such director and (y) the date when no Missed Payments
are outstanding.
(ii) If at any time three consecutive Missed
Payments are outstanding, then the holders of the Series A Preferred
Stock, voting as a class, shall immediately thereafter have the
exclusive right to elect an additional member of the Board of
Directors of the Corporation, in addition to the member elected
pursuant to Section 8(b)(i). Such director or any successor elected
by holders of the Series A Preferred Stock shall have the right to
serve on the Board of Directors of the Corporation until the latest of
(A) one year from the date of election of such director, (B) the date
when no Missed Payments are outstanding and (C) the date when a
successor director is elected pursuant to Section 8(b)(v). The right
of the holders of the Series A Preferred Stock to elect such additional
director shall continue until the later of (x) one year from the date of
election of such director and (y) the date when no Missed Payments
are outstanding.
(iii) If at any time four consecutive Missed
Payments are outstanding, then the holders of the Series A Preferred
Stock, voting as a class, to have the exclusive right to elect a majority
of the members of the Board of Directors of the Corporation. Such
directors or any successors elected by holders of the Series A
Preferred Stock shall have the right to serve on the Board of
Directors of the Corporation until the latest of (A) one year from the
date of election of such director, (B) the date when no Missed
Payments are outstanding and (C) the date when successor directors
are elected pursuant to Section 8(b)(v). The right of the holders of
the Series A Preferred Stock to elect a majority of the directors shall
continue until the later of (x) one year from the date of election of
such directors and (y) the date when no Missed Payments are
outstanding.
(iv) At any time after (A) the exclusive
right to elect a director or directors is vested in the holders of the
Series A Preferred Stock or (B) the term of all directors elected by
the Series A Preferred Stock shall end and the exclusive right to elect
directors reverts to the holders of the Common Stock, then the
holders of 10% or more of the Series A Preferred Stock or Common
Stock, as the case may be, shall have the right to call a special
meeting of shareholders for the purpose of electing members of the
Board of Directors by delivering a request in writing for the calling
of the special meeting to the Secretary of the Corporation. The
Secretary shall forthwith cause a notice to be given to the sharehold
ers entitled to vote at that meeting, which shall be held at a time
requested by those shareholders calling the meeting not less than 35
nor more than 60 days after the receipt of the request. Notwithstand
ing the foregoing, any action to be taken by holders of Series A
Preferred Stock with respect to the election of such directors may be
taken without a meeting, without prior notice and without a vote, if
taken by the written consent of the holders of a majority of the
Series A Preferred Stock pursuant to Section 603 of the General
Corporation Law of the State of California or any successor statute.
(v) Upon the election of the directors by
the holders of the Series A Preferred Stock as provided in Section
8(b)(iv), the terms of all persons who were directors immediately
prior thereto shall terminate. If directors are elected by means of the
written consent of the Series A Preferred Stock without a meeting,
the remaining directors shall be elected by the Common Stock at a
special or annual meeting of the holders of Common Stock or by the
written consent of the holders of a majority of the Common Stock.
Upon the election of directors by the holders of Common Stock at a
special meeting after the exclusive right to elect directors shall have
reverted to the Common Stock, the terms of all persons who were
directors immediately prior thereto shall terminate and the directors
elected by the Common Stock at the special meeting shall constitute
the directors of the Corporation until the next annual meeting.
(vi) The holders of the Series A Preferred
Stock, voting as a class, shall have the sole right to remove, with or
without cause, at any time and from time to time and to replace any
director such holders have elected pursuant to this Section 8 by
electing a new director pursuant to this Section 8.
(vii) Directors elected by the holders of the
Series A Preferred Stock shall be entitled to receive the same
compensation as other directors of the Corporation. The Corpora
tion shall pay the reasonable expenses of all directors elected by
holders of the Series A Preferred Stock incurred in connection with
attending meetings or performing other duties as directors of the
Corporation.
(c) Class Voting Rights. So long as any of the
Series A Preferred Stock is outstanding, the Corporation (and, where
applicable, the Board of Directors) shall not, without the affirmative
vote or consent of the holders of at least 51% of all then outstanding
Series A Preferred Stock voting separately as a class, (i) amend, alter
or repeal any provision of the Articles of Incorporation, Certificate
of Determination or Bylaws of the Corporation (A) increasing or
decreasing the authorized number of shares of the Series A Preferred
Stock, (B) granting voting rights to holders of any bonds, debentures
or other debt obligations of the Corporation or (C) otherwise
adversely affecting the relative rights, preferences, qualifications,
limitations, restrictions, powers or rights of the Series A Preferred
Stock; (ii) effect any reclassification of the Series A Preferred Stock;
(iii) effect a voluntary liquidation, dissolution or winding up of the
Corporation; or (iv) merge or consolidate into any corporation where
the Corporation is not the survivor of such merger or consolidation.
9. Outstanding Shares. For purposes of the
Certificate of Determination, shares of Series A Preferred Stock shall
be deemed outstanding upon issuance except (a) from the date fixed
for redemption pursuant to Section 6 or Section 7 hereof, all shares
of Series A Preferred Stock that have been so called for redemption
under any of such provisions; (b) from the date of registration of
transfer, all shares of Series A Preferred Stock held of record by the
Corporation or any subsidiary of the Corporation; and (c) from the
effective date of an exchange of Series A Preferred Stock for
subordinated notes of the Corporation, all shares of Series A
Preferred Stock.
10. Status of Acquired Shares. Shares of
Series A Preferred Stock redeemed by the Corporation or otherwise
acquired by the Corporation shall be retired and cancelled and shall
not be restored to the status of authorized but unissued shares of
Series A Preferred Stock or reissued thereafter.
11. Severability of Provisions. Whenever
possible, each provision hereof shall be interpreted in a manner as to
be effective and valid under applicable law, but if any provision of
this Certificate of Determination is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or
otherwise adversely affecting the remaining provisions hereof. If a
court of competent jurisdiction should determine that a provision
hereof would be valid or enforceable if a period of time were
extended or shortened or a particular percentage were increased or
decreased, then such court may make such change as shall be
necessary to render the provision in question effective and valid
under applicable law.
<PAGE>
We further declare under penalty of perjury under the laws of the
State of California that the matters set forth in this certificate are true and
correct of our own knowledge.
Date: March 3, 1999 //s//John E. Giguiere
---------------------
Name: John E. Giguiere
Title: President
//s//Lane C. Giguiere
---------------------
Name: Lane C. Giguiere
Title: Secretary
CERTIFICATE OF AMENDMENT
THE CERTIFICATE OF DETERMINATION OF PREFER
ENCES OF
THE 12% SENIOR REDEEMABLE PREFERRED STOCK OF
R.H. PHILLIPS, INC.
John E. Giguiere and Lane C. Giguiere certify that:
1. They are the President and Secretary, respectively, of R.H.
Phillips, Inc. a California corporation (the "Corporation").
2. Pursuant to the authority given under the Corporation's
Articles of Incorporation, the Board of Directors adopted a
Certificate of Determination authorizing the creation of the
12% Senior Redeemable Preferred Stock of the Corpora
tion (the "Certificate of Determination").
3. There are no shares of the 12% Senior Redeemable Pre
ferred Stock outstanding.
4. The Articles of Incorporation and Section 401(c) of the
California Corporations Code allow the Board of Directors
to decrease the number of shares of any series of Preferred
Stock to a number not less than the number of shares of
the series then outstanding.
5. Pursuant to this authority, the Board of Directors duly
approved the following resolution:
"RESOLVED, that the second paragraph of Section VI
of the Certificate of Determination is hereby amended in its
entirety as follows:
"'The authorized number of shares constituting the 12%
Senior Redeemable Preferred Stock shall be decreased to
0. All of such shares are returned to the status of autho
rized but undesignated shares of Preferred Stock of the
Corporation.'"
6. The authorized number of shares constituting the 12%
Senior Redeemable Preferred Stock is decreased from
500,000 to 0.
7. Pursuant to Section 401(f) of the California Corporations
Code, the 12% Senior Redeemable Preferred Stock is no
longer an authorized series of the Preferred Stock of the
Corporation. All of such shares are returned to the status
of authorized but undesignated shares of Preferred Stock
of the Corporation.
8. The foregoing amendment to the Certificate of Determina
tion has been duly approved by the Board of Directors
alone in accordance with the California Corporations Code.
We further declare under penalty of perjury under the laws
of the State of California that the matters set forth in this
certificate are true and correct of our own knowledge.
Date: 3/18/99 //s//John E. Giguiere
---------------------
John E. Giguiere, President
//s//Lane C. Giguiere
---------------------
Lane C. Giguiere, Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE MARCH 31, 1999 BALANCE SHEET, STATEMENTS OF
INCOME AND STATEMENTS OF CASH FLOWS, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<S> <C>
<CASH> 226
<SECURITIES> 0
<RECEIVABLES> 2,846
<ALLOWANCES> 38
<INVENTORY> 13,329
<CURRENT-ASSETS> 17,667
<PP&E> 42,313
<DEPRECIATION> 8,492
<TOTAL-ASSETS> 52,191
<CURRENT-LIABILITIES> 4,416
<BONDS> 24,795
<COMMON> 14,491
2,282
0
<OTHER-SE> 4,022
<TOTAL-LIABILITY-AND-EQUITY> 52,191
<SALES> 5,001
<TOTAL-REVENUES> 5,001
<CGS> 2,338
<TOTAL-COSTS> 2,338
<OTHER-EXPENSES> 1,571
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 378
<INCOME-PRETAX> 777
<INCOME-TAX> 313
<INCOME-CONTINUING> 464
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 464
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
